Disc: Hold CYP here and in SMSF, speculative but I remain bullish on the opportunity.
Summary of Alan Kohler interview with CEO and COO published 17 August:
Ross Macdonald is the CEO of Cynata Therapeutics and they’re a stem cell company. It hasn’t been a great experience for shareholders, particularly over the last couple of years as the stock’s gone from about $1.70 to 50 cents. Two years ago they got a takeover offer from a Japanese company, Sumitomo, for $2 – or at least, it was an approach and it never happened.
They backdoor-listed in 2013 and since that time they’ve raised $59 million, they’ve still got $27 or so million in the bank of that money and they’re going through about $800,000 dollars a quarter, they’re burning, trying to get their clinical trials done. They’re still a fair way off, I think, but they’re getting somewhere. The problem is that the stem cell business has got a bad name I guess from Mesoblast not getting anywhere. Cynata’s point, CEO Ross Macdonald’s point, is that their technology is different, they don’t require donors, they can manufacture stem cells from other cells and just keep producing them, they don’t need people to keep donating bone marrow which is an entirely advantageous thing of course.
But it’s still pretty speculative because their trials aren’t finished. Like all biotechs, if you buy them before the trials aren’t finished, you just don’t know what’s going to happen, so here’s Ross Macdonald, CEO of Cynata Therapeutics, and Kilian Kelly who’s the Chief Operating Office of Cynata, who can tell us some more of the detail.
The technology you’ve got was invented at the University of Wisconsin. How come it’s inside an Australian listed ASX company? I think you and Stewart Washer, your chairman, picked it up back then, but how did that happen, come about?
RM: Well, Stewart and I didn’t pick it up, we weren’t responsible for the original acquisition of the technology, but that occurred several years prior and it really came about through a convergence of a number of things. First of all, it was the realisation that stem cell-based medicines and MSCs in particular were going to be a major force in medicine and pharmaceutical treatments going forward, so that was point number one. Point number two was a realisation at the time that the manufacturing process relying on lots and lots of donors was completely impractical.
The third was the publication of that time of a landmark paper by the scientists at the University of Wisconsin that opened the door to a much more practical means of manufacturing MSCs and the recognition by a local entrepreneur who was also involved in cell therapies at that time.
What’s the difference between what the University of Wisconsin came up with and Mesoblast technology?
RM: We’re chalk and cheese, to be frank. The conventional approach to manufacture cell therapy products is to rely on human donors who are prepared to donate their bodily tissues from which the product is derived, it’s a slightly more complex situation to donating blood. That’s the conventional process. The process that was developed at the University of Wisconsin was to use a particular type of cell called an induced pluripotent stem cell, or an IPSC for short, which ultimately was the subject of a Nobel Prize in 2012, as the starting material.
What that meant, in short, was there was no longer a requirement to keep going back to human donors. It’s a bit again like if you have to milk the cows every day, well suddenly you’ve got a machine that allows you to not require cows anymore. You still get milk and you get very good quality milk, but you don’t have to keep going back to the cow herd.
How come your company’s worth $70 million and Mesoblast is capitalised at more than a billion dollars?
RM: That’s a very good question, but it’s a complex answer. Of course, we can point to the obvious and that is that Mesoblast is further advanced, they’ve been around a lot longer, they spend and have spent certainly a heck of a lot more money than we have to get to where they are today. But then one could also ask the question, there haven’t been a lot of successes in the past six months so why are they still capitalised at more than a billion dollars? And that, I don’t understand.
Obviously, if you point to the sentiment in the market, there’s been a weakness in our share price of course, certainly since 2019 which is very disappointing because fundamentally the company is on a high, we’re the leading company worldwide in developing cell therapies derived from these IPS cells, induced pluripotent stem cells, and besides Mesoblast there are many, many other companies that have spectacular market capitalisations that are developing IPSC-based cell therapies, albeit with different goals in mind than we have.
I’d like to get your COO, Kilian Kelly, who’s on the call to take us through the clinical trials that you’ve got running, but before we do that just tell us what the status of your licence with the University of Wisconsin is at the moment. Because I think Ian Dickson would’ve signed a licence agreement up to 2028, but a lot of that’s now gone, I mean we’ve only got seven years to go, so what’s the position?
