Shaw and Partners Initiation Coverage: BUY Rating and a $1.20 Price Target
Cynata Therapeutics Limited
Market Cap (MM): A$37.8
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A unique production method. CYP’s CymerusTM technology is the only likely viable production method for generating medicinal mesenchymal stem cells (MSC) for large scale clinical applications. We are not aware of any competing technology under development that is a scalable method of growing MSCs which don’t lose potency as successive generations of cells are produced and do not rely on multiple cell donors. Trial data and third party validation of CYP’s MSCs and the opportunity for them continues to build. Fujifilm has taken an 8.9% equity position in CYP and optioned the global rights for use in graft-versus-host disease (GvHD). apceth Biopharma GmbH has conducted due diligence on the production method and found the characteristics of the cells produced using Cymerus were highly satisfactory. The UK regulator has approved a first trial in humans validating safety and manufacturing procedure. CYPs pre-clinical trials have shown the MSCs produced performed very favourably and independent studies have provided further verification.
MSCs are the most prospective of the different stem cells in development, but there is a largely unrecognised production problem. The MSC opportunity, to repair damaged or diseased tissues such as heart, bone and cartilage, and or, treat diseases such as diabetes and heart disease is the biggest and most prospective field of stem cell endeavour. More than 600 trials of MSCs are underway globally reflecting their acceptance and wide utility. Mesoblast Ltd. (MSB:ASX, $1.2bn) and TiGenix N.V. (TIG:BE, $200mn), are examples of some of the global companies investing billions developing MSC therapeutics. Despite this investment there remains a key problem – potent MSCs cannot be produced consistently at commercial scale using first generation production methods. This flaw in the business model of MSC companies is not well recognised by investors, but CYP provides a unique solution which may be required by all MSC based therapeutics targeting indications with large patient numbers.
Final validation of the safety and efficacy of CYP’s MSCs is likely with its GvHD trial. The key risk, that we expect to be substantially overcome in 2017, is showing that CYP’s MSCs are at least as safe and effective as MSCs manufactured using first generation processes. Positive results from CYP’s GvHD trial in 2017 should provide the confirmatory evidence. This will open the Cymerus production method to commercial uses for multiple indications across therapeutic markets worth billions. Other risks we consider to be less significant include: i) delays in clinical trial enrolment; ii) an inability to negotiate additional strategic partnerships; and iii) poor results from clinical trials.