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Genzyme's Termeer May Follow Health-Care CEOs to Private Equity

Genzyme Corp.’s chief executive officer, Henri A. Termeer, will leave his post of 26 years after Sanofi-Aventis SA closes its $20.1 billion purchase of his company. He may not be out of a job for long.

Termeer, Genzyme’s chief since 1985, exits with at least a $138 million payout and a legacy as the longest-serving CEO in biotechnology, after pioneering a business model of charging top dollar for drugs to treat rare genetic disorders.

His success selling some of the world’s most expensive medicines, priced from $200,000 to $300,000 a year, may make him an attractive hire for private-equity firms, said Erik Gordon, a University of Michigan business professor. Termeer, who turns 65 on Feb. 28, may follow the former chiefs of Wyeth and Schering- Plough Corp. to help pitch deals for equity firms led by Carlyle Group, Kohlberg Kravis Roberts & Co. and Warburg Pincus LLC.

“Henri is the guy you send out as your sales guy to get your real guys in the door,” Gordon said in a telephone interview from Ann Arbor. For an investment firm seeking biotech business, “he would be a good guy to have. The CEO of a midmarket biotech company, they’ll take a Henri Termeer call. They would all love to be Henri Termeer one day.”

After nine months of talks, Paris-based Sanofi agreed to pay $74 a share for Cambridge, Massachusetts-based Genzyme, the companies said yesterday. Sanofi also agreed to future fees, known as contingent value rights, of as much as $14 a share tied to sales targets for an experimental multiple sclerosis drug, called Lemtrada.

No Dealmaker

While Termeer has built a strong business, he may not be the guy to close a deal, Gordon said. The Genzyme chief might have extracted a higher up-front payment and avoided a deal that relies on an unapproved drug hitting revenue targets if he’d been a better negotiator, Gordon said.

“Is he a dealmaker? No,” Gordon said. “Sanofi is a dealmaker and Sanofi had the patience of Job.”

Bo Piela, a spokesman for Genzyme, declined to comment.

Termeer, a Dutch native, studied economics at Erasmus University in Rotterdam and earned a masters degree of business administration from the University of Virginia’s Darden School of Business in Charlottesville, according to Genzyme’s website. He lives in Marblehead, Massachusetts, with his wife of 12 years and has two children.

Termeer is chairman of the Boston Federal Reserve Bank, serves on Massachusetts Governor Deval Patrick’s Council of Economic Advisors, and sits on the Harvard Medical School board. He said in a June interview that he was preparing for retirement. Last month, while Sanofi continued to press for a deal, Termeer said his plans to retire were “still the same.” In yesterday’s news conference, he didn’t use that word.

Innovation Ideas

After he assists Sanofi with integration, Termeer will seek out opportunities “to connect with people who are really interested in how does innovation truly work, how do we get something that works to patients in the fastest possible way,” he said at a press conference yesterday in Cambridge.

He ruled out starting a biotech. “If you create a company, it takes 30 years,” he said. “I don’t have 30 years, and I don’t have the patience anymore.”

Private equity or venture capital firms may still try to recruit him, Ian Somaiya, an analyst with Piper Jaffray & Co. in New York, said in a telephone interview.

“Private equity firms fund new technology, new products,” Somaiya said. For former industry executives like Termeer, working for equity firms “keeps them involved in science and a form of innovation. They do get attracted by it.”

Termeer Payments

Termeer will receive about $18 million in the sale to Sanofi, and he owned about 709,000 shares of stock as of Sept. 30, according to an Oct. 7 regulatory filing. His stock, options and restricted shares were valued at about $120 million at $69 a share, Genzyme reported in an Oct. 7 filing. The company hasn’t disclosed updated compensation for Termeer based on Sanofi’s final offer of $74 a share.

The departure package makes him “one of the biggest all- time winners in biotech,” said Gordon, who has studied the pharmaceutical industry for three decades.

Sanofi’s acquisition of Genzyme is the biggest drug industry takeover since Whitehouse Station, New Jersey-based Merck & Co. bought Schering-Plough for about $47 billion in November 2009, according to Bloomberg data.

Schering’s CEO at the time, Fred Hassan, has been an adviser to Warburg Pincus since 2009. In March, Hassan was named chairman of Bausch & Lomb, an eye-care company acquired by Warburg in 2007.

Robert Essner, former head of Wyeth, was named a senior adviser at Carlyle in April, the year after New York-based Pfizer Inc. bought the drug company for $68 billion.

