Incoming President of IOM Outed as Member of Boards of Alnylam Pharmaceuticals, Medtronic and Pepsico

We just <a href="http://hcrenewal.blogspot.com/2014/02/the-carefusion-dr-denham-nqf-leapfrog.html">discussed</a> how the new CEO of the National Quality Forum was revealed to be a member of the board of directors of Premier Inc, and discussed the implications of this apparently intense conflict of interest.  <br /><br />Now another new leader of an influential non-profit organization dedicated to improving health and health care has also been shown to have major conflicts of interest.<br /><br /><b>All Hail the New President of the Institute of Medicine</b><br /><br />In 2010, we <a href="http://hcrenewal.blogspot.com/2010/12/duke-divinity-students-protest-pay-of.html">posted</a> about a student protest of the salaries of some top administrators at Duke University, including then Chancellor of Health Affairs Dr Victor Dzau, at a time when the university was undergoing financial difficulties.  We pointed out that Dr Dzau's income was further increased by compensation received as a member of the boards of directors of multiple corporations, and further that serving as a highly paid steward of health care companies like Alnylam Pharmaceuticals, Genzyme, and Medtronic appeared to be a major conflict of interest.  .   <br /><br />Last week Dr Victor Dzau was hailed as the new president of the Institute of Medicine.  The simple version, <a href="http://www.modernhealthcare.com/article/20140219/NEWS/302199945/duke-ceo-dzau-named-president-of-institute-of-medicine">in Modern Healthcare</a>:<br /><br /><blockquote class="tr_bq"> Duke University Health System President and CEO Dr. Victor Dzau was named president of the Institute of Medicine, succeeding the longtime president, Dr Harvey Fineberg, the National Academy of Sciences announced Wednesday. <br /><br />Dzau, whose six-year term will begin July 1, has done research in the area of treatment for high blood pressure and congestive heart failure and pioneered the use of gene therapy for vascular disease, the institute said in announcing the selection. Dzau served on the IOM Council from 2008 through 2013, Fineberg said in a statement.<br /><br />'As a physician-scientist and leader in academic medicine, Victor has consistently demonstrated inspirational leadership, innovative thinking and multifaceted achievement. Now, all of us at the IOM, both members and staff, will benefit more fully from his leadership,' said Fineberg, who has served as president of the institute for 12 years. </blockquote><br /><b>Conflicts of Interest Barely Noted</b><br /><br />Neither this article, the <a href="http://www.iom.edu/Global/News%20Announcements/IOM-Announces-Next-President.aspx">official Institute of Medicine press release</a>, nor articles in the few media outlets that initially covered this new appointment on 19-20 February, 2014,, including <a href="http://www.boston.com/lifestyle/health/blogs/white-coat-notes/2014/02/19/duke-health-system-ceo-appointed-head-institute-medicine/Tj9E4p3tbDVbJ8W14NseCP/blog.html">the Boston Globe </a>and the <a href="http://www.charlotteobserver.com/2014/02/19/4707500/duke-health-system-president-leaving.html">Charlotte News-Observer</a>, noted Dr Dzau's positions on the boards of directors of <a href="http://investors.alnylam.com/directors.cfm">Alnylam Pharmaceuticals</a>, device manufacturer <a href="http://www.medtronic.com/corporate-governance/biographies/board-of-directors/index.htm">Medtronic</a>, and sugary soft drink maker <a href="http://www.pepsico.com/company/Board-of-Directors-and-Committees">Pepsico</a>.<br /><br />However, <a href="http://www.forbes.com/sites/larryhusten/2014/02/19/newly-elected-president-of-institute-of-medicine-is-on-the-pepsico-board-of-directors/">Forbes blogger Larry Husten</a>, was the first to publicly report these memberships, drawing on our 2010 <a href="http://hcrenewal.blogspot.com/2010/12/duke-divinity-students-protest-pay-of.html"> post </a> on Dr Dzau's conflicts of interest as Duke Chancellor for Health Affairs.<br /><br />Then a <a href="http://www.modernhealthcare.com/article/20140220/BLOG/302209995/possible-conflict-of-interest-for-ioms-dzau-reporter-says">blog post</a> on Modern Healthcare by Steven Ross Johnson added some more detail,<br /><br /><br /><blockquote class="tr_bq">IOM spokeswoman Jennifer Walsh said in an e-mail that <i>Dzau initiated steps to resign from his corporate board positions before Wednesday's announcement </i>and that he has committed to severing the ties by the time he begins his six-year term in July.</blockquote><br />It did not mention why the IOM press release and the initial news stories did not mention Dr Dzau's board memberships nor his intention to resign from them.  The IOM spokeswoman apparently did not discuss why Dr Dzau was going to resign his board memberships now, while he had maintained them as a member of the IOM Council from 2008 to 2013. <br /><br />Since then, later on 21 February, a single mainstream media article, in <a href="http://www.businessweek.com/articles/2014-02-21/pepsico-director-quitting-to-lead-health-institute-that-touted-soda-tax">Bloomberg,</a> did address Dr Dzau's new job, his corporate board memberships, and his planned resignations, with emphasis on his break from PepsiCo:<br /><br /><blockquote class="tr_bq">The newly appointed president of the Institute of Medicine, which advises government leaders and policymakers on health issues, plans to resign from several corporate boards in advance of taking his new job—including one that might have created a sticky situation.<br /><br />Among the companies that Victor Dzau will sever ties with is <span class="ticker_wrap"><span itemscope="" itemtype="http://schema.org/Corporation"><span itemprop="name">PepsiCo</span></span> (PEP)</span>, according to Jennifer Walsh, a spokeswoman for the IOM. 'Dr. Dzau had already decided to step down from corporate boards before he accepted the position,' she says.<br /><br />For Dzau, who’s leaving his position as chief executive officer of the Duke University Health System to head up the IOM, the PepsiCo relationship might have been a problem: Several of the company’s products are among those blamed for contributing to the obesity epidemic in the U.S. The Purchase (N.Y.)-based company is best known for its Pepsi soft-drink line and snacks including Fritos and Cheetos.<br /><br />The IOM, which has identified solving the nation’s weight problem as a top priority, endorsed the idea of a soda tax in a report detailing the 'staggering toll' of obesity. The agency estimates obesity-related illness in the U.S. costs $190 billion a year.</blockquote><br />The Bloomberg article mentioned his memberships on the Alnylam and Medtronic boards mainly in passing. <br /><br /><b>The Rewards of Board Membership</b> <br /><br /><br />The Modern Healthcare blog post provided a list of recent compensation Dr Dzau received from his board memberships.<br /><br /><blockquote class="tr_bq">According to Pepsico's 2013 proxy statement, Dzau deferred <i>his retainer of <b>$66,667</b> </i>for the year ending Dec. 29, 2012, in lieu of <i>944 units of phantom stock</i>, where cash is paid at a future date in an amount equal to the market value of stock shares. <a href="http://www.pepsico.com/Investors/Annual-Reports-and-Proxy-Information"> Dzau also serves on the boards of </a><a href="http://investors.alnylam.com/secfiling.cfm?filingID=1193125-13-170764&CIK=1178670">Alynylam Pharmaceuticals</a> (he was <i>paid <b>$50,000</b> and received option awards of <b>$89,000 </b>in 2013</i>) and <a href="http://www.medtronic.com/wcm/groups/mdtcom_sg/@mdt/@corp/documents/documents/proxy_statement_2013.pdf">medical devicemaker Medtronic (PDF)</a> (he was <i>paid <b>$80,000</b></i> and <i>received stock awards worth <b>$140,000</b> </i>in 2013).</blockquote><br />It did not mention whether he currently owns any stock, or the equivalent, in any of these companies.  <br /><br /><br />However, the most recent Alnylam, Medtronic, and PepsiCo proxy statements show Dr Dzau's considerable stock holdings in these companies.<br /><br />- According to the <a href="http://investors.alnylam.com/secfiling.cfm?filingID=1193125-13-170764&CIK=1178670">2013 Alnylam Pharmaceuticals proxy statement</a>, he currently owns the equivalent of 90,000 shares today worth <b><i>$8,070,300</i></b> at the current price of $89.67.<br />- According to the <a href="http://phx.corporate-ir.net/phoenix.zhtml?c=76126&p=irol-SECText&TEXT=aHR0cDovL2FwaS50ZW5rd2l6YXJkLmNvbS9maWxpbmcueG1sP2lwYWdlPTkwMjY0MzAmRFNFUT0wJlNFUT0wJlNRREVTQz1TRUNUSU9OX0VOVElSRSZzdWJzaWQ9NTc%3d">2013 Medtronic proxy statement</a>, he currently owns 9636 stock options and 15,200 deferred stock units for total holdings of 25,156 share equivalents today worth <b><i>$1,450,495</i></b> at a current price of $57.66.<br />-  According to the <a href="http://www.pepsico.com/Assets/Download/PepsiCo_Proxy_2013.pdf">2013 Pepsico proxy statement</a>, Dr Dzau currently owns the equivalent of  36,173 shares of Pepsico stock. today worth <b><i>$2,830,537 </i></b>given a current price of $78.25.  <br /><br />The Bloomberg article provided a somewhat lower estimate of the value his PepsiCo stock holdings based on an otherwise unidentified 2 December, 2013 filing with the US Securities and Exchange Commission.  It estimated the value of his deferred stock units in Medtronic based on an April, 2013 disclosure, but did not list the stock options which appeared in the July, 2013 proxy statement.  It noted his membership on the Alnylam board but did not mention that he held any shares or the equivalent in Alnylam stock.<br /><br />I cannot find anything public about what, if anything, Dr Dzau plans to do with these not inconsiderable stock holdings in health care and health related corporations.   <br /><br />Note that as we <a href="http://hcrenewal.blogspot.com/2010/12/duke-divinity-students-protest-pay-of.html">posted</a> in 2010, in its last proxy statement before it was acquired by Sanofi, Genzyme declared that Dr Dzau owned the equivalent of 75,137shares as of 2009, which in 2010 were worth approximately $5.3 million.  I cannot tell what Dr Dzau did with these stock holdings after the merger.   <br /><br /><br />Thus while there may be some confusion about this current holdings and their exact value, it seems clear that Dr Dzau has become a multimillionaire by virtue of his holdings of stock or equivalent from the three companies, a drug company, and medical device company, and a company whose products have apparent public health implications, on whose boards he currently sits, and possibly by virtue of his holdings in another drug/ biotechnology company on whose board he previously sat.  .   <br /><br /><b>The Intensity of the Conflicts </b><br /><br />The acuity of the conflicts presented were the President of the IOM to continue sitting on these boards was emphasized by this description of the influence wielded by the IOM written in an <a href="http://www.heraldsun.com/news/localnews/x147183586/Duke-Health-System-president-Dzau-leaving-for-new-role">article</a> in the Durham (NC) Herald-Sun,<br /><br /><blockquote class="tr_bq"> <i>Under the congressional charter of the National Academy of Sciences, the Institute of Medicine is recognized as a primary source for independent, scientifically informed analysis and recommendations on health issues.</i></blockquote><br />Even though Dr Dzau will apparently exit his board memberships before he becomes IOM President, the IOM  has been providing such analysis and recommendations under the supervision of a Council member who had fiduciary duties to the stockholders of two pharmaceutical companies a medical device company, and company that makes sugar-laden soft drinks and snack foods.  It will continue to provide such analysis and recommendations under the supervision of a President who became a multimillionaire by virtue of the stock holdings he acquired through his board positions.<br /><br /><br />In 2006 we first <a href="http://hcrenewal.blogspot.com/2006/03/new-species-of-conflict-of-interest-in.html">discussed</a> a newly discovered species of conflict of interest in health care, in which leaders of medical or health care organizations were simultaneously serving on boards of directors of health care corporations.  We posited these conflicts would be particularly important because being on the board of directors entails not just a financial incentive.  It ostensibly requires board members to "demonstrate unyielding loyalty to the company's shareholders" [Per Monks RAG, Minow N. <a href="http://www.amazon.com/Corporate-Governance-Robert-G-Monks/dp/1405116986"><i>Corporate Governance</i></a>, 3rd edition. Malden, MA: Blackwell Publishing, 2004. P.200.]  Of course, after the global financial collapse of 2008 made us sadder and a little wiser, we realized that many board members actually seem to have unyielding loyalty to their cronies among top management.  However, in any case, the stated or actual interests of a member of the board of a health care corporation, like a pharmaceutical company or medical device company, could be very different and at odds with the mission of an academic medical institution or a non-profit ostensibly dedicated to improving health care quality.<br /><br />Also, this case could be aggregated with that of Dr Cassel, the new CEO of the National Quality Forum (and former CEO of the American Board of Internal Medicine) who was found to be a member of the board of directors of Premier Inc, a for-profit hospital group purchasing organization.(see this <a href="http://hcrenewal.blogspot.com/2014/02/the-carefusion-dr-denham-nqf-leapfrog.html">post</a>).  In my humble opinion, the issue here goes even beyond blatant conflicts of interest.  That top stewards of big for-profit health care corporations could simultaneously be  top leaders of influential non-profit organizations ostensibly dedicated to improving health and health care suggests that increasingly US health care is run by an insular group of insiders whose influence gets ever larger because of their collective power, not necessarily because of their dedication or ability to improvement of health care.  As <a href="http://www.propublica.org/article/payments-to-ceo-raise-new-conflicts-at-top-health-quality-group">reported</a> by ProPublica about Dr Cassel's case,<br /><br /><blockquote class="tr_bq">Rosemary Gibson, an author and senior adviser to The Hastings Center, a research group dedicated to bioethics in the public interest, said she wasn’t surprised at Cassel’s outside compensation. <i>So much money permeates decision-making in Washington, she said, that participants have become oblivious</i>.<br /><br />'The insiders don’t see it,' Gibson said. '<i>It’s like a fish in water.</i>'</blockquote><br /><br /><b>How Would Dr Dzau Respond to Criticisms of the Companies He Directs, and How Would His Responses Reflect on the IOM?</b><br /><br />Even if  Dr Dzau were to resign from all three corporate boards, and sells all his stock holdings in the three companies, as previous board member he was responsible for the stewardship of these four companies for years. Therefore it would not be unfair for someone to ask him to address any questionable actions of those companies that affected patients' and the public's health.<br /><br />For example, as we have discussed <a href="http://hcrenewal.blogspot.com/search/label/Medtronic">here</a>, Medtronic has been involved in a series of recent misadventures, including most recently a settlement between multiple hospitals and the Us Department of Justice of charges that they allowed themselves to be persuaded by executives of Medtronic subsidiary Kyphon to inflate their billings for patients who had a Kyphon device implanted (look <a href="http://hcrenewal.blogspot.com/2013/07/55-of-medtronics-best-hospital-friends.html">here</a>),  and a Senate report that Medtronic manipulated articles in the medical literature to market another of its products (look <a href="http://hcrenewal.blogspot.com/2012/10/marketers-systemic-influence-over.html">here</a>). <br /><br />But the awkward fact is that Dr Dzau, as a board member of Medtronic, can be seen to be a steward of that corporation, and hence responsible for the its overall direction.  Even if he were no longer a board member, he cannot erase his responsibility for Medtronic activities that occurred on his watch.  Thus, Dr Dzau could easily find herself in the uncomfortable situation of having to defend and justify questionable past behavior by Medtronic while simultaneously wearing the hat of President of the IOM.  How that would play out is not obvious.<br /><br /><b>Summary </b><br /><br />To date, the case of Dr Dzau as incoming president of the IOM and current board member of Alnylam Pharmaceuticals, Medtronic and Pepsico has received little attention, and therefore no ethics expert has gotten a chance to speak up in public about it, as they have about the case of Dr Cassel, the NQF, and Premier Inc.  So I will have to step in. <br /><br />As I have said before,  Dr Joe Collier said, "people who have conflicts of interest often find giving clear advice (or opinions) particularly difficult."  [Collier J. The price of independence. Br Med J 2006; 332: 1447-9. Link <a href="http://bmj.bmjjournals.com/cgi/content/full/332/7555/1447">here</a>.]  To reduce further unclear thinking and its consequences, we again urge that academic medical institutions, and non-profit organizations dedicated to improving patient care and public health forthwith begin real reductions of conflicts of interest affecting all those who make clinical or policy decisions.<br /><br />The IOM ought to consider<br />-  Immediately disclosing conflicts of interest affecting all its members, staff, and leadership in a very clear and accessible manner<br />-  Beginning a gradual but complete phase out of such conflicts<br /><br />Otherwise, we all ought to be concerned that the leadership of medicine and health care is increasingly in the hands of a small group of insiders, interchangeable executives who simultaneously or sequentially lead multiple organizations, and are likely to become more comfortable with the fellow members of this interlocking leadership than with ordinary health care professionals, patients and the public.   

