WASHINGTON – Advanced Cell Technology Inc. (ACT) has hit a bump in the road, but this one isn't related to its human embryonic stem cell program.

The biotech is one of several defendants named in an SEC civil complaint filed Wednesday in a federal district court in Florida, alleging securities law violations in connection with the unregistered distribution of millions of shares of penny stocks through the repeated misuse of the Section 3(a)(10) registration exemption.

Under the exemption, companies may issue unregistered common stock to public investors "in exchange for one or more bona fide outstanding securities, claims or property interests," provided all the terms and conditions are approved by a court or authorized government agency.

ACT allegedly was drawn into a strategy, under former management, to pay off past-due debts using the exemption while, at the same time, improperly raising additional capital, the SEC said. As a result, the Santa Monica, Calif.-based company issued 260 million unregistered shares during 2008-2009, extinguishing $1.1 million in debt and raising more than $3.5 million in capital.

The strategy involved filing pre-settled lawsuits in a Florida state court purportedly to clear past-due debts owed to Compass Capital Group, Sequoia International Inc. and several offshore financing entities. Aside from the court-filed settlements, ACT and other penny stock issuers agreed to issue unrestricted common stock, worth multiple times more than the debt, to the financing companies at a substantial discount. After selling the shares on the open market, the financiers remitted the proceeds to ACT and the other issuers, the SEC said.

Unaware of the side agreements or that the market value of the shares greatly exceeded the debts, the Florida court granted a Section 3(a)(10) exemption from registration as part of the settlements.

ACT filed an 8K with the SEC Wednesday, acknowledging the complaint. The company said it is cooperating with the investigation and is examining its options for a prompt resolution and for recouping any loss it may incur.

The litigation should have no material impact on the company's plans or its ongoing clinical trials, ACT said. The biotech began enrolling a second patient cohort in April in a Phase I/II trial of retinal pigment epithelial cells in macular degeneration. The trial is one of three prospective, open-label trials being carried out in the U.S. and Europe.

Shares of ACT (OTCBB:ACTC) were down 10 percent Thursday, closing at 7 cents.

Misuse of Antipsychotics Targeted

Hoping to reduce the use of antipsychotic drugs in nursing home residents by 15 percent by the end of the year, the Centers for Medicare & Medicaid Services (CMS) is partnering with government agencies, nursing homes, advocacy groups and caregivers to tackle the problem.

More than 17 percent of nursing home patients had daily doses of antipsychotics exceeding recommended levels in 2010. And nearly 40 percent of nursing home patients with signs of dementia were given antipsychotic drugs at some point in 2010, even though they had no diagnosis of psychosis, said Patrick Conway, CMS chief medical officer.

The unnecessary use of such drugs is a significant challenge in ensuring appropriate dementia care, according to the agency.

To tackle the problem, CMS will increase transparency by making data on each nursing home's antipsychotic drug use available on Nursing Home Compare beginning in July. It also has developed a training series for nursing homes and is emphasizing nondrug alternatives.

For long-term solutions, CMS is conducting a study in 20 to 25 nursing homes to understand the decision-making involved in determining whether to use antipsychotic drugs in residents with dementia.

The use of antipsychotics in nursing homes has drawn enforcement and legislative attention over the past few years. For instance, the Justice Department accused Johnson & Johnson (J&J) in 2010 of paying millions of dollars in kickbacks to Omnicare Inc. as part of an agreement with the nursing home pharmacy firm to drive prescriptions of J&J drugs such as Risperdal (risperidone), an antipsychotic. (See BioWorld Today, Jan. 25, 2010.)

In October, Sen. Herb Kohl (D-Wis.) introduced the Prescription Drug Cost Reduction Act, S. 1699, that would guard against the unnecessary prescription of costly drugs for nursing home residents by requiring physicians to complete a written certification before prescribing them atypical antipsychotics. The bill has been stalled in the Senate Finance Committee. (See BioWorld Today, Oct. 17, 2011.)

OPDP Slaps Vertex, Pfizer Ads

One patient's account of how Incivek (telaprevir) changed his life resulted in Vertex Pharmaceuticals Inc. getting a not-so-friendly letter from the FDA's Office of Prescription Drug Promotion (OPDP).

While the branded story "may be an accurate reflection" of the patient's experience with hepatitis C and treatment with Incivek, it is "misleading because it overstates the efficacy, omits material facts and minimizes important risk information about the drug," OPDP said in an untitled letter to the Cambridge, Mass.-based biotech.

The story described the patient's diagnosis of Stage III cirrhosis and subsequent null response after six months of treatment with pegylated-interferon and ribavirin combination therapy. He was cleared of the virus after treatment with Incivek.

The story "misleadingly implies that most or all cirrhotic prior null responders infected with hepatitis C will successfully achieve sustained virologic response (SVR) on Incivek combination therapy," OPDP said.

In clinical trials, 14 percent of the prior null responders with cirrhosis who received Incivek combination therapy achieved SVR vs. 10 percent in the placebo group, OPDP pointed out.

The letter concluded with a request for Vertex to immediately stop disseminating the promotional materials.

OPDP slapped Pfizer Inc., of New York, a little harder, sending it a warning letter for a TV ad for its EpiPen (epinephrine) auto-injectors. The letter was sent following an April teleconference between OPDP and the drugmaker, in which Pfizer said it would immediately pull the ads and similar promotional materials.

The 60-second commercial, submitted through the FDA's Bad Ad program, "misleadingly suggests that a child who has a peanut allergy can take a chance eating a piece of birthday cake with unknown ingredients and feel completely free from worry about any potential risk of anaphylaxis if prepared with EpiPen," according to the warning letter. In overstating the efficacy of the drug, the ad could "result in serious consequences, including death," OPDP said.