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Stealth Merger: Drug Companies and Government Medical Research
Published on Sunday, December 7, 2003 by the Los Angeles Times
Stealth Merger: Drug Companies and Government Medical Research
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.

Copyright 2003 Los Angeles Times

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