Incoming President of IOM Outed as Member of Boards of Alnylam Pharmaceuticals, Medtronic and Pepsico

We just discussed how the new CEO of the National Quality Forum was revealed to be a member of the board of directors of Premier Inc, and discussed the implications of this apparently intense conflict…

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More Pharmaceutical Misadventures - Actelion Damages Upheld, Genzyme (Sanofi Subsidiary) Settled, Merck Fined

The march of <a href="http://hcrenewal.blogspot.com/search/label/legal%20settlements">legal settlements</a> by large health care organizations goes on, albeit with ever more quiet footsteps as the number of journalists available to amplify their sounds declines.  Last week we <a href="http://hcrenewal.blogspot.com/2014/01/pharmalot-sent-down-memory-hole.html">noted</a> the shutdown of PharmaLot, a journalistic blog edited by Ed Silverman that was one of the few that reported fearlessly on the pharmaceutical industry, warts and all.<br /><br />So we dedicate this round up of legal settlements by pharmaceutical companies announced last month, December, 2013, to Ed Silverman, who reported on two of the cases below, and whose reports have been silenced by the shutdown of the PharmaLot web-site by its corporate owner. <br /><br />In alphabetical order by name of the pharmaceutical company, <br /><br /><b>Actelion $40.7 Million Damages for Keeping Possibly Competitive Drug Off the Market Upheld</b><br /><br />This story was reported by Ed Silverman on Pharmalot, and <a href="http://www.sfgate.com/business/article/Actelion-loses-appeal-in-lung-drug-case-5079481.php">by the San Francisco Chronicle</a>.  The basics, according to the latter article, were:<br /><br /><blockquote class="tr_bq">A state appeals court has upheld $407 million in damages against the Swiss biotechnology giant Actelion and its executives for buying a Bay Area company and using it to thwart another firm's plans to market a competing hypertension drug in the United States.<br /><br />The drug, Fasudil, is manufactured by Ashai Kasei Pharma Corp of  Japan<a href="http://www.sfgate.com/?controllerName=search&action=search&channel=business&search=1&inlineLink=1&query=%22Asahi+Kasei+Pharma+Corp.+of+Japan%22"></a> for treatment of pulmonary arterial hypertension, an often fatal disease of the lung arteries. In June 2006, Asahi signed a licensing agreement with the South San Francisco biotech firm CoTherix, which agreed to develop oral and inhaled versions of Fasudil and seek regulatory approval in the U.S. and Europe.<br /><br />Less than five months later, Actelion bought CoTherix, paying a premium price of more than $400 million, and <i>announced soon afterward that it was dropping plans to develop Fasudil. Actelion's own drug, Tracleer, dominates the U.S. market for treatment of the same disease and generates more than $1 billion in revenue a year.</i></blockquote><br />Note that the federal appeals court judge, Terence Bruiniers, found that the actions by Actelion were not only anti-competitive, but may have harmed patients,<br /><br /><blockquote class="tr_bq">'By impeding the development of Fasudil, Actelion not only sabotaged a competitive and foreseeably profitable commercial venture, but <i>prevented a drug with the potential for alleviating the suffering of patients with life-threatening and debilitating diseases from reaching the market</i>,' Bruiniers wrote.</blockquote><br />Further note that in this civil lawsuit, it appears that the top executives who engineered the anti-competitive actions that may have harmed patients will actually face negative consequences.  The judge also said,<br /><br /><blockquote class="tr_bq">the jury was entitled to conclude that <i>three Actelion executives - CEO Jean Paul Clozel, chief scientific officer Martine Clozel, and Simon Buckingham, director of corporate and business development - had shown a disregard for the rights of Asahi and its customers and were liable for $30 million in punitive damages,</i> about 10 percent of the executives' net worth.</blockquote><br /><br /><b>Sanofi Subsidiary Genzyme Settled Charges of Encouraging Unapproved Internal Use of SepraFilm for $22 Million</b><br /><br />The longest version of this story appeared <a href="http://www.tampabay.com/news/courts/civil/boston-biotech-firm-genzyme-agrees-to-pay-22-million-in-tampa/2158332">in the Tampa Bay Times</a>.  The basics were:  <br /><br /><blockquote class="tr_bq"> A Massachusetts-based biotechnology company has agreed to <i>pay $22.28 million</i> to resolve allegations brought by whistle-blowers in Tampa and Miami that it <i>marketed an inappropriate use for a surgery medication,</i> U.S. government attorneys said.<br /><br />Genzyme, a corporation known for its research into drugs for rare genetic diseases, is paying the settlement in a lawsuit over Seprafilm, a material it manufactures for use in the operating room. <br /><br />According to court documents, Genzyme <i>sales representatives encouraged doctors to use the product in a manner not approved </i>by the U.S. Food and Drug Administration, leading to improper claims for reimbursement from hospitals.</blockquote><br />The details were:<br /><br /><blockquote class="tr_bq"> According to court documents, Seprafilm is i<i>ntended to be applied during open surgery</i> to prevent organs and muscle tissue from sticking together. However, the whistle-blowers and lawyers for the federal government alleged that <i>Genzyme sales representatives taught doctors to use it in less invasive procedures — such as laparoscopic or 'keyhole' surgeries — by mixing it into a liquidlike 'slurry' that could be injected into the body.</i></blockquote><br />Apparently the sales representative who blew the whistle in this case "recognized that this was a potential danger."  It certainly seems possible that the unapproved use of this material modified to be injected within the body might have resulted in harm to patients, and that at least its harmfulness when used in this manner had had never been tested.  However, in this litigation as supported by the US Department of Justice the plaintiffs were "not required to prove ... that patients had been harmed."<br /><br />Note that unlike the civil case above, and as is typical of federal lawsuits against big health care organizations, those company employees who authorized or directed the questionable actions did not suffer any negative consequences.<br /><br />(Added on 19 January, 2013) - Further note that as the article implied, but did not emphasize, since 2011, Genzyme has been owned by Sanofi.  Sanofi's last three major settlements since 2007 were summarized <a href="http://hcrenewal.blogspot.com/2012/12/tis-season-for-legal-settlements.html">here</a>.  <br /><br /><b>Merck Fined 15.3 Million Euros for Smear Campaign Against Generic Competition</b><br /><br />This case was reported by Ed Silverman on PharmaLot, and briefly <a href="http://www.reuters.com/article/2013/12/19/france-fine-idUSL6N0JY2DE20131219">by Reuters</a>,<br /><br /><blockquote class="tr_bq"><span id="articleText"><span class="focusParagraph">The French competition authority said on Thursday it had <i>fined Schering-Plough, now owned by Merck, 15.3 million euros ($21 million)</i> over what it called <i>a smear campaign against generic competition to Subutex, its drug for opioid addiction.</i><br /><br /> </span><span id="midArticle_0"></span>It also handed out a fine of 414,000 euros to parent Merck and another of 318,000 euros to British supplier Reckitt Benckiser for <i>anti-competitive behaviour</i> in staging the campaign in late 2005.</span></blockquote><span id="articleText"></span><br /><br />Note that while this case did not involve any implications of physical harm to patients, it seemed to involve active deception. <br /><br /><b>Summary</b><br /><br />First, as we have <a href="http://hcrenewal.blogspot.com/search/label/legal%20settlements">said for years</a>, legal actions like those listed above may or may not result in huge financial penalties, and rarely result in penalties for individuals who authorized, directed or implemented the actions in question, but do serve as markers of the extent of misbehavior by large health care organizations.  Such misbehavior may have adverse consequences for patients and for public health and the health care system.<br /><br />Second, also as we have said for years, such actions mark the problem, but are unlikely to deter future problems.  In fact, many large health care organizations have settled strings of cases since we started trying to keep track of them (and may not have done so completely).  For example, the Genzyme, hence Sanofi settlement this year is at least the fourth major settlement by this company since 2007. <br /><br />Settlements resulting in fines imposed on a company as a whole are diffused, paid by stockholders, employees, and patients, and hence are likely to be regarded as a cost of doing business by top  management.  Managers, however, often are given huge financial incentives for all actions that increase short term revenue.  So managers are likely to continue to enable or direct bad behavior as long as it can bring in lots of revenue at no personal risk.<br /><br />Third, while there has been a modest increase in discussion of ill-informed, mission-hostile, self-interested, conflicted, or even criminal or corrupt management since we started Health Care Renewal, the increasing plight of journalism seems to be making these issues more <a href="http://hcrenewal.blogspot.com/search/label/anechoic%20effect">anechoic</a>.  The shutdown of PharmaLot and the silencing of its archives is another reminder of how public relations and marketing are now overwhelming disinterested reporting (see <a href="http://www.propublica.org/article/pr-industry-fills-vacuum-left-by-shrinking-newsrooms">this report</a> by Pro Publica).<br /><br />If we really want to reverse the downward spiral of our ever more expensive, less accessible, and lower quality health care system, we first have to preserve our ability to identify and loudly discuss its problems. <br /><br />Roy M. Poses MD for Health Care Renewal <br /><br /><br />

