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Corporatization of Medicine

Doctors testing new drugs are sworn to keep their research secret until drug companies announce the final results. But elite Wall Street firms looking to make quick profits have found a way to harvest these secrets:

They pay doctors to divulge the details early.

A Seattle Times investigation found at least 26 cases in which doctors have leaked confidential and critical details of their ongoing drug research to Wall Street firms.

The practice involves doctors at top research universities from UCLA to the University of Pennsylvania, and powerful financial firms including Citigroup Smith Barney, UBS and Wachovia Securities.

In 24 of the 26 cases, the firms issued reports to select clients with detailed information obtained from doctors involved in confidential studies. The reports advised clients whether to buy or sell a drug stock.

Trading stock based on secret information bought from medical researchers is illegal, say legal experts who were told of The Times' findings.

"That's a good way to go to jail," said lawyer Thomas Newkirk, former associate director of enforcement at the Securities and Exchange Commission (SEC).

Whether they are paid or not, medical researchers who talk with Wall Street about their ongoing research violate confidentiality agreements they sign before drug companies allow the drug testing to begin.

Until now, the selling of drug secrets has been hidden from securities regulators and the public, but biotech and Wall Street insiders said the practice is widespread.

"Everybody does this.... It's now common practice," said the chief executive of California biotech company Valentis, Ben McGraw, a former Wall Street analyst.

The practice of selling drug secrets, The Times found, is being driven by hedge funds, the largely unregulated investment pools that cater to the super-rich. Hedge funds can make money with aggressive strategies that exploit quick price swings in stocks, and the volatile biotech industry provides many such opportunities.

A single drug's prospects can determine whether a small biotech company's stock soars or plummets, so any inside information provides a potent investing edge.

Such information is so valuable that elite investors pay up to $1 million a year to firms known as matchmakers, which pair Wall Street firms with doctors involved in ongoing drug research. Gerson Lehrman Group, the largest matchmaker, claims to have 60,000 doctors available to speak to Wall Street, double the number from three years earlier.

Matchmakers typically pay doctors $300 to $500 an hour to talk to elite investors. Some doctors said they can make tens of thousands of dollars a year from such talks.

Drug-company executives say they know about the practice but can't crack down on the doctors they rely upon for conducting patient testing.

Ordinary investors are victimized when inside information is leaked to select investors. Those who know in advance whether a drug is going to succeed or fail can buy stock low or sell it high to those who don't know, making quick fortunes by taking advantage of unwitting investors.

And there is a broader cost to society: Leaking details about ongoing research can introduce bias into drug trials and possibly halt development of potentially life-saving drugs, biotech executives said.

"It appalls me, I must say," said Christopher Henney, a Seattle biotech pioneer who co-founded Immunex, now part of Amgen. "It's absolutely outrageous that they [researchers] would allow themselves to be corrupted in that way."

"The practice is a moral cesspool," said Arthur Caplan, director of the Center for Bioethics at the University of Pennsylvania. "It really just seems to me to be the last straw in the corporatization of American medicine."

Full Story from The Seatlle Times

Reference Source 137
August 8, 2005



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