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Bioterrorism Is Risky Business

I don't often write about micro caps, but given that the broader topic is bioterrorism and specifically something that the whole country was on pins and needles about not too long ago, I'm making an exception.

Late yesterday the federal government announcedthat it was canceling the contracts with two little companies, Emergent BioSolutions and PharmAthene, because it doesn't think the firms will have an anthrax vaccine ready within eight years. Shares of PIP, which has a market value of less than $50 million, are losing half of their value on the news, while EBS, which is a $400 million company, is taking a smaller hit.

Both companies put out press releases, but oddly PIP is waiting until Thursday afternoon to hold a conference call about the development. EBS apparently isn't doing one.

They're not the first to fall victim to the fickleness of the feds. Hollis-Eden Pharmaceuticals was working on a radiation antidote. After September 11th, 2001 when Project BioShield was created, HEPH shares soared to around 30 bucks. But the government later canceled that contract and today HEPH is a penny stock with a market cap of $14 million. The company put the product back on the shelf. Around the same time, shares of VaxGen traded up into the high-teens/low-20s on hopes for its anthrax vaccine. The feds canceled the contract and VXGN, which now trades over the counter for about 50 cents, sold the vaccine to EBS for two million bucks and the promise of another eight million dollars if the vaccine progressed.

Steve Brozak, whose firm WBB Securities covers bioterrorism stocks, is incredulous. "If the government doesn't provide real clarity right away, what company is gonna ever go out and do business with the U.S. government?" he asks. "They've pulled out not in the eleventh hour, but in the twelfth hour," he adds.

But at least a couple of analysts who cover EBS are holding out hope for the company's "BioThrax" vaccine. In a research note to clients, JPMorgan's Cory Kasimov writes, "Now BioThrax appears to be without competition for a minimum of eight years." And David Moskowitz at Caris & Company agrees. "Given that BioThrax is now expected to be the only anthrax vaccine countermeasure over the next eight-plus years, and that there is significant room to fill the U.S. strategic national stockpile as well as strong ex-U.S. (international) demand, we maintain our Buy rating on the shares," Moskowitz says. JPM has banked EBS and wants to do it again.

The economy, healthcare reform and the wars have pushed the anthrax and bioterrorism scare aside and along with them a handful of once high-flying companies that might--or might not--have been able to address it.

Update: Within the hour, PharmAthene put out another press releasemoving up its anthrax vaccine conference call from Thursday afternoon to tomorrow morning.

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