SEC Interest in FDA-Related Disclosures by Life Sciences Companies Highlighted

A recent SEC enforcement action against Cassava Sciences over misleading statements made to the FDA about clinical trial (CT) results highlights the importance of life sciences companies exercising care in how they disclose FDA-related information to investors. Lara Mehraban explains.

At the end of September, the U.S. Securities and Exchange Commission (SEC) announced that Cassava Sciences and two of its former executives had agreed to pay more than US$40 million to settle charges related to misleading statements about the results of a Phase 2 CT. In a related order, the SEC charged a Cassava consultant with manipulating the reported CT results.

This case is one in a line of cases the SEC has brought which are related to a life sciences company’s statements about its interactions with the FDA. For example, last year the SEC charged the former CEO of CytoDyn, Inc. with fraud and insider trading in connection with statements the company made about its progress in submitting a licensing application to the FDA. The CEO is also facing a forthcoming criminal trial. We have also seen press reports of a Wells Notice issued by the SEC to Allarity Therapeutics concerning its disclosures about FDA meetings around its applications for a cancer therapy drug.

In 2016, the SEC charged Aveo Pharmaceuticals and three of its former executives with failing to disclose that the FDA had recommended an additional clinical trial for Aveo’s flagship drug candidate. The company and two of the executives settled to the charges and one of the executives was found liable for fraud after a jury trial. In upholding the jury’s verdict, the court found that “a reasonable jury could find that [the defendant] used carefully crafted half-truths and distortions to convey a false understanding of the FDA’s feedback on the company’s clinical trial.”

Life sciences companies should therefore take care to ensure that their public disclosures about communications with the FDA are accurate and complete and involve counsel in reviewing such disclosures. Life sciences companies should also be aware that the FDA may proactively refer matters to the SEC, particularly where the FDA has concerns about a company’s communications with the public about its interactions with the FDA. The SEC may also obtain confidential information from the FDA under certain circumstances.

Life sciences companies should take into consideration that the SEC will make a determination about the materiality of disclosures, or information omitted from disclosures, in hindsight. Accordingly, companies should carefully consider, in consultation with counsel, when to disclose interactions with the FDA to the public and how to ensure such disclosures do not omit information that may be deemed material.

This post is as of the posting date stated above. Sidley Austin LLP assumes no duty to update this post or post about any subsequent developments having a bearing on this post.