- A newer class of drugs called Cell Therapies offer major advances for some diseases, and this therapy type is expected to boom in the next ten years to a multi-billion dollar market.
- Top drug companies will benefit significantly, but many will outsource the complicated manufacturing process for these drugs. The companies that do the manufacturing stand to benefit as more of these drugs are developed and approved, possibly saving money for both the healthcare system and drug companies.
- Avid Bioservices (CDMO) and Orgenesis Inc (ORGS) are two of the only pure-play and publicly traded companies in this space. CDMO gained 150% in the last year as investors saw the market potential for their services. ORGS could be another winner as their sales are growing consistently, up 60% in 2017. They just tied a new partnership with a leading healthcare fund in the U.S. called Great Point Partners in order to expand globally. That expansion in the next 12-24 months puts them on par with some major large players, and Great Point Partners doesn't invest when there isn't big upside.
- Orgenesis is on track to report $12 to $18 million in 2018 revenue if their first 6 months are any indication. A side-by-side comparison to the well-known Avid Bioservices (CDMO) suggests Orgenesis has upside potential already. At a 8X Price-to-Sales ratio like Avid, ORGS is arguably worth $144 million at the higher end. That would be a stock price of around $9.00 per share for ORGS, about 50% higher than the current $6.00 share price. With execution, this return could be a multiple of this.
NEW YORK, NY / ACCESSWIRE / September 7, 2018 / In a blow to drugmaker Gilead Sciences (GILD) this summer, the U.K.'s state-funded health service said Gilead's CAR-T blood cancer drug Yescarta is too expensive to be recommended for use.
The drug works by removing a patients' white blood cells, re-engineering them to identify and attack cancer cells, and then reinfusing them into the bloodstream. In the U.S., Yescarta and a similar drug from Novartis called Kymriah are priced at $373,000 and $475,000 each. Including hospital visits and follow-ups, treatment can cost up to $1 million in total.
Both drugs were just approved by Europe's drug regulators, so the U.K.'s rejection really comes down to price. That's the rub with these "Cell Therapies" - they're just expensive.
Both of these drugs were first approved in the U.S. in 2017, and they're some of the first in a new wave of expected drugs called Cell Therapies that use a patient's own cells, re-engineered, to correct diseases (called Gene Therapies) or fight cancer in the case of Yescarta.
Over recent years, advances in the field of regenerative medicine, including the growth of these new CAR T-cell therapies, led to a significant increase in investment in these technologies, and there are over 1,000 clinical trials underway for these types of medicines.
They're very promising for many diseases, but cost is a huge hurdle. But a handful of emerging biotech companies are streamlining the manufacturing process for these drugs, potentially bringing down costs and improving the speed that the drugs can get to patients.
These Cell Therapy experts are called CDMOs, or Contract Development Manufacturing Organizations, and they are quickly becoming a go-to source of expertise for the complex process of developing and manufacturing Cell Therapies, including CAR T-cell drugs. Only a few are publicly traded, but they're a powerful undercurrent that investors would do well to consider as the Cell Therapy sector booms as they may be able to bring costs down and benefit investors along the way.
Manufacturing Is The Investing Opportunity That No One Talks About
For public market investors, it may not be as sexy as investing in drug companies, but this is big business. The biotech industry faces a growing need for custom process development and manufacturing solutions due to the complexity of the medicines. The processes are customized to the particular needs of a drug company and this can take an entire team of dedicated engineers, cell therapy and regulatory experts.
CDMOs are in demand as drug developers outsource this expertise in order to focus on what they do best: perfecting their drugs. The market for good manufacturing is expected to exceed $75 billion by 2019 according to Pharmaceutical Manufacturing.
Samsung and Lonza are some of the larger manufacturers, but a few pure-play public companies do exist.
Avid Bioservices, Inc. (CDMO), for example, is a $410M public company with revenue from their CDMO business of about $50 million annually; they expect $51 to $55 million in 2018. Investors are giving this company a 8X Price-to-Sales Ratio based on the market potential, and shares in CDMO have climbed by 150% in one year's time. This valuation could be conservative, for now, as CDMO actually expect to report almost flat revenue from last year.
Orgenesis Inc. (ORGS) is another CDMO that's gone mostly undiscovered even after a key direct investment from a leading U.S. healthcare hedge fund in 2018 and after consistent revenue growth year-over-year.
ORGS has operated their MastherCell CDMO subsidiary for about three years, growing annual revenue consistently during that time. In 2017, they reported $10.1 million in sales, up from only $6.4 million in 2016. Already in the first six months of 2018, they've posted revenue of $6.5 million, showing that they're still growing quickly, and with almost 50% Gross Margins.
In summer 2018, Orgenesis received a major vote of confidence when the healthcare specialty fund Great Point Partners committed to invest up to $25 million in MastherCell in order to fund a global expansion, and GPP will serve as advisors to the company. This kind of direct involvement is uncommon among healthcare companies and speaks to the market opportunity that GPP may see in the CDMO space, plus the quality of this emerging company. In fact, some high-profile cell therapy companies already use MastherCell, including CRISPR Therapeutics AG (CRSP), Adaptimmune (ADAP), and the French pharmaceutical Servier.
What's Next Among Cell Therapy Companies?
More Cell Therapies are on their way to the market. The first Gene Therapy was approved in the U.S. in 2017, from Spark Therapeutics (ONCE), and other companies are hot on their heels with similar gene-altering technology.
As these drugs get approved, the opportunity for CDMOs increases drastically. Much of the manufacturing market today comes from development stage companies, and the volume of manufacturing needed will grow when drugs are being used by the general population. The first two CAR T-cell drugs are estimated to generate $2 billion in revenue within 5 years according to Wall Street analysts, and the space as a whole will be doing $10B+ in less than a decade.
Orgenesis is on track to report $12 to $18 million in 2018 revenue if their first 6 months are any indication. A side-by-side comparison to the well-known Avid Bioservices (CDMO) suggests Orgenesis has upside potential already. At a 8X Price-to-Sales ratio like Avid, ORGS is arguably worth $144 million at the higher end. That would be a stock price of around $9.00 per share for ORGS, about 50% higher than the recent $6.00 share price.
As Orgenesis is still an emerging small-cap company, it does carry risk. The company could fail to execute on their planned global expansion, and without that they may not have the capacity to continue their revenue growth. More partnerships may not materialize, and the company could go belly up without continued financing as they grow. Investors now may face more dilution, and ORGS shares may never perform.
Surely Great Point doesn't invest for a 50% return, and a bet on ORGS is a longterm bet on the growing addressable market for CDMOs and this team's ability to deliver. So far, they've executed well, and their planned global expansion in the next year, which GPP is helping to finance, should be a major step forward to this small company.
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