[House Hearing, 108 Congress]
[From the U.S. Government Printing Office]



 
        HEARING ON BIOSHIELD: COUNTERING THE BIOTERRORIST THREAT
=======================================================================





                                HEARING

                               before the

                          SELECT COMMITTEE ON
                           HOMELAND SECURITY
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                              MAY 15, 2003

                               __________

                            Serial No. 108-3

                               __________

    Printed for the use of the Select Committee on Homeland Security


 Available via the World Wide Web: http://www.access.gpo.gov/congress/
                                 house

                               __________



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                 SELECT COMMITTEE ON HOMELAND SECURITY



                 Christopher Cox, California, Chairman

Jennifer Dunn, Washington            Jim Turner, Texas, Ranking Member
C.W. Bill Young, Florida             Bennie G. Thompson, Mississippi
Don Young, Alaska                    Loretta Sanchez, California
F. James Sensenbrenner, Jr.,         Edward J. Markey, Massachusetts
Wisconsin                            Norman D. Dicks, Washington
W.J. (Billy) Tauzin, Louisiana       Barney Frank, Massachusetts
David Dreier, California             Jane Harman, California
Duncan Hunter, California            Benjamin L. Cardin, Maryland
Harold Rogers, Kentucky              Louise McIntosh Slaughter, New 
Sherwood Boehlert, New York          York
Lamar S. Smith, Texas                Peter A. DeFazio, Oregon
Curt Weldon, Pennsylvania            Nita M. Lowey, New York
Christopher Shays, Connecticut       Robert E. Andrews, New Jersey
Porter J. Goss, Florida              Eleanor Holmes Norton, District of 
Dave Camp, Michigan                  Columbia
Lincoln Diaz-Balart, Florida         Zoe Lofgren, California
Bob Goodlatte, Virginia              Karen McCarthy, Missouri
Ernest J. Istook, Jr., Oklahoma      Sheila Jackson-Lee, Texas
Peter T. King, New York              Bill Pascrell, Jr., New Jersey
John Linder, Georgia                 Donna M. Christensen, U.S. Virgin 
John B. Shadegg, Arizona             Islands
Mark E. Souder, Indiana              Bob Etheridge, North Carolina
Mac Thornberry, Texas                Charles Gonzalez, Texas
Jim Gibbons, Nevada                  Ken Lucas, Kentucky
Kay Granger, Texas                   James R. Langevin, Rhode Island
Pete Sessions, Texas                 Kendrick B. Meek, Florida
John E. Sweeney, New York

                      John Gannon, Chief of Staff
         Uttam Dhillon, Chief Counsel and Deputy Staff Director
                  Steven Cash, Democrat Staff Director
                    Michael S. Twinchek, Chief Clerk

                                  (II)















                                CONTENTS

                              ----------                              

                           MEMBER STATEMENTS

  The Honorable Robert E. Andrews, a Representative in Congress 
    From the State of New Jersey.................................    91
  The Honorable Diaz-Balart, a Representative in Congress, From 
    the State of Florida, and Chairman of the Subcommittee on 
    Rules........................................................     7
  TheHonorable Donna M. Christensen, a Representative in Congress 
    From the U.S. Virgin Islands.................................     6
TheHonorable Christopher Cox, a Representative in Congress From 
  the State of California, and Chairman
  Oral Statement.................................................     1
  Prepared Statement.............................................     6
  TheHonorable Norman D. Dicks, a Representative in Congress From 
    the State of Washington......................................     7
  The Honorable Jennifer Dunn, a Representative in Congress From 
    the State of Washington......................................    31
  TheHonorable Barney Frank, a Representative in Congress From 
    the State of Massachusetts...................................    40
  TheHonorable Jane Harman, a Representative in Congress From the 
    State of California..........................................     8
  The Honorable James R. Langevin, a Representative in Congress 
    From the State of Rhode Island...............................    57
TheHonorable Sheila Jackson-Lee, a Representative in Congress 
  From the State of Texas
  Oral Statement.................................................     5
  Prepared Statement.............................................     9
  TheHonorable Nita M. Lowey, a Representative in Congress From 
    the State of New York........................................    46
  The Honorable Edward J. Markey, a Representative in Congress 
    From the State of Massachusetts..............................    48
  TheHonorable Kendrick B. Meek, a Representative in Congress 
    From the State of Florida....................................    58
  TheHonorable Harold Rogers, a Representative in Congress From 
    the State of Kentucky........................................     5
  TheHonorable Loretta Sanchez, a Representative in Congress From 
    the State of California......................................    33
  TheHonorable Christopher Shays, a Representative in Congress 
    From the State of Connecticut................................    44
  TheHonorable W.J. Tauzin, a Representative in Congress From the 
    State of Louisiana...........................................     4
  TheHonorable Jim Turner, a Representative in Congress From the 
    State of Texas, and Ranking Member...........................     1

                               WITNESSES

Mr. L. Garry Adams, DVM, PhD, DACVP, Associate Dean for Research, 
  Biodefense and Infectious Diseases College of Veterinary 
  Medicine, Texas A&M University
  Oral Statement.................................................    14
  Prepared Statement.............................................    16
Dr. Ronald Crystal, Professor and Chairman, Department of Genetic 
  Medicine, Weill Medical College of Cornell University
  Oral Statement.................................................    23
  Prepared Statement.............................................    24
Mr. Anthony S. Fauci, M.D., Director, National Institute of 
  Allergy and Infectious Diseases National Institutes of Health
  Oral Statement.................................................    10
  Prepared Statement.............................................    12
William A. Haseltine, PhD., Chairman and Chief Executive Officer 
  of Human Genome Sciences, Inc.
  Oral Statement.................................................    61
  Prepared Statement.............................................    63
Mr. Alan Pemberton, Pharmaceutical Research and Manufactures of 
  America
  Oral Statement.................................................    67
  Prepared Statement.............................................    68
Dr. Clarence James Peters, University of Texas Medical Branch, 
  Galveston, Texas
  Oral Statement.................................................    18
  Prepared Statement.............................................    19
Mr. Frank Rapoport, Esquire Partner, McKenna Long & Aldridge LLP
  Oral Statement.................................................    70
  Prepared Statement.............................................    72
Mr. Robert J. Sutcliffe, Director, President and Chief Executive 
  Officer, Digital Gene Technologies, Inc.
  Oral Statement.................................................    76
  Prepared Statement.............................................    77

                                APPENDIX
          ADDITIONAL MATERIAL SUBMITTED FOR THE HEARING RECORD

  Mr. P. Roy Vagelos, M.D., Retired Chairman and CEO Merck & Co., 
    Inc., letter for the Record..................................    28
  Questions and Responses for the Record.........................   103















        HEARING ON BIOSHIELD: COUNTERING THE BIOTERRORIST THREAT

                              ----------                              


                         Thursday, May 15, 2003

                  House of Representatives,
             Select Committee on Homeland Security,
                                            Washington, DC.
    The committee met, pursuant to call, at 1:15 p.m., in room 
345, Cannon House Office Building, Honorable Christopher Cox 
[Chairman of the Committee] presiding.
    Present: Representatives Cox, Dunn, Tauzin, Rogers, Shays, 
Camp, Linder Shaddegg, Thornberry, Gibbons, Sessions, Turner, 
Sanchez, Markey, Dicks, Frank, Slaughter, DeFazio, Lowey, 
Andrews, Lofgren, Jackson Lee, Pascrell, Christensen, 
Etheridge, Gonzalez, Lucas, Langevin, and Meek.
    Chairman Cox. Good afternoon. A quorum being present, the 
Select Committee on Homeland Security will come to order. The 
committee is meeting today to hear testimony on the 
administration proposed Project BioShield.
    As members know, our rules permit any member to make a 3-
minute opening statement. Alternatively, members who arrive 
within 5 minutes of the fall of the gavel and who waive their 
opening statement will at their election have that 3 minutes 
added to their time for questioning of the witnesses.
    I will yield first for an opening statement to the ranking 
member of the full committee, Mr. Jim Turner of Texas.
    You are recognized for 3 minutes.
    Mr. Turner. Mr. Chairman, if the chairman will indulge me 
for a minute, I want to speak to an issue unrelated to our 
hearing but very much related to our committee, a disturbing 
issue which has arisen concerning the Department of Homeland 
Security, which we have the responsibility of overseeing. 
Recent news reports have stated that an agency within the 
Department of Homeland Security, the Air and Marine 
Interdiction and Coordination Center based in Riverside, 
California, has used its domestic intelligence gathering 
capabilities for political purposes. It is reported by the 
media that the Center diverted Federal resources from homeland 
security purposes and used its intelligence gathering function 
to monitor and track down a private plane flown by the former 
Speaker of the Texas House of Representatives, Hon. Pete Laney. 
Former Speaker Laney was in public service for some 30 years. 
He is the gentleman who was asked by President Bush to 
introduce him to America for a prime time speech after the 
Supreme Court gave its verdict on the election of 2000.
    Mr. Chairman, that domestic intelligence capabilities would 
be used for partisan political purposes should be deeply 
disturbing to this committee and to all Americans. We created 
the Department of Homeland Security to track down terrorists, 
not law abiding citizens. This new Department has been 
entrusted with an important mission, to protect and defend the 
American people. The Department must carry out its mission, and 
maintaining the trust of the American people is essential in 
carrying out this important task.
    To those who suggest it is appropriate for Federal 
resources to be used to locate and arrest State legislators who 
have broken no law and have exercised a time-honored right to 
break a quorum, a practice used by a young Illinois State 
representative named Abraham Lincoln in 1840, reminds one of 
the days of Watergate when Federal resources were used for 
purely partisan political purposes, an act which brought a 
government down.
    I am formally requesting, by letter to the Secretary, that 
an inquiry be conducted into this matter and that information 
be produced as soon as possible regarding persons responsible 
for this unacceptable action and the misuse of Department 
resources.
    Thank you, Mr. Chairman.
    Mr. Chairman, today we gather to deal with a very critical 
issue to this country, the threat of biological terror. The 
Defense Science Board has identified 67 diagnostic vaccines and 
therapeutic products which are priorities for defending against 
a biological attack. Right now we have only two, vaccines for 
anthrax and smallpox. Experts estimate it can take 8 to 10 
years at a cost of as much as $800 million or more to develop a 
new vaccine from scratch, to put it through clinical trials and 
to bring it to market. These estimates assume that industry is 
fully engaged in actively pursuing the products.
    Regrettably, that is not the case today. Last year the 
National Research Council reported that major pharmaceutical 
companies over the past 3 to 5 years have decreased their 
investment in drug discovery related to antibiotics, and few 
are exploring antiviral agents. Last year's shortage of 
numerous childhood vaccines revealed that a number of major 
drug companies have simply gotten out of the vaccine business 
altogether.
    Against that troubling backdrop, today we are considering 
the administration's proposal, Project BioShield. This 
legislation is designed to stimulate private sector production 
of vaccines and other countermeasures for biological, chemical, 
radiological and nuclear attack. BioShield's purpose is to 
accomplish this protection by guaranteeing in advance that the 
government will purchase a large quantity of a drug or vaccine 
if the manufacturer produces an effective product that 
addresses a material national security threat. The 
administration has proposed $5.6 billion for this project over 
10 years. The key question that we must consider today is 
whether Project BioShield is sufficiently bold in its response 
to this daunting challenge which faces our Nation.
    The witnesses before us today will confirm what we all know 
to be true, and that is the threat to our Nation from 
bioterrorism, not to mention the natural development of new 
viruses like SARS and antibody resistant strains of disease, 
are deadly serious. We know there was a very active biological 
weapons program in the former Soviet Union where they developed 
at least 30 deadly agents, but we do not know if the stockpiles 
created are secure. We know that Saddam Hussein had a 
biological warfare program that produced massive amounts of 
biological agents. Thus far, we have not been able to find 
them.
    Moreover, we know that science may have progressed to such 
an advanced state that terrorists can engineer pathogens so 
that the drugs we develop will be ineffective. If that occurs, 
efforts to find vaccines and cures might not be able to be 
started until after we are attacked.
    To address this grave concern to our Nation, we need to 
take bold action. We need to cast off our old ways of thinking 
and be open to new ideas and new ways of doing business. And we 
need to harness all of the energy and brilliance of our 
scientific community in a sustained, focused and massive 
effort.
    I have some serious doubts as to whether Project BioShield 
meets this test. The most enthusiastic testimony provided by 
industry to date is that BioShield is a good first step. But 
many concerns have been expressed, both publicly and privately, 
as to whether the incentives in BioShield are strong enough to 
get the private sector to make the drugs we so badly need.
    The former chief executive officer of Merck, Dr. Roy 
Vagelos, wrote me today that although the BioShield legislation 
should be tried, the proposals, and I quote from his letter, 
``will not accomplish what is needed, a reliable stream of 
bioterror measures.''
    I ask, Mr. Chairman, that this letter and Dr. Vagelos' 
biography be made a part of the record.
    (See page 27.)
    Mr. Turner. To have a former CEO of one of the largest drug 
companies predict in essence that BioShield will not work is a 
frightening prospect, for if we pass BioShield with the 
expectation that drugs will be developed and they are not, we 
will lose valuable time in our race against the terrorists. I 
believe we will be making a mistake, and perhaps a tragic one, 
if our only approach is to incentivize the private sector.
    We should simultaneously be building a capacity through a 
public-private partnership to develop these vaccines ourselves. 
We need to put out an all-points bulletin to our scientific 
community, and we need the best and brightest focusing on the 
problem. We need to appeal to their spirit of duty and 
citizenship to contribute their considerable skills toward the 
endeavor, even if greater financial rewards lie elsewhere. And 
we need our government to demonstrate leadership by developing 
a plan to get us from our current state of vulnerability to a 
level of protection that the American people expect as soon as 
possible.
    While I look forward to the presentations of our witnesses 
today, I do not believe that Project BioShield is the complete 
solution we are seeking. It may be a positive first step, but I 
am confident that we will need to spend much more time and 
energy on this very compelling subject.
    Thank you, Mr. Chairman.
    Chairman Cox. Thank you. I next recognize the gentlelady 
from Washington, the vice chairwoman of the full committee, 
Jennifer Dunn.
    Ms. Dunn. Mr. Chairman, I am going to pass on my opening 
statement with the hope that we can get to our wonderful panel 
quickly, and add on to my question time.
    Chairman Cox. The gentleman from Louisiana, the chairman of 
the Committee on Energy and Commerce, Mr. Tauzin.
    Mr. Tauzin. Thank you. First of all, to my friend from 
Texas, I want to say that while we might have a legitimate 
debate over whether or not lawmakers ought to be finding 
another State to hide in at a Holiday Inn rather than doing 
their duties in the State Capitol, and while we can argue about 
the choice of venue where they landed, and I think the Holiday 
Inn in New Orleans would have been much more interesting and 
entertaining shelter for your legislators, none of us should 
argue about the misuse of funds dedicated to homeland security. 
I am anxious to learn those facts just as you are.
    Let me just say that earlier today the Committee on Energy 
and Commerce reported out BioShield legislation. This hearing 
obviously is critical to further understand the issues as we 
move to the floor, but I want to make one simple point. To 
understand why this legislation is critical and why it does in 
fact advance us in the fight against the potential of a 
bioterrorism attack is a simple question of why would anybody 
in the country be interested in producing a vaccine against the 
black plague? Why would you invest money to do it unless you 
incentivize to do it when there is no market for a vaccine 
against the black plague, against diseases that we thought had 
been eradicated long ago, and no longer a threat to mankind?
    When you consider that some of the potential bioterrorism 
attacks our country is beginning to receive might be possible, 
are not just threats to Americans, they are threats to human 
life on the planet, that is how critical and how immensely 
serious this debate is all about and why it is critical that 
the government assist in making sure that the companies that 
are good at producing vaccines and good at discovering cures 
and treatments, they be incentivized to do that.
    The second question whether they ought to do it or 
government ought to do it ought to be a simple answer. We ought 
to incentivize and work with the companies that know how to do 
it and are good at it, and are the best in the world at 
producing health care treatments and vaccines and cures, and to 
incentivize them in a way that this bill attempts to do.
    No, this is not going to be a perfect solution. We have 
worked carefully with the appropriators to make sure there is 
10-year forward funding in the bill, and there is some 
guarantee that this is more likely to happen than not. But is 
it perfect yet? I guess not. I think we will be visiting it 
from time to time as we see it implemented, but I suspect this 
is a step, not just the right first step, it is a critical and 
unfortunately a necessary step that we must take to follow up 
on the great work of the bioterrorism bill that we passed in 
the House and Senate.
    Senator Kennedy called me to talk about this and other 
matters. I complimented him once again on the extraordinary 
bipartisanship in which the Senate and the House worked on the 
bioterrorism bill last Congress. This is a complement to it, 
and a critical one. The Vice President said to me last week 
that this could mean life on the planet, life or death for the 
whole human race on the planet. Thinking through what these 
evil people might intend for us and what they might be willing 
to do in their demented causes is an awful process, but one we 
cannot escape. We have to be prepared for the worst. This is 
not a perfect solution, I agree, but it is an essential step.
    I commend the chairman and this committee for this hearing. 
I think it is going to advance the cause of understanding this 
process as we move forward. I thank the gentleman.
    Ms. Dunn. [Presiding.] Mr. Chairman, we are going to 
consider this a rolling vote, so if you wish to go and vote and 
them come back, please do. We will continue the committee's 
business.
    Ms. Sanchez.
    Ms. Sanchez. Madam Chair, I reserve my time for 
questioning. Thank you.
    Ms. Dunn. Mr. Rogers.
    Mr. Rogers. I will be brief, Madam Chair. The need for this 
kind of legislation is obvious and apparent, and we must deal 
with this forthwith. The question of how we incentivize the 
production of these antidotes while we also preserve the 
integrity of the congressional oversight of the expenditure of 
huge public sums is something we have to pay attention to. I 
think we can do that. We have had conversations with the select 
committee and the authorizing committee and myself on the 
appropriations subcommittee, and we think there is a way to do 
that and keep the integrity of the congressional oversight 
intact.
    That is a concern that I have especially. We think there is 
a way to do that, much the same as we fund mass transit, FAA 
construction of runways at airports and the like, where there 
is a guaranteed stream of money but annually appropriated. We 
think that we can do that, and give the proper incentives to 
make production of these antidotes available to us. That is 
something that we will be exploring as the weeks wear on.
    Thank you, Madam Chair.
    Ms. Dunn. Thank you, Mr. Rogers.
    Ms. Jackson Lee.
    Ms. Jackson Lee. Madam Chair, out of respect for the panel, 
let me simply associate myself with the comments of Ranking 
Member Turner on the issue of the use of Federal resources.
    But I do want to say that I look forward to the hearing and 
presentation, and would simply suggest that there is an answer 
to the question of why the incentive process should not be the 
underlying and only basis of creating the necessary, if you 
will, bioprevention measures. It should be because it is the 
right thing to do. After 9/11 we turned the page of history in 
terms of responding to the threat against the United States, 
whether it is bioterrorism, whether it is a threat to our 
borders. I hope as we proceed in this hearing we will begin to 
establish the kind of homeland security plan that just says we 
should do it and we should do it no matter what it takes to get 
it done.
    With that, I yield back the balance of my time.
    Ms. Dunn. Thank you, Ms. Jackson Lee.
    Mrs. Christensen.
    Mrs. Christensen. Thank you. Let me say at the outset that 
today's committee hearing is reassuring and I welcome the 
opportunity to get back to the many challenging issues that we 
have responsibility for on this select committee. I thank the 
chairman for calling us back to work to meet some of these 
challenges.
    This is our second hearing on Project BioShield, and 
although the bill has undergone some slight changes, I still 
have reservations and concerns about it. Recognizing the 
importance of our universities and the pharmaceutical industry 
to this process, let me say nevertheless that some of my 
concerns remain very basic and relate to the open-ended funding 
and what appears to be another attempt to bypass congressional 
oversight. I have strong objections to both of those things.
    The bill before us today is very important, not just 
because of what it seeks to accomplish, but also because how we 
deal with it will set the stage and be a precedent for 
everything else that follows in this important committee. I am 
going to listen very carefully to the testimony of all of our 
witnesses, but I am disappointed that there is not a public 
health expert on any of the panels. The burden as far as I am 
concerned is on the administration and the private industry to 
convince us that to be effective that competitive bidding has 
to be bypassed, that good science as the basis of decisions 
should be allowed to be compromised, the decision to obviate 
testing should be vested essentially in one person, and I am 
also concerned about how we are going to resolve the issues 
around indemnification and liability. An overriding concern is 
whether anyone can assure us if we pass this bill and Project 
BioShield, people of this country would be better protected in 
the case of bioterrrorist attacks, given all of the many, many 
possibilities, including the unknown. Of course, what good does 
all of this do if the public health infrastructure in so many 
of our communities remain in a state of severe disrepair?
    I look forward to the testimony. I thank the panelists for 
coming to share their expertise with us this afternoon. I thank 
you, Madam Chair, for convening the hearing.

          PREPARED STATEMENT OF THE HONORABLE CHRISTOPHER COX

    I would like to welcome the Members in attendance this morning, and 
thank our witnesses for agreeing to appear before the Committee to 
testify on such short notice. This initiative has been moving very 
quickly. We have already had one hearing on BioShield; this is the 
second. A version of BioShield was marked up this morning by the Energy 
and Commerce Committee, and will be marked-up by this Committee in the 
immediate future.
    But I also want this hearing to take a step back, to examine the 
unique nature of the bioterror threat, and the scientific and economic 
challenges that will need to be overcome to defeat it.
    Each of us here has an understanding of the grave potential of 
bioterrorism. An attack on our population or our armed forces involving 
one ofthe numerous biological agents for which there is currently no 
effective treatment could be devastating.
    This country is blessed to have the most vital and innovative 
healthcare system in the world. Our free markets and strong patent 
protections have led the American pharmaceutical and bio-tech 
industries to spend more on research and development of new products 
and treatments than all of Europe and Japan combined. This investment 
has led to incredible advances in the treatment of a wide variety of 
ailments.
    At the same time, there have been few advances in the treatment of 
many of the diseases that pose the greatest bioterror threat. Diseases 
such as smallpox, Ebola, and plague currently affect few Americans, and 
the reality is that manufacturers cannot afford to devote resources 
when there is no natural market.
    The BioShield Act recognizes the great asset the American bio-tech 
and pharmaceutical industries represent. Rather than trying to create a 
parallel government bio-industry from scratch, BioShield seeks to draw 
on the expertise of the private sector by creating a ``homeland 
security'' market for bioterror countermeasures. It also recognizes the 
fact that we possess the strongest system of research unversities in 
the world, and gives us greater flexibility in working with them.
    The proposal has three main sections. First, it gives the Secretary 
of Health and Human Services increased flexibility to conduct and 
support basic bioterror research. Second, it provides a stable source 
of funding for the purchase and stockpiling of bioterror 
countermeasures. It also recognizes the fact that we have the strongest 
academic research centers in the world, and gives us greater 
flexibility in working with then.
    I look forward to hearing the witnesses thoughts on the provisions 
of BioShield. But more importantly, I look forward to hearing theft 
expert scientific opinions on the challenges we face in confronting the 
bioterror threat. We are privileged to live in a time that has been 
marked by remarkable progress in the biological sciences, particularly 
molecular biology and genetics.
    Unfortunately, many of the same techniques that have allowed us to 
eradicate infectious disease as a major cause of death can also be used 
to manipulate infectious pathogens to create a bioweapon. As our world 
shrinks due to increased and rapid travel, an epidemic caused by the 
intentional use of a bioterror agent poses a threat of spreading world-
wide with unprecedented speed.
    The scientists that are with us today are world renowned for their 
work. They are experts in the treatment and diagnosis of infectious 
diseases, in how viruses spread in a population, and how to rapidly 
detect pathogenic organisms in the human population. They have been 
instrumental in developing new vaccines and treatments. And they have 
traveled the world, from the Ebola outbreak in Zaire to the 
sophisticated bioweapons labs secretly set up inthe former Soviet 
Union.
    I hope the dialogue that will be generated today will help us to 
answer some basic questions such as: What is the value of stockpiling 
vaccines against pathogens that may naturally mutate or, more 
troublingly, may be purposely altered by terrorists? How easy is it for 
would terrorists to keep one step ahead in the race, and engineer 
agents that can defeat any new countermeasures I hope the witnesses 
will speak to these questions, and to the difficulties researchers and 
businesses confront in developing bioterror countermeasures.

        PREPARED STATEMENT OF THE HONORABLE LINCOLN DIAZ-BALART

    Thank you Mr. Chairman. I would like to thank our distinguished 
panelists forjoining us today, and for your testimonies.
    As with any measure to protect our population if terrorist attack, 
the key is preparation I applaud the Bush Administration for the 
proposed Project BioShie1d
    We have seen the impact of a biological attack on our open 
society--and we have an idea of the price that it can bring. We have 
already witnessed many steps taken by our Federal, State, and local 
officials to protect our citizens I would like to particularly applaud 
Governor Jeb Bush and the Florida Department of Health for its efforts 
in carrying out Operation Vaccinate Florida.
    I would also like to thank Director Fauci for his leadership at the 
NIH For years the National Institutes ofHealth has served as our 
Pentagon in the war against disease and Americans as well as people 
around the world have benefited, Now we must call upon the NIH to 
utilize the expertise and innovation of our scientists to guard against 
the horrors that a serious biological attack would mean.
    The threat of biological weapons is real.
    I look forward to working with my fellow committee members to 
ensure we take all steps possible to prepare for the possibility of 
such a threat.

             PREPARED STATEMENT OF THE HONORABLE NORM DICKS

    Thank You, Mr. Chairman. This is a very important hearing this 
afternoon, as this Committee considers the new and serious threats of 
hioterrorism and our nation's ability to prevent and to respond to 
those threats.
    Clearly we are late in recognizing the need to protect our 
population from the deadly biological agents that we know have been 
developed by nation's that support terrorism. In the past, we have 
worried about protecting our military personnel from the dangers of 
chemical and biological weapons that might be used in the battlefield, 
and thus the Defense Department has conducted its own research and 
development on various vaccines and antidotes. But today the threat is 
much more serious.. Since 9-11, and with the rise of terrorist actions 
directed at U.S.. citizens and facilities worldwide, we have more 
reason to believe that terrorists will attempt to use these new weapons 
of mass exposure on our citizens here inside the United States. There 
is no doubt there there is an urgency here.the urgent need to improve 
this nation's protection and response mechanisms. The urgency of our 
situation demands a bold response, and clearly Project BioShield as 
proposed by the President was a bold response, Mr. Chairman. The 
version of the BioShield legislation that has just been approved by the 
House Energy and Commerce represents an improvement on this concept, 
particularly with regard to the financing mechanism. But I know that 
many serious questions remain, and today's hearing will explore the 
implications of this particular bill as well as other concepts, 
including whether there are better harnessing the power and 
capabilities of the pharmaceutical industry to develop vaccines for the 
most serious of biological agents as well as for a broad array of other 
dangerous substances I have had some discussions with Mr. Rapoport, one 
of today's witnesses, about another method of jump starting the vaccine 
development process: namely, providing immediate incentives to 
industry--using private funds--to accomplish these objectives. I look 
forward to hearing from him today and from both of our panels of 
experts who are bringing their perspective and their insight to our 
committee Above all we must focus on actions that will be:
     Timely--recognizing that the threat is here and now;
     Complementary--avoiding unnecessary duplication of effort; 
and
     Cost-effective--because even though we will spend a 
considerable amount of federal funding on this bio-defense effort, 
there are still many other serious homeland security priorities to be 
addressed this year and in coming years.
    Thank you Mr. Chairman and Mr. Turner for working to schedule this 
important hearing today and for keeping the Members of this Committee 
involved in the process.

            PREPARED STATEMENT OF THE HONORABLE JANE HARMAN

    Thank you Mr. Chairman and Ranking Member Turner.
    I'd like to put my remarks on Project BioShield in the context of 
the threat and the homeland security partnership between government and 
the private sector.
    Threat
    As the Ranking Member on the House Intelligence Committee, I am 
convinced that the United States faces a real bioterrorism threat 
TODAY. I made that statement at our subcommittee hearing on BioShield 
in March. Two significant events that have happened since then:
     SARS has killed at least 588 people worldwide, with more 
than 7,500 infected. While there's no particular reason to believe that 
this is a terrorist event, it shows the potential impact of an agent 
released into the global environment.
     Thousands of liters of enormously dangerous biological 
weapons from Iraq are missing.
    So the threat is very real, immediate, and one for which we are not 
prepared.
    While BioShield may be an important part of building our bio 
defense, other parts are also important:
     Identifying and safeguarding biological materials--from, 
for example, Iraq and Russia;
     Improving our intelligence on BW possession by other 
countries or groups and their intentions for use or proliferation; and
     Re-building the international taboo against use of 
biological weapons.
    Partnership
    BioShield depends on the partnership of the public and private 
sectors. There is a clear market failure to develop countermeasures for 
rare diseases, chemical weapons, and nuclear or radiological devices. 
At the same time, the government lacks the capacity and expertise to 
produce the countermeasures itself.
    The Administration is requesting new authorities to get the private 
sector to do a fundamentally public sector job. It is for Congress to 
decide whether new authorities are in fact needed, and to determine 
what flexibilities are appropriate and in our best security interests.
    I support, Mr. Chairman, doing what is necessary to produce the 
biodefenses to weapons we know are out there. But our action must take 
into account our dire budget situation, and the alternative possibility 
that we might be able to stimulate private investment for new 
breakthrough drugs without spending scarce federal dollars.
    The private-public partnership in general is one of the most 
difficult issues for the Department of Homeland Security. As the most 
visible example of this partnership, it is especially important that we 
do this right.

         PREPARED STATEMENT OF THE HONORABLE SHEILA JACKSON-LEE

    Mr. Chairman and Mr. Ranking Member, I thank you for convening this 
vital hearing to hear testimony on the Project BioShield initiative.
    The threat of bioterrorism must be one of our chief concerns as we 
continue our work of protecting our homelands from terrorist attacks. 
Biological weapons pose a particularly dangerous threat. Biological 
weapons are highly portable and difficult to detect. Positive strides 
have been made in securing our borders and preventing unwanted 
materials from entering our country, but it is unrealistic to expect no 
biological weapons to enter the United States. Last year alone 30 
million tons of cocaine was smuggled into the United States. If we 
can't stop 30 million tons of cocaine from crossing our borders, how 
can we expect to stop a vile filled with anthrax, botulism, or small 
pox? A vile that could kill hundreds or possibly thousands.
    Bioterrorism attacks not only pose a danger to human lives, they 
also have the ability to cripple the operation of our society and 
severly harm our economy. We all recall the primary and secondary 
impact of the anthrax attacks in 2001. The attacks involved a series of 
letters mailed in pre-stamped envelopes to media outlets in Florida and 
New York and to the offices of Senators Thomas Daschle and Patrick J. 
Leahy (D-Vt.). The anthrax attacks killed five Americans and left 13 
others severely ill. The five people who died from inhalation anthrax 
included two postal workers at the Brentwood postal facility in 
Washington, a Florida photojournalist, a New York hospital worker and a 
94-year-old woman in Connecticut. Thousands more were exposed to the 
lethal bacteria. The letters passed through various post offices and 
postal distribution centers along the East Coast leaving a trail of 
contamination. Buildings from the Brentwood mail facility, to the 
Congressional office buildings, to NBC headquarters had to cease 
operations.
    The threat of bioterrorism did not end in September of 2001. As 
recently as April 22nd of this year in Tacoma, Washington we had a 
bioterrorism scare. a white powder was found in two envelopes, and 94 
people had to be evacuated from a mail distribution facility. Initial 
tests of the powder tested positive for biotoxins that cause bubonic 
plague or botulism. Four people at the facility had to be 
decontaminated. The same day, a suspicious powder was found in a 
Federal Express cargo area at Southwest Florida International Airport, 
in Fort Myers, Florida. Six people were taken to a hospital for 
possible decontamination, including one who suffered burning eyes and 
nose.
    We are presently faced with the threat of a worldwide SARS 
outbreak. The inability of many foreign countries to adequately deal 
with that outbreak raises questions about our own preparedness. What 
about other infectious diseases like tuberculosis? There are many 
ailments that our medical professionals are struggling to control. We 
must do better in the area of biological weapons.
    The ease with which biological weapons can be manufactured is also 
a danger. The equipment and ingredients needed to manufacture many 
biological agents can be purchased over the Internet. Additionally, as 
our failure to apprehend those responsible for the 2001 anthrax attacks 
illustrates, biological terrorists can operate with more secrecy than 
traditional terrorists.
    These are but a few concerns we face as we consider Project 
BioShield. The provisions of Project BioShield provide a good start to 
protecting Americans from a bioterrorist attack but work remains. 
Presently Project BioShield's provisions grant the National Institute 
of Health new powers, through grants and contract awards, to speed 
effective research and development efforts on bioterrorism 
countermeasures. Project BioShield also creates a long-term funding 
mechanism for the development of medical counter measures, and empowers 
the government to purchase safe and effective vaccines. Finally, 
Project BioShield authorizes the Food and Drug Administration to use 
promising, yet uncertified, biological treatments in the case of 
emergencies.
    Mr. Chairman and Ranking Member, I believe these are good first 
steps in protecting Americans from biological attacks. However, I feel 
that many questions remain. I look forward to the testimony of our 
witnesses today, and I hope that there guidance can help us make all 
Americans less vulnerable to bioterrorism.

    Ms. Dunn. We are expecting members to vote and return to 
our committee, but I think it is important to begin testimony 
in the time we have available since the last vote is going to 
be around 2:00 p.m., and we want to maintain as much membership 
here as possible. So we may interrupt you, depending on what 
the chairman wishes to do.
    There being currently no further opening statements, I want 
to recognize the first panel of witnesses. Our first panel is a 
distinguished group of scientists who should all be able to 
speak directly to the challenges of conducting bioterror 
research.
    We have Dr. Garry Adams, Associate Dean for Research from 
Texas A&M University; Dr. Ronald Crystal, Chairman of the 
Department of Genetic Medicine at Cornell University; Dr. C.J. 
Peters, Director for Biodefense and Emerging Infectious 
Diseases at the University of Texas Medical Branch. We also are 
very fortunate to have Dr. Anthony Fauci, Director of the 
National Institute of Allergy and Infectious Diseases.
    Normally as a senior administration official, Dr. fauci 
would appear on a separate panel. Due to time constraints and 
scheduling issues, we have asked him to testify as part of our 
first panel, and he has accepted our invitation to do so. We 
are very interested in hearing his own research and scientific 
experience with bioterrorism.
    In addition to being an administration official, Dr. Fauci 
is one of the world's most eminent research scientists. In 
fact, a recent survey found that in the period 1981 to 1994, of 
the more than 1 million scientists worldwide who published 
during that period, Dr. Fauci was the fifth most cited. So we 
are particularly appreciative for his willingness to provide 
his expert testimony alongside our other distinguished 
panelists.
    We have your written testimony, and we would ask that each 
of you simply summarize in the 5 minutes you have your 
testimony. Dr. Fauci, we will begin with your opening 
statement, and work our way down the line.

STATEMENT OF DR. ANTHONY FAUCI, DIRECTOR, NATIONAL INSTITUTE OF 
                ALLERGY AND INFECTIOUS DISEASES

    Dr. Fauci. Thank you, Madam Chairman, and members of the 
committee. I want to thank you for calling this hearing and 
express my gratitude to Chairman Cox and other members of the 
committee for taking such an intense interest in this important 
subject.
    September 11, 2001 changed forever the way we look upon the 
defense of our homeland, particularly followed soon thereafter 
with the anthrax attacks. Bioterrorism, be it microbes, 
chemicals, nuclear, or radiologic, are a clear and present 
danger, as articulated by Mr. Turner just a few minutes ago. So 
I need not spend more time on that.
    What we can do to protect our citizens is developing and 
making available effective countermeasures against these agents 
of bioterror that are truly essential to protect the homeland. 
It is critical that we expedite and accelerate the development 
of countermeasures, for what we have been doing over decades, 
particularly in the arena of emerging and reemerging diseases, 
has positioned us quite well to accept the challenges of HIV/
AIDS, West Nile virus and what have you, but we are now in a 
wartime mode of operation and we must adjust accordingly if we 
are to properly protect our citizens.
    If you look here on this particular poster, that is the 
commonly used pathway of going from concept and basic research 
concerning a pathogen all of the way up to the development of a 
new product. This need not be a pathogen, it could be a concept 
for the development of any product that is for the health of 
individuals. It is a complicated process that involves basic 
research and then identification of targets, preclinical 
development and clinical evaluation. There is a heavy 
dependence on industry and academia when one needs to come up 
with a product. We need to accelerate this and we need to do it 
rapidly. The reason is the incentives, for example, of industry 
to get involved in getting us to these products, particularly 
under exigent circumstances, must be considered.
    If a product has great commercial value, it is easy. There 
are two parts to this. There is the push with the basic 
research and the pull or the incentive to industry. Let me give 
an example of that on this poster. If one looks at the 
situation with vaccines and why vaccines fail to compete with 
other agents because of the market appreciation of the need for 
it and the profit margin and incentives for industry to get 
involved, this particular poster shows the dollars in billions 
for all vaccines compared to a single drug like Lipitor, which 
is a lipid-lowering agent, and PRILOSEC, which is an acid 
blocker.
    As you can see, the incentive of the marketplace puts 
vaccines at a great disadvantage. Vaccines are just one 
category of countermeasures that we need to develop, and so the 
problem is compounded in the arena of bioterrorism and 
biodefense research.
    I would like to put these issues now into perspective in 
light of the President's proposal for Project BioShield as he 
has articulated in his January 28 State of the Union Address. 
The purpose of BioShield in the context of what I have just 
told you is to accelerate the process of research, development, 
purchase and ultimately availability of effective 
countermeasures against agents of bioterror.
    It is a three-pronged program. It includes the push of 
research, and that includes making more flexible our 
capabilities to expedite the research and development process, 
which we do fundamentally at the NIH. When I say expedite, I 
mean very clearly not to compromise the tried-and-true 
mechanisms of peer review. I am talking about doing things on a 
much faster track while preserving the scientific integrity of 
what we do.
    The second and an important component is related to the 
incentives associated with industry's involvement in the areas 
that I just mentioned, and that is to establish a secure 
funding source for the purchase of critical biomedical 
countermeasures and a funding source for deliverable products. 
It is very clear from our dealings with industry that they take 
risks when they get involved in developing any product. Most of 
them have no problem with taking the risk of failure when 
developing a product.
    When you have great commercial value, the risk is certainly 
worth it. When you have a situation where there is no guarantee 
or at least at the present time no guarantee that there will be 
a market for the product and it might only go, for example, 
into a stockpile, we need to create incentives that make them 
feel secure and that is the secure funding capability which 
according to the BioShield proposal is a mandatory authority to 
allow money to be available when the companies, be they biotech 
or pharmaceutical companies, deliver a product that is useful 
for the protection of the Nation.
    Finally, the establishment of an FDA emergency use 
authorization for critical biomedical countermeasures, which 
means when there is a product which is absolutely needed to 
protect the Nation and the benefit clearly outweighs that risk, 
when a product that is on its way to being licensed or might be 
on a track showing it to be safe and effective but isn't 
licensed at this time, that under exigent circumstances the 
Secretary of the Department of Health and Human Services could 
allow the FDA to make that product available.
    So in closing, Mr. Chairman and members of the committee, 
these are extraordinary times and we have extraordinary 
responsibilities. These responsibilities in turn call for 
extraordinary means to meet the challenge of protecting our 
Nation from the threats of terrorism, either by biological, 
chemical, radiological or nuclear weapons, and we can do this 
by developing and procuring and ultimately making available 
countermeasures to the citizens of our Nation that would be 
effective against such threats.
    We believe that Project BioShield is a very important step 
in that direction.
    Thank you, Mr. Chairman.

