Stowed away in a Rishon Letzion furniture storage center are two freezers that contain thousands of umbilical cord blood samples. They belong to Biocord, also known as LifeBank one of the four private companies in Israel that signs up expectant parents, who pay the company to collect stem-cell rich umbilical cord blood from their newborns and stash it away as part of what the companies term a biological insurance policy.
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And no, this isn't what the company tells its customers. According to its website, the samples are safely stored at the Rishonim Medical Center, also in Rishon Letzion. But that hasn't been true for several months now.
Last week, the Health Ministry ordered Biocord to stop collecting new samples
immediately, and to inform expectant parents who had signed up but who hadn't
given birth yet that it would not be serving them. This means the company cannot take on any new customers.
The move follows several audits conducted by Health Ministry staff, made possible by licensing regulations that took force in November. Before these directives, Israel's private umbilical cord blood storage industry was essentially unregulated.
As part of its new oversight responsibilities, ministry inspectors paid several visits to Biocord's processing facilities, currently located in the company's headquarters in Tel Aviv's Ramat Hahayal neighborhood. The inspectors found that the company was carrying out activity that lacked the proper ministry approvals and found various other shortcomings. Furthermore, it found that "Biocord lacks a medical director or a proper quality assurance mechanism," the ministry stated. Regarding the sample storage facilities in Rishon Letzion, the ministry determined "the samples are frozen and being stored in reasonable conditions."
How did the samples wind up at a Rishon Letzion furniture storage facility? Previously they'd been stored at AMC Medical Center Laboratories, which is indeed located at Rishonim. But the companies had a falling-out, and AMC is currently suing Biocord, alleging that the company's owner, Miki Shacham, forced the lab to keep accepting more blood samples without payment.
The sides ultimately reached an agreement stating that, as of August, Biocord
would stop sending AMC new samples. The freezers were later moved to the
Responsibility for processing and checking blood samples also shifted hands
recently. AMC had handled this, too, but after the companies' falling-out,
Biocord contracted the public umbilical cord blood bank Bedomaich Chayi to do
the job, and later shifted the work into its own offices.
"As of now, umbilical cord blood bank Biocord does not have an operating permit, and does not meet the criteria for receiving a permit," stated the Health Ministry. Under the new regulations, private companies were given 60 days starting in November to apply for such a permit. The deadline is January 9. Previously, none was needed.
The ministry said it ordered Biocord to preserve all samples stored for current customers until it states otherwise. It also ordered the company to let it look into every incidence of customers who are seeking to transfer their blood samples to another bank or who no longer want to preserve their samples.
Biocord stated in response, "The company has approval to store the blood samples, and the samples are processed via an approved, external mechanism
and thus customers have not been harmed in any way. None of Israel's private
umbilical cord blood banks process their own samples, and Biocord is the first
and only to invest in an expensive, innovative process that will go into use once it receives approval."
Sources at the Health Ministry were outraged to hear Biocord's response. "It appears that Biocord is acting less than transparently," stated the ministry. "Collecting samples under the guise of having a permit to do so is a violation of ministry regulations, and necessary action will be taken against the company's management."
Biocord is in financial trouble. It is facing suits from workers and suppliers who say they weren't paid, its bank account is under restrictions and the state collection bureau has several cases open against Shacham.
Evidence of the company's financial distress has popped up repeatedly over the years. In late 2010, then-CEO Menashe Dalal sued the company after not being
paid for six months. As part of his suit, he presented a letter from owner Shacham that stated, "At this stage your work for your company is without compensation, due to the company's state." The sides reached a secret agreement that bound Dalal to confidentiality.
In August, AMC laboratories sued Biocord and Shacham for NIS 443,000, alleging they'd violated their agreement and not paid the lab. "The laboratory processed and stored umbilical cord blood samples for Biocord. Starting in 2009, payment began to arrive late, and at the end of that year the company stopped paying altogether," states AMC's Attorney Relly Levy.
AMC's suit contains an unusual clause: The laboratory asked the court to order
Biocord to stop sending it new blood samples even though the companies were no longer working together, thereby forcing AMC to process them. Biocord repeatedly committed to stop sending AMC blood samples, and stated that if it were to do so anyway, it would pay the lab in advance for each new sample, states the suit. Yet it repeatedly violated these commitments and kept sending AMC samples, in some cases providing no payment and contrary to the lab's wishes, the suit states.
"Biocord keeps signing up new expectant parents, while Biocord and Shacham
keep sending the plaintiff [AMC] new blood samples by force and without pay," states the suit. "Thus the defendants are taking advantage of the fact that the laboratory's doors cannot be hermetically sealed, and the arrival of new samples cannot be physically blocked."
The laboratory and the company recently reached an agreement under court auspices that would halt the transfer of new samples. "Biocord and the laboratory currently have no business relationship," states Levy.
The financial dispute is still being heard by the court.
Biocord and its parent company, Impact (Q), owned by Shacham, are also being sued by medical supplies company Almog Diagnostics, which alleges it wasn't paid. "We provided them with advanced equipment to freeze blood components, and they, in a show of unusual nerve, didn't pay yet continued to place orders for new equipment," stated Almog's owner Avi Levi. "We haven't received a single agora from them, and to date they haven't submitted a defense."
Shacham stated in response, "Biocord's legal advisers were directed to reach a
final agreement with them."
