Biotechnology Shareholder Breach of Fiduciary Duty

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Minority shareholders in a financially troubled biotechnology company alleged that the majority shareholder drove the company’s choices of funding sources and that the interests of minority shareholders were not properly represented.

Minority shareholders in a financially troubled biotechnology company alleged that the majority shareholder drove the company’s choices of funding sources and that the interests of minority shareholders were not properly represented. Counsel for the company and individual defendants retained Dr. Allan Kleidon, a senior vice president of Cornerstone Research. Dr. Kleidon submitted a report on alleged damages caused by the company’s funding choices and testified on the same issues at trial.

Damages awarded by the court were substantially less than sought by the plaintiffs.

Dr. Kleidon showed, and the court agreed, that the price and terms of the funding agreements were fair and valuable to the company. Dr. Kleidon demonstrated the fairness and value of the funding agreements both ex ante, i.e., based on the funding agreement terms, and ex post, based on the market’s response to the funding agreements. The company’s share price either rose or did not react when either of the funding agreements was announced. Finally, Dr. Kleidon found that the company’s falling share price was caused by its high burn rate and lack of clinical trial success rather than by its funding choices. Damages awarded by the court were substantially less than sought by the plaintiffs.

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Allan W. Kleidon

Senior Vice President