UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,Washington, D.C. 20549
FORM 10-K
(Mark One)
[X]X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year endedNovember 30, 2018December 31, 2019
or
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________________ to __________________________
Commission file number000-54329
000-54329ORGENESIS INC.
ORGENESIS INC.
(Exact(Exact name of registrant as specified in its charter)
Nevada | 98-0583166 |
State or Other Jurisdiction | (I.R.S. Employer |
of Incorporation or Organization | Identification No.) |
20271 Goldenrod Lane, Germantown, MD 20876
(Address(Address of Principal Executive Offices) (Zip Code)
Registrant’sRegistrant's telephone number, including area code:(480) 659-6404
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange Common Stock, par ORGS The Nasdaq Capital MarketCommon stock, par value $0.0001 per share
on which registered
value $0.0001 per share
Securities registered pursuant to Section 12(g) of the Act:None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes [ ] No [X]
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.[ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large"large accelerated filer,” “accelerated filer” “smaller" "accelerated filer" "smaller reporting company,”" and “emerging"emerging growth company”company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] | Accelerated filer[X] |
Non-accelerated filer [ ] | Smaller reporting company[X] |
Emerging growth company [ ] |
If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes[ ] No [X]
The registrant had 15,620,97118,361,050 shares of common stock outstanding as of February 13, 2019.March 9, 2020. The aggregate market value of the common stock held by non-affiliates of the registrant as of May 31, 2018the last business day of the registrant's most recently completed second fiscal quarter (June 28, 2019) was $92,456,008,$56,803,434, as computed by reference to the closing price of such common stock on The Nasdaq Capital Market on such date.
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ORGENESIS INC.
20182019 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTSs
CONTENTS
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PART IV | |
ITEM | |
SIGNATURES | 84 |
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FORWARD-LOOKING STATEMENTS
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The following discussion should be read in conjunction with the financial statements and related notes contained elsewhere in this Annual Report on Form 10-K. Certain statements made in this discussion are “forward-looking statements”"forward-looking statements" within the meaning of 27A of the Securities Act of 1933, as amended (the “Securities Act”"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’sCompany's management as well as estimates and assumptions made by the Company’sCompany'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”"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’sCompany'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’sCompany's business, industry, and the Company’sCompany's operations and results of operations. 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.
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”("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,”"we," "us," "our," the “Company”"Company" or “our Company”"our Company" or “Orgenesis”"Orgenesis" refer to Orgenesis Inc., a Nevada corporation, and its majority-owned subsidiary, Masthercell Global Inc., a Delaware corporation (“Masthercell Global”), and Orgenesis SPRL,Belgium SRL, a Belgian-based entity which is engaged in development and manufacturing activities, together with clinical development studies in Europe (the “Belgian Subsidiary”"Belgian Subsidiary"), and its wholly-owned subsidiaries Orgenesis Ltd., an Israeli corporation (the “Israeli Subsidiary”"Israeli Subsidiary"), Orgenesis Maryland Inc., a Maryland corporation (the “Maryland Subsidiary”"Maryland Subsidiary"), and Cell Therapy Holdings S.A.S.A, Atvio Biotech Ltd. ("Atvio"), an Israeli-based CDMO, CureCell Co. Ltd. ("CureCell"), a Korea-based CDMO and, as of December 31, 2019, its majority-owned subsidiary, Masthercell Global’s wholly-ownedGlobal Inc., a Delaware corporation ("Masthercell Global"), and Masthercell Global's subsidiaries includeincluding MaSTherCell S.A (“MaSTherCell”("MaSTherCell"), a Belgian-based subsidiary and a Contract Development and Manufacturing Organization (“CDMO”("CDMO") specialized in cell therapy development and manufacturing for advanced medicinal products and Masthercell U.S., LLC, a U.S.-based CDMO, Atvio Biotech Ltd. (“Atvio”United States ("U.S."), an Israeli-based CDMO,-based CDMO. The Company sold all of its equity interests in Masthercell Global and CureCell Co. Ltd. (“CureCell”), a Korea-based CDMO.
its subsidiaries on February 10, 2020.
