[Congressional Record Volume 149, Number 44 (Wednesday, March 19, 2003)]
[Senate]
[Pages S4009-S4017]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. LIEBERMAN (for himself and Mr. Hatch):
  S. 666. A bill to provide incentives to increase research by private 
sector entities to develop antivirals, antibiotics and other drugs, 
vaccines, microbicides, detection, and diagnostic technologies to 
prevent and treat illnesses associated with a biological, chemical, or 
radiological weapons attack; to the Committee on Finance.
  Mr. LIEBERMAN. Mr. President, America has a major flaw in its 
defenses against bioterrorism. Hearings I chaired in the Government 
Affairs Committee on bioterrorism demonstrated that America has not 
made a national commitment to research and development of treatments 
and cures for those who might be exposed to or infected by a biological 
agent, chemical toxin, or radiological material. Correcting this 
critical gap is the purpose of legislation we are introducing today.
  This legislation is a refined and upgraded version of legislation I 
introduced last year, S. 1764, December 4, 2001, and S. 3148, October 
17, 2002, and I am delighted that Senator Hatch has joined me as the 
lead cosponsor of the new bill.
  Obviously, our first priority must be to attempt to prevent the use 
of these agents and toxins by terrorists, quickly assess when an attack 
has occurred, take appropriate public health steps to contain the 
exposure, stop the spread of contagion, and then detoxify the site. 
These are all critical functions, but in the end we must recognize that 
some individuals may be exposed or infected. Then the critical issue is 
whether we can treat and cure them and prevent death and disability.
  In short, we need a diversified portfolio of medicines. In cases 
where we have ample advance warning of an attack and specific 
information about the agent, toxin, or material, we may be able to 
vaccinate the vulnerable population in advance. In other cases, even if 
we have a vaccine, we might well prefer to use medicines that would 
quickly stop the progression of the disease or the toxic effects. We 
also need a powerful capacity quickly to develop new countermeasures 
where we face a new agent, toxin, or material.
  Unfortunately, we are woefully short of vaccines and medicines to 
treat individuals who are exposed or infected. We have antibiotics that 
seem to work for most of those infected in the current anthrax attack, 
but these have not prevented five deaths. We have no effective vaccines 
or medicines for most other biological agents and chemical toxins we 
might confront. We have very limited capacity to respond medically to a 
radiological attack. In some cases we have vaccines to prevent, but no 
medicines to treat, an agent. We have limited capacity to speed the 
development of vaccines and medicines to prevent or treat novel agents 
and toxins not currently known to us.
  We have provided, and should continue to provide, direct Federal 
funding for research and development of new

[[Page S4010]]

medicines, however, this funding is unlikely to be sufficient. Even 
with ample Federal funding, many private companies will be reluctant to 
enter into agreements with government agencies to conduct this 
research. Other companies would be willing to conduct the research with 
their own capital and at their own risk but are not able to secure the 
funding from investors.
  The legislation we introduce today would provide incentives for 
private biotechnology companies to form capital to develop 
countermeasures--medicines--to prevent, treat and cure victims of 
bioterror, chemical and radiological attacks. This will enable this 
industry to become a vital part of the national defense infrastructure 
and do so for business reasons that make sense for their investors on 
the bottom line.
  Enactment of these incentives is necessary because most biotech 
companies have no approved products or revenue from product sales to 
fund research. They rely on investors and equity capital markets to 
fund the research. They must necessarily focus on research that will 
lead to product sales and revenue and, thus, to an end to their 
dependence on investor capital. There is no established or predictable 
market for countermeasures. These concerns are shared by pharmaceutical 
firms. Investors are justifiably reluctant to fund this research, which 
will present challenges similar in complexity to AIDS. Investors need 
assurances that research on countermeasures has the potential to 
provide a rate of return commensurate with the risk, complexity and 
cost of the research, a rate of return comparable to that which may 
arise from a treatment for cancer, MS, Cystic Fibrosis and other major 
diseases.
  It is in our national interest to enlist these companies in the 
development of countermeasures as biotech companies tend to be 
innovative and nimble and intently focused on the intractable diseases 
for which no effective medical treatments are available.
  The incentives we have proposed are innovative and some may be 
controversial. We invite everyone who has an interest and a stake in 
this research to enter into a dialogue about the issue and about the 
nature and terms of the appropriate incentives. We have attempted to 
anticipate the many complicated technical and policy issues that this 
legislation raises. The key focus of our debate should be how, not 
whether, we address this critical gap in our public health 
infrastructure and the role that the private sector should play. 
Millions of Americans will be at risk if we fail to enact legislation 
to meet this need.
  On November 26 of 2001, the Centers for Disease Control issued its 
interim working draft plan for responding to an outbreak of smallpox. 
The plan does not call for mass vaccination in advance of a smallpox 
outbreak because the risk of side effects from the vaccine outweighs 
the risks of someone actually being exposed to the smallpox virus. At 
the heart of the plan is a strategy sometimes called ``search and 
containment.''
  This strategy involves identifying infected individual or individuals 
with confirmed smallpox, identifying and locating those people who come 
in contact with that person, and vaccinating those people in outward 
rings of contact. The goal is to produce a buffer of immune individuals 
and was shown to prevent smallpox and to ultimately eradicate the 
outbreak. Priorities would be set on who is vaccinated, perhaps 
focusing on the outward rings before those at the center of the 
outbreak. The plan assumes that the smallpox vaccination is effective 
for persons who have been exposed to the disease as long as the disease 
has not taken hold.
  In practice it may be necessary to set a wide perimeter for these 
areas because smallpox is highly contagious before it might be 
diagnosed. There may be many areas subject to search and containment 
because people in our society travel frequently and widely. Terrorists 
might trigger attacks in a wide range of locations to multiply the 
confusion and panic. The most common form of smallpox has a 30 percent 
mortality rate, but terrorists might be able to obtain supplies of 
``flat-type'' smallpox with a mortality rate of 96 percent and 
hemorrhagic-type smallpox, which is almost always fatal. For these 
reasons, the CDC plan accepts the possibility that whole cities or 
other geographic areas could be cordoned off, letting no one in or 
out--a quarantine enforced by police or troops.
  The plan focuses on enforcement authority through police or National 
Guard, isolation and quarantine, mandatory medical examinations, and 
rationing of medicines. It includes a discussion of ``population-wide 
quarantine measures which restrict activities or limit movement of 
individuals [including] suspension of large public gatherings, closing 
of public places, restriction on travel [air, rail, water, motor 
vehicle, and pedestrian], and/or `cordon sanitaire' [literally a 
`sanitary cord' or line around a quarantined area guarded to prevent 
spread of disease by restricting passage into or out of the area].'' 
The CDC recommends that states update their laws to provide authority 
for ``enforcing quarantine measures'' and it recommends that States in 
``pre-event planning'' identify ``personnel who can enforce these 
isolation and quarantine measures, if necessary.'' Guide C--Isolation 
and Quarantine, page 17.
  On October 23, 2001, the CDC published a ``Model State Emergency 
Health Powers Act.'' It was prepared by the Center for Law and the 
Public's Health at Georgetown and Johns Hopkins Universities, in 
conjunction with the National Governors Association, National 
Conference of State Legislatures, Association of State and Territorial 
Health Officials, National Association of City and County Health 
Officers, and National Association of Attorneys General. A copy of the 
model law is printed at www.publichealthlaw.net. The law would provide 
powers to enforce the ``compulsory physical separation (including the 
restriction of movement or confinement) of individuals and/or groups 
believed to have been exposed to or known to have been infected with a 
contagious disease from individuals who are believed not to have been 
exposed or infected, in order to prevent or limit the transmission of 
the disease to others.'' Federal law on this subject is very strong and 
the Administration can always rely on the President's Constitution 
authority as Commander in Chief.
  Let us try to imagine, however, what it would be like if a quarantine 
is imposed. Let us assume that there is not enough smallpox vaccine 
available for use in a large outbreak, that the priority is to 
vaccinate those in the outward rings of the containment area first, 
that the available vaccines cannot be quickly deployed inside the 
quarantined area, that it is not possible to quickly trace and identify 
all of the individuals who might have been exposed, and/or that public 
health workers themselves might be infected. We know that there is no 
medicine to treat those who do become infected. We know the mortality 
rates. It is not hard to imagine how much force might be necessary to 
enforce the quarantine. It would be quite unacceptable to permit 
individuals to leave the quarantined area no matter how much panic had 
taken hold.
  Think about how different this scenario would be if we had medicines 
that could effectively treat and cure those who become infected by 
smallpox. We still might implement the CDC plan but a major element of 
the strategy would be to persuade people to visit their local clinic or 
hospital to be dispenses their supply of medicine. We could trust that 
there would be a very high degree of voluntary compliance. This would 
give us more time, give us options if the containment is not 
successful, give us options to treat those in the containment area who 
are infected, and enable us to quell the public panic.
  Because we have no medicine to treat those infected by smallpox, we 
have to be prepared to implement a plan like the one CDC has proposed. 
Theirs is the only option because our options are so limited. We need 
to expand our range of options.
  We should not be lulled by the apparent successes with Cipro and the 
strains of anthrax we have seen in the recent attacks. We have not been 
able to prevent death in some of the patients with late-stage 
inhalation anthrax and Robert Stevens, Thomas Morris Jr., Joseph 
Curseen, Kathy Nguyen, and Ottilie Lundgren died. This legislation is 
named in honor of

