Alzheimers Insiders
October 19, 2014 9:25 AM   Subscribe

How a doctor, a trader, and the billionaire Steven A. Cohen got entangled in a vast financial scandal.
As Dr. Sid Gilman approached the stage, the hotel ballroom quieted with anticipation. It was July 29, 2008, and a thousand people had gathered in Chicago for the International Conference on Alzheimer’s Disease. For decades, scientists had tried, and failed, to devise a cure for Alzheimer’s. But in recent years two pharmaceutical companies, Elan and Wyeth, had worked together on an experimental drug called bapineuzumab, which had shown promise in halting the cognitive decay caused by the disease. Tests on mice had proved successful, and in an initial clinical trial a small number of human patients appeared to improve... There would be huge demand for a drug that diminishes the effects of Alzheimer’s. As Elan and Wyeth spent hundreds of millions of dollars concocting and testing bapineuzumab, and issued hints about the possibility of a medical breakthrough, investors wondered whether bapi, as it became known, might be “the next Lipitor.” Several months before the Chicago conference, Barron’s published a cover story speculating that bapi could become “the biggest drug of all time."

"The consensus Wall Street estimate for bapi sales had been about $1 billion annually if the trials had succeeded."

After the bapi clinical trials, "Pfizer and J&J ... revealed that bapi failed to beat placebo in helping patients with mild or moderate disease with their memories in two late-stage studies."

The Corruption of Sid Gilman

The Doctor At The Center Of The Insider Trading Scandal

Dossiers from Bloomberg Businessweek on SAC Capital and SAC's successor organization, Point72 Asset Management
posted by GrammarMoses (23 comments total) 18 users marked this as a favorite
 
Nowhere does the dictum "the marketplace is the best system" fail more completely than in healthcare.
posted by Bee'sWing at 9:56 AM on October 19, 2014 [8 favorites]


That description of S.A.C. in the first article sounds like it could have been straight out of Pynchon's "Bleeding Edge."
posted by lagomorphius at 10:26 AM on October 19, 2014 [1 favorite]


This sort of corruption is inherent in a patent and copyright system that awards government enforced monopolies to corporations. Monopolies are inherently corrupting because they cause massive distortions in markets, allowing companies to avoid competition and allowing them to collect profits that are 10 , 100, 1000 times the marginal cost of production. Companies will do almost anything to enjoy those sorts of government protections from free market competition and excessive profits. Avoidance of competition is an invaluable asset.

The patent and copyright system is one of the most basic reasons for rising inequality. Each patent is a government enforced transfer of money from the public to corporations. It is a regressive tax on everything you buy, making you poorer and the 0.1% richer.
posted by JackFlash at 10:38 AM on October 19, 2014 [3 favorites]


so like the old times when the guy would ride his carriage into town and sell patent medicine to the credulous. i don't think my tincture of coca leaves in pure ethanol will cure alzheimer's, but it will perk you up long enough for me to get out of town.
posted by bruce at 10:57 AM on October 19, 2014 [1 favorite]


I think you need to work on your sales pitch, bruce.
posted by marienbad at 11:20 AM on October 19, 2014 [4 favorites]


This had nothing to do with the flawed us healthcare system or our IP law . this is just about speculators and people who cheated fellow speculators.

I tried to do an SAC post back last winter but not much interest
posted by JPD at 12:17 PM on October 19, 2014 [4 favorites]


This reminds me of the recent This American Life episode where the segment host was talking with a Venture Capitalist and the VC kept saying "What's your unfair advantage" as if the goal was to cheat markets. Which of course it largely is.
posted by srboisvert at 12:21 PM on October 19, 2014




Yes, corruption would never happen with companies like Enron, Coca cola, Pepsi, or McDonald's. It is only the corrupting power of patents, like Sauron's accursed ring!1!
posted by benzenedream at 12:47 PM on October 19, 2014


I think you need to work on your sales pitch, bruce.


What? I heard "tincture of coca leaves in pure ethanol," and I have four 1880 Morgan silver dollars in hand for a full case of bottles.
posted by TheWhiteSkull at 1:19 PM on October 19, 2014 [3 favorites]


>This had nothing to do with the flawed us healthcare system or our IP law.

>Yes, corruption would never happen with companies like Enron, Coca cola, Pepsi, or McDonald's.


There are many thousands of corporations in the world. Very few of them are involved in corruption which makes the instances so noteworthy. Yet 100% -- every single one -- of the top pharmaceutical companies have been involved in major fraud and paid billions in fines, many involving killing people.

