A 'Drug Deal' Gone Bad
October 16, 2006
Democrats accuse Rep. Clay Shaw of profiting from his Medicare vote, but evidence is flimsy.
The Democratic Congressional Campaign Committee (DCCC) has launched an ad claiming Florida Republican Clay Shaw took part in a "drug deal" when he voted for the Medicare Prescription Drug Plan, more commonly referred to as Medicare Part D. We find the DCCC's evidence of this flimsy at best.
The ad claims that Shaw bought drug company stock before the legislation passed, sold it after, and put "profits in his own pocket." That's true, but the shares the ad refers to were in a company that could not have profited from the legislation. Its anti-cancer drugs were covered by Medicare even before the legislation was passed, and the company even told shareholders there was a risk that the legislation might hurt sales.
The DCCC might have had a better case if it had referred to the one other drug-company stock that Shaw owned, and which the ad doesn't mention. That company's sales may indeed have been helped by the legislation. Shaw's paper profit on that stock, however, is no more than $4,268.15 and perhaps considerably less. Furthermore, Shaw's Florida land holdings already make him one of the wealthiest members of the House.
We leave it to readers to examine the facts and judge for themselves whether Shaw's vote to expand Medicare was part of a "drug deal" motivated by personal profit, as the DCCC ad implies.
The DCCC released the ad named "Drug Deal" Oct. 6. It accuses Shaw of participating in a "drug deal" in which "Shaw took care of the drug companies, and he took care of himself."
The ad says that as Shaw was "writing a bill to give [drug companies] billions in new profits, Shaw bought drug company stock for himself," which he later sold after the legislation was passed, and put "profits in his own pocket."
The transactions cited by the DCCC fail entirely to support the insinuation that Shaw profited personally from his support for the Medicare drug plan. It's true that Shaw purchased shares of a pharmaceutical company called Pharmion on Nov. 10, 2003, which was less than two weeks before the final House vote on passage of the new Medicare drug benefit. He sold them six months later at a healthy profit, on May 20, 2004, according to the personal financial disclosure reports he filed with the Clerk of the House. But none of Pharmion's products was affected by the new law.
In fact, when Shaw bought the stock the company was getting 61 per cent of its revenue from the drug Thalidomide, which it doesn't even sell in the US. Thalidomide is famous for causing an estimated 10,000 to 20,000 severe birth defects in Europe when it was sold as a tranquilizer and for relief of "morning sickness" during the 1950's and early 1960's. It is now being used as a treatment for leprosy and some cancers.
More to the point, the two drugs that Pharmion does sell in the US, Vidaza and Innohep, are administered only by doctors and health-care facilities. Their costs were covered by Medicare before the new law took effect. If anything, Pharmion worried that the new law might hurt sales by restricting the fees that doctors and health-care facilities can charge for giving such drugs to patients. In the company's 2004 annual report to stockholders, it said: "Although the actual impact of these reimbursement changes is not currently well known, there is a risk that the new reimbursement policies will adversely affect product use by physicians." That risk didn't materialize, according to Pharmion's later reports, but we find no evidence that the new law benefited the company. Anna Sussman, the Director of Investor Relations and Corporate Communications for Pharmion, told FactCheck.org that if Shaw made money from the legislation "it certainly wasn't from his ownership of Pharmion stock." The company's SEC filings bear her out on that judgment.
We note here for the record that Shaw did make a tidy bundle on Pharmion stock – somewhere between $9,459.44 and $30,800 by our calculations, which are based on the ranges of values that Shaw reported in his personal financial disclosures. A spokeswoman for Shaw says the actual profit was roughly $19,000, but couldn't say exactly how many shares Shaw bought and sold, or at exactly what price.
As we've noted, however, the rise wasn't due to the new Medicare law. The stock was pushed up by the company success with Vidaza, a new drug for treatment of a bone-marrow disorder known as Myelodysplastic Syndromes, or MDS. The Food and Drug Administration gave full approval for the drug May 19, 2004, and Shaw sold his shares the following day. It is now the company's biggest seller.
What the DCCC Omitted
Oddly, the DCCC did not mention Shaw's interest in Genzyme Corp., a company whose sales may well have benefited from the new law. Shaw reports that he acquired the Genzyme shares Nov. 9, 2003, one day before buying Pharmion stock. Shaw disclosed that the Genzyme shares were worth as much as $15,000 at the end of 2005, the close of the most recent reporting period. The Shaw campaign says he still owns those shares, so these can't be the ones the DCCC ad says he sold "once the law was signed" on Dec. 8, 2003.
