Bid to Stockpile Bioterror Drugs Stymied by Setbacks

WASHINGTON, Sept. 17 — The last of the anthrax-laced letters was still making its way through the mail in late 2001 when top Bush administration officials reached an obvious conclusion: the nation desperately needed to expand its medical stockpile to prepare for another biological attack.

The result was Project BioShield, a $5.6 billion effort to exploit the country’s top medical and scientific brains and fill an emergency medical cabinet with new drugs and vaccines for a host of threats. “We will rally the great promise of American science and innovation to confront the greatest danger of our time,” President Bush said in starting the program.

But the project, critics say, has largely failed to deliver.

So far, only a small fraction of the anticipated remedies are available. Drug companies have waited months, if not years, for government agencies to decide which treatments they want and in what quantities. Unable to attract large pharmaceutical corporations to join the endeavor, the government is instead relying on small start-up companies that often have no proven track record.

The troubles have been most acute with the highest priority of all: a $900 million push to add a new anthrax vaccine to the stockpile. What had begun as an effort to test and manufacture a safer, faster-acting vaccine has turned into an ugly battle between two biotech businesses.

Each has hired Washington lobbyists to attack its rival’s product and try to win over lawmakers and administration officials. Delivery of the new vaccine is far behind schedule, and a dispute between the Department of Health and Human Services and VaxGen, the company chosen to make the vaccine, could even end the deal. The only doses that have been added to the stockpile are of a decades-old vaccine that has generated complaints of serious side effects.

Health department officials acknowledge some problems but say they have made progress. “Medical discovery is an unpredictable process,” said Bill Hall, a spokesman. “It is the nature of science.”

But some companies on the sidelines say the experience with the anthrax vaccine is exactly why they do not want to do business with Washington. Once optimistic about the president’s promise, many biotech companies and public health experts are now discouraged.

“The inept implementation of the program has led the best brains and the best scientists to give up, to look elsewhere or devote their resources to medical initiatives that are not focused on biodefense,” said Michael Greenberger, director of the Center for Health and Homeland Security at the University of Maryland.

Even some former department officials who helped create BioShield are dismayed.

“I find this all rather repugnant,” said D. A. Henderson, a former top bioterrorism official. “You have people here who, in the face of a problem of serious import, are using every tactic they can to line their own pockets.”

Risk and Disappointment

From the start, officials in Washington knew that Project BioShield would be a risky venture — for the government, the companies involved and even ordinary Americans, who might be asked to take relatively untested treatments in an emergency.

Officials hoped $5.6 billion in federal money would entice companies to develop new drugs and vaccines for anthrax, smallpox, botulism, Ebola and other deadly diseases.

Because of the perceived urgency of the threat, the project suspends some traditional standards. It allows new vaccines or drugs to be used in emergencies before completing the lengthy Food and Drug Administration approval process. Full testing on humans is also not required because it is too dangerous, even though that means no one will know with certainty whether the vaccines will work until used in a crisis.

For their part, the companies have to take all the risks of developing and manufacturing new products; they get paid only upon delivery.

At the top of the government’s threat list was anthrax, which killed five people, created panic and disrupted the mail system after letters filled with the powder were sent through the mail. No one has been charged in the attacks, which affected places including a tabloid publication in Florida, a New York television network and several lawmakers’ offices on Capitol Hill.

“The top three threats, in fact, are anthrax, anthrax, anthrax,” Dr. Gerald Parker, a senior health agency official, said in an interview. If properly dispersed through the air, just a few hundred pounds of anthrax powder could endanger tens of thousands of people.

After the letter attacks, the health agency bought enough antibiotics for 41 million Americans, but the recommended treatment augments those drugs with a vaccine. The government already had an anthrax vaccine to inoculate military personnel, but it involved six shots over 18 months, an unusually long course of treatment. While the F.D.A. says it is safe and effective, it can have nasty side effects. There have been reports among military personnel of six deaths and serious complications, including lymphoma and multiple sclerosis. The military stopped mandatory vaccinations in 2004 after some soldiers balked and filed lawsuits.

“It is 1950’s technology,” said Dr. Philip K. Russell, the former acting director of the office that started Project BioShield. “We don’t drive Model T Fords anymore.”

The first disappointment with the new anthrax vaccine occurred in early 2004 when bids to test and manufacture it came in. None were from big pharmaceutical companies; they considered the effort unappealing because the potential market was relatively small and profits limited. They were also concerned about liability if someone became ill or died after being inoculated. Project BioShield did not offer immunity from lawsuits.

That left a handful of companies in the running, relatively small outfits with limited experience. VaxGen, for example, had never taken a drug to market. Its first major product, an AIDS vaccine, flopped in 2003. The company also had financial troubles; it was barred from Nasdaq in 2004 after managers uncovered accounting errors.

The situation was hardly ideal, federal health officials acknowledged.

“We are going to be working consistently with these smaller firms, and it’s going to require an enormous amount of government effort to get this product licensed,” said Stewart Simonson, then an assistant health secretary overseeing the anthrax vaccine effort.

VaxGen argues that a company does not have to be large to successfully produce a vaccine. “We’ve repeatedly demonstrated that we have the capacity, expertise and infrastructure to meet the government’s needs,” said Lance Ignon, a vice president of the company, which is based in Brisbane, Calif.

Instead of hedging its bets by dividing the work among several vendors, Health and Human Services awarded the entire $887 million order to VaxGen. It was to produce 75 million doses, enough to inoculate 25 million Americans.

That decision fed doubts about Project BioShield in Congress and drew loud complaints that would grow into sharp opposition from Emergent BioSolutions, the maker of the old vaccine, which is based in Gaithersburg, Md.

Then known as BioPort and based in Lansing, Mich., the company did not submit a bid for the new vaccine. Instead, it had been trying for months to persuade the federal government to buy hundreds of millions of dollars of the existing vaccine, its only major product. When executives learned that one competitor was getting all the work, they knew the company’s future was in peril.

Soon, though, they found an important weapon for a campaign to recapture business.

Competition Heats Up

VaxGen’s vaccine was based on a modified version of the old one; Army scientists had genetically re-engineered it in hopes of making it safer and faster, with three shots instead of six. But VaxGen tests in early 2005 showed that an ingredient added to the vaccine caused it to decompose. It would not survive long in the emergency stockpile.

VaxGen officials played down the setback, which delayed delivery to 2007 from 2006. “We are being called on to develop a vaccine in roughly half the time it normally takes,” Mr. Ignon said. “When you do that, you have to accept the fact that there are going to be some unexpected turns.”

But Emergent officials capitalized on VaxGen’s stumble. They had already gotten health agency officials to agree to buy five million doses of their vaccine to add to the stockpile. Now they began pushing for a much larger deal, possibly replacing VaxGen’s vaccine altogether, company documents show.

To lead its lobbying effort, which has cost more than $1 million since 2005, Emergent turned to Jerome M. Hauer, a top official at the health department until late 2003. While at the agency, he supported the push for a new vaccine. Now he was trying to persuade Congress and his former employer to buy the old vaccine.

Explaining his shift, Mr. Hauer said VaxGen’s problems convinced him that Emergent’s vaccine was the best choice. In retrospect, he said, “The advice we were given was wrong.”

Emergent hired nearly a dozen other lobbyists, some of whom had similarly useful connections. They included John M. Clerici, a lawyer who had helped shape the BioShield legislation; John Hishta, former chief of staff to Representative Thomas M. Davis III, Republican of Virginia; and Allen Shofe, a former tobacco industry lobbyist.

The lobbyists argued that quality control problems at Emergent’s plant in Michigan had been corrected and that reports of serious side effects from the vaccine were unfounded. But mostly, they tried to undermine confidence in VaxGen.

In a series of meetings with lawmakers and administration officials, they attacked their rival. “VaxGen has a history of failure and irregularities,” their briefing books said. “VaxGen has never produced an F.D.A.-approved product,” and its “vaccine is based on unproven technology,” leaving “the health and protection of the American public on a company with a history of scientific failure and financial scandal.”

The lobbyists also criticized the officials involved in administering BioShield. In speeches and news interviews, Mr. Hauer questioned the credentials of Mr. Simonson, the health department official in charge of the program, and once called him the “Mike Brown of H.H.S.,” a reference to the disgraced former director of the Federal Emergency Management Agency. (Mr. Simonson, who resigned this year, had worked as an Amtrak lawyer and as legal counsel to Gov. Tommy G. Thompson of Wisconsin, who was later head of the federal health department.)

The lobbyists also charged that Dr. Russell, who helped start Project BioShield, had a conflict of interest. They said he had helped develop the vaccine as former director of the Walter Reed Army Institute of Research and then been instrumental in awarding the manufacturing contract after moving to the health department. (Dr. Russell says he retired from the Army before it began research on the VaxGen vaccine.)

Fearful of losing the public relations battle, VaxGen increased its own lobbying effort. It hired Robert Housman, who had worked with Mr. Hauer to help Emergent open its anti-VaxGen campaign and then switched sides. But VaxGen, which spent $200,000 on lobbying last year, was outmanned by Emergent and put on the defensive.

Senator Charles E. Grassley, an Iowa Republican and focus of Emergent’s lobbying, sent a letter to Health and Human Services Secretary Michael O. Leavitt that closely echoed criticisms of VaxGen that had first been raised in Emergent documents.

Representative Davis scheduled a hearing last summer at which Emergent’s chief executive was invited to testify, but no one was invited from VaxGen. Mr. Davis said Mr. Hishta, his former aide, apparently did contact his office about Emergent. But he said he was not sure why only Emergent was asked to testify.

Under pressure from Congress, the health agency agreed in May to double its order of Emergent’s vaccine to 10 million doses, worth $243 million. The next day, health officials demanded what VaxGen says are additional safety and efficacy tests that will further delay delivery by a year or two. Threatening to sue, VaxGen is seeking upfront payments from the health department or other concessions. If no agreement is reached, company officials say, the entire deal could collapse.

“We understand this program is new and changes will have to be made,” said Piers Whitehead, a vice president of VaxGen. “But in our case, the goalposts were moved much farther than they needed to be.”

Words of Determination

Health officials said they were determined to see the anthrax contract — and other BioShield endeavors — through to the end.

“There are people out there who feel like they are not getting a piece of the pie or that this is not running the right way,” said Mr. Hall, the department spokesman. “That may be. But to come in and criticize BioShield as a failing program because we have not spent all the money and don’t have all the products in the warehouse is completely and sorely misguided.”

The maneuvering has been so intense, with lobbyists and media consultants helping the companies undermine the competition, even some of the people who have profited now express disgust.

“This ought be driven by the science, by efficacy and threat, not lobbyists,” Mr. Housman said. “It has been shanghaied. And the implication is our national security is compromised.”

Next week, agency officials will meet with industry representatives to discuss a new strategy for Project BioShield. Mr. Greenberger, the University of Maryland expert, and others argue that government agencies must determine more quickly what is needed for the stockpile and provide more financial incentives to lure the big companies and better support the start-up companies.

Some in Congress say the improvements are much needed because Project BioShield has proven so disappointing.

“A torturous labyrinth of federal fiefdoms into which billions disappear,” Representative Christopher Shays, Republican of Connecticut, said of the program. “Yet few antidotes have yet to emerge.”