Media Embargo Secrets Exposed: How and Why Companies Share Stock-Moving News
By Adam Feuerstein - 07/18/12 - 6:59 AM EDT
) -- I'm going to let you in on a big secret: Publicly traded companies routinely share material, stock-moving information in advance and under embargo with reporters and sell-side analysts.
"Under embargo" is important: It means that in exchange for a sneak peek at data from important clinical trials (to use an example), reporters and analysts are not allowed to discuss, share or publish stories or reports based on the embargoed information until it is announced publicly.
Needless to say, reporters and analysts aren't supposed to trade on the embargoed, material information either -- lest they run afoul of insider-trading laws.
Shocked? Surprised? Don't be. Embargoed, "pre-briefs" between companies and reporters/analysts are a very common practice. They happen every day. Most recently, Vertex Pharmaceuticals
called me to share and discuss data on its cystic fibrosis drugs the night before the company released the same data in a press release. Onyx Pharmaceuticals
, Ariad Pharmaceuticals
, NPS Pharmaceuticals
, Johnson & Johnson
are just some of the biotech and drug firms that have shared material information with me under embargo.
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It's not just companies who eagerly and enthusiastically provide reporters with advanced access to important information under embargo. Every Friday, I receive via email an advanced copy of the following week's New England Journal of Medicine
-- before it's mailed out to subscribers. All major scientific and medical research journals provide the same service to members of the media. Likewise, groups which run the big medical conferences -- American Society of Clinical Oncology, American Diabetes Association, the American College of Cardiology, etc. -- all provide reporters embargoed access to the splashiest, most important clinical data early.
Why am I spilling the beans on this nice media perk? Because sometimes the practice goes horribly wrong, as it did Tuesday around noon when USA Today
published early and accidentally a story announcing the approval of Vivus'
weight-loss pill Qsymia
. In media jargon, USA Today
"broke" the embargo and in doing so, caused hours of confusion and havoc for investors who didn't know whether the Vivus approval story was true or a hoax. Trading in competing weight-loss stocks Arena Pharmaceuticals
and Orexigen Therapeutics
was also affected.
Seven hours later, the premature USA Today
story was confirmed true after the FDA announced officially the approval of Vivus' Qsymia. Yet I knew FDA had approved Qsymia the moment I read the USA Today
story -- and said as much on Twitter
-- because of my experience dealing with embargoed access to material information.
The USA Today
reporter could only have written her story with the cooperation of Vivus and its public relations firm Golin Harris. Vivus President Peter Tam is quoted extensively speaking about Qsymia, including never-before released details on launch timing and comments on pricing. The story was also topped with a photo showing two Qsymia pill bottles. The photo is credited to "Vivus, Inc.", meaning the company or its representatives provided it to the newspaper.
Vivus had to be incredibly confident that FDA was going to approve Qsymia in order to provide this high level of access to USA Today
-- and other media outlets, by the way -- in advance of receiving official word of the drug's approval from U.S. regulators. I was not among the journalists privy to Vivus' largesse with the Qsymia approval news.
Vivus' decision was also incredibly reckless and foolish because of the risk that news of the Qsymia approval would leak out early. That's exactly what happened when someone at USA Today
hit the "publish" button on its story prematurely. At that point, Vivus was in serious trouble but could say nothing because the official approval notice from FDA had not been sent. Efforts to remove the USA Today
story were futile because once something hits the web, it's there forever. Meantime, Vivus shares are careening all over the place but Nasdaq won't halt the stock because Vivus has no legitimate news to report -- yet.
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An epic disaster -- largely the fault of Vivus and its PR firm Golin Harris, which tried to stage-manage a drug approval announcement but failed totally. Importantly, FDA was not at fault here at all. There was no leak of Qsymia's approval from the agency.
The questions you're probably asking now is: Why do companies give reporters advanced access to material, market-moving information under embargo? Isn't this a violation of SEC rules? The practice doesn't seem fair and only raises that risk that someone will leak the information or use it for personal gain.
The simplest but perhaps most cynical explanation is that companies provide reporters with early, embargoed information because they want to manage or control the way that information is packaged into a story. In other words, companies want to be able to spin the information in a way that best suits their corporate interests.
So, when a drug company calls me to discuss the results of a pivotal phase III trial, they want to apply their positive spin to the data before they are released publicly. This is especially true if there's some wrinkle in the data that the company fears will be construed negatively.
I like to think that after more than a decade covering drugs and biotech I'm immune to these corporate spin jobs. I can't speak for the rest of media.
A less cynical explanation but also valid: Embargoed information is a courtesy to reporters who need time to report and write stories that can often be complicated to explain. This is why medical journals, for instance, give reporters a 5-7 days advance notice on newly published studies. Companies also use embargoes to ensure media coverage of good news -- I'm more likely to cover something that I receive in advance.
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I'm not a securities lawyer but this practice doesn't violate SEC laws, in my opinion. The sharing of material information is kosher, within limits. It becomes illegal -- insider trading -- if or when someone acts on the material information by buying or selling stocks. I'm also assuming that companies provide me with embargoed access to material information only after checking with their lawyers that the practice is legal. And remember, reporters only gain access to embargoed information after pledging not to disclose until an agreed-upon time.
Is all this fair? Not really. I understand and sympathize with investors who will be angry after learning about this secret media perk. It's not fair, which is one of the reasons why I'm blowing the lid off the practice with this column. I've also taken a very public stance against unfair, selective disclosure practices, like what occurred this spring at the European Association for the Study of Liver Disease annual meeting
I'm agnostic about media embargoes. Yes, I take advantage of them when offered but I wouldn't care one lick if they disappeared tomorrow. On balance, embargoes help a little but raise too many risks and cause too many problems, as evidenced Tuesday with the Vivus-USA Today fiasco.
So, now you know.
How do you feel about media embargoes of material information? Should this practice be banned? Is it okay as long as safeguards are in place? Share your thoughts or ask questions in the comment section below.
--Written by Adam Feuerstein in Boston.
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