The Senate Appropriations Committee has created a $20 million fund for Health and Human Services Secretary Kathleen Sebelius to invest in biotech startups, shifting money to a program that some say resembles the Department of Energy’s controversial loan guarantees.
The Strategic Investor initiative allocates $20 million to "allow the Federal Government to partner with small biotechnology companies in order to foster and accelerate the generation of novel medical countermeasures and technologies," according to the Senate Appropriations Committee.
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"That money is coming at the direct expense of funding that would directly fund anti-terrorism preparedness measures," said a source familiar with the biotech industry.
For example, the money could have been used instead for biodefense, the source said.
The Senate appropriation is far less than the amount Sebelius requested. She proposed the Strategic Investor initiative in a September 2010 HHS report that requested $200 million to "explore alternative capital market mechanisms."
The $20 million allocation is not enough to diversify risk, industry insiders noted.
Sebelius initially described the Strategic Investor initiative as a private, not-for-profit corporation that would operate outside the federal government. Other such quasi-governmental entities include the mortgage giants Fannie Mae and Freddie Mac, which were nationalized through a federal "conservatorship" in August 2008.
It is unclear what final shape the Strategic Investor program will take.
Critics of the program point to the September 2011 bankruptcy of the solar panel manufacturer Solyndra, which followed multiple injections of government loans that some say were politically motivated.
A123 Systems, a battery manufacturer that similarly benefited from government support, is also in danger of bankruptcy.
"This slush fund will let HHS bureaucrats act as venture capitalists," said the source. "What possibly qualifies government to make investment decisions in light of government’s failure as an investor?"