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we’re not invested in them.
X: What are your goals for Genzyme? And does Genzyme management share your goals?
RW: We want Genzyme to:
1. Improve their strategic direction to focus more on growing their portfolio of genetic disease cures through internal R&D and selected acquisitions, while rationalizing their existing non-genetic disease portfolio—they have yet to articulate a clear strategic direction consistent with this recommendation. To be fair, however, they are preoccupied with addressing their manufacturing problems and that’s where we want them to stay focused for the time being.
2. Improve their risk management and operational controls to make their manufacturing processes more robust, safe and durable. They are implementing significant operational and managerial changes in these areas.
3. Improve their capital allocation disciplines and processes to ensure that discretionary spending is focused on the highest and best use. The company appears to have made marginal progress in this area, though further monitoring is required to make an fair assessment.
4. Improve executive compensation to put a higher percentage of pay at risk and to incorporate return metrics into their incentive formulas. We believe they are working on these improvements and will announce them with this year’s annual compensation committee report to shareholders, which will be included in their proxy statement for their annual shareholder’s meeting.
5. Improve their board composition to add more members with financial expertise. They have begun to do this with last month’s addition of Bob Bertolini (who was chief financial officer at Schering-Plough before it was acquired by Merck last fall).
6. Improve communications with investors. This involves sharpening the entire spectrum of communications from their quarterly investor calls, press releases, regulatory filings and other forms of communications. We have seen improvement in this area over the past few months, though significant further improvement is warranted.
Related to this, last year we asked them to improve their financial disclosure to incorporate return metrics and reform their computation of key financial measures to industry best practices. They announced major reforms in these areas in May of 2009, to our satisfaction.
X: Is Genzyme CEO Henri Termeer the right guy at this moment? Or do you think the company needs someone new to lead Genzyme?
RW: We think the current management team is perfectly capable of taking the company into the future. They’ve made some poor decisions in the past. Looking forward, though, we think they’re focused today on the right things. Time will tell whether they can take it to the next level.
X: Was Relational’s mutual cooperation agreement with Genzyme a way to thwart a proxy battle with Carl Icahn, who has … Next Page »
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