A pharmaceutical company that recently lost a government contract to develop a treatment for exposure to radiation from a nuclear bomb is stopping work on its product. The decision may forebode a loss of interest by pharmaceutical companies to develop products against biological weapons for government procurement.

Hollis-Eden Pharmaceuticals said March 16 that it will not continue to work on its countermeasure for Acute Radiation Syndrome (ARS) unless it receives funding from the government.

“We do not believe it is in the company’s best interest to try and chase a moving target,” CEO Richard B. Hollis said in a conference call. “We’re at the point where we can focus only on our most promising opportunities.”

The announcement comes a week after the Department of Health and Human Services said it was withdrawing plans to contract for an ARS drug, after determining none of the proposals met the department’s requirement (See related story, CQ Homeland Security, March 7, 2007).

It is widely believed that Hollis-Eden was the only remaining candidate for the 100,000-dose contract.

Hollis said company officials met with HHS aides and were told the data available on its drug, Neumune, was not sufficient to justify the contract. He said he believed the department’s requirements could only be satisfied with new safety and efficacy trials, which would cost between $40 million and $50 million.

“They’re not going to spend a single penny more on further development of the drug,” said an official familiar with the company, who spoke on the condition of anonymity. “Unless somebody steps up to the plate and says they need to develop the drug, there will be no more work done on it.”

Hollis-Eden is the latest company choosing to move away from developing drugs that could be sold to the federal government as part of Project Bioshield, which provided $5.6 billion for developing vaccines and countermeasures to biological terrorist threats.

Earlier this month, Acambis, a British drug manufacturer, said it was moving away from defense-related drugs as well, after being told it was not being considered for a Bioshield smallpox vaccine contract. The company also replaced its chief executive and chief financial officers and said it will cut 15 percent of its workforce this year.

Recent high-profile setbacks for Bioshield and the companies in line for contracts have some drug companies believing the grass is greener in the commercial market.

“In the short term, there is a significant risk” in working on Bioshield, said John Clerici, a biodefense consultant who works with drug companies seeking Bioshield contracts. “Companies are discouraged.”

But Clerici said he is still hearing from drug companies interested in seeking some of the $4.5 billion in Bioshield funds still available.

“Bioshield can work, if you have the patience and understanding to deal with the government,” he said.

Clerici said that while the ARS contract withdrawal and the December termination of an anthrax vaccine contract were setbacks for the program, they were sound decisions on their face.

“The remnants of the old regime and the old thinking of HHS is being cleared away,” he said. “There’s a new crop of people in charge of the Bioshield program that have a lot more experience.”

An HHS official was unavailable for comment.

Hollis-Eden said it will focus instead on drugs that can treat diabetes and rheumatoid arthritis, and which can be sold in the open market.

Shares of the San Diego company rose March 16, after the announcement.

Hollis left the door open to continuing work on its ARS drug, “if congressional intervention or procurement activities by the Department of Defense” improve opportunities for a contract.

Matthew E. Berger can be reached at mberger@cq.com.