(FORTUNE Magazine) – For Tim and Barb Steier, the owners of a crop-dusting business in Blue Earth, Minn., the first aftershock of the World Trade Center and Pentagon attacks came on the following Saturday. While watching television, they were dismayed to hear a reporter suggest that terrorists might use crop-dusters to release killer substances.

"The next morning," says Barb, "we were shut down"--a federal order temporarily grounded all U.S. crop-dusters. Tim, who is vice president of the National Agricultural Aviation Association, faced more media attention during the following week than a FORTUNE 500 CEO typically gets in a year. Dozens of reporters called to ask about crop-dusting and terror. Steier also spent hours on the phone discussing crop-dusting with the FBI.

The agency's nervous fascination with crop-dusters became understandable once it emerged that terrorists linked to the World Trade Center attacks had sought access to crop-dusters in Florida. It suggested that plans were in the offing--and perhaps still are--for an airborne release of something lethal over an American city. Maybe a deadly chemical like sarin, the nerve gas released in a Tokyo subway in 1995 by the Aum Shinrikyo cult. Or maybe something even worse: a lethal germ like anthrax that could kill not just thousands, as a one-shot chemical attack might, but hundreds of thousands.

Some experts contend that the risk of bioterrorism is very low, citing the rarity of germ assaults and the fact that deadly bugs are tricky to handle and disperse. They may be right, but it is dismayingly easy to make a case for the bioterror possibility. At least one of the World Trade Center hijackers is thought to have had connections with Iraq, a nation known to have produced large quantities of biological weapons, including anthrax. A 1993 federal study reported that spraying about 250 pounds of "aerosolized" anthrax over Washington, D.C., could kill up to three million people--just the kind of vastly more horrible attack the terrorist organization that destroyed the World Trade Center might plan as a follow-up.

Despite a steady media drumbeat in recent years about the specter of terrorist germ attacks--and lots of lip service by policymakers--the U.S. remains distressingly ill prepared to beat back such an assault. The nation doesn't have enough smallpox vaccine to cope with a major release of the fast-spreading disease. Production at the country's only supplier of anthrax vaccines has been stymied for more than a year by quality-control problems. Hospitals, where budgets have been cut to the bone by managed-care practices, have no spare resources to handle the staggering demands of a bioterrorist attack.

To be sure, anti-bioterrorism spending at the Department of Health and Human Services, the key agency for quelling epidemics, has risen in the past few years--$297 million was appropriated for fiscal year 2001. But so far the federal effort has been "like trying to fill Lake Superior with a garden hose," asserts Michael Osterholm, director of the University of Minnesota's Center for Infectious Disease Research and Policy. That may change because of the recent attack. But it hasn't yet. After Congress appropriated $40 billion in September for disaster relief and antiterrorist measures, an initial installment of $5 billion was quickly earmarked for various projects. Only one, accounting for a fraction of the $126 million allocated to Health and Human Services, was biodefense-related: Security will be beefed up at federal facilities housing germs that might be used for biowarfare.

"People at the top in Washington are worried about bioweapons, but they tend to lump them with other weapons of mass destruction," says Tara O'Toole, deputy director of the Johns Hopkins Center for Civilian Biodefense Studies. The insidious ability of germs to spread before telltale symptoms appear makes bioterrorism fundamentally different from explosions or chemical attacks. The initial outbreak would be only the start; the spread of infection would unleash ongoing waves of panic.

Many top policymakers wrongly presume that gearing up to deal with explosions and chemical threats will also adequately equip the nation to deal with bioterrorism, asserts O'Toole, who served as Assistant Secretary of Energy for Environment, Safety and Health before joining the university center. Police and firefighters won't be the first line of defense in a biological attack. The horrible burden will fall on hospitals and public health agencies that are hard-pressed even to handle their everyday workloads. "What we need," O'Toole says bluntly, "is a bio-Apollo program."

A mock bioterrorist attack in Denver last year highlighted weak links likely to break after a germ assault. Organized by the Department of Justice, the Topoff exercise called on top officials at government agencies to respond the way they would during a real attack as the drill's planners confronted them with a series of likely unfolding events.

On day one, coping mechanisms were activated much as hoped. As a rash of patients with cough and fever flocked to city hospitals, and hours later began dying, state and federal labs quickly identified an outbreak of plague--the simulated attack had begun when a terrorist covertly released aerosolized plague bacteria at the city's performing arts center. A crack team was summoned from the National Centers for Disease Control and Prevention, state authorities restricted travel around Denver to contain the outbreak, and antibiotics from a national stockpile were rushed to the city.

On day two, things started spinning out of control. Hospitals ran out of beds, antibiotics, and morgue space. Simulated gridlock ensued as panicked masses sought doctors, antibiotics, food, and a way out of town. Precious hours were lost as scores of local, state, and federal officials scrambled to connect and make tough decisions about quarantining patients, allocating scarce antibiotics, and telling the public what to do. At one point a single beleaguered worker found herself assigned to pick up and deal with a mock shipment of antibiotics arriving at the airport from the federal stockpile. Before she could start counting out pills one by one for thousands of people, she needed to obtain plastic bags for the individualized doses. That led to a six-hour delay as she negotiated the hypothetical gridlock to fetch baggies from Safeway.

