(CN) - Fertility-treatment firm OvaScience has been hit with a shareholder derivative lawsuit over claims that board members awarded themselves excessive compensation despite year after year of corporate losses.
Shareholder Nicholas Fulton claims in Delaware Chancery Court that OvaScience adopted a compensation plan which pays its board members at a rate far in excess of their peers at similarly sized public companies.
Fulton cites statistics that estimate the median annual compensation for directors from 2014 to 2016 was roughly $113,000 for microcap to small cap companies with market capitalization between $50 million and $500 million.
The OvaScience board members in question meanwhile received an average of approximately $198,000 in annual compensation since the company's initial public offering in 2013, according to the lawsuit.
For 2015, those OvaScience directors received, on average, about $362,000 in compensation, the lawsuit claims.
The figures include cash retainers, vested shares, stock options and chair and committee membership fees.
The company, which markets its AUGMENT fertility treatment through non-US fertility clinics, has purportedly accrued $200 million in net losses since its IPO, with analysts expecting continued losses through the end of 2017.
Before filing the lawsuit, plaintiff Fulton sent a demand to the board to address the allegedly excessive director compensation.
The company's response stated that the allegations of corporate waste were "legally and factually untenable."
The response also indicated that the so-called Black-Scholes method used for valuing OvaScience stock options in the company's SEC filings "is not an appropriate metric for assessing adequacy and fairness of compensation awards" to its directors.
"A key driver of the Black-Scholes model is volatility. Given the extreme volatility of biotechnology corporations in general, and OvaScience in particular in 2014-2015, a Black-Scholes analysis produces 'valuations' that bear little or no relationship to the actual fairness and adequacy of the compensation awarded," the statement reads.
Fulton's lawsuit characterizes the statement as an admission that the options-valuation method in the company's SEC filings is inaccurate.
Among other relief, the derivative action insists that the directors disgorge the allegedly excessive compensation they received, and that the company issue a corrective disclosure that OvaScience "relied upon an inappropriate option value calculation method" in its 2015, 2016 and 2017 filings.
Fulton is represented by Seth Rigrodsky of Rigrodsky & Long in Wilmington, Delaware, with Jeffrey Norton of Newman Ferrara in New York and Werner Kranenburg in London of counsel.