            PREPARED STATEMENT OF DR. ANTHONY S. FAUCI, M.D.

    Mr. Chairman and Members of the Committee, I appreciate the 
opportunity to discuss the Administration's proposal, Project 
BioShield, with you today. The events of September 11, 2001, and the 
subsequent anthrax attacks, have changed forever how the biomedical 
research community responds to the emerging threat of terrorism. While 
the National Institutes of Health (NIH) and other Department of Health 
and Human Services (DHHS) agencies, including the Centers for Disease 
Control and Prevention (CDC) and the Food and Drug Administration 
(FDA), have been preparing to address the threat of bioterrorism for 
several years, we have been called to accelerate our efforts vastly 
since the attacks of 2001.
    Overview
    Today, we know that there is a real threat to our nation, and one 
of the most important ways that we can respond to this threat is 
through the development of medical countermeasures to address potential 
agents of terrorism. We are now in a ``wartime'' mode and must modify 
the way we do business, while protecting the elements of our system 
that have made us so successful.
    For decades, the NIH has led the biomedical research effort to 
improve the Nation's public health. The NIH research enterprise, 
fortified by a rigorous system for ensuring that only the best science 
is supported by Federal dollars, has served our country extraordinarily 
well. Through the traditional funding mechanisms of grants, contracts, 
cooperative agreements, and other partnerships, as well as time-tested 
personnel practices, this system has resulted in numerous major 
scientific advances that have improved the health of people around the 
globe, such as the development of interventions for emerging and re-
emerging infectious diseases, including HIV/AIDS and Ebola.
    With the unprecedented budget increases provided by Congress for 
biodefense research, NIH has hit the ground running with a 
comprehensive research agenda to address bioterrorism. However, there 
is an important issue that must be addressed: we must expedite and 
greatly accelerate the research, development, purchase, and 
availability of effective medical countermeasures against biological, 
chemical, radiologic, and nuclear terrorism. There is no time to wait.
    When all Americans must confront the realities of terrorism 
directed at the United States, it is imperative that the Federal 
Government be prepared to protect its citizens from the scourge of 
terrorism. We are particularly challenged by the biological threats 
that are known to us or could be modified, as well as those that are 
unknown. To address these threats, we must build not only a strong 
biomedical research base, but we must create incentives for the 
companies upon whom we are reliant to produce the needed medical 
countermeasures to defend us.
    NIH stands ready to push forward its biodefense research agenda to 
support the development of ``proof of concept'' for diagnostics, 
therapeutics, and vaccines to address agents of potential bioterror. 
However, without the expertise, resources, and proven capabilities of 
the pharmaceutical companies who develop these products and bring them 
to the market so efficiently and safely, we will not be able to meet 
the challenges set forth to us. Project BioShield would provide this 
needed incentive to industry, by giving it the necessary assurances 
that we will be reliable partners with them in meeting the challenge to 
develop the critical medical countermeasures to protect our citizens 
from acts of terror.
    Project BioShield
    Project BioShield would use the resources of NIH, FDA, and the DHHS 
Secretary to work together to accelerate the research, development, 
purchase and availability of effective medical countermeasures against 
chemical, biological, radiologic and nuclear terrorism. It takes a 
three-pronged approach. First, Project BioShield would increase 
authorities and flexibility for NIH, particularly the National 
Institute of Allergy and Infectious Diseases, to expedite research 
towards the development of critical medical countermeasures for 
biodefense, such as vaccines and therapeutics. Second, it would 
establish a secure funding source, via a mandatory authority, for the 
purchase of such countermeasures. And third, it would establish an FDA 
Emergency Use Authorization for critical countermeasures.
    With regard to the first component of Project BioShield, the 
legislation would provide NIH with additional authorities to expedite 
the conduct of research and development in promising areas of medical 
countermeasures against potential agents of bioterrorism. This 
authority would provide NIH additional flexibility in awarding 
contracts, cooperative agreements, and grants for research and 
development of medical countermeasures including vaccines, drugs, 
biologics, and diagnostics. It also would streamline procurement 
authority, bolster authorities for acquisition and renovation of 
facilities, expedite personal services contracts and provide 
flexibility for certain personnel decisions to hire the necessary 
technical experts for biodefense research. Funding awards would remain 
subject to rigorous scientific peer review, but expedited peer review 
procedures could be used, when appropriate, without compromising 
scientific, technical, and programmatic standards. These new 
authorities would give NIH the tools it needs to expedite and push 
forward the pathway from basic research to effective biodefense 
countermeasures.
    With regard to the second component of Project BioShield, the 
secure funding authority for procurement of countermeasures, it is 
worth noting that, historically, pharmaceutical research and 
development has focused on the development of products likely to 
attract significant commercial interest and a long-run market. We have 
found with experience, particularly in our numerous efforts to develop 
vaccines against some of the world's most devastating diseases, that 
uncertainties in the marketplace can create barriers to industry's 
willingness to invest resources and make long-term commitments to 
manufacture the needed products to prevent and treat disease. The 
recent shortages of vaccines for common and naturally occurring 
diseases are evidence of this problem. This lack of industry incentive 
is compounded with regard to the development of medical countermeasures 
to address bioterrorism, where the probability of a bioterrorist attack 
and the actual threats themselves remain unknown.
    Our colleagues in the pharmaceutical industry--from small biotech 
firms to ``Big Pharma,''--particularly those in the vaccine industry, 
have stressed that, they are willing and eager to help in the 
development of biodefense countermeasures. However, these companies are 
businesses, not non-profit organizations, and they need a tangible 
incentive to get involved in the critical effort to ensure adequate 
defense against bioterrorism.
    When it is evident that a given pharmaceutical product has a 
potential to make a profit, no incentives are needed to engage 
industry. However, with the development of a product for which there is 
no guarantee of a return, or for which the market is uncertain, 
industry prefers some assurance that there would ultimately be a return 
on its investment. Without such assurances, companies likely will 
pursue the development of other products.
    When NIH meets with industry, we hear that, first, companies 
already may be involved in the early stages of development of 
biodefense countermeasures at their own initiative and are willing to 
assume a degree of risk of failure. However, they would like assurances 
that a market would exist for their product if indeed they are 
successful in its development. Also, many state quite frankly that they 
do not want to be vulnerable to the vicissitudes of the cyclical 
appropriations process.
    In the other case, when NIH tries to engage reluctant companies to 
get involved in biodefense research, we try to ``push'' them into 
action using discretionary research dollars. However, in many cases, 
this does not seem to be enough to convince them to become engaged. 
With Project BioShield, we would be able to tell these companies that 
if they partner with us, meet certain milestones, and devise a 
licensable countermeasure, they will have our assurances that there 
will be money available to them for the purchase of that product. These 
are examples of the ``pull'' in the process: to the extent that the 
Federal Government can define its requirements and assure up-front that 
funds will be available to purchase critical countermeasures, 
regardless of the level of appropriations for the year in question, 
then industry will have a real incentive to meet the biodefense 
research challenge. We feel that such assurances can only be given by a 
mandatory funding authority.
    With regard to the third component of Project BioShield, the FDA 
Emergency Use Authorization, it is worth noting that the FDA approval 
process for drugs, devices, and biological products is the gold 
standard for the world. The FDA's policies and regulations help ensure 
that products that get to market are safe and effective. In addition to 
animal studies, sponsors of new drugs and vaccines typically conduct 
three phases of clinical trials in humans to demonstrate the safety and 
efficacy of a product. This process, however, can take years.
    In preparing for the challenges we face today, we may not always 
have a desirable amount of time to address the threat presented by 
agents of bioterrorism. While the FDA has several mechanisms in place 
to get products to market faster, these alone are not sufficient in an 
emergency.
    Project BioShield would permit the Federal Government to make new 
and promising treatments that are still under development available 
quickly, if needed, for use in emergency situations where no effective 
approved or licensed products are available, potentially saving many 
lives. Specifically, Project BioShield would authorize the DHHS 
Secretary to grant an emergency authorization for the use of unapproved 
products in the event that the Secretary determines that there is no 
adequate and approved alternative available. This authorization would 
require the Secretary to determine that the benefits associated with 
using the countermeasure would outweigh the potential risks. Project 
BioShield would provide authority to the Secretary to apply conditions 
on the authorization, including limitations on distribution of the 
product, requirements to convey specific information to health care 
providers and patients, and requirements for recordkeeping, records 
access, and adverse event reporting. This authorization could be 
revoked by the Secretary and would be be limited in duration to the 
period of the emergency or not later than 1 year, unless renewed. It is 
important to note that the critical countermeasures would be tested for 
safety to the extent that the situation permits.

    Conclusion
    In summary, the need for medical countermeasures for biodefense is 
exigent and real, and we have a responsibility to the American people 
to make these products available now. The accelerated development of 
effective countermeasures against terrorism requires a new biomedical 
research paradigm, new ways to engage our industrial partners, and an 
ability to make promising products available for use during an 
emergency more quickly. Project BioShield would help us meet the 
challenges of terrorism effectively and expeditiously, improving our 
Nation's preparedness for and capability to respond to the threat of 
bioterrorism.
    Thank you again for the opportunity to testify today about this 
important initiative to improve our homeland security. I would be 
pleased to answer your questions.

    Chairman Cox. [Presiding.] Thank you, Dr. Fauci. Since I 
was voting when you began, I didn't have the opportunity to 
welcome you personally and thank you for the outstanding 
leadership that you provide at NIH and the assistance you have 
provided to this committee in developing this legislative 
initiative.
    Next is Dr. Garry Adams. We have copies of your testimony, 
and invite you to summarize your testimony in 5 minutes. I 
welcome you as well.

 STATMENT OF DR. L. GARRY ADAMS, ASSOCIATE DEAN FOR RESEARCH, 
   BIODEFENSE AND INFECTIOUS DISEASES, COLLEGE OF VETERINARY 
 MEDICINE, COLLEGE OF VETERINARY MEDICINE, TEXAS A&M UNIVERSITY

     Dr. Adams. Thank you, Chairman Cox, and members of the 
committee. Thank you for an opportunity to give perhaps a 
different perspective from the veterinary profession and, as a 
member of the public health community, to present what I hope 
is an informed and experienced perspective for the enthusiastic 
support for Project BioShield.
    My name is Garry Adams. I am a veterinarian. I am a 
veterinary pathologist. I am also the Associate Dean for 
Research and Graduate Studies and I have my own research 
laboratory.
    I have been actively engaged in these diseases, including 
category A, B and C diseases, for about 30 years. I have lived 
in foreign countries on four continents for 7 of those years 
and have worked with several of those pathogens. What is 
important on these pathogens is about 70 percent of them are 
transmitted from animals to man and vice versa, so the 
veterinary profession plays an important role in working with 
the entire medical community and a one medicine approach from a 
public health point of view to control these diseases, whether 
it is in man or animals.
    Much of the work that I have done has been involved with 
several countries in South America, Africa, Europe, and Canada. 
I have also had personal experience in inspecting and now 
collaborating with former Soviet weapons bioscientists, 
particularly on the development and production of a vaccine 
against brucellosis, a pathogen that had been weaponized not 
just in the Soviet Union but also here in former years.
    Thank goodness the U.S. government has invested in 
transforming former bioweapons laboratories into laboratories 
where they can now manufacture and produce vaccines and 
products for domestic and international consumption, but the 
point here is that I was able to see the mass scale production 
of manufacturing, distributing and arming missiles for 
deployment and what could be done and what was being done by 
some 60,000 scientists in some 14 laboratories. But that is 
hopefully now changing, and many of us are involved in that 
transformation.
    So the other point that I would like to make is the 
relative ease of obtaining several of these pathogens, and for 
some of them the relative ease of transforming them into 
bioweapons. Right now in Texas we are probably having anthrax 
outbreaks in wildlife, or we will have in the very immediate 
future. The same can be said for a whole spectrum of pathogens 
on a worldwide basis. Or they are obtainable. While we close 
the cupboard here on much, and in fact all of the laboratories 
through the PATRIOT Act, those organisms are still available to 
those who would make them into weapons and use them against us.
    I am convinced that they do pose a profound and real threat 
to the health of not just the U.S. human population but to 
livestock populations. In fact, I have heard it stated from a 
scientist, a political scientist from Lawrence Livermore, 
saying that should we be attacked by multiple pathogens of both 
man and animals, several different pathogens simultaneously in 
100 different sites, some of those pathogens would cause 
disease, death, and loss of our economic viability as well as 
eroding the confidence of the people in the Federal Government, 
State government and local government to control these diseases 
to a point that we might not recover economically.
    Also, I base part of my testimony on working with the foot 
and mouth disease in Yorkshire, England in 2001. As a 
veterinarian, I worked there as a diagnostician under field 
conditions. And what I saw was a devastating impact, a 
psychologic epidemic among the people, much less the 11 million 
animals that were lost and the billions of English pounds that 
were lost. It was a psychological impact that I saw among the 
farmers, but not just the farmers, the postman, the person who 
delivered the milk, the person who ran the shop in the village, 
to the bed and breakfast where I stayed, a huge impact on the 
morale and on the future of that country. Plus the loss of 
breeding animals that have been bred for the last 500 years. 
One farm that I visited where the animals were destroyed, they 
had been bred since 1526, and all animals were destroyed by 
that night. That is what occurred in the animal population.
    What could have been done was to have prevented this by 
preemptive diagnosis, preemptive vaccination, and preemptive 
therapeutics, perhaps not in the case of foot and mouth 
disease, but the concept embodied in Project BioShield is the 
sort of preemptive moves that this country needs to make for 
protection of human, animal and even plant viability because of 
our economy.
    So the threat is real. I have seen it personally. Perhaps 
one could say at the animal level that biological systems are 
biological systems, whether it is animal, plant or man.
    And as I have mentioned, many of those pathogens are 
transmitted. Up to 70 percent in category A, B and C pathogens, 
animals serve as a reservoir, so we need to think in terms of 
protecting the human and the animal population.
    One other point is the ability to manipulate the organisms 
genetically and transform them from an organism that might be 
susceptible to current therapy to one that is not. The Brusella 
bacterium is one that I am familiar with where some of that 
work has, unfortunately, been done. However, there are 
strategies, and strategies that are proposed in BioShield, and 
strategies that are being proposed by federally funded projects 
now in several agencies to move in an anticipatory thinking and 
strategy to avoid that.
    So the threats are real for inflicting loss on man and 
animals and eroding the national economy. I cannot 
overemphasize the economy and the impact it would have on our 
Nation, and the massive epidemiologic outbreak that we would 
see among the citizenry. What we saw in England in the foot and 
mouth was overwhelming the diagnostic capacity, the regulatory 
capacity. There were 25 diagnostic tests done in the first 
week, a thousand the second week, and the third week 10,000.
    In summary, I am highly supportive of the Project BioShield 
and welcome the opportunity to speak to you today.

 PREPARED STATEMENT OF L. GARRY ADAMS, DVM, PhD, DACVP ASSOCIATE DEAN 
 FOR RESEARCH, BIODEFENSE & INFECTIOUS DISEASES, COLLEGE OF VETERINARY 
                     MEDICINE, TEXAS A&M UNIVERSITY

    Chairman Cox and Members of the Committee, thank you for inviting 
me as a representative of the veterinary profession and as a member of 
the public health community to present an experienced and informed 
perspective for enthusiastic support for the concept, principles and 
implementation of the ``Project BioShield'' initiative. I am Dr. Garry 
Adams, associate dean for research and graduate studies, professor of 
veterinary pathology and a member of the faculty of the College of 
Veterinary Medicine, Texas A&M University, College Station, TX. I am 
and have been actively engaged in biodefense and infectious disease 
research for over three decades, funded by the United States Department 
of Agriculture, National Institutes of Health, United States Agency for 
International Development and the Rockefeller Foundation. I am 
testifying based upon:
    My personal experience as a research scientist developing 
diagnostic tests, therapeutics and vaccines to detect and prevent 
important high priority (NIH Category A, B and C pathogens) infectious 
disease pathogens transmitted from animals to man and vice versa (so 
called zoonotic diseases) either insect-borne or not while working for 
a total of 7 years on four continents and several other countries 
(Mexico, Colombia, Argentina, Ecuador, Peru, Brazil, Kenya, Republic of 
South Africa, Israel, Egypt, Germany, Canada).
    On my personal inspection of former Soviet bio-weapons experimental 
production and aersol laboratories, and my current collaboration with 
former Soviet bio-weapons scientists that are now being transformed 
into civilian scientists and facilities for vaccine development and 
production for domestic and international markets, thanks to the US 
Government.
    On my recent experience working as a veterinary inspector in 
Yorkshire, England with the Ministry of Agriculture, Fisheries and 
Forestry under the auspices of the Royal College of Veterinary Surgeons 
during the deadly, economically and psychologically devastating Foot-
and-Mouth Disease outbreaks in the United Kingdom where pre-emptive 
diagnostic surveillance and tactical use of effective vaccines may have 
saved the lives of millions of animals, billions of English pounds, and 
loss of some of the world's best breeding livestock.
    On my personal knowledge of the ease of obtaining and relative ease 
of weaponizing NIH Category A, B and C pathogens as well as public 
information that several of these pathogens have already been 
weaponized by nation states, rogue groups and defiant individuals with 
the malicious intent to use them as weapons of mass destruction, thus 
representing profound real threats to the health of US human and 
livestock populations, food safety, food security, national economy, 
and psychological well-being of our nation. Knowledgeable sources have 
stated that frequent serial or multiple simultaneous bioterrorist 
events with multiple pathogens in both human and animal populations 
could be so deadly and so economically devastating that our nation 
might never recover to the state of health or economy that we currently 
enjoy. While our system of transportation facilitates the rapid 
development of markets and accumulation of wealth, it also greatly 
enhances the spread of diseases in human and animal populations.
    On the fact that approximately 70% of the NIH Category A, B and C 
pathogens are diseases transmitted from animals to man to contaminate 
our food supplies by entering our domestic livestock populations and 
food chains and even worse by spreading into our massive wildlife 
populations where eradication of certain of these diseases may be 
impossible.
    On the basis that should these pathogens be genetically manipulated 
by bioterrorists for enhanced for infection and mortality, the 
magnitude of the threat and impact on US human and animal populations 
and could amplified exponentially.
    Thus, as stated above from my personal experience and knowledge of 
these pathogens and their associated risks and threats to our nation, I 
am fully convinced of their real potential for use as Bioterroist 
Threat weapons of mass destruction for 1) inflicting loss of life of 
man and animals, 2) eroding the national economy, 3) creating a massive 
psychological epidemic among US citizens, and 4) overwhelming 
regulatory and control capacities at local, state and national levels 
as well as 5) undermining the confidence of American citizens in 
government organizations whose responsibility to prevent, control, 
contain and eradicate these diseases.
    The old axiom of an (ounce of prevention is worth a pound of cure( 
does not apply in the case of intentional, well planned Bioterrorism, 
because the short and long term effects on the US society could well be 
hundreds or even thousands of times greater unless prevented, thus 
concerted, pre-emptive and fully functional programs, e.g. Project 
BioShield, are essential especially for prevention as well as for 
mitigation and recovery from small and large bioterrorist attacks. US 
scientists are especially well poised to address virtually all facets 
of malicious bioterrorism to produce 1) high quality, mass scale 
diagnostics, 2) large quantities of protective vaccines that avoid 
confusing diagnostic tests, and 3) new rationales of chemotherapies for 
treatment of these pathogens. Investment in US health-related research 
has paid great dividends to the US citizens in the form of improved 
health and longevity, safer food and water supplies, and prevention of 
many diseases causing high morbidity and mortality in other nations. 
Development of safe, effective countermeasures is obligatory for the 
prevention and recovery from bioterrorist attacks, but this will 
require large infusions of major resources, such as requested by 
Project BioShield, coupled with effective, transparent collaborations 
between and within academia, the biomedical industries and Federal 
agencies, under rigorous scientific review and scrutiny to develop and 
produce the diagnostics, vaccines and treatments required to protect 
our citizenry and food resources. Importantly in the absence of 
bioterrorist attacks, the investment in Project BioShield will have the 
greatest benefit that will be realized every day in the physician's and 
veterinarian's offices as well as in our super markets with improved 
health, safer foods, and confidence in the security, public health and 
well-being of our nation.
    In summary, I sincerely thank the Chairman and all members of the 
Select Committee on Homeland Security for this opportunity to very 
enthusiastically encourage the appropriations essential for Project 
BioShield to protect the future of our nation's citizenry, livestock, 
public health, and economic viability as well applying the benefits of 
the Project BioShield in global populations. I strongly support the 
concept, principles and implementation of the ``Project BioShield'' 
initiative and urge that the necessary resources be made available soon 
to protect against not only the potentiality of bioterrorist attacks 
but also against new emerging diseases occurring globally, such as 
SARS, and mad cow disease (bovine spongioform encephalopathy). My 
profession has decades of experience with many of these diseases, and 
we look forward to becoming a full scientific partner in the 
development of improved diagnostics, vaccines and treatments as 
countermeasures for these devastating pathogens.

    Chairman Cox. Thank you very much for your testimony. Out 
next witness is Dr. Clarence Peters.

  STATEMENT OF DR. CLARENCE JAMES PETERS, UNIVERSITY OF TEXAS 
                MEDICAL BRANCH, GALVESTON, TEXAS

    Dr. Peters. Thank you for the opportunity to share some of 
the observations that I have made over the past 30 years with 
you. That is about how long I have spent working in the field 
of biodiseases, including both public health and biodefense. I 
have worked in the U.S., Africa, Latin America and Asia. In 
fact, I started my career in Panama where I was a NIH research 
associate. Most germane to this discussion, I was at USAMRIID, 
the DOD lead laboratory for biodefense for 13 years, including 
the time of the first Gulf War.
    I then went to CDC, where I was head of the Special 
Pathogens Branch for 10 years. This is the branch which was 
charged with dealing with high hazard pathogens, and maintained 
the biosafety level for a laboratory there. During this time, 
we discovered the hantavirus pulmonary syndrome, we dealt with 
Ebola in Africa and Nipah virus in Asia.
    Every single year we found examples of a virus that was 
new, that is new to science, previously unsuspected and 
undiscovered, or a virus doing something it was not supposed to 
be able to do, or a virus in a place it had never been known to 
occupy before.
    I would like to leave the committee with one central idea 
about emerging infections and one about bioterrorism. First of 
all for bioterrorism, there are a limited number of different 
organisms that can truly cause mass casualties, but their 
threat is indeed quite real. During the Gulf War I had the 
occasion to examine the old classified data from our defensive 
program in depth and to consult with some of the experts who 
produced these weapons. This method of killing people can be 
successful, literally measured in the tens of thousands of 
casualties. The delivery is by an airborne aerosol, so it is 
stealthy and will go unnoticed initially, but later declares 
itself when humans sicken and die.
    Now let us talk for a second about emerging infections. Why 
would I bring them up with bioterrorism? First of all, the 
organisms are often exactly the same as with bioterrorism only 
they occur naturally. I would like to emphasize the central 
theme that I see in emerging infections. These microbes are on 
the move. The factors underlying emergence were put forth in an 
Institute of Medicine report 10 years ago. I had the privilege 
to be on an IOM committee and have a preliminary report from 
that committee that looked back over the revisited lessons. 
These conclusions set forth in Microbial Threats to Health were 
basically the news is not good. The factors in emergence are 
all working against us and these factors are interactive.
    I believe the only way we will be able to deal with the 
full spectrum of these encroaching microbes is through an 
active program of vaccines and anti-infectives, just as we need 
to protect ourselves against bioterrorism. We can develop 
vaccines and therapeutics against these agents. Indeed, there 
have been some successes in the past. Unfortunately, these 
successes have not been carried forward for policy and funding 
reasons, but they do give us a road map and they can be 
surpassed with the fine technical base which has been built by 
NIH in the intervening years.
    Let me share briefly an oversimplified model of how I think 
about dealing with diseases in the past. The physician 
recognizes the disease, the public health authorities count the 
disease, tell us how important it is, NIH research then builds 
a technical base and finally the private sector brings forth 
drugs and vaccines that we use to deal with these.
    Well, neither an emerging infectious disease when it is on 
the march or a bioterrorism event when it has already been 
perpetrated will lend themselves to that model. They will come 
swiftly, and each element has to be in an accelerated mode. NIH 
training for the physicians who will be our infectious disease 
specialists must not be ignored by purchase of these other 
remedies. The public health infrastructure still could use some 
strengthening. NIH's current research agenda and their movement 
toward translational extension is going to be extremely 
important still, but Project BioShield may be what we need to 
give us the essential weapons that are going to be needed in 
this fight.
    The fight will not work just with public health or 
physicians. We have to have vaccines and anti-infectives. We 
have already heard multiple times that there is insufficient 
incentive in the commercial sector.
    I would just close by saying that I certainly support the 
goals of BioShield. I am not a sufficiently well-versed health 
economist to be able to help you with some of the other 
deliberations about the funding.

            PREPARED STATEMENT OF DR. CLARENCE JAMES PETERS

    Chairman Cox and distinguished members of the Committee, thank you 
very much for the opportunity to express the lessons that I have drawn 
from my experience in this area as they relate to the issue of Project 
BioShield. I was educated as a physician at Johns Hopkins Medical 
School in Baltimore, trained in Internal Medicine at the University of 
Texas Southwestern Medical School in Dallas, and did additional work in 
immunology at Scripps Foundation in La Jolla. My first introduction to 
research in infectious diseases was in Panama where I lived and worked 
for 5 years as a research scientist in an intramural NIH laboratory. 
Subsequently I spent 13 years at USAMRIID, the principal DoD laboratory 
in biodefense research; I began as a laboratory scientist and 
eventually became deputy commander, serving this role during Desert 
Storm. I then spent 10 years at CDC as head of their BSL-4 laboratory, 
dealing with emerging infections including hantavirus pulmonary 
syndrome, Ebola, Marburg, Nipah, and other viruses. For the last two 
years I have been at the University of Texas Medical Branch at 
Galveston, TX where I am the John Sealy Distinguished University Chair 
in Tropical and Emerging Virology, the Director for Biodefense, Center 
for Biodefense and Emerging Infectious Diseases, and the director of 
the BSL-4 laboratory. This laboratory is the only such high containment 
laboratory in the US within an academic institution.
    I would like to share with you reasoned conclusions drawn from that 
experience. I further believe that my impressions reflect those of a 
large number of my colleagues who are working in public health, 
infectious diseases, and epidemiology.
    Bioterrorism is a real threat to our country and to our way of 
life. We have, of course seen the deep impact of 22 cases of inhalation 
anthrax with 5 deaths on our social and governmental fabric in 2001. 
During my work at USAMRIID I was deeply involved in biowarfare defense 
and as a part of our defensive posture had an opportunity to examine 
the offensive program that existed in the US prior to 1968. This 
convinced me beyond any shadow of a doubt of the practicality of 
biological attacks that could be small and focused with extreme 
disruptive effect or broad and lethal to tens to hundreds of thousands 
of citizens. The most dangerous of these attacks could be achieved with 
only a handful of agents, but defenses were woefully inadequate. The 
major route of dissemination for all except smallpox virus would be by 
small particle aerosols; smallpox virus could be spread initially by 
this route, but uniquely among the lethal agents of mass casualties 
would then be able to propagate itself by interhuman transmission.
    USAMRIID, DoD's lead agency for biodefense, and related agencies 
worked intensively on medical countermeasures with considerable success 
given their resource limitations. When I became associated with the 
effort in 1977, a licensed anthrax vaccine existed but was not procured 
because of larger issues of DoD doctrine for its use and procurement; 
this is the same vaccine was used in the two Gulf wars. The licensed 
smallpox vaccine was given to troops explicitly for its importance as a 
deterrent for biological use of the smallpox virus; this was 
discontinued for a variety of reasons; incidentally, this coincides 
temporally with the increased efforts of the Soviet weaponization of 
smallpox described in Ken Alibek's book ``Biohazard''. USAMRIID had 
developed a number of prototype vaccines against other agents and 
before I departed in 1990 developed several more, including those 
against NIH/CDC category A agents Argentine hemorrhagic fever and Rift 
Valley fever. All these vaccines remained in investigational status 
even though they were used to protect investigators working with the 
agents in the laboratory as well as persons involved in epidemic 
disease control. There was simply no doctrine to drive their licensure 
and deployment nor was there a budget to support this. The antiviral 
drug ribavirin was also shown to have preclinical efficacy against 
several category A agents; and through contract CDC tested the drug in 
humans naturally infected with Lassa fever in West Africa to confirm 
this efficacy. Other potential products came out of this program, 
including botulinum antitoxins, a humanized monoclonal antibody to the 
virus of Argentine hemorrhagic fever, and other prototype vaccines that 
only now are being tested in humans. I thought it was important to 
bring these products to the committee's attention to show that these 
threats can be countered and to emphasize that the research base is not 
sufficient to actually bring products that have great promise to 
practical utility. I am not certain of the exact budget of USAMRIID 
during that period, but I would estimate $10-20 million annually as a 
reasonable figure; the results included the above-mentioned vaccines 
and drugs as well as a considerable knowledge base on expected behavior 
of agents and diagnostics.
    We are facing an ever-increasing threat from emerging infections, 
as well. This is not irrelevant to the present discussion. Emerging 
infections arrive unexpectedly and can be equally or more lethal than 
bioterrorist events. In fact, in some ways they are even harder to 
prepare for. I would be willing to predict that we will suffer both 
bioterrorist attacks and significant depredations from emerging 
infections in the next decade. I can further predict that anthrax is 
the highest threat for a significant bioterrorist attack, followed by 
other agents in the category A and B lists developed by NIH and CDC. 
However, I have no idea what the next emerging infection will be, a 
problem exemplified by the recent surprising appearance of the SARS 
coronavirus as a serious threat to global health. Parenthetically, I 
would emphasize that among the emerging disease unknowns there is one 
established threat: the recurrence of pandemic influenza is virtually 
certain and should be a part of our planning.
    Biothreats and emerging infections converge in two important ways: 
the agents are often the same and the remedies usually share 
significant elements, including the importance of vaccines and anti-
infectives. I had the opportunity to observe emerging infections first-
hand between 1991 and 2000 when I was head of the Special Pathogens 
Branch at CDC. We were responsible for infectious diseases that 
required special containment for safe laboratory work and for field 
work. Our BSL-4 laboratory was the focus of the global struggle against 
high-hazard pathogens around the world. In that decade we dealt with 
new (new to science) viruses, returning viruses that had been thought 
to no longer pose a threat, and known viruses exhibiting behaviors not 
previously thought to be a feature of their behavior. The assessment 
and control of these agents was due to the dedicated and very capable 
staff of the branch as well as others at CDC, the strong scientific 
base laid by NIH, the work from USAMRIID, and the contributions of 
persons in the endemic areas. It is important for the committee to 
understand that we were not out looking for these agents: they came to 
us in the form of destructive and challenging epidemics.
    Were these epidemics a phenomenon of the internet communications 
and the 24/7 news atmosphere? Emphatically, no! The Institute of 
Medicine in 1992 published a thoughtful analysis of the importance of 
infectious disease in the U.S.: Emerging Infections. Microbial Threats 
to Health in the United States, National Academy Press. This volume 
showed the importance of emerging infectious disease and antimicrobial 
resistance in the increasing role of lethal infectious diseases in our 
country, as well as the threat from microbes outside the US to our 
population. I was privileged to participate in a 10 year review of this 
report published in 2003: Microbial Threats to Health: Emergence, 
Detection, and Response, National Academy Press. Unfortunately, the 
findings of the committee were pessimistic. The factors originally 
identified as driving the emergence of infectious disease threats were 
correct and continued to operate, but at an ever-increasing force. The 
belief of the committee was that these factors plus the intrinsic 
adaptability of the microbes were driving us toward some very 
unpleasant consequences. Our major defenses against the adverse 
outcomes were in disarray. The initial investment in woefully under-
supported basic public health deriving from our bioterrorism response 
was somewhat helpful in a general sense, but the modest new capacity 
was largely (and appropriately) utilized in bioterrorism planning and 
response enhancement. A particular national vulnerability to emerging 
infections was the lack of new industrial developmental efforts toward 
anti-infectives, vaccines, and pesticides.
    Thus, the proposed BioShield initiative is particularly timely. It 
has the potential to improve our defensive posture toward bioterrorist 
threats utilizing weapons of mass destruction and to also enhance the 
ability to deal with major emerging infectious menaces. To explain 
this, I will use a greatly oversimplified model of how we have dealt 
with some past problems. This imaginary sequence goes something as 
follows:
    1. Medical practitioners recognize the disease and make diagnoses
    2. Public health authorities see the aggregate picture and analyze 
the importance of the infection in the community and the nation.
    3. 1NIH sponsors research to understand the underlying scientific 
issues
    4. 1Industry picks up on the above to produce a remedy, often a 
vaccine or perhaps an anti-infective
    A novel infection, whether from a bioterrorist attack or from an 
emerging infection, will likely follow a similar sequence:
    1. A medical practitioner recognized the 2001 anthrax attack and 
this has been the case for most of the emerging infections I have dealt 
with. I would urge the committee to recognize the needs for training of 
physicians and infectious disease practitioners as part of our front 
line defenses; this appears to be threatened by reduction of NIH 
infectious disease research grants to procure anthrax vaccine and 
initiatives such as BioShield would offset this cannibalism of 
resources.
    2.Public health will be the first responders. Public health 
capabilities have been strengthened, but the over-all vigor of the 
public health establishment remains in doubt. We must be sure our 
quotidian public health needs are well-met with trained professionals 
who have the depth of staffing, organization, and resilience to 
recognize and deal with bioterrorist and emerging infectious disease 
emergencies.
    3.We also have a great deficit in basic research on the important 
bioterrorist agents; NIH has recognized this and has launched excellent 
programs to remedy our gaps. These remedies inevitably are in the 
nature of ``catch-up'', but we are now on an accelerated track. Money 
for the research programs is not a sufficient response and NIH has 
recognized this. They have initiated programs for construction of the 
specialized laboratories that will be needed for the work in these 
diseases. I urge the committee to assure that these laboratories are 
constructed and supported. NIH has also recognized requirements for 
training in the diseases involved as well as in performing research in 
these highly specialized containment laboratories, and I would urge the 
continuing support of the committee for this aspect of biodefense.
    4.The actual development of anti-infectives and vaccines for 
prevention and treatment of biothreat and emerging infectious diseases. 
This is a complicated and important area. It does little good to 
achieve 1-3 without having these remedies available.
    Virtually every recent advance in drug and vaccine development has 
been due to the far-sighted and broadly supported research base 
evolving from NIH with its strong Congressional support. However, we 
also recognize that NIH has not usually been the actual product 
developer. The private sector has shouldered the initiative and 
responsibility of translating this research into a safe and effective 
armamentarium to protect our nation's health. I am convinced that this 
traditional model will not work in the case of biodefense and emerging 
infections. The financial incentive is not sufficient to draw the large 
pharmaceutical houses into the fray. This is not, in my opinion, 
inappropriate; they have responsibilities to their shareholders. The 
basic facts are fairly simple: I have worked with DoD and in the area 
of emerging infections for more than 30 years and have seen no movement 
or interest of the international pharmaceutical industry in the 
available markets. We must, however, overcome this lack of vaccines and 
anti-infectives, which is a major obstacle to the security of the 
Nation and its citizens.
    Even more alarmingly, the DoD has suffered serious decrements in 
its capability to develop and produce vaccines. Although their programs 
were appropriately directed toward military problems, the severe cut-
backs of in-house DoD vaccine development programs, the loss of the 
vaccine production capability at the Swiftwater facility, and the 
narrow approach taken by the Joint Vaccine Acquisitions Program 
documented in the ``Top report'' (Protecting Our Forces: Improving 
Vaccine Acquisition and Availability in the U.S. Military (2002), 
Medical Follow-Up Agency, Institute of Medicine) represent a 
significant national loss. This has changed our readiness landscape 
markedly. The ability to rapidly develop prototype vaccines, prepare 
modest-sized lots under suitable conditions for human use, and to test 
these in humans is vital to a flexible and forward looking biodefense 
and emerging infectious disease policy.
    BioShield seems to provide an incentive to bring new initiatives 
into the arena of developing protective measures. The availability of 
targeted monies for actual procurement of the drugs and vaccines we 
need should draw entrepreneurs into the field and encourage the 
flowering of those already involved. This would be expected to 
synergize with the research that NIH has already shifted into the 
direction of diagnostics, therapeutics, and vaccines to lead to actual 
practical solutions to the problems we face. I see this as an important 
departure from what Dr. Fauci has described as ``business as usual'' 
and potentially a boon to humanity.
    I believe that the significance of BioShield can only be realized 
if it is truly directed into the area intended. It must be used to 
insightfully develop the drugs we need in biodefense. There are some 
other considerations that I would list in closing:
    1. It must take into account the dividends accruing from testing 
these drugs in populations that are at-risk for the different diseases 
that are simultaneously biodefense and emerging disease threats. This 
can provide proof or at least an indication of efficacy and may result 
in extensive local use that can enlarge the safety data base.
    2. One of the areas that should be considered is the importance of 
anti-infectives over vaccines in the civilian population. Vaccines are 
supremely important for the military, but the difficulties of employing 
multiple vaccines in the face of uncertain threats are exemplified by 
the simple application of smallpox vaccine to hospital workers in the 
US. Thus, antiviral drugs for the category A threat agents become of 
particular interest.
    3.Some of the vaccines and drugs that are in an investigational 
status would be of tremendous advantage for the researchers involved in 
these important studies of national defense importance. These 
protective measures should be made readily available to researchers. 
Vaccines formerly available for use under ``Investigational New Drug 
Exemption'' are increasingly difficult to obtain. Their use would 
decrease the risks of laboratory scientists, in some cases decrease the 
needs for expensive containment, and accelerate the development of 
definitive countermeasures for the agents.
    4.The thrust of this effort must be protection of the civilian 
population from biothreats and from emerging infectious diseases. 
Military and civilian priorities will differ. However, the 
contributions of the military should not be forgotten and DoD 
biodefense work should be supported and the many complementary findings 
should be incorporated into the civilian effort.
    Thank you very much for the opportunity to make these comments.

    Chairman Cox. Thank you, Dr. Peters.
    Dr. Ronald Crystal.

