The federal government is close to signing its first bioterrorism vaccine contract that would allow payments to drugmakers before doses are delivered to the national stockpile.

The Department of Health and Human Services is in advanced talks with Bavarian Nordic for the procurement of 20 million doses of a new smallpox vaccine, government sources said Thursday.

The deal would be the first procurement since HHS received new parameters for contracts through the Biomedical Advanced Research and Development Authority (BARDA) last year (PL 109-417).

Under the plan, HHS can make payments to drug manufacturers for the completion of “milestones,” rather than solely when doses are delivered to the Strategic National Stockpile.

Industry insiders had assumed Bavarian Nordic would win the contract after HHS told Acambis, a British drug manufacturer, that its product was no longer being considered.

HHS officials would not comment on the ongoing contract negotiation. But in its Public Health Emergency Medical Countermeasures Enterprise Implementation Plan, released last month, the department said it was “well-advanced in the pre-award stage” for procuring the vaccine.

Bavarian Nordic is working on a Modified Vaccinia Ankara (MVA) vaccine, which would cause fewer side effects than current smallpox vaccines. It is expected to be used for people who are immuno-compromised, and is being tested on people with HIV and atopic dermatitis.

It has previously received research and development funding through the National Institute of Allergy and Infectious Diseases.

Officials for the Denmark-based company have been touting progress on the HHS contract for about a month. They told investors on April 16 that HHS officials said they had an intent to procure the product.

“We are pleased that HHS has notified us of their intent for Bavarian Nordic to be the manufacturer of third-generation smallpox vaccines,” Peter Wuff, president and CEO, said April 16. “We consider this decision to be conclusive recognition of our substantial achievements in developing the MVA platform technology, which has many applications for future vaccines.”

But other companies have made similar claims to investors, only to have HHS find their proposals unsuitable and cancel procurement plans.

Bavarian Nordic officials had no comment Thursday, citing ongoing negotiations. The price for the contract has not been announced.

Project Bioshield was enacted in 2004 (PL 108-276), providing $5.6 billion over 10 years to produce countermeasures to biological weapons and epidemics. But the program has drawn criticism from pharmaceutical companies and lawmakers, who said the structure did not provide enough support for companies in advanced development of vaccines and antivirals.

Under the BARDA program, funds will be devoted to advanced development contracts for promising drugs, as well as providing avenues for earlier payments in procurement contracts.

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