Pharmion purchase part of federal probe

BOULDER – A $1.7 million insider-trading case filed against seven Celgene Corp. employees started when the biotechnology company purchased Pharmion Corp. in 2008, according to federal documents.

Boulder-based pharmaceutical company Pharmion Corp. (former Nasdaq symbol: PHRM) was sold to Summit, New Jersey-based Celgene Corp. (Nasdaq: CELG) for $2.9 billion in cash and stock in November 2008. Pharmion researched drugs to treat cancer.

John Lazorchak, 42, and several of his high school friends used nonpublic information to make money in stock trades in the Pharmion purchase and other more recent Celgene purchases, according to a federal complaint filed in U.S. District Court in New Jersey on Monday, Nov. 19.

Lazorchak started working as Celgene’s director of financial reporting in February 2008, according to the complaint. He was hired in August 2007 to help review Pharmion’s financial information in advance of its pending sale to Celgene, according to the complaint.

Celgene was informed of the complaint on Sunday, Nov. 18, and fired “the employee” on Monday, Greg Geissman, a Celgene spokesman, said in a statement.

“Celgene continues to cooperate fully with authorities on this matter, and it is our understanding that the investigation involved only one employee and not the company itself,” Geissman said. “Celgene is currently exploring its legal remedies.”

The insider-trading group used fake trading binders and a middleman to place trades, and often paid each other in cash for tips to evade detection by the company, according to the complaint and to Colleen Lynch, assistant regional director in the market abuse unit of the Philadelphia office of the Securities and Exchange Commission.

“What we do a lot in these insider trading cases is look at patterns of trading records and relationships among the parties to show that they’ve done it in a concerted fashion,” Lynch said.

Lynch said the investigation is ongoing. It appears no one from Pharmion or other companies bought by Celgene was involved with the insider trading, based on the complaint.

Former Pharmion chief executive Patrick Mahaffy started Clovis Oncology Inc. in Boulder in 2009 with other former Pharmion executives. The anti-cancer drug research company (Nasdaq: CLVS) raised $130 million in an initial public offering of 10 million shares in November 2011.

Clovis said on Monday, Nov. 12, that it will stop work on a key pancreatic cancer drug, since the drug appears to make no difference in the survival of patients.

Clovis continues to research other drugs, including CO-1686 to treat lung cancer; rucaparib for ovarian and breast cancers; and a cKIT inhibitor drug to treat gastronintestinal stromal tumors.

Clovis’s stock was trading down 8 cents at midday Wednesday at $11.81. Tuesday’s closing stock price was $11.89. Celgene’s stock was trading up slightly at midday Wednesday at $77.88. Tuesday’s closing stock price was $77.12.

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