Back in 2012, Memphis drug developer GTx ran into a serious roadblock with its prostate cancer hopeful, as an elevated risk of blood clots forced the company to halt three midstage trials. In the days between informing investigators and telling the public, however, two of the studies' investigators dumped their shares of the biotech's stock ($GTXI), according to the SEC, shielding themselves from a huge drop in GTx's share price and, of course, breaking the law.
The accused scientists--Franklin Chu and Daniel Lama--avoided trading losses of more than $45,000 by selling off their GTx shares before the public got word of the clinical hold on Capesaris, according to the SEC. They have since settled with the feds, agreeing to hand over a combined $116,864 without admitting to or denying the allegations.
Chu and Lama weren't GTx employees, and the biotech isn't accused of any wrongdoing. Instead, the two doctors were working at California's San Bernardino Urological Associates Medical Group, which signed on with GTx in 2011 to help evaluate its in-development cancer treatment. Their agreement with the biotech included strict language forbidding them from trading on nonpublic information, the SEC said, and the agency is using the case to highlight its commitment to ferreting out insider schemes in biotech.
"Clinical drug trial information often is critical to investors in this sector, so we will continue to vigorously investigate and prosecute those who illegally trade on this information before it's available to the market," Scott Friestad, an associate director in the SEC's Division of Enforcement, said in a statement.
Biotech has seemed particularly susceptible to insider trading scandals. Over the past two years, similar stories have come to light involving craven investors and complicit employees of Human Genome Sciences, Celgene ($CELG), Sanofi ($SNY) and others, as the uniquely binary nature of drug trials brings out the greed in suits and lab coats alike.
The largest and highest-profile scheme, revolving around the failure of Elan ($ELN) and Wyeth's much-hyped Alzheimer's hopeful bapineuzumab, ended in conviction for SAC Capital Advisors trader Mathew Martoma earlier this year.
- read the statement