Orgenesis, Inc. (NASDAQ:ORGS) Q2 2022 Earnings Conference Call August 16, 2022 11:00 AM ET
Company Participants
David Waldman – Investor Relations
Vered Caplan – Chief Executive Officer
Neil Reithinger – Chief Financial Officer
Conference Call Participants
Bruce Jackson – The Benchmark Company
Operator
Good day, ladies and gentlemen, and welcome to the Orgenesis Business Update Call. [Operator Instructions] It is now my pleasure to turn the floor over to your host, David Waldman from Investor Relations. Sir, the floor is yours.
David Waldman
Thank you, and good morning, everyone, and welcome to Orgenesis second quarter 2022 business update conference call. On the call with us this morning are Vered Caplan, Chief Executive Officer; and Neil Reithinger, Chief Financial Officer. If you have any questions after the call, would like any additional information about the company, please contact Crescendo Communications at 212-671-1020.
This conference call contains forward-looking statements, which are made pursuant to the Safe Harbor provisions of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities and Exchange Act of 1934 as amended. These forward-looking statements involve substantial uncertainties and risks that are based upon current expectations estimates and projections and reflect our beliefs and assumptions based upon information available to us at the date of this conference call. We caution listeners that forward-looking statements are predictions based on our current expectations about future events.
These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions that are difficult to predict. Their actual performance or achievements could differ materially from those expressed or implied by the forward-looking statements as a result of a number of factors, including, but not limited to, the risk factors and uncertainties discussed under the heading Risk Factors in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, and in our other filings with the Securities and Exchange Commission. We undertake no obligation to revise or update any forward-looking statement for any reason.
I’d now like to turn the call over to Orgenesis CEO, Ms. Vered Caplan. Please go ahead, Vered.
Vered Caplan
Thank you, David, and thanks to everyone for joining us on our call today. I’m always glad to have a chance to speak directly to shareholders. And as many of you know, we really excited to be responsive and available [Technical Difficulty]. We also appreciate that the support we have received pharmacy license. The last several months have been one of much turmoil, political issues, economic instability and many are still suffering from the latest [indiscernible], while no new biological tax appear around the corner. These issues have not had a direct influence are now is physical. But they have affected investors and shareholders without the biotech industry. And many companies have not survived these, that have been chosen shareholders that have had to liquidate their assets quickly and the general mood of the biotech investment.
We are extremely fortunate that we have supported some of our shareholders and investors and that our suppliers and customers have gone out of the world to make sure we maintain our stability. We appreciate this very much. I think this is part of the point-of-care network. The point-of-care network that we have woven together in the last few years. We are also not a typical biotech company, far from it. As Uber is not a typical taxi company, as Amazon is not a typical book store chain. If you remember, when Amazon sold books. And Airbnb is not a hotel chain. We are a new breed of biotech, just as a development in software, hardware and communication technologies enable the capability to share resources, products and services to many more people around the globe more efficiently, and enable new sources of employment and deployment of goods. So, are we building a new accessibility, cell and gene innovations and facilities.
Our point-of-care network enables clinicians and patients to access, access to life – life-saving therapies and pave the pathway for new innovative treatments to reach clinical use in a decentralized manner. A therapy license from one hospital may be made available to any hospital in the network. Our network allows clinical and scientific data to be shared. So instead of each hospital, trying to face the challenges of supplying these therapies to patients and overcoming the pitfalls that others will face, we provide a well-collaborated approach.
Our point-of-care services, now regrouped under Orgenesis have the know-how and infrastructure to provide such therapies across the network. With quick and efficient capability to expand such services to new hospitals and clinical sites. Biotech companies who wish to access this network and develop a suppliable products utilizing our point-of-care network benefit from such services, enabling them to have a robust supply chain, not limited — not limited access to the — not limiting access to the products by complex supply issues that derive from a centralized processing facility.
The biotech industry in general, speaks of cell and gene therapy manufacturing. But no biotech company as far as I know has ever manufactured a cell. Cells are expanded, engineered, processed and reprogrammed. Cells may be used to manufacture proteins or other materials. And by doing so may be utilized in a manufacturing process such as in traditional biotech industry, but no cell and gene therapy based on someone’s actually manufacturing and making a cell. The source material is always taken from biological tissue. This is a subtle difference, but a crucial one.
Cell therapies are based on the know-how and research of scientists around the world and have studied their behavior and have established scientific methods that enable reprogramming a function of various cells as well as the capability of selecting and growing these cells. These technologies are the pinnacle of human achievement, allowing us, in some cases, to cut free from the restriction, the evolution has imposed on our cells, and in other cases, providing us the insight to utilize the intelligence that we decide in our sales based on such a solution.
Cell and gene therapies are about due to utilizing scientific knowledge sophisticated biological algorithms and two, to reprogram cells for our own benefit in health. Their success depends on the processing systems, the hardware, the biological techniques and the software that enables users on low-cost and high-quality implication of these out. Our approach to this industry is based on these fundamentals.
We work closely with many cellular processes and developers to optimize these devices and in some cases, have even developed their own, which are integrated into our own pool. We work closely with the suppliers and developments of different technologies, which enable processing and reprogramming of cell. We utilize these technologies to optimize the quality and the safety of various qualities.
We have set up our network in Europe, Asia, the Middle East and the U.S. We now have our onboard deployed in Europe and the Middle East and have set up point-of-care centers and strategic hubs in the U.S. We have managed to generate revenues that covers our activity in Europe and Asia, and we’ll now use the additional funds we have received for middle market, which we announced this morning to deploy additional on fields to provide services to our customers in Europe and in the U.S. Our focus this year has been and will continue to be to establish our point-of-care development and processing services with a strong focus on expanding capacity in the U.S.
One excellent example is our partnership with [Technical Difficulty] so we have established a point-of-care centers supported by Orgenesis Maryland Center that will be utilized for the construction of cell and gene therapy processing facility. Our process development services are already accomplished. We have managed to provide our customers with all the services we committed to in a timely manner and believe that they continue to see the value of a decentralized approach. We are also expanding our marketing efforts as we believe we have nailed the resources to expand our capacity.
Turning in more detail to our funding announcements. I’m pleased to report we secured a $10 million loan for Metalmark Capital Partners, a premier investment firm with deep expertise in the health care sector. For those of you unfamiliar with Metalmark, they target investments in middle market companies seeking to build long-term value through active and collaborative partnerships. Metalmark has managed an excess of $8 billion for both recurrence and further [indiscernible] funds. They are committed partners, and we look forward to working closely with them to help us accelerate the rollout of our point-of-care platform and these critical services.
Equally important is the fact that we secured this investment at the subsidiary level. For those of you who have known us over the years, we have two major priorities. Number one is delivering life-saving cell and gene therapies for patients around the world at costs that will allow widespread adoption and no less important, protecting and preserving our shareholder value by avoiding the usual toxic funding that often destroys the capital infrastructure and in turn value for small cap biotech companies.
I strongly believe that the underlying value of food we are building is not reflected in the public market. Bringing in a partner as Metalmark who has deep expertise in the health care sector and understands the valuation biotech services companies are getting in the private sector will establish that now. Additionally, they understand, I believe the growth potential of our business, and we cannot be more excited to have them.
As a partner, while preserving our capital structure and minimizing equity dilution. The reason our point-of-care business is resonating well in the industry that we are able to lower the cost, streamline logistics, expand capacity, enhance distribution through processing of close to the hospital setting, which we hope will support payer uptake and make these therapies more broadly available to patients. We believe this is a crucial step that is necessary for cell therapies to become widely available. Utilizing our ample-based approach, we believe we are uniquely positioned to address the challenges of current centralized production. Ample shortened the implementation time of building out new capacity 18 months, 24 months.
In terms of expenses, our goal over time is to reduce the cost of gene therapies, from tens of thousands versus hundreds of thousands of dollars. Importantly, we believe, we have built a highly scalable business model and expect to benefit from growth margin, reoccurring revenue streams and based on future loyalties and long-term contracts from industrial line and supplying these cell and gene therapies. At the same time, we’ve already started generating revenue in our therapy out-licenses and though not at the same level as it is, but still, we believe it will provide a longer-term source of future income and additional value for shareholders.
Our point-of-care therapeutics pipeline now stands over 16 distinct clinical programs, immunotoxin, immuno-oncology, antiviral, metabolic and autoimmune as well as tissue regeneration. Our strategy involves leveraging government grants and other sources of non-diluted funding and regional partners in order to advance life saving. And by designing these therapies from the ground up using our ample-based model, we believe these therapies can be advanced to clinical trials and the fraction of the cost traditional clinical, by leveraging our network, academic institutes and health care systems around the world.
We are also taking advantage of non-diluted funding, such as our recent award in May 2022, totaling €4 million from the European Innovation Council passed to advance technologies for the production of totalize autologous to use fluid-derived stem cells. The grant is aimed at the development of technologies to speed production and personalized ITC [ph] significantly reducing many manufactures. In turn, these products can be utilized for wider AS indications, including autologous, adoptive cancer immunotherapies, hemopoietic stem cell transplantation and regenerative medicine. We believe our therapeutic pipeline for tremendous unlock potential as we announced partners advance each of these assets through clinical and preclinical milestones.
And when you compare our therapeutic pipeline against other biopharmaceutical companies of our market cap as well as many of those much larger than us, most of them have only a small handful isolated program. In context, we have access to many therapies across various indications at all stages of development through a growing partnership.
So to wrap up, we are executing on everything we said we are going to do. And now with Metalmark’s support, we look forward to accelerating the rollout of our point-of-sale services [indiscernible]. Our partners and customers ready to support validation, development and clinical trials of advanced cities utilizing the point-of-sale platform within the respective markets. And we continue generating revenue while transitioning from the first to second stages of our business model. Our agreements with our customers are long-term contracts. And as we advance the respective pipelines, we expect to benefit from growth in high margin reoccurring revenue streams.
Overall, we are more enthusiastic and have the outlook of the business and believe we are well positioned to expand our market position not only as a leader, but as a disruptor in the cell and gene therapy market. We have built a highly scalable business, and we believe will buy value for shareholders for year to come.
On that note, I’ll now turn the call over to Neil Reithinger, our Chief Financial Officer.
Neil Reithinger
Thank you, Vered. Our revenues for the three months ended June 30, 2022, were $0.2 million compared to $10.5 million for the three months ended June 30, 2021. The decrease in our revenue is attributable to the fact that most of the performance obligations under our POC development contracts were completed in 2021 and which primarily related to services performed to support the company’s customers and to set up in their respective territories.
Cost of revenues, development services and research and development for the three months ended June 30, 2022, were $8.9 million as compared to $9.7 million for the three months ended June 30, 2021, representing a decrease of 8%. The changes contributing to the decrease during the quarter were attributable to an increase of $531,000 in salaries and related expenses mainly attributable to an increase in salaries and related expenses following the scale up for increased production, a decrease of $2.2 million in subcontracting professional and consulting service fees, where we invested heavily in subcontracting and professional and such service fees in previous years. And we reduced such expenditures this year and an increase in $991,000 on other research and development expenses.
Selling, general and administrative expenses for the three months ended June 30 were $2.8 million as compared to $2.9 million for the comparable period. The decrease in selling and general, administrations for the three months ended June 30 compared to the three months ended June 30, 2021 is primarily attributed to a decline in stock-based compensation, professional fees and other general and administrative expenses. This was partially offset by an increase in salaries and related expenses and accounting and legal fees.
In terms of liquidity and current assets, we ended the period with approximately $25.5 million, including cash and accounts receivable of approximately $21 million. This does not include the funds from Metalmark for $10 million that was received subsequent to the balance sheet date in this quarter. We remain focused on carefully managing expenses through cost-effective international partnering, strategic funding and non-dilutive grant funding, we have been fortunate to receive government support from several countries and believe we will continue to benefit from such support to further grow our POCare platform. We also look forward to benefiting from our recent loan and collaboration with Metalmark. Operator, we will now open the call to questions.
Question-and-Answer Session
Operator
[Operator Instructions] Your first question for today is coming from Bruce Jackson. Please announce your affiliation, then post your question.
Bruce Jackson
Hi, Bruce Jackson, The Benchmark Company. I’d like to start with comment made on the fourth quarter call where you said that you had commitments from customers for future revenue in excess of $30 million for 2022 and $55 million for 2023. I wanted to know if there were any updates to your thoughts on the contract pipeline for the remainder of the year.
Vered Caplan
I think we’re still on track for our commitment. We have had some additional contracts, not major, but I think we have maybe a change of about $5 million, but I’m not – don’t remember the exact number. But certainly, the contracts we have, we are going well on them. So they’re progressing well.
Bruce Jackson
Okay, great. And then the other question I had was about the formation of the Orgenesis subsidiary. Is that – with the assets, are those physical assets, for example, the on pools and does it include any intangible assets like patents or know-how, anything in there. So just broadly, what’s the composition of the assets in the Orgenesis subsidiary?
Vered Caplan
So we have subsidiaries that are focused on services and we have the on fields there and any know-how that is related to providing services such as social development and processing of the cells. This does not include any know-how, IP-related or anything related to the therapies themselves. And we have subsidiaries that are focused on different lines of the few declines and which supports the out-licensing and any revenue generated from these out licensing…
Bruce Jackson
Okay, great. Thank you for taking my questions.
Vered Caplan
With a pleasure.
Operator
Your next question for today is coming from Kelvin Seetoh. Please announce your affiliation, then post your question.
Unidentified Analyst
Hi Vered. Kelvin from [indiscernible] Capital. Yes. So I’ll just share a few observations before asking my question, and I think it will really guide the shareholders in thinking about where this business is headed. So I’m looking at our cash level right now is dropping. So we are left with about $3 million of cash. And of course, we do have quite a big chunk in account receivable. But I’ll just disclose the account receivables for now because time is needed to collect those.
So this quarter, we incurred about $5 million of losses. So without the extra financing from Metalmark Partners, we might not even last for two quarters. So, I just wonder how are you balancing our growth investing it, I also noticed we spent about $4 million investing in DeepMed IO and other companies. So I’m just wondering how are you balancing our immediate need for profitability because we cannot be diluting and raising money all the time.
Vered Caplan
Yes. I agree with you. This was actually in support of some of the grant activity. So it’s actually something that is, we hope will be refunded by grant. Sometimes it’s going to have money it takes time and you have to expense and then we see back – so we really try to focus only on the activity expenses on grant-related tables.
Unidentified Analyst
Got it. I’d also like to ask as well, because I think a lot of things have changed in this year. Interest rates have gone up. There’s a weak macro economics. There’s a lot of talk about a possible recession. So I just want to ask about the customer’s commitment for financial year 2023. Do we still expect roughly about $50 million of revenue or just starting to see some downward adjustments in those figures?
Vered Caplan
So at least for existing customers and additional potential customers, I think they – typically, when biotech companies go for development of products, especially if they’re going for clinical time and make sure they have the revenue expenses and available because of your commitments to the hospital. I think most of our customers have the funding, at least the ones I’ve asked . And I also think, in general, a lot of customers are heavily funded by government staff and additional resources to not only dependent on additional financing of themselves.
So I do think our revenues seem pretty secure. We are expanding our customer base just to make sure of that. And that’s why it was very important for us to make sure we have the capacity to expand our services. So if we take our new customers and we have the existing customers and all as well for everyone, we have to make sure we provide those services.
Unidentified Analyst
Got it. Got it. Vered, if I could just squeeze in one last question. In the press release, I noticed we talk about multiple contracts with biotech companies from United States, EU [ph], Asia and Middle East as well. So maybe for the benefit of other shareholders as well. Are you able to elaborate more about the profile, the background of your clients? Are they large clients, small clients – are they reputable? Are these clients the dip that we see in newspaper and publication, science publications?
Vered Caplan
Well, I think the signs are certainly – I mean, as I said, a lot of these have gone through a lot of kind of screening from government plans, right? So I think the science is certainly based a lot of them have clinical activity. So they are established.
This is kind of not the first product to market, which I think is important. We do have smaller ones. – maybe more kind of startup mill. But I think many of our customers are kind of established in their own kind of activity.
Unidentified Analyst
Got it. So just to end off, right? I want to share my observations about the stock market right now, and I hope it is of value to you because I see that as my duty to you and the company as a shareholder – it almost seems like we have entered a different environment right now. Investors are no longer looking for growth, but they are focusing a lot on profitability and just think the economy is understandable why they are looking at profits in state. So I really do hope that we can be profitable soon. Otherwise, I think it’s going to have an adverse effect on us, share price and capital raising down the rate is going to be even harder. But I – but to add off, I just want to thank you for the – how both are doing as well. We really do appreciate that.
Vered Caplan
And I think, we all appreciate your comments. We’ll do our best to get to that point.
Operator
[Operator Instructions] There appear to be no further questions in queue. I would like to turn the floor back over to Ms. Caplan for any closing comments.
Vered Caplan
Thank you. I’d like to thank everyone for participating on our second quarter update conference call. We are excited about the outlook for the business and appreciate the support of our shareholders. And we look forward to providing further updates as we advance our pipeline and our services and deploy our on field. Thank you.
Operator
Thank you, ladies and gentlemen. This does conclude today’s conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.
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