SEC halts trading in Danvers company

The Securities and Exchange Commission yesterday said it suspended trading of Vaso Active Pharmaceuticals Inc. of Danvers for two weeks, questioning the accuracy of statements the maker of an athlete's foot lotion had made about FDA approvals for its products and other regulatory matters.

The action halted trading in the tiny company whose shares have more than tripled since the start of the year, and whose board includes a former research dean of Harvard Medical School. It has been the subject of several critical news accounts regarding its communications about its Termin8 antifungal lotion, one of three products based on a method to deliver drugs through the skin.

The action comes amid growing cooperation between the SEC and the Food and Drug Administration to police the statements of biotech firms, whose value is largely determined by their prospects before drug regulators. When it went public in December, Vaso Active said in a securities filing its three products have received FDA approvals.

In a statement yesterday the SEC said, referring to the company's stock ticker symbol, ''The commission temporarily suspended trading in the securities of VAPH because of questions regarding the accuracy of assertions by VAPH and by others, in press releases, its annual report, its registration statement and public statements to investors concerning among other things: (1) FDA approval of certain key products, and (2) the regulatory consequences of the future application of their primary product."

Asked about the matter, an FDA spokesman referred a reporter to an online listing of approved drugs. None of three remedies Vaso Active says it got approvals for -- Termin8, Athlete's Relief, and Osteon -- appear in the database.

In the same filing Vaso Active listed the annual market size next to each of various products it has under development, including $800 million for a toenail fungus treatment and over $1 billion for a hand and body lotion. It wasn't clear whether these figures accounted for the second problem identified by the SEC. The company said the figures were based on a retail industry report.

In press release at 7 p.m. yesterday, Vaso Active said it ''is committed to providing the company's full cooperation in addressing the concerns raised by the Commission . . . As this matter is in its early stages, it would be inappropriate to provide a more detailed comment at this time." Executives wouldn't say more, a representative said. Vaso Active previously disclosed it had gotten inquiries from the SEC.

In a telephone interview yesterday, one of Vaso's directors, Gary Fromm, acknowledged the company could have done more to clarify the details about studies that had been done on Termin8.

''There probably should have been better documentation of the studies that were done with regard to the efficacy of the product in company public filings," said Fromm, speaking from London, where he is chairman of Sky Capital UK Ltd., an investment firm.

Even before yesterday's action, the company had faced scrutiny in the business press on other topics.

For instance, on March 10 TheStreet.com, a financial news website, reported that Vaso Active had claimed incorrectly that Tufts-New England Medical Center had conducted a clinical trial of Termin8, when the center had only analyzed results of a study done elsewhere. In February Barron's, the financial newsweekly, reported that the head of a medical association couldn't remember endorsing Termin8 as Vaso Active had claimed. (Vaso Active later explained the doctor had endorsed the product under its previous name, deFEET).

Also, according to the company's March 26 proxy statement, several executives were late to file reports describing their ownership in the company including John J. Masiz, its chief executive. The documents were filed late ''inadvertently," the filing states.

Company director Fromm said he didn't feel Vaso Active had committed wrongdoing and blamed some of the unflattering attention on short-sellers, who stand to profit if the company's shares go down. ''The volume of activity in Vaso is ridiculously high, given the amount of outstanding shares available to the public," he said. ''The company isn't manipulating the stock, it appears the short-sellers are having a field day with the stock," he said.

In recent months an average of 1 million shares of Vaso Active have changed hands per day, about 20 percent of the total number of shares outstanding. On Dec. 15 the company raised about $6.4 million in its public offering of stock, and had about $6.1 million remaining as of Dec. 31.

The stock closed at $7.59 on Wednesday, up from $1.97 on Jan. 2, adjusted for a split. Vaso reported net revenue of $53,270 for 2003 from $91,957 in 2002, a decrease mainly due to its decision to change the name of deFEET to Termin8 in September. As a result, retailer Walgreen Co. returned most of its deFEET inventory, Vaso said.

On its website Vaso Active says it aims to apply its technology to over-the-counter drugs whose patents have expired, to make them deliverable through the skin, or transdermally. In addition to the athlete's foot cream, it sells two pain treatment products and says it is developing others to treat toenail fungus and itchy maladies.

Ross Kerber can be reached at kerber@globe.com.