UPDATED: Mystery doc cited for handing insider trial info to SAC trader

Last fall, noted neurologist and Alzheimer's investigator Sid Gilman resigned his position at the University of Michigan just days after he figured prominently in a massive insider trading case brought by the Securities and Exchange Commission. Today a second, unnamed physician surfaced in a related indictment charging SAC Capital's Mathew Martoma with executing a $276 million insider coup back in 2008, after Gilman tipped him off to the news that the high-profile Alzheimer's drug bapineuzumab had flopped in a Wyeth study.

According to a superseding indictment filed today in the U.S. District Court for the Southern District of New York, a second doctor--identified only as "Doctor-2"--provided insider info to Martoma during paid consultations arranged "with the expectation that Martoma would assist (the doctor) in obtaining additional clinical trial business."

Doctor-2 was a clinical investigator treating patients with bapi. According to prosecutors, he was one of a number of physicians Martoma tried to recruit for his insider trading scheme. Even though the first 9 doctors the trader contacted through an expert networking group all declined an overture to consult for him, "Martoma was ultimately able to arrange--both through the Expert Networking Firm and other channels--paid consultations with multiple doctors with access to confidential information about the drug trial, including Doctor-1 (Gilman) and Doctor-2."

Both doctors "misappropriated and disclosed" insider information to Martoma, according to the revised indictment, which was reviewed by FierceBiotech Thursday evening. 

The appearance of a second doctor in this case underscores concerns about the integrity of a process in biopharma that depends on complete discretion about trial data before its release. A fairly large number of people learn key bits of insider information ahead of any release on drug trials. And leaky sources can allow unscrupulous traders to make huge overnight profits. 

The initial SEC complaint  regarding the bapi scandal said that Gilman had been consulting with Elan ($ELN) and Wyeth for 5 years and served as chairman of the safety monitoring committee for the bapi study, a perch that gave him inside knowledge he then passed on to Martoma, earning more than $100,000 for his insights. The coup came on July 20, 2008, when Gilman allegedly tipped off Martoma that the drug had flopped in the study. SAC then sold $700 million worth of Elan and Wyeth stocks and shorted their shares ahead of the news--when both stocks tanked.

That deal won Martoma a $9.3 million bonus, and later, an indictment. Martoma has pleaded not guilty in the case, and Gilman is cooperating with prosecutors, after agreeing to hand over the money he gained from Martoma.

The SEC has been bringing a number of insider trading cases related to biopharma companies over the past year, focusing carefully on a network of physicians paid extremely well to consult with Wall Street traders. Physicians are commonly involved in clinical trials that can make or break a company's stock, making them a ripe potential source of insider info.

- here's the story from Reuters

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