Playing the Piper

Businesses wouldn't bite on the last attempt to lure them into biodefense, so the Health and Human Services Department is changing its tune.

On the morning of Jan. 28, 2003, Bob Marsella received a tip about a surprise that President Bush would deliver in his State of the Union address that evening. Marsella had come to Washington with data on a drug that his company, San Diego-based Hollis-Eden Pharmaceuticals, was developing to cure the often fatal effects of severe radiation exposure. He was in the White House, showing the information to Alan Gilbert, Bush's special assistant for domestic policy. Gilbert reacted favorably and offered a little foreshadowing, Marsella recalls. "I think you'll really like the speech tonight," he said.

That night, halfway through his address, the president proposed a new $5.6 billion federal program, called Project BioShield, to develop and purchase vaccines and other medical countermeasures to biowarfare agents like anthrax, along with other potential weapons of mass destruction, such as a radiation-producing nuclear bomb.

Marsella, Hollis-Eden's senior vice president for development and marketing, was very happy indeed with what he heard. "It gave us a vehicle to know they had money and wanted to encourage companies," he says. "Now there was a real market for this, and we could go to Wall Street to develop the drug. . . . We had bankers come to us and say, 'We want to fund this. This is going to be huge.' "

But as of May, Hollis-Eden no longer is developing Neumune, its drug for radiation sickness, for the federal government or anyone else. In a sharply worded May letter to Rep. James R. Langevin, D-R.I., the company's chairman, Richard Hollis, announced that Hollis-Eden is "out of the business of BioShield." Langevin is chairman of the House Homeland Security Subcommittee on Emerging Threats, Cyber- security, and Science and Technology.

BioShield once was hailed as a revolutionary program that would use market forces to develop cutting-edge therapeutics where few existed before. But in the four and a half years since its creation, it's been a disappointment. The Health and Human Services Department, which oversees the program, has used it to buy a limited number of vaccines or other therapies, and few of them are new products. The department canceled two of the most high- profile BioShield procurements. And the large pharmaceutical companies it was intended to lure never appeared.

HHS leaders say they now have the program heading in the right direction. The Pandemic and All-Hazards Preparedness Act passed last year created a new HHS agency to shepherd manufacturers through the bumpy drug development process. That new agency and authority, along with reshuffling at HHS, have put the department in a better position to help companies develop medical countermeasures to smallpox, radiation sickness and the like, HHS officials say. "I'm not sure it's provided us all the tools yet, but it's moved us well in the right direction," says Gerry Parker, HHS deputy assistant secretary for preparedness and response.

Losing Interest

In April, Langevin's subcommittee held a hearing called "Can BioShield Effectively Procure Medical Countermeasures That Safeguard the Nation?" Marsella, Hollis and other industry officials sat in chairs on the left side of the center aisle. Representatives of HHS, the Homeland Security Department and other agencies sat on the right. BioShield was supposed to bring together those two groups, but the subcommittee's question betrays that the divide has yet to be bridged.

The idea behind BioShield was to attract pharmaceutical companies and biotechnology firms, traditionally active in more lucrative markets, to the biodefense arena. People buy drugs for cholesterol, diabetes and hair loss, which makes it worth it for drug companies to develop them. People don't usually go to the local pharmacy to buy anthrax vaccine. There's no guarantee biodefense products ever will be needed, hence little reason for companies to produce them.

What made BioShield revolutionary was the idea that government would create the market for such drugs by guaranteeing to buy a certain quantity of them-assuming they worked-to put them in the Strategic National Stockpile. Companies could then weigh the risks of trying to develop such drugs. Pharmaceutical firms don't take that peril lightly, since 67 percent to 91 percent of new compounds under investigation are rejected and the average biotechnology drug takes $1.2 billion and more than eight years to develop, according to the Center for the Study of Drug Development at Tufts University. Thus, the government would issue "advanced purchase" contracts. Firms wouldn't be paid until they delivered effective products, but assured of a market, private investors would fund their development.

The market and the new drugs haven't come to fruition, critics say, because HHS has been too conservative. The department has taken too long to say what kinds of therapies it wants-and how many and at what price. It has delayed issuing solicitations and has failed to buy large enough quantities of what it has asked for.

