Cordlife’s cavalier response to breaches raises troubling questions

INVESTORS in cord-blood bank service provider Cordlife Group may be feeling hard done by – and rightfully so.

After lapses found in Cordlife’s storage of cord-blood units recently came to light, the group sent several letters to customers, some of whom had spent near five-digit figures to store their children’s cord blood.

These customers have every reason to be aggrieved, but so, too, do Cordlife’s shareholders.

The Ministry of Health (MOH) on Nov 30 said it found that seven of Cordlife’s 22 cord-blood storage tanks had been exposed to temperatures above the acceptable limits minus 150 deg C, and that these “temperature excursions” had happened at different times, some going back to November 2020.

In particular, one tank containing 2,200 cord-blood units belonging to around 2,150 clients had been exposed to temperatures higher than acceptable over several days in February, March and June 2022.

When exposed to suboptimal storage temperatures, such cord-blood samples start to thaw, possibly damaging the stem cells in them.

MOH handed Cordlife a six-month suspension from collecting, storing, processing and testing new cord blood and human tissue “to safeguard patients’ interest”.

Keeping mum

The lapses in Cordlife’s lab processes are unforgivable, but the way the mainboard-listed company has handled the situation thus far has pointed to failings in its corporate governance as well.

Notably, it has not disclosed information about the storage lapses to its shareholders; it has not issued any statement regarding MOH’s unannounced audits on the company in August and November.

In response to queries from the Singapore Exchange (SGX), Cordlife on Sunday (Dec 10) said “certain members of management” were alerted in June 2022 that one tank had been exposed to irregular temperatures for several days that month.

The company then took “immediate actions” and carried out internal investigations to find out more about the incident. Thereafter, the management strengthened its laboratory processes, procedures and staff training to prevent a recurrence of such lapses, it added.

The board held the view that a bourse announcement was not needed because the incident would have “no material impact” on the group’s financial performance, and that the group had “adequate provisions” against requests for refunds or waivers from affected clients.

Cordlife added that it made no announcement about the MOH’s audits because the company had not been told by the ministry that any rule, regulation or law had been broken. “The company was informed that the audit was being carried out as a result of feedback received by MOH from a member of the public,” Cordlife said.

Cordlife’s management may truly believe the storage lapses were not material to its financial performance. Its investors clearly disagreed.

Shares of the counter tanked the day after MOH’s announcement, falling by as much as 42.9 per cent in early trading on Dec 1; it eventually closed down 32 per cent, or S$0.145, at S$0.31.

Cutting the cord

Cordlife’s response to SGX’s queries was lacking in several other areas.

For one, it did not answer the question about whether the board had been aware of the storage lapses that had occurred since November 2020. Instead, the company chose to focus its response on the June 2022 incident.

It noted that the other storage lapses in 2022, in February and March – which affected two tanks – were uncovered only in MOH’s unannounced audit in August.

Even if MOH had not told the company it was in breach of its rules and regulations, the discovery of more temperature excursions should have set off alarm bells among members of the board.

Cordlife’s response also did not clarify why the company had not immediately contacted its customers, whose cord-blood units were exposed to unacceptable temperature levels in June 2022.

It is also unclear why the board did not see the temperature excursions of the seven storage tanks as a material development.

SGX has a corporate-disclosure policy that includes a non-exhaustive list of corporate events that must be disclosed immediately. One item on the list is the major disruption to the supply of critical goods or services.

With Cordlife a private cord-blood banking service provider, the storage of its cord-blood units is its critical service – and the temperatures of its storage tanks breaching acceptable levels is arguably a major disruption to the supply of such a service.

Regardless of the board’s assessment of the financial impact of these incidents, the severity of the storage lapses indicates that the incidents should have been disclosed as soon as they were discovered.

Shareholders of Cordlife could argue they have been short-changed and are now suffering losses as a result of the board keeping mum. It remains to be seen whether the investors would be able to receive any kind of compensation, though.

Legal experts said public investors who have suffered losses, particularly those who bought the shares on or around November 2020, when the first temperature excursion was noted, could seek recourse.

If the company’s directors were aware of the lapses in the affected storage tanks, they could be deemed to have failed in their fiduciary duties to these investors.

Singapore Exchange Regulation (SGX RegCo), the bourse’s regulatory arm, should come down hard on the company for failing to disclose material information. An SGX spokesperson said of this issue: “SGX RegCo expects listed issuers to disclose material information on a timely basis, subject to certain caveats. We take very seriously any breach by an issuer of continuing disclosure requirements and will take action where warranted.”

With lapses in both its core business processes and on the corporate governance front, shareholders should consider cutting the cord on Cordlife.