Posted
on Fri, Dec. 09, 2005
How
a company cashed in on anthrax
BY BOB EVANS
Daily Press (Newport News, Va.)
NEWPORT NEWS, Va. - In a two-year
span, the nation's only licensed anthrax vaccine maker went from pleading
poverty to announcing $100 million in acquisitions, including other pharmaceutical
companies and a new manufacturing plant near Washington, D.C.
It's a pattern that's worked well
for BioPort Corp.: Tell the Pentagon or Congress that it doesn't have the
money to keep going, negotiate a new deal, then count the extra cash rolling
in.
During the past seven years, it's
transformed an initial investment of less than $4.5 million into an international
biotech firm, with contracts worth more than $450 million. During that
time, the company has capitalized on its monopoly over the vaccine and
on fears that opposing armies and terrorists will unleash tiny anthrax
spores somewhere.
BioPort is an example of how a
sole-source government contract can become a gold mine - especially if
you spend wisely on the right lobbyists and public relations professionals.
BioPort counts a former Cabinet
member and assistant secretary of health and human services among those
it pays to gain favor with government agencies.
"You always pay a higher price
when you're stuck with a sole-source," says Philip Coyle, a former assistant
secretary of defense for procurement. "The government has nowhere else
to go if it wants what you have to sell."
He says Pentagon officials talked
about taking over the anthrax vaccine plant and operations - especially
after the government held the license for the vaccine as collateral for
a series of loans and payments that kept the company afloat.
"What I never heard in those discussions
was why nothing ever came of it," he says.
The Pentagon isn't telling that
story, and neither is BioPort.
Troops and veterans who've been
asked to put BioPort's products in their bodies often point to the company's
problems getting a clean bill of health for its manufacturing plant, as
well as to the company's ability to always get its way with government
officials. They wonder whether BioPort's connections - not its scientific
and medical prowess - are behind the company's success.
BioPort is a privately held company
that doesn't make its stock available for public sale. As a result, most
aspects of its finances and management aren't open to public scrutiny.
The company declined to provide
its officers for interviews with the Daily Press. Six weeks after receiving
a list of detailed questions - and promising answers - it sent a box containing
two books and some news releases. None of the questions was answered.
BioPort's approach to veterans
is similar: It sends substitutes to speak for it, often without disclosing
that those sources were paid by the company. Those surrogates disregard
evidence of deaths or severe health problems from the vaccine, and they
provide testimony to government regulators and the public.
Meanwhile, the veterans who think
that they've been harmed by the vaccine live on disability payments or
suffer in silence.
No government grants support research
into their questions about the shot.
Until 1998, the nation's only
manufacturing plant for anthrax vaccine was owned and operated by the state
of Michigan. The state agency that ran the plant was losing money, so the
state put the operation and its license for making the anthrax vaccine
up for bid.
Fuad El-Hibri, a 40-year-old German
businessman with a Yale University management degree, formed a team of
investors to buy the business, which included a $100 million contract with
the Pentagon.
His bid faced a problem, though:
He and his father, Ibrahim El-Hibri, a wealthy international financier
from Lebanon, dominated ownership of the company, which they named BioPort.
Both were considered friendly
to the United States. Father and son had directed a company involved in
Britain's anthrax vaccine program and they had worldwide interests in cell
phone networks and other ventures.
But the U.S. government was not
keen on letting a foreign-owned company control its anthrax vaccine. The
only other bidder was also based overseas.
So Fuad El-Hibri played a trump
card: A family friend, former Chairman of the Joint Chiefs of Staff Adm.
William Crowe, was made a director.
Crowe put no money into BioPort
but got about 10 percent of the stock, government records show. El-Hibri
says Crowe immediately advised him to apply for U.S. citizenship.
Crowe's advice was good, El-Hibri
said. But Crowe's connections were better: He was the military's top officer
during the Reagan administration, then endorsed Bill Clinton for president
in 1992. Clinton made him U.S. ambassador to the United Kingdom, and while
serving there, Crowe was close to the El-Hibri family, congressional testimony
shows.
Crowe has persistently declined
comment on his investment or role with the company, except for congressional
testimony in 1999, when BioPort was seeking its second government bailout.
During that testimony, he was asked whether he'd lobbied Pentagon officials
for BioPort. Crowe vehemently denied it.
At that point, BioPort had all
the leverage over the Pentagon that it needed - if the military wanted
to continue its year-old program of inoculating every service member against
anthrax.
