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In the Boardroom With...
Mr. Frank M. Rapoport 
McKenna Long & Aldridge Thanks for joining us today, Frank. Your presentation recently at the New York Society of Security Analysts about BioDefense threats and opportunities was simply outstanding.  Let’s start off with an overview of your background and your practice at McKenna Long & Aldridge.

Frank Rapoport:  I am partner with McKenna Long & Aldridge LLP and co-chair the firm’s Biodefense practice, a multi-faceted resource for businesses interested in the emerging biodefense industry. We help clients develop and secure funding for new solutions to combat bioterrorism, including chemical and radiological terrorism, and infectious diseases.  As part of this effort, we have tracked all US procurement actions in this field since 2000.  In the field of biodefense procurement, our recognized expertise positions us at the intersection of science, law and lobbying, providing a comprehensive solution for our clients. The next pandemic seems to be front page news every day now. The question is not “if” it will happen but “when”. What is your perspective on this issue?

Frank Rapoport: I am pleased that Congress appropriated $3.8B this year and will likely do so again next year for the development and purchase of new vaccines, anti virals and diagnostics for use against pandemic flu. We are working with many companies that have secured and are pursuing this funding from HHS in Washington DC. Likewise the venture and related capital markets are now investing like crazy in this market knowing that the government is a fairly stable source of funds for back up. Accordingly, the next few years should witness fantastic growth in the production of new flu vaccine and diagnostics.  We understand from your presentation that "The Center for Disease Control and Prevention lists the following threats as Category A bioterror threats:
 - Anthrax
 - Plague
 - Tularemia
 - Smallpox
 - Botulism
 - Viral hemorrhagic fevers (e.g., Marburg, Ebola)

In parallel, the Defense Science Board, which advises The Department of Defense, has identified the need to develop 57 countermeasures for the top 19 bioterror pathogens."  Can you give us an overview of what countermeasures are being developed for these major threats?

Frank Rapoport:  Before a procurement can be initiated under BioShield, DHS and HHS must make a determination of a material threat for each pathogen, identify countermeasures that are necessary, numbers of doses required, find that production and delivery is feasible within eight years and thereafter seek approval by the President.  Material Threat Assessments (MTAs) in progress include plague, tularemia, the viral hemorrhagic fevers and certain category B and C agents. 

According to senior officials at HHS, they will be seeking vaccines with the following attributes:

 - Thermostable formulation
 - Long term stability
 - Liquid
 - One or two doses
 - Combination vaccine (multivalent)
 - Needle free administration
 - Specific, robust immune response after one dose
 - Cost effective. Is the funding available? What are some of the major sources of funding? Are the budgets growing?

Frank Rapoport:  Sources of funding have multiplied. Prior to 2001, the Department of Defense was essentially the only government agency investing significantly in biodefense. The September 11 World Trade Center attacks and the subsequent anthrax mail attacks, have made counterterrorism a central security issue in the United States.  Bioterrorism has been recognized as a key threat and in response, the government has allocated substantial funding and passed special legislation to support and grow this industry. This has created significant market opportunities for biodefense.

Since 2001, actual and planned spending across all US Government agencies on civilian biodefense has been $22.1 billion. In FY 05 alone, the government's spending on civilian biodefense initiatives was 18 times the spending in FY 01. The funding provided to date and the current and pending legislation is a clear long term commitment to homeland security and biodefense by the US Government.  Currently, a variety of government agencies have provided funding for counterterrorism, and specifically, for biodefense.

Various US Government agencies have allocated funds to enhance the biodefense of the nation by supporting the development of vaccines, adjuvants and therapeutics that combat bioterrorism.  Following are examples of various government entities and details of their associated budgets.

- Department of Homeland Security (DHS): The most conspicuous example of
  the federal government's commitment to counterterrorism is the formation of the
  DHS.  The DHS budget has increased from $19.5 billion in FY 02, to $40.3
  billion in FY 06 and is expected to reach is $42.7 billion in FY 07. The DHS
  budget combined with the Department of Health & Human Services (HHS)
  budget accounts for more than 90% of budgeted civilian biodefense funds.

