News Archive
NEGATIVE PRESS PUTS SFBC INTERNATIONAL TO THE TEST
Publication: South Florida Business journal
Date: Friday, December 2, 2005
Author: Brian Bandell
"So far, SFBC's answers have seemed very narrow, and targeting legal liability and addressing the stock price," said Joanna Wragg, principal of Wragg & Casas Public Relations in Miami. "It hasn't done that well because it hasn't addressed the industrywide issues. What the market would like to see is see the industry leader step up and take a position of leadership."
As clinical trial management company SFBC International copes with fallout from a critical article in the national media, it faces an uphill battle with investors after its stock dropped by nearly half.
A piece criticizing the ethics and business practices of Miami-based SFBC and the clinical trial management industry it leads in market share has prompted a senator's inquiry into the company.
In an 18-page story titled "Big Pharma's Shameful Secret" in the December issue of Bloomberg Markets, SFBC (NASDAQ: SFCC) was highlighted as a case-in-point for an industry the article called "poorly regulated" and one that takes advantage of "human guinea pigs."
Allegations put forth against SFBC include unsanitary conditions in its 675-bed Miami clinical trial center, not properly informing poor immigrants of the potentially life-threatening dangers of some of the drug trials, not detecting cash-desperate trial participants lying about their health records to take multiple tests and contracting with an institutional review board owned by the wife of an SFBC VP.
SFBC Chairwoman Lisa Krinsky said the Bloomberg article was "a complete distortion of our work for their own gain."
Wall Street's immediate reaction to the Nov. 2 story was an SFBC stock value decrease of 36 percent, from $42 to $27, over the following two days. That came despite a Nov. 4 third quarter earnings statement that reported revenue of $109.9 million and profits of $9.2 million, up from $40.4 million in revenue and $5.3 million in profits in the year-ago period.
On Nov. 16, following a second article in which Bloomberg accused SFBC CEO Arnold Hantman of threatening the immigrant sources with being reported to the Immigration and Naturalization Service, SFBC issued a press release stating that both articles are inaccurate and the story about Hantman is untrue.
Sen. Charles Grassley, R-Iowa, the chairman of the committee overseeing Medicare and Medicaid, asked SFBC to cooperate with his committee's review of the matters discussed in the Bloomberg article. Hantman pledged to provide unfettered access to the company's records, saying: "We have nothing to hide."
That still wasn't enough for investors. After hitting a 52-week low of $21.14 during trading, shares of SFBC closed at $21.40 on Nov. 29.
In a Nov. 21 report downgrading of the stock from "buy" to "hold," Jefferies & Co. securities analyst David Windley said SFBC's management needs to rebuild credibility with more decisive action. He said he was worried about the article discouraging business partners and the risk of future negative articles.
A public relations executive in Miami who has helped clients cope with bad press gave some suggestions on how SFBC might handle its situation.
"So far, SFBC's answers have seemed very narrow, and targeting legal liability and addressing the stock price," said Joanna Wragg, principal of Wragg & Casas Public Relations in Miami. "It hasn't done that well because it hasn't addressed the industrywide issues. What the market would like to see is see the industry leader step up and take a position of leadership."
Wragg would advise SFBC to convene a group of experts, including its critics quoted in the story, to review industry practices and make recommendations for improving patient safety and trial accuracy. Simply disputing the article won't make the underlying problems of the industry that make it vulnerable to bad press go away, she said.
Miami attorney Thomas Tew, whom SFBC hired to conduct an internal investigation in response to Sen. Grassley's letter, called the Bloomberg article "irresponsible journalism" and "cheap sensationalism." The company wasn't exploiting the poor immigrants the article quoted; rather some of them lied to SFBC by providing false Social Security numbers and not disclosing their recent clinical trials in other facilities, Tew said.
He added that SFBC hasn't been sued by trial participants, it passed state health inspections and has never received a warning from the Food and Drug Administration.
"Everything we've reviewed to date suggests that the company plays by the rules," Tew said.
Kenneth Goodman, director of the bioethics program at the University of Miami, surveyed SFBC's facility and its clinical trial participation forms with the Bloomberg reporters and was quoted in the article. Goodman, who has a background as a journalist, told The Business Journal he had reservations about whether subjects were being motivated by money when they looked over descriptions of clinical trials with dollar amounts next to them.
Even after reading the consent forms, many of them didn't understand that the purpose of the trial they were enrolling in was to see how much of the drug they could tolerate before becoming sick, he said, adding that financial incentives weighted toward completing the trial strongly discouraged many of them from dropping out.
Goodman also raised the issue of how well the clinical trial management industry is regulated, saying: "Anyone who says, 'Look, we're following the rules,' is begging more questions than they're answering."