Orgenesis Inc (ORGS) 2022 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Orgenesis Business Update Call. (Operator Instructions)

It is now my pleasure to turn the floor over to your host, David Waldman from Investor Relations. Sir, the floor is yours.

Thank you, and good morning, everyone, and welcome to our Orgenesis Second Quarter 2022 Business Update Conference Call. On the call with us this morning are Vered Caplan, Chief Executive Officer; and Neil Reithinger, Chief Financial Officer. If you have any questions after the call or would like any additional information about the company, please contact Crescendo Communications at (212) 671-1020.

This conference call contains forward-looking statements, which are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities and Exchange Act of 1934 as amended. These forward-looking statements involve substantial uncertainties and risks that are based upon current expectations, estimates and projections and reflect our beliefs and assumptions based upon information available to us at the date of this conference call.

We caution listeners that forward-looking statements are predictions based on our current expectations about future events. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions that are difficult to predict. Their actual performance or achievements could differ materially from those expressed or implied by the forward-looking statements as a result of a number of factors, including, but not limited to, the risk factors and uncertainties discussed under the heading Risk Factors in Item 1A of our annual report on Form 10-K for the fiscal year ended December 31, 2021, and in our other filings with the Securities and Exchange Commission. We undertake no obligation to revise or update any forward-looking statement for any reason.

I'd now like to turn the call over to Orgenesis CEO, Ms. Vered Caplan. Please go ahead, Vered.

Thank you, David, and thanks to everyone for joining us on our call today. I'm always glad to have a chance to (inaudible) and speak with shareholders. And as many of you know, we really try to be responsive and available for any of you who wish to speak with us. We also appreciate the support we have received (inaudible).

The last several months have been one of much turmoil, political issues, economic instability and many are still suffering from the latest (inaudible) while no new biological (inaudible) appear around the corner. These issues have not had a direct influence on our activities, but they have affected investors and shareholders throughout the biotech industry. And many companies have not survived things (inaudible), funds that have been frozen, shareholders that have had to liquidate their assets quickly and the general mood of the biotech investment to world.

We are extremely fortunate that we have support of some of our shareholders and investors and that our suppliers and customers have gone out of the world to make sure we maintain our stability. We appreciate this very much. I think this is part of the [sciencing] network. The point-of-care network that we have woven together in the last few years.

We are also not a typical biotech company, far from it, as Uber is not a typical taxi company, as Amazon is not a typical book-store chain. If you remember, when Amazon sold books. And Airbnb is not a hotel chain. We are a new breed of biotech. Just as the developments in software, hardware and communication technologies enable the capability to share resources, products and services to many more people around the globe more efficiently and enabled new sources of employment and deployment of goods, so are we building a new accessibility in cell and gene innovations and therapies.

Our point-of-care network enables clinicians and patients to access -- access to life fighting -- life-saving therapies and pave the pathway for new innovative treatments to reach clinical use in a decentralized manner. A therapy license from one hospital may be made available to any hospital in the network. Our network allows clinical and scientific data to be shared. So instead of each hospital trying to face the challenges of supplying these therapies to patients and overcoming the pitfalls that others have faced, we provide a well-collaborated approach.

Our point-of-care services, now regrouped under Orgenesis, have the know-how and infrastructure to provide such therapies across the network with quick and efficient capability to expand such services to new hospitals and clinical sites. Biotech companies who wish to access this network and develop and supply their products utilizing our point-of-care network benefit from such services, enabling them to have a robust supply chain, not limited access to the -- not limiting access to the products by complex supply issues that arise from a centralized processing facility.

The biotech industry, in general, speaks of cell and gene therapy manufacturing. But no biotech company as far as I know has ever manufactured a cell. Cells are expanded, engineered, processed or reprogrammed. Cells may be used to manufacture proteins or other materials. And by doing so may be utilized in a manufacturing process such as done in traditional biotech industry, but no cell and gene therapy is based on someone actually manufacturing or making a cell. The source material is always taken from biological tissues. This is a subtle difference, but a crucial one.

Cell therapies are based on the know-how and research of scientists around the world that have studied cell behavior and have established scientific methods that enable reprogramming the function of various cells as well as the capability of selecting and growing these cells. These technologies are the pinnacle of human achievement, allowing us, in some cases, to cut free from the restriction that evolution has imposed on our cells, and in other cases, providing us the insight to utilize the intelligence that resides in our cells based on such a solution.

