(FORTUNE Small Business) – It was a hot summer afternoon in Havana. Executives from CancerVax, a small biotech firm based in Carlsbad, Calif., waited nervously to sign a landmark licensing agreement with the Cuban government. Everyone, including CancerVax CEO David Hale, was sweating--and not just because of the heat. It had taken CancerVax three years of agonizingly complex negotiations to get to this point, but Fidel Castro could quash the deal at any time.

At 1:30 P.M., El Jefe strolled in, wearing a smart gray suit, white shirt, and conservative tie instead of his trademark fatigues. When Castro started speaking about the importance of the agreement to the Cuban scientific community and to cancer patients around the world, Hale finally knew the deal would happen. "With Castro you always worry it's going to be a long political speech," he recalls. "But this time it wasn't." And on July 13, 2004, an American company was granted permission to license three promising cancer vaccines from the communist nation. It was the first such deal in the 41-year history of the U.S. trade embargo against Cuba.

Unlike childhood vaccines aimed at preventing disease, cancer vaccines are administered to people who already have cancer in an effort to slow its progress or stop it altogether. The three Cuban drugs are now being readied for Phase II clinical trials in the U.S.

The most promising vaccine, a compound called SAI-EGF, is set to start its trial late this year or early in 2006. The drug targets a protein known as epidermal growth factor, or EGF, which is the sustenance of many tumors. EGF exists benignly in blood until a cancer tumor is present. It then locks onto the tumor's EGF receptor and stimulates its growth. SAI-EGF causes the immune system to create antibodies that prevent EGF from latching onto those receptors.

Independent analysts seem cautiously optimistic about the drug's prospects. "We think there is a 40% chance that SAI-EGF will work, and that's about 10% better than average for a drug in Phase I or Phase II trials," says Ben Weintraub, a biotech analyst with Hibernia Southcoast Capital in New Orleans.

CancerVax first learned about SAI-EGF at the 2001 meeting of the American Society of Oncology in San Francisco, where Hale saw the new research exhibited on a poster. It struck him as a novel approach to targeting the EGF pathway, so he approached the poster's authors and discovered that both scientists were from the Centro de Inmunologia Molecular (CIM) in Havana. "I was shocked," Hale says. "Then they told me that they had patents pending in Europe and Japan."

Hale decided to try to license the vaccines for distribution in the U.S. But he faced the challenge of overcoming four decades of U.S. government animosity toward Cuba. Hale hired two high-powered D.C. lobbyists--H.P. Goldfield and Richard A. Popkin--to rally support on Capitol Hill. (Both declined to be interviewed.) CancerVax's strategy was to stress the importance of developing a treatment for non-small-cell lung cancer. "Politics shouldn't get in the way of saving lives," says Hale.

There were plenty of bleak statistics available to support CancerVax's argument. More Americans die of lung cancer than of colon, breast, and prostate cancers combined, according to the American Cancer Society. Non-small-cell lung cancer represents 87% of diagnosed lung cancer. Nearly 60% of patients die within one year. Almost 75% die within two years, and those numbers haven't improved in a decade.

CancerVax's lobbying team took its case to Senators, Representatives, scientists, and public-interest groups. In December 2002 the company applied to the Office of Foreign Assets Control (OFAC) for permission to negotiate with Cuba. Two renowned cancer physicians wrote letters in support of the application. So did many members of Congress, including Senators Christopher Dodd (D-Connecticut) and Diane Feinstein (D-California). In March 2003, CancerVax received its negotiating clearance.

Treasury Department spokesperson Molly Millerwise wouldn't comment specifically on CancerVax but did say that OFAC "carefully reviews license requests that promote activities that could save or prolong American lives." CancerVax's success, however, was probably because of humanitarian considerations, says Pedro Freyre, a partner at the Washington, D.C., law firm Akerman Senterfitt, who specializes in Cuban embargo issues. "If you read the law applying to the embargo, there is a clear understanding that food and medicine should be treated differently, just like visits to family in Cuba are treated differently," Freyre says.

Beginning in May 2003, CancerVax's team traveled to Cuba many times to work out a licensing agreement with the Cuban scientists and their lawyers. Hale was impressed by Cuban science but found the negotiations frustrating. "It was hard trying to work with people who are products of a communist system, where the profits from a deal like this go largely to the state," he says. The terms of payment were one major sticking point. The Cubans wanted to be paid in cash. But U.S. government regulations required CancerVax to make all payments in food and medical supplies. (After the drugs go on sale, half the payments can be in cash.) Finally the Cubans agreed to receive payment in kind.

Once the terms were hammered out, CancerVax went back to Washington for approval. State Department officials expressed some concern that CancerVax's proposed deal might give the Cubans access to U.S. technology that could help them develop biological weapons. "But look at what the Cubans have done on their own with biotechnology," Hale argues. "If they wanted to develop biological weapons, they could have done it a long time ago." CancerVax also went out of its way to reassure the State Department that the technology in question was being transferred from Cuba to the U.S. and not the other way around.

Two State Department officials mentioned in a meeting that they had lost close relatives to lung cancer in the previous six months. "That was the first time I thought we had a good chance," Hale says. But few people shared Hale's optimism. "No one in the pharmaceutical industry or investment community in the U.S. believed this would happen," says David Allan of YM Biosciences, a Canadian biotech firm that was involved in the negotiations because it had previously licensed the three vaccines from the Cubans. CancerVax may have beaten the odds because its small size allowed the company to fly under the Washington radar. "There was no opposition in Congress to our application, and I think if there had been even a little, it wouldn't have happened," Hale says.

Although the fate of SAI-EGF and the other two Cuban drugs won't be clear for several years, CancerVax now faces a new challenge. In April the company suffered a setback when the Data and Safety Monitoring Board, an independent medical body that monitors clinical trials, recommended that a Phase III trial of another CancerVax drug, Canvaxin, be stopped because patients with advanced (Stage IV) melanoma showed no benefit from its use. CancerVax's stock (Nasdaq ticker: CNVX) lost 50% of its value on the day it announced the trial's cancellation. It was trading recently at $2.85 a share.

Like most biotech startups, CancerVax is running on investment capital while it waits for the drugs in its pipeline to pan out. The company reported a loss of $55 million in 2004, down from $60 million the year before. It has about $65 million in cash and securities on hand. Another Phase III trial of Canvaxin is still underway with Stage III melanoma patients. If the results of that trial, expected in mid-2006, show a significant survival benefit, CancerVax will request approval from the FDA in 2007. And if the FDA approves Canvaxin, the drug could be launched the same year. But Hale insists that Canvaxin's woes will not affect his plans to move forward with the Cuban drug trials.