   STATEMENT OF DR. RONALD CRYSTAL, PROFESSOR AND CHAIRMAN, 
   DEPARTMENT OF GENETIC MEDICINE, WEILL MEDICAL COLLEGE OF 
                       CORNELL UNIVERSITY

     Dr. Crystal. Thank you, Mr. Chairman. In addition to my 
role at Cornell Medical College as Chairman of the Department 
of Genetic Medicine, I am also a practicing physician and Chief 
of the Division of Pulmonary Critical Care Medicine, and I 
would like to give you the view of the academic/physician/
scientist in regard to bioterrorism.
    First, there is no question that these organisms are 
available. We, all of us on this panel, have trained many 
people over the years. There are thousands of people who know 
how to deal with these kinds of organisms, and the amount of 
resources that one needs to grow them up and reproduce are 
trivial. You can do them in 100 square feet with equipment that 
is readily available and not very expensive.
    With regard to our care of patients who may be infected 
with these kinds of agents, despite the fact that my intensive 
care unit is as high tech as there is and our physicians are 
well-trained, we have a disaster plan and they know how to deal 
with these agents, if we had 10 to 100 individuals in New York 
City come to our hospital we would be overwhelmed, and so we 
have no choice as a Nation other than to protect ourselves, and 
clearly that is the goal of BioShield.
    But the academic world cannot do it by itself, if we are 
going to produce these new therapies and vaccines. The academic 
community is capable of moving very quickly. We are capable of 
doing basic research, of doing experimental animal studies, and 
to a limited extent to do human studies. In our institution I 
have a facility available to me to produce vaccines that we can 
try on humans, but we cannot scale up to be able to treat and 
protect the Nation. We need the pharmaceutical industry and the 
biotech industry to be able to be part of that.
    So there are several points I think that are critical. We 
as a Nation have to be very quick acting. We have to be able to 
move quickly in terms of response to these threats. Our 
defenses, our therapies in themselves have to be quick acting, 
particularly if we use a stockpile kind of strategy.
    Second, the methodology and the technology to genetically 
modify these organisms is not very difficult. Our scientists 
who are training graduate students are capable of that kind of 
work. It is not that high tech. So we have to develop therapies 
that are versatile that can meet that change so that if an 
organism such as anthrax which has been modified so that it is 
resistant to antibiotics, that we can provide vaccines and 
therapies to meet that challenge.
    In the context of the academic community not being able to 
do it itself, we need the industrial partnership, and clearly 
it has to be attractive as a commercial opportunity. Otherwise 
it seems to me that we are not going to be able to develop as a 
Nation these kinds of therapies.
    Finally, as you have heard, we have to be able to get 
approval of these kind of therapies. You may have seen in the 
paper today there are new recommendations for the treatment of 
hypertension. If I was developing an anti-hypertensive drug, I 
would take the group of people who had hypertension, treat them 
and another group, not treat them. You cannot do that with 
bioterrorism agents. You cannot try out your vaccine and then 
administer these organisms to human. We need other paradigms to 
be able to approve these drugs, and when we need them we have 
to do it quickly.
    Thank you. I would be happy to answer questions.

                PREPARED STATEMENT OF DR. RONALD CRYSTAL

    Testimony of Dr. Ronald Crystal to the House Select Committee on 
Homeland Security
    Chairman Cox, Ranking Member Turner and Members of the Committee, 
thank you for inviting me to present to the Committee a scientific 
assessment relating to ``Project BioShield''. I am Dr. Ronald Crystal, 
Professor of Medicine, Chairman of the Department of Genetic Medicine, 
and Chief of the Division of Pulmonary and Critical Care Medicine at 
Weill Medical College of Cornell University--New York-Presbyterian 
Hospitals in New York City. I will focus my remarks on the scientific 
aspects posed by the threat of the use of infectious agents for 
bioterrorism, the feasibility of preventing the spread of disease 
caused by these agents, and how the academic community can contribute 
to this effort.
    We believe the threat is very real. While control of access to 
these agents will help, we cannot lower the risk to zero. If a group 
wanted to spread a bioterrorism agent in a populated area, it would not 
be difficult, particularly in the context where the perpetrators are 
willing to give up their lives to carry out an attack. As you know, 
there is a long list of bacteria, viruses, and other pathogens that, if 
introduced into a populated area, could quickly spread undetected 
through the population, with resulting morbidity and death and 
consequent social and economic disruption. These organisms are readily 
available and many are found in nature. Even most of the so-called 
class A select agents are not difficult to obtain.
    The 2002 Public Health Security and Bioterrorism Preparedness and 
Response Act requires Federal registration for possession and transfer 
of select agents. All laboratories possessing and working with these 
agents are required to resister these pathogens, to identify the 
individuals that have access to these organisms, and to have in place a 
Select Agent Safety Plan for handling and accounting for all select 
agents. This is a positive step and will reduce the risk of these 
agents being available to potential bioterrorists. Even so, keep in 
mind that biologic agents by their very nature reproduce themselves. It 
is relatively easy, in a laboratory as small as 100 sq. ft. with 
equipment and reagents that are readily available and technology that 
is known to thousands of individuals in our country and around the 
world, to reproduce sufficient amounts of bioterrorism agents that, if 
released into the environment of a populated area, could result in 
massive disruption to society.
    One of my responsibilities is to run the Medical Intensive Care 
Unit at the Weill Cornell Medical Center of New York-Presbyterian 
Hospitals. Our Intensive Care Unit is as modern and as high tech as any 
in the world, our physicians are trained to deal with the diseases that 
can be caused by the biologic agents of bioterror, and we have specific 
disaster plans in place to deal with a bioterrorist attack. Even so, 
the facilities of our hospital, and those of any of the medical 
facilities in our country, would be quickly overwhelmed if hundreds of 
patients with a highly infectious disease were to come to the hospital 
over a short period of time.
    In the context of these realities, we have no choice other than to 
invest our resources to protect ourselves from the potential of 
bioterrorism in our country. This Committee's consideration of 
BioShield is central to that effort.
    How can the resources of our country be mobilized to meet the 
challenge of BioShield? Between the academic community, guided by the 
efforts of Tony Fauci and the National Institute of Allergy and 
Infectious Disease and the pharmaceutical and biotech industries, we 
can get it done. Collectively we have the expertise and the 
infrastructure to create new generations of vaccines, monoclonal 
antibodies, and small molecule drugs to prevent and treat diseases 
caused by bioterror pathogens.
    What should our strategy be? The list of potential bioterror agents 
is large, and it simply is not rational to believe that we could 
immunize everyone in our country against every possible agent. Not only 
is the list of possible agents too large, but inherent in any 
prophylactic therapy is the risk of adverse effects. While these risks 
may be small, when put in the context of the entire population, the 
risk-benefit analysis suggests the risk and cost for immunizing 
everyone against everything argues against this approach. I believe the 
strategy should be to leverage the exploding knowledge of the genetic 
revolution to develop new generations of vaccines and therapies against 
the most probable agents, and then stockpile the effective vaccines and 
therapies to be used in response to an attack.
    The biomedical academic community in the US is unequaled in the 
world in regard to expertise, depth and infrastructure. It can be 
rapidly mobilized to focus on this challenge, and should be able to 
develop strategies to protect against and treat these disorders. With 
the information provided by the genetic revolution, the academic 
community can move quickly to develop safe, effective, and versatile 
platform technologies in which to provide the BioShield relevant to 
protect our population. In addition to being safe and effective, there 
are several features of new generations of vaccines and therapies that 
are specific to the bioterror threat.
    First, if our defenses are going to be stockpiled and used in 
response to an attack, they must be rapidly acting.
    Second, we must be cognizant that the technology is widely 
available to genetically modify potential bioterror agents to 
circumvent existing vaccines and therapies. For some agents, this has 
already been done, such as the creation of strains of anthrax that are 
resistant to conventional antibiotics. Thus, we have to develop 
``platform'' vaccines and therapies that are sufficiently versatile to 
meet this potential threat.
    Third, while our universities, institutes, and hospitals can 
develop the strategies for these vaccines and therapies and carry out 
proof-of-principle studies in experimental animals and in small human 
trials, the academic community does not have the infrastructure, 
expertise, or resources to turn these new generations of vaccines and 
therapies into large amounts of final products that would meet the 
necessary safety criteria for large scale human use. This final step is 
critical to the overall effort and will require a partnership of the 
academic community and the pharmaceutical and biotech industries. In 
this context, it will be important that strategies be developed to make 
working in this area attractive as a commercial opportunity for the 
pharmaceutical and biotech community.
    Finally, because of the very nature of the threat, it is not 
possible to test the efficacy of these new bio-defenses in humans in 
terms of protecting against the actual bioterror pathogens. In this 
regard, the Food and Drug Administration will need to work with 
Congress to develop new paradigms for approval of BioShield products 
based on surrogate measures of efficacy, rather than the classic 
demonstration of efficacy in humans against the specific pathogen per 
se.
    In closing, I thank the Chairman and the Members of the Committee 
for the opportunity to help you in your deliberations regarding 
BioShield, a national strategy that I and my colleagues in the academic 
biomedical community strongly support.

    Chairman Cox. Dr. Crystal, I will advise members because we 
moved forward with this hearing during the vote, that for all 
members under the rule who were here within 5 minutes of the 
fall of the gavel, if you have second thoughts about an opening 
statement you will have an opportunity to make one for 3 
minutes at the beginning of the time during which you are 
recognized. Alternatively, you may take the full 8 minutes for 
questioning.
     I will now recognize myself for 8 minutes.
    I want to emphasize as I did a moment ago how grateful we 
are, first, Dr. Fauci, to you for the continuing work you have 
been doing on Project BioShield with the President for some 
months beginning when you and I and the President, Secretary 
Ridge and Secretary Thompson kicked it off on your campus; and 
next, to the other distinguished members of our panel, thank 
you so much for taking the time to be here with us and to help 
advise us. We have some scientific questions as well as 
economic questions that we cannot answer without your help.
    I would like to begin with a very straightforward question 
that Dr. Fauci might answer in one way because of the 
classified information that rests behind part of the answer, 
but the rest of the panel can also address, and that is we have 
heard that biological organisms exist or can be manufactured 
which will not only wipe out tens of thousands of people if 
administered as a weapon, but that conceivably could wipe out 
life on the planet. I want to know if that is an exaggeration 
or whether that is a real prospect, and I will begin with Dr. 
Fauci.
    Dr. Fauci. Mr. Chairman, I would not characterize the 
capability of literally wiping out life on the planet through 
biologics as something that is feasible. But within the same 
breath as I say that, I say clearly that engineered microbes in 
a number of categories could wreak destruction on our 
civilization measured in the millions and millions of people if 
you have a microbe that spreads from one person to another, and 
we know there are multiple different categories. We know the 
prototype for one that can be easily disseminated but does not 
spread from person to person: anthrax spores. The other type 
would be one that could be spread from person to person like 
smallpox.
    When you have a situation where you can disseminate one or 
the other of those, I would have to say as a scientist it would 
be extraordinarily unlikely that you could wipe out 
civilization on the planet--but that is quite draconian,--but 
you could still do enough damage to make it a very, very 
horrible situation.
    Chairman Cox. Thank you. I would put the question to each 
member of our panel in turn.
    Dr. Adams. Generally in challenge situations, there are 
always individuals who survive those challenges. I can use foot 
and mouth, anthrax, tuberculosis, and several others where 
there are natural resistance mechanisms which are yet unknown 
in engineering that pathogen to completely destroy all life on 
the face of the Earth. I have a lot of reservations about that 
statement.
    On the other hand, the lateral impact, maybe not the direct 
impact, would have a huge impact on life as we know it. And so 
while wiping out all populations on the face of the Earth is I 
think an untenable statement, the impact on everyone else would 
be tremendous.
    Dr. Peters. I think we have one example of the movement of 
the Conquistadors to the New World. They brought measles, 
smallpox and a variety of other diseases with them. They did 
not wipe out the Indians, but they destroyed their civilization 
and were instrumental in the Spaniards being able to conquer 
the New World with relatively few people.
    I think we have something going on right now with SARS that 
we do not know exactly what the end of it is going to be, but 
we already know that Asian economies are suffering 
tremendously. My prediction is they will not be able to control 
it in China. If that is true, we will be dealing with repeated 
introductions in this country for the indefinite future, so we 
may see a change in our way of life where we are taking 
temperatures in airports, in addition to taking our shoes off 
and putting them through the x-ray machines. And we may see 
emergency rooms rebuilt so if you have a cough, you go into one 
entrance. You would go into a negative pressure cubicle until 
your SARS test comes back.
    So while I think wiping out human life is extremely 
unlikely, we have unengineered examples of bugs that have made 
great impacts on civilizations.
    Chairman Cox. Dr. Crystal.
    Dr. Crystal. The natural examples of what you suggest were, 
of course, hundreds of years ago with smallpox and the plague, 
which wiped out one-third of the population. We now have 
treatments for organisms like the plague, but if they were 
engineered to be resistant, but if they infected a number of 
people and had the capability of being spread rapidly from 
individual to individual, it would cause enormous havoc. I 
agree with the panel, I don't think it would wipe out 
civilization, but the consequences to our society would be 
enormous.
    Chairman Cox. Dr. Crystal, that leads to my next question. 
Given that engineered mutations represent a special threat, 
Project BioShield is designed to stockpile vaccines but 
obviously it can stockpile a vaccine only against something we 
already have in hand. What then of natural mutations that occur 
in organisms? The common cold changes from year to year, and 
what also of the fact that these stockpiled vaccines themselves 
will have a shelf-life? The prescription that I get has a date 
label on it which tells me it is good only for so long. There 
is a decomposition of any cure or antidote. Do we run the risk 
of investing billions of dollars in cures for the wrong thing 
because it is only what we now have in hand?
    Dr. Crystal. I don't think we have a choice because of the 
risk, but we have an example of that in influenza which changes 
from year to year and we effectively deal with that by 
developing new vaccines. What we have to do is a two-pronged 
approach. One is to develop the therapies and vaccines against 
what is out there, and then have versatile platforms, the 
development of these vaccines and therapies, so we can move 
very quickly, and the moving very quickly is a very important 
aspect of it, to develop the therapy if they are engineered to 
be different.
    Chairman Cox. Before a biological weapon is used, ought we 
to stockpile a vaccine for it; and if so, how do we know when 
to stop with the different possible threats against diseases?
    Dr. Crystal. You can prioritize the organisms, not only in 
terms of which ones are more deadly, but ones which can spread 
more. We can prioritize in terms of the vaccines and therapies 
that we already have, the ones that are getting close to 
development, and the ones further out. So I think one can make 
a rational plan about how to go about that problem without 
wasting resources.
    Chairman Cox. Do others on the panel wish to address either 
of those questions?
    Dr. Fauci. Mr. Chairman, just a brief comment about a word 
used by Dr. Crystal about what we call universal platforms, and 
by platform we mean if you can have a matrix vaccine to which 
you can insert the genes of whatever relevant microbe you are 
dealing with, even if it is a microbe that we do not have much 
experience with that we will ultimately identify.
    A good example of doing this outside of the context of 
biodefense is what we are working on in our emerging diseases 
program where you can make a West Nile virus vaccine by taking 
a vaccine that we already have developed against dengue or 
yellow fever, and since it is the same class of virus as the 
West Nile virus, to essentially create what we call a chimera 
or a mixing of the vaccines where we insert the genes of the 
West Nile into the yellow fever backbone so you can have 
vaccines that allow you to then interchange these cassettes of 
genes. That is one of the things that we very much want to 
provide industry with incentives to get involved in because 
they can do that better than anyone else.
    Chairman Cox. My time for questioning is finished, but I 
would be happy to recognize Dr. Peters for further comment.
    Dr. Peters. In addition to the other comments, there are 
some parts of the microbe that are essential for its 
functioning, and in some cases you can develop vaccines against 
the essential part of the microbe which can't be circumvented.
    Chairman Cox. That is encouraging. Thank you.
    I recognize Mr. Turner for 5 minutes of questioning.
    Mr. Turner. Mr. Chairman, I have no doubt that everyone of 
us on this committee and I am sure all of our witnesses agree 
that we face a very serious threat and we need to be very 
aggressive about dealing with it. The only question that I 
think is really open and perhaps unresolved regarding our 
legislative approach is will this get the job done?
    I have been looking for someone with expertise who will 
tell me that if our goal is to find answers to five, 10, 12, 
whatever biological threats we want to address first, that 
within some period of time I can know that we will have 
addressed them.
    Now Project BioShield and the administration's proposal 
attempted to accomplish that by basically providing a funding 
mechanism which says that the administration could just write a 
check to get some pharmaceutical company to proceed to try to 
develop a vaccine. Congress was very reluctant, and in the bill 
that was marked up today by the Committee on Energy and 
Commerce that blank check section of the proposal was 
eliminated.
    I have a letter here and I want to read it into the record 
because I want some comment from anybody who feels this is an 
area that you have an expertise in. I know it is a specialty to 
know the economics of the pharmaceutical industry, but this is 
a letter from retired chairman and CEO of Merck & Company. I 
had the opportunity to talk to him on the telephone. I asked 
him to be here today but he had a conflict and could not 
appear. I understand that Dr. Fauci knows Dr. Roy Vagelos well, 
who is currently a resident of Bedminster, New Jersey. Here is 
his letter:

        Dear Congressman Turner: I have reviewed Project BioShield as 
        you have requested. These are all good proposals and they 
        should be tried. But I am afraid they will not accomplish what 
        is needed: a reliable stream of bioterror countermeasures. The 
        risk of failure with any R&D project aimed at a specific 
        project is very high. That is true for products in the 
        commercial marketplace as well as those that are aimed at the 
        defined and limited market for a bioterror countermeasure. 
        Although it would be useful to have many of the measures 
        targeted by Project BioShield, these would help research 
        organizations only if they succeed in discovering and 
        developing a countermeasure. But most research aimed at 
        specific product discovery and development fails. Long-term 
        investments are required with great patience, waiting for the 
        occasional success.
        Bioterrorism countermeasures will not be important targets for 
        either large pharmaceutical companies or small biotech 
        companies. Their priorities must be large commercial targets if 
        they are to survive and prosper. For patriotic reasons some 
        large pharmaceutical companies may take on a some of the 
        bioterror targets. Small biotechs will rarely venture into this 
        field unless they are motivated purely on patriotic grounds.
        In order to assure the Nation that significant bioterror 
        countermeasure R&D aimed at product development will be 
        undertaken, I believe an organization must be built that will 
        dedicate its work to this field. The organization must be 
        contain top research and development people who know and 
        practice state of the art research and development. To start 
        such an organization, people experienced in drug vaccine 
        research and development should be recruited from industry as 
        well as inexperienced younger scientists who want to dedicate 
        part of their careers to such work.
        A fully equipped facility should be built, preferably close to 
        the National Institutes of Health, so as to share the 
        intellectual climate. People who work in this bioterror 
        countermeasure laboratory could do this as a career, or they 
        could spend several years in this environment either to gain 
        experience in drug/vaccine R&D or to satisfy patriotic 
        ambitions. The most important thing for succeeding in such an 
        unusual venture is the identification and recruitment of an 
        outstanding leader who understands the science and is willing 
        to dedicated his career to the cause. I see no reason that 
        people of similar quality as those working at NIH, Department 
        of Defense, or the Center for Disease Control could not be 
        recruited to such an important cause.
        P. Roy Vagelos
        Retired Chairman of the Board and Chief Executive Officer
        Merck & Co., Inc.

    Dr. Vagelos is Chairman of the Board of Trustees of the University 
of Pennsylvania, a post he accepted in October, 1994, having served as 
a trustee since 1988.

    Dr. Vagelos served as Chief Executive Officer of Merck & Co., Inc., 
for nine years, from July 1985 to June 1994. He was first elected to 
the Board of Trustees in 1984 and served as its Chairman from April 
1986 to November 1994. He was previously Executive Vice President of 
the worldwide health products company and, before that, President of 
its Research Division, which he joined in 1975.
    Earlier, he served as Chairman of the Department of Biological 
Chemistry of the School of Medicine at Washington University in St. 
Louis and as Founding Director of the University's Division of Biology 
and Biomedical Sciences. He had previously held senior positions in 
cellular physiology and biochemistry at the National Heart Institute, 
after internship and residency at Massachusetts General Hospital.
    The author of more than 100 scientific papers, Dr. Vagelos received 
the Enzyme Chemistry Award of the American Chemical Society in 1967. He 
is a member of the National Academy of Sciences, the American Academy 
of Arts and Sciences and the American Philosophical Society. He has 
received honorary Doctor of Science degrees from Washington University, 
Brown University, the University of Medicine and Dentistry of New 
Jersey, New York University, Columbia University, the New Jersey 
Institute of Technology, Mount Sinai Medical Center and the University 
of British Columbia; an honorary Doctor of Laws degree from Princeton 
University; and an honorary Doctor of Humane Letters from Rutgers 
University. He has received the Thomas Alva Edison from Thomas Kean, 
the Lawrence A. Wein Prize from Columbia University, the C. Walter 
Nichols Award from New York University's Stern School of Business and 
the National Academy of Science Award for Chemistry in Service to 
Society. Dr. Vagelos was awarded the Prince Mahidol Award in January 
1998 by His Majesty the King in Bangkok, Thailand.
    Dr. Vagelos is a Director of The Prudential Insurance Company of 
America, PepsiCo, Inc., and The Estee Lauder Companies, Inc. He is 
Chairman of the Board of Regeneron Pharmaceuticals, Inc. He is Co-
Chairman of the New Jersey Performing Arts Center, a Trustee of the 
Danforth Foundation and Director of the Donald Danforth Plant Science 
Center.

