VaxGen Inc. did not receive the results it and so many others hoped for after releasing Phase III trial data for its experimental AIDS vaccine, resulting in an investment backlash against the company's stock.

The Brisbane, Calif.-based firm's shares (NASDAQ:VXGN) on Monday plummeted 47.3 percent - a $6.16 fall to close at $6.86. Prior to trading, VaxGen revealed that its AidsVax B/B (rgp120) candidate did not show a statistically significant reduction of HIV infection within the study population as a whole, which was the primary endpoint of the trial. Specifically, the reduction of infection among the more than 5,000 volunteers who received at least three doses was 3.8 percent (p=0.76).

"Certainly at the topline we are disappointed that the vaccine did not induce a reduction of infections in all populations," VaxGen CEO Lance Gordon said during a conference call. "The vaccinated subjects did not show a lower rate of HIV infection in the white and Hispanic populations."

The trial was designed to show that the vaccine worked at least 30 percent better than placebo in stopping HIV infection.

Subgroup Results Point To Some Success

But the data did reveal a statistically significant reduction of HIV infection among specific racial groups - blacks and Asians. There were 67 percent fewer HIV infections among 498 volunteers classified as ethnic minorities, other than Hispanics, who received vaccine compared to placebo (p<0.01). Also, there were 78 percent fewer HIV infections among the 314 black volunteers who received vaccine compared to placebo (p<0.02). An intent-to-treat analysis showed the reduction in infection in individuals who received at least one dose of vaccine or placebo was similar and also statistically significant.

"We know that there are genetic differences between blacks and whites, specifically genetic differences in the way we respond to different types of infections," Michael Para, a principal investigator in the study, said during the conference call. "It is not beyond belief or even that surprising that a certain genetic population - a certain group of people - might respond better to the vaccine than another group. While the results are surprising, I don't think that they're outside of scientific understanding."

Protection appeared to correlate with the higher level of vaccine-induced neutralizing antibodies observed in those groups. Preliminary results indicate that a surface-protein vaccine that stimulates neutralizing antibodies correlates with prevention of infection.

Trial data indicate that black and Asian volunteers appeared to produce higher levels of antibodies against HIV. White and Hispanic volunteers appeared to develop consistently lower levels of protective antibodies following vaccination. VaxGen said it plans to conduct additional analyses on the correlation between the level of antibodies and the prevention of infection.

"There are a lot of factors that could be involved," Phillip Berman, VaxGen's senior vice president of research and development and the vaccine's inventor, said during the conference call. "There is behavior, geographic location, age and sex, and we need to investigate each one of those possibilities before we can say that there is a racial difference."

While many investors did not react favorably to the news, the company is not running up the white flag. Though VaxGen's success is limited to small numbers compared to the whole of its study population, the early analysis points to a measure of triumph for a method of vaccination that has yet to see any significant positives.

"From a scientific perspective, I think it's actually a big step forward," Sharon Seiler, an analyst at New York-based Punk, Ziegel & Co., told BioWorld Today. "This is the first time anybody has shown any efficacy for an HIV vaccine in any population. Given the fact that they did see efficacy, although in small subgroups, it seems to be dependent on the amount of antibodies produced by people in the trial."

She said the data appear to vindicate VaxGen's intent - to produce a vaccine that induces an antibody response to effectively prevent HIV. Results also indicate that AidsVax is well tolerated and has a high safety profile. Vaccine recipients had a slightly higher rate of pain, swelling and tenderness at the injection site compared to placebo recipients.

VaxGen said its product's viability should continue to be explored.

"Do we expect that AidsVax B/B would be effective in Africa, particularly in sub-Saharan Africa where the disease rates and death rates have been the highest in the world?" Gordon asked. "We don't really have definitive answers at this time. We did see very high immunoresponses and neutralizing titers in blacks in America and the Netherlands, Puerto Rico and Canada, so that gives us reason to explore."

AIDS Group Wants More Studies

Presumably, though, the vaccine would have to be altered to combat a different strain of HIV found in that part of the world. The International AIDS Vaccine Initiative also echoed a call for more studies.

"We still see promise and a great need for pushing forward antibody-based vaccine candidates," Kay Marshall, the organization's director of communications, told BioWorld Today. "Right now most of the other vaccines that are in clinical trials are designed to stimulate T-cell immunity. But while there is still a lot of work to be done, this does not mean the end of antibody-inducing vaccines."

AidsVax, made of a recombinant form of the gp120 protein on the surface of HIV, is produced in mammalian cell culture. It includes two HIV subtype B antigens, MN and GNE8. The bivalent vaccine contains non-infectious, genetically engineered proteins that mimic proteins on the surface of two strains of HIV subtype B - prevalent in North America, Europe, Australia, Japan and Puerto Rico.

