Companies that develop groundbreaking drugs and medical treatments tend to see significant gap ups in share prices when clinical data shows promising results. Both emerging and well-established biopharmaceutical developers can suddenly find themselves under serious scrutiny amid the spotlight.
In recent years, the Securities Exchange Commission has investigated several prominent companies for allegations that their presentation of data does accurately reflect treatments’ efficacy. Several different types of events or conditions may precipitate an SEC investigation.
Miracle drug claims
Clinical studies that wholly surpass expectations may draw skepticism, and data that shows more promise than competitors’ could raise questions about the possibility of manipulation. Likewise, overstated conclusions that do not reflect actual findings may amount to criminal securities fraud.
Short seller allegations
Public companies that work on innovative medicine can be an attractive target for short selling research firms and publications. The circulation of short sellers’ articles alleging misrepresentation could provide the SEC or a law enforcement agency with probable cause to initiate a formal investigation and may also be the catalyst for a dramatic drop in share prices.
The sudden surge of attention that causes a share price to increase by a double digit percentage is often short-lived. Investors who buy in when a parabolic increase is underway may sustain considerable losses. In some instances, losses of this nature may be the primary basis for complaints about wrongdoing.
Evaluation of clinical materials does not fall under the SEC’s traditional functions. Typically, evidence indicating misrepresentation of data or other wrongdoing must be clear on its face in order for charges to proceed.