- ORGS is an Overlooked Cell Therapy Manufacturer and Developer Working with Major Biotech Companies Cellectis (CLLS), CRISPR (CRSP), and Adaptimmune (ADAP)
- A Similar company is Valued at 2x Higher Based on Same Sales Figures, and Gilead Just Last Week Purchased a Small Cell Therapy Company for $567 mln
- Sales are Growing at an Impressive Rate, and Orgenesis Gets Little or no Credit for Potentially Revolutionary in-house R&D Program. As Investors Realize this and the Validation behind Orgenesis' Manufacturing, ORGS could Rise by 100-1100%
Oncology-focused cell therapy companies have been one of the hottest investments of the last five years, culminating recently in Gilead Sciences' (GILD) $12 bln purchase of Kite Pharma (KITE). The deal was all about Kite's CAR-T drugs and technology, the first of which is now approved and on the American market as Yescarta.
One of the most overlooked - and possibly profitable - investments lies in ancillary cell therapy companies, like Biolife Solutions (BLFS), up 265% this year, and Orgenesis (ORGS).
ORGS has yet to receive the same level of attention as BLFS, but that could be about to change as the company's cell therapy manufacturing business is booming, cell therapies, including CAR-T are about to take off, and the company has already signed multiple high-profile drug developers. Based on a comparison to peers, ORGS could appreciate by 100-200% in the coming months.
Partnerships With Big Companies Validating The Business
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. The company's R&D program meanwhile centers on Autologous Insulin Producing (AIP) cells that can transforms a patient's own liver cell into a functional insulin-producing cell (like is 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 therapeutics in which cellular material, often a living cell, is injected into a patient. Historically, the most common types of cell therapies have been for the replacement of mature, functioning cells through blood and platelet transfusions. 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 as they are in some cases proving curative in late-stage cancers.
The manufacturing process for these and other cell therapies is far more complex than traditional chemical drugs, like Tylenol, and there are few companies with the specialty and know-how to manufacture this emerging new class of drugs. Orgenesis' MasTHerCell subsidiary allows larger companies to outsource the complicated development and manufacturing of these therapies, for both testing and commercial purposes.
MaSTherCell is a revenue-generating business for Orgenesis, and it's growing at a significant clip as the market for cell therapies expands. Revenue for the fiscal year ending November 30, 2016 increased 115% to $6.4 million, from $3.0 million in fiscal 2015. So far in the nine months ended August 31, 2017 the company has already surpassed last year's revenue, with $6.7 mln in sales!
Estimating for $2 to $2.5 mln in fourth quarter revenue, Orgenesis could be on track to announce between $8 and $10 mln in fiscal 2017 revenue in the new year, or almost 50% growth from the last 12 months. That kind of expansion won't go overlooked as cell therapies come to the forefront, and 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 Alone Justifies 2-11X Of Upside?
T-cell therapies, like Yescarta and other CAR-Ts, are expected to become a $25 billion industry by 2030 according to Global Information, Inc., expanding at an annualized growth rate of over 101% during this time. Earlier this year there were over 280 T-cell therapies in development, and all of these developers will need commercial and manufacturing expertise. Orgenesis has already proven they're both trusted and efficient. Their current manufacturing facility is in Belgium, which is why they've signed manufacturing and development agreements with some of the most high-profile companies in Europe. Orgenesis has tremendous validation in the number and caliber of existing customers using MasTherCell.
Under a deal signed in June, MaSTherCell will be responsible 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. CTX101 is an allogeneic CAR T-cell therapy currently in development for the treatment of CD19 positive malignancies, just like Gilead's YESCARTA (axicabtagene ciloleucel).
Orgenesis is also working with Servier and Cellectis S.A. (CLLS) for the development of a manufacturing platform for allogeneic cell therapies that can be stored and given to any patient regardless of origin. This technology is partnered with Pfizer (PFE) for commercialization in the United States, and Pfizer paid $80 million up front for rights to the drug once approved, and Cellectis is widely respected and now a billion dollar company on the NASDAQ. Other companies using MaSTherCell include Adaptimmune Therapeutics plc (ADAP) and Athersys, Inc (ATHX).
