Billionaire Insider Lightening Up on VaxGen Stake

But as the study nears an end, VaxGen appears to be backtracking from this efficacy floor. Spokesman Ignon says the company is only looking for a statistically significant difference in the two arms of the trial and is not offering any guidance on what a minimum efficacy standard might be, or about what the FDA might deem approvable.

An HIV/AIDS vaccine that offers 30% protection would be useful, says AIDS prevention expert Thomas Coates, but the danger, of course, is in people thinking they're 100% protected and reverting to high-risk behaviors.

"It would be a step in the right direction. In the U.S., you could conceivably see it being used with people at high risk for infection, such as IV drug users, gay males and minority women, but it's not the magic bullet," says Coates, director of the AIDS Research Institute and the Center for AIDS Prevention Studies at the University of California, San Francisco.

He adds: "Any campaign for its use would have to be carefully structured to ensure that people understand they still need to take all the other preventative measures."

VaxGen was formed in 1995, spun out of AIDS vaccine research then being done by Genentech, which still owns a stake in the company and retains the right to market the vaccine if it works. VaxGen went public in 1999 but has never garnered much attention from Wall Street's big investment banks, likely owing to the long odds against success. Its market cap hovers around $250 million.

Sharon Seiler, an analyst with the boutique investment bank Punk, Ziegel, says the odds of an AIDSVAX failure run about 65%, while the probability of minimal efficacy is about 30%. (She only gives 5% odds for a home run -- universal efficacy -- being hit in the study.)

But Seiler still has a buy rating on the stock and a $38 price target, because she believes the company is unfairly tagged as a one-note wonder. In recent months, VaxGen has done much to diversify, winning a government contract to develop a new anthrax vaccine and forming a drug manufacturing joint venture with Korean investors.

"If AIDSVAX doesn't pan out, VaxGen still has other business lines to fall back on," she says. Her firm has a banking relationship with the company.

Try telling that to short-sellers, who are salivating now that the AIDSVAX results are near. Short interest in the stock has risen to 2.4 million shares in November, from 1.5 million shares in July.

Says one particularly feisty -- and short -- hedge fund manager, "I don't care what else VaxGen has cooking, AIDSVAX has no chance of working, and that makes this thing a zero."

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