Valuation $3.71 today, increasing to $9 + plus corporate activity

The recent release of the updated HC Wainwright 'research' (and strangely unchanged target price despite positive developments on the GvHD trial, Celularity MOU, and others), prompted me to look into their valuation methodology a little further. Aim was to backfigure some of the cashflow parameters and update the these to get to a target price now that is consistent with their target price of $1.50 from about the middle of last year.

However, their valuation process remains a total mystery from the published information. Much more transparent though is the NDF report from July last year ref. http://cynata.com/wp-content/uploads/2017/07/2017-07-24b-Cynata-report-from-NDF-Research.pdf which is very logical and accounts properly for the probability of success in each step of the process and the accurate parameters of the GvHD option in terms of option fee, milestones and royalties.

In the NDF report, we have this very key table…


This shows the probability of getting through each hurdle, and then the joint probability of getting through all of them (multiply each of the 4 probabilities to get the overall one).  NDF used average “success” factors as follows:
P1  0.73
P2  0.45
P3  0.68
App 0.94
..to arrive at an overall success probability of 21% (0.21).  Their resultant target price was $1.02 to $2.77 with a midpoint of $1.89 from the DCF sensitivity analysis that followed.

We just more or less got through P1 and got great efficacy results as a bonus (generally a P2 outcome).  We could assume say that P1 for safety is more like 90% now in this and other targets as our cells are ostensibly 'safe'. In P2, the risk of failure (not seeing efficacy) has markedly reduced due to the astonishing efficacy results we have seen in P1.  Even though this data is GvHD only, and the NDF report also incorporated other targets like AMI (acute myocardial infarction) and Asthma, the linkage between effective preclinical work and clinical work has been established and halving the probability of failure does not seem unreasonable (ie 45% success means 55% failure, halve that which becomes 27% failure, ie. 73% success).  So now we have…
P1  0.90
P2  0.73
P3 0.68
App 0.94

An overall probability of 41% and new risk weighted valuation TODAY of $2.00 to $5.42 with a midpoint of $3.71.  This doesn't take into account other conservative assumptions in the NDF report of which there are a few.

If we do ultimately succeed down the track, the success factor is obviously 100% and that target price becomes $4.88 to $13.19 with a midpoint of $9.03 – not far from the types of numbers that have been throw about here recently.  This is what CYP is worth as it stands so corporate activity (takeovers, mergers, etc.) would need to be sweeter than these numbers.

I hope we didn’t pay much for the Wainwright ‘analysis’ resulting in an unchanged $1.50 price target.  This one was free.