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4 Application of Flexible Research Authority Key Messagesa T he flexibility and freedom from government contracting regulations available through exercising OTA can attract companies to publicprivate partnerships that would not otherwise accept government contracting restrictions. Because agreements negotiated under OTA can take extra time, gathering together all of the parties with interests in the negotiations can speed the process. A close and effective relationship between the program manager and contract officer can both shape and ease the process of arriving at an OTA agreement. Given the level of expertise that industry brings to the negotiation of an OTA agreement, it is important that OTA negotiators and staff supporting the pro- gram have a high level of expertise. a Identified by individual speakers. The section of the CAN authorizing legislation establishing the Cures Acceleration Flexible Research Awards states: "If the Director of NCATS determines that the goals and objectives of this section cannot adequately be carried out through a contract, grant, or cooperative agreement, the Director of the Center shall have flexible research authority to use other transactions to fund projects in accordance with the terms and conditions 39

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40 MAXIMIZING THE IMPACT OF THE CURES ACCELERATION NETWORK of this section. Awards made under such flexible research authority for a fiscal year shall not exceed 20 percent of the total funds appropriated" (see Appendix B). This provision enables CAN to use contracting procedures known generically as OTA, which has proven to be a useful tool at DARPA and other federal agencies that are authorized to use OTA. A session at the workshop featured speakers from several of these agencies: DARPA, the Advanced Research Projects AgencyEnergy (ARPA-E), BARDA, and DTRA. The speakers described the advantages and disadvantages of OTA and the ways in which it could be used at CAN. OTA AT DARPA1 In the 1980s, it became apparent that in some areas civilian technol- ogy was rapidly outpacing military technology. Companies producing products for the civilian market were intent on introducing products into markets quickly and inexpensively, whereas it was found that defense contractors worked more slowly and expensively. At the same time, the defense industrial base was shrinking, forcing more reliance on commer- cial firms. Publicprivate partnerships were becoming more common, as exemplified by the Sematech collaboration in the semiconductor industry, to which both government and the industry devoted $100 million per year. Many civilian firms with large R&D budgets were reluctant to do business with DoD, observed Scott Ulrey, Deputy Director, Contracts Management Office, DARPA. Large companies did not want to subject themselves to the terms of FAR, which apply to government purchases of goods and services. FAR was originally designed to enable all govern- ment agencies to work under the same provisions, but over time the docu- ment grew. Today, the number of regulations is "literally staggering," said Ulrey, requiring considerable expense for companies to comply. To help facilitate government contracting with civilian companies while minimizing the administrative burden, legislation passed in 1989 2 permitted the secretaries of military departments to "enter into trans- actions (other than contracts, cooperative agreements, and grants) for basic, applied and advanced research projects." This OTA confers great flexibility upon program managers and contracting officers in setting up an agreement that meets the needs of a given project. "There is no one way to do an other transaction. I keep hearing about new ways of doing things all the time, and I say, `Go for it.' Whatever makes good business sense, go ahead." 1This section, including subsections, is based on the presentation by Scott Ulrey, Deputy Director, Contracts Management Office, DARPA. 2 10 U.S.C. 2371.

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APPLICATION OF FLEXIBLE RESEARCH AUTHORITY 41 The legislation also requires that "to the extent . . . practicable, the funds provided by the government do not exceed the total amount pro- vided by other parties to the other transaction." In effect, this provides for a 50 percent or more cost share, ensuring that the commercial partners have a stake in the project. Ulrey noted that this "resource sharing" can be in the form of cash or in-kind. Types of Other Transactions The two most common types of other transactions at DARPA are Technology Investment Agreements (TIAs) and other transactions for prototypes: TIAs support the development of technology. They are authorized by Part 37 of the DoD Grant and Agreement Regulations,3 the cur- rent version of which is from August 2007. These are the types of agreements that are most likely to be used by CAN, Ulrey said. Other transactions for prototypes are authorized by Section 845 of the National Defense Authorization Act for FY 1994. They are used for developing a prototype technology such as an unmanned aerial system. In this case, the government is buying a good or service for its direct benefit. DARPA uses two solicitation types with other transactions: Research announcements are directed toward grants, coopera- tive agreements, and TIAs. These solicitations can specify such aspects as cost sharing and team arrangements. They are very different than requests for proposals, according to Ulrey, in that the government specifies a problem and asks for solutions to the problem. Program solicitations are typically used for other transactions for prototypes. They typically specify performance or objectives and tend to have a less-defined structure. Benefits of OTA The use of OTA has several benefits, according to Ulrey. First, partici- pating companies are not bound by most procurement laws and regula- tions, though they are bound by other regulations tied to appropriations, such as the Civil Rights Act or lobbying restrictions. 3 32 CFR subchapter C (Parts 2137).

