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





   PROJECT BIOSHIELD: CONTRACTING FOR THE HEALTH AND SECURITY OF THE 
                            AMERICAN PUBLIC

=======================================================================

                                HEARING

                               before the

                              COMMITTEE ON
                           GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                             APRIL 4, 2003

                               __________

                           Serial No. 108-10

                               __________

       Printed for the use of the Committee on Government Reform


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



                                 ______

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                            WASHINGTON : 2003
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                     COMMITTEE ON GOVERNMENT REFORM

                     TOM DAVIS, Virginia, Chairman
DAN BURTON, Indiana                  HENRY A. WAXMAN, California
CHRISTOPHER SHAYS, Connecticut       TOM LANTOS, California
ILEANA ROS-LEHTINEN, Florida         MAJOR R. OWENS, New York
JOHN M. McHUGH, New York             EDOLPHUS TOWNS, New York
JOHN L. MICA, Florida                PAUL E. KANJORSKI, Pennsylvania
MARK E. SOUDER, Indiana              CAROLYN B. MALONEY, New York
STEVEN C. LaTOURETTE, Ohio           ELIJAH E. CUMMINGS, Maryland
DOUG OSE, California                 DENNIS J. KUCINICH, Ohio
RON LEWIS, Kentucky                  DANNY K. DAVIS, Illinois
JO ANN DAVIS, Virginia               JOHN F. TIERNEY, Massachusetts
TODD RUSSELL PLATTS, Pennsylvania    WM. LACY CLAY, Missouri
CHRIS CANNON, Utah                   DIANE E. WATSON, California
ADAM H. PUTNAM, Florida              STEPHEN F. LYNCH, Massachusetts
EDWARD L. SCHROCK, Virginia          CHRIS VAN HOLLEN, Maryland
JOHN J. DUNCAN, Jr., Tennessee       LINDA T. SANCHEZ, California
JOHN SULLIVAN, Oklahoma              C.A. ``DUTCH'' RUPPERSBERGER, 
NATHAN DEAL, Georgia                     Maryland
CANDICE S. MILLER, Michigan          ELEANOR HOLMES NORTON, District of 
TIM MURPHY, Pennsylvania                 Columbia
MICHAEL R. TURNER, Ohio              JIM COOPER, Tennessee
JOHN R. CARTER, Texas                CHRIS BELL, Texas
WILLIAM J. JANKLOW, South Dakota                 ------
MARSHA BLACKBURN, Tennessee          BERNARD SANDERS, Vermont 
                                         (Independent)

                       Peter Sirh, Staff Director
                 Melissa Wojciak, Deputy Staff Director
              Randy Kaplan, Senior Counsel/Parliamentarian
                       Teresa Austin, Chief Clerk
              Philip M. Schiliro, Minority Staff Director


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on April 4, 2003....................................     1
Statement of:
    Fauci, Dr. Anthony S., Director, National Institute of 
      Allergy and Infectious Diseases, National Institutes of 
      Health, Department of Health and Human Services; Dr. Mark 
      McClellan, Commissioner, Food and Drug Administration, 
      Department of Health and Human Services; Michael Brown, 
      Under Secretary for Emergency Preparedness and Response, 
      Department of Homeland Security; and Dr. Dale Klein, 
      Assistant to the Secretary of Defense for Nuclear, Chemical 
      and Biological Defense Programs, Department of Defense.....    15
    Rapoport, Frank, attorney at law, McKenna Long & Aldridge, on 
      behalf of Aventis Pasteur; Michael Friedman, chief medical 
      officer for biomedical preparedness, Pharmaceutical 
      Research and Manufacturers of America; Una Ryan, president, 
      Avant Immunotherapeutics, Inc., Needham, MA; Katherine 
      Bowdish, Ph.D., president, Alexion Antibody Technologies, 
      Cheshire, CT; and John Edwards, chief of infectious 
      diseases, Harbor-UCLA Medical Center, on behalf of the 
      Infectious Diseases Society of America.....................    65
Letters, statements, etc., submitted for the record by:
    Brown, Michael, Under Secretary for Emergency Preparedness 
      and Response, Department of Homeland Security, prepared 
      statement of...............................................    39
    Davis, Chairman Tom, a Representative in Congress from the 
      State of Virginia, prepared statement of...................     3
    Edwards, John, chief of infectious diseases, Harbor-UCLA 
      Medical Center, on behalf of the Infectious Diseases 
      Society of America, prepared statement of..................   105
    Friedman, Michael, chief medical officer for biomedical 
      preparedness, Pharmaceutical Research and Manufacturers of 
      America, prepared statement of.............................    77
    Klein, Dale, Assistant to the Secretary of Defense for 
      Nuclear, Chemical and Biological Defense Programs, 
      Department of Defense, prepared statement of...............    45
    McClellan, Dr. Mark, Commissioner, Food and Drug 
      Administration, Department of Health and Human Services, 
      prepared statement of......................................    20
    Rapoport, Frank, attorney at law, McKenna Long & Aldridge, on 
      behalf of Aventis Pasteur, prepared statement of...........    68
    Ryan, Una, president, Avant Immunotherapeutics, Inc., 
      Needham, MA, prepared statement of.........................    94
    Shays, Hon. Christopher, a Representative in Congress from 
      the State of Connecticut, prepared statement of............    13
    Waxman, Hon. Henry A., a Representative in Congress from the 
      State of California, prepared statement of.................     7

 
   PROJECT BIOSHIELD: CONTRACTING FOR THE HEALTH AND SECURITY OF THE 
                            AMERICAN PUBLIC

                              ----------                              


                         FRIDAY, APRIL 4, 2003

                          House of Representatives,
                            Committee on Government Reform,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 9:30 a.m., in 
room 2154, Rayburn House Office Building, Hon. Tom Davis 
(chairman of the committee) presiding.
    Present: Representatives Tom Davis, Shays, Waxman, 
Kucinich, Van Hollen and Norton.
    Staff present: Peter Sirh, staff director; Melissa Wojciak, 
deputy staff director; Keith Ausbrook, chief counsel; Randy 
Kaplan, senior counsel; John Hunter and David Young, counsels; 
David Marin, director of communications; Scott Kopple, deputy 
director of communications; Teresa Austin, chief clerk; Joshua 
E. Gillespie, deputy clerk; Susie Schulte, legislative 
assistant; Corinne Zaccagnini, chief information officer; Phil 
Barnett, minority chief counsel; Karen Lightfoot, minority 
communications director/senior policy advisor; Mark Stephenson, 
minority professional staff member; Earley Green, minority 
chief clerk; Jean Gosa, minority assistant clerk; and Cecelia 
Morton, minority office manager.
    Chairman Tom Davis. Good morning. A quorum being present, 
the Committee on Government Reform will come to order.
    We are here today to examine an administration proposal 
known as the Project BioShield Act, which is designed to 
protect the health and safety of the American people in the 
event of a bioterrorist attack. This proposal, first announced 
by the President in his 2003 State of the Union address, 
authorizes the government to conduct and support the 
development, acquisition and distribution of vaccines, 
treatments and other biomedical countermeasures to use during 
public health emergencies, including bioterrorist attacks.
    Over the past few decades, we have seen rapid progress in 
the development of treatments for many serious naturally 
occurring diseases. Pharmaceutical and biotechnology companies 
are highly capable of producing diagnostics and treatments to 
meet consumer demand. However, there has been little progress 
in treatments for deadly diseases like smallpox, anthrax, Ebola 
and plague, which currently affect few, if any, Americans. The 
reality is that for these diseases there is little manufacturer 
interest in developing necessary treatments, since there is no 
significant market other than the government.
    Should the United States be attacked with these deadly 
pathogens, however, the need for vaccines, tests and treatments 
would be great; and it would be immediate. The administration's 
Project BioShield initiative is designed to ensure that the 
United States is prepared. The bill would stimulate companies 
to develop modern and effective vaccines, drugs and devices to 
protect Americans in the event of a bioterrorist attack or 
other public health emergency.
    The bill has three main components: First, it sets up a 
process to expedite research and development of biomedical 
countermeasures. As part of this process, the Secretary of 
Health and Human Services would have flexible acquisition 
authorities to quickly and effectively buy cutting-edge 
products and services to support research, development, and 
production of vaccines and treatments. Additional acquisition 
flexibilities are put at the Secretary's disposal for the 
creation of a stockpile of these critical countermeasures. The 
Secretary would also have streamlined authority to hire 
technical experts and consultants.
    Second, the Secretaries of Homeland Security and Health and 
Human Services would be required to work together to identify 
and evaluate bioterrorist threats and determine which 
countermeasures are needed to combat these threats. The bill 
would also create a permanent funding authority designed to 
spur the development of medicines and vaccines by the private 
sector.
    Third, during national emergencies, the bill would permit 
the government to make available new and promising treatments 
prior to approval by the Food and Drug Administration.
    A version of the Project BioShield Act is introduced by 
Senator Judd Gregg in the Senate and was reported out of the 
committee last month. I intend to introduce a House version in 
the near future.
    We have assembled an impressive group of witnesses who will 
help us better understand this bill. I am particularly 
interested in learning how Project BioShield would assist in 
addressing the current public health emergency created by the 
epidemic known as Severe Acute Respiratory Syndrome [SARS]. 
More than 2,000 suspected cases of this mysterious disease have 
been reported in 17 nations, including the United States, with 
78 fatalities. So far, there is no effective treatment or 
vaccine to combat this deadly syndrome.
    I thank all of our witnesses for appearing today. I look 
forward to their testimony.
    I would now yield to Mr. Waxman for his opening statement.
    [The prepared statement of Chairman Tom Davis follows:]

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    Mr. Waxman. Thank you very much, Mr. Chairman.
    I want to welcome the distinguished members of the panel, 
this first panel, and the subsequent panel as well.
    We are holding a hearing on a proposal by the 
administration which I think all of us would support in its 
intent. We want to accomplish what the proposal would seek to 
have us accomplish, but our responsibility as Members of 
Congress is to scrutinize it carefully, to try to think about 
the unintended consequences, and to make sure that the job is 
done right.
    The development of effective countermeasures to 
bioterrorism is certainly vital to our natural security. The 
Project BioShield represents a proposal to encourage the 
development of these products. We all support trying to do 
that, but we have a responsibility to look closely at the 
provisions of the legislation, and some of those provisions 
give me some cause for concern.
    For example, the proposal removes important protections 
against waste and abuse that are standard for government 
contracts. I understand the concern that these protections, in 
an emergency situation, could impede the development of 
necessary products. However, any exceptions should be made only 
when necessary and should be subject to review. This proposal 
would make it nearly impossible for the courts, for Congress 
and even the executive branch to rein in abuses. The provision 
eliminating the government's access rights to contractors' 
books and records is particularly troubling.
    Another provision permits products to be distributed 
without FDA approval. Here again, I recognize there may be 
unusual circumstances that would require this step in case of a 
dire emergency. However, the proposal's language is overly 
broad and could be used to support products that are simply not 
safe enough for FDA approval. This provision could also permit 
widespread distribution of unapproved drugs without informed 
consent, recordkeeping or reporting of adverse events.
    The BioShield proposal also provides for unlimited 
guaranteed spending for procurement of vaccines and other 
countermeasures with little congressional guidance or limits on 
how much to spend.
    This is a blank check approach. It could be looked at as an 
abdication of congressional responsibility. We should work to 
improve this proposal in such a way as to preserve oversight 
and recognize that, in order for BioShield to work, we need to 
assure that commitments made will be honored.
    In this regard, it is ironic that the administration does 
not support a similar approach of assuring that commitments 
will be honored in the case of a smallpox vaccine compensation 
program. Here, the argument for mandatory spending is strong, 
because nurses, firefighters and other first responders deserve 
to know that they and their families will be supported in the 
case of severe injury or death. Yet in the case of smallpox 
vaccination compensation, the administration has proposed 
limiting compensation to the amount appropriated each year, 
explicitly refusing to guarantee its commitment to those 
Americans on the front lines of a bioterrorist attack. This 
inexplicable failure to assure funding is one of the reasons 
that the House voted down the administration's legislation on 
smallpox vaccines compensation last Monday.
    I raised this issue last week in the Commerce Committee to 
point out the inconsistencies. At the time I did that, many 
people raised the point, why should we allow automatic spending 
in this area? They argued we shouldn't allow automatic spending 
in any area.
    But Secretary Thompson made the case last week that we want 
to assure that funding will be there so that the companies that 
are taking the financial risk of developing these products know 
that they will be able to count on those funds.
    I thought that was a strong argument to make. But, equally 
strong is to make the assurances clear that if a first 
responder gets immunized for smallpox that they are going to be 
able to count on funding should there be, in rare 
circumstances, but nevertheless in some circumstances, an 
adverse event.
    Let me conclude by pointing out that the BioShield proposal 
includes provisions for public health emergencies, not just 
bioterrorism threats. The idea of including public health 
emergencies in a BioShield makes sense, because infectious 
diseases that occur in nature can claim many lives, can even 
become bioterrorist agents if intentionally spread.
    What justifies government intervention to support 
countermeasures is that the market fails to encourage their 
development on its own. This rationale also applies to the 
development of treatments for potential public health 
emergencies.
    In 2002, not a single new antimicrobial drug was approved 
by FDA; and apparently only a handful are in development by 
major pharmaceutical companies. One reason may be that the 
market for the few cases of multidrug-resistant bacteria is 
currently quite small. That leads to a market failure. And yet 
the need for such treatments is enormous.
    Just yesterday, the New England Journal of Medicine carried 
the first report of a common bacteria that is extremely 
resistant to an antibiotic that is usually the last line of 
defense.
    If properly designed, then, BioShield can serve valuable 
purposes, improving our preparedness against bioterrorist 
attacks and natural epidemics.
    I look forward to hearing from the witnesses today to help 
us understand this proposal and find ways to improve it. We 
need to work together collaboratively for what is certainly a 
shared goal that we all have.
    Thank you.
    Chairman Tom Davis. Thank you very much.
    [The prepared statement of Hon. Henry A. Waxman follows:]

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    Chairman Tom Davis. The gentleman from Connecticut, the 
vice chairman of the committee, is recognized. Mr. Shays.
    Mr. Shays. Thank you, Mr. Chairman, for convening this very 
important hearing.
    I come to this discussion with significant skepticism, not 
about the urgency of the problem of countering biological 
threats but about the adequacy and efficacy of the proposed 
solution.
    Buying biologics is not like buying bullets. The cold war 
model of short-term research incentives and artificial markets 
to sustain defense contractors may not fit the intensely 
entrepreneurial pharmaceutical and biomedical industries. The 
Department of Defense [DOD], Joint Vaccine Acquisition Program 
and the Anthrax Vaccine Immunization Program should serve as 
cautionary tales. The latter rushed to procure last century 
technology to the detriment of research and development of a 
modern anthrax vaccine. The former spent 6 years and more than 
$300 million but has yet to finish a single vaccine.
    As the current outbreak of Severe Acute Respiratory 
Syndrome [SARS] attests, we remain hard-pressed to maintain our 
defenses against nature's evolving arsenal of biological 
threats. Hasty acquisition of medical countermeasures available 
within 5 years, as proposed in BioShield, applies only a short-
term bandage to a long-term illness.
    Massive caches of stockpiled vaccines, antibiotics and 
drugs will protect no one if they cannot be administered 
quickly and safely. The missing element of the protective 
shield envisioned in this proposal is public health capacity.
    Surveillance systems, diagnostic tools and trained medical 
personnel are prerequisites to any effective defense against 
natural and man-made biological outbreaks.
    I look forward, Mr. Chairman, to discussing the BioShield 
proposal and biopreparedness priorities with our witnesses this 
morning. This is truly a very important hearing and one to 
which we should pay close attention.
    Chairman Tom Davis. Thank you very much.
    [The prepared statement of Hon. Christopher Shays follows:]

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    [GRAPHIC] [TIFF OMITTED] T7141.009
    
    Chairman Tom Davis. We now move to our first panel of 
witnesses. I want to thank our witnesses for appearing today.
    We have Dr. Anthony Fauci from the National Institute of 
Allergy and Infectious Diseases; Dr. Mark McClellan, the 
Commissioner of the Food and Drug Administration; from the 
Department of Homeland Security, we have Michael Brown, who is 
the Under Secretary for Emergency Preparedness and Response; 
and rounding out the first panel is Dr. Dale Klein, who is the 
Assistant to the Secretary of Defense for Nuclear, Chemical and 
Biological Defense Programs.
    It is the policy of this committee that witnesses be sworn. 
So if you would stand with me and raise your right hands.
    [Witnesses sworn.]
    Chairman Tom Davis. Dr. Fauci, we will start with you and 
move right down the line. Thank you for being with us.

