Based on NPV based valuation, we believe that Cynata Therapeutics is substantially undervalued at the current share price of AUD 0.57. Using our valuation model and taking into account the future revenues from its Cymerus™ platform, the company’s current total value should be AUD 150-175 million, or AUD 1.67-1.95 per share
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Cynata Therapeutics Limited
Market Cap (MM): A$37.8
A unique production method. CYP’s CymerusTM technology is the only likely viable production method for generating medicinal mesenchymal stem cells (MSC) for large scale clinical applications. We are not aware of any competing technology under development that is a scalable method of growing MSCs which don’t lose potency as successive generations of cells are produced and do not rely on multiple cell donors. Trial data and third party validation of CYP’s MSCs and the opportunity for them continues to build. Fujifilm has taken an 8.9% equity position in CYP and optioned the global rights for use in graft-versus-host disease (GvHD). apceth Biopharma GmbH has conducted due diligence on the production method and found the characteristics of the cells produced using Cymerus were highly satisfactory. The UK regulator has approved a first trial in humans validating safety and manufacturing procedure. CYPs pre-clinical trials have shown the MSCs produced performed very favourably and independent studies have provided further verification.
Cynata Therapeutics Limited
Market Cap (MM): A$45
Price Target: A$1.00
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Cymerus™ Technology Advances in Asthma; Reiterate Buy
Cynata reports favorable preclinical asthma data. This morning, Cynata Therapeutics Ltd. reported that it had received the final report on a preclinical study assessing the therapeutic potential of its proprietary Cymerus™ mesenchymal stem cells (MSCs) in an animal model of asthma, a chronic inflammatory lung condition afflicting hundreds of millions of people worldwide. The preclinical data indicated that the Cymerus™ MSCs could exert significant benefit on all three crucial components of asthma pathophysiology: airway hyper-responsiveness, inflammation and airway remodeling. In the wake of these preliminary but intriguing findings, we reiterate our Buy rating and 12-month target of A$1.00 per share on Cynata.
Research collaboration in place—large commercial opportunity. Cynata Therapeutics Ltd (CYP.AX), has signed an agreement with the Monash Lung Biology Network, a consortium involving researchers from the Monash Biomedicine Discovery Institute and Department of Pharmacology at Monash University, Melbourne, to conduct a further preclinical study to support the use of Cymerus™ MSCs for the treatment of asthma, a chronic lung condition recognized by the World Health Organization (WHO) as a disease of major public health importance due to its global prevalence. Patients who suffer from chronic asthma manage the disease primarily through the use of steroid drugs, which can have significant side effects and impact on patients' quality of life. The global market for asthma drugs is expected to reach US$25.6 billion by 2024, according to a July 2016 market analytics report from Grand View Research; accordingly, we believe that this challenging disease represents a highly valuable commercial opportunity for Cynata.
Manuscript preparation and further experiments ongoing. In October 2016, Cynata announced intriguing initial data from a proof-of-concept study of Cymerus™ MSCs in an experimental model of asthma, conducted under the supervision of Associate Professor Chrishan Samuel and Dr. Simon Royce at Monash University. Those data showed that Cymerus™ MSCs have a significant effect on improving airway hyper-responsiveness. Cynata recently received the final study report, indicating that Cymerus™ MSCs also consistently reduced markers of airway inflammation and airway remodeling. Cynata management anticipate that a manuscript describing these findings should be submitted to a peer-reviewed journal in the near future. A further study to focus on the effects of Cymerus™ MSCs in combination with and in comparison to corticosteroids is being planned. This has direct clinical relevance, as corticosteroids currently constitute the most widely-used class of drugs currently used to control and/or prevent asthma exacerbations.
Valuation methodology and risks. We have used a discounted cash flow (DCF)-based approach that assigns a value of A$81M to Cynata's technology platform, based only on collaboration-based revenue, with a 10 - 16% royalty rate range, 12% discount rate and 70% likelihood of occurrence. Our peak sales estimate for stem cell products on which Cynata would receive royalties via collaborations is $510M, attainable by 2030. Our valuation translates into a price of A$1.00 per share, based on 90M fully-diluted shares outstanding as of end-2017. Risks include, but are not limited to: (1) delays in clinical trial enrollment; (2) inability of Cynata to consummate further strategic partnerships; and (3) adverse results from clinical studies with Cynata's candidates.
Raghuram Selvaraju, Ph.D.
Cynata Therapeutics Limited
Market Cap (MM): A$55
Over the last couple of months CYP has delivered on a number of initiatives which increasingly make it look to be the only likely viable mesenchymal stem cell (MSC) solution for large scale clinical applications. We look at recent developments and the upcoming Graft V Host Disease (GvHD) clinical trial which will be the basis on which it expects its infinitely expandable iSPC-generated MSCs to be recognized as superior to bone marrow derived MSCs, which are now widely regarded as only having limited expansion capability. Positive results from this trial will potentially compel other industry participants to move towards adopting CYPs MSCs for large scale use and FUJIFILM (Fuji) to move forward towards a more significant relationship.
