Replies to post #14043 on Biotech Values

[bladerunner1717]

Wow, walldiver, that's quite an eye-popping article. I knew my subscription to Garren was worth something. (lol) Thanks for posting the article.

By the way, in Garren's latest alert, he has a "buy" on DSCO.

And thanks to "fid" for the research on CRME.


Bladerunner

[io_io]

Seattle Times:

That's a fantastic ground-breaking piece of journalism.

I thought biotech was the one place where research (in my case, aided by BTM and iHub), logic and patience would help one get ahead. But the playing-field here is not level either, not even close.

Now I'm thinking: no wonder DNDN never really moved since the early peek at 9902a. Of course it was a lot worse for those holding other stocks, such as mentioned in the article.

[io_io]

Side-bar from Seattle Times article:




Investors quiz researcher in recorded conference call


The moderator lists what will be discussed during the call
In a July 18 conference call, a leading cancer-research doctor at UCLA discussed drug development with at least 10 elite investors, including hedge-fund managers. Dr. Robert Figlin was quizzed about two potential new drugs for kidney cancer: Sutent, a Pfizer drug for which he was a principal researcher, and Sorafenib, which he monitored for safety for Onyx Pharmaceuticals.

Brokerage firm Friedman Billings Ramsey hosted the 47-minute call and recorded it. The Seattle Times obtained a copy of the recording.

Jim Reddoch, a biotech analyst for Friedman Billings Ramsey, moderated the call. After Figlin's introductory remarks, Reddoch invited questions. He also announced that Figlin was speaking for a fee.


FIGLIN: Totally inadequate, I must say.

REDDOCH: If you do well enough, though, we can ramp it up next time, right?

FIGLIN: I would hope so.

This call was timely because drug giant Pfizer was in a race with tiny Onyx Pharmaceuticals, partnered with Bayer, to get FDA approval for competing kidney-cancer drugs. Being first in the market gives a new drug a tremendous sales advantage.

In the weeks leading up to the July 18 call, Wall Street analysts' reports show they had been trying to figure out whether Onyx or Pfizer would file for approval first.

Onyx announced July 11 it had filed with the FDA. Analysts thought Pfizer had also filed, but the company was being tight-lipped.

But immediately, Figlin, a consultant to Pfizer, gave the listeners detailed timetables of the company's drug-application plans. Pfizer's first application for FDA approval of Sutent "will be filed by the end of the summer," he said.

The value of Figlin's information became obvious two days later, when Pfizer let slip that it had not yet filed with the FDA. Analysts who had not been on the call with Figlin put out research reports speculating that Pfizer was losing its cancer-drug race with Onyx. That day Onyx shares rose $2.94 — or 12 percent — on heavy volume.

The next day, July 21, Pfizer responded, saying it would file for FDA approval of Sutent in August — close to the timetable Figlin had provided.

Onyx shares fell 10 percent on the news, nearly wiping out the previous day's gain.

Hedge-fund handicapping

During the July 18 conference call, Figlin also was asked to "handicap" the results of one of the drug trials. In particular, one hedge-fund manager asked whether Onyx would be able to show that its kidney-cancer drug, Sorafenib, had a "survival benefit" — that patients taking Sorafenib were living longer. A survival benefit is the gold standard for a cancer drug's success.


Listen to an expanded excerpt of this part of the call
QUESTION: And your bet is ...

that there will be a survival benefit?

FIGLIN: That's a good question.

My bet — am I betting with your money or mine?

— my bet is that there will be a survival benefit.

Figlin told listeners he based his bet on information from the leading doctor on the Sorafenib research in Europe, Bernard Escudier. Figlin had learned that 75 percent of the patients on the study were from outside the United States, which would overcome a problem that had arisen in analyzing data from U.S. patients. That meant the ongoing study had a much better chance of showing a survival benefit.

Doctor denies doing anything wrong

In an interview with The Times after the call, Figlin said he talked to Wall Street firms a couple of times a month through matchmaker firms such as Gerson Lehrman Group for $300 an hour. He said he sees nothing wrong with talking to Wall Street investors as long as doctors discuss only publicly available information.

