Shaw and Partners Flashnote: “Partnering Highlights Value”


Cynata Therapeutics Limited

Price: A$0.43;
Market Cap (MM): A$31

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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.