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spk03: And welcome to the Orgenesis second quarter 2023 business update call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, David Waldman, Investor Relations.
spk00: You may begin. Thank you and good morning everyone and welcome to the Origenesis second quarter 2023 Business Update conference call. On the call with us this morning are Verid Kaplan, Chief Executive Officer, and Neil Reitinger, 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 Exchange Act of 1934 is 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 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 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, 2022, and in our other filings with the Securities and Exchange Commission. We undertake no obligation to revise or update any forward-looking statements for any reason. I'd now like to turn the call over to our Genesis CEO, Ms. Verid Kaplan. Please go ahead, Verid.
spk01: Thank you, David, and thanks to everyone for joining us on our call today. We reported revenue of approximately $7 million for the second quarter of 2023, which reflects the continued activity of our point-of-care strategy. Most recently, we rebranded the point-of-care services business from more genesis to Octomail, which reflects our focus on providing standardized, decentralized, cost-effective development and production of advanced cell and gene therapies. The ongoing expansion of our point-of-care strategy has been enabled in part by the recent investment for Metalmark Capital. This capital allows us to increase our capacity and expand our activity, as well as the rollout of our point-of-care centers and deployment of our all tools in the U.S. The reason our point-of-care business is resonating well in the industry and among those familiar with the industry is quite simple. Our point-of-care platform addresses many of the key challenges facing the industry, including capacity constraints and excessive costs. Despite the fact that the autologous cell therapy market is valued at $13 billion and growing, the centralized production approach is not a sustainable business model, as illustrated by supply shortages, high prices of products, and limited availability of coverage. And because of our experience in this business for the past 10 years, we recognize this fact before the rest of the industry. We're now seeing the industry acknowledge the urgent need to shift production away from a centralized to a decentralized model and towards point of view. Hospital and health systems can't afford to produce cell and gene therapies in a centralized manner. This is a fact, and Octomera, a rebranded service activity, is the only service provider that can offer solutions today. We are also seeing growing recognition and support for decentralized production of cell and gene therapies among the regulators, including the FDA, which addressed decentralized manufacturing for the first time in the draft guidance document, Considerations for the Development of Chimeric Antigen Receptor, the CAR-T Cell Products, which we believe comes as a response to the industry's search for solutions in this space. In fact, a recent article in Labiotech noted that over 9,900 cell therapy trials are currently recruiting. They go on to point out that even if 5% to 10% are successful, a significant number of cell therapies will be approved in the near future. This is extraordinary considering the average number of drugs approved over the last 10 years is around 40. They go on to note that the traditional centralized CDMO model is a capital-intensive approach, essentially a dead end. And I quote, economically, it doesn't work. The cost of centralized manual processes will keep therapies out of reach for patients and payers. They point out a recent example, which was Bluebird's bio-withdrawal of Vintegro, a gene therapy for a rare blood disorder from the German market because it could not agree on a price with the health authorities. They conclude by saying the centralized approach also doesn't work from a clinical perspective because of the complicated logistics, time lags, and failed batches. In contrast, we are poised to capitalize on this growing underserved market and have shown our process work in a decentralized manner. Within the field of cell and gene therapies, our processes apply to regenerative medicine and immunoncology as well as other genetically modified cells. We are now expanding to new customers and moving to more advanced clinical stages among existing ones. As a result, we believe our models based on standardization of the production environment, is uniquely positioned to address industry challenges through a highly innovative decentralized model, which lower costs, streamlines logistics, and expands capacity. In addition, we designed them in a scalable modular format so we can add capacity as the needs of the hospital or biotech companies expand. This process is exactly the same regardless of where the product is produced. We have a GMT platform GMP team with significant practical experiences overseeing the centers and the RPO and working to implement advanced quality management and IT solutions. We'll also be rolling out our new GMP services in the US in the coming quarters. In addition, RPOs can be deployed and operational in three to six months with an existing structure or an available outdoor space. And production capacity can be easily scaled via the additional units. Arm pools are fully integrated, all-in-one bioprocessing production units that can be rapidly implemented as a standardized industrial cleaning alternative at the point of queue. Arm pools shorten the implementation time of new capacity from 24 months to 3 to 6 months. The interior can be purpose-built to include GMP-compliant production space with options for quality control labs and warehouse spaces. We believe our strategy of decentralizing and harmonizing the supply for cell and gene therapies will ultimately become the solution for this industry, lowering costs, streamlining logistics, and accelerating development of therapies through on-site processing. Through these steps, we are clearly executing on our strategy to make cell and gene therapy products and services more accessible, affordable, and available to patients than traditional centralized models of production. 