"I don't think it's appropriate for the physician to ever discuss things that are unpublished, or anecdotal," including any prediction of a drug's survival benefit, he said.

When asked about his prediction of a survival benefit during the July 18 call, Figlin said he was just expressing his hope for its success.

"I take care of hundreds of kidney-cancer patients, and I'd like to finally have an agent that demonstrates a survival advantage. If they then take that information and decide, 'Oh, Figlin thinks the trial is positive,' then they are extracting information and making conclusions on their own dime."

He said he had talked about "generally available" information but acknowledged he may have discussed information he heard from other doctors on the studies.

— David Heath and Luke Timmerman

[DewDiligence]

Re: Seattle Times article, and what it all means (see end of post)

>>Drug-company executives say they know about the practice but can't crack down on the doctors they rely upon for conducting patient testing.<<

What a load of crap!

>>The Seattle Times interviewed 15 of the lead doctors on the Macugen and Lucentis research, many of whom acknowledged accepting money to talk to Wall Street firms. None specifically recalled talking to Smith Barney, but they said they had talked to many investors during the time Eyetech's stock price was in a steep decline. All 15 doctors insisted they didn't reveal confidential or valuable details.<<

Whom do they think they’re kidding?

>>Some involved say they're doing nothing wrong and are, in fact, performing a useful service to advance "promising therapies."<<

Nice rationalization!

>>But hedge-fund managers said it often is possible to find out from doctors how a study is progressing, even when it is "blinded." That's because drugs can have obvious side effects that patients receiving a placebo won't get.<<

No kidding.

>>The Securities and Exchange Commission, told of The Times' findings, said it had no comment.<<

“No comment” may mean that they are investigating or plan to do so. It’s all political—if enough people are ticked off about this and complain to their elected representatives, the SEC will move on it… eventually.

In the meantime, I remain convinced that it is possible to beat the market in biotech without illegal access to insider information. If I weren’t convinced of this, I wouldn’t be doing it for a living.

[io_io]

Seattle Times:

If anyone else wants to write to local representatives or SEC, feel free to cut/paste/adapt this to craft their messaage:




http://seattletimes.nwsource.com/html/businesstechnology/drugsecrets1.html

As an investor and follower of the biotech industry, I am appalled at today's relevations in the Seattle Times proving that essentially a racketeering industry exists whereby hedge funds hire criminals to solicit and purchase insider information from doctors on clinical trials.

I am hoping the government will act immediately to put an end to this practice, that the criminals will be prosecuted, and that the ill-gotten gains will be returned to the cheated ordinary investors.

Best Regards,

[DewDiligence]

Doesn’t the Seattle Times article worry you even a little vis-à-vis DNDN? To wit:

1. Dr. Celestia Higano, a clinician in the 9902a trial, admits to selling clinical data to hedge funds.

2. DNDN has an enormous short position.

3. DNDN steadfastly refuses to disclose key details of the 9902a data such as the p-value, Hazard Ratio, or three-year survival rate.

I’d be a little nervous myself if I were still long. JMHO. Dew

[io_io]

follow-up to famous Seattle Times investigation:


Wednesday, May 3, 2006

Grassley continues scrutiny of alleged sales of drug-study secrets

WASHINGTON --- As part of his own ongoing review of allegations reported
last summer, Sen. Chuck Grassley has asked the Securities and Exchange Commission
for its view on a new analysis by the Congressional Research Service that Wall Street
firms may be violating federal securities laws when they buy or sell securities for their
clients based on secret information purchased from clinical researchers who are involved
in pharmaceutical drug studies.

Grassley is Chairman of the Senate Committee on Finance. Last August, he urged
the Securities and Exchange Commission to consider these allegations, which appeared in
the Seattle Times.

