Vaccine profits

VaxGen Shares Fall on Vaccine Uncertainty
Developer Plans to File Legal Claim Over Money for Weapon Against Anthrax
Thursday, May 11, 2006Shares of VaxGen Inc. plunged 37 percent yesterday after the company complained about new government requirements in its contract to produce an anthrax vaccine, characterizing them as so onerous and time-consuming the company isn't sure it will have enough money to complete the work.
VaxGen, of Brisbane, Calif., said it would file a legal claim in an effort to win more money from the government, on top of the nearly $1 billion it is already due to receive under several federal contracts. 'I can say that we have an experienced legal team in place, and we believe we have a very strong case,' said James P. Panek, senior vice president of manufacturing at VaxGen.

Investors were less sanguine, fleeing the shares after they realized that VaxGen, which once planned to start shipping its vaccine to the government and receiving payments early this year, probably won't be able to do so until 2008 or 2009. The delay means the company must raise tens of millions of dollars to keep operating while it tries to produce a vaccine acceptable to the government.
Administrators at the Department of Health and Human Services disputed VaxGen's characterization, saying the main action they took recently was to extend deadlines in the company's contract. Last night, HHS issued a statement at sharp variance with the company's interpretation of events, saying it had imposed no burdensome new requirements. Marc Wolfson, a spokesman for the agency, declined to elaborate or to say whether HHS had issued guidelines to the company fleshing out previous requirements of the anthrax contract.
Failure of the program, in which VaxGen is supposed to make enough anthrax vaccine to protect 25 million people from a terrorist attack, would be a big setback for the Bush administration's effort to develop national defenses against bioterrorism. Congress, responding to a call from the president in his 2003 State of the Union speech, passed the plan, called Project BioShield, and allocated $5.6 billion to develop vaccines and treatments.
The VaxGen anthrax vaccine is the biggest BioShield program by far, but it has been plagued by difficulties. VaxGen, in a conference call with analysts yesterday, said the government had 'unilaterally' imposed burdensome new requirements. In particular, the company said the new rules require it to spend millions to complete an extra human test of the vaccine before the government will accept it into national stockpiles. VaxGen has run into quality-control problems with test lots of its vaccine, problems the company claims it is well on its way to fixing.
Health and Human Services, in its statement, emphasized that it was 'committed to aggressively pursuing our biodefense mission.'
Several stock analysts accepted VaxGen's interpretation of events yesterday -- and downgraded the company's shares. 'We believe this news adds substantial additional risk to [the] anthrax program, both from cost and execution perspective, and delays meaningful' revenue to the company until 2009, analyst Bret Holley and colleagues at CIBC World Markets wrote in a bulletin to investors.
VaxGen, which lost millions of dollars working on an AIDS vaccine that failed, has had severe accounting, financial and management problems, many of them evident long before the government entrusted its biggest BioShield project to the company. The company has been thrown off regular stock exchanges because of accounting problems that prevent it from filing financial statements, and it trades in an over-the-counter market known as the pink sheets.
VaxGen share price fell by nearly half during midday trading yesterday but recovered at day's end to close at $4.99, down 37 percent.