Thursday, August 14, 2008



Recently we looked at some financial aspects of the boundary between Stanford University and Corcept Therapeutics. Dr. Alan Schatzberg, the chair of Stanford’s psychiatry department, received at least $510,000 from Corcept between 2000 and 2007. Senator Grassley asked why NIH received no disclosure from Stanford of Dr. Schatzberg’s realized gain from selling Corcept stock while he was Principal Investigator on a related NIH grant. The Senator also remarked on Stanford’s lowball estimate to him of Dr. Schatzberg’s equity in Corcept, currently between $5 million and $6 million.

Dr. Schatzberg is not the only academic to benefit from Corcept. Dr. Charles Nemeroff, a member of Corcept’s scientific advisory board, also did well. He exercised options to buy 60,000 shares on joining the board in 1998. Dr. Nemeroff diligently promoted Corcept’s drug. Following the style documented for Dr. Schatzberg, Dr. Nemeroff emphasized weak positive trends in the data while suppressing inconvenient negative analyses. In the fall of 2002, Dr. Nemeroff referred to the Stanford-NIH trials as “impressive studies indicating that ... (mifepristone) very effective in the treatment of psychotic depression.” The claims “impressive” and “very effective” are indefensible, and may even be fraudulent. Dr. Nemeroff’s exaggerated promotion occurred while the company prepared for its IPO, but he did not disclose his financial stake. Right after the 6-month SEC-mandated lockup period expired, Dr. Nemeroff sold 20,000 shares for $137,500. His cost was $6.60. Help me, what is the right term for this behavior?

A second member of the team who did well is Dr. Joseph Belanoff, Corcept’s co-founder and CEO. Like Dr. Schatzberg, he received around 3 million shares in 1998. Dr. Belanoff began selling as soon as the lock-up period ended. Between November 2004 and November 2006, Dr. Belanoff sold approximately 10,000 Corcept shares each month, realizing over $1 million. His cost for all those shares was around $80. An on-line financial service listed 6 additional quarterly sales, each of 30,000 shares, which netted over $900,000. Dr. Belanoff also received an ample corporate salary. His documented salary increased from $310,500 plus a 10% bonus in 2003 to $1,643,760 in salary ($411,008), bonus ($102,752), and stock options ($1,130,000) in 2007. Not bad, for someone with modest academic credentials.

Stanford University itself has a financial stake. Following a licensing fee of $47,000 that was paid to Stanford in 1999 along with 30,000 shares of stock, Corcept has been obligated to make non-refundable royalty payments of $50,000 a year. That adds up to $497,000 through 2008. Additional payments up to $250,000 are due to Stanford when certain drug development milestones are reached. Stanford has stated that it long ago divested itself of the Corcept stock. However, an on-line information service lists Stanford as a major shareholder as recently as 31 March 2008, with over 47,000 shares in the name of the Board of Trustees. In a second agreement, Stanford receives a $20,000 licensing fee, 1000 shares of Corcept stock, $10,000 a year in non-refundable royalties, and potential milestone payments of $350,000. All of this is in advance of any marketing of products by Corcept. So, Stanford is not exactly a disinterested administrator of the academic-corporate boundary between Dr. Schatzberg, NIH, and Corcept.

We should also note some unusual events involving Corcept stock movements. On 15 August 2005 Corcept stock received a research broker upgrade. Heavy selling followed the upgrade (volume was 613,000 shares, 31 standard deviations above the mean for the previous 10 trading days). For non-statistician readers, 3 standard deviations would tell us that the spike is almost certainly not consistent with the historical fluctuations in volume. So, a spike of 31 standard deviations means any such probability is astronomically small. The stock price moved up 34% from the previous day but quickly sank again. That same day, Dr. Schatzberg sold 15,597 shares for $109,179, at an intra-day high of $7 per share. The cost basis of those shares to him was $5.15.

On Friday 23 September 2005, heavy selling of Corcept stock occurred (871,700 shares). This volume was 35 standard deviations above the mean of the previous 10 trading days. On the following Monday, Corcept announced that a widely publicized study of mifepristone for Alzheimer disease was being halted prematurely for lack of progress. The company also announced slower than expected enrollment in a Phase III study of psychotic depression, for which they projected delayed announcement of results. Over the next month the stock price declined 16%.

These episodes of concentrated stock movement represent coincidences that remain to be explained. Was the August 2005 upgrade and selling spike in which Dr. Schatzberg participated a case of “pump and dump”? Was the September 2005 selling spike ahead of bad news a case of insider trading? Who did all that selling, and how did they know?

The questions just keep coming.


Anonymous said...

We can see that this situation is not unique. The August 14, 2008, WSJ highlights the financial conflicts in a new sepsis treatment and the lack of scientific rigor. Dr. Emanuel P. Rivers did a one hospital study and developed a modification to a catheter that measure oxygen levels in the blood for which he received a patent.

Questions have arisen over the sample size since the number do not add up as well as criteria for inclusion in the study. A followup study at the hospital that raised these questions was dismissed and the conclusions have not been published.

Conflicts have arisen over the transfer of patents to the hospital. These were not revealed in a NEJM article as Dr. Rivers had transferred his patents to the hospital, making it technically correct that he did not have a financial interest in the product at the time he published the article.

We then find: "Dr. Rivers and the hospital over the years have received at least $404,000 from Edwards, the Irvine, Calif., company says." (Edwards is the catheter manufacturer.)

"In addition, Edwards said it has paid Dr. Rivers $158,000 to make speeches about his research, $20,000 to reimburse him for patent legal fees, 436,000 in reimbursement expenses and 440,000 in consulting fees."

In 2002 a group of doctors banded together to form Surviving Sepsis Campaign and recommended the treatment, with all receiving financial compensation in the form of "consulting fees, honoraria, or research-grant support from catheter maker Edwards."

"Edwards helped pay for overseas meetings of the group in 2002 and 2004, which cost $862,000 in all."

These two cases bring to the fore the deteriorating nature of scientific candor. Gamesmanship in the name of profit seems to be the goal. We then add the August 14th WSJ article questioning the statistics in Boston Scientific's request for approval of it's Taxus Liberte stent. It appears they used a less rigorous Wald interval to support their approval request thus "exaggerating the certainty of research results."

The article then goes on to review the research and the possibility of artery reclogging. There appears to be a great deal of posturing on the part of Boston Scientific to make this a viable product, with what I am sure is a very nice profit profile.

These cases do not exist in a vacuum. We learn time and time again of old therapies being thrown out, not due to new breakthroughs, but due to questionable science in their original application. Profit and skirting the lines of legality seem to be the scientific drivers in today's world. Skepticism is no longer enough when choosing a therapy, both doctors and patients need to be aware of out right fraud.

Steve Lucas

Anonymous said...

This is excellent journalism...a true credit to the medium of the weblog. My only comment, sadly, is that you can expect to be vilified by the institutions you are critiquing. Watch out for the payback you will inevitably receive.

Anonymous said...

Watch out for the payback you will inevitably receive.

That assumes members here cannot dish it out as good as they get.

One should never make such assumptions. For one thing, one never knows who is related to whom by blood or marriage.

Anonymous said...

How's this for Corcept Insider Trading. These guys are smart!
October 16, 2006 the following bought heavily (several Million shares),at an average prices of $1.40.
Enright Baker Cook Penhoet Coxe Younger Anderson Mahoney.
Within just a few days, they had a 100% gain. Coincidence I suppose??
Look at a stock chart to see what I mean.