ImClone says CEO stock windfall "pure coincidence"

NEW YORK, Sept 12 (Reuters) - ImClone Systems Inc IMCL.O said on Wednesday it was "pure coincidence" that its new chief executive bought $500,000 worth of company stock just days before the value of the shares soared on positive news about ImClone's cancer drug Erbitux.

John Johnson, a former senior executive of Johnson & Johnson (JNJ.N), took the helm of ImClone on Aug. 27 after signing a 4-year employment agreement with the New York-based biotechnology company.

Johnson on Friday, Sept. 7, paid $500,000 for 13,609 shares of ImClone, at an average price of $36.74 each. The value of the shares soared 18 percent -- or $6.97 per share -- on Tuesday, Sept. 11, when ImClone reported that Erbitux prolonged the lives of lung cancer patients in a trial sponsored by its European partner Merck KGaA (MRCG.DE).

"This is 100 percent pure coincidence," ImClone general counsel Daniel O'Connor said in an interview, referring to arrival of the lung cancer data so soon after Johnson's purchase of his ImClone stake, and the speedy return on his investment.

O'Connor said ImClone stipulated when it hired Johnson that he must purchase $500,000 of company shares within 90 days of the effective date of his employment agreement. Moreover, the agreement requires Johnson to hold the shares for at least one year after the end of his 4-year employment agreement, O'Connor said.

"The company believes it is important for a CEO to use his own money to buy stock of ImClone -- so he's not just working with stock option money but using his own funds," O'Connor said. "That leaves him standing in the same shoes as his shareholders."

O'Connor said Johnson did not have the funds to buy the ImClone shares, however, until Sept. 6, when he received funds owned to him by J&J under his former employment contract.

"He bought the ImClone stock on Friday, September 7, at the first opportunity after receiving the money from J&J," O'Connor said.

ImClone received the positive Erbitux lung cancer data on Monday, Sept. 10, via an email from Germany's Merck, O'Connor said.

"We were surprised to receive them and had no earlier knowledge of whether the results would be favorable or unfavorable until we received them that day," O'Connor said.

Stock trades in ImClone in late 2001, based on insider news of a yet-to-be-announced FDA rejection of Erbitux, landed ImClone's original CEO, Sam Waksal, and his friend Martha Stewart, in jail. Erbitux was approved two years later with Waksal behind bars.

Viren Mehta, a principal of New York health care research firm Mehta Partners, said he believed Johnson deserves "the benefit of the doubt" about the profitable timing of his ImClone purchases, especially in light of the earlier insider trading scandal at that company.

"This latest study was under the control of Merck in Germany and, generally speaking, study results these days are announced as soon as they become known," Mehta said.

Mehta said a more plausible explanation, pure and simple, is that Johnson is on a lucky streak.

"And this industry needs people who have a lucky streak."