Kiromic BioPharma Inc, a Houston-based biotherapeutics company, was charged by the SEC for failing to report in its form S-1 and 10-Q filings that the FDA had placed clinical holds on two of its experimental cancer treatments. For their roles in the certifying the deficient filings, former CEO Maurizio Chiriva-Internati and former CFO Tony Tontat were fined $125,000 and $20,000, respectively. Conversely, the company itself was only hit with a cease-and-desist order.

According to the SEC’s order, Kiromic submitted Investigational Drug Reports (INDs) to the FDA for two cancer treatments, ALEXIS-PRO-1 and ALEXISIS ISO-1, which, if approved, would allow it to be administered on human subjects in clinical trials. 

However, Kiromic’s submission contained deficient manufacturing and testing data, which prevented the FDA from assessing the products’ potential risk. As a result, the FDA placed a clinical hold on the company’s IND in June 2021.

Reporting failures

The SEC noted in its order that Kiromic CEO and Board Chairman Maurizio Chiriva-Internati’s mother tongue is Italian, and the Kiromic’s board might have initially misunderstood him to mean that the FDA was considering whether to apply a clinical hold, not that one had already been imposed.

In July 2021, Kiromic sold $40m of common stock to fund the INDs. Potentially because of the miscommunication between the board and Chiriva, Kiromic failed to disclose in either its June Form S-1 or final prospectus that the INDs were on FDA clinical hold, instead framing it as a hypothetical risk.

Kiromic’s officers also failed to disclose the clinical hold in due diligence calls with investors, lawyers, underwriters, and auditors. “Our confidence in [the drugs] going through is very high… [S]o we do believe that our chances of getting FDA authorization is very good,” said CFO Tony Tontat on a call with investors.

Critically, these omissions made Kiromic’s projection that clinical trials would commence in the “third quarter of 2021” unlikely.

Stock price tanked

In July, the FDA sent Kiromic letters explaining the reasons for the clinical hold, leading to the company to disclose the hold in a press release, but not a Form 8-K, the mandatory SEC filing to update investors on unexpected changes. This led to the company’s stock price tanking 16.36%.

In August, Kiromic filed a “false and misleading” Form 10-Q, approved by Tontat, which also failed mention the holds. The company finally disclosed the holds in a Form 8-K filing shortly afterwards, leading to two anonymous complaints filed on the company’s whistleblower hotline.

In response, Kiromic then self-reported its nondisclosures to the SEC’s Division of Enforcement, dismissed Chiriva-Internati for cause, and appointed two new independent directors to its board. The SEC ascribed Kiromic’s prompt remedial efforts, as well as its cooperation with the ensuing investigation, to its decision to spare Kiromic a monetary penalty.

“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,” said Eric Werner, Director of the SEC’s Fort Worth Regional Office.

Rule violations

Kiromic, Tontat, and Chiriva-Internati were charged with violating:

• Section 13(a) of the Exchange Act and Rule 13a-13 thereunder, which require reporting companies to file with the Commission complete and accurate quarterly reports;
• Rule 13a-14 of the Exchange Act, requiring that periodic reports include certifications of accuracy by principal executives and financial officers and
• Exchange Act Rule 12b-20, which requires the disclosure of material information in SEC reports.

Chiriva-Internati and Kiromic were further charged with violating:

• Sections 17(a)(2) and 17(a)(3) of the Securities Act, covering misstatements and fraud in the sale of securities and;
• 13a-15a of the Exchange Act, requiring adequate internal controls to maintain accurate reporting with the SEC.