'Doctor-2' in Elan, Wyeth insider trading case said to be well-connected Alzheimer's doc

In court documents he is identified only as 'Doctor-2.' But sources say that it was a prominent and trusted New Jersey doctor and Alzheimer's researcher for an Elan ($ELN) drug candidate who was the second tell-all source for an alleged massive insider trading deal, one of a number of cases authorities are pursuing.

The Wall Street Journal, citing confidential sources, says the second drug researcher named in a recent updated indictment against SAC Capital Advisors hedge fund trader Mathew Martoma was Dr. Joel Ross. Ross is clinical associate professor of medicine at Mount Sinai School of Medicine and founder and chief executive officer of the Memory Enhancement Center in Eatontown, NJ. Martoma has pleaded not guilty to charges that he used confidential information from Ross and another researcher, Dr. Sid Gilman, about the Elan drug trial failure to help SAC reap $276 million.

Bloomberg says Dr. Ross is well known and trusted in the Alzheimer's research community and often helped drug companies find patients for drug trials. Citing a biography on his website, The New York Times says Dr. Ross was a trial investigator for nearly every medication tested to treat the symptoms of Alzheimer's disease in the last 20 years and recruited patients to take part in trials for experimental drugs. The indictment against Martoma says 'Doctor-2' worked for Elan on the trial for bapi and reported results on patients to Elan. He is said to have agreed to be a paid consultant to SAC.

The indictment says that Martoma and 'Doctor-2' had a meeting set up for July 28, 2008, the day trial results were disclosed but ahead of when Elan and Wyeth, now part of Pfizer ($PFE), would report the drug trial failure to markets. The hedge fund used information from the sources and liquidated its $700 million position in Wyeth and Elan, then sold their shares short to save and earn $276 million. Ten SAC employees have been mentioned in the case and 5 charged.

But the Elan/SAC case is only one of a number of insider trading cases involving drug companies that authorities have been pursuing of late. Just last month, the Securities and Exchange Commission (SEC) said in a filing that traders bought calls on Onyx ($ONXX) shares based on inside knowledge of Amgen's ($AMGN) undisclosed deal to buy Onyx for $10.4 billion. Using accounts in the Canary Islands and Beirut, Lebanon, the traders made a quick $4.8 million. The SEC says the trades by the insiders began June 26, days before it was publicly known that Onyx had received and rejected an initial offer from Amgen. News of the deal shot Onyx shares up more than 50%. And in June, the SEC filed civil complaints against two brothers accused of buying stock based on secret knowledge of the then-upcoming takeover by Sanofi ($SNY) of consumer health company Chattem. That is the 8th case the Commission has brought against insider trading connected to that deal.

- here's the Wall Street Journal story (sub. req.)
- read the Bloomberg story
- more from The New York Times