Should Board Members be Prohibited from Investing in or Holding Board Positions in Companies Originating from Academic Medical Centers?

Memorial Sloan Kettering Cancer Center confronts controversy for the exclusive licensing of the hospital’s pathology archive

Academic medical centers commercialize inventions, collaborate with industry, and contribute to improvements in health care. Revenue from technology licensing represents an important source of support for academic institutions in the United States. These activities also enhance economic development and elevate the reputation of the institution. In theory, spinning out the latest advances in technology sounds good – the devil is in the details.

Memorial Sloan Kettering Cancer Center (MSKCC) is the largest nonprofit cancer medical center in the world and has academic affiliations with Rockefeller University and Weill Cornell Medicine. As a cancer center, pathology is its cornerstone of diagnosis. Tissue biopsies are prepared on slides, reviewed under microscope and digitally scanned to detect presence of cancer in an often time-consuming and error-prone process that relies heavily on the doctor’s expertise. This work generates a wealth of diagnostic information about tumors. This information is valuable for training computational pathology systems to learn to diagnose tumors. The more slides the system can review, the better it can detect tumors.

In the past few years, computational pathology has gained momentum, enabling the use of computer algorithms to help spot and identify cancer, mostly as an add-on to manual detection. Crunchbase lists more than 50 firms worldwide who are working in this area, and reports predict the digital pathology market to expand in the near future. Google and Microsoft, are among the growing number of companies exploring ways to use artificial intelligence (AI) to improve healthcare.

Paige.AI – Pathology Artificial Intelligence Guidance Engine – is a computational pathology startup that applies machine-learning algorithms to libraries of oncological pathology slides to improve clinical diagnosis and decision-making. Three MSKCC insiders founded Paige.AI: Norman Selby, a member of MSKCC’s board of trustees; David Klimstra, chair of the hospital’s pathology department; and Thomas Fuchs, the head of a computational pathology research laboratory at MSKCC. Three other hospital board members became investors. Across the US, there are several computational pathology efforts underway similar to Paige.AI that have emerged from academic medical centers and have faculty founders, such as PathAI and SpIntellx.

Paige.AI closed $25 million in Series A funding from Breyer Capital in February 2018, one year after being founded. According to the PitchBook profile, MSKCC is a second investor in the startup. Is this an example of an economic development success? ProPublica and the New York Times (NYT) raised many questions about the deal, which MSKCC responded to in a press release. This article discusses some of the issues raised by the arrangement.

  • Was it appropriate for MSKCC to grant exclusive rights to Paige.AI, a company founded by MSKCC insiders?

MSKCC granted an 8-year license agreement to Paige.AI for exclusive access to its library of 25 million pathology slides. The MSKCC library is one of the world’s largest tumor pathology archives. In exchange, MSKCC received 9 percent ownership. Each of the three MSKCC insiders who are founders of the company also held an equity stake.

The MSKCC is a not-for-profit company. As such, and pursuant to NYS Not for Profit law, its board members must exercise duties of care, loyalty and obedience to the nonprofit. Directors have a duty to act in the interest of the not-for-profit corporation. This duty of loyalty requires disclosure of any conflict of interest, real or perceived, to the conflict of interest committee. The disclosure takes place in advance of joining a board, as well as when conflicts arise while serving on the Board. In this way, all members are aware of – and can avoid – transactions in which the interests of MSKCC are not primary.

Some research institutions bar employees from accepting personal compensation when they represent their institution on corporate boards. MSKCC did not have such prohibition. After a review of the Paige.AI license, MSKCC announced that it would restrict some interactions with for-profit companies. It said it was imposing a moratorium on board members investing in or holding board positions in startups that originated from the Cancer Center. The statement said, “we have determined that when profits emerge through the monetization of our research, financial payments to MSK-designated board members should be used for the benefit of the institution.”

The ProPublica/NYT article noted that the MSKCC board believed it acted properly in approving the deal with Paige.AI, maintaining that the venture could commercialize a valuable and important technology, thereby making the AI diagnostic capability widely available and potentially changing the future of cancer diagnosis.

  • How was the value of the exclusive license to Paige.AI determined? What obligation did MSKCC have to obtain a valuation before proceeding with the license terms?

Charitable institutions must show that they do not provide assets to insiders for less than the fair market value. In addition, while federal law does not specifically require seeking bids from competitors or independent appraisals of the assets in such a transaction, nonprofit groups that make deals with companies associated with board members or employees must demonstrate that they have taken steps to ensure that insiders do not get preferential treatment. The intent of a 26 US Code 501(c) (3) organization is to ensure it serves a public interest, not a private one. Its activities should not serve the private interest, or private benefit, of any individual or organization (other than the 501(c)(3) organization) more than insubstantially. In addition, hospitals must be able to demonstrate the fair market value of incentives to physicians. Anti-Kickback laws prohibit the exchange of remuneration – which the statute defines broadly as anything of value – as an inducement for patient referrals for services that are payable by a federal program.