[[Page S4011]]

them. What we needed for them, and did not have, is a drug or vaccine 
that would treat late stage inhalation anthrax.
  As I have said, we need an effective treatment for those who become 
infected with smallpox. We have a vaccine that effectively prevents 
smallpox infection, and administering this vaccine within four days of 
first exposure has been shown to offer some protections against 
acquiring infection and significant protection against a fatal outcome. 
The problem is that administering the vaccine in this time frame to all 
those who might have been exposed may be exceedingly difficult. And 
once infection has occurred, we have no effective treatment options.
  In the last century 500 million people have died of smallpox--more 
than have from any other infectious diseases--as compared to 320 
million deaths in all the wars of the twentieth century. Smallpox was 
one of the diseases that nearly wiped out the entire Native American 
population in this hemisphere. The last naturally acquired case of 
smallpox occurred in Somalia in 1977 and the last case from laboratory 
exposure was in 1978.
  Smallpox is a nasty pathogen, carried in microscopic airborne 
droplets inhaled by its victims. The first signs are headache, fever, 
nausea and backache, sometimes convulsions and delirium. Soon, the skin 
turns scarlet. When the fever lets up, the telltale rash appears--flat 
red spots that turn into pimples, then big yellow pustules, then scabs. 
Smallpox also affects the throat and eyes, and inflames the heart, 
lungs, liver, intestines and other internal organs. Death often came 
from internal bleeding, or from the organs simply being overwhelmed by 
the virus. Survivors were left covered with pockmarks--if they were 
lucky. The unlucky ones were left blind, their eyes permanently clouded 
over. Nearly one in four victims died. The infection rate is estimated 
to be 25-40 percent for those who are unvaccinated and a single case 
can cause 20 or more additional infections.
  During the 16th Century, 3.5 million Aztecs--more than half the 
population died of smallpox during a two-year span after the Spanish 
army brought the disease to Mexico. Two centuries later, the virus 
ravaged George Washington's troops at Valley Forge. And it cut a deadly 
path through the Crow, Dakota, Sioux, Blackfoot, Apache, Comanche and 
other American Indian tribes, helping to clear the way for white 
settlers to lay claim to the western plains. The epidemics began to 
subside with one of medicine's most famous discoveries: the finding by 
British physician Edward Jenner in 1796 that English milkmaids who were 
exposed to cowpox, a mild second cousin to smallpox that afflicts 
cattle, seemed to be protected against the more deadly disease. 
Jenner's work led to the development of the first vaccine in Western 
medicine. While later vaccines used either a killed or inactivated form 
of the virus they were intended to combat, the smallpox vaccine worked 
in a different way. It relied on a separate, albeit related virus: 
first cowpox and the vaccinia, a virus of mysterious origins that is 
believed to be a cowpox derivative. The last American was vaccinated 
back in the 1970s and half of the US population has never been 
vaccinated. It is not known how long these vaccines provide protection, 
but it is estimated that the term is 3 to 5 years.
  In an elaborate smallpox biowarfare scenario enacted in February 1999 
by the Johns Hopkins Center for Civilian Biodefense Studies, it was 
projected that within two months 15,000 people had died, epidemics were 
out of control in fourteen countries, all supplies of smallpox vaccine 
were depleted, the global economy was on the verge of collapse, and 
military control and quarantines were in place. Within twelve months it 
was projected that eighty million people worldwide had died.
  A single case of smallpox today would become a global public health 
threat and it has been estimated that a single smallpox bioterror 
attack on a single American city would necessitate the vaccination of 
30 to 40 million people.
  The US government is now in the process of purchasing substantial 
stocks of the smallpox vaccine. We then face a very difficult decision 
on deploying the vaccine. We know that some individuals will have an 
adverse reaction to this vaccine. No one in the United States has been 
vaccinated against smallpox in twenty-five years. Those that were 
vaccinated back then may not be protected against the disease today. If 
we had an effective treatment for those who might become infected by 
smallpox, we would face much less pressure regarding deploying the 
vaccine. If we face a smallpox epidemic from a bioterrorism attack, we 
will have no Cipro to reassure the public and we will be facing a 
highly contagious disease and epidemic. To be blunt, it will make the 
current anthrax attack look benign by comparison.
  Smallpox is not the only threat. We have seen other epidemics in this 
century. The 1918 influenza epidemic provides a sobering admonition 
about the need for research to develop medicines. In two years, a fifth 
of the world's population was infected. In the United States the 1918 
epidemic killed more than 650,000 people in a short period of time and 
left 20 million seriously ill, one fourth of the entire population. The 
average lifespan in the US was depressed by ten years. In just one 
year, the epidemic killed 21 million human beings worldwide--well over 
twice the number of combat deaths in the whole of World War I. The flu 
was exceptionally virulent to begin with and it then underwent several 
sudden and dramatic mutations in its structure. Such mutations can turn 
flu into a killer because its victims' immune systems have no 
antibodies to fight off the altered virus. Fatal pneumonia can rapidly 
develop.
  Another deadly toxin, ricin toxin, was of interest to the al-Qaeda 
terrorist network. At an al-Qaeda safehouse in Saraq Panza, Kabul 
reporters found instructions for making ricin. The instructions make 
chilling reading. ``A certain amount, equal to a strong dose, will be 
able to kill an adult, and a dose equal to seven seeds will kill a 
child,'' one page reads. Another page says: ``Gloves and face mask are 
essential for the preparation of ricin. Period of death varies from 3 
to 5 days minimum, 4 to 14 days maximum.'' The instructions listed the 
symptoms of ricin as vomiting, stomach cramps, extreme thirst, bloody 
diarrhea, throat irritation, respiratory collapse and death.
  No specific treatment or vaccine for ricin toxin exists. Ricin is 
produced easily and inexpensively, highly toxic, and stable in 
aerosolized form. A large amount of ricin is necessary to infect whole 
populations--the amount of ricin necessary to cover a 100-km\2\ area 
and cause 50 percent lethality, assuming aerosol toxicity of 3 mcg/kg 
and optimum dispersal conditions, is approximately 4 metric tons, 
whereas only 1 kg of Bacillus anthracis is required. But it can be used 
to terrorize a large population with great effect because it is so 
lethal.
  Use of ricin as a terror weapon is not theoretical. In 1991 in 
Minnesota, 4 members of the Patriots Council, an extremist group that 
held antigovernment and antitax ideals and advocated the overthrow of 
the US government, were arrested for plotting to kill a US marshal with 
ricin. The ricin was produced in a home laboratory. They planned to mix 
the ricin with the solvent dimethyl sulfoxide, DMSO, and then smear it 
on the door handles of the marshal's vehicle. The plan was discovered, 
and the 4 men were convicted. In 1995, a man entered Canada from Alaska 
on his way to North Carolina. Canadian custom officials stopped the man 
and found him in possession of several guns, $98,000, and a container 
of white powder, which was identified as ricin. In 1997, a man shot his 
stepson in the face. Investigators discovered a makeshift laboratory in 
his basement and found agents such as ricin and nicotine sulfate. And, 
ricin was used by the Bulgarian secret police when they killed Georgi 
Markov by stabbing him with a poison umbrella as he crossed Waterloo 
Bridge in 1978.
  Going beyond smallpox, influenza, and ricin, we do not have an 
effective vaccine or treatment for dozens of other deadly and disabling 
agents and toxins. Here is a partial list of some of the other 
biological agents and chemical toxins for which we have no effective 
treatments: clostridium botulinum toxin, botulism, francisella 
tularensis, tularaemia, Ebola hemorrhagic fever, Marbug hemorrhagic 
fever, Lassa fever, Julin, Argentine

