Order Code RS21507
Updated August 3, 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 address this need. The main provisions
of that proposal include (1) relaxing procedures for bioterrorism-related procurement,
hiring, and awarding research grants; (2) guaranteeing a federal government market for
new countermeasures through a permanent, indefinite appropriation; and (3) permitting
emergency use of unapproved countermeasures. Congress considered these proposals
in S. 15 (Gregg), S. 1504 (Gregg), and H.R. 2122 (Tauzin). President Bush signed S.
15 (The Project BioShield Act of 2004, P.L. 108-276) into law on July 21, 2004. The
largest difference between the enacted version and the President’s initial proposal is that
the law authorizes the appropriation of up to $5.593 billion for the purchase of
countermeasures through FY2013, while the President originally requested a permanent,
indefinite appropriation. The Department of Homeland Security Appropriations Act,
2004 (P.L. 108-90) appropriated $5.593 billion for FY2004-FY2013 to secure medical
countermeasures against biological terror attacks. Additional industry 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 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
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
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.
Congressional Research Service { The Library of Congress
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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.
The Administration began the acquisition process for some countermeasures before
enactment of the Project BioShield Act of 2004. A next generation anthrax vaccine is
acknowledged as the first target for BioShield funds.3 This vaccine is expected to be
ready for purchase in the summer of 2005. Other acknowledged targets include new
vaccines for smallpox and plague and new treatments for anthrax and botulism.
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, Senator Gregg), as reported by the Senate Committee on Health,
Education, Labor and Pensions, contained the administration proposal, with some
revisions. The corresponding House bill, H.R. 2122 (Tauzin), and a 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. On May 19, 2004, the Senate passed an
amended S. 15 which contained several important differences from the version which had
been reported from committee. S. 15 as passed by the Senate more closely resembles
H.R. 2122 and S. 1504, than the version of S. 15 reported by committee.4 S. 15 passed
the House on July 14, 2004. President signed S. 15 into law on July 21, 2004 (P.L. 108-
276).
The Project BioShield Act of 2004 provides expedited procedures for bioterrorism-
related procurement, hiring, and awarding of research grants, making it easier for the
Department of Heath and Human Services (HHS) to quickly commit substantial funds to
countermeasure projects. The HHS Secretary would be granted contract authority to
purchase countermeasures approved by the President. The HHS Secretary would have the
power to temporarily allow the emergency use of countermeasures that lack Food and
Drug Administration (FDA) approval.
The largest difference between the enacted version and the President’s initial
proposal is how each would fund the purchase of countermeasures. The President’s
proposal (embodied in the version of S. 15 reported by the Senate Committee on Health,
Education, Labor and Pensions) contained a permanent, indefinite appropriation. This
mandatory funding is not subject to the annual appropriations process. In contrast, the
enacted version of S. 15 does not appropriate any money, it authorizes the appropriation
of up to $5.593 billion total for FY2004 to FY2013. The appropriations for Project
BioShield were included in the Department of Homeland Security (DHS) Appropriations
2 Ceci Connolly. “U.S. Hopes Incentives Will Push Vaccine Development.” Washington Post.
January 30, 2003. p. A08.
3 Phillip Russell. “Research and Development Update.” HHS Secretary’s Council for Public
Health Preparedness. May 3, 2004.
4 For a detailed comparison of the legislative proposals, see CRS Report RL32416 Project
BioShield: Side by Side Comparison of House- and Senate-Passed Versions By Frank Gottron.
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Act, 2004 (P.L. 108-90), which appropriated $5.593 billion for FY2004 to FY2013. This
is an advance appropriation for the entire 10-year cost of Project BioShield. This act
specifies that $890 million are available to be obligated in FY2004 and $3.418 billion are
available for obligation in FY2004 to FY2008. Obligation is the promising of the money
through a contract as opposed to the spending of the money which would occur upon
delivery of the countermeasures at some later date.
Relaxing Acquisition Procedures. The Project BioShield Act of 2004 (P.L.
108-276) relaxes procedures under the Federal Acquisition Regulation for procuring
property or services used in performing, administering, or supporting biomedical
countermeasure R&D. The act increases the maximum, from $100,000 to $25 million,
for contracts awarded under simplified acquisition procedures. It also allows these
purchases using other than full and open competition. Another provision increases 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) and the Defense Department Authorization
Act, 2004 (P.L. 108-136). These provisions decrease the amount of paperwork required
for these types of purchases and the potential for oversight. The Project BioShield Act
of 2004 requires the HHS Secretary to report any use of these provisions annually to
Congress.
Expedited Peer Review. The Project BioShield Act of 2004 authorizes 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 scientists have expressed concerns that an expedited peer
review process will reduce the quality of the research.5 Peer review is designed to
maximize the chances that only proposals with the greatest scientific merit get funding.
