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Project BioShield – Challenging and Strengthening the
Biodefense Arena
Threat of Avian Flu Pandemic Escalates Need for
Biological Countermeasures
By: Ann-Marie Fleming
November 2005
Since the attacks of 9-11 the U.S. Government has injected considerable
funds into the biodefense arena for the development and production of
countermeasures against potential biological threats. With current fears of
a possible avian flu pandemic, in addition to bioterrorist concerns, the
issue of biosecurity has been readdressed. One of the main government
initiatives is Project BioShield, which was signed into law in July 2004 to
help spark participation in biodefense from the private sector, and in
particular from biotechnology and pharmaceutical companies.
Project BioShield has opened the door for many industry participants as it
has helped to establish a market for biodefense. By providing companies an
arena to develop countermeasures and receive funding, this legislation has
created a viable market. A major advantage of the biodefense environment is
that you have products purchased prior to FDA approval, with products that
are earmarked for contribution added to the strategic national stockpile.
“The goal of Project BioShield is to converge the government’s intent to
purchase with the ability of the capital markets to fund. Those companies,
who effectively advance their treatment countermeasure from a regulatory
standpoint, should expect the government to acquire that treatment for the
national stockpile. This reality provides significant incentive for the
capital markets to infuse the equity resources that will drive the
countermeasures into the marketplace. It should be noted that the pathogens
of greatest concern do not allow for human efficacy studies for obvious
humanitarian reasons. So in essence, you have an abbreviated regulatory path
with a back-end guarantee to purchase,” stated James A. Joyce, CEO of
Aethlon Medical, Inc, a developer of the first medical devices to treat
infectious diseases, including several Class “A” biological weapon threats.
A company that has been able to benefit on a significant level from
BioShield is VaxGen. In November 2004, VaxGen was awarded a contract valued
at approximately $877.5 million for the purchase of 75 million doses of the
Company's anthrax vaccine. Paul Laland, Vice President, Public Affairs for
VaxGen explains BioShield’s advantages, “In our case we have a large
well-defined government market, anthrax. Our first commercial milestone
would be when we deliver 25 million doses of a new-generation vaccine to the
national stockpile and later an additional 50 million doses. Beyond the
initial delivery to the national stockpile, we also expect downstream
revenue from product replacements. Our product is anticipated to have shelf
life from 3 to 5 years so at some point it has to be replaced. Additionally,
you also have the U.S. military, foreign governments as well as state and
local governments.”
Acambis plc, a leading developer of vaccines to prevent and treat infectious
diseases, identifies tremendous benefits within BioShield and the biodefense
industry as a whole in light of their smallpox vaccines. As Clement Lewin -
Vice President, US Government Affairs and Strategy describes, “BioShield
provides significant opportunities for revenue generation, enhancing
organizational capabilities and skill sets. It is a great opportunity to
collaborate with the FDA and the Health and Human Services (HHS). Finally,
it puts a company in the forefront of public health and bioterror issues.”
Challenging the Industry:
The advantages that accompany Project BioShield, however are not without its
challenges. The process of distribution of advanced contracts remains an
area of controversy as the timing and somewhat unclear parameters do not
always provide the opportunity that the program initially suggested. As
Lewin explains, “The procurement process can be unclear at times, for
example RFP timing, is taking a bit longer to come out and the order volumes
can vary from early estimates. This is significant as there are large fixed
costs in both clinical development and manufacturing of the products, which
has a considerable impact on pricing and profitability for companies. The
warm-base concept, which is to provide a surge capacity, has also proven
challenging. I think everybody recognizes that it needs to be done, but
actually getting all the details in place can take quite a while. Companies
who have invested in the manufacturing run the risk of these facilities
sitting idle unless they have an alternative use.”
Hollis Eden Pharmaceuticals, a developer of a treatment for Acute Radiation
Syndrome (ARS), has been heavily involved in the biodefense arena with their
Neumune™ product. According to Robert Marsella, Senior Vice President of
Hollis-Eden, “The current BioShield environment is making it difficult to
get investors excited. If advance purchase contracts were being received,
guaranteeing the size and scope of the market for companies that demonstrate
enough pre-clinical or clinical evidence that their compound or technology
could make through FDA approval process within eight years of an award, then
investors would put up the risk capital to develop the product. The problem
for investors is that HHS and NIAID have chosen to hold off putting out the
size of scope of the market and the contract awards until the
investigational drug is within two years of approval or at the end of
development. This way of implementing BioShield will force companies to be
dependent on using NIH facilities and grant mechanisms to fund product
development. It takes the NIH out of “basic research” and puts the
government in the drug development business competing with the private
sector. Since HHS is the department tasked with awarding advanced purchase
contracts it also brings into question the fair evaluation of products not
developed with NIH funds. This then leaves the ingenuity of big pharma and
small biotech out of the loop.”
