Friday, March 26, 2010

Biodefense Goes on the Offensive

Biodefense player PharmAthene, Inc. (PIP: NYSE AMEX) has hit more snags in its mission to perfect vaccines and therapeutics to prevent and treat infection from toxic agents such as anthrax or nerve gas that could be used by terrorists against U.S. soldiers or citizens. A string of successful animal and human studies that demonstrate the effectiveness of PharmAthene’s various vaccine candidates has put the Company at the forefront of biodefense. Yet administrative delays and competitor complaints have held up funding from the Department of Health and Human Resources (DHHS), which manages the country’s vaccine stockpile.

PharmAthene management remains confident that development timetables are not vulnerable and that existing financing resources provide sufficient support to keep work on track for the Company’s principal biodefense drug candidates. PharmAthene second generation anthrax vaccine, SparVax, is a candidate for the U.S. Strategic National Stockpile established in 2004. The Department of Defense has already entered into a development and procurement contract for the Company’s Protexia chemical nerve agent antidote that will ultimately be used to protect soldiers in the field.

PharmAthene appeared to have the wind at its back in terms of funding for its SparVax second generational recombinant protective antigen anthrax vaccine. After apparently explicitly inviting PharmAthene to submit a request for modification of an existing development contract, DHHS awarded PharmAthene an additional $61.4 million in funding to support development work on SparVax through the end of 2012. The contract is administered by BARDA (Biomedical Advanced Research and Development Authority), an agency within DHHS.

Last week an unnamed competitor filed a protest against the contract modification and as required by federal regulation BARDA has suspended the modification pending a review of the matter. The protest alleges that the contract modification should have been subject to competitive bidding. A ruling is expected by June 2010.

Emergent BioSolutions, Inc. (EBS: NYSE) is PharmAthene’s principal competitor in the anthrax vaccine market. The first generation vaccine, BioThrax, currently used for the countries vaccine stockpile is produced by Emergent. Maryland-based Emergent is also developing a new second generation anthrax vaccine.

Both Emergent and PharmAthene were qualified bidders for a $600 million development and procurement contract offered by BARDA to supply second generation anthrax vaccine to the National Strategic Stockpile. BARDA cancelled the program in December 2009 before the final bid was awarded, putting both Emergent and PharmAthene back into the hunt for funding support. Both have applied for development grants to BARDA through an alternative funding mechanism called a Broad Agency Announcement. BARDA also modified the existing contract with PharmAthene to expand work on SparVax.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein. Crystal Equity Research has a Speculative Buy rating on PIP.

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