“We might as well drop our trousers, bend over, and let Wall Street have their way with us,” Goyal told his CFO. Goyal was not a crude man, but as part of the assimilation process he had adopted common colloquial expressions and sports references, not unlike transforming himself into Al. He was determined to be as American as the Americans around him—the professional equivalent of a chameleon changing its color.
“We can put off some capital spending,” the CFO answered. “I’ve toyed with the idea of selling one of the plants and then leasing it back. We could book the revenue now. It’s not obvious we should own the real estate anyway.” The CFO, Johannes Swensen, was a neat, thin, athletic man. He did triathlons and the occasional marathon. Swensen had spent most of his career in his native Sweden, and then elsewhere in Europe. He had come to New Jersey when Centera Biomedical Group bought out the small genetic engineering firm he had founded in Stockholm. Swensen looked particularly pale and skinny opposite Goyal, who had the dark complexion of South India and the physique of an executive who had spent more time in airports than the gym. There was more than a little irony in the fact that the two men described on the cover of The Economist as embodying “The Low Point of American Capitalism” were both born somewhere other than America. When photographed together, the two of them—big and dark, thin and pale—looked like corporate villains designed by Disney animators.
“That’s small change,” Goyal muttered. “The analysts will see right through it.”
“Small change adds up,” Swensen said. “When the number hits the wire, that’s what the market will react to. The rest of the story will dribble out later. Besides, there is logic to getting out of the real estate business. We make pharmaceutical products. We don’t need to own the land under the plants. The analysts love that kind of thing. We can tell them there is more to come, this is just the beginning, lots of future cost savings, and so on.”
“They’re going to crucify us,” Goyal said, tapping the spreadsheet distractedly. “The board will not tolerate another quarter like this.”
“Well, this is the quarter we’re going to have,” the CFO answered, losing patience with the spreadsheet equivalent of hand-wringing.
“Then you and I need to take up golf—because we’re going to have a lot of spare time on our hands when the board sees this,” Goyal said.
“I don’t like golf. It takes too long,” the CFO replied. His attempt at levity fell flat. Goyal shook his head from side to side in disagreement, almost like a tremble. It was a distinctly Indian gesture that the Internet cameras liked to capture during the trial.
“We had a bad quarter. It happens. The board is smart enough to realize that,” the CFO said. “We can brief them before the meeting. They don’t like surprises, but they do tolerate bad news.”
“What happened to the Dormigen revenues?” Goyal asked.
“We booked it all last quarter,” Swensen said.
“Then why do we have this huge Dormigen expense now?”
The CFO explained the terms of Centera Biomedical Group’s contract with the U.S. Department of Health and Human Services (HHS). Centera was chosen to provide the federal government with twenty million doses of Dormigen a year to be stockpiled in case of a virulent pandemic, a terrorist attack with a biological weapon, or some other widespread biomedical emergency. Epidemiologists have always considered this a possibility; the flu pandemic of 1918–19 killed some forty million people around the globe. If anything, we are more vulnerable to a pandemic now than we were a hundred years ago. An outbreak of some nasty disease in Ningde, China—or some other place you have never heard of—will not stay isolated, as it would have in 1915. One business executive visiting a T-shirt factory in Ningde can spread a killer virus to Manhattan or Tokyo in a matter of hours. And there are plenty of nasty viruses: polio, avian flu, Ebola, swine flu, HIV, MRSA.
Dormigen works against them all. Ironically, it was the HIV virus that inspired us to believe that something like Dormigen might be possible. HIV has a unique ability to change its form; when the human body produces antibodies to fight back, HIV modifies itself—actually changes its form—so that the antibodies become ineffective. As soon as the human body finds the right key to disable the virus, HIV changes the lock. Some bold researchers reckoned that antibodies could be engineered to do the same thing, only for the “good guys.” Why couldn’t we engineer antibodies that would change form until they were able to destroy whatever pathogen had invaded the body? These antibodies would show up with a whole ring of keys, like the janitor who lets me into my office when I lock myself out. He takes the huge ring of keys hanging off his belt and patiently tries one after another; eventually one of them opens my door. Ten billion dollars and fifteen years later, we invented the most powerful drug since penicillin: a giant antibody key ring.
“Dormigen is alive,” Swensen told his boss at that fateful meeting at Centera Biomedical Group.
“It’s a pill, right?” Goyal asked.
“Yes and no,” Swensen offered. “It’s a gel cap. But my point is that it’s alive. It’s a package of enzymes that we cultivate—”
“Never mind,” Goyal said, literally waving away the science with a sweep of his fleshy arm. Obviously, if he cared more about the science, fewer people would have died. Dormigen is engineered by splicing several key human genes into a host embryo, usually a chicken egg. The process is not terribly complicated, but it does require twenty-one days for the genetically engineered cells to mature in their host embryos, after which they are harvested and grafted onto a common human antibody that can be injected back into the body and easily absorbed. As the Centera CFO correctly pointed out, Dormigen is alive. There is nothing unique or even terribly interesting about that; many vaccines are alive. It does explain, however, why Centera Biomedical Group was paid a lot of money to manufacture Dormigen, store it, destroy it—and then do it all over again.
“Dormigen has a shelf life of about a hundred and eighty days,” Swensen explained to his overwrought boss. “We make twenty million doses, then six months later we destroy them. That’s what we do, over and over again—unless there is a need for them, in which case the government would draw down the stockpile.”
Goyal tapped a line item in the budget. “We’ll spend a hundred and twenty million dollars this quarter to destroy something that cost us a hundred and twenty million to produce last quarter?”
“No,” the CFO said. “We’ll spend about fifteen million to destroy the old doses and a little over a hundred million making the new ones.”
And that was when the plan was hatched. Both men denied any knowledge of it at first, when the FBI raided the headquarters of Centera at the beginning of the Outbreak. Later, at trial, each would blame the other for the scheme. The jury found neither convincing and convicted them both. In any event, their plan was simple and good for the bottom line: stop producing new Dormigen until revenues turned healthier, probably in just a few quarters. Goyal and/or Swensen decided to gamble. Rather than spending a lot of money to produce a new batch of Dormigen—vials that would sit in a warehouse only to be destroyed six months later—they would keep the old stuff around. “I never thought it would matter,” Swensen explained during the sentencing phase of his trial. “We were just a safety valve.”
That was the exact language in the contract: safety valve. Centera was only obligated to provide the Department of Health and Human Services with Dormigen after the government had exhausted 75 percent of its own stock. The U.S. government had tens of millions of doses, most of which went unused in a normal year. The Centera scheme was like loaning out the spare tire on your car for a few weeks. How often do you get a flat? There was virtually no chance that the government would need Dormigen this quarter, when Centera could really use the extra revenue. As soon as the business environment improved, the company could go back to making and destroying Dormigen without anyone being the wiser.