Doctors' Links With Investor Matchmakers Raise Concerns

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The New York Times

nytimes.com

August 16, 2005

Doctors' Links With Investor Matchmakers Raise Concerns

By STEPHANIE SAUL and JENNY ANDERSON

At first, the calls seemed innocuous. Investment companies were

offering Dr. B. Natale $200 or $300 for 15 minutes, asking

that he discuss general trends in lung cancer, sometimes over the

telephone.

But Dr. Natale became suspicious as the money offers kept growing,

just before he was to present the case for Iressa, a new lung cancer

drug, to a Food and Drug Administration advisory panel in September

2002. Dr. Natale's access to research data on Iressa made him an

attractive source for investment researchers seeking inside

information.

" Wow, they were offering $1,000, $1,500, for 30 minutes of my time, "

said Dr. Natale, a prominent researcher at Cedars-Sinai

Comprehensive Cancer Center in Los Angeles. He said he routinely

turned down offers to speak to investors.

While Dr. Natale has qualms, other doctors apparently do not. Nearly

10 percent of the nation's 700,000 doctors have signed up as

consultants with a new segment of the investment industry -

companies that act as the Match.com of the investment world,

according to an article in The Journal of the American Medical

Association. For a fee, they arrange conversations between investors

and leading professionals, experts or even employees of major

companies.

Matching investors with doctors can raise particularly troubling

questions. Physicians frequently serve as clinical researchers for

the pharmaceutical and biotechnology industries, testing new drugs.

Inside knowledge about those tests, before it is publicly available,

could be worth millions. The Securities and Exchange Commission has

now begun looking at whether doctors, participating in clinical

trials, are accepting money to talk to analysts and investors about

the confidential results. Such a breach, under some circumstances,

could be construed as a violation of insider trading law.

Among the businesses that have emerged as matchmakers is Gerson

Lehrman Group of New York. Founded in 1998, Gerson is the industry

leader in connecting investors with specialists in fields ranging

from Turkish cement to underwire brassieres. Gerson's 150,000

specialists include 60,000 physicians. Another company, Leerink

Swann & Company of Boston, has a subsidiary that advertises a

network of more than 11,500 medical professionals, including

physicians, willing to talk to investors.

The idea is fairly new, but the business model has already come

under scrutiny. Even though the companies prohibit panelists from

violating confidences or revealing proprietary information, such

conversations carry the risk that participants will betray secrets.

" The frequency of physician contact, this matrix or extraordinary

network of physicians that were at the disposal of investment firms,

is a setup for trouble, " said Dr. J. Topol of the Cleveland

Clinic, who co-wrote the JAMA article, which appeared in June,

exploring the growing relationships between physicians and

investment companies. Dr. Topol has firsthand knowledge of the

problem. Last year, he gave up his own $12,000-a-year position on a

hedge fund advisory panel after concluding it created the appearance

of impropriety.

Dr. Topol was stung by implications that his expertise helped the

fund short Merck before the company's decision to withdraw Vioxx

last September. But Dr. Topol had written about the cardiovascular

problems associated with Vioxx and similar cox-2 painkillers well

before he joined the hedge fund in 2003. Dr. Topol, the Cleveland

Clinic's chief of cardiology, also ended his relationship with

several companies in the health care and pharmaceutical businesses.

" If you weigh the liabilities and the jeopardy against the limited

upside, it does not come out in favor of these relationships, " said

Dr. Topol, whose article cited various ways doctors earned money as

consultants and advisers to industry.

Investment houses and research analysts often sponsor dinners where

paid panels of physicians give their thoughts about pharmaceutical

developments. Investment analysts attend medical society meetings,

where they mingle with practicing physicians. Hedge funds hire

physicians to sit on advisory panels.

" We do this all the time, " said Jami Rubin, a pharmaceutical

industry analyst with Stanley, who said her company

frequently relied on physicians for advice. " We pay them for their

time. Sometimes they do conference calls. Sometimes they prepare

slide shows. "

Ms. Rubin said she used doctors as educators to " explain how drugs

work, their mechanism of action, potential shortfalls, positives,

negatives, speculation on the issues that the F.D.A. might have. "

" I don't think there's any issue about that whatsoever, " she said.

Concerns about whether investment companies could get inside word

about clinical research has prompted some precautions.

The F.D.A., which regulates clinical trials, does not have authority

over investment transactions. But last year the agency took steps to

increase information-sharing with the S.E.C. In a statement last

week, the F.D.A. said that any activity that raised questions about

the integrity of clinical research could render the results useless

for supporting new drug applications. A recent article in The

Seattle Times indicated that it had found 26 instances in which

doctors had given up confidential information to analysts.

