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Could Orgenesis (ORGS) be the Next Acquisition Target in Cell Therapy Space?

- M&A and deal-making exploding in cell therapy space, demonstrating how important this field will be in coming 30 to 50 years. Allogene is the most recent example, with over a dozen candidates licensed from Pfizer, former Kite CEO Belldegrun at the helm, and $300 million in seed money.

- Manufacturing remains a hurdle for cell therapies, and companies with expertise and history could be a value-add ancillary trade. ORGS has partnerships in place with leading companies and is generating revenue already through their CDMO. Cell therapy revolution could make this under-followed company worth 2X or more quickly.

NEW YORK, NY / ACCESSWIRE / April 5, 2018 / There's no mistaking that cell therapies are set to be one of the biggest medical breakthroughs of the century. The first game-changing cell-based drugs, called CAR T-cell therapies, are now approved and on the market, and the flurry of M&A around the companies that develop this new modality has been breathtaking.

In the last 6 months, Celgene (CELG) bought Juno Therapeutics (JUNO) for $9 billion; Gilead Sciences (GILD) bought Kite Pharmaceutical (KITE) for $12 billion and Cell Design Labs for nearly $600 million.

Cell therapies will go far beyond this first generation of CAR T-cell drugs, and they're set to revolutionize many cancer indications - drug companies know this, and they're preparing for the next 30 years of new drug discovery.

In fact just this week, Pfizer (PFE) moved its rights to 16 pre-clinical CAR T assets, which are licensed from French cell therapy company Cellectis SA (CLLS) and the private drugmaker Servier, to the private company Allogene, which concurrently announced a massive $300 million seed round. Pfizer will retain a 25% stake in the company. Allogene specializes in allogeneic therapies that are engineered from cells of healthy donors, allowing them to be stored for "off-the-shelf" use and reducing the time patients wait for their treatments. And, the company has attracted top talent - CEO Arie Belldegrun built and sold KITE to GILD last year!

Cell-based drugs are difficult and time-intensive to develop, and that's been the major hiccup with CAR T-cells. It's not only complex, but also expensive. This is new technology, and few companies have the expertise to develop and manufacture these cells on a large scale.

This void in quality cell-based manufacturers has created a huge opportunity for the companies that can do it well. Orgenesis (ORGS) is one of these. The company runs the MaSTherCell contract manufacturer (CDMO, Contract Development Manufacturing Organization), which provides process and assay development and optimization services, and current Good Manufacturing Practices (GMP) contract manufacturing services specifically for cell-based products.

The company just listed on the NASDAQ, and they are, in fact, already working in partnership with Servier, among other high-profile partners - CRISPR Therapeutics (CRSP), for instance. With a growing, $10 million annual business and an increasing number of high-profile, development-stage biotech companies using them for manufacturing help, the fundamentals at ORGS only continue to look better.

Cell Therapies About to Boom, Manufacturers an Overlooked Opportunity

A 2014 Bioprocess International article outlined in a case study just how much more cost-effective contract manufacturing (using a CDMO) can be than in-house processes, explaining that once a company has licensed or discovered a cell therapy technology, most companies maintain their research but may look to outsource the rest... "Such knowledge is considered to be essential for development, troubleshooting, and fundamental scientific understanding. However, contracting for process development and manufacturing expertise may be a preferred option..."

In a case study of a private company, the authors found that outsourcing cost just 20% that of going alone, and in 50% of the expected time to scale up effectively! The savings are astronomical, and can allow a small company focused on developing new cell therapies to continue doing what they do best...drug development, NOT manufacturing.

Recognizing that an increasing number of cell therapy companies will be seeking process development and manufacturing solutions, it makes sense for investors to figure out who could benefit from that outsourcing. CDMOs are an attractive place to invest, and few investors are paying attention to this opportunity.

Top-Notch Partners Vetted Orgenesis, Company Growing Topline Rapidly

Orgenesis has clearly piqued the interest of smart cell therapy developers. Their clients include CRISPR Therapeutics AG (CRSP), in an agreement to develop and manufacture allogeneic CAR-T therapies; a service agreement with Servier for the development of a manufacturing platform for allogeneic cell therapies; plus GamidaCell, Adaptimmune (ADAP) and Athersys (ATHX) according to the company's website. Most recently, the company announced a partnership with Adva Biotechnology Ltd for the development of their own new automated culturing system for use in contract manufacturing services.

As a result, Orgenesis is perfectly positioned for this explosive market opportunity and already demonstrating sales growth as the cell therapy space has come of age in the last five years.

Through their MasTherCell subsidiary, the company reported $8.6 million in trailing twelve months revenue, which is up 56% from the previous year and about 300% those reported two years ago! The company could do $12-15 million in sales this year based on $2.5 million in the last quarter of 2017, and this growth shouldn't slow any time soon.

The total addressable market opportunity for manufacturing companies like ORGS can be measured as a percentage of future cell therapy sales, or current estimates of future sales. Gilead's first cell therapy CAR T-cell drug, called Yescarta, generated $7 million in revenue during its first few months after being approved last year. Amazingly, this comes from just 19 patients treated, demonstrating how expensive these drugs are.

Currently, manufaturing accounts for about 20-50% of these drugs' cost, or anywhere from $25,000 to $150,000 per patient, though this is improving slowly as processes streamline. Market analysts, including General Electric's internal figures, believe cell therapies could be doing $10 billion in revenue by 2020. 20% of this is $2 billion - in esseence, the potential market opportunity for Orgenesis in the next three years as the growing number of cell therapy companies outsource all or a portion of their manufacturing.

It's a big number, and Orgenesis' increasing revenue over the last year in conjunction with strong development-stage partners indicate that this company is on the right track.

Although Orgenesis is making great progess with their CDMO, and their internal AIP cells are coming into human studies this year, the company is still a microcap and thus carries additional risk. will need further capital to get to breakeven, and to expand in the U.S. they'll need to make substantial capital investments. As with most micro-cap stocks, ORGS could be worth significantly more, or nothing at all.

Based on their partnerships, ORGS is clearly a leader among CDMOs, aiding in the manufacturing and process development for major companies in the cell therapy space. The company is also working on their own internal development program, with a process that can turn a person's cells into insulin-producing cells, for the treatment of diabetes. The implications, if successful, are huge, and this should move into phase I proof of concept testing in the next 12 months.

Considering the speed of M&A in this sector, the company may not even be around for long, and it might make sense for a larger company to simply acquire the entirety of this expertise. Considering recent M&A multiples Like GILD and CELG, ORGS could well be worth 2-3X quickly as investors recognize the metrics at play.

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