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THE DRUG TRADE

 

OVER THE PAST half century there has been a massive web woven between the federal government and the health care industry. Whether due to special taxes, fines, regulations, subsidies, or mandates, there have been enormous sums of money at stake in governmental decision-making for health care companies—and the companies’ investors. By 2007, federal government programs like Medicare, Medicaid, and others accounted for 46% of all health care spending in the United States.¹ Knowing what changes might be in store for those programs, and having advance notice of details of other health care legislation, could translate into a lot of profits. For a sitting United States senator, trading stocks at the same time you are pushing and writing legislation could net you millions in capital gains.

Throughout 2009, Washington was consumed by the Patient Protection and Affordable Care Act, or what became commonly known (at least to its critics) as Obamacare. It began as a campaign promise, became a debate, and ended with horse-trading, political threats, and partisan muscle. The bill that was eventually passed by Congress and signed by President Obama was 2,500 pages long. Very few members actually knew everything that was in the bill or what it all meant. Some members had not even had a chance to read it. The health care industry and pharmaceutical companies employed thousands of lobbyists to shape the legislation. When the dust finally settled, clear winners and losers emerged. The details that determined who came out ahead and who didn’t were almost always hammered out behind closed doors. A single event could cause the price of a stock to swing wildly. For example, when six senators announced on July 27, 2009, that they were going to eliminate the “public option”—a government-run insurance policy—from their version of the health care reform bill, the share prices of three major insurance companies surged by between 8% and 10% the next day. Trading stocks in such an environment could be highly profitable, especially if you knew about such events in advance.

One of those at the center of shaping the bill was Senator John Kerry of Massachusetts. Kerry, first elected to the Senate in 1984, had been a longtime advocate of health care reform. He serves as a member of the Health Subcommittee on the powerful Senate Finance Committee. The former Democratic nominee for President is a member of the wealthy Forbes family and is the beneficiary of at least four inherited trusts. In 1995, his wealth jumped dramatically when he married Teresa Heinz, the widow of Pennsylvania Senator John Heinz, heir to the Heinz family fortune. Teresa Heinz Kerry is worth hundreds of millions of dollars.

Like other very wealthy people, John Kerry is an investor. His family trusts are relatively small, worth less than $1 million, according to his 2009 financial disclosures. By themselves they could hardly sustain his lifestyle. The bulk of the Kerrys’ wealth resides in a series of marital trust and commingled fund accounts. All together, these funds include significant investments in stocks of many corporations. It is his buying and selling of health care stocks during the debate over health care reform that is particularly interesting. While some have reported that the Kerrys’ assets are in a blind trust, they have not been designated as such on his financial disclosure forms.²

Contrary to public perception, the major pharmaceutical companies were in favor of Obama’s health care bill. The President’s new program was expected to increase the demand for prescription drugs by making health care more accessible. Big Pharma, as the companies are collectively known, decided it could not stop the bill, so it might as well try to influence its provisions. Back in 1994, when the Clinton administration (and notably Hillary Clinton) had pushed for dramatic changes in the health care system, several effective ads sponsored by the pharmaceutical industry, starring “Harry and Louise,” helped defeat “Hillarycare.” In 2009, Big Pharma hired the two actors again. Only this time they were fifteen years older—and they were in favor of the bill. “Well, it looks like we may finally get health care reform,” said Harry, in one ad.

In July 2009, industry representatives met with key members of Congress and hashed out critical details of the new Obama bill.³ As the bill snaked its way through the House and Senate, where Kerry was actively pushing it, the Kerrys began buying stock in the drug maker Teva Pharmaceuticals as the prospects of its passage improved. In November alone they bought close to $750,000 in the company.⁴

When the Kerrys first began buying shares, the stock was trading at around $50. After health care reform passed, it surged to $62. In 2010, after the reform bill was signed, the Kerrys sold some of their shares in Teva, reaping tens of thousands in capital gains. (It’s unclear exactly how much because of the way the transactions are reported. Politicians are required to report ranges only—not exact dollar amounts.) And they held on to more than $1 million worth of Teva shares. All in all, health care stocks proved to be some of the Kerrys’ best investments that year, in terms of return on investment.

