Directors and officers of ImClone Systems Inc. sold more than $70 million in stock in the month before the public learned that the Food and Drug Administration had serious problems with the testing program for the company’s cancer drug, Erbitux.
Documents released yesterday by the House Energy and Commerce Committee, which has been investigating the ImClone insider-trading scandal, show that some members of senior management were aware of the FDA’s concerns at least two weeks before the problems became public in December.
In an e-mail to himself on his own sale of 20,000 ImClone shares, Assistant Vice President Thomas Gallagher said that an ImClone lawyer “informed me that select members of Senior Management have been aware that the FDA may not accept our [application] filing.”
The e-mail continued: “This information became known to them sometime last week and . . . this week they were moving to deal with the issue with members of Bristol-Myers.” That drug company invested more than $1 billion in ImClone.
The committee’s staff considers the $70 million in December stock sales “abnormal,” according to a committee spokesman. But a person close to the company yesterday defended the transactions, saying they were so high because the company’s stock price jumped after Bristol-Myers Squibb Co. purchased the stock and promised to buy more. The source said the actual number of shares sold was not unusual.
The source also said that the Gallagher e-mail showed that only a small number of top managers knew of the possible problems at the FDA.
“We have no reason to believe that any employees traded on material, non-public information,” the source said. “This is just a clear repeat of old information with a new spin on it.”
The ImClone investigation has focused on when directors and officers of the company became aware of the FDA problems and whether they improperly sold stock after getting insider information that the agency would not accept the company’s drug application for review. At the time, Erbitux had been widely discussed as a potential breakthrough in the treatment of cancer, and the company had hoped the FDA would fast-track its review.
Company founder Samuel D. Waksal has been indicted on charges that he tipped associates and family members to sell just ahead of the bad news, and style maven Martha Stewart has been under investigation for her sales before the bad news became public.
The December sales by company directors and officers will certainly come up in today’s hearing before an Energy and Commerce subcommittee, called to examine how the FDA handled the Erbitux application and its subsequent problems.
“Sam Waksal was not the only one at the helm,” said James C. Greenwood (R-Pa.), chairman of the subcommittee on oversight and investigations. “Clearly, ImClone directors and officers have a lot to answer for as well.”
According to committee documents, ImClone directors sold more than $57 million in December, company officers sold $13 million and employees sold more than $3 million. “If they all believed Erbitux was the next miracle drug, why were they selling instead of buying?” said committee spokesman Ken Johnson. “The real miracle is that so many people got rich at a company that never turned a profit.”
Another subject likely to come up in today’s hearing is why Harlan W. Waksal, Samuel Waksal’s brother and the current chief executive of ImClone, ordered paper shredders early this year. Documents show that several days after the Securities and Exchange Commission left a message for him, Harlan Waksal requested two paper shredders for his office.
In addition, the committee is likely to ask FDA Deputy Commissioner Lester M. Crawford whether the agency’s review process worked appropriately with Erbitux, and how and why the company was given early information that the agency would be rejecting its Erbitux application.