SAN JOSE (CN) – SciClone Pharmaceuticals executives lied about the company’s work in China and propped up its share price for a year before news of a federal bribery investigation sent the stock into a freefall, shareholders say in a federal class action.
The class claims that SciClone and its CEO Friedhelm Blobel and CFO Gary S. Titus inflated the company’s stock price through false statements and reports on the release of liver cancer and anti-nausea drugs in China and Vietnam.
In May 2009 the company announced a 42 percent increase in revenue over the previous quarter, and for the next year Blobel and Titus repeatedly lauded the company’s financial health and success in the Asian market, but the claims were “patently untrue,” the shareholders say.
SciClone’s principal drugs were Zadaxin, for hepatitis B and C and “certain cancers”; DC Bead, a “product candidate for the treatment of advanced liver cancer in China”; and “ondansetron RapidFilm, an oral thin film formulation of ondansetron to treat and prevent nausea and vomiting caused by chemotherapy, radiotherapy, and surgery in China and Vietnam,” the complaint states.
“As investors ultimately learned, however, the company’s expansion in the market in China as well as its representations concerning its system of controls and procedures were patently untrue,” according to the complaint. “Throughout the class period, defendants were instead engaged in illegal and improper sales and marketing activities in China and abroad. This ultimately caused the company to become the focus of a joint investigation by the Securities and Exchange Commission and the Department of Justice for possible violations of the Foreign Corrupt Practices Act.”
When news of the investigation broke on Aug. 10, SciClone shares plummeted almost 40 percent in a single day, the complaint states. Reuters reported that day that SciClone was the target of a federal investigation into international bribery by pharmaceutical and medical companies, according to the complaint.
“Over a period of approximately 12 months, defendants improperly inflated the company’s financial results by engaging in illegal and improper sales activities in China and abroad,” the class claims. “Ultimately, however, when defendants’ prior misrepresentations and fraudulent conduct came to be revealed and was apparent to investors, shares of SciClone declined precipitously”.
The class seeks costs and damages for violations of federal securities laws.
Its lead counsel is Ramzi Abadou with Barroway Topaz of San Francisco.