National Editor

If government red tape makes for slow and cumbersome drug development in deals with biotechnology firms, you wouldn't know it by GenVec Inc.

The company's stock (NASDAQ:GNVC) jumped 75.3 percent Friday, closing at $2.68, up $1.15, after climbing as high as $3 on news of an agreement with the government to develop a vaccine for severe acute respiratory syndrome.

Paul Fischer, CEO of Gaithersburg, Md.-based GenVec, said he and a National Institutes of Health virologist decided in "less than half an hour" during a phone conversation that they wanted to add SARS to an ongoing vaccine program.

"That afternoon, I talked with the people here, and within 15 days we expanded the scope of work and got SARS included," Fischer told BioWorld Today. "It's counter to what people normally think about [the government]."

Crucial to the speed, Fischer said, was the small size of GenVec, the vaccine efforts already under way, and the NIH's willingness to act quickly.

"Within weeks, we'll be able to start making vaccine candidates for SARS, and within months, we could be testing animals," he said. "That's a time line most people have not thought possible. If it turns out the [SARS] threat disappears, that's great. But if it gets worse, we're going to be glad we tried to do something."

Fischer noted GenVec shares also saw a slight rise Wednesday with disclosure of its first-quarter earnings report, which included news the company would be reducing staff by 25 percent (24 employees), ahead of its $40 million stock-swap merger with Diacrin Inc., of Charlestown, Mass., expected to complete later this year. (See BioWorld Today, April 16, 2003.)

Cutting the work force is expected to lower the company's stand-alone operating losses by 25 percent to 30 percent beginning in the second half of 2003, but also bring a charge of about $1.3 million for severance and related termination costs in the second quarter.

"At the end of the year, post-merger, we'll have about $50 million," Fischer said, with a burn rate "well under $20 million per year," a situation that will take the firm "well into 2006."

He said "the original cost cutting, which we started about a year ago, was to keep reducing the spend to the point where we had good control," and the latest measure makes GenVec's footing even more secure.

Earnings were in line with expectations, showing a net loss of $5.2 million, or 23 cents per share, a 19 percent reduction compared to the same quarter last year, which saw a net loss of $6.4 million. The company had $14.3 million in cash and investments as of March 31.

Revenue jumped fivefold, to $3.2 million from $628,000 for the same period last year, thanks partly to the vaccine development activities in the company's deal with the NIH and the U.S. Navy Medical Research Center, both of which are using GenVec's adenovector technology for vaccine candidates against HIV, malaria and dengue viruses. Expanding the agreement to include SARS adds $420,000 for GenVec.

The government will be in charge of testing the vaccine candidates in preclinical models to assess safety and efficacy, after which clinical trials may start.

GenVec also brought in first-quarter money through its collaboration with Fuso Pharmaceuticals Inc., of Osaka, Japan, expanded in December. The three-year, $4.5 million deal, first struck in 1997, is to identify a targeted cancer therapy product candidate designed to treat the primary tumor as well as cancer that has spread to distant sites in the body.

"We can modify these vectors to target them to specific cell receptors," Fischer said. The target "could be the cells, it could be the blood vessels surrounding it, but you want to get the primary and, ultimately, the micro, metastatic disease."

GenVec retains worldwide rights, excluding Japan, to develop and commercialize product candidates. Fuso keeps rights in Japan and an option to commercialize in Korea and Taiwan. The partnership includes milestone payments and royalties on commercial sales by Fuso.

Operating expenses for the first quarter also jumped 14 percent, to $8.3 million from $7.3 million in the first quarter of 2002, due mainly to continued development of GenVec's TNFerade program, as well as increased activity in the funded vaccine development programs.

TNFerade uses adenovector technology to deliver the tumor necrosis factor-alpha gene into a tumor, where it interacts with radiation therapy or chemotherapy. The treatment is in a pair of Phase II trials for pancreatic and esophageal cancers, and GenVec hopes to start a randomized, controlled trial - whether it will qualify as Phase II or Phase III trial is uncertain, Fischer said - at the end of this year or early next.

Partners for Europe and Asia are being sought, and the first indication is likely to be esophageal cancer, for which a regulatory application could be filed in the U.S. in early 2006, the company said.

TNFerade is "looking very good for locally treated tumors, and we hope the new technology [included in the Fuso deal] will be applicable to a second generation of TNFerade," Fischer said.

GenVec also has BioBypass, being tested against coronary artery disease. The treatment uses vascular endothelial growth factor to stimulate growth of blood vessels. Although it failed in Phase II for peripheral arterial disease early this year, another Phase II in CAD was positive. In the works for macular degeneration is a pigment epithelium-derived factor called AdPEDF.