It was hot and our air conditioning was on the blink. So we surfed the Internet for a repairman. Just our luck. When we went looking for HVAC we hit the wrong key and landed on HIVC instead. That turned out to be the symbol for an OTC Bulletin Board company called HIV-VAC, Inc. which says it is working on an HIV/AIDS vaccine.
So we started to read a series of press releases issued by HIV-VAC. Which kept us here, instead of at the beach where there is a breeze. Still without air conditioning.
HIV-VAC is not shy. The Company says it is in the process of "developing one of the most significant medical discoveries in the 20th Century." What might that be? HIV-VAC claims to be testing a vaccine that "has the potential to prevent AIDS, and may also prevent the onset of AIDS in HIV positive patients."
Now that caught our attention (even if the 20th Century has passed, a viable AIDS vaccine would certainly qualify as a medical breakthrough, even in the new millennium). Still, investors in the 21st Century may have a few questions for HIV-VAC. We know we do.
RUSSIAN TO JUDGMENT
HIV-VAC’s AIDS vaccine is based upon research by Dr. Gordon Skinner, the Company’s Chief Executive Officer. According to the Company, this technology was used by Dr. Skinner "in clinical trials with herpes genitalis and pre-clinical research into cytomegalovirus and equine herpes vaccines."On June 16, 1999, the Company announced plans to conduct "Phase I and Phase II trials of HIV-VAC’s vaccine" at the Russia Aids Centre, which would then proceed to " a Phase III trial and product licensing." According to the Company, Dr. Skinner’s relationship with the Russian researchers evolved from his work on the herpes vaccine, "which has completed successful Phase III Trials in the United States."
How long has Dr. Skinner been at work on the HIV vaccine? It’s hard to tell for certain. The press release first states the vaccine "was invented and has been in development by Dr. Skinner and his team for the past five years." Later, the same release says Dr. Skinner’s HIV vaccine "has been in development for the last 10 years."
How would the Company’s product differ from other AIDS vaccines currently in development? HIV-VAC says the Skinner vaccine "has the potential to be effective with the AIDS virus in many mutant forms." The bottom line, of course is simple. Will it work?
Which means the first order of business for this Company is the completion of successful tests. So how are those Russian trials progressing? On June 1st, almost one year after the initial press release, the Company announced it had "received funding to begin the final stages of laboratory testing" for its HIV/AIDS vaccine." According to the Company, the Russian laboratory trials would be concluded in nine to twelve months, "with Phase I and II" human trials to follow.
As we will see below, funding has been a problem for this Company. So who has now stepped forward to finance the Russian trials, and on what terms? The June 1st press release did not provide that information.
Lack of funds does not appear to have discouraged the Company from announcing more plans. One day later, on June 2nd, the Company issued another press release. This time HIV-VAC said it intended to supplement the Russian trials by "working towards initiating human trials in one or more African countries…in conjunction with a major American University."
This press release, like the one issued a day earlier, offered few details. For example, exactly where will HIV-VAC conduct this research? What African countries have suitable research facilities? Exactly which "major American University" will join in this effort? The Company does not say.
HIV-VAC does have a good deal to say on other matters. The Company maintains that the technology for the HIV vaccine "has already been proven in clinical trials with herpes genitalis." Indeed, Dr. Skinner has written, or contributed to, several articles on herpes genitalis. We checked the records of the United States Patent and Trademark Office and found that an individual named Gordon Skinner is listed as the co-inventor of four patents. Three of those patents are related to herpes simplex and have been assigned to the University of Birmingham, where Dr. Skinner works (that’s in England, not Alabama). The fourth relates to a device for storage of parasites. None of the patents refers to a vaccine for HIV or AIDS. So the question remains – what has been the Company’s experience with HIV/AIDS research?
Investors may also be asking what has become of the "proven" herpes vaccine. The description for one of the Skinner patents, dated June 1993 (the most recent of the four filings), states that the purpose of the invention is to produce a herpes vaccine that "can be produced on a large commercial scale."
The Company says the herpes vaccine has completed Phase III tests in the United States. Was that testing successful, and did the vaccine gain regulatory approval? If so, has the plan to produce the vaccine "on a large commercial scale come to fruition." Surely, a vast market exists for an approved and viable herpes vaccine. Has any established pharmaceutical company partnered with Dr. Skinner or the University of Birmingham to develop and market the vaccine? The Company’s press releases, web site and public filings refer repeatedly to Skinner’s herpes vaccine but do not address these other matters.
Nor has the Company indicated if, or when, it will submit the AIDS vaccine for regulatory approval by the U.S. Food and Drug Administration (FDA). Will HIV-VAC or Dr. Skinner be seeking any new patents relating to the Company’s current research and trials? Has the Company explored the FDA’s "fast track" process, designed to expedite approvals for AIDS medicines?
In short, where does HIV-VAC go from here? But first, how did it get here to begin with?