Cell therapies are expensive and difficult to produce, and Orgenesis is clearly pulling ahead of the crowd in terms of manufacturing expertise, clear based on their current partnerships.
We've seen the same kind of situation prove fruitful for another small ancillary cell therapy company in the last few years, called Biolife Solutions (BLFS). Shares in this company have risen by almost 300% in one year as the company started signing on high-profile cell therapy 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 rallied in a huge way.
Shockingly, BLFS today is doing the same revenue as Orgenesis, at around $10 mln in sales annually, and investors have yet to pick up on the pricing disparity!
Biolife is guiding for revenue to be in the range of $10.8 to $11 million, meaning that Orgenesis' MasTherCell is just barely behind this company. Investors understand that Biolife has a strong future ahead as they sign on more cell therapy companies, much like Orgenesis, and the stock is trading at a market valuation of $80 million based on these 2017 results, or about 8 times their sales.
With the same kind of revenue figures, it stands to reason that ORGS should also be trading closer to $80 million, or almost 100% of upside for the stock. In this case, it's just a matter of investor recognition of this emerging business that could take ORGS from $4.50 to $8.00 or more!
Further, Gilead Sciences made another acquisition shortly after buying Kite Pharma, by taking on Cell Design Labs (a private company) for $567 mln in cash and milestones. Street commentary has indicated that the 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 1160%, if it were to trade at a similar deal price as the Gilead-Cell Design acquisition!
AIP Completely Overlooked Cure For Diabetes?
Orgenesis' CDMO business is undervalued, but what of their R&D programs? The AIP program converts liver cells into functional insulin producing cells as a potential treatment for diabetes. Utilizing 'cellular trans-differentiation' to transform a patient's own adult liver cell into a fully functional and physiologically glucose-responsive pancreatic-like insulin producing cell, Orgenesis hopes to provide Diabetes patients with long-term insulin independence through a one-time treatment. This is done occassionally today using islet cels, but the outcomes are inconsistent, and it's not a common treatment.
Though early in development, these AIPs could provide a lasting, possibly curative approach to diabetes management. The company is on track to begin human testing next year, which could lead to human trial results in 2018. This technolgoy is currently not getting any attention from investors, and with a successful trial, this technology could revolutionize diabetes care.
Institutional Investor Committed for 2018, Growth Could Spell Big Upside
Smart investors aren't blind to the potential here, and one institutional investor is financing the company to the tune of $16 million over the course of 2017 and 2018 - the company should be sufficiently capitalized to continue their expansion for the next 12 months, a critical period as more cell therapies work their way through regulators and towards market launch and full-scale manufacturing.
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.
With BLFS as the closest public comparable company, ORGS is clearly undervalued by as much as 50% based on their revenue generating business alone and current financial metrics. With the cell therapy segment growing rapidly and dozens more therapeutics 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. Meanwhile R&D is underway and human studies to begin with their own AIP program, which could prove transformational in the huge diabetes market.
Seismic shifts in technology like the one occurring in cell therapies right now only happen once every decade or so, and the blossoming of these therapeutics might be comparable to the current interest in cryptocurrencies. Kite Pharma from its IPO to Gilead buyout returned 1050% to investors, and recent splashy cryptocurrency equities have made similar moves quickly as investors understand the potential for a major shift in the world of finance. The Bitcoin Investment Trust (OTCQX: GBTC) has rallied by nearly the same amount as KITE since its launch, while more recent entrant Xunlei Ltd (NASDAQ: XNET) has quadrupled on the potential of their mining hardware.
Considering how under-the-radar ORGS still is, and comparably undervalued next to similar companies, this could be worth 100-1000% of its current price within a few year's time or sooner.
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