In a federal securities law class action now pending before the U.S. Supreme Court, a biotech industry trade association out of Northern California has filed a "friend of the court" (or amicus curiae) brief, to suggest that adverse event reporting (when statistically insignificant, and thus not disclosed) ought not (without more) be the basis of securities law liability.
I agree with that general proposition.
However -- in an attempt to butress its arguments -- BayBio (the biotech trade group) significantly mis-states one of its key analytical examples. BayBio uses the Merck-Schering-Plough SEAS cancer signal debacle to suggest that "premature" disclosure of "anecdotes" will not serve the investing, or prescription-consuming, public. The SEAS cancer signal was not "anecdotal", in any sense of the word. The signal was observed during a clinical trial of the drug -- not simply doctors or patients "phoning in" aftermarket adverse event reports. It does a disservice to the Court to imply otherwise. [We have previously discussed various proactive, premptive ways of solving SEAS-like crises.]
Moreover, and perhaps more importantly -- as the below trading chart plainly indicates -- Schering-Plough chose to delay its earnings call, and then chose to announce the SEAS signal in the middle of the NYSE trading session, rather than waiting until close, or seeking a temporary NYSE trading halt. Either of these latter approaches would have allowed for time -- time for calm, rational investors to react to the news, digest it, put it in perspective -- and then react in a measured fashion. What actually transpired was a real time, largely unfounded, panic selling session. In making this particular argument by analogy, BayBio is no "friend of the court" -- it is, in fact, simply misleading the Supremes (click to enlarge) -- note that it was the delay in Schering-Plough's Q2 2008 earnings announcement that started the panic -- not the "SEAS cancer signal news", itself:
Here is the full BayBio amicus brief (a 1.3 Mb PDF file) -- and the relevant snippet -- H/T Ed, at Pharmalot:
. . . .These concerns are anything but inchoate. When doctors and consumers learn of reports of adverse events (particularly from the company itself), they understandably become reluctant to prescribe and use those drugs, even when there is no evidence from scientific studies to support any association between the drug and the adverse event. Judyth Pendell, The Adverse Side Effects of Pharmaceutical Litigation 7 (2003) (in a poll of health care professionals and patients, “[a] sizable number of physicians (43%) have avoided prescribing a particular drug that was appropriate for a patient because they were aware that it might be involved in product liability litigation”). And companies, rather than face potentially staggering liability under United States securities laws, now have an incentive to prematurely disclose such reports, even if it is not scientifically responsible to do so.
For example, rather than wait for a study to be carefully vetted, pharmaceutical companies Merck & Co. and Schering-Plough Corp. announced that preliminary results of a clinical study showed an increased risk of cancer in patients taking Vytorin. Shirley S. Wang & Ron Winslow, More Vytorin Bad News Hits Merck, Schering, Wall Street J., July 22, 2008, at B1. This announcement caused significant same-day declines in the prices of the two companies’ shares. Ibid. A few months later, however, the researchers published the study’s full results, and the FDA concluded it was “unlikely” that Vytorin increases the risk of cancer. Jared A. Fovole, FDA Says ‘Unlikely’ That Vytorin, Zetia Increase Cancer Risk, Dow Jones Newswire, Dec. 22, 2008.
Vytorin remains on the market today. . . .
As I said, the ACTUAL DAY TRADING CHART above the pull quote tells a very different story. It was, in fact, the choice of Schering-Plough to delay its earnings announcement, coupled to the choice to disclose results mid-NYSE trading session -- rather than seek a halt in trading -- that "caused" much of the day's decline.
The argument BayBio makes thus proves too much -- by half. The SEAS example suggests that it (as in Matrixx) it is how the issuer handles the disclosure that makes most of the difference -- not a specious concern about a rule requiring disclosure of statistically-insignificant, non-scientific "anecdotes".
1 comment:
I should note that BioBay makes no mention of another Merck example, here: Vioxx.
This Matrixx case is about whether — as a matter of federal securities law — the disclosure of AERs should be REQUIRED (not just permitted).
The most provocative version of that question would ask whether statistically-insignificant AERs must be immediately disclosed. [That is the straw-man BioBay sets out to topple here, above.]
On the other side of the ledger, recall (as I just said) that Merck is a "double feature" of sorts, in this line of jurisprudence [though curiously, BioBay makes no mention of the Vioxx AER part of the history(!)]:
Several very well-repsected researchers have documented (in a post-hoc study) that Merck might have known as early as 2001 that a statistically significant increased heart attack risk was associated with the Vioxx arthritis drug. Of course, Merck waited until late 2004 to withdraw the drug from the market, and ended up paying $4.85 billion to settle injury claims.
So -- I think once the level of AERs approach statistical significance -- disclosure probably should be mandated by FDA (if not on label copy, at least in a "dear doctor" letter format).
And, if the product is "material" -- a term of art, in SEC parlance -- then the AERs ought to be disclosed in the company's SEC filings, as well.
[I'll likely write a follow-up post tomorrow, time permitting, on these later themes.]
Namaste
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