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. On a related note, it is important to point out that some of the growing pains we went through to get where we are today. When we started out our point-of-care strategy over three years ago, decentralized production was a topic discussed as a distant option at industry events. with various bioreactor companies taking initial steps to provide systems for use in hospital cleanings. We had already tried this approach and realized that though this was important, this was not the full solution the industry needed. Our first clients were smaller, earlier stage companies that couldn't even access production capacity due to supply constraints within the market. For this reason, they were willing to take a risk with us. while this was still an early-stage concept, and recognize the value proposition we would be able to offer in terms of more rapid, lower-cost production if and when successful. But because many of these smaller companies were early-stage and undercapitalized, we were also willing to provide greater flexibility in payment terms and mutual support in working with them. They were and are our partners, and we appreciate the support while we were still in the development stages. This approach has impacted our accounts receivables, but we believe that we have achieved our goals, and hopefully, as these companies mature, we hope to continue providing the products in more advanced clinical phases. We have also advanced and matured and have validated our approach across several product types and can now work with companies at more industry-sustainable levels. With the deconsolidation of Octomera, We believe our decentralized service platform can now function as an independent entity as it continues to expand its reach globally. It has been rebranded as Octomera, with the name Octomera expressing the unique characteristics of the octopus, its capability to adapt and integrate to a wide range of spaces, its decentralized intelligence, Octopuses' arms can actually think independently of their central brain, their ability to regenerate their limbs, and their ability to reach out in all directions. The Mira part of the name comes from the word chimera, which signifies our ability to genetically modify cells. Because of the Head Start, this has given us in the market, we have now proven our model, and Octomira is positioned as a clear leader in terms of providing decentralized services. The industry itself is also maturing, and cell and gene autologous therapies, once considered almost a science fiction, are now becoming a viable approach for therapeutic treatment with more and more therapeutic areas targeted. A good example is the CAR or chimeric antigen receptor approach, in which the patient's immune cells are genetically modified so they may target a specific target. CARs were first used only to treat blood cancer, making history by enabling patients unheard of clinical results in extremely ill patients and have now expanded to multiple modalities, including autoimmune diseases and even cardiac disease. As the number of therapies grows, as more and more patients require these treatments, it has become obvious that the industry must find solutions to reduce costs and enable capacity. And we believe OptoMirror will play a significant role in providing this solution. Also, Once these customers start working with us, as I have discussed in the past, we become central to their entire production process and regulatory approval. This leads to a long-term collaborative relationship and interdependency. As they progress through various stages of clinical trials, so do we, and ultimately into commercialization together. Our strong process development capabilities coupled with our going GMP capacity enables us to decentralize the supply of cell and gene therapies in various regions. By initially developing a robust production process programmed into our proprietary agnostic and flexible arm pools, the production can be efficiently scaled and transferred to various locations in the manure network. We have our initial locations, which are operated directly by us, but we have also identified regional partners, at which we can work that can support the expansion of the network to meet local demand. This allows us to reduce regional overhead and expands our reach in providing decentralized services. It is also part of our strategy of providing a standard for the industry and utilizing available resources and integrating innovative technologies into the platform. We have successfully implemented implemented a certified academic program to support additional recruitment and are performing multiple tech transfer to additional sites for production stage products supplied at existing sites. We continue to support the growth of our network, which now spans North America, Europe, and Asia and the Middle East, compromised with both point of care centers, which serves as hubs for the entire region, In Europe and Asia and the Middle East, Octomera is already providing production services. It is still setting up point-of-care centers and strategic hubs in the U.S., implementing procedures and GMP in the international hubs. In order to maintain Octomera's value as an industry leader, it must not rush at the cost of not complying with its stringent quality requirements. There can be no compromise on this issue, as this boasts of a legal and an ethical duty. Octomera recently reached an important milestone in its collaboration.
spk03: Please stand by a moment while we reconnect the speaker's line. My apologies for the inconvenience. Please stand by, everybody. I'll reconnect the speaker's line at this time. Once again, please stand by. And Vera Kaplan has rejoined. Vera, please proceed.
