May 26, 2010 / 1:05 PM / 10 years ago

UPDATE 2-Icahn to urge removal of Genzyme CEO from board

* Says removal of CEO could improve board’s independence

* Says CEO Termeer too close to company to oversee board

* Genzyme’s shares down 0.6 percent (Adds Genzyme comment, further detail from Icahn filing and byline; updates shares)

By Toni Clarke

BOSTON, May 26 (Reuters) - Activist investor Carl Icahn said he will ask the board of biotechnology company Genzyme Corp GENZ.O to consider removing Chief Executive Henri Termeer from his post as chairman of the board.

In a regulatory filing on Wednesday, Icahn, who is seeking representation for himself and three allies on the company’s board, said it is time to change the “old guard” and bring in new blood.

Icahn’s comments come three weeks before the company’s annual meeting, on June 16, and are contained in a detailed presentation to investors laying out the arguments for removing Termeer and three other board members.

In addition to Termeer, Icahn is targeting Charles Cooney, a professor of chemical engineering who has been on the board for 27 years; former Senator Connie Mack III, who has been on the board for nine years; and Richard Syron, former chairman and chief executive officer of Freddie Mac, who has been an independent director since 2006.

“Richard Syron was repeatedly warned that loan quality at Freddie Mac was weak but failed to reduce risk suggesting failed oversight,” Icahn said in the regulatory filing.

Syron was not immediately available for a comment.

Last year, a viral contamination at the company’s Allston Landing plant in Boston lead to a shortage of two of its life-saving drugs: Cerezyme, a treatment for Gaucher disease, and Fabrazyme, a treatment for Fabry disease. The shortage lead to outrage among patients and investors alike, as the company cut its sales and earnings forecasts.

Since then, Genzyme has brought in new managers to oversee quality control and manufacturing, and appointed Ralph Whitworth, another activist investor, to its board. It has also said it would consider divesting non-core businesses, and announced a $2 billion stock buyback.

“The plan that we have implemented to increase shareholder value is something that has come from constructive and broad shareholder input,” said John Lacey, a spokesman for Genzyme.

Icahn argues that Termeer and Cooney, who are listed by Genzyme as manufacturing experts, allowed manufacturing and supply problems at Allston to spiral out of control. And he said that even though his own nominees are not manufacturing experts, they will hold management “highly accountable” for fixing existing problems and effectively planning for potential future issues.”

In addition, he said a recent decision by the U.S. Food and Drug Administration to put Genzyme’s manufacturing under the oversight of a third party indicates the agency lacks trust in management or believes management lacks competence.

“Thus, removal of Termeer from the board would send a message to FDA that he is no longer in total control,” Icahn said in the filing with the U.S. Securities and Exchange Commission.

“We must immediately change the board to show that Termeer is no longer ‘king of the company’ even if he does remain as CEO.”

However, the FDA’s approval on Tuesday of the company’s Pompe disease drug Lumizyme could undercut that argument.

“It’s not over until the votes are counted but the approval of Lumizyme has reassured investors that our relationship with the FDA is healthy,” said Peter Wirth, Genzyme’s executive vice president in charge of legal and corporate development. “While there is a range of views, our sense is that by and large shareholders will vote in our favor.”

While he conceded that many companies in recent years have moved to separate the role of chairman and chief executive, that typically happens when there is a change of leadership.

“It’s not a bad guess that that could happen with us at some point,” he said.

Genzyme’s shares were down 0.6 percent to $50.88 in early afternoon trading on Nasdaq. (Reporting by Toni Clarke; Editing by John Wallace and Tim Dobbyn)

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