It’s rare for a principal investigator (PI) to face insider trading charges based on confidential developments in a clinical trial. But earlier this month, Edward J. Kosinski, M.D., a PI and president of Connecticut Clinical Research, was indicted on two counts of securities fraud by a federal grand jury in Connecticut for allegedly trading shares of Regado Biosciences in 2014 after receiving non-public information about the clinical trial from the project manager.

The case has attracted interest from the media in the wake of other recent high-profile securities fraud episodes involving those associated with the pharmaceutical industry. For the clinical research community, the Kosinski case also calls attention to a related issue concerning how an investigator’s financial interest—payments, stock in the sponsor company or a proprietary interest in the product—is handled, from how the information should be disclosed to its the potential impact on the conduct of clinical trials.

“Financial interests may lead, even unconsciously, to bias in the investigator’s handling of the study,” said Michael A. Swit, an attorney who has specialized in FDA legal and regulatory issues for more than 30 years.

According to the federal indictment, Kosinski served as a PI in a phase III clinical trial sponsored by Regado Bioscience in 2014 and also owned 40,000 shares of the company’s common stock. Kosinski was charged with allegedly trading his stock in advance of two negative news announcements by Regado, which was testing a drug to regulate clotting in patients undergoing coronary angioplasty. Kosinski pleaded not guilty to the charges and was released on a $500,000 bond. In a parallel action, the U.S. Securities and Exchange Commission (SEC) announced related civil charges against the investigator.

Kosinski and other PIs working on the clinical trial received an email from the clinical trial team, according to the indictment, stating that study enrollment was being suspended because there had been several severe allergic reactions and the Data Safety Monitoring Board (DSMB) needed time to review the events. He allegedly sold all 40,000 of his Regado stock the following day in order to avoid about $160,000 in losses when the news became public and the stock price dropped. A month later, Kosinski received advance notice that enrollment would be permanently halted because a patient had died. According to the SEC complaint, Kosinski then allegedly purchased Regado common stock with put option contracts, betting that the price of Regado stock would fall again. After the company announced the negative news, stock prices fell by 60% and Kosinski allegedly made more than $3,000 when he exercised his put options.

The lawsuit also alleges that Kosinski, a cardiologist at St. Vincent’s Medical Center in Bridgeport, Connecticut, didn’t disclose his ownership of Regado common stock when he signed the investigator protocol agreement and failed to file a mandatory updated financial disclosure form after he bought additional shares of Regado. According to SEC documents, Kokinski didn’t file an updated financial disclosure form until after the clinical trial ended and he had sold all of his Regado shares and exercised his put options.

It’s not illegal for investigators to have a financial interest in the biopharmaceutical companies for which they conduct clinical research studies. Yet FDA regulations require investigators to disclose any significant financial interest they have in the company or drug being tested, including payments, stock and intellectual-property rights, and to promptly update the information if any relevant changes occur during the course of the investigation and for one year following the completion of the study.

Sponsor companies are responsible for collecting financial disclosures from clinical investigators before they participate in a study, and for submitting forms detailing the information to the FDA when they submit a marketing application for a drug, biologic product or device. Regulations require sponsors to either certify the absence of certain financial interests of clinical investigators, or their immediate family members, that could affect the reliability of data submitted to the FDA or else disclose those financial interests to the agency and identify the steps taken to minimize the potential for bias.

“The FDA is quite rigorous about making sure that these forms are on file and looks at them closely,” said Mark Barnes, a partner at Ropes & Gray who focuses his practice on research issues. “In my experience, sometimes the FDA will informally suggest that a particular investigator may not be right for the trial because he or she has such a large financial interest in the company whose product is being tested in the trial.”

If the FDA determines the financial interests or arrangements of any clinical investigator raise a serious question about the integrity of the data, the agency can take any action it deems necessary.

Separate federal regulations mandate that researchers who apply for NIH or Public Health Service (PHS) grants file annual statements disclosing any interests that might impact research. In addition, the Open Payments program, a provision of the Affordable Care Act, requires pharmaceutical and medical device companies to report payments to physicians and teaching hospitals, including clinical research grants, for publication on a searchable public database. Leading medical journals also require its authors to disclose financial relationships and other potential conflicts of financial interest.

“There are a lot of opportunities to disclose. The larger question is who needs to know about a conflict and how do they need to see it,” said Jennifer E. Miller, Ph.D., assistant professor in the Division of Medical Ethics at NYU School of Medicine and president of the nonprofit Bioethics International. “Generally, it’s not a one-size-fits-all mechanism where one disclosure is good enough for everybody because the clinical trial participant is not going to look in the same place as a physician.”

While it’s unusual for an investigator conducting a clinical trial to have a large financial interest in the sponsor’s company or product, there are some exceptions. Investigators with a stake in start-up companies developing a new compound or biologic, for example, may be in the best position to conduct the trial safely because of their unique knowledge of the drug or biologic product. In most cases, however, investigators with a large equity stake in a biopharmaceutical company are encouraged to self-defer from conducting clinical trials for that organization. Many academic centers and professional medical associations have adopted policies strongly discouraging researchers from having stock or equity interests in the companies for which they are conducting a clinical trial.

“The concern is when an investigator has a very large direct stake in the company through the ownership of millions of dollars of equity and is also doing a clinical trial for the company. That is where questions and concerns have tended to emerge,” said Barnes. “In my experience, that is a rare phenomenon. Companies don’t like those investigators to do the trial because it impeaches the credibility of the data. It’s not good for the company, but it’s also not good for the investigators, who would be better off doing trials in which they don’t have a conflicting interest.” 

This article was reprinted from Volume 20, Issue 32, of CWWeekly, a leading clinical research industry newsletter providing expanded analysis on breaking news, study leads, trial results and more. Subscribe »