Fuji Development/Commercialisation Agreement & Equity Stake. In January CYP entered a development and commercialisation partnership with Fuji under which Fuji took a A$4m strategic equity stake in CYP and entered a strategic relationship to potentially commercialise and manufacture CYP-001 for GvHD and certain rights to other CYP technology. Total potential milestone payments are in excess of A$60m and double-digit royalties on CYP-001 net sales for GvHD have been put in place. Results from the GvHD clinical trial will be crucial to Fuji taking the program forward.
Positive Preliminary Data from Preclinical Heart Attack Study with CYP’s MSCs. In February CYP released preliminary results from a proof of concept study in rats suggesting that its MSCs may have potential to restore cardiac function and reduce scar size after a heart attack. The data is not only encouraging for heart applications, but also supports confidence in the quality and likely efficacy of CYPs iSPC-generated MSCs ahead of GvHD clinical results.
Treatment Benefit Confirmed in Final GvHD Preclinical Study of MSCs. In February CYP also announced results from an expanded study of its MSCs in mice with induced GvHD. The study of 60 animals confirmed the results of earlier smaller trials showing highly statistically significant evidence of prolonged survival. The trial also produced evidence of mechanism of action.
Efficacy in Preclinical Asthma Study Further Supports Efficacy. In October CYP released a compelling data set from its proof of concept study of MSCs in an experimental mouse model of asthma. This is further confirmation that its MSCs work.
CYPs GvHD Clinical trial is now ready to roll. CYP’s pre-clinical program has demonstrated the sterility, purity, potency, stability, safety and indicative efficacy of its MSCs. Similarly CYPs contract manufacturer, Waisman Biomanufacturing, has established indicative efficacy/potency using assays which helps validate CYP’s animal data. Regulators now require CYP to demonstrate that its iPS derived MSCs are safe and effective in humans. This is the key reason for CYP’s GvHD trial. CYP expects results from the trial to be available in 2017. If positive, we expect the data will: 1) establish benefits clearly outweigh any remaining small risks, which is the way regulators typically consider applications, 2) enable CYP to develop its own programs to commercialise, 3) attract a greater number of other groups to use, under license, CYP’s cells in various studies of their own, and 4) possibly a takeover.
CYP is not currently rated by Shaw and Partners. The data around CYPs MSCs - both its own and that developed by external groups - and the partnering deals it is putting in place increasingly point towards validation and industry acceptance of CYPs MSCs. CYP still needs to show that its MSCs are at least as safe and effective as harvested MSCs, however it has made significant steps forward towards being the only likely viable MSC solution for large scale clinical applications, which is unrecognised by its market capitalisation of $45m.
Cynata Therapeutics Limited
Market Cap (MM): A$31
Option agreement signed with apceth. Earlier today, Cynata announced that it had signed an initial option license agreement with the privately-held German firm apceth GmbH, which involves a global agreement for apceth to develop and commercialize Cynata's proprietary CymerusTM technology platform for the production of mesenchymal stem cells (MSCs) in conjunction with apceth's proprietary genetic modification technology. The agreement involved an immediate upfront cash payment, the magnitude of which was undisclosed, and a definitive license is subject to the completion of an initial collaboration project that is slated to conclude later this year. Under the terms of the license, Cynata and apceth are to work together in developing the CymerusTM technology, and apceth is to provide Cynata with additional payments contingent upon the achievement of subsequent milestones. The total amount of these contingent payments could exceed A$40M. In addition, Cynata could receive royalties on net sales of products developed using its manufacturing platform in conjunction with the apceth technology. In the wake of the signing of this agreement, which we note involves the potential payment of future milestones that in aggregate comfortably exceed Cynata's current market cap and enterprise value, we reiterate our Buy rating and 12-month price target of A$1.00 per share on Cynata.
Intriguing applicability within oncology. We note that apceth, although a relatively new firm, having been founded as a startup in 2007, is already in clinical development with a lead product candidate, MSC_apceth_101, based on autologously- derived mesenchymal stromal cells. The Phase 1/2 trial is a single-arm, prospective study involving patients with advanced recurrent or metastatic gastrointestinal or hepatopancreatobiliary adenocarcinoma. MSC_apceth_101 is derived from stem cells obtained using the patients' own bone marrow and is designed to specifically deliver a "suicide gene" construct into tumor stroma, thereby inhibiting tumor growth and metastasis formation. In our view, the desire of apceth to collaborate with Cynata underscores apceth's understanding of the need to develop an allogeneic (i.e., "off the shelf") solution to production of the stem cells needed to act as the delivery vehicles for therapy, rather than simply retain a need for autologous production. We note that, while Cynata has granted an option to apceth for a worldwide license to the CymerusTM platform, this would be specific to oncology-related applications and furthermore would be restricted only to solutions involving genetically modified MSCs, thus providing adequate freedom, in our view, for Cynata to pursue other partnership agreements with different companies.
Valuation methodology and risks. We have employed a discounted cash flow (DCF)-based approach that assigns a total value of roughly A$81M to Cynata's technology platform, based only on collaborations in the cardiology, regenerative medicine and oncology domains. Our valuation translates into a price of A$1.00 per share, taking into account roughly A$12M in cash and 90M fully-diluted shares outstanding as of end-2016. Risks that could impede achievement of our price target include, but are not limited to: (i) delays in regulatory clearances for and enrollment in clinical trials; (ii) inability of Cynata to consummate additional strategic partnerships; and (iii) adverse results from studies with Cynata's candidates.