Your Regulators Are Talking: FDA and SEC Enter into Three-Year Agreement to Share Nonpublic Information

The potential for FDA regulatory developments to impact a company’s financial prospects has always been keenly felt by the life sciences industry. Under a just-issued memorandum of understanding (MOU) between the Securities and Exchange Commission (SEC) and the Food and Drug Administration (FDA), companies should expect even more SEC scrutiny of how they describe their progress and position relative to FDA, and, on the flip side, even more FDA scrutiny of the way in which they describe their product pipeline and investigational products, sales and marketing strategies and prospects, as well as emerging postmarket topics, to the investor community.

Back in 2004 the agencies announced that their staff would work together to refer possible instances of securities laws violations by FDA-regulated companies and provide points of contact throughout FDA for use by SEC staff in seeking additional information. That announcement was memorialized in exchanged letters between the two agencies that reflected a commitment to further expedite the sharing of nonpublic information.

The current MOU goes significantly further by creating official channels and processes to facilitate information sharing. Under this MOU, the SEC has the potential to more readily assess FDA subject matter in SEC filings. And while FDA-regulated companies have long expected that FDA might assess their public disclosures, this MOU suggests a heightened likelihood of FDA eyes on content prepared for an investor audience.

Under the MOU, the information shared between the agencies will be limited to designated nonpublic information and only disseminated to authorized staff and employees of the respective agencies who require access to the information to perform their official duties. The framework established by the MOU is also not intended for the sharing of public information, requesting testimony or responding to a subpoena for record or testimony.

It is more important than ever for FDA-regulated entities to ensure they are complying with the requirements from both agencies. Companies should also have a coordinated and aligned communication strategy across agencies, supported by effective cross-functional processes and a clear understanding of the relevant SEC and FDA compliance obligations.

What information is implicated?

Under the MOU, FDA will share any record otherwise exempt from public disclosure except for those documents covered by the various statutory protections for trade secrets in Title 21 of the U.S. Code. From the SEC side, the agency will share any nonpublic information requested by FDA upon a showing that the information is needed and that it will be kept confidential.

What is the process for information sharing?

The MOU provides a general framework for the information sharing between the agencies. It establishes primary points of contact at each agency that all requests must pass through and urges both agencies to adopt standard operating procedures to govern templates and schedules for fulfilling requests.

For FDA, one point of contact must be from the Food and Drug Division of the HHS Office of the General Counsel, which provides legal advice to FDA and is designated as FDA lead for referrals to the SEC for potential securities laws violations. From the SEC, one point of contact must come from the Division of Enforcement and one from the Division of Corporation Finance.

According to the MOU, once shared, the information will be restricted to only those employees or officials in the requesting agency that have been specifically identified as permitted to possess the information and both agencies have promised not to disseminate the information any further without written consent from the agency that provided the information.

Will the information be available to third parties?

The information will be available to any third party only upon agreement by the agency providing the shared information. This limitation will apply to efforts by members of the public to obtain the information through a Freedom of Information Act (FOIA) request as well as subpoenas from a court or administrative body or even from the U.S. Congress.

In the case of a FOIA request or court or administrative order, the agencies have agreed to alert each other to the FOIA request or order and afford the disclosing agency with a reasonable opportunity to pursue any action that it might deem necessary to protect the information that it shared. 

The agencies have also agreed to direct any requesting third parties to the disclosing agency for requests of nonpublic information and to allow the disclosing agency to intervene in any proceedings to protect their information.

In the case of a request from a Congressional committee, the agencies have agreed to alert the committee to the presence of nonpublic data belonging to the disclosing agency and will endeavor to get the consent of the disclosing agency to produce the information.

This will be an area to watch. The MOU sets out safeguards, but it remains unclear how the government will execute these processes in practice. For impacted companies, any inadvertent disclosure of nonpublic information beyond the bounds of the MOU could have significant consequences.

What does this mean?

In announcing the MOU, officials from both the FDA and SEC emphasized their respective public missions: oversight focused on protecting patients and market integrity.

The sharing of information between the SEC and FDA may help accomplish this goal. 

At the same time, for regulated companies it also heightens the importance of close coordination among internal stakeholders involved in FDA regulatory strategy on the one hand, and SEC disclosure on the other. While this has certainly been an expected best practice for public companies, in light of the MOU regulated companies may expect:

• Subject matter experts at FDA to weigh in on the precision of their statements to investors on regulatory topics; and

• Potential increased likelihood of FDA evaluating statements in SEC filings as relevant to a company’s “intended use” or promotional activities (for example, whether FDA believes content is “promotional” prior to clearance or approval, whether FDA alleges indicia of marketing that is inconsistent with the FDA-required labeling, or whether FDA alleges statements to downplay a product risk).

On the latter point, the MOU brings to the forefront longstanding ambiguity around exactly how FDA will approach investor-directed communications. FDA has long appeared to recognize these communications serve a distinct purpose and audience, including truthful and accurate exchange of scientific developments and other information. That said, there have been past instances where FDA has judged this content to “go too far” and extend into what the agency deemed product promotion, especially considering that audiences are now rarely limited to purely investors.

In other venues, FDA has recently indicated through its enforcement activity that it will continue to assess whether scientific exchange crosses into promotion. In the same month that the SEC and FDA entered the MOU, FDA’s Office of Prescription Drug Promotion issued an Untitled Letter based on a company’s communications about an investigational product at an exhibit booth at a medical conference.

Of course, each scenario will be very fact dependent, and Reed Smith will continue to follow developments including the way the agencies apply the MOU in practice, and whether the approaches taken may be subject to challenge. 

If you have any questions about this MOU or about agency compliance standards and potential risk mitigation strategies, please do not hesitate to reach out to the authors or to your attorneys at Reed Smith.