UPDATE 2-Biogen reaches deal with Icahn; avoids proxy fight

* Biogen agrees to appoint Icahn nominee to its board

* Icahn to withdraw its slate of nominees for the board

* Biogen temporarily increases size of board to 13 from 12

* Biogen’s shares up 0.5 pct in early trading (Adds details, background, stock movement)

By Toni Clarke

BOSTON, March 22 (Reuters) - Biogen Idec Inc BIIB.O said on Monday it has come to an agreement with activist investor Carl Icahn under which Icahn will abandon his threatened proxy fight in return for Biogen's acceptance of one of his nominees to its board.

The agreement brings the number of Icahn representatives on Biogen’s board to three and heads off what would have been the third proxy contest waged by Icahn at Biogen in three years.

Cambridge, Massachusetts-based Biogen, which makes the multiple sclerosis drugs Tysabri and Avonex, is one of the world’s biggest biotech companies, with 2009 revenue of $4.4 billion.

The company makes Tysabri, its most important product, in a 50-50 partnership with Irish drugmaker Elan Corp Plc ELN.I

In 2007, under pressure from Icahn, Biogen put itself up for sale but failed to find a buyer. The following year, Icahn launched an unsuccessful attempt to place three directors on the company’s board.

Undeterred, Icahn circled back last year and investors voted in two of his representatives: Dr. Alexander Denner, managing director of Icahn Partners, and Dr. Richard Mulligan, a professor of genetics at Harvard Medical School.

Biogen has now agreed to accept Icahn nominee Dr. Eric Rowinsky, a cancer specialist, who was part of the Icahn team -- along with Denner and Mulligan -- who took control of biotechnology company ImClone Systems in 2006. Icahn sold ImClone to Eli Lilly & Co LLY.N in 2008 for $6.5 billion.

Icahn had previously said he would nominate three people to Biogen’s board this year.

The deal echoes a recent agreement between biotechnology company Genzyme Corp GENZ.O and activist investor Ralph Whitworth of Relational Investors. Genzyme agreed to appoint Whitworth to its board, and in return, Whitworth agreed to support Genzyme's slate of nominees at its annual meeting.

Genzyme’s move was designed in part to strengthen its defenses against Icahn, who has announced plans to nominate four representatives to Genzyme’s board.

Biogen also named Dr. Stephen Sherwin to its board. Sherwin is co-founder and chairman of neurology-focused biotechnology company Ceregene Inc. He previously worked at Genentech, now owned by Roche Holding AG ROG.VX, in jobs that included vice president of clinical research. He is currently chairman of the Biotechnology Industry Organization.

Biogen said it has temporarily increased the number of seats on its board to 13 from 12. Icahn had lobbied the company to limit the size of its board to 12.

Of the four Biogen board seats up for election this year, Chief Executive James Mullen is set to retire and will not stand. Neither will Bruce Ross, the company’s former chairman. The other two board seats are occupied by Brian Posner, previously CEO of ClearBridge Advisors LLC, and Nancy Leaming, the retired CEO of Tufts Health Plan.

Icahn Partners agreed to vote its shares for Biogen’s nominees, who will include Leaming and Posner.

Biogen’s shares rose 0.5 percent to $59.92 in early trading on Nasdaq.