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Gilead Sciences Inc
Bristol-Myers Squibb Co
Merck & Co Inc
U.S. regulators were so suspicious of the circumstances surrounding Gilead Sciences Inc. (GILD)’s Nov. 21 announcement it was buying Pharmasset Inc. for $11 billion that they opened an insider-trading investigation that day.
“The volume was huge and the deal premium was huge, so we looked at the underlying trading,” U.S. Securities and Exchange Commission attorney Mary P. Hansen said in a phone interview. “We were looking at anyone who bought shares.”
The probe, which the Justice Department joined, resulted yesterday in the arrest of Robert Ramnarine, a Bristol-Myers Squibb Co. (BMY) executive. Ramnarine, 45, was charged with making $311,361 in illegal profit by buying stock options in three companies targeted for acquisition. The SEC, which sued Ramnarine yesterday, is continuing its probe.
Ramnarine held high-level jobs including executive director of pensions and savings investments and assistant treasurer for capital markets. He helped the New York-based drugmaker evaluate whether to buy targeted companies, including Pharmasset, ZymoGenetics Inc. and Amylin Pharmaceuticals Inc. (AMLN), according to the Federal Bureau of Investigation arrest complaint.
As he conducted due diligence on pension and savings plans of those companies, he bought options in all three, violating a duty not to profit from inside information, the FBI said. Ramnarine was released yesterday on a $250,000 bond after appearing in federal court in Newark, New Jersey. His lawyer, assistant federal public defender Peter Carter, had no comment.
“We are concerned about the apparent epidemic of insider trading involving the securities of pharmaceutical and health- care companies,” Daniel M. Hawke, chief of the SEC’s Market Abuse Unit, said in a phone interview. Ramnarine “was a well- compensated person, and it’s alarming that a person of his stature engaged in this kind of conduct.”
Bristol-Myers engaged in discussions from Oct. 13 to Nov. 17 of 2011 about potentially acquiring Pharmasset, which was developing oral drugs for hepatitis C, or HCV. The company, which had 82 employees, had a net loss of $91.2 million for the fiscal year ended Sept. 30 and no products on the market.
Pharmasset took offers in a “limited auction process” through its investment banking firm, Morgan Stanley Smith Barney LLC, according to the FBI complaint. Bristol-Myers withdrew on Nov. 17. On the next day, a Friday, Pharmasset closed at $72.67, with trading volume of 1.03 million shares.
When the companies announced the following Monday that Gilead, the world’s largest maker of HIV medicines, would buy Pharmasset for $137 per share in cash, a premium of 89 percent, the volume rose to 7.1 million shares.
Ramnarine made $225,026 in illicit profit on the Pharmasset deal, buying some of his options on his work-issued BlackBerry, according to the arrest complaint.
To analyze the Pharmasset deal, the SEC collected trading data from clearing brokers, aggregated it and analyzed it, according to Hawke.
After the Pharmasset deal, Ramnarine also engaged in insider trading in another deal, the Bristol-Myers purchase of diabetes drugmaker Amylin for $5.3 billion. The deal was announced June 29. Ramnarine made $55,784 in illicit profit on the deal, authorities said.
“We were continuing to investigate his suspicious trading, and he traded while we were conducting our investigation,” Hawke said. “When we saw the trading in June, we decided that we were going to have to act soon.”
Bristol-Myers fell yesterday the most in more than 10 years after it announced Aug. 1 that a patient in a clinical trial for its experimental hepatitis C drug had developed heart failure. The company halted testing of the drug.
Shares fell 8.6 percent to $32.55, after gaining 27 percent in the previous 12 months. It was their worst one-day drop since April 2002.
Bristol-Myers has been acquiring companies and developing drugs to replace top-selling heart drug Plavix, which had $7.09 billion in sales last year.
Ramnarine, of East Brunswick, New Jersey, is charged with three counts of securities fraud, each carrying a maximum prison term of 20 years. The SEC seeks a court order to freeze his brokerage account assets. Bristol-Myers said Ramnarine was placed on administrative leave effective immediately.
“Bristol-Myers Squibb has clear and strict policies prohibiting trading on material nonpublic information and is cooperating with the government’s investigation,” Ken Dominski, a company spokesman, said in an e-mail.
From his office in Princeton, New Jersey, Ramnarine conducted Internet searches to determine whether he could be detected by authorities, according to the SEC. One search was on the term “can stock option be traced to purchase inside trading,” according to the civil complaint.
Ramnarine’s illegal conduct began before Bristol-Myers agreed to buy ZymoGenetics, authorities said.
Bristol-Myers reached a tentative agreement to buy ZymoGenetics on Aug. 12, 2010, triggering three weeks of due diligence, according to the FBI complaint.
Ramnarine bought ZymoGenetics options on Aug. 25 and Aug. 26 of 2010, and sold them two weeks later on Sept. 8, the day after the deal was announced, for a profit of $30,551, according to the FBI. In an application for one brokerage account used for those trades, Ramnarine falsely stated that he worked at Merck & Co. (MRK), the FBI said.
Ramnarine was hired in December 1997 and worked from March 2008 to June 2011 as director of pensions and savings investments. He was then promoted to executive director in that office. In July, he was promoted again, to assistant treasurer for capital markets.
In April, he was responsible for advising Bristol-Myers on how the Amylin transaction would affect the company’s capital structure, cash flow and credit rating, according to the FBI. He also spoke with the company’s investment bankers at Citigroup Inc. (C) and credit agencies.
The case is U.S. v. Ramnarine, 12-mj-8121, U.S. District Court, District of New Jersey (Newark).
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