Good morning, ladies and gentlemen, and welcome to the Orgenesis Third Quarter 2021 Business Update Call. At this time, all participants have been placed on a listen-only mode, and we will open the floor for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, David Waldman, Investor Relations. Sir, the floor is yours.
Thank you, Matthew. Good morning, everyone. Welcome to the Orgenesis Third Quarter 2021 Business Update Conference Call. On the call with us this morning are Vered Caplan, Chief Executive Officer, and Neil Reithinger, Chief Financial Officer. If you have any questions after the call or would like any additional information about the company, please contact Crescendo Communications at 212-671-1020. This conference call contains forward-looking statements, which are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended. These forward-looking statements involve substantial uncertainties and risks and are based upon our current expectations, estimates, and projections and reflect our beliefs and assumptions based upon information available to us as of the date of this call.
We caution listeners that forward-looking statements are predictions based on our current expectations about future events. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties, and assumptions that are difficult to predict. Our actual results, performance, or achievements could differ materially from those expressed or implied by the forward-looking statements as a result of a number of factors, including but not limited to the risks and uncertainties discussed under the heading Risk Factors in Item 1A of our annual report on Form 10-K for the fiscal year ended December 31st, 2020, and in our other filings with the Securities and Exchange Commission. We undertake no obligation to revise or update any forward-looking statement for any reason. I'd now like to turn the call over to Orgenesis CEO, Ms. Vered Caplan. Please go ahead, Vered.
Thank you, David, and thanks to everyone for joining us on our call today. Once again, we generated strong year-over-year revenue growth. Revenue for the third quarter increased over 400% to fivefold versus the same period last year. For the nine months, revenue increased to $28.6 million compared to $5.3 million for the same period last year, which we believe reflects both the progress and sustainability of our point-of-care strategy. Feedback from within the industry has been extremely positive, and we are now working with some of the leading research centers, hospitals, and biotech companies around the world, such as JHU and UC Davis in the United States. Our global network now spans North America, Europe, Asia, and the Middle East, comprised of 10 regional distribution partners. In addition to our strong IP, we have a distinct first-mover advantage.
We've begun planning and implementation of this strategy a number of years ago and have invested heavily in the platform. For this reason, we have established ourselves not only as a leader but as a disruptor in the cell and gene therapy market. Although industry partners are catching on to what we've built, it's important to reiterate the strategy for investors. Currently, most cell and gene therapies are manufactured using centralized production, either through in-house production or through CDMOs, which is standard across the industry. Centralized production requires massive capital investment, is very expensive to operate, and it takes years to bring production online at meaningful scale. The current processes in place have resulted in major bottlenecks and capacity shortages, which is illustrated by the exorbitant cost of many of these therapies and ongoing manufacturing delays.
A good example is CAR- T therapies, which have faced supply chain issues and can range in the hundreds of thousands of dollars per patient with resistance from payers. However, by producing personalized cell and gene therapies at the point-of-care, we are able to add new capacities within three to six months, when compared to CDMOs or in-house production may take years to build up teams. In terms of expenses, our goal over time is to reduce the cost of these therapies to tens of thousands versus hundreds of thousands of dollars. We recognize the challenges facing this industry early on. As a result, we've made the decision to sell our MaSTherCell subsidiary for approximately $300 million, which provided us over $100 million of non-dilutive capital to grow our point-of-care platform.
At the time of the sale, MaSTherCell revenues were roughly $30 million. To put this in perspective, the revenue from our point-of-care business was over $25 million for just the first nine months. We believe the transaction to sell MaSTherCell was the right decision at the time, and we are more convinced than ever in our new strategy, given the positive industry feedback. We believe that our point-of-care business is more advanced, cost-effective, and scalable than any other solution in the market today. Let me explain why. Producing cell and gene therapies is an extremely complex multi-step process. Cells are highly sensitive to any change in their environment and process. Producing cell and gene products must be done in a highly sterile environment, since such products cannot be sterilized.
