Looks like Genzyme (NASDAQ: [[ticker:GENZ]]) employees who’ve maybe been watching their counterparts over at Biogen Idec (NASDAQ: [[ticker:BIIB]]) squirm under the stern attention of Carl Icahn can stop wondering if their company is about to receive the same. Regulatory filings posted today show that during the fourth quarter of 2007 the activist investor dumped all 1.5 million shares he bought in Genzyme during the third quarter. Is it some sort of complicated maneuver on Icahn’s part? Did he fear a fight from Genzyme CEO Henri Termeer over any efforts to force a sale of his company to a big drugmaker? After all, Termeer signaled very publicly in December that he believed Genzyme should remain a stand-alone company. Or was it something simpler—like the fact that by getting out when he did Icahn likely made a nice profit?
We’re betting on the last idea. While Icahn has made no bones about his belief that Biogen Idec is undervalued, he probably concluded that, at least for the short term, Genzyme’s upside isn’t going to get much better.
Here’s our reasoning. In the third quarter, according to his SEC filing, Icahn bought 1.5 million shares of Genzyme, a stake of just less than 1 percent. During most of that quarter, Genzyme traded in the low $60s, and it never closed above $65 a share. However, during the fourth quarter, the stock shot up to the mid-$70s, peaking at just over $76 in late December. Which means that by buying in the third quarter and selling in the fourth, Icahn could easily have made a short-term profit of 15 to 20 percent or more.
Meanwhile, when it comes to being an attractive target for Big Pharma—as Termeer himself has argued—Genzyme is a much tougher fit than Biogen. That’s because Genzyme has built much of its business on rare disorders, developing treatments that have been designated as orphan drugs by the FDA. That strategy has allowed the company to operate without competition for longer periods of time than usual—and, therefore, to charge premium prices—but it also means that Genzyme has a highly specialized product (and sales force to go with it) that doesn’t fit as well with a large pharmaceutical concern as Biogen does.
Given the potential difficulty of driving Genzyme’s price significantly higher (for the above reasons, and possibly others), combined with the opportunity for a juicy short-term payout, I’m guessing Icahn just decided to enjoy a nice pre-holiday bonus.
