- CAR T and cell therapies are the next big wave of biomedical innovation and are set to become a multi-billion dollar industry in the next decade. One leader, Kite Pharma, was acquired for $12 billion months ago.
- Manufacturing these cell therapies is complex, and the specialized contract manufacturing firms that do this work, like Orgenesis (ORGS), may offer off-the-radar investment opportunity as cell therapies go mainstream.
- 2018 and 2019 set to be big years for ORGS as company potentially brings on more high profile partnerships with CAR T and gene therapy companies and continues to grow revenue. Based on future cell therapy market estimates and peer comparisons, ORGS could trade higher by 9-12x with proper execution during coming cell therapy decade.
2018 will be an immense year for the newly launched and to-be launched class of drugs called CAR T-cell therapies. These just-approved drugs take a cancer patient's own white blood cells and modify them to give them precision cancer-targeting capabilities. In many cases, patients are being cured of their cancer outright, and this is slated to become a $20 billion industry by 2030.
Gilead Sciences (NASDAQ: GILD) and Novartis (NVS) are pioneering these new drugs in the United States with the first two therapies approved by the Food and Drug Administration in September and October of 2017. Juno Therapeutics (NASDAQ: JUNO) is hot on their heels with their own CAR T-cel therapy, possibly to be approved in 2018.
CAR-T therapies are incredibly expensive because they're difficult and time-consuming to manufacture, requiring sending the cells to special facilities where they're modified to acquire their cancer-killing abilities. As a result, investing in the companies and facilities that conduct the manufacturing of these CAR T-cells could prove profound for investors, and little-known Orgenesis (ORGS) is a sleeper play on this emerging opportunity. The technology has been well-vetted, and the company already has considerable partnerships in place with CAR-T developers. Some basic math suggests the coming boom in these "cell therapies" could justify 9-11X of upside for ORGS as they expand and continue to ink high-quality partnerships.
Understanding Cell Therapy Manufacturing And Why It Could Be Huge For The Right Companies
CAR T-cell therapies are just the first in a new emerging class of drugs called cell therapies, or adoptive cell transfer. Antibody therapies that facilitate the destruction of cancer cells by the immune system have been used since the '90s, but the first cell-based drug for cancer, a vaccine to treat prostate cancer, was only approved in 2010. Now, there are several types in development, including Tumor Infiltrating Lymphocytes and T-cell receptors, but CAR T-cells were the first new approval, and most revolutionary, in seven years. They're the first in a major new class of drugs that will change how we treat cancer profoundly over the coming decades and are poised to become a $10-20 billion industry in the next 5 to 10 years.
To investors in the know, cell therapy is exploding onto the scene as one of the biggest new medical breakthroughs in decades. At the end of 2016 there were more than 220 human studies of these therapies underway according to a recent article in EMBO Molecular Medicine, and according to research from Jain PharmaBiotech, there are more than 500 companies involved in cell therapies broadly.
These "Chimeric Antigen Receptor T-cells" harness a t-cell to seek out and destroy specific cancer cells expressing a specific receptor or set of receptors, and avoid other healthy cells in the body. This makes them incredible effective in treating cancer. But their manufacturing takes time and considerable work. It begins with harvesting blood cells from a patient, shipping them to a facility where they are enhanced, and then shipping them back to the treating hospital or transplant center. This process currently takes between 2 and 3 weeks to harvest a patient's T cells and turn them into little cancer assassins, and it's incredibly expensive as it's done on an individualized basis. Gilead's Yescarta and Novartis' Kymriah cost an astounding $373,000 and $475,000 each for a one-time treatment.
This is where things get really interested for the companies that provide the manufacturing and development capabilities for these therapies, like Orgenesis. Orgenesis operates the MaStherCell CDMO, or contract development and manufacturing business, which offers Good Manufacturing Practices (GMP) manufacturing services so that customers like mid-size biotech companies can focus on developing their product/therapy, while relying on a trusted source for their production. Numerous Wall Street research firms and CAR T-cell companies have estimated that the future commercial cost to manufacture these therapies will be around $50,000 to $75,000, a significant portion of the drugs' prices, showing just how complicated this process can be. The company is already working with big names in the immune-oncology industry, like Servier, which has European rights to Cellectis' (CLLS) developmental drugs, and CRISPR Therapeutics AG (CRSP).
Comparable Companies Suggest ORGS Could Be Valued at 11x Today's Share Price
Running some basic mathematics on the potential revenue figures for ORGS demonstrates just how huge CAR T-cell manufacturing, and future cell therapies, could be for these CDMOs. The first wave of approved CAR T-cells targeting the specific receptor CD19 are expected to treat about 15,000 to 25,000 patients by 2025 to 2030. If ORGS were to provide manufacturing for just 5%, or around 1,000, of these annually through their MaStherCell subsidiary, the company would be poised for $100 million in peak revenue based on the CD19 therapies alone. This assumes ORGS receives $100,000 per patient, which we think is reasonable estimate given the high costs of these drugs.
That's a tiny portion of the expected market for cell therapies, like another class of CAR T-cells in development for multiple myeloma that target BCMA, another receptor…that class of drugs alone could address another 20,000 or more patients with progressive multiple myeloma globally!
These kinds of market opportunities come along only rarely, and even a more conservative assumption of $75 million in sales could still mean huge upside for ORGS. Kite Pharma (NASDAQ:KITE) was acquired for about 6x Wall Street's estimated peak sales, at $12 billion, and a similar multiple for ORGS would suggest possible upside of 9x from today's $50 million market capitalization! Another private company, Cell Design Labs, was acquired in 2017 for $567 million in cash and milestones, which was rumored to be partly for the company's enhanced manufacturing capabilities. This offers another example of a possible valuation metric for ORGS, at 11x the current price.
For Orgenesis, it's just a matter of securing the manufacturing contracts for one or a handful of these CAR developers, and as the technology goes mainstream, expect more players to be looking to outsource the complex manufacturing process for cell therapies. Orgenesis has already signed deals with some of the big names in the sector, and 2018 could bring more high-profile collaborations. As cell therapies continue to come to the market in 2018 and 2019, ORGS could be poised for major growth.
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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 50,000 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 [email protected] for additional information or to subscribe to our intelligence service.
