Order Code RS21507
April 28, 2003
CRS Report for Congress
Received through the CRS Web
Project BioShield
Frank Gottron
Analyst in Science and Technology Policy
Resources, Science, and Industry Division
Summary
Many potential biological terrorism agents lack available countermeasures.
President Bush proposed Project BioShield to encourage companies to develop new
bioterror countermeasures. The main provisions of that proposal include: (1) relaxing
procedures for bioterrorism-related procurement and peer review; (2) guaranteeing a
market through contract authority granted to the Secretary of Health and Human
Services (HHS) to buy countermeasures following Presidential approval, funded by a
permanent, indefinite appropriation; and (3) allowing the Secretary of HHS to permit
the emergency use of countermeasures that have not been approved. S. 15, introduced
by Senator Gregg incorporates these proposals. Some of these provisions are
controversial. Some critics suggest that biotechnology and pharmaceutical companies
will require even more incentives than contained in Project BioShield. Additional
incentives being considered by the 108th Congress include protection from litigation
because of adverse reactions to the countermeasures, and tax and intellectual property
incentives (S. 666, Lieberman). Other options include directly funding development or
increasing the scope of existing federal programs designed to encourage technology
commercialization. This report will be updated in response to legislative developments.
Introduction
The anthrax attacks in the fall of 2001 underscored the nation’s vulnerability to
biological terrorism. Five people were killed by those attacks and thousands required
prophylactic antibiotic treatment. If there had not been effective medical countermeasures
for this strain of anthrax, the death toll would have been higher. Effective
countermeasures do not exist for many of the biological threats deemed the most
dangerous by the Centers for Disease Control and Prevention (CDC). For example,
botulinum toxin, plague, tularemia, and many viral hemorrhagic viral fevers (VHFs) lack
licensed vaccines. HHS recognizes a need for better vaccines for anthrax and smallpox
Congressional Research Service ˜ The Library of Congress

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and better treatments for anthrax, plague and botulism.1 Smallpox and VHFs lack any
specific treatments.
Many attribute the paucity of bioterrorism countermeasures to the lack of a
significant commercial market.2 Because these diseases occur infrequently, there has been
little economic incentive for the investment of the millions of dollars required to bring a
new treatment to market.
Project BioShield
To encourage the development of new bioterrorism countermeasures, President Bush
proposed Project Bioshield in his 2003 State of the Union address. The Biodefense
Improvement and Treatment of America Act (S. 15, Sen. Gregg), as reported by the
Senate Committee on Health, Education, Labor and Pensions (HELP) on March 25,
contains the administration proposal, with some revisions. It provides expedited
procedures for bioterrorism-related procurement and peer review of research and
development (R&D) proposals, making it easier for HHS to quickly commit substantial
funds to countermeasure projects. The Secretary of HHS would be granted permanent,
indefinite contract authority to purchase countermeasures approved by the President.
Starting in FY2003, the bill as reported authorizes and appropriates for each fiscal year
“such sums as may be necessary” to procure countermeasures. This mandatory funding,
not subject to the annual appropriations process, is intended guarantee a market for those
companies that develop and produce such countermeasures. Another provision gives the
Secretary of Health and Human Services the power to temporarily allow the emergency
use of countermeasures that lack Food and Drug Administration (FDA) approval. No
corresponding bill has yet been introduced in the House, although hearings have been
held, on March 27 jointly by the House Energy and Commerce Subcommittee on Health
and the Homeland Security Subcommittee on Emergency Preparedness and Response, and
on April 4 by the House Government Reform Committee.
Relaxing Acquisition Procedures. S. 15 would relax procedures under the
Federal Acquisition Regulation for procuring property or services used in performing,
administering, or supporting biomedical countermeasure R&D. It would increase the
threshold, from $100,000 to $25 million, for contracts awarded under simplified
acquisition procedures. S. 15 would also allow these purchases using other than full and
open competition. Another provision would increase the micro-purchase threshold from
$2,500 to $15,000. These increases are similar to, but greater than, changes granted to the
Department of Homeland Security (DHS) and other departments and agencies in the
Homeland Security Act (HSA, P.L. 107-296). The HSA provisions sunset in 2007 (DHS)
and 2003 (other federal agencies) but the changes in S. 15 are permanent. They would
decrease the amount of paperwork required for these types of purchases, but also the
potential for oversight. Critics have suggested that relaxing procedures designed to
1 National Institute of Allergy and Infectious Disease, NIAID Biodefense Research Agenda for
CDC Category A Agents, Department of Health and Human Services, Washington, DC, February,
2002.
2 Ceci Connolly, “U.S. Hopes Incentives Will Push Vaccine Development,” Washington Post,
January 30, 2003, p. A08.

