What happened
Shares of NantKwest (NK), a clinical-stage biotech company primarily focused on immunotherapy compounds that treat cancer, fell by 21% in July, according to S&P Global Market Intelligence. The big decline looks to be partially due to the news that a law firm has initiated an investigation into the company's board of directors.
So what
A shareholder rights law firm called Haeggquist & Eck announced in the middle of July that it has launched an investigation to look for "possible breaches of fiduciary duty and other violations of state law by certain members of NantKwest board of directors."
This investigation was instigated by the restating of two NantKwest earnings reports from 2015. Specifically, the company underreported CEO Patrick Soon-Shiong's compensation by about $49 million. The law firm plans on looking into this matter further to see if NantKwest's board breached its fiduciary duties by failing to disclose the CEO's full compensation.
Later in the month, the law firm issued another press release noting that Soon-Shiong was paid more than $150 million in 2015, which makes him one of the highest-paid executives in the world. Despite that huge pay, NantKwest's stock has fallen nearly 80% since its IPO in the middle of 2015.
News of this investigation appears to have caught some shareholders off guard and contributed to the stock's plunge in July.
Image source: Getty Images.
Now what
While it isn't clear whether this lawsuit will go anywhere, one thing that Soon-Shiong has working for him is his long track record of creating value for his shareholders. He was the founder and CEO of APP Pharmaceuticals when it was sold to Fresenius for $5.6 billion in 2008. Less than two years later, Soon-Shiong's shareholders hit pay dirt again when he sold his company, Abraxis BioScience, to Celgene for $2.9 billion. While Soon-Shiong's pay is extremely high, NantKwest's board could argue in response that his track record of success makes his high compensation worth it.
Although this lawsuit is certainly worth keeping an eye on, NantKwest's long-term investors should remain focused on the company's drug development platform. On that front, shareholders recently learned that its experimental cancer vaccine got the green light to enter phase 1/2 clinical trials as a potential treatment for pancreatic cancer. Furthermore, it recently published data from a phase 1 clinical trial in a medical journal. The data showed that its aNK platform garnered an overall response rate of 42% in a 12-patient study involving participants with relapsed Hodgkin's lymphoma and multiple myeloma.
Overall, NantKwest's long-term stock performance will be directly tied to the success or failure of its drug development technology. If it proves to be the real deal, then the share price will take care of itself.
