War, the Mother of Inventions

A year ago, the Navy gave Anthony Mulligan’s company a small grant to build a cheap aerial drone for whale watching. The idea was to make sure marine mammals weren’t around during sonar tests.

Then came Sept. 11. And, with the help of an Arizona congressman, Mulligan transformed the drone into a potential weapon in the new war on terrorism.

The congressman arranged for Mulligan to testify at a House hearing, where he talked about flying entire squadrons of whale-watching drones to spy on enemy territory or loading one with a pound of C-4 explosives and ramming it, kamikaze-style, into an enemy target.

Though the drone had only been tested for whale watching off the Hawaiian coast, Mulligan’s company won the support of key Capitol Hill politicians, a new $500,000 grant to ramp up his drone production and the prospect for $5 million more to mass produce it.

“I think the Navy is interested in buying tens of thousands of them,” Mulligan said.

Mulligan’s drone is one of hundreds of products being repackaged as counter-terrorism devices and pitched to the federal government, makeovers inspired by billions of dollars in new defense and homeland security spending. Federal agencies have been papered with proposals. More than 12,500 applications have flooded one little-known agency that specializes in funding counter-terrorism research--more than 10 times the usual traffic.

With competition fierce, companies with products in the pipeline and political patrons on the Hill have an advantage in lining up federal grants and contracts. Mulligan was among a select group invited to showcase its products at the House Military Research and Development Subcommittee hearing in March. Subcommittee aides said the hearing was designed to bring in small, innovative manufacturers who lack the clout and political war chests of America’s multinational defense contractors.

One executive had artificial blood, not yet approved by the federal government, that he said could save lives on the battlefield or in terrorist attacks. A cargo inspection machine, previously rejected by government agencies as too big, costly and slow, got a second look as an anti-terrorism device.

“It’s just a market moving to serve a need,” said Richard Hollis, another hearing participant, who is developing a radiation protection drug for the military with technology that originally targeted AIDS and hepatitis. “When there is a need, the beauty of our system is that companies will move to fill that need.”

When Congress throws billions of dollars at a new effort like homeland security, the response from America’s revenue-seeking marketplace is predictable, said John Pike of globalsecurity.org, an independent defense policy group in Washington.

“No leap of the imagination is required to guess the result,” he said. “For Congress, that’s like hanging out a sign that says, ‘Free money.’ ”

Mulligan, however, said he’s driven by patriotism rather than profit.

“In reality,” he said, “if these drones get the bad guys, it would be worth the entire company.”

From Whales to War

The relatively brief history of Mulligan’s counter-terrorism entry is not without irony.

The 38-year-old Tucson entrepreneur had scored some early successes in his career, making and marketing products for the disabled, then an unusual line of dog seat-belts, poop scoopers and chew toys for Kmart.

Mulligan had set up Advanced Ceramics Research with a Defense Department grant that he has parlayed into a new generation of earth penetrators and fighter jet components. He won millions of dollars in federal military contracts.

Then in the fall of 2000, Mulligan recalled, a scientist at the U.S. Naval Weapons Center had asked if his company could develop an unmanned craft for counter-terrorism--”to fly around a Navy ship and prevent a USS Cole-type disaster,” Mulligan said, citing the October 2000 terrorist bombing of the American warship in Yemen.

But there was no money to fund it.

“Before 9/11, there wasn’t that much interest in counter-terrorism, even within the military,” Mulligan explained. “The earth wasn’t shaking for terrorism. The earth was shaking for whales.”

Meanwhile, the Office of Naval Research “had a very pressing need to locate whales and other marine animals before they do their Navy testing,” Mulligan said, and that’s what the drones were designed to do when the Navy ordered one last July.

In fact, the first prototype was doing just that--watching for whales off Hawaii--the week before Mulligan sat before the House Military Research and Development Subcommittee to pitch his modules as unique, affordable and disposable weapons in the war on terrorism.

The company’s local congressman, Rep. Jim Kolbe (R-Ariz), had introduced Mulligan to key staff members of the Armed Services Committee, who then secured his slot on the subcommittee’s March 12 agenda, Mulligan recalled. Federal election records show that Mulligan and other Advanced Ceramics employees have given nearly $10,000 to Kolbe’s campaign fund in the last couple of years.

