BIO Testimony on Project BioShield

J. Leighton Read, M.D.
General Partner, Alloy Ventures
Palo Alto, CA

Testifying On Behalf Of The Biotechnology Industry Organization
Before The House Energy And Commerce
Subcommittee On Health And
The House Select Committee On Homeland Security Subcommittee On Emergency Preparedness And Response
Regarding Project Bioshield Act Of 2003
March 27, 2003

Mr. Chairman and Members of the Committee, it is an honor for me to testify before you today regarding Project BioShield and its likely impact in bringing private sector talent and investment into our nation's biodefense effort. I would also like to recognize Secretary Thompson and Dr. Anthony Fauci for their testimony here today and their continued leadership on issues relating to the health of the American public. BIO applauds your immediate consideration of the proposed BioShield initiative, which is designed in part to stimulate research and development of biomedical countermeasures through collaboration with the biotechnology industry.

These comments are based on fifteen years of experience building and financing biotechnology companies in Silicon Valley. I am co-founder of Affymax, a company that transformed the way the pharmaceutical industry thinks about screening for new drugs and a co-inventor of the technology underlying the Affymetrix GeneChip™, the leading technology for acquiring, analyzing, and managing complex genetic information for use in biomedical research. I was founder and CEO of Aviron, a vaccine discovery and development company with extensive and successful experience partnering with the National Institute of Allergy and Infectious Disease. When Aviron merged with MedImmune, a fine company near here in Gaithersburg, I joined Alloy Ventures, a venture capital fund investing in entrepreneurs building early-stage companies in the life sciences and in information and communication technology. Previously, I held faculty appointments at Harvard Medical School and School of Public Health, where I practiced internal medicine and conducted research on the costs, risks and benefits of new medicines. For a number of years, I served as a member of the Executive Committee of the Biotechnology Industry Organization (BIO), who I am also representing today. BIO represents over 1,100 companies, universities, research institutions, state biotechnology associations and affiliates in all 50 states.

Project BioShield is a major step forward
By focusing energy and resources on the creation of new biomedical countermeasures, this legislation will certainly contribute to our national preparedness. Its delineation of responsibilities among the Departments of Health and Human Services (HHS) and the Department of Homeland Security (DHS) provides essential clarification to minimize gaps and duplication of effort. The legislation contains many provisions that will help the National Institute of Allergy and Infectious Diseases (NIAID) streamline work on its essential mission of creating new knowledge about infectious disease and countermeasures. New authorization for procurement of medical products to be used in emergencies is highly welcome because it will facilitate good decision-making under the very difficult circumstances that must be part of our planning horizon.

And -- very importantly -- BioShield contains provisions that recognize some of the unique challenges in producing biomedical countermeasures and the importance of engaging the private sector in this vital effort. The procurement provisions of BioShield begins to address the need for "pull" mechanisms of market creation that are essential to complement "push" mechanisms, such as sponsored R&D programs already enacted.

Our country will only be successful in placing needed countermeasures on the shelf if the Government is able to engage the enthusiastic participation of leading companies in the biotechnology and pharmaceutical industry. The conditions are not yet in place to accomplish that goal. BioShield is a step in the right direction, particularly with respect to procurement of near-term products. In the long term, in addition to BioShield, there are a range of "push" and "pull" incentive mechanisms that the Committee and the Administration should evaluate, such as those included in the proposal by Senators Lieberman and Hatch.

We are at the beginning of a very long road
I am concerned that several of the provisions in BioShield miss an important chance to address our country's long-term needs. America's role in the world positions us as a uniquely attractive and vulnerable target for asymmetrical warfare tactics embodied in today's terrorism. While public recognition of this threat may be a recent phenomenon, we can plan on facing this challenge as long as our prosperity and influence set us apart from other nations.

