Industry Frustrated by U.S. Bioterror Defense Strategy

SAN DIEGO -- When President Bush signed Project BioShield into law in July, he said he was immediately making $5.6 billion available to counter such anticipated threats as smallpox genetically engineered to render current vaccines useless.

But the expected flood of contracts never materialized.

Project BioShield was supposed to jump-start a national security renaissance in the biotechnology and pharmaceutical industries by guaranteeing contracts to make drugs for combatting potential bioweapons.

But all the law has done so far is to generate indifference or frustration among biodefense contractors, industry executives and experts say. Most are snubbing the program because of liability and intellectual property issues and confusion over what the government wants.

The corporate response to BioShield is summed up in a new study, by the Center for Biosecurity at the University of Pittsburgh, that criticizes the government's fuzzy mandate and concludes that the nation remains highly vulnerable to a biological attack.

Vaccine-making in general is a risky, low-margin business, as evidenced by Chiron Corp.'s spectacular failure this flu season. Making vaccines to combat potential bioweapons such as anthrax and smallpox is even riskier -- with little natural profit incentive.

So far, no money from BioShield has been allocated, though a contract for more than $800 million to make a genetically engineered anthrax vaccine could be awarded within days to one of the two biotechnology companies competing for it.

Companies complain that there's no guarantee the government won't claim ownership of drugs made with federal support. Nor does the law provide liability protection against consumer lawsuits, which is important since many of the drugs will be tested only on animals infected with nasty diseases such as ebola and smallpox. It's impossible to conduct similar studies in people, so the leglislation allows for regulatory approval without the usual human experiments.

What's more, some scientists argue that creating vaccine stockpiles as envisioned by BioShield isn't the nimble solution needed to combat threats posed by diseases genetically engineered to defeat conventional treatments.

Dr. William Raub of the Department of Health and Human Services, which oversees Project BioShield with the Homeland Security Department, says he's optimistic the problems can be overcome to benefit national security.

"It fills a critical need,'' Raub said. ``I can't imagine that we would be on the path to a new anthrax vaccine if it weren't for BioShield money.''

According to the new study, based on interviews with 30 biodefense experts, most companies are wary about becoming research partners with the U.S. government -- however great the need for countermeasures.

"A group of leaders from government, academia and the private sector believe that there is a strong threat of a large-scale bioterrorist attack,'' the report concludes. "They generally think that the current U.S. biodefense countermeasure development strategy and process are not sufficient to meet the challenges posed by these threats.''

Meanwhile, money-losing companies that supported BioShield's passage are growing impatient.

"Someone has dropped the ball,'' complained Richard Hollis, chief executive of Hollis-Eden Pharmaceuticals.

The tiny San Diego firm is developing an anti-radiation drug that has showed promise in monkeys. Hollis spent the better part of last year lobbying in Washington D.C. His company's executives contributed a combined $18,000 to President Bush and other key lawmakers and spent another $250,000 on lobbyists.

The behind-the-scenes politicking appeared to pay off for the company when Bush signed the measure into law and guaranteed the U.S. government would buy drugs to fight radiation poisoning, anthrax, smallpox and other potential terrorists threats that have no natural markets.

Landing a federal contract for millions of doses of its radiation drug would make a company that has lost more than $118 million since its inception in 1997 instantly profitable.

But Hollis-Eden hasn't received a dime from Project BioShield and still isn't sure when -- or if -- it will ever see any benefit, since Homeland Security and Health and Human Services haven't made clear what they want beyond protection from anthrax and smallpox.

Other biotechnology companies have similar stories, prompting the recent introduction of legislation dubbed BioShield II to address some of those concerns.

"Since BioShield has passed we still have a very anemic response within the research communities and within the production communities to producing these types of vaccines and antitoxins, which would protect us in the case of an attack,'' Sen. Judd Gregg, R-N.H., said at a BioShield hearing last week.

The new legislation seeks to woo companies with tax incentives and some liability protections. It also offers to extend patent protection a few years in some cases and makes limited exemptions from antitrust laws.

But wrangling over how to fix BioShield appears to be bogging down this second round of legislation, and any resolution may come too late for struggling companies that have retooled themselves as biodefense contractors.

"This industry is very fragile and instead of growing it's getting worse and worse everyday,'' said Michael Greenberger, director of the University of Maryland Center for Heath and Homeland Security. ``When all is said and done, this industry is heading toward death.''