NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For
the Period Ended September 30, 2020 and 2019
(Unaudited)
NOTE
1 – DESCRIPTION OF BUSINESS
a.
General
Orgenesis
Inc., a Nevada corporation (the “Company”), is a pioneering global biotech company in the Cell & Gene Therapy
(“CGT”) industry focused on unlocking the full potential of its therapeutics products and personalized therapies and
closed processing systems with the ultimate aim of providing life-changing treatments to large numbers of patients at reduced
costs in a point-of-care setting. It pursues this strategy through a point-of-care platform (“CGT Biotech Platform”)
that combines therapeutics, technologies, processes, and systems via a network of collaborative partners, and research institutes
and hospitals around the world.
The
Company’s CGT Biotech Platform consists of: (a) POCare Therapeutics, a pipeline of licensed CGTs, anti-viral and proprietary
scientific know-how; (b) POCare Technologies, a suite of proprietary and in-licensed technologies which are engineered to create
customized processing systems for affordable point-of-care therapies; and (c) a POCare Network, a collaborative, international
ecosystem of leading research institutions and hospitals committed to clinical development and supply of CGTs at the point-of-care
(“POCare Network”).
The
Company is committed to the validation, adoption and development of systems, technologies and processes for mobile processing
unit and labs (“OMPUL”). OMPULs are intended to be used and/or distributed through Company’s point
of care network of partners, collaborators and joint ventures for the purpose of validation, development, performance of
clinical trials, manufacturing and/or processing of potential or approved cell or gene therapy products in a safe, reliable and
cost-effective manner. This provides an industrial solution for any clinical institution in the world to provide more therapies
at the point of care.
By
combining science, technology, including its mobile processing units that it is developing, and a collaborative network, the Company
believes that it is able to identify the most promising new autologous therapies and provide a pathway for them to reach patients
more quickly, more efficiently and in a scalable way, thereby unlocking the power of cell and gene therapy for all patients, thus
enabling wide-scale access to these life-changing treatments.
The
Company had historically also operated a Contract Development and Manufacturing Organization (“CDMO”) platform, which
provided contract manufacturing and development services for biopharmaceutical companies (the “CDMO Business”). On
February 2, 2020, the Company entered into a Stock Purchase Agreement (the “Purchase Agreement”) with GPP-II Masthercell
LLC (“GPP” and together with the Company, the “Sellers”), Masthercell Global Inc. (“Masthercell”)
and Catalent Pharma Solutions, Inc. (the “Buyer”). Pursuant to the terms and conditions of the Purchase Agreement,
on February 10, 2020, the Sellers sold 100% of the outstanding equity interests of Masthercell (the “Masthercell Business”),
which comprised the majority of the CDMO Business, to the Buyer (the “Masthercell Sale”) for an aggregate nominal
purchase price of $315 million, subject to customary adjustments. After accounting for GPP’s liquidation preference and
equity stake in Masthercell as well as other investor interests in its Belgian subsidiary MaSTherCell, S.A. (“MaSTherCell”),
distributions to Masthercell option holders and transaction costs, the Company received approximately $126.7 million. The Company
incurred an additional approximately $5.6 million in transaction costs.
The
Company has determined that the Masthercell Business (“Discontinued Operation”) meets the criteria to be classified
as a discontinued operation as of the first quarter of 2020. The Discontinued Operation includes the vast majority of the previous
CDMO Business, including majority-owned Masthercell, including its subsidiaries Cell Therapy Holdings, MaSTherCell and Masthercell
U.S. (collectively, the “Masthercell Global Subsidiaries”) (See Note 3).
Since
the Masthercell Sale, the Company has entered into restated and updated joint venture agreements with some of its
joint venture partners and new joint venture agreements with new partners in various jurisdictions. This has allowed the Company
to grow its infrastructure and expand its processing sites into new markets and jurisdictions. In addition, the Company has engaged
some of these joint venture partners to perform research and development services to improve the Orgenesis Background IP. It also
has allowed the Company the manpower and financial resources to focus on manufacturing and rolling out OMPULs to be used and/or
distributed through Company’s point of care network of partners, collaborators and joint ventures.
The
Chief Executive Officer (“CEO”) is the Company’s chief operating decision-maker. Management has determined that
effective from the first quarter of 2020, all of the Company’s continuing operations are in the point-of-care business via
the Company’s CGT Biotech Platform. Therefore, no segment report has been presented.
The
Company currently conducts its core CGT business operations through itself and its subsidiaries which are all wholly-owned except
as otherwise stated (collectively, the “Subsidiaries”). The Subsidiaries are as follows:
●
|
United
States: Orgenesis Maryland Inc. (the “U.S. Subsidiary”) is the center of activity in North America currently focused
on setting up of the POCare Network.
|
|
|
●
|
European
Union: Orgenesis Belgium SRL (the “Belgian Subsidiary”) is the center of activity in Europe currently focused
on process development and preparation of European clinical trials.
|
|
|
●
|
Israel:
Orgenesis Ltd. (the “Israeli Subsidiary”) is the center for research and technology, as well as a provider of
regulatory, clinical and pre-clinical services, and Atvio Biotech Ltd. (“Atvio”) is a provider of cell-processing
services in Israel.
|
|
|
●
|
Korea:
Orgenesis Korea Co. Ltd. (the “Korean Subsidiary”), previously known as CureCell Co. Ltd., is a provider of processing
and pre-clinical services in Korea. The Company owns 94.12% of the Korean Subsidiary.
|
These
condensed consolidated financial statements include the accounts of Orgenesis Inc. and its subsidiaries, including the U.S. Subsidiary,
the Belgian Subsidiary, the Israeli Subsidiary, Atvio and the Korean subsidiary, and the Discontinued Operation.
On
April 7, 2020, the Company entered into an Asset Purchase Agreement (the “Tamir Purchase Agreement”) with Tamir Biotechnology,
Inc. (“Tamir” or “Seller”), pursuant to which the Company agreed to acquire certain assets and liabilities
of Tamir related to the discovery, development and testing of therapeutic products for the treatment of diseases and conditions
in humans, including all rights to Ranpirnase and use for antiviral therapy (collectively, the “Purchased Assets and Assumed
Liabilities” and such acquisition, the “Tamir Transaction”). The Tamir Transaction closed on April 23, 2020.
As aggregate consideration for the acquisition, the Company paid $2.5 million in cash and issued an aggregate of 3,400,000 shares
(the “Shares”) of Common Stock to Tamir resulting in a total consideration of $20.2 million. (See Note 6).
See
Note 10 regarding the material definitive agreement with Koligo Therapeutics Inc.
The
Company’s common stock, par value $0.0001 per share (the “Common Stock”) is listed and traded on the Nasdaq
Capital Market under the symbol “ORGS.”
As
used in this report and unless otherwise indicated, the term “Company” refers to Orgenesis Inc. and its Subsidiaries.
Unless otherwise specified, all amounts are expressed in United States Dollars.
b.
Liquidity
As
of September 30, 2020, the Company has accumulated losses of approximately $37 Million.
On
February 10, 2020, the Company received approximately $126.7 million, of which $7.2 million was used for the repayment of intercompany
loans and payables, from the Masthercell Sale. In addition, on January 20, 2020, the Company entered into a Securities Purchase
Agreement with certain investors pursuant to which the Company received gross proceeds of approximately $9.24 million before deducting
related offering expenses (See Note 4).
Based
on its current cash resources and commitments, the Company believes it will be able to maintain its current planned development
activities and expected level of expenditures for at least 12 months from the date of the issuance of these financial statements.
If there are further increases in operating costs for facilities expansion, research and development, commercial and clinical
activity or decreases in revenues from customers, the Company may decide to seek additional financing.
NOTE
2 - SIGNIFICANT ACCOUNTING POLICIES
The
accounting policies adopted are consistent with those of the previous financial year except as described below.
Cash
and cash equivalents
The
Company considers cash equivalents to be all short-term, highly liquid investments, which include money market instruments, that
are not restricted as to withdrawal or use, and short-term bank deposits with original maturities of three months or less from
the date of purchase that are not restricted as to withdrawal or use and are readily convertible to known amounts of cash.
Discontinued
operations
Upon
divesture of a business, the Company classifies such business as a discontinued operation, if the divested business represents
a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. For disposals
other than by sale such as abandonment, the results of operations of a business would not be recorded as a discontinued operation
until the period in which the business is actually abandoned.
The
Masthercell Business divesture qualifies as a discontinued operation and therefore have been presented as such.
The
results of businesses that have qualified as discontinued operations have been presented as such for all reporting periods. Results
of discontinued operations include all revenues and expenses directly derived from such businesses; general corporate overhead
is not allocated to discontinued operations. Any loss or gain that arose from the divesture of a business that qualifies as discontinued
operations has been included within the results of the discontinued operations. The Company included information regarding cash
flows from discontinued operations (See Note 3).
Reclassifications
Certain
reclassifications have been made to the prior years’ financial statements to conform to the current year presentation. These
reclassifications had no net effect on previously reported results of operations.
Newly
issued and recently adopted accounting pronouncements
The
Company early adopted ASU 2019-12 on January 1, 2020 which did not have a material impact on the Consolidated Financial Statements
except for the removal of the exception related to intra-period tax allocations. Commencing from January 1, 2020, the Company
followed the general intra-period allocation of tax expenses. The Company had incurred a loss from continuing operations and subsequent
to the adoption of ASU 2019-12, the Company determined the amount attributable to continuing operations without regard to the
tax effect of other items. The ASU 2019-12 amendment related to the intra-period tax allocation was applied prospectively.
Had
the Company not adopted ASU 2019-12, an approximately $18.7 million tax benefit would have been recognized along with corresponding
decreases to net loss from continuing operations with a corresponding increase in tax expenses and decrease in net income resulting
from discontinued operations. The Company had no intra-period tax allocation items in prior years.
In
August 2020, the FASB issued Accounting Standards Update (“ASU”) 2020-06, Debt with Conversion and Other Options (Subtopic
470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40)-Accounting For Convertible Instruments
and Contracts in an Entity’s Own Equity. The ASU simplifies accounting for convertible instruments by removing major separation
models required under current GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument
with no separate accounting for embedded conversion features. The ASU removes certain settlement conditions that are required
for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for it.
