When Celgene Corp. revealed receipt of a Refusal-to-File (RTF) letter for its blockbuster hopeful multiple sclerosis drug ozanimod, shares in the big biotech dropped as much as 10% to linger near a 52-week low.

The decline is no surprise — such a major disclosure was bound to hit Celgene's stock price because the Food and Drug Administration's decision not to accept the New Drug Application will significantly impact the time when (and if) ozanimod ever gets to market, potentially costing Celgene hundreds of millions in future sales.

But not all pharmas seem to be so upfront with shareholders about the letters from the FDA, according to a BioPharma Dive analysis.

EvaluatePharma and company filings show 29 RTF letters that were publicly disclosed between 2010 and 2017. Celgene's letter, issued in 2018, would make 30.

Yet, data provided by the FDA showed 73 RTF letters were issued over that same time period.

The agency does not disclose the recipients and the figures are based on the fiscal year that the NDA, Biologics License Application or supplemental application was received, not the year the letter was issued. The FDA is required by the Prescription Drug User Fee Act to notify a company if an RTF is being issued within 60 days after the application has been received — putting most RTF letters within the same year as the filing.

Like Complete Response Letters (CRLs), the FDA does not reveal publicly when one is issued, nor does it tip its hand about what is included in such letters. Public disclosure therefore falls to the company when it receives one of these rejections. Company executives can disclose as much or as little information about the letters as they deem appropriate.

There has been controversy over the issue for years related to CRLs — and public and investor outcry for the FDA to publish the letters. FDA Commissioner Scott Gottlieb even promised to be more transparent about the rejections during his confirmation hearings last April, but has since backed away from the statements.

Less attention has focused on RTFs, but they definitely do not augur good news for drugmakers.

Forbes' Matthew Herper calculated last week the average time to approval for drugs after receiving a Refusal to File letter was 800 days (if a drug ever made it to market at all, many still have not).

Judging what merits disclosure

For the vast majority of pharmas which are publicly traded, it comes down to what is "material" to investors, something defined by the Securities and Exchange Commission but which also gives companies some latitude.

"Part of the discrepancy [in the number of RTFs publicly disclosed versus the FDA count] may depend on how material the event is," noted Kurt Karst, director at law firm Hyman, Phelps & McNamara, in an interview.

Karst also pointed out a RTF letter may be related to a supplementary application for a subsequent approval, not the initial indication, suggesting the event wouldn't meet the standard of a material disclosure.

While Karst could be right, at least some of the RTFs previously disclosed publicly by companies have been related to supplemental NDAs.

In 2017, for example, Allergan plc revealed its schizophrenia drug Vraylar (cariprazine) was handed an RTF letter when the company tried to add an indication for negative symptoms in schizophrenia to the label.

The schizophrenia market as a whole could be worth as much as $7.9 billion in 2022, according to a report from Grand View Research Inc. The negative symptoms, such as withdrawal or lack of emotions, are often the first signs of the mental health disorder — potentially making this additional indication a lucrative one.

While Allergan chose to make the RTF letter public, clearly other companies have not. In some instances, the RTF might have been issued to a privately held company, making disclosure more a matter of principle than legally necessary.

Room for maneuvering

Yet even public companies can find some wiggle room around SEC requirements to disclose information.

A series of accounting scandals, including former energy giant Enron Corp.'s fraudulent accounting, led to the 2002 Sarbanes-Oxley Act, which added new disclosure requirements for companies.

Prior to 2004, very few items were considered material enough to require filing a Form 8K with the SEC, allowing companies to wait until their next quarterly or annual filing to disclose the event. As a side effect, this gave companies the opportunity to bury information within a longer report.

In 2004, the SEC increased the number of events that required an Form 8K disclosure, but the language of the rule still leaves some room for interpretation.

The U.S. Supreme Court has further ruled the materiality requirement is satisfied if there is "a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the 'total mix' of information made available."

Much of this statement is open to interpretation; the words 'reasonable investor' alone open it up to a range of views.

In one high-profile case, a pharmaceutical company pushed the Supreme Court to rule in 2011 that there is "no bright line" for determining materiality and that it would require a case-by-case analysis.

The case involved Matrixx Initiatives Inc., the maker of Zicam Cold Remedy, and its failure to disclose certain letters from the FDA which indicated the treatment might actually cause people to permanently lose their sense of smell. The product was subsequently withdrawn from market, although other versions are still commercially available.

While some might see the discrepancy between publicly disclosed RTF letters and the reported FDA count as immaterial, others would argue the difference shines a light on the need for further transparency from the regulatory body.