    STATEMENTS OF DR. ANTHONY S. FAUCI, DIRECTOR, NATIONAL 
    INSTITUTE OF ALLERGY AND INFECTIOUS DISEASES, NATIONAL 
INSTITUTES OF HEALTH, DEPARTMENT OF HEALTH AND HUMAN SERVICES; 
DR. MARK McCLELLAN, COMMISSIONER, FOOD AND DRUG ADMINISTRATION, 
 DEPARTMENT OF HEALTH AND HUMAN SERVICES; MICHAEL BROWN, UNDER 
 SECRETARY FOR EMERGENCY PREPAREDNESS AND RESPONSE, DEPARTMENT 
  OF HOMELAND SECURITY; AND DR. DALE KLEIN, ASSISTANT TO THE 
   SECRETARY OF DEFENSE FOR NUCLEAR, CHEMICAL AND BIOLOGICAL 
            DEFENSE PROGRAMS, DEPARTMENT OF DEFENSE

    Dr. Fauci. I appreciate the opportunity to discuss Project 
BioShield with you today.
    As you know from the legislative language, the purpose of 
Project BioShield is to accelerate the research, development 
and purchase and availability of effective medical 
countermeasures against chemical, biological, radiological and 
nuclear terrorism and public health emergencies.
    Project BioShield, as you, Mr. Chairman, summarized so 
well, is a three-pronged program. It increases the authorities 
of and flexibilities of the NIH to expedite research, it 
establishes a secure funding source to purchase 
countermeasures, and it establishes an FDA emergency use 
authorization.
    I am going to very briefly discuss the first two components 
in the context of how they relate to the work at the NIH; and 
my HHS colleague, Dr. Mark McClellan, the FDA Commissioner, 
will discuss both the procurement issues and how they relate in 
the context of the FDA's responsibilities.
    The NIH research system has served the country and the 
world extraordinarily well for many decades. The NIH employs 
traditional funding mechanisms that include grants, contracts, 
cooperative agreements and other partnerships as well as time-
tested personnel functions, a system that has resulted in 
numerous major advances that have improved the health of the 
Nation, including the development of interventions for a number 
of emerging and reemerging infectious diseases.
    However, the events of September 11, 2001, and the 
subsequent anthrax attacks have changed, probably forever, how 
the biomedical community is going to respond to emerging 
threats. We are now in a wartime mode and are compelled to 
modify the way that we do business without compromising the 
elements that have made us so successful.
    With regard to the first component of Project BioShield, 
the legislation provides for a number of special authorities at 
NIH that will have the aggregate effect of expediting the 
research process. This is what we call the push toward the 
countermeasure development. Among those, BioShield provides for 
expedited peer review of grants and contracts, and I emphasize 
without compromising the scientific, technical and programmatic 
standards. It also streamlines procurement authority, bolsters 
authorities for acquisition and renovation of facilities, 
expedites personal services contracts and provides flexibility 
with regard to personnel authority. We feel that these expanded 
authorities will considerably hasten the pathway from basic 
research concept up to and including effective countermeasure 
development.
    Let me switch gears quickly and speak briefly about the 
mandated appropriations authority for the procurement of 
countermeasures. We at NIH and our colleagues at DHHS have had 
numerous occasions to discuss the development of 
countermeasures with companies ranging from small biotech firms 
to big PLRMA. These are our industrial partners that are 
essential to bringing countermeasure development to fruition.
    Many of those firms are willing to help in the development 
of biodefense countermeasures, but the fact remains that they 
are business and are not nonprofit organizations, and they need 
a tangible incentive to get involved.
    Now when it is evident that a given product has a potential 
to make a profit, few incentives are needed to engage industry. 
However, when you are dealing with a product for which there is 
no guarantee of a return or for which the market is tenuous, 
these companies clearly need some assurances that there will 
ultimately be a return for their investment. Without such 
assurances, they will simply pursue the development of other 
products.
    When we meet with companies, we hear one of two things. 
First, they may already be involved in the early stages of 
development of biodefense countermeasures on their own 
initiative. They are willing to take on a fair amount of risk, 
but they want some assurances if they are actually successful 
that there will be a market for their product. Many state, 
quite frankly, that they do not want to be vulnerable to the 
vicissitudes of the cyclical appropriation process, as sound as 
that is in so many arenas.
    The other scenario in which we are trying to engage 
reluctant companies to get involved, namely people who have 
many other things to do with their efforts and with their 
expertise, in this instance, we do as we are doing now. We push 
with discretionary research dollars.
    However, in our experience, that does not seem to be 
enough. With Project BioShield, we will further be able to tell 
these companies that they can partner with us such that if at 
their end they meet milestones and come up with a licensable 
countermeasure they have our assurances that there will be 
money available to them for advanced procurement and, 
ultimately, purchase.
    These are examples of what we call the pull of the process.
    In summary, the accelerated development of effective 
countermeasures against terrorism requires a new research 
paradigm and new ways to engage our industrial partners. 
Project BioShield will help us meet the challenges of 
bioterrorism effectively and expeditiously.
    Thank you again, Mr. Chairman and members of the committee, 
for the opportunity to testify today about this important 
initiative to improve our homeland security; and I would be 
happy to take questions after the others.
    Chairman Tom Davis. Thank you, Dr. Fauci.
    Dr. McClellan.
    Dr. McClellan. Mr. Chairman, Congressman Waxman, 
distinguished members and staff of the committee, thank you for 
inviting me here today to discuss the Project BioShield Act of 
2003.
    As you know, FDA has been engaged with other government 
agencies and the private sector in an accelerated major new 
focus on helping to develop and make available better 
countermeasures for biological, chemical, radiological attacks 
and other types of attacks. This bill will significantly 
enhance those efforts and improve our ability to protect our 
citizens from these threats. In light of the heightened 
security risk facing our Nation and our troops, we appreciate 
your timely consideration of finding better ways to acquire the 
countermeasures that we need.
    I am pleased to tell you that in the last 2 months alone we 
have approved safe and effective treatments for certain nerve 
gases and radiological agents. We have enhanced our stockpiles 
of vaccines and treatments for smallpox and other possible 
agents of biowarfare.
    Working with the Department of Health and Human Services, 
particularly NIH, as well as DOD and the Department of Homeland 
Security and private companies, we are taking further steps to 
determine as quickly as possible whether other available agents 
may be of benefit. Such products include drugs that may be 
active against smallpox and viral hemorrhagic fever, new 
treatments for exposure to radiologic agents, as well as novel 
treatments for smallpox and anthrax vaccines and 
immunoglobulins to treat botulism or complications of smallpox 
vaccinations. We are also working on some new diagnostic and 
treatment methods for the Severe Acute Respiratory Syndrome.
    FDA recognizes that early and ongoing consultation with 
product developers is essential to get rapid approval of safe 
and executive products.
    We focused intense efforts on the rapid turnaround of 
requests for information, review of study plans and data, 
development of plans for appropriate product production and use 
where needed under streamlined investigational new drug 
procedures for agents of terror, for treating agents of 
terrorism.
    Our experience with the approval of a new treatment for the 
effects of a certain nerve gas, pyridostigmine, was approved 
under a new animal rule as a result of legislation last year. 
In this case, FDA worked closely with the sponsors of the 
application to define not only the criteria that would help in 
evaluating the drug's safety and effectiveness for this use, we 
also worked closely to develop appropriate animal models that 
ultimately helped us verify safety and efficacy.
    At the same time, we realize that we can't easily solve the 
problem of getting safe and effective countermeasures to the 
public with the existing financial incentives for developing 
them. Our close work with the developers of these new products, 
which now includes around 200 professional staff in our 
biologic program alone, has reminded us that proof of concept 
is still a very long way from large-scale production of 
effective countermeasures that pose acceptable safety risks.
    In some cases, we have done the work to demonstrate safety 
and effectiveness of certain products for counterterrorism use, 
but we don't yet have companies willing to produce these 
products. To bring badly needed, safer and more effective 
countermeasures to our Nation's defense, we are going to need 
to do more to encourage all parties, basic science researchers 
and government labs as well as the major medical companies, to 
take up the cause of developing countermeasures.
    Consequently, while the countermeasures we have made 
available already have given us a deeper and more effective 
stockpile of treatments, in many cases they are based on old 
technologies. For example, monoclonal antibodies have changed 
the way that we treat everything from heart disease to cancer. 
It is considered a master technology in many biomedical 
circles.
    Many researchers believe that this technology can be 
effectively applied to developing countermeasures from anthrax 
and botulinum toxins to even the Ebola virus. Yet there is only 
limited research at the developmental stage into the 
application of these bioterrorism countermeasures. Instead, 
there is currently available an antitoxin to botulism, which is 
based on a technology that was available when the FDA came into 
existence in 1906. This is a useful and very-much-needed 
treatment, but there is strong reason to believe that new 
technology can produce antidotes and vaccines that are even 
safer and more effective and so much more valuable, and that is 
what has been available to us now.
    So I agree with Congressman Shays about the need to get to 
a next generation of countermeasures through this approach.
    Research and development into next generations 
countermeasures has been much slower for naturally occurring 
diseases, largely because there is no clear financial reward 
for success. Many companies that I have talked to, just like 
Tony has, know that the development of medical products is a 
very uncertain process. They are used to taking risks and 
knowing that they might fail, but what they want to know is 
that if they succeed there is a certainty of a reasonable 
financial reward.
    Today, when it comes to countermeasures, there are plenty 
of risks but few clear defined rewards; and that is why Project 
BioShield is critically important. It includes new procurement 
authorities to provide certainty of payment in advance for the 
delivery of effective new products. By creating conditions for 
a market that is reasonable, predictable and consistent over 
time, government will set the stage for the private sector to 
make the investments and problem-solving efforts required to 
develop more effective next-generation countermeasures.
    Furthermore, in the event that a national emergency has 
been declared, the bill allows for a limited and highly 
targeted use of countermeasures for treating a select agent 
without the completion of the full FDA process. To be clear, 
this would only occur if a product in the approval pipeline is 
urgently needed because there are no effective approved 
treatments available and if we conclude that in the emergency 
the product's potential benefits outweigh its potential risks 
for those persons who don't have a better alternative.
    We expect more antidotes and vaccines to flow out of 
BioShield, and at FDA we are ready to help facilitate their 
development and to make sure the best available treatment can 
be used effectively in an emergency. We live in a new 
biomedical era today. It is an era of great promise but also of 
very serious risks in the years ahead from those who would 
deliberately use biological, chemical, radiologic and other 
agents as weapons of mass destruction.
    In addition to the great need for translating biomedical 
research breakthroughs into effective new treatments for 
naturally occurring diseases like cancer and Alzheimers and 
antibiotic resistant bacterial infections, we also need to 
create much-needed new incentives and authorities to respond to 
these unnatural threats.
    We are proud to be able to participate in this process to 
help the Nation, and we appreciate the strong bipartisan effort 
in both the House and the Senate to respond to this urgent 
critical challenge.
    Thank you, and after the panel's introductory statements, I 
will be glad to take questions as well.
    Chairman Tom Davis. Thank you very much.
    [The prepared statement of Mr. McClellan follows:]