[[Page S4012]]

hemorrhagic fever, Coxiella burnetti, Q fever, brucella species, 
brucellosis, burkholderia mallei, glanders, Venezuelan 
encephalomyelitis, eastern and western equine encephalomyelitis, 
epsilon toxin of clostridium perfringens, staphylococcus entretoxin B, 
salmonella species, shigella dysenteriae, escherichia coli O157:H7, 
vibrio cholerae, cryptosporidium parvum, nipah virus, hantaviruses, 
tickborne hemorrhagic fever viruses, tickborne encephalitis virus, 
yellow fever, nerve agents, tabun, sarin, soman, GF, and VX, blood 
agents, hydrogen cyanide and cyanogens chloride, blister agents, 
lewisite, nitrogenadn sulfur mustards, and phosgene oxime, heavy 
metals, arsenic, lead, and mercury, and volatile toxins, benzene, 
chloroform, trihalomethanes, pulmonary agents, Phosgene, chlorine, 
vinly chloride, and incapacitating agents, BZ.
  The naturally occurring forms of these agents and toxins are enough 
to cause concern, but we also know that during the 1980s and 1990s the 
Soviet Union conducted bioweapons research at forty-seven laboratories 
and testing sites, employed nearly fifty thousand scientists in the 
work, and that they developed genetically modified versions of some of 
these agents and toxins. The goal was to develop an agent or toxin that 
was particularly virulent or not vulnerable to available antibiotics.
  The United States has publicly stated that five countries are 
developing biological weapons in violation of the Biological Weapons 
convention, North Korea, Iraq, Iran, Syria, and Libya, and stated that 
additional countries not yet named, possibly including Russia, China, 
Israel, Sudan and Egypt, are also doing so as well.
  What is so insidious about biological weapons is that in many cases 
the symptoms resulting from a biological weapons attack would likely 
take time to develop, so an act of bioterrorism may go undetected for 
days or weeks. Affected individuals would seek medical attention not 
from special emergency response teams but in a variety of civilian 
settings at scattered locations. This means we will need medicines that 
can treat a late stage of the disease, long after the infection has 
taken hold.
  We must recognize that the distinctive characteristic of biological 
weapons is that they are living micro-organisms and are thus the only 
weapons that can continue to proliferate without further assistance 
once released in a suitable environment.
  The lethality of these agents and toxins, and the panic they can 
cause, is quite frightening. The capacity for terror is nearly beyond 
comprehension. We do not believe it is necessary to describe the facts 
here. Our point is simple: we need more than military intelligence, 
surveillance, and public health capacity. We also need effective 
medicines. We also need more powerful research tools that will enable 
us to quickly develop treatments for agents and toxins not on this or 
any other list.
  We need to do whatever it takes to be able to reassure the American 
people that hospitals and doctors have powerful medicines to treat them 
if they are exposed to biological agents or toxins, that we can contain 
an outbreak of an infectious agent, and that there is little to fear. 
To achieve this objective, we need to rely on the entrepreneurship of 
the biotechnology industry.
  In the summer of 200_, the Defense Science Board completed a study of 
the countermeasures we have available. It focused on countermeasures--
diagnostics, vaccines, and drugs--for the top nineteen bioterror 
threats, and estimated what we have available today, what we might have 
available in five years and what we might have available in ten years.
  If one assumes that we need diagnostics, vaccines, and drugs for all 
nineteen of these bioterror threats, we need fifty-seven 
countermeasures (19 times 3). It found that today we have only one of 
these fifty-seven countermeasures, a drug for Chlamydia psittaci. It 
found that in five years we might have twenty of the fifty-seven 
countermeasures and in ten years we might have thirty-four of the 
fifty-seven. These are optimistic assessments.
  It set reasonable criteria for what constitutes an effective 
countermeasure. For diagnostics, it said that we are unprepared if our 
diagnostic takes more than 24 hours, requires confirmatory testing and 
the patient must be symptomatic. If said we are somewhat prepared if 
the diagnostic takes 12 to 24 hours, requires confirmatory testing, and 
works in some cases where the patient is asymptomatic. It said we are 
only truly prepared if the test takes less than 12 hours, requires no 
confirmatory testing, and detects the disease when the patient is 
asymptomatic. It found that we have no diagnostics today that meet the 
top standard and might have diagnostics for seventeen of the nineteen 
terror threats in five years and eighteen of the nineteen in ten years.
  For vaccines it found that we are unprepared if we have no vaccine. 
We are partially prepared if we have a vaccine but have production or 
use limitations. And we are fully prepared if we have a vaccine 
generally available. It found that we have no vaccines today that meet 
the top standard and might have vaccines for two of the terror threats 
in five years and nine in ten years.
  For therapeutics it found that we are unprepared if we have no 
approved treatment. We are partially prepared if we have a treatment 
available but have production or use limitations. And we are fully 
prepared if we have a treatment available. It found that we have one 
treatment that meets the top standard and might have treatments for the 
same agent in five years and seven treatments in ten years.
  Obviously, we are woefully unprepared. The Defense Science Board only 
focused on the top nineteen threats, and there are many others for 
which we are also unprepared.
  My proposal would supplement direct Federal Government funding of 
research with incentives that make it possible for private companies to 
form the capital to conduct this research on their own initiative, 
utilizing their own capital, and at their own risk--all for good 
business reasons going to their bottom line.
  The U.S. biotechnology industry, approximately 1,300 companies, spent 
$13.8 billion on research last year. Only 350 of these companies have 
managed to go public. The industry employs 124,000, Ernest & Young 
data, people. The top five companies spent an average of $89,000 per 
employee on research, making it the most research-intensive industry in 
the world. The industry has 350 products in human clinical trials 
targeting more than 200 diseases. Losses for the industry were $5.8 
billion in 2001, $5.6 billion in 2000, $4.4 billion in 1999, $4.1 
billion in 1998, $4.5 billion in 1997, $4.6 billion in 1996, and 
similar amounts before that. In 2000 fully 38 percent of the public 
biotech companies had less than 2 years of funding for their research. 
Only one quarter of the biotech companies in the United States are 
publicly traded and they tend to be the best funded.
  There is a broad range of research that could be undertaken under 
this legislation. Vaccines could be developed to prevent infection or 
treat an infection from a bioterror attack. Broad-spectrum antibiotics 
are needed. Also, promising research has been undertaken on antitoxins 
that could neutralize the toxins that are released, for example, by 
anthrax. With anthrax it is the toxins, not the bacteria itself, that 
cause death. An antitoxin could act like a decoy, attaching itself to 
sites on cells where active anthrax toxin binds and then combining with 
normal active forms of the toxin and inactivating them. An antitoxin 
could block the production of the toxin.
  We can rely on the innovativeness of the biotech industry, working in 
collaboration with academic medical centers, to explore a broad range 
of innovative approaches. This mobilizes the entire biotechnology 
industry as a vital component of our national defense against bioterror 
weapons.
  The legislation takes a comprehensive approach to the challenges the 
biotechnology industry faces in forming capital to conduct research on 
countermeasures. It includes capital formation tax incentives, 
guaranteed purchase funds, patent protections, and liability 
protections. We believe we will have to include each of these types of 
incentives to ensure that we mobilize the biotechnology industry for 
this urgent national defense research.
  Some of the tax incentives in this legislation, and both of the two 
patent incentives I have proposed, may be controversial. In our view, 
we can debate tax or patent policy as long as you

