Project: Homeland Security - Law Firms Project BioShield: Developing A Countermeasure Capability

Friday, July 1, 2005 - 01:00

Editor: Mr. Rapoport, you have been involved with Project BioShield from its inception. For starters, would you remind our readers of the background of this undertaking?

Rapoport: Shortly before 9/11, the Centers for Disease Control received information from a Russian scientist that pathogens such as smallpox had leaked out of Russia and were in the hands of terrorist organizations. The CDC, together with other parts of the Department of Health and Human Services, began a process to try to find a way to interest the pharmaceutical industry in the development of countermeasures against these pathogens.

Editor: And the role that McKenna Long played in the drafting of the Project BioShield legislation?

Rapoport: As a consequence of its long-term relationship with the pharmaceutical industry, McKenna Long was called by several companies to represent them in dealing with the government concerning the types of contracts they would be willing to perform under Project BioShield and its predecessor legislation. Consequently, the firm has been able to build upon its long-standing credibility with the pharmaceutical industry, and upon its extensive governmental contacts experience, to become the go-to firm for pharmaceuticals and medical diagnostic companies interested in being government contractors in this area.

Editor: Can you share with our readers the personal role you played with that effort?

Rapoport: On behalf of one client, I testified before the U.S. Congress on two occasions and provided edits to the original BioShield legislation. Eventually, many of those edits were incorporated into BioShield I.

Editor: Can you give us an overview of this legislation and what it is designed to accomplish?

Rapoport: BioShield I was a healthy start to attract the attention of the biotech and pharmaceutical industries into considering business with the federal government. As its backbone, it allocated $5.6 billion for the procurement of new countermeasures, i.e. new drugs to be used in the case of an attack relating to pathogens, including smallpox and anthrax. Roughly a third of that amount has been used to date. BioShield I also provided accelerated treatment for the consideration of grants in the day-to-day course of R&D contracting for NIH. It empowered NIH to make decisions more quickly. The final part of BioShield I was the emergency use authorization that allowed the Secretary to purchase and stockpile the drugs the agency was encouraging companies to manufacture even before they had FDA licenses.

Editor: In earlier interviews with our publication, you discussed some of the factors that appeared to encourage the pharmaceutical industry to take a wait-and-see attitude with respect to getting into the development of biodefense drugs and vaccines. Where do we stand today?

Rapoport: The way that HHS has interpreted BioShield is a step in the right direction. It has gained the attention of and credibility within the pharmaceutical industry beyond the fledging biotech enterprises that were the first group to be interested. The award of contracts by HHS, together with the ways in which HHS has spent the allocated funds, has sent a strong signal to the industry that this market is for real and that it is here to stay.

Editor: And access to funding, particularly for the smaller pharmaceutical companies?

Rapoport: BioDefense funding exceeds that available under BioShield alone. There is $5.6 billion for procurement. There is another $2.5 billion for R&D contracting, and the Department of Defense has another $1 billion. As we indicated in earlier discussions, we have been successful in developing legislation which links initial R&D contracts and procurements, such that if a company is successful in its R&D work with the government, the company has the right to convert the R&D contract into a purchase contract without a separate procurement action. This has not happened as yet, but we are very optimistic that it will.

The smaller companies have been the leaders here, and there is no question but that the venture capital community is well aware of the extraordinary opportunities that biotech enterprises, particularly those working on infectious diseases and in biodefense, have at present. The investment community, as a general matter, was skeptical about the biotech industry for a very long time. That is not the case now, and we at McKenna Long are getting calls on an ongoing basis from a variety of venture capitalists about investing in this industry.

Needless to say, these opportunities have not gone unnoticed in the traditional defense industry. Defense contractors such as Lockheed, Boeing and SAIC have taken an interest recently, and we are beginning to see acquisitions by traditional defense contractors of biotechs and pharmaceuticals in a position to address this new market. This is an extremely positive development. The biotechs and pharmaceuticals may have the expertise and technology to provide the appropriate products and services, but they have neither the infrastructure nor the long experience of dealing with government possessed by the traditional defense contractors. The latter know how to deal with government auditors. They have extensive experience in accounting for costs under cost regulations and a government contract. Indeed, many of these contracts are cost reimbursable, where, in effect, the government pays for everything. This appears to be a marriage made in heaven, and I anticipate considerable consolidation which combines the traditional defense contractors with biotech companies and pharmaceuticals.

Editor: And indemnification: where a pharmaceutical company utilizes a drug still in investigatory status to meet an emergency?