    Mr. Turner. I would like to invite any of you to comment on 
Dr. Vagelos' recommendations who feel your expertise would 
allow you to make an assessment of whether or not we can be 
assured that the approach we are taking will get the job done.
    Dr. Fauci. Thank you, Mr. Turner, for reading that letter.
    Certainly. Dr. Vagelos has put up an opposition that has 
been seriously discussed, not only with regard to biodefense 
but in the involvement of vaccines for things that are not 
related to biodefense. There are some good points that he 
makes. The problem I have with that is that I--what he is 
suggesting is essentially having a vaccine authority that is a 
megavaccine institute, where we, and I think he is talking 
about the Federal Government, fund an entity that would be 
responsible for the developing of all countermeasures.
    I don't reject that out-of-hand at all. But, what it misses 
is the fact that it doesn't allow us to call upon the 
extraordinary creativity and expertise of multiple, multiple 
biotech companies and ``big Pharma'' that can be enticed into 
using their capabilities to address problems that are imminent, 
or problems that might actually arise.
    So it is not that it is a bad proposal at all, but the 
thing that BioShield does, and no program is perfect, Mr. 
Turner, but one of things that BioShield tries to do is embrace 
the extraordinary capabilities of something that this country 
has that is better than any country in the world, and that is a 
major, absolutely unparalleled pharmaceutical industry.
    Mr. Dicks. Will the gentleman yield for a quick point?
    Chairman Cox. The gentleman's time has expired, but with 
unanimous consent the gentleman can have an additional minute 
to yield.
    Mr. Dicks. You can take it out of my time. What if you had 
grants to the private sector and then grants to the 
universities like we do now, and you would have basically the 
kind of system that we operate today? Wouldn't that work around 
the model that has just been suggested?
    Dr. Fauci. Yes, Mr. Dicks. Actually, that is part of the 
underlying strategy of BioShield, as I mentioned. I don't think 
you were here because the vote was on. But, there are two major 
components to the development of countermeasures. One is what 
we call the push, namely the development of the proof of 
concepts at the research level. This is what the NIH and other 
Federal agencies that have research responsibilities are doing.
    Trying to get the best of the minds to create the proof of 
concept, and to push the process through the early 
developmental stage. And then on the other side of the spectrum 
is what we call the pull, or the incentive to the industry 
which does this so well to get involved, to take risks, and 
perhaps even share risks with us, to the ultimate development 
of a product that they can do better than any other entity in 
the world.
    So the point that you make is entirely compatible with the 
entire spectrum from proof of concept in basic research, up 
through and including the product, which is what we tried to do 
when we put BioShield together.
    Mr. Dicks. Thank you.
    Chairman Cox. Mr. Turner.
    Mr. Turner. Dr. Fauci, I know you are well acquainted with 
Dr. Vagelos. I want to be sure the record is clear. I noticed 
in your response, in disagreeing with some of what he said, you 
left the implication that he did not approve of the things that 
were in the legislation. And the letter, and I am going to ask 
the chairman to make it part of our record. In the opening 
paragraph that I read, he said that these are good proposals, 
and they should be tried. But I am afraid they will not 
accomplish what is needed.
    So it is not that he didn't approve of trying to utilize 
the private sector, after all he was Chairman/CEO of Merck, and 
I am sure that he's more than willing to suggest that the 
private sector can be involved, it should.
    The issue that he raises, and the one that I have concern 
about, is whether or not the goal is going to be accomplished. 
And I would suggest that perhaps utilizing what we have 
proposed, and also utilizing the establishment of a 
bioterrorism research laboratory along the lines suggested by 
Dr. Vagelos, may be our best insurance to be sure that this 
country is protected against biological attack.
    Dr. Fauci. Yes, sir. There are many good points that Dr. 
Vagelos has made. I hope I made it clear that I don't reject, 
at all, what he is saying. And I do recognize that he is saying 
that there are parts of BioShield that he feels are very 
important.
    So I think it is just a question of the emphasis upon which 
you place your major thrust. I might also bring to your 
attention that Dr. Vagelos was also a colleague at the NIH 
before he went in to academia and became the Chair of Merck.
    Mr. Turner. Thank you. Mr. Chairman, I would like to offer 
the letter as part of the record from Dr. Vagelos.
    Chairman Cox. Without objection.
    The gentlelady from Washington, Ms. Dunn, the vice-chair of 
the full committee is recognized for 8 minutes.
    Ms. Dunn. Thank you. Welcome, gentlemen. This week Homeland 
Security Department is performing exercises in my hometown of 
Seattle, and also in Chicago, to evaluate our response to 
radiological or biological attacks.
    We have learned certainly from the briefings we received in 
the Seattle exercise, and from your comments today also, about 
the rapid ability of these agents to spread throughout 
communities and throughout potentially nations and the world.
    Assuming the existence of a national stockpile, do you 
believe that we have the rapid response team in place that we 
need to address such threats, any one of you?
    Dr. Fauci. We are getting better at it. TOPOFF II is an 
example of trying to get us on the road to being better than we 
are. We certainly are not at the peak of where we need to be.
    But, considerable resources have been put in, are being put 
in, and will continue to be put in to revitalize a public 
health, local and State infrastructure that because of the 
successes of what we have been able to do with commonly 
occurring diseases, that infrastructure has, in fact, been 
neglected. And what Secretary Thompson is trying to do in the 
Department, and which last year he put $1.1 billion, this year 
$1.4 billion and we plan to put more in, is to try and 
revitalize what is somewhat decaying, but hopefully--being able 
to counter that and get it back to where it should be, a State 
and local health capability that would meet the needs of what 
we see as a threat to the health of the Nation.
    Ms. Dunn. What I experienced in Seattle was very 
educational. And I think one of the points of this exercise, 
although it has been criticized for being expensive, is that 
what you practice, is what you produce in an emergency. And the 
ability to figure out the coordination and the decisionmaking 
ladders, I think, certainly made it apparent to me that this is 
an important sort of exercise.
    You have indicated, all of you, in your testimony that 
there is a long list of bacteria, viruses, and other pathogens 
that, if introduced into a populated area, could quickly spread 
undetected through our population.
    Considering the large number of potential diseases that 
could be inflicted, and we talked earlier, other folks have 
asked the question about prioritizing dollars, do you think 
that Project BioShield at $6 billion is an effective use of our 
resources? Do you believe that this is going to help to prepare 
for the prevention, or at least the response if it does happen, 
of this problem, or is it your general, perhaps intuitive, 
sense that we ought to be using these dollars in some other 
way, focusing on prevention a little bit more, for example?
    Dr. Crystal. If I may. Keep in mind that we have there, for 
the bioterrorism agents, we have other than the antibiotics, we 
have very limited vaccines. We have basically smallpox that we 
can vaccinate against, and the others we can't do anything 
about.
    Even the anthrax vaccine, which is used for our military, 
takes 18 months to reach full immunity and protection. And so 
essentially we are starting from almost scratch in terms of our 
response. And so I would suggest that any resource that is put 
into this is a start. It is something that we critically have 
to do.
    Ms. Dunn. Dr. Peters.
    Dr. Peters. You know, I would agree wholeheartedly with Dr. 
Crystal. I would also point out that we can prioritize the 
agents. We do have some like anthrax and smallpox where anthrax 
will be back again and again. It is going to be like the 
nuclear threat in the Cold War. We will have to deal with 
anthrax for the foreseeable future. The next time it could be 
antibiotic-resistant to multiple antibiotics.
    That is just a simple fact of life. The other issue about 
engineered organisms is that, certainly, there will come 
problems in the future. But, my guess is, for the next decade 
or perhaps longer, we will be dealing primarily with engineered 
antibiotic resistance in bacteria and not with super bugs.
    So that we would be well-served, I think, to take care of 
the antipasto before we move on to the more complicated main 
dishes.
    Dr. Fauci. Could I make a brief comment on that?
    Coming to the $5.6 to $6 billion number was based on the 
best estimate that we had of countermeasures that we could 
identify would either be imminent, in the process, or at least 
within reach. That is a number, when the President put that 
forth in the State of the Union Address, was a number that was 
based on material that was given vis-a-vis the background that 
I just mentioned to you of what kind of countermeasures could 
we project over a 10-year period. It was always felt that that 
number could be less than that, depending on the success, or 
more than that, which is one of the bases for the concept of a 
mandatory approach as opposed to a discretionary, so that you 
could have the flexibility of moving.
    And I understand, as mentioned by Mr. Rogers, that this was 
marked up, and we respect and appreciate that. But, that was 
one of the reasons why the original proposal was brought forth 
as being a mandatory proposal to be able to have the 
flexibility of knowing that if indeed something came up, that 
the industry would know that there would be the secure funding 
source for something that we may not have accounted for in the 
original estimate.
    Ms. Dunn. Thank you very much. The real goal of--
    Yes. Go ahead.
    Dr. Adams. Can I respond just a little bit to the TOPOFF II 
Exercise? Having been in three exercises now for Foot-and-Mouth 
and Rinderpest occurring in our State of Texas exercises, I 
want to emphasize that, what I think the real benefit there is 
the interaction of agencies, and who is in charge of the 
mission.
    In the exercises that we have had, we have had up to 34 
agencies working together. And the first one didn't go so well. 
But, as the agencies began to understand an incident command 
structure, and I think that is what they are testing. 
Resources, yes, you must have resources. And that is what I saw 
in UK, but it was the command structure that makes it work at 
the local level because all control starts locally and then 
goes nationally.
    And so I think that these exercises are absolutely 
essential. Without those you won't know your deficiencies, and 
they have to be graded to find out where those deficiencies 
are.
    And as far as supporting--BioShield supporting vaccine 
development, the limited numbers of vaccines available as tools 
is so few that this step must be taken to generate a spectrum 
of vaccines prioritized by risk assessment, which should be 
done first, second and third. Without that investment, I would 
say we would be derelict in our duties not to tell you that 
that needs to be done to protect the human population.
    Ms. Dunn. Thank you very much, gentlemen. Thank you, Mr. 
Chairman.
    Chairman Cox. The gentlelady's timing is impeccable. You 
ran your time to precisely zero seconds.
    The gentlelady from California, my colleague from Orange 
County, Ms. Sanchez.
    Ms. Sanchez. Thank you, Mr. Chairman. It is nice to sit on 
a committee where the chairman is from Orange County.
    Chairman Cox. They should all be that way.
    Ms. Sanchez. Well, if we turn to Congress around, I would 
get a chance. But, gentlemen, first of all, thank you for 
coming before us. And, you know, I am not--I will tell you--I'm 
am not an expert on this. Thank God you are scientists and I am 
not, but that is why we have you here. I guess I have a couple 
of directions of question that I have for you. And please feel 
free, any of you, to answer once I get through it.
    You know, sitting on this committee our job, I think, is 
really to take a look at all of the threats to the American 
people here on our homeland, let's say, to try to figure out 
what is the tactical approach, what is it we need to take care 
of first? What is the long-term approach? What is it that will 
make us safer in the long run as an American public? It all 
comes down to, everybody comes to our door. Everybody wants 
money. Everybody has got an idea. Everybody has got something 
to protect.
    Aside from the biological, we have all sorts of things 
happening, our borders, our ports, our airports, shoulder-to-
air missiles to shoot down aircraft, what are we going to do 
with our nuclear power plants, our water, what about health 
crises, what about SARS in the United States? I mean, the list 
can go on and on and on.
    My question is, first of all, the type of money that we are 
talking about to invest in these five known biological threats, 
is that really prudent in the sense that if I understand it, 
not only do they naturally change over time, sometimes short 
time, sometimes longer, but also couldn't terrorists 
genetically be changing them, all of the time with us, and 
how--how does trying to find a vaccination or antibiotic or 
whatever we would toward this, could we ever really keep up 
with what is going on?
    And what about--I mean, why those five? Why are we taking a 
look at how they can affect our food, and you know why just 
people? I mean, I guess I am trying to ask you, is this really 
where we should be starting with these five?
    Dr. Fauci. These five are five of the six of the original, 
what we called, Category A Agents as determined by the CDC, 
which very closely mimics the high priority agents of the 
Department of Defense. And they are based on a number of 
criteria, with some degree of flexibility because it is 
empiric. And it has to do with known threat, known intelligence 
of nations such as the Soviet Union early on and Iraq and Iran 
and others that had the capability and were, in many respects, 
proven to have the capability to do that, as well as the 
ultimate impact, something that is easily made and easily 
disseminated like anthrax or something that is contagious and 
has a track record throughout civilization of wreaking havoc 
like smallpox, something that would strike terror in the 
population even if it were not efficiently spread, just the 
threat of having Ebola or the hemorrhagic fevers showing on CNN 
in our living rooms at night could disrupt our society greatly.
    So it was a combination of known or suspected threat, 
efficiency of delivery and ultimate impact on the public health 
that brought things into the Category A Agents category.
    Ms. Sanchez. But, Doctor, if we are telling the world that 
these are the five that we are researching and trying to find 
something for, wouldn't our opponents, whoever they may be, go 
off and start on something else that we are not taking a 
looking at?
    Dr. Fauci. Sure. You can never touch every base of the 
threat. But, there are some good bets that it makes sense to 
address for the reasons that I just gave you. To say that we 
are not going to cover every single option, therefore, we 
should not do our most likely, I don't think would be prudent. 
I think we should do the most likely, but be flexible enough to 
move for agents that could be genetically modified to 
circumvent the defenses that we already have. That is part of 
the program, is the degree of flexibility that would allow us 
to do that.
    Ms. Sanchez. Yes, Doctor.
    Dr. Peters. A brief comment. These agents have sort of 
intrinsic properties that--the way they can become aerosol 
infectious or the way they spread and so on. When these 
properties are weighed, some of these are bad actors. And 
anthrax is a bad actor. And others are just not as bad. They 
are not as lethal, they have a higher dose, they are harder to 
grow, they are more difficult to work with and so on.
    So I think the prioritization has been a very important 
issue. If we can take these off the table, I think we will be 
way ahead in terms of protecting against large numbers of 
casualties.
    Ms. Sanchez. My second question is about, again comes back 
to these--I am actually thinking of these private companies, I 
guess they would be pharmaceutical companies. I am trying to 
think of where the profit incentive is. I mean if I am a 
company, I am a pharmaceutical company making the largest 
profits of any companies in the Nation by the way, and you know 
I am developing, and I am researching and developing, and we 
are actually giving them money to do this, which by the way, we 
do anyway because we give tax breaks and stuff for research and 
development, especially for pharmaceuticals, but the real 
payoff for these companies is to find a broad audience, and to 
actually be selling whatever it is that they come up with, that 
is the way that they make their profit.
    Why would I taking my best and brightest and put them in a 
situation where they would be looking for the answers that you 
are looking for, only to not really have manufacturing base or 
to really have a base by which to sell it across, because 
hopefully we never use these. So where is the payoff to a 
pharmaceutical company to actually, even if we are paying for 
research and development to some extent, to actually put their 
best and brightest on this piece of work?
    Dr. Fauci. You have just articulated the rationale for 
Project BioShield, which is to create the incentives that they 
would not necessarily pursue because of the lack of the 
initiatives and the lack of the incentives that you just very 
well said.
    Ms. Sanchez. So you have essentially articulated the 
fundamental rationale for why we need an incentive, a Project 
BioShield incentive, to get the industry to know that if they 
get involved, there will be a secure funding source to purchase 
their product, even if it is put in a stockpile. And the 
interactions, and you will hear from industry shortly, but in 
the interactions that I have had, a very common refrain or 
interaction would be, that they want to get involved, or they 
already are involved.
    But, for them to go to the next step of the risk of 
investment on the part of the permission that they would need 
from their board of directors or from their stockholders to 
invest a considerable amount of money, they need assurances 
that if they are successful in developing a product, that their 
success would not be met with a lack of a commitment to buy 
that product.
    So, in essence, that is the reason why Project BioShield 
was put forth.
    Chairman Cox. The gentlelady's time has expired. The 
gentleman from Kentucky, the Chairman of the Homeland Security 
Subcommittee on the Committee on Appropriations, Mr. Rogers.
    Mr. Rogers. Thank you, Mr. Chairman.
    Dr. Fauci, let me address the last answer you just gave. 
How did we come up with this dollar figure of the amount of 
incentivization that the companies would need? I think it is 
what, $5 or $6 billion. How did we come up with that figure?
    Dr. Fauci. That was an estimate based on what we knew was 
already beginning to come into the pipeline, as well as our 
best scientific projection of what might be able to be pursued, 
either because a concept has already been established and 
proven, or we felt that the proof of concept was something that 
was imminently doable. All of those things, that is the point 
that I was trying to make before, Mr. Rogers, that the number 
is a number that can be justified, based on the accounting of 
these five agents. But, depending upon the success or failure 
of these, as well as things that might, without our being able 
to predict, ultimately come up. And by predict, I mean either 
predict as a new threat, or predict as a scientific 
breakthrough, that that was the reason for the flexibility in 
saying that it could be less than that, or it could be more 
than that. But that was our best guesstimate based on our 
scientific information.
    Mr. Rogers. It would amount to about $900 million a year, 
if I am not incorrect?
    Dr. Fauci. The first year we estimated about $890 million 
in 2004.
    Mr. Rogers. Now, what is the size of the pharmaceutical 
industry in the country, in terms of annual sales?
    Dr. Fauci. Well, I don't think that I am qualified to give 
you an exact number. But you will soon hear from the 
pharmaceutical industry, who could give you a much more 
accurate number. But it is in billions and billions and 
billions.
    Mr. Rogers. It is hundreds of billions, is it not?
    Dr. Fauci. Yes.
    Mr. Rogers. So $800, $900 million a year is chicken feed, 
frankly, to this industry, is it not?
    Dr. Fauci. Well, I don't know if I would characterize it as 
chicken feed. I am not qualified to do economic cost 
accounting.
    Mr. Rogers. Isn't that a scientific term? But, 
nevertheless, the point I wanted to make was, the amount of 
money we are talking about here is not a huge amount of money 
in terms of the size of that industry.
    Number two, you say in your statement with Project 
BioShield, quote, on Page 6, we would be able to tell these 
companies that if they partner with us, meet certain 
milestones, and devise a licensable countermeasure, they will 
have our assurances that there will be money available to them 
for the purchase of that product, end of quote.
    That is not unlike the commitments that we make in any 
number of other governmental purchases, For example, or 
financing, for example, when we finance mass transit projects 
around the country, hundreds of billions of dollars worth. We 
do that by what is called full-funding grant agreements, where 
we sign, the Federal Government signs a contract with a local 
community on the funding amounts and process and procedures and 
the like. And then annually, we appropriate the funds to 
fulfill the commitments that we make under that multiyear 
commitment. Say it is 6 years, that full-funding grant 
agreement lasts for the full 6 years. We appropriate each year 
the annual installment for that contract.
    What is different here? Why could that not work in this 
kind of a situation?
    Dr. Fauci. Well, sir, I certainly respect the analysis that 
you made about that. The experiences that we have had with what 
we would call the viscidities of the appropriation process, we 
feel, and this has been I think confirmed in discussions with 
the pharmaceutical companies, that although the intention of 
appropriating on a yearly basis might be there, there are many 
things that account for the difference between an authorization 
and an actual appropriation.
    The other issue is, that when funds are appropriated, there 
is, in some respects when the money is appropriated up there, 
as opposed to being available, that things can get earmarked--
money might be spent for things that might not necessarily be 
the very, very best, whereas in this particular program that 
has been proposed, the company would get money for something 
that would ultimately be a deliverable product.
    And the incentive, the incentive for them and again, sir, I 
say this with a great deal of respect for the process that you 
have gone through, the incentives to the company to rely on an 
appropriation process that we know from experience does not 
always proceed in a manner such that there are guarantees, that 
they will not necessarily be incentivized. And the whole 
rationale for the program is to get them involved in something 
that they may not otherwise be involved with.
    Mr. Rogers. I understand that. However, we have never 
failed to pass annual appropriations bills. And we have a 
Constitution that requires no moneys to be spent other than by 
an appropriation of the Congress. We frown very strongly on 
advance appropriations beyond our term of office.
    We have too many programs now that are mandatory. It is 
slowly taking over the whole Federal budget. We only 
appropriate a third of the Federal budget now. So we have got 
to put some sort of a brake on the appropriations process which 
the Constitution guarantees.
    Number two, those mass transit projects I talked to you 
about where we issue a full-funding grant agreement from the 
executive branch to the community to finance let's say a 6-year 
project, the community then goes out and sells bonds to finance 
the upfront money to build the project.
    We pay off those bonds over the 6 years of that period with 
annual appropriations. We do the same thing with the FAA in 
building airports. They issue bonds to build the project. We 
pay off the bonds with appropriated moneys annually over the 
term of the contract. We are now doing the same thing with the 
modifications of airports to accommodate the new x-ray 
machines, it is hundreds of millions of dollars.
    And the local authority will be selling bonds based on that 
commitment. I don't understand why if bonding companies and 
people that buy bonds on the market can't be--if they trust us 
to do what we say we will do by a written agreement, I don't 
understand why anybody else would want to question that. Have 
you got an answer for that one?
    Dr. Fauci. Well, I don't think there is a totally 
satisfactory answer to that. I might say, Mr. Rogers, again 
that we respect the rationale that you are putting forth on 
this. But, we realize, and the Administration realized that 
this is something extraordinary that we are asking for. But we 
believe that the circumstances within which we are asking this 
are extraordinary.
    We often get asked a somewhat similar question of why not 
do it the way we do it when we make an authorization and 
ultimately an appropriation for things like battleships or 
different types of bombers or what have you. And one of the--I 
wouldn't say arguments--but one of the rationales to counter 
that, is that people who make battleships and people who make 
airplanes don't really have any other arena to operate in than 
having the Federal Government be their customer.
    We are trying to incentivize companies who really do not 
need us. We need them. That is the reason why we put that 
forth.
    Mr. Rogers. Well, I don't know whether Boeing would agree 
with you or not. Mr. Dicks might want to chime in on that one. 
But, Boeing I think sells commercial products other than to the 
U.S. Government as well as to the government. And yet, they are 
very anxious to get government contracts with no real assurance 
that the money is going to be there except by annual 
appropriations. Is that not correct?
    Dr. Fauci. I think the proportional relationship of the 
dependency of a company that makes aircraft carriers, their 
dependance on the Federal Government compared to an analogous 
situation of drug companies dependent upon vaccines or 
countermeasures that might not be used, I believe, sir, is a 
different story. They could just as easily go, and that is the 
reason why I put the slide up. Unfortunately, you all were out 
for a vote. When you look at all of the money that is made in 
vaccines, it equals one individual product that one drug 
company makes.
    So that is getting back to the point that I was making with 
respect, sir, that they don't really need to make 
countermeasures for us. They can do just fine doing other 
things.
    Mr. Rogers. Perhaps we could, and I am finishing, Mr. 
Chairman, perhaps we could, as we do in the projects that I 
mentioned, issue bonds, sell them and get your money up front.
    Dr. Fauci. Thank you, sir.
    Mr. Rogers. Thank you, Mr. Chairman.
    Chairman Cox. Thank you.
    I think it is very helpful to this process of the 
development of this legislation that the Homeland Security 
Chairman from the Appropriations Committee is also a member of 
this committee, and this discussion obviously needs to 
continue.
    I next recognize the distinguished gentleman from the State 
of Washington, where TOPOFF II is still underway, Mr. Dicks.
    Mr. Dicks. Well, thank you very much.
    I appreciate your testimony. We are all trying to learn 
more about this subject. Chairman Rogers, of course, has the 
responsibility for the Homeland Security Subcommittee, newly 
created on the Appropriations Committee, and is the former 
Chairman of the Transportation Subcommittee.
    Is it your understanding that--and the budget request that 
the President asked for, he wanted this--this would be an 
entitlement? In other words, he would have an open-ended source 
of funding that he can draw upon in order to pay for the work 
that is being done by the companies? Is that your understanding 
of it, Dr. Fauci?
    Dr. Fauci. Sir, I wouldn't call it an entitlement, because 
there are a lot of checks in that. First of all, money is not 
given for anything other than, essentially, a deliverable 
product, namely something that is ultimately licensed.
    So it is not an entitlement for money to go somewhere 
without essentially knowing that you will get something for 
that. Also--
    Mr. Dicks. But Medicare, and they are getting something for 
Medicare. They are getting something for Medicaid. Those are 
entitlements. We have to appropriate the amount that is 
actually utilized. And that makes it an entitlement. There are 
restrictions on all of those programs as well.
    All I am trying to get to here, maybe this is the one of 
those situations where we may have to do that. I am waiting to 
hear all of the companies testify about their requirements.
    And the idea is, that that is a better way to go than 
having the NIH, do these vaccines. And the reason for that is 
because you want to involve these private sector companies--you 
can't get there without having their expertise and their 
talent. It is just like the Defense Department. They can't 
build weapons systems. They have to go to the private sector to 
do that, because that is where the capability resides. Is that 
what you are basically saying?
    Dr. Fauci. What I am saying, sir, is that the NIH and other 
of the agencies of the government who do research, have an 
important role in feeding the basic concepts and the proof of 
concept that would allow you to ultimately make that transition 
into the advanced development of a product.
    So there is clearly an important role of discretionary 
funding in that research arena that we already do now and have 
done since the beginning of the funding streams.
    The point that I was trying to make is that we, for 
example, have a vaccine research center at the NIH that was 
originally developed for HIV/AIDS but now is getting involved 
in other arenas, which was part of the original mandate 
including biodefense.
    What I am saying is that, that this is just one small 
component of the enormous capabilities that our pharmaceutical 
and biotech industry has. So we feel strongly that we need to 
embrace them and incentivize them, as opposed to trying to do 
it, essentially, all by ourselves. We want to be partners in 
it, but we don't want to exclude the enormous capabilities that 
these pharmaceutical companies have us to get us where we want 
to go.
    Mr. Dicks. So the question is, how do you involve them? And 
how do you make it attractive for them to be involved?
    Dr. Fauci. Right. Well, I know you will get some good 
solid, well-thought-out answers from them.
    But the way that we see it, sir, is that we show them that 
we have a secure funding source to be able to purchase their 
successes with them, and to share some of the risks, but make 
sure that they also take a risk.
    We will pay for deliverable products if they do not have a 
true assurance that if they are successful, that someone will 
buy it. I have had CEOs tell me, we are not afraid of the risk 
of failure. What we are afraid of is the risk of succeeding and 
having no one assure us that they will buy the product.
    Mr. Dicks. Let me ask you this hypothetical. Let's say you 
have got two companies doing something like a cure for anthrax. 
They are both incredibly positive ideas. They look good when 
they use animals for testing. And both of them are very 
attractive. At the end of the whole effort, one turns out to be 
just a whole lot better than the other one. Are you going to 
pay for both of them? Are you going to compensate both of them, 
because both of them looked attractive enough to have entered 
into a contract, and then the one that is really good, you use 
that for a stockpile? How would you do that?
    Dr. Fauci. Well, again there are different scenarios. The 
one you gave, I am sure, could be modified defending upon the 
circumstances. But you would really pay essentially for the 
success, except if you contract for a certain amount of 
knowledge or even material that would get you here, the 
secondary and tertiary contract might ultimately get to one 
company, but you would pay the company for what it is they 
contributed to you.
    Mr. Dicks. We do that in Defense a lot of times. We have 
two different companies do the R&D, and we get down and make a 
decision and procure one of the two products. But the company 
that did all of the work gets compensated. Would that help make 
this a better way of doing it? Or can that be done under the 
proposal?
    Dr. Fauci. That can be done under the proposal, if you look 
at it from a comprehensive standpoint of the fact that there 
are contracts for the actual procurement, which is what the 
specific issue that we are talking about. And there are 
research and development contracts that we get involved with 
now.
    I can give you a real-life example of what we are trying to 
do right now with the recombinant protective antigen, anthrax, 
the second generation anthrax that we have R&D and ultimately 
some preadvanced and development contracts with a couple of 
companies. We are going to recompete the next RFP that would 
push us totally closer to procurement.
    It is likely that one of those companies will be able to 
take it totally to procurement. But that doesn't mean that we 
are not, in our predevelopment contracts, paying the company to 
get us to the state of knowledge where we can then go to 
advanced development. But BioShield, as it is strictly laid 
out, will pay ultimately for the delivery of a product that can 
be used or put in our stockpile.
    Mr. Dicks. Some people have looked at this proposal and say 
it is too timid. How do you react to that concern?
    Dr. Fauci. Well, I think it is an excellent start. If you 
don't take the ball guaranteed over the goal line, you can say 
it is too timid. You have to ask the question. There are 
constraints. We know that we need to live within a budget 
resolution. We have worked with members of this committee 
discussing that, although you would like to have X amount of 
money, the realties of a budget resolution would say that, in 
fact, you may not be able to spend over a certain amount in 
year 1 or year 5 or 10 year. So there are the realties of 
budget resolutions.
    So if you were to say that you have an absolute, give me 
$20 billion and try and bring everyone in to do that, you 
probably can get some very good science and some good products. 
So, my answer to the people who say that this falls short is 
that we believe it is a very good start.
    Mr. Dicks. Thank you.
    Chairman Cox. Thank you. The gentleman from Massachusetts 
for 8 minutes.
    Mr. Frank. Thank you, Mr. Chairman.
    Let me just begin right there. I take it, Dr. Fauci, what 
you were telling Mr. Dicks is that if it weren't for budget 
constraints, you could spent more money usefully?
    Dr. Fauci. Well, yes and no, Mr. Frank.
    Mr. Frank. Yes, I understand. Explain no, please.
    Dr. Fauci. The reason, and it gets back to the question of 
mandatory versus discretionary appropriation, we feel that the 
incentive that we are talking about is the concept that if they 
come up with something that would work--
    Mr. Frank. So you have got enough as a starting point. The 
question is, you might need more later?
    Dr. Fauci. Right.
    Mr. Frank. By the way, on this little debate that you were 
having with the gentleman from Washington about whether 
entitlement means that you get something for nothing, that is 
really only true in agriculture. I just want to say that. That 
is where people are entitled to get something for nothing.
    Chairman Cox. Would the gentleman yield on my time?
    Mr. Frank. Yes.
    Chairman Cox. As you know, the Energy and Commerce 
Committee has marked up this bill. Both the Energy and Commerce 
Committee and this committee have an agreement with the White 
House now that we are not going to go the mandatory route.
    So notwithstanding the importance of this discussion--
    Mr. Frank. I thank the gentleman. But can I ask you, you 
said this committee has an agreement. As a member of this 
committee, did I agree to that agreement? I am just wondering. 
What was the process by which this committee of which several 
of us are members agreed to the agreement?
    Chairman Cox. The leadership on both sides of the aisle 
were part of these discussions. But, of course, the member will 
have his opportunity during markup to--
    Mr. Frank. You mean--well, I mention that because that is 
the second question that I had. I was told that the 
representative from the Department of Homeland Security is not 
going to be here today. Is that accurate, Mr. Chairman?
    Chairman Cox. We have another panel next of industry, 
private industry.
    Mr. Frank. But there is nobody from the Department? We had 
someone listed from the Department of Homeland Security for 
that panel.
    Chairman Cox. That is correct.
    Mr. Frank. But he is not going to be here?
    Chairman Cox. These are science panels and commercial.
    Mr. Frank. Well, at least, maybe you weren't in on the 
agreement, because the listing, and, in fact, we have a 
statement from someone from what used to be FEMA, now Homeland 
Security, and I am told that he is not coming. I guess--here is 
the problem. I mean, we were talking about what happens if 
things get wiped out, et cetera.
    At this point, I have got to be honest with you, I think if 
this committee got wiped out, nobody would notice. We are the 
Committee on Homeland Security. We are talking about 
legislation which affects the Department of Homeland Security. 
We have a hearing with nobody from the Department of Homeland 
Security.
    Chairman Cox. If the gentleman would yield, this committee 
has already had such a hearing at which, I believe, the 
gentleman was not present, with the Department here.
    Mr. Frank. We had today--when was that hearing? I was at a 
hearing when we had a technical corrections hearing?
    Chairman Cox. No, this was a hearing on BioShield.
    Mr. Frank. When was that hearing?
    Chairman Cox. A couple of weeks ago.
    Mr. Frank. Was there a public hearing on BioShield? A 
subcommittee. Not being a member--that is why I wasn't at the 
hearing. But I do have--we were--I saw a statement in here from 
someone from the Department of Homeland Security. Maybe that 
directorate out in California ought to try to find him. Listen, 
the reason I say that is I had some questions, because the 
things that I am most concerned about, frankly, I am not a 
technical expert here, and I am not going to debate which 
paradigm is better for organizing the research. I am concerned 
about some of the local impacts.
    And we have a statement from a Mr. Tolbert dated May 15th, 
2003, which is today, and he isn't going to deliver that 
statement and can't be questioned about it. He is from the 
Department, about responsibility for a system that assists 
State and local governments.
    I think we are doing a terrible job as the Federal 
Government in providing help to the State and local 
governments. I would have liked to have been able to talk about 
that.
    Second, I do have a question about the legislation. I 
noticed that the Energy and Commerce Committee has already 
marked it up. Is there going to be a markup? Has it been 
recovered to this committee? Are we getting a sequential 
markup? What kind of markup?
    I yield to Chairman.
    Chairman Cox. The markup will occur either next week or if 
we see the need for additional hearings after the break.
    Mr. Frank. So we are going to have a markup on this bill?
    Chairman Cox. Yes.
    Mr. Frank. Well, that is reassuring, because we had 
previously not--I was told by our staff--heard that.
    Chairman Cox. No, that is not correct. This committee has 
always intended to mark it up.
    Mr. Frank. Well, Mr. Chairman.
    Chairman Cox. That goes back to the very first--
    Mr. Frank. Excuse me, Mr. Chairman. I haven't yielded. You 
are supposed to enforce the rules. The fact is that we were 
told it hadn't been referred to us yet. And we inquired at the 
Parliamentarian's office, and we were told it hadn't been 
referred yet.
    I am glad to know that, but I don't think we ought to be in 
the position of mind reading. I am glad to be reassured, but we 
had asked.
    Chairman Cox. The gentleman will suspend. The Chair will 
take the prerogative of--
    Mr. Frank. No. Under--point of order, Mr. Chairman. I don't 
recognize any right for you to order me to suspend on my time. 
Under what rule of the House is that appropriate?
    Chairman Cox. The gentleman will suspend. I am going to 
address the committee for a moment not on the gentleman's time.
    This committee was asked, and both Mr. Turner and I were 
invited to the White House on Day 1 to discuss this legislation 
with the President, with the Secretary of Homeland Security, 
and with the Secretary of Health and Human Services.
    The President and those Secretaries asked this committee to 
move this legislation on an urgent basis. We are doing 
everything that we can to accommodate that request.
    But that has been in prospect since Day 1, and there has 
never been any question about that on either side of the aisle. 
I am sorry the gentleman had any mistake about it. And I yield 
back.
    Mr. Frank. Well, I disagree very sharply with that. I don't 
know when Day 1 was. I don't know what the holdup was. We have 
been in committee for several months and haven't done as much 
as we should. But I requested, today, information from the 
staff, was the--was the markup--was this going to come before 
us? Was it referred? I was told that the Parliamentarian said 
that it hadn't been referred to the committee yet. It wasn't 
clear that the Speaker was going to do that.
    Now, the gentleman tells me, yes. But I can only go on the 
information that we were then given. If there was, in fact, a 
determination that it was going to be sent to us, apparently 
that information wasn't shared with the staff that asked about 
that.
    I would also say, if we are going to mark it up, I am 
particularly troubled by the inability to get questions to Mr. 
Tolbert, because much of what we have here are problems about 
the adequacy of our interaction with State and local 
governments.
    He says in the statement that he won't deliver, this system 
assists State and local governments by providing primary care, 
et cetera. It is to supplement State and local medical 
resources. I would be very interested as to what is involved 
with that. I don't know if, Dr. Fauci, is it something that you 
would know about? It doesn't come within your jurisdiction.
    Dr. Fauci. No, it doesn't. I am sorry, Mr. Frank.
    Mr. Frank. That seems to me a real hole in our ability to 
legislate on the subject. Let me just ask the other three 
witnesses then, because, obviously we have heard from Dr. Fauci 
representing the Administration's approach here, and I know 
there are alternative proposals. The ranking member read from 
Dr. Vagelos an alternative way to go about it. But within the 
framework that has been selected within this legislation, are 
there improvements, tweaks, changes you would make within this 
framework? I guess there is a broader question about a whole 
different framework, but within the framework that we are 
talking of here, I would ask any of the other three witnesses 
whether there are any specific proposals for changing in any 
way the financial system, the terms, the incentives, anybody 
have any proposals in that regard?
    Dr. Peters. I certainly don't have a proposal, but one of 
the things that Dr. Fauci has said that is implicit, but 
perhaps he has not made it explicit, is that vaccines making is 
not a guy in a white coat who goes in a room and makes a 
vaccine. There are starts, failures. You make preliminary lots, 
you do testing. And the flexibility in this seems to me to be 
very advantageous. And being able to allow academia, small 
industry, NIH itself, to be able to make these starts and stops 
and have these failures and see the light at the end of the 
tunnel to go on.
    Mr. Frank. All right. I thank you for that.
    Chairman Cox. The gentleman's time has expired. I think the 
witnesses are free, however, to address the questions.
    Dr. Adams. A point on scientific rigor in the process. And 
Dr. Fauci has implied that over and over is absolutely 
essential to produce the highest quality product possible.
    And so the scientific rigor, while you might be building 
mass transit there is engineering rigor and we understand, but 
it is a bit more predictable than the biological systems that 
we are working in. And so the stop-start that Dr. Peters just 
mentioned, and the testing, coming back to animal testing, 
testing in test tubes and then in animals, that rigor has to be 
met to have a safe, effective product that can be used in mass 
populations.
    And so, I think that scienctific rigor is a part that has 
to be upheld, and that is an absolute essential part of the 
BioShield Project.
    Chairman Cox. Thank you. The gentleman's time has expired.
    The gentleman from Connecticut, Mr. Shays.
    Mr. Shays. Thank you, Mr. Chairman. And I thank our 
panelists.
    I have a sense that BioShield is basically to incentivize 
and accelerate research and development for vaccines and 
therapies, that is kind of what the--and I am--I would like the 
panel to tell me, how do we decide what vaccines and therapies 
we need? I would like to ask our three scientists not working 
for the government to walk us through that.
    Dr. Crystal. Well, Mr. Shays, one can prioritize based on 
two aspects. One is, what are the organisms, the pathogens that 
appear to be the most dangerous. That is the first. And the 
second are, what are the opportunities that we think that we 
have strategies that we can solve the problem.
    And you can use those two priorities to make the list as to 
what you go after. So there may be a pathogen that is bad, but 
we have no idea, right now, how to go about it. And so it would 
not make sense to do anything other than basic research.
    On the other hand, if you have a pathogen that is bad, but 
you have a strategy, you have to leverage the infrastructure of 
the pharmaceutical industry to be able to produce it so the 
public can access it.
    Mr. Shays. Anyone else want to disagree with that or add to 
it or subtract from it? Dr. Peters.
    Dr. Peters. I think one of the important things is that 
this program be slanted towards civilian priorities. And I 
think in our current status of uncertainty as to what the 
threat is, this dictates that we not only look at vaccines, but 
we give an important look at drugs.
    If you take, for example, the smallpox vaccine situation--
    Mr. Shays. I think of drugs as being the therapies?
    Dr. Peters. Being therapies, especially anti-infectives, 
but possibly other ways to treat the condition that are not 
strictly anti-infectives.
    Mr. Shays. Since this isn't a traditional marketplace, how 
do we know how much to order?
    Dr. Peters. We will have to make an estimate of the size of 
the event and the amount that we will need to treat, or at 
least to initiate treatment.
    Mr. Shays. So we are basically having--it is basically--it 
is basically the concern of a human inducement of a disease, 
not a natural cause, primarily?
    Dr. Peters. Primarily.
    Mr. Shays. So we have to understand the intent of the 
terrorist and the capability of the terrorist, and we also have 
to throw into that mix which things are--where we are most 
vulnerable, what can be the most fearsome and so on?
    Dr. Peters. Yes, sir.
    Mr. Shays. How certain can we be of the shelf life of 
whatever vaccines we develop or therapies we develop?
    Dr. Peters. That will depend entirely on the chemical 
nature of the therapy or on the nature of the vaccines. We are 
still using smallpox vaccine that was made in the late 1970's.
    Mr. Shays. How do we know what vaccines or therapies need 
financial inducement and which ones could technically be out 
there without needing to, you know, have the motivation of a 
profit margin in them? Are we saying there is none?
    Dr. Peters. Well, I think that the experience with emerging 
infections, is there is not a market that is big enough to 
drive any drug that is being developed for an emerging 
infection, up to and including Dengue Hemorrhagic Fever, in 
which there are hundreds of thousands cases every year in the 
third world.
    So I think that almost all of this will have to be driven, 
it is my opinion, almost all of this will have to be driven by 
some other mode.
    Mr. Shays. It doesn't just have to be Dr. Peters, but what 
I would love to understand is, will we--in my work in the 
National Security Subcommittee, I wrestle with this issue.
    Do we publicize what we are going to be making, and let the 
world know that we have so much of this, or so much of that? 
And I think you can gather where I am going.
    Dr. Peters. Yes, sir. I think the exact nature of the 
stockpiles should be quiet. But, I think the nature of our 
society is that we have to publicize where we are going. That 
is the way science works, that is the way we get there, and we 
need the consent of the people to proceed in that direction.
    Mr. Shays. The reason is, as you said, we would be 
prioritizing, because how many would we need if we needed 
everything?
    Dr. Peters. I am--
    Mr. Shays. That is my point. The number would be large. So 
then we would prioritize. And then we have a list. And then the 
bottom line, and my time is up, but the bottom line is, they 
just do the one thing we don't have if they have any brains 
whatsoever.
    Dr. Peters. But I think, sir, that the--these bugs are of 
differential badness. They have different capabilities to kill 
large numbers of people.
    Mr. Shays. Fair enough. So we do all of the bad ones, and 
we don't have to prioritize within that bad list. We do all the 
bad lists, and the terrorists know, so they have a choice of 
doing the bad list where we will have antedates, or they can do 
the not so bad list which we don't have an antidote.
    Dr. Peters. Yes, sir. To use an analogy. We are trying to 
get them down from a nuclear capability with anthrax, to 
cluster bombs with plague, and finally down to a car bomb.
    Mr. Shays. Thank you.
    Thank you, Mr. Chairman.
    Chairman Cox. Thank you very much.
    The gentleman's time has expired. The gentlelady from New 
York.
    Mrs. Lowey. Thank you, Mr. Chairman.
    Dr. Fauci, I would like to pursue an issue that was 
discussed previously, and you and I and Dr. Thompson, Secretary 
Thompson, have discussed this as well.
    If BioShield is successful and new countermeasures are 
developed, the success of these projects will depend on a 
public health system's ability to distribute and deliver the 
serums to the general public in a timely, safe and orderly 
fashion.
    Mrs. Lowey. In the case of smallpox, the cost of 
vaccinating--roughly $200 per vaccination because of screening, 
testing, post-vaccination surveillance and treatment of adverse 
reaction--has been a significant impediment to the program. 
Thus, it seems to me the key to effective countermeasures 
depends on a lot of factors and costs other than buying these 
products and putting them in the strategic stockpile.
    You mentioned before Secretary's Thompson commitment to 
putting--I think you mentioned $1.3 billion--and it happens to 
come from the Labor, Health, Human Services, Education 
Committee, but you and I know that basic health programs are 
really starved for cash for their core public health missions. 
In fact, there are a whole lot of reasons--the decrease in the 
reimbursement rate. So here we are asking them to take on 
greater responsibility in the terrorism preparedness area.
    It seems from my perspective that we should seriously 
consider funding for our hospitals, for our public health 
network as part of our Project BioShield. I can remember a 
hearing we had in the committee with one of my colleagues sent 
a strong message to Secretary Thompson--I am not sure if you 
were there at the time--saying, now, remember, the money for 
homeland security cannot be taking the place of basic needs of 
hospitals, it seems to me, unless we have got to fund the basic 
needs of hospitals.
    If someone is coming in--one of you gentlemen referred to 
cough. If someone is coming in, until they discern that it is 
SARS or it is something minor, they have to be prepared. In 
fact, the first tranche of money to the hospitals in New York 
State amounted to about $10,000 a hospital. Since then, more 
has come. As one hospital said to me in a meeting with all my 
chief financial officers, pay for a shower and my 
decontamination unit. They all have to expand their emergency 
rooms. They are all cutting back on staffs. They are not 
prepared to handle this.
    So my question is, do you believe this is an issue that 
should be seriously addressed in Project BioShield and not 
depend upon Secretary Thompson or anyone else pleading for an 
additional appropriation, or should we continue to fight about 
reimbursement rates for Medicare, or should we deal with this 
in Project BioShield?
    Chairman Cox. Would the gentlelady yield?
    Mrs. Lowey. I would be delighted.
    Chairman Cox. While you are all contemplating the best 
answer to that question, Dr. Crystal, I understand, needs to 
make an airplane. He alerted us early on that he needed to 
leave at 3:15. That time having approached, I wanted to excuse 
him and also give you the opportunity to leave us with final 
words if they are top of the mind. Either way, we are very 
pleased that you could join us today.
    Dr. Crystal. Thank you. I guess you are the closest 
congresswoman to where I live--
    Mrs. Lowey. And I am very grateful that you are here.
    Dr. Crystal. In response to your question, working in one 
of the large urban hospitals, I would love to see that, but 
that is response to these infections, and if we don't do 
something about preventing the patients from coming in, we will 
never solve it at the hospital level per se. We have to do 
both, but we have to do something in terms of preventing these 
kinds of attacks, and that is vaccines and therapies.
    Mrs. Lowey. Oh, I understand that. But is it realistic, 
given the knowledge that your hospital and others have shared 
with me--and I have met with many, many CFOs, CEOs of the 
hospitals. They are absolutely not prepared to deal with 
emergencies; and many of what may not seem like an emergency, 
if not handled correctly at their hospitals, could be an 
emergency.
    If I remember correctly in talking to Sam Nunn of WTI and 
Peggy Hamburger, whom you know very well, the number that they 
gave me just this morning was, in World War I, 50 million 
people died of flu, more than any others dying of any other 
combat-related death.
    So my question is, isn't this part of any solution? And if 
we are really going to fund BioShield at the rate that is 
requested to do the job, don't we have an obligation to 
consider delivery of services as part of that effort?
    Dr. Crystal. I can't comment as to what is best, but I 
agree absolutely with you that our hospitals are markedly 
underprepared for these kinds of problems.
    Mrs. Lowey. Thank you. Have a good flight.
    Dr. Crystal. Thank you.
    Mrs. Lowey. Dr. Fauci or any of the other gentlemen, one 
other question. We are living in a global world. I am not sure 
of the number, maybe a hundred million people enter somewhere 
between--I think I read 100, 200 million people enter the 
United States every year. People are travelling all over the 
world. Can this money--has this money or the prospect of this 
money served as an incentive? Are you in touch with others?
    This is an international issue, an international crisis. Do 
you think that if we appropriate this money in an effective way 
the President could be encouraging other nations who certainly 
will benefit--we are all in it together--to match the money or 
provide some important, significant dollars as well?
    Dr. Fauci. You asked two questions, Mrs. Lowey. The first 
one was, do I believe that the ability to shore up our 
capability of responding is important? It indeed is a very 
important issue. As you know, Project BioShield was formulated 
to expedite the process of the research concept development to 
the ultimate development and delivery of a product. That was 
the rationale for BioShield.
    The addressing of the problem of our public health and 
hospital infrastructure is certainly a critical issue. Where 
that gets addressed, that is not for me to say, except to say 
that you put your finger on an important issue, our capacity to 
respond, which in fact is not what BioShield is about. 
BioShield is about getting the countermeasures that we need, 
which is part of the big picture of how we respond. One of them 
is the point that you made.
    The other question that you mentioned is the international 
nature of it. I think if we incentivize the industry in this 
country, the pharmaceutical industry is also a global 
phenomenon, so there is no reason to believe that that won't, 
in fact, entice companies that are not just domestic companies 
but that have international interests. So we feel we will tap, 
if successful, the best of the pharmaceutical companies in a 
global fashion.
    Mrs. Lowey. Well, my time is probably up, but--
    Chairman Cox. It has indeed expired.
    Mrs. Lowey. Pardon me?
    Chairman Cox. It has indeed expired.
    Mrs. Lowey. I was thinking of other nations, not just of 
the pharmaceutical companies.
    Dr. Fauci. Well, I would hope so. I mean, we face the same 
issue in so many things where we take the initiative, because 
we have administrations--and the Congress have always been so 
supportive. We don't generally see that kind of support that we 
get from our own Congress from other countries; and, 
unfortunately, we have seen that with HIV/AIDS, where the vast 
majority of the burden of the funding, of the research, of the 
things that go into vaccine development are due to the 
generosity of our committees and our administrations who 
support it.
    Mrs. Lowey. To be continued, and thank you for your very 
important leadership.
    Chairman Cox. The gentleman from Massachusetts, Mr. Markey.
    I would--before recognizing Mr. Markey, I would point out 
to all members we do have a second panel, and I leave it to you 
how you want to accumulate the time. It is entirely up to each 
member.
    Mr. Markey is recognized for 8 minutes.
    Mr. Markey. So if he wanted to, I could save it all for the 
second panel and then question Haseltine for 16 minutes.
    Chairman Cox. Thirteen minutes.
    Mr. Markey. All right, 13 minutes for Bill Haseltine. No, I 
don't think I will do that.
    How are you feeling down there, Dr. Peters?
    Dr. Peters. I am OK.
    Mr. Markey. You can take a break, you know. If you want to 
go outside and--you know, you can come back in for a couple 
minutes.
    Dr. Peters. I think that would be helpful for--
    Mr. Markey. Yeah. We can see that.
    I am not going to ask Dr. Fauci all the questions, anyway.
    So, first of all, we did mark up in the Energy and Commerce 
Committee today the bill; and, amongst other things, we changed 
it from an appropriations for an indefinite period of time, 5 
years or 10 years--we don't do that even for the CIA or the 
FBI--to an authorization, so that it would have to compete for 
money each year and justify itself each year as a program, 
which I think is a good idea, and I am glad we were able to 
make that change.
    Second, I was able to add in language that has a GAO 
evaluation of the various aspects of BioShield's effectiveness 
and to evaluate whether or not the money was spent well, which 
I think is important.
    And, third, the committee did adopt my language, which 
instead of having no limit on what any outside expert could be 
paid and having an exemption to the Federal employee pay 
standards for anyone who would come in and consult and help us, 
I finally was able to, I think, persuade people that we should 
at least establish the limit as to salary of the President of 
the United States--although I would have preferred it to be 
your salary, Dr. Fauci, because there is no one who is going to 
consult with the government who is going to know more than you 
do. So for them to be paid two or three times as much as you 
get paid I think is in itself absurd, given the national 
importance, but nonetheless at least capping it at the 
President's salary is something that is a good start in terms 
of the overall legislation, but I do think we have to work on 
that even more.
    The bill places no limits, however, Doctor, on what the 
companies can do with the countermeasures that they do develop 
with taxpayer money. So, for example, during this whole 
conflict with Iraq, we were afraid that they had developed a 
potent nerve gas vaccine which they could then immunize their 
troops so that they could use it against American troops.
    So one of my concerns would be that we develop this series 
of vaccines at government expense and then the companies have 
no restrictions on which countries they can sell it to, which 
could then be used as a countermeasure against American forces. 
Do you think it makes sense that no company should be allowed 
to sell any of these vaccines to any country in the world that 
is on a terrorist list or any list that could endanger America 
without the express written consent of the U.S. Government?
    Dr. Fauci. Well, Mr. Markey, as a government witness, I 
don't think that I can speak authoritatively to represent the 
administration on this, but--except to say that it makes some 
common sense that if there is a countermeasure that is 
developed that might potentially ultimately lead to the harm of 
American citizens that you need to seriously consider how you 
can somehow put a process in place that would address that. So 
I essentially agree with the concept, but I am a little bit 
reluctant to make an official declaration of what 
administration policy would be on that.
    Mr. Markey. Dr. Adams, does that make sense to you?
    Dr. Adams. Well, it would make sense to me that any weapon 
that could be used against us shouldn't be given to our 
enemies, yes.
    Mr. Markey. OK. Great. So North Korea, Iraq, Iran, do you 
agree a pharmaceutical company shouldn't in and of itself be 
able to make the decision to sell this vaccine then to those 
countries? I mean, in the absence of a smallpox breakout in 
their civilian population, which, of course, you know, would 
change the scenario, but, in the absence of that, you do agree 
that we shouldn't be selling this, that we shouldn't allow the 
pharmaceuticals to sell this stuff that can be used to protect 
their populations--
    Dr. Fauci. It makes sense.
    Mr. Markey. Do you agree, Dr. Adams?
    Dr. Adams. Yes, it makes sense. However, the products 
coming out of this will have global application for human 
health and well-being.
    Mr. Markey. I appreciate all that, but I understand that in 
the hands of sociopathic leaders of countries that they 
actually view it a different way. I mean, a nuclear power plant 
that generates electricity in our country is viewed as a 
nuclear bomb factory in North Korea or Iran. So I don't know if 
we want to be selling nuclear power plants to North Korea or 
Iran. So that is my point. I do understand that.
    Now, with regard to what the accountability should be--you 
know, when we engage a defense manufacturer in the process of 
making weapons we have very tight control over their books, 
access to their records to ensure that there is accountability. 
Now, do you believe that the same should now be true for 
pharmaceutical companies who are going to be enlisted in this 
effort in terms of our ability to have access to their books 
and records to guarantee the accountability so that we are not 
overpaying? Dr. Fauci.
    Dr. Fauci. Again, I hadn't seen that proposal before, since 
I was not--I didn't get the results of the markup this morning.
    Mr. Markey. Oh, no, it is not in the bill. I am asking you, 
does that make sense to you that, given the fact that we are 
going to have this unprecedented government subsidy of an 
industry, that in all other industries, we do have--you know, 
we mandate access to the books and records so we can make sure 
that the government is not overpaying so that we get the best 
result for our dollar? Do you think that makes sense, that we 
ensure that the pharmaceutical companies give us the access to 
their books so that we can guarantee that there is no 
overpayment?
    Dr. Fauci. I think the fundamental principle of 
accountability for what the government pays for is something 
that I certainly would be in favor of. I hesitate to agree to 
issues in which I don't know the exact, specific details of 
access to books, because often I would say something, yes, you 
should, and then there is some technical issue that I did not 
consider because of my own lack of expertise.
    But I would like to be able to be on the record to say that 
we certainly--if the Federal Government funds certain projects, 
that they should certainly be able to have the people who are 
the beneficiaries of the funding show responsibility and 
accountability to them.
    Mr. Markey. Well, the pharmaceutical industry says that, on 
average, it costs about $800 million to develop a new drug. Is 
that what the U.S. Government should expect to spend for each 
one of the new antidotes that might be developed?
    Dr. Fauci. Approximately. But, again, Mr. Markey, when you 
talk about $500 million to $800 million, it sometimes is--the 
number is as high as that, is that that is the whole process 
from the proof of concept up through and including the advanced 
development and the production and the manufacture of it.
    There will be other funding streams that will go into the 
process of the development of a countermeasure. For example, a 
lot of the discretionary money that we put into the research 
for the development of countermeasures will feed into what 
ultimately will be that. I am not so sure that the actual 
procurement of a particular product would be that $500 million. 
We feel when we calculated it that $500 million is a reasonable 
calculation on the part of the company. So if you are trying to 
figure out how much each would cost, that is not an 
unreasonable number to hold on to.
    Mr. Markey. All right. You know, except for Jeff Skilling 
at Enron, most people think that $500 million is a lot of money 
to keep track of. That is why my question in terms of 
accountability and looking at the books are important, because, 
obviously, we are running huge deficits, maybe $500 billion 
this year in the U.S. Government. So we are going to have less 
and less flexibility as each year goes by, given the perhaps 
trillion dollar deficit we will have within another 5 to 8 
years in the country here per year. So we have to get the 
maximum return, and as a result I think this accountability 
will be necessary.
    Dr. Fauci. When we let contracts typically, Mr. Markey, we 
build in accountability into that contract that we make.
    Mr. Markey. Yeah. I--
    Chairman Cox. The gentleman's time has expired.
    Mr. Markey. I thank you.
    I just hope that the people who we bring in from the 
outside are as qualified as you are, Dr. Fauci; and I hope that 
would be the standard that we would establish if we are going 
to pay them twice what you get paid. Thank you.
    Chairman Cox. The gentlelady from Texas, Ms. Jackson-Lee, 
is recognized for 5 minutes.
    Ms. Jackson-Lee. Thank you very much, Mr. Chairman.
    Out of a sense of humor, I thought I had heard 8 minutes, 
but I imagine--
    Chairman Cox. I was just checking to see if you made an 
opening statement, and I take it that you have.
    Ms. Jackson Lee. Next time I won't use those 30 seconds, 
but I thank you, Mr. Chairman, very much for the time, and the 
ranking member as well.
    It is, I think, important to restate--this panel is 
obviously aware that this committee was appointed by the 
speaker and the leader of the House as an all-encompassing 
committee that includes expertise for many different of our 
jurisdictional committees, and I would expect and hope that in 
the course of our questioning that we do rise above--not just 
regard but do rise above some of the jurisdictional issues and 
really respond to what I hear often when I travel around the 
Nation is the urgency that many Americans express in terms of 
their concern about what is transpiring, what is going on, what 
are we doing.
    This hearing is particularly interesting in the backdrop of 
the 48-hour-ago tragedy in Saudi Arabia where we lost a number 
of Americans. I think we are fully aware of the fact that 
terrorism still very much exists, and it is very much alive. So 
I think this hearing couldn't be more timely, but I also am 
concerned about whether or not we are moving fast enough with 
the kind of respectful attention to detail that we should have.
    I do want to acknowledge, if I might, two fellow Texans. 
Dr. Peters, we welcome you; and, Dr. Adams, we welcome you and 
are gratified that you are here; and, Dr. Fauci, we thank you 
very much for being here.
    Let me just restate for the record what I understand the 
BioShield program to be--and that is that we can give NIH 
authorities to move quickly on research and development, on 
medical countermeasures. We know how thorough the NIH has 
typically been, and so that is to sort of jump-start and leap 
ahead to move us quickly.
    The other is spending authority for the delivery of next-
generation medical countermeasures, and that is, of course, the 
whole question of incentivizing or giving incentives to move 
people on quickly.
    Then the other one is, of course, the FDA utilizing some 
form of emergency use authorization.
    Might I just throw in a comment that everyone always 
remembers? I would be cautious on how we use fast-tracking, 
inasmuch as all of us either remember or have heard the history 
about the babies and the severe deformities that came about 
during the use of something that had not been so reviewed 
before the time that we were doing such, and so I know that we 
want to be cautious on that.
    As I ask these questions, I am going to read them all off 
so that I can be mindful of the time. I want us to think not 
only of this mysterious concept of bioterrorism and mysterious 
diseases, and I want us to think of the impact of someone that 
is infected with tuberculosis going into a crowded school, 
someone who has SARS and going from one crowded place to 
another, as I understand the transmission there. These are 
familiar infectious diseases, SARS now becoming a household 
word, the ability of someone to take infected mosquitos and 
take them into an area and thereby putting in an epidemic of 
the West Nile.
    So I would like us to realize that all of what may be 
dangerous or may be part of bioterrorism--and I may be 
reaching--may not be all of the unthought-of elements.
    We have certainly begun immunizing on smallpox. We have 
heard that word over the centuries, but that has been 
considered one of the dangerous elements.
    So let me quickly say to the panelists, the worst thing 
that could happen would be if we promised a billion dollars for 
a new vaccine and then find out in 5 years, for example, that 
nothing had happened. The whole idea of accountability when you 
go--and you talk about going into the private sector, how will 
we have that?
    Also, if we implement the BioShield plan tomorrow, 6 months 
from now, how many companies do we predict would start new 
programs to develop such vaccines or drugs to combat 
bioterrorism? Where is the attractiveness, and why do we have 
to provide these incentives? As I started my opening remarks, 
why isn't it good to do just the right thing? And how many 
companies have already done--are involved in this business and 
already in the business will boost their programs?
    Lastly, quickly, considering the relative lack of 
transparency in the private sector, how long will it take to 
realize that the mobilized industry is or is not getting the 
job done? Again, accountability. And considering that many 
pharmaceutical companies are publicly traded, do you expect 
them to be forthcoming about progress or the lack of progress?
    I simply want to know, does it work or will it work? And I 
think that is our responsibility in this committee, is to look 
globally, not how many people we make happy but how many people 
we will help and whether or not it will work.
    If you could begin, Dr. Fauci; and I would appreciate it 
very much.
    Mr. Chairman, I ask your indulgence now for them to be able 
to answer that--
    Chairman Cox. By all means. The gentlelady's time has 
expired, but the panel may take as much time as you wish to 
answer those questions.
    Ms. Jackson Lee. Mr. Chairman, I am sorry. I may have been 
out of the room. Did you say we were going to mark this 
legislation up?
    Chairman Cox. Yes. We will have a markup on the 
legislation. The bill has not yet been introduced, which is one 
of the reasons that people--
    Ms. Jackson Lee. Thank you for enlightening me. I guess I 
was listening to someone saying that there had been a markup in 
another committee.
    Chairman Cox. There has been a markup in another committee; 
and, as I serve on that committee, I can report to you 
firsthand that even that bill had not been introduced at the 
time of the markup. It may well be introduced today.
    Ms. Jackson Lee. I thank you very much, Mr. Chairman. That 
shows how creative and forward-thinking we are in this body, 
and I hope that we will look forward to seeing that bill as it 
comes forward. Thank you.
    Chairman Cox. Would the gentlewoman yield?
    Ms. Jackson Lee. I would be happy to yield.
    Chairman Cox. In fact, yield to the time you don't have. 
The legislative language is available to all Members. It has 
been for some time.
    Ms. Jackson Lee. That would be helpful. Is it on our Web 
or--
    Chairman Cox. It is available by committee e-mail, yes.
    Ms. Jackson Lee. Great. We will make that happen. Thank you 
very much.
    Dr. Fauci, if you would, and to the other two gentlemen, it 
is all about how it works and will it work.
    Dr. Fauci. You asked--and I will briefly answer three 
categories of questions.
    What about other common diseases? We have a major emerging 
diseases program--a research program at the NIH that addresses 
things like tuberculosis, things like West Nile fever and 
things--ultimately, now we have a program that we are 
developing on SARS. We would consider these if, in fact, they 
fell under the category of being a threat to be used as 
bioterror agent and would have impact on our national security. 
They do not fall under the high categories for the reasons that 
were articulated by a number of us on the panel, particularly 
Dr. Peters. So although we are aware of them, they are not on 
our high priority, but we do address them in our emerging 
diseases program.
    Second, how many companies? It is very difficult to tell. 
Right now, for example, there are four companies involved in 
vaccine research, just four entirely for the whole vaccine 
research--not research but vaccine development arena. We would 
like to get several more companies involved.
    I can't give you the number. I would imagine it is not 
going to be a hundred, it is not going to be 50, but I think 15 
to 20 companies involved, including Biotech and others, I would 
feel would be a very important step forward.
    Also, the idea about accountability, the way the program 
has been proposed is that there will be some risk on the part 
of the companies, and I think you will hear some more about 
that when you discuss this with the pharmaceutical company 
panel, but Project BioShield as it now has been put forth would 
pay for a deliverable product. So there will be funds expended 
when the material of the product that has been contracted for 
is delivered.
    Ms. Jackson Lee. And not before?
    Dr. Fauci. There will likely be some modifications of some 
advances perhaps to get them going, but it is not going to be 
paid for something that would ultimately be an undeliverable 
product.
    Ms. Jackson Lee. Gentlemen, I am trying to get--if the two 
doctors could at least comment on how they think it might work 
in collaboration with the private sector and if you have one 
comment on using the less dangerous SARS in a dangerous way. I 
mean, someone could be infected and use it in a dangerous way.
    Dr. Peters. Well, I am not sure about the possibility of 
the SARS scenario, but one thing is important to recognize, is 
strengthening the public health infrastructure for bioterrorism 
strengthens it for SARS, for TB across the board, even though 
some of those resources will not be used on a daily basis for 
nonbioterror events.
    Some of the issues that would revolve around a smallpox 
case introduced into this country would revolve around a SARS 
case introduced into this country. Isolation of the patient, 
quarantine, search for contacts, these types of things work 
with both of these agents. Hopefully, someday we will have a 
SARS vaccine and a smallpox vaccine, strategies which would 
then give us a basis for SARS vaccination strategies.
    So I think that it is very important issues that we are not 
just working in isolation. Many of the agents that are 
bioterrorist agents are also natural threat agents. Smallpox, 
of course, is the exception, not existing as a natural disease. 
But we--to the extent that we develop anti-infective vaccines 
and other treatments for these, they can be used in the Third 
World.
    As a matter of fact, it is my contention that many of these 
will have to be tested overseas to assure safety and indeed, if 
they can find them, to assure efficacy, and indeed, if they can 
find a market, the usual market forces will dictate their use 
and determine their safety in an extended group of people who 
are actually at risk and who are not just chosen as 
experimental subjects. Thank you.
    Chairman Cox. I thank the panel. I thank the gentlelady. I 
am sorry.
    Dr. Adams. No comment. These are both outside my area of 
expertise.
    Chairman Cox. The gentlelady from the Virgin Islands.
    Mrs. Christensen. Thank you, Mr. Chairman. I will try to be 
brief because several of my questions have been answered.
    I want to say that, at the outset, I share the concern that 
was voiced by Congresswoman Lowey. Because what happened is we 
began the process not at the beginning, so we don't even have 
an overview of where the whole health piece is. We came in with 
BioShield. So a lot of the questions you are getting is because 
we don't have the whole picture, we don't know where our public 
health system is, the overall picture, so we are at a handicap.
    I want to kind of follow up briefly, hopefully, on the 
issue, just using SARS as an example. We realize that we have 
been very lucky over in the United States, but had the Toronto 
experience happened here, if we had enacted Project BioShield, 
how would it have helped us to deal with a new disease coming 
in like SARS?
    Dr. Fauci. If you look at BioShield today--let's say we 
have an agreeable legislation that launches BioShield today and 
SARS came tomorrow. The impact of BioShield on how we handle 
SARS next week, the week after, the month after would be 
negligible, if not at all.
    Mrs. Christensen. And if it had been enacted 5 years 
before, say, and this was a new thing that we had never seen or 
heard of before.
    Dr. Fauci. Right. What Project BioShield does is the three 
things that Ms. Jackson had actually mentioned: expedite the 
research, develop secure funding capability and to make it 
available through, where appropriate, an emergency use.
    That is to develop countermeasures against perceived or 
real threats. If something hits now, we are not going to be 
able to implement the BioShield mechanism to help us today, but 
what BioShield will do is it will create the incentives to get 
pharmaceutical companies involved in certain areas of 
development so that if we have an unknown attack on us that is 
delivered, it could be a SARS-like phenomenon, that we will be 
much better prepared to have countermeasures to hit the ground 
running.
    The SARS--the response to SARS that you mentioned goes 
directly to our public health capability, and I think that is 
the point--
    Mrs. Christensen. That is the point--
    Dr. Fauci. That is exactly right, and that is the point 
that you are making, that we in this country did well for two 
reasons: One, we rapidly implemented infection control and 
public health measures; and I can tell you that we are much 
better off at it today because of the intensity of the effort 
that has been put in over the past year and a half following 
the anthrax attack on our awareness and ability to move rapidly 
to public health emergencies.
    Mrs. Christensen. But the disease doesn't really start 
here--
    Dr. Fauci. That is the point.
    Mrs. Christensen. It never got here. We--
    Dr. Fauci. Exactly.
    My second point--if you will allow me, the second point is 
that we were pretty lucky, because we were a few days ahead of 
the curve. We knew what we needed to do with this new disease 
before it actually came here. Unfortunately, the people in Hong 
Kong and Vietnam did not know they were dealing with a disease 
that was transmissible the way it was and that--their health 
workers were vulnerable to it. So it was a combination of our 
rapidly moving but also being somewhat lucky.
    Mrs. Christensen. Can I just ask for clarification? At what 
point in that arrow do we start to pay the private sector out 
of that permanent, open-ended and definite authority?
    Dr. Fauci. Right from the advanced development till the 
actual procurement.
    Mrs. Christensen. Somewhere around the middle of that?
    Dr. Fauci. No, it is probably closer to the product. 
Because the concept to the preclinical, to the preadvance and 
then advanced development is probably closer to the advanced 
development and the actual procurement of the product.
    Mrs. Christensen. OK. Because just looking at one of the 
testimonies from PhRMA of 5,000 compound screen, 250 into 
preclinical testing. Will we be paying at the 5,000 or the 250?
    Dr. Fauci. No.
    Mrs. Christensen. Because out of that 250, maybe only one 
drug gets approved, and I realize we are talking about 
expedited approval, but--
    Dr. Fauci. Yeah. As I mentioned, essentially, on that, the 
monies that would come through for BioShield would be for the 
procurement of the product. Now, obviously--
    Mrs. Christensen. But there is some money to incentivize 
early on to even do the research, isn't there?
    Dr. Fauci. The research part of it on the far left of the 
slide, is what we do in discretionary research must be to prove 
the concept and get something into preclinical development. 
BioShield is talking about the far right-hand side, which is 
advanced development and procurement.
    Mrs. Christensen. One of the concerns, obviously, and I 
said it earlier, was this independent permanent contract 
authority and how do you actually price a fair contract without 
bidding? How do you decide--with not having bidding, this is 
going to be just going to a company that--the homeland security 
or--
    Dr. Fauci. No, there will be bidding.
    Mrs. Christensen. There will be bidding.
    Dr. Fauci. There will be bidding. For example, we will say 
that--or companies would come to us. It goes both ways. If we 
feel that we need to have a product, for example, to develop a 
monoclonal antibody for botulism toxin or, as you will hear 
from our industry partners, other countermeasures, that we 
would put a request for a proposal to develop and deliver this 
product, and we would expect that hopefully we would have more 
than one company come in, because that would make the chances 
of getting to that goal line much greater.
    Chairman Cox. The gentlelady's time has expired.
    Mrs. Christensen. Thank you, Mr. Chairman.
    Chairman Cox. The gentleman from Rhode Island, Mr. 
Langevin.
    Mr. Langevin. Thank you, Mr. Chairman; and I will probably 
have some additional questions that I would like to submit for 
the record, if that would be possible.
    What I would like to ask are questions that might be a 
little more broad-based, and that is what do we as policymakers 
and perhaps even the executive branch need to know, what steps 
could be taken to better protect the population from either a 
bioattack or emerging pathogens that we are going to see come 
on the scene in the near future? Are there things that we 
should be more aware of, that we should be doing to better 
prepare ourselves and protect the population?
    Dr. Fauci. Well, yes, sir. As you know, some of these we 
have already discussed, but I will capsulize it very briefly.
    It is a multi-facetted phenomenon. It is going to be one 
thing to do to cover all the bases, and it goes from 
everything--all we mentioned just a while ago to building up 
our public health infrastructure and capability to respond. 
That is one thing that we can do.
    The other is a robust fundamental research base to feed 
into the concepts. As you know, the increase in biomedical 
research allocation to the NIH for biodefense in fiscal 2003 
and continued into 2004 was the largest single increase in 
research endeavors in the history of the NIH in 1 year. So a 
robust research base. And now what we are trying to do with 
BioShield is to expedite the process, A, and, B, strongly 
create incentives for industry to partner with us so that we 
can use their considerable capabilities to ultimately develop 
the countermeasures. So it is public health, fundamental 
research and procurement.
    Dr. Peters. Dr. Fauci certainly reflects my views. I will 
leave these with you if you want to read more detail about the 
Institute of Medicine going into some of the factors of 
emergence.
    Many of these are beyond my control. We can't control 
climate, development. Many of them are very contentious. Do we 
dam this river or not? And so I think it is a very complicated 
issue. If I may, I will leave these with you later.
    Mr. Langevin. Also, a second question, and my final one. 
About a year and a half ago, I held a forum back in my district 
on West Nile virus, and we had several experts come and testify 
as to what type of impact this was having on an area, what we 
could do to better protect our residents. And Dr. Bandy, who 
works in our Department of Health, suggested that we are going 
to see more and more of these types of pathogens coming on the 
scene that we need to protect ourselves from in the near 
future. And I just ask you if you could speculate about the 
types of things we need to be concerned about in the next ten 
years or so, where will we be, what type of timeline are we 
facing in terms of these various pathogens coming on the scene 
that we need to be concerned about? How much time do we have, 
in other words, to prepare ourselves, as a best guess?
    Dr. Fauci. It is a continual dynamic, an infinite process. 
The relationship of emerging and reemerging microbes with the 
human species has been going on from the evolution of the human 
species and will be with us throughout the duration of the 
human species. We have the continuing emergence and re-
emergence of microbes. Historically some of those have shaped 
civilization, like smallpox and measles. Some of them are 
little blips on the radar screen where they are interesting 
curiosities in their natural occurrence, but they don't have 
global health impact. Some of them do.
    In the last century, in the 20th century, there were two 
major ones. One was the 1918 flu pandemic and the other was the 
HIV/AIDS epidemic. Right now in the 21st century, we have had 
some interesting forays into emerging and reemerging diseases. 
We have had the reemergence of West Nile Virus, because it was 
with us before, but it reemerged in an unusual location, namely 
the United States of America. And then we have had the 
emergence of a new disease that didn't exist before, namely 
SARS.
    So the answer to your question, sir, is that this is a 
process that will continue. The best that we can do is to 
prepare ourselves by keeping our public health infrastructure 
able to respond at a public health level, and also create a 
robust research and development program that allows us to 
rapidly respond to these emerging diseases as, in fact, they do 
emerge.
    Dr. Peters. As a footnote to that very eloquent and 
complete statement, it is not just in the U.S. It is overseas. 
To the extent that we can deal with some of these issues 
overseas, enhanced surveillance and response overseas, then we 
are protected here.
    Dr. Adams. I would like to also add on the point of 
surveillance and intelligence, modern diagnostics with large 
platforms to detect these before they become an issue is 
preemptive in nature, and that is something we need to be on 
the front end of as well as the vaccines and therapeutics, but 
the intelligence of what is going on in many places with modern 
diagnostic techniques will be essential for protecting 
ourselves.
    Mr. Langevin. Gentlemen, thank you for your time.
    Chairman Cox. I thank the panel. The gentleman's time has 
expired.
    The gentleman from Florida Mr. Meek. I thank the gentleman 
from Florida and the gentleman from Rhode Island for your 
patience as well.
    Mr. Meek. Thank you, Mr. Chairman, and I want to thank all 
of our witnesses that are here today. I, too--I am from Miami, 
Florida, and I had a forum in my district and local health 
providers, first responders--I would like to--many of you are 
involved in front-line delivery or have some experience in it 
from reading your biographical information. A lot of our first 
responders are saying, especially with these exercises that we 
are having throughout the country--many of them are saying, 
well, that is fine what they are seeing on C-SPAN or the 
national news, but it is not necessarily reality if we were to 
see a full-scale bioexperience in our community.
    As it relates to SARS and as it relates to other viruses 
that are moving around in our community, and as you know, 
terrorists, they look to economically cripple an economy, if 
they can, tourism, which is important to Florida and many other 
destinations in our country.
    How do you feel as it relates to not only the vaccine 
movement but the communications with some of the front-line 
people that are not necessarily getting the message or the work 
that you are doing here or in your perspective locations 
towards bringing not only comfort but equipment, know-how, 
knowledge to them on the front line as it relates to health 
care workers?
    Dr. Fauci. As a Nation, we certainly have a ways to go to 
do that, and that is part of the multi-factorial and multi-
facetted issue that I mentioned a little while ago with regard 
to emerging diseases there. The public health in the trenches 
infrastructure, the ability to be able to communicate with the 
citizens of this Nation in the case of an emergency, be it a 
naturally occurring or a deliberately perpetrated emergency is 
something that is a critical part of what we do, and we need to 
pay attention to that. That has been addressed and will 
continue to be addressed, because we are not where we want to 
be yet in part of the response to the biodefense initiative, 
which included the shoring up of the State and local health 
public capabilities as well as our communication capabilities.
    So the point you make is right on.
    Mr. Meek. Well, let me just--furthermore, if I can--and 
maybe some--all of you want to chime in on this. They are very 
concerned not only in this field but also in the general 
application of homeland security. We have taken precautions in 
our water plants. Homeland Security has asked us to beef up 
security or buy a new filter or what have you, surveillance 
equipment, and as it relates to front line health providers, 
need it be in the hospital, need it be setting up an emergency 
triage situation in a bioterrorism situation, they feel that 
even though they are drilling, even though they are hearing a 
good game over television, they are not necessarily seeing it 
there. You say, yes we recollect do have a long way to go. I am 
asking you realistically, how long do you think it will take 
for us to get there, especially when it comes down to the 
training and--the training for those responders?
    Dr. Fauci. Again, if there is to be perfection, I don't 
think we will ever get there, but if there is getting better 
and better as opposed to staying static or getting worse, I 
think we are getting better and better. And I understand, 
because I too vat the local level have spoken to people who 
still feel that there is a lot of uncertainty. That is one of 
the reasons to have a TOPOFF II-like exercise as well as what 
the CDC is trying to do and is doing well, I think, over the 
past year and a half: partnering with the public health 
officials at the local and State level.
    So we can't give total comfort and assurance that 
everything is going to get to where we want it to be very soon, 
but what we can say is that we are going in the right 
direction, and I think we can say that with some confidence.
    Dr. Adams. I think the response in the--the exercises under 
way right now are where one really finds out where the 
deficiencies are, and communication and education are certainly 
a big part of that. Within the organization, at the local 
level, all the way up to this level.
    So I think education to the public may be one of the--the 
public itself may be one of the best weapons we have for the 
initial detection and initial reporting to public health 
authorities for the response.
    I don't know how you find that out. In the first exercise 
we have done on foot and mouth in Brownsville, Texas, right on 
the tip, it was in Canada within the next day. The next 
exercise, much better, because of communications. And the next 
exercise even better than that. So there is hope for it, but 
will it ever be reduced to zero risk? No. But we can reduce it 
to a level where we can live with it and contain it and control 
it.
    Mr. Meek. Mr. Chairman, if I may, I understand that--I know 
what that is like in the perfect world, and I think we all know 
that, in all aspects, it is a reach to get there. The first 
responders, those individuals that will be--we know 
communications, communications as it relates to an incident, 
sometimes quarantine, sometimes paying attention to what you 
are doing so you don't want to spread, whatever the situation 
may be. That kind of training at the home front is very, very 
important. As we learn in these exercises that we are doing 
throughout the country and the one that is going on right now, 
the discussion amongst the first responders, they are saying 
when can we as a local community have that kind of exercise 
outside of what the sheriff is doing, what the police chief is 
doing, who may not have a great understanding as do all of you 
do on this panel of the--what needs to happen in a bioterrorism 
kind of situation.
    So I will leave it at that in the interest of time. If any 
of you feel propelled that, the reason why I am glad that we 
are having this hearing here today, and I have rebooked my 
flight so that not only I would have a chance to be here to 
pose a question, but also hear the second panel.
    Thank you, Mr. Chairman.
    Chairman Cox. The gentleman's time has expired.
    Does anyone on the panel wish to address themselves to 
this?
    Dr. Peters. I hate to take up another minute, but let me 
just say there is such a dearth of microbiological 
understanding in the public and the press, that we I think are 
finding a real uphill battle. If we could get some kind of 
thorough briefing of reporters--and I work with this all the 
time--to get them up to a level where I can communicate to them 
in a relatively straightforward fashion, because when the 
balloon goes up, we are going to need a lot of help, and it 
will come mainly through the media.
    Chairman Cox. Well, I want to thank each of the members of 
the panel for contributing to a solution to that particular 
problem in your way today. You have shown both extraordinary 
patience and exceptional wisdom and good judgment. We 
appreciate your expertise that you shared with us today.
    As you know in Congressional hearings we have essentially 
the opportunity for all members to ask questions. I think the 
reason that you have endured several hours here and the panel 
behind you as well, is that there is such member interest in 
this. This is a very vital subject for our country, and so we 
appreciate very much your contribution.
    I would like to dismiss this panel and welcome the next 
program. While our next panel is getting seated, I would like 
to thank my colleague Mr. Meek for rebooking his flight so that 
he could be here. Certainly, you are doing everything you can 
as a member of this committee to contribute, and we appreciate 
it.
    Our second panel consists of representatives from the 
private sector, pharmaceutical and biotech industry experts who 
will be able to testify from the private sector point of view 
about some of the subjects that we have had under discussion 
this afternoon. I hope that this panel will be able to help us 
understand some of the factors that companies will consider 
when determining a line of research to pursue.
    We have with us next Dr. William A. Haseltine, Chief 
Executive Officer of Human Genome Sciences; Alan A. Pemberton 
on behalf of the Pharmaceutical Research and Manufacturers of 
America, PhRMA; Robert J. Sutcliffe, Director, President and 
Chief Executive Officer of Digital Gene Technologies; and Frank 
M. Rapoport, a partner at McKenna, Long & Aldridge, who is an 
expert in public health procurement.
    I very much appreciate the contribution that each of you 
have made in providing us your prepared testimony for today, 
the contribution that you have made in terms of your time and 
indeed the contribution that you have made by observing the 
first panel and being here with us here such a significant 
portion of the afternoon already.
    Chairman Cox. Without further delay, we will proceed from 
left to right, my left to right, with this panel.
    Dr. Haseltine, your testimony, of course, has already been 
submitted for the record, and you have 5 minutes to summarize.