spk01: Yeah. Sorry for being disconnected. Octomira recently reached an important milestone in its collaboration with University of California, Davis. Specifically, it signed a partnership agreement to deploy arm pools at UC Davis and other health care universities within the state of California. They are now setting up the first hubs, which we expect will expand over time. We believe that having UC Davis University as a partner is also strong validation and is likely to enhance the sales process with other institutions as Octomera expands its services across America. This agreement sets out a staged approach for which Octomera will install and operate ampoules, enable the point-of-care platform to produce therapies at hospitals throughout California, empowering on-site production for clinical trials like cell and gene therapies in development at UC Davis' Health Alpha Stem Cell Clinic. as well as marketed products for patients of the hospital. Ogenesis has also developed additional assets that are positioned to be integrated into a decentralized model. One unique asset has been developed by Mida Biotech, our wholly owned subsidiary, under the support of a prestigious EU grant. We've seen an explosion in the market in terms of new therapies utilizing induced pluripotent stem cells, known as IPSCs. MENA has developed a unique technology and capabilities to support production of autologous iPSC therapies, including using microfluidic technologies and artificial intelligence. This project is advancing rapidly and is already being integrated into areas such as neurological conditions, diabetes, and oncology. We are working in collaboration with several companies to integrate this for decentralized production. We believe that this will further propel and sustain our position as an innovative leader in the market. We also have other innovations in therapeutic technologies, such as state-of-the-art vectors and delivery technologies that have developed low-cost capital and have developed a low-cost capital-efficient business model to bring these technologies to market. These technologies target a broad array of indications, from immune oncology, antiviral, to metabolic and autoimmune diseases. tissue regeneration, and more. We are leveraging government grants and other sources of non-dilutive funding from regional partners in order to advance this. More broadly, our strategy involves in-licensing technologies from leading research centers, hospitals, and biotech companies, industrializing them so they can be utilized in a decentralized approach, and out-licensing them to development partners benefiting from co-development-related payments. By designing these technologies to be integrated into a decentralized point-of-care model, we believe these therapies and technologies can be advanced through clinical trials at a lower cost than traditional ones by leveraging our network of academic institutes and healthcare systems around the world. Through this network, we are establishing key strategic partnerships and licensing arrangements for several of these assets, And while our partners are responsible for funding development and clinical trials, we get paid for supporting the development efforts. As these programs progress, we expect to increasingly benefit from revenue sharing and loyalty agreements with our partners as we seek to advance respective therapies through commercialization. Our subsidiary, Colligo Therapeutics, continues to supply KyloSelf to medical institutes for total pancreatectomy islet auto transplant cases. As previously announced, Coligo passed an FDA inspection for this site as a registered tissue production establishment. Following this confirmation of the infrastructure design and production protocols and building on increasing demand, we are now aiming to expand capacity in the U.S. and internationally. In the EU, Coligo is utilizing the expertise of Ogenesis to enable regional production capacity and leverage GANs to drive clinical development. We also aim to expand into type 1 diabetes, a market valued at over $7 billion. So to wrap up, we continue to progress toward our goal of bringing life-changing cell and gene therapy treatments to a large number of patients at reduced cost under a decentralized strategy. Following the successful sale of MasterCell, we invested in the technology and methodology required for setting up a decentralized platform. We also invested in building out capacity for providing services in the EU, U.S., and the Middle East, which has generated revenue in the range of $35 million annually over the past two years. We have now built up an independent service company, Octomera, that following the investment from Edelmark is now expanding in the U.S. market. We have developed a pipeline of products in the diabetes field, with Collegro leading the way with KyloSense. currently provided and reimbursed at leading institutes in the U.S., with the goal of expanding its services under a decentralized approach, both to additional regions and additional therapeutic modalities. We have developed a unique capability in the IPSC field, being integrated into therapeutic modalities. We have developed and in-licensed multiple technologies integrated into a point-of-care therapeutic target and developed under partnerships and licenses. We believe that by partnering and bringing in financial support at the subsidiary level, we are optimizing shareholder value. Importantly, we are still in the first inning and building value in the biotech market either as a service or as a solution or technology provider. And that value of a solution and technology provider cannot be measured in months or quarters nor achieved in a year or two. We believe we have a deep understanding of this industry. Through our relationship with industry groups, technology providers, a leading research institute, we are always one step ahead in understanding