Biological Defense: Additional Information That Congress May Find Useful as It Considers DOD's Advanced Development and Manufacturing Capability
Released: 2017-07-17T00:00:00

Letter

Background

Manufacturing Biologic Medical Countermeasures

DOD’s ADM facility is to specialize in manufacturing biologics, with a focus on producing antibodies and vaccines. Until recently, the manufacture of biologic medical countermeasures has required a single facility to produce a single product (e.g., a vaccine), and extensive cleaning and sterilization of equipment was required to switch from manufacturing one product to another. However, recent technological advancements have made “flexible manufacturing” possible. These technologies include the use of disposable equipment, such as equipment for growing cell cultures in disposable plastic material systems rather than in stainless steel tanks that require more time to clean and sterilize prior to the next use, and the use of modular sterile rooms to allow for the manufacture of multiple products simultaneously within a given facility. In the advanced research and development stage, potential medical countermeasures are further evaluated to demonstrate their safety and efficacy for preventing, diagnosing, or treating disease. Successful products are then available for final development and procurement.

DOD and HHS Coordination in Producing Medical Countermeasures

As we reported in 2014, DOD is one of several agencies, along with HHS, involved in addressing and countering biological threat agents. As illustrated in figure 1, both DOD and HHS have specific biological medical countermeasure needs, some of which are shared.

According to officials with HHS’s Office of the Assistant Secretary for Preparedness and Response and DOD’s Joint Program Executive Office for Chemical Biological Defense (hereafter referred to as DOD’s ADM program office), a driving factor for the establishment of the HHS CIADMs was the H1N1 influenza pandemic of 2009 and the difficulty HHS had ensuring that the United States had an adequate supply of pandemic influenza vaccine as well as other medical countermeasures for emerging infectious diseases that are necessary to protect the public’s health. Driving factors for DOD’s establishment of DOD’s ADM facility were the difficulties experienced in attracting large, experienced pharmaceutical manufacturers to develop and manufacture needed biologic medical countermeasures to mitigate the health effects of biological agents and naturally occurring diseases on armed forces personnel.

DOD and HHS commissioned a joint analysis of alternatives for the development of emergency medical countermeasures that was published in June 2009 (hereinafter referred to as the 2009 analysis of alternatives). This analysis was followed by the January 27, 2010, State of the Union Address, in which the President announced the Reinventing the Medical Countermeasure Enterprise Initiative “that will give us the capacity to respond faster and more effectively to bioterrorism or an infectious disease.” The National Security Staff then conducted an interagency strategy and policy review and, in December 2010, The White House called for the Secretary of Defense to, among other things, “establish agile and flexible advanced development and manufacturing capabilities to support the development, licensure, and production of medical countermeasures.” Part of DOD’s strategy to address emerging and genetically modified biological threats was to establish a new capability for advanced development and manufacturing of DOD-unique medical countermeasures, which included the construction of an ADM facility in Alachua, Florida. At about the same time, HHS began to establish its three CIADM capabilities. In figure 2, we provide a timeline of efforts that led to the development of DOD’s and HHS’s respective ADM capabilities.

According to officials with DOD’s ADM program office and ADM contractor, the ADM capability comprises more than the physical facility in Alachua, Florida—including, for example, other sites around the continental United States, such as fill and finish facilities, and the ADM contractor’s network of 35 different partner companies that provide services in various areas such as testing and cell or virus banking.

Officials from both DOD and HHS said that their departments have coordinated to develop their ADM and CIADM facilities, with agency officials serving on one another’s contract evaluation panels and governance boards. For example, according to the advisory board charter for DOD’s ADM capability, the board consists of officials from several DOD agencies as well as HHS’s Biomedical Advanced Research and Development Authority. DOD officials also noted that they serve on the HHS CIADM steering committee and the Public Health Emergency Medical Countermeasures Enterprise, which have an oversight role for HHS’s CIADMs. DOD officials further noted that the two departments had considered the idea of a joint contract bid until HHS issued its solicitation about 6 months earlier than DOD, since HHS was concentrating on pandemic influenza requirements while DOD was looking for a capability to address a wider range of chemical and biological threats to members of the armed services.

DOD Included Information in Its Report on the ADM Facility That Addressed the Six Required Elements Congress Requested

DOD addressed each of the required six elements in its October 2016 report to Congress on the department’s ADM facility. Table 1 outlines the information DOD provided.

