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Testimony: 

Before the Committee on Homeland Security and Governmental Affairs, 
U.S. Senate: 

United States Government Accountability Office: 

GAO: 

For Release on Delivery Expected at 10:00 a.m. EDT: 

Tuesday, October 23, 2007: 

Project Bioshield: 

Actions Needed to Avoid Repeating Past Mistakes: 

Statement of Keith Rhodes, Chief Technologist: 

Center for Technology and Engineering, 

Applied Research and Methods: 

Project Bioshield: 

GAO-08-208T: 

GAO Highlights: 

Highlights of GAO-08-208T, a testimony before the Committee on Homeland 
Security and Governmental Affairs, U.S. Senate. 

Why GAO Did This Study: 

The anthrax attacks in September and October 2001 highlighted the need 
to develop medical countermeasures. The Project BioShield Act of 2004 
authorized the Department of Health and Human Services (HHS) to procure 
countermeasures for a Strategic National Stockpile. However, in 
December 2006, HHS terminated the contract for a recombinant protective 
antigen (rPA) anthrax vaccine because VaxGen failed to meet a critical 
contractual milestone. Also, supplies of the licensed BioThrax anthrax 
vaccine already in the stockpile will start expiring in 2008. 

GAO was asked to testify on its report on Project BioShield, which is 
being released today. This testimony summarizes (1) factors 
contributing to the failure of the rPA vaccine contract and (2) issues 
associated with using the BioThrax in the stockpile. GAO interviewed 
agency and industry officials, reviewed documents, and consulted with 
biodefense experts. 

What GAO Found: 

Three major factors contributed to the failure of the first Project 
BioShield procurement effort for an rPA anthrax vaccine. First, HHS’s 
Office of the Assistant Secretary for Preparedness and Response (ASPR) 
awarded the procurement contract to VaxGen, a small biotechnology firm, 
while VaxGen was still in the early stages of developing a vaccine and 
had not addressed many critical manufacturing issues. This award 
preempted critical development work on the vaccine. Also, the contract 
required VaxGen to deliver 25 million doses of the vaccine in 2 years, 
which would have been unrealistic even for a larger manufacturer. 
Second, VaxGen took unrealistic risks in accepting the contract terms. 
VaxGen officials told GAO that they accepted the contract despite 
significant risks due to (1) the aggressive delivery time line for the 
vaccine, (2) VaxGen’s lack of in-house technical expertise—a condition 
exacerbated by the attrition of key company staff as the contract 
progressed—and (3) VaxGen’s limited options for securing any additional 
funding needed. 

Third, important Food and Drug Administration (FDA) requirements 
regarding the type of data and testing required for the rPA anthrax 
vaccine to be eligible for use in an emergency were not known at the 
outset of the procurement contract. In addition, ASPR’s anticipated use 
of the rPA anthrax vaccine was not articulated to all parties clearly 
enough and evolved over time. Finally, according to VaxGen, the 
purchase of BioThrax for the stockpile as a stopgap measure raised the 
bar for the VaxGen vaccine. All these factors created confusion over 
the acceptance criteria for VaxGen’s product and significantly 
diminished VaxGen’s ability to meet contract time lines. ASPR has 
announced its intention to issue another request for proposal for an 
rPA anthrax vaccine procurement but, along with other HHS components, 
has not analyzed lessons learned from the first contract’s failure and 
may repeat earlier mistakes. According to industry experts, the lack of 
specific requirements is a cause of concern to the biotechnology 
companies that have invested significant resources in trying to meet 
government needs and now question whether the government can clearly 
define future procurement contract requirements. 

GAO identified two issues related with the use of the BioThrax in the 
Strategic National Stockpile. First, ASPR lacks an effective strategy 
to minimize the waste of BioThrax. Starting in 2008, several lots of 
BioThrax in the Strategic National Stockpile will begin to expire. As a 
result, over $100 million per year could be lost for the life of the 
vaccine currently in the stockpile. ASPR could minimize such potential 
waste by developing a single inventory system with DOD—a high-volume 
user of BioThrax—with rotation based on a first-in, first-out 
principle. DOD and ASPR officials identified a number of obstacles to 
this type of rotation that may require legislative action. Second, ASPR 
planned to use three lots of expired BioThrax vaccine in the stockpile 
in the event of an emergency. This would violate FDA rules, which 
prohibit using an expired vaccine, and could also undermine public 
confidence because the vaccine’s potency could not be guaranteed. 

