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Originally published Wednesday, December 20, 2006 at 12:00 AM

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Icos CEO defends handling of deal

Icos Chairman and Chief Executive Paul Clark, barraged by criticism that he's selling the company too cheaply and getting rewarded too well...

Seattle Times business reporter

Icos Chairman and Chief Executive Paul Clark, barraged by criticism that he's selling the company too cheaply and getting rewarded too well, said Tuesday he has no regrets about how he and the board have handled the company's proposed sale to Eli Lilly.

In a one-on-one interview after a brief procedural shareholder meeting at the company's Bothell headquarters, Clark, dressed in a plain sandy-brown sweater, rejected critics' complaints and urged shareholders to vote for the improved Lilly offer.

Clark said "it would have been ideal" to retain more workers, "but that was Lilly's decision." Most of the company's 700 workers will lose their jobs next year, if shareholders vote Jan. 25 to accept Lilly's sweetened offer of $34 a share.

He corrected previous reports from the company that all 700 workers have been given layoff notices. Clark said 125 workers in contract manufacturing are expected to stay on "indefinitely" after the deal closes, and Lilly intends to sell that operation to a company that would retain them. He added that 60 sales reps from the Icos crew of 160 have also applied for jobs at Lilly.

Clark said the Icos board performed a "very thorough, very serious" analysis of the company's value in 17 meetings over a year and a half before approving Lilly's October offer of $32 per share.

On Sunday, the board unanimously endorsed the upgraded price of $34 a share, and Clark called it a "very compelling" offer that shareholders should accept. Because of the upgraded price and other recent disclosures, the company rescheduled the vote, originally set for Dec. 19, and Tuesday's meeting was formally adjourned until Jan. 25.

Icos has been criticized for withholding information that many shareholders considered material before voting on the sale. The company chose not to disclose that a new psoriasis drug had entered clinical testing, and that it submitted an application to test a new cancer drug with the FDA. At the time Clark was urging shareholders to accept Lilly's offer of $32 a share and had suddenly turned bearish on his company's future.

Then last Thursday, as attorneys for shareholders were digging furiously through confidential company documents before a Friday court hearing, Icos issued an eye-opening press release.

The company said the impotence drug Cialis was actually selling much better than management had expected, and Icos' 2006 profits were expected to triple earlier estimates. It also disclosed the drug trials.

Clark made the last-minute disclosures about Cialis' soaring profitability out of a spirit of openness — "simply to provide our shareholders with the latest and very best estimates that we have so that no one should have any doubt that we're trying to give the fullest possible disclosure about where we are prior to the vote," he said.

The company didn't consider the progress of the psoriasis and cancer drugs to be material for a company the size of Icos, he added.

Before voting for the Lilly buyout, Clark said, the board considered other strategies for the company's future, such as licensing in other drugs or acquiring a smaller company, but it concluded the sale to Lilly is the best option for shareholders.

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Clark, 59, confirmed that the higher bid from Lilly means his $23 million golden parachute will expand but said he didn't know by how much.

Critics have said Icos' board needlessly gave a $13.6 million round of last-minute retention bonuses to senior executives, including $4.3 million for Clark. Clark said the board's compensation committee, advised by an outside consultant, decided the situation called for more bonuses.

Clark, a former Abbott Laboratories executive who took the top job at Icos in 1999, bristled at suggestions that he was pushing the sale for personal reasons.

"This is a decision being driven by what's best for the shareholders," he said.

Based partly on Icos' newly released information, HealthCor Management, which holds 6 percent of the company's shares, said this week the new $34 bid is "significantly inadequate." Institutional Shareholder Services, a leading proxy advisory firm, recommended shareholders reject the earlier bid of $32, and plans to study the new bid.

Many employees, speaking on condition of anonymity out of fear of reprisal, say they are angry with Clark. One former employee, Heather Brett, said, "I think what Paul Clark has done to Icos is wrong and a travesty. He should be punished, not rewarded."

But Clark said that if shareholders reject the deal, he believes he still can lead the company. He said Cialis is a "great product," and the two new drugs give the company other options.

Clark did not say he's confident he has enough shareholder votes on his side.

"I'd be optimistic we will, but we have to work the process," Clark said. "Now it's our job to talk to shareholders."

It could be a tough sell.

One shareholder who confronted Clark after the Bothell session Tuesday told him she was unhappy the sale is being made in cash rather than Lilly stock, meaning she will take a tax hit.

Another shareholder lamented that a local company was being swallowed up by a pharmaceutical giant.

"Money, money, money talks," she told Clark. "That's what it's all about."

Luke Timmerman: 206-515-5644 or ltimmerman@seattletimes.com

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