The ASU also simplifies the diluted net income per share calculation in certain areas. The new guidance is effective for annual
and interim periods beginning after December 15, 2021, and early adoption is permitted for fiscal years beginning after December
15, 2020, and interim periods within those fiscal years. The Company is currently evaluating the impact that this new guidance
will have on its consolidated financial statements.
Use
of Estimates
The
preparation of our consolidated financial statements requires us to make estimates, judgments and assumptions that may affect
the reported amounts of assets, liabilities, equity, revenues and expenses and related disclosure of contingent assets and liabilities.
On an ongoing basis, we evaluate our estimates, judgments and methodologies. We base our estimates on historical experience and
on various other assumptions that we believe are reasonable, the results of which form the basis for making judgments about the
carrying values of assets, liabilities and equity and the amount of revenues and expenses.
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.
NOTE
3 – DISCONTINUED OPERATIONS
On
February 2, 2020, the Company entered into a Purchase Agreement with GPP, Masthercell and the Buyer. Pursuant to the terms and
conditions of the Purchase Agreement, Sellers agreed to sell 100% of the outstanding equity interests of Masthercell to Buyer
for an aggregate nominal purchase price of $315 million, subject to customary adjustments. The Company has determined that the
Masthercell Business meets the criteria to be classified as a discontinued operation.
On
February 10, 2020, the Masthercell Sale was consummated in accordance with the terms of the Purchase Agreement. After accounting
for GPP’s liquidation preference and equity stake in Masthercell, as well as SFPI – FPIM’s interest in MaSTherCell,
distributions to Masthercell option holders and transaction costs, the Company received approximately $126.7 million at the closing
of the Masthercell Sale, of which $7.2 million was used for the repayment of intercompany loans and payables, including $4.6 million
of payables to MaSTherCell. Included in this amount is $1.5 million which was deposited into an escrow account in connection with
potential adjustments based on working capital and indebtedness at closing. The escrow amount was transferred to the Company at
the end of July 2020.
Due
to the sale of the controlling interest in Masthercell, the Company retrospectively reclassified the assets and liabilities of
these entities as assets and liabilities of discontinued operations and included the financial results of these entities (as of
the February 10, 2020) in discontinued operations in the Company’s consolidated financial statements.
Discontinued
operations relate to the Masthercell Business. The comprehensive loss and balance sheet for this operation are separately reported
as discontinued operations for all periods presented.
The
financial results of the Masthercell Business are presented as income (loss) from discontinued operations, net of income taxes
on the Company’s consolidated statement of comprehensive loss. The following table presents the financial results associated
with the Masthercell Business operation as reflected in the Company’s Consolidated Comprehensive loss (in thousands):
SCHEDULE OF DISCONTINUED OPERATION
|
|
Nine Months Ended
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2019
|
|
OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
2,556
|
|
|
$
|
8,247
|
|
|
$
|
22,730
|
|
Cost of revenues
|
|
|
1,482
|
|
|
|
4,956
|
|
|
|
13,341
|
|
Cost of research and development and research and development services, net
|
|
|
7
|
|
|
|
(4
|
)
|
|
|
39
|
|
Amortization of intangible assets
|
|
|
137
|
|
|
|
408
|
|
|
|
1,224
|
|
Selling, general and administrative expenses
|
|
|
1,896
|
|
|
|
3,553
|
|
|
|
9,011
|
|
Other (income) expenses, net
|
|
|
305
|
|
|
|
(24
|
)
|
|
|
(89
|
)
|
Operating loss
|
|
|
1,271
|
|
|
|
642
|
|
|
|
796
|
|
Financial income, net
|
|
|
(29
|
)
|
|
|
(51
|
)
|
|
|
(6
|
)
|
Loss before income taxes
|
|
|
1,242
|
|
|
|
591
|
|
|
|
790
|
|
Tax expenses (income)
|
|
|
(30
|
)
|
|
|
138
|
|
|
|
761
|
|
Net loss from discontinuing operation, net of tax
|
|
$
|
1,212
|
|
|
$
|
729
|
|
|
$
|
1,551
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DISPOSAL
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on disposal before income taxes
|
|
$
|
102,534
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Provision for income taxes (*)
|
|
|
(5,430
|
)
|
|
|
-
|
|
|
|
-
|
|
Gain on disposal
|
|
$
|
97,104
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net profit (loss) from discontinuing operation, net of tax
|
|
$
|
95,892
|
|
|
$
|
(729
|
)
|
|
$
|
(1,551
|
)
|
*
|
Provision for income taxes was updated in the three months period ended September 30, 2020 in the amount of $7.2 million due to
tax benefit recognized from net loss from continuing operation according to ASU 2019-12, see also Note 2.
|
The
following table is a summary of the assets and liabilities of discontinued operations (in thousands):
|
|
As of
|
|
|
|
December 31,
2019
|
|
Assets
|
|
|
|
|
|
|
|
|
|
ASSETS:
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
11,281
|
|
Restricted cash
|
|
|
186
|
|
Accounts receivable, net
|
|
|
6,654
|
|
Prepaid expenses and other receivables
|
|
|
845
|
|
Grants receivable
|
|
|
1,979
|
|
Inventory
|
|
|
1,907
|
|
Deposits
|
|
|
326
|
|
Property and equipment, net
|
|
|
22,149
|
|
Intangible assets, net
|
|
|
10,858
|
|
Operating lease right-of-use assets
|
|
|
8,860
|
|
Goodwill
|
|
|
10,129
|
|
Other assets
|
|
|
47
|
|
TOTAL ASSETS OF DISCONTINUED OPERATIONS
|
|
$
|
75,221
|
|
|
|
As of
|
|
|
|
December
31,
2019
|
|
LIABILITIES:
|
|
|
|
|
Accounts payable
|
|
$
|
5,756
|
|
Accrued expenses and other payables
|
|
|
372
|
|
Employees and related payables
|
|
|
2,047
|
|
Advance payments on account of grant
|
|
|
2,227
|
|
Short-term loans and current maturities of long- term loans
|
|
|
372
|
|
Contract liabilities
|
|
|
8,301
|
|
Current maturities of long-term finance leases
|
|
|
291
|
|
Current maturities of operating leases
|
|
|
1,365
|
|
Non-current operating leases
|
|
|
7,069
|
|
Loans payable
|
|
|
1,230
|
|
Deferred taxes
|
|
|
1,868
|
|
Long-term finance leases
|
|
|
688
|
|
TOTAL LIABILITIES OF DISCONTINUED OPERATIONS
|
|
$
|
31,586
|
|
The
following table represents the components of the cash flows from discontinued operations (in thousands):
|
|
Nine Months Ended
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
2020
|
|
|
September 30,
2019
|
|
|
September 30,
2019
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows provided by (used in) operating activities
|
|
$
|
(2,409
|
)
|
|
$
|
297
|
|
|
$
|
(2,119
|
)
|
Net cash flows used in investing activities
|
|
$
|
(579
|
)
|
|
$
|
(3,224
|
)
|
|
$
|
(5,524
|
)
|
Net cash flows (used in) provided by financing activities
|
|
$
|
(51
|
)
|
|
$
|
(148
|
)
|
|
$
|
6,148
|
|
Disaggregation
of Revenue
The
following table disaggregates the Company’s revenues by major revenue streams related to discontinued operations (in thousands):
SCHEDULE OF DISAGGREGATION OF REVENUE RELATED TO DISCONTINUED OPERATIONS
|
|
Nine Months Ended
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
2020
|
|
|
September 30,
2019
|
|
|
September 30,
2019
|
|
Revenue stream:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cell process development services
|
|
$
|
2,556
|
|
|
$
|
2,889
|
|
|
$
|
12,511
|
|
Tech transfer services
|
|
|
-
|
|
|
|
1,864
|
|
|
|
5,396
|
|
Cell manufacturing services
|
|
|
-
|
|
|
|
3,494
|
|
|
|
4,823
|
|
Total
|
|
$
|
2,556
|
|
|
$
|
8,247
|
|
|
$
|
22,730
|
|
NOTE
4 – EQUITY
On
January 20, 2020, the Company entered into a Securities Purchase Agreement (the “January Purchase Agreement”) with
certain investors pursuant to which the Company issued and sold, in a private placement (the “Offering”), 2,200,000
shares of Common Stock at a purchase price of $4.20 per share (the “Shares”) and warrants to purchase up to 1,000,000
shares of Common Stock at an exercise price of $5.50 per share (the “Warrants”) which are exercisable between June
2021 and January 2023. The Company received gross proceeds of approximately $9.24 million before deducting related offering expenses
in the amount of $0.8 million.
During
April 2020, the Company and Tamir Biotechnology, Inc. (“Tamir”) entered into an Asset Purchase Agreement pursuant
to which 3,400,000 shares of Common Stock were issued to Tamir (See Note 6).
During
the nine months ended September 30, 2020, the Company issued 270,174 shares of common stock to service providers. As of September
30, 2020, 82,500 shares have additional restrictions on transfer until such services have been provided.
During
the nine months ended September 30, 2020, one option holder exercised options to purchase 83,334 shares of common stock at an
exercise price of $3.60, and the Company received $300 thousand.
NOTE
5 – CONVERTIBLE LOANS
On
January 2, 2020, the Company entered into private placement subscription agreements with investors for an aggregate amount of
$250 thousand of convertible loans. The lenders shall be entitled, at any time prior to or no later than the maturity date, to
convert the outstanding amount, into shares of Common Stock of the Company at a conversion price per share equal to $7.00. In
addition, the Company granted the investors 151,428 warrants to purchase an equal number of additional shares of Common Stock
at a price of $7.00 per share.
During
the nine months ended September 30, 2020, the Company repaid $2,746 thousand on account of the principal amount and accrued interest
of convertible loans.
NOTE
6 – COLLABORATIONS, LICENSE AGREEMENTS AND COMMITMENTS
Image
Securities Ltd. (a related party)
As
described in Note 12 to the financial statements of December 31, 2019, on July 11, 2018, the Company and Image Securities Ltd.,
a corporation with its registered office in Grand Cayman, Grand Cayman Islands (“India Partner”), entered into a Joint
Venture Agreement (the “India JVA”) pursuant to which the parties will collaborate in the development, marketing,
clinical development and/or commercialization of cell therapy products in India (the “Cell Therapy Products”). The
India Partner will collaborate with a network of healthcare facilities and a healthcare infrastructure as well as financial partners
to advance the development and commercialization of the cell therapy products in India. As of September 30, 2020, the Company
had advanced $3 million, of which $500 thousand was transferred in the first quarter of 2020, as part of its financing obligations
under the India JVA to the India Partner, who is holding the loan in escrow on behalf of the Company. The loan is reflected on
the balance sheet as a loan to a related party.
