Yesterday, the SEC charged TherapeuticsMD Inc., a pharmaceutical company headquartered in Boca Raton, Florida, with violations of 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 finds that 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).

As detailed in the SEC’s order, on June 15, 2017, one day after a publicly-announced meeting with the FDA about a new drug approval, TherapeuticsMD sent private messages to sell-side analysts describing the meeting as “very positive and productive.”  TherapeuticsMD’s stock price closed up 19.4% on heavy trading volume the next day.  At that time, the company had not issued a press release or made any other market-wide disclosure about the meeting.

According to the SEC’s order, early in the morning of July 17, 2017, 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.  TherapeuticsMD’s stock price declined approximately 16% in pre-market trading following the issuance of the press release.

The SEC’s order finds that in a call and email to sell-side analysts after the press release was issued but before the market opened, the company selectively shared previously undisclosed details about the June FDA meeting and the information 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 only 6.6% for the day.

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 Policies and Procedures

At the time of the conduct described above, TherapeuticsMD did not have policies or procedures relating to compliance with Regulation FD.  The order states that TherapeuticsMD subsequently implemented policies and procedures which, among other things, do the following:

  1. Require public disclosure of material, nonpublic information in connection with Regulation FD
  2. Provide examples of types of material, nonpublic information that may arise in light of TherapeuticsMD’s business model
  3. Establish specific review protocols for all external communications, including earnings calls, analyst meetings, and press releases

The SEC order also states that TherapeuticsMD now requires Regulation FD training for employees.

Offer for a Regulation FD Refresher Training

The SEC enforcement action against TherapeuticsMD serves as a reminder to public companies and their management about the importance of Regulation FD training.  In fact, in 2013 the SEC determined not to bring an enforcement action against First Solar due, in part, to the fact that it “cultivated an environment of compliance,” which included Regulation FD training for employees responsible for public disclosure.

While virtually all public companies expect their senior management and those responsible for financial reporting to understand Regulation FD, the requisite training to help ensure compliance may be sparse, or the training may have been conducted in connection with the IPO, but never offered again.

If you find that a Regulation FD training has not occurred at your company for quite a while, please feel free to contact a member of our Corporate & Securities practice group or, if applicable, contact your primary Bass, Berry & Sims relationship attorney for a refresher Regulation FD training for employees, management and/or boards of directors.

About Bass, Berry & Sims’ Corporate & Securities Practice

Public and private companies of all sizes across a variety of industries turn to Bass, Berry & Sims for counsel on a wide range of corporate matters, including mergers, acquisitions and dispositions; capital markets transactions; executive compensation issues; corporate governance; and shareholder activism. We serve as primary corporate and securities counsel to more than 35 public companies and have counseled on 150 deals ranging in size from $20 million to more than $15 billion over the past two years.