Monday, July 20, 2009

Has Noven Pharma's CEO Brandt Earned A $6.0 Million Payday?

Hisamitsu Pharmaceutical is acquiring U.S. drug delivery innovator Noven Pharmaceuticals (NOVN-$16.50), in an all-cash tender offer worth approximately $430 million, or $16.50 per share. Commenting on the merger agreement, Noven chief executive Peter Brandt said it was a great day for Noven, its shareholders, and employees—as the definitive deal “provides substantial value to Noven shareholders.” A read of Brandt’s employment agreement suggests that, in particular, it was an especially rewarding day for Brandt, too.

Hisamitsu, a Japanese manufacturer of transdermal patches for pain relief, is purchasing Noven to expand its business to the United States. Noven provides the company with the sufficient infrastructure—at a good price—necessary to build its presence and brand in the U.S. market.

Following the transaction, Noven’s Peter Brandt, will step down as chief executive—less than fifteen-months after being hired to clean up the unprofitable mess left behind by erstwhile chief executive Robert Strauss, whose contract (after a 10-year tenure) was not renewed due to a 60 percent vertical plunge in the share price of the drugmaker in 2007 [investor impatience with failed initiatives to grow shareholder value].

Brandt will receive $1.3 million in cash severance (equal to two times the sum of his “annual base salary" plus 2008 bonus) and equity options and stock appreciation rights with fair-valued gains of more than $5.0 million upon exercise. His employment agreement requires Novem to “gross-up” compensation for all federal, state, and local income and excise taxes due on the aggregate total, too!

Is Brandt worth the more than $6.3 million he will likely receive upon his planned departure? Contrary to what some critics contend (as articulated by
Jim Edwards over at BNET/CBS), Brandt cannot be blamed for the failed phase 3 clinical trial results of the developmental once-daily lithium carbonate drug, called Lithium QD, for bipolar disorder; the handling of manufacturing problems involving Daytrana, the only transdermal patch indicated for the treatment of the symptoms of Attention Deficit Hyperactivity Disorder (ADHD); and, the (August 2007) $130 million acquisition of JDS Pharmaceuticals, now known as Noven Therapeutics—all these disappointments rest on Strauss’ shoulders.

The 10Q Detective is not known for handing out accolades to chief executives—but, looking back over the past decade, the
stock chart of Noven resembles the Nitro coaster ride at Six Flags: blasting skyward when investors anticipated the company would find success for its patented Dot-Matrix technology in other blockbuster markets beyond its core product offering, the Vivelle-dot for hormonal therapy. However, failure to successfully diversify into other patch markets—such as stalled growth in ADHD due to quality-control issues (adhesion failures) of Daytrana—coupled with other investigational drug disappointments (Lithium QD) inevitably led to the share price hurtling back down to earth. From $9.10 a share—the day he signed on as chief executive—to $16.50 a share in cash being offering by Hisamitsu, the 10Q Detective says: “Dōmo arigatō.” Thank you, Mr. Brandt.

Let Hisamitsu deal with the soaring administrative costs hung on Noven from its JDS acquisition and the R&D capital needed to bring the developmental drugs in its pipeline to market.

“Dōmo arigatō.”

Editor David J Phillips does not hold a financial interest in any stocks mentioned in this article. The 10Q Detective has a Full Disclosure Policy.

1 comment:

Anonymous said...

Peter Brandt is one of the brightest executives and with the highest level of integrity I have worked on my career. Congratulations to him on another outstanding performance.