The value of the competitive advantage Paige.AI gained by obtaining license to five years of digitized pathology slides and the ability to digitize millions of additional archived slides was recognized by Thomas Fuchs, Paige.AI’s Chief Scientific Officer. Fuchs acknowledged that access to MSKCC’s library of slides and its world-class pathologists’ work gives Paige.AI a leg up on the competition.

Officials said the hospital relied on investors to set a value for licensing the slides, with guidance from hedge fund leaders on its board. They admitted that they did not seek an independent valuation of the archive, nor did they put the proposal out for competitive bidding.

  • Were there any issues with licensing the de-identified information that originally came from MSKCC patients? What are the requirements for notice or consent – if any – with regard to the use of de-identified data? Does the Common Rule governing human subject research apply to the license of de-identified data?

In a statement posted on their website, MSKCC President and CEO Craig Thompson and COO Kathryn Martin disputed the “mischaracterizations” in the ProPublica/NYT article. They noted that “no patient tissue, patient slides or protected health information has been or will be shared with Paige.AI” and that “only digital images and diagnostic data […] stripped of patient identifiers are shared.” The de-identification means that the Federal Policy for the Protection of Human Subjects 45 CFR part 46, revised 2018, known as the “Common Rule,” does not apply.

The Department of Health and Human Services’ Office of Human Research Protections (OHRP) issued a publication on Informed Consent for Use of Biospecimens and Data. The document states at (I) (4) that OHRP does not consider research involving fully de-identified or fully anonymized information to involve human subjects. It provides the following FAQ (#19) and response:

A tissue biopsy was obtained for clinical diagnostic purposes, which have now been satisfied. The hospital pathology department is willing to provide a portion of the remaining biopsy specimen to an investigator, who will perform research assays with no clinical relevance. If the specimen is coded and identifying information is removed so that the identity of the patient cannot be readily ascertained by the investigator before it is provided to them (so that it is de-identified for the purposes of HIPAA), is the investigator conducting human subjects research under the purview of an IRB?

Response – HHS Common Rule Issues.  No, this is not research involving human subjects, because the recipient investigator will not be able to readily ascertain the identity of patients from whom specimens were obtained.

Nevertheless, some advocates argue that patients who knowingly gave permission to MSKCC to use residual tissue samples in research may not have imagined that their donation could be licensed to a commercial entity. Steven Petrow, a columnist for USA Today and former patient at MSKCC whose family has also been treated at that hospital, published an opinion article expressing these concerns: “Are the slides of my cancer among them? My mom’s? My sister’s? I’m uneasy wondering whether they are being commercialized without our consent, or even without our being notified.” MSKCC has not publicly released its informed consent document for donors. This case may call into question the so-called “broad consent” that healthcare institutions use for patient release of samples and health data. “Broad consent” becomes fraudulent when it is so broad that people who provided samples for research are shocked either to learn that they did so, or to learn how their donated resources are actually used. Exclusive deals that commercially monopolize biodata may generate the same public distrust that fueled anti-trust regulations in other areas of economic life.

The decision to license images of the patients’ tissue slides to a for-profit company highlights the broader debate over the use of personal medical data for commercial purposes, from genetic information to images of a person’s cells.

  • What obligation, if any, did MSKCC have to the pathologists that diagnosed the tumors?

Following the investigative report from ProPublica/NYT, MSKCC heard from patients, pathologists and other staff members with concerns about ethics, exclusivity, and profiting from data generated by physicians but owned by MSKCC.

Pathologists at the hospital objected to the deal, saying it is unfair that the founders received equity stakes in a company that relies on the pathologists’ expertise and work amassed over 60 years. Some pathologists said that they felt they were not sufficiently credited with their intellectual input in the venture, but were not seeking financial compensation . At a public meeting in September of 2018, some pathologists said they only learned about the deal after it was announced online.

MSKCC has taken several steps in the last months to control the damage. One was the moratorium on board members investing in or holding board positions in startups that originate from the Center. Also, they will adopt a standard policy that any potential equity attained by employees appointed as MSKCC-designees to outside boards will be returned to the institution and dedicated to research. The proposed policies do not apply to researchers whose discoveries lead to new drugs, and the moratorium on board investments only applies to new deals, and so it will not affect the Paige.AI deal.

Hospital officials said the hospital has set up plans to manage conflicts for the three company founders and for the hospital members who are investors. All these individuals with an interest in the formation of Paige.AI will have to recuse themselves from any MSKCC decisions involving the company. After NYT/ProPublica began asking questions about the arrangement, one of the founders said he would divest his ownership stake and another has pledged to donate some of his profits to the hospital. Details for distributing any profits or proceeds from Paige.AI have not been worked out, officials said. In the MSKCC memo about the relationship of the institution with the startup, they specify that “any revenue generated based on MSK’s ownership in the company will be reinvested back into research at MSK, with special consideration given to the Department of Pathology.”

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