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Obama Administration Awards $433M No-Bid Drug Contract to Top Donor

Morgen on November 12, 2011 at 8:12 am

From the LA Times:

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.

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.

When Siga complained that contracting specialists at the Department of Health and Human Services were resisting the company’s financial demands, senior officials replaced the government’s lead negotiator for the deal, interviews and documents show.

When Siga was in danger of losing its grip on the contract a year ago, the officials blocked other firms from competing.

Siga was awarded the final contract in May through a “sole-source” procurement in which it was the only company asked to submit a proposal.

An epidemiologist who has advised the FDA on dealing with the potential of a smallpox outbreak was quoted on the decision calling it “a waste of time and a waste of money”. Smallpox has been essentially eradicated for over 30 years now, and the government already holds a $1 billion stockpile of smallpox vaccine, according to the Times.

This is all bad enough – outrageous in fact. But I think that the Times may have missed another important angle to this story. Apparently the funding for this contract was originally designated as a Small Business set aside, and SIGA Technologies did not even qualify for the award. The final determination on this was made by the SBA just this past February:

Siga Technologies has lost its appeal to salvage a federal contract worth at least a half-billion dollars.

The biotech company, which has labs in Corvallis and headquarters in New York, announced Wednesday that the U.S. Small Business Administration has upheld an earlier ruling that Siga did not meet its contracting guidelines.

It’s the latest twist in a high-stakes roller-coaster ride that began in October, when Siga was awarded a $500 million contract to produce 1.7 million courses of its novel smallpox drug, ST-246, for U.S. anti-terrorist reserves. Under certain provisions, the deal with the Biomedical Advanced Research and Development Authority ultimately could have been worth $2.8 billion.

But the BARDA deal, awarded under an SBA set-aside program intended to benefit small companies, was challenged by a rival bidder. That company, called Chimerix, argued that Siga should be treated as a larger entity because of its ties to billionaire investor Ron Perelman, who controls a 22 percent stake.

Obviously something happened between then and now, and I’m guessing that it’s not going to reflect well on the Administration. Because not only did they award a sole-source contract to a firm owned by a major Democratic donor, for a drug of questionable value, but they did so while subverting rules which had been put in place to benefit small businesses in the awarding of this money.

I’ll be digging into this story some more over the weekend and also plan on contacting the competing firm, Chimerix, for their perspective on what happened.

Whoa. Alright, I’ve already figured out what happened, on the surface at least. But it looks like Darrell Issa is going to be a busy, busy guy because this definitely does not smell right. This is from a Chimerix press release in June 2011:

Chimerix, Inc., a pharmaceutical company developing orally-available antiviral therapeutics, today announced an agreement with the Biomedical Advanced Research and Development Authority (BARDA) of the United States Department of Health and Human Services (HHS) that will resolve the Government Accountability Office (GAO) review of the recent sole source contract awarded to SIGA Technologies, Inc. for the development and delivery of a smallpox antiviral to the Strategic National Stockpile. This agreement allows BARDA the opportunity to competitively procure a second smallpox antiviral, consistent with the U.S. government’s long-stated strategy of having two smallpox antiviral drugs for protecting the public against the intentional or unintentional release of the smallpox virus.

The original SIGA sole source contract was for a base amount of 1.7 million treatment courses of smallpox antiviral as well as an optional 12 million additional treatment courses. According to BARDA’s initial justification for this sole source contract, the 12 million additional courses were designated for individuals who had “an uncertain immune response to smallpox.” BARDA has concluded that it is in the U.S. government’s interest to delete the 12 million optional courses from the SIGA contract. Accordingly, Chimerix has withdrawn its GAO protest of the SIGA sole source contract.

Chimerix’s lead product CMX001 is being developed as a broad spectrum antiviral with particular emphasis on the ability to treat immunocompromised patients, which includes individuals infected with smallpox. A separate BARDA procurement of additional treatment courses at a future date will give Chimerix the opportunity to compete for a contract for the second smallpox antiviral. This resolution serves the nation’s overall interests to have two antiviral drugs for use against smallpox.

Chimerix, remember, was the competing firm which actually qualified as a Small Business but lost the original award to SIGA, the firm controlled by Ron Perelman. It was Chimerix which lodged the original complaint with the SBA. So even though SIGA lost this case on appeal in February, by retracting their complaint 4 months later, Chimerix cleared the way for the SIGA deal to go through.

Why? Well the reasons seem pretty clear from their press release. One, the award to SIGA was amended to include only 1.7 million doses of the drug, with the remaining 12 million doses pulled out for competitive bid. And two, it’s safe to assume I think that Chimerix must be confident that it will be awarded a contract for at least some of these additional purchases.

But this all raises some very interesting questions. Given that SIGA had already lost their case with the SBA, what sort of leverage was applied with Chimerix to get them to drop their complaint? Was Chimerix given any sort of assurance regarding these future purchases? Were they informed that if they did not drop their complaint they wouldn’t be awarded a contract for any of them in spite of SIGA being disqualified?

And if the purchase of one of these drugs is a questionable use of tax payer money, why on earth do we need two of them?

Questions, questions.

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