Understandably, the critics contend, companies and potential investors have lost interest.

"In commercial drug development, where the markets are known, the investment community is willing to continue to fund development as long as the potential market remains clear," Hollis wrote to Langevin. "There is no reason to believe that the same cannot be true for BioShield; however, that would require the program to guarantee markets, issue advanced purchase contracts and ride out the vagaries of the drug development process."

What Hollis is referring to, in part, is his own experience of trying to work with HHS on Neumune. High levels of radiation can cause, among other things, a fatal drop in infection-fighting white blood cells and in clotting cells called platelets. Neumune, the firm says, would mitigate both conditions. After waiting through multiple delays, a request for information, a draft request for proposals and a final request for proposals, the company finally reached the negotiation stage last year only to have the department announce in March that it was canceling the procurement. Neumune was not far enough along in development to merit a contract, according to HHS. Hollis-Eden had spent $85 million developing the drug under the belief that the department would buy it, the company chairman says.

The procurement of a next-generation anthrax vaccine sputtered, too. In November 2004, HHS awarded a contract worth nearly $900 million to VaxGen Inc. of Brisbane, Calif., for 75 million doses of the vaccine it was developing. That contract made VaxGen the most high-profile HHS biodefense contractor, the "BioShield pace car," as one company spokesman put it. But last December, HHS terminated the contract for default. VaxGen, which already had pushed back its delivery date several times, was unable to convince the Food and Drug Administration to allow it to start a Phase 2 trial by the HHS-imposed deadline of Dec. 18. A month after the payment-on-delivery contract was canceled, VaxGen cut its workforce in half and Lance Gordon, the firm's president and CEO, resigned.

As FDA commissioner from November 2002 until early 2004, Mark McClellan was one of the architects of BioShield and pitched it to industry at a well-attended Biotechnology Industry Organization conference for CEOs and investors in January 2003. He says the program's problems generating private sector interest come down to the lack of a large financial carrot. The annual appropriations process makes it difficult for the government to commit to spending a large sum of money several years from now, he says. "It's the demand at the end of the line that drives everything," says McClellan, now a visiting senior fellow in health policy studies at the American Enterprise Institute-Brookings Institute Joint Center for Regulatory Studies in Washington. "Usually, it's up to the company to convince investors [to continue funding a drug's development]. That's different here because there's not that clear, secure promise of financial success at the end of the line."

Valley of Death

Gerry Parker of HHS twiddled his fingers and shook his head in disagreement during Hollis' testimony at the April BioShield hearing. He and other HHS leaders have a very different take on the project's chief problem and the solution. They believe industry has stayed away from biodefense because of constraints imposed by the original BioShield legislation. The fixed-price, payment-on-delivery contracts the law required were too risky for companies to bear, they say.

"Any companies under a BioShield contract were operating under their own risk to get the product to the point where we could get it into the Strategic National Stockpile," says Carol Linden, HHS acting director for public health emergency medical countermeasures. "Most other contracts, and especially research and development contracts, would be cost-reimbursement-type contracts where the company or entity does some work, submits an invoice, you pay the invoice, they do some work, submit another invoice, you pay the invoice."

Under fixed-price BioShield contracts- which state that the government will buy a certain number of doses at a certain price-companies had to roll all developmental work into the initial price. "And sometimes those costs are not entirely predictable," Linden says. This is where HHS thinks it has a large part of the solution. The pandemic and hazards act created the Biomedical Advanced Research and Development Authority at HHS to manage drug development. Linden is the acting chief of BARDA. It now has nearly 150 employees (including contractors), and Linden anticipates it will grow to a total staff of 300 by the end of fiscal 2008.

The 2006 law gives HHS authority to pay companies up to 5 percent of a contract's value at completion of certain milestones and up to 10 percent of the award as advance payments. HHS and congressional backers hope this will help companies bridge what industry calls the Valley of Death-the long period between early drug development and FDA approval, when many firms run out of money.