what are the industry needs and have developed solutions and services that target such requirements. Like MasterCell, whose value was not obvious to non-industry parties, it may take time before the true value of activities are fully realized. Or Genesis is a company that has a goal of implementing technology amazing scientific achievements of the last decade into an industrial approach, enabling the patients who need these breakthroughs to benefit from them. We believe there is tremendous economic value in advancing this capability, both as a service and as a technology provider, and we have spared no effort to achieve these goals as quickly as possible in the last three years, despite extremely challenging economic conditions. I am proud of our mission and of our team's achievements. We are providing this industry a strong foundation on which to go and believe we will be the first to benefit from this growth. Octomera is the only company with full service capabilities to support cell and gene decentralized production. In this regard, we have positioned Octomera at the forefront of this industry. There are other companies, some of them quite large, that are developing technologies for decentralized production, but these are devices, not solutions. which makes Octomira very unique. These companies are now seeing the shift in the market and need a decentralized service platform on which to integrate their equipment. And ours is the only platform that has already been incorporated into production and clinical. All that said, our first and foremost considerations have always been life-saving therapies to market while driving value for our shareholders. Importantly, we've built a scalable, reoccurring revenue business model that will support the growth of the industry and the growing capacity requirements of our partners and customers. We hope to benefit from growth in high margins, recurring revenue streams based on future royalties and long-term agreements contracts for industrializing and supplying these cell and gene therapies. One final note, I'd like to welcome Elliot Miles, who was recently appointed CFO for Genesis, effective September 1st. Elliot brings 16 years of accounting and corporate finance experience working with public and private companies, specializing in the biotechnology, medical device, and manufacturing industries. We believe his strategic insight and experience will be invaluable as we enter our next phase of growth. I would like also to personally thank and express our sincere gratitude to Neil Reisinger for his significant contributions following years of dedicated service. We are always appreciative of the support of our shareholders and investors and hope they appreciate the endless efforts we invest in making Ogenesis a best-in-class company. We look forward to sharing more developments to be announced in the weeks and months ahead. On that note, I'd like now to turn the call over to Neil Isengard, our Chief Financial Officer.
spk04: Thank you, Vera. Revenue for the three months ended June 30th, 2023 was $7 million compared to $7.2 million for the three months ended June 30th, 2022. We recorded an increase in POC cell processing revenue in the amount of $375,000 as a result of new signed cell processing contracts in the Octomera segment, and an increase in cell process development services revenue in the amount of $5.7 million, offset by a decline in the POC development services revenue of $6.3 million, mainly in the Octomera segment. Cost of revenues for the three months ended June 30, 2023, were $3.2 million, as compared to $1.1 million for the three months ended June 30, 2022, representing an increase of 204%. The increase was due to increased costs in the OctoMERA segment, including additional salaries, professional fees for raw materials, and depreciation expenses incurred, mainly related to higher costs of revenues of process development and POC cell processing, the revenues of which increased. Selling general and administrative expenses for the three months ended June 30, 2023, were $3.3 million, compared to $2.8 million for the same period last year, representing an increase of 19%. The increase in selling general and administrative expenses in the three months ended June 30th, 22 compared to the three months ended June 30th, 21 is primarily attributed to an increase in salaries with expenses, professional fees, and other general administrative expenses in the October segment due to the ramp of activity offset by a decline in accounting and legal fees. Operating loss for the three months ended June 30th, 23 was 3.3 million compared to 4.7 million for the same period last year. Net loss for the three months ended June 30th, 23 was 3.7, a decrease of 33% compared to 5.5 million for the same period last year. Comprehensive loss attributed toward Genesis for three months ended June 30th was 3.8 million, which included the translation adjustment due to deconsolidation of Octomera of 384,000 and comprehensive income attributed to non-controlling interest of 466,000. We recorded a decrease of 35% in comprehensive loss attributed to our Genesis Inc. compared to 5.7 million for the same period last year. In terms of liquidity, we ended the quarter with cash, cash equivalents, and restricted cash of approximately 1.2 million. This does not reflect the most recent funding from Metalmark into Octomera 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 PO Care services. It is important to note that while we still have significant influence over OctoMera and still on approximately 75% following a deconsolidation, the assets and liabilities of OctoMera do not show up on our balance sheet. Finally, we remain focused on carefully managing expenses for our PO care therapies through cost-effective international partnering and licensing strategy and non-dilutive grant funding. Operator will now open the call to questions.
