Bavarian Nordic at Risk as U.S. Weighs Smallpox Order

Caused by the 3,000-year-old variola virus, smallpox only occurs in humans and has a 30 percent mortality rate. Photo: Scott Barbour/Getty Images Close

Caused by the 3,000-year-old variola virus, smallpox only occurs in humans and has a 30... Read More

Close
Open

Caused by the 3,000-year-old variola virus, smallpox only occurs in humans and has a 30 percent mortality rate. Photo: Scott Barbour/Getty Images

Bavarian Nordic A/S (BAVA), the largest vaccine maker in Denmark, will need to fire hundreds of workers and shut down a factory if it doesn’t receive an order for a smallpox vaccine from the U.S. government by January, the company’s chief executive officer said.

Company officials said they don’t know why the Department of Health and Human Services hasn’t made the order, which they had expected by June. The vaccine is meant for people with atopic dermatitis and compromised immune systems, who are at risk of severe adverse reactions to the regular smallpox vaccine. The initial batch in the federal stockpile is beginning to lose potency, according to the agency.

Bavarian Nordic relies on the vaccine, called Imvamune, for 95 percent of its revenue, said Anders Hedegaard, CEO of the Kvistgaard, Denmark-based biotechnology firm. It was awarded a $500 million U.S. health contract for 20 million doses in 2007. Without the new order, the impact on the company “would be dramatic,” he said. The firm already has begun firing workers and scaling down production.

“The core of our business is the supplying of the smallpox vaccine,” Hedegaard said in an interview. “The urgency to take the next step seems not to be that high on the agenda” of the health department, he said.

Biggest Decline

Bavarian Nordic fell 5.1 percent, the biggest decline since Jan. 30, to 49.80 kroner in Copenhagen, giving the company a market value of 1.29 billion kroner ($216 million). The stock has gained 30 percent this year.

“If they do not get the extended order from the U.S. government, which they are expecting, then it’ll be a matter of time before they run out of money,” Thomas Bowers, an analyst for Danske Bank A/S (DANSKE) in Copenhagen, said in an interview. “The company could be forced to seek alternatives to secure funding for its ongoing pipeline projects.”

Bowers, who rates the company’s shares a buy, said he thinks the health department will eventually order more of the vaccine. The situation, though, highlights the problem of contractors relying on the government for most of their revenue, he said.

‘Decreasing Budgets’

The company had about $98 million in revenue last year. Its product is funded through the federal Project BioShield program, created in 2004 to provide money for vaccines that would be used in the event of a bioterrorist attack. The funding expires in 2013 unless Congress acts.

The health agency is now evaluating the program, according to Gretchen Michael, a department spokeswoman. She said she wasn’t able to predict whether there would be an order.

The agency is balancing the need to maintain its stockpile of emergency medicine with the development of new products “during times of decreasing budgets,” Michael said. The agency didn’t offer a further explanation of why it hasn’t ordered more of the vaccine.

One reason the health department may be reconsidering Bavarian Nordic’s product is the cost per dose, which is higher than the traditional smallpox vaccine, said D.A. Henderson, who directed the World Health Organization’s global smallpox eradication campaign from 1966 to 1977.

The Bavarian Nordic vaccine also requires two doses given weeks apart, an added burden for the agency, said Henderson, a professor of medicine and public health at the University of Pittsburgh. He also consults for the health department on smallpox.

“I find it hard to justify,” he said. “I think this would be very cumbersome.”

Two Doses

When asked whether the two-dose requirement would be burdensome during an outbreak, Michael said there are many medical treatments for diseases that require multiple doses.

Robert Kadlec, a former special assistant to President George W. Bush who was in charge of biodefense policy, said it would be a “troubling and sad commentary” if the health department said it didn’t have money for the new vaccine.

“This is not just about public health, this is about national security,” said Kadlec, now an independent consultant.

While government laboratories in the U.S. and Russia hold the only known samples of smallpox, federal agencies stockpile the vaccine amid concerns about bioterrorism. The virus is ranked as one of the greatest potential threats to public health because of its high mortality rate and capacity to spread, according to the Centers for Disease Control and Prevention.

Smallpox Vaccine

Sanofi (SAN), France’s biggest drugmaker, produces the primary smallpox vaccine, ACAM2000, which uses a related, live virus known as vaccinia. The treatment, administered by a skin scratch that forms a pus-filled lesion, may cause infectious side effects if the virus spreads beyond the scratch site.

The traditional vaccine isn’t considered safe for people with compromised immune systems and conditions such as eczema. They can develop reactions that may range from skin rashes to widespread lesions, encephalitis or death.

In 2007, a 2-year-old boy with eczema almost died from an infection he got from his father, a soldier who had received the smallpox vaccination before a military deployment, according to the CDC website. Lesions enveloped half of the child’s skin.

Bavarian Nordic’s vaccine was developed as a solution for the at-risk populations. The firm began supplying the vaccine in 2010, the same year that the health department said there was a need for enough immunizations to cover 66 million people, more than a fifth of the U.S. population.

Shelf Life

The company’s contract requires that the product support a three-year shelf life, the health department’s Michael said. Initial lots, though, have begun to lose strength or potency, she said.

This situation is a public health risk, Paul Chaplin, president of Bavarian Nordic’s infectious disease division, said in a phone interview.

“If there are no more orders, it’s pretty clear that the stockpile of 20 million won’t be maintained,” he said. The company “will close its manufacturing facility, which is the only facility in the world producing the product.”

Bavarian Nordic informed the U.S. government in March that it would be forced to fire 30 workers and scale down production at its Denmark facility, according to documents obtained by Bloomberg. The company requires a 12-month lead time to gather the material to make vaccine.

On May 15, it fired 21 workers.

Hemorrhagic Fever

The company’s other government contracts may also be in jeopardy if it doesn’t get an additional order for the smallpox vaccine, Chaplin said in an e-mail.

The firm is working with the National Institutes of Health to develop therapies for cancer and a vaccine for the virus that causes Marburg hemorrhagic fever, a highly infectious disease that can kill within a week.

The company in 2009 won a contract to develop a freeze- dried version of its smallpox vaccine, which would potentially have a longer shelf life than the original “liquid frozen” form.

Without another order of its original smallpox vaccine, the other programs “are at risk” because the firm may not have the resources to keep working on them, Chaplin said.

Kenneth Bernard, a former special assistant to President George W. Bush for homeland security, said he doesn’t like the idea of any company being dissuaded from getting into the biodefense business because “bureaucratic decision-making is taking too long.” He said he wasn’t taking any position on a new order for Bavarian Nordic.

If the health department “is going to make a decision on what to do, they should make a decision on what to do in time, so that the companies can make rational business choices,” said Bernard, now an independent consultant. “Having no companies willing to make vaccines like this is bad for our national security.”

To contact the reporter on this story: Danielle Ivory in Washington at divory@bloomberg.net

To contact the editor responsible for this story: Stephanie Stoughton at sstoughton@bloomberg.net

Bloomberg reserves the right to edit or remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.