Cynata Therapeutics Limited (CYP.AX) Earnings Call Transcript & Summary

Welcome to Cynata Therapeutics last Investor webinar of the year. Presenting this morning will be CEO, Dr. Kilian Kelly and Chief Business Officer, Dr. Mathias Kroll, who will take you through the recent diabetic foot ulcer clinical trial results and the latest capital raising, then at the end, we will take questions. Dr. Geoff Brooke, Cynata's Chair, is also on the line and will be available for questions. [Operator Instructions] This call is being recorded and will be available on the company website in coming days. I'll now hand over to Kilian to commence the formal presentation.

Thanks very much, Lauren, and thanks to everybody for joining us this morning. This update is obviously a very exciting one. As most of you, I'm sure, have seen, we released the results of our clinical trial in diabetic foot ulcers last week. We're really delighted with those results, and I'm looking forward to talking through those in a bit more detail. I will keep the presentation relatively brief today and mostly focused on the diabetic foot ulcer trial. But for those of you who are new to the story or if you need a reminder about the other things that we've going on and the background to our technology. There are a number of other presentations from quite recent events on our website, which go through some of the other matters in more detail. So please feel free to look those up if I'm not going into the level of detail here today. Cynata, just a reminder, we have 4 active clinical programs in 4 very different clinical conditions. We're now in a great position of being able to say that we have completed clinical trials in 2 out of those 4 indications, and in both cases, we've seen extremely encouraging safety and efficacy results from those trials. The latest one is, of course, the diabetic foot ulcer trial, which we're going to go through in more detail in a moment. The others, we have our Phase II ongoing trial in graft versus host disease. This is a randomized global trial under a U.S. FDA IND. That follows on from a very successful Phase I trial that we completed a few years ago. We also have an ongoing Phase III trial in partnership with the University of Sydney in patients with osteoarthritis of the knee. That trial is fully recruited, and we're expecting results from that in early 2026. The other one is a trial in kidney transplantation, and by coincidence, this morning, we have actually announced that the first patient in this trial has been infused with our product, CYP-001 in this trial. This is another really exciting trial. The aim of this development program is to determine if our MSC product can be used to reduce the dose or potentially to avoid altogether the need for immunosuppressant drugs such as tacrolimus. The reason we would want to do that is those drugs actually work well in preventing kidney transplant rejection, but they cause a lot of very serious adverse effects. As a result, there really is an urgent need to find safer ways to prevent organ transplant rejection, and that's what this trial is all about. I'd encourage you to look at our announcement from this morning if you haven't seen that one already. To move on with the presentation, I won't dwell too much on the background in terms of our technology, but a quick reminder that MSCs have a number of important properties, including anti-inflammatory effects immunomodulatory effects, which mean they balance the immune system, and they promote tissue repair and regeneration. These cells have a lot of potential uses in a very wide range of clinical conditions, hence, the broad pipeline that we have already, and of course, these effects are very relevant to diabetic foot ulcers. One thing just to stress again is that MSCs do not need to be matched between the donor and recipient. These products can be used very much in what we call an off-the-shelf manner. So we can make large batches of these products that are frozen and the vials or bags of cells then are available to be used as soon as they are required in any patient. Now the difference between Cynata's approach and the conventional MSC approach is really how we make these cells. Conventional approach requires an ongoing supply of new donors who have to donate tissue such as bone marrow or some other source of tissue. Each of those donors makes this donation; they then have to isolate MSCs from that donated tissue. What I mean by that is bone marrow, for example, includes a very wide range of different cell types, and most of the cells are actually not MSCs. So they have to isolate the MSCs, and they then end up with a pretty small number of MSCs, but they need a very large number of MSCs to treat even one patient and of course, even greater numbers if they want to treat large numbers of patients. So they have to go through a process known as culture expansion, which means growing these cells in the lab. That works to an extent, but there are a couple of limitations with it. One is that the cells, MSCs, in particular, are known to change when they go through this process, and they lose potency and functionality. There's also a limit to how many cells you can make from one donation, and that's why you need this ongoing supply of new donors. But that's a problem both from a logistical perspective, but also perhaps more importantly, it's a problem because there's a lot of variability between donors. Ultimately, with a process like this, different patients would end up receiving different cells from different donors and those cells will not be consistent. That's an enormous problem for a therapeutic product. That's what we're trying to solve with our process, the Simira Platform. We make the cells in a completely different way. It relies on a different type of stem cell known as an iPSC. The advantage of an iPSC is that, that does have an effectively limitless expansion capacity, which means that we can make essentially all of the cells we'll ever need from a single cell bank that came from a single donor. We have produced this iPSC bank, which came from a single blood donor. On an ongoing basis now, instead of finding new donors and isolating MSCs, we simply take a vial of iPSCs out of the freezer. We store those cells, we grow them, and then we use our patented process to turn those iPSCs into MSCs. This allows us to make these cells in a very scalable way where we don't need new donors, and we can also avoid those problems I mentioned related to loss of potency and functionality due to excessive expansion of MSCs. Ultimately, this means everybody who receives our products is receiving cells that come from the same donor, the same starting material, so we have consistency. Now moving on to our diabetic foot ulcer trial, which is the exciting news that we're here to talk about today. First of all, a reminder of what diabetic foot ulcers are. These are open sores or wounds on the feet of people with chronic diabetes. They arise in part because people with diabetes tend to have impaired circulation or blood flow. These wounds are very difficult to heal, and they can lead to serious complications and ultimately, they can lead to amputation. And a pretty shocking statistic is that about 20% of people who develop DFU will go on to require an amputation at some point. So that really illustrates what a huge problem this is. Diabetes, of course, is a very common condition and still becoming more common. So it's estimated there are about 38 million people in the U.S. alone have diabetes and up to about 1/3 of those will go on to develop the DFU. So it's an enormous problem. Now, the product that we're using is a novel wound dressing where we take a dressing that has this novel polymer surface on it that the MSC is attached to. And this allows us to deliver the MSCs topically to the wound surface just like you would