UPDATE: Senator Claire McCaskill calls for DHHS IG to investigate the government's sole-source contract with Siga.
If you are unconvinced that government seeks ways to buy products from "insider" companies that tithe to those at the center of government, read David Willman's article in today's LA Times. A few grams of anthrax, grown from stock at the USA's premier biodefense lab, kicked off quite the $69 billion dollar federal biodefense spending spree. And it ain't over.
Actually, the spending spree started earlier, with Clinton, who bought millions of doses of smallpox vaccine for about $365 million. The anthrax letters just ramped it up a few notches for Bush2. Then-DHHS SecretaryTommy Thompson said it was going to cost a lot more than the $509 million he'd expected, to buy enough smallpox vaccine for every American.
The US had a 25 year old stockpile of old smallpox vaccine that not only had been tested and still worked, but was good at a 1:5 dilution. There were at least 15 million doses of old vaccine available, and perhaps a lot more. The new vaccine was made using a virus from the old vaccine, so did not involve any major new technology. It had the same serious side effect profile as the old vaccine. One in 200 people getting smallpox vaccine for the first time developed heart inflammation. Once the new vaccine was delivered, all stocks of the old vaccine were destroyed.
Soldiers are still receiving smallpox vaccine when they deploy overseas, despite the considerable risk and questionable benefit.
Obama has continued in the same vein with the purchase of an untested drug for smallpox (see below). When the drugs and vaccines expire in a few years, the feds get to do it all over again. What a business model!
Why did government work so hard to make us afraid? Cause we had few toys in the biodefense toy box, which meant government would be able to Buy, Buy, Buy (aka SPEND). New products and new companies could be invented. There were no rules for what we might need, nor how much. This was an opportunity to create limitless sweetheart deals from the absolute bottom up. Mr. Willman gives us the dirt. Dr. Nicole Lurie at DHHS is the Dems' enforcer for this contract, as well as for the pediatric anthrax trial. Excerpts below, but read the entire article here:
Over the last year, the Obama administration has aggressively pushed a $433-million plan to buy an experimental smallpox drug, despite uncertainty over whether it is needed or will work.And if you still think the top pols in Washington play by the same rules as the rest of us, then read today's 60 Minutes story about how insider trading is legal--if you are a member of Congress.
Senior officials have taken unusual steps to secure the contract for New York-based Siga Technologies Inc., whose controlling shareholder is billionaire Ronald O. Perelman, one of the world's richest men and a longtime Democratic Party donor...
Dr. Thomas M. Mack, an epidemiologist at USC's Keck School of Medicine, battled smallpox outbreaks in Pakistan and has advised the Food and Drug Administration on the virus. He called the plan to stockpile Siga's drug "a waste of time and a waste of money."
The Obama administration official who has overseen the buying of Siga's drug says she is trying to strengthen the nation's preparedness. Dr. Nicole Lurie, a presidential appointee who heads biodefense planning at Health and Human Services, cited a 2004 finding by the Bush administration that there was a "material threat" smallpox could be used as a biological weapon... [See the 2005 IOM report on the Smallpox Vaccine Program to confirm that the Bush administration never provided any evidence to support this claim, nor has the Obama administration. Why is she hearkening back to Bush? She needs some new talking points--Nass]
Negotiations over the price of the drug and Siga's profit margin were contentious. In an internal memo in March, Dr. Richard J. Hatchett, chief medical officer for HHS' biodefense preparedness unit, said Siga's projected profit at that point was 180%, which he called "outrageous."
In an email earlier the same day, a department colleague told Hatchett that no government contracting officer "would sign a 3 digit profit percentage." [But the DHHS official(s) who bought stocks of anthrax vaccine 3 times since 2008 did so as well, with a 300% markup--Nass]
In April, after Siga's chief executive, Dr. Eric A. Rose, complained in writing about the department's "approach to profit," Lurie assured him that the "most senior procurement official" would be taking over the negotiations.
"I trust this will be satisfactory to you," Lurie wrote Rose in a letter...
Lurie denied that she had spoken with or written to Rose regarding the contract, saying such contact would have been inappropriate. [Or is the accurate term illegal?--Nass]
But in a subsequent statement, an HHS spokeswoman acknowledged Lurie's letter to Rose, saying it "reflects the critical importance of the potential procurement to national security."
... Two months after Project Bioshield was established, Siga purchased the rights to what became known as ST-246 and other assets from a Pennsylvania company, ViroPharma Inc., for $1 million in cash and 1 million shares of Siga's common stock. Over the next three years, the National Institute of Allergy and Infectious Diseases awarded Siga two research grants and a related contract, worth a total of $23.5 million, to develop the new drug.
From the outset, there was only one potential customer: the U.S. government.
For Siga, the stakes were high. ST-246 was its most promising experimental compound.