More Pharmaceutical Misadventures - Actelion Damages Upheld, Genzyme (Sanofi Subsidiary) Settled, Merck Fined

The march of legal settlements by large health care organizations goes on, albeit with ever more quiet footsteps as the number of journalists available to amplify their sounds declines.  Last week we …

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After Manufacturing Problems, Genzyme CEO's Golden Parachute Means "Failure = Success"

In late 2009, I <a href="http://hcrenewal.blogspot.com/2009/11/genzymes-remarkable-businessstrategy.html">posted</a> about problems at a Genzyme plant that manufactured some fabulously expensive drugs, e.g. Cerezyme whose cost to patients approximated $160,000 a year. We thought then that for a drug costing that much, the company ought to have figured out a conservative process to provide pure and unadulterated product. In a later <a href="http://hcrenewal.blogspot.com/2009/11/was-is-worst-biotech-ceo-worth.html">post</a> I asked why a company that could afford to make its CEO very rich could not afford to adequately maintain its manufacturing facilities. In May, 2010, I <a href="http://hcrenewal.blogspot.com/2010/05/genzyme-settles.html">posted</a> about a legal settlement of charges related to its manufacturing problems requiring Genzyme to pay a $175 million fine and function under US government supervision.  And in August, 2010, I <a href="http://hcrenewal.blogspot.com/2010/08/golden-parachute-for-making.html">posted</a> about how this series of management missteps could lead to the company's CEO becoming even richer because they lead to a declining stock price, which increased the likely that the company would be bought out, which could trigger the CEO's golden parachute.  I suggested then that were this to happen, it would be a gross example of how massively perverse incentives stupendously reward the top brass of health care organizations for mediocre, or worse leadership and bad results for both patients/ clients/ customers and stock-holders alike.<br /><br />Now it  looks like this will happen.  Yesterday, the Boston Globe <a href="http://www.boston.com/business/healthcare/articles/2011/02/16/genzyme_agrees_to_201b_sale_to_drug_giant">reported</a>:<br /><blockquote>Ggenzyme Corp., the largest biotechnology company in Massachusetts and one of the industry’s historic pioneers, has struck a definitive agreement to be bought by French pharmaceutical giant Sanofi-Aventis SA, in a deal valued at about $20.1 billion.</blockquote><br />As a result of this deal,<br /><blockquote><em>Genzyme’s high-profile president and chief executive, Henri A. Termeer, who has run the company for 28 years, will resign</em> following the close of the transaction. But he will advise Sanofi on integrating the two companies. Termeer built the company into a global operation with 10,000 employees worldwide and a business model that has been the envy of the biotechnology industry. He turns 65 on Feb. 28.<br /><br />Termeer, though fiercely proud of Genzyme’s independence, <em>stands to make more than <strong>$23 million</strong> when the sale is completed, according to a 'change of control' clause in his employment contract. In addition, as a major Genzyme shareholder, he would be in a position to cash out shares that last year were worth more than <strong>$275 million</strong>.</em></blockquote><br />That and several other articles s noted that it was Genzyme's manufacturing problems that lead to the buy-out:<br /><blockquote>the string of events that made Genzyme vulnerable to a takeover began in the summer of 2009 when workers <em>discovered viral contamination</em> at Genzyme’s Allston Landing plant overlooking the Charles River.<br /><br />Genzyme was forced to <em>temporarily shut down and clean up the plant</em> and ration shipments of its best-selling Cerezyme and Fabrazyme drugs, both of which treat enzyme deficiencies. The events created an opening for competitors such as Shire and Israel’s Protalix Biotherapeutics and <em>sent Genzyme’s stock tumbling</em> on the Nasdaq.<br /><br />The dip in Genzyme’s share price <em>drew activist investors</em>, including Carl C. Icahn of New York and Ralph Whitworth of San Diego, who accumulated shares they hoped to sell at a rich premium. They pressured management to take steps to boost shareholder value, including a stock buyout and the elimination of 1,000 jobs worldwide.<br /><br />Ultimately, the company gave Whitworth a seat on its board, and, after Icahn threatened to unseat Genzyme directors in a proxy battle, it granted two seats to his associates.<br /><br />In many ways, industry watchers said, <em>an acquisition became inevitable</em> once Genzyme stumbled at its Allston plant.</blockquote><br />A Bloomberg <a href="http://www.bloomberg.com/news/2011-02-16/genzyme-s-termeer-may-follow-health-care-ceo-path-to-private-equity-firms.html">article</a> noted that this sequence of events would lead to<br /><blockquote>The departure package [which] makes him <em>'one of the biggest all- time winners in biotech,</em>' said [University of Michigan business professor Erik] Gordon, who has studied the pharmaceutical industry for three decades. </blockquote><br />Our criticism of the Genzyme CEO's potential for reaping hugely perverse incentives was paralleled by Jim Edwards' <a href="http://www.bnet.com/blog/drug-business/genzyme-ceo-earns-300m-for-running-company-into-the-ground/7447">critique</a> of what actually happened:<br /><blockquote>Here’s <em>how crazy CEO incentive compensation is</em>: Genzyme (GENZ) CEO Henri Termeer walked away from his company with a payout that may be worth $300 million yesterday when Sanofi-Aventis (SNY) acquired his company. But <em>the only reason Genzyme was acquired — triggering Termeer’s gargantuan change-of-control package — is because Termeer nearly ran his company into the ground, </em>making his stock cheap enough for Sanofi to buy.<br /><br />In other words, <em><strong>failure = success</strong></em> when it comes to change-of-control packages for CEOs.</blockquote><br />So let me just repeat my conclusion from last August: As long as being a health care CEO is effectively a license to loot the company, is it any wonder that health care organizations continue to be badly lead, and health care costs soar while quality and access suffer? <br /><br />Once more with feeling: real health care reform would require us to make health care executives truly accountable for their actions, and penalize them for those that are ill-informed, contemptuous of health care values, self-interested, or corrupt.

