Medical Device Firm Fined $500,000 for Misleading Investors

Israel's Securities Authority has imposed financial sanctions totaling 1.85 million shekels (approximately $500,000) on medical device company Epitomie Medical, its former CEO Dr. Dan Hashimshoni, and its chairman and founder Dr. Shimon Ekhaus. The administrative enforcement committee found that the company provided misleading information in two investor reports in late 2023, falsely presenting the success of its clinical trials for a weight-loss capsule.

Epitomie Medical, which went public on the Tel Aviv Stock Exchange in 2021, developed a swallowable capsule for weight loss. In 2020, it signed a strategic agreement with Nestle's health division for global distribution rights. Under the deal, Epitomie was to receive tens of millions of dollars in development grants and royalties, contingent on obtaining U.S. Food and Drug Administration (FDA) approval and meeting stricter efficacy targets set by Nestle.

While the capsule met FDA safety and efficacy standards, the clinical trial results in August 2023 clearly showed it failed to meet Nestle's higher targets. This failure jeopardized the distribution agreement. Despite possessing this crucial information, Epitomie published two reports in September and November 2023 highlighting only the positive aspects, namely the trial's success and expected FDA approval, omitting the critical data regarding Nestle's requirements.

Following these partial reports, Epitomie's stock surged by approximately 80% after the first announcement and an additional 29% after the second. However, the market reality hit in late November when Epitomie disclosed an "initial indication" from Nestle about non-compliance, causing the stock to plummet by about 71%. In early December, Nestle officially canceled the agreement, leading to a further 7.5% drop in the company's share price.

The Securities Authority ruled that the misleading reports were due to the omission of material information, not a minor technicality. The committee emphasized that company officials failed in their duty of full and accurate disclosure. Epitomie Medical was fined 1.3 million shekels, Dr. Hashimshoni 300,000 shekels and a one-year ban from holding a position in a regulated entity, and Dr. Ekhaus 250,000 shekels and a six-month ban.