Several medical societies have taken steps to protect scientific

papers submitted by their members. The American Society of Clinical

Oncologists, for example, gives its members advance copies of

research papers presented at its meetings; the copies are covered in

shrink-wrap and accompanied by a warning that they are only for

educational use. Members are barred from trading on information in

the abstracts until after it is publicly available.

The Biotechnology Industry Organization, which includes companies

whose fate can turn on one clinical trial, is reviewing whether

additional regulation is necessary. " Ultimately our companies are

the most likely to be victimized by this kind of conduct, " said the

association's chief executive, Jim Greenwood.

Mr. Greenwood said that one of the organization's member companies,

Isis Pharmaceuticals, complained three years ago to UBS. That was

after a UBS analyst issued a report contending that a lung cancer

drug had failed a Phase 3 clinical trial, citing " recent

conversations with investigators involved in the trial. " Shares of

Isis tumbled 20 percent the day of the report.

A UBS spokesman, Mark Hengel, declined to comment on whether doctors

involved in the trial were surveyed, but said: " UBS research notes

are highly regarded. The information is sourced and broadly

disseminated to our client base. "

Some firms like Gerson Lehrman do not supply investment advice, but

simply serve as a go-between.

Gerson Lehrman was started by Mark Gerson, a Yale Law School

graduate and a former teacher, and Lehrman, to publish books

about major changes in industries. The business evolved when hedge

fund managers said they did not have the time to read books but

preferred access to the list of experts the authors had used.

So now the business works like this: hedge funds or mutual funds pay

Gerson Lehrman an annual subscription fee, in the range of $120,000

a year, per sector. Gerson pays its specialists at a rate set by the

specialist.

Portfolio mangers, for example, submit to Gerson a project they are

working on and Gerson scours its database for the best specialists,

then contacts them to check their availability and ability to

participate. Each is sent a disclosure form requiring them not to

disclose material nonpublic information, trade secrets or breach any

previously confidentiality agreements.

Gerson Lehrman and Leerink Swann declined to comment for this

article.

But a letter from Mark Gerson, chief executive of Gerson Lehrman,

said: " Before participating in our network, all physicians and

scientists sign a contract that explicitly states they must not

violate any of their confidentiality agreements, must check if they

are unsure what those confidentiality obligations are and will be

paid for time allocated to a project if they must discontinue it out

of any related concerns. "

Last week, according to people close to the company, Gerson Lehrman

started to offer compliance officers from hedge funds and mutual

funds the ability to submit a " blacklist " of ticker symbols of

companies owned by the fund. That way, if a fund owns a particular

company's stock, Gerson can block the fund's analysts from

requesting experts linked to that company.

According to Dr. Topol, Gerson Lehrman has built its network over

the Internet, sending out e-mail messages to large physician groups,

hoping they will enroll. " Most physicians have been targets of e-

mails, " he said.

One member of Gerson Lehrman's physician panel, Dr. Sills

of Atlanta, said he had participated in telephone conferences for

Gerson Lehrman five or six times in the last 18 months.

Dr. Sills, an infertility specialist who also conducts clinical

research, said he was never told exactly what company the callers

were representing. " They've never asked about present research

projects going on at our center in Atlanta and never asked me to

share preliminary data sets with them, " he said.

Dr. Natale of Cedars-Sinai said that as a clinical researcher he was

uncomfortable with taking fees to consult for the investment

community.

" I really don't want to have to think about whether it's ethical or

unethical, what information I cannot share, what's confidential and

what's not confidential, " he said, explaining why he turns down such

offers.

Clinical trials of drugs are usually double-blind, meaning that

neither the physicians nor the patients know which patients are

getting the experimental drug and which are receiving sugar pills.

Large trials often have many sites with small numbers of patients.

" It's not common for one investigator to have the full picture, "

said Dr. Elliott Sigal, director of global research for Bristol-

Myers Squibb.

Some are concerned, however, that important information could

unintentionally slip out.

" Obviously, they're not trying to get any physician to provide

inside information, " Dr. Topol said of companies like Gerson

Lehrman. " But invariably, even without awareness and even without

intent, that can happen. "

And the appearance of impropriety by itself is a problem, said Dr.

De Angelis, the editor of The Journal of the American

Medical Association. The advice Dr. De Angelis said she gave Dr.

Topol last year could apply more broadly.

" Whatever you're making from just being a consultant, just give it

up, " she said. " It's not worth our integrity. Even though you know

you're not doing anything wrong. It's the perception. "

Copyright 2005 The New York Times Company

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