ImClone, Round 2: One Hit, One Miss
By Catherine Arnst
Lawmakers investigating l'affaire ImClone got their chance on Oct. 10 to lambast the firm's board of directors for letting ex-CEO Sam Waksal stay at the helm even as the drug company was embroiled in scandal. It was the House Energy & Commerce subcommittee's second hearing on ImClone. The six-hour extravaganza revealed new details of what the board knew of Waksal's alleged forging of documents. But it unearthed little regarding the eventual fate of Erbitux, ImClone's experimental cancer drug.
Waksal is facing federal charges for insider trading and forging the signature of ImClone general counsel John Landes on a bank-loan application in 2000. He has pleaded innocent. Landes testifed before the committee that Waksal also apparently forged a signature on a stock-transfer document in 1986 but said he considered that incident "a good-faith misunderstanding" on Waksal's part. Landes testified that he became aware of the forgery in 1991.
The focus of the hearing, however, seemed to fly in the face of an opening statement by House Energy & Commerce Committee Chairman Billy Tauzin (R-La.). Although he wasn't there for the panel grilling, Tauzin issued a written statement declaring: "The public should not forget that potential flaws in the FDA's drug-approval process have been at the center of this investigation all along."
Maybe that's true, but it was easy to forget at this hearing. The only witness from the FDA -- Deputy Commissioner Lester Crawford -- assumed his official duties in February, 2002. That was several months after the agency had refused to approve ImClone's application for Erbitux. To virtually every question about Erbitux, Crawford replied that he wasn't on the job at that time -- an odd refrain at a hearing supposedly designed to delve into potential flaws in the FDA's drug-approval process.
Crawford offered one new twist in Erbitux's tortured path to market: He said the drug could be reviewed and approved by mid-2003 if the results of a clinical trial being conducted by ImClone partner Merck KgaA of Germany are acceptable. These results are due out by yearend. But the committee failed to subpoena or provide any oncologists familiar with the drug, or indeed anyone at all from the world of cancer research and treatment, to address the drug's potential.
Once Crawford left the witness table, members of the subcommittee could focus on what seemed to really interest them: ImClone's corporate governance. Alas for them, no Martha Stewart angle was left to pursue (see BW Online, 10/11/02, "Martha: Everything You Wanted to Know"), so attendance -- by committee members, spectators, and the press -- was sparse compared to the first hearing in June.
The committee has given up on trying to establish that Stewart, a close friend of Waksal, was acting on insider information when she sold almost 4,000 ImClone shares a day before the FDA announced its rejection. The panel turned its investigation over to the Justice Dept. in September.
However, that didn't stop its members from harsh words for the three outside directors of ImClone Systems -- Chairman Robert Goldhammer, a New York-based venture capitalist; Paul Kopperl, another financier; and Dr. John Mendelsohn, discoverer of Erbitux and president of M.D. Anderson Cancer Center. They revealed that the board learned of two allegations of forgery by Waksal in early February of this year. Yet, the board didn't ask him to resign until May, when it became clear he would be indicted for insider trading and forgery.
Goldhammer defended the delay, saying Waksal, who founded ImClone, was "indispensable" because of his staff-inspiring enthusiasm for Erbitux. Goldhammer said he would still hire Waksal as a consultant if he's cleared of charges.
"THIS IS WACKY."
The lawmakers were hardly impressed. "That's the most ridiculous answer I've heard in a very long time up here, and we've had everyone. We've had Enron, we've had WorldCom," said Representative Peter Deutsch (D-Fla.). "This is wacky."
In their defense, the board members said they've put in place stringent rules regarding insider trading and tightened other internal controls. Harlan Waksal, Sam Waksal's brother, said ImClone is working with Erbitux partner Bristol-Myers Squibb to enroll several thousand patients in new clinical trials for Erbitux.
ImClone may have had one internal control that other companies mired in scandal could have used. The board members testified that they had a tight rein on Sam Waksal before the latest allegations broke. He had to pay all corporate charges himself and then seek reimbursement, and he wasn't allowed to spend more than $100 on a bottle of wine, buy sports tickets at the last minute, or stay in five-star European hotel suites.
As for the congressional committee, lawmakers still have some work to do in probing for flaws in the FDA's approval procedures.
Arnst covers ImClone for BusinessWeek
Edited by Douglas Harbrecht