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1976 Maclean’s Magazine December 27,1976 Health

Blood money: what Red Cross donors didn’t know

A bitter behind-the-scenes struggle between two of Canada’s most respected organizations is about to break into the open, bringing with it at least some of the sordid details of a murky world — the $400-million-a-year international trade in human blood.

The Canadian Red Cross Society and Connaught Laboratories of Toronto, which have been closely associated for decades, are in hot dispute over which of them should process the blood plasma the Red Cross collects from volunteer donors across the country. It is a job Connaught has always done.

The falling-out stems from a little-known 13-year agreement under which Connaught exported nearly seven million dollars worth of surplus blood components and turned over 10% of the proceeds to the Red Cross, an organization that publicly insists that human blood should neither be bought nor sold.

The Red Cross angrily contends that at the end of 1973 Connaught exported $200,000 worth of serum albumin (a component processed from plasma and used to treat burn victims) at a time when Canadian hospitals were desperately short of the material. Connaught denies the contention and claims Red cross officials had approved the exports.

Now the Red Cross wants to sever its relationship with Connaught, and has asked the federal and provincial to support its plan to build a $10-million-plus fractionation (plasma processing) plant which would be owned and operaed by the Red Cross itself. Such a plant would severely undermine Connaught’s already shaky financial position. Canada’s 11 governments must adjudicate, despite their close association with both parties (the Red Cross transfusion service receives $30-million a year from Ottawa and the provinces; Connaught is indirectly controlled by the federal government, through the Canada Development Corporation).

Neither party has been anxious for the dispute to become public knowledge. Connaught has recently encountered serious criticism on several fronts, and is jittery about its relations with the press.

The Red Cross, fearful of offending those Canadians who donate their blood (only 4% of the public contributes the million pints the Red Cross collects annually), is equally wary of controversy. "Every time, we lose donors," says Red Cross medical director Dr. Roger Perrault. But Perrault believes Connaught is no longer acceptable as the processor of the nations’ plasma, and has taken his case to the various health minisistries.

Connaught on the other hand, vows to fight the Red Cross plan with all the resources it can muster. "We don’t believe it makes economic sense," says Alan Davies, the 36-year-old executive vice-president who is running Connaught on an interim basis. "Why should the taxpayer be asked to underwrite a new plant when we have a perfectly acceptable one here."

The Perrault proposal, however, received tacit support at special meeting of federal and provincial representatives in Ottawa November 23. That meeting agreed to let the Red Cross begin a feasibility study for its project, although, as Perrault says, "so far we have nothing on paper."

The Ottawa decision was based in part on a Red Cross document that outlined why the society wanted to end its relationship with Connaught. The document contained many details that cast a disturbing light on how Canada’s blood program has been operating. It showed for instance, that donated blood components worth $6,898,274 have been sold overseas since 1963. It revealed that roughly 40% of a blood fraction regularly sent by the Red Cross for processing by Connaught never returned because of contamination. It claimed that the Red Cross is now paying Connaught double what blood processing would cost from foreign fractionators. And it charged that Connaught had been miserly in spending on technical improvements and research.

Davies says the Red Cross submission was less than valid. "A lot of the Red Cross allegations are a year and a half out of date ... we have to be terribly honest about this. There was a time when we were having troubles with contamination, when our yields were perhaps low ... But we have made substantial improvements and I think I can say that our yields today compare favorably with the best fractionators in the world." He was distressed when told that Perrault had said: "I believe that in the long term our differences are irreconcilable."

Replied Davies: "I do not accept that. I cannot. Because if I accept that I’m saying essentially that Connaught is not as interested in health care as the Red Cross is ... I think Connaught more than most companies, has made a commitment to health care."

The story of the Red Cross disillusionment with Connaught has been long in the making, inextricably mixed with the history of the national blood transfusion service itself. The service began amid high hopes January 21, 1947, when the Red Cross opened its first blood donor centre in Vancouver. The original aim of the program was to eliminate commercialism. Although commercial blood cost as much as $25 a pint, the introduction of a voluntary donor service was not entirely based on financial grounds. Statistics showed then, as now, that commercial blood carried a far higher risk of disease than volunteered blood.

By 1954 the question of processing an ever-increasing flow had to be settled. Connaught, then a University of Toronto facility, was a research and manufacturing institute which had been set up in 1914 to manufacture vaccines and sera. The discover of insulin by the University of Toronto’s Frederick Banting and Charles best in 1921, and its subsequent production gave Connaught a well-deserved international reputation.

