by Peter Shorett

Eighteen months after outlining a plan to protect civil-ians against bioterrorism in his 2003 State of the Union address, President Bush's agenda has finally come to fruition with the signing of the Project Bioshield Act. The new law permits the federal government to invest $5.6 billion over the next decade to purchase stockpiles of vaccines and drugs to treat anthrax, plague, smallpox, and other bioterror-related pathogens. There are many broad concerns about the efficacy of this project, including its diversion of resources away from other public health priorities, and the difficulties in defending civilians against a limitless number of possible biological weapons. However, Bioshield may fail for entirely different reasons. The project faces daunting economic obstacles to its implementation and success, despite strong bipartisan support for the measure. Perhaps the most striking challenge is the one the pharmaceutical and biotech industries pose to Project Bioshield’s short-term implementation.

Wooing the Drugmakers

One might expect to see pharmaceutical giants vying for a piece of any multi-billion dollar drug development program. But executives and analysts have so far greeted Project Bioshield with only lukewarm enthusiasm. Creating a new drug product in the United States usually requires a decade or more of research and development, generating costs in the hundreds of millions of dollars. Given the large capital investment and associated risks, pharmaceutical companies require strong incentives to enter into any new area of research.
Pharmaceuticals are the U.S. economy’s most profitable industry, with returns on revenue three-to-four times those of all other sectors combined. Large drug companies are investing their resources into mass-market therapeutic products that they hope will ensure large, continuing revenue streams.

Project Bioshield attempts to spur the private sector development of treatments against diseases that rarely occur in nature, the use of which may only occur in a national emergency. Without the possibility of commercial demand, companies have little incentive to invest in drugs that some advocates believe will be needed to counter a biological attack.

As Congress and President George W. Bush see it, the challenge for the federal government is to provide a guaranteed market of sufficient size and reliability that will coax firms into developing such countermeasures. As Anthony Fauci, director of the National Institute of Allergies and Infectious Diseases, told Congress, biodefense contracts ensure that “no matter what, if they come through with a deliverable product, even if we never use it, we will buy it.”

But resistance to involvement in Project Bioshield runs deep among pharmaceutical companies. Drugs to treat acute infectious diseases are low on the industry’s interest list. The pharmaceutical sector is undergoing a shift in strategic priorities, as more and more drug manufacturers retreat from vaccines, antibiotics and antimicrobials, and move aggressively to develop drugs to treat long-term, chronic disorders that affect older and wealthier Americans, such as high cholesterol, heart disease, cancer, and Alzheimer’s Disease. Bioshield supporters such as Mark Goldberger, the acting deputy director of FDA’s Center for Drug Evaluation and Research, believe this is a case where “the economics and public health imperative do not match up.”

If the history of defense contracting is any indicator, it may be difficult if not impossible to create returns on investment attractive to established drug companies, who expect high profit margins to follow successful product development. In both the biotechnology and pharmaceutical sectors, companies are under tremendous pressure to bring in a 20 to 25 percent rate of return on investment. In contrast, defense contractors such as Boeing, Raytheon, and Lockheed Martin average around 8 percent returns on government contracts. At best, biodefense contracts will lead to a small amount of purchases for the government’s so-called Strategic National Stockpile, creating limited, one-shot revenue. As Jay Markowitz, managing director with T. Rowe Price, told the Scientist in August, “investors are looking for companies that have the potential for lots of customers, not just one.”

Another cause of hesitation among large companies is the risk of liability for any unexpected harm that a biodefense countermeasure might cause to civilians. Most such drugs under development can only be tested for safety, not for efficacy on healthy human subjects. While a small number of bioethicists, such as Arthur Caplan and Pamela Sankar at the University of Pennsylvania, have cautiously argued that efficacy testing should be allowed to move forward, these advocates are few in number. Research involving the deliberate exposure of large numbers of healthy volunteers to possible harm runs counter to the core ethical principles of medicine.

The government has attempted to legislate around this problem, but has created new problems in the process. The Bioterrorism Act of 2002 established separate standards for FDA approval of drugs used to counter biological weapons. Under the law, after Phase 1 human clinical trials demonstrate safety and tolerability, companies may market and license a drug once it is shown to be effective in relevant animal models. As Caplan and Sankar have noted, the refusal to involve human subjects in clinical testing has “obvious implications for the speed with which antidotes to biological and chemical weapons can be found and the confidence that those receiving them can have in their efficacy.” Many side effects may also not be known until a drug is administered to an infected population.

Now imagine a scenario in which hundreds, or even thousands, of civilians experience serious adverse drug reactions to an anthrax antidote used in a national emergency. Drug companies have understandable fears that class action lawsuits, with damages reaching into the billions of dollars, would be filed against them. “Until the liability question is solved, we’re not going to see big drug companies come to the table,” Frank Rapaport, a partner at McKenna, Long & Aldridge, told the Washington Post. “They have too much to lose.”

The Biotech Alternative?

Anticipating the hurdles to attracting Big Pharma, Congress is hoping to draw the interest of talented and innovative biotechnology firms in new biodefense contracts. With the exception of a handful of large, highly capitalized companies, such as Amgen, Biogen and Genentech, biotechnology continues to stand on uncertain financial footing. From 2000 to 2002, the sector lost over half of its market value. And after a strong performance in 2003, when the industry raised $16.5 billion, biotech firms have again struggled this year, with the Burrill & Company Biotech Select Index dropping 7.4 percent through August.

