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A Bloody Fraud at Biopure

October 10, 2009

A former executive of the biotechnology drug company Biopure was sentenced to three years in prison this week, for obstruction of justice relating to an SEC lawsuit charging that the company and three executives lied about clinical trials of Hemopure, the company’s flagship experimental fake blood product. The SEC case against former Biopure regulatory affairs director Howard Richman was dropped when he reported to the judge that he had terminal cancer and was too ill to stand trial. But this week Richman received the jail term following revelations that he faked the diagnosis in an effort to avoid penalties.

Biopure has been in hot water since as early as 2001, when the company’s touting of an early trial was questioned by outside medical experts and the company refused to release its data. In 2003, the SEC notified the company it had sufficient evidence of wrongdoing to warrant filing charges. The agency’s investigation suggested that Biopure fraudulently sold millions in stock with false disclosures about its communications with the FDA. In September 2005, the agency sued the company and three executives, former CEO Thomas Moore, Richman, and current Vice-President Jane Kobler for the fraud. But in 2006, undeterred by the FDA’s fourth rejection of a clinical trial of Hemopure in civilians, the company requested approval for trials on Navy trauma victims.

But in 2008, the Journal of the American Medical Association published a study showing an increased risk of heart attacks and death in patients enrolled in Hemopure clinical trials. The study questioned the viability of current blood substitutes and noted that studies “as early as 19961 have raised questions about the safety of these products and have failed to demonstrate clinical benefit.” The researchers noted that the use of Hemopure and other blood substitutes created the conditions for sudden heart attacks, and that their analysis of clinical trials using blood substitutes in elective surgery, trauma, and stroke patients found a 30% increased risk of mortality. Commenting on the study, the lead researcher, a senior National Institutes of Health (NIH) scientist, recommended that all human clinical trials of synthetic blood products should cease.

Despite the study, in mid-2008 Biopure’s new CEO Zafiris Zafirelis expressed about the upcoming Navy collaboration that he was “very excited [about] initiating a new clinical trial with Hemopure.” The Navy was less excited, and cancelled the experiments.

In 2007 and 2008, Zafirelis took home just under $290,000 a year, while Kober’s salary, stock and bonuses totaled almost $340,000 a year. In November 2008, the company laid off most of its employees and the two executives agreed to salaries of a mere $10,000 a month. At the time of the announcement, the company’s stock was valued at about thirteen cents a share.

Its hemorrhaging financial situation forced Biopure to declare bankruptcy in July 2009. Zafirelis and Kober were reportedly owed $375,000 and $640,000, respectively, in pay and severance. For her role in the fraud, in 2007 Kober agreed to a $40,000 settlement with the SEC.

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