Greetings. Welcome to the Orgenesis 2022 year-end business update conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, David Waldman, Investor Relations. You may begin.
Thank you. Good morning, everyone, and welcome to the Orgenesis year-end 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 current expectations, estimates, and projections and reflects our beliefs and assumptions based upon information available to us at the date of this conference 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, 2022, 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. Thanks to everyone for joining us on our call today. We are advancing the rollout of our Orgenesis Mobile Processing Units and Labs, also known as OMPULs, which are fully integrated all-in-one bioprocessing units that can be rapidly implemented as a standardized industrial clean room alternative at the point of care. Our revenue for the fourth quarter of 2022 increased by 98% to $13.6 million compared to the same period last year. We reduced our operating loss by 91%, which reflects our cost-effective and scalable business model. Our revenue has shifted to be more production-based as we advance products from process development to GMP production. We expand the production, we hope to benefit from economies of scale with each point of care site servicing several OMPULs.
As we have discussed in the past, the key to success in our POCare business is standardization. The process is exactly the same regardless of where the product is produced. We believe our strategy of decentralizing the supply of cell and gene therapies based on standardization of the manufacturing production environment will ultimately become the solution for this industry, enabling lower cost, streamlined logistics, accelerated development, and providing a scalable long-term option to overcome the industry-wide capacity constraints. Utilizing our OMPUL-based approach, we believe we are uniquely positioned to address the challenges of current centralized productions. OMPULs shorten the implementation time of new capacity from 18-24 months to 3-6 months. In terms of expenses, our goal over time is to reduce the cost of these therapies to $10,000s versus $100,000s.
A recent news article in Genetic Engineering & Biotechnology News stated that high production costs are limiting patient access to cell and gene therapies. Additionally, an analysis by the Institute for Clinical and Economic Review suggests that the average cost of cell therapy treatment is $1 million. For this very reason, we believe our point-of-care process is a crucial step, that it is necessary for cell therapies to become widely available. As a result, we believe our model is uniquely positioned to address these challenges facing the industry, including capacity constraints and excessive costs. As we see this industry mature and more and more products enter the clinical stage, it becomes clearer that this industry must find solutions to reduce co-cost, both in the development stage as well as upon market approval.
According to Cell & Gene, a publisher of industry research, through 2022, there were 27 FDA-approved cell and gene therapies. However, there are currently over 1,500 ongoing clinical trials for cell and gene therapies registered with ClinicalTrials.gov. For this very reason, we would like to become an industry standard on which we can integrate new therapies in development, thus saving the costly need for each company to develop its own platform, ensuring all the expenses and risks involved. We believe that utilizing an existing flexible platform available at multiple standardized locations, we will enable therapeutic development companies to focus their efforts on clinical development. We continue to support our POCare centers, which are strategically located around the world and now span North America, Europe, Asia, and the Middle East, which serve as hubs for the entire region.
We appreciate the dedicated work of our teams across the globe that diligently work to implement our quality system and implement the GMP practices. We view our human resources as our greatest asset and hope to continue to attract wonderful scientists from every nationality. Our strategy is to qualify the production process in one ampoule at one point of care location, and then to add additional ampoules under the same quality system and infrastructure. We have developed this approach based on a decade of experience in process development of such therapies, and we are working closely with researchers from leading academic institutes, as well as from biotech companies active in this space. We believe the ampoules are an important step to quickly expand our capacity, and we look forward to expanding both the quantity and location of our system.
Since we have launched our point of care business, the feedback from the industry has been positive. We are also seeing the regulatory agencies address the issue of decentralized production of cell and gene therapies, which we believe comes as a response to the industry's search for solutions in this space. The success of our point of care strategy has been enabled in part by the recent investment from Metalmark Capital Partners, a premier private equity firm, into our point of care services subsidiary, Morgenesis, LLC. It is important to reiterate that this transaction with Metalmark valued our Morgenesis subsidiary alone as a pre-money valuation of over $120 million, which represents a significant premium to the market cap of the entire company.
