When tiny Australian biotech firm Innate Immunotherapeutics needed to raise money last summer, it didn’t issue stock on the open market. Instead, it offered a sweetheart deal to “sophisticated U.S. investors,” company documents show.
It sold nearly $1 million in discounted shares to two American congressmen sitting on House committees with the potential power to advance the company’s interests, according to company records and congressional filings. They paid 18 cents a share for a stake in a company that was rapidly escalating in value, rising to more than 90 cents as the company promoted an aggressive plan to sell to a major pharmaceutical company. Analysts said the stock price could go to $2.
One of the beneficiaries was Rep. Tom Price, a Georgia Republican poised to become secretary of the Department of Health and Human Services, which regulates pharmaceuticals. Price told HHS ethics officials Thursday that if appointed, he will divest himself of the Australian stock as well as stock in about 40 other companies that could pose conflicts. He said he would sell within 90 days of appointment and abstain from any decision-making about companies in which he or his family has had an interest.This KHN story also ran in The Daily Beast. It can be republished for free (details).
He has already seen about a 400 percent paper gain in his investment in Innate Immuno, stock trading records show.
The other and more substantial August investor was Rep. Chris Collins, a Republican from upstate New York, who along with family members owns about 20 percent of the foreign company. A key supporter of the president-elect, Collins sits on a key health subcommittee.
The outlines of the stock deal, first reported by the Wall Street Journal, resurrected concerns about powerful public officials gaining investment opportunities unavailable to the public, including from companies whose profits might be influenced by political decisions.
A review of corporate documents raises a more unusual aspect of the deal. Innate Immuno is a foreign company which, in documents and presentations, is explicit about a business strategy targeting the U.S. market, where the amount that can be charged for a new drug is generally far higher than in other countries.
Innate Immuno has hinged its strategy on winning a preliminary green light for a new multiple sclerosis drug, known as MIS416, from the HHS’s Food and Drug Administration. It says in its private placement offering documents that money raised in the U.S. will help it finance the FDA approval process, which can take years. Innate Immuno CEO Simon Wilkinson could not be reached for comment.
Price’s financial disclosures show that he acquired his first small stake in Innate Immuno in January 2015, investing about $5,000. He made two more small purchases in the company that year, declaring a small loss on the stock in his 2015 financial disclosure.
His largest purchase was on Aug. 31, 2016, valued at between $50,000 and $100,000, his disclosures show.
Government ethics experts said this week that Price’s stake in Innate Immuno as it tries to develop a blockbuster drug would clash with his public duties, making divestiture mandatory.
While ethics rules for Congress are relatively relaxed, “the minute you go to the executive branch, it’s a lot stricter,” said Richard Painter, a University of Minnesota law professor who was President George W. Bush’s chief ethics lawyer.
“Dr. Price takes his obligation to uphold the public trust very seriously,” said Phil Blando, a spokesman for the Trump transition. He has “complied fully with all applicable laws and ethics rules governing his personal finances.”
Innate Immuno told investors it would seek “investigational new drug” status from the FDA, which could shorten the approval process. The FDA would not confirm this week whether the company has filed an application.
The drug is in a small clinical trial in New Zealand due to end in April. MS drugs are especially expensive for patients, costing $5,000 a month or more.
Positive trial results could set the stage for Innate Immuno’s stock to reach $2, said Australian stock analysts. In that scenario, Price’s investment of between $50,000 and $100,000 would be worth between $555,000 and $1.1 million. House financial disclosures require reporting of ranges of value but not specific amounts.
“You could easily picture a drug that is in the billions of dollars in revenues, but that’s assuming the [trial] data is there,” said David Blake, an analyst at Bioshares, a newsletter covering Australian life sciences stocks. “It’s really got to deliver.”
A physician who chairs the House Budget Committee, Price also sits on the House Ways and Means Committee and the Congressional Health Care Caucus. He has a history of contacting the FDA on behalf of industry campaign donors.
