Enduring principles guide companies through times of economic turmoil
The worst mistake a company CEO can make in this down market is to focus solely on the company's daily stock price, and not look to build long-term shareholder value, Cell Therapeutics CEO James Bianco says. He notes that companies with longer-term vision can succeed through economic challenges.
Special to The Times
IN these economically challenging times, businesses struggle to survive the downturn and employees work overtime to help their company's durability while worrying whether they will have a job to support their families and homes.
In Seattle, there are poignant examples of companies caught off guard by a changing marketplace, the allure of quick profits and the sudden downdraft in the credit and capital markets. Among them: the failure and takeover of the largest U.S. savings and loan corporation, which lost more than $327 billion in asset value and 3,000 employees locally, and the announcement of the sale and possible closing of a local media outlet.
Statistics for the fragile biotechnology industry in Seattle and nationally are bleak, with the average stock value for companies with market capitalizations below $200 million dropping 67 percent. Hundreds of small biotech companies now trade below the Nasdaq $50 million market cap listing. My company, Cell Therapeutics, Inc. (CTI), is one of those.
As a CEO, founder of CTI and a 16-year veteran of the biotech industry, I have witnessed several similar horrific down cycles in both the life-sciences sector and national economy. Biotech has a unique business model. It takes almost 17 years and $1.7 billion to bring a drug to market. During this development period, few companies have revenues or profits. This leads to understandable shareholder anxiety. Investing in biotech is not for the faint of heart.
With no cash flow, raising operating capital remains the lifeline for the biotechnology sector. While public-company financing was down 58 percent from 2007, CTI managed to raise $117 million in 2008 through innovative, albeit dilutive, financing. But running out of money would have closed the doors, left more Seattle employees jobless, and left promising cancer drugs on the shelf.
The worst mistake a CEO can make right now in this down market is to focus solely on the company's daily stock price, and not look to build long-term shareholder value. There are lessons learned from companies such as Enron and WorldCom, whose perceived business and earnings growth — reflected in soaring stock prices — was short-lived.
I have always followed a single principle — walk by faith, not by sight — to guide me and CTI, through both good and tough times. Those companies with lasting vision and/or noble missions, whether they be Starbucks or Nordstrom, even when they stray, find their way back to enduring success. At CTI, our mission is to develop less-toxic, more-effective drugs to treat and cure cancer. It is the glue within our organization.
While CTI brought a lifesaving cancer drug for a rare form of leukemia to market, and became the second-best-performing stock on the Nasdaq in 2000, those sales could not make us profitable or sustain us long-term. Worse, the failure in 2005 of our lead drug in development — usually a lethal blow to biotech companies — led many to call for throwing in the towel.
That's called conventional wisdom. But it is not the stuff of "risk-takers" that leads to ultimate success, as President Obama pointed to in his inaugural address. Instead, CTI reinvented itself by returning to a development-stage organization, rebuilding with a pipeline of important cancer-drug candidates.
We knew we would fall from grace with the typical institutional investor, and be criticized by some shareholders for changing tactics. But CEOs can't get caught up in short-term fixes; we must focus on fundamentals to build our business, while staying in tune with the markets to sustain our growth. This includes keeping management and staff motivated, and honoring commitments made to reward milestones and superior performance, even if such actions challenge conventional wisdom and don't make for "good" public relations.
As former GE CEO Jack Welch said recently in Business Week, "... everyone in a society benefits when companies thrive and pay taxes. Indeed, if our economy is to get back on its feet, we need companies that are meritocracies now more than ever."
While the current credit crisis came as a surprise to most consumers late in 2008, those CEOs who kept their finger constantly on the pulse of the capital markets saw this coming in late 2006. We took bold, unconventional steps to free us from dependence solely on the capital markets and avoid the "bailout" mode. We formed a $285 million partnership with Novartis for our drug Opaxio, and acquired the lymphoma drug Zevalin.
In 2009, we now have opportunities to reach our cash flow break-even objectives, including Food and Drug Administration approval of Zevalin for a new use in lymphoma, FDA approval of pixantrone, and European approval of Opaxio for patients with lung cancer.
While 2009 will present new challenges for all of American businesses, there is a common thread and path toward success — those companies who stay ahead of the market, challenge conventional wisdom and follow their mission for the sake of achieving their objectives will always find a way to reach their goals.James Bianco is CEO of Cell Therapeutics, Inc.
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