- Department of Health & Human Services (HHS): BioShield I, which was
  passed in 2004, is the most significant piece of biodefense legislation. It
  provided $5.6 billion in funding for biodefense. Part of the legislation authorizes
  HHS to create a national stockpile of vaccines against bioterror agents.

- Department of Defense (DOD): The Department of Defense ("DOD") has
  awarded contracts to create national stockpiles of vaccines to vaccinate troops.
  In fact, the DOD has even awarded contracts for vaccines which are still in
  Phase III trials. These military stockpiles are entirely separate from the DHS' 
  and HHS' funds for civilian stockpiles. In fact, the DOD is purchasing stockpiles
  for troops prior to licensure, when vaccines are still in Phase 3 development. By
  providing funds for Phase 3 development, the government is stepping in early to
  absorb part of the risk of development. This reduces the risk profile of
  development of biodefense products. 

- The National Institutes of Health (NIH) is a key source of grant funding for
  biodefense research, especially in Phases 1 and 2. In FY 07, the NIH's
  biodefense research portfolio is expected to be $1.9 billion, a 6.1% increase
  since FY 06. 

- Agencies such as the Department of Agriculture ("USDA"), also have
  substantial funding for civilian biodefense programs, while others such as the
  Environmental Protection Agency ("EPA")
, the National Science
  Foundation ("NSF")
and the State Department have lesser amounts. Without divulging any confidential information on behalf of any of your clients, can you discuss some of the significant contract awards that have recently been made.

Frank Rapoport:  In the nearly two years since the enactment of BioShield I, HHS has awarded approximately nine contracts worth more than $1billion, with several more awards pending for vaccines and countermeasures for the national stockpile.  The current vaccine contract award status is as follows: 
- Botulinum Antitoxin - Program in progress for acquisition of 200,000 doses
  with $50 million obligated in FY04 and (insert figure) awarded in FY05

- rPA anthrax vaccine - Opened March 11, 2004; Closed April 23, 2004.  A
  contract was awarded in November  2004 for the acquisition of 75 million doses
  and $877.5M was obligated in FY05

- Anthrax therapeutics -  Base contracts for testing were awarded in September
  05 and options for acquisition of up to 100K doses have yet to be determined

- AVA anthrax vaccine - This vaccine received interagency approval for an initial
  acquisition of five million doses in Dec 03.  A $122.7 million contract was
  awarded May 5, 2005 for one million doses which were delivered May 11, 2005

- MVA attenuated smallpox vaccine - The RFP was posted in August 05 and
  proposals were received in October 05

- Nerve Agents Therapeutic - The RFI was posted in December 05 and closed
  in January 05

- Anti-radiation Drug - In February 06, Akorn, Inc. was awarded a contract of
  $22 million for 400,000 doses

- Rad/Nuc treatment products - An RFP was released in September 05

- Pediatric Potassium Iodide (KI) - Interagency approval for the acquisition to
  protect 1.7 million children was received in July 04

- KI - On March 18, 2005, a $5.7 million contract was awarded to Fleming & 
 Company Pharmaceuticals for manufacturing and delivering 1.7 million doses

 (Source US Department of Health and Human Services)  Recently enacted legislation, such as the Bioshield Act of 2004 and the Public Readiness and Emergency Preparedness Act of 2005, is surely a major market driver for the fast growing biodefense field. Can you give us an overview of this legislation?

Frank Rapoport:  BioShield I is the most significant legislation that has been passed.  Known as the Bioshield Act of 2004, this legislation appropriated in advance, $5.6 billion from FY 04 - FY 14 to the Department of Homeland Security, for the procurement of biodefense countermeasures. Additionally, BioShield I relaxed procedures for bioterrorism related procurement, hiring, and awarding of research grants.  It also guaranteed a federal government market for new biomedical countermeasures, and permitted emergency use of approved products.

BioShield also amended the Federal Food, Drug and Cosmetic Act by providing the FDA with Emergency Use Authorization (EUA), wherein the FDA can authorize use of an unapproved medical product or unapproved use of an approval medical product during a declared emergency.