To be sure, Senator Kerry wasn’t the only congressional trader in pharmaceuticals. John Tanner of Tennessee, a member of the House Ways and Means Committee, bought up to $90,000 worth back in April 2009, when the House was approving reserve-fund budgeting for health care (part of the annual budget process). Also buying Teva were Senator Jim Webb of Virginia and Congressman Vern Buchanan of Florida. Unlike Kerry and Webb, however, Buchanan voted against the bill. Casting a vote is one thing; betting on the final tally is something else. Most members, most of the time, know full well which bills will pass before they cast their votes. Health care was such an important bill, and the Democrats had such a strong majority (even if Scott Brown’s surprise election in Massachusetts denied them a supermajority of sixty votes in the Senate), that opposing members like Vern Buchanan could still place bets that the bill would eventually get to Obama’s desk.

The very idea that politicians trade stocks while they are considering major bills comes as a shock to many people, but it is standard behavior in Washington. Senator Tom Carper of Delaware sat next to Kerry on the Senate Finance Committee’s Health Subcommittee. Carper, more of a centrist than Kerry, was concerned about the public option. And according to former Senator Tom Daschle, who was a point man in the Obama administration’s push to pass the bill, Carper was intimately involved in hammering together the health care bill throughout the spring, and summer of 2009. By the fall he’d joined a group known as the Gang of Ten, who were trying to bring about a compromise with Republicans.⁵

 

PRIMING THE PUMP

 

 

Just a few weeks after three committees had approved health care bills in rapid succession, Carper began buying health care stocks that would benefit from the legislation he was supporting. He bought up to $50,000 in Nationwide Health Properties, a real estate investment trust that specialized in health care—related properties. He also picked up shares in Cardinal Health and CareFusion. (As we will see, Cardinal was a popular investment choice for those involved in the health care debate.)

Congresswoman Melissa Bean of Illinois, a moderate, seemed torn over whether to vote for or against Obamacare. But her indecision didn’t apply to her stock portfolio. Along with her husband, Bean traded shares as she watched the debate unfold in Washington. Indeed, although Bean and her husband are active traders, the only stock purchases they made during 2009 were in the health care sector. They bought shares in Cardinal Health, CareFusion, and two drug manufacturers, Mylan and Teva. Bean bought Teva in April at about $46 a share. After Obamacare passed, shares soared to more than $63. She bought Mylan when it traded at $14 a share. After Obamacare became law, it rocketed to $23 a share, up more than 50%.⁶

One of the more creative and cynical plays on health care reform came from Congressman Jared Polis of Colorado. Polis is a young politician who had just taken his congressional seat in January 2009. But he was clearly seen as a rising star, with an appointment to the powerful House Rules Committee. He also sits on the House Democratic Steering and Policy Committee and on the Education and Labor Committee’s Subcommittee on Healthy Families and Communities. Polis is wealthy. He grew up amid privilege, and his family became enormously rich after founding and later selling Bluemountain.com, the greeting card website.

Throughout 2009, Polis was a tireless advocate for Obamacare, declaring that health care reform “could not come at a better time.” Polis sat on two House committees that were central to the crafting and passage of the health care bill. As a member of the House Education and Labor Committee, he was involved in shepherding through one of the three pieces of legislation that would become the final bill. And as a member of the powerful Rules Committee, he helped shape the parameters and procedures to secure passage of the bill in the House.

