To assist shareholders and the investment community understand...

To assist shareholders and the investment community understand the ramifications of the Merial sub-license and the research to develop a ‘Bird Flu’ vaccine, we provide responses to many ‘frequently asked questions’.

Q. Who is Merial?
A. Merial is a joint venture between two large human pharmaceutical companies – Merck & Co. and sanofi-aventis. Merial is the world’s second largest animal health company (in terms of sales), operating in more than 150 countries. Merial employs about 5,000 people and has revenues over US$1.8 billion – all from animal health product sales.

Q. What are the key financial terms of the sub-license with Merial?
A. For competitive advantage reasons the key financial terms of the sub-license must remain confidential. In animal health product licensing arrangements, it is usual to see single digit royalty rates.

Q. When will the Poultry Productivity Enhancer be sold in global markets?
A. The vaccine will be launched as soon as possible. The remaining steps are –

scale up and manufacture,
large (>10,000 bird) ‘commercial setting repeat data efficacy trials’ and
prepare regulatory approval dossiers for each major territory.
Merial will now undertake these steps. Australia is the most advanced territory in terms of regulatory preparation and Imugene will assist Merial to conduct the remaining commercial trials and achieve product registration in Australia.

While neither Imugene nor Merial can control the timeframes of worldwide regulators, Imugene anticipates first sales of the vaccine could be achieved within 24 months.

Q. What makes Merial the ideal commercialising partner?
A. Merial has highly experienced and strongly resourced global teams specialising in poultry health and performance as well as biological manufacture, regulatory approvals, marketing and distribution. Merial can quickly launch an Imugene product in all major worldwide poultry markets.

In addition, Merial is the recognised world leader in the development and approval of ‘viral vector technologies’. Merial is already using viral vectors to deliver vaccines to a number of animal species. As the Imugene platform ‘Adenoviral Delivery System’ used to develop the Poultry Productivity Enhancer is a viral vector, Merial is best placed to recognise and mobilise the technology. Merial has launched over 75% of the existing viral vector based products that prevent or treat animal diseases.

Q. What is the Poultry Productivity Enhancer?
A. The Poultry Productivity Enhancer is a vaccine that is able to be mass administered to all broilers (meat producing chickens) via drinking water, feed or aerosol after hatching or directly into the egg prior to hatching. The vaccine boosts the chickens’ immune system, improving general health and ability to resist bacterial and viral infections.

The vaccine has been demonstrated to be much more effective in promoting health and allowing chickens to reach market weight earlier and with significantly less feed than existing in-feed treatments such as antibiotics. Unlike antibiotics and other feed additives, the Imugene vaccine leaves no residues in the meat that is consumed by humans.

Q. How significant are the benefits of the Poultry Productivity Enhancer?
A. Very significant. Studies demonstrated that chickens at 42 days of age vaccinated with the Poultry Productivity Enhancer (either with or without antibiotics also being used) were:

13% heavier than ‘control’ (The control group were non-Poultry Productivity Enhancer vaccinated chickens on normal feed – i.e. antibiotics pre-mixed in feed) and used 9% less feed per kg of weight than the control group, and
15% heavier than the worldwide industry best practice benchmark and used 11% less feed per kg of weight than the industry benchmark.
Putting this in perspective, for every 500 million chickens produced (Australia’s production is about 900 million chickens pa) the Imugene vaccine will, based on the above results:

In the usual 42 day grow-out period, produce an additional 177,500 tonnes of weight when compared with the industry benchmark. Using an estimated farm gate price per kg of chicken meat of $1.20/kg, this is worth about $200 million additional gross profit for the producers of those 500 million chickens. or
Produce the same market weight of chicken as the industry benchmark in 38 days rather than the standard 42 days – enabling large savings in labour and overheads per kg produced. As feed is the highest per unit cost in poultry production, the largest saving is in the reduced amount of feed required – a saving of 235,000 tonnes. Using an average feed cost of $300 per tonne, the saving on feed for the production of 500 million chickens is $70 million for the producers.
Q. How big is the world market?
A. There are over 40 billion broilers produced per annum world wide. In the major markets of the US and Europe, annual broiler production is over 8.5 billion and 6.0 billion respectively.

