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spk07: Good morning, ladies and gentlemen, and welcome to the Origenesis third quarter 2021 business update call. At this time, all participants have been placed on a listen-only mode, and we will open the floor for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, David Waldman, Investor Relations. Sir, the floor is yours.
spk02: Thank you, Matthew. Good morning, everyone, and welcome to the Origenesis third quarter 2021 business update conference call. On the call with us this morning are Varad Kaplan, Chief Executive Officer, and Neil Reisinger, Chief Financial Officer. If you have any questions after the call or 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 and are based upon our current expectations, estimates, and projections and reflect our beliefs and assumptions based upon information available to us at the date of this call. We caution listeners that forward-looking statements or 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. Our actual results, 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 risks 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 31st, 2020, 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 our Genesis CEO, Ms. Varad Kaplan. Please go ahead, Varad.
spk01: Thank you, David, and thanks to everyone for joining us on our call today. Once again, we generated strong year-over-year revenue growth. Revenue for the third quarter increased over 400% or fivefold versus the same period last year. For the nine months, revenue increased to $28.6 million compared to $5.3 million for the same period last year. which we believe reflects both the progress and sustainability of our point-of-care strategy. Feedback from within the industry has been extremely positive, and we are now working with some of the leading research centers, hospitals, and biotech companies around the world, such as JHU and UC Davis in the United States. Our global network now spans North America, Europe, Asia, and the Middle East, compromised with 10 regional distribution partners. In addition to our strong IP, we have a distinct first mover advantage. We began planning and implementation of this strategy a number of years ago and have invested heavily in the platform. For this reason, we have established ourselves not only as a leader, but as a disruptor in the cell and gene therapy market. And although industry partners are catching on to what we've built, it's important to reiterate this strategy for investors. Currently, most cell and gene therapies are manufactured using centralized production, either through in-house production or through CDMOs, which is standard across the industry. Centralized production requires massive capital investments. It's very expensive to operate, and it takes years to make production online at meaningful scale. The current processes in place have resulted in major bottlenecks and capacity shortages, which is illustrated by the... extravagant cost of many of these therapies and ongoing manufacturing delays. A good example is CAR-T therapies, which have faced supply chain issues and can range in the hundreds of thousands of dollars per patient with a resistance from pain. However, by producing personalized cell and gene therapies at the point of scale, we are able to add new capacities within three to six months of when compared to CDMOs or internal house production may take up years to build up clean rooms. In terms of expenses, our goal over time is to reduce the cost of these therapies to tens of thousands versus hundreds of thousands of dollars. We recognize the challenges facing this industry early on. As a result, we've made the decision to sell our master cell subsidiary for approximately $300 million, which provided us over $100 million of non-diluted capital to grow our point-of-care platform. At the time of the sale, MasterCell revenues were roughly $30 million. To put this in perspective, the revenue from our point-of-care business was over $25 million for just the first nine months. We believed the transaction to sell MasterCell was the right decision at the time, and we are more convinced than ever in our new strategy, given the positive industry feedback. We believe that our point-of-care business is more advanced, cost-effective and scalable than any other solution in the market today. Let me explain why. Producing cell and gene therapies is an extremely complex multi-step process. Cells are highly sensitive to any changes in the environment and process, and producing cell and gene products must be done in a highly sterile environment since such products cannot be sterilized. Under our point-of-care model, We are also servicing our partners and customers through process development, which includes GMP-compliant process development, development of quality control methods, adaptation of the process to automation and closed-loop processing systems, qualification of the process combined with the utilized equipment, and integration of the combined system into our mobile processing units, the ampules, qualification of the entire system together. These stages are what we call and what we refer to as ampullization. Once this is completed, we can mobilize the ampule to the required production site and supply our ampules to the designated medical site. If more capacity is required, we can, at first step, add more isolated processing units in the same ampule. At a second stage, we can bring additional ampules to the same point of care center. And if required, expand to even more point-of-care centers, while with the goal of maintaining exactly the same environment and the same process. Current industry practice is quite different. It involves developing a process and implementing it in a clean room facility, in most cases involving many manual steps. Expanding production