The comments from Andrew Ceresney, director of the division of enforcement at the SEC, at a pharmaceutical compliance conference on Tuesday, come as pharma companies still are not required to immediately disclose publically when drugs and devices are rejected by the FDA.
Ceresney cited three specific cases of disclosure issues where companies and their employees were fined and reprimanded for failing to disclose pertinent facts to their investors or for misleading investors.
“Accuracy of reporting in your dealings with the FDA is critical to getting investors the information they need. FDA dealings and approvals are the lifeblood of your business and are so important to investment decisions,” Ceresney said.
Although Ceresney did not disclose specific company names, he offered a number of examples of cases where companies misled their investors.
For example, one biopharma company fraudulently misled investors about the regulatory status of the company’s drug product. The SEC alleged that, although the FDA had placed a full hold on the company’s application to begin Phase I clinical trials, an officer of one of the companies in question falsely informed potential investors that a Phase II trial would begin in 60-90 days and that FDA approval should come within a year.
Another case hinged on a company’s executive downplaying interactions with the agency even after a device was rejected.
“A medical imaging company and its CEO were charged with fraud for misleading shareholders about the FDA’s view of a device in development. We alleged that the company had received a denial of clearance from the FDA for a particular type of medical scanner – the third such denial,” Ceresney said. “The FDA letter cited concerns about the device’s safety and efficacy – the FDA even called some sample images ‘useless.’ However, on an investor conference call, the CEO downplayed these concerns, calling them ‘administrative,’ ‘not substantive,’ and claiming the FDA did not really have questions about the technology.”
For another medical technology company, the SEC alleged that the defendants issued eight misleading public filings stating that the company intended to file a Premarket Approval application with the FDA for permission to sell a particular device. In reality, however, the CEO and CFO of the company “had clear information showing that the company would not be able to meet its publicly stated deadlines. The CEO and CFO eventually paid penalties of $150,000 each and were barred from serving as officers or directors of public companies, among other relief.”
“As you can see, sharing the FDA correspondence with investors eliminates many of the issues we have discussed because investors get to see the actual back and forth and judge for themselves,” Ceresney added. “Moreover, the remedial steps to which the company agreed, including senior level engagement in investor communications, are the kinds of controls that can pay substantial dividends…[and] can head off problems before they begin.”