Biotech exec vows to repay loan: Cell Therapeutics feeling 'a lot of heat'
By Luke Timmerman
Seattle Times business reporter
James Bianco, chief executive of Seattle-based Cell Therapeutics, promised yesterday at the company's annual shareholders meeting to pay back a $3.5 million low-interest loan from the company by finding an outside lender to refinance his debt.
Bianco faced sharp questioning about the loan from some shareholders at the meeting, and afterward said he plans to find a different lender "as soon as I can do it."
Cell Therapeutics disclosed in a regulatory filing last month that Bianco had missed a deadline to repay the money he borrowed in April 2002. The insider loan — which was common in public companies before the practice was outlawed a few months later by the Sarbanes-Oxley Act of 2002 — was due to be fully paid back last month.
Bianco was paid $925,000 last year in salary, bonus and perks, and has made interest payments to the company of about $210,000, according to regulatory filings. But he found himself in a hard spot when the full $3.5 million was due because his overall wealth had declined. His collateral for the loan was tied up in his home and in Cell Therapeutics stock, which has fallen in value — from $22 when the loan was granted, to around $9 when it came due.
Cell Therapeutics stock, like many in biotech, has fallen further in the past month, closing yesterday at $6.95. At that price, Bianco's personal stake in the company, 1.4 million shares, is worth about $10 million.
John Fluke Jr., a venture capitalist who serves on the company's board of directors and chairs its audit committee, said in an interview that Bianco still has enough collateral in his home property and company stock. He said it is now Bianco's responsibility to find a new lender as soon as possible, adding that Bianco should be able to do it without having to sell his stock or home.
Fluke said the loan should be gone by the end of the year, and under Sarbanes-Oxley, the company has little choice. Fluke said Cell Therapeutics cannot extend the loan or forgive it.
"There is a lot of heat in getting that loan off the company's books," Fluke said to shareholders who gathered at Ray's Boathouse in Seattle.
But he justified granting the loan in the first place, saying, "Shareholder value comes from guys like this working their tail end off."
Bianco, 47, who planned to use the money to build a new home, said that instead of taking the loan he could have sold some of his stock, but it would have sent a bad signal to Wall Street about his belief in the company. He also told shareholders he was prohibited from selling stock for nine months recently while the company was acquiring Italy-based Novuspharma.
"I couldn't manage my personal finances the same way you do," Bianco told the crowd.
The loaned amount is significant to a company of Cell Therapeutics' size. The company has 372 employees in the U.S. and Europe. It has never made a profit in its 13-year history, and had its largest loss, $130 million, last year. The company had a cash stockpile of $185 million at the beginning of the year, and expects to lose between $118 million and $127 million this year.
One analyst applauded the plan to shift Bianco's personal debt into a bank.
"They now have a CEO with a lot of debt, but that's his own problem, not the shareholders'," said Paul Latta, an analyst with McAdams Wright Ragen in Seattle.
Most of the company's money is being spent on clinical trials in four different cancer drugs, and during the meeting Cell Therapeutics' managers gave upbeat presentations about the prospects for all of them.
Bianco said the company's lone marketed product, Trisenox, an arsenic-based drug for a rare form of leukemia, is now projected to reach up to $300 million in annual sales by 2012 because its patent has been extended to 2018, giving it time to show effectiveness in other diseases. Last year, the drug had $22 million in sales.
For Xyotax, an experimental drug in final testing for lung cancer, Bianco said the full statistical analysis won't be released until October or later. But he said he believes the drug is prolonging lives and reducing the side effects of chemotherapy. Pixantrone, the drug acquired last year from Novuspharma, has shown considerable effectiveness in non-Hodgkin's lymphoma without causing heart damage like other drugs in its class, the company said.
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