Managing Editor

BOSTON - Your Phase II trial didn't go quite as planned, but you're still confident the compound eventually will fly through the FDA process. Why not just spin the results a bit when you release them to avoid that extra aggravation with funding?

OK, but first ask yourself how you would look in an orange prison suit.

That's the bottom line a group of FDA and SEC enforcement officials presented at BIO 2007 Tuesday during a panel discussion of government enforcement action facing miscreant biotech firms. The lawyers assured the biotech audience they're not out to get them, but they are intent on protecting the investors who help keep the pipelines flowing.

The key word that kept arising is "transparency" - keep the public accurately informed about what you're doing and you'll likely be OK, they said. But "it can be an enormous distraction if you don't get it right," warned Joseph Braunreuther, general counsel for the pharmaceutical group at Johnson & Johnson. "This stuff is really important."

Walter Ricciardi, deputy director of the division of enforcement for the SEC, said the high stakes in the biotech and pharma industries lead to pressure. "A company may be investing a billion in a drug that could make billions, but if the FDA says 'no', it's worthless." Regardless of those stakes, Ricciardi said the SEC's goal is to ensure the information investors have is credible.

David Bergers, head of the SEC New England enforcement division, cited legal action against Biopure Corp. that began last year as a case in point. In 2003, the Boston company applied with the FDA to test its Hemopure blood replacement product on trauma patients, but the agency denied the request because of safety concerns that arose in a previous trial. The company subsequently sent out a press release reporting the FDA action in positive terms, which resulted in a 22 percent bump in the company's shares. The FDA and Department of Justice investigation resulted in charges against the company and four top executives.

Ricciardi noted that it's not even a matter that you have to disclose everything. But the information you do release has to be cast in the right light. "It's about creating a false impression. It's not even about making a false statement; it's about giving a false optimism that is misleading," he said.

Mark Raza, associate chief counsel with the FDA, reaffirmed Braunreuther's warning about the disruption FDA action can cause a company. Besides criminal and civil legal action, the agency can seize products, impose injunctions that can include an order to shut down your operation and require restitution. In recent years, the FDA has gained restitution from three major pharmaceutical companies involving hundreds of millions of dollars, he said.

Braunreuther expressed concern about the FDA's ability to control enforcement in the industry, saying it is being diluted by the rise in whistleblower complaints, which are originated by the Department of Justice, and actions being brought against the industry by state attorneys general using state business practice laws.

Raza acknowledged that can be a problem because the FDA has no input into legal rulings that can come from such cases, and which have an impact on how the agency interprets its rules.

Preventing problems is key, Braunreuther said. He suggested, for one thing, that companies take a close look at their internal e-mail practices, because the confidential information contained in them can easily get out to the public and raise insider-trading issues.

Also make sure you have good policies and procedures in place, that those policies are taken seriously and that you can show that you've acted on them, he advised.

And if you find yourself on the verge of trouble, "Approach the government with respect" and bring out your best case, he said. Even if something untoward did occur, make sure the government sees your compliant staffers, "the good-minded people who drop their kids off in the morning then go to their cubicles. Get those people in to tell their stories."

If a problem occurs, Ricciardi advised simply coming clean with the feds and cooperating fully. There are two types of companies when legal troubles arise, he said, those that come forward and handle it, and those that try to hide it. "The quickest way to change a civil case into a criminal charge is a little obstruction," he added.

But perhaps the best advice he had to offer sounded a lot like the Golden Rule: "Put yourself in your investors' shoes, and treat them how you'd like to be treated."