AVEO Oncology has agreed to pay a $4 million penalty to settle fraud allegations by the U.S. Securities and Exchange Commission (SEC) that the company and three former executives misled investors about efforts to obtain FDA approval for its lead drug candidate.

AVEO neither admitted to, nor denied, the allegations, contained in an SEC complaint filed in U.S. District Court for the District of Massachusetts in Boston.

The settlement is subject to court approval.

The SEC accused AVEO of omitting from its public statements to investors an FDA staff recommendation that the company conduct a second clinical trial to address concerns about patient death rates during the first trial for tivozanib in renal cell carcinoma (RCC). The vascular endothelial growth factor (VEGF) -1, -2, and -3 receptor inhibitors have been under clinical study for RCC as well as colorectal cancer and nononcologic diseases of the eye.

The FDA declined to approve tivozanib after AVEO opted not to conduct the second trial. The agency later made its concern public, resulting in a 31% drop in AVEO’s stock price.

Tiviozanib, a VEGF-1, -2, and -3 receptor inhibitor, has been under development for RCC—with European rights licensed to EUSA Pharma in December for up to $396.5 million-plus—as well as colorectal cancer and nononcologic diseases of the eye.

AVEO regained all rights to tivozanib in August 2014 after Astellas Pharma terminated a 3-year co-development collaboration.

The SEC is continuing to pursue charges against three former officers of AVEO, CEO Tuan Ha-Ngoc, CFO David Johnston, and CMO William Slichenmyer. All three are accused of violating antifraud provisions of federal securities laws and various other violations.

The SEC is seeking disgorgement plus interest and penalties and permanent injunctions, and wants the three former officers barred from future roles as officers and directors of public companies.

In support of its allegations, the SEC asserted that:

  • AVEO failed to disclose that the FDA staff had explicitly recommended during a May 2012 meeting that AVEO conduct an additional clinical trial for tivozanib, while raising $53 million in a public offering of its stock in January 2013.
  • AVEO designed a second trial and presented trial designs to the FDA—reflecting that company officers understood the seriousness of the FDA’s concerns, and the extra costs in money and time associated with  the additional trial. 
  • AVEO and its officers suggested in company statements that they intended to satisfy the FDA by presenting new analyses of the data that had been gathered in the previous clinical trial.  In doing so, the SEC said, AVEO concealed the FDA staff’s level of concern about tivozanib’s impact on patient survival and the recommendation that AVEO conduct a second clinical trial.
  • 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. 
  • Johnston made public statements during investor conferences suggesting the FDA staff had asked only for an explanation of the survival results.  In reality, the SEC said, the FDA staff had recommended a second trial. 
  • Slichenmyer misled investors in an investor conference call when he falsely stated he could not “speculate” on what the FDA “might be thinking” and “might want [AVEO] to do in the future.”  He knew that the FDA staff had recommended an additional trial, the SEC declared.

In its Form 10-K annual report for 2015, filed March 15, AVEO said it had fully cooperated with the SEC inquiry and disclosed it was in settlement talks: “Based on the progress in the settlement process thus far, we believe that we could potentially settle with the SEC for a total amount of $4,000,000.”