First Berlin Equity Research on 19/10/2023 initiated coverage on Sernova Corp. (ISIN: CA81732W1041/ Bloomberg: SVA CN). Analyst Christian Orquera placed a BUY rating on the stock, with a CAD 3.80 price target.

Sernova Corp (Sernova) is a Canadian, clinical-stage biotech company developing cell therapeutics towards ?functional cures‘ for chronic debilitating diseases based on its proprietary Cell Pouch System? technology platform. The Cell Pouch device is unique. Once implanted deep under the skin of the abdomen, it creates an ?organ-like? vascularised tissue matrix environment where therapeutic cells can thrive upon transplant. The ultimate goal in the lead type 1 diabetes indication (T1D) is curing the disease. The first generation product (1G – Cell Pouch + donor cells + immunosuppression) in phase 1/2 for T1D showed (I) In cohort 1, the first five patients achieved insulin independence for periods of ~6 months to >~3.5 years, and (II) in cohort 2 with a larger Cell Pouch (>50% more capacity), the first assessed patient demonstrated persistent serum C-peptide levels after only one islet transplant. This is a remarkable result as in cohort 1 using the smaller device this happened only after the 2nd implant. The company will publish a further update during Q4 2023. The supply of donor cell islets is scarce. Therefore, Sernova is developing a 2nd generation product which replaces donor cells with induced pluripotent stem cell-derived islets. Sernova’s strategic partner, Evotec, will produce an unlimited supply of best-in-class insulin-producing islets. We anticipate this programme will start patient enrolment for phase 1/2 clinical trials in 2025. Long-term immunosuppression use has risks (e.g. cancer). Sernova is thus developing a preclinical 3G product using conformal coating (CC) technology licensed from the University of Miami (and others) that could provide optimal immunoprotection and ultimately lead to a cure for all T1D patients. The recent CC progress update was encouraging. We believe this combination product candidate could enter phase 1/2 clinical studies in 2026. An additional Cell Pouch-based preclinical programme in postoperative hypothyroidism is also scheduled to enter the clinic in H2 2024. If successful, the four combination product candidates could reach the market by 2028-2032 and we project combined sales potential of >USD15bn. We anticipate that positive news flow from the pipeline, particularly from the ongoing phase 1/2 T1D study, CC progress details at the upcoming IPITA conference on 26-29 October 2023, and the initiation of the hypothyroidism phase 1/2 study planned for 2024 will add substantial value to Sernova and act as catalysts for the stock. Based on our SOTP valuation model, we initiate coverage of Sernova with a Buy rating and a CAD3.80 (USD2.80; €2.60) price target.