Tom Price, U.S. secretary of Health and Human Services, has divested himself of the stocks he owned in medical companies over whose fate he could have wielded the influence of his position, his spokesperson has told Rewire.
In an email Tuesday, the spokesperson, Ryan Murphy, said that Secretary Price “completed all of the required divestitures well ahead of schedule to ensure that he could concentrate on the full range of his responsibilities at the U.S. Department of Health and Human Services.”
Price made the divestment because he was required to do so, according to the terms of an ethics agreement he signed upon being sworn into office. During his confirmation proceedings, Price faced fierce criticism over a long pattern of conduct that created the appearance of a potential for conflicts of interest between his former role as a powerful member of Congress, and his own financial holdings.
Price may hope the divestitures, which Murphy said would be filed in a report to the Office of Government Ethics within 90 days, will bring an end to the questions over his judgment when it came to investing in companies whose futures he could help determine.
U.S. Attorney for the Southern District of New York Preet Bharara was reportedly investigating those deals, but given that President Trump fired Bharara earlier this month, the future of any such investigation appears to be in doubt.
Yet, there is enough information on the public record to continue to cast the specter of doubt over Price’s judgment, as well as his potential motivation for making those investments—that is, whether he viewed himself as a regular investor, or whether he believed he could enrich himself by influencing the laws and rules that governed companies in the medical field.
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The investment that garnered the most attention was a purchase of between $50,000 to $100,000 of stock in a tiny Australian biotech startup called Innate Immunotherapeutics.
Much of the reporting on that deal has focused on the fact that Price participated in what’s known as a “private placement,” an offering of shares to qualified investors, usually wealthy and with high incomes, who can afford the risk of making extremely speculative investments. There’s nothing inherently suspect about these types of offerings, which are quite common. Yet, Price and roughly a dozen other U.S. investors who participated in that fundraising round obtained the stock at a discount to what it was trading for on the Australian stock exchange at the time. This led to questions over whether Price and the others got a “sweetheart deal.”
But the far more concerning aspect of that investment was the outsized role that Price and his fellow member of Congress, Rep. Chris Collins (R-NY), could have potentially played in helping take Innate from an extremely risky prospect, to a medical and financial success.
Innate’s product is an experimental drug for severe multiple sclerosis, which is still undergoing early testing in trials in Australia.
The company’s stated business strategy is to gain approval for its drug from the U.S. Food and Drug Administration (FDA), and to be acquired by a big pharmaceutical company with the wherewithal to successfully produce and market the drug in the United States and internationally.
Navigating the FDA process is hard, and many biomedical hopefuls have had their hopes dashed on those rocks.
Price, of course, would know. As Secretary of Health and Human Services, he is in charge of the FDA. But even before he took up his new position, Price demonstrated a willingness to directly intervene in the FDA process on behalf of companies and individuals that his aides described as “constituents.”
Last December, the Department released ten years’ worth of Price’s communications with HHS and its various agencies, which showed that Price actively lobbied on regulations that could impact companies in which he held a financial stake, as well as on issues that affected his campaign donors.
The documents also include an exchange from early summer of 2015, in which Price’s director of constituent services for his Georgia district intervened in the FDA process on behalf of a “constituent” whose company appeared to be having some trouble.
“Since your request below I have been in contact [sic] the FDA again on your behalf,” wrote the aide, Tina McIntosh, in an email to the constituent dated June 11, 2015. “As you may know, our office does not have the jurisdiction to force the a [sic] federal agency to move forward with a decision nor can we coerce them down a particular path. We can simply monitor petitions but with the FDA it’s not always that easy.”
An FDA official replied to McIntosh, telling her that the constituent would need to write a letter permitting the agency to release confidential information to Price’s office in order for them to discuss the pending application. McIntosh outlined what the constituent’s letter would need to say, and how to send it to the FDA official tasked with the request. “We will then follow-up with the FDA again and hopefully be able [sic] obtain some beneficial information,” McIntosh said.
The names of the constituent and their company have been redacted, so it is impossible to know whom this company was, or what became of their application, and there is nothing to suggest it was Innate. The documents show clearly, however, that Price was ready and willing to exert the influence of his office in matters concerning companies whose products were being assessed by the FDA, during a time when he held positions on congressional committees that had oversight over health issues.
If Price was familiar with the difficulties of getting FDA approval, so were the people who run Innate Immunotherapeutics.
