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BN 5/20 Milestone Scientific Paid 'Wand' Researchers With Stock Options
Milestone Scientific Paid 'Wand' Researchers With Stock Options
Livingston, New Jersey, May 20 (Bloomberg) ) Milestone Scientific Inc., creator of the Wand, a $1,000 device that's supposed to let dentists deliver Novocain without the sting, awarded stock options now worth more than $1 million to three professors who published articles in dental journals advocating the product.
The company, which hasn't disclosed the payments to the authors in its sales brochures or annual reports, says the articles played a major role in the sale of more than 7,000 Wands since January.
Companies often pay cash to academic consultants to test new products, but it's rare-and controversial-to pay such experts with stock options.
''Stock options raise serious questions because their value its tied to the success of the company," said Alan Bromberg, professor of corporate law at Southern Methodist University. ''An undisclosed interest calls into question the authors' objectivity.'"
Milestone, a small company with essentially one product, has been a hot stock. Its shares, which moved to the American Stock Exchange from Nasdaq last month, have more than quadrupled in price to 18 since the company went public in November 1995.
Milestone says sales of the Wand helped the company report its first-ever quarterly profits. For the quarter ending March 31, Milestone posted earnings of $350,079 on sales of $5.26 million. Last year it lost $7.4 million on revenue of $2.9 million.
Alternative to Syringe
Milestone has also attracted the attention of short-sellers, who sell shares they don't own in the hopes that a company's stock price will fall. As of mid-April, the shorts had sold 2.3 million Milestone shares, a hefty 26% of the 8.8 million shares outstanding.
Milestone, founded in 1989, touts the Wand in a sales brochure as a ''pain-free'' method to give injections, ''a revolutionary advance in the delivery of anesthesia.'' The device replaces the dentist's traditional hand-held syringe with a pencil-shaped piece of plastic that has a needle at one end. The anesthetic flows to the needle through a tube that's connected to a computer-controlled pump.
To support its claims about the Wand, Milestone cites three dental journal articles. The company's 1997 10-K report, filed with the Securities and Exchange Commission, said the articles ''have helped establish acceptance and credibility within the dental community.''
None of the company's official documents or promotional literature discloses that the authors of those three articles received options. Milestone's 1997 annual report says it issued options to buy 164,000 shares to ''consultants'' in 1996 and 1997, but it doesn't identify those consultants or say what work they did for the company.
Options Rarely Used
The options, which expire three to five years from the issue date, entitle the recipients to buy company stock at prices between 5 1/8 and 6 1/2. At the current price of 18, the 100,000 options that Milestone granted to two of the consultants are worth more than $1 million, assuming the highest possible exercise price, 6 1/2.
Awarding options to outside researchers is ''very rare,'' said Richard Glass, deputy editor of the Journal of the American Medical Association, the largest-circulation medical journal in the United States. ''It seems to be a particularly strong conflict.''
The Food and Drug Administration has also expressed concerned about options. Beginning on February 2, 1999, the FDA will require companies applying for approval of new drugs and devices to disclose compensation to researchers who ''have financial interests that could affect the reliability of submissions for approval.''
Research Wasn't Independent
Leonard Osser, chief executive of Livingston, New Jersey based Milestone, acknowledged in an interview that the research backing the company's claims wasn't independent.
He added that he paid the researchers with options, because ''at the time I compensated the consultants, we had very little cash. If someone feels they've been misled, we'll make full disclosure.''
Citing concerns about privacy, Osser declined to say how many options the company awarded to each consultant.
The first article praising The Wand appeared in the August/September 1997 issue of the New York State Dental Journal. It described a 50-patient clinical study that found that a prototype of the Wand was ''two to three times less painful than the manual injection.''
Sheridan Albert, the journal's editor, said he wasn't told that the article's author, Mark Hochman, had received options. ''We would never have published the article without disclosing the author's connection to the company,'' said Albert. ''It makes his judgment suspect.''