During January 2020, the
Company entered into a new statement of work pursuant to the master services agreement signed in 2019 for the provision of certain
services during 2020 and 2021 in India. The Company, subject to mutually agreed timing and definition of the scope of services,
will provide regulatory services, pre-clinical studies, intellectual property services, point-of-care services and co-development
services to the India Partner. $1,051
Thousand for these services was recognized during the nine months ended September 30, 2020 as revenue.
Apart
from the above, there was no activity in the India joint venture during the nine months ended September 30, 2020 (See Note
10).
Hemogenyx
Pharmaceuticals PLC.
As
described in Note 12 to the financial statements of December 31, 2019, on October 18, 2018, the Company and Hemogenyx Pharmaceuticals
PLC., a corporation with its registered office in the United Kingdom, and Hemogenyx-Cell, a corporation with its registered office
in Belgium, and which is engaged in the development of cell replacement bone marrow therapy technology (“H-Cell” and,
collectively with the Company, “Hemo”), entered into a Collaboration Agreement (the “Hemo Agreement”)
pursuant to which the parties will collaborate in the funding of the continued development of and commercialization of, the Hemo
technology via the Hemo group companies. Pursuant to the Hemo Agreement, the Company and Hemogenyx LLC, a wholly owned U.S. subsidiary
of Hemo (“Hemo-LLC”), entered into a loan agreement. During the nine months ended September 30, 2020, the Company
advanced $250 thousand under the loan agreement, which was charged to expenses under ASC 730-10-50 and 20-50 and presented as
research and development and research and development services net.
Immugenyx
LLC
As
described in Note 12 to the financial statements as of December 31, 2019, on October 16, 2018, the Company and Immugenyx LLC,
(“Immu”), which is engaged in the development of technology related to the production and use of humanized mice, entered
into a Collaboration Agreement (the “Immu Agreement”) pursuant to which the parties will collaborate in the funding
of the continued development of, and commercialization of, the Immu technology. The Company received the worldwide rights to market
the products under the Immu Agreement in consideration for the payment of a 12% royalty, subject to the terms of the agreement.
Pursuant to the Immu Agreement, the Company and Immu also entered into a loan agreement. During the nine months ended September
30, 2020, the Company advanced $250 thousand under the loan agreement, which was charged to expenses under ASC 730-10-50 and ASC
20-50 and presented as research and development and research and development services net.
Theracell
Advanced Biotechnology
As
described in Note 12 to the financial statements as of December 31, 2019, on February 14, 2019, the Company and Theracell Advanced
Biotechnology, a corporation organized under the laws of Greece (“Theracell”), entered into a Joint Venture Agreement
(the “Greek JVA”). During the third quarter of 2020, the Company and Theracell entered into an amended and restated
joint venture agreement that supersedes the Greek JVA (the “new Greek JVA”). Pursuant to the new Greek JVA, the parties
will collaborate in the clinical development and commercialization of the Company’s products (hereinafter, the “Company
Products”) in Greece, Turkey, Cyprus, the Balkan countries and Israel (the “Territory”) and the clinical development
and commercialization of Theracell’s products (hereinafter, the “Theracell Products”) worldwide (the “Theracell
Project”). Under the new Greek JVA, Theracell will be responsible to obtain required marketing approvals for the Theracell
Products and the Company Products in the Territory based on Clinical Trials (as defined in the Greek JVA) and regulatory requirements,
and be responsible for procuring and funding the clinic elements of the Clinical Trials and regulatory approvals for the Theracell
Products and the Company Products in the Territory. The Company will be responsible to fund the production costs of the Theracell
Products and the Company Products required for the Clinical Trials within the Territory and either supply the Theracell Products
and/or the Company Products for the Clinical Trials or cover the relevant production/processing costs.
In
addition, each of the parties will be responsible to provide the Greek JV Entity (as defined below) with funding in an amount
of at least five million US Dollars ($5,000,000), to cover the operation costs of the Greek JV Entity. Such additional investments
may be made in the form of an equity investment for additional shares in the Greek JV Entity, a convertible loan, and/or procured
services (the “Additional Investment”), if required (as determined by the board of directors) in order to maintain
the activity of the Greek JV Entity or to maintain such party’s pro-rata holding percentage in the share capital of the
Greek JV Entity, in any future financing round.
The
Company may choose to provide the funding required as part of its obligations under the new Greek JVA as well as the Additional
Investment by engaging Theracell or the Greek JV Entity to perform activities, and research and development services to create,
optimize, improve the Orgenesis Background IP, technology, processes, system, and validation, (“ORGS Procured Services”)
in an amount of up to fifteen million US Dollars ($15,000,000). The ORGS Procured Services will be subject to and will be carried
out by Theracell or the Greek JV Entity (as applicable) in accordance with a separate Master Services Agreement (“MSA”).
The Company and Theracell executed such MSA in the third quarter of 2020, pursuant to which Theracell will provide the Company
with services in the amount of $11.5 million according to an approved work program. All results of the ORGS Procured Services
shall be owned by the Company. During the third quarter of 2020, Theracell provided such services in the amount of $1,500 thousand,
which are reflected in R&D and R&D services.
Theracell
also agreed to grant to the Greek JV Entity, during the term, an exclusive, sublicensable right and license to the Theracell Background
IP as required solely to manufacture, distribute and market and sell Theracell Products within the Territory, subject and in accordance
with the terms of a separate license agreement to be signed between Theracell and the Greek JV Entity (“Theracell License
Agreement”). In consideration of the rights and the Theracell licenses to be granted to the Greek JV Entity during the Term
under the Theracell License Agreement, Theracell shall receive royalty in an amount of up to ten percent (10%) of the net sales
generated by the Greek JV Entity and/or its sublicensees (as applicable) with respect to the Theracell Products, as to be more
fully stipulated and set forth under the Theracell License Agreement; and grant the Company an exclusive, sublicensable right
and license to the Theracell Background IP as required solely to manufacture, distribute and market and sell the Theracell Products
outside of the Territory under the terms of separate license agreement to be entered into between Theracell and the Company ,
in consideration for payment of a royalty in an amount of up to ten percent (10%) of the net sales generated by the Company and/or
its sublicensees (as applicable) with respect to the Theracell Products outside of the Territory.
The
Company agreed to grant to the Greek JV Entity, during the term, an exclusive, sublicensable, royalty bearing, right and license
to the Orgenesis Background IP as required solely to manufacture, distribute and market and sell the Company Products within the
Territory, subject and in accordance with the terms of a separate license agreement to be signed between the Company and the Greek
JV Entity (“Orgenesis License Agreement”). In consideration of the rights and the Orgenesis license to be granted
to the Greek JV Entity during the Term under the Orgenesis License Agreement, the Company shall receive royalty in an amount of
ten percent (10%) of the net sales generated by the Greek JV Entity and/or its sublicensees (as applicable) with respect to the
Company Products.
Once
the Greek JV Entity is profitable, the Company shall be entitled to an additional share of fifteen percent (15%) of the Greek
JV Entity’s contribution margin over and above all rights granted pursuant to the Company’s participating interest
in the Greek JV.
The
parties intend to pursue the Theracell Project through a joint venture (“JV”) by forming a JV entity (the “Greek
JV Entity”). Until the Greek JV Entity is formed, all JV activities are being carried out by Theracell. The Company by itself,
or together with a designee, will hold a 50% participating interest in the Greek JV Entity, with the remaining 50% participating
interest being held by Theracell or its affiliate following the parties’ contributions to the Greek JV Entity as set forth
under the new Greek JVA. The Greek JV Entity will have a steering committee that will act as the board of directors of the Greek
JV Entity and shall be composed of a total of three members, with one member appointed by each party and independent member to
be mutually appointed. The Company shall have the option, at its sole discretion and subject to all rules and regulations to which
it is then subject, to require Theracell to transfer to the Company the entirety of Theracell’s equity interest in the Greek
JV Entity for a consideration to be calculated in accordance with a valuation of the JV Entity to be determined by an independent
third party expert to be mutually selected by the parties.
During
January 2020, the Company entered into a new statement of work pursuant to the master services agreement signed in 2019 with Theracell
for the provision of certain services by the Company during 2020 and 2021. During the nine months ended September 30, 2020, the
Company recognized point of care service revenue in the amount of $1,068 thousand.
During
the nine months ended September 30, 2020, the Company recorded expenses related to activities in the Territory in the amount of
$896
thousand (See Note 10).
Broaden
Bioscience and Technology Corp
As
described in Note 12 to the financial statements as of December 31, 2019, on November 10, 2019, the U.S. Subsidiary and Broaden
Bioscience and Technology Corp, a Delaware corporation (“Broaden”), entered into a Joint Venture Agreement (the “Broaden
JVA”) pursuant to which the parties will collaborate in the development and/or marketing, clinical development and commercialization
of cell therapy products and the setting up of point-of-care processing facilities in China and the Middle East (the “Broaden
Project”). The parties intend to pursue the Broaden Project through a joint venture by forming a joint venture entity (the
“Broaden JV Entity”).
During
January 2020, the Company entered into a master service agreement with Broaden whereby the Company, subject to mutually agreed
timing and definition of the scope of services, will provide regulatory services, pre-clinical studies, intellectual property
services, GMP process translation services and co-development services to Broaden during 2020 and 2021. During the nine months
ended September 30, 2020, the Company recognized point of care services revenue in the amount of $1,143 thousand.
During
January 2020, the U.S. Subsidiary and Broaden entered into a convertible loan agreement pursuant to which the Company agreed to
lend Broaden an amount of up to $5 million as a convertible loan as part of Company’s investment in the Broaden JV. As of
the date of this report, the Company has not lent Broaden Bioscience and Technology Corp any funds as part of this loan.
During
the nine months ended September 30, 2020, the Company recorded research and development expenses related to activities in the
Broaden JVA in the amount of $830 thousand.
