Orgenesis(ORGS) - 2021 Q4 - Annual Report

PART I Business The company develops affordable cell and gene therapies via its decentralized Point of Care (POCare) Platform - Orgenesis is a global biotech company focused on making cell and gene therapies (CGTs) affordable and accessible through its Point of Care (POCare) Platform[17] - The POCare Platform consists of a licensed therapy pipeline, automated closed POCare technology systems (OMPULs), and a global network of partners[19] - The company primarily focuses on autologous therapies, using a patient's own cells to reduce costs and logistical complexity[18] - Orgenesis Mobile Processing Units and Labs (OMPULs) are key to providing a standardized, cost-effective, and scalable manufacturing solution at the point of care[25][78] - In February 2020, Orgenesis sold its Contract Development and Manufacturing Organization (CDMO) business, Masthercell, which is now treated as a discontinued operation[30] Therapies in Development The therapeutic pipeline includes products across clinical, IND-enabling, and pre-clinical stages Orgenesis Therapy Development Pipeline Summary | Stage | Therapy | Indication | | :--- | :--- | :--- | | Clinical Use | KYSLECEL® | Total Pancreatectomy (TP-IAT) | | | Tissue Genesis Icellator® | Cell Assisted Lipotransfer | | | Cartil-S / Chondroseal | Osteoarthritis / Cartilage Defects | | Clinical Trials | RanTop (Ranpirnase) | HPV-associated external anogenital warts (EGW) | | | Tissue Genesis Icellator® | Erectile Dysfunction, COVID-19 ARDS | | IND Enabling | Autologous Insulin-Producing (AIP) Cells | Diabetes | | | CAR-T CD19 | B-ALL, Lymphoma | | | Dual Cellular vaccine (DUVAC) | Pancreatic Cancer | | Pre-Clinical | Bioxomes | Drug Delivery Platform | | | MSCP | Wound healing and Psoriasis | | | Kidney Disease Therapies | Chronic Kidney Disease (CKD) | - KYSLECEL®, an autologous pancreatic islet cell therapy, is commercially available in the US for patients undergoing total pancreatectomy, with plans for EU expansion[37] - The FDA granted Orphan Drug Designation for the company's Autologous Insulin-Producing (AIP) cells for treating severe hypoglycemia-prone diabetes[49] POCare Platform Strategy The strategy delivers therapies at the point of care through a decentralized network using mobile OMPUL facilities - The strategy focuses on a decentralized model where therapies are collected, processed, and administered close to the clinical setting[70] - Global harmonization is maintained through a central quality system and supply chain, while local decentralization is achieved via regional POCare Centers[72][73] - OMPULs are critical for rapid deployment of GMP-compliant capacity, reducing setup time from 18-24 months to 3-9 months and lowering costs[73][78] - Collaborations, joint ventures, and licensing agreements are key, with partnerships established in North America, Europe, Latin America, Asia, and Australia[82][83] Revenue Model and Financials Revenue is generated from therapy out-licensing and POCare services, with total revenues surging 364% in 2021 - The revenue model is based on out-licensing therapies for royalties (typically 10% of net sales) and JV profits (10-15%), plus fees from POCare Services[99][100] - Total revenues increased by 364% from $7.65 million in 2020 to $35.5 million in 2021, driven by growth in POC and hospital services[102][299] - Cost of services and other R&D expenses were $36.6 million in 2021, a significant decrease from $84.0 million in 2020[103] POCare Therapy Revenue (2020 vs. 2021) | Revenue Stream | 2021 (in thousands) | 2020 (in thousands) | | :--- | :--- | :--- | | POC and hospital services | $32,819 | $6,068 | | Cell process development services | $2,683 | $1,584 | | Total | $35,502 | $7,652 | Risk Factors The company faces significant risks in its business model, technology development, operations, and regulatory compliance - Business & Financial Risks: The POC business has a limited operating history and an unproven model, and the company is not yet profitable[148][149] - Technology & Development Risks: Research programs are based on novel cell therapies, which are inherently risky and face an uncertain regulatory approval pathway[151] - Operational Risks: The business is affected by the COVID-19 pandemic and depends on the successful development and rollout of its OMPULs[172][209] - Collaboration & Partnership Risks: Success depends on strategic collaborations, but the company may not realize the benefits