NeoPharm in need of realignment
September 20, 2004
BY MICHAEL KRAUSS
I just bought four
new tires. They offered to mount and balance them. "Do you
want an alignment?" asked the salesman. I decided to risk
the dangers of uneven tread wear. Did I make a mistake? Alignment
isn't something you worry about until something drastic goes wrong.
Forest-based NeoPharm, one of our region's promising biotech start-ups.
This company is working on treatments for the worst type of brain
cancer. Publicly held NeoPharm could become the poster child for
Illinois biotech success and save lives in the process. Instead,
it looks like a case study in stakeholder misalignment.
month, John Kapoor, NeoPharm director and former chairman, filed
a shareholder letter with the Securities and Exchange Commission
saying, "I believe NeoPharm's current board of directors
is poorly suited to meet the challenges facing your company."
He proposed four of the company's directors be removed.
his wife hold about 22 percent of the company's stock, and Kapoor
wants NeoPharm to focus on commercializing its most promising
drug, as IL 13-PE38QQR. He wants the company to cut its spending
from a reported $55 million to $58 million to about $30 million
new chairman, Erick Hanson, says, "Our goal to bring our
portfolio of promising cancer therapeutics to market has not wavered,
and our focus will not be distracted by this action."
How can the
company not be distracted by this misalignment?
Larry Kenyon challenges Kapoor on the burn rate issue. "We
have not talked publicly about what our '05 or '06 expected burn
would be," says Kenyon. Some observers say the company is
burning through $55 million to $58 million a year, but Kenyon
says, "John (Kapoor) knows that that is not the case for
SEC filings, it's hard to blame Kapoor. NeoPharm's stock closed
Friday at $7.58, that's up 21 percent in the last two weeks, but
still down from a 52 week high at $22.70. Kapoor doesn't want
his investment diluted if the company sells stock to raise cash
to continue pursuing multiple opportunities.
NeoPharm replaced CEO James Hussey with Greg Young, who joined
from Baxter International Inc. This action appears to have been
well planned and organized.
decided to get some leadership from a bigger company," says
David Miller, president of IBIO, the local biotech industry group.
"Hussey is great at taking a company from zero to $200 million.
They wanted a guy with credibility with Wall Street that would
take them to a billion dollar valuation."
to me. Both Hussey and Young have strong reputations and are viewed
as class acts.
also replaced Kapoor as chairman. According to a spokesman for
Kapoor, the move came "without any prior notice." The
move to replace Kapoor may have been done to give the incoming
management team a free hand. It seems to have backfired.
You have to
wonder why all these issues weren't worked out in June. Why wasn't
there better alignment?
companies go through growing pains," says IBIO's Miller.
"These people have shown their commitment to Chicago biotech.
I don't see any long range impact."
but this is a town where we have decades long, pitched battles
over our most vital, job-creating assets, like expanding O'Hare
Airport. If we're going to grow the local biotech sector, we need
marketplace successes, not board room battles. I think I will
take my car in for an alignment after all.
trend may be a boon for local law firms. Michael Mensik, co-chair
of Baker & McKenzie's global IT practice reports, "80
percent of the group's current projects relate to outsourcing."
Schools CIO Bob Runcie speaks at the City Club on Thursday. Indian
IT powerhouse TaTa Consulting Services will open an RFID Center
of Excellence in Chicago. TCS Vice President Prasad Raju will
direct the center, which will develop RFID solutions.
The MIT Enterprise
Forum examines technologies for safeguarding our troops Thursday
at Timothy O'Toole's, featuring Ned Thomas, director of MIT's
Institute of Soldier Nanotechnologies, and Jean-Louis DeGay of
the U.S. Army's Future Force Warrior program.
Michael Krauss is a Chicago-based tech writer and consultant.