Home   Uninsured   Racism    Medicare    Medicaid/Medi-Cal    Mental Health    Healthcare Reform    War    Economics    All Articles   Search

2003-12-07 -- Stealth Merger: Drug Companies and Government Medical Research


For a paper by Tom Bodenheimer on the many ways that conflicts of
interest in clinical drug trials influence the outcomes, click on
http://ohrp.osophs.dhhs.gov/coi/bodenheimer.htm

Los Angeles Times, December 7, 2003


Some of the National Institutes of Health's top scientists are also
collecting paychecks and stock options from biomedical firms.

Increasingly, such deals are kept secret.

By David Willman


BETHESDA, Md. - "Subject No. 4" died at 1:44 a.m. on June 14, 1999, in
the immense federal research clinic of the National Institutes of
Health.

The cause of death was clear: a complication from an experimental
treatment for kidney inflammation using a drug made by a German
company, Schering AG.

Among the first to be notified was Dr. Stephen I. Katz, the senior NIH
official whose institute conducted the study.

Unbeknown to the participants, Katz also was a paid consultant to
Schering AG.

Katz and his institute staff could have responded to the death by
stopping the study immediately. They also could have moved swiftly to
warn doctors outside the NIH who were prescribing the drug for similar
disorders. Either step might have threatened the market potential for
Schering AG's drug. They did neither.

Questioned later, Katz said that his consulting arrangement with
Schering AG did not influence his institute's decisions. His work with
the company was approved by NIH leaders.

Such dual roles - federal research leader and drug company
consultant - are increasingly common at the NIH, an agency once known
for independent scientific inquiry on behalf of a single client: the
public.

Two decades ago, the NIH was so distinct from industry that Margaret
Heckler, secretary of Health and Human Services in the Reagan
administration, could describe it as "an island of objective and
pristine research, untainted by the influences of commercialization."

Today, with its senior scientists collecting paychecks and stock
options from biomedical companies, the NIH is no longer an island.

Interviews and corporate and federal records obtained by the Los
Angeles Times document hundreds of consulting payments to ranking NIH
officials, including:

.  Katz, director of the NIH's National Institute of Arthritis and
Musculoskeletal and Skin Diseases, who collected between $476,369 and
$616,365 in company fees in the last decade, according to his yearly
income-disclosure reports. Some of his fees were reported in ranges
without citing exact figures. Schering AG paid Katz at least $170,000.
Another company paid him more than $140,000 in consulting fees. It won
$1.7 million in grants from his institute before going bankrupt last
year.

.  Dr. John I. Gallin, director of the NIH's Clinical Center, the
nation's largest site of medical experiments on humans, who has
received between $145,000 and $322,000 in fees and stock proceeds for
his consulting from 1997 through last year. In one case, Gallin
co-wrote an article highlighting a company's gene-transfer technology,
while hiring on as a consultant to a subsidiary of that company.

.  Dr. Richard C. Eastman, the NIH's top diabetes researcher in 1997,
who wrote to the Food and Drug Administration that year defending a
product without disclosing in his letter that he was a paid consultant
to the manufacturer. Eastman's letter said the risk of liver failure
from the drug was "very minimal." Six months later, a patient, Audrey
LaRue Jones, who was taking the drug in an NIH study that Eastman
oversaw, suffered sudden liver failure and died. Liver experts found
that the drug probably caused the liver failure.

.  Dr. Ronald N. Germain, deputy director of a major laboratory at the
National Institute of Allergy and Infectious Diseases, who has
collected more than $1.4 million in company consulting fees in the
last 11 years, plus stock options. One of the companies collaborated
with his laboratory on research. The founder of another of the
companies worked with Germain on a separate NIH-sponsored project.

.  Jeffrey Schlom, director of the National Cancer Institute's
Laboratory of Tumor Immunology and Biology, who has taken $331,500 in
company fees over 10 years. Schlom helped lead NIH-funded studies
exploring wider use for a cancer drug - at the same time that his
highest-paying client was seeking to make the drug through genetic
engineering.