The alternative award process is not described in detail in the law.
Market Guarantees. The Project BioShield Act of 2004 is designed to reassure
biotechnology and pharmaceutical companies that if they successfully develop a new
biological countermeasure, the government will buy it for 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. The act
allows the HHS Secretary, with concurrence of the DHS Secretary and upon the approval
of the President, to contract to purchase a product up to eight years before the product is
reasonably expected to be deliverable. Congress would be notified of a recommendation
for a stockpile purchase after Presidential approval.
Some experts criticized early versions of Project BioShield 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 the enacted
verison of Project BioShield, use of the advanced appropriation is subject to annual
review through the appropriations process, since future Congresses could rescind funds
5 John Miller. “ Interview with Richard Ebright.” The Scientist. Vol. 17 (7). April 7, 2003. p. 52.
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already appropriated but not yet obligated. Furthermore, the HHS Secretary must prepare
annual reports detailing actions taken under this act, including identifying entities that
received or were rejected for an award.
Early versions of Project BioShield would have required the HHS Secretary to
determine that there is no other significant market for the countermeasure. Critics
suggested that this would not encourage the development of some of most useful
countermeasures, such as new wide-spectrum antivirals or antibiotics, which 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. The enacted version does not exclude such
countermeasures; however it does require that the presence of another commercial market
be factored into the HHS Secretary’ s decision to purchase the countermeasure.
The Project BioShield Act of 2004 allows the purchase of unapproved and
unlicenced countermeasures. It 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 eight
years.” The approval and licensing processes are designed to preclude the marketing of
ineffective or 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, the act allows contracts to be written so that
unapproved products may be purchased at lower cost than approved products.
Emergency Use of Unapproved Products. The Project BioShield Act of 2004
allows 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.
Reporting Requirements. The Project BioShield Act of 2004 requires annual
reports from the HHS Secretary about the exercise of the authorities granted in this bill.
The Government Accountability Office (GAO) will produce a report four years after
enactment to assess actions taken under authorities granted by the act, to determine the
effectiveness of the act, and to recommend additional measures to address any
deficiencies.
Policy Options
Alternative Contract Mechanisms. Some advocates 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
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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 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 analysts feel that one of the largest barriers preventing
more companies from developing countermeasures is the risk of litigation stemming from
adverse effects.6 Some manufacturers 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 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.7 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. Some manufacturers may feel that this represents an
unacceptable litigation risk.
Increasing Basic Research. Congress increased National Institutes of Health
bioterrorism research funding to approximately $1.6 billion in FY2004. It is difficult to
determine the optimal funding level for basic research, but at some point the law of
diminishing returns will apply. Some scientists have suggested that this has already
occurred and inevitably leads to funding unworthy projects.8 Other critics suggest that the
bottleneck for new countermeasures is not in basic research, but in the transfer of
promising leads to the product 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 that companies would
not otherwise find profitable to develop through tax incentives and market exclusivity
agreements. 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; as well as 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
6 Dr. Kim Bush, President Vaccines Division, Baxter Healthcare Corp. Testimony before the U.S.
Senate Committee on Health, Education, Labor, and Pensions, Health Subcommittee. January 30,
2003.
7 See CRS Report RL31649, Homeland Security Act of 2002: Tort Liability Provisions by Henry
Cohen.
8 John Miller. “ Bioterrorism research: New Money, New Anxieties.” The Scientist. Vol. 17(7),
April 7, 2003. p. 52.
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Program.9 In contrast to Project BioShield’ s guarantee of a market at the end of what can
be viewed as 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. Expanding these programs may 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 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 the Project BioShield Act of 2004 provides 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.10 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.11 Larger
companies may find that the unrelated-patent extension provision in S. 666 provides
enough incentive to justify the opportunity costs to their stockholders.
Many of the policy options discussed above will continue to face Congress, despite
the passage of the Project BioShield Act of 2004. Senators Hatch and Lieberman expect
to introduce legislation dubbed BioShield II to address some of the remaining barriers to
countermeasure development.12 Other members of Congress have stated a need for
liability reform especially in the context of countermeasure development.13
9 See CRS Report 95-50, The Federal Role in Technology Development and CRS Issue Brief
IB91132, Industrial Competitiveness and Technological Advancement both by Wendy Schacht.
10 U.S. House Committee on Energy and Commerce Health Subcommittee and Select Committee
on Homeland Security. March 27, 2003.
11 Andrew Pollack and Melody Petersen. “ Untested Companies Enlist in U.S. Biodefense.” New
York Times. March 23, 2003.
12 Sen. Lieberman. “ Lieberman Applauds Signing Of Project BioShield into Law.” Press Release.
July 21, 2004.
13 For example, see Sen. Frist. Congressional Record. May 19, 2004. p. S5761.
Document Outline