By The Life Science Report

Source: Hunter Diamond, CFA for Streetwise Reports   12/07/2017

A regenerative therapy company with expertise in both cell therapy development and manufacturing, and a potential treatment for diabetes, differentiates this company, says Hunter Diamond, CFA, CEO of Diamond Equity Research.

Orgenesis Inc. (ORGS:OTCQB) is one of a new breed of regenerative therapy companies with expertise and unique experience in cell therapy development and manufacturing. The company has two primary subsidiaries, its Contract Development and Manufacturing Organization (CDMO) and Cellular Therapy Business (CTB). MaSthercell SA, a subsidiary of Orgenesis Company, is at the heart of Orgenesis Global CDMO operational network and focuses on cell and gene therapy development for advanced medicinal products. The CTB segment is developed in Europe, Asia and Middle-East under the lead of Orgenesis Ltd. and is developing a unique trans-differentiation technology platform (cell reprograming) with a main lead indication in insulin-dependent diabetes.

Orgenesis provides investors with a way to invest in the growing cell-therapy market, without the concentration risk of investing a single cellular therapy company. MaSThercell is currently working with numerous leading immuno-oncology corporations looking to develop the next cell treatment therapies. Orgenesis Inc. reported strong top-line growth in Q2’17, with its revenue growth over 24%. The CDMO business will continue to generate immediate and robust cash flow, which can offset clinical costs and research and development expenses. What makes Orgenesis unique for biotechnology investors, is it has both growing recurring revenue through its manufacturing activities and massive upside if their diabetes solution is commercialized.

Industry Insights

Cell Therapy is the administration of living whole cells to the patient for the treatment of a disease, including regenerative medicine and immunotherapy. Cell therapies can be divided into two general classes: allogeneic and autologous. In an Allogeneic procedure, cells collected from the donor are placed into and utilized to develop at treatment for another patient (the recipient). Situations, where the donor and recipient are the same people, are called autologous. Orgenesis CTB focuses on autologous cells, which have a low chance of rejection by the patient. MaStherCell has built a strong expertise in both autologous and allogeneic segments.

CDMO: Strong investment activity and deal-making have occurred over the past few years within regenerative medicine, with the regenerative medicine market projected to reach $53.7 billion by 2021. As a CDMO, Orgenesis develops and delivers advanced medicinal products to cell therapy companies and benefits from industry strong positive trend. Orgenesis’s wholly-owned subsidiary MaSTherCell provides a global one-stop-shop service, a unique competitive advantage, which lets therapies go to market faster and reduces the cost of goods sold.

CTB: Insulin-dependent diabetes is one of the most challenging health problems in the world, with 29 million people in the U.S. and 400 million worldwide living with diabetes. Orgenesis is currently developing a cellular approach called Autologous Insulin-Producing (“AIP”) cell transplantation. AIP helps transform the patient’s liver cell into a fully functional and physiologically glucose-responsive insulin-producing cell and provide the patient with long-term insulin independence. ‘The timeline for the process from biopsy to transplantation takes approximately 5-6 weeks. We note this AIP procedure is currently pre-clinical but if successful offers investors massive upside optionality.

Competition

MaSThercell faces competition from companies such as Progenitor Cell Therapy (PCT) LLC, Pharmacell BV, WuxiApp Tec, Lonza Group Ltd and Cognate Bioservices Inc. MaSThercell looks to differentiate itself from these companies with its expertise and quality in the Cell therapy market, strong experience in process development (optimization) for its clients as well as through its high international distribution capabilities in the CDMO field; an essential ability clients look for.

Within the CTB business, Orgenesis will compete against Novo Nordisk, Eli Lilly, Sanofi-Aventis, Takeda Pharmaceutical Company Limited, Pfizer, Merck KgaA, and Bayer AG, along with other insulin, insulin analog, and other diabetic drug providers.

Valuation

Orgenesis appears undervalued when using various valuation methods with reasonable assumptions. By using technology value analysis and comparing the technology of Orgenesis’s diabetes pipeline to other public diabetes companies, we found a median estimated value of $106 million, more than 100% above where the stock trades currently and a median enterprise value of $28 million for MaSTherCell and an average Enterprise Value of $30 million based on 2017 projected revenue. We also believe Orgenesis could be a viable takeover candidate as it scales its revenue, as its much more significant clients may look to move their cell manufacturing in the house eventually. Even without an acquisition, we believe the company can continue to scale revenue and that the stock’s valuation will subsequently reflect their high topline growth. We believe the manufacturing side of Orgenesis provides a valuation floor, offering investors a way to achieve substantial returns even if the diabetes product is not successfully commercialized.

Recent News

Orgenesis recently completed a reverse stock split of its shares of common stock at a ratio of 1-for-12. This reverse stock split was implemented relating to the company applying to list on NASDAQ, Orgenesis must maintain a minimum of $4.00 per share for a specific number of days according to NASDAQ. We view a successfully implemented NASDAQ listing as a major catalyst for existing shareholders of Orgenesis.

Société Fédérale de Participations et d’Investissement (SFPI), a well-known Belgian Public Investment Fund, invested $5.9 million in MaSTherCell. These funds will be used to expand MaSTherCell’s Belgian facilities with a dedicated late-stage clinical and commercial unit, anticipated to be completed by the fourth quarter of 2018. This development will significantly accelerate the delivery of state of the art commercial facilities and the expansion of MaSTherCell within the dynamic and expanding Belgium healthcare cluster. We view this financing as a major positive event for Orgenesis, as expanded distribution capabilities will expand Orgenesis’ competitive moat.

Hunter Diamond, CFA, is the CEO of Diamond Equity Research, which is a global small capitalization equity research firm. Diamond Equity Research was created to assist small capitalization issuers with reaching retail and institutional investors and providing these companies the same distribution abilities large capitalization issuers take for granted, thereby helping smaller companies achieve a fair valuation. Diamond brings experience working in investment banking and equity research at Griffin Securities and National Securities, both emerging growth focused brokerages. While an investment banker, Diamond was involved in financings and mergers and acquisitions for emerging growth companies. After working in investment banking, Diamond founded Pathjump, which he scaled to thousands of users across the country. He holds his undergraduate and MBA degrees from Cornell University.

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Disclosure:
1) Hunter Diamond: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: None. My company has a financial relationship with the following companies mentioned in this article: Diamond Equity Research LLC is being compensated by Orgenesis Inc. for producing research materials regarding Orgenesis Inc. and its securities. Payment is made in cash and is billed one time and upfront for a six-month subscription, which includes one initiation report and one update report. As of 12/07/2017 the issuer had paid us $10,000 for our services, which commenced 07/07/2017, which is meant to subsidize the costs of independently analyzing the security. Additional fees may have accrued since then. I determined which companies would be included in this article based on my research and understanding of the sector.
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