The Securities and Exchange Commission (“SEC”) adopted Regulation FD (Fair Disclosure) in 2000 to help level the playing field among market participants by proscribing the selective disclosure of material nonpublic information. Regulation FD has had a profound impact on public company communications practices and public disclosures. Notwithstanding its significance, there have been relatively few SEC enforcement actions for violation of Regulation FD since its adoption, with the last one until recently being in 2013. That changed when, on August 20, 2019, the SEC issued the Order in its settled enforcement action against TherapeuticsMD, Inc., sanctioning it for violation of Regulation FD. TherapeuticsMD consented to the Order and agreed to pay a $200,000 fine.
TherapeuticsMD is a pharmaceutical company that focuses on research, development and commercialization of drugs for women’s health issues. According to the SEC Order, the company engaged in selective disclosures on two occasions to sell-side analysts regarding the company’s interactions with the Food and Drug Administration (“FDA”) regarding one of the two drugs in the company’s development pipeline. The first selective disclosure was an email by a company executive to six analysts describing the “very positive and productive” meeting with the FDA. TherapeuticsMD’s stock price rose 19.4% that day. That was followed a month later, after the company received the FDA’s minutes of the meeting, with a call with analysts disclosing details of the FDA meeting. The call, which was pre-scheduled, occurred after the company filed an 8‑K, stating it received the minutes but without details, and a 16% decline in its stock price. After the analyst call and the issuance of positive analyst reports the stock recovered to close down only 6.6%. The details of the FDA meeting were not publicly disclosed until TherapeuticsMD’s earnings call several weeks later. The SEC Order notes that at the time of the selective disclosures TherapeuticsMD did not have in place policies or procedures relating to compliance with Regulation FD.
The violations of Regulation FD on the facts described in the Order are obvious. Those facts highlight the sensitivity for drug development companies of discussions with the FDA. However, there are lessons from the Order for all companies regarding the importance of compliance with Regulation FD and the need to have in place effective policies and procedures designed to ensure such compliance.
The SEC Order indicates that TherapeuticsMD has now implemented a Regulation FD policy with the following key features:
- Requires public disclosure of selectively disclosed material nonpublic information in accordance with Regulation FD.
- Provides examples of the types of material nonpublic information that may arise in TherapeuticsMD’s business.
- Establishes specific review protocols for all external communications, including earnings calls, analyst meetings and press releases.
- Mandates Regulation FD training for employees.
The outlining of these key policies and procedures in the SEC Order may be helpful to other companies as they consider their own Regulation FD practices and procedures. We think this is a good occasion for companies to revisit and possibly refresh their own policies to ensure continued compliance with Regulation FD.
 In the Matter of TherapeuticsMD, Inc., Release No. 34-86708 (Aug. 20, 2019), avail. at https://www.sec.gov/litigation/admin/2019/34-86708.pdf.