The $628 million deal to help manufacture an eventual vaccine cemented Emergent’s status as the highest-paid and most important contractor to the HHS office responsible for preparing for public health threats and maintaining the government’s stockpile of emergency medical supplies.
Emergent has long been the government’s sole provider of BioThrax, a vaccine for anthrax poisoning. But over the past decade, the company has acquired biodefense competitors and treatments for smallpox, botulism and other threats for which there is no market outside of government.
Now, Emergent is the only maker of multiple drugs the government deems crucial for the Strategic National Stockpile, and the government is the company’s primary customer, accounting for most of its revenue, according to interviews with current and former government and company officials as well as government and corporate records.
A Washington Post examination found that Emergent’s strategy has been rewarded with a series of large contracts as the Trump administration focused on biodefense over preparations for a natural pandemic. But Emergent’s dominance has fueled new risks for national health preparedness, according to documents and former government officials.
The industry consolidation has created “vulnerabilities in the supply chain,” while also raising the prospect of inflated costs because of a lack of competition, according to a confidential report obtained by The Post. The report, commissioned by the HHS preparedness office to assess its relationship with private industry, cited Emergent as a primary example of increased concentration in the supply of “medical countermeasures,” or MCMs, such as vaccines.
“Consolidation of many important assets into a single or small handful of companies creates substantial risk since it creates the potential for a single-point of failure,” said the December 2018 report by the Mitre Corp., a consulting firm. “From a pricing perspective, the lack of competition creates a system in which companies have no incentive to keep prices low.”
Emergent, a publicly traded company, negotiated price increases from the federal government for some stockpiled medicines after it bought them from competitors, according to contracting records and interviews.
Emergent’s advocacy for biodefense spending over more than a decade was aided by influential allies in Washington and tens of millions of dollars in lobbying campaigns, documents show.
“It has strategically placed itself to be, let’s just say, the company that can’t fail,” said a former senior government official who worked with Emergent on stockpile operations during the Trump administration. The former official, like several others interviewed for this story, spoke on the condition of anonymity because he is not authorized to speak publicly.
In a statement, Emergent said it “has strengthened America’s biodefense and supply lines and its ability to protect against public health threats.” The company said it invested in biodefense while others pulled out.
The company said several factors account for increases in the prices of its products, including improvements in treatments, and it noted that the government is obligated to “consider profit as a motivator of efficient and effective contract performance.”
In response to a question about lobbying, the company said it has been trying to educate Congress that for “far too long, investing in biodefense and other public health threats has not been as strongly prioritized on America’s health agenda as it could be.”
The company also described itself as a “premier manufacturing partner to innovative vaccine companies” that has “deliberately invested in and prepared for this kind of health emergency” and is “quickly deploying those capabilities to help us deliver safe and effective COVID-19 vaccines as soon as possible.”
The Gaithersburg, Md.-based company pressed for the national stockpile and its $700 million budget to be moved under the control of Robert Kadlec, Trump’s assistant HHS secretary for preparedness and response, or ASPR. The transfer took effect in 2018.
In the years before he took the government job, Kadlec consulted for Emergent as a strategic adviser and started a biodefense consulting company with Emergent’s founder, The Post previously reported. Kadlec and the company told The Post their past work together has no impact on his leadership at ASPR.
Emergent’s annual revenue rose from $235 million in 2009 to $1.1 billion a decade later, much of it in contracts for the stockpile that were awarded without competitive bidding, the company’s financial filings show. Under Trump, before the pandemic, ASPR paid Emergent more than $894 million, more than double what it paid any other contractor. During that time, the company received more than 1 in every 6 dollars spent by ASPR, according to a review of contracting records.
A spokesperson for ASPR said in a statement that the challenges documented in the Mitre report are long-standing and predate the Trump administration. The office said it is making efforts to diversify the stockpile’s suppliers and to strengthen the biodefense industry.
“Dr. Kadlec’s standing guidance has been to get the best value with the greatest coverage to protect the American people from public health emergencies,” the statement said.
An early break
The company that would become Emergent began as BioPort Corp., formed in 1998 to buy an aging, state-owned company in Lansing, Mich., that was the only licensed supplier of anthrax vaccine to the Pentagon. Its founder, Fuad El-Hibri, was a former management consultant and telecom executive.
