Insider Trading, Drug Stocks & A Columbia Professor
September 20th, 2011 // 12:54 pm @ jmpickett
Six months ago, the Massachussetts Secretary of the Commonwealth had filed a complaint that accused a hedge fund of making profits on two drugs stocks by using insider information. Specifically, Risk Reward Capital Management was charged with using expert consultants to obtain advance info about an Ariad Pharmaceuticals clinical trial and a forthcoming abstract about a med sold by Questor Pharmaceuticals.
Specifically, Risk Reward principal investment advisor James Silverman* retained an intermediary firm called Guidepoint Global, which was paid an $80,000 annual fee in exchange for helping to arrange contact with experts who allegedly conveyed alleged insider (back story). Among the experts were doctors and clinical investigators who were not identified in the complaint (look here).
The case highlighted growing concern about the interplay between academic researchers and the pharmaceutical industry, and the potential not only for undue influence on medical practice, but also the extent to which privileged research data is being horsetraded improperly. In fact, the episode spurred Massachusetts regulators to adopt new rules about the use of expert networks (read here).
As it turns out, one expert who was described in the state complaint as ‘Doctor 1′ is Andrew Bomback, an assistant medical professor at Columbia and a kidney expert, according to The New York Times, which matched his work with references to the state complaint to a Questcor press release. He prepared an abstract about the drug before data was disclosed at a meeting held by the American Society of Nephrology last year.
He conducted a retrospective look at every patient in the US who had tried the Questcor drug, called Acthar Gel, by the end of 2009 for nephrotic syndrome. He found that 9 of 11 of the patients with a certain type of the syndrome responded well to the Questcor drug (read the abstract here) and, the Times write, his work helped transform Acthar Gel from an orphan drug to a potentially big seller.
However, early last year, Bomback had also signed a $50,000 consulting deal with Questcor, according to the state complaint. He claims the agreement was subsequently changed to a $10,000 annual deal for five years in order to comply with new university rules about consulting fees. But a university spokesman tells the Times that university policy prohibits faculty with consulting deals more than $10,000 from researching a company’s products.
As the state complaint noted, Risk Reward had lost 16.9 percent in 2007, its first year of operation. But after Guidepoint arranged for him to meet with 225 experts, about 60 percent of whom were clinical investigators with confidentiality agreements, things turned around. In 2009, Risk Reward returned 55 percent in 2009 and another 52 percent last year. He ultimately made about $1.5 million on Questcor stock.