The 5,400-patient trial, which included about 5,100 homosexual men and more than 300 at-risk women, was conducted in the U.S., Canada, Puerto Rico and the Netherlands. The volunteers, believed to be HIV negative when they joined the trial, were administered injections on the first day, followed by injections after one month, six months, a year, 18 months, two years and 30 months.

Counseled to avoid HIV risks, the patients randomly received vaccine or placebo, with two-thirds of the subjects getting the vaccine. VaxGen said a preliminary analysis showed that risk behavior was reduced in both the placebo and vaccine groups.

Commercial Viability Still Unclear

With the positives limited to a small group of volunteers, VaxGen's market opportunity may also be limited.

"Commercially, it's obviously a bit more of a question mark," added Seiler, whose firm co-managed VaxGen's initial public offering in 1999. "It's a little uncomfortable for people to think about approving an FDA-regulated product based on ethnicity. But on the other hand, if the results are confirmed, I think it would be hard to say that a vaccine that's 78 percent effective in blacks should not be available for those in whom it is effective."

While she said approval based solely on these data is speculative, Seiler said a potential market of 7.6 million people - based on the percentage of black Americans - could translate into $2.3 billion.

"The question really is related to timelines," she said. "What kind of trials would the FDA want them to do for licensure in this subgroup, and what kind of formulation changes might VaxGen need to make the vaccine effective in a broader population. But if they can get the vaccine registered for use in blacks and other nonwhite groups, it's clearly going to be a commercially successful product."

An additional Phase III study continues in Thailand, focused on another strain of HIV. VaxGen said it expects results at the end of the summer from the trial, which is testing a different formulation of the vaccine, AidsVax B/E, designed to protect against HIV subtypes B and E. Subtype E is prevalent in Southeast and east Asia, as well as central Africa. The Thai trial is studying the vaccine against infection acquired by injection drug use.

"If it's true that the vaccine is effective in Asians, one would expect that trial to be more successful than the one that was just unblinded," Seiler said. "I think that would make people feel more comfortable that the results in the North American trial were real, even though the subgroup numbers were small."

Despite talk of potential upside for the drug, VaxGen's investors nevertheless felt the brunt of the single-day stock price hit. Two of its larger shareholders have seen their stakes in the company reduced both by dilution and recent stock sales.

Spun out of Genentech Inc. in 1995 to develop the AIDS vaccine, VaxGen reported a year-end net loss of $31.7 million for the period ended Dec. 31. The company, which had about 15.1 million shares outstanding at the time, also reported $18 million in available cash and securities.

At its outset, South San Francisco-based Genentech had a 25 percent equity stake in VaxGen. The company went public in 1999, selling 3.1 million shares at $13 apiece to raise $40.3 million. Soon after, VaxGen received a $25 million investment from Bellevue, Wash.-based Vulcan Ventures, the investment arm of Microsoft co-founder Paul Allen. (See BioWorld Today, July 1, 1999, and Oct. 13, 1999.)

But Genentech's holdings in VaxGen have been reduced to about 11 percent, and according to news service reports, late last month Vulcan sold about 175,000 of its almost 665,000 shares in VaxGen.

Genentech also recently lowered its worldwide hold on AidsVax rights. Last summer VaxGen and Genentech revised their May 1997 license and supply agreement to give VaxGen greater commercialization flexibility. VaxGen is building a facility in Incheon, South Korea, to manufacture the vaccine. Genentech retains its option to market and sell the vaccine candidate in North America, but it relinquished its option to commercialize it in the rest of the world. The new agreement also reduces VaxGen's royalty obligations to Genentech by up to 50 percent for sales to the World Health Organization or the United Nations for underdeveloped countries. (See BioWorld Today, July 8, 2002.)

While VaxGen said the initial results are subject to additional analysis, it plans to provide more detailed analysis at next month's Keystone Symposia on HIV. The company also said it continues to review the trial's results with the FDA.

VaxGen also is conducting a continuation of the study. AidsVax also will be studied as part of a trial in heterosexuals in Thailand, a study to be fully funded through a $3 million grant from the National Institutes of Health in Bethesda, Md. With another grant from the NIH, VaxGen is working to develop a vaccine for subtype C.

VaxGen also continues to work on a new anthrax vaccine, development spurred through a multimillion-dollar contract from the National Institute of Allergy and Infectious Diseases, a unit of the NIH. The vaccine would be required to provide immunity to inhalation anthrax in three or fewer doses and therefore reduce administration time.