(CN) - BioSante Pharmaceuticals made false claims about a topical medication for female sexual dysfunction, known as LibiGel, and its stock price plummeted 77 percent when the real results of clinical trials were released, shareholders claim in a derivative action.
Jerome Weinstein filed a derivative action against BioSante Pharmaceuticals Inc. and seven of its corporate officers in the Northern District of Illinois.
"Over the past decade, BioSante has been in the process of developing LibiGel, a drug designed to improve the sex drive of women suffering from female sexual dysfunction, and specifically HSDD [Hypoactive Sexual Desire Disorder]," the complaint states. "HSDD is a persistent lack or absence of sexual desire, fantasies, or thoughts. It is the most common form of female sexual dysfunction. Approximately 43 percent of women ages 18-59 experience some form of sexual dysfunction. As a result, the anticipated U.S. Food and Drug Administration approval of LibiGel was viewed as an important breakthrough."
LibiGel is a gel form of testosterone designed to be absorbed through the skin of the upper arm. BioSante boasted it was "the most clinically advanced pharmaceutical product in the U.S," Weinstein says.
The complaint cites numerous press releases in which BioSante reported the excellent clinical results of LibiGel and its imminent approval by the FDA. However, in December 2011, BioSante announced that in large-scale tests LibiGel failed to yield higher reports of sexual desire than a placebo.
Weinstein says, "On this news, BioSante's share price collapsed $1.64 per share, or 77 percent, instantly wiping out tens of millions of dollars in shareholders' equity."
"The negative clinical trial results came as a big surprise to BioSante shareholders and analysts alike, as there was consensus emerging in the market that LibiGel had a 70-80 percent probability of FDA approval. Defendants caused shareholders and analysts to believe that most of the negatives with LibiGel were safety-related and that the drug's efficacy was almost a foregone conclusion," the complaint states. "As a result of defendants' false statements, BioSante has been severely injured and damaged. Hundreds of millions of dollars in shareholders' equity has been wiped out. Worse yet, the company has been exposed to the risk of massive liability for violating the federal securities laws. Indeed, BioSante already has been named as a defendant in a costly and expensive-to-defend securities class action lawsuit."
Weinstein seeks punitive damages for breach of fiduciary duty, abuse of control, gross mismanagement, and unjust enrichment.
He is represented by James Barz of Robbins Geller Rudman & Dowd.