Martoma Got Confidential Report on Drug Test, Doctor Says

Mathew Martoma, the former SAC Capital Advisors LP manager on trial in what the U.S. called the most lucrative insider-trading scheme, received secret details of a clinical trial of an Alzheimer’s disease drug, one of two doctors who allegedly passed the tips testified.

Joel Ross, a New Jersey geriatric specialist, told jurors in Manhattan federal court today that he informed Martoma about a serious side effect suffered by one of his patients in the so-called “phase two” study.

The study was to determine whether the drug, bapineuzumab, was safe and effective in treating Alzheimer’s patients. He also told Martoma that his clinic had 25 of the 270 patients in the study.

Ross also testified that he and Martoma planned to meet in Chicago on the night of July 28, 2008, after he and other doctors supervising the testing were told of the results.

Martoma is accused of using confidential information from Ross and another doctor, former University of Michigan neurologist Sid Gilman, to benefit the hedge fund by $276 million in trades of Wyeth and Elan Corp. Ross and Gilman were given immunity by the government in exchange for testifying against Martoma.

Phone Call

Prosecutors claim SAC reversed a bullish stance on the drugmakers, liquidating a $700 million position and selling the stocks short a few days after a 20-minute phone call between Martoma and SAC founder and owner Steven Cohen in July 2008.

In November, SAC agreed to plead guilty to securities fraud and end its investment advisory business as part of a record $1.8 billion settlement of the government’s investigation of insider trading at the firm. The agreement must be approved by a judge before it can take effect. Cohen hasn’t been charged with wrongdoing.

Ross, 58, testified today that Martoma “stood apart” from the other investors he talked with in teleconferences and in face-to-face meetings set up by companies including Piper Jaffray Cos. and Global Guidepost. He told jurors he thought Martoma was well-informed about Alzheimer’s.

Ross said he first became interested in Alzheimer’s disease, which was often called dementia or senility, while treating an elderly patient as a medical intern in 1981 or 1982.

Progressive Effects

“There’s got to be some way of understanding what’s happening with these people,” he told jurors about his thinking at the time.

Ross told jurors there is no effective treatment to slow or reverse the progressive effects of Alzheimer’s on the brain. It was hoped that bapineuzumab would treat the condition by removing a toxic protein called amyloid from patient’s brains, he said.

Earlier in the day, SAC’s chief financial officer, Dan Berkowitz, testified about Martoma’s bonuses from 2006 to 2008. Assistant U.S. Attorney Eugene Ingoglia showed jurors SAC documents showing that in 2006, Martoma earned $628,370 in bonuses, $3.7 million in 2007 and $9.3 million in 2008.

The case is U.S. v. Martoma, 12-cr-00973, U.S. District Court, Southern District of New York (Manhattan).

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