Statistically Insignificant Deaths: Disclosing Drug Harms to Investors (and Patients) Under SEC Rule 10b-5

Abstract

This Article, using statistical tools and theory in conjunction with more standard legal approaches, argues that pharmaceutical manufacturers should disclose all cases of illness or injury associated with their products because this data is material to patients and their doctors, and therefore to Securities and Exchange Commission Rule 10b-5’s “reasonable investor.” Patient and investor interests complement each other in this context, so each will benefit from disclosures that interest the other. Because individuals process more information than traditional statistical tests convey, they act reasonably in expanding their treatment and investment criteria beyond statistical data. Moreover, two sets of expert intermediaries — doctors and professional investors — will be involved. Their expertise will contribute to a more accurate assessment of the risks that adverse-event reports may suggest a drug presents, and of the significance of these risks to shareholders. The Supreme Court’s reasons for not requiring full disclosure are out of place in the context of adverse-event reporting given Rule 10b-5’s pro-disclosure mandate and the fact that even seemingly singular and unconnected facts can substantially move investors’ and patients’ opinions about a drug’s safety, and thus its maker’s viability. A full-disclosure rule would place the determination of which facts are important into the hands of parties with “skin in the game” rather than regulators or self-interested drug makers.

Keywords: 10b-5, statistical significance, SEC, pharmaceutical, disclosure, securities regulation, securities, reasonable investor, statistics, drug, drugs, pharmaceuticals, adverse event, adverse events, information overload