Activism is No Longer Confined to Hedge Funds
Corporate proxy campaigns typically don’t grab headlines, but an upcoming shareholder vote at a biotech firm could have major implications for the future of research on Alzheimer’s disease and dementia.
The genesis of the proxy fight revolves around the prospects of fosgonimention, which experts view as a potential game-changing treatment for Alzheimer’s disease, Parkinson’s disease and other dementia. As an estimated 35 million people are diagnosed with Alzheimer’s worldwide and 900,000 are diagnosed annually in the U.S., Athira is running a clinical trial that could drastically improve the quality of life for families and seniors across the globe.
In late April one of the largest shareholders of Athira Pharma, Inc. launched a campaign to change two members of the board, on the platform that the CEO is unqualified, to ensure that the company’s Alzheimer’s clinical trials stay on track after a volatile two years. The company, headquartered in Seattle, is a late clinical-stage biopharmaceutical company focused on developing small molecules to restore neuronal health and slow neurodegeneration. Founded in 2011, the company’s proprietary drug discovery platform, or “ATH” platform, consists of a series of molecules that are designed to target either the central nervous system, by crossing the blood brain barrier or the peripheral nervous system.
Athira is developing osgonimeton, a molecule therapy that’s FDA-approved to treat Alzheimer’s Disease, Dementia and Parkinson’s Disease. Known as ATH-1017 or NDX-1017, it promotes the proliferation and survival of neurons, which boosts learning and memory. Athira is developing this therapy as a once-daily injection to impact neurodegeneration and regenerate brain tissue.
In September, 2020, the company launched a Phase 2 trial, LIFT-AD, enrolling 300 participants with mild to moderate Alzheimer’s. Athira’s trial is supported by a grant from the National Institute on Aging of the National Institutes of Health. Mild to moderate cases constitute 81% of all patients with Alzheimer’s, and 78.5 percent of these patients receive pharmaceutical therapies. Research scientists expect to conclude the study by Oct. 2022.
In Feb. 2022, Athira listed a new Phase 1 trial in 60 healthy adults, evaluating a pill formulation of ATH-1017, which they plan to develop for treating depression and schizophrenia.
In both trials, patients are randomly assigned to either ATH-1017 at low-dose (40 milligrams/day), ATH-1017 at high-dose (70 mg/day), or to a placebo for 26 weeks (about six months). Both doses of ATH-1017 are given injections.
Ric Kayne, the founder of Kayne Anderson Capital Advisors, issued a letter to Athira shareholders April 27 and launched a proxy campaign to oust company leadership. They produced a 7-minute video summarizing their proposal, which shareholders will vote on this May 19th.
This is Kayne’s first foray into activism. Kayne, along with affiliated entities, owns nearly five percent of Athira stock. Kayne manages $34 billion in assets through five investment firms focused on real estate, credit, infrastructure, energy and growth equity. He and his partners invested in Athira more than six years ago, financing clinical trials that catalyzed the company’s IPO in 2020.
Kayne and George Bickerstaff, the former CFO of Novartis Pharma AG and founding partner of M.M. Dillion & Co., a healthcare technology-focused investment bank, contend that Athira’s board of directors mishandled an academic misconduct investigation of the company’s previous CEO, Dr. Leen Kawas, and failed to conduct an executive search for her replacement.
Further, those advocating reform at Athira argue that Mark Litton, the president and CEO, has a track record of professional blunders and misstated his academic credentials to the company and its shareholders. In October, when the company announced the appointment of Litton, then the COO of the company, $263 million of shareholder value vanished in a single day. That represented a 39 percent drop in share price. The stock partially recovered when investors learned that the academic misconduct investigation did not impact ATH-1017.
The Kayne-led group advocates replacing board members Joseph Edelman and John Fluke, Jr. — both up for election at the 2022 annual meeting — with more credible shareholder advocates with biotech experience, conducting an extensive CEO search to replace Litton, strengthening corporate governance and increasing the board’s ethnic diversity.
They argue Dr. Litton has no clinical trial experience and no record of successful drug commercialization. Further, before joining Athira, Dr. Litton was fired as president and COO from Alpine Immune Sciences in 2019 after nine months. The Athira board conducted no search to identify other candidates even though he misstated his academic credentials in SEC filings.
The Kayne group may not be traditional activists, but they’ve ripped a page from hedge funds’ playbooks to impact social change. They are not alone. Investors across the board, increasingly concerned with ESG, are making their voices heard through shareholder resolutions and proxy battles. Corporate executives and boards ignore them at their peril.
Hassan Tyler is a former adviser to Senator Joe Lieberman and a research analyst at Capital Policy Analytics.
