Genzyme makes deal to potentially put Relational Investors principal on board of directors

Genzyme makes representation deal with investor

CAMBRIDGE, Mass. — Genzyme Corp., which has seen its stock decline in the past year due to manufacturing problems, said Thursday it struck a standstill deal with a major shareholder that will potentially give the investor a spot on the biotechnology company’s board.

Relational Investors LLC, a San Diego-based investor which owns a 4 percent stake in the company, had requested representation on Genzyme’s board last month, the company said.

Under the deal, Relational is deferring that request and agrees to support Genzyme’s board and not wage a proxy contest or otherwise work with other shareholders to control Genzyme. Genzyme in turn will name Relational Investors principal and co-founder Ralph Whitworth a board member, if Relational decides to request representation in November.

The agreement comes as the company makes progress in fixing manufacturing issues, Genzyme said.

On Monday, Genzyme said it is contracting manufacturing for its key products to Hospira Inc. for an undisclosed amount. The deal includes services for the genetic disorder drugs Cerezyme, Fabrazyme, Myozyme and Thyrogen, following a series of manufacturing problems at the company’s facility in the Boston neighborhood of Allston.

In June, Genzyme shut down the manufacturing plant to clean up viral contamination that had been slowing down production of Cerezyme and Fabrazyme. The virus was not harmful to people, but the shutdown cost the company millions in revenue. Production restarted in September.

Meanwhile, in November, the Food and Drug Administration said it found tiny particles of trash in drugs made by Genzyme, including steel, rubber and fiber. The agency recommended that doctors closely inspect vials of Cerezyme, Fabrazyme, Myozyme, Aldurazyme and Thyrogen.

Cerezyme treats a rare enzyme disorder called Gaucher disease, and Fabrazyme treats Fabry disease, an inherited disorder caused by the buildup of a particular type of fat in the body’s cells.

Shares of Genzyme lost about 25 percent during 2009, underperforming the broader market as well as most of the company’s biotechnology peers. In afternoon trading the stock rose $1.58, or 3.2 percent, to $50.55.