None of this gave him pause when it came to investing in health care companies as he helped determine the fate of Obamacare. While Polis was praising the benefits of health care overhaul, he was buying millions of dollars’ worth of a private company called BridgeHealth International.⁷ BridgeHealth describes itself as a “leading health care strategic consultancy.” It works with companies to help them cut health care costs. One of the things that BridgeHealth offers is medical tourism: providing less expensive medical procedures in countries such as China, Mexico, India, Thailand, Costa Rica, and Taiwan. In other words, Polis was betting that there would be more, not less, medical tourism after the passage of health care reform. Companies in the medical tourism industry generally agreed, and favored Obamacare. They did not believe the bill would actually contain costs, and if anything, they expected overseas medical procedures to become more attractive. Medical Tourism magazine featured an article after the passage of the bill entitled, “Medical Tourism Expands as Alternative to Obamacare.” As the article put it, “Interest in medical tourism has expanded rapidly as Americans react to the new federal law.”⁸

After the reform bill became law, BridgeHealth boasted that it was uniquely positioned to help companies cut medical costs. “What we can offer to the employer and insurer is health care reform today because we’ve addressed quality and cost,” Vic Lazzaro, BridgeHealth’s CEO, said in July 2010 after the bill was passed. “This is an opportunity to convert that Cadillac plan to a Buick because you can reduce that cost.”⁹

In all, Polis put between $7 million and $35 million into the company as the health care bill wended its way through Capitol Hill. When investment timing was crucial, Polis’s purchases often coincided with the work of his committees. As the Education and Labor Committee considered health care reform in June and July, he made two large purchases of company stock, worth between $1 million and $5 million, on June 16 and 17. His committee passed the health care bill in mid-July. By October 2009, it was Polis’s powerful Rules Committee that was determining which amendments would be considered and what the parameters of the debate would be as the House worked to pass the same legislation that was moving forward in the Senate. On October 13 and 23, Polis made two more purchases of shares worth between $1 million and $5 million. Polis’s office, not surprisingly, insists that his investments had no influence on his vote. (It was all a coincidence!) But people do not make multimillion-dollar investments in a vacuum. And Polis was well positioned to know the details of the massive bill as well as what amendments would or wouldn’t be considered.

Then there is the matter of his biotech investments. The health care reform bill that emerged from Polis’s committees was also enormously beneficial for biotech companies. Embedded in the complex bill were two clauses that were vital for the profitability of these companies. The first was the Therapeutic Discovery Project Credit, which provided a 50% credit for investments in biotech pharmaceutical research. Far more important was the Approval Pathway for Biosimilar Biological Products. The Food and Drug Administration gives traditional branded prescription drugs five years of exclusivity before a generic version of the same medication can be produced. But in this provision, biotech drugs were given a twelve-year exclusivity.

Many observers, like Dr. Jerry Avorn and Dr. Aaron Kesselheim of Harvard University, believed that the twelve-year period was unjustified and that five years was plenty of time. That was the position of the FDA itself.¹⁰ The longer window would, of course, be a boon to biotech investors. As biotech analyst Richard Gayle put it after the law passed, “Biotechnology companies now have a known period of market exclusivity post-approval, one that is independent of patent time frames. This will provide investors with the predictability they crave when they project product sales far into the future for biotech drugs in development.” In the health care bill, he said, the biotech industry “got exactly what it wanted.”¹¹

Congressman Polis favored the discovery credit and longer-exclusivity provisions. And he made three large purchases of an exchange-traded fund when his committees pushed through the bill. He bought between $750,000 and $1.5 million in the PowerShares Dynamic Biotech and Genome ETF just weeks after the committee proposed to extend the exclusivity period. He bought the fund at about $16 per share. After Obamacare passed, the price jumped to $20, a 25% increase in six months.

How much money did Polis make? We will probably never know. Curiously, having made these aggressive transactions throughout 2009, in January 2010 he suddenly converted his assets to a “qualified blind trust.” As we will see later, these blind trusts are not really blind, and they don’t prevent a politician from providing political intelligence to those who manage the accounts. In Polis’s case, the person handling his trust was a longtime friend and large campaign contributor named Solomon Halpern. By creating the blind trust, Polis no longer had to disclose his stock transactions or profits.

