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Boston Capital

Icahn’s bet on biotech

By Steven Syre
Globe Columnist / May 10, 2011

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Investor Carl Icahn has been a big influence on the leading biotechnology companies in Massachusetts. But how much money has he made along the way?

The short answer to that question resides somewhere near the billion-dollar neighborhood, which, as they say, is a very nice neighborhood.

Icahn’s aggressive investment of hundreds of millions of dollars since 2008 in Biogen Idec Inc. and Genzyme Corp. of Cambridge, the state’s two most important biotechnology companies, has paid off handsomely compared with the overall stock market. But those big profits earned by Icahn hedge funds don’t appear to beat the performance of the biotechnology industry’s leading stock index by very much.

Icahn became Biogen Idec’s most critical stockholder in 2008, complaining about poor management, though he owned shares of the company well before that. He fought and lost a proxy battle challenging the reelection of incumbent directors that year but had better luck in 2009, when he won two board seats. Before long, chief executive Jim Mullen was gone and Icahn later secured a third seat on the board.

Icahn has earned a lot of his paper-profit in Biogen Idec shares much more recently. The shares soared to an all-time high two weeks ago on good clinical news about the company’s drug under development for multiple sclerosis patients. Biogen Idec stock, up 46 percent so far this year, has nearly doubled over the past 12 months.

So how much have Icahn’s hedge funds earned from their investments in Biogen Idec? Those funds have owned 12.9 million Biogen Idec shares, purchased at an average price of $50.45, since the fourth quarter of 2008. Icahn owned even more shares during the summer of 2008, shortly after his unsuccessful first proxy contest.

I used $50.45 per share as Icahn’s cost for my back-of-the-envelope estimate. Those shares were worth $98.10 at the close of business yesterday. That amounts to a gain of 94 percent, or a paper profit of $614 million on 12.9 million shares.

In reality, Icahn’s funds may have earned much more on their Biogen Idec investment for many reasons. Among them: Icahn funds put Biogen Idec shares in margin accounts so some of the purchases may have been made with borrowed money. That would lower costs and boost returns for the funds.

But take a whopping 94 percent return at face value for the moment. How would that gain compare to the performance of the rest of the market?

That depends on when you start tracking prices. I chose the beginning of 2008 to capture a large chunk of Icahn’s stock purchases and the influence of his first public battle with management on the price of Biogen Idec shares.

One broad stock market benchmark, the Standard & Poor’s 500 index, has lost 8.3 percent since the start of 2008. But the leading biotechnology stock index, which tracks the market fortunes of 20 companies, has advanced 90 percent over the same period.

Icahn’s investment in Genzyme began in the middle of 2009 and he owned 10.5 million shares by the end of the year. Company executives were already taking heat for a virus that shut down Genzyme’s plant in Allston, and Icahn threatened another proxy fight.

Genzyme and Icahn settled their differences before the company’s annual meeting last year. But Genzyme soon agreed to be sold to French drug giant Sanofi-Aventis SA for $20.1 billion, or $76.25 per share. The Icahn funds were in for a big payday.

Icahn’s shares were worth $799 million in the transaction. I ballparked the amount he spent to buy his Genzyme stock at $562 million, an estimate that attempts to match up the average cost of the stock at the times the funds were buying. That works out to a gain of about 42 percent, or $237 million.

Once again, Icahn’s profit towers over the broad stock market but tracks closely to the major biotech index. The S&P 500 gained 18.8 percent but the biotech index jumped 47.5 percent from the end of 2009 — one of many possible dates to choose — to the closing of the Genzyme sale last month.

Carl Icahn made fortunes for his investors with big investments in Biogen Idec and Genzyme — about $850 million by my math, but very possibly much more. Executives don’t like his rough tactics, but no one can argue about the results.

Steven Syre is a Globe columnist. He can be reached at syre@globe.com.