Corporate Governance Risks in Biotech: Shareholder Engagement and Decision-Making Delays

The biotechnology sector, long celebrated for its innovation and potential to revolutionize healthcare, has increasingly become a focal point for corporate governance scrutiny. Recent high-profile failures, such as the collapse of Theranos and the legal turmoil at Sarepta Therapeutics, underscore how governance shortcomings can erode shareholder value through decision-making delays, poor board engagement, and opaque practices. As investors navigate a landscape marked by regulatory uncertainty and macroeconomic headwinds, understanding these risks is critical to preserving capital and fostering long-term growth.

The Theranos and Sarepta Precedents: Governance as a Double-Edged Sword

The Theranos case remains a cautionary tale of how unchecked leadership and board inaction can devastate investor trust. Elizabeth Holmes' vision of a blood-testing revolution was built on unproven technology and a culture of secrecy, with the board failing to enforce transparency or scientific rigorBusiness ethics case study: The Fall of Theranos: An Ethics Case Study in Biotech^[2]. When the truth emerged, the company's valuation plummeted from $9 billion to zero, leaving shareholders with staggering losses. Similarly, Sarepta Therapeutics faced securities litigation over delayed disclosures regarding the safety risks of its gene therapy, ELEVIDYS. The company's stock price dropped sharply, and its financial metrics—such as return on equity and debt-to-equity ratios—suffered as a resultEY 2025 Biotech Beyond Borders Report | EY - US^[1]. These cases highlight a recurring theme: in biotech, where technical complexity often obscures ethical lapses, governance failures carry outsized consequences.

Macro Trends: Regulatory, Economic, and Capital Constraints

The broader biotech industry has faced compounding challenges from 2023 to 2025. According to the EY 2025 Biotech Beyond Borders Report, constrained access to capital, shifting regulatory policies, and macroeconomic pressures—including high interest rates and inflation—have stifled growthBusiness ethics case study: The Fall of Theranos: An Ethics Case Study in Biotech^[2]. M&A activity between pharma and biotech firms declined sharply, with deal value dropping from $153.5 billion in 2023 to $77 billion in 2024EY 2025 Biotech Beyond Borders Report | EY - US^[1]. This decline reflects a risk-averse environment where companies prioritize cost-cutting and cash preservation over bold expansion. Regulatory uncertainty, such as U.S. pharmaceutical pricing policies and potential tariffs, further complicates strategic planningBusiness ethics case study: The Fall of Theranos: An Ethics Case Study in Biotech^[2].

Board Engagement and Shareholder Activism: A Tug-of-War

Poor board engagement has exacerbated governance risks. A Harvard Corporate Governance analysis notes that 47% of directors in the S&P 500 felt their boards needed to dedicate more time to CEO succession planning in 2024Business ethics case study: The Fall of Theranos: An Ethics Case Study in Biotech^[2]. Leadership continuity is critical in biotech, where long-term R&D pipelines and regulatory approvals demand stable strategic direction. Meanwhile, shareholder activism has intensified, with investors pushing for cost-cutting, cash returns, and transparencyNavigating Current Challenges in Biotech M&A - Paul Hastings LLP^[4]. For example, Paul Hastings LLP reports that many public biotech firms are trading below cash value, heightening pressure on boards to optimize capital allocationNavigating Current Challenges in Biotech M&A - Paul Hastings LLP^[4].

The rise of AI and cybersecurity risks has also shifted boardroom priorities. As noted in the 2025 Shareholders Meeting Agenda from BDO, regulatory and investor scrutiny of AI-related disclosures is growing, with proxy advisors like Glass Lewis demanding accountability for algorithmic risksEY 2025 Biotech Beyond Borders Report | EY - US^[1]. Boards must balance innovation with oversight, ensuring that AI tools enhance—not undermine—scientific integrity and stakeholder trust.

Lessons for Investors: Vigilance and Strategic Alignment

For investors, the key takeaway is clear: governance practices must be evaluated with the same rigor as financial metrics. The Sarepta case demonstrates that even companies with promising pipelines can falter if boards fail to address adverse events proactivelyEY 2025 Biotech Beyond Borders Report | EY - US^[1]. Similarly, the Theranos collapse underscores the need for independent audits and board diversity to prevent groupthink.

The Lazard 2025 Global Biopharmaceutical Leaders Study reinforces this, noting that biotech investors are increasingly pessimistic about valuations and financing, with expectations of more bankruptcies in the near termLazard Global Biopharmaceutical Leaders Study 2025^[3]. In this climate, investors should prioritize firms with transparent governance structures, proactive regulatory engagement, and robust succession planning.

Conclusion: Governance as a Catalyst for Resilience

Biotech's unique blend of scientific innovation and public health impact demands governance frameworks that prioritize accountability, transparency, and long-term value creation. While the sector faces headwinds, companies that address governance risks—through independent oversight, ethical leadership, and stakeholder alignment—can navigate uncertainty and emerge stronger. For shareholders, the message is unequivocal: in biotech, governance is not just a compliance exercise—it is a strategic imperative.