Orgenesis' Little Liver Cells

By the end of 2017, 8.8% of the adult population worldwide had diabetes, a chronic condition that can lead to blindness, heart failure, stroke or kidney failure.   

The diabetes statistic is exceptional and potentially as compelling to investors as it is shocking at a personal level. Diabetes has become a major target for investors with capital to finance lucrative therapies  -  with maybe a pinch of altruism on the side.  One of the recent recipients of new capital for diabetes-related work is Orgenesis, Inc. (ORGS:  Nasdaq), a developer of cell therapy aimed at the disease.  The company is perfecting technology to reprogram human liver tissue into insulin-producing cells that can be injected into patients with inadequate insulin production.  Successful implantation with these cells could mean freedom from the worst consequences of the disease.

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Running the Numbers on Diabetes

The investment opportunity and Orgenesis’ potential share in it are best understood against the backdrop of diabetes costs and treatments.  The portion of the population with diabetes is expected to reach 9.9% by 2045.  That means one in ten people around the world will spend a high portion of their income on medical care, miss work, struggle to take care of their families, suffer debilitating side-effects and symptoms, and ultimately die young, often of organ failure.  In 2017, patients in the U.S. and other developed markets spent $60 billion on diabetes therapies.  This compares to $34 billion just four years earlier.  The rising price of insulin in the U.S. is the most significant driver of increased costs.

Diabetes Treatments

For people with Type 1 diabetes, wherein the beta cells in the pancreas makes no insulin at all, injection of insulin is a necessity.  There is a cornucopia of other medications intended for Type 2 diabetics whose bodies still make insulin but do not produce enough or use it inefficiently.  

Unfortunately, none of these drugs can cure diabetes and any one of them must be used continuously.  Worse still a particular medication may only work for a period of time.  Physicians must try alternative drugs or mix and match medications that work on different aspects of inadequate insulin production, insulin resistance or inability to use insulin properly.

Research Directions

Inability to effectively manage diabetes with drugs is not good news for the more than 23.1 million people in the U.S. that have been diagnosed with the disease (National Diabetes Statistics Reports published in 2017).  An estimated 90% to 95% of all these cases are Type 2 diabetes and the remaining 5% to 10% are Type 1 diabetes cases.  The very large numbers have scientists scrambling to find alternatives with more lasting effects.

Pancreas regeneration or repair using cell therapy may be a realistic approach.  Insulin-producing beta cells in the pancreas do not regenerate on their own, but they could be replaced or fortified with new cells.  Researchers are using a variety of sources to generate beta cells, including mesenchymal stem cells that can be found in bone marrow, umbilical cord blood or the liver.    

Opportunity for Orgenesis

Human liver mesenchymal stem cells (MSCs) are at the foundation of Orgenesis’ technology.  These L-MSCs have a general structure but are unique in that they possess differentiation capacities as well as immune functions.  They produce higher levels of anti-inflammatory proteins called cytokines compared to bone marrow-derived MSCs.  The immunosuppressive character of L- MSCs could be valuable when the cell therapy is delivered to the patient.  Immunosuppressive therapy may not be necessary.

Orgenesis proposes to extract a tiny bit of a patient’s own liver and then convert the tissue into fully glucose-responsive and insulin-producing cells.  The company calls them Autologous Insulin Producing or AIP cells, which are returned to the patient by infusion.  Type 1 diabetics should become insulin independent within days as the AIP cells begin to sense glucose-levels and produce insulin naturally.  A single course of therapy is expected to provide insulin independence for as long as a decade.

The conversion of L-MSCs to pancreatic-like cells is accomplished using the Orgenesis’ proprietary ‘cellular trans-differentiation’ technology.  The technology is licensed from Israel’s Tel Hashomer Medical Research Infrastructure and Services Ltd (THM).  The company’s chief science officer is also a researcher at THM and has been a catalyst in developing the method.

Leading the Competitive Pack

Orgenesis is not alone in using cell therapy technology to aid diabetes patients or even using liver tissue as a resource.  However, Orgenesis may be a few steps ahead of the others in the quests for an approved therapy ready for patients.

Osiris Therapeutics (OSIR:  Nasdaq) completed enrollment in a Phase 2 clinical trial to evaluate Prochymal, a formulation of adult mesenchymal stem cells from bone marrow that Osiris previously developed and sold to Mesoblast Ltd. (MESO:  Nasdaq).  The study focuses on patients that have recently been diagnosed with Type 1 diabetes.  Prochymal is an allogenic stem cell therapy that has been approved in Canada for treatment of acute graft-vs-host disease that can develop following bone marrow transplantation.

Privately-held Unicyte AG is a self-described regenerative medicine company that claims to have developed functional pancreatic islets from human liver cells.  In collaboration with scientists are the University of Turin the company has completed animal models of Type 1 diabetes.  Unicyte is a subsidiary of Fresenius Medical Care AG (FMS:  NYSE), a significant provider of dialysis products and services.  As a private company Unicyte can keep mum on its activities.  Furthermore, Fresenius' disclosures with the U.S. SEC offer little insight into recent research progress.  Some investors might interpret that as no progress.  Most likely it is a matter of prioritized those compounds that are delivering the best data.