The text of Grassley’s latest letter follows here:

May 3, 2006
The Honorable Christopher Cox
Chairman
U.S. Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549

Dear Chairman Cox:
On August 8, 2005, I referred to the Securities Exchange Commission (SEC) for
consideration serious allegations that clinical researchers were divulging confidential,
nonpublic drug research information to Wall Street firms, which, in turn, used that
information to purchase or sell securities for their clients. Companies known as
“matchmakers” pay these researchers to speak with investment firms regarding ongoing
clinical studies. When confidential, nonpublic information can be bought and sold, it
creates an uneven playing field for investors and hurts those who choose to play by the
rules. Furthermore, the integrity of the scientific process itself is compromised by clinical
researchers who disclose, wittingly or unwittingly, the details about ongoing research in
violation of confidentiality agreements with pharmaceutical companies. In response to
my letter, SEC staff provided a confidential briefing to my Committee on Finance
(Committee) staff regarding this matter on August 17, 2005. I thank you for facilitating
that briefing and write today seeking your continued cooperation.

In your written response dated August 31, 2005, you stated that the SEC is
investigating the allegations described in the August 7, 2005, Seattle Times article, as
well as “conducting an independent analysis of the relationships between clinical
physicians and Wall Street professionals in an effort to determine the scope of the


etc, etc (sorry don't have full text, but at least the issue is very much alive....)

[DewDiligence]

This page-1 article from today’s Boston Globe
describes yet another mechanism by which
doctors can get paid by Wall Street to reveal
information that could give the payers an edge
in the stock market. However, doctors on the
site post anonymously, so one has to wonder
if the veracity of the material is any better
than what can be found on Yahoo.

There is something perversely satisfying about
the notion that hedge funds may be paying big
money to subscribe to a site like this in return
for information that may be bogus.

This article contains some astonishing accusations
about side effects from Lipitor and Byetta.

http://www.boston.com/business/globe

>>
Website Seeks Doctors' Take
on Drugs; Firms Are Crying Foul

By Christopher Rowland
October 14, 2006

A Cambridge company that pays doctors to post medical observations on its website, including reports of drug side effects, has quickly incurred the wrath of pharmaceutical makers.

Sermo Inc., founded by a surgical resident-turned-entrepreneur and backed by $3 million of venture capital, is promoting the website, sermo.com, as a novel Internet community. It's a password-protected private forum where raw postings by doctors can be viewed, for a fee, by Wall Street investment firms.

Founder and chief executive Daniel Palestrant says the site will serve as an early-warning system about potentially dangerous drug reactions. The site will also be a forum for doctors to share information about so-called off-label uses of drugs, for conditions other than those approved by the Food and Drug Administration.

The FDA, which is charged with monitoring drug safety, has come under criticism for failing to respond to reports of drug side effects, and for not making manufacturers follow through on pledges to monitor safety after their products are on the market.

With its debut two weeks ago, the Sermo site generated debate by prominently featuring postings from several doctors saying that Pfizer Inc.'s cholesterol-fighter Lipitor induces vivid and repeated nightmares in some patients as well as a posting by one doctor that said the diabetes drug Byetta, marketed jointly by Amylin Pharmaceuticals and Eli Lilly and Co., was associated with “sudden death” in 50 patients.

There has been almost nothing published about either problem in medical literature. Both drug companies, which reviewed the website after questions from the Globe, said the physicians' anecdotal observations appeared to be inaccurate.

Pfizer said no scientific studies or clinical trials have shown any link between Lipitor, the world's biggest-selling prescription drug, and nightmares. ``It's not true. This is such a strange situation with this website," said Dr. Gregg Larson , Pfizer's vice president for cardiovascular drugs. ``It's not scientifically based. It's not clinically based."

Sermo surveyed all its doctors after receiving observations from several physicians about Lipitor. Of 750 doctors surveyed, 33 percent reported they had patients taking Lipitor who also experienced unusual nightmares. Several reported that the nightmares stopped after the patients were switched to another anticholesterol drug, the website reported.

Byetta, which treats diabetes and is derived from the saliva of large lizards known as Gila monsters, has been associated with an undisclosed number of sudden deaths, but has not been proven to be the cause, said an Eli Lilly and Co. spokesman, Jamaison Schuler. But he said the Sermo web posting from a physician saying it was linked to 50 deaths was ``significantly inconsistent" with information gathered by the company. He declined to disclose the number of sudden deaths that the company attributes to Byetta.