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42 MAXIMIZING THE IMPACT OF THE CURES ACCELERATION NETWORK OTA also allows for competition to the maximum extent practicable. Ulrey tries "to push for competition in 99.9 percent of cases. It's very rare that we do a sole-source effort. We want to get as much competition as we possibly can, [though] it's not always possible in the DoD environment." Flexibility regarding intellectual property is very attractive to com- panies, said Ulrey. Unlike OTA agreements, grants and contracts need to comply with the Bayh-Dole Act, which can be restrictive on companies, even though they retain title to inventions. Grants and contracts also do not permit the retention of trade secrets, which can be a powerful disincentive for companies to participate in government research. OTA avoids these restrictions, though the government retains certain rights to technologies if companies do not pursue the technologies further. OTA does not have termination for default or termination for con- venience, which are unilateral rights specific to government contracts. Government agencies still have termination rights under OTA, but they are negotiable. OTA encourages the use of what are called payable milestones. These are developed by the program manager and contracting officer to link payments with measurable events rather than solely with the submission of a status report. They allow flexibility and cost savings by reducing timeframes for technology development and encouraging streamlined ways of operating. Under OTA, there are no mandatory cost principles or accounting standards, except for generally accepted accounting principles, which is much more acceptable for companies. OTA allows companies to hire their own independent public accoun- tant rather than having their books examined by the Defense Contract Audit Agency. It also does not require the use of the government system for subcontracting associated with FAR. Management structures are flex- ible so long as sound business judgment is maintained. Creating Incentives for Investment All of these advantages make government funding under OTA more like an investment in the development and commercialization of technol- ogies. Government intrusion and red tape are minimized and cooperation is encouraged. At DARPA, authority for negotiating and approving OTA agreements is pushed down to the lowest level possible so that high-level approvals are not necessary. The flexibility of OTA also makes it possible to enter into relationships with unconventional partners, such as hackers or organizations that offer prizes for particular technological accomplish- ments. "We want to make it easy," Ulrey said. "We would rather you focus on developing the technology than worry about complying with regula-

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APPLICATION OF FLEXIBLE RESEARCH AUTHORITY 43 tions. . . . If we want commercial companies to do business with us, we have to operate in a more commercial fashion." "I always start these negotiations with the phrase that we are never going to write a perfect agreement," Ulrey said. "There are 999 ways of tripping each other up on this instrument. They are good-faith instru- ments. Everyone has understood that from the onset. But we have never had one protest on an other transaction . . . [or] any real problems working with commercial industry." A disadvantage Ulrey cited is the amount of time that can be spent negotiating under OTA. When everything is negotiable, some points may require extended discussions. Ulrey noted that this can be addressed by getting everyone who is involved into the same room, including pro- gram managers, lawyers, and contracting officials, rather than having the parties work in isolation and sending proposals and proposed changes to the others. Program Managers and Contract Officers Also from DARPA, Daniel Wattendorf said that he had used OTA dur- ing his 2 years at DARPA. The decision of whether to use OTA depends on the project, and projects at DARPA differ greatly in size, scope, and intent. Wattendorf noted that he talks with the contract officer at length very early in the process, close to the point of concept of a program. This approach, which is characteristic of the team-based environment at DARPA, forms a close relationship between the program manager and contract officer that can shape the use of OTA. OTA has been extremely useful, Wattendorf concluded, but, he observed, he would not enter into it without having a contract officer who is very comfortable doing one of these agreements. The situation is different than at NIH, Wattendorf said. In his opinion, it is easier to work with industry at DARPA than with academia at NIH. Industry understands the demands of R&D as a business process. With academic researchers, aspects of the process such as milestones may be less carefully observed. ARPA-E AT THE DEPARTMENT OF ENERGY4 ARPA-E, at the Department of Energy, was modeled after DARPA and first received appropriations in FY 2009. ARPA-E has used its OTA authority three times, under a TIA arrangement, said Peder Maarbjerg, 4 This section is based on the presentation by Peder Maarbjerg, Assistant Director for External Coordination, ARPA-E.

