Battles for control of corporate boardrooms that hit the press are usually waged by powerful interests like billionaire Carl Icahn, or prominent activist Ralph Whitworth. But in this case, Brad Loncar, 32, has agitated for change with a Tweet and a posting Friday on a popular message board, InvestorVillage.
Loncar, an individual Dendreon shareholder in Lenexa, Kan., went public with a 65-page, footnoted critique in which he details Dendreon's managerial "missteps" of the past few years. After reaching out privately to Dendreon chairman Richard Brewer in February, and coming away unsatisfied with the company's response to his concerns, Loncar went public with his call to add one or two new, independent directors to provide greater oversight on the existing eight-member board.
Within a few hours, hundreds of people had viewed the proposal, and dozens had written directly to the company to say they support it.
While Loncar said the company appears to be following of some of the suggestions, he wrote in a cover letter posted online Friday:
[I]t appears that management has otherwise chosen to ignore the proposal rather than work together constructively. That is why I have decided to reach out to other shareholders like you at this time. I am seeking your support in seeing that change is seriously pursued. Dendreon's board might be able to ignore one shareholder, but hopefully they will more clearly see the importance of these issues if more of us stand together. Therefore, I respectfully ask that you contact Dendreon and let them know you support this proposal to add outside shareholders to the board.
[Editor's Note: The bold emphasis is Loncar's].
Dendreon, for those new to the story, faced intense skepticism throughout much of its history as it sought to develop the world's first active immunotherapy against cancer, which works by stimulating the immune system to fight cancer cells as if they were viruses. The drug proved in a study of 512 men reported in April 2009 that it could help prolong the lives of men with prostate cancer, with minimal side effects. The drug won FDA approval a year later.
While scientists and doctors (and, more recently, Medicare) debated the merits of clinical trial data to support Dendreon, shareholder debates have raged for years about a number of controversial moves. In his critique, Loncar points to a number of reasons he thinks greater board oversight of management is necessary:
- Dendreon paid a $16.5 million settlement to resolve a shareholder lawsuit, in which the company was accused of failing to properly disclose material information about its interactions with the FDA when it was seeking clearance of its drug sipuleucel-T (Provenge) in 2007.
- The company has a history, Loncar asserts, of making forecasts to the investment community that have "often conflicted with reality or changed significantly over time."
- Many company actions have been unfriendly to shareholders, Loncar says, citing the board's authorization of dilutive rounds of financing, insider stock sales, and "generous gifts of stock and options to executives."
- Dendreon management, Loncar says, "seems unprepared to effectively recognize and answer the public relations challenges facing the company that are outside the scientific realm."
A Dendreon spokeswoman didn't respond to my request for comment about Loncar's complaints on Friday afternoon.
After reading Loncar's cover letter and proposal, I followed up with him by phone to hear directly what he had to say, and find out more about him and what motivated him to lead such a shareholder uprising.
Loncar isn't a lawyer trained in the nuances of corporate governance, or someone skilled in waging the legal contests that big guys like Icahn know all about. He previously worked in administrative jobs in the past three Republican presidential campaigns for president. Loncar says he honed his interest in finance during a stint at Franklin Templeton Investments. Now he says he makes his living managing his family's investment portfolio from his home.
Loncar says he has an emotional, not just financial, interest in what Dendreon does. His grandfather died of prostate cancer in 2006, he says. Loncar followed the company for almost 10 years and has been a shareholder the past three years, he says. At one point, he owned "many thousands" of shares in Dendreon but grew frustrated with management over time and sold all of his shares but one.
"If I had faith in the management of the company, trust me, I'd own many thousands of shares now as I have in the past," Loncar says. "I became disillusioned about six months ago. Rather than walk away, I wanted to try to fix this."
Loncar tried to bring up his concerns in what he calls a "pretty amicable" letter to Dendreon Chairman Richard Brewer on Feb. 22. He was concerned that the board may not be fully aware of all the missteps by management that he has perceived from following the company closely. "If I had received a call a week later, and they said thank you, I probably would have been happy and it would have ended," Loncar says.
But three weeks went by after that letter was sent, and Loncar heard nothing. So Loncar wrote another letter, dated March 14, in which he said he was "surprised and disappointed" to have been blown off. Loncar told Brewer that he was a "big supporter" of the company but that ignoring his proposals meant that he had "no choice but to reach out to other shareholders."
"That definitely lit a fire," Loncar says.
Within two hours of sending that letter, Rick Hamm, Dendreon's corporate secretary who manages communications with the board, told Loncar that Brewer had said that his letters could be distributed to the entire board. So Loncar decided to wait a while longer to see if he got any response.
"I figured I'd let a week pass by," Loncar says. "I gave it more than that and still didn't hear anything. It became pretty clear they were ignoring the proposal."
So Loncar did what he promised -- he reached out to other shareholders. He found public lists of the top 12 mutual funds and hedge funds with holdings in Dendreon, printed up hard copies of his detailed critique, packaged them in binders, and sent them via FedEx to all of those top investment houses.
Then he waited.
"Surprisingly, I got a couple calls back," Loncar says. "I talked on the phone to people I never dreamed I'd talk to. They were investors I look up to and idolize. A few of them said they agreed with almost everything I wrote." When pressed for specifics, he wouldn't name these investors but did say he spoke to representatives of three of the top 12 major holders in Dendreon. None of them said they were willing to go public in their support for Loncar's proposal.
The feedback he got was something like this, Loncar says: "We don't know who you are; you're a small investor; we're a little uneasy supporting you."
Nonetheless, the comments from the big guys were "a morale booster, and vindication that I was on the right track."
That morale booster is what led to the open letter to shareholders, which Loncar posted on Twitter and InvestorVillage.com. Almost immediately, he started getting attaboy comments posted publicly, and sent to his e-mail privately.
Loncar says he had a lawyer friend review his critique just to make sure there was nothing illegal about it, but he says he has no real legal strategic help in getting what he's asking for. He isn't trying to oust any incumbent members of the board or replace them with directors of his liking, as the big guys like Icahn tend to do. As a little guy, Loncar says, making a list of demands like that would be unrealistic and would essentially get his proposal tossed in the garbage immediately.
Instead, Loncar says he'll be happy if Dendreon expands its board by one, maybe two members. The new representative(s) should be looking out for the ranks of small shareholders who want the company to succeed, Loncar says. While Dendreon's board is currently composed of people with "impressive credentials" in health care and biotech, he thinks it could benefit from a more general business perspective. It's been done before, as Loncar says, at the American Cancer Society, which seeks to strike a balance with directors from the medical field, as well as other parts of business and society at large.
It will be fascinating to see if this turns out to be something that grows into a real shareholder movement, as Loncar says he hopes it will, or nothing more than an Internet squall. Companies are often hostile to any attempt to rattle their boardrooms, and the law makes it very tough even for guys as rich, tough, and experienced as Carl Icahn to have an impact. Can a true little guy in the middle of America actually affect change at a prominent biotech company?
Loncar insists that he's sincere and wants to make Dendreon succeed. He certainly has shown he knows how to use the tools of the Internet to get his message across and to get the attention of the powers that be at Dendreon. I'm very curious to see how this turns out.
Loncar, naturally, was feeling pretty optimistic about his chances after getting all the support he did from his fellow shareholders today.
"It no longer takes a Carl Icahn to bring about change in companies," he says "That's what I'm doing now."
Luke Timmerman is the national biotech editor of Xconomy and the editor of Xconomy Seattle. You can e-mail him at firstname.lastname@example.org or follow him at twitter.com/ldtimmerman.
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