``It's important to study the model of how this site got formed, which is there were financial rewards for physicians to post to the website," Schuler said.

Sermo pays doctors $30 to $50 to post observations and says it already has ``several hundred" credentialed contributors. Once doctors are credentialed and accepted to the Sermo site, their medical observations are ranked for noteworthiness and credibility by other doctors, who also get paid for their observations.

While the FDA gathers specific side-effect information that doctors and companies submit in a government-mandated format, Sermo is a free-wheeling bulletin board with a broad variety of information, from rants on insurance reimbursements to reports of medical oddities to questions about the uses and effects of new and old drugs. Doctors post anonymously, but Sermo knows who they are and screens them to verify credentials.

Responding to complaints from Pfizer and Lilly, Palestrant, the founder, said the site is intended to generate debate within the medical community. He said it acts as a preliminary sounding board for investment firms that subscribe to the site.

For instance, he said, the physician who anonymously posted the observation that Byetta was responsible for 50 sudden deaths did not receive any supporting comments from other physicians. The inference, he said, was that the posting was of low value. It nonetheless remained on the site, as do all postings. Regarding Lipitor, Palestrant said the physician reports of a nightmare link suggest it deserves further study.

Sermo charges subscription fees to its largest subscribers but declined to disclose the size of the fees. The company said big subscribers are Wall Street investment companies looking for preliminary information that might help them anticipate swings in a drug company's stock.

The company hopes to build relationships with federal regulators at the FDA and Centers for Disease Control and Prevention. Drug companies are not permitted to subscribe to the site yet, but Palestrant said they will after details of their participation are negotiated. Drug companies will not have any authority to quash information on the site, and crucial information will immediately be reported to the FDA, he added.

Nonetheless, the site has come under criticism from Public Citizen, a Washington nonprofit consumer advocacy group that frequently petitions the FDA to have dangerous drugs removed from the market. Public Citizen said companies should not attempt to supplant the FDA's watchdog role.

``It's a function too important to be left to venture capitalists and the drug industry," said Dr. Sidney Wolfe , director of Public Citizen's public health group. ``If you are an investment analyst on Wall Street, you would love to get the first word on this."

Sermo has about 20 employees. It closed last month on the final portion of its $3 million capital infusion from Longworth Venture Partners of Waltham and is seeking another $8 million to $10 million in capital in its next round, Palestrant said.

Palestrant has experience with healthcare-related start-up companies, having once led a firm that marketed a medical records-keeping system. He left a surgical residency at Beth Israel Deaconess Medical Center at the end of 2005 to develop Sermo full time as a forum that would attract investors interested in tapping into high-quality medical observations. The key, he said, was ``how do you distinguish the signal from the noise?"

The solution, according to Sermo, is a set of credibility-ranking systems, in which peers support or debunk observations. It's designed to prevent any exaggerated or inflated claims from gaining traction, and allow the most significant patterns to emerge from the thousands of postings, Palestrant said.

Doctors are not required to disclose connections to drug companies, including speakers' fees or honoraria they receive, under the assumption that other doctors will counter claims that seem biased by outside influences, Palestrant said. ``The critical information is when other physicians do a scrum and corroborate," he said. A tour through sections of the site showed that some information is corroborated by doctors, others were debunked, and many postings appeared to generate little response.

Information about drugs, medical devices, and procedures make for some of the most interesting discussions, said Dr. Edward A. Cutler, a frequent Sermo contributor from Columbus, Ohio, who said he posted about 40 times during the pilot phase leading up to the official launch. ``For a physician, it's very hard to present unique ideas unless they are double-blind, controlled studies. Here's a unique opportunity to present unique ideas to others," Cutler said. ``Every physician has observations that the physician knows are true but can't prove."
<<

[DewDiligence]

Seeking an Edge, Big Investors
Turn to Network of Informants

[This profile of how Gerson Lehrman circumvents Reg FD is a good companion piece to the Seattle Times exposé from 2005 (#msg-7263103). Clearly, this is not just a biotech issue.]

http://online.wsj.com/article/SB116459881353833275.html

>>
By LAURIE P. COHEN
November 27, 2006

Marlin Kilgore's day job is purchasing parts for Penske Truck Leasing Co. in Memphis, Tenn. His second job, which pays $100 an hour, is to answer questions from hedge funds and other big investors about the truck-parts makers he buys from.