.  Jeffrey M. Trent, who became scientific director of the National
Human Genome Research Institute in 1993 and, over the next three
years, reported between $50,608 and $163,000 in industry consulting
fees. Trent, who accepted nearly half of that income from a company
active in genetic research, was not required to file public
financial-disclosure statements as of 1997. He left the government
last year.

Hidden From View

Increasingly, outside payments to NIH scientists are being hidden from
public view. Relying in part on a 1998 legal opinion, NIH officials
now allow more than 94% of the agency's top-paid employees to keep
their consulting income confidential.

As a result, the NIH is one of the most secretive agencies in the
federal government when it comes to financial disclosures. A survey by
The Times of 34 other federal agencies found that all had higher
percentages of eligible employees filing reports on outside income. In
several agencies, every top-paid official submitted public reports.

The trend toward secrecy among NIH scientists goes beyond their
failure to report outside income. Many of them also routinely sign
confidentiality agreements with their corporate employers, putting
their outside work under tight wraps.

Gallin, Germain, Katz, Schlom and Trent each said that their
consulting deals were authorized beforehand by NIH officials and had
no adverse effect on their government work. Eastman declined to
comment for this article.

Dr. Arnold S. Relman, the former editor of the New England Journal of
Medicine, said that private consulting by government scientists posed
"legitimate cause for concern."

"If I am a scientist working in an NIH lab and I get a lot of money in
consulting fees, then I'm going to want to make sure that the company
does very well," Relman said.

Relman and others in the field of medical ethics said company payments
raised important questions about public health decisions made
throughout the NIH:

.  Will judgment calls on the safety of individual patients be
affected by commercial interests?

.  Can study participants trust that experimental treatments are
chosen on merit and not because of officials' personal financial
interests?

.  Will scientists shade their interpretations of study results to
favor their clients?

.  Will officials favor their clients over other companies that seek
NIH grants or collaborations?

Conflict-of-interest questions also arise in the potentially lucrative
awarding of patents.

Thomas J. Kindt, the director of in-house research at the National
Institute of Allergy and Infectious Diseases, accepted $63,000 in
consulting fees from a New York biotechnology company, Innovir
Laboratories, and wound up an inventor on one of its patents.

Asked why the government received no consideration, Kindt said that he
had contributed to the "basic idea" while using vacation time.

"No work was done on it as a government employee," said Kindt, whose
annual salary at the NIH is $191,200. His consulting with Innovir was
approved by NIH officials, Kindt said.

Others worry that the private arrangements can undermine the public
interest.

"The fact that paid consulting is happening I find very disturbing,"
said Dr. Curt D. Furberg, former head of clinical trials at the
National Heart, Lung and Blood Institute. "It should not be done."

Private consulting fees tempt government scientists to pursue
less-deserving research and to "put a spin on their interpretation" of
study results, he said.

"Science should be for the sake of gaining knowledge and looking for
the truth," Furberg said. "There should be no other factors involved
that can introduce bias on decision-making."

Dr. Ruth L. Kirschstein, who as the deputy director or the acting
director of the NIH since 1993 has approved many of the top officials'
consulting arrangements, said she did not believe they had compromised
the public interest. "I think NIH scientists, NIH directors and all
the staff are highly ethical people with enormous integrity," she
said. "And I think we do our business in the most remarkable way."

In response to The Times' findings, Kirschstein said, she would "think
about" whether administrators should learn more about a company's ties
to the NIH before approving the consulting arrangements.

"Systems can always be tightened up," Kirschstein said on Oct. 29.
"And perhaps, based on this, we will do so."

On Nov. 20, NIH Director Elias A. Zerhouni told agency leaders that he
would form a committee to help "determine the appropriateness" of
employees' consulting and other outside arrangements.

"I believe we can improve our performance by subjecting ethics
deliberations to a more transparent process," Zerhouni said in a memo.

