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MedCap Opposes VaxGen's Proposed Merger with Raven biotechnologies

SAN FRANCISCO--(BUSINESS WIRE)--Dec 26, 2007 - MedCap Management & Research LLC ("MedCap"), a substantial VaxGen Inc. (VXGN) shareholder, in a letter to VaxGen's board of directors, has informed VaxGen that MedCap opposes VaxGen's proposed merger with Raven biotechnologies, inc. ("Raven") and intends to vote its VaxGen shares against the transaction. MedCap and its affiliates have recently accumulated additional VaxGen shares in the open market and currently hold approximately 4% of the company's stock.

MedCap is strongly urging VaxGen to seek a negotiated termination of its merger agreement with Raven, discontinuation of additional funding under VaxGen's bridge loan arrangements with Raven and repayment of funds previously delivered to Raven under these bridge loan arrangements.

After negotiating a termination of its merger agreement and bridge loan arrangements with Raven, MedCap urges VaxGen to immediately focus on maximizing shareholder value by:

-- conducting a vigorous and thorough public auction of VaxGen for a sale to a large public company within the broad healthcare sector or outside of that sector, and simultaneously

-- selling its assets, mitigating and resolving its liabilities, repurchasing its convertible notes and purchasing its undervalued common stock on the open market, and subsequently distributing the proceeds thereof to VaxGen shareholders.

MedCap believes that these efforts could yield greater returns for VaxGen shareholders than VaxGen's proposed merger with Raven.

VaxGen Shareholders Are Voting With Their Feet

VaxGen's shares have declined 76% since VaxGen announced on January 9, 2007 that it had hired an investment banking firm to pursue a sale of the company. Furthermore, VaxGen shares have declined 46% since the company announced the proposed merger with Raven. MedCap believes that these share declines clearly indicate that VaxGen shareholders do not support VaxGen's recent efforts or the proposed merger with Raven.

Experienced VaxGen Directors are Departing While VaxGen Resists Efforts to Appoint Qualified Independent Directors

Two members of the VaxGen board of directors have resigned in 2007, at least one after the company signed a letter of intent with Raven. In March 2007, VaxGen announced that Eve E. Slater (former Assistant Secretary for Health for the U.S. Department of Health and Human Services, HHS) would resign from the company's board of directors effective in August 2007 or once a replacement had been recruited and named. In September 2007, Jack Anthony (executive with Osprey Pharmaceuticals) resigned from the company's board of directors and its special committee overseeing strategic alternatives after serving as a VaxGen director for only four months (May 2007, VaxGen Appoints Jack Anthony as Director, to serve on the Board's special committee overseeing strategic alternatives).

At the same time, during 2007, VaxGen's board of directors twice rejected MedCap's proposal to add a highly qualified independent outside director to sit on the company's special board committee overseeing the company's evaluation of strategic alternatives. The proposed individual is a seasoned healthcare executive and investor with a track record of maximizing value for shareholders, who is currently serving on three public company boards (one as Chairman of the Board) and has over 23 years of experience in operations, management, purchasing and selling medical and life science companies to large corporations.

If VaxGen is able to negotiate a termination of its merger agreement with Raven, MedCap believes that VaxGen should immediately reconsider the composition of its board of directors and its governance practices to ensure that the company's board is properly constituted to maximize shareholder value.

MedCap Strongly Opposes the Raven Merger and Recommends that VaxGen Shareholders Vote Against the Transaction

C. Fred Toney, Managing Partner of MedCap stated, "VaxGen's value is not reflected in the proposed Raven merger and shareholder value has been substantially impaired during the sale process throughout 2007 as evidenced by the company's stock price decline and the company's substantial use of its most valuable resource - its cash and cash equivalents. The stock has only recently risen after another substantial shareholder publicly opposed the Raven merger on December 12, 2007, since which the stock is up 43% from close of market on December 11, 2007.

MedCap recently held two meetings that included in total four proposed members of the proposed combined post-merger board of directors. These meetings included the VaxGen Chairman and the VaxGen CEO (each members of the current VaxGen board of directors), the Raven CEO and a Raven shareholder (each members of the current board of directors of Raven). MedCap voiced its concerns and opposition to the transaction but remains open to discussions with the board of directors to pursue alternative solutions. There has been little acknowledgement by these members of a likelihood of a vote opposing the proposed Raven merger or any substantial opposition to the proposed merger, which we believe is widespread. Additionally, governance issues must be immediately addressed after the current board of directors ceases pursuit of the proposed Raven merger in favor of preserving the assets and maximizing its shareholders' value in the company."

About MedCap

MedCap Management & Research LLC, headquartered in San Francisco, California, is the General Partner of MedCap Partners L.P., a private investment fund focused primarily on public companies in the life sciences, medical technology and healthcare sectors. C. Fred Toney is the Managing Member of MedCap Management & Research LLC.


MedCap Management & Research LLC
C. Fred Toney, 415-495-1010

Posted: December 2007