Eric Topol (right) is opposed to the briefing of financial analysts by doctors involved in drug trials.

Physicians in the United States are facing a fresh conflict-of-interest scandal over allegations that many of them accept cash for briefing financial analysts about the progress of clinical trials.

Thousands of doctors are paid to participate in teleconferences with stock-market analysts. And although most doctors say they are careful not to divulge confidential data, critics of such briefings say they wouldn't happen unless investors gleaned inside knowledge from them.

Senator Chuck Grassley (Republican, Iowa), chairman of the senate finance committee, last month demanded that both the Department of Justice and the Securities and Exchange Commission look into the practice, after a Seattle Times investigation cited 26 alleged examples of confidential leaks from ongoing drug trials.

Any investigation is likely to focus on hedge funds — loosely regulated financial instruments that allow investors to gamble on sharp movements of particular stocks.

Critics contend that physicians' responses to seemingly innocuous questions about drug performance serve as useful data for stock analysts. Professional bodies such as the Association of Clinical Research Professionals say they are watching the issue closely but have no authority to address it — although this might change if ethical standards are revised. PhRMA, the drug-industry organization, said in a statement: “Our laws are meant to protect patients, future research and the public. Breaking these laws is a reprehensible breach of trust and we condemn it.”

Defenders of the briefings argue that talking to doctors directly is the best way for people issuing advice on drug-development investments to stay informed. In recent years, ‘matchmaker’ companies have been created to facilitate such conversations. The Gerson Lehrman Group (GLG) based in New York is the largest matchmaker with some 60,000 physician clients.

Hourly fees that run from $200 up to $1,000 signal the importance placed on this information. Because pharmaceutical industries do not publish data from their own failed trials and independent researchers are often constrained by non-disclosure agreements, every bit of information provides a competitive edge for investors, says Charles Firneno, industry analyst with Life Science Insights, a market-research company based in Framingham, Massachusetts. Just one statement made by a physician can influence share price, he adds: “That situation is a clear conflict.”

Investors can also use the information to sell stocks short, where trials indicate problems with a drug. Eric Topol, a cardiologist at the Cleveland Clinic in Ohio and former paid consultant, has publicly described investor practices used to obtain critical drug-trial information (E. J. Topol and D. Blumenthal J. Am. Med. Assoc. 293, 2654–2657; 2005). The paper was published after Topol had been accused by Forbes magazine of providing insider information to a hedge fund which sold Merck stock short before problems with its painkiller Vioxx became public last October. “Managing the potential conflict is virtually impossible,” says Topol.

The appearance of impropriety is enough for some to decline such consulting offers. Brian Druker, a Howard Hughes Medical Investigator at Oregon Health & Sciences University in Portland, left GLG two years ago on ethical grounds. It wasn't possible to be sure that he could always remember what was public, and what was confidential, he says.

“At its most egregious, this is a deliberate effort to unblind clinical trials for short-term profits,” says Stanley Crooke, chief executive of Isis Pharmaceuticals, a company based in Carlsbad, California, whose stock dropped 20% in late 2002 after an industry report leaked problems with Isis leukaemia drug Affinitak. At the very least, it undermines the public's confidence in the drug approval process, Crooke says.