A Vaccine Value

04/28/2006 12:00 am EST

Focus:

Michael Murphy

Former Editor, New World Investor

For nearly 25 years I have been reading research from Michael Murphy, and have been fascinated by his ongoing coverage of developing trends in various technology sectors. Here, he looks at a biotech company with a new approach to vaccines.

"Crucell (CRXL NASDAQ) is a Dutch biotech company with a number of proprietary technologies to produce and develop more effective products. It licenses these technologies to over 35 other pharma and biotech companies, providing a nice cash flow with potential big royalties when those drugs get to market. It also uses these technologies in-house and in joint ventures to develop their own products.

"Crucell's key technologies include PER.C6, a human cell line production system used to develop vaccines and drugs. Instead of having to manufacture vaccines in chicken eggs, human cell line production promises to be much faster and, eventually, cheaper. The technology involves inserting part of an adenovirus gene into human retina cells that grow indefinitely, and Crucell holds all the patents.

"Its AdVac technology is a recombinant vector technology that is used to develop adenoviral-based products. Adenoviruses cause infections of the eye and in respiratory and gastrointestinal tracts. By recombining them with disease-fighting proteins, they can be used to deliver (vector) genes that may have a role in treating lung infections and some cancers, as well as other diseases.

"In a partnership with Sanofi-Aventis, Crucell has a $97 million contract with the US government to develop and manufacture the vaccine, targeting 300 million doses a year. At first it will be manufactured in the usual chicken eggs. But by the end of the year, they should be able to announce a bird flu vaccine using Crucell's PER.C6 cell line technology. That will light a rocket under the stock.

"But Crucell is not just an avian flu story, although the stock often trades that way. In the last couple of years they have also partnered with National Institutes of Health to develop an Ebola vaccine, with a GlaxoSmithKline-led group for a malaria vaccine, and with Merck for an HIV vaccine. Crucell's MAbstract phage antibody-display technology is used to display antibodies on the surface of a bacteria-infecting virus called a phage.

"After jumping from the $20 a share area last August to $30 in October, the stock has dropped into a $24 to $28 trading range. Recently, it has flat-lined around $25. You should be able to buy all the shares you want under $25. I have a target price of $50 for this year. I expect this to be a two or three-year holding, and one that we eventually sell in triple digits. This is a big one- don't let it get away."

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