Biotech companies, particularly emerging biotech companies, face a dual challenge: they must demonstrate progress in the difficult task of drug development while at the same time raising capital to feed the process. In the United States, that difficulty has been heightened by the U.S. Food and Drug Administration’s prohibitions against preapproval promotion of a drug. By statute, data submitted to FDA is confidential, so FDA will rarely have anything to say about a company’s progress toward approval.
What had been, then, a largely secret process began to become increasingly public as biotech and other pharmaceutical companies found innovative ways to alert the public and investors about the progress of their work. Reporting clinical trial results at scientific conferences or in journals has generally raised no objection from FDA. For the past decade or so, however, one of the favorite tools for biotech companies to share with the public the results of their product development work has been the use of reports filed with the U.S. Securities and Exchange Commission and press releases issued to advise investors of significant clinical and regulatory developments. Since the value of often highly speculative biotech companies can be dramatically influenced by the success or failure of a clinical trial, it became routine for companies to issue such releases at the conclusion of significant trials. In addition, both in required SEC filings and in conferences with the investment community, biotech companies increasingly began to predict when they expected FDA approval for their products. Because of FDA’s general silence on the subject, these predictions generally went unchallenged, even if overly optimistic.
That situation seems likely to change as the result of a new agreement between FDA and the SEC to share information more readily between the two agencies. In a February announcement, the then-FDA Commissioner Mark B. McClellan, M.D., Ph.D., said that, "The SEC and its staff have primary responsibility for enforcing the rules requiring truth in the securities market, which is essential for its proper functioning. Unfortunately, companies sometimes violate the public trust by issuing false or misleading statements about FDA-related issues, such as the progress of FDA’s premarket review. When we identify suspected misstatements, we have a new process to bring them to the attention of the SEC staff as quickly and efficiently as possible."
While McClellan emphasized that FDA employees would not be expected to monitor the statements of publicly held, FDA-regulated companies routinely, FDA employees can be in a unique position to identify questionable statements that may be of interest to the SEC. As part of the agreement with the SEC, FDA has created an internal procedure for its personnel to report suspected misinformation. In addition, since most new drug information submitted to FDA is legally confidential, in the past the SEC has had to seek case-by-case approval to receive information when it was investigating a company. Under the new agreement, FDA has designated several FDA employees with "blanket" authorization to share non-public information with the SEC or its staff.
Although FDA said that it had been routinely responding to SEC inquiries about particular statements of particular companies, the new process can be expected to stimulate more enforcement in this area. An SEC staff member reviewing a filing could not be expected to know generally whether or not the claimed progress toward approval was accurate— and would be unlikely to ask in most cases. But should the FDA reviewer see that same statement, as in a press release or newspaper report, it is not difficult to imagine a different reaction from someone with a very accurate view of when the product was likely to be approved.
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