Orgenesis Corporate Presentation

Delivery and Care

Besides having accomplished more than some of its peers on regenerative cell therapy for diabetes, Orgenesis is set apart by a novel approach to delivering the new pancreatic-like cells back to the patient.  The company is collaborating with BGN Technologies and the National Institute for Biotechnology of the Negev, both affiliates of Ben-Gurien University in Israel, to develop a ‘scaffold’ technology for cell transplantation.  A scaffold structure will protect the delicate cells from damage as they are being reintroduced to the patient through infusion.  This increases the likelihood that Orgenesis AIP cells will quickly begin producing insulin once inside the patient.

Orgenesis is not alone in trying to come up with an effective stem cell encapsulation technology.  In April 2018, Novo Nordisk (NVO:  NYSE) announced an investment of $7 million in Cornell’s Department of Biological and Environmental Engineering.  The group is developing cell encapsulation devices made from fine-pore structures of nanofiber membranes.  By controlling how the nanofibers are collected during an electro-spinning process, the fibers can be engineered into a structure that can house and deliver insulin-producing cells.  So far the structures have been tested only in mouse models.

One More Advantage

Orgenesis plans preclinical safety and efficacy studies and then human clinical trials to prove the value of its cell therapy.  In the meantime, the company has another ace up its competitive sleeve.  In March 2015, Orgenesis acquired MaSTHercell Ltd., a leader in cell therapy manufacturing located in Belgium.  MaSTHercell provides contract manufacturing as well as process and assay development services to cell therapy developers.  With no manufacturing capacity of its own Orgenesis found MaSTHercell a perfect fit as it nears clinical trials and moves another step closer to commercial stage. 

MaSTHercell is capable of carrying out all the steps required to produce Orgenesis' AIP cells once a biopsy of the patient's liver has been completed.  The cells are cultured and propagated in bioreactors before the trans-differentiation step.  Then the new cells are washed and packaged in the specialized structures.  Quality and speed are critical.  MaSTHercell's Good Manufacturing Practices (GMP) help ensure only high quality cells are delivered to the patient for influsion.

Contribution Margin

As Orgenesis works toward approval of its own cell therapy, it is contract manufacturing services are generating a profit.  In the first half of 2018, the company reported $6.6 million in revenue from its contract manufacturing services, reflecting a 60% year-over-year increase.  Management thinks the growth is unfolding because MaSTHercell is offering contract manufacturing services at a pivotal time in the cell therapy sector. 

Developers of cell therapies are challenged to create a viable supply chain for commercialization, especially developers of CAR T-cells that are complex and therefore costly to manufacture.  There are some companies like Gilead Sciences, Inc. (GILD:  Nasdaq) and Novartis AG (NVS: NYSE) that have the financial resources to build centralized, in-house manufacturing models.  However, smaller developers need a reliable partner to help build an end-to-end process that keeps the cycle time to a minimum at a reasonable cost.  MaSTHercell is building a reputation as a capable and reliable manufacturing partner. 

In 2017, three cell therapies received approval by the U.S. FDA, including Novats' Kymriah, Gilead's (Kite) Yescarta, and Spark Therapeutics' Luxturna.  The approvals have triggered new enthusiasm in regenerative therapies.  By the end of 2017, the Alliance for Regenerative Medicine (ARM) reported over 600 active cell therapy clinical trials, over half of which were in Phase 2.  

Orgenesis management believes many of these developers will require MaSTHercell's unique understanding of cell therapy process development.  The healthcare investment fund, Great Point Partners, agrees.  The private equity fund has committed to invest up to $25 million into MaSTHercell to help expand its manufacturing network and penetrate the cell and gene therapy market.  The investment is convertible into Orgenesis stock.

Part II of this two part series on Orgenesis will look at the company’s financial profile with its hot-ticket contract manufacturing services and rapid developing diabetes cell therapy.

PUBLIC COMPANIES MENTIONED IN THIS ARTICLE
Company	SYM	Price	Mkt Cap	Sales	EPS	PE
Osiris Therapeutics	OSIR	$11.50	$399.1M	$127.9M	$0.28	41.1
Mesoblast Ltd.	MESO	$5.97	$581.2M	$17.3M	($0.38)	Neg
Fresenius Medical Care	FMS	$52.10	$31.7B	$19.8B	$3.74	13.9
Gilead Sciences, Inc.	GILD	$74.12	$95.1B	$23.2B	$1.67	44.4
Novartis AG	NVS	$85.30	$194.2B	$52.2B	$5.88	14.5
Orgenesis, Inc.	ORGS	$5.30	$83.6M	$12.6M	($1.13)	Neg

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

Underwriters of the Prime series may have a beneficial interest in, serve as agents of, or act as advisors to the companies mentioned herein.