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UPDATE: Investment Banks Initiate Coverage of Cellular Dynamics with Outperform Ratings

The story previously incorrectly reported that CDI received a $16 million grant to create 3 iPSC lines. The grant was for the company to create 3 iPSC lines for each of 3,000 selected donors.

NEW YORK (GenomeWeb News) – Two investment banks today initiated coverage of stem cell firm Cellular Dynamics International, noting sizeable and growing market opportunities for the Madison, Wis.-based firm's technologies.

Leerink Swann and Cowen & Co. each gave CDI Outperform ratings. Leerink Swann has a $15 price target on the company's stock, while Cowen has a $16 price target.

CDI went public in late July, raising about $43 million in net proceeds.

In initiating coverage of CDI, both investment banks noted growing adoption of induced pluripotent stem cells, (iPSCs), especially among biopharmaceutical firms, and the fact that CDI has 18 of the top 20 biopharma firms as customers.

In a research note, Doug Schenkel of Cowen added that the average sale revenue per top-10 customer for CDI has increased to $500,000 in 2012 from less than $200,000 in 2011
"and is on track to further improve over the near future."

Initial applications of CDI's technologies have been in toxicity and safety testing and disease modeling, but other opportunities may open up in drug screening, industrial chemical potency quality control, stem cell banking, and in vivo therapeutics, Schenkel said.

"By providing highly pure, differentiated human cell types economically and in high quantity, CDI offers unmatched consistency and assembly of human biology than current models used in drug discovery and cell-based therapeutic research, including cadaver, live animals, and transformed cell lines," he said.

Similarly, Leerink Swann analyst Dan Leonard said CDI's iPSCs is a potential improvement over existing methods of compound screening in biopharma drug development, and peer-reviewed research suggests the technology could accelerate drug discovery, while reducing its costs and reducing the chances of late-stage drug failures.

Additionally, iPSC technology could see significant growth in the near term. Japan recently allocated ¥21.4 billion ($218.6 million) in funding to iPSC research and the government could announce a 10-year ¥90 billion iPSC initiative as part of next year's budget, Leonard said.

He added that Europe has funded 407 stem cell research projects under the Seventh Framework Programme, up from 102 under the Sixth Framework Programme, while the National Institutes of Health's Fiscal Year 2014 budget emphasized the importance of regenerative medicine and noted iPSCs as a "particularly exciting area of regenerative medicine."

He also pointed to two recent grants totaling $26 million in two grants from the California Institute for Regenerative Medicine for the development of new stem cell lines, which included a $16 million grant to CDI to create three iPSC lines from each of 3,000 healthy and diseased donors.

Lastly, Leonard said that while restrictions on and reluctance to do research based on human embryonic stem cell have softened, they have not totally disappeared, and CDI's iPSC technology "circumvents any ethical dilemma from sourcing stem cells from human embryos and permits a broader range of human research."

In afternoon trading on the Nasdaq, shares of CDI were down almost 2 percent at $13.31.

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