Medarex CEO resigns

Donald Drakeman leaves company he co-founded in wake of options probe

By: Lauren Otis
   In a sudden move, Donald Drakeman, co-founder, president and chief executive officer of Princeton-based biopharmaceutical company Medarex Inc., resigned last week as Medarex announced that an internal investigation had turned up instances prior to 2002 where the company had manipulated the dating of stock option grants to benefit company recipients.
   Although Mr. Drakeman’s resignation is effective immediately, he will remain an employee of Medarex until Jan. 4, drawing his approximately $800,000 salary, and will then remain a consultant to Medarex until March 25, being paid approximately $70,000 a month, according to the company. The stated reason Mr. Drakeman is staying on at Medarex is to "assist in an orderly transition of the company’s leadership," according to a Medarex release.
   Mr. Drakeman, a high-profile proselytizer for research- and science-based entrepreneurship in New Jersey, is currently chairman of the New Jersey Commission on Science and Technology, a position which is a gubernatorial appointment.
   "This is certainly cause for concern," said Brendan Gilfillan, a spokesman for Gov. Jon S. Corzine, about Mr. Drakeman’s departure from Medarex in conjunction with the stock options revelations. "Gov. Corzine has asked his chief counsel, Ken Zimmerman, to look into it and determine whether he (Mr. Drakeman) should stay on" as chairman of the NJSCT, Mr. Gilfillan said.
   Michael A. Appelbaum, a former Medarex chief financial officer and current director, also resigned his position as director effective immediately, Medarex announced.
   Irwin Lerner, chairman of the Medarex board of directors and a former CEO of Hoffmann-La Roche Inc., has been named interim president and CEO of Medarex.
   A cloud has hung over Medarex since May 24 when the company disclosed in a Securities and Exchange Commission filing that the SEC was looking into its stock options grants and practices. Subsequent SEC filings revealed that the U.S. Attorney’s Office for the District of New Jersey had also opened an investigation and several private lawsuits had been initiated over the stock option practices. In its release announcing Mr. Drakeman’s departure, Medarex stated that these investigations are ongoing and it continues to cooperate with the SEC and U.S. Attorney’s Office.
   "Given the issues that have been raised in recent months, the company, Dr. Drakeman and Mr. Appelbaum have agreed that the best way for Medarex to put those issues behind it and to remain sharply focused on its vital mission is for Dr. Drakeman and Mr. Appelbaum to step down from the board, and for Dr. Drakeman to step down as president and CEO," Mr. Lerner said in a statement.
   The questions over pricing of options, revolved around the practice of back-dating stock options to points in time when the company’s stock price was low, giving company directors and officials a maximum gain when they subsequently exercised the options. The practice, effectively ended after 2002 with the passage of the so-called Sarbanes-Oxley legislation, was engaged in — and subsequently the subject of securities investigations — by many publicly-traded companies.
   At the time that questions were raised over its options granting practices, Medarex initiated an internal investigation. In a release last week, Medarex said: "Based on its investigation, the Special Investigation Committee found that prior to the 2002 effective date of the Sarbanes-Oxley legislation, the company had a practice, in many instances, of dating its stock option grants and restricted stock grants as of dates on which the stock price was relatively low, without disclosing the selection in its public filings and without taking a compensation charge."
   Medarex’s statement said that the internal investigation did not turn up "evidence demonstrating fraud or willful misconduct" by Medarex management. Medarex said that directors who benefited from misdated grants — all current directors appointed before 2001 — and senior officers, would have to repay Medarex for any gains they realized because of the misdating. Medarex is also in the process of restating its annual and interim financial statements for 2000 through 2005 and for the quarter ended March 31, 2006, to reflect options revaluations, the company stated.
   While a surprising development, the announcement of Mr. Drakeman’s departure did not appear to affect confidence in Medarex. The stock price has not decreased significantly, continuing to trade just below $13 a share. Brian D. Rye, a stock analyst with Janney Montgomery Scott in Philadelphia, maintained his buy recommendation for the stock.
   In a research note following last week’s announcement, Mr. Rye wrote: "We see any step towards closure in this ongoing stock options issue as a positive development for the company. While it is never a desired situation to see a CEO leave a company under such circumstances, we do not believe it will have any meaningful impact on the company’s broad pipeline of drug candidates."
   Jean Mantuano, a Medarex spokeswoman, said the company had no time frame at present for finding a permanent replacement to Mr. Drakeman as CEO.