Cynata Strikes A Chord In Regenerative Medicine

This story features CYNATA THERAPEUTICS LIMITED, and other companies. For more info SHARE ANALYSIS: CYP

-Key iPS technology
-Ample therapeutic opportunities
-Favourable research data
 

By Eva Brocklehurst

Cynata Therapeutics ((CYP)) is not a well-known player on the biotech scene. Yet. The company is involved in stem cell development for regenerative medicine. For stockbroker Baillieu Holst, regenerative medicine has potential to revolutionise medical science, through highly favourable outcomes in areas of unmet need. The stem cell revolution is today what monoclonal antibodies were in the 1990s, in the broker's opinion, and signals a reasonable chance that companies with capitalisations of over US$1bn will emerge in this area.

Regenerative medicine involves repairing or replacing organs and tissue that have been lost or damaged from age, disease or congenital defects. Stem cells are at the core of such research. Cynata's Cymerus technology allows for unlimited quantities of Mesenchymal Stem Cells (MSCs) to be manufactured for therapeutic use from only a small number of initial donor cells. These cells are know to be able to facilitate heart repair, rebuild bone and cartilage and reduce inflammation. The company is working on a manufacturing process for the cells and will dose its first patient next year. Key to the company's therapy is the ability to manufacture unlimited stem cells. Mesenchymal cells are potent but have to be cultured and there are limitations in the amount of increase in the population before they lose the ability to divide altogether.

Cynata starts with induced pluripotent cells (iPS) that can differentiate into MSCs and be expanded indefinitely. The technology inherent in iPS is expected to make stem cells a medical reality without the ethical controversy that was created over embryonic stem cells. Part of the 2012 Nobel Price in Medicine went to Japan's Shinya Yamanaka for the invention of iPS cells. Cynata became one of the fist publicly traded companies in the world to make use of this technology. The first clinical trial of an iPS cell started last year so the technology still has some way to go before becoming main stream.

Baillieu Holst has a Buy recommendation and a 90c price target, which is derived from a base case scenario using a probability-weighted discounted cash flow. The broker thinks the stock is undervalued. For an optimistic case the value is around $2.25. Earnings are expected to exit negative territory by 2016. The broker expects Cynata will re-rate to the target price as it demonstrates the ability to make the stem cells at scale and early pilot trials take place. The broker assumes the company raises $25m at 30c a share in order to move its stem cells into mid-stage clinical trials.

So, why does Baillieu Holst believe the stock is worth owning? There are ample therapeutic possibilities with stem cells and Cynata is collaborating with recognised leaders in regenerative medicine. Favourable research data underpins the broker's view, with evidence that MSCs make a serious difference in critical limb ischemia and graft versus host disease (GvHD). The latter is an orphan disease condition with an unmet medical need and provides a good proof-of-concept test for Cynata. A phase 1 trial in GvHD is planned in order to evaluate the ability of Cynata's stem cells to reduce the disease's impact.

Why is stem cell technology so different? Stem cells potentially treat the underlying biology rather than symptoms. A stem cell treatment for heart failure could repair heart tissue whereas current therapies such as drugs, defibrillators or pacemakers only slow the rate of tissue damage. Moreover, antibodies never made an impact on disorders of the central nervous system such as Parkinson's, Alzheimer's and stroke, and this is where stem cells show promise. Baillieu Holst suspects that big pharmaceutical companies will become interested, as they did once the antibody boom started. Developers were typically emerging companies and none survived as independents, becoming absorbed in the likes of Bristol-Myers Squibb, GlaxoSmithKline and AstraZeneca once antibody development became routine.

Admittedly, there is a long lead time to market and the equity market has waxed and waned in terms of enthusiasm for stem cells. While acknowledging this situation, the broker believes time frames have shortened as the biotech industry now has a better understanding of how to develop products while regulators have decided to move the processes along at faster speed. Mesoblast ((MSB)), a competitor in stem cells, bought the Osiris business in 2013 and has now taken Osiris to the US FDA on the expectation there is enough data on clinical effectiveness in serious GvHD to warrant US approval. Osiris obtained market approval for Prochymal in paediatric GvHD in Canada and New Zealand in 2012.
 

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