Insider Trading Based on Clinical Trial Information Remains Area of Vulnerability

ArentFox Schiff Partner Allan Horwich (who is also a Professor of Practice at Northwestern Pritzker School of Law) recently co-authored an article that comprehensively addresses the aspects of insider trading in connection with drug trials conducted to obtain Food and Drug Administration approval to market a drug.[1] After presenting the basics of the law, the article focuses on issues unique to claims in this setting.

Training about the pitfalls of insider trading is sorely lacking in the research setting. While many trial sponsors are public companies, where this training is commonplace, nonprofit institutions such as hospitals and medical schools, as well as nonpublic companies such as medical practices, should also have written policies and regular training, ideally in person. Only sensitizing all of the personnel involved in conducting trials – from principal investigators to clerical staff – will reduce the risk of misconduct and potential institutional embarrassment. ArentFox Schiff is experienced in developing policies suited for particular companies and industries and presenting training to address these crucial needs.

As the SEC has sought, with some success, to expand the reach of the law of insider trading, the range of persons exposed has grown larger. Whether or not this is the SEC’s next frontier in cases it files, the law could reach even those who participate in trials, the human subjects, if they obtain material confidential information about the progress of a trial. The article addresses the risks involved and how these issues can be addressed.

Maintaining an understanding of how the law has been and may be applied and what can – and should – be done to avoid the devastation that can come from committing a violation is paramount.

[1] Allan Horwich & Crista M. Brawley [Northwestern University Department for Research] Insider Trading in the Clinical Trial Setting, 20 Indiana Health Law Review No. 2 (2023) (forthcoming). Copy available upon request.