- The largest potential new biotechnology industry in decades is looking to outsource manufacturing. This inherrent business opportunity could be worth hundreds of millions or more to the right "contract" manufacturers
- Growing revenue, strong development partners, and big plans for 2018 and 2019 make Orgenesis (ORGS) one of the most exciting up-and-coming players, with a strong presence in the industry already. Stock could be worth multiples of current price as cell therapy industry goes from laboratory to bedside in coming years
It's one of the biggest emerging market opportunities of the coming twenty years, yet nearly 80% of companies in this industry may be looking to outsource a significant slice of their business...and there are few companies positioned to take advantage of this coming paramount shift.
Cell-based therapies involve the delivery of living cells to a patient to replace a missing cell type, or the introduction of modified cells with altered function, to treat a disease or disorder. Two of the first drugs were approved by the US FDA last year, costing about $300,000 each, and more are coming. This emerging therapeutic approach may revolutionize the landscape of medicine and science, and it represents a new paradigm in human health care.
But in order to achieve this potential, they must first be manufactured at scale; an expensive, resource-intensive, long and complicated process for the average cell therapy developer. That has left open a huge market for contract development and manufacturing organizations (CDMOs) who specialize in manufacturing these specific cells and already have the capacity and know-how to make it happen.
With the first two new drugs to land on the market, called CAR T-cell therapies, costing $350-$450Kper patient, the revenue potential for CDMOs could be huge, possibly siphoning off 20-40% of this price. Orgenesis (ORGS) is making a name for itself as a go-to force and could be positioned for a splash in the U.S. markets in the next year - with a $10 million annual revenue run rate already, the company is set up for a huge 2018 and 2019 if they continue to bring on more high-profile customers.
Billion-Dollar Marketplace Prepared to Hand Over Margins to CDMOs, Like ORGS
According to a 2017 ImageBox survey, a whopping 79% of pollees said they would be willing to outsource their cell therapy manufacturing once through the development process and into the commercial phase; 63% said they would outsource manufacturing for their larger phase 3 studies; and about 1/3 said the same for mid-stage phase 2 studies.
These figures are an incredible referendum on the complexity of these new cell therapies. A MAJORITY of developers simply don't want the headache or cost of building out and outfitting a dedicated manufacturing facility, and the accompanying processes ... for good reason.
Cell-based products require expansion and manipulation in a lab, which is often a 2 to 4 week project. They come in two basic types: Autologous cell therapy products are produced from an individual patient's cells, which involves the production of one batch for and from each patient with associated transport, storage, and individual alteration in the lab. Allogeneic cell therapies, meanwhile, allow for several thousands of patients to be treated from the same manufacturing batch, but with different manufacturing requirements. The labs must contain special "clean rooms" and expansion processes that few companies are already outfitted to do at any type of scale.
A 2014 Bioprocess International article outlined in a case study just how much more cost effective contract manufacturing (using a CDMO) can be, explaining that 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 this 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.
Five years ago, cell therapies had only just emerged 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. Bluebird Bio (NASDAQ:BLUE), for instance, and Ziopharm Oncology (NASDAQ:ZIOP) are running late-stage trials with their own CAR T-cell drugs, to name a few. 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.
The Unexpected Ancillary Winners of the Cell Therapy Boom
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.
Of the $60 billion in expected sales from cell therapies and tissues in a few years' time, 20-40% of these sales are "costs of goods", or the cost to manufacture. If the above survey is any representation, 75% of this opportunity could fall to CDMOs - or $9 to $18 BILLION in sales potential.
As one of the premier CDMOs today, partnered with companies like Servier and CRISPr Therapeutics (CRSP), Orgenesis (ORGS) is perfectly positioned for this explosive market opportunity and already demonstrating sales growth as the cell therapy space has come of age in the last five years. Through their MasTherCell subsidiary, the company reported $8.6 million in trailing twelve months revenue, which is up 56% from the previous year and about 3x two years ago. The company could do $12-15 million in sales this year based on $2.5 million in the last quarter and just 5-10% growth each quarter.
At the very least, their current sales trajectory puts them on par with companies like Biolife Solutions (BLFS), which did $10.1 million in the trailing twelve months and yet is valued at $80 million by the public markets - or 8x their Sales. By that reasoning, ORGS is undervalued by almost 50% immediately, not considering the future growth potential in this billion-dollar industry!
Novel "transdifferentiation" Technology Completely Unappareciated Today
The CDMO business is reason enough to look at ORGS, but their own in-house development product is getting zero credit from public investors, even though it will be entering human studies this year and could prove highly valuable.
Orgenesis has developed a unique, proprietary platform technology called "transdifferentiation" (or cell reprograming), where a cell is converted into another type of cell, with a distinct phenotype and function. So far their greatest success has been with converting autologous liver cells (or a patient's own cells) into a fully glucose responsive insulin producing cell, like those normally found in the pancreas. In diabetes mellitus, this could be worth hundreds of millions as a potentially functional cure for severe patients with no insulin production. This year, the company will move from so-far promising animal studies into human studies, which could produce signals of effectiveness by the end of the year or in early 2019.
With the cell therapy market on the verge of an explosion in late-stage and newly approved commercial drug products, ORGS is poised for this boom. They've stated publicly that 2018 will be all about creating a U.S. footprint - already the company has a substantial collaborative network in Europe - and continuing their impressive sales growth. As cell therapies come into their own, ORGS is a compelling ancillary opportunity with multiples of upside potential.
Risk Disclosure
All small cap stocks involve significant risk. Anyone investing in a small cap should be prepared to lose all of their money. Although Orgenesis is making great progress with their CDMO and AIP cells are coming into human studies this year, we remind readers that 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.
About One Equity Stocks
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.
