In an unprecedented public move, some of ImClone Systems Inc.’s outside directors will face questions Thursday from a House panel investigating the biotechnology company.
The Energy and Commerce subcommittee wants to determine whether there are conflicts of interest and who had oversight when ImClone’s failed application of its cancer drug Erbitux was disclosed publicly in December.
The rejection by the Food and Drug Administration triggered an 88% drop in the share price and at least three government inquiries.
The panel, led by Rep. James C. Greenwood (R-Pa.), is turning to the board of directors to find out when insiders realized that Erbitux probably would be rejected and whether company executives misled investors. Boards are coming under increasing scrutiny for their roles in oversight after the collapse of energy trader Enron Corp.
“You had a drug purported to be a new miracle for cancer,” said Greenwood. “Was this drug really promising, or was this a case where you needed an elixir and a couple of good docs on your board so you could sell a lot of stock?”
Greenwood’s subcommittee will ask directors who aren’t ImClone executives to testify and call back Chief Executive Harlan Waksal and FDA officials, Greenwood said. The Justice Department and Securities and Exchange Commission also have undertaken inquiries.
Shares of New York-based ImClone on Tuesday fell 5 cents to $7.14 on Nasdaq.
Samuel D. Waksal, ImClone’s former chief executive and Harlan Waksal’s brother, was indicted in August on charges that he tipped off relatives about the coming rejection of Erbitux’s filing, enabling them to sell shares before the information was made public. Waksal also was charged with obstruction of justice for allegedly ordering documents and computer files destroyed.
In August, committee investigators asked ImClone to hand over additional records, including evidence of document destruction, related to alleged insider trading by Samuel Waksal.
On Sept. 10, the committee asked U.S. prosecutors to investigate whether Martha Stewart lied to lawmakers about her sale of ImClone shares, ending the committee’s three-month insider-trading investigation of Stewart.
ImClone spokesman David Pitts said the company is “cooperating fully” with the investigation. Charles Koob, the attorney for ImClone board members, did not return phone calls.
The subcommittee also will ask FDA officials whether the agency should restrict promotion by drug makers of products awaiting approval, Greenwood said. Agency representatives will appear in a separate panel from the ImClone directors.
“We want to take up the issue of pre-market promotion,” Greenwood said. “Once you get a drug approved, you have a tight label and can’t make any claims not specified in the label. Before you get approved, you get a lot of leeway. We want to explore whether there should be limits.”
The committee has asked about directors’ sales of shares, financial contracts some directors had with the company, possible insider trading and the effectiveness of corporate governance.
“I think there’s a whole host of issues about the board’s engagement or lack of engagement,” Greenwood said.
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