Countering the threat of nuclear radiation

With no sales yet and funding entirely
provided by investors, Hollis-Eden Pharmaceutical Inc., San Diego, is
developing products to address both the immediate aftermath of a
nuclear attack and the longer-term effect in damage to DNA.

The market for such products is developing
because the US government has moved to address new threats to the
country from biological, chemical and nuclear weapons under Project
Bioshield, signed into law by President George Bush in July 2004.

Bioshield

Under Project Bioshield, the government plans
to purchase $5.6 billion of vaccines and drugs to deal with the threat
posed by weapons of mass destruction. In November, the Department of
Health and Human Services awarded its first contract under the program.
VaxGen Inc., Brisbane, Calif., will manufacture and deliver 75 million
doses of a new anthrax vaccine for $877.5 million. These will serve as
an addition to the Strategic National Stockpile. At three doses per
person, potentially 25 million people could be protected.

Late last year, the US government issued a
request for information to begin the procurement process for a
treatment for acute radiation syndrome, caused by exposure to nuclear
explosions. A treatment would have the broadest applicability in the
case of a nuclear weapon explosion, but would also be used to treat
individuals most exposed to radiation by a dirty bomb.

Assuming the government is seeking to protect
the same number of people as envisaged with anthrax, it would create a
$500 million to $1 billion market, said Hollis-Eden’s senior vice
president of business development.

Hollis-Eden has been positioning itself for
that requirement ever since the terrorist attacks of Sept. 11, 2001,
raised the specter of nuclear terrorism. The US military examined the
use of the company’s Neumune in treating acute radiation, and found
positive results in the period from 1997 to 2001. Yet there was no
clear market until the terrorist investigations following the World
Trade Center and Pentagon attacks revealed that terrorists had also
planned to target American nuclear plants.

The US government began stockpiling potassium
iodide, which would help protect the thyroids of individuals exposed to
radiation. Yet the greater threat posed by radiation poisoning, which
stops the production of white blood cells in bone marrow, was
unaddressed.

Hollis-Eden believes that its Neumune can
address that need. In tests on monkeys, Neumune boosted the immune
system’s ability to produce white blood cells, thereby combating
radiation poisoning. It plans to submit Neumune for Food and Drug
Administration approval in 2006.

Under Project Bioshield, the government
intends to speed the procurement of vaccines and drugs to deal with
threats from weapons of mass destruction, so full testing of products
does not necessarily need to be complete before they are purchased.

Company plans call for Neumune deliveries to
begin in 2006, even before full testing and approval are complete in
2007—assuming the US government orders it using emergency
authorization, such as that provided by Project Bioshield. While
company officials do not know whether such emergency authorization will
be utilized, it recently was used to order the anthrax vaccine.
Hollis-Eden is already making plans for contract manufacturing of
Neumune in preparation for the ramp-up.

A US government contract is expected to
increase interest in other countries dealing with their own nuclear
threats, so Hollis-Eden has begun marketing efforts in countries such
as South Korea, Japan and Canada. The company also has plans to market
in the Middle East.

The long term

Over the longer term, Hollis-Eden is
developing another drug known as Phosphonol to deal with DNA damage
resulting from radiation exposure, a less immediate threat than acute
radiation syndrome but still serious since it significantly raises the
chances of developing various types of cancer.

This is a particularly serious danger posed
by dirty bombs. While the dosages from such a bomb will not result in
many deaths from acute radiation syndrome, a far greater number of
people will be exposed to radiation levels that could cause DNA damage.

There is no doubt that considerable risks are
involved for Hollis-Eden in trying to address such an immature market.
The company was founded in 1994 and went public in 1997, but has
recorded no revenues to date. It must await a government decision to
create a market for its products.

That uncertainty is reflected in the company’s
stock, which traded as low as $2.78 per share in 2001, but soared to
$24.24 in 2003. In mid-February, it was trading at $7.50. HST

Philip Finnegan is
director of corporate analysis at the Teal Group, a firm based in
Fairfax, Va., that provides strategic and market analysis to major
corporations.

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