The FDA Commissioner Divests

Dr Margaret Hamburg, having been confirmed by the US Senate, is the new commissioner of the US Food and Drug Administration (FDA). We posted twice about whether her and her family's financial relationships might be relevant to her nomination.

Here we discussed her position on the board of directors of Henry Schein, Inc a medical supply company. My concern was whether someone who had spent years being ultimately responsible for maximizing the profits of a medical supply company would be able to be a fair, and when necessary, tough regulator of the companies that supply Henry Schein with products to sell.

Here we discussed Dr Hamburg's husband's leadership of the hedge fund management company, Renaissance Technologies. My concern was whether someone who is part of a family that had gotten rich from buying and selling stocks and financial instruments, of which a likely substantial but unknown fraction were of health care corporations, would again be able to be a fair, and when necessary tough regulator of some of these same companies.

At the time, it did not seem that anyone else shared these concerns. As far as I could tell, there was no discussion of them in the press, or at Dr Hamburg's confirmation hearings.

However, today the Wall Street Journal reported:

The new commissioner of the Food and Drug Administration is among the wealthiest Obama administration appointees, with income of at least $10 million in 2008 thanks mostly to her husband, a hedge-fund executive, according to financial disclosure forms.

Margaret Hamburg and her husband, Peter Fitzhugh Brown, must divest themselves of several hedge-fund holdings as well as some of Mr. Brown's inherited drug-company stocks so Dr. Hamburg can take the post as the nation's top food and drug regulator. Mr. Brown is a lieutenant to hedge-fund magnate James Simons

The couple's income in 2008 came from stocks, money-market accounts, trusts and funds including several affiliated with hedge-fund sponsor Renaissance Technologies, where Mr. Brown works.

The couple controls assets worth between $21 million and $40 million, according to disclosure forms Dr. Hamburg gave the White House. The forms don't reveal exact figures, just ranges.

Before her FDA nomination, Dr. Hamburg also served for five years on the board of Henry Schein Inc., a $4 billion firm that distributes medical and dental supplies including vaccines. Her remuneration has been in the form of Schein shares.

She will forfeit $100,000 to $250,000 in restricted stock and more than 11,000 unvested stock options, all of which have a strike price above market value. She will also have to sell vested stock, valued between $250,000 and $500,000.

Mr. Brown, an expert in artificial intelligence, is vice president and director at Renaissance Technologies. The fund company said recently its total assets were about $18 billion. Mr. Simons was the top-paid hedge-fund manager in 2008, receiving $2.5 billion, according to Alpha magazine.

A lengthy review by the Government Ethics Office, which included direct discussions with Renaissance managers, determined that both Dr. Hamburg and her husband will have to get rid of their interest in four Renaissance funds—the Renaissance Institutional Equities Fund, the Renaissance Institutional Futures Fund, Meritage Investors and Topspin Partners.

However, the couple will be allowed to retain their interest in Renaissance's Medallion fund. An administration official said Medallion was exempted because its computerized quantitative model trades rapidly and holds shares only briefly, creating the equivalent of 'a very blind trust.'

Mr. Brown has already sold his stock in Abbott Laboratories and shares in Johnson & Johnson, Merck & Co. and Medco Health Solutions Inc., which he inherited from his father.

So it appears, in retrospect, that the Government Ethics Office also felt that Dr Hamburg's position on the Henry Schein Inc board constituted a conflict of interest. Furthermore, the Office felt that Dr Hamburg's and Mr Brown's holdings in several hedge funds constituted conflicts of interest. So, in retrospect, it is odd that these financial relationships attracted no attention other than that of Health Care Renewal prior to Dr Hamburg's confirmation by the Senate. I do hope that now, having severed significant relationships and sold financial holdings, Dr Hamburg will prove to be a fair, and tough when necessary regulator of companies that have too often misbehaved.