Additional Information on DOD’s ADM Capability That May Be Useful for Congressional Oversight

We identified additional information regarding DOD’s ADM capability that may be useful to Congress in its oversight of the program. Moreover, this additional information may be particularly useful as DOD makes decisions on whether and how to renew its contract for 2-year option periods with the private-sector biopharmaceutical company that constructed the ADM facility. DOD stated in its report that it will determine whether to exercise future contract option periods that extend the existing contract for the ADM capability by examining factors including, but not limited to, contractor performance, facility utilization, and urgent and/or emerging requirements. Table 2 summarizes the elements required in the National Defense Authorization Act for Fiscal Year 2016 and the additional information that we analyzed from DOD, HHS, and their contractors regarding information that may be useful to Congress.

The following is information that we identified in addition to the information that DOD provided to address each required element.

Clarification about the Potential for Expanding the Capabilities of the ADM Facility and the Requirements for the ADM Capability

Supplementary Description of the ADM Capability

DOD’s report noted, among other things, that the facility is 180,000 square feet and capable of producing up to 1.5 million doses of medical countermeasures within 3 months of a federal government request, with a surge capacity of up to 12 million doses. DOD’s report also stated that the facility produces at a scale that is suitable for DOD’s needs, is capable of complying with Current Good Manufacturing Practices manufacturing at biological safety level (BSL) 3-capable containment, offers surge capability, and has additional room for expansion on site. DOD reported that the ADM facility currently consists of two manufacturing suites with the capability to support up to four production lines, with options for adding up to three additional manufacturing suites. DOD also reported some information about the modular, single-use type of equipment found in the facility. Additionally, DOD’s report stated that the ADM facility contractor, per its contract with DOD, provides additional capability and services through a network of industry partners and through contractor staff not located at the facility in Alachua, Florida.

During our review, we identified additional information that serves to clarify the potential for expanding the capabilities and capacity of DOD’s ADM capability. For example, the DOD ADM facility is located on 29 acres of land within a secured perimeter and protected by motion- activated infrared cameras. In discussions with DOD program officials and with the ADM contractor, we learned that two of the additional three manufacturing suites (i.e., suites three and four) could be developed within the current structure of the building at the discretion of DOD, while a fifth manufacturing suite could eventually be built by expanding the building’s perimeter, if needed. According to DOD officials, these additional suites, as well as the existing two manufacturing suites, are compliant with Current Good Manufacturing Practices. The facility currently uses DOD-purchased bioreactors with capacity for up to 500 liters each, although ADM contractor officials informed us that there is enough space in some manufacturing areas for bioreactors with capacity for up to 2,000 liters. A more detailed description of the facility and its DOD-purchased equipment—including photographs of the equipment— can be found in appendix II.

Additional Information Regarding the ADM Requirements

Regarding DOD’s inclusion of validated requirements in its report to Congress, DOD reported that the requirement for the ADM capability originated from a memorandum in December 2010 from The White House to the Secretary of Defense. According to DOD officials with the Joint Requirements Office and the Chemical Biological Defense Program, although the requirement for the ADM capability was somewhat unique in its origins, infrastructure projects are normally not validated through the department’s Joint Capabilities Integration and Development System. According to DOD officials, the specific medical countermeasures (e.g., vaccines) produced by the ADM capability are to have a validated requirement through the department’s Joint Capabilities Integration and Development System, while the means of production—such as an ADM capability—will be determined by the program office that manages the acquisition of products to serve as medical countermeasures.

Throughout the course of our review, we identified additional information about the requirements process for the ADM capability. DOD officials with the ADM program office told us that the requirement for the ADM capability was validated by the direction of the Secretary of Defense to create such a capability, or was what a DOD official called a “directed requirement.” Upon receipt of the memorandum from The White House, the Deputy Secretary of Defense responded that DOD would align its medical countermeasure efforts with The White House vision for strengthening protection against infections disease, in part by recommending funding starting in fiscal year 2012 to support rapid advanced development of medical countermeasures. According to ADM program officials, this direction was then disseminated through the Office of the Secretary of Defense until it reached DOD’s ADM program office. Direction for creating the ADM capability also is captured in the following documents referring to DOD’s Chemical and Biological Defense Program: DOD Chemical and Biological Defense Program Fiscal Year 2012-2017 Program Strategy Guidance Implementation Plan and the Fiscal Year 2014-2018 Program Strategy Guidance Implementation Plan.

Program Goals, Metrics, and Costs

Additional Information Regarding DOD’s Stated Goals and Metrics

DOD included in its report to Congress the program goals and performance metrics articulated in presidential memorandums to establish “agile and flexible advanced development and manufacturing capabilities to support the development, licensure, and production of Medical Countermeasures that address the needs of our military and the Nation.” With respect to performance metrics, DOD has established metrics in the contract for the ADM facility that it monitors periodically in conjunction with the contractor. DOD stated in its report that it will determine whether to exercise future contract option periods that extend the existing contract for the ADM capability by examining factors including, but not limited to, contractor performance, facility utilization, and urgent and/or emerging requirements. The report further states that the performance of the ADM contractor during the facility’s operations will be measured based on its performance against the metrics of individual product (e.g., vaccine) contracts.

