Mark Gerson’s ’94 firm makes a not-excessively positive appearence in this New York Times article entitled “Doctors’ Links With Investors Raise Concerns”. Basic idea is that investors want information about the products of the companies in which they invest, doctors have that information, and Gerson brings the two together for a fee. AFAIK, Gerson’s firm has been very successful in this endeavor. Indeed, outside of the Tripod, I can’t think of a more prominent Eph-founded firm in the last decade. Luckily, the only people whose “concerns” are raised are those that understand neither markets, nor research nor contracts. More commentary below.
At first, the calls seemed innocuous. Investment companies were offering Dr. Ronald B. Natale $200 or $300 for 15 minutes, asking that he discuss general trends in lung cancer, sometimes over the telephone.
But Dr. Natale became suspicious as the money offers kept growing, just before he was to present the case for Iressa, a new lung cancer drug, to a Food and Drug Administration advisory panel in September 2002. Dr. Natale’s access to research data on Iressa made him an attractive source for investment researchers seeking inside information.
“Wow, they were offering $1,000, $1,500, for 30 minutes of my time,” said Dr. Natale, a prominent researcher at Cedars-Sinai Comprehensive Cancer Center in Los Angeles. He said he routinely turned down offers to speak to investors.
While Dr. Natale has qualms, other doctors apparently do not. Nearly 10 percent of the nation’s 700,000 doctors have signed up as consultants with a new segment of the investment industry – companies that act as the Match.com of the investment world, according to an article in The Journal of the American Medical Association. For a fee, they arrange conversations between investors and leading professionals, experts or even employees of major companies.
Matching investors with doctors can raise particularly troubling questions. Physicians frequently serve as clinical researchers for the pharmaceutical and biotechnology industries, testing new drugs. Inside knowledge about those tests, before it is publicly available, could be worth millions. The Securities and Exchange Commission has now begun looking at whether doctors, participating in clinical trials, are accepting money to talk to analysts and investors about the confidential results. Such a breach, under some circumstances, could be construed as a violation of insider trading law.
Among the businesses that have emerged as matchmakers is Gerson Lehrman Group [GLG] of New York. Founded in 1998, Gerson is the industry leader in connecting investors with specialists in fields ranging from Turkish cement to underwire brassieres. Gerson’s 150,000 specialists include 60,000 physicians.
Although GLG has not responded to this article, you can read Gerson’s take on the issue here. It is very well done.
Portfolio mangers, for example, submit to Gerson a project they are working on and Gerson scours its database for the best specialists, then contacts them to check their availability and ability to participate. Each is sent a disclosure form requiring them not to disclose material nonpublic information, trade secrets or breach any previously confidentiality agreements.
Gerson Lehrman and Leerink Swann declined to comment for this article.
In one sense, this is very old news. I attended a meeting (with my physician wife) at Leerink Swann that pitched this sort of business almost a decade ago. My wife did not sign up.
But a letter from Mark Gerson, chief executive of Gerson Lehrman, said: “Before participating in our network, all physicians and scientists sign a contract that explicitly states they must not violate any of their confidentiality agreements, must check if they are unsure what those confidentiality obligations are and will be paid for time allocated to a project if they must discontinue it out of any related concerns.”
Last week, according to people close to the company, Gerson Lehrman started to offer compliance officers from hedge funds and mutual funds the ability to submit a “blacklist” of ticker symbols of companies owned by the fund. That way, if a fund owns a particular company’s stock, Gerson can block the fund’s analysts from requesting experts linked to that company.
According to Dr. Topol, Gerson Lehrman has built its network over the Internet, sending out e-mail messages to large physician groups, hoping they will enroll. “Most physicians have been targets of e-mails,” he said.
As long time readers know, Dr. Topol was a key figure on our discussion of conflicts of interest in the medical field.
Conclusion: This is largely a pseudo-scandal. Investors want information. They are willing to pay for it. Doctors (and other technical experts) have information. They are willing to sell it. GLG and other firms bring the two together. Now, obviously, if a doctor has signed a contract promising not to reveal information about X, then she had better uphold the contract. Otherwise, she could be in a world of trouble. But even doctors (and nurses and even the patients themselves) who have not signed such contracts have useful information.
The markets appetite for such information is insatiable. Kudos to Gerson and others for providing such an important service. The more information available, the more efficiently our capital markets will operate. The more efficiently our capital markets operate, the more quickly we will all grow rich.