 

Meanwhile, John and Teresa Heinz Kerry continued to trade. Along with Teva, during 2009 the Kerrys also picked up shares in ResMed—at least $200,000 worth. ResMed makes medical devices such as airway aids for sufferers of sleep apnea. The Kerrys managed to snatch up shares in the $20-to-$25 range. After health care reform passed, shares in the company surged to $34, as much as 71% higher than what the Kerrys paid for them. (Two years later, in the spring of 2011, ResMed’s stock price had fallen back below $30.) ResMed was a winner in the health care reform legislation—as Reuters declared—thanks in part to John Kerry’s efforts. In early versions of the health care bill, device makers like ResMed were to be taxed, starting in 2010, through an “industry fee.” In the final bill, fees for medical device makers were delayed until 2013, and the industry tax was replaced by a smaller sales tax (2.3%). Kerry was a strong opponent of higher taxes on medical device makers.

The Kerrys also bought between $250,000 and $500,000 in Thermo Fisher Scientific, which provides products and services to hospitals and medical centers. The firm had a lot at stake with health care reform. The Kerrys bought the stake at around $35 a share. After the reform bill became law, the stock was selling at more than $50 a share—a jump of more than 40%.

While the Kerrys were buying Obamacare winners, they were dumping losers. In the final bill, pharma was a winner, the health insurance industry was a big loser. Not coincidentally, the Kerrys had been selling all their stock in health insurance companies. One such company, United Health, offers Medicare insurance. The legislation dictated lower reimbursements for Medicare procedures. Lifetime coverage limits and protection against preexisting medical conditions were removed—extremely popular aspects of the bill, to be sure, but they squeezed United Health’s bottom line. By the end of June 2009, the Kerrys had sold all of their shares in United Health. They also dropped their investment in Wellpoint, another health benefits company. Six weeks later, Kerry introduced an amendment to tax generous health care plans, which would clearly hurt companies like those whose stock he had just sold.¹²

Kerry’s profitable history of congressional trading does not begin and end with the debate over President Obama’s bill in 2009. Indeed, some of his most dramatic and amazingly well-timed trades occurred earlier, during other health-care-related high-stakes legislative battles. Some of his biggest scores were tied to his knowledge of obscure matters that had huge ramifications for certain companies.

In May 2007, a government agency called the Federal Center for Medicare and Medicaid Services was looking at two drugs that were used to treat anemia in cancer patients. The agency had to decide: Did Johnson & Johnson’s Procrit and Amgen’s Aranesp warrant reimbursement under Medicare? Johnson & Johnson was a large, diversified company with lots of products, so rejection of its drug would not be critical. But for Amgen, losing Medicare reimbursement for Aranesp would be a disaster. The drug was commonly given to elderly cancer patients, many of whom could afford it only under Medicare.

Indeed, when the word went out that the government might end the reimbursements, Amgen shares plunged. But at least one investor avoided those losses with two nearly perfectly timed trades. On May 4, the Kerrys sold between $250,000 and $500,000 in Amgen stock. Three days later, they sold the balance of their stock in the company, another $250,000 to $500,000, when it closed at $63.76 per share. If they had waited two weeks, these sales would have been worth between $50,000 and $100,000 less, because on May 15 it was publicly announced that Medicare would sharply limit reimbursements for treatment with Aranesp. The price dropped to $54.01, or down 15%.¹³

 

TIMING IS EVERYTHING

 

 

Joining Senator Kerry in dumping Amgen shares just in time were two senators who sat on the Health, Education, Labor, and Pensions Committee, which did not have direct oversight of Medicare but was involved in health and pharmaceutical policies in general. Senators Johnny Isakson and Sheldon Whitehouse both sold between $15,000 and $50,000 worth of Amgen stock on the same day, May 9, also avoiding large losses.¹⁴ Did Senator Kerry know the news was coming? Did Senators Isakson and Whitehouse know anything? We cannot be sure. If they had worked in the private sector, their access and timing would almost certainly have demanded an SEC investigation. Short of sworn testimony, we cannot rule out that they simply guessed right, or were lucky. Even in the private sector, they might not be proven guilty. But the timing seems far too good to be true.