The investors interrogate the 36-year-old maintenance manager about the pricing and availability of parts, about how long they last, about how the warranties work and how often they are used. What they are after is intelligence about publicly traded parts makers such as Federal-Mogul Corp., ArvinMeritor Inc. and Exide Technologies.

Mr. Kilgore's moonlighting job is the creation of Mark Gerson, a New York networking wizard who has done for professional investors something akin to what Match.com has done for the nation's singles. He hooks up current and former middle managers from hundreds of companies with professional investors desperate for an investing edge. Mr. Gerson has assembled an army of 180,000 "consultants" from companies ranging from J.P. Morgan Chase & Co. to New York Times Co., and he sells their time for top dollar.

Two things have made Mr. Gerson's network both successful and controversial: Some of his consultants dish to investors without the knowledge of their bosses, sometimes in violation of their employers' policies. And they are doing so at a time when federal regulators have made executives at public companies gun-shy about talking shop privately with big investors.

Mr. Gerson, although unknown to many investors, has emerged as an important information broker to an increasingly powerful force in the investment world -- hedge funds and private-equity firms with hundreds of billions of dollars under management. These private investment firms, which are loosely regulated, have turned to Mr. Gerson's fast-growing research firm, Gerson Lehrman Group, for information they hope will give them an investing edge.

Gerson Lehrman says it instructs its consultants never to disclose material nonpublic information or even to discuss their own companies [LOL]. All of its consultants, it says, must agree in writing to follow the rules of their primary employers. (Most of them, it adds, do not even work for public companies, but are lawyers, accountants, professors and other professionals.)

Interviews with dozens of Gerson Lehrman consultants and their employers, however, reveal that the consultants are sometimes unaware of their own companies' restrictions and sometimes have only a hazy understanding of what qualifies as nonpublic information.

Mr. Kilgore, for example, says he isn't violating any policies at Penske Truck Leasing. A spokesman for the company, a joint venture of Penske Corp. and General Electric Co., says employees aren't permitted to use data "obtained in the course of employment for personal advantage," and that the company had no idea one of its employees was moonlighting for Mr. Gerson. (Mr. Kilgore wasn't identified to Penske Truck in an inquiry about its moonlighting policy.)

Mr. Gerson, a 34-year-old graduate of Yale Law School, picked a fortuitous time to launch his company, now the largest of several firms that match investors with experts in various industries. For years, executives at many public companies had few qualms about discussing business directly with big investors and with analysts working with their investment bankers. But in 2000, in an effort to level the playing field for all investors, the Securities and Exchange Commission instituted Regulation Fair Disclosure, or Reg FD, which barred companies from selectively disclosing important nonpublic information.

Hedge funds were soaring in number, expanding the appetite for useful investment information. At the same time, the Internet had democratized the information-gathering process, putting SEC filings and other corporate disclosures a few keystrokes away for all to see. For big investors, getting a leg up was suddenly much harder, and worth paying for.

"What's in the public domain is worthless in terms of making money," says Chip Morris, a partner at Integral Capital Partners, a private investment firm that occasionally uses Gerson Lehrman's consultants. In the new regulatory environment, he says, companies put out less information and qualify it more. It is hard, he says, for an investor "to randomly call someone" at a company and get them to talk about their industry.

The business has thrived. Since 1999, Mr. Gerson says, revenues have grown by more than 30% a year, on average. Investors say they are expected to approach $200 million in 2006 and that profit margins exceed 25%. Clients now include Steven Cohen's influential hedge fund SAC Capital Advisors, mutual-fund giant Fidelity Investments and many of Wall Street's big investment banks.

Mr. Gerson arranges his experts into eight sectors, including technology, health care and real estate. He charges clients by sector. For $60,000, a client can make unlimited telephone calls for six months to experts in one sector. The fanciest service costs $1 million for six months, which gives clients all eight sectors, plus bonuses such as one-on-one meetings with experts.