Even though the Pentagon gave
Michigan more than $20 million for new equipment and repairs and $100 million
in guaranteed contracts the previous decade, the plant had several problems.
It was shut for renovations in March 1998, six months before BioPort bought
all operations and licenses in a $25 million package of cash, loans and
promises of future payments.
Food and Drug Administration inspections
found repeated problems before and after BioPort took over. BioPort brought
in more, and better-paid, consultants and employees to fix things up -
even though its minor partners included managers who had run the plant
that provided millions of doses of vaccine to U.S. troops, congressional
records
show.
As part of the sale, BioPort assumed
the right to sell about $7.9 million of vaccines already made and promised
to the U.S. military. Within weeks, it signed a new contract with the Pentagon
providing for $45.1 million more, including $16 million in immediate cash
for plant renovations. The deal required the government to pay for vaccine
even if the drugs weren't licensed for use.
That wasn't enough for BioPort:
Nine months later, in June 1999, it was still struggling to get FDA approval
of its manufacturing plant. The company said it was running out of money
and needed more help.
Pentagon auditors looked at BioPort's
books and concluded that millions of dollars were unaccounted for. BioPort
didn't even know the cost of making a dose of vaccine, the auditors reported.
It was clear that $1 million had
been spent to renovate and furnish offices, as well as $1.28 million more
on bonuses for "senior management."
One unnamed former manager got
$10,000 a month for as much as 40 months - whether he worked or not, records
show.
And $1 million more had been spent
on items unrelated to anthrax production, the auditors said.
They concluded that BioPort's
request for extra money didn't meet legal requirements.
But Pentagon contract officers,
citing "the interests of national security," overruled them and approved
a $24.1 million bailout in September 1999.
The contract addition that they
blessed paid all the company's debts and provided a 144 percent increase
in payment for each anthrax vaccine dose, from $4.36 to $10.64.
It was $2 million less than BioPort
sought. Pentagon officers wrote that by chopping the amount, they didn't
have to notify Congress about the new deal.
Congress found out anyway, but
did nothing to stop the deal.
Hearings were held, including
one by Sen. John Warner, R-Va., chairman of the Senate Armed Services Committee.
His session involved only BioPort officials and others who supported the
bailout.
A second hearing involving critics
of the company and the renegotiated contract was promised but never held.
More aggressive questioning took
place in the House of Representatives. It was determined that El-Hibri
and his partners had invested only $4.5 million of their own money, in
cash and loan guarantees.
All that money and the cash the
Pentagon had chipped in was gone, spent on renovations, consultants' fees
and physical improvements, congressional investigators found.
Further, the original $25 million
deal with Michigan had become $14.45 million.
"The message seems clear: If a
company wants to make millions without providing a product or service,
enter into a sole-source contract with the Department of Defense to produce
vaccines," Rep. Walter Jones, R-N.C., said in a written statement. "BioPort
appears to have the government over a barrel."
Louis J. Rodrigues of the Government
Accountability Office - a congressional oversight agency that's frequently
criticized BioPort and the Pentagon's management of the vaccine program
- told Congress that it "had no option" but to pay up if it wanted anthrax
vaccine.
The Pentagon contractors who made
the original deal with BioPort should have known there was no way that
the company could stay in business, Rodrigues said.
"We did nothing to force BioPort's
hand and make them come up with a cost-control system," he said.
Or, he added, a realistic business
model.
Pentagon officials promised Congress
that they'd do a better job - in part by assigning government employees
to oversee the company's bookkeeping and quality-control systems.
They denied that they'd been patsies
for the well-connected company.
"All I am trying to say is that
this is not a sweetheart deal," David R. Oliver, then principal deputy
undersecretary of defense for acquisition technologies, told Congress.
BioPort struggled for more than
three years to get licensing for its plant and product. Meanwhile, batches
of vaccine were made and the Pentagon paid for each - including money for
storage of unusable vaccine.
Vaccine made before the plant
renovation kept going into the arms of thousands of troops. Dozens of them
came to Congress, complaining that the drug made them permanently ill,
giving them headaches, joint pain, loss of memory and more severe symptoms.
By 2000, even the Pentagon had
lost patience and told BioPort to stop making vaccine until the plant regained
its license. But the military agreed to keep making payments anyway, to
keep the company afloat.
Those payments meant that BioPort's
owners didn't have to borrow money elsewhere and didn't have to risk their
personal finances, a congressional auditor testified in 2000.
