Ex-CEO of ImClone Refuses to Testify
The brother of former ImClone Systems Inc. Chief Executive Samuel D. Waksal testified Thursday that he phoned Waksal with bad news about the firm’s flagship product the day before family members began dumping shares in allegedly illegal insider trading.
Harlan W. Waksal, who replaced his older brother as ImClone’s CEO last month, told a House subcommittee he informed Samuel Waksal on Dec. 26, 2001, that the Food and Drug Administration was about to reject the company’s application to market a widely touted experimental cancer drug. By the time the rejection was announced publicly two days later, causing the share price to plummet and outside investors to suffer big losses, Waksal family members already had sold $10 million of stock.
The younger Waksal’s testimony appeared to corroborate key elements of the government’s criminal case against Samuel Waksal, who was arrested Wednesday by FBI agents on eight charges of securities fraud, conspiracy and perjury.
Free on $10 million bail, Waksal appeared before lawmakers shortly before his younger brother. He declined to answer questions, asserting his 5th Amendment right against self-incrimination.
Members of the House Energy and Commerce Committee said the ImClone stock sales provide more evidence of ethical lapses within the executive suites of corporate America. In addition, they said the alleged offenses call attention to problems with the FDA’s process for fast-tracking promising new treatments for life-threatening illnesses.
“The saddest story is not about investors losing money,” said Rep. W.J. “Billy” Tauzin (R-La.), the committee’s chairman. “What we see is a drug development and FDA review system that is not necessarily serving the best interests of the people of America and its cancer victims.... We’ve got to fix this system.”
Tauzin and others said they still hold out hope for Erbitux, the bioengineered drug that ImClone wants to market as a treatment for advanced colon and rectal cancer. But it appears that an FDA decision is, at best, months away. Many terminal cancer patients were led to believe that approval was probable in early 2002, lawmakers said.
The FDA refused to consider ImClone’s application Dec. 28, citing flaws in clinical trials of Erbitux. ImClone officials said they hope to resolve those issues and believe the drug still holds promise for cancer victims who do not respond well to other treatments.
“If ever a drug was a good candidate for fast-track, Erbitux was it,” said Harlan Waksal, who was chief operating officer of ImClone at the time of the FDA rejection. He took over as CEO after his brother resigned. “As the company’s new chief executive officer, I am absolutely committed to getting this drug approved.”
New York-based ImClone was founded in 1984 by Samuel Waksal, an oncologist and researcher turned entrepreneur. Waksal, 54, has become a prominent Manhattan socialite, cultivating relationships with luminaries in business, politics and entertainment.
The future of ImClone depends largely on the success of Erbitux, which may slow the spread of cancer by blocking a growth factor in some tumors. But the drug’s vindication would not resolve the problems faced by Samuel Waksal and possibly other family members.
Harlan Waksal said he was informed Dec. 25 that FDA rejection of ImClone’s request was a virtual certainty. But he waited until the next day to phone his brother, who was vacationing in the Caribbean, and other ImClone executives.
“I didn’t feel it was appropriate to wreck Christmas for people at the company,” he said.
On the evening of Dec. 26 and the next morning, Samuel Waksal allegedly relayed the information to two family members. On Dec. 27 and 28, they sold about $10 million of ImClone stock, which was trading around $55 a share.
It is illegal for corporate officials to trade stock if they are aware of significant developments that have not been disclosed to the investing public. It also is illegal for outsiders to buy or sell shares on the basis of information divulged by company insiders.
The FDA’s rejection of Erbitux was announced after the close of trading Dec. 28. By Dec. 31, ImClone’s share price had fallen to about $46. Shares on Thursday fell 25 cents to $8.08 on Nasdaq.
The Securities and Exchange Commission, which has filed a civil lawsuit in the case, said Samuel Waksal tried to sell some of his own ImClone shares by transferring them to another family member’s account Dec. 27. But his brokers refused to process the transaction because of restrictions on insider stock sales.
The ImClone affair has reached beyond the Waksal family to lifestyle entrepreneur Martha Stewart, a friend of Samuel Waksal.
Stewart has acknowledged that she sold all of her ImClone stock for about $228,000 on Dec. 27. She said she had no conversations with Waksal about the transaction, although she tried unsuccessfully to call him that day. Stewart, a former stockbroker, said she sold them because the market price fell below $60, a level she regarded as a sell threshold.
Stewart has not been accused of wrongdoing.
