Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking
Statements
The
following discussion should be read in conjunction with the financial statements and related notes contained elsewhere in this Quarterly
Report on Form 10-Q, as well as our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, as filed with the Securities
and Exchange Commission (the “SEC”) on March 30, 2022. Certain statements made in this discussion are “forward-looking
statements” within the meaning of 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section
21E of the Securities Exchange Act of 1934, as amended. These statements are based upon beliefs of, and information currently available
to, the Company’s management as well as estimates and assumptions made by the Company’s management. Readers are cautioned
not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. When
used herein, the words “anticipate,” “believe,” “estimate,” “expect,” “forecast,”
“future,” “intend,” “plan,” “predict,” “project,” “target,” “potential,”
“will,” “would,” “could,” “should,” “continue” or the negative of these terms
and similar expressions as they relate to the Company or the Company’s management identify forward-looking statements. Such statements
reflect the current view of the Company with respect to future events and are subject to risks, uncertainties, assumptions, and other
factors, including the risks relating to the Company’s business, industry, and the Company’s operations and results of operations
and the effects that the COVID-19 outbreak, any of its variants, or similar pandemics, could have on our business and CGT Biotech Platform.
Other factors that may cause actual results to differ materially from current expectations include, among other things, those listed
under Part II, Item 1A. “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Should one or more of these risks
or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those
anticipated, believed, estimated, expected, intended, or planned. Given these uncertainties, you should not place undue reliance on these
forward-looking statements.
The
full extent to which the COVID-19 pandemic may directly or indirectly impact our business, results of operations and financial condition
will depend on future developments that are uncertain, including as a result of new information that may emerge concerning COVID-19 and
the actions taken to contain it or treat COVID-19, as well as the economic impact on local, regional, national and international customers
and markets. We have made estimates of the impact of COVID-19 within our financial statements, and although there is currently no major
impact, there may be changes to those estimates in future periods. Actual results may differ from these estimates.
Although
the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future
results, levels of activity, performance, or achievements. Except as required by applicable law, including the securities laws of the
United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results.
Our
financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”).
These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments
and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments
and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of
the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. Our financial
statements would be affected to the extent there are material differences between these estimates and actual results. The following discussion
should be read in conjunction with our financial statements and notes thereto appearing elsewhere in this report.
Unless
otherwise indicated or the context requires otherwise, the words “we,” “us,” “our,” the “Company,”
“our Company” or “Orgenesis” refer to Orgenesis Inc., a Nevada corporation, and our majority or wholly-owned
subsidiaries, Orgenesis Korea Co. Ltd. (the “Korean Subsidiary”); Orgenesis Belgium SRL, a Belgian-based entity (the “Belgian
Subsidiary”); Orgenesis Ltd., an Israeli corporation (the “Israeli Subsidiary”); Orgenesis Maryland Inc., a Maryland
corporation (the “U.S. Subsidiary”); Orgenesis Switzerland Sarl, (the “Swiss Subsidiary”); Orgenesis Biotech
Israel Ltd. (“OBI”); Koligo Therapeutics Inc. (“Koligo”); Orgenesis Germany GmbH, a German entity which was incorporated
in the second quarter of 2021; Orgenesis Australia PTY LTD (the “Australian subsidiary”), incorporated in 2022; Tissue Genesis
International LLC (“Tissue Genesis”), formed in Texas in 2022; and Orgenesis Italy SRL (the “Italian subsidiary”),
incorporated in 2022.
Corporate
Overview
Orgenesis
Inc., a Nevada corporation, is a global biotech company working to unlock the potential of cell and gene therapies (“CGTs”)
in an affordable and accessible format.
CGTs
can be centered on autologous (using the patient’s own cells) or allogenic (using master banked donor cells) and are part of a
class of medicines referred to as advanced therapy medicinal products (“ATMP”). We are mostly focused on autologous therapies,
with processes and systems that are developed for each therapy using a closed and automated processing system approach that is validated
for compliant production near the patient for treatment of the patient at the point of care (“POCare”). This approach has
the potential to overcome the limitations of traditional commercial manufacturing methods that do not translate well to commercial production
of advanced therapies due to their cost prohibitive nature and complex logistics to deliver such treatments to patients (ultimately limiting
the number of patients that can have access to, or can afford, these therapies).
