The FSMA in its opinion published in October 2020 considers how to apply the definition of inside information for biotech companies. This specific sector should assess the materiality (revenue potential) of a product candidate, keeping in mind the Market Abuse Regulation (MAR) definition of inside information: "Inside information comprises information of a precise nature, which has not been made public, and which would be likely to have a significant effect on the share price."
The FSMA's opinion also points out that intermediate events or conclusions along the clinical development process of biotech companies will in most cases qualify as inside information if they significantly alter:
- the assessment of the revenue potential,
- the likelihood and the timing of a potential marketing authorisation, and/or
- the company’s go/no-go decision to move to the next phase of the clinical development program.
Efficacy and safety results
In relation to the efficacy and safety results of the clinical development process of a material product candidate, the FSMA takes the view that the following events should be carefully assessed as to whether or not they give rise to inside information:
- (controlled) intermediary phase IIB and (exploratory, non-controlled) proof-of-concept phase IIA results,
- Unexpected (serious) adverse events (taking into account the Reference Safety Information), including any unexpected untoward medical occurrence or effect in a patient which may or may not have a causal relationship with the product candidate (e.g. participant in a Phase III trial of a Covid-19 vaccine who develops an unexplained illness which may be or may not be related to the vaccine candidate), or
- negative safety information.
Negative trends that become clear with interim results, or the decision to halt a trial, will in most cases also qualify as inside information for material product candidates. Even when the data are blinded for the company, results may also constitute inside information without or before a data transfer to the company, even when the amount of information communicated to the company is limited. For example, when a data monitoring committee, after analysing the (unblinded) data, shares its conclusions and recommendations with the company without sharing specific results in order to maintain confidentiality.
Recruitment progress, marketing authorisation decisions and partnerships
The value of a biotech company’s product candidate must be assessed in light of the recruitment progress of patients, marketing authorisation decisions, and the entering into or ending of a partnership. Depending on the circumstances, such events could trigger inside information according to the opinion of the FSMA.
The opinion notes that significant deviation between the actual and expected level of patient recruitment and treatment will, in most cases, qualify as inside information, as, according to the FSMA, it would significantly affect the expected end of the trial and therefore the timing of a potential marketing authorisation. The FSMA takes the view that recruitment delays will, in most cases, be inside information irrespective of the actions that are considered or eventually taken to resolve the problem.
We note that this view might encourage Belgian listed biotech companies to communicate more actively on patient recruitment delays. Especially as the existing practice is rather to report on the matter in periodic reporting updates or to communicate actively when patient recruitment for a study is successfully completed (implying the start of a new phase or interim analysis) or when recruitment failure results in the termination of a study.
We believe that there are also merits in defending the view that if a recruitment delay can be made up without great expense and without causing a material delay in the timing of the marketing authorisation, such delay would not be considered as inside information. The FSMA expresses no opinion in this respect.
As regards partnerships, the FSMA confirms that inside information may arise before the finalisation and signing of a partnership agreement. Depending on the circumstances, this may, for example, already be the case when a binding letter of intent is signed or later, before all conditions to which the agreement is subject, are fulfilled.
It remains important for the company to identify when inside information comes into existence, given the specific context and available information.
In order to create a more predictable disclosure environment and reduce potential criticism regarding an arbitrary timing of disclosure, the FSMA recommends implementing the following two good practices:
- Appropriate internal procedures for assessing if information qualifies as inside information (including sufficiently detailed documentation of judgements made and the underlying reasoning).
- Gradual processes, consisting of discussing the status of the trials in periodic reporting, disclosing results at pre-determined frequency, and disclosing a calendar with the expected timing of clinical (progress and results) milestones in periodic reporting. Most Belgian biotech companies already disclose such a calendar providing timing indications of clinical milestones in their press releases on annual, biannual and quarterly results.
It is critical that biotech companies in Belgium establish and maintain a clear internal process and train the responsible staff for evaluating if and when new inside information arises and the appropriate actions that result from such inside information. It is also recommended that the boards of directors of biotech companies periodically receive training on the requirements under the MAR generally and the application of those requirements by the FSMA for biotech companies, especially as the board will typically need to approve the press releases relating to material product candidates.
Determining when and how to disclose this inside information is discussed further in this series of insights. We note that it is not unusual for biotech companies to establish a communication plan ahead of any clinical results becoming available for material product candidates and to discuss that communication plan with the FSMA to ensure that the requirement under the MAR are satisfied. This will also give the FSMA the opportunity to more carefully monitor the company's stock price closer to the anticipated communication date.
You can find the first part of this series here.