August 2004 Bulletin 04-35 Project BioShield Act of 2004 Creates $5.593 Billion Reserve for Drugs, Biological Products and Devices

If you have questions or would On July 21, 2004 President Bush signed into law the “Project BioShield Act of like additional information on 2004” (P.L. 108-276) (“Project BioShield Act” or “Act”), a initiative first the material covered in this proposed by the President in his 2003 State of the Union Address. The goal of this Bulletin, please contact one of new legislation is to provide a guaranteed market for companies that develop the authors: “qualified countermeasures,” which includes drugs, biological products, and Christopher L. Rissetto devices that are determined to be a priority pursuant to the Homeland Security Act (Washington, D.C.) of 2002, that would otherwise have a very small, or nonexistent, market. The Act 202.414.9206 also allows the procurement and emergency use as a “security countermeasure” [email protected] drugs, biological products, or devices without those items first formally qualifying Lorraine M. Campos for approval or licensing. (Washington, D.C.) 202.414.9386 The Project BioShield Act amends the Public Health Service Act to give the Secretary [email protected] of the Department of Health and Human Services (“Secretary”) new authority to Kurt D. Ferstl conduct and support research and development of these “countermeasures” against (Washington, D.C.) biological, chemical, radiological, and nuclear agents that pose a material threat to 202.414.9250 our national security. The Secretary, in consultation with the Secretary of the [email protected] Department of Homeland Security (“DHS”), is responsible for designating the … or the Reed Smith attorney qualified and security countermeasures. The Act addresses the lack of commercial with whom you regularly work. market for research, development and deployment of medical countermeasures against biological, chemical, radiological and nuclear weapons by offering greater flexibility in a range of areas including providing expedited procedures to purchase countermeasures such as vaccines, and quicker reviews for awarding grants, contracts, and cooperative agreements for research and development. In addition, it creates incentives for private firms to invest in such countermeasures.

Highlights of the Project BioShield Act § Procurement. Provides a comprehensive procurement effort overseen by the Secretary and the DHS Secretary, and involving other federal agencies, as appropriate, to facilitate the development and make available modern effective drugs and vaccines to protect against attack by chemical, biological, radiological or nuclear attack. § Streamlined Grant Procedures. Allows the National Institute of Health to use expedited and simplified peer-review and contracting procedures. LONDON NEW YORK § Guaranteed Market. Provides a guaranteed market for LOS ANGELES the countermeasure based on contract terms negotiated SAN FRANCISCO WASHINGTON, D.C. with the Secretary. The Project BioShield legislation PHILADELPHIA authorizes $5.593 billion over the next 10 years for the PITTSBURGH OAKLAND government to purchase a strategic national stockpile of PRINCETON medical countermeasures against a chemical, biological, NORTHERN VA WILMINGTON NEWARK MIDLANDS, U.K. CENTURY CITY This bulletin is presented for informational purposes and is not intended to constitute legal advice. RICHMOND © Reed Smith LLP 2004. All Rights Reserved. WESTLAKE VILLAGE “Reed Smith” refers to Reed Smith LLP, a limited liability partnership formed in the state of Delaware. r e e d s m i t h . c o m Client Bulletin 04-35

radiological or nuclear attack. This money has already been appropriated in the FY 2004 Department of Homeland Security Appropriations Act (P.L. 108-90). § FDA Emergency Approval. Under emergencies, the Secretary may authorize the use of products that have not been approved by the Food and Drug Administration (“FDA”), or the unapproved use of an approved product. As a result of the Project BioShield Act, the Department of Health and Human Services has already begun the process of announcing grant programs and of acquiring several new medical countermeasures including: § 75 million doses of a second-generation vaccine to become available for stockpiling beginning next year § New medical treatments for anthrax directed at neutralizing the effects of anthrax toxin § Polyvalent botulinum antitoxin § A safer second generation vaccine § Initial evaluation of treatments for radiation and chemical weapons exposure

