The SEC continues to go after pharmaceutical companies for securities law violations in connection with misleading investors.  The most recent example is the SEC’s settled charges against a publicly traded biotherapeutics company called Kiromic BioPharma, Inc. (KRBP), the company’s former CEO, and its former chief financial officer.

In this case, Kiromic was working on developing two cancer fighting drugs called “ALEXIS-PRO-1” and “ALEXIS-ISO-1,” and filed two Investigational New Drug (“IND”) applications with the FDA.  According to the SEC Order, on July 2, 2021, as the company was “running out of money,” Kiromic “raised $40 million by selling common stock [in the company] through [a public offering] for the purpose of funding the company’s clinical trials” and to avoid shutting down.

However, the SEC claimed that in June 2021, mere weeks before that public offering of stock, the FDA had “notified Kiromic that it had placed clinical holds on two [IND] applications that Kiromic filed . . .”  Clinical holds are FDA orders that delay proposed clinical investigations.  Despite this important FDA notice of the clinical hold, according to the SEC, “Kiromic did not disclose in its SEC filings, investor roadshow calls, or due diligence calls that the FDA had placed the ALEXIS INDs on clinical hold, despite being aware of this information approximately two weeks before the Offering began.”  The SEC further found that the company’s Form S-1 (filed June 25) and a final prospectus (filed June 30) in connection with the stock offering “were materially false and misleading because they discussed the clinical trial plan for the ALEXIS INDs and the hypothetical risk that the FDA could issue a clinical hold but omitted that the FDA had actually placed the ALEXIS INDs on clinical holds.”

According to the SEC, on July 16, a few weeks after the public offering of stock, Kiromic issued a press release “stating that the ‘FDA returned with comments’ . . . regarding the INDs and that Kiromic still expected to meet its third quarter 2021 clinical trials timeline,” but the press release “did not use the term ‘clinical hold.’”  After this press release, “Kiromic’s stock price dropp[ed] by an abnormal 16.36%, eliminating roughly $9.7M in market capitalization.”  The company’s Form 10-Q (filed August 13) also “failed to disclose that the FDA had placed the ALEXIS INDs on clinical holds.”

Notably, Kiromic self-reported to the SEC about its failure to disclose the FDA clinical hold communications, and the company took a number of remedial measures.  Given the company’s “self-reporting, cooperation, and remediation,” the SEC did not require Kiromic to pay a civil penalty, although the two executives agreed to pay civil penalties to settle the SEC’s charges.

For pharmaceutical companies, information about the status of clinical trials or the FDA’s review and approval process is often crucial information for investors.  FDA approval or denial can be a “make-or-break” moment for the company; it’s about as material as it gets.  Therefore, it is especially important that companies fully and truthfully disclose to investors about clinical trials and the FDA’s review and approval process.  The SEC is watching for these types of securities violations to ensure investors are not defrauded.

If you would like information on the SEC’s Whistleblower Program, or if you have any information on potential securities fraud violations in connection with clinical trials or FDA review and approval and would like to speak to an experienced member of our whistleblower lawyer team, please don’t hesitate to contact us.  We will connect you with an experienced member of our whistleblower team for a free and confidential consult.

Read SEC Announces Settled Charges Against Pharma Company and Executives for Misleading Investors about FDA Clinical Review of Drugs at constantinecannon.com