BIO Statement on Project BioShield II

HEARING ON PROJECT BIOSHIELD II

OCTOBER 6, 2004

This statement is submitted by the Biotechnology Industry Organization (BIO), an organization representing over 1,000 companies, universities, research institutions, state biotechnology associations and affiliates in all 50 states.

BIO actively supported the passage of S. 15, The Project BioShield Act of 2004, earlier this Congress. The Act was a critical first step for developing a viable biodefense industry in the United States.

A significant obstacle to implementing The Project BioShield Act of 2004 is that participating private sector companies face extraordinary risks due to the potential for product liability litigation. BIO applauds the Committee's commitment to examine the liability issues and urges the Committee to address them in BioShield II. Additionally, BIO urges the Committee to ensure that The Project BioShield Act is in fact promptly and fully implemented, beginning with the determination of material threats and commitments to purchase countermeasures to address those threats.

As we indicated in prior Congressional testimony, companies engaged in developing and manufacturing biomedical countermeasures face unique risks because of the very nature of the underlying threat. Specifically, the threat ranges from natural pathogens delivered intentionally by surprising means to microorganisms genetically engineered for nefarious purposes. For some potentially important countermeasures it may be difficult to distinguish the drug side effect profile from the bio-threat pathology.

Additionally, because of the deadly nature of bio-weapons, human efficacy data cannot ordinarily be obtained in advance of an attack. Thus, preclinical and clinical testing data for biomedical countermeasures will necessarily be less complete than for drugs and vaccines targeting other diseases. Moreover, unlike most pharmaceuticals which are administered to very targeted groups, biological countermeasures are likely to be administered to the population at large. Because of the wider distribution, there will be a greater incidence of contemporaneous effects that will invariably be associated - correctly or incorrectly - as a side effect of the countermeasure.

Further, the administration of most if not all biological countermeasures will likely involve a far greater government role than for other drugs and vaccines. Thus, a private manufacturer that can normally initiate important changes in labeling or product recalls if it believes necessary, may not have the ability to mitigate the prospect for becoming embroiled in massive litigation.

The Department of Defense's anthrax vaccine inoculation effort, begun in the 1990's is a case in point. The controversial initiative has already attracted significant litigation against both the Department and BioPort, the manufacturer of the vaccine. Importantly, the manufacturer of that vaccine has been protected with an indemnification under P.L. 85-804. Under P.L. 85-804, agencies may indemnify entities involved in "unusually hazardous risks" when it is in the interest of national security to do so. The covered entity shares the risk of liability by agreeing to provide specified levels of insurance and the federal government's exposure is limited to claims not covered by the required insurance. The authority of P.L. 85-804 has been used sparingly since it was first established fifty years ago, but it has enabled companies to carry out hazardous projects for the government, ranging from nuclear research to chemical weapons destruction and the like.

For companies that manufacture one or a small number of countermeasures, P.L. 85-804 can help mitigate some of the extraordinary risks that they face. However, for companies that have multiple products, even P.L. 85-804 leaves the door open for ruinous litigation because the indemnification is only triggered after company-wide insurance coverage has been exhausted. This leaves companies potentially exposed in the event that other routine claims not covered by the indemnification are filed in the same insurance policy period.

Moreover, future manufacturers of anthrax vaccine and other countermeasures will likely not even be able to take advantage of the limited protection of P.L. 85-804. The President has specifically instructed agencies not to utilize the indemnification authority under P.L. 85-804 when the Support Anti-terrorism by Fostering Effective Technologies (Safety) Act of 2002, P.L. 107-296, Subtitle G, is available. In Executive Order 13286, (February 28, 2003), the President made clear his preference for use of the Safety Act and, by requiring additional determinations and approvals, made it more difficult for agencies to offer indemnifications under P.L. 85-804 in the context of homeland security initiatives.

However, the Safety Act was enacted as part of the Homeland Security Act in 2002, and is focused on technologies developed to combat or prevent terrorist acts. It does not effectively protect the biotechnology industry against risks associated with the development and manufacture of biomedical countermeasures. The Safety Act limits liability only when the liability arises from an act of terrorism. Specifically, the Safety Act applies to "claims arising out of, relating to, or resulting from an act of terrorism when qualified anti-terrorism technologies have been deployed in defense against or response or recovery from" an act of terrorism.

In the absence of a specific terrorist act, such a liability limitation approach is completely ineffectual for biological countermeasures inasmuch as the primary dangers are injuries associated with side effects and the inability to fully test and control the use of the countermeasures, as explained above. Thus, the Safety Act would leave vaccine and other countermeasure producers exposed except in the narrow instance of a specific terrorist act. Additionally, the Safety Act includes a mandatory insurance requirement. For drugs that have not received approval by the Food and Drug Administrations but which may be distributed for emergency use under the BioShield Act, it will be virtually impossible to obtain insurance. Moreover, Safety Act coverage is determined by the Department of Homeland Security on a product-by-product basis and companies have been faced with a lengthy and cumbersome qualification process that requires companies to demonstrate prior use and effectiveness. Given the experimental nature of many biological countermeasures, they are often unproven until there is an act of terrorism.

In the context of the smallpox threat, Congress has appropriately recognized and addressed the unique risks and extended the coverage of the Federal Tort Claims Act to private sector entities that manufacture, distribute, or administer small pox vaccine. 42 U.S.C. 233(p). Thus, the private manufacturers of the vaccine are covered under an indemnification under P.L. 85-804 and would have the same protection from liability that federal employees have under the Federal Tort Claims Act. The Department of Health and Human Services has characterized the need for liability protections for manufacturers and distributors of small pox countermeasures as "integral to ensuring maximum participation in the vaccination program." Notice, 58 Federal Register 4212 (January 28, 2003).

BIO believes that a similar approach should be used for all countermeasures designated under the Project BioShield Act of 2004. Of course, BIO does not seek to shield a company from liability for actions caused by fraud or gross misconduct. We urge the Committee to amend section 224 of the Public Health Service Act to cover these other countermeasures, just as the smallpox vaccine is currently covered.

Additionally, BIO urges the Committee to encourage the Administration to implement Project BioShield swiftly. To date, the Department of Homeland Security has not issued any determinations of material threats nor has it taken any steps to conduct a call for countermeasures to address bioterrorism threats, as contemplated in the Project BioShield Act. In the absence of a specific signal and commitment to purchase, companies are reluctant to invest the necessary resources to develop biological countermeasures.

BIO stands ready to assist the Committee in ensuring that BioShield becomes an effective program in the Administration's war on terror. We thank you for your time and attention to this matter.