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Last Updated

19 Jan 2003

Source: Newsday, January 19, 2003

Vaccine May Be Key To Future Of Company

By Randi F. Marshall, STAFF WRITER

For the past six months, VaxGen Inc. has been the darling of investors, analysts and industry experts.

The concept alone - a biotechnology company with a prospective AIDS vaccine - was enough to drive the stock up by nearly 75 percent since July to $19.50 as of yesterday.

Now, as California-based VaxGen prepares to release significant test results for the vaccine during the first quarter, some investors and analysts are preparing for the possibility of failure, while others are poised to watch the stock soar.

There's one thing they all agree on: VaxGen is, at best, a risky investment with high chances of failure.

"The road to an AIDS vaccine is a graveyard of things that haven't succeeded," said analyst Anna Kazanchyan with Investec in Manhattan. "One has to temper the optimism with knowing the chances of success aren't as high."

Kazanchyan predicts a 55 percent to 70 percent chance the vaccine will fail. That's why investors are shorting a stunning 2.3 million VaxGen shares. Short sellers borrow and immediately sell stock, betting the stock price will fall, so they can make a profit when they have to buy the shares back.

And some experts worry that without the vaccine, AIDSVax, there is no VaxGen. "I would guess they'd be in dire straits," said John McCammant, the editor of the Medical Technology Stock Letter in Burbank, Calif.

But Punk Ziegel & Co.'s senior biotech analyst, Sharon Seiler, who owns the stock, argues that the Brisbane, Calif.-based company has diversified enough to sustain itself. VaxGen is developing anthrax and smallpox vaccines and is establishing manufacturing facilities in South Korea.

VaxGen has become the subject of a barrage of marketing letters and e-mails from Baltimore-based equity analyst Porter Stansberry, who co-founded Pirate Investor, a research firm. With bold headlines, the letters offer "the only realistic chance to make 50 times your money in the short term."

In an interview, Stansberry defended his marketing techniques, noting that he has done significant research and always reminds his subscribers of the risk. But VaxGen spokesman Jim Key said he does not condone the hype."I think the tone and manner of the piece is very objectionable," Key said.

Some investors are choosing the opposite tactic, selling their stock before the data emerges. Paul Sonz, the managing general partner with Florida-based hedge fund Sonz Partners, said the chances of failure led him to scale back his VaxGen investment.

"But I left myself open in case the world gets lucky and this thing is off the charts," Sonz added.

Microsoft co-founder Paul Allen sold more than 1 million shares of VaxGen stock late last year, both from his personal portfolio and through his firm, Vulcan Ventures. The sales led some analysts to wonder whether Allen had inside information.

"It does not show a lot of faith in the future prospects of the company," said Jonathan Moreland, research director at "People can be forgiven for thinking it's a red flag. I certainly do." Allen did not respond to requests for comment, but VaxGen's Key said no one has any access to the trial results before the analysis starts.

Despite their concerns, analysts appear cautiously optimistic about the AIDSVax vaccine.

"It has been a very controversial product from day one," said Kazanchyan. "The moment of truth is going to happen when the trial data is out."