To determine what factors contributed to the failure of ASPR’s procurement effort with VaxGen, we interviewed officials from HHS’s components—ASPR, NIAID, the Food and Drug Administration (FDA), and the Centers for Disease Control and Prevention (CDC). In addition, we reviewed documents these agencies provided. We visited and interviewed the officials of the two companies—Avecia and VaxGen—that NIAID contracted with to develop the new rPA anthrax vaccine. We also talked to officials of several biotech companies that are currently working on biodefense medical countermeasures. We consulted with a small group of experts in the manufacturing of biodefense vaccines to ensure that our assessments were accurate. Finally, we reviewed scientific literature on vaccine development, manufacturing, and safety and efficacy, including regulatory requirements for licensing. To identify issues associated with using the licensed anthrax vaccine (BioThrax) in the stockpile, we interviewed officials from ASPR, CDC, and DOD. In addition, we reviewed documents these agencies provided and analyzed data on stockpile inventory of the licensed anthrax vaccine. We visited and interviewed officials from Emergent Biosolutions, the company that manufactures the licensed anthrax vaccine. We also talked to officials of several biotech companies that are currently working on biodefense medical countermeasures to obtain their views on ways to minimize waste in the stockpile. We conducted our review from June 2007 through August 2007 in accordance with generally accepted government auditing standards. Following the anthrax attacks of 2001, the federal government determined that it would need additional medical countermeasures (for example, pharmaceuticals, vaccines, diagnostics, and other treatments) to respond to an attack involving chemical, biological, radiological, or nuclear (CBRN) agents. 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 CBRN agents. The act also authorizes HHS to procure these countermeasures for the Strategic National Stockpile. Project BioShield is a procurement program that allows the government to enter into contracts to procure countermeasures while they still are in development, up to 8 years before product licensure is expected. Under this program, the government agrees to buy a certain quantity of successfully developed countermeasures for the Strategic National Stockpile at a specified price once the countermeasure meets specific requirements. The government pays the agreed-upon amount only after these requirements are met and the product is delivered to the Strategic National Stockpile. If the product does not meet the requirements within the specified time frame, the contract can be terminated without any payment to the contractor. Thus, while Project BioShield reduces the producer’s market risk—that is, the possibility that no customer will buy the successfully developed product—it does not reduce the development risk to the producer—that is, the possibility that the countermeasure will fail during development. In December 2006, the Pandemic and All-Hazards Preparedness Act (Public Law 109-417) modified the Project BioShield Act to allow for milestone-based payments before countermeasure delivery for up to half of the total award. Within HHS, the Biomedical Advanced Research and Development Authority (BARDA) has the authority to directly fund the advanced development of countermeasures that are not eligible for Project BioShield contracts. Project BioShield procurement involves actions by the Department of Homeland Security (DHS), HHS (including ASPR, NIAID, FDA, and CDC), and an interagency working group. The first step in the Project BioShield acquisition process is to determine whether a particular CBRN agent poses a material threat to national security. DHS performs this analysis, which is generally referred to as a population threat assessment (PTA). On the basis of this assessment, the DHS Secretary determines whether that agent poses a material threat to national security. The Project BioShield Act of 2004 requires such a written PTA for procurements using BioShield funds and authorities. This declaration neither addresses the relative risk posed by an agent nor determines the priority for acquisition, which is solely determined by ASPR. Furthermore, the issuance of a PTA does not guarantee that the government will pursue countermeasures against that agent. DHS has issued PTAs for 13 agents, including the biological agents that cause anthrax; multi-drug-resistant anthrax; botulism; glanders; meliodosis; tularemia; typhus; smallpox; plague; and the hemorrhagic fevers Ebola, Marburg, and Junin. Various offices within HHS (ASPR, NIAID, FDA, and CDC) 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, 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 EUA 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 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 stored in the Strategic National Stockpile. The Omnibus Consolidated and Emergency Supplemental Appropriations Act (Public Law 105-277) first provided the stockpile with a fund specially appropriated for purchases. Since then, CDC has maintained this civilian repository of medical countermeasures, such as antibiotics and vaccines. 