More than a year after denying allegations it surreptitiously attempted to boost its stock price, Galena Biopharma has agreed to pay $20 million to settle a shareholder lawsuit that accused the drug maker of a misleading marketing campaign and insider trading.
The settlement resolves an unusual episode that raised questions about the extent to which some biotech companies may have been aggressively promoting their prospects during a bull market in biopharma stocks. However, we should note that Galena and its executives and directors did not admit any wrongdoing.
According to the lawsuit, which was filed last year in federal court in Portland, Ore., Galena purportedly hired a public relations firm to write articles — using aliases — that were published in 2013 on the Seeking Alpha investor website and which were designed to promote its stock.
The articles were pulled down in February 2014, as reported by TheStreet. The news site noted that this was the second such instance in which articles appeared on Seeking Alpha that touted Galena stock, but were then removed. TheStreet also wrote that the so-called “brand awareness campaign” was directly tied to a public relations firm hired by the drug maker.
The disclosures quickly sent Galena stock down 16 percent, according to the lawsuit. Two days later, the drug maker scrambled to address the negative publicity and issued a statement arguing that the facts raised by TheStreet were “specious and conveniently arranged to create controversy.”
However, the drug maker did acknowledge hiring the public relations, although the nature of the work the firm was expected to perform was not specifically disclosed. This bit of news sent Galena stock down another 14 percent, according to the lawsuit, which was filed against the company, as well as current and former executives and directors.
Due to the company’s “false statements, Galena stock traded at artificially inflated levels” from mid-November 2013, which was shortly after the second article appeared on Seeking Alpha, and February 2014, when TheStreet wrote about the episode, the lawsuit stated.
“While Galena’s stock was artificially inflated, its chief executive officer was able to sell $3.8 million worth of his Galena stock. However, after the … revelations seeped into the market, the company’s stock was hammered by massive sales,” the lawsuit continued. This sent Galena shares down 50 percent from their highest price between November 2013 and February 2014, it said.
In a statement, Galena said it “believes the claims are without merit, but is settling the lawsuits to avoid potentially lengthy, costly, distracting, and time-consuming litigation.” Of the $20 million payment, $16.7 million will be paid by the company’s insurers and $3.3 million will be paid by Galena — $2.3 million in cash and $1 million in stock. This represents less than 1 percent of its outstanding shares.