What GAO Recommends: 

GAO recommended that the HHS Secretary ensure that (1) for future 
procurements the concept of use and all critical requirements for 
medical countermeasures are clearly articulated at the outset, (2) 
expired stockpile vaccines are destroyed, and (3) the HHS and the 
Department of Defense (DOD) Secretaries develop an integrated stockpile 
for BioThrax with rotation based on a first-in, first-out principle. 
HHS and DOD generally concurred with GAO’s recommendations. 

To view the full product, including the scope and methodology, click on 
[hyperlink, http://www.GAO-08-208T]. For more information, contact 
Keith Rhodes, (202) 512-6412 or rhodesk@gao.gov 

[End of section] 

Mr. Chairman and Members of the Committee: 

We are pleased to be here to discuss our findings on Project 
BioShield's first major procurement contract and the potential for 
waste in the Strategic National Stockpile. My statement is based on our 
report, which we are releasing today.[Footnote 1] 

In 2002, in response to the anthrax attacks, the National Institute of 
Allergy and Infectious Diseases (NIAID) within the National Institutes 
of Health (NIH) launched an effort to rapidly develop a second 
generation recombinant protective antigen (rPA) anthrax vaccine. While 
there was already a licensed anthrax vaccine (BioThrax), it is given in 
six doses over 18 months followed by an annual booster. NIAID wanted to 
have a vaccine that could be administered in an immunization series of 
not more than three doses. 

In 2002 and 2003, NIAID awarded development contracts for rPA vaccines 
to two companies--VaxGen and Avecia. VaxGen was a small U.S. 
biotechnology company. According to NIAID, one of the objectives was to 
demonstrate how manufacturing efforts might be increased to support 
creation of a stockpile of medical countermeasures. 

The Project BioShield Act of 2004 formalized this initiative and 
authorized the Secretary of Health and Human Services (HHS) to acquire 
and ensure the management of and accounting for a stockpile of medical 
countermeasures.[Footnote 2] The Secretary, in turn, entrusted this 
responsibility to the Office of the Assistant Secretary for 
Preparedness and Response (ASPR). Among other medical countermeasures, 
this stockpile contained, as of June 2007, about 10 million doses of 
BioThrax, the licensed anthrax vaccine. Since doses of BioThrax, like 
other vaccines, have an expiration date, these doses will be disposed 
of if they are not used before that date. The only other large user of 
BioThrax vaccine is the Department of Defense (DOD), which has procured 
its own inventory of the vaccine. 

In November 2004, ASPR awarded VaxGen a procurement contract for $877.5 
million for the manufacture and delivery of 75 million doses of its rPA 
anthrax vaccine to the stockpile. Two years later, in December 2006, 
ASPR terminated VaxGen's contract for failure to meet a critical 
contractual milestone. The failure of this procurement effort raised 
larger questions regarding the country's ability to develop a new 
anthrax vaccine and a robust and sustainable biodefense medical 
countermeasure industry by building a partnership between 
pharmaceutical and biotechnology firms and the government. The biotech 
industry has raised concerns about whether the government can clearly 
define its requirements for future procurement contracts. 

Today, my testimony will focus on the following two issues that you 
asked us to address: (1) factors that contributed to the failure of 
ASPR's first Project BioShield procurement effort with VaxGen for an 
rPA anthrax vaccine and (2) issues associated with using the licensed 
anthrax vaccine, BioThrax, in the Strategic National Stockpile. 

Scope and Methodology: 

To respond to these questions, we interviewed agency and industry 
officials, reviewed documents, and consulted with biodefense experts. 
We conducted our review from June 2007 through August 2007 in 
accordance with generally accepted government auditing standards. 

Summary: 

Three major factors contributed to the failure of the first Project 
BioShield procurement effort. 

* First, ASPR awarded the first BioShield procurement contract to 
VaxGen when its product was at a very early stage of development. 

* Second, VaxGen took unrealistic risks in accepting the contract 
terms. 

* Third, important Food and Drug Administration (FDA) requirements 
regarding the type of data and testing required for the rPA anthrax 
vaccine to be eligible for use in an emergency were not known--to FDA, 
NIAID, ASPR, and VaxGen--at the outset of the procurement contract. 

Since ASPR and other HHS components involved have not completed any 
formal lessons-learned exercise from the first procurement's failure, 
they may repeat their mistakes in the absence of a corrective plan. 
According to industry experts, the lack of clear requirements is a 
cause of concern to companies asked to partner with the government 
since they invest significant resources in trying to meet government 
needs and now question whether the government can clearly define its 
requirements for future procurement contracts. 