apply any other wound dressing. So it's a very effective way of delivering the cells to where they are required for these patients. The trial that we've just completed was in 30 patients. It was randomized where patients were randomized to receive either the active MSC dressing that I just described or standard of care dressings throughout the trial. So it's important to note that even the control patients here were being actively treated in the same way that they would be if they weren't in a trial. So this wasn't a placebo-controlled trial. We have the clinical sites in Australia, and we completed all of the patient visits in September and, of course, released the results last week. Now, the results that we saw, as I said, really were very, very encouraging. First and foremost, the primary objective was safety, and we found no issues on that front to put a long story short. So the product was safe and well tolerated. No participants withdrew from the trial due to adverse events, and we had no suspected serious adverse reactions. So that was the first thing that needed to be assessed in any first-in-human trial like this. So obviously, it was great to complete that part of it. But we also obviously had the opportunity then to assess efficacy in these patients. What we saw when we looked at the wound -- the change in wound surface area in terms of millimeter squared, we saw that at both 12 and 24 weeks, there was a substantial decrease in wound surface area in the active group. In other words, on average, these wounds were getting much smaller, which is, of course, what you want to see. In standard of care, when we assessed the wound surface area in millimeter square terms, the opposite happened. So on average, the wounds in that group got bigger at both 12 weeks in particular and still even at 24 weeks, although there was a bit of a recovery between 12 and 24 weeks, they were still on average, larger than baseline after 24 weeks. So what that obviously points to is that the active dressing is achieving what we want to see, which is a reduction of wound surface area and standard of care was not. Now when we express this in percentage terms, we see exactly the same sort of pattern with the active group. So we saw a decrease of almost 84% by the end of the study, which again is very positive. Somewhat confusingly, the standard of care when we assess wound surface area in percentage terms on a per patient basis, we actually saw a moderate decrease, still nowhere near what we saw in the active group. But I'll come on in a moment to explain why we could see a decrease in percentage terms when they actually increased in millimeter squared terms. It is, I would acknowledge, quite confusing at first glance. Let me assure you that, that is correct, and I'll explain how that happened in a moment. But when we just look at this graphically, again, looking at it in millimeter squared terms, you can see very clearly a really marked improvement in the active group and the worsening in the control group. So there's a very clear separation between the groups here. And even when we look at it in percentage terms, you can still see a very clear difference between the groups. So at 12 weeks, we're looking at about 65% versus 22% at 24 weeks, about 84% versus 48%. So a very clear separation in both cases. And ultimately, what we concluded from this is that actually the larger wounds in the standard of care group were less likely to heal. So I'll explain that now. And this is really just a sort of a worked example of a very simple scenario where you had 2 wounds in a group, one small and one large. The small one heals completely, the large one gets worse. And when you do that, you actually see that you have a worsening of the mean surface area in millimeter squared terms but not an actual improvement in percentage terms. So it's a bit of a mathematical quirk. But again, what this illustrates is this can really only happen where you have a pattern where it's the big wounds that are doing less well. So that prompted us to move on and analyze the larger wounds separately. So we conducted a post-hoc analysis. And just to be clear, that means it was not analysis that we planned in advance. We did this because of the pattern we were seeing. And what we saw was when we excluded those wounds that were smaller than 200 millimeters. So in other words, we just put all the wounds that were small aside and analyzed the rest. We saw an even more pronounced difference between the groups and millimeter squared terms. So in other words, now the average worsening in the standard of care group is even worse and the average improvement in the active group is even better. So an even bigger difference between groups. And then when we look at this analysis in percentage terms, at 12 weeks, even in percentage terms, we can see that the active group is getting much better, but the control group is, in fact, getting slightly worse. And at 24 weeks, again, there is a bit of an improvement overall in the active group in percentage terms, but it's not as big as what we saw with the whole sample size. So this again reinforces the point that the standard of care group did worse when we look at larger wounds. Now, the reason that's particularly important is it probably won't surprise people to hear this, but larger wounds are more likely to lead to serious complications, including amputations. So there is a particular benefit of improving larger wounds. Now, having said that, it's not that our product only worked in larger wounds. What you'll notice here is, in fact, the percentage change in the active group was pretty similar, whether we included all wounds or just the large wound. So that shows that we're having an effect of wounds of all sizes in this trial. But the difference is the standard of care group, that same statement was not true. When you take out the small wounds, things look even worse. So that's a very important finding. Now, following on from those fantastic results, we then moved on and did an institutional placement to strengthen the company's cash position. So we've raised or received commitments for raising $8 million from an institutional placement and a further $100,000 or thereabouts from the directors. So this placement was very strongly supported by both existing and new institutional shareholders. So that's a very important point, and I think it really helps put us in a stronger position with new investors coming into the stock and hopefully new supportive investors over the longer term. Now, these proceeds really significantly strengthen our cash position. So they ensure that we're well funded for the coming calendar year and indeed a bit beyond that. And that's really important because we have major readouts coming up over the next year, kidney transplant initial results and acute graft versus host disease final results expected this year with -- or sorry, next calendar year with the osteoarthritis results expected just beyond that. So the placement also, though, ensures that we're now well-funded to progress our clinical development programs looking beyond these existing trials. And that's important as well because we do really want to be in a position where we can be ready to move forward once these trials are completed. And so what that means is providing us with budget to continue our partnering discussions, clinical strategy, planning, regulatory engagement and indeed, manufacturing activities. So we're ready for the next stage of trials. So overall, I think this really puts us in a much stronger position than we were in before the placement, and we now head into 2025 in an incredibly strong position with lots of exciting news flow coming up. Now at this point, I'll just hand over to Mathias briefly to say a few words about our commercial activities and plans for partner engagement. Mathias, over to you.

