Anthrax Contract Dispute Could Reverberate Across Biotech Industry

Biotech company VaxGen is seeking recourse against the Department of Health and Human Services (HHS) for changing the terms of its anthrax vaccine contract without providing additional compensation.

VaxGen was awarded the $877.5 million contract under Project BioShield, and is charged with supplying the government with 75 million doses of a second-generation anthrax vaccine.

Although the biotech company was slated to deliver the vaccine as early as the end of this year, HHS ordered additional tests, postponing delivery until at least the end of 2007.

Observers in both industry and the government see the partnership's success as pivotal to encouraging other biotech companies to support future biodefense efforts.

"As precedent, this is a terrible step on the part of the government," said Sharon Seiler, a biotechnology analyst who covers VaxGen at investment bank Punk Ziegel & Company. "This contract is about more than just getting anthrax vaccine. Essentially, the government can move the goal posts any time it wants."

In a statement, HHS described the contract modifications as an "extension of time" and not a change in requirements.

Seiler noted that "it's hard to tell what the truth is," but said it appears the changes relate to tests that had originally been scheduled post-shipment, and are now required prior to delivery. VaxGen does not get paid until after it delivers the doses.

An HHS spokesman declined comment beyond the prepared statement.

"It is incontrovertible that there is a modification," said Lance Ignon, Vaxgen's vice president of corporate affairs. "We can see the rationale behind that --but clearly we should be treated fairly."

VaxGen has proposed a number of options to HHS, such as increasing the value of the contract, Ignon noted.

"These additional data will merely be confirmatory; it won't be new data," he said.

A report from the Government Accountability Office noted that Project BioShield was supposed to set a new standard for accelerated vaccine development.

"Problems with this initial Project BioShield contract could affect the biotechnology industry's response to future government overtures to develop and procure medical countermeasures against the many other biothreat agents still to be addressed," the report stated.

Separately, HHS has expanded its contract with BioPort to purchase an additional five million doses of its BioThrax anthrax vaccine for the Strategic National Stockpile. It has also put out a request for proposals from companies that can develop a third generation vaccine, which would be effective in only one to two doses.