By Matthew Willett

VaxGen Inc., leading the race for an approved HIV-1 vaccine, raised $20 million through a private placement of convertible preferred stock to fund the preparation necessary to launch AIDSVAX, the only vaccine against HIV-1 virus infection to reach Phase III testing.

The financing was led by The Palladin Group L.P., of Maplewood, N.J. Also participating were Halifax Fund L.P., also of Maplewood; Societe Generale Asset Management, of France; and Velocity Investment Partners Inc., of Chicago.

Brisbane, Calif.-based VaxGen¿s senior director of corporate communications, Lance Ignon, said the financing will fund preparations for commercialization of AIDSVAX, which is in two ongoing Phase III trials. The leading Phase III trial is expected to conclude in 2002, and Ignon said the company anticipates launching the vaccine in 2004.

¿We¿re in Phase III trials now, and we had enough funding prior to this offering to get our answer from our lead trial as to how well the vaccine worked,¿ he told BioWorld Today. ¿In addition to that there¿s a great deal of work that will go into preparing the vaccine for commercial production.¿

AIDSVAX, licensed from Genentech Inc., of South San Francisco, is designed to elicit an antibody response to a virus surface protein.

¿We use a classic approach,¿ Ignon said. ¿It¿s a vaccine that raises antibodies to a surface protein of HIV, GP120. We make it through recombinant technology so that the vaccine¿s main ingredient contains only GP120 mixed with alum. As a result, it contains no core proteins, which is why it cannot cause AIDS.¿

Each of the 20,000 Series A convertible preferred shares placed in this round of financing are convertible into VaxGen common stock at $23.33 per share, a price that represents a 15 percent premium to the 10-day average closing price on May 18. The shares bear an interest rate of 6 percent.

Vaxgen¿s shares (NASDAQ:VXGN) gained 1 cent Thursday, closing at $20.01.

Investors also received warrants to purchase additional shares of VaxGen at an exercise price of $25.24, a 25 percent premium to the 10-day average closing price. UBS Warburg LLC, of Stamford, Conn., acted as placement agent for the financing, which bolsters the company¿s balance sheet considerably.

¿At the end of the first quarter we had $42 million in cash and equivalents,¿ Ignon said. ¿This roughly adds $20 million to that. It certainly allows us to finance this very important work that¿s essential to making sure that we¿re ready to produce this vaccine if it receives regulatory approval. We do not want to be in the position some companies have found themselves in where they have an approved product, and it¿s not ready to be marketed.¿

Should VaxGen¿s vaccine attain approval, it could be the first such vaccine on the market to protect against HIV-1 infection, Ignon said. That would be a first step, he said. Can the VaxGen vaccine help scientists eradicate HIV in the way similar vaccines helped eradicate smallpox? Absolutely, Ignon said.

¿With enough commitment we can do that with AIDS,¿ he said. ¿It will not be easy, and it will take years to complete, but that will be the expectation. It can be done.

¿Certainly, the alternative is unacceptable.¿

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