TORONTO (Reuters) - Biovail Corp shareholders overwhelmingly rejected a dissident slate of directors proposed by company founder Eugene Melnyk, opting to stick with the current board, the biotech company said on Wednesday.
Melnyk said he would challenge the result in court, arguing the meeting was improperly held because it lacked quorum, and in a surprise twist said he would launch his own drug start-up if the attempt to change Biovail's board fails.
Melnyk, who launched the company almost 20 years ago and held numerous posts before stepping down last year, decided to oppose the board after losing confidence in Biovail's corporate strategy and the board's abilities earlier this year.
Shares of Biovail, Canada's biggest publicly traded drug company, have dropped 45 percent in the past four years.
Melnyk told reporters he withdrew his shares after learning that about 10 percent of the shares voted in favor of the management slate had been withdrawn. This suggested to him a deepening shift in momentum towards his own proposal.
Without his votes, the meeting fell short of the obligatory 50 percent shareholder representation.
"This would present an opportunity for other shareholders to see the shift ... and possibly follow the footsteps of the shareholders who revoked their 6 million shares this morning," he said of his reasons for removing his shares.
Minutes before the vote, however, the company held a snap board meeting in which it changed the bylaws to reduce the required quorum to 25 percent.
Among shareholders who participated, 97.6 percent of the vote was in favor of the existing board.
Melnyk said his lawyers would go to court to declare that the meeting was illegally held, and he will also request that a "proper" meeting be convened.
"This is a ghastly case of breaking every corporate governance rule in the book," he said, adding that the vote violated "applicable law and a negotiated protocol."
The company dismissed the former chairman's latest salvo in the lengthy proxy battle as a distraction.
"It's up to the courts to decide at this point some of these corporate governance issues, but in reality this is just noise," Chief Executive Bill Wells told reporters.
"We are confident that we are going to resolve this shortly and we are fully focused on operating this company and moving our strategy forward."
Biovail shares rose 5 Canadian cents to C$10.85 on the Toronto Stock Exchange and slid 8 cents to $10.68 in New York.
Under Melnyk's plan, a development committee headed by Bruce Brydon -- who was CEO from 1995 to 2001 -- would have emphasized the company's product pipeline, including a return to "difficult to manufacture" generic drugs, as well as acquiring more products and technologies.
Meanwhile, the current board stands behind strategic changes unveiled last month, including shutting down operations in Puerto Rico and shifting to new treatments for disorders of the central nervous system.
In a further twist to the saga, which has featured newspaper ads touting Melnyk's position, Melnyk said he would launch a new company called Trimel Pharmaceuticals if the battle for Biovail fails.
The new company would follow Melnyk's strategic plan for Biovail, with an initial focus on research and development.
The company would be headed by Brydon, and would get its start with around C$50 million ($50 million) to C$100 million in seed money, largely provided by Melnyk himself.
If he succeeds in forcing another Biovail meeting and wins the proxy battle, any progress made on Trimel would be absorbed into the larger company.
"We were not expecting that turn of events," said Claude Camire, an analyst at Paradigm Capital in Toronto.
"I don't think there's too many options left for him other than having the lawyers argue. I think that's probably why he's suggesting that he should start plan B and move forward."
Biovail, which has faced growing criticism for its dependence on a narrow stable of treatments, said the focus on CNS treatments, which represent a $70 billion global market, will allow it to get away from direct competition with the big transnational drug firms and concentrate on niche markets such as Parkinson's disease and multiple sclerosis.
Wells said Biovail has identified a number of licensing and acquisition targets and has already "initiated contact with a number of these key targets."
Additional reporting by Wojtek Dabrowski and Cameron French