[[Page S4013]]

want, but let's not lose track of the issue here--development of 
countermeasures to treat people infected or exposed to lethal and 
disabling bioterror weapons.
  We know that incentives can spur research. In 1983 we enacted the 
Orphan Drug Act to provide incentives for companies to develop 
treatments for rare diseases with small potential markets deemed to be 
unprofitable by the industry. In the decade before this legislation was 
enacted, fewer than 10 drugs for orphan diseases were developed and 
these were mostly chance discoveries. Since the Act became law, 218 
orphan drugs have been approved and 800 more are in the pipeline. The 
Act provides 7 years of market exclusivity and a tax credit covering 
some research costs. The effectiveness of the incentives we have 
enacted for orphan disease research show us how much we can accomplish 
when we set a national priority for certain types of research.
  The incentives we have proposed differ from those set by the Orphan 
Drug Act. We need to maintain the effectiveness of the Orphan Drug Act 
and not undermine it by adding many other disease research targets. In 
addition, the tax credits for research for orphan drug research have no 
value for most biotechnology companies because few of them have tax 
liability with respect to which to claim the credit. This explains why 
we have not proposed to utilize tax credits to spur countermeasures 
research. It is also clear that the market for countermeasures is even 
more speculative than the market for orphan drugs and we need to enact 
a broader and deeper package of incentives.
  The government determines which research is covered by the 
legislation and which companies qualify for the incentives for this 
research. No company is entitled to utilize the incentives until the 
government certifies its eligibility.
  These decisions are vested in the Secretary, Department of Homeland 
Security. In S. 1764, the decisions were vested in the White House 
Office of Homeland Security, but it is now likely that a Department 
will be created. I have strongly endorsed that concept and led the 
effort to enact the legislation forming the new Department.
  The legislation confers on the Secretary, in consultation with the 
Secretary of Defense and Secretary of Health and Human Services, 
authority to set the list of agents and toxins with respect to which 
the legislation and incentives applies.
  The Secretary determines which agents and toxins present a threat and 
whether the countermeasures are ``more likely'' to be developed with 
the application of the incentives in the legislation. The Secretary may 
determine that an agent or toxin does not present a threat or that 
countermeasures are not more likely to be developed with the 
incentives. It may determine that the government itself should fund the 
research and development effort and not rely on private companies. The 
Department is required to consider the status of existing research, the 
availability of non-countermeasure markets for the research, and the 
most effective strategy for ensuring that the research goes forward. 
The legislation includes an illustrative, non-binding list of fifty-
four agents and toxins that might be included on the Secretary's list. 
The decisions of the Secretary are final and are not subject to 
judicial review.
  The Department then must provide information to potential 
manufacturers of these countermeasures in sufficient detail to permit 
them to conduct the research and determine when they have developed the 
needed countermeasure. It may exempt from publication such information 
as it deems to be sensitive.
  The Department also must specify the government market that will be 
available when a countermeasure is successfully developed, including 
the minimum number of dosages that will be purchased, the minimum price 
per dose, and the timing and number of years projected for such 
purchases. Authority is provided for the Department to make advance, 
partial, progress, milestone, or other payments to the manufacturers.
  The Department is responsible for determining when a manufacturer 
has, in fact, successfully developed the needed countermeasure. It must 
provide information in sufficient detail so that manufacturers and the 
government may determine when the manufacturer has successfully 
developed the countermeasure the government needs. If and when the 
manufacturer has successfully developed the countermeasure, it becomes 
entitled to the procurement, patent, and liability incentives in the 
legislation.
  Once the list of agents and toxins is set, companies may register 
with the Department their intent to undertake research and development 
of a countermeasure to prevent or treat the agent or toxin. This 
registration is required only for companies that seek to be eligible 
for the tax, purchase, patent, and liability provisions of the 
legislation. The registration requirement gives the Department vital 
information about the research effort and the personnel involved with 
the research, authorizes inspections and other review of the research 
effort, and the filing of reports by the company.
  The Secretary then may certify that the company is eligible for the 
tax, purchase, patent, and liability incentives in the legislation. It 
bases this certification on the qualifications of the company to 
conduct the countermeasure research. Eligibility for the purchase fund, 
patent and liability incentives is contingent on successful development 
of a countermeasure according to the standards set in the legislation, 
as determined by the Secretary.
  The legislation contemplates that a company might well register and 
seek certification with respect to more than one research project and 
become eligible for the tax, purchase, patent, and liability incentives 
for each. There is no policy rationale for limiting a company to one 
registration and one certification.
  This process is similar to the current registration process for 
research on orphan, rare, diseases. In that case, companies that are 
certified by the FDA become eligible for both tax and market 
exclusivity incentives. This process gives the government complete 
control on the number of registrations and certifications. This gives 
the government control over the cost and impact of the legislation on 
private sector research.
  The registration and certification process applies to research to 
develop diagnostics and research tools, not just drugs and vaccines.
  Diagnostics are vital because healthcare professionals need to know 
which agent or toxin has been used in an attack. This enables them to 
determine which treatment strategy is likely to be most effective. We 
need quickly to determine which individuals have been exposed or 
infected, and to separate them from the ``worried well.'' It is likely 
in an attack that large numbers of individuals who have not been 
exposed or infected will flood into healthcare facilities seeking 
treatment. We need to be able to focus on those individuals who are at 
risk and reassure those who are not at risk.
  In terms of research tools, it is possible that we will face 
biological agents and chemical agents we have never seen before. As 
I've mentioned, the Soviet Union bioterror research focused in part on 
use of genetic modification technology to develop agents and toxins 
that currently-available antibiotics can not treat. Australian 
researchers accidentally created a modified mousepox virus, which does 
not affect humans, but it was 100 percent lethal to the mice. Their 
research focused on trying to make a mouse contraceptive vaccine for 
pest control. The surprise was that it totally suppressed the ``cell-
mediated response''--the arm of the immune system that combats viral 
infection. To make matters worse, the engineered virus also appears 
unnaturally resistant to attempts to vaccinate the mice. A vaccine that 
would normally protect mouse strains that are susceptible to the virus 
only worked in half the mice exposed to the killer version. If 
bioterrorists created a human version of the virus, vaccination 
programs would be of limited use. This highlights the drawback of 
working on vaccines against bioweapons rather than treatments.
  With the advances in gene sequencing--genomics--we will know the 
exact genetic structure of a biological agent. This information in the 
wrong hands could easily be manipulated to design and possibly grow a 
lethal new bacterial and viral strains not found in nature. A scientist 
might be able to mix

