VaxGen on the brink after FDA puts a clinical hold on anthrax vaccine

Brisbane, California-based VaxGen is feeling a little sick today. On Friday the company announced that it had received a clinical hold notification from the Food and Drug Admininistration (FDA) that prevents the company from going forward with phase 2 testing of its much troubled and delayed anthrax vaccine. As we reported this summer, the FDA has long been concerned about the stability of the new drug — anthrax vaccines are intended for long-term storage — and VaxGen so far has been unable to alleviate those concerns. FDA officials worry that if the drugs potency declined during the duration of the tests, they would be unable to properly interpret the results. The news puts the company’s long-term health in serious doubt.

VaxGen, founded in 1995 as a spinoff from biotech giant Genentech, in 2004 won a $877.5 million Project BioShield contract to deliver seventy-five million doses of a next-generation vaccine. A previously existing anthrax vaccine, developed and produced by Gaithersburg, Maryland-based Emergent BioSolutions (previously known as BioPort and based in Lansing, Michigan), had come under severe criticism as part of the U.S. Army’s attempt to vaccinate its soldiers. Six had died from complications, and the government hoped a newer vaccine would be safer and easier to use — one drawback of the Emergent vaccine was that it required a series of six injections over eighteen months. Yet VaxGen had never succesfully brought a drug to market — its efforts to develop an AIDS vaccine previously failed — and the company had a history of corporate problems, including delisting from the Nasdaq after the discovery of accounting errors.

Ongoing problems also opened the door to competition. The company had originally intended to deliver the first doses by the end of 2006 or early 2007, but, as we reported at the time, it postponed delivery to 2008 because of additional testing requirements. The news that VaxGen was failing reopened an opportunity for Emergent. The company immediately hired a dream team of lobbyists to plead its case in Washington, D.C. Mainly, however, the lobbyists bad-mouthed VaxGen: “VaxGen has a history of failure and irregularities,” their briefing books said. “VaxGen has never produced an F.D.A.-approved product,” and its “vaccine is based on unproven technology,” leaving “the health and protection of the American public on a company with a history of scientific failure and financial scandal.” VaxGen tried to fight back but was overwhelmed. The government agreed in May to double its order of Emergent’s vaccine to ten million doses, worth $243 million, and demanded that VaxGen undertake additional safety and efficacy tests. Vaxgen threatened to sue and demanded up-front payments for further work.

Last week’s clinical hold, however, means that the company may never get a chance to complete its contract, and that there may indeed come a time shortly for a judge to sort out the complexities. According to company officials, VaxGen’s failure this time means “there is the possibility of contract action” by Health and Human Services (HHS), which may decide to step away from the contract altogether for “cause and convenience.” If so, it is likely that VaxGen will collapse entirely. Company officials have said they have enough cash on hand — perhaps as much as $50 million — to fund operations through 2007, and outside analysts believe VaxGen could find an additional $50 million by selling its interest in a joint venture that includes a manufacturing facility in South Korea. Yet with no revenue expexted, even under the best case scenario, before 2009, things are looking grim indeed.

Company shares fell more than 55 percent on Friday after VaxGen announced the FDA action, losing $2.22 to close at $1.77.

-read more in Renae Merle’s Washington Post report