Securities Exchange Act of 1934
Release No. 46900 / November 25, 2002
Administrative Proceeding
File No. 3-10952
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ORDER INSTITUTING PROCEEDINGS PURSUANT TO SECTION 21C OF THE SECURITIES EXCHANGE ACT OF 1934, MAKING FINDINGS AND IMPOSING A CEASE-AND-DESIST ORDER |
I.
The Securities and Exchange Commission ("Commission") deems it appropriate that cease-and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") against Nils O. Johannesson ("Johannesson").
II.
In anticipation of the institution of these proceedings, Johannesson has submitted an Offer of Settlement ("Offer") that the Commission has determined to accept. Solely for the purpose of these proceedings, and any other proceedings brought by or on behalf of the Commission or to which the Commission is a party, Johannesson, without admitting or denying the findings set forth herein, except as to jurisdiction of the Commission over him and over the subject matter of these proceedings, and the findings set forth in subparagraph III.A, which he admits, consents to the entry of this Order Instituting Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making Findings and Imposing a Cease-and-Desist Order ("Order"). The Commission has determined that it is appropriate to accept Johannesson's Offer and, accordingly, is issuing this Order.
III.
FACTS
On the basis of this Order and Johannesson's Offier, the Commission finds that:
A. Respondent
Respondent Nils O. Johannesson, M.D., Ph.D., was Executive Vice President of Research and Development at ICN Pharmaceuticals, Inc. ("ICN") from May 1992 to January 1995. ICN is a publicly traded company whose stock is registered with the Commission pursuant to Section 12(b) of the Exchange Act and is traded on the New York Stock Exchange. ICN develops, manufactures, distributes and sells pharmaceutical and research products and services. This proceeding involves ICN's new drug application submitted to the U.S. Food and Drug Administration ("FDA") seeking approval of its drug ribavirin (trade name Virazole) for the treatment of chronic hepatitis C.
B. Background
On May 31, 1994, ICN submitted a new drug application to the FDA Division of Antiviral Drugs seeking approval for ribavirin as a monotherapy treatment of chronic hepatitis C. Because of the serious nature of chronic hepatitis C and the fact that only one treatment, at the time, was approved for the disease, the FDA placed ICN's application on a fast-track, six-month review process. Johannesson was the scientific officer at ICN responsible for the application. During management meetings held between June 1994 and November 1994, Johannesson and others in his department gave periodic reports to the ICN senior management concerning the status of the FDA's review of the application.
On November 28, 1994, ICN received from the FDA a letter, dated November 25, 1994, informing the company that its new drug application was "not approvable" because the data in the application failed to demonstrate that ribavirin was safe and effective in the treatment of chronic hepatitis C (hereinafter referred to as the "not approvable letter"). On November 29, 1994, during a telephone conference with ICN, the FDA explained in further detail the conclusions expressed in the not approvable letter.
Notwithstanding these developments, on December 5, 1994, ICN officials issued a press release that failed to disclose material information to the public regarding the status of ICN's new drug application. In its press release, ICN failed to disclose material information, including that the FDA had sent ICN a not approvable letter and had determined that ribavirin failed to show safety and effectiveness as a monotherapy treatment for chronic hepatitis C. ICN did not fully disclose the FDA's determination that the application was not approvable until February 17, 1995, when it issued a more detailed press release.
C. Johannesson's Role in the Preparation and Approval of the Press Release
Johannesson was among those at ICN who reviewed the FDA not approvable letter when the company received it on November 28, 1994. Thereafter, on November 29, 1994, Johannesson participated in a telephone conference call between individuals at ICN and FDA personnel. The subject matter of this conference call was the not approvable letter and, during this call, FDA staff explained in further detail the conclusions expressed in the letter. Thus, Johannesson was aware that the new drug application was not going to be approved by the FDA in the short term, and that significant, costly, time-consuming research and/or other efforts were likely required in order for ICN to continue to seek to have ribavirin approved as a treatment for chronic hepatitis C.
During the period from November 28, 1994 through December 2, 1994, Johannesson participated in meetings with other officers and employees of ICN for the purpose of reviewing and discussing the not approvable letter and the content of the public statement ICN should make concerning it. During these meetings, Johannesson discussed, among other things, the fact that ribavirin had failed to demonstrate any effect on viremia, and that the FDA had informed the company that it had recently come to the conclusion that such effect was a prerequisite for approval of the application.
On December 5, 1994, ICN issued a press release concerning the FDA's response to the pending new drug application, which stated in relevant part:
We are pleased the FDA has reviewed our application so quickly, and we will respond promptly as well. Amendment of applications are a common component of an often lengthy regulatory review process . . . We believe that Virazole has an important therapeutic role to play in the treatment of chronic hepatitis C. In order to expedite the review process and make Virazole available to patients as soon as possible, our amended application probably will include a request for approval of Virazole as a treatment of hepatitis C in combination with other drug therapies.
The December 5 press release conveyed the misleading impression that the FDA response was a routine matter, by omitting material facts about the status of the new drug application, including that the FDA had issued a not approvable letter. Johannesson participated in discussions at ICN concerning the press release. On the basis of his knowledge of the FDA's response, and his understanding of the scientific issues involved, Johannesson should have known that the statements in the December 5, 1994 press release omitted certain important facts that would have been material to public investors and the marketplace.
IV.
LEGAL ANALYSIS
Violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder
Section 10(b) of the Exchange Act, and Rule 10b-5 thereunder, make it unlawful to make any untrue statement of material fact or to omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading, when such statements are made with scienter in connection with the purchase or sale of securities. SEC v. Texas Gulf Sulphur Co., 401 F.2d 833, 860-62 (2d Cir. 1968), cert. denied, 394 U.S. 976 (1969). A fact is material if there is a substantial likelihood that a reasonable investor would consider the information to be important. Basic, Inc. v. Levinson, 485 U.S. 224, 231-32 (1988).
When ICN issued the December 5, 1994 press release, it violated Section 10(b) and Rule 10b-5 thereunder by omitting to state facts necessary fully to describe the FDA's response to its new drug application. As a participant in discussions concerning the drafting of this press release, Johannesson should have known that the release failed adequately to describe the status of the new drug application, and should have insisted that additional information be conveyed to the public. Accordingly, the Commission finds that Johannesson was a cause of ICN's violation of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.
VI.
In view of the foregoing, the Commission deems it appropriate to accept the Offer submitted by Johannesson and accordingly:
IT IS HEREBY ORDERED, pursuant to Section 21C the Exchange Act, that Nils O. Johannesson cease and desist from committing or causing any violation, and any future violation, of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.
By the Commission.
Jonathan G. Katz
Secretary