Emergent's Vaccine Play: Biotech Can Flip-Flop, Too

For sudden twists of fate, abrupt collapses and the occasional stunning revival, it's hard to beat the biotech industry. Yesterday, for instance, the all-but-dead biotech VaxGen agreed to sell off its ailing anthrax vaccine to its East Coast rival Emergent BioSolutions --a company that spent much of this decade trying to lobby VaxGen out of existence.

Formerly known as BioPort, Emergent makes the anthrax vaccine currently used by the U.S. military, although that product is slow, inconvenient, and potentially prone to side effects. In 2004, the government awarded VaxGen a sole-source contract to product a new vaccine that would require fewer shots and work faster, agreeing to pay the company $877.5 million for the work. Emergent expressed its displeasure by spending millions on lobbyists to convince Congress to modify or void the VaxGen contract.

As it turned out, VaxGen had plenty of its own problems. Prior to its recreation as an anthrax-vaccine developer, the company was best known for an early AIDS vaccine that utterly failed to work in comprehensive testing earlier this decade. The company's anthrax vaccine also proved problematic, and when VaxGen missed a 2006 deadline to start human tests, the federal government canceled its contract. VaxGen has been in a death spiral ever since, even yanking a planned merger with the private biotech Raven Biotechnologies because many shareholders preferred liquidation.

Now Emergent has decided that it likes VaxGen's vaccine after all:

Meanwhile, Emergent's competitive situation appeared to change in March when Annapolis firm PharmAthene bought the rights to a next-generation anthrax vaccine being developed by British company Avecia Biologics. That made PharmAthene a prime candidate to win an upcoming contract for 25 million doses of anthrax vaccine.

Emergent has newer vaccine candidates in development, but the research isn't as far along as the VaxGen product. With the government's request for proposals for the new contract due at the end of this month, the company settled on trying to turn around the vaccine, believing the problems have been fixed or are fixable.

And so Emergent ends up pinning its hopes on a product it once hoped to deep-six. It's paying VaxGen $2 million for the vaccine, plus another $8 million in milestones if the development pans out. That's not the most expensive U-turn in the world, but it may well be one of the sharpest.