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ChekAbuse: The Ethical ChallengesOf a Family Startup (A)

t was September, 2018 and Dr. Sam McDowell, a renowned oncologist specializing in the treatment of aggressive breast cancer cases, and her 20-something son Pat, a newly minted MBA with two years’ experience as a marketing specialist in the

health insurance industry, were very pleased about the latest developments at ChekAbuse, the start-up they had recently founded. The McDowells had created ChekAbuse almost two years earlier to market Paradone, a revolutionary drug that Dr. Alex Crowley, Dr. McDowell’s medical school classmate and close friend, had developed to counteract the insidious scourge of opioid addiction.

IThe opioid epidemic had become a full-fledged national crisis with 115 overdose

deaths in the U.S. every day. The sharp increase in fatal overdoses coincided with a recent spike in fentanyl use, both legal and illegal. On the illegal side, fentanyl, a synthetic opioid first developed in the 1950’s, had been making its way from

underground labs in China to the streets of Ohio, West Virginia, New Hampshire and many other U.S. states at an alarming rate. In fact, it was quickly replacing heroin as the drug of choice for opioid addicts as it was fifty times stronger than heroin and gave addicts a quicker, more powerful “high”. The drug had also been developed for legal use as an under-the-tongue spray marketed as “Languis” by

PharmaCorps, a large drug company based in Alburquerque, N.M. Languis was approved by the US Food and Drug Administration (FDA) to be prescribed exclusively to “breakthrough” pain patients, meaning those patients whose illness had advanced to the last, terminal stages and whose pain had become so debilitating that nothing else worked to alleviate it.

However, PharmaCorps, which was founded by Vikram Ramachandran, an Indian chemist, over a decade earlier, erupted in scandal in early 2016 when Parker Rollins, an enterprising Health and Science reporter from the National Daily News, discovered that Languis was being prescribed to “mainstream” pain patients whose garden variety neck and back pain or severe headaches had previously been treated with other, far less potent pain medication. Through a not so cleverly-disguised bribery scheme, PharmaCorps salespeople had been paying doctors “speaking fees” and offering them dinners, shopping trips and even visits to strip clubs in exchange for their prescribing Languis to thousands of patients who were never meant to have it. The result of this

SCG-559 ChekAbuse: The Ethical Challenges of a Family Startup (A)

scheme, which had been going on for nearly four years when it was finally exposed, was that most of these patients were now severely addicted to opioids and couldn’t function without them. Dozens of doctors had been indicted in connection with the scandal, or at least tainted by it. Dr. Sam McDowell was one of the doctors who had become ensnared in the Languis scandal.

Dr. McDowell was a partner in one of the many oncology practices in the US that had begun to work with PharmaCorps and to prescribe Languis to some of its patients. While she had not personally prescribed the drug to anyone but terminally ill cancer patients who were experiencing breakthrough pain, she did have knowledge of some of the immoral, unethical and even illegal practices of a number of colleagues who had knowingly accepted what amounted to bribes and prescribed addictive drugs to patients who didn’t need them. And yet McDowell neither said nor did anything about it. Her name had appeared in many of the news stories about the Languis scandal and she had been followed around by a pack of rabid reporters.

The reporters wanted to know why McDowell had failed to alert the authorities to her wayward colleagues’ wrongdoing. Despite her evasive answers and seeming unwillingness to take public responsibility for her failure to act, she largely weathered the storm with only moderate reputational damage and minimal attrition at the practice.

Eager to fully regain her good reputation, she had entered into a general partnership agreement with Alex Crowley back in late 2016 just as the Languis scandal was subsiding. McDowell had been closely monitoring the progress Alex was making on Paradone, a drug that had proven particularly effective in lab experiments as a treatment for opioid addiction in general and in particular, fentanyl addiction. Paradone, which served as the basis for the newly- created LLC they named ChekAbuse, had preliminary patent protection but was yet to be approved by the Food and Drug Administration (FDA) for human use. They were well aware that navigating FDA approval was typically a long and expensive process. However, if Paradone could be fully developed for use on humans, it had the potential to both revolutionize the fight against opioid addiction and to be very profitable for the McDowells, for Dr. Crowley and for other early investors in ChekAbuse.

