- ORGS is an overlooked subcontracted manufacturing company for biotech drug developers, already with major companies as partners, like CRISPR (CRSP) and Adaptimmune (ADAP) among others
- A similar company is valued at 1.5X ORGS' current stock price based on almost the same revenue figures last year, suggesting immediate upside potential of 50% or more for ORGS. Revenue has been growing consistently for the last few years, and the market for cell therapies - and manufacturing solutions - is huge; the company could be worth 5x or more with great execution in the coming years.
NEW YORK, NY / ACCESSWIRE / May 17, 2018 / Public social media companies have been hit or miss as investments. Facebook's (NASDAQ: FB) presence in our day-to-day lives has only increased in the last few years, and the stock has been a meteoric winner. Others, like Snapchat (SNAP), have, at least for now, flamed out - the stock is down almost 70% since going public. Twitter (TWTR) is emerging from the trough of disillusionment, now up 2X in one year, after a difficult 2016. The trouble lies in finding the right companies that can: first, catch fire with the public, and second, maintain the public's interest while generating significant revenue. That's a hard step for many.
Meanwhile, healthcare companies have been major winners over the last few years. In particular, a subset of oncology-focused "cell therapy" companies have been some of the hottest investments, culminating recently in Gilead Sciences' (GILD) $12 billion buyout of Kite Pharmaceuticals (KITE) and then Celgene's (CELG) purchase of Juno Therapeutics (JUNO) for $9 billion!
These deals were all about the smaller companies' new drugs, called CAR T-cells, and this developing technology, which alter a patient's own cells to become cancer-fighting machines, with great results. These and others like including gene therapies are a major investment focus right now for healthcare venture and public investors due to their potentially curative approach in some disorders.
One of the most overlooked - and possibly profitable - investments lies in ancillary cell therapy companies, like the cell therapy manufacturing company OrgenesisInc. (ORGS).
ORGS has yet to receive the same level of attention as other cell therapy companies because it's not as sexy - the company doesn't develop drugs, but helps its partners efficiently manufacture their own drugs, which can be costly and difficult to manufacture. That could be about to change as Orgenesis' cell therapy manufacturing business is booming and sales are climbing. ORGS has already signed multiple high-profile drug developers as commercial partners, and based on a comparison to peers, ORGS could appreciate by 50% at a minimum based on one particular well-liked peer, and much more based on the valuations in this sector.
Two Businesses Under One Roof, Two Ways To Win
Publicly traded Orgenesis has two sides to their business: MaSTherCell provides contract development and manufacturing (CDMO) services to pharma and biotech companies developing or selling cell-based therapies, like gene therapies or CAR T-cells. The company's R&D program centers on Autologous Insulin Producing (AIP) cells that can transform a patient's own liver cell into a functional insulin-producing cell like those normally found in the pancreas, designed to provide long-term insulin independence for diabetics. This technology is early but promising, and in a huge market - diabetes.
Cell therapies are drugs in which cellular material, often a living cell, is injected into a patient. Now, some the most promising therapies involve equipping immune cells with chimeric antigen receptors (CARs), which enable them to identify, target and destroy cancer cells. These are called CAR-T therapies, and in the next decade these are expected to become a $25 billion industry.
The manufacturing process for cell therapies is slow and expensive, and often times requires individualized manufacturing for each patient to be treated. Unlike chemical drugs, like aspirin, each treatment can take days or weeks to make, and it can cost $50,000 or more per course of therapy. Most biotech companies aren't set up to handle this process. Orgenesis' MasTHerCell subsidiary allows larger companies to outsource the complicated development and manufacturing of these therapies, for both testing and commercial purposes.
Partnerships With Top-Tier Cell Therapy Companies Validate Capabilities
Orgenesis has tremendous validation in the number and caliber of existing customers using MasTherCell. Last year the company was chosed for the development and manufacturing of CRISPR Therapeutics AG's (CRSP) CTX101 for use in clinical studies. CRISPR is one of the most respected new gene editing companies to go public, using the new CRSPR technology to cheaply and efficiently alter a patient or cell's genes, and therefore its future. The company is worth almost $1 bln in the public markets. Orgenesis is also partnered with the privately held company Servier, Adaptimmune Therapeutics plc (ADAP), Athersys, Inc (ATHX). and Zelluna Immunotherapy, to name a few.
MaSTherCell is a revenue-generating business for Orgenesis, and it's growing at a significant rate as the market for cell therapies expands. Revenue for their fiscal 2017 was $10.1 million, up nearly 70% from their fiscal 2016; and that was after more than doubling from 2015!
This kind of expansion won't go overlooked for long as cell therapies of all kinds come to the forefront. The stock could be due for a major move higher based on growth potential and a look at a similar ancillary company.
MaSTherCell Manufacturing Business Justifies 50% Of Upside Immediately, 500% Long-Term?
Orgenesis has already proven they're both trusted and efficient. So what could this be worth?
We've seen the same kind of situation prove fruitful for another small one-off cell therapy company in the last few years, called Biolife Solutions (BLFS). Shares in this company have risen by 325% in one year as they began bringing on high-profile cell therapy partner companies, like Kite Therapeutics, to use Biolife's biopreservation materials. These are the storage mediums that aid in the cold-chain containment and transport of cell therapies.
As investors picked up on the potential, BLFS has rallied in a huge way, to a $130 million market cap. The company did $11.2 million in 2017 revenue, for a 12X price-to-sales ratio.
Shockingly, ORGS is nipping at BLFS' heels in terms of revenue, yet only trades at a $90 million market capitalization! With the same kind of revenue figures, it stands to reason that ORGS should also be trading at around $130 million, or abost 50% of upside for the stock. In this case, it's just a matter of investors noticing this emerging business that could take ORGS from $8 to $12 in short order.
Long-term, the upside could be much bigger. Gilead Sciences made an acquisition shortly after buying Kite Pharma, by taking on Cell Design Labs (a private company) for $567 million in cash and milestones in 2017. This deal was mostly to improve Gilead's manufacturing capabilities, suggesting just how valuable these capabilities are in the emerging cell therapy industry. ORGS has some major catching up to do, as much as 500% if it were to trade at a similar deal price as the Gilead-Cell Design acquisition.
This Year Could Bring More Partners, new R&D News
With BLFS as the closest public comparable company, ORGS is clearly undervalued, and their stock could rise as much as 50% based on their revenue generating business alone and current financial metrics. With the cell therapy segment growing quickly and dozens more of these therapies expected to come to the market in the next decade, there's little doubt for us that ORGS can continue to grow the CDMO business.
Risks to the ORGS investment thesis include stiff competition from larger companies, like Gilead, that want to bring all of their manufacturing in-house. Orgenesis will probably need to build out a U.S. manufacturing facility in order to be involved in the cell therapy CDMO space in that region, and the company has limited capital available for major new buildouts like this.
Seismic shifts in technology like the one occurring in cell therapies right now only happen once every decade or so. Social media companies have been hit or miss since launching a decade ago because they require the public to "catch on" and then stay on.
With manufacturing companies like ORGS and BLFS, it's just about proper business execution, and both are performing well in these growing markets. Considering how under-the-radar Orgenesis still is, and comparably undervalued next to Biolife, ORGS could be worth 50% more immediately in our view, and possibly much more with long-term execution of the business.
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