During our review, we identified additional information regarding DOD’s goals and metrics. For example, in the Acquisition Strategy and Plan for the Advanced Development and Manufacturing Prototype Capability for Medical Countermeasures and the ADM contract’s statement of objectives, we identified program objectives that collectively clarified DOD’s overall program goal for the ADM facility: allowing third parties to mature and provide products to the government by leveraging the ADM capability while ensuring protection of intellectual property; providing streamlined capability that reduces cost and schedule risk; providing capabilities to rapidly respond to chemical, biological, radiological, and nuclear events, as well as emerging and genetically modified infectious diseases, by producing Food and Drug Administration-approved products or the expanded production of existing products; providing strategies for supporting and facilitating the transition of processes and technologies from DOD-affiliated science and technology organizations; and providing assistance and training in drug development and manufacturing.

Other information we reviewed addressed the evaluation of the contractor during the “base period” (i.e., the period in which the facility will be built by the contractor and accepted by DOD) and may be useful in demonstrating to Congress that oversight and accountability have been built into this public-private partnership contract. DOD’s ADM contract and discussions with DOD’s ADM program officials indicate that there are multiple metrics by which DOD assesses the performance of the contractor during the construction of the facility. For example, the contract requires the tracking of metrics such as technical performance, work product quality, contract management, and earned value management system data as part of a quality assurance surveillance plan. The ADM contract also requires the contractor to provide a number of reports to DOD on a monthly basis. For example, the contract data requirements list requires the ADM contractor to provide, among other things, a contract work breakdown structure that discusses the elements for which the contractor is responsible and a master government property list, which provides information on government property such as the cost of an item. Additionally, according to the contract, within 30 days following completion of facility validation, an ADM Final Technical Closeout Report must be completed to document the completion of the base period, including the achievement of all milestones and requirements. According to DOD officials, milestones for completion of the ADM facility include: (1) completion of construction activities; (2) installation of equipment in laboratory and clean room spaces; and (3) completion of all commissioning, qualification, and validation activities.

Supplementary Information on ADM Costs

With respect to operations and maintenance costs, we identified additional information during our review that may be of use to Congress in its oversight of the program. DOD noted in its report to Congress that the ADM contract at completion is approximately $205 million and that there was neither dedicated funding in fiscal years 2015 and 2016, nor a request for fiscal year 2017 funding for the ADM capability. This contract completion cost includes an initial, fixed fee of approximately $18 million to the contractor, as well as costs associated with planning, architectural design, and the purchase of manufacturing equipment (for a more detailed discussion of items paid for by DOD, see app II). DOD’s report to Congress noted that there are no procurement or operations and maintenance budget line item costs directly associated with the facility in upcoming DOD budget requests and included a discussion of future sustainment payments for the ADM capability. Specifically, DOD’s report acknowledged that under contract options, should DOD exercise them, DOD would provide a sustainment payment to the ADM contractor to ensure that the contractor provides DOD with priority access to the ADM facility. Each contract option is to be for 2 years, with the last contract option available from 2022 through 2024. The sustainment payment for the first contract option period, which began on April 1, 2017, was originally negotiated for approximately $18 million each year, but DOD said in its report to Congress that it was actively renegotiating the terms and amount of the sustainment option before awarding the option to the ADM contractor and anticipated that the payments would be less than the original amount. DOD’s report said that the department will pay sustainment costs for the ADM capability from medical countermeasures programs requiring manufacturing and development activities in the year of budget execution.

Supplementary Information on the Appropriateness of DOD’s Approach for Funding Sustainment Costs

We reviewed additional information that clarifies the relationship between the annual sustainment payment identified in the ADM contract options and the operations and maintenance costs of the ADM capability, as well as DOD’s budgeting for the sustainment payments. DOD’s sustainment payments for priority access to the ADM capability will be budgeted for as a cost of developing medical countermeasures (e.g., vaccines), according to officials from DOD’s ADM program office, a funding structure similar to the model used with DOD-owned laboratories. For example, DOD’s ADM program officials said that within the Chemical Biological Defense Program, of which they are a part, core DOD laboratories that provide critical infrastructure capabilities supporting the program sustain their capabilities by applying an indirect fee to Chemical Biological Defense Program-resourced projects. ADM program officials further stated that the annual sustainment payments will be used to retain trained personnel and maintain the equipment and systems in a ready state to support medical countermeasures development when program lines are ready to use the capabilities.

