United States: Recent SEC Enforcement Action Emphasizes Need For Care In Handling MNPI And Disclosing FDA-Related Information

Last Updated: September 26 2019
Article by Jeffrey A. Baumel, Ira Kotel, Brian Lee and Rob Condon


On August 20, 2019, pharmaceutical company TherapeuticsMD, Inc. settled charges by the Securities and Exchange Commission that TherapeuticsMD had selectively disclosed material, nonpublic information to sell-side research analysts regarding potential approval of one of its drugs by the Food and Drug Administration. In its cease-and-desist order, the SEC alleged that TherapeuticsMD violated Regulation FD and Section 13(a) of the Securities Exchange Act of 1934 in June and July 2017 by providing material, nonpublic information bearing on one of its product candidate's approval prospects to sell-side analysts and failing to simultaneously or promptly publicly disclose that same information as required by Regulation FD.


In its order, the SEC alleged that on two separate occasions in 2017, TherapeuticsMD made selective disclosures to sell-side research analysts related to TherapeuticsMD's interactions with the FDA concerning potential approval of one of its product candidates under FDA review, TX-004HR.

Following a June 14, 2017 meeting with the FDA at which the FDA did not provide a clear path forward for approval of TX-004HR, a TherapeuticsMD executive communicated with at least six sell-side analysts about the meeting. The executive told the analysts that the FDA was "very positive and productive," and that the company would be "waiting on meeting minutes to decide on the path forward." Another executive wrote to an analyst that the company was "pleasantly surprised at how accommodating [FDA] officials were." On June 16th, TherapeuticsMD's stock price closed up 19.4%, which prompted the New York Stock Exchange to inquire whether a disclosure of material information might be affecting the stock. The executives who responded to the NYSE indicated that they were unaware of the email communications with analysts. Without any inquiry to determine the cause of the significant stock price movement, they replied that they were not aware of any material information.

TherapeuticsMD did not publicly disclose the information concerning the June 14th FDA meeting that had been shared with the analysts until a month later on July 17, 2017.

The second selective disclosure occurred on July 17, 2017, following TherapeuticsMD's early-morning filing of a current report on Form 8-K with the SEC stating that it received the FDA meeting minutes and had submitted new information to the FDA in support of its application for approval. TherapeuticsMD's stock declined 16% in pre-market trading. The SEC's order noted that although the 8-K contained little detail about the status of approval for TX-004HR, less than an hour after filing the 8-K, TherapeuticsMD executives held a scheduled call with analysts disclosing specific details about the discussions at the FDA meeting and the new information that had been submitted to the FDA in support of TX-004HR's approval. In the following hours, each analyst published a research note that included specific information about the FDA meeting and the newly submitted data. TherapeuticsMD's stock recovered to close down only 6.6% by market close. TherapeuticsMD did not publicly disclose this new information relevant to the product candidate's potential FDA approval until over two weeks later, in its quarterly earnings call on August 3, 2017.

The full text of the SEC's order can be found here.

Key Takeaways

As the SEC notes in its order, Regulation FD prohibits public companies, or persons acting on their behalf, from selectively disclosing material, nonpublic information to certain persons outside the company, including institutional investors, securities analysts, and other securities professionals. Where a selective disclosure is "intentional," the company must simultaneously make public disclosure with the selective disclosure. Under Regulation FD, intentional is defined as "when the person making the disclosure either knows, or is reckless in not knowing, that the information he or she is communicating is both material and nonpublic." When the disclosure is "non-intentional," the public disclosure must be made "promptly," which Regulation FD defines to mean "as soon as reasonably practicable (but in no event after the later of 24 hours or the commencement of the next day's trading on the NYSE)." 

The SEC further found in its order that because TherapeuticsMD failed to simultaneously publicly disseminate the material information in accordance with Regulation FD, the investing public was placed at a disadvantage relative to the analysts and their subscribers privy to these selective disclosures. The SEC also noted that at the time of the alleged selective disclosures, TherapeuticsMD did not have policies or procedures relating to compliance with Regulation FD.


The SEC's order is an important reminder of the need for policies and procedures to address the dissemination of material, nonpublic information in a manner consistent with Regulation FD. Particular care must be taken to avoid selective disclosure without simultaneous or prompt public disclosure, as appropriate. Specific review protocols for external communications, including earnings calls, analyst meetings, and press releases, as well as Regulation FD training for market-facing employees, is of critical importance. The order further underscores the need for pharmaceutical and other FDA-regulated issuers to handle carefully their disclosure related to interactions with the FDA. While we recognize the importance of maintaining positive relationships with analysts, and the need to support those relationships, do not forget the obligations imposed upon you and your company under Regulation FD.

Managing associate Gregory DiBella contributed to this alert.

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Dentons is the world's first polycentric global law firm. A top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm is committed to challenging the status quo in delivering consistent and uncompromising quality and value in new and inventive ways. Driven to provide clients a competitive edge, and connected to the communities where its clients want to do business, Dentons knows that understanding local cultures is crucial to successfully completing a deal, resolving a dispute or solving a business challenge. Now the world's largest law firm, Dentons' global team builds agile, tailored solutions to meet the local, national and global needs of private and public clients of any size in more than 125 locations serving 50-plus countries. www.dentons.com.

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