September 15, 2005
SEC Sues Biopure for False Statements About Pending Drug Approval
The SEC filed a securities fraud action against Biopure Corp., a biotech company, its former CEO, Thomas More, former senior VP Howard Richman, and current General Counsel, Jane Kober, related to misleading statements made about FDA approval of the company's synthetic blood product. According to the Commission's Litigation Release (here):
[B]eginning in April 2003, Biopure received negative information from the FDA regarding its efforts to obtain FDA approval of its synthetic blood product Hemopure but failed to disclose the information, or falsely described it as positive developments. Specifically, the Complaint alleges that in April 2003, the FDA placed a clinical hold barring Biopure from conducting clinical trials of Hemopure in trauma settings such as emergency rooms, because of safety concerns about Hemopure. As alleged, during the next eight months, the company concealed the imposition of the clinical hold while making public statements about its plans to obtain approval for trauma uses of Hemopure. In addition, according to the Complaint, in July 2003 the FDA informed Biopure that it had not approved Biopure's application for use of Hemopure in orthopedic surgery, and instead conveyed serious concerns about whether the materials Biopure had submitted in support of its application were reliable and questioning the safety of Hemopure. Biopure, however, issued public statements beginning on August 1, 2003 describing the FDA's communication as good news, causing its stock price to increase by over 20%. The Complaint alleges that Biopure continued to make misleading statements until December 2003. During this period, Biopure raised over $35 million from investors. The Complaint further alleges that as the true status of Biopure's efforts to obtain FDA approval gradually became public, through a series of incomplete and misleading disclosures between late October and the end of December 2003, the company's stock price plummeted almost 66% from its August 1 price.
Unlike most SEC cases in which the company enters into a settlement, Biopure issued a press release disputing the claims in the suit, arguing that it did not need to make certain disclosures related to the FDA approval process. The release (here) quotes corporate counsel:
"The company intends to seek dismissal of the SEC's claims or judgment in its favor and expects to prevail," said Robert A. Buhlman of Bingham McCutchen LLP, counsel to the company. "Biopure intends to establish that its disclosures were accurate based on governing law, testimony provided by the FDA to the SEC, the FDA's review procedures and practices, and what was communicated by FDA at the relevant times."
There's nothing like a good fight over disclosure issues. (ph)
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