According to the Biotechnology Industry Organization, around 100 of the existing 1000 biotechnology companies are now involved in some form of biological defense research. For most of them, however, defense-related work comprises only a small piece of their overall operations.

Amid the challenges of raising capital through venture financing or the stock market, many small, largely unproven biotechnology companies are turning toward government biodefense contracts as a source of revenue. Without pre-existing major revenues and drugs on the market, these small companies are willing to undertake riskier research and development projects with the potential for high payoffs. Most of them have never successfully brought a product to market, and even fewer have a long-standing relationship with the federal government. But they are the centerpiece of the government’s plan to protect U.S. civilians against bioterrorism.

Abthrax: A Case in Point

Earlier this year, Human Genome Sciences had reached the late stages in the development of a new drug called Abthrax, an antibody that helps to prevent and treat anthrax infections. After Phase 1 trials indicated that the drug was safe and tolerable, preclinical studies in rabbits and non-human primates showed a significant increase in rates of survival linked to administration of the drug prior to anthrax exposure.

Human Genome Sciences has spent over $10 million to develop Abthrax, at a time when the company has over a dozen other drugs under development that could yield larger and more predictable markets. Amid ongoing debate over Project Bioshield, however, the company has indefinitely halted its Abthrax production. Executives say that until the government is willing to come forward with a contract to purchase a sufficient amount of the drug, the company cannot justify the costs of undertaking a final safety trial involving hundreds of human volunteers. “It’s an even larger investment still to gear up and manufacture the drug,” said Jim Davis, general counsel to Human Genome Sciences. “We can’t do that without the confirmation from the government that we have a product that is going to be bought.”

Even if the government commits to purchasing Abthrax in the near future, estimates suggest that Human Genome Sciences will earn only minor profits from the agreement. According to Alexander Hittle of A.G. Edwards & Sons, the government may make a purchase of approximately 500,000 doses at $500 each, yielding $50 million in sales. A typical biotechnology drug generates twice that figure annually. And in the former case, no one can predict the length of time for which the government will act as a reliable consumer.

Bioshield II

Two senior U.S. Senators are working to convince their colleagues that a much more ambitious set of incentives will be required to bring major pharmaceutical and biotech companies on board. Later in this legislative session, Joseph Lieberman (D-Connecticut) and Orrin Hatch (R-Utah) are planning to introduce a bill known as Bioshield II that will provide tax breaks, intellectual property incentives and liability protection for companies willing to invest in biological countermeasures.

The key provision of the bill would amend the Support Anti-terrorism by Fostering Effective Technologies (SAFETY) Act of 2002, which provides full liability protection for Department of Health and Human Services-approved drugs and vaccines deemed necessary for national security. Bioshield II would expand this law, which currently applies only in the event of a terrorist attack, to cover the deployment of vaccines and other preparatory measures to defend against possible future acts of terrorism.

Lieberman and Hatch are considering at least two different types of tax credits to encourage corporate investment. The first would allow companies involved in biological defense to enter research and development limited partnerships. These partnerships allow a company to transfer costs of research and development onto investors, who can in turn apply these expenses to reducing their taxable income. The second component would provide a preferential rate on capital gains taxes to individuals who invest in biodefense-related stocks.

In a third potential provision of Bioshield II, any company from which the government buys a biological countermeasure would be granted a two-year patent extension for another drug the company sells. Consumer groups are certain to oppose this so-called “wild card” patent extension, which would apply to any drug of the company’s choosing, and could potentially extend to blockbuster drugs such as Zoloft and Viagra. But other observers point out that it may be the key component to justify investment by major drug companies.

Another provision making its way into Bioshield II would grant an extended, 20-year patent for all government-purchased bioterrorism drugs. Current patents grant inventors a limited 14-year monopoly on the processes and technologies they develop. Adding 6 to 7 years to biodefense-related patents would give companies an inducement to create drugs with otherwise modest market potential. This is especially true in the case of dual-use drugs, such as an antibiotic that treated Ebola as well as a wide variety of other infectious diseases, where the patent would lengthen a company’s monopoly control of a drug with two or more markets.

The Road to Nowhere

Congress will face an uphill battle in passing what is sure to be viewed as a giveaway to the pharmaceutical industry. A few of its provisions may significantly delay the introduction of generic drugs to treat illnesses that affect millions of U.S. voters. Large drug companies, however, may be the only players with the necessary expertise, resources and experience to develop effective vaccines, antibiotics, and other countermeasures against biological weapons.

Successful development of drugs and vaccines against bioterrorism will require enormous capital. Of the 57 countermeasures listed as high priorities by the Defense Science Board in 2000, the federal government currently has only two at its disposal — two first-generation anthrax and smallpox vaccines. Whether or not worthy in its purpose, Project Bioshield is unlikely to deliver on its own objectives. What remains to be seen is how far the government of the United States will go, and how seriously the public interest will be compromised, in the process.

Peter Shorett is a Research Fellow at the Council for Responsible Genetics

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