In a brief telephone interview last week, Zerhouni said he wanted the
NIH "to manage not just the reality, but the perception of conflict of
interest."

"If there is something that could be viewed as improper, I think we
need to be able to advise our scientists not to get into these
relationships," he said. "My sense is our scientists are people of
goodwill."

Temptations Abound

The NIH traces its beginnings to the Laboratory of Hygiene, founded in
1887 within a Navy hospital on Staten Island in New York. It became
the federal government's first research institution for confronting
such epidemic diseases as cholera, diphtheria, tuberculosis and
smallpox.

The laboratory's success convinced Congress of its value in seeking
cures for diseases.

In 1938, the renamed National Institute of Health moved to its
present, 300-acre headquarters in Bethesda, about nine miles north of
the White House.

The agency's responsibilities - and prominence - have grown steadily.

In 1948, four institutes were created to support work on cardiac
disease, infectious diseases, dental disorders and experimental
biology. "Institute" in the agency's name became "Institutes."

President Nixon turned to the NIH in 1971 to lead a war on cancer. The
agency has led the government's fight against AIDS. Two years ago,
President Bush enlisted the NIH to help counter biological terrorism.

Republican and Democratic administrations have boosted spending for
the 27 research centers and institutes that compose today's NIH. Since
1990, the annual budget has nearly quadrupled, to $27.9 billion this
fiscal year.

Senior NIH scientists are among the highest-paid employees in the
federal government.

With billions of dollars in product sales potentially at stake for
industry, and untold fortunes riding on biomedical stock prices,
commercial temptations abound:

Researchers poised to make a breakthrough in their NIH labs can, the
same day, land paid consulting positions with companies eager to
exploit their insights and cachet. Many companies cite their
connections to NIH scientists on Web sites and in news releases,
despite an agency rule against the practice. Selection of a company's
products for an NIH study can provide a bankable endorsement -
attracting investors and boosting stock value. If the study yields
positive results, the benefits can be even greater.

Conflicts of interest among university medical researchers have
received wide attention in recent years. U.S. Rep. W.J. "Billy" Tauzin
(R-La.) also raised questions recently about cash awards that several
nonprofit institutions made to a previous director of the National
Cancer Institute.

The consulting deals between drug companies and full-time, career
employees at the NIH, however, have gone all but unnoticed.

The wide embrace of private consulting within the NIH can be traced in
part to calls from Congress for quicker "translation" of basic federal
research into improved treatments for patients.

And for decades industry has pressed for more access to the
government's scientific discoveries.

As the number of government-held patents soared, companies sought
legislation encouraging commercialization of federally funded
inventions. The proponents said the changes also would make U.S. firms
more competitive with foreign companies whose research and development
programs were subsidized by their governments.

Laws enacted in the 1980s for the first time authorized formal
research collaborations between companies and scientific arms of the
government, including the NIH. Starting in late 1986, in-house
researchers at the NIH were permitted to arrange cooperative research
agreements with companies. The agreements were intended to benefit
both sides while advancing scientific discovery.

Other changes in law permitted the government agencies, and the
researchers, to share in future patent royalties for inventions.

The new laws said nothing about government employees being hired by
the companies.

Yet by the end of the 1980s, more companies were putting NIH
researchers on their payrolls, albeit within limits imposed by the
NIH.

Agency leaders in the 1990s began weakening those restrictions.

In November 1995, then-NIH Director Harold E. Varmus wrote to all
institute and center directors, rescinding "immediately" a policy that
had barred them from accepting consulting fees and payments of stock
from companies.

The changes, he wrote, would bring the NIH ethics rules more in line
with new, less stringent, executive branch standards. Loosening of
restrictions on employees' outside pursuits was occurring throughout
the government. And with biomedical companies ready to hire, few were
better positioned to benefit than employees at the NIH.

Varmus' memo - which until now has not been made public - scuttled
other restraints affecting all employees, including a $25,000 annual
limit on outside income, a prohibition on accepting company stock as
payment and a limit of 500 hours a year on outside activities.