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44 MAXIMIZING THE IMPACT OF THE CURES ACCELERATION NETWORK Assistant Director for External Coordination, ARPA-E. For all three of the TIAs, the only provisions that were modified were intellectual property provisions, with none of the TIAs providing for a complete waiver of intellectual property rights. Maarbjerg explained that, with typical contracts, the government retains two kinds of ownership rights. The first is known as government-use license--the U.S. government has a royalty-free license to use a patented technology for government purposes. For example, the government could license a company to manufacture the patented technology for use by the U.S. military, but not for commercial sales. The second ownership right is known as march-in rights. Under a march-in provision, if the patent owner does not commercialize the patented technology, the government has the right to license the pat- ented technology to a commercial competitor to ensure that the taxpayer- funded technology reaches the marketplace. This provision can dissuade some prospective private-sector partners, Maarbjerg noted. He added, however, that the U.S. government has never exercised its march-in rights. "It makes sense. If you run into an inventor who went through the whole process of applying to the federal government and getting the grant and doing the work, he's not going to put it on the shelf." In two of the three cases where ARPA-E used a TIA, companies were concerned that the government's march-in rights would inhibit their efforts to raise private capital or to develop additional uses for the tech- nologies. To address this concern, ARPA-E agreed to include a provision that would give the company the option to buy back the government-use license and march-in rights. Under this option, the company would have to repay all the ARPA-E funds received under the award plus interest and further agree to forgo any ARPA-E funding under the award in order to buy back the government-use license and march-in rights. In the third case, a company was concerned that some of its intellec- tual property that had been developed before the ARPA-E award would be seen as part of the whole, thus subjecting the older intellectual prop- erty to the government-purpose license and march-in rights. To address this concern, ARPA-E used a TIA to agree that the government-purpose and march-in rights would apply not to prior intellectual property but only to inventions conceived during the award. Like DARPA, ARPA-E typically announces a goal that it wants met and solicits short concept papers about how to meet that goal. If these concept papers are encouraging, a full proposal is requested. This pro- posal is then submitted to review by industry, government, and academia, and reviews are sent to the author of the proposal for rebuttal. OTA is a tool and not an end in itself, Maarbjerg emphasized. Uni- versities often are more comfortable working with FAR and not starting