After Manufacturing Problems, Genzyme CEO's Golden Parachute Means "Failure = Success"

In late 2009, I posted about problems at a Genzyme plant that manufactured some fabulously expensive drugs, e.g. Cerezyme whose cost to patients approximated $160,000 a year. We thought then that for …

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The Boards Who Ought to be Accountable for the Misbehavior of Health Care Corporations

I recently <a href="http://hcrenewal.blogspot.com/2010/12/duke-divinity-students-protest-pay-of.html">posted</a> about the multiple conflicts of interest affecting a university health sciences leader.  While he was supposed to be running a medical school and an academic medical center, he was also responsible for the stewardship, as a board member, of three health major health care corporations, and a food and beverage corporation (whose products have bearing on nutrition and public health.)  .<br /><br />This one case suggested how pervasive are <a href="http://hcrenewal.blogspot.com/search/label/conflicts%20of%20interest">conflicts of interest</a> affecting the people at the top of health care leadership in the US, and also how such conflicts may be associated with problems for all the organizations involved.  The story originally came to my attention because students were demonstrating against the lavish compensation given the health sciences leader at a time of university cutbacks, suggesting that university leaders were paying more attention to their own enrichment than to the mission of the university.  At the same time, one of the corporations which he was stewarding (<a href="http://hcrenewal.blogspot.com/search/label/Genzyme">Genzyme</a>) had to shut down a factory because the extremely expensive drug it was producing was found to be impure and adulterated, while its CEO continued to be compensated lavishly.  The other corporation (<a href="http://hcrenewal.blogspot.com/search/label/Medtronic">Medtronic</a>) had to settle litigation accusing it of manufacturing defective products for hundreds of millions of dollars, while its CEO again continued to be compensated lavishly.  <br /><br />So I thought it might be interesting to see who are the other stewards of these troubled corporations.  I consulted the official biographies of their board members from their 2010 proxy statements (Genzyme <a href="http://www.genzyme.com/corp/investors/GENZ_Proxy_2010.pdf">here</a>, Medtronic <a href="http://services.corporate-ir.net/SEC/Document.Service?id=P3VybD1odHRwOi8vaXIuaW50Lndlc3RsYXdidXNpbmVzcy5jb20vZG9jdW1lbnQvdjEvMDAwMDk1MDEyMy0xMC0wNjU4NzYvZG9jL01lZHRyb25pY0luYy5wZGYmdHlwZT0yJmZuPU1lZHRyb25pY0luYy5wZGY=">here</a>).  I looked for board members who also held leadership positions in other health care organizations whose interests may not be aligned with the two corporations of interest.  I also looked for those who held leadership positions in the discredited financial services corporation who helped usher in the global financial collapse.<br /><br />The specifics of what I found follow.<br /><br /><strong>Genzyme</strong><br /><br />Genzyme had 10 directors in 2010.  The following directors had relationships of interest:<br /><br />-  Douglas A Berthiaume is "Chairman of the <em>Children's Hospital (Boston)</em> Trust Board, a member of the <em>Children's Hospital</em> board of trustees, and a Trustee of the <em>University of Massachusetts</em> Amherst Foundation."  Children's Hospital is a teaching hospital.  The University of Massachusetts includes a medical school. <br />-  Robert J Bertolini "retired from <em>Schering-Plough Corp</em> following its merger with Merck & Co in November, 2009."  Schering-Plough was a large pharmaceutical company now combined with Merck to form an even larger company.<br />-  Gail K Boudreaux "has served since May 2008 as an Executive Vice President of <em>United Health Group Incorporated.</em>"  Also, "she serves on the board of directors of <em>America's Health Insurance Plans</em>...."  UnitedHealth is one of the US' largest health insurance/ managed care corporations.  Incidentally,it has frequently misbehaved, as can be seen in this set of posts.  AHIP is the health insurance corporations' trade associations.<br />-  Robert J Carpenter "is <em>Chairman of Hydra Biosciences Inc</em>... He is also a trustee of the Immune Disease Institute, a non-profit institute affiliated with <em>Children's Hospital in Boston</em>...."  <br />-  Charles L Cooney "is a director of India-based<em> Biocon Limited,</em> a biotechnology healthcare company."<br />-  Victor J Dzau MD (discussed in the earlier post) is "<em>Chancellor for Health Affairs and President and Chief Executive Officer of Duke University Health System</em>...."  He "sits on the board of directors of Pepsico Inc, <em>Anylam Inc, Medtronic Inc</em>, and the <em>Duke University Health System</em>."<br />-  Senator Connie Mack III is "Chairman Emeritus of the parent board of the <em>H. Lee Moffitt Cancer Center and Research Institute</em>...."  He also is director of "<em>EXACT Sciences Corporation</em> and <em>Moody's Corp</em>."  <a href="http://www.exactsciences.com/">EXACT Sciences</a> is a biotechnology company that develops diagnostic test technology.  Moody's Corp is a financial ratings agency whose lax ratings of financial derivatives, perhaps arising from conflicts of interest produced by payments from the producers of the derivatives, have been implicated as a major cause of the global financial collapse.<br />-  Richard E Syron was from "January 2004 to September 8, 2008 ... Chairman and Chief Executive Officer of the <em>Federal Home Loan Mortgage Corporation</em>, commonly referred to as Freddie Mac...."    Freddie Mac as bailed out and taken over by the US government when he departed, or was forced out.  Freddie Mac, was a "government-sponsored enterprise," (GSE) one of another group of companies whose enthusiastic participation in securitizing dubious mortgages was implicated as a major cause of the global financial collapse.<br />- Henri A Termeer (CEO of Genzyme) is a "director of <em>Massachusetts General Hospital</em>, a board member of <em>Partners HealthCare</em>, and a member of the board of fellows of <em>Harvard Medical School</em>."  <br /><br />So the box score for Genzyme's 10 directors: six have leadership positions at teaching hospitals, academic medical centers, medical schools or their parent universities (some such institutions are lead by more than one Genzyme director).  Seven have leadership positions in other drug, device or biotechnology corporations.  One have leadership positions in health insurance/ managed care corporations.  Two had or have leadership positions in discredited financial services corporations that were implicated in the global financial collapse.<br /><br /><strong>Medtronic</strong><br /><br />Medtronic had 11 directors in 2010.  The following directors had relationships of interest:<br /><br />- Richard H Anderson "was Executive Vice President of <em>UnitedHealth Group Incorporated</em>."  As above, UnitedHealth is a health insurance/ managed care corporation.<br />- Victor J Dzau (see above) is "Chancellor for <em>Health Affairs at Duke University</em> and President and Chief Executive Officer of the <em>Duke University Health System</em>."  He is "a director of <em>Alnylam Pharmaceuticals Inc</em>, ... <em>PepsiCo Inc</em>, and <em>Genzyme Corporation</em>." (See discussion above.)<br />- James T Lenahan "served as President of <em>Johnson & Johnson</em> from 2002 until June 2004...."  He is "director of <em>Telecris Biotherapeutics Inc, Alton Pharma Inc</em> and <em>Imacor Inc</em>."  Johnson & Johnson is a large drug, device, and biotechnology company.  <a href="http://www.talecris.com/">Telecris</a>, and <a href="http://www.atonrx.com/">Alton Pharma</a> are biotechnology pharmaceutical companies.  <a href="http://www.imacormonitoring.com/">Imacor</a> is a medical device company.<br />- Denise M O'Leary "is a director of <em>Lucille Packard Children's Hospital</em> and <em>Stanford Hospitals and Clinics</em>."  Also, "she was a member of the <em>Stanford University Board of Trustees</em> from 1996 through 2006, where she chaired the Committee of the Medical Center...."<br />-  Robert C Pozen is "an advisor to <em>Gelesis Inc</em>."  <a href="http://www.gelesis.com/">Gelesis</a> is a biotechnology company.<br />-  Jack W Schuler "has been a director of <em>Stericycle Inc</em> since March 1990...."  He is a "director of <em>Quidel Corporation</em> and <em>Elan Corporation plc</em>...."    <a href="http://www.stericycle.com/">Stericycle</a> company disposes of medical waste, including that produced by medical devices.  <a href="http://www.quidel.com/">Quidel</a> is a biotechnology and (medical diagnostic) device company.  Elan is an multinational biotechnology and pharmaceutical company.<br /><br />So the box score for Genzyme's 11 directors is: Two have leadership positions at teaching hospitals, academic medical centers, medical schools or their parent universities (some such institutions are lead by more than one Genzyme director). Ten have leadership positions in other drug, device or biotechnology corporations. One has a leadership position in health insurance/ managed care corporations. None had or have leadership positions in discredited financial services corporations that were implicated in the global financial collapse.<br /><br /><strong>Summary</strong><br /><br />Just to summarize the sorts of conflicting interests these relationships suggest. <br /><br />Teaching hospitals and medical schools are supposed to provide unbiased teaching, including about issues relevant to drug and device corporations, such as choice of diagnostic strategies and treatments, and relevant health policy.  They are supposed to perform unbiased research, including research that evaluates drugs and devices.  They are supposed to provide the best possible patient care at a reasonable cost, which relates to choices of and prices paid for drugs and devices.  <br /><br />Other drug, device, and biotechnology corporations may be producing, or developing products that compete with those of the index corporations.<br /><br />Health insurance companies ostensibly try to control costs and improve quality in part by reducing excess utilization and bargaining down prices of drugs and devices.  <br /><br />So this limited case study of the boards of directors, that is, the ostensible stewards of two health care corporations, selected because they have a common member who is the leader of a large medical school and academic medical center, and which both have histories of poor management or ethical missteps showed  - that the leadership of health care organizations is incredibly<strong><em> interrelated, interlocked, incestuous</em></strong>.  <br /><br />This gave an example of how pervasive are the conflicts of interest that affect all kinds of health care organizations.  Companies that ought to be competing have interlocked directors.  Companies that ought to be negotiating at arms length have interlocked directors.  Not-for-profit academic medical institutions have leaders who are also directors of companies whose drugs their patients may take, whose devices their patients may receive, whose insurance their patients may buy, and whose products and services they may teach about and evaluate through clinical research and policy research.  <br /><br />This also gives an example of how the failed culture of finance may be linked to the culture of medicine and health care.  Some of the stewards of health care organizations were also the stewards of financial services corporations whose reckless, if not arrogant, greedy and amoral leadership is widely believed to have caused the global financial collapse and our ongoing economic problems.  <br /><br />Finally, this suggests how top leaders of various health care organizations may be more familiar with and identify more with each other than with their organizations, their organizations' missions, and their organizations' professionals, staff, students, clients, and patients.  <br /><br /><em>What is to be done?</em><br /><br />I strongly believe that there needs to be much more investigation, academic, journalistic, and perhaps legal, of the identity, nature, and culture of the leaders of health care, and their relationships.  A few bloggers cannot do it all.  Obviously, the <a href="http://hcrenewal.blogspot.com/search/label/anechoic%20effect">anechoic effect</a> mitigates against medical and health care academics looking into their own leaders.  However, failing to understand who is leading our march to the brink of health care failure ought not to be something such academics would want on their conscience.<br /><br />Finally, and obviously, health care organizations need leaders that uphold the core values of health care, and focus on and are accountable for the mission, not on secondary responsibilities that conflict with these values and their mission, and not on self-enrichment.  Leaders ought to be rewarded reasonably, but not lavishly, for doing what ultimately improves patient care, or when applicable, good education and good research. <br /><br />If we do not fix the severe problems affecting the leadership and governance of health care, and do not increase accountability, integrity and transparency of health care leadership and governance, we will be as much to blame as the leaders when the system collapses.   

