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Medical Groups Tread Lightly Around Reg FD

Adam Feuerstein

Medical groups are becoming increasingly concerned that their research meetings are becoming a hotbed of investment activity, forcing them to rethink their disclosure rules in light of the openness demanded by Regulation FD.

The issue is jangling nerves at the American Society of Clinical Oncology, which is holding its big annual cancer research meeting this week. ASCO released market-moving information on drug companies scheduled to present at its conference to its members and Wall Street analysts one month before the news was made public, a possible conflict with Regulation FD.

At least two well-known biotech companies, both of which presented important research at ASCO's meeting, have raised the issue of selective disclosure informally with ASCO executives, TheStreet.com has learned.

"We told them that medical conferences have become as much about Wall Street as they are about scientific research," says one biotech executive, who asked to remain anonymous for fear of angering ASCO executives. "We told them that we're concerned about how our research data are being disclosed, and we suggested that they look at changing their rules."

Other high-profile medical organizations are taking additional steps to ensure that their meetings comply with Regulation FD, which requires that public companies make sure market-moving information is given to the public. For example, some of these groups already release market-moving information to all investors at the same time.

As written, it's not clear that Regulation FD applies to medical conferences, or to intermediaries such as ASCO. But other medical groups are sufficiently concerned to take action to ensure that their conferences don't violate the Securities and Exchange Commission-mandated law.

The American College of Cardiology will take up the issue of Regulation FD before its next annual meeting in March 2002, according to spokeswoman Melanie Caudron. For the past two years, however, the ACC has posted all of its research abstracts on a Web site that is perusable by the public about one month before the meeting, which seems to comply with selective-disclosure rules.

"Most of our meeting planners and researchers are so focused on the scientific side of our meeting that they haven't really thought closely about the financial impact," says Caudron.

The American Society of Hematology also makes research abstracts available to the public via the Web in advance of its annual meeting, according to Director of Programs Jennifer Hamilton. She says the organization also is taking a closer look at its disclosure rules.

Another medical organization, the American Academy of Dermatology, doesn't release its research abstracts to anyone before the start of its annual meeting, last held in early March.

So far ASCO hasn't discussed the issue publicly and will not return phone calls seeking comment. But the group realizes it has a potential problem on its hands, according to another biotech executive, who says an ASCO executive seeking advice approached him over the weekend.

"I don't know what ASCO is going to do, but the issue is definitely on their radar screen," he says.

Imclone Systems IMCL is a perfect primer on how selective disclosure of market-moving information at a medical conference can lead to inequities for investors. The New York biotech firm was a big winner at this year's ASCO meeting, but for investors seeking a payday, the game appears rigged.

Shares in Imclone jumped more than 5% Monday on heavy volume after strong results from its new cancer drug were presented during the weekend. But because ASCO selectively disclosed a preview of Imclone's good news on April 10, investors with access to this privileged information stood to profit more on Monday than the general public.

Investors who used that head start to take a position in Imclone on April 10 saw their investment rise as much as 23%, based on the company's Monday intraday high of $41.70.

By comparison, investors who might have read the good news about Imclone over the weekend and bought shares first thing Monday morning realized as much as an 8% gain, based again on the company's Monday intraday high.

Imclone closed Monday up $2.04, or 5.3%, to $40.46 on six times the average trading volume.

Those gains stand out on a day when biotech stocks fell across the board. The broad American Stock Exchange Biotechnology index, or BTK, fell 2.3%.