It was reported yesterday that a former Army surgeon providing consulting services to Medtronic (MDT) had falsified a study of MDT’s Infuse bone graft product. The company paid the surgeon close to $800,000 over a three year period.
While the company claims it did not pay the surgeon for the study or submissions to industry journals, the study was published in the Journal of Bone and Joint Surgery.
This highlights an ongoing concern of conflicts of interest in the healthcare industry. Whether it’s clinical trials, academic research, the pills your doctor is prescribing, or peer review studies, you can almost be certain that some level of conflict of interest is present.
According to an article in the New England Journal of Medicine, the percentage of income for continuing education providers derived from commercial sources has quadrupled over the past ten years. In 2007, the amount was close to half of the $2.5 billion in income for CME providers accredited by the Accreditation Council for Continuing Medical Education (ACCME). According to the ACCME council’s findings, continuing education tends to focus on a narrow group of products and lacks the broader scope required to address different strategies for managing diseases.
When it comes to clinical trials, all sorts of manipulation are present. Trials may be conducted against inferior products, or use a technique or dosage that places the competing product in a disadvantaged position.
For drugs, the dosage may result in toxicity or ineffectiveness.Some trials only select the positive data, whether it is specific endpoints of centers in a multi-center trial. In such cases, the negative data is omitted. And, similar to the investments industry, relative results are touted rather than absolute results.
Lastly, there seems to be varied behavior when disclosing conflicts of interest related to clinical trials. In 2007, the Office of the Inspector General (OIG) reviewed 118 marketing applications for products approved by the FDA. The results showed that 42% of investigators failed to included the required financial disclosures.
In the coming years, we expect increased government oversight and regulation of industry practices. Industry governing bodies have not been able to enforce stricter ethical standards. In recent years, the Department of Justice (DoJ) has stepped up efforts to target medical company practices. MDT is currently under investigation by the DoJ for sales techniques to encourage physicians to use their spine products.
Increased oversight may spawn new cottage industries to deal with such conflicts. And, in the end, it may cost a company more to ensure their employees and trials meet a common code of ethics/standards. It would be nice to believe that increased oversight would lead to more fair comparison of products and the cream will rise to the top.
As a result, companies would spend less on ‘indirect’ expenditures to promote their products as a result of increased oversight. However, we believe the opposite will be true. As long as the companies are in charge of clinical trials and conflicts of interest disclosure is not mandatory, there is a consumers will be at risk. As a result, investing in these companies carries an additional risk.
We recently upgraded MDT to a BUY based upon improving fundamentals — stronger execution, new product flow and valuation.
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