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 for deployment 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. Multiple agencies, including HHS and DHS, provide input on priority- setting and requirements activities. For BioShield purchases, the Secretaries of HHS and DHS prepare a joint recommendation, which requires presidential approval before HHS enters into a procurement contract. The Secretary of HHS currently coordinates the interagency process; the National Science and Technology Council previously handled the coordination. Anthrax is a rare but serious acute infectious disease that must be treated quickly with antibiotics. Anthrax is caused by the spore-forming bacterium Bacillus anthracis. It occurs most commonly in herbivores in agricultural regions that have less effective veterinary and public health programs. Anthrax can infect humans who have been exposed to infected animals or products from infected animals such as hide, hair, or meat. Human anthrax occurs rarely in the United States from these natural causes. However, the anthrax exposures in September and October 2001 through mail intentionally contaminated with anthrax spores resulted in illness in 22 persons and the death of 5. An FDA-licensed anthrax vaccine, BioThrax, has been available since 1970. The vaccine has been recommended for laboratory workers who are involved in the production of cultures of anthrax or who risk repeated exposure to anthrax by, for example, conducting confirmatory or environmental testing for anthrax in the U.S. Laboratory Response Network for Bioterrorism laboratories; persons who may be required to make repeated entries into known Bacillus anthracis contaminated areas after a terrorist attack, such as remediation workers; and persons who work with imported animal hides, furs, or similar materials, if the industry standards and restrictions that help to control the disease are insufficient to prevent exposure to anthrax spores. Preventive anthrax vaccine is not recommended for civilians who do not have an occupational risk. However, in 1998, DOD began a mandatory program to administer the vaccine to all military personnel for protection against possible exposure to anthrax-based biological weapons. By late 2001, roughly 2 million doses of the vaccine had been administered, most of them to U.S. military personnel. As the vaccination program proceeded, some military personnel raised concerns about the safety and efficacy of the vaccine. 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 officials characterized the acquisition of the licensed vaccine as a “stopgap” measure as they also have been engaged in the development and purchase of a new rPA anthrax vaccine. ASPR had already acquired 10 million doses of BioThrax from Emergent BioSolutions by 2006 and recently purchased an additional 10 million doses. Vaccine research and development leading to FDA approval for use is a long and complex process. It may take 15 years and, according to FDA, cost from $500 million to $1.2 billion and require specialized expertise. Vaccines are complex biological products given to a person or animal to stimulate an immune reaction the body can “remember” if it is exposed to the same pathogen later. In contrast to most drugs, they have no simple chemical characterization. As a result, evaluating them involves measuring their effects on living organisms, and their quality can be guaranteed only through a combination of in-process tests, end-product tests, and strict controls of the entire manufacturing process. Vaccines are highly perishable and typically require cold storage to retain potency. Even if they are stored at the recommended temperature, most vaccines have expiration dates beyond which they are considered outdated and should not be used. A great deal of attention is directed to using the vaccine before its expiration date. For example, a recent CDC manual advises users: “Check expiration date on container” and “rotate stock so that the earliest dated material is used first.” After the storage vial has been opened, the vaccine begins to deteriorate quickly in many cases, often necessitating the opened or reconstituted vaccine to be used within minutes to hours or discarded.” Since human challenge studies cannot be conducted for CBRN medical countermeasures, FDA requires animal efficacy data instead. The FDA process for approving a biologic for use in the United States begins with an investigational new drug (IND) application. A sponsor that has developed a candidate vaccine applies to start the FDA oversight process of formal studies, regulated by CBER within FDA. Phase 1 trials involve safety and immunogenicity studies in a small number of healthy volunteer subjects. phase 2 and phase 3 trials gather evidence of the vaccine’s effectiveness in ever larger groups of subjects, providing the documentation of effectiveness and important additional safety data required for licensing. If the data raise safety or effectiveness concerns at any stage of clinical or animal studies, FDA may request additional information or halt ongoing clinical studies. In vaccine development, clinical trials typically last up to 6 years. After they have been successfully completed, the sponsor applies for FDA’s approval to market the product. FDA’s review of the license application includes review of the manufacturing facility and process. According to FDA, this process is typically completed within 10 months for a standard review and 6 months for a priority review. According to industry sources, the challenge in scaling up vaccine production from a research laboratory to a large manufacturing environment while still maintaining quality requires much skill, sophisticated facilities, and a great deal of experience. 