U.S. Struggles for Drugs to Counter Biological Threats
As Bigger Firms Shun Effort, Small Ones Are Challenged; 'This Is Really Hard Stuff'
By BERNARD WYSOCKI JR.
Staff Reporter of THE WALL STREET JOURNAL
July 10, 2005 11:33 p.m.; Page A1
Almost four years after anthrax attacks hit the U.S., a $5.6 billion federal program designed to produce new vaccines and drugs to counter biological threats is struggling, leaving the nation behind in efforts to build a promised defensive stockpile.
Big drug and biotechnology companies largely have shunned the program, known as Project BioShield and overseen by the Department of Health and Human Services, amid concerns over legal liability, high costs and limited potential for profit. That has left the government highly dependent on fragile, little-known biotech companies -- which all too often are run on a shoestring budget and dependent on government orders simply to stay in business.
Some of those companies, meanwhile, complain that HHS has slowed progress by changing procurement requirements, delaying putting contracts out for bid and giving vague instructions.
The upshot: A year after President Bush signed Project BioShield into law, only one big contract has been awarded -- $878 million for a novel anthrax vaccine -- and none of that money has been disbursed. A few smaller contracts have been handed out, but others for promising vaccines and drugs have stalled in the federal health bureaucracy.
In recent testimony before Congress, top HHS officials have touted progress in building stockpiles of smallpox vaccine and said that "major strides" have been made toward building antibiotic reserves against anthrax, plague and tularemia. But officials also say they are carrying out a very challenging task.
"We wish we were further along," says William Raub, deputy assistant secretary of HHS, in an interview. "This is really hard stuff."
The Bush administration has said producing and stockpiling antidotes to anthrax is among its top priorities, but some critics on Capitol Hill say the nation remains unprepared. In October 2001, anthrax turned up in a Senate office building, mail facilities and offices, eventually killing five people. The investigation into the source of the anthrax attacks continues, but the trail has gone cold, federal officials say.
Even before Congress passed BioShield last July, the government had stepped up its funding of research into infectious diseases, especially those that could be turned into terrorist-type weapons. The Bush administration's biodefense budget for fiscal 2005 is about $7.6 billion, which is 18 times greater than the budget of four years ago.
BioShield, whose funds are to be distributed over 10 years, is aimed at creating next-generation drugs and vaccines, rather than simply stockpiling readily available off-the-shelf products. In outlining the project in his 2003 State of the Union address, President Bush noted that many treatments to meet the threat of terrorist attack had improved little in decades. Smallpox vaccines, the president said, aren't much different than those given to the public in the 1960s, while there has been vast improvement in other parts of the biomedical field, such as better detection and therapeutics to combat heart disease.
In 2000, the Defense Science Board, an advisory panel to the Pentagon, identified 57 diagnostics, therapeutics or vaccines that were needed to respond to a range of diseases or potential biological weapons. Industry experts note that in almost every case, not enough has been produced or made available.
Despite that shortfall, big pharmaceutical companies have been all but absent from bidding and the grant-getting under BioShield. Michael Friedman, chief medical officer for biomedical preparedness at PhRMA, the drug-industry trade group, warned that this could happen during House testimony on the BioShield legislation in 2003.
"It is necessary to recognize scientific, legal and economic impediments to the research and development of biodefense products," he said at the time. He noted that manufacturers could be "exposed to devastating product-liability suits." In addition, he cautioned, "The decision to divert resources from the research and development of medicines for serious illnesses like heart disease can be financially risky, especially when a countermeasure may never be purchased or used."
Companies also expressed concerns in the wake of the anthrax attacks, when then-HHS Secretary Tommy Thompson ordered the maker of Cipro, Bayer AG, to supply tablets to the U.S. government at a fraction of the regular price. That event alienated drug companies already wary of getting into the biodefense business.
Experts say the absence of big players hurts, since those companies bring large research and development budgets as well as knowledge of the federal regulatory process. Says Ret. U.S. Army Major General Philip Russell, a physician who until recently was a senior adviser to HHS on biodefense issues, "God, if Merck or GlaxoSmithKline or Aventis were involved, it would make life infinitely easier. With small companies, you have to watch them like a hawk."
Earlier this spring, Sen. Joseph Lieberman, a Connecticut Democrat and Sen. Orrin Hatch, a Utah Republican, introduced new BioShield legislation intended to stimulate interest in biodefense contracts among big drug companies, in part by giving them patent extensions on some drugs as an incentive.
