Showing posts with label SAC Capital. Show all posts
Showing posts with label SAC Capital. Show all posts

Tuesday, May 08, 2018

More Dander Rising: Ditto to Dr. Poses

Let me second the emotion now recently and repeatedly voiced by Dr. Poses in these pages. It's getting real hard to separate the health policy and malfeasance fecaliths from the general Washington Scheißsturm raining down on all of us. We feel pretty much buffeted non-stop, like (whomp!) badminton shuttlecocks in the corruption game the prevaricator-in-chief seems happily to carry on forever. Or at least until some better angels out there in America rise up to put an end to it. Because it's pretty obvious the party hacks clearly aren't going to. They're way too busy (padre you're fired! padre you're unfired!) doing other important stuff. And avoiding the wrath (why invite trouble?) of the prevaricator-in-chief.

Maybe tweets are effective covering fire. Maybe it's not a kakistocracy we live in so much as a tweetocracy.

In fact it's also getting pretty easy to find the links between the micro- and the macro-misdeeds in today's kakistocracy. I want to talk about two of those today. Both stem from recent months' events in the game of musical chairs at two of the most cost- and problem-ridden departments overseen by our executive branch. Of course, as the reader likely already surmised, these are the two health-related departments: HHS and veterans' affairs. Dr. Poses has in fact just posted on the latter, given the zany events in the previously barely-known White House Medical Unit.

(In fact, in discussing what happens with the current administration Dr. P has hit upon an essential mechanism linking the macro- and the micro-elements: the posse of inbound revolving door plants whom the White House directs to these departments. In situations where some guy with expertise for a job may show questionable judgment in comporting himself--yes we're always talking about men these days--all too soon, as a result of these inbound hacks, he's offed by those appointed to "help" him. Which makes for great press (?) but poor government. But since when is anything like good government even the point? Hacks make hay while the sun shines. They're out to satisfy their rich donors like the Kochs and Mercers. Some get to stay in place if they're somnolent enough. I mean you, Carson. Others, including folks who're not hacks, for example Dr. David Shulkin at the VA, are out on their tushies before press or good-government critics get to prove much of anything.)

Let's take these two agencies in turn.

The VA. First there was David Shulkin. I've written about him before (e.g. here and here), as has Dr. Poses. Not much more to say here about the guy who came in with good intentions, inaugurated some important positive changes in information technology and elsewhere in a badly-battered organization, then made what might at worst be characterized as some slightly sloppy mistakes in his record-keeping and travel-planning while on official business.

Then the jackals swooped. Out he went. Next up: Ronny Jackson, ER doctor, erstwhile head of the White House Medical Unit and Navy frat-boy par excellence. Ronny was to be Shulkin's replacement, until his boss rewarded his sucking up with a now-standard distancing maneuver. Which might be described as "stir up a fuss, you go under the bus." Jackson, AKA "Dr. Feelgood" (ibid. and here), will never be VA Secretary now, or get his second admiral's star. (Or whatever it is that admirals get.) His unit's curiously isolated place in the hierarchy allowed him allegedly to abuse his reports, but at the same time seemingly left him, his boss, and anyone who's supposed to vet cabinet-level appointees, blind-sided about what it takes to run a large health care organization. Oh, wait, they actually started with someone who had what it takes. But none of this is any longer about good government or effectiveness or expertise. It's about ideology, or ideology as refracted through donors' eyes.

Ideology and narcissism.

And Jackson's boss, as his latest hapless subaltern edges closer to the undercarriage of the bus, says "[t]hey’re trying to destroy a man," Ronny's such a good guy--just look what he said about my health, my hands are clean, it's all fake fake fake. Fake news. Actually, classic gaslighting. Now the boss is going after Ronny's tormentor, Montana Sen. Jon Tester. But my friends in Montana tell me Tester's not got so much to worry about. Montanans are a cussedly independent lot. They don't take too kindly to these bad-mouthing bad boys from out of the swamp over there in Dee-Cee.

So who's next in the cavalcade of stars for the truly humongous VA bureaucracy and its leadership?

