Trial investigators busted for insider trading on 'halted' GTx studies
This article was originally published in Scrip
Two California doctors became the latest to prove that trading on insider information does not pay, and in fact, results in great losses.
The Securities and Exchange Commission (SEC) on 19 May asserted that Drs Franklin Chu and Daniel Lama were privy to the fact the FDA in February 2012 was placing a clinical hold on the Phase II studies of GTx's Capesaris (GTx-758), an experimental non-steroidal selective estrogen receptor alpha agonist, after reports of an increased risk of blood clots in patients on the drug.
The investigational agent was being studied as a first-line androgen deprivation therapy to treat advanced prostate cancer and in second-line hormonal treatment.
The two trial investigators, who worked at San Bernardino Urological Associates (SBUA) Medical Group in California and were under strict confidential agreements that prohibited them from using nonpublic information about the studies for any purposes other than rendering services, learned about the hold on 17 February 2012 and then immediately sold their shares in GTx.
Dr Chu, the principal investigator for GTx's trials, sold 16,000 shares at an average of $5.82 per share, avoiding losses of $34,081 when the company’s stock plummeted more than 36%, closing at $3.69 on 21 February after the company revealed the clinical hold on the trial (scripintelligence.com, 22 February 2012).
Dr Lama sold 5,400 shares at an average of $5.82 per share, avoiding $11,502 in losses that day.
The SEC said the FDA had informed GTx during a 17 February 2012 conference call the agency planned to place a hold on the firm's studies of Capesaris.
The SEC said GTx's CEO then contacted Dr Chu later that day about the hold and told him the company planned to issue a press release in the next few days.
Dr Chu then logged on to his brokerage accounts through his smart phone and sold his shares, with total proceeds of $93,120.
That same day, Dr Lama's wife, Ann, a nurse at the SBUA facility, heard about the plans to halt the trial and quickly called her husband and relayed the information to him.
Because Dr Lama did not have access to a computer at that moment, he walked his wife through the process of placing the order to sell his 5,400 shares, which resulted in proceeds of $31,428.
The SEC noted that after Dr Lama was contacted by the agency about the matter, the clinical trial investigator provided false information, claiming he had no knowledge of the FDA's hold at the time of his trading.
To settle the SEC's charges, the two doctors consented to a final judgment permanently enjoining them from future violations and ordering them to pay financial sanctions without admitting or denying the allegations.
Dr Chu agreed to pay disgorgement of $34,081, prejudgment interest of $2,014 and a penalty of $34,081, while Dr Lama agreed to pay disgorgement of $11,502, prejudgment interest of $680 and a penalty of $34,506.
The SEC noted that Dr Lama's penalty is three times the amount of his illicit trading profits.
The FDA ended up lifting the hold on the Capesaris studies in May 2012 after the company agreed to test a lower dosage of the drug (scripintelligence.com, 9 May 2012).