To
achieve these goals, we have developed a Point of Care Platform (“POCare Platform”) comprised of three enabling components:
(i) a pipeline of licensed POCare advanced therapies that are designed to be processed and produced, (ii) automated closed POCare technology
systems, and (iii) a collaborative worldwide network of POCare research institutes and hospitals (“POCare Network”).
The
POCare Platform relies in particular on the development of its own production capacity, known as “POCare Services”, whose
goal is to ensure that therapies are accessible at the point of treatment (the “POCare Center”). POCare Services, which have
been expanding worldwide, are based on a global approach and local adaptation that allows replication and expansion. Global harmonization
of the POCare Services is ensured by a central quality system, replicability of infrastructure and equipment and centralized monitoring
and data management.
POCare
Centers are the decentralised hubs that provide harmonized services to customers and partners. We are working to provide a more efficient
and scalable pathway for advanced therapies to reach patients more rapidly at lowered costs. The workflow of a POCare Center is designed
to allow rapid capacities expansion while integrating new technologies. We also draw on extensive medical expertise to identify promising
new autologous therapies to leverage within the POCare Platform either via ownership or licensing.
The
POCare Network brings together patients, doctors and industry partners with a goal of achieving harmonized, regulated clinical development
and production of POCare advanced therapies.
We
have worked to develop and validate POCare technologies that can be combined within mobile production units for advanced therapies. We
have made significant investments in the development of several types of Orgenesis Mobile Processing Units and Labs (“OMPULs”)
with the expectation of use and/or distribution through our POCare Network and/or partners, collaborators, and regional distributors.
As of the date of this report, the OMPULs have been adapted for processing of CAR-T, TILS based products and are in the qualification
stage for clinical use in various locations. Additional OMPULs are still in the development stage.
OMPULs
are designed for the purpose of validation, development, performance of clinical trials, manufacturing and/or processing of potential
or approved advanced therapy products in a safe, reliable, and cost-effective manner at the point of care, as well as the manufacturing
of such CGTs in a consistent and standardized manner in all locations. The OMPUL design delivers a potential industrial solution for
us to deliver CGTs to practically any clinical institution at the point of care.
The
Chief Executive Officer is our chief operating decision-maker who reviews financial information prepared on a consolidated basis. All
of our operations are in one segment, being the point-of-care business via our POCare Platform. Therefore, no segment information has
been presented.
POCare
Platform Operations via Subsidiaries
We
currently conduct our core business operations ourselves and through our subsidiaries (collectively, the “Subsidiaries”).
The Subsidiaries are listed in note 1 of the condensed consolidated financial statements.
Impact
of the COVID-19 Pandemic
The
COVID-19 pandemic continues to present substantial public health and economic challenges around the world, and to date has led to the
implementation of various responses, including government-imposed quarantines, stay-at-home orders, travel restrictions, mandated business
closures and other public health safety measures.
We
continue to closely monitor the impact of the COVID-19 pandemic on all aspects of our business, including how it has and will continue
to impact our operations and the operations of our suppliers, vendors and business partners, and may take further precautionary and preemptive
actions as may be required by federal, state or local authorities. In addition, we have taken steps to minimize the current environment’s
impact on our business and strategy, including devising contingency plans and securing additional resources from third party service
providers. For the safety of our employees and families, we have introduced enhanced safety measures in our facilities.
Beyond
the impact on our product development efforts, the extent to which COVID-19 ultimately impacts our business, results of operations and
financial condition will depend on future developments, which remain highly uncertain and cannot be predicted with confidence, such as
the duration of the outbreak, the emergence of new variants, new information that may emerge concerning the severity of COVID-19 or the
effectiveness of actions taken to contain COVID-19 or treat its impact, including vaccination campaigns, among others. If we or any of
the third parties with whom we engage, however, were to experience any additional shutdowns or other prolonged business disruptions,
our ability to conduct our business in the manner and on the timelines presently planned could be materially or negatively affected,
which could have a material adverse impact on our business, financial condition and results of operations. Although to date, our business
has not been materially impacted by COVID-19, it is possible that our clinical development timelines could be negatively affected by
COVID-19, which could materially and adversely affect our business, financial condition and results of operations. See “Risk Factors”
section of our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC on March 30, 2022, for additional
discussion of the potential adverse impact of the COVID-19 pandemic on our business, financial condition and results of operations.
