Profiting from insider clinical data

The Seattle Times ran a great package of stories yesterday that resulted from an investigation into how hedge funds obtain their cutting-edge information on clinical trials. The investigation found ?at least 26 cases in which doctors have leaked confidential and critical details of their ongoing drug research to Wall Street firms.? Such information is of incredible value to hedge funds, of course; if you?re a manager who bets enough money against a biotech stock because you?re the only one who k

Written byIvan Oransky

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The Seattle Times ran a great package of stories yesterday that resulted from an investigation into how hedge funds obtain their cutting-edge information on clinical trials. The investigation found ?at least 26 cases in which doctors have leaked confidential and critical details of their ongoing drug research to Wall Street firms.? Such information is of incredible value to hedge funds, of course; if you?re a manager who bets enough money against a biotech stock because you?re the only one who knows that the company?s new compound is failing clinical trials, you?ve done very well for yourself.All of those doctors, it should be pointed out, have signed confidentiality agreements. If I have a criticism of the stories ? one shared by some other journalist colleagues who looked at the pieces ? it?s that there?s no ?smoking gun? that ties particular researchers to disclosure of particular data. Still, if the practice is anywhere near as widespread as the series suggests, it?s a problem, and it raises important issues. The fact that it?s illegal and unethical ? according to bioethicist Arthur Caplan, who?s quoted in the stories ? is what is causing the stir. Today, the Times follows up with a report that Sen. Charles Grassley (R-Iowa) wants the Securities and Exchange Commission to investigate the practice. (Interesting aside on that story: The fact that when I first clicked on it, there was an ad for a Seattle AIDS vaccine initiative running next to it made me wonder what patients would think of their doctors profiting from the results.)The doctors offered weak defenses: eg they ?didn?t reveal confidential or valuable details.? They said they were giving general impressions of the way trials were running, rather than specific data, which strikes me as semantic parsing that even our former ?definition of is is? President would laugh at. But in an era in which drug companies are being harshly criticized for failing to disclose trial results, none of the doctors claimed to be committing a well-paid crime of civil disobedience. That suggests that they?re just as corrupted as many people think they are. If the SEC decides to take Sen. Grassley up on his suggestion, they might want to look into the ?ASCO effect? phenomenon described in 2002 by my friend and former colleague Scott Gottlieb, who?s now the top deputy commissioner at the FDA. The stocks of companies whose compounds are being discussed at ASCO ? the American Society for Clinical Oncology ? begin rising more than two weeks prior to the annual meeting, which suggests that the embargoed materials that journalists receive are making their way into the hands of traders. Journalists might not want to cast the first stone at this glass house.