capacity or transferring production to another location is a lengthy and complex process. Building and qualifying new clean rooms and transferring products can take months and years. Producing products at the central location requires expensive and complex logistics of supplying source material from the patients and returning the final product to the patient location. By ampullizing the process, the initial effort may be slightly lengthier, but we now have a product that can be made at many locations, including close proximity to the clinical site, and we can then expand capacity quickly and efficiently. Since we have invested many years in partnering and co-development with automation solution providers, we have at our disposal a toolbox of systems that we can incorporate into the ampules. As we develop more point-of-care and therapeutic products, we become more efficient at this process. Since many of the products are a variation on the same theme, So though we may need to make modifications, we can still utilize many of the same components as we have developed in the past. The key to our success in our point-of-care business is standardization. The process is exactly the same. That's what we're aiming for, regardless of where the product is produced. For this reason, we have established training protocols. We have We are using audited and consistent suppliers and vendors of materials involved in production and quality control. We are implementing validated automated solutions that minimize human error. And we're taking advantage of closed units to control infections. Through standardization and a consistent processing environment, we can dramatically reduce costs. We believe our strategy of decentralizing the supply of cell and gene therapies based on standardization of the manufacturing environment will ultimately become the solution for this industry, enabling lower cost, accelerated development, and ultimately providing a scalable long-term option to overcome the industry-wide capacity constraints. We are also advancing our point-of-cure therapy, which now span immune oncology, antiviral, metabolic, autoimmune disease, tissue regeneration, and more. Our strategy involves in-licensing therapies from leading research institutes, hospitals, and biotech companies, and utilizing our partners and customers to out-license these products. We do so in return for future royalties, as well as exclusive service contracts for industrializing and supplying these cell and gene therapies. At the heart of our business model is being the optimal industrial partner. Whether we are providing our development and supply services to our partners and customers based on our licensed therapies or providing similar services to our customers for their own therapies, our role is always the same. To make these therapies available to a large number of patients to reduce costs through decentralized processing and supplying using the point-of-care platform. Unlike a traditional biotech with a handful of therapies in a pipeline which require constant investment in clinical trials, we continue to evaluate new therapies at all stages of development through our growing partnerships with research and commercial entities and hospitals and streamline the development of these products through our network, providing us with short-term income throughout the development stage and potential upside once they get market approval. We have built a robust therapeutic pipeline, which includes more than 30 advanced cell and potential gene therapies, and we continue to evaluate new technologies. The fact that we can combine our point-of-care network, our processing technologies, such as automation solutions and arm tools, with our clinical and manufacturing expertise, provides us a distinct advantage to partner through licensing and service models with biotech companies, research institutes, and hospitals, and then advances new and exciting therapies through the clinic much faster and cost-effectively than a traditional biotech. We continue generating revenue by ampulizing various cell and gene products and supplying such products at existing centers to our customers and partners. Our revenue contracts naturally flow from process development to tech transfer to batch supply. These are long-term contracts, and as our customers and partners advance the products, the supply requirements expand. We are still investing, although at a much reduced rate and expanding capacity. We're finalizing the setup for the Point of Clear Center, rolling out our ampoules, incorporating new technologies, and implementing our quality system. But we are minimizing these investments as we are seeing growing public and private interest in supporting local regional expansions and developments. So to wrap up, we are more enthusiastic than ever by the outlook for the business. Our point-of-care strategy is no longer a vision, but a growing reality. We're constantly incorporating new technologies, and we have a growing pipeline of cell and gene therapies for which we provide development and processing services. We have an expanding global network of point-of-care centers in which we provide GMP processors, utilizing our technologies and our tools. We have assembled some of the top talent in the industry. And in much the same way that Amazon and Tesla disrupt the growth of markets by investing in a scalable infrastructure and first-in-class technologies are going to disrupt the cell and gene therapy markets. We are building a sustainable revenue model that we believe will support the growth of the industry in general and the growing capacity requirements of our partners and customers. We believe providing such solutions will drive value for shareholders for years to come. On that note, I'll now turn the call over to Neil Eisenberg, our Chief Financial Officer.
