Pluristem Therapeutics Inc.’s stock doubled in Nasdaq trading from May through September, helped by three news releases announcing that patients’ lives had been saved by injections of the company’s experimental stem cells.
After the stock soared on the positive news, two top executives profited by selling shares at the highest price in more than four years as part of a pre-determined program. When the first of those patients, a 7-year-old girl with a bone-marrow disease, died four months after the company said her life had been saved, Pluristem was silent. The company raised $34 million selling shares a week later.
Pluristem had fallen 22 percent as of yesterday’s close from its 2012 peak on Aug. 16. The shares decreased 21 percent, the biggest intraday decline since Jan. 27, to $2.90 at 9:59 a.m. in New York. The Tel Aviv shares dropped 8.9 percent to 13.33 shekels at the 4:30 p.m. close. The volume in Tel Aviv was more than quadruple the three-month average.
Pluristem still has made no announcement of the girl’s death, which was reported by the Israeli newspaper Globes on Oct. 9 in an interview with Zami Aberman, the company’s chief executive officer. The Haifa, Israel-based company doesn’t follow patients after they are released from the hospital and wasn’t obligated to report the girl’s death, he said.
“What counts legally is whether there is an improvement in the physical condition,” Aberman said in a telephone interview with Bloomberg News. “When we saw significant improvement in the blood count, we declared a successful treatment.”
The Securities and Exchange Commission may take a different view. U.S. securities law requires companies “to disclose information that a reasonable investor would consider important when deciding whether to buy, sell or hold a security,” said John Nester, a spokesman for the SEC. “Material statements by companies have to be accurate and not misleading by commission or omission,” he said.
Nester declined to comment on whether the agency was investigating the Pluristem matter. Nor would the SEC comment in general on the practice of press releases describing early results from experimental treatments.
Pluristem’s lack of disclosure is in a gray area of the law, said Jacob S. Frenkel, a former SEC enforcement lawyer who commented on the Pluristem press releases after Bloomberg News brought them to his attention.
Since Pluristem indicated “the treatment has saved the patient, that may make the subsequent death of the patient a material fact,” said Frenkel, who’s a partner at Shulman Rogers Gandal Pordy & Ecker PA in Potomac, Maryland. “To the extent that any of the purchasers in this transaction would have found this to be material, it would have been prudent for the company to have made this disclosure.”
Even if the law is less than crystal clear on the subject, the company should have disclosed the girl’s death, said Paul Root Wolpe, a bioethicist and director of the Center for Ethics at Emory University in Atlanta.
“Selective reporting is ethically questionable,” he said in a telephone interview. “If you’re going to promote treatment success you need to man up when you get failure.”
Pluristem’s products, known as placental expanded, or PLX, cells, aren’t approved for use anywhere in the world. They’ve been tested in humans in two clinical trials totaling 27 patients with critical limb ischemia. The illness is the end stage of peripheral artery disease, a narrowing of the arteries supplying blood to the extremities.
The three patients in Pluristem’s news releases received the cells under a program called compassionate use. Israel, like many countries, including the U.S., allows such use of experimental drugs in patients for whom no other treatment is available.
The flurry of press releases and lack of follow-up shows the pressure early-stage drug companies are under to generate investor excitement. As with most biotechnology companies that have no drugs on the market, raising money through stock sales is Pluristem’s main way of financing product development.
The timing of the press releases worked to the financial benefit of the company and its executives. Pluristem shares, which traded as low as $2.02 in March, soared as high as $5 on the announcements.
On May 9, Pluristem said the 7-year-old girl suffering from aplastic anemia -- a condition in which the bone marrow fails to make enough blood cells and platelets for the body -- had been treated with PLX after bone-marrow transplants failed to help her.
Her condition improved after the treatment, according to the statement headlined “Compassionate Use of Pluristem’s PLX Cells Saves the Life of a Child After Bone Marrow Transplantation Failure.”
The press release included a statement from the girl’s doctor. “With her body rejecting all possible treatment –- and with no other options –- we finally turned to Pluristem’s PLX cells, which literally saved her life,” said the doctor, Reuven Or, director of the Department of Bone Marrow Transplantation and Cancer Immunotherapy at Hadassah Medical Center in Jerusalem.
The stock surged 13 percent on the Nasdaq Stock Market on May 9 in trading of 2 million shares, almost 20 times the three-month average. She was later released from the hospital.
On Aug. 5, Channel 2, Israel’s most widely watched television network, broadcast a report in its prime-time newscast on a second compassionate-use case. The segment featured an interview with Aberman, and presenter Yonit Levi told viewers the treatment was a “world-class achievement.”
