Project BioShield Fails to Motivate Biotechs to Protect America

| About: VaxGen Inc. (VXGN)
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The anthrax letters that contaminated the U.S. Postal Office system, and the traces of ricin found in congressional buildings, had added to the mass hysteria that began on that dark day in September. Pressed by the public, President Bush had no choice but to initiate a plan for protecting Americans against the deadly biological attacks.

The Project BioShield Act was unanimously approved by the Senate, and signed by President Bush in 2004. One of the key measures of the act was to secure a funding source for the government to purchase “next-generation” vaccines and counter measures to biological agents that could be used in terrorist attacks. Almost $6 billion were allocated for purchasing products from biotech companies over a 10 year period.

As many of the common vaccines were still not improved upon since the 60’s and 70’s, Project BioShield was supposed to spur on a flurry of biotech research in an effort to establish a stockpile of vaccinations and medications using 21st century technology. This has yet to happen as biotech companies were given little motivation to increase research into the field.

Bearing the Financial Burden

The problem is with the way the government wants to ‘fund’ research. The $6 billion were not exactly intended to fund research into new vaccines. Rather, the government would purchase vaccines after the research had proven them safe and effective. So for little biotech companies to reap the rewards of a contract, they would have to put up funding from internal sources, carry out the research to prove the effectiveness and the safety of the vaccines, and only then would the government pay out the cash. This focuses the financial risk squarely on the companies themselves, as the government can cancel any contract under the Termination for Convenience clause.

VaxGen (OTC:VXGN) is a perfect example of how the project could prove to be a financial disaster for a little biotech. The company won a $1 billion contract to provide a stockpile of 75 million doses of anthrax vaccine for the government. But after securing funding, and increasing its staff and research efforts, VaxGen received the bad news; the Department of Health and Human Services [DHHS] canceled the contract. This of course had a devastating effect, and forced the company to cut half of its staff and replace the CEO shortly after.

Many argue that even if a biotech company finally secures the monetary funding, the government 'promised' it would look forward to little future revenue. Under Project BioShield, the government makes a one time purchase of vaccinations and does not enter into a long term contract. So companies who had seen a surge of revenue could suddenly find themselves with nothing.

This could mean that companies will be forced to look elsewhere, most likely to other nations, such as Europe and Asia. Cangene [CNJ.TO] of Canada, for example, won two contracts under the project, to deliver anthrax and botulism counter measures. The total contracts would be worth almost $600 million. The company expects to deliver the products later in 2007. But Cangene is not relying on just those two contracts. Expecting the sudden falloff in revenue, the company is already in talks to deliver to countries outside of North America.

Buying Drugs Overseas

Another possibility would see outside companies selling vaccines to Americans. Cipla is a generic drug company in India, looking to enter the U.S. and other Western nations very soon. While it intends on selling generic versions of anti-depression drugs as its entry point into the U.S. market, it does have a large stockpile of generic anti-anthrax drugs on hand.

It is very conceivable that if Project BioShield fails to deliver on its promise, Americans could look to foreign nations to deliver the goods. During times of great desperation, such as a national bioterrorist attack, patriotism could possibly fall behind capitalism. This could prove harmful as unregulated drugs would make their way into the U.S. market.

Critics also argue that companies are not flocking to the program because of weak liability coverage. Until concrete and detailed indemnification guidelines are outlined, companies will be too cautious to enter a program designed to provide drugs and vaccinations to be used under unique emergency conditions.
Renewed Government Effort

So far, under BioShield, only nine contacts are currently active, and the U.S. continues to have a less than ideal stockpile of vaccines and medications against terrorist attacks using biological agents. In an effort to improve the performance of the project and to motivate more companies to get involved, President Bush signed into law the formation of a new regulatory division, the Biomedical Advanced Research and Development Authority [BARDA].

BARDA was formed to provide $1 billion as funding for the research and development of vaccines and treatments under Project BioShield. The government will help with the cost of establishing domestic manufacturing facilities. It will also provide liability coverage to those companies whose products will be used during biological attacks and are not yet licensed with the Food and Drug Administration [FDA]. In order for a company to be sued, the DHHS would have to find clear evidence of intentional misconduct. BARDA will also allow funding for the development of experimental animal models for testing of drugs against disease conditions that are too dangerous for humans.

Time will tell if BARDA will give the biotech industry enough motivation to protect America.

Related Reading:
- Project BioShield Fact Sheet (DHHS)
- Complaints Pile Up As Project BioShield Heads Into New Year (NYSEARCA:IBD)
- Indian Generic Drug Maker Targets Sad Americans