FDA-SEC Information Sharing Heightens Focus On Life Science Company Disclosures

The U.S. Securities and Exchange Commission (SEC) and the U.S. Food and Drug Administration (FDA) have signed a Memorandum of Understanding (MOU) establishing a cooperative framework for interagency information sharing, including the exchange of non-public information. Although the MOU does not impose new disclosure obligations on public companies, it is likely to make non-public FDA information more readily available to SEC staff evaluating whether FDA-regulated public companies' disclosures were false or misleading. In particular, the MOU may enable SEC staff to compare public disclosure against FDA-facing records – including meeting minutes, regulatory correspondence, FDA inspection reports, clinical trial information, safety reporting, and product reviews and approvals – in filing reviews, investigations and enforcement actions. We expect this enhanced information sharing channel to heighten scrutiny of disclosure controls and insider trading procedures involving material nonpublic FDA developments.

Expedited information sharing

Under 21 CFR 20.85, FDA may share otherwise non-public information (except trade secrets and certain commercial and financial information, which are subject to additional restrictions) with other government entities, including the SEC, so long as the receiving entity agrees not to share the information externally without FDA’s written permission. FDA disclosures to the SEC may include the following:

• application review memoranda evaluating clinical data or manufacturing submissions
• non-public meeting minutes
• clinical trial data
• safety reporting
• FDA inspection reports
• correspondence between FDA and product sponsors

The SEC may use non-public information received from FDA to inform public company filing reviews and to support investigations and enforcement of the securities laws. The MOU does not alter the substance of the information FDA will disclose to the SEC or change how the SEC is expected to use that information. It may, however, streamline the SEC’s historically cumbersome process for requesting information from FDA.

In the absence of an MOU between the agencies, the SEC previously submitted an individual written request each time it sought records from FDA pursuant to 21 CFR 20.85. In granting each separate request, FDA would respond in writing, authorizing the request and designating specific individuals to provide the information requested, or some narrower scope of records requested. Only certain FDA staff were delegated the authority to authorize and respond to these “20.85” requests, which often delayed disclosure of requested information.

Acting FDA Commissioner Kyle Diamantas said the MOU will streamline the agencies’ information sharing process. This is reflected by the SEC and FDA’s agreement to respond to requests for information in a “timely manner” and to establish new mechanisms for receiving and responding to information requests (e.g., “via secure file transfer”). To further facilitate the exchange of information under the MOU, the agencies may establish Standard Operating Procedures and non-public information request templates. In addition, both FDA and the SEC must establish and maintain at least one principal point of contact (POC) from each relevant office or division to facilitate cooperation under the MOU. We expect the naming of POCs to lead to quicker information sharing.

Potential areas of regulator focus

Although it is presently unclear what triggered the recent negotiation of the MOU, the individuals FDA and the SEC named as initial POCs in the MOU provide some insight into where the SEC and FDA may be focusing their cooperative efforts. FDA’s two initial POCs named in the MOU are in FDA’s Office of the Chief Counsel and Office of Inspections and Investigations. The SEC POCs named in the MOU reside in its Division of Corporation Finance and Division of Enforcement. Although the focus in the MOU is on FDA sharing information with the SEC, the SEC may share private information with FDA that may be material to FDA’s product reviews, permitting both agencies to build parallel cases where a company may have simultaneously defrauded investors and compromised public health data.

The MOU also comes as the U.S. government’s approach to regulating prediction markets is taking shape and as the SEC in particular considers when and how to step in. As we previously discussed, major prediction market platform Kalshi recently launched event contracts that allow participants to trade based on clinical trial endpoints and outcomes. These new offerings have drawn public criticism and increased attention from regulators related in part to risks that corporate insiders will misappropriate confidential information to trade in these markets. The MOU will facilitate the SEC’s swift and easy access to non-public information from FDA about what company insiders knew and when they knew it that could help the SEC build cases against those who misuse insider information about clinical trials and FDA approvals to inform trading activity – both in the context of these new prediction markets and in the context of traditional securities enforcement.

Sharing information outside the agencies

The MOU restricts access to non-public information to those authorized at each agency to access the information in the performance of their official duties. Notably, the MOU requires “every page” of information shared by FDA with SEC to clearly state: “Official U.S. Food and Drug Administration Documents; Do Not Disclose Without FDA’s Written Permission.” As was the case prior to the MOU, the SEC cannot share non-public information received from FDA without FDA’s written permission. The MOU does not specify how the agencies will handle non-public information communicated orally. We note that “non-public information” under the MOU broadly extends not only to electronic and written communications, but also to oral communications and non-public information communicated “in any other form.”

In the event of a Freedom of Information Act (FOIA) request, the MOU states each agency will produce its own original records following referral from the other agency. But if the FOIA request seeks documents authored by the receiving party that incorporate non-public information from documents shared by the other agency (either FDA or SEC), then the receiving agency will consult with the other agency about how to respond to the FOIA request. In any case, neither FDA nor the SEC will indicate to the FOIA requester whether the providing party has responsive or releasable records absent consent from the agency providing the documents, except as necessary to satisfy the requirement that it notify the FOIA requester of a referral.

The MOU comes amid a wave of FDA transparency efforts, including the historic creation of a public database of hundreds of Complete Response Letters (CRLs) that FDA has sent to sponsors of drugs, biological products, and medical devices, and to other FDA-regulated companies over the years. The publication of these documents has raised concerns related to securities litigation and intellectual property, among other issues, as we previously analyzed online here.

As CRLs and other FDA submissions may contain proprietary technical assessments or expose clinical development strategies, we urge companies to consider proactively notifying FDA of any confidential commercial or trade secret information. We further help advise companies on how they can proactively flag or redact information that should not be shared with the SEC—or outside HHS—including in response to a FOIA request.

Next steps

The MOU will remain in effect for three years, and it may be extended or modified by the agencies’ mutual written consent. Either agency may terminate the MOU on 30 days’ advance written notice. In light of the MOU, FDA-regulated public companies should consider whether their disclosure controls and procedures ensure timely internal escalation of material FDA interactions for disclosure analysis. Such companies should also assess whether their insider trading policies address material non-public FDA information held by employees, executives, directors, and other relevant personnel.

Our cross-practice team at Hogan Lovells Cadwalader is available to help FDA-regulated public companies evaluate SEC company disclosure practices, FDA interaction protocols, disclosure controls, and insider trading policies in light of the MOU’s expected acceleration of interagency information sharing. Feel free to reach out to any of the authors of this alert or the HLC attorney with whom you regularly work with any questions.