The Clinton administration had announced plans to vaccinate all U.S. troops against anthrax and to stockpile vaccines to protect civilians. But the success of the Michigan venture depended on government subsidies, company officials have said.
The Pentagon funded $16 million in plant upgrades even as it awarded a $29 million no-bid contract for the anthrax vaccine, BioThrax. The price per dose at the time was about $4, but it quickly rose to more than $10 after El-Hibri told Congress the company urgently needed more support.
El-Hibri declined to comment for this report.
Controversy swamped the operation. Hundreds of U.S. troops who received the BioThrax treatment complained of bad reactions, such as headaches and nerve problems. Some troops risked courts-martial by refusing vaccination.
In a June 1999 House hearing, Rep. Christopher Shays (R-Conn.) questioned the vaccine’s safety and the company’s contracting deals. “The Pentagon is locked in a dependent relationship with BioPort Corp.,” Shays said.
The company denied that BioThrax posed an undue risk.
In the wake of the 9/11 attacks, Congress embraced the need for biodefense. In 2004, the Project BioShield Act authorized $5.6 billion for stockpiling vaccines and other medical countermeasures over the next decade. The legislation aimed to incentivize the private sector to develop drugs that did not have a consumer market.
BioPort rebranded itself as Emergent and moved its headquarters from Michigan to Maryland. But the first major BioShield contract, an $878 million deal for a “next generation” anthrax vaccine that required fewer shots and was easier to store, was awarded to a California start-up called VaxGen.
Emergent ramped up a lobbying campaign, hiring about 50 people, disclosure records show. Among them were two former aides to Vice President Richard B. Cheney.
The Emergent lobbyists criticized VaxGen’s methods and its drug, citing problematic results from early tests and urging lawmakers to require the government to buy more BioThrax.
In July 2006, Emergent lobbyist John Clerici wrote an op-ed for the Baltimore Sun deriding the VaxGen drug as an “experimental anthrax vaccine from an unproven supplier.” Clerici was identified as a Washington lawyer.
Piers Whitehead, a VaxGen executive, wrote a letter to the editor alerting readers to Clerici’s role as an Emergent lobbyist. Clerici did not respond to messages seeking comment.
Over two years, the Emergent team prevailed. The White House and Congress cut off funding to VaxGen. Emergent was awarded $243 million in new contracts for its decades-old BioThrax vaccine.
In May 2008, Emergent bought the rights to VaxGen’s anthrax drug for $2 million. It remained the only anthrax vaccine supplier to the government.
In its statement, Emergent said it spoke out because VaxGen’s technology was unproven. “Because of our commitment to a strong biodefense, we voiced our very serious concerns in discussions with policymakers and officials, as well as in public forums,” the statement said.
Whitehead declined to comment.
A growth spurt
By 2010, the company had more than a quarter billion dollars in annual revenue but only one product and one main customer: the U.S. government.
Those circumstances caught the attention of Scott Lilly, a former veteran staff member for the House Appropriations Committee who had spent decades examining government programs and spending. At the time, Lilly was retired from the government and a fellow at the Center for American Progress, a liberal nonprofit.
Lilly, reading the company’s annual report to the Securities and Exchange Commission, noticed that Emergent charged the government almost five times for BioThrax what it cost the company to produce, he wrote that year in a report for the nonprofit.
“Based on my years of work in congressional oversight, a markup of even half the size suggested by this annual report seemed mind boggling,” Lilly wrote. Multiple former federal preparedness officials cited the article during recent interviews.
Emergent told Lilly that the company assumed substantial risk in developing, making and licensing the vaccine and that the price paid was fair market value and was “based on independent negotiations with two agencies of the U.S. Government,” Lilly wrote.
At the time, Lilly wrote, Emergent had three in-house lobbyists and two dozen more on retainer, while drug giant Merck, which had scores of products and $40 billion in revenue, relied on 40 lobbyists.
It turned out that Emergent was at the beginning of a major growth spurt. In the annual report that year, the company said it planned to grow “through acquisitions and licensing arrangements with third parties.” The company said the strategy would allow it to save on development costs and grow more quickly.
