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Thirteen years ago, a group of U.S. public health officials came up with a plan to address what they regarded as one of the medical system’s crucial vulnerabilities- a shortage of ventilators- the last line of defense for patients suffering respiratory failure. “We definitely saw the problem,” said Dr. Thomas R. Frieden, who ran the Centers for Disease Control and Prevention from 2009 to 2017. “We innovated to try and get a solution. We made really good progress, but it doesn’t appear to have resulted in the volume that we needed.”
In 2006, the Department of Health and Human Services established a new division, the Biomedical Advanced Research and Development Authority, with a mandate to prepare medical responses to chemical, biological and nuclear attacks, as well as infectious diseases. In its first year in operation, the research agency considered how to expand the number of ventilators. It estimated that an additional 70,000 machines would be required in a moderate influenza pandemic.
The ventilators in the national stockpile were not ideal. In addition to being big and expensive, they required a lot of training to use. The research agency convened a panel of experts in November 2007 to devise a set of requirements for a new generation of mobile, easy-to-use ventilators.
In 2008, the government requested proposals from companies that were interested in designing and building the ventilators. The goal was for the machines to be approved by regulators for mass development by 2010 or 2011. After that, the government would buy as many as 40,000 new ventilators and add them to the national stockpile. The ventilators were to cost less than $3,000 each.
Companies submitted bids for the Project Aura job. The research agency opted to go with Newport Medical Instruments, a small outfit in Costa Mesa, Calif. Newport, which was owned by a Japanese medical device company, only made ventilators. Being a small, nimble company, Newport executives said, would help it efficiently fulfill the government’s needs.
Ventilators at the time typically went for about $10,000 each, and getting the price down to $3,000 would be tough. But Newport’s executives bet they would be able to make up for any losses by selling the ventilators around the world. “It would be very prestigious to be recognized as a supplier to the federal government,” said Richard Crawford, who was Newport’s head of research and development at the time. “We thought the international market would be strong, and there is where Newport would have a good profit on the product.”
Federal officials were pleased. In addition to replenishing the national stockpile, “we also thought they’d be so attractive that the commercial market would want to buy them, too,” said Nicole Lurie, who was then the assistant secretary for preparedness and response inside the Department of Health and Human Services. With luck, the new generation of ventilators would become ubiquitous, helping hospitals nationwide better prepare for a crisis.
Project Aura was Newport’s first job for the federal government. Things moved quickly and smoothly, employees and federal officials said in interviews. Every three months, officials with the biomedical research agency would visit Newport’s headquarters. Mr. Crawford submitted monthly reports detailing the company’s spending and progress. The federal officials “would check everything,” he said. “If we said we were buying equipment, they would want to know what it was used for. There were scheduled visits, scheduled requirements and deliverables each month.”
In 2011, Newport shipped three working prototypes from the company’s California plant to Washington for federal officials to review. Dr. Frieden, who ran the C.D.C. at the time, got a demonstration in a small conference room attached to his office. “I got all excited,” he said. “It was a multiyear effort that had resulted in something that was going to be really useful.”
In April 2012, a senior Health and Human Services official testified before Congress that the program was “on schedule to file for market approval in September 2013.” After that, the machines would go into production.
Then everything changed.
The medical device industry was undergoing rapid consolidation, with one company after another merging with or acquiring other makers. Manufacturers wanted to pitch themselves as one-stop shops for hospitals, which were getting bigger, and that meant offering a broader suite of products. In May 2012, Covidien, a large medical device manufacturer, agreed to buy Newport for just over $100 million.
Covidien — a publicly traded company with sales of $12 billion that year — already sold traditional ventilators, but that was only a small part of its multifaceted businesses. In 2012 alone, Covidien bought five other medical device companies, in addition to Newport. Newport executives and government officials working on the ventilator contract said they immediately noticed a change when Covidien took over. Developing inexpensive portable ventilators no longer seemed like a top priority.
Newport applied in June 2012 for clearance from the Food and Drug Administration to market the device, but two former federal officials said Covidien had demanded additional funding and a higher sales price for the ventilators. The government gave the company an additional $1.4 million, a drop in the bucket for a company Covidien’s size.
Government officials and executives at rival ventilator companies said they suspected that Covidien had acquired Newport to prevent it from building a cheaper product that would undermine Covidien’s profits from its existing ventilator business.
Some Newport executives who worked on the project were reassigned to other roles. Others decided to leave the company.
“Up until the time the company sold, I was really happy and excited about the project,” said Hong-Lin Du, Newport’s president at the time of its sale. “Then I was assigned to a different job.”
In 2014, with no ventilators having been delivered to the government, Covidien executives told officials at the biomedical research agency that they wanted to get out of the contract, according to three former federal officials. The executives complained that it was not sufficiently profitable for the company.
The government agreed to cancel the contract.
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