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. 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, 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. (For a time line of events for the first rPA anthrax vaccine development and procurement effort, see appendix I). In response to the anthrax attacks of 2001, NIAID was assigned responsibility for developing candidate vaccines leading up to licensure, purchase, and storage in the stockpile. NIAID envisioned a strategy of minimizing risk by awarding contracts to multiple companies to help ensure that at least one development effort would be successful. NIAID’s strategy was appropriate since failure is not uncommon in vaccine development. Toward this end, NIAID designed a sequence of two contracts—one to follow the other—to advance pilot lots of rPA anthrax vaccine through early characterization work, phase 1 and phase 2 clinical trials, accelerated and real-time (long-term) stability testing, and tasks to evaluate the contractor’s ability to manufacture the vaccine in large quantities according to current Good Manufacturing Practices (cGMP). Additionally, these contracts were cost reimbursable, an appropriate contracting mechanism when uncertainties involved in contract performance do not permit cost to be estimated with sufficient accuracy to use a fixed-price contract. VaxGen was one of the awardees. The other awardee was Avecia, Ltd., of Manchester, United Kingdom. NIAID’s development effort with Avecia to prepare a candidate rPA anthrax vaccine for potential purchase for the stockpile is ongoing. VaxGen’s first development contract, awarded in September 2002, had three major requirements: characterize the chemical composition of the pilot lot; conduct phase 1 clinical trials to determine the basic safety profile of the vaccine; and produce a feasibility plan to manufacture, formulate, fill and finish, test, and deliver up to 25 million doses of cGMP vaccine. The initial period of performance for this first contract was 15 months, to be completed in September 2003. However, NIAID twice extended the period of performance to accommodate problems, including stability testing. The final completion date of the contract was December 2006. The second development contract was awarded to VaxGen in September 2003 to continue development of its vaccine. This contract covered 36 months and was scheduled to end in October 2006. Three of the major requirements were to (1) manufacture, formulate, fill, finish, release, and deliver 3 million to 5 million doses of vaccine from at least three different lots that met cGMP requirements; (2) develop, implement, and execute accelerated and real-time stability testing programs to ensure the safety, sterility, potency, and integrity of the vaccine; and (3) conduct phase 2 clinical trials. This second development contract covered especially critical steps in the development cycle. For example, only during the phase 2 trials is the vaccine given to a large enough number of human subjects to further project its safety. Under the contract, phase 2 clinical trials, which were to determine the optimum dose and dosing regimen, were expected to take 2 years to complete. This second contract also covered accelerated and real-time stability testing programs to ensure the safety, sterility, potency, and integrity of the vaccine. Vaccines, especially those intended to be stockpiled, need to exhibit the necessary stability to ensure they will remain safe and potent for the required storage period. In early 2004, VaxGen’s product entered particularly critical stages of development and scale-up production. According to industry officials we talked to, the challenge in scaling up vaccine production from a research pilot lot to a large manufacturing environment while still maintaining quality is not trivial. It requires a great deal of skill, sophisticated facilities, and experience. The officials also stated that work on the vaccine at this point would have been expected to take multiple years to complete, during which time the contractor would work back and forth with FDA in evaluating, testing, and then reworking both its product and manufacturing capability against criteria for eventual licensure. 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. ASPR officials at the time of the award had no objective criteria, such as Technology Readiness Levels (TRL), to assess product maturity. They were, however, optimistic 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. ASPR now estimates that prior to award, the rPA vaccine was at a TRL rating of 8. According to industry experts, a candidate vaccine product at such a level is generally expected to be 5-8 years away from completion and to have only a 30 percent chance of development into a successful vaccine. 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. However, November 2004 was 3 years after the anthrax attacks in 2001, and while the sense of urgency was still important, it could have been tempered with realistic expectations. 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 that, in their opinions, 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 contract with VaxGen to free up funds for earlier milestones that VaxGen was having trouble meeting. However, this undermined VaxGen’s ability to refine product development up to the level needed to ensure delivery within the 2-year time frame required under 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. 