BioXcel Execs Face Investor Suit Over Alzheimer’s Drug Probe

By Sydney Price

Law360 (January 3, 2024, 5:47 PM EST) — Top brass at artificial intelligence-driven biopharmaceutical company BioXcel Thera12eutics Inc. have been hit with a shareholder derivative suit alleging they took too long to disclose a U.S. Food and Drug Administration probe of its development of an Alzheimer’s treatment and its lead clinical trial investigator’s compliance issues.

BioXcel did not publicly report that it received a letter from the FDA warning that it was in violation of multiple clinical trial rules until June 29, 2023, about six months after the company had received the letter in December 2022, according to the complaint filed by Maria Vomvolakis on Tuesday in Connecticut federal court. Instead, BioXcel continued to “perpetuate a ruse” that the clinical trial would be a valuable catalyst to the company, the complaint states.

On June 29, 2023, before the market opened, BioXcel publicly acknowledged the probe for the first time, according to the complaint. On that day, the company also disclosed that its principal investigator for its clinical trial, called Tranquility II, had failed to adhere to certain requirements and did not adequately maintain case histories for certain patients. BioXcel also said the investigator may have lied about submitting certain vendor reports. In response to the news, BioXcel’s share price fell nearly 64% from $17 .67 at the end of day June 28 to close at $11.28 on June 29, the complaint said. In addition to nominal defendant BioXcel, the suit names eight individual defendants, including BioXcel cofounder and CEO Vimal Mehta.

The complaint accuses Mehta, BioXcel Chief Financial Officer Richard Steinhart and former director Krishnan Nandabalan of insider trading based on material non-public information in the letter from the FDA before it became available to the public.

During the suit’s relevant period, which begins Dec. 15, 2021, and continues through the present, BioXcel’s executives purposely misled the public about the clinical trials, according to the complaint. For example, in January 2023, Mehta said during the J.P. Morgan Healthcare Conference that the Tranquility II trial had “progressed” on a “strong foundation,” and that the company was “excited” about the data.

The suit says, however, that these statements were false and misleading because Mehta failed to disclose that BioXcel had received a warning from the FDA regarding the trials, and that the trials were not “strong.”

“No reasonable person would be ‘excited’ about the data under those negative circumstances,” the suit states.
BioXcel is facing a related federal securities class action in Connecticut based on its alleged failure to disclose the FDA probe, according to the complaint.

That suit describes BioXcel as a company that purportedly uses AI to develop its therapeutics, using “big data and proprietary machine learning algorithms” to identify new possible treatments.

“Between BioXcel’s wasted capital spent on the clinical trials, lost market cap, fines, penalties, ongoing testing and additional clinical trials, regulatory investigations, the securities action, the insider trading, reputational loss, and loss of goodwill, BioXcel is exposed to millions in damages and its directors are exposed to personal liability,” the complaint states.

The suit accuses the defendants of violating the Exchange Act, breaching fiduciary duties, unjust enrichment, wasting corporate assets, abuse of control and gross mismanagement.

Vomvolakis seeks an order that would require BioXcel to take action to improve internal controls and board oversight, and the individual defendants to pay restitution to BioXcel and disgorge any ill-gotten gains.

Counsel for Vomvolakis and a representative of BioXcel did not immediately respond to requests for comment Wednesday.

Vomvolakis is represented by Fletcher Moore of Moore Law PLLC and Lee Squitieri of Sguitieri & Fearon LLP.

Counsel information for the BioXcel defendants was not immediately available Wednesday.

The case is Vomvolakis v. Mehta et al., case number 3:24-cv-00003, in the U.S. District Court for the District of Connecticut.