The federal government Thursday picked VaxGen as one of two companies to develop a new, genetically engineered anthrax vaccine, in a crash program to provide a stockpile for use in the event of a bioterrorist attack.

The Brisbane company won a cost-plus-profit contract worth as much as $27.2 million to test the vaccine and to draw up plans for manufacturing 25 million doses to protect the public against the deadly bacteria.

``We were the only U.S. company selected to produce the new anthrax vaccine,'' said VaxGen Chief Executive Officer Lance K. Gordon. The National Institute of Allergy and Infectious Diseases awarded a similar contract to Avecia in Manchester, England.

But once the two companies produce their vaccines and demonstrate their effectiveness, the government will seek competitive bids for actual production of the stockpile. The aim is to seek Food and Drug Administration approval of a new vaccine late next year.

``If we perform well under this first contract, I would like to think . . . we'll be in an excellent position to continue,'' Gordon said.

The company will retain rights to the vaccine it develops and could sell it to other governments and private customers.

VaxGen was one of several companies to respond to a government proposal to develop the new vaccine. Best known for its experimental AIDS vaccine now in the final phase of testing, the small company was spun off by Genentech in 1995. In the first half of 2002, it reported a net loss of $15 million and a cash reserve of $36 million.

Vaccine veterans

Gordon has 20 years in the vaccine business and is the inventor of a widely used vaccine for infant meningitis. Dr. Donald P. Francis, co-founder and president, is an expert in the human immunodeficiency virus that causes AIDS.

Questions have been raised about the safety and effectiveness of an existing anthrax vaccine, produced from an infectious strain by BioPort in Lansing, Mich. The vaccine has been administered to 500,000 military personnel but has not been generally available for civilian use.

The new vaccine uses a genetically engineered version of an anthrax protein isolated by the U.S. Army Medical Research Institute of Infectious Diseases. Producing large quantities of the new purified protein vaccine will not require using infectious bacteria.

The BioPort vaccine requires six injections over 18 months. One goal of the crash program is to produce a vaccine that requires only three injections.

``There is an urgent need to devise more effective measures to protect U.S. citizens from the harmful effects of anthrax spores used as instruments of terror,'' said Health and Human Services Secretary Tommy G. Thompson.

Anthrax attacks

Concern about the use of anthrax by bioterrorists was dramatically heightened last year when five envelopes containing the deadly spores were mailed to elected officials and news media, resulting in 11 cases of inhalation anthrax -- five of them fatal.

The new contract is in two phases -- $13.6 million for early manufacture and testing, followed by another $13.6 million for more definitive trials. VaxGen has a $4.5 million subcontract with Battelle of Columbus, Ohio, to produce the first batches of the vaccine and conduct animal testing.

Following announcement of the contract Thursday, VaxGen shares closed at $10.17, up $1.17.