Mr. Gerson, who has never married, seems unsuited to the business of matchmaking. His friends describe him as socially awkward. "He's intensely serious," says Roger Hertog, vice chairman of AllianceBernstein Corp., who has served with Mr. Gerson on the board of the Manhattan Institute, a conservative think tank. Newark's Democratic mayor, Cory Booker, became a fast friend of Mr. Gerson at Yale Law School. While praising Mr. Gerson's philanthropic and professional accomplishments, he says: "He's a little peculiar, but I relish his strangeness."

Mr. Gerson approaches the activity of meeting people and introducing them to one another methodically and indefatigably. "Mark is the most successful networker I've ever met in my life," says Ed Nicoll, the chief executive of broker Instinet and an early Gerson investor.

"The Internet has changed connectedness," Mr. Gerson observes, enabling "people like me to become connected at young ages."

Mr. Gerson grew up in Short Hills, N.J., attended Williams College, then deferred admission to law school to teach at an inner-city Roman Catholic school in Newark. Before getting his law degree in 1998, he spent a summer at McKinsey & Co.

While working on a pharmaceutical-marketing project for that management and consulting giant, he says, he was struck that there was no easy way to locate an industry expert whose brain he could pick. "There was no service to call," he says. After brainstorming with Thomas Lehrman, a former analyst at Tiger Management, the two decided to try to fill that void.

In 1998, they raised nearly $1 million from friends and family and hired experts to write guides on industries such as health care, media and technology. They couldn't sell a single one. Professional investors told Mr. Gerson they weren't interested in more reading. But several investors said they'd love to talk to the authors of the guides. So in 1999, Mr. Gerson recast the firm as an information broker, and began lining up experts.

Gerson Lehrman recruits consultants, which it calls "council members," at conferences and trade shows and through referrals. It finds others through Internet searches of publications and professional and career Web sites. Their pay averages $240 an hour.

In September, a legal reporter for The Wall Street Journal received an unsolicited email from someone who identified herself as the manager of Gerson Lehrman's "law council." The email carried the subject line "Invitation to Consult." She offered the reporter the opportunity to join nearly 5,000 lawyers in Gerson Lehrman's law group, which she said includes members of "every U.S. presidential cabinet since President Nixon's." The benefits, the email said, included the opportunity to "Earn Consulting Fees." (The Wall Street Journal has a policy prohibiting outside consulting work.)

Gerson Lehrman's recruiting from public companies has sparked debate about how close its experts get to legal limits on sharing material nonpublic information. Gerson Lehrman says just 12% of its consultants work for public companies. Others are ex-employees of public companies.

Former SEC commissioner Harvey Goldschmid, who helped write Reg FD, says there's nothing wrong with investors' digging around for information "from different sources that may add up to something material" -- that is, which could affect a company's stock. What could lead to problems, he says, is that payments to corporate employees "may create temptations to go too close to a line in order to curry favor" with Gerson Lehrman clients. In addition, those employees might not understand "what is material," he adds.

Mr. Gerson says both consultants and clients are constantly reminded that discussing material nonpublic information isn't allowed. Two law firms -- Proskauer Rose and Skadden, Arps, Slate, Meagher & Flom -- reviewed the firm's compliance procedures. Gerson Lehrman officials maintain that few consultants are in any position to dole out inside information. "Our council members are, for the most part, pretty junior people in the industries they work in," says Jonathan Glick, Gerson Lehrman's research director. "The likelihood they'd have proprietary information is extremely low."

Mr. Glick says Gerson Lehrman consultants contribute "mosaic" tidbits to clients -- describing, for example, an emerging consumer trend in a certain region -- that aren't useful alone, but when put together with other data, could constitute useful trading information. Consultants who work for public companies, he says, discuss only their industries, and "are never asked to comment on their company or employer."

