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PRAXIS BIOLOGICS MANAGEMENT SPLIT

Executive Summary

PRAXIS BIOLOGICS MANAGEMENT SPLIT pits operating management against Chairman David Smith, MD, who portrays his position as acting on behalf of the company's scientific personnel. Smith called a special meeting of the Praxis board March 10 in order to seek re-election as president and CEO of the vaccine company he helped found. Smith, who has a 47.6% equity position in Praxis, stepped down from his operating responsibilites at the end of 1987. "The other five outside directors declined to take [immediate] action at the board meeting and appointed a special committee of the board to consider Smith's request and the basis for such request in light of the best interests of the company and its shareholders," Praxis stated in a March 11 press release. "Smith has indicated his intent to call a special meeting of shareholders to remove the five other directors if his demand . . . is not complied with." Smith has the support of another Praxis shareholder. According to a recent 13D filing, Richard Insel, another Praxis founder, has pledged to vote his 286,666 shares (2.1%) in favor of Smith's board reorganization plan. Smith said he has the support of other shareholders should the board not re-elect him and a proxy battle ensue. The split between Praxis management and scientific personnel again illustrates problems that can occur as R&D start-ups mature into more sophisticated business entities. As products reach the market, shareholders demand greater financial accountability and short-term operating considerations become increasingly important. A similar situation at Biogen in 1985 led to the resignation of founder Walter Gilbert. Praxis has been searching for a new CEO since Smith gave up his management duties. In the meantime, Exec VP Franklin Top, MD, has been serving as acting chief exec. Top, former director of the Walter Reed Army Institute of Research, joined Praxis in October 1987 ("The Pink Sheet" Jan 4, T&G-2). Bristol-Myers, the U.S. distributor of the firm's polysaccharide Hib vaccine b-CAPSA-1 and a sponsor of Praxis research, owns approximately 12% of Praxis. Introduced in 1985, b-CAPSA-1 generated first-year sales of about $40 mil. However, the company has struggled recently. Competitive products and a decline in the eligible pool of 2 to 5 year olds had an adverse impact on Praxis' 1987 results. The company's net income plunged 90%. In addition, Praxis announced in October that Bristol-Myers was withdrawing funding for one of three Praxis vaccines under development for Bristol. While Praxis submitted a PLA for a new conjugate Hib vaccine in January, a similar Connaught product was approved at the end of 1987. "Based upon the investigation to date of the special committee of the board, the committee is particularly concerned about the retention of the services of executive officers, whose services the committee believes might be lost if it complies with Smith's demands," Praxis said. Smith said that scientists unhappy with current Praxis management have precipitated his most recent actions and maintained that he is trying to avert a scientific exodus from the company.

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