Organogenesis (ORGO) is a regenerative medicines company founded in 1985 and headquartered in the US. This is a revenue-generating company with revenues of $99 million, $138.7 million, $198.5 million, $193.4 million, $261 million respectively in the last 5 fiscal years, and $231.5 million net revenue in the 9 months ended 9/30/2020. Revenue estimates for 2020, 2021, and 2022 are $312.34 million, $327.56 million, and $370.85 million, respectively. The company has a market cap of just $585mn. The company has, until now, followed inexpensive non-BLA pathways for product approvals, which means its R&D expenses should be minimal. Despite all that, the company has been running as a loss-making concern all these years, and only in 2020 did it announce that it expects to generate positive net income and positive adjusted EBITDA for the full-year 2020.
The company says in its Annual Report, “We have identified material weaknesses in our internal control over financial reporting, and our management has concluded that our disclosure controls and procedures are not effective.” I also noted that the CFO resigned in August. This could be unrelated to the above.
I wanted to put that out right at the top because this sounded very strange to me and quite incongruous with what otherwise looks like an excellent market-stage company with a volley of products generating strong revenues.
Other financial highlights
On November 9, the company published third quarter earnings. The company said that:
Operating expenses for the third quarter of 2020 were $54.9 million, compared to $53.4 million for the third quarter of 2019, an increase of $1.5 million, or 3%. R&D expense was $3.7 million for the third quarter of 2020, compared to $3.9 million in the third quarter of 2019, a decrease of $0.2 million, or 5%. Selling, general and administrative expenses were $51.1 million, compared to $49.5 million in the third quarter of 2019, an increase of $1.7 million, or 3%.
As of September 30, 2020, the Company had $36.5 million in cash and $114.7 million in debt.
The day after the earnings, Organogenesis announced a public offering of 17.5M Class A shares at $3.25 per share, with gross proceeds of $56.9M. The stock does not seem to have been negatively affected by the dilution; indeed, it is a little up after the earnings announcement. The market seems to have appreciated the switch to a net profit-making concern.
The marketed products of Organogenesis
The company’s lead money-making product is PuraPly, an antimicrobial skin substitute used to treat wounds at high risk of infection. These could be wounds with biofilm, or surgical open wounds, and including partial and full-thickness wounds, pressure ulcers, venous ulcers, diabetic ulcers, chronic vascular ulcers, tunnelled/undermined wounds, surgical wounds, trauma wounds, draining wounds, and first- and second-degree burns.
The product generated $40.9mn in revenues in the third quarter, increasing 29% from the third quarter of 2019, representing 41% of net revenue, as compared to 49% in the previous year. This effectively means that while PuraPly has continued to demonstrate strong growth, the company has been able to diversify its revenue stream as well.
Below is a list of the products (from corporate presentation of September 2020)
The above graphics include AWC products on the left, S&SM products on the right, and products that could be used for both sectors in the center column. The company now has 11 marketed products and 5 pipeline candidates, as well as 2 market-expanding BLA candidates. The market size for AWC is $8.9bn and for S&SM it is $6.1bn. Below are some comparative data made available by the company.
Skin Substitute Market/Competition
2016 = ~$725 million; 2018 = ~$965 million (BioMed GPS SmartTrak 2019, US Market)
Surgical & Sports Medicine Market (~$6.1 billion)/Competition
Bone Fusion = ~$2.7 billion;
Tendon and Ligament Injuries = ~$1.0 billion;
Chronic Inflammatory And Degenerative Conditions = ~$2.4 billion
The data here shows that ORGO is a well-diversified regenerative medicines company with products across various segments, and its product diversification is highly competitive in relation to its key competitors.
There are some issues with PuraPly’s pass-through status which expired in September. The company, as far as I am aware, has not yet disclosed their current plans for stated “proactive management of pass-through status,” however, an earlier article on Seeking Alpha discusses the history exhaustively.
The company’s pipeline products include TransCyte for the treatment of second- and third-degree burns; PuraForce, a bioengineered porcine collagen surgical matrix for use in soft tissue reinforcement applications; Novachor for the treatment of chronic and acute wounds; Gintuit for the treatment of mucogingival conditions in adults; and PuraPly XT and PuraPly MZ for the treatment of chronic and acute wounds, as well as for surgical treatment of open wounds.
ORGO’s competitors include 3M (NYSE:MMM), ACell Inc. (NASDAQ:ACLL), Amniox Medical, Inc., Arthrex, Inc., Integra LifeSciences Holdings Corporation (NASDAQ:IART), Medtronic plc (NYSE:MDT), MiMedx Group, Inc. (OTCPK:MDXG), Smith & Nephew plc (NYSE:SNN), Misonix, Inc. (NASDAQ:MSON), and Stryker Corporation (NYSE:SYK). The company only has two licenses from other companies with small amounts of fee obligations – most of its products are either self-owned, or do not have patents.
As the company says:
As of December 31, 2019, we owned 56 issued patents globally, of which 10 were U.S. patents. As of December 31, 2019, we owned 20 pending patent applications, of which 11 were patent applications pending in the United States. Subject to payment of required maintenance fees, annuities and other charges, many of our issued patents are currently expected to expire between 2020 and 2036. The expiration of these patents is not expected to have a material impact on our business. In addition, many of our products, including our Apligraf, Dermagraft and NuShield products, are not covered by our issued patents or pending patent applications.
Financials
Current stock price: $4.70, near low in 52-week range of $2.47 to $8.14.
Wall Street analysts are very bullish with a price target of $9.25, increased over the quarter.
Average rating is 4.75/5 on 3 very bullish, and 1 bullish ratings.
Market capitalization: $588.84 million
Shares outstanding: 125.29 million, of which 27.93% is held by private corporations, 26.86% by insiders, 20.80% by the public, 20.37% by PE/VC firms, and 4.05% by institutions.
Catalysts & Pipeline
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Near-Term
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Relaunch/commercial ramp of Affinity product throughout 2020
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Launch PuraPly XT and various PuraPly AM (PPAM) line extensions (New Sizes)
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Proactive management of PuraPly pass-through status
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Long-Term (2023+)
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Pursue BLA approvals for ReNu and NuCel for label indications and reimbursement
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Develop, in-license and/or acquire additional pipeline products
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Risks
The company has a pretty low cash position, high burn, and high debt obligations, as I discussed at the start. This leads me to worry that they are having problems managing cash flow.
The company also acknowledges that some of their products are not covered by patents. That could make it difficult for them to hinder encroachment on their intellectual property.
Bottom line
ORGO looks like a very strong company barring the few issues I discussed here. The current depressed prices, upcoming catalysts, recent profitable status and so on makes this an interesting stock to consider investing in at this time.
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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