We identified two issues related to using the licensed anthrax vaccine, 
BioThrax, in the Strategic National Stockpile: 

* ASPR lacks an effective strategy to minimize waste.[Footnote 3] 
Vaccine valued at more than $12 million has already expired and is no 
longer usable. Without an effective management strategy in the future, 
over $100 million per year could be lost for the life of the licensed 
anthrax vaccine currently in the stockpile. ASPR could minimize such 
potential waste by developing a single inventory system for BioThrax 
with DOD, with rotation based on a first-in, first-out principle. 

* ASPR plans to use expired vaccine in violation of FDA's current 
rules. According to CDC, ASPR told CDC not to dispose of three lots of 
BioThrax vaccine that expired in 2006 and 2007. ASPR officials told us 
that the agency's decision was based on the possible need to use these 
lots of vaccines in an emergency. However, FDA rules prohibit the use 
of expired vaccine.[Footnote 4] Thus, ASPR's planned use of expired 
vaccine would violate FDA's current rules and could undermine public 
confidence because ASPR would be unable to guarantee the potency of the 
vaccine. 

The report that we are issuing today makes three recommendations. To 
help ensure the success of future medical countermeasures procurement, 
the Secretary of HHS direct ASPR, NIAID, FDA, and CDC to ensure that 
the concept of use and all critical requirements for such procurements 
are clearly articulated at the outset. 

To ensure public confidence and comply with FDA's current rules, we 
recommend that the Secretary of HHS direct ASPR to destroy the expired 
BioThrax vaccine in the stockpile. 

To minimize waste of the BioThrax anthrax vaccine in the stockpile, we 
recommend that the Secretaries of HHS and DOD develop a single 
integrated inventory system for the licensed anthrax vaccine, with 
rotation based on a first-in, first-out principle. 

HHS and DOD generally concurred with our recommendations. In addition, 
with regard to our recommendation on integrated stockpile, they 
identified legal challenges to developing an integrated inventory 
system for BioThrax in the stockpile, which may require legislative 
action. Although HHS and DOD use different authorities to address 
BioThrax liability issues, both authorities could apply to either DOD 
or HHS; consequently, indemnity does not appear to be an insurmountable 
obstacle for future procurements. 

Background: 

Project BioShield: 

The Project BioShield Act of 2004 (Public Law 108-276) was designed to 
encourage private companies to develop civilian medical countermeasures 
by guaranteeing a market for successfully developed countermeasures. 

The Project BioShield Act (1) relaxes some procedures for bioterrorism- 
related procurement, hiring, and research grant awarding; (2) allows 
for the emergency use of countermeasures not approved by FDA; and (3) 
authorizes 10-year funding (available through fiscal year 2013) to 
encourage the development and production of new countermeasures for 
chemical, biological, radiological, or nuclear agents. The act also 
authorizes HHS to procure these countermeasures for the Strategic 
National Stockpile. 

Agency Roles in Developing, Procuring, and Stockpiling of Medical 
Countermeasures: 

Project BioShield procurement involves actions by HHS (including ASPR, 
NIAID, FDA, and the Centers for Disease Control and Prevention (CDC)) 
and an interagency working group. 

HHS's role: 

Various offices within HHS fund the development research, procurement, 
and storage of medical countermeasures, including vaccines, for the 
Strategic National Stockpile. 

ASPR's role: ASPR is responsible for the entire Project BioShield 
contracting process, including issuing requests for information and 
requests for proposals, awarding contracts, managing awarded contracts, 
and determining whether contractors have met the minimum requirements 
for payment. ASPR maintains a Web site detailing all Project BioShield 
solicitations and awards. 

ASPR has the primary responsibility for engaging with the industry and 
awarding contracts for large-scale manufacturing of licensable 
products, including vaccines, for delivery into the Strategic National 
Stockpile. With authorities recently granted, the Biomedical Advanced 
Research and Development Authority (BARDA) will be able to use a 
variety of funding mechanisms to support the advanced development of 
medical countermeasures and to award up to 50 percent of the contract 
as milestone payments before purchased products are delivered. 

NIAID's role: NIAID is the lead agency in NIH for early candidate 
research and development of medical countermeasures for biodefense. 
NIAID issues grants and awards contracts for research on medical 
countermeasures exploration and early development, but it has no 
responsibility for taking research forward into marketable products. 

FDA's role: Through its Center for Biologics Evaluation and Research 
(CBER), FDA licenses many biological products, including vaccines, and 
the facilities that produce them. Manufacturers are required to comply 
with current Good Manufacturing Practices regulations, which regulate 
personnel, buildings, equipment, production controls, records, and 
other aspects of the vaccine manufacturing process. FDA has also 
established the Office of Counterterrorism Policy and Planning in the 
Office of the Commissioner, which issued the draft Guidance on the 
Emergency Use Authorization of Medical Products in June 2005. This 
guidance describes in general terms the data that should be submitted 
to FDA, when available, for unapproved products or unapproved uses of 
approved products that HHS or another entity wishes FDA to consider for 
use in the event of a declared emergency. The final emergency use 
authorization (EUA) guidance was issued in July 2007. 

