Contract Management

The Defense Department (DOD) considers the use of anthrax by enemy forces to be the single greatest biological threat to U.S. troops. BioPort, the only company licensed by the Food and Drug Administration to produce the anthrax vaccine in the United States, has experienced financial difficulties that have jeopardized the military's anthrax vaccination program. In response to the company's problems, DOD has provided BioPort with financial assistance. This testimony discusses (1) the financial assistance DOD provided BioPort in 1999 and (2) the additional financial assistance DOD is providing BioPort in 2000.

GAO noted that: (1) last year, DOD provided BioPort financial assistance so that the company would have sufficient operating capital to preclude disrupting, and possibly ending, the anthrax vaccine program; (2) among other things, DOD substantially increased the original contract price and provided an interest-free advance payment to BioPort of $18.7 million; (3) in providing the assistance, DOD believed the Food and Drug Administration (FDA) would approve the company's vaccine production processes in its renovated facilities by the end of 1999; (4) however, in November 1999, FDA reviewed the company's manufacturing processes and identified numerous deficiencies; (5) according to DOD officials, BioPort is now not expected to obtain FDA approval until the end of 2000; (6) the delay in obtaining FDA approval has caused BioPort to experience continuing financial problems; (7) recognizing the company's financial difficulties, DOD has taken a number of additional actions to help improve BioPort's financial situation; (8) in February 2000, DOD modified BioPort's contract to provide an additional amount of almost $12 million to, in part, hire technical assistance for obtaining FDA approval; (9) DOD also extended the schedule for BioPort to repay the interest-free advance payment and returned about $7.4 million that the company had repaid; (10) in March 2000, DOD notified BioPort that it wants BioPort to stop anthrax vaccine production for now; (11) this action reduces DOD's risk of paying for vaccine that the FDA may ultimately not approve and also allows BioPort to focus on obtaining FDA approval; (12) however, the company's financial condition is worsened because BioPort will no longer receive revenues from producing the vaccine; and (13) to mitigate the consequences of its actions, DOD intends to provide additional financial assistance to BioPort to sustain the production line.