Follow-up letter to John Johnson after another poor annual meeting

Monday, 19-May-2014

Last year after Dendreon lost a 'say-on-pay' vote at its annual meeting, I wrote CEO John Johnson this letter warning him about the incompetence of Dendreon's board of directors and the overall poor perception shareholders have of the company.  While he sent me a general reply, he did not actually do anything about those problems.  

 

Now another annual meeting has passed, and Dendreon again lost the 'say-on-pay' vote.  In addition, an influential pension fund has rebuked the company, and both the company's stock price and shareholder sentiment are at all-time lows as well.  Following that, I have sent Mr. Johnson the below letter today:

 

May 19, 2014

 

Mr. John Johnson

Dendreon Corporation

200 Crossing Boulevard, 2nd Floor

Bridgewater, NJ  08807

 

Dear Mr. Johnson:

 

One of the most interesting things I have always found about your time as CEO is that as Dendreon’s operations have steadily improved, and you did a good job articulating that at the annual meeting, public perception of the company has steadily decreased.  That dynamic has been your biggest shortcoming as CEO.  It is an important one too because as perception has decreased, Dendreon’s cost of capital has increased.  Now the company faces a huge debt problem from the most disadvantaged position possible.  Your inaction on this issue has contributed to making a bad problem worse.

 

Unfortunately, it seems from the outside that you do not understand, or perhaps care about that.  This year’s annual meeting could not have more clearly illustrated how shareholder perception has grown worse during your time.  As you know, Dendreon failed its ‘say-on-pay’ vote at the meeting for a second year in a row.  Less than 2.5% of all companies fail that vote, and Dendreon has now done it twice.  This is both shameful and unacceptable by any measure. Furthermore, I don’t ever recall Dendreon receiving a public rebuke by an influential pension fund, as the company did from the UAW last week.  These things matter a lot, and it is sad that they are happening on your watch while cancelling out otherwise good work.

 

The most frustrating thing about all of this is how obvious the problem is, yet you have not taken even one step to correct it.  The issue here is that shareholders have a bad taste in their mouths about decisions Dendreon’s incompetent board has been making for years.  How do you expect perception to change when you have not brought in a single new person to put things on a different course?  For example, exorbitant pay has been something that shareholders have been shocked and angered by for years, so is it any surprise that the same old board was not able to correct it in a meaningful way this year?  Common sense would say no.

 

Douglas Watson, Dendreon’s so-called Lead Independent Director (his 14 years on the board make him no longer independent to everybody but you), is a perfect example of the problem.  Mr. Watson personifies everything that is wrong with corporate governance these days.  He is the lead director of two companies, OraSure and Dendreon, and both failed their ‘say-on-pay’ votes last year.  Given how less than 2.5% of all companies fail, do you think it is a coincidence that both of his did?  Again, basic common sense would say no.  Furthermore, both companies have had commercial launches that were shockingly disappointing and two other companies Mr. Watson is on the board of, Genta and Delcath, essentially went bankrupt over the last year.  I have searched hard and cannot find a director with a worse record.  He is statistically last in the country.

 

As you recall, I wrote you last year raising these issues about Mr. Watson, but you failed to do anything about it.  The end result is that his lack of acumen has publicly embarrassed and distracted Dendreon yet another time.  It is unfortunate that you apparently do not see how this is a reflection on both you and the company overall.  It also has real business implications.  For example, not only does Dendreon’s cost of capital increase as more people give up on the company out of frustration, but how do you expect to effectively push back on nonsense like Huber and other public image problems when Dendreon’s own shareholders are voting against you year after year?  You need people to be with you, not against you.

 

Even though pleas have fallen on deaf ears about this so many times in the past, I suppose I will try one last time since it is getting to a point of being too late for Dendreon.  I’ll summarize the problem again so that you clearly hear it: Shareholders vehemently dislike the poor decisions the company’s board has made over the years, and that will not change as long as the same people are there.  This sentiment has counteracted the good work you have done on the operational side of the business, and has put the company on the worst possible footing as it approaches its debt deadline.  It is important to change this sentiment quickly.  

 

A good place to start would be by finally asking Douglas Watson to step down since he has the worst record of any director in the country, is no longer independent, and does not represent shareholder views in any way.  You cannot allow incompetent people like him to reflect on you, and the company must have higher standards.  Before it is too late, please act to increase shareholder goodwill for once.

 

As someone who has supported Dendreon and still wants to see it succeed for patients and shareholders, I would be thankful to hear what your current thinking is on this issue.

 

Best regards,

Brad Loncar

 

Who Am I?

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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