The industry is concentrated. More than 90% of US broiler production is by the top 20 producer companies. This concentration is similar in the other major markets.

Q. At what price will the Poultry Productivity Enhancer be sold?
A. The vaccine pricing will be determined by Merial. One of the ‘industry standard’ valuation methods that the Imugene management has used in a theoretical model to determine pricing is for the vaccine seller to charge up to 33% of the ‘financial productivity gain’ achieved. For example, should the Poultry Productivity Enhancer be determined to deliver a financial gain (in terms of weight gain, feed conversion, labour and other overhead savings) of say 20 cents per bird, then the vaccine selling price would be about 6.5 cents per bird.

On this basis and assuming that the Poultry Productivity Enhancer is used in half the15 billion chickens hatched in the US, Europe and Australia annually, sales could exceed $500 million. Given the highly concentrated nature of the poultry production industry, Imugene expects that the vaccine will achieve a significantly greater market share than 50% in each major territory.

However the actual selling price will be determined solely by Merial, based on the benefits demonstrated in large commercial trials and the above example is hypothetical.

Q. Is the Poultry Productivity Enhancer protected by patents?
A. Yes, two separate patents apply to the product. Patents provide a monopoly for the vaccine in the major markets of US, Australia, Canada, Japan and New Zealand. Patent applications are waiting formal patent granting in Europe and Mexico.

Importantly, with Merial as the vaccine’s commercialising entity, the vaccine has the ability to quickly secure a dominant market share in non-patented jurisdictions thereby reducing encroachment by generic producers.

Imugene receives royalties on sales in patent protected and non protected jurisdictions.

Q. What are the costs of production of the Poultry Productivity Enhancer?
A. A key benefit of this technology is its very low cost of manufacture.

The Imugene vaccine is biological and differs from chemicals – ‘biologicals’ are grown not manufactured. There is no need for expensive or dedicated capital equipment. The vaccine will be produced under standard GMP (Good Manufacturing Practice). A master batch of highly concentrated vaccine will be produced and from this, millions of doses will be produced and distributed to all global markets.

Q. What about competitors?
A. There are no direct competitors to the Poultry Productivity Enhancer. This vaccine boosts chickens’ immune systems against viral and bacterial diseases without the use of chemicals or antibiotics.

Existing antibiotic treatments assist with bacterial diseases only and are routinely mixed into poultry feed. The effectiveness of antibiotics has reduced over time and some important infectious bacteria have developed resistance to some antibiotics. Europe is banning antibiotics to animal feed from 2006 and the US is under pressure to follow as soon as viable alternatives are available. The Poultry Productivity Enhancer is a viable alternative.

Poultry producers continue to evaluate alternative additives to poultry feed including ‘enzymes’ and other ‘antimicrobials’. Imugene’s Poultry Productivity Enhancer can be used with all of these additives.

From the poultry producer’s point of view, the costs of the inputs (health additives and feed) are measured against the output (financial return from sales).

AVIAN INFLUENZA (“BIRD FLU”) - H5N1 Highly Pathogenic Avian Influenza (HPAI)
Q. What is Imugene doing to prevent the Bird Flu?
A. Imugene has constructed a Bird Flu vaccine candidate that is being tested in its effectiveness to immunise chickens against the Bird Flu virus. The Bird Flu vaccine uses the same platform ‘Adenoviral Delivery System’ used in the successfully licensed Poultry Productivity Enhancer. By stimulating the chicken’s immune system to produce antibodies to the Bird Flu virus, protection from disease should be present if the chicken becomes exposed to Bird Flu.

Q. How will this vaccine be used?
A. A successful vaccine would be used in widespread vaccination of broiler flocks in risk areas, or to protect large areas or countries from disease infiltration. In areas of disease outbreak, infected birds are culled and birds within a 25-100km of the infection site are likely to be vaccinated to prevent the spread of the disease.

A successful vaccine must be able to be administered quickly and cheaply to millions of birds. The Imugene vaccine under development can be administered to birds through drinking water, feed or by aerosol spray.

Q. What is the current treatment for poultry to prevent Bird Flu?
A. There are Bird Flu vaccines available but these have to be individually injected. This is extremely costly and burdensome.