Biopharma Co. Hit With Suit Over Directors' 'Excessive' Pay
By Rose Krebs
Law360 (November 7, 2018, 6:42 PM EST) -- Ultragenyx Pharmaceutical Inc. was hit with a derivative stockholder suit in Delaware Chancery Court on Wednesday, claiming the company's board is being paid "excessive" salaries, even as the company continues to struggle financially.
Shareholder John Solak filed the complaint against eight of the company's directors, including CEO and founder Emil D. Kakkis, alleging that the board has breached its fiduciary duty and engaged in self-dealing, unjust enrichment and waste in approving a compensation plan that "grossly overcompensates" the seven nonemployee directors.
Solak said the compensation plan fails to take in account the company’s revenue and continues to pay the directors more than twice what "peers at similarly sized, publicly traded companies" are paid.
In 2017, the directors were paid an average of $407,725 a year, which is more than directors at companies with a market capitalization larger than Ultragenyx's, the complaint says.
Solak said he is bringing the action to "recoup the excessive compensation" and "impose meaningful corporate governance reforms," including a restriction on the board's ability to "award themselves egregious compensation," and to create measures that take into account the company's "long-term interests" when setting compensation.
Even though the company has incurred annual losses since going public in 2014, the board has continued to award "unwarranted, extraordinarily high and grossly excessive" salaries to the nonemployee directors, Solak said.
From 2014 to 2017, the compensation for the directors was more than the company's revenue, which ranged from zero to $2.6 million annually during that period, the complaint says. The company had millions of dollars in losses during that period, according to the suit.
"The level of compensation the board has awarded and will continue to award the nonemployee director defendants is harmful to both the company and its shareholders as it wastes valuable and limited corporate assets," Solak said.
Solak, who is seeking damages, also asked the court to direct Ultragenyx's board to take "necessary actions" to improve corporate governance and for injunctive relief to restrict the directors "trading activities" or other assets, "to assure that [the investor] on behalf of Ultragenyx has an effective remedy."
California-based Ultragenyx, founded in 2010, is a biopharmaceutical company that develops products for the treatment of rare diseases, according to the company's website.
Counsel for Solak declined to comment Wednesday.
A representative for Ultragenyx was not immediately available to comment on Wednesday.
Solak is represented by Blake A. Bennett of Cooch & Taylor PA, Jeffrey M. Norton of Newman Ferrara LLP, and Werner R. Kranenburg of Kranenburg.
Counsel information for the Ultragenyx and the directors was not immediately available Wednesday.
The case is Solak v. Welch et al., case number 2018-0810, in the Court of Chancery for the State of Delaware.
--Editing by Stephen Berg