The SEC charged TherapeuticsMD Inc., a pharmaceutical company headquartered in Boca Raton, Florida, with violations of Regulation FD based on its sharing of material, nonpublic information with sell-side research analysts without also disclosing the same information to the public. No individuals were charged. The company did not admit or deny the SEC findings.
The enforcement case serves as a reminder that Regulation FD prohibits public companies from selectively disclosing material, nonpublic information to certain persons outside the company, including institutional investors, securities analysts, and other securities professionals. Whenever a public company discloses material, nonpublic information to any such person, Regulation FD requires that the company also disclose the information to the public. Where a selective disclosure is “intentional,” the company must simultaneously make public disclosure with the selective disclosure. Under Regulation FD, intentional is defined as “when the person making the disclosure either knows, or is reckless in not knowing, that the information he or she is communicating is both material and nonpublic.” When the disclosure is “non-intentional,” the public disclosure must be made “promptly,” which Regulation FD defines to mean “as soon as reasonably practicable (but in no event after the later of 24 hours or the commencement of the next day’s trading on the New York Stock Exchange).”
The SEC’s order found that on two separate occasions in 2017, TherapeuticsMD selectively shared material information with analysts about the company’s interactions with the U.S. Food and Drug Administration, or FDA. The SEC’s allegations involved a drug TherapeuticsMD was developing known as TX-004HR, which was intended to be a hormone drug therapy. TX-004HR had not yet received FDA approval.
TherapeuticsMD had submitted an initial New Drug Application, or NDA, to the FDA for approval of TX-004HR. On May 5, 2017, TherapeuticsMD received a Complete Response Letter, or CRL from the FDA that cited a single deficiency in the NDA: the lack of long-term safety data for TX004HR. TherapeuticsMD disclosed the receipt and contents of the CRL in a press release and 8-K before the market opened on May 8, 2017, the next trading day, and the Company’s stock price declined 10.5% that day on heavy volume. TherapeuticsMD requested a meeting with the FDA to discuss the CRL, and it received a meeting date of June 14, 2017. On May 31, 2017, TherapeuticsMD publicly announced the June 14th FDA meeting date in an 8-K that also described the contents of the CRL. The Company explained it had two likely paths forward depending on how the June 14th meeting went: either the FDA would allow them to resubmit a revised NDA (putting TX-004HR back on the path to approval), or the Company would pursue formal dispute resolution against the FDA.
On June 14, 2017, TherapeuticsMD met with the FDA and discussed existing medical studies in support of the Company’s position that TX-004HR did not pose any concerns for endometrial safety. Additionally, TherapeuticsMD discussed preliminary data from a soon-to be published, long-term NIH study with favorable indicators for TX-004HR. The meeting lasted an hour and ended without the FDA providing a clear path forward for approval of TX-004HR.
Certain sell-side research analysts covering TherapeuticsMD were favorable about TX-004HR’s prospects for approval going into the June 14th meeting, and TherapeuticsMD executives assumed analysts and investors would seek news about the status of the NDA following the meeting. On June 15, 2017, TherapeuticsMD executives held an internal meeting to discuss next steps, including how the Company would respond to anticipated questions.
That afternoon, a TherapeuticsMD executive sent emails to each of the six sell-side research analysts covering TherapeuticsMD, writing that the June 14th meeting with the FDA was “very positive and productive,” and that they would be “waiting on meeting minutes to decide on the path forward.” The content of these messages was consistent with the plan that Company executives had developed that morning for responding to anticipated questions. Four of the emails concluded with an offer to discuss further, and at least three of the analysts arranged follow-up phone calls.
On June 16, 2017, TherapeuticsMD’s stock price increased significantly, closing up 19.4% on heavy volume. In the past, stock price and trading volume changes of similar magnitude had coincided with disclosures relating to the progress of TX-004HR through the FDA approval process. At 1:16 PM, a market watch official at NYSE contacted TherapeuticsMD executives, noting that the stock was trading up approximately 21% on heavy volume and asking whether the Company was aware of material information that could be affecting the stock. The Company executives who responded did not know of the emails sent to analysts the prior day and were anticipating market events that day that could cause possible volatility due to the expiration of futures contracts and options. They replied that they were not aware of any material information. The executives did not conduct any inquiry to determine the cause of the significant stock price movement, or to assess whether the magnitude of the price movement could be explained by the anticipated volume or possible market volatility that day.
TherapeuticsMD did not make any public disclosures about the June 14th FDA meeting until July 17, 2017.
On July 5, 2017, TherapeuticsMD received the meeting minutes for the June 14th meeting from the FDA.
In the early hours of July 17, 2017, TherapeuticsMD released an 8-K and press release updating the investing public on TX-004HR’s regulatory approval status following receipt of the formal minutes regarding the June 14th FDA meeting. The press release stated that the meeting had “enabled the Company to present new information” to the FDA that could “address concerns raised by the FDA in the C[omplete] R[esponse] L[etter] and positively affect the status of the NDA for TX-004HR.” The release also said that the meeting minutes did not put TX-004HR on a formal timeline for approval, and that TherapeuticsMD continued to reserve its options for moving forward. The press release did not identify or discuss details about the new information provided to the FDA.
After TherapeuticsMD published the press release at 6:56 AM on July 17th, its stock price began to decline sharply, falling approximately 16% in pre-market and early trading. Analysts immediately responded in emails to the Company with questions about what the press release meant.
At 7:30 AM, TherapeuticsMD executives held a pre-scheduled conference call with the sell-side analysts. During the call TherapeuticsMD executives discussed the meeting with the FDA, identified the new information submitted—which consisted of three previously published medical studies, as well as introducing the FDA to the authors of an ongoing long-term NIH study whose results had not yet been published (the “Newly Submitted Data”)—and discussed the significance and relevance of that data to TX-004HR’s safety. During the call, at 8:10 AM, a TherapeuticsMD employee sent an email to the analysts attaching the three medical studies that TherapeuticsMD had submitted to the FDA. The email also included a summary from TherapeuticsMD’s Chief Medical Officer describing why the Company believed the studies supported their position regarding TX-004HR’s safety, and concluding that based upon the findings in these studies, TX-004HR did not have a negative impact on the endometrium and therefore posed no safety risk.
Thereafter, in the following hours, each analyst published a research note that included specific information about the FDA meeting and the Newly Submitted Data.
By the end of the day on July 17th, the stock had rebounded from its 16% downward movement in the early hours of trading to finish down only 6.6% by market close.
TherapeuticsMD did not publicly disclose what Newly Submitted Data it had provided to the FDA, or the Newly Submitted Data’s application to TX-004HR in terms of safety, until its earnings call held on August 3, 2017.
The SEC noted that In June and July 2017, the time of the conduct described above, TherapeuticsMD did not have policies or procedures relating to compliance with Regulation FD. TherapeuticsMD subsequently implemented policies and procedures which, among other things:
- required public disclosure of material, nonpublic information in connection with Regulation FD,
- provided examples of types of material, nonpublic information that may arise in light of TherapeuticsMD’s business model, and
- established specific review protocols for all external communications, including earnings calls, analyst meetings, and press releases.
TherapeuticsMD also now requires Regulation FD Training for employees.
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