Dr. Patrick Soon-Shiong waves as he arrives in the lobby of Trump Tower in New York, Tuesday, Jan. 10, 2017, for a meeting with President-elect Donald Trump.AP Photo/Evan Vucci
He was greeted like a star philanthropist.
The world’s richest doctor had just made a $12 million gift to the University of Utah. Members of the university community were urged to come thank him. And so, a crowd gathered.
For months, Dr. Patrick Soon-Shiong would continue to reap praise for his generosity in publicity put out by the university.
Not mentioned in any of the tributes: $10 million of his donation would be sent right back to one of his companies. And the contract for his gift was worded in a way that left the University of Utah with no other choice.
The university health system did get free and valuable information for genetics research through the deal. But a STAT investigation has found that Soon-Shiong benefited even more from his charitable donation.
He got reams of patient data to help him build a new commercial product meant to assess patients’ risk of rare and inherited diseases. He got a stream of cash for one of his struggling companies.
And the deal made it possible for his company to inflate, by more than 50 percent, the number of test orders it reported to investors late last year while updating them on interest in a flagship product, a diagnostic tool known as GPS Cancer. Soon-Shiong’s team counted genetic sequencing ordered by the University of Utah in those order numbers — even though the work for the university did not have anything to do with diagnosing or recommending treatments for cancer patients.
Even in the world of academic donations, which the wealthy often use to burnish their image or advance pet causes, the arrangement stands out as highly unusual.
STAT has previously detailed how Soon-Shiong’s high-profile cancer moonshot initiative achieved little scientific progress in its first year, instead functioning primarily as a marketing tool for GPS Cancer.
The University of Utah deal — laid out in contracts obtained by STAT through a public records request — illustrates how Soon-Shiong boosted his business through his philanthropy. He has been accused of doing just that in at least two legal filings, but the Utah contracts offer the first concrete example, spelled out in black and white.
Four tax experts who reviewed the contracts at STAT’s request all agreed that the Utah deal was suspicious. Two said it appeared to violate federal tax rules governing certain charitable donations, amounting to indirect self-dealing by Soon-Shiong and his foundations.
“They’re laundering the funds through the University of Utah,” said Marc Owens, a tax lawyer with Loeb & Loeb. Owens, who said the contracts appeared to violate federal rules, previously spent a decade as head of the Internal Revenue Service’s tax-exempt division.
The other two legal experts said the contracts were cleverly worded in a way that would likely steer clear of self-dealing — but agreed that, at the very least, they raised serious questions about Soon-Shiong’s intent.
“We pretty clearly have an optics problem,” said Morey Ward, a tax lawyer with Ropes & Gray who represents tax-exempt organizations.
Soon-Shiong’s spokeswoman, Jen Hodson, did not answer a list of emailed questions or return calls from STAT. Soon-Shiong has denied STAT’s repeated requests for an interview dating back to last fall.
The University of Utah put STAT on the phone with a geneticist whose team is using data generated by the deal for research, and answered additional questions by email. The university confirmed that it concluded it had to use the vast bulk of Soon-Shiong’s donation to buy sequencing from his company but said the resulting research was fruitful.
“My first reaction was surprise that the University of Utah lawyers agreed to sign this,” said Brian Galle, a Georgetown University law professor who specializes in tax law and the law of nonprofit organizations, and who suspected the arrangement constitutes indirect self-dealing. (University of Utah spokeswoman Julie Kiefer said the university’s counsel reviewed both contracts.)Questions about a crucial product
STAT’s reporting also raised questions about whether Soon-Shiong’s signature GPS Cancer diagnostic, which is crucial to his core business, is making headway in the market.
NantHealth, the Soon-Shiong company that markets GPS Cancer, appears to have misled investors in reporting its third-quarter earnings last November. The company said that during the quarter it had received 524 orders for the GPS Cancer test, which analyzes tumor genetics and recommends treatments for patients. One-third of those orders came from the University of Utah deal, a company representative told investors on the earnings call.
But both Kiefer and the geneticist leading the research told STAT that the work they ordered from NantHealth had nothing to do with GPS Cancer. They paid for straightforward genetic sequencing, meant strictly for preclinical research. The geneticist, Deborah Wood Neklason, said she could not understand why NantHealth would count the work as orders for GPS Cancer.
(In the same earnings call, NantHealth did make a point of telling investors that it wasn’t counting money from the University of Utah as revenue, which tax law experts said was appropriate since the university was using money from Soon-Shiong’s big donation to pay for the sequencing.)
STAT has sought for weeks to talk to other hospitals that have placed orders for GPS Cancer, seeking information about how quickly the results came back and how oncologists viewed the recommendations.
STAT contacted nine health systems said to be using GPS Cancer. None would grant a request for phone interviews.
A spokeswoman for one of those systems, Sanford Health, which serves North and South Dakota, did agree to put an executive on the phone with STAT — but then canceled the interview, citing travel schedules. The spokeswoman, Jacqueline Palfy, later said by email that six patients at Sanford have been involved in the testing and that not all the results are back yet.A showman with an audacious vision
It was September 2014 when members of the University of Utah community assembled in an auditorium to see Soon-Shiong unveil his $12 million donation.
