Cynata Therapeutics Limited
Market Cap (M): A$30
Price Target: A$1.00
Non-Binding Term Sheet Signed With Fujifilm; Reiterate Buy
Non-binding term sheet executed. Yesterday, Cynata announced that it had signed a non-binding development and commercialization term sheet with Fujifilm Corp. of Japan covering certain Cynata technology, including the Australian firm's lead induced pluripotent stem cell (iPSC) derived therapeutic mesenchymal stem cell (MSC)- based product candidate, CYP-001. Pursuant to this term sheet, the parties are to finalize a definitive agreement, which Cynata management expects to be completed before the end of 2016. In the wake of the signing of this agreement, we reiterate our Buy rating and 12-month price target of A$1.00 per share on Cynata.
Attractive deal terms from an established corporate partner. We note that the inking of this non-binding term sheet constitutes an encouraging development for Cynata, given the potential for a definitive agreement to be signed with an established company like Fujifilm. The term sheet anticipates that, under a definitive agreement, Cynata will grant Fujifilm an option to an exclusive, worldwide licence to market and sell Cynata's lead MSC product for prevention and treatment of graft-versus-host disease (GvHD), as well as (a) an option to negotiate a licence for manufacturing those products, and (b) certain rights to Cynata's proprietary CymerusTM technology for the prevention and treatment of other diseases. The term sheet further anticipates that, under a definitive agreement, FUJIFILM will make a direct investment in Cynata by way of the acquisition of Cynata shares to the value of US$3M. Such shares are to be priced at, in consideration for the rights granted under the agreement, a 35% premium to the six-month volume-weighted average price (VWAP) as of 2 September 2016. The term sheet also contemplates Cynata receiving certain upfront and milestone payments, together with a royalty on end product sales. Entry into a definitive agreement remains subject to satisfactory completion of negotiations. In our view, Fujifilm's desire to collaborate with Cynata underscores the potential value of Cynata's technology and enhances Cynata's rapidly growing network of collaboration agreements, in the wake of other arrangements signed with the German firm apceth and another Japanese firm, Regience K.K. However, unlike those agreements, which were platform-based, we note that this potential arrangement with Fujifilm focuses on a specific development-stage candidate, CYP-001, and a particular disease area (GvHD), although it could extend to include other products and therapeutic indications. We continue to expect Cynata to be aggressive in pursuing other licensing agreements over the course of the coming months.
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: (1) delays in regulatory clearances for and enrollment in clinical trials; (2) the inability of Cynata to consummate additional strategic partnerships; and (3) adverse results from clinical studies with Cynata's candidates.
CPS Capital CEO, Jason Peterson and major shareholder of Cynata Therapeutics Ltd (“CYP”), provided an update on the company to investors, since his last review in May 2016.
Mr Peterson provided the following information:
Since my last update on CYP, it has been pleasing to see that the company has been meeting its milestones and delivering to the market in line with its business strategy. Some exciting news has come out of this company which seems to be reflected in the upward price trend of the chart below, particularly in the last month.
CPS Capital CEO, Jason Peterson advised current and potential investors that as a major shareholder of Cynata Therapeutics Ltd (“CYP”), he has recently been meeting management, organising a marketing strategy for the company & and generally understanding the stem cell market.
Mr Peterson provided the following information to investors:
This company is impressive and has the ability to deliver. The current “negatives” around the stock are being addressed (these are minor in the whole scheme of things).
Based on this and further to recent information released by the company CYP is currently a SPECULATIVE BUY.
Cynata Therapeutics Limited
Market Cap (MM): A$30
Price Target: A$1.00
Strategic Alliance Inked in Japan; Reiterate Buy
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.