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VaxGen cuts workforce

VaxGen cuts workforce
By Steve Johnson, Mercury News

VaxGen, the tiny Bay Area biotechnology company that won and then lost a huge federal contract, Friday laid off 112 employees -- just more than half its workforce -- and its Chief Executive Lance Gordon resigned.

The layoffs came in the wake of the government's decision to terminate its $877.5 million anthrax-vaccine contract.

``It's a sad day for us,'' said Lance Ignon, spokesman for the Brisbane company. ``We've lost a lot of great people.''

Shares of VaxGen stock rose 26 cents, or 11.6 percent, to $2.51 at the close of trading on the Pink Sheets, a private listing service.

VaxGen's board replaced Gordon with James Panek, previously executive vice president, who joined VaxGen in 2002 after serving as senior vice president of Genentech's product operations. Gordon, VaxGen's chief executive since Sept. 19, 2001, will continue to serve the company as an adviser. It's unclear if Gordon will be paid in his new role.

As part of its restructuring, VaxGen also announced it has hired investment bank Lazard to help it explore possible mergers or other business deals with other companies.

``We are already in early stage discussions with several potential strategic partners,'' Chairman Randall Caudill said in a prepared statement that didn't identify the companies. In addition to the $96.6 million in cash, cash equivalents and short-term securities that VaxGen held as of Dec. 31, the statement said, ``The company has a number of significant assets of potential value to an acquirer or merger partner.''

Those assets include the company's vaccine manufacturing plant in South San Francisco as well as its anthrax vaccine, which was based on a formula created by military researchers.

The U.S. Department of Health and Human Services terminated the anthrax-vaccine contract Dec. 19, citing VaxGen's failure to meet a deadline for beginning a key test of the vaccine in people. Although VaxGen had done several earlier tests, the Food and Drug Administration refused to let it do more because the agency said the vaccine was unstable and might lose its potency, rendering the study results unreliable.

The contract issued to VaxGen in November 2004 was the first and the biggest under President Bush's Project BioShield anti-terrorism program. But VaxGen quickly ran into problems.

The vaccine's instability, which VaxGen first reported in March 2005, put the company more than a year behind schedule. In addition, VaxGen complained in May last year that federal officials arbitrarily changed the contract to impose costly new requirements for testing the vaccine. Although Health and Human Services officials denied adding requirements, the dispute soured VaxGen's relationship with the government.

In addition, some members of Congress criticized the contract award to VaxGen because the company had no commercial products, previously failed at making an AIDS vaccine and has been delisted from the Nasdaq Stock Market since 2004 because its financial records were not in order.

The government has a stockpile of an older anthrax vaccine. But that vaccine has been criticized for having unpleasant side effects and for requiring six doses, as opposed to the three that would have been required with VaxGen's vaccine.

Health and Human Services Department spokesman Bill Hall said bids will be sought soon from other companies interested in taking over the VaxGen contract.

``We plan to move swiftly to keep this effort moving toward a new anthrax vaccine,'' he said, though he noted that seeking new bids on the contract likely will delay further the vaccine's development. Under its revised contract, VaxGen was to have begun delivering the first of 75 million doses by late this year or sometime next year.

The most likely company to take over the contract is Avecia of England, which has been developing a genetically engineered vaccine similar to VaxGen's. Kevin Price, Avecia's senior vice president for vaccines, said his company probably could deliver some doses to the U.S. government ``in the next couple of years.'' But asked if Avecia could provide 75 million doses, he added, ``I guess I would have to put pen to paper on that.''
Contact Steve Johnson at sjohnson@mercurynews.com or (408) 920-5043.