By January 2002 - when federal
drug regulators finally agreed that the plant and company could resume
licensed operations - the Pentagon had paid BioPort $126 million for drugs
that were stored and unlicensed, congressional records show. It also paid
$33.5 million during that time for vaccine given to 525,000 troops.
The months before the licensing
approval were tumultuous for the company and the nation.
In August 2001, Congress and the
Pentagon publicly said they were considering giving up on BioPort and its
failures in getting operations up to snuff.
Meanwhile, BioPort brought in
more business partners and consultants from established vaccine companies
and government contractors to figure out how to regain its license.
Then came Sept. 11, 2001, followed
the next month by deadly anthrax-laden letters to members of Congress and
others in Washington, D.C.; Connecticut; and Florida.
Instead of asking questions about
the vaccine's safety, many members of Congress began asking why more doses
weren't available.
Tommy Thompson, then secretary
of health and human services and the Bush administration official responsible
for vaccine and drug licensing, was caught between a Congress that wanted
action and critics who feared political pressure would hasten licensure.
"I can assure you nobody is pressuring
FDA to approve this," he said in October 2001.
Three months later, BioPort had
its license back.
A few months after that, it was
back to pleading poverty.
This time, BioPort was after a
bigger prize: a contract to supply millions of doses of anthrax vaccine
for use by civilians, postal workers, police, firefighters and others who
might encounter domestic terrorism.
A $1 billion contract was being
waved in front of vaccine and pharmaceutical makers, the largest in government
history.
BioPort responded as it had in
the past.
In a series of interviews, company
officials said their business was "at risk" and in financial jeopardy if
the government did not quickly give it the contract for a domestic vaccine
stockpile - or a new Pentagon deal.
If BioPort was on the ropes financially,
its biggest stockholders didn't seem to feel it.
During the same week the president
of BioPort pronounced it "at risk," the chairman of the board and biggest
stockholders - El-Hibri and his wife, Nancy - were in the news because
neighbors were complaining about their plans to build an 88-acre commercial
equestrian and polo center near their home in Gaithersburg, Md., near Washington,
D.C.
The El-Hibris had never moved
to Michigan to oversee the daily struggle over licensing at the vaccine
plant there.
Washington, D.C., was the focus
of much of BioPort's attention anyway.
In 2002, records show, the company
increased spending for lobbyists in Congress, from $30,000 to $110,000.
The amount doubled the following year.
BioPort also hired Ruder Finn
and Fleishman-Hillard, high-powered public relations firms staffed by many
former government officials.
BioPort, still the nation's only
licensed anthrax vaccine manufacturer, began sponsoring "public education
seminars" and studies to build support for a bigger government stockpile
of the drug.
On the first anniversary of the
Sept. 11 attacks, six doctors, scientists and former military officers
- described as a "panel of bioterrorism experts" by BioPort - announced
the need for preparedness. Their primary recommendation was to not rely
on a new anthrax vaccine but to purchase millions of doses of BioPort's
product.
BioPort paid several of the people
on that panel to review and endorse the report, including former military
officers who only a year before told Congress how safe and effective the
company's vaccine was.
They included Marine Maj. Gen.
Randy West and Lt. Gen. Ronald Blanck, a former Army surgeon general.
West said he was paid $5,000 for
reviewing the report, which was written by either BioPort or its public
relations agent - not the experts on the panel.
Even though the ghost writing
wasn't known at the time, a critic from the conservative Cato Institute
publicly dismissed the panel's work as "just BioPort trying to make some
money."
After that, the company's efforts
became less obvious.
Muhiuddm Haider, an unpaid member
of the panel and a professor in the school of public health at George Washington
University, started operating a Web site for BioPort in support of the
anthrax vaccine.
BioPort's name doesn't appear
anywhere on the site, but the company supplies all the money to operate
it, $40,000 a year, Haider said.
The Web site says it's sponsored
by the Partnership for Anthrax Vaccination Education, or P.A.V.E., a group
of medical organizations that includes the prestigious American Medical
Association.
Earlier this year, Haider and
P.A.V.E. petitioned the FDA to license the anthrax vaccine for use against
inhaled spores of the bacteria.
The ties to BioPort were not disclosed
then, either.
P.A.V.E.'s Web site and the organization's
publications extol the need for vaccine and say the vaccine is safe. They
mention none of the side effects, even the minor ones that the Pentagon
acknowledges are suffered by a third or more of those who get the shots.
"I am not marketing for BioPort,"
Haider says. "I am marketing for public safety."
P.A.V.E.'s public safety efforts
began with a series of forums. Featured speakers were West, officials from
BioPort, Haider and others connected to BioPort.