And when Mulligan unveiled his firstprototype in the packed subcommittee hearing room, it was an instant hit.

Mulligan conceded to the subcommittee members that his drones had never been tested for combat. At top speed, they lumbered along at 60 mph--sufficient for whale watching but no match for antiaircraft guns. And researchers had never tried to fly them longer than 45 minutes at a time, although Mulligan told the committee that his projections indicated that the unmanned aircraft is capable of flying up to 30 hours without a refueling stop.

“You said you build this drone, this little unmanned aerial vehicle, for 2,000 bucks?” asked one subcommittee member who was unidentified in the hearing transcript.

“Yes,” Mulligan replied. “We believe that when we start producing them that it’ll actually be $2,000 or less.”

“Well, we’re all pretty hot on this, obviously, the unmanned aerial vehicle idea in the wake of the Predator performance and Global Hawk coming on line now,” said Rep. Duncan Hunter (R-Alpine), the subcommittee chairman.

He was referring to the recent successes of CIA-bought drones during the U.S. military campaign in Afghanistan. Those drones travel long distances at twice the speed and altitude and cost several million dollars apiece.

Hunter called Mulligan’s drones “transformational,” citing their low-cost, high-volume battlefield potential.

The hearing, Mulligan said in a recent interview, was “the pinnacle of my career.”

The Army Aviation Technology Directorate requested a prototype from Mulligan to feature at a military drone convention in May in Nashville. And that’s just the beginning. In a recent interview, Mulligan said the Navy’s $500,000 grant came through in May to produce a squadron of whale-watching drones. He credited Kolbe and Hunter for including $5 million more in the defense authorization bill to begin mass producing counter-terrorism drones.

“Now it’s up to the Senate,” he said.

Battlefield Blood

Another apparent early winner in the post-attack marketplace is Biopure Corp.

Carl Rausch, company co-founder and chief technology officer, cited the anthrax poisonings and the Afghanistan war in a recent Capitol Hill appeal for federal money to research military uses for Biopure’s experimental blood substitute, which uses cow blood as its basic ingredient.

The product has been in development since 1984, when AIDS rather than terrorism dominated front pages and fears of tainted blood supplies ran higher than those of tainted mail.

After 18 years, a $345-million deficit and a recent rash of shareholder lawsuits, the company has yet to market its product, Hemopure, according to Biopure’s filings with the Securities and Exchange Commission.

The stockholder suits accuse Biopure of securities fraud and assert that the company’s failure to apply for a Food and Drug Administration license for Hemopure by its own Dec. 31, 2001, deadline drove down its stock price and raised questions about the reliability of the company’s clinical trials. So far the blood substitute has been approved for sale only by the government of South Africa.

The company, which has filed to dismiss the lawsuits, said the charges are “without merit.”

Company officials say that they plan to apply for an FDA license before the end of July to sell the product in the U.S. as a blood substitute for elective orthopedic surgery.

The quest for artificial blood has confounded centuries of science. For decades, the world’s largest drug companies have tried to produce a blood substitute. The U.S. military has spent more than $100 million on the effort.

But Rausch insists Biopure has found the key, and the company’s efforts received a big boost after Rausch appeared before Hunter’s subcommittee.

Rausch’s sponsor at the hearing was Rep. John M. Spratt Jr. (D-S.C.), a subcommittee member. Spratt was sponsoring a $7-million military research grant for Biopure, which has pledged to build a factory to manufacture the artificial blood in Spratt’s district.

Rausch testified that his company’s blood substitute could provide lifesaving first aid on battlefields and at terrorism scenes.

Hunter called the product “great-looking stuff,” again offering a personal endorsement.

“And you could put that, literally, in your combat pack,” Hunter said. “And you could carry that in the field, and when you get fired up, you get some blood loss, your medic or your colleagues there in your fire team or your squad can give you some blood. And it doesn’t have any of these preservation requirements that regular blood has.”

“You want to give this [presentation] for me?” Rausch asked Hunter. “It’s great!”