Rewire has found that the chairman of Innate, Michael Quinn, was also a director of another Australian biotech startup, QRxPharma, that foundered and then failed after hitting FDA snags.
The particular way that QRxPharma handled its troubles with the FDA process has led to a class action lawsuit, which is currently being fought out in the Federal Court of Australia.
Shareholders of QRxPharma claim that Quinn and his fellow directors violated corporate law by failing to disclose the extent of those problems during a period of more than two years, between 2009 and 2012. In that time, QRxPharma raised additional rounds of funding, totaling nearly AU$90 million, allegedly without telling the market that their prospects of approval by the FDA—and therefore, their entire business—were hitting obstacles, according to court filings in that case.
Quinn isn’t the only Innate executive familiar with the pitfalls of working in biotech. The company’s chief financial officer, Jeff Carter (also based in Australia), was once the CFO of a company called Unilife, which promised great success in producing wearable injecting devices for drugs like insulin, as well as in providing pre-filled syringes to patients and medical providers.
Unilife, which once had a market cap of $329 million, is today on the brink of collapse. The company, based in York, Pennsylvania, is facing multiple lawsuits in the United States, and is under investigation by the Securities and Exchange Commission, according to its public filings. The legal problems arose after the company disclosed in May 2016 that its chairman and CEO had been misusing company accounts to pay for personal expenses, such as a payment for a new house for the CEO, as well as writing themselves loans. The total of misused funds was in the vicinity of $3 million.
Carter was no longer the CFO while these failures of “internal control” allegedly occurred, but he was still earning nearly $200,000 annually to provide financial services to the company, Unilife documents show.
Experts in biotech investments told Rewire that these lawsuits would amount to serious red flags about the ability of Innate’s management team to successfully steward the company through the rigorous FDA process, not to mention to pass the due diligence examination of professional investors in the United States.
“I’m just going to say flat out it doesn’t smell good,” said Nandini Rajagopalan, a professor of management and organization at the University of Southern California Marshall School of Business who specializes in biotech financing.
“The credibility of the organization and the products, especially for a startup, relies to a very large extent on the credibility of the executives because you don’t have data on the actual efficacy of the drug, you don’t have market data, you’re making attributions based on the information you have on these individuals,” she said. “When you have information that diminishes or calls into question the credibility of these individuals, it can diminish the credibility of the company as a whole.”
Moreover, Innate’s practice of uploading what appear to be patient testimonials for its drug to YouTube, before the drug has been officially approved, is considered unseemly, and likely unethical, investment experts told us.
“The ethics of using patient testimonials, in the absence of controlled results, is dubious at best,” said Jake King, an independent biotech stock analyst, in an email. “Management teams and scientists doing [research and development] know the risk in promoting unproven science and tend to err on the side of caution. This kind of promotion is typical of companies more concerned with their stock price than with science.”
The CEO and chairman of Innate—Simon Wilkinson and Michael Quinn, respectively—stopped answering Rewire’s emails after an exchange in which Quinn appeared to accidentally reply all on a note in which he called this reporter a “scumbag.”
However, in comments to the New York Times earlier this year, both men denied that recruiting members of Congress as investors was part of a business strategy, reportedly claiming:
they had never heard of many of the company’s more prominent investors, and said they first learned that Mr. Price had invested in the company from an article in The Wall Street Journal, which first reported his investment.
That claim is hard to square with Innate’s own company documents from August last year, which clearly list Price as one of the U.S. investors. (The Wall Street Journal published its piece in late December.) Rajagopalan also noted that, if it were true that the CEO and chairman of a tiny company did not know who some of their most important investors were, that would cast further doubt over their credibility as managers.
Certainly, the mere fact of making this investment raised the obvious question of whether Price or Collins intended to exert the influence of their public office to help Innate through the FDA approval process, Rajagopalan said. She said that Price’s involvement created the perception of the possibility of a conflict of interest, which called into question his judgment, if not as an investor, then as a public official.
“It makes you wonder, do they really have a great product? Or did they know the right people?” Rajagopalan said.
In any event, Price is likely to have come out of his Innate deal a winner. Assuming Price sold his Innate stock in the middle of March, he could have made up to $130,000, taking into account both the fluctuation in the stock’s trading price as well as the exchange rate. Murphy said that the ethics filing would include the date on which the sale was made, which could help clarify Price’s profit.