Developments
during the quarter ended March 31, 2022
License,
Collaboration and Joint Venture Agreements
During
the three months ended March 31, 2022, we executed license, collaboration and joint venture agreements, the most significant of which
are summarized below. For a more complete description, see note 7 to our consolidated financial statements included quarterly
report on Form 10-Q.
|
a) |
License
and research agreement Yeda Research and Development Company Limited |
On
January 25, 2022, we and Yeda Research and Development Company Limited (“Yeda”), an Israeli corporation, entered into a license
and research agreement. Pursuant to the agreement, Yeda granted us an exclusive, worldwide license to its licensed information and the
licensed patents, for the development, manufacture, use, offer for sale, sale and import of products in the Field a field of tumor-infiltrating
lymphocytes (TIL) and Chimeric antigen receptor (CAR) T cell immunotherapy platforms (excluding CAR-Cytokine Induced Killer cell immunotherapy).
|
b) |
Joint
venture agreement with Proterna Inc |
On
January 26, 2022, we and Proterna, Inc. a Delaware corporation, (“Proterna”) (together, the “Parties”), entered
into a joint venture agreement (“JVA”). Pursuant to the JVA, the Parties agreed to collaborate with each other and expand
their activities in the development and commercialization of mRNA based vaccines and cellular immunotherapies for respiratory diseases,
including, without limitation, COVID-19. The JVA provides that Proterna will grant to the JV Entity (“JVE”), under a separate
license agreement, an exclusive, sublicensable right and license to its background IP as required to carry out the terms of the JVA including
to develop, manufacture, distribute and market and sell mRNA vaccines and cellular immunotherapies for respiratory diseases, including
COVID-19.
Purchase
of Mida Biotech BV
On
February 22, 2022, we, pursuant to the joint venture agreement between ourselves and Mida Biotech BV “Mida”), purchased all
the issued shares in Mida for consideration of $100 thousand. In lieu of cash, the consideration was paid via the issuance of shares
of our common stock to Mida’s shareholders.
Securities
Purchase Agreement
On
March 30, 2022, we entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain investors
(collectively, the “Investors”), pursuant to which the we agreed to issue and sell to the Investors, in a private
placement (the “Offering”), an aggregate of 4,933,333 shares of the our Common Stock at a purchase price of $3.00 per
share and warrants to purchase up to an aggregate of 1,000,000 shares of Common Stock at an exercise price of $4.50 per share. The
warrants are not exercisable until after six months and expire three years from the date of issuance. As of the date of this
filing of this Form 10Q, we received gross proceeds of approximately $1.8 million before deducting related offering
expenses. We agreed with certain investors to extend the closing date of the Offering to June 30, 2022, by which time we expect
to receive the remaining $13 million.
Tel
Hashomer
On
January 18, 2022, a complaint (the “Complaint”) was filed in the Tel Aviv District Court (the “Court”) against
us and the Israeli subsidiary, Prof. Sarah Ferber, Vered Caplan and Dr. Efrat Asa Kunik (collectively, the “defendants”)
by plaintiffs the State of Israel, as the owner of Chaim Sheba Medical Center at Tel HaShomer (“Sheba”), and Tel Hashomer
Medical Research, Infrastructure and Services Ltd. (collectively, the “plaintiffs”). We believe that the allegations in this
Complaint are without merit and intend to vigorously defend itself ourselves against the claims. Since a material loss is not considered
probable, no provision was made in the financial statements.
Results
of Operations
Comparison
of the Three Months Ended March 31, 2022 to the Three Months Ended March 31, 2021.
