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I had a discussion with Erik Lie about the experiences with Stock Options Backdating (SOBD) and the economic impact of his work

According to USFDA, a combination product is one composed of any combination of a drug and device; biological product and device; drug and biological product

. According to Erik, at least 15% of the stock options grants between 1996 to August, 2002,were backdated. Some were within 30

; or drug, device, and biological product and fixed dose combination would include two or more combinations of drug.

Examples of combination products may in

ays of the grant date, others more egregious. The number of companies though he said that were going to come clean would be far

lude drug-coated devices, drugs packaged with delivery devices in medical kits, and drugs and devices packaged separately but intended to be used together.

less than 15%. Here is what we came up with.

First the assumptions:

1. # of companies that actually are investigated or asked

here is enormous increase in the number of combination products entering the market in the recent years. Combination products have proven advantages but fixe

by the SEC (currenty June 03 is 42) by June 2006 = 100

2. # of companies that will complete the 3 step process of preliminary

d dose combinations are still in the process of convincing regulatory authority on their advantages over the single ingredient formulations.

Combination pro

investigation, comprehensive audit and finally restatement of results (approximately at 30-50%) = 40

3. Approximate amount of

ucts have become life saving products for the pharmaceutical companies who doesn’t have many innovative molecules in their product pipeline and have been inc

ime spent performing the initial investigation = 4-6 weeks.

4. Approximate time spent doing comprehensive audit = 20-32 weeks

easingly used in the product life cycle management. Even the companies having product patents are trying to extend their product life cycle through the combi

5. Costs in back taxes, delisting, restatement, defending lawsuits & fines = 30% of cumulative value of option grants

6. Size

nation products and maximize the revenues. But the companies involved in this practice are overlooking that they are burdening the patients both economically

of company assumed on average: $500M in revenues, 2500 employees, 25+ grants under inquiry

7. Grant value net = $15M per incid

and physically. They need to rightly judge the benefits of the combination products and they have to even look at the risks involved when combining the produ

nt

If you want to do your own analysis (how much will this cost my company), feel free to use some of these estimations.

# Ex

ts. Some of the combination products were well accepted by physicians while others suffered. Companies involved in development of combination products are fi

ense Item Description Cost

1 Initial Investigation Typically done by Board & Audit team $1.5 M   2 Communication expenses

ding difficulty in defining their combination products and facing various challenges from selecting a combination to marketing it.

Following aspects would a

Economic impact of communication loss to company $4M 3 Audit fees Formal investigation fees for auditors $30M 4 Restatemen

dd to the challenges in developing combination products:

Which markets to tap where the combination products can do fairly well?
Which combination prod

costs Includes delisting, cost of documentation, $9 M 5 Taxes and fines Back taxes owed to IRS, Fines by SEC $15 M 6 Lega

cts are meaningful and rational?
Which therapeutic categories to select?
Which Combinations can address unmet needs of the patients?
Do combin

fees Defending lawsuits on backdating $20M Subtotal For each company, $500M revenue $79.5M Assuming 50 companies Completely

tions increase the patient compliance?
What would be the developing cost?
How to tackle the risks encountered during combination product developmen

go over the end to end process $3.975B

Assuming remaining companies Remaining companies only go over steps 1 & 3 $1.75 B

t?

As combination products don't fit into the traditional categories of drugs, medical devices, or biological products, the USFDA is in the process of devel

e>The other part of the economic impact stems from losses in market capitalization. If you estimate currently (42 companies) lo

ping new procedures for reviewing their safety, efficacy and quality.

Professional from academic institutions, pharmaceutical industries, health care indust

t over $63 Billion in Market capitalization (United Healthcare itself accounted for over 30% of this number) over the last 9 mo

y and representatives from various regulatory agencies are working out to design the regulatory requirements for manufacture and sale of combination products

nths. Assume that will be 50% less (since the bad news is out) for the remaining 50+ companies. The impact is another $31B. We

.

As there is an increasing trend of the combination products companies manufacturing such products should be able to tackle the problems involved in the de

lso did a detailed analysis on this portion of the impact. Total Impact of Stock Option Backdating ~ $100 Billion.

For each co

elopment. They need to be wiser in analyzing the market trends and the regulatory requirements.

Companies that provide selfless information through particip

pany approximately = $50 to $100 Million in expenses.

http://blog.vangal.com

tion in industry events and feedback to regulatory authorities would be able to face the challenges and will be successful in developing combination products

Several entities determine the outcome of your annual property tax bill. While the names of these entities vary from state to state and from time to time, the names used in Florida generally exemplify the roles of the various entities in determining your property tax bill.

Investor sentiments are a very crucial issue for any company. If the investor confidence is high, the share price of the company soars. If the investor confidence weakens, the value of the stock plummets. Therefore, it is crucial for a company to keep its investors in mind before taking important decisions and to maintain a flawless management quality.

In this medical billing installment, we're starting to see light at the end of the tunnel, as we are now about 80% of the way done with our review of the GU0 record. In this segment we review fields 59 through 61.

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