[[Page S4014]]

and match traits from different microorganisms--called recombinant 
technology--to take a gene that makes a deadly toxin from one strain of 
bacteria and introduce it into other bacterial strains. Dangerous 
pathogens or infectious agents could be made more deadly, and 
relatively benign agents could be designed as major public health 
problems. Bacteria that cause diseases such as anthrax could be altered 
in such a way that would make current vaccines or antibiotics against 
them ineffective. It is even possible that a scientist could develop an 
organism that develops resistance to antibiotics at an accelerated 
rate.
  This means we need to develop technology--research tools--that will 
enable us to quickly develop a tailor-made, specific countermeasure to 
a previously unknown organism or agent. These research tools will 
enable us to develop a tailor-made vaccine or drug to deploy as a 
countermeasure against a new threat. The legislation authorizes 
companies to register and receive a certification making them eligible 
for the incentives in the bill for this vital research.
  The legislation includes four tax incentives to enable biotechnology 
and pharmaceutical companies to form capital to fund research and 
development of countermeasures. Companies must irrevocably elect only 
one of the incentives with regard to the countermeasure research.
  Four different tax incentives are available so that companies have 
flexibility in forming capital to fund the research. Each of the 
options comes with advantages and limitations that may make it 
appropriate or inappropriate for a given company or research project. 
We do not now know fully how investors and capital markets will respond 
to the different options, but we assume that companies will consult 
with the investor community about which option will work best for a 
given research project. Capital markets are diverse and investors have 
different needs and expectations. Over time these markets and investor 
expectations evolve. If companies register for more than one research 
project, they may well utilize different tax incentives for the 
different projects.
  Companies are permitted to undertake a series of discrete and 
separate research projects and make this election with respect to each 
project. They may only utilize one of the options with respect to each 
of these research projects.
  The first option is for the company to establish an R&D Limited 
Partnership to conduct the research. The partnership passes through all 
business deductions and credits to the partners. For example, under 
this arrangement, the research and development tax credits and 
depreciation deductions for the company may be passed by the 
corporation through to its partners to be used to offset their 
individual tax liability. These deductions and credits are then lost to 
the corporation. This alternative is available only to companies with 
less than $750,000,000 in paid-in capital.
  The second option is for the company to issue a special class of 
stock for the entity to conduct the research. The investors would be 
entitled to a zero capital gains tax rate on any gains realized on the 
stock held for at least three years. This is a modification of the 
current Section 1202 where only 50 percent of the gains are not taxed. 
This provision is adapted from legislation I have introduced, S. 1134, 
and introduced in the House by Representatives Dunn and Matsui, H.R. 
2383. A similar bill has been introduced by Senator Collins, S. 455. 
This option also is available to small companies.
  The third and fourth options grant special tax credits to the company 
for the research. The first credit is for research conducted by the 
company and the other for research conducted at a teaching hospital or 
similar institution. Tax credits are available to any company, but they 
only are useful to a company with tax liability against which to claim 
the credit. Very few biotechnology companies receive revenue from 
product sales and therefore have no tax liability. Companies with 
revenue may be able to fund the research from retained earnings rather 
than secure funding from investors.
  A company that elects to utilize one of these incentives is not 
eligible to receive benefits of the Orphan Drug Tax Credit. Companies 
that can utilize tax credits--companies with taxable income and tax 
liability--might find the Orphan Credit more valuable. The legislation 
includes an amendment to the Orphan Credit to correct a defect in the 
current credit. The amendment has been introduced in the Senate as S. 
1341 by Senators Hatch, Kennedy and Jeffords. The amendment simply 
states that the Credit is available starting the day an application for 
orphan drug status is filed, not the date the FDA finally acts on it. 
The amendment was one of many initiatives championed by Lisa J. Raines, 
who died on September 11 in the plane that hit the Pentagon, and the 
amendment is named in her honor. As we go forward in the legislative 
process, I hope we will have an opportunity to speak in more detail 
about the service of Ms. Raines on behalf of medical research, 
particularly on rare diseases.
  The guaranteed purchase fund, and the patent protections, and 
liability provisions described below provide an additional incentive 
for investors and companies to fund the research.
  The market for countermeasures is speculative and small. This means 
that if a company successfully develops a countermeasure, it may not 
receive sufficient revenue on sales to justify the risk and expense of 
the research. This is why the legislation establishes a countermeasures 
purchase fund that will define the market for the products with some 
specificity before the research begins.
  The Secretary will set standards for which countermeasures it will 
purchase and define the financial terms of the purchase commitment. 
This will enable companies to evaluate the market potential of its 
research before it launches into the project. The specifications will 
need to be set with sufficient specificity so that the company--and its 
investors--can evaluate the market and with enough flexibility so that 
it does not inhibit the innovativeness of the researchers. This 
approach is akin to setting a performance standard for a new military 
aircraft.
  The legislation provides that the Secretary will determine whether 
the government will purchase more than one product per class. It might 
make sense--as an incentive--for the government to commit to purchasing 
more than one product so that many more than one company conducts the 
research. A winner-take-all system may well intimidate some companies 
and we may end up without a countermeasure to be purchased. It is also 
possible that we will find that we need more than one countermeasure 
because different products are useful for different patients. We may 
also find that the first product developed is not the most effective.
  The purchase commitment for countermeasures is available to any 
company irrespective of its paid-in capital.
  Intellectual property protection of research is essential to 
biotechnology and pharmaceutical companies for one simple reason: they 
need to know that if they successfully develop a medical product 
another company cannot expropriate it. It's a simple matter of 
incentives.
  The patent system has its basis in the U.S. Constitution where the 
federal government is given the mandate to ``promote the Progress of 
Science and the Useful Arts by securing for a limited time to Authors 
and Inventors the exclusive right to their respective Writings and 
Discoveries.'' In exchange for full disclosure of the terms of their 
inventions, inventors are granted the right to exclude others from 
making, using, or selling their inventions for a limited period of 
time. This quid pro quo provides investors with the incentive to 
invent. In the absence of the patent law, discoverable inventions would 
be freely available to anyone who wanted to use them and inventors 
would not be able to capture the value of their inventions or secure a 
return on their investments.
  The patent system strikes a balance. Companies receive limited 
protection of their inventions if they are willing to publish the terms 
of their invention for all to see. At the end of the term of the 
patent, anyone can practice the invention without any threat of an 
infringement action. During the term of the patent, competitors can 
learn from the published description of the invention and may well find 
a new and distinct patentable invention.
  The legislation provides two types of intellectual property 
protection. The

