Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking
Statements
The
following discussion should be read in conjunction with the financial statements and related notes contained elsewhere in this Quarterly
Report on Form 10-Q, as well as our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 as filed with the Securities
and Exchange Commission (the “SEC”) on March 9, 2021. Certain statements made in this discussion are “forward-looking
statements” within the meaning of 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section
21E of the Securities Exchange Act of 1934, as amended. These statements are based upon beliefs of, and information currently available
to, the Company’s management as well as estimates and assumptions made by the Company’s management. Readers are cautioned
not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. When
used herein, the words “anticipate,” “believe,” “estimate,” “expect,” “forecast,”
“future,” “intend,” “plan,” “predict,” “project,” “target,” “potential,”
“will,” “would,” “could,” “should,” “continue” or the negative of these terms
and similar expressions as they relate to the Company or the Company’s management identify forward-looking statements. Such statements
reflect the current view of the Company with respect to future events and are subject to risks, uncertainties, assumptions, and other
factors, including the risks relating to the Company’s business, industry, and the Company’s operations and results of operations
and the effects that the COVID-19 outbreak, or similar pandemics, could have on our business and CGT Biotech Platform. Should one or
more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly
from those anticipated, believed, estimated, expected, intended, or planned.
The
full extent to which the COVID-19 pandemic may directly or indirectly impact our business, results of operations and financial condition
will depend on future developments that are uncertain, including as a result of new information that may emerge concerning COVID-19 and
the actions taken to contain it or treat COVID-19, as well as the economic impact on local, regional, national and international customers
and markets. We have made estimates of the impact of COVID-19 within our financial statements, and although there is currently no major
impact, there may be changes to those estimates in future periods. Actual results may differ from these estimates.
Although
the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future
results, levels of activity, performance, or achievements. Except as required by applicable law, including the securities laws of the
United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results.
Our
financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”).
These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments
and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments
and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of
the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. Our financial
statements would be affected to the extent there are material differences between these estimates and actual results. The following discussion
should be read in conjunction with our financial statements and notes thereto appearing elsewhere in this report.
Unless
otherwise indicated or the context requires otherwise, the words “we,” “us,” “our,” the “Company,”
“our Company” or “Orgenesis” refer to Orgenesis Inc., a Nevada corporation, and our majority or wholly-owned
subsidiaries, Orgenesis Korea Co. Ltd. (the “Korean Subsidiary”); Orgenesis Belgium SRL, a Belgian-based entity (the
“Belgian Subsidiary”); Orgenesis Ltd., an Israeli corporation (the “Israeli Subsidiary”); Orgenesis Maryland
Inc., a Maryland corporation (the “U.S. Subsidiary”); Orgenesis Switzerland Sarl, which was incorporated in October
2020 (the “Swiss Subsidiary”); Orgenesis Biotech Israel Ltd. (“OBI”); Koligo Therapeutics Inc., a Kentucky
corporation, purchased in 2020 (“Koligo”); Masthercell Global Inc. (“Masthercell”) and its wholly owned
subsidiaries Cell Therapy Holdings S.A., MaSTherCell, S.A. (“MaSTherCell”), a Belgian-based subsidiary and a Contract
Development and Manufacturing Organization (“CDMO”) specialized in cell therapy development and manufacturing for
advanced medicinal products, and Masthercell U.S., LLC (“Masthercell U.S.”), a U.S.-based CDMO (collectively, “Masthercell”).
The Company sold all of its equity interests in Masthercell and its subsidiaries in February 2020.
Corporate
Overview
Orgenesis
Inc., a Nevada corporation, is a global biotech company working to unlock the potential of cell and gene therapies (“CGTs”)
in an affordable and accessible format.
CGTs
can be centered on autologous (using the patient’s own cells) or allogenic (using master banked donor cells) and are part of a
class of medicines referred to as advanced therapy medicinal products (ATMPs). We mostly focus on autologous therapies, with processes
and systems that are developed for each therapy using a closed and automated processing system approach that is validated for compliant
production near the patient at their point of care for the treatment of patients. This approach has the potential to overcome the limitations
of traditional commercial manufacturing methods that do not translate well to commercial production of advanced therapies due to their
cost prohibitive nature and complex logistics to deliver the treatments to patients (ultimately limiting the number of patients that
can have access to, or can afford, these therapies).
To
achieve these goals, we have developed a Point of Care Platform comprised of three enabling components: a pipeline of licensed POCare
Therapies that are designed to be processed and produced in closed, automated POCare Technology systems and a collaborative POCare Network.
Via a combination of science, technology, engineering, and networking, we are working to provide a more efficient and scalable pathway
for advanced therapies to reach patients more rapidly at lowered costs. We also draw on extensive medical expertise to identify promising
new autologous therapies to leverage within the POCare Platform either via ownership or licensing.
