CEO misses deadline to repay $3.5 million to Cell Therapeutics
Seattle Times business reporter
Cell Therapeutics disclosed the missed payment in its annual proxy filing with the Securities and Exchange Commission. The company said the loan — given in April 2002, a few months before the Sarbanes-Oxley Act made insider loans to executives illegal — was supposed to be fully repaid last Thursday.
In the filing, the board said one of its committees will evaluate Bianco's collateral and work with him to make sure the loan is repaid as soon as practical. The document did not say when the loan will be due or what it was for, but noted Bianco has acknowledged he has an "absolute and unconditional obligation" to fully repay it.
Bianco has paid about $210,000 in interest on the loan, the company said in its annual report, and also put up collateral: property and 255,000 shares of company stock, worth about $2.3 million at yesterday's closing price.
Bianco, 47, did not return phone calls. Jack Bowman, a member of Cell Therapeutics' board, declined to say how or when the board plans to collect the money.
One Internet message board buzzed with shareholders — some upset, some not — about the missed loan repayment. Large shareholders chose their words carefully.
Edward Hemmelgarn — president of Shaker Investments in Cleveland, one of the company's largest shareholders — said he would not have authorized the loan had he been a board member.
But he said Bianco hasn't been paid outrageously — about $925,000 last year in salary, bonus and perks — so the loan didn't upset him.
"This isn't a Tyco," Hemmelgarn said. "The company has been making significant progress, and they're in (the final stage) of clinical trials, and the data will be available later this year.
"The company is doing what it should — investing money and making progress. You have to look at the overall picture, and (Bianco) and his people have been doing a good job."
The company's lead drug in development, Xyotax for lung and ovarian cancer, is designed to be more effective and have fewer side effects than Taxol, a top-selling cancer drug.
Cell Therapeutics also has Trisenox approved on the market for a rare form of leukemia, and another drug in development, Pixantrone, for non-Hodgkin's lymphoma.
The amount of the loan is significant to a company of Cell Therapeutics' size. The company has 372 employees in offices along Elliott Bay and in Europe. It has not made an annual profit in its 13-year history and had its largest loss, $130 million, last year.
It had $185 million in cash and investments at the beginning of 2004 and expects to spend much of it this year — about $118 million — on human tests to determine whether its cancer drugs are safe and effective enough for the market.
David Miller, president of Biotech Monthly, said any biotech company still in the long money-losing period of drug development needs to spend carefully.
"If you're a biotech executive, thrift is a good thing because you're living on borrowed money for years and years," Miller said. "If you're getting paid six figures, and you need more money, go to a bank."
When the loan was granted two years ago, Bianco defended it on a conference call with investors. He said he wanted to keep his stock holdings rather than sell shares because the stock had potential.
He also said he would look at ways to shift the loan outside the company.
"I recognize (that) the company is not a financial institution," Bianco said at the time.
Bianco's collateral clearly is worth less now to lenders than it was then.
Cell Therapeutics stock was about $22 the day the loan was granted, making the stock collateral worth $5.4 million.
The stock closed yesterday at $8.84. Bianco owns 1.4 million shares, worth about $12 million at yesterday's close.
In addition to his salary and stock, Bianco flies a corporate jet, which the company spent $2.2 million last year to rent, the annual report said.
Bianco has said that because he flies so much for business, the corporate jet saves time and is more cost-effective than flying commercial airlines.
Bianco has also become involved in numerous local charities. Last year, he sold 173,000 shares of his Cell Therapeutics stock because he needed to meet the pledges he had made to charities.
The $3.5 million loan isn't Bianco's first. He received a $200,000 loan in 1993 that was later forgiven, company filings say.
Joe Hadzima, a senior lecturer at MIT's Sloan School of Management and an expert on corporate governance, said that in the spring of 2002, it wasn't inherently wrong for a board to provide a low-interest loan to a CEO if selling company stock was the alternative.
When a company insider sells big chunks of stock, it looks bad on Wall Street. By obligating an executive to repay a loan, the executive has incentive to make the company succeed.
But the board has to make sure company money is well-spent. Based on the company's red ink, the jet and the loan, Hadzima said, "I wouldn't want to be on this board."
"The board is there to represent shareholder interests," Hadzima said. "You might do this if your company is cash-flow positive and there's a lot of money in the bank, but loaning a guy (several) times his salary seems excessive."
Luke Timmerman: 206-515-5644 or email@example.com
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