In the coming years, Emergent gained control of at least seven medical treatments stockpiled by the federal government, according to the Mitre report. The stockpile contains hundreds of types of medicine and other items.
Emergent obtained three of those seven stockpiled drugs when it bought the Canadian firm Cangene Corp. in 2013. Among them was one for side effects related to smallpox vaccines, known as VIGIV.
In the year before its acquisition, Cangene was awarded a five-year contract for $89 million to supply the stockpile with VIGIV. Last year, Emergent announced that it had received a new 10-year government deal for the drug worth up to $600 million, contracting records show. Details of the contract, including the price per dose, are not public.
In response to questions about the apparent increase, Emergent said in its statement that it does not discuss drug prices in detail but asserted that “the annual cost per dose for VIGIV is about the same as it was in 2002 when factoring in inflation.”
In 2017, Emergent struck a new deal to supply the stockpile with an updated version of BioThrax that cost $30 per dose, about five times what the company was paid under its original contract two decades earlier, accounting for inflation, according to previously undisclosed data obtained by The Post.
The same year, it acquired a smallpox vaccine, leading to a contract worth up to $2.8 billion that more than doubled the government’s cost per dose. The next year, it acquired treatments for typhoid, cholera and opioid overdose.
The company defended its price rises as “far below the price increases that are common in the pharmaceutical industry.” It said the cost of raw materials had gone up.
The company said that BioThrax now has a longer shelf life and requires fewer treatments to be effective.
“Factoring in inflation and the increase in shelf-life, the price of BioThrax has actually dropped since the re-licensure of the facility and the DoD contract in 2002,” the company’s statement said.
A spokeswoman for the national stockpile declined to comment on per-dose pricing and other details, citing business confidentiality.
Two former Emergent executives said the company wanted to gain control of as much of the biodefense industry as it could through consolidation.
“Emergent has basically rolled up what the government needed,” one former executive told The Post, speaking on the condition of anonymity because he had signed a nondisclosure agreement and did not want to risk legal action. “They wanted to create a one-stop shop.”
As Emergent expanded its portfolio, it spent millions on maintaining a presence of high-powered lobbyists.
Since Trump’s inauguration, Emergent has deployed 60 lobbyists in the capital, according to congressional filings. They include a former senior official in Trump’s White House budget office, two former members of Trump’s presidential transition team, 10 former chiefs of staff to Republican members of Congress, and former congressman Tom Latham, a Republican from Iowa.
Their message about the dangers of biological weapons sometimes drowned out public health officials’ warnings about the dangers of pandemics, said Georges Benjamin, executive director of the American Public Health Association.
“The public health community doesn’t have the same financial firepower,” he said.
Emergent spent nearly $4 million on lobbying last year alone — putting it in the upper echelon of all American companies despite its relatively small size — and about $43 million since it became publicly traded in 2006, according to data maintained by the Center for Responsive Politics. Some of the money went toward advocacy for Narcan, the drug to counter opioid overdoses, which Emergent bought in 2018.
“We feel strongly that education-focused lobbying on the importance of preparing for critical public health threats is appropriate and necessary,” the company’s statement said.
Emergent’s in-house lobbying team operates from a suite at the Willard hotel and office complex in downtown Washington. The team uses the rooftop terrace for receptions to raise money for members of Congress.
One longtime lobbyist for Emergent has co-hosted fundraising dinners for Sen. Richard Burr (R-N.C.) at his townhouse in the capital for up to $3,000 a plate. In years past, Burr twice hired Kadlec as a senior staff aide.
Burr declined through a spokeswoman to answer questions for this article.
Kadlec, a decorated retired Air Force colonel, spent much of his career in and out of government arguing that the nation needed to prepare for biological, chemical and nuclear attacks. He earned a reputation as one of the nation’s most knowledgeable biodefense experts.
As an aide to Burr in the Senate in 2005, he help draft legislation that created ASPR. In 2013 and 2014, while serving as an Emergent consultant, Kadlec also advised BIO, a biotechnology trade association, and Bavarian Nordic, another ASPR contractor, according to documents he filed with the Senate.
When Trump appointed him to lead ASPR in summer 2017, Kadlec was determined to shift the office’s efforts toward those goals. He was convinced that biowarfare, not a natural pandemic, was the biggest threat facing the nation, he told The Post in an interview for a previous story.
