Regeneus anticipates entering a binding arrangement with a manufacturing and commercialisation partner for its Progenza mesenchymal stem cell therapy technology in Japan by the end of the current quarter. Following on from the positive safety review of its STEP Phase I trial of Progenza in patients with knee osteoarthritis, it has already begun procuring donor material in preparation for manufacturing Progenza for a Phase II trial in Japan. Our valuation is virtually unchanged at A$108m (A$0.52/share) ahead of this potential re-rating catalyst.
Regeneus is in advanced discussions with a large Japanese company regarding manufacturing and commercialisation of Progenza for the Japanese market, and anticipates converting these discussions into binding arrangements by the end of September. Directors expect the company to receive upfront funding and milestone payments on entering this agreement.
Regeneus has successfully reduced operating costs after winding down the HiQCell business in FY15. The operating loss of A$3.6m in FY16 was 45% less than the previous corresponding period, and the average quarterly cash burn (excluding an R&D tax incentive of A$3.4m received in October 2015) in FY16 was A$1.48m compared to A$2.35m in FY15. Cash at 30 June 2016 (end FY16) was A$0.5m which, combined with the A$2.7m R&D rebate received in September, will fund operations to the end of H1FY17, allowing time to finalise the licensing deal in Japan.
Regeneus has already commenced manufacturing activities that will support a Japan-based Phase II trial of Progenza in osteoarthritis. Procurement of donor adipose tissue has commenced, with ethics approval to procure up to 20 donors to proceed into cell bank manufacture in preparation for the trial.
Our valuation of Regeneus increases slightly to A$108m, or A$0.52 per share (previously A$106m or A$0.51/share) with the impact of a later (2019) commercial launch of Kvax in the US more than offset by rolling forward our DCF model to FY17. The anticipated upfront fee from licensing Progenza for the Japanese market may extend the cash runway, but if that does not happen the company may need to raise additional capital this calendar year.