BioShield Giveth, BioShield Taketh Away

Yesterday the Dept. of Health and Human Services notified Vaxgen that since the biotech was in default of its $877 million contract to provide the government with 75 million doses of anthrax vaccine for missing a milestone, HHS was canceling the order. The New York Times has the story here.

The grant--the largest chunk of the government's $5.6 billion Project Bioshield program--wasn't payable until Vaxgen started delivering vaccine. As such, the company is pretty much out of luck, although it can appeal HHS' decision. Making matters worse for the California biotech, HHS reserves the right to hold the company financially liable for costs associated with finding a replacement, noting that "Vaxgen's failure to perform is not excusable," according to a HHS letter sent to the company. Happy Holidays!

BioShield hasn't turned out as hoped. Most of the cash is earmarked for products only once they've neared or received approval, but deep-pocketed firms have been reluctant to assume the R&D risk for at-best uncertain financial gain. And the Vaxgen debacle illustrates some of the problems that those willing but much smaller firms with few resources can run into.

Congress may attempt to remedy the situation by throwing more money at it--as announced in mid-November. The proposed additional $1 billion could support research and early development at biotech companies. Critics suggest the boost is unlikely to fix BioShield, and regardless, whether HHS has any luck playing VC remains to be seen.