This capital has allowed us to increase our capacity and advance our go-to-market strategy as we aim to accelerate the deployment of our OMPULs throughout our global POCare Network with a goal to expand capacity across a broad range of advanced cell and gene therapies. More specifically, we signed an MOU with UC Davis to deploy our OMPULs at UC Davis and other healthcare universities within the state of California. We believe that having them as a partner is a strong validation, as it likely to enhance our implementation as well as with other institutes as we expand our OMPUL strategy across North America.
It is important to know that our business goes beyond our Point of Care services in terms of our Point of Care therapeutic pipeline, which we believe we developed a low-cost, capital-efficient business model to bring these therapies to market. In 2022, our subsidiary, Koligo Therapeutics, supplied Kyslecel to five medical institutes supplying total pancreatectomy islet autotransplant cases. Production from this one site enabled Koligo to achieve positive cash flow from operations in the fourth quarter of the year as a separate business unit. Additionally, Koligo passed an FDA inspection of this site as a registered tissue production establishment in February. Following this confirmation of the infrastructure design, production protocols, and building on increasing demand, we are now pursuing plans for site expansion in the U.S. and internationally.
In the EU, Koligo is utilizing the expertise of Orgenesis to enable regional production capacity and leverage grants to drive clinical development. More broadly, our strategy involves in licensing therapies from leading research centers, hospitals, and biotech companies and out licensing such products to pharma and biotech companies in consistent and standardized manners in all locations. We provide these partners with development and supply services while benefiting from service-related payments. At the same time, we are leveraging government grants and other sources of non-dilutive funding from regional partners and others in order to advance such therapies. Using our POCare model, we believe these therapies can be advanced through clinical trials at a lower cost of traditional clinical trials by leveraging our network of academic institutes and healthcare systems around the world.
Our partners, our customers, have aligned interests with our own and have committed to support the validation, development, and clinical trials of advanced therapies utilizing our POCare platform within their respective markets. As we have discussed in the past, we provide our partners and customers with development and supply services. Whether it is for our own products or for out licensed therapies, we believe this approach is highly scalable and de-risks development through outside support from our partners. In this way, we believe we can advance our development of POCare therapies, which now span immuno-oncology, antiviral, metabolic, autoimmune disease, tissue regeneration, and more. As an example, we recently reached an important milestone in collaboration with Hospital Infantil Universitario Niño Jesús in Madrid, Spain, and Cures Therapeutics.
Specifically, we announced positive pre-clinical results from intranasal administration of a stem cell-based oncolytic virus-bearing product that demonstrated over 50% tumor reduction in a murine glioblastoma model in mice. This ability to de-deliver stem cells to the brain through the blood-brain barrier opens the possibility to a broad array of treatments that potentially be less invasively administered. The production of that stem cell based oncolytic product involved utilizing a hospital-based OMPUL. We look forward to expanding our collaboration with Cures Therapeutics. One final note, we recognize these are challenging times, both in financial markets and for the companies developing the next generation of therapies. We believe that by offering a more cost-effective drug development pathway for these therapies especially for companies trying to optimize cash utilization, we can offer new cost-efficient solution that will unlock value not only for Orgenesis but across the industry.
To wrap up, we believe the coming year could be transformative for Orgenesis. We believe we are building a sustainable revenue model that will allow us to support our global partners and customers while they advance products through the required regulatory steps. We expect to benefit from growth and recurring revenue stream based both on services and on future royalties, and in long-term contracts for industrializing and supplying these cell and gene therapies. With Metalmark's support, we look forward to accelerating the rollout of our point of care strategy and deployment of our OMPULs. We share a vision of bringing breakthrough therapies to market in a cost-effective way that will ultimately benefit patients and hopefully save lives.
We look forward to sharing more exciting developments to be announced in the weeks and months ahead that we hope 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. Revenue for the three months ended December 31st, 2022 increased by 97.7% to $13.6 million, compared to $6.9 million for the three months ended December 31st, 2021. Revenue for the year ended December 31st, 2022 increased to $36 million, compared to $35.5 million for 2021. The growth in revenue reflects an increase in cell process development service and hospital services as a result of having signed new process development services agreements with third party customers, partially offset by a decline in POCare development services now that we have completed the majority of performance obligations under the initial development contracts in 2021.
