SEC Alleges Fraud at Biopure

Regulators say investors didn't get the truth about the company's blood substitute.
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The

Securities and Exchange Commission

filed a civil complaint against

Biopure

(BPUR)

, charging the Cambridge, Mass., drug company with fraud relating to its efforts to develop an artificial blood substitute.

The SEC said Wednesday the company and three officers engaged in a "fraudulent scheme to misrepresent and conceal from investors the truth" about its application to the Food and Drug Administration for the blood substitute called Hemopure.

In addition to the company, regulators named as defendants Thomas Moore, 54, the former CEO; Howard Richman, 53, the former senior vice president of regulatory affairs and operations; and Jane Kober, currently senior vice president, general counsel and corporate secretary.

"The company intends to seek dismissal of the SEC's claims or judgment in its favor and expects to prevail," said Robert A. Buhlman, the company's attorney. "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."

The 49-page SEC complaint was filed in a federal District Court in Boston.

Biopure is one of several companies that have spent years working on blood substitutes. By mid-2003,

Biopure appeared to have a commanding lead over the competition because its application had been accepted for review by the FDA.

Biopure issued a press release on Aug. 1, 2003, saying the FDA didn't require any additional tests for Hemopure. That caused the stock to jump, as the company said it could answer a number of FDA questions in a relatively short time.

The SEC complaint said this press release was "fraudulent and misleading" and "gave the false impression the company had received positive news from the FDA." In fact, the SEC complaint said, the FDA began sending Biopure "negative information" in April 2003 and imposed a clinical hold on trials of Hemopure on trauma victims because of safety concerns.

Just before Biopure issued that press release, the FDA sent the company two detailed letters, according to the complaint. One letter said the FDA was refusing to lift the ban on clinical testing due to "an unreasonable and significant risk of illness and injury."

The other letter said the FDA was rejecting Biopure's application due to "extensive and significant deficiencies" in the company's application and "because of concerns about the lack of safety and efficacy" of Hemopure.

Over time, Biopure's regulatory

problems were made public, sending the stock into a tailspin, triggering a government investigation, leading to Moore's departure and placing the company in a

severe cash crunch.

The SEC complaint also alleges that in 2003 Biopure touted Hemopure's potential "in multiple securities offerings, public filings, press releases and investor conference calls."

The SEC complaint asks that Moore, Kober and Richman be barred from serving as an officer or director in a public company and that each defendant be fined for their "egregious" violations of federal law. The SEC also asks that Biopure pay a civil fine.

Biopure continues to conduct tests on its blood substitute. For the quarter ended July 31, the company lost $6.4 million, or 26 cents a share, vs. a loss of $9.4 million, or $1.16 a share, for the same period in 2004. Total revenue for the third quarter of fiscal 2005 was $483,000 compared with $333,000 for the same period in 2004.

On Wednesday, Biopure's stock dropped 14 cents, or 9.8%, to $1.29.