Connaught had produced dried blood plasma during the Second world war and had continued to process components into the 1950s, so it was well prepared to meet Red Cross needs by setting up a fractionation plant in 1954. (Fractionation is the process of splitting plasma into components that serve the same purpose a whole blood in transfusion.)

The Red Cross medical director at the time was D. George Miller. He established the arrangements, which involved sending Red Cross plasma to Connaught after the red cells had been removed. Connaught then broke down the plasma into components which were returned to the Red Cross for distribution to Canadian hospitals. For years, the arrangement worked well — so well, in fact, that the Red Cross decided in 1963 to sign "a gentleman’s agreement" with Connaught for plasma work. It contained the seeds of the current dispute. While blood technology in the rest of the world was fast improving, Connaught’s plant was beginning to age, it’s renowned flair for research fading.

But the Red Cross went further than merely initiating an agreement on plasma production. For 10% of the proceeds, it agreed to let Connaught sell certain blood components taken from the Red Cross donors. According to Miller, the Red Cross board made the decision on the assumption that the material would otherwise be dumped.

For 13 years, this agreement was never publicly disclosed or even referred to in the annual reports of either organization, although the sums involved were substantial. According to the Red Cross, Connaught received $6,898,274 from selling blood components. The Red cross share was $689,824.

Connaught sold some of the plasma derivatives through its contacts. It also used a Montreal broker named Thomas Hecht, who ran a company called Continental Pharma. His relationship with Connaught began in the late 1950s when he sold Salk polio vaccine for the institute. In a recent telephone interview, he said that his formal relationship with Connaught ended in the early 1960s, although he continued to sell blood components from Connaught on an irregular basis into the 1970s. During this period the world demand for blood was rising — particularly in Europe. The large drug companies there could not get enough suitable plasma because most European blood-donor systems were voluntary. Private brokers began scouring the world for blood, buying it anywhere they could, frequently from commercial "bleeding" operations exploiting the poor in Latin America. both the International Red cross and the World Health Organization have denounced this trade.

By 1971, Hecht had made a number of sales for Connaught in Europe. He was also involved in the selling of blood plasma not only to Europe but also to the United States. For example, one of his executives, Victor Kubik, offered large amounts of plasma to Warner-Lambert, the U.S. pharmaceutical giant. Kubik protected the source of this plasma by saying that it would not be identified by bleeding lists. Normally, such lists are provided to show who the donors were and where the plasma was drawn.

Miller says the plasma Hecht had on offer would not have come from Red cross donations. But, according to the Red Cross document presented in Ottawa, the Red Cross would not have known if it had because "no guarantee was ever given to the Red Cross, nor was any audit ever made available from Connaught to ensure that all sales were indeed credited." Connaught, which says it no longer does any business with Hecht, flatly denies ever selling any whole plasma obtained from the Red Cross. And the Red Cross says it has no reason to believe otherwise.

Nevertheless, it was the issue of whether Connaught was selling blood components abroad without the knowledge of the Red Cross that caused the first dispute. In early 1974, shortly after he had taken over from the retiring Miller, Perrault discovered that serum albumin was being sold abroad by Connaught.

The discovery came when Perrault received two cheques totaling $20,000 from Connaught. When he asked what the cheques were for, he was told that they represented the Red Cross’ share of albumin sales, under the long-standing agreement.

Perrault knew of no such agreement. What he knew he says was that there was an acute shortage of albumin in Canada. He demanded that Connaught stop exporting immediately, and Connaught complied.

Today Connaught claims that, at the time the sales in question were proposed and approved there was no shortage, but that soon afterward one developed because of a mysterious failure ("It was a freak thing, we can’t explain it." says Davies) Perault, on the other hand, insists there already was a shortage that simply became more severe when Connaught experienced the sequential batch failures. Either way, suspicion began to replace the traditional trust.

Connaught’s regular marketing of Red Cross blood components between 1963 and 1972 had not saved the company form its financial troubles. (Last year it lost $1.5 million on sales of $18 million.) And while the Canada Development Corporation’s take-over was partially a life belt operation, Connaught’s mandate was clear: it had to become profitable — fast.

The CDC recruited and ex-Warner-Lambert executive, Donald McCaskill as Connaught president. McCaskill was under immediate pressure. Not only had he to make profits with limited means, but he was saddled with contamination problems.

Connaught processing was infecting the plasma passing through its plant with toxins called pyrogens. These toxins produce fever when injected into humans. Pyrogenic plasma is regarded in medical circles as unfit for human use.

The pyrogenic problem at Connaught had an alarming effect on its production of pure blood components. A Red Cross survey showed that out of 644,745 vials of albumin due from Connaught over a 13-year period, fully 250,682 were 'lost' because of contamination.

