WASHINGTON _ Scios Nova Inc.'s proxy statement for the fiscalyear ending Dec. 31, 1993 asks stockholders to vote on four proposals.Two of the proposals are standard fare: the election of directors and theratification of auditors. The other two proposals are anything butstandard and they were submitted by angry shareholders.One proposes that Scios Nova's board of directors appoint a committeeto immediately begin searching for a buyer of the company. Thesecond proposes the board require that its chairman be independent,and not a member of company management. (Scios Nova's chiefexecutive officer, Richard Casey, serves concurrently as chairman ofthe board.)Gary Paulzak, a stockbroker from Mary Esther, Fla., who ownsroughly 8,600 of the approximate 35 million shares of Scios Novastock outstanding, submitted the proposal to require the company'sboard to search for a corporate buyer. Although Paulzak could notcomment publicly for legal reasons, a press release stated that hebelieves a change in current management is the cure for Scios Nova'sills. Paulzak blames management for the persistent underperformanceof the company's stock."Long-term investors to date have been long-term losers," Paulzak'srelease states. "Despite this cumulative record of poor priceperformance, the company . . . has steadily and substantially raised thepay of the CEO and other senior executives and has twice repricedunderwater optiondownward [sic] to their benefit."The proposal to separate the functions of chief executive officer andchairman of the board was submitted by Sharon Olson, also of MaryEsther, Fla., who owns 200 shares of stock in the company. Thecritique inherent in this proposal is that Scios Nova's board of directorsis not independent enough.The first cycle of 1993 proxy statements is hitting the printing pressesat a time when biotechnology stock prices are weak, disclosure rulesare stringent and shareholders are frustrated and disappointed with theircontinued losses in the sector. Watchful biotechnology executivesmight ask themselves, are these two stockholder proposals thebeginning of a trend?Scios Nova's stock has taken a roller coaster ride over the past sixyears, making a bumpy ascent from $7.50 when Casey joined thecompany in 1987 to a high of $26.38 in early 1992 only to descendagain to Tuesday's close of $7.38. The company started out asCalifornia Biotechnology in 1983, changed its name to Scios, andacquired Nova Pharmaceuticals in a September 1992 stock swapvalued at $140 million.Like other companies, Mountain View, Calif.-based Scios Nova raisedcash at opportune moments in its public life. In 1991, it completed twofollow on offerings, selling shares at $14.63 apiece in March and at$22.75 apiece in October. Although it's been around for more than 10years under its various names, the company's lead product, Auriculinfor acute renal failure, is still at least two years away from marketingapproval. The company has enviable cash reserves of more than $100million but investors gripe that their returns have been meager.Repricing options, decoupling CEO pay from stock price performanceand installing CEOs in chairman of the board positions have becomestandard practice in the biotechnology industry. The critiques leveled atScios Nova by its dissident stockholders could be fairly aimed at manya company.(Options to purchase stock are usually granted to employees at marketrates. If the stock price rises, an employee may exercise his or heroption at the market rate on the grant date, thus realizing a gain.However, if the price drops below that on the grant date the option issaid to be "underwater." In other words, worthless. One commonpractice in the volatile biotechnology industry is to reprice optionswhen stock prices sink.)But defending perquisites, high salaries and bonuses in an industrywithout revenues is bound to get dicier as stock prices slide, productdevelopment timelines lengthen and investors get cranky. Casey, whois among the highest paid executives in the industry, earned a basesalary of $400,000 in 1993 plus a bonus of $48,000. Sarah Gordon,senior biotechnology analyst at Amerindo Investment Advisors Inc. inNew York, said she has complained to the company about Casey's pay.As of March 30, Amerindo held 1.8 million shares of Scios Novastock, or 5.2 percent of the company.Gordon declined to say how her company would vote on the twoshareholder proposals but she did express frustration with thecompany's performance in recent years. She said she opposed the 1992Nova merger which caused a 40 percent dilution of the company'sstock and did not yield a comparable return."The whole cozy way the company's been run has been a problem,"added Gordon. "It has not been a very accountable board."For his part, Casey said he takes the two stockholder-sponsoredproposals very seriously. "I don't take anything for granted," he said.However, he called the proposal to put the company up for sale"ridiculous," arguing that it would amount to a fire sale and woulddrive the stock price down."That's crazy and he [Paulzak] knows its crazy," said Casey. Caseysaid that the company has attempted to respond to Paulzak's concernsand questions via meetings and phone calls for the last three years.Casey further argued that his compensation is in line with that ofexecutives from comparable companies, including Genzyme Inc. andBiogen Inc. of Cambridge, Mass., Chiron Corp. of Emeryville, Calif.,Centocor Inc. of Malvern, Pa., Immunex Corp. of Seattle, Wash., andSynergen Inc. of Boulder, Colo. As for the repricing of stock options,Casey said that the company would lose valuable employees withoutthe ability to reprice. "Few shareholders like it, but most sophisticatedshareholders understand it's necessary," said Casey. "If we hadn'trepriced, we'd have a flood of people leaving here. There are at least30 companies within 15 minutes of here where they could get betteroptions."As for the losses public shareholders have suffered, Casey said thatinvestors in the two 1991 offerings are justifiably angry but adds, "thisis a risky business, nobody forced them to buy the stock."He said that the eight-member Scios Nova board, which is composed ofseven directors independent of the company in addition to himself, isone of the strongest and most independent in the industry. Payingannual fees of between $50,000 to $100,000 to an independentchairman would be a pointless expense, Casey said.The two shareholder proposals on Scios Nova's 1993 proxy statementare the first ever to appear in a Scios Nova company proxy, accordingto Casey. He said the company has never been the subject of asecurities class action law suit, a more common tool used byshareholders to redress grievances about falling stock prices. Onereason the two stockholder proposals made it into Scios Nova's 1993proxy is that the Securities and Exchange Commission is currentlyinvolved in litigation which prevented it from issuing a "no action"letter, a document which provides legal protection for companies whoexclude such proposals from proxies. The company's annualstockholder meeting is scheduled for May 10. n
-- Lisa Piercey Washington Editor
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