RM: The rights to the technology don’t conclude when the licence ends. The licence is simply determined around the life of the original University of Wisconsin patents and as shareholders will know from our announcements, Cynata’s built a further body of patents, intellectual property around this technology that goes well beyond the original patent life. Even though that licence may conclude in 2028 or 2029, actually it’s more like 2031 with the licence expiry of the relevant patents, that doesn’t mean that suddenly you’re going to face generic competition from every other stem cell company in the world, in fact quite the contrary.
That’s one of the advantages of cell therapy, is that you can build a wall of protection around your intellectual property in all its forms because you’re not reliant upon a patent, necessarily as being the sole asset in the company. It’s all of the further patents that we’ve filed as well as the fact that the cell line is not available to anybody else, it’s held securely by Cynata so no one else can copy the product. They can’t make a generic equivalent, so it’s a very different situation in the biologicals universe compared to the small molecule universe where ultimately when a patent expires then the generic companies can come in and manufacture an exact copy – and it has to be an exact copy, of course, it can’t be nearly the same, it has to be the same and it can’t be in the case of a cell therapy product.
can you just give us an overview of the current clinical trials that you’ve got running and how far advanced they are?
KK: Yeah, I’ll take that one on, Alan. In terms of our clinical trial program, we now have active clinical programs in several different clinical indications. Our initial program was in a condition called graft versus host disease, which we completed a clinical trial, a phase one trial, a year or two ago with exceptionally positive results, both on a safety and an efficacy point of view. That trial was then published in Nature Medicine which is one of the leading medical journals worldwide which was really a reflection of the fact that it was the first clinical trial worldwide with IPSC derived cells. That program is the one that we’ve licenced to Fujifilm in Japan, so we’re currently in the planning stage for further trials in GVHD.
Aside from that, the other trials are all still, the rights are still held by Cynata. We have an ongoing trial in osteoarthritis which is in partnership with the University of Sydney and it’s actually funded by the NHMRC so most of the costs are covered by the grant from the Australian Government. Cynata’s costs really are just to provide the actual cells, the product for that trial.
Has that trial started?
KK: It has, yeah, it got underway late last year in November, so it is actively recruiting at the moment. It will be one of the largest clinical trials ever conducted with MSCs, it’s a 440-patient phase three randomised control trial.
Is that generalised osteoarthritis or is it for the knee?
KK: It’s in the knee, yes, so it’s specifically in the knee, it’s patients with moderate to severe osteoarthritis of the knee.
Is there evidence at this point that having three injections of stem cells into your knee actually does resolve osteoarthritis of the knee?
KK: Well, there have been quite a few smaller trials with MSCs which have shown indications that there will be a benefit of that nature, but of course until somebody actually does a trial like what we’re doing now, that can’t be considered to have been proven, so that’s really what this trial is all about. Until now, nobody has done a trial of this size that’s properly controlled and powered to show efficacy. The early data certainly indicates that MSCs have a benefit, but this is why we have to do phase three trials to really show that.
When will that trial be published, the results of it?
KK: We’re expecting to complete enrolment late next year and then it’s a two-year follow-up, so it would be 2024 when we have the results.
Are you the only company that’s got technology that means you can manufacture mesenchymal stem cells without donors?
RM: Yes, and we’re the leading company worldwide in that space, as I said before. It’s a great place to be. The fact that we were featured on the front cover of Nature Medicine magazine is publicity you can’t buy. But yet, we still, as you point out, we’re still at 50 cents a share, so what do we have to do to communicate that point of difference and investability?
The answer is, be listed on Nasdaq. It was probably, with the benefit of hindsight, not a great idea to be on the ASX.
RM: I think everybody thinks that’s the path to the promised land, but not necessarily so. We look at some of the other exemplars from Australia, and not just Australia, but Canada and Israel as well that have gone to Nasdaq thinking exactly that and it hasn’t really been a very good journey for them. I won’t name names, but shareholders can certainly look at a few of the companies that have spent a lot of money getting on Nasdaq and ultimately it hasn’t been a happy journey for them or their shareholders. That’s not to say that should they get good data in their later clinical trials that it will completely turnaround, which is more than likely, but it’s a pretty painful process watching your share price go down by two-thirds just because you’ve listed on Nasdaq.