The focus that day, as captured in video clips from the event, was all on Soon-Shiong. “He’s committed his life to really advancing health for everyone in this country and in the world, and I think we should really be grateful for that,” said Dr. Vivian Lee, the CEO of the university’s health care system.
Soon-Shiong’s vision is so expansive, Lee raved at one point, “it’s almost impossible to succinctly describe it.”
Such glowing tributes stand at odds with Soon-Shiong’s other reputation: that of a self-promoting showman flaunting more hype than substance.
A physician and entrepreneur with an estimated net worth close to $9 billion, Soon-Shiong has gotten the ear of Joe Biden and the pope, and has met at least twice with President Trump since the election. In recent weeks, he’s said to have pitched a role for himself as national health care czar.
Soon-Shiong holds eclectic investments in the Los Angeles Lakers and a big newspaper company, but his main focus is his web of health care companies under the umbrella of NantWorks. Two of the companies are public, including NantHealth. The company has been losing money at a rapid rate and has seen its stock price plummet since its public debut last June. Soon-Shiong owns more than half of NantHealth, according to a recent filing with the Securities and Exchange Commission.
Soon-Shiong’s contract with the University of Utah laid out a bold scientific goal for the collaboration: to find genetic clues to causes of diseases including several cancers and amyotrophic lateral sclerosis, often known as Lou Gehrig’s disease.
The project was to be called the “Chan Soon-Shiong Heritage 1K Project” — after Soon-Shiong and his wife, the former television actress Michele Chan.
Two years later, the term “heritage” would surface again, as NantHealth told investors of its plans for a new product, GPS Heritage, to assess patients’ risk for rare and inherited diseases. The product would draw on genetic sequencing NantHealth was doing in “partnership” with the University of Utah, according to a company press release.
Indeed, NantHealth specifically listed the work it was doing sequencing samples for the university — work paid for by Soon-Shiong’s donation — among “corporate highlights” for the second quarter of 2016.
Kiefer said that “to the best of our knowledge, the university has no involvement or stake in the GPS Heritage product.”
The gift contract did explicitly say that “any improvements” made to algorithms as part of the project would be retained by the original owner of that algorithm — leaving the door open for Soon-Shiong to use all data generated from the sequencing to improve algorithms in his commercial work. Such algorithms, which sift through vast quantities of genetic data to identify patterns, power GPS Cancer and, presumably, will be used to build GPS Heritage.
The $12 million donation came from three different tax-exempt entities controlled by Soon-Shiong. According to Kiefer, $9 million of the money came from two private foundations Soon-Shiong controls, his family foundation and his National Coalition for Health Integration. The remaining $3 million came from his NantHealth Foundation, a type of public charity classified as a medical research organization.
The three foundations appear to be funded almost exclusively by Soon-Shiong and his wife. (Tax forms for one of the three list Bank of America as having contributed $100,000, a relatively small sum, around the time of the University of Utah deal.)A telling contract, ‘too clever by half’
The contract with the University of Utah earmarked $2 million from Soon-Shiong’s donation for scientific and administrative work. It says the remaining $10 million of the gift was required to be spent on “Omics Analysis.”
The contract does not explicitly require the university to funnel that genetics analysis business to NantHealth. But the contract’s use of the term “Omics” is telling. Soon-Shiong’s analysis company, which does genetic sequencing, is called NantOmics. And “omics” is a favorite term of the biotech billionaire.
“I think that this transaction was deliberately structured to attempt to disguise self-dealing. That sort of ‘too clever by half’ use of terminology simply reinforces my view,” said Owens, the tax lawyer.
Another telling point: The contract laid out very detailed specifications for what kind of facility would do that “Omics Analysis.” The sequencing was required to be done by a facility with the ability to do certain types of sequencing. With a certain minimum processing speed. With the ability to sequence each base of DNA a certain minimum number of times.
The University of Utah evaluated other facilities, Kiefer said, to see if they could do the sequencing as required by the gift contract. They couldn’t.
The university “concluded that NantHealth was the only facility capable of meeting the state-of-the-art standards and specifications required under the gift agreement,” Kiefer said.
The contract to pay NantHealth for the sequencing work went into effect in January 2015, four and a half months after the donation. NantHealth would do the work at what was billed as “a discounted cost” — $10,000 per sample or individual — according to the contract. The company has not disclosed the regular price for such work.
The University of Utah shipped the first blood samples off to NantHealth that very same month. (The samples came from storage, from people who had agreed to participate in research studies dating back two decades earlier, according to Neklason, the geneticist.) The first results came back to researchers within a few weeks. The back and forth continued for two years until the final results came back in January.
All told, 1,000 blood samples, covering about 25 different diseases and conditions, were successfully sequenced. An additional 380 tumor and tissue samples, also from storage, were sent to NantHealth for sequencing, though some were too degraded to generate useful results.
Neklason said she and her team are “thrilled” with the project. Kiefer said the university believes Soon-Shiong’s foundations “delivered” on their commitments and that “the quality of the research exceeded our expectations.”
Neklason’s team is now analyzing the reams of data they’ve received back from NantHealth to help them study the genetic causes of why certain people develop a condition while others don’t. An early study from the project, on the genetics of premature menopause, was published last month in the Journal of the Endocrine Society.
Soon-Shiong has not yet announced a date for GPS Heritage to hit the market.
Read the original article on STAT. Copyright 2017. Follow STAT on Twitter.