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September 19, 2018

Clovis, CEO, Ex-CFO Agree to Pay $20M+ to Settle SEC Charges

Clovis Oncology, its CEO, and its former CFO have agreed to pay more than $20 million to settle federal charges that they misled investors about the efficacy of rociletinib, a lung cancer drug candidate whose clinical trials the company halted in 2016. [Source: © ungureanusergiu/Fotolia]

  • Clovis Oncology, its CEO, and its former CFO have agreed to pay more than $20 million to settle federal charges that they misled investors about the efficacy of rociletinib, a lung cancer drug candidate whose clinical trials the company halted in 2016.

    The U.S. Securities and Exchange Commission (SEC) made its charges in a court complaint filed yesterday in U.S. District Court for the District of Colorado.

    The complaint alleged that Clovis misled investors soon after it announced at the American Society of Clinical Oncology (ASCO) 2015 Annual Meeting and in a press release on May 31, 2015, that rociletinib’s objective response rate in the Phase II TIGER-X trial was 60% for its 500mg dose—nearly identical to AstraZeneca’s osimertinib, which won FDA approval six months later under the brand name Tagrisso® with a stated 59% ORR, and showing a 63% ORR in a later clinical study.

    According to the SEC, Clovis President and CEO Patrick T. Mahaffy were told in mid-June 2015 that updated data for rociletinib showed an ORR in the mid-40% range. Mahaffy and then-CFO Erle T. Mast learned on July 7, 2015, that the rociletinib data that would be submitted in Clovis’ initial NDA to the FDA showed an ORR of just 42%—yet the company continued promoting rociletinib’s previously-stated 60% ORR.

    The following day, Clovis referenced the ASCO conference and the 60% ORR for rociletinib in solicitation materials for a $298 million offering of its securities. Clovis continued to repeat the 60% ORR after the offering in public presentations, press releases, and SEC filings.

    When Clovis acknowledged in November 2015 that rociletinib’s confirmed response rate was 28% among the 79 patients in the 500mg dose group, and 34% among the 170 patients in the 625mg dose group, based on a pooled cohort of patients in TIGER-X and the Phase II TIGER-2 trial, the company saw its stock price plunge 70% on the day of the announcement, to $30.24 from $99.43 the previous trading day.

    Rociletinib is an oral mutant-selective inhibitor of epidermal growth factor receptor (EGFR) that had been in development for the treatment of non-small cell lung cancer (NSCLC) in patients with initial activating EGFR mutations, as well as the dominant resistance mutation T790M.

  • Clinical Development Halted

    Clovis halted clinical development of rociletinib in May 2016, though it remains in Clovis’ pipeline, and the company said it continues to provide the drug to patients whose clinicians recommend continuing rociletinib therapy.

    “We are continuing analyses of rociletinib data to determine whether certain populations of patients may represent an opportunity for a partner committed to investing in further clinical development,” Clovis states on its website.

    The SEC accused Clovis and Mahaffy of negligently obtaining money from investors in violation of Section 17(a)(2) of the Securities Act. Clovis was also accused of filing materially false and misleading reports with the SEC in violation of Section 13(a) of the Securities Act, while Mahaffy and Mast were accused of aiding and abetting those filings. Mast was additionally charged with aiding and abetting Clovis in negligently obtaining money from investors.

    The SEC said Clovis agreed to pay a $20 million penalty, while Mahaffy agreed to a $250,000 penalty. Mahaffy received total compensation last year of $8,726,475, according to Clovis’ 2018 Proxy Statement.

    Mast agreed to pay a $100,000 penalty and provide disgorgement and prejudgment interest of $454,145, attributable to selling Clovis stock during the relevant period at inflated prices.

    Clovis, Mahaffy and Mast agreed to the settlements—which are subject to court approval—without admitting or denying the allegations. The SEC said that it plans to seek the creation of a Fair Fund for distribution of the penalties to harmed investors.

    Clovis’ sole marketed product is Rubraca® (rucaparib), one of three FDA-approved poly (ADP-ribose) polymerase (PARP) inhibitor treatments. Rubraca is indicated for patients with deleterious BRCA mutation (germline and/or somatic) -associated advanced ovarian cancer, who have been treated with two or more chemotherapies and selected for therapy based on an FDA-approved companion diagnostic.

    Rubraca is also Clovis’ lead pipeline candidate for additional indications encompassing multiple tumor types, including ovarian, prostate, and bladder cancers, as monotherapy, and in combination with other anti-cancer agents.

    In April, the FDA approved the additional indication of maintenance treatment of adult patients with recurrent epithelial ovarian, fallopian tube, or primary peritoneal cancer who are in a complete or partial response to platinum-based chemotherapy. A month later, Clovis received European Commission approval to market Rubraca for recurrent ovarian cancer. The additional indications have fueled speculation among investors that Clovis will find a buyer. Earlier this month, Clovis was highlighted by GEN as one of 10 Takeover Targets to Watch this Fall.

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