January 7, 2010 / 2:37 PM / 10 years ago

UPDATE 2-Genzyme in truce with dissident shareholder

* Relational Investors will support Genzyme board nominees

* Genzyme may later name director to represent Relational

* Genzyme shares rise 0.7 pct (Recasts, adds analyst comments, background, stock price, byline)

By Ransdell Pierson and Debra Sherman

NEW YORK/CHICAGO, Jan 7 (Reuters) - Genzyme Corp GENZ.O has reached a truce with dissident shareholder Relational Investors, at least temporarily relieving pressure on embattled Chief Executive Henri Termeer.

“Mr. Termeer’s job security moved up a couple of notches today because of this agreement with Relational Investors,” said Raghuram Selvaraju, an analyst with Hapoalim Securities in New York.

Relational, a $6 billion private investment fund that holds 4 percent of Genzyme’s shares, has agreed to defer its earlier request for a seat on the biotechnology company’s board of directors, Genzyme said.

Under a “mutual understanding agreement” between the two sides, San Diego-based Relational will support the Genzyme board’s nominees and proposals in 2010. But if Relational requests a board seat in November 2010, Genzyme will appoint Ralph Whitworth, principal and co-founder of Relational.

Whitworth, in an interview last summer, said manufacturing problems that have pounded Genzyme’s earnings and share price were symptomatic of a broader malaise at the company. “They have been overpaying for acquisitions and underinvesting in their manufacturing processes,” he said.

A temporary shutdown in June at the biotech’s Allston Landing plant in Boston, prompted by contamination caused by a virus, has led to shortages of the drug Cerezyme for Gaucher disease and the drug Fabrazyme for Fabry disease, two rare genetic disorders. The drugs generated $1.7 billion of sales in 2008.

Since the shutdown, Genzyme has been working to bring the plant into compliance with U.S. regulatory standards. On the company said Hospira Inc HSP.N will be responsible for filling and packaging vials of Cerezyme and Fabrazyme, as well as for the drug Myozyme, used to treat the muscle disorder Pompe disease, and the thyroid drug Thyrogen.

Selvaraju said the agreement announced on Thursday signals that Relational has been “mollified” — at least temporarily — by Genzyme’s continuing efforts to fix manufacturing problems that have badly crimped supplies of its biggest drugs.

But Selvaraju cautioned that many other investors might not share Relational’s faith in Genzyme and that the company will face a number of major hurdles this year — including potential new competition — that could ultimately decide whether longtime CEO Termeer is kept at the helm.

Genzyme will initially work with Hospira, which provides contract manufacturing services to the pharmaceutical and biotechnology industries, to provide the technical know-how to fill and finish Genzyme’s products.

Hospira’s facility needs to be approved by U.S. regulators, and this will likely take six to eight months. Genzyme is responsible for obtaining the approvals.

Shares of Genzyme rose 32 cents, or 0.7 percent, to $49.29 in midday trading on the Nasdaq. (Reporting by Ransdell Pierson in New York and Debra Sherman in Chicago; editing by John Wallace)

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