Insider Trading in the Clinical Trial Setting

108 Pages Posted: 14 Sep 2022 Last revised: 9 Feb 2023

Date Written: September 12, 2022


The Securities and Exchange Commission’s enforcement agenda regularly includes charges of trading based on material nonpublic information about a clinical drug trial conducted to obtain FDA approval to market a new drug. Almost half of the recent cases have been accompanied by a criminal indictment. A spotlight may soon shine on trading on inside medical information if news reports about suspicious trading by members of Congress and other government officials is any guide.

In an academic setting, researchers and those who advise them, unlike employees of public companies, are not generally given training about the risks of securities trading. Recent developments in the law might be applied in connection with clinical trial information in ways that would not have been foreseen until recently. With the increase in the number of trials and aggressive prosecution, the time is ripe for a comprehensive analysis of how the law of insider trading may be applied to the important health care endeavor of clinical drug trials. Clinical trials should not be sullied by conflicts created by unlawful trading.

This Article begins with the basic principles of insider trading and a summary of how clinical trials are conducted and regulated and the ways in which nonpublic information material to the stock price of the sponsor of the trial might be used to trade or tip.

The analysis that follows identifies a number of situations where use or disclosure of material nonpublic information about a trial could be unlawful. Employees of sponsors of the trial, clinical investigators, and even the subjects participating in a trial could run afoul of the prohibition on insider trading, such as when information has been used in breach of a confidentiality agreement or exchanged between an investigator and a trial participant, exchanged among trial participants, gleaned from attending medical conferences, and obtained in other settings specific to this industry. Presenting the full potential reach of the law facilitates taking steps to avoid violating the law.

The analysis demonstrates that anyone involved in a clinical drug trial must be attuned to the risks of misusing material nonpublic information, including in scenarios not yet pursued by the SEC. By understanding the potential reach of the law, those involved in or who learn about a specific trial can take steps to avoid or minimize the risk of liability.

The Article concludes with recommendations to achieve this end. The Article thus presents a complete case study of an industry-specific application of insider trading law, with recommendations that can be applied to other industries.

A shorter version of this posting has been accepted for publication in the Indiana Health Law Review, Volume 20, No. 2.

Keywords: Insider Trading* Materiality, Principal investigator, IRB, Rule 10b-5* Clinical trial* Clinical drug trial* FDA approval

JEL Classification: K10, K19, K30, K39

Suggested Citation

Horwich, Allan and Brawley, Crista, Insider Trading in the Clinical Trial Setting (September 12, 2022). Northwestern Law & Econ Research Paper No. 22-12, Available at SSRN:

Allan Horwich (Contact Author)

Northwestern University - Pritzker School of Law ( email )

375 E. Chicago Ave
Chicago, IL 60611
United States

ArentFox Schiff ( email )

233 S. Wacker Drive
Suite 7100
Chicago, IL 60606-6473
United States

Crista Brawley

Northwestern University ( email )

2001 Sheridan Road
Evanston, IL 60208
United States
3125031686 (Phone)

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