spk06: Thank you, Verit. Our revenues for the three months ended September 30th, 2021 were 8.7 million compared to 1.7 million for the three months ended September 30th, 2020, an increase of over 400%. The increase in our revenue is attributable to increased activity under master service agreements with our customers and increased services provided and expanded activities in our point of care service. Cost of services and other research and development expenses for the three months ended September 30th, 2021 were 10 million compared to $7 million for the three months ended September 30, 2020, representing an increase of 44%. The net increase during the quarter is attributable to a few different factors. There was an increase in salaries and related expenses as a result of additional staff hired to continue the development of our CGT product pipeline as we expand our PO care operations globally. We've continued to invest in the development of automated processing units and processes, owned and licensed advanced therapies to enable commercial production, and additional work with partners that addressed point of care needs. We also experienced an increase in subcontracting, professional and consulting fees related to those investments. Selling general and administrative expenses for the three months ended September 30th, 2021 were 6.1 million compared to 4 million for the respective period last year, representing an increase of 51%. The increase in selling in general administrative expenses is primarily attributed to an increase in salaries and related expenses. In terms of liquidity, we ended the third quarter of 2021 with cash and cash equivalents of approximately $15 million. Operator, we'll now open the call to questions.
spk07: Certainly. Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments, please press star 1 on your phone at this time. We do ask that while posing your question, please pick up your handset if you're listening on speakerphone to provide optimum sound quality. Once again, if you have any questions or comments, please press star 1 on your phone. Your first question is coming from Bruce Jackson from The Benchmark Company. Your line is live. Thank you.
spk08: So you mentioned earlier that the ampoules are currently in validation phase. So when do you think that we might see some of those ampoules shift into production?
spk01: Well, we actually have some of these already located on site. So when we qualify them, we just run the process through them. This is a standard industry practice. No different than what you would do with any other kind of process development. So it doesn't mean they're not usable. It just means that we qualify them either on-site or at the location where they're manufactured.
spk08: So what I'm driving at here is when the customers start using them for production, then there should be a royalty stream that flows from that in certain cases, depending upon the agreements that you've got. So what I'm trying to get a handle on here is when will the op rules be fully working at the customer sites and generating revenue from licensing. That's kind of what I'm trying to get at.
spk01: So we already have some initial sites working away. But what I think maybe I should correct something. It's not the customers using. We are using them. They are part of our infrastructure. So it's not the customers that uses them. We utilize the ampules to produce the products. And we're already running batches in some of them. But the whole concept here is this is our capacity. It's not the customer's use of Long Fuel. I just want to make sure that's clear.
spk08: Okay, good. That's helpful. Then at one point, there were like roughly about 30 of these projects underway. Is that still roughly the number? of ampoules that are coming online at some point or has that number changed at all?
spk01: So, again, I want to explain. A product can go into 10 ampoules, it can go into process development. You don't process or ampullize a process in several sites together. You do so at one site or at one point-of-care site. Once this is done, once this is completed, then you can supply as many sites as needed. So it's not that you can have one product. We have one product that will be utilized in five sites, another that can be utilized in three sites, and another that is utilized maybe in 15. So I just want to, again, just to be precise on the terminology, The idea here, a product is something, is a cell and gene therapy, it's a specific process that is ampullized, made in an ampule according to all the GMP requirements, and then can be supplied at the required sites. So, for example, if you're doing a clinical trial or you're providing a product at three different sites, you can place three different ampules. but there's no correlation between the number of farm peels and the number of products, okay? I hope I gave a good enough explanation. Is that clear?
spk08: Yes, that's clear. And then just one final question, and I'll hop back in queue. So with the CLEGO acquisition, I was wondering if that generated any revenue during the quarter. And that's it for me. Thank you.
spk00: Thank you.
