By Brent Kendall and Alicia Mundy
WASHINGTON (Dow Jones)--A chemist at the Food and Drug Administration was charged Tuesday with insider trading by two federal agencies, which alleged that he made millions by trading drug companies' stock based on highly confidential FDA drug-approval information.
The Securities and Exchange Commission filed civil charges against Cheng Yi Liang, an FDA employee since 1996, alleging he illegally traded in advance of at least 27 different FDA announcements involving 19 publicly traded companies.
Liang's insider trading dated back to at least 2006 and generated more than $3.6 million in illegal profits and losses avoided, the SEC alleged.
The Justice Department filed related criminal charges against Liang, and also charged his son, Andrew Liang, in the case. Both are residents of Gaithersburg, Md.
The SEC said Liang, 57, has worked in the FDA's Center for Drug Evaluation and Research, which evaluates new drug applications.
The agency said he went to great lengths to conceal his trading, using seven brokerage accounts that weren't in his name. One belonged to Liang's 84-year-old mother in China, the SEC alleged.
The FDA said Tuesday that it is aware of the insider trading charges involving one of its employees.
"The agency is cooperating fully with the authorities and will review the situation and take any appropriate action," its statement read.
Some of the FDA announcements at issue in the case involved various delays in the approval process due to the drugs' safety or efficacy tests.
Liang "purchased shares for profit before 19 positive announcements; short sold shares for profit before six negative announcements; and sold shares to avoid losses before two negative announcements," the SEC complaint said. The SEC said that Liang allegedly chose his companies strategically. "Liang traded in the securities of developmental drug companies, as opposed to larger drug companies. With respect to developmental drug companies, an FDA decision positive or negative would likely have a significant impact on the stock price of the drug company, and therefore generate a greater opportunity to profit," the SEC said.
One of the companies whose stock was traded by Liang, according to the SEC complaint, is Momenta Pharmaceuticals Inc. (MNTA), a small biotechnology company in Cambridge, which was vying with two other companies to make a generic version of the blockbuster blood thinner Lovenox, called enoxaparin.
In early November, 2007, the FDA unexpectedly told the companies awaiting approval that they would need to do further specialized testing, which held up the FDA approval decision. Liang made roughly $130,000 from a stock transaction a few days before the public announcement in 2007, which cut Momenta's stock price nearly in half.
Momenta's enoxaparin was finally approved on July 23, 2010.
According to the SEC, Liang made about $85,000 buying stock three days before the 2010 approval became public. The enoxparin battle has become a major legal controversy, as the maker of Lovenox, Sanofi-Aventis SA (SNY, SAN.FR), unsuccessfully sued in federal court to undo the FDA approval, and another contender for the generic version approval, Amphastar Pharmaceuticals Inc. of California, has also sued the FDA for approving its rival first. Lovenox had sales of about $4 billion in 2009.
-By Brent Kendall, Dow Jones Newswires; 202-862-9222; brent.kendall@dowjones.com |
