Friday, August 01, 2008



There is no sign of let-up in the scrutiny of Stanford University and Dr. Alan Schatzberg, who chairs the University’s department of psychiatry. Since Senator Grassley started asking questions last month, the explanations offered about Stanford’s management of this faculty member’s conflicts of interest vis à vis his NIH grants and his corporation (Corcept Therapeutics) have become non-viable. The story so far can be found here and here and here.

Senator Grassley was concerned that Stanford gave him lowball information about Dr. Schatzberg’s financial stake in Corcept, and no information about Dr. Schatzberg’s realized financial gains from selling Corcept stock. Inspection of Stanford’s answers to Sen. Grassley and of the University’s faculty disclosure forms reveals that they were not designed for transparency. Dr. Schatzberg’s realized gain of $109,000 in 2005 was not reported to Stanford and so was never reported to NIH as required or to Sen. Grassley in response to the senator’s request for information. As if these were not problems enough, the University’s claims that Dr. Schatzberg kept an appropriate distance from Stanford’s NIH-supported studies of his drug were challenged here and here.

Dr. Schatzberg’s faculty disclosure information released by Stanford is artfully opaque. The real story can only be pieced together from Corcept’s SEC filings, which, I remind readers, are not provided to the public in a spirit of disclosure but because they are required by law. Here are some revealing numbers aggregated from half a dozen or so documents on the SEC website.

Between 2000 and 2007, Dr. Schatzberg’s total compensation from Corcept, at a minimum, can be documented as $401,250. He received at least $52,500 for serving on the board of directors, and $348,750 for chairing Corcept’s Scientific Advisory Board (SAB). In addition, he realized income through selling shares worth $109,000. That adds up to more than $510,000.

While Dr. Schatzberg was earning almost $350,000 from Corcept for his work on the SAB, he was also being paid by NIH to do overlapping scientific work. Where was the boundary? The Stanford clinical trials of Dr. Schatzberg’s drug closely resembled Corcept’s trials in dosage, duration, and outcome measures. As the NIH-funded Principal Investigator at Stanford and as chair of the Corcept SAB, Dr. Schatzberg is accountable for the design of the trials conducted both at the University and by the corporation. To an exaggerated degree, the Stanford trials were touted as positive, whereas the Phase III trials conducted by Corcept were all negative. The scientific rationales put forth by Dr. Schatzberg through his NIH-supported studies of related clinical research questions were used by Corcept in raising capital and in pleading with the FDA for fast-track status. Many of the claims from these NIH-supported studies had a bearing on the potential market for Dr. Schatzberg’s drug – his expansive estimates of the prevalence of psychotic depression, for instance, and his unwarranted claim that his drug acted to “re-set” a key, depression-related, brain-hormone system on which his drug acts. There was even a revolving door for junior faculty between Stanford and the corporation. One junior faculty member worked on the Stanford studies, then went full-time to Corcept for about 2 years as its Chief Medical Officer, then returned to the Stanford faculty ranks. Now another former junior faculty member is Corcept’s CMO. Dr. Schatzberg has the power to influence the academic careers of these individuals. Hello! Is there a conflict of interest here? Does it seem that there really was no boundary?

Then there is information in the SEC filings about stock held in the name of Dr. Schatzberg’s two children. In January 2002 Dr. Schatzberg was listed as the beneficial owner of 3,605,215 shares. This number included 360,000 shares held of record by each of his two children, over which Dr. Schatzberg had voting control. By December 31, 2004 the number of shares declared for each child had contracted to 300,000. A reasonable inference is that 60,000 shares may have been sold on behalf of each child at some time between early 2002 and the end of 2004. It may be that the original count of 360,000 shares per child was stated in error, but that seems unlikely. Corcept consummated its stock IPO in April 2004 at a price of $12.00 per share. When Dr. Schatzberg sold his own shares in 2005 he realized a price of $7.00 per share. We don’t know for sure what price any shares sold on behalf of Dr. Schatzberg’s children may have brought, because these are apparently not listed as insider trades. Up to the end of 2004 they could have fetched anything between $11.00 and around $5.50. If they fetched $7.00 then as much as $840,000 may have been realized for the Schatzberg family. The cost to Dr. Schatzberg for these 120,000 shares was $40.

So now we are looking at something between at least $510,000 and potentially around $1,350,000 realized by Dr. Schatzberg and his family from Corcept between 2000 and 2007. As I detailed before, Dr. Schatzberg also made 2 determined but unsuccessful runs at selling shares for $7-11 million during the corporation’s IPO attempts. Keep in mind that all of this would be OPM – other people’s money. And Dr. Schatzberg was already being paid by Stanford and NIH. What did Dr. Schatzberg contribute to the greater good in return for this corporate bonanza? You be the judge. To many appalled observers it looks like gaming the system.

This case bids fair to become a landmark that convinces NIH and the Universities to get real about academic-corporate boundaries. Senator Grassley issued a new round of questions to both Stanford and NIH yesterday. And as Ed Silverman reports this afternoon, Stanford has now replaced Dr. Schatzberg as Principal Investigator on the NIH grant.


CL Psych said...

The American Psychiatric Association must be proud of their esteemed leader.

Fantastic post. Just when you think the Corcept/mifepristone/Stanford/Schatzberg saga can't get any more rotten...

InformaticsMD said...

Yale fares little better, what with an investigation by NIH, DOD, NSF on grant mismanagement by not one, but multiple professors. See this PDF from Yale itself on the resultant eDiscovery mayhem.

After Sen. Grassley's finished at Stanford, maybe New Haven should be his next stop.

InformaticsMD said...

I also note at this letter to Stanford from Sen. Grassley:

"The lack of consistency between what Dr. Schatzberg reported to Stanford and what several drug companies reported to me seems to follow a pattern of behavior. More specifically, I have uncovered inconsistent reporting patterns at the University of Cincinnati, and at Harvard University and Mass General Hospital."

Anonymous said...

This brings to mind two concepts. The first being the growing sense of entitlement, by not only CEO’s, but by all those with a position of authority. Here we have a nationally know figure simply ignoring the rules because it suits his financial needs. We have seen this in other areas as supposed scientist have chosen to make statements or ignore facts and simply take their word about a product’s safety or effectiveness.

The second issue is the growing use of a passive/aggressive position in almost any interaction. You will hear people state they filled out the form you gave them, knowing full well they did not answer the intent of the question, only the technical aspects.

We also hear in almost any business venue that it is always about the customer. In medicine this has taken on the form of: We can not be too careful, or What is the downside? In both of these cases enriching a company, or person, becomes the driving force of these interactions.

Truthfulness and scientific objectivity needs to return to medicine, and it needs to start at the top.

Steve Lucas

Anonymous said...


I would further add that in healthcare, executives seem to feel entitled to having physicians serve them.

A blog like this where physicians "speak back" annoys the hell out of HC executives, I'm certain.

Anonymous said...


Just for the record I am not a physician. HC executives should be concerned by not only the physicians commenting on this blog, but by the lawyers, MBA's (me), and people who have a great deal of knowledge due to personal experience.

I am constantly amazed by the passion, and depth of knowledge, of the commentators on this blog.

Steve Lucas