On March 29, 2016, the SEC announced that it had filed fraud charges in U.S. federal court against AVEO Pharmaceuticals, Inc. (“AVEO”), a Massachusetts-based biotechnology company, and three of its former executives. The complaint alleges that AVEO and its former Chief Executive Officer, Chief Financial Officer and Chief Medical Officer violated the antifraud provisions of the federal securities laws by misleading investors about the company’s communications with the FDA during the approval process for tivozanib, AVEO’s leading product candidate being developed as a treatment for kidney cancer. According to the complaint, the FDA raised concerns to AVEO in a May 2012 pre-NDA, or New Drug Application, meeting related to the survival rates of patients receiving tivozanib during AVEO’s first clinical trial of tivozanib relative to patients receiving the other compound, sorafenib, being used as a comparator in the trial. An NDA is the formal process by which a company seeks FDA approval of a new pharmaceutical for commercialization. In the pre-NDA meeting, FDA staff recommended that AVEO conduct a second clinical trial. The SEC alleged in its complaint that, for more than eleven months following the FDA’s recommendation of a second clinical trial, AVEO and the officers named in the complaint concealed from investors the extent of the FDA’s concerns about tivozanib and its recommendation that the company conduct a second clinical trial. Among other charges, the SEC alleged that:
- AVEO raised approximately $53 million in a public stock offering following the filing of the NDA, but failed to disclose in its offering materials the extent of the FDA’s concerns about tivozanib and its recommendation that the company conduct a second clinical trial.
- AVEO’s CEO and CFO knowingly approved and certified a press release and public filings that omitted information regarding the FDA’s recommendation of a second clinical trial, and suggested that data from “additional analyses” would satisfy the FDA’s concerns about survival rates among patients receiving tivozanib in the first clinical trial.
- AVEO’s CFO made statements at investor conferences suggesting that the FDA had only requested an explanation of the patient survival results from the first clinical trial, and omitted information about the FDA’s recommendation of a second clinical trial.
- AVEO filed a number of Exchange Act filings with the SEC which noted the FDA’s concerns about patient survival rates, but failed to disclose the FDA’s recommendation of a second clinical trial.
The FDA publicly disclosed its prior recommendation of a second clinical trial in advance of a May 2013 FDA advisory panel at which outside experts convened by the FDA (the Oncologic Drugs Advisory Committee, or ODAC) were to consider AVEO’s NDA. On the day on which the FDA made this disclosure, AVEO’s stock price closed down 31%. The ODAC advisory panel recommended against approving tivozanib, and in June 2013, the FDA declined to approve the NDA.
AVEO agreed to pay $4 million to settle the SEC’s charges without admitting or denying wrongdoing. The settlement is subject to court approval. The SEC’s case against the named officers is pending. The SEC is seeking disgorgement plus interest and penalties, permanent injunctions and officer-and-director bars against the officers named in the complaint. A copy of the SEC’s complaint can be found here: https://www.sec.gov/litigation/complaints/2016/comp-pr2016-59.pdf. The complaint describes in detail the alleged facts and conduct by AVEO and the named officers giving rise to the SEC’s charges.
The SEC has a long history of bringing enforcement actions against companies alleged to have made materially false or misleading disclosures with respect to FDA-related matters. In 2004, the SEC and the FDA publicly announced an initiative to enhance cooperation between the two agencies, including sharing of non-public information by the FDA with the SEC and the adoption by the FDA of a centralized procedure for making referrals to the SEC of possible instances of securities law violations. More recently, in a March 2015 speech, Andrew Ceresney, Director of the SEC’s Division of Enforcement, highlighted FDA-related disclosures as being one of a number of areas relating to the pharmaceutical industry which is attracting significant interest from the SEC’s enforcement staff (other areas of enforcement interest highlighted in that speech included FCPA compliance, as well as financial reporting and internal controls related issues). In his speech, Mr. Ceresney cited a number of other recent enforcement actions in the area of FDA-related disclosures. The SEC’s enforcement action against AVEO serves as yet another strong reminder that biotechnology, pharmaceutical, medical device and other companies subject to FDA regulation must exercise significant care with respect to their disclosures of FDA matters – not only in SEC filings and securities offering documents, but also in earnings and other investor calls, investor presentations, meetings and conferences, communications with research analysts, media communications and other settings. Thank you to Gina Santino for her assistance with this post.