By day four, when the drill ended, the simulated situation was dire. Denver had run short on food, rioting had begun, and the disease had spread to other states despite quarantine attempts. Ominously, a sense of hopelessness had set in among many participating officials--even though it was only a drill.

Topoff and similar drills suggest four things should be at the top of the biodefense to-do list:

--Develop and widely deploy cutting-edge diagnostic tools, such as compact systems that in minutes can identify anthrax, smallpox, and other probable biowarfare agents in blood or sputum samples. For example, Cepheid in Sunnyvale, Calif., is perfecting a breadbox-sized unit for the U.S. Army that will be able to identify anthrax and other biowarfare agents in less than 30 minutes.

--Rapidly beef up the federal government's pharmaceuticals stockpile so that it has enough vaccines and antibiotics to contain simultaneous outbreaks in multiple cities.

--Organize fire-brigade-like teams of hospital staffers and other workers throughout the country who are trained and equipped to mount fast, coordinated responses to bioterrorism. A recent survey indicated only 20% of U.S. hospitals had plans for dealing with biological and chemical attacks.

--Put in place master plans to coordinate government agencies during bioterror crises, spelling out who will be responsible for what. The plans must address tough social and legal issues, says Kenneth Bloem, a senior fellow at the Johns Hopkins biodefense center. Who will get life-saving doses of scarce antibiotics? What will shield doctors from malpractice suits if they let patients die in a triage situation? Should hospital workers be kept from their families after being exposed to patients with communicable germs?

Fortunately, this biodefense starter kit is on government drawing boards, and elements are already being implemented. But erecting sturdy bioterror shields will require far more funding and political will than have existed to date. The price tag would doubtless be in the billions of dollars--hospital planning alone could well cost over $2 billion, estimates Bloem.

As bioterror priorities are sorted out, smallpox and anthrax are likely to get the most attention--they appear to pose the greatest risk.

The bad news on smallpox: The virus may have fallen into terrorists' hands as the former Soviet Union's biowarfare program disintegrated. It is hardy, highly infectious, and fatal in about 30% of untreated cases. Routine vaccination for it ended worldwide after 1980--perhaps 20% of Americans have residual immunity from childhood inoculations. In its first few days, a smallpox infection mimics flu; telltale skin lesions typically don't appear for a week or more--plenty of time for an unsuspecting carrier to infect many others.

The somewhat good news: Smallpox vaccinations before exposure confer immunity, and they can attenuate illness in susceptible people if given within four days of infection. Thus, an outbreak might be contained by rapidly vaccinating people in and around the affected area and quarantining those already infected. Currently the CDC has a stockpile of about 12 million usable doses of vaccine--not nearly enough.

Last year the CDC contracted with a British firm, Acambis, to add 40 million doses of a new smallpox vaccine to the U.S. stockpile beginning in 2004. Acambis and the CDC declined to comment on whether the project would be accelerated. "I'd be very surprised if it isn't," says George Washington University microbiologist Peter Hotez, who last year co-authored an article in the Washington Post arguing that at least 100 million doses would be needed to cope with a multi-city outbreak. Lance Gordon, a former Acambis executive who is now CEO at VaxGen, a Brisbane, Calif., vaccine developer, says that as soon as initial clinical tests are completed--they're needed to show whether Acambis' manufacturing process yields a consistent product--the project could be speeded up.

Anthrax, unlike smallpox, doesn't spread from one infected person to another. Once inside the body, its rugged bacterial spores can act like time bombs, bursting into fatal action after many weeks of dormancy. Some 90% of those who inhale spores during an attack would probably die if not started immediately on lengthy courses of antibiotics. Early symptoms, typically fever and cough, resemble a cold. After symptoms appear, it's too late--death usually follows within three days regardless of treatment.

As with smallpox, vaccination is the best defense against anthrax. After reports that Iraq and other nations had "weaponized" the bug, the Department of Defense in 1998 launched a program to vaccinate all U.S. military personnel. But vaccine supplies soon dwindled, effectively putting the campaign on hold, after the FDA required that the Defense Department's sole supplier, BioPort in Lansing, Mich., renovate its plant. The improvements are now in place, and BioPort plans to seek FDA permission this month to start production, said a company spokeswoman. The review process, which ordinarily takes months, could move much faster.

Even after BioPort gets its act together, the threat won't recede quickly. There are currently no plans to create a national stockpile of anthrax vaccine for civilian use. Whether a stockpile would help much is unclear anyway--anthrax immunization requires six doses of vaccine given over 18 months, followed by yearly boosters.

Better biodefense technologies are on the way. For several years, the U.S. Defense Advanced Research Project Agency has sponsored R&D at commercial and university labs on a wide array of cutting-edge diagnostics and therapies. In DARPA-funded studies at the University of Michigan, for example, an experimental medicine called BCTP was able to protect mice against injections of anthrax-like bacteria. Made of soybean oil and other inexpensive ingredients, the product reportedly can destroy both bacterial and viral biowarfare agents.

It isn't yet clear whether the U.S. will accelerate work on this new wave of biodefenses. But, says a university researcher, "our negotiations [to do research on biowarfare antidotes for the U.S. army] were moving like molasses before Sept. 11. Now they're moving forward at quite a respectable pace." Still, most technology fixes will take at least several years to perfect and widely deploy, says Stephen S. Morse, a Columbia University professor who helped DARPA organize its biodefense initiative.

Meanwhile, let's hope the good guys don't lose track of any crop-dusters.

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