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    Chairman Tom Davis. Mr. Brown.
    Mr. Brown. Thank you, Mr. Chairman, Mr. Shays and Mr. 
Waxman.
    My name is Michael Brown. I am the Under Secretary for 
Emergency Preparedness and Response Directorate of the 
Department of Homeland Security. I am honored to appear before 
you today on behalf of Secretary Ridge to discuss our role in 
bioterrorism preparedness in general, and in BioShield 
specifically. Preparing our citizens for the event of a 
bioterrorism event is one of several significant challenges 
that the new Department faces.
    But before I discuss the Emergency Preparedness and 
Response's role in BioShield, I want to give you a broader 
perspective about our mission.
    Members of Congress have been very good to us in our years 
as an independent agency, the Federal Emergency Management 
Agency. But we are pleased to join the Department of Homeland 
Security and bring a wealth of knowledge from our experiences 
in preparing for, mitigating against, responding to, and 
recovering from disasters of all kinds.
    I want to assure the members of this committee that EP&R 
will not lose sight of its responsibility of helping people and 
communities affected by disaster. The mission statement of the 
Directorate--to lead the Nation to prepare for, mitigate the 
effects of, respond to and recover from major domestic 
disasters, both natural and man-made, including acts of 
terrorism--contains the same core responsibilities that guided 
the Federal Emergency Management Agency.
    During fiscal year 2002, FEMA expended nearly $3.9 billion 
in disaster funds to aid people and communities who were 
overwhelmed by disasters, which included earthquakes, floods 
and ice and winter storms, fires, hurricanes, tornados and 
tropical storms. FEMA has responded to 42 major disasters, 
including 37 States and 4 of the U.S. territories. I assure you 
that role will not change, it will only expand, and the 
Department is committed to helping our country and citizens in 
time of disaster.
    The risk associated with acts of terrorism poses a 
significant challenge for the Emergency Preparedness and 
Response Directorate. FEMA's rapid and decisive response to the 
events of September 11th demonstrated our role in consequence 
management. As a result, the Nation is looking to the emergency 
management community to face this new challenge.
    Project BioShield was announced by the President in his 
January 28th State of the Union Address. The doctors on the 
panel discussed many of the program's specific details, so I 
want to limit my comments to a few brief statements.
    Our Director has the direct responsibility to do a couple 
of things: One, allow the Federal Government to purchase 
critically needed vaccines or medication for biodefense. There 
is $900 million in permanent indefinite authority in the 
President's 2004 budget.
    Two, ensure the adequacy of the Nation's stockpiles of 
pharmaceutical, vaccines and other medical supplies that can be 
delivered to emergency sites in 12 hours or less. $400 million 
are proposed in the President's 2004 budget for this.
    And, third, to remove the barriers to the development and 
production processes, the Department of Homeland Security's 
role is to do three things: One, serve as the national incident 
manager coordinating the preparedness and response to any 
incident that overwhelms or has the potential to overwhelm the 
resources of State and local government as declared by the 
President.
    We will also work with the Department of Health and Human 
Services to jointly determine that adequate countermeasures do 
not exist for a particular threat without the use of BioShield 
authorities.
    Third, along with the FDA, the Department of Homeland 
Security must declare that chemical, biological, radiological 
or a nuclear threat is real and requires the use of the 
BioShield provisions. For this intelligent assessment, we will 
be looking to the Information Analysis and Information 
Protectorate Directorate within the Department of Homeland 
Security.
    In short, Homeland Security will coordinate with Health and 
Human Services to trigger the use of BioShield. We will fund 
the program's activities and will make a product available 
through the Strategic National Stockpile.
    I am committed to working closely with the various 
components of the Department of Health and Human Services as 
they identify the contracting and procurement mechanisms within 
the pharmaceutical industry, as they work to certify the safety 
and efficacy of developing new medicines, and as they make 
recommendations for programmatic progress in areas of needed 
improvement.
    As the custodian of these significant Federal dollars, the 
Department of Homeland Security is committed to working closely 
with Health and Human Services to make sure that BioShield 
authorities are triggered after its use is determined in the 
Nation's best interest.
    Emergency Preparedness and Response is assuming the 
responsibility for several biopreparedness activities, 
including developing a bioterrorism response plan called Bio-
Watch, participating in the Metropolitan Washington Council of 
Government's Bioterrorism Task Force, and participating in 
major bioterrorism response exercises such as TOPOFF 2 and 
Exercise Silent Night.
    First, Emergency Preparedness and Response has assumed the 
responsibility of maintaining and deploying the Strategic 
National Stockpile together with the Center for Disease Control 
and Prevention. The Strategic National Stockpile is made up of 
pharmaceuticals, vaccines and medical supplies housed in 
various areas around the country in cases of emergency. By 
dispersing these assets, the goal is to deliver the necessary 
supplies to disaster sites in 12 hours or less.
    Bio-Watch, which we have talked about, is also included in 
the responsibilities of Homeland Security and is our effort to 
make sure that we are ahead of the game in case of emergencies.
    The Metropolitan Washington Council on Government's 
Bioterrorism Task Force is another area that we are working in, 
including the exercise that we have done in TOPOFF and Silent 
Night.
    The National Disaster Medical System I have already 
mentioned is also a responsibility assumed by the Department of 
Homeland Security under the act. This system assists State and 
local governments by providing primary care to disaster victims 
in the field, patient evacuation disaster areas, and definitive 
care when needed. Our Federal partners include the Departments 
of Health and Human Services, Defense and Veterans Affairs.
    While I have not limited my remarks to BioShield, I think 
it gives you a good overview of our responsibility in the 
Department of Homeland Security. We are happy to work in this 
area and are pleased to answer any questions the committee may 
have at the close of these opening remarks.
    Chairman Tom Davis. Well, thank you very much.
    [The prepared statement of Mr. Brown follows:]

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    Chairman Tom Davis. Dr. Klein.
    Dr. Klein. Chairman Davis, distinguished members of the 
committee, I am pleased to be provided the opportunity to 
appear before you today. As indicated, my name is Dale Klein; 
and I currently serve as Assistant Secretary of Defense for 
Nuclear, Chemical and Biological Defense Programs.
    Within the Department of Defense, I have the responsibility 
for all matters concerning the formulation of policy and plans 
for nuclear, chemical and biological defense programs. In this 
role, I am responsible for the Department of Defense programs 
to develop and field biological countermeasures our warfighting 
forces need.
    Due to the support of Congress and with the help of the 
resources you have made available to the Department, our 
fighters that are now in the vicinity of Baghdad are much more 
prepared than they were in 1991 under Operation Desert Storm.
    The Department of Defense is very interested in the prompt 
approval of the administration's Project BioShield initiative. 
New authorities are needed with appropriate safeguards to 
assure rapid and effective medical treatments can be introduced 
quickly to counter weapons of mass destruction. The President's 
Project BioShield initiative would enhance the Food and Drug 
administration's ability to make needed medical products 
available in response to declaration of an emergency.
    DOD stands ready to assist civilian agencies in their 
efforts to provide modern, effective drugs and vaccines to 
protect against attack by biological, chemical, nuclear or 
radiological weapons.
    The Department looks forward to working closely with 
Congress, the Department of Health and Human Services and the 
Department of Homeland Security to collaborate as the lessons 
of the 2001 anthrax attacks are fresh in our minds.
    Currently, we are working with the Department of Health and 
Human Services and other Federal agencies to develop the next 
generation anthrax vaccines for future use and several other 
programs.
    Mr. Chairman, in summary, I request that my full statement 
be placed in the record; and I want to reemphasize that the 
Department of Defense supports the President's Project 
BioShield initiative.
    I will be happy to answer questions you may have later. 
Thank you.
    Chairman Tom Davis. Well, thank you very much.
    [The prepared statement of Dr. Klein follows:]

