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Hans Mueller, Nova Pharmaceutical.

Start-up health care and biotech companies have been at times both criticized and complimented for recruiting "big name" boards of directors in the effort to get launched and established. Skeptics label the practice as mere window dressing to lure in investors.

To discuss the rationale for having a board that, as one might say, is high in name recognition, Directors & Boards visited with Dr. Hans Mueller, President and Chief Executive Officer of Nova Pharmaceutical Corp. Top executives from such companies as PepsiCo, Merck, Allied-Signal, Mobil Oil, Emerson Electric, Armco, and IBM are, or have been, directors of Nova Pharmaceutical since the company went public in 1983. Former U.S. President Gerald Ford retired from the board last year.

Based in Baltimore, Md., Nova Pharmaceutical focuses on new approaches to the treatment of inflammatory conditions, diseases of the central nervous system, and on drug delivery technologies for use in a variety of therapeutic areas. The company employs more than 300 people, including a 165-person research and development team. "We are an exciting little company and we want to make it an exciting big company," says the Swiss-born Mueller, who joined the company in 1985, following a 16-year career with Sandoz Corp. Excerpts from the interview with D&B Editor James Kristie follow.

"In the start-up phase, you need to do two things well. You need to do science well, but you also need to do financing well, because they go hand in hand. The importance of each alternates a bit. Sometimes you are going to push the science more, and sometimes you have to push the financing angle more.

So, you first try to align yourself with top scientists -- which we did with Solomon Snyder -- to get credibility in the scientific community. Then, in order to have credibility in the investment community, it was necessary to put in a board that, in itself, has credibility.

What the founders of the company were looking for were board members who had high name recognition and had good general management experience. Because in those days you couldn't determine what the specific problems facing the company would be, so you didn't look for board members with expertise in a certain field. The founders were looking for generalists with very broad experience.

The third angle was to find people who had experiences in different fields -- scientific people, people from industry, people from government -- so you could cover all the different broad issues that you will face within our industry, whether it be science, financing, government interaction, and so on.

Clearly, the early function of the board is to be almost a translation mechanism. Technical concepts are very difficult to translate to the layman and the financial community, particularly early on if you don't yet have a specific product that you can talk about. By having people with broad management experience and high name recognition, you again credibility, because the assumption, of course, is that those people wouldn't get involved with the company unless they themselves have done their due diligence and are prepared to be, in a way, spokesmen for the company, both directly and indirectly.

So, that is the way the board was initially constituted, and, in many ways, it is still the case, even though the structure of the board over the years has changed and a different emphasis has been placed on the selection of board members.

You can look at the evolution of the board in the same way as that of a young entrepreneurial company that goes through several life cycles. Initially, ours was a very small board. The only committee we had was a stock option committee. It was set up to administrate the stock option plan, which was put in place early on -- for the employees, basically.

As time went on and we became a bit more mature in our life cycle, the board grew to 16 members, which allowed us to create sub-structures to look at specific issues. The funds available to us were becoming more significant and we had more expenses, so from a check and balance system it was necessary to charge certain board members with more detailed involvement. That is why we created an audit and finance committee. Later on we formed a compensation and organization committee to delegate within the board structure responsibilities such as reviewing officers' salaries and establishing guidelines for new board members.

We have since scaled the board back to nine members. I personally like to interact with the directors not only in board meetings but also in between meetings. That is difficult to do if you have a large board. Our board is now much more interactive.

Another decision as the company evolved was to figure out what other expertise we needed to have on the board besides general management skills and name recognition. We decided that the board of a company that at this stage is still so heavily driven by science should at all times have at least two scientists on it. Sol Snyder has always been on the board. Most recently, until we lost her due to her appointment as Director of the National Institutes of Health, Bernadine Healy was our second scientist. (Dr. Healy was Chairman of the Research Institute of the Cleveland Clinic Foundation.)