The Boards Who Ought to be Accountable for the Misbehavior of Health Care Corporations

I recently posted about the multiple conflicts of interest affecting a university health sciences leader.  While he was supposed to be running a medical school and an academic medical center, he was a…

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Duke Divinity Students Protest Pay of Chancellor for Health Affairs

This may be a first.  A small group of Duke University divinity students publicly protested the compensation given to some top university leaders, specifically including the Chancellor for Health Affairs.  <a href="http://www.newsobserver.com/2010/12/03/840067/buddy-can-you-spare-729749.html">According</a> to the Raleigh-Durham News-Observer:<br /><blockquote>Theo Luebke strolled the plaza outside Duke's Bryan Center on Thursday afternoon with a bucketful of apples and a tale of woe.<br /><br />'Come on! Everyone's in this together! Get your apples!' he exhorted students passing by during the lunchtime rush. 'With all the cuts we have around here and all the bonuses we have to give to the big guys, we need to raise all the money we can.'<br /><br />Luebke isn't really the Depression-era fruit peddler his costume suggested. Luebke and a couple of other Duke divinity students hawked apples, ostensibly to raise money for the university, while others dressed as paperboys distributed a mock newspaper <em>railing against bonuses paid to top officials within Duke's healthcare system and investment company.</em><br /><br /><em>For Duke workers whose pay has been frozen of late, the bonuses appear staggering</em>.<br /><br />A couple of examples: Neal Triplett, president of the management company, received a $729,749 bonus on top of his $413,603 salary; <em>Victor Dzau, chancellor of the Duke health system, got a $983,654 bonus, bringing his total compensation to more than <strong>$2.2 million</strong></em>.<br /><br />Thursday's skit, which mostly drew befuddled looks, was the third in a series mocking executive pay.</blockquote><br />It turns out these munificent compensation amounts were paid at a time when Duke is in some financial difficulty:<br /><blockquote>In recent years, Duke has <em>frozen pay and eliminated jobs in an attempt to pare its annual operating budget by $100 million</em>.<br /><br />Nearly 400 workers have accepted buyout offers since early 2009. Their jobs were then eliminated.<br /><br />'During a time when the administration is saying we all needed to tighten our belts and make sacrifices...as it turns out, some of the folks who lost money for Duke were giving themselves bonuses,' said Amy Laura Hall, a tenured professor of Christian ethics. 'I think that's obscene.'</blockquote><br />I cannot recall a previous example of students demonstrating against the compensation of a leader of a medical school and/or university health care system.  Maybe these students have started something.<br /><br />In fact, we have frequently discussed executive compensation given by health care organizations that seems wildly out of proportion to the value of the health care they provide or the clinical value of their products.  Although compensation is even higher for executives of for-profit health care corporations, even leaders of not-for-profit organizations, including academic institutions, is now often in the millions per year range.<br /><br /><strong>Service on (Mostly Health Care) Corporate Boards</strong><br /><br />Dr Dzau's compensation may appear even more extreme in the context of the money he brings in from outside work.  As Prof Margaret Soltan <a href="http://www.margaretsoltan.com/?p=27849">pointed out</a> on the University Diaries blog, Dr Dzau also serves on multiple corporate boards.  The multiplicity of his outside work is not fully acknowledged in the most complete official biography posted on the Duke web-site, <a href="http://www.dukemedicine.org/Leadership/Administration/DzauVictor">here</a>, which only notes service on the Genzyme board.  In fact, he also serves on the boards of Anylam Pharmaceuticals, Medtronic, and PepsiCo.<br /><br />According to the <a href="http://services.corporate-ir.net/SEC/Document.Service?id=P3VybD1odHRwOi8vaXIuaW50Lndlc3RsYXdidXNpbmVzcy5jb20vZG9jdW1lbnQvdjEvMDAwMDk1MDEyMy0xMC0wMzYwNjgvZG9jL0FsbnlsYW1QaGFybWFjZXV0aWNhbHNfREVGMTRBXzIwMTAwNDIwLnBkZiZ0eXBlPTImZm49QWxueWxhbVBoYXJtYWNldXRpY2Fsc19ERUYxNEFfMjAxMDA0MjAucGRm">Alnylam Pharmaceuticals 2010 Proxy Statement</a>, Dr Dzau's compensation as a director in 2009 was $234,433.  In 2009, Dr Dzau owned the equivalent of 45,000 shares, worth $424,800 at <a href="http://www.google.com/finance?q=alnylam">today's $9.44 price</a> per share.  <br /><br />According to the <a href="http://www.genzyme.com/corp/investors/GENZ_Proxy_2010.pdf">Genzyme 2010 Proxy Statement</a>, Dr Dzau's compensation as a director in 2009 was $412,942.  In 2009, Dr Dzau owned the equivalent of 75,137shares, worth $5,312,937 at <a href="http://www.google.com/finance?q=NASDAQ%3AGENZ">today's $70.71 price per share.</a> <br /><br />According to the <a href="http://services.corporate-ir.net/SEC/Document.Service?id=P3VybD1odHRwOi8vaXIuaW50Lndlc3RsYXdidXNpbmVzcy5jb20vZG9jdW1lbnQvdjEvMDAwMDk1MDEyMy0xMC0wNjU4NzYvZG9jL01lZHRyb25pY0luYy5wZGYmdHlwZT0yJmZuPU1lZHRyb25pY0luYy5wZGY=">Medtronic 2010 Proxy Statement</a>, Dr Dzau's compensation as a director in 2009 was $173,698.  In 2009, Dr Dzau owned the equivalent of 14,552 shares, worth $493,895 at <a href="http://www.google.com/finance?q=medtronic">today's $33.94 price</a>.<br /><br />According to the <a href="http://services.corporate-ir.net/SEC/Document.Service?id=P3VybD1odHRwOi8vaXIuaW50Lndlc3RsYXdidXNpbmVzcy5jb20vZG9jdW1lbnQvdjEvMDAwMTE5MzEyNS0xMC0wNjQ1MTYvZG9jL1BlcHNpQ29fREVGMTRBXzIwMTAwMzIzLnBkZiZ0eXBlPTImZm49UGVwc2lDb19ERUYxNEFfMjAxMDAzMjMucGRm">PepsiCo 2010 Proxy Statement</a>, Dr Dzau's compensation as a director in 2009 was $260,000.  In 2009, Dr Dzau owned the equivalent of 25,065 shares, worth $1,622,458 at <a href="http://www.google.com/finance?q=NYSE%3APEP">today's $64.73 price per share</a>.<br /><br />So, in summary, in 2009, Dr Dzau received  $1,081,073 in compensation to be a director of these four companies.  In 2009, Dr Dzau owned stock or equivalent in these four companies valued at $7,854,090.  He has become what most people would consider rich just from his work on these boards, in addition to the millions he has received from Duke.<br /><br /><strong>Conflicts of Interest and Other Questions</strong><br /><br />So this raises even more questions.  The most obvious is how the good doctor has time to simultaneously fulfill his responsibilities at Duke and for the four corporations?  <br /><br />The next most obvious is why the university does not make a full disclosure of what appear to be severe conflicts of interest?  Anylam and Genzyme are biotechnology pharmaceutical companies.  Medtronics is a medical device company.  PepsiCo is a food and beverage company whose products affect nutrition and public health.  Dr Dzau's service on the board of each of these companies means he has fiduciary duties to each company, and is supposed to show unyielding loyalty to the companies' stockholders.  Of course, many business commentators have charged that most corporate directors are mainly chosen to be compliant with the top hired management's wishes, if not to be frank cronies of the management.  Even in the best case, showing unyielding loyalties to the stockholders of companies that make drugs, medical devices, and sugary drinks seems to be likely to influence a leader of an academic medical institution in ways that risk degrading the leader's responsibilities to uphold the institution's mission, i.e., to create severe conflicts of interest.  <br /><br />Dr Dzau has a fairly severe case of what we labeled as a <a href="http://hcrenewal.blogspot.com/2006/03/new-species-of-conflict-of-interest-in.html">"new species of conflict of interest"</a> in 2006.  Concerns about such conflicts affecting university presidents, but not specifically chancellors or vice presidents for health affairs, appeared in the New York Times last summer (see post <a href="http://hcrenewal.blogspot.com/2010/07/new-york-times-reports-university.html">here</a>).  Maybe some day student protesters will see such conflicts as a problem.<br /><br />However, should Dr Dzau make the usual defense of such conflicts, that they promote collaboration with industry needed for innovation, maybe Duke students or alumni might ask questions about the other side of the coin.<br /><br /><strong>The Other Side of the Conflict of Interest Coin</strong><br /><br />Dr Dzau is supposed to be responsible for the stewardship of Genzyme.  We have recently <a href="http://hcrenewal.blogspot.com/search/label/Genzyme">posted</a> about the company's seeming recent inability to make pure, unadulterated pharmaceuticals, and while exhibiting such inability to perform such basic functions, its payment of extremely lucrative compensation to its hired CEO.  Maybe someone could ask Dr Dzau what he thought about such actions, and whether he would take any responsibility for them?<br /><br />Dr Dzau is supposed to be responsible for the stewardship of Medtronic.  Medtronic recently <a href="http://hcrenewal.blogspot.com/2010/10/last-weeks-scandals.html">settled</a> thousands of patients' lawsuits that alleged injuries due to a faulty lead on one model of a Medtronic implantable cardiac defibrillator for over $200 million. Medtronic has been the source of several alleged conflicts of interest involving influential physicians (see posts about Medtronic <a href="http://hcrenewal.blogspot.com/search/label/Medtronic">here</a>).   Maybe someone could ask Dr Dzau what he thought about such actions, and whether he would take any responsibility for them.<br /><br />Finally, a larger question is: is it good to have a leader of a medical school and academic medical center who has presided over such ethical lapses by health care corporations?  Let's see if anyone does get to ask Dr Dzau such questions. 

Duke Divinity Students Protest Pay of Chancellor for Health Affairs

This may be a first.  A small group of Duke University divinity students publicly protested the compensation given to some top university leaders, specifically including the Chancellor for Health Affa…

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A Golden Parachute for Making Contaminated Drugs?

