Solbec falls foul of continuous disclosure laws

Perth-based Solbec Pharmaceuticals (ASX:SBP) has paid a AUD$33,000 fine after being issued with an infringement notice by the Australian Securities and Investments Commission (ASIC) for allegedly failing to disclose information to the Australian Stock Exchange (ASX) relating to a drug trial.

It is the first time ASIC has used new provisions in the Corporations Act designed to deal with less serious infringements of the continuous disclosure obligations, although ASIC began legal action against Perth-based biotech company Chemeq (ASX:CMQ) under the civil penalties available under the laws last year.

ASIC issued the notice on June 14 because it believed that Solbec had failed to notify the ASX about the structure, size and limited nature of the results of an animal study relating to its cancer drug, Coramsine.

Coramsine is a mixture of two alkaloids from the prickly weed Solanum linneaum, also known as devil's apple. The object of the trials was to ascertain the immunological activity of Coramsine in combination with another therapy, CpG.

On November 23, 2004, Solbec released an announcement to ASX relating to the Coramsine trial which said, amongst other things, that Coramsine brought about total remission of malignant mesothelioma in mice when combined with immunotherapy.

Solbec's share price increased by some 92 per cent following the announcement, from $0.125 to $0.24, before closing at $0.21.

Over the next three days the media reported additional details including information relating to the number of mice used in the trial and the effect of the combined Coramsine-CpG therapy on each of those mice.

Solbec issued a second announcement on November 26, 2004 in which it stated that:

"Five mice were inoculated with mesothelioma and were treated with the combination of CpG and Coramsine 3 times weekly for 16 days. Two mice, out of the five treated, had greatly reduced tumour growth and extended survival. Another two of the treated mice went into remission, one of which when reinoculated with cancer was immune while the other died of Coramsine overdose due to the lack of cancer because Coramsine will kill normal cells when there is no cancer present. The fifth mouse was a control, treated with Coramsine only."

ASIC contended that the information released on November 26 was information that was available to Solbec on November 23 and should have been released on that date because it was necessary to enable investors to make a proper assessment of the market significance of the trial results made in the first announcement.

While Solbec contends that it has not breached its continuous disclosure obligations, because the bulk of the information in the second announcement was contained in the earlier one, it paid the fine on Friday.

"Our view is there was enough in the announcement on the 23rd to comply with the law, we just followed up by way of clarification," said Solbec's chairman, Tony Kiernan.

However, Kiernan said that Solbec had two choices: the company either complied with the notice by paying the fine or it did not, by refusing to pay the fine. "There is no appeal from the infringement notice. If we don't pay the notice, then ASIC decides whether it will actually formally commence legal proceedings or not. Whether it does or not is a matter for it," he said.

While ASIC can issue an infringement notice if it has reasonable grounds for concluding that a company has breached the Act, the issue of a notice and paying a fine is not necessarily an admission of liability, or proof that a company has contravened the law.

"We're aggrieved, but we're concentrating on day-to-day operation. We're not a big company, there won't be a finding against us, let's pay the fine and move on," said Kiernan.

At the time of writing, Solbec shares were trading at $0.075.