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    Chairman Tom Davis. I want to thank all of the panelists.
    We are going to start the questions. I just have a quick 
question before I yield to Mr. Waxman, and then we will get 
another round.
    Dr. Fauci, next week this committee is going to be holding 
a hearing on the Severe Acute Respiratory Syndrome [SARS] 
epidemic. Can you give us an update on what we now know about 
SARS, including how it is transmitted, how far it has spread 
and what we can do to protect ourselves?
    Dr. Fauci. Certainly, Mr. Chairman.
    SARS, standing for Severe Acute Respiratory Syndrome, has 
now spread through several countries, at least 17 countries. 
There are over 2,200 cases, and about 80 deaths. There has now 
been 100 cases in the United States in 27 States.
    This is a new disease. It is what we refer to as an 
emerging microbe, an emerging infectious disease. The data from 
the CDC and from other laboratories indicate that the corona 
virus, which is an interesting group--it is a very common 
virus. It is what causes about 10 to 20 percent of the common 
colds. There are two groups of corona viruses. This is likely a 
member of a new third group. It has not been definitively 
demonstrated that this is the, or the only, cause of SARS, but 
the evidence is mounting every day from a variety of approaches 
that we are taking.
    It has the capability of being a very severe syndrome. The 
death rate in this is 3.5 percent, which may sound small, but 
when you think about the possibility of infecting hundreds of 
millions of people, this can turn out to be a major public 
health threat. In fact, in parts of the world it already is, 
leading to such draconian measures as quarantines and isolation 
in several countries.
    The CDC has done a magnificent job thus far, and we know 
that they will continue to, in not only identifying and 
tracking but essentially now moving ahead in collaboration with 
the NIH and a variety of other agencies, the FDA, in developing 
diagnostic therapeutics and on our way to a vaccine.
    So, in summary, Mr. Chairman, it is a serious threat. We 
must take it very seriously. We don't feel there is a need to 
panic at this point, but we must continue to do the very 
stringent public health measures that we are approaching, as 
well as the research that is going into it.
    Chairman Tom Davis. Thank you. That is just a synopsis. We 
will have a fuller hearing next week with more questions. But 
thank you for that.
    Let me yield to our ranking member, Mr. Waxman.
    Mr. Waxman. Thank you very much, Mr. Chairman. That was 
very interesting, what you had to say about this SARS. Our 
committee is going to hold a hearing on it next week. I think 
it is important for us to understand this very looming threat 
to the public and how best to deal with it.
    On this BioShield proposal, the administration is 
suggesting that NIH conduct a research and development program 
for biological countermeasures. It then authorizes the 
procurement of countermeasures but only after determinations by 
the Secretary of HHS and Homeland Security and Presidential 
approval. But, Dr. Fauci, who makes the decisions about the 
research and development phase?
    Dr. Fauci. We do, sir; and that is the point that I alluded 
to briefly in my opening remarks. There is the push and the 
pull. The NIH and other research agencies make a scientific 
decision about the kinds of research that we need to do. We 
rely heavily, as others do, on intelligence reports, 
particularly from the new Department of Homeland Security about 
the threat assessment. But the fundamental basic research, that 
is our decision; and the way we execute this research is a 
scientific decision.
    Mr. Waxman. You will be making decisions about research 
into countermeasures at the same time you oversee research 
against present threats to health.
    Dr. Fauci. Yes, sir.
    Mr. Waxman. Should Congress be worried that traditional 
medical research will slow down as NIH focuses on biodefense?
    Dr. Fauci. I don't believe so, Mr. Waxman. There is always 
a concern when you have to rev up and ratchet up your 
activities that there will be resources taken away from other 
areas, but if you look now thus far at the track record of the 
providing of resources for biodefense at the NIH, it has been 
quite extraordinary. We appreciate not only the administration 
but the Congress and their bipartisan support of that.
    But if you look at the other areas of the naturally 
emerging and reemerging diseases, that has not suffered and in 
fact has grown at a rate commensurate with the rather 
substantial growth of the rest of the NIH. So, in fact, we have 
not seen that.
    Mr. Waxman. Is there a potential for dual use where the 
research of biodefense may well lead us to research 
breakthroughs for other diseases?
    Dr. Fauci. I think it is not only a potential, Mr. Waxman, 
I think it is inevitable that there will be an important 
contribution to the research that we put into emerging and 
reemerging diseases to inform us about biodefense research, and 
it is without a doubt that the research that goes into 
biodefense will help us with naturally occurring.
    Because as a matter of fact, as we have discussed before, 
as you know we feel that deliberately released microbes is just 
another form of emerging and reemerging disease. Instead of 
occurring naturally, it is done with malice and deliberately, 
but the end result can be the same.
    In some respects, nature itself can be our worst 
bioterrorist. So the resources and the manpower and the 
expertise that goes into one will naturally flow seamlessly 
back and forth into the other.
    Mr. Waxman. Let me ask you about antibiotic resistance. 
This certainly poses a threat to public health now and a 
potential bioterrorist threat for the future. Yet drug 
companies have few antibiotics in development, and some people 
believe there is a market failure for drugs to treat resistant 
bacteria. How urgent is the crisis in antibiotic resistance and 
does it make sense for BioShield to cover research into new 
antibiotics to treat resistant bacteria?
    Dr. Fauci. The answer to your question is it is a serious 
threat, and it has been a threat for some time. I think you 
alluded to, in your opening statement, the fact that, you know, 
as months go by, we are pushing the envelope further and 
further about the emergence of resistance to microbes for which 
we have maybe one last firewall of an antibiotic against that.
    We are recognizing this at the research level, and we are 
putting more resources into it. But I believe, and we all 
believe, that the basic research that we will be doing on 
microbes for biodefense will directly and indirectly address 
the concerns that you have and the concerns that we have.
    For example, as part of our biodefense research endeavor, 
we are involved in a major program for the sequencing of 
pathogenic microbes, not only those on the category A or B 
list, but microbes for which one can, by a simple mutation, 
lead to a microbe that would be a bioterror weapon.
    So that kind of research that we have been doing before in 
emerging and reemerging disease research and that we have 
accelerated greatly with biodefense will address the question 
you are concerned about.
    Mr. Waxman. As you know, our vaccine infrastructure is very 
fragile, and we always have to be concerned about the vaccines 
for childhood diseases. Do you see any potential where the 
efforts to develop and produce bioterror vaccines could 
negatively impact childhood vaccine capabilities?
    Dr. Fauci. I don't think it would negatively do that at 
all. In fact, if we can, which I hope that we do, that the 
long-range effect would be to add a degree of robustness and 
vigor to the whole field of vaccinology, that there will be 
positive spin-offs.
    You are quite correct. We are walking a very thin line, 
notwithstanding biodefense in the whole field of vaccinology, 
because of so few companies that are involved for a variety of 
reasons.
    We feel that if we get both the basic research and the 
actual production flow of vaccines in general that this will 
have positive spin-offs on vaccines for childhood diseases as 
well as adult nonbiodefense vaccines.
    Mr. Waxman. Thank you very much.
    Dr. McClellan, the BioShield proposal would allow the 
Secretary of Health and Human Services to waive virtually all 
of the consumer protections in the Federal Food and Drug 
Cosmetic Act in case of an emergency. Moreover, the proposal 
would then severely curtail judicial review of the Secretary's 
decision. What is the rationale for allowing informed consent, 
recordkeeping, adverse event reporting, and other key 
requirements to be waived; and what is the rationale for 
severely limiting oversight of these extraordinary powers?
    Dr. McClellan. The rationale for the emergency use 
authorization is to provide the most potentially effective 
treatments to Americans in emergency situations. This is a 
limited authority program that only applies when the Secretary 
and others have determined there is a national emergency 
because of a bioterrorism threat or another type of public 
health emergency, and it only involves agents where there are 
not effective approved treatments already available but where 
there may be treatments in the pipeline where the potential 
benefits outweigh the potential risks. We have a few now that 
are marching as quickly as possible toward approval and toward 
a full demonstration of safety and effectiveness. That remains 
our goal.
    I would highlight that we are going to have even better 
incentives for that under the BioShield program. You don't get 
full payment for development of a countermeasure under 
BioShield unless it is approved and licensed, fully licensed, 
fully shown to be safe and effective by the FDA. That is a 
strong incentive for getting to the finish line that doesn't 
exist today and would move us out of the world we are in now, 
where there are a lot of products that may be of use, but no 
companies, as I talked about before, are willing to make the 
investments and come up with the good ideas needed to translate 
proof of concept into a truly effective treatment.
    Mr. Waxman. I understand that. That is an important part of 
why this bill is necessary. But in creating this balance we let 
the Secretary waive all of these consumer protections, and it 
looks to me like this authority is quite broad to waive FDA 
approval standards. Will that give incentives that are needed 
to conduct the kinds of safety and efficacy trials that are 
needed, or are some of these companies going to figure they can 
get around that?
    Dr. McClellan. I agree we need more incentives to conduct 
the needed safety and effectiveness trials. That is the main 
reason for the procurement authority for BioShield that only 
makes payment on delivery of--a full payment for an approved 
product.
    The emergency use authorization does include a number of 
protections to make sure that in the limited circumstances of 
the emergency we do as much as possible to limit distrubution, 
limit who can administer, require studies, require 
recordkeeping and access to records. All of those are elements 
of the BioShield proposal, and the Secretary would specifically 
design its use with our recommendations and those of others to 
do as much of all of those activities as possible.
    Mr. Waxman. You are giving me assurances that we are not 
going to pay these companies unless they do what they are 
required to do, but I am concerned about the broad authority to 
waive some of the consumer protections like informed consent or 
making sure we know about the adverse events and other aspects, 
where right now the law is set up to not just make sure the 
company does what it needs to do to get paid but the consumers 
and adverse consequences--the consumers are monitored with and 
dealt with adequately.
    Dr. McClellan. Right. We want to get to approved treatments 
as quickly as possible. But with these products in development 
there may be a number that have been shown to have potential 
benefits for conditions where there are no effective treatments 
approved. Under those circumstances, we think it is 
appropriate, with all of these restrictions in place, to do as 
much recordkeeping as possible, as much monitoring and 
standards for production as possible, as much mandatory 
reporting of adverse events, and informing the consumer, 
informing the public as possible about appropriate use as can 
be done under the circumstances. I would be happy to continue 
to work with your staff to make sure that we tailor that 
language appropriately.
    We think the bill does a pretty good job now of getting as 
much done as possible on informing consumers, on collecting 
adverse event data and the like. We think that is very 
important in the emergency use process. But it is an emergency, 
and it is a very special limited use condition that requires 
some special considerations.
    Mr. Waxman. Your answer is very useful. I have other 
questions, but we will pursue them in a subsequent round. I 
appreciate your offer to work with us to improve the bill.
    Mr. Shays [presiding]. As the ranking member points out, we 
will have a second round.
    What we are doing is we are doing 5-minute doubles, so we 
are doing a 10-minute questioning period. I will recognize 
myself.
    I would like to ask each of you, what is your assessment of 
the seriousness of the threat we face with bioterrorism? Just 
start with you, Dr. Fauci.
    Dr. Fauci. I think the threat is serious. The risk of it 
happening is something that we can't quantify. But if one looks 
at the history of what has gone on in the production of weapons 
of bioterrorism decades ago, that we have no real assurance of 
their full accountability, for example, by the Soviet Union, 
the recognition of weapons of bioterror that were clearly 
recovered in the first Gulf war, and right now obviously we 
need to see what happens in the current engagements.
    The fact that we have already been hit in the fall of 2001 
and the potential for this has us feel strongly that we need to 
err very strongly on the side of preparedness. So it is 
difficult to quantify a risk, but we are concerned.
    Mr. Shays. Dr. McClellan.
    Dr. McClellan. I agree with that assessment. There is a 
real reason for concern.
    In addition to the specific risk that Dr. Fauci has 
outlined, I would like to highlight that, as part of our 
preparedness efforts, we have already undertaken a number of 
threat assessments and at FDA we have got responsibility for 
the security of most of the food supply.
    As Secretary Thompson has said, he is very concerned about 
the real risk of bioterrorists or other type of terrorist 
events involving foods. I would like to highlight that it is 
not only bioterrorism that we are concerned about here. 
Recently discovered terrorist cells in Europe that were 
attempting to manufacture Ricin and previous episodes of 
cyanide poisoning highlight that various chemical agents also 
pose a real risk to the health of the public.
    Mr. Shays. Mr. Brown.
    Mr. Brown. I want to emphasize what Dr. McClellan just 
said, the threat is real. But I want to add a different 
dimension to it. Even if terrorists are not successful in 
launching a wide-scale biological attack or a chemical attack, 
they will launch a small-scale attack, just for the effect, for 
the terror effect alone. So that even if they don't infect a 
wide, broad spectrum of society, if they can put the fear in 
the American public that they have this capability, by 
launching a small attack somewhere, they will do that.
    Mr. Chairman, it is real.
    Mr. Shays. Dr. Klein.
    Dr. Klein. Mr. Chairman, I would also like to acknowledge 
that the threat is real and serious. I think the events of 
September 11th demonstrated that. The anthrax attacks also 
demonstrated that.
    The Department of Defense has a fairly significant 
monitoring program; and I think, on the biological threat side, 
one of the reasons that is a concern is the capital investment 
to produce those materials are less than it would cost to 
develop, for example, a nuclear weapon.
    Mr. Shays. I am going to work backward, Dr. Klein. We will 
go the other way. What do you think the future of bioweapons 
will be? Should we focus mostly on natural pathogens or 
enhanced pathogens? And what enhancements to these pathogens 
should concern us most?
    Dr. Klein. Well, Mr. Chairman, I think when we look at what 
specific threats we look at, we have a process, both at the 
Department of Defense and with our interagency colleagues, to 
define what those threats are. So we have a process to evaluate 
those specific threats.
    What we look at at the Department of Defense, for our men 
and women in uniform, we look at not only what is it that might 
be available but what can be weaponized.
    I think my colleagues at the Department of Homeland 
Security and the Department of Health and Human Services have 
other areas where the terror threats would be different. So I 
think what we need to do collectively, and I think BioShield 
addresses this, is that we need to work collectively as an 
interagency to define those threats.
    Mr. Shays. Just quickly. The other part of the question, 
though, is it the natural pathogen or the enhanced pathogens, 
in other words, the altered biological agent?
    Dr. Klein. In my opinion, in the near term, it will be the 
natural ones that have been modified for a weapon. Then we will 
look at the modified ones.
    Mr. Shays. Mr. Brown.
    Mr. Brown. Based on the intelligence I have been receiving 
and looking at, I think it is the natural pathogens, those that 
they can use quickly and easily.
    Mr. Shays. Dr. McClellan.
    Dr. McClellan. We rely on the Department of Homeland 
Security and others for help with these threat assessments, so 
I defer to them. I do think we need to be prepared for both 
types of agents, both naturally occurring and modified ones.
    Some of the technologies that we have outlined that we 
think would result from a BioShield initiative such as 
monoclonal antibody techniques and better techniques for 
producing vaccines quickly will support our ability to deal 
with modified pathogens as well as the naturally occurring 
ones. So the approach that we are outlining here would provide 
a useful strategy for addressing both.
    I would like to emphasize again, though, that the only 
threats out there are not bioweapon agents. Also, chemical 
agents and radiologic and nuclear agents are real threats, too.
    Mr. Shays. Thank you.
    Dr. Fauci.
    Dr. Fauci. I agree with my copanelists' statements. We also 
rely heavily on the Department of Homeland Security for threat 
assessment. But the strategic plan and research agenda for the 
NIH is weighted to both naturally occurring as well as 
genetically modified microbes.
    Mr. Shays. Dr. McClellan, I will start with you and work to 
Mr. Brown. How many medical countermeasures, diagnostic drugs 
and vaccines do you estimate we will need in the end to protect 
ourselves?
    Dr. McClellan. I can't give you a specific number. One of 
the things that comes out of the threat assessments and that 
will come out of our work under BioShield is a much clearer 
assessment of what is possible.
    Mr. Shays. When will that be?
    Dr. McClellan. By passing this legislation we will generate 
a higher level of interest among the private sector researchers 
and others in identifying countermeasures.
    We have identified a number that we think can be developed 
right away, including better treatments for smallpox, better 
treatments for botulism, better treatments for anthrax. But we 
think there are a lot of other opportunities out there, so I 
can't give you an exact number.
    But I do think that, because this is an unexplored and 
really underutilized area----
    Mr. Shays. You have explained. I want to move on.
    Mr. Brown.
    Mr. Brown. Homeland security has to rely on their expertise 
for those kinds of matters.
    Mr. Shays. OK. You have no sense.
    Dr. Klein.
    Dr. Klein. It is difficult to say exactly which numbers. I 
agree with my colleague, Dr. McClellan, it is difficult to come 
up with an exact number. But we will--if we have a system in 
place that can be versatile, I think that is what would protect 
the American public.
    Mr. Shays. OK. The Defense Science Board listed 19 priority 
bioterror agents.
    First, Dr. Fauci, would you just respond to the question, 
and then I want--the question I started with Dr. McClellan. The 
question is, how many medical countermeasures, diagnostic drugs 
and vaccines do you estimate?
    Dr. Fauci. Difficult to assess. But we are at least aiming 
at the six high-priority category A and several on the category 
B list. So I would say the number we cannot tell you for sure, 
but we want to be flexible enough to move as new threats arise.
    Mr. Shays. OK. I will ask whoever can answer this. The 
Defense Science Board listed 19 priority bioterror agents, and 
found that today we have none of the diagnostics we need, none 
of the vaccines we need, and only one of the therapeutics we 
need to deal with them. Is this list of 19 pathogens the 
definitive list, or do we need to prepare for these and many 
other pathogens, some of which don't even exist yet?
    Dr. Klein. As you might expect on that list, we do have 
some vaccines available. For example, anthrax is on the list, 
smallpox is on the list. So we do have vaccines and treatments 
available. We need to continue those. That list is relatively 
accurate but, again, as others have indicated, there will be 
future threats that are not on that list.
    Mr. Shays. CDC list, 36 selected agents. Do we need 
countermeasures for all of them? Dr. Fauci.
    Dr. Fauci. Potentially we do. We are using that list which 
includes the top priority category A list of six that we are 
putting our major effort on, but there are several on the 
secondary or B or C lists that we are also developing 
countermeasures, or at least studying the basic biology of the 
microbes to prepare us better in case genetically modified 
microbes appear.
    Mr. Shays. Let me just ask about the issue of surveillance 
diagnostic tools and training medical personnel. Isn't that 
more important than any of the stuff that we are talking about 
right now, to be able to have a surveillance system and 
diagnostic tools and training medical personnel? Do these come 
first?
    Dr. McClellan. It is all part of a comprehensive strategy 
with dealing with the new threats of terrorism to this country. 
We need effective surveillance and supporting research on 
better diagnostic techniques as well as building up our 
laboratory and monitoring capabilities is an important part of 
the response, but so is research on developing effective 
countermeasures and strategies for containing an event if it 
actually occurs.
    Mr. Shays. Anybody disagree with that?
    Dr. Fauci. Agree.
    Mr. Shays. Let me just ask this one last question then. We 
are in a dangerous position with regard to antibiotics and have 
few antivirals. Do we need some major research breakthroughs to 
develop products that we need to protect ourselves against a 
bioterror attack and antibiotic-resistant organisms?
    Dr. Fauci. The answer is yes. That is a problem, as I 
mentioned in response to Mr. Waxman's question, and it is an 
important part of our biodefense program in general as well as 
our nonbiodefense emerging and re-emerging disease, which I 
believe shows you the seamlessness between the two programs.
    Mr. Shays. In my second round I want to ask about the DOD 
joint vaccine acquisition, and I will be asking you, Dr. Fauci, 
some questions and Dr. Klein about that.
    And, Mr. Van Hollen, you have the floor for 10 minutes.
    Mr. Van Hollen. Welcome to all of you, and I am very proud 
to have both the NIH and the FDA in the Eighth Congressional 
District, so it is great to see both of you and have a chance 
to visit with you. I appreciate your willingness to work with 
our office on not just national issues, but some of the local 
issues as well.
    Much ground has been covered, but I want to followup on a 
couple of things just so I am clear in my mind. The 
determination as to what the priorities are going to be in 
terms of what--whether it is biological weapons, chemical 
weapons, which ones we focus on as a priority, is that 
decision--I understand it is part of a collaborative process, 
but is it part of the Department of Homeland Security to say 
that these are the ones we want to focus on? Who is responsible 
for making that decision as to what the priorities are for 
investing resources?
    Dr. Klein. Congressman, I think what happens in that regard 
is that we--both the Department of Defense and Department of 
Homeland Security will both work together to determine those. 
Sometimes they are slightly different. What the Department of 
Defense considers is not only the threat, but has it been 
weaponized to negatively impact the men and women in uniform 
accomplishing their mission.
    What we do, we will come up with that threat list. We will 
evaluate it through our intelligence system. Certainly as we 
develop those lists, we will work with the Department of 
Homeland Security. But which list is more important than 
others, it depends on exactly what your mission is, for 
example, whether it is a warfighting mission or protecting 
civilians.
    Mr. Van Hollen. I assume we are going to be putting 
together a plan. What is your time line in terms of deciding--
there are a lot of chemical agents out there. There are lots of 
potential biological agents, a lot of different mutations, I 
understand. What are we----
    Dr. Klein. We already have that list, and it is 
prioritized. We have them ranked. We typically don't publicize 
that list at the Department of Defense.
    Mr. Van Hollen. You have that list, and NIH is doing 
research based on that list?
    Dr. Klein. The Department of Homeland Security and 
Department of Health and Human Services also have a list, and 
their list, Department of HHS, their list A and B, and it is 
publicized.
    Mr. Van Hollen. Does that also deal with the production of 
countermeasures as opposed to research? Who makes the decision 
as to what point we need to move into the actual production of 
the countermeasures?
    Dr. McClellan. The production is a decision that is made 
with input from the Department of Health and Human Services 
based on the threat assessment. Where we ought to focus our 
resources and BioShield more generally is based on the 
combination of where the greatest threats are and where the 
greatest opportunities are, and where you get that match, the 
potential for bringing new countermeasures forward that will 
address a significant terrorist threat, that is the priority in 
BioShield.
    Dr. Fauci. I see where your question is going, because 
there really needs to be distinguished both the basic 
fundamental research that informs any list. The decisions about 
that and how you track that is an NIH decision when it comes to 
research and FDA or CDC decision in the Department of Heath and 
