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Paul Offit’s Mythical Millions (v. 2)

Posted Dec 22 2009 11:23am

This is a PUBLIC DOMAIN document (dated 12/11/09, revised 12/12). It may be copied, forwarded, cited, circulated or posted elsewhere. The author requests only that it not be altered from its current form.

Breaking news: Dan Olmsted and AoA have finally admitted that CHOP paid Paul Offit $6 million, not $29M, $45 or $55M, for the Rotateq patent.
So why isn’t the Evil Possum sneering and laughing a single “HAH!” of contempt as he surveys the smoking wreckage and broken bodies of his enemies?

Because, the “correction” was embedded in another hate piece against Paul Offit, “Counting Offit’s Millions.” Here are some of the things Olmsted has to say to rationalize his earlier incompetence and/or dishonesty, and justify further suspicions against Paul Offit, and what I have to say in reply:

“Our new estimate of Offit’s total profit of $13-35 million through 2019, overlaps the range of our original estimate of $29-55 million. Both those estimates exceed Offit’s recent—and apparently partial—disclosure that he made `about 6 million.’”

I object strongly to the reference to this statement as “recent”. I posted it on “Evil Possum” (See “Offit’s Mythical Millions (v. 2)” back on August 18. I would also remind everyone of Dr. Offit’s statement to me: “CHOP sold its patent for $182 million. This information was made publicly available and was published in the Philadelphia Inquirer at the time. The inventors, Fred Clark, Stan Plotkin, and me split 10 percent of that three ways. This means that we each received about $6 million.” As we shall see, AoA is not trying to dispute this. They are arguing that he received more money from other sources. Fair enough, but that does not make his disclosure “partial”. It should be clear from context that Offit is disclosing the amount he was paid from the CHOP inventor’s share.

“Offit’s recent revelations do little to change our conclusion, that he was `voting himself rich’ while sitting on a government vaccine standards body.”

This “conclusion” would make no sense even if their original “estimate” were correct. From the standpoint of ca. 1999, even in the event of the recommendation of rotavirus vaccination the eventual development of Offit’s own patent into a commercial product was uncertain at best and improbable at worst. So, as long as the charge is intentionally using his position to pursue anticipated monetary gain, accusers don’t have a leg to stand on. It should also be noted that they have not offered any evidence that Offit made a single decisive vote on the issue.

“Based on two crucial new disclosures from Offit, we estimate in a revised and more detailed analysis that Offit has received and will continue to receive multiple payments based on Rotateq® licensing revenue, that he may already have earned $10 million from Rotateq® and that he stands to earn between $13-35 million over the lifetime of Rotateq’s key patents (based on different assumptions regarding the product’s future worldwide sales forecasts).”

At this point, any sensible person should be thinking, “Consider the source…” When Olmsted was working from figures and other facts that could easily be established from a few public records, he came up with a “minimum” of $30M for a payment whose actual amount was $6M. He also seems to have overlooked such basic things as the prominent listing of CHOP on Clark’s and Plotkin’s resumes and a clear statement in the CHOP document used as a “source” that a policy was not applicable to patents disclosed before July 1, 2005. So why should anyone put much trust in what he has to say on more complex issues, especially market projections?

“(Paul Offit) has thrust himself into the spotlight as both a vaccine safety authority and an autism expert, spokesman roles that have little to do with his work on Rotateq®. “

This is an entirely frivolous criticism. It cannot seriously be disputed that he is a “vaccine expert”. As for the label of “autism expert”, that is not a label Offit has applied to himself. The only place I personally have seen it applied it to him is in the sarcastic headline of an October 26 AOA post.

“Most notably, we have received hostile (and in one case threatening) messages from readers who take issue with our estimates. Although these threats have concerned us, they have also been a useful source of new information, the full implications of which our critics had clearly not grasped.”

