Rodman & Renshaw Research Update: “Cymerus™ Technology Advances in Asthma; Reiterate Buy”


Cynata Therapeutics Limited

Price: A$0.54;
Market Cap (MM): A$45
Rating: Buy;
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.