Human Services. As we mentioned earlier, we rely heavily on our 
colleagues in DHS and even in DOD in helping us to get a better 
feel for the actual threat assessment. However, there is a 
formal process in BioShield that Dr. McClellan just referred to 
that when you trigger the procurement component of it, it is 
the Department of Homeland Security and Secretary Ridge 
determines that this is a serious threat that we need to have 
the countermeasure for, and then the Department of Health and 
Human Services executes the research and public health measures 
to go into getting that particular countermeasure.
    Mr. Van Hollen. Have there been any decisions to date with 
respect to the need to move forward on the production of any 
countermeasures?
    Dr. Klein. In terms of looking at production, we need the 
R&D to develop a product, and then as soon as that is 
evaluated, all of our agencies look with the limited resources 
how can we best meet the threats as we see them. We at the 
Department of Defense have an anthrax producing program. We 
work closely with Department of Health and Human Services with 
the smallpox, for example.
    Mr. Van Hollen. I remember at the time there was a lot of 
questions about whether we had adequate anthrax supplies or 
not. Other than anthrax and smallpox, have there been any 
decisions with respect to moving ahead on countermeasures on 
other agents whether chemical or biological?
    Dr. McClellan. We have worked with the Department of 
Homeland Security and others to identify some of the immediate 
opportunities that we think BioShield would help us fulfill 
even more quickly. So, for example, a better vaccine for 
anthrax, a better, safer vaccine for smallpox, and better 
antitoxins for botulinum toxin are all areas where the 
technology exists, and what's needed is the funding to get 
companies to follow through to produce the actual products.
    Mr. Van Hollen. Thank you, Mr. Chairman. Next round of 
questions I do have a concern that Mr. Waxman raised with 
respect to resources--we have limited.
    Chairman Tom Davis [presiding]. Keep going. You have 5 more 
minutes.
    Mr. Van Hollen. One question. Obviously there are all these 
possible threats out there, biological, chemical, nuclear. As a 
Nation we obviously have to evaluate the threat--the level of 
the threat posed and the likelihood--what kind of damage it 
will cause, and the likelihood of that threat versus what we 
know are very known threats that we are facing every day, heart 
disease and a whole range of medical problems that NIH is 
engaged in research with right today. And I am concerned that 
this will--you know, it is one thing to add additional 
resources to this effort at a time since September 11th, an 
emergency and a focus on this, but I would hate to see it come 
at the expense of what we know are diseases that are harming 
and killing Americans every day.
    And so my question is of the amount of resources that is 
being invested in this effort and research, how much of that is 
coming out of what otherwise would be invested in nonbiological 
and chemical research?
    Dr. Fauci. If you look at the resource curve of the last 2 
years, which have been heavily weighted in the arena of 
biodefense, the other areas, in fact, have not suffered. Now, 
obviously the NIH has gone through a doubling, which it has 
completed successfully. The next few years, obviously if one 
looks at what is coming forth as the budget from the 
administration as was expected, it is not going to continue at 
that level, it is reaching a point of plateauing. But within 
the framework of that, again, we have tried as best as possible 
to not damage the effort and the momentum in other areas. So 
what has happened thus far with the doubling of the budget has 
not taken away from other areas. It has been a substantial and 
very generous increase in NIH's budget.
    Dr. McClellan. I would like to respond to that from the 
standpoint of product development. After you have done the 
basic research, approve the concept, is this going to take away 
from the development of much-needed new products for cancer, 
heart disease and other priority areas? We have seen over the 
past decade a huge expansion of the biotech sector, 
pharmaceutical research and development and so forth. While 
NIH's budget has been doubling, the research investments in 
development and applied stages on the private side have also 
been doubling as well. And what is responsible for that is the 
potential for some real breakthroughs especially in naturally 
occurring diseases that the private sector is trying to step up 
to address. By adding on these additional financial incentives 
for BioShield, we provide more incentives to get more 
investment activity, research and development in these other 
priority areas as well.
    As long as the financial incentives are there, the 
incentives to develop products will be there. We aren't taking 
away incentives in cancer, heart diseases and naturally 
occurring diseases. We are correcting a deficiency that exists 
in these unnatural diseases.
    Mr. Van Hollen. Thank you, Mr. Chairman.
    Chairman Tom Davis. Thank you very much.
    I have a question for the panel. Do you consider the 
acquisition flexibilities that are contained in the Senate 
bill, do you think they provide adequate incentives to spur the 
development and supply of critical countermeasures?
    Dr. McClellan. We do think that they would provide some 
much-needed incentives. Obviously there have been some 
different views expressed about what's needed to actually bring 
these next-generation products to the public, and we are 
absolutely willing to work with this committee and other 
experts on making sure we have the right framework in place to 
do that.
    I do think the most critical element's there, making sure 
that there's a certainty of payment, sometimes years in 
advance, if an effective, highly valuable product is actually 
developed, approved and delivered for use by the public in the 
event of a terrorist or other emergency health threat.
    Chairman Tom Davis. There is a consensus here that we just 
don't have the in House capability to take this in government 
and do it by ourselves. Everyone agree with that? There is no 
way we could build that up in a short period of time. So we are 
by necessity forced to go to the private sector to incentivize 
them to do things they otherwise wouldn't do.
    Dr. Fauci. Of which they do very, very well. They do it 
very, very well.
    Dr. McClellan. It's not easy to develop a product that is 
safe and effective and reliably produced even after you have 
gotten through the basic research and have a proof of concept. 
There is a lot of testing that needs to be done of potential 
toxicities that need to be determined in each individual case. 
There is effectiveness testing, which is particularly 
challenging in this area because you can't do normal testing on 
humans. And there are all kinds of challenges to getting ramped 
efficient production, labeling and delivery of the product. 
These are things that the private sector does extremely well in 
many other areas of medical technology, and we have seen the 
benefits of that for the public. We haven't seen the same kinds 
of benefit here, and we need them.
    Chairman Tom Davis. I guess one of the differences we have 
is--in the next panel, we are going to hear concerns that the 
BioShield does not really afford manufacturers of the 
biomedical countermeasures enough protection against product 
liability lawsuits. Obviously they are going to be engaging in 
research and development and manufacture of things they 
wouldn't do otherwise. We are trying to get them to do it. If 
they are exposed to massive lawsuits, it could bring the 
company down, expose the rest of their business. I don't know 
what the right balance is. That is something we need to try to 
find. And the companies, I think, are trying to get as much 
protection as they can. Anybody have a feel for the right 
balance here?
    Dr. McClellan. As a general matter, the administration has 
expressed some concerns about problems of liability exposures 
for manufacturers creating roadblocks to developing needed new 
treatments, and in this case it is something that we all need 
to think carefully about. We believe that there's a lot that 
can be done under authority, Section 85-804 authorities, that 
we have and under the Safety Act to provide protection for 
manufacturers for products that are being purchased by the 
government and used in these emergency situations. But 
obviously this is an issue that needs careful attention and 
should be addressed effectively.
    Chairman Tom Davis. It has been a tough issue in the 
Congress. The House and Senate are a little divided on it as 
well.
    Finally, the administration's proposal gives the President 
permanent funding authority for research, development and 
production of biochemical countermeasures. What do you think 
this could end up costing at the end of the day?
    Dr. Fauci. The initial projection that was made based--and 
again, this is something we try to scope out because you are 
dealing with scientific opportunities that can change due to 
breakthroughs as well as change in the risk assessment, but in 
the President's proposal, the 10-year proposal for the Project 
BioShield procurement was about $5.6 billion over 10 years.
    Chairman Tom Davis. Our problem, of course, is we don't 
know what diseases could come forward.
    Dr. Fauci. It could be more, it could be less.
    Dr. McClellan. I would like to emphasize, though, that none 
of this money gets spent unless, No. 1, we make a determination 
that the countermeasure is needed and is truly valuable. We set 
the term for the contract. If we don't think a countermeasure 
is worth the cost, it is not going to get a contract, and we 
don't actually pay--we don't pay any significant amount unless 
that countermeasure actually gets delivered and does work.
    Chairman Tom Davis. What's clear is that the current law 
does not afford us the flexibility that we need to encourage 
industry.
    Dr. Fauci. We can't give assurances to them, as I said in 
my opening statement. We can't tell them and say we want to get 
involved in this. We are willing to take risks even. We have 
people who come to us and say, we've reached a certain point, 
and now we need to go to the next step of building a new plant 
or investing another $100 million or so, but we are willing to 
take that risk, but we're not willing to take a risk of being 
successful in what we do and then finding out that no one wants 
to buy the product. So can you give us an assurance under 
current law given the vicissitudes of the appropriation 
process? We really can't give them firm assurances that if they 
deliver, as Dr. McClellan said, a licensable or licensed 
biomedical countermeasure, we can't give them the kind of 
assurances under the current situation that we would be able to 
do under Project BioShield.
    Chairman Tom Davis. Any other questions over this side?
    Mr. Waxman. Thank you, Mr. Chairman.
    Let me ask about the streamline procurement acquisition 
procedures. There is a simplified acquisition authority here, 
and these authorities in the law were established for 
commercially available items such as office furniture and 
automobiles. And the idea is there is a developed market for 
these products, and the government can rely on market forces to 
keep the prices low. When the government is bidding for a 
special government service, however, there is no market that's 
available to keep costs low, and two basic safeguards have been 
developed; one, requirements for bidding and full and open 
competition and, when the contract is cost-based, the ability 
to inspect the contractors' books.
    As I understand it, the procurement provisions waive or 
relax both of these standards. I am in favor of speeding up the 
procurement where there is a need, but at the same time how do 
we protect the taxpayers? If the contract is cost-based, how 
does the government know it is not being overcharged if it 
can't audit the contractors' books? Anyone want to respond?
    Dr. Fauci. I'll take just a brief shot at it.
    We appreciate that concern, and there's obviously a lot of 
scrutiny in what we'll be doing, because we're acting in only 
special circumstances. But your point is very well taken, and 
we're very sensitive to it. The main concern that we have is 
that we do not slow down the procurement process to the point 
where it interferes with the responsibility for what we have. 
We are not dead set against relooking at that with you, and we, 
in fact, would be willing to work with you and the committee on 
that concern which you've expressed. But the critical, really 
bottom-line issue is that we really cannot slow down the 
process, and if we can figure out a way to get it to do that, 
we would be----
    Mr. Waxman. I understand that, but we are changing the 
procurement law, and if the government doesn't have a market to 
drive the prices lower, and it is a cost-based reimbursement, 
and we don't have the ability to look at their books and know 
whether they're getting ripped off, that puts us in a position 
of being deep pockets. And I think we've got to evaluate that 
balance here to make sure we're protecting the taxpayers and 
not just the American public.
    Dr. McClellan. And if I could add, the whole goal here is 
to create something like a market. You're right, there is no 
market that exists now, but the contracting authorities that 
BioShield would create would permit more than one firm to 
compete to get this countermeasure produced first. And again, 
we're paying for results primarily, not for just costs along 
the way. The simplified acquisition authorities have been shown 
to work pretty well in combination with antikickback laws and 
fraud laws and the like to prevent those kinds of concerns in 
many cases.
    Mr. Waxman. It will be a while before there would be a 
market. If you're helping a company develop a product for which 
there's no availability at the present time, do we help them 
with money, and then we streamline the process for them, and 
they develop it, and we give them the patent, and they'll have 
exclusivity over that, and then we're buying it from them, and 
we want to be sure since there's no real competition we're 
protecting our taxpayers' money?
    Dr. McClellan. I do think we can create some competition 
there by contracting with more than one company and giving a 
larger payment to the one that gets there first.
    Chairman Tom Davis. Would the gentleman yield?
    Mr. Waxman. On the antikickback, that's a protection, but 
as I understand it, the antikickback law is exempted under the 
proposal, so we wouldn't have that available to us if that's 
something that won't come into play.
    Chairman Tom Davis. I think the gentleman raises an 
interesting point. On the other hand, for the most part we're 
going to give this on a results-oriented basis. If companies go 
out and do research, and they come up with basically a dry 
hole, they probably get nothing; is that correct?
    Dr. McClellan. That's right.
    Chairman Tom Davis. Unlike a lot of IT contracts where we 
end up buying information technologies and spend billions and 
sometimes get systems that don't work. At least it is results-
oriented, which cuts down the fraud, waste and abuse that could 
come otherwise. But there is a question of balance, and it's 
how sophisticated are we on our side, and look forward to 
working with Mr. Waxman and others trying to find the right 
balance.
    Mr. Waxman. Let me ask a question on this liability issue. 
I understand why we want to give liability protection to the 
manufacturers of these products, and it is very much on their 
minds if you want to give them all the incentives. But on the 
other hand, if we're going to indemnify the companies that 
manufacture countermeasures by providing the liability 
protection, some of these products still may harm consumers. If 
the administration can guarantee liability protection to 
manufacturers, should it also compensate those who are injured 
by the products?
    Dr. McClellan. There is a lot of discussion ongoing now 
about compensation in the case of smallpox, which is a 
countermeasure that does have some significant adverse effects 
in certain cases. The idea for the kinds of technologies that 
we hope to develop here is to have some that are significantly 
safer and more effective that would reduce the need for those 
kinds of compensation activities. And also the use here will be 
under conditions that are very much defined by the government 
in emergency situations and the like and that we at FDA approve 
and determine that treatments are appropriate for use under 
these circumstances. So it is a more limited case and problem. 
I know smallpox is on your mind, but it is a much more limited 
situation than that.
    Mr. Waxman. Mr. Chairman, I want to take advantage of the 
fact that Dr. McClellan is here to ask him about a different 
issue unrelated to the BioShield. At a hearing----
    Chairman Tom Davis. I am sure that wouldn't happen, but 
that's fine.
    Mr. Waxman. If he doesn't feel ready to answer the 
question, I would certainly accept that response. But we had a 
hearing on Internet pharmacies, and a representative from the 
Federal Trade Commission testified that any claim that a 
dietary supplement containing ephedra is safe would be false 
and misleading under his view at the Federal Trade Commission. 
I want to know if you agreed with their view on the safety 
claims on ephedra products, and to ask you whether you are 
aware of any studies that prove that ephedra containing dietary 
supplements are safe for the general public.
    Dr. McClellan. We just completed a review by the RAND 
Corp., that I know that you are familiar with because we talked 
with your staff about it, on the safety and effectiveness of 
ephedra. And as you know, under the dietary supplement law we 
don't get the evidence up front on dietary supplements if they 
are safe and effective before they go on the market. We have to 
prove a safety problem or an effectiveness problem before we 
can take any regulatory action, and that was the point of the 
RAND study.
    Subsequent to the RAND study, we have reopened the record 
on FDA's old 1997 regulation to restrict use of ephedra based 
on safety and effectiveness concerns, and we have asked for 
comments from the public, and I noted today we just got one in 
from the American Heart Association, and I hope that there's 
going to be more coming before this comment period closes. That 
is going to help us address this issue of ephedra safety.
    What the RAND report said, as you know, was that while 
there have been some serious adverse events associated with 
ephedra, they could not prove a causal link between ephedra use 
and those events.
    Mr. Waxman. Let's flip it the other way. If you can't show 
that it's harmful, do you know of any studies that prove that 
ephedra-containing dietary supplements are safe?
    Dr. McClellan. It hasn't been proven to be safe, but the 
statutory standard is not----
    Mr. Waxman. I am not asking about the statutory standard. I 
understand that is important. But what do you think about the 
comment by the representative of the Federal Trade Commission 
if there was a claim that the supplements that contained 
ephedra was safe, that this would be a false and misleading 
statement?
    Dr. McClellan. It could well be a problem with truthful and 
not misleading standards, which do govern both FTC's 
advertising regulations and our labeling regulations. So that 
is a potential concern. My hope is we can do more to address 
the concerns that exist today about the way that ephedra is 
marketed, and that's the reason that we reopened this comment 
period and have laid out our preliminary view that the law 
doesn't require us to prove that ephedra is unsafe; rather we 
need to demonstrate that it presents an unreasonable risk to 
the public as it's currently marketed, and we hope that we'll 
get comments from you about how we can best address that as 
well.
    Mr. Waxman. Thank you very much.
    Chairman Tom Davis. Mr. Shays, any more questions?
    Mr. Shays. Yes, I do.
    Dr. Fauci, what is the relationship between NIH and DOD 
joint vaccine acquisition of the JVAP program?
    Dr. Fauci. Thank you for the question, Mr. Shays. The NIH 
has worked in the past with DOD and in some respects with the 
JVAP program, and we are now increasing our collaborations 
particularly with USAMRIID. The Joint Vaccine Acquisition 
Program, which was operational in 1998, was focusing more on 
the long-term development of products against biological 
warfare, and we at the NIH feel that it doesn't directly 
address the urgent and civilian needs and demands that we have. 
And that's one of the reasons why we've looked for alternative 
ways to hasten the development and interest in industry in 
vaccine development. Although we've interacted with them on 
JVAP, but even more intensively, broadly with USAMRIID, this is 
not an important part of our program.
    Mr. Shays. So your basic position is it's not going to fit 
into the Project BioShield program.
    Dr. Fauci. No, it's not in our minds, sir.
    Mr. Shays. Has the JVAP been the subject of third-party 
evaluations?
    Dr. Fauci. Yes, it has. In December 2000, there was a 
report called the Top Report, a report to the Deputy Secretary 
of Defense by an independent panel of experts, and they came up 
with some areas that were problematic with regard to JVAP and 
talking about ways that need to be improving it. And I think 
instability of funding was cited as a major deficiency as well 
as some lack of scientific oversight. So it has been somewhat 
of a problem. I haven't----
    Mr. Shays. Are you being a little gentle in describing the 
evaluations? There is $300 million that's been spent? I mean, 
weren't the reviews pretty strongly critical?
    Dr. Fauci. They were quite critical of the program, yes.
    Mr. Shays. Dr. Klein, how would you kind of respond--first 
off, Dr. Fauci, is there anything you want to say about this 
program? You are basically telling me you're not going to--you 
don't see being involved in the BioShield program. Are there 
lessons we have learned from this in terms of what we do with 
BioShield?
    Dr. Fauci. I think so. We learned a lot of lessons along 
the way. One of the things I think we've learned that we have 
to have is we have built into BioShield a significant amount of 
scientific oversight and stability of funding and some 
strategic planning of where you are going to go and to try to 
bring in the very best of industry and not give them the full 
component, as Dr. McClellan has mentioned, until we have a 
deliverable product.
    One of the difficulties with putting a lot of money up 
front and up forward without getting a guarantee of a product 
is that there is always the risk of failure, and that's what 
we're trying to avoid by making the stipulation of BioShield 
that you have to have a licensable product that's delivered 
before you get your full payment.
    Mr. Shays. Dr. Klein, is there anything you want us to know 
about JVAP?
    Dr. Klein. Congressman Shays, I think the comments made 
earlier are quite accurate. As you know, this program was 
started in about 1997. It's a 10-year program. So it was a 
start. But I think our experience with JVAP demonstrates 
BioShield's value; for example, incentives for companies to go 
toward making products. And then the other one I think is more 
important, certainly after September 11th, is that the 
interagency cooperation between DOD, DHHS and Homeland 
Security.
    So I think we really need to look at this in a more 
comprehensive manner. As you know, JVAP was intended to meet 
the needs of the men and women in uniform. That was its initial 
intent. After September 11th I think we realized they are not 
the only ones that need these vaccines.
    Mr. Shays. So far the program has spent a lot of money, and 
it has been found wanting, correct?
    Dr. Klein. The original JVAP, the intent was good, but it 
has not been as successful as we wanted.
    Mr. Shays. Let me just ask, Dr. Fauci, if we manage to 
engage the industry, what is the most useful role for NIH and 
its grantees? How does it focus on research that is not 
competitive and duplicative with that of the industry?
    Dr. Fauci. Traditionally, and we hope it continues and 
amplifies, that the NIH research has really been the fuel that 
fires the engine toward the ultimate translation into products, 
which the industry does so well. That is not to say that the 
industry does not do some very important research themselves, 
but it has really been essentially a continuum where NIH 
grantees provide the basic research, the proof of concept, and 
even the development up to, but not including, advanced 
development. We generally push the envelope into phase 1/phase 
2 trials and the early part of development. That would be a 
natural marriage that we would see work well with BioShield to 
then call upon industry to make the investment, and what they 
do so well is delivering a product. So it's quite 
complementary, sir.
    Mr. Shays. Mr. Chairman, may I ask one more question?
    Mr. Brown, what are the problems the government faces in 
trying to engage biotech and pharmaceutical companies in 
launching research and development projects to develop medical 
countermeasures?
    Mr. Brown. I think it's the lack of a secure source of 
funding. They need to know that if we make the determination 
that there is an imminent danger and real threat out there, and 
they can produce what is results-oriented, they can show us a 
product, they're going to get paid for it. It is the lack of 
incentive.
    Mr. Shays. Thank you.
    Thank you, Mr. Chairman.
    Chairman Tom Davis. Thank you all very much. We appreciate 
it very much and thank you for being here. It has been very, 
very helpful, and we are ready to move to our next panel of 
witnesses.
    Our second panel includes industry and academic experts who 
will give us their views on this proposal. We have Frank 
Rapoport an attorney representing Aventis Pasteur. Next we will 
hear from Dr. Michael Friedman on behalf of the Pharmaceutical 
Research and Manufacturers Association of America. We also have 
Dr. Una Ryan, president of the AVANT Immuno-therapeutics 
located in Needham, MA. And Dr. Katherine Bowdish. She is 
president of the Alexion Antibody Technologies located in 
Cheshire, CT. And rounding out the panel is Dr. John Edwards, 
chief of infectious diseases at UCLA.
    Give everyone a minute to make sure we have your name tags 
appropriately, and thank you for bearing with us through the 
questioning of the first panel.
    We have a light in front, and it will be green for 4 
minutes, and then it turns orange for the last minute. When it 
turns red, we want you to sum up. Your entire testimony is in 
the record, and we and our staff have read it all and have 
questions prepared on that, but you can use your 5 minutes to 
highlight.
    I'm going to ask you to stand with me to be sworn in.
    [Witnesses sworn.]
    Chairman Tom Davis. We will start with Mr. Rapoport and 
move straight down the line.