I think it is not improbable that this is directed against me; in another instance, I have been referred to by name as “abusive”. In the interests of completeness, here is the text of a private email sent to Mark Blaxill: “I have attempted several times to post additional comments on article `Voting himself Rich’. I recognize that I have allowed the tone to get overly harsh, and I would rather discuss this in a private discussion, before posting my own work in progress… If you have any response or emendation to offer, I will duly note it in any public posting. But your previous report and response, as such, cannot stand.” So, what in this is “threatening”?

“(W)e have been unable to fully explain the $29 million difference between Royalty Pharma’s reported payment ($182 million) for CHOP’s royalty interest and CHOP’s reported proceeds ($153 million) from the monetization of its royalty rights.”

This is a decidedly frivolous aside, unless Olmsted wishes to imply that Offit’s disclosure regarding the CHOP sale is incomplete. By this point, any remaining “mystery” is on par with “What happened to Jimmy Hoffa?”: What we don’t know, can easily be guessed! It is reasonable to suppose about $18.5M was paid to the inventors. As for the other $10.5M, that could be accounted for by any number of things. Filing a patent costs money. Arranging the sale of a valuable intellectual property costs a lot of money. I attempted to explain the inevitable expenses in one of the few posts that were not censored by AoA: “I’m sure the 29M would include payments to others; for example, a 15% fee is typical from inventors’ royalties.” It should have been clear that I was no longer just discussing the inventor’s share, but also the presumable expenses related to the patent and sale. A reply by Mark Blaxill completely failed to acknowledge the issue: “David Brown, please read the article before making incorrect statements… Offit would have received the entirety of the CHOP inventor’s share.” Olmsted’s continued display of bafflement likewise shows a failure to apprehend (or openly acknowledge) just how far the claims of the original article were from what was known or even plausible.

“Based on the current CHOP policy, it is clear that such private arrangements between inventors are anticipated. `If there is only one such Inventor, Author, or other creator, the total Inventor Share is payable to that person’ reads the `Patent and Intellectual Property Policy” from CHOP’s Administrative Policy Manual. But `where there is more than one such Inventor, Author, or other creator, and all such persons unanimously agree in writing how the Net Income should be distributed among them … then the Net Income will distributed in accordance with such agreement.’ According to Offit, he, Clark and Plotkin reached a private agreement to share the inventor proceeds, which resulted in a three way split of the inventor distribution.” (Underlining added)

This passage caught my attention because it seemed eerily familiar, and not just because I had read it in the CHOP patent policy manual. Just now, I was checking on my first draft (no longer online) of “Offit’s Mythical Millions”: “CHOP’s manual, cited by Blaxill and Olmstead, makes the following statements: `The Inventor Share… is the total amount payable to all Hospital Personnel who are Inventors, Authors, or other creators of the Intellectual Property… Where there is more than one such Inventor, Author, or other creator, and all such persons unanimously agree in writing how the Net Income should be distributed among them… then the Net Income will distributed in accordance with such agreement… (If) all such persons have not unanimously agreed on the distribution… then the IPA, or his/her designee, will determine an appropriate allocation of Net Income among the Inventors, Authors, or other creators… Each Inventor, Author, or other creator will be entitled to receive his/her Inventor Share of Net Income in accordance with this policy whether or not he/she remains Hospital Personnel. In the event of the death of an Inventor, Author, or other creator, such Net Income will be paid to his/her estate.’ (All italics added.)... It is also clearly the hospital’s intent that coworkers settle the issue among themselves. The implication is that the division of the share among a team would be negotiated among the team as a whole, with a reasonable balance of bargaining power even between a leader and his subordinates.” (Underlining new.)

Given the degree of similarity between their quotes and mine, I think it is very possible (I won’t go so far as to say probable) that their quote of the CHOP document is simply copied and pasted from mine. And that raises some question in my mind whether Olmsted (and Blaxill) have ever gone to the trouble of reading their “source” with any care. Then there is the remark that follows, which looks to me very much like what I suggested in the first draft of “Mythical Millions”. My correspondence with Offit on the matter convinced me otherwise, which was why I replaced that document.