CDC's role: Since 1999, CDC has had the major responsibility for 
managing and deploying the medical countermeasures--such as antibiotics 
and vaccines--stored in the Strategic National Stockpile. 

DOD's Role: 

DOD is not currently a part of Project BioShield. Beginning in 1998, 
DOD had a program to vaccinate all military service members with 
BioThrax. DOD's program prevaccinates personnel being deployed to Iraq, 
Afghanistan, and the Korean peninsula with BioThrax. For other 
deployments, this vaccination is voluntary. DOD also has a program to 
order, stockpile, and use the licensed anthrax vaccine. DOD estimates 
its needs for BioThrax doses and bases its purchases on that estimate. 

The Licensed Vaccine for Anthrax: 

An FDA-licensed anthrax vaccine, BioThrax, has been available since 
1970. The vaccine has been recommended for a variety of situations, for 
example, laboratory workers who produce anthrax cultures. The BioShield 
program stockpiled BioThrax for the Strategic National Stockpile for 
postexposure use in the event of a large number of U.S. civilians being 
exposed to anthrax. ASPR had already acquired 10 million doses of 
BioThrax from Emergent BioSolutions by 2006 and recently purchased an 
additional 10 million doses. 

Three Factors Contributed to the Failure of ASPR's First Project 
BioShield Effort to Produce an rPA Anthrax Vaccine: 

Three major factors contributed to the failure of the first Project 
BioShield procurement effort. First, ASPR awarded the first BioShield 
procurement contract to VaxGen when its product was at a very early 
stage of development and many critical manufacturing issues had not 
been addressed. Second, VaxGen took unrealistic risks in accepting the 
contract terms. Third, key parties did not clearly articulate and 
understand critical requirements at the outset. 

HHS Awarded the Contract Too Soon: 

ASPR's decision to launch the VaxGen procurement contract for the rPA 
anthrax vaccine at an early stage of development, combined with the 
delivery requirement for 25 million doses within 2 years,[Footnote 5] 
did not take the complexity of vaccine development into consideration 
and was overly aggressive. Citing the urgency involved, ASPR awarded 
the procurement contract to VaxGen several years before the planned 
completion of earlier and uncompleted NIAID development contracts with 
VaxGen and thus preempted critical development work. 

NIAID awarded VaxGen two development contracts, neither of which was 
near completion when ASPR awarded the procurement contract. However, on 
November 4, 2004, a little more than a year after NIAID awarded VaxGen 
its second development contract, ASPR awarded the procurement contract 
to VaxGen for 75 million doses of its rPA anthrax vaccine. At that 
time, VaxGen was still at least a year away from completing the Phase 2 
clinical trials under the second NIAID development contract. Moreover, 
VaxGen was still finishing up work on the original stability testing 
required under the first development contract. 

At the time of the award, ASPR officials had no objective criteria, 
such as Technology Readiness Levels (TRL), to assess product 
maturity.[Footnote 6] They were, however, optimistic that the 
procurement contract would be successful. One official described its 
chances of success at 80 percent to 90 percent. However, a key official 
at VaxGen told us at the same time that VaxGen estimated the chances of 
success at 10 percent to 15 percent. When we asked ASPR officials why 
they awarded the procurement contract when they did, they pointed to a 
sense of urgency at that time and the difficulties in deciding when to 
launch procurement contracts. 

According to industry experts, preempting the development contract 2 
years before completing work--almost half its scheduled milestones--was 
questionable, especially for vaccine development work, which is known 
to be susceptible to technical issues even in late stages of 
development. NIAID officials also told us it was too early for a 
BioShield purchase. At a minimum, the time extensions for NIAID's first 
development contract with VaxGen to accommodate stability testing 
should have indicated to ASPR that development on its candidate vaccine 
was far from complete. 

After ASPR awarded VaxGen the procurement contract, NIAID canceled 
several milestones under its development contracts undermining VaxGen's 
ability to deliver the required number of doses within the 2-year time 
frame. 

VaxGen Took Unrealistic Risks in Accepting the Procurement Contract: 

VaxGen officials told us that they understood their chances for success 
were limited and that the contract terms posed significant risks. These 
risks arose from aggressive time lines, VaxGen's limitations with 
regard to in-house technical expertise in stability and vaccine 
formulation--a condition exacerbated by the attrition of key staff from 
the company as the contract progressed--and its limited options for 
securing additional funding should the need arise. 

