Audit Paints 'Bleak Picture' Of Anthrax Vaccine Maker's Viability

Keith J. Costa

Inside The Pentagon

April 13, 2000

In a March 23 draft report, the Pentagon's inspector general finds that the Defense Department has followed applicable federal guidelines in providing "extraordinary contractual relief" to BioPort, the military's sole-source supplier of anthrax vaccine. At the same time, the audit presents a grim view of BioPort's financial health, according to a congressional critic, and raises questions about whether the company can survive without further assistance from DOD.

BioPort has estimated it will incur a net loss of $8 million for calendar year 1999, the report says. In addition, based on a DOD audit of the company's cash flow projections, BioPort "will experience . . .a total cash shortfall of about $18.4 million by December 2000."

The unreleased audit says that the company spent over $2 million "on items that in the light of their financial condition may not have been appropriate.

"BioPort spent about $1.1 million on office remodeling and furniture, parking lot and road paving, office moves and other renovations that could have been postponed until BioPort was more financially stable," it states. "These expenditures also included approximately $23,000 on the CEO's furniture."

The report cites another audit, conducted last year by the Defense Contract Audit Agency, that "noted excessive costs, which may not have been prudent in light of BioPort's financial situation and are unallowable in accordance with" Federal Acquisition Regulations. The IG listed examples such as "excessive travel costs, excessive severance pay and unsubstantiated consulting costs."

The IG audit was prepared at the behest of House Armed Services Committee member Rep. Walter Jones (R-NC), a staunch opponent of the Pentagon's mandatory anthrax vaccine program. Specifically, the congressman asked the IG to examine the "financial and contractual" relationship between DOD and BioPort.

"The report paints a bleak picture of the financial integrity and security of the anthrax program's only vaccine producer," Jones said in an April 7 statement. "The federal government continues to funnel money into BioPort, over and above current investments of more than $45 million, yet its production facility has failed to pass [Food and Drug Administration] inspection. To make matters worse, as the only producer of the anthrax vaccine, BioPort appears to have the government over a barrel.

"Using government money to keep BioPort afloat raises real questions about the integrity and sanctity of the current policy," he added. "The message seems clear: if a company wants to make millions without providing a product or service, enter into a sole-source contract with [DOD] to produce vaccines."

DOD and BioPort officials declined Inside the Pentagon requests to discuss specific items in the IG report since it has not been officially released.

In June last year, BioPort requested funds from DOD "in the form of extraordinary contractual relief" for certain operating expenses and to pay off loans owed to the state of Michigan. BioPort bought the Lansing, MI, anthrax vaccine production plant in September 1998 from the state for $24.75 million in cash, loans, products and royalties, according to the audit.

Two months later, DOD granted BioPort's request, giving the company $24 million and amending its original contract with the Pentagon -- dated Sept. 15, 1998, and valued at $45 million. DOD provided $18.7 million of the $24 million in the form of an interest-free advance payment to be paid back through the sale of individual vaccine doses.

The revised contract also raised the price of each dose to $10.64 and decreased the total amount of vaccine to be delivered to the Pentagon. "DOD provided extraordinary contractual relief in accordance with the FAR procedures," the IG concludes.

BioPort expended over $12 million of the advance payment to pay the loans owed to the state of Michigan; $1.2 million was used to make a "settlement payment" to a plasma supplier; and the rest was used for operating expenses, according to the IG.

"Because of the nonprofitability of other [company] product lines and the multiple deficiencies cited by the Food and Drug Administration that must be resolved before the [FDA] will approve products for release, BioPort needs additional assistance from DOD," the report says.

In December 1999, BioPort officials contacted DOD to ask for $13 million "in additional funds" to pay for consultants hired to help the company comply with FDA guidelines. BioPort has applied for an amended license from the FDA to produce anthrax vaccine at its renovated production plant (Inside the Pentagon, March 30, p1).

The renovations were completed in May last year, and since then BioPort has made "hundreds of thousand of doses" at the facility on an "at risk" basis, company spokeswoman Kelly Rossman-McKinney told ITP April 12. The Pentagon will not purchase the at-risk vaccine until it is approved for release by FDA officials.

Without FDA approval, "the amount of additional assistance required will be increased," the audit concludes. "Any amount of additional assistance may include additional extraordinary contractual relief . . . and require congressional notification."