of these alliances or control key elements[167][170] - Legal & Regulatory Risks: The company faces risks related to intellectual property protection, potential infringement lawsuits, and extensive government regulation[185][189][223] Properties The company does not own any real property and leases all its office, laboratory, and production facilities globally - The company does not own any real property and operates entirely out of leased facilities[259] Key Leased Facilities | Entity | Location | Type | | :--- | :--- | :--- | | Orgenesis Inc. | Germantown, MD | Principal Office | | Orgenesis Maryland Inc. | Baltimore, MD | Lab and Office | | Orgenesis Korea | Suwon-si, Republic of Korea | Lab and Office | | Koligo Therapeutics Inc. | New Albany, IN & Leander, TX | Production and Development Labs | | Orgenesis Biotech Israel | Bar Lev Industrial Park, Israel | Labs and Offices | | Orgenesis Belgium | Novalis Science Park, Belgium | Labs and Offices | Legal Proceedings The company is involved in a legal dispute with the State of Israel over technology licensing and royalties - A complaint was filed against Orgenesis and its Israeli subsidiary by the State of Israel and Tel Hashomer Medical Research on January 18, 2022[260] - The plaintiffs are seeking a declaratory remedy for royalties and NIS 10 million in damages related to the POCare platform and CDMO activities[260][261] - The company believes the allegations are without merit and plans to vigorously defend against the claims[261] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's stock trades on Nasdaq, no dividends are planned, and a stock repurchase plan is active - The company's common stock is listed on the Nasdaq Capital Market under the symbol "ORGS"[266] - Orgenesis has never paid dividends and does not plan to in the foreseeable future, intending to retain earnings for business operations[267] - A stock repurchase plan of up to $10 million was approved in May 2020, under which 24,477 shares were repurchased in November 2021[269][271] Management's Discussion and Analysis of Financial Condition and Results of Operations Revenue grew 364% in 2021, while net loss from continuing operations narrowed significantly due to lower R&D expenses Consolidated Results of Operations (2020 vs. 2021) | Metric (in thousands) | 2021 | 2020 | | :--- | :--- | :--- | | Total Revenues | $35,502 | $7,652 | | Cost of services and other R&D, net | $36,644 | $83,986 | | Selling, general and administrative | $14,710 | $18,973 | | Operating Loss | $16,800 | $95,785 | | Net Loss from Continuing Operation | $18,059 | $95,127 | | Net Income from Discontinued Operations | $0 | ($95,706) | | Net Loss (Income) | $18,059 | ($579) | - Revenues for FY2021 increased by 364% to $35.5 million, primarily due to a significant increase in point-of-care (POC) services revenue[299] - Cost of services and other R&D expenses decreased by 56% to $36.6 million in 2021, mainly due to the completion of major OMPUL development work in 2020[303][304] - SG&A expenses decreased by 22% to $14.7 million in 2021, despite a $3.6 million discretionary bonus to the CEO[306][308] - The company's working capital decreased from $33.8 million to $10.4 million at year-end 2021, primarily due to cash used to fund POC operations[312][313] - Net cash used in operating activities was $26.9 million in 2021, a significant improvement from $78.0 million used in 2020[315][316] Financial Statements and Supplementary Data Audited financial statements show decreased assets and a net loss in 2021, with a critical audit matter on liquidity Key Consolidated Balance Sheet Data (as of Dec 31) | Account (in thousands) | 2021 | 2020 | | :--- | :--- | :--- | | Cash and cash equivalents | $5,473 | $44,923 | | Total Current Assets | $25,758 | $50,077 | | Total Assets | $59,841 | $77,684 | | Total Current Liabilities | $15,365 | $16,285 | | Total Liabilities | $21,210 | $24,956 | | Total Equity | $38,631 | $52,728 | Key Consolidated Comprehensive Loss (Income) Data (Year Ended Dec 31) | Account (in thousands) | 2021 | 2020 | | :--- | :--- | :--- | | Total Revenues | $35,502 | $7,652 | | Operating Loss | $16,800 | $95,785 | | Net loss from continuing operation | $18,059 | $95,127 | | Net income from discontinued operations | $0 | ($95,706) | | Net Loss (Income) | $18,059 | ($579) | - The auditor's report includes a Critical Audit Matter related to the company's liquidity, highlighting uncertainty regarding future cash flows[478][479][480] Controls