  STATEMENT OF WILLIAM A. HASELTINE, PHD, CHAIRMAN AND CHIEF 
         EXECUTIVE OFFICER, HUMAN GENOME SCIENCES, INC.

    Mr. Haseltine. Thank you, Mr. Chairman.
    Members of the Select Committee, thank you for the 
invitation to appear before you today on behalf of Human Genome 
Sciences.
    My name is William A. Haseltine, and I am Chairman and 
Chief Executive Officer of Human Genome Sciences, the company I 
founded in 1992. Prior to that, I was a professor at the Dana-
Farber Cancer Institute at Harvard Medical School and at the 
Harvard School of Public Health.
    Human Genome Sciences is a biopharmaceutical company 
located in Rockville, Maryland that discovers, develops, and 
manufactures gene-based drugs to treat and cure disease. 
Currently we have eight drugs in human trials. The primary 
focus of Human Genome Sciences has not been the development of 
drugs to protect against attack by biological and chemical 
weapons. Nevertheless, just over 17 months ago, we realized 
that our company had the technology and capability to develop 
an effective near-term countermeasure against one of the 
Nation's most immediate and serious bioterrorism threats, 
anthrax.
    As a company headquartered just outside Washington, D.C., 
we witnessed firsthand the potential devastating effects of the 
use of anthrax as a terrorist weapon in 2001. Thus, while using 
private funds, Human Genome Sciences developed a fully human 
monoclonal antibody drug we call ABthrax that specifically 
binds a key anthrax toxin, thereby preventing or treating the 
lethal effects of the bacteria. The drug fills a gap that 
exists in our existing defenses against an anthrax attack and 
can be used alone or in conjunction with current vaccines and 
therapies.
    In contrast to the anthrax vaccine, a single dose of 
ABthrax confers protection immediately. In contrast to 
antibiotics, the drug is effective against the lethal toxins 
released by the anthrax bacteria and may prevent and treat 
infections by antibiotic-resistant strains of anthrax, a 
subject you heard about earlier from the previous panel.
    Moreover, the drug can be used both to prevent as well as 
to treat those exposed to anthrax. For example, ABthrax may be 
used to protect rescuers entering a contaminated building, 
soldiers in an infected environment or exposed individuals 
after an attack.
    We have shown in animals that ABthrax is highly effective 
against many times the lethal dose of anthrax spores, and we 
are now ready to initiate human safety trials and to begin 
large-scale manufacture of the drug.
    However, to move forward, we need commitment from the 
Federal Government to purchase the drug. With the necessary 
funding, ABthrax could be available for emergency use as early 
as the end of next year. A properly designed and implemented 
BioShield would provide the mechanism for this to happen.
    Many companies have the capability and may be willing to 
develop new products to protect against attack by biological 
and chemical weapons. However, only a few firms such as Human 
Genome Sciences have actually already done so. The primary 
challenge we all face is the absence of a commercial market for 
such drugs. In most cases, the only viable market is the 
Federal Government and, potentially, the governments of our 
foreign allies.
    Project BioShield, which aims to harness public and private 
resources, is an innovative effort to develop defenses against 
bioterror. It could create such a market.
    While HES currently has--while HHS currently has the 
authority to purchase and stockpile drugs such as ABthrax, this 
specific framework created by Project BioShield would clarify 
and enhance that authority. A defined and transparent process 
with a clear path between threat evaluation, scientific 
validation and product procurement will go a long way toward 
giving companies the assurance they need to develop innovative 
new products to protect the public from chemical or biological 
attacks.
    With respect to BioShield, I would like to urge the Select 
Committee to consider three broad points. First, in order to be 
as effective as possible, the program must be flexible. The 
vast differences between biological pathogens is mirrored by 
the diversity of potential treatments.
    For example, small molecule drugs, such as Cipro, are 
manufactured by simple building blocks. In contrast, 
biologicals, such as ABthrax, are manufactured in genetically-
engineered living organisms and require a process that is 
expensive, complex and time-consuming.
    Thus, a one-size-fits-all procurement model will ultimately 
discourage the development of certain countermeasures. Project 
BioShield should provide not only for procurement of products 
that have already been developed, but also for late-stage 
development of promising drugs.
    Second, Project BioShield should be an equal partnership 
between the Federal Government and those companies willing to 
commit their expertise and resources to defeat weapons of 
bioterror. A critical element of such partnership is the mutual 
willingness to take and share measured risks. Thus, provisions 
in BioShield legislation that allocate contract risk in an 
unbalanced manner could have a chilling effect on 
collaboration.
    In particular, BioShield should provide for early funding 
of products in order to fairly allocate the risk between the 
parties.
    Similarly, in the absence of a commercial market for drugs 
such as ABthrax, a permanent and secure source of funding is 
vital to encourage private investment. Pharmaceuticals and 
biological drugs in particular have enormous development costs 
that can only be recouped well into their procurement phase. 
Without guaranteed funding, companies will face substantial 
risks in development of these products and will likely choose 
instead to pursue other products.
    The President's proposal for the creation of the funding 
authority will stimulate innovation, spur private investment 
and enable the government to purchase novel therapies without 
delay.
    This brings me to my final point. Timing is critical. 
Agencies responsible for administering Project BioShield should 
take a proactive approach to identifying, evaluating and 
procuring effective drugs. Near-term delays in evaluating and 
securing the production of viable countermeasures can 
disproportionately prolong the procurement of such drugs.
    In the case of ABthrax, Human Genome Sciences is ready to 
move the drug into production now, which will require 
significant investment to secure manufacturing facilities and 
to perfect the manufacturing process. Due to the demand for 
such specialized facilities, a delay of months now could 
postpone the delivery of a drug by over a year.
    I thank you for this opportunity to testify and look 
forward to addressing your questions.

            PREPARED STATEMENT OF WILLIAM A. HASELTINE, PHD

    Mr. Chairman, members of the Select Committee, thank you for the 
invitation to appear before you today on behalf of Human Genome 
Sciences, Inc. My name is Dr. William Haseltine, and I am Chairman and 
Chief Executive Officer of Human Genome Sciences, which I founded in 
1992. Prior to that, I was a professor at Dana-Farber Cancer Institute, 
Harvard Medical School and Harvard School of Public Health from 1976 to 
1993.
    Human Genome Sciences is a biopharmaceutical company located in 
Rockville, Maryland, that discovers, develops and manufactures gene-
based drugs to treat and cure disease. Currently, we have eight drugs 
in clinical trials and a broad pipeline of preclinical compounds. These 
include novel human protein and antibody drugs discovered through our 
genomics-based research, as well as new, improved, long-acting versions 
of existing proteins created using our albumin fusion technology.

    ABthrax
     The primary focus of Human Genome Sciences has not been the 
development of drugs to protect against attack by biological and 
chemical weapons. Nevertheless, just over seventeen months ago, we 
realized that our company had the technology and capability to develop 
an effective, near-term countermeasure against one of the nation's most 
immediate and serious bioterrorism threats--anthrax. As a company 
headquartered just outside Washington D.C., we witnessed first-hand the 
potentially devastating effects of the use of anthrax as a terrorist 
weapon in late 2001. Thus, using private funds, Human Genome Sciences 
developed a fully human monoclonal antibody drug--called ABthrax--that 
specifically binds to a key anthrax toxin, thereby preventing or 
treating the lethal effects of the bacteria.
    The drug can be given prior to or after exposure; and it could be 
used alone or in conjunction with the current vaccine and antibiotics. 
We have shown, in animals, that ABthrax is effective against high doses 
of anthrax, and are now ready to begin manufacturing of this product 
and to initiate human safety trials. In order to move forward, however, 
we need a commitment from the Federal Government to purchase the drug. 
With proper funding, this product could be available for emergency use 
as early as the end of next year. A properly designed and implemented 
BioShield would provide the mechanism for this to happen.
    Anthrax infection is caused by a spore-forming bacterium, Bacillus 
anthracis, which multiplies in the body and produces lethal toxins. 
Most anthrax fatalities are caused by the irreversible effects of the 
anthrax toxins. Research has shown that protective antigen is the key 
facilitator in the progression of anthrax infection at the cellular 
level.\1\ After protective antigen and the other anthrax toxins are 
produced by the bacteria, protective antigen binds to the anthrax toxin 
receptor on cell surfaces and forms a protein-receptor complex that 
makes it possible for the anthrax toxins to enter the cells. ABthrax 
blocks the binding of protective antigen to cell surfaces and prevents 
the anthrax toxins from entering and killing the cells.
---------------------------------------------------------------------------
    \1\ Inglesby TV, O'Toole T, Henderson DA, et al. Anthrax as a 
Biological Weapon, 2002: Updated recommendations for Management. JAMA 
May, 2002. 287(17): 2236-2252
---------------------------------------------------------------------------
    Currently, two options are available for the prevention or 
treatment of anthrax infections--a vaccine and antibiotics. Both are 
essential to dealing with anthrax, but both have limitations. The 
anthrax vaccine takes several weeks following the first doses before 
immunity is initially established. The vaccine also requires multiple 
injections over a period of eighteen months, in addition to annual 
boosters, to maintain its protective effect.\2\ Antibiotics are 
effective in killing anthrax bacteria, but are not effective against 
the anthrax toxins once those toxins have been released into the blood. 
Antibiotics also may not be effective against antibiotic-resistant 
strains of anthrax.\3\
---------------------------------------------------------------------------
    \2\ The FDA-approved anthrax vaccine, known as Anthrax Vaccine 
Absorbed (AVA), is only administered to persons at high risk of 
exposure, like U.S. military personnel, but it is not recommended for 
the general population. BioPort, Inc. Anthrax Vaccine Adsorbed 
(BIOTHRAX??) Product Insert. Jan. 31, 2002. An improved version of the 
vaccine is currently under development, but its efficacy and 
suitability for civilian use are unknown, and it is not projected to be 
available until 2005 at the earliest.
    \3\ Bioengineered strains of anthrax that are resistant to multiple 
antibiotics, including Ciprofloxacin, have already been produced both 
domestically and overseas, and can be readily made using ordinary 
laboratory procedures. Friedlander A.M. Anthrax: clinical features, 
pathogenesis, and potential biological warfare threat. In: Remington 
J.S., Schwartz M.N., eds. Current clinical topics infections diseases. 
Vol. 20. Malden, Mass.: Blackwell Science, 2000:335-49. Brook et al. In 
vitro resistance of Bacillus anthracis Sterne to doxycycline, 
macrolides, and quinolones. Intl. J. Antimicrob. Agents. 2001; 18:559-
562.
---------------------------------------------------------------------------
    In ABthrax, Human Genome Sciences has discovered a third defense 
against anthrax infections. In contrast to the anthrax vaccine, a 
single dose of ABthrax confers protection immediately following the 
rapid achievement of appropriate blood levels of the antibody. In 
contrast to antibiotics, ABthrax is effective against the lethal toxins 
released by anthrax bacteria. It may also prevent and treat infections 
by antibiotic-resistant strains of anthrax.
    Results from preclinical studies conducted to date demonstrate that 
a single dose of ABthrax administered prophylactically increases 
survival significantly in both rabbits and nonhuman primates exposed by 
inhaling many times the lethal dose of anthrax spores. In both models, 
we observed an absence of bacteria in the blood of all ABthrax-treated 
animals that survived. The rabbit and nonhuman primate models of 
inhalation anthrax are regarded as sufficient to demonstrate the 
efficacy of therapeutic and prophylactic agents in treating or 
preventing anthrax infection. A single dose of ABthrax also fully 
protected rats against a lethal challenge with the anthrax toxins. Full 
results of these studies will be disclosed in upcoming scientific 
meetings and publications as appropriate; they have already been shared 
with key government scientists.
    Based on our preclinical results to date, we believe that ABthrax 
has the potential to be used both prophylactically and therapeutically. 
For example, ABthrax may be used to protect rescuers entering a 
contaminated building, soldiers in an infected environment, or exposed 
individuals after an attack. In addition, post-exposure treatment may 
lessen the natural progression of anthrax infection and increase 
survival. Human Genome Sciences plans to file an Investigational New 
Drug application in the near future, seeking clearance from the U.S. 
Food and Drug Administration (FDA) to begin clinical trials to evaluate 
the safety, tolerability, and pharmacology of ABthrax in healthy 
adults.

    Project BioShield
     Many companies have the capability and are willing to develop new 
products to protect against attack by biological and chemical weapons 
or other dangerous pathogens. A few firms, such as Human Genome 
Sciences, have already done so. The primary challenge we all face is 
the absence of a commercial market for such drugs. In most cases, the 
only viable market is the Federal Government and, potentially, our 
foreign allies.
     Project BioShield, which aims to harness public and private 
resources in an innovative effort to develop defenses against 
bioterror, could potentially create such a market. While the Department 
of Health and Human Services currently has the authority to purchase 
and stockpile drugs such as ABthrax, the specific framework created by 
Project BioShield would clarify and enhance that authority. Indeed, 
overlapping jurisdictions between HHS and the Department of Homeland 
Security have complicated the picture, at least temporarily. A defined 
and transparent process--with a clear path between threat evaluation, 
scientific validation and product procurement--will go a long way 
toward giving companies the assurance they need to develop innovative 
new products to protect the public from chemical or biological attacks.
    With respect to Project BioShield, I would urge to Select Committee 
to consider three broad points:
    First, in order to be as effective as possible, the program must be 
flexible. President Bush recently stated that, ``Project BioShield will 
give our scientific leaders greater authority and flexibility in 
decisions that may affect our security.'' \4\ The vast differences 
between biological pathogens is mirrored by the diversity of potential 
treatments. For example, traditional small-molecule drugs, such as 
Ciprofloxacin, are manufactured from simple chemical building blocks or 
extracted from natural sources. In contrast, biologics such as ABthrax 
are manufactured in genetically engineered living organisms (bacteria 
or mammalian cells) and require a process that is more expensive, 
complex, and time consuming. The process of transitioning from an 
early-stage process to large-scale manufacture often can take anywhere 
from 12 to 16 months to complete. Thus, a (one size fits all( 
procurement model will ultimately discourage the development of certain 
countermeasures.\5\ Project BioShield should provide not only for 
procurement of products that have already been developed, but also for 
late-stage development of promising drugs.
---------------------------------------------------------------------------
    \4\ Remarks by President George W. Bush on the BioShield Initiaitve 
(Feb. 3, 2003), at http://www.whitehouse.gov/news/releses/2003/02/
20030203-13.html.
    \5\ Current versions of the Project BioShield authorizing 
legislation do not grant the Department of Health and Human Services 
the authority to engage in ``other transactions'' for R&D and prototype 
development, thereby limiting the agency's ability to engage in 
collaborative R&D arrangements. In contrast, the Department of Defense 
has such ``other transactions'' authority to make acquisitions through 
transactions other than contracts, grants or cooperative agreements, 
allowing the military to reap the benefits of research and development 
being done by non-defense contractors for commercial applications. The 
Department of Homeland Security was recently granted similar authority 
through the Homeland Security Act of 2002. See Pub. L. No. 107-296, 116 
Stat. 2135, Sec. 831 (2002)
---------------------------------------------------------------------------
    Second, Project BioShield should be an equal partnership between 
the Federal Government and those companies willing to commit their 
expertise and resources to defeat weapons of bioterror. As Secretary 
Tommy Thompson stated before the Select Committee's Subcommittee on 
Emergency Preparedness and Response:
    ``[Project BioShield] must be a public and private partnership. The 
pathway from idea to final product is complex. The best scientific 
approach to identifying the best drug and vaccine candidates must be 
based on laboratory studies. Testing must be performed in appropriate 
animal models to document safety and appropriate protective or 
treatment response, and to help determine dosing. Human studies must be 
carefully initiated to assure the basic safety of the product, and then 
appropriate dosing and response must be determined based on 
measurements of levels of drug or antibody predicted to have a 
protective effect. Steps must be taken to assure that the materials 
used to make the product and the final product itself can be 
manufactured safely, free of contaminants, and with reproducible and 
predictable purity, potency, and composition. Careful trials in humans, 
or where not possible, animal models, must be performed to show that 
the product is safe and effective for the types of populations who 
might receive it and against the methods of infection or exposure that 
could be encountered. All of these steps require careful planning, 
experience, and ongoing management and scientific evaluation. Costs to 
develop and manufacture high quality biological products and perform 
and evaluate the needed animal and human studies are high. Grants and 
contract mechanisms may not always be sufficient or attract the most 
experienced manufacturers. Manufacturing capacity for biological 
products, particularly for vaccines, is not substantial. For all these 
reasons, the best possible support and public-private partnerships and 
teamwork are essential.'' \6\
---------------------------------------------------------------------------
    \6\ Statement by HHS Secretary Tommy G. Thompson on Project 
BioShield before the Committee on Energy and Commerce Subcommittee on 
Health and Committee on Homeland Security Subcommittee on Emergency 
Preparedness and Response (Mar. 27, 2003), at http://www.hhs.gov/asl/
testify/t030327.html.
---------------------------------------------------------------------------
    A critical element of such a partnership is the mutual willingness 
to take and share measured risks. Thus, provisions in the BioShield 
legislation that allocate unfairly contract risk in a manner 
inconsistent with current Federal procurement policy and practice could 
have a chilling effect on collaboration with the private sector.\7\ In 
particular, BioShield should provide for early funding of products in 
order to fairly allocate the risk between the parties.
---------------------------------------------------------------------------
    \7\ Current versions of the Project BioShield authorizing 
legislation would preclude payment under a contract until delivery is 
made of a ``substantial portion'' of the product. In contrast, existing 
procurement laws and regulations provide for a variety of payment 
procedures that are negotiated by the parties based on the unique 
reqirements and risks of each contract. Similarly, the BioShield 
legislation permits the termination of a contract if a reasonable 
quantity of the product is not delivered within 3 years. In such a 
case, the contractor is not entitled to any payment.
---------------------------------------------------------------------------
    Similarly, in the absence of a commercial market for drugs such as 
ABthrax, a permanent and secure source of funding is vital to encourage 
private investment in the development of medical countermeasures. 
Pharmaceuticals--and biologic drugs in particular--have enormous 
development costs that can only be recouped well into the procurement 
phase. Without guaranteed funding, companies will face substantial risk 
in developing these products and will likely choose instead to pursue 
more commercially viable projects. The President's proposal for the 
creation of a permanent indefinite funding authority will stimulate 
innovation, spur private investment, and enable the government to 
purchase novel therapies without delay.
    This brings me to my final point: Timing is critical. Agencies 
responsible for administering Project BioShield should take a proactive 
approach to identifying, evaluating and procuring effective drugs. I 
applaud the Select Committee for acting expeditiously in considering 
the BioShield legislation and the Administration for making its 
enactment and implementation a priority. Near-term delays in evaluating 
and securing the production of viable countermeasures can 
disproportionately prolong the procurement such drugs. In the case of 
ABthrax, Human Genome Sciences is ready to move the drug into 
production, which will require significant investment to secure a 
manufacturing facility and perfect the manufacturing process. Due to 
the demand for such specialized facilities, a delay of months now could 
postpone delivery of the drug by over a year. We are also ready to 
begin clinical safety trials in humans, having already demonstrated the 
drug's efficacy.\8\ To date, ABthrax has been developed entirely with 
private funds, but in order to move forward the company needs a 
commitment from the Federal Government to develop, manufacture and 
purchase the drug. With sufficient government support, Human Genome 
Sciences can begin producing significant quantities of ABthrax by the 
end of next year.
---------------------------------------------------------------------------
    \8\ Under the Bioterrorism Act of 2002, the FDA specified the 
evidence required to demonstrate the efficacy of new drug and 
biological products used to counter biological agents, when traditional 
efficacy studies in humans are not feasible. Public Health Security And 
Bioterrorism Preparedness And Response Act Of 2002: Section 123. http:/
/www.fda.gov/oc/bioterrorism/PL107-188.html. According to the 
guidelines set forth in the Act, successful studies in relevant animal 
models will be considered sufficient to establish efficacy for 
licensure and marketing approval. ABthrax is effective in preventing 
anthrax infection in two relevant models, rabbits and nonhuman 
primates. According to the guidelines, human clinical trials will be 
required to establish safety, tolerability, and pharmacology, but not 
efficacy.

