U.S. cancels VaxGen anthrax vaccine contract

By Susan Heavey
Wednesday, December 20, 2006; 1:36 PM

WASHINGTON (Reuters) - U.S. officials ended an $877.5 million deal with VaxGen Inc. <VXGN.PK> to provide millions of doses of anthrax vaccine because regulators refused to approve new tests of the experimental product, the Department of Health and Human Services said on Wednesday.

The company issued a statement late on Tuesday announcing the end of the contract, which aimed to stockpile enough doses to inoculate 25 million Americans against the deadly bacteria in case of a biological attack.

Shares of VaxGen fell nearly 17 percent before recovering to be down 5 cents, or 3.5 percent, at $1.40 in afternoon trade on Wednesday.

Rival anthrax vaccine producer Emergent BioSolutions Inc. <EBS.N> saw its shares jump nearly 12 percent to $11.60.

HHS said it would still fund other vaccine projects, but an agency spokeswoman added the government has not taken any steps to boost production of a vaccine made by Emergent BioSolutions unit BioPort Corp.

"We'll continue to expand the stockpile as needed," HHS Secretary Mike Leavitt told reporters. "We'll go back into a procurement process, analyze how best to go from here."

Under the 2004 deal, VaxGen was to deliver 75 million doses by 2007. It was also to start new clinical trials by December 18.

But the U.S. Food and Drug Administration, which approves trial design and new products, earlier this week refused to clear VaxGen's study amid concerns the vaccine was unstable.

"As a result, VaxGen was unable to meet this critical contract milestone and to cure the danger that the (FDA's) clinical hold posed to the contract performance," HHS spokeswoman Christina Pearson said.

VaxGen earlier said the government could hold it liable for the costs of procuring another anthrax vaccine but had not said whether it would do so. The company said it was weighing its options and could appeal HHS's decision.

Anthrax, spread by inhalation, is dangerous because its spores can remain dormant in the lungs weeks after exposure. By the time symptoms appear, the bacteria has already produced lethal amounts of toxin making it nearly impossible to treat.

But, if someone knows they have been exposed and is treated quickly, antibiotics can work.

Anthrax-laced letters were found in the wake of the September 11, 2001 attacks, causing five deaths and possibly exposing thousands of U.S. Senate and postal service employees.

VaxGen's development of the vaccine had already faced several setbacks.

In March the FDA warned VaxGen for what it called "false or misleading" promotion of the contract by saying its vaccine required fewer doses than one made by BioPort.

In May, HHS amended the contract to demand more tests on the vaccine, delaying expected delivery to 2008.

(Additional reporting by Will Dunham in Washington and Megan Davies in New York)

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