Activist investor Carl Icahn has abandoned his proxy fight at Genzyme Corp in return for the biotechnology company's acceptance of two of his representatives to its board.

The agreement, announced on Wednesday, comes a week before the company's annual meeting on June 16.

Icahn had nominated himself and three allies to Genzyme's board after a manufacturing crisis lead to shortages of two of its life-saving drugs.

Genzyme has agreed to appoint two Icahn representatives -- Dr. Steven Burakoff and Dr. Eric Ende -- and in return Icahn will withdraw his slate and vote his shares in favor of the company's nominees.

I think overall this is a positive, said Michael Obuchowski, chief investment officer at First Empire Asset Management, which owns Genzyme's shares and oversees nearly $4 billion in assets. It avoids a continuing confrontation with Icahn and provides more oversight over the direction the company takes.

Henri Termeer, Genzyme's chief executive officer, said the agreement provides a pragmatic and constructive solution that allows us to focus on continuing to strengthen and build the company to create value for our shareholders.

Helping to broker the deal with Icahn was activist shareholder Ralph Whitworth, who runs the $6 billion investment firm Relational Investors LLC, one of Genzyme's biggest shareholders.

Genzyme agreed in April to appoint Whitworth, who has criticized Genzyme for spending too much on acquisitions and not enough on its core business of making drugs for rare diseases, to its board. It also made him chairman of a powerful new committee that oversees how the company allocates its resources.

Whitworth said he was happy with the outcome.

It's always good to have everyone inside the same tent, he said, particularly when you have a company with the challenges that this one has.

Genzyme, which is based in Cambridge, Massachusetts, has been racing to fix problems at its manufacturing site in the Allston Landing neighborhood of Boston. It has shaken up management, increased transparency and introduced new people to the board.

Over the past year, we have made substantial progress in enacting operational and organizational changes, Termeer said.

Robert Hodgson, who manages a combined $850 million in the Blackrock Healthcare Fund and BGF World Health Science Fund, said that the result is one of the better outcomes for shareholders.

Burakoff is professor of medicine, hematology and medical oncology at the Mount Sinai School of Medicine. Ende is a former biotechnology analyst at Merrill Lynch & Co.

One brings good clinical experience and Eric Ende brings some analytic talent that gives him a broader view of industry trends than might otherwise be at the company, Hodgson said.

Genzyme's board consists of 10 members, all of whom are up for re-election at the annual meeting. After the appointment of Burakoff, Ende and Dennis Fenton, a former executive vice president at Amgen Inc that Genzyme appointed on Monday, the company's board will consist of 13 members.

I am always pleased when a proxy fight can be avoided, Icahn said in a statement. New oversight at the director level will help this great company achieve its full potential.

Icahn originally had proposed himself, Burakoff, Alexander Denner, who is managing director of Icahn Partners, and Dr. Richard Mulligan, Professor of Genetics at Harvard Medical School.

Denner and Mulligan sit on the board of biotechnology company Biogen Idec Inc , and Genzyme had argued that there would be a conflict of interest if they were also to sit on the board of Genzyme. Genzyme is developing a rival product to Biogen's multiple sclerosis drugs Avonex and Tysabri.

The latest agreement means Termeer saves his job. But some investors would like to see the company announce a management succession plan.

Genzyme's shares were up 0.1 percent at $47.86 in midafternoon trading on Nasdaq.

(Reporting by Toni Clarke, editing by Gerald E. McCormick, John Wallace and Matthew Lewis)