Cynata Therapeutics Limited
CYP-AU: Price: A$0.30; Market Cap (MM): A$22
Rating: Buy; Price Target: A$1.00
Raghuram Selvaraju, Ph.D., Senior Biotechnology Analyst
MHRA Favorable Advice Received; Proceeding to Clinical Testing
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Regulatory path cleared for initiation of clinical testing. Yesterday, Cynata announced that it had received favorable advice from the Medicines and Healthcare Products Regulatory Agency (MHRA), the principal healthcare regulatory body in the United Kingdom (i.e., the U.K. equivalent of the U.S. FDA), to move ahead with clinical testing of a candidate based on the firm's proprietary Cymerus technology platform. Cynata aims to initiate a Phase 1 clinical study in graft-vs.-host disease (GvHD) in 2Q 2016. The firm expects to obtain additional regulatory clearances in other jurisdictions in the coming months, so as to broaden the number of territories in which patients can be enrolled. In the wake of the favorable notice from the MHRA, we reiterate our Buy rating and 12-month price target of A$1.00 per share on Cynata.
Potential groundbreaking clinical program in stem cell therapy. We note that the Cymerus(tm) platform constitutes the world's only allogeneic inducible pluripotent stem cell (iPSC)-derived therapeutic technology. This approach permits the generation of a potentially infinite number of mesenchymal stem cells (MSCs) for deployment in a wide array of therapeutic contexts. We note that the favorable data generated by other MSC-producing companies in GvHD and the approved status of at least one MSC-derived product, Prochymal(r), in Canada and New Zealand for this indication bode reasonably positively for Cynata's clinical development program in this area.
Capital-efficient business model. In our view, Cynata possesses a cost-effective approach to the development of its stem cell platform, choosing to position itself as a manufacturing portal rather than simply a drug developer. The company is planning to conduct relatively capital-efficient proof-of-concept clinical studies to establish the validity of its stem cell production platform, then partner with more established companies for therapeutics development.
Valuation methodology and risks. We have employed a discounted cash flow (DCF)-based approach that assigns a value of ~A$81M to Cynata's technology platform, based only on collaborations focusing on 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 partnerships validating the value of its technology platform; and (iii) adverse results from clinical studies with Cynata's candidates.
Raghuram Selvaraju, Ph.D., Senior Biotechnology Analyst
Dr Macdonald provides a perspective on the Company in an interview by CommSec's Tom Piotrowski.
Cynata Therapeutics Limited (ASX:CYP) Managing Director and CEO Ross Macdonald details plans to commercialise its therapeutic technology.
IN a deal that plumbs the potential of one of medicine’s most hyped branches, the University of Western Australia has secured a supply of one of the human body’s most formative cells.
The Perth sandstone has partnered with one of Australia’s few commercial-scale stem cell manufacturers to find a cure for an incurable lung disease. Idiopathic pulmonary fibrosis has no known cause and limited treatment options, and a diagnosis usually means the sufferer will be dead within five years.
For the university, the alliance offers a consistent supply of identical stem cells for a trial study in animals. For the company, it offers “intellectual horsepower” to validate the products.
“There are some (deals) where the company just throws money at academics and hopes for the best,” Cynata Therapeutics chief executive Ross Macdonald said.
“In this case it’s a genuine two-way relationship. The more areas we expose our cells to, the better the commercial opportunity. If it was found that our stem cells were only useful for ingrowing toenails, they wouldn’t be much good commercially, but lung fibrosis – which is a particularly devastating condition – has an annual therapeutics market of a billion dollars.
“It’s the sort of thing which gets doctors and ultimately investors interested.”
The Centre for Cell Therapy and Regenerative Medicine, based at UWA, represents a collaboration of WA universities, hospitals and medical research institutes.
It’s looking to stem cells for solutions to scourges from heart and lung disease to Alzheimer’s, diabetes and cancer.
“(Stem cell therapy) has the capacity to transform the way we do medicine, but one of the big challenges is getting the right cells,” director Geoff Laurent said.
“Having a really tight procedure for preparing these cells, which means you get consistency from one batch to the next, is really important. You do your tests with a batch of cells, and you want to be using the same cells all the time.”
Cynata says it has found a way of mass-producing mesenchymal stem cells, which are the focus of about 300 studies into treatments for various diseases.
The approach avoids the ethical minefield of harvesting embryonic stem cells and the need for painful bone marrow extractions, with an unlimited supply of cells generated from a single blood donation.
Dr Macdonald said some Australian companies were able to produce “bespoke” stem cells, where cells from the patients themselves were reinjected.
“(That’s) fine for relatively rare diseases, but if you want to treat diseases of economic importance – like heart attack, stroke or lung fibrosis – (you need) an off-the-shelf product, where (someone’s) stem cells can be used in any patient,” he said.
Professor Laurent, who also directs the Lung Institute of WA, said the hope was that injected cells would “go straight to the tissues we want to treat (and) regenerate viable functional tissue”.
He said there had been significant breakthroughs in treating blood cancer and macular degeneration using stem cells.
While the field was still to live up to its more general promise, “at some stage people will be treated with stem cells off the shelf. I don’t know when it will be, but it will come, and I don’t want Australia to be behind the eight ball.
“We need to be leading in this area. It will be good for people’s health and good for Australia’s economy.”