FDA deals another blow to VaxGen Inc.'s anthrax vaccine struggle

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VaxGen Inc.'s troubled $877.5 million federal contract to produce a new anthrax vaccine hit another snag Friday that delayed delivery of the shots a third time and jeopardized the struggling company's future.

The Food and Drug Administration is concerned the vaccine will lose its potency too fast to be effective and halted a pivotal human test of the experimental drug, the company said. In a conference call with analysts, VaxGen officials said the vaccine lost potency over time, but its scientists didn't believe the loss was significant.

Chief Executive Officer Lance Gordon said company officials hoped to meet with FDA officials soon to discuss the agency's refusal to allow the human test to begin.

Shares of the Brisbane-based company plummeted more than 55 percent, losing $2.22 to close at $1.77 in Friday trading on an electronic bulletin board exchange.

The FDA's demands will further delay delivery of 25 million genetically engineered doses that VaxGen was supposed to begin shipping this month under the contract it won two years ago from the U.S. Department of Health and Human Services.

Because the company won't begin the human test on time, the federal government can cancel the contract. The company won't receive any payments until it begins delivery. The department is its only customer.

"That is the risk associated with the contract," VaxGen executive James Panek said.

The department sent VaxGen a letter Friday, giving the company 10 days to explain how it intends to address the FDA's concerns, Health and Human Services spokesman Bill Hall said. He said no decision has been made about what the agency will do with the contract.

"Medical research is an unpredictable process," Hall said. "It is not unexpected that delays can be met along the way."

The VaxGen contract was supposed to be the crown jewel of Project Bioshield, a $5.6 billion government program prompted by the 2001 anthrax attacks. Bioshield's goal is to build national drug stockpiles in case of a bioterror attack. The project was supposed to jump start a national security renaissance among drug makers by guaranteeing contracts to develop drugs for combatting potential bioweapons.

VaxGen's shots were intended to replace the current vaccine, which requires six shots administered over 18 months. VaxGen's is expected to require no more than three shots.

Since winning the contract, however, VaxGen has repeatedly stumbled, starting with its disclosure it would miss the original deadline of November 2005 by a year.

Even before winning the contract, the Brisbane-based company had a checkered past highlighted by the 2003 flop of its experimental AIDS vaccine, which failed to protect inoculated volunteers from getting infected.

Since then, it was dropped from the Nasdaq Stock Market in 2004 for failing to file financial reports. The company also has been told by the FDA to change misleading claims about the vaccine in a sales brochure, and its chief scientific officer left the company in July.

In March, the government said it wouldn't pay VaxGen until the company completed a costly and time-consuming human test to ensure the vaccine was safe. The new requirement forced the company to sell its stake in another biotech company for $79 million to stay afloat and finance the new test.

On Friday, the company told analysts it had enough cash to stay in business through 2007.

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