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UPDATE 1-Biotech firm CytoDyn calls activists' board nomination notice invalid -sources

·2 min read

(Updates with activist's statement; changes sourcing after company publicly acknowledged letter.)

By Svea Herbst-Bayliss

BOSTON, Aug 2 (Reuters) - Biotechnology firm CytoDyn , which is working on coronavirus treatments, is pushing back against activists trying to seize control of its board by declaring their director nominations invalid, the company said, a rarely seen development in battles for board seats.

CytoDyn, headquartered in Vancouver, Washington, said the activist group's notice letter failed to comply with its bylaws and was riddled with errors ranging from mistakes in the nominees' standard questionnaires to failing to properly disclose the group's funding.

The activist group is therefore not allowed to nominate candidates for election as directors at the 2021 annual meeting scheduled for Oct. 28.

On June 30, the activists, led by Paul Rosenbaum, wrote to the company saying they planned to nominate five directors to the company's six-member board.

The activist group on Monday vowed to press on with its proxy contest to replace a board it claims enabled operational failures and a sharp share price drop. The company's "attempt to invalidate our director nominations is a desperate action to further disenfranchise shareholders," a spokesman said.

The group, which owns approximately 1% of the company's shares, criticized management and the board for having mishandled the development of leronlimab, a monoclonal antibody investigational drug.

The group running the proxy contest is a sub-group of a bigger group that made a regulatory filing in May with plans to "discuss the company's underperformance" and its "lack of confidence in management."

The company, valued at $1.06 billion, said last week it received a request for documents from the Securities and Exchange Commission and Justice Department related to leronlimab.

The company said there were many errors in the activists' notice letter. For example, Bruce Patterson, one of the group's board nominees, in May proposed that CytoDyn buy IncellDx, Inc., where he serves as CEO, but the notice letter failed to disclose the bid or how Patterson might have benefited personally had the deal not been rejected by CytoDyn.

CytoDyn's stock price has tumbled 68.47% since January and dropped 6.8% on Monday to $1.58 in afternoon trading.

Declaring a nomination notice to be invalid is rare in battles for seats on corporate boards but happened in 2018 when financial services company HomeStreet, Inc used the method against Roaring Blue Lion Capital.

(Reporting by Svea Herbst-Bayliss; Editing by Chris Reese and Dan Grebler)