BioWorld Today Correspondent

LONDON - Acambis plc finally sealed the warm-base manufacturing contract for its smallpox vaccine ACAM2000, landing a 10-year $425 million deal from the U.S. Centers for Disease Control and Prevention (CDC).

At the same time, the Cambridge, UK-based company announced it has completed an oversubscribed rights issue, raising £40 million (US$79.8 million) from new UK and continental European institutional investors, of which half will be used to pay for the setting up of the U.S. smallpox manufacturing facilities.

Ian Garland, CEO, said the contract and the fully underwritten placing "have removed the two uncertainties from our stock - that we had not finalized the contract and did we need to raise to money?"

The rationale behind warm-base manufacturing is to have an on-demand domestic supply. Under the terms of the contract, Acambis will transfer the ACAM2000 bulk production to its facility at Canton, Mass., and fill and finish to Rockville, Md. Previously, bulk product was produced by Acambis' partner Baxter Inc., in Austria, and fill and finish carried out by a third-party contractor.

Revenues for manufacturing will not begin to flow until year three of the contract, when the CDC will start to procure at least 9 million doses per year on a fixed-price basis. At that level, the manufacturing element of the contract is worth $285 million in total, but in years five to 10, the CDC could order "surge" doses of up to 39 million units per annum, in which case the value increases to $660 million.

The second element of the contract, worth $140 million, will see Acambis working to maintain the license, including conducting a Phase IV study in U.S. military personnel, carrying out pharmacovigilance and undertaking a bridging trial when production of the bulk material is transferred to Canton.

It has been a long and convoluted process over four years of negotiation to conclude the warm-base deal, but CEO Ian Garland pointed out that it ended up being far better than the five-year $150 million agreement the market expected. From year three onward, the cash flow from the contract will cover 60 percent to 70 percent of Acambis' total costs.

However, Acambis has to fund the development of the two manufacturing facilities over two years without getting any revenue from supplying vaccine. In an agreement with the CDC, the company had intended to supply product from its inventory of 19 million doses while it was transferring manufacturing to its U.S. sites. But Garland said that was vetoed by the FDA on the grounds that the product had been designated for non-U.S. use.

The CDC for its part could not agree to a contract that would compensate Acambis for that, leading it to negotiate a 10-year, rather than a five-year deal, with the costs amortized across the period.

But Acambis was left with a hole in its finances, which it proposed to fill through a debt agreement, having promised in September 2007 not to raise any more money through equity. "When we presented the alternatives to shareholders, they didn't want to take on the debt," Garland said. "They wanted to join an equity financing instead." The company is issuing 37.7 million new shares at £1.15 each. Garland said he went out to raise the money at the market rate. "It comes out at a discount because the share price jumped 8 percent yesterday, late in trading," he told analysts.

In effect, the ACAM2000 deal also underwrites manufacturing of two other development-stage Acambis vaccines against Japanese encephalitis and West Nile fever, which are manufactured at the Canton site. Garland said the company will look at using Canton to manufacture is Phase I Clostridium difficile vaccine also.

Through its marketing partner Baxter, Acambis will now step up efforts to sell the its ACAM2000 inventory to other governments. The value of the 19 million doses on Acambis' books is £1 million.

It is planned that £4 million of the money from the placing will be invested in the further development of the C.difficile product.

The company aims to start a Phase II trial this year in the prevention of relapses in patients who have suffered from the infection, comparing standard care alone to standard care plus vaccination. A further Phase II study will assess if the C. difficile product can prevent primary infections.

The remaining 30 percent of the new money will go to early stage R&D to feed the Acambis pipeline.

Acambis has supplied the CDC with 195 million doses of smallpox vaccine since the collaboration between the two began in 2001 following the launch of Project Bioshield.