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Caution on Bioterror

These firms have a noble goal, but be skeptical.

Next week the Senate is expected to revamp Project Bioshield, a $5.6 billion spending plan meant to shore up the nation's defenses against a bioterror attack.

The original law, enacted in June 2002, was supposed to provide inducements for biotech companies to work on vaccines and antidotes for threats such as anthrax and Ebola. However, the structure of the bill actually served as a disincentive.

That's because companies weren't going to get paid until the products they developed were approved for use. Large biotechs such as


(AMGN) - Get Amgen Inc. Report




had little interest in the government's program. After all, they had businesses to run.

At the same time, several smaller firms were salivating over the possibility of large contracts and eagerly signed up. The problem has been that participating companies have had a difficult time successfully developing products and getting through the period before a treatment is successfully launched, when cash is going out but none is coming in.

The newest bill, sponsored by Sen. Richard Burr (R., N.C.) will, among other things, add $1 billion to the program to fund companies prior to product approval. That should ease the financial strain for firms developing products that the government deems essential to protecting our nation's health.

Below are some of the publicly traded companies that are researching ways to protect the American public from bioterror threats. Just keep in mind that many of these companies have very low market caps, are thinly traded, have little or no revenue or track records and should be considered very speculative.

Nevertheless, it's not difficult to imagine a threat sending these stocks soaring, so you should be aware of which ones could participate in a rally caused by fears of bioterror.

Mixed Results

Two of the most frightening potential bioweapons are anthrax and smallpox, both of which can be fatal to humans. Recall that the former was used five years ago when a series of anthrax-laced letters were sent through the mail, to deadly effect. Research efforts haven't been without promise, but a great deal of work remains to be done before treatments or vaccines are widely available.



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has been the recipient of the largest contract under Project Bioshield, but recently things have taken a damaging turn.

Should the company successfully deliver the 75 million doses of anthrax vaccine stipulated in the contract, it will gross $877.5 million. However, VaxGen has failed in its efforts so far, and earlier this month the Food and Drug Administration ordered a clinical halt on its phase II tests. The company has until Dec. 18 to resolve the issues with the FDA, or the government could terminate the contract.

Emergent Biosolutions

(EBS) - Get Emergent BioSolutions Inc. Report

, which went public two weeks ago, already has an approved anthrax vaccine. Its contract with the government calls for the purchase of 10 million doses at a cost of $243 million.

If you plan on investing here, know that you'll be one of only a handful of stockholders. The Gaithersburg, Md.-based company is tightly controlled by CEO Fuad El-Hibri, who controls 81% of the outstanding stock. Aside from its anthrax fighter, Emergent is also working on a vaccine against botulism.


Human Genome Sciences


has received a $165 million contract from the Department of Health and Human Services for 20,000 doses of ABthrax. Roughly 90% of the total funds are expected in 2008 upon delivery of the drug.

As for smallpox,


(ACAM) - Get Acamar Partners Acquisition Corp. Class A Report

has two offerings for treating the virus. One is a vaccine called ACAM2000, and the company expects to sell 10 million doses for $30 million to the U.S. government this year.

The other product recently was dealt a setback after the U.S. said it wouldn't be considered for a potential $1 billion contract. Acambis plunged 40% in one day.

The company was working on the second product with

Baxter International

(BAX) - Get Baxter International Inc. Report

, the distributor of ACAM2000. Bavarian Nordic, whose stock trades in Copenhagen, is now believed to be the favorite for the contract.

A company still doing research is

Siga Technologies

(SIGA) - Get SIGA Technologies Inc Report

, whose SIGA-246 smallpox antiviral is in preclinical studies. The company claims SIGA-246 is the first drug ever to demonstrate 100% protection against human smallpox in a primate trial.

Understand that smallpox is considered by health authorities to have been eradicated, but samples of the virus remain held in labs. Were a case to appear today, it would be "the result of an intentional act," the Centers for Disease Control and Prevention says on its Web site. "A single confirmed case of smallpox would be considered an emergency."

Also high on the list of the government's worries are hemorrhagic fever viruses such as Ebola. An Ebola vaccine, being developed by Dutch biotech company



, recently entered phase I trials with 48 healthy volunteers. Currently, no cure or vaccine for Ebola is on the market.

Nuclear Threat

As if biological agents weren't menacing enough, the government also has to contend with the horrific possibility that terrorists could one day use a radioactive device against the U.S. or its interests.

"Everyone is talking about nuclear," says Dr. Jean Patterson, chairwoman of the Department of Virology and Immunology at the Southwest Foundation for Biomedical Research. Patterson, an expert on bioterrorism, says that the threat of a nuclear attack is now at the forefront of law enforcement officials' concerns.

While a so-called dirty bomb would be deadly to those in the immediate vicinity and likely cause widespread panic, the threat of radiation poisoning is low, according to most experts. In fact, most deaths would be attributed to the explosion of the device rather than the radiation.

Still, with North Korea saying it's making bombs and worries in the West that Iran wants to do the same, protecting American lives from atomic weapons has become a very high priority.

One of the defensive-minded companies is

Hollis-Eden Pharmaceuticals


, which hopes to receive a contract from the HHS early next year for a drug to treat acute radiation syndrome. No dollar figures have been provided. The drug, Neumune, is also set to begin phase I/II trials for health-care-associated infections.




has received a $21.9 million contract for 450,000 units of Ca-DTPA and Zn-DTPA, which treats internal contamination from radioactive elements.

To call many of these names speculative is an understatement, to say the least. In a number of cases, the government might be a company's only customer. Nevertheless, if the unthinkable happens or is even threatened, you'll know which stocks might see a rush of activity. Tread carefully, and let's hope that these companies' products are never needed.

In keeping with TSC's editorial policy, Lichtenfeld doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships.

Marc Lichtenfeld was previously an analyst at Avalon Research Group and The Weiss Group and a trader at Carlin Equities. He holds NASD 86, 87, 7 and 63 licenses. His prior journalism experience includes being a reporter/anchor for On24 in San Francisco and a managing editor of InvestorsObserver, a personal finance Web site. He is a graduate of the State University of New York at Albany. He appreciates your feedback;

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