National Editor

VaxGen Inc. said it entered into subscription agreements to sell 4.1 million shares of common stock at $7 each to institutional investors, raising $28.7 million in a transaction expected to close Tuesday.

After placement-agent fees of about $1.72 million, the proceeds to Brisbane, Calif.-based VaxGen are expected to be almost $27 million excluding other expenses, according to a prospectus filed in connection with the agreements.

The company is in a quiet period as required by the Securities and Exchange Commission until the transaction closes, said Lance Ignon, VaxGen's vice president of corporate communications.

Proceeds will be used for general corporate purposes, including the development of VaxGen's smallpox vaccine candidate and for the plague vaccine program, according to the prospectus, with a portion potentially going for investing or acquisitions.

"We estimate that the net proceeds, after deducting the estimated expenses payable by us in connection with the offering, will be $26.5 million, assuming we sell the maximum number of shares," the prospectus says.

"As of Sept. 30, 2003, we had $6.8 million of cash, cash equivalents and investment securities," the document adds, noting that "our independent accountants expressed substantial doubt as to our ability to continue as a going concern."

The company will need more funds apart from the offering to continue and to expand, "and may attempt to raise these funds through equity or debt financings, collaborative arrangements with corporate partners or from other sources," the prospectus says.

Early this year, VaxGen's stock (NASDAQ:VXGN) fell 47.3 percent, or $6.16, to close at $6.86 on news that a Phase III study with its HIV vaccine conducted in North America, Puerto Rico, the Netherlands and Canada failed to hit its primary endpoint: statistically significant reduction of HIV infection within the study population as a whole. Another, smaller Phase III trial failed later. (See BioWorld Today, Feb. 25, 2003, and Nov. 13, 2003.)

The company's share closed Friday at $7.92, up 21 cents,

Earlier this month, VaxGen finalized the commercial terms of its smallpox vaccine collaboration with the Chemo-Sero-Therapeutic Research Institute (Kaketsuken), a government-backed business in Kumamoto, Japan, under which VaxGen will buy the vaccine, called LC16m8, in bulk from the Japanese firm and do the filling and packaging. Trials with the vaccine in humans could begin next year.

This fall, the National Institute of Allergy and Infectious Diseases awarded VaxGen an $80.3 million grant to develop a vaccine for anthrax, as part of about $200 million in contract funding distributed by the National Institutes of Health. (See BioWorld Today, Oct. 2, 2003.)