In late 2009, we <a href="http://hcrenewal.blogspot.com/2009/11/genzymes-remarkable-businessstrategy.html">posted</a> about problems at a Genzyme plant that manufactured some fabulously expensive drugs, e.g. Cerezyme whose cost to patients approximated $160,000 a year. We thought then that for a drug costing that much, the company ought to have figured out a conservative process to provide pure and unadulterated product. In a later <a href="http://hcrenewal.blogspot.com/2009/11/was-is-worst-biotech-ceo-worth.html">post</a> we also why a company that could afford to make its CEO very rich could not afford to adequately maintain its manufacturing facilities.  In May, 2010, we <a href="http://hcrenewal.blogspot.com/2010/05/genzyme-settles.html">posted</a> about a legal settlement of charges related to its manufacturing problems requiring Genzyme to pay a $175 million fine and function under US government supervision.<br /><br />Recent news articles suggest that the fix of the company's inabilities to manufacture pure, unadulterated drug remained remote.  Reuters <a href="http://www.reuters.com/article/idUSTRE67A20Q20100811">reported</a> that it had to discard "additional inventories of drugs ... for failure to the meet the company's quality control standards."  Bloomberg<a href="http://www.bloomberg.com/news/2010-08-10/sanofi-target-genzyme-says-contamination-fix-at-plant-may-take-four-years.html"> reported</a> that it "may take three to four years to complete changes requested by U.S regulators after plant contamination."<br /><br />Meanwhile, however, the company continues to talk to Sanofi-Aventis about being bought out, and the Boston Globe<a href="http://www.boston.com/business/healthcare/articles/2010/08/11/if_genzyme_is_acquired_termeer_gets_23m/"> reported</a> just how much Genzyme CEO Henri A Termeer would stand to make if the buyout takes place:<br /><blockquote>Under the 'hange of control' agreement currently worth $23 million, Termeer would receive several payments. He would receive a lump sum of $11 million, a figure representing three times his base salary plus a bonus. He would also get $356,000 in benefits, including health, life, accident, and disability insurance, outplacement and relocation services, and legal fees. And he could cash out 175,137 shares through accelerated equity awards. Those shares are now worth $11.9 million, but almost certainly would be worth more if the company is acquired at a premium.</blockquote><br />Furthermore,<br /><blockquote>Apart from the golden parachute, Termeer could reap huge stock gains if the company is sold. The 4.1 million Genzyme shares he owns represented about 1.5 percent of its stock as of April 9, the most recent regulatory filing. At the current share price, Termeer’s stake is worth more than $275 million.</blockquote><br />So riddle me this: over the last 5 years, Genzyme stock-holders have seen their investment lose 5.7% of its value (<a href="http://www.google.com/finance?q=NASDAQ%3AGENZ">according</a> to Google Finance),  while patients have paid outlandish prices for contaminated medicine, or have had to reduce their medication dosages after the defective manufacturing plant was shut down.  So why should the CEO who presided over all this, whose has already become rich as a hired employee of Genzyme, get even richer?  <br /><br />Once again we demonstrate how massively perverse incentives stupendously reward the top brass of health care organizations for mediocre, or worse leadership and bad results for both patients/ clients/ customers and stock-holders alike.  As long as being a health care CEO is effectively a license to loot the company, is it any wonder that health care organizations continue to be badly lead, and health care costs soar while quality and access suffer?  <br /><br />Once more with feeling: real health care reform would require us to make health care executives truly accountable for their actions, and penalize them for those that are ill-informed, contemptuous of health care values, self-interested, or corrupt. 

A Golden Parachute for Making Contaminated Drugs?

In late 2009, we posted about problems at a Genzyme plant that manufactured some fabulously expensive drugs, e.g. Cerezyme whose cost to patients approximated $160,000 a year. We thought then that for…

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Genzyme Settles

In late 2009, we <a href="http://hcrenewal.blogspot.com/2009/11/genzymes-remarkable-businessstrategy.html">posted </a>about problems at a Genzyme plant that manufactured some fabulously expensive drugs, e.g. Cerezyme whose cost to patients approximated $160,000 a year.  We thought then that for a drug costing that much, the company ought to have figured out a conservative process to provide pure and unadulterated product.  In a later <a href="http://hcrenewal.blogspot.com/2009/11/was-is-worst-biotech-ceo-worth.html">post</a> we also why a company that could afford to make its CEO very rich could not afford to adequately maintain its manufacturing facilities.<br /><br />Now Genzyme has reached a settlement with the US Food and Drug Administration (FDA) on the matter.  As <a href="http://www.boston.com/business/healthcare/articles/2010/05/25/supervision_of_7_8_years_ordered_for_genzyme/">reported</a> by the Boston Globe,<br /><blockquote>Genzyme Corp will remain under federal oversight for the next seven to eight years as it works to fix quality-control problems that have bedeviled its Allston Landing plant for 15 months.<br /><br />The timetable was spelled out in a consent decree struck between Genzyme and the Food and Drug Administration.<br /><br />Under its terms, Genzyme will pay a previously disclosed $175 million federal fine, the first in its 29-year history. The agreement, filed with the US District Court in Boston yesterday, is subject to court approval.<br /><br />Although the company said last month that it expected to pay the $175 million fine, other terms of the consent decree were not known until yesterday. Among them, Genzyme agreed to move fill-finishing work for its domestic drug shipments out of the Allston site by November. The transfer of fill-finishing for overseas shipments will take place by Aug. 31, 2011.<br /><br />Fill finishing is the process of pouring drugs into vials for shipments to hospitals and clinics, where they are administered to patients.<br /><br />Late last year, inspectors found bits of steel, rubber, and fiber in some drugs during the fill-finishing process in Allston. The work will be moved to a Genzyme operation in Waterford, Ireland, and to subcontractors such as Hospira Inc., subject to approval by federal regulators.<br /><br />The firm faces additional fines if it fails to meet FDA deadlines<br /><br />In all, the Cambridge biotechnology giant will spend two to three years in remediation under the consent decree, and another five years under oversight by a third-party contractor, the Quantic Group, a Livingston, N.J., consulting firm focused on boosting manufacturing quality and safety.<br /><br />Quantic will craft a remediation plan with Genzyme, and the company could be fined $15,000 a day for missing milestones.</blockquote><br />So now Genzyme is marching in our <a href="http://hcrenewal.blogspot.com/search/label/legal%20settlements">parade of settlements</a>.  While this settlement is of charges related to very fundamental violations, failure to manufacture pure and unadulterated drugs, in one important way its provisions seem similar to many other such settlements we have now seen.  The settlement fines the company as a whole, but results in no penalties for any individuals.  <br /><br />As we have noted before, fines, even fines larger than this one, can be regarded just as a cost of doing business (especially when the business is very lucrative.  The company's <a href="http://www.sec.gov/Archives/edgar/data/732485/000104746910004189/a2198211zdefc14a.htm">2010 proxy statement</a> noted that even in 2009, when production was affected by the plant closure, "sales of Cerezyme were $793 million, compared with $1.2 billion in 2008. Sales of Fabrazyme were $431 million compared with $494 million in the previous year. So the company was fined $175 million for production problems with two drugs that brought in over $1.2 billion in revenue in 2009.)  <br /><br />Furthermore, the fine's impact may be diffused over the whole company, and ultimately comes out of the pockets of stockholders, employees, and customers alike.  It provides no negative incentives for those who authorized, directed, or implemented the behavior in question.  So it is not clear that settlements like this deter future wrong-doing.<br /><br />Additionally, as we noted in the <a href="http://hcrenewal.blogspot.com/2009/11/was-is-worst-biotech-ceo-worth.html">earlier post</a>, the current CEO of Genzyme has gotten quite rich by virtue of his position.  While the <a href="http://www.sec.gov/Archives/edgar/data/732485/000104746910004189/a2198211zdefc14a.htm">2010 Genzyme proxy statement</a> indicates his compensation was affected by the financial impact of the production slowdown, even so he continued to get richer, albeit at a slightly slower pace than he did before.  That statement indicates that in 2009, CEO Henri Termeer's total compensation was a mere $9,507,403, down from $12,699,301 the previous year.  The main difference was that his non-equity incentive plan compensation dropped from $1,962,725 to 0.  While a $3 million plus salary decrement seems sizable, it is hard to conceive of an executive who makes nearly $10 million a year as suffering major financial consequences from the current debacle.  <br /><br />As I have said before, endlessly, we will not deter unethical behavior by health care organizations until the people who authorize, direct or implement bad behavior fear some meaningfully negative consequences. Real health care reform needs to make health care leaders accountable, and especially accountable for the bad behavior that helped make them rich.

Genzyme Settles

In late 2009, we posted about problems at a Genzyme plant that manufactured some fabulously expensive drugs, e.g. Cerezyme whose cost to patients approximated $160,000 a year.  We thought then that fo…

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Leaders of Discredited Financial Rating Agencies as Leaders of Health Care