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APPLICATION OF FLEXIBLE RESEARCH AUTHORITY 45 from a blank piece of paper. But ARPA-E often engages very large firms that would not normally work with the federal government. If a firm is nervous about partnering with government, OTA may be a way to allay its concerns. PROMOTING AN EFFECTIVE MEDICAL COUNTERMEASURES ENTERPRISE AT BARDA5 BARDA of the U.S. Department of Health and Human Services has OTA but has never used it, said Gerald Kovacs, Director of the Divi- sion of Chemical, Biological, Radiological, and Nuclear (CBRN) Counter measures, BARDA. The scope of BARDA's mission includes bridging the entire valley of death from preclinical studies to Phase 3 studies, licensure, and procurement. "Unlike you all, I hope that we never have to use the products that we're developing and stockpiling," said Kovacs, but BARDA's experiences also offer important lessons for commercial drug development. BARDA's mission is "to develop and provide countermeasures for CBRN threats, pandemic influenza, and emerging infectious diseases by product development, stockpile acquisition/building, manufactur- ing infrastructure building, and product innovation." Its current budget is $1.6 billion, with an additional $5.6 billion in a special reserve fund for Project BioShield, which is designated for licensure, production, and delivery of medical countermeasures. If a project fails, said Kovacs, it should only be the result of failure of the product to achieve the desired safety or efficacy thresholds, and not as a function of an inability to provide the proper support from a technical, business, and regulatory perspective. The Department of Homeland Security has identified 13 material threats to the health and economy of this country. Those 13 threats all require either a vaccine or a therapeutic, and most require a diagnostic. Given the price of moving a drug from Phase 1 to licensure, "the $1.6 bil- lion is probably not even one-tenth of the amount that we would need to fund this pipeline," said Kovacs. BARDA's strategic plan calls for it to achieve "an advanced develop- ment pipeline replete with medical countermeasures . . . emphasizing innovation, flexibility, multipurpose, broad spectrum application, and long-term sustainability." An important authority granted by the legisla- tion governing BARDA is emergency use authorization (EUA). In creating 5 This section, including subsections, is based on the presentation by Gerald Kovacs, irector of the Division of Chemical, Biological, Radiological, and Nuclear (CBRN) Coun- D termeasures, BARDA.

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46 MAXIMIZING THE IMPACT OF THE CURES ACCELERATION NETWORK EUA, Congress permitted FDA to allow unapproved medical products or unapproved uses of approved medical products to be used in an emer- gency to diagnose, treat, or prevent serious or life-threatening diseases or conditions caused by such agents, when there are no adequate, approved, and available alternatives. In addition, legislation has limited the liability from countermeasures developed by BARDA. BARDA has defined the importance of threats and has developed a portfolio of products to deal with those threats. It also has been develop- ing a pipeline of medical countermeasures that are early in their devel- opment cycle. Most products cannot be tested in humans for safety and efficacy, so a parallel track of research has been developing animal models to use as surrogates for human clinical testing. PublicPrivate Partnerships Notably, Kovacs commented that although technically BARDA has OTA under the Pandemic and All-Hazards Preparedness Act of 2006, OTA has never been deployed by the program. Instead, Kovacs offered mod- els and lessons learned from the BARDA experience using FAR to foster innovation and development. The 2009 influenza pandemic brought new initiatives not just to BARDA, but to FDA, NIH, and CDC. Partnerships with private industry were emphasized, as were broad-spectrum drugs to reduce costs and expand preparedness. BARDA also began giving more thought to how to respond either to a pandemic or to an emerging infectious threat. For example, because of the risk to the pharmaceutical industry of developing antibiotics, BARDA has partnered with industry to develop antibiotics not just for epidemics but for biothreat agents. The agency also has taken an approach to product development whereby projects are killed as early as possible to reduce expenditures of money and effort on projects that are not performing properly. BARDA relies on a variety of mechanisms to fulfill its mission, includ- ing contract research, contract manufacturing, and technology transfer. This range of activities can be daunting for small biotechnology compa- nies, which typically want to take a drug all the way from the research laboratory to use. It also makes rapid-go/no-go decisions through what is called in-process review, where interagency partners meet to determine whether a performer has met the milestones in a contract and whether the work should go forward. BARDA's core services include regulatory and clinical affairs, an ani- mal studies network, a manufacturing network, centers for innovation in advanced development and manufacturing, and technical expertise. BARDA staff includes people who have worked in industry and thus have

