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Seattle Times, January 11, 2009 article


Originally published Sunday, January 11, 2009 at 12:00 AM

Sunday Buzz

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 99.25 percent.

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 dollars.

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 says.

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 percent.

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 goal line."

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




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