Flaws in the BioShield: VaxGen looks for another federal bailout

By Ken Silverstein

The Bush Administration's $5.6 billion “Project BioShield,” launched after 9/11 to counter the threat of bioterrorism attacks, has turned into a massive yet largely unnoticed boondoggle. Exhibit A: a sole-supplier contract, worth up to $877.5 million, that the Department of Health and Human Services (HHS) awarded to California-based VaxGen Inc. for the development of an anthrax vaccine. The fate of the contract, which VaxGen has made a mess of, will be determined next Monday when HHS decides whether to cancel the deal or to give the firm an early, taxpayer-financed Christmas present.

VaxGen received the anthrax-vaccine contract two years ago, in spite of the fact that the decade-old firm had produced no marketable products, had demonstrated disturbing ethical failures in the area of human-subject drug testing, and had been delisted by Nasdaq because of accounting irregularities. An earlier, similarly hyped-up effort to develop an AIDS vaccine—for which the company received millions from the National Institutes for Health—ended in total failure and led to a number of lawsuits by investors who charged that VaxGen had fraudulently hyped the vaccine's prospects for success.

VaxGen's competitors suspected that the firm, in winning the anthrax contract, may have received a helping hand from Dr. Phil Russell, formerly a top contracting official at HHS who was involved in the BioShield project. Forbes describes Russell as a “long time acquaintance” of VaxGen CEO Lance Gordon; Russell, for his part, has denied that he helped out VaxGen.

Whatever the reasons for picking VaxGen, the choice has proved a disaster. VaxGen pledged to produce 75 million doses of the vaccine, with deliveries slated to begin early in 2006. But late last year, the company announced that unforseen “product refinements” would force it to postpone delivery of its vaccine until late 2006. Further problems ensued, and now the earliest delivery date would be late 2008 or 2009.

HHS has repeatedly ignored these failings and bailed out VaxGen. Last May, the agency unilaterally modified its contract with the company, extending various deadlines (such as the delivery date). Early last month, the Food and Drug Administration—saying it had doubts about the vaccine's reliability—blocked VaxGen from proceeding with its plans to test the product on humans. That led HHS to send VaxGen a “cure” notice, explaining that it might be forced to cancel the contract, which bound the company to begin testing on humans by November 13. That date came and went, but the contract, instead of being terminated, was extended. The company now has until December 18 to address the FDA's concerns and begin testing.

Incidentally, VaxGen's past record when it comes to human testing doesn't inspire much confidence. To test its AIDS vaccine, the firm sent researchers to Bangkok. VaxGen used junkies as guinea pigs, paying them about $9 per clinic visit, and generously offered a bonus—paid in rice—to people who brought along friends for more tests. “It tracked addicts into jails if they were arrested during the experiment,” the Washington Post wrote of the program in 2000, “so that shots and blood tests could be administered.”

It seems doubtful that VaxGen will be able to prevail upon the FDA before December 18; a source monitoring the situation tells me that the agency, on the basis of the data that it has in hand, would have no reason to allow trials to proceed. Meanwhile, several members of Congress have expressed grave concern about VaxGen, most notably Senator Charles Grassley, the Iowa Republican, who called HHS's original decision to award the company the contract “highly suspect.” While it seems like December 18 is execution day for VaxGen, there are rumblings that HHS may be pressuring the FDA to lift its ban against human testing of the company's vaccine. That would ease the political pressure on HHS and allow it to grant VaxGen another reprieve.

With roughly $1 billion at stake, there's sure to be plenty of lobbying and arm-twisting during the next seven days. Based on VaxGen's string of failures, giving the firm another stay of execution might not just be wasteful, but criminally negligent as well.

Note: HHS, after promising a prompt response, failed to respond to my questions about the VaxGen contract.

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