Industry experts told us that a 2-year time line to deliver 75 million 
filled and finished doses of a vaccine from a starting point just after 
phase 1 trials is a near-impossible task for any company. VaxGen 
officials told us that at the time of the procurement award they knew 
the probability of success was very low, but they were counting on 
ASPR's willingness to be flexible with the contract time line and work 
with them to achieve success. In fact, in May 2006, ASPR did extend the 
contract deadlines to initiate delivery to the stockpile an additional 
2 years. However, on November 3, 2006, FDA imposed a clinical hold on 
VaxGen's forthcoming phase 2 trial after determining that data 
submitted by VaxGen were insufficient to ensure that the product would 
be stable enough to resume clinical testing.[Footnote 7] By that time, 
ASPR had lost faith in VaxGen's technical ability to solve its 
stability problems in any reasonable time frame. When VaxGen failed to 
meet a critical performance milestone to initiate the next clinical 
trial, ASPR terminated the contract. 

According to VaxGen's officials, throughout the two development 
contracts and the Project BioShield procurement contract, VaxGen's 
staff peaked at only 120, and the company was consistently unable to 
marshal sufficient technical expertise. External expertise that might 
have helped VaxGen better understand its stability issue was never 
applied. At one point during the development contracts, NIAID-- 
realizing VaxGen had a stability problem with its product--convened a 
panel of technical experts in Washington, D.C. NIAID officials told us 
that at the time of the panel meeting, they offered to fund technical 
experts to work with the company, but VaxGen opted not to accept the 
offer. Conversely, VaxGen officials reported to us that at the time 
NIAID convened the panel of experts, NIAID declined to fund the work 
recommended by the expert panel. 

Finally, VaxGen accepted the procurement contract terms even though the 
financial constraints imposed by the BioShield Act limited its options 
for securing any additional funding needed. In accordance with this 
act, payment was conditional on delivery of a product to the stockpile, 
and little provision could be made, contractually, to support any 
unanticipated or additional development needed--for example, to work 
through issues of stability or reformulation.[Footnote 8] Both problems 
are frequently encountered throughout the developmental life of a 
vaccine. This meant that the contractor would pay for any development 
work needed on the vaccine. VaxGen, as a small biotechnology company, 
had limited internal financial resources and was dependent on being 
able to attract investor capital for any major influx of funds. However 
VaxGen was willing to accept the firm, fixed-price contract and assume 
the risks involved. VaxGen did so even though it understood that 
development on its rPA vaccine was far from complete when the 
procurement contract was awarded and that the contract posed 
significant inherent risks. 

Key Parties Did Not Clearly Articulate and Understand Critical 
Requirements: 

Important requirements regarding the data and testing required for the 
rPA anthrax vaccine to be eligible for use in an emergency were not 
known at the outset of the procurement contract. They were defined in 
2005 when FDA introduced new general guidance on EUA. In addition, 
ASPR's anticipated use of the rPA anthrax vaccine was not articulated 
to all parties clearly enough and evolved over time. Finally, according 
to VaxGen, purchases of BioThrax raised the requirement for use of the 
VaxGen rPA vaccine. All of these factors created confusion over the 
acceptance criteria for VaxGen's product and significantly diminished 
VaxGen's ability to meet contract time lines. 

Guidance on Emergency Use Authorization Appeared Midcontract and 
Created Confusion: 

After VaxGen received its procurement contract, draft guidance was 
issued that addressed the eventual use of any unlicensed product in the 
stockpile. This created confusion over the criteria against which 
VaxGen's product would be evaluated, strained relations between the 
company and the government, and caused a considerable amount of turmoil 
within the company as it scrambled for additional resources to cover 
unplanned testing. 

In June 2005, FDA issued draft EUA guidance, which described for the 
first time the general criteria that FDA would use to determine the 
suitability of a product for use in an emergency.[Footnote 9] This was 
7 months after the award of the procurement contract to VaxGen and 14 
months after the due date for bids on that contract. 

Since the request for proposal for the procurement contract was issued 
and the award itself was made before the EUA guidance was issued, 
neither could take the EUA requirements into consideration. The 
procurement contract wording stated that in an emergency, the rPA 
anthrax vaccine was to be "administered under a 'Contingency Use' 
Investigational New Drug (IND) protocol" and that vaccine acceptance 
into the stockpile was dependent on the accumulation and submission of 
the appropriate data to support the "use of the product (under IND) in 
a postexposure situation." However, FDA officials told us they do not 
use the phrase "contingency use" under IND protocols. 

