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The Securities And Exchange Commission (SEC) is continuing to litigate against fraud and other violations of the US securities laws. During the first nine months of 2006 they announced in Litigation Releases the o

According to USFDA, a combination product is one composed of any combination of a drug and device; biological product and device; drug and biological product

pening of one hundred thirty-one new cases. Almost half of the cases were of the three following types: accounting fraud, insider trading and PONZI schemes.

Accounting fraud, sometimes called “cooking the books”,

; or drug, device, and biological product and fixed dose combination would include two or more combinations of drug.

Examples of combination products may in

is one in which the reporting company alters its books and reports materially different results from its actual results. In the past few years, the media has headlined cases of this type of fraud, the largest bei

lude drug-coated devices, drugs packaged with delivery devices in medical kits, and drugs and devices packaged separately but intended to be used together.

ng Enron. Since all reporting companies send various reports to the SEC for review, the financial reporting of the company is well documented. When the reporting company gets into financial trouble, the SEC has t

here is enormous increase in the number of combination products entering the market in the recent years. Combination products have proven advantages but fixe

he documentation to investigate what went wrong. Cooking the books is hard to uncover unless looking in the rear view mirror.

Insider trading is simply trading a stock with information not known to the public. M

d dose combinations are still in the process of convincing regulatory authority on their advantages over the single ingredient formulations.

Combination pro

artha Stewart is the best-known recent example of this. She was sentenced to five months in Federal Prison for obstructing justice, making false statements, and conspiracy during her investigation of trading ImClo

ucts have become life saving products for the pharmaceutical companies who doesn’t have many innovative molecules in their product pipeline and have been inc

ne Systems stock using insider information. She had been told through her broker that ImClone’s chairman was selling his stock before a Food and Drug Administration’s rejection of the firm’s new cancer drug. She

easingly used in the product life cycle management. Even the companies having product patents are trying to extend their product life cycle through the combi

sold her stock also on this information not known to the public.

PONZI schemes are investment schemes where new investors’ money is used to pay old investors, so they will think they are receiving a profit. Charl

nation products and maximize the revenues. But the companies involved in this practice are overlooking that they are burdening the patients both economically

es Ponzi defrauded over forty thousand investors of more than fifteen million dollars in Boston in the 1920’s selling them investments in postal reply coupons. His pitch was the offer of a high return in a safe in

and physically. They need to rightly judge the benefits of the combination products and they have to even look at the risks involved when combining the produ

vestment. These frauds are hard to identify until they implode due to a never-ending need for new investors. The media has called Evergreen Security, Ltd. “the largest PONZI scheme in Florida’s history.” It took

ts. Some of the combination products were well accepted by physicians while others suffered. Companies involved in development of combination products are fi

investors down for over $213 million during the nineties.

The next seven most numerous types of cases opened by the SEC this year were, in order of number: unregistered securities offerings, misappropriation of fu

ding difficulty in defining their combination products and facing various challenges from selecting a combination to marketing it.

Following aspects would a

nds, hedge funds, illegal touting of securities, false statements, fraud transactions, and stock manipulation. There were fifty cases opened during this period for these seven types of cases. There were seventeen

dd to the challenges in developing combination products:

Which markets to tap where the combination products can do fairly well?
Which combination prod

other cases opened, which don’t fall into the ten largest types.

So what can an investor gain from this information? Fraud in the world of securities is a continuing problem. Although the SEC is the primary reg

cts are meaningful and rational?
Which therapeutic categories to select?
Which Combinations can address unmet needs of the patients?
Do combin

ulatory body for US security markets, it is mainly a reactionary regulator. In other words, most of its cases come from complaints investors make after they have been defrauded, or tips received through hotlines s

tions increase the patient compliance?
What would be the developing cost?
How to tackle the risks encountered during combination product developmen

et up by the SEC or companies. The perpetrators are usually prosecuted in the larger cases, such as Enron, Martha Stewart and Evergreen, and third parties are appointed to recover the lost investor funds. The sad

t?

As combination products don't fit into the traditional categories of drugs, medical devices, or biological products, the USFDA is in the process of devel

fact is the sentences are usually short and the recovery is usually in the pennies per dollar lost, if any at all.

Investors need to guard against these types of frauds and not rely on the regulators to protect t

ping new procedures for reviewing their safety, efficacy and quality.

Professional from academic institutions, pharmaceutical industries, health care indust

hem. Some of the warning signs, which have been evident in previous frauds, are the following: 1. securities which are not registered, 2. investment funds (including hedge funds) which are not registered, 3. inves

y and representatives from various regulatory agencies are working out to design the regulatory requirements for manufacture and sale of combination products

tments with high returns with little risk, 4. secret trading schemes, 5. offshore investment funds, 6. small-cap stocks touted on the Internet or by faxes, 7. investment advisors who want trading control of your po

.

As there is an increasing trend of the combination products companies manufacturing such products should be able to tackle the problems involved in the de

rtfolio without the proper oversight 8. investment advisors who advise you to put all of your portfolio in their can’t-lose investment, and 9. returns which are just too good to be true.

Although many investments

elopment. They need to be wiser in analyzing the market trends and the regulatory requirements.

Companies that provide selfless information through particip

with some of these warning signs are fine, some are not. It is avoiding the ones which aren’t, that is your job. Old investment wisdom tells us that the hope of a great return is never worth losing your principal

tion in industry events and feedback to regulatory authorities would be able to face the challenges and will be successful in developing combination products

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