His ownership of Innate Immuno while serving in the House creates its own appearance of a conflict of interest, ethics authorities said.
“There is an appearance problem … to have members of Congress buying and selling stocks that are affected by the work of the committees they sit on,” Painter said. “It could be perfectly legal, but it looks terrible and shows lack of judgment.”
Price’s Innate Immuno stake is one of more than 40 companies he identifies as potential conflicts with the HHS job, including stock in Pfizer, Eli Lilly and Bristol Myers Squibb.
Collins, who sits on Innate Immuno’s board, has been a major shareholder in the company since 2011 and has gradually increased his family’s holdings to about 20 percent, corporate documents show. His investment in the private placement last summer was worth $720,000, according to regulatory documents.
“Congressman Collins has followed all ethical guidelines related to his personal finances during his time in the House and will continue to do so,” said spokesman Michael McAdams.
All told, including Price, Collins and other U.S. investors, the sale raised $1.8 million. In addition to funding the FDA approval process, the company said it would use the money to finance the clinical trial and develop potential manufacturing for the drug.
All U.S. investors in the August deal received a 12 percent discount to the stock’s market price at the time, which is not unusual in private placements, said Stuart Glazebrook, a biotech analyst for Gordon Capital Research, a securities research company in Melbourne, Australia.
For small companies, private issues can be more efficient than selling new public shares, he said. Selling at less than the market price raises odds of attracting investors, he said.
“It’s an incentive,” he said. “It’s like Amazon offering 20 percent off today only if you commit today.”
Ethics rules for FDA officials are especially strict, said Joshua Sharfstein, a former agency deputy commissioner.
“For the agency’s leaders, even holding onto a single share of stock in a regulated company is prohibited,” he said.
A decade ago FDA Commissioner Lester Crawford resigned and pleaded guilty to two criminal misdemeanors after being charged with concealing stock ownership in food and drug companies the agency regulated.
Innate Immuno executives have talked openly about selling the company to one of a number of pharmaceutical company suitors if its clinical trial is successful. Many small pharmaceutical companies with hot drugs go that route, reaping shareholders millions in quick profits.
The larger company would have the deep pockets to invest in more clinical trials that might be needed to obtain regulatory approval, analysts said.
Christina Jewett contributed reporting.
Darlene Hawes lost her health insurance about a year after her husband died in 2012.
Hawes, 55, is from Charlotte, N.C. She ended up going without insurance for a few years, but in 2015 she bought coverage on HealthCare.gov, the Affordable Care Act marketplace, with the help of a big subsidy.
“I was born with heart trouble and I also had, in 2003, open-heart surgery,” she said. “I had breast-cancer surgery. I have a lot of medical conditions, so I needed insurance badly.”
After the results of the 2016 election, she was scared she’d lose her insurance immediately. For years, Republicans have vowed to scrap the health care law. The new Congress is working on a plan to undo the Affordable Care Act. But they have not settled on how to replace the health care structure that Obamacare created.
Hawes is one of about 550,000 North Carolinians who relies on the Obamacare marketplace for health insurance. She was relieved after she talked with an enrollment specialist last month who told her she can renew her policy for 2017.This story is part of a partnership that includes WFAE, NPR and Kaiser Health News. It can be republished for free. (details)
“I’m like, ‘Oh my Lord, did she just say that?'” Hawes said with a laugh. “It’s just like a whole load of burdens just fell off of my back because all the years I haven’t been covered since my husband passed away — I don’t want to be sad again. I was very sad.”
Most health care researchers and policy analysts agree not much is likely to change in 2017.
“Even the Republican Congress in one of their most recent bills to repeal [the law] put in a two-year transition period, so that the premium subsidies and the other provisions of the law that are fundamental wouldn’t be repealed for a couple of years,” said Sabrina Corlette, a research professor at Georgetown University’s Health Policy Institute.
