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spk02: Good morning, ladies and gentlemen, and welcome to the Orgenesis third quarter 2022 business update call. At this time, all participants have been placed on a listen-only mode, and the floor will be open for questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Mr. David Waldman, Investor Relations. David, the floor is yours.
spk00: Thank you. Good morning, everyone, and welcome to Orgenesis's third quarter 2022 business update conference call. On the call with us this morning are Varick 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 in 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 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. 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 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. Now I'd like to turn the call over to our Genesis CEO, Ms. Verid Kaplan. Please go ahead, Verid.
spk03: Thank you, David, and thanks to everyone for joining us on our call today. We've made significant progress in advancing the rollout of our point of care platform, and we are very pleased to report another quarter of solid revenues, $8 million, and are progressing in our expansion in the U.S. We have invested much effort in terms of our capital raising activities in order to protect shareholders and preserve our capital structure. With that background, I'm very happy to report that we completed the recent financing of our point-of-care services business through our recently formed point-of-care services subsidiary, More Genesis LLC. I think it's important to note that this transaction valued this one subsidiary alone at a pre-money valuation of $125 million, which represents a significant premium to the market cap of our entire company. For those of you who may have been skeptical of our new business model, we believe this investment from Edelmar Capital, a premier private equity firm founded to independently manage the Morgan Stanley Capital Partner Funds, is a significant validation of our business model. They conducted extensive due diligence prior to this investment, which I believe has benefited the company. We believe this investment provides the necessary funding to accelerate the rollout of our point-of-care services business while minimizing dilution to existing stockholders given the current state of the public markets. I'd also like to point out that this is a similar strategy to the one we pursued with MasterCell. For those of you who have been involved with Ogenesis for some time, you'll recall we bought in a U.S. private equity firm as a strategic investor into our CDMO business. Ultimately, we sold this business for over $300 million to the benefit of all parties involved. We're pursuing a similar strategy through this private equity investment. The major difference here is that our revenues are already on par with where we were when we sold MasterCell. We believe that our point-of-care services business will generate substantially more value for the company and that we are providing a unique service for this expanding industry. Our point-of-care platform addresses many of the key challenges facing the industry, including capacity constraints, excessive cost, As a result, we believe our model is uniquely positioned to address industry challenges through a highly innovative decentralized model, which lowers costs, streamlines logistics, and expands capacity. Since launching our point-of-care business, the feedback from the industry has been positive, and now with Metalmark's support, we believe that we have the resources to accelerate this business. As we have discussed in the past, there are a number of advantages to our point-of-care systems, Such as short setup times, they have a small footprint, and they lower the cost of production through automated operations, streamlined logistics, and parallel processing. In addition, we designed them in a scalable and modular format, so we can add capacity as the needs of the hospital or biotech companies expand. OMPL shortens the implementation time of new capacity from 18-24 months as clean rooms require to approximately 3-6 months. We believe our strategy of decentralizing and unitizing the supply of cell and gene therapies based on standardization of the manufacturing environment could ultimately become the solution for this industry, lowering the cost of the therapies through on-site processing and make these therapies more broadly available to patients. Our goal over time is to reduce the cost of these therapies to tens of thousands versus hundreds of thousands of dollars. We believe this is a crucial step that is necessary for cell therapies to become widely available. Our global supply network now spans North America, Europe, Asia, and the Middle East, compromised with point-of-care centers which serve as hubs for the entire region. We now have ampules deployed in Europe and the Middle East and a set of point-of-care centers and strategic hubs in the U.S. As previously discussed, we expanded our collaboration with Johns Hopkins to establish a new point-of-care center also known as the Maryland Center for Cell Therapy Manufacturing. Construction of the new point-of-care center will be funded in part by a $5 million grant from the state of Maryland. Our process development services are already active on site. We could not envision a better partner than Johns Hopkins as one of our first strategic collaborations. We believe that having them as a partner is strong validation and is likely to enhance the sales process with other institutions as we expand across North America. All that being said, it's important to note that our business goes beyond point-of-care services. In terms of our point-of-care therapeutic pipeline, we have developed a low-cost, capital-efficient business model to bring these therapies to market. we now have a dozen distinct therapeutic programs within our pipeline in various stages of development. These therapies span a broad array of indications from immune oncology, antiviral, metabolic, and autoimmune diseases, and more. By designing these therapies from the ground up using our point-of-care model, we believe these therapies can be advanced through clinical trials at a lower cost than traditional clinical developments. by leveraging our network of academic institutions and health care systems around the world. Through this network, we are establishing key strategic partnership and licensing agreements to fund the development of activities. And while our partners are responsible for funding development and clinical trial, we get paid for performing services. As these programs move into commercialization phase, we would benefit from revenue sharing and royalty agreements with our partners. In addition, we have a strong track record of securing non-dilutive grant funding to further accelerate the development of these programs. We believe that our ability to secure grant funding makes these therapies even more attractive for potential partners and licenses. We then work with us through all stages of the development lifecycle. We can basically provide them a plug-and-play roadmap, including manufacturing, clinical, and regulatory, as well as other services. Also, through these partnerships and prudent cash management, we have dramatically reduced our SG&A by 49% and our net loss by 86% for the third quarter of this year over the same period last year. As a result, we achieved nearly break-even income from operation for the third quarter of 2022. At the heart of our business model, Our goal is to provide life-changing treatments to a large number of patients at reduced cost within the point-of-care setting. We've also built a robust therapeutic pipeline, leveraging the government grants and other sources of non-diluted funding from regional partners and others, while outlicensing therapies to regional distribution partners and benefiting from service-related payments. We are more than ever enthusiastic about the outlook of the business as we have built a scalable, recurring revenue business model. We believe our model is uniquely positioned to support the growth of the industry and the growing capacity requirements of our partners and customers. I would like to thank all of our loyal shareholders that have stuck with us and believe our best days lie ahead. We look forward to sharing more exciting developments to be announced in the weeks and months ahead. On that note, I'll now turn the call over to Neil Isengard, our Chief Financial Officer.