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 of initiating 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. While it is not known how a larger pharmaceutical company might have fared under similar time constraints, we believe more established pharmaceutical companies have staff and resources better able to handle the inevitable problems that arise in vaccine development and licensure efforts. For example, according to industry experts, a large firm might be able to leverage an entire internal department to reformulate a vaccine or pursue solutions to a stability issue, while a smaller biotechnology company like VaxGen would likely be unable to use more than a few full-time scientists. In such situations, the smaller company might have to contract out for the necessary support, provided it can be found within a suitable time frame. 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. The lack of available technical expertise was exacerbated when key staff at the company began leaving. A senior VaxGen official described the attrition problem as “massive.” Of special significance, VaxGen’s Senior Vice President for Research and Development and Chief Scientific Officer left during critical phase 2 trials. An official at VaxGen described this person’s role as key in both development of the assays and reformulation of the vaccine. 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. 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. In such a firm, fixed-price contractual arrangement, the contractor assumes most of the risk because the price is not subject to any adjustment based on the contractor’s cost experience. Thus, even if the contractor costs go up, the delivery price does not. We believe these contracts are appropriate in situations where there are no performance uncertainties or the uncertainties can be identified and reasonable estimates of their cost impact can be made, but this was not the situation in the VaxGen procurement contract. VaxGen had to be 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. 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, purchase 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. Criteria for product acceptance need to be clearly articulated and understood by all parties before committing to a major procurement. Terms of art that leave critical requirements unclear are problematic in contract language. 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. 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 is dependent on the accumulation and submission of the appropriate data to support the “use of the product (under IND) in a postexposure situation.” 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.” While VaxGen and FDA had monthly communication, according to FDA, 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. The EUA guidance—as directed by the BioShield law—eased both informed consent and reporting requirements. This makes sense in terms 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 further along the path 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. 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. Under the EUA statute, FDA must determine on the basis of the specific facts presented whether it is necessary and appropriate to authorize use of a specific product in an emergency. 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 the assessment of potential risks and benefits from use of 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. In late 2005, as VaxGen was preparing for the second phase 2 trial and well into its period of performance under the procurement contract, its officials participated in meetings, primarily with FDA but also with ASPR and NIAID representatives, to receive FDA comments on its product development plans and responses to specific requests for regulatory advice. VaxGen needed to have a clear understanding of FDA’s data and testing requirements for the rPA vaccine for the upcoming phase 2 trial to be able to plan for and implement the necessary clinical and nonclinical work to generate that data. Without it, VaxGen did not have adequate means to determine how far along it was toward meeting FDA’s requirements. However, in these meetings, it became clear that FDA and the other parties had different expectations for the next phase 2 trial. FDA officials concluded from the discussion that VaxGen, ASPR, and CDC anticipated the next phase 2 trial to produce meaningful safety and efficacy data to support use of the vaccine in a contingency protocol under IND. However, FDA officials stated that this was a new idea to the agency. 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. The lack of a definition of concept of use 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. 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. After discussions between VaxGen and FDA, VaxGen concluded that this raised the bar for its rPA vaccine. Although BioThrax is currently licensed for use in pre-exposure, and not postexposure, scenarios, the draft EUA guidance states that FDA will evaluate each EUA candidate’s safety and efficacy profile. 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.” 