The patent monopoly system provides these perverse incentives.

Pfizer, Merck, Novartis, Roche, Glaxo, J&J, Bristol, Bayer -- billions in fines for fraud.

When you have a system that rewards you with a monopoly worth billions, you are going to see lots of corruption. Where do you expect to see the most mayhem and corruption, an outfit that counterfeits nickels or one that counterfeits $100 bills?

Consumers are burned twice. First they are paying a monopoly tax of 1000% or 10,000% for their drugs and then they find out that the drug doesn't do what is claimed or kills them. That's what happens when you have multi-billion dollar pure profit at stake. It makes the bankers price-fixing LIBOR rates seem like pikers in comparison. You might be not be willing to kill someone for a million dollars but that changes when it is a $10 billion.
posted by JackFlash at 2:02 PM on October 19, 2014


When you have a system that rewards you with a monopoly worth billions, you are going to see lots of corruption.

Things were far better when doctors were not herded together but autonomous, many hospitals were nearly at-cost (typically one of the few laudable social roles of organized religion), and the majority of people agreed that health care and medicine should be off limits for capitalism. (I'm old enough to remember someone's hospital stay being billed for less than $100.)

I don't understand, but I guess most people have no problem with a world where most people are doing their best to prey successfully on their fellow citizens. (To my mind, a kind of disease in itself.) But even animals recognize when others are sick and cut them a break.

This era in health care is as loathsome as the era a century ago when human beings were herded by the thousands into the so-called "mental health" system (finally ended by Cuckoo's Nest). Most of those old warehouses' corpses are now rotting in the forests. The day of shame will come, as it did back then. Until then, we all need to beware of the blood funnel. The bell tolls for thee.
posted by Twang at 2:12 PM on October 19, 2014 [2 favorites]


Patents allow big pharma and venture biotech to recover the costs of drug discovery and drug trial plus a quite modest industrywide profit margin. When it comes to the U.S. pharma industry, a very meaningful share of that profit comes from foreign royalties.

Undoing the patent system would require that we move to a system of tax-payer funded not-for-profit institutes producing drugs for the public domain, to be manufactured by generics houses.

It's a less radical move than it might appear, in that the clinical trial process is heavily outsourced to academic medicine in the first place, but you still have to wonder about two things.

First, is the industry profit more or less than the inefficiencies / inefficacies that a drug-discovery and clinical trial bureaucracy might entail, especially given that developing for the public domain loses the foreign royalties and makes U.S. taxpayers foot the entire bill.

Second, the current system creates some very specific incentives around indications that the drug discovery process targets. Would a state-controlled system be permitted to pursue "lifestyle" indications (impotence, baldness)? Would it have an incentive to pursue rare indications? Would it become subject to mandates around indications which are particular to certain sympathetic or non-sympathetic (to the present Congressional majority) demographic or epidemiological categories?
posted by MattD at 2:25 PM on October 19, 2014 [3 favorites]


Seriously jack flash no matter how much I agree or disagree with you views on pharma IP, in this particular case the fact a drug was involved is completely inconsequential.

You could have their same thing happen surrounding any number of events . like if some engineer at Airbus had been consulting with a fund and revealed A380 wire harness issues - the same thing would have happened. Or an oil company hitting a dry hole. it Is just a widget that didn't work in this context
posted by JPD at 2:33 PM on October 19, 2014 [1 favorite]


Seriously jack flash no matter how much I agree or disagree with you views on pharma IP, in this particular case the fact a drug was involved is completely inconsequential.

The answer is right there in the headline from the post:
"The consensus Wall Street estimate for bapi sales had been about $1 billion annually if the trials had succeeded." -- entirely due to a patent monopoly.

You simply don't get such preverse multi-billion dollar incentives in any other competitive business. It is patents that make a drug so incredibly valuable.

From the article: "investors wondered whether bapi, as it became known, might be “the next Lipitor.""
They had visions of another patented drug, Lipitor, which also produced billions in monopoly profits.

It is the appeal of enormous monopoly profits that is irresistible to corruption. Investors abhor competition.
posted by JackFlash at 3:12 PM on October 19, 2014


It makes no sense to speak of investors' preference for monopoly profits in the context of pharma development. There would be zero investor-supported drug discovery or clinical trials anywhere in the world without the present patent system or some reasonable equivalent. You can't say that you could eliminate it and people could have their Lipitor cheaper -- if you eliminate it, there's no Lipitor to be had in the first place.