A few years before this narrow pharmaceutical debate, the Kerrys went on a big stock-buying spree involving more than one hundred health care transactions over a period of several months. The end result was capital gains of at least $500,000, and possibly as high as $2 million. It happened in 2003, when Congress was debating what would become the largest overhaul of the Medicare program in its thirty-eight-year history. The Medicare Prescription Drug, Improvement, and Modernization Act created a new entitlement benefit for prescription drugs. The drug manufacturers were all for it, and why wouldn’t they be? Under the bill’s provisions the federal government would pay part of the cost of prescription drugs for all 44.8 million elderly and disabled beneficiaries. Health insurance companies were for it too, because the money would flow through them.

The new benefit, called Medicare Part D, subsidized approximately the first $2,500 of a senior citizen’s prescription drug costs. En route to final passage, two versions of the bill emerged. One cleared the House on June 27, 2003, and the other passed the Senate on July 7. One called for a cap on drug prices, the other did not. The drug industry stood to gain more with one than the other, but either way, the gain would be huge. Congress went into a joint conference committee on November 21 to iron out differences. It was finally signed by President George W. Bush on December 8, with no caps on drug prices.

Throughout the process, senators and representatives were buying and selling pharmaceutical stocks that would be hurt by or benefit from the legislation. Yet not everyone succumbed to temptation. Perhaps no congressman held more stock in branded pharmaceutical companies than James Sensenbrenner of Wisconsin, who owned between $1 million and $5 million in Merck stock, $500,000 in Abbott Labs, and between $700,000 and $1.2 million in Pfizer stock. To his credit, Sensenbrenner didn’t trade stock during the debate.¹⁵

By contrast, Congressman James Oberstar of Minnesota quietly sold off his shares in the generic drug manufacturer Pharmaceutical Resources (now Par Pharmaceuticals) on September 22 and October 17 as the bill moved toward passage. He sold his holdings when the stock was selling at more than $70 a share. After Bush signed the bill, shares plummeted to $40 within a few months, as generic drug makers lost some competitive advantage to name-brand drug providers. Three days before President Bush signed the Medicare legislation into law, Oberstar also sold his shares in HealthExtras (now Catalyst Health Solutions), a pharmacy insurance management services firm. After Bush signed, the stock lost close to 10% of its value.¹⁶

Oberstar had been in Congress since 1975 and knew the ways of Washington. Congressman Jeb Bradley of New Hampshire had just been seated in January 2003, yet he apparently was a quick learner. Bradley owned over $300,000 in pharmaceutical stock when he took office. By October, he’d bought additional shares of Pfizer, Merck, and Johnson & Johnson before voting in favor of the prescription drug benefit.¹⁷ Merck stock jumped 10% in the weeks following President Bush’s signing of the law. Pfizer and Johnson & Johnson were both up too.

 

By far the most aggressive congressional trading of pharma stock during this debate was done by Senator John Kerry and his wife. Oversight of the prescription drug plan would fall to Kerry’s committee in the Senate, so he was intimately familiar with the law and its ramifications. Kerry was opposed to key portions of the legislation and wanted to allow for the importation of drugs from Canada to keep drug prices down. But when it became apparent that importation of drugs would not pass, the Kerrys became increasingly aggressive in buying up pharma stock. In all, the Kerrys made a stunning 111 transactions of pharmaceutical companies and health insurance companies in 2003, according to his financial disclosure statements.¹⁸ They were all great picks. He bought shares of drug makers as well as the health plan companies that would actually administer the plan through Medicare. For example, throughout September Kerry made nine purchases of Johnson & Johnson stock, totaling more than $500,000.¹⁹

