The Doctor At The Center Of The Insider Trading Scandal

Last week’s big insider trading case offers fresh evidence that financial interests often clash with medical ethics. Of course, the news stories were all about the juicy details of insider trading at a hedge fund based on information leaked by a key academic investigator. This is an important and shocking story. But there’s another story buried here. Though far less dramatic than the insider trading part of the story, the DOJ complaint paints a rare portrait of the inner workings of the pharmaceutical industry and its dysfunctional relationship with academic leaders. And it ain’t a pretty picture.

Dr. Sidney Gilman

The key medical figure in the case is Dr. Sidney Gilman, an 80-year-old neurologist with expertise in neurodegenerative disorders, including Alzheimer’s disease. According to his biography on the University of Michigan website, Gilman first served on the faculty at Harvard and Columbia and then had a long and distinguished career at the University of Michigan, where he was the chair of the department of neurology for many years. He is a member of the Institute of Medicine of the National Academy of Sciences and a past president of the American Neurological Association. In other words, he’s a bigshot.

Gilman moonlighted as a consultant, working for an expert networking firm, where he provided advice to the financial industry (and which eventually led to the insider trading case), and for Elan Pharmaceuticals. In addition to his consulting for Elan, he also served as the chair of the Safety Monitoring Committee for a phase II clinical trial of a highly promising (at the time) Alzheimer’s drug, bapineuzumab, under development by Elan and Wyeth.

The bottom line of the DOJ and SEC investigation is that Gilman provided confidential information about that trial to the hedge fund. While serving on the Safety Monitoring Committee of the trial, from the summer of 2006 through mid-July 2008, Gilman had access to the safety (but not the efficacy) data from the trial. Throughout this period he leaked the positive safety information to his contact at SAC (the enormous hedge fund), which then began to accumulate a large position in both Elan and Wyeth.

On June 17, 2008, about six weeks before the first results of the trial were presented, Elan and Wyeth issued a press release announcing “encouraging top-line results” from the phase 2 trial. Although it disclosed that the trial had not met its primary endpoint, the press release focused on promising subgroup analyses and comments from company officials expressing optimism about the drug. The companies announced that full results of the trial would be presented on July 29, 2008 at ICAD (International Conference on Alzheimer’s Disease). The stock of Wyeth and Elan rose in response to the press release.

Later in June, Elan chose Gilman to present the full trial data at ICAD. Gilman did not become privy to this data until the middle of July when Elan gave him the full results of the trial. The results, in sharp contrast to the earlier view in the press release, were decidedly negative, offering little hope that the drug would be considered effective. Gilman apparently understood this, because he immediately gave the results to the hedge fund, which then rapidly and dramatically reversed its long position on Wyeth and Elan.

Gilman’s presentation of the data at ICAD resulted in a 42% drop in Elan’s stock and a 12% drop in Wyeth’s. The DOJ estimates that the hedge fund’s combined profits and avoided losses on the basis of Gilman’s information amounted to about $276 million, making it the largest single insider trading case to come to light.

Most of the news coverage of the case has focused on the hedge fund side of the story, but I think it’s worth focusing on Gilman’s role in the case and his relationship with Elan. Gilman, it should be noted, won’t be going to jail for his crimes because he’s cooperating with the DOJ prosecution of the hedge fund manager. (The generosity of the DOJ toward Gilman deserves reflection, to my mind; Gilman’s crimes are at least as egregious as the hedge fund manager’s. I see no reason why physicians and scientists should not be judged– and held accountable– for ethical standards at least as high as a hedge fund manager.)

This is a tricky case because although there are a lot of bad characters, there are no totally sympathetic characters (though undoubtedly all the investors on the wrong side of the hedge fund trades got a raw deal). Gilman and the hedge fund thoroughly betrayed Elan, but as the first press release illustrates, Elan was also seeking to game the market with a misleading press release.

I’ve written before about misleading press releases issued by companies before the full presentation of a trial. Companies should not be allowed to use the excuse of “material disclosure” to influence or game the market.

Imagine, for a minute, if the trial had been performed by an outside academic group that owned the data. This would not have necessarily prevented a rogue investigator from leaking the data to the hedge fund, but it would almost certainly have prevented the company from issuing a misleading press release.

But the company kept firm control of the trial. This explains the bizarre dual role of Gilman, first as chair of the Safety Monitoring Committee, then as a mere figurehead to present the data at a public meeting. Because he wasn’t actually a trial investigator, because he had only recently been given access to the data, he acted more like a company spokesman or a figurehead, instead of an independent scientist.

My view is that even if Gilman hadn’t leaked confidential information to the hedge fund, his relationship with Elan is a good example of the deeply compromised, fundamentally flawed research system in which academic figureheads serve as puppets for industry interests. The ironic twist here is that, in the end, Gilman did display his independence from Elan, but only by betraying the company and leaking its secrets.

It may seem like a minor point but Gilman’s dual role as Safety Monitoring Committee chair and data presenter at ICAD is worth examination. The DOJ complaint doesn’t dig into this issue, if only because it’s not material to the inside trading case, but it should be appreciated that it is highly unusual for a member of the Safety Monitoring Committee to present the primary trial results. (Data and Safety Monitoring Committee members are occasionally asked to explain the reasons why a trial was stopped early or, in other cases, allowed to continue. But I’ve never seen a data committee member present the results of an important, highly anticipated trial.

I asked two experts for their thoughts about this case. Dave DeMets and and Curt Furberg have written articles about the role of DSMBs and  have served on numerous DSMBs and advised the FDA about clinical trials and drugs. They couldn’t respond to the specifics of this case, but were able to comment about the general issues. DeMets said that “members of the data monitoring committee  must be independent of the sponsor and investigators.” When the trial is over DMC members “should still remain silent in general,” though there are several exceptions to this rule, as indicated above.

Curt Furberg, who has long been critical of improper industry influence on the practice of medicine, pointed out that these rules about the role of the DSMB are often violated in the real world:

My experience/observation is that the rules are frequently violated by commercial sponsors. They too often appoint as DSMB members their paid consultants, paid members of their Scientific Advisory Board and/or investigators paid to be actively involved in research projects. This is troubling…. I should add that many academic colleagues can function independently even if paid by the sponsor for separate activities. The problem are the investigators who violate the rules in hope of being “properly rewarded.”

Whether the kind of insider trading that came to light last week goes on with other clinical trials and other companies is unknown. We have all heard rumors and some of them may be true. But it is absolutely certain that the relationship of many companies and many outside investigators who consult for them is similar to the relationship between Elan and Gilman.


  1. You write: “The ironic twist here is that, in the end, Gilman did display his independence from Elan, but only by betraying the company and leaking its secrets.” If I read other press accounts accurately, Gilman also received over $100,000 in payments from SAC. So this is not a case of “independence,” but of divided loyalties, each of which was defined by cash compensation.

  2. Great outing. The solution is simple, that conflicts of interest being listed is not enough, they need to be a bar to any form of participation. The defense that if not for compromised academics we wont have anyone to monitor these trials is a self serving myth. Time for Occupy Medical Research.
    Wilbur Larch MD FACC


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