His memo also offered a narrowed definition of conflict of interest:

Employees had been barred from consulting for any company that
collaborated with their NIH lab or branch. But Varmus said the ban
would be applied only if the researcher was personally involved in the
company's collaboration with the agency.

Furberg, the former NIH official, said Varmus' actions invited, at
minimum, appearances of conflict of interest.

"I'm amazed at what he did," said Furberg, a professor at Wake Forest
University. "And to do it in secrecy I find very objectionable. This
is a critical change in the NIH policy."

In 1999, Varmus wrote a letter to the institute directors that
cautioned them to "avoid even the appearance of a conflict of
interest." But in an attachment to the letter, he told them that
employees "may briefly discuss or mention current work" to outsiders,
in effect giving agency scientists permission to reveal their
unpublished, confidential research.

Varmus, now president and chief executive of the Memorial
Sloan-Kettering Cancer Center in New York, declined to be interviewed
for this article. His spokeswoman, R. Anne Thomas, said that Varmus,
who in 1989 shared a Nobel Prize for research into the genetic basis
of cancer, believed that NIH employees should take personal
responsibility for avoiding conflicts of interest, regardless of what
agency rules allow.

Kirschstein, after taking over as Varmus' interim successor at the NIH
three years ago, said in a May 2000 speech to medical researchers that
conflicts of interest posed "a major concern."

"While the federal government was once the dominant force for
supporting clinical research, today we share the arena with
biotechnology companies, pharmaceutical firms and many others - all
interested in the possibility of financial gain from their research.

"Profit raises issues of public trust," she said. "When scientific
inquiry generates findings that can make a profit for the researcher
and the institution, their images become clouded."

Yet officials have lifted controls on consulting even as industry's
stake in NIH research has deepened. When Zerhouni, the current NIH
director, appeared before the House Subcommittee on Environment,
Technology and Standards last year, he cited 274 ongoing research and
development agreements between the federal agency and industry.

At the same time, NIH leaders have moved to what they describe as
"managing" conflicts of interest. Employees are allowed to consult if
they receive prior clearance from an administrator at their institute
or, in the case of most institute directors, from NIH headquarters.

An Honor System

Potential conflicts are typically addressed by allowing employees to
sign "recusals." Under these agreements, NIH employees pledge not to
participate in decisions affecting an outside client. Agency
officials, Kirschstein said, rely on an honor system to enforce
recusals and other conflict-of-interest rules.

The Times found instances in which the recusals did not work as
intended.

In the mid-to-late 1990s, Eastman, the diabetes researcher,
participated in a series of decisions affecting the drug company
employing him as a consultant, despite having signed a recusal.
Separately, Katz, the director of the arthritis institute, signed a
recusal involving his client, Schering AG, which nevertheless supplied
the NIH with the drug involved in the kidney patient's death in 1999.

Katz said that he did not know at the time that Schering AG was the
maker of the drug his institute was testing.

Compliance with the recusals can, itself, undercut the interests of
the NIH and taxpayers, who support the agency. When heads of
institutes and laboratories recuse themselves, they sometimes
constrain their ability to carry out their government duties.

Kirschstein, who for the last eight years has personally reviewed
requests from the institute directors to consult privately for pay,
said she tended to approve the deals, unless she saw "real conflict."

"I've disapproved some - and I've approved many," she said.

In her view, recusals have worked "extremely well" in avoiding
conflicts of interest.

Other present and former officials say it is difficult, if not
impossible, for researchers to keep separate their confidential
government information when they consult for companies.

"You can't police the thing," Philip S. Chen Jr., a senior advisor in
the NIH director's office who has served as an agency scientist or
administrator since the 1950s, said in an interview last year. "The
rules are there - whether they follow the rules is another thing."

A former NIH director voiced surprise at the agency's loosened
approach to conflicts of interest.

