TherapeuticsMD to pay $200K for Reg FD violations

On Aug. 20, the SEC charged TherapeuticsMD with violating Reg FD based on its sharing of material, non-public 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. 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 percent 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 on July 17, 2017, TherapeuticsMD issued a press release announcing 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 percent in pre-market trading following the issuance of the press release.

In a call and e-mail 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, the SEC’s order stated. All the analysts published research notes containing these details, and the stock rebounded to close—down only 6.6 percent for the day.

“Information about a pharmaceutical company’s interactions with the FDA can be critical to investors,” said Carolyn Welshhans, associate director of the SEC’s Division of Enforcement. “It is essential that when companies disseminate material, non-public information, they do so fairly and appropriately to all investors and not just a select few analysts.”

Compliance lessons

Notably, in June and July 2017, at the time of the conduct described, TherapeuticsMD “did not have policies or procedures relating to compliance with Reg FD,” the SEC stated. It was only after the misconduct took place that TherapeuticsMD subsequently implemented such policies and procedures.

These policies and procedures, among other things:

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

“TherapeuticsMD also now requires Regulation FD training for employees,” the SEC order states. Other compliance officers looking to enhance their Reg FD compliance efforts may want to take a page from the lessons of TherapeuticsMD.

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.