Orgenesis Inc (ORGS) 2021 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Orgenesis Third Quarter 2021 Business Update Call. (Operator Instructions) It is now my pleasure to turn the floor over to your host, David Waldman, Investor Relations. Sir, the floor is yours.

Thank you, Matthew. Good morning, everyone. Welcome to the Orgenesis Third Quarter 2021 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 and are based upon our current expectations, estimates and projections and reflect our beliefs and assumptions based upon information available to us on the date of this 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. Our actual results, 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 risks and uncertainties discussed under the heading Risk Factors in Item 1A of our report on Form 10-K for the fiscal year ended December 31, 2020, 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. Once again, we generated strong year-over-year revenue growth. Revenue for the third quarter increased over 400% or five-fold versus the same period last year. So the 9 months revenue increased to $28.6 million compared to $5.3 million for the same period last year, which we believe was flexible to focus and sustainability of our point-of-care strategy.

Feedback from within the industry has been extremely positive and we are now working with some of the leading research center, hospitals and biotech companies around the world such as JHU and UC Davis in the central United States. Our global network now stands in North America, Europe, Asia and the Middle East, compromised with 10 regional distribution partners.

In addition to our strong IP, we have a distinct first-mover advantage. We've begun planning an implementation of the strategy a number of years ago and have invested heavily in the platform. For this reason, we have established ourselves not only as a leader, but as a disrupter in the cell and gene therapy market.

And although industry partners are catching on to what we have built, it's important to reiterate the strategy for investors. Currently, most cell and gene therapies are manufactured using centralized production, either through in-house production or through CDMOs, which is standard across the industry. Centralized production requires massive capital investment. It's very expensive to operate, and it take years to bring production online at meaningful scale.

The current processes in place has resulted in major bottlenecks and capacity shortages, which is illustrated by the (inaudible) cost of many of these therapies and ongoing manufacturing. A good example is, CAR-T therapies, which have faced supply chain issues and can range in the hundreds of thousands of dollars per patient with resistance from pain. However, by producing personalized cell and gene therapies at the point-of-care, we are able to add new capacities within 3 to 6 months. When compared to CDMOs or internal in house production, it may take up years to build up teams.

In terms of expenses, our rollover time is to reduce the cost of these therapies to tens of thousands from hundreds of thousands of dollars.

We recognize the challenges facing this industry early on. As a result, we've made the decision to sell our Masthercell subsidiary for approximately $300 million, which provided us over $100 million of nondilutive capital to build our point-of-care platform.

At the time of the sale, Masthercell revenues were roughly $30 million. To put this in perspective, the revenue from our point-of-care business was over $25 million for just the first 9 months. We believe this transaction to sell Masthercell was the right decision at the time, and we are more convinced than ever in our new strategy, given the positive industry feedback. We believe that our point-of-care business is more advanced, cost-effective and scalable than any other solution in the market today.

Let me explain why. Producing cell and gene therapies is an extremely complex multistep process. Cells are highly sensitive to any change in the environment and process. And producing cell and gene products must be done in a highly sterile environment since such products cannot be sterilized.

Under our point-of-care model, we are also servicing our partners and customers through process development, which includes GMP-compliant process development, development of quality control methods, adaptation of the process through automation includes new processing systems, qualification of the process combined with the utilized equipment and integration of the combined system into our mobile processing units the OMPULs, qualification of the entire system together. These stages are what to refer, what we call and what we refer to as OMPULization. Once this is completed, we can mobilize the OMPUL to the required production site and supply our OMPULs to the designated medical site.

If more capacity is required, we can as first step add more isolated processing units in the same OMPUL. At a second stage, we can bring additional OMPULs to the same point-of-care center. And if required, expand to even more point-of-care centers while it was a goal of maintaining exactly the same environment and the same process.

Current industry practice is quite different. It involves developing a process and implementing it in a cleanroom facility in most cases involving many manual steps. Expanding production capacity or transferring production to another location is a lengthy and complex process. Building and qualifying new cleanrooms and cast new products can take months or and years. Producing products at the central location requires expensive and complex logistics of supplying source material from the patients and are turning the final product to the patient location.

By OMPULizing the process, the initial effort may be slightly lengthier, but we now have the products that we made at many locations, including close proximity to the clinical site. And we can then expand capacity quickly and efficiently.

Since we have invested many years in partnering and co-development with automation solution provider, we have at our disposable a tool box assistant that we can incorporate into the OMPULs. As we develop more point-of-care and therapeutic products, we become more efficient at this process.

