What information under Swedish market rules do listed pharmaceutical companies have to provide regarding their operations?

Numerous pharmaceutical companies are listed on the Swedish stock market. In fact, from a global perspective, the significance of the stock market as a source of financing for Swedish companies in the life sciences industry has historically been unique. However, the market rules in Sweden may provide challenges regarding obligations for disclosures of inside information that may be particularly sensitive for pharmaceutical companies in development phase. This article aims to address the challenges such companies may encounter in complying with the Market Abuse Regulation (596/2014/EU) (“MAR”), as well as with sector-specific Swedish standards, and to provide a reminder of the need for robust communications policies and practices in order to maintain trust among investors.

MAR came into force on 3 July 2016 and applies to all financial instruments traded via regulated markets, multilateral trading facilities and organised trading facilities. The purpose of the regulation is to guarantee the integrity of European financial markets and increase investor confidence.

Disclosure of inside information is a legal requirement for issuers of all financial instruments within the scope of MAR. As with listed companies in general, listed pharmaceutical companies have an important task in complying with inside information disclosure requirements and preventing market abuse infringements under MAR. That task may, however, be challenging to pharmaceutical companies, especially newly listed ones in a development phase. The difficulty mostly lies in identifying potential inside information. Additionally, disclosures of inside information must be clearly drafted in order for investors with less experience in clinical matters to correctly evaluate the progress of such companies, since value growth is often measured in terms of clinical development progress.

In Belgium, the financial supervisory authority has developed guidelines on disclosure of inside information that are applicable to listed biotech companies, in order to facilitate the provision of information to the market. Elsewhere, the UK BioIndustry Association has published guidelines on communication of R&D progress to investors and the public. No equivalent guidelines have been issued by the Swedish Financial Supervisory Authority, although SwedenBIO, the national non-profit association for the life sciences industry in Sweden, has issued industry standards for the provision of information in connection with capital raising.

Maintaining trust among investors is critical to the success of the life sciences industry. The following is a brief outline of the requirements according to MAR, as well as sector-specific Swedish standards, describing the challenges that a pharmaceutical company may come up against.

Identifying inside information and timing disclosures

According to MAR, inside information is information of a precise nature , which has not been made public, and which relates, directly or indirectly, to one or more issuers or to one or more financial instruments, and which, if made public, would be likely to have a significant effect on the prices of those financial instruments. It is usually said that it is information that a reasonable investor would be likely to use as part of the basis of their investment decisions. It should be noted that intermediate steps of a protracted process connected with bringing about a future event may also constitute inside information.

To qualify as inside information, information must be precise, meaning that there is a realistic prospect of occurrence. For a pharmaceutical company in development phase, this may be complicated, as the value of a product candidate in pipeline is generally determined by the expected revenue potential, taking into account multiple factors such clinical trial results, the predicted likelihood and timing of a potential marketing authorisation and future market acceptance.

In each case, an evaluation needs to be made of whether some or all of the information constitutes inside information, always taking the materiality threshold into account. Each step in the development of a product candidate must be adequately examined. Generally, inside information would include efficacy and safety results, a decision to halt or temporarily suspend a clinical trial, events affecting the recruitment process, market authorisation decisions and agreements on material collaboration or licensing.

The clinical development of a product candidate is a multi-phase process that entails an increase over time in efficacy and safety data. Information that could qualify as insider information, including but not limited to interim results, can come into existence at different stages of the clinical development before the full pivotal and confirmatory phase III results are publicised.

According to Article 17 (1) of MAR, an issuer shall inform the public as soon as possible of inside information directly affecting that issuer. An issuer may only delay disclosure of inside information when: (i) immediate disclosure is likely to prejudice the legitimate interests of the issuer; (ii) delay of disclosure is not likely to mislead the public; and (iii) the issuer is able to ensure the confidentiality of that information. If the conditions are not met, the information must be disclosed as soon as possible. The same applies in the event of delayed disclosure of inside information when the confidentiality of the information can no longer be ensured.

For example, dialogue with a medical product regulatory authority such as the Swedish Medical Products Agency could qualify as insider information before an actual decision about marketing authorisation is made. However, immediate disclosure may not be permitted under applicable laws or at the directions of the authority. The basis for delayed disclosure in the specific situation then needs to be assessed.

Concurrent application for sector-specific regulations

Companies in the life sciences industry are subject to sector-specific rules surrounding the disclosure of information on medical products. For example, information regarding medical products is regulated by the ethical rules for the pharmaceutical industry in Sweden, issued by the Swedish Association of the Pharmaceutical Industry (“LIF”). The rules are based on applicable codified law, international regulations and non-judicial standards. They apply to all activities on the Swedish market or targeted at the Swedish market. Information and marketing measures directed at physicians and other healthcare personnel, as well as the general public, must be compliant with the rules of LIF and with good business practice in the life sciences industry. Disclosures must include information about the properties, effects and appropriate applications of the medical products concerned. The rules also prohibit the promotion of unapproved medical products.

Positive results regarding a product candidate could potentially be regarded as disguised promotion. Furthermore, information on product candidates in clinical trials would concern scientific developments with multidimensional test results and statistical inference. However, investors with different knowledge and experience of scientific, clinical and statistical matters should be able to quickly interpret the information and make rational investment decisions based on it. In this regard, it is important to carefully balance interests and to exercise great caution in drafting related disclosures.

Concluding comments

Compliance with obligations under MAR, as well as under Swedish sector-specific standards is not always straightforward. In order to properly identify inside information and draft related disclosures, pharmaceutical companies need to perform comprehensive assessments. This requires detailed legal knowledge as well as knowledge of clinical matters. Erroneous disclosures, on the other hand, may lead to major setbacks subsequently in the form of expensive fines and loss of investor confidence.