MKT Capital Issues Letter to Aurinia Shareholders Announcing its Intention to Withhold Support for Three Directors at 2023 Annual Meeting
Highlights Egregious Compensation Awarded to Executives Despite Poor Performance, Including
Calls on the Board to Heed Shareholder Feedback by Publicly Committing to a Strategic Review Process
Believes a Sale to a Well-Capitalized Acquirer Could Yield up to
Plans to Withhold Support for Chairman Dr.
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Fellow Shareholders,
As a long-term shareholder of Aurinia, we have spent a considerable amount of time reviewing the Company’s corporate governance, executive compensation practices and capital allocation decisions and have attempted to engage meaningfully with management to better understand its overall strategy. Our diligence over the past several years has led us to the following conclusion: a reconstituted Board of Directors (the “Board”) should commence a strategic review process immediately to explore a sale of the entire business, which we believe could attract a well-capitalized strategic acquirer or private equity buyer and yield up to
We are deeply troubled by the Board’s decisions, especially as it relates to executive compensation, which we believe illustrate that several incumbent directors are either unable or unwilling to advance shareholders’ best interests or embrace and act on shareholder feedback. We contend:
- The Board has consistently prioritized the interests of management by enriching Company executives at the expense of shareholders.
- Year after year, management and the Board take harmful actions that dilute shareholders.
- The Board has failed to hold management accountable for poor total shareholder returns.
- The Board has historically been unwilling to embrace and act on shareholder feedback.
- The Board has been unable to manage turnover in key research and development (“R&D”) and commercialization positions in the c-suite.
- Management and the Board have failed to diversify Aurinia’s drug pipeline through business development efforts.
- The Board’s limited shareholdings have only perpetuated its misalignment with investors.
We feel it is critical for shareholders to send Chairman Dr.
WE BELIEVE THE BOARD IS MISALIGNED WITH SHAREHOLDERS AND HAS AWARDED EGREGIOUS EXECUTIVE COMPENSATION IN THE FACE OF POOR PERFORMANCE
Aurinia’s shares have dramatically underperformed peers and pharmaceuticals indices over relevant time horizons. While the Company delivered approximately -
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Management and the Board bear responsibility for overseeing the destruction of shareholder value, which we believe is directly attributable to strategic missteps, rich executive compensation practices and poor capital allocation. While shareholders have suffered tremendous harm, insiders have been insulated from the Company’s deteriorating share price largely due to their minimal ownership. Instead, many of these insiders – including Chairman Milne, CEO Greenleaf and
In this year’s proxy statement, Aurinia boasts having adopted a new “share ownership policy” for the Company’s directors and executives following the extremely low say-on-pay vote (
A closer look at the footnotes under the beneficial ownership table also shows that the overwhelming majority of management and the Board’s ownership position consists of granted options and restricted stock units (“RSUs”). In fact, the proxy statement reveals that nearly
In our view, management and the Board’s negligible ownership leads to a lack of accountability and alignment with the Company’s true owners: its shareholders. This is perhaps the most evident in the tremendous compensation packages that have been awarded to executives in the face of Aurinia’s severe underperformance in recent years. We believe that directors who have chosen to prioritize enriching company executives at the expense of shareholders do not deserve a seat on the Board.
In 2020, while the Company’s share price was in the red, Compensation Committee Chair Hagan determined that CEO Greenleaf deserved double his prior year’s compensation and approved a whopping
As Compensation Committee Chair,
The decisions
NOW IS THE RIGHT TIME FOR AURINIA TO EXPLORE STRATEGIC ALTERNATIVES
While management repeatedly claims that Aurinia is a fully integrated biopharma company, the reality is that since Chairman Milne and CEO Greenleaf took the helm in 2019, they have lost key R&D and commercialization talent, made poor capital allocation decisions and most alarmingly, mismanaged and squandered the opportunity in front of them with the promising drug LUPKYNIS. All of this has destroyed shareholder value.
We believe Aurinia is dramatically undervalued at current share prices, representing an attractive acquisition target to both strategic and financial buyers. In our view, the issues the Company is facing are not structural, but self-inflicted due to incompetent leadership that has serially mismanaged a drug that was commercialized three years ago. Under Chairman Milne and CEO Greenleaf’s leadership, Aurinia has been unable to distribute LUPKYNIS widely or grow sales. The Company reported sales of just
This is a clear failure of capital allocation and execution.
Shareholders were encouraged by the news of Bristol-Myers Squibb Company (“Bristol Myers”) approaching Aurinia as a buyout target in
In 2022, there was concerning turnover in key R&D and commercialization positions in the c-suite, which has had an adverse impact on the Company’s business development efforts to diversify its drug pipeline. These departures included Aurinia’s Chief Commercial Officer,
We believe Aurinia represents an attractive asset that a well-capitalized buyer can acquire to begin effectively monetizing the highly valuable LUPKYNIS drug, which has been mismanaged by current leadership. Our analysis suggests that an acquirer could pay up to
The only clear beneficiary of waiting any longer to explore a sale is CEO Greenleaf, as he continues to reap outsized compensation and accumulate equity awards. Unfortunately for shareholders, the opposite is true. The longer Aurinia’s long-suffering shareholders are forced to wait for a sale of the Company, the more diluted our holdings become and the more money we lose. Refusing to pursue a sale of the Company is diametrically opposed to management’s repeatedly stated goal of “maximizing value for shareholders.”
THE AURINIA BOARD MUST BE HELD ACCOUNTABLE
It remains obvious to us – and we believe other shareholders – that Aurinia is a high-quality biopharmaceutical business that remains dramatically undervalued due to mismanagement by certain individuals in the boardroom. We believe the Board must take swift action to realize the value of its drug LUPKYNIS and close this valuation gap through a potential sale of the Company, which will provide immediate value to shareholders at a premium, rather than continuing to let us all suffer under the current status quo. Our singular goal is to set the correct direction for this great medicine for the benefit of patients and shareholders alike.
If the Board continues to disregard the widespread shareholder discontent, our hope is that the incumbents responsible for the destruction of shareholder value receive a wake-up call at the upcoming Annual Meeting where shareholders will have an opportunity to hold them accountable. That is why we believe shareholders should join
Sincerely,
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1 Source: Aurinia.
2 Based on price (
3 Source: TSR data was obtained via Bloomberg and includes dividends reinvested. TSR data runs through the close of trading on
4 Aurinia’s 2023 Definitive Proxy Statement, filed
5 See Form 4 filings made by certain members of Aurinia management on
6 Source: Bristol-Myers Makes Takeover Approach to
7 MKT Capital’s estimate of up to
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ckiaie@longacresquare.com / omccann@longacresquare.com
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