Siga Technologies, Center Of Smallpox Contract Dispute, Threatened HuffPost With Lawsuit

Embattled Biodefense Firm Threatened To Sue HuffPost

WASHINGTON -- The top Democrat on the Senate subcommittee for contracting oversight is calling for an inspector general's investigation into a biodefense contract awarded to a company controlled by private equity baron Ronald Perelman, a top Democratic donor.

The request by Sen. Claire McCaskill (D-Mo.) comes after Rep. Darrell Issa (R-Calif.), chairman of the House Oversight and Government Reform Committee, requested documents from the administration related to the contract.

In June, according to a CNBC report at the time, Issa and Rep. Sam Graves (R-Mo.), chairman of the House Small Business Committee, asked the Department of Health and Human Services for all documents related to a contract that was ultimately awarded to a company called Siga Technologies. "I am concerned about it," Issa told CNBC's Eamon Javers when asked whether Perelman may have influenced the awarding of the contract. "We may never get to the bottom of it, but we're going to keep asking the question."

That's the last the public heard from Issa on the matter, but earlier this month, the Los Angeles Times, the major paper closest to Issa's Southern California district, dropped a deeply reported investigation into the contract -- an investigation that relied on internal emails. Absent from the story was the usual chest-thumping about obtaining documents through a Freedom of Information Act request, suggesting that no such request was filed and that the materials wound up in the paper's hands some other way. (The story's author declined to comment on the source of the documents.)

One of the first writers to follow the Times piece was a Santa Monica, Calif.-based Forbes columnist, Rick Unger, who had his own story, wondering if Siga was "the next Solyndra," finished the same day. Unger has given roughly $4,000 to California Republican efforts.

From there, the Siga story has spread through the conservative blogosphere.

But it didn't start out as an Issa investigation. In October 2010, The Huffington Post reported that Siga had named labor leader Andy Stern to its board and compensated him with stock options that would become dramatically more valuable if the company managed to win the contract it sought with HHS -- an agency where Stern has deep connections, having helped lead the year-plus fight for health care reform as then head of the Service Employees International Union.

The day after that story ran, Siga and MacAndrews & Forbes, Perelman's private equity firm, responded by calling it "scurrilous nonsense," threatening a lawsuit and demanding the story be taken down in a letter to HuffPost. According to the companies' attorneys, "a major thrust of the article is the implication that SIGA improperly has been using Andy Stern's influence to obtain a BARDA [Biomedical Advanced Research and Development Authority] contract and to prevent the funds for that contract from being lost to budget-cutting. That implication is false. SIGA never asked Mr. Stern to facilitate the procurement of any SIGA product or to speak with any government official about SIGA or the drug in question, and Mr. Stern has advised SIGA that he has not done so."

The letter, signed by Ronald L. Marmer of the Chicago-based law firm Jenner & Block, also objected that "MacAndrews & Forbes does not 'control' SIGA. Eight out of eleven members of its board of directors have no business relationship with MacAndrews & Forbes."

MacAndrews & Forbes' control of Siga was no mere academic issue. A week after the HuffPost story ran, HHS announced that Siga had won the bid. But the contract required that the winning company be a small business, and a Siga competitor, Durham, N.C.-based Chimerix Inc., objected that Siga did not meet the definition of a small business as a consequence of its ownership by MacAndrews & Forbes. The Small Business Administration agreed, voiding the contract.

Instead of granting the contract to a small business or expanding the bidding process, the L.A. Times reported this month, HHS shut down the process and asked Siga to apply for a no-bid contract.

From the Times:

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."

On Feb. 18, HHS terminated the original contract and requested a proposal from Siga.

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 Siga complained about the price haggling, a more senior HHS official stepped in and signed off on a price per unit that gave Siga a 180 percent return, according to the Times. The Times printed an internal memo in which Dr. Richard J. Hatchett, chief medical officer for the department's biodefense preparedness unit, called the markup "outrageous." The markup estimate may be high, however, because a significant portion of the contract pays Siga for services not directly related to supplying the smallpox medication.

Either way, the payout may be, quite literally, for nothing. The treatment, according to the Times, has an unusually short shelf life of 38 months, making it an extremely costly stockpile to maintain. A Siga spokesperson noted to HuffPost that the contract calls for a 60-month shelf life and said that Siga will deliver on that promise.

An HHS spokesperson said that the way it handled negotiations resulted in a lower price than the agency might otherwise have paid. "The negotiations had reached an impasse," the spokesperson wrote in an email. "Pursuant to 48 C.F.R. 15.405(d) the matter was referred to the Director ASPR's [Assistant Secretary for Preparedness and Response's] Contracting office, who appointed a contracting official who was one level above the original contracting officer. In this case, the new negotiator was the Deputy Director of AMCG [Acquisition Management, Contracts and Grants]. As a result of changing to a more senior contracting officer, negotiations continued successfully and a significantly more favorable price was achieved relative to the offer under consideration at the time of the impasse."

Though the company now says it's confident its drug will be approved for use in humans, the Times reported that, months before the contract was awarded, Gary Disbrow, a virologist with HHS, concluded that neither Siga nor its competitor was likely to come up with a product that would be approved by the Food and Drug Administration. "My interpretation of their current position is that there is NO foreseeable path to licensure," he wrote. If the treatment is not approved, the contract allows HHS to pay a lower price on an emergency basis.

In her letter to the HHS inspector general, McCaskill focused on the possibility that the drug may never be ready.

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