Since many of the products are a variation on the same theme, so -- though we may need to make modifications, we can still utilize many of the same components that we have developed in the past. The key to our success in our point-of-care business is standardization. The process is exactly the same. That's what we're aiming for, regardless of where the product is produced. For this reason, we have established training protocols. We are using audited and consistent suppliers and vendors of materials involved in production and quality control. We are implementing validated, automated solutions that minimize human error. And we're taking advantage of closed units to control the infections. Through standardization and a consistent processing environment, we can dramatically reduce costs. We believe our strategy of decentralizing the supply of cell and gene therapies based on standardization of the manufacturing environment will ultimately become the solution for this industry, enabling lower cost, accelerated development and ultimately providing a scalable long-term option to overcome the industry-wide capacity constraints.

We are also advancing our point-of-care therapy, which now span immuno-oncology, antiviral, metabolic, autoimmune disease, tissue regeneration and more. Our strategy involves in-licensing therapies, leading research institutes, hospitals and biotech companies and utilizing our partners and customers to out-license these products. We do so in return for future royalties as well as exclusive service contracts for industrializing and supplying these cell and gene therapy.

At the heart of our business model is being the optimal industrial partner. Whether we are providing our development and supply services to our partners and customers based on that out-license therapies or providing similar services to our customers for their own therapies, our goal is always the same: to make these therapies available to large number of patients, reduce cost, to decentralize processing and supplying using the point-of-care platform.

Unlike a traditional biotech with a handful of therapies in the pipeline, which require constant investment in clinical trials, we continue to evaluate new therapies at all stages of development through ongoing partnerships with research and commercial entities and hospitals, and streamline the development of these products to our network, providing us with short-term income throughout the development stage and potential upside once they get market approval.

We have built robust therapeutic pipeline, which includes more than 30 advanced cell and potential gene therapies. And we continue to evaluate new technologies. The fact that we can combine our point-of-care network, our processing technologies, such as automation solutions and the OMPULs with our clinical and manufacturing expertise, provide us with the distinct advantage to partner for licensing and service models with biotech companies, research institutes and hospitals and then advance these new and exciting therapies through the clinic much faster and cost effectively than a traditional biotech.

We continue generating revenues by OMPULizing various cell and gene products and supplying such products at existing centers to our customers and partners. Our revenue contracts naturally flow from process development, to tech transfer to batch supply. These are long-term contracts. And as our customers and partners advance the products the supplier requirements expand.

We are still investing, although at a much reduced rate, and expanding capacity while finalizing the setups the point-of-care center, rolling out our OMPULs, incorporating new technologies and implementing our quality system. But we are minimizing these investments as we have are seeing growing public and private interesting supporting in local, regional expansions and development.

So to warp up, we are more enthusiastic than ever by the outlook for the business. Our point-of-care strategy is no longer a vision, but a growing reality. We're constantly incorporating new technologies, and we have a growing pipeline of cell and gene therapy for which we provide development and processing solutions. We have an expanding global network of point-of-care center in which we provide GMP processes, utilizing our technologies and OMPULs.

We have assembled some of the top talents in the industry. And in much the same way the Amazon and Tesla disrupt their respective markets by investing in a scalable infrastructure and first-in-class technologies are going through this -- disrupt the cell and gene therapy market. We are building a sustainable revenue model that we believe will support the growth of the industry in general and the growing capacity requirements of our partners and customers. We believe providing such solutions will buy value for shareholders for the 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 September 30, 2021, were $8.7 million compared to $1.7 million for the 3 months ended September 30, 2020, an increase of over 400%. The increase in our revenue is attributable to increased activity under Masther service agreements with our customers and increased services provide an expanded activities in our point-of-care service.

Cost of services and other research and development expenses for the 3 months ended September 30, 2021, were $10 million compared to $7 million for the 3 months ended September 30, 2020, representing an increase of 44%. The net increase during the quarter is attributable to a few different factors. There was an increase in salaries and related expenses as a result of additional staff hired to continue the development of our CGT product pipeline as we expand our POCare operations globally. We've continued to invest in the development of automated processing units and processes, owned and license advanced therapies to enable commercial production and additional work with partners that addressed point-of-care needs. We also experienced an increase in subcontracting, professional and consulting fees related to those investments.

Selling, general and administrative expenses for the 3 months ended September 30, 2021, were $6.1 million compared to $4 million for the respective period last year, representing an increase of 51%. The increase in selling and general and administrative expenses is primarily attributable to an increase in salaries and related expenses.

In terms of liquidity, we ended the third quarter of 2021 with cash and cash equivalents of approximately $15 million. Operator, we'll now open the call to questions.

(Operator Instructions) Your first question is coming from Bruce Jackson from The Benchmark Company.

So you mentioned earlier, that the OMPULs are currently in validation phase. So when do you think that we might see some of those OMPULs shift into production?

Yes. We actually have some of these already located on-site. So when we qualify them, we just run the process through them. This is a standard industry practice. No different than what you would do with any other kind of source of development.

