VaxGen, Inc. Stops Vaccine Work, Cuts Staff, Eyes Partner

SOUTH SAN FRANCISCO, Calif., May 24, 2007 /PRNewswire-FirstCall/ -- VaxGen Inc. announced today that has discontinued further development of its recombinant anthrax vaccine and is laying off 20 employees, or 25% of its workforce, directly and indirectly associated with the vaccine program. The company’s decision follows the recent completion of several milestones intended to support ongoing efforts to partner its anthrax vaccine program and was based on the Department of Health and Human Services (HHS) recent action related to the potential procurement of a next-generation anthrax vaccine.

The recently completed milestones include the development of multiple vaccine formulations showing greatly improved stability, the completion of bulk drug manufacturing process validation and the production of clinical-grade bulk drug inventory.

“We carried on development of our anthrax vaccine this year in order to enhance our ability to license or sell the program to another entity,” said James P. Panek, VaxGen’s President and CEO. “In part as the result of the progress we made, we now have several discussions underway to partner our rPA anthrax vaccine program.”

Last week, HHS issued a “Sources Sought” notice indicating a “future need for 25 million doses of an anthrax recombinant Protective Antigen (rPA) vaccine ... with options for up to an additional 40 million doses.” While VaxGen’s anthrax vaccine candidate is made from rPA, the notice also indicated that respondents had to have “a Food and Drug Administration (FDA) Investigational New Drug (IND) application not currently on clinical hold.” VaxGen’s Phase II trial is on clinical hold, which would appear to preclude the company from responding to what the HHS notice referred to as non-binding “market research”.

“We are pleased to see that HHS continues to require an rPA anthrax vaccine and believe VaxGen’s candidate will, in the hands of another company, prove to be a strong contender to meet this need,” Mr. Panek said. “Although we find it difficult to understand how certain aspects of the Sources Sought notice contribute to the advancement of a modern anthrax vaccine, we believe that the quality of the science and performance of our vaccine will ultimately determine its commercial outcome.”

VaxGen expects to incur a cash restructuring cost of approximately $557,000 related to employee separation expenses. The company estimates that the reduction in force will decrease its monthly cash used in operating activities by $175,000. Following this lay off, the company expects to have 61 full-time employees on its payroll.

This is the second reduction in force that the company has undertaken since January, when it laid off more than half of its workforce not long after HHS cancelled its contract to provide 75 million doses of its rPA anthrax vaccine for civilian biodefense.

“From the outset of the first lay off, we have promised our shareholders that we would retain only those capabilities that we believed could create value,” Mr. Panek said. “Further development of our anthrax vaccine candidate at this time is neither necessary nor justified given the status of the program and the action from HHS. Meanwhile, our remaining staff preserves the value of our core process development capability and manufacturing facility, and our ability to complete a strategic transaction.”

VaxGen is a biopharmaceutical company based in South San Francisco, California. For more information, please visit the company’s web site at http://www.vaxgen.com.

Note: This press release contains “forward-looking statements” within the meaning of the federal securities laws. These forward-looking statements include, without limitation, statements regarding the Company’s ability to license or sell its anthrax vaccine; the ability of another entity to successfully develop and commercialize VaxGen’s anthrax vaccine candidate; the total cost associated with employee separation expenses and the decrease in monthly spending related to laying off 20 employees; and the Company’s ability to successfully complete a strategic transaction. Readers are cautioned not to place undue reliance on these forward-looking statements that speak only as of the date of this release. VaxGen undertakes no obligation to update publicly any forward-looking statements to reflect new information, events, or circumstances after the date of this release except as required by law.

CONTACT: Lance Ignon, Vice President, Corporate Affairs of VaxGen Inc.,office, +1-650-624-1016, cell, +1-650-238-4727

Web site: http://www.vaxgen.com/

SOUTH SAN FRANCISCO, Calif., May 24, 2007 /PRNewswire-FirstCall/ -- VaxGen Inc. announced today that has discontinued further development of its recombinant anthrax vaccine and is laying off 20 employees, or 25% of its workforce, directly and indirectly associated with the vaccine program. The company’s decision follows the recent completion of several milestones intended to support ongoing efforts to partner its anthrax vaccine program and was based on the Department of Health and Human Services (HHS) recent action related to the potential procurement of a next-generation anthrax vaccine.

The recently completed milestones include the development of multiple vaccine formulations showing greatly improved stability, the completion of bulk drug manufacturing process validation and the production of clinical-grade bulk drug inventory.

“We carried on development of our anthrax vaccine this year in order to enhance our ability to license or sell the program to another entity,” said James P. Panek, VaxGen’s President and CEO. “In part as the result of the progress we made, we now have several discussions underway to partner our rPA anthrax vaccine program.”

Last week, HHS issued a “Sources Sought” notice indicating a “future need for 25 million doses of an anthrax recombinant Protective Antigen (rPA) vaccine ... with options for up to an additional 40 million doses.” While VaxGen’s anthrax vaccine candidate is made from rPA, the notice also indicated that respondents had to have “a Food and Drug Administration (FDA) Investigational New Drug (IND) application not currently on clinical hold.” VaxGen’s Phase II trial is on clinical hold, which would appear to preclude the company from responding to what the HHS notice referred to as non-binding “market research”.

“We are pleased to see that HHS continues to require an rPA anthrax vaccine and believe VaxGen’s candidate will, in the hands of another company, prove to be a strong contender to meet this need,” Mr. Panek said. “Although we find it difficult to understand how certain aspects of the Sources Sought notice contribute to the advancement of a modern anthrax vaccine, we believe that the quality of the science and performance of our vaccine will ultimately determine its commercial outcome.”

VaxGen expects to incur a cash restructuring cost of approximately $557,000 related to employee separation expenses. The company estimates that the reduction in force will decrease its monthly cash used in operating activities by $175,000. Following this lay off, the company expects to have 61 full-time employees on its payroll.

This is the second reduction in force that the company has undertaken since January, when it laid off more than half of its workforce not long after HHS cancelled its contract to provide 75 million doses of its rPA anthrax vaccine for civilian biodefense.

“From the outset of the first lay off, we have promised our shareholders that we would retain only those capabilities that we believed could create value,” Mr. Panek said. “Further development of our anthrax vaccine candidate at this time is neither necessary nor justified given the status of the program and the action from HHS. Meanwhile, our remaining staff preserves the value of our core process development capability and manufacturing facility, and our ability to complete a strategic transaction.”

VaxGen is a biopharmaceutical company based in South San Francisco, California. For more information, please visit the company’s web site at http://www.vaxgen.com.

Note: This press release contains “forward-looking statements” within the meaning of the federal securities laws. These forward-looking statements include, without limitation, statements regarding the Company’s ability to license or sell its anthrax vaccine; the ability of another entity to successfully develop and commercialize VaxGen’s anthrax vaccine candidate; the total cost associated with employee separation expenses and the decrease in monthly spending related to laying off 20 employees; and the Company’s ability to successfully complete a strategic transaction. Readers are cautioned not to place undue reliance on these forward-looking statements that speak only as of the date of this release. VaxGen undertakes no obligation to update publicly any forward-looking statements to reflect new information, events, or circumstances after the date of this release except as required by law.

CONTACT: Lance Ignon, Vice President, Corporate Affairs of VaxGen Inc.,office, +1-650-624-1016, cell, +1-650-238-4727

Web site: http://www.vaxgen.com/

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