At BioMarin, Board Members Who Ask Too Many Questions Are Shown the Door
BioMarin (BMRN) has a message for its board members: Don't ask too many questions, no matter how much trouble we're in. That seems to be the takeaway from the exit of Joseph Klein III, a director nominated by a dissident investor group, who filed an explosive resignation letter a few days ago.
The "don't ask, don't tell" policy does not bode well for the company, whose shares are rising based on chatter that it could be a takeover target.
The underlying problems at BioMarin remain a mystery. All we know is that there's a plethora of controversies over issues such as revenue recognition, an internal investigation, whether and how the company should be acquired, and the role of the CEO. We don't know the details.
Klein's letter, which was only a resignation in the sense that he knew the company would not nominate him for re-election, said he had been asked to stop asking junior BioMarin executives questions about "revenue recognition" regarding certain shipments to Japan, among other issues.
In response, the company filed a disclosure with the SEC blasting Klein for being too curious:
The Board requested that Mr. Klein refrain from asking questions or raising sensitive issues at these meetings and that he instead raise them first in meetings with senior management or other directors or in executive session with the independent auditors.But reading between the lines of Klein's letter and the company's response, I'd say there are some pretty good reasons to be asking questions right now. Klein did not resign lightly -- as you can see on page 15 of this document, a BioMarin directorship pays about $200,000 a year.
Klein's letter identifies two categories of problems: The revenue recognition issue and the internal investigation, which may both turn out to be nothing. But they are issues that go to the center of BioMarin's corporate integrity. Shareholders are owed some plain-English answers regarding what's going on here if BioMarin wants to avoid Sequenom (SQNM) territory.
The second set of issues go to whether this company is in play. Klein wants to remove the company's "poison pill" protection against takeovers, to consider more bids from acquirers, and to make sure CEO Jean-Jacques Bienaimé doesn't consolidate his power by adding chairman of the board to his resume. Klein's vested interest here is that as a representative of dissident shareholders, he's less interested in the long-term future of the company than he is in getting a short-term premium from the stock via a takeover.
Clearly, the board is much less interested in being acquired than Klein is.
The last reason BioMarin ought to get back into the question-answering business is that one of its joint ventures is with troubled Genzyme (GENZ). The companies collaborate on Aldurazyme, a genetic therapy for rare conditions called Hurler and Hurler-Scheie, which can be fatal. That drug is about to come under an FDA consent decree due to Genzyme's imperfect manufacturing.
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