SEC steps up probe into trading at Biogen
The Securities and Exchange Commission has stepped up its investigation of alleged insider trading at Biogen Idec Inc. in connection with stock sales by company officials just before the firm pulled its promising drug Tysabri off the market in February, the company said yesterday.
Separately, the former chief scientific officer of Biogen Idec yesterday paid a steep fine to settle unrelated civil charges of insider trading in 2003 brought by the SEC. Nabil Hanna, who resigned from the company in May 2004, also agreed never to serve as an officer or director of a publicly traded company.
Biogen Idec spokesman Tim Hunt said the firm received a letter from the SEC Monday saying an informal query is now a formal investigation. The change in status makes it more likely that civil charges will be brought against additional insiders who may have traded shares before the company made public its decision to pull multiple sclerosis drug Tysabri from the market on Feb. 28.
''Biogen Idec continues to cooperate fully with the SEC on matters related to the suspension of Tysabri," said Hunt.
Thomas Bucknum, the company's top lawyer, resigned a few days later after it was reported he sold Biogen Idec shares at about the same time top management learned of unexpected illnesses in patients taking Tysabri in trials. A director, Robert Pangia, exercised options and sold shares, netting a large profit, a few days before Biogen Idec says management learned of the illnesses. Public disclosure of the problems with Tysabri caused Biogen Idec's stock to drop 42 percent in one day.
Other officials, including executive chairman William Rastetter, sold shares around the same time as part of a preplanned trading program put in place long before the illnesses associated with Tysabri surfaced. Such plans may shield the executives from insider trading charges, because the shareholders agree to the sales regardless of what is happening with share prices.
Biogen Idec launched Tysabri in November, after it received accelerated approval from the Food and Drug Administration. The treatment, administered by once-a-month intravenous infusion to MS patients, was expected to be a blockbuster, with sales of more than $1 billion within a few years.
But Biogen Idec and its partner, Elan Corp. PLC, chose to discontinue sales and clinical trials involving Tysabri when they learned two patients had contracted a rare and often deadly brain disease. It is unclear when Tysabri might return to the market, and whether it could be widely prescribed.
The settlement yesterday with Hanna arose from alleged insider trading that took place before Biogen and Idec merged in November 2003. Hanna was chief scientific officer of what was then San Diego-based Idec Pharmaceuticals Corp.
According to the SEC's civil complaint, Regeneron Pharmaceuticals Inc., of Tarrytown, N.Y., contacted Idec in July 2003 to discuss a potential joint venture. Idec already had a successful cancer drug, Rituxan, and Regeneron was developing drugs based on new technology intended to kill tumors by cutting off their blood supply.
During discussions lasting several months, Hanna learned that Regeneron's technology ''was scientifically and commercially viable," the SEC alleges. Moreover, the complaint alleges, the drug had proved successful in preclinical testing and had ''blockbuster sales potential." He also learned how much money Regeneron was looking for from a partner.
The companies didn't strike a deal. But that August, Hanna bought 17,500 shares of Regeneron at about $14 a share. In September, Regeneron said it would collaborate with Aventis SA, the European drug giant. The collaboration included $125 million in upfront cash and investment, and potential payments of about $400 million more as the drug progressed toward commercialization.
The day after the announcement, Regeneron shares soared, and Hanna sold all his stock at $21.15 a share, according to the complaint, yielding a profit of $124,000.
According to the settlement, in which Hanna neither admits nor denies the allegations, Hanna will give up the $124,000 in profits and will pay a fine of $248,000. Fines in insider-trading cases are typically equal to the amount of ill-gotten profit. An SEC official said Hanna's fine was twice that in part because of his senior position within the firm and the egregious nature of his conduct.
Hanna left the company in April 2004 amid an internal company investigation sparked by an informal query by the SEC. He neither admitted nor denied the allegations in the settlement. Hanna could not be reached for comment. His lawyer, Kevin T. Rover of Morgan, Lewis & Bockius LLP of New York, did not return calls for comment.
Jeffrey Krasner can be reached at krasner@globe.com.