Thank you, Kilian. Good morning, everybody. So indeed, we are buoyed by these positive results. And Cynata is pursuing a portfolio of high-value clinical indications, and there's potential for much more because we have already proven preclinical proof of principle in several other high-value indications. So together, that's a very attractive technology platform. And indeed, in the past, we've had a takeover attempt, which didn't come to fruition because we couldn't agree. But it obviously highlights the potential for our technology because as Kilian explained, our technology addresses effectively what's known as the Achilles heel in the MSC field, which is the inability to scale up with consistency. And that's what the Simira's technology is really able to do. So following the successful DFU results and with further milestones coming up, we will, of course, expand and continue existing contacts and discussions with commercial partners. There are, in fact, a number of partners who are waiting for these results to then further evaluate their engagement with us on a number from a number of angles really. And in order to increase our visibility on the next slide, you will see that -- we are present at the key partnering events. So these are some important business partnering events. In fact, the JPMorgan BIO week with almost 20,000 people coming to San Francisco is the largest of its kind for investment, strategic alliance formation, M&A in our sector, Advanced Therapies. At all of these events, we'll also present the company and of course, we'll be present at many other important international meetings even beyond this list. Furthermore, we also obviously keep a high profile in the scientific community. So that includes the sector of cell and gene therapies, where we're going to all of the key events and often presenting as well as therapeutic area conferences. So all of this high visibility, awareness, interest, discussions that are starting, discussions that are continuing that obviously multiplies the chances of us reaching the types of deals that we want to see. Without pronouncing ourselves when the right timing for the right deal is going to come, certainly, the story we're building here is multiplying the chances of that happening. Back to you.