Now that we are moving beyond just research, it is important to get what I would call |industry insiders' on the board. Before, the company in many ways was very simple. All we did was research, and we really dealt with two issues only -- first, how and in what areas to do our research, and how to keep our research innovative, creative, and productive; and second, how to get the financing for it.

Major pieces in place

We are now, from an operating point of view, moving more toward downstream-type functions. Development is becoming important, and we now have a sales organization. More and more, we are having all the major pieces in place, although they are still small in each area. Nonetheless, the nucleus is there. So, we are looking for directors who have specific expertise in these more downstream functions.

That was the rationale for asking Don O'Neill to joint the board. He has had specific experience covering all major functions within the industry and has a lot of industry connections. (Subsequent to the interview, Donald O'Neill was elected Chairman of Nova Pharmaceutical, succeeding John Lloyd Huck, who retired as Chairman but continues as a Director. O'Neill retired in 1991 from Warner-Lambert Co., where he was Executive Vice President and Chairman, International Operations.)

We also asked Sandra Hillman, who is with a local advertising firm, to join the board. As we move more downstream, we face the questions of where the markets are for our products, how we position our products and sell to those markets, and how we position the company as a whole -- all the image kinds of things. We are not asking her to take on an operating function, but she can help us in how to go about it and what it is that we need to look for. Again, this is all part of the original rationale of the board, which is to provide a check and balance system as well as an access mechanism.

Another director who joined us last year was Robert Boni. He has an enormous general management background, as the former head of Armco Inc. It is good to get people who have managed well in both good times and bad because you get a certain experience level, which is very valuable.

What Boni also brings us is his technical background. We want to be sure that the board members understand what it means to manage technology, because that is what we are still basically managing at this time. If you look at Boni and some of the other board members we have had -- such as Ralph Gomory, who was head of research at IBM -- they know the issues involved in managing scientists, in managing technology, in managing long development life cycles. If you only had directors who came out of industries with very short development life cycles, it would be difficult, because they really can't identify with the issues that we as management confront.

In the check and balance system, I include the board not just being there to question but actually to get involved in instances where they can help. Most of our board members have done that when I have called on them.

Wooing a scientist

We had one situation in which we were wooing an important scientist because we wanted to launch a new initiative in a particular research area. We thought President Ford could be helpful. We asked him, and he was. He volunteered to meet with us and that particular scientist in Washington.

There was another case when one of our employees returned to his home country and had his visa pulled by the American embassy. It was a dispute over the specific classification of this visa. We tried everything that we could through the local politicians.

Finally, at a board meeting, I said, |Mr. President, is there anything that you could do?' He said, |I will help as long as it is legal.' We gave him a number of affidavits from legal counsel to show him that ours was a good case and that this was simply an issue between the authorities here and the consulate office. President Ford wrote two letters to people he knew in the government. They looked into it, concurred that everything was kosher, and we had our employee back within a week.

Now these may not sound like major issues, but they were important to us. He recognized what the importance was, he knew what we were after, and he was helpful.

The other thing about President Ford, as well as many of the other board members, is that they are such strong personalities. When you are a young chief executive -- and I still consider myself to be a young chief executive, even though I am 50 -- you have respect for these people and for what they have accomplished and for their enormous range of experience. It makes you want to be well prepared for every board meeting. You want to know your material, because you don't want to embarrass yourself in front of these people for whom you have such respect.

That, to me, is another function of the board -- what I would call the ultimate in the check and balance system. The strength of the board forces you to be sure that the proposals you make, the directions you want to take, are as well thought through as they can be. When you are required to stand up to the challenge by board members who have broad experience and who have accomplished something in their lives, that is a very productive exchange and is very helpful for a young company."
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Copyright 1992 Gale, Cengage Learning. All rights reserved.

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Title Annotation:Profile of the Board; President and CEO of Nova Pharmaceutical Corp.
Author:Kristie, James
Publication:Directors & Boards
Article Type:Interview
Date:Jan 1, 1992
Previous Article:Health care firms bring talent aboard.
Next Article:Seize the moment.

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