In fact, the missing blood fraction was not lost.

Much of it was stored on the shelves at Connaught, which put forward two explanations. McCaskill said, in a 1974 letter to the Red Cross, that the "product was discarded, written off in value, but through some unknown set of circumstances, the physical product was retained." Davies says now that the "blood department put it away, knowing that some day it would be valuable."

In the summer of 1973, Connaught’s scientists began working on a process of removing pyrogens from the tainted albumin. There were able to do this, but there was disagreement in medico-scientific circles as to whether de-pyrogenated blood products were fit for human use.

A former vice-president of research for Connaught, Dr. Andrew Moriarity, has said: "You can interfere with other parts of the plasma while removing the pyrogens. It may pass tests afterward, but you could have other faults as a result."

"Despite such reservations Connaught produced a new process within three months. It made a confidential submission of samples of de-pyrogenated albumin to Ottawa’s Bureau of Biologics October 19, 1973, citing the general shortage of albumin.

On December 4, Ottawa replied. Of the three lots submitted for testing, the assistant director of the bureau, J.L.Byrne, wrote, two were pyrogenic, whereas your (Connaught’s) findings were the opposite."

On a controversial process that no other country then licensed, one third of Connaught’s sample had failed to pass.

Yet Ottawa decided to release the re-processed albumin for human use, providing it not be released on the Canadian market without Ottawa approval. While this injunction was obviously intended to protect Canadians, it placed no barrier on Connaught exporting the material.

Thirteen days after receiving the bureau’s letter, Connaught was shipping the reprocessed albumin abroad. The documents accompanying the exports contained no hint that the albumin was re-processed. Otherwise it likely would have been rejected by the importing country, which turned out to be Spain.

It was at this point that Dr. Perrault first took office, amid growing albumin crisis in Canada. "I was getting angry phone calls and letters from our 16 distribution centres," he said. "I finally wrote back assuring our people that I wasn’t hoarding the stuff."

Perrault, a University of Ottawa medical graduate with a Swedish PhD in blood research, knew nothing of Connaught’s exports when he took office. After he found out, while grappling with a shortage in Canada, he blew up. On April 9, 1974, he had a confrontation with McCaskill. The following day McCaskill wrote to Perrault saying that in the previous November, Miller had agreed to export the albumin and that neither of them would have allowed it to happen had there been a shortage. In fact, the shortage for the month of November was critical — with the Red Cross able to fill only 884 out of 2,222 orders received. Miller today says he has no recollection of the matter.

With the exports halted, Connaught’s de-pyrogenated albumin began to move into Canadian hospitals through the Red Cross, always after being released by Ottawa’s Bureau of Biologics.

According to an abnormal increase in patient reactions during the three years in which treated albumin has been used in Canada, Connaught says it regards its process as potentially very valuable, and says it has so far refrained from publishing details because its process cannot be patented. "We are hoping to effect an exchange of technology with another company," Davies says.

Connaught also claims to be the only blood fractionator in the world with a government license to distribute de-pyrogenated material. The license, really a letter from Ottawa’s bureau of Biologics, requires that Ottawa clear each batch as Connaught produces it. In fact, the U.S. Bureau of Biolgics occasionally releases for distribution material that has been de-pyrogenated by U.S. fractionators. "But," says Dr. Hohn Finlayson of Bethesda, Maryland, "we would naturally prefer that the processors avoid contaminating the product in the first place."

Today Connaught claims it has largely overcome its contamination problems and is efficient as any fractionator. But Perrault and the Red Cross are determined to go their own way. Even if the Red cross wins government approval for its own plant, such a facility is at least six years away. In the meantime Perrault and the Red Cross have to deal with Connaught, or take the politically sensitive step of sending their plasma out of the country for processing. "I have three offers from foreign fractionators to do our work at roughly half what we’re paying Connaught," Perrault says.

Despite their differences, Davies and Perrault are in the midst of negotiating a formal contract to replace the old "gentlemen’s understanding." Perrault abrogated the 1963 agreement last March, and Davies agrees that it was the right thing to do "We want to get on a more business-like basis," Davies says.

Perrault adds: "I hope to negotiate a standard fractionation contract, one that would guarantee performance [yields] and prices." Perrault also admits that he wants to increase the Red Cross’s share of the proceeds from any foreign sales of surplus blood products. "I don’t think the 90:10 split was very fair," he says. "Connaught was recovering far more that its costs, while were were recovering far less." Davies says Perrault now wants 50% of the foreign proceeds.

