Years ago, Puma Biotechnology beat PPD founder and ex-CEO Fred Eshelman’s attempt to grab more control over its board. But thanks to a Tuesday jury verdict, the biotech now owes Eshelman $22.3 million in damages for defaming him during that proxy fight.
A North Carolina federal jury determined Puma acted with actual malice by falsely stating in an investor presentation that Eshelman had been “replaced as CEO of PPD” after being “involved in clinical trial fraud.” As such, the court has granted Eshelman $15.85 million in compensatory damages and $6.5 million in punitive damages.
The whole brouhaha started in late 2015, when Eshelman proposed to increase the size of Puma’s board from five to nine seats, nominating himself and three others of his choosing to take those new slots. At the time, Puma was in the middle of wrapping up its study of Nerlynx for regulatory submissions in HER2 breast cancer.
Eshelman’s challenge soon triggered a proxy fight with Puma and its founder, chairman and chief executive, Alan Auerbach. Eshelman accused Auerbach’s board and management of mismanaging the cancer specialist, causing “significant stock volatility,” and said the company was “unresponsive and not transparent.”
Puma opposed Eshelman’s proposal, calling it a “wasteful and unproductive campaign.” Its then-board members had enough experience to guide the company, Puma contended, and cited several proxy advisory services’ opinions against the changes.
Puma later won over 80% of the shareholder vote to fend off Eshelman’s proposal. But the current lawsuit sprang from a presentation Puma made in the thick of the battle—Jan. 7, 2016—which called into question Eshelman’s past behavior and character.
In one slide, Puma stated that “Eshelman’s misrepresentations are no surprise given his history.” It referenced a case where PPD—a CRO Eshelman founded in 1985—managed a clinical trial for Sanofi Aventis’ antibiotic drug Ketek. One investigator in the large-scale study, Maria Anne Kirkman Campbell, was indicted for fabricating trial data and pleaded guilty to fraud. As PPD chief, Eshelman himself also testified before a Congressional committee in 2008 about the faulty data and Ketek's potential increase in liver toxicity risks.
“Puma’s Board does not believe that someone who was involved in clinical trial fraud that was uncovered by the FDA should be on the Board of Directors of a public company; particularly a company that is in the process of seeking FDA approval,” Puma said in another slide of the presentation.
In his complaint, Eshelman argued that he was “a victim of fraud, not a perpetrator.” Puma and Auerbach deliberately misrepresented the event, he claimed, to give investors the impression that Eshelman had been personally involved in the trial fraud and discredit him as a potential director.
The jury found that Puma’s assertions were false and made with actual malice, a key point for the case as Eshelman was deemed to be a public figure.
Eshelman was PPD’s CEO until 2009 and stepped down as executive chairman in late 2011 when the company was taken private by the Carlyle Group and Hellan & Friedman in an all-cash deal valued at about $3.9 billion.