Rejection of InterMune’s Drug Told Early to FDA Advisers

SAC CEO Steven A. Cohen
Federal investigators are looking at trades in Intermune that SAC, the $14 billion hedge fund run by Steven A. Cohen, made in the first half of 2010, a person familiar with the matter has said. Photographer: Scott Eells/Bloomberg

Three members of an independent advisory panel say they received as much as a day’s notice in May 2010 before U.S. regulators rejected a drug from InterMune Inc., now tied to an insider trading probe of SAC Capital Advisors LP.

InterMune’s shares fell 5.4 percent the day before the company announced the rejection, at a time when the panel members knew the product was doomed. Others at the company and at the Food and Drug Administration were aware of the rejection too, and there’s no evidence the 11 panelists did anything wrong. The members reached by Bloomberg said they hadn’t been contacted by U.S. authorities and weren’t aware of a probe.

The information they received, though, demonstrates how broad the potential for leaks can be. Federal investigators are looking at trades in Intermune that SAC, the $14 billion hedge fund run by Steven A. Cohen, made in the first half of 2010, a person familiar with the matter has said. It shows more people beyond the company and the FDA had the information about the drug’s impending rejection.

The FDA “said they were calling just so that I wouldn’t be surprised when the news came out that they had made a decision contrary to the panel’s recommendations,” David Mauger, a professor at Pennsylvania State University’s College of Medicine in Hershey, said in an e-mail. “They have never called me following any other meetings.”

Drug Rejection

Two months earlier, the advisory panel voted to support approval of Brisbane, California-based InterMune’s drug, a treatment called Esbriet developed to be used against idiopathic pulmonary fibrosis, a rare lung disease. The final FDA decision, announced by the company after the close of trading on May 4, 2010, overturned that recommendation. The panel members wouldn’t identify the FDA employee who called them. InterMune shares plunged 75 percent on May 5, 2010.

Erica Jefferson, an FDA spokeswoman, said the agency would have no comment on whether panel members got notice of the rejection. The FDA requires that advisory panel members adhere to confidentiality rules for market-sensitive information they get as part of their roles, she said.

The other panel members either didn’t return phone calls or e-mails, or couldn’t be reached.

William Calhoun, a pulmonary specialist at the University of Texas in Galveston who was on the panel, said he, too, had been told of the rejection before the company announced the action after the close of regular trading on May 4, 2010.

Questioning Panelists

Calhoun also said he had earlier refused to answer questions from investors seeking an inside view on the panel’s potential vote at a time when he was reviewing the FDA staff’s confidential report on the drug.

Advisory panels like the one Calhoun sat on review the FDA’s staff report on a drug and vote whether they think the product is safe and effective. While the FDA isn’t required to follow the panels’ recommendations, the advisers’ votes often move markets.

The “investors were probing,” Calhoun said in a telephone interview. He said he didn’t recall which investors he talked with. When they asked Calhoun how the panel might vote, “my response to them was, ‘You never know what the committee is going to determine,”’ he said. “My stance has been that if I’ve gotten it directly from the FDA, it’s confidential.”

Panelists generally are given packets of information in the weeks before their advisory meetings that include studies and analysis by FDA staff members, Jefferson said. The staff’s report is then released a day or two before the panel meeting.

Staff Report

On March 5 before the market opened, the FDA released a staff report on InterMune’s drug that was less critical than expected. The news sent the shares up 59 percent. Five days later on March 10, after the advisory panel voted to recommend approval of the drug, shares leaped another 65 percent.

Federal investigators are looking at SAC’s InterMune trades in the first half of 2010, some of which were handled by Nikej Shah, said the person who asked not to be identified because the matter wasn’t public. Shah, a former SAC portfolio manager, has declined to comment on the probe.

Jonathan Gasthalter, a spokesman for SAC Capital, said on Dec. 10 that the firm wasn’t aware of any investigation involving trades of InterMune.

SAC bought 1.9 million shares of InterMune in the first quarter of 2010, after holding none in the prior two quarters, and held 10,983 shares at the end of the second quarter of 2010, according to data compiled by Bloomberg.

InterMune fell 1.1 percent to $9.96 at 4 p.m. in New York trading. The stock has fallen 21 percent this year.

Insider Cases

Since 2007, 97 people charged or sued by U.S. regulators for insider trading allegedly gained an edge from secret information about drugs, devices and the companies that make them, according to data compiled by Bloomberg.

Last month, Cohen, 56, the billionaire who runs the Stamford, Connecticut-based hedge fund, was directly linked to a trade in another insider prosecution, which the government described as the “most lucrative” ever uncovered.

His hedge fund was also told last month by the U.S. Securities and Exchange Commission that the agency may pursue civil fraud claims related to alleged insider trading by former SAC portfolio manager Mathew Martoma, who traded stocks of drugmakers Elan Corp. and Wyeth LLC, earning $276 million for the fund.

Consultant Tip

Authorities said Martoma was tipped off by Sid Gilman, a University of Michigan researcher who was a paid consultant for the hedge fund manager while he served on a safety committee overseeing a clinical trial of an experimental Alzheimer’s drug being developed by Elan and Wyeth, now owned by Pfizer Inc. Martoma was indicted Dec. 21 on charges of conspiracy and securities fraud.

Since the government’s five-year crackdown on insider trading began, at least six current or former SAC employees have been tied to allegations of insider trading, of which three have pleaded guilty to federal charges. Cohen hasn’t been accused of any wrongdoing, and he has said he acted appropriately in making the Wyeth and Elan trades.

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