Thanks very much, Mathias. And so just to conclude before we move to questions. So as I alluded to, we really do have a lot of very important news flow coming up. So we have obviously ticked off the first catalyst that was on this slide with our DFU results, but that is by no means the end of what's on the agenda for the next while. So our Phase II GVHD trial, as I said, recruitment is ongoing. We're aiming to complete enrollment of patients in the first half of the coming calendar year. And if we do that, we'll have results in the second half of next calendar year. And again, reminding everybody that this builds on a very successful Phase I trial. So we already have really good clinical data in that indication. Our Phase III osteoarthritis results should then be out in early 2026, quarter one or quarter 2. And then there's the kidney transplant trial, which, as I said at the start, we have just announced today that the first patient has been treated. The first cohort of this trial includes 3 patients. So we are expecting that cohort to be concluded relatively quickly, and we'll then have results from that initial cohort around about quarter one, quarter 2 in the coming calendar year. So we have another 3 very different clinical programs, each of which is extremely exciting in its own right, all delivering clinical data over the next sort of 15 to 18 months. So it's a very, very exciting time for the company. And with that, I think we'll conclude the presentation. And Lauren, if there are any questions, we can turn our attention to that.

Yes. We've got quite a few questions in the pipeline. [Operator Instructions] So I'll start with the first one, which is in regards to a different trial, which is a steroid-resistant acute graft versus host disease trial. And it is when reading the Euroz report, it considers a possible Mesoblast approval in steroid-resistant acute graft versus host to be a catalyst. Would you agree? And if you do, please elaborate on why things like a first-mover advantage and off-label use not being factors could affect this approval being a catalyst.

Yes. So that's a very good question. And yes, so first and foremost, I would agree that if Mesoblast get approval, I think it would be a catalyst. It would be really positive for the Australian biotech sector in general and of course, the MSC field in particular, it would be the first FDA approval for an MSC-based therapy. Now I guess what the question is sort of saying is, would there not be some sort of, if you like, negative competitive sort of implications from that approval. I don't think there would be. To be frank, the approval they're seeking is in pediatric steroid-resistant acute GVHD. So it is a very small subset of the overall GVHD population. And there are some very unique factors for the FDA to consider regarding that subset. So one being that in at least children under sort of 13 years of age, there are currently no approved treatments whatsoever for those patients. And of course, it is a potentially fatal disease. So there is a very unique sort of risk-benefit assessment for that particular population. When it comes to GVHD more broadly and perhaps more importantly, the use of MSCs more broadly, there are obviously very different considerations at play. So yes, I would be happy if they get approval. And I guess we will find out soon, but I certainly don't have any sort of concerns about how that might impact our position.

Thank you. I'm going to consolidate several questions here is a bit of a the same just in regards to the recent capital raising and Cynata's runway of cash and several questions around the use of the term 'well-funded' and then raising capital off the back of that and how Cynata is tracking with its funds for its clinical pipeline.

Sure. Well, I mean, this placement clearly puts us in a much stronger position from a cash runway perspective. As those of you who've been following our announcements will know at the end of the last quarter, we had about $4.3 million in cash. Now we haven't yet got our R&D tax rebate, which we have also got this quarter. But what that means is we're now in a much, much stronger cash position and our runway goes certainly well past the end of the coming calendar year and as to where we're going to have the readouts from these upcoming trials. So that, of course, is the main driver for doing something like this for bringing capital in. I obviously appreciate that in an ideal world, shareholders might prefer that we never have to do that. But the reality is we do have to ensure that we're well funded, and this placement unequivocally has improved our position immensely in that regard.

And what was the rationale between raising capital in this way instead of a non-underwritten share purchase plan, which would allow existing shareholders to participate?