spk01: So there was some revenue. Neil, do you have the exact numbers? I'm not sure we have them. But again, remember for the Collegio acquisition, we are still working on finalizing and amplifying this process, this product. We're also working on getting it approved in the U.S. and we're taking steps to get this approved in locations in Asia and in Europe. So I think revenue will not jump up until we finalize the ampullization process. I think it's been pretty consistent.
spk06: Yeah, that's correct. It's under $100,000.
spk03: It's a much smaller part of our revenue. Thank you.
spk07: Your next question is coming from John Ng from Beyond Capital. Your line is live.
spk05: Hey, Vera. Hey, Neil. Congrats on a great quarter. So could you share with us more about the cost of services and other research and development expenses that were incurred this quarter? What is one-off and what is recurring? Thanks.
spk00: Neil, would you like to answer?
spk06: I wouldn't say there's any one-off research and development. Again, it's part of an ongoing and, again, investment along with our JV partners in terms of developing this platform. I would say that the continuing expense with regard to personnel, and that's why that increased, too, to build that platform, is pretty stable and growing in that regard because the personnel is required. But as far as one-off development, Maybe, you know, certain clinical development may be one-off as far as quantifying that. It's hard to quantify, though, in that regard. But it's all part of the investment of building the platform, okay? So as you see revenues grow, you're going to continue to see certain costs grow on a scalable way. But then there'll be new costs that will come into play as well, okay? So it's really hard to really quantify a one-off charge in that regard, okay? Maybe in the future there may be some more ways to quantify that, but at this point it's really not something that I think is certainly something we can say maybe at one point in time or at a certain period of time may be quantifiable, but that may not be repeating itself. It may be different in another quarter. Okay.
spk01: Go ahead. Maybe I'll, I think also what this is referring to, when we present our financials, the cost of providing our services, is combined with our R&D costs. I think maybe this is what you were referring to. So we typically have a lot of this R&D cost. It's under R&D expenses, but it's actually the cost of providing services. Was this maybe what you were kind of implying to?
spk05: Yeah, got it. So another question I have is on Kyla Cell that is already approved for commercial use. So could you share with us some visibility in terms of the demand as you make this therapy available to more hospitals?
spk00: So again, this is typical of the whole industry, right?
spk01: You have a therapy, it's a wonderful therapy, and there's certainly, you know, requirements for patients who undergo complete pancreatectomy and they need a product, right? But if you can only supply this product, it's very specific locations, and you can't kind of make it available wherever needed, it limits the ability to kind of enlarge that. So one of the things, as you know, we've spoken this about in other calls, and again, this is not a two-month process. This is a lengthy process, but I believe we're advancing. That will allow us to... actually make this product at additional locations in a cost-efficient manner. So in terms of just the need by patients, there's a significant amount of pancreatectomies, and again, adoption of this new therapy is very much based also on availability. Typically, if you look at centers today, there's very few centers in the U.S., even if clinicians want to do this procedure, they just can't. Or if they want to supply islets to a patient who's gone through a complete pancreatectomy, they just can't do that.
spk05: Got it. Thanks. That's all I have. I respect your mission to make gene therapy affordable and accessible for patients. Thank you all for the hard work and have a great day.
spk00: Thank you very much.
spk07: Thank you. Once again, ladies and gentlemen, if you have any questions or comments, please press star 1 on your phone at this time.
spk03: Your next question is coming from Ulrich Say from New Group Capital. Your line is live.
spk04: Hi, Vera. Congratulations for your good results again. Congratulations to the team. Can you share with us a Pipeline out in the next few quarters. Previously, we have shared that there are about 40 million in the next one or two years. Can you share some colors in the next few quarters? How would this be? Thank you.
spk01: Thank you. So we haven't kind of formally shared any kind of predictions, but we haven't made these things public yet. But I can explain again, and you can see from the existing contacts. Once the current work we're doing, mostly on process development, or what we call on purification, okay? So we're working, making these therapies, so they're GMP compliant, and they're done in an efficient manner. And this is very similar to the work we used to do in master cell for process development. The difference here, we're not just doing it in a clean room. We're actually combining this with automation, closed loop, QC, and putting it in an ampule. So that allows us then this ability to ramp up later on. But so far, for all the products we've been working on, there's been no issues in terms of continuing with the process. I think our customers are happy. I think our partners are happy. as we progress. So naturally, what we are now doing is slowly moving over, and this goes back to what Bruce was asking, of course, going over from a stage where we're doing process development to actually running the batches. And that's kind of a different level of revenue. So when you charge revenue for the next stage, the way this is typically done, and again, very similar to what we used to do in the past, you are charging for kind of overall capacity usage, and you are charging per batch. So as these process development contacts go over and move over, and we actually have some additional ones coming in, as they progress towards batch production, then actually revenue starts depending on how many batches are produced. And again, you have very much of a safety factor because you're also kind of charging always for maintaining capacity, basically use of specific capacity for a certain product. So whether a customer or a partner is doing 10 or 20 or 50 patients, then you're still reserving the same capacity. On top of that, you have the specific revenue per batch. So typically what we are hoping, we can't be sure, but so far things are looking okay in terms of the process development, that as these contacts move from one stage and as they are progressing more to batch processing and supply, these contacts will expand as the number of batches produced are expanded. So I hope that gives some kind of clarity on how this business works.
spk04: Sure. Thanks, Vera. Do you foresee that the next few quarters will be a growth moving forward, continuously growing? Or do you still see that it's still maintaining as what it is now?
spk01: So again, first of all, I'm not even sure I'm allowed to say that. But in terms of our planning, I can say that we have the required capacity to not only maintain the existing revenue, but actually to expand. That's something we have ready for our customers. and in terms of the way just the way this industry progresses it typically these contacts for the first year or two are more or less at the same scale and once you move on to more expanded batch manufacturing the revenue expands with it but again it's a very case-by-case study i mean It really depends. If suddenly one of the products is going into more massive clinical trials, of course, revenue goes up. Or if in another case one of the products is stopped for some reason, then of course you have that coming down. But as you can see, we are expanding and we have more products we are servicing. So I personally am optimistic.
spk04: Thank you. Thank you very much. I love that optimism, and I look forward to the great results again. Thank you. That's all on my side.
spk01: Thank you.
spk07: Thank you. Your next question is coming from Bruce Jackson from Benchmark. Your line is live. Hi.
spk08: Thanks for the follow-up question. I was curious to know how much visibility you have on your master service agreement revenue in the future, and Can you give us a rough idea of how much unrealized business is left on those agreements?
spk01: Again, we haven't made this public, but as I said, I mean, we discussed this in the past, but these master service agreements will typically go on for two, sometimes even three years. Because I think if a company or if a partner or if we have a product working for a certain post of development. It's very difficult to suddenly take it and move to another kind of production or another kind of supply arrangement. This can take many years. So I think in terms of just revenue, as I said, we have the context we have and I'm optimistic that many of them will expand. And hopefully we have additional ones coming in. And I think we have the capacity and the capability to service that. And I know there's a big industry shortage. So again, we can't say exactly how much and how much it is. I mean, you can calculate how much revenue we've had so far. So I mean, it's pretty easy to realize how this revenue kind of builds up.
spk08: Okay. Great. That's it for me. Thank you.
spk01: Thank you.
spk07: Thank you. There are no further questions in the queue. I will now hand the conference back to Baird Kaplan for closing remarks. Please go ahead.
spk01: Thank you. I'd like to thank everyone for participating in our third quarter 2021 business update conference call. We are very excited about the outlook for the business and appreciate the strong support of our shareholders. We are executing on our point-of-care and therapeutic business model as evidenced by our strong revenue growth. Looking ahead, our goal is to continue the validation of our point-of-care platform while building the foundation for our market expansion in various geographic regions. We look forward to providing further updates as we work in close collaboration with our partners to deploy our point-of-care strategy worldwide.
spk00: Thank you.
spk07: Thank you, ladies and gentlemen. This concludes today's event. You may disconnect at this time and have a wonderful day. Thank you for your participation.
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