Apart
from the above, as of September 30, 2020, the Broaden JV Entity had not been incorporated (See Note 10).
Cure
Therapeutics
During
2019, the Company entered into a master service agreement with Cure Therapeutics (“CT”) whereby the Company, subject
to mutually agreed timing and definition of the scope of services, will provide point-of-care services to CT during 2020 and 2021.
During the nine months ended September 30, 2020, the Company recognized point of care services revenue in the amount of $1,029
thousand.
As
described in Note 12 to the financial statements as of December 31, 2019, on May 7, 2018, the Company and CT entered into a collaboration
agreement for the development of therapies based on liver and NK cells. An amount of $1,827 thousand was charged during the nine
months ended September 30, 2020. As of September 30, 2020, the development project had not been completed. As part
of the agreement, Cure Therapeutics subcontracted development and contract manufacturing activities to the Korean subsidiary.
An amount of $1,035 thousand was recognized as revenues by the Korean subsidiary during the nine months ended September 30, 2020.
In
addition, during the third quarter of 2020, the Company and CT entered into a joint venture agreement (“CT JVA”),
pursuant to which the parties will collaborate in point of care (“POC”), processing, regulatory and governmental affairs
and therapy development and commercialization of Company’s and CT’s products (excluding HEPA and NK cells products)
within the territories of South Korea and Japan (the “CT Territory”).
The
parties intend to pursue the CT JVA through a joint venture by forming a JV entity (the “CT JV Entity”). Until the
CT JV Entity is formed, all JV activities are being carried out by CT. The Company by itself, or together with a designee, will
hold a 50% participating interest in the CT JV Entity, with the remaining 50% participating interest being held by CT or its affiliate
following the parties’ contributions to the CT JV Entity. The CT JV Entity will have a steering committee that will act
as the board of directors of the CT JV Entity and shall be composed of a total of three members, with one member appointed by
each party and an independent industry expert member to be mutually appointed. The Company shall have the option, at its sole
discretion and subject to all rules and regulations to which it is then subject, to require CT to transfer to the Company the
entirety of CT’s equity interest in the CT JV Entity for a consideration to be calculated in accordance with a valuation
of the CT JV Entity to be determined by an independent third party expert to be mutually selected by the parties.
As
of September 30, 2020, the CT JV entity had not yet been incorporated.
Under
the CT JVA, CT will be responsible to obtain required marketing approvals for the CT and Company Products in the CT Territory
based on clinical trials and regulatory requirements.
In
addition, each of the Parties will be responsible to provide the CT JV with funding in an amount of at least ten million US Dollars
($10,000,000), to cover the operation costs of the CT JV, half of which may be in the form of in kind contributions. Company’s
such additional investments may be made in the form of an equity investment for additional shares in the CT JV, a convertible
loan, and/or procured services (the “Additional Investment”), if required (as determined by the board of directors)
in order to maintain the activity of the CT JV or to maintain such Party’s pro-rata holding percentage in the share capital of
the CT JV, in any future financing round.
The
Company may choose to provide the funding required as part of its obligations under the CT JVA by engaging CT or the CT JV to
perform services, and research and development services to create, optimize, improve the Orgenesis Background IP, technology,
processes, system, and validation, (“CT-ORGS Procured Services”). The CT-ORGS Procured Services will be subject to,
and will be carried out by CT or the CT JV (as applicable) in accordance with a separate Master Services Agreement (the “CT
MSA”). All results of the ORGS Procured Services shall be owned by Company. The Company and CT executed such CT MSA in the
third quarter of 2020, pursuant to which CT agreed to provide the Company with services in the amount of $4.5
million according to an approved work
program. The Company did not recognize any such procured services in the third quarter of 2020 (See Note 10).
CT
also agreed to grant to the CT JV, during the term, an exclusive, sublicensable right and license to the CT Background IP (as
defined in the CT MSA) as required solely to manufacture, distribute and market and sell CT Products (as defined in the CT MSA)
within the CT Territory, subject and in accordance with the terms of a separate license agreement to be signed between CT and
the CT JV (“CT License Agreement”). In consideration of the rights and the CT licenses to be granted to the CT JV
during the Term under the CT License Agreement, CT shall receive royalty in an amount of up to ten percent (10%) of the net sales
generated by the CT JV and/or its sublicensees (as applicable) with respect to the CT Products, as to be more fully stipulated
and set forth under the CT License Agreement; and grant Company an exclusive, sublicensable right and license to the CT Background
IP as required solely to manufacture, distribute and market and sell CT Products outside of the CT Territory under the terms of
a separate license agreement to be entered into between CT and the Company, in consideration for payment of a royalty in an amount
of up to ten percent (10%) of the net sales generated by the Company and/or its sublicensees (as applicable) with respect to the
CT Products outside of the CT Territory.
The
Company agreed to grant to the CT JV, during the term, an exclusive, sublicensable, royalty bearing, right and license to the
Orgenesis Background IP as required solely to manufacture, distribute and market and sell Orgenesis Products within the CT Territory,
subject and in accordance with the terms of a separate license agreement to be signed between Orgenesis and the CT JV (“CT-Orgenesis
License Agreement”). In consideration of the rights and the Orgenesis license to be granted to the CT JV during the Term
under the CT-Orgenesis License Agreement, Orgenesis shall receive royalty in an amount of ten percent (10%) of the net sales generated
by the CT JV and/or its sublicensees (as applicable) with respect to the Orgenesis Products.
Once
the CT JV is profitable, the Company shall be entitled to an additional share of fifteen percent (15%)
of the CT JV’s Audited GAAP profit after tax, over and
above all rights granted pursuant to the Company’s participating interest in the CT JV.
Mircod
Limited
As
described in Note 12 to the financial statements as of December 31, 2019, on June 19, 2018, the Company and Mircod Limited, a
company formed under the laws of Cyprus (“Mircod”), entered into a Collaboration and License Agreement (the “Mircod
Collaboration Agreement”) for the adaptation of Mircod’s background technologies related to biological sensing for
use of the Company’s clinical development and manufacturing projects (the “Development Project”). The Development
Project is to be carried out in accordance with an agreed development plan. During the nine months ended September 30, 2020, the
Company recorded research and development expenses related to the development plan in the amount of $800 thousand.
In
addition, during the first quarter of 2020, as per the Mircod Collaboration agreement, Mircod formed a wholly-owned US subsidiary
named Mircod Biotech (the “Mircod Subsidiary”). The Mircod Subsidiary shall perform the duties of Mircod under the
Collaboration Agreement, provided that Mircod shall remain responsible for the performance of the Mircod Subsidiary. At any time,
the Company shall have the option, at its sole discretion, to transfer and require Mircod or the Mircod Subsidiary to transfer
the Development Project and/or the rights and licenses granted by Mircod to a joint venture company (“Mircod JV Entity”)
which shall be established by the parties for the purposes of carrying out and commercializing the Development Project, and in
which the Company and Mircod will each hold 50%. The Company shall also have the option to, at its sole discretion and subject
to all rules and regulations to which it is then subject, require Mircod to transfer to the Company the entirety of Mircod’s
equity interest in the Mircod JV Entity for a consideration of shares of Common Stock according to an agreed formula. The parties
agreed to amend the development plan to reflect the fact that the parties shall collaborate with each other on: (i) point-of-care
processing, regulatory and therapy development; (ii) setting up one or more point–of-care processing facilities in institutions
or hospitals the territory of Russia; (iii) the supply of the Company’s products and services within Russia, and (iv) clinical,
regulatory, development and commercialization in Russia. The Company may, at its sole discretion, agree to provide Mircod with
a convertible loan (which may be converted into shares of Mircod then outstanding or into the Mircod JV Entity, upon a valuation
to be agreed between the parties and validated by a third party subject to terms to be agreed upon by the parties in a separate
convertible loan agreement). The convertible loan will be used to finance the modification of the processing facility or facilities
including, planning, designing, testing, training or supervising, as required for obtaining cGMP status approval(s) and/or relevant
certification for any processing facility and other activities. As at September 30, 2020, the loan agreement was not executed.
HekaBio
K.K
As
described in Note 12 to the financial statements as of December 31, 2019, on July 10, 2018, the Company and HekaBio K.K. (“HB”),
a corporation organized under the laws of Japan entered into a joint venture agreement (the “HB JVA”) pursuant to
which the parties will collaborate in the clinical development and commercialization of regeneration and cell and gene therapeutic
products in Japan, and on October 3, 2018, the Company entered into a license agreement with the joint venture company pursuant
to the HB JVA.
During
the third quarter of 2020, the Company and HV agreed to terminate such license agreement.
Apart
from the above, as of September 30, 2020, no material activity had begun in the HB JVA.
Kidney
Cure Ltd
During
April 2020, the Company entered into a joint venture agreement with Kidney Cure Ltd. (“Kidney Cure” and the “Kidney
Cure JVA,” respectively), pursuant to which the parties will collaborate in the (i) implementation of a point-of-care strategy;
(ii) assessment of the options for development and manufacture of various cell-based types (including kidney derived cells, MSC
cells, exosomes, gene therapies) development; and (iii) development of protocols and tests for kidney therapies (the “Project”).
The parties intend to pursue the joint venture through a newly established company (hereinafter, the “KC JV Entity”),
which the Company, directly or indirectly by itself, will hold a 49% participating interest therein, with the remaining 51% participating
interest being held by Kidney Cure. The board of directors of the KC JV Entity will act as a steering committee KC JV Entity and
shall be composed of a total of three members, with one member appointed by each party and the third member appointed by both
parties.
The
Company will procure services from the Kidney Cure JVA in the amount of $5 million, subject to and in accordance with a development
and manufacturing plan to be mutually agreed upon by the parties. Under the Kidney Cure JVA, the Company can require Kidney Cure
to sell to the Company its participating (including equity) interest in the KC JV Entity in consideration for the issuance of
Common Stock based on an agreed-upon formula for determining the KC JV Entity’s valuation, provided that Company has contributed
at least $5 million. As of September 30, 2020, the Company had advanced $450 thousand to Kidney Cure on account of its obligations
under the Kidney Cure JVA.
Apart
from the above, as of September 30, 2020, no activity has begun in the said KC JV Entity, no contributions were made therein and
the KC JV Entity had not been incorporated (See Note 10).