spk03: Thank you. The floor is now open for questions. If you would like to enter the queue to ask a question at this time, please press star one on your telephone keypad. We do ask if listening on speakerphone this morning that you pick up your handset while asking your question to provide optimal sound quality. Once again, please press star one on your telephone keypad at this time if you wish to join the queue to ask a question. Please hold a moment while we poll for questions. And our first question this morning is coming from Bruce Jackson from The Benchmark Company. Bruce, your line is live. Please go ahead.
spk02: Good morning, and thank you for taking my questions. With regard to the University of California agreement, it looks like you expanded during the quarter. So the first site was at UC Davis, and I just wanted to check and make sure I heard this correctly that there were two other sites that you were now working with. do you have a rough idea of how many sites in total you could expand to?
spk01: Uh, so we, we have other sites, but not in California. Okay. And, uh, that's at the moment, we'll just focus on one site in California because we, it's better to validate that site and then expand. I think in general, they were talking about, uh, five but again let me just explain again that um when you talk about a site okay a site can serve multiple hospitals okay multiple it can manage multiple arm fuels so multiple indications so one hub can host one ampule 10 ampules depending on how much so it's really about you know regional reach of you know you want these surveys to get to the locations a few hours away, right? So don't think of a site as just one hospital. That's kind of a misconception.
spk02: Okay, so the sites can have different capabilities and they're not directly comparable is what you're getting at.
spk01: Yeah, yeah. Each site can increase capacity. For instance, our Greek site has several ampules targeting different indications, okay? I'm just giving you an example, but it's not, you know, one site to hospital. It doesn't work that way. One site can offer anything in the vicinity of a couple of hours away.
spk02: Okay. And then with Coligo, on a past call, you discussed that you might be able to take some of that capability to international markets. Is that still the Are you thinking about that?
spk01: Yes, yes, but we'd like to have grant funding supported. We do have a grant. KyloSan is actually included in our Belgium grant at the moment, so we hope to utilize that to expand to the European market.
spk02: Okay, and then just a last question about the cell process development. development services, it's been ramping while the other, the PO care business has been kind of been trailing off. Actually, it's been kind of, I guess the question here is with the mix between those two businesses, should we expect that the self-processed development services are going to continue to ramp?
spk01: So let me explain this, okay? So that's why, and I've explained this, I think I've mentioned this in other calls, it's very difficult to, I'd say, kind of partition this revenue in our business by quarters. And we used to have the same issues with NASA and so on, right? Because what happens is, I mean, for the past quarter, when you have a new customer, you basically focus a lot on PD. Now you've finished, let's say, some business, a certain phase or a certain production phase. And now you're waiting for an existing customer for the next one. So it really actually reflects the fact that we've moved to a few several new customers more than anything else. And it's just a timing issue in terms of this quarter happened to be this, next quarter maybe something else. But yes, in general, in concept, We want to maintain a strong process development capability. Why? Because that each time builds up the pipeline for new production capacities. But they're very interconnected. And even the line of what is actual production and what is considered process development is not that clear cut. You may be producing batches, but for development reasons or other reasons. It really reflects the fact in this last quarter of bringing in new customers that initially need process development.
spk02: Okay. That's helpful. Thank you for taking my questions.
spk01: You're welcome, Bruce. And thanks for always kind of coming in on to the calls. Appreciate your interest.
spk03: Thank you. The floor remains open for questions at this time. If you would wish to ask a question, you may press star one on your keypad to enter the queue. Once again, that'll be star one at this time if you wish to join the queue to ask a question. And there are no further questions in queue at this time. I would now like to turn the floor back to management for closing remarks.
spk01: I'd like to thank everyone for participating on our second quarter 2023 Business Update conference call. We are excited about that, look for the business, and appreciate the support of our shareholders. We look forward to providing further updates as we advance our therapeutic targeting technology pipeline, expanding our point-of-care platform, and deploying our options worldwide. Thank you very much.
spk03: Thank you. 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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