"There has been a lot of relaxation," said Dr. Bernadine P. Healy, who
served as director from 1991 to 1993. Before, Healy said in an
interview, "there were very strict ethics rules for NIH scientists.
You couldn't have virtually any connection with a company if your
institute was in any way doing research involving their products."

At least one vestige of the old days remains.

During last year's holiday season, workers were advised to refuse
gifts from outsiders worth more than $20.

"Just a reminder," ethics coordinator John C. Condray wrote,
introducing a five-page memo, "that sometimes gifts and events can
create the appearance of a lack of impartiality."

Fewer Public Filings

While making it easier for scientists to cut consulting deals, the NIH
has made it harder for the public to find out about them.

The Ethics in Government Act requires yearly financial-disclosure
reports from senior federal employees. This year, employees paid
$102,168 or more generally must disclose outside income by filing a
"278" form, which is available for public review. Other employees may
file a "450" form - which does not specify the amount of money
received from an outside party and is kept confidential.

At the NIH, 2,259 employees make more than $102,168, according to data
provided by the NIH. Those records show that 127 of the employees -
about 6% - are filing disclosure forms available to the public.

From 1997 through 2002, the number of NIH employees filing public
reports of their outside income dropped by about 64%, according to the
agency records. Most of those employees have switched to filing the
confidential 450 form.

At the National Institute of Allergy and Infectious Diseases - which
researches treatments for AIDS and other life-threatening maladies -
only three officials file public reports revealing their outside
income, according to NIH records.

Officials at the NIH said that an advisory legal opinion from the U.S.
Office of Government Ethics gave them the discretion to bypass public
disclosure.

Issued in 1998, the opinion said that the threshold for public
disclosure was to be set, not by a federal employee's actual salary,
but by the low end of his or her pay grade. If the minimum salary in
an employee's grade is beneath the $102,168 threshold, he or she is
exempt from filing a public report.

The NIH has shifted many of its high-salaried employees into pay plans
with minimums that dip below the threshold.

For instance, two prominent NIH laboratory leaders, Schlom and
Germain, make $180,400 and $179,900, respectively. Within roughly the
last year, NIH changed each of their pay plans, and they now are
exempt from public disclosure.

They file confidential forms, which instruct employees to not specify
the dollar amounts they receive from outside parties.

Asked why the NIH has assigned highly paid staff to plans that
eliminate public disclosure of employees' outside income, an NIH
spokesman, John Burklow, provided a written response:

"The primary benefit of the alternate pay plans is to attract and
retain the best scientists in a highly competitive environment."

Said Donald Ralbovsky, another NIH spokesman: "What it really boils
down [to] is that fewer people are filing 278s because of changes in
pay plans."

The shift imparts an implicit message to employees, said George J.
Galasso, a former NIH researcher and administrator who retired in
1996:

"If you've got something to hide, you file a 450. If you don't, you
file a 278."

Make-or-Break Grants

As director of the National Institute of Arthritis and Musculoskeletal
and Skin Diseases, Katz is one of the few at the NIH who still must
file public financial-disclosure reports.

Katz, 62, is paid $200,000 a year - more than members of Congress,
justices on the Supreme Court and the vice president.

His institute leads the government's research into the causes,
treatment and prevention of disorders of the joints, bones and overall
muscle-skeletal system.

With a yearly institute budget of $485.4 million, Katz's decisions are
watched closely by industry. The director's office decides how much of
the budget will be spent on grants and contracts coveted by companies.

And Katz has been available for outside consultation: From 1993
through 2002, Katz took between $476,369 and $616,365 in fees from
seven biotech and pharmaceutical companies, according to his annual
disclosure statements. He consulted while chief of the dermatology
branch at the National Cancer Institute and continued after becoming
arthritis institute director in 1995.

Katz said that his private consulting broke no rules and that he
relied in part on Varmus' 1995 memo while entering arrangements with
companies.

"The consultations provided my global knowledge as a dermatologist and
research scientist," Katz said in written responses to questions from
The Times. "I have always received official permission to perform
these consultations and have performed these consultations outside of
my normal NIH work schedule and according to strict government
guidelines and rules."