Still, there were a number of challenges that Sam and Pat faced moving forward. How would they share responsibility (and equity) with Alex Crowley? Alex and Sam went way back and had established a great deal of trust in their relationship that both of them wanted to maintain. Crowley, the brains behind Paradone and a self-described “mad scientist”, was happy to concentrate on perfecting the drug and to let Sam and Pat handle the logistics of establishing and launching the business. At this point, they had not yet worked out ownership percentages or defined roles moving forward. Then there was Jordan Stanich, the experienced, well-connected healthcare investor who had played such a critical advisory role in these early days, counseling Pat on just about every aspect of the business including, most importantly, helping to secure preliminary patent protection. She was interested in taking on a more formal role in the company in exchange for equity, but the McDowells were reluctant to share ownership with anyone but Crowley in the venture they had worked so hard to create.

Perhaps the most important set of considerations revolved around how to roll out Paradone—how aggressively could they market the drug, considering that all the bugs had yet to be worked out, they did not yet have their final patent, it had not been tested

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on humans and it had yet to receive FDA approval? How would they best communicate the drug’s potential to investors? To patients, doctors and other entities engaged in the treatment of opioid addiction? To this point, Pat had been working on this important set of issues by himself with advice from Stanich.

While he was doing a good job helping his mother put out fires and was starting to get the word out on ChekAbuse, his youth and relative lack of experience could become problematic as the company began to grow.

Finally, Sam and Pat both wondered if this was what they really wanted to be doing with their precious time. ChekAbuse had quite literally taken over their lives. Dana McDowell, Sam’s husband, and Angela, her 16-year-old daughter, were beginning to resent how dinner conversations were monopolized by discussions of R&D, investor outreach and ChekAbuse’s ever-lengthening “to do” list. Sam wondered in particular how Angela would look back on her last couple years of high school with one of her parents largely absent and if Sam would regret spending so little time with their daughter during such an important period in her life. As Sam picked up the phone to call for pizza delivery (Sam couldn’t remember the last time they had cooked dinner), she smiled as Dana, Pat and Angela came down to the living room.

BackgroundSam McDowell was a precocious only child whose doting parents encouraged Sam to

excel in school and to believe that she could “do anything I set my mind to.” A devout Catholic, Sam reflected on how faith informed the eventual choice of career:

One thing I especially related to in my Catholic upbringing was the idea of living a life of service to others. We were comfortable—my Mom was a college professor and my Dad, a high school teacher, but we were not wealthy, and material prosperity was not something they admired or aspired to. Instead, they stressed education and service and they lived these values in their own lives. Since I was interested in science and in particular, human biology, I thought that a good way to help others would be to become a doctor, and in particular a researcher devoted to exploring and trying to find cures for life-threatening diseases. I decided to pursue oncology and specialize in breast cancer research when I lost my beloved Aunt Jane to the disease at the age of 41.

Sam got straight A’s at her Wilmington, Delaware high school and graduated as the valedictorian. In her graduation speech, she admonished her classmates not to succumb to the “empty lives” they would face if their first thought upon making major decisions was “what’s in it for me?” Instead, Sam suggested, the more they thought about others and devoted their life to service, the happier and more fulfilled they would be.

Sam went on to study biology at Yale University where a 3.95 GPA and long list of outstanding extracurricular activities helped her to gain acceptance to Harvard Medical

Prof. Susan Harmeling, Associate Professor of Entrepreneurship at USC Marshall, prepared this case with the assistance of Leo Findlay and Jasmine Hagans. This case was developed from general knowledge and published sources. Cases are developed solely as the basis for class discussion and are not intended to serve as endorsements, sources of primary data or illustrations of effective or ineffective management.

