- The market for cell therapies of all kinds is exploding in size. By 2025 these regenerative medicines are expected to be a $150 billion market globally with a 30%+ growth rate through the first half of the 2020s according to Roland Berger research. The trouble for the hundreds of companies bringing these new products to market lies in consistent manufacturing. They’re turning to outsourced manufacturing companies as a result
- Orgenesis Inc (ORGS) is making a name for itself as a top-notch provider of manufacturing to cell therapy drug developers. The company’s revenue is growing consistently, and they recently achieved a key milestone under a 2018 investment agreement from a leading healthcare investment groups in the U.S., Great Point Partners. The company has multiple high-profile clients in the biotechnology space, including CRISPR Therapeutics (CRSP). As they expand with a just-announced facility in the U.S., ORGS could have a breakout 2019 year
Drug treatments based on live human cells are the current big thing in biotech. These products use altered human cells to treat — and in some cases cure — cancers and genetic disorders. The first big successes have been with new “chimeric antigen receptor t-cells” that are intended to seek out and destroy cancer cells, from Gilead Sciences (GILD) and Novartis (NVS) first, and with earlier approaches from Ziopharm Oncology (ZIOP)/Intrexon (XON) for example. Gene therapy companies like Bluebird Bio (BLUE) and Abeona Therapeutics (ABEO) are moving rapidly with their fixes for genetic disorders, and now a new class of “gene editors” like Editas Medicine (EDIT) are making headway.
The trouble for many cell therapy developers is the manufacturing. In many cases, these drugs need to be manufactured for each individual patient, meaning extensive wait times, cold-chain logistics for shipping, and extreme costs. These drugs can cost tens of thousands of dollars to make per patient.
As a result the companies that specialize in doing the manufacturing of these drugs are seeing an influx of new business as cell therapy drug developers scramble to secure manufacturing for their clinical trials and for after their drugs are approved.
One emerging standout in this vertical is Orgenesis, Inc. (ORGS), which does manufacturing for some high-profile companies in the biotechnology sector. CRISPR Therapeutics (CRSP), Iovance Biotherapeutics (IOVA), and Adaptimmune (ADAP) are all clients, and the French pharmaceutical giant Servier has employed Orgenesis’ help.
Last year, Orgenesis received a vote of confidence from a top U.S. healthcare fund, Great Point Partners, which invested up to $25 million in Orgenesis’ manufacturing subsidiary Masthercell. In 2019, the company is expanding their manufacturing footprint significantly into the U.S. with a new 30,000 sq. ft. facility that could catapult their revenue capacity. Rather than mining for gold, the old adage goes, sell shovels, and ORGS presents a uniquely positioned pureplay on that theme as this $150B market gets going.
Orgenesis Taking a Slice Of The $4B Cell Therapy Manufacturing Pie
The recent ability to engineer cells and genetic material has beckoned in a new generation of drug products to treat human disorders. New gene editing technology means that humans may be able to simply cut out and replace faulty genes within the next decade, and already people are being cured by replacing stem cells and other generative cells with “fixed” cells.
These are hard to manufacture, and as more of these cell therapy drugs are created there’s been an exploding demand for manufacturing capabilities. The companies that do this are called CDMOs, for contract development manufacturing organizations, and there are only a handful of large companies like WuXi PharmaTech and Lonza doing work for the small biotechnology drug companies.
You can see how fast this market is growing in recent industry trends.
Roots Research estimated the 2017 market for cell therapy manufacturing at about $85 million. By 2023, they expect this to be over $1.4 billion, or over 15X in 6 years, and over $4 billion in less than ten years. This kind of industry growth isn’t common these days, and it’s a trend that Orgenesis is capitalizing on quickly.
Masthercell Global, a subsidiary of Orgenesis Inc, (ORGS) is making great strides to penetrate this emerging market for outsourced manufacturing. Orgenesis is a small company with a $70 million market valuation at a $4.50 stock price. But intriguingly, they reported 2017 revenue of $10.09 million, up over 50% from $6.40 million in 2016. In the first nine months of 2018 they reported over $12.5 million, or 25% growth over the previous year with over a quarter of sales left to be reported.
Institutional Investment to Increase U.S. Capacity Should Also Drive Top-line Growth
Masthercell received a significant vote of confidence in 2018 when Great Point Partners, a healthcare investment fund in the U.S., invested up to $25 million directly into the manufacturing business. The money is intended for global expansion of the business. This January, Orgenesis announced they had met the first of two revenue milestones under that Great Point agreement, triggering a $6.6 million payment from the fund. In conjunction, the company also announced a significant expansion of their manufacturing footprint into a 30,000 sq. ft manufacturing facility in Houston, Texas.
Orgenesis doesn’t offer many details in press releases, but referring back to the original Great Point deal terms in June of 2018, this first payment indicates that Orgenesis could report a blowout year. To trigger this payment, Orgenesis/Masthercell had to generate Net Revenue equal to or greater than €14.1 million (US$16.1 million) and EBITDA equal to or greater than €1.8 million (US$2.06 million) in any 12-month period before Dec 31, 2018.
Orgenesis hasn’t reported their full 2018 financials yet, but based on this and the fact that they had already done $16 million in the trailing twelve months, there’s a good chance that ORGS reports $16 to $20 million in 2018 sales, or 60%+ annual revenue growth over 2017. This is similar or better than the growth in the CDMO industry as a whole.
What’s It Worth? One Peer Suggests 4X
Between revenue growth, investments from Great Point, and high-profile clients, ORGS is proving that they can operate in this space. The limiting factor may be manufacturing capacity more than anything else, which is why the recent announcement that they’re adding 30,000 sq.ft. in Texas is critically important to their long-term growth. Not only does it offer more square footage capacity, but it’s their first major U.S. foothold, where cell therapies will be a driving pharmaceutical force for the coming decade.
As this is a new market segment and Orgenesis is not profitable yet (though MastherCell subsidiary appears to be), valuation metrics are evolving. Biolife Solutions (BLFS) offers a possible valuation comparison for ORGS. This company provides delivery, storage, and transportation mediums and solutions for cell therapies and generates about $5 million in quarterly sales. The company has a market capitalization of $240 million, or roughly 12X annual sales. ORGS’ revenues are very similar, yet ORGS has a $70 million market value. Based on this metric, continued growth and market penetration could justify significant 300-400% near-term upside for this emerging company.
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