Biotech Mailbag: Bad CEOs Offer Lessons

"I had hoped you would comment further on Pien of Medarex. He definitely presides over a do-nothing public relations department. In my opinion, [Scientific Director Nils] Lonberg and his research crew is what keeps the company going. And for all his greedy faults, [former CEO Donald ] Drakeman did ink a number of worthwhile collaborations and partnerships that appear to be about to bear fruit. But Pien is a definite no-show."

Before I get to specific comments about Pien and why he made the worst CEO list, let me say first that while "worst CEO" lists are fun to read, there is an important investor lesson to be learned.

Don't waste your precious investment dollars in companies with lousy management teams. Successful biotech investing is hard, but it's only getting harder because money is tight and successful drug development is becoming increasing more challenging.

It's important to spend more time than ever assessing the quality of the CEOs and management teams at your favorite biotech firms. Are they conserving cash? Are they investing the money they do have wisely? Can they articulate a clear drug development strategy? Does the company have definitive near-term and long-term goals? Are they meeting those goals on time? Does your CEO under-promise and over-deliver?

The days of biotech companies being allowed to fritter away tens of millions of dollars, or even hundreds of millions of dollars, on silly, high-risk vanity projects is over. Institutional biotech investors (and there are fewer of those today) are holding CEOs to much higher levels of accountability than ever before. Fewer mulligans are being handed out, if any at all.

Don't expect every biotech CEO to be like Genentech's (DNA Quote) Art Levinson. That's unrealistic. But go through those questions above and make sure that the biotech companies you're invested in understand the gravity of the situation they're in right now. I assure you, Wall Street's biotech investors are well aware and are keeping track. You need to do the same.