The
following table presents our results of operations for the three months ended March 31, 2022 and 2021:
| |
Three Months Ended | |
| |
March 31, 2022 | | |
March 31, 2021 | |
| |
(in thousands) | |
POC development services | |
$ | 5,689 | | |
$ | 7,987 | |
POC development services from related party | |
| 635 | | |
| 1,157 | |
Cell process development services and hospital services | |
| 888 | | |
| 245 | |
Total revenues | |
| 7,212 | | |
| 9,389 | |
Cost of revenues cell process development services and hospital services | |
| 714 | | |
| 770 | |
Cost of development services and research and development expenses | |
| 6,651 | | |
| 5,357 | |
Amortization of intangible assets | |
| 232 | | |
| 238 | |
Selling, general and administrative expenses | |
| 2,851 | | |
| 2,968 | |
Operating loss | |
| 3,236 | | |
| (56 | ) |
Other income, net | |
| - | | |
| (25 | ) |
Financial expenses, net | |
| 213 | | |
| 233 | |
Share in net loss of associated entities | |
| 547 | | |
| 15 | |
Loss before income taxes | |
| 3,996 | | |
| 167 | |
Tax (income) expense | |
| 1 | | |
| (2 | ) |
Net loss | |
$ | 3,997 | | |
$ | 165 | |
Revenues
During
the three months ended March 31, 2022, we recognized revenue from our point-of-care development service in the amount of $6,324 thousand,
as compared to $9,144 during the three months ended March 31, 2021, representing a decrease of 31%. The decrease is related to
the fact that the majority of the performance obligations under the Company’s POC services contracts were completed in 2021 and
which primarily related services performed to support the Company’s customers to set-up their respective territories. This does
not include revenue for processing contracts which are expected to commence in the second quarter of 2022.
Expenses
Cost of revenues cell process
development services and hospital services
| |
Three Months Ended | |
| |
March 31, 2022 | | |
March 31, 2021 | |
| |
(in thousands) | |
Salaries and related expenses | |
$ | 329 | | |
$ | 222 | |
Stock-based compensation | |
| 13 | | |
| 10 | |
Professional fees and consulting services | |
| 22 | | |
| 6 | |
Raw materials | |
| 30 | | |
| 204 | |
Depreciation expenses, net | |
| 75 | | |
| 97 | |
Other expenses | |
| 245 | | |
| 231 | |
Total | |
$ | 714 | | |
$ | 770 | |
Cost
of revenues cell process development services and hospital services for the three months ended March 31, 2022 were $714 thousand,
as compared to $770 thousand for the three months ended March 31, 2021, representing a decrease of 7%. The decrease was mainly
attributable to a reduction in the purchase of raw materials.
Cost
of development services and research and development expenses
| |
Three Months Ended | |
| |
March 31, 2022 | | |
March 31, 2021 | |
| |
(in thousands) | |
Salaries and related expenses | |
$ | 2,849 | | |
$ | 2,014 | |
Stock-based compensation | |
| 159 | | |
| 148 | |
Professional fees and consulting services | |
| 1,726 | | |
| 2,119 | |
Lab expenses | |
| 582 | | |
| 423 | |
Depreciation expenses, net | |
| 158 | | |
| 66 | |
Other research and development expenses | |
| 1,177 | | |
| 587 | |
Total | |
$ | 6,651 | | |
$ | 5,357 | |
Cost
of development services and research and development expenses for the three months ended March 31, 2022 were $6,651 thousand,
as compared to $5,357 thousand for the three months ended March 31, 2021, representing an increase of 24%.
The
increase is mainly attributable to additional employees that were hired as we expand our research and development to the evaluation and
development of new POCare activities, cell therapies and related technologies.
Selling,
General and Administrative Expenses
| |
Three Months Ended | |
| |
March 31, 2022 | | |
March 31, 2021 | |
| |
(in thousands) | |
Salaries and related expenses | |
$ | 900 | | |
$ | 679 | |
Stock-based compensation | |
| 94 | | |
| 407 | |
Accounting and legal fees | |
| 910 | | |
| 872 | |
Professional fees | |
| 260 | | |
| 412 | |
Rent and related expenses | |
| 54 | | |
| 30 | |
Business development | |
| 121 | | |
| 148 | |
Depreciation expenses, net | |
| 9 | | |
| 52 | |
Other general and administrative expenses | |
| 503 | | |
| 368 | |
Total | |
$ | 2,851 | | |
$ | 2,968 | |
Selling,
general and administrative expenses for the three months ended March 31, 2022 were $2,851 thousand, as compared to $2,968 thousand
for the three months ended March 31, 2021, representing a decrease of 4%. The reduction was mainly attributable to a reduction on
stock-based compensation.
