Under the terms of the proposed settlement, disclosed in court documents filed late last week, the Cambridge-Mass.-based blood substitute maker will pay $600,000 to investors contending they were duped by Biopure executives who allegedly concealed negative news about the company’s artificial blood products. Money for the settlement will come from a directors and officers insurance policy covering legal costs associated with management errors and omissions.
The parties have been working toward a settlement for several months, even as Biopure filed for Chapter 11 bankruptcy protection July 16. Prospective buyers were bidding Tuesday on Biopure assets, with the bankruptcy court scheduled to give final approval of the sale Thursday.
Biotech LLC, a Delaware-registered entity, put up a $2.6 million “stalking horse” bid for virtually all of Biopure’s assets. It is not known whether there were other parties interested in Biopure.
In seeking to recoup money from a soured investment, the plaintiffs argued that Biopure management — including its former CEO, the head of regulatory affairs and its chief counsel — deliberately misled investors about the status of the company’s 2002 application to market its Hemopure artificial blood product in the United States. According to the court documents, the U.S. Food and Drug Administration voiced serious concerns about whether Hemopure could be used to treat anemic patients during surgery or as a blood substitute for trauma victims. In April 2003 the agency moved to halt clinical trials of Hemopure.
But instead of disclosing the steep regulatory hurdle with the FDA, the plaintiffs allege, the executives continued to tout Hemopure’s prospects for several months, artificially buoying its stock price. Once the truth about the regulatory concerns leaked later in the year, Biopure’s share price sank, falling from an August high of $8.35 a share to less than $2.50 by the end of 2003.
Throughout the dispute, Biopure executives have denied any wrongdoing and sought several times to have the plaintiffs’ case dismissed. The company previously settled a similar case with the U.S. Securities and Exchange Commission in 2006, in part by adopting more stringent corporate governance practices. Resolution of another shareholder suit likewise is pending in Massachusetts Superior Court contingent on approval of the proposed settlement by the bankruptcy court.