Dive Brief:

• A cancer therapy startup, Kiromic BioPharma, escaped civil penalties from the Securities and Exchange Commission after regulators found it had self-reported management’s failure to disclose significant news to investors while raising capital in mid-2021, and cooperated with the commission’s investigation.
• Two former Kiromic leaders, Chief Executive Officer Maurizio Chiriva-Internati and Tony Tontat, the ex-chief financial officer, also agreed to settle the SEC charges. They agreed to pay $125,000 and $20,000, respectively.
• The Food and Drug Administration notified Kiromic in June 2021 – two weeks before the company sold $40 million of stock – that it was placing two drug candidates on clinical holds, meaning Kiromic couldn’t commence clinical trials. However, Kiromic “made materially false and misleading statements and omissions” by not telling investors about the FDA reviews before and after the stock offering, according to the SEC.

Dive Insight:

Houston-based Kiromic said in a statement Tuesday the lack of a civil penalty came “in light of the Company’s self-reporting, prompt remediation and cooperation.” The company is developing therapies to target solid tumors, such as non-small cell lung cancers.

The SEC’s decision to forego a financial penalty by the company reflects efforts by securities regulators – and similar overtures by federal prosecutors at the Justice Department – to encourage companies to self-report misdeeds.

Self-reporting, regulatory cooperation and addressing problems internally, has been a goal of the Biden administration, acknowledging the fact that federal regulators can’t detect all corporate disclosure failures.

“These 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,” Eric Werner, director of the SEC’s Fort Worth regional office, said in a statement Tuesday.

Kiromic, which was founded in 2016, submitted novel Investigational New Drug (IND) applications for its two cancer therapy candidates – Alexis-Pro-1 and Alexis-ISO-1 – to the FDA 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,” according to the SEC’s administrative order in the case. The FDA also told Kiromoc it lacked information about certain factors, such as manufacturing and testing, that prevented it from assessing the drugs’ risk.

Kiromic’s board met later in June, partly to discuss the FDA’s communications about the drug candidates. The SEC noted that the former CEO, who is from Italy, “is not a native English speaker, and his messaging to the Board about the FDA’s communications about the status of the ALEXIS INDs was imprecise.”

Kiromic sold stock on July 2 to raise $40 million to fund clinical trials. “However, 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 said.

Two weeks later, the company issued a press release noting the FDA comments on the two drug candidates but did not cite the term “clinical hold” in its public communications, the SEC said. A Kiromic press release on Aug. 13 did include that term in saying the company was seeking to meet with drug regulators about the issue.

Kiromic directors received two anonymous complaints from an internal hotline in August 2021, prompting the board to form a special committee to investigate disclosure of the FDA’s holds on the therapies.

Kiromic subsequently fired its CEO for cause, appointed two new independent directors and established a disclosure committee of Kiromic management.

The company named a director, Pietro Bersani, as chief executive in May 2022 after he served five months as interim CEO. Kiromic is a pre-revenue company with an accumulated deficit of $136 million as of June 30, according to its most recent income statement. It has also notified investors of a “going concern” status.