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 had been deployed.” This diminished the likelihood of a scenario where the rPA vaccine might be expected to be used out of the stockpile. 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, 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. 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 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. 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. 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. 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. We provided a draft of this report to the Department of Health and Human Services and the Department of Defense for review and comment. HHS and DOD provided written comments on our draft, which are reprinted in appendixes II and III, respectively. Both agencies also provided technical comments, which we have addressed in the report text as appropriate. HHS and DOD generally concurred with our recommendations. However, with regard to our recommendation on an integrated stockpile, they identified funding and 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 and funding issues, both authorities could apply to either DOD or HHS; consequently, indemnity does not appear to be an insurmountable obstacle for future procurements. HHS also disagreed with a number of our specific findings. We have addressed these areas of disagreement in detailed comments in appendix II. We are sending copies of this report the Secretary of the Department of Defense and the Secretary of the Department of Health and Human Services. We are also sending a copy of this report to other interested congressional members and committees. In addition, the report will be available at no charge on GAO’s Web site at http://www.gao.gov. If you or your staffs have any questions about this report or would like additional information, please contact me at (202) 512-6412 or rhodesk@gao.gov, or Sushil K. Sharma, Ph.D., Dr.PH, at (202) 512-3460 or sharmas@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 major contributions to this report included Noah Bleicher, William Carrigg, Barbara Chapman, Crystal Jones, Jeff McDermott, and Linda Sellevaag. National Institute of Allergy and Infectious Diseases (NIAID) issues first rPA anthrax vaccine request for proposal (RFP). NIAID awards rPA contracts to Avecia and VaxGen for first RFP. NIAID issues second rPA anthrax vaccine RFP. Health and Human Services (HHS) issues request for information (RFI) for large-scale manufacturing capabilities for next generation anthrax vaccines. NIAID awards Avecia and VaxGen contracts for second rPA RFP. HHS issues Strategic National Stockpile rPA anthrax vaccine RFP. President George W. Bush signs Project BioShield into law. HHS awards Strategic National Stockpile contract to VaxGen for rPA anthrax vaccine procurement. HHS awards Emergent Strategic National Stockpile contract for 5 million doses of BioThrax Vaccine. Food and Drug Administration (FDA) issues draft Guidance for Emergency Use Authorization of Medical Products. NIAID issues RFP for third-generation anthrax vaccine. HHS issues broad RFI regarding Technology Readiness Levels for medical countermeasures. HHS issues draft Public Health Emergency Medical Countermeasure Enterprise (PHEMCE) Strategy. FDA issues clinical hold notice on Vaxgen’s trial. HHS issues “cure” notice on VaxGen. HHS terminates contract with VaxGen for rPA anthrax vaccine. NIAID cancels RFP for third-generation anthrax vaccine. HHS issues PHEMCE Strategy. HHS issues PHEMCE Implementation Plan. Biomedical Advanced Research and Development Authority (BARDA) releases presolicitation notice for BioThrax. BARDA releases sources sought notice for rPA vaccine. The following are GAO’s comments on the Department of Health and Human Services’ letter dated October 4, 2007. 1. Our draft report acknowledged the Office of the Assistant Secretary for Preparedness and Response’s (ASPR) sense of urgency to develop an rPA anthrax vaccine following the 2001 attack. However, our report also stated that by November 2004, ASPR had had sufficient time and opportunity to thoroughly evaluate contractual risks and issues without being overly influenced by the sense of urgency. By November 2004, it was clear that significant manufacturing issues needed to be overcome and that a 2-year time scale to produce 25 million doses was accordingly unrealistic. 2. We agree that ASPR has taken several steps to develop and communicate its strategy and plans to acquire medical countermeasures to potential manufacturers. In addition, HHS has conducted several workshops to stimulate discussion with potential manufacturers. However, these steps were taken just before or after VaxGen’s procurement contract was terminated. While we reviewed the HHS Public Health Emergency Medical Countermeasures Enterprise Strategy and Implementation Plan for Chemical, Biological, Radiological, and Nuclear Threats, we did not find these documents to be relevant to our evaluation of ASPR’s performance with regard to VaxGen’s procurement contract. 3. ASPR’s definition of the concept of use refers, as expressed in its comments, to the anthrax vaccine in combination with antibiotics as post- exposure prophylaxis. However, our report discusses the potential use of the unlicensed rPa vaccine in the stockpile when the licensed anthrax vaccine was already available. We cite the Food and Drug Administration’s position that it would give preference to the licensed vaccine over the unlicensed vaccine. With regard to critical requirements, HHS acknowledged that critical requirements would change for different products. Therefore, HHS should have known the consequences of changing requirements for a fixed-price contract with a 2-year time limit. 