When asked about the cost, Rausch noted Hemopure’s price tag would be from $500 to $1,000 a unit--5 to 10 times that of real blood, which is now considered far safer, less expensive and more readily available than it was in 1984.

The comparison did little to dampen enthusiasm. The subcommittee members subsequently signed off on a defense authorization bill that included full funding for Biopure’s $7-million military trauma study. The House Armed Services committee approved the bill in May.

The hearing may also have given a boost to Biopure’s efforts to raise new capital. Rausch’s testimony took place one day after Biopure filed with the SEC to sell up to $30 million worth of stock. Company officials say the timing was completely coincidental. The company completed its stock sale in late April.

Super-Sized Snooper

Before Sept. 11, the federal government had sunk more than $35 million into development of the Ancore Cargo Inspector, mostly in the name of the war on drugs.

And, for more than a decade, Tsahi Gozani and his team of scientists in California’s Silicon Valley used the money to design the Superman of drug enforcement on the United States’ borders: a machine that could instantly see anything, inside anything, hidden on board the millions of trucks and ships that enter America every year.

But when Ancore unveiled its product in the 1990s, the federal agencies that had funded it mainly for narcotics detection flatly rejected it. They wouldn’t even pay for a testing site for an Ancore prototype.

At $10 million apiece, the inspection machines were too costly. The size of a carwash, they took up far more space than most U.S. border crossings and seaports could afford. And they were just as slow as the lower-tech X-ray-based machines already in use, the agencies said.

What is more, a report by the General Accounting Office, Congress’ investigative arm, quoted from Defense and Treasury Department findings in 1998 that the machine also had “detection limitations regarding other contraband, such as explosives, nuclear weapons and materials and chemical agents.”

Rep. Silvestre Reyes (D-Texas) interceded on Ancore’s behalf. He said he was so impressed with the machine during a 1999 tour of Ancore that he had strongly supported a test site in his El Paso district ever since.

The California company has also supported Reyes since 2000, with $3,500 in campaign contributions from corporate officers and representatives, federal election records show.

Reyes said his Ancore visit convinced him that the machine “has the ability to dramatically change the way we enforce our immigration and drug laws and facilitate trade and commerce along the border.”

Ancore’s proponents finally tasted success on Sept. 12, when the Federal Aviation Administration agreed to pay up to $23 million to build and install a machine at an air cargo facility that has yet to be named.

The contract was in the works before the Sept. 11 attacks, Ancore officials said. But after the attacks, Ancore promoted the machine as “the newest weapon in our war on terrorism.”

And on March 12, the Customs Service finally signed off on a $5-million commitment to install the Ancore Cargo Inspector at a border test site. The same day, Gozani was among the select group that testified at Hunter’s subcommittee hearing, in an appearance arranged by Reyes, a subcommittee member.

Reyes repeated his endorsement during Gozani’s hearing testimony in March.

Subcommittee Chairman Hunter sounded persuaded. He called the machine a “magnificent breakthrough.” And, whether unaware of the GAO’s previous findings or undeterred by them, Hunter pledged to support the purchase of dozens more of the machines.

“We just want to buy a couple billion dollars worth of these from you,” Hunter said. “You won’t hold that against us, will you?”

“No,” Gozani said. “Absolutely not.”

In mid-June, the Pentagon, which along with the Customs Service had rejected the machine in the late 1990s, committed an additional $5 million to install the Ancore test bed, most likely at the original El Paso border crossing.

In recent interviews, company officials cited Sept. 11, Reyes’ support and the hearing for their newfound success.

Earlier approval had been stalled by the federal government’s “typical reluctance to be the first adopter of new technologies,” Gozani said.

“Nine-eleven changed everything,” he said.

As for the machine’s alleged shortcomings in explosives detection, Ancore Chief Operating Officer Patrick Shea said that the initial tests the GAO cited were to measure the cargo inspector’s drug-detection capability and that the machine is being recalibrated to better display the presence of nuclear, chemical and conventional weapons as well.

Shea added that, after last year’s terrorist attacks, “there was a realization that we do have people trying to blow us up. Certainly, customs has changed its mind, to the extent that they’re now willing to put up money for it.”