As a rule, principal investigators for clinical trials should not be trading in the stocks of companies whose drugs they are testing. But the feds allege that Dr. Edward Kosinski ignored this dictum and now faces charges of insider trading.
In two separate instances, Kosinski sold his shares in Regado Biosciences after receiving bad news about a clinical trial in which he was the principal investigator, according to a lawsuit filed on Thursday in federal court in Connecticut by the US Securities and Exchange Commission. In the first stock trade, he avoided $160,000 in losses, and in the second transaction he made more than $3,000 by exercising options.
The trades occurred in 2014, when Kosinski headed a trial testing the use of a drug for regulating clotting in patients undergoing coronary angioplasty. After he was given advance notice enrollment was being suspended because some patients experienced severe allergic reactions, he allegedly sold all 40,000 of his Regado shares the next day. He profited because Regado stock, not surprisingly, then dropped.
A month later, the SEC says he also received advance notice that enrollment would be permanently halted because a patient had died. The lawsuit alleges that Kosinski then profited by making options trades in which he bet Regado shares would drop in price and the SEC says that the stock fell 60 percent after learning the trial was ended.
The lawsuit also alleges that Kosinski, 68, who is a cardiologist at St. Vincent’s Medical Center in Bridgeport, Conn., and president of Connecticut Clinical Research, failed to disclose that held Regado stock at the time he agreed to become an investigator. He faces a maximum term of imprisonment of 20 years. Kosinksi could not be reached for comment — a woman answering his office phone said “No comment” and hung up.
This alleged episode of insider trading is only the latest instance involving the pharmaceutical industry or those working with drug makers. The issue has increasingly raised concerns in connection with clinical trial work, as well as deal-making and the drug approval process, which some fear can be distorted by such activities.
Two months ago, for instance, a former US Food and Drug Administration official pleaded guilty to securities fraud and three other crimes as part of a scheme to provide information to a high-profile hedge fund about upcoming agency approvals of generic drugs. And for his efforts, Gordon Johnston was paid hundreds of thousands of dollars, according to the SEC.
The same week, federal authorities charged that the former director of biostatistics at a small biotech called Akebia Therapeutics (AKBA) traded on information he learned about study results for a key drug while attending company meetings.
Also last June, a former Oppenheimer & Co investment adviser was arrested on charges of trading on inside information supplied by a childhood friend who worked at Pfizer (PFE) as director of chemical research and development, and received information about potential deals. The Pfizer employee had to evaluate manufacturing demands and capacity as part of the due diligence. Last month, he pleaded guilty to conspiracy to commit securities fraud, conspiracy to commit wire fraud, and securities fraud.
Last fall, a former Merck financial analyst was sentenced to three years in prison for insider trading after he allegedly misappropriated information about a pair of planned acquisitions and repeatedly tipped off a friend who worked at Bank of New York Mellon. All totaled, about $722,000 in profits were made.
In 2014, former portfolio manager Mathew Martoma, who worked for an affiliate of SAC Capital Advisors, was sentenced to nine years in prison. He was accused of using inside information provided by two doctors about results of a trial of an Alzheimer’s drug. Both doctors testified they passed along inside tips on drug tests.
Back in 2012, a former FDA chemist was sentenced to five years in prison for using his access to agency information to make nearly $3.8 million in profits. And three years ago, a former Bristol-Myers Squibb executive was sentenced to a year in prison after admitting to trading on inside information while helping the drug maker evaluate potential targets.