Based on our discussions with DOD and ADM contractor officials, the total costs to ADM capability contractor Nanotherapeutics, Inc., hereinafter referred to as Nanotherapeutics, to operate and maintain the ADM facility—which are separate from and in addition to the costs in the initial contract with DOD for building the facility—were not fully known at the time of this report and were not fully covered by the DOD-provided sustainment payments. The contractor’s executives told us that they were learning more about the costs of operating the facility as it becomes operational, and believe that overhead costs, such as personnel, may not be as significant as they first believed. According to the ADM contractor’s executives, DOD’s sustainment payments should represent approximately 25 percent of this overhead cost for operating the ADM facility. As noted earlier, DOD is working to renegotiate the amount of the sustainment payments based upon several changes, such as changes in facility size, the number of employees in the facility, and the sale of the contractor’s building and the land for the ADM facility. Further, as the cost-benefit analysis portion of the DOD report noted, the sustainment payments are not fixed at the amount negotiated by DOD and the contractor, but may be reduced through funded work. As the DOD report states, there is some uncertainty about the amount each dollar of funded work will offset a dollar of overhead cost (i.e., the costs covered in part by DOD’s sustainment payments). Nanotherapeutics executives noted, for example, that there can be great variations in the cost of labor and materials for some contracts, although other cost elements remain more fixed.

During our review, we learned that the contractor and DOD have taken some initial steps toward bringing additional funded work to support the DOD ADM capability, which may help to reduce DOD’s sustainment payments under the contract options. First, executives from the ADM contractor stated that they were actively seeking additional work from both the federal government and the private sector, and had recently been awarded new contract work through HHS’s National Institute of Allergy and Infectious Diseases. Second, included within the noncompetitive contracting mechanisms discussed in the cost-benefit analysis portion of the DOD report to Congress was Other Transaction Authority. DOD’s ADM program officials informed us that DOD used this authority in April 2016 to establish a consortium through which the department may be able to award some DOD medical countermeasures efforts to the ADM facility while retaining some of the benefits of competition, since the ADM contractor is a member of the consortium. DOD officials explained that because this consortium operates under Other Transaction Authority, it provides DOD with more flexibility to negotiate with contractors and to arrange for some subcontracted work to go through the ADM facility, as well as provide access to industry expertise and collaboration, among other things. DOD officials also expect the consortium to provide its members with a flexible contracting vehicle capable of multiple taskings with a single set of terms and conditions. DOD officials informed us that the ADM capability is likely to receive additional DOD work through the use of the Other Transaction Authority consortium. According to the cost-benefit analysis conducted by the Institute for Defense Analyses, additional DOD work would reduce annual sustainment payments, while increasing time saved by DOD.

DOD’s Analysis of Alternatives and Additional Information on ADM Alternatives

In its report to Congress, DOD included results from the 2009 analysis of alternatives for the Secretaries of Defense and the Department of Health and Human Services, which informed the federal government’s decision to create both DOD’s ADM capability and HHS’s CIADM capabilities. As summarized in DOD’s report, the 2009 analysis of alternatives attempted to address a gap in the production and manufacturing of medical countermeasures against weapons of mass destruction. In the analysis, The Quantic Group, Ltd., and Tufts Center for the Study of Drug Development focused on three alternative methods of producing medical countermeasures: (1) continuing to contract with private-sector pharmaceutical companies for the production of medical countermeasures, (2) continuing existing methods while strengthening regulatory and sourcing capabilities and gaining enhanced access to development and manufacturing, and (3) building government facilities for the purpose of producing all medical countermeasures.

We identified additional information regarding HHS’s CIADM capabilities as an alternative to the DOD ADM capability. As noted earlier, the 2009 analysis of alternatives jointly supported the DOD ADM and the HHS CIADM capabilities. However, since neither the DOD nor HHS capabilities existed at the time of the 2009 analysis (the contracts were signed in 2013 and 2012, respectively), the analysis did not consider HHS’s CIADMs as alternatives for DOD or DOD’s ADM capability as an alternative for HHS. HHS issued a request for contract proposals for the CIADMs in March 2011, 5 months before DOD issued its request for contract proposals for the DOD ADM. However, even though the HHS CIADMs were not analyzed as alternatives to the DOD ADM capability, HHS officials said that DOD could separately contract for medical countermeasures with any of HHS’s CIADMs either independently or through existing HHS CIADM contracts. Additionally, a senior official with DOD’s ADM program office informed us that the program office constantly assesses its portfolio, and maintains awareness of the HHS CIADMs through DOD’s participation in HHS’s Public Health Emergency Medical Countermeasures Enterprise—an interagency body—and the CIADM governing board.