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APPLICATION OF FLEXIBLE RESEARCH AUTHORITY 47 seen products developed and have licensed products themselves. BARDA also has established publicprivate partnerships for pandemic and sea- sonal flu vaccines manufacturing and for anthrax vaccine manufacturing, both using cost-sharing mechanisms. Lessons Learned Kovacs concluded with 10 lessons that he has learned during his time with BARDA: Agency staff needs to include experienced professionals who understand drug development. Bureaucracy needs to be minimized, with an emphasis on progress over process. An infrastructure of accountability needs to be established for deci- sion making. Instead of reinventing ideas, connect with other agencies working with the same or similar mission, especially FDA. Implement project management that is up to industry standards, with project coordination teams and clearly defined metrics. Contracting staff are integral to success and can exercise enormous creativity. Proposals should be developed in close collaboration with pro- gram managers and with transparency. Solicitations can be creatively applied. BARDA has used the mech- anism of the "broad agency announcement," which solicits and quickly reviews white papers; submitters of those white papers found to have promise are invited to submit a full proposal. An "open door" mechanism can bring in ideas and projects. Establish firm relationships with congressional representatives and their staffs. OTA AT DTRA6 Jason Paragas, Special Assistant to the Director, DTRA, described the lessons his agency has learned from its experiences with OTA. First, as noted by other speakers in the session, the process of approv- ing OTA agreements is slow. Using OTA opens many issues to negotia- tion, and coming to agreement on each of these issues takes time. However, this process also provides advantages, Paragas noted. First, 6 This section is based on the presentation by Jason Paragas, Special Assistant to the Director, DTRA.

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48 MAXIMIZING THE IMPACT OF THE CURES ACCELERATION NETWORK it can involve people from industry who are skilled negotiators and are comfortable working with OTA because it is akin to the environment in which they normally operate. Whereas the complexity of FAR can stifle input, particularly for those less experienced in working with it, working with OTA can lead to much greater levels of, and more effective, commu- nication, which ultimately can lead to more successful projects. Given the level of expertise from industry when negotiating under OTA, Paragas suggested that government needs to bring a similar level of expertise to the table. He noted that it is important to level the playing field and bring in the expertise and build the teams able to communicate to industry and other partners in a language that they already understand and speak on a daily basis. "It will require the government to be think- ing in a different way than just bringing in a series of [General Schedule] employees." Paragas added that additional expenditures associated with building government expertise are justified in his view. The people engaged in a negotiation need to be familiar with the "OTA roadmap." The instrument is not often used and has implications for the establishment of timelines, the approvals that are needed, when money will become available, and so on. High levels of expertise in nego- tiating a contract benefit both sides. The government can secure more value and be a more reliable partner. A company also can make money while serving as a reliable partner for a government agency. Paragas con- cluded his remarks by encouraging a refocus or reorientation to think of deployment of OTA as "taking a series of shots on goal." Investments that are not made from a cross-portfolio, programmatic vantage will not have critical mass or leverage to achieve success. COLLABORATION AT THE CHDI FOUNDATION7 Robi Blumenstein, President, CHDI Management, commented that he runs a medical research foundation that does hundreds of agreements essentially under a structure akin to OTA. CHDI operates as a not-for- profit virtual organization, collaborating with and supporting a world- wide network of nearly 500 scientists in academic and industrial laborato- ries. Its activities extend from exploratory biology to the identification and validation of therapeutic targets, and from drug discovery and develop- ment to clinical studies and trials. CHDI also organizes workshops and meetings and makes reagents and other research tools available to the Huntington's disease research community. The CHDI Foundation has the advantage of working on a single, 7 This section is based on remarks given by Robi Blumenstein, President, CHDI Management.

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APPLICATION OF FLEXIBLE RESEARCH AUTHORITY 49 focused disease and having access to very generous private donors so that it does not have to raise money. Under these circumstances, it is able to experiment to try to figure out how to solve problems. The foundation has a staff of about 60 people, a little more than half of whom are scientists. On the basis of that experience, Blumenstein urged that CAN be a purposeful activity. For example, he said, collaborations need to be pur- posefully built through deliberate structuring of incentives. Collabora- tive activities can provide for fantastic leverage. But in the life sciences, people self-select into the sectors that appeal to them, Blumenstein said. People who do not mind having a boss might go into industry, while people who do not want to have a boss go into academic research. Blumenstein noted that it will be important to bring together the people who have self-selected into the different approaches, as it will take all kinds to work on the problems that need to be solved. Finally, like Ulrey, Blumenstein lauded the idea of gathering all of the principals involved in the negotiation of a contract and working through issues together. What are the areas of overlapping interests? Where are the conflicts? Where do opportunities for mutual wins occur?

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