The Wall Street Journal has an article reporting that the FBI is looking at doctors and drug trials as part of a probe into "insider trading."
The article is illuminating in several respects. It reports, "The health-care sector is particularly ripe for expert-network activity. Biotechnology companies often live or die based on the effectiveness of a single drug. Investors who can glean insights during the many phases of clinical trials leading to regulatory approval or rejection can profit handsomely from that information."
In other words, it's the "regulatory approval or rejection" that spawns the investment opportunity. By creating a powerful national Food and Drug Administration that has the power to bless or essentially to outlaw drugs nationwide, Congress has created the market opportunity that investors are seeking to take advantage of. If there were 50 independent state FDAs, or if judgment on whether a drug worked were something that was established over time by various nongovernmental health care organizations, prices of medicine-makers would swing less dramatically. In the meantime, to defend the powerful-national-FDA system it created, the government is running around trying to keep it a secret whether certain drugs work or not. Never mind whether this information should be kept confidential from hedge funds — what's the point of keeping it confidential from the patients the drugs might heal?
More from the Journal article:
This is similar to what happened to John Kinnucan. Without even filing charges, much less actually bringing a case to trial and winning a conviction or a civil judgment, government officials are able to scare away a firm's customers and suppliers. This sort of press smear campaign is the sort of thing more commonly associated with totalitarian societies than with free societies.
Some Gerson clients and experts have told the firm they no longer want to participate out of concerns about the investigation, a person familiar with the matter said.