When we asked ASPR officials about the requirements for use defined in 
the contract, they said that the contract specifications were 
consistent with the statute and the needs of the stockpile. They said 
their contract used "a term of art" for BioShield products. That is, 
the contractor had to deliver a "usable product" under FDA guidelines. 
The product could be delivered to the stockpile only if sufficient data 
were available to support emergency use. ASPR officials told us that 
FDA would define "sufficient data" and the testing hurdles a product 
needed to overcome to be considered a "usable product." 

According to FDA, while VaxGen and FDA had monthly communication, data 
requirements for emergency use were not discussed until December 2005, 
when VaxGen asked FDA what data would be needed for emergency use. In 
January 2006, FDA informed VaxGen, under its recently issued draft EUA 
guidance, of the data FDA would require from VaxGen for its product to 
be eligible for consideration for use in an emergency. The draft 
guidance described in general FDA's current thinking concerning what 
FDA considered sufficient data and the testing needed for a product to 
be considered for authorization in certain emergencies. 

Because the EUA guidance is intended to create a more feasible protocol 
for using an unapproved product in a mass emergency than the term 
"contingency use" under an IND protocol that ASPR used in the 
procurement contract, it may require more stringent data for safety and 
efficacy. Under an IND protocol, written, informed consent must be 
received before administering the vaccine to any person, and reporting 
requirements identical to those in a human clinical trial are 
required.[Footnote 10] The EUA guidance--as directed by the BioShield 
law--eased both informed consent and reporting requirements. This makes 
sense in view of the logistics of administering vaccine to millions of 
people in the large-scale, postexposure scenarios envisioned. Because 
EUA guidance defines a less stringent requirement for the government to 
use the product, it correspondingly may require more testing and 
clinical trial work than was anticipated under contingency use. 

Several of the agencies and companies involved in BioShield-related 
work have told us the EUA guidance appears to require a product to be 
further along the development path to licensure than the previous 
contingency use protocols would indicate. VaxGen officials told us that 
if the draft EUA guidance was the measure of success, then VaxGen 
estimated significant additional resources would be needed to complete 
testing to accommodate the expectations under this new guidance. NIAID 
told us that the EUA guidance described a product considerably closer 
to licensure (85 percent to 90 percent) than it had assumed for a 
Project BioShield medical countermeasure (30 percent) when it initially 
awarded the development contracts. 

The Concept of Use for the rPA Vaccine Was Not Clearly Articulated to 
All Parties: 

FDA considers a vaccine's concept of use important information to gauge 
the data and testing needed to ensure the product's safety and 
efficacy. According to FDA, data and testing requirements to support a 
product's use in an emergency context may vary depending on many 
factors, including the number of people to whom the product is expected 
to be administered. The current use of an unlicensed product involves 
assessing potential risks and benefits from using an unapproved drug in 
a very small number of people who are in a potentially life-threatening 
situation. In such situations, because of the very significant 
potential for benefit, safety and efficacy data needed to make the risk 
benefit assessment might be lower than in an emergency situation where 
an unlicensed vaccine might be offered to millions of healthy people. 
This distinction is critical for any manufacturer of a product intended 
for use in such scenarios--it defines the level of data and testing 
required. Product development plans and schedules rest on these 
requirements. 

However, in late 2005, as VaxGen was preparing for the second phase 2 
trial and well into its period of performance under the procurement 
contract, it became clear that FDA and the other parties had different 
expectations for the next phase 2 trial. From FDA's perspective, the 
purpose of phase 2 trials was to place the product and sponsor (VaxGen) 
in the best position possible to design and conduct a pivotal phase 3 
trial in support of licensure[Footnote 11] and not to produce 
meaningful safety and efficacy data to support use of the vaccine in a 
contingency protocol under IND as expected by VaxGen, ASPR, and CDC. 
This lack of a clear understanding of the concept of use for VaxGen's 
product caused FDA to delay replying to VaxGen until it could confer 
with ASPR and CDC to clarify this issue. Thus, we conclude that neither 
VaxGen nor FDA understood the rPA anthrax vaccine concept of use until 
this meeting. 