Copyright © 2020 Lloyd Greif Center for Entrepreneurial Studies, Marshall School of Business, University of Southern California. For information about Greif Center cases, please contact us at greifcases@marshall.usc.edu. This publication may not be digitized, photocopied, or otherwise reproduced, posted or transmitted without the permission of The Lloyd Greif Center for Entrepreneurial

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SCG-559 ChekAbuse: The Ethical Challenges of a Family Startup (A)

School. There, she landed a research internship with Dr. Gina Kavalkowski, a pioneering breast cancer researcher whose work on the Z625 gene mutation led to a major breakthrough in treating a common form of aggressive ductal cancer. Kavalkowski’s tenacity and dedication were an inspiration to Sam and eventually, she developed a promising body of work in the field and decided to leave her research post to join Ritter and Wyatt, a prestigious 12-physician oncology practice in her hometown of Wilmington, Delaware.

After twenty years as a successful oncologist with a booming practice and a large group of loyal patients, Sam was dismayed watching colleagues prescribing Languis to patients she knew didn’t need it. She looked back at the scandal now with a great deal of regret for the choice to not speak up and report her colleagues’ transgressions. Sam had confided in a close friend, saying “I don’t know why I didn’t confront my colleagues or report them to the authorities. I guess I felt some sort of misguided loyalty to them, but I also wanted to avoid being tainted by this scandal—I didn’t want to have anything whatsoever to do with it! I feel so guilty that I didn’t take action…I will go to my grave not knowing whether my silence may have cost someone their life.”

She was relieved to be past that dark time in her career and saw ChekAbuse as the perfect vehicle through which to fully regain her good name. After all, what better way to resurrect her own reputation than through a treatment for the disease that was clearly exacerbated by unethical colleagues whom Sam had protected with her silence? She was extremely optimistic about Paradone’s potential to save thousands of lives and was committed to doing everything possible to make this company a success both for suffering opioid addicts and for Sam’s own family.

ParadoneSam McDowell was one of the first people Dr. Alex Crowley contacted after

personally achieving a major breakthrough on a treatment for opioid addiction. At Harvard Medical School, he at first thought he would specialize in oncology as Sam had done. However, after an internship with Dr. Joel Arillo, one of the world’s foremost experts and innovators on addiction, he knew that when the time came to choose a field, it would definitely be in that area. In a profile of Crowley’s outstanding career written by Parker Rollins, the same National Daily News Health and Science reporter who had uncovered the Languis scandal, Crowley remarked:

For so long, so many people have been suffering from the scourge of addiction. I have seen it first hand in my native Baltimore where there has always been a problem in the inner city. Now, this terrible epidemic has spread to pretty much every corner of the country. It hits rich and poor, black and white, young and old. The worst development has been the over-prescribing of opioids for patients who have had sports injuries, car accidents, etc. They take these powerful narcotics long after they need them for pain until they become hopelessly addicted. Then, when their physicians refuse to keep prescribing the drugs, they look to the streets for their fix and that’s when things spiral out of control. I want to be part of the solution, not the problem as many doctors have become. I want to play a major part in ending this terrible, vicious cycle.

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For the first ten years out of medical school, Dr. Crowley worked as an addiction researcher for RxTech, a large pharmaceutical company located near his native Baltimore. There, he did some promising research on the effects of alcoholism and compulsive gambling on brain chemistry. This research led to some preliminary trials of a new anti-anxiety medication that Crowley had developed as a potentially effective treatment for addiction. However, that drug never materialized. Restless after this disappointment and anxious to interact with real patients, he opened a private addiction recovery practice in 2010.

The following six years were the busiest of his life. He saw patients during the day and continued to conduct lab experiments on opioid antidotes at night and on the weekends. When it came to treatment alternatives, Crowley had come to realize through first-hand experience with patients that there was a large hole to be filled in the market. There was Narcan, a very effective treatment for addicts who had already overdosed. Narcan was increasingly being administered by law enforcement officers who were the first people called to the scene of an overdose. It had saved many lives and would surely save many more. But it did nothing to treat or help patients to manage their addiction. For that, there were morphine and methadone, opiate-based treatments for addicts trying to wean themselves off of heroin. Slow-release forms of these drugs were used for opiate substitution therapy but they had shown limited effectiveness, especially for addicts whose drug of choice was fentanyl. In fact, the relapse rate within one year of detoxification was thought to be in the range of 75-85%.