Cell and gene therapies are about utilizing scientific knowledge, sophisticated biological algorithms and tools to reprogram cells for our own benefits in health. Their success depends on the processing systems, the hardware, the biological techniques and the software that enables users run low-cost and high-quality replications of these algorithms. Our approach to this industry is based on these fundamentals.

We work closely with many cellular processing system developers to optimize these devices and in some cases, have even developed their own, which are integrated into our OMPULs. We work closely with the suppliers and developments of different technologies, which enable processing and reprogramming of cells. We utilize these technologies to optimize the quality and the safety of various therapies.

We have set up our network in Europe, Asia, the Middle East and the U.S. We now have our OMPULs deployed in Europe and the Middle East and have set up point-of-care centers and strategic hubs in the U.S. We have managed to generate revenues that covers our activity in Europe and Asia, and we'll now use the additional funds we have received for Metalmark which we announced this morning to deploy additional OMPULs to provide services for our customers in Europe and in the U.S. Our focus this year has been and will continue to be to establish our point-of-care development and processing services with a strong focus on expanding capacity in the U.S.

One excellent example is our partnership with Johns Hopkins where we have established the point-of-care centers supported by [Orgenesis Maryland general]. This will be utilized for the construction of the cell and gene therapy processing facility. Our process development services are already active on site. We have managed to provide our customers with all the services we committed to in a timely manner and believe that they continue to see the value of our decentralized approach. We are also expanding our marketing efforts as we believe we have now the resources to expand our capacity.

Turning in more detail to our funding announcements this morning. I'm pleased to report we secured a $10 million loan for Metalmark Capital Partners, a premier investment firm with deep expertise in the health care sector. For those of you unfamiliar with Metalmark, they target investments in middle-market companies seeking to build long-term value through active and collaborative partnerships.

Metalmark has managed in excess of $8 billion for both (inaudible) funds. They are committed partners, and we look forward to working closely with them to help us accelerate the rollout of our point-of-care platform and these critical services. Equally important is the fact that we secured this investment at the subsidiary level. For those of you who have known us over the years, we have 2 major priorities. Number one is delivering life-saving cell and gene therapies to patients around the world at costs that will allow widespread adoption, and no less important, protecting and preserving our shareholder value by avoiding the usual toxic funding that often destroys the capital structure and in turn value for small-cap biotech companies.

I strongly believe that the underlying value what we are building is not reflected in the public market. Bringing in a partner as Metalmark who has deep expertise in the health care sector and understands the valuation biotech services companies are getting in the private sector, hope will help establish that value. Additionally, they understand, I believe the growth potential of our business, and we cannot be more excited to have them as a partner, while preserving our capital structure and minimizing equity dilution.

The reason our point-of-care business is resonating well in the industry is that we are able to lower the cost, streamline logistics, expand capacity, enhance distribution through processing of therapies close to the hospital setting, which we hope will support payer uptake and make these therapies more broadly available to patients. We believe this is a crucial step that is necessary for cell therapies to become widely available.

Utilizing our OMPUL-based approach, we believe we are uniquely positioned to address the challenges of current centralized production. OMPULs shorten the implementation time of building out new capacity from 18 -- 24 months, easily to 6 months. In terms of expenses, our goal over time is to reduce the cost of gene therapies to tens of thousands versus hundreds of thousands of dollars.

Importantly, we believe we have built a highly scalable business model and expect to benefit from growth in higher margins, reoccurring revenue streams and based on future royalties and long-term contracts from industrializing in supplying these cell and gene therapies. At the same time, we've only started generating revenue in our therapy out-licensing. And though not at the same level as the services, still, we believe this would provide a longer-term source of future income and additional value for shareholders.

Our point-of-care therapeutics pipeline now stands over 16 distinct clinical programs, [earmarked in] immuno-oncology, antiviral, metabolic and autoimmune diseases as well as tissue regeneration. Our strategy involves leveraging government grants and other sources of non-dilutive funding from regional partners in order to advance life-saving therapies.

