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Clovis Oncology, Executives Charged With Misleading Investors About Cancer Drug
9/18/2018 9:35 PM ET
The U.S. Securities and Exchange Commission said that Clovis Oncology Inc, its Chief Executive Officer, and its former chief Financial officer will pay more than $20 million in penalties to settle charges of misleading investors about the company's developmental lung cancer drug.

The SEC's complaint filed in federal court in Denver alleges that over a four-month period starting in July 2015, Clovis Oncology Inc. and Chief Executive Officer Patrick Mahaffy misled investors about how well Clovis' flagship lung cancer drug worked compared to another drug.

According to the complaint, the company's investor presentations, press releases, and SEC filings stated that the drug was effective 60 percent of the time, far higher than suggested by actual results available internally. Clovis raised approximately $298 million in a public stock offering in July 2015, and saw its stock price collapse in November 2015 after disclosing that the effectiveness rate was actually 28 percent. The company stopped development on the drug in May 2016.

According to the SEC's complaint, in evaluating Clovis' stock, investors closely followed prospects for its lung cancer drug rociletinib, or Roci, and an important driver was its "efficacy," or how well the drug worked. In May 2015, Clovis disclosed in an investor presentation that Roci's efficacy was 60 percent, meaning that in 60 percent of patients Roci caused targeted tumors to shrink.

The complaint alleged that soon after, certain data provided to Mahaffy and Erle Mast, the company's CFO at that time, showed that Roci's efficacy rate was substantially lower and by early July 2015, Mahaffy and Mast learned that the efficacy for Roci at that time was 42 percent.

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Clovis continued referring to the 60 percent efficacy figure, including in the solicitation materials for the July 2015 offering and afterward. In November 2015, after Clovis disclosed the true efficacy using the methodology required by the U.S. Food and Drug Administration, its stock price dropped approximately 70 percent.

The complaint charges Mast with aiding and abetting Clovis' federal securities laws violations. The defendants agreed to the settlements without admitting or denying the allegations and the settlements are subject to court approval. 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.

by RTTNews Staff Writer

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