Under our point-of-care model, we are also servicing our partners and customers through process development, which includes GMP compliant process development of quality control methods, adaptation of the process to automation and closed loop processing systems, qualification of the process combined with the utilized equipment, and integration of the combined system into our mobile processing units, the OMPULs, qualification of the entire system together. These stages are what we call and what we refer to as OMPULization. Once this is completed, we can mobilize the OMPUL to the required production site and supply our OMPULs to the designated medical site. If more capacity is required, we can, at first step, add more isolated processing units in the same OMPUL.
At a second stage, we can bring additional OMPULs to the same point-of-care center, and if required, expand to even more point-of-care centers, while with the goal of maintaining exactly the same environment and the same process. Current industry practice is quite different. It involves developing a process and implementing it in a clean room facility, in most cases involving many manual steps. Expanding production capacity or transferring production to another location is a lengthy and complex process. Building and qualifying new clean rooms and transferring products can take months or years. Producing products at the central location requires expensive and complex logistics of supplying source material from the patients and returning the final product to the patient location.
By OMPULizing the process, the initial effort may be slightly lengthier, but we now have a product that can be made at many locations, including close proximity to the clinical site, and we can then expand capacity quickly and efficiently. Since we have invested many years in partnering and co-development with automation solution providers, we have at our disposal a toolbox of systems that we can incorporate into the OMPULs. As we develop more point-of-care and therapeutic products, we become more efficient at this process since many of the products are a variation on the same theme. While we may need to make modifications, we can still utilize many of the same components as we have developed in the past. The key to our success in our point-of-care business is standardization. The process is exactly the same.
That's what we're aiming for, regardless of where the product is produced. For this reason, we have established training protocols. We are using audited and consistent suppliers and vendors of materials involved in production and quality control. We are implementing validated automated solutions that minimize human error, and we're taking advantage of closed units to control infections. Through standardization and a consistent processing environment, we can dramatically reduce costs. We believe our strategy of decentralizing the supply of cell and gene therapies based on standardization of the manufacturing environment will ultimately become the solution for this industry, enabling lower cost, accelerated development, and ultimately providing a scalable long-term option to overcome the industry-wide capacity constraints. We are also advancing our point-of-care therapies, which now span immuno-oncology, antiviral, metabolic, autoimmune disease, tissue regeneration, and more.
Our strategy involves in-licensing therapies from leading research institutes, hospitals and biotech companies, and utilizing our partners and customers to out-license these products. We do so in return for future royalties as well as exclusive service contracts for industrializing and supplying these cell and gene therapies. At the heart of our business model is being the optimal industrial partner. Whether we are providing our development and supply services to our partners and customers based on our out-licensed therapies or providing similar services to our customers for their own therapies, our goal is always the same. To make these therapies available to large number of patients, reduce costs through decentralized processing and supplying using the point-of-care platform.
Unlike a traditional biotech with a handful of therapies in the pipeline which require constant investment in clinical trials, we continue to evaluate new therapies at all stages of development through our growing partnerships with research and commercial entities and hospitals, and streamline the development of these products through our network, providing us with short-term income throughout the development stage and potential upside once they get market approval. We have built a robust therapeutic pipeline, which includes more than 30 advanced cell and potential gene therapies, and we continue to evaluate new technologies.
The fact that we can combine our point-of-care network, our processing technologies, such as our automation solutions and our OMPULs, with our clinical and manufacturing expertise, provides us a distinct advantage to partner through licensing and service models with biotech companies, research institutes and hospitals, and then advance these new and exciting therapies through the clinic much faster and cost-effectively than a traditional biotech. We continue generating revenue by OMPULizing various cell and gene products and supplying such products at existing centers to our customers and partners. Our revenue contracts naturally flow from process development to tech transfer to batch supply. These are long-term contracts, and as our customers and partners advance the products, the supply requirements expand.
We are still investing, although at a much-reduced rate, in expanding capacity or finalizing the setup for the point-of-care centers, rolling out our OMPULs, incorporating new technologies and implementing our quality system. We are minimizing these investments as we are seeing growing public and private interest in supporting local regional expansions and developments. To wrap up, we are more enthusiastic than ever by the outlook for the business. Our point-of-care strategy is no longer a vision, but a growing reality. We're constantly incorporating new technologies, and we have a growing pipeline of cell and gene therapies for which we provide development and processing services. We have an expanding global network of point-of-care centers in which we provide GMP processes utilizing our technologies and OMPULs. We have assembled some of the top talent in the industry.
