Order Code RS21507
Updated February 6, 2004
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 HHS Secretary to permit the
emergency use of unapproved countermeasures. S. 15 (Gregg), S. 1504 (Gregg), H.R.
2122 (Tauzin) incorporate some of these proposals. The largest difference is rather than
creating a permanent, indefinite appropriation, H.R. 2122 and S. 1504 authorize the
appropriation of up to $5.593 billion for the purchase of countermeasures through
FY2013. These funds appear to have been appropriated by the Department of Homeland
Security Appropriations Act, 2004 (P.L. 108-90) which appropriated $5.593 billion for
FY2004-FY2013 to secure medical countermeasures against biological terror attacks.
Some provisions of Project BioShield are controversial. Some critics suggest that
biotechnology and pharmaceutical companies will require even more incentives than
contained in these proposals. 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. For a detailed comparison of these
bills, see CRS Report RL32067 Side-by-Side Comparison of Project BioShield
Legislation: H.R. 2122, S. 15, and S. 1504 by Frank Gottron and Eric Fischer.
Introduction
The anthrax mailings of 2001 killed five people and required thousands to take
prophylactic antibiotic treatment. If there had not been effective medical countermeasures
for this strain of anthrax, the death toll would have been higher. Effective
Congressional Research Service ˜ The Library of Congress

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countermeasures exist for few of the biological threats deemed the most dangerous by the
Centers for Disease Control and Prevention (CDC).1
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 Project BioShield
Act of 2003 (S. 15, Sen. Gregg), as reported by the Senate Committee on Health,
Education, Labor and Pensions, contains the administration proposal, with some
revisions. The corresponding House bill, H.R. 2122 (Tauzin), and the subsequently
introduced Senate bill, S. 1504 (Gregg), contain many of the same provisions as S. 15.
The House passed H.R. 2122 on July 16, 2003. Each of these bills would provide
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 HHS Secretary would be granted
contract authority to purchase countermeasures approved by the President. Another
provision would give the HHS Secretary the power to temporarily allow the emergency
use of countermeasures that lack Food and Drug Administration (FDA) approval.
The largest difference between the bills is how each would fund the purchase of
countermeasures. S. 15 authorizes and appropriates for each fiscal year in perpetuity
“such sums as may be necessary” to procure countermeasures. This mandatory funding
is not subject to the annual appropriations process. In contrast, S. 1504 and H.R. 2122
do not appropriate any money, they authorize the appropriation of up to $5.593 billion
total for FY2004– FY2013. The debate over funding mechanisms appears to have been
settled with the passage of the Department of Homeland Security (DHS) Appropriations
Act, 2004 (P.L. 108-90) which appropriated $5.593 billion for FY2004-FY2013. This is
presumably for Project BioShield although the act only specifies that it is to be used for
“necessary expenses for securing medical countermeasures against biological terror
attacks.”
H.R. 2122 contains additional reporting requirements not found in the Senate
versions. The House version requires annual reports from the HHS Secretary about the
exercise of the authorities granted in this bill. Four years after enactment, H.R. 2122
requires a National Academy of Sciences review of how countermeasure development has
been helped by this act and to suggest any additional actions that would be helpful.
Relaxing Acquisition Procedures. S. 15, S. 1504, and H.R. 2122 would relax
procedures under the Federal Acquisition Regulation for procuring property or services
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. 2002.
2 Ceci Connolly. “U.S. Hopes Incentives Will Push Vaccine Development.” Washington Post.
January 30, 2003. p. A08.

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used in performing, administering, or supporting biomedical countermeasure R&D. They
would increase the maximum, from $100,000 to $25 million, for contracts awarded under
simplified acquisition procedures. Each bill would also allow these purchases using other
than full and open competition. Another provision would increase the micro-purchase
maximum from $2,500 to $15,000. These increases are similar to, but greater than,
changes granted to the 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 proposed in these bills are permanent. They would
decrease the amount of paperwork required for these types of purchases, but also the
potential for oversight. H.R. 2122 requires the HHS Secretary to report the use of these
provisions annually to Congress.
Expedited Peer Review. S. 15, S. 1504, and H.R. 2122 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 $1.5 million or less. 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.3 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.
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 for inclusion in the Strategic
National Stockpile (SNS). The SNS contains pharmaceuticals, vaccines, medical
supplies, and medical equipment designed to help respond to terrorist attacks and other
emergencies. S. 15, S. 1504, and H.R. 2122 would allow the HHS Secretary, with
concurrence of the DHS Secretary and upon the approval of the President, to contract to
purchase a product up to five years before the product is reasonably expected to be
deliverable. Congress would be notified of a purchase by the DHS Secretary after the
President approves it.
The Administration estimates using $5.6 billion over 10 years to purchase
countermeasures, although S. 15 permits expenditure of “any moneys in the Treasury not
otherwise appropriated.” The Congressional Budget Office projects that S. 15 would cost
approximately $8.1 billion over 10 years, 45% more than the Administration estimate.
S. 1504 and H.R. 2122 authorize the appropriation of up to $5.593 billion over for
FY2004-FY2013. Under each of these bills, these funds could not be used for
administrative costs or to purchase vaccines under procurement contracts entered into
before January 1, 2003 (under S. 15 and S. 1504) or before enactment of Project
BioShield (under H.R. 2122). The passage of the DHS Appropriations Act, 2004 (P.L.
108-90) appears to settle the debate between these policies with the advance appropriation
of $5.593 billion for FY2004-FY2013 for procuring medical countermeasure against
biological terror attacks.
3 John Miller. “Interview with Richard Ebright.” The Scientist. Vol. 17 (7). April 7, 2003. p. 52.