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prevent waste, fraud and abuse will make it difficult to assure that this money is spent
wisely.3
Expedited Peer Review. S. 15 would authorize the HHS Secretary to use an
expedited award process, rather than the normal peer review process, for grants, contracts,
and cooperative agreements related to biomedical countermeasure R&D activity, if the
Secretary deems there is a pressing need for an expedited award. This power is limited
to awards of not more than $1.5 million. Whether these procedures would apply to only
a few such awards, or to many, will depend on what needs the Secretary considers
pressing. Some have expressed concerns that an expedited peer review process will
reduce the quality of the research.4 Peer review is designed to maximize the chances that
only proposals with the greatest scientific merit get funding. The award process is not
described in detail in the bill. NIH uses expedited peer review in some programs, but
assessments of the success of those procedures were not available for this report.
Market Guarantees. A major provision of Project BioShield is designed to
reassure biotechnology and pharmaceutical companies that if they successfully develop
a new biological countermeasure, the government will buy it. S. 15 would allow the HHS
Secretary, with concurrence of the DHS Secretary and upon the approval of the President,
to contract to purchase a product for inclusion in the Strategic National Stockpile (SNS)
up to five years before the product is reasonably expected to be deliverable.5 To
recommend such a purchase, the HHS Secretary must determine that there is no other
significant market for the countermeasure. Congress would not be consulted before the
purchase but must be informed by the DHS Secretary after the President approves it.
The Bush Administration has stated that the best method to reassure companies that
the money will be available to purchase countermeasures is to exempt those funds from
the uncertainties of the annual appropriations process by funding the contract authority
with a permanent, unlimited appropriation for that purpose.6 The Administration
estimates using $6 billion over 10 years to purchase countermeasures; however, S. 15
permits expenditure of “any moneys in the Treasury not otherwise appropriated.” Funds
appropriated under this provision could not be used to purchase vaccines under
procurement contracts entered into before January 1, 2003, or for administrative costs.
Although the permanent appropriation is intended to create market guarantees, it is
unclear if it is sufficient or necessary. First, any permanent appropriation is subject to the
actions of a subsequent Congress and President. Second, contract authority funded by a
specific appropriation amount, such as at the level estimated by the Administration,
conceivably could provide similar incentives and assurances to individual companies as
much as contract authority funded by a permanent, unlimited appropriation.
3 Congressman Waxman, Public Comments, U.S. House Committee on Government Reform,
April 4, 2003.
4 John Miller, “Interview with Richard Ebright,” The Scientist, Vol. 17 (7), p. 52, April 7, 2003.
5 The SNS contains pharmaceuticals, vaccines, medical supplies, and medical equipment
designed to help respond to terrorist attacks and other emergencies.
6 Anthony S. Fauci, Testimony before the U.S. House Committee on Energy and Commerce
Health Subcommittee and Select Committee on Homeland Security, March 27, 2003.

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Several have criticized this provision of S. 15.7 Although it is meant to address the
perception of an urgent and presumably transient need for upgrading the SNS, there is no
sunset clause to this appropriation. Some critics have expressed concern over changing
the nature of congressional oversight from the continuous and consultative annual
appropriations process to one of simply reviewing executive decisions after the fact.
Exemptions to FDA Approval Process. Section 3 of S. 15 allows the purchase
of unapproved and unlicenced countermeasures, provided that the HHS Secretary
determines that there is “...sufficient and satisfactory clinical experience or research data
(including data, if available, from preclinical and clinical trials) [to] support a reasonable
conclusion that the product will qualify for approval or licensing...within five years.” The
approval and licensing processes are designed to preclude the marketing of ineffective and
dangerous treatments. Only about 1 of 5 drugs that begin the approval process actually
become approved treatments.8 Because it is not possible to predict the outcome of the
approval process, critics of this provision suggest that the government will end up
purchasing countermeasures that will eventually fail to be approved. To reduce the risk
associated with this provision, S. 15 allows contracts to be written so that unapproved
products may be purchased at lower cost than approved products.
S. 15 would allow the HHS Secretary to authorize the emergency use of medical
products that have not yet been approved by the FDA or HHS. To exercise this authority
the HHS Secretary must conclude:
! The agent for which the countermeasure is designed can cause serious or
life-threatening disease;
! The product may reasonably be believed to be effective in detecting,
diagnosing, treating, or preventing the disease;
! The known and potential advantages of the product outweigh its known
and potential risks;
! There is no adequate alternative to the product that is approved and
available; and
! Any other criteria prescribed in regulation are met.
Although this provision would permit the Secretary to circumvent the FDA approval
process, its use would be limited to dire circumstances. However, some have suggested
that the language should be changed to include provisions to further protect informed
consent, patient follow-up and the reporting of adverse effects.9
Policy Options
Alternative Funding Mechanisms. As discussed above, some have raised
concerns about the unlimited nature of the appropriation and changing the role of
7 Lisa Richwine, “Concerns Raised About Funding for U.S. Biodefense Program,” Reuters,
March 27, 2003.
8 Food and Drug Administration, From Test Tube to Patient: Improving Health Through Human
Drugs, Washington, DC, September 1999, p.21.
9 Congressman Waxman, Op. cit.

