CytoDyn Fights Back Against Activist Group
CytoDyn is fighting back and has filed a lawsuit against the activist group led by Paul Rosenbaum and Bruce Patterson, alleging that they are misleading shareholders and "waging an illegal proxy contest to take over control of the Company's Board of Directors."
In late July, two months after the U.S. Food and Drug Administration (FDA) publicly scolded CytoDyn for misrepresenting clinical trial data for its monoclonal antibody, activist investors Rosenbaum and Patterson filed with the U.S. Securities and Exchange Commission to nominate five directors to the CytoDyn board. Rosenbaum and Pattern alleged that the company's current leadership had "mishandled the stewardship" of leronlimab, the company's lead therapy, which is under development for HIV, cancer, and COVID-19.
CytoDyn claims that the director nomination notice submitted by the group was invalid because it didn't comply with CytoDyn's bylaws "in more than 50 instances." The Rosenbaum/Patterson group had since claimed it intended to continue with its proxy contest and, according to the CytoDyn suit, is continuing to make misrepresentations to shareholders.
"We are taking this step to protect the rights of all our shareholders," said Scott A. Kelly, chairman of the board and chief medical officer of CytoDyn. "We believe the Rosenbaum/Patterson Group has been purposely misleading shareholders and, in the process, has violated securities laws. We are bringing this lawsuit so that we can return our full focus as quickly as possible to what matters most to our company, shareholders and patients: securing approval for leronlimab and bringing its lifesaving potential to market."
CytoDyn is also arguing that one of the activist group's proponents, Jeffrey Beaty, and one of its nominees to the board, Bruce Patterson, had earlier proposed that CytoDyn enter a $350 million transaction that would benefit them and their families personally to about $123 million. CytoDyn claims that if they replaced a majority of the CytoDyn board, they could enact the plan, but none of that deal had been disclosed to any shareholders.
The activists also say that their members are purely CytoDyn outsiders. CytoDyn says that two of the activists include former directors: former chief medical officer Richard G. Pestell, who was fired for cause and who then sued the company; and former executive board chair Anthony D. Caracciolo.
In addition, the activists claim there are no "adverse proceedings" between the group and CytoDyn. But Patterson was once a paid consultant for CytoDyn, and under that contract saying he would have no right to proprietary information, but he "in fact secretly took CytoDyn's data and caused IncellDx (where he was and remains CEO) to file a patent application with the United States Patent and Trademark Office after CytoDyn had already filed its own patent application relating to the same data."
In an unusual public announcement in May, the FDA accused CytoDyn of misrepresenting clinical trial data for leronlimab in COVID-19. The statement focused on results from two clinical trials, CD10, in 86 mild-to-moderate COVID-19 patients, and CD12, which included 394 patients, focused on severe symptoms of respiratory symptoms tied to COVID-19.
In March, CytoDyn's Phase III leronlimab trial failed to meet the primary endpoint of decreasing symptoms and missed all secondary endpoints, including if the drug reduced mortality for COVID-19. The company put a positive spin on the data, focusing on a subgroup of 62 patients on mechanical ventilation, saying that the drug caused a 24% drop in all-cause mortality and a six-day reduction in hospitalization. They then issued a second press release detailing an "age adjustment" analysis claiming leronlimab lowered mortality in older patients.