Although officials from DOD’s ADM program office stated that the HHS CIADMs are not appropriate for DOD’s needs—with one official noting that they are large dedicated facilities designed primarily to address pandemic influenza threats—the cost-benefit analysis for DOD’s ADM capability conducted by the Institute for Defense Analyses, as well as our own observations, suggest otherwise. Based on discussions with CIADM and HHS officials and some CIADM contractor documents, all three of the HHS CIADMs plan to use flexible manufacturing technologies in at least a portion of their facilities and may be capable of addressing DOD’s flexible manufacturing needs. At least one CIADM official has testified about this capability at a CIADM facility upon completion, as at least 50 percent of the CIADM capabilities will be available for non-HHS projects. Officials from two of the CIADMs informed us that they could potentially address some of DOD’s medical countermeasure manufacturing needs, to include potentially providing priority access to the CIADM capabilities under a contract. In addition, an official from one CIADM informed us that the CIADM’s contractor currently is producing medical countermeasures for DOD. An official with the ADM program office said that DOD is represented on the governing board for the CIADMs and is aware of what HHS is doing there, so CIADM information can be taken into consideration along with ADM performance and utilization metrics as DOD considers future contract extensions for the ADM capability. See appendix III for more information on the HHS CIADM capabilities.

Additional Information to Clarify DOD’s Cost-Benefit Analysis

In DOD’s report to Congress, the department presented the results of a 2016 independent, DOD-commissioned cost-benefit analysis conducted by the Institute for Defense Analyses. During our review, we identified additional information that may add clarity to various aspects of the cost- benefit analysis. DOD’s contracted analysis compared the cost and benefits, schedule, and performance of continued DOD investment in the DOD-dedicated ADM capability with a set of available alternatives. The cost-benefit analysis also reviewed the results of a study conducted by Tufts University in 2015 to determine whether the “sunk” costs (i.e., costs incurred in the past that will not be affected by any present or future decision) of constructing the DOD ADM facility were of an appropriate magnitude.

DOD reported that, per the results of the Institute for Defense Analyses- conducted cost-benefit analysis, with the exception of certain potential benefits that are hard to quantify, the benefit of having a DOD-dedicated ADM capability was largely focused on the priority access to the manufacture of biologic medical countermeasures guaranteed to DOD through the sustainment payments. The cost-benefit analysis quantified this benefit as potentially saving 13 to 28 months of production time over the future years defense program—which captures and summarizes forces, resources, and programs associated with all DOD operations approved by the Secretary of Defense—and 23 to 50 months of production time over the course of current manufacturing production projections for medical countermeasures. The cost-benefit analysis also concluded that this priority access could come at a cost of between $55 million and $76 million over the future years defense program (and between $93 million and $136 million over the course of current manufacturing production projections). The cost-benefit analysis noted that DOD could offset some or all of this cost if the DOD-dedicated ADM facility received sufficient DOD and non-DOD funded work to offset DOD’s annual sustainment payments to the contractor.

Our review of the cost-benefit analysis suggests that it can help inform decision makers about the potential economic effects of DOD’s investment. We also identified additional information that would be useful for Congress in evaluating or interpreting the results of the DOD- commissioned cost-benefit analysis. Specifically, we reviewed the ADM cost-benefit analysis using selected key elements, based on economic guidance from the Office of Management and Budget and other sources, to determine whether the cost-benefit analysis provided evidence to decision makers of the potential economic effect of DOD’s continued investment in the ADM capability. Based on this review, we identified the following regarding the cost-benefit analysis:

The cost-benefit analysis did not estimate the monetary value of the potential benefits of the DOD-dedicated ADM capability, such as those associated with priority access, making it unclear whether DOD’s continued investment in the ADM capability is economically justified (e.g., whether the benefits exceed the costs).

Future costs were not discounted.

The analysis did not clearly discuss the baseline that was used to estimate incremental costs and benefits (i.e., Institute for Defense Analyses officials explained to us that the ADM capability was evaluated against a baseline that was not a single facility, but rather a combination of the HHS CIADMs and other similar facilities owned by private contract manufacturing organizations).

The analysis assumed that development and manufacturing costs of the DOD-dedicated ADM capability and the alternatives would be roughly comparable, but did not assess some plausible adjustments to this assumption in a sensitivity analysis.

According to the Institute for Defense Analyses official overseeing the analysis, data used to develop the estimate of time savings—the primary benefit of having a DOD-dedicated ADM capability, according to the analysis—were anecdotal and were not assessed for reliability due to time constraints; additionally, industry changes limit the usefulness of retrospective studies. where i is the interest rate and t is the number of years from the date of initiation for the program or policy until the given future year. See Office of Management and Budget, Circular A-94 (Oct. 29, 1992). use has only recently become common place. As a result, these changes in the industry would limit the usefulness of retrospective studies because older data and practices are not comparable to current data and practices.

