Inside the Spore Wars

By Darren Fonda

Had you listened to President Bush on Jan. 28, 2003, you might think the U.S. would have a bustling biodefense industry by now. In a State of the Union speech laced with references to terrorism, Bush asked Congress for nearly $6 billion to fund Project BioShield, a program he said would "quickly make available effective vaccines and treatments against agents like anthrax, botulinum toxin, Ebola and plague." That sounded like a good idea, considering the havoc wrought by the anthrax mailings of 2001, which killed five people and set off a near panic for treatment. So Congress anted up. Eighteen months later, Bush signed BioShield into law. The measure set aside $5.6 billion for drug companies, offered the promise of a guaranteed and speedy contract--even an opportunity to sell the government novel treatments before they are fully approved by the Food and Drug Administration (FDA). The law, Bush promised, "will transform our ability to defend the nation."

Yet BioShield hasn't transformed much of anything besides expanding the federal bureaucracy. Most of the big pharmaceutical and biotech firms want nothing to do with developing biodefense drugs. The little companies that are vying for deals say they are being stymied by an opaque and glacially slow contracting process. The one big contract that has been awarded--for 75 million doses of a next-generation anthrax vaccine--is tangled in controversy; it went to a California firm, VaxGen, which in its 10-year history has never brought a drug to market. In the scientific community, biodefense is viewed as yet another boondoggle that is sucking money and resources from critical public-health needs like new antibiotics and vaccines. Indeed, the consensus outside the Administration is that the program is broken before it even gets off the ground. "BioShield has failed miserably," says Jerome Hauer, a former senior official with the Department of Health and Human Services (HHS). "The intent of BioShield was to attract new companies to get involved in developing countermeasures. It has not only failed to do that; it has kept a lot of other companies away because they're so concerned about the program's lack of focus and direction."

Administration officials say the criticism misses the many steps being taken to shore up the country's biodefenses. They point out that the U.S. has been stockpiling countermeasures, such as 300 million doses of smallpox vaccine. Since 2001 HHS has doled out $5.5 billion to state and local governments for bioterrorism emergency-response programs, and including BioShield, the government has spent about $18 billion on biodefense. "No matter how hard we try, some steps in the process cannot be rushed," said Stewart Simonson, assistant secretary for Public Health Emergency Preparedness, defending BioShield's slow start before Congress in July.

Proposals to fix BioShield have gained a new sense of urgency, however, as fears of another biological threat--avian flu--have mounted. China and Indonesia recently reported human fatalities from the disease, bringing the total number of deaths as of late December to 73, and the U.S. is now scrambling to stockpile medicines--such as the antiviral Tamiflu--to thwart a possible pandemic. Bush has asked Congress, as part of his $7.1 billion response plan, for a "crash program" to speed the development of new vaccine technologies, and Congress last month passed a defense bill that included $3.8 billion, mainly for flu vaccines and medicines.

To entice more drugmakers into biodefense, North Carolina Senator Richard Burr is sponsoring a bill that would establish a Biomedical Advanced Research and Development Agency (BARDA) headed by a biosecurity czar. (Estimated cost: $1 billion annually.) His bill would require the government to make gradual payments to drug companies based on R&D milestones, similar to the way defense contracting works, and would grant companies a 10-year period of market exclusivity for drugs designated as countermeasures. (Drug-patent terms typically vary depending on the date the application was filed and when the product is actually marketed.) More controversial, the bill would make it virtually impossible for individuals to sue for damages caused by any drug deemed a bioterrorism countermeasure, and BARDA would be exempt from the Freedom of Information Act, keeping its work largely veiled from public scrutiny. HHS Secretary Michael Leavitt has said new liability protections should apply only to vaccines and medicines for pandemic flu, which is likely to delay action on Burr's "BioShield 2" bill until next year.