Purchase of BioThrax for the Stockpile Raised Requirements for Use of 
rPA Vaccine: 

The introduction of BioThrax into the stockpile undermined the 
criticality of getting an rPA vaccine into the stockpile and, at least 
in VaxGen's opinion, forced FDA to hold it to a higher standard that 
the company had neither the plans nor the resources to achieve. ASPR 
purchased 10 million doses of BioThrax in 2005 and 2006 as a stopgap 
measure for post-exposure situations. The EUA guidance states that FDA 
will "authorize" an unapproved or unlicensed product--such as the rPA 
anthrax vaccine candidate--only if "there is no adequate, approved and 
available alternative." [Footnote 12]According to the minutes of the 
meeting between FDA and VaxGen, in January 2006, FDA reported that the 
unlicensed rPA anthrax vaccine would be used in an emergency after the 
stockpiled BioThrax, that is, "when all of the currently licensed 
[BioThrax] had been deployed." This diminished the likelihood of a 
scenario where the rPA vaccine might be expected to be used out of the 
stockpile and, in VaxGen's opinion, raised the bar for its rPA vaccine. 

ASPR Lacks an Effective Strategy to Minimize Waste in the Strategic 
National Stockpile and Plans to Use Expired Anthrax Vaccine: 

We identified two issues related to using the BioThrax in the Strategic 
National Stockpile. First, ASPR lacks an effective strategy to minimize 
waste. As a consequence, based on current inventory, over $100 million 
is likely to be wasted annually, beginning in 2008. Three lots of 
BioThrax vaccine in the stockpile have already expired, [Footnote 13] 
resulting in losses of over $12 million. According to the data provided 
by CDC, 28 lots of BioThrax vaccine will expire in calendar year 2008. 
ASPR paid approximately $123 million for these lots. For calendar year 
2009, 25 additional lots--valued at about $106 million--will reach 
their expiration dates. ASPR could minimize the potential waste of 
these lots by developing a single inventory system with DOD--which uses 
large quantities of the BioThrax vaccine--with rotation based on a 
first-in, first-out principle.[Footnote 14] 

Because DOD is a high-volume user of the BioThrax vaccine, ASPR could 
arrange for DOD to draw vaccine from lots long before their expiration 
dates. These lots could then be replenished with fresh vaccine from the 
manufacturer. DOD, ASPR, industry experts, and Emergent BioSolutions 
(the manufacturer of BioThrax) agree that rotation on a first-in, first-
out basis would minimize waste. 

DOD and ASPR officials told us that they discussed a rotation option in 
2004 but identified several obstacles. In July 2007, DOD officials 
believed they might not be able to transfer funds to ASPR if DOD 
purchases BioThrax from ASPR. However, in response to our draft report, 
DOD informed us that funding is not an issue. However, ASPR continues 
to believe that the transfer of funds would be a problem. DOD stated 
smallpox vaccine (Dryvax) procurement from HHS is executed under such 
an arrangement. Further, DOD and ASPR officials told us that they use 
different authorities to indemnify the manufacturer against any losses 
or problems that may arise from use of the vaccine. According to DOD, 
this area may require legislative action to ensure that vaccine 
purchased by ASPR can be used in the DOD immunization program. Finally, 
since DOD vaccinates its troops at various locations around the world, 
there may be logistical distribution issues. A DOD official 
acknowledged that these issues could be resolved. 

Second, ASPR plans to use expired vaccine from the stockpile, which 
violates FDA's current rules.[Footnote 15] Data provided by CDC 
indicated that two lots of BioThrax vaccine expired in December 2006 
and one in January 2007. CDC officials stated that their policy is to 
dispose of expired lots since they cannot be used and continuing 
storage results in administrative costs. FDA rules prohibit the use of 
expired vaccine. 

Nevertheless, according to CDC officials, ASPR told CDC not to dispose 
of the three lots of expired BioThrax vaccine. ASPR officials told us 
that ASPR's decision was based on the possible need to use these lots 
in an emergency. ASPR's planned use of expired vaccine would violate 
FDA's current rules and could undermine public confidence because ASPR 
would be unable to guarantee the potency of the vaccine. 

Conclusions: 

The termination of the first major procurement contract for rPA anthrax 
vaccine raised important questions regarding the approach taken to 
develop a new anthrax vaccine and a robust and sustainable biodefense 
medical countermeasure industry by bringing pharmaceutical and 
biotechnology firms to form a partnership with the government. With the 
termination of the contract, the government does not have a new, 
improved anthrax vaccine for the public, and the rest of the biotech 
industry is now questioning whether the government can clearly define 
its requirements for future procurement contracts. 

Since HHS components have not completed a formal lessons-learned 
exercise after terminating VaxGen's development and procurement 
contracts, these components may repeat the same mistakes in the future 
in the absence of a corrective plan. Articulating concepts of use and 
all critical requirements clearly at the outset for all future medical 
countermeasures would help the HHS components involved in the anthrax 
procurement process to avoid past mistakes. If this is not done, the 
government risks the future interest and participation of the 
biotechnology industry. 

