Recent changes in the board of directors at Biogen has garnered attention due to potential conflicts of interest. Such conflicts vary widely, but one thing is clear: perception matters.
Pictured: Board of directors illustration/Courtesy, iStock, Vector DSGNR
The recent shifts on the board of directors at Biogen and Alkermes boards have made headlines due to the conflicts of interest at stake—real or perceived. Experts tell BioSpace that the likelihood of these conflicts occurring depends on the type of biopharma investment and whether the company is public or private.
Alkermes and activist investor Sarissa Capital Management LP entered into an agreement in December 2021, giving Sarissa Capital, which held a 5% stake in the company at the time, the right to designate a director on the company board. One of the nominees, Sarissa founder Alex Denner, had sat on Biogen’s board of directors since 2009, with an additional role in the Biogen board nomination committee.
This month, Denner gave up his board seat on Biogen to sit on Alkermes’ board to avoid a perceived conflict of interest with Alkermes. In 2018, Alkermes licensed its multiple sclerosis drug ALKS 8700 to Biogen, meaning that conflicts of interest could arise when a board member possesses a financial stake in both companies.
However, as his replacement Denner nominated Susan Langer, with whom he has a personal relationship—a fact not disclosed to shareholders prior to Langer’s nomination. Thus, critics pointed out, he still maintains his connection to Biogen. Despite these concerns, shareholders elected Langer to the Biogen board on June 26, 2023.
Whether Denner is confirmed to Alkermes’s board remains to be seen. The company is preparing for its general meeting on Thursday when shareholders will hold a vote. In addition to Denner, Sarissa Capital has put forward two nominees for the 11-member Alkermes board of directors. If they are to be confirmed, some of the existing board members up for re-election would get the boot.
How Do Investors Come to Sit on Biotech Boards?
Investors typically seek a return on their investment through board membership. In the case of so-called activist investors such as Denner, they also wish to effect changes in the company direction, often by appointing sympathetic board members to give them a majority vote in company decision-making.
Obtaining board membership via investment varies between private and publicly traded biopharma companies. The standard route to board membership in a public company such as Alkermes or Biogen is by purchasing a certain percentage of company shares, then negotiating terms and conditions that grant the investor a board position and/or the authority to nominate other board members.
“You might use your network of contacts to smooth the process,” Martin Turner, head of policy and public affairs at the UK BioIndustry Association, told BioSpace. However, he also said that biopharma companies would screen board candidates based on their skills and expertise, such as experience in a market the company wishes to expand into or with running clinical trials.
Private companies, on the other hand, will approach venture capital funds to raise a certain amount of money to achieve their business goals. After starting with a pool of 50 potential donors, the company will narrow its selection down to a smaller number of interested venture capitalists who sign confidentiality agreements enabling them to view proprietary company data, like early preclinical results. If these venture capitalists decide to invest, they may request board membership or the option to sit in board meetings as non-participating members.
In private venture capital funds, “it’s preferable to spread the risk across the portfolio,” including outside of biopharma, Chris Tapper, a senior associate at the private venture capital fund Cambridge Innovation Capital, told BioSpace. “So it’s less likely a conflict of interest will form where an investor sits on the board of competing biopharma companies.” In the U.S., the vast majority of the more than 3,400 biotech companies are private, with just 700 or so publicly traded biotech firms in the country.
Whether a company is public or private, however, a perceived conflict of interest might not preclude board membership for the investor. Rather, that person may simply be asked to abstain from certain proceedings. For example, if the board member held shares in an entity the company sought to collaborate with, they may be asked to leave the meeting while discussions pertinent to that collaboration occur.
Once elected, board members have a fiduciary duty to serve in the company’s best financial interest and safeguard the company against conflicts of interest. Enforcement of fiduciary duty varies by country but is included in state laws for corporations in the U.S.
Whether Alkermes ultimately cedes to activist investor pressure and appoints all its preferred board members remains to be seen. A similar campaign by activist investor Carl Icahn earlier this month at Illumina experienced mixed results: only one of Icahn’s three activist board nominees was elected.
Claire Jarvis is a freelance writer with BioSpace. You can reach her at jarvisclaire42@gmail.com.
