Genzyme is getting a much-needed shakeup. Relational Investors is doing it by, at least temporarily, backing management at the U.S. biotech. But Carl Icahn, the billionaire with a history of forcing companies into auctions, is hovering. A sale might book a quick gain — but a smaller, more focused firm would be the better outcome.

Genzyme’s missteps include manufacturing problems, overconfident projections on governmental approvals and shortages of its biggest drugs. Its market value has sunk by a third over the past two years to $14.3 billion. So it’s a natural target for uppity investors.

Relational, which owns four percent, avoided the cost of a proxy fight by backing management until November, at which point it can demand two board seats. Meanwhile, Icahn has built a one percent stake, raising expectations he might try and push the company into a sale, as he did in the case of MedImmune and Imclone.

That would leave investors potentially facing a choice between pushing for a quick auction or working through Genzyne’s problems. In a sale, Genzyme might generate a 40 percent premium to its current price — the average fetched in biotech deals of this size.

But the alternative may be more compelling. The four other big revenue-producing biotechs (Amgen , Gilead , Celgene and Biogen Idec ) are valued at five times 2010 sales, compared to 2.6 times for Genzyme. Closing this gap would generate an 80 percent premium to the current stock price — and twice as much upside as a sale.
Genzyme’s efforts up to now to fix itself, such as hiring new production managers, haven’t been sufficient to meet this lofty goal. It has repeatedly plowed profits from its treatments for genetic disease into capital destructive activities.

The company’s kidney, diagnostic, surgery and other non-core efforts have squandered more than $1 billion over the company’s history, according to Citigroup research. These have few synergies with its genetic disease business. Selling them would free management to focus on niche treatments for inherited diseases.

Whitworth has suggested as much — a strategy that, along with fixing Genzyme’s manufacturing woes, will take time. That’s why a sale of the whole company might appeal. But with the potential return double that of a quick flip, investors would be better off taking the longer-term view of Genzyme’s future.