Regeneus (ASX:RGS, A$0.14) – Update Occasionally, a particularly...

Regeneus (ASX:RGS, A$0.14) – Update
Occasionally, a particularly interesting international company catches the eye of one of Beaufort’s analysts, either because it looks much too cheap or, perhaps, has exciting new opportunities or technologies. Regeneus Ltd, which is quoted on the Australian Stock Exchange (ASX:RGS) appears to tick each of those boxes. It is a clinical-stage regenerative medicine company developing a portfolio of innovative cellular therapies targeting significant unmet medical needs in both human and animal health markets. Its initial focus is on osteoarthritis (OA), cancer, inflammatory skin conditions and wound healing. The Company’s product pipeline, which comprises a diversified portfolio of clinical-stage products is underpinned by proprietary stem cell and immuno-oncology technologies. Recent half-year results to end-December 2016, highlighted a very successful period for the Company, with efforts of the past 18 months culminating in a strategic collaboration and licensing agreement with AGC Asahi Glass (‘AGC’) (TYO: 5201), one of Japan’s leading biopharmaceutical manufacturers. Under the terms of the collaboration dated 28 December 2016, AGC has the exclusive rights to manufacture Progenza in Japan and a 50% interest in Regeneus Japan, which is the exclusive licensee of the clinical development and marketing rights for Progenza for osteoarthritis and all other clinical indications in Japan. Regeneus received US$5.5 million as an upfront payment and is entitled to a further US$11 million upon meeting specific development and approval milestones. Progenza is a scalable stem cell technology platform. Financial highlights for the period, boosted by the AGC receipt, included Regeneus producing a first reported profit of A$3.8 million (FY2016: loss A$3.1 million). Despite this, quarterly cash operational consumed (before A$2.7 million R&D tax incentive) was maintained at A$1.5 million, suggesting it now has funding visibility out for the next 18 months.

Our view: It is during this coming 18 months that things get really exciting! Regeneus’ focus will remain on unlocking value in its clinical-stage human and animal pipeline products. It will do this through generation of positive clinical data, technology development and partnering through a series of different channels. It will, of course, continue its advanced clinical partnering negotiations with Progenza in Japan, while completing clinical milestones under the AGC collaboration and commencing donor procurement and process development for its manufacture for Phase II trials before the end of FY2017. During Q4’2017 it also aims to commence an ARC-funded Progenza chronic pain study and report of its osteoarthritis STEP trial. Further out during H2 FY2018, Regeneus should also have completed its recruitment and report on both the ACTIVATE clinical trial and the CryoShot canine pre-pivotal OA trial. Phew! That’s quite a list. Of course, other drug development groups do occasionally present similarly impressive programs, but it is hard to find one that is also capable of pointing at a balance sheet that will carry it right though current programs while generating positive earnings for both this year and next. Sure, the current year earnings multiple of just 6x is flattered by the AGC’s upfront payment, but the opportunities developed and the pipeline presented suggest the equity presently trades at less than half what it could achieve based on valuations amongst its London-quoted peer group. Definitely one to keep an eye on!

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