Foxes in the henhouse: Another biopharma exec busted for insider trading
This article was originally published in Scrip
Investors were not the only ones hungry for Array Biopharma's shares in the spring of 2010 in reaction to a mega deal with Swiss drug and vaccine maker Novartis, which paid out $45 million up front to the Boulder, Colorado-based biotech, adding an additional $422 million on the achievement of certain milestones.
Indeed, Array exec James Lieberman had the inside scoop on the deal, and so he allegedly decided to profit off that insider information.
But unfortunately for Mr Lieberman, US securities investigators outfoxed the fox in the henhouse in this case. And that tidy $71,361 prize the now former Array manager of environmental health and safety stashed away after selling his nearly 50,000 shares of the company is in the government's piggy bank, with a judge ordering the defendant to even pay a double dose of that amount, plus about $5,000 in interest under a civil settlement deal.
According to a complaint filed in the US District Court for the District of Colorado, the Securities and Exchange Commission (SEC) alleged that 12 minutes after Mr Lieberman received an email on 5 March 2010 from his supervisor disclosing that the company was about to seal the deal with Novartis, the accused schemer placed a limit order to purchase shares of Array common stock for his own account. Two minutes after that, Mr Lieberman placed an order to buy shares in his sister's account, in which he was authorized to trade, and over the next two weeks, he purchased nearly 50,000 shares of Array stock for $128,686.
After Array revealed the Novartis deal on 19 April 2010, which came after the markets had closed, Mr Lieberman sold all of his shares from both accounts, taking in $71,361.
The stock, which had closed at $3.02 on 19 April 2010, jumped as high as 40.7% on 20 April 2010, before closing at $4.02, a gain of $1, or 33%.
Under the April 2010 collaboration, Array granted Novartis the worldwide development rights to small-molecule MEK inhibitors, including ARRY-162, which then was in a Phase I cancer trial, and its back-up, ARRY-300 (scripintelligence, 21 April 2010).
Array held on to rights to co-develop ARRY-162, now known as MEK162, in one or more indications, with the biotech funding a portion of the costs.
According to the SEC, Mr Lieberman was particularly interested in whether ARRY-162 would positively impact Array, as evidence by an 11 February 2010 email he sent to company CEO Robert Conway asking, "What's happening with 162? Does it look promising to make a deal in this quarter?"
He also wanted to know "What, if anything, are we doing to improve Array's stock price?"
The SEC said Mr Lieberman attended a meeting the next day, at which senior management outlined the deal terms Array had been negotiating with Novartis – making clear that the partnership, which had been in negotiations since fall 2009, would be extremely significant to his firm.
On 4 March 2010, Array's chief financial officer emailed four employees that reported to him, including Mr Lieberman, informing them the deal with Novartis on ARRY-162 was "still slowly progressing and if it happens will likely be in about 1-2 months."
But by the next day, the negotiations had shifted into a higher gear, with the firm's chief operating officer writing in an email that he had heard from Novartis, and the Basel, Switzerland-based pharma was ready to move forward to "finalize our agreement."
"We should have their revised agreement Tuesday or Wednesday of next week. They would like to close this deal within 30 days," the COO said in the email, which was forwarded to Mr Lieberman.
Minutes later, Mr Lieberman logged in to his online brokerage account from his computer at Array's offices, and placed a limit order to purchase 35,000 Array shares, placing the second order in his sister's account for 25,000 shares.
Mr Lieberman ended up purchasing 49,763 shares total, doling out $128,686 for the stock.
"These transactions were unusual when viewed in light of his prior trading history," SEC lawyer Rachael Clarke said in court documents.
Mr Lieberman left Array in July 2010.
The civil settlement between Mr Lieberman and the SEC comes just weeks after Bristol-Myers Squibb executive Robert Ramnarine was arrested for insider trading, in which he traded on material nonpublic information about BMS' anticipated acquisitions of ZymoGenetics, Amylin Pharmaceuticals and another firm the company ultimately did not buy – with the alleged plotter reaping $311,361 in illicit profits (scripintelligence, 2 August 2012).
Mr Ramnarine's case followed others recently snared by the SEC for engaging in insider trading in drug makers' stocks, including now-former US FDA chemist Dr Cheng Yi Liang, who was accused of gleaning insider information from accessing government databases about experimental medicines under review by US regulators. Dr Liang was arrested on 29 March 2011 and sentenced to five years in federal prison (scripintelligence, 31 March 2011, 6 June 2011, 12 March 2012).
On 1 September 2010, the SEC charged James Self, a pharmaceutical company insider at AstraZeneca, and Stephen Goldfield, a former hedge fund manager, with insider trading in advance of the London-based drug maker's disclosure it planned to acquire MedImmune.
The material non-public information about the acquisition allowed the former hedge fund manager to realize illicit profits of about $14 million.
In November 2010, the SEC charged Yves Benhamou with tipping Joseph Skowron, a hedge fund manager from FrontPoint Partners, which sold hedge fund holdings for Human Genome Sciences, with confidential information about a clinical drug trial the French medical doctor and researcher was overseeing. Based on Dr Benhamou's tips, Mr Skowron sold his shares in the drug company, allowing the hedge funds to avoid losses of at least $30 million. Mr Skowron was subsequently charged by the SEC in April 2011 for his misconduct in the matter, according to the agency.