    Thank you again for this opportunity to testify and I look 
forward to answering your questions.
    Chairman Cox. Thank you.
    Mr. Pemberton, you are recognized for 5 minutes.

 STATEMENT OF MR. ALAN PEMBERTON, PHARMACEUTICAL RESEARCH AND 
                    MANUFACTURES OF AMERICA

    Mr. Pemberton. Thank you, Mr. Chairman. Good afternoon 
members of the committee.
    I am Alan Pemberton representing the Pharmaceutical 
Research and Manufacturers of America, PhRMA. I am a lawyer at 
the firm of Covington & Burling here in Washington, and I have 
been practicing government contracts law at the firm for 20 
years. I head our firm's government contracts practice.
    PhRMA appreciates the opportunity to share with this 
committee the views of the research-based pharmaceutical 
industry on the Project BioShield Initiative. We understand the 
seriousness of the threat of biological agents if used as 
weapons of war. At last count, PhRMA members were developing 
256 new medicines for infectious diseases. The potential 
delivered use of infectious agents against targeted populations 
raises grave concerns. Numerous government reports make clear 
that a large number of countermeasures to bioterror agents must 
be developed.
    PhRMA and its members are already working closely with 
Federal agencies and with academia on research about potential 
bioterror pathogens. A biosurveillance work group involving 
PhRMA, private companies, Federal agencies and the WHO is 
working to establish a global infectious disease surveillance 
network.
    The President's BioShield Initiative is an important step 
to promote the timely and efficient development of modern 
effective countermeasures. We generally support the three main 
components of the President's proposal. One, permanent 
indefinite funding authority for purchase of countermeasures. 
Two, new authority for NIH to speed promising R&D through 
streamlined hiring and procurement mechanisms. And three, new 
FDA emergency use authorization for promising treatments still 
under development.
    Any legislation to implement the President's initiative 
must take into account the significant technical and economic 
risks that will face companies that develop and produce 
bioterror countermeasures.
    In addition to the normal uncertainties with commercial R&D 
and production, biothreat countermeasure research involves 
additional challenges, working with dangerous pathogens without 
a full picture of the risk of disease and without being able to 
test for efficacy in the normal manner because there may be no 
patients who currently have the disease.
    Moreover, manufacturers that develop countermeasures may be 
exposed to potentially devastating product-liability suits. 
Private insurance could be unavailable or prohibitively 
expensive for such products.
    In light of the special risks and obstacles of bioterrorism 
research and production, PhRMA has developed several 
legislative recommendations.
    First, meaningful liability protection is essential. 
Provisions in current law, namely the SAFETY Act and the 
indemnification in Public Law 85-804, have too many 
uncertainties and may discourage participation by the industry. 
PhRMA supports liability protection modeled on either the Swine 
Flu legislation or the Homeland Security Act protections for 
smallpox vaccine manufacturers.
    Second, the procurement process should be flexible and 
reliable and more like the private market. We have a number of 
suggestions in this regard. One, the Secretary of HHS should be 
given flexible ``other transactions authority'' similar to that 
given to the Department of Defense. The Homeland Security Act 
already gives such authority to DHS for other R&D, but not to 
countermeasure R&D through HHS.
    Too, the legislation should recognize that contract pricing 
may take into account the actual cost of development, including 
costs incurred after contract execution.
    Three, the Secretary should be permitted to enter into 
single contracts for both R&D and production.
    Four, the Secretary should be able to purchase antibiotics 
and antiviral agents that have potential uses other than as 
countermeasures.
    Five, the Secretary should be authorized to include 
performance based or milestone payments in procurement 
contracts.
    Six, contracts should not be subject to termination for 
convenience or nondelivery within a fixed statutory period.
    Seven, contracts should not be limited to countermeasures 
that can be developed within a fixed period of 5 years. We have 
been discussing these provisions with members of the 
administration and Congress, and we are hopeful they will be 
included in the final legislation.
    Finally, within the model of competitive R&D, there may be 
instances where a narrowly tailored antitrust exemption would 
be appropriate in order to permit sharing of information among 
companies with careful government safeguards. America's 
pharmaceutical companies look forward to doing their part to 
protect the country against bioterror threats.
    Thank you for your time, and I look forward to answering 
your questions.

                PREPARED STATEMENT OF MR. ALAN PEMBERTON

    The Pharmaceutical Research and Manufacturers of America (PhRMA) 
appreciates the opportunity to share with this Committee the views of 
the research-based pharmaceutical industry on countering the 
bioterrorism threat and on the Project BioShield initiative.
    PhRMA represents the country's leading research-based 
pharmaceutical and biotechnology companies, which invested an estimated 
$32 billion in 2002 in developing new medicines to help and heal 
patients. PhRMA member companies join others who are convinced that 
biological weapons present a serious and increasing danger to people 
around the world. The pharmaceutical industry is dedicated to the 
development of innovative therapies and vaccines to counter unmet 
medical needs. Because a substantial proportion of the unmet medical 
need in the United States and worldwide is both directly and indirectly 
related to infectious diseases, we understand the seriousness of the 
threat of biological agents if used as weapons of war.
    The complexity of the problem of biological weapons is amply 
demonstrated by science's continuing difficulty in dealing with 
infectious agents as the cause of natural disease. The threat 
represented by infectious diseases--such as HIV, malaria, and 
tuberculosis--is real and all too well demonstrated by the deaths of 
over 5 million people annually from these three diseases alone. All 
together, infectious diseases claim more than 100,000 American lives 
each year and cost more than $30 billion annually in direct treatment 
expenses alone. At last count, PhRMA member companies were developing 
256 new medicines to treat or prevent infectious diseases--medicines 
which include brand new classes of antibiotics, new vaccines (including 
edible vaccines), antifungals, antivirals, and immune enhancers.
    Particularly in light of continuing difficulties in infectious 
agent research, the potential use of these agents in intentional 
concentrated exposures of targeted populations raises grave concerns. 
Reports from the National Academy of Sciences, the NIH Blue Ribbon 
Panel for Biodefense Research, and the US Defense Science Board make 
clear that a large number of countermeasures to biothreats must be 
developed. Indeed, existing medicines are not sufficient to combat the 
biological weapons already developed. Needed countermeasures will 
include vaccines, therapeutics, and diagnostics.
    The basic science research required for countermeasure development 
has already been stimulated by funds appropriated to various Federal 
agencies including the Department of Health and Human Services and the 
Department of Defense. It is widely recognized, however, that a 
cooperative and collaborative research and development effort, which 
engages industry, government, and academia, will be essential to the 
development of a complete arsenal of countermeasures against 
bioterrorism agents.
    PhRMA and its member companies are already working closely with 
Federal agencies and academia to move forward with this research. For 
example, PhRMA is working with CDC, DoD, NIH, FDA, and academia to 
support in vitro studies of five pathogens--B. anthracis (anthrax), Y. 
pestis (plague), Brucella spp. (brucellosis), F. tularensis 
(tularemia), and Burkholderia Spp. (Glanders)--for testing of existing 
antibiotics. Several companies are working with the National Institute 
of Allergy and Infectious Diseases (NIAID), the Department of Defense, 
and the FDA to test existing antibiotics against plague, and PhRMA will 
cosponsor a workshop with interested parties to determine how best to 
expand labeling of other existing antibiotics that may be effective 
against the top biothreat agents. PhRMA committees continue to work 
with FDA to clarify and improve existing regulations that pertain to 
biothreat countermeasure research, such as the ``Spore Formers Rule,'' 
21 C.F.R. Part 610, which imposes requirements on use of facilities or 
equipment that have been used with spore forming organisms, and the 
``Animal Rule,'' 21 C.F.R. Sec. 314.610, which allows efficacy testing 
in animals where testing in humans would be impossible or unethical. We 
have prepared educational materials for the public on anthrax, 
smallpox, and vaccinia, and we are working on materials addressing 
tularemia and plague. Dr. Gail Cassell, PhRMA's Chief Scientific 
Officer for Emergency Preparedness and Vice President, Scientific 
Affairs at Eli Lilly & Co., sits on Secretary Thompson's Advisory 
Council on Public Health Preparedness. A Biosurveillance workgroup 
involving PhRMA, other private sector companies (TIGR, IBM, and Roche 
Diagnostics), Federal agencies (CDC, DoD, and NIH), and the World 
Health Organization is working to establish a global infectious disease 
electronic surveillance network.
    Project BioShield, announced by President Bush in his 2003 State of 
the Union address, is an important step forward in the effort to ensure 
the development of modern, effective countermeasures and to ensure that 
these products become available in a timely and efficient manner. PhRMA 
generally supports the three main components of the President's 
proposal: first, the creation of a permanent indefinite funding 
authority to spur the development of medicines and vaccines by the 
private sector; second, new authority for NIH to speed promising R&D 
through streamlined hiring and procurement mechanisms and increased 
flexibility to award contracts and grants; and third, new FDA emergency 
use authorization for promising treatments still under development.
    Any legislation to implement the President's initiative must--if it 
is to be successful--take into account the significant scientific, 
legal, and economic impediments to the research and development of 
biodefense products.
    Research and development into new medicines is itself a lengthy, 
risky, and expensive endeavor. Bringing a drug from concept to market 
takes 10 to 15 years. The average cost to develop a new drug has grown 
from $138 million in 1975 to $802 million in 2000. The risks involved 
in the new drug development and approval process are substantial. Of 
every 5000 compounds screened, only 250 enter preclinical testing, and 
of every 250 drugs that enter preclinical testing, only one is approved 
by FDA. Only 3 of 10 marketed drugs produce revenues that match or 
exceed average R&D costs.
    Moreover, research into biothreat countermeasures involves many 
challenges above and beyond those encountered in non-biodefense R&D. 
For example, biodefense R&D requires working with dangerous pathogens 
in highly specialized facilities, and developing countermeasures 
without a full picture of the risk of disease (because we cannot see 
into the mind of the terrorist) or the benefit of the treatment 
(because there are often no patients with the disease, which prevents 
clinical testing for efficacy).
    The decision to divert resources from the research and development 
of medicines for serious illnesses like heart disease also can be 
financially risky, especially when a countermeasure may never be 
purchased or used, and especially for companies with few products in 
the pipeline. (Diverting resources from research and development of 
these other medicines will also affect the future availability of 
treatments and cures for patients with other serious health 
conditions--especially since less than ten percent of all drugs that 
enter testing ever demonstrate sufficient safety and acceptable 
efficacy.)
    Finally, manufacturers that develop countermeasures may be exposed 
to devastating product-liability suits. Some of these would arise out 
of adverse events that are unavoidable given the nature of the 
products, and some could arise simply because the products were made 
available without the usual battery of clinical trials required for 
FDA-approved products. Private insurance could be unavailable or 
prohibitively expensive for such products.
    In light of the special obstacles to research and development in 
the bioterrorism context, PhRMA has developed recommendations for any 
legislation that would implement Project BioShield.
    First, PhRMA believes that meaningful liability protection is an 
essential component of any legislation to encourage the development of 
bioterrorism countermeasures. Provisions in current law--namely the 
SAFETY Act, 6 U.S.C. Sec. Sec. 441-444, and the indemnification 
available under Public Law 85-804--are associated with too many 
uncertainties, limitations, and conditions to make them effective in 
this unique context. Accordingly, PhRMA supports liability protection 
modeled on either the Swine Flu legislation or section 304 of the 
Homeland Security Act.
    Second, in order to engage the private sector most efficiently and 
effectively in this research, the procurement process must be more 
flexible and reliable, and it must more closely resemble the private 
market. We have a number of suggestions in this regard, the most 
significant of which follow: (1) the Secretary of Health and Human 
Services should be given flexible ``other transactions authority'' 
similar to that given to the Department of Defense, particularly the 
Defense Advanced Research Projects Agency, under 10 U.S.C. Sec. 2371; 
(2) the legislation should provide that procurement contracts may 
recognize that pricing should take into account the actual cost of 
development including costs incurred after contract execution; (3) it 
should expressly provide that the Secretary may enter into single 
contracts for both R&D and production; (4) it should permit the 
Secretary to purchase antibiotics and antiviral agents that have 
potential uses other than as countermeasures; (5) the Secretary should 
be authorized to include performance-based (milestone) payments in 
procurement contracts--rather than limited to repayable ``advance 
payments'' and payment conditioned on ``substantial delivery''; (6) 
contracts should not be subject to termination at the convenience of 
the government or for non-delivery within a fixed statutory period; and 
(7) contracts should not be limited to countermeasures that can be 
developed within five years. We have been discussing these provisions 
with members of the Administration and members of Congress, and we look 
forward to continuing these discussions so as to work toward the 
inclusion of these provisions in the legislation.
    Finally, although the overall model of bioterrorism countermeasure 
research and development should build on competition among private 
companies, the need for urgent development of medicines may require the 
sharing of information and cooperation among companies, which can raise 
antitrust concerns PhRMA therefore believes that it would be 
appropriate to provide a narrowly tailored antitrust exemption to 
facilitate certain meetings and activities, under careful governmental 
safeguards.
    A strong commitment from all parties will be necessary in the 
months and years to come, as our nation seeks to protect itself against 
the terrible threats of biowarfare and bioterrorism. America's 
pharmaceutical companies look forward to doing our part.
    We thank you for your time and look forward to answering your 
questions.

    Chairman Cox. Thank you very much. Mr. Rapoport, you have 5 
minutes.

 STATEMENT OF MR. FRANK M. RAPOPORT, ESQUIRE PARTNER, McKENNA 
                      LONG & ALDRIDGE LLP

    Mr. Rapoport. Mr. Chairman and members of the committee, it 
is an honor for me to testify with regard to Project BioShield, 
which we think is a superb start. We want to, however, offer 
four ideas if you are truly serious about jump-starting the 
creation of a new industry in America called the biodefense 
industry.
    I appear before you today having represented 35 
pharmaceutical companies in their dealings with the VA and the 
DOD, the largest hospital system in the world. I have also had 
the privilege of working on both the smallpox vaccine 
procurement out of CDC pre-9/11 based on Ken Alibek's 
information that we had pre-9/11, and more recently on NIH's 
anthrax procurement.
    I am not going to be critical of NIH, but I want to point 
out that you must give procurement officials additional 
flexibility in trying to build this Department of Defense and 
Homeland Security biodefense industry. My four ideas that I 
offer are similar to my colleague next door who just gave you 
two or three of them, but I will just run through them quickly.
    I am the president of a drug company. I am not interested 
in accepting R&D work from the Federal Government. I am not 
Lockheed, I am not Boeing. I don't want my books audited. I 
would rather do research to come up with the next Viagra or an 
antidepressant. Yes, I am patriotic, but I have shareholders. I 
will do business with you as the president of a large 
pharmaceutical company if you promise me if we build it, they 
come. If I am successful on the R&D under the same contract, 
and that is not what is crystal clear under BioShield, I want 
to be the one who does the production. I don't want to go 
through with what just happened in Dr. Fauci's anthrax 
procurement where you had the winning bidders were two very 
fine companies, but are not the companies that are one of the 
four large vaccine manufacturers. Why? Because the R&D was all 
that was offered in that contract. There was no production 
contract. In fact, any minute now the bid will come out of NIH 
for the production contract. It is going to be massive chaos 
and confusion about who owns the intellectual property under 
the original contract, whether the two contractors working on 
their own nickel get the R&D work and the proprietary data.
    Second, in the same contract, you must allow the Secretary 
to make clear that corporate America has the worldwide 
intellectual property rights. I am going to share with you a 
story you have probably not heard elsewhere.
    In Secretary Thompson's smallpox procurement, it was won by 
Acambis. Up to 250 million doses were allowed to be produced. 
There was an option clause for another 250 million doses. We 
asked the Secretary's people who is that for because there are 
only 300 million people in America and the answer we thought we 
got back was that the President wants to give away the vaccine 
that is developed under this contract to Tony Blair and his 
friends.
    That may be a policy decision, but I am the president of 
the drug company, and I say, you have just destroyed my 
worldwide rights. I want to do business with you, I am willing 
to share my R&D costs, I don't want you to fund it all, as long 
as you give me the production contract, but don't negate my 
worldwide markets. I want to sell this same vaccine to the 
Japanese, the French and to the Brits.
    We need to have a clear statement from Congress that the 
intellectual property rights will be respected. I don't have 
time to go through each, but that does not do it because right 
now the government could take the intellectual property rights 
of any of the contractors working under the cost contracts at 
NIH and give them to Dr. Haseltine's company. I would argue 
that should not be done, but there must be clarity.
    My second point, and I will echo the term ``other 
transactions,'' which Mr. Pemberton referred to is a fancy way 
of saying don't make me adhere to all of the Federal 
acquisition regulations. Do a commercial deal with me, and then 
I will come forward and work on your behalf.
    The Predator, which is an unmanned vehicle used in 
Afghanistan, was done on ``other transactions.''
    Third, the Safety Act must be amended so that it applies to 
anything under BioShield. The protection the contractors get 
under the Safety Act is only triggered some say in the event of 
a terrorist attack. Dr. Haseltine is working on anthrax now. He 
should be able to have the protection of the Safety Act before 
that time.
    Finally, I will leave with you one idea if you are clearly 
serious about jump-starting this industry. There is a law 
called the Defense Production Act. It is a very unusual law but 
allows the Secretary of the DOD to convene a meeting and put 
all of the bidders in one room, forget antitrust issues, and it 
can make allocations of market share and discussions between 
Merck and Human Genome. You can dispense with the bidding 
process and you jump-start the industry by using the Defense 
Production Act.
    I will leave with you, if you care to have it in the 
record, an article which spells out how that is done.
    [A copy of the article ``Smallpox as a Biological Weapon'', 
JAMA. June 9, 1999: Vol. 281. No. 22:, and the article ``Plague 
as a Biological Wapon'', JAMA, May 3, 2000, Vol. 283, No. 17, 
2281, are maintained in the Committee files.]
    Mr. Rapoport. Mr. Chairman, thank you very much for your 
time.

              PREPARED STATEMENT OF MR. FRANK M. RAPOPORT

    Mr. Chairman and members of the Committee, it is an honor for me to 
testify before you today regarding Project BioShield and how to jump-
start the creation of a sustainable biodefense industry. Mr. Chairman, 
I applaud your immediate consideration of the steps necessary to 
incentivize the pharmaceutical and biotech industries to join as 
partners with the Department of Health and Human Services, the 
Department of Homeland Security and the Department of Defense to combat 
the evolving nature of agents of bioterrorism.
    I appear before you today as a private attorney who has represented 
over thirty pharmaceuticals and biotechs in their contracting with the 
Department of Veterans Affairs, the Department of Defense, the Public 
Health Service, as well as directly representing companies in their 
individual bids to create a smallpox vaccine pre-9/11 from the CDC, a 
post-9/11 smallpox procurement by the Center for Disease Control and a 
recombinant protective antigen for anthrax issued by the National 
Institutes of Health.
    Based on my view of how government agencies have operated in these 
procurements, as well as my intimate knowledge of what it will take to 
incentivize those to participate in a biodefense industry, I offer, 
with supporting analysis, four ideas for your immediate consideration.
    1. Agency procurement officials should create for each needed drug 
and diagnostic a Master Agreement between a successful bidder(s) and 
HHS which identifies clearly who will pay or share in the research 
development phase of the agreement, clarify there is a linkage between 
successful R&D and a guaranteed production contract within the same 
Master Agreement, set forth the allocation of intellectual property 
rights including a private company's unfettered right to commercialize 
the product for worldwide sales, and that the Master Agreement will 
recognize payments sufficient to amortize investment, which would 
include return on capital and return of capital, particularly in the 
event of early termination should the needs of the agency be directed 
elsewhere due to changes in bioterror threats.
    2. The procurement vehicle identified above as the Master Agreement 
should allow a Secretary to depart from the very stiff and burdensome 
Federal Acquisition Regulations which govern contracts, grants and 
cooperative agreements, and instead embrace ``Other Transactions'' 
which provide for commercial-like terms and conditions which are more 
likely to attract private industry, yet can also provide for protection 
of the Federal Treasury.
    3. Provide a clear statement that participating industry will be 
protected from product liability law suits by invocation of Public Law 
85-804 or direct statutory immunization. Since it appears that the 
Safety Act--which embraces the Government Contractor Defense--may be 
interpreted to apply on in the event of a terrorist attack--there 
should be a clarification that it, as well as Public Law 85-804, 
applies during the development and production phase of any counter 
measure under the Master Agreement.
    4. Consider jump-starting the biodefense industry by seizing upon 
the express authority under the Defense Production Act (``DPA'') of 
1950, as amended to convene a meeting of all relevant companies 
competing for government contracts requesting the development and 
production of certain vaccines and counter measures for national 
defense purposes. Under such authority, the government may provide 
immunity from potential anti-trust liability to a company that 
participates in a process, the objective of which is to address issues 
of common concern to industry and the government. The government may, 
in exercising this authority, require a competitor to act in 
collaboration or share information that otherwise that could not be 
shared due to anti-trust laws and regulations.
    I expand upon these four points below:
    I. Provide for Express Authority to Enter into a Single Agreement 
for Research, Development and Production, A/K/A, The Master Agreement
    We support strongly the need to provide for the possibility of the 
Federal Government entering into agreements (including contracts, 
grants, cooperative agreements, and ``Other Transactions,'') that 
permit a biodefense contractor to engage in research and development 
with the assurance of production under a single agreement. While this 
appears to be the intention of the BioShield legislation, the proposed 
legislation does not make this authority crystal clear. It is essential 
there exists a certainty that satisfactory completion of research and 
development will lead to a manufacturing agreement.
    It is also my experience in order to stimulate private investment 
and biodefense counter measure research, development and production, 
private investors must be assured that they have the potential to 
receive a return on their investment, both in the price of the end 
product and in the event the government elects to terminate the 
agreement for its convenience. The proposed BioShield legislation does 
not account for the implications of using private investment to finance 
research, development, and production of biomedical counter measures.
    I suggest language be included in the proposed legislation that 
permits the Secretary of Health and Human Services to enter into 
agreements that allow the end price of any biomedical counter measure 
to reflect the cost of private financing, including cost of capital and 
return on equity.
    In addition, under the current Federal Acquisition Regulations 
(``FAR'') when a contract is terminated for the convenience of the 
government, contractors may recover the cost of performance through the 
date of termination plus a reasonable profit on those costs in addition 
to settlement expenses associated with ceasing performance, negotiating 
termination liability, and disposing of equipment and materials. The 
terms vary slightly depending upon the specific language of the 
(Termination for Convenience( Clause used in the contract. However, one 
of the costs the FAR expressly prohibits--and one which very likely 
will apply to Project BioShield's contract--is capital financial cost.
    Specifically, the program envisioned by the proposed BioShield 
legislation likely will be awarded via competitive negotiations. In 
such instances, the agency, here, HHS, negotiates proposals with one or 
more contractors. In such cases, the FAR expressly prohibits 
contractors from recovering as part of their contract price interest on 
borrowings (however represented) as well as cost of financing and 
refinance capital. See, FAR 31.205-20. Therefore, to recover return on 
equity costs and other capital financing arrangements, the existing 
regulations must be overridden.
    In order to facilitate this change, I suggest language be included 
in the proposed legislation that requires the Secretary of Health and 
Human Services to include within an agreement a termination clause that 
requires costs of capital and return on equity to be included in any 
settlement in any event the government terminates the agreement for 
convenience.
    Additionally, I propose that any Master Agreement \1\ entered into 
between the government and the industry allocate clearly intellectual 
property rights. There is currently a problem, as discussed below, by 
reconciling the Bayh-Dole law with how the agencies have conducted 
their procurements for smallpox and anthrax.
---------------------------------------------------------------------------
    \1\ There is precedent for the term Master Agreement as by federal 
law pharmaceuticals which manufacture branded drugs enter into a Master 
Agreement with the Secretary of the VA to be eligible to participate in 
Medicaid and sales to the VA. 38 U.S.C. 8126.
---------------------------------------------------------------------------
    In particular, the Bayh-Dole Act, in general, permits election by 
contractors to title of intellectual property made in performing 
federally funded R&D contracts. The government gets at a minimum a 
royalty free use called ``government purpose license rights.'' The 
contractor's elections must include notification to the government of 
the invention, pursuant of the patent rights, or else the government 
has the right to march in and take over those rights or give them to a 
third-party. In a nutshell, the problem is that even in the event of a 
timely and successful election, the government's retention of 
government purpose license rights arguably allows the government to use 
these rights to meet ``certain health and safety needs.'' It is unclear 
under this standard whether the intellectual property developed by one 
contract or could be given by the government to another for future R&D 
and production purposes in the event of a so-called health emergency.
    An example of this confusion is found in both the recent smallpox 
and anthrax procurements. In the smallpox procurement for one hundred 
and fifty million doses, the successful bidder was to develop a new 
vaccine on a fixed-price per dose \2\ It is unclear who will own the 
intellectual property rights for the newly developed vaccine.
---------------------------------------------------------------------------
    \2\ I note that fixed price development contracting has long been 
prohibited by Congress for DOD weapon system contacting and it appears 
the lesson has not been learned here.
---------------------------------------------------------------------------
    Likewise, the anthrax procurement recently awarded by NIH was only 
for R&D (in two phases) and not production. Indeed, the solicitation 
issued April 22, 2002 provided that in the first phase (Phase One) (up 
to twelve months), the successful contractor was to develop a pilot lot 
and two thousand doses, as well as protocols for Phase One and Phase 
Two clinical trials. The contractor was also to produce a plan to 
produce twenty-five million doses. The contractors were to be notified 
that on or before the twelve-month period, HHS would convene a blue 
ribbon panel to select one or more of the Phase One contractors to be 
permitted to complete with government money clinical studies over the 
next six months, i.e., Phase Two. This was then to be an overall 
eighteen month development contract finishing in March 2004, eighteen 
months from the award date of September 2002.
    Most interestingly, the RFP also stated that the production 
contract--not related to the R&D contract--would be assembled and put 
out for a bid by May 2003. It is certainly unclear how any intellectual 
property being developed over the eighteen month period from the award 
date of September 2002 through March 2004 will be allocated between the 
R&D contractor and those bidders interested in a production contract 
under a solicitation issued May 2003.
    Based on the foregoing, the various Secretary should have the 
authority to ``link'' R&D with production so that there is certainty 
through this process. I am not suggesting--as discussed below under 
``Other Transactions''--that the government be the sole financier of 
the R&D phase, but instead announce clearly that the development of a 
successful counter measure will vest the contractor a long-term 
production contract (absent a change in ``threat'' ``when a termination 
for convenience is appropriate). Indeed, the actual price of the items 
to be manufactured can be determined at the end of the R&D phase by 
negotiation in accordance with established government contracts 
procedures and other guidance negotiated in the initial contract award.
    II. OTHER TRANSACTIONS
    The term ``other transactions'' comes from legislation at 10 U.S.C. 
2371 where Congress authorized DOD to enter into to ``transactions... 
other than contracts, cooperative agreements and grants'' to fund 
research and development efforts. It also covers efforts to develop 
``prototype'' weapon systems under more recent legislation, namely 
Section 845 of the 1994 DOD authorization Act. Other transactions are 
viewed as being enormously helpful in expanding the field of companies 
that are willing to perform government contracts, specifically those 
companies that are predominately commercial like pharmaceuticals and 
biotech companies which are otherwise not willing to sign-up to the 
government's requirements regarding intellectual property, cost 
accounting, pricing and other circumstances which they consider 
unacceptable to the conduct for their business.
    Under 10 U.S.C. 2371, the Department of Defense will pay no more 
than fifty percent of the total R&D costs, and this guideline could be 
used to allocate the responsibility for R&D costs under the first phase 
of the Master Agreement. As stated previously, after the R&D phase, the 
government and industry can enter into a price determination for the 
cost of each production unit.
    The added benefits of ``other transactions'' are that they depart 
from the very stiff Federal acquisition regulations which afford the 
government with almost unfettered discretion to terminate contracts, 
audit costs, eliminate foreign places of production, gain strong IP 
rights, and provide no indemnification. Under other transactions, 
several of these authorities could be minimized yet still give the 
government over the procurement. In particular, rather than terminating 
a contractor for default should it miss one deadline or determine the 
scope of the work is commercially impossible, the parties can agree to 
a termination at will that would allocate responsibility for costs 
incurred to date; also, the government can under other transactions 
minimize the amount of audit requiring review of contractors books and 
records; likewise, there could be a more clear allocation of 
intellectual property and patent rights than as provided under the 
Bayh-Dole Act now; and finally, Public Law 85-804 indemnification and 
coverage is clearly permitted under other transactions.
    III. PROVIDE FOR THE AUTHORITY TO INDEMNIFY AND/OR LIMIT THE EXTENT 
OF LIABILITY FOR ANY CONTRACTOR ENGAGING IN RESEARCH, DEVELOPMENT AND 
PRODUCTION IN BIO-DEFENSE COUNTERMEASURES
    The issue of the potential liability for any entity that provides, 
or performs research and development related to, biodefense 
countermeasures absolutely must be addressed in order to stimulate 
private sector interest in entering into agreements for such 
countermeasures. My experience was that the absence of liability 
protection was a major obstacle in the recent procurement for NIH for 
the development for the next generation anthrax vaccine, was a major 
obstacle in the pre-9/11 first CDC procurement for forty million doses 
of smallpox vaccine where the winning contractor was required to carry 
its own insurance, and continues to be a major hurdle today. 
Contractors will try to obtain commercial insurance, but the practical 
reality today is that it is unlikely to be available for these projects 
given their nature. The proposed legislation is silent with respect to 
addressing liability.
    Both the Secretary of Health and Human Services and the Secretary 
of Homeland Security currently have the authority to provide for 
Federal indemnity to private entities engaging in research, 
development, and production of biomedical countermeasures under Public 
Law 85-804. However, use of such authorities are extremely rare. It is 
important to note that President Bush recently revised Executive Order 
10, 789 governing use of the authority to provide for indemnity under 
Public Law 85-804. These revisions add two additional levels of 
coordination and approval for all agencies other than DOD before 
indemnification may be given to a contractor. I am also concerned that 
the use of the government contractor defense under the Safety Act only 
applies in the event of a terrorist act, and could be read to not apply 
to the development of vaccines and counter measures after 9/11 or until 
there is another similar incident.
    Finally, while HHS is currently exercising its authority under 
Public Law 85-804 in very limited circumstances, it is my understanding 
the agency is not providing indemnity until a contract is awarded--and 
will not guarantee that the indemnity is forth coming as a part of the 
award process.
    IV. USE THE DEFENSE PRODUCTION ACT OF 1950 TO CONVENE A MEETING OF 
INTERESTED BIDDERS TO CONSIDER COLLABORATION AND ALLOCATION OF 
PROCUREMENT DOLLARS
    The DPA provides the government with authority to permit companies 
to enter into certain agreements that could include potential 
competitors and would have the effect of altering competitive behavior 
for the development of vaccines and countermeasures--activities which 
would otherwise violate anti-trust laws. Under the DPA, the government 
may convene a meeting with or some of the nation's vaccine and 
countermeasure manufacturers to discuss the government's procurement 
requirements. If the DPA statutory prescriptions are satisfied, the 
government's valid exercise of its DPA authority would provide complete 
protection against the operation of anti-trust laws for the private--
entity participants in this process. Given the fifty or more 
bioterrorist agents identified by the Defense Science Board, it seems 
reasonable to consider using the Defense Production Act to stimulate 
and accelerate interest and investment by the new biodefense 
contractor.
    Mr. Chairman, thank you for the opportunity to testify on this 
tremendously important issue. I will be pleased to respond to any 
questions from members of the Committee.

    Chairman Cox. Thank you. Mr. Sutcliffe, thank you for your 
written testimony. You have 5 minutes to summarize it.

 STATEMENT OF MR. ROBERT J. SUTCLIFFE, DIRECTOR, PRESIDENT AND 
    CHIEF EXECUTIVE OFFICER, DIGITAL GENE TECHNOLOGIES, INC.

    Mr. Sutcliffe. Mr. Chairman, it is an honor for Digital 
Gene Technologies to be included on the panel, and to represent 
the hundreds of small, intensely science-driven biotech 
companies that are exploring the lessons which have been taught 
by the human genome.
    It is also great to be on a panel with my friend Bill 
Haseltine, who has made a success of such a company but, more 
than that, was actually present at the creation of an entire 
scientific era that we now call genomics. And I think his 
insights from what it took to get from here to there are useful 
in trying to craft something that will take us through the next 
phase.
    I have submitted my testimony and I come to this issue with 
a somewhat different background than most CEOs of biotech 
companies. I was a venture capital and corporate lawyer. Under 
the umbrella of no good deed going unpunished, I ended up 
running a client, and I think I have had an opportunity to look 
at the science from both ends.
    I think the previous panel made some excellent points about 
the breadth and diversity of the risk that we face. They also 
made a point about the need for speed in responding. I think a 
number of the questions from the committee made it clear that 
the speed we are talking about on the customer side is a lot 
quicker than the speed we are talking about in developing 
particular antidotes to particular threats.
    I think it also was clear from that discussion that a 
problem exists in the discussion about the customer and the 
market. It is clear that in connection with a number of these 
potential countermeasures the government is the customer in the 
future. But I don't think that means that there is any reason 
to suppose the government would not be a good customer. Our 
military may well be the user of some of these antidotes, and 
in the public health context a lot of them will only be used in 
situations that we would hope to prepare for but not need.
    At the same time the market for some of the technologies 
that can answer this need can be very great, and I think it 
would be creating a perverse incentive for BioShield to 
immediately disqualify technologies that might actually have 
commercial promise as well as an answer for the government's 
own need.
    In my submitted testimony, I actually make observations 
about three standards that we would hope the committee would 
apply in looking at something like BioShield and in biodefense 
generally.
    The first relates to scientific merit. I think that you 
have heard an example today from Dr. Haseltine of a product 
that may well be both excellent science and an answer to 
something we have long needed. He and I have both, however, 
read a number of reports about failed biotech projects that are 
now being recast as bioterrorism defense projects, and as much 
as the need is great, we need to maintain the high scientific 
standards to make sure that we get an answer the public will 
accept.
    Second, flexibility on two levels is important: Flexibility 
in the science that is pursued, and flexibility in the funding. 
Dr. Fauci talked about the idea that the research element of 
biodefense is being taken care of as part of BioShield, but 
also as part of NIH's typical assignment.
    Both Dr. Haseltine's solution and some of the research we 
have done at DGT to find new molecules that may more quickly 
and more accurately deliver pathogens and antigens to the 
immune system for response will come from basic research 
approaches rather than the development of specific antidotes to 
the known threats.
    If we are going to get a handle on the threats that we 
can't predict exactly, it is going to have to be through the 
application of the science that particularly the biotech 
industry and the pharmaceutical industry have invested in over 
time.
    I would suggest that the flexibility that is needed is 
flexibility in the kinds of solutions. Because we can only talk 
about five major known threats out of several hundred, it may 
well make greater sense, or at least equal sense, to look 
closely at the issue of delivery, absorption, how immunity is 
actually conferred on the recipient of a threat, and work on 
that angle such that our solutions and the results of the very 
considerable expenditure you are considering is something that 
can be used again and again to protect the patient rather than 
necessarily launch another development program.
    Finally, accountability. I think that the original version 
of the BioShield proposal that was submitted suggests an 
opportunity to buy into a threat that we know, and yet what 
most of us are concerned about are the threats that we can't 
predict and can't know. There has been some good testimony 
about the potential for modification and mutation of the very 
agents we are worried about. So whatever program is adopted 
ought to continually reassess both the threat that we face as 
citizens and the response that industry is providing. I think 
the government stepping up to take its share of the market 
responsibility as customer will create any number of 
opportunities for the venture industry and our normal free 
capital markets to fund solutions as long as we are flexible 
and insist on scientific merit and keep both sides accountable.
    Thank you, Mr. Chairman.

