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http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2003/04/01/BU109701.DTL&type=tech

VaxGen can't add to vaccine proof Bernadette Tansey, Chronicle Staff Writer Tuesday, April 1, 2003

VaxGen Inc. shares dropped 14 percent Monday as the firm's first report to fellow researchers on its AIDS vaccine trial showed no stronger proof of the protective effect for minority participants than it reported last month.

At a major meeting of HIV researchers in Canada, the Brisbane biotechnology company reaffirmed its conclusion that the experimental vaccine AIDSVAX caused a significant drop in infection rates for black study subjects even though it was ineffective in white participants.

But the company's further scientific analysis has so far established no clear cause rooted in biological differences for a varied response to the vaccine based on race. Executives also emphasized that the findings' significance could be affected by the small numbers of blacks in the trial, which involved primarily white subjects.

"We still have a lot of work ahead of us to understand the data," said company spokesman Lance Ignon.

When VaxGen rolled out the first results on the 5,400-subject trial on Feb. 24, it drew criticism from AIDS activists and others for using words like "spectacular" and "marvelous" to describe the tentative finding of efficacy in blacks.

AIDS advocacy groups said they found nothing new in the VaxGen presentation Monday but maintained their stand that any possible benefit to blacks should be thoroughly explored through research. Citing statistical questions that arose from VaxGen's original analysis, they are asking the National Institutes of Health to convene an outside panel to evaluate the data and decide whether further studies should proceed.

"What's needed now is for the public to have confidence (in the decision) because expectations have been raised," said Chris Collins of the AIDS Vaccine Advocacy Coalition in New York City.

In another disappointing finding, VaxGen's follow-up studies on those who did become infected with HIV after vaccination showed that AIDSVAX did not slow the viral growth that contributes to AIDS.

The cash-strapped biotech startup, which has poured $81 million into AIDSVAX since 1995, said any new AIDSVAX trials would have to be funded by the government or private foundations.

Company share prices took a further hit after the close of trading with the release of VaxGen's annual report, which included an auditor's statement that the firm might have difficulty surviving if it can't raise capital.

KPMG LLP echoed the assessment of Punk Ziegel & Co. analyst Sharon Seiler, who said on Feb. 24 that VaxGen would need to raise cash by this summer to meet its operating costs. Seiler owns VaxGen stock, and Punk Ziegel has done investment banking for VaxGen.

The auditors said VaxGen "has suffered recurring losses from operations during its development stage and expects to have a working capital deficiency for 2003, which raises substantial doubt about its ability to continue as a going concern." KPMG spokesman Robert Wade referred questions to VaxGen.

Ignon said SEC rules required KPMG to include the statement, but VaxGen has plans to both raise capital and cut costs. He declined to say whether the company has laid off employees, but said it is cutting costs in other ways.

Shares of VaxGen closed at $3.04 Monday, down 14 percent, in regular trading. In the after-hours market, shares fell to $2.88. Based on that price, the stock has plunged 78 percent since the first results from the vaccine trial were announced last month.

E-mail Bernadette Tansey at btansey@sfchronicle.com.

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