BOSTON (TheStreet) -- The Securities and Exchange Commission's top cop wants drug companies to be more transparent with investors about their dealings with the U.S. Food and Drug Administration.
"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," Andrew Ceresney, the director of the SEC enforcement division, told a gathering of pharmaceutical executives Tuesday.
In his speech, Ceresney talked about three cases where the SEC nabbed drug and medical device companies for lying to investors about FDA interactions. No surprise here, but in all the cases company executives put a rosy, misleading spin on what were actually serious regulatory setbacks.
Investors had no way of knowing the truth because the FDA isn't set up to monitor what companies say about dealings with the agency. Even in cases where the FDA knows companies are lying, the agency is prohibited from saying anything publicly.
The truth only came out after the SEC intervened.
To avoid landing in the SEC's hot seat, Ceresny suggested drug companies do more than just describe the communications they have with FDA officials.
"... 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. This obviously isn't practical for every item of FDA correspondence, but it is important to consider such disclosure for critical ones," Ceresney said.
That's a great idea. Let's start with the full, public disclosure of FDA Complete Response Letters. These are the rejection letters FDA sends to companies explaining the reasons why a submitted drug cannot be approved. By definition, an FDA Complete Response Letter is bad news, but there are degrees of badness. FDA rejecting a drug because of unanswered questions about the contents of a label is a lot less onerous than FDA asking for an entirely new clinical trial.
Investor transparency would be well served by companies making public full versions of FDA Complete Response Letters, instead of just describing the contents.
After that, I'd like to see more corporate transparency and disclosure around the agreements reached with FDA on design of clinical trials, particularly clinical endpoints used to measure efficacy and safety. Companies should let investors read the letters FDA sends about Special Protocol Assessments. If regulators raise alarm bells about the conduct of an ongoing clinical trials, investors have the right to know.
There are too many examples of drug companies sweeping FDA warnings about the design and conduct of clinical trials under the rug. The most infamous case involved ImClone Systems, which misled investors for two years by not disclosing FDA concerns about the design of studies involving the cancer drug Erbitux. The insider trading cases which sent ImClone CEO Sam Waksal and pal Martha Stewart to jail only happened because the company kept material FDA communications secret from investors.
Hemispherx Biopharma (HEB) , Aveo Oncology (AVEO) - Get Report, Genzyme (now part of Sanofi (SNY) - Get Report), Map Pharma, Introgen Therapeutics, Ampio Pharmaceuticals (AMPE) - Get Report have run into problems understating -- or not disclosing at all -- concerns raised by FDA about clinical trials. Eventually, this information gets out at FDA advisory committee meetings or when drugs are rejected. But by then investors are hurt.
It's encouraging to hear the SEC's Ceresney raise the FDA transparency issue with an audience of pharmaceutical executives, but more needs to be done. No one is naive enough to believe drug companies will post FDA letters voluntarily. There are companies out there whose business model essentially depends on being secretive and misleading with investors about their FDA interactions.
The SEC needs to follow through by making it a priority to police drug companies to make sure that disclosures about FDA matters are truthful. More phone calls, more investigations, would serve as a deterrent. Let's empower FDA to be more vocal about regulatory matters, especially when it learns companies are shading the truth. At the very least, the SEC and FDA should establish a clear line of communication to facilitate fact checking.
Adam Feuerstein writes regularly for TheStreet. In keeping with company editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback; click here to send him an email.