From 2005 through September, the company has paid three lobbying firms $800,000 to represent its interests in Washington, public records show. Disclosures filed by the lobbyists said they focused on Project BioShield and "issues related to homeland security and HHS," along with "government procurement of vaccines."
Siga representatives told The Times that the company had lobbied only "generally" for biodefense spending, adding: "Neither Siga nor anyone else on Siga's behalf ever lobbied anyone to get this contract."
Perelman and others at Siga's affiliate, MacAndrews & Forbes, have long been major political donors. They gave a total of $607,550 to federal campaigns for the 2008 and 2010 elections, according to records compiled by the Center for Responsive Politics. About 65% of that money went to Democrats. Perelman donated an additional $50,000 to President Obama's inauguration.
From December 2007 to January of this year, Rose, Siga's chief executive, served on the U.S. National Biodefense Science Board, which has advised Lurie on how to respond to biological terrorism and other potential health emergencies. (Rose was appointed during the Bush administration.)
... On Oct. 13, 2010, Siga announced that the government intended to award it a contract for ST-246 worth as much as $2.8 billion. Within days, Siga's stock price soared...
But the federal contract required that the winning bidder be a small business, with no more than 500 employees. Chimerix Inc., a North Carolina company that had competed for the contract, protested, saying Siga was too big.
Officials at the Small Business Administration investigated and quickly agreed, finding that Siga's affiliation with MacAndrews & Forbes disqualified it.
The Obama administration could have awarded the contract to Chimerix as the only eligible small-business applicant. Or it could have reopened the competition to companies of any size.
Instead, the administration moved to block all companies — except Siga — from bidding on a second offering of the contract.
In early December, officials completed a required "justification for other than full and open competition," which said an antiviral against smallpox was needed within five years and Siga was the only company able to meet that timetable.
The rationale was questioned by some in HHS, including contracting officer Brian K. Goodger, who in an internal email called it "a stretch..."
Siga and government officials soon began tangling over the price the company would be paid. Because the contract was no longer to be awarded based on competition and because the only customer was the government, officials sought to assess whether the company's proposed price was "fair and reasonable," as required by federal law.
In so doing, officials looked at how much government money had already gone into developing ST-246. Public records show $115 million in federal support, not including the stockpile contract.
After reviewing Siga's costs and the prices of other drugs produced in low volumes compared with commercial products, the HHS negotiators wanted to pay about $170 for each treatment. The company argued for more based on ST-246's potential value to the nation.
"Siga did not derive its price based on any cost information, and, from Siga's viewpoint, such information is not relevant to determination of an appropriate price," the company's chief financial officer, Daniel J. Luckshire, wrote to Lurie's office and others on March 4.
"Siga has created extremely valuable intellectual property, embodied in ST-246, and Siga has priced ST-246 based on the value of that intellectual property," Luckshire added...
Rose said "any further negotiation should occur with a more senior official [with] the authority to take into account the important policy issues that surround this procurement."
Two days later, Lurie wrote her conciliatory letter to Rose, pledging to install a new lead negotiator. Her top subordinate, Balady, followed through by naming Goodger to replace Early, who continued to work on the contract but not as lead negotiator.
A financial analyst for RBC Capital Markets reported to investors in May that the agreed-upon price per dose appeared to be $255. He arrived at that estimate by dividing the $433-million contract by the 1.7 million doses to be delivered. Siga told The Times that this would give a rough approximation of the per-treatment price.
On May 13, HHS announced what amounted to the second awarding of the contract, worth between $433 million and $2.8 billion, depending on whether the government exercised options to buy more of the drug in future years. Siga hailed it as a "historic event for the biodefense industry."
Throughout the negotiations over price and profit, a separate issue loomed: uncertainty over whether the Food and Drug Administration would approve ST-246 for use in humans.
For more than a year, the enthusiasm of HHS officials for stockpiling the drug has stood in contrast to the skepticism of the FDA. The agency's stance is important because the contract requires Siga to develop its drug "for ultimate approval by the FDA."
In a June 2010 email, Gary Disbrow, a virologist in HHS' biomedical unit, shared with colleagues his assessment of where the FDA stood on the smallpox drugs being developed by Siga and Chimerix, the North Carolina company: "My interpretation of their current position is that there is NO foreseeable path to licensure."
The problem was the inherent limits of animal testing in determining whether the drugs would be safe and effective in fighting smallpox in humans. Researchers are prohibited from infecting humans with the virus...
Lurie said she hoped the FDA would ultimately approve ST-246. "We would not have gone ahead with a procurement unless we thought there was a pathway," she said... [You couldn't make this stuff up--Nass]
The administration had intended to award Siga the exclusive option to replenish or expand the stockpile, but officials relented after Chimerix formally protested. In June, the government settled the dispute by dropping the exclusivity provision. That limited the value of Siga's contract to $433 million and meant that other companies could compete to fill future orders for the drug... HHS officials were concerned about how Siga might react. Goodger reassured his higher-ups that despite its disappointment, the company would not seek "any negative publicity."