By A.J. Evenson and Tim Martin
Lansing (Michigan) State Journal
June 11, 2000
Lansing-based BioPort Corp. expects to finalize a new contract with the U.S. Department of Defense this week, officials said.
The company said it needs more cash to survive the FDA's lengthy approval process of its renovated anthrax vaccine labs.
At stake are 212 local BioPort jobs and possibly the health and safety of 2.4 million U.S. military troops.
The money - $2 million to $2.5 million a month for an unspecified amount of time - would be the second Pentagon bailout in a year for a company that has struggled financially since it was purchased from the state in 1998. It's the latest episode in a national controversy over BioPort - already under fire in Congress as financial, safety and effectiveness concerns surface.
"This isn't extraordinary relief," BioPort co-owner Fuad El-Hibri said of the company's latest request for more money.
BioPort is the only U.S. producer of the vaccine to battle anthrax - a biological weapon that the Pentagon said at least 10 nations, including North Korea and Iraq, either have or are developing.
Company leaders said they must receive federal Food and Drug Administration approval for the new labs by March or risk financial crisis. The company, which lost money when the state ran it, can't sell any new vaccine without the OK.
If BioPort does not get the funding, the Defense Department could wind up with the FDA licenses that company officials valued at between $16.5 million and $37.2 million, according to an internal Defense Department audit.
The Pentagon has helped other bio-defense companies stay afloat as they worked to win approval of their products. But more Pentagon cash could rekindle concerns that the anthrax vaccine program is more trouble than it is worth.
"Taxpayers have already invested some $45 million propping up BioPort," said Rep. Walter Jones, R-North Carolina. "The way this whole thing has been handled between the Department of Defense and BioPort raises a lot of questions."
The anthrax vaccine was a key defense for U.S. and British troops in the Gulf War against Iraq in 1991. The anthrax bacteria, if inhaled by humans, would prove fatal within a few days by destroying the lungs of its victim.
In late 1997, Secretary of Defense William Cohen ordered that all 2.4 million U.S. troops receive the vaccine. More than two years later, 450,000 have been inoculated, and supplies have grown limited.
Cohen's announcement came just before the state sold the lab - then known as the Michigan Biologic Products Institute - to the BioPort group for $25 million.
The buyers included retired Joint Chiefs of Staff Chairman Navy Adm. William Crowe and Fuad El-Hibri, both affiliated with Intervac, a Maryland biotech company. Two managers of the Lansing lab - director Robert Myers and his assistant, Rob van Ravenswaay - also bought into the company. The sale was challenged by state Rep. Lingg Brewer, D-Holt, who questioned whether the state got the best available deal and whether some of its buyers had conflicts of interest during the sale. But the sale has been upheld in court and state administrative reviews. Money matters Almost immediately after the sale, the new owners of the lab on Martin Luther King Jr. Boulevard cemented a deal to become the exclusive supplier of anthrax vaccine to the military. The September 1998 Department of Defense deal, worth about $45 million, included $16 million to continue renovations of the 75-year-old vaccine lab.
BioPort's initial contract sold the vaccine for $2.26 or $4.36 per dose, depending on the year. But the price jumped to $10.64 per dose in August 1999 as part of a package that raised the Pentagon's contract with BioPort by $24 million. The deal included an $18 million cash advance to help the company stay afloat, but eliminated some renovations money. And BioPort won approval to sell the vaccine on the open market -but only after its obligations to the U.S. military are fulfilled.
"All we asked for was a fairer price," said El-Hibri, the company's chief executive officer. "It wasn't a gift. It wasn't a loan. It wasn't a grant."
Despite the larger contract, an internal Department of Defense audit shows BioPort officials project a possible $18 million cash shortfall for 2000.
The audit, completed in March, brought attention to what inspectors considered questionable spending at BioPort - including $1.1 million on new office furniture, parking lot paving and other renovations that could have been postponed until the company was in better financial shape.
Auditors also questioned $1.28 million in projected senior management bonuses, scheduled to be paid by the end of 2000. Those bonuses have not yet been paid - and won't be until the company gains FDA approval, according to the military.
The military defends BioPort's spending.
"I don't want anyone thinking they've wasted money," said David Oliver, an undersecretary of defense monitoring BioPort. "This is not a high-rent area. I think they've been prudent."
The Pentagon contract now being negotiated is meant to help BioPort survive as it continues to pursue FDA certification of its renovated and expanded labs. The contract would cover the cost of BioPort's expenses related to that approval, which company officials estimate at between $2 million and $2.5 million a month.
The deal would be tied to research and development costs and would temporarily replace the original contract, which has been suspended pending FDA approval. There is also potential for the price per dose to rise through future contract negotiations.
Pentagon officials said the true cost of making the vaccine could be as high as $15 per dose. The state had operated the anthrax vaccine lab at a loss for nearly 30 years, state officials said. In recent years, the loss was $6 million annually.
