Oncologist who oversaw test of Kendall Square company's cancer drug to pay more than $3 million for insider trading

An oncology professor at the University of California, Irvine yesterday agreed to hand over $1.52 million in profits he made by buying stock in Nuvalent before it announced positive news about a lung-cancer drug for which he was running clinical trials and then selling it after the news led to a jump in the stock's price.

Dr. Sai-Hong Ignatius Ou also agreed to pay a $1.52 million fine on top of that, according to documents filed by the Securities and Exchange Commission in US District Court in Boston yesterday.

The case and simultaneous settlement still need to be approved by a judge.

For his part, Ou wrote that while he will pay more than $3 million in both a fine and what the SEC calls "disgorgement of ill-gotten gains," he is not admitting any guilt.

According to the SEC, Ou was overseeing a clinical trial of Nuvalent's NVL-520, which is aimed at particular types of cancer, including certain brain and lung cancers, that use a particular enzyme to help them grow and churn out more cancer cells. The drug is aimed at inhibiting both the enzyme and new variants that rapidly dividing cancer cells might create through mutation - and be able to penetrate the blood/brain barrier that often blocks drugs from reaching cancer cells in the brain.

According to the SEC, Ou oversaw trials of the drug from 2022 until earlier this year. At issue was an Oct. 28, 2022 announcement by Nuvalent that safety tests of the drug showed no adverse effects in patients, a key requirement before testing the drug for efficacy in actually fighting cancer:

As of the preliminary data cut-off date of September 13, 2022, no dose-limiting toxicities (DLTs), treatment-related serious adverse events (SAEs), treatment-emergent dizziness, or adverse events leading to treatment reductions or discontinuations were observed.

The SEC charged that Ou, who has been principal investigator in numerous drug trials over two decades, learned of the upcoming good news several months earlier and began buying up Nuvalent stock:

On June 16, 2022, Ou received an email containing material nonpublic information about the progress and preliminary results of NVL-520 clinical trials. The same email indicated that Nuvalent planned to disclose the information publicly in October 2022. After receiving this material nonpublic information, Ou purchased 80,000 shares of Nuvalent stock between June 16, 2022 and October 24, 2022 through forty-two separate purchases. On October 27 Nuvalent’s stock price closed at $22.00 per share. On October 28, after public disclosure of the positive drug trial data, Nuvalent’s stock price closed at $35.34 per share, an increase of $13.34 per share or 60%. The 80,000 shares Ou purchased using material nonpublic information increased in value by $1,520,455.37.

The SEC added that Ou failed to note his stock ownership on financial-disclosure forms required by the University of California for its professors, specifically in one he filed on June 1, 2022:

Despite owning over $150,000 worth of Nuvalent stock, Ou did not disclose that he owned a reportable investment in Nuvalent.

Two weeks later, the SEC continued:

Ou received an email from Nuvalent which contained a draft of a document that contained confidential preliminary data for NVL-520 clinical trials from all trial sites. The data was positive - there had been no substantial safety concerns and the recommended dose escalation had thus far been successful.

The June 16 email indicated that the document was drafted with the intent of being submitted to the EORTC-NCI-AACR Symposium ("ENA Symposium"), a scientific conference for cancer research which was taking place in October 2022, as part of a submission for the opportunity to present the information in the document publicly. Ou believed that the presentation would be accepted to be presented at the ENA symposium. He also assumed that the public disclosure of the positive NVL-520 clinical data would raise the price of Nuvalent's stock.

After receiving the June 16 draft presentation, Ou set out to acquire a total of 50,000 or 100,000 shares (30,000 or 80,000 shares on top of the 20,000 he already owned) of Nuvalent prior to the public disclosure of the positive Phase I trial data in October 2022. On June 17, Ou began purchasing Nuvalent stock in small lots of 250 to 5,000 shares. Ou ultimately acquired 80,000 additional shares in forty-two transactions between June 17 and October 26. Ou bought Nuvalent stock in small amounts because he believed buying too much stock at once could increase the stock price and make it more expensive for him to add to his position. In contrast to his prior trading pattern in which he both bought and sold shares of Nuvalent, between June 16 and October 26, 2022, Ou exclusively bought shares.

Throughout the summer of 2022, Ou continued to attend weekly Principal Investigator meetings and vote in Safety Review Committee meetings. He also continued to receive additional material nonpublic information about the positive results of the trial. For instance, in August 2022, a manuscript about NVL-520 that Ou co-authored was prepared for submission to a scientific publication, Cancer Discovery. The manuscript—which was not published until December 2022—included preliminary data and figures which were to be included in the planned ENA presentation. As of August 2022, additional data suggested that NVL-520 continued to have a positive safety profile at increased doses.

By September 22, Ou had accumulated a total of 90,000 shares of Nuvalent. On September 22, Ou was provided with the final draft of the ENA presentation, which listed him as a co-author and incorporated his feedback on an earlier draft he had received on September 12. The presentation was marked confidential and included aggregate information about the trial from all trial sites. Between September 22 and October 26, Ou purchased another 10,000 shares, bringing his total position in Nuvalent stock to 100,000 shares.

On October 27, 2022, Nuvalent stock closed at $22.00 per share. October 28, when the positive NVL-520 drug trial data was publicly presented at the ENA Conference, Nuvalent's stock closed at $35.34 per share, an increase of $13.34 per share or 60%. Ou's position was then worth $2,827,000, yielding profits of $1,520,455.37.

In addition to the cost of his profit and fines, the SEC is also asking a judge to bar Ou from "acting as an officer or director" of any publicly held pharmaceutical company for at least five years.