spk05: Thank you, Erin. Our revenues for the three months ended September 30th, 2022 were $8 million compared to $8.7 million for the three months ended September 30th, 2021. The decrease was attributable mainly to a decline in POC development services as a result of our having completed the majority of performance obligations under the POC Development Services Contracts in 21. During 22, we started recognizing revenue from cell processing, which comprised $2.4 million of the revenue for the three months ended September 30, 2022. As we moved into the second phase of our rollout, our ability to grow revenue has been limited by capital constraints. As Varad mentioned earlier, we believe the capital infusion by Metalmark will enable us to accelerate the rollout of our PO care services. Cost of revenues, development services, and research and development for the three months ended September 30, 2022 were $4.7 million, as compared to $10 million for the three months ended September 30, 2021, representing a decrease of 53%. The changes contributing to the decrease during the quarter were attributable to a decrease of $2.7 million in subcontracting, professional consulting service fees, and a decrease of $2.1 million on other research and development expenses. SG&A for the three months ended September 30, 2022 were $3.1 million compared to $6.1 million for the same period last year, representing a decrease of 49%. The decrease in SG&A in the three months ended September 30, 2022 compared to the comparable period last year is primarily attributable to a decline in salaries and related expenses, which was offset by an increase in accounting and legal fees. Operating loss for the three months ended September 30, 2022 was $7,000, compared to $7.7 million for the same period last year. Net loss for the three months ended September 30, 2022 was $1.4 million, a decrease of 86% compared to $10.1 million for the same period last year. As you can see, we remain focused on carefully managing expenses. At the same time, we believe the investment from Metalmark will enable us to accelerate the rollout of our point-of-care services. We also are able to contain costs for PO care therapies through our international partnering and licensing strategy coupled with non-dilutive grant funding. In terms of liquidity and current assets, we ended the period with approximately $3 million of cash and cash equivalents. This does not include our most recent funding from Metalmark of approximately $30 million that was received subsequent to the end of the quarter. We look forward to benefiting from this recent investment and advancing our collaboration with them to expand our PO care services. Operator will now open the call to questions.
spk02: Thank you very much. Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments, please press star 1 on your phone handset. We ask that while posing your question, you please pick up your handset if you're listening on a speakerphone to provide optimum sound quality. Please hold whilst we poll for questions. Thank you. Your first question is coming from Bruce Jackson of The Benchmark Company. Bruce, your line is live.
spk04: Hi, good morning and thank you for taking my questions. So congratulations on the metal mark transaction and the creation of more Genesis. I was wondering if you could give us some examples of how you've been capital constrained in the past and how the new capital is going to help you grow a little bit faster and get more arm pools out there.
spk03: I think it's very much CapEx related. When we set up a new arm pure or set up a new point of cure site, it's not a huge investment, but there is an investment there. We need to hire a few more people. Of course, you cannot commit to doing work in a certain region if you're not sure you have the capital to place that equipment there and to set up there. So I think in terms of just being a responsible service provider, we have to be careful not to take on contracts we cannot serve. And now having that capability will allow us to expand, especially with a focus on the U.S., right? Because as you remember, we began our activities in Europe and in the Middle East and in Asia. And I think it's important for us to expand our capacity and our ability to provide services in the U.S.
spk04: And then in the past, you've given out the number of on-pools that have been active. I was just curious if you could share with us how many you have up and running now.
spk03: So to tell you the truth, I don't want to say a number because I haven't... Okay, okay, it's fine. And I don't want to say an incorrect number, but it's less about, and I think that's important to understand, so I'm glad you brought up the question. It's less about how many ampoules, but how full or how fully the utilization in each ampoule is kind of done. So, I mean, an ampoule can do... let's say it can do 10 batches a year, it can make 50 batches, or a point-of-care center can, or a point-of-care hub, as David likes to call them, they can provide services to one ampoule or two ampoules or three ampoules. So it's really about making sure that the capacity we have is fully utilized and to make sure that adding additional capacity means then sets the stage for additional revenue.
