Three Newport Pharmaceuticals International Inc. shareholders filed a class-action lawsuit Thursday accusing current and former company officials of violating federal securities laws.
The suit accuses the Newport Beach drug maker of inflating its stock price by misrepresenting the prospects of its drug Isoprinosine as a potential treatment for AIDS.
Named in the suit, filed in Orange County Superior Court, are Alvin Glasky, Newport's founder and former chairman, president and chief executive; Glasky's brother, Sanford, who recently resigned as vice president, chief operating officer and a member of the board of directors; Raymond Harkavy, a company director; and Theodore Ginsberg, a vice president. Alvin Glasky remains a director of the company but was fired by the other board members in March from his posts as chairman, president and chief executive.
Thursday's suit was filed by the law firm of Milberg Weiss Bershad Specthrie & Lerach, one of the nation's most successful law firms for shareholders' rights.
The suit alleges that Newport officials personally profited by selling common stock at prices that had been "artificially inflated" after they issued "false and misleading" statements concerning Isoprinosine. The suit does not seek specific damages.
A Newport spokeswoman declined to comment on the suit Thursday, saying company officials were not aware that one had been filed.
According to the suit, the price of Newport's shares increased by more than 50% between April and September, 1985--the six-month period before the company's filing for Food and Drug Administration approval of Isoprinosine as a medication for AIDS related complex--a series of conditions that often precede the onset of acquired immune deficiency syndrome.
The suit says the stock rose from $7.88 a share to "in excess of $13" per share during the six-month period.
During much of that time, and continuing into February of this year, the plaintiffs in the suit--Bernard I. Mirochnick, Philip Arnold and Robert F. Carr III--purchased 9,500 shares of Newport common stock at prices ranging from $10 to $14.50 a share. However, the suit alleges, Newport insiders were "reaping large profits for themselves" by selling 31,000 shares of stock for as much as $13.13 each.
The suit says Ginsberg sold 1,000 shares at $13.13 apiece early on Feb. 21, the same day the FDA notified Newport of its rejection of Isoprinosine as a treatment for pre-AIDS. The FDA took the unusual step of publicizing a scathing letter in which it criticized Alvin Glasky for misrepresenting Isoprinosine's test results in a Feb. 12 press conference. Newport's stock price increased to $14.38 per share the day after the press conference.
But as a consequence of the FDA criticism, the price of Newport's shares fell by more than 50% to $6.50 a share at the close of trading Feb. 21 on a staggering volume of 2.5 million shares.
That, the suit claims, caused "substantial damage" to shareholders who had not followed Ginsberg's lead in selling early in the day.
Since Feb. 21, the stock's price has remained depressed. On Thursday, Newport closed at $6.375 a share, down 25 cents for the day. Newport's 12-month high was $15.125 a share, reached early this year as speculation of FDA approval mounted. Its 12-month low was $4.625 a share, reached in July.
Over the past two decades, Isoprinosine--Newport's sole product--has been touted by the company as a treatment for a wide range of ailments, including the common cold. It was even promoted for a time as a memory-enhancing drug.
Although it is available in about 80 countries overseas, the drug has never been approved for use in the United States.
After a five-month search for a successor to Alvin Glasky, Newport in July named J. Roberts Fosberg president and chief executive. Fosberg, a one-time Allergan Pharmaceuticals executive, has been nominated for a seat on Newport's board, which will stand for election at the annual meeting.