Biotech CFO Accused of Misleading Investors

The former CFO and two other former top executives of biotech company Aveo Pharmaceuticals have been charged with failing to disclose the U.S. Food and Drug Administration had serious concerns about its experimental kidney cancer drug.

The Securities and Exchange Commission said Tuesday that Aveo chief executive Tuan Ha-Ngoc, CFO David Johnston, and chief medical officer William Slichenmyer misled investors about its communications with FDA staff during the approval process for the the drug candidate, known as tivozanib.

While the executives said in public statements in 2012 and 2013 that FDA staff had expressed concerns about survival rates for patients receiving Tivo, they “concealed the critical fact that FDA staff had recommended that Aveo conduct an additional clinical trial, an expensive and time-consuming proposition,” the SEC said in a civil complaint.

In January 2013, Aveo raised about $53 million through a public stock offering. After the FDA disclosed its recommendation in April 2013, the stock fell 31%.

Aveo never conducted the additional trial. “We allege that AVEO and its executives hid from investors the reality of their communications with the FDA on Tivozanib while suggesting they had identified a simpler route to FDA approval,” Paul G. Levenson, director of the SEC’s Boston regional office, said in a news release.

AVEO agreed to pay a $4 million penalty to settle the SEC’s charges; the case continues against Ha-Ngoc, Johnston, and Slichenmyer.

The Cambridge, Mass. company began conducting a clinical trial of Tivo in 2010. According to the SEC, the trial “generated promising results concerning Tivo’s effectiveness in limiting tumor growth.”

But at a meeting in May 2012, FDA staff recommended a second trial, telling Aveo they were concerned that while Tivo seemed to be slowing the progression of the disease, patients taking it were dying sooner than patients taking a kidney cancer already on the market.

Rather than disclose the recommendation, the SEC said, the Aveo executives suggested in their public communications that “they intended to satisfy the FDA by presenting new analyses of the data that had been gathered in the previous clinical trial.”

Aveo never conducted the second trial and the FDA in June 2013 refused to approve Tivo.