Risk & Compliance

SEC Charges Drug Firm with Reg FD Violations

In calls and emails, TherapeuticsMD shared material, nonpublic information about a new drug's likelihood of FDA approval with sell-side analysts.
Vincent RyanAugust 20, 2019

The SEC on Tuesday charged TherapeuticsMD, a pharmaceutical company that deals with women’s health issues, with violating Regulation FD based on its sharing of material, nonpublic information with sell-side research analysts without also disclosing the same information to the public.

The SEC’s order details how 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 (FDA) regarding pending approval of one of the two drugs the company was developing.

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As detailed in the SEC’s order, on June 15, 2017, one day after a publicly-announced meeting with the FDA regarding the long-term safety of the drug, TX-004HR, TherapeuticsMD sent private messages to sell-side analysts describing the meeting as “very positive and productive.”

On June 16, TherapeuticsMD’s stock price increased significantly, closing up 19.4% on heavy volume. At 1:16 p.m., a market watch official at the New York Stock Exchange contacted TherapeuticsMD executives, 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, according to the SEC. They replied that they were not aware of any material information.

The SEC said the company’s executives did not conduct an 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.

Then, after receiving the minutes of the meeting from the FDA, on July 17, 2017, about a month later, TherapeuticsMD issued a press release announcing that it had submitted additional information to the FDA but did not yet have a clear path forward regarding its new drug application. The accompanying 8-K contained little detail about the status of the drug’s approval, and TherapeuticsMD’s stock price declined about 16% in pre-market trading following the disclosure.

According to the SEC, after issuing the press release but before the market’s open, TherapeuticsMD executives held a call and sent emails to sell-side analysts. In those communications, the company selectively shared previously undisclosed details about the June FDA meeting as well as the positive information on the drug’s safety that it had subsequently submitted to the FDA.

According to the SEC’s order, all of the analysts published research notes containing these details, and the stock rebounded to close down 6.6% for the day. The information released to analysts was not disclosed to the public until the company’s earnings call on August 3, 2017.

The SEC’s order found that at the time of these selective disclosures, TherapeuticsMD did not have policies or procedures regarding compliance with Regulation FD.

“Information about a pharmaceutical company’s interactions with the FDA can be critical to investors.  It is essential that when companies disseminate material, nonpublic information, they do so fairly and appropriately to all investors and not just a select few analysts,” said Carolyn M. Welshhans, associate director of the SEC’s division of enforcement.

TherapeuticsMD consented to the SEC’s order without admitting or denying the findings and was ordered to cease and desist from future violations of Regulation FD and Section 13(a) of the Securities Exchange Act of 1934.  The company agreed to pay a $200,000 penalty.

Regulation FD prohibits public companies, or persons acting on their behalf, from selectively disclosing material, nonpublic information to certain persons outside the company, including institutional investors, securities analysts, and other securities professionals.

On news of the charges, TherapeuticsMD shares were down nearly 3% by 12:55 p.m. The stock has fallen 31% in 2019.