- Cell therapies an emerging treatment modality, expected to blossom into $25 billion-plus industry within a decade. Manufacturing is complex, costing $50K+ per patient, and many companies turn to contract manufacturers for help with development and commercial readiness
- Newly NASDAQ-listed cell therapy manufacturer Orgenesis (ORGS) growing revenue in mega-blockbuster cell therapy industry. Company executing well (sales +58% last year) with high-profile partnerships, like CRISPR Therapeutics (CRSP) and Servier. Company could even attract takeover interest
Cell therapies are lined up to be one of the largest new biomedical breakthroughs in decades. Already the first wave of newly approved drugs, called CAR T-cell therapies, are transforming lives, though with a hefty pricetag. These new drugs, which entail altering a patient's own defensive blood cells outside of the body, cost between $300,000 and $500,000 for a single course of treatment!
A significant part of that cost comes from manufacturing. Some of the first companies to get these therapies on the market expect their manufacturing alone to account for 20-40% of their cost, or $50,000 or more per treatment. That's come down from $100,000+ in the early days of their development, but it' still shockingly high, and it has to do with the complicated process of altering living cells to make them aggressive cancer-fighters. It's the same for other kinds of cell therapies, all of which alter or grow living cells to combat a variety of conditions. There were more than 1,000 clinical trials of cell therapies ongoing as of 2015, according to an article in "Regenerative Medicine", making this one of THE biggest potential medical booms in decades.
The process is complex and expensive to manufacture cell therapies, which has major implications for the companies that develop the technology. Most just don't have the expertise, and these companies are increasingly looking to outsource that facet of their business.
The few companies that do this well could be perfectly positioned for a major windfall in the coming years. These contract development manufacturing organizations (CDMOs) are already benefitting from the boom in cell therapy development, which may only improve as more of these therapies make it through the USFDA approval process.
Orgenesis, Inc. (ORGS), for instance, has put together a rock-star portfolio of partner companies and clients, including the French company Servier, CRISPR Therapeutics AG (CRSP), Adaptimmune Therapeutics plc (ADAP) and even Athersys, Inc (ATHX). Their manufacturing business has plenty of validation and is throwing off increasing revenue - up 58% in 2017 over the last year. This business may even attract take-over efforts from larger companies who want their own in-house expertise, which could justify a significant return for investors. They just uplisted to the NASDAQ, and this is one overlooked company that may not stay that way for long.
Paradigm Shifting Treatments, Complicated to Manufacture
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 existing functioning cells in a patient through blood transfusions or similar approaches. Now, some of the most promising therapies involve outfitting immune cells with specifric enhancements, like chimeric antigen receptors in the case of CAR-T cells, which enable them to identify, target and destroy cancer cells. In the next decade CAR T-cells are expected to become a $25 billion industry by themselves according to Global Information, Inc, and they're one of the hottest new modalities to hit the market in years.
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 emphasized the importance of high-quality manufacturing: "There are currently many challenges facing the cellbased therapy industry particularly in the regulated manufacture of these products under [Good Manufacturing Practices]...The requirement for high levels of process and product characterization will result in significant direct costs in all process stages, from establishment of a master cell bank (for allogeneic products), to final product testing."
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 manufacture this emerging new class of drugs well. It's no wonder, then, that so many of these drug developers are outsourcing manufacturing to the few companies with the right expertise.
What About the Companies That Do It Well?
So-called contract development manufacturing organizations (CDMOs) are filling this void and scaling up rapidly to support the emerging class of drugs based on cells.
A 2014 Bioprocess International article outlined just how much more cost effective using a CDMO can be than in-house processes. Once a company has licensed or discovered a cell therapy technology, most companies maintain their research but may look to outsource the rest: "Such knowledge is considered to be essential for development, troubleshooting, and fundamental scientific understanding. However, contracting for process development and manufacturing expertise may be a preferred option..." In a case study of a private company, 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.
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 is one of these, operating their MaSTherCell subsidiary as a Europe-based CDMO and with significant revenue growth over the last two years. The company just reported 58% revenue growth in 2017, to $10.1 million, and it's been growing every quarter consistently. Their partnerships with major drug developers, including publicly traded companies, says masses about the quality of their systems. Just last month the company signed yet another commercial partner, Zelluna Immunotherapy AS, a biotechnology company specializing in T-cell receptor-based immunotherapies for solid tumors.
And, the company's internal drug development efforts center around a unique trandifferentiation process where the company modifies human liver cells to produce insulin, much like a pancreatic cell, and possibly transform the diabetes market. This early therapy should move to center stage this year as it enters clinical trials, an overlooked call option on the stock.
Why ORGS Could Be A Rocket In The Coming Years
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.
Estimates suggest that manufacturing accounts for 20-40% of the first class of CAR T-cell therapies. Orgenesis most recently posted gross margins of 43.5%, meaning that 10-20% of a cell therapy's selling price (or almost half of the 20-40% manufacturing cost) would be Gross Profit for Orgenesis. This is where the numbers get really interesting, as CAR T-cell therapeutics just approved are expected to do $2-4 billion EACH. Applying this 10-20% figure to this new class, if just one of Orgenesis' partnered drugs makes it to market in the coming few years, it could mean hundreds of millions in sales and gross profit for the small company. That kind of revenue would justify a substantially higher valuation for ORGS shares.
Although Orgenesis is making great progress 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. The company 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.
Considering the speed of M&A in this sector, the company may not even be around for long, and it might make sense for a larger company to simply acquire the entirety of this expertise. For instance, two of the biggest oncology players right now, Bristol-Myers Squibb (NYSE: BMY) and Merck KGA (NYSE: MRK) have been slow to act with CAR T-cells. Merck hasn't done substantially much since a 2015 deal with Intrexon (XON). Kite Pharma (KITE) was acquired for about 6x Wall Street's estimated peak sales, at $12 billion, and Juno Therapeutics (JUNO) went for a similar multiple. ORGS could well be worth 2-3X its current stock price quickly as investors recognize the metrics at play here, and that this isn't easy expertise to find.
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