Some Republican leaders have said repeal should happen immediately with a transition period to come up with a replacement. Still, the CEO of HealthCare.gov, Kevin Counihan, said he can’t guarantee coverage will remain. “It’s not my place to promise anything about a new administration,” he said.
“But what I can tell you is not only are we moving forward, but our enrollment is higher than expected.” At the end of 2016, enrollment for 2017 plans spiked and as of the end of December, North Carolina had the third-highest enrollment for 2017 plans among states using HealthCare.gov.
Julieanne Taylor with Legal Services of Southern Piedmont is helping people sign up. She said about a third of them have asked about the election.
“But generally when we’re calling, people are really excited to have their appointment and come in and look at the plans for 2017,” she said. “I think they’re mostly interested in how much they’re going to be paying.”
In some ways, North Carolina is in tough shape. Premiums are going up and insurance companies have dropped out, leaving Blue Cross Blue Shield of North Carolina as the only insurer in 95 percent of the state.
Blue Cross actuary Brian Tajlili said it’s simply an expensive market that has older, sicker people who cost more to cover.
“There is continuing demand for services and continuing high utilization within this block of business,” he said.
What he calls “this block of business” means the customers who buy insurance on the exchange. It’s a small slice of the overall health insurance market, because most people are covered through work or Medicare. The overwhelming majority of consumers who buy coverage on the exchange get federal subsidies that greatly reduce what they pay.
Still, it’s been a turbulent market for consumers and insurers. Over the past two years, Blue Cross has lost $400 million in North Carolina on that part of its business.
Amid the post-election uncertainty, Tajlili said Blue Cross is committed to offering plans in 2017.
“2017 will be another pivotal year for us as we look at the individual market,” he said.
Federal researchers have said that North Carolina’s decision not to expand Medicaid is linked to higher costs in its ACA marketplace, and the new Democratic governor of the state, Roy Cooper, has taken steps toward expansion in recent days.
One of Blue Cross’ new customers will be Sara Kelly Jones, 46, who works at Letty’s restaurant in Charlotte, N.C. She recognizes Obamacare isn’t perfect. But before the law, health insurance was a financial vise that kept tightening on her.
“I could not afford it at all,” she said. “Every year it was going up $100 to $120, $150 a month. It got to the point where it was going to be at least $200 more a month than my mortgage.”
But under Obamacare, Jones qualifies for a subsidy. Her premium will go up with Blue Cross, but she said she can afford it with that help.
Jones said the political debate over the law ignores people like her.
“I’m terrified,” she said. She’s worried about the Republican Congress’ pledge to scrap and replace Obamacare without presenting a detailed proposal. “What on Earth are you going to do with all these people, myself included, that are counting on this?”
Check out all the drugs the FDA has approved to treat rare diseases. You can search by brand name, or by disease, and see familiar names that were first sold on the mass market or all the drugs that won FDA approval to treat more than one rare disease. Each approval gives the drugmaker seven years of exclusive rights to the market. Drugmakers are companies that sought orphan approval, not necessarily current drug owners.Search for drug or disease
- 302 Original orphan drugs for single rare disease
- 72 Orphans that served the mass market first
- 84 Orphans approved for multiple orphan diseases
KHN used multiple datasets from the FDA, relying primarily on the orphan drug designations and approvals database. If a drug had an approval date before the first marketing approval date in the orphan database, we put it in the mass market first category.
KHN’s coverage of prescription drug development, costs and pricing is supported in part by the Laura and John Arnold Foundation.
Los Angeles-area doctor is seeking class-action status for a lawsuit against Molina Healthcare, saying the insurer owes him thousands of dollars for caring for Medi-Cal patients under the Affordable Care Act.
The lawsuit was filed on Dec. 30 in Los Angeles County Superior Court on behalf of Dr. Manuel Figueroa of the Associated Hispanic Physicians of Southern California, a doctors group with which Molina Healthcare contracts.Molina Complaint (p. 2) View entire document on DocumentCloud
Figueroa’s high-profile lawyer, Brian Mahany, said he is searching for other doctors who may have been similarly underpaid in other states where Molina operates. He estimates hundreds of other doctors could be in a similar situation.
