Inside the Spore Wars

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While Big Pharma largely steers clear, dozens of small companies are working on biodefense products, though most of the drugs they're developing are years from being ready for clinical trials. And the government isn't exactly encouraging those firms to plod on--judging by the testimonials from companies now dealing with BioShield. Take the experience of PharmAthene, a tiny, private biotech company in Annapolis, Md., working on an antibody to treat anthrax. PharmAthene has spent $15 million taking the compound to its first clinical trial, but company officials still don't know if the government will stockpile it. CEO Dave Wright has been shuffled from the FDA to the Department of Homeland Security and HHS and still isn't certain what the drug must do to receive FDA approval. In a meeting with HHS officials last August, he wanted to know if he'd lose points on a contract if he were to manufacture the drug abroad, where production would be cheaper. Sorry, he was told, that couldn't be discussed because a contracting officer wasn't in the room. What about whether the feds would like it in a tablet or syringe? Sorry, couldn't tell you that either. Meanwhile, Wright is weighing whether to invest $8 million to scale up manufacturing. "And they want to know why no one wants this business?" he asks.

VaxGen managed to win a huge deal for a next-generation anthrax vaccine, only to find itself at the center of the controversy over BioShield. In November 2004 HHS awarded the firm a contract worth $877.5 million to deliver 75 million doses of anthrax vaccine manufactured via a new recombinant-DNA technique. Since then, however, VaxGen has faced a barrage of questions about its qualifications to develop and deliver the drug. Founded a decade ago as a spin-off of Genentech, VaxGen spent the late '90s trying to develop an AIDS vaccine and seemed close to success, only to report during Phase 3 trials that the drug had flopped, causing its stock to crash and lawsuits to fly. Investors charged the company with issuing false statements about the drug's prospects. (One suit was dismissed and VaxGen settled another for $500,000 in plaintiff's legal fees.) VaxGen's accounting hasn't inspired confidence either. Its shares were delisted from the NASDAQ in 2004, after the firm failed to file two quarterly financial reports. VaxGen is now revising financial statements to properly account for government contracts.

While VaxGen convinced HHS that it was the best company to develop a new vaccine, some members of Congress are not so sure. Iowa Senator Charles Grassley wrote to Secretary Leavitt in January and said HHS's decision to award such a huge contract to a single firm, with an unproven product, was "highly suspect." Two months later, he asked why HHS had issued a press release declaring that VaxGen's vaccine was "stronger and more effective" than the old vaccine, manufactured by a competitor named BioPort--a claim that, Grassley said, "appears to have no basis in fact." (Bioport cites a 2004 National Institutes of Health study, which, it says, indicates the superiority of its vaccine.) Grassley still doesn't have answers. "So far, the assurances given about our readiness for an anthrax attack don't add up," he told TIME. Indeed, VaxGen is now behind schedule in delivering its first batch of vaccine, promising it by the fourth quarter of 2006 instead of the first half of the year.