Keys to Successful Disclosure of Clinical Trial Data and Milestones
For publicly traded healthcare companies, clinical trial data and milestone disclosure can present great opportunities as well as significant challenges.
On the path toward regulatory approval, life science and medical device company management will encounter difficult disclosure decisions surrounding clinical and regulatory events. Finding the right balance between the “duty to disclose” vs. “pressure to disclose” dilemma is not easy. If done right, such milestones are a great way to raise visibility within the investment, clinical and scientific communities. If done wrong, the consequences may be severe.
Why Is Disclosure Necessary?
To keep shareholders informed, companies need to plan communications around key events (critical disclosure milestones) within the clinical trial life cycle: clinical trial design and registration, participant enrollment, interim analysis (if any), study completion (top-line results), scientific journal publication (peer-reviewed results), and regulatory application (discussions, letters, and filings with the regulatory agency). Note: When a company’s financial health depends solely on one product, even relatively routine development milestones may be deemed “material” by the Street and require disclosure.
Statements made by life science and medical device companies are thoroughly scrutinized by the Securities and Exchange Commission (SEC) and the Department of Justice (DOJ), since investors rely heavily on these disclosures when making their investment decisions. Mistakes made while disclosing events of the clinical trial lifecycle can cause a serious crisis for your company: analysts may downgrade your stock, investors may dispose of your shares, and your stock price may plummet. Such errors will also harm management’s credibility and reputation, your company’s most valuable attributes.
The bad news: Failing to properly disclose material events regarding clinical trial data may result in more than harm to company’s reputation. It could lead to an investigation by the SEC and/or DOJ if the agencies believe that the company has intentionally deceived investors. The FDA may assist these inquiries, and in fact, the FDA and SEC now have a specified mechanism in place that facilitates FDA reporting to the SEC if they come to believe that a company may have made a false or misleading statement to the investors. SEC and DOJ investigations pose a much graver risk than ordinary commercial litigation, as consequences may include substantial fines for the company and its executives, bars on serving as an officer at a publicly traded company for a period of time, and, in extreme cases, criminal prosecution including potential jail time.
The good news: If you adhere to the following principles, you can favorably control the message within the investment and medical communities, thus maximizing shareholder value, ensuring positive clinical and market reception, attracting new investors and potential strategic partners, while also complying with the regulatory requirements and maintaining company’s reputation.
General Disclosure Guidelines
- Have a data disclosure protocol in place. Each public company should have a disclosure policy/protocol in place, and all materials (including changes to website and social media) should be reviewed and approved by all members of the disclosure committee before being issued or used. Make sure that public statements are reviewed by counsel familiar with FDA and SEC regulations. Every important disclosure will also include filing of an 8K. Review process checklists may be helpful to guarantee adherence.
- Establish appropriate timelines. Depending on how material the information is, there is a very limited window of opportunity (usually a matter of days) for management to communicate the message to the Street. Determine exact timing by working with your legal team.
- Ensure proper disclosure. We recommend disclosing critical clinical trial milestones by means of a press release prior to any verbal or written communications with the investment community. Make sure that the corporate message has been agreed upon and is consistent across all communications beyond the press release (investor calls, media interviews, media coverage, and so forth). This will require proactive message management, such as messaging documents that are carefully prepared and revised ahead of the data, and cover good, average, and bad scenarios of clinical trial results, as well as reactive message management, such as requesting a correction of a material error in any media article or responding to incoming investor inquiries.
- Maintain transparency. This one is particularly important with clinical data readouts: Be forward about the message and do not try to “bury” the bad news in a press release. Investors and media will resent you if bad news is not communicated clearly. In case of negative data readout, be very clear about the failures, and focus on the potential ways the company plans to move forward — for example, planned discussions with the FDA, possibly a differently designed clinical trial including alternative endpoints, or focusing capital and efforts on other assets in the pipeline, if applicable.The key is to always use the most precise language possible. Be mindful of the minutiae such as “confirmed” or “unconfirmed” data, especially in case of open-label studies. Always provide appropriate caveats regarding clinical findings. Press releases and other public statements should be carefully revised to reduce or eliminate ambiguity. If a press release is written in a way that allows for confusion or misinterpretation, the SEC or DOJ is more likely to take action.Your company may consider certain limits to transparency to protect innovation based on findings that are sometimes unexpected, which you may not wish to share with your competitors or need to keep confidential in order to protect patient health information where applicable.