The Public Readiness and Emergency Preparedness Act of 2005, (PREP Act), provides targeted liability protection for those involved in the development, manufacturing and deployment of pandemic and epidemic products and security countermeasures, including manufacturers of vaccine-related countermeasures. The PREP Act creates a shield of immunity for claims arising out of, related to, or resulting from the administration or the use of a covered countermeasure (i.e., vaccines, countermeasures, devises and certain other products).  This immunity covers a wide range of uses and other activities so that the protections can be applied as broadly as possible. Through this tort reform, vaccine and countermeasures developers are now better protected from the mass of lawsuits that have essentially eviscerated the US vaccine and countermeasure manufacturing base. 

Significant money has been spent to date on biodefense initiatives with a clear expectation that funding at this and higher levels will continue.  Additional legislation on the horizon is geared towards further enticing manufacturers to participate in public health initiatives. 

- Biodefense and Pandemic Vaccine and Drug Development Act:  Senator Richard Burr of North Carolina has proposed this act, which would establish the Bio-Medical Advance Research and Development Agency (BARDA) under the HHS umbrella with initial funding of a billion dollars.  This money would be available to companies within the so called "Valley of Death" who need government funds to bridge the gap between initial NIH funding and payment that is available only upon delivery under the BioShield program. 

- BioShield II Act: Among other things, this legislation authorizes tax incentives to spur capital investment in companies conducting R&D for bioterror countermeasures, and intellectual property protections, including patent incentives that could help spur development of crucial countermeasures.  The Senate Health, Education, Labor and Pensions (HELP) Committee has on its 2006 bioterrorism agenda the passage of this act.  

The above proposed legislation would, among other incentives, provide a ten year marketing exclusivity for companies providing countermeasures and  antimicrobials, grant tax rebates and grants to build domestic manufacturing surge capacity, and antitrust protection. What do you see as other market drivers, domestically and internationally?

Frank Rapoport:  There is a growing international market for countermeasures. Realizing that both terrorism and naturally occurring infectious disease know no borders, international organizations including WHO, the EU Commission, NATO and the United Nations are constructing standards for the acquisition and distribution of countermeasures. See, Commission of the European Communities. COM (2005) 605 (28 November 2005). Indeed, the Europeans have the choice to purchase non-licensed therapeutics in accordance with Emergency Distribution Rule, Article 5(2) Directive 2001/83.

In the European Union, ministries of public health and their defense counterparts (MoD) are showing increasing interest in funding R&D and the purchase of countermeasures. The primary target states are Italy, France, Germany, Belgium, UK, Spain, Switzerland and the Netherlands.  There is also interest from other G-7+ states such as Canada, Japan and Mexico. Additionally, secondary opportunities exist in Turkey, Finland, Poland, Czech Republic and Slovenia.

Admittedly, it is difficult to access with specificity the size of the EU market for countermeasures since member countries do not openly report their budgets or stockpiles.  The EU has announced, however, availability of 500 million euros for scientific R&D, in part related to developing new countermeasures
against bioterrorism. See, European Union Science Funding, FP 7 (2007-2013).

More specifically, the European Medicines Agency ("EMEA") has produced a guidance document on the use of medicinal products for treatment and prophylaxis of biological agents. The first version of the guidance, produced on January 16, 2002, considered those agents in category A of the CDC's list of agents that might be used for purposes of bioterrorism. On February 21, 2002, and March 21, 2002 the document was extended to cover agents in categories B and C of the CDC's list. On July 25, 2002, the document was extended to include information on naturally authorized vaccines and immunoglobulins for the prevention or post-exposure prophylaxis of some infections. Covered pathogens presently include: Anthrax, Plague, Tularemia, Smallpox, Viral hemorrhagic fever, botulism, Brucellosis, Q-Fever, Granders and Melioidosis and others.  From what we've learned, the first sign that we’ve been hit with a bioterror attack is going to be when the emergency rooms start over flowing in a large region. Would you agree with that?  What should “C” level executives be doing to protect their businesses and their brands in this environment? What about individuals?

Frank Rapoport: Executives are now scurrying to put into place Pandemic Readiness Plans to assure continuity in business operations and risk mitigation. Our firm has prepared several of these for the pharmaceutical and related distribution businesses. The hospital, HMO and related health insurance industries are also quite concerned that they may not be able to provide the required level of care and therefore be subject to massive law suits from the plaintiff's bar. These industries are also expected to begin lobbying in Washington to find ways to protect against such litigation." Frank, many thanks for your joining us today.


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