spk04: Okay, got it. And then last question for me, you kind of touched on the therapeutic pipeline. Were there any highlights from the pipeline that you'd like to discuss? Any of the projects that made notable progress during the quarter?
spk03: Well, you know, most of our therapeutics are either preclinical or in different stages of clinical development. And I don't think there's anything that's been kind of dramatic in terms of, you know, finishing a phase one or finishing a phase two or something like that. But I can say they're progressing very nicely. And I think we will have more benefits from in terms even, I'm hopeful, even in terms of, you know, just payments. next year. But I think the team has done a tremendous job in really kind of progressing things and keeping to the timeline and making sure we can also utilize the grant funding because that is, of course, connected to the fact that we are doing the development at the required timeline. So I think things are certainly on course, and I'm really hoping that in the next year We'll see more and more news coming out on the therapeutics.
spk04: Great. Okay. Thank you very much for taking my questions, and congratulations on all the progress.
spk03: Thank you. Thanks for always being at the call. Appreciate it.
spk02: Thank you very much. Your next question is coming from Calvin Seto, who's a private investor. Calvin, your line is live.
spk01: Hey, Verit, congratulations on the great results. I think this quarter was really impressive in terms of how the costs are being managed. Could you run us through how was it being achieved? Were there headcounts being reduced? Because I see that this turnaround in financial results is really very impressive.
spk03: So, look, you know, we've been building a business, right? It takes time. It takes investment. And I think I've mentioned this in other calls as well. you know, you need to run batches before you actually make them. You need to train people. You need to push things ahead. It takes time to find distribution and licensing partners. All of these activities, they require capital, right? And I think what we will have now or what we are seeing now is, you know, the the benefit from our past investments, right? Because even if we license this therapy, there's still some work to be done in it before we can license it out. And even if we set up a point of cure hub, it takes time until that becomes utilized. But I think we have at the moment put in, you know, what we needed to establish this level of revenue and, And I'm very happy that we now have the Metalmark funds that will allow us to expand and grow the business. That's kind of, you know, it's just a matter of, I think, maturity of the business in some ways.
spk01: Got it, got it. I have one follow-up question. So I think it's really impressive on how we have gotten an investment from Metamark partners, I think also validated the business model. So given that we have an infusion of cash, how should we think about the profitability level of Orgenesis? Should we expect the business to expand aggressively and there will be some losses in the next few quarters or you would want the business to operate on a break-even level?
spk03: So I think it's also a matter of demand and planning for where we have the capital. I think we should go. I mean, this is an industry that needs solutions, right? And we have a great opportunity to be a trailblazer here, to show this can be done, to provide solutions. And you see the need in every place on the globe. I mean, wherever you go, you see companies, hospitals need a solution. And if we have the chance to go and expand and provide that solution, then now is the time to do it, not wait. Because if we have customers who want our service, we should certainly supply it. So it's really about how fast we can supply demand and how we can grow. But of course, I mean, every company doesn't want to lose money, neither do we. And unless we have an initial kind of focus or investment, I think we'll try to maintain our growth.
spk01: All right, got it. Just one last question. I noticed in our revenue breakdown the self-processing revenue has grown a lot. If I'm not wrong, it's somewhere above $2 million. So am I right to say that this is the recurring portion of the business?
spk03: Yes, that is really occurring. And as we spoke in the past, I'm hoping more will shift as eventually we grow. And I also think the fact that we have such strong process development capabilities, is actually because most companies or hospitals or almost anybody works in this field, before you start generating the reoccurring revenue of the processing, you need that process development. And the fact that we can expand and do process development and then shift towards is something that I think is very important for our business model. that, you know, companies or hospitals don't have to come to us when they've already got a full solution, but we can also provide that support to move from kind of more research to development and then to actual processing.
spk01: All right, got it. So I guess Three things really stood out for me this quarter. I think number one, look at the self-processing revenue has grown a lot. So the reoccurring portion is really great. I think it gives, you know, visibility, earnings visibility. You have achieved a near break even, right? I think that's fantastic. Third point is that you've gotten a huge investment from Metamark partners. I think a lot of companies these days are being starved of capital, but in our situation, it seems like we are injected with a lot of capital ready to expand. So I think it makes me even more excited for the journey ahead. Thanks for the great work and looking forward to the next quarter's result.
spk02: Thank you very much. Thank you very much. There appear to be no further questions in the queue. I'll now hand back over to management for any closing remarks.
spk03: So I'd like to thank everyone for participating on our third quarter update conference call. We are very excited about the outlook for the business and appreciate the strong support of our shareholders. And we look forward to providing further updates as advanced on our therapeutic pipeline, expand our point of care platform, and deploy our own tools worldwide. Thank you.
spk02: 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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