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Securities and Exchange Commission v. Johnston

United States District Court, D. Massachusetts

April 19, 2018



          Nathaniel M. Gorton United States District Judge.

         This case arises out of the development of a cancer drug by AVEO Pharmaceuticals, Inc. (“AVEO”). The Securities and Exchange Commission (“the SEC”) alleges that AVEO, its chief executive officer Tuan Ha-Ngoc (“Ha-Ngoc”), chief financial officer David Johnston (“Johnston” or “defendant”) and its chief medical officer William Slichenmyer (“Slichenmyer”) made materially misleading statements to investors about communications with the Food and Drug Administration (“the FDA”) during their bid for approval of their flagship drug candidate, tivozanib (“Tivo”).[1] The SEC contends that AVEO, through Johnston, concealed from investors the critical fact that the FDA recommended that AVEO conduct a second clinical trial in order to secure approval for Tivo.

         Pending before the Court is Johnston's motion for summary judgment (Docket No. 86). For the reasons that follow, that motion will be denied.

         I. Background

         A. FDA Approval Process

         To obtain FDA approval to market and sell a drug in the United States, a pharmaceutical company must demonstrate the drug's safety and efficacy through human clinical trials conducted in three phases. After the third phase of the trial, a company can seek approval from the FDA by submitting a New Drug Application (“NDA”) which, if accepted, leads either to a substantive review or a Refusal to File (“RTF”) letter from the FDA. If the NDA is accepted for filing, the FDA sends a letter (“the Day 74 Letter”) which confirms certain logistics and identifies any preliminary deficiencies in the application. Upon receipt of the Day 74 Letter, an applicant has the opportunity to respond to any concerns by amending the NDA.

         During the review process for cancer therapeutics, the FDA may convene an advisory panel of outside experts called an Oncologic Drugs Advisory Committee (“ODAC”). The ODAC provides additional review of the safety and efficacy of proposed drugs by holding non-binding votes on questions posed by the FDA. Before ODAC meetings, the FDA and the pharmaceutical company release the pre-meeting summaries for those meetings. The FDA makes the final determination on the NDA as to whether to approve the drug unconditionally, approve the drug with certain conditions or deny approval.

         B. Tivo

         AVEO is a publicly-traded biopharmaceutical company that develops oncology medicines, incorporated in Delaware with its headquarters in Boston, Massachusetts. In 2012 and 2013, Johnston was the chief financial officer (“CFO”) of AVEO and, in that capacity, he was a member of AVEO's Executive Committee, responsible for the company's strategic decisions, and its Disclosure Committee.

         On AVEO's Form 10-K for fiscal years 2011 and 2012, the company reported that it was developing a cancer therapy, Tivo, which would be indicated for the treatment of renal cell cancer. AVEO had begun sponsoring a Phase 3 drug trial (“TIVO-1”) in 2009 to measure Tivo's efficacy and safety against a control group that received sorafenib, an approved therapy for renal cell cancer.

         In May, 2012, representatives from AVEO and its business partner Astellas Pharma, Inc. (“Astellas”) met with the FDA in advance of submitting the NDA for Tivo (“the pre-NDA meeting”). Prior to the meeting, AVEO sent the FDA data derived from TIVO- 1, AVEO's only Phase III trial. The data indicated that Tivo met its primary endpoint but that the secondary endpoint, measuring overall survival (the period of time a patient lives while taking the drug), trended in a negative direction. The minutes of the pre-NDA meeting indicate that the FDA voiced doubts about the drug's safety and efficacy because of the TIVO-1 secondary endpoint results. The minutes note that

[t]he Agency expressed concern about the adverse trend in overall survival. Further discussion of these findings will be required at the time of filing and if the application is filed they will be a review issue that could affect approvability. FDA recommended that the sponsor conduct a second adequately powered randomized trial in a population comparable to that in the US.

         One member of the FDA staff suggested that the trend in the secondary endpoint could cause the FDA to issue an RTF letter.

         After the pre-NDA meeting, Johnston attended an AVEO Executive Committee meeting and a board meeting to discuss the results of the pre-NDA meeting and budgeting for a second Phase III trial of Tivo (“TIVO-2”). Although AVEO sought a meeting with the FDA to discuss TIVO-2's design and timing, the company withdrew that request when the FDA expressed “significant concerns regarding the trial design described in [AVEO's] meeting package”. Rather than pursuing the second trial, AVEO decided to submit the NDA, relying on the results of TIVO-1. In August, 2012, AVEO provided a regulatory update in a public press release, stating that

[t]he FDA has expressed concern regarding the OS trend in the TIVO-1 trial and has said that it will review these findings at the time of the NDA filing.

         Following the issuance of that press release, AVEO prepared a script for a conversation with investors and analysts in which Johnston participated. During that conversation, Dr. Slichenmyer stated that he could not speculate as to what additional action the FDA might require. AVEO filed its quarterly Form 10-Q shortly thereafter which Johnston signed. That form did not mention any recommendation of the FDA for a second randomized trial. AVEO submitted another 10-Q in November, 2012 with identical disclosure language.

         In November, 2012, the FDA accepted and filed the NDA which initiated the process of substantive review. The FDA sent a Day 74 letter in which it stated that the TIVO-1 results remained a “significant safety concern” for the agency that it intended to discuss at a May, 2013 meeting with the ODAC convened to review Tivo.

         In January, 2013, AVEO filed an 8-K with the SEC. That 8-K did not address the FDA's recommendation that the company undertake a second trial or mention AVEO's plans to set up TIVO-2. The next day, AVEO filed a prospectus in anticipation of offering 6, 667, 000 shares of common stock, priced at ...

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