Procurement Fund A central aspect of the Project BioShield Act is the creation of a $5.593 billion special reserve fund (“special reserve fund”) for the fiscal years 2004 through 2013 for the procurement of security countermeasures. This special reserve fund provides a pool of money on an advance basis for the next 10 years. In addition, this special reserve fund permits the federal government to contract for the purchase of medical countermeasures even before the products have been fully developed or receive FDA approval. The Project BioShield Act relaxes procedures for procuring property or services used in countermeasure research and development. The law allows procurement contracts to be awarded without full and open competition in certain instances. In addition, the Secretary may, under the Act, use noncompetitive procurement procedures if the product is available from only one responsible source, or a limited number of responsible sources, and no other type of product will satisfy the Secretary’s needs. The Secretary, under the Act, is responsible for negotiating the terms (including quantity, production schedule, and price) of, and entering into, contracts and cooperative agreements for procurement of security countermeasures. However, the Project BioShield Act provides a number of mandatory and discretionary terms for procurement contracts. The Act, for example, provides that no payment shall be made until delivery of a portion, acceptable to the Secretary, of the total number of units contracts for. However, the Secretary has the discretion to determine that an advance payment, up to 10 percent of the contract amount, is necessary to “ensure success of a project.” Under the Act, the normal contract duration shall not exceed five years, except that the Secretary may provide for a duration of up to eight years in certain situations.

Marketplace Guarantees The Secretary, in consultation with the DHS Secretary, will determine which security countermeasures are appropriate for procurement with the special reserve fund. The Secretary will determine: (1) the quantities needed to meet the needs of the national stockpile; (2) the feasibility of production and delivery within eight years of sufficient quantities of the product; and (3) whether there is a lack of a significant commercial market for the product at the time of procurement, other than as a security countermeasure. Procurement of a security countermeasure does not preclude subsequent procurement of other security countermeasures for the same purpose, if the Secretary determines subsequent procurement is necessary.

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Streamlined NIH Grant Procedures The new legislation authorizes the NIH to employ a variety of streamlined contracting procedures in awarding grants and undertaking procurements related to research and development of qualified countermeasures. This includes the authority to use expedited peer review procedures in place of the otherwise legally required peer review and advisory council review procedures for countermeasure research and development grants, contracts, or cooperative agreements. This expedited peer review authority is restricted to such grants, contracts, or cooperative agreements that are no more than $1.5 million. The law is silent as to the number of awards this peer review process applies to, leaving such number to the Secretary’s discretion.

FDA Emergency Approval The Project BioShield Act provides that a drug may be contracted for, and used, prior to FDA approval and licensing. The Secretary, in consultation with the DHS Secretary, will determine what security countermeasures are necessary for procurement. The Act defines a “security countermeasure” as a countermeasure that is either authorized for emergency use or that the Secretary determines is a priority, is necessary, and is an approved drug under Chapter V of the Federal Food, Drug and Cosmetic Act or a drug reasonably likely to be approved within eight years. If the Secretary declares an emergency, under the Act, the Secretary may permit: (1) use of a drug, device or biological product that is not approved, licensed, or cleared for commercial distribution; or (2) an unapproved use of an approved product. Authorizing emergency usage is at the Secretary’s discretion. Some conditions apply to the manufacturing, administration, and receipt of the unapproved product or unapproved usage of an approved product. The Secretary must impose conditions designed to ensure that health care professionals administering the product, and individuals receiving the product, are informed of: the benefits and risks of emergency use of a product; the alternatives to the product; and the option to accept or refuse administration of the product. The Secretary may also establish conditions on who may administer the product, how the product is to be distributed, and the category of people to whom the product may be administered. Applicable manufacturing practices may also be waived.

Conclusion Passage of the Project BioShield Act means companies can look forward to profitable business opportunities with the federal government. Most notably, companies will be able to conduct research and development for countermeasures with minimal oversight and a guaranteed market. The FY 2004 Department of Homeland Security Appropriations Act provides $5.593 billion for this program. Thus, millions of dollars may be available to successful applicants. In addition, a number of grant opportunities have already been announced related to the Project BioShield Act. Interested companies should take the necessary steps to ensure they are in compliance as a government contractor and are aware of the multiple opportunities under this Act. In fact, additional legislation is expected to be drafted to address such issues as the liability protections for firms that develop these countermeasures. * * * * * * * Reed Smith attorneys are well-positioned to assist companies, both familiar and unfamiliar with government contracts, to take advantage of this potential research and development opportunity. Please contact the authors of the client bulletin or the Reed Smith attorney with whom you work if you would like additional information or if you have any questions. * * * * * * *

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