Now, as I posted earlier, there certainly is the possibility that the drug-discovery machinery could become non-profit taxpayer supported, and the clinical trial process is already largely carried out in non-profit institutions (albeit paid for by pharmas), but then you'd replace the stockholder with the Congressman and Congressmen still care about return on investment...
posted by MattD at 3:45 PM on October 19, 2014


did you read the article? Its about the SAC insider trading case. It's only tangentially about the value of bapi. It's about the probability of bapi getting approved.

There was no value in investing in bapi because it's going to be a blockbuster. If it worked there was trivially easy to understand. The bet was on its approval. It was about a binary outcome where Martoma knew the outcome in advance.

Arguably there are lots of binary outcomes to wagered on in the stock market everyday. The most lucrative ones usually arent even about the value of the firm but rather how that value is divided between different securities. Indeed the returns to those dwarf those made by jackasses speculating on drug approvals.
posted by JPD at 3:47 PM on October 19, 2014 [1 favorite]


Patents are entirely irrelevant to this article, which discusses insider trading. The drug company was of interest to Cohen & Co. because of the possibility that they would make a lot of money if their drug was successful, yes. Any company --- every company, in fact --- for which the statement "they will make a lot of money if X is successful" is true was of interest to SAC in precisely the same way. The crux of the insider trading case at issue was precisely the fact that the drug was not a success, with more extensive testing dashing hopes of something that had seemed promising. The drug company did not make any money. They did not in fact make the drug. The scientific method worked. Steve Cohen & Co. made quite a lot of money, because they were tipped off to these facts early. It is solely that fact with which the article is concerned.


This article is quite an interesting psychological profile of the SAC employee who successfully tempted the medical professor into giving him tips, and the sad case of the professor, who lost everything. And the either infuriating or magnificent, in a Rommel-you-bastard-I've-read-your-book kind of way, scot free escape of Cohen. His new company is doing quite well, it seems. One wonders what he learned from this.

The whole concept of the Great Trader is fascinating...many people with far more experience than I seem convinced they exist, but do they? Is it all just black edge and schmoozing and a little of the ready, placed into the right hands at the right time? Easier to believe that in a way than to believe that there is such a thing as a genius of randomness, some Lawnmower men in Greenwich who can run a ticker tape through their fingers and know the exact right moment to jump. There are who schools of "technical" traders who swear by that stuff, but to me it always seemed like nothing so much as augury.
posted by Diablevert at 10:22 PM on October 19, 2014 [2 favorites]


You simply don't get such preverse multi-billion dollar incentives in any other competitive business. It is patents that make a drug so incredibly valuable.

Lysine Price Fixing Conspiracy

I wish I could believe that patents and their temporary monopoly had some specific corrupting powers, but anytime that billions of dollars are involved, people make seriously shady decisions unless the threat of (a) getting caught (b) losing all your ill gotten gains and (c) personal jailtime are involved.

I am all for drug price controls (like happens in most socialized healthcare systems) in exchange for patent protection, and banning direct marketing at all levels.
posted by benzenedream at 10:44 PM on October 19, 2014


Mod note: Just to echo statements above, a different post focusing on patents might be something to consider in order to have that specific discussion, but this very interesting post is really not about that.
posted by taz (staff) at 11:25 PM on October 19, 2014


TheThe funny thing in the context of this discussion is that the lysine price fixing thing was not of great value to event driven traders like Cohen precisely because ADM already had a reputation for being shady as hell.
posted by JPD at 4:09 AM on October 20, 2014


Well, if you're still reading the thread, JPD, what do you make of how Cohen's doing under the rebrand?

The article makes a pretty strong circumstantial case that insider info was at least part of the secret sauce that allowed him to outperform for so long. On the other hand, ongoing legal troubles aside, he seems to have fallen on his feet at least as far as ROI is concerned. Up to his old tricks? The precautions he took seem to have served him well enough in the Martoma case. Or is he really a genius, and all these black edge offers the underlings were bringing him just the chocolate sprinkle on his sundae?
posted by Diablevert at 1:39 PM on October 20, 2014


He really hasn't. His returns are down since this whole thing began. Actually they took a step down years ago when he had his first mini scandal that led to him investing in a remarkable compliance apparatus - which is probably why the Feds didn't get him despite their best efforts.
posted by JPD at 3:35 AM on October 23, 2014


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