The next day, Pluristem issued a news release on the second case, a 54-year-old woman with cancer suffering from bone-marrow failure.
The doctor was cited again. “The treatment with PLX has saved her life and can certainly be classified as a medical miracle,” Or, who treated the woman, was quoted as saying in the release. The stock rose 15 percent that day.
Eleven days later, on Aug. 17, Aberman sold 33,853 shares at $5 each, the stock’s highest intraday price since May 1, 2008, for proceeds of about $169,295, according to a filing with the SEC. Chief Financial Officer Yaky Yanay sold 16,927 shares the same day, for almost $85,000.
The men had put in place a trading plan in 2011 intended to allow the executives to buy or sell with less chance of running afoul of laws on insider trading. Under such plans, brokers execute transactions based on standing instructions to sell on a certain date or when shares reach a specified price.
Pluristem announced a third compassionate-use treatment on Sept. 5. A 45-year-old man with acute myeloid leukemia, a blood cancer, needed a bone-marrow transplant after the chemotherapy he received for the leukemia damaged his blood cells, the company said. After complications developed from the transplant, he was treated with the PLX cells, his condition improved and he was released from the hospital, Pluristem said.
Pluristem isn’t tracking either of the two patients since their release from the hospital, the company said in an e-mailed statement yesterday.
One week later, on Sept. 12, the girl who was the subject of the first press release died.
On the same day, the company said it would sell additional shares to pay for research and development expenses. The sale closed Sept. 19. Buyers paid $4 for each unit, with a unit consisting of one share and a warrant to buy 0.35 of an additional share at $5 each.
The stock rose 0.5 percent to close at $3.69 yesterday, giving the company a market value of $211.8 million. Aberman still holds more than 865,000 shares, while Yanay owns 769,000, according to data compiled by Bloomberg.
Most companies typically don’t announce successful compassionate-use treatments to avoid giving patients false hope, and because such outcomes aren’t generally considered by regulators in deciding whether to approve a product.
Such occurrences are “purely anecdotal” and bear little statistical significance, said Christopher Bravery, a U.K.-based independent regulatory consultant.
“We’re often terribly swayed by an individual case,” Bravery, a former official at the U.K.’s Medicines and Healthcare Products Regulatory Agency, said in a telephone interview. “But that could just be a 1-out-of-10 case.”
Pluristem felt obligated to announce the positive progress of the three patients at Hadassah Medical Center, the company said
“Pluristem is a publicly traded company and must maintain transparency, as they are obligated to share information with the public,” the company said in an e-mailed statement.
Executives felt no similar duty to report the girl’s subsequent death, Aberman said, because she died after having been released from the hospital and lived for 180 days after receiving the treatment, which is considered a success, he said.
Pluristem has raised money repeatedly over the years, through private share sales and public offerings. The company’s shares outstanding have soared from 6.7 million at the end of 2007 to 57.4 million today, diluting the holdings of existing investors.
The company is unprofitable and its products “will likely not be ready for sale for at least three years, if at all,” according to the annual report filed with the SEC Sept. 10. “It is highly likely that we will need to raise significant additional financing in the future.”
The PLX cells are derived from human placentas that otherwise would be medical waste. Pluristem then expands them using proprietary technology.
Using placental material avoids the ethical controversy of human embryo stem-cell research, in which cells are extracted from an embryo that is destroyed in the process. Pluristem’s cells release growth factors that promote blood flow, wound healing and artery and vein development, and may treat a range of ailments.
Pluristem began a mid-stage clinical trial of the cells in the U.S. in September in a form of peripheral artery disease. The company has regulatory approval to begin studies in muscle injury after hip replacement and Buerger’s Disease, a form of artery disease that can lead to limb amputation.
Besides critical limb ischemia, the indication in which Pluristem has already completed clinical trials, Pluristem plans to study the cells in illnesses including bone-marrow disorders and lung disease. The market to treat critical limb ischemia alone is worth more than $10 billion, according to DS Securities & Investments.
The potential “is massive” and Pluristem has solid technology, said Andrew Bradbury, a professor of vascular surgery at the University of Birmingham in England, who said he has been approached by Pluristem for help with a large clinical trial.
The company last year agreed to license the cells to United Therapeutics Corp. in an agreement that may pay a total of $55 million for the development of a treatment for pulmonary hypertension.
While the initial PLX trials contained fewer than 30 participants, the cells will need to be tested in about 600 participants, according to DS Securities.
“There is a big graveyard of studies that don’t deliver what one would hope,” Bradbury said. “Until you do the big study you don’t really know if the science works.”