One of his clients was Advanced Tissue Sciences Inc.

The struggling biotech company in San Diego hired Katz as a consultant
in 1997, a year after he had announced a new NIH research initiative
for bone and connective-tissue repair.

Advanced Tissue installed Katz on its scientific advisory board and
paid him fees between $142,500 and $212,500 from 1997 through 2002,
according to his income-disclosure reports.

During that time, Katz's institute pledged $1.7 million in
small-business research grants to the company. The company announced
nearly every grant in a news release; Advanced Tissue's president
termed the grants "an endorsement by the government."

In his written response, Katz said that he had signed a recusal
"withdrawing myself from any interactions between Advanced Tissue
Sciences and the government to remove any real or potential conflict
of interest." The grants were awarded following evaluations by NIH
reviewers outside of Katz's institute.

Responsibility for administering the grants to Advanced Tissue was
delegated to one of his subordinates, Katz said.

The NIH policy manual says officials may not take fees from companies
seeking or receiving agency grants "if the employee is working on or
involved in these matters" or "supervising others who work on these
matters."

Katz said his subordinate "handled all decisions regarding these
grants without informing me."

However, Advanced Tissue kept him apprised as NIH grants were
obtained, a company executive said.

"He was informed," said Anthony J. Ratcliffe, the firm's vice
president for research until its collapse a year ago. "We would have
made a written report to the SAB [scientific advisory board] members
twice a year. There would have been a report to the SAB meetings on
all grants, all grant activities."

Ratcliffe said the company dealt with Katz's potential conflict of
interest by paying him in fees alone, and not stock options. Both men
said Katz did not advise the company on the NIH grants.

His consultations, Katz said, were limited to his scientific expertise
and "never involved, directly or indirectly, the preparation or
discussion of material which could relate to any financial dealings
between [Advanced Tissue] and the NIH."

Kirschstein, the senior NIH official who each year approved Katz's
consulting with Advanced Tissue, said she did not learn the company
held grants with the arthritis institute until The Times inquired.

"I didn't even know there were grants," Kirschstein said.

As it turned out, the grants would be among the few positive financial
developments for Advanced Tissue.

By December 2001, its cumulative net operating losses were
approximately $292.7 million. Barely a year later, the company entered
bankruptcy and shut its doors, having collected about $1.5 million of
the $1.7 million in small-business research grants.

Life-and-Death Decisions

While Katz was consulting for Advanced Tissue, he also was on the
payroll of Schering AG, which made Fludara, a drug that his research
staff was using as an experimental treatment for autoimmune diseases.

From the time he began consulting for Schering AG in 1996 through
2002, Katz collected between $170,000 and $240,000 in fees from the
company, his disclosure reports show.

In his responses to questions, Katz said that he "first became aware"
that Fludara was a Schering AG product when The Times made inquiries.

Fludara had been approved by the Food and Drug Administration in 1991
to treat leukemia, but the company wanted to expand its use to other
diseases, a goal the NIH studies could advance.

Two people died in the studies conducted by Katz's institute.

In one study using Fludara to treat muscular disorders, a patient
suffered what agency researchers reported in July 1998 as a "sudden
death . not thought to be drug related."

The second fatality, indisputably, resulted from the treatment. It
involved "Subject No. 4," who had enrolled in a separate study,
designed to treat kidney inflammation related to lupus, a disease of
the immune system.

Schering AG provided Katz's institute with a supply of Fludara and
with analyses of patients' blood samples through its U.S. affiliate,
Berlex Laboratories, records and interviews show. The company also
contributed a total of $60,000 to the institute to support the
research, eliciting a July 1, 1998, thank-you letter from Katz.

Participants entering the study were warned of some risks. The NIH
advised them that Fludara might cause damage to their blood cells and
that, as a result, "blood transfusions may be required."

That is what befell Jamie Ann Jackson, identified in NIH documents as
"Subject No. 4."