People who question the effectiveness
and safety of the vaccine aren't on the agenda for those forums.
A frequent speaker is Jerome Hauer,
former assistant secretary of health and human services for emergency preparedness.
He was a leading proponent of stockpiling anthrax vaccine for civilian
use while he was on the government payroll.
In his first few appearances at
P.A.V.E. events, Hauer's connections to BioPort weren't disclosed. He'd
become a paid consultant.
Later, he took over a new bioterrorism
institute at Haider's university.
He was named to BioPort's board
of directors in June and has been lobbying for the company's products.
As BioPort's board expanded, so
did its business.
By September 2003, the Pentagon
was paying $22 a dose - more than double the price negotiated in the 1999
bailout.
Cash was coming in fast. The company
could make a million more doses a year than the military demanded, El-Hibri
told TWST, a Web site that runs verbatim interviews with business leaders.
"We are debt-free and profitable,"
he said.
BioPort was now a subsidiary of
Emergent BioSolutions, led by El-Hibri and his business partners.
By the end of 2003, Emergent announced
the purchase of a Maryland drug maker for more than $3 million and signed
a new contract with the Pentagon, worth from $29.7 million to $245 million,
depending on the doses sold.
The following year, it began building
a second, $95 million, anthrax vaccine plant in Frederick, Md.
In January of this year, Emergent
signed a deal with the British government to work cooperatively on toxoid
and botulism vaccines, including a pledge to spend at least $2 million
during the next two years. Purchase of a British company working on five
vaccines, including an oral anthrax vaccine, followed weeks later.
But BioPort and its parent still
hadn't landed the big prize: supplying anthrax vaccine for the U.S. domestic
stockpile.
BioPort and other companies received
seed money to research a new-generation anthrax vaccine. But when the $1
billion contract was awarded in November 2004, it went to VaxGen Inc.,
a California company without a licensed product and in trouble for misreporting
financial results to Wall Street.
VaxGen's vaccine isn't ready for
use yet and is in early trials, years away from licensing. Government grants
finance at least 11 other efforts to provide alternatives to BioPort's
vaccine, aiming for a safer, more effective product.
When BioPort couldn't win in the
lab, it doubled its efforts in Congress and other branches of government,
adding more and better lobbyists.
It had hired Louis Sullivan, secretary
of health and human services under President George H.W. Bush - the current
president's father. But higher-powered help was needed.
McKenna Long & Aldridge, a
powerful Washington, D.C., law and lobbying firm also known as "MLA," was
hired Jan. 1 of this year, U.S. Senate lobbying records show.
Within six months, it reported
$140,000 in lobbying fees and helped bring BioPort a $122.7 million contract
to supply 5 million doses of the vaccine to the Department of Health and
Human Services, the second-largest award under BioShield, the federal law
that created a domestic stockpile of antiterror vaccines.
The lobbyist's news release was
headlined, "MLA Helps Client Secure BioShield Contract for AVA Anthrax
Vaccine."
MLA had supplied several lawyers,
including one who'd helped write the Homeland Security Act of 2002 and
two who'd been tapped by Congress for help in creating the BioShield law.
But they couldn't do it alone.
Four days before the big contract
award, BioPort added lobbyist John Hishta to the team. A few weeks later,
he filed a U.S. Senate lobbyist report saying BioPort had paid him $30,000
for "procuring a government contract for anthrax vaccine."
Hishta was executive director
of the National Republican Congressional Campaign Committee during its
successful 2002 election campaign. The committee is the main strategy and
fund-raising organization for Republican candidates in the House of Representatives.
Hishta also managed a re-election
campaign for Virginia Sen. John Warner. Warner is an important ally of
the Pentagon in the anthrax vaccination program.
BioPort is still delivering those
5 million doses for the BioShield contract.
But the company didn't wait to
resume its well-practiced, well-rewarded strategy for success: threatening
to stop vaccine production, then reaping a new contract.
On July 14, BioPort President
Robert Kramer told Congress that if the government didn't promise to buy
even more vaccine for the domestic stockpile, the company might have to
stop producing anthrax vaccine altogether.
"We'll have to make a very simple
business decision," he testified.
Whether it was the renewed threat
- or just coincidence - BioPort once again got the desired result.
Last month, Health and Human Services
posted a notice that it would enter private negotiations with BioPort to
supply an additional 5 million doses of anthrax vaccine for the domestic
stockpile.
The price to taxpayers hasn't
been determined yet. |