This is the latest in our informal series on the cross-linkages between the thinking and leadership that lead to the global financial collapse/ great recession and that current in health care.  Last month, a US Senate sub-committee held hearings on the role of the rating agencies, actually for-profit corporations that evaluated securities, including derivatives, in the collapse.  <br /><br /><strong>The Fundamentally Conflicted Rating Agencies</strong><br /><br />To briefly provide some background, these agencies were hired by the firms that created these securities to evaluate them.  Because the securities were complex, they were hard for investors to evaluate.  Investors had become used to using the rating agencies' evaluations as benchmarks for the quality and riskiness of complex securities.  Many did not seem to realize that the agencies themselves were for-profit corporations, or subsidiaries thereof, which made more money the more securities they rated.  The rating agencies gave many of their highest ratings (AAA) to securities that later failed.  (See an informal video discussion by corporate governance expert Robert A G Monks <a href="http://ragmonks.blogspot.com/2010/04/bob-monks-discusses-ratings-agencies.html">here</a>.) <br /><br />Some key quotes from the news coverage follow.<br /><br /><blockquote>Former credit rating agency officials said on Friday that the <em>quest for market share fueled a drive for short-term profits, sacrificing credit quality in the process</em>.<br /><br />Eric Kolchinsky, who was in charge of the Moody's (MCO.N) unit that rated subprime CDOs, or collateralized debt obligations, said that people 'across the financial food chain, from the mortgage broker to the CDO banker, were compensated based on quantity rather than quality,' according to testimony prepared for a Senate panel.<br /><br />'The situation was no different at the rating agencies.'</blockquote><a href="http://www.reuters.com/article/idUSN2315396020100423?type=marketsNews">from Reuters</a><br /><br /><blockquote>Former Moody’s Investors Service and Standard & Poor’s employees said they were <em>excluded from assessing mortgage bonds if they questioned Wall Street’s conclusions and that credit-rating companies focused on protecting business at the expense of accurate grading</em>.<br /><br />Richard Michalek, a former managing director in Moody’s structured products derivatives group, told the Senate Permanent Subcommittee on Investigations at a hearing today that managers said he was 'not welcome on deals' involving certain banks.<br /><br />Eric Kolchinsky, who led the Moody’s group that rated collateralized debt obligations made up of mortgage bonds, said he was berated by his boss when the company lost business after implementing more conservative ratings.<br /><br />S&P wrongly concluded that its increasing profits amid an inflated U.S. housing market was based on 'superior management skill and insight,' said Frank Raiter, a former managing director at the company. In reality, regulators had made the firm part of 'an oligopoly' by requiring investors to hold assets it rated, Raiter said.</blockquote><a href="http://www.businessweek.com/news/2010-04-23/moody-s-s-p-influenced-by-wall-street-senate-finds-update1-.html">per Bloomberg</a><br /><br /><blockquote>The documents show, sometimes in excruciating detail,<em> the conflicts of interest that many claim lie at the heart of the ratings business model</em> and the concerns of employees about what was happening inside the companies well before the crisis broke.<br /><br />One employee at Standard & Poor's, the world's largest rating agency, said its handling of awkward questions in the summer of 2007 made it 'sound like the Nixon White House'.</blockquote><br />And,<br /><blockquote>As one Moody's managing director wrote to his superiors in 2007, the company's errors, made it look <em>'either incompetent at credit analysis, or like we sold our soul to the devil for revenue, or a little bit of both'</em>.</blockquote><a href="http://www.ft.com/cms/s/0/a3a9900e-4f39-11df-b8f4-00144feab49a.html">per the Financial Times</a><br /><br />The two companies targeted by these hearings were Moodys, and Standard & Poors (a subsidiary of McGraw-Hill Inc).<br /><br /><strong>Overlaps with Health Care Leadership: Moody's Corporation</strong><br /><br />Perusal of the roster of the Moody's board of directors in 2008, per that year's <a href="http://ir.moodys.com/secfiling.cfm?filingID=950123-07-4224">proxy statement</a>, reveals the following overlaps with health care leadership, of its 8 directors.<br /><br />Connie Mack - is also on the boards of <strong>EXACT Sciences Corporation</strong> (a biotechnology company), and <strong><a href="http://hcrenewal.blogspot.com/search/label/Genzyme">Genzyme</a></strong>.  He is the chair of the <strong><a href="http://hcrenewal.blogspot.com/2010/02/hospital-executive-pay-in-land-where.html">H. Lee Moffitt Cancer Center</a></strong>.<br /><br />Henry A McKinnell Jr - was chairman of the board and CEO from 2001-06 of <strong><a href="http://hcrenewal.blogspot.com/search/label/Pfizer">Pfizer Inc</a></strong>.<br /><br />Basil L Anderson - is a member of the board of directors of <strong><a href="http://hcrenewal.blogspot.com/search/label/Becton%20Dickinson">Becton Dickinson</a></strong>.<br /><br /><strong>Overlaps with Health Care Leadership: McGraw-Hill Inc</strong><br /><br />Via the company's 2008<a href="http://www.mcgraw-hill.com/2008mhpproxy/statement.pdf"> proxy statement</a>, of 12 directors:<br /><br />Sir Winfried Bischoff - is a director of <strong><a href="http://hcrenewal.blogspot.com/search/label/Eli%20Lilly">Eli Lilly and Company</a></strong>.<br /><br />Linda Koch Lorimer - is Vice President and Secretary of <strong><a href="http://hcrenewal.blogspot.com/search/label/Yale">Yale University</a></strong>, and a Director of <strong>Yale-New Haven Hospital.</strong><br /><br />Kurt L Schmoke - is a Trustee of the <strong>Howard Hughes Medical Institute</strong><br /><br />Sidney Taurel - was chairman and CEO of <strong><a href="http://hcrenewal.blogspot.com/search/label/Eli%20Lilly">Eli Lilly and Company</a></strong>.<br /><br /><strong>Summary</strong><br /><br />So, in summary, the 20 board members of one for-profit "ratings agency," and of the corporation of which the other major "ratings agency" was a subsidiary, served on the boards of 2 biotechnology corporations (EXACT Sciences Corporation and Genzyme), one medical device company (Becton-Dickinson), one pharmaceutical company (Eli Lilly) , 2 major academic medical centers (Moffitt Cancer Center and Yale-New Haven), and one medical research institution (Howard Hughes).  Two were recent former CEOs and chairmen of the boards of 2 of the world's largest pharmaceutical companies (Pfizer and Eli Lilly).  <br /><br />Most of these health care organizations have been involved with cases we have discussed on Health Care Renewal (see links above).<br /><br />Given the serious concerns about the conflicts of interest that became the core of these corporations' business models, and their central role in the global financial collapse, one has to wonder why so many of the directors who presided over them still have such influential positions in health care organizations?<br /><br />As we have <a href="http://hcrenewal.blogspot.com/2010/02/university-president-but-no-longer.html">pointed out</a>, as the world economy was driven to near ruin by "masters of the universe," some of the same also became leaders of academia and academic medicine in their spare time. Maybe this made sense 10 or 20 years ago, but why does it still make sense? On the other hand, now that we understand how bad the leadership of finance really was, it is a little easier to understand why the leadership of health care has become so bad. It seems reasonable to hypothesize that some of the problems of academia, and particularly the problems of medical academia, may have been at least enabled by leadership more used to working in an increasingly amoral marketplace than to upholding the academic mission. The failures of the leadership and governance of finance thus suggest we need to re-examine the leadership of health care.

Leaders of Discredited Financial Rating Agencies as Leaders of Health Care

This is the latest in our informal series on the cross-linkages between the thinking and leadership that lead to the global financial collapse/ great recession and that current in health care.  Last m…

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What is the "Worst Biotech CEO" Worth?

Recently, we <a href="http://hcrenewal.blogspot.com/2009/11/genzymes-remarkable-businessstrategy.html">posted</a> about misadventures of the leadership of biotechnology giant Genzyme.  Although the company has long priced its drug Cerezyme for the rare Gaucher's disease at a stratospheric level, it did not sufficiently reinvest money in its manufacturing facility for the drug.  Deferred maintenance at a production facility running at maximum capacity has apparently lead to two different kinds of contamination problems, forcing a shut-down of the plant, and now a shortage of the drug.  For this, Genzyme CEO Henri Termeer was just labeled the "Worst Biotech CEO of '09" <a href="http://www.thestreet.com/story/10627877/genzymes-termeer-worst-biotech-ceo-of-09.html">by TheStreet.com</a>.<br /><br />It was not always thus.  A 2008 <a href="http://www.bostonmagazine.com/articles/so_this_is_what_a_biotech_tycoon_looks_like/">profile</a> of Mr Termeer in Boston Magazine chronicled the rise of Genzyme from a "startup [which] operated 15 stories above the Combat Zone in an old garment building on a dodgy stretch of Kneeland Street."  Termeer pushed the company to develop a practical way to manufacture Cerezyme, and had the vision that the company could make money selling the drug to a relatively small number of patients.   Of course, his solution was to price the drug so high as to "drop jaws."  However, perhaps that was what was needed to get a innovative drug to a small number of patients.<br /><br />Furthermore, Termeer posited that the revenues derived from drugs such as Cerezyme would lead to innovations that would help many more people.<br /><blockquote>The biotech tycoon's <em>immodest goal is to change healthcare</em>. That is what he's trying to do, after all. That's part of why he doesn't sweat the bad press, which he regards as the penance of the innovator. His therapies for ultrarare diseases, he says, point the way forward, toward a day when very targeted drugs cure ailments perfectly, precisely. Don't think of his niche therapies as being used by tiny, statistically inconsequential groups; think of them as being deployed in ways that get results every time. Now contrast this with the trial-and-error approach that dominates medicine as it's practiced today, in which doctors pick and choose from the menu of drugs available and calibrate dosages until finally, hopefully, they land on what works best for that particular person. What if instead every condition had a drug that was the smart bomb that Cerezyme is for Gaucher's?<br /></blockquote><br />While we wait for these marvelous new innovations, however, patients with Gaucher's disease must wait for their effective but amazingly expensive drug apparently because Mr Termeer presided over the failure to pay enough attention to mundane issues like manufacturing plant maintenance while he touted his vision of the future.<br /><br />Whether that vision is realistic depends on one's view of Mr Termeer's predictive abilities. The Boston Magazine article suggested he is not a good fortune teller.  In 1994, Mr Termeer "suggested to the [New York] Times that the cost [of Cerezyme] would soon drop. 'Once we have the new plant running and approved, we will start to see some economies of scale,' Termeer told the paper in 1994. 'We can start to pass on some of these economies to the marketplace while at the same time improving the financial results of the company.' Fourteen years later, the price of Cerezyme has never come down.<br /><br />In my humble opinion, the tale of Henri Termeer's and Genzyme's current woes tells a lot about the culture of leadership now prevalent in health care. On one hand, it seems that some of the business-people who took over leadership of health care organizations had administrative skills that turned innovative ideas into reality. This success may have derived from real vision about the possibilities of high-technology medicine and health care.<br /><br />On the other hand, as their administrative abilities and vision lead to success, their judgment was liable to become over-confident, if not arrogant. This may have been fueled by the a business ethos that celebrates executives and managers, and their administrative skills and vision, beyond all else.<br /><br />However, Mr Termeer's success was dependent on the painstaking and often thankless work of physicians and scientists, particularly those who first developed the drug that became Cerezyme, the initial funding of this work by the US National Institutes of Health, and the work by scientists and engineers to develop a practical way to manufacture this drug. Termeer also benefited from the Orphan Drug Act which "allowed companies that brought drugs to market seven years of monopoly sales." Without federal research money, favorable laws, and multiple dedicated scientists, physicians, and engineers, Mr Termeer's administrative skills and vision would have yielded nothing.<br /><br />Nonetheless, it was Mr Termeer who was so richly rewarded. In 2006, Boston Magazine <a href="http://www.bostonmagazine.com/articles/the_50_wealthiest_bostonians/">listed</a> him as among the 50 wealthiest Bostonians, with an estimate worth of $342 million.  The 2008 profile noted "Over the past three years, Termeer has earned more than $50 million in total compensation, and thanks to the performance of Genzyme's stock, his stake in the company is now worth about $260 million."  He was interviewed at his waterfront home in tony Marblehead, Massachusetts.  He skippers his (only) "36-foot Hickley Pilot" which is "docked near the new home he's built outside Kennebunkport [Maine]..." the town in which former US President George HW Bush keeps a summer home.  <br /><br />The US (and global) health care business culture disproportionately rewards managers and executives for "innovation," as opposed to the scientists and professionals who actually developed the innovation, or the other people whose money funded these efforts.  These leaders are rewarded them sufficiently to make them into a sort of pseudo-aristocracy.  I hypothesize that such rewards make them believe that they have actually done things worthy of them, breeding over-confidence, arrogance, and a sense of entitlement that puts them beyond the usual rules of society.  The result is leadership that may be ignorant of physicians' values, self-interested, and even corrupt, and health care that is too expensive, inaccessible, and that fails to deliver quality and value commensurate with its cost.  <br /><br />To truly reform health care, we need to reform how health care oganizations' culture and leadership.

What is the "Worst Biotech CEO" Worth?