In much the same way that Amazon and Tesla disrupt the growth prospective markets by investing in a scalable infrastructure, cutting-edge technologies are going to disrupt the cell and gene therapy market. We are building a sustainable revenue model that we believe will support the growth of the industry in general and the growing capacity requirements of our partners and customers. We believe providing such solutions will drive value for shareholders for years to come. On that note, I'll now turn the call over to Neil Reithinger, our Chief Financial Officer.
Thank you, Vered. Our revenues for the three months ended September 30th, 2021, were $8.7 million compared to $1.7 million for the three months ended September 30th, 2020, an increase of over 400%. The increase in our revenue is attributable to increased activity under master service agreements with our customers and increased services provided and expanded activities in our point-of-care service. Cost of services and other research and development expenses for the three months ended September 30th, 2021, were $10 million compared to $7 million for the three months ended September 30th, 2020, representing an increase of 44%. The net increase during the quarter is attributable to a few different factors.
There was an increase in salaries and related expenses as a result of additional staff hired to continue the development of our CGT product pipeline as we expand our POC are operations globally. We've continued to invest in the development of automated processing units and processes, own and license advanced therapies to enable commercial production and additional work with partners that addressed point-of-care needs. We also experienced an increase in subcontracting professional and consulting fees related to those investments. Selling, general and administrative expenses for the three months ended September 30th, 2021, were $6.1 million compared to $4 million for the respective period last year, representing an increase of 51%. The increase in selling and general administrative expenses is primarily attributed to an increase in salaries and related expenses.
In terms of liquidity, we ended the third quarter of 2021 with cash and cash equivalents approximately $15 million. Operator, we'll now open the call to questions.
Certainly. Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments, please press star one on your phone at this time. We do ask that while posing your question, please pick up your handset if you're listening on speakerphone to provide optimum sound quality. Once again, if you have any questions or comments, please press star one on your phone. Your first question is coming from Bruce Jackson from The Benchmark Company. Your line is live.
Thank you. You mentioned earlier that the OMPULs are currently in validation phase. When do you think that we might see some of those OMPUL shift into production?
Well, we actually have some of these already located on-site. When we qualify them, we just run the processes. This is a standard industry practice. No different than what you would do with any other kind of process development. It doesn't mean they're not usable. It just means that, you know, we qualify them either on-site or at a location where they're manufactured.
What I'm driving at here is, when the customers start using them for production, then there should be a royalty stream that flows from that in certain cases, depending upon the agreements that you've got. What I'm trying to get a handle on here is, when will the OMPULs be, like, fully in working at the customer sites and generating revenue from licensing? That's kind of what I'm trying to get at.
We already have some initial sites working away. What I think maybe I should correct something. It's not the customers using them. We are using them. They are part of our infrastructure. It's not the customers that uses them. We utilize the OMPULs to produce the products. We're already running batches on some of them. The whole concept here is this is our capacity. It's not the customer's use of OMPUL . I just wanna make sure that's clear.
Okay, good. That's helpful. At one point, there were, like, roughly about 30 of these projects underway. Is that still roughly the number of OMPULs that are coming online at some point, or has that number changed at all?
Again, I wanna explain. A product can go into 10 OMPULs . It can go into process development. Typically, you don't process or OMPULize a process in several sites together. You do so at one site or at one of our point-of-care sites. Once this is done, then you can supply at as many sites as needed. It's not that, you know, you can have one product. We have one product that will be utilized in five sites, another that can be utilized in three sites, and another that is utilized maybe in 15. Okay. I just want to, again, just to be precise on the terminology.
The idea here, a product is a cell and gene therapy, specific process that is OMPULized, made in an OMPUL according to all the GMP requirements, and then can be supplied at the required sites. For example, if you're doing a clinical trial or you're providing a product at three different sites, you can place three different OMPULs. There's no correlation between the number of OMPULs and the number of products. Okay? I hope I gave a good enough explanation. Is that clear?
