UNITED STATES OF AMERICA
| ORDER INSTITUTING PROCEEDINGS|
PURSUANT TO SECTION 21C OF THE
SECURITIES EXCHANGE ACT OF 1934,
MAKING FINDINGS AND IMPOSING A
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 David C. Watt ("Watt").
In anticipation of the institution of these proceedings, Watt 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, Watt, 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 Watt's Offer and, accordingly, is issuing this Order.
On the basis of this Order and Watt's Offer, the Commission finds that:
At all relevant times, Respondent David C. Watt was the General Counsel and Secretary of ICN Pharmaceuticals, Inc. ("ICN") and was responsible for ICN's litigation and business affairs. 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.
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.
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 call with ICN, the FDA explained in greater 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.
ICN received the FDA not approvable letter on November 28, 1994. Watt reviewed the not approvable letter on November 29, 1994 and, between November 29 and December 2, 1994, participated in meetings with other officers and employees of ICN for the purpose of reviewing and discussing the not approvable letter and what public statement ICN should make concerning the letter.
Sometime between November 29 and December 2, 1994, Watt determined that ICN needed to update the public about the FDA's response to the new drug application. Accordingly, Watt participated in the drafting of the December 5 press release. However, Watt, who lacked technical and regulatory expertise concerning FDA procedures and policies, did not consult regulatory counsel concerning the significance of the not approvable letter, or review the press release with regulatory counsel.
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. Watt participated in discussions at ICN concerning the press release and was involved in the drafting of the release. In his capacity as ICN's General Counsel, Watt 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. Watt should have consulted with ICN's regulatory counsel to assess the significance of the not approvable letter and to determine what disclosures ICN needed to make in light of its receipt of the FDA letter.
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. Based upon his knowledge of the FDA's not approvable letter, and as a participant in discussions at ICN concerning the drafting of the December 5 press release, Watt should have known that the release failed adequately to describe the status of the new drug application. Watt should have consulted with ICN's regulatory counsel prior to ICN's issuance of the release to determine whether the release accurately and completely disclosed the status of the new drug application. Accordingly, the Commission finds that Watt was a cause of ICN's violation of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.
In view of the foregoing, the Commission deems it appropriate to accept the Offer submitted by Watt and accordingly:
IT IS HEREBY ORDERED, pursuant to Section 21C the Exchange Act, that David C. Watt 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
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