The Kerrys also made sixteen purchases of Pfizer stock, totaling as much as $1 million, while the legislation was being worked on in committee. When he bought the stock it was hovering in the $30 range. After the Medicare drug benefit bill passed, the stock rose to $36 a share—up 20%. On November 13 and 17, 2003, he bought at least $200,000 worth of stock in Oxford Health Plans, which provides coverage for prescription drugs. He also bought between $500,000 and $1 million of stock in United Health Group, which happened to become the largest health insurance provider under Medicare Plan D after the legislation passed. Kerry’s financial disclosure statements reveal that the amount he had invested United Health by the end of the year was between $1 million and $5 million. He bought the stock in November at around $28 a share. Months later, it was trading at $33. There were also four purchases of stock in Abbott Labs in the month of November, when it was trading at $44 a share. After Medicare Plan D passed, share prices moved up to $46. The Kerrys also bought Bristol-Myers Squibb, which was trading at around $26 a share. The stock rocketed to more than $39 after the prescription drug benefit became law.

The Kerrys also purchased shares of Cardinal Health, another Medicare Plan D provider (at least $100,000 worth), and made four purchases of Merck stock in November, of at least $240,000.²⁰

In addition to helping drug manufacturers, the Medicare Prescription Drug Act also provided for add-on payments for certain new medical devices. The Kerrys were already invested in two venture funds focused on medical technologies, Salix Ventures II and Delphi. In 2003, they upped their investments in both. The following year they reaped capital gains of between $100,000 and $1 million.

In January 2004, after President Bush signed the law and the stock prices jumped, the Kerrys started selling some of their pharma stocks. The couple netted capital gains of between $100,000 and $1 million with their Oxford Health Plans investment alone. They also netted tens of thousands of dollars in capital gains from Pfizer, Johnson & Johnson, and Cardinal Health stocks.

It was an enormously aggressive short-term bet on pharma stock. If you look at the Kerrys’ trades in other sectors throughout 2003—transportation, blue chips, and high tech, among others—you find a regular mix of buys and sells. But of the 111 transactions involving health plans and pharma stock, 103 were buys.²¹

 

The health care debate in 2009 was a much bigger event than any of these predecessors. As we have seen, John Kerry was not alone in buying and selling shares as Congress worked to remake the health care system. Some of the most powerful men in the Senate were part of the action. At the center of forging the health care bill was Senator Max Baucus of Montana. Eventually, when the major health care and pharmaceutical companies came out in favor of the bill, it was partly thanks to a series of detailed set-asides that were of immense benefit to the industry. Baucus had a lot of influence on those set-asides because he had been tasked by the White House and by congressional Democrats to put the deal together. And during the legislative process, Senator Baucus, as he was negotiating with pharmaceutical companies and putting his imprint on the legislation, was buying and selling health care stocks. Baucus does not do a lot of stock trading, and he’s not a wealthy man. He is no John Kerry. Indeed, he’s not even in Kerry’s financial universe. But during 2009, as he was shepherding health care legislation in the Senate, fully 20% of Baucus’s stock transactions involved health care—related stocks. He bought Gilead Sciences, Abbott Labs, and Fluor Corporation (which is not a health care company but is heavily involved in the sector, building hospitals and medical care centers). All three were perceived winners in the health care debate. And he seemed to do pretty well. He bought Abbott at around $45 a share. After health care reform passed, it soared to $54 a share. All three firms lobbied in favor of the legislation.²²

Congressman John Boehner, who was leading the opposition to Obamacare in the House of Representatives, may have been fighting John Kerry on policy matters, but he was entirely allied with him when it came to investment decisions. On December 10, 2009, Boehner bought numerous health insurance company stocks, including tens of thousands of dollars in Cardinal Health, Cigna, and Wellpoint. On the same day, Boehner purchased shares in the Big Pharma companies Amgen, Johnson & Johnson, Forest Labs, Covidien, and Pfizer. He also bought shares in CareFusion, which provides systems for countering infections.²³ Just days later, on December 15, the Washington Post declared that the “public option” was officially dead.²⁴

Health insurers breathed a sigh of relief. So too did pharmaceutical companies, who feared that a government health insurance program would lead to price controls. When Boehner bought Wellpoint stock on December 10, the price was about $56 a share. Within a month it was trading at $66 a share. Cardinal Health was up approximately 10% by the time President Obama signed the health care bill. In early 2010, Boehner bought yet more shares in Cardinal Health and Pfizer, before President Obama signed the health care bill.

