Media Embargo Secrets Exposed: How and Why Companies Share Stock-Moving News
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'(VVUS) 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(ARNA) and Orexigen Therapeutics(OREX) 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.
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.