Former OGD Deputy Guilty in Insider Trading Scheme

Former FDA Office of Generic Drugs deputy director and now consultant Gordon Johnston has pled guilty and admitted his role in an insider trading scheme that obtained highly confidential and material nonpublic information from a senior FDA official about the status and impending approval of generic enoxaparin (Sanofi-aventis’ blockbuster Lovenox). According to government and court documents, the information that Johnston illegally obtained was passed on to hedge fund managers who used it to make stock trades in violation of insider trading laws and regulations.

Back in 2010, this and similar ANDAs were very contentious at the agency. According to agency information posted at the time of approval, many challenges had to be overcome before any generic anoxaparin could be approved. FDA said that the criteria typically used to approve generic drugs in this class were inadequate by themselves and that additional criteria were needed. The agency established a series of rigorous overlapping criteria to ensure that the heparin source material, the chemical reaction used in the manufacturing process, and the structure of the active ingredient was equivalent to Lovenox and that the generic product has the same degree of anticoagulant activity.

Johnston passed the pending approval decision information to hedge fund manager Sanjay Valvani, who increased his fund’s holdings in anticipation of the approval. Once approved, Momenta’s stock surged almost 100%. The fund also held short positions in Sanofi’s stock. After the approval, the fund closed out its positions and netted a total profit of $25 million. Johnston received an undisclosed monthly consulting fee for his work for the hedge fund from 2005 to 2011.

According to the government, Johnston on 6/13 pled guilty in Manhattan before magistrate judge James C. Francis IV to four counts: one count of conspiracy to convert U.S. property to commit securities fraud, and to defraud the U.S.; one count of securities fraud; one count of conspiracy to commit wire fraud; and one count of wire fraud.  Count one carries a maximum sentence of five years in prison.  Counts two through four each carry a maximum sentence of 20 years in prison.  The charges also carry a maximum fine of $5 million, or twice the gross gain or loss from the offense.

In separate actions, the Securities and Exchange Commission filed civil charges against Valvani, Johnston, and two others that participated in the scheme.

Johnston retired from FDA in 1998. In 2003, he joined the Generic Pharmaceutical Association as vice president of regulatory affairs. He left GPhA in 2011 and started a consulting practice. Prior to joining GPhA, Johnston worked for four years as an associate for Lachman Consultant Services, Westbury, NY, providing regulatory and technical advice on FDA requirements and review procedures.

FDA Webview requested comment from FDA about the scheme and whether any OGD official has been reprimanded, but the agency declined to comment.