Yes, that's clear. Just one final question, I'll hop back in queue. Last year, with the Koligo acquisition, I was wondering if that generated any revenue during the quarter. That's it for me. Thank you.
Thanks, Bruce. There was some revenue. Neil, do you have the exact numbers? I'm not sure we have them. Again, remember for the Koligo acquisition, we are still working on finalizing and OMPULizing this process, okay, this product. We're also working on getting it. It's approved in the U.S., and we're taking steps to get this approved in locations in Asia and in Europe. I think revenue will not jump up until we finalize the OMPULization process. I think it's been pretty consistent.
Yeah, that's correct. It's under $100,000. Yes. It's a much smaller part of our revenue.
Thank you. Your next question is coming from John Ng from Beyond Capital. Your line is live.
Hey, Vered. Hey, Neil. Congrats on a great quarter. Could you share with us more about the cost of services and other research and development expenses that were incurred this quarter? What is one-off and what is recurring? Thanks.
Neil, would you like to answer?
I wouldn't say there's any one-off research and development. Again, it's part of an ongoing, and again, investment along with our JV partners in terms of developing this platform. I would say that the continuing expense with regard to personnel, and that's why that increased too, to build that platform, is pretty stable with regard and growing in that regard because the personnel is required. As far as one-off, maybe, you know, certain clinical development may be one-off as far as quantifying that. It's hard to quantify though in that regard. It's all part of the investment of building the platform, okay? As you see revenues grow, you're gonna continue to see certain costs grow on a scalable way, but then there'll be new costs that'll come into play as well, okay?
It's really hard to really quantify a one-off charge in that regard, okay? Maybe in the future, there may be some more ways to quantify that, but at this point, it's really not something that I think is certainly something we can say, maybe at one point in time or at a certain period of time may be quantifiable, but that may not be repeating itself. It may be different in another quarter. Okay?
I think also what this is referring to when we present our financials, the cost of providing our services is combined with our R&D costs. I think maybe this is what you're referring to. We typically have so a lot of this R&D cost, it's under R&D expenses, but it's actually the cost of providing services. Was this maybe what you were kind of implying to?
Yeah. Got it. Another question I have is on MaSTherCell that is already approved for commercial use. Could you share with us some visibility in terms of the demand as you make this therapy available to more hospitals?
Again, this is typical of the whole industry, right? You have a therapy, it's a wonderful therapy, and there's certainly requirement for patients who undergo complete pancreatectomy, and they need a product, right? But if you can only supply this product at very specific locations, and you can't kind of make it available wherever needed, it limits the ability to kind of enlarge that. One of the things, as you know, we've spoken about this on other calls, and again, this is not a two-month process. This is a lengthy process, but I believe we're advancing. That will allow us to actually make these products, this product at additional locations in a cost-efficient manner.
In terms of just the need by patients with a significant amount of pancreatectomies, and again, adoption of this new therapy is very much based also on availability. Typically, if you look at centers today, there's very few centers in the U.S., even if clinicians want to do this procedure, they just can't. If they wanna supply islets to patients who've gone through a complete pancreatectomy, they just can't do that.
Got it. Thanks. That's all I have. I very much respect your mission to make gene therapy affordable and accessible for patients. Thank you all for the hard work, and have a great day.
Thank you very much.
Thank you. Once again, ladies and gentlemen, if you have any questions or comments, please press star one on your phone at this time. Your next question is coming from Orix Say from New Group Capital. Your line is live.
Hi, Vered. Congratulations for your good results again. Congratulations to the team. Can you share with us the pipeline now in the next few quarters? Previously you have shared that there are about $40 million in the next one or two years. Can you share with us some colors in the next few quarters, how would this be? Thank you.
