(CN) – A shareholder action claims the maker of a topical acne drug overstated the treatment’s performance in clinical trial to boost the company’s value prior to its initial public offering in September 2016.
In a federal complaint filed in the Middle District of North Carolina on Nov. 24, lead plaintiff Roberto Cisneros claims Morrisville, N.C.-based Novan Inc., misled shareholders through public announcements, press releases, and teleconferences about the efficacy of a gel it developed to treat acne vulgaris, which affects nearly 50 million Americans annually.
Cisneros says that based on the false information the company allegedly circulated, Novan was able to sell more than 4.7 million shares on Sept. 20, 2016, the day of its initial public offering, and that the shares reached a price of $11, generating more than $44.5 million.
After news of the allegedly false statement broke on Jan. 26, 2017, he says, the stock plummeted 74 percent from its then high of $18.70 per share to $3.52 the next day.
“Defendants repeatedly stated that Novan had commenced and performed two identically designed Phase 3 clinical trials of SB204. The company’s outlook and expected financial performance were not accurately represented to the market at all relevant times,” the complaint states.
Since reports of the alleged misstatements surfaced, Novan has announced its plan to lay off 20 percent of its workforce, and that it is abandoning the acne gel and will focus instead on developing an antiviral treatment.
Cisneros claims Novan’s actions have resulted in significant financial loss.
A call to Novan’s director of corporate communications was not immediately returned.