imugene get huge wrap.sp predict $1.09

Southern Cross Equities'
attitude: We like it

in April Imugene had announced that it had used its
recombinant adenoviral vector technology to develop
the world's first effective vaccine for PRRS. The PRRS
virus is believed to be responsible for something like
US$600m in annual losses for the US pork industry.
Imugene itself is of the view that a PRRS vaccine
would sell into a worldwide market of US$200m p.a.,
rising to perhaps US$400m if governments started to
sponsor eradication programmes, as they are
sometimes wont to do. The fact that Imugene's vector
is the only one to date that has been able to stably carry
antigens from PRRS and produce a prophylactic
response in test animals is probably the best testament
yet to the power of the CSIRO-developed technology.
The trick to developing an effective PRRS vaccine lay
in the choice of which PRRS antigens to use in the
Imugene vector. Back in April, Imugene knew it had a workable vaccine based on its
choice of antigen or antigens, but it wasn't sure if it had picked the optimal antigenic
makeup. It had therefore continued to experiment. The result was last Wednesday's
announcement, which was prompted by the completion of a trial of a different PRRS
vaccine candidate. Imugene was able to tell the market that the new PAV-PRRS had
worked well in terms of protecting pigs against viral challenge. The company is now in
the happy position of being able to proceed towards the large scale pig trials that would be
necessary for registration of the vaccine. We would suggest that Imugene is on track for a
good commercial outcome with regard to PAV-PRRS. The product is not subject to the
September 2002 option agreements with Merial, and as a consequence it may attract a
favourable deal in terms of milestone payments and royalties from any one of a number of
animal health majors. And, as we understand it, Imugene's new vaccine has been attracting
multiple licensing interest.
In short, the PAV-PRRS announcement was good. Even better was today's missive from
Imugene reporting that the company had successfully completed a second trial of FAVgamma,
which is Imugene's recombinant adenoviral vector for chickens engineered to
carry chicken interferon gamma as a growth promotant. This trial result went some way
towards realising CSIRO Animal Health's vision from the 1980s of creating 'Superchook',
that is, a chicken with a supercharged immune system that could therefore enjoy very
strong weight gains vis-a-vis untreated chickens. Back in August Imugene had announced
that a 500-bird trial of FAV-gamma had demonstrated a 7% weight gain for the treated
birds over the untreated controls, whether or not the chickens that got FAV-gamma were
also getting medicated feed. In itself that was great news because 7% extra meat on
chickens notionally means a significant bottom-line boost for chicken farmers without the
use of antibiotics or hormones. Imugene was, however, somewhat dissatisfied with this
first FAV-gamma trial, in large measure because the treated groups didn't experience feed
conversion ratios any higher than the other groups. It was thought that the feed that had
been used in the trial had been inadequate, in that it was too powdery and therefore not
suitable for use in this trial given the shape of the avian beak. In other words, there may
not have been enough food inside the stomachs of the treated chickens to be converted
into meat in the first place. Secondly, Imugene's people felt that the super-clean buildings
in which the chickens were housed at CSIRO's Werribee facility southwest of Melbourne
had biased the trial in favour of the untreated chickens. Had there been more chickenunfriendly
bugs lurking in the sheds, then perhaps the growth advantage in favour of the
treated chickens would have been much higher. Thirdly, Imugene also wondered if it had
been hitting the treated chickens with too strong an initial dose. The avian adenoviral
vector is, after all, a chicken virus. Possibly in the first trial the treated chickens had been
made a little too feverish by that first exposure to FAV-gamma, and that situation had kept
chickens, as well as a flea vaccine
for companion animals
them from going on to enjoy big growth gains later in their 42 day lives.
Which brings us back to the just-announced second trial results. This time around the
investigators were careful in their selection of feed, and also made sure that fresh chicken
litter was scattered around the test sheds in order to more closely replicate the pathogenenhanced
environment of a commercial chicken-raising operation. And they also studied
400 more birds than previously so as to be able to compare different dose sizes and dose
frequencies, with a view to combating the 'initial dose' problem through a search for the
optimal dosing structure. The outcome of all this was the first ever glimpse of Superchook
in the flesh. Last time around the weight gain for treated chickens, whether compared to
controls on medicated or unmedicated feed, had been in a very narrow range of 7.12% to
7.27%. By comparison, in the just-completed trial, chickens getting both in-feed
antibiotics and FAV-gamma were 9.5%-13.75% better off than the controls, while FAVgamma
alone outperformed antibiotics alone to the tune of 7.2%-13.2%. In other words,
FAV-gamma was now working more or less as expected, with, among other things, better
feed conversion ratios. All of which means that, when the Federal Government's Office of
the Gene Technology Regulator finally gets around to approving a large scale trial of
FAV-gamma, Imugene can proceed to work towards registration of the product and
getting it into commercial production. To that end, Imugene is currently working on the
last of a series of additional laboratory tests of its vectors, the design of which have been
worked out by both OGTR and Imugene, in order to satisfy the regulator that its
adenoviral vectors are safe for 'intentional release'. If that work leads to approval for
intentional release by mid-2005, we believe that Imugene could be making its way
towards filing of regulatory dossiers for approval of FAV-gamma before next year is out,
meaning that the product would be on track to be in commercial use by 2006.
The good news from Imugene may have helped the stock recover from the late October
nadir, but on Southern Cross Equities' numbers there is still some way to go before the
market begins to more appropriately value the power of Imugene's technology, not to
mention the quality of its development team. As we noted on 18 October, our target price
for the stock is $1.09 a share. On that basis Imugene remains a good Speculative Buy for
Knowledgeable Professional Investors.