 

Sometimes members of Congress see an opportunity for big profits from a smaller, more obscure bill (health-related or otherwise). This approach has certain advantages. The chances of being detected are smaller, and if the focus of the bill is narrow enough, it can mean even more profits. Such was the case in the spring and early summer of 2004, as Congress debated and eventually passed something called Project Bioshield.

Concerned about the possibility of a biological weapons attack or the prospect of a pandemic, legislators submitted a bill that called for $5 billion to be spent on vaccines that would be used in the event of a bioterrorist attack or disease outbreak. The idea behind Project Bioshield was simple: pour billions into small, specialized biotech companies that were developing vaccines and other biochemical defenses. The Department of Health and Human Services was moving forward with plans to acquire a second-generation smallpox vaccine and antidotes to other chemical, biological, and radiological weapons. The government wanted to develop, purchase, and stockpile vaccines and drugs to fight anthrax, smallpox, and other potential agents of bioterror.

The largest financial beneficiaries of this money would be specialized biotechnology companies. The bill sailed through both houses of Congress and was signed by President Bush on July 21, 2004. But in the weeks before Bush acted, several congressmen made highly profitable “bets” on the companies that would benefit.

Congressman Jim McDermott of Washington State bet big on one small biotech company as Project Bioshield was working its way through the House. McDermott, a member of the powerful Ways and Means Committee and a medical doctor by training, took more than 10% of his entire investment portfolio at Wells Fargo and bought shares in a small Canadian company called ID Biomedical on June 7, 2004, just weeks before he voted for the bill. The firm just happened to produce disease vaccines, exactly the kind that Project Bioshield was looking to fund. Over the next several years, the firm would do a considerable amount of business with the federal government. With the passage of Project Bioshield, ID Biomedical would secure $8 million from Washington to develop a plague vaccine.²⁵ McDermott’s timing was nearly perfect. He bought 2,000 shares at $10 a share, paying a total of $21,021, according to his brokerage statement. He sold the stock a little more than a year later, on September 21, 2005, nearly tripling his money, cashing it in for $58,837. This represents a return of 180%.²⁶

McDermott was not alone. Congressman Amo Houghton, Republican of New York, saw his investment portfolio mushroom with biodefense medical stocks in the weeks before Project Bioshield became law. His investment fund bought about $30,000 in Avant Immunotherapeutics (now called Celldex) on July 15, 16, 19, and 21, just days before President Bush signed the bill. The company was developing next-generation anthrax-fighting drugs and would do significant business through Project Bioshield. Houghton also gobbled up shares in Nanogen, a biomedical company, twice, on July 12 and 15. And he bought $17,355 in Northfield Labs on July 14 and another $16,792 the next day. Northfield was developing blood-replacement alternatives and would get grants from the U.S. Army through Bioshield. On July 15, Houghton bought almost $20,000 of Hollis-Eden Pharmaceuticals, which was developing disease management technologies. On the same day, he bought almost $35,000 in Maxim Pharmaceuticals, which produces antiviral drugs. The next day, July 16, he went back for more shares of Hollis-Eden, bringing his total holdings to almost $40,000.²⁷ All of these companies would benefit from the infusion of federal dollars. If it’s possible to overdose on drugs and make money from it, that is what Houghton managed to do.²⁸

Before he served in Congress, Houghton had a long career in corporate America as CEO of Corning and as a member of several corporate boards. If, as a corporate CEO, he had executed these trades based on insider information—concerning, say, a merger—it might have been problematic. It certainly would have received the attention of the SEC. But as a member of Congress, this sort of behavior is acceptable and commonplace.

We despise professional athletes who bet on their own games. Why don’t we feel the same way about politicians who bet on the outcome of legislation? The stakes are surely higher.