During the six years after he first opened his addiction practice, Crowley developed Paradone, which worked by blocking the catastrophic effects of fentanyl and heroin on the brain and controlling the terrible physical manifestations of withdrawal. By the fall of 2016, he had tested the new drug on lab rats as part of a clinical study he conducted jointly with colleagues at Harvard Medical School. The results were promising indeed: rats that showed symptoms of addiction to opioids and were neither administered more heroin (or fentanyl) nor treated with Paradone experienced uncontrollable tremors, and exhibited other symptoms of violent illness such as foaming at the mouth and strange, repetitive movements around their cages. Addicted rats treated with Paradone behaved normally, and after two weeks of treatment, were successfully weaned off the drug with few side effects.

The Partnership Over the past 20 years since their medical school graduation, Alex Crowley, who had

never married, and Sam McDowell had stayed in close touch, even visiting each other periodically over the years for the Fourth of July or Thanksgiving holidays. Alex had kept in particularly close communication with Sam, with constant (confidential) updates, on his progress with Paradone. For the Thanksgiving holiday in 2016, Sam invited Alex to make the short drive from Baltimore to join their family in Wilmington. The Languis scandal had mostly subsided by then and Sam thought it would be good to fill Alex in on the latest developments on that front, and also to hear about the details of the recent Paradone experiments.

After Thanksgiving dinner, as Sam’s husband, Dana, and their daughter, Angela, cleared the table and started to do the dishes, Sam’s son Pat left to visit some old friends from high school who were also home for the holiday. Sam and Alex went to the study and shared a private conversation about the latest developments with Paradone. Alex was beyond excited about his recent breakthroughs with the promising new drug:

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Sam, it looks like all my hard work has finally paid off! This is going to be the best replacement therapy out there, better than methadone and better than morphine. Paradone works very slowly and appears to have far fewer side effects than everything else. One more trial in the lab and then we can hopefully start clinical trials with real patients shortly thereafter.

Sam immediately saw the potential in this opportunity:

Alex, your tenacity is an inspiration. I am so hopeful about the potential of this drug to help thousands of people who are hopelessly addicted to opioids. Over the past few months, I have been reflecting on the Languis mess. I will forever regret how badly I messed up in not reporting my colleagues. I just didn’t want to get involved, but that was the wrong call. In any case, I’ve been thinking: let’s create a company to produce and market Paradone. We need to get a preliminary patent, then start moving ahead with FDA approval, getting the word out to clinics (and potential patients) and finding investors for the ramp-up. Pat can help us get this going and you can focus exclusively on development and trials. What do you think?

Alex was confident as a scientist (if not as a businessperson) that it was the right time to enter into a partnership with Sam to build a company around Paradone. He had at first been quite perplexed and disappointed by Sam’s inaction during the Languis scandal, but he had “forgiven” her by now. However, Sam’s unbounded enthusiasm for this potential new partnership was a bit scary. Alex felt compelled to explain to her that while there had been a clear breakthrough in the development of Paradone, there was more work to do before it would be ready to test on human subjects. For her part, Sam thought Alex was being too cautious and that the drug was far enough along to go ahead and pursue a preliminary patent and make plans for clinical trials (See Exhibit 1 for the entire FDA drug approval process).

Sam and Alex had a mutual lawyer friend draw up a simple partnership agreement which they signed a few weeks after Thanksgiving. The agreement did not include details on equity split, defined roles, etc. It merely stated their intention to work together to develop and market Paradone in good faith. It also stated that Pat would be the company’s first employee, to be paid $15 per hour for the time he put in. Neither Sam nor Alex would take a salary as both would continue to work at their respective medical practices for the foreseeable future.

As Alex continued his work, Sam spent hours strategizing with Pat on an action plan. Pat, a newly-minted MBA from the University of Delaware with a concentration in marketing, had some experience in the healthcare industry, having worked for two years as a consultant at the health insurance marketing firm, ClearChoice Care. Currently, he was doing some per diem part-time work for ClearChoice while planning the next career move. Sam successfully convinced Pat to come on board to work on the Paradone project part-time.

