Canary Capital is making a huge bet on a company that thinks stem cells aren’t the future of medicine.

The small- and micro-cap Sydney investment house has just finished a $10m capital raising for regenerative medicine company Exopharm, a Melbourne biotech.

It’s by far Canary’s biggest capital raising, says executive director Paul Hart, who has been invested in Exopharm (ASX:EX1) since its November 2018 initial public offering.

“We’re a big believer in the company,” Hart says.

Canary even took the majority of its capital raising fee in Exopharm shares rather than cash – a significant investment for the boutique firm, he adds.

It would be rare a decade or two ago to find many people in medical research who didn’t believe in the promise of stem cells, undifferentiated cells that have the potential to develop into specialised cells in the body.

But Exopharm managing director and founder Ian Dixon – the co-founder of Melbourne stem cell manufacturing company Cynata Therapeutics (ASX:CYP) – says that interest in them has been fading in recent years.

He calls them “horse and buggy” technology and says there’s been fewer peer-reviewed studies published about them in the last five years.

“They’re old news, for many reasons,” Dixon said.

Despite many years of research only a handful of stem cell therapies have been approved worldwide, to treat blood and immunological diseases.


Exosomes are the ‘secret sauce’

What’s new and exciting, Dr Dixon says, are exosomes – extracellular vesicles (EVs) that are excreted by stem cells.

“You can describe the EVs as the ‘secret sauce’ of stem cells,” he says.

While working at Cynata, Dr Dixon began to see the promise of such cells. They can be used for everything from regenerative medicine to delivering targeted medicine and fighting age-related diseases, Exopharm says.

Making exosomes is not difficult but purifying them so they can be implanted in the body is, Dr Dixon says.

He says he’s an engineer by trade – Dr Dixon received a PhD in biomedical engineering from Monash University – and decided to tackle this problem.

The science behind it is complicated, but Dr Dixon devised a patented process in which exosomes could be “hooked” for cleansing in a salt solution, in a similar way to velcro binding to a tennis ball.

“It sounds simple now, but in the thick of much disappointment I can tell you it wasn’t much fun,” he says.

“It was actually a long and disappointing couple of years.”

It’s that exosome-cleaning technology that Hart views as promising.

“We like high barriers to entry,” he says, particularly when those barriers are created both by patents and trade secrets.

“All that leads to significant upside potential.

“We believe in Exopharm that we have identified an Australian company with proprietary technology that can compete on the world stage. They’ve got the technical expertise to compete on the world stage with other global players.”

Canary Capital is hoping Exopharm does as well or better than some of its other recent investments.

The firm got into Pointerra (ASX:3DP) in 2016, when it was at trading 3-4c; in Harvest Technology Group (ASX:HTG) when it was trading at 2.2c; and K2Fly (ASX:K2F) when it was at 12c.

Those firms are now trading at 25.5c, 39c and 36c, respectively.

“That’s what we see with Exopharm – we’re getting in at the ground floor,” Hart said.


There was significant demand from several funds and institutional and high-net-worth investors for the capital raising, Hart says.


‘Multiple shots at goal’

Dr Dixon says Exopharm is actually the only publicly traded company around the world devoted to exosome technology.

Evox Therapeutics in the UK and Codiak BioSciences in the US are also engaged in work with exosomes but both are privately held.

“If you believe that exosomes are going to be the next big thing, we’re basically the only shares you can buy,” Dr Dixon says.

And, he says, the 26-employee, $25m company is working on four different platforms related to exosome technology that could allow it to generate revenue.

“We’ve got multiple shots at goal here.”