             PREPARED STATEMENT OF MR. ROBERT J. SUTCLIFFE

    It is an honor for Digital Gene Technologies to be included on the 
panel today and in so doing to represent the hundreds of small, 
intensely science-driven biotechnology companies that are pursuing the 
newly-revealed lessons of the human genome in search of solutions to 
unmet medical needs.
    It is also a pleasure to be in the distinguished company 
represented by my colleagues on this panel, including Dr. Bill 
Haseltine of Human Genome Sciences, who made a success of just such a 
science-driven company but also brings the insights of a researcher who 
was as they say (present at the creation(, and for whom the genomic 
science we take for granted today was just and truly a (vision(; I 
suspect his reflections on the blinding lights and blind alleys of that 
30 year journey will be helpful to this committee's inquiry and to the 
proper structuring of a BioShield initiative.
    The proposed BioShield program is an important and timely 
initiative, and I know each ofus on the panel approaches your inquiry 
as fellow Americans who share your alarm at the range of risks posed by 
the biological component of modern terrorism. As citizens it is our 
obligation to acknowledge those risks and also our much-less-than-
perfect capacity to know their true dimension--let alone to answer 
them.
    Only second do we approach your inquiry as industry participants 
and then--I believe--only to help determine which answers our industry 
can provide or contribute to, not which initiatives or decisions will 
benefit or burden some or all of us.
    Indeed, our company, Digital Gene Technologies, approaches the 
issue of the BioShield much like other Americans do: asking what we can 
do to help, based on what we know and do best. We are not a 
``biodefense'' company nor do we focus our research specifically on 
``countermeasures''. Our research platform has been developed and 
deployed over the past seven years to identify and characterize 
particular genes and groups of genes that explain the source and 
progress of human disease and suggest target points and pathways for 
medical intervention and cure. Our TOGA technology is unique in its 
capacity to simultaneously track all genes active in a cell and assess 
even the most subtle changes in their expression that might mark the 
onset of an affliction or a promising point for protective 
intervention.
    In the course of our research, we have identified a number of 
previously unrecognized genes whose special function appears to be the 
constant surveillance of the human gut, lungs and nose for novel 
antigens--and the rapid delivery of those antigens to the immune 
systems for assessment and response.
    These molecules, central to the human immune response mechanism, 
now may offer promising roles as direct transporters of new vaccines 
directly to the immune system, offering potential for more more robust 
and more reliable protections. As such, they may offer one--but only 
one of our future lines of defense to biological assault.
    Interestingly, while these discoveries derive from research funded 
exclusively by a commercial partner with a commercial motive: the 
development of better delivery systems for oral and nasally 
administrable vaccines, the technology that made these discoveries 
possible--DGT's TOGA--Platform invented at The Scripps Research 
Institute in La Jolla--is the product of academic research funded by 
grants from the NIH, with additional basic research support from 
industry. Without both sources of funding, the technology--and these 
promising discoveries--might not exist.
    Today, as you consider components of a national effort to combat 
bioterror, I'd like to suggest that three standards be scrupulously 
applied to scientific and monetary components alike regardless of the 
pressure, the fear, and the uncertainty that surround this threat.
    Those three standards are MERIT, FLEXIBILITY, and ACCOUNTABILITY
    Merit
    The imperative of our defense must require merit in the science you 
fund and merit for the dollars delivered. It is axiomatic that medical 
need invites unworthy science parading as greater commitment.
    Since September 11 we've seen too many failed projects retooled as 
``biodefense''. Unworthy science wastes valuable resources and raises 
unrealistic and counterproductive hopes. The increase in funding 
contemplated for biodefense should not be an excuse for lowering of the 
threshold for peer review and peer respect. The prospect for this in a 
time of strained financing resources in the biotech industry should not 
be underestimated. Indeed the risk seems even greater if, as suggested, 
the absence of commercial viability becomes a positive qualification.
    However, if the government--on behalf of its own use and the 
demands of the public--can speak for the existence of a market, the 
traditional combinationof peer-reviewed science and entrepreneurial 
financing represented in the venture markets ( should have no trouble 
promoting creative and prompt contributions whose scientific merit will 
insure their success.
    Flexibility
    The inherent unpredictability of the biological threats we face 
argues for maximum flexibility in the science we pursue and for 
flexibility in the funding mechanisms for biodefense you establish.
    The potential for modification and mutation of threatening agents 
suggests we place emphasis on countermeasures that are adaptable and 
exchangeable. For example, focus on the mechanisms of absorption, 
resistance and immunity may provide us with a broader arsenal of useful 
protectants than would slavish pursuit of antidotes to individual 
agents whose creative modification or mutation could render our 
warehoused arsenal instantly obsolete. Similarly, research progress on 
speed and coverage of delivery of countermeasures may be a force 
multiplier for previously marginal defenses.
    To support this flexibility of approach to the relevant science, an 
equally flexible allocation of biodefense dollars between basic 
research and product development may buy us more defense sooner.
    Accountability
    Finally, a word should be said about accountability.
    For those of us who experience the scientific world as observers, 
its marvels include its constant reinvention, creativity and 
unscrupulous honesty about results. These marvels will also be our 
greatest assets in addressing the unknowable risks of tomorrow.
    In structuring our national approach to biodefense, care should be 
taken to avoid creation of perverse incentives, absorption of an undue 
share of precious resources, or the diversion of creative scientific 
talent from its noble calling. Maintaining such a delicate balance will 
require supervision, continued reassessment of the threat as well as 
the effectiveness of the response, and a fair dose of candor, from 
scientists, government and industry alike.
    As with any great effort, continued oversight of its goals and 
means will protect and preserve it.
    With these observations in mind, I'd like to assure you that the 
people and the science of the biotechnology industry are ready for and 
capable of major contributions to the successful combat of bioterror: 
in articulating the range of risks, identifying the vulnerable targets, 
and generating an arsenal of countermeasures creatively broad and 
flexible enough to respond to the range of misapplied genius we will no 
doubt face in the years ahead.
    Thirty years ago, the War on Cancer gave us a model of government 
stimulated science that has permitted measurable success against that 
scourge--but of even greater importance, that war trained a generation 
of research soldiers in new technologies and ways of thinking that are 
directly responsible for the leadership position U.S. science holds in 
the world and the capacity we've had to sustain and respond creatively 
to each new and horribly different health scourge of the intervening 
years.
    Thoughtfully structured, funded and overseen, the BioShield 
initiative could again provide both immediate answers to a current 
threat and a new model for government stimulation of scientific 
progress that will insure our pursuit and perfection of technologies 
capable of meeting threats we can't yet know.
    Thank you.

    Chairman Cox. Thank you, and I thank the entire panel. This 
panel has the benefit of having heard the first panel and the 
discussion that took place with members. As we write this 
BioShield legislation, we are concerned with the mechanisms for 
engaging the private sector. One of the ways that this might be 
accomplished, as Dr. Fauci outlined, is a contract relatively 
early in the process that anticipates work being done towards 
the achievement of a solution and then a commitment to purchase 
all that is necessary for the defense of the country in the 
event that a cure or an antidote is developed.
    There are really two ways to go about this in principle. 
One is explicit contracts up front, the other is the reward 
model in which the government stands ready to buy what anyone 
successfully produces in answer to a generalized call to 
action. We send out the alarm, we need this, you provide it. 
Because we are going to be offering for this purpose, albeit in 
the billions a fixed amount of money, which direction you 
choose here matters significantly.
    I wonder if I can ask each member of the panel to react to 
that point and help us with your suggestions about how to 
design this legislation.
    First, Dr. Haseltine.
    Mr. Haseltine. Thank you. This is a very real issue for us 
because we are at that point where I as CEO have to make a 
decision as to whether to put a program on hold or to go 
forward with it based on our perception of what the reality is 
for government funding or potential funding. It is a very real 
issue. It is not a hypothetical for us.
    I think it would be helpful if I gave the outlines for what 
that means. We did all of the R&D on our own based on years of 
research of understanding the anthrax vaccine organism to come 
up with a specific drug. As far as we can tell from discussions 
with HHS and DOD and others, this is a needed solution. This 
drug is a very powerful addition to what already exists, and I 
think there is consensus that that is the case.
    We are prepared to manufacture it for the first of two 
clinical trials. That is what is called the pharmacology phase. 
When it comes to finding a dedicated manufacturer for the 
second of the clinical trials and for the production phase, we 
cannot make that commitment absent a government commitment 
because it is simply too big. We have to go outside, find an 
outside manufacturer, compete on commercial terms for a long-
term, multi-year contract to produce the material that will be 
needed to validate the safety of this particular drug. We are 
talking a minimum of $30 million the first year, 50 or $60 
million the second year. Those are the numbers that we are 
talking about just to secure the facilities for the 
manufacturer. So it is vital how this legislation gets written.
    It should support both the advance development and the 
procurement of that material because the material that is used 
for the advance development would actually be material that 
could also be stockpiled, in addition to the stockpile. It is 
very, very important to us how that decision gets made by your 
committee.
    Chairman Cox. Mr. Pemberton.
    Mr. Pemberton. Mr. Chairman, I think it is important that 
the legislation as it develops be flexible because there are 
many different kinds of solutions and many different kinds of 
problems that are going to be addressed, and it is important 
that the Departments that are going to be actually applying and 
implementing this law will have as much flexibility as possible 
to see what works and to make sure that they have procurement 
mechanisms that they can respond to different sorts of industry 
needs and different sorts of industry problems.
    That is why I think you want as the current bill has, it 
has an R&D portion, which I think is good. It also has a 
procurement portion. We believe it is important to tie the two 
together and to have a provision for the R&D to be linked to 
the ultimate procurement so that those who develop the original 
solution will naturally transition into production if that is 
desirable.
    That will provide an additional incentive there to the R&D 
effort. It will be kind of both push and pull, as Dr. Fauci was 
saying.
    It is important whatever mechanism is selected to maintain 
the maximum flexibility, but also maximum certainty for 
contractors in this area. It is extremely important to members 
of industry to know that the money will indeed be there when 
the process is done.
    Chairman Cox. Mr. Rapoport.
    Mr. Rapoport. Mr. Chairman, I think we are very close. We 
just need to tweak the back portion of the BioShield bill to 
allow the Secretary to have authority not just to do 
procurement, but also have R&D money in there at the same time. 
We are very close. We have offered some language to a couple of 
other committees, and I have not seen the new draft that came 
out today from one of the committees, but we are very, very 
close.
    The only other thing that I would also offer is Mr. Turner 
read a letter, and probably because I don't represent a 
pharmaceutical company I can be more candid and share what I 
have heard. Mr. Vagelos is one of the most respected people in 
the field. I can share with you, though, that I think his views 
are not shared by the industry. They want a go at this as your 
partner. They do not want to have a government-owned, 
contractor-operated facility named a GOCO. They do not want to 
have a government think tank. They already have NIH, which is 
fantastic.
    I think they are ready to come to the table with a little 
tweaking of the legislation, but they do not want some 
humongous government facility that is going to compete against 
them. Mr. Vagelos is so respected, but I am hearing that is not 
really right on message with the rest of the pharmaceutical 
industry.
    Mr. Sutcliffe. Mr. Chairman, I think the issue that Dr. 
Haseltine raises about the initial production is a valid one 
and it is worth further investigation to ask whether it would 
be possible to finance that kind of risk in the private market 
on the reward basis, that there is a high reward left, and that 
will assume that the reward is still going to be high.
    At the same time it would be disappointing I think to other 
companies attempting to solve the same problem to learn that 
the market actually had been foreclosed even for a better 
product. So the separation of the two, which was addressed in 
an earlier panel about what happens if the second best answer 
has the government contract, do we not get the first answer, do 
we get both or neither, I think the answer is we probably get 
the second because we have already identified that the major 
market is one that is controlled.
    So I would think that the preservation of the reward 
opportunity would do a lot to spur private capital to invest in 
these kinds of projects.
    At the same time, Dr. Haseltine is focused on an issue that 
is really pharmaceutical companies versus biotech companies. It 
is difficult for most biotech companies to imagine undertaking 
the kind of project that Dr. Haseltine has in mind, and his is 
not a small biotech company. He has been very successful at it. 
But still, I think, the pharmaceutical companies would have the 
resources to undertake that. So it would be worth investigating 
whether or not the reward model could in fact encourage private 
investment in the phase that Dr. Haseltine currently faces 
purely on a pot of gold at the end of the rainbow.
    Chairman Cox. I thank the panel for your help on that 
question. You have stimulated several more questions, but I 
will hold back and yield to the ranking member, Mr. Turner.
    Mr. Turner. Thank you, Mr. Chairman.
    I think we all have the same objective here, and that is to 
figure out how to get the vaccines that we believe we need to 
address the threats that are there and get it quickly. I am not 
sure I have heard anybody say anything about the ability to 
accomplish this task in any given period of time.
    Obviously the risks that we face in this endeavor is the 
same risk that the pharmaceutical industry faces in trying to 
develop product. Those risks, from what I understand, are 
greater in this field than any other. I think the reason we all 
have to be cautious about how we structure this is, number one, 
we want to be sure that we can assure the American people that 
the goal that we are after is going to be achieved. Number two, 
if we do it wrong, we obviously have the potential of wasting 
literally millions of taxpayer money because we could, as I 
understand it, go down a lot of rabbit trails, spend a lot of 
money and get nothing.
    I guess I was interested in the comment that was made a 
moment ago about the letter that I read because I think Dr. 
Vagelos had really not made any comment on this subject to my 
knowledge until we asked him to review the bill, which he did 
yesterday, and forwarded this letter to us today.
    My fundamental question is, if we really are serious about 
getting this job done, what is wrong with trying to do it all? 
What is wrong with trying to do an incentive program in the 
form in which we have proposed, along with trying to mobilize a 
government research center, which we have plenty of examples of 
success with from our nuclear labs to our National Institutes 
of Health and others where we have successfully achieved some 
objectives by trying to mobilize the collective power of the 
Federal Government, to address the task? So explain to me why 
the two would be inconsistent with one another.
    Dr. Haseltine?
    Mr. Haseltine. First of all, they are not inconsistent with 
one another. second, I don't think a special biodefense effort 
is required. I will give you two reasons for that. The first is 
you have generously funded NIH to do almost precisely what that 
government, super-government agency would propose to do; i.e. 
the broad scale research into new and emerging diseases. NIH 
has been very generously funded over the past 2 years, and it 
looks like it will continue to be funded. That research takes 
place at NIH and draws upon the very fine expertise in our best 
universities all over the country.
    We are creating new generations of people who have the 
requisite expertise, and we are funding our current experts in 
that field. So many of the goals, and very laudable goals, are 
being met through the current biodefense initiatives.
    I should say something we have not talked about is the 
admirable biodefense legislation that has already been enacted 
that does a number of very positive things for the creation of 
new biodefense agents, including allowing new pathways for 
rapid approval, speeding the time from concept to realization.
    Let me give another example in a different field which I 
was deeply involved with as a university professor, and that 
was in the very early days of the AIDS epidemic trying to 
mobilize our government's efforts, as well as the private 
sector effort, to fight the problem of AIDS. That was done in a 
two-part program.
    First, by generous funding from Congress of the NIH. 
Beginning in 1985, there was a steady ramp-up of funds. That 
money flowed first to NIH and then around the country and built 
a very powerful research organization. second, direct 
involvement of industry through transfer technology programs, 
not as big as the programs we are talking about here, but very 
definite transfer programs that led to the creation of the 
current generation of AIDS drugs.
    Now there was one thing that allowed that to work which we 
don't have for many of these kinds of drugs, and that is there 
was a natural market for the AIDS drugs so we didn't need 
special government incentives.
    Here we need that. But if you take the power of what exists 
at NIH, which you have already generously funded, and couple 
that to the power of industry, which is what BioShield can do, 
I think you will have achieved almost all if not all of the 
objectives that have been laid out.
    Mr. Turner. With regard to where you are in your efforts 
with anthrax, Dr. Haseltine, and to put it in context for me, I 
was reading Dr. Pemberton's statement about the risks involved 
in new drug development, and he said for every 5,000 compounds 
screened only 250 enter preclinical testing, and of every 250 
drugs that enter preclinical testing, only one is approved by 
the FDA. Where are you in that chain with your anthrax product?
    Mr. Haseltine. We are down to 1 in 10. Probably even 
higher.
    One of the things that biodefense did for us is it set a 
clear definition of what was required for approval. You have to 
demonstrate efficacy in two animal models of human disease. Our 
drug has already met that. You then have to test it for safety 
in human volunteers. That is what we are about to do. We are 
about to submit our drug to the FDA for safety testing. We 
presume, because we have done it many times before, that we 
will meet all of the government criteria, all of the FDA 
criteria, to allow us to do the safety testing.
    Let me give one additional concern which has not yet been 
raised, but it is very important at an early stage. When you 
submit a drug for testing, it not only is reviewed by the FDA, 
it is reviewed by institutional review boards for ethical 
considerations. We are talking about exposing healthy people to 
a drug. Is it ethical to expose people to a drug for which 
there will never be a market? That is a question we are 
wrestling with today. Can we in all conscience go ahead with 
our phase 1 clinical trials before we get a green light from 
the government saying if you make it, we will buy it. That is 
an issue that has not been addressed, and it is why for some 
drugs it is really important to link the two, the advanced 
development and the procurement. I think my colleague to my 
left said it very well when he said what we need is 
flexibility.
    Mr. Turner. You gave us some numbers a minute ago. You 
mentioned to proceed from where you are you would need $30 
million this year and $50 million next year. When you give 
those numbers, are you saying that is what you need from the 
Federal Government?
    Mr. Haseltine. That is what we need from the Federal 
Government. I would estimate in direct dollars we have invested 
about $15 million, and if you add in our facilities another $15 
million, so a total of about $30 million we have already 
invested in this.
    Mr. Turner. At the end of that 2-year period, where are we 
then with regard to this project?
    Mr. Haseltine. You have approximately 150,000 doses or more 
stockpiled, perhaps more. I would have to check the numbers; 
but you already have a stockpile.
    Mr. Turner. So as part of that investment in the second 
year in production facilities, is that what--
    Mr. Haseltine. Even in the first year you are making 
materials that could be stockpiled. Both first and second year, 
the material you make could be stockpiled.
    Mr. Turner. So a large portion of the $80 million relates 
to production?
    Mr. Haseltine. Absolutely. It all relates to production. 
Some is technology transfer so it can be produced, and the rest 
is for production itself.
    Mr. Turner. When we are talking about production, are we 
talking about building a plant or facility?
    Mr. Haseltine. We are talking about contracting an existing 
plant that is already approved so we can get this product 
moving forward quickly. Eventually we would talk about building 
our own plant.
    Mr. Turner. That is after the $80 million?
    Mr. Haseltine. Yes. This would be a multi-year stockpile, 
and over time since the drug is relatively stable, we would 
build up a larger and larger stockpile over time.
    Mr. Turner. At what point in the expenditure of $80 
millionSec.  In other words, we could spend the $80 million and 
end up not achieving anything, or would you know that sooner?
    Mr. Haseltine. You would know it sooner. We have two 
efficacy trials, and the next trial is a safety trial. You will 
know after the safety trial whether you have something that is 
suitable for stockpile.
    Mr. Turner. How many million would that cost to get us to 
the point where we know whether we have a winner or not?
    Mr. Haseltine. About $30 million.
    Mr. Turner. If our intent is to have a program to develop, 
and the initial number I heard was 5 vaccines for various 
biological agents, then we might move to 10 or 12 and I heard 
somebody say there may be a hundred out there we need to be 
prepared for, is there any way the government can achieve some 
cost savings if we are going to make this investment in 
production facilities? You are going to lease a facility 
initially, but eventually you would want to build one, and 
since the bulk of these dollars are in production facilities, 
is there any way the government can say OK, we will do this and 
build such a facility, but then we want it to be able to be 
used for the next pharmaceutical company that we enter into an 
agreement with to produce something else?
    Mr. Haseltine. I would imagine that for most of these 
products you will have an ongoing stockpile requirement, and 
although these drugs may have a long shelf-life, it will not be 
indefinite so there would be a requirement for renewal. So at 
some point you will need dedicated facilities for manufacture 
of that drug for continual stockpile. There are such programs 
that currently exist for stockpile of certain materials today.
    The simple answer is that I don't think that is a model 
that will work particularly well.
    Mr. Turner. In other words, you are thinking that for these 
vaccines that we hope over time to stockpile, that we would 
need for each vaccine to have a separate manufacturing 
production facility in order to accomplish that?
    Mr. Haseltine. I think the answer is more complicated than 
that, but to the first approximation, that is the answer.
    Mr. Turner. Maybe you can educate me a little more on that, 
but I am not sure I quite understand the logic of why a 
production facility which in the private sector apparently is 
used for multiple production runs--I guess because you are 
initially going to lease one from somebody else--why that kind 
of facility could not be used for the production of more than 
one vaccine.
    Mr. Haseltine. It really depends on the size of the 
facility, it depends upon the materials that you are producing. 
For biologicals, it is very different from chemicals. A 
biological, which is a protein or antibody, which many of these 
products will be, you have dedicated manufacturing facilities 
for them, especially once you have an ongoing, recurrent need.
    Let me just emphasize the dollars that I mentioned do not 
buy hardware. They are solely production costs. That is what 
these dollars are. They are not to buy and build factories.
    Mr. Turner. Mr. Rapoport, I think your comment earlier in 
response to Dr. Vagelos' suggestion was that you did not want 
the government to be in the business of having another agency 
to try to help solve this problem. Dr. Haseltine said those two 
approaches are not inconsistent. Do you believe they are 
inconsistent?
    Mr. Rapoport. What I think the industry is concerned about 
is engaging down a slippery slope which ends up with the 
government taking over this business.
    Again, these are not companies that have ever taken a cent 
of government R&D money. They are not Lockheed or Boeing. I 
think they want to keep a separateness working as partnerships, 
but they do not want to see their resources be drained off into 
a time and period down the road, and maybe we are getting ahead 
of ourselves, where the government says I can take over that 
business, you know. How about hepatitis A, hepatitis B, we have 
a platform now to take it all over. That was the only caution I 
was making. So perhaps they are not totally inconsistent that 
you would add to NIH's already sensational capabilities.
    But I also wanted to share what happens if we go down this 
route and there is failure. I worked for the Reagan Justice 
Department, and I was assigned to represent the NIH. They are 
very skilled at handling contractors and terminating contracts 
that are not going anywhere. In this industry, you probably 
have to be a little more gentle than you would with a Boeing or 
Lockheed who does not perform and they are used to getting 
terminated for default. Here the government could terminate for 
convenience a contract where they have promised production 
contracts where the company simply wasn't getting there, or 
that solution wasn't the right solution any more.
    But the point I want to leave with you is if you terminate 
those contracts for convenience, you have to recognize 
additional costs that are now unallowable such as financing 
costs and equity, costs of equity. So BioShield, one of the 
pieces we are trying to suggest is give the government the 
contracting officers' discretion. They are going to protect 
your purse, but make sure if they have to stop the deal in the 
middle of the procurement, they reimburse companies, not just 
for the widget to date or how far they have gone, but for a lot 
of their investor costs that traditionally would not be 
allowable under the FAR.
    I have heard that the venture capitalists who obviously, 
look at the stock of biotechs now, it is very low. But the 
venture capitalists, and Leighton Read, who was the founder of 
Aviron testified before other committees that they are ready to 
participate and help co-fund the development, so this is not a 
handout. I don't think the pharmaceutical industry is looking 
for a handout. At least what I am hearing from the board rooms 
is we will share in the R&D, just as Dr. Haseltine's company 
has shared, but I need to know that there is a guaranteed 
market for some period of time.
    Mr. Turner. I have no doubt that what you are saying in 
that regard is true because every bit of information I have 
ever collected says it is going to be very hard to get the 
pharmaceutical industry to participate in this.
    When we first had this presentation to the chairman and I, 
the big piece of this proposal was to have this unlimited power 
in the administration to write a check for whatever it cost 
without even going through the usual appropriations process. It 
seems pretty clear as this proposal has been vetted through the 
Congress that Congress is not likely to give up its power of 
the purse. If that was such a big part of this, I guess the 
question I would have for each of you, if that is not in the 
final bill that passes, is that a deal killer? In other words, 
are we wasting our time here talking about all of these other 
details like liability protection and other things, that if you 
don't eliminate the uncertainty of what has been described at 
least by Dr. Fauci as the ``vicissitudes of the appropriations 
process,'' that this is all not going to work anyway? So can 
you live with the Congress still exercising its role in the 
appropriations process?
    Chairman Cox. If the gentleman would yield, this is a very 
important question. What is being proposed and what was in the 
bill as marked up by the Committee on Energy and Commerce today 
does not leave you subject to the vicissitudes of the 
appropriations process. It does, however, cap the total amount 
and it puts an end date on it of 10 years so that Congress 
would have to become involved at some point in increasing the 
amount beyond $5.6 billion or extending the program beyond 10 
years. But within that period of time, the government would 
have complete flexibility and authority to disburse the entire 
amount of $5.6 billion and you would not need to come back to 
Congress between year 1 and year 10. The question is still the 
same question: How does that affect the real world?
    Mr. Turner. Mr. Chairman, I want to be sure that I 
understand the question. My impression is that there still 
would have to be an annual appropriation. They authorized in 
the bill, but the annual appropriation would still have to take 
place in the appropriations process. I see somebody shaking 
their head out there.
    Chairman Cox. The discussions we have had with Chairman 
Rogers, who was with us earlier, as well as the Committee on 
Energy and Commerce contemplates that we would make directed 
appropriations over a period of years. This is akin to no year 
money, the sort of thing we did after 9/11 with New York City 
with all of those billions, and there would be of course 
ongoing oversight, retained jurisdiction and so on by the 
Committee on Appropriations but the full amount of $5.6 billion 
would be appropriated up front in year 1.
    Mr. Turner. I may have misunderstood.
    Mr. Shays. Would the gentleman yield? I am just curious 
when other members will be able to question witnesses.
    Chairman Cox. I appreciate the gentleman's comment.
    Mr. Shays. They are very important questions, but there 
needs to be some framework.
    Chairman Cox. The gentleman's time has expired, and the 
other members are being very tolerant. The point is well taken.
    Mr. Turner. And I apologize if I overextended my time. I 
hadn't noticed.
    Chairman Cox. The bill passed today is styled as an 
authorizing bill, and so further action by the Committee on 
Appropriations needs to be taken. So you will not know from 
reading the four corners of the legislation what I have 
described to you, but that is the understanding that we have as 
of this moment.
    Mr. Turner. Let them answer as they see fit and then we 
will yield.
    Mr. Haseltine. Certainly permanent and definite funding 
authority would be desirable. But if we cannot have it, what we 
would like are multiyear contracts with firm commitments. That 
is extremely important, multi-year contracts with firm 
commitments.
    Mr. Pemberton. The permanent and definite appropriation was 
a very important part of the bill to PhRMA, but that is not to 
say it is the only solution, and the multi-year money is 
certainly one that we will study and work with.
    Mr. Rapoport. I will pass on that question.
    Mr. Sutcliffe. My impression is the same as Mr. Turner 
indicated, and that is that the venture community is interested 
in this, and what they really wanted was a sign that the 
government recognized the problem and was prepared to 
stimulate, or assist in stimulating, both the science and the 
width that is required to get it moving. I think most companies 
that have an angle on a solution would find a government 
indication of a willingness to participate--or to be the 
customer and to step up to being the customer when the product 
is available--as a tremendous assistance to finding private 
capital to do the interim work.
    Chairman Cox. Next is the gentleman from Connecticut who is 
being rewarded for extraordinary patience by God, if not this 
committee.
    Mr. Shays. I sense that this bill is incentivize and 
accelerated research and development for vaccines and 
therapies, and I am wrestling with a whole host of questions. 
I, for one, do not know the ethics of how you qualify a vaccine 
for a disease that does not really exist. I mean with polio, 
you got to try it on real people. How do we do that?
    Mr. Haseltine. The way the biodefense legislation handles 
that is to use two animal models of human disease followed by a 
safety study in humans of the drug, but these are humans that 
are obviously healthy.
    Mr. Shays. So technically we do not know the efficacy of 
the drug on humans?
    Mr. Haseltine. That is true, and you cannot know it.
    Mr. Shays. Fair enough. We are going to have to be making 
some tough choices. The legislation is basically going to speed 
up research and development for countermeasures. It is going to 
speed up delivery for these countermeasures, and it is going to 
basically overrule FDA emergency authorization. It is going to 
provide for emergency authorization to bring out a drug that 
may not be fully tested. That is the world we are kind of 
living in.
    Mr. Haseltine. Already the Biodefense Act allows drugs to 
be registered which meet the two animals plus human safety. 
That is already existing.
    What this would allow to happen is if a drug were in the 
process of being tested in humans but hadn't been finished and 
hadn't been registered, the FDA could decide.
    Mr. Shays. I get that. I understand.
    Mr. Rapoport, you are the most vocal on this end, and all 
of you are very effective in your presentation. I want to 
basically have a sense if we eliminate the risk and provide a 
promised revenue stream, what will we get beyond the product? 
Let me put it this way, would we get the product below at what 
would be a typical cost of a company that hopes to recoup 
research and investment?
    Mr. Rapoport. The DOD and HHS are very sophisticated at 
price negotiations with government contractors. Obviously the 
more R&D money you take from the government, the less should be 
the price of the product. What we are suggesting is if you 
enter into one contract that has R&D in it and a commitment for 
production, at a certain point in time you enter into price 
negotiations and then the contractor and the government can 
decide what is a reasonable price.
    Mr. Shays. And you recognize that?
    Mr. Rapoport. I do. I don't think that Congress needs to go 
down into those details. I think the government is very good at 
this. I spend half my day fending off the government doing 
audits on contractors. I think there are many guidelines within 
the FAR that could be useful under other transactions to guide 
what is a reasonable price for the product.
    Mr. Shays. Would any of you respond to what this world is 
going to look like, and first off when we do these top-off 
experiences and we see smallpox run amuck and we think how are 
we going to catch up, and we look at the plague and question 
how we are going to deal with that, the plague has been in both 
top-off 1 and top-off 2, and in both cases we don't have an 
antidote to the plague right now. Tell me, when will we?
    Mr. Haseltine. I think it could be available within several 
years, 2, 3. You asked a question, and the answer to your 
plague question actually is part of the answer to your previous 
question: What else do you get if you support these early 
programs? What you get is full involvement of the biotechnology 
and pharmaceutical industry to address a broad range of 
questions.
    Many people, including ourselves for follow-up programs, 
are waiting to see what happens with these programs, because if 
these programs don't go very well, then other programs don't 
get developed. It could happen really quickly. There are plenty 
of technologies around that would allow relatively rapid 
development of ways to contain plague, for example.
    Mr. Shays. It seems to me like it is a crapshoot. In my 
hearings, I have had 40-plus hearings in my National Security 
Committee, and the list is a long list of potential pathogens 
that we might want to defend against. I realize the first panel 
said you are going to look at those that could be the most 
catastrophic and so on; but admittedly, this is a big list, 
true?
    Mr. Haseltine. The answer is yes and no. I think the first 
panel tried to address that question.
    There are some big threats that are obvious that we know 
are major threats. Those include plague, anthrax, and smallpox.
    Mr. Shays. The ones that tend to be the most contagious?
    Mr. Haseltine. Or already known to be weaponized.
    Mr. Shays. Are we talking about five big ones?
    Mr. Haseltine. No more than 10.
    Chairman Cox. Mr. Dicks.
    Mr. Dicks. Thank you, Mr. Chairman.
    Mr. Haseltine, I wanted to ask you, what do you need to get 
this deal done? In other words, what is it that you would like 
to have to accelerate getting your product purchased by the 
government?
    Mr. Haseltine. Enactment of BioShield.
    Mr. Dicks. All you need is BioShield?
    Mr. Haseltine. Then we are happy to compete. The money does 
not exist in any easy form. BioShield would allow us to move 
forward, and allow the government to move forward, because we 
have talked to every agency that we can talk to in government, 
and they all tell us the same thing. I hope it is true. If 
Project BioShield is passed, we can help you. Without Project 
BioShield, it is very difficult for us to help you.
    Mr. Dicks. So we have to get the bill through and then we 
have to appropriate. I am on the Committee on Appropriations. 
Then we have to appropriate the money?
    Mr. Haseltine. That is right.
    Mr. Dicks. If that is the way we are going to go?
    Mr. Haseltine. That is right.
    Mr. Dicks. I hate to use the defense system because if it 
takes us 15 years to build a weapons system and it is not 
always a great one. But what about the idea of a situation 
where you would be reimbursed like they do in R&D where instead 
of you putting up $30 million, which is what you are doing 
here, you would be contracted by the government if they thought 
your idea was good enough, to pay for the R&D? What about that 
concept? You just don't think that is viable?
    Mr. Haseltine. I think that would buy you a lot more 
research from a lot more smaller companies. I think it would be 
very welcomed by certain segments of the biotechnology 
industry. I think it is a very interesting concept.
    Mr. Dicks. That is basically what we do in defense. They 
use some of their money, companies do, and they obviously raise 
resources to do it, but then they get a contract to do the R&D 
if they have an idea that people think is worth doing. I bring 
that up so as we consider this legislation that is an 
alternative.
    Mr. Haseltine. Flexibility is the word. Part of that could 
be done through existing NIH mechanisms. Part of it could be 
done through other mechanisms as well. I think flexibility in 
the way this language is crafted is very important.
    Mr. Dicks. How do you read the language on partnership as 
it is now? How do you decide who pays how much? Or what the 
shares are going to be? Is that defined in the legislation?
    Dr. Haseltine. I don't think it is defined. And I think it 
should be flexible.
    Mr. Dicks. So they can enter a deal. So in other words, 
between the NIH, whoever is going to do the contracting, and 
your company, you can negotiate an agreement about how much is 
going to be done as a partnership.
    We do that in some other areas too, so that concept is 
interesting. I kind of like the other idea, because I think you 
get more done sooner.
    Let me ask Mr. Rapport about--Did you want to say 
something, Mr. Sutcliffe?
    Mr. Sutcliffe. Yes. I think you are on the right track. In 
fact, what will happen under this legislation, except in the 
case of companies like Dr. Haseltine's, is that the large 
pharmaceutical companies will subcontract this work to biotech.
    Most of the large pharmaceutical companies can't solve 
these problems the way that they will need to be solved with 
their existing research. They will subcontract the work by 
supporting theSec. esearch, and will take the guaranteed 
contract.
    The problem it presents is that the market will be tied up, 
and so it will--we really are using, in this case the 
government is using the large pharmaceutical companies to solve 
this problem by doing the subcontracting that you are 
suggesting could be done directly. I think you are right, under 
your approach, more answers would come forward without the 
government having made a commitment to any of them.
    It would perhaps spend more in terms of initial R&D 
funding, but at much smaller dollars than we are talking about 
committing.
    The numbers Dr. Haseltine is talking about in $30 and $50 
million don't add up to $800 million a year. The number $800 
million a year comes from the number of the total amount spent 
on research in the pharmaceutical industry divided by the 
number of successful profit-making drugs. That is what the 
average of what it costs to get a drug to market is.
    But that is not actually what it costs to develop any 
particular answer. Some are obviously expensive and lose, some 
may be less expensive and win. So the more--the flexibility 
that we are talking about is, the more answers are sought out, 
the better the chances that the public will have the protection 
that they want at the end, which is not that we have made a 
good investment and got a pretty good antidote, but that we 
actually got something that works at the end.
    Mr. Dicks. I appreciate your answer.
    Mr. Rapport, let me ask you this, you talked about the 
Defense Production Act. Give me a little more on that. How 
would you see that operating? You could have a situation where 
we can say, if the President declares an emergency, you can use 
the Defense Production Act. That can be a paragraph in a this 
bill. So if we did get into a crisis like you are suggesting, 
and we really had to move, we would have this on the books.
    Mr. Rapoport. I think what I would offer is that you can 
put in BioShield that the Secretary has authority to engage in 
a prototype plan, where they could--he could within his 
discretion use the Defense Production Act in a limited 
circumstance to see how it works. It has recently been used 
involving shipping lines in the Middle East, after the First 
World--after the First War, in that part of the world.
    But it has not been used often. But it certainly could be 
helpful to jumpstart the industry. I wanted also to just 
address, I am trying to be as plain speaking as I can, because 
you are a leader on the defense issues, you understand this.
    Lockheed and Boeing are used to having auditors roam their 
plants. I assure you that my clients, the thought of having 
government auditors audit the costs of an R&D contract, all of 
a sudden brings nightmares to them of toilet seats and 
overpriced widgets. And so I think at least from a big 
pharmaceutical company, they would be more inclined to at least 
try to go it on their own and not accept the R&D money, because 
they don't want to become part of that, you know, government 
contractor audit establishment that the FBI and prosecutors 
somehow get the money back at the end of the deal, in over 
zealous prosecutions. Some of them are obviously merit-based.
    But that is what I am hearing, that I am the President of a 
multi-billion dollar vaccine company. The last thing I want to 
take is a hundred million dollars in government money, because 
then I have got to pay Ernst & Young and McKenna, Long and 
Aldridge and everyone else to come in and set up these cost 
accounting systems that your constituents have had for years.
    Mr. Dicks. Thank you, Mr. Chairman.
    Chairman Cox. Thank you. Mr. Andrews.
    Mr. Andrews. Thank you, Mr. Chairman. I wanted to thank the 
witnesses for their testimony. I regret not being able to hear 
it, but I read it.
    I share with the author of the BioShield Act the basic 
premise that the way to prepare our country to deal with this 
problem is a combination of money, markets and immunity. I 
think the concept is exactly right.
    I think there are--the question Mr. Turner was pursuing 
about the proper means of government oversight is one we have 
to explore. I would like to explore another one, which has to 
do with my amateur understanding of the future of scientific 
inquiry.
    Some of the most impressive breakthroughs in the areas of 
biology and chemistry have occurred by accident, where there is 
a task that is different than the task that eventually winds up 
serving, where someone is involved in pursuing project A and 
they make some discoveries that are collateral to project A 
that lead to a new project B, which leads to a new project C 
and so forth. We do not want to foreclose that scientific 
dynamic.
    My question to you is, how can we be sure that the umbrella 
of immunity and the financial reach of the subsidies that 
BioShield suggests, and the benefit of the guaranteed market 
that it suggests, would reach beyond the original stovepipe 
competitors in this field?
    In other words, that is a bit theoretical. What I really 
mean is, if someone working in one of the outstanding 
pharmaceutical companies, all of which are in New Jersey I 
might add, is working on a cure for SARS, and in the process of 
that, makes some findings which are quite relevant to dealing 
with inhaled anthrax, I am not sure if that is an apt technical 
example, but you understand my point.
    Does the BioShield legislation set up a sufficient 
mechanism so that that scientist's SARS-related discoveries can 
be sold, conveyed, shared, joint ventured with someone who is 
working on anthrax? If not, how do we do that?
    Dr. Haseltine. Thank you for the question.
    It is a very interesting question about research and cross-
fertilization. I think that that can happen. And the way it 
happens is, first of all you first create a market for these 
drugs. A market is extremely important in motivating 
researchers at all levels.
    Once a market for a potential product exists, it is in 
people's minds that if I make a discovery, I have an outlet for 
it. If you don't have a market, they may never make that 
connection. I have been involved in creation of seven 
biotechnology companies myself, and overseen the creation of 
another 20 through involvement in venture capital advising, et 
cetera.
    And that is a process that is fascinating to watch. The 
companies that I have started haven't come out directly of the 
research that I have done. They have come out of collateral 
ideas realizing that there might be a market. You create a 
market and people will come.
    Mr. Andrews. Here is my follow-on question. Let's assume 
that because there is consciousness in the scientific 
community, that there is an effort to create an antidote to 
smallpox, that the scientists who comes across something on the 
SARS project says, my this has cross-applicability. He or she 
calls the person working on anthrax.
    As a legal and policy proposition, let's assert for the 
moment that we want the ordinary drug laws and antitrust laws 
and intellectual property laws to apply to the pursuit of the 
SARS problems. But we want these special rules to apply to the 
production of antidotes to these national security problems. 
How do we sort the two out? How does a legal relationship get 
constructed that serves the public purpose of expediting and 
defending this defense venture, but does not create the 
unintended consequence of setting up a whole new set of rules 
and a special commercial marketplace that is not our intention? 
How do we do that?
    Mr. Pemberton. The limited antitrust exemption with 
government supervision would permit technical collaboration 
among companies in ways that might currently be problematic. 
And creating a kind of opportunity for companies to collaborate 
on perhaps those kinds of cross-fertilization ideas would be 
one reason why you would want to have that.
    Mr. Andrews. Let me say this. My own prejudice, I would 
rather err on the side of achieving the antidote for national 
security faster. If the cost of that is a perversion in the 
civilian market, much as I would not want that to occur, the 
cost of the attack on the country is a lot greater, so I would 
want to err on the side of getting the antidote to the market.
    Mr. Sutcliffe. Mr. Andrews, I am not sure that the cross-
fertilization won't take care of most of the problem. I think 
that communication will take place. I mean, in the scientific 
world that information will cross.
    The immunity problem comes in terms of doing the follow-on 
experiment, and that is a situation where it is the limitation 
of most institutions that would keep a researcher from 
performing the research, and you can be sure that you or the 
people who have the immunity under BioShield will get that 
call.
    Mr. Andrews. Thank you. I see my time has expired. Thank 
you, Mr. Chairman.
    Chairman Cox. Thank you. Ms. Jackson-Lee. Thank you all 
also for your patience.
    Ms. Jackson Lee. Thank you very much, Mr. Chairman. And 
thank you, the ranking member.
    And I would like to also associate myself with the remarks 
of Congressman Andrews with respect to having perused your 
remarks. I was in another meeting outside of the room, but I do 
appreciate your testimony.
    Just for clarification, because it is a little difficult to 
see the names, and I wasn't sure whether Eric Tolbert was here.
    Mr. Chairman, I just--let me just make a comment, and not 
specifically about Mr. Tolbert. But I do think it is crucial 
that we have a hearing that includes, or that we are able to 
cover the question of the threat assessment, which I assume 
might have been discussed from the perspective of this Director 
of the Response Division. And I hope that we will be able to, 
one of the--one, be able to secure that.
    One of the points that we have been consistently making, 
some of us, is that a threat assessment is crucial. I know that 
one of our colleagues has been speaking eloquently about that, 
Ms. Harman from California.
    So I hope that we can have that response. I am not sure why 
she was not here, Mr. Chairman.
    Mr. Chairman, I would like to yield to you for a moment. I 
am not sure why the Director of the Response Division was not 
able to make it. I am concerned about the threat assessment 
issue, that hopefully we are going to address that.
    Chairman Cox. We are going to pursue that.
    Ms. Jackson Lee. Is it likely then that we will have 
witnesses that will be able to respond to some of those 
concerns in hearings to come?
    Chairman Cox. I will ensure that members of the minority 
and the majority have the opportunity to put questions to the 
Department, either at a subsequent hearing or in writing, and 
have them answered before we mark up.
    Ms. Jackson Lee. Thank you very much. Certainly it is not 
the fault of the panel that is here. But, in any event, I 
wanted to make that point.
    I also want to associate myself with the remarks in a 
previous panel of Congresswoman Lowey, in terms of how all of 
this impacts the unpreparedness for the needs of our hospitals 
and emergency rooms, and may have a question to you gentlemen 
along those lines. Because, as I said, if you have any thought 
on that, I would appreciate the oversaturation.
    I had the opportunity to read some of the works of 
Professor Calabresi, formerly of Yale Law School, now on the 
Second Circuit. He makes a--I think a long-standing theory, he 
made it some many, many years ago about choices and cost. And 
that we ultimately wind up making choices on how many--what the 
loss will be, and if we lose one or two in the course of our 
research and work, we consider those lives expendable.
    It is not his proposition that they are expendable, but he 
gives us sort of a model for how many decisions are made. I 
believe that a lot of his work was geared toward how insurance 
companies make determinations.
    We know that we are in a crisis. We know that the last 2 
days, that terror exists, by the tragedy in Saudi Arabia. I 
said that earlier, but I also asked the question in the earlier 
panel about accountability, and the answer was given that--it 
is paid only or moneys would be given only to the 
pharmaceutical companies and other research institutions on the 
basis of the deliverable.
    So I would like to ask Dr. Haseltine and Alan Pemberton on 
the--how assured are we of that process working? And I would 
also like to pose the question, because as I said, we all bring 
a different perspective to this committee, of what kind of 
immunity from liability would you be looking for? So, would you 
be encountering the same problem with the first responders not 
being able to be protected by liability coverage out of this 
type of legislation?
    I think that would be extremely important. And any of the 
gentlemen who would care to answer that, I would encourage you 
to do so.
    Let me start with Dr. Haseltine on some of the questions 
that I posed.
    Dr. Haseltine. There are actually three questions that I 
can address briefly. The first is, certainly preparedness of 
our health care services is very important, part of our 
response. However, for many diseases, if there is no adequate 
drug, no matter how prepared you are, you can do little.
    One of the key aspects for preparedness of health care 
systems is the appropriate drug for the appropriate threat. And 
I think we have seen, to some extent, that in SARS. There are 
some things you can do, but for some people you can 
unfortunately, at this point, do very little.
    The second issue that you raised was the issue of 
guarantees, that if we had a product it would work. Is that 
your question?
    Ms. Jackson Lee. The question is--the answer was given to 
me before about accountability. And the answer I was seeing, 
give pharmaceuticals and other research institutions a billion 
dollars, how do you know they ever come back with anything? The 
answer was, you do it based upon what is delivered.
    My question to you is, does that work?
    Dr. Haseltine. Yes.
    Ms. Jackson Lee. How does that guarantee that we will get a 
product?
    Dr. Haseltine. You give the money in relatively small 
chunks and based on very specific performance criteria, and if 
you don't meet these performances, you don't get the next 
installment. And if the quality of the product that you are 
delivering isn't up to the specified standards, then you don't 
get it renewed.
    Ms. Jackson Lee. You have the hammer--the nail by a hammer 
on the head. That is the quality of the product. And that is 
what I would be concerned about, is the quality of the product. 
That is what I would be concerned about as we move this 
legislation and look at what we are doing, quality of the 
product. Because I can always hand you a bowl of cherries; that 
may not be the answer, and that would be what I would be 
concerned about.
    Dr. Haseltine. The third issue you touched on was 
liability. I would say that liability should be looked at on a 
case-by-case basis. Many of the drugs that we will be 
developing may be FDA approved, and FDA approval provides you 
some measure of protection, as well as explicit legal 
liability. So I think that there should be case-by-case, 
perhaps not blanket liability protection.
    Ms. Jackson Lee. Before you answer, may I just throw this 
sort of curve in there, so that this could be included, and if 
anyone wanted to conclude on that, since I notice that the 
light is on.
    The follow-up to all of that, where I am leading with this 
is, I sort of want to ensure that whatever we do is evenly 
distributed to all who are in need. And if we stockpile 
vaccines, the question becomes, how they will be distributed. 
We now know that we made a determination, we are doing first 
responders for smallpox. But what about the 40 million people 
in the United States that have no health insurance? Does that 
make them less able to secure access to protection from terror?
    And I believe that the BioShield approach is good, but we 
may need to look at those aspects as well, because we know that 
we are a Nation with a huge amount of working individuals who 
are uninsured. If I can add that to the thought processes for 
anyone who wants to finally answer that. Yes, thank you.
    Mr. Pemberton. The payment provisions in the current 
legislation, we believe, would be improved by adding 
flexibilities so that the payment, we agree that payment should 
be based on achievement of definite criteria. But whether those 
criteria, in all cases, are delivery of finished doses of 
medicine, should be left to the case-by-case determination.
    There may be specific kinds of very long-range production 
projects or development projects that might warrant some other 
kind of milestone payments. And, in our view, it would be 
unwise to have the BioShield legislation tie the hands of the 
Administration in designing a system of payments for special 
cases.
    As far as liability, liability from the point of view of 
the PhRMA members is an extremely important issue. And, if 
liability protection for potentially catastrophic tort suits is 
not provided, it will be a very significant disincentive to 
participation by many of the members of the industry.
    We recommended that it be done along the model of the Swine 
Flu or the current--what is currently being done with the 
smallpox production contract.
    Ms. Jackson Lee. Yes, sir.
    Mr. Rapoport. I think the issue is liability protection. 
During the anthrax solicitation, HHS took the position that 
when you were involved in Clinical 1 studies, you didn't need 
the government to give you liability protection. The industry, 
I think, probably feels differently.
    What I have tried to suggest in my testimony is the Safety 
Act, which, I believe, Mr. Armey and others wrote, does give 
protection across-the-board to companies who are willing to 
participate in homeland security. That was the reason they 
wrote it, because a lot of companies were even talking about a 
mail-handling machine that could detect anthrax.
    A defense contractor might not do this work if it could be 
found liable. What the Safety Act says very clearly, some say, 
is that it applies only in the event of a terrorist attack. So 
that if you fail, if your machine fails, we know that it was 
only used during a terrorist attack. But when I am developing a 
new drug, there is no terrorist attack.
    So the Safety Act, we respectfully submit, ought to be 
amended slightly to say that it applies to any procurement 
under BioShield.
    Chairman Cox. The gentlelady's time has expired.
    Ms. Jackson Lee. Mr. Chairman, and I am not going to pursue 
it, but I would like to get in writing my question about the 
uninsured Americans access to such care. That was a question 
that I had asked, what happens if you don't have money, 
insurance and otherwise, are they going to be left out of the 
coverage against terrorism?
    Chairman Cox. I thank the gentlelady.
    The gentleman from Florida, Mr. Meek.
    Mr. Meek. Thank you, Mr. Chairman.
    I would definitely like to thank all of you for spending, 
not only your time here on this late Thursday evening with us, 
I know that there is no better place that you could be right 
now, but I definitely want to--I think this is very not only 
informative for me as a member of the committee, but as it 
relates to everyday Americans, because we are definitely out in 
the cold as it relates to having vaccines or preventative 
medicines to be able to protect many Americans and those 
friends abroad of bioterrorism.
    Mr. Rapport, I hope I am pronouncing your name correctly, I 
can tell you that your testimony was just as good as the other 
panelists, but you define--it was kind of like a contract kind 
of thing, just cut and dry, let's don't sugarcoat it or put any 
icing on the cake as it relates to things that will prevent us 
from being able to achieve what we want to achieve through this 
piece of legislation.
    And I think that when we start looking into intellectual 
property rights and cost of accounting and pricing and the 
government's nose being in the middle of R&D and things of that 
nature, that is something that would be--when we talked earlier 
with the first panel, about the ideal perfect world, unlike 
DOD, which I am on the Armed Services Committee, we meet here 
in this room. There are things that, historically that have 
taken place in the Department of Defense that people just kind 
of said, well, it is the defense of the country. Homeland 
Security new department, lot of attention, lot of concern about 
Americans, especially when it comes down to bioterrorism, or 
what have you.
    You mentioned that you had language that you presented to 
the last committee for them to include in their markup. And I 
haven't seen their markup yet. I am pretty sure I will see it. 
I understand that they just passed it this morning. So, what 
are some of the things as relates to the cost accounting? I am 
sorry I stepped out for a minute myself.
    Can you define further what could hinder, but also give us 
comfort as on Oversight Committee and as the Congress that 
through the Peer Review that I hear, see a lot in the 
literature of the R&D process of the--of making sure that we 
don't have cost overruns, things of that nature?
    How does that work and how do we give Americans comfort in 
allowing that flexibility, because we do want all of you and 
your peers to participate in this process? Because this is 
something that we have to not only have an answer but a result.
    Mr. Rapoport. Sure. Those are excellent questions. I think 
what Mr. Pemberton and I were suggesting is we deal with this 
world, as you do, of defense contractors who have regulations 
on top of regulations which Coopers and Lybrand, I think once 
did a study and said, for every dollar we spend there is 20 
cents of it just to deal with the regulations.
    What we have proposed is to give the authority to the 
Secretary to enter into transactions that don't come with 
stacks of regulations. And again, it has got a weird name, just 
other transactions. Came out of DARPA. It was a way to get a 
company like 3M who had never done business, but has a 
fantastic research capability, they wouldn't do business with 
the government, hypothetically. I think that it was perhaps 3M.
    But they entered into a commercial-like deal. And I think 
what I am suggesting to you is, the contracting people at NIH 
are not going to allow the store to be given away. They are not 
going to enter into a one-page commercial deal, because even 
commercial contracts do have terms and conditions. But I think 
we can eliminate some of the ability to look at, you know, cost 
records down to the fine-toothed comb with months of auditing 
on every purchase order by saying in this commercial-like 
document that it is within the discretion of the contracting 
officials to go ahead and do some selective auditing, but they 
don't have to follow the Federal Acquisition Regulations.
    Mr. Meek. Quick question. What do you think would be--you 
have identified the Defense--I can't remember.
    Mr. Rapoport. Production Act.
    Mr. Meek. Are you recommending that being the course 
outline as it relates to accounting and auditing? Because I am 
seeing in the backdrop the fact that you are pharmaceutical 
companies, and it is like some Members of Congress, you know, 
some people feel negative about that whole experience. I pay 
too much for my prescription drugs. So they are automatically 
thinking that there is some sort of deal that is going on 
somewhere, and we are not really getting the big bang for our 
buck, in that it is a blank check, even though as it relates to 
research and development.
    And on the last panel, one of our panelists was really 
heavily into the AIDS/HIV research, and knowing that you have 
to spend millions of dollars, now a billion dollars almost to 
really get into good research. How do you--I am trying to 
figure out, how do we get a level of comfort? Because this is 
not--this is something that all of the news stations, all of 
the writers are going to be focused on.
    You start talking about individuals, appointees and 
pharmaceutical companies, kind of going off to the corner and 
saying, OK, we have the deal. I am not saying that that is a 
bad thing, because we have to move, and we have to move 
expeditiously. We don't have time, like you said, to be topping 
at every point because someone has to check the No. 2 pencil 
you bought last week.
    Could you define more about a good example that is existing 
that we haven't had abuse? Because when we look at regulation, 
it is the reason why we have it, just like we have a stoplight 
in some intersections, a certain amount of casualties took 
place there.
    Mr. Rapoport. Sure. I am certainly not the one to defend 
the pharmaceutical industry. I think they can do that on their 
own.
    Mr. Meek. Don't get me wrong. I am just saying, because we 
have to explain this.
    Mr. Rapoport. Sure. I was just simply trying to build on 
what Dr. Fauci says, is that he needs this industry to bring 
their creativity.
    All I was suggesting with the Defense Production Act, it in 
no way is a relaxation of any audit rights. It is simply a 
framework that allows you to avoid--the anthrax bid took 6 
months before they even selected somebody who has got now 2 
years to come up with R&D.
    You could collapse that timeframe, and you could put, 
again, companies like Human Genome or Merck, they are not 
allowed to get in the same room now. But, under this Act, 
subject to supervision by the Defense Department, they cannot 
talk, absent someone from DOD or one of the other agencies in 
there, they can actually divide up the deck and decide, gee, 
you are going to take plague, you are going to take tularemia.
    Is it going to work perfectly? No. But I am just suggesting 
if you want to get past all of the bidding stages that, you 
know, quite frankly the Mercks and the Human Genomes and the 
Glaxos, they are all very competent. They could all help. You 
don't necessarily need to decide and spend a year which one is 
going to get A and which is going to get B. Let's make that 
decision now and see their proposals and then hunker down and 
have a negotiation that protects the taxpayer, which I know 
that you are worried about.
    Mr. Meek. Thank you so very much.
    Mr. Chairman, I just definitely want to state for the 
record that I appreciate all of the witnesses here and the work 
that you are doing.
    And the work that you do want to do, not only on behalf of 
our companies but also on behalf of Americans, in making sure 
that we are safe in the effort against terrorism. Simply, you 
summed it up better than I could. On behalf of the taxpayers, I 
don't think there is anyone in this Congress that wants to 
abuse their trust that they put into us. And we appreciate all 
of you coming today.
    Thank you, Mr. Chairman.
    Chairman Cox. Thank you, Mr. Meek.
    I want to be as humane as possible with our panel. You have 
devoted many hours of your day here today. I am sure you can 
use a stretch if nothing else.
    And so I have just one question I would like to put to you 
before, with the consent of the other members, we will 
certainly relieve you. It is the fulcrum of the discussion that 
we have been having thus far about what incentives are 
necessary in order to get this jump-started in the private 
sector, and what flexibility the Department should have.
    I have reviewed, as carefully as I can, the legislation in 
its current forms. There are a couple of them extant. And I 
don't believe we have clearly stated in the bill as written, an 
authority for the Secretary of HHS or for the United States to 
make a public bonding commitment to purchase what we have 
defined as qualified countermeasures on such terms and 
conditions as the Secretary might specify in advance at the 
time of the publication of this binding commitment.
    This is the reward model. And the question is, whether or 
not providing such authority as a supplement to what is already 
here, and Congress not tying the hands of the executive branch 
in their choice of which pitch to throw would be something that 
would make BioShield better or would compromise the effort in 
any way? And I would put it to the panel to help me with that.
    Mr. Pemberton. I think if you can make the commitment 
binding and make it earlier, it would certainly encourage 
participation and would encourage more research earlier in the 
process.
    Dr. Haseltine. I am in concurrence with that.
    Mr. Rapoport. As well.
    Mr. Sutcliffe. It would increase the number of participants 
in the project, certainly from the biotech side and add them to 
the pharmaceutical companies that were already attracted to it.
    Chairman Cox. Well, given that unanimous view of this 
panel, what would you like to see in such a public call? What 
would resound most loudly in the private sector and get people 
spurred to action most successfully? Any essential elements to 
such a call, or to put it obversely, anything that the Federal 
Government could say or do in this model that would cause 
people to dismiss it?
    Mr. Pemberton. I think the essentials are estimated within 
Minimum quantities of doses or other volumes be purchased and a 
guaranteed minimum price are going to be the two big items. Of 
course, you have to have standards of performance, you have to 
have some sort of measure of efficacy and safety.
    Chairman Cox. If the legislation were to leave those 
metrics up to the Secretary of HHS, would that be a flaw in the 
legislation or would that be admirable flexibility?
    Mr. Pemberton. I think it has to be left to administrative 
discretion.
    Dr. Haseltine. I agree.
    Chairman Cox. What I mean is not the price and not the 
amount, but rather the legislation could say, for example, the 
Secretary shall, at the time that he makes the public building 
commitment, specify such details as will be necessary for 
people to qualify, which shall include the price, the quantity, 
what have you, and some means that everybody could agree upon, 
in determining the efficacy of the countermeasure that is being 
purchased.
    Mr. Rapoport. What I would add to the language is that the 
Secretary, in his discretion, shall negotiate a reasonable 
price which shall include recognition for the costs of capital 
and return on equity.
    That is a piece that is not in BioShield that would 
announce clearly that there is a willingness on the 
government's part to reimburse the companies for their own 
sweat-equity costs that they have to go out and bring to the 
company, to the project, again on a reasonable basis.
    Chairman Cox. Let me just put a fine point on this. If we 
were to include such authority, and if we were to leave 
essentially all details of what would be in a public call, up 
to the discretion of the Secretary, would that be acceptable 
from your standpoint for the legislation, and would it be a 
good thing, or should we strive for some more specification, 
some more specificity such as, should we say things we ought to 
include--is your last comment, Mr. Rapoport rather advice for 
the Secretary, if and when he were to use this authority?
    Mr. Rapoport. I think what I am suggesting is that you give 
him some parameters of issues that he should consider, that if 
you didn't say so, he wouldn't consider, because it would be 
Defense Department business as usual contracting, which is 
pretty much the way they did the smallpox and anthrax 
procurements, because they didn't have BioShield and not enough 
money.
    Mr. Sutcliffe. I would also hope that such language would 
avoid predetermination that it is doses per dollar that is the 
solution, rather than, for example, some other form of 
protection that would allow him to encourage other solutions on 
the response side rather than on the drug side.
    Chairman Cox. All right. Mr. Turner.
    Mr. Turner. Just one question. I know the hour is late.
    When, Mr. Rapport, you described the way you would like to 
see the process work, you talked about getting everybody in the 
room, all of the manufacturers and you decide who gets to work 
on plague, who gets to work on anthrax, that kind of thing. And 
earlier when Mr. Dicks was asking questions to the panel, I 
think Mr. Sutcliffe made a response to him that indicated that 
you thought, Mr. Sutcliffe, that it would be better to have 
more than one hook in the water. And I want to get clear, 
between the two of you, these two approaches and why each of 
you feel the way you do, and so that we completely have an 
understanding, because I think this is a critical issue.
    I will tell you where I have been on this. I thought that 
the objective here ought to be to get more companies involved 
in this research and this effort. And that we would be best 
served in terms of achieving the goal of getting these vaccines 
out there in the shortest period of time if we did that. So the 
concept of simply sitting in the room and divide up the pie 
seems to me to be the wrong approach.
    But if you disagree with that, let me know. But I want to 
hear the contrasting approaches that I think I heard from each 
of you two.
    Mr. Rapoport. Mr. Turner, I think you rightly took my 
comments to the extreme. I am a big fan of something called 
dual sourcing or triple sourcing. And when I suggested that we 
make an award of one drug to one company, I was giving the 
example.
    Again, this would be up to the Department of Defense and 
Homeland Security who actually would administer this. What we 
saw in the smallpox procurement that Secretary Thompson issued 
right after 9/11, they made an award to one company. In the 
years that I have been practicing government contract law on 
critical problems, critical programs, they never just source to 
one. They always have two or three, so hopefully at the end, 
somebody comes up with the answer.
    But, Secretary Thompson had no money. He had to go with a 
very fine company, I think it is called Acambis. But, quite 
frankly, they were the low bidder. You didn't see Merck, you 
didn't Glaxo, you didn't Wyeth, or the fourth company in Mr. 
Andrew's District. The four big manufacturers have yet to 
participate. It is as if you fight the war in Iraq without 
Northrup Grumman, Boeing, you have a bunch of very qualified 
subcontractors.
    But what I am suggesting is the Defense Production Act, I 
think can be a useful tool. A useful tool in areas where the 
President and his team feel we could get an edge in where maybe 
one company is raring to go and one isn't, that you consider 
that in the legislation.
    Mr. Sutcliffe. I think you are correct to have perceived a 
difference in the point of view. My impression of the BioShield 
Initiative, as written, is that it is an assignment to a 
handful of companies to provide an already determined product.
    The problem that has been brought out in this committee is 
we don't know what this product is, we are not sure how broad 
the threat is, and we would really like to have some answers to 
the threats we are going to find out about next week. There is 
no evidence that these particular companies have anything to 
offer in terms of the discovery side of answering those 
problems.
    What we really ought to be doing is making sure that we get 
the best answer, more players certainly, and I think, different 
players. The production issue of the ultimate solution is 
probably the easiest part. There are many people who believe 
that the future of this combined industry is that the discovery 
side will be the biotech industry as we know it today, and the 
production and marketing element will be the pharmaceutical 
companies.
    I think it makes a lot of sense to use the resources of the 
pharmaceuticals companies to deliver products when they are 
determined.
    But, the BioShield Initiative is to find the products in 
the first place, or to find the countermeasures, I think that 
is the correct statement. The countermeasures may end up being 
things that are not drugs, that are not vaccines. And the way 
BioShield is written, it is really a one-off approach to each 
disease.
    I think it was Mr. Dicks who asked, what will we get at the 
end? The answer is we are going to get, ultimately, a hundred 
individual vaccines produced under the same approach, as 
opposed to any chance at a global, ``macro'' solution to 
avoiding contact in the first place or moderating response to 
antigens and pathogens in a way that draws upon the kind of 
science that Dr. Haseltine was working on 30 years ago, and now 
we think of as what we know about individual patient response.
    So we can learn about that in the context of BioShield. I 
don't think that the existing NIH authority and approach is 
enough, because the urgency is not there. Indeed, in just 
talking with scientists in our company and elsewhere, the 
impression of BioShield is a lot of people are going to go into 
the vaccine production business for major pharmaceutical 
companies, because there will be jobs to do that.
    I am not sure that gives us an answer. It will give us 
warehoused vaccines. Whether they will answer the need and 
anticipate the next threat is a bigger question. I believe they 
probably won't.
    So if we can tweak the BioShield idea, use the urgency that 
is reflected in it and the government attention to bring as 
many solutions into play, we will get the right ones, and it 
may well be that that means not paying for them up front, not 
agreeing to pay for them up front, but agreeing to pay for them 
when they are delivered, then allowing private industry and the 
private capital markets to compete to give you a number of 
different solutions.
    If we all get in one room and divide up the diseases, we 
will get a hundred thousand left shoes. I think that that is 
the giant risk of the way the structure is currently 
anticipated.
    Dr. Haseltine. I have a comment on your question. I think 
the notion of a priority of dividing up who gets what disease 
is a very bad idea. You don't know who is going to come up with 
the valid solution. On the other hand, at the other extreme, 
you can't have multiple people making products for the same 
purpose. We can't have say three or four vaccines for anthrax. 
That may work in the private sector where there is an open 
market, but it is very unlikely to work where you have the 
government.
    So there should be something that allows diversity, a 
priority to come up with products that meet certain criteria, 
at which point there is a selection for which company does the 
production.
    But, I think it would be an extremely bad idea to divide 
the world up before you had proof of efficacy.
    Mr. Turner. Thank you.
    Mr. Pemberton. I think the basic model under the existing 
language is competitive R&D, and we are certainly comfortable 
with that. But there may be instances where there could be 
needless duplication of effort that could be discovered through 
a very limited process of meeting, where you would need an 
antitrust exemption to have those kinds of meetings, to 
discover where you are wasting effort, where two people are 
doing the same thing, that is not necessary.
    Chairman Cox. Well, I think you have surpassed yourselves 
in your contribution here this evening. I am sure that every 
one of our panelists is here beyond the hour that you expected 
depart. So you are very, very much appreciated we want you to 
know. You have helped this committee immensely in our task as 
we go forward.
    We are very, very close to marking up this legislation. So 
your comments are both very timely and very consequential, I 
think, and we appreciate your help a great deal. Thank you for 
traveling here, for being with us.
    And with that the hearing is adjourned.
    [Whereupon, at 6 p.m., the committee was adjourned.]