One of Pat’s first tasks was to come up with a name for the new company. This proved more difficult than he thought it would be, but one night in the shower, it appeared. The company would be called ChekAbuse. He immediately did a search of the name, found that no one else had claimed it, and secured a trademark on it. Next,

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Pat had to decide what type of business organization to choose to establish ChekAbuse. After conducting some basic research and asking for the advice of Derrick Stanich, one of his favorite B-school professors, he settled on a Limited Liability Corporation (LLC) for its combination of simplicity, low cost, and protection of personal assets from liability.

Those were some of the simpler tasks that Pat now had out of the way. It would be considerably more difficult to get a preliminary patent, develop a strategy for the Phase 1 clinical trials, figure out the timing of a marketing rollout, conduct outreach to addiction specialists, interact with the Food and Drug Administration to secure final approval and interface with sales reps and distributors. For these more daunting challenges, he turned to Jordan Stanich, a healthcare industry investor and the sibling of Professor Stanich. Jordan’s wealth of experience was proving invaluable as Pat navigated the tricky terrain of getting a company, especially one with as many complex issues as this one, off the ground.

Jordan was astounded when Pat said that they did not yet have patent protection for Paradone. “You have such a valuable product and no one has thought to get a patent on it? That’s incredible! You are very lucky no one has stolen the chemical formula yet—at least as far as you know.” Jordan immediately went about trying to secure a top intellectual property (IP) attorney to help with what was clearly Job #1—to get a patent on Paradone. She had extensive connections in the healthcare industry, including with top flight IP attorneys. The main problem was conflict of interest with attorneys who were already working with the large drug companies on patents pending. However, proceeding systematically through word of mouth, she finally found Micah Rashad Esq, an expert in pharmaceutical patents from El Paso, TX, who had previously secured dozens of drug patents but had no current conflicts that would prevent him from working on Paradone. Together with Alex, who provided all the chemical formulas, processes and effects, Rashad was able to secure the preliminary patent that would protect the new company and its valuable drug that Alex had been working on for so long. The total legal fees for this initial protection came to $25,000. Sam and Alex split this expense equally, as they had agreed to do with all other expenses associated with getting the business going.

Jordan continued to work with Pat over the next 3 months, advising him almost daily on every aspect of the new business. Jordan felt that Pat was highly intelligent and motivated but that he clearly lacked the deep experience that she was able to provide. She had already provided a valuable service in helping to secure the preliminary patent protection, and she was adding more value each day with the sage advice she offered to Pat. To this point, Jordan was working for “free”, but soon it would be time to discuss how she would be compensated moving forward.

Decisions, Decisions Back at Sam’s home in Wilmington, two large pepperoni pies had just been delivered

and she sat down to enjoy them with the family on a rare evening together. However, her mind began to wander to ChekAbuse as it so often did these days (which did not go unnoticed by Dana and the kids, especially Angela). It was now almost two years since

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Alex and Sam had first decided to create a company around Paradone, and she felt that it was time to have a meeting with the full team to strategize about the best way forward. Sam would call Alex, Pat, and Jordan to join her next Monday. She would also tell Pat to invite Taylor Reyes, a new part-time hire who was helping Pat with outreach to the nation’s top 100 addiction clinics. On the agenda were the following items:

Equity split between Sam, Pat and Alex Official titles for each of the three principals Discussion of compensation for Jordan Stanich Discussion of budget and need for capital Discussion of the messaging on Paradone to potential investors, to addiction

clinics and to potential patientsShe was so pleased that after that dark period only two years earlier when her good

name and reputation had been dragged through the mud in the Languis scandal, there was now a real chance to redeem in the best possible way. Still, this had been and would continue to be a daunting endeavor! Sam thought about how dealing with all these decisions at once was like “drinking from a firehose. Welcome to the wild world of entrepreneurship! Full steam ahead…”

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Exhibit 1: FDA Drug Approval Process

Source: U.S. Food and Drug Administration

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