Additionally, the Institute for Defense Analyses’ cost-benefit analysis reviewed a study previously conducted by Tufts University in 2015 to determine whether the ADM capability’s sunk costs were of an appropriate magnitude. In its review, the Institute for Defense Analyses concluded that the Tufts University assessment was reasonable, and provided a brief explanation of the Tufts University sunk-cost analysis, stating that the 2015 Tufts University assessment demonstrated that the costs of building the facility were within the expected bounds for the project. The 2015 Tufts University sunk-cost analysis may provide additional information in understanding the degree to which “the manufacturing and privately financed construction” of the DOD ADM facility is justified.

Agency Comments

We are not making any recommendations in this report. DOD and HHS reviewed a draft of this report and provided us with technical comments, which we incorporated where appropriate.

We are sending copies of this report to the appropriate congressional committees, Secretaries of Defense and Health and Human Services; the Under Secretary of Defense for Acquisition, Technology, and Logistics; the Assistant Secretary of Defense for Nuclear, Chemical, and Biological Defense Programs; the Deputy Assistant Secretary of Defense for Chemical and Biological Defense; the Chairman of the Joint Chiefs of Staff; the Secretary of the Army; and the Directors, Institute for Defense Analyses and Office of Management and Budget.

If you or your staff have any questions concerning this report, please contact Joseph W. Kirschbaum at (202) 512-9971 or KirschbaumJ@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix IV.

Appendix I: Objectives, Scope, and Methodology

This report is a public version of a sensitive report that we issued in May 2017. The Departments of Defense (DOD) and Health and Human Services (HHS) deemed some of the information in our May report to be sensitive, which must be protected from public disclosure. Therefore, this report omits sensitive information about DOD’s advanced development and manufacturing (ADM) facility and HHS’s three Centers for Innovation in Advanced Development and Manufacturing (CIADM) facilities. Although the information provided in this report is more limited, the report addresses the same objectives as the sensitive report and uses the same methodology.

In this report, we (1) describe the information that DOD included in its report to address the six elements required by the National Defense Authorization Act for Fiscal Year 2016, and (2) present additional information related to each element that may be useful to Congress in its oversight role regarding DOD’s ADM capability.

To address our objectives, we compared the six elements required by the National Defense Authorization Act for Fiscal Year 2016 with DOD’s report to Congress to meet the congressional mandate and with the cost- benefit analysis included in the 2016 DOD-commissioned Institute for Defense Analyses report to DOD that was also submitted to Congress. We reviewed DOD’s report, the cost-benefit analysis conducted for DOD by the Institute for Defense Analyses and incorporated into DOD’s report, and documents from the Institute for Defense Analyses that supported its study. Additionally, we interviewed and obtained documentation from officials from relevant organizations within both DOD and HHS as follows:

Office of the Under Secretary of Defense for Acquisition, Technology,

Office of the Assistant Secretary of Defense for Nuclear, Chemical, and Biological Defense Programs

Office of the Deputy Assistant Secretary of Defense for Chemical and Biological Defense/Chemical and Biological Defense Program Joint Science and Technology Office for Chemical and Biological Defense Joint Requirements Office for Chemical and Biological Defense

Office of the Assistant Secretary for Acquisition, Logistics, and

Office of the Deputy Chief of Staff for Programming (G-8)

Joint Program Executive Office for Chemical and Biological Defense

Medical Countermeasure Systems Joint Project Manager Federally Funded Research and Development Center: Department of Health and Human Services:

Office of the Assistant Secretary for Preparedness and Response

Biomedical Advanced Research and Development Authority

Public Health Emergency Medical Countermeasures Enterprise Additionally, we conducted site visits to compare the DOD ADM facility with the HHS CIADM facilities. Specifically, we visited the DOD ADM facility operated by Nanotherapeutics in Alachua, Florida, and two of HHS’s three CIADM facilities—the CIADMs operated by Texas A&M University System in College Station, Texas, and by Emergent BioSolutions, Inc., in Baltimore, Maryland. We also obtained relevant documentation regarding all three contract organizations, about their facilities, relevant technologies, and their contracts with DOD and HHS. Due to the sensitive nature of the contract negotiations underway at the time of our audit work, we were unable to visit or otherwise meet with officials from HHS’s third CIADM facility in Holly Springs, North Carolina, which at the time was contracted to Novartis Aktiengesellschaft. In lieu of this site visit, we met with senior officials from HHS’s Office of the Assistant Secretary for Preparedness and Response to discuss the North Carolina CIADM facility. In late December 2016, HHS informed us that bioCSL/Seqirus had become recognized by the federal government as the owner and operator of the HHS CIADM facility in Holly Springs, North Carolina. We compared the information we obtained through these visits with information from DOD’s October 2016 report to Congress with the initial criteria laid out in the National Defense Authorization Act for Fiscal Year 2016.

