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Admedus On Track To Becoming An Integrated Healthcare Company

Admedus Limited (ASX:AHZ) is the developer of CardioCel® which treated its first heart patient in a Phase II study six years ago.

This patient had a six year follow up earlier this year and the results show there was still no detectable calcification.

Other patients in the study also continue to show no signs of calcification or follow up surgeries after three to five years.

The lack of calcification addresses one of the key issues with other existing tissue products, and is a key milestone for the technology.

The technology provides further potential for the future treatment of congenital heart disease, moving closer towards the stage where surgeons can reduce, if not eliminate, the need for patients to undergo repeat procedures.

Admedus is also developing immunotherapies and therapeutics that are forecast to deliver saleable products within the next 12-36 months, and establish the Company as a significant Australian biotechnology company with a major global reach.

Recently, the company's therapeutic Human Papilloma Virus (HPV) vaccine met with outstanding success in pre-clinical studies which showed it prevented disease progression and inhibited tumour formation.

The vaccine will now be progressed into Phase Ib clinical studies.

Divisions:

Sales and Distribution

Handles existing sales and distribution infrastructure and manages growing revenues of the group's portfolio that include infusion, surgery and cardiac hospital markets.

This arm is also responsible for the launch of CardioCel® in key markets in 2014 and 2015.

Regen

This division is responsible for product development based on proprietary tissue treatment (ADAPT®) that is part of a platform that will generate a portfolio of regenerative products.

CardioCel® is a regenerative tissue product engineered by the group's ADAPT® tissue engineering process and is a durable, pure collagen scaffold used to repair heart deformities including repairing and reconstructing heart valves.

The initial product "CardioCel ® has been cleared for sale in the US, Canada and Europe and is seeking regulatory approvals in other jurisdictions.

Biomanufacturing

This division owns a state of the art Biomanufacturing facility that is located in Western Australia.

The facility is currently focused on scale up and manufacturing of CardioCel®, and also includes infrastructure to manufacture additional products.

Vaccines Research and Development

This division is led by Professor Ian Frazer and is focused on the next generation of immunotherapies.

Positive results have been garnered for PH I and HSV-2 that are progressing into Phase IIa study. HSV-2 is being developed to treat genital herpes for which there is no current treatment.

Genital herpes affects more than one in six Americans between ages 14 and 49 according to the U.S. Centers for Disease Control.

WHO estimates the number of people aged 15-49 years who are living with HSV-2 worldwide exceeds half a billion.

Most individuals infected with HSV-2 experience either no symptoms or have very mild symptoms that go unnoticed or are mistaken for another skin condition and as a result are often unaware of their infection until an outbreak occurs. Notably, there is currently no cure for HSV-2.

The HPV therapeutic is progressing into a Phase I study. HPV is the human papilloma virus that causes cervical cancer in women.

Admedus finds success in Human Papilloma Virus vaccine studies

Recently the company's therapeutic Human Papilloma Virus (HPV) vaccine met with outstanding success in pre-clinical studies which showed it prevented disease progression and inhibited tumour formation.

The vaccine will now be progressed into Phase Ib clinical studies.
The HPV Vaccine is designed to target and clear HPV-positive tumour cells and has shown exceptional preclinical activity in a series of preclinical models.

The latest preclinical data from the HPV studies clearly shows the potential of the technology.

In the TC-1 tumour model, treatment with the HPV vaccine achieved 100% survival and 87.5% (seven of eight) had no detectable tumours after 50 days.

In addition, the vaccine provided 100% protection against HPV-positive tumour cell formation, as disclosed previously.

In a similar study, Mkrtichyan et al 2013 published paper showed that following treatment with ADXS-HPV vaccine, none survived beyond day 45.

With the addition of the anti-PD-1 antibody, an overall survival rate of 20% after 50 days was achieved.

An integrated healthcare company with long term global sales growth potential

The strategy of Admedus is to build an integrated healthcare company that is structured around a recognised and experienced board and management team.

This is supported by extensive corporate development, finance, M&A, med-tech, therapeutics, and sales and licensing experience.

Sales across the group are up 7% on an annualised basis, and are expanding organically from infusion products and via products developed in-house from the regenerative medicine platform. EU, US, and Canadian approval for CardioCel® are expected to become very significant growth drivers in the near, medium and long term.

Professor Ian Frazer's team is working with immunotherapies that will be commercialised into the next generation of vaccines.Admedus is forecasting that these immunotherapies will generate revenue and become significant value drivers over the next 12 -36 months.

Over the last year Admedus has achieved all of its defined milestones that include the maintenance of a strong cash position and strengthening of its global operations and Sales and Medical teams in Europe and the US.

The company was also recognised by industry with an Australian Excellence Award.

Sales highlights include:

- Increased sales by 7% over the period to reach $7.9 million;
- Over 20 European centres and over 15 U.S. centres have CardioCel;
- Number of centres for CardioCel® in Europe and the U.S. continue to grow with initial sales reported in the 2013/14 financial year;
- Singapore access recently granted for CardioCel with four surgeons in Singapore receiving approval to use the product under an early access program;
- Strengthened Key Opinion Leader groups in Europe and the U.S. in line with CardioCel® launch;
- Increasing number of surgeons in Australia gaining access to CardioCel® under the Authorised Prescriber Scheme (special access programme); and
- Over 225 patients successfully implanted with CardioCel® in Australia.

Regenerative Medicine highlights include:

- European CE mark approval and 510(NYSE:K) clearance with the FDA;
- Licensing approval in Canada;
- Six year data showing no calcification implanted with CardioCel®;
- Further benefits of ADAPT® tissue for stem cells; and
- Key CardioCel® data presented and published internationally.

Milestones & Share Price Catalysts for 2015

- Further growth of CardioCel® across key US, European, Canadian and Singaporean markets along with regulatory approvals in additional jurisdictions;
- Expansion of the group's regenerative product pipeline including in heart valves, vessel reconstructions, and other products;
- Initiate the Phase 2 Herpes therapeutic vaccine trial;
- Progression of the HPV therapeutic vaccine with Professor Frazer towards a Phase I trial; and
- Growing revenues across the business divisions.

Analysis

It is often unsaid but one of the strengths of Admedus is the management team. Evidence of this is the company's record in meeting milestones in 2013/14 and the use of invested capital.

Revenue growth will be derived from expanding organically (Infusion products), surgery and cardiac hospital markets from existing sales and distribution infrastructure and the launch of CardioCel®in key markets in 2014/2015.

Products developed in-house from the regenerative medicine are also likely to be contributors to growth.

In addition, commercialising a pipeline of next generation vaccines including immunotherapies with Professor Ian Frazer's team provide further revenue upside as well as add significant value drivers over the next 12 -36 months.

The growth in revenues and the business in 2015 presents share price catalysts and triggers that will have a potentially major impact on market capitalisation of Admedus in our view.

This market capitalisation of around $159 million (of which $14.4 million is cash) severely discounts and understates the current worth and our valuation of the business.

The undervaluation has enticed substantial shareholder MC Management Group Pty Ltd to recently increase its stake in the Company to 6.2% from 5.1% at an average price of $0.133 per share.

We see 2015 as a pivotal year for Admedus as it transforms into becoming a significant integrated healthcare company.

Proactive Investors believes the current share price dip provides an opportunity for investors as the company.

Proactive Investors Australia is the market leader in producing news, articles and research reports on ASX "Small and Mid-cap" stocks with distribution in Australia, UK, North America and Hong Kong / China.