Yet the market forces that have given us flu-drug shortages are also working against biodefense. With the industry's profits under pressure, none of the big firms are keen on diverting research from potential blockbusters to drugs for exotic germs like Ebola and plague, which may be stockpiled and used only in an emergency. Biodefense is "not attractive to Big Pharma, which is making money off things we use a few times a day," says Michael Greenberger, director of the Center for Health and Homeland Security at the University of Maryland. Companies are also leery of huge liability risks if biodefense vaccines and treatments are administered to wide swaths of the population. As for that $5.6 billion that is supposed to be allocated over 10 years? It's a pittance, given that the average cost of bringing a new drug to market is estimated to be $800 million, according to a 2001 study by the Tufts University Center for the Study of Drug Development. "There has to be a big bucket of gold at the end of the rainbow to get the big companies," Greenberger says.

While Big Pharma largely steers clear, dozens of small companies are working on biodefense products, though most of the drugs they're developing are years from being ready for clinical trials. And the government isn't exactly encouraging those firms to plod on--judging by the testimonials from companies now dealing with BioShield. Take the experience of PharmAthene, a tiny, private biotech company in Annapolis, Md., working on an antibody to treat anthrax. PharmAthene has spent $15 million taking the compound to its first clinical trial, but company officials still don't know if the government will stockpile it. CEO Dave Wright has been shuffled from the FDA to the Department of Homeland Security and HHS and still isn't certain what the drug must do to receive FDA approval. In a meeting with HHS officials last August, he wanted to know if he'd lose points on a contract if he were to manufacture the drug abroad, where production would be cheaper. Sorry, he was told, that couldn't be discussed because a contracting officer wasn't in the room. What about whether the feds would like it in a tablet or syringe? Sorry, couldn't tell you that either. Meanwhile, Wright is weighing whether to invest $8 million to scale up manufacturing. "And they want to know why no one wants this business?" he asks.

VaxGen managed to win a huge deal for a next-generation anthrax vaccine, only to find itself at the center of the controversy over BioShield. In November 2004 HHS awarded the firm a contract worth $877.5 million to deliver 75 million doses of anthrax vaccine manufactured via a new recombinant-DNA technique. Since then, however, VaxGen has faced a barrage of questions about its qualifications to develop and deliver the drug. Founded a decade ago as a spin-off of Genentech, VaxGen spent the late '90s trying to develop an AIDS vaccine and seemed close to success, only to report during Phase 3 trials that the drug had flopped, causing its stock to crash and lawsuits to fly. Investors charged the company with issuing false statements about the drug's prospects. (One suit was dismissed and VaxGen settled another for $500,000 in plaintiff's legal fees.) VaxGen's accounting hasn't inspired confidence either. Its shares were delisted from the NASDAQ in 2004, after the firm failed to file two quarterly financial reports. VaxGen is now revising financial statements to properly account for government contracts.

While VaxGen convinced HHS that it was the best company to develop a new vaccine, some members of Congress are not so sure. Iowa Senator Charles Grassley wrote to Secretary Leavitt in January and said HHS's decision to award such a huge contract to a single firm, with an unproven product, was "highly suspect." Two months later, he asked why HHS had issued a press release declaring that VaxGen's vaccine was "stronger and more effective" than the old vaccine, manufactured by a competitor named BioPort--a claim that, Grassley said, "appears to have no basis in fact." (Bioport cites a 2004 National Institutes of Health study, which, it says, indicates the superiority of its vaccine.) Grassley still doesn't have answers. "So far, the assurances given about our readiness for an anthrax attack don't add up," he told TIME. Indeed, VaxGen is now behind schedule in delivering its first batch of vaccine, promising it by the fourth quarter of 2006 instead of the first half of the year.

VaxGen CEO Lance Gordon vigorously defends his product. He says lab tests on rabbits and primates, conducted by the government since 2003, have found VaxGen's vaccine "highly effective" against inhaled anthrax. In September the company released results from a study conducted with the Battelle Memorial Institute and the National Institute of Allergy and Infectious Diseases (NIAID)--the "first ever," VaxGen said, to show that an anthrax vaccine worked post exposure. (The results have not yet been peer reviewed.) As for the delivery delay, Dr. Noreen Hynes, who oversees BioShield at HHS, describes it as a "hiccup" that's "de rigueur in product development." She says HHS didn't want to split the contract with other companies to achieve economies of scale, and she points out that VaxGen won the contract "in a full and open competition." In the meantime, HHS is adding 5 million doses of BioPort's vaccine to the Strategic National Stockpile at a cost of $122.7 million.

