Stem cell pioneer Share Price: A$0.80 Cynata is emerging as a world leader in the field of stem cells.
The company’s Cymerus technology allows the manufacture of large quantities of therapeutic Mesenchymal Stem Cells (MSCs) under Good Manufacturing Practice (GMP) at low cost. This gives Cynata a distinct advantage over other stem cell players as it moves its products into the clinic. Cynata has done its first partnering deal In September 2019 Cynata signed an exclusive licensing deal with the Japanese company Fujifilm for global rights to Cynata’s CYP-001 product in Graft-versus-Host Disease (GvHD), a complication that occurs after bone marrow transplants. The product had performed well in Phase 1 and Fujifilm will now take it further. This deal is relatively low on milestones, at only US$43m (plus royalties), but provides significant validation for Cynata’s technology and manufacturing process.
Cynata is building a stem cell pipeline Cynata has favourable pre-clinical data in various indications with its MSCs including Critical Limb Ischemia, osteoarthritis and Acute Respiratory Distress Syndrome (ARDS), amongst others. Cynata is planning a large human clinical study in osteoarthritis in Australia. The ARDS indication is particularly attractive in the current climate given the potentially fatal ARDS that can show up in some cases of Covid-19 and is largely responsible for Covid-related mortality. Cynata has approval in Australia to run a clinical study in patients in intensive care with Covid-19 but this study has yet to enrol its first patient due to declining Covid-19 incidence in this country.
The Stem Cell Revolution is almost with us With widespread clinical data from multiple developers showing that MSCs can be therapeutically beneficial we believe the scene is set for the Stem Cell Revolution in medicine where stem cell therapies are reduced to practice. Cynata with its low cost and reliable manufacturing is well placed to be a leader of this Revolution. Valuation range of A$2.18 – A$4.21 per share
We value Cynata at $2.18 per share base case and $4.21 per share optimistic case. We valued a range of programmes beginning with the GvHD programme but see considerable upside from programmes we consider too early to value.
We see Cynata being re-rated by the market as pre-clinical data emerges on the various programmes in Cynata’s pipeline, and as other products move into the clinic......
If Cynata is so good, then why is it currently capitalised at only $93.7m/A$66.8m?
Cynata’s decision in October 2019 to turn down an offer from Japan’s Dainippon Sumitomo, which would have valued the company at A$204m, has likely caused some investors to be wary of the stock in 2020.
Also, the recent decision by the FDA to issue a Complete Response Letter to Mesoblast related to its Remestemcel-l product in GvHD has also dampened investor interest in stem cells. In addition to this Cynata may have ‘missed the boat’ in terms of the opportunity to study its MSCs in Covid-19 given the current low rates of infection in Australia. We see Cynata overcoming all these issues as it moves forward with its pipeline and as Mesoblast advances with its other late stage products.
Ten reasons to consider Cynata
1. The time is now for regenerative medicine. Over the last two decades, the scientific knowledge around stem cells and regenerative medicine has progressed in leaps and bounds. Early products are now in late stage trials or have gained regulatory approval and commercial launch. In this environment, the field is becoming increasingly important in modern medicine and we see strong upside for stem cell companies as investors realise the importance of having exposure to this novel form of therapy.
2. Diverse treatment opportunities. Mesenchymal Stem Cells (MSCs) have many potential indications. The cells can enable the repair of cardiac tissue, they can cause the rebuilding of bone and cartilage, and, most importantly, they have been shown to have immunomodulatory properties. In addition to these applications, the apparent lack of immune reactions to MSCs derived from unrelated donors points to their potential to be used as ‘off-the-shelf’ products. This last property suggests drastically lower costs, as a one-size-fitsall product is far cheaper in many cases than one that is personalised for each patient. It also dramatically increases the potential commercial opportunity.
3. Availability and cost. Cynata solves one of the original problems with stem cells - quantity. The company’s IP centres on a precursor cell called a mesenchymoangioblast (MCA), where a single colony can create up to 1022 MSCs. Cynata, in fact, begins with an earlier cell, called an induced Pluripotent Stem cell or iPS cell. This cell can be caused to differentiate into the precursor mesenchymoangioblasts and thence to MSCs. These iPS cells can be expanded indefinitely, which means that Cynata can potentially create an unlimited number of highly consistent, uniform and potent MSCs from the same starting material. Abundance leads the way to low-cost therapy. Cynata has made strong progress in recent years in being able to manufacture in commercial facilities at scale.
4. A thought-leader in stem cell technology is working with Cynata. The inventor of the Cymerus technology, Professor Igor Slukvin, continues to work with Cynata, and is among the top 10 shareholders. Slukvin has done pioneering work on systems for making blood and blood-making cells from human pluripotent cells, and his institution, the University of Wisconsin-Madison, was the place where in 1998 the first human embryonic stem cell line was Cynata derived by Slukvin’s colleague and co-inventor, Professor James Thomson. Slukvin was also a founder of another University of Wisconsin spinout, Cellular Dynamics International, which was acquired by Fujifilm in 2015 for US$307m.
5. Cynata has an early-mover advantage. Cynata is one of the first publicly traded companies in the world to make use of iPSC technology in therapeutic applications, the science of which delivered part of the 2012 Nobel Prize in Physiology or Medicine to Japan’s Shinya Yamanaka. This makes Cynata a great concept stock for investors in the regenerative medicine field.
6. Cynata has partnered its lead product with Fujifilm. Fujifilm became a major global player in stem cells after it bought Cellular Dynamics in 2015. In 2018 the Japanese conglomerate licensed the global rights to the use of Cynata’s cells in Graft-versus-Host-Disease (GvHD), paying US$3m upfront and up to US$43m in milestones, plus royalties, for the global license. This deal has markedly de-risked Cynata, in our view. Cynata has a vigorous partner outreach so further revenue accretive corporate partnerships will drive value.
7. Favourable early stage clinical data in GvHD. A 15-patient Phase 1 trial in steroid-refractory GvHD showed that Cynata’s CYP-001 product could blunt the severe immune response associated with GvHD. Fujifilm will now build on that data in the upcoming Phase 2.
8. A growing pipeline. Cymerus MSCs have shown in vivo that they can work in multiple conditions. A Phase 3 study funded by Australia’s NHMRC is planned in osteoarthritis, and Critical Limb Ischemia is also an important potential clinical programme. The data on Acute Respiratory Distress Syndrome suggests the potential to treat Covid19 and a clinical trial may potentially take place in 2021.
9. Cynata’s leaders have proven experience. Dr Ross Macdonald, Cynata’s CEO, gained important drug development knowledge at F.H. Faulding, Connetics and Stiefel. Dr Geoff Brooke, Cynata’s Chairman, brings valuable experience as a successful VC investor focused on the Life Sciences.
10. Cynata is currently good value, in our opinion. We value Cynata at $2.18 per share base case and $4.21 per share optimistic case, using a probability-weighted DCF method. Should the GvHD study show the clinical utility of the Cymerus technology, we see Cynata being rerated.
So do I!
but here's the disclaimer for the baked on whingers and lazy onlookers....before I have to listen to the useless 'paid research moan.
**"Readers should be aware that Pitt Street Research Pty Ltd has been engaged and paid by the company covered in this report for ongoingresearch coverage. Please refer to the final page of this report for the General Advice Warning, disclaimer and full disclosures."
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