Figueroa contends that Molina did not pay him “enhanced” reimbursements for Medi-Cal patients that were made possible by the Affordable Care Act. Under that law, insurers in 2013 and 2014 were to pay doctors higher rates for some types of care for patients enrolled in Medi-Cal, California’s Medicaid program. The enhanced payments program ended in 2014.Use Our Content This story can be republished for free (details).
Figueroa qualified for enhanced payments for services provided in 2013 and 2014, according to his attorney Mahany. The health plan paid Figueroa part of what was owed him but still owes him for care he provided in 2013 and part of 2014, according to the complaint.
“Why would any physician want to accept a Medicaid patient if they are getting shortchanged on their pay?” said Mahany.
The publicly traded insurer, based in Long Beach, operates health plans in 12 states and Puerto Rico covering about 4.2 million people, including 683,000 in California. Most of its members are enrolled in Medicaid or Medicare managed care plans.
Dr. Mario Molina, president and CEO of Molina Healthcare, said he was “mystified” to learn about Figueroa’s lawsuit.
Dr. Figueroa submitted claims that are not eligible for augmented payments under ACA program in discussion, Molina said. For example, only “evaluation and management services” such as consultations and routine checkups, but not lab or x-ray services, are eligible for augmented payments. That might be adding to the confusion, Molina said.
California ranks 47th in the country in reimbursements to doctors for treating Medi-Cal patients, Molina said. “For us, the health plan, [the enhanced payment] was a terrific boon; it was extra money we could pass down to our doctors.”
Consejos de Latinos Unidos, a national consumer advocacy group, recently submitted a letter to the Office of the Inspector General of the U.S. Department of Health and Human Services asking the federal agency to investigate Molina Healthcare for “sitting on federal funds and underpaying Latino physicians and others.” The advocacy group has been investigating the allegations since 2015, according to its CEO and executive director K.B. Forbes.
“Molina appears to be engaged in grossly deceptive and egregious behavior,” Forbes wrote. According to Forbes, who has been in talks with Figueroa’s office, it is estimated Molina Healthcare may still owe Figueroa $15,000 to $25,000.
Forbes said the advocacy group has spoken with other California doctors in a similar position but declined to name them. “We believe this is a pattern,” he said.
Forbes noted that Figueroa’s office also contracts with three other insurance plans, but only had an issue collecting reimbursements for Medi-Cal services from Molina Healthcare.
But Molina says his office has not heard from any other doctors.
“This company was founded by a Latino doctor,” Molina said. “Why would we want to cheat other Latino doctors?”
The lawsuit comes as Molina Healthcare has profited from the Affordable Care Act but also faces an uncertain future amid a planned repeal of the health law. In February, a group of Florida hospitals sued the insurer for allegedly underpaying for emergency room care.
Molina Healthcare profits totaled $143 million in 2015, more than double the profits of 2014, according to its most recent financial report.
Republicans’ planned bill to repeal the Affordable Care Act (ACA), which is expected to be similar to the repeal bill that President Obama vetoed in January 2016, would give an immediate windfall tax cut totaling billions to the highest-income Americans by eliminating two Medicare taxes — the additional Hospital Insurance tax and the Medicare tax on unearned income — that both fall only on high-income filers, as we explain in two new papers.
Republican plans to repeal the Affordable Care Act (ACA) are expected to repeal taxes on drug companies, health insurers, and medical device manufacturers — even as they would eliminate tax credits that about 7 million families use to help pay for health coverage and leave tens of millions of people newly uninsured. Cutting the ACA-related taxes that these companies pay would reduce revenues by $180 billion over 2016 to 2025, according to the Congressional Budget Office (CBO) estimate of the repeal bill vetoed by President Obama in January 2016.