[Anderson Cooper, Cnn Anchor:] Erin, thanks very much. Good evening, everyone. We begin tonight "Keeping Them Honest" with a 360 special investigation. Smallpox was eradicated from the entire world back in 1980. Even if it ever came back the federal government still keeps enough vaccine for every single person in the United States. So why is it that the federal government is spending at least $432 million to develop a new smallpox drug, not a vaccine? A drug that incidentally one of the world's leading smallpox experts says has not been proven to work. Could it be because the company just awarded the contract has some pretty deep ties with the White House? And why is it that the company with deep ties to the White House, the company that just got a big contract for a drug that's not been proven yet, why is it going to make an 85 percent profit on its government contract? Coming up, we're going to talk with a member of the company's board of directors, a familiar face here at CNN. We first got wind of this story in the "Los Angeles Times" but since then we've learned a lot more. Investigator Drew Griffin is "Keeping Them Honest."
[Drew Griffin, Cnn Special Investigations Unit Correspondent:] It's just another good business deal for billionaire investor and big-time Democratic political supporter, Ron Perelman. This major political contributor to both parties but particular friend of the Obama White House owns the controlling shares in a company called Siga Technologies, and Siga this year won a sweet $432 million no-bid contract from the U.S. Department of Health and Human Services that even a Democrat says is a little bit too sweet to ignore.
[Sen. Claire Mccaskill , Chair, Subcommittee On Contracting Oversight:] How did this become a no-bid contract? Was it justified as a no-bid contract? Overall I think we need to begin asking some policy questions about the kind of money we're spending on developing drugs where the United States government is the only customer.
[Griffin:] Democrat Senator Claire McCaskill is calling for an investigation. Capitol Hill Republicans have already launched their own.
[Rep. Sam Graces , Chair, Small Business Committee:] The fact that the regular procurement process wasn't followed. So that's something we definitely know. So there's a lot of there's a lot of political connection there.
[Griffin:] First a little background. During the Bush administration and following 911, the idea of terrorists using bio- weapons became a real concern. Among the threats, smallpox. It hasn't been a threat in decades, and even if it did return, the U.S. still has enough vaccine for everyone in the country. But what to do if terrorists somehow were able to release the smallpox virus before people could be vaccinated? Siga, the company controlled by Ron Perelman, says it now has a drug for that. A drug developed with a lot of taxpayer money and government help. But one of the world's leading smallpox experts, Dr. DA Henderson, says Siga 's drug simply may not work.
[Dr. D.a. Henderson, Center For Biosecurity, Univ. Of Pittsburgh Medical Center:] The question is what will it do in the way of treating a patient who's had a fever and now has a funny rash that could be smallpox. Will it treat the disease? I've not seen the data that suggests it will.
[Griffin:] That's mainly because you can't test the drug on humans without infecting them first. Siga insists it has cured infected monkeys. But this is a story about contracts. And when the Siga contract was being questioned last year, Siga placed another major Democratic political supporter on its board of directors, Andy Stern, the former president of the Service Employees Union International, a public workers union that put its entire weight in money behind presidential candidate Barack Obama, then used its political weight and money behind the president's push for universal health care. Stern was named to the board at Siga around the same time another company called Chimerix said it too had a smallpox drug. Stern, his aide told CNN, was unavailable for comment. In fact Chimerix not only said it had a drug but it was and is a small business. By the Department of Health and Human Services' own requirement, the contract was supposed to go to a small business. That's when the Department of Health and Human Services did something pretty interesting. The government changed the terms of the bidding, making sure any company, even large ones like Siga, could go after the contract. Then Health and Human Services determined that Siga was the only bidder that actually qualified. [On Camera] Do you feel, because some very large Democratic supporters of the White House, Ron Perelman and Andy Stern are involved with that company that this has the impression of a political payoff?
[Mccaskill:] I'm not going to comment about people drawing conclusions about the appearances of this contract. I want to get into the facts.
