Source: smallcapstockingcanada
Smallcap-Stockpicking: Q&A with Dr. Philip Toleikis, CEO of Sernova (SVA.V) Smallcap-Stockpicking: Recently there has been a lot of talk about being able to "treat" both types of diabetes. What is the likelihood now, based on current scientific knowledge, that this is feasible? Dr. Toleikis: We have rights to treat both type 1 and type 2 diabetes with our iPSC technology from Evotec. Type 1 diabetes affects about 20million people worldwide and represents about 5% of all people with diabetes. The population with type 2 diabetes is thus enormous. We believe our iPSC technology could help treat type 2 patients by providing additional insulin producing cells in those who have lost their insulin producing cells by overuse. Smallcap-Stockpicking: How many % of type 2 diabetes patients have to inject additional insulin and would be treatable with the Cell Pouch? Dr. Toleikis: There are about 460million people worldwide that have type 2 diabetes and about 30% of these are taking insulin. That is the population we believe could be treated with our Cell Pouch System. Of course, we would begin with treating the most severe patients who have lost their islets ability to function. Smallcap-Stockpicking: How many type 1 and type 2 diabetes patients could be eligible for the treatment by the Sernova/Evotec solution? Dr. Toleikis: We would first want to treat the approximately 240,000 type 1 patients who have hypoglycemia events with our immune protected iPSC cells and Cell Pouch and then we would expand the treatment to all type 1 patients then expand to the most severe type 2 patients. The potential treatment is millions of patients. Smallcap-Stockpicking: What do you think how many of these patients would be willing to undergo such treatment? Dr. Toleikis: With our local immune protected Cell Pouch System, I believe most type 1 patients and many of the type 2 patients taking insulin would want to receive the Cell Pouch System. Smallcap-Stockpicking: Is there a risk of undesirable cells settling in the Cell Pouch? how can you avoid this? do you have to remove the Cell Pouch if undesired cells settle in there? Dr. Toleikis: This is not a concern. There is no potential for undesirable cells to enter the Cell Pouch from the body. When the device is placed deep under the skin vascularized tissue naturally grows through the pores around the removable cylindrical plugs. After the plugs are removed and the therapeutic cells are placed in the resulting void space the natural tissue grows around the cells locking them in place, so no further cells would grow into the Pouch and there are no undesirable cells normally in the body, anyway. The iPSC cells are highly purified and manufactured to very tight specifications, similar to a drug. This minimizes any potential cells from not becoming insulin producing cells. We will transplant our iPSC cells in the Cell Pouch and although highly unlikely, if there becomes an issue, we could remove the Cell Pouch and put in new ones. Smallcap-Stockpicking: What is the likelihood that the larger Cell Pouch will eliminate the need for portal vein top ups? Dr. Toleikis: The larger Cell Pouches are designed to hold about 50% more cells than we have seen provide insulin independence in our patients with the smaller Cell Pouches and the small portal top up. So, while we need to test this in patients, we believe the larger Cell Pouches should be sufficient. Smallcap-Stockpicking: When exactly were the first 6 patients starting their treatment in the current T1D trial? Dr. Toleikis: They all started at different time points as they entered the study at different times. Smallcap-Stockpicking: With the new cells, a new trial has to be started (IND application around 2024). What happens with the old study? It will continue, of course, but what happens to it? At some point, the current study will have been just the ball that started the ball rolling? How long will the new study take? Another 3-5 years? Dr. Toleikis: We have a number of products to treat type 1 diabetes and we plan that all will continue development. This is so we can have a number of technologies receiving approval over time to achieve revenues as soon as possible and then to expand revenues. We expect the current treatment with donor islets will be approved for patients earliest and then our next products. The idea is to expand our patient population with each new product approval. As we are a pharmaceutical company, we must run clinical trial to show the safety and efficacy our products. I anticipate that the iPSC first study will take several years but we run trials in parallel and not sequentially for our different products so there will be multiple trials running at the same time. Smallcap-Stockpicking: What has to be prepared by 2024 for the new study, which is why it will take 1.5 years? Dr. Toleikis: We are currently combining the Cell Pouch with the iPSC cells in multiple doses to understand the best dose to move forward with. We will then conduct the formal preclinical safety and efficacy studies that are required for regulatory clearance to begin clinical trials. Furthermore, while the iPSC cells are very advanced as a product we need to conduct cGMP manufacturing of the iPSC cells prior to achieving the ability to conduct clinical trials. This process is typical for any pharmaceutical company working to get a product approved. At each stage there will be news and many press releases are expected as we develop the product into clinical trials and then afterwards. Smallcap-Stockpicking: What is the time schedule for the individual clinical phases up to commercial approval? Dr. Toleikis: This can vary depending on the product. Using a patient’s own cells is anticipated to go faster than using allogeneic cells. So your question is quite complex. Also, there are ways to