Northwest: Analysis of a Coordinated Short Selling Attack Against the Stock (NWBO, $4.69)
LARRY SMITH, 20 October 2015
Again I can see some people scoffing at my suggestion of such broad based criminal actions but consider the following. Martin Martola of SAC Capital was sentenced to 9 years in prison because he had paid one of the primary investigators in the phase 3 trial of Elan’s bapineuzumab in Alzheimer’s disease to learn of results before they were made publicly available. The clinical trial investigator tipped Martola that the phase 3 trial was unsuccessful and Martola and his employer SAC Capital executed trades that resulted in $275 million of profits. SAC’s founder Steve Cohen was charged with the same crime, but Martola refused to testify against Cohen and he was not indicted. However, SAC made a $1.8 billion settlement for criminal and civil settlements and agreed not to manage outside money.
I am aware of another case involving a small company in which a phase 3 trial failed. The drug in the trial performed as expected, but the control arm of the trial (which involved an active drug) did exceptionally well and far better than ever been seen in numerous prior trials. Curiously, two large centers were responsible for the strong placebo effects. Also curious was that their placebo results were quite comparable and at odds with other centers in the trial. A few weeks before the phase 3 results were known, a hedge fund manager bragged openly to the CEO of the company that he was sure the trial would fail and was heavily short the stock. This suggests that the CRO or the investigating centers were compromised allowing the control arm data to be manipulated. Again if you scoff, think of the money that Martola made. This is not simply insider trading that might result in a few hundreds of thousands of ill-gotten profits. We are talking hundreds of millions of dollars.
