Ann: ECQ Exercises Opitons to Acquire Cynata Inc , page-15

re: Ann: ECQ Exercises Opitons to Acquire Cyn... Interesting consolidation decision from the directors here.

They were faced with an unusual set of circumstances, with a company registered in California but listed on the ASX.

So should they consolidate with a view to raising a majority of future capital within the USA biotech sphere, or according to the norm for retail and small fund Australian investors.

They went for the USA model, and in doing so, overcooked the consolidation for Australia. A majority of IPO's in Australia (which is effectively what this is) list at 20 cents, which would logically require a 1 for 10 consolidation, but they went 1 for 20, because it better suits the American investment paradigm.

I am not complaining, it was their decision, but it will mean a longer wait for an upward trajectory on the ASX in my opinion.

So how will it play out? My wild guess from watching hundreds of stocks in similar situations in the past, is that they have effectively capped it around the 1.6c to 2.4c range up to consolidation. I expect it to list close to 40 cents post consolidation and initially slip back by about 25% to around 30 cents, which if you look at most other consolidations on the ASX in the past 2 years, is actually what happens. We can only use history as our guide at the moment.

Check this post again at the start of the new year, when I expect it to be hovering in the 33 to 37 cent region.

2014 is another kettle of fish, you need to watch the science carefully for clinical validation of Cymerus. There are 2 parts to this. Firstly, can an MSC with desired properties be created from MCA's (see today's presentation for where it says in brackets that Cynata's technology is - "subject to whether development is successful"). Remember that this is not a given, otherwise they would probably have introduced this technology into Cellular Dynamics, which shares the same technology developer scientists. Cynata is being used as the global test case. Secondly, if successful, can the MCA's then be mass produced under an industrial profitability type model, and if so, is it actually any advantage?

Remember, other stem cell companies have proven that MCA's can be extracted and used successfully, but Cynata is trying to derive them from MSC's - never done before. The other question is, even if it is successful, is there really that much advantage over the standard stem cell extraction process, especially when one could theoretically have cells removed at birth and cryogenically stored for life in case you need them (which is exactly what I would do if my wife and I were young enough to have children in today's world). It is an interesting argument, even amongst the stem cell scientists.

As a stem cell investor you can punt all your money into the as yet unproven Cymerus based technology, like Cynata, which is high risk, and high reward. Or perhaps take a slightly more prudent approach, and place some into Cymerus, and some into a more standard stem cell approach, like Mesoblast or Cellular Dynamics or Regeneus (and the like). I opted for the second option.

Good luck.

Gw