Art & Understanding

Tarnished Halos

AIDS researcher Donald Francis and VaxGen hit a snag with their latest vaccine trials, but the future looks less bright for other reasons.
by Patricia Nell Warren

Left Field June 2003

Saint Francis is in trouble. No, I don't mean the Italian dude from Assisi. I mean AIDS figure Donald Francis, who preached the crusade of "AIDS vaccines for humanity" so fervently that his enemies call him Saint Francis. Randy Shilts's book And the Band Played On was first to canonize him as the heroic CDC virus-hunter who alerted the world to AIDS. But that halo is showing signs of tarnish. Francis''s biotech firm, VaxGen, once a Wall Street darling, has joined the list of over 800 corporations charged with securities fraud and other financial crimes.

At issue is the recent clinical trial of VaxGen's experimental AIDS vaccine, AIDSVAX. Half a dozen law firms—notably Milberg Weiss, who led the litigation against Enron—are filing class-action lawsuits against VaxGen. The plaintiffs—investors who bought VaxGen stock—allege they were misled and defrauded. According to Milberg Weiss, "Defendants caused VaxGen to make a number of positive statements about the status of the trial and describing their eventual plans to manufacture and market AIDSVAX, causing VaxGenÕs stock to trade at artificially inflated prices." It's further alleged that VaxGen knew the trial results were disappointing when they made the statements. Plaintiffs are demanding damages and other relief.

Francis spent his early career as a CDC epidemiologist, working on cancer viruses, Ebola, smallpox, hepatitis B, finally HIV.ÊIn 1992 he went to work for pioneer biotech firm Genentech. There, based on his vaccine genetic-engineering theories, Francis and another virologist, Robert Nowinski, helped develop the technology for AIDSVAX(R). In 1995 Genentech decided not to pursue AIDSVAX, so they spun off VaxGen with Francis as president and Nowinski as CEO. Genentech licensed them the vaccine technology, retaining rights to market the vaccine if it worked.

AIDSVAX was designed to spark antibodies to gp120, a protein found in the surface of HIV viruses. In theory, a vaccine containing gp120 might keep HIV from penetrating the immune cells it attacks. Genetic variants of AIDSVAX(R) would hopefully prevent infection by three of the worldÕs five major HIV subtypes: B, E, and C. Previous research along this line had not looked promising. Indeed, many pharmaceutical companies had become reluctant to invest in AIDS vaccine R&D. They cited the weak immune response to HIV vaccines that testing already demonstrated. Another problem: the long lead-time needed to build plants capable of churning out millions of doses a year—corporations had to fund construction before they knew if their vaccines worked. In the corporate view, AIDS drug therapies gave a faster, bigger, less risky return.

Worse, the U.S. government was backing away from vaccine research. The National Institutes of Health, which had nixed the original Genentech technology after Phase I and II trials, was not impressed by FrancisÕs insistence that he could make gp120 work. They refused to fund the proposed Phase III clinical trials. In both the Journal of Virology and Science, a gallery of experts debunked the VaxGen approach.

But Francis lobbied fiercely to get the needed capital. For Phase III alone, he'd need $30 million. He got an endorsement from the World Bank, which had a keen interest in the estimated global market of 650 million HIV vaccine doses a year. A former CDC colleague—Jonathan Mann, now AIDS chief at the World Health Organization—helped by accusing the NIH of human-rights violations for not supporting VaxGen. Stung, NIH gave permission for the trials, even awarded VaxGen a $4.6 million grant. Within the CDC, Dr. William Heyward, head of the agency's HIV-vaccine unit, did such a good job of hyping VaxGen that the agency bandwagoned with an $8-million grant. Finally the FDA fast-tracked the AIDSVAX review process.

Francis fished for non-government support too. Billionaire Paul Allen, co-founder of Microsoft, donated $25 million to VaxGen. Francis also eyed IAVI, the new International AIDS Vaccine Initiative—he had helped organize this scientific NGO designed to create public-private partnerships. Now Francis persuaded the Bill and Melinda Gates Foundation to donate $25 million to IAVI research, hoping that IAVI would give VaxGen some key support. In a corporate memo dated March 22, 1999, Francis exulted to his executives that they now had projected revenues of almost $111 million dollars. The memo outlined VaxGenÕs plans to go public and sell stock, and mentioned new personnel he was recruiting. Saint FrancisÕs crusading had worked brilliantly—for the moment.

News media, always a sucker for saints, reported glowingly on these developments. Little VaxGen was the only pharma to have two HIV vaccine candidates in Phase III. In the U.S., Puerto Rico, Canada, and Netherlands, the corporation would test AIDSVAX B/B against subtype B. Meanwhile, in Thailand, AIDSVAX B/E would be tested against subtype E found in many developing countries.Ê

But not all the press were awed. In 1999, award-winning British journalist Brian Deer, who had covered AIDS research since 1981, interviewed Francis and wound up feeling perturbed. According to briandeer.com, "During a three-continents investigation...Brian Deer found a crushing scientific consensus that VaxGenÕs controversial technology couldnÕt work, but was promoted through political pressure and private deals." Feeling what he called a "public duty," the journalist sent his findings to the U.S. Department of Health and Human Services. Alarmed, HHS forwarded them to a House investigating subcommittee.

