Originally published Sunday, January 11, 2009 at 12:00 AM
Seattle biotech rewards execs after stock
dropped 99 percent
Even in a disastrous year on
Wall Street, Cell Therapeutics stood out in 2008. Its stock price dropped
Deputy business editor and Seattle Times Business staff
Even in a disastrous year on Wall Street,
Cell Therapeutics stood out in 2008. Its stock price dropped 99.25 percent.
But the cash-strapped Seattle biotech's top
five executives had reason to celebrate Dec. 31: That day they were awarded
year-end bonuses totaling more than $1 million.
Chief Executive James Bianco, who has run the
company since founding it in 1992, was awarded a $487,500 bonus to
supplement his $650,000 salary and other perks.
Cell Therapeutics' eight board members, who
include Bianco, chose to pay 75 percent of the bonuses in cash, and will
decide March 1 whether "the company is sufficiently liquid to pay the
remaining amount." In other words, the board wasn't certain Cell
Therapeutics would be able to spare the $250,000 to complete its New Year's
gift to top management.
Here's another way to put the bonuses in
context: Cell Therapeutics' market capitalization is about $7 million,
according to Bloomberg. If Starbucks (which had a difficult 2008 but only
lost half its stock value) gave its top five officers a bonus equal to
one-seventh of its market cap, the execs would walk off with a billion
Cell Therapeutics is Seattle's oldest
surviving public biotech and has the longest-reigning CEO. The company has
lost a remarkable $1.3 billion over the past 16 years, with no sign of
stopping. Its board chairman since 2006 is longtime director Philip Nudelman,
the former president and CEO of Group Health Cooperative.
Company spokesman Dan Eramian, one of the
five New Year's Eve awardees, says that "in this market environment, stock
prices are not valid measures of company performance." He defends the bonus
awards, saying executives at the 110-employee company have not had a raise
in their base salary since 2005.
During that period, however, Cell
Therapeutics has been an even bigger loser than Washington Mutual, as shares
went from a split-adjusted $310 on Jan. 1, 2005, to the current penny-stock
level, 11 cents on Friday.
And, Bianco had the highest base salary of
all the local biotech leaders, including companies with 120 times the market
value of Cell Therapeutics.
Eramian points out that in 2008, the company
advanced several drug applications in the regulatory pipeline.
"We have the potential to have three drugs on
the market this year. That could be very good news for cancer patients," he
But Cell Therapeutics has a track record of
generating only slim sales with drugs it has brought to market, and
investors apparently aren't impressed.
Cell Therapeutics entered 2008 with its
auditors declaring there was "substantial doubt" over its ability to survive
financially. It ended the September quarter with $218 million in
liabilities, including convertible debt with interest rates as high as 18
The company restructured some of its debt
late last year, staving off big imminent payments that it couldn't make. The
rejiggering involved pumping out vast quantities of new stock, which
quadrupled the total shares just since November and severely diluted
pre-existing shareholders; this past week it issued 38 million shares to
clear away obligations over a company it bought in 2007.
Eramian says that "despite the daunting and
unique credit crunch biotech companies are in, we amassed the capital we
needed, accomplished a list of remarkable milestones and got closer to the
New Year's Eve brought the company another
milestone. It renewed the contract for CEO Bianco for two more years.
Bianco got no raise, but he retained the
perks he enjoyed in his previous contract: $500 a month for a health-club
membership and $3,500 a year for tax-preparation help.
Such added benefits for Bianco cost the
company $13,069 in 2007. A larger cost to Cell Therapeutics — $146,320 in
2006 and $79,804 in 2007 — came from so-called gross-up payments to Bianco,
which offset the taxes he owed on those and other benefits, such as family
members riding along without charge on company-chartered airplane trips.
Beginning this year, there will be no
gross-up payments, however. That's one frill the company is eliminating as
it continues its fight to live another year.
This past week a much younger Seattle
medical-technology company, Northstar Neuroscience, decided to liquidate and
distribute its remaining cash to stockholders.
That move followed months of pressure from an
investment fund with major stock ownership, which in December wrote to
Northstar board members: "It would seem that some of you remain content to
pay yourselves salaries from cash that belongs to stockholders while
contributing nothing of any positive value in return."
With Cell Therapeutics, which has few, if
any, institutional shareholders left since it became a penny stock, it's
unlikely there's anyone to write that kind of letter.
Copyright © 2009 The Seattle Times Company