Clovis Finally Faces the Music for Fraudulent Lung Cancer Drug Results
Clovis Oncology Inc. (NASDAQ: CLVS) shares might not be showing it now, but the company is facing some heat from the U.S. Securities and Exchange Commission (SEC). The company, its chief executive officer and its former chief financial officer have agreed to pay more than $20 million in penalties to settle charges of misleading investors about the company’s developmental lung cancer drug.
The SEC alleges that over a four-month period starting in July 2015, Clovis and CEO Patrick Mahaffy misled investors about how well Clovis’s 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.
In evaluating Clovis’s 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%. The complaint alleges 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%.
However, Clovis continued referring to the 60% 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 roughly 70%.
Clovis raised roughly $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%. The company stopped development on the drug in May 2016.
Shares of Clovis were last seen up about 1% at $32.65 on Wednesday, with a consensus analyst price target of $69.17 and a 52-week trading range of $31.19 to $86.26.