Some critics are skeptical of such assurances [duh]. "Sophisticated investors are potentially taking advantage of people who don't know they're going over the line" by disclosing nonpublic data such as internal sales figures, asserts Jill Fisch, director of the Fordham Center for Corporate, Securities and Financial Law. "Once someone is being paid, it's hard for them to draw the line and say 'no.' "

Ted Siegel began consulting for Gerson Lehrman in 2004 when he was training to be a district manager at Bed Bath & Beyond Inc. in New Hampshire. Most Gerson Lehrman clients, he says, obeyed the rules, but two investment analysts were "extremely pushy in terms of trying to get specific information" about his employer. He says he didn't respond and told his Gerson Lehrman contact he wouldn't talk to the two again.

Mr. Siegel, who recently left the home-furnishings retail chain, says Gerson Lehrman clients have sought him out in recent months because of his knowledge of Yankee Candle Inc., a Bed Bath supplier that last month agreed to be sold to a private-equity firm. A Bed Bath & Beyond spokesman says the retailer bars outside employment that constitutes a conflict of interest or that could result in disclosure of confidential corporate information. He declined to comment on Mr. Siegel's situation.

Grant Ginder started consulting for Gerson Lehrman six months before he left his job as a children's apparel buyer for Wal-Mart Stores Inc. He says "there are times when people have asked" for inside information, "and I haven't answered." Since leaving Wal-Mart, he says, he has worked his contacts to gather information about the company's earnings trends. "Anyone's privy to it if they know the right people," he notes. He often shares his opinions with analysts who are Gerson Lehrman clients. "I've been pretty accurate every quarter," he says.

Eminence Capital, a roughly $2 billion hedge fund that has held shares in Wal-Mart, is one client that has consulted him. Mr. Ginder says he spoke frequently to Eminence analyst Scott Alberi about Wal-Mart's competitors and suppliers, such as Children's Place Retail Stores Inc. and infant-clothing maker Carter's Inc. Mr. Alberi declines to comment.

A Wal-Mart spokesman says "employees cannot work for Wal-Mart and for another company where a conflict of interest exists.... We can't restrict what someone does after they leave our employment."

Gerson Lehrman says consultants who don't have their employers' written permission to moonlight are restricted to three calls a year with each investing client [LMAO]. And when companies ask Gerson Lehrman to back off on recruiting employees, it abides by such requests, the company says.

Carol DiRaimo, head of investor relations at restaurant chain Applebee's International Inc., says Gerson Lehrman offered one store manager more than $400 an hour to consult and invited the chain's risk management director to set his own hourly rate. Ms. DiRaimo says she thinks Gerson Lehrman was trying to get store sales figures before they are publicly disclosed. "It is a way to circumvent Reg FD," she asserts. Mr. Glick responds that Gerson Lehrman "would never let a store manager talk about his own company."

Applebee's subsequently informed associates "they shouldn't be talking about our business to outsiders," Ms. DiRaimo says. Mr. Glick says Gerson Lehrman promptly stopped recruiting from the chain.

Verizon Communications Inc. and Citigroup Inc. are among the companies that have instructed Gerson Lehrman to quit contacting employees. But if Gerson Lehrman clients want information about Verizon, they have alternatives. Gerson Lehrman can hook them up with the telecommunication company's suppliers and resellers. Alvin Myers, who used to manage big accounts for Verizon Wireless, listed his Gerson Lehrman consulting position on a resume posted on Monster.com, the online job board, in September. Verizon says "former employees and business suppliers" are prohibited from disclosing nonpublic information. Mr. Myers, who worked for Verizon from 2004 until May, declines to comment.

Some companies don't know about employees who are also consulting for Gerson Lehrman. Joseph Toedt consulted occasionally for Gerson Lehrman while working as a first vice president in J.P. Morgan Chase's commercial card division. "I don't think the company would have a problem with it," he said last month. His conversations with investors, he said, were "generic and open-ended" ones about commercial credit cards.

When the Gerson Lehrman consulting gig was described to a spokesman for the bank (Mr. Toedt wasn't identified), the spokesman said such an arrangement "would typically not be permitted... Any outside business affiliation must be preapproved by an employee's business manager, the firm's compliance group and the office of the secretary." Mr. Toedt has since left J.P. Morgan.

Mr. Glick, Gerson Lehrman's research director, argues that companies will eventually conclude that there are benefits to cooperating with the firm. "Over time, companies will want people doing this," he contends. "They will want their experts to be the experts."

