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Policy

Bioshield II

Senators offer tax, liability, patent incentives to entice drug, biotech firms to biodefense research

by LOIS R. EMBER, C&EN WASHINGTON
May 30, 2005 | A version of this story appeared in Volume 83, Issue 22

BIODEFENSE
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Credit: VAXGEN PHOTO
VaxGen technician working on developing an anthrax vaccine under Bioshield I is shown at a large-scale bioreactor.
Credit: VAXGEN PHOTO
VaxGen technician working on developing an anthrax vaccine under Bioshield I is shown at a large-scale bioreactor.

Less than a year after legislation to spur the development of new bioterror countermeasures became law, a policy debate is playing out in the Senate over what additional incentives are needed to entice reluctant drug and biotech companies to become part of a biodefense industry.

Bioshield, signed into law last July, sets aside $5.6 billion over 10 years to fund the development and procurement of drugs, vaccines, and devices as countermeasures against an attack from biological, chemical, or nuclear/radiological weapons. The law--which focuses mainly on bioweapons--relaxes procurement and peer review procedures and guarantees the government purchase of bioterrorism-related products.

These features apparently are not enough to get companies to move from traditional pharmaceuticals to riskier, less profitable bioterror countermeasures. No large drug company and few biotechnology firms have sought Bioshield funding, citing such disincentives as exposure to product liability.

In Congress and elsewhere, a consensus is developing that bioterrorism is, as Tara O'Toole believes, "the strategic threat to international security in the 21st century." And, she adds, the "capacity to rapidly develop and produce vaccines and anti-infectives in response to unanticipated threats is essential to biosecurity." O'Toole is chief executive officer and director of the Center for Biosecurity at the University of Pittsburgh Medical Center.

When Sen. Joseph I. Lieberman (D-Conn.) introduced his Bioshield II bill, S. 975, in late April, he said, "The best way to combat the very real and serious threat of bioterrorism is to utilize our greatest strength--the entrepreneurial talent of our nation--in our national defense."

Lieberman and his cosponsors on S. 975--Sens. Orrin G. Hatch (R-Utah) and Sam Brownback (R-Kan.)--as well as Sen. Judd Gregg (R-N.H.), who sponsored a Bioshield II bill that was inserted in the GOP leadership bill, S. 3, all agree that last year's Bioshield was an important start. But it is only a first step toward getting the countermeasures needed. "Comprehensive legislation is needed today to thwart tomorrow's biological threats, including bioterrorism attacks," Hatch says.

The three other senators generally agree with Lieberman's assessment that "without additional reforms, companies are not likely to risk their own capital to fund [the required] research, leaving us with a government-funding model that will be exceedingly expensive and not likely to produce the results we need."

Both Senate bills are premised on the need for additional measures to combat infectious diseases such as AIDS and Asian bird flu as well as bioterror agents--or else risk the possibility of future quarantines and panic. And both bills shift development risk to industry and its investors.

Although each bill addresses the issue of what beyond Bioshield is needed to establish a biodefense and infectious disease industry, consensus breaks down on just how much else needs to be done.

According to some observers, Gregg's bill essentially says that if the liability barrier is taken care of, more companies, even "big pharma," will participate and more needed countermeasures will be developed, manufactured, and stockpiled. Lieberman's bill seems to say that even liability protection is not enough and more incentives are needed to spawn a biodefense industry that will create the vaccines and other products to combat infectious diseases globally.

Still, the bills are similar in several respects. Both broaden the definition of countermeasures the government would procure to include diagnostics, therapeutics, vaccines, and research tools. New research tools are needed to help develop new defenses more quickly as threats evolve. Both bills offer tax credits to encourage capital investment in research and liability protection for products that can't be fully tested for ethical reasons. The bills differ, however, on intellectual property incentives.

Lieberman
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Credit: PHOTO BY DAVID HANSON
Credit: PHOTO BY DAVID HANSON

EACH BILL contains provisions for full patent term restoration. That means the term for a company's countermeasure patent would begin from the date of Food & Drug Administration approval, not from the date the Patent & Trademark Office grants the patent, which could be years earlier. Lieberman's bill also contains a "wild card" option--an extension of up to two years on any patent in the company's portfolio, even if the patent isn't for a Bioshield countermeasure. For various reasons, the wild-card extension is more likely to be used--if it is used at all--by large pharmaceutical companies.

Gregg
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Credit: PHOTO BY DAVID HANSON
Credit: PHOTO BY DAVID HANSON

As Chuck Ludlam, counsel to Lieberman, explained to a recent briefing on Bioshield II sponsored by the Center for American Progress (CAP), a company that successfully develops a countermeasure under a Bioshield II contract can elect to take the patent term restoration on the patent for that countermeasure or the wild-card extension on any existing patent it holds.