[Griffin:] According to documents obtained by CNN, that's not the only question to be asked. Because internal documents reveal a profit return that one Health and Human Services official called outrageous. How much? On March 18th of this year, a contracting offer questions Siga 's return on investment, which he writes is an overwhelming 180 percent. He adds, "I know you won't find a contracting officer in government who would sign a three-digit profit percentage." A half hour later, another HHS official, a doctor, writes back saying he fully concurs that 180 percent is outrageous and advises that considering all the money taxpayers have already invested in developing the drug, well, the U.S. government should get a major discount. But that's not what happened. Instead, Siga 's CEO, a man named Eric Rose, complained in writing to the HHS contract officer about the government's approach to profit and asked that the negotiator be replaced by a more senior official. And that is exactly what happened. [On Camera] So what did the White House say? Not one thing. They told us to get any answers we wanted from Health and Human Services, the agency that granted the contract. And guess what we found here? Despite dozens of communication professionals on staff, not a single one would come out and talk to us. [Voice-over] Instead we got a statement saying the contract was awarded, quote, "after a rigorous market analysis determined that Siga was the only known company in the world with the capability to produce the required antiviral drug within the required time frame." As for that huge return on investment, HHS told us, quoting again, "We can't get into the details, but the final rates ended up well within industry standards." HHS even told us that the change in negotiators actually resulted in substantial savings for the U.S. government. SIGA technologies got back to us in writing, telling us, "The negotiations and decision to award the contract were handled solely by career procurement officials at HHS who negotiated a fair and reasonable price. And that never at any time was any elected or political official asked to intervene in the procurement process by Siga or anyone affiliated with the company. Republicans aren't buying that just yet.
[Graves:] You certainly can't ignore the political connections between the company and the administration.
[Griffin:] And in a postscript to this story, Anderson, from the documents that we have seen, the CEO and the CFO included in this contract bonuses for themselves of $200,000 to $225,000.
[Cooper:] Drew, I want to bring in our national security contributor, Fran Townsend. Fran is here not in her usual role tonight but as a spokeswoman for Siga Technologies. She's on the Siga board of directors works full time for MacAndrews & Forbes, a company that's owned by Ron Perelman. Fran, thanks for being with us. You just heard the reporting. How do you respond?
[Fran Townsend, Member Of Siga Board Of Directors:] I'm glad we're calling it "Keeping Them Honest" because I there are so many factual inaccuracies in the story I kind of don't know where to start. So, for example, the contract was put out in a competitive process and frankly it was clear that the government wanted it to be a competitive process. It was awarded to Siga, as Drew's package reports, and it was set aside because of the small business concern. They then went out the government then goes out with what's called a sources sought notice, looking for competition. The only people who responded is Chimerix. Chimerix ultimately is not competitive in this process because the scientist who discovers their drug admits in an application to NIH which Siga provided to Drew that the drug, their smallpox antiviral, causes toxicity in the gastrointestinal tract, so there is no competition. The government wants it and when the government finally awards the sole source contract to the only company that actually has a smallpox antiviral, what do they do? They also give a research and development grant to Chimerix, saying that they want to encourage competition and they don't give the award of the contract for the entire requirement. That is another 12 million doses of smallpox antiviral. They decide they're not going to decide that and they're going to give Chimerix an opportunity to fix their drug so they can be competitive. And so the government has bent over backwards to try and balance the need for an antiviral against competition. And look, you know, Anderson, I sat in the seat when I was at the White House. These are difficult decisions. But when what you're trying to balance is the safety of the American people and competition, look, I think the board did the right thing and they did they did make an award that allows them to stockpile some, while allowing a competitor the opportunity and they gave them the money to go back and try and fix the problem with their antiviral.
[Cooper:] Drew?
[Griffin:] I want to just point out that both these government oversight committees on the Hill, on the House, are calling these no- bid contracts. That's the language that they are looking into and asking why it appears that the contract negotiations were that way. But Fran
[Cooper:] And you deny it. You're saying it was not a no-bid contract.
[Townsend:] Right. It ultimately was, Anderson, a sole source contract but because there was nobody to compete. It was not a question of they directed it to Siga. The fact of the matter was there was nobody with a smallpox antiviral that could meet the government's standards. They Siga had gone through testing in the animal as it's reported with monkeys. There are four cases of what's called compassionate use where they ST-246 drug, the Siga drug, was used against humans who were infected with a with an orthopoxvirus who were cured. So there's substantial evidence in this case that this smallpox antiviral is effective and in fact the secretary of HHS has found that it's likely to meet FDA approval and we're in the process of going through that.
[Griffin:] Fran, it's likely to, but in the company's own filings it says, look, we don't know if it works and we don't know if it's safe. And that's why only the U.S. government is buying this right now because it has no commercial value.
[Townsend:] Well that's right. But what it requires for the government to have even purchased the amount in the awarded contract, the secretary had to make a finding that based on what they know so far between the monkey the animal testing and the compassionate use cases, it was likely to receive FDA approval. And by the way, what the piece doesn't mention is the FDA advisory committee who are looking at this very issue in the animal rule will have an open and public hearing that Drew can attend on December 14th.
[Cooper:] But why would a guy like Andy Stern who has all these political connections, why would he be on the board of this thing? I mean why would you bring in somebody like that unless it was to get influence with the White House?