                                APPENDIX

          ADDITIONAL MATERIAL SUBMITTED FOR THE HEARING RECORD

     Questions and Responses for the Record from Mr. Alan Pemberton

    Thank you for the opportunity to address further questions from 
Representative Jackson-Lee following the oversight hearing entitled 
``BioShield: Countering the Bioterrorist Threat'' on Thursday, May 15, 
2003.
    Representative Jackson-Lee's first set of questions were as 
follows:
        I am concerned that we could promise about 1 billion dollars 
        for creation of a new vaccine, sit back and think that we have 
        taken care of the problem, and find out in five years that 
        nothing has been accomplished. How will we monitor whether this 
        Act is having the desired effect? How many companies do you 
        think will start new programs to develop vaccines or drugs to 
        combat bioterrorism? How many corn panics in the business will 
        expand their programs? Is there some threshold level of new 
        activity that you could see that might indicate that the 
        industry is dedicating the appropriate resources?

        She also inquired:
    Considering the relative lack of transparency in the private 
sector, and the fact that many pharmaceutical companies are publicly 
traded--do you expect them to be forthcoming about their progress, or 
lack of progress, on this front? How long will it take us to figure out 
if the industry is not getting the job done, and that perhaps a federal 
effort is necessary.
    On behalf of the Pharmaceutical Research and Manufacturers of 
America (``PhRMA'') on whose behalf I testified at your Committee's 
recent hearing, I am pleased to respond as follows:
    First, while it is impossible to predict the specific research 
initiatives that will be undertaken if BioShield legislation is 
adopted, if the government does not remove significant disincentives to 
the development of such a market (including meaningful protections 
against liability exposure), the pharmaceutical industry is not likely 
to reallocate existing resources to developing countermeasures to 
bioterrorism. To stimulate private industry participation, it is 
imperative that Congress create a guaranteed market and address 
disincentives such as the liability exposure of participants. PhRImIA 
favors a liability protection system similar to that enacted currently 
for smallpox vaccine manufacture.
    The transparency of research efforts will not be an issue. There 
will be (as there currently are) many ways to learn what research PhRMA 
member companies are performing. Information about the nature of the 
ongoing research and development is generally public. Public documents 
such as the PhRMA annual report, company press releases, and SEC 
filings provide such information. Additionally, government entities 
often are aware and involved in the research process--the NIH and CDC, 
particularly where infectious agents are concerned, and the FDA, once 
clinical trials are underway.
    PhRMA would welcome the opportunity to work with Congress to 
construct a countermeasure contracting and procurement process that 
operates more like the commercial contracting process, which we believe 
will enhance its appeal to private companies. Pharmaceutical companies 
are accustomed to commercial contracting rather than government 
contracting and structure their research and development efforts 
differently from traditional defense contractors. For instance, 
authorization of ``other transactions authority'' would provide greater 
flexibility than is typically the case under federal acquisition 
regulations and would permit agreements that more closely resemble 
commercial transactions, thereby increasing the likelihood of research 
and development initiatives and product introductions in this area.

            Questions for the Record Submitted for Dr. Fauci

                 Questions from Rep. Shelia Jackson-Lee

    Once vaccines or drugs are developed and we have them stockpiled, 
how will they be distributed? My concern is that we have about 40 
million people in the United States who have no health insurance. Those 
without health insurance are less likely to go to see their physicians 
on a regular basis. Many do not even have a doctor of record, but 
instead only go to emergency rooms when extreme circumstances arise. If 
a situation arises where millions of people in an area need to go in 
for consultation, then inoculation, then follow up--and there are so 
many people without a good working relationship with a physician or 
clinic--we could have mass confusion.
    What facilities will be in charge of distribution? Will people 
visit their own physicians or public health clinics? How will they know 
where to go? Do these facilities have the infrastructure to take the 
deluge of patients we expect? Do they have enough people to give 
appropriate education and advice? Will they be able to treat some of 
the side-effects or allergic reactions that may arise? We have a 
disparity in health and healthcare in the U.S. between the haves and 
the have-nots. I would hate to see a disparity in survival after a 
terrorist attack.
    I am concerned that we could promise about 1 billion dollars for 
creation of a new vaccine, sit back and think that we have taken care 
of the problem, and find out in five years that nothing has been 
accomplished. How will we monitor whether this Act is having the 
desired effect? How many companies do you think will start new programs 
to develop vaccines or drugs to combat bioterrorism? How many companies 
in the business will expand their programs? Is there some threshold 
level of new activity that you could see that might indicate that the 
industry is dedicating the appropriate resources? Considering the 
relative lack of transparency in the private sector, and the fact that 
many pharmaceutical companies are publicly traded-- do you expect them 
to be forthcoming about their progress, or lack of progress, on this 
front? How long will it take us to figure out if the industry is not 
getting the job done, and that perhaps a federal effort is necessary?
    No Response received by the Committee
    Questions Submitted for the Record From The Honorable Peter DeFazio
    1. With single-source procurement contracts for countermeasures, 
are the profit margin and rate of return pre-established in the 
contract?
    2. As is customary in conventional government procurement, couldn't 
HHS simply expedite the RFP and awarding processes for developing 
countermeasures? Wouldn't a competitive bidding process serve the 
public interest and public health goals better?
    3. Better still, why shouldn't DHS start contracting immediately to 
develop countermeasures for National Institute of Allergy and 
Infectious Disease High Threat List (``A List'') toxins?
    4. Much of the debate on preparedness revolves around biological 
toxins. Is there anything specifically that's being done to develop 
countermeasures for chemical agents?
    No Response received by the Committee

       Responses for the Record from William A. Haseltine, Ph.D.

    Thank you for the opportunity to testify last week before the 
Select Committee on Homeland Security. As I said in my statement and in 
response to questions from members of the Select Committee, Human 
Genome Sciences strongly supports the President's Project BioShield 
initiative. The program will go a long way toward giving companies the 
assurance they need to develop innovative new products to protect the 
public from chemical or biological attacks.
    I also want to share with you some suggestions for improving the 
BioShield legislation that was approved last week by the House Energy 
and Commerce Committee. In some respects, the bill as currently drafted 
would offer less flexibility than under existing government procurement 
regulations. In order to be truly effective, the BioShield program must 
give Department of Health and Human Services the flexibility to craft 
development and procurement contracts that more closely resemble those 
in the private market and reflect a partnership between the federal 
government and companies willing to commit their expertise and 
resources to defeat weapons of bioterror.
    I have attached three draft amendments, which I am hopeful you will 
consider as the Select Committee marks-up the BioShield legislation. In 
particular:
     Amendment 1 would (1) authorize the Secretary of HHS to 
include performance-based (milestone) payments in procurement 
contracts--rather than limit contracts to repayable ``advance 
payments'' and payment conditioned on ``substantial delivery''; (2) 
provide that the Secretary may enter into single contracts for 
research, development and production; and (3) ensure that procurement 
contracts may reflect the actual cost of development, including costs 
incurred before or after contract execution.
     Amendment 2 would further ensure that contracts may 
provide for both development and procurement.
     Amendment 3 would provide necessary liability protections 
identical to those included in the Homeland Security Act of 2002.
    I believe that all three provisions would be strongly endorsed by 
the pharmaceutical and biotechnology industries and would be happy to 
discuss them further with you and your staff.
    Thank you again, and I look forward to working with you and the 
administration to ensure that Project BioShield is a success.
    Sincerely,

    William A. Haseltine, Ph.D.Chairman and Chief Executive 
OfficerEnclosures
    AMENDMENT 1
    In section 31 9F-2 of part B of title III of the Public Health 
Service Act (as proposed to be added by section 3 of the bill), strike 
subclause (I) of subsection (c)(7)(C)(ii) and insert the following (and 
redesignate succeeding subclauses and references thereto accordingly):
    ``(I) PAYMENT CONDITIONED ON SUBSTANTIAL DELIVERY.--The contract 
may provide that no payment may be made until delivery has been made of 
a substantial portion (as determined by the Secretary) of the total 
number of units contracted for, unless the Secretary determines (in the 
Secretary's discretion) that advance, partial, progress or other 
payments consistent with section 305 of the Federal Property and 
Administrative Services Act of 1949 (41 U.S.C. 255) are necessary to 
ensure the success of a project.
    ``(II) SECURITY COUNTERMEASURE DEVELOPMENT.--Notwithstanding any 
other provision of law, the contract may include the procurement of 
research, development, and production, and may reflect, in its terms 
and price, the actual cost of developing the security countermeasure, 
including any cost incurred either before or after the execution of the 
contract.''.
    AMENDMENT 2
    In section 319F-2 of part B of title III of the Public Health 
Service Act (as proposed to be added by section 3 of the bill), insert 
``, including procurement of research, development, and production 
under a single agreement, as necessary,'' after ``Secretary for 
procurement'' in clause (i) of subsection (c)(7)(B).
    AMENDMENT 3
    In section 31 9F-2 of part B of title III of the Public Health 
Service Act (as proposed to be added by section 3 of the bill), at the 
end of subsection (c)(7)(C)(vii) add the following new clause: ``(viii) 
LIABILITY.--Any product or service resulting from any agreement under 
this section for procurement, including research, development, and 
production, shall be designated as a ``qualified anti-terrorism 
technology'' as defined in section 865 of the Homeland Security Act of 
2002 and, notwithstanding any other provision of law, shall be afforded 
any and all protections provided under subtitle G of Title VII of the 
Homeland Security Act of 2002 without regard to whether an ``act of 
terrorism'' as defined in Section 865 has occurred.''.

 Questions and Responses submitted for the Record from L. Garry Adams, 
                            DVM, PhD, DACVP

    As requested in your letter of July 1, 2003 pertaining to my 
testimony before the Full Committee oversight hearing on ``BioShield: 
Countering the Bioterrorist Threat,'' the following statements are my 
responses to the specific questions of U.S. Representative Shelia 
Jackson-Lee. I have responded from the context of my background over 
the last three decades as a veterinary medical research scientist 
participating in the development and implementation of new vaccines and 
diagnostic tests for two successful multi-billion dollar federal animal 
health regulatory programs, bovine brucellosis and bovine tuberculosis. 
For purposes of convenience, I have restated each of Representative 
Jackson-Lee's questions below.

    Questions from Rep. Shelia Jackson-Lee: I am concerned that we 
could promise about 1 billion dollars for creation of a new vaccine, 
sit back and think that we have taken care of the problem, and find out 
in five years that nothing has been accomplished.
    Question: How will we monitor whether this Act is having the 
desired effect?
    Response: First, the specific federal-private enterprise 
contractual agreements must have clearly written time lines and due 
diligence clauses for completion of deliverables. Second, the 
contractual agreement between the federal government and private 
enterprise for vaccines, diagnostic tests and/or therapeutics must be 
written to have progressive milestones with due dates with demonstrable 
proof of deliverables meeting specific definitions of quantity and 
quality of products. Third, the US House Select Committee on Homeland 
Security will be expected to maintain rigid oversight of the entire 
process and the timeliness for the quality and quantity of 
deliverables, possibly functioning through single or multiple major 
federal agencies, e.g. Department of Homeland Security, Department of 
Health and Human Services, and/or Department of Defense.
    An example from a national animal health perspective: For the last 
60 years or more, the United States Department of Agriculture has been 
responsible for the implementation and oversight of contractual 
agreements with private enterprise for the timely production of the 
quality and quantity of vaccines and diagnostic tests required for the 
hundreds of millions of cattle involved in the successful federal 
brucellosis and tuberculosis regulatory programs.
    Question: How many companies do you think will start new programs 
to develop vaccines or drugs to combat bioterrorism?
    Response: This question is beyond my experience and background, 
however my impression is that current minor and major biologics and 
pharmaceutical companies would be responsive to the demand for 
vaccines, diagnostic test and therapeutics related to bioterrorism as 
long as the profit incentive remained viable for the firms.
    Another example from a national animal health perspective: When the 
new bovine brucellosis vaccine was introduced in the mid-90s, the same 
USDA approved biologics manufacturer continued to produce the former 
vaccine and quickly expanded new manufacturing lines to produce the 
millions of doses of the new brucellosis vaccine required for the 
federal regulatory program.
    Question: How many companies in the business will expand their 
programs?
    Response: Again this question is beyond my experience and 
background, but as long as the profit incentive was viable for the 
biologics and pharmaceutical companies for several years, and the 
companies were able to meet the quality requirements for the products 
and had the capacity to expand production, U.S. enterprise would be 
expected to respond accordingly.
    Question: Is there some threshold level of new activity that you 
could see that might indicate that the industry is dedicating the 
appropriate resources?
    Response: The federal-private enterprise contractual agreements 
would need to be written with clear indicators that appropriate human 
resources and fiscal resources were invested to comply with the due 
diligence clauses for completion of deliverables.
    Question: Considering the relative lack of transparency in the 
private sector, and the fact that many pharmaceutical companies are 
publicly traded--do you expect them to be forthcoming about their 
progress, or lack of progress, on this front?
    Response: The federal government-biologics and pharmaceutical 
company contracts would need to be written such that timely milestone 
inspections and reports are obligatory in order to comply with the due 
diligence clauses for completion of deliverables.
    Question: How long will it take us to figure out if the industry is 
not getting the job done, and that perhaps a federal effort is 
necessary?
    Response: The frequency of the mandated milestone inspections and 
reports will be the determining factor for how quickly lack of 
compliance with due diligence might occur, i.e. the frequency of these 
inspections and reports would be expected to be no more than each six 
months throughout the contractual agreement.
    Thank you, Chairman Cox, for the opportunity to respond to specific 
questions from the U.S. House of Representatives? Select Committee on 
Homeland Security hearing on ``BioShield: Countering the Bioterrorist 
Threat.'' Should you require clarification for any of my responses, 
please contact me at your convenience.