Genzyme CEO Defends Tenure as Icahn Lurks

SAN FRANCISCO ( TheStreet) -- Embattled Genzyme ( GENZ) CEO Henri Termeer told a packed room of investors Tuesday that he accepted responsibility for the manufacturing problems that have crippled the biotech firm this year. But he also insisted that he's the best man to lead the company's recovery.

"I accept with great humility that these manufacturing interruptions have happened under my watch," said Termeer, in response to my question about why he should remain the company's chief executive.
Henri Termeer
Genzyme's CEO Henri Termeer
Termeer spent a good bit of his 30-minute breakout session at the J.P. Morgan Healthcare Conference outlining the steps Genzyme is taking to recover from a year's worth of manufacturing problems that caused drug shortages, a drop in earnings and a plunging stock price.

But investors I spoke with remain unconvinced that Termeer can get the job done, which may be why Genzyme's stock price seems to move higher only when the talk turns to speculation about proxy fights and management housecleaning.

Towards that end, one investor in the breakout session asked Termeer if Genzyme has had any contact with billionaire hedge fund manager and activist shareholder Carl Icahn.

"We've had no discussions with Mr. Icahn," replied Termeer. "No contact."

Icahn owns 1.5 million Genzyme shares as of the third quarter and speculation is building that he's buying more stock to prepare for a proxy fight.

Alex Denner, Icahn's biotech lieutenant, was spotted in the room during Termeer's talk but had nothing to say publicly. (More than a few people turned to glance at Denner after Termeer responded to the Icahn question, as if expecting him to stand up and counterpunch.)

That didn't happen, of course. On Wall Street, duels don't happen with pistols at 20 paces. The weapons of choice are proxy fights, slates of dissident board nominees and, if we're lucky, letters of denunciation ensconced in Securities and Exchange Commission filings.

So investors will wait to see what Icahn does next. It will surprise no one -- and please more than a few -- if Icahn does try to seat a slate of hand-picked directors during Genzyme's next shareholder meeting. A proxy filing from Icahn could materialize within the next couple of months.

Icahn's Genzyme playbook likely will be the same as the one he used successfully at crosstown biotech firm Biogen Idec ( BIIB): Get some directors on the board, agitate for change in management, and if successful, force Termeer's "retirement."

Genzyme shares lost 26% of their value in 2009, mostly because of the company's incompetence (dare I say negligence?) that put patients in harm's way, caused earnings to fall and investors to lose almost all confidence in management.

But Wall Street also loves a good comeback story. Last year's loser often turn into this year's winners. So institutional investors are definitely eyeing Genzyme as a potential buy this year.

"Icahn likes to target biotech companies where he can make money by unlocking shareholder value destroyed by bad CEOs. Genzyme seems like a perfect situation for him," said an analyst for a biotech hedge fund. His firm doesn't own Genzyme shares today but he's been considering buying the stock because he thinks an Icahn proxy battle will be good for the stock.

Last week, Genzyme entered into a collaborative agreement with Ralph Whitworth, another activist shareholder. The pact was designed to give Genzyme time to fix the company and allow Termeer to remain as CEO, but few expect this will deter Icahn from launching his own proxy fight.

"If you took a vote of shareholders in this room right now, Termeer would be gone," said one portfolio manager and a smallish Genzyme shareholder, looking across the standing room-only crowd at the Genzyme breakout session. "If Icahn decides to put Genzyme into play, he will get a lot of support."

-- Reported by Adam Feuerstein in San Francisco.

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