The Martha Stewart Case: Who Was the Real Culprit?

Remember the Martha trial? Not the one she's embroiled in now between Macy's and JC Penney, but the one involving the stock exchange in 2004. As the child of a longtime Martha fan, I remember the drama, the jumpsuit, even the fact that they had to remove a long-standing feature in her magazine ("Martha's schedule") when she went to jail.



But few people may realize how closely connected the FDA was to the Martha Stewart case. Stewart held stock in the company Imclone, which produces the cancer drug Erbitux. She sold her stock in 2001 on the advice of her broker, who recommended she sell because the founder of Imclone and his daughter had also sold. The stock quickly crashed and the furor over insider trading began.

Why did Sam Waksal, Imclone's founder, sell stock in his own company? Because the FDA threatened to withhold approval from Erbitux.

As this story from CNN mentions:

 "Stewart avoided a loss of [$45,673]  by selling nearly 4,000 shares of ImClone stock on Dec. 27, 2001, rather than the next trading day, when the stock tumbled after regulators rejected the company's application for a key cancer drug. "

 In other words, the FDA was the key player in this scandal. The same article goes on to state:

"Ironically, Erbitux, the ImClone drug at the heart of the scandal, was approved by regulators last month [February 2004] to treat certain forms of cancer."

A few days ago, I mentioned the inefficacy of the FDA as far as keeping safe, effective drugs on the market is concerned. In the Martha Stewart case, however, we are faced with a different problem. What happens when the FDA delays approving a perfectly safe drug?

In the first FDA Monitor post, I asked about the cost of FDA approval. In Stewart's case, it cost several hundred thousand dollars in fees, penalties and disgorgement, well over what she saved from selling her stock. But what about the people whose lives may have been saved had the FDA not waited so long to approve Erbitux? When Stewart and Waksal sold, Erbitux was considered safe, but the FDA wanted to run more tests to assess its effectiveness. In other words, individuals who had tried Erbitux had either been treated successfully, or had gone on to try something else. It didn't kill anyone. Not to be melodramatic, but money, lives and reputations were lost because of the FDA.

What do you think? Was the FDA approval worth it?

My guess is she thinks not.