[[Page S4015]]

first simply provides that the term of the patent on the countermeasure 
will be the term of the patent granted by the Patent and Trademark 
Office without any erosion due to delays in approval of the product by 
the Food and Drug Administration. The second provides that a company 
that successfully develops a countermeasure will receive a bonus of two 
years on the term of any patent held by that company. Companies must 
elect one of these two protections, but only small biotechnology 
companies may elect the second protection. Large, profitable 
pharmaceutical companies may elect only the first of the two options.
  The first protection against erosion of the term of the patent is an 
issue that is partially addressed in current law, the Hatch-Waxman 
Patent Term Restoration Act. That act provides partial protection 
against erosion of the term, length, of a patent when there are delays 
at the FDA in approving a product. The erosion occurs when the PTO 
issues a patent before the product is approved by the FDA. In these 
cases, the term of the patent is running but the company cannot market 
the product. The Hatch-Waxman Act provides some protections against 
erosion of the term of the patent, but the protections are incomplete. 
As a result, many companies end up with a patent with a reduced term, 
sometimes substantially reduced.
  The issue of patent term erosion has become more serious due to 
changes at the PTO in the patent system. The term of a patent used to 
be fixed at 17 years from the date the patent was granted by the PTO. 
It made no difference how long it took for the PTO to process the 
patent application and sometimes the processing took years, even 
decades. Under this system, there were cases where the patent would 
issue before final action at the FDA, but there were other cases where 
the FDA acted to approve a product before the patent was issued. 
Erosion was an issue, but it did not occur in many cases.
  Since 1995 the term of a patent has been set at 20 years from the 
date of application for the patent. This means that the processing time 
by the PTO of the application all came while the term of the patent is 
running. This gives companies a profound incentive to rush the patent 
through the PTO. Under the old system, companies had the opposite 
incentive. With patents being issued earlier by the PTO, the issue of 
erosion of patent term due to delays at the FDA is becoming more 
serious and more common.
  The provision in the legislation simply states that in the case of 
bioterrorism countermeasures, no erosion in the term of the patent will 
occur. The term of the patent at the date of FDA approval will be the 
same as the term of the patent when it was issued by the PTO. There is 
no extension of the patent, simply protections against erosion. Under 
the new 20 year term, patents might be more or less than 17 years 
depending on the processing time at the PTO, and all this legislation 
says is that whatever term is set by the PTO will govern irrespective 
of the delays at the FDA. This option is available to any company that 
successfully develops a countermeasure eligible to be purchased by the 
fund.
  The second option, the bonus patent term, is only available to small 
companies with less than $750,000,000 in paid-in capital. It provides 
that a company that successfully develops a countermeasure is entitled 
to a two-year extension of any patent in its portfolio. This does not 
apply to any patent of another company bought or transferred in to the 
countermeasure research company.
  I am well aware that this bonus patent term provision will be 
controversial with some. A company would tend to utilize this option if 
it owned the patent on a product that still had, or might have, market 
value at the end of the term of the patent. Because this option is only 
available to small biotechnology companies, most of whom have no 
product on the market, in most cases they would be speculating about 
the value of a product at the end of its patent. The company might 
apply this provision to a patent that otherwise would be eroded due to 
FDA delays or it might apply it to a patent that was not eroded. The 
result might be a patent term that is no longer than the patent term 
issued by the PTO. It all depends on which companies elect this option 
and which patent they select. In some cases, the effect of this 
provision might be to delay the entry onto the market of lower priced 
generics. This would tend to shift some of the cost of the incentive to 
develop a countermeasure to insurance companies and patients with an 
unrelated disease.
  My rationale for including the patent bonus in the legislation is 
simple: I want this legislation to say emphatically that we mean 
business, we are serious, and we want biotechnology companies to 
reconfigure their research portfolios to focus in part on development 
of countermeasures. The other provisions in the legislation are 
powerful, but they may not be sufficient.
  This proposal protects companies willing to take the risks of 
producing anti-terrorism products for the American public from 
potential losses incurred from lawsuits alleging adverse reactions to 
these products. It also preserves the right for plaintiffs to seek 
recourse for alleged adverse reactions in Federal District Court, with 
procedural and monetary limitations.
  Under the plan, the Secretary of HHS is required to indemnify and 
defend entities engaged in qualified countermeasure research through 
execution of ``indemnification and defense agreements.'' This 
protection is only available for countermeasures purchased under the 
legislation or to use of such countermeasures as recommended by the 
Surgeon General in the event of a public health emergency.
  The legislation contains a series of provisions designed to enhance 
countermeasure research.
  The legislation provides for accelerated approval by the FDA of 
countermeasures developed under the legislation. In most cases, the 
products would clearly qualify for accelerated approval, but the 
legislation ensures that they will be reviewed under this process.
  It provides a statutory basis for the FDA approving countermeasures 
where human clinical trials are not appropriate or ethical. Rules 
regarding such products have been promulgated by the FDA.
  It grants a limited antitrust exemption for certain cooperative 
research and development of countermeasures.
  It provides incentives for the construction of biologics 
manufacturing facilities and research to increase the efficiency of 
current biologics manufacturing facilities.
  It enhances the synergy between our for-profit and not for profit 
biomedical research entities. The Bayh-Dole Act and Stevenson-Wydler 
Act form the legal framework for mutually beneficially partnerships 
between academia and industry. My legislation strengthens this synergy 
and these relationships with two provisions, one to upgrade the basic 
research infrastructure available to conduct research on 
countermeasures and the other to increase cooperation between the 
National Institutes of Health and private companies.
  Research on countermeasures necessitates the use of special 
facilities where biological agents can be handled safely without 
exposing researchers and the public to danger. Very few academic 
institutions or private companies can justify or capitalize the 
construction of these special facilities. The Federal government can 
facilitate research and development of countermeasures by financing the 
construction of these facilities for use on a fee-for-service basis. 
The legislation authorizes appropriations for grants to non-profit and 
for-profit institutions to construct, maintain, and manage up to ten 
Biosafety Level 3-4 facilities, or their equivalent, in different 
regions of the country for use in research to develop countermeasures. 
BSL 3-4 facilities are ones used for research on indigenous, exotic or 
dangerous agents with potential for aerosol transmission of disease 
that may have serious or lethal consequences or where the agents pose 
high risk of life-threatening disease, aerosol-transmitted lab 
infections, or related agents with unknown risk of transmission. The 
Director of the Office and NIH shall issue regulations regarding the 
qualifications of the researchers who may utilize the facilities. 
Companies that have registered with and been certified by the 
Director--to develop countermeasures under Section 5 (d) of the 
legislation--shall

