SEC's pathetic agreement with Bausch (formerly Valeant); Insys documentary; Opioids, Bribery, and Wall Street; Novartis bribery settlement; Kodak; My podcast interview

1) On Friday, the U.S. Securities and Exchange Commission ("SEC") announced a totally pathetic agreement with Bausch Health (BHC), formerly Valeant Pharmaceuticals, and three of its former top executives: CEO Michael Pearson, CFO Howard Schiller, and controller Tanya R. Carro.

In light of the massive, well-orchestrated, multiyear fraud that took place here – resulting in the stock soaring to more than $250 per share and then crashing by 97% to less than $10, costing shareholders nearly $100 billion – the $45 million penalty for the company and mere $700,000 paid by Pearson (the mastermind of the scheme) is a sick joke... especially since the executives didn't even have to admit wrongdoing! This tap (not even a slap) on the wrist is an open invitation to other fraudsters...

2) A more appropriate outcome would have been something along the lines of what happened to Insys Therapeutics, another notorious pharmaceutical company that, thanks to strong (albeit belated) regulatory action, was forced into bankruptcy, with top executives receiving jail time.

To understand the whole story – and better understand how messed up our health care system is – I highly recommend Opioids, Inc., a 53-minute documentary by PBS's Frontline and the Financial Times. Here's the associated story: Opioids, Bribery, and Wall Street: The Inside Story of a Disgraced Drugmaker. Excerpt:

The former nursing assistant had first become addicted to opioids when she was prescribed them for fibromyalgia and neck and back injuries. After she recovered from the addiction, she visited a new doctor. With an Insys sales representative in the room, she was put back on opioids including Subsys – and within 20 days, her dose of the spray was tripled. Admitted to hospital for hyper-sedation, physicians recommended she stop using the spray – but her doctor continued to prescribe it.

Now, four years later, executives from Insys, the maker of Subsys, had become the first pharmaceutical bosses to be handed prison time for their role in America's opioid epidemic. Clutching her speech, the 62-year-old mother from New Jersey stood outside the court in Boston this January and accused John Kapoor, the Insys founder, and his colleagues of a "greed and fraud" that took Sarah away when she was just 32. "They are no different from mobsters," she said.

Seven of the Insys executives and employees on trial were found guilty of masterminding and participating in a scheme to bribe doctors to prescribe the drug. Kapoor was sentenced to five and a half years on charges that included racketeering conspiracy. Michael Babich, Insys' former chief executive, and Alec Burlakoff, former vice president of sales, cooperated with prosecutors and received two and a half, and 26 months, respectively.

Fuller calls the sentences "a disgrace," believing they should have been far longer. But she hopes the sheer fact of people going to prison will deter other drugmakers, which may have previously accepted fines as a cost of doing business. "Normally, they just get a slap on the wrist and have to pay a penalty, which was easily made up by selling more opioids," she says. "At least now, they'll have to think, maybe they'll go to jail for this."

3) Effectively bribing doctors to prescribe high-priced drugs is rampant in the pharma industry – Insys just took it to an extreme.

We need a lot more crackdowns like this (not to mention a change in the laws so such shenanigans are banned entirely): Acting Manhattan U.S. Attorney Announces $678 Million Settlement of Fraud Lawsuit Against Novartis Pharmaceuticals Corporation for Operating Sham Speaker Programs Through Which It Paid Over $100 Million to Doctors to Unlawfully Induce Them to Prescribe Novartis Drugs.

4) Speaking of things that stink to high heaven, shares of Eastman Kodak (KODK) spiked from around $2 to a peak of $60 in two days last week after President Donald Trump announced that the federal government will loan the company $765 million to develop ingredients for generic drugs.

While the pandemic has underscored why we want to reduce our reliance on China and India – who produce the vast majority of active ingredients for our prescription drugs – it's not clear why Kodak was chosen and it's unconscionable that the news leaked out early, allowing some clever traders to make huge profits... as this article highlights: Trump taps Kodak (yes, that Kodak) to bring stability to the drug market. Excerpt:

Harvard's Frank said that while increased domestic drug production may be prudent from a national security perspective, tapping a company with little pharmaceutical experience as your backstop doesn't make a lot of sense.

