January 13, 2004 JP Morgan North American Equity Research

State of Our Views Regarding BSE in the US We continue to believe that as long as no further cases of BSE-positive cows are found in North America and the industry has respected the 1997 ban on animal feed for live cattle, beef consumption in the US will not suffer. Moreover, due to political pressure we expect key overseas markets (Japan, South Korea, and Mexico) to open up to US beef in the next six months - the recent 20% drop in cattle prices can be attributed mainly to these import bans.

· However, two concerns linger and should be kept in mind by investors, 1) Has the 1997 ban on animal feed for live cattle been honored by the beef industry? The government's General Accounting Office says it has not; 2) Can clusters of cases of sporadic CJD (or sCJD as it is commonly known) really be a variant of CJD and indeed be linked to BSE (vCJD is the scientific term for the disease linked to mad cow)?

· In this note we focus on the issue of sCJD clusters.

· Do sCJD Clusters Matter?

· The media focus (and as a result, the consumer at large) since December 23, thus far, has been on the potential of new BSE-positive cows being found, and on the various initiatives the authorities are taking to prevent an outbreak of BSE. However, the apparent existence of sCJD clusters in the US has received little publicity. If sporadic (or spontaneous) CJD is really spontaneous, it should not be found in population clusters. The fact that it indeed has been found in clusters raises concerns.

· Understanding the "Difference" Between sCJD and vCJD

· Prior to 1996 there was only one known type of CJD, and it was called "sporadic" or "spontaneous" because it was unclear where it came from, or how it was generated. In 1996 scientists in England "discovered" a "variant" of CJD (vCJD), which they indicated could be linked to the animal form of the disease (BSE or Mad Cow). Experts kept vCJD separate from sCJD because unlike the new vCJD the original sCJD could not be directly linked to BSE. However, not enough is known to be fully certain that sporadic CJD is truly spontaneous and has no external catalyst. The other notable difference between vCJD and sCJD is the incubation period. Whereas sCJD has an average incubation period of 40 years and is exceedingly rare in young people, vCJD can affect people of all ages and has a much shorter incubation period of just two to five years. An even more relevant difference is that sCJD is found in 1 out of 1 million people per annum, or 5,000 cases per year on a global basis, while only 180 human cases of vCJD (the type of CJD linked to BSE) have ever been reported.

· Existence of Clusters of sCJD May Imply They Are Really Cases of vCJD There have been seven sCJD clusters identified in the US in the last 15 years, in which people in a specific location were diagnosed with sCJD, resulting in rates between 1.2 and 8.4 deaths per million people for that specific location compared with the national average of one in 1 million. The existence of clusters raises the question of "contamination" or "infection", and also raises the hypothesis that rather than cases of sCJD these might have been cases of vCJD. Clusters are not spontaneous, they normally have a source.

· A cluster consists of two statistical improbabilities: 1) multiple cases occurring in a relatively limited geographic area, and 2) multiple cases occurring within the same time period. The most recent cluster was found in Cherry Hill, New Jersey. The others have been found in Lehigh, Pennsylvania (1986-90), Allentown, Pennsylvania (1989-92), Tampa, Florida (1996-97), Oregon (2001-02), and Nassau County, New York (1999-2000). Given that sCJD occurs randomly in one out of one million cases, it is a statistical rarity to find an sCJD cluster - let alone six. The following tables highlight known clusters in the US.

· Table 1: Clustered sCJD Deaths

· Local sCJD Deaths

· Time Span State Local Area Pop. (MM) Period (mo.) Total Ann'lized
1986-1990 PA Lehigh Valley 0.5 48 18 4.5
1989-1992 PA Allentown 2.5 36 15 5.0
1996-1997 FL Tampa 2.2 18 13 8.7
1996-1999 TX Denton .01 38 4 1.3
1999-2000 NY Nassau County 1.3 12 7 7.0
2001-2002 OR Entire State 3.4 24 14 7.0
2000-2003* NJ Cherry Hill Area 1.7 36 12 4.0
Source: JPMorgan.

The second table, below, shows what portion of the state's total expected sCJD cases (as based on a one per million occurrence) were found in the local cluster, comparing the local cluster's portion of cases with the local area's portion of the state's total population. The greater the factor between the former and the latter suggests a higher statistical improbability that the cluster is spontaneous (sCJD).