It all seems strange, given Connaught’s chronic problems (the Canadian Medical Association has sent a five-member team to study the company’s operation and the team’s report is expected to be published in the association’s journal next month) and given the Red Cross’s stock position that blood is too precious to be bought or sold.

But Perrault denies there is any inconsistency. "I want to protect the volunteer donor system," he says. "I will do anything to improve it. It doesn’t have to be done by the Red Cross, you know. If Colgate-Palmolive can organize it better, fine... But right now in Canada, our blood transfusion system is based on volunteer donors and public funds. There is no room for the profit motive. And yet the profit motive is very much in evidence. At Connaught. You’re not supposed to make a profit on plasma, but the CDC is under orders to make a profit. Obviously a fundamental policy decision will have to be made."

Joseph MacAnthony  

Federal regulations violated Contamination problems danger of infection reported at Connaught

THE GLOBE AND MAIL THURSDAY, FEBRUARY 27, 1975 
A cardiac stimulant, Epinephrine, produced under conditions unacceptable to federal health inspectors is still being sold by Connaught Laboratories.

Supplies came from inventory built up before the publicly financed Canada Development Corp. subsidiary stopped production of a number of drugs last summer after repeated complaints from federal authorities.
Inspectors in February last year found Connaught had done nothing about infractions of health regulations reported more than a year earlier and that, in fact, the situation had become worse.

In June, Ottawa's Advisory Board Manufacturing was demanding "significant improvements" in the quality of Connaught's operations.

And in September, Dr. John Furesz, director of the bureau of biologics in Ottawa's health protection branch, inspected some parts of the Connaught operation. He found a number of problems.

Among the most serious were the "grossly inadequate" quarters for control testing of Sabin polio vaccine.
"As a result, occasionally control testing of more than one type of live vaccine is being done at the same time. No proper separation of tissue cultures was seen, giving rise to danger of cross-contamination.

"Danger also exists of laboratory-acquired infection of the workers employed there," he reported.
And yet, Donald McCaskill, Connaught president, had told The Globe and Mail in a December interview that the September inspection had found nothing seriously wrong.

Recently, after releasing the inspection report, he said in defense of his earlier statement, "It's a clean bill certainly in that he didn't take the license away, eh? "Mr. McCaskill also had said the drugs taken out of production last summer were dropped because they weren't worth the money needed to bring production up to federal standards.

Report Critical
Later, through a press relations firm, he said the action was taken because the drugs in question were low-volume items and Connaught had just a small share of the market and its staff could be better used on other projects.
In three interviews in three weeks, Mr. McCaskill had denied that any federal officials ever expressed severe criticism of any Connaught facilities or practices.

But. two weeks ago, he released the often critical September inspection report. And confronted with copies of 1974 letters from H.A. Showalter, drug board chairman, he conceded that, among other things, Connaught’s vital blood plasma fractioning plant had failed to meet Government standards. He says he believes that it would pass inspection now. Last February he was told in a memorandum from one of his vice-presidents, S.R. McInnes, that $300,000 was needed immediately to renovate and expand the plant to comply with regulations. Mr. McInnes said the building probably "would be closed if it were subjected to an inspection."

He said the work was needed "to reduce severe and costly contamination problems."

Blood polluted
Though he didn’t say so, it was costly not only to Connaught, which had become a profit-oriented operation since its CDC takeover, but also to Canada’s superior blood transfusion service. The Canadian Red Cross, its voluntary donor program envied around the world, wants to avoid the controversy but its officials don’t like what has been happening. The Red Cross ships all out-dated blood (whole blood lasts three weeks) to Canada’s only fractionation lab at Connaught where, it is broken down into a variety of life-saving fractions. The Red Cross buys some of these back for low-cost distribution to hospitals, which increasingly require blood fractions, often safer than whole blood transfusions. And fractionating makes one donation do the work of five or more.

Mr. McInne’s memo about contamination problems lends support to what some are saying outside of Connaught - that as much as 50 per cent of the whole blood it receives never gets all the way through the fractionation production line because of contamination. Though they are backed by what international journals have lauded as one of the finest blood services in the world, Canadian hospitals have bought from private firms in the United States, and at higher prices because Connaught cannot keep up with the demand. However, a scientific review of operations last fall by Dr. Margaret Pittman, a prominent semi-retired U.S. biologist, said of the plasma operation the "the limited factor in production volume is source material ..." but that Connaught was planning new products and increased in efficiency.

Mr. McCaskill had received another and much more critical assessment of the plasma operation from Dr. Andrew Moriarity, vice-president of Connlab Holdings Ltd., CDC’s health services division and owner of Connaught. Dr. Moriarity had put his assessment in memo form in the same month that his colleague, Mr. McInnes had called for the $300,000 for improvements.