The
POCare Network brings together patients, doctors, industry partners, research institutes and hospitals worldwide with a goal of achieving
harmonized, regulated clinical development and production of the therapies.
POCare
Platform Operations via Subsidiaries
We
currently conduct our core business operations ourselves and through our subsidiaries, which are all wholly-owned except as otherwise
stated below (collectively, the “Subsidiaries”). The Subsidiaries are as follows:
United
States
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●
|
Orgenesis
Maryland Inc. (the “U.S. Subsidiary”) is the center of activity in North America and is currently focused on setting
up the POCare Network.
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|
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●
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Koligo
Therapeutics Inc. (“Koligo”) is a Kentucky corporation that we acquired in 2020 and is currently focused on developing
the POCare network and therapies.
|
Europe
|
●
|
Orgenesis
Belgium SRL (the “Belgian Subsidiary”) is the center of activity in Europe and is currently focused on process development
and the preparation of European clinical trials.
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|
|
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●
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Orgenesis
Switzerland Sarl (the “Swiss Subsidiary”), was incorporated in October 2020, and is currently focused on providing management
services to us.
|
Asia
|
●
|
Orgenesis
Ltd. in Israel (the “Israeli Subsidiary”) is a provider of regulatory, clinical and pre-clinical services.
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|
|
|
|
●
|
Orgenesis
Biotech Israel Ltd. (“OBI”), is a provider of cell-processing services in Israel.
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|
|
|
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●
|
Orgenesis
Korea Co. Ltd. (the “Korean Subsidiary”), is a provider of processing and pre-clinical services in Korea. We own 94.12%
of the Korean Subsidiary.
|
Business
Strategy
Our
aim is to provide a pathway to bring Advanced Therapy Medicinal Products (“ATMPs”) in the cell and gene therapy industry
from research to patients worldwide through our POCare Platform. We define point of care as a process of collecting, processing, and
administering cells within the patient care environment, namely through academic partnerships in a hospital setting. We believe that
this approach is an attractive proposition for personalized medicine because of our strategic partnerships with suppliers that help us
to customize closed systems into effective mobile clean room facilities. This will potentially help to minimize or eliminate the need
for cell transportation, which is a high-risk and costly aspect of the supply chain.
We
aim to build value in various aspects of our company ranging from supply related processes including development and distribution systems,
clinical and regulatory services, engineering and devices such as OMPULs discussed below, delivery systems, therapies including immuno-oncology,
anti-aging, anti-viral, metabolic, nephrology, dermatology, orthopedic, as well as regenerative technologies.
Over
time, we have worked to develop and validate POCare Technologies that can be combined within mobile production units for advanced therapies.
We made significant investments in the development of several types of Orgenesis Mobile Processing Units and Labs (“OMPULs”)
with the expectation of use and/or distribution through our POCare Network of partners, collaborators, and joint ventures. We anticipate
distributing and using the OMPULS through our POCare Network of partners, collaborators, and joint ventures.
OMPULs
are designed for the purpose of validation, development, performance of clinical trials, manufacturing and/or processing of potential
or approved cell and gene therapy products in a safe, reliable, and cost-effective manner at the point of care, as well as the manufacturing
of such CGTs in a consistent and standardized manner in all locations. The design delivers a potential industrial solution for us to
deliver CGTs to most clinical institutions at the point of care.
Revenue
Model and Business Development
Our
Point of Care (“POCare”) Platform is comprised of three enabling components: a multitude of licensed cell based POCare Therapeutics
that are produced in closed, automated POCare Technology systems and a collaborative POCare Network. Our therapies include, but are not
limited to, autologous, cell-based immunotherapies, therapeutics for metabolic diseases, anti-viral diseases, and tissue regeneration.
We are establishing and positioning the business to bring point-of-care therapies to patients in a scalable way working directly with
hospitals and through regional joint venture partners (“JVs”) and JVs active in autologous cell therapy product development,
including facilities in various countries in North America, Europe, Latin America, Asia, the Middle East, and Australia. The POCare Platform’s
goal is to enable a rapid, globally harmonized pathway for these therapies to reach large numbers of patients at lowered costs through
efficient and decentralized production. The POCare Network brings together industry partners, research institutes and hospitals worldwide
to achieve harmonized, regulated clinical development and production of the therapies.