Sescom
Ltd
During
April 2020, the Company entered into a joint venture agreement with Sescom Ltd (“Sescom”), pursuant to which the parties
will collaborate in (i) the assessment of relevant tools and technologies to be used in the Company’s information security
system (the “ISS”); (ii) the implementation of the ISS within the Company and in the Company’s point-of-care
network; and (iii) the operation and maintenance of the ISS. The parties intend to pursue the joint venture through a company
to be established (the “Sescom JV Entity”), which shall be 50% owned by the Company and 50% owned by Sescom. The Sescom
JV Entity will have a steering committee that will act as the board of directors of the Sescom JV Entity and shall be composed
of a total of three members, with one member appointed by each party and one industry expert.
Sescom
has agreed to provide Sescom JV Entity with: (a) a non-exclusive, transferable and sublicensable worldwide royalty-free license
to use its background IP, to the extent required for carrying out the development activities by the Sescom JV Entity; and (b)
to make available to the Sescom JV Entity all relevant know-how and royalty-free licenses to any proprietary technologies to be
implemented as part of the ISS.
The
Company has agreed to procure services from Sescom or the Sescom JV Entity in an amount of up to $1 million, of which $500 thousand
was paid to Sescom during April 2020. In addition, the Company has agreed to provide the Sescom JV Entity with: (a) a non-exclusive,
not transferable and non-sublicensable worldwide royalty-free license to use its background IP, to the extent required for carrying
out certain activities by the Sescom JV Entity; and (b) access to its point-of-care network and relevant data to be used for the
certain activities.
The
parties agreed that at any time after the Company has contributed $1 million in Sescom or the Sescom JV Entity, the Company shall
have the right, in its sole discretion, to purchase from Sescom all of Sescom’s then-issued and outstanding shares in the
Sescom JV Entity based on a valuation of the Sescom JV Entity to be determined by an agreed-upon formula.
Apart
from the above, as of September 30, 2020, no other activity had taken place in the Sescom JV Entity and the Sescom JV Entity had
not been incorporated.
Tamir
Biotechnology, Inc.
On
April 7, 2020, the Company entered into the Tamir Purchase Agreement with Tamir, pursuant to which the Company agreed to acquire
certain assets and liabilities of Tamir related to the discovery, development and testing of therapeutic products for the treatment
of diseases and conditions in humans, including all rights to Ranpirnase and use for antiviral therapy. The Tamir Transaction
closed on April 23, 2020.
As
aggregate consideration for the acquisition, the Company paid $2.5 million in cash and issued an aggregate of 3,400,000 shares
(the “Shares”) of Common Stock to Tamir resulting in a total consideration of $20.2 million based on the Company’s
share price at the closing date. $59 thousand and 340,000 Shares are being held in an escrow account for a period of 18 months
from closing to secure indemnification obligations of Tamir pursuant to the terms of the Tamir Purchase Agreement. $4.5 million
of the consideration was attributable to research and development related inventory and most of the remaining amount reflected
the cost of intangible assets.
Included
in the purchased assets was the assumption by the Company of a worldwide license to a private company of certain Tamir technologies
in the field of treatment, amelioration, mitigation or prevention of diseases or conditions of the eye and its adnexa in return
for certain development and sales milestone payments to be paid to Tamir. This license fee and the right to receive future milestone
payments (of up to $11 million assuming that certain milestones are reached) and royalties (of up to $35 million based on net
sales milestones), were assumed by the Company in connection with the Tamir Purchase Agreement together with a less than 10% share
interest. To date, no milestones have been reached.
The
Company’s acquired right to Tamir’s intellectual property represents a single identifiable asset sourced from the
agreement. Because substantially all (more than 90%) of the fair value of the gross assets acquired are concentrated in a single
asset being the right to Tamir’s intellectual property and related assets (“IPR&D”), the Company determined
that the acquisition is not considered a business in accordance with ASC 805-10-55-5A. Therefore, the Company accounted the transaction
as an asset acquisition. The fair value associated with Tamir’s IPR&D in the amount of $19.5 million was charged to
research and development expenses under ASC 730. The remaining amount was attributed to the above-mentioned share in a private
company, which is presented in the balance sheet as long term “other assets.
Extracellular
Vesicle (“EV”) Technology License
During
the third quarter of 2020, the Company purchased the IP and related EV technology from a service provider (the “Service
Provider”) pursuant to an EV agreement (the “EV agreement”). According to the EV agreement, the Service Provider
sold to the Company all of its rights in the EV technology that it had produced, in the amount of $500 thousand, to be paid in
equal installments over the next 12 months from September 2020. During September 2020, the Company paid $ thousand to the Service
Provider. The $500 thousand were recorded in R&D expenses. In addition, the Service Provider granted the Company an exclusive
worldwide license to use the EV IP technology for any purpose.
NOTE
7 – STOCK-BASED COMPENSATION
a.
|
Options
Granted to employees
|
The
table below summarizes the terms of options for the purchase of shares in the Company granted to employees and directors during
the period from January 1, 2020 to September 30, 2020:
SCHEDULE
OF STOCK OPTIONS GRANTED
|
|
No. of
Options
Granted
|
|
|
Exercise
Price
|
|
|
Vesting Period
|
|
Fair Value
at Grant
(in thousands)
|
|
|
Expiration
Period
|
|
Employees
|
|
|
422,450
|
|
|
|
$2.99-$6.84
|
|
|
Quarterly over a period of two years
|
|
|
980
|
|
|
|
10 years
|
|
Directors
|
|
|
68,750
|
|
|
|
$2.99-$4.70
|
|
|
91% on the one-year anniversary and the remaining 9% in three equal instalments on the first, second and third year anniversaries
|
|
$
|
147
|
|
|
|
10 years
|
|
The
fair valuation of these option grants is based on the following assumptions:
SCHEDULE
OF VALUATION ASSUMPTIONS OF STOCK OPTIONS
|
|
During the Period from January 1, 2020 to September 30, 2020
|
|
Value of one common share
|
|
|
$2.99-$6.84
|
|
Dividend yield
|
|
|
0%
|
|
Expected stock price volatility
|
|
|
80%-86%
|
|
Risk free interest rate
|
|
|
0.36%-1.71%
|
|
Expected term (years)
|
|
|
5.5-6
|
|
b.
|
Options
Granted to Non-Employees
|
The
table below summarizes all the options for the purchase of shares in the Company granted to consultants and service providers
during the period from January 1, 2020 to September 30, 2020:
SCHEDULE
OF STOCK OPTIONS GRANTED
|
|
No. of Options
Granted
|
|
|
Exercise Price
|
|
|
Vesting Period
|
|
Fair Value
at Grant
(in thousands)
|
|
|
Expiration Period
|
|
Non-employees
|
|
|
42,500
|
|
|
|
$2.99-$6.84
|
|
|
Quarterly over a period of two years
|
|
$
|
132
|
|
|
|
10 years
|
|
The
fair valuation of these option grants is based on the following assumptions:
SCHEDULE
OF VALUATION ASSUMPTIONS OF STOCK OPTIONS
|
|
During the Period from January 1, 2020 to September 30, 2020
|
|
Value of one common share
|
|
|
$2.99-$6.84
|
|
Dividend yield
|
|
|
0%
|
|
Expected stock price volatility
|
|
|
89%
|
|
Risk free interest rate
|
|
|
0.73%-1.12%
|
|
Expected term (years)
|
|
|
10
|
|
c.
|
Warrants
and Shares Issued to Non-Employees
|
The
fair value of Common Stock issued was the share price of the shares issued at the day of grant.
During
the nine months ended September 30, 2020, the Company granted 193,178 warrants to several consultants at an exercise price of
between $3.14 and $5.34 per share and exercisable for up to for three years. The fair value of those warrants as of the date of
grant using the Black-Scholes valuation model was $377 thousand.
See
also Notes 4 and 5.
NOTE
8 – LOSS PER SHARE
The
following table sets forth the calculation of basic and diluted loss per share for the period indicated:
SCHEDULE
OF BASIC AND DILUTED LOSS PER SHARE
|
|
Sep
30, 2020
|
|
|
Sep
30, 2019
|
|
|
Sep 30, 2020
|
|
|
Sep
30, 2019
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30, 2020
|
|
|
September 30, 2019
|
|
|
September 30, 2020
|
|
|
September 30, 2019
|
|
|
|
(in thousands, except per share data)
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations attributable to Orgenesis Inc.
|
|
$
|
9,559
|
|
|
$
|
4,166
|
|
|
$
|
43,662
|
|
|
$
|
17,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (income) loss from discontinued operations attributable to Orgenesis Inc. for loss per share
|
|
|
(7,132
|
)
|
|
|
383
|
|
|
|
(96,384
|
)
|
|
|
476
|
|
Adjustment of redeemable non-controlling interest to redemption amount
|
|
|
-
|
|
|
|
2,461
|
|
|
|
414
|
|
|
|
3,314
|
|
Basic: Net income (loss) available to common stockholders
|
|
|
(7,132
|
)
|
|
|
2,844
|
|
|
|
(95,970
|
)
|
|
|
3,790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (income) loss attributable to Orgenesis Inc. for loss per share
|
|
|
2,427
|
|
|
|
7,010
|
|
|
|
(52,308
|
)
|
|
|
21,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
|
|
|
22,094,470
|
|
|
|
16,028,518
|
|
|
|
20,469,470
|
|
|
|
15,858,666
|
|
Loss per common share from continuing operations
|
|
$
|
0.43
|
|
|
$
|
0.26
|
|
|
$
|
2.13
|
|
|
$
|
1.11
|
|
Net (earnings) loss common share from discontinued operations
|
|
$
|
(0.32
|
)
|
|
$
|
0.18
|
|
|
$
|
(4.69
|
)
|
|
$
|
0.24
|
|
Net (earnings) loss per share
|
|
$
|
0.11
|
|
|
$
|
0.44
|
|
|
$
|
(2.56
|
)
|
|
$
|
1.35
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations attributable to Orgenesis Inc. for loss per share
|
|
|
9,559
|
|
|
|
4,166
|
|
|
|
43,662
|
|
|
|
17,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (income) loss from discontinued operations attributable to Orgenesis Inc. for loss per share
|
|
|
(7,132
|
)
|
|
|
2,844
|
|
|
|
(95,970
|
)
|
|
|
3,790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (income) loss attributable to Orgenesis Inc. for loss per share
|
|
|
2,427
|
|
|
|
7,010
|
|
|
|
(52,308
|
)
|
|
|
21,375
|
|
Weighted average number of shares used in the computation of basic and diluted loss per share
|
|
|
22,094,470
|
|
|
|
16,028,518
|
|
|
|
20,469,470
|
|
|
|
15,858,666
|
|
Net loss per common share from continuing operations
|
|
$
|
0.43
|
|
|
$
|
0.26
|
|
|
$
|
2.13
|
|
|
$
|
1.11
|
|
Net (earnings) loss per common share from discontinued operations
|
|
$
|
(0.32
|
)
|
|
$
|
0.18
|
|
|
$
|
(4.69
|
)
|
|
$
|
0.24
|
|
Net (earnings) loss per share
|
|
$
|
0.11
|
|
|
$
|
0.44
|
|
|
$
|
(2.56
|
)
|
|
$
|
1.35
|
|
For
the nine months ended September 30, 2020, September 30, 2019 and for the three months ended September 30, 2020, September 30,
2019, all outstanding convertible notes, options and warrants have been excluded from the calculation of the diluted net loss
per share since their effect was anti-dilutive.