Thank you. We haven't kind of formally shared any kind of predictions, but we haven't made these things public yet. I can explain again and, you know, you can see from the existing contracts. Once we're, the current work we're doing, mostly, on process development or what we call on purification. Okay. We're working, making these therapies, so they're GMP compliant, and they're done in an efficient manner. This is very similar to the work we used to do in MaSTherCell for process development. The difference here, we're not just doing it in a clean room. We're actually combining this with automation, closed-l oop, QC, and putting it in an OMPUL. Okay. That allows us then this ability to ramp up later on.
So far, for all the products we've been working on, there's been no issues in terms of continuing with the process. I think our customers are happy, I think our partners are happy as we progress. Naturally, what we are now doing is slowly moving over and this goes back to what Bruce was asking, of course, going over from a stage where we're doing process development to actually running the batches. That's kind of a different level of revenue. When you charge revenue for the next stage, the way this is typically done and again, very similar to what we used to do in the past, you're charging for kind of overall capacity usage, and you're charging per batch.
As these process development contracts go over and move over, and we actually have some additional ones coming in. As they progress towards batch production, actually revenue starts depending on how many batches are produced. Again, you have a very much of a safety factor there because you're also kind of charging always for maintaining capacity, basically use of specific capacity for a certain product. Whether a customer or a partner is doing 10 or 20 or 50 patients, you're still reserving the same capacity. On top of that, you have the specific revenue per batch.
Typically, what we are hoping, we can't be sure, but so far things are looking okay in terms of the process development, that as these contracts move from one stage and as they are progressing more to batch processing and supply, these contracts will expand as the batches, the number of batches produced are expanded. I hope that gives some kind of clarity on how this business moves.
Sure. Thanks, Vered. Do you foresee that the next few quarters will be a growth moving forward, continuously growing, or do you still see that it's still maintaining as what it is now?
Again, first of all, I'm not even sure I'm allowed to say that. In terms of our planning, I can say that we have the required capacity to not only maintain the existing revenue but actually to expand. That's something we have ready for our customers. In terms of just the way this industry progresses, it typically these contracts for the first year or two are more or less at the same scale. Once you move on to more expanded batch manufacturing, the revenue expands with it. Again, it's a very case-by-case study. I mean, it really depends. If suddenly one of the products is going into more massive clinical trials, of course, the revenue goes up.
If in another case, one of the products is stopped for some reason, then of course you have that coming down. As you can see, we are expanding, and we have more products we are servicing, so I personally am optimistic.
Thank you. Thank you very much. I love that optimism and I look forward to the great results again. Thank you. That's all on my side.
Thank you.
Thank you. Your next question is coming from Bruce Jackson from Benchmark. Your line is live.
Hi. Thanks for the follow-up question. I was curious to know how much visibility you have on your master service agreement revenue in the future, and can you give us a rough idea of how much unrealized business there is left on those agreements?
Again, we haven't made this public, but as I said, these, I mean, we discussed this in the past, but these master service agreements will typically go on for two, sometimes even three years. They, because I think if a company or if a partner or if we have a product working for a certain process development, I mean, it's very difficult to suddenly take it and move to another kind of production or another kind of supply arrangement, right? This can take many years. I think, you know, in terms of just the revenue, as I said, we have the contracts we have, and, you know, and I'm optimistic that many of them will expand, and hopefully we have additional ones coming in. I think we have the capacity and the capability to service that.
I know there's a big industry shortage. Again, we can't say exactly how much it is. I mean, you can calculate how much revenue we've had so far. I mean, it's pretty easy to realize how this revenue kind of build up.
Okay. Great. That's it for me. Thank you.
Thank you.
Thank you. There are no further questions in the queue. I will now hand the conference back to Vered Caplan for closing remarks. Please go ahead.
Thank you. I'd like to thank everyone for participating in our third quarter 2021 business update conference call. We are very excited about the outlook for the business and appreciate the strong support of our shareholders. We are executing on our point of care and therapeutic business model as evidenced by our strong revenue growth. Looking ahead, our goal is to continue validation of our point of care platform while building the foundation for our market expansion in various geographic regions. We look forward to providing further updates as we work in close collaboration with our partners to deploy our point of care strategy worldwide. Thank you.
Thank you, ladies and gentlemen. This concludes today's event. You may disconnect at this time and have a wonderful day. Thank you for your participation.