Financial
Expenses, net
| |
Three Months Ended | |
| |
March 31, 2022 | | |
March 31, 2021 | |
| |
(in thousands) | |
Interest expense on convertible loans and loans | |
$ | 125 | | |
$ | 253 | |
Foreign exchange loss, net | |
| 82 | | |
| 56 | |
Other expense (income) | |
| 6 | | |
| (76 | ) |
Total | |
$ | 213 | | |
$ | 233 | |
Financial
expenses, net for the three months ended March 31, 2022 were $213 thousand, as compared to $233 thousand for the three months
ended March 31, 2021, representing a decrease of 9%. The reduction was mainly attributable to a reduction of interest paid on convertible
loans, as a result of the repayment of such loans.
Working
Capital
| |
As of | |
| |
March 31, 2022 | | |
December 31, 2021 | |
| |
(in thousands) | |
Current assets | |
$ | 24,010 | | |
$ | 25,758 | |
Current liabilities | |
| 15,253 | | |
| 15,365 | |
Working capital | |
$ | 8,757 | | |
$ | 10,393 | |
Current
assets at March 31, 2022 were $24,010 thousand compared to $25,758 at December 31, 2021, representing a decrease of 7%. The decrease
was mainly attributable to a decline in cash and cash equivalent of $4,350 thousand which was offset by an increase in accounts receivable
of $1,830 thousand.
Liquidity
and Financial Condition
| |
Three Months Ended | |
| |
March 31, 2022 | | |
March 31, 2021 | |
| |
(in thousands) | |
| |
| | |
| |
Net loss | |
$ | (3,997 | ) | |
$ | (165 | ) |
| |
| | | |
| | |
Net cash used in operating activities | |
| (2,792 | ) | |
| (4,547 | ) |
Net cash used in investing activities | |
| (1,613 | ) | |
| (539 | ) |
Net cash provided by financing activities | |
| 1 | | |
| 1,898 | |
| |
| | | |
| | |
Decrease in cash and cash equivalents | |
$ | (4,404 | ) | |
$ | (3,188 | ) |
During
the quarter ended March 31, 2022, we funded our operations from existing funds.
Net
cash used in operating activities for the three months ended March 31, 2022 was approximately $2.8 million, as compared to net
cash used in operating activities of approximately $4.5 million for the three months ended March 31, 2021. This was mainly attributable
to a difference in the increase in accounts receivable of $1.9 million in the three months ended March 31, 2022 compared to $ 8.3 million
for the three months ended March 31, 2021, and the net loss of $4 million for the three months ended March 31, 2022 compared to $ 165
thousand for the three months ended March 31, 2021.
Net
cash used in investing activities for the three months ended March 31, 2022 was approximately $1.6 million, as compared to net
cash used in investing activities of approximately $0.5 million for the three months ended March 31, 2021. This was mainly attributable
to a loan granted to one of our associated entities pursuant to a joint venture agreement in the amount of $1.5
million.
Net
cash provided by financing activities for the three months ended March 31, 2022 were zero, as compared to net cash provided by financing
activities of approximately $1.9 million for the three months ended March 31, 2021.
This was mainly attributable to the proceeds received from the issue of shares and warrants in the three months ended March 31, 2021.
Liquidity
& Capital Resources Outlook
Our activities
have been funded by generating revenue, proceeds from convertible loan agreements, and through offerings of our securities. We
entered into convertible loan agreements for convertible loans in the aggregate principal amount of $13 million during April and May
2022, of which $9 million has been received to date. There is no assurance that our business will generate sustainable positive
cash flows to fund our operations.
Based
on our current cash resources and commitments, we believe that we will be able to maintain our current planned development activities
and expected level of expenditures for at least 12 months from the date of the issuance of these financial statements, although no assurance
can be given that we will not need additional funds prior to such time. If there are further increases in operating costs for facilities
expansion, research and development, commercial and clinical activity or decreases in revenues from customers, we will need to use mitigating
actions such as to seek additional financing or postpone expenses that are not based on firm commitments. In addition, in order to fund
our operations until such time that we can generate sustainable positive cash flows, we may need to raise additional funds.
Off-Balance
Sheet Arrangements
We
have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition,
changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that
is material to stockholders.