NOTE
9 – REVENUES
Disaggregation
of Revenue
The
following table disaggregates the Company’s revenues by major revenue streams.
SCHEDULE
OF DISAGGREGATION OF REVENUE
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
September 30, 2020
|
|
|
September 30, 2019
|
|
|
September 30, 2020
|
|
|
September 30, 2019
|
|
|
|
(in thousands)
|
|
Revenue stream:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cell process development services
|
|
$
|
463
|
|
|
$
|
220
|
|
|
$
|
1,065
|
|
|
$
|
808
|
|
Point-of-care services
|
|
|
1,266
|
|
|
|
1,012
|
|
|
|
4,291
|
|
|
|
1,974
|
|
Total
|
|
$
|
1,729
|
|
|
$
|
1,232
|
|
|
$
|
5,356
|
|
|
$
|
2,782
|
|
Contract
Assets and Liabilities
Contract
assets are mainly comprised of trade receivables net of allowance for doubtful debts, which includes amounts billed and currently
due from customers.
The
activity for trade receivables is comprised of:
SCHEDULE
OF ACTIVITY FOR TRADE RECEIVABLES
|
|
Nine Months Ended
|
|
|
|
September 30, 2020
|
|
|
September 30, 2019
|
|
|
|
(in thousands)
|
|
Balance as of beginning of period
|
|
$
|
1,831
|
|
|
$
|
129
|
|
Additions
|
|
|
4,101
|
|
|
|
996
|
|
Collections
|
|
|
(1,869
|
)
|
|
|
(364
|
)
|
Exchange rate differences
|
|
|
14
|
|
|
|
(13
|
)
|
Balance as of end of period
|
|
$
|
4,077
|
|
|
$
|
748
|
|
The
activity for contract liabilities is comprised of:
SCHEDULE
OF ACTIVITY FOR CONTRACT LIABILITIES
|
|
Nine Months Ended
|
|
|
|
September 30, 2020
|
|
|
September 30, 2019
|
|
|
|
(in thousands)
|
|
Balance as of beginning of period
|
|
$
|
325
|
|
|
$
|
56
|
|
Additions
|
|
|
597
|
|
|
|
1,097
|
|
Realizations
|
|
|
(759
|
)
|
|
|
(981
|
)
|
Balance as of end of period
|
|
$
|
163
|
|
|
$
|
172
|
|
NOTE
10 – SUBSEQUENT EVENTS
1.
Material Definitive Agreement with Koligo Therapeutics Inc.
On
September 26, 2020, the Company entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”)
by and among the Company, Orgenesis Merger Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of the Company (“Merger
Sub”), Koligo Therapeutics Inc., a Kentucky corporation (“Koligo”), the shareholders of Koligo (collectively,
the “Shareholders”), and Long Hill Capital V, LLC (“Long Hill”), solely in its capacity as the representative,
agent and attorney-in-fact of the Shareholders. The Merger Agreement provides for the acquisition of Koligo by the Company through
the merger of Merger Sub with and into Koligo, with Koligo surviving as a wholly-owned subsidiary of the Company (the “Merger”).
The Merger was announced in a Current Report on Form 8-K filed with the Securities and Exchange Commission on October 1, 2020,
to which a copy of the Merger Agreement, along with copies of certain other ancillary agreements, were annexed as exhibits. On
October 15, 2020 (the “Effective Time”), the Company closed the Merger.
Koligo
was a privately-held US regenerative medicine company. Koligo’s first commercial product is KYSLECEL® (autologous pancreatic
islets) for chronic and acute recurrent pancreatitis. Koligo’s 3D-V technology platform incorporates the use of advanced
3D bioprinting techniques and vascular endothelial cells to support development of transformational cell and tissue products for
serious diseases.
Pursuant
to the terms of the Merger Agreement, at the Effective Time, the shares of capital stock of Koligo that were issued and outstanding
immediately prior to the Effective Time were automatically cancelled and converted into the right to receive, subject to customary
adjustments, an aggregate of 2,061,713 shares of Company common stock were issued to Koligo’s accredited investors (with
certain non-accredited investors being paid solely in cash in the amount of approximately $20 thousand) in accordance with the
terms of the Merger Agreement. In connection with the Merger, the Company assumed an aggregate of approximately $1.9 million of
Koligo’s liabilities, which were substantially all of Koligo’s liabilities at the closing of the Merger.
The
Merger Agreement contains customary indemnification provisions whereby the Shareholders of Koligo will indemnify the Company and
certain affiliated parties for any losses arising out of breaches of the representations, warranties and covenants of Koligo and
the Shareholders under the Merger Agreement. As partial security for the indemnification and purchase price adjustment obligations
of Koligo shareholders under the Merger Agreement, $7 thousand in cash and 328,587 shares of Company common stock of the merger
consideration otherwise payable in the Merger to the Shareholders were placed in a third party escrow account. The aggregate indemnification
obligations of the Koligo shareholders under the Merger Agreement is capped at the amounts in escrow, subject to certain limited
exceptions.
In
addition, according to the agreement between the parties, the Company has also funded an additional cash consideration of $500
thousand (with $100 thousand of such reducing the ultimate consideration payable to Koligo) for the acquisition of the assets
of Tissue Genesis, LLC (“Tissue Genesis”) by Koligo that was consummated on October 14, 2020. The Tissue Genesis assets
include the entire inventory of Tissue Genesis Icellator® devices, related kits and reagents, a broad patent portfolio to
protect the technology, registered trademarks, clinical data, and existing business relationships for commercial and development
stage use of the Icellator technology.
In
connection with the Merger Agreement, the Company, Long Hill and Maxim Group LLC (“Maxim”) entered into a Registration
Rights and Lock-Up Agreement pursuant to which Long Hill will have one demand registration right to require the registration of
the shares of Company common stock received by Long Hill in the Merger and Long Hill and Maxim will have certain piggyback registration
rights. In addition, Long Hill agreed with the Company that, during the applicable Restriction Period (as defined below), it shall
not sell or transfer, subject to certain limited exceptions, the portion of the shares received in the Merger during the applicable
Restriction Period, subject to a limitation on the number of shares sold per any trading day not to exceed 10% of the average
daily trading volume of the Common Stock, as reported by Bloomberg Financial L.P. “Restriction Period” means (a) in
relation to 70% of all of the shares received in the Merger that Long Hill is entitled to receive under or in connection with
the Merger Agreement, the period beginning on the date of the closing and ending on the date that is the four month anniversary
thereof, and (b) in relation to the remaining 30% of all of the shares received in the Merger that Long Hill is entitled to receive
under or in connection with the Merger Agreement, the period beginning on the date of the closing and ending on the date that
is the twelve month anniversary thereof.
In
addition, pursuant to separate Lock-Up Agreements entered into by the Shareholders other than Long Hill with the Company (the
“Shareholders Lock-Up Agreement”), such Shareholders agreed that they will not transfer any of their shares received
in the Merger except in accordance with the following lock-up release schedule whereby one fifth of such holder’s respective
shares will be released from such restriction every six months, starting six months from the closing of the Merger. Each holder’s
sales of such shares are subject to a resale limit of its pro rata portion of 10% of the average daily trading volume, allocated
to the Shareholders other than Long Hill pro-rata.
The
acquisition will be accounted in accordance with Accounting Standards Codification Topic 805, “Business Combinations”.
As the acquisition was completed subsequent to September 30, 2020, the consolidated financial statements do not include the results
or the financial position of Koligo. Under the disclosure requirements of ASC 805 the Company is required to provide information
regarding the effect of the business combination. Because the Company hasn’t completed the work of the purchase price allocation
needed under ASC 805, the initial accounting for the business combination was incomplete at the time of the issuance of the financial
statements, therefore, the Company did not include the above mentioned information as permitted by ASC 805-10-50-4 and ASC 805-30-50-3.
2.
Material Definitive Agreements with Educell D.O.O.
On
October 1, 2020, the Company and Educell D.O.O. (“Educell”) entered into a Joint Venture Agreement (“Educell
JVA”) pursuant to which the parties will collaborate in (i) Point of Care (POC), processing, regulatory and governmental
affairs and therapy development, (ii) setting up POC facilities within the territories of Croatia, Serbia and Slovenia
(“Educell Territory”), (iii) clinical development and commercialization of Company and Educell products in
the Educell Territory and (iv) clinical development and commercialization of Educell products worldwide.
Under
the Educell JVA, Educell will be responsible for obtaining required marketing approvals for the Educell and Company Products in
the Educell Territory based on clinical trials and regulatory requirements. In addition, Educell will be responsible for
procuring and funding the clinic elements of the clinical trials and regulatory approvals for the Company’s products in
the territory and use the services of the Company as a subcontractor under a Master Services Agreement, detailed below.
The
parties intend to pursue the joint venture by forming a JV entity (the “Educell JV”). Until the Educell
JV is formed, all JV activities are being carried out by Educell. The Company by itself, or together with a designee, will hold
a 50% participating interest in the Educell JV, and Educell or its affiliate will hold the remaining 50% participating interest.