· Table 2: Clustered sCJD Deaths vs. Expected State Cases

· Annual Statewide Local Area (% of:)

· Time Span State Local Area sCJD Deaths* exp. state cases state pop.
1986-1990 PA Lehigh Valley 11.9 37.8% 4.5%
1989-1992 PA Allentown 12.0 41.7% 20.8%
1996-1997 FL Tampa 14.1 61.5% 15.7%
1996-1999 TX Denton 20.9 6.1% .02%
1999-2000 NY Nassau County 18.1 38.7% 7.4%
2001-2002 OR Entire State 3.4 205.9% 100.0%
2000-2003* NJ Cherry Hill Area 8.0 50.0% 21.6%
* *State cases are extrapolated based on state population and the 1 per million national average. Source: JPMorgan.

The CDC Is Currently Investigating the New Jersey Cluster The US Center for Disease Control (CDC) has opened an investigation into a cluster of deaths in an area surrounding Cherry Hill, New Jersey. Specifically, after dismissing the case when it was first brought to their attention earlier in 2003, the agency has since reversed course and on December 31, 2003 sought out information from Janet Skarbek. Skarbek, a Cinnaminson, New Jersey CPA believes she has uncovered a common link between seven deaths in the local area and a restaurant at the now-closed Garden State Race Track. All of the deaths had first been identified as the randomly occurring (one out of one million) cases of sporadic Creutzfeldt-Jakob Disease (sCJD), and six of the deaths occurred between 2000 and 2003.

Science Expanding its Knowledge of CJDs

Have Cases of sCJD Been Overlooked?

Dr. Omar Bagasra believes that a 29 year old that died of presumably sCJD in the New Jersey cluster may have died from a new, mutated form of CJD since sCJD has a typical incubation period of 40 years and is limited to elderly patients in almost all cases. Moreover, he suspects that the link between the seven local deaths (clustered geographically and chronologically) indicates that the new form of the disease is caused by some external catalyst, unlike the randomly occurring sporadic CJD (sCJD). He adds, though, that there may actually have been other unreported CJD-related deaths in the area since the disease is often misdiagnosed as Alzheimer's.

Diagnoses of Alzheimer's Might Have Been Cases of CJD

Lawrence Schonberger, the CDC epidemiologist who contacted Janet Skarbek on December 31, is quoted separately as saying that sCJD is underreported on death certificates, and that about 14 percent of cases are missed. In fact, due to similarities between sCJD and Alzheimer's disease, a 1998 Yale study found that as many as 13 percent of Alzheimer's deaths are actually sCJD, but conservative estimates place this number closer to 1 percent. If we extrapolate this finding to the 50,000 Alzheimer's deaths each year in the US, the number of actual sCJD deaths per year is somewhere between 500 and 6500. But, for us this raises additional questions, since at a rate of one per million, the US should not experience much more than 300 sCJD deaths in a single year. Furthermore, Alzheimer cases have grown 50-fold in the last 25 years from 857 cases in 1979 to 50,000 cases in today (albeit part of the increase could very well be attributed to improvements in reporting).

Can sCJD Be Caused by External Agents?

A recent study out of Imperial College in London has led some to believe that the same prions that cause the BSE-related vCJD may also cause a disease that manifests itself in a way that more closely resembles sporadic CJD. John Collinge, the scientist that conducted the experiment, is basing this assertion on findings in the study's mice, which were injected with BSE prions. As expected, some of the mice developed symptoms from vCJD, but unexpectedly, others suffered from symptoms that more closely resembled sCJD. If true, the implications are significant, as it will force scientists to consider whether cases of sporadic CJD may actually have been caused by consumption of contaminated beef.

Does All This Matter?

For now we await the results of the CDC investigation of the New Jersey cluster. Previous investigations have found clusters to be just coincidences. While this may be the case, we believe that the media may start focusing more on the issue of clusters, and that the debate could raise consumers' concerns about beef. But even in the worst case scenario that these clusters were indeed linked to BSE, one could still make the argument that these cases were generated before the 1997 ban on animal feed for cattle was imposed, and that hence chances of contamination since then are unlikely. Still, the question lingers, has the 1997 ban been respected? Will consumers concerns increase as the discussion of CJD clusters hits the national media? Bottom Line: If no new cases of BSE-positive cows are found and the issue of CJD clusters is disregarded by consumers, then the effect on beef consumption will be negligible. On the other hand, new cases of infected cows and/or a wider debate of CJD clusters could indeed have an effect on beef sales.