We must create a new biodefense industry to partner with the government
The scale of the investment required is many-fold larger than implied by the current BioShield proposal. Only two, the anthrax and smallpox vaccines, of 57 diagnostics, vaccines and therapeutic products prioritized by the Defense Science Board (DSB) are available today. BIO and our member companies had met on numerous occasions with various agencies engaged in homeland security prior to the establishment of the separate department. BioShield will provide much needed centralization of these efforts, as well as a clear list of R & D priorities that can focus private sector investment if coupled with the right market signals. At the current investment levels, some new countermeasures will be available within five years, however larger investments will undoubtedly be required. Over the long-term this challenge and the necessary investment may be compared with the nuclear threat of the late 20^th century.

Fortunately, we can ensure that government investments are well rewarded by basing our policies on models of successful biomedical investment. It is important to seize this opportunity because infectious diseases represent some of our greatest triumphs in discovering, preventing and treating disease. When the public and private sector biomedical research assets of the United States are focused on high priority infectious disease targets, the result has ranged from complete conquest -- as in the case of polio -- to medicines that significantly reduce mortality and improve quality of life. Young doctors today have never seen the childhood infections that accounted for most infant mortality 50 years ago. Even the HIV virus, which has so far eluded attempts to find an effective vaccine, can be controlled with a growing number of drugs discovered and launched in only 15 years.

Public-private partnerships are working to control infectious disease. Antibiotics, anti-virals, vaccines and other "wonder drugs" against infectious disease come to be available to patients and their doctors via a complex web of interactions among public and private sector entities. In the past 30 years, almost every important antimicrobial drug and vaccine discovery effort has benefited in some way from the research conducted under the sponsorship of the US National Institutes of Health (NIH). Through its intramural and extramural programs, the NIH is responsible for an explosion in the basic science of how infectious agents spread and cause disease and how the human body fights back. The NIH has also made substantial progress by moving discoveries out of the laboratory and into clinical trials where safety and efficacy can be evaluated. For example, results from Vaccine Trial and Evaluation Units (VTEUs) in academic institutions supported by NIAID demonstrate how successful public-private partnerships can be. Other Federal programs at the Centers for Disease Control and Prevention (CDC) and elsewhere in HHS, as well as in the Department of Defense (DOD) and the Veterans Administration (VA), have made important contributions.

Government supported facilities for research on biothreat agents will play a critical part in the research and development efforts of both public and private contributors. It is not feasible for the private sector to build or operate all of the biocontainment facilities needed, and it is essential that countermeasure candidates developed in the private sector can be tested for pre-clinical efficacy in the public funded facilities, especially where physical control of dangerous biothreat agents must be assured.

The government plays a further vital role by setting minimum standards for product safety and efficacy via the FDA. This gate-keeping role also extends to regulation of manufacturing processes. The large extent to which regulation of manufacturing drives the cost and development time of vaccines and related products is an important consideration for biodefense procurement policy.

Finally, the government has successfully created large and enticing markets for bio-innovations by serving directly as a purchaser, via the Medicare, Medicaid and Veterans' healthcare programs, and via the regulatory and tax environment that supports our large private health insurance industry. By creating conditions for a market that is reasonably predictable and consistent over time, the government should set the stage for the private sector to optimize its use of resources to develop appropriate products. The same concepts of consistency and sustainability, while not perfect in these and other purchasing environments, will be needed for the development of countermeasures to biothreats. Particularly when you consider that the market for countermeasures cannot, by any definition, be considered a traditional market.

As important as the government's role is, it can also be said that all of the important drugs and vaccines for infectious disease in the US have come to be available only after substantial effort and investment by private sector companies in the pharmaceutical and biotechnology industries. Some of these programs began as early-stage discovery programs in industrial laboratories. Often, these benefited from technology licensed from our great research universities, where discoveries were typically funded by government grants. Still others were the result of technology transferred by the NIH or other agencies to a committed industrial partner under licenses and Cooperative Research and Development Agreements (CRADAs). Regardless of where industry stepped in, every successful product has required private investment ranging from tens to hundreds of millions of dollars.