Cost of revenues, development services, and research and development for the three months ended December 31st, 2022 were $6.1 million and $27.1 million for the three and 12 months ended December 31st, 2022, a decrease of 43% and 26% respectively over the same period last year. In previous years, we made significant investments in research and development services, including in the development of several types of OMPULs, the development of automated processing units and processes, owned and licensed advanced therapies to enable commercial production and additional work that addresses POCare needs. While we continue to invest in these activities, the majority of development work on our OMPULs has been completed, thus allowing us to deploy OMPULs in various worldwide locations.
As a result, we saw a significant reduction in development and research and development service expenses, subcontracting professional and consulting services, lab expenses, and other research and development expenses. Selling, general and administrative expenses for the three months ended December 31st, 2022, were $6.8 million, compared to $2.7 million for the same period last year. SG&A for the year ended December 31st, 2021, was $15.6 million, as compared to $14.7 million for the year ended December 31st, 2020. The increase in selling, general and administrative expenses for both the quarter and full year 2022 was primarily attributable to an increase in professional services, accounting and legal fees as a result of additional investment activities in 2022 compared to 2021, offset by a decline in salaries and related expenses.
We expect the growth in revenue in 2023, including contracts already in hand, will cover R&D and SG&A expenses during 2023. Operating loss for the three months ended December 31st, 2022 was $627,000, a decrease of 91% compared to $6.9 million for the same period last year. Net loss for the three months ended December 31st, 2022 was $1.3 million, a decrease of 75% compared to $5 million for the same period last year. Operating loss for the year ended December 31st, 2022 was $8.6 million, a decrease of 49% compared to $16.8 million for the same period last year.
Net loss for 2022 was $12.2 million, a decrease of 33% compared to $18.1 million for the same period last year. In terms of liquidity, we ended the year with cash and cash equivalents of approximately $5.3 million and restricted cash of $1.1 million. We subsequently raised gross proceeds of $3.9 million through a registered direct offering and a $5 million 3-year convertible note, which we believe provides us additional flexibility to support our near and long-term capital needs at the parent company level. At the same time, we believe the investment from Metalmark will enable the deployment of our OMPULs to provide life-changing treatments to large numbers of patients in the U.S. and all around the world.
Overall, we remain focused on carefully managing expenses and believe much of our upfront investments are behind us and expect that future growth and revenue will offset our cash burn. Operator, we'll now open the call to questions. Thank you.
Certainly. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment while we poll for questions. Your first question for today is coming from Bruce Jackson at Benchmark Company.
Hi. Good morning, and thank you for taking my questions. Why don't you go into a little bit more detail about the University of California, Davis Memorandum of Understanding? How long do you think it's gonna take to get to a formal agreement?
Well, I don't know. You know, academic institutes, they have their processes. Remember we already have, existing agreements, so we know the teams real well, and we're pushing ahead as quickly as we can.
Okay.
-feel or I think it's important for both of us.
Okay. Okay. You know, the OMPULs have several different capabilities. I was also curious to know, does the agreement cover a particular type of processing like adoptive cell therapy or cellular therapy processing, or does it also include like gene therapy or some other types of OMPUL capabilities?
We, the OMPULs are quite flexible. Changing from a cell or genetically modified cell is really just changing the equipment inside. It's really not an issue.
Okay.
-in terms of... We don't have to kind of predefine it, let's say.
Okay. Can you help us with just a general sense of scale? Give us a rough idea of how big this could get? Would it potentially go to the entire University of California system at some point?
Well, I mean, the idea is to have this expand not to just one location, yes.
Okay.
I think we'll start with one location and take it from there, as we usually do.
Okay.
I mean, we wanna validate a location, make sure all is working. There's certainly need in the rest of California. It's not just one site.
