Readers who attended CBI’s Annual Pharmaceutical Compliance Congress last year may have seen Securities and Exchange Commission (SEC) Enforcement Director Andrew Ceresney’s speech about various focuses for the SEC. One of the focuses he mentioned was disclosures that concerned Food and Drug Administration (FDA) communications. Mr. Ceresney stated, “One significant type of key event that we see causing problems with disclosure in your industry is disclosures on your dealings with the FDA. Accuracy of reporting in your dealings with the FDA is critical to getting investors the information they need.”
Though the life science industry is not typically where the SEC has historically been active, in the wake of Mr. Ceresney’s speech and the AVEO case, life science companies and their executives should be aware that disclosures relating to the regulatory process will be scrutinized by not just private litigants, but also the SEC.
Background
On May 11, 2012, AVEO met with FDA officials to discuss the results of its Tivozanib clinical trial, prior to filing its related New Drug Application (“NDA”). During the meeting, the FDA expressed concern over the survival rates among clinical trial participants and recommended that AVEO “conduct a second adequately powered randomized trial in a population comparable to that in the US.”
In an August 2012 press release and Form 10-Q, AVEO disclosed the FDA’s concern, but not that the FDA actually recommended AVEO conduct another clinical trial. AVEO did not stop there, however. During an August 2, 2012, investor call, executives were specifically asked what the FDA might be looking for with resect to additional studies or analysis, and company executives responded by declining to “speculate.”
Still not disclosing the FDA’s concerns, during a January 2013 public offering, AVEO raised $53 million. It wasn’t until April 30, 2013, when the FDA released a “pre-meeting summary” in advance of a meeting with an advisory panel of experts to evaluate AVEO’s NDA, that the May 2012 recommendation was made public.
The SEC filed a Complaint on March 29, 2016, against AVEO alleging violations of Section 10(b) and 10b-5 and Section 17(a) against AVEO and three former officers; Exchange Act Rule 13a-14 violations against AVEO’s CEO Tuan Ha-Ngoc and CFO David Johnston; and 13(a) of the Exchange Act and Exchange Act Rules 12b-20, 13a-1, 13a-11, and 13a-13 violations against AVEO.
Settlement
Without admitting or denying any allegations in the complaint, AVEO has agreed to pay a $4 million penalty. While this settlement is still awaiting court approval, the SEC is continuing the cases against AVEO’s former CEO, CFO, and Chief Medical Officer William Slichenmyer.
This case makes apparent that companies should not downplay, spin, or ignore FDA comments or concerns. Pharmaceutical companies and their officers could face liability if they affirmatively misrepresent or omit key facts about their dealings with the FDA, and executives should also take care to verify that all public disclosures accurately reflect the company’s communications with the FDA or other regulatory body.