PowderJect Pharmaceuticals told the Financial Times that it was "confident of resolving the issue [of the potency of its vaccine] soon" and it was therefore a realistic plan to tender next month for the new contract.

PowderJect announced three weeks ago that it was recalling all outstanding doses of its BCG vaccine supplied to hundreds of thousands of British and Irish children over the past two years. Tests on samples of several batches - including two of the six supplied to Ireland - showed that potency levels fell faster over the vaccine's three-year shelf life than is allowed by the product licences.

The problem batches are understood to have been made between six months and three years ago.

Probes by the UK Medicines Control Agency and the Irish Medicines Board followed. The IMB said it was "dissatisfied about the procedures" used in making the vaccine, blaming "people and processes". The MCA has made no public statement, but is understood to have sent a report to PowderJect management outlining its areas of concern.

Scientists at Evans Vaccines - the PowderJect subsidiary in Speke, Liverpool, that makes the BCG vaccines - are now desperately trying to pinpoint the cause of the accelerated decline in potency.

The company said it was so confident of resolving the problem in time to win the next British government contract that it was investing ý3m in the BCG production line between 2001 and 2003. "We are investing now in BCG," it said. "We intend to invest the full amount."

Failure to win the UK contract - due to run from next spring - would leave the BCG production line with little to do. It lost its year-long Irish contract last month, when Ireland signed an emergency replacement deal with Statens Serum Institut of Denmark. Plans to sell BCG to a third customer, South Korea, have also foundered.

PowderJect's problems have been compounded by the fact that its chief executive, Paul Drayson, is a Labour donor, and ministers are sensitive to any allegations of favourable treatment. PowderJect insiders admit the company's copy book has been blotted but insist it is still realistic to hold on to at least part of the UK contract. The two-year deal which began in March 2001 was worth ý17m.