Aveo hit with $4M SEC fraud penalty, feds set out to bar former execs for deception

The Securities and Exchange Commission (SEC) has come down hard on Aveo Pharmaceuticals ($AVEO), handing down a $4 million penalty while seeking to ban three of its former execs from leading any company ever again after allegedly misleading investors on the safety of a key cancer drug.

The case revolves around the Cambridge, MA, biotech's trial for its kidney cancer candidate tivozanib. The SEC, via a court in Boston, alleges that Aveo deliberately withheld the fact that the FDA had deep concerns about the drug in its public statements in 2012 and 2013, and failed to tell investors that the regulator wanted a second clinical trial to address concerns about the patient death rate during the first study.

The firm never did undertake that second trial and it was left to the FDA--which rejected the drug three years ago--to tell the public about its concerns, promptly sending the firm's stock price down by 31%.

Aveo raised $53 million in a public offering of its stock in January 2013--all while failing to disclose that the FDA staff had explicitly recommended a second study for tivozanib, according to the SEC.

Aveo has agreed to pay a $4 million penalty, but only on the condition that it neither admits nor denies any wrongdoing. Three former heads of the company--CEO Tuan Ha-Ngoc, CFO David Johnston, and CMO William Slichenmyer--were singled out for misleading investors.

SEC authorities say that Ha-Ngoc and Johnston "knowingly approved and certified" a press release and public filings that failed to disclose the FDA staff's recommendation for an additional clinical trial.

It also alleges that Johnston made public statements during investor conferences suggesting that the FDA staff had asked only for an explanation of the survival results, whereas in reality, the FDA staff had recommended a second trial.

And Slichenmyer is said to have "misled investors" in an investor conference call when he stated he could not "speculate" on what the FDA "might be thinking" and "might want [Aveo] to do in the future." He actually knew that the FDA staff had recommended an additional trial, according to the SEC complaint.

The case against the trio is still ongoing, but the SEC is seeking disgorgement plus interest and penalties, permanent injunctions, and officer-and-director bars against Ha-Ngoc, Johnston, and Slichenmyer.

Aveo has been badly damaged in recent years, losing Biogen ($BIIB) and Astellas as research partners, falling into penny-stock territory and being forced to make a series of job cuts. But the company, under the name Aveo Oncology, is still seeking a reprieve for tivozanib, and in December its shares shot up by 27% after it announced a European licensing pact for the drug.

The deal gave Aveo $2.5 million upfront and a commitment of up to $394 million in milestones from EUSA Pharma. In August of last year, the firm also won a deal potentially worth $326 million with Swiss major Novartis ($NVS) for its early-stage assets.

Aveo's offices did not return a call from FierceBiotech.

- see the SEC's statement

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