BioPort leaders said misjudging the lab's operating expenses isn't entirely their fault. The lab's potential buyers were required to accept the Defense contract's terms of $3.68 per dose, though they could negotiate changes after the sale.
And because the operation was so entangled in state budgets, it was difficult to get an accurate tally of what it cost to produce the vaccine and keep the facility running, company officials said.
While BioPort still holds licenses for vaccines to fight rabies and some children's diseases, those efforts have temporarily dwindled as the company focuses on the anthrax vaccine - its biggest potential moneymaker.
Military sales of the anthrax vaccine will provide the revenue needed to keep the operation running, officials said. They expect private sales of the vaccine - to friendly countries, individuals and public agencies - will offer the means to expand BioPort's research and development of new products. The company already receives inquiries and purchase orders for the vaccine, at up to $90 a dose.
"That place will make millionaires out of a few people yet," said state Rep. Lingg Brewer, D-Holt, one of the lab's biggest critics. "Then again, they may strangle themselves on their own greed and incompetence." Key to survival BioPort's success depends on getting FDA approval for its new lab.
The FDA approval process began Aug. 31. At that time, BioPort officials said they expected approval within a year and a half.
The anthrax vaccine itself is not in question. Rather, it is the labs where the vaccine is made that must be certified. Vaccine now administered to the U.S. military was produced when the state owned the lab.
The Pentagon won't say exactly how much of the vaccine it has at its disposal because it does not want potential enemies to know. But the current store could run out by July, according to a report by the General Accounting Office - the investigative wing of Congress.
BioPort officials could seek FDA approval of other state-made vaccine lots that they now store for the Defense Department to allow the vaccination program to continue past July.
FDA officials conducted a preliminary investigation at BioPort in November and found 30 problems that must be fixed before the lab can be licensed. Most of the issues involved failure to keep adequate records that would ensure the manufacturing process had appropriate quality controls. That is necessary to make sure the manufacturing process can be accurately repeated each time the lab makes a batch of vaccine.
"No dose leaves here until FDA, BioPort and DOD agree that it's safe, pure and effective," said Myers, the company's chief operating officer.
FDA officials would not say how long they expect the certification process to take.
In 1998 and 1999, fewer than half of priority biologic license applications nationwide were approved on the first try. About half of those remaining were approved on the second try. The average approval time: 1.7 years.
"You can't generalize from one facility to the next," FDA spokeswoman Lenore Gelb said. "It's very case specific."
The Pentagon said it needs BioPort to continue its anthrax vaccine program.
"There's no place else in the world that makes it," Oliver said. "We need to make this place work."
The military estimates it would take five to seven years to develop another vaccine source.
Under attack
But some in Congress want to require the Pentagon to develop a second source for future vaccines.
They've also questioned whether Crowe, former chairman of the military's Joint Chiefs of Staff, has received preferential treatment from his former Pentagon colleagues. BioPort said the Crowe connection gives the company better insight on how to deal with the Pentagon.
But some members of Congress are attacking on other fronts. A letter signed by 35 members of the House of Representatives last month called for the program's end until safety concerns are studied further.
Others said the vaccination should be voluntary for service members. But the Pentagon - convinced the program is needed for troop safety - says the program will remain mandatory.
"I don't see it ever becoming voluntary," Oliver said. "We wouldn't make wearing a helmet voluntary."
The Pentagon also noted a historical example of a voluntary program's failure. At the order of its Parliament, the British made a typhoid vaccine voluntary for its troops as it prepared for the Boer War in 1898. Only 14,000 decided to take the shot. Of the unvaccinated troops, 59,000 came down with typhoid - and 9,000 died.
About 450,000 U.S. troops have already been vaccinated against anthrax. But at least 300 people - overwhelmingly in reserve units - have refused to take the vaccine, choosing to leave the military or face a court-martial.
"It's a shame what the DOD has done to the defense of our country," said Tom Starkweather, a former reservist with the Air National Guard in Battle Creek. Starkweather has suffered medical problems from skin rashes to headaches to night sweats since he received four doses of the vaccine in 1998 and 1999. "The anthrax vaccine has demoralized the military foundation."
Others contend the anthrax vaccination program is a waste of time and money regardless of whether the drug is safe. The argument: There are up to 50 biological and chemical weapons under development in the world, and the anthrax vaccine won't guard against them all.
"It's extremely unlikely to work," said Meryl Nass, a Freeport, Maine, doctor specializing in anthrax and biological warfare defense. "You can't vaccinate against everything. This simply ratchets up the biological arms race, as nations develop weapons they know their enemies aren't vaccinated against."
Suspending the anthrax vaccination program - or even making it voluntary - would likely kill BioPort at this point.
But company leaders said they are confident in their product and the policy that surrounds it. If BioPort can survive FDA approval, the company could become a major bio-defense supplier and a solid employer locally.
"Life will be simpler," said Myers. "Life will be more profitable."