“But if Offit shared the Royalty Pharma proceeds with Plotkin and Clark, then Offit would also stand to receive a share of any Rotateq® related payments made to Wistar, payments we did not attribute to him previously and that he has not disclosed.”

This is a reasonable conclusion, but an unacceptable argument. The reason Plotkin and Clark were eligible for payment from the CHOP share is that they both were present or former employees of the hospital. For the same argument to apply to Offit and the Wistar payment, it must be shown that he is or was a Wistar employee. As it happens, he is (a fact which I was aware of back in August). But, Olmsted has not gone to the minimal effort of establishing this fact, nor has he shown that he understands why he was in error in the first place.

“His claim of a 10% inventor distribution for Rotateq® is supported by a document we received from a critic of our analysis: a January 2007 newsletter from CHOP call `Bench to Bedside.’”

I will add a significant detail: I mentioned this document in the first draft of “Mythical Millions”, and gave Blaxill notice of what I intended to publish on August 10.

“Offit has now publicly disclosed both of these terms (a disclosure that Age of Autism Contributing Editor Jake Crosby confirmed in direct correspondence with Offit).”

This immediately reminded me of one of Crosby’s periodic visits to Left Brain/Right Brain. On September 14, he left this confrontational “comment”: “When did Paul Offit receive the royalty payments for the Rotavirus vaccine? It was added to the schedule in February 2006, but the new patent code went into regulation in November 2006. If Paul Offit’s vaccine was added to the schedule in early 2006, but received payment in late 2006 (either November or December), or beyond, then he would have received inventor’s share of the money according to the current patent policies of CHOP.

Also, how would Drs. Clark and Plotkin receive CHOP inventor’s share of the vaccine when they already received some through Wistar and no longer work at the hospital, and only Paul Offit does? That does not seem to make sense.” He did not offer any further comments or questions in response to detailed explanations. I mention this because it is indicative of how slow and recalcitrant AoA has been in retracting their original article: Nearly a month after I posted Offit’s statement, it appears that even a major member of the AoA staff was either wholly unaware of the correction or not yet fully informed of the extent to which the original story had been shown to be in error.

But even this revised lump sum estimate likely understates Offit’s total return from the CHOP royalty streams. According to the announced payment terms, Royalty Pharma only purchased the rights to CHOP’s royalty stream “from and after October 1, 2007.” Based on its quarterly financial statements, Merck reported Rotateq ® sales of $537 million before that date. If CHOP retained the royalty rights to Merck revenues before that date, then Offit could have received royalty payments directly from CHOP based on Merck’s early Rotateq® revenues in addition to the lump sum payment he received based on the Royalty Pharma transaction…

This is an odd tangent. If Olmsted thinks that Offit received a significant amount of money from this transaction, why doesn’t he give an amount? For that matter, why doesn’t he mention this after providing some suggestions as to calculate royalties? This immediately raised my suspicion that, as in the inclusion of $55M in the original piece (see “18/3=29”), Olmsted has put forward a claim he knows is improbable at best, to lead readers to draw erroneous conclusions.

As it happens, Olmsted suggests later (see below) that the royalties to the hospital(s) would have been 2.5%. If that is applied here, the hospital would have received $13.5M. Based on the complex policy in place in ca. 2000, the inventor’s share would be $200,000 for the first $500K, $675,000 up to $5M, and $850,000 for the rest, for a total of $1.725M, or $575K per inventor. Or, so it would seem. For 2006, matters seem straightforward. Olmsted reports that there were $163M in sales for Rotateq before the end of the year, which comes out as $4M for the hospital and $242K for each inventor. But what about 2007, which is when the greater part of the royalty would come into play? That would depend on the terms on which payments were made. If CHOP had received a royalty payment for each quarter, then the institution would have pocketed the royalties up to October. But if the royalty was an annual payment, it appears quite possible that, in making the sale, CHOP forfeited all royalties for 2007. Needless to say, I consider the second possibility more likely.

