What you need to know:

The Martoma insider trading case is the latest in, and largest of, a string of actions brought by the Securities and Exchange Commission related to the alleged misuse of confidential clinical trial information by life sciences companies and third parties with access to this information.  

What you need to do:

For life sciences and other public companies, use the Martoma case as an opportunity to evaluate insider trading policies and training programs, and to update agreements with third parties having access to clinical trial or other confidential information, all to mitigate the risk that these data are leaked prior to their publication or public disclosure.

Clinical Data are Under the Enforcement Microscope

As investors look to advances in biopharmaceutical companies’ product pipelines as drivers of future growth, information regarding clinical trials of new drugs can have material consequences on the value of these companies’ securities. Consequently, the Securities and Exchange Commission is engaged in an initiative to track the provenance and use of confidential data about clinical trials, and has partnered with the Food and Drug Administration to evaluate the veracity of clinical trial information reported by biopharmaceutical companies. This initiative has resulted in many high-profile enforcement actions, and biopharmaceutical companies have increasingly found themselves embroiled, either directly or indirectly, in significant insider trading cases involving leaked clinical trial results.  

US vs. Martoma

The most recent of these cases has been dubbed “the most lucrative insider trading scheme ever.” In November, the SEC formally charged Mathew Martoma, a portfolio manager at a hedge fund affiliated with SAC Capital Investors, and his employer for their role in a $276 million scheme involving the leak of clinical trial data for an investigational drug for Alzheimer’s disease being developed by Wyeth (now Pfizer) and Elan Pharmaceuticals. Specifically, the SEC alleges that Dr. Sidney Gilman, the physician overseeing the clinical trial, tipped off Martoma about the drug’s disappointing clinical trial performance and that Martoma, acting on the information, convinced his firm to liquidate its position in Wyeth and Elan securities, ultimately resulting in a $960 million sell-off.

Gilman, a professor at the University of Michigan Medical School, served as a consultant to Wyeth and Elan as well as a consultant for a Manhattan-based “expert network firm.” Martoma allegedly gained material, non-public information about the Alzheimer drug’s negative trial results from Gilman after they developed a relationship following their introduction by the expert network firm. Although Martoma denies any wrongdoing, Gilman has agreed to pay more than $234,000 to settle charges against him.