"The Scent ... of a Casino" - Clinical Research Results as Fodder for Insider Trading

"The scent and smoke and sweat of a casino are nauseating at three in the morning. Then the soul-erosion produced by high gambling - a compost of greed and fear and nervous tension - becomes unbearable and the senses awake and revolt from it." - Ian Fleming.  Casino Royale.  1953

A major theme of this blog has been threats to the integrity of clinical research.  When I started out as a young naive academician in medicine, I viewed clinical research through the lens of evidence-based medicine, as primarily a means to develop better evidence to aid in the care of patients, and secondarily a way to advance science and public health.  Yet in the past 20 to 30 years, clinical research has become commercialized.  Now most randomized controlled clinical trials are done to support the licensing of drugs and devices for particular indications.  Furthermore, clinical research has become de facto a primary avenue of marketing of drugs and devices.  So we have discussed endlessly how clinical research has been manipulated by those with vested interests in selling drugs and devices, and may be suppressed when even such manipulation fails to produce results desired by commercial sponsors.

If that was not bad enough - and it is - now there is evidence that clinical research has become the roulette wheel in an investment casino.  This is the lesson provided by new US government charges that giant hedge fund SAC Capital used insider knowledge to trade drug company stocks.


Let me try to provide a narrative of the key elements of the case.

The Key Players

Matthew Martoma was a " former student at Harvard Law School, ... [who] co-wrote papers on medical ethics before seeking a business degree at Stanford University and joining a little-known Boston hedge fund."  Then, "in 2006, at age 32, Martoma made it to SAC Capital Advisors LP and gained the attention of the firm’s billionaire owner Steven A. Cohen."(1)

Dr Sidney Gilman is

an 80-year-old neurologist with expertise in neurodegenerative disorders, including Alzheimer’s disease. According to his biography on the University of Michigan website, Gilman first served on the faculty at Harvard and Columbia and then had a long and distinguished career at the University of Michigan, where he was the chair of the department of neurology for many years. He is a member of the Institute of Medicine of the National Academy of Sciences and a past president of the American Neurological Association. In other words, he’s a bigshot.

Gilman moonlighted as a consultant, working for an expert networking firm, where he provided advice to the financial industry (and which eventually led to the insider trading case), and for Elan Pharmaceuticals. In addition to his consulting for Elan, he also served as the chair of the Safety Monitoring Committee for a phase II clinical trial of a highly promising (at the time) Alzheimer’s drug, bapineuzumab, under development by Elan and Wyeth.(2)

The owner of SAC Capital, a hedge fund worth $14 billion, is Steven A Cohen, "a prodigious art collector, an investor in the New York Mets, a supporter of Mitt Romney’s presidential campaign."  His "career ... has reached mythic status on Wall Street. Over the last 20 years, Mr. Cohen has amassed a multibillion-dollar fortune by posting returns averaging 30 percent a year. SAC has grown into a firm with about 1,000 employees around the world."(3)

The Maneuver


Per the NY Times(4), 

The doctor met Martoma as a consultant for an expert- networking firm based in Manhattan and had sessions with Martoma from mid-2006 to July 2008, according to the government.

Gilman worked for Gerson Lehrman Group’s Scientific Advisory Board starting in 2002,... 

Also according to the NY Times(5)
 

Dr. Gilman’s consulting work for Mr. Martoma earned him about $108,000, according to court filings. Based in part on Dr. Gilman’s leaks about positive developments related to the clinical trials of a new Alzheimer’s drug, SAC accumulated a roughly $700 million position in the stocks of Wyeth and Elan, according to the government.

The S.E.C. said that the fund’s owner, Mr. Cohen, took a large position in Wyeth and Elan in his personal portfolio based on Mr. Martoma’s recommendation. Mr. Cohen maintained his holdings even though there was significant internal debate about the wisdom of such a large position in the drug makers, the government said.

Furthermore, per Larry Husten writing in Cardiobrief(2),

 While serving on the Safety Monitoring Committee of the trial, from the summer of 2006 through mid-July 2008, Gilman had access to the safety (but not the efficacy) data from the trial. Throughout this period he leaked the positive safety information to his contact at SAC (the enormous hedge fund), which then began to accumulate a large position in both Elan and Wyeth.

So, allegedly based on information from Dr Gilman, the high-ranking academic physician doubling as a data monitoring committee chair for a drug trial, paid for these services by Elan, SAC Capital and Mr Cohen made a large investment in Elan and Wyeth, the companies sponsoring the trial.

