The activist investor Carl C. Icahn continues to challenge the biotechnology industry. His latest target is Genzyme, one of the most successful companies in this innovative field, where he is seeking four seats on its board.
This is Mr. Icahn’s sixth biotechnology target, and these moves epitomize the struggle between investors like Mr. Icahn, who advocate maximizing short-term shareholder value, and an industry in which enormous investments and extended time frames are required to create long-term shareholder value.
Genzyme is the biotech industry’s second-largest company, with revenues of $4.5 billion and a market capitalization of about $13 billion. Previously, Mr. Icahn has taken on smaller companies: Biogen-Idec, MedImmune, ImClone Systems, Amylin Pharmaceuticals and Enzon Pharmaceuticals.
The biotechnology industry is one of America’s most promising and innovative, and one in which this country has a clear competitive advantage. It has benefited from billions of dollars in government-sponsored research at the National Institutes of Health and leading research universities. Even so, new biotechnology drugs take 12 to 15 years to bring to market, with the attendant risks of high failure rates in research trials.
Early pioneers like Genentech and Amgen created breakthrough drugs that saved millions of lives while amassing shareholder value of $98 billion for Genentech, after its sale to Roche, and $50 billion for Amgen. Both companies spent more than a decade investing billions of dollars in research before marketing their pioneering products.
In contrast, investors like Mr. Icahn believe shareholders should maximize their short-term value by selling biotech companies to pharmaceutical companies hungry for new drugs. In recent years, the large pharmaceutical companies have struggled to create life-saving drugs in their own laboratories and are often reluctant to tackle the complex diseases that the biotechnology industry has pursued.
What are the implications of these shareholder challenges? No doubt, investors like Mr. Icahn can yield quick profits for investors, but they come with a potentially high cost. In the end, will there be a biotechnology industry capable of the long-term investments required to thrive?
Mr. Icahn made his first move in biotechnology in 2002 with an attempted takeover of ImClone Systems. Following an insider trading scandal that sent the company’s chief executive, Sam Waksal, to prison along with his close friend, Martha Stewart, Mr. Icahn won a 2006 proxy contest to elect four members of ImClone’s board. The interim chief executive, Joseph Fischer, was replaced by Dr. Alex Denner, a genetics professor at Harvard Medical School. In 2008, the company was sold to the pharmaceutical giant Eli Lilly for $6.5 billion.
MedImmune was next in line in 2007. After a short battle, the company was purchased by AstraZeneca for $15.6 billion. ...
Now Mr. Icahn has shifted his focus to Genzyme and its longtime chief executive, Henri A. Termeer. ...
Last fall, Mr. Icahn purchased 4.9 percent stake in Genzyme. In May, he began a proxy contest to replace four Genzyme board members, including Mr. Termeer, with candidates including himself, Dr. Denner and Richard Mulligan, a Biogen board member, along with one other nominee. ...
These differences will come to a head at Genzyme’s shareholders meeting on June 16, but the longer-term issues will remain. The industry’s scientific approach to drug development has saved many thousands of lives and created enormous long-term shareholder value. The real question is whether the biotechnology industry with its extended time horizons will continue to make the long-term investments required to pursue these life-saving drugs.
The issue will also come to a head as the House and Senate head to conference on financial reform legislation. As documented repeatedly on this blog (see the Wall Street Reform archive), the Senate Bill is rife with pernicious corporate governance provisions that would provide activists like Icahn with even more power to pursue their private gains at the expense of other shareholders and the public good. Government already provides shareholders with too much power to interfere in the management of firms. Giving them even more power will only make this sort of thing more common.
