Halting the Hype

FDA and SEC Crack Down on Pre-Approval Statements
Sep 01, 2004

Unfortunately, companies sometimes violate the public trust by issuing false or misleading statements about FDA-related issues, such as the progress of FDA's pre-market 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." Then FDA Commissioner Mark McClellan issued that statement in a February press release.

The new collaboration between FDA and the Securities and Exchange Commission signals a firm commitment by both agencies to increase their protection of investors against false and misleading statements about FDA-related issues, in particular the status of the FDA's review of new drugs. It also sends a strong message to the industry that the rules of the game have changed and that pre-approval promotional statements will be subject to heightened scrutiny from here on.

This article discusses how the ImClone/Martha Stewart scandal paved the way for the new FDA-SEC initiative and provides an overview of the new intra-agency collaboration and its centralized procedures. It also highlights the potential effect on companies' pre-approval promotional statements and explains how they can minimize the risk of exposure from such statements.

Ups + Downs BACK IN 2001, IMCLONE WAS A WALL STREET darling, rising from $38 a share in 2000 to more than $75 a share in early December 2001. ImClone's business was founded on a single compound—a highly publicized, experimental drug, Erbitux (cetuximab), which was designed to be used in colon cancer patients with irinotecan, a marketed chemotherapy drug. ImClone and Erbitux were hot, making the cover of Business Week and grabbing headlines with a feature story on CBS's 60 Minutes.

ImClone's founder and CEO, Samuel Waksal, predicted publicly many times that Erbitux would be "one of the biggest drugs in the history of oncology," a multibillion-dollar blockbuster. Waksal repeatedly boasted about how quickly FDA was expected to approve the drug and how an expedited approval would catapult revenues. ImClone's future looked promising. But in December 2001, black clouds moved in over the Wall Street favorite.

ImClone's fast-track application. Six months earlier (June 2001), ImClone had submitted to FDA a "rolling" biologics licensing application (BLA), meaning that it would submit its application in piecemeal fashion as each section was completed. ImClone explained to investors that this approach would allow ImClone to get continuous feedback from the agency, thereby minimizing potential problems.

It took ImClone five months to complete its BLA. During that time, the company issued multiple press releases highlighting the successful progress of its fast-track application and the positive effect FDA approval would have on the company's revenues.

In September 2001, ImClone entered into a lucrative commercialization agreement with Bristol-Myers Squibb to co-develop and co-promote Erbitux in the United States, Canada, and Japan. Under the terms of the agreement, BMS agreed to pay ImClone $1 billion in three cash payments upon achieving certain milestones, starting with $200 million for executing the agreement and ending with $300 million after FDA accepted the Erbitux application.

BMS also acquired about 14.4 million shares of ImClone's common stock through a tender offer at a price of $70 per share. In the end, BMS took a 20 percent stake in the company and secured up to 40 percent of Erbitux's future profits.

FDA regulations required the agency to decide within 60 days whether the application was administratively and scientifically complete and could be accepted for review. Only if a BLA is accepted for filing does the FDA review the application to determine whether the drug will be approved for marketing. The 60-day deadline on ImClone's application came and went, with no word from the agency. FDA exercised its right to extend its review period by an additional 30 days.

A bombshell drops. On Friday, December 28, 2001, after the market closed, ImClone issued a shocking press release, announcing that FDA had issued a "refuse to file" or RTF letter rejecting the Erbitux application. The press release stated:

  • FDA would not accept the filing in its current form.
  • The company would meet with the agency as soon as pos- sible to discuss the requests for additional information.
  • ImClone would work closely with FDA toward the goal of an expeditious acceptance of the BLA.

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