Jackson, a registered nurse, lived with her husband, their two
daughters and a son in Plainville, Mass., about 37 miles southwest of
Boston. She received four transfusions between March and May of 1999,
yet grew sicker.

On June 1, trembling with chills, Jackson was admitted to the NIH
Clinical Center in Bethesda. Within days, lab results confirmed that
she was in the grip of graft-versus-host disease. The graft of outside
material - in this instance, blood from a transfusion - attacks and
overwhelms the immune system and organs of the new host.

Fatal in about 90% of cases, the malady had been documented in
leukemia and other cancer patients who took Fludara. For that reason,
the risk of graft-versus-host disease was noted in the product
labeling - as was a warning about irradiating transfusions as a
prevention.

But the NIH doctors did not specify that transfusions should be
irradiated for patients in the lupus study. In an interview, Dr. John
H. Klippel, then the institute's clinical director, said he could not
recall whether he or his colleagues took stock of the label warning.

In Britain, authorities were more cautious, recommending that blood
transfusions for all patients taking Fludara be irradiated. The
British recommendations were described in 1996 in The Lancet, a
medical journal with an international circulation.

Two weeks after being admitted to the NIH Clinical Center, 42-year-old
Jamie Ann Jackson died.

"Steve Katz was notified almost immediately," Klippel said.

Katz's subordinates warned the remaining patients and their personal
doctors about the death and, for the first time, advised them to
irradiate any transfusions. The FDA was informed.

But the NIH office responsible for conducting an inquiry into research
deaths was not promptly notified.

And while Katz's institute stopped enrolling recruits, the treatment
of those already in the study continued for nine months after
Jackson's death.

After five of the other 12 patients given Fludara experienced abnormal
changes in their blood, increasing their risk of infection, the
experiment was stopped, 20 months before its scheduled conclusion.

'Absolutely No Role'

While Fludara's use for anything other than leukemia remained
experimental, an increasing number of doctors were prescribing it
"off-label" for diseases of the immune system, including rheumatoid
arthritis.

Yet the NIH was slow in warning them about the lethal, but
preventable, problem of graft-versus-host disease.

It was not until October 2000, 16 months after Jackson died, that
doctors from the NIH briefly summarized the death in Transfusion, the
journal of the American Assn. of Blood Banks.

Meanwhile, three articles written by NIH doctors and published from
March 2000 through May 2001 referred to the agency's work with Fludara
without mentioning the risk of graft-versus-host disease or the death
in their study.

In an article published in the May 2001 issue of the journal
Pharmacotherapy, the doctors, three from Katz's institute, wrote that
Fludara "was well tolerated" and thanked the company for providing the
drug and "analytical support."

Not until last week - 4 1/2 years after the event - did the same
doctors appear as authors of a full-length article describing
Jackson's death. It was published in Transfusion.

In his responses to The Times, Katz said that, to his knowledge, "all
matters concerning the adverse event were handled according to
standard operating procedures."

Katz said that he had signed a recusal, pledging not to participate in
matters involving Schering AG. He said he had nothing to do with
initiating the study, "was not advised that it was ongoing and had
absolutely no role in overseeing its conduct."

The Times documented three instances in which he discussed the study:
The July 1998 letter acknowledging the company's first half of the
$60,000 donation; the June 1999 phone call from Klippel notifying him
of the death; and a meeting in April 2000 with Kirschstein to discuss
the fatality and his institute's response to it.

Katz confirmed all three incidents in a series of e-mail exchanges.

He said he wrote the letter without realizing that Berlex Laboratories
was the American arm of Schering AG.

"At that time, I was unaware of any relationship between Berlex
Laboratories and Schering AG and was, therefore, unaware that my
sending the thank you letter might present any conflict of interest."

Katz declined to identify when he learned that Berlex was the U.S.
affiliate of Schering AG.