Beyond the anthrax-vaccine controversy, some scientists question the government's "one bug, one drug" scientific approach to biodefense. Developing a new smallpox vaccine for a strain found in nature may sound reasonable, but what about bioengineered strains produced at old Soviet labs, say, which may be floating around on the black market? There's no guarantee that those germs will respond to drugs tailored to other strains. Dr. Steven Projan, vice president of biological technologies for the pharmaceutical firm Wyeth, argues that it would make more sense for the government to stockpile and invest in broad-spectrum antibiotics, antivirals and new vaccine technologies that could be applied to biodefense. He and other scientists are also concerned that the FDA's approval standard for biodefense drugs, which is lower than that for commercial medicines, could lead to unforeseen, perhaps dangerous side effects in humans. Companies aren't required to conduct human clinical trials to show that a biodefense drug is effective; they only have to demonstrate that the drug works in animals and is safe in humans (since infecting people with a disease like anthrax to test a medicine is obviously unethical).

Public-health experts are also worried that money is flowing into terrorism-related medicine at the expense of more basic needs like hospital beds and respirators, which may be just as critical to saving lives in a crisis. And they are concerned that the government's obsession with biodefense is distracting from research into infectious diseases. Last March, 758 microbiologists signed a petition to the NIAID, complaining about the "massive influx of funding" for bioterrorism agents like anthrax, tularemia and plague. The institute now spends nearly $1.7 billion on biodefense--up from just $42 million in 2001--out of a $4.3 billion budget (although the biodefense funding hasn't detracted from other research, according to the agency). Meanwhile, hardly any new antibiotics have been approved by the FDA in recent years, despite the fact that scientists have grown more concerned about antibiotic-resistant bacteria. "The big challenge is how we deal with epidemic infectious diseases, not anthrax," says Dr. David Ozonoff, a professor at Boston University's School of Public Health.

In fact, the government has so far spent very little on new biodefense drugs, thanks in part to the long and torturous contracting process. Under BioShield, HHS has paid $5.7 million to buy black raspberry--flavored liquid potassium iodide, a child's version of a pill intended to protect against radioactive iodide in a dirty bomb. The agency is also spending $2.2 million on experimental anthrax treatments (although that money is not coming from the BioShield fund), and a contract for a new smallpox vaccine is expected in 2006. But more than a year into the program, drug companies still complain that they don't have a clear sense of what to develop and how much the feds will buy. Although HHS has formally identified four threats--anthrax, smallpox, botulinum toxin, and radiological and nuclear devices--that's only the first step. Requests for treatments must then be issued, competing drug proposals have to be evaluated, and the White House's Office of Management and Budget has to sign off on each contract.

Overall, it's a cumbersome process that can leave companies with promising treatments in limbo for years. "You wouldn't expect a defense contractor to build an aircraft carrier without a contract, but they're expecting pharmaceutical companies to develop these drugs without contracts," says Richard Hollis, CEO of Hollis-Eden, a San Diego biotech hoping to sell the government a treatment for acute radiation syndrome (a blood sickness caused by a dirty bomb or nuclear explosion). Hollis says his company has spent $100 million on the drug, Neumeune, betting the feds would stockpile doses for 12 million to 24 million people. As it turns out, the government intends to buy only 100,000 treatments for now, including alternatives to Neumeune. "If two years ago HHS had said we're looking for 100,000 sources of treatment, I don't think we'd have developed the product," says Hollis. An HHS official says Hollis-Eden's projections were at odds with the nuclear-threat scenario envisioned by the Department of Homeland Security. He also acknowledges that government health officials aren't accustomed to dealing with national- security issues. "It's new to have the medical side of the house working with the intel side," he says. "We're kind of learning as we go." Biodefense companies are also learning that national security can be a messy business.

With reporting by Amanda Bower/ San Francisco, Mark Thompson/Washington