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congressional oversight. One alternative is to cap the contract authority at a specific
amount and provide a lump-sum appropriation to fund it for several years. Further
contract authority could be made when needed, subject to further appropriations. This
would effectively cap the amount that could be spent, but eliminates the need for
additional appropriations for several years. However, neither this method nor the
Administration’s proposal can guarantee the future availability of funds, since a
subsequent Congress could change the law.
Alternative Contract Mechanisms. Some have suggested that the new
contracting authority granted by S. 15 would more effectively encourage countermeasure
development if modeled after that used by the Defense Advanced Research Projects
Agency (DARPA). DARPA funds many projects with a high risk of failure. These
contracts often last a few years and can be renewed if specified milestones are met.
Companies are allowed to make a defined profit during the development phase. Although
the direct funding of risky development projects implies that the government will end up
funding many products that never make it to the market, the government could structure
the contracts so that this assumption of development risk translates into lower costs of
procurement. This may allow companies to more easily justify to their stockholders the
opportunity costs associated with developing a new countermeasure. They would be
trading uncertain potential earnings for a guaranteed, albeit lower, profit.
Indemnification. Some feel that one of the largest barriers preventing more
companies from developing countermeasures is risk of litigation stemming from adverse
effects.10 Some manufactures would like to see a program developed similar to the
National Vaccine Injury Compensation Program (P. L. 99-660), which provides an
alternative to the traditional tort system for resolving claims of adverse reactions.
Another alternative is a complete indemnification such as the one granted for the
smallpox vaccine (P. L. 107-296).
Increasing Basic Research. Congress has recently increased National Institute
of Allergy and Infectious Diseases bioterrorism research six-fold to approximately $1.5
billion in FY2003. It is difficult to determine the optimal level of funding for basic
research, but at some point the law of diminishing returns will apply. Some have
suggested that this has already occurred and will inevitably lead to funding of unworthy
projects.11 Other critics suggest that the bottleneck for new countermeasures is in the
transfer of promising leads from basic research to the development stage.
Alternative Policies to Encourage Technology Commercialization. There
are other federal programs designed to encourage research, development and
commercialization of new treatments. For example, the Orphan Drug Act (P. L. 97-414)
encourages development of new treatments for very rare diseases through tax incentives
10 Dr. Kim Bush, Testimony before the of the U.S. Senate Committee on Health, Education,
Labor, and Pensions, Health Subcommittee, January 30, 2003.
11 John Miller, “Bioterrorism research: New Money, New Anxieties,” The Scientist, Vol. 17(7),
p. 52, April 7, 2003.

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and market exclusivity agreements.12 Other federal programs include: cooperative
research and development agreements (CRADAs) between government laboratories and
universities or industry; the Advanced Technology Program which provides seed money
to develop generic technologies that have broad application across industries; the Central
Intelligence Agency funded non-profit venture capital corporation In-Q-Tel; the Small
Business Technology Transfer Program; and the Small Business Innovation Research
Program.13 In contrast to Project Bioshield’s promise of a market at the end of a long and
risky development process, each of these programs offers direct help during the
development process and provides incentives for commercialization of the results. Some
have suggested expanding these programs will make the market guarantees in Project
BioShield more effective in encouraging countermeasure development.
Other Legislative Proposals
The Biological, Chemical, and Radiological Weapons Countermeasures Research
Act (S. 666, Sen. Lieberman) includes additional economic incentives to encourage
development of bioterrorism countermeasures. In addition to offering market guarantees,
S. 666 includes tax and intellectual property rights incentives. Among the tax incentives
available are the ability to issue a special class of stock to fund the research that would
not subject investors to any capital gains tax and special tax credits to help fund the
research. Intellectual property incentives include the lengthening of patent term for
countermeasures or a two-year extension of any unrelated patent held by the corporation.
S. 666 also includes indemnification provisions, limited antitrust exemptions, and
incentives to increase research and manufacturing capacity.
Conclusions
It is difficult to forecast if Project BioShield would provide enough incentives for the
development of new bioterrorism countermeasures. In congressional testimony, several
industry witnesses have been supportive of the proposal but have also called for more
incentives.14 Some have noted that Project BioShield may entice smaller companies to
develop countermeasures while larger pharmaceutical companies may still find the
guaranteed market too small to justify the opportunity costs associated with redirecting
development efforts from potentially much larger markets.15 Such companies may find
that the unrelated-patent extension provision in S. 666 provides enough incentive to
justify the opportunity costs to their stockholders. Some critics have stated that Project
BioShield will exclude some of the most useful countermeasures, such as new antibiotics
and antivirals, since these would likely have a significant market beyond biodefense.
These issues will likely face Congress during any debate on this legislation.
12 See CRS Report RS20971, Orphan Drug Act: Background and Proposed Legislation in the
107th Congress.
13 See CRS Report 95-50, The Federal Role in Technology Development, and CRS Issue Brief
IB91132, Industrial Competitiveness and Technological Advancement.
14 U.S. House Committee on Energy and Commerce Health Subcommittee and Select Committee
on Homeland Security, March 27, 2003.
15 Andrew Pollack and Melody Petersen, “Untested Companies Enlist in U.S. Biodefense,”New
York Times, March 23, 2003.

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