On Sept. 29th (yesterday), the Wall St. Journal had an interesting article on concerns being raised by subjects in clinical trials investing in the companies sponsoring the trials. The article can be found here, or on page D1 of yesterday's paper (unfortunately, the online version requires a subscription).
The article focuses on cancer patients, though that may be because it seems there are far more chat rooms, websites and other forums where cancer patients are sharing information about treatment (among other topics). At first blush, it doesn't seem like it would be that big a deal for subjects to invest in the company. They're also citizens, and who knows - maybe they believe in other products the company is producing (at least when talking about BigPharma and Biotech).
But going a bit deeper, it looks like in some cases, there may be cause for concern....
The article points out that:
patients who are also stock investors may play down toxic side effects they are experiencing -- or play up the benefits -- if they have a financial interest in the outcome of a trial. Researchers say that the integrity of the research could be questioned if it became known that a patient had invested in the drug being studied. Some also fear that, because the information learned in clinical trials is not publicly available, patient investors might be subject to insider-trading liability.
However, as the article also later notes, it's not entirely unusual for subjects to downplay their side effects anyway, hence why researchers try to use objective benchmarks like cell counts and temperature readings.
The insider-trading liability aspect is intriguing, because the knowledge of the patients is actually pretty limited. The patient's anecdotal experience is not indicative of the entire trial's results, and it's not clear whether they are passing along information in widely-read websites or rooms where only a few people might be checking on new treatments. And I'm not a securities lawyer, but I'm skeptical as to whether the average patient will be deemed an "insider" for 10b-5 purposes. There is likely a clever lawyer who could create the case, but it will be a case-by-case basis. Unless, of course, the SEC steps in and implements a moratorium on any subject buying or selling the stock of a company sponsoring a trial they are participating in as a subject.
But then, how would the SEC know, unless someone publishes on the web that they are a participant and that they bought and sold the stock? It would take hours of work for the SEC to track smaller investors ... would that be a good use of their time? Otherwise, the SEC could try to compel the disclosure of the names and identifying information of all participants in a trial ... but that would violate privacy laws, and again, would likely be a colossal waste of the SEC's time in trying to track it.
Still, might companies face some ordeal in front of the SEC about insider trading? Can subjects really be deemed "insiders" if they reveal their own experience, but no other information (so it wouldn't really be conclusive as to whether the treatment would work overall)? Should clinical trial sponsors start including "No Trading" clauses in their participant agreements? Or is that going too far and would it just turn off potential participants?
A couple of thoughts: the SEC can and does track "small fish" (particularly those who are posting on chat boards), so an enforcement action is not outside of the realm of possibility. One doesn't need to necessarily announce that he or she is buying or selling to be detected.
That being said, I think that you've correctly identified a couple of major issues with bringing a 10b-5 claim. Probably the biggest is whether the information that the participant has is material (this is one patient's experience, which may be a placebo).
I've heard of clinical trial sponsors including no trading clauses, but the bigger problem may be information sharing (which there's not a lot that can be done about, given that patients will likely demand that they can talk about their symptoms with whomever they want to).
*** Disclaimer: This is just my opinion, not my employer's. ***
Posted by: Jeff Donohue | October 04, 2004 at 07:50 AM