 STATEMENTS OF FRANK RAPOPORT, ATTORNEY AT LAW, MCKENNA LONG & 
ALDRIDGE, ON BEHALF OF AVENTIS PASTEUR; MICHAEL FRIEDMAN, CHIEF 
  MEDICAL OFFICER FOR BIOMEDICAL PREPAREDNESS, PHARMACEUTICAL 
  RESEARCH AND MANUFACTURERS OF AMERICA; UNA RYAN, PRESIDENT, 
AVANT IMMUNOTHERAPEUTICS, INC., NEEDHAM, MA; KATHERINE BOWDISH, 
Ph.D., PRESIDENT, ALEXION ANTIBODY TECHNOLOGIES, CHESHIRE, CT; 
  AND JOHN EDWARDS, CHIEF OF INFECTIOUS DISEASES, HARBOR-UCLA 
MEDICAL CENTER, ON BEHALF OF THE INFECTIOUS DISEASES SOCIETY OF 
                            AMERICA

    Mr. Rapoport. Good morning, Mr. Chairman and members of the 
committee. I am Frank Rapoport, a partner in the Philadelphia 
office of McKenna Long & Aldridge, where I practice government 
contract and public health law. I had the privilege of working 
both in the Reagan and Carter Justice Departments in the 
Government Contracts Section and more recently was involved in 
both smallpox procurements, the first one pre-September 11th, 
and the anthrax procurement more recently at NIH on behalf of 
Aventis Pasteur, the largest vaccine manufacturer in the world 
devoted entirely to vaccine research, development and 
manufacturing, manufacturing a billion and half doses annually, 
based in its headquarters in northeast Pennsylvania.
    My purpose today is limited to offer some technical 
amendments to this bill which may make the difference between 
success and failure in either attracting the best and the 
brightest or simply those who have nothing to lose but 
accepting government money. I offer five points to achieve 
broader and bolder procurement authority, all giving discretion 
to the various Secretaries to use as arrows in their quiver.
    There is no doubt that the existing government regulations, 
known affectionately as the FARS, give contracting officials 
ample authority to make contractors perform. Our five points 
today will protect the contractor against all but its own 
failure.
    Point one, the bill, quite frankly, is a little stiff. It 
does not amply provide for a single procurement that combines 
both research and development and a guarantee of production. 
There must, in our view, be a linkage to get the attention of 
companies like Aventis, who are going to be passing up lost 
opportunities and feeling the uncertainty without commitment 
for production.
    Point two is related to this. These contracts should also 
recognize the costs of capital and return on capital. It should 
assure payments sufficient to amortize investment, which would 
include return of capital and return on capital. The point is 
if we're not going to be accepting government money under R&D 
within this contract, we need to make sure that our investors 
feel comfortable that there is a product at the end of the 
pipeline and in the event, most importantly, of an early 
termination for convenience because, for instance, Dr. Fauci 
has found yet a better drug. The company must know that it's 
going to get reimbursed for the work that it spent under its 
own nickel under that government contract. The existing 
termination for convenience regulations do not allow for 
recovery of what we would call loss of interest or investor 
cost.
    So when I suggest the bill is a little stiff, we feel it's 
a very good bill, but you need to be heard loud and clear that 
we want to give much broader authority to the Secretary to 
encourage companies to perform. How can this be accomplished in 
one contract vehicle? It would be one contract where research 
and development is included. We're not suggesting who's going 
to pay for that. That's up to the government to negotiate with 
the company. At the same time, there's a guarantee of 
production, but the cost of the units will not be determined 
until the research and development is over. This is always done 
in a privatized procurement. We call it price determination. 
That can be done to include the estimated costs of production 
as well as a capital charge.
    Point three, we strongly encourage to move beyond plain 
vanilla government contracts, something you're well aware of 
which this committee called ``other transactions'' and is used 
routinely by DARPA and NASA and actually generated the 
Predator, the unmanned vehicle that is being used in 
Afghanistan. These are commercial-like arrangements that entice 
and allow government contractors like Aventis to feel free that 
they will get to protect their rights.
    Point four as proposed in the bill, a 5-year contract 
without subsequent guaranteed appropriations appears to run 
afoul of 31 U.S.C. 1341. You certainly can take a minor 
correction to make sure that this act is taken care of.
    Finally, the issue that you've heard already today, 
indemnity. We truly understand the urgency of this bill, but we 
feel obligated to note the issue of liability protection 
remains a concern for us. Both HHS and DHS have authority under 
Public Law 85-804. It has been used rarely. Most recently 
President Bush signed an Executive order which even cuts back 
on the authority of Public Law 85-804. Currently, while HHS has 
used this act, we understand it is not until after a contract 
is awarded. Imagine a bidder looking at dealing with inhalation 
airborne anthrax, doing clinical studies. A bidder company such 
as Aventis would like to know for its shareholders that it can 
bank on likelihood of indemnity postaward.
    In summary, Mr. Chairman, thank you for the opportunity to 
testify on this important issue. As you know, we were the donor 
of 85 million doses of smallpox vaccine. We will be committed 
to supporting the efforts of the Secretaries to contributing to 
our common defense. Thank you again.
    Chairman Tom Davis. Thank you very much.
    [The prepared statement of Mr. Rapoport follows:]

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    Chairman Tom Davis. Dr. Friedman.
    Dr. Friedman. Thank you, Mr. Chairman and distinguished 
Members. On behalf of the Pharmaceutical Research and 
Manufacturers of America, I am pleased to be here today to 
share with you the views of the research-based pharmaceutical 
industry and the President's Project BioShield Initiative.
    Biological weapons represent an increasingly serious danger 
to people around the world. The dynamic complexity of the 
problem is demonstrated by science's difficulties in dealing 
with naturally occurring infectious disease as well as 
intentional bioterrorist threats. While PhRMA companies are 
developing more than 200 new medicines to treat or prevent 
various infectious diseases, reports by the National Academy of 
Sciences, the NIH Blue Ribbon Panel for Biodefense Research, 
and the U.S. Defense Science Board make it clear that an even 
larger number of more diverse types of countermeasures must be 
developed, and they must be developed promptly.
    Although the basic science research required for 
countermeasure development is being supported by Federal 
agencies, it is widely recognized that more sponsored research 
is needed. There also needs to be more flexible authority and 
more resources for regulatory agencies; in short, those things 
which will advance the development and production of the 
countermeasures.
    PhRMA member companies have been active in moving forward 
on countermeasure research and development. As indicated in my 
written testimony, for example, PhRMA is working with CDC, DOD, 
NIH, FDA and academia to support invitro studies of five 
important pathogens as model systems for antibiotic testing. 
Several companies are working with the National Institutes of 
Allergy and Infectious Diseases to help test existing 
antibiotics against plague. Other examples of ongoing 
collaboration are outlined in my testimony.
    A cooperative and collaborative research and development 
effort which engages industry, government and academia will, 
however, be essential to this effort. PhRMA believes that 
Project BioShield is an important step toward this, and we 
support the three main components of the President's proposal.
    The President's proposal speaks primarily to the early and 
to the later stages and the lengthy high risk and costly 
process of bringing new medicines to the market. It does not, 
however, speak to the time-consuming and resource-intensive 
middle portion of that process, which is largely our 
responsibility. Further, research into biothreat 
countermeasures presents challenges beyond those ordinarily 
encountered in nonbiodefense R&D. These include scientific 
challenges, economic challenges and legal challenges, and I 
will enumerate a couple, if I may.
    For example, some products will be distributed without the 
typical battery of clinical trials that are required for FDA 
approval. All medicines present inherent and unavoidable risk 
of adverse events. As a result manufacturers may be exposed to 
devastating product liability suits. Private insurance can be 
unavailable or prohibitively expensive.
    Second, the need for rapid development of countermeasures 
may require the sharing of scientific information and 
cooperation among companies; for example, the sharing of data 
by researchers working in different laboratories. Collaboration 
and cooperation in this research might create exposure under 
current antitrust laws.
    Third, diverting resources from research and development of 
other medicines will affect the future availability of 
treatments and cures for patients with other serious health 
conditions, especially since only a tiny percent of all drugs 
that enter testing ever demonstrate sufficient human safety and 
acceptable efficacy.
    The allocation of resources can be particularly difficult 
with few products in the pipeline. In order to best meet the 
public health needs of our citizens, PhRMA looks forward to 
working with in, a transparent manner, Congress and the 
administration to enact measures that will provide appropriate 
product liability protection for products that are procured 
under BioShield and for products that are distributed under the 
emergency authorization procedures of BioShield. Although 
existing indemnification authorities are a helpful step in the 
right direction for some government contractors, they are not 
an appropriate model for legislation implementing Project 
BioShield. Instead, we would urge Congress and the 
administration to expand and, as appropriate, modify the 
liability protection model that this Congress has already put 
in place for smallpox.
    PhRMA also looks forward to working closely with Congress 
and the administration to enact narrowly tailored measures to 
address existing antitrust constraints as appropriate in order 
to allow needed collaboration and consortium among scientists 
and industries. My written testimony includes the memorandum 
from outside counsel explaining both the need and the precedent 
for a narrowly tailored antitrust provision that would apply in 
this very special context.
    Cooperation and 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. I thank you for this opportunity to 
address you and look forward to answering your questions. Thank 
you.
    Chairman Tom Davis. Thank you very much.
    [The prepared statement of Dr. Friedman follows:]

