| briandeer.com | VAXGEN'S AIDSVAX

MAKER OF FAILED AIDS VACCINE
IN FRAUD CLAIM

The Sunday Times (London) March 16 2003

Brian Deer

The firm behind the world’s first vaccine claIming to offer protection against Aids faces allegations of securities fraud after a four-year trial of the drug ended in failure last month.

Milberg Weiss, the American law firm leading the pursuit of the energy company Enron, plans to file a multi-million- dollar claim against the medical firm this week.

It will allege that VaxGen, of Brisbane, California, cheated thousands of small investors in the firm by allowing "favoured" insiders to sell stock before it was announced last month that the vaccine did not work. After the news, VaxGen's shares fell from a 12-month high of $23.25 to $3.

The company said last week that the allegations would be contested vigorously.

VaxGen began large-scale tests of its AidsVax in 1998, recruiting 5,400 subjects. The trial was launched amid excitement among investors but incredulity among many Aids experts.

“The whole thing was ridiculous,” said Dr Robert Gallo, co-dicoverer of HIV, last week. “I don’t know of a serious scientist in the world who would have expected this to work.”

Nevertheless, AidsVax was launched by medical entrepreneurs fronted by Dr Donald Francis, a former employee of the US government's Centers for Disease Control and Prevention. Francis, who grossed nearly 4.5m from VaxGen in its first three years, was backed by his old government employer, which gave the trial 5m and helped the firm to brush aside high-level opposition.

In 1999 The Sunday Times revealed that a government official who played a vital role in securing the 5m grant for VaxGen also had a secret deal to join the company. This official - Dr William Heyward - was later prosecuted under federal conflict of interest laws and was fined 20,500.

Milberg Weiss will allege that Francis, Heyward and others in the firm knew the trial was set to fail. It is focusing on institutional stock sales before the results were announced on February 24, including sell-offs by Vulcan Ventures, owned by Paul Allen of Microsoft.

Small shareholders say they were encouraged by company statements that all volunteers in small-scale trials "developed neutralising antibodies to HIV"; and that AidsVax had "protected" chimpanzees.

What the company did not emphasise was that an evaluation of HIV infections among volunteers found antibodies to be weak, transient and too narrowly type-specific to protect. Last week Vulcan Ventures declined to comment on the allegations about VaxGen.

A spokesmen for VaxGen said: "If indeed this lawsuit exists, the fact that the lawyers gave it to a newspaper before VaxGen speaks volumes about its lack of merit. VaxGen has complied with all securities laws and, if need be, will defend itself vigorously."

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