ImClone Systems Inc.’s board of directors knew early this year of accusations that former chief executive Samuel Waksal forged important financial documents, but the directors delayed taking action against him for months because they needed him to help negotiate a key business deal.
Board Chairman Robert F. Goldhammer told members of the House Energy and Commerce subcommittee on oversight and investigations yesterday that the company depended on Waksal to help renegotiate its partnership with Bristol-Myers Squibb Co. and that it had referred the forgery allegation to an outside law firm for investigation.
“We felt he was largely indispensable,” Goldhammer said of the board’s decision to keep Waksal on in February. Waksal was removed by the board four months later, but for different reasons.
Lawmakers said they were amazed that the alleged forgeries had not led the board to immediately fire Waksal. Subcommittee Chairman James C. Greenwood (R-Pa.) said “my children know it’s wrong to forge a signature,” and Rep. Diana DeGette (D-Colo.) said she was “stunned” by the board’s lax responses to the behavior of the firm’s top executive.
John B. Landes, the company’s senior vice president for legal affairs, told the lawmakers that Waksal admitted the apparent forgeries to him but that he did not promptly notify company leaders. One incident involved a stock certificate for $90,000 in ImClone shares; the other, a company document pledging ImClone securities as collateral for a personal Bank of America loan for Waksal.
Landes called the first incident, in 1986, a “good-faith lack of knowledge” stemming from Waksal’s innocence about financial matters. He said the second, which he learned about in January 2002, was referred to the ImClone board several weeks later. Prosecutors have accused Waksal of forging the document as part of a bank fraud in 2000.
Committee members expressed incredulity at the board’s responses to the alleged forgeries and a laundry list of other financial dealings by Waksal including the board’s decision to approve hundreds of thousands of dollars in company loans to its former chief executive to pay his personal debts.
Goldhammer, the board chairman, defended the large loans to Waksal and said they were all repaid. The committee also heard, however, that Waksal, who had become a popular figure in New York social circles, had large unpaid debts to banks, art galleries and the Internal Revenue Service. And according to ImClone audit-committee documents, the company tried to rein in Waksal’s spending and had specifically told him in 1998 that he should not spend more than $50 to $100 per bottle of wine, buy costly tickets to sports events at the last minute, or rent suites in five-star European hotels unless he got a significant discount.
Waksal has been charged with insider trading for his efforts to sell ImClone stock just before it was made public that the Food and Drug Administration would reject the company’s application for its cancer drug, Erbitux. The company’s stock plunged after the announcement and subsequent information indicating that the company’s clinical trials were faulty.
Yesterday’s hearing was called to examine the company’s corporate governance and the FDA’s handling of the Erbitux case. Under skeptical questioning from the subcommittee, ImClone officers defended $70 million in stock sales by officers and directors last December in the weeks before the public learned of the problems with the FDA.
ImClone officials testified that some company officers learned on Dec. 12 that the FDA had voiced strong new skepticism about its Erbitux application but that prohibitions on insider trading were not instituted until Dec. 21. The FDA formally rejected the application on Dec. 28.
ImClone Vice President Catherine Vaczy defended the stock sales as typical and said that no company officers acted on insider information. “Regarding trading in company securities by officers and employees, we believe we have always had in place an appropriate insider-trading policy,” she said.
Also yesterday, ImClone’s current chief executive, Samuel Waksal’s brother Harlan, said that the company is preparing new clinical trials for Erbitux. He said that several thousand patients will be enrolled in the months ahead and that the company remains optimistic that the drug will ultimately be an important new treatment for colorectal cancer.
In his testimony yesterday, FDA Deputy Commissioner Lester M. Crawford Jr. said that the agency was working to improve communication between the companies applying for drug approvals and its medical reviewers. He said the agency was preparing guidance that would make reviewer-industry interactions more standard across the FDA. He also said that the FDA did not have primary responsibility for overseeing company promotions of new drugs before they are approved by the agency.
Several representatives raised questions about widespread early publicity about Erbitux, especially in light of the FDA’s decision not to accept the company’s application.