Aftermath of a Drug-Testing Firm

The storm

In late 2005, however, the company's fortunes took an abrupt turn.

The company had bought its test center -- a former Holiday Inn on Biscayne Boulevard that it had been leasing -- for $12 million in 2004. In company documents, Krinsky lauded the "state-of-the-art" facility that she said SFBC planned to remodel so it could double its space and grow its lucrative clinical trials. "We think it gives us a great opportunity to profit immensely," Hantman told investors in an April 2004 conference call.

In October 2005, however, an inspection by Miami-Dade County officials pinpointed numerous structural deficiencies and fire code violations at the facility. SFBC and the county were at odds over how many people the building could handle. SFBC said it was fit for 750 beds, but the county had approved only 440. The county also found that numerous structural changes done without permits rendered the building prone to collapse. The county cited holes cut in load-bearing walls and the addition of large concrete slabs that exceeded the floor's weight-bearing capacity by more than 300%.

Then, in late October, Hurricane Wilma slammed into south Florida. SFBC suspended normal operations to transform its Miami headquarters into a temporary aid station. As it supplied its employees, their families and the company's drug trial participants with food, water, fuel and ice, it announced that it would have to delay its quarterly earnings release by a few days.

Before the company could finalize its numbers, another storm hit.

On Nov. 2, Bloomberg Markets magazine published a report on the nation's clinical trial research industry -- focusing on issues related to regulation and the safety of the drug trials. Among numerous firms mentioned in the article was SFBC. One story reported how some of the paid volunteers for trials tried to earn extra money by dodging rules meant to keep them from taking part in more than one trial at a time. The story quoted a participant in an SFBC trial and described SFBC's facility and operations unflatteringly.

After the article appeared, company president Krinsky was quoted as telling analysts in a phone call that "approximately 99% of the information that was documented regarding SFBC is a total fabrication, and the remaining 1% was entirely misquoted." The company retained Miami law firm Tew Cardenas and Chicago-based Winston & Strawn to investigate the substance of the Bloomberg story.

Meanwhile, the company's business suffered. Within six weeks of the article's publication, SFBC's stock had fallen 68%, and U.S. Sen. Chuck Grassley (R-Neb.) had launched a Senate Finance Committee investigation into how the company treated its patients. Shareholders began filing suits claiming they were the victims of securities fraud in December 2005. By early 2006, the Securities and Exchange Commission had begun a probe.

Tew Cardenas and Winston & Strawn issued their report on SFBC's practices within six weeks after the Bloomberg article appeared. The Dec. 12, 2005, report, addressed to Sen. Grassley, defended
SFBC's practices and accused Bloomberg of making "unsupported allegations." The report vigorously defended SFBC's safety record and operating standards. It concluded that Congress should consider creating a centralized database to house basic information about clinical study participants so that companies could track participants' involvement in other studies, note adverse reactions to medications and crack down on participation by illegal immigrants.

The law firms' report also responded to a later Bloomberg story that an SFBC executive asked several former drug trial participants to sign affidavits refuting statements attributed to them by Bloomberg reporters. The story also reported that the executive threatened some drug trial participants with deportation.

The Tew Cardenas/Winston & Strawn report acknowledged that SFBC's vice president of legal affairs, Gerald "Jerry" Seifer, had spoken with several former trial participants about the Bloomberg
report, asked about their immigrant status and asked them to sign affidavits refuting portions of Bloomberg's article. The report stated that Seifer had "raised his voice at the participants" and suggested it was "apparent from our interview of Seifer that he takes substantial pride in SFBC and was upset by the release of the articles." The report concluded, however, that such behavior was "inappropriate."

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