Biogen Idec's top lawyer quits amid investigation
Thomas J. Bucknum, Biogen Idec's longtime top lawyer, resigned suddenly yesterday amid an inquiry by the Securities and Exchange Commission into sales of company stock by insiders around the time the company learned that patients taking its multiple sclerosis drug Tysabri had contracted a rare infection.
Bucknum sold 89,700 shares of Biogen Idec stock on Feb. 18, the day company executives learned that two patients in a long-term trial of Tysabri had the rare disease known as PML. According to documents the company filed with the SEC, Bucknum netted about $1.9 million from the sales.
Bucknum, 58, will not receive severance compensation, according to a Biogen Idec spokesman, who declined to say why Bucknum resigned.
''Mr. Bucknum believes he has done nothing wrong," said his attorney, Juan Marcelino of Greenberg Traurig LLP. ''He intends to fully cooperate with any official inquiry. In essence, he offered his resignation so that he not become a distraction to the business."
The resignation places additional pressure on Cambridge-based Biogen Idec at a crucial time. Bucknum had been a key member of Biogen's inner executive circle since before the company's 2003 merger with Idec Pharmaceuticals. He survived the consolidation to become general counsel of the combined operation, the third-largest biotechnology company in the United States.
But Biogen Idec is enmeshed in its most serious commercial challenge ever. The Food and Drug Administration approved Tysabri in November, and the novel treatment was widely expected to become a blockbuster that would bring in more than $1 billion annually for Biogen Idec and its partner, Elan Corp. PLC of Ireland. The FDA approved Tysabri for use on its own and in combination with Avonex, Biogen's blockbuster multiple sclerosis treatment, on the market since 1996.
Last week, however, Biogen Idec and Elan stunned investors, saying that they had withdrawn Tysabri from the market and halted all clinical trials, because two patients who were taking both drugs had come down with progressive multifocal leukoencephalopathy. One patient has died from the disease. PML attacks the insulating layer on neurons in the brain.
Biogen Idec's shares declined more than 40 percent in one day; Elan's lost more than 80 percent before rebounding somewhat.
Yesterday, Biogen Idec shares gained 96 cents, or 3.5 percent, to close at $39.31. Elan shares gained 76 cents, or 10.5 percent, to close at $7.88.
Biogen Idec now faces an enormous undertaking in trying to determine why the patients contracted the rare disease and whether the cases are related to the combination drug therapy, and in devising a strategy for getting Tysabri back on the market. The company has undertaken a crash course in PML and is examining data from about 3,000 patients who took Tysabri in long-term trials.
Reports that Biogen executives had sold shares just prior to the PML disclosure appeared just after the drug was withdrawn. At issue are strict SEC rules that prohibit insiders from buying or selling shares based on material information that has not yet been made public.
The precise timing of the events surrounding the discovery of the infected patients appears to have worked against Bucknum. Biogen Idec says senior managers were informed on Feb. 18 that two patients had contracted the disease. That was the day Bucknum sold his shares.
Biogen Idec's chairman, William H. Rastetter, also sold shares prior to the withdrawal of Tysabri. But Rastetter's sales were executed Feb. 15, several days before the company says it learned of the sick patients. Rastetter netted $7.7 million, selling 120,313 shares that he obtained at a price of $3.35 by exercising a stock option.
There was another crucial difference between the two executives' sales: Rastetter's sales were made according to a so-called 10b5-1 plan. Under such a plan, an insider executes a legally binding plan to sell shares at specified times. That way, insiders can protect themselves from accusations of trying to benefit from advance knowledge of good news. But it comes at the price of potentially being forced to sell at an inopportune time.
''The SEC has become very aggressive in prosecuting insider-trading cases," said David Marder, a former SEC prosecutor who now represents defendants in securities law cases at Robins, Kaplan, Miller & Ciresi LLP in Boston. ''The issue is going to be one of materiality. If the inside information is clearly something that a reasonable investor would want to know about it, it's material enough that the insider shouldn't trade."
Robert Kerwin, a partner at Tarlow, Breed, Hart & Rodgers in Boston, said, ''There's really a zero-tolerance approach to these situations now."
Bucknum could not be reached for comment. He started at Biogen in 1996 as chief corporate counsel and was appointed general counsel in 1999.
It appears Biogen Idec did not anticipate problems with Tysabri prior to Feb. 18. The company awarded stock options to 10 senior executives Feb. 17, according to documents filed with the SEC. But those options were priced at $67.57 a share, the price the stock closed at on Feb. 17. Those options are now ''under water," meaning the exercise price is well below the strike price, and that the holders of the options cannot profit until the stock price climbs.
Jeffrey Krasner can be reached at krasner@globe.com. 