Halting the Hype - Pharmaceutical Executive

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Halting the Hype
FDA and SEC Crack Down on Pre-Approval Statements


Pharmaceutical Executive


The committee demanded that FDA produce all records relating to its rejection of Erbitux's BLA, as well as records of all meetings it had had with ImClone officials. The committee specifically wanted to know: "whether the FDA has had contact with the SEC on the ImClone/Erbitux matter, and, if there was contact, appropriate details about the nature of the contact." The committee asked hard questions about whether FDA should have had any contact with SEC about the ImClone/Erbitux matter before January 2002. It debated the prudence of sharing non-public information between the agencies in the event that FDA believed a company was not being truthful with the public.

The congressional committee subsequently expanded its probe to include whether the price of ImClone's shares had been artificially inflated and propped up as certain Waksal family members sold their shares in advance of FDA's bad news.

Insider Trading ON THE HEELS OF THE CONGRESSIONAL INVESTIGATION, SEC and the Department of Justice (DOJ) launched their own investigations into ImClone and Waksal. They discovered that Waksal and his family had attempted to sell shares of ImClone stock, then worth over $7.3 million, just before the company announced FDA's bad news.

Over time, it was discovered that Waksal's stockbroker Peter Bacanovic (who had refused to sell Waksal's shares) had told his assistant, Douglas Faneuil, about Waksal's attempted sale and instructed him to immediately tell Waksal's close friend and fellow ImClone stockholder Martha Stewart about it. Upon hearing the news, Stewart directed Faneuil to sell all 3,928 shares of her ImClone stock. Her stock was sold just ahead of the FDA announcement at a price of $58.43 per share, for a profit of $228,000.

According to the indictments against Stewart, Bacanovic, and Faneuil that soon followed, after learning of the SEC and DOJ investigations, Bacanovic and Stewart allegedly entered into a conspiracy to obstruct the investigation and then committed perjury to conceal and cover up Stewart's insider trading. According to the indictments, they allegedly fabricated an explanation for Stewart's sale of her stock—that she had a pre-existing agreement to sell the stock if the price ever dropped below $60 per share.

In the wake of investigations by Congress, SEC, and DOJ, class action securities lawsuits began to crop up around the country. The suits alleged that Waksal and other company officials had made many false and misleading statements to investors about the status of FDA's review of Erbitux. The lawsuits alleged that the statements were misleading because ImClone knew that its application did not comply with the stated requirements of FDA and it had not, in fact, been working "diligently" with the agency in preparing the Erbitux application as it had claimed.

SEC + FDA Collaborate THESE DEVELOPMENTS LED TO THE FEBRUARY 2004 announcement that SEC and FDA would enhance their collaboration in targeting pharma companies' pre-approval promotional statements. But FDA assistance to SEC is not an entirely new concept. For the past few years, FDA has been assessing the accuracy of statements in SEC filings related to FDA issues and providing technical support when SEC investigated potential securities laws violations by FDA-regulated companies.

New referral process. The initiative seeks to improve the level of support that FDA provides to SEC and enhance information coordination between the two agencies. It establishes a new centralized procedure for referring to SEC possible instances of securities laws violation by public companies regulated by FDA. Under new procedures, whenever an FDA employee believes that a publicly held, FDA-regulated company has made a false or misleading statement to the public concerning a matter within the agency's authority, the FDA employee can initiate a process through the Office of General Counsel for referring the matter to SEC's Division of Enforcement. The deputy director of the Division of Enforcement has been designated as the person responsible for receiving such referrals.

New administrative measures. FDA has also implemented four new administrative measures to improve the level of technical and scientific assistance it provides to SEC:

1. FDA contacts: The agency has identified a liaison officer and specific contacts within each of its principal operation components for SEC to use in requesting information. These contacts are responsible for assuring that SEC's requests are handled promptly and thoroughly. FDA designated its associate commissioner of regulator affairs as the liaison officer to work with SEC in general areas of mutual interest.


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