Fired Avotres CEO Allegedly Blew the Whistle on FDA Data Violations
Former CEO of Avotres, Sean X. Hu, filed suit in Delaware Chancery Court on July 8, 2022, seeking the recovery of $5 million in company shares and severance pay and damages. He alleges that Avotres wrongfully terminated him for blowing the whistle on research and data integrity problems at the company.
Avotres is described as a biotech company developing therapeutic solutions for autoimmune diseases and cancer. Hu, who earned a Ph.D. in Genomics from NYU and an MBA from the Wharton School of the University of Pennsylvania, was an initial investor in and founder of the company. Avotres’ co-founder and largest shareholder was Hone Jiang, a former professor of Immunology at Columbia University. According to company reports, Avotres focuses on “novel immune therapies for autoimmune diseases, cancers, and transplantation.”
Hu served as CEO of the company from early 2018 until he was terminated in late 2020. He alleges that Avotres terminated him after he questioned deficiencies in the data handling and research protocols of Hone Jiang, the company’s controlling shareholder and Chief Science Officer, for the company’s key drug candidate, AVT001, a “novel” cell-based therapy. According to the complaint, these deficiencies included “selectively re-testing clinical trial patient samples and deleting certain raw data, all without scientific justification” and in violation of FDA data-handling regulations.
According to the complaint, Hu was not the only executive who raised concerns about Jiang’s work. The complaint alleges that Emmie Fan, the VP of Strategy and Operations “expressed her concern that Jiang . . . was unqualified as the company’s chief scientific officer to manager Avotres’ research and development effort.” Fan allegedly told Hu that lab technicians had reported to her that Jiang had instructed them selectively to retest clinical trial samples when the test results did not meet Jiang’s expectations.
The company retained an outside consultant to assess the operations and allegedly told Hu that he was concerned about Jiang’s reaction if he notified her of gaps in lab practices and the need for improvements and remedies.
Hu alleges that Jiang became “increasingly personally enraged” at Hu for raising concerns. Hu claims, after raising concerns repeatedly with Jiang and others, Jiang fired him as CEO, with Jiang “explicitly” admitting that she was terminating him because he refused “to apologize for seeking to correct the clinical trial testing irregularities and data-handling improprieties he had uncovered.” He alleges that, after his termination, Avotres repurchased his vested shares for less than twenty percent of their value, resulting in over $5 million in damages and refused to pay severance to him.
Allegations in a lawsuit are just that – allegations that may or may not be supported by evidence. But, regardless of how this lawsuit shakes out, it is clear that Avotres did not have appropriate mechanisms in place for addressing compliance concerns of Company executives. Particularly for federally regulated companies (more than likely receiving federal funding) like Avotres, companies should develop robust procedures for receiving, investigating and resolving employee concerns about legal and compliance gaps and violations. Also, in a situation like this – where executives are the whistleblowers – it is important to engage the Board and outside counsel or experts in investigating and resolving them.
Bertram LLP is frequently retained by boards and board committees to conduct independent internal investigations of C-Suite executives and to advise them concerning their legal and compliance obligations, including their disclosure, reporting and notice obligations.