KKR recruited Kenneth W. Freeman in 2005 after he spent nine years in the top job at medical testing company Quest Diagnostics Inc. KKR and Warburg are based in New York, while Carlyle is based in Washington.

Manufacturing Defects

Sanofi’s offer came while Genzyme was focused on fixing manufacturing defects that eroded sales of its biggest products after a virus contamination at its factory in Allston, Massachusetts. The resulting drug shortages sent Genzyme’s shares down as much as 43 percent from a 2008 high of $83.25, and led to fines and increased scrutiny from U.S. regulators.

Termeer’s rejection of Sanofi’s initial $69-a-share offer reflected his oft-stated position that the company’s business model, which he is widely credited with creating, and which other biotechs have since copied, makes Genzyme especially valuable. Unlike the pills produced by traditional drug companies, Genzyme’s medicines are made using biological processes and can’t be readily copied by generic-drug makers. Genzyme garners premium prices from insurers and government payers because the therapies provide life-saving benefits.

Biotech Pioneer

“Most if not all of these diseases are fatal,” said Piper Jaffray’s Somaiya. “You’re talking about patients that lead some semblance of a normal life if they start therapy early enough. He was definitely a pioneer in biotech’s advance into these kinds of diseases.”

Genzyme’s best-selling medicine, with $720 million in 2010 sales, is Cerezyme, a mass-produced version of a human enzyme missing in patients with the inherited illness Gaucher disease. Fabrazyme, for the genetic illness Fabry disease, and Myozyme and Lumizyme for Pompe disease, similarly provide patients with enzymes their bodies fail to make or produce adequately.

“We created a completely new sector in the health-care field,” Termeer said in an Aug. 30 interview.

Termeer is regarded as one of the fathers of biotechnology, said Robert Coughlin, CEO of the Massachusetts Biotechnology Council, an advocacy group based in Cambridge, Massachusetts. Coughlin’s son has cystic fibrosis, an inherited chronic disease that affects about 70,000 people worldwide.

Personal Commitment

“When I talked with him about his commitment to rare disorders, especially in a day and age where everyone’s looking for the next blockbuster, I said, ‘What makes you think this is important when there aren’t so many patients?’” Coughlin said. “He said, ‘Well, it’s pretty important to the person who has it.’”

The strategy has paid off. Cerezyme costs about $260,000 a year per patient in the U.S., according to Brian Abrahams, an analyst at Wells Fargo Securities. The drug surpassed $1 billion in annual sales in 2007 and 2008 before revenue declined amid the production shortages.

Fewer than one in ten U.S. publicly traded biotech companies were profitable in 2009, according the Washington- based Biotechnology Industry Organization. Genzyme’s longevity and profitability is Termeer’s lasting legacy, said Al Correia, executive vice president of business alliances at Cambridge Biomedical, a lab services organization in Massachusetts.

Deadlines Met

Over the months since Sanofi’s initial approach, Termeer also met U.S. deadlines to resolve manufacturing issues and eased drug shortages, said Michael Yee, an analyst with RBC Capital Markets in San Francisco.

“Management did a good job over the last six months,” Yee said in a telephone interview. In the end, Termeer got “a fair share price out of Sanofi that represents not only that success but future potential upside for Lemtrada.”

Termeer’s pursuit of new frontiers in drug development also may lead him to venture capital firms like other former biotechnology CEOs.

David M. Mott became a general partner at New Enterprise Associates Inc., a venture firm with offices in Chevy Chase, Maryland, and Menlo Park, California, the year after leading Gaithersburg, Maryland-based MedImmune to a $15.2 billion sale to London-based AstraZeneca Plc in 2007.

CEO Movement

Third Rock Ventures LLC in Boston was co-founded by Mark J. Levin in 2007 after he held the top job at Cambridge, Massachusetts-based Millennium Pharmaceuticals Inc. for more than a decade.

Bill Rastetter joined New York-based Venrock Associates as a partner in 2006 after steering Idec Pharmaceuticals through the merger that formed Biogen Idec Inc. in Weston, Massachusetts.

Termeer’s next step “could be anything -- he could set up a consulting firm of his own, he could be on the board of different companies,” Piper Jaffray’s Somaiya said. “Or he could just enjoy his life, take a little break.”

To contact the reporters on this story: Meg Tirrell in New York at mtirrell@bloomberg.net; Alex Nussbaum in New York anussbaum1@bloomberg.net.

To contact the editor responsible for this story: Reg Gale at Rgale5@bloomberg.net

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