Okay. If I could get in one quick question about Koligo, with the sales of to the five different customers. I'm assuming that those were after you got the FDA manufacturing inspection behind you. Could we expect similar sales per quarter going forward, or could it potentially expand off of the base that you established in the first quarter?
Just to... Because of COVID, because of other things, you know, the FDA inspection, of course, the FDA reviews your production files and everything, but they did not actually come to the site to do... For us, this was important, right? We wanna validate this. It's taken them maybe longer than we thought to make available to come to that site. They came, they did the audit, which just give us the assurance if we wanna duplicate that site, right? We can feel assured that the process, the way we do this, the way we produce this product is acceptable and well, you know, audited by the regulator. We know there's a need for further sites, but, you know, that's kind of the point of care approach, right?
We're working on one site now. To start shipping this to sites that are very far away is not easy, and it's also very expensive. What we wanna do is now that we validate this location that supply to these centers, we can now build up a network of these so we can supply to additional centers.
Okay, got it. One last question for Neil. When is the K gonna be filed?
We expect the K to be filed tomorrow, okay? 'cause we always like to make sure it's at the same or within that same 24-hour period for the earnings release. Okay?
Okay, super. That's it for me. Thank you.
Thank you.
Your next question for today is coming from William Jordan at TSA Investment.
Yeah, good morning. First of all, congratulations on a strong quarter. Clearly, you're making tremendous progress. It seems that one of the challenges in the past was the capital to deploy the new OMPULs. Given the significant investment from Metalmark, how do you see that impacting the business going forward?
Well, first of all, we appreciate that capital very much 'cause it allows us to stick to our plans, right? To make sure we can continue to provide for our existing customers and hopefully for new customers, the production capacity we need. So that's very helpful. What I think we can do is now is kind of grow with our customers and grow with the industry. Having that capability to expand capacity is very important because the one thing that our models allows is flexibility. When you look at traditional kind of production, right, the moment between which you wanna increase the capacity or if your customer wants until you can actually build out that new capacity is very long.
One of the important things in our approach is allowing that quick response time, so you don't have to plan three years ahead, but you have that ability to both flexibility to change location, to change capacity. We believe that's one of the biggest issues of this industry. That really allows us to kind of, I would say, validate this approach we have.
Great, thanks. Keep up the good work.
Thank you.
Your next question for today is coming from Steve Waite at Gilder Publishing.
Hey, good morning and good afternoon. Vered, just a question. The centralized manufacturers seem to be struggling. The Center for Breakthrough Medicines, for example. I mean, these guys have invested a lot of money in these centralized facilities, and they don't really have any customers. I think your decentralized model looks a lot stronger. Can you just comment on perhaps why these centralized models are struggling today and why the decentralized model has a better chance of succeeding?
First of all, I wish all companies providing capacity in this space, the best of luck. One thing's for sure, there's plenty of work for everyone. There's not even need to compete. There's such a lack of capacity out there. We want everyone to succeed, whether centralized or decentralized. I think it's again a timing issue, okay? If you look... when you look at some of the struggles the industry is having. Again, this is my assumption, but I think this is what I'm hearing from the industry, right? Traditionally, if you wanna build out capacity, you have to plan that quite a long time ahead, right? If you wanna work, for instance, with a subcontractor or a service provider, you have to plan that well in advance.
Not always are your plans that clear, especially if you're in a clinical stage. You need to secure room, you need to secure space. Now, as that space. What happens is for new capacity being built, it takes a long time until additional kind of companies get to that point where they're planning that much ahead, okay?
Mm-hmm.
I hope I'm explaining well.
Yeah.
It's a planning logistic issue. The other issue I think is that the industry is, you know, these are not exactly the easiest financial times. I think there's a big difference between committing to a large facility with a lot of, you know, upfront commitments than working with us, right? Where the commitment is staged, it's very flexible, so it's much easier, I think, to make a decision working with us with an OMPUL when you know you can have that OMPUL maybe today here, and then if you have a change of plans, you can have a solution somewhere else. It really allows our customers that quick flexibility as times change, as things change. Again, that is my assumption, but that's what kind of I feel from coming from the industry.
