U.K. approval received for CLI trial, page-18

Cynata Therapeutics (CYP)Rating: Buy | Risk: High | Price Target: $3.00

UK Regulatory Authority Approves Cynata's Phase 2 Clinical Trial in Critical Limb Ischaemia

EVENT: Further positive developments for CYP and its Cymerus MSC platform continue to support the outlook for both iPSC derived cells and our CYP investment thesis. Shaw and Partners forecasts and recommendation remain unchanged as does our 12 month TP.

HIGHLIGHTS: CYP has announced that it has received approval from the UK Medicines and Healthcare products Regulatory Agency (MHRA) to proceed with its Phase 2 clinical trial of the Cymerus™ mesenchymal stem cell (MSC) product CYP-002 in patients with critical limb ischaemia (CLI).

CYP anticipates conducting the clinical trial at multiple centres in the UK and Australia. The trial is expected to start this quarter and involve the recruitment of ~90 patients with advanced CLI, cost are yet to be finalised. The UK is a reputable regulator recognised for good quality trials data outcomes, but it is also a relatively quick path to conducting clinical trials. Ultimately though CYP recognises it will have to go down the regulatory path in other major jurisdictions (e.g. U.S. FDA) if it is to fully access and monetise the CLI treatment opportunity which is forecast to reach a global value of US$5.4 billion by 2025.· The approval also confirms the successful implementation of the Company's strategy to use the positive Phase 1 trial of Cymerus MSCs in graft versus host disease to support direct progression from preclinical to Phase 2 clinical studies for CLI and multiple other indications. We expect this to include the indications CYP has recently generated successful pre-clinical data for.

Essentially the acceptance based on CYP's graft versus host disease phase 1 data fast tracks CYP's other programs which adds further appeal to potential licensing.· CLI is an advanced stage of peripheral artery disease (PAD), which is a narrowing of arteries in the limbs, particularly the legs. The risk of PAD is increased in patients with diabetes, obesity or high blood pressure and also in people who smoke. CLI often results in amputation of the affected limb and is a major risk factor for cardiovascular events such as heart attack.

There are 230,000 addressable events per year.· As previously announced, in a preclinical study in a mouse model of CLI, treatment with Cymerus MSCs led to significantly higher blood flow in the ischaemic limb and protection against muscle damage, fibrosis, and limb loss.

RECOMMENDATION: Since Shaw and Partners initiated coverage on CYP in May 2017 it has licensed its CYP-001 to Fujifilm and appreciated 190%. We expect further out performance as CYP i) moves CYP-001 into GvHD phase 2 trials in 2020, ii) partners a number of other undisclosed indications which it has disclosed it is currently negotiating, and iii) begins the NHMRC funded phase 2 Osteoarthritis clinical trial expected 2019-20. This trial in 448 patients will not only be one of the largest MSC trials ever undertaken, but targets a market opportunity estimated at USD 11.6b by 2025. Our BUY rating is reaffirmed.