Smaller companies with next-generation products have raced to fill the gap, but they too have faced problems. Many have received grants of $20 million or more from the National Institutes of Health to kick-start their research, only to run into financial hardship while they wait months or years for huge BioShield procurement contracts to materialize.
The time lag creates a "valley of death" for small companies developing drugs and vaccines, says Sen. Richard Burr (R., N.C.) chairman of a Senate subcommittee on biodefense.
That gap is one of several reasons some small biotechnology companies have been critical of the government. "We're looking at this big black box and waiting for things to come out," says Peter Wulff, president and chief executive of Bavarian Nordic A/S, a Danish company. "The communication from the other side is nil."
Bavarian Nordic is developing a smallpox vaccine targeted at treating the estimated quarter of the U.S. population that might react adversely to current smallpox vaccines. The company says it received $20 million of a larger National Institutes of Health contract for research and development after the BioShield law was passed, but then had to spend $50 million on manufacturing facilities in hopes of snagging a large portion of a BioShield contract potentially valued at several hundred million dollars.
In May, after months of waiting, HHS announced that the government's firm order will be for just 10 million to 20 million doses -- far less than the 60 million to 80 million doses that Bavarian Nordic had expected.
HHS officials say they never published or promised the bigger number; in a recent draft proposal, officials indicated perhaps another 60 million doses would be optional but could be canceled.
"It's frustrating," Mr. Wulff says. The company, which has lined up GlaxoSmithKline Inc. to provide backup manufacturing if necessary, says it continues to burn through its cash, and has enough to last through mid-2006.
At HHS, Dr. Raub says the agency is trying to strike the right balance between making awards cautiously and rashly spending BioShield's billions.
"If we're super-cautious, people say you have $5.6 billion and nothing to show for it," Dr. Raub says. "But if we take a flier and put stuff in the stockpile that couldn't be used, you could see the [congressional] hearings that would come out of that."
He says the agency has tentative plans for spending more than 50% of the BioShield funds to be distributed. Officials also note that in March, HHS awarded a $5.7 million BioShield contract to Fleming & Co. Pharmaceuticals of Fenton, Mo., to supply liquid potassium iodide, to be used in case of release of radioactive iodine, underscoring that they are beginning to dole out money.
But the potential pitfalls can be seen in the effort to create an anthrax vaccine. For initial contracts to conduct early-stage research on developing such a vaccine, NIH selected two companies: Avecia Group PLC of the United Kingdom and VaxGen Inc. of Brisbane, Calif. Each received about $100 million in NIH funding, and became the finalists, competing for a roughly $1 billion order for the next-generation anthrax vaccine for the national stockpile.
A third company, BioPort Corp., which makes an existing vaccine, didn't qualify for the bidding because its vaccine is based on previous-generation technology.
Last fall, HHS decided to award the entire $878 million for a next-generation recombinant anthrax vaccine to VaxGen, a small spinoff of Genentech Inc. with no commercial products and little track record. The company has been delisted by the Nasdaq, and says it hopes to reapply later this year. VaxGen executives say the delisting stems from the company's need to adapt its accounting to its heavy reliance on a government contract.
Immediately, rival BioPort attacked the U.S. government decision to "single source" the whole supply. The complaint came about the same time as the shutdown of a Chiron Corp. influenza vaccine plant left the U.S. with just a single source of flu vaccine to cope with the winter flu season. BioPort did get a contract to supply five million doses of the vaccine to the stockpile, but HHS officials delayed making the purchase, setting off complaints on Capitol Hill.
"I remain greatly concerned that (HHS) is not prepared to protect the American people from an anthrax attack," Sen. Charles Grassley, an Iowa Republican who chairs the Senate Finance Committee, complained in an April letter to HHS Secretary Michael Leavitt. In early May, HHS announced it would make good on the five-million dose, $122 million award to BioPort.
Even for VaxGen, the winner of the larger next-generation anthrax U.S. contract, life remains a struggle, in part because of delays imposed by HHS officials' changing requirements. The initial VaxGen awards from NIH called for the company to package the vaccine in vials, but the BioShield contract required anthrax vaccine in syringes. That has set back production by four to six months, VaxGen officials say. First delivery of the new anthrax vaccine, and first payment from the BioShield fund, is slated for early 2006, the company says.
In the meantime the company has had to raise another $71 million in capital from investors, and Chief Executive Lance Gordon says the delays, and the distraction caused by BioPort's complaints, raised the cost of that capital.
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