He said Hochman had violated the journal's policy requiring disclosure of ''any financial, economic or professional interest that may influence positions presented in the article.''
Journal Wasn't Informed
Hochman, an assistant professor at the State University of New York's Stony Brook School of Dental Medicine and an associate clinical director of Milestone, said in an interview that he had received options to buy 50,000 shares of Milestone stock.
He said he wasn't obliged to tell the journal about the options because he didn't sign his consulting contract with Milestone until June 26, 1997, after he had already completed his study and submitted the article.
Albert disagrees. He said that the journal didn't go to press until mid-August, and that Hochman should have informed him immediately of his receipt of options from Milestone.
The other two articles praising the Wand appeared in Compendium, a journal published by Dental Learning Systems Co. Neither article disclosed that the authors had received Milestone options.
Before Compendium published the articles, it had an independent expert, Elliot V. Hersh, associate professor at the University of Pennsylvania School of Dental Medicine, review them. He said he didn't know about the options either.
Reviewer Wasn't Told
''I was the main review person on both articles,'' he said. ''There should have been disclosure made.''
The first Compendium article, published in October 1997, was co-authored by Hochman of SUNY Stony Brook and Mark Friedman, who's an associate professor at the University of Southern California School of Dentistry and Milestone's clinical director.
Friedman declined to discuss his options, but said he has both bought and sold shares of Milestone.
The second Compendium article, published in February 1998, concluded that The Wand reduced patient anxiety. The article didn't mention that its author, Michael Krochak, was a consultant to Milestone. The publisher of Compendium, Dan Perkins, said that information should have been included but was omitted because of an error by the journal's staff.
Krochak, who's director of the Dental Phobia Clinic at Mount Sinai Medical Center in New York City, said in an interview that Milestone gave him 50,000 stock options in March 1997, before he began his research on The Wand.
Krochak, who filed his intent to sell 4,000 shares with the SEC on Feb. 26, said he accepted his options partly because he was spending a lot of time on the company's behalf, including demonstrating The Wand to potential investors.
Study was Incomplete
Milestone commissioned at least one other study of the Wand. This research, done at USC, didn't actually demonstrate that the Wand did what it was designed to do-anesthetize patients. But Milestone nonetheless used the research to promote the product.
Milestone' 1996 annual report includes a statement by the director of the study, Professor Stanley Malamed, saying he had established that ''in a majority of test cases, the patient described the Wand as 'pain free.'''
The annual report didn't mention that Malamed hadn't succeeded in getting the Wand to anesthetize patients. CEO Osser said the injections didn't hurt the patients, but they didn't make their gums numb either.
''It was painless, but they didn't achieve anesthesia,'' said CEO Osser. That's why Malamed didn't publish his results in a journal, he added.
Osser said the devices Malamed used in his 1996 study were protoptypes. The models of the Wand now being sold do achieve anesthesia, the company said.
Malamed didn't return numerous telephone calls.
USC Launches Inquiry
Malamed also played a role in the decision by USC to purchase the Wand for use by its dental students. Milestone's shares more than tripled in the month following that decision, which was announced on Sept. 4.
''I was astonished how pleasant it was compared to a traditional syringe,'' said Howard Landesman, dean of the school. After his personal experience with The Wand, Landesman added, he sought the opinion of Malamed, who advised him to purchase the devices.
Landesman said he knew Malamed was associated with Milestone, but not that he had received options.
Milestone awarded options to Malamed before USC's announcement, said Michael McGeehan, Milestone's vice president for technology.
USC officials are now investigating whether the university's conflict-of-interest policies were violated, said Cornelius Sullivan, vice provost for research.
''It's the responsibility of a faculty member to disclose a financial interest in the conduct of their research,'' he said.
--David Evans in Los Angeles (310) 827-2348 through the
New York newsroom (212) 318-2300/rh |
