AGM Results and CEO's Presentation - PDF (350k)

ANNUAL GENERAL MEETING 2007
Chairman’s Address - Dr. Thomas Quirk

At last year’s AGM I set our program for the coming year. That program had two major items.

First, was the licensing of Virax’s Co-X-Gene™ Technology to Transgene S.A, a French immunotherapeutic vaccines development company. This was achieved in February 2007 and the Company has benefited already by $2.2 million and we believe there is significant upside benefit yet to be received. Dr Beames will give more details about this shortly.

The other major activity was to run parallel trials for treatment of HIV using Virax’s vaccine - VIR201. The trials are to be conducted in:

• Phase I/IIa in Southern Africa.
  
• Phase II Trial in Australia, Europe and United States.
  

We announced in October last year that non-dilutive funding for the southern African trial had been secured. Also, we announced that an application for approval to proceed with the trial had been submitted in September 2006 to the South African Medicines Control Council. We have yet to receive approval for this trial to proceed.

Having already obtained the necessary US Food and Drug Administration’s approval to conduct a trial in the US, the next step was to secure funding. The total cost of the Phase II trial is approximately $10 million. Funding was to be sought on the London Stock Exchange’s Alternative Investment Market (AIM).

This was pursued extensively by our CEO and I will ask Dr Beames to report the outcome on these matters.

CEO’s Address - Dr. David Beames

Slide 1 - Goals for 2006/2007 Financial year
As Dr Quirk has already indicated, the goals and therefore the activities for the year can be essentially categorised into three areas. First, product development - where we have continued efforts to advance clinical testing and value of our lead HIV therapeutic vaccine VIR201 in both developed and developing world markets. Second, funding - where I will describe our efforts to raise capital for both these clinical trials; and finally, business development - where we have made considerable progress in adding value to our core Co-X-Gene™ Technology via out-licensing. I will now summarise our progress and status with respect to each of these key areas.

Slide 2 - VIR201 Product Development
As shareholders will know, a key strategy of Virax is to enhance the value of its core Co-X-Gene™ Technology and fowlpox virus delivery technologies by progressing products based on these technologies through the clinical development pathway. Virax’s lead product based on these technologies is VIR201. This is a HIV immunotherapeutic vaccine. VIR201 has previously been tested in two Phase I/IIa – proof-of-concept trials where it showed very exciting results. The therapeutic vaccine, when administered to HIV-infected individuals was not only safe and well tolerated but also showed an ability to suppress viral load when compared with a group given a placebo. This early indication of ability to suppress viral load in the proof-of-concept trial marks VIR201 as one of the most advanced therapeutic vaccines for HIV in clinical testing. This very encouraging data in these proof-of-concept trials emphasised that VIR201 should be further developed.

Developed World
We consequently have undertaken to advance VIR201 clinical development by conducting trials in what we describe as developed and developing world. In both cases this has involved internationalising the clinical development programmes. For a product to be successful in the developed world markets it is imperative to access the world’s largest market, the USA and therefore it is necessary to obtain approval from their regulator, the Food and Drug Administration (FDA) as soon as possible. In addition, since the FDA is generally considered the “gold standard” in respect of international pharmaceutical regulators, an approval would serve as external technical validation of our development programmes, not only in respect of our clinical trial design but also of our manufacturing, quality control programmes and associated safety toxicological studies. This will assist us with applications to Australian and European regulators. We obtained approval from the FDA in November 2006. This was a significant tick for VIR201 and its proposed development program. To start this trial we need funding.

Developing World
We plan to conduct the developing world clinical trial in South Africa. The selection of South Africa is very much based on the immediate need of sub-Saharan African populations for a treatment of this type. As you will all know HIV/AIDS is the scourge of this region. The proposed trial is designed to assess the safety and immunogenicity of VIR201. The type of immune response will be monitored very closely to see if it can combat the HIV virus type found in southern Africa. This HIV sub-type (referred to as Clade C) is different from that found in the US and Australia which is Clade B. There are technical reasons to believe the clade difference will not be a significant factor in the outcome of the trial.

We are very much ready to commence the trial pending regulatory approval from the South African regulatory authority – the Medicines Control Council (MCC). The regulatory submission was made in September 2006. We have also completed, through a Contract Research Organisation (CRO), the finalisation of operational plans for the trial. This has involved working with the five planned trial sites and clinical investigators in South Africa. We have already obtained approvals from the local Site Ethics Committees.

In addition we have also obtained non-dilutive funding for the trial in this period via corporate donors. I will go over this in more detail in a minute when I talk more generally about the fund-raising activities of Virax.

The lack of response from the South African regulator is very disappointing. We are still awaiting approval to commence. The reason for the delay is unclear but appears to be predominantly due to administrative delays within the agency. Despite the direct efforts of our CEO of the Virax Southern Africa Project and our CRO (Quintiles) in South Africa we have not been able to determine the precise regulatory status of the VIR201 project within the MCC. We continue our efforts in this process, but recognise that many others have experienced similar delays.


VIR201 Intellectual Property
Shareholders will be aware that the Company recently announced that it had secured additional patent protection for VIR201 in both Europe and the USA. These “composition of matter” patents extend the protection for VIR201 in these important markets until 2019.

Slide 3 - Funding
As already described, parallel clinical trials for VIR201 product were planned in the developed and developing world. Two distinct strategies were undertaken to fund the separate trials.

