He was described only as “Doctor 1” in a Massachusetts insider-trading complaint against a hedge fund operator.
Doctor 1 talked to the money manager in June 2010 about an unpublished study of an obscure drug, according to the complaint filed by the state’s securities regulator. The hedge fund bought more than $800,000 in stock in Questcor, the company whose sole product was that drug, and saw its value soar.
It turns out that Doctor 1 is an assistant medical professor at Columbia and a kidney expert , whose name is Dr. Andrew S. Bomback. He was identified by a comparison of the veiled references in the Massachusetts filing with a press release from Questcor Pharmaceuticals, the California company selling the drug.
“I’m actually surprised you were able to identify me,” Dr. Bomback said in a phone call.
While confirming his involvement, though, he denied any wrongdoing, as did the hedge fund manager, James A. Silverman of Cambridge, Mass. The securities case focuses on Mr. Silverman.
The civil case, however, first brought against Mr. Silverman last March, has spawned a new set of regulations in Massachusetts that will take effect later this year.
William F. Galvin, the Massachusetts secretary of state and securities regulator, has proposed a change in that state’s regulation of interactions between experts like Dr. Bomback and securities traders who may be tempted to seek out and act on information that could be construed as confidential.
The changes, effective Dec. 1, would force Massachusetts’ regulated investment advisers to obtain disclosure of all the areas that a consultant in an expert network is prohibited from discussing before the investment advisers could talk to that consultant. Mr. Galvin, in an interview, said the rule would clarify what was illegal.
“The bigger issue here is there were loopholes being exploited by companies to get insider information and basically corrupting the marketplace,” Mr. Galvin said.
He said that states were playing a much larger, everyday role in regulations under the Dodd-Frank Wall Street Reform Act of 2010, even as a few prominent federal cases made headlines.
Dr. Bomback’s role was that of an academic researcher with connections. His findings, including remarkable success on his own patients, have helped a drug market balloon, even as he signed a $50,000-a-year consulting contract with the drug maker, records show, and took thousands of dollars from an intermediary, Guidepoint Global, an expert network, that put him in touch with money managers.
In one sense, his research was limited to a retrospective case series reported in a fairly obscure medical journal, Drug Design, Development and Therapy. But in another sense, it was vitally important for the company and its investors.
Dr. Bomback reviewed every known patient in the nation who had tried the drug by the end of 2009 for a debilitating kidney disease known as nephrotic syndrome.
There were only 21 such patients total, eight of them in Dr. Bomback’s own practice. Most had failed other treatment and pinned their hopes on a kidney transplant or a lifetime of dialysis.
The study found that 9 of 11 of the patients with a certain type of nephrotic syndrome responded well to treatment. In doing so, the study has helped transform the drug, called H.P. Acthar Gel, from the status of an orphan to that of a potential blockbuster.
Questcor told investors this month that the expensive, injectable drug could have $1 billion sales for the niche condition Dr. Bomback studied. The drug costs more than $23,000 a vial; Questcor, betting on its value, had raised the price from $1,650 a vial in 2007. The drug is also sold for ultrarare infant spasms and select multiple sclerosis patients.
Dr. Bomback and other Columbia researchers continue to analyze Acthar in a company-sponsored clinical trial. As for the $50,000-a-year consulting agreement he signed with Questcor in January 2010, Dr. Bomback said it was changed in April 2010 to $10,000 a year for five years “to comply with new rules adopted by Columbia University limiting consulting fees.”
The university’s policy was actually last changed in July 2009, said Douglas Levy, a spokesman. It generally prohibits faculty with consulting payments over $10,000 from researching that company’s products.
Mr. Levy declined to discuss Dr. Bomback’s actions in detail, saying any university inquiry would be conducted and resolved privately.
Dr. Bomback said his pay for talking to money managers in the Guidepoint expert network was small: just $3,541 since Jan. 1, 2010.
The Massachusetts complaint portrays a sharp turnaround for Mr. Silverman’s hedge fund after he began paying Guidepoint $80,000 a year for the right to interview two experts a week. Most of them were conducting confidential research for various drug makers, the complaint said. They were supposed to talk about other things — a policy Guidepoint informs them about but does not track to ensure compliance.
Mr. Silverman’s fund, Risk Reward Capital, had lost 16 percent of its value in 2007, but after joining Guidepoint in 2008, it gained 55 percent in 2009 and 52 percent in 2010, the complaint said. State authorities also accuse him of illegal trading in another company, Ariad Pharmaceuticals, with help from unidentified Guidepoint experts, which he also denies.
Article source: http://feeds.nytimes.com/click.phdo?i=352e3acc098b543a554f8ed67fbbf2bb
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