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SEC Sues Biopure and Three Executives
Sep. 15--Securities regulators yesterday alleged Biopure Corp. and three current and former executives schemed to hide criticism of its blood substitute even as the Cambridge biotechnology company gave investors upbeat reports to raise cash.
In a harshly worded civil complaint filed in US District Court in Boston, the Securities and Exchange Commission said Biopure, its former chief executive, Thomas Moore, current general counsel, Jane Kober, and another executive in 2003 failed to tell investors that the Food and Drug Administration had safety concerns about the company's Hemopure product.
Biopure denied wrongdoing and said it will seek to dismiss the case. "Biopure intends to establish that its disclosures were accurate based on governing law," said its attorney, Robert Buhlman of Bingham McCutchen. The company said it wasn't obliged to tell investors about the safety concerns because of the context in which the FDA made them known.
Attorneys for Moore and the third executive, former senior vice president of regulatory affairs Howard Richman, said they also denied wrongdoing. An attorney for Kober didn't return messages.
The allegations cap a long investigation and mark one of the most extensive cases filed by the SEC since it pledged with the FDA to work more closely to police the claims of drug makers. The agency wants to levy an unspecified fine against Biopure. That could be a relatively light penalty if it doesn't prevent the further development of Hemopure.
But new details of the FDA's safety concerns spelled out in the SEC complaint could make it harder for the US Navy to proceed with its plan to test the company's blood substitute on patients.
The agency also is seeking to fine the individuals named in the complaint and wants to bar them from serving as officers or directors of public companies.
Like other biotechnology companies, Biopure's financial prospects hinge on its dealings with regulators.
Hemopure is derived from cow's hemoglobin, the molecule that transports oxygen to tissue. Since its founding in 1984, Biopure has spent about a half-billion dollars to bring Hemopure to market, but so far in the United States has only won approval to sell a veterinary version.
According to the SEC's complaint, in March 2003 the company applied to test Hemopure on trauma patients, but the request was denied by the FDA over concerns about health risks seen in a previous trial.
In one lengthy letter the FDA told the company it couldn't conduct the new clinical trial because of "an unreasonable and significant risk of illness or injury," according to the complaint. Later, the FDA also cited "extensive and significant deficiencies in Biopure's application," the complaint states.
Also, the SEC said the FDA told Biopure in an April 25 letter that in an earlier clinical trial Hemopure "was associated with a higher incidence of . . . death and cardiac arrest" compared with traditional human blood transfusions. But Biopure didn't mention the safety problems in a prospectus it filed May 6 to the SEC to sell more shares, the agency said.
And an Aug. 1, 2003, press release "gave the false impression the company had received positive news from the FDA," the agency said. That day, the company's stock rose 22 percent, to $43.80, adjusted for reverse splits. It has fallen sharply since and fell 14 cents yesterday to close at $1.29 in Nasdaq trading.
According to the SEC, the positive news from the company continued through fall 2003 even as the FDA prevented it from testing Hemopure on trauma patients for safety reasons, rejecting two appeals from Biopure.
It finally disclosed the FDA's safety concerns in a press release issued on Christmas Eve 2003.
During the period in question, the company raised about $35 million from the sale of stock, the SEC said.
In a statement yesterday, Biopure argued the government's case "confuses" the product's safety with the safety of a proposed design of a clinical trial that was never conducted.
While its application to sell Hemopure for surgical uses was pending, the company also filed an application to test it on trauma patients in hospitals.
The application was based on some of the same data, but the FDA's questions related only to the trauma application, which Biopure said wasn't material to investors. "The separate nature of those two review processes is at the core of the company's position," Buhlman said.
Three other individuals had received notices indicating the SEC might file actions against them as well, but they weren't named in the complaint yesterday. One was Biopure chairman Charles Sanders, who has since been told by the SEC he won't face actions, according to his attorney, Terence J. Lynam of Akin Gump in Washington, D.C. Another was former board member J. Richard Crout, who couldn't be reached for comment.
An attorney for the third, former chief executive Carl Rausch, declined to comment yesterday.
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