“New Vaccine Technology” — a reader’s solution

By Travis Johnson, Stock Gumshoe, October 12, 2007

This is one that was sent in by a reader — it’s for a brief teaser that was squeezeed in to the end of a Stansberry & Associates email (the secret societies one that the Gumshoe worked on last week).

But this one has nothing to do with secret societies, it’s just another example given, almost in passing, about the expertise of Porter Stansberry — how he uses his industry connections, and careful hiring of experts, to discover new investing ideas. And this particular one is in pharmacology.

The company teased is one that is developing new vaccine technology. You might remember that this seemed like a huge deal two years ago, when everyone was panicked about a bird flu pandemic. I don’t hear much about that panic anymore, which probably means the public health crisis will just be that much more of a surprise when it really hits.

But the key thing folks talked about, when they were worrying about bird flu and sending the shares of every flu treatment and vaccine company through the roof, was the primitive nature of our vaccine-manufacturing processes, and the critical problem that would pose if we had to make a massive batch of new flu vaccine for a pandemic in short order.

So the teaser mentions this a bit — noting that the established standard for manufacturing vaccines, which involves using actual chicken eggs, is slow and inefficient (not to mention a big deal for people, especially kids, who have egg allergies).

But it’s a real indication of the change in mindset that the teaser doesn’t even mention bird flu, as far as I saw, it focused on the fundamentals of the business instead — the real push was that vaccines are becoming more prevalent, especially childhood vaccines, and that the prices and profits are climbing considerably in this area. I’ve noticed this myself for my kids, especially when new vaccines come out that aren’t covered by insurance yet — very expensive.

And new vaccines are talked about all the time — the big one last year was Merck’s Gardisil for cervical cancer, and vaccines for other cancers, AIDS, and other deadly and persistent diseases are talked about with some frequency, though success has been slow going in many of those areas.

So … the idea is that vaccines are a big growth area, and that the company that can bring vaccine manufacturing technology into the 21st century will be the big winner.

Now, there are several companies working on new vaccine technology — so which one is Porter talking about here?

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We get a few clues:

They have “licensed their new technology to more than 20 pharmaceutical and biotech companies worldwide”, pretty much all of the big pharma companies that you can name off the top of your head.

“Academic institution partners include Harvard and NYU.”

“Scientists at some of the biggest government-backed groups in the world, including the National Institutes of Health (NIH), the International AIDs Vaccine Initiative (IAVI), and the Walter Reed Army Institute of Research, are using the company’s technology right now on revolutionary vaccines.”

So it looks, according to Gumshoe reader Emily (and I agree), like this company is …

Crucell (CRXL)

This is a Dutch company, though it also trades in the US, and it does match all of those clues — they are in part a vaccine technology developer (they also do other early stage biotech discovery work, including antibody development).

They are working with Merck and the Aids Vaccine Initiative folks, and have been for a couple years — though this is a bit strained right now, since a phase II trial for this vaccine recently failed (which is why the price target was cut by Goldman Sachs a couple weeks ago, to $15 … the shares are still at $20). One reason the shares might not have fallen through the floor on that news is that Crucell claims the failure wasn’t the fault of their technology, and they reaffirmed their sales guidance for this year.

And they are working on a malaria vaccine with Walter Reed, I don’t know how far that has progressed.

The list of their partners and licensees is very long — “more than 20” is an understatement, and perhaps there’s some value there, though most of these technologies are quite new, and most of them are still firmly in the “preclinical” stage before human testing. They do have a few partners and licensees who have moved to Phase I trials, and a couple that have gone a little further.

So … is this a decent long term play for growing vaccine production and development? Possibly — if it were me investing here, I’d want to understand the technology and competition better. It looks like their primary vaccine technologies are fairly well accepted, as indicated by the number of partners they have working with them, but “accepted” is still different than “proven,” at least in my mind. There are a lot of early stage discovery companies in biotech, including several that have valuable intellectual property in new antibodies or technologies, but it’s very hard to differentiate between them if you’re not really paying attention.

Chiron, the big vaccine manufacturer, that could be either a competitor or customer for Crucell, for example — they already have a non-egg-based vaccine technology they’re using, and a plant to manufacture cell-based vaccines in Europe, where the technology was accepted a little more quickly than in the US. Others, like Sanofi-Aventis, have licensed Crucell’s technology for the next wave of this development … but I have no idea which technology will end up being the best, or the most accepted.

What sticks in my mind is that vaccine manufacturing has been done in the same way for 50 years. Does that mean that the next technology, whether it’s based on a canine cell, or on Crucell’s human cell technology, or something else, is going to also stick around for 50 years, and that there is one technology that’s going to be commonly accepted? Or are we entering a phase where the next best technology and manufacturing technique is going to change every year or two? I can’t answer that, and I don’t really know what this means for Crucell.

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On the positive side, analysts are predicting that next year will be Crucell’s first profitable one — though the forward PE is over 100. That’s something — and if some of their licensing deals bear fruit, there’s certainly dramatic potential in many of the markets they’re addressing. Clearly, however, most of their partners are many, many years away from proving their drugs or vaccines, and there’s dramatic potential on the downside, too.

If you’re a vaccine or Crucell expert, or just have an opinion to share, I’m sure we’d all love to hear from you … comment away!



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October 13, 2007 10:45 am