Celyad: The Second Wave

About: Celyad (CYAD)
by: Avisol Capital Partners

Celyad is back to where it was early last year.

However, there are early signs of greatness in this Belgian stock, as seen by the 7% rise on casual news.

Any major good news could take this stock back up to where it was in October 2017.

Celyad (CYAD) is trading back in the $25 zone, making it very appealing once again. There could be a variety of reasons for the stock to fall. If any of these reasons runs counter to Celyad’s investment thesis, then the low price would not be appealing. However, as we discuss here, despite some risks, Celyad is running a very promising trial and successful results from this trial would catapult this stock back to where it was last year. Given that potential, we think Celyad is a promising buy at $25.

We brought Celyad to the attention of Seeking Alpha readers in June last year. Before that, there was little coverage of its CAR-T pipeline, and its C-Cure program was all but dead. Later that year, we summed up our opinion of CYAD at that time in an interview with Seeking Alpha in October.

We said that when we first purchased CYAD, it was trading in the mid-$20s. By the time we let go of the stock in October, it was up 3x. However, since then, it has fallen almost steadily and is back to the $25 zone today. At that time, we said that the Celyad play was over for us at the moment, but we plan to get back in at lower prices.

The question now is: are we standing at the cusp of a second wave, or near the brink of a precipice?

Let us recall the investment thesis of Celyad, and also list some of the risks involved. Celyad is pioneering an effort to make CAR-T therapy work in solid tumors. This is a big deal because CAR-T, a very successful new cancer therapy, has traditionally only targeted blood cancers. None of the major CAR-T companies have any major focus on solid tumors. However, solid tumors form 75% to 90% of the entire cancer market, and many of these are very difficult to treat because of the difficulties of therapeutic penetration of the solid tumor microenvironment.

The problem with Celyad, and the reason why the stock is running depressed, is because despite what it has in theory, it does not have a single clinical efficacy datapoint from any solid tumor trial so far. The closest it has to date is from the AML part of the phase 1 THINK trial. This declared mixed results where a patient without lymphodepletion preconditioning achieved a 9-month remission after CYAD-101 therapy; however, another patient relapsed after 30 days (see our last article for a detailed scientific discussion). Dosing is also underway in the SHRINK trial with Cyad-101 and folfox in colorectal cancer; however, this is a safety and dosing trial. Until it has efficacy data from a solid tumor trial - it has just dosed the first patient in a phase 1 clinical trial in colorectal cancer - the stock will remain depressed. If that data, when it comes out, has promise, the stock will surge - otherwise, nothing.

Again, Celyad’s other investment angle is its efforts to make an allogenic version of its CAR-T product. Currently, CAR-T therapy costs can go up to a million dollars per patient because of its autologous nature; meaning, patient’s own genetic material has to be harvested and sent to specialized labs for processing and developing the therapy that can only be used on the same patient. This process is expensive, time-consuming, and a big hassle. Off-the-shelf CAR-T therapy developed through donor genes is the future of CAR-T, and here, along with a few other CAR-T companies (notably Cellectis’ (NASDAQ:CLLS) UCART19, 123 and the rest, and Pfizer’s (NYSE:PFE) programs), Celyad also has an early stage program. It has defended its IP well, as is evidenced by Novartis (NYSE:NVS) acquiring non-exclusive licensing rights to the patent despite not having any trial data. This is the same patent that Cellectis and others have tried to upend, but failed.

But the problem, again, is that Celyad has started with an autologous program at first and its allogenic program is still in the preclinical stage.

So we have Celyad, a company whose investment thesis is based on its solid tumor allogenic program, focusing on neither of these two exclusively at present.

Add to that mix the fact that the company has neither a lot of US visibility, nor a lot of cash (less than $70mn as of September, after the global offering), and we can see what ails the stock. Celyad seems to have had a burn of some $44mn last year. I say “seems to” because there is some problem with the financials reported on Yahoo Finance. Two quarters have repeated the figures of their previous quarters, as you can see. Seeking Alpha does not show quarterly data at all. Anyway, Celyad does not have a long cash runway, and this is something of a worry.

We have heard (the source of the following information is from a comment by AtonRa Partners on one of our past articles) that Professor Charles Sentman - the developer of the NKG2D ligand approach at Dartmouth college - had multiple suitors from Big Pharma for the technology. The comment appeared logical to us because, first, the commenter claimed to have followed Celyad for years and he appeared knowledgeable, two, Novartis’ interest in any CAR-T therapy sounds reasonable, and three, a scientist’s interest in working with a small pharma where he will have more command of the trial situation sounded logical. So, assuming this is correct, Professor Sentman chose the small and unknown Belgian company because Celyad promised to develop all angles of the technology at once. The problem is, such an approach is fine for a University lab, but in the industry, one needs to look at one’s cash runway and pick and choose one’s battles. If Big Pharma, with all its money, refuses to broaden its focus, then maybe Big Pharma has a point. It would probably have been better for Celyad to start with its USP - developing an allogenic CAR-T therapy for a solid tumor directly, from the get-go, instead of taking this circuitous route. There’s not much harm done, except this approach is not investor-friendly. The company will finish up its cash and be back looking for more; and meanwhile, the stock will languish.

Counter to my own argument, it can also be said that adding a lot of indications in early proof of concept or inexpensive phase 1 trials has the merit that if successful, some of these could be licensed out while the company can make use of the licensing funds to focus on its core USP, which is solid tumors.

This also tells us how important the data from the colorectal cancer trial is. This is the earliest we will get a real look at the viability of the main raison d’être of Celyad - how good its therapy is for solid tumors. So we will be watching this very closely.

Bottom line of the above discussion is that, at $25 a share, CYAD looks appealing now, given the high potential of the company’s pipeline. This is going to be a long-term hold, with an investment time frame of between 8 and 10 months at the earliest before interim data from the CRC trial, and we must remember that the stock is very illiquid, with low volumes traded everyday, so there’s a risk there. We must also understand that at this stage it is almost impossible to put a valuation to this company because, like we indicated, it is currently in the process of throwing its therapy at every possible type of cancer, and basically see what sticks. At some point around phase two, though, it will start focusing on its targets, and we will be better able to put a number to the valuation. However, in our opinion, having studied this company for long, we believe there’s strong potential here, so we will be buying at these prices again.

Disclosure: I am/we are long CYAD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.