Meanwhile, in 1998, the first Phase III trial got underway in Philadelphia with 5,400 volunteers. There was a potential problem: Only 498 volunteers were non-white. Undaunted at the smallness of their minority cohort, VaxGen went to work. In 1999 the company went public as planned—VaxGen shares opened on the Nasdaq at $13. While some investors were leery of a boutique biopharm with one unproven product, others took the plunge. Paul Allen was the biggest investor—three million shares purchased through his investment fund, Vulcan Ventures.

In 2000, after two years of trial, interim results were scrutinized by the independent board monitoring the study. The first flicker of trouble appeared. If results had looked positive at that time, the study would have ended so VaxGen could proceed with marketing. But, according to IAVI Report, "The data are inconclusive."Ê Study would continue.

Then, in 2001, another ominous flicker appeared. At the CDC, Heyward's statements to the media, and the grant heÕd engineered, had helped drive the interest in VaxGen stock. Shortly after the grant, Dr. Heyward had left the agency to work at VaxGen as a vice president. Now House investigators, looking at documents provided by Brian Deer, noted the March 22, 1999, memo—it mentioned Heyward's job deal with VaxGen. Clearly the deal had been struck before Heyward touted VaxGen at the CDC. Federal attorneys charged Heyward with conflict of interest—only to see the U.S. Office of Government Ethics quietly settle with Heyward. The doctor got off with a $32,500 fine (if found guilty, he could have gone to prison), and the government agreed not to proceed criminally against him. The decision was kept out of the news, supposedly to avoid prejudicing the clinical trial's results.

Meanwhile, VaxGen was moving ahead.Ê Hoping to diversify and profit from the anti-terrorist climate, VaxGen would partner with Kaketsuken, a Japanese company, on a smallpox vaccine. The company won an increase in an old government contract to develop an anthrax vaccine. Most important, VaxGen had become a joint partner with Asian investors to build vaccine-manufacturing plants.

During summer 2002, excitement exploded when Francis spoke to delegates at the International AIDS Conference in Barcelona. He said: "I think we will get protection [from HIV], but I don't know what level we'll get." Quoted in UN Wire, Francis said he was Òvery confident [the vaccine] will be efficacious.Ó Legally, Francis's comments might be considered what Wall Street calls "forward-looking statements." Investment publications customarily carry disclaimers to make it clear to their clients that comments on future earnings are not infallible. Francis's statements caused VaxGen stock to soar. By November 2002, it sold at $23.25 a share.

Then came more dark flickers. Vulcan Ventures started selling VaxGen. Between November 18 and 20, Vulcan dumped 780,000 shares. Observers wondered whether Allen was merely taking profits (an estimated $15 million), or whether he had second thoughts about AIDSVAX.Ê

A month later, with the trial ending, there were gloomy news leaks about the results and the stock's price started to slide. By February 24, 2003, trial results were official. VaxGen's press release admitted, "The study did not show a statistically significant reduction of HIV infection within the study population as a whole." That day the price of VaxGen stock collapsed—to $6.86 a share.

Don Francis tried damage control—he insisted that the vaccine could offer protection to minorities. According to him, at least thirty percent of African-American and Asian volunteers had shown positive effects. Scientists use the term Òdata dredgingÓ for efforts to wring significant results out of small study samples. The thirty-percent level was significant because the FDA will not approve vaccines that protect fewer than thirty percent. Some scientists expressed disbelief that there could be a valid biological or genetic blip in the VaxGen results. Investors werenÕt convinced either—by February 26, no matter how Saint Francis tap-danced, the stock price sank to $2.70.

Shocked investors who'd lost their shirts were sure they smelled a rat. One heartbroken small investor, William Lazar, wrote on his weblog: "I haven't made any comments in the month since Vaxgen released the results of their AIDSVAX study. To some degree, the silence came out of sadness, for the peopleÕs lives this vaccine would have changed and for my own financial results. I may yet find it necessary, if distasteful, to sign on to one of these suits."ÊÊ

Hope dies hard in the AIDS world, especially where big idealism and big money join hands. IAVI declared the study "disappointing" but lauded Francis for his Òleadership.Ó Later this year, results are due on VaxGenÕs second trial—the one in Thailand, with AIDSVAX B/E. Some analysts predict that, if this variant vaccine looks promising, investors might be wooed back to VaxGen. Saint Francis of Assets stayed visible on the lecture circuit, trying to straighten his halo. "If society values this damn stuff," he stormed, "they better move it forward. WeÕve proved that humans can be protected from HIV, even if itÕs just four people." At a Keystone Symposium in March, VaxGen tried again to put positive spin on the "failure." At a Stanford University conference, the program staunchly described Francis as "one of the world's most widely recognized scientists in the field of AIDS."

Yet in April, VaxGen's own auditor, KPMG LLP, reported that VaxGen had mounting losses and limited capital resources.

As I write this, the SEC and Justice Department have yet to move against VaxGen—a curious fact, considering they led the charge against Enron and other prominent investigatees. Might the Feds be embarrassed by revelations on their handling of the William Heyward affair? Milberg Weiss says it is scrutinizing Heyward's role. The firm is also looking at stock sales by Vulcan and others, for possible evidence of insider trading.

Is Don Francis a saint or a sinner? Is he a good man whose passions drove him to make some bad business and political decisions? Or has he become just another corporate hack? Perhaps time, and litigation, will shed more light on this vaccine story. One thing is sure: In the strange world of AIDS politics, a tarnished halo can be better than no halo at all.