But then, again per Husten(2),

 Later in June, Elan chose Gilman to present the full trial data at ICAD. Gilman did not become privy to this data until the middle of July when Elan gave him the full results of the trial. The results, in sharp contrast to the earlier view in the press release, were decidedly negative, offering little hope that the drug would be considered effective. Gilman apparently understood this, because he immediately gave the results to the hedge fund, which then rapidly and dramatically reversed its long position on Wyeth and Elan.

Specifically, per the New York Times(5), after

Dr. Gilman told Mr. Martoma that patients were experiencing serious side effects, prosecutors say. Afterward, Mr. Martoma e-mailed Mr. Cohen, telling him 'it’s important' that they speak. They spoke on the phone for nearly 20 minutes, the government says, and Mr. Martoma told his boss that he was no longer 'comfortable' with the investments.

The following day, SAC reversed course. Mr. Cohen’s head trader sold the firm’s entire inventory of roughly 10.5 million shares of Elan and about seven million shares of Wyeth, the government said. Once it had dumped the shares, SAC built a short position in the two stocks, betting their value would drop.

According to the S.E.C., the trader, Mr. Cohen and Mr. Martoma kept the sales confidential. The trade, wrote the head trader in an e-mail to Mr. Cohen, 'was executed quietly and efficiently over a four-day period through algos and darkpools' — referring to trades using algorithms and to trading platforms that do not have the same reporting requirements as the stock exchanges — 'and booked into two firm accounts that have very limited viewing access.'

After the companies announced the results of the trials, Elan’s stock fell about 42 percent and Wyeth’s about 12 percent.

The trading allowed SAC to avoid about $194 million in losses and earn about $83 million in profits on Elan and Wyeth, according to prosecutors.

At the end of 2008, Mr. Martoma received a bonus of about $9.3 million, the S.E.C. said.

So, having bet heavily on Elan and Wyeth based on Dr Gilman's initial information that the trial was showing positive results, SAC Capital and Mr Cohen then bet heavily against these companies based on Dr Gilman's new information that the trial would end up not showing such results.  Because they had this information allegedly before it was made public, these bets yielded huge profits.  Mr Martoma, the conduit between SAC Capital and allegedly Mr Cohen, made millions.  Dr Gilman made over a hundred thousand.

The Charges

Per Bloomberg(4),

Martoma, 38, was accused by prosecutors in Manhattan federal court with playing a lead role in what they called the most lucrative insider-trading scheme in history, given the $276 million profit he allegedly helped the hedge fund achieve.

The government started off taking a tough approach, per the NY Times(5),

FBI agents arrested Mr. Martoma, 38, early Tuesday morning at his home in Boca Raton, Fla. He was released on bail after making an appearance in Federal District Court in West Palm Beach. Mr. Martoma, who has been unemployed since leaving SAC in 2010, is expected to appear in federal court in Manhattan on Monday and enter a plea.

 In addition, Dr Gilman, per Bloomberg(1), "has entered into a non- prosecution agreement with prosecutors in which he agreed to testify before a federal grand jury and to forfeit $186,761, money which he was paid by Elan for his consulting work."

Mr Cohen has not been charged.  However, according to John Cassidy writing in the New Yorker(6),

the complaints do assert that Cohen, identified as 'Portfolio Manager A,' personally authorized many of Martoma's trades, and pocketed the bulk of the profits they generated.  In a statement accompanying the indictment [US Attorney Preet] Bharara was careful to state that S.AC., and by extension Cohen, reaped enormous rewards from the criminal wrongdoing, even though they weren't being charged.

the complaints do assert that Cohen, identified as “Portfolio Manager A,” personally authorized many of Martoma’s trades, and pocketed the bulk of the profits they generated. In a statement accompanying the indictment, Bharara was careful to state that S.A.C., and by extension Cohen, reaped enormous rewards from the criminal wrongdoing, even though they weren’t being charged.