Went to Ottawa
Dr. Moriarity said any proposal to expand the existing plant would be a waste of money. Complete reconstruction, he said, was required. "Because of recent quality-control problems with certain of our plasma products" he wrote in his memorandum, "I have taken the opportunity to inspect the Connaught plant."

"By almost any standard, this production unit is inadequate. Areas for quarantine, processing, cleaning, storage, etc., are inadequate and poorly segregated."

"Flooring is old and worn and complicates any sanitation process, inadequate lighting and poor ventilation represent health hazards for the workers."

"Crowding, exposed piping and peeling paint are not consistent with the standard of quality expected of Connaught. It is no wonder that contamination has been a recurring problem with our plasma products."He continued, "Certain improvements have recently been made but these are obviously of a makeshift nature. How this plant has passed inspection by the various regulatory agencies, I am at a loss to understand."

Dr. Moriarity’s criticisms of Connaught operations extended to many other aspects including other production units and to management and its policies. They finally got him fired and after a wait of four months and word form colleagues that there had been no improvement, he took his allegations to federal authorities.

Mr. McCaskill, who makes a blanket rejection of Dr. Moriarity’s complaints, said in a written statement in The Globe and Mail that at the time the plasma plant was inspected by federal officials in January 1973, it met the regulations. Many facilities were inspected at that time although not, he said, Connaught’s insulin plant. It had not been checked by the federal Health department since being built four years ago. However, Mr. McCaskill’s reference to a 1973 plasma plant inspection was in error, according to Rene Mercier, Ottawa Health Department spokesman.  Saying that he could not explain the neglect, Mr. Mercier said the plant had not been inspected since March, 1969. After Globe and Mail inquiries this month, an inspection was conducted. The only other plasma-related inspection was early in 1971, when one facet of plasma production - in another building was checked.

Penalty Threat
Theoretically a drug producer found violating regulations may be suspended from doing business with governments, - Connaught’s biggest customers - for 90 days, and must correct the violations to win reinstatement. In January 1973, Connaught was found in breach of regulations governing the sensitive areas of raw material and packaging tests and product stability. Yet no punitive action was taken.

And in February, 1974, there was another inspection.

In May, Mr. Showalter, the drug board chairman, wrote to Connaught chairman Dr. R. J. Wilson saying there were violations not only in the areas cited the year before, but also in the areas of finished product tests and quality control.
In mid-June, Mr. Showalter wrote again, commenting on an intervening letter from Connaught, expressing a continuing disappointment and stating that the drug board "may be inclined to examine the next report very critically, unless significant improvement is shown. I have been requested to convey this to you in the clearest terms."
The next report - as far as can be ascertained - was the one from Dr. Furesz last September and, again, along with some "very good" notations, were references to hazardous situations and violations of regulations.

Favorable Study
Mr. McCaskill conceded that the inspection did not include a look at the blood plant, and he did not know if it included other areas of concern raised by Mr. Showalter.
Meanwhile, during the period of Government disclosures of inadequacies and threats and repeated threats that Connaught might be blacklisted, the very things the regulations are aimed at preventing are said to have taken place, including delivery of vaccines said to have been below proper potency.
Dr. A.B. Morrison, assistant deputy minister in charge of the federal health protection branch, confirms that investigations have been started into the allegations made by Dr. Morairity.
He said he could not discuss the nature or scope of the investigation because it was conceivable some people would be charged under the Canadian Food and Drug Act. Mr. McCaskill said in December that the study by Dr. Pittman, a 71 year old consultant on assignment for the World Health Organization, was to be an investigation of the validity of the Moriarity charges.

Her 17 page preliminary report, he said, gave Connaught "a complete bill of health." However, he said, "compliance with Government regulations was not a specific part of Dr. Pittmans terms of reference," and he conceded, after reluctantly releasing a copy of her report, the study was not as thorough as he had first implied, nor was it directed to the specifics of Dr. Moriarity’s allegation."

Good Products
Dr Hilda MacMorise, head of Connaught’s human biologics, agreed that the report was somewhat superficial. And Dr. Pittman herself referred in a section assessing scientific resources to her "cursory observation. "But generally she spoke of products being good or excellent and said quality control was satisfactory.

In her brief conclusion, Dr. Pittman wrote:
Although going through an adjustment period, CLL is a viable organization with potential of its mandate to manufacture products for national health care and for commercial competition. "The production divisions are functioning relatively well. Some improvements were suggested ... a better understanding between financial management and scientists was indicated."