Medical professionals aren't the only ones interested in the latest research data presented at medical conferences. There also might be others in attendance with a completely different goal in mind: Getting an edge over the competition in the stock market by learning about pharma and biomedical research in real time. And pharma companies aren't the only ones who could find themselves in violation of Securities and Exchange Commission regs; if they're not careful, meeting organizers also could find themselves under the SEC's microscope.

According to an article that ran on Bloomberg.com on September 23, equity analysts, hedge fund managers, and other financial professionals are flocking to medical meetings to get the jump on the latest in the pharmaceutical and biotech market for their clients. Some even go so far as to disguise themselves as caterers or create other alternate identities to get into meetings that bar financial analysts from attending.

“I did it, I admit it, and I'd do it again,” says David Stone, a biomedical capital fund manager who now works as a venture capitalist with Flagship Ventures in Cambridge, Mass. He went undercover as a fake physician to gain access to a meeting that disallows financial analysts from attending, though it did admit the press. “My investors expect me to get every ounce of public information that's out there and help them interpret it. I can't do that without being at the meeting,” says Stone. “And then they read about information released at a meeting on Dow Jones newswire and ask me about it, and all I can say is I don't know, I wasn't there. Justifiably, they don't understand that.”

The issue is an important one because investors decide to buy or sell stock based on information released at medical meetings. While publicly traded companies are required by the SEC to disclose findings through press releases or SEC filings, which usually are released coincidentally with the meeting, they don't include the whole spin, says Stone. “Because they're prepared ahead of time, it's like reading a speech and not knowing if it got any applause.” In addition, if there is a time lag between the presentation and the press release, the cost can be high for investors. For example, according to the Bloomberg article, some out-of-the-loop investors in Idec Pharmaceuticals Corp. were caught short when the share price dropped 12 percent between the time some disappointing results were presented at last spring's American Society of Clinical Oncology's annual meeting and the issuance of the press release.

Caution: More Regs Ahead?

With so much attention being paid these days to corporate culpability, what are the chances the SEC is going to join the FDA and other regulatory agencies in scrutinizing medical meetings for possible violations? According to Jake Zamansky, a securities attorney with Zamansky & Associates in New York City, they're already looking in this direction.

To keep analysts from leaking news about new research information prior to public release, the SEC on October 23, 2000, instituted Regulation Fair Disclosure, or Reg FD. “Reg FD was adopted to address what the commission perceived to be systemic problems of companies selectively disclosing material nonpublic information to Wall Street insiders at the expense of individual investors, which in the commission's view leads to a loss of investor confidence and the integrity of our capital markets,” says Zamansky. In essence, Reg FD says that when a disclosure is made intentionally, the company is obligated to release the information simultaneously to the public.

This isn't a problem for pharma companies whose information is released at the Atlanta-based American College of Rheumatology's meetings, according to Tammy McCoy, the College's director of communications and marketing. Like many organizations, ACR does not exclude financial analysts from its meetings. ACR also releases its abstracts publicly in advance on its Web site rather than sharing them first with members, attendees, or other constituencies. “We have a single embargo that lifts at the start of the annual meeting, rather than an embargo by presentation,” McCoy adds.

For others, compliance might be more complex, because Reg FD also comes into play even if the disclosure of information is unintentional, such as when a banned financial analyst sneaks into a restricted meeting, hears the information, then whips out a cell phone and begins making calls; or if an embargoed abstract somehow makes its way into the hands of investors. The company whose research is being released could be taken to task if it doesn't jump to make a public disclosure as soon as it learns the information has leaked, says Zamansky. “It doesn't take more than 10 minutes before someone's on the phone and a big block of stock starts trading.

But Is This Your Problem?

“Conference organizers of physician-only conferences should not disclose any information to any financial professional, or trade on it themselves,” warns Zamansky. “They don't have the responsibility to ferret out everybody, but if someone says, ‘That guy over there just gave me his Merrill Lynch business card,’ they need to notify the company or the SEC. Maybe they don't have a legal obligation under Reg FD, but they definitely have an ethical obligation to report it. And while it's a stretch to say they're assisting in a disclosure violation, arguably they could be held as an aider or abettor. People will do anything to make money, but insider trading is just another form of theft.”

“We recognize that there's a new constituency that watches what we do very closely,” says Charles Balch, MD, ASCO's executive vice president and CEO. “We're trying to find a balance between meeting the needs of our members and protecting the public from premature or inaccurate reporting of data that might have an adverse effect on patient care.” His organization embargoes information about its abstracts until the time of the press conference at the meeting or the time of the presentation, whichever comes first.

Unlike ACR, though, ASCO does prerelease abstracts to attendees. “Up until a couple of years ago, putting out our abstract book or putting the abstracts online wasn't a big issue,” says Balch. “Now the financial investment community wants to use it to predict what's going to happen with patient recommendations, and to make decisions on stocks based upon that.” That's a bad idea, though, because the abstracts are generated six to eight months prior to the meeting, and the data or the interpretation of the data may change during that time. Also, he says, there often are conflicting data or interpretations of the data that may affect patient care.

“The purpose of the meeting is to put the abstracts together with peer review and peer discussions so the audience can get the full picture. To pick one of the abstracts out of context could be premature or incomplete data, or data out of context of the larger discussion,” he says. But as far as the SEC is concerned, “we fulfill our obligations by reminding people, either on the shrink-wrap on the book or on our Web site, that our abstracts are not to be used for anything other than educational purposes. If someone goes ahead and uses it for other purposes, that's an issue between them and the SEC.”