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My letter to John Johnson about Douglas Watson, biotech's worst director

Thursday, 15-May-2014

I wrote the below letter to Dendreon CEO John Johnson one year ago about the unusually bad track record of his company’s lead independent director, Douglas Watson.  I’m a big believer that the way most corporate boards operate is the Achilles heel of our financial system.  It matters a lot what type of people serve on boards, yet directors are rarely held personally accountable for poor performance.  Mr. Watson is a perfect illustration of that.  He likely is statistically the worst director in the country.


Mr. Watson serves on the board of two companies that essentially failed over the last year, Genta and Delcath, and is the lead independent director or chairman of two, OraSure and Dendreon, that failed 'say on pay' votes in 2013 (a very rare event that only happened to ~2% of all companies).  Furthermore, important product launches by both OraSure and Dendreon have underperform the internal projections of those companies by hundreds of millions of dollars.  It is almost shocking how one person can have such a poor track record.


Unfortunately, Dendreon once again failed its 'say on pay' vote for the second year in a row again today (I attended the annual meeting).  It is the only biotech company to have done that so far.  Given how Mr. Johnson clearly didn’t get the message from last year, I thought I would publish the letter I wrote him back then about Mr. Watson for the record.



July 1, 2013


Mr. John Johnson

Dendreon Corporation

1301 2nd Avenue, Suite 3200 

Seattle, WA 98101


Dear Mr. Johnson:


Ever since the “Say on Pay” advisory concept was written into law in 2010, it has been extremely rare for companies to lose their vote. According to statistics compiled by Semler Brossy, only 1.4% of all Russell 3000 companies lost a vote in 2011, 2.6% in 2012, and 2.3% as of June 24 in 2013. Additionally, of the companies that have experienced failed votes this year, only five have come from the biotechnology sector: Geron, Discovery Labs, Spectrum, OraSure, and Dendreon.


One does not have to look very far to find a common link in the data. As you know, Douglas Watson is both the Chairman of OraSure and Lead Independent Director of Dendreon. I am writing you today to point out how alarming and inconceivable it is that someone with Mr. Watson’s unusual public record continues to serve on Dendreon’s board, let alone as the company’s Lead Independent Director. Hopefully there is a higher standard. I strongly recommend that you, as Chairman, and the other members of Dendreon’s board quickly act in the company’s best interest by asking for Mr. Watson’s resignation from the board as soon as possible.


The message that these statistics send is unambiguous. Shareholders throughout multiple companies have voiced their opinion, in a civil and public manner, that they feel Mr. Watson’s leadership is a liability to their interests, not an asset. Indeed this is the very reason why Congress gave them this mechanism in the first place. The public is fed up with the lack of accountability that permeates many corporations these days. To be a figurehead of two companies that have failed to clear such a low bar (bottom 2%) in the same year is unacceptable and suggests a serious problem. As fiduciaries at Dendreon, I hope you and the board find this to be as unacceptable of a standard as shareholders do. A requisite for change could not be any clearer.


You should further consider that this might not even be solely a shareholder issue. The track record of these two companies may paint a broader picture of Mr. Watson’s judgment and commercial knowhow. That cannot be ignored. When the FDA approved Provenge, it was hailed a historic product that held tremendous commercial potential for its indication. While I still have faith there is ample time for that to become true to a degree more befitting the scientific innovation this product represents, the operational mistakes Dendreon has made since then are well known and have hurt Provenge’s uptake.


Likewise, the approval of OraSure’s OTC HIV test (OraQuick) has also been hailed as a historic, game-changing event. Unfortunately however, the initial commercial launch of that product has also been a disappointment by any measure. OraSure’s stock has declined 73% from its peak as the initial promises the company’s management team made about OraQuick’s uptake seem to be in doubt. When you add the Dendreon and OraSure experiences together, I think it raises important questions about the decisions Mr. Watson is making. Perhaps his leadership is holding these products back from having the fullest impact on society that they deserve. That is a difficult, but fair question to raise at this point, and one that Dendreon should not take lightly.


I recognize these are delicate issues to bring to the forefront, but to be fair to Mr. Watson, I have waited months to raise them for two reasons. First, I thought it was important to give him the utmost benefit and let the data mature. Over this time, both Dendreon and OraSure have only reached new lows. Furthermore, as more shareholder meetings have taken place, I can find no other individual who is in a leadership position of two failed votes like Mr. Watson. His public record, regrettably, is truly unique. Second, I also wanted to give Dendreon’s board time to make good on consequences for its own failed vote, but nothing has been forthcoming. Mr. Watson does not seem to have heard shareholders nor is he representing their interests in any noticeable way.


In truth, I do not think Mr. Watson himself knows what he is contributing at this point. As you know, I asked him that very question at Dendreon’s meeting in April. His response was simply that he had faith in the product, which is irrelevant. He was unable to offer any reason why he personally was a good fit as a decision maker. Furthermore, I have personally written Mr. Watson on many occasions, offering various ideas about how to improve the company. I’ve found that, while he is good at shooting down other people’s ideas, never once has he been able to articulate any fresh ones of his own. Dendreon’s lead independent director should be someone who is proactive and able to explain his vision. Mr. Watson has been unable to do either.


To conclude, this shows that Dendreon shareholders clearly cannot rely on Mr. Watson. Therefore, the ball is in your court to protect their interests. I respectfully remind you that Dendreon has a big credibility gap with the investment community. This is a serious problem that impacts not only the company’s stock price, but also its cost of capital and overall business prospects. If Dendreon’s true aim is still to succeed as a publicly traded entity, I strongly recommend that you send a

meaningful signal that Dendreon respects shareholder interests by asking for his resignation. The company cannot realistically expect to be taken seriously while someone with Mr. Watson’s public record is still in a leadership position. Shareholders have said loudly that they do not feel comfortable with him representing their interests. Please bring about this change that is badly needed.


As someone who still greatly wants to see Dendreon succeed, I would be thankful to hear what you and Dedreon’s board think about this.


Best regards,

Brad Loncar


Who Am I?
Brad Loncar

I'm an individual investor from Kansas City.  My focus is on biotech stocks, but I enjoy investing in all industries. I'm an old-school, buy and hold investor who believes the best way to outperform and grow capital is to own innovative companies with good management teams over the long-term. more>>

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