To further assess the extent to which DOD had conducted an independent cost-benefit analysis of the ADM facility, we reviewed the cost-benefit analysis conducted for DOD by the Institute for Defense Analyses using key characteristics of an economic analysis based on principles and guidance from the Office of Management and Budget (e.g., Circular A-94) and other sources. Such key characteristics include: (1) objective and scope, (2) alternatives, (3) analysis of effects, (4) sensitivity analysis, and (5) documentation. For example, for the objective and scope element, we examined the extent to which the analysis clearly stated its objective and the question that it intended to address. For the alternatives characteristic, we examined the extent to which the analysis considered all relevant alternatives, including, that of no action. For the analysis of effects characteristic, we examined the extent to which analysis quantified and assigned a monetary value to the benefits and costs using the concept of opportunity cost. For the sensitivity analysis characteristic, we examined the extent to which the analysis explicitly addressed how plausible adjustments to each important analytical choice and assumption affected the estimates of benefits and costs. Finally, for the documentation characteristic, we examined the extent to which the analysis was clearly written, with a plain language summary and transparent tables that describe the data used and the results, and a conclusion that is consistent with the results. In addition, we interviewed DOD and Institute for Defense Analyses officials to obtain information about the analysis. Further, we interviewed officials from DOD, HHS, the DOD ADM facility, and two of the three HHS CIADMs to obtain information about medical countermeasures manufacturing facilities.

The performance audit upon which this report is based was conducted from June 2016 to May 2017 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and concluding observations based on our audit objectives. We subsequently worked with DOD and HHS in June 2017 to prepare this unclassified version of the original sensitive report for public release. This public version was also prepared in accordance with these standards.

Appendix II: The Department of Defense’s Advanced Development and Manufacturing Facility, a Public-Private Partnership

The Department of Defense (DOD) advanced development and manufacturing (ADM) facility is a 180,000 square-foot biologics ADM facility located in Alachua, Florida. It was created in 2013 through a public-private partnership between DOD and Nanotherapeutics, Inc., a private-sector biopharmaceutical company hereinafter referred to as Nanotherapeutics. According to ADM program office and contractor officials, Nanotherapeutics, paid for the construction of the building and DOD paid for the design and equipment. Upon completion of the base period (i.e., the period in which the facility will be built by the contractor and accepted by DOD) for DOD’s contract with Nanotherapeutics, DOD is to have priority access to the facility in exchange for an annual sustainment payment (paid monthly, according to ADM contractor officials) if the department chooses to exercise the optional contract periods. Figure 3 shows an external view of DOD’s ADM facility.

The facility has two biological safety level (BSL)-3 manufacturing suites compliant with Current Good Manufacturing Practices, with a total of four production lines. It sits within a secured perimeter monitored by motion- activated infrared cameras. Some initial capabilities came online in August 2016, and DOD officials said that the facility became fully operational in March 2017.

The facility was constructed with potential expansion in mind. The facility includes an unfinished space where—according to ADM program office and contractor officials—two additional manufacturing suites can be built with DOD’s permission. Further, the facility sits on an approximately 29-acre site that provides room for the expansion of the building, a portion of which may be used for an additional manufacturing suite, according to an ADM program official. According to the contractor, expansion into the unfinished interior space is solely at the discretion of DOD, which owns the space, while Nanotherapeutics has the right to choose to expand the building at its own initiative, without DOD approval. Two images of DOD’s ADM facility were redacted because DOD deemed the images to be sensitive and for official use only.

According to representatives from Nanotherapeutics, the facility has two separate outside electricity feeds for redundancy, and has a backup generator that can meet the facility’s electricity needs for up to 4 days (see fig. 4). The BSL-3 area has its own independent, high-efficiency particulate air-filtered, air-handling systems.

The facility has a chilled water generator, as well as water purifying systems that include a system to provide purified water and another system to provide and dispense water for injection, used in the manufacturing of drug products and, according to Nanotherapeutics officials, DOD owns the manufacturing equipment (see fig. 5) as well as some building infrastructure, such as the facility’s heating, ventilation, and air conditioning systems.