A history of misleading consumers
This isn't the first time questions have arisen regarding Biocord. TheMarker published investigative reports about the company in 2007 and 2008, detailing how the company was misleading customers. In 2007, TheMarker revealed that Biocord, led by Shacham, was not storing the blood at a hospital, contrary to its claims, and that it had no connection to the world's largest umbilical cord blood bank, CBR, as opposed its claims on its website.
In the 2008 report, TheMarker stated that contrary to what Biocord claims, it does not meet NetCord Fact standards for umbilical cord blood banks. That report also found that the company was not being supervised by Prof. Arnon Nagler, an internationally known hematologist who heads the public umbilical cord blood bank at Tel Hashomer again, contrary to the company's claims.
Following the articles, Biocord sued TheMarker for defamation, but the court ruled against the company and ordered it to pay TheMarker NIS 40,000 in court fees.
During the trial, Haaretz's attorneys Tamir Gluck and Einat Berg Segal presented dismal evidence regarding the medical oversight at the company. While Biocord's website stated that Nagler was responsible for ongoing oversight of the company's laboratory, Nagler himself stated that he'd never visited the place where the blood was being stored and that he had no role in the company's ongoing activities. He added that he'd recommended that the company appoint a laboratory expert to submit quarterly reports, but that this was never done. Another expert, Prof. Eliezer Rachmilewitz also listed on Biocord's website as responsible for oversight, alongside Nagler said he'd never really supervised the company's operations.
More details about Biocord's troubles emerged during the trial. Nagler testified that he'd been contacted by angry suppliers whom Shacham had promised payment. He wanted to cut his connection to Biocord and return his 3% of the company's shares, but hadn't been able to do so, he added.
Haaretz's attorneys also presented a statement by CBR's chief executive stating that the international umbilical cord blood bank never gave Biocord permission to use its logo. Since then, that logo has been removed from its site.
A Biocord customer who contacted senior doctors listed on Biocord's website as
members of its medical and management committee received surprising responses. Prof. Michael Kuperminc, head of the prenatal inpatient department at Lis, stated, "I have no connection to the company and if my name appears there, that is an error." Prof. Alexander Battler, head of the cardiology department at Beilinson, said, "I have not been a member of Biocord's scientific committee for many years now, I'm not involved in the company's operations and I do not receive information about the company's operations."
Contacted by TheMarker, Kuperminc sounded upset. "The company contacted me in 2009, but since then I've had no contact with them. They're abusing my name I've never been part of the company and I've never advised them. I intend to ask them to take my name off their site immediately."
Shacham responded, "The two are members of the committee Prof. Battler since
2005, and Prof. Kuperminc since 2009. We have contracts with the two professors, so their ostensible responses are strange. Neither of them told us otherwise."
In response to allegations raised in this article, Biocord stated: "Regarding the legal incident involving Menashe Dalal, the sides reached a compromise.
"Regarding AMC Medical Center, Biocord chose to stop working with AMC due to
business, professional and other disagreements, and is working via an external, approved processing facility and conducting its laboratory tests at a hospital lab. Biocord filed suit against AMC for not upholding agreements and not maintaining professional standards, and the sides are in arbitration.
"AMC contacted the Health Ministry and the media in order to pressure Biocord
it sought to have the media influence the legal process." In fact, the TheMarker reached out to AMC, and not the other way around.
"Regarding the storage facilities, the claims are irrelevant because the location received Health Ministry approval," Biocord stated. "Likewise, the company's bank accounts are active, aside from one account, and the company is negotiating with the bank to renew that account's operations. More than 99.5% of the company's customers are satisfied, and the hundreds of new customers are evidence of this. A small group of three or four customers who owe the company money have been trying to threaten it even though all their questions were answered. The company continues operating in keeping with the law, for the good of its customers, giving the best service possible and in complete coordination with Health Ministry representatives."
Regulating the industry
Biocord is one of four commercial umbilical cord blood banks in Israel. The banks collect the blood when an infant is born, and preserve it for the family's use in exchange for pay. Public banks, in comparison, collect blood but use it for public purposes, such as for bone-marrow transplants in patients who did not find a suitable donor.
The country's first licensing regulations for umbilical cord blood banks took effect in November. They include rules regarding the banks' operation, from the collection process to tests, processing and storage. The regulations are thorough and meet international standards, and also address customer rights such as disclosure and privacy.
When the regulations took effect, the Health Ministry started conducting audits of the blood banks, with a special focus on Biocord due to complaints by laboratories.
Prior to the regulations, the private banks had operated essentially as any other private company. Once the regulations took effect, the banks were given 60 days to submit requests to operate and to meet the standards. That deadline expires January 9.
Ostensibly, the ministry did not have legal grounds to intervene in the bank's operations before that deadline.
Asked why it took the ministry so long to intervene despite the warning signs over the years, Health Ministry Director General Roni Gamzu stated that legislative changes were necessary in order to grant oversight.
"The law gave us the authority and the official ability to get involved and I don't need to wait for the law to take full effect in order to act," he said, regarding the ministry's decision to take action before the January 9 deadline. "Even though you could claim that I don't have the authority to order [Biocord] to halt processing samples, I believe that public health is not to be taken lightly so I halted the bank's operations."
Gamzu also forbade the bank from destroying samples, even in cases where
customers stopped payment. "Customers who have problems with the bank should contact us," he said.