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    Chairman Tom Davis. Dr. Ryan.
    Ms. Ryan. Mr. Chairman and members of the committee, thank 
you very much for inviting me to testify before you on Project 
BioShield. I am the president and CEO of AVANT 
Immunotherapeutics, a small 60-person biotech company in 
Massachusetts. I am also on the board of the Biotechnology 
Industry Organization, and I am chairman-elect of the 
Massachusetts Biotechnology Council.
    As the Federal Government embarks on BioShield, a new and 
challenging program to fight bioterrorism and biological 
warfare, let me assure you that the biotechnology industry 
stands ready to contribute and work toward its success. Our 
eagerness to participate, however, cannot be unqualified. As 
the leader of a small company, I cannot embark on the 
development and supply of biodefense vaccines if doing so 
doesn't make business sense.
    Let me, if I may, give you my view of BioShield from the 
perspective of a small company. AVANT is a small company, and 
it's a vaccines company. Prior to September 11th we made 
vaccines for protecting travellers against cholera, typhoid 
fever and dysentery. We make antiviral vaccines for diarrhea in 
babies, for food safety, and we even have a vaccine that raises 
your HDL, your good cholesterol.
    After September 11th, we moved to apply our advanced 
vaccine technologies to biodefense, as they have much to offer. 
For example, the current inventory anthrax vaccine provided to 
U.S. troops is administered through multiple injections, about 
6 over about 18 months, which are often painful with side 
effects. And once the injections have begun, the protection 
develops gradually over several months. We think we can do 
better, and to my great pride we signed a contract in January 
that allows us to supply most advanced vaccine know-how to the 
biodefense effort. Under our contract with DVC, DynPort Vaccine 
Co., the prime contractor to the Defense Department's JVAP, 
Joint Vaccine Acquisition Program, we have begun development of 
a single-dose oral vaccine that will protect our troops against 
both anthrax and plague at the same time. This vaccine will 
have the same features as our cholera vaccine developed for the 
travellers' market, administered in a single oral dose, safe 
and well tolerated by the recipient, with immunity developing 
very rapidly in days, not weeks or months. Manufacture of this 
vaccine is easy and inexpensive to current--by comparison with 
current generation vaccines. And in addition, we can provide 
this in a form that does not require refrigeration.
    Under the current plan we expect to complete preclinical 
development of this vaccine by the end of calendar year 2004. 
To my knowledge, it is the most advanced vaccine technology 
currently under development anywhere in the government's 
biodefense program, civilian or military.
    So how does this experience shape my view of BioShield? 
Here are the central characteristics that I'll be looking for 
in BioShield. First, BioShield must create a market of 
sufficient size to convince the industry that we have a partner 
who understands the costs and complexity and risk of developing 
therapeutics and bringing them to market. Now, the research in 
any clinical stages may take tens of millions. But as you move 
through the final stages of clinical development over the 
finish line, it takes hundreds of millions, and biotech 
companies will want to see a Federal program of sufficient size 
to convince them that our effort can be funded throughout the 
life cycle of the program.
    Second, there must be a long-term commitment of funding. 
The development of biomedical countermeasures takes time; 5 to 
10 years is very aggressive, and more than 10 years is not 
uncommon, and although we are making quick progress on things 
such as anthrax and plague, there are other less well known 
agents that may become terrorist threats. And we have heard a 
lot of talk about SARS, and we have barely begun to work on 
that yet, though some of the technologies will apply. To meet 
the nuclear missile threat, the government has spent a minimum 
of $3 million annually for I think now 20 years. That kind of 
long-range commitment will convince companies that the 
government is serious about defeating biological threats.
    Third, there must be careful coordination, and we touched 
on this earlier, among the agencies, including a program 
management function that can bridge the divide between the NIH 
and the early discovery and research phases and the procurement 
at the Department of Homeland Security. And one of the most 
experienced acquirers of complex products is the Department of 
Defense, and in the Department of Defense, in JVAP, they have a 
program management function that I think could well be applied 
through the life cycle of products as they progress through 
BioShield and bridge the gap between the NIH and the Department 
of Homeland Security.
    Fourth, two of my colleagues have mentioned it, there must 
be adequate liability protection. I am not going to go into it 
further, but simply say that from the point of view of a small 
company, it isn't even a meritorious legal case that is a 
threat; even just the threat itself of liability is enough to 
prevent investment and put small companies out of business. So 
this is a risk that small companies simply can't take.
    The bill introduced by Senators Lieberman and Hatch also 
provides for liability protection. Their legislation offers us 
protection in the context of comprehensive incentives for 
biotechs, and perhaps an approach like that can be incorporated 
into the BioShield concept of government-created markets that 
pull firms into this worthy effort.
    So although I am very optimistic about the opportunity for 
success, I want to close with a personal experience that 
actually leaves my hope tinged with concern and, frankly, keeps 
me awake at night. We at AVANT have put huge amounts of 
resources into our program for a single-dose oral anthrax/
plague vaccine, and we have a partner who is willing, the Joint 
Vaccine Acquisition Program, but we found that the 2004 budget 
has been slashed from the level it received in fiscal 2003. So 
even if we are successful and deliver absolutely on the 
contract that we have now for the preclinical 2-year program, I 
am very concerned about the future of what is a really 
outstanding vaccine approach, because, as you heard, there may 
be rather little incorporation of the Department of Defense 
programs into BioShield. So I want to be sure that this doesn't 
become an example of how, despite the best of intentions, 
failure of the many agencies involved to keep their coordinated 
eye on the biodefense ball could undermine effective programs 
and partnerships.
    So I remain hopeful that working together the government 
and industry can make BioShield work for the national interest. 
I applaud your leadership in holding this hearing and meeting 
the challenge, and I assure you that our industry will be a 
willing partner.
    Thank you very much, and I will be happy to answer 
questions.
    Chairman Tom Davis. Thank you very much.
    [The prepared statement of Ms. Ryan follows:]

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    Chairman Tom Davis. Dr. Bowdish, thanks for being with us.
    Ms. Bowdish. Chairman Davis and distinguished members of 
the committee, I am honored to present this testimony on the 
application of monoclonal antibodies, the very latest biotech 
solution for defense against the very real threat of 
bioterrorism facing our Nation today. It's my understanding 
that the BioShield Initiative is designed to give key Federal 
agencies what amounts to fast-track authority for the review 
and approval of private sector solutions to fight the agents of 
bioterrorism. I wholeheartedly support the concept behind this 
and other legislative approaches such as the Lieberman-Hatch 
bill in the Senate. There is no better way to generate new 
therapies than to let the top people in their respective fields 
bring the best ideas to the table.
    I know these legislative efforts importantly address long-
term problems, but I also hope that NIH and other Federal 
agencies will take immediate steps that address the very real 
threats that we all face right now. As we saw in the attacks 
against our Nation in 2001, inhalation anthrax is a highly 
fatal disease if not identified early enough for antibiotics to 
be of use. Death usually occurs within a few days of the onset 
of acute symptoms, primarily from the toxins produced by the 
anthrax bacteria, not the bacteria itself.
    In addition to antibiotics directed against the bacteria, 
successful anthrax defense will require agents against the 
toxins otherwise known as antitoxins. Monoclonal antibodies are 
among the most logical and natural antitoxins that could be 
developed for the treatment of anthrax. Human monoclonal 
antibodies have been proven safe and effective for many 
therapeutic purposes, and I am confident that they will have 
similar success as bioterror antitoxins.
    Alexion has successfully isolated human monoclonal 
antibodies with therapeutic potential for biodefense. For over 
a year we have had antibodies that could provide the most 
complete protection from anthrax toxin available. These 
antibodies, either alone or in combination, may be useful as a 
prophylactic at the onset or during or at the course of an 
active infection. As detailed in the written testimony, this 
work has been discussed with and presented to a large number of 
scientific experts on anthrax and biodefense in industry, 
academia and government. All of these individuals agree that 
the approach we are taking is a necessary and achievable 
component to U.S. biodefense initiatives.
    Alexion's biodefense program against anthrax has been 
entirely self-supported to date. We saw a need, and we 
recognize that we had the ability to offer our technology and 
our expertise. And most importantly, we have demonstrated that 
our approach works. It is our hope that Congress can help us 
ensure that the appropriate decisionmakers in our Federal 
Government are aware of our critical and highly relevant work 
for consideration for civilian and military defense.
    It is our desire to coordinate with government officials to 
see that our antibodies and our expertise are utilized for 
emergency stockpile generation to protect both the civilian and 
military populations. Building the necessary emergency 
stockpiles is certainly something that no one company can or 
should accomplish solely with private funding. Therefore, we 
are looking for assistance from the Federal Government through 
NIH for the final phase of development of this critical 
therapy.
    Further, we are currently applying the same technology to 
additional agents of bioterror in our research laboratories. 
Preliminary results suggest we will have similar successes with 
smallpox, botulinum, plague and others. At the minimum, we hope 
emergency stockpiles of monoclonal antitoxins would deter 
would-be terrorists and alleviate public anxiety. Above all it 
is my hope we never have to look back from another bioterror 
attack and wonder what more could we have done and why did we 
wait.
    I thank the committee for this opportunity to present this 
testimony, and I welcome any questions.
    Chairman Tom Davis. Thank you very much.
    Dr. Edwards.
    Dr. Edwards. Chairman Davis and members of the committee, 
thank you for inviting the Infectious Diseases Society of 
America [IDSA], to present our views on the administration's 
Project BioShield. I am Dr. John Edwards, a professor of 
medicine at the School of Medicine at UCLA, and chief of the 
division of infectious disease at the Los Angeles County/
Harbor-UCLA Medical Center.
    Before I begin, I want to thank Dr. Fauci for his work on 
Project BioShield and his work at infectious diseases in 
general. He is a member of our society.
    I am testifying today on behalf of the IDSA to convey our 
strong support for Project BioShield and the novel incentives 
it creates. However, the United States' most pressing 
infectious disease problems are not limited to infections that 
terrorists may propagate. An immediate crisis exists currently 
in U.S. hospitals and in our communities as naturally occurring 
infections become increasingly resistant to approved 
antimicrobial products. Additionally, naturally occurring 
infectious diseases exemplified by meningitis pneumonia, 
tuberculosis and AIDS are still the leading cause of death 
worldwide and the third leading cause of death in the United 
States. Furthermore, emerging infections such as Severe Acute 
Respiratory Syndrome [SARS], and West Nile virus are continuing 
threats.
    Antimicrobial resistance whereby microbes mutate and become 
less susceptible to drugs has created special concerns. You 
probably know of the cases of vancomycin-resistant 
Staphylococcus aureus [VRSA], that occurred in Michigan and 
Pennsylvania last year. This occurrence is highly significant 
since vancomycin is typically a last resort agent. Similarly 
methicillin-resistant Staphy aureus, which previously affected 
mainly hospitalized patients, now is infecting healthy and 
strong individuals and communities across our country. Upon 
this background, the IDSA has learned that a, ``perfect 
storm,'' if you will, is brewing as many pharmaceutical 
companies are considering or already have withdrawn from anti-
infective drug development. Many companies have greatly 
curtailed, wholly eliminated or spun off their anti-infective 
research components especially over the last 5 years. A list of 
these major pharmaceutical companies is provided in our written 
statement.
    Antimicrobials work often quickly and with successful 
results. Understandably, pharmaceutical and biotechnology 
companies are inclined to develop products that treat long-term 
chronic illnesses because such products provide greater returns 
on investment. As U.S. demographics shift toward a more elderly 
population, we predict that companies will focus even more on 
chronic diseases in the future. Within the context of these 
realities, it is highly unlikely we can reverse the 
antimicrobial market failure without some form of specific 
well-designed intervention. Therefore, a national solution is 
needed to solve this national crisis.
    Project BioShield's long-term legacy will be enhanced 
significantly if it is amended to address the precipitous 
decline in the development of antimicrobial products to treat 
naturally occurring and resistant infections.
    Such amendments are supported by recommendations made by 
the Institute of Medicine in the Microbial threats report 
issued on March 18th. Thousands more Americans will succumb to 
naturally occurring infections in the next 10 to 15 years than 
to agents of bioterrorism, even if a bioterrorism attack 
occurs, and yet no plan is currently on the table to address 
this immediate public health crisis.
    We strongly support the concept Project BioShield, but we 
unequivocally urge that it be amended to include a framework 
for action to protect Americans against naturally occurring and 
drug-resistant and emerging infections that are increasingly 
present in our hospitals and communities.
    Chairman Davis, in your opening statement, you asked how 
can BioShield assist to address the SARS outbreak. In its 
current form, its assistance would be tangential. However, with 
amendments it could do much.
    In closing, we sincerely thank the chairman and all members 
of the committee for the opportunity to discuss the urgent need 
for new technologies and tools to protect U.S. citizens and 
global populations from both the threat of bioterrorism and the 
highly prevalent naturally occurring infections.
    The IDSA is available to assist in any way that it can. 
Thank you for sharing these concerns with us.
    Chairman Tom Davis. Thank you very much, Dr. Edwards.
    [The prepared statement of Dr. Edwards follows:]