and Procedures Management concluded that both disclosure controls and internal control over financial reporting were effective as of year-end 2021 - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2021[341] - Based on the COSO framework, management concluded that the company's internal control over financial reporting was effective as of December 31, 2021[343][344] - As a smaller reporting company, the annual report does not include an auditor attestation report on internal control over financial reporting[344] PART III Directors, Executive Officers and Corporate Governance The company is led by an experienced executive team and a board of six directors, a majority of whom are independent - The executive team includes Vered Caplan (CEO & Chairperson), Neil Reithinger (CFO), and Efrat Assa Kunik (Chief Development Officer)[350] - The Board of Directors is composed of six members: Vered Caplan, David Sidransky, Guy Yachin, Yaron Adler, Ashish Nanda, and Mario Philips[350][370] - A majority of the board members are considered independent under Nasdaq listing standards[372][373] - The Board has four committees: Audit, Compensation, Nominating and Corporate Governance, and Research and Development[375] Executive Compensation CEO compensation in 2021 was dominated by a $3.6 million discretionary bonus, with no new option awards for executives 2021 Summary Compensation Table | Name and Principal Position | Year | Salary ($) | Bonus ($) | All Other Comp. ($) | Total ($) | | :--- | :--- | :--- | :--- | :--- | :--- | | Vered Caplan, CEO | 2021 | 264,483 | 3,600,000 | 112,345 | 3,976,828 | | Neil Reithinger, CFO | 2021 | 239,670 | - | - | 239,670 | | Efrat Assa-Kunik, CDO | 2021 | 169,533 | - | 46,387 | 215,919 | - In July 2021, the Compensation Committee approved a $3.6 million discretionary bonus for CEO Vered Caplan[411] - As of December 31, 2021, CEO Vered Caplan held outstanding options to purchase 1,167,756 shares[398][431] - Non-employee directors receive an annual cash retainer of $40,000, plus additional fees for committee service and annual option grants[422] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Two beneficial owners hold over 5% of common stock, while the executive and director group holds 7.86% Security Ownership of >5% Beneficial Owners (as of March 30, 2022) | Name of Beneficial Owner | Amount of Beneficial Ownership | Percent | | :--- | :--- | :--- | | Image Securities fzc. | 2,070,919 | 8.34% | | Yehuda Nir | 2,182,164 | 8.79% | - All current directors and executive officers as a group beneficially own 1,949,963 shares, representing 7.86% of outstanding common stock[427] - CEO Vered Caplan beneficially owns 1,167,756 shares, or 4.70% of the company, including shares issuable upon option exercise[426][431] Certain Relationships and Related Transactions, and Director Independence The company engages in transactions with the CFO's firm and a major shareholder, including service fees and a loan facility - CFO Neil Reithinger's firm, Eventus Consulting, P.C., received $240,000 in 2021 for financial consulting services[442] - The company earned revenues of $3.9 million from related party Image Securities fzc in 2021[443] - In August 2021, Orgenesis entered into a $5 million convertible loan agreement with Image Securities fzc, of which $3 million was drawn as of year-end[444] Principal Accountant Fees and Services Total fees billed by the independent auditor, a member of PwC, were $274,685 in 2021 Accountant Fees (2020 vs. 2021) | Service Category | 2021 Fees | 2020 Fees | | :--- | :--- | :--- | | Audit Fees | $228,188 | $267,231 | | Audit-Related Fees | $16,634 | $67,405 | | Tax Fees | $29,863 | $12,500 | | All Other Fees | $0 | $10,000 | | Total Fees | $274,685 | $357,136 | - The Audit Committee is responsible for appointing, compensating, and overseeing the independent auditor and pre-approves all services[449] PART IV Exhibits and Financial Statement Schedules This section lists all exhibits filed with the Form 10-K, including material contracts and required certifications - The report incorporates by reference key agreements such as the Stock Purchase Agreement for the sale of Masthercell and the merger agreement for Koligo Therapeutics[460] - Material contracts filed include the 2017 Equity Incentive Plan, various collaboration and license agreements, and convertible loan agreements[461] - Certifications from the CEO and CFO pursuant to the Sarbanes-Oxley Act are included as exhibits[462]