One name being bruited about is that of Jeff Miller, a lobbyist who once as a congressman chaired the House Committee on Veterans' Affairs. But according to Newsweek, Miller's real claim to fame is his work lobbying for insider trading hedge funder and Very Happy Guy Steven A. Cohen. Turns out Cohen is a major funder for the privatized health care that Shulkin quite rightly opposed. (See ibid. in Newsweek, and here.) Super-tight in with this crowd are also the Koch Brothers, the Daddies Warbuck for Concerned Veterans for America. CVA is another remarkable organization. It's lofty aims "to preserve the freedom & prosperity we & our families fought & sacrificed to defend" (where'd they find this copywriter?) include notable projects such as "VA Fail."  "VA Fail" is a "tracker" you can actually subscribe to so you can follow each and every one of this department's "missteps, mismanagement and misguidance." This is an obvious set-up to do away with an essential and in many ways still-vital branch of government. One that really needs help to change some dysfunctional internal systems, but still really helps people at reasonable cost compared to the fragmented private systems.

Right now I'm a long, long way from Washington. I'm in a place where government is equally corrupt and dufus-like. But at least the people are nice to each other and hip to their government's misdeeds. Still, it seems these democracies are having a really hard time right about now. Many citizens of the First World have lost faith in their voters' ability to impact the bizarre bull-in-china-shop behaviors of their leaders. Truth is, veterans want an effective and separate VA health system. I know, I worked there for a lot of years. The K-Stone Cops want to give them anything but.

Profit motive über alles. An awful lot of  members of "the Base" are veterans. Will they notice this scam?

Health and Human Services. First there was Tom Price, who was soon out of that job because a minor corruption scandal far eclipsed by his own entirely legal but misguided antics. Antics that while perfectly legal were perfectly dangerous, attempts to make good on campaign promises to sunder HHS and the Affordable Care Act. While Secretary, Georgia orthopedist and anti-Medicare activist Price approached the ACA the way he had most issues once arrived in Congress: undermine, undermine, undermine.

Look at him now. While Secretary, the Post tells us, he was all
"The individual mandate is one of those things that is actually driving up the cost for the American people in terms of coverage” ... on ABC’s “This Week” last summer. So, what we’re trying to do is make it so that Obamacare is no longer harming the patients of this land — no longer driving up costs, no longer making it so that they’ve got coverage but no care.”

But in a preternatural paroxysm of honesty just a week ago, on May Day, Price goes and tells a health conference just the opposite. It was the Congress that knew that the lack of the mandate would drive up the cost of insurance. But ideology and the donors said do it, so with his help they did it anyway. Along with any number of other measures to try and deep-six Obamacare. Of course they failed in spite of themselves--Obamacare is hanging in there. But it's no thanks to the guy whose job it was to make it work. He did everything he could to make it not work. (After his talk, of course, Price tried to walk back some of these views.)

Following Price, we now have a drug company executive, Alex Azar. He's actually done a few good things in his short time over at HHS. I've known a lot of drug company executives, as well as a lot of right wing doctors. The former are often a lot less ideological and a lot more practical than the latter. In a conversation this week with one of the most successful members of the former group, I find when it comes to activities questioned by the political left, e.g. lobbying, the response is remarkably forthright and lacking in hysterical right wing cant. "We need to sell our product" is the message. On which more in a minute.

Right wing doctors who go into politics have all sorts of extra axes to grind. So Azar sort of had a head start on Price.

Thus the focus now shifts at least for the moment from insurance to drug prices, one of the bugabears both of Azar and his boss Donald Trump. At this year's World Health Congress, Azar teed up the trial balloon that floated around the campaign and still bears watching. Azar stated that "President Trump wants to go 'much further' to attack high drug prices," according to many sources including CNBC's Angelica LaVito. But what does this mean? Drug companies have recently upped their spending on both lobbying and campaign giving. This has caused heavy breathing in health policy circles--see here for example--but in my opinion it's mostly chump change. A doubling from spending in the low six figures to the mid six figures for activities that impact government drug-price awareness is, to me, just budget dust for drug companies, and not the driver of change so much as keeping up with the Joneses.

The Big Nut is Medicare and active direct bargaining to get prices down. Will Azar be able to do the in-sell that gets his boss to come out swinging with the biggest weapon he has? The drug companies, when they spend the big bucks, are really playing a different game. There are so many players in the pharmaceutical sales-and-distribution space, most notably the separately powerful PBM (pharmacy benefits management) companies, that everyone's pushing on a wet noodle. The one really reliable weapon Azar and company have, if they're willing to use it, is Medicare spending. This one will be truly fascinating to watch. It will say a lot about whether the President wants truly to drain the swamp and hence really please those in his Base who need affordable meds. Or just refill that swamp in order to please the hacks with whom he's now surrounded himself.

Thursday, November 29, 2012

"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
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