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Several have criticized some of the provisions of S. 15.4 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 the appropriation under S. 15. In contrast, S. 1504 and H.R.
2122 authorize appropriations only through FY2013. Some critics have expressed
concern over S. 15 for changing the nature of congressional oversight from the continuous
and consultative annual appropriations process to one of simply reviewing executive
decisions after the fact. Under S. 1504 and H.R. 2122, the fund would be subject to
annual review through the appropriations process. Furthermore, H.R. 2122 would require
the HHS Secretary to prepare annual reports detailing actions taken under this Act
including identification entities that received or were rejected for an award under this Act.
The passage of the DHS
To qualify for purchase, S. 15 and S. 1504 would require the HHS Secretary to
determine that there is no other significant market for the countermeasure. Some have
suggested that this will not encourage the development of some of most useful
countermeasures such as new wide-spectrum antivirals or antibiotics, since these might
be used against common naturally-occurring diseases. Such nonspecific countermeasures
might be the best defense against currently unknown threats such as emerging diseases
or genetically engineered pathogens. H.R. 2122 would require the HHS Secretary only
to factor whether there is a lack of a significant commercial market into the decision to
recommend the purchase of a countermeasure.
Exemptions to FDA Approval Process. S. 15, S. 1504, and H.R. 2122 allow
the purchase of unapproved and unlicenced countermeasures. S. 15 requires that the HHS
Secretary determine that there is “...sufficient and satisfactory clinical experience or
research data... [to] support a reasonable conclusion that the product will qualify for
approval or licensing... within 5 years.” H.R. 2122 omits the 5 year constraint. The
approval and licensing processes are designed to preclude the marketing of ineffective and
dangerous treatments. Because most drugs that begin the approval process fail to become
approved treatments, 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 and S. 1504 allow contracts to be written so that
unapproved products may be purchased at lower cost than approved products.
S. 15, S. 1504, and H.R. 2122 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: 1) the agent for which the
countermeasure is designed can cause serious or life-threatening disease; 2) the product
may reasonably be believed to be effective in detecting, diagnosing, treating, or
preventing the disease; 3) the known and potential benefits of the product outweigh its
known and potential risks; 4) there is no adequate alternative to the product that is
approved and available; and 5) 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.
4 Lisa Richwine. “Concerns Raised About Funding for U.S. Biodefense Program.” Reuters.
March 27, 2003.

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Policy Options
Alternative Contract Mechanisms. Some have suggested that the new
contracting authority granted by Project BioShield 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. Companies could rationalize to their stockholders that 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.5 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 by the HSA (P. L. 107-296). Another provision of the HSA, the
SAFETY Act, limits the tort liability of sellers of anti-terrorism technologies.6 Since
these limits do not apply to harm caused when no act of terrorism has occurred, this
provision might not cover products, such as vaccines or detectors, that might be deployed
when an attack is only suspected or threatened. Sellers of such technology may feel that
they still have an unacceptable risk of litigation stemming from adverse effects of their
products.

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.7 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
and market exclusivity agreements. Other federal programs include: cooperative research
and development agreements (CRADAs) between government laboratories and
5 Dr. Kim Bush. Testimony before the of the U.S. Senate Committee on Health, Education,
Labor, and Pensions, Health Subcommittee. January 30, 2003.
6 See CRS Report RL31649, Homeland Security Act of 2002: Tort Liability Provisions.
7 John Miller. “Bioterrorism research: New Money, New Anxieties.” The Scientist. Vol. 17(7),
April 7, 2003. p. 52.

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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.8 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, 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.9 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.10 Such companies may find
that the unrelated-patent extension provision in S. 666 provides enough incentive to
justify the opportunity costs to their stockholders. These issues will likely face Congress
during any debate on this legislation.
8 See CRS Report 95-50, The Federal Role in Technology Development and CRS Issue Brief
IB91132, Industrial Competitiveness and Technological Advancement.
9 U.S. House Committee on Energy and Commerce Health Subcommittee and Select Committee
on Homeland Security. March 27, 2003.
10 Andrew Pollack and Melody Petersen. “Untested Companies Enlist in U.S. Biodefense.”New
York Times. March 23, 2003.

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