The Educell JV will have a board of directors that will initially also act as a steering committee of the Educell JV and shall
be composed of a total of three members, with one member appointed by each party and the third member to be appointed upon mutual
agreement of the parties.
The
Company shall have the option, at its sole discretion and subject to all rules and regulations to which it is then subject, to
require Educell to transfer to the Company the entirety of Educell equity interest in the JV Entity for a consideration to be
calculated in accordance with a valuation of the JV Entity to be determined by an independent third party expert to be mutually
selected by the parties which will not be less than $1 million as adjusted by additional equity investment by the parties.
In
addition, each of the Parties will be responsible for providing the Educell JV with funding in an amount of at least ten million
US Dollars ($10,000,000) each, for covering the operational costs of the JV entity in accordance with the Work Plan, half of which
may be in the form of in-kind contributions.
In
addition, each party will have the right to invest additional sums in the Company if required (as determined by the board of
directors) (the “Additional Investment“), in order to maintain the activity of the Educell JV or to maintain such
party's pro-rata holding percentage in the share capital of the Educell JV, in any future financing round. The additional
payment may be made in the form of a cash investment for additional shares of the UAE JV, a convertible loan, and/or procured
services.
The
ORGS Procured Services will be subject to, and will be carried out by Educell or the Educell JV (as applicable) in accordance
with a separate Master Services Agreement (“MSA”) between the Company and Educell and as shall be agreed upon from
time to time between the parties in statements of work (“SOW”). All results of the ORGS Procured Services shall
be owned by the Company. The Company and Educell executed such an MSA in the fourth quarter of 2020 whereby Educell will provide
the Company with services in the amount of $2
million according to an approved work
program and upon completion of milestones in the SOW for additional services of up to $6
million. The Company advanced $613
thousand to Educell on account of such services.
In
addition, the Company entered into a MSA and SOW with Educell whereby the Company, subject
to mutually agreed timing and definition of the scope of services, will provide regulatory services, pre-clinical studies, intellectual
property services, GMP Process translation i.e. POCare (including Facility adaptation and commissioning, Training and Technical
runs, QMS, Operation and Co-Development Services) during 2021 and 2022 for a fee of $1.3 million.
Educell
shall grant to the Educell JV, during the term, an exclusive, sublicensable right and license to the Educell Background IP as
required solely to manufacture, distribute and market and sell Educell Products within the Educell Territory, subject and in accordance
with the terms of a separate license agreement to be signed between Educell and the Educell JV (“Educell License Agreement”).
In consideration of the rights and the Educell licenses to be granted to the Educell JV during the Term under the Educell License
Agreement, Educell shall receive royalties in an amount of up to ten percent (10%) of the net sales generated by the Educell
JV and/or its sublicensees (as applicable) with respect to the Educell Products, as to be more fully stipulated and set forth
under the Educell License Agreement; and grant the Company an exclusive, sublicensable right and license to the Educell Background
IP as required solely to manufacture, distribute and market and sell Educell Products outside of the Educell Territory under the
terms of a separate license agreement to be entered into between Educell and the Company, in consideration for payment of royalties
in an amount of up to ten percent (10%)
of the net sales generated by us and/or our sublicensees (as applicable) with respect to the Educell Products outside the Educell
Territory.
The
Company shall grant to the Educell JV, during the term, an exclusive, sublicensable, royalty-bearing, right and license to the
Orgenesis Background IP as required solely to manufacture, distribute and market and sell Orgenesis Products within the Educell
Territory, subject and in accordance with the terms of a separate license agreement to be signed between the Company and the Educell
JV (“Educell-Orgenesis License Agreement”). In consideration of the rights and the Orgenesis license to be granted
to the Educell JV during the Term under the Educell-Orgenesis License Agreement, the Company shall receive royalties in
an amount of ten percent (10%)
of the net sales generated by the Educell JV and/or its sublicensees (as applicable) with respect to the Company’s Products.
Once
the Educell JV is profitable, the Company shall be entitled (in addition to any of its rights as the holder of 50% of the JV Entity)
to additional royalties at a rate of fifteen percent (15%) of the Educell JV’s Audited GAAP profit after tax, over and above all
rights granted pursuant to Company’s participating interest in the Educell JV.
Under
the Educell JVA, the parties have agreed to negotiate the terms of a manufacturing and supply agreement whereby the Company and
its affiliates will exclusively manufacture the products resulting from the product IP and the Educell JV shall purchase all of
its requirement for such products exclusively from the Company and its affiliates.
As
of September 30, 2020, the Educell JV had not yet been incorporated.
3.
Material Definitive Agreements with Image Securities (Related Party)
As
described in Note 12 to the financial statements as of December 31, 2019, on July 11, 2018, the Company and Image Securities Ltd.
entered into a Joint Venture Agreement (the “Indian JVA”). Image Securities Ltd.
assigned the Indian JVA to Image Securities FZC, a corporation organized under the laws of United Arab Emirates (“Image
Securities”) and the Company and Image Securities entered into an Amended and Restated Joint Venture Agreement which supersedes
the Indian JVA (“new Indian JVA”). Pursuant to the new Indian JVA, the parties will collaborate in the development
and commercialization of the Company’s products, including but not limited to regeneration and cell and gene therapeutic
products (hereinafter, the “Company Products”) and building of POCare processing centers/units within the territory
of India (the “Indian Territory”) and the clinical development and commercialization of Image Securities’
products (“Image Securities Products”). Under the new Indian JVA, Image Securities will be responsible to obtain required
marketing approvals for the Company Products in the Indian Territory based on Clinical Trials and regulatory requirements,
and be responsible for procuring and funding the clinic elements of the Clinical Trials and regulatory requirements for the Company
Products in the Indian Territory. Image Securities will be responsible for procuring and funding the clinic elements of
the Clinical Trials and regulatory approvals for the Image Securities Products and the Orgenesis Products in the Indian
Territory and will use the services of the Company as a subcontractor under a separate services agreement for such purpose,
all in accordance with the Work Plan.
In
addition, each of the parties will be responsible to provide the JV Entity with funding in an amount of at least five million
US Dollars ($5,000,000),
to cover the operation costs of the JV Entity. Such additional investments may be made in the form of a cash contribution, a convertible
loan, and/or procured services (the “Additional Investment”), if required (as determined by the board of directors)
in order to maintain the activity of the Indian joint venture or to maintain such party’s pro-rata holding percentage
in the share capital of the Indian joint venture, in any future financing round. The valuation of the JV Entity for the purposes
of such Additional Investment will be determined by an independent third-party expert to be mutually selected by the parties which
will not be less than $1
million as adjusted by additional equity
investment by the parties.
The
ORGS Procured Services will be subject to and will be carried out by Image Securities or the Indian joint venture (as applicable)
in accordance with a separate Master Services Agreement (“MSA”). The Company and Image Securities executed such a
MSA in the fourth quarter of 2020 whereby Image Securities will provide Company with services in the amount of $4.8 million according
to an approved work program. All results of the ORGS Procured Services shall be owned by Company.
The
parties intend to pursue the Image Securities Project through a joint venture (“JV”) by forming a JV entity (the “Indian
JV Entity”). The Company by itself, or together with a designee, will hold a 50% participating interest in the Indian JV
Entity, with the remaining 50% participating interest being held by Image Securities or its affiliate following the parties’
contributions to the Indian JV Entity as set forth under the new Indian JVA.
The
Company shall grant to the JV Entity, during the term, an exclusive, sublicensable, royalty bearing, right and license to the
Orgenesis Background IP as required solely to manufacture, distribute and market and sell Orgenesis Products within the Indian
Territory, subject and in accordance with the terms of a separate license agreement to be signed between Company and the JV
Entity (“Indian-Orgenesis License Agreement”). In consideration of the rights and the Orgenesis license to
be granted to the JV Entity during the Term under the Indian-Orgenesis License Agreement, Company shall receive royalty
in an amount of ten percent (10%)
of the net sales generated by the JV Entity and/or its sublicensees (as applicable) with respect to the Orgenesis Products.
Once
the JV Entity is profitable, the Company shall be entitled (in addition to any of its rights as holder of 50% of the JV Entity
and prior to any other distributions of dividends by the JV Entity to shareholders of the JV Entity) to an additional share of
fifteen percent 15%
of the audited US GAAP profits after tax over and above all rights granted pursuant to Company’s participating interest
in the Indian JV.
The
Company and Image Securities intend to form a steering committee composed of one representative from the Company, and one
representative from Image Securities, as well as an industry expert appointed jointly by the Company and Image Securities, to
facilitate and oversee development under the Work Plan. The Company shall have the option, at its sole discretion and subject
to all rules and regulations to which it is then subject, to require Image Securities to transfer to the Company the entirety
of Image Securities’ equity interest in the Indian JV Entity for a consideration to be calculated in accordance with a valuation
of the JV Entity to be determined by an independent third party expert to be mutually selected by the parties provided, that such
valuation may not be lower than $1 million plus additional equity investments in the Indian JV Entity.
4.
Material Definitive Agreements with Med Centre for Gene and Cell Therapy FZ-LLC
On
October 15, 2020, the Company and Med Centre for Gene and Cell Therapy FZ-LLC (“MCGCT”) from the United Arab Emirates
(“UAE”) entered into a joint venture agreement (“UAE JVA”) to collaborate in the development, marketing,
clinical development, and commercialization of the Company’s products within the territory the UAE and other countries as
will be agreed between the parties (“UAE Territory”).
Under
the UAE JVA, MCGCT will be responsible for obtaining required marketing approvals for the MCGCT and Company Products in the UAE
Territory and for the Company’s products based on clinical trials and regulatory requirements. In addition, MCGCT
will be responsible for procuring and funding the clinic elements of the clinical trials and regulatory approvals for our products
in the UAE Territory and use the services of Orgenesis as a subcontractor under a Master Services Agreement, as
detailed below. The Company will contribute to the UAE JV by providing funding for modification of the facilities as defined
in the JVA.
The
parties intend to pursue the joint venture (“JV”) by forming a JV entity (the “UAE JV”). The Company by
itself, or together with a designee, will hold a 50% participating interest in the UAE JV, and MCGCT or its affiliate will hold
the remaining 50% participating interest. The UAE JV will have a board of directors that will initially also act as a steering
committee of the UAE JV and shall be composed of a total of three members, with one member appointed by each party and the third
member to be appointed upon mutual agreement of the parties.
