MHRA Favorable Advice Received; Proceeding to Clinical Testing

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