One Co. With Cell Holding Device Stands Out in T1D Space
Research Report

Sernova Biotherapeutics Inc.'s (SVA:TSX.V; SEOVF:OTCQB; PSH:XETRA) Cell Pouch "finds itself rising to the top in the type 1 diabetes space" given Vertex Pharmaceuticals Inc. (VRTX:NASDAQ) just discontinued its competing program, reported Dr. Joseph Pantginis, H.C. Wainwright & Co. analyst, in an April 22 research note. Cell Pouch is an implantable biohybrid organ for treating chronic diseases.

"Where VX-264 came up short, we see an opportunity for Sernova and its Cell Pouch device," Pantginis wrote. "We also believe visibility for the company should increase around its opportunities around its Cell Pouch system across multiple indications, starting with type 1 insulin-dependent patients."

2,757% Return Potential

H.C. Wainwright maintained its CA$6 per share target price on Sernova, trading now at about CA$0.21 per share, noted Pantginis. Given these prices, the target implies a potential return for investors of 2,757%.

The regenerative medicine and medical device firm still is a Buy.

The company has 328.5 million shares outstanding. Its market cap is CA$67 million. Its 52-week range is CA$0.15–0.47 per share.

One Competitor Goes Away

Vertex Pharmaceuticals ended its VX-264 clinical program because Phase B of a Phase 1/2 study failed to meet the efficacy endpoint, reported Pantginis. Increases in C-peptide, a marker of insulin production, did not rise to the level needed for patients to benefit. This was determined through a mixed-meal tolerance test.

Study participants received 90 days of a full dose of the fully differentiated pancreatic cells encapsulated in Vertex's device. At that point the requisite analysis was done. It was then that Vertex discontinued the program.

Vertex, however, is continuing its zimislecel program, now in Phase 3. Formerly VX-880, zimislecel is an islet cell therapy with standard immunosuppression for patients with type 1 diabetes with severe hypoglycemic events and impaired hypoglycemia awareness.

The Key Differentiator

Pantginis highlighted that Sernova is the only company in the space that has demonstrated positive patient outcomes in a trial combining donor islets and an implantable device as treatment for patients with insulin-dependent type 1 diabetes.

In Sernova's Phase 1/2 study, a significant number of patients achieved both insulin independence and HbA1c levels in nondiabetic ranges. In many cases, the response was maintained and even deepened over time. Though these results are from an interim study, H.C. Wainwright believes they are "clear efficacy signals," Pantginis wrote. The safety profile of Cell Pouch and this treatment consistently has been good.

"We believe deep responses in diabetes patients position the technology for potential commercial success, particularly as competitors exit the space," Pantginis added. "The impressive response rates and durability support Sernova's strategy and justify further investigation."

Recently, the Data Safety Monitoring Board approved continuation of this firm's Phase 1/2 trial. Information is to come later about a Phase 3 pivotal study, including the design, estimated start and timeline.

Cell Pouch in Hypothyroidism

Sernova has launched a second clinical program involving Cell Pouch, in hypothyroidism, for which it submitted a new investigational new drug (IND) application to the U.S. Food and Drug Administration, Pantginis relayed. The life sciences company is seeking approval to evaluate Cell Pouch, auto-transplanted with thyroid cells, in patients undergoing total thyroidectomy for nodular thyroid disease. With this program, Sernova aims to possibly reduce or eliminate the need for lifelong thyroid hormone replacement, recover thyroid hormones' natural feedback loop, reduce symptoms of low thyroid hormone levels and improve quality of life for patients with this medical condition.

In preclinical studies, production of thyroid hormones post thyroidectomy was recovered, "enough to be potentially clinical effective, in our belief," Pantginis wrote.

"We think these results were a clear indication of the capacity of transplanted Cell Pouches to act similarly to the organ," added the analyst. "We were encouraged by these data, and we still believe they serve as a strong foundation for the announced IND application submission."

Pantginis reiterated that about 150,000 thyroidectomies are done each year in the U.S. alone. Hypothyroidism is an indication with a high unmet need and an estimated US$2.2 billion (US$2.2B) market opportunity.

Opportunity in Type 1 Diabetes

H.C. Wainwright forecasts that the Cell Pouch system could reach the market in the U.S. in 2027 and gives it a 25% chance of success on sales of US$2.3B, reported Pantginis. The financial firm is basing these estimated peak sales on a minimal, roughly 2.1%, market penetration in the hypoglycemic unawares population.

Yet H.C. Wainwright believes the market could be much bigger given "the broader type 1 diabetes population and the continuing dramas surrounding insulin supply and its costs," wrote the analyst.