Clovis Oncology will pay more than $20 million in penalties to settle charges that Chief Executive Officer Patrick Mahaffy and its former Chief Financial Officer Erle Mast misleading investors about the company’s lung cancer treatment leading up to a public offering of stock.
Clovis Oncology will pay more than $20 million in penalties to settle charges that Chief Executive Officer Patrick Mahaffy and its former Chief Financial Officer Erle Mast misled investors about the company’s lung cancer treatment leading up to a public offering of stock.
Clovis had been under federal scrutiny since 2016 regarding its lung cancer drug, rociletinib – a drug the company eventually halted trial enrollment.
On Tuesday the U.S. Securities and Exchange Commission announced the penalty leveled at the Boulder, Colo.-based company. The complaint alleges that over a four-month period that began in July 2015, Mahaffy and the company misled investors about how well the company’s developmental lung cancer medicine worked compared to other treatments, particularly AstraZeneca’s Tagrisso.
In the complaint, the SEC said the company deliberately misinformed its investors about the lung cancer drug rociletinib, particularly about its efficacy. The SEC said the company told investors that rociletinib was demonstrating that it reduced targeted tumors by 60 percent. However, the data showed that the efficacy of rociletinib was considerably less than 60 percent. Rociletinib only demonstrated a 28 percent efficacy in reducing targeted lung cancer tumors. Despite that data, the SEC said Mahaffy and Mast continued to tell investors that the cancer drug had a 60 percent efficacy. That false information was used in the lead-up to the company’s July 2015 stock offering. Clovis raised approximately $298 million in a public stock offering in July 2015, the SEC said.
That fall, though, Clovis was forced to disclose the true efficacy and share prices plunged 70 percent, the SEC added.
Following that plunge, Clovis attempted to control the narrative. In November 2015 Clovis announced that it used interim data about the efficacy of rociletinib publicly and at medical meetings.
“As the efficacy data have matured, the number of patients with an unconfirmed response who converted to a confirmed response was lower than expected,” Clovis said at the time.
The SEC said that Mahaffy and Mast agreed to the settlements without admitting or denying the allegations. Clovis agreed to a $20 million penalty. Mahaffy agreed to a $250,000 penalty. Mast agreed to pay a $100,000 penalty and to provide disgorgement and prejudgment interest of $454,145, attributable to selling Clovis stock during the relevant period at inflated prices. The SEC plans to seek the creation of a Fair Fund for distribution of the penalties to harmed investors.
The SEC wasn’t the only entity to go after Clovis over rociletinib. Colorado law firm the Shuman Law Firm announced in 2016 that it too had launched an investigation into Clovis and whether or not members of the company’s leadership “breached their fiduciary duties to the company by allegedly causing the Company to issue materially false and misleading statements regarding rociletinib.” The company was forced to settle the class action lawsuit for $142 million.
