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TiGenix: Report Of The 2016 AGM

|Includes: CYAD, GRFS, Tigenix Sa (TGXSF)

TiGenix's AGM was held on June 2. I was there as an individual shareholder. Here is a report of how the event went and of all essential info I collected from the meeting.

Every shareholder was greeted in person by Eduardo Bravo, CEO. Were also present, among others: Claudia D'Augusta (CFO), Jean Stéphenne (President), Willy Duron (Admin), Raymond Campos (IR) and a representative of Grifols (NASDAQ:GRFS).

The event started with a corporate presentation by Eduardo Bravo, followed by a long and very open Q&A session, before the usual formalities and the approval of agenda points.

The elements reported hereafter are based on my own interpretation of the discussions and chats I had with TiGenix's management and must therefore be considered with the usual caution.

1. Cx601 - Crohn's fistulas

Eduardo Bravo briefly discussed the enormous progress accomplished during 2015 and H1-2016, thanks to the clinical results obtained and the scientific acknowledgement which ensued (Cx601's results were presented in 2 plenary sessions in the most important congresses of IBDs in the world, both in the US and in Europe, which is quite exceptional at this level).

The long-term results (52 weeks) confirm the very good therapeutic profile of the product and strengthen its chances of being widely adopted by specialists and, most importantly, easily reimbursed.

The issue of partnering deals has been discussed, obviously. Eduardo Bravo is aware that some investors are unhappy with the fact that no commercial deal was closed for Cx601, yet, but he is confident that the biotech's position right now is the best to maximize the product's value for all shareholders. Some contextual elements: before Phase 3 results, Bravo does not hide it, TiGenix was actively looking for partners to share the significant clinical risk of this late-stage allogeneic cell therapy product. As a novel therapy in a pioneering field, the risk was clearly not considered lightly by investors / pharma companies. No deal could be reached on mutually agreeable terms, so TiGenix went alone to the Phase 3 readout, taking all the risk for itself (and its shareholders) and fortunately, results were even better than expected.

Right now, regulatory risks are virtually inexistent in Europe (there's a 97% chance of approval, statistically speaking, for orphan products with the EMA, and Cx601's safety is excellent) and clinical risks are extremely limited in the U.S. (statistical threshold is less stringent for the U.S. Phase 3 than what it was for the European trial). In biotech, risk-sharing is THE main reason for closing deals during clinical development. Hence, no more risk means no more reason to bargain with the product's value and give away rights if this is not on very favorable terms for TiGenix, since commercial revenues are just around the corner (YE2017). The door is always open for negotiations, Bravo said, but the situation is fundamentally different from what it was before Phase 3 results.

Eduardo Bravo further explained that in Europe, almost all patients treated for Crohn's perianal fistulas go to a small number of specialized reference centers. There are about 70 of those centers all across Europe, and more than 40 were actually participating in Cx601's Phase 3 trial: TiGenix has established contacts with those specialized physicians and they are obviously already very aware of the product. Hence, TiGenix's team will have no difficulty targeting key persons - marketing plans appear solid and rational.

Finally, the timing currently announced for EMA approval is a conservative estimate taking into account rather long "clockstops," or periods to prepare the answers to the agency's requests (6 months + 3 months). Good surprises could come from this schedule but the biotech does not have all cards in its hands in this matter.

2. The NASDAQ IPO

The NASDAQ listing is still very much on the table and it is even seen as a must for the biotech's growth. The only reason why the initial IPO timing was delayed after December's announcement is the bad macro economic situation (especially in the U.S. biotech sector). TiGenix will go to the NASDAQ if macro conditions improve (we might be on the way to recovery) and if investors show their support: on this subject, capital investments by U.S. funds such as Cormorant Global Healthcare (one of the biggest specialized funds in the U.S. which has already invested over €13m in TiGenix) and RA Capital during the private placements of November 2015 and March 2016 are confirmed as pre-IPO movements. These funds (and other specialized investors) should commit to fulfill at least half of the order book if TiGenix is to confirm the launch of the IPO.