Forward-looking statements made in this annual reportAnnual Report on Form 10-K include statements about:
Corporate
CDMO Business
PT Business
These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled “Risk Factors”"Risk Factors" set forth in this Annual Report on Form 10-K for the year ended November 30, 2018,December 31, 2019, any of which may cause our Company’sCompany's or our industry’sindustry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. These risks may cause the Company’sCompany's or its industry’sindustry's actual results, levels of activity or performance to be materially different from any future results, levels of activity or performance expressed or implied by these forward looking statements.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity or performance. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of these forward-looking statements. The Company is under no duty to update any forward-looking statements after the date of this report to conform these statements to actual results.
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PART I
ITEM 1. BUSINESS
Business Overview
We are a biotechnology company specializing in the development, manufacturing and provision of technologies and services in the cell and gene therapy industry.therapies ("CGTs") through point-of-care solutions. We operatehave historically operated through two independent business platforms: (i) a point-of-care (“POCare”) cell therapy ("POC") platform (“PT”) and (ii) a Contract Development and Manufacturing Organization (“CDMO”("CDMO") platform, conducted through our subsidiary, Masthercell Global.which provided contract manufacturing and development services for biopharmaceutical companies (the "CDMO Business"). Through our PT business,the POC platform, our aim is to further the development of CGTs, including Advanced Therapy Medicinal Products (“ATMPs”("ATMPs"), through collaborations and in-licensing with other pre-clinical and clinical-stage biopharmaceutical companies and research and healthcare institutes to bring such ATMPs to patients. These therapies span a wide range of treatments including, but not limited to, cell-based immunotherapies, therapeutics for metabolic diseases, neurodegenerative diseases and tissue regeneration. We out-licenseout-license these ATMPs, thus far primarily through joint venture ("JV') agreements, with regional partners including pharmaceutical and biotech companies as well as research institutions and hospitals These regional partners have cell therapies in clinical development and are to whom we also provide manufacturing know-how, assay services, licensing, regulatory assistance, pre-clinical studies, intellectual property services, and trainingco-development services (collectively "POC Development Services") to support their activity in order to reach patients in a point-of-care hospital setting. Currently, our POC Development Services constitute the entirety of our revenue from the POC platform. Through ourthe CDMO platform, we arehad focused on providing contract manufacturing and development services for biopharmaceutical companies.companies, and we continue to provide such CDMO, or development, services in Israel and South Korea.
On February 2, 2020, we entered into a Stock Purchase Agreement (the "Purchase Agreement") with GPP-II Masthercell LLC ("GPP" and together with the Company, the "Sellers"), Masthercell Global Inc. ("Masthercell") and Catalent Pharma Solutions, Inc. (the "Buyer"). Pursuant to the terms and conditions of the Purchase Agreement, on February 10, 2020, the Sellers sold 100% of the outstanding equity interests of Masthercell to Buyer (the "Masthercell Sale") for an aggregate nominal purchase price of $315 million, subject to customary adjustments. After accounting for GPP's liquidation preference and equity stake in Masthercell as well as SFPI - FPIM's interest in MaSTherCell S.A., distributions to Masthercell option holders and transaction costs, we received approximately $126.7 million.
Activities in our PT businessthe POC platform include a multitude of cell therapies including, autoimmune, oncologic, neurologic andbut not limited to, cell-based immunotherapies, therapeutics for metabolic diseases, neurodegenerative diseases and other indications.tissue regeneration. We provide services forare establishing and positioning our joint venture (“JV”)POC business in order to bring point-of-care therapies to patients in a scalable way through our JV partners pharmaceuticalactive in autologous cell therapy product development, including facilities in Germany, Austria, Greece, the U.S., Korea, Japan, Singapore, Latin America, the UK, Spain, Israel, Russia and biotech companies as well as research institutions and hospitalsChina. We believe that have cell therapies in clinical development. Eacheach of these customers and collaborationsour regional JV partners represents a revenue and growth opportunity upon regulatory approval. Furthermore, our trans-differentiation technology, which demonstrates the capacity to induce a shift in the developmental fate of cells from the liver or other tissues and transdifferentiating them into “pancreatic"pancreatic beta cell-like”cell-like" Autologous Insulin Producing (“AIP”("AIP") cells for patients with Type 1 Diabetes, acute pancreatitis and other insulin deficient diseases.diseases, represