57% Sales Growth, Top-Notch Partners At Overlooked Gene and Cell Therapy Issue ORGS

Cell and gene therapy development hitting fever pitch globally as more products enter phase 3 and late-stage testing. Manufacturing remains the issue, and many companies turning to outsourced manufacturing services (CDMOs) for their specialy development and manufacturing scale-up.
These manufacturers offer a secondary invesment opportunity on the cell/gene therapy trend, and ORGS remains an overlooked setup. Growing their sales consistently, and partnered with high-profile public clients, ORGS could be significantly undervalued with continued executiona and expansion.

NEW YORK, NY / ACCESSWIRE / June 7, 2018 / The curative potential of gene and cell therapies has kept these new pharmaceutical products front and center for healthcare investors for the last 3 years. Bluebird Bio (BLUE), Abeona Therapeutics (NASDAQ:ABEO), and AveXis (VXS), to name a few, have all been center stage for their new gene and cell therapy technologies. The down-and-out Axovant Sciences (NASDAQ:AXON) rose from the ashes this week when they acquired the rights to develop and commercialize an older gene therapy from Oxford BioMedica (OXB); the stock rose over 100%.

Still, the process by which these companies will ultimately SELL these drugs, most of which are still in development, is a bit of a mystery. All of these will require intensive manufacturing know-how, as most are derived not from chemical processes but from a patient’s own cells. Most of these companies don’t have the capacity, and perhaps even know-how, to manufacture their therapies at any significant scale.

Enter Contract Development Manufacturing Organizations (CDMOs), which have slowly been gaining traction as more cell and gene therapies progress towards the market. These overlooked ancillary companies will – and already are – providing the bulk of the global manufacturing capacity for gene and cell therapy companies. That has created a unique investment proposition for those in the know.

Overlooked Orgenesis (ORGS) is making rapid strides in this emerging space, with expertise in contract manufacturing that has attracted high-profile clients like Crispr Therapeutics (CRSP) and the French Servier, which holds rights to Cellectis’ (CLLS) most promising CAR T drug, among others. The company grew their CDMO revenue by a whopping 57.7% in 2017, and the growth could just be getting started. With dozens of companies needing quality manufacturing expertise, ORGS could still be one of the most overlooked cell therapy trades of 2018.

Cell and Gene Therapies Booming, Manufacturers an Overlooked Opportunity

Ten years ago, cell therapies were just emerging from places like the National Institutes for Health in the United States and were being licensed by companies like Kite Pharmaceuticals (KITE). Last fall, the first two CAR T-cell therapies were approved by the United States FDA, and there are now more than 1200 clinical trials underway with gene and cell therapies from hundreds of companies that have popped up in the last three years. By 2020, there will be more products on the market, and even more new technology emerging in development – the market for cell therapies and tissue engineering is expected to increase to $60 billion by 2020.

But manufacturing these products takes considerable time and work, as most consist of a patient’s own altered cells. In the case of CAR T-cells, 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 currently takes between 2 and 3 weeks, and it’s incredibly expensive as it’s done on an individualized basis. Gilead’s Yescarta and Novartis’ Kymriah, the first CAR T-cell drugs to hit the market, cost an astounding $373,000 and $475,000 each for a one-time treatment, 20-30% of which are estimated to be manufacturing costs.

A 2014 Bioprocess International article outlined just how much more cost effective using a CDMO can be than trying to build a manufacturing system in-house. The authors found that outsourcing cost just 20% that of going alone, and in 50% of the expected time to scale up effectively! The savings are astronomical, and can allow a small company focused on developing new cell therapies to continue doing what they do best…drug development, not manufacturing.

Recognizing that an increasing number of cell therapy companies will be seeking process development and manufacturing solutions, it makes sense for investors to figure out who could benefit from that outsourcing. CDMOs are an attractive place to invest, and few investors are paying attention to this opportunity.

ORGS Growing Topline With High-Quality Partnerships and Internal R&D to Boot

Orgenesis (ORGS) has clearly piqued the interest of smart cell therapy developers. Their clients include CRISPR Therapeutics AG (CRSP), in an agreement to develop and manufacture allogeneic CAR-T therapies; a service agreement with Servier (partner to Cellectis (CLLS) for the development of a manufacturing platform for allogeneic cell therapies; and GamidaCell, and Adaptimmune (ADAP) according to the company’s website.

The CDMO landscape is made up of large players like Lonza Group AG (LZAGY) and WuXi Pharma Tec (WXXWY), as well as smaller more specialized players, including Orgenesis, Brammer Bio, and MEDINET. According to ResultsHealthcare.com, the pharma outsourcing market was an immense $71.5 billion as of 2017, and “biologics” are the fastest growing portion set to increase their total market share from 16% in 2015 to 22% in 2021.

These are big numbers, and Orgenesis’ increasing revenue over the last year in conjunction with strong development-stage partners indicate that this company is on the right track.

Through their MasTherCell subsidiary, the company reported $10.1 million in 2017 revenue, which is up 57.7% from the previous year and about 250% compared to revenue two years ago of $2.9 million. In the first quarter of 2018, the company had $2.6 million in sales alone, with gross margins of 38% – revenue is certainly moving in the right direction.

Even with top-notch partners and consistently growing revenue, ORGS remains an under-appreciated leader among CDMOs. The company just up-listed to the NASDAQ, a major factor in bringing on new funds who generally can’t own equities not on the big boards.

The company is also working on their own internal development program, with a process that can turn a person’s cells into insulin-producing cells for the treatment of diabetes, called AIP cells. The implications, if successful, are huge, and this should move into Phase I studies in the next 12 months.

Although Orgenesis is making great progess with their CDMO, and their internal AIP cells are coming into human studies this year, the company is still a microcap and thus carries additional risk. will need further capital to get to breakeven, and to expand in the U.S. they’ll need to make substantial capital investments. As with most micro-cap stocks, ORGS could be worth significantly more, or nothing at all.

Recent M&A – like Gilead’s $12 billion purchase of Kite, Celgene’s $9 billion buyout of Juno Therapeutics, and Novartis’ $8.7 billion purchase of AveXis – indicate how much these cell and gene therapies can go for. None of these companies had substantial revenue at the time of their acquisitions, but larger companies are betting on these platform technologies. In fact, Gilead’s 2017 acquisition of Cell Design Labs for $567 million in total was rumored to have been mostly for the smaller company’s manufacturing and development capabilities. At a similar $500 million valuation, ORGS would be worth 5X from today’s prices. As 2018 continues, look for further sales growth and more high-profile manufacturing partners to potentially move ORGS higher.

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SOURCE: One Equity Stocks

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