BioMarin Battles Critics for Board Seats

One nominee was recently considered for the drug company's CEO post.
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Complaining about recent performance and worried about future strategy, dissident shareholders want to place three directors on the seven-member board of

BioMarin Pharmaceutical

(BMRN) - Get Report

-- including a nominee who was once considered for the company's chief executive post.

The critics are led by OrbiMed Advisors, an investment advisory and management firm that specializes in health care. OrbiMed, which filed a proxy statement last week, now owns 8.2% of BioMarin's stock, making it the second-largest investor in the Novato, Calif., drug company.

BioMarin has had an interim chief executive since August, when the previous CEO resigned. The interim CEO Louis Drapeau, who had been chief financial officer, is being nominated by BioMarin to join the board along with six current members being renominated.

Although OrbiMed acknowledges it can't control the board, its candidates will "strengthen BioMarin and its management," the firm says. "The nominees will have the opportunity to articulate and raise their concerns about BioMarin's business activities with the rest of the board members."

At the moment, some issues remain unresolved, including the date of BioMarin's annual meeting. The proxy doesn't set a date, and calls to the company were not returned. An OrbiMed executive says he can't comment beyond what's enclosed in his firm's proxy.

Complex Tale

The BioMarin and OrbiMed preliminary proxies illustrate both a complicated investing relationship and search for a permanent CEO. OrbiMed started buying shares of BioMarin in May 2001, then sold its 3% stake in March 2002 after complaining about an acquisition. By October 2003, OrbiMed was buying the stock again, taking advantage of depressed prices.

In the fall of 2004, an OrbiMed representative contacted BioMarin to again criticize performance, the OrbiMed proxy says, and later that year, the firm was contacted by Richard B. Brewer, an independent investor in BioMarin, "to discuss their mutual investment."

OrbiMed says that last year, Brewer, a former pharmaceutical executive who runs a management investment and advisory firm, was contacted by BioMarin to become the CEO. Brewer declined, but said he "would consider serving" as chairman, the May 4 OrbiMed proxy says.

In some cases, neither of the proxies offers precise dates for either side's recounting of some events.

BioMarin's May 2 proxy says board members approached Brewer in "late 2004," and it confirms he wasn't interested in the CEO's job but that he said he would consider the chairmanship. After several discussions, however, relations between BioMarin and Brewer soured.

Board members "believed that following their discussions, Mr. Brewer may have contacted OrbiMed, which in turn contacted one of the company's corporate partners, without authorization, to pursue one of Mr. Brewer's proposals for the company," the BioMarin proxy says. "Management, as well as members of the board of directors believed that this unauthorized contact needlessly harmed the company's relationship with that corporate partner."

By January 2005, board members had decided that Brewer's nomination "was not in the best interests of the company," and they told him so, the proxy says.

Candidate Search

Once again, the two sides' accounts differ slightly, but they agree that Samuel D. Isaly, managing partner of OrbiMed, subsequently talked with BioMarin board members about three OrbiMed candidates for the board, including Brewer. BioMarin board members told Isaly, a veteran health care investor, that they wouldn't consider Brewer.

BioMarin says board members had been willing to interview two other OrbiMed nominees -- as well as a fourth person recommended later by OrbiMed. But BioMarin says its representatives couldn't "schedule a mutually convenient meeting time" with one candidate after trying several times. And BioMarin says it didn't have enough time to check out one candidate prior to filing its proxy.

Board members liked one candidate, but the BioMarin proxy says they eventually cooled on him because of his "apparent interest in serving only on a conditional basis" with Brewer and his inclusion in OrbiMed's list of challengers.

By OrbiMed's account, BioMarin appeared interested in this candidate as late as April 18, adding that the parties haven't talked since April 25.

This seems like a lot of corporate combat for a company that just reported a first-quarter loss of $22.5 million on revenue of $5 million. Some analysts say BioMarin is poised for a comeback, even as the stock is trading at about half its value of 24 months ago.

On Tuesday, the company's shares closed at $6.41, giving it a market capitalization of just more than $400 million.

BioMarin has two products on the market. In collaboration with

Genzyme

(GENZ)

, it makes and markets Aldurazyme, an enzyme replacement therapy for a rare, inherited fatal disease called MPS I that produces many debilitating symptoms and, in its worst form, can kill by age 10. BioMarin also sells Orapred, a treatment for children suffering from respiratory inflammation caused by asthma.

Examining Prospects

Analysts who like BioMarin say near-term success lies in two experimental products. "We continue to believe that BioMarin is in the early stages of a turnaround," says Phil Nadeau, of SG Cowen & Co., in a recent research report.

He is looking to the May 31 action date by the Food and Drug Administration for rhASB, an experimental enzyme replacement therapy for a rare, inherited, potentially fatal disorder called Maroteaux-Lamy syndrome. The disease causes, among other things, heart damage and usually leads to death before age 40.

Nadeau expects the drug to reach the U.S. market during midyear and European markets during the second half of 2005. His other source of optimism is a late-stage clinical trial of Phenoptin for mild to moderate forms of the inherited metabolic disease phenylketonuria, which can lead to severe neurological damage. The clinical trial should be completed by year-end.

The analyst says that each product could produce $100 million or more in annual sales. Nadeau doesn't own shares. His firm doesn't issue stock ratings, but it is a market maker in the stock and has been involved in a public offering within the last three years.