VERY INTRA-ESTING
Over one year ago, on April 14, 1999, the Company issued a press release announcing it had acquired "worldwide rights to an HIV vaccine through an assignment of license agreement with a company called Intracell Vaccines Limited." Apparently Intracell had been granted that license by the vaccine’s owner, the University of Birmingham in England.So what is Intracell Vaccine Ltd., and how did it acquire the license to market Dr. Skinner’s research and the University of Birmingham’s valuable property? The press releases and public documents filed by HIV-VAC offer no information about the owners or officers of Intracell, and no address where that company can be contacted. Our efforts to locate Intracell Vaccine have been unsuccessful, although we did find, and contact, a pharmaceutical company called Intracel.com. The person we spoke to at Intracel.com had never heard of Intracell Vaccines Limited – or HIV-VAC for that matter.
In return for the "worldwide" license, on March 15, 1999, Intracell Vaccine received 10,000 preferred shares and 5.75 million common shares of HIV-VAC stock. Each of those preferred shares is entitled to 3,000 votes at any stockholders meeting – that’s 30 million votes.
The agreement with Intracell Vaccine also restricted HIV-VAC from issuing any more common shares until the Company had raised $5 million. That way, until the money was raised, Intracell’s common share position would not slip below 60%. Did the Company raise that money? Depending on what you are reading the answer is either no, maybe or yes.
Was Intracell diluted? Here, the answer is apparently yes.
According to a Form 8-K filed by the Company last month, the Intracell Vaccine common stock position was immediately diluted. On March 15, 1999, the Company issued 20 million shares of common stock for $100,000 (that’s two shares for every penny), through a private offering under Regulation D of the Securities Act of 1933. On that same date it sold another 9,241,600 shares to private investors under Regulation D for $140,000 (about one and one half cents per share).
Who were those private purchasers? What were the terms of those stock sales? HIV-VAC doesn’t say. In fact, the Company has not publicly disclosed the identity of any of its principal shareholders, other than Intracell Vaccine. Even there, investors have been left in the dark. Who controls Intracell Vaccine and its 30 million plus votes? The Company has not provided that information either.
Does this mean the Company had immediately raised $5 million as required under its agreement with Intracell Vaccine? It seems not. In its Form 10 Q for the quarter ended March 31, 2000, HIV-VAC concedes that it had failed to meet that funding commitment. According to the Company, "[p]rior funding commitments made by investors have not materialized and the lack of funding has had a material effect on the company’s ability to proceed with research."
This disclosure may have come as news to some investors reading that Form 10-Q. Last August 24th, the Company announced that it had received a $5 million funding commitment from "an Australian investment group to complete initial test trials of HIV-VAC’s AIDS vaccine with the Russian Aids Centre, and later to proceed to the Phase III trials and product licensing."
Who were those Australian investors? How would the $5 million be allocated – what, for example, was the estimated budget for the Russian testing procedure? The Company’s press release contained no further information on the identity of the financiers or the terms of the financing.
In any event, the $5 million "commitment" apparently did not materialize. How then has the Company financed its operations? To date, the Company says, it has had no operating revenues. Instead, HIV-VAC has been funded by a $140,000 "note," loans from Intracell Vaccine and private sales of common stock (including those listed above). What are the terms of the "note" and the Intracell loans? The Company’s public documents do not provide those details.
Investors who reviewed the Form 10-Q may also have been concerned to learn that the Company lacked the capital to commence human trails of its vaccine. Is there any funding on the horizon? On June 15th HIV-VAC issued a press release stating "it is in the final stages of completing a $5 million funding package with an Australian investment firm that will be used for the continuing development of its Skinner HIV/AIDS vaccine trials in Russia and Africa."
Is this the same "prior funding commitment" that the Company earlier conceded had not materialized? Or is this a new representative from "Down Under"? What is the name of the Australian investment firm? Again, HIV-VAC does not say.
What are the terms of the proposed financing? HIV-VAC says that "the funding is based on a convertible preferred stock series with a strike price of $5." Still, investors are left to ponder some important questions. Like what is meant by "strike price?" In some instances it may mean that the preferred shares can be converted into common stock at $5 per share. Is that what is meant here?
How many shares would be issued to these new investors? Will they receive anything in addition to the convertible preferred stock? What are the details of the conversion? That information is not included in the press release.
Considering the Company’s confidence in its product, financing has not come easily. Investors may wonder why a Company that trades on a U.S. securities market, has its offices in Canada, and maintains research facilities in Great Britain, has not successfully raised money closer to one of these homes. They may also ask why the Company hasn’t received support from one of the major pharmaceutical companies, a public interest group, a research hospital, major University or even a government. Finally, they may simply want to know how a Company with aspirations to inoculate the population against AIDS finds itself on the OTC Bulletin Board.
That would seem to be a story in itself – one that we will look at in our next installment on HIV-VAC.
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