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    Chairman Tom Davis. The point you make, that with some 
amendments we may be able to shape this legislation up where it 
can help us with the SARS or the next Ebola or whatever, is 
very, very important.
    Sometimes we get an opportunity like this legislatively 
when we want to make it as inclusive as we can. So I think your 
point is well taken.
    We don't know what will happen from a bioterrorism point of 
view over the next decade. Hopefully nothing. But there are 
going to continue to be SARS and mutations and things that the 
private marketplace is going to be reluctant to get into 
without strong Federal help.
    And having a system up that could include these areas, I 
think would be very, very helpful. So we will take all of your 
comments into account as we try to write this legislation and 
move it through.
    I am concerned, and I am--I guess I will ask everybody. 
Putting--if we get this fund up, we put limited liability and 
the other things that are asked for in the legislation, a 
concern of an unintended consequence downstream being that all 
of a sudden putting so much into biomedical countermeasures, 
could it affect other biomedical research into more 
conventional areas?
    Can you find pharmacy companies all of a sudden putting 
their research into these areas where you have a guaranteed 
fund at the end that will pay for these, instead of taking the 
chance in the marketplace, and how will this affect more 
conventional research and development?
    Dr. Friedman. Thank you. I will begin. I am sure others 
will join in as well.
    The problem is, in a sense, caused by the fact that there 
are so many opportunities that are available. These are 
opportunities that have been made available because of the 
scientific investments that have been made in this country over 
the last 40 or 50 years.
    I think it is true to say that whether you are talking 
about an academic medical center, a pharmaceutical company, a 
large pharmaceutical company or a small company, there are 
vastly more promising ideas for helping people today than we 
have the time, the energy, the resources, the expertise or the 
dollars.
    And that is a continuing challenge for us all. As was 
pointed out, one of the reasons why pharmaceutical 
manufacturers have been putting less emphasis on infectious 
disease over the last decade is that there have been more 
urgent public health opportunities, cancer, Alzheimer's, other 
very serious diseases, where companies thought that important 
investments made there would help more patients.
    As we have come to recognize that the threats to our health 
change, we must rebalance the equation. There are no simple 
answers. There aren't enough resources or people or time to 
address all of the scientific and medical questions that 
legitimately exist. It is a real challenge for all of us to try 
and define what that right balance is.
    We must make those assessments and then we must constantly 
reevaluate and question those and decide how we can make the 
greatest contribution to the public health, with which source 
of investments of our energy and time and people.
    Chairman Tom Davis. I mean, in all fairness, you want to 
make contributions to public health, but you have a bottom line 
to your shareholders too. And if the money is available out 
there in these--in some of these other areas, it may be a more 
sure investment than some of the other areas.
    Dr. Friedman. It is theoretically possible. I think by far 
the more driving consideration will be how likely it is to be 
successful. So if we have a wonderful insight into multiple 
sclerosis or diabetes, the opportunity to contribute there--as 
you are well aware, because you understand this, there is a 
huge number of things that are screened and begin testing, and 
a tiny, tiny percentage that end up--not because people are 
sloppy or because they don't care, because we don't have the 
biological insights. As sophisticated as we are, we are not 
sophisticated enough.
    Chairman Tom Davis. This is tough stuff. Dr. Ryan.
    Dr. Ryan. I think the unintended consequences will be all 
benefits. If you look at the countermeasures and the 
technologies we can offer now, they were all built on peacetime 
research and activities.
    And much of what I think we would benefit from in 
developing needle-free, nonrequiring-refrigeration vaccines, 
would be equally useful for travelers' vaccines, food safety 
vaccines, vaccines for global health. So it is the same 
intellectual property and technology that we would be 
leveraging into another area. So I would see all of the boats 
rising, and I wouldn't see competition being a problem at all.
    Chairman Tom Davis. All right. Thanks.
    For a countermeasure to be appropriate for procurement 
under the Project BioShield as envisioned by the 
administration, the Secretary of Health and Human Services has 
to make a determination that the product is either approved by 
the FDA or is likely to be approved within 5 years.
    Is that a reasonable approach? And what type of products 
would be covered by this timeframe? And what type do you think 
would be excluded by this timeframe? Any thoughts on that?
    Ms. Bowdish. I believe that monocromial antibodies will be 
able to be approved in this timeframe. I think that in our 
case, speaking from a small-company perspective, we already 
have antitoxin therapy available for anthrax. I think it will 
take us the next 6 months to get it through the next series of 
studies that we need to do, and then likely into phase 1 safety 
studies.
    I think that our approach will be successful against the 
other agents that we are working on now and will be working on 
in the future. I think that we can very quickly have a rapid 
success with antitoxin therapies and antiviral therapies in the 
case of monocromial antibodies.
    Chairman Tom Davis. Thank you. One of the areas you are 
going to see debated on both sides of this is, are we giving 
away too much to the companies? Are we in fact not being tough 
enough, that they are going to walk off with big profits? Are 
we giving them too many protections and the like?
    But the bottom line for us is to be able to get incentives 
so the companies will step forward, take the risk, do the 
research. It is clear from the last panel that government 
doesn't have this in-house capability. We have got to go out to 
private sector.
    We can write a law here that may have all kinds of 
safeguards and protections so that the government isn't getting 
taken. But if companies don't step up to the plate, the losers 
at the end of the day are going to be the consumers and people 
are who are suffering from this.
    What we wrestle here with is striking the right balance. As 
we look at the administration's proposal, does it have enough 
incentives for private companies to begin research and 
development? Do you think it has enough? Do you think it needs 
more? Do you think it goes too far? We ought to bring other 
safeguards in? I think all of you have different perspectives 
on that. But does anybody want to take that?
    Dr. Friedman. Very briefly, sir. I think there are some 
incentives that are being discussed. I think equally important 
is addressing the disincentives that exist to try and optimize 
the system. I think that at the totality of what we are trying 
to create for the American public balances careful discussions.
    These are complicated issues. And, as others have said, we 
look forward to working with you and others to try and craft 
this. Specifically, where there are special descriptions in the 
legislation, we think those should be transparent, they should 
be clear, and they should be well focused.
    Chairman Tom Davis. OK. Thank you. Anyone else on that?
    Dr. Ryan. What I like about the 5-year idea is that there 
is a clear philosophy to support product opportunities, not 
just support research.
    What I don't like about the 5 years is I think it is a bit 
tight. I mean, if somebody is progressing extremely well, I 
think it would not be useful to the country to cut it off if it 
went another couple of years.
    Chairman Tom Davis. So, some waiver extension?
    Dr. Ryan. A question of progress. Again, as I keep 
stressing, program management through the life cycle from 
research to having a product that could actually be used.
    Chairman Tom Davis. I mean, your company spends a lot of 
money that sometimes ends up going nowhere, right, with the 
research?
    Dr. Ryan. Oh, yeah.
    Chairman Tom Davis. What percent? As you go off on a trail, 
how much times does it lead nowhere?
    Dr. Ryan. Most of the time, is the depressing thought. But 
in fact the research is still useful. Others studies have been 
done, not just by my company, but when you get to the end of 
the road, it is 1 in 100 is what makes it through to success.
    Dr. Friedman. I think it depends where you start. It could 
be as small as 1 in 10,000 or 100,000 if you look at the very 
earliest steps, when something begins clinical testing. You are 
happy if it is 1 in 100. Again, this is not just for anti-
infectives, but for a variety of different medications.
    Mr. Rapoport. Mr. Chairman, I think the incentives are 
there, but they need to be firmed up. And let me give you a 
specific example. In the last anthrax procurement, which was 
won by a company whose name I can't recall, but the basic 
provision, the RFP, was for research and development only.
    So you stand back, and you are chairman of a multinational 
drug company. And you look at, am I going to do research and 
development? I would love to help. I want to be there. In fact, 
it looks like the government is paying my way.
    What happens at the end of the contract? Nothing. You get 
no widget. You get no promise. In fact, the procurement said 
there will be another RFP at the end of the research and 
development. And you wonder, as outside counsel, how do you 
advise your company on, well, do you get the rights to the work 
that has been developed by the other companies that have won 
the R&D?
    So it is very simple in the sense that if you want to 
attract companies like Aventis, I think they are willing to 
share the risk, but they need to know that if they show you 
their stuff and they are successful, there is a guarantee that 
there is going to be a market there.
    It is as if to say we fight a war in Iraq, and Boeing is 
not there, Lockheed is not there, Northrup is not there. We 
have got some very sophisticated companies, but we need some of 
the big players with unlimited resources to participate in this 
as well.
    Chairman Tom Davis. Thank you. I mean, that is the American 
system. There is a huge up-side when you get success. If you 
don't get success, you end up eating the cost. But there is a 
huge up-side. And what you are saying here is there is no 
assurance of that in some of these cases. Thank you very much.
    Mr. Waxman.
    Mr. Waxman. Thank you, Mr. Chairman.
    I want to thank all of the witnesses for their testimony. I 
had a conflict in my time schedule so I wasn't here to hear 
you, but I have had a chance to review the testimony and will 
certainly take into consideration all of the things that you 
have given us because I think it is very helpful.
    Mr. Rapoport, you testified you assumed checks and balances 
are in place to ensure appropriate stewardship to protect the 
taxpayers' money. It seems to me that the bill eliminates many 
guarantees to protect the taxpayers' interest: eliminating 
government access; rights to the books of contractors, for 
instance, seems questionable.
    What kind of checks do you think are in place?
    Mr. Rapoport. I noticed from your earlier question that you 
were concerned about that. Remember, the simplified acquisition 
is only up to $25 million. After that, the full panoply of 
Federal Acquisition Regulations, with the masses of government 
auditors that are already over the pharmaceutical industry, 
they will be there.
    In my days at the Justice Department, we had the FBI, we 
had the IG. There is everybody there from those enforcers to 
the contracting officials who ask for one thing: Get the stuff 
out the back door. As long as you can keep producing, there 
will be no audits.
    So the $25 million, quite frankly, is a very low number to 
receive a relaxation of government acquisition enforcement. 
Most of this will be far in excess of $25 million.
    Mr. Waxman. Well, the production side, however, it is not 
limited to that $25 million.
    Mr. Rapoport. It is our view that the production side 
doesn't even have this simplified acquisition in it. There is 
no relaxation. There is total--in fact, it is a very aggressive 
position which says that if you don't produce, Mr. 
Pharmaceutical Co., within 3 years, we are going to terminate 
you for default. That didn't have to be in there. There is 
already that ample authority under the FAR.
    Mr. Waxman. You have testified that companies need the 
certainty that research and development contracts will lead to 
a manufacturing agreement. This is an important part as far you 
can see to tie the two together?
    Mr. Rapoport. Yes. We are not assuming that the price has 
to be decided until later in the contract. But the government 
does this type of price determination midway through a 
procurement all of the time.
    Mr. Waxman. Do companies make money on research and 
development contracts? And, if so, why would you need a 
guarantee of a manufacturing agreement up front?
    Mr. Rapoport. There is probably a difference between a 
company like Aventis and a biotech. We are not anxious to 
accept government money, as you suggest. We are not government 
contractors. The pharmacy industry, I guess the Wall Street 
Journal calls them the new biodefense contractors.
    But a large pharmaceutical company wouldn't have the 
institutional competency to deal with what Boeing and Lockheed 
has. So they are not anxious to take government R&D money 
simply to earn a 7 or 8 percent profit on top of the R&D. It is 
the manufacturing capability that they want, and that they are 
best at, that they deliver. That is really why they are where 
they are.
    So at the beginning when I said our tinkering with the 
bill--and it is a good bill--is simply not only to encourage 
biotechs who absolutely have to be there, but also the 
companies that have the ability to produce masses of quantities 
of vaccines. And they don't need the government's R&D money as 
long as they know that there is some kind of back-end 
commitment.
    Mr. Waxman. Dr. Friedman, good to see you again. You have 
indicated the importance of the liability protection. Why 
wouldn't the government contractor defense shield you from 
liability?
    Dr. Friedman. I am sorry, sir?
    Mr. Waxman. You indicated that--the concern about the 
potential liability companies manufacturing these 
countermeasure could face, and their inability to retain 
private insurance. I am trying to understand why wouldn't the 
government contractor defense shield be adequate for 
protection?
    Dr. Friedman. This is an area that skirts my expertise in 
terms of legal understanding. But as it has been explained to 
me, and I believe it is accurate, the indemnification 
activities that exist for many kinds of contractural procedures 
are really not anywhere near as flexible or appropriate or 
useful as some of the liability kinds of protections that 
exist.
    I believe the recent example of how smallpox has been dealt 
with is a very reasonable model for us to take forward. And if 
I may just expand on my answer for a moment, to answer a 
question not--that you didn't address to me, but you did 
address earlier, because I really feel it is worth some further 
discussion.
    Our feeling is that the liability protection should be 
afforded not just to the manufacturer. We think there is a very 
strong case for that. I am happy to further define that. But we 
also believe that there should be some equitable, appropriate 
consideration of the people who are receiving the product, and, 
I would even add, the people who are delivering the product; 
that is, the health care providers, physicians and so forth.
    The reason is I think that we are operating--anytime you 
have a product considered, even approved by the Food and Drug 
Administration, there is a balance of what we know and what we 
don't know.
    At a certain point the FDA and its scientists say, we know 
enough to say that this is relatively safe and relatively 
effective, because there is nothing that is absolutely safe and 
absolutely effective. And we have confidence when there is a 
lot of information there.
    Our concern is that for some of these products, because of 
the difficulty of testing them, because of the fact that they 
may be in the midst of development, that balance will be 
shifted and we won't know quite as much as we would like to. 
And there will be more unknowns about risks and benefits.
    Mr. Waxman. So you think that the manufacturers should be 
protected from liability to give the incentive to development 
of these products, but the public that is exposed to them, that 
may have some adverse effects, should also be compensated?
    Dr. Friedman. Yes, sir.
    Mr. Waxman. Dr. Edwards, I want to welcome you because you 
are from UCLA, among other reasons. There was a report in 
yesterday's New England Journal of Medicine that a common 
bacteria is now highly resistant to Vancomycin, one of the most 
powerful antibiotics in modern medicine.
    Do you believe that more research needs to be done to find 
alternative treatment for Vancomycin-resistant bacteria?
    Dr. Edwards. Absolutely. This is just a major problem that 
we are facing every day in our hospitals. And in fact, I would 
like to give a very brief example that sort of summarizes a 
conundrum. In our institution we recently had a patient who was 
a 60-year-old, brought in by her family, her daughter and her 
grandchildren, and had severe asthma and also had evidence of 
an infection that seemed to be mild. A deliberate decision was 
made not to put the patient on Vancomycin, because that drug 
has become so valuable, and there is so little in the 
background available to counteract the Vancomycin-resistant 
organism.
    So the patient was relatively stable at the time she came 
into the hospital. But she rapidly decompensated and died, 
unfortunately. And at the time of her autopsy, an organism that 
was multiplying resistantly to antimicrobials was recovered, 
but it was sensitive to Vancomycin.
    And this example illustrates how we are faced with the 
situation now of trying to conserve the use of specifically 
that agent, but also others, because there is so very little in 
the background for support for resistant organisms.
    And the situation is very complex and intricate. And I 
think this example displays some of those intricacies of the 
kinds of decisions that are being made in hospitals all over 
the country now based on this resistance problem.
    Mr. Waxman. Do you think there are natural security 
implications?
    Dr. Edwards. Absolutely. The resistance issue is tied to 
some of the basic science of bioterrorism agents as well.
    Mr. Waxman. Thank you. That is very helpful to have on the 
record.
    Thank you very much, Mr. Chairman. And I want to thank the 
panel.
    Chairman Tom Davis. I want to thank the panel as well. It 
has been very helpful to us as we try to formulate some 
meaningful legislation over the next few months.
    Anyone want to add anything before we go? If not, let me 
just again thank you. I want to thank the staff for working on 
this hearing. We will be following up on a SARS issue at a 
hearing scheduled for next Wednesday, April 9th, at 10 a.m.
    We will keep the record open for 2 weeks if you want to 
supplement your comments. If you think of anything you didn't 
say or respond to, please feel free to do that. And the hearing 
is adjourned. Thank you.
    [Whereupon, at 11:50 a.m., the committee was adjourned.]
    [Additional information submitted for the hearing record 
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