U.S. Markets closed

How This Underfollowed $6 Biotech Could Be Worth $10

  • The emerging cell therapy company Orgenesis Inc (ORGS) continues to prove they've got the right stuff, growing their revenue 50% in fiscal Q3 over the previous quarter and 143% compared to the previous year. They've already topped their annual revenue for 2017.
  • The company just signed another high-profile Cell Therapy company, Iovance Biotherapeutics (IOVA), as a client, joining Crispr Therapeutics (CRSP) and Adaptimmune (ADAP) among others.
  • As they continue to sign clients, grow revenue, and add global manufacturing capacity, valuation metrics suggest this NASDAQ listing could be substantially undervalued. ORGS could be worth $10.00 based on publicly traded peers.

NEW YORK, NY / ACCESSWIRE / October 25, 2018 / The fundamentals say it all. Orgenesis Inc (ORGS) is proving their marketing chops as a rare revenue-generating biotech company with strong top-line growth and a large addressable market.

This newcomer conducts manufacturing for Cell Therapy and Gene Therapy companies, or those companies that use cells to treat health conditions like cancer and some genetic disorders. This industry is taking off; the first cancer-fighting "CAR T-cells" were approved in the U.S. in 2017 and cost almost $400K for one course of treatment, partly because they're so costly to manufacture for each patient. They're expected to be generating over $1 billion in sales within a few years.

Orgenesis does this difficult manufacturing component for the companies developing and selling these kinds of drugs, and they're on track for their biggest year ever. Orgenesis's manufacturing subsidiary MastherCell Global reported topline growth during their fiscal third quarter of over 143% compared to the same time last year, and a 50% increase sequentially from the second quarter of the year.

We've seen a lot of collaborative activity from Orgenesis in the last few months - working most recently with the up-and-comer Iovance Biotherapeutics (IOVA) - and it looks like that's paying off. The prestigious Great Point Partners invested directly in the manufacturing business early this year... and these guys don't invest for peanuts. Based on a comparison to other companies in this sector, ORGS could be worth over $10 with the right execution.

Fundamentals Improving Every Quarter

Orgenesis' primary business is called Masthercell. This CDMO (contract development manufacturing organization) does development and manufacturing work for Cell Therapy companies, mainly those that are developing new possible drug products. Cell Therapy manufacturing is incredibly difficult and complicated, so these companies seek outside expertise and capacity to help with designing and conducting their own product manufacturing. CRISPR Therapeutics (CRSP) is a client, for example, and the French pharmaceutical giant Servier; in October, Iovance Biotherapeutics (IOVA) signed a 3-year manufacturing agreement for their late-stage European trials.

Importantly, Iovance is the second late-stage drug company to use Orgenesis in the last few months for their clinical trial manufacturing; Kangstem Biotech (KOSDAQ:217730) will use Orgenesis for their Phase III European trials.

Masthercell is making great progress as a top-tier partner for manufacturing, which can be seen in both their client base (like CRSP) and their revenue growth over the last few years (fiscal figures):

2015: $2.9 million

2016: $6.4 million (120% growth)

2017: $10.1 million (57% growth)

In the first nine months of fiscal 2018: $12.9 million

In their just-announced fiscal third quarter of 2018, revenue increased 143% to $6.2 million, as compared to $2.6 million for the same period last year.

Quarter-to-quarter, $6.2 million represents 50% sales growth.

Earlier this year, the well-known healthcare investment fund Great Point Partners invested directly in MastherCell, buying up to $25 million in equity in the business and joining as a key strategic partner for their global expansion. As a provision of their investment, the fund will make a second $6.6 million investment when Orgenesis generates around $16.2 million in revenue in their fiscal year - that looks like a very achievable hurdle at this point in the year, meaning that the company could see another big cash infusion soon.

The company is executing well in a growing market, and the valuation appears to be conservative for a company of this size and growth potential.

Market For ORGS' Business Still Growing, StockCould Be Worth $10 As-Is?

The market for Cell and Gene Therapies is taking off as more of these potential drugs make it through the pipeline of development at small and midsized biotechnology companies. As of 2017, there were almost 1,000 trials of medicines using cell therapies in development. According to Transparency Market Research, CAR T-cells alone could be a $24 billion market by 2024. Manufacturing can be as much as 30% of that cost, meaning that in the next six years only one small slice of this pie - car-t cells - might be worth over $7 billion. As a testament to the potential of strong Cell and Gene Therapies, companies like Allogene Therapeutics (ALLO) and Solid Biosciences (SLDB) have been incredibly well-received by the public markets recently. These up-and-comers can serve as a quality bellwether for the future of this industry, and Orgenesis as well. The company's $85 million market capitalization appears quite conservative as an ancillary opportunity in this booming sector. Another publicly traded manufacturing company Avid Bioservices (CDMO) has a market capitalization of $310 million. They're not profitable, so many investors will be valuing this company based on their sales. The company is guiding investors to expect revenue this year of $51 to $55 million, for a Price To Sales ratio of about 6X. This is even as the company's sales have actually stagnated.

Orgenesis is on track to generate revenue of around $19 million if they deliver another $6m+ quarter in Q4 of 2018, and with consistent growth. At the same 6X Price-to-Sales ratio, ORGS should be worth about $120 million in market value, or 50% more than today's prices based on their current operating metrics.

Another ancillary Cell Therapy company called Biolife Solutions (BLFS) has a $240 million market capitalization based on around $15 million in annual sales. This company, while profitable, is trading at a Price/Sales ratio of over 15.

Considering their growth, a fair Price/Sales ratio of closer to 8 or 10 could be justified for Orgenesis, and in this case that would be a stock price of almost double the current price, or well over $10.00. But there's a case to be made that even now, ORGS' current operating metrics justify 50% of upside based on a comparison to Avid alone. With strong institutional support from GPP, this could be an attractive cell therapy play for 2019.

About One Equity Stocks

One Equity Stocks is a leading provider of research on publicly traded emerging growth companies. Our team is comprised of sophisticated financial professionals that strive to find the companies and management teams that will outperform the market and deliver investment returns to our subscribers. We are not a licensed broker-dealer and do not publish investment advice and remind readers that investing involves considerable risk. One Equity Stocks encourages all readers to carefully review the SEC filings of any issuers we cover and consult with an investment professional before making any investment decisions. One Equity Stocks is a for-profit business and is usually compensated for coverage of issuers we cover as well as other advisory work we perform. In the case of ORGS, we are reimbursed for actual costs we incur, received 140,000 shares of restricted stock, and anticipate receiving an additional 10,000 restricted shares per month from ORGS for Business Development, Capital Markets and Research Services. Please contact us at info@investorclick.net for additional information or to subscribe to our intelligence service.

SOURCE: One Equity Stocks, LLC