For the wild card to be an option, the countermeasure developed must be a new chemical entity, not a slight tweaking of an existing patented chemical entity, Ludlam said. And the secretary of the Department of Health & Human Services--the agency that awards the contract--decides if any patent term bonus is warranted and whether the bonus is to be for six months, two years, or anytime in between.

The Lieberman bill attempts to assuage some of the concerns of the generic drug industry by requiring a company electing the wild-card option to "give early notice of which patent might be extended," Ludlam said. He cited precedent for the option but also acknowledged that such an extension "would impose costs on innocent consumers" who would have to pay the higher cost of the brand-name drug for the extended life of the patent on that drug. He also said, "If there were any other way to secure the development of these countermeasures, we'd never propose this incentive."

Gregg insists that his bill, which he introduced in January, doesn't contain a wild-card option. As he explains: "Under my legislation, additional incentives involving market exclusivity could be granted for up to two years for the product that was used as a countermeasure. This is an important distinction from the so-called wild-card exclusivity idea, which would allow a company to extend the patent protection of a different product as a reward for stepping forward." Lawyers for the generic drug industry read the language of Gregg's bill differently; they believe the bill contains the wild-card option.

Generic drugmakers assert the wild-card option would increase drug costs by delaying the entry of cheaper generics to the market. Kathleen Jaeger, president and CEO of the Generic Pharmaceutical Association (GPhA), believes Gregg's bill contains "wild-card exclusivity" and is "little more than a giveaway to the brand pharmaceutical industry" for nonbioterrorism products. The bill, she says, "threatens the economic viability of the nation's health care system by penalizing new generic drug development." She says the same about the Lieberman bill.

Makers of generics support expanded tax incentives and product liability protections and fast-track FDA review of drug applications. But GPhA member companies do not support patent extensions on brand-name drugs, which they claim are "unnecessary windfalls to the brand pharmaceutical industry."

In her CAP presentation, Jaeger said such windfalls could cover drugs that "have not undergone FDA review and approval, are not required to ever undergo FDA review and approval, and are not required to be developed and delivered to the government."

However, Gerald L. Epstein, senior fellow for science and security at the Center for Strategic & International Studies, testified differently at a Senate hearing on Bioshield in February: "Something that would provide a new class of drugs or a major increase in our therapeutic ability is something that I think we need. So I don't consider that a windfall."

Epstein's words aside, GPhA spokeswoman Andrea Hofelich maintains that "with these patent extensions, you're funding Bioshield on the backs of people who are most vulnerable" with little enhancement to national security. GPhA is working with the Coalition for a Competitive Pharmaceutical Market, a group that includes insurers and large companies, to lobby for consumer access to affordable generic drugs.

David Ozonoff, professor at Boston University School of Public Health, spoke at the CAP briefing and painted Bioshield II as "protection public health can't afford." He, like GPhA, believes the patent provisions in Lieberman's bill amount to "a hidden tax increase on the sick and elderly, those who use the blockbuster drugs whose patents will be extended."

HE QUESTIONS the bill's premise that market forces won't work as a driver for biodefense R&D and that you have to make drug companies "an offer they can't refuse." He doesn't believe a company will participate in biodefense research despite the incentives in the bill "unless the company feels quite certain it will get substantial benefit."

Instead of the incentives in Bioshield II, Ozonoff proposes a government-owned, contractor-operated national vaccine/orphan drug institute, which he terms a justifiable "national security expenditure." Short of establishing such an institute, he suggests the government "levy a 0.5% sales tax on patented drugs for an R&D trust fund" that can be tapped by researchers from academia or industry responding to requests for applications from the National Institute of Allergy & Infectious Diseases or the Department of Homeland Security. This, he says, would draw in a "broader set of players and be a true 'free market of ideas.' "

Big pharma is still reviewing the two bills. "We have not reached definitive positions on any one bill," says Pharmaceutical Research & Manufacturers of America spokesman Jeff Trewhitt. PhRMA and its members "have not taken a stand on the wild-card option or on any patent positions in the bills," he adds.

According to Trewhitt, member companies are especially concerned about "adequate protection from product liability lawsuits and an exemption from federal antitrust laws." As he explains, in the event of an emergency, companies may have to get together to discuss collaborative efforts. Without an exemption, such meetings, he says, could potentially violate antitrust laws.

It is likely that provisions of the Lieberman bill, S. 975, will be folded into Gregg's bill, S. 3, which is one the Senate GOP leadership considers a "must pass" bill. Given its controversial nature, the wild-card option is not likely to survive deliberations and could, in fact, derail Senate enactment of a comprehensive bill. The option has, at most, tepid public support from industry, and Gregg insists his bill doesn't contain the option because he doesn't view it as "politically viable."

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