Pharma Company Disclosures Draw SEC Scrutiny

The Securities and Exchange Commission (SEC) is focusing more on the accuracy and timeliness of biopharma company financial filings, particularly those related to regulatory actions involving FDA, writes Jill Wechsler.

The Securities and Exchange Commission (SEC) is focusing more on the accuracy and timeliness of biopharma company financial filings, particularly those related to regulatory actions involving the Food and Drug Administration. The SEC is concerned about timely and full disclosure of actions that are important to investors, where may include company plans to file a market application, the regulatory status of a clinical research program, or FDA criticism of a test product, explained Andrew Ceresney, director of enforcement at the SEC.

Ceresney noted that the Commission took action last year against biotech firm Immunosyn for allegedly misleading investors about the regulatory status of an experimental drug by failing to disclose that FDA had placed a hold on its initial clinical trial. A medical device company was penalized for misleading statements on when it would file a Premarket Approval application. Ceresney advised companies at the recent CBI Pharmaceutical Compliance Congress in Washington, D.C. to share FDA correspondence with investors to ensure full awareness of critical business events and risks. He noted that accurate financial reporting goes “right to the heart of investor protection” in the U.S. and that “significant new investigations” involving financial reporting are underway.

He also emphasized the importance of pharma companies establishing “robust” compliance programs to identify situations that raise the risk of violating a the Foreign Corrupt Practices Act (FCPA), an area of increased SEC scrutiny. Pharma company payments to “high-prescribing doctors” in China and other strategies to get products on government formularies can be considered a form of bribery that violates the FCPA because foreign doctors often work for national health systems and thus serve as government employees. Strong FCPA compliance programs should include risk assessment to identify activities prone to corruption and due diligence of third-party agents.

Meeting SEC disclosure requirements can be tricky, however, as disclosure of favorable drug development information considered “material” to investors may violate FDA policies for conducting clinical trials. FDA recently took umbrage with biotech company Orexigen for premature release of interim clinical trial results via an SEC filing. Orexigen’s favorable study data on cardiovascular safety for its recently approved Contrave diet drug normally would not become public until the postapproval clinical study ended and was vetted by FDA. But Orexigen filed and obtain patents related to the new findings and decided that securities rules warranted disclosing that fact, along with the underlying data. Those actions sent Orexigen’s stock soaring, but FDA was outraged and issued an unusually lengthy statement that it was “very disappointed” by Orexigen’s actions and that the premature disclosure threatened the integrity of the ongoing trial. FDA had already determined that this Orexigen study was not adequate to meet postmarketing study requirements, and that a second trial would be needed to support postmarketing cardiovascular safety, a tricky issue for diet drugs.

Another SEC decision, moreover, could lead to much broader disclosure of proprietary company information related to drug development and pricing. The SEC decided last week that shareholders of Gilead Sciences and Vertex Pharmaceuticals have the right to seek information on how company pricing strategies could be affected by multiple factors, including drug development costs, price disparities between the U.S. and other countries, competitors’ products, and payer use of cost-effectiveness studies in making reimbursement decisions. Shareholder resolutions proposed by the UAW Retiree Medical Benefits Trust seek such disclosure on the basis that it is central to assessing financial and operational risks facing the manufacturers. Gilead and Vertex had rejected the resolutions, but the SEC sided with the Trust, possibly setting a very interesting precedent.