speed up processes such as gaining fast track status, etc. Smallcap-Stockpicking: What is the current status of the thyroid program? When will the clinical trial start and with how many patients? Dr. Toleikis: We are preparing all of the regulatory documents for submission to start the trial. We expect the documents will be ready for submission by end of 2022 and pending approval by the regulatory authorities the trial will begin early 2023. We expect to treat approximately 10 patients and believe the trial should get enrolled quickly because there are so many patients in need of this therapy and we are using the patient’s own tissue to transplant into the Cell Pouch. Smallcap-Stockpicking: Can a specific timeframe for TSX up listing be given? Dr. Toleikis: We anticipate information will be coming out about this very soon. Smallcap-Stockpicking: Are you planning more dilution in a timely manner (this year)? Dr. Toleikis: The Evotec purchase of shares resulted in very little stock dilution (under 6%) but doubled our available cash in the bank to run our company for a number of years and its clinical trials and to hire more staff to enable us to move faster. As the stock price rises any dilution becomes smaller and smaller if the company raises more funds in the future. The increase in stock price is very good for investors and continues to derisk the company. As we currently now will have over CDN $50M in the bank to run our programs, there is no need for us to raise additional funds this year. As the stock approached $2.00 and beyond, we expect almost $40M in warrants to be exercised. The cash from this conversion goes directly into the company. With the second guaranteed Evotec tranche at $2.50, by August, we anticipate that we could have close to CDN$100M in the bank in the near future with no dilution. Smallcap-Stockpicking: Can you please give us the concrete number (perhaps also the type) of deals currently under negotiation and whether these deals and whether these will directly result in monetization? Dr. Toleikis: There is nothing ‘concrete’ in terms of negotiating pharmaceutical deals. To get a good deal as we have with Evotec, it takes a lot of cooperation and negotiation. It is very rare for a biotech company to achieve such a deal as we have with Evotec. This is especially more difficult when a much bigger company licenses a key technology to a smaller company such as the deal with Evotec. These arrangements can last over 20 years and so it’s important to get it right. We are always working to expand our pharma collaborations and the collaborations will differ as the company expands. Currently we have collaborations around other clinical indications beyond diabetes. Smallcap-Stockpicking: When will you close licensing deals for other indications that will bring upfront and milestone payments to Sernova? Dr. Toleikis: That depends on many factors including strategic ones. Our goal is not just to do deals fast but to do the right deals to maximize our shareholder value with the right technologies at the right time. Smallcap-Stockpicking: Is there any upfront payment after you will exercise the Evotec option? Dr. Toleikis: There is a small, non-material payment. Smallcap-Stockpicking: Why were you not agreeing on a longer lock-up period for the Evotec shares? Dr. Toleikis: There is a standard 4 month hold on any such equity placement. Evotec is not planning on selling their shares for a long time as that would not make any sense as a sophisticated investors look for very significant returns of 10 or 20 times or more. That is how real money is made. Selling shares early in the process minimizes the potential for real profits. Smallcap-Stockpicking: When do you want to lock-in a distribution partner for the cell pouch? Dr. Toleikis: When we find the best deal for our investors. We have multiple options and we will select the best option. Smallcap-Stockpicking: How do you want to protect shareholders in case of an unfriendly takeover bid? Dr. Toleikis: We are already protected from this potential event as anyone accumulating a certain number of shares, typically 10 percent, must publicly announce that and we can take immediate steps based on that. Smallcap-Stockpicking: How many shares are currently in hands of institutional investors? Dr. Toleikis: Our shares are mostly held by retail investors, but we are working hard to increase institutional ownership. The Evotec deal is critical for that to occur as it is a very, very significant value driver for Sernova that institutional investors understand. Remember, Semma was purchased by Vertex for US$960M for a preclinical stem cell product. Smallcap-Stockpicking: Why are no insiders buying down here after the Evotec news? Dr. Toleikis: The company insiders are currently locked out from purchasing or selling shares. Smallcap-Stockpicking: Analysts are expecting first revenue for Sernova in 2027. Do you see a way to beat their expectations? Dr. Toleikis: This is simply a projection by the analysts. There are multiple ways for us to make revenue prior to this date. Smallcap-Stockpicking: What is the likelihood of Sernova being acquired by a Big Player? Dr. Toleikis: That could occur. We now have the total regenerative medicine product for diabetes and other diseases with the combination of Cell Pouch, conformal coating to protect cells from immune attack and the iPSC technology for type 1 diabetes. This is what the largest big pharma companies have been looking for. As far as we know no other company like ours has this total regenerative medicine solution. This will make Sernova very enticing for the majors; however, I have been told by a major banker that Sernova’s valuation could increase dramatically and to resist acquisition, especially after just acquiring our iPSC technology which is a significant gamechanger for Sernova.