And by designing these therapies from the ground up using our OMPUL-based model, we believe these therapies can be advanced to clinical trials at a fraction of the cost of traditional clinical trials by leveraging our network of academic institutes and health care systems around the world. We are also taking advantage of non-diluted funding, such as our recent award in May 2022, totaling EUR 4 million from the European Innovation Council Pathfinder Grant to advance technologies for the production of (inaudible) autologous induced pluripotent stem cells.

The grant is aimed at the development of technologies to speed production and personalize iPSCs while significantly reducing manufacturing costs. In turn, these products can be utilized for wider [AS] indications, including autologous adoptive cancer immunotherapies, hematopoietic stem cell transplantation and regenerative medicine. We believe our therapeutic pipelines will tremendously unlock potential as we are now partnered to advance each of these assets through clinical and preclinical milestones.

And when you compare our therapeutic pipeline against other biopharmaceutical companies of our market cap as well as many of those much larger than us, most of them have only a small handful of related programs. In contrast, we have access to many therapies across various indications at all stages of development through our growing partnerships.

So to wrap up, we are executing on everything we said we are going to do. And now with Metalmark's support, we look forward to accelerating the rollout of our point-of-care services in deployment of our OMPULs. Our partners and customers are committed to support the validation, development and clinical trials of advanced therapies utilizing the point-of-care platform within their respective markets.

And we continue generating revenue while transitioning from the first to second stages of our business model. Our agreements with our customers are long-term contracts. And as we advance the respective pipelines, we expect to benefit from growth in high margin recurring revenue streams.

Overall, we are more enthusiastic than ever about the outlook of the business and believe that we are well positioned to expand our market position not only as a leader, but as a disruptor in the cell and gene therapy market. We have built a highly scalable business, that we believe will buy value for shareholders for years to come.

On that note, I'll now turn the call over to Neil Reithinger, our Chief Financial Officer.

Thank you, Vered. Our revenues for the 3 months ended June 30, 2022, were $0.2 million compared to $10.5 million for the 3 months ended June 30, 2021. The decrease in our revenue is attributable to the fact that most of the performance obligations under our POC development contracts were completed in 2021 and which primarily related to services performed to support the company's customers and to set up in their respective territories.

Cost of revenues, development services and research and development for the 3 months ended June 30, 2022, were $8.9 million as compared to $9.7 million for the 3 months ended June 30, 2021, representing a decrease of 8%. The changes contributing to the decrease during the quarter were attributable to an increase of $531,000 in salaries and related expenses mainly attributable to an increase in salaries and related expenses following the scale up for increased production, a decrease of $2.2 million in subcontracting professional and consulting service fees, where we invested heavily in subcontracting and professional and such service fees in previous years. And we reduced such expenditures this year and an increase in $991,000 on other research and development expenses.

Selling, general and administrative expenses for the 3 months ended June 30 were $2.8 million as compared to $2.9 million for the comparable period. The decrease in selling, general and administrative expenses for the 3 months ended June 30 compared to the 3 months ended June 30, '21 is primarily attributed to a decline in stock-based compensation, professional fees and other general and administrative expenses. This was partially offset by an increase in salaries and related expenses and accounting and legal fees.

In terms of liquidity and current assets, we ended the period with approximately $25.5 million, including cash and accounts receivable of approximately $21 million. This does not include the funds from Metalmark for $10 million that was received subsequent to the balance sheet days in this quarter.

We remain focused on carefully managing expenses through cost-effective international partnering, strategic funding and non-dilutive grant funding, we have been fortunate to receive government support from several countries and believe we will continue to benefit from such support to further grow our POCare platform. We also look forward to benefiting from our recent loan and collaboration with Metalmark.

Operator, we will now open the call to questions.

(Operator Instructions) Your first question for today is coming from Bruce Jackson.

Bruce Jackson, The Benchmark Company. I'd like to start with the comment made on the fourth quarter call where you said that you had commitments from customers for future revenue in excess of $30 million for 2022 and $55 million for 2023. I wanted to know if there were any updates to your thoughts on the contract pipeline for the remainder of the year?

I think we're still on track for our commitment. We have had some additional contracts, not major, but I think we have maybe a change of about $5 million, but I'm not -- don't remember the exact number. But certainly, the contracts we have, we are going well on them. They're progressing well.

