Faster probe sought into research trials

The chairman of the Senate committee that oversees the Securities and Exchange Commission is prodding the agency to accelerate its investigation into the trafficking of clinical research trials information between doctors and Wall Street.

The practice, in which doctors are paid to discuss confidential trials of biotech and pharmaceutical drugs with brokerage firms and hedge funds, was revealed in a Seattle Times investigation last August.

Sen. Charles Grassley, R-Iowa, chairman of the Senate Finance Committee, has also asked the nonpartisan Congressional Research Service to analyze whether paying for information from ongoing clinical trials and then trading stock constitutes "insider trading," which is a violation of securities laws.

"In addition to determining any wrongdoing, we need to know if the federal agencies responsible for monitoring this kind of activity, and, in turn, safeguarding the integrity of drug research, are doing their job," Grassley said in a statement to The Times. He first called for SEC and Department of Justice investigations the day after the story was published.

SEC officials have confirmed the agency is investigating the practice and members of Grassley's staff have met with SEC lawyers to express the senator's concern that trading in such information could have an impact on the stock market and harm some biotech companies.

The success or failure of an experimental drug in clinical trials has a dramatic effect on a company's stock price.

The Times' investigation identified at least 26 instances in which doctors divulged confidential and critical details of their ongoing drug research to Wall Street.

"Congressional prodding historically has resulted in responses and reaction from the SEC," said attorney Jacob Frenkel, a former SEC official in its enforcement division.

As the investigation unfolds, the revelation of the practice has quieted some doctors who used to be a resource for stock analysts covering the biotech and pharmaceutical industry.

"The climate's really changed where before doctors were fairly open with talking about their opinions of different drugs, or willing to give detailed background information on disease states, which is all appropriate to do," said Vinny Jindal, senior biotech analyst with Wedbush Morgan Securities in Los Angeles. Now "an analyst asking even for nonconfidential information, just to reference this doctor's expertise ... has been severely limited because doctors have taken a more cautious stance."

That's an overreaction, Jindal said, adding that it hinders analysts' ability to thoroughly research the companies they cover.

But not all doctors have curtailed their discussions or their relationships. David Miller, editor of Seattle-based Biotech Monthly newsletter, said that firms such as Clinical Advisors and Gerson Lehrman Group that make a living off of hooking up doctors with Wall Street firms "are still very heavily recruiting and insofar as I know did not have any significant disruption of their business."

Neither company could be reached for comment.

Thousands of physicians have entered financial relationships with investment firms in recent years through so-called matchmaker firms. But analyzing publicly available information and data differs from revealing information on drug trials whose results have not been published to general investors.

Even if federal investigators find evidence that some investors have crossed the line into insider trading, it can be "notoriously difficult to prosecute," said attorney Mark Braswell, another former SEC official.

Alicia Mundy: 202-662-7457

Benjamin J. Romano: 206-464-2149