Thank you.
Thanks for the question.
Your next question for today is coming from James Watson, a Private Investor.
Hi, everyone. I want to check with the account receivables, because if we take it as a % of the total revenues, it has gone up quite a bit. Just wonder, would the collection be prominent? If we do collect all these account receivables, would we be paying down some debt?
Neil, do you wanna answer?
When we collect receivables, potentially, yes, we pay debt, some debt. Moreover, it's as you heard from our inflection point we're at with our loss for the quarter, it's $627,000. We are at that point where we wanna keep feeding our growth and scalability. We would be very selective about how we're gonna use that outside of working capital to use and to pare down debt. That'll obviously be dependent on other potential capital-raising initiatives that are needed to do that when loans come due, potentially, if they could be extended. We wanna be very careful about the deployment of capital based on now becoming given the inflection point we're at, knowing that we wanna make sure we continue to scale with this next phase of our evolution, okay.
We are, as far as from an AR standpoint itself, I mean, obviously it's a very, it's a very, it's a balance sheet account that all companies monitor very carefully based on the economic environment. Same thing with us. A lot of our clients are customers are very progressive and growing as well. Their every company, likewise, is affected by the market conditions. We keep a, you know, obviously monitor that very closely, especially too with regard to revenue and revenue recognition. We believe we'll be successful in our AR collection efforts. There are some balances that may extend beyond, and we work with those customers. So far, everything's within a time period that we think we're gonna collect.
Back to your point, we will be very careful about the deployment of that to make sure we scale back operations for our growth. Okay.
Excellent. Thank you. Just a follow-up question. I think all of us who are running businesses, we all understand that the economy has changed a lot. This word of self-sustainability, I think is very important. I also understand that Orgenesis is a growth company. What's the current thinking model right now? For the next few quarters, do we hope to operate on a break-even level or some months we are still okay, you know, having some losses because we are still in a growth phase?
I think, well, on the services side, I mean, we're still growing, right? I mean, we were committed to use that capital we got for growth. That's the idea. We wanna maintain growth, and that's kind of part of our business plan. And as for the other side of the business, well, we've really tried to leverage as much as possible on grants and partnerships. We do have some commitments, but we are trying to keep them balanced as much as we can because obviously this is not the easiest time to collect capital.
Got it. Got it. Also, I think this is going to be a very difficult question, but not sure if... You know, Orgenesis right now is really a disruptive business providing new technologies, and we do not know what's the possible profit margin that this company could produce. Let's say 3, 4, 5 years later when this is at a steady state, but perhaps no longer in a growth phase. Is there any range of margins, profit margins you think it's possible for Orgenesis to achieve?
Look, we try to base our revenue on at least 50% gross profit. That's what we try to do at least and around 20%-25% EBITDA on our services. When you deal with out-licensing of therapies, well, that's a completely different model, right? I mean, you're just waiting for the upside. That's our goal. As you can see from our financials, we're trying to maintain that. That's kind of been our focus.
Got it. Got it. Yeah. Can I just squeeze in one last question? I saw that fourth quarter was a very nice ramp-up in revenue, but if we do a year-to-year comparison, it's sort of flat, flattish. For the coming, next few quarters, where are we seeing ourselves in terms of the demand for OMPUL or even, you know, the services that we are providing?
I mean, we're looking, and we're expanding in regionally, right? We're putting a big focus this year on expanding capacity in the U.S. and it's our hope. We're also expanding in a few other regions, but specifically in the U.S., we've put a focus and I hope that will allow us to grow. That's the goal of this, right? That's why we're putting so much effort into this.
Got it. Thank you so much.
Thank you.
We have reached the end of the question-and-answer session. I will now turn the call over to management for closing remarks.
Thank you. I'd like to thank everyone for participating on our year-end business update conference call. We are excited about the outlook for the business and appreciate the strong support of our shareholders. We look forward to providing further updates as we advance our therapeutic pipeline, expand our point of care platform, and deploy our OMPULs worldwide. Thank you.
This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.