Biotech Hits Critical Milestone for Cell-Pouch Bio-Hybrid Organ

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Leading regenerative medicine company Sernova Biotherapeutics Inc. (SVA:TSX.V; SEOVF:OTCQB; PSH:XETRA) announced that the U.S. Food and Drug Administration (FDA) has cleared its investigational new drug (IND) application for its cell pouch with auto-transplanted thyroid cells in patients undergoing thyroid surgery for nodular thyroid disease.

Millions of people worldwide are affected by hypothyroidism, which is characterized by insufficient production of the hormones thyroxine (T4) and triiodothyronine (T3), often requiring lifelong hormone replacement therapy.

"The FDA's clearance of our IND application to investigate our Cell Pouch Bio-hybrid Organ in an additional indication is great progress," said Sernova Chief Executive Officer Jonathan Rigby. "This further demonstrates that our technology has the potential to play an important role in advancing cell therapies that improve the quality of life for patients suffering from chronic illnesses."

Sernova's Cell Pouch Bio-hybrid Organ, in combination with autologous thyroid cell therapy, is designed to restore natural thyroid function by providing a stable, long-term, and physiological solution without the need for thyroid hormone replacement medications or immune suppression therapy, the company said in a release.

Preclinical studies have demonstrated that re-implantation of thyroid tissue into the pre-vascularized Cell Pouch without immune suppression successfully restored the primary thyroid hormones, T4 and T3, to pre-thyroidectomy levels without hormone supplementation.

"Radio-isotope imaging and histological analysis confirmed the presence of healthy, functional thyroid tissue within the cell pouch up to five months post-implantation," the release said. "Receipt of FDA clearance provides Sernova with the ability to diversify its clinical trial activity in chronic conditions as the company strengthens its financial resources."

With clinical trials already underway for using the device in type 1 diabetes (T1D) patients, "demonstrating efficacy in a second indication is a testament to the potential of the Cell Pouch and what could become a 'pipeline in a device," wrote H.C. Wainwright & Co. Analyst Dr. Joseph Pantginis in a February 3 research note, maintaining his firm's Buy rating of the stock with a CA$6 per share target price, an implied return of 2,627% for investors.

"Visibility for the company should increase around its opportunities around its Cell Pouch system across multiple indications, starting with T1D in driving insulin independence in patients," wrote Pantginis.

Analyst 'Optimistic' For Cell Pouch's Abilities

Sernova's Cell Pouch is a vascularized cell-carrying bio-hybrid organ implanted in the human body. To deliver treatment, the Cell Pouch is pre-implanted under the skin between the deep subcutaneous muscle and the fascia, an area rich in blood vessels. The bio-hybrid organ is uniquely designed with pores into which vascularized tissue grows over several weeks post-implantation, forming a vascularized organ-like environment believed to be critical for the long-term survival and function of therapeutic cells.

"We are optimistic in Cell Pouch’s ability to preserve TSH-responsive thyroglobulin production of thyroid cells within it, just as it preserved function of pancreatic islets already well-advanced in separate Phase I studies," wrote Analyst Douglas W. Loe for an updated research note by Leede Financial Inc. on March 3.

H.C. Wainwright & Co. Analyst Dr. Joseph Pantginis maintained his firm's Buy rating of the stock with a CA$6 per share target price, an implied return of 2,627% for investors.

Loe rated the stock a Speculative Buy with a CA$1.50 per share target price, a 650% return over its share price when the note was released.

"We believe that study design will be similar at least conceptually to the ongoing 17-patient Phase I/II type I diabetes study at the University of Chicago, where Sernova and clinical collaborators are testing functionality of allogeneic human pancreatic islets in a Cell Pouch environment as a way to achieve insulin-independence/blood glucose homeostasis, instead of achieving restoration of physiological thyroxine production as in the new IND Cell Pouch/thyroid disease study just endorsed," Loe wrote.

The analyst said positive advances on secondary indications like thyroid disease are correspondingly positive to his firm's SVA investment thesis and forecasts.

"We stand by our view that clinical risk for Cell Pouch itself is already low and getting lower, with the ability of the device to be well-vascularized (thus allowing for an interface between circulating hormones and responsive cells with the device) without excessive fibrotic tissue formation, and to thus sustain regenerative cell function within an accessible subcutaneous pocket already well-documented in both preclinical and clinical contexts," Loe wrote.

The Catalyst: Live Cell Encapsulation Market Continuing to Grow

The global live cell encapsulation market encompasses drug delivery, regenerative medicine, and cell transplantation. It is expected to continue growing through at least 2030, according to Grand View Research. The market's value, US$210.7 million in 2022, is forecast to increase at a 3.97% compound annual growth rate between that year and 2030.

Along with diabetes and hypothyroidism, live cell encapsulation is being used to treat neurological disorders like Parkinson's disease, the market research firm noted. Further, it has been proven to be a suitable way to deliver treatment for other types of diseases, including cancer, anemia, heart failure, and more.

Grand View noted that market growth is expected to be driven by the increasing use of live cell encapsulation in regenerative medicine to replace disease or damaged tissues. A related contributor is rising public and private funding and investments in cell and gene therapies.

According to the National Institutes of Health, between 2009 and 2012, about 9.6% of the U.S. population had hypothyroidism, growing in national prevalence to 11.7% in 2019.

Ownership and Share Structure

According to Refinitiv, about 4.1% of the company is held by insiders and management and approximately 0.05% by institutions. The rest is retail.

Top shareholders include Director Steven Sangha with 3.97%, Chief Financial Officer James Parsons with 0.12%, CATAM Asset Management AG with 0.05%, and Chief Business Officer Modestus Obochi with 0.02%.

Sernova has 328.48 million outstanding shares and 315.01 million free-float traded shares.

Its market cap is CA$65.76 million. It trades in a 52-week range between CA$0.61 and CA$0.17.