So it doesn't mean they're not usable. It just means that we qualify them, either on-site or at the location where it was manufactured.

So what I'm driving at here is, when the customers start using them for production, then there should be a royalty stream that flows from that, in certain cases, depending upon the agreements that you've got. But so what I'm trying find -- get a handle on here is, when will the OMPULs be like fully in working at the customer sites and generating revenue from licensing. That's kind of what I'm trying to get at.

So we already have some initial sites working away. And but what -- I think maybe, I should correct something. It's not the customers using. We are using it. They are part of our infrastructure. So it's not the customer that uses them. We utilize our OMPULs to produce the product. And we're all already running batches on some of them. But the whole concept here is this is our capacity. It's not the customer's of use of an OMPUL. I just want to make sure that's clear.

Okay. Good. That's helpful. Then at one point, there were like roughly about 30 of these projects underway? Is that still roughly the number of OMPULs that are coming online at some point? Or has that number changed at all?

So again, I want to explain. A product can go into 10 OMPULs. It can go into process developmen, basically there's no -- you don't process or OMPULize the process in several sites together. You do so at one site at one point-of-care sites. Once this is done, once this is completed, then you can supply as many sites as needed.

So it's not that you can have one product -- we have one product that will be utilized in 5 sites, another that can be utilized in 3 sites. And another that is utilized maybe in 15, okay? So I just want to -- again, just to be precise on the terminology, the idea here -- a product is something is a cell and gene therapy to a specific process that is OMPULized, made in an OMPUL according to all the GMP requirements and then can be supplied at the required sites.

So for example, if you're doing your clinical trial or you're providing a product at 3 different sites, you can place 3 different OMPULs. But there's no correlation between the number of OMPULs and the number of products, okay? I hope I gave you a good enough explanation. Is that clear?

Yes. That's clear. And then just one final question, and I'll hop back in queue. So last -- with the Koligo acquisition, I was wondering if that generated any revenue during the quarter? And that's it for me.

Thanks, Bruce. So there was some revenue. Neil, do you have the exact numbers? I'm not sure we have them. But again, remember for the Koligo acquisition, we are still looking on finalizing and OMPULizing this process okay, this product. And we're also working on getting it into the -- it's approved in the U.S. And we're taking steps to get this approved in locations in Asia and in Europe.

So I think revenue will not jump up until we finalize OMPULization process. So I think it's been pretty consistent.

Yes. That's correct. It's under $100,000. Yes. It's small, much smaller part of our revenue.

Your next question is coming from [John Ing] from Beyond Capital.

Congrats on a great quarter. So could you share with us more about the cost of services and other research and development expenses that were incurred this quarter? What is one-off and what is recurring?

Neil, would you like to answer?

I wouldn't say there's any one-off research and development. Again, it's part of an ongoing and, again, investment along with our JV partners in terms of developing this platform. I would say that the continuing expense with regard to personnel, and that's why that increased, too, to build that platform is pretty stable with regard -- and growing in that regard to the personnel is required.

But as far as one-off, maybe -- certain clinical development, maybe one-off as far as quantifying that, it's hard to quantify though in that regard. But it's all part of the investment of building the platform, okay?

So as you see revenues grow, you're going to continue to see certain costs grow on a scalable way. But then there'll be new costs that will come into play as well, okay? So it's really hard to really quantify a one-off charge in that regard Okay?

Maybe in the future, there may be some more ways to quantify that. But at this point, it's really not something that I think is certainly something we can say maybe at one point in time or a certain period of time, maybe quantifiable, but they may not be repeating itself. It may be different in another quarter, okay?

Maybe I'll -- I think also what this is referring to, when we present our financials, the cost of providing our services is combined with our R&D costs. I think maybe this is what you were referring to. So we typically have -- so a lot of this R&D cost, it's under R&D expenses, that it's actually the cost of providing services. Was this maybe what you are kind of implying to.

Yes. Got it. So another question I have is on Kyslecel that is already approved for commercial use. So could you share with us some visibility in terms of the demand as you make this therapy available to more hospitals?

So again, this is typical of the whole industry, right? You have a therapy, it's a wonderful therapy. And certainly requirement for patients who undergo complete pancreatectomy, and they need products, right? But if you can only supply this product with very specific locations and you can't kind of make it available wherever need it, it limits the ability to kind of launch that.

So one of the things, as we've spoken this about another call, and again, this is not a 2 months process. This is a lengthy process. But I believe we'll advance it. That will allow us to actually make this product at additional locations in a cost-efficient manner.

So in terms of -- just the need by patients, a significant of pancreatectomy and again, adoption of this means is very much based also on availability. Typically, if you look at centers today, there's very few centers in the U.S., even if clinicians want to do these procedures, they just can't or if they want to supply either to patient who's going through a complete pancreatectomy. They just can't do that.