Kadlec told The Post that he has worked from the start of his tenure to “build stronger relationships with industry partners” and streamline procurement. At the time, industry executives were complaining that the Centers for Disease Control and Prevention — then the manager of the Strategic National Stockpile, or SNS — was too slow to buy their products and did not pay enough for them, according to documents and interviews.
After joining the administration, Kadlec and some of his colleagues went to the Willard on multiple occasions for drinks and cigars with Emergent executives, including its top Washington lobbyist, Christopher Frech, according to current and former government officials and Emergent employees.
In March 2018, Kadlec was accompanied by Frech during a speaking engagement at the European Parliament in Brussels, a video recording from the event shows. When an activist journalist tried to follow Kadlec into an elevator while asking questions, Kadlec turned away as Frech fended off the journalist, the video shows.
In a statement, ASPR said Kadlec routinely interacts with industry figures along with government leaders and outside experts, describing the interactions with Emergent officials as “run-of-the-mill Washington networking.”
Emergent said Frech attended the meeting in Brussels “as an industry participant.”
Since the previous year, the company had sought to have the stockpile transferred under Kadlec’s control, according to former executives and government officials.
Trump’s spending plan for 2019 included just such a move. One of Emergent’s corporate objectives for that year was to “ensure effective execution of transfer of the SNS under the ASPR,” according to a company strategy document obtained by The Post. Frech was assigned to lead that effort, the document said.
Emergent declined to discuss the document. The company previously told The Post it supported the move, saying it would “streamline the delivery” of products and reduce bureaucracy.
Some contractors also said that the Biomedical Advanced Research and Development Authority, or BARDA — the ASPR division responsible for new treatments for bioattacks —moved slowly and was heavy-handed in its oversight of contractors.
Kadlec commissioned Mitre Corp. — at a cost of about $700,000 — to survey the office’s industry partners and assess the BARDA operation. The 48-page final report drew on interviews with 67 people from 40 contractors and other organizations related to biodefense, without attributing comments, the confidential document shows.
In raising the alarms about consolidation in the industry, it cited Emergent as a primary example and included a chart illustrating Emergent’s acquisitions. The report said “the field is moving toward an increasingly fragile industry base” and is “characterized by more exits than entries and the consolidation of existing critical MCM assets.”
The report also raised a host of challenges contractors face, including shifting and sometimes opaque government priorities as well as uncertain federal appropriations. While Mitre researchers said consolidation could force the government to pay higher prices for some medical products, it warned of consequences if the government did not guarantee contactors steady income.
“Without a long-term sustainment plan in place, the continued availability of these critical national security assets that the USG has invested hundreds of millions of dollars to develop is in jeopardy,” the report said.
In January, Emergent told investors that the company’s future was bright. In an investor presentation filed to the SEC, the company said it planned to double its revenue, to $2 billion a year, by 2024.
It described “public health threats” — including emerging infectious diseases and potential attacks — as a $30 billion-plus “market opportunity.”
On May 15, Trump announced what he called a “momentous medical initiative” to fast-track the development of a vaccine.
“It’s called Operation Warp Speed,” Trump said. “That means big and it means fast. A massive scientific, industrial, and logistical endeavor unlike anything our country has seen since the Manhattan Project.”
Emergent was well positioned to join Warp Speed. In June 2012, the government gave the company a contract to build an innovative laboratory in Baltimore — and left open the possibility of funding for future projects. The $628 million deal for Emergent, granted under that contract, is the second-largest award in the government’s response to the coronavirus crisis, according to federal contracting records.
In his June 1 public announcement of Emergent’s role in the project, Azar said the company would make the government-funded laboratory available to other firms developing vaccines.
The company has said that the laboratory — known as a Center for Innovation in Advanced Development and Manufacturing — has the capacity to produce hundreds of millions of doses of vaccine per year.
“Within weeks after announcing Operation Warp Speed, President Trump has now brought on another key manufacturing partner for an eventual covid-19 vaccine,” Azar said about Emergent. “Before a vaccine is even approved, Emergent’s manufacturing capabilities will pave the way for drug companies with candidates approaching approval to begin turning out doses.”