“Wistar’s immediate receipt of $45 million was subject to the same inventor distribution requirements as the CHOP transaction. So just as Offit received a share of the CHOP inventor distribution, the Wistar deal created an occasion for a second lump-sum payment. According to the “Guidelines for Wistar inventors”. Offit would have received 5% of the Paul Capital proceeds, or $2.25 million … In his recent disclosures regarding his CHOP payment of $6 million, Offit has consistently neglected to mention that he received another seven-figure payment from Wistar a few months before. Adding these payments together gives Offit a total of $8.4 million from lump sum payments alone.

I mention this to point out that (contrary to what Olmsted seems to believe) none of this is news to me. As already mentioned, I was aware of Offit’s employment at Wistar around the time I contacted him for comment on his CHOP share. If he didn’t tell me his income from other sources, I will grant that, given the opportunity, I chose not to ask. Also, to the best of my recollection ,I had at that point taken a look at the Wistar policies, and come up with a figure in the neighborhood of of $7M for the inventor’s share. If I had chosen, I could have suggested the same figure Olmsted is presenting now. I had little reason to go to the trouble. For one thing, Olmsted had placed the focus on the CHOP share. For another, he had so preposterously inflated Offit’s income that two million or so either way would make no difference in judging the the credibility of his “reporting”. As far as I’m concerned, it still doesn’t.

“(I)n order for Paul Capital to be willing to pay $45 million for a 13 year royalty stream between 2006 and 2019, we calculate that Wistar’s royalties on the first $300 million in Rotateq® revenues would need to fall somewhere between $6-9 million per year, depending on the discount rate Paul Capital applied to the future royalties… This calculation would mean that Wistar has a royalty rate somewhere in the 2-3% range. For simplicity’s sake, we have assumed that Wistar’s actual royalty is 2.5%, which after adding an equal amount for the CHOP license brings Merck’s total royalty for its Rotateq® patent license to 5%.”

This whole passage is far from convincing. It is clear that what is “calculated” is based on a series of assumptions, of which the first- “for Paul Capital to be willing to pay $45 million for a 13 year royalty stream… Wistar’s royalties on the first $300 million in Rotateq® revenues would need to fall somewhere between $6-9 million per year”- is clearly the most questionable. How does one know what businessmen would be “willing to pay”, unless either a) one is telepathic or b) the businessman can see the future? It’s not at all clear to me how Olmsted came up with his figure.

Rather than try to sort out his calculations (in which he has given me no reason for confidence), I will do my own math. $45 million divided by 13 is $3.46M, or 1.15% of $300 million. It can be assumed on this basis that royalties were more than 1.15% , because Paul Capital would have had no chance of making a profit otherwise. But, if it were that much more, it is more likely Wistar would not have sold. So, I will settle for 2%, which would have given Paul Capital the chance of almost double return and allowed them to break even by the time sales hit the $150M mark. A 5% inventor’s share (1/3 of 15%) would come out at 0.1% of gross minus $300M.

In this scenario, in 2008, when gross Rotateq sales reached $665M, Offit and associates would have received $365,000. This doesn’t come close to justifying Olmsted’s figures. As noted, his claim at the start was that Offit has made $10M from Rotateq, which since he estimates lump sums to be $8.4M would mean $1.6 million, over 3 years, or on average $533,333 per year. My calculation for 2008 provides only 68%, and that is so far the peak for Rotateq sales. Moving up the percentage is little help: At 2.5%,, the royalties come out at $456,000 for 2008, which is 70K short. Even at 3%, I come up with $547,500 to Offit, which is only barely more than what Olmsted requires. So how is it that Olmsted has arrived at an “average” of $533K per year, when applying the royalties percentage he claims to have used to the highest sales on record falls short by about 14%?

