Technology

Profiteering Off Publicly Funded COVID Treatments

Everyone's making money off our tax dollars but us.

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I’m all for heavily compensating whoever comes up with an effective treatment or vaccine for COVID-19, but our existing setup seems designed to encourage scamming and grifting. For years, we’ve talked about the evil that is the Bayh-Dole Act, which encouraged universities to patent every damn thing (most of which was funded from federal government grants) and then sell off those patents to industry. While it’s made a bunch of people rich, it’s been such a disaster in so many other ways. First it’s done massive harm to university research (rather than the opposite as its backers promised). It significantly decreased information sharing and collaboration (keys to innovation breakthroughs) because universities kept demanding ideas be kept secret so they could patent them and lock up the output of any (again, mostly taxpayer funded) research.

A key result of Bayh-Dole is that many, many universities all set up “tech transfer” offices, in the belief that they’d be able to cash in on all these patents being licensed to industry. But, of course, like so many patent holders, universities vastly over-estimate the value of the patent, and under-estimate the value of actual execution. So almost all (with just a few limited exceptions) university tech transfer offices have been dismal failures, and lost universities money, rather than being profit centers. Of course, that created an opportunity… for patent trolls. One of the world’s largest patent trolls, Intellectual Ventures, was literally built off of this scam: swooping in to “rescue” desperate tech transfer offices at universities, buying their patents off them for pennies, and amassing a huge collection to shakedown actual innovators. And of course, some universities — including the University of California — got directly into the patent trolling business themselves.

If you want to see a case study on how this works in the age of COVID-19, look no further than the story of the antiviral therapy called EIDD-2801. My and your taxpayer money helped fund the development of the drug (taken in pill form, originally for the flu), by a grant from the federal government to Emory University for $30 million (only about half of which has been spent). But, just as the COVID-19 situation heated up, there was a recognition that pharma firms might be eager to find new drugs to treat the disease. George Painter heads Emory’s tech transfer operation, and also (coinkydinks) holds some patents related to EIDD-2801. In what lots of people considered to be a weird move, he quickly sold off the rights to EIDD-2801 to a “biotherapeutics” company called Ridgeback Biotherapeutics, that didn’t seem to have much in the way of, well, anything:

Ridgeback Biotherapeutics had no laboratories, no manufacturing facility of its own and a minimal track record when it struck a deal in March with Emory University to license an experimental coronavirus pill invented by university researchers…

What Ridgeback did seem to have was close connections to the Trump administration. And a wealthy couple who “founded” the firm.

Wayne Holman, who holds a medical degree from New York University, is a hedge-fund manager with a long track record of investing in pharmaceutical stocks. He founded his fund Ridgeback Capital Management in 2006. Wendy Holman, chief executive of Ridgeback Biotherapeutics, is a former investment manager who was named to President Trump’s advisory council on HIV/AIDS in 2019.

The Holmans live on Miami’s exclusive Star Island, where they bought two mansions for a combined $47 million in 2014 and tore one of them down. Ridgeback Capital’s headquarters is in a small office building not far away in Coconut Grove, near a private school where Wendy Holman serves on the board of trustees.

The story of Emory and Ridgeback came to attention only because of Rick Bright, the whistleblower who was removed from his job as the director of the US Biomedical Advanced Research and Development Authority for challenging the US’s approach to dealing with COVID-19. Among the things he blew the whistle on was Ridgeback’s sketchy and insistent push for a lot more money from BARDA, despite not even drawing down the remaining $14 million of the existing grant:

Sponsored

Ridgeback’s involvement burst into the broader public sphere in early May, when Bright, the ousted head of BARDA, filed his explosive whistleblower complaint. Bright alleged that he clashed with Robert Kadlec, the Health and Human Services assistant secretary for preparedness and response, over demands that he award BARDA contracts to well-connected companies. HHS has said it “strongly disagrees” with Bright’s allegations.

In his complaint, Bright cited attempts to secure money for EIDD-2801 — first by Painter in November 2019, and then by Wendy Holman in early April — among episodes of alleged political pressure.

Bright said he rejected requests to fund EIDD-2801 because Emory had already received pledges of $30 million from the National Institute of Allergy and Infectious Diseases and the Department of Defense to cover development of the drug, including human safety testing. Without first seeing safety results, Bright said, it did not make sense to back the drug with new infusions of federal cash.

The story includes quotes from a series of emails that Holman sent pushing for more taxpayer funds to run clinical trials.

Bright said in his complaint that Ridgeback had been seeking $100 million to further the drug’s development. In an April 13 email, a BARDA official said the proposal from Ridgeback could obligate the government to pay the company more than $300 million. The contract official objected to the outlay because Ridgeback had not followed proper application procedures.

Even so, it appears that Ridgeback was able to cash in by flipping the rights to EIDD-2801 to pharma giant Merck after just about two months:

That wager paid off with extraordinary speed in May when, just two months after acquiring the antiviral therapy called EIDD-2801 from Emory, Ridgeback sold exclusive worldwide rights to drug giant Merck.

Sponsored

Nice work if you can get it.

And, again, I’m all for investing in the development of a successful treatment of this disease, which remains a massive threat. But, let’s go back to the basics here: the research was paid for by taxpayers. But the benefit seems to be accruing to private companies entirely, and where the incentives get sketchy super quick. It seems that a much better system is to not involve patents and sketchy licensing deals that give off the appearance of self-dealing. Why not just offer massive prizes, along with some initial incentive grants to do the necessary work, and then whoever comes up with a treatment can claim a massive prize, along with the promise that the actual treatment be made widely available for free or at a nominal price. That seems a lot more effective with much less risk of arbitrage and flipping, and privatizing that which was paid for by public funds.

Profiteering Off Publicly Funded COVID Treatments

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