Genzyme's CEO Henri Termeer is going on a road trip to see his top 30 shareholders over the next 30 days. You might ask why - but if so - have probably been living in a cave for the past 12 months. Just in case you have, let's recount some of the events and circumstances that have inspired this trip.
In June 2009, Genzyme was forced to close its Allston, MA manufacturing plant due to viral contamination in one of its bioreactors. Not just any contamination, a problem with its leading product Cerezyme costing them more than $500 M in sales. Oops!
No sooner were they up again (Nov 09), they were whacked again by what has been delicately termed as "trash" in some of their vials of product produced in the same plant. Double oops!
The FDA, not having nearly the sense of humor I do, instituted an enforcement action on the Allston plant and fined the company $175 M dollars in March 2010. They also brought in a 3rd party group to oversee the production there for "an extended period".
Then the Haverhill facility was hit by a fire in December costing the company another $7.5 M in equipment damages. The manufacturing issues have compromised Genzyme's ability to keep abreast of demand with their drugs for Gaucher's and Fabry's disease. The WSJ health blog has reported on these shortages and even reported case of one Fabry's patient who died of complications waiting on medication - although GZ disputes that the lack of medication was a direct cause. Genzyme is expected to only be able to satisfy 30% of its Fabry needs in Qtr 3 this year. The company may face another $300 M plus fine from FDA as a result next year.
Needless to say, Termeer has fired several senior manufacturing people, brought in new blood, and moved others around to bring manufacturing under better control. It has a new president of global manufacturing and a new senior vice president of global quality (not a moment too soon but maybe a few moments too late). It will also be outsourcing some of its manufacturing operations.
Carl Icahn, one of the largest shareholders, has been involved in an active proxy challenge to seat his own board with the intention of forcing Termeer out. Icahn is not alone in his criticism of Termeer among shareholders. Icahn is not a newby when it comes to forcing out executives in firms where he holds significant sway and he has plenty to work with here.
Think it can't get any worse can it? Think again. Several groups of investors have lodged complaints with the SEC that several unnamed senior executives and board members took advantage of insider information to illegally sell some of their personal shares before bad news was announced to the public. Genzyme's board has appointed three independent directors to investigate the allegations (received in 9 letters since last August). The company has also lined up independent counsel for the investigation.
In an attempt to shore things up a bit, Termeer announced that the company will buy back $2 B in its own stock. They will use debt financing to buy back the 1st billion this year and buy the 2nd billion in the following year. Genzyme will also look to sell off up to 3 of its "non-core" business units in its genetics testing business, diagnostics products business, and its pharmaceutical intermediates business.
Several analysts have been less than "whelmed" and Genzyme stock has been downgraded to "underperform" by observers like Zacks.
This all brings us back to Henri's road trip. Termeer will be out to convince these top 30 shareholders to let him keep his job. No doubt, Icahn will be making a similar trip with the aim of seeing that he loses that job. The annual meeting is on June 16th. I'm sure Termeer is hoping to fare better with Icahn, than Paul Newman did with Tom Hanks.
Posted by Bruce Lehr March 14th 2010.