Special Report: The biotech sector is no stranger to volatility. And while often seen as negative, volatility can present strong buying opportunities, as is the case with Cynata Therapeutics’ latest share price movement – according to a new analyst report.

On March 21, Cynata (ASX:CYP) announced an extension to its licence option agreement with Japanese-based Fujifilm.

Investors were expecting the licence to be exercised as the 90-day deadline ended on March 19.

Had Fujifilm exercised the licence, Cynata would have received an upfront $US3 million payment and a further $60 million in milestone payments.

The extension of the licence caused the stock to fall by 32.5 per cent on the day of the announcement.

The share price had risen from 1.27 cents to 1.79 cents this year with the crash on the announcement wiping out all of this years’ gain.

Shaw and Partners’ latest research note on Cynata states that this has set up a good buying opportunity – affording investors the chance to get into the stock at a much lower price.

Catalyst for another round of buying

While Shaw and Partners has revised its forecasts to reflect the licence delay, it is standing by the target price of $2.50.

Analyst Darren Vincent says that Shaws is of the view that Cynata has been a ‘buy’ for a long time now and “with the share price coming back from recent highs and a firm belief Fujifilm will exercise the option, it creates a more attractive buying opportunity right now.”

Cynata said in its announcement that the extension was to allow the parties “to seek to accommodate certain requests made by Fujifilm in relation to structural aspects of the GvHD license agreement.”

Mr Vincent was encouraged that there were no “material issues in respect of the financial, clinical or technical aspects of CYP-001 or Cynata’s core Cymerus technology generally,” and is confident that Fujifilm will exercise the option for a number of reasons.

Strong belief in Fujifilm’s commitment

Firstly, Mr Vincent says he believes Fujifilm was otherwise occupied with its recent acquisition of Biogen’s biologics facility for $US900 million and poses that this may have taken precedence for the legal team over the Cynata deal.

Secondly, he states that Fujifilm has continuously indicated its intentions to commit to the development of Cynata’s mesenchymal stem cell (MSCs) products, with the Shaw note pointing to Fujifilm’s investor deck that included a section dedicated to Cynata.

Thirdly, he notes that Fujifilm has also run a series of advertisements in leading biotech magazines, Nature and Science, reinforcing its commitment to “regenerative medicine and its ambitions in the future based on Cynata’s Cymerus technology.”

Mr Vincent also pointed out that Fujifilm owns Cellular Dynamics, which is already leveraging Cynata’s Cymerus platform, so the two companies have existing synergies.

Fujifilm initially signed the licence option agreement with Cynata in January 2017 and took an approximately 10 per cent stake at 49 cents – which the note argues is further evidence that it is likely to exercise the option as its interests are closely aligned with that of Cynata and its shareholders.

The Shaw note concluded that “if Fujifilm didn’t want to exercise its option it would have walked.”

 

This story was developed in collaboration with Cynata Therapeutics, a Stockhead advertiser at the time of publishing.
This advice has been prepared without taking into account your objectives, financial situation or needs. You should, therefore, consider the appropriateness of the advice, in light of your own objectives, financial situation or needs, before acting on the advice. If this advice relates to the acquisition, or possible acquisition, of a particular financial product, the recipient should obtain a disclosure document, a Product Disclosure Statement or an offer document (PDS) relating to the product and consider the PDS before making any decision about whether to acquire the product.

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