HHS cancels Vaxgen's anthrax contract

Well, it is all over for Brisbane, California-based Vaxgen. A little

bit more than a month after the Food and Drug Administration (FDA)

put a hold on phase 2 testing for the company’s anthrax vaccine, the

Department of Health and Human Services (HHS) has cancelled the

$877.5 million contract entirely — a unsurprising outcome for a

much-troubled company and a much-troubled BioShield program. While

HHS authorities informed VaxGen’s of the cancellation via a one page

letter, President Bush signed a bill to reorganize the management of

the $5.6 billion program and pump more money into firms doing the

 work.

The future does not look too bright for VaxGen, which has struggled

ever since it was spun-off in 1995 from biotech giant Genentech. The

company has spent more than $175 million of its own money developing

the next generation anthrax vaccine — its only existing project —

and coming on the heels of a failed AIDS vaccine and various legal

troubles that caused it to be delisted from the Nasdaq, it is hard

to see how the company can continue. In fact, because the anthrax

contract was cancelled for default, the government could even hold

the company liable if there are extra costs from buying the product

from another source. “Fortunately we are well capitalized,” VaxGen’s

Lance Ignon said.

If there is a silver lining here, probably only Emergent

Biosolutions can see it. The company manufactures the only existing

anthrax vaccine, which although not ideally formulated is sufficient

for emergency purposes. Emergent, naturally enough, had been

lobbying the government for some time to reject the VaxGen approach

(Louis W. Sullivan, Health and Human Services secretary from 1989 to

1993, and Jerome M. Hauer, a former senior HHS official, are both on

the board), and when troubles with that contract leaked out,

Emergent succeeded in getting the government to make a substantial

purchase of its BioThrax vaccine for military use. With an IPO on

the horizon, Emergent expects to raise up to $92 million in order to

expand manufacturing facilities in Frederick, Maryland and Michigan,

as well as fund development of the next generation of anthrax

 vaccines.

-read more in Renae Merle’s Washington Post report