Securities Regulation Daily Wrap Up, FRAUD AND MANIPULATION—D. Nev.: Company concealed data problems in Alzheimer's drug trial, (Apr 1, 2025)

By Rodney F. Tonkovic, J.D.

The complaint alleged that the company had deceived investors into purchasing its securities at artificially inflated prices.

Biopharmaceutical company BioVie was denied a motion to dismiss in a fraud suit over its statements about a clinical trial. The company was conducting a Phase 3 trial of a drug to treat Alzheimer's but ultimately discovered improper conduct at over a dozen test sites that disqualified 80 percent of the test subjects. The court found that the complaint adequately pleaded that BioVie was at least reckless in making false statements about the trial subjects and data (In re BioVie Inc. Securities Litigation, No. 3:24-cv-00035 (D. Nev. Mar. 27, 2025)).

Bezisterim. BioVie is a biopharmaceutical company that is developing drugs for treating neurological and neurodegenerative disorders. At issue here is the company's leading drug candidate, Bezisterim, the mechanism of which the company touts as a new approach to treating Alzheimer's and Parkinson's. Analysts called the drug a "potential blockbuster opportunity" for investors.

Phase 3 clinical trials of Bezisterim began in August 2021. In late 2022, concerns emerged about potential misconduct at one of the study sites, and an audit showed that the eligibility of the test subjects at that site could not be confirmed. The audit found data integrity issues in the patients' medical records, such as possible falsification to render them eligible for the trial, among other serious problems. The auditor recommended that this site be closed, but, according to the complaint, BioVie took no action.

Audits. Testing went on, and BioVie's filings said that the trials had "a good safety profile." Later, however, as testing started to conclude, BioVie's review of the data showed unusual patterns. Further audits and site visits revealed more irregularities and "highly suspect" patient files, but none of this was conveyed to investors at the time.

In November 2023, BioVie disclosed that it had found significant deviations from protocol and good practices at fifteen trial sites. As a result, the patients from these sites—over 80 percent of the trial's total enrollment—had to be excluded, leaving only 81 patients. This meant that the trial did not reach statistical significance. Following this revelation, BioVie's stock price dropped by 60 percent.

False statements. The complaint alleged that the plaintiffs were duped into buying BioVie stock at artificially inflated prices. The court concluded that the complaint sufficiently alleged falsity, scienter, and loss causation.

The court first found falsity as to four categories of statements. BioVie described the trial as "fully enrolled," but this was false due to the fact that 80 percent of the enrolled patients were not eligible as a result of pervasive fraud; this finding was bolstered by BioVie's inaction after the audit discovered the noncompliance and as more data came in. Similarly, the discovery of the data irregularities made BioVie's statements about the anticipated date for completing the study improbable.

Next, the complaint pleaded falsity as to BioVie's optimistic statements about the preliminary data. Here, BioVie commented on the data when it allegedly knew that data integrity issues made these numbers suspect. BioVie's risk disclosures were also false because the company used hypothetical language to disclose risks of misconduct while having information that such misconduct had happened.

Scienter and loss causation. Regarding scienter, the court concluded that a compelling inference that the individual defendants acted with deliberate recklessness was at least as strong as an opposing inference of good faith. The court said that the inference of a motive to conceal negative information was strengthened by the fact that the drug was central to BioVie's financial integrity.

Finally, the plaintiffs were able to show economic loss as a result of the alleged misrepresentations. In this case, the plaintiffs losses in November 2023 were ties to the risks that BioVie allegedly failed to disclose.

The case is No. 3:24-cv-00035.

Judge: Du, M.

Attorneys: Corey D. Holzer (Holzer & Holzer, LLC) for Eric Olmstead. Bradley T. Austin (Snell & Wilmer) and Douglas W. Greene (Baker & Hostetler LLP) for BioVie, Inc.

Companies: BioVie, Inc.

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