Recently, we posted about misadventures of the leadership of biotechnology giant Genzyme.  Although the company has long priced its drug Cerezyme for the rare Gaucher's disease at a stratospheric leve…

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Genzyme's "Remarkable Business'Strategy" and Contaminated Drugs

In June, 2009, <a href="http://www.boston.com/news/world/latinamerica/articles/2009/06/14/one_girls_hope_a_nations_dilemma/">an article</a> in the Boston Globe described how the Boston area based biotechnology company Genzyme sold some astonishlingly expensive drugs, using<br /><blockquote><em><strong>a remarkable business strategy</strong></em>: In countries from Colombia to Taiwan to Libya, the Cambridge firm has compiled an extraordinary track record of searching out patients like Tania, providing desperately needed treatment, and then successfully pressing their governments, even poor ones, <em>to pay full price for the most expensive drugs in the world</em>.<br /></blockquote><br />The article focused on how Genzyme marketed Cerezyme for Gaucher's disease.<br /><blockquote>When Genzyme Corp. first introduced a bioengineered drug for Gaucher (pronounced GO-shay) disease in the 1990s, the very idea seemed almost absurd to most people in the pharmaceutical industry. It was expensive to manufacture, there were vanishingly few known patients, and it wasn't clear how you could sell enough of it to recoup research costs, never mind make a profit.<br /><br /><em>Genzyme's solution, elegant in its way, was to set a price high enough to earn a substantial profit no matter how small its pool of patients</em>. Then the company surprised the medical world - and its investors on Wall Street - by showing that<em> American health insurers could be persuaded to pay the six-figure price tag.</em> And with the only effective treatment for Gaucher disease, <em>Genzyme never needed to lower the price, even as production efficiencies raised profit margins on the drug to as much as 90 percent</em>.<br /><br />The drug started to bring in tens of millions of dollars a year, then hundreds of millions. Today this one drug, prescribed for about 5,000 patients, has transformed Genzyme and its chief executive, Henri Termeer, into one of the great success stories of biotechnology, fueling its expansion into a $16 billion company with offices and factories worldwide.<br /><br />By the early 2000s, Genzyme had reached most of the known Gaucher patients in the United States, so it had begun pushing outward to new markets. Genzyme created divisions within the company to find overseas patients; <em>it hired experts to cajole balky governments into paying for the patients' Cerezyme doses</em>. Some of the company's successes were extraordinary: hundreds of patients in Brazil. Patients in Taiwan, Kuwait, and Bulgaria. The government of Libya's Colonel Moammar Khadafy pays for Cerezyme for a handful of patients.<br /><br />As it notched these successes, the company stayed largely under the radar of public health activists who were pushing drugmakers to discount AIDS drugs and other lifesaving medications whose retail prices were financially out of reach to many governments.<br /><br />Biotechnology drugs like Genzyme's, though crushingly expensive for each patient, were so rarely prescribed that they did not attract the same attention, and Genzyme followed an extremely disciplined 'one price' strategy: find patients; donate the drug at first if necessary, but <em>press constantly to be paid full retail price</em>.<br /></blockquote><br />The "one price" for Cerezyme in Costa Rica was $160,000 per year of therapy.<br /><br />I thought about posting about this story when it came out, focusing, of course, on the amazing price of Cerezyme. However, then I wondered: while the price of Cerezyme seemed extremely high, could anyone say that it was outrageously and unfairly high? After all, the drug was expensive to develop and produce, could not be sold in volume, and provided apparently very effective treatment for an otherwise untreatable disease. So I put the article in a file, and did not post about it.<br /><br />Then a few days later, <a href="http://www.boston.com/business/healthcare/articles/2009/06/17/genzyme_temporarily_halts_production_on_2_key_drugs/">another story</a> ran in the Globe, this time about problems in the Genzyme plant that produces Cerezyme:<br /><blockquote>n an unprecedented move for Genzyme Corp., the state’s largest biotechnology company has <em>halted production of two drugs for rare genetic disorders after a virus was discovered in production equipment at its Allston plant.</em><br /><br />The drugs are used by 8,000 people worldwide and cost about $200,000 per patient annually. <em>While the virus has the ability to taint the drugs, it is not considered harmful to humans</em>, officials said. <em>The manufacturing plant will remain shut through July while it is decontaminated</em> as a precaution.<br /><br /><em>Shipments of the drugs, Cerezyme and Fabrazyme, have been put on hold</em> while the US Food and Drug Administration seeks assurance from the company that none of its inventory is compromised. Genzyme officials believe the inventory was not affected.<br /><br />The current supply will need to be rationed, Genzyme said.<br /></blockquote><br />My first thought was that if Genzyme can charge so much for Cerezyme, at least it ought to be able to afford a pristine production process. On the other hand, I also realized that manufacturing processes in biotechnology are complex and difficult, perfection is not always possible, and the contamination in question did not appear harmful. So I put this article in the file too, and did not post about it either.<br /><br />Four days ago, the Boston Globe <a href="http://www.boston.com/yourtown/framingham/articles/2009/11/14/more_contamination_troubles_for_genzyme/">published yet again</a> about troubles in same manufacturing plant. <br /><blockquote>Genzyme Corp., the Cambridge biotechnology giant that has spent five months scrambling to regain its footing after detecting a virus at its Allston plant,<em> is facing a new contamination problem: bits of steel, rubber, and fiber found in drugs made by the company and shipped from the same site.</em><br /><br />Federal regulators yesterday warned doctors to<em> look for foreign particles in five Genzyme drugs used to treat rare genetic disorders, including two - Cerezyme and Fabrazyme - that have been rationed because of the viral contamination detected in the Allston Landing plant last summer</em>. The five drugs represent roughly half of Genzyme’s $4.6 billion in annual sales.<br /><br />Particles are believed to have been found in less than 1 percent of the Genzyme drugs based on product lots examined, according to a statement from the Food and Drug Administration. The FDA warned physicians, however, to carefully examine vials of the products and filter them before they are given to patients - steps that are considered standard procedure within the industry. If they find particles, the FDA asked for the vials to be returned to the manufacturer. The agency warned that ingesting the particles could have effects that include allergic reactions and blood clotting.<br /><br />FDA inspectors arrived at the Allston plant last month to begin an investigation into Genzyme’s production operations.<br /></blockquote><br />In addition, a New York Times <a href="http://www.nytimes.com/2009/11/14/business/14drug.html">article</a> noted:<br /><blockquote>'Biological manufacturing is extremely complex and prone to problems,' including contamination, said Jean-Jacques Bienaime, chief executive of BioMarin Pharmaceuticals, a biotech company that also makes drugs for rare diseases, including one it co-developed with Genzyme. Mr. Bienaime said his company always maintained at least a year’s worth of inventory in case of a production outage. <br /><br /><em>But Genzyme did not have such an inventory of Cerezyme and Fabrazyme.</em> <br /></blockquote><br />Finally, today the In Vivo blog <a href="http://invivoblog.blogspot.com/2009/11/genzyme-contents-under-pressure.html">posted </a>a discussion of Genzyme's production woes which suggested that the two different types of contamination at the plant, and the failure of the company to reliably ship pure, unadulterated drug to patients were not simply the results of bad luck or failure to attain unattainable perfection.<br /><blockquote>Friday's announcement that bits of rubber and other detritus were found in vials of five different drugs manufactured at Genzyme's beleaguered Allston Landing plant was worthy of the satirical publication "The Onion"--except that it was true.<br /><br />The picture grew murkier over the weekend, with the arrival of another Form 483 missive from FDA about ongoing manufacturing issues and a complete response for Lumizyme, Genzyme's enzyme replacement therapy for Pompe disease has been subject of more regulatory twists and turns than the plot of a Dan Brown novel.<br /><br /><em>The origin of the problem goes back three years</em>, to the original approval of Myozyme, basically the same drug as Lumizyme only manufactured on a much smaller scale, at a 160-liter scale facility in Framingham. <em>Genzyme underestimated the demand for the drug</em>, and plans to shore up capacity with a 4000-liter facility in Belgium were put in place. <em>Only as a stop gap, the company also decided to devote 1/6th of its manufacturing capacity at Allston to the making of the drug.</em><br /><br />And that decision has proved problematic. <em>The stress of running an aging plant full tilt meant there was no time for necessary facility upgrades that might threaten the inventory of drugs</em> manufactured at Allston, among them Cerezyme for Gaucher disease and Fabrazyme for Fabry disease. Genzyme CEO Henri Termeer admitted as much in the Nov. 16 investor call, noting '"the introduction of the production of Myozyme in Allston was a very significant factor in the complications we have experienced there.'<br /><br /><em>Too bad that realization didn't happen one year ago</em>. That's when regulators started sending warning letters outlining concerns related to what sound like bread-and-butter manufacturing issues: microbial monitoring, equipment maintenance, and process controls.<br /><br /><em>What's most amazing is that problems are ongoing</em>. Recall that six-week interlude this summer when <em>the firm took the entire plant offline to sterilize it after discovering yet another unrelated problem--several bioreactors contaminated with a non-lethal to humans but problematic Vesivirus.</em><br /><br />On the company's Nov. 16 call to investors, management confirmed that the latest 483 letter <em>relates not to a new problem created by Genzyme's decontamination efforts but arising because of 'an older piece of equipment'</em>. As Genzyme's EVP of Therapeutics, Biosurgery, and Corporate Operations said during a Q&Asession with analysts, '"There was a number of issues there that they [regulators] highlighted and many of which we were very aware of and working to address.'<br /><br />Management's solution? <em>Take the plant off line again for a few weeks</em> to, as Meeker puts it, 'allow us to move more quickly to address those issues.' Does everyone feel better now?<br /><br />In some strange way, the very minor nature of these gaffes is the most damning element of the story. It throws management's judgment into question and again casts doubt on the ability of the current team to resolve a situation that should never have escalated to this level. <br /></blockquote><br />So now it is time to discuss Genzyme's production woes on Health Care Renewal.  For $160,000 a year, it seems reasonable to expect that patients could expect a reasonably well-thought out, conservatively planned production process that would be able to reliably produce sufficient quantities of pure, unadulterated drug.  Instead, Genzyme's "remarkable business strategy" did not seem to include adequate maintenance of production facilities with adequate capacities, or even keeping an adequate reserve supply of product in anticipation that over-working a single aging facility with aging equipment might lead to something breaking down. <br /><br />By the way, for overseeing this "remarkable business strategy," Genzyme paid its CEO, Henri A Termeer, $13,773,782 in total compensation last year (per the <a href="http://www.sec.gov/Archives/edgar/data/732485/000104746909004080/a2192147zdef14a.htm">2009 proxy statement</a>).  Presumably mainly from the stock and option awards he has accumulated over the year, Mr Termeer now owns 4,080,387 shares of Genzyme stock, 1.5% of total outstanding shares.  For that money, patients, share-holders, and line employees ought to expect "remarkable business strategies" that include attention to such basics as good maintenance of production facilities.  <br /><br />Maybe the company's well compensated (more than $400,000 a year) directors should have been more vigilant about overseeing the management's "remarkable business strategy."  The board  included Gail K Boudreaux, an Executive Vice President of UnitedHealth Group, Charles L Cooney PhD, the Haslam Professor of Chemical and Biochemical Engineering at the Massachusetts Institute of Technology, and Dr Victor J Dzau, Chancellor of Health Affairs at Duke University and CEO of Duke University Health Systems, who seemingly have some relevant expertise, although the board also included Richard F Syron PhD, the former CEO of the Federal Home Loan Mortgage Corporation, (Freddie Mac), who resigned in 2008 after the failure of the company which was later bailed out by the US government.    <br /><br />So once again we see how leaders of health care organizations, in this case perhaps blinded by the prodigious amounts of money they were making, failed to exercise rigorous oversight over how their company produced its product.  The actual production part of biotechnology may seem far less glamorous than other aspects of the company.  Yet, if a drug company cannot reliably produce pure, unadulterated drugs, all its advanced research, cutting edge finance, and glitzy marketing may be for nought.  <br /><br />This case is another argument for finding health care corporate leaders who remember that long term success comes from putting patients, not dollars, not glitz,  first. 

Genzyme's "Remarkable Business'Strategy" and Contaminated Drugs

In June, 2009, an article in the Boston Globe described how the Boston area based biotechnology company Genzyme sold some astonishlingly expensive drugs, usinga remarkable business strategy: In countr…

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