[[Page S4016]]

be given priority in the use of the facilities.
  The legislation also reauthorizes a very successful NIH-industry 
partnership program launched in FY 2000 in Public Law 106-113. The 
funding is for partnership challenge grants to promote joint ventures 
between NIH and its grantees and for-profit biotechnology, 
pharmaceutical and medical device industries with regard to the 
development of countermeasures, as defined in Section 3 of the bill, 
and research tools, as defined in Section 4(d)(3) of the bill. Such 
grants shall be awarded on a one-for-one matching basis. So far the 
matching grants have focused on development of medicines to treat 
malaria, tuberculosis, emerging and resistant infections, and 
therapeutics for emerging threats. My proposal should be matched by 
reauthorization of the challenge grant program for these deadly 
diseases.
  The legislation also sets incentives for the development of adjuvents 
to enhance the potency, and efficacy of antigens in responding to a 
biological agent.
  It requires the new Department to issue annual reports on the 
effectiveness of this legislation and these incentives, and directs it 
to host an international conference each year on countermeasure 
research.
  This legislation is carefully calibrated to provide incentives only 
where they are needed. This accounts for the choices in the legislation 
about which provisions are available to small biotechnology companies 
and large pharmaceutical companies.
  The legislation makes choices. It sets the priorities. It provides a 
dose of incentives and seeks a response in the private sector. We are 
attempting here to do something that has not been done before. This is 
uncharted territory. And it also an urgent mission.
  There may be cases where a countermeasure developed to treat a 
biological toxin or chemical agent will have applications beyond this 
use. A broad-spectrum antibiotic capable of treating many different 
biological agents may well have the capacity to treat naturally 
occurring diseases.
  This same issue arises with the Orphan Drug Act, which provides both 
tax and FDA approval incentives for companies that develop medicines to 
treat rare diseases. In some cases these treatments can also be used 
for larger disease populations. There are few who object to this 
situation. We have come to the judgment that the urgency of this 
research is worth the possible additional benefits that might accrue to 
a company.
  In the context of research to develop countermeasures, I do not 
consider it a problem that a company might find a broader commercial 
market for a countermeasure. Indeed, it may well be the combination of 
the incentives in this legislation and these broader markets that 
drives the successful development of a countermeasure. If our intense 
focus on developing countermeasures, and research tools, provides 
benefits for mankind going well beyond terror weapons, we should 
rejoice. If this research helps us to develop an effective vaccine or 
treatment for AIDS, we should give the company the Nobel Prize for 
Medicine. If we do not develop a vaccine or treatment for AIDS, we may 
see 100 million people die of AIDS. We also have 400 million people 
infected with malaria and more than a million annual deaths. Millions 
of children die of diarrhea, cholera and other deadly and disabling 
diseases. Countermeasures research may deepen our understanding of the 
immune system and speed development of treatments for cancer and 
autoimmune diseases. That is not the central purpose of this 
legislation, but it is an additional rationale for it.
  The issue raised by my legislation is very simple: do we want the 
Federal government to fund and supervise much of the research to 
develop countermeasures or should we also provide incentives that make 
it possible for the private sector, at its own expense, and at its own 
risk, to undertake this research for good business reasons. The Frist-
Kennedy law focuses effectively on direct Federal funding and 
coordination issues, but it does not include sufficient incentives for 
the private sector to undertake this research on its own initiative. 
That law and my legislation are perfectly complimentary. We need to 
enact both to ensure that we are prepared for bioterror attacks.
  Mr. President, I ask unanimous consent that a summary of the bill be 
printed in the Record.
  There being no objection, the summary was ordered to be printed in 
the Record, as follows:

Biological, Chemical and Radiological Weapons Countermeasures Research 
                              Act of 2003


 senators Lieberman and Hatch, Congressmen Tom Davis, Cal Dooley, Curt 
                         Weldon, and Norm Dicks