Read more: http://www.newyorker.com/online/blogs/johncassidy/2012/11/sharks-circle-around-hedge-fund-big.html#ixzz2DdLAchwv

Read more: http://www.newyorker.com/online/blogs/johncassidy/2012/11/sharks-circle-around-hedge-fund-big.html#ixzz2DdKdZcAY

In addition, there is now some likelihood that there will be legal actions against SAC Capital.  The company has reportedly received a "Wells notice" that the SEC is considering pursuing such action.  In addition, according to the New York Times(7), "an additional action against SAC, or even Mr. Cohen, could involve accusations of fraud based on the so-called control-person liability theory, meaning that it was in 'control' of Mr. Martoma when he engaged in insider trading."

the complaints do assert that Cohen, identified as “Portfolio Manager A,” personally authorized many of Martoma’s trades, and pocketed the bulk of the profits they generated. In a statement accompanying the indictment, Bharara was careful to state that S.A.C., and by extension Cohen, reaped enormous rewards from the criminal wrongdoing, even though they weren’t being charged.

Read more: http://www.newyorker.com/online/blogs/johncassidy/2012/11/sharks-circle-around-hedge-fund-big.html#ixzz2DdKdZcAY

Summary

At one point, I would have simply regarded the trial of bapineuzumab as a clinical scientific experiment meant to determine if a promising new therapy would work for the important clinical problem of Alzheimer's disease, and incidentally as means to learn more about the biology of that disease.  More recently, I would have regarded the trial as primarily a means for Elan and Wyeth to persuade the US Food and Drug Administration to approve this drug as a treatment for this disease, and then if so, a means for these companies to market it.  I would have been skeptical about the value of the clinical evidence supplied by the trial to support use of this drug, but would not have dismissed this evidence out of hand.

Now it appears that a major role of this trial was to be a roulette wheel in a Wall Street casino.  Big bettors on this wheel included people who may have had advance knowledge about the slot in which the ball would land.

Ideally, clinical research ought to be done by people who have no particular interest in the results turning out one way or the other.  Obviously, clinical investigators as humans may have opinions about how studies might turn out.  However, they should not be in positions to gain or lose money according to the results, or to be intimidated by those with interests in having the studies obtain particular results. Our current system in which many clinical studies are funded by organizations with interests in how the results turn out has lead to numerous cases of manipulation of study results, and sometimes suppression of studies whose results could not be manipulated successfully in the desired direction.  Such threats to study integrity make it difficult to make the best clinical decisions for individual patients, distort health policy, and break the trust of patients who volunteered to participate in the studies.

Now it appears that short-term stock trading that bets on the results of clinical research, sometimes informed by insider information about these results, could be another powerful external influence on clinical research that could additionally threaten its integrity.  Furthermore, as we speculated seven years ago (see this post and links backward), fear of insider trading may be making clinical research more opaque, and this opacity may allow even more control of research by sponsors (companies funding it) rather than investigators.

We have previously suggested that real consideration ought to be given to taking clinical research out of the hands of organizations, particularly health care corporations, that have vested interests in the direction of the results.  Knowledge that clinical research is increasingly becoming a casino for stock traders and hedge funds, and that research results are becoming the stuff of insider trading should further prompt this consideration. 


References
1.  Burton K, Kishan S, Van Voris B. Cohen's 'Elan Guy' Martoma dropped ethics for hedge fund.  Bloomberg, Nov 23, 2012.  Link here.  
2.  Husten L. The doctor and the center of the insider trading scandal.  Cardiobrief, Nov 27, 2012.  Link here.
3.  Lattman P. S.E.C. weighs suit against SAC Capital.  New York Times, Nov 28, 2012.  Link here.
4.  Van Voris B, Hurtado P. Insider crackdown uses SAC manager in health-care pivot.  Bloomberg, Nov 21, 2012.  Link here.
5.  Lattman P. Insider inquiry inching closer to a billionaire.  New York Times, Nov 20, 2012.  Link here.
6.  Cassidy J. It's time for Obama to bite the hedge-fund sharks.  New Yorker, Nov 21, 2012.  Link here.
7.  Lattman P. S.E.C. weighs suit against SAC Capital.  New York Times, Nov 28, 2012.  Link here. 

Wyeth, Ghostwriting, Dr. Joseph Camardo and a Big Liquor Store With a Little Grocery Department

Ghostwriting is a topic covered extensively at Healthcare Renewal, including at my post "Wyeth: Ghostwritten Papers Fake, But Accurate" here, Roy Poses' "Wyeth's Industrial Scale Ghost-Writing" here, and many others about Wyeth and other pharmas that can be viewed via this link: http://hcrenewal.blogspot.com/search/label/ghost writing.

A story in the Philadelphia Inquirer yesterday about Wyeth and ghostwriting brought to mind my medical school days at Boston University, in a metaphorical and rather negative way, regarding an oddity reflecting today's pharma industry.

