Wayne, Pa.-based contract research organization (CRO) Encorium named a new president and CEO Sept. 10, just in time for a heated call with investors after Encorium’s shares were cut in half in less than two days.
Encorium held an investor conference call last Thursday morning to introduce David Ginsberg as the company’s new president and CEO, as well as to announce the resignation and replacement of two board members. The tone of the call, however, was anything but celebratory.
Ginsberg, most recently the vice president of medical affairs and clinical affairs for KV Pharmaceuticals, spoke only briefly, while Encorium executives fielded questions from a number of shareholders who expressed concern about recent company changes and decreased stock value.
Encorium’s shares fell almost 50% late last week, within hours of the company announcing the termination of its plans to purchase Fine Success Investments, a holding company doing business as Linkcon. The Linkcon merger and the pending acquisition of Prologue Research, a Columbus, Ohio-based CRO specializing in oncology, were expected to take Encorium from a $37-million CRO to a $55 million global player.
The Linkcon deal was contingent on Linkcon purchasing three well-established, yet unnamed, CROs in China, India and Latin America. As the due diligence for these acquisitions proceeded, it became clear to Linkcon and Encorium that the deals would not close in the near future, prompting Encorium to terminate negotiations with Linkcon, said Dr. Kai Lindevall, Encorium’s former CEO and newly named executive chairman.
Lindevall said he was surprised by the falling stock prices, calling the “disconnect” between what he perceives as the company’s true value and the stock price “absurd.” Lindevall pointed to several recent contracts and a backlog of $40 million as evidence of Encorium’s potential value. Two callers on the conference call suggested that, if the company has so much value, executives should consider selling Encorium itself rather than buying other companies.
Encorium’s pending deal with Prologue Research was also changed, with the purchase price dropping to approximately $11.75 million from $13 million. This deal is expected to close Friday, Sept. 19, but some Encorium shareholders expressed concern about the deal given the falling stock prices and Prologue’s past financial performance. “You’re buying a losing business, it would appear,” said one caller. The Prologue acquisition is expected to be profitable by the later part of the second quarter 2009, according to Encorium CFO Philip Calamia.
When asked to speak about the recent board resignations and management changes, specifically the February 2008 change of leadership to Lindevall from Kenneth Borow, M.D., Lindevall said, “It is quite obvious that something needs to be done for this company … I don’t think any shareholder is particularly pleased by the performance of the company based on the past five years.” Encorium executives and Borow are in the midst of discussing Borow’s future with the company, specifically a possible consulting role, Lindevall said.
This latest Encorium shake-up comes less than a month after the company’s second quarter earnings report reflected a decrease in net revenue for the six months ended June 30, 2008, compared with the same period in 2007. The company also reported a net loss of $3.5 million for the first six months of 2008 compared with a net loss of $738,000 for the first six months of 2007. In early morning trading Friday, Encorium’s shares were at 65 cents.
Long-standing board members Scott Jenkins and Christopher Meshginpoosh tendered their resignations from Encorium’s board of directors effective immediately and will be replaced by David Morra, a managing director of Union Partners, and an as yet unnamed director of Prologue Research once the acquisition is finalized. Morra was CEO of Omnicare Clinical Research for almost six years before joining Union, and newly appointed CEO Ginsburg served as Omnicare’s chief medical officer and senior vice president before joining KV Pharmaceuticals.