In the developing world South African trial we sought non-dilutive funding from corporate donors usually with a particular interest in HIV/AIDS or Southern Africa to fund the trial. This has been successful with a donor syndicate headed by companies such as BHP-Billiton and Rio Tinto committing to fund the trial. This mechanism to fund a trial of a biotechnology based drug is innovative and to the best of our knowledge unique.

Our approach to funding the Phase II developed world trial was to seek funding on London’s Alternative Investment Market (AIM) being a proven market for raising funding for technology stocks. This was regarded as an important step as it would internationalise Virax. Extensive efforts were made to both evaluate the raising funds on AIM and to select appropriate corporate advisors and brokers to support such a listing.

In the later stages of the AIM exercise it was noted that the immunotherapeutic field was becoming increasingly attractive to investors and big pharma. This was accentuated by such deals and developments as:

• Oxford BioMedica/Sanofi-Aventis partnering deal (Trovax™).
  
• Transgene/Roche partnering deal (TG 4001).
  
• Virax/Transgene licensing deal (Co-X-Gene™ IP).
  
• Coley/Merck licensing deal (VaxImmune™ adjuvant technology).
  
• Cell Genesys released second Phase II trial data (GVAX –prostate cancer).
  
• Dendreon announced positive recommendation from FDA Advisory Committee.

Accordingly, efforts were also made to seek a direct investment partnering into VIR201 or the developed world programme.

In a frustrating process, despite the promising developments in the immunotherapeutics field, it eventuated that not all the targeted parties necessary for a successful AIM capital raising could be engaged. Although alternate parties were prepared to undertake the process they were not the target parties and therefore the level of confidence that the process would conclude successfully was not sufficient to continue to incur costs on this strategy. Accordingly the process was suspended.

The key messages from the attempted fundraising are summarised as:

• Virax’s market capitalisation was too low to support the raising of the funds required to run later Phase II development trials.
  
• The HIV programme alone was deemed to be too high risk (HIV, early stage). A balanced portfolio of projects with respect to risk and reward is favoured by investors.
  
• Investors and advisors favoured placing larger amounts of capital to that sought provided the investment is based on an appropriate market capitalization.

These efforts did provide valuable feed-back from investors and the Board has incorporated it into preparing the proposed strategy.


Slide 4 –Out-licensing of Co-X-Gene™ IP
Virax has a strong intellectual property position covering its Co-X-Gene™ Technology. The utility of its approach has been recognised and utilised by other companies in other products. Consequently, Virax has successfully licensed this Co-X-Gene™ technology to the French based company, Transgene, which is developing two products with cancer applications. This is a strong validation of the utility and value of the Co-X-gene™ technology.

As Transgene’s products are in advanced testing for indications of large market potential the license is of great potential value. The first Transgene product (TG4001) is for the treatment of precancerous lesions called cervical intraepithelial neoplasias. Such lesions can be a precursor to cervical cancer. Phase II testing of TG4001 was very promising. Based upon these results Transgene recently entered into an exclusive licensing deal with Roche for the treatment of HPV related pathologies. Phase III clinical testing of TG4001 is expected to commence in Q4 2007 in Europe and the USA.

The second Transgene product (TG4010) is the non-small cell lung cancer (NSCLC) indication. Phase II testing of TG4010 for NSCLC has been successfully completed with promising indications of anti-tumor activity. Interim results of a Phase IIb trial in NSCLC are expected in December 2007. This product targets a protein found in many tumors including kidney, pancreatic, stomach, ovarian, colorectal, non-small cell lung, prostate and breast. If successful in trials such a therapeutic vaccine has huge market potential given its widespread utility.

The Transgene licence provides Virax with:

• an upfront payment;
  
• a share of Transgene development milestone payments; and
  
• a royalty on North American sales. This license agreement is very valuable to Virax.

The risk adjusted net present value of the Virax-Transgene license has been estimated at approximately USD 17 million. This valuation is in the process of being independently assessed and will be announced when finalised.


Chairman’s Summary
The experience of the AIM process, disappointing in its outcome, was duly noted by the Board. It was also noted that the commercial prospect of a private investment into the VIR201 clinical trial was unlikely. In these circumstances the Board sought advice from an independent international financial advisory firm with biotechnology experience. They confirmed the investor markets attitude and appetite for investment in companies such as Virax and HIV immunotherapeutic programs at this time. As just outlined by Dr Beames the issues can be summarised as Virax’s market capitalisation was too low, the amount of capital sought was too small and our immunotherapeutic technology was too early stage and HIV is expensive, complex and high risk – albeit high rewards.

In these circumstances, our Advisers recommended a clearly preferred strategic option to be pursued by the Company being the Virax should to seek to consolidate. This recommendation was adopted by the Board and is being vigorously pursued together with the objectives of:

• realising the prospective milestones and royalty payments under the Transgene Sub-licence;
  
• undertaking the fully non dilutive funded South African VIR201 clinical program; and
  
• continuing the timely completion of current discussions with parties interested in participating in the formation of a consolidated vaccine business.
  

To allow the Company to complete this work it is necessary to raise additional funds of approximately $2.0-$2.5 million. We anticipate that an announcement will be made before the middle of December. I believe shareholders will find this offer attractive and I believe that it will be well supported.

Your Directors recognise that this past year has been difficult with disappointment for shareholders however note there have also been positive achievements – particularly the Transgene Sub-Licence, that can positively develop in the future. I thank you for your past support and I would also thank our staff for their effort and their loyalty in these times.

I also wish to thank my colleagues on the Board and particularly Mr John Chambers who has retired today.

Click here for pdf version of report & powerpoint slides.

For further information contact:
Investors
David Beames
CEO, Virax Holdings Limited
03 9854 6230