Securities Enforcement/Life Sciences AUGUST 2004 Is the SEC Exploring Pharmaceutical Companies’ Disclosure of Clinical Trial Results? Over the past six months, regulators and plaintiffs’ lawyers without necessarily having hard evidence of misconduct. have increased their scrutiny of publicly owned “Wildcatting” is occurring despite the fact that the SEC has pharmaceutical companies’ disclosure of clinical trial results. never been required to make a threshold showing of The Securities and Exchange Commission appears to be reasonable suspicion, probable cause or other level of proof joining the fray. Of note: to justify the commencement of an investigation. ■ This month, a publicly traded pharmaceutical company acknowledged that the SEC is investigating whether the company (and its chairman) had a duty to disclose important but unexpectedly negative preliminary clinical trial data as soon as the information became available, rather than two weeks later. The company has stated that the delay was necessary in order to confirm and clean up data before public disclosure. This investigation follows a formal probe by the SEC into alleged insider trading in ■ Because the SEC is interested in improving corporate transparency for investors, it may take a keen interest in ensuring that pharmaceutical companies’ disclose clinical trial results in a timely fashion. In essence, the SEC may view a disclosure delay as an omission of material information from the company’s financial statements and potentially violative of the antifraud provisions of the federal securities laws. the same company’s securities while the clinical trial data In determining whether to disclose clinical trial results, remained undisclosed. companies should consider, among other factors, whether: In June, New York State Attorney General Eliot Spitzer sued GlaxoSmithKline PLC, alleging that the company suppressed efficacy and safety results for Paxil, one of its blockbuster drugs. (1) the results of clinical trials have been disclosed in medical meetings, journals and letters to doctors; (2) the drug trial information is likely to be considered “material” to an investor; and (3) the drug’s success could be crucial to the company’s financial liquidity and/or its scientific credibility. ■ Another publicly traded company has been privately sued If the answer to any of these questions is yes, prompt in Massachusetts federal court over its alleged issuance of disclosure may be necessary. false and misleading press releases regarding the clinical trials of one of its compounds. In addition, companies may need to develop explicit policies requiring notification of the company’s general counsel by The attention of the SEC to this issue is not surprising, given the relevant R&D team when results on a key trial are Attorney General Spitzer’s interest, the involvement of the imminent. This will enable the legal department to react to plaintiffs’ bar, the interest of the financial media, and the prevent innocent (but embarrassing and perhaps even legally demand for greater disclosure of clinical trial results (see, actionable) written or oral statements by company officials. e.g., Leila Abboud, “Lilly Plans Broad Access to Results on Its Drug Trials,” The Wall Street Journal, August 3, 2004). DEREK M. MEISNER The SEC has developed a new program termed “wildcatting,” dmeisner@kl.com 617.261.3114 EILEEN SMITH EWING where it investigates entire industries to find possible abuses Kirkpatrick & Lockhart LLP eewing@kl.com 617.951.9227 Kirkpatrick & Lockhart LLP is comprised of more than 800 lawyers practicing in offices located in Boston, Dallas, Harrisburg, Los Angeles, Miami, Newark, New York, Pittsburgh, San Francisco and Washington. K&L currently represents or recently has performed projects for over half of the Fortune 100; 21 of the 25 largest mutual fund complexes or their investment managers; and 18 of the 20 largest U.S. bank holding companies. Our practice is national and international in scope, cutting edge, complex, and dynamic. K&L’s Securities Enforcement Practice is among the largest and most active in the country. We have many years of experience representing public companies and their directors and officers who have become the subject of investigations or enforcement proceedings by the Securities and Exchange Commission, state securities regulators, or industry self-regulatory organizations like the National Association of Securities Dealers, Inc. and the New York Stock Exchange. A number of our attorneys (such as Derek M. Meisner, who was until recently a Branch Chief with the SEC’s Division of Enforcement) have served in SEC staff positions and play leadership roles in professional and securities industry organizations. This enhances our ability to provide focused advice on unusual and difficult securities disclosure, compliance, policy, litigation, and regulatory issues. K&L’s interdisciplinary Life Sciences Practice is a nationwide network of lawyers experienced in solving the complex legal and regulatory issues facing our pharmaceutical, biotechnology, health care, and medical device clients. We practice in areas as diverse as corporate and securities, intellectual property, antitrust, FDA and other regulatory compliance, litigation, real estate, and tax law. Our clients range from tiny biotechnology start-ups to some of the world’s largest multinational pharmaceutical companies, from medical research institutions to life sciences venture capital funds. The breadth of our group—across legal practice areas, geographical regions, and industry sectors—keeps us abreast of new information of benefit to our life sciences clients. For more information about our securities capabilities in service of the life sciences industries, please contact one of the attorneys listed below. Also, we invite you to visit our website at http://www.kl.com for more information on our Securities Enforcement and Life Sciences practices. BOSTON Eileen Smith Ewing 617.951.9227 eewing@kl.com Derek M. Meisner 617.261.3114 dmeisner@kl.com LOS ANGELES Thomas J. Poletti 310.552.5045 tpoletti@kl.com NEWARK Stephen A. Timoni 973.848.4020 stimoni@kl.com NEW YORK Nanette C. Heide 212.536.4813 nheide@kl.com Lorraine Massaro 212.536.4043 lmassaro@kl.com SAN FRANCISCO Peter S. Heinecke 415.249.1077 pheinecke@kl.com WASHINGTON Alan J. Berkeley 202.778.9050 aberkeley@kl.com Suzan Onel 202.778.9134 sonel@kl.com ® Kirkpatrick & Lockhart LLP Challenge us. ® www.kl.com BOSTON ■ DALLAS ■ HARRISBURG ■ LOS ANGELES ■ MIAMI ■ NEWARK ■ NEW YORK ■ PITTSBURGH ■ SAN FRANCISCO ■ WASHINGTON ......................................................................................................................................................... 2 This bulletin is for informational purposes and does not contain or convey legal advice. The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer. KIRKPATRICK & LOCKHART LLP BANKRUPTCY ALERT © 2004 KIRKPATRICK & LOCKHART LLP. ALL RIGHTS RESERVED.