That brings us to the final sentence of the passage, which I can only regard as an outright lie. Now, Olmstead previously suggests that Offit received royalties on Rotateq sales through ca. Q3 2007, on grounds which seem plausible. But that is not what Olmstead appears to be saying. Instead, he gives every indication of saying (briefly and offhandedly) that Offit is receiving ongoing income from both Wistar and CHOP. There is absolutely no chance that this is true, or even what Olmstead believes to be true. He repeatedly states, in this very article, that any current income to Offit can only come from Wistar. That he seems explicitly to say otherwise here cannot be excused as mere “error”. Witness the next item…

“(W)e estimate that Offit receives an eighth of a cent (or .125%) for every dollar of Merck’s Rotateq® revenue above $300 million If Rotateq® performs well, it can generate a large annual income for Offit: a relationship we have illustrated graphically in Figure 1.”

Year Q1Q2Q3Q4 Total/300 Royalty
200785119171149 224 $280,000
2008190178134162 364 $455,000
2009134126127120*207 $258,750
Total $993,000

*Estimate by the author, minimum

It is clear from the chart that Olmsted’s “estimate” has no basis even in his own data. Even the 2008 “spike” falls $78K short of the $533K per year necessary to add up to the $1.6M that Olmsted implies. The sum of them all is only 62% of that figure. (Even granting his doubtful claim of CHOP royalty payments through Q3 2007 won’t quite get to $1.6M without rounding.) The only readily apparent means by which Olmsted could have come up with that, based on ongoing royalties alone, is by assuming two sources of such income, ie by adding CHOP payments which he has admitted do not exist. In summary, it is again proved absolutely impossible that Olmstead could have arrived at in the methods he describes. Furthermore, if he did not necessarily lie in producing the first story, it cannot be doubted that he is doing so in this one. I will grant him the benefit of one doubt: It is possible that the untenable figures precede the apparent “miscalculations”, and that the former were foisted onto him by another, possibly with initials of H, B and J, not necessarily in that order.

That brings us to the graph, which can be traced to what appears to be a protected site created by Generation Rescue, and kept disappearing or getting messed up when I tried to include it here. To the extent that I am able to analyze it (a task which required magnification, a printout and a ruler), I must admit its figures are less objectionable than Olmsted’s. At the least, it is clear enough (when the graph is examined closely enough!) that Offit’s annual royalty would not reach or exceed $500K until around $750M in gross sales. (By Olmsted’s math, the royalties on $750M would be $562,500.) But that is more than nullified by the extravagant scale assumed. Based on available fiscal data, it can be predicted reasonably that Rotateq sales will remain stable at around $500M per year. But the anonymous graph maker saw fit to illustrate Offit’s royalties on sales up to $3.5 billion.

After this, the only remaining question is why, after four months of denial, silence, censorship and the occasional insult, AoA is finally making a “correction” now. It certainly is not to convince me or those in the communities of which I am a part. If they cared about what we had to say, they would have issued corrections a long time ago. The only intelligible interpretation is that this is a “rear guard” action, and a sign that even loyal AoA members, perhaps even some of their leaders, are growing tired of this “story” and/or “anti-Offit” tactics in general. I suspect that the role of Olmsted in particular has been to stall, waiting either for criticism to die down or to perfect exactly what he has finally done: create a story which would admit his previous error(s) while allowing himself to “save face” before his loyal followers. In that event, I have only one thing left to say to Olmsted: This is the best you could do??!
And the Possum just says, “HAH!”

David N. Brown is a semipro author, diagnosed with Asperger’s Syndrome as an adult. Previous works include the novels The Worlds of Naughtenny Moore, Walking Dead and Aliens Vs Exotroopers, and the nonfiction ebook The Urban Legend of Vaccine-Caused Autism. This and other articles related to autism are available free of charge at evilpossum.weebly.com

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