Kiromic BioPharma Avoids SEC Penalties After Self-Reporting Clinical Trial Disclosure Failures
Key Insights
Kiromic BioPharma (search) avoided SEC penalties by self-reporting failures to disclose critical FDA communications regarding clinical holds on two drug candidates.
The FDA placed clinical holds on Kiromic's Alexis-Pro-1 and Alexis-ISO-1 in June 2021 due to deficiencies in the Investigational New Drug applications.
Former Kiromic leaders, CEO Maurizio Chiriva-Internati and CFO Tony Tontat, agreed to settlements of $125,000 and $20,000, respectively, for disclosure failures.
Kiromic BioPharma (search), a Houston-based biotech startup focused on developing cancer therapies, has avoided civil penalties from the Securities and Exchange Commission (SEC) after self-reporting failures to disclose critical information to investors. The SEC found that Kiromic did not adequately inform investors about clinical holds placed on two of its drug candidates by the Food and Drug Administration (FDA) in mid-2021, while the company was raising capital.
The FDA notified Kiromic in June 2021 that it was placing clinical holds on its Investigational New Drug (IND) applications for Alexis-Pro-1 and Alexis-ISO-1, two weeks before the company sold $40 million of stock. According to the SEC, Kiromic made materially false and misleading statements and omissions by not disclosing these holds to investors before and after the stock offering.
The SEC's decision to forego a financial penalty against Kiromic reflects a broader effort by securities regulators and the Department of Justice to encourage companies to self-report misdeeds. Eric Werner, director of the SEC’s Fort Worth regional office, stated that the resolutions strike the right balance between holding Kiromic’s then-two most senior officers responsible for Kiromic’s disclosure failures while also crediting Kiromic for its voluntary self-report, remediation, proactively instituting remedial measures, and providing meaningful cooperation to the staff.
Details of the Disclosure Failures
Kiromic submitted IND applications for Alexis-Pro-1 and Alexis-ISO-1 in May 2021. The following month, the FDA informed Kiromic’s chief medical officer that it was placing a clinical hold on both drugs because part of its submission was grossly deficient. The FDA also cited a lack of information about manufacturing and testing that prevented a thorough risk assessment.
The SEC noted that the former CEO, who is not a native English speaker, communicated imprecisely to the board about the FDA’s communications regarding the status of the ALEXIS INDs. Despite being aware of the clinical holds, Kiromic did not disclose this information in its SEC filings, investor roadshow calls, or due diligence calls before selling stock on July 2.
Remedial Actions and Leadership Changes
Following anonymous complaints received in August 2021, Kiromic’s board formed a special committee to investigate the disclosure failures. Subsequently, the company terminated its CEO for cause, appointed two new independent directors, and established a disclosure committee of Kiromic management.
In May 2022, Kiromic appointed Pietro Bersani as its new chief executive officer, after he served five months as interim CEO. As of June 30, the company reported an accumulated deficit of $136 million and has notified investors of a going concern status.
Settlements with Former Executives
In addition to the company avoiding penalties, two former Kiromic leaders, Chief Executive Officer Maurizio Chiriva-Internati and ex-chief financial officer Tony Tontat, agreed to settle the SEC charges. They agreed to pay $125,000 and $20,000, respectively.