Clovis, executives charged by SEC with misleading investors about cancer drug

The Securities and Exchange Commission announced that Clovis Oncology, its CEO, and its former CFO will pay more than $20M 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 and CEO 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% of the time, far higher than suggested by actual results available internally. Clovis raised approximately $298M 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%. The company stopped development on the drug in May 2016. The complaint alleges that certain data provided to Mahaffy and Erle Mast, the company’s CFO at that time, showed that Roci’s efficacy rate was substantially lower than alleged in an investor presentation. 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%. The complaint charges Mahaffy with violating Section 17(a)(2) and aiding and abetting Clovis’ violations of Section 13(a). 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 $20M 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.
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