Sweetheart of a Deal at UAMS (Gwen Moritz Editor’s Note)

I hope you read Senior Editor Mark Friedman’s deep dive last week into the contract between the University of Arkansas for Medical Sciences and a private company called RxResults. If you didn’t, here’s the outline:

Along about 2003, the College of Pharmacy at UAMS helped the state Medicaid program save tens of millions of dollars on prescription drugs by developing something called EBRx, the Evidence-Based Prescription Drug Program. This service, really intellectual property that identified lower-cost substitutes for pricey prescriptions, was so successful that self-insured private companies wanted to use it.

UAMS wasn’t set up to market this valuable product, and that’s where things got murky.

Stephanie Gardner, who was dean of the COP until mid-2015, talked to a personal friend, Tery Baskin, about creating a company that could license EBRx from UAMS and then market its cost savings to private companies. This is certainly not the first time a private business licensed a UAMS development to be marketed commercially; UAMS has long had a business incubator called BioVentures to do just that kind of technology transfer.

RxResults may not even be the only time that a personal friend got the inside track, although this relationship does seem especially cozy. Baskin incorporated RxResults in 2008, and the first person he hired was Dean Gardner’s husband, Alan Gardner.

Now, Stephanie Gardner says she followed UAMS’ conflict-of-interest policy to the letter, and I have no reason to think she didn’t. But in the end, her friend and her husband (who became a minority owner of RxResults) ended up with a sweetheart deal: the exclusive right to market EBRx, whose services it was able to buy essentially at UAMS’ cost, and a royalty agreement based on profit rather than revenue.

And it continued thusly until shortly after Gardner was promoted to provost and chief academic officer as of July 1, 2015. Nancy Gray had become the director of BioVentures a few months earlier, and by November she was questioning the generosity of the contract with RxResults in strong language.

“Profit is a non-starter for me,” Gray wrote in an email. “Too many ways to ‘cook the books’ to adjust profits — aka commissions, bonuses, etc. Need to be tied to sales/revenues, not EBITDA. This point is a deal breaker for me.”

Stephanie Gardner’s successor as COP dean, Keith Olsen, quickly found himself in the middle of the contract dispute, and he was inclined to cancel the contract entirely. Gray and UAMS’ chief financial officer, William Bowes, threatened to do just that because it would be at least 10 years after the initial contract before any benefit to UAMS was in sight.

After all, RxResults had already negotiated downward the price it paid for EBRx services, and it never paid any royalties because it hasn’t been profitable.

Then things got worse. At the beginning of 2016, DHS announced that it would end its long-running contract for EBRx at the end of the fiscal year on June 30. That forced UAMS to lay off seven employees and frustrated EBRx Director Dwight Davis, who was limited in his ability to seek out replacement clients because of the exclusivity agreement.

“RxResults has had the benefit of exclusivity for 8 years and it hasn’t helped them or us,” Davis said in an April 7 email. “The handcuffs must be removed.”

In other words, UAMS’ conflict-of-interest policy allowed it to enter into a contract that didn’t pass the smell test of anyone who didn’t have a direct interest in it and left the state’s medical school vulnerable to lost revenue.

Even though EBRx saved DHS big money, it doesn’t seem to have been a commercial hit. RxResults projected revenue of $2.5 million in 2015 — no year-end results were in the documents turned over to Friedman under a Freedom of Information request — and some of that was due to other services. RxResults also projected a loss of $2.3 million. Expenses almost double revenue, that is. Baskin said 2015 was a year of investment.

Whether other operators could have done more with UAMS’ intellectual property is something we’ll never know. And maybe EBRx’s time has passed; DHS thinks it has found a vendor who can provide a similar service cheaper.

A new contract was finally signed last month. The exclusivity clause has been relaxed, and the royalty is now tied to revenue rather than profit. May all involved live long and prosper.

But I can’t help wondering how many more deals like this are out there, technically complying with the conflict-of-interest rules but written to benefit the few at little or no benefit to the taxpayers who made it possible.

Gwen Moritz is editor of Arkansas Business. Email her at GMoritz@ABPG.com.