The generous information disclosure policy of stem cell treatment company Pluristem Therapeutics Ltd. (Nasdaq:PSTI; DAX: PJT: PLTR) sent its share price soaring 65% over the past few months, enabling it to carry out a large secondary offering, but it may also cost the company dearly. Pluristem, which became the new people's share in the life sciences, has a current market cap of NIS 840 million.
Yesterday, "Bloomberg BusinessWeek" published an article, which claims that Pluristem concealed important information from investors, while flooding the market with other information, in a way that the US Securities and Exchange Commission (SEC) may consider to be illegal, according to US analysts interviewed for the article.
The issue involves a now famous case, in which Pluristem used its stem cells to treat a 7-year old girl under Israel's compassionate use program (outside a clinical trial) early this year at Hadassah Medical Organization in Jerusalem. The company enthusiastically announced that the treatment was successful, but when the girl died a few months later, the company made no announcement of the fact.
Around the same time that Hadassah Hospital learned about the girl's death, Pluristem was in the midst of a successful secondary offering on Nasdaq, in which it raised $34 million. Just a few days later, when the company was specifically asked about the girl's condition, did investors learn that she had died. According to "Bloomberg", some investors learned about this from reading an interview in "Globes" with Pluristem CEO Zami Aberman.
Most companies do not report about compassionate treatments
During the interval between the announcement of the girl's treatment and her death, when Pluristem's share price reached a four-year peak, company executives sold shares under the blind sale program. In the words of "Bloomberg's" headline, "Girl Dies as Pluristem Sells on Gains with Miracle Cells"
In an interview with "Globes" during the critical time when the girl died and Pluristem was holding its offering, Aberman confirmed the death, but said that it was still possible to say that the treatment had saved her life, since there was an immediate improvement in her condition following the therapy, and she lived for 180 days afterwards.
Today, Aberman told "Globes" that Pluristem was unaware of the girl's death at the time of the offering, but only learned of it a few days later, because she was not being monitored by the company. He added that the girl died of an infection, despite the improvement in her condition following Pluristem's treatment. It should be noted that at the time of this successful compassionate treatment and similar treatments by the company on two other patients, the hospital doctor who handled the treatment said in an interview that it was a "miracle" and talked about the "wonder drug" and "saving" of the girl's life. There was no mention that her life was extended by just a few months.
Most life sciences companies at Pluristem's stage of development do not announce compassionate use treatments. However, at the recent Journey conference, several investment bankers stood up and praised Pluristem, saying that the company was maintaining a wonderful relationship with the capital market and ensuring transparency. The flatterers included an analyst from Oppenheimer & Co., one of the underwriters of the company's offering.
"Bloomberg" contacted the SEC to find out whether Pluristem's announcements were misleading. The SEC would not comment on whether it was investigating Pluristem, nor would it discuss the practice of press releases describing early results from experimental treatments.
No wonder - few Nasdaq-listed companies are at such early stages of development in which a compassionate use announcement could be considered as dramatic. The Tel Aviv Stock Exchange (TASE) has recently tried to set standards for reports by early-stage drug development companies, but Pluristem, as a dual-listed company, is subject to SEC rules.
Following the secondary offering, Pluristem apparently has sufficient financing to complete construction of its facility in Haifa and to carry out its first large-scale clinical trial. Without the offering, the company would not have been able to complete the trial. If the trial succeeds, investors may forgive the company about its selective reporting; if not, this may be grounds for future indictments.
Published by Globes [online], Israel business news - www.globes-online.com - on November 8, 2012
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