Analysis: John Kerry trades on Amgen show loophole in new law
By Julian Moore, Special to the Business Times, on July 27, 2012
In August, stock sales by members of Congress and thousands of federal employees will get new scrutiny under the STOCK Act, a law passed in April to combat insider trading among government officials.
But a Business Times examination of the timing of the sale of as much as $1 million worth of shares in Amgen connected to Sen. John Kerry, D-Mass., shows that eyebrow-raising trades might continue even after the STOCK Act takes effect.
Amgen, based in Thousand Oaks, is the largest corporation in the Tri-Counties.
Over three days in May 2007, Kerry reported the sale of the Amgen shares examined by the Business Times. The sales took place just one week before a surprise one-two punch from federal drug regulators sent Amgen’s stock on a downward spiral. The trades, made by a blind trust connected to Kerry’s wealthy wife, were legal then and would still be legal under the STOCK Act, experts and a spokesperson for Kerry said.
The story unfolded in February 2007, when the Food and Drug Administration issued a warning about Amgen’s blockbuster Aranesp and Epogen drugs amid an investigation about dosage safety. The therapies had come under scrutiny after mounting evidence showed that widespread over-prescription by doctors had contributed to further complications, including the deaths of some recovering cancer patients.
Three months later, on May 10, 2007, the FDA recommended restrictions on the use of Amgen’s drugs. On May 14, Medicare made a surprise announcement that it would end unlimited payments to doctors who prescribed Amgen’s drugs. At that time, at least one Wall Street analyst expressed surprise at the speed of the decision by Medicare.
But in a timely sale, Kerry, a longtime member of the Senate committee that oversees government drug reimbursements to Amgen, reported the trade of shares in the company on May 4, 2007 and May 7, 2007. On those days, the stock closed at $63.08 and $63.10, respectively, according to a review of historical prices and Congressional ethics disclosures filed later that year. By the end of 2007, Amgen shares traded in the mid-$40 range.
For Amgen, the Medicare decision was a major blow, setting off a chain of events that resulted in the layoff of thousands of employees. Amgen has set aside $780 million to settle lawsuits related to overuse claims.
The senator’s staff told the Business Times that the investment decisions were made by a trust that benefits Kerry’s wife, Teresa Heinz Kerry, and that Kerry does not control it.
A family attorney for Sen. Kerry’s wife said the trusts were established long ago for her benefit by her late first husband, Sen. John Heinz, an heir to the Pennsylvania-based Heinz food fortune.
“Mrs. Heinz is not a trustee of those trusts and thus has no control over their investment policies, which are the responsibility of independent trustees,” attorney Paul J. Bschorr wrote in an emailed statement to the Business Times.
“Blind trusts aren’t very blind, especially for members of Congress,” said Craig Holman, a government affairs lobbyist at Public Citizen, a Washington think tank. Holman lobbied the U.S. Congress in 2012 to pass the STOCK Act, which banned politicians from using what they learn on the job to make a profit. However, spousal trades and those made by blind trusts, such as the one that benefits Teresa Heinz Kerry, would remain beyond the scope of the act.
But the blow to Amgen investors that the Teresa Heinz Kerry trust narrowly avoided ticked off a long slump for the company’s stock.
In particular, the May 14 announcement from Medicare that it would end unlimited payments to doctors who prescribed high doses of Amgen’s drugs came as a shock. One Citigroup analyst noted at the time that the Medicare decision was as much as “four months early … and will surprise investors.”
“It was death by a thousand cuts,” Eric Schmidt, a pharmaceutical industry analyst at Cowen Group in New York, told the Business Times. “The results from the FDA were drawn out through that whole year, and they tarnished Amgen’s label.”
Until that point, Amgen’s anemia drugs were paid for by Medicare at an unlimited rate, leaving doctors with an incentive to prescribe higher amounts of the drug than medically necessary.
Whistleblowers would later allege in lawsuits that Amgen engaged in an organized effort to encourage doctors to overuse its drugs. Amgen has settled those lawsuits, and the government now pays for many Amgen drugs on a fixed-payment basis.
Holman, the reform advocate, said that while the trust’s trades may have met the letter of the law, they still raise concerns. He said he doubts that blind trusts can be fully separated from politics.
“Even if they’re blind, the managers of these trusts are often what I would call political intelligence agents, who under the STOCK Act are still free to go around seeking information from Congress without registering with members,” Holman said.
Shortly after Medicare’s decision to curb payments, Amgen went on the offensive, boosting its lobbying expenses in Washington from roughly $10.2 million in 2006 to nearly $17 million by the end of 2007. Among a handful of other Washington insiders, Amgen hired former Kerry campaign aide Tony Podesta to build momentum in reversing Medicare’s determination.
Medicare reaffirmed in a final coverage decision at the end of July 2007 that it would suspend payments for high doses of Amgen’s Aranesp and Epogen medications. However, in September 2007, the Senate unanimously passed a non-binding resolution supporting unlimited payments for Amgen’s drugs.
“It does seem odd for the Senate to do anything unanimously, especially with respect to health care,” said one Washington lobbyist who requested anonymity because he works closely with the pharmaceutical industry. He said it’s likely that Congress got an earful from voters on the issue.
Medicare ultimately ignored the resolution and put the curb on payments into effect. The next day, Amgen confirmed a preliminary announcement that it would lay off 2,600 workers.