"There's a lot more to it than just knowing chemical engineering," he said. "You need to know the suppliers. You need to know the regulatory structure. You need to know the distribution network."

Anirban Basu, a professor of health economics at the University of Washington, said it's hard to understand why drug companies would purchase higher-priced ingredients from Kodak, "unless the government puts out a regulation forcing them to do so."

And this just stinks – yet another example of corporate insiders profiting from the pandemic: Kodak CEO Got Stock Options Day Before News of Loan Sent Stock Soaring. Excerpt:

At the beginning of this week, the Eastman Kodak Company handed its chief executive 1.75 million stock options.

It was the type of compensation decision that generally wouldn't attract much notice, except for one thing: The day after the stock options were granted, the White House announced that the company would receive a $765 million federal loan to produce ingredients to make pharmaceuticals in the United States.

The news of the deal caused Kodak's shares to soar more than 1,000 percent. Within 48 hours of the options grants, their value had ballooned, at least on paper, to about $50 million...

The options grant to Kodak's executive chairman and chief executive officer, Jim Continenza, is the latest example of executives and board members at companies receiving such federal support to benefit from extraordinarily good timing. A number of those companies are involved in the hunt for vaccines and treatments for COVID-19.

5) My friend Mark Gerson interviewed me recently for his podcast, The Rabbi's Husband. We had a fun and interesting 48-minute chat – below is a summary and you can listen to it here on Apple Podcasts and Spotify Podcasts.

Leading with Compassion with Whitney Tilson
The Rabbi's Husband

Mark welcomes Whitney Tilson, CEO of Empire Financial Research, lifelong entrepreneur, dedicated philanthropist, and avid mountaineer, to today's episode. As a graduate with distinction from both Harvard College and Harvard Business School, Whitney has become a prolific author, a frequent financial commentator on a variety of television networks, and has been featured on 60 Minutes, and in the Wall Street Journal, and the Washington Post. While he acknowledges that he is neither Jewish nor particularly religious, Whitney has chosen Leviticus 19:16 to discuss with Mark today.

In this discussion, Whitney shares his personal history, his connection to the Jewish faith, and just why the selected passage is so relevant to his life, particularly during 2020. He goes on to describe his work with the evangelical Christian organization, Samaritan's Purse, the lasting friendships he made there, and his choice to set aside differences in order to work with them for a greater purpose. Whitney finishes by exploring the lessons he has learned about mankind, in particular, the notion of playing defense in life and marriage, and the importance of engaging and responding in positive ways in relationships. Today, you have the unique opportunity to meet and listen to Whitney Tilson – a man who has lived the very scripture passage he has selected, a man who has risen to his mother's challenge of taking his good fortune and making the world a better place, a man whose story brings to life the timeless instructional and inspirational nature of the Torah.

Episode Highlights:

• Whitney's personal history
• Why today's passage has been relevant to Whitney throughout his life, and particularly in 2020
• Whitney's work with Samaritan's Purse and the friendships he made
• His family's history of helping others
• Setting aside differences for the greater good
• The importance of the Bible
• What Whitney has learned about mankind as a leader in the investment and non-profit world
• Some of the messages from Whitney's upcoming book about 'playing defense'
• Micro-interactions and engaging and responding in positive ways in marriages

Quotes:

• "Like so many things in the Bible, it was a revolutionary idea that is now completely familiar to us."
• "It felt good to try and make a difference and help my city address this terrible pandemic that killed more than 20,000 fellow New Yorkers."
• "You lived this passage."
• "We put our differences aside to save lives in the short term."
• "You have a duty to take your good fortune and make the world a better place, and help others."
• "I'm really proud of my friends and my fellow New Yorkers."
• "In both cases, you refuse to stand idly by the blood of your neighbor."
• "I always encourage young people... to just read broadly."
• "It's okay to take risks, but you want to have a mental framework that is focused on avoiding, to the extent possible, the big calamity."
• "My observation is that people treat their spouses worse than they would ever treat most of their friends."
• "We are a function of our actions, and we can control our actions."
• "The chains of habit are too light to be felt until they're too heavy to be broken."

Best regards,

Whitney