VaxGen Inc.'s shares rose Wednesday after the U.S. government canceled an $878-million contract to produce an anthrax vaccine.
The Health and Human Services Department revoked the order for VaxGen to produce 75 million doses of the vaccine because the company didn't meet a deadline set for a clinical trial, the Brisbane, Calif.-based company said late Tuesday in a statement.
The federal government awarded the contract two years ago as part of the Bush administration's $5.6-billion Project BioShield program to safeguard against terrorist attacks.
VaxGen, whose shares have fallen 83% this year, may have to reduce its size to salvage its market position, an analyst's report said.
"At this point, I kind of see it as a shell," said Sharon Seiler, an analyst with Punk, Ziegel & Co. in New York.
Shares of VaxGen sank to $1.21 early in the session but recovered to advance 2 cents to $1.47. Rival anthrax vaccine producer Emergent BioSolutions Inc. jumped 10% to $11.40.
VaxGen, whose contract was the largest component of Project BioShield, and other small companies stepped up to fill the vacuum after larger pharmaceutical companies eschewed the government's call for assistance with certain aspects of the program. VaxGen shifted its focus to bioterrorism treatments after failures in HIV research.
Last month, the Food and Drug Administration moved the deadline to Dec. 18 from Nov. 13 after previously suspending the anthrax vaccine's testing because of concern that it may lose strength.
If the company can organize its financial statements, which have not been filed since 2003, it might have a chance at a decent exit strategy, Seiler said.
"I imagine a private company might be interested in merging with VaxGen to get the plant and public listing," she said.
The Health and Human Services Department said that it would still fund other vaccine projects, but an agency spokeswoman added that the government had not taken any steps to boost production of a vaccine made by Emergent BioSolutions unit BioPort Corp.
"We'll continue to expand the stockpile as needed," agency Secretary Mike Leavitt told reporters. "We'll go back into a procurement process, analyze how best to go from here."