We
are focused on technology in-licensing and therapeutic collaborations, and we out-license therapies marketing rights and
manufacturing rights to partners and / or to the JVs. In many cases, the JVs are responsible for the preparation of clinical trials,
local regulatory approvals and regional marketing activities. Such licensing includes exclusive or nonexclusive, sublicensable, royalty
bearing rights and license to the Orgenesis Background IP as required solely to manufacture, distribute and market and sell Orgenesis
Products within the relevant territories. In consideration of the rights and the licenses so granted, we receive a royalty in the range
of ten percent of the net sales generated by the JVs and/or its sublicensees (as applicable) with respect to the Orgenesis Products.
In
addition, in many cases, once the JVs become profitable, we are entitled (in addition to any of its rights as holder of the JVs and prior
to any other distributions of dividends by the JVs to shareholders of the JVs) to certain royalties pursuant to an Orgenesis License
Agreement, to receive from the JVs royalties at a range of 10 to 15 percent of the JV’s audited U.S. GAAP profit,
after tax.
We
currently generate revenues from POCare services and sales which is comprised of:
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●
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R&D
services provided to out licensing partners
|
The
Company has signed POCare Master Services Agreements (“MSAs”) with our JV partners. In terms of the MSAs, we provide
certain broadly defined development services that relate to our licensed therapies designed to develop or enhance the therapy with the
objective of preparing it for clinical use. Such services, per therapy, include regulatory services, pre-clinical studies, intellectual
property services, development services, and GMP process translation.
Hospital
services includes the sale or lease of products and the performance of processing services to our POCare hospitals or other medical providers.
We either work directly with hospitals or receive payments through our regional JV partnerships.
Results
of Operations
Comparison
of the Three Months Ended March 31, 2021 to the Three Months Ended March 31, 2020.
The
following table presents our results of operations for the three months ended March 31, 2021 and 2020:
|
|
|
Three Months Ended
|
|
|
|
|
March 31, 2021
|
|
|
March 31, 2020
|
|
|
|
|
(in thousands)
|
|
|
Revenues
|
|
$
|
8,232
|
|
|
$
|
1,385
|
|
|
Revenues to Related Party
|
|
|
1,157
|
|
|
|
493
|
|
|
Cost of services and other research and development expenses
|
|
|
6,127
|
|
|
|
4,873
|
|
|
Amortization of intangible assets
|
|
|
238
|
|
|
|
223
|
|
|
Selling, general and administrative expenses
|
|
|
2,968
|
|
|
|
3,518
|
|
|
Share in net loss of associated companies
|
|
|
15
|
|
|
|
-
|
|
|
Financial expenses, net
|
|
|
233
|
|
|
|
329
|
|
|
Other income, net
|
|
|
(25
|
)
|
|
|
(3
|
)
|
|
Loss before income taxes
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|
$
|
167
|
|
|
$
|
7,062
|
|
During
the three months ended March 31, 2021, we recognized point-of-care development service revenue in the amount of $9,254
thousand, as compared to $1,851 during the three months ended March 31, 2020, representing an increase of 400%,
due to increased activity under MSAs with our existing and new joint venture partners.
Expenses
Cost of services
and other research and development expenses
|
|
|
Three Months Ended
|
|
|
|
|
March 31, 2021
|
|
|
March 31, 2020
|
|
|
|
|
(in thousands)
|
|
|
Salaries and related expenses
|
|
$
|
2,236
|
|
|
$
|
916
|
|
|
Stock-based compensation
|
|
|
158
|
|
|
|
86
|
|
|
Professional fees and consulting services
|
|
|
2,125
|
|
|
|
401
|
|
|
Lab expenses
|
|
|
627
|
|
|
|
619
|
|
|
Depreciation expenses, net
|
|
|
163
|
|
|
|
132
|
|
|
Other research and development expenses
|
|
|
818
|
|
|
|
2,804
|
|
|
Less – grant
|
|
|
-
|
|
|
|
(85
|
)
|
|
Total
|
|
$
|
6,127
|
|
|
$
|
4,873
|
|
Research and development
expenses for the three months ended March 31, 2021 were $6,127 thousand, as compared to $4,873 thousand for the three months ended
March 31, 2020, representing an increase of 26%.
The
increase is mainly attributable to the continued expansion of our pipeline of licensed CGTs with a harmonized pathway for regulatory
approval, the expansion of our POC capacity globally, further investments in automated processing units and processes, further development
of owned and licensed advanced therapies to enable commercial production, and additional work with partners to enable efficient closed
processing system technologies addressing POCare needs.
Furthermore,
additional employees were hired as we expanded our research and development to the evaluation and development of new cell therapies and
related technologies.
We
also continued investing in the development of several types of OMPULs with the expectation of use and/or distribution through our POCare
Network of partners, collaborators, and joint ventures.
