VaxGen Inc. is engaged in the development and commercialization of AIDSVAX, a vaccine designed to prevent infection or disease caused by HIV (Human Immunodeficiency Virus), the virus that causes AIDS.

The original Complaint charges VaxGen and certain of its officers and directors with violations of the Securities Exchange Act of 1934. During the Class Period, Defendants were completing the final stages of AIDSVAX's Phase III clinical trials required to obtain Food and Drug Administration approval to market AIDSVAX as an AIDS vaccine. Throughout the Class Period, 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 VaxGen's stock to trade at artificially inflated prices. On February 23, 2003, VaxGen shocked the market by reporting the long-anticipated results of the U.S. trials, disclosing that the "study did not show a statistically significant reduction of HIV infection within the study population as a whole, which was the primary endpoint of the trial." The partial disclosure of the overall failure of the U.S. clinical trial caused VaxGen's shares to plummet, declining over 50% to approximately $3 per share on Feb. 24, 2003. However, even when Defendants released the results on Feb. 24, 2003, they claimed that while the vaccine failed to demonstrate efficacy on U.S. Caucasians, the trials had demonstrated 30%-84% efficacy rates in U.S. Blacks and Asians. That analysis, the Company said, had less than a 1% chance of being due to random chance, making it highly statistically significant. The VaxGen president touted the results as evidence that AIDSVAX could protect against HIV infection. As reported by The Wall Street Journal on Feb. 24, 2003, the "results overall won't lead the Food and Drug Administration to approve the vaccine for use in the wider public, but the company hopes that further analysis, as well as results from another trial being conducted in Thailand on injection drug users, may prompt the agency to approve the vaccine for some ethnic minorities." These corrective statements had their intended effect and VaxGen's stock closed at close to $7 per share on Feb. 24, 2003. However, on Feb. 26, 2003, Defendants were forced to admit that the reliability of their earlier reports of higher efficacy rates for non-Caucasians were impaired because they had not taken the requisite "penalties" to account for the fact that less than 500 of the 5000 clinical trial participants were non-Caucasians, resulting in an extremely small subset of data being analyzed for non-Caucasians. As the news that earlier promises that AIDSVAX could prove useful for non-Caucasians fell apart, the stock declined further, resulting in a total loss in market cap since Nov. 18, 2002 of approximately 85%.

According to a press release dated April 11, 2005, VaxGen announced that the United States District Court for the Northern District of California has entered an Order dismissing the Amended Complaint in In re VaxGen, Inc. Securities Litigation, No. C 03-01129 JSW without prejudice to Plaintiffs' filing a further amended Complaint. Separately, the Company also announced that the California Superior Court for San Mateo County has scheduled a hearing for April 29, 2005 to consider a proposed settlement in a related shareholders' derivative lawsuit, captioned In re VaxGen, Inc. Derivative Litigation, No. CIV 430087. Both lawsuits relate to certain public disclosures concerning an experimental AIDS vaccine that the Company is no longer developing. By Order dated March 30, 2005, the Federal District Court granted Defendants' motion to dismiss the Amended Class Action Complaint, but afforded Plaintiffs another chance to amend their Complaint. VaxGen does not know whether Plaintiffs will attempt to further amend their Complaint.