In terms of U.S. partnering deals, it is confirmed that TiGenix will first conduct and finish its U.S. Phase 3 before signing anything. In this, the biotech is strongly supported by its current U.S. investors (Cormorant & co) who would view very unfavorably the biotech giving away part of Cx601's value when clinical risks are minimum at this stage.

Besides, at a practical level, the submission of TiGenix's F-1 document to the SEC at the end of 2015 is keeping management under strict limitations regarding communication to investors: only factual info can be released in the press but no interview or public presentation are currently authorized. This is answering to some shareholders asking for the company to issue more PRs: that would be the plan, especially since clinical results were so solid, but management is legally restricted from doing so as long as the SEC's regulations don't allow it.

3. AlloCSC-01 - acute myocardial infarction

Eduardo Bravo confirms that this is probably the biggest short-term catalyst for TiGenix: the results will be available within 4 weeks and if they are positive, it means that TiGenix will have a tangible perspective in one of the most important healthcare market worldwide which is cardiac therapies...

I wrote after Coretherapix's acquisition that this opportunity was completed unaccounted for in the biotech's valuation right now, which is understandable since clinical data in humans are very limited (5 patients, no control arm). Bravo agrees with this view: management is optimistic about the data release, of course, but if it does not work, downside risks are very limited (since investors seem not to care at the moment) and on the other hand, if results are good, the market should become aware of this enormous opportunity. As a reminder, Celyad (NASDAQ:CYAD) is valued over $500 million based on good Phase 2 results for C-Cure... even though Phase 3 results are expected any moment now, which is a strong catalyst, it still gives a good idea of the market's valuation for good Phase 2 results in heart disease.

4. Cx611 - severe sepsis

Patient enrollment should begin in Fall 2016 (during flu season... which is a busy period for such patients). Bravo confirms that the delay in the start of the trial (from H1-16 to H2-16) is linked to securing the financing before its launch, which was resolved thanks to the EU's grant obtained (which funds half of the trial). The opportunity is also very important with Cx611 since severe sepsis has a huge mortality rate and no effective therapy. However, patience will be required as TiGenix will be conducting a large, solid Phase 2 trial (180 patients) which will take time to enroll - probably one to two years. At best, results could be available at the end of 2017.

5. Japan and favorable cell therapy regulations

I asked Eduardo Bravo about the opportunity of developing TiGenix's products in Japan, given the very favorable regulatory environment for cell therapies in this country. After all, Mesoblast (NASDAQ:MESO) went there (with partner JCR Pharma) and recently obtained full approval of TemCell (in GvHD) including a very high reimbursed pricing (~$150k per patient).

However, regarding Cx601, the very low prevalence of Crohn's disease in Japan is not helping potential partnering for Cx601 in particular... if there are very, very few patients, development and marketing costs in this country would be prohibitive compared to expected returns.

So, if something is to be announced in this matter, it will likely be related to AlloCSC or Cx611 which are both targeting widespread indications with a strong market in Japan.

6. Conclusion

After this meeting, my general impression on TiGenix and its management team is the following: this is a highly motivated and experienced team, with the clear goal of making TiGenix one of the global leaders in its sector. The seriousness of the scientific project and the will to conduct rigorous clinical trials is evident. The progress made in the last two years is impressive, knowing that the biotech was close to bankruptcy not so long ago (Summer 2013 was a nightmare). Eduardo Bravo explicitly evoked those difficult times when hard choices had to be made (private placement with huge discounts to avoid going broke) and it visibly left some traces - there was no overly triumphant tone but a deep relief to have arrived at this point, and also some bitterness about the market's reaction which did not value properly the biotech's achievements, according to management.

What I could observe first-hand is a strong leadership and a coherent long-term vision. However, TiGenix's management also acknowledges the need to communicate this vision in a broader and more relevant way (at least when IPO-related restrictions will be lifted). This is one of the main commitments for the next quarters, which already started with the hiring of Ray Campos, IR director and specialist of the U.S. market, who will be in charge of communication.

Finally, all shareholders present at the meeting could benefit from the management's availability and real attention (the Q&A session lasted over an hour and no subject was off-limit, except when restricted by law). The biggest challenge, now, is to share this vision with the largest number of investors.

Disclosure: I am/we are long TGXSF.