- Ascertain that clinical trial data is accurate and reliable. Ensuring data accuracy and integrity is essentially company’s responsibility. A company is ultimately liable for all aspects of a study, and it risks fraud allegations if, for instance, it discloses a positive clinical trial outcome but is or should have been aware that the underlying data is unreliable. It is crucial to report all the relevant and correct statistics, clearly stating whether the trial has met its primary and/or secondary endpoints, along with other findings. All adverse events should be duly reported to the FDA. Statistical significance of the results needs to be disclosed along with the P value, graphs should include data variability measures, such as standard deviation and a brief description of the data analysis methods. Analysts, investors, and the scientific community will appreciate this and view your company and management team more positively, even in light of bad news.
- Present data effectively and appropriately. The way the data is presented within the press release and (if applicable) presentation slides can also make a difference. In case of a positive data readout, make sure to highlight in the headline of your press release the fact that the trial results are actually positive, since most analysts and investors will initially assume the data is gray or poor if the headline is neutral.The company must consider not only what clinical trial data it discloses, but how it interprets and presents the clinical significance of that data to the public. For example, disclosure about efficacy in a patient subgroup can be literally true, but if the company chooses not to disclose that this analysis has been performed after the trial has failed to meet its primary endpoint, SEC or DOJ can still take action and your stock will not respond kindly. We recommend that you clearly communicate clinical trial design, its primary and secondary endpoints, adverse effects and toxicity profile. For the data itself, we suggest using visuals, such as tables or graphs.
- Be particularly careful as to how you disclose “top line” results. Disclosure of the “top line” data is a particularly challenging situation for the company, because while it has to disclose the “top line” results from a clinical trial, it cannot yet disclose the underlying data. The company risks accusations that the “top line” summary excluded important details or overstated drug or device benefits despite technically meeting the primary endpoint. The key here is to never overstate the clinical trial outcome and product’s benefits. Consider whether “top line” data has been sufficiently analyzed to draw the general conclusion, whether these “top line” results absolutely must be disclosed to the investors at this point in time, what the precise messaging around these results should be, and what appropriate caveats regarding study conclusions need to be communicated.
- Increase visibility. If the data is positive, it can be beneficial to conduct an investor call to discuss the data and answer main questions from analysts and investors. Including a KOL on the call is highly recommended to provide insight into clinical implications of the data, its significance to the current treatment paradigm, clinical demand in the market niche, and to attract more analysts and investors to the call by adding scientific credibility to the discussion.
- Consider reporting at conferences. Timing of data readout can be relatively predictable and one can plan to report the full set of data at a medical or scientific conference. One caveat: Keep in mind abstract submission deadlines as well as the conference embargo policy.
- Publish peer-reviewed data. Publication in peer-reviewed scientific journals is currently the primary method for sharing clinical trial data with the scientific and medical communities, as well as the public through media coverage of the findings. Especially if published in a top-tier scientific journal, highlighting such presentation in a press release will provide visibility for the company as well as the extra level of validation of study findings.
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A healthcare company faces a range of challenges as it guides its products through clinical trials. Public disclosure processes must be constantly reviewed and updated, and the best disclosure strategy is to err on the side of caution when facing uncertainty regarding the clinical trial outcome or status of the regulatory review process. Adhering to these guidelines can go a long way toward minimizing the risk for the company and its management team, while also maximizing positive impact of good news on stock price and general future of the company.
For more guidance on disclosure or your overall investor relations strategy, contact us.
ICR Westwicke is the largest healthcare focused investor relations firm in the country. We provide customized investor relations programs and independent capital markets advice to small and mid-cap healthcare companies.
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