[Townsend:] You know what, Anderson, this is a board that's got doctors, it's got people with public experience, it's got it's a very diverse board. But the fact of the matter is this may be the only thing in Washington that the Republicans and Democrats agree on. Just this week the underlying enabling legislation that gives the government the authority to purchase medical counter measures of can which the smallpox antiviral is one, actually passed that legislation passed the House unanimously.
[Cooper:] I'm just not sure what
[Townsend:] And nothing passed unanimously.
[Cooper:] What the company gets from having a high-level guy who worked at a big union that backed Obama other than that influence. I'm not sure what he brings to the table.
[Townsend:] Anderson, I can tell you not Ronald Perelman, not Andy Stern, no member of the board was involved in these contract negotiations and never contacted anybody in the government about this contract. The contract negotiations were handled by career procurement officials and the management of Siga.
[Griffin:] Fran, what does this say about how Washington works, though? Because from the outside looking in, we've got very politically connected people to the White House and we have you yourself who was in the White House drawing up and drafting this very legislation that you are now outside of the White House at a private company bidding on. People tell me this is the way that Washington works both cynically and not so cynically.
[Townsend:] Well, this is fabulous. I mean if I'm part of the Washington revolving door, Drew, I don't it doesn't work very well. I went into the federal government, was a career public servant for 24 years. I came out and presumably Siga wanted me on the board for the same reason CNN hired me and that is because of my expertise in national security and bio-defense areas. There's nothing improper about that. And in fact, you know, if you look at any major defense board today, look at Lockheed, look at Northrop Grumman or Boeing, every one of them have men who are retired four-star generals and admirals who are on those boards. Why? Because those public companies want the expertise of retired public officials. And I don't see anybody questioning the appropriateness of that.
[Griffin:] Well, actually we have on this show, and the watchdogs of government say this is the very problem, Anderson, with a lot of these contracts revolving doors. I mean we have the government buying a drug that they can't sell to anybody else. This company can't sell to anybody else.
[Cooper:] What's the next step in the process for this?
[Townsend:] Well, the FDA Advisory Committee meets next week in this public hearing. Chimerix will be at it. If Chimerix can get their drug together, they can compete for it. They will look at the animal rule and the testing that's been that's gone on. And by the way, we talk about $433 million contract. If you look at the contract, you will see there are a number of milestones that the Siga as a company and the drug, SD-246, must meet in order to get payments along the way. This is not a guaranteed $433 million contract.
[Griffin:] We looked at the contract. Most of what we got was redacted. I must be honest with you. Let me ask you really quickly about the profit margins. Are the profit margins accurate and is that too much for a government contract?
[Townsend:] The profit margins that are reported are not accurate because of course what they did what was publicly available was take the 1.7 million doses and divide it into the $433 million on the contract which doesn't account for, by the way, the government required another 300,000 doses. It required pediatric testing for pediatric doses. It want requires a warm production capability so that you can produce more.
[Griffin:] So what is the profit?
[Townsend:] The profit is competitively confidential and it's been found by the government to be so, and so I'm not at liberty to say.
[Cooper:] But as you're saying it's not the
[Townsend:] But it is by the way, we provided you, Drew, with a list of drugs and so you can see even if you take the number that's out there publicly which is higher than is accurate and you look against orphan drugs and other drugs purchased by the government, it is substantially lower. And in the end, this is about value. And so I never got the smallpox vaccine because I am not able to because of my health and I would need an antiviral. And if you're somebody who requires an antiviral, by the way, many people who did get the vaccine, it's no longer good, you would need it. The cost of it is fair and reasonable. And it's funny, the quotes from HHS officials about outrageous, I have to believe though I've never seen them were early in the process because they were very aggressive in the way that they negotiated this contract.
[Cooper:] You can look at the full statement from the company, from Siga, on our Web site. Fran, I appreciate you being on, Drew Griffin, as well. Again, you can check it out at the AC360.com Web site. Let us know what you think. We're on Facebook, Google Plus, add us to your circles, follow me on Twitter @AndersonCooper. I'll be tweeting tonight. Up next, opponents take aim at Newt Gingrich on policy and on his personal life. Are they clean hits or below the belt? We're going to look at his record and how it may affect his chances at the nomination and beyond. James Carville is going to join us in a moment. Also the latest after another deadly shooting at Virginia Tech University where that rampage four years ago took dozens of lived. Let's also check in tonight with Isha Sesay Isha.
[Isha Sesay, Cnn Anchor:] Anderson, Jerry Sandusky makes bail and his wife is speaking out. Stay tuned to find out what she's saying about the sex abuse allegations now being leveled against her husband by 10 accusers. That and much more when 360 continues.