4. We agree with HHS that it is not always possible to know the exact regulatory specifications for a product at the beginning of the procurement process. However, ASPR failed to recognize that changing requirements under a fixed-price procurement contract could significantly affect the finances and the 2-year delivery time line it established. 5. The acting director of ASPR told us that the principal deputy of ASPR had decided not to destroy the expired lots in case they were needed for use in an emergency. However, using the expired vaccine would violate the FDA rule. In response to the draft of this report, HHS now states that it is quarantining the expired lots until a decision can be made regarding disposal. We do not understand HHS’s rationale for continuing to hold the vaccine in quarantine for nearly a year and the justification for the administrative expenses involved. 6. Although HHS and the Department of Defense (DOD) use different authorities to address BioThrax liability and funding issues, both authorities could apply to vaccines purchased by either DOD or HHS; consequently, indemnity does not appear to be an insurmountable obstacle for future procurements. As indicated in our report, DOD and HHS should continue to explore the legal implications of different indemnity authorities and present a legislative proposal to Congress if they determine that a statutory change is required to establish a joint inventory. 7. Since, as ASPR acknowledges, it does not have a strategy to minimize waste, we calculated the potential $100 million annual wastage based on expiration dates of the current vaccine inventory. ASPR stated that the annual saving would only be up to $25 million per year but did not provide any basis for this estimate. However, according to DOD, in contract year 2006, it purchased BioThrax valued at about $55 million, a savings of more than double ASPR’s estimate. A strategy to minimize waste in the stockpile should include not only integration of inventory based on a first-in, first-out principle but also reexamination of requirements derived from consequence modeling with regard to the size of the inventory. Such a strategy would result in savings closer to $100 million. 8. We did not mean to suggest that all expired products represent waste or lost investment. We clarified our definition of waste in the report. When there is a large-volume user for the stockpile product, not having an effective strategy to ensure that stockpile product would be used constitutes waste. However, since DOD is a large user of BioThrax, unnecessary waste will result from ASPR not making an effort to ensure that to the extent possible, DOD uses the vaccine in the stockpile. 9. We did not question the legality of the contract award to VaxGen but rather the rationale underlying the contract’s requirement for 25 million doses in 2 years. 10. ASPR officials told us that they did not have tools to assess product maturity at the time of the contract award, and that they were guided by a sense of urgency. On the basis of these statements, we concluded that their assessment was subjective. 11. We disagree that the VaxGen Project BioShield award did not preempt other support for product development that was being provided to VaxGen through its National Institute of Allergy and Infectious Diseases contract. According to our analysis of the contract document and discussions with NIAID officials, funding under the development contract largely ceased once the procurement contract was awarded. 12. We clarified the report text to attribute to VaxGen officials the statement that the purchase of BioThrax for the stockpile as a stopgap measure raised the bar for the VaxGen vaccine. 13. Our draft report did not say that HHS changed the requirements for the VaxGen rPA vaccine. However, we have clarified the text to state that purchase of BioThrax for the stockpile raised the requirement for the use of rPA anthrax vaccine. 14 We clarified the report text to indicate that neither FDA nor VaxGen understood the concept of use prior to January 2006. 15. We clarified the report text to indicate that 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.” 16. See our response to comment 8. The following is GAO’s comment on the Department of Defense’s letter dated October 3, 2007. 1. Although HHS and DOD use different authorities to address BioThrax liability, both authorities could apply to vaccines purchased by either DOD or HHS; consequently, indemnity does not appear to be an insurmountable obstacle for future procurements. As indicated in our report, DOD and HHS should continue to explore the legal implications of different indemnity authorities and present a legislative proposal to Congress if they determine that a statutory change is required to establish a joint inventory.

Summary: 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 identify (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. 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 Department of Defense (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 which 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.