Got it. That's all I have. Vered, respect your mission to make gene therapy affordabe and accessible for patients.

Thank you very much.

(Operator Instructions) Your next question is coming from (inaudible) from New Group Capital.

Vered, congratulations for your good results again. Congratulations to the team. Can you share with us the pipeline of the -- in the next few quarters? Previously, we have shared in that, there are about 40 million in the next 1 or 2 years. Can you share some color in the next few quarters? How would this be?

Thank you. So we haven't kind of formally showed any kind of predictions. But we haven't made these things public yet. But I can explain again, and you can see from the existing contracts. Once the current work we're doing, mostly on process development or what we call OMPULization, okay? So working -- making these therapies for the GMP compliant and we've done in an efficient manner. And this is very similar to the work we used to do in Masthercell process development. The difference here, we're not just doing it in a cleanroom. We're actually combining this with automation, closed loop, QC and putting it in an OMPUL, okay? So that allows them the ability to ramp up later on.

But so far, for all the products we've been working on, there's been no issues in terms of continuing with the process. I think our customers are happy. I think our partners are happy as we progress. So naturally, what we are now doing is slowly moving over and this goes back to what Bruce was asking in the call, going over from a stage where we're doing process development to actually running the batches. And that's kind of a different level of revenue.

So when you charge revenue for the next stage, the way this is typically done, and again, very similar to what we used to do in the past, you're charging through a kind of overall capacity usage and you're charging per batch. So as these process development contracts go over and move over, and we actually have some additional ones coming in, as I progress towards batch production, then actually revenue starts depending on how many batches are produced.

And again, you have a very much of a safety factor because you also kind of charging always for maintaining capacity, basically use of specific capacity for certain product. So whether a customer or partner is doing 10 or 20 or 50 patients, then you're still reserving the same capacity. On top of that, you have the specific revenue for that. So typically, what we are hoping, we can't be sure, but so far we are looking okay in terms of the process development, but as these contracts move from one stage and as they are progressing more to batch processing and supply, these contracts will expand as the batches, the number of batches to use -- expanded. So I hope that gives some kind of clarity on how this business looks.

Sure. Is there -- do you foresee that the next few quarters will be -- it means it will be a growth moving forward, continuously growing? Or do you still see that, it's still maintaining as what it is now?

So again, first of all, I'm not even sure I'm allowed to say that. But -- so -- but in terms of our planning, I can say that we have required capacity to not only maintain the existing revenue, but actually to expand. That's something we have ready for our customers.

And in terms of the way -- just the way this industry progresses, it typically, these contracts for the first year or 2 are more or less at the same scale. And once you move on to more expanded batch manufacturing, the revenue expands with it. But again, it's a very case-by-case study. I mean it really depends. Suddenly one of the products is going into more massive clinical trials, of course, revenue goes up. Or if in another case, one of the products is stopped for some reason, then of course, you have that coming down.

But as you can see, we are expanding and we have more products. We are servicing. So I personally I'm optimistic.

Your next question is coming from Bruce Jackson from Benchmark.

I was curious to know how much visibility you have on your master service agreement revenue in the future? And can you give us a rough idea of how much unrealized business through is left on those agreements?

Again, we haven't made this public. But as I said, these -- I mean we discussed this in the past. But these master service agreements will typically go on for 2, sometimes even 3 years. They -- because I think it's a company or if a partner or if we have a product working a so certain post development, I mean, it's very difficult to suddenly take it and move to another kind of production or another kind of supply arrangement, right, which can take many years.

So I think in terms of the revenue, as I said, we have the contracts we have, and I'm optimistic that many of them will expand. And hopefully, we have additional ones coming in. So -- and I think we have the capacity and the capability to service that. And I know there's a big industry shortage, so again, we can't say exactly how much and how much it is. I mean you can calculate how much revenue we have so far. So I mean it's pretty easy to realize how this revenue kind of build up.

There are no further questions in the queue. I will now hand the conference back to Vered Caplan for closing remarks. Please go ahead.

Thank you. I'd like to thank everyone for participating in our third quarter 2021 business update conference call. We are very excited about the outlook for the business and appreciate the strong support of our shareholders. We are executing on our point-of-care therapeutic business model as evidenced by a strong revenue growth.

Looking ahead, our role is to continue the validation of our point-of-care platform while building the foundation for market expansion in this geographic region. We look forward to providing further updates as we work in close collaboration with our partners to deploy our point-of-care strategy worldwide. Thank you.

Thank you, ladies and gentlemen. This concludes today's event. You may disconnect at this time, and have a wonderful day. Thank you for your participation.