Rapoport: HHS has made tremendous progress on this issue and is willing to extend coverage to the company before delivery of the drug to the stockpile. Even though HHS has been unwilling at the inception of the contract to extend the blanket indemnity, it has agreed in individual contract language to provide this protection prior to delivery of the drug.

The SAFETY Act was enacted in the original Homeland Security legislation. It was not directed towards the acquisition of pharmaceuticals, but instead to give comfort to traditional government contractors to sell their products, such as a mail handling machine that could detect pathogens. The defense industry was unwilling to sell such a product without the safety net of indemnification, or at least some sort of protection, because, if the product missed a letter, the company might be subject to a product liability action capable of bringing down the entire business. The SAFETY Act provided, in effect, that if the product was certified, the company would be entitled to a government contractor defense. That meant that, in the event of a suit, the government would not indemnify the company, but if the company was in a position to show that the product had been certified by DHS, the suit would be dismissed because of immunity. It is to be noted that this immunity only applies in the case of a product failing during a terrorist attack. It does not help a company that makes a drug available, and someone suffers the wrong consequences, in the absence of an attack.

In S-3, the bill that passed includes a SAFETY Act protection for the pharmaceutical industry. This provides protection for those companies even if an incident occurs prior to an attack.

Editor: Speaking of next steps, please tell us about S-3.

Rapoport: S-3 is the bill that evidences the Senate's commitment to Homeland Security. While S-3 is being debated, Senators Lieberman, Hatch and Brownback have submitted BioShield II. This is a comprehensive bill designed to encourage pharmaceutical companies to come on board through a variety of investment tax credits, guaranteed production contracts and, most significantly, a "wild card" patent incentive. The two bills are being debated in Congress as we speak.

Editor: How would the "wild card" incentive work?

Rapoport: The "wild card" patent proposal was included in the bill because the government has come to recognize that this type of market incentive is necessary to encourage the private sector to develop new countermeasures to meet one or more of the bioterror pathogens or infectious diseases. Economic incentives alone - such as the procurement reforms enacted in BioShield I - have not and, in all probability, will not induce the private sector to divert scarce capital and other resources to the development of new countermeasures. The intention of this legislation, accordingly, is to ensure that with each countermeasure project, the government will be able to recruit at least one large company - one with proven track record of bringing products through the FDA - to invest in the appropriate research. The government may also recruit a few small companies that have not successfully brought a product to market, but any strategy that relies solely on the small companies is not a serious strategy. Where the Secretary believes that he will not receive a sufficient number of bidders for a particular project, he is entitled to invoke the "wild card" patent into the procurement process. That provides an opportunity for pharmaceuticals to select a commercial patent already in their portfolio and extend it for a period of time. The extension depends on what the Secretary believes is necessary, and it might be six months or up to two years. There is some urgency to this proposal. Of course, if we do not have a countermeasure to confront a particular disease, we run the risk of millions of people dying.

Editor: Would you share with us your thoughts on what the legislative framework - when finally in place - is going to look like?

Rapoport: I think a combination of S-3 and BioShield II will become law before the end of the year.

Editor: And the industry providing our country's defense in this arena? Are you still sanguine about the emergence of a new biodefense industry as important to our country's security as the defense industry that came into being following World War II?

Rapoport: I am even more optimistic today on the fact that this will happen than I was when we last spoke. We are well past calling this development the emergence of a biodefense industry. We must have the economic incentives in place to encourage the pharmaceutical and diagnostic industries to do business with the one customer that will guarantee that it will buy the product. That customer is, of course, the federal government. We are well on our way to establishing the framework within which this is going to happen.

There is worldwide interest in the way that the U.S. government is approaching the development of new drugs for infectious diseases, including those developed for biodefense purposes. I believe that Japan and the EU countries will develop biodefense programs that are modeled on, and perhaps coordinated with, ours. These countries require countermeasures to the same extent as the U.S., and our government is prohibited from giving them away at taxpayer expense. Japan and the EU are going to be willing to buy these products - which is good news for the American pharmaceutical industry - if they are not willing to develop their own capabilities. Developing countermeasures of their own, and from scratch, is an expensive and, from a practical standpoint, nearly impossible proposition. One very attractive response to this state of affairs concerns joint undertakings. We do not possess a monopoly on the science here. If we permit our scientists to work with foreign scientists - and Congress is trying to open channels for such relationships - everyone benefits.

Please email the interviewee at frapoport@mckennalong.com with questions about this interview.