watch this space!

Several other things caught this analyst's attention. One was the third slide in CEO Warwick Lamb's presentation, which was headed 'Merial Limited', referring to the London-based veterinary products giant which has been a world leader in the commercial use of adenoviral vectors in animal vaccines and which last year licensed Imugene's adenoviral vector technology. Bullet point five on the third slide - 'Strong commitment & support to Imugene' - suggests that the Merial relationship remains a good one and that Imugene's adenoviruses stand a good chance of being making onto the market via Merial. Slide six of the presentation featured a couple of pie charts that summarise what Imugene understands to be the size of the world markets for products used in maintaining pig and poultry health. The porcine pie chart, at US$3.4bn, was the larger of the two. It had a US$285m slice broken out from the rest of the pie to indicate that it represented the amount currently spent by pig farmers on 'biological' products like those Imugene is seeking to commercialise. Next to it was the US$1.04bn slice representing the market for 'medicinal feed additives', in other words, the antibiotics now being phased out of animal health worldwide due to the increasing capacity of microbes to not be killed by the drugs. The implication was fairly clear - the US$285m slice is set to grow to encompass the US$1.04bn slice, carrying products like Imugene's adenoviral vectors with it. For chickens the pie wasn't quite as exciting - a US$550m market for biologicals against a US$650m for antibiotics (within a larger US$3.14bn market), but no one at Imugene is suggesting that a doubling size in the coming decade or so is anything to be sneezed at. What the charts make clear is that pigs are Imugene's first target. Consequently developing adenovirus-based vaccines for Porcine Reproductive and Respiratory Syndrome (PRRS), porcine parvovirus, Aujesky's disease and porcine foot and mouth disease is more of a priority for Imugene than working on chicken diseases like infectious bronchitis or avian coccidiosis. Finally there was the exciting slide nine, headed 'Objectives for 2004', which suggested to this analyst that next year will be a good one for Imugene. The bullet point, 'Progress regulatory approvals' indicated that Imugene is fairly close to having its adenoviral vectors as marketable products, with regulatory dossiers now being prepared to submit to the various departments of agriculture worldwide. As part of this filing Imugene has applied to the Australian Federal Government's Office of the Gene Technology Regulator for permission to conduct a large scale trial of its vectors in Australia, which will help to assess exactly how powerful the new 'gene switches' announced in September really are (see below). It's also getting set to produce 'Masterseed', that is, an initial batch of virus from which all commercial product will be made, and to this end the company was able to announce last Friday that a Biotechnology Innovation Fund grant of $250,000 had been made available by Canberra. And let's not forget Imugene's recombinant flea vaccine work, now ongoing at Murdoch University in Perth. That vaccine is likely to be trialled in animals probably in the middle of next year.

The meeting over, this analyst approached Imugene's Chief Scientific Officer, the former CSIRO and Pfizer virologist Dr Mike Sheppard, inquiring as to the exact nature of the change in the promoter used in Imugene's adenoviral vectors which had caused them to perform as well as the company intimated it its 25 September announcement to the market. The expected answer was '...we can't tell you yet, Stu, because the provisionals are now being filed, but believe me the solution was quite elegant'. The real answer was quite different. As we noted on 26 September, the power of Imugene's adenoviral vectors depends in part on the 'switches' that cause viral DNA to turn into a real live virus. When in the early 1990s the CSIRO guys who created Imugene's intellectual property (Sheppard was one of them at the time) turned a regular adenovirus into a recombinant adenoviral vector there were two switches required, one called the 'major late promoter' and the other called the 'splice leader'. A promoter is a switch that starts the process of transcribing DNA into what is called 'messenger RNA', which is what a body's protein making factories need to tell them what to make. In adenoviruses transcription to mRNA happens in two rounds, called 'early' and 'late'. Most of the body of the virus gets created in the late stage of transcription, making a promoter called the 'major late promoter' notionally the most important promoter in the whole virus-making process. The splice leader, which lies nearby the major late promoter, is by contrast not so much a switch as code for regulating in some way the translation process. Which brings us to the Sheppard-driven promoter changes. Mike decided to eschew the adenoviral major late promoter in favour of CMVIE, that is, the 'Immediate-Early' promoter (as the name suggests, a gene switch that is the first to turn on) from CMV, or cytomegalovirus (the powerful herpes virus that anyone's who's ever had 'kissing disease', that is, infectious mononucleosis, will have encountered before). CMVIE was, in Sheppard's experience as a viral vector engineer (and he worked at this stuff for years prior to going to Pfizer in the 1990s), the most powerful promoter available. Moreover its use in recombinant adenoviral vectors was envisaged in the relevant CSIRO patents, in that various claims of those patents covered the use of any promoter which would cause the antigen to be expressed in the vector (see, for instance, Claim 10 of Recombinant avian interferon-g, U.S. patent 6,083,724, which claims 'A genetic construct or viral vector comprising a nucleic acid molecule encoding an avian interferon-g polypeptide operably linked to a promoter sequence...'). Sheppard's successors at CSIRO, it would seem, weren't comfortable with using the CMVIE promoter because it had been patented by a U.S. research institution, even though, as this analyst understands it, the relevant patent was easily licensable at little cost (and has now expired). So why is all this relevant? Because when Sheppard instituted the change in promoters earlier this year back to his preferred candidate, the results were dramatic - in the case of a vector to produce chicken interferon gamma, the result was, 'gamma interferon levels up to 50 times higher than the original product'. What this story illustrates is a philosophy we strongly believe in here at Southern Cross - that the science and the commerce of biotechnology work well when they work together. Imugene is, in our opinion, a casebook example of this.

With Imugene kicking goals both on the commercial and scientific front at the moment, and a licensing deal from Merial on the cards for the not-too-distance future, the Imugene story remains one to stay close to, particularly since the stock is still discounting our 40 cents per share near-term price target.