In those years I lived next to Boston City Hospital on the top floor of a 29-story high rise at 35 Northampton Street, at that time one of the toughest and highest crime neighborhoods in the region if not the country (I was careful and lucky, and only got mugged at gunpoint once.) I had an excellent bird's-eye view of the urban decay in the area, reflective of ethical decay in the community.

35 Northampton St., next to Boston Medical Center (formerly Boston City Hospital)

Across the street from the high rise was an oddity - a very large liquor store named Blanchard's. Inside Blanchard's was a very small grocery department of all things. Have a snack with your booze! (I went in only twice; once to see what it was all about, and again during the Blizzard of '78 to get some needed food when all transit in the city was shut down and several feet of snow -- and neighborhood guns -- inhibited foot travel.)

The area has much improved in the past three decades, but according to Google street view the liquor store is still there:

In the 1970's "Liquor Land" was a large liquor store with a small grocery department named "Blanchard's." Click to enlarge.

Why does this odd store remind me of Wyeth, and more generally today's pharmaceutical industry?

Because that industry has turned from what used to be a biomedical research & development industry with decent ethics and a small marketing arm, to large marketing industry with poor ethics and a small R&D arm.

(Or, perhaps more accurately, a large marketing industry with poor ethics and a busywork section disguised to look like R&D. As a colleague noted in my post "Pfizer/Wyeth Merger And Sacrificing The Future: Laying Off Scientific Staff All Over The Place" here, a small fraction of prime scientist intellectual horsepower and time is actually spent on true R&D today, the rest wasted on feeding the bureaucratic corpulence that is the modern pharma research lab. He observed that "what we today call pharmaceutical R&D is in reality busywork disguised to look like R&D, in effect a well engineered, well managed, massively expensive failure.")

Here is what led to my "pharmas have become large marketing firms with a small R&D effort" metaphor. It was a story in the local newspaper on ghostwriting.

The glib quotes from Dr. Joseph Camardo, Wyeth's senior vice president of global medical affairs, on the practice of ghostwriting are simply stunning:

Philadelphia Inquirer

Ghosts in the medical machine

Was drug research infected by ghostwriters? With Paxil suit in court, a Chadds Ford firm says it was ethical.

Sun, Sep. 20, 2009

By Miriam Hill

Inquirer Staff Writer

When GlaxoSmithKline P.L.C. marketers looked for doctors to promote the antidepressant Paxil, they called the project CASPPER. The name was more than just an offbeat tribute to the friendly cartoon ghost. It was a wink and a nod to "ghostwriting," a questionable practice in which scientists put their names on research written by someone else, usually a writer paid by a drugmaker.

Ghostwriting critics say it disguises marketing material as scientific research.

Charges of ghostwriting have been lobbed against many companies in recent years, including Glaxo, Wyeth, AstraZeneca P.L.C., and Merck & Co. Inc., often arising in lawsuits from consumers claiming a drug hurt them.

... Documents released in connection with 8,000 lawsuits filed against Wyeth over Premarin and Prempro show that the company, which employs several thousand people in Collegeville, paid a medical-writing firm to produce articles from 1998 to 2005 that allegedly downplayed the risks of hormone treatment and emphasized benefits.

In 2002, researchers stopped a landmark federal study after finding that menopausal women who took certain hormones had an increased risk of breast cancer, heart disease, and stroke.

"Ghostwriting was used to sway physician opinions to favor hormone use as disease prevention long after that was a scientifically defensible position," Fugh-Berman [writer Adriane Fugh-Berman - ed.] said.

Joseph Camardo, Wyeth's senior vice president of global medical affairs, called Fugh-Berman's view "baseless." Medical opinion evolves, he said, and the papers in question reflected scientific understanding then. He also said the authors alone controlled the content and writing of the papers, though some did have outside help paid for by Wyeth.

"It's really being misrepresented as something we wrote and paid for that said what we thought it should say," Camardo said. "But the authors were not paid, and the authors had the final say."

... Studies on ghostwriting have suggested that anywhere from 8 percent to 75 percent of articles in medical journals may involve the practice.

Aside from the point I raised in my post "Has Ghostwriting Infected The Experts With Tainted Knowledge, Creating Vectors for Further Spread and Mutation of the Scientific Knowledge Base?" here regarding possible severe contamination of the literature and therefore of "expert knowledge" as it exists today, Camardo's response raises a cornucopia of questions.

