Rockville Biotech Buys Rival's Anthrax Vaccine

A Twist in Race for New Drug, Emergent Aims to Pick Up Pieces of VaxGen's Failed Federal Contract

The effort to protect the country from another anthrax attack will take an unexpected turn today when Rockville firm Emergent BioSolutions plans to announce that it has bought for $2 million an anthrax vaccine from a California company that federal health officials dropped in 2006.

VaxGen of South San Francisco has struggled to survive since losing its $877.5 million contract for a next-generation anthrax vaccine. Having accumulated a $254 million deficit, VaxGen has struck an unlikely deal with Emergent, its once-bitter competitor still eager to compete for millions of dollars under the Bush administration's $5.6 billion Project BioShield program.

Emergent has paid VaxGen $2 million up front and may pay up to $8 million for meeting various milestones. Emergent must also share an unspecified portion of sales. The acquisition of the vaccine, though striking, is risky, and there is no guarantee that Emergent won't suffer the same scientific problems as VaxGen.

Emergent already sells an older version of the anthrax vaccine that is widely used in the military, but some soldiers have reported serious side effects and it can take up to 18 months and a half-dozen shots to produce immunity. The government wants a faster vaccine to be the cornerstone of the national stockpile, and in 2004 it awarded VaxGen -- a small company that had never successfully developed a product -- a contract for 75 million doses.

As Emergent spent millions of dollars lobbying the government to win support for its vaccine by arguing a sole-source contract was a bad idea, VaxGen struggled with internal problems, including the delisting of its stock. The Food and Drug Administration issued the company a written warning for making unfair comparisons between its vaccine and Emergent's.

Federal health officials were also concerned about how stable the vaccine would be in storage, canceling the contract in December 2006 after VaxGen missed a deadline to start a key test in humans. The company has nearly collapsed. Last month it laid off 75 percent of the 22 employees that remained.

Meanwhile, Emergent's competitive situation appeared to change in March when Annapolis firm PharmAthene bought the rights to a next-generation anthrax vaccine being developed by British company Avecia Biologics. That made PharmAthene a prime candidate to win an upcoming contract for 25 million doses of anthrax vaccine.

Emergent has newer vaccine candidates in development, but the research isn't as far along as the VaxGen product. With the government's request for proposals for the new contract due at the end of this month, the company settled on trying to turn around the vaccine, believing the problems have been fixed or are fixable.

"This acquisition provides us and the government with a vaccine solution that addresses the stated requirements," said Daniel Abdun-Nabi, Emergent's president. He added that it was advantageous for all parties that the government has already closely studied the vaccine for several years.

The $2 million price is a fraction of the more than $175 million spent to develop the vaccine, but VaxGen has been weighed down by financial problems. Also, a planned merger with Raven Biotechnologies was recently scuttled by VaxGen shareholders.

Emergent, once known as BioPort, is more stable. It went public shortly before VaxGen's vaccine blew up, raising $62.5 million in its initial public offering. The company is still tightly held by chief executive Fuad El-Hibri, who controls 55 percent of Emergent stock. El-Hibri, 50, was born in Germany and grew up in Europe and the Middle East before attending Stanford and Yale universities. He and his family made a fortune in telecommunications. He lives in Potomac and became a U.S. citizen in 1999.

Since 1998, Emergent has delivered approximately 20 million doses of anthrax vaccine, mostly to the Defense Department. Last year, it won a $448 million contract to provide 18.75 million doses for the stockpile, though not under the potentially more lucrative BioShield contract for a newer vaccine. While winning such a contract may be viewed as preferable by Wall Street, the strategy is not without significant risk.

"The government has gone on the record looking for new technology, but there's a big leap of faith here," said Steve Brozak, president of WBB Securities, which tracks Emergent and doesn't have a banking relationship with the company. "Many companies have been felled by new technology. VaxGen is a perfect example of a company turning into vaporware. It was death by slow cuts."

There is no guarantee that Emergent, even if it is successful fixing the vaccine, will win the contract. Besides it and PharmAthene, several other companies could apply, including one in India.

And though Emergent maintains that the government shouldn't award a sole-source contract, it is already making signals that it is preferable to companies making the vaccine overseas.

PharmAthene, though in Annapolis, will still rely on Avecia to make key parts of the vaccine in Britain. In a statement regarding the deal with VaxGen, Emergent noted that the "acquisition positions Emergent to offer the U.S. Government a domestic source for an advanced anthrax vaccine candidate" -- the key phrase being "domestic," since the vaccine would be manufactured in Michigan.