Genzyme says its sales may be helped by the new law. In its most recent annual report to shareholders for 2005, it says Part D will provide Medicare coverage for the first time for "a number of drugs" including its products Renagel and oral Hectorol, which are drugs for controlling side effects of dialysis in patients with chronic kidney disease.
Since Shaw reported that his shares were valued at no more than $15,000 at the end of 2005, the maximum number of shares he could have owned is just under 212 based on the value of Genzyme shares on the last day of trading last year. That would put his maximum possible gain at $4,268.15 as of the closing bell on Oct. 16. This assumes that Shaw bought at lowest price the stock traded for on the date he acquired the shares, and that he bought the maximum number of shares implied by his disclosure reports. This would be only a paper gain, and wouldn't constitute "putting profits in his own pocket" as the ad states.
Taking Care of Himself
The DCCC's ad implies that Shaw's "drug deal" was motivated by desire for personal gain, saying "So here's how this drug deal went down, Shaw took care of the drug companies, and he took care of himself." Worth noting is that Shaw is already one of the most wealthy members of the House because of his extensive Florida land holdings. The Center for Responsive Politics figures that Shaw was the 21st richest House member, based on his 2005 disclosure reports, and that his net worth was somewhere between $7.3 million and $35.9 million. His earlier reports show that he sold holdings of Eli Lily, Merck and Pfizer in 2000, long before debate began on the prescription-drug bill that eventually became law. We leave it to readers to judge from those facts how likely it is that Shaw acquired shares of Genzyme in order to benefit personally from his vote on Medicare.
The DCCC ad also contains a couple of distortions which we list here briefly. It says Shaw "helped write" the new law, which isn't the case. It is true that the USA Today article cited in the ad says Shaw "helped write the prescription drug bill," but Shaw is not listed as a sponsor or co-sponsor of the legislation. He did vote for it.
The DCCC ad also claims that the drug benefit is "bad for seniors," a common theme among Democrats, who preferred a plan that would have been both more generous to seniors and more expensive to taxpayers, and which would have included some sort of federal price controls on medications. But as we have said before, despite any shortcomings, most seniors seem to be better off financially under the new program than they were before. The Kaiser foundation has estimated the average senior who enrolls will spend $465 less in 2006 for drugs than they would have done without the new benefit, after taking all co-payments and premiums into account, a saving of 37 per cent. More recently, Kaiser released a national poll showing that more than eight in 10 seniors who enrolled in a Medicare drug plan say they are satisfied with it. And while nearly two in 10 report some major problem , about three out of four would choose the same plan again. Kaiser concluded: "For most seniors, initial experiences under the drug benefit have been positive."
- by Brooks Jackson and James Ficaro
DCCC Ad: "Drug Deal"
Announcer: We know that Clay Shaw's drug deal was bad for seniors and good for the drug companies, but there's more to the story. As he was writing a bill to give them billions in new profits Shaw bought drug company stock for himself.
Pharmion Corporation, Annual Report for fiscal year ended December 31, 2005,Form 10-K as filed with the Securities and Exchange Commission, 16 March 2006.
Pharmion Corporation, Annual Report for fiscal year ended December 31, 2004, Form 10-K as filed with the Securities and Exchange Commission, 16 March 2005.
Genzyme Corp., Annual Report for fiscal year ended December 31, 2005, Form 10-K as filed with the Securities and Exchange Commission, 9 March 2006.
Clay Shaw, "Personal Financial Disclosure Statement for Calendar Year 1999," on file with Clerk of the House.
Clay Shaw, "Personal Financial Disclosure Statement for Calendar Year 2000," on file with Clerk of the House.
Clay Shaw, "Personal Financial Disclosure Statement for Calendar Year 2001," on file with Clerk of the House.
Clay Shaw, "Personal Financial Disclosure Statement for Calendar Year 2002," on file with Clerk of the House.
Clay Shaw, "Personal Financial Disclosure Statement for Calendar Year 2003," on file with Clerk of the House.
Clay Shaw, "Personal Financial Disclosure Statement for Calendar Year 2004," on file with Clerk of the House.
Clay Shaw, "Personal Financial Disclosure Statement for Calendar Year 2005," on file with Clerk of the House.
Jim Mays, Monica Brenner, Tricia Neuman, Juliette Cubanski and Gary Claxton, "Estimates of Medicare Beneficiaries' out-of-pocket drug spending in 2006: Modeling the Impact of the MMA," Kaiser Family Foundation, Nov. 2004.
Kaiser Family Foundation, "Most seniors enrolled in Medicare drug plans say they are satisfied with their plans," press release, 27 July 2006.
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