The
Company has the option, at its sole discretion and subject to all rules and regulations to which it is then subject, to require
MCGCT to transfer to the Company the entirety of MCGCT equity interest in the JV Entity for a consideration to be calculated in
accordance with a valuation of the JV Entity to be determined by an independent third party expert to be mutually selected by
the parties.
Each
of the parties will be responsible for providing the UAE JV with funding in an amount of at least five million US Dollars
($5,000,000)
each and in aggregate ten million US Dollars ($10,000,000),
to cover the operation costs of the UAE JV, of which may be in the form of in-kind contributions. The Company’s investments
may be made in the form of a cash investment for additional shares in the UAE JV, a convertible loan, and/or procured services.
In
addition, each party will have the right to invest additional sums in the Company if required (as determined by the Board) (the
“Additional Investment”), in order to maintain the activity of the UAE JV or to maintain such party’s pro-rata
holding percentage in the share capital of the UAE JV, in any future financing round. The additional payment may be made
in the form of a cash investment for additional shares of the UAE JV, a convertible loan, and/or procured services.
The
procured services of the Company is subject to, and will be carried out by MCGCT in accordance with a separate Master Services
Agreement (“MSA”) that was entered into concurrently with the UAE JVA. The Company has engaged MCGT to provide the
Company with certain procurement and services in support of its activity as shall be agreed upon from time to time between the
parties in statements of work (“SOW”). All results of these procured services shall be owned by Company. The
initial SOW signed in October 2020 provides for MCGCT to develop, setup and procure point of care processing unit in the UAE for
a fee of $5
million to be paid by Orgenesis according
to an approved work program which will also be considered the fulfilment of its contribution obligation to the UAE JV.
The
Company will grant to the UAE JV, during the term, an exclusive, sublicensable, royalty-bearing, right and license to the Orgenesis
Background IP as required solely to manufacture, distribute and market and sell Orgenesis Products within the UAE Territory, subject
and in accordance with the terms of a separate license agreement to be signed between Orgenesis and the UAE JV (“UAE-Orgenesis
License Agreement”). In consideration of the rights and the Orgenesis license to be granted to the UAE JV during the term
under the UAE-Orgenesis License Agreement, Orgenesis shall receive royalties in an amount of ten percent (10%)
of the net sales generated by the UAE JV and/or its sublicensees (as applicable) with respect to the Orgenesis Products.
The
UAE JV entity will grant Orgenesis an exclusive, perpetual, irrevocable, worldwide, sublicensable under a separate license agreement
to be signed between the UAE JV and the Company (“UAE JV License Agreement”) to use the project IP (as defined in
the UAE License Agreement) for any and all lawful purposes outside the UAE Territory. In consideration of the rights and the UAE
JV Licenses to be granted by the UAE JV during the term under the UAE JV License Agreement, the Company will pay royalties
in an amount equal to ten percent (10%)
of the net sales generated by the Company and/or its sublicensees (as applicable) with respect to providing treatment to patients
within treatment facilities where such treatment utilizes project IP, as to be more fully stipulated and set forth under the UAE
JV License Agreement.
Once
the UAE JV is profitable, the Company will be entitled (in addition to any of its rights as the holder of 50% of the JV entity)
to an additional share of fifteen percent (15%) of the UAE JV’s Audited GAAP profit after tax, over and above all rights
granted pursuant to Company’s participating interest in the UAE JV.
In
addition, on October 16th, 2020, the U.S. Subsidiary entered into a Master Service Agreement (“Co-Development
MSA”) with MCGCT whereby the Company, subject to mutually agreed timing and definition of the scope of services, will provide
certain services in support of the MCGCT’s activity as shall be agreed upon from time to time between the parties in a statements
of work for a fee of $11.6 million. The agreement will be in effect until December 31, 2022 unless terminated earlier by the parties.
Under
the UAE JVA, the parties have agreed to negotiate the terms of a manufacturing and supply agreement whereby the Company and its
affiliates will exclusively manufacture the products resulting from the product IP and the UAE JV shall purchase all of its requirement
for such products exclusively from the Company and its affiliates.
As
of September 30, 2020, the UAE JV had not yet been incorporated.
5.
KC JV entity
During
the fourth quarter of 2020 the Company transferred a further $500
thousand to Kidney
Cure as part of the Company’s participation in the KC JV. The KC JV entity was incorporated in October
2020.
6.
Greek JV
During
the fourth quarter of 2020, the Company transferred $3
million to Theracell
as part of its obligations under the procured services agreement signed with Theracell. The Greek JV was incorporated in October
2020.
7.
Cure Therapeutics JV
During
the fourth quarter of 2020, the Company transferred $1.5
million to Cure
Therapeutics as part of its obligations under the procured services agreement signed with Cure Therapeutics.
8.
Material Definitive Agreements with Broaden Bioscience and Technology Corp
As
described in Note 12 to the financial statements as of December 31, 2019, during 2019, the Company and Broaden Bioscience and
Technology Corp, a Delaware corporation (“Broaden”), entered into a Joint Venture Agreement (the “Broaden JVA”).
During the fourth quarter of 2020 the Company and Broaden entered into an Amended and Restated Joint Venture Agreement which supersedes
the Broaden JVA (“new Broaden JVA”). Pursuant to the new Broaden JVA, the parties will collaborate in the development
and commercialization of the Company’s and Broaden’s products, including but not limited to regeneration and cell
and gene therapeutic products (hereinafter, the “Products”) and building of POCare processing centers/units in China
and the Middle East (the “Broaden Project”). Under the new Broaden JVA, Broaden will be responsible to obtain required
marketing approvals for the Company’s and Broaden’s Products in the Broaden Project based on clinical
trials and regulatory requirements, and be responsible for procuring and funding the clinic elements of the clinical trials
and regulatory requirements for the Company’s and Broaden’s Products in the Broaden Project. Broaden
will also be responsible to obtain required marketing approvals for Broaden’s Products worldwide
based on clinical trials and regulatory requirements.
In
addition, each of the Parties will be responsible to provide the JV Entity with funding in an amount of at least ten million US
Dollars of which 5 million US Dollars may be in the form of in-kind funding, to cover the operation costs of the JV Entity. Such
additional investments may be made in the form of a cash contribution, a convertible loan, and/or procured services (the “Additional
Investment”), if required (as determined by the Board) in order to maintain the activity of the Broaden joint venture or
to maintain such Party’s pro-rata holding percentage in the share capital of the Broaden venture, in any future financing
round. The valuation of the JV Entity for the purposes of such Additional Investment will be determined by an independent third-party
expert to be mutually selected by the parties which will not be less than $1 million as adjusted by additional equity investment
by the parties.
The
ORGS Procured Services will be subject to and will be carried out by Broaden or the Broaden joint venture (as applicable) in accordance
with a separate Master Services Agreement (“MSA”). The Company and Broaden executed such a MSA in the fourth quarter
of 2020 whereby Broaden will provide Company with services in the amount of $5.2 million according to an approved work program.
All results of the ORGS Procured Services shall be owned by Company.
The
parties intend to pursue the Broaden Project through a joint venture (“JV”) by forming a JV entity (the “Broaden
JV Entity”). The Company by itself, or together with a designee, will hold a 50% participating interest in the Broaden JV
Entity, with the remaining 50% participating interest being held by Broaden or its affiliate following the parties’ contributions
to the Broaden JV Entity as set forth under the new Broaden JVA.
Broaden shall grant
to the Broaden JV Entity, during the term, an exclusive, sublicensable right and license to the Broaden’s Background IP
as required solely to manufacture, distribute and market and sell Broaden Products within the territory, subject and in accordance
with the terms of a separate license agreement to be signed between Broadem and the Broaden JV Entity (“Broaden License
Agreement”). In consideration of the rights and the Broaden licenses to be granted to the Broaden JV Entity during the term
under the Broaden License Agreement, Broaden shall receive royalties in an amount of up to ten percent (10%) of the net sales
generated by the Broaden JV Entity and/or its sublicensees (as applicable) with respect to the Broaden Products, as to be more
fully stipulated and set forth under the Broaden License Agreement; and grant the Company an exclusive, sublicensable right and
license to the Broaden Background IP as required solely to manufacture, distribute and market and sell Broaden Products outside
of the territory under the terms of a separate license agreement to be entered into between Broaden and the Company, in consideration
for payment of royalties in an amount of up to ten percent (10%) of the net sales generated by the Company and/or its sublicensees
(as applicable) with respect to the Broaden Products outside the Broaden Project.
The
Company shall grant to the Broaden JV Entity, during the term, an exclusive, sublicensable, royalty bearing, right and license
to the Orgenesis Background IP as required solely to manufacture, distribute and market and sell Orgenesis Products within the
Broaden project, subject and in accordance with the terms of a separate license agreement to be signed between Company and the
Broaden JV Entity (“Broaden-Orgenesis License Agreement”). In consideration of the rights and the Orgenesis license
to be granted to the Broaden JV Entity during the Term under the Broaden-Orgenesis License Agreement, Company shall receive royalties
in an amount of ten percent (10%)
of the net sales generated by the Broaden JV Entity and/or its sublicensees (as applicable) with respect to the Orgenesis Products.
Once
the Broaden JV Entity is profitable, the Company shall be entitled (in addition to any of its rights as holder of 50% of
the Broaden JV Entity and prior to any other distributions of dividends by the Broaden JV Entity to shareholders
of the Broaden JV Entity) to an additional share of fifteen percent 15%
of the audited US GAAP profits after tax over and above all rights granted pursuant to Company’s participating interest
in the Broaden JV.
The
Company and Broaden will form a steering committee composed of one representative from the Company, and one representative from
Broaden, as well as an mutually appointed representative, to facilitate and oversee development under the Work Plan The
Company shall have the option, at its sole discretion and subject to all rules and regulations to which it is then subject, to
require Broaden to transfer to the Company the entirety of Broaden’s equity interest in the Broaden JV Entity for a consideration
to be calculated in accordance with a valuation of the JV Entity to be determined by an independent third party expert to be mutually
selected by the parties provided, that such valuation may not be lower than $1 million plus additional equity investments in the
Broaden JV Entity.