Hedge Fund Docs

With hedge funds much in the news, I'm surprised that one article from last week's Journal of the American Medical Association got zero attention from the press. Eric J. Topol of the Cleveland Clinic and David Blumenthal of Harvard revealed that 1 in 10 physicians in the U.S. have formal consulting relationships with some segment of the investment industry. A decade ago, these ties were virtually non-existent.

Topol was clearly motivated to write the article by his recent experience in this regard. Last fall, shortly after Merck withdrew Vioxx from the market, the Wall Street Journal revealed that Topol had been consulting with a hedge fund that had bet heavily against Merck's stock prior to the withdrawal. Topol was one of the most articulate and outspoken critics of Vioxx. After his relationship was exposed, Topol ended all his industry ties -- not just to the financial industry, but to the drug and biotech industries as well.

Investment funds benefit in obvious ways from discussions with their consultant-docs. Company stocks can gyrate wildly based on the outcomes of clinical trials. Getting insight into how a trial is going can give the savvy investor the kind of inside information needed to anticipate those swings.

This is illegal insider trading, and us small investors can only hope that the Securities and Exchange Commission enforcement division takes careful note of the Topol/Blumenthal article. The authors quoted from one investment industry physician source at a company called Leerink Swann, "Clever clients can read a lot in a doctor's silences and pauses" and "on occasion some doctors slip up."

Given the shocking extent of these ties, the prescription for change in the article was far too pallid. The authors called for full disclosure of financial ties to investment funds and more careful monitoring by academic institutions when the consulting physicians teach at medical schools. "The relationships between physicians and the investment industry have clearly become pervasive, although not necessarly perverse," they conclude.

I wonder if the people who volunteer to participate in clinical trials, once apprised of their physicians' ties to hedge funds, would feel the same way.