Dive Brief:

• A leading proxy adviser has backed regenerative medicine startup Sernova in its fight with activist investors.
• Institutional Shareholders Services said “the dissident has failed to present a detailed explanation of its case” and as such “there does not seem to be a compelling case that change is warranted at this time.”
• ISS recommends shareholders vote for all the director nominees put forward by Sernova’s management. A group of concerned shareholders is trying to get two of its people on the board.

Dive Insight:

With Sernova facing a challenge from investors who accused it of making “sluggish progress” in the development of an implant for housing therapeutic cells, ISS has assessed the merits of the dissidents’ call for change and bid to win two seats on the board. The proxy advisory firm has sided with Sernova, noting the failure of the activist investors to present a detailed explanation and their targeting of “two of the more tenured and experienced board members.” 

“The election of the dissidents to the board carries risk to cause an additional near-term impact at the management level which diverges from a status quo that does not seem unreasonable. Shareholders are therefore recommended to vote on the management proxy card for the eight management nominees,” ISS wrote in a statement.

Sernova hit back against investor allegations earlier this month in a statement that said the dissidents had made “misleading statements.” ISS’ analysis of the attack supports the company, noting that the activist group’s “arguments do not provide context in support of its claims, and the proposed solution does not include a reasoned basis for how it could lead to a superior outcome.” 

The proxy advisory firm added that “broad-based allegations with respect to company communication look dubious” in light of the fact the company reports “interim data or study progress updates to shareholders multiple times annually.” ISS also noted that Sernova’s “ability to secure relevant industry partnerships, as evidenced by its agreement secured with Evotec during 2022, seems difficult to call into question.”

Sernova’s share price has declined more than 45% in the past 12 months, though shares have recovered slightly, up 5% this year to 62 cents at Monday’s opening price. 

ISS is one of two companies that dominate the U.S. proxy advisory market. In 2014, researchers at George Mason University estimated ISS and Glass Lewis controlled 97% of the market. That figure has since been quoted by the U.S. Securities and Exchange Commission. Large investors pay the advisers for voting recommendations to inform the thousands of decisions they need to make each proxy season.

Voting on the board members closes on April 25.