Risk & Compliance

Biopharm Company Receives Wells Notices

The SEC investigation into Inspire Pharmaceuticals is related to disclosure obligations, says the CFO.
Sarah JohnsonOctober 23, 2006

The Securities and Exchange Commission staff plans to recommend that the regulator bring a civil action against Inspire Pharmaceuticals, a smaller public company with $213 million in market capitalization.

The Durham, North Carolina, company made the announcement on Monday after receiving three Wells notices on October 19. Saying he did not want to be specific about the SEC’s investigation, which has been going on for more than a year, Inspire chief financial officer Thomas Staab told CFO.com that the notice relates to “disclosure obligations.”

The company, as well as Inspire President and CEO Christy Shaffer, and Executive Vice President of Operations and Communications Mary Bennett, received notices. In September 2005, Inspire officials announced that the SEC was conducting a formal, nonpublic investigation, and acknowledged that both the company and a director had each received a subpoena. The SEC’s Atlanta staff has been investigating the company since then by reviewing documents and testimony, according to Staab. “We have been cooperating fully up until this point,” he said.

The company and the executives involved plan to submit formal responses to the Wells notices, and hope to meet with the SEC to find out more about the case as the “generic” Wells letters did not provide much detail, Staab said. “We really don’t know until we hear what the Atlanta staff is thinking and we can argue on our behalf,” he added.

The SEC began its investigation a few months after Inspire’s third phase of a clinical trial for Prolacria, a dry-eye solution, which has not received final approval from the Food and Drug Administration. On February 9, 2005, Inspire announced the results of the third phase of its clinical study, which involved 640 patients using its dry-eye treatment or placebos over six weeks. The results were mixed, Shaffer acknowledged at the time. The FDA has sent two approvable letters for Prolacria, the last of which was received in December 2005.

Earlier this month, Inspire announced a recent meeting with the FDA about the product. “We believe our discussions with the FDA have been constructive, but the overall program remains challenging and the outcome is uncertain,” Shaffer said in a statement.

Small businesses that may lack the resources and expertise to make sure they follow through with all their regulatory obligations can find themselves prone to more SEC scrutiny, especially in the post-Enron environment, according to Andrew Langer, manager of regulatory policy at the National Federation of Independent Business. “There has definitely been an uptick in SEC investigations in general, obviously since Enron etc.,” he told CFO.com.

Asked whether he thinks there seems to be an increase in SEC investigations of small companies in particular, Staab speculated that it may seem that way because the commission has increased its staff recently. “With all the recent problems in public companies that have occurred … I think the SEC is devoting a lot more time into looking at various things.”