The facility employs single-use technology, in the form of the GE Healthcare LifeSciences’ FlexFactory biomanufacturing platform, to provide more flexible manufacturing that reduces downtime between production runs. The facility can support manufacturing from 4.5 liters to multiple 1,000-liter production lines and uses 50- to 500-liter bioreactors. Nanotherapeutics officials told us that, although the facility is advertised to handle up to 1,000-liter bioreactors, the manufacturing space can handle 2,000-liter bioreactors in certain areas with taller ceiling spaces. Figure 6 shows a bioreactor (bottom right), a device in which living cells synthesize useful substances; a fermentor (left), used in the production of biologics to cultivate microorganisms, such as bacteria; and an autoclave (top right) for steam sterilization through the exposure of items to a certain temperature or pressure for a specified period of time. The autoclave shown below is used to minimize cross-contamination in quality control testing.

In March 2016, Nanotherapeutics sold the property associated with the ADM facility to a real estate investment trust, renting the property back from the trust under a 15-year lease. The sales agreement does not include DOD-owned property at the location, which—according to ADM contractor officials—includes the building’s heating, ventilation, and air conditioning systems. According to Nanotherapeutics executives, this sale-and-leaseback was executed to reduce the financial costs to the contractor resulting from the debt associated with building the facility.

Appendix III: Department of Health and Human Services’ Center for Innovation in Advanced Development and Manufacturing Facilities, Public-Private Partnerships

The Department of Health and Human Services (HHS) has three Centers for Innovation in Advanced Development and Manufacturing (CIADM) facilities located in Texas, Maryland, and North Carolina. The CIADMs are intended to support HHS’s flexible manufacturing of medical countermeasures by providing: (1) surge capacity for manufacturing the pandemic influenza vaccine; (2) core services for the development of chemical, biological, radiological, and nuclear medical countermeasures; and (3) workforce training. The three HHS CIADMs are public-private partnerships between the federal government and contractors, with contracts that involve cost sharing between HHS and each contractor during each contract’s initial phase, or “base period” (i.e., the period in which the facility will be built by the contractor and accepted by HHS). According to HHS officials, though there are commonalities, HHS negotiated each CIADM contract separately, and so each has different terms.

The HHS CIADMs may serve as alternatives for the Department of Defense (DOD) advanced development and manufacturing (ADM) capability once the CIADMs achieve readiness, according to DOD and HHS officials. The following is contractor and cost information for HHS’s three CIADMs in Texas, Maryland, and North Carolina. Some details about the three CIADMs were redacted because HHS deemed the information to be sensitive and for official use only.

Location: Contractor: Cost to HHS: Cost to Contractor: Base period ends: College Station, Texas Texas A&M University System $176.7 million $108.9 million December 31, 2017 See figure 7 for a photograph of the Texas A&M facilities.

Location: Contractor Cost to HHS: Cost to Contractor: Base period ends: Baltimore, Maryland Emergent BioSolutions, Inc. $163.2 million $58.6 million June 14, 2020 Figure 8 shows the Emergent CIADM as it should look upon its completion in 2017.

Emergent informed us that the company is interested in DOD medical countermeasures contracts. An Emergent official noted that the company already produces an auto-injector and several other products for DOD. Emergent also informed us that the company has interest in providing priority access to DOD, though Emergent officials told us that this interest would depend on the specifics of DOD’s needs, and the compensation DOD is willing to provide in exchange for that priority access.

Cost to HHS: Cost to Contractor: Base period ends: Holly Springs, North Carolina Originally Novartis AG, as of December 2016, bioCSL/Seqirus $59.8 million $26.3 million December 31, 2016 The North Carolina CIADM was created out of a partnership between HHS and Novartis AG (hereafter referred to as Novartis), an international pharmaceutical manufacturer headquartered in Switzerland. Costs and ownership were shared between HHS and Novartis; HHS officials informed us that the government has a 40-percent stake in the facility. During our review, we were informed by HHS officials that HHS was involved in sensitive contract negotiations involving the CIADM following the sale of Novartis’ influenza vaccine business to CSL Limited, an Australian pharmaceutical manufacturer. As such, we discussed this facility only with HHS officials rather than speaking with officials from—or visiting—the North Carolina CIADM facility. In December 2016, HHS officials informed us that HHS had resolved its CIADM contract negotiations with Novartis AG and bioCSL/Seqirus. Seqirus is now recognized by the federal government as the owner and operator of the HHS CIADM facility in Holly Springs, North Carolina.

Appendix IV: GAO Contact and Staff Acknowledgments

GAO Contact

Staff Acknowledgments

In addition to the contact named above, GAO staff who made key contributions on this report include Mark A. Pross, Assistant Director; Michele Fejfar; Ashley Grant; Timothy Guinane; Mae Jones; Amie Lesser; Bethann E. Ritter Snyder; Sabrina Streagle; Paola Tena; and Edwin Yuen.