One of the biggest questions on everyone’s mind right now is when a vaccine for COVID-19 will be ready. A related question is whether anyone will develop an effective treatment for it. In the United States, vaccines and new drug treatments are approved and regulated by the Food and Drug Administration (FDA).
Private industry, the government, and research institutions are hard at work on a vaccine. Developing and properly testing a vaccine is extremely time consuming—often taking years to complete. For COVID-19, however, the FDA may streamline that process.
The health implications for a vaccine are tremendous. But there are financial implications too. Complex intellectual property issues surround the ownership of the rights to a vaccine in this type of national emergency. Here is an excellent blog post about those issues (no, not written by me but a real IP lawyer).
The FDA approval process is a secretive one. Someone who learns that a pharmaceutical company was about to obtain FDA approval for a COVID-19 vaccine or treatment could buy shares in that company and make a fortune on the market.
The Department of Justice has occasionally prosecuted individuals for insider trading on FDA drug approval information.
Could it happen here?
You can bet there will be a heavy dose (pun intended!) of regulator scrutiny into trades in any company that announces it has obtained approval for a drug. FDA employees who have insider information and investors who want that information: be forewarned.
FDA Approval for Vaccines and Treatments – Will the Restrictions Be Loosened?
The FDA’s website makes clear that it is responsible for the regulation and approval of vaccines.
FDA’s Center for Biologics Evaluation and Research (CBER) is responsible for regulating vaccines in the United States. Current authority for the regulation of vaccines resides primarily in Section 351 of the Public Health Service Act and specific sections of the Federal Food, Drug and Cosmetic Act.
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FDA’s Center for Biologics Evaluation and Research (CBER) is responsible for regulating vaccines in the United States. Current authority for the regulation of vaccines resides primarily in Section 351 of the Public Health Service Act and specific sections of the Federal Food, Drug and Cosmetic Act.
The Mayo Clinic website has some interesting information about how long it generally takes to get a vaccine approved:
The development of vaccines can take years. This is especially true when the vaccines involve new technologies that haven’t been tested for safety or adapted to allow for mass production.
This timeline could be compressed given the rapid and lethal spread of COVID-19. From the Mayo Clinic again:
Because of the seriousness of the COVID-19 pandemic, vaccine regulators might fast-track some of these steps. But it’s unlikely that a COVID-19 vaccine will become available sooner than six months after clinical trials start. Realistically, a vaccine will take 12 to 18 months or longer to develop and test in human clinical trials. And we don’t know yet whether an effective vaccine is possible for this virus.
The Possibility for Insider Trading?
Depending on who develops the vaccine, it’s possible that the FDA approval process could lead to very lucrative IP rights. This approval process would be the subject of intense speculation, even on a compressed timeline.
Now, it’s perfectly fine to trade stock based on speculation or educated guesses or solid research based on public information. But when you trade stock based on inside information – either from a company or from a government source – you risk insider trading charges.
This risk means that the FDA will likely implement even more controls to secure the confidentiality of its process. Even on a compressed timeline, the FDA approval process has several steps. The FDA’s website gives some information about that process. (There are lawyers who specialize in FDA work, so it’s not a straightforward one.)
If a private company develops a COVID-19 vaccine or treatment, you can bet that the SEC will analyze trades in that company’s stock in the time leading up to the announcement of FDA approval. If the SEC sees unusual trades in that time frame, it will investigate them. And, if the SEC’s investigation unearths evidence of insider trading, it will refer the case to DOJ for criminal prosecution as well.
Any contact between someone in the tight circle of FDA officials who will know the status of vaccine or treatment approvals and someone who profits off stock trades will be closely scrutinized: phone records, emails, texts, travel records, you name it.
There’s a visceral reaction to conduct viewed as profiting off the pandemic, such as Amazon’s record revenue numbers. There’s no doubt that some companies will profit from this world crisis. And some members of Congress have been accused of engaging in insider trading (though some of those investigations were also ended) based on information they apparently learned during closed-door government briefings.
If someone trades on confidential FDA approval information, the public backlash will be severe. But not as harsh as the DOJ’s and SEC’s approach to the case.