Having stopped all work on its radiation drug, Hollis-Eden now is pursuing drugs for prostate and breast cancer. Company officials believe BARDA exacerbates BioShield's problems. Focusing on issuing development grants to get companies over the valley of death spends taxpayer dollars on a risky process guaranteed to produce some failures, and takes the program further away from a market-driven approach, they say. "I want to be perfectly and absolutely clear about this: There is no valley of death in the private sector markets for known attractive commercial products and market opportunities," Hollis said at the House subcommittee hearing. "The legislation, the way it's being implemented, has created the valley of death."

McClellan, too, thinks intermediate payments are not an ideal approach, because government bureaucrats wind up having to judge whether a drug under development is on track, traditionally the province of venture capitalists and others in the private sector. Previously, government employees only had to judge the final product, and evaluate whether it was effective. "Where governments have a better role to play is setting out a big reward, not trying to critique each intermediate step," he says.

He advocates a model like the one sometimes employed in sub-Saharan Africa, where extreme poverty means there is no market for anti-malaria medication and other drugs that are desperately needed. A foundation or government puts up a large cash prize for the first company to produce an effective therapeutic. Called Advanced Market Commitment, it is actually quite similar to the original vision of BioShield.

Changing Minds

Last summer, HHS began reorganizing in anticipation of passage of the Pandemic and All-Hazards Preparedness Act. The domain of W. Craig Vanderwagen, assistant secretary for preparedness and response, has been divided into four new offices: Office of Policy and Strategic Planning, which handles long-term planning; Office of Medicine, Science and Public Health, which is the medical adviser to Vanderwagen and does international preparedness; Office of Preparedness and Emergency Operations, which coordinates HHS' emergency response; and BARDA. Parker emphasizes that the reorganization is more than just nominal; he says it has created a central, coordinating enterprise for the many agencies and departments involved in medical preparedness and response, something that did not exist before. "We've got the foundation now of being able to more effectively manage and integrate and lead an enterprise for preparedness and response," he says.

That coordinating framework, Parker adds, has brought together not only senior leaders, but also those at the staff level, to ensure that, for example, researchers are talking to people in preparedness and response. "There's a natural tension in the research and development world: We need a lot of innovation and a lot of good ideas, but we also have to channel that innovation and good ideas into something that . . . is pragmatic at the delivery level," he says. "It would do no good if we spent a lot of money developing something that had no operational utility."

Parker is hinting at the Hollis-Eden drug. Though they have been careful to say they canceled the radiation sickness procurement because no proposed therapy was far enough along to meet their requirements, HHS officials expressed doubt about the requirement that Neumune be administered four hours after exposure. "We have to take into account how fast we can get the drugs to the people who need them versus how fast they need to be treated," Linden says. "If you have a drug that says it has a positive effect, but you have to give it in a very short time period after exposure, say four hours-from an operational standpoint, we can't do that right now." Hollis-Eden officials counter that the drug could be stocked in households or cities in the event they might one day have to use it.

In June, HHS issued a new sources-sought notice for drugs to treat some of the effects of radiation sickness. Linden says some drugs used in radiation oncology could fit the bill here, even if their manufacturers never considered it. The department also has planned a series of outreach events to get the word out to the private sector about opportunities within BioShield. Notably, Linden will host a BioShield workshop at the end of July, and a BARDA industry day at the beginning of August. "We're very excited about this-to have a whole day where folks can come," Linden says. "We've set it up with half-hour presentations so they can come tell us about their technologies."

And there is some evidence that business might be coming around on BioShield. The implementation plan HHS released in April, which, among other things, spells out acquisition priorities, was greeted favorably by companies, though many say more details are needed. And on June 4, HHS took a large step forward, awarding a $500 million contract to Danish drug manufacturer Bavarian Nordic for 20 million doses of its next-generation smallpox vaccine. Although the national stockpile already contains enough smallpox vaccine for every American, it can cause harmful side effects. The Bavarian Nordic vaccine is safer, and could be given to Americans with compromised immune systems, HHS officials say.

Will HHS be able to change private sector minds about doing business on biodefense? Both the department and its critics will be scrutinizing the response to solicitations for a next-generation anthrax vaccine and radiation sickness therapy for signals of a turnaround. "This is a new kind of a problem that the government hasn't had to solve before," McClellan says of biodefense. "Every time there are new problems to solve, there is going to be an iterative process. You start with ideas that seem like the best approach and then identify ways that they might be improved."