       The legislation proposes incentives that will enable 
     biotechnology and pharmaceutical companies to take the 
     initiative--for good business reasons--to conduct research to 
     develop countermeasures, including diagnostics, therapeutics, 
     and vaccines, to treat those who might be exposed to or 
     infected by biological, chemical or radiological agents and 
     materials in a terror attack.
       The premise of this legislation is that direct government 
     funding of this research is likely to be much more expensive 
     and risky to the government and less likely to produce the 
     countermeasures we need to defend America. Shifting some of 
     the expense and risk of this research to entrepreneurial 
     private sector firms is likely to be less expensive and much 
     more likely to produce the countermeasures we need to protect 
     ourselves in the event of an attack.
       For biotechnology companies, incentives for capital 
     formation are needed because most such companies have no 
     approved products or revenue from product sales to fund 
     research. They rely on investors and equity capital markets 
     to fund the research. These companies must focus on research 
     that will lead to product sales and revenue and end their 
     dependence on investor capital. When they are able to form 
     the capital to fund research, biotech companies tend to be 
     innovative and nimble and focused on the intractable diseases 
     for which no effective medical treatments are available. 
     Special research credits for pharmaceutical companies are 
     also needed.
       For both biotech and pharmaceutical companies, there is no 
     established or predictable market for these countermeasures. 
     Investors and companies are justifiably reluctant to fund 
     this research, which will present technical challenges 
     similar in complexity to development of effective treatments 
     for AIDS. Investors and companies need assurances that 
     research on countermeasures has the potential to provide a 
     rate of return commensurate with the risk complexity and cost 
     of the research, a rate of return comparable to that which 
     may arise from a treatment for cancer, MS, Cystic Fibrosis 
     and other major diseases or from other investments.
       President Bush's BioShield initiative is designed to 
     establish and predictable market for these countermeasures. 
     This legislation provides a template for implementation of 
     BioShield and supplements it with additional incentives to 
     ensure that the industry is enthusiastically engaged in this 
     vital research.
       The legislation provides tax incentives to enable companies 
     to form capital to conduct the research and tax credits 
     usable by larger companies with tax liability with respect to 
     which to claim the credits. It provides a guaranteed and pre-
     determined market for the countermeasures and special 
     intellectual property protections to serve as a substitute 
     for a market. Finally, it establishes liability protections 
     for the countermeasures that are developed.
       Section 3 of the legislation is drafted as an amendment to 
     the Homeland Security Act of 2002 (HSA)(P.L. 107-296). 
     Section 2 sets forth findings and sections 4-9 are drafted as 
     amendments to other statutes.
       1. Setting Research Priorities (Section 1811 of HSA): The 
     Department of Homeland Security sets the countermeasure 
     research priorities in advance. It focuses the priorities on 
     threats for which countermeasures are needed, and with regard 
     to which the incentives make it ``more likely'' that the 
     private sector will conduct the research to develop 
     countermeasures. It is required to consider the status of 
     existing research, the availability of non-countermeasure 
     markets for the research, and the most effective strategy for 
     ensuring that the research goes forward. The Department then 
     provides information to potential manufacturers of these 
     countermeasures in sufficient detail to permit them to 
     conduct the research and determine when they have developed 
     the needed countermeasure. The Department is responsible for 
     determining when a manufacturer has, in fact, successfully 
     developed the needed countermeasure.
       2. Registration of Companies (Section 1812 of HSA): 
     Biotechnology and pharmaceutical companies register with the 
     Department to become eligible for the incentives in the 
     legislation. They are obligated to provide reports to the 
     Department as requested and be open to inspections. The 
     Department certifies which companies are eligible for the 
     incentives.
       Once a company is certified as eligible for the incentives, 
     it becomes eligible for the tax incentives for capital 
     formation, and if it successfully develops a countermeasure 
     that meets the specifications of the Department, it becomes 
     eligible for the procurement, patent, and liability 
     provisions.
       3. Diagnostics (Sections 1813 and 1814 of HSA): The 
     incentives apply to development of detection systems and 
     diagnostics, as well as drugs, vaccines and other needed 
     countermeasures.

[[Page S4017]]

       4. Research Tools (Section 1815 of HSA): A company is also 
     eligible for certification for the tax and patent provisions 
     if it seeks to develop a research tool that will make it 
     possible to quickly develop a countermeasure to a previously 
     unknown agent or toxin, or an agent or toxin not targeted by 
     the Department for research.
       5. Capital Formation for Countermeasures Research (Section 
     1821 of HSA; also section 4 of the legislation): The 
     legislation provides that a company seeking to fund research 
     is eligible to elect from among four tax incentives. The 
     companies are eligible to:
       (a). Establish an R&D Limited Partnership to conduct the 
     research. The partnership passes through all business 
     deductions and credits to the partners.
       (b). Issue a special class of stock for the entity to 
     conduct the research. The investors would be entitled to a 
     zero capital gains tax rate on any gains realized on the 
     stock.
       (c). Receive a special tax credit to help fund the 
     research.
       (d). Receive a special tax credit for research conducted at 
     a non-profit and academic research institution.
       A company must elect only one of these incentives and, if 
     it elects one of these incentives, it is then not eligible to 
     receive benefits under the Orphan Drug Act. The legislation 
     includes amendments (Section 9 of this legislation) to the 
     Orphan Drug Act championed by Senators Hatch, Kennedy and 
     Jeffords (S. 1341). The amendments make the Credit available 
     from the date of the application for Orphan Drug status, not 
     the date the application is approved as provided under 
     current law.
       6. Countermeasure Purchase Fund (Section 1822 of HSA): The 
     legislation provides that a company that successfully 
     develops a countermeasure--through FDA approval--is eligible 
     to sell the product to the Federal government at a pre-
     established price and in a pre-determined amount. The company 
     is given notice of the terms of the sale before it commences 
     the research.
       7. Intellectual Property Incentives (Section 1823 of HSA; 
     also section 5 of this legislation): The legislation provides 
     that a company that successfully develops a countermeasure is 
     eligible to elect one of two patent incentives. The two 
     alternatives are as follows:
       (a). The company is eligible to receive a patent for its 
     invention with a term as long as the term of the patent when 
     it was issued by the Patent and Trademark Office, without any 
     erosion due to delays in the FDA approval process. This 
     alternative is available to any company that successfully 
     develops a countermeasure irrespective of its paid-in 
     capital.
       (b). The company is eligible to extend the term of any 
     patent owned by the company for two years. The patent may not 
     be one that is acquired by the company from a third party. 
     This is included as a capital formation incentive for small 
     biotechnology companies with less than $750 million in paid-
     in capital, or, at the discretion of the Department of 
     Homeland Security, to any firm that successfully develops a 
     countermeasure.
       In addition, a company that successfully develops a 
     countermeasure is eligible for a 10-year period of market 
     exclusivity on the countermeasure.
       8. Indemnification Protections (Section 1824 of HAS; also 
     Section 10 of the legislation): The legislation provides for 
     indemnifications for liability for the company that 
     successfully develops a countermeasure.
       9. Accelerated Approval of Countermeasure (Section 1831 of 
     HSA): The countermeasures are considered for approval by the 
     FDA on a ``fast track'' basis.
       10. Special Approval Standards (Section 6 of this 
     legislation: The countermeasures may be approved in the 
     absence of human clinical trails if such trails are 
     impractical or unethical.
       11. Limited Antitrust Exemption (Section 7 of this 
     legislation): Companies are granted a limited exemption from 
     the antitrust laws as they seek to expedite research on 
     countermeasures.
       12. Biologics Manufacturing Capacity and Efficiency 
     (Section 1832 and 1833 of HSA; and section 8 of this 
     legislation): Special incentives are incorporated to ensure 
     that manufacturing capacity is available for countermeasures.
       13. Strengthening of Biomedical Research Infrastructure 
     (Section 1834 and 1835 of HSA): Authorizes appropriations for 
     grants to construct specialized biosafety containment 
     facilities where biological agents can be handled safely 
     without exposing researchers and the public to danger 
     (Section 216). Also reauthorizes a successful NIH-industry 
     partnership challenge grants to promote joint ventures 
     between NIH and its grantees and for-profit biotechnology, 
     pharmaceutical and medical device industries with regard to 
     the development of countermeasures and research tools 
     (Section 217).
       14. Annual Report (Section 1841 of HSA): The Department is 
     required to prepare for the Congress an annual report on the 
     implementation of these incentives.
       15. International Conference (Section 1842 of HSA): The 
     Department is required to organize an annual international 
     conference on countermeasure research.
                                 ______