The CRADA for FluMist ™
My company, Aviron, held one of the first CRADAs with NIAID beginning in 1995. This work involved a promising influenza vaccine invented at the University of Michigan in the 1960s under US Army sponsorship. This vaccine had been the subject of NIH-sponsored clinical trials in VTEUs thru the 70s and 80s. Despite the lack of a committed industrial sponsor, NIAID had built an impressive base of scientific knowledge around this flu vaccine and its novel form of administration via the nose. There were major contributions from the NIAID intramural program as well as its network of vaccine trial and evaluation units. Under our 5-year CRADA, Aviron developed a manufacturing process and supply chain and conducted Phase II and Phase III clinical trials for FDA registration of the candidate vaccine now known as FluMist tm. The partnership between Aviron and NIAID was as successful as it was collegial, with each side performing its roles in bringing the vaccine forward. What neither party anticipated at the outset was the staggering cost of late-stage vaccine development and manufacturing to FDA standards. More than $300 million has been spent over the past 8 years to bring FluMist tm to the point of final FDA evaluation. This is for a vaccine technology that had been the subject of over 20 years of NIH clinical trials!

The money to support this work was supplied by venture capital firms and public market investors in our IPO and numerous follow-on financings. The incentive for the private sector to make these huge investments is premised on the size of the market for successful innovations, which can reach many hundreds of millions of dollars in annual sales. While American companies can be counted on to respond to a crisis, efforts to attract the best people and companies to work for many years on high-risk countermeasure projects will fail if the reward structure is not aligned with the prevailing incentives in their industry.

Venture capitalists do not, as a rule, invest in companies with business models such as professional services firms or companies aiming to build a business based on contract R&D at industry averages. We aim for our companies to produce products based on defensible intellectual property which have the kinds of margins seen in truly innovative software, pharmaceuticals, and electronic devices. Year in and year out, through the natural cycles of technology, this is a proven recipe for creating value for consumers, patients and investors. That is why I am so concerned that we are not giving full attention to the actual products we need to build in the end and the market forces that will get them finished, deployed and sustained.

Extending BioShield
BioShield should be extended to cover the time frame and scale of the problem. The Secretary needs the flexibility to choose the appropriate mechanisms to develop countermeasures, sole-source or through competitive means, and mechanisms for obtaining advice as to what is likely to be most effective for different technologies. Through the use of an appropriate advisory board, which would include industry participation, with the necessary anti-trust waivers the Secretary will more likely be able to obtain state of art expertise from the private sector in addition to others.

We must signal to private sector enterprises, and the vast capital markets that are available to support them, that there will be a meaningful reward for successful new technology addressing our highest priority needs. The most important enhancement for BioShield is to create more certainty that there will be a market when the private sector innovator succeeds in creating a product with previously defined specifications. The current proposal only authorizes - and does not guarantee - that the Government will purchase. This guarantee is especially important in order to spur investment in countermeasures that are earlier in development and thus years away from commercial success. To be effective, this will require some creative new approaches to overcome industry skepticism regarding government holding to its promises. One such mechanism is a guaranteed purchase fund, as has been proposed to stimulate R&D for new malaria, tuberculosis and HIV vaccines.

The restriction on BioShield procurement to countermeasures reasonably expected to be available in 5 years is highly limiting, in light of the actual development time for new drugs and vaccines. This will be abundantly clear as soon as HHS, DHS and DOD have harmonized the various threat agent and countermeasure priority lists. If the hope is that "push" mechanisms such as government sponsored research will bring a whole generation of products far enough along so that they can be commercialized within the 5-year restriction, we are setting a policy that fails to take advantage of the private sector's abundant willingness to take on early risk when there are clear market rewards for success. A more reasonable calculation of development time is between 7 and 15 years (indeed the products that are most difficult to develop maybe the most important ones). We thus recommend that the proposal's limitation on "qualified countermeasures" eligible for procurement to those expected to be produced and delivered within 5 years be deleted.

