Former Aveo CFO found guilty of misleading investors about prospects for cancer drug

The SEC’s two-year battle with Aveo Pharmaceuticals over the company’s embattled kidney cancer drug tivozanib has come to a close with a jury verdict against its former chief financial officer, David Johnston. The guilty verdict—which followed two judgments against Aveo’s former chief executive officer and chief medical officer, plus a settlement that resulted in a $4 million penalty for Aveo—raises questions about Johnston’s future at publicly held ImmunoGen, where he is currently CFO.

A federal jury for a U.S. District Court in Boston unanimously found Johnston liable for charges brought by the SEC that he engaged in fraudulent activity by making untrue statements or material omissions and filing documents to the agency that contained falsehoods, and that he made money as a result of those actions. The SEC’s original complaint sought to bar Johnston and the other executives from serving as officers or directors of public companies, though the previous judgments did not result in that ban.

A spokeswoman for ImmunoGen said in an email to FiercePharma that the company is not in a position to comment on the Aveo case and that it is waiting for the final ruling from the court. “As CFO of ImmunoGen, Dave continues to make significant contributions to the company’s progress towards becoming a fully integrated biotechnology company as we strive to develop targeted therapies that improve outcomes for cancer patients,” she said.

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The saga started in May 2012, when Aveo met with the FDA to discuss results from a pivotal trial of tivozanib. The agency expressed concerns about deaths among patients in the trial who were taking the experimental drug and recommended the company conduct a second randomized trial. The SEC alleged that Aveo did not fully communicate that news to investors, even as the company was planning the second trial.

During an August 2012 earnings conference call, for example, Aveo’s executives stuck to a script that focused on the company’s efforts to reanalyze the results from the first trial, the SEC’s complaint alleged. “This script emphasized the additional data analyses that AVEO was conducting and downplayed the possibility of future pre-approval studies,” the complaint said. “The script went on to advise that, ‘IF PUSHED … ’ for details on discussions with the FDA, the response should be that AVEO ‘wouldn’t want to speculate on what the Agency would do in the future.’”

Five days later, the SEC alleged, the company filed a 10-Q in which it failed to disclose that the FDA had recommended a second trial and that Aveo was already planning it. Shortly after that, Johnston made presentations at three investors’ conferences, during which he did not disclose those plans, the SEC alleged.

The following January, Aveo raised $53.8 million in a secondary offering, the SEC noted in its complaint.

Last December, a consent judgment was reached against former Aveo CEO Tuan Ha-Ngoc in which he was ordered to pay a civil penalty of $80,000. In March of this year, the company’s former CMO, William Slichenmyer, was ordered to pay a $50,000 penalty.

In a statement, two co-directors from the SEC's enforcement division said that the jury verdict against Johnston “makes clear that a company and its officers are required to be honest in their public communications, including about matters as critical as communications with regulators about approval of a key product.”

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As for Aveo, it continues to have its share of ups and downs. In July, Novartis walked away from a partnership to develop AV-380 for severe, cancer-related weight loss.

But Aveo hasn’t given up hope for tivozanib. The drug was approved in Europe last year to treat advanced kidney cancer. And it’s still gunning for FDA approval of the drug: On November 5, the company announced a phase 3 trial of the drug in kidney cancer met its primary endpoint, producing a 44% improvement in median progression-free survival compared to Bayer's Nexavar. Aveo plans to resubmit the drug for FDA approval next year, it said.