CAMBRIDGE, Mass. (
) -- The winner of the 2009 Worst Biotech CEO of the Year Award goes to
( GENZ) Henri Termeer.
The race for the Nance Trophy (more on the award's name below) wasn't even close. I was going to hold off announcing the loser... er, I mean winner... until next month, but there was no need to wait given Termeer's epic mismanagement of Genzyme this year.
Termeer has driven Genzyme so far into the ground that a turnaround at the company will only come if Termeer resigns his CEO post. And with billionaire investor and corporate agitator Carl Icahn disclosing a position in Genzyme Monday night, perhaps Termeer's days at the helm are numbered.
Genzyme was once one of the largest and most successful biotech companies in the sector. The company pioneered the development of drugs to treat rare genetic disease. The pricing of those drugs, measured in the hundreds of thousands of dollars per year, made Genzyme a beloved stock in the eyes of health care investors.
But in the past year (in reality, the past two years) a never-ending series of regulatory and manufacturing snafus has forced the company to delay drug approvals and launches, temporarily shutter a major manufacturing plant due to a viral contamination, write off millions of dollars in product inventory and poison its relationship with the U.S. Food and Drug Administration to the point that regulators have taken an active role in helping Genzyme's competitors.
Genzyme has cut its earnings forecast four times this year. Adjusted earnings are now expected to fall 43%, from $4.01 a share in 2008 to $2.27 a share this year, based on the current analyst consensus.
Back in January, Genzyme forecast 2009 earnings of $4.70 a share.
Genzyme shareholders have suffered, too. Genzyme shares are down 25% this year -- worst amongst the big-cap biotechs. The stock is down 40% from its high during summer 2008 (right before the entire market collapsed) -- again, underperformance that tops any of its large-cap competitors.
Termeer deserves the blame for Genzyme's collapse because he has fostered an arrogant, irresponsible business culture in which employees are rewarded more for being loyal to the CEO than they are for being competent at their jobs. Genzyme doesn't address and solve problems, instead it merely whitewashes over them, hoping they either go away or can be disguised so well that no one notices.
This lazy approach to making drugs might have worked when Genzyme was a smaller company, and Termeer probably figured he could get away with it because his drugs were the only game in town for patients with rare genetic diseases.
But that's no longer the case. Genzyme's growth has now come to a halt due to sloppy manufacturing methods and a dirty, run-down manufacturing plant in Boston that has become an ongoing target for FDA inspectors.
Genzyme's Allston manufacturing facility looks clean and modern from the outside. Inside, however, a virus contaminated biologic drugmaking equipment this summer, forcing the company to shutter and disinfect the entire facility. (Genzyme, to this day, hasn't disclosed the source of the contamination, if it even knows.)
The Allston plant shutdown was bad enough on its own, but Genzyme inexplicably, also never invested the time or money into building a sufficient inventory of its largest and most important drug, Cerezyme, a treatment for Gaucher disease made there.
So, Cerezyme supplies essentially ran dry, placing patients who need the drug at risk and forcing the company to cut revenue and earnings forecasts.
The Cerezyme shortage allowed two competitors --
( SHPGY) and
-- to begin treating patients with their own Gaucher drugs much earlier than expected. And both companies were helped by FDA, which apparently is no longer comfortable with Genzyme being the sole-source supplier for Gaucher patients.
As summer made way for fall, Genzyme assured investors that problems with the Allston plant were solved, but then on Friday, the FDA took the extraordinary step of holding a press conference to warn doctors and patients that old equipment still in use there was depositing visible bits of stainless steel, rubber and fiber into filled drug vials.
At the same time, FDA completed a weeks-long inspection of the Allston plant, finding more problems that need to be fixed before the facility can begin shipping drugs to patients again. The FDA also refused to approve -- yet again -- Genzyme's drug for Pompe Disease.
All of this and more bad stuff that I don't have time to detail here (the Clolar cancer drug rejection, opaque accounting and financial reporting, the blown-up partnership with
, etc. etc.) has taken place under Termeer's watch.
Investors I've spoken with over the past few days are fed up with Termeer's schtick and would like nothing more than to see him resign. Unfortunately, Termeer's grip on Genzyme is strong and his board of directors is as spineless and ineffectual as the cadre of yes-men managers Termeer has working under him.
That leaves Carl Icahn or some other activist investor as Genzyme's best hope for positive change. Icahn owns 1.45 million shares of Genzyme, according to an SEC filing released Monday night.
This is the second time that Icahn has taken an interest in Genzyme. Icahn bought a 1% stake in Genzyme in late 2007, right around the time he was agitating for
to be sold.
Icahn's interest in Genzyme remained passive and he sold the stock for a profit towards the end of 2007, helped in part, of course, by all the speculation that comes with Icahn taking an interest in any biotech stock. That was good for Icahn but less so for Genzyme's remaining shareholders.
For all its current troubles, there is value in Genzyme if the business can be turned around. So, perhaps Icahn's new stake in Genzyme is a signal that he's taking another serious look at the stock, including taking on the task of finding a new CEO.
Termeer won't need a gold watch to wear on his way out the door. He'll be carrying the Nance Trophy as the 2009 Worst Biotech CEO of the Year.
Does Termeer deserve the Nance Trophy this year? Did I miss a CEO who performed even worse in 2009? Perhaps Joe Podolski of
? Bill Carter of
Robert Capetola? I'll discuss these worthy candidates and more in a future column, but in the meantime, share your thoughts on Termeer or any other Worst CEOS the comments section accompanying this column.
A short explanation for the name on the award: The Nance Trophy honors David Nance, the former CEO of now bankrupted
. Few CEOs in biotech have done more to hone the fine craft of investor bamboozlement and outright incompetence as Introgen's Nance.
For forever setting the standard by which other awful biotech CEOs will be judged, the trophy bears Nance's name.
Written by Adam Feuerstein in Boston
Adam Feuerstein writes regularly for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback;
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