A Savvy Biotech Investor Is Betting Up To $25 Million Dollars On This $8 Stock Returning 250%... Or More?

  • Top-notch Great Point Partners is investing up to $25 million in Orgenesis' (ORGS) manufacturing subsidiary to enable global expansion. Company is already generating growing revenue, and this specialist healthcare fund investment substantiates the ORGS growth opportunity
  • Demand for CDMOs, like ORGS, is growing as more cell therapies (like gene therapies and CAR-T cells) come to market in the coming years. Great Point's investment may signal they see upside potential of 3X or more, beyond $24/share for ORGS

The unknown biotech company Orgenesis Inc (ORGS) just received its biggest vote of confidence yet, as top echelon healthcare fund Great Point Partners will invest up to $25 million in the emerging company and become a key partner in its global expansion.

What do they do? Orgenesis is a Contract Development and Manufacturing Organization (CDMO), meaning that they provide outsourced manufacturing capabilities for biotechnology companies. Specifically, they help companies making cell therapies, like gene therapies, gene editing technology, and CAR-T cells, for instance. This is one of the biggest potential new healthcare modalities of the coming decade, and Orgenesis is incredibly well positioned to capitalize on the sector growth.

Between substantial yearly annual growth (+58% in 2017), a recent listing on the NASDAQ, client relationships with companies like CRISPR Therapeutics (CRSP), and now this major investment from a respected healthcare fund in order to expand globally, the fundamentals couldn't be much better at ORGS. And if the Great Point partnership details are any indication, this specialist healthcare fund sees upside to over $24, or 3X from today's prices.

Prestigious Great Point Partners Invests Big In ORGS

With the Great Point investment, Orgenesis and their subsidiary Masthercell Global will expand into the U.S. in order to secure a global manufacturing footprint. Under the agreement, Great Point Partners will fund, assist and advise on the launch of Masthercell Global's U.S. operations, as well as global expansion activities. GPP will invest up to $25 million into Masthercell Global, representing 37.8% of the issued and outstanding equity share capital of Masthercell Global (the ORGS subsidiary), with an $11.8 million initial payment.

This is a longterm arrangement built around the immense and growing potential for CDMOs as cell therapies come to market, and it's not just an investment. This is a partnership, and with great Point's expertise, it's about securing more new lucrative contracts in the CDMO space.

Here's the kicker: as a part-owner of this subsidiary Great Point's Masthercell ownership is arguably illiquid, and the best way they can realize this position may be by converting to equity in ORGS. GPP will have the right to convert its ownership in Masthercell Global into shares of parent company Orgenesis (ORGS) based on a variety of factors, but in no event can they convert into common stock unless ORGS' enterprise value is over $250 million.

Put more simply, Great Point is making a bet that they may some day be able to have a liquidity event on this position with ORGS at over $23. This makes sense as the cell therapy market expands, and this investment gives ORGS the money they need to open new facilities in the U.S. We expect that announcement could be coming soon, and was a key component of this deal.

Cell Therapy Market Expands, But Manufacturing Is a Hurdle

Cell therapies are drug products in which cellular material, often a living cell, is injected into a patient. The most common cell therapies today have been for the replacement of existing functioning cells in a patient, through blood or bone marrow transfusions for instance.

But now, some of the most promising potential uses involve modifying and improving cells with specific enhancements, like chimeric antigen receptors in the case of CAR-T cells, which enable them to identify and destroy cancer cells. Or with gene therapies, modifying a patient's cells to eliminate or skip a mutated gene.

According to a 2015 article in "Regenerative Medicine", there were over 1,300 active clinical trials of cell-based therapies at the time, and the authors especially emphasized the importance of high-quality manufacturing as a possible hurdle to widespread adoption in the coming years. The manufacturing process for cell therapies is far more complex than traditional chemical drugs, and there are few companies with the specialty and know-how to develop the process and manufacture these products. For example, it initially cost as much as $50,000 to manufacture the new cancer-fighting CAR T-cells from start to finish. As a result, many of these biotech companies are outsourcing manufacturing to the few companies with the right expertise.

A 2014 Bioprocess International article outlined just how much more cost effective using a CDMO can be than in-house processes. In one case study of a private company, the authors found that outsourcing their manufacturing processes cost the company just 20% what it would have had they done it alone, and in half the time.

The savings in using a good CDMO can be amazing, and can allow a small company focused on developing new cell therapies to continue doing what they do best - developing drugs.

So-called contract development manufacturing organizations (CDMOs) are scaling up their capacity to meet this new demand for cell-based drugs, like gene therapies. With the potential for hundreds of new drugs in the next 10-20 years, all needing quality manufacturing processes, the opportunity for good manufacturers is huge.

Orgenesis (ORGS) is one of these, operating their MaSTherCell subsidiary as a (formerly) Europe-based CDMO and with significant revenue growth over the last three years. The company reported 58% revenue growth in 2017, to $10.1 million. For Q1 of 2018, they reported a revenue increase of 42%, to $2.6 million versus $1.9 million for the same period in 2017. Their clients include companies like CRISPR Therapeutics AG (CRSP), Servier, and Adaptimmune (ADAP) to name a few. These are European companies for the most part, and now with the Great Point investment and plans to expand globaly, they're likely courting more American companies as well.

Why ORGS Could Be So Undervalued

Running some basic mathematics on the potential revenue figures for Orgenesis demonstrates how big this little company could be under the right circumstances.

The CAR T-cell drugs just approved are expected to do $2-4 billion in sales each, annually. Manufacturing accounts for about 20-40% of revenue, meaning that manufacturing alone is worth about $400 million to as much as $1.6 billion.

If just one of ORGS' current or future clients reaches FDA approval in the next 5 years, this small company could be in line for some tremendous revenue. The company has gross margins of around 45%, meaning that with just ONE approved client, they could be generating $200 million in Gross Profit quickly.

Although Orgenesis is making great progess with their CDMO business, the company is still a microcap and thus carries risk as an investment. As with most micro-cap stocks, ORGS could be worth significantly more, or nothing at all, and is a high-risk high-reward option in the biotech space.

Importantly, Great Point's investment could portend big things. The fund's position is illiquid until ORGS reaches a $250 million enterprise value, corresponding to a stock price of about $23. And Great Point is known for making smart bets. Two of their biggest stock positions as of early 2018 -- Arena Pharmaceuticals (NASDAQ: ARNA) and Iovance Biotherapeutics (NASDAQ: IOVA) -- have been absolute monster performers, both more than doubling and almost tripling in the last 12-24 months. The proof is in the pudding; ORGS has growing revenue, a large addressable market, top-notch clientele, and could be a top pick for the coming few years.

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