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Originally published August 8, 2005 at 12:00 AM | Page modified August 8, 2005 at 12:28 PM

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Selling Drug Secrets

Senator wants SEC to probe leaks of drug-research secrets

The chairman of a Senate committee overseeing the financial markets yesterday urged regulators to investigate the findings of a Seattle...

Seattle Times Washington Bureau

The chairman of a Senate committee overseeing the financial markets yesterday urged regulators to investigate the findings of a Seattle Times report that medical researchers routinely accept money to reveal secrets about drug studies to Wall Street firms.

Reacting to yesterday's story, Sen. Charles Grassley, R-Iowa, head of the Senate Finance Committee, said, "I'm asking the Securities and Exchange Commission to pursue the findings of this investigative report."

Grassley said the revelation that doctors are selling clinical-trial information to investors shocked him. "Selling drug secrets violates a trust that is fundamental to the integrity of both scientific research and our financial markets," he said.

Legal experts say paying doctors for research secrets violates federal securities laws.

In addition to existing laws, Grassley said, "Congress needs to consider how the laws and regulations might be toughened up to make it harder for these kinds of things to happen in the first place."

Grassley is sending his request to the SEC today, members of his staff said yesterday.

The Seattle Times reported it 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, largely unregulated investment pools that cater to the super-rich. Typically, researchers were paid to discuss the research, giving investors the inside scoop on prospects for volatile biotech companies.

Based on such information from doctors, Wall Street firms such as Citigroup Smith Barney, UBS and Wachovia Securities issued reports revealing the outcome of research before it was reported by the company and advising clients whether to buy or sell a drug stock.

Hedge funds and mutual funds pay up to $1 million a year to firms known as matchmakers, which pair Wall Street firms with doctors involved in ongoing drug research.

The Gerson Lehrman Group, the largest doctor-investor matchmaker, says that it has 60,000 doctors available to speak to Wall Street.

Michael Jacobson, executive director for the Center for Science in the Public Interest, said, "The idea that so many physicians are serving as consultants to the investment industry is quite astonishing.

"It doesn't say much for the integrity of the researchers, when they have signed confidentiality clauses, that they feel they can talk freely with the investment community," he added. "The confidentiality agreements may have to be written more broadly."

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Mark Gerson, co-founder of Gerson Lehrman, told The Times that his firm advises doctors not to violate their confidentiality agreements with drug companies. Doctors interviewed said they didn't think they were revealing confidential information because they didn't know the full results of the research.

However, Wall Street firms routinely call several doctors on a study to compile the results and, in some cases, doctors can tell how a drug is doing by treating just a few patients. Grassley's interest in Wall Street's relations with pharmaceutical companies comes at a time when both industries are under more scrutiny for conflicts of interest and questions about the abuse of insider information.

Grassley has made other referrals to the SEC, and his committee has been active in pursuing its own investigations of the stock market.

In 2003, Grassley temporarily blocked a $1.4 billion settlement between several Wall Street firms and the SEC. The settlement stemmed from allegations by the SEC and state prosecutors and regulators that stock analysts were deceiving investors by giving favorable reviews to troubled companies as a way of attracting those companies' investment business.

Grassley did not want the firms to pass on the settlement costs to their insurers or take them as tax deductions.

More recently, Grassley has become one of the strongest critics of the Food and Drug Administration (FDA), complaining that it has too tight a relationship with the pharmaceutical industry that it regulates.

He has been concerned about allegations that drug makers are manipulating medical-research results and that pharmaceutical companies and their investors are too closely connected to some FDA consulting committees.

Alicia Mundy: 202-662-7457 or amundy@seattletimes.com

Staff reporters Luke Timmerman and David Heath contributed to this report.

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