The New York Times hasn't tried to stop Nicholas Ascheim, director of entertainment, audio and video at its online division, from consulting for Gerson Lehrman. Mr. Ascheim, whose affiliation with Gerson Lehrman predates his New York Times job, tells Gerson Lehrman clients that he is speaking as a media specialist, not a Times representative, says a spokeswoman for the Times, speaking for Mr. Ascheim. "Never has he been asked to discuss anything about the New York Times," she says.

Now that his research firm is thriving, Mr. Gerson has handed over day-to-day control to Mr. Glick and others. In 2004, he considered cashing out, retaining Morgan Stanley to explore a possible sale. But after he talked to several potential suitors, Mr. Gerson says, the effort stalled. "We wanted more money than they were willing to pay," he explains.

Mr. Gerson likes to keep numerous balls in the air and run on minimal sleep. In his spare time, he pens articles for publications such as the New York Sun and Commentary. Instinet's Mr. Nicoll recalls that on a flight to Tokyo, Mr. Gerson piped up from across the aisle that he had an idea for an article, and he began typing on his laptop. On the flight back, Mr. Gerson showed him a new issue of The Weekly Standard, which contained his piece. Earlier this year, Mr. Gerson was deeply involved in Mr. Booker's winning campaign for the Newark mayoralty.

At salon dinners Mr. Gerson regularly holds at his sparsely decorated Fifth Avenue rental apartment -- events he says are unrelated to building his web of professional contacts -- he spends most of his time listening to others talk. Although Mr. Gerson isn't gregarious, says Mr. Glick, he "loves to connect people and watch them learn from each other."

The gatherings feature speakers, making them more like seminars than dinner parties. One week in August, for instance, Mr. Gerson drew 70 or so guests over two evenings to hear from Peter Thiel, a founder of the PayPal online-payment site, and from Jon Benjamin, Britain's acting consul general. In attendance were the Rev. Arne Panula, U.S. spiritual director of Opus Dei, a conservative Roman Catholic institution, electronic musician Moby and a slew of academics and investment professionals.

Mr. Gerson continues to network almost hyperactively on behalf of his firm, hopscotching to Gerson Lehrman offices in London; Shanghai; Sydney, Australia; and New Delhi in a hunt for new clients and experts.

Concerns about inside information, among other things, have caused some hedge funds to approach his firm and its competitors, which include Standard & Poor's Vista Research, with caution.

James Chanos, president of Kynikos Associates, a more than $3 billion hedge fund specializing in "shorting" stocks, or betting against them, says he stopped using such firms a couple of years ago. He says he "got increasingly uncomfortable" that the information provided by the firms was either "too good to trade on or too pedestrian to care about." Kynikos does its own research, he says, "because that's what our clients are paying us for."

Before engaging Gerson Lehrman consultants, Farallon Capital Management, which has some $4.7 billion under management, has its lawyers chew over whether the consultants are qualified to talk and whether they might qualify as insiders in the eyes of regulators, according to people familiar with the firm. Farallon won't speak with anyone who has worked during the prior year at any company it is targeting for investment, these people say.

Steven Durkee began consulting for Gerson Lehrman in 2002 and has ranked among the top 20% of its consultants in popularity, making him one of Gerson Lehrman's "scholars." His specialty is retail. Over the years, he has worked for General Mills Inc. and Sherwin-Williams Co., and consulted for Eddie Bauer Holdings Inc.

Among the Gerson Lehrman clients he has spoken to over the past two years, Mr. Durkee says, are Afton Capital Management, Atlas Capital Management, Royal Capital Management and FAF Advisors. All four firms declined to comment. These clients, he says, wanted his views on Eddie Bauer, which was sold this month to two private-equity firms. He says he kept up with the company through friends working there.

Early this year, Mr. Durkee, who is 54, took a job as a senior manager at Walmart.com. He had to sign an agreement that barred him from continuing his $200-an-hour consulting gig, so he put Gerson Lehrman "on the shelf." Nov. 3, he left Wal-Mart and plans to begin consulting again.

"I have experience people are screaming to get ahold of," he says.
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