Regarding "Medical opinion evolves, he said, and the papers in question reflected scientific understanding then":

• Whose scientific opinion do they reflect, exactly?
• Does Camardo believe these ghostwritten papers, usually written by party "A" but with authorship claimed by party "B" (usually prominent academic physicians often nurtured by the industry into the role of "key opinion leaders", KOL's) are objective?
• Does Camardo actually believe most of the content comes from party "B" rather than party "A" in these papers?
  
• Does Camardo understand that paying a MECC (Medical education & communications company) or other firm to write scientific papers puts the author(s) of those papers in a conflict of interest position relative to the paying sponsor, injurious to objectivity?
• Is Camardo that naive to believe a paid writer would "diss" the holder of his or her paycheck?

Regarding "the authors alone controlled the content and writing of the papers, though some did have outside help paid for by Wyeth":

• Which authors is he referring to?
  
• The ghostwriters?
• Wyeth scientists?
• Academics claiming authorship?
  
• Was the "outside help" from Wyeth "authors" to the ghosts, or from the ghosts to Wyeth "authors", or from Wyeth to the academics claiming authorship, or what?
• Can Camardo produce statistics on what % of article content on ghostwritten articles Wyeth sponsored were written by the ghost vs. written by Wyeth scientists and/or the claimed academic author? If not, why not? And if not, why should any intelligent person not assume the papers are, say, 99% the product of the hired guns?

Regarding "the authors were not paid, and the authors had the final say":

• Again, which author(s) is he referring to?
• In terms of the ghosts, I assume they were not working for the MECC's for free.
• In terms of the academics and KOL's claiming authorship, they (maybe!) were not paid in money, but instead in the valuable academic currency of a publication in a major biomedical journal.
  

To claim the KOL's were "not paid" is disingenuous. In fact, I find his entire argument disingenuous, a play on words, PR "spin" completely callous to the needs for scientific objectivity, the advancement of science, and ultimately to patient's lives.

This is marketing, with poor ethics, in the extreme.

Being somewhat familiar with authorship issues as former Director of Published Scientific Information Resources and The Merck Index (of Chemicals, Drugs & Biologicals), 13th ed. at Merck Research Labs, I further pointed out in my post "Wyeth: Ghostwritten Papers Fake, But Accurate" here, that:

... in addition to the violation of accepted practices of authorship, such as specified by NIH and the International Committee of Medical Journal Editors, among others, such lucky authors [i.e., those who claim authorship of ghostwritten papers] get to "count" such papers in their academic portfolios, presumably also in violation of their own institutional policies and guidelines for fair attribution and intellectual honesty, e.g., here [Harvard - ed.]

These industry practices and Camardo's position may be based on:

• Ignorance of accepted practices of authorship of the NIH, the International Committee of Medical Journal Editors, and most academic institutions, or perhaps:
  
• Cavalier dismissal of these practices for pecuniary reasons.

Is Camardo informed and upfront? Inept? Disingenuous and dishonest? That is up to the reader to decide.

In my aforementioned post "Wyeth: Fake but Accurate" I'd also noted Wyeth attorney Stephen Urbanczyk acknowledging that the ghostwritten articles were part of a marketing effort. But he said that they were also "fair, balanced, and scientific." More spin.

This raises the following observation. It is said that you can judge people by the company they keep. I also believe that:

You can judge companies by the people they keep.

This raises the following very serious questions:

• Is the presence of a senior vice president of global medical affairs and a lawyer with such views on ghostwriting representative of the senior executive leadership's views on dissemination of biomedical scientific information?
  
• Is their presence reflective of the views of Wyeth's Board of Directors?

If so, then the objectivity of any article about Wyeth drugs is called into question, and physicians and patients should utilize Wyeth drugs (and literature on them) with great caution.

-- SS

Addendum: this from the Medical Ethics blog:

Recently released court documents in a lawsuit against drug giant Wyeth, thanks to a court action by the New York Times and PLoS Medicine, are now searchable at a University of California, San Francisco web site.

The Wyeth documents are the latest made searchable at the Drug Industry Document Archive, or DIDA, which archives the documents from several high-profile cases.

... The documents were first made available last month on the PLoS web site, but were not searchable and difficult to sort through. The DIDA site now make it possible to search for documents by name, type or content.

Also see "Ghostwriting: Why they do it" at that blog.

-- SS