Yes. So we certainly did weigh up all of those options and spent a lot of time discussing and seeking advice on what the best way to do this is. SPPs or share purchase plans do have some limitations, one of which is that they have to remain open for a period of time. And given the time of year, that would have, at a minimum, taken us up to the sort of Christmas, New Year period, which would not be a good time to be trying to close any kind of raise. So it may even have had to stay open beyond that. And the reality is SPPs tend to result in the share price trading down to what the offer price is. So it would probably have had a negative effect on the share price and perhaps a persistent negative effect given the timing of these things. I mean the other thing that we have to consider is what would the likelihood of success be. Now the advantage of an institutional placement that was very well supported like the one we just did is that we can conclude everything very quickly, and that's what we did. With an SPP, there's absolute uncertainty about how it's going to work out. There are many examples of SPPs not being particularly well supported. And even as an example, the last one we did in April, May 2023, that SPP was offered shares at really very generous terms. They were actually offered at a 28% discount to the placement price and about a 50% discount to the prevailing price prior to the placement. And they also -- that SPP also included free attaching options. But despite all of that, the reality is most existing holders did not apply to participate. In fact, I think it was about -- only about 4% or 5% of shareholders did wish to participate. So if we were to do another one now, with less generous terms, which is certainly what we have done with the placement, it's really not clear if we would have been able to raise the kind of money that we have raised. So these things are -- they just have to be kind of considered holistically, what is the best approach to achieve the results that we want with minimal negative impact and as a result, the overall best outcome for shareholders, and that's what we believe we've done.

Thank you. So moving away from the capital raise, a couple of quick questions before we finish in regards to some of your other trials. And one is, can you please just remind us when we're looking at a readout for the osteoarthritis trial?

Yes. So that we would expect sort of early in 2026. So the final patient visit will be in November next year, November 2025, and then it will be a few months from there to the results. So that will sort of translate to probably perhaps late quarter 1 or early quarter 2, 2026.

And then in regards to Dr. Lin's preclinical study, which was funded by a research grant, when can we expect an update on this?

Yes. So that is hopefully not too far away. And that study has certainly been progressing very well. And so we are aiming to get a summary of the outcomes of that study in the not-too-distant future. And of course, once that is available, we will be releasing it.

And then last one, I think we can squeeze one more in. This is probably for you, Mathias. And this is in regards to the DFU trial results. And just a question around your appointments and upcoming meetings with potential partners. And then hopefully, they should be on [indiscernible] and incoming inquiries. I just wanted to understand the reception to the results from your point of view.

Yes. Obviously, the reception is very good. This is a highly underserved indication. The epidemic of diabetes is raging and with that, unfortunately, the prevalence of diabetic foot ulcers and quite often they finish very badly, as we all know. So it is of interest. Companies would love to have a magic cure for this. Now of course, this is a Phase I trial, but with extremely encouraging results, which we will be explaining. And we will see if now is the right moment for a license deal. But definitely, the indication itself is a key driver here. I should point out that there are many different potential categories of partners. So there are pharma companies, specialty hospital pharma, wound care companies, device manufacturers and so on, and they all have different requirements. But yes, we have engaged with a large spectrum of companies, and they may take this program forward in potentially slightly different directions. For example, if companies have device capabilities in-house, they might want to modify the delivery. So it means it is a good moment to have these discussions and we will see which companies are potentially ready to pounce and which ones might potentially prefer to wait until even more validation is available. So that is something that we will definitely see in the first half of 2025, where this is taking us.

Thank you. Well, look, that's all we have time for this morning. If we didn't get to your question, I do apologize, but please e-mail it directly to Kilian or you can use the e-mail address the info@cynata, which is on your screen now and we will come back to you as soon as possible. Before we go, Kilian, did you have any closing remarks?

Yes. Thanks, Lauren. I'd just like to thank everybody again for their time today. We really appreciate the interest and the engagement we're seeing. And indeed, we really appreciate the support of our shareholders, both the long term and some of the new shareholders that we've gained recently. I really believe that we're heading into 2025 in a very, very strong position, as I said, well-funded now and with lots of great clinical news flow coming up over the next year to 18 months. So I would encourage everybody to speak with us, and I'm hoping for a very successful 2025. And in the meantime, I'd like to wish everybody a great Christmas and New Year, and I hope everybody enjoys some time off, if that's possible. All the best.

Thank you. Exciting times. Thank you, Kilian. Thank you, Mathias. Thank you, Jeff, and thank you to everyone for joining. That concludes today's call.