The relationship between Schering AG and Berlex has not been a secret.
News articles describe Berlex as Schering AG's U.S. business unit. The
Berlex and Schering AG Web sites make clear the affiliation. In 1998 -
two years after Katz was hired - Berlex accounted for 17% of Schering
AG's net global sales.

Oliver Renner, a spokesman in Berlin for Schering AG, said: "Berlex
Laboratories is a fully owned subsidiary of Schering AG. We are
distributing our products under the name of Berlex in the United
States. We also conduct research and development work through our
Berlex entities."

Katz, asked about the phone call he received when Jackson died, said
he did not then realize what company made the study drug. Although the
study was ongoing, he said he did nothing in response to being
notified of the death.

"No further action was required or undertaken by me," Katz said.

He said he remained uninformed about Schering AG's connection to the
study when he met with Kirschstein in April 2000.

"The reason that I did not exclude myself from any contact regarding
the lupus [clinical] trial was that I was unaware, and no one on the
staff brought to my attention, that the trial had any relationship to
Schering AG," Katz said. He noted that the arthritis institute first
used Fludara for lupus in 1993, before he arrived as director.

Representatives of Schering AG said the company did nothing out of the
ordinary in collaborating with the NIH - and in hiring Katz.

"The discovery and development of new pharmaceuticals often involves a
combination of government and private industry efforts," the company
said in a statement. "It is also a common practice for pharmaceutical
companies to work with many leading external experts.. In keeping with
this practice, we have a consulting agreement with a Dr. Stephen Katz
from the NIH involving his expertise in the field of dermatology."

Schering AG is no longer pursuing development of Fludara as a
treatment for autoimmune diseases.

Kirschstein, the NIH official who approved Katz's consulting for
Schering AG, said she had not known its drug was being tested by his
institute.

Kirschstein said she did recall being visited by Katz and his top aide
in April 2000. The NIH's human protection office had just opened an
internal review of the lupus-related study, questioning the
researchers' failure to protect against graft-versus-host disease, as
well as their failure to report the death to agency investigators in a
timely fashion.

"Dr. Katz and his scientific director came to me . to tell me about a
study in which a drug was used and there was a death," Kirschstein
said. "They did not tell me the name of the drug, and did not tell me
much about the study, but told me that they and the [department] were
looking into it."

In a follow-up letter two years later, the internal review absolved
the institute of responsibility for Jackson's death. Her husband has
filed a wrongful-death lawsuit against the government in U.S. District
Court. The lawsuit does not refer to Katz.

Jackson's mother, Carmella Tarte, said time had not eased her grief.

"We all went to the hospital, but we never even got to talk to her,"
Tarte said in an interview. "It's been four years and, well,
Thanksgiving was just another day, you know? She has children she
didn't see graduate."

*

About This Report

In late 1998, the Los Angeles Times began examining payments from drug
companies to employees of the National Institutes of Health and the
agency's research collaborations with industry. This report is based
on records from the federal government and from companies, as well as
scores of interviews.

In early 1999, the newspaper first sought income-disclosure reports
for all eligible employees of the 27 research institutes and centers
of the NIH. The newspaper, as of this month, had filed 36 requests
with the NIH for documents under the Freedom of Information Act.

According to NIH staff, the agency has provided documents totaling
13,784 pages, including annual financial-disclosure reports, memos and
internal e-mails.

A significant number of NIH employees had by this year stopped filing
yearly income reports that are open to public inspection. To assess
the relative extent of public financial disclosure at the NIH, The
Times in July queried dozens of other federal agencies under the
Freedom of Information Act.

Other documentation, describing products and hundreds of research
collaborations between the NIH and industry, was retrieved from
company and NIH Web sites, from filings with the Securities and
Exchange Commission, and from lawsuits filed in federal and state
courts. Other related documents were obtained from the Food and Drug
Administration under the Freedom of Information Act.

*

Contributors

Times researcher Janet Lundblad in Los Angeles assisted in this
report. Researchers Robert Patrick and Christopher Chandler in
Washington also contributed.