Why should we take the beneficial procurement provisions of BioShield off of the table for technology having borderline civilian prospects? The surest way to shut off investment is to raise the specter that success will be punished! The no-significant-commercial-market provision will ensure that the private sector will under invest in countermeasures that are a close call because of the risk that the government will decide some future dual use is too successful. Further, this uncertainty creates a system that may exclude products with potential application as countermeasures, possibly be those closest to the market for other purposes.

Product-liability concerns could defeat our best efforts to engage the private sector
In addition to the need to create a market for countermeasures, the Government must assure private sector partners that they will be not be exposed to a risk of litigation out of proportion to the rewards for success. Companies make judgments about product liability risk all the time in the normal course of business, but biomedical countermeasures pose particular challenges. In the absence of improved market incentives for successful innovation, many will find that potential litigation weighs heavily against proceeding. Even with strengthened market incentives, the unfamiliarity of the exposure magnifies perceived risk, especially when the private sector company may have little control over how the government deploys the countermeasure.

As this committee knows, on several occasions, Congress has protected companies from liability when the public health and the national defense so required. The Price-Anderson Act of 1957 encouraged the development of a civilian nuclear energy industry by limiting the liability of companies that support the nation's nuclear weapons program as well as those who design and operate civilian nuclear power reactors. The Swine Flu Law, enacted in 1976, brought manufacturers of that vaccine under provisions of the Federal Tort Claims Act in order to allow mass immunizations. The National Childhood Vaccine Injury Act of 1986 responded to the threat that the pertussis vaccine and other vaccines would be withdrawn from the market due to the significant costs of defending lawsuits-by providing both a no-fault compensation system and Federal standards applicable to lawsuits if no-fault claims were unsuccessful or rejected by the claimant. And, of course, last year's Homeland Security Act (P.L. 107-296) provided protections for the manufacturers of the smallpox vaccine and government contractors who provide "qualified anti-terrorism technologies." In addition, the BioShield proposal drafted by the Administration includes protection under the Federal Tort Claims Act for contractors who participate in personal services contracts under the new research and development program established under Section 2 of the Administration's proposal.

Legislation implementing the BioShield initiative should extend a liability protection program that is applicable to the proposal's three features: research and development activities under Section 2, the procurement program under Section 3, as well as to the products approved under the proposed "emergency use" revisions to food and drug law under Section 4.

BIO recommends extending the protections offered under Section 304 of the Homeland Security Act to biomedical countermeasures and medical products other than those used to combat smallpox. Following this approach, the Federal Tort Claims Act would clearly be extended to cover manufacturers and developers of biomedical countermeasures, as well as manufacturers of medical products granted an authorization for use in an emergency situation. By creating a system under which manufacturers are protected from enterprise threatening liability mentioned, the Government will establish a true partnership with industry that will facilitate the development and production of the most advanced tools possible to counter possible bioterrorism attacks.

Authorization for emergency use
BIO supports the concept of waiving FDA approval requirements for a product intended solely for emergency use, such as that found in Section 4 of the Administration's proposal. Our major concerns involve the lack of assurance that a company is consulted on the terms and conditions of approval. We also believe that the proposed inclusion of civil monetary penalties to the emergency use provision is much too broad, and we recommend deletion of this provision.

Conclusion
In sum, Mr. Chairman, the proposed BioShield initiative is an important step towards mounting an effective effort by the federal government, to spur research and development of biothreat countermeasures through public and private sector partnering with the biomedical research community and the biotechnology industry. Undoubtedly, this effort can be made much more effective through legislative language that guarantees procurement when the research and development has been successful, and provides rational protection against crippling lawsuits. Finally, it is critical to recognize that, realistically speaking, development of vaccines, therapeutics and diagnostics typically takes more than 5 years, so it is paramount that some form of guaranteed "pull" incentives are included in a final bill because of the non-traditional market that will exist for potential biothreat countermeasures.

Mr. Chairman, thank you for the opportunity to testify on this tremendously important issue. The biotechnology industry is committed to contributing to our nation's common defense and achieving the goals articulated by the President in his Project BioShield initiative. I will be pleased to respond to any questions from members of the Committee.