Selling,
General and Administrative Expenses
|
|
|
Three Months Ended
|
|
|
|
|
March 31, 2021
|
|
|
March 31, 2020
|
|
|
|
|
(in thousands)
|
|
|
Salaries and related expenses
|
|
$
|
679
|
|
|
$
|
502
|
|
|
Stock-based compensation
|
|
|
407
|
|
|
|
331
|
|
|
Accounting and legal fees
|
|
|
872
|
|
|
|
1,624
|
|
|
Professional fees
|
|
|
412
|
|
|
|
437
|
|
|
Rent and related expenses
|
|
|
30
|
|
|
|
61
|
|
|
Business development
|
|
|
148
|
|
|
|
250
|
|
|
Depreciation expenses, net
|
|
|
52
|
|
|
|
25
|
|
|
Other general and administrative expenses
|
|
|
368
|
|
|
|
288
|
|
|
Total
|
|
$
|
2,968
|
|
|
$
|
3,518
|
|
Selling,
general and administrative expenses for the three months ended March 31, 2021 were $2,968 thousand, as compared to $3,518 thousand
for the three months ended March 31, 2020, representing a decrease of 16%. The decrease in selling, general and administrative
expenses in the three months ended in March 31, 2021 compared to the three months ended March 31, 2020 is primarily attributable
to a decrease in accounting and legal fees of $752 thousand, as a result of decreased corporate investment activities in
2021 compared to 2020.
Financial
Expenses, net
|
|
|
Three Months Ended
|
|
|
|
|
March 31, 2021
|
|
|
March 31, 2020
|
|
|
|
|
(in thousands)
|
|
|
Interest expense on convertible loans and loans
|
|
$
|
253
|
|
|
$
|
422
|
|
|
Foreign exchange loss, net
|
|
|
56
|
|
|
|
57
|
|
|
Other income
|
|
|
(76
|
)
|
|
|
(150
|
)
|
|
Total
|
|
$
|
233
|
|
|
$
|
329
|
|
Financial
expenses, net for the three months ended March 31, 2021 were $233 thousand, as compared to $329 thousand for the three months
ended March 31, 2020, representing a decrease of 29%. The decrease was mainly a result of repayments in relation to the convertible
loans during 2020.
Working
Capital
|
|
|
As of
|
|
|
|
|
March
31, 2021
|
|
|
December
31, 2020
|
|
|
|
|
(in thousands)
|
|
|
Current assets
|
|
$
|
54,713
|
|
|
$
|
50,077
|
|
|
Current liabilities
|
|
|
18,930
|
|
|
|
16,285
|
|
|
Working capital gain
|
|
$
|
35,783
|
|
|
$
|
33,792
|
|
Current
assets increased, primarily due to increased accounts receivable as a result of the increased revenues. The increase in current
liabilities was mainly attributable to an increase in accounts payable caused by the expansion of business operations.
Liquidity
and Financial Condition
|
|
|
Three Months Ended
|
|
|
|
|
March 31, 2021
|
|
|
March 31, 2020
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(165
|
)
|
|
$
|
69,450
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(4,547
|
)
|
|
|
(13,693
|
)
|
|
Net cash provided by (used in) investing activities
|
|
|
(539
|
)
|
|
|
103,045
|
|
|
Net cash provided by financing activities
|
|
|
1,898
|
|
|
|
6,357
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
$
|
(3,188
|
)
|
|
$
|
95,709
|
|
During
the quarter ended March 31, 2021, we funded our operations from existing funds.
Net
cash used in operating activities for the three months ended March 31, 2021 was approximately $5 million, as compared to net cash used
in operating activities of approximately $14 million for the three months ended March 31, 2020.
Net
cash used in investing activities for the three months ended March 31, 2021 was approximately $1 million, as compared to net cash provided
by investing activities of approximately $103 million for the three months ended March 31, 2020. The change was mainly due to the
proceeds from Masthercell in the first quarter of 2020. Net cash used in investing activities was primarily for related activates
under our CGT Biotech Platform.
Liquidity
& Capital Resources Outlook
We
believe that our current cash balance as well as revenues from our current operations results will provide sufficient liquidity to fund
our operating needs for at least the next 12 months. However, there are factors that can impact our ability to continue to fund our operating
needs, including:
|
●
|
restrictions
on our ability to expand sales volume from our CGT Biotech Platform; and
|
|
●
|
the
need for us to continue to invest in operating activities to remain competitive or acquire other businesses and technologies and
to complement our products, expand the breadth of our business, enhance our technical capabilities or otherwise offer growth opportunities.
|
If
there are further increases in operating costs in general and administrative expenses for facilities expansion, funding for some of our
collaborations and joint ventures, research and development, commercial and clinical activity or decreases in revenues from customers,
we may decide to seek additional financing.
Off-Balance
Sheet Arrangements
The
Company has no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company’s
financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or
capital resources that is material to stockholders.