Rodman & Renshaw Research Update: “Non-Binding Term Sheet Signed With Fujifilm; Reiterate Buy”


Cynata Therapeutics Limited

Price: A$0.42;
Market Cap (M): A$30
Rating: Buy;
Price Target: A$1.00

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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.