Diabetes cell pouch developer Sernova fights off proxy battle

Sernova, developer of a insulin-producing cell pouch implant to help treat diabetes, is fending off a proxy battle from a group of investors that says the company’s leadership has shown slow progress in clinical trials and presided over sliding stock value. 

With an open missive to company investors April 3, a cadre calling themselves The Group of Shareholders of Sernova Corporation nominated two candidates for seats on the board of directors.

The group cited a 40% decline in Sernova’s stock price since May 2022, from about $1.20 down to about $0.88. Listed on the Toronto Stock Exchange, the Ontario-based company had seen its shares grow from about $0.25 to over $1.40 in early 2021, after delivering positive preliminary results from its cell pouch in a phase 1/2 trial of seven participants with Type 1 diabetes.

The shareholder group—which said it collectively owns about 12% of the company—lamented that previous analyst reports had forecasted a price of $3.00-a-share by the end of 2022; they also criticized Sernova for not taking any public steps to list the company on the Nasdaq stock exchange. At the same time, they pushed the company to demonstrate progress in developing its pouch implants for applications outside diabetes, such as for thyroid disease.

They nominated Steven Sangha, named as a private fund family office investor, and Bertram von Plettenberg, a management and financial consultant and investor, as their candidates. Shareholders have until April 25 to submit their votes.

Sernova’s public response April 6 said the pair—which it described as “dissident director nominees”—had chosen not to meet with Sernova’s board or participate in the interview process for the board’s open seat. Instead, the company endorsed a third candidate—Brett Whalen, an investment banking and M&A adviser—as its approved choice.

The company also said it plans to publish new results from its phase 1/2 study in Type 1 diabetes by the end of June—including the first interim data from a second cohort of participants who received a higher-capacity pouch, after the first two patients were implanted in January—and deliver an update at the American Diabetes Association’s Scientific Sessions meeting that month in San Diego.

Meanwhile, the company’s stem cell partner, Evotec, is scheduled to reveal its first data on its pancreatic isletlike implants in a presentation at a summit hosted by the International Pancreas & Islet Transplant Association, the Harvard Stem Cell Institute and the Juvenile Diabetes Research Foundation.

Sernova said it plans to launch a new phase 1/2 trial using Evotec’s isletlike clusters next year, in addition to launching an early-phase trial for hypothyroidism in 2024 as well.

Sernova recently proposed a management change under its own accord. After 13 years at the helm, the company announced last December that former President and CEO Philip Toleikis will be making the switch to chief technology officer once a replacement is found—however the company’s recruiting efforts continue.