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Selling Drug Secrets: Regulators Probe Sale of Secrets By Doctors

Posted on: Thursday, 11 August 2005, 00:00 CDT

Aug. 10--The federal Securities and Exchange Commission is investigating the practice of doctors selling secrets about new drug research to Wall Street firms, SEC officials confirmed yesterday.

The Seattle Times reported Sunday that it had found at least 26 cases in which doctors had leaked confidential and critical details of their ongoing drug research to Wall Street brokerages or hedge funds.

Sen. Charles Grassley, chairman of the Senate Finance Committee, responding to The Times' report, asked the SEC and the Justice Department to investigate.

Legal experts say buying confidential information to help make investment decisions violates federal insider-trading law.

Investors can use the leaked information to make quick profits in the volatile biotech market at the expense of ordinary investors. Those who know in advance whether a drug is going to succeed or fail can buy stock low or sell it high to those who don't know, taking advantage of unwitting investors.

Leaking details about ongoing research also can introduce bias into drug trials and possibly halt development of potentially life-saving drugs, biotech executives said.

"Selling drug secrets violates a trust that is fundamental to the integrity of both scientific research and our financial markets," Grassley wrote in his letter to the SEC on Monday.

Doctors typically receive $300 to $500 an hour to talk to Wall Street firms. Hedge funds and mutual funds pay as much as $1 million a year to matchmaker firms to set up the interviews.

Brokerage firms often report what the doctors divulged in research reports to select customers, The Times found.

The head of the Pharmaceutical Research and Manufacturers Association, the industry's influential lobbying group, said yesterday he supported the SEC investigation and called for stiff penalties for doctors who break agreements to keep their drug research secret.

While most doctors are honest, PhRMA President and CEO Billy Tauzin said, "If a doctor violates the law, breaks his confidentiality agreement with a pharmaceutical research company and puts personal financial gain over the needs of patients, he needs to be severely punished. It's not right and it shouldn't be tolerated."

The SEC has filed lawsuits against a few doctors who themselves traded on secrets learned from their research or who have passed on tips to family members.

There also has been a handful of cases brought against biotech-company employees who sold stock when they learned that a drug was failing or wouldn't get FDA approval.

Thomas Newkirk, SEC associate enforcement director until October 2004, said he had not heard about medical researchers getting paid by Wall Street firms to reveal advance information to investors and knew of no SEC investigation of the practice before he left the agency.

By David Heath and Luke Timmerman

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Copyright (c) 2005, The Seattle Times

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Source: The Seattle Times

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