Hollis-Eden, who started to develop Neumune™ as the Department of Defense’s
lead product for radiation protection prior to the enactment of BioShield,
faced disappointment as a result of BioShield’s initial draft RFP that only
requested 100,000 treatment courses of a radiation sickness therapy.
Furthering the Company’s frustration was the fact that the RFP changed the
medical definition of Acute Radiation Syndrome (ARS), which is understood as
both neutropenia and thrombocytopenia (medical definition of ARS), by only
asking for a treatment for neutropenia. “If this becomes the final RFP this
translates into of a much smaller market for Neumune that we anticipated and
it gives the government the option of stockpiling a minimal amount of a very
expensive drug used to prevent neutropenia in patients undergoing
chemotherapy that has to be given in a hospital with platelets and
antibiotics for victims of a nuclear attack. The later option is an
unrealistic and insufficient treatment method especially considering the
chaotic and limited environment for adequate diagnosis and medical care it
would be deployed in,” explains Marsella.
According to Sharon Seiler, Senior Biotechnology Analyst, Punk, Ziegel &
Company, “The BioShield legislation really is largely a procurement
legislation so it really favors companies that already have a product that’s
fairly well advanced in development so that its is something that can be
supplied to be used almost immediately. It is less helpful to companies that
are working in the area of biodefense that are in earlier stages. There is
really not much money available for clinical development. You have money
available for early stage research and money available for procurement, but
that important step in the middle does not seem to be have been well
addressed by the bioshield legislation.”
Concerns surrounding issues of liability protection continue create
uncertainty and are considered critical to encouraging pharmaceutical
companies to participate in the program, explains Laland. Further challenges
revolve around the realization that when you are operating in the biodefense
arena you are essentially dealing with a single customer, the U.S.
Government, the leader and driver for this industry, resulting in limited
volume opportunity for products outside the U.S. In addition there are risks
associated with the prohibition on payments before the vaccine is deemed
useable, which means that significant investments will have to be made by
the company and investors, discusses Lewin.
Expectations for the Future:
Boding well for BioShield is the legislator’s willingness to accept industry
feed back to help improve and strengthen the program. “BioShield One
legislation was a template that will likely evolve and transition beyond
biological weapon countermeasures, and address naturally evolving pathogens
such as Avian Flu (H5N1). Inevitably, multiple pathogenic threats will
likely merge into general pandemic preparedness programs designed to fuel
the development of new treatments against infectious disease in general. In
regards to our efforts at Aethlon, I have worked extensively to ensure that
the definition of countermeasure in new Project BioShield legislation will
be inclusive of medical devices. As a result, we are now able to position
our Hemopurifier as a first or perhaps last line of defense against the vast
majority of bioweapon threats that are drug and vaccine resistant. We plan
to fill the treatment void, while others work to develop effective drugs and
vaccines,” explained Joyce.
“The bill is a first step and there is a lot of positive language in the
legislation. Fundamentally, however the Government has to take a look at the
amount of funding that is available to make certain that sufficient levels
are available,” describes Lewin.
“BioShield we believe in 100%. We believe that the intent of the law is
right on track to what he government needs to do to incentivize more
companies, but if they do not implement it the way the law was written
companies and investors in biodefense will go the other way and Americans’
biodefense security will have to depend on the NIH to become drug
developers, and taxpayers to fund the risky development of these products,”
warns Marsella.
For the right company, stage and product, BioShield appears to offer a great
deal of opportunity. “I think for companies that have something that is far
enough along that the government can buy it then it is actually very useful
because you can use these revenues from the Government in what I consider
its best use, which is to subsidize and research programs that will allow
you to expand into conventional commercial markets,” explains Seiler.
Ann-Marie Fleming
Ann-Marie Fleming completed her MBA in the United States, where she attended
Webster University. She also holds an Honors B.A from the University of
Toronto. She has over fifteen years of experience within the financial
industry to include retail banking and brokerage, investment banking, and
mortgage brokerage within the United States and Canada, with a firm
background in corporate research.
Disclaimer:
www.InvestorIdeas.com/About/Disclaimer.asp,
www.HomelandDefenseStocks.com/Companies/HomelandDefense/Disclaimer.asp
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