Okay, great. And then the other question I had was about the formation of the Orgenesis subsidiary. Is that -- with the assets, are those physical assets, for example, the OMPULs and does it include any intangible assets like patents or know-how or anything in there? So just broadly, what's the composition of the assets in the Orgenesis subsidiary?

So we have subsidiaries that are focused on services and we have the OMPULs there and any know-how that is related to providing services such as process development and processing of the cells. This does not include any know-how, IP-related or anything related to the therapies themselves. And we have subsidiaries that are focused on different lines of therapeutic lines which supports the out-licensing and any revenue generated from these out-licensing contracts.

Your next question for today is coming from Kelvin Seetoh.

Kelvin from Slingshot Capital. Yes. So I'll just share a few observations before asking my question, and I think it will really guide the shareholders in thinking about where this business is headed. So I'm looking at our cash level right now is dropping. So we are left with about $3 million of cash. And of course, we do have quite a big chunk in account receivable. But I'll just discount the account receivables for now because time is needed to collect those.

So this quarter, we incurred about $5 million of losses. So without the extra financing from Metalmark Partners, we might not even last for 2 quarters. So I just wonder how are you balancing our own growth investing -- I also noticed we spent about $4 million investing in DeepMed IO and other companies. So I'm just wondering how are you balancing our immediate need for profitability because we cannot be diluting and raising money all the time.

Yes. I agree with you. This was actually in support of some of the grant activity. So it's actually something that is we hope will be refunded by grants. Sometimes grants money takes time and you have to expense it and receive it back. So we really try to focus only on the activity expenses on grant-related repayable.

Got it. I'd also like to ask as well, because I think a lot of things have changed in this year. Interest rates have gone up. There's a weak macroeconomics. There's a lot of talk about a possible recession. So I just want to ask about the customer's commitment for financial year 2023. Do we still expect roughly about $50 million of revenue or just starting to see some downward adjustments in those figures?

So at least from existing customers and additional potential customers, I think they -- typically, when biotech companies go for development of the products, especially if they're going for a clinical trial, they make sure they have the revenue for expenses available because of the commitments to the hospitals. So I think most of our customers have the funding, at least the ones (inaudible). And I also think, in general, a lot of customers are heavily funded by government grants and additional resources, so not only dependent on additional financing of themselves.

So I do think our revenues seems pretty secure. We are expanding our customer base just to make sure of that. And that's why it was very important for us to make sure we have the capacity to expand our services. So if we take our new customers and we have the existing customers and all is well for everyone, we have to make sure we provide those services.

Got it. Got it. Vered, if I could just squeeze in one last question. In the press release, I noticed we talk about multiple contracts with biotech companies from United States, [UE], Asia and Middle East as well. So maybe for the benefit of other shareholders as well. Are you able to elaborate more about the profile, the background of your clients? Are they large clients, small clients, are they reputable? Are these clients the names that we see in newspaper and publication, science publications?

Well, I think those clients are certainly (inaudible). I mean, as I said, a lot of these have gone through a lot of kind of screening from government grants, right? So I think the clients are certainly based -- a lot of them have clinical activity. So they are established. This is kind of not their first product to market, which I think is important. We do have smaller ones, that's maybe more kind of startups, new. But I think many of our customers are established in their own kind of activity.

Got it. So just to end off, I want to share my observations about the stock market right now, and I hope it is of value to you because I see that as my duty to you and the company as a shareholder. It almost seems like we have entered a different environment right now. Investors are no longer looking for growth, but they are focusing a lot on profitability and just think the economy is understandable why they are looking at profits in stakes. So I really do hope that we can be profitable soon. Otherwise, I think it's going to have an adverse effect on our share price and capital raising down the road is going to be even harder. But to add off, I just want to thank you for the hard work you doing as well. We really do appreciate that.

Thank you and I think, we all appreciate your comments. We'll do our best to get to that point.

(Operator Instructions) There appear to be no further questions in queue. I would like to turn the floor back over to Ms. Caplan for any closing comments.

Thank you. I'd like to thank everyone for participating on our second quarter update conference call. We are excited about the outlook for the business and appreciate the support of our shareholders. And we look forward to providing further updates as we advance our pipeline and our services and deploy our OMPULs worldwide. Thank you.

Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.