Given that the amount of money appropriated to procure medical 
countermeasures for the stockpile is limited, it is imperative that 
ASPR develop effective strategies to minimize waste. Since vaccines are 
perishable commodities that should not be used after their expiration 
dates, finding other users for the stockpile products before they 
expire would minimize waste. Because DOD requires a large amount of the 
BioThrax vaccine on an annual basis, it could use a significant portion 
of BioThrax in the stockpile before it expires. 

Recommendations for Executive Action: 

The report that we are issuing today makes three recommendations. To 
avoid repeating the mistakes that led to the failure of the first rPA 
procurement effort, we recommend that the Secretary of HHS direct ASPR, 
NIAID, FDA, and CDC to ensure that the concept of use and all critical 
requirements are clearly articulated at the outset for any future 
medical countermeasure procurement. 

To ensure public confidence and comply with FDA's current rules, we 
recommend that the Secretary of HHS direct ASPR to destroy the expired 
BioThrax vaccine in the stockpile. 

To minimize waste of the BioThrax vaccine in the stockpile, we 
recommend that the Secretaries of HHS and DOD develop a single 
integrated inventory system for the licensed anthrax vaccine, with 
rotation based on a first-in, first-out principle. 

HHS and DOD generally concurred with our recommendations. In addition, 
with regard to our recommendation on integrated stockpile, they 
identified legal challenges to developing an integrated inventory 
system for BioThrax in the stockpile, which may require legislative 
action. Although HHS and DOD use different authorities to address 
BioThrax liability issues, both authorities could apply to either DOD 
or HHS; consequently, indemnity does not appear to be an insurmountable 
obstacle for future procurements. 

Mr. Chairman, this concludes my remarks. I will be happy to answer any 
questions you or other members may have. 

Contacts and Acknowledgements: 

For questions regarding this testimony, please contact Keith Rhodes at 
(202) 512-6412 or rhodesk@gao.gov. GAO staff making major contributions 
to this testimony included Noah Bleicher, William Carrigg, Barbara 
Chapman, Crystal Jones, Jeff McDermott, Linda Sellevaag, Sushil Sharma, 
and Elaine Vaurio. 

[End of section] 

Footnotes: 

[1] Project BioShield: Actions Needed to Avoid Repeating Past Problems 
with Procuring New Anthrax Vaccine and Managing the Stockpile of 
Licensed Vaccine, GAO-08-88 (Washington, D.C.: October 23, 2007). 

[2] The Strategic National Stockpile, formerly known as the National 
Pharmaceutical Stockpile, contains pharmaceuticals, vaccines, medical 
supplies, and medical equipment to respond to terrorist attacks and 
other emergencies. 

[3] All vaccines will eventually expire. However, when there is a large 
volume user for stockpile products, not having an effective strategy to 
ensure stockpile products would be used constitutes waste. 

[4] FDA regulations do allow the extension of the expiration date of a 
vaccine under certain limited circumstances. See 21 C.F.R. 610.53. 

[5] The contract called for 75 million doses overall, but only 25 
million were required to be delivered within 2 years of award. 

[6] TRLs have been used by federal agencies (DOD, the National 
Aeronautics and Space Administration, and others) to assess the 
maturity of evolving technologies prior to incorporating that 
technology into a system or subsystem. The primary purpose of using 
TRLs is to help management make decisions concerning the development 
and transitioning of technology. 

[7] A clinical hold is the mechanism that FDA uses to stop a study when 
it finds that the study should not proceed because of an identified 
deficiency. 

[8] Under Project BioShield, advance payments of up to 10 percent of 
the contract value could be made if the HHS Secretary deemed it 
necessary for the success of the program. ASPR officials told us that 
VaxGen did request such a payment, but ASPR did not grant it. 

[9] FDA is ultimately responsible for determining if available products 
(unapproved products or approved products for unapproved usage) in the 
stockpile can be used in an emergency. The data FDA needs to determine 
whether a product can be used in an emergency are critical to 
manufacturers to adequately plan and estimate the time and resources 
required for generating the data. 

[10] It also requires an approval from the Institutional Review Board. 

[11] In commenting on the draft report, FDA indicated that the purpose 
of the phase 2 trial is to collect additional safety and, when 
possible, efficacy data, as well as to determine the dose, route, and 
schedule for administration. 

[12] This is a requirement of the BioShield law. 

[13] These lots contained 167,990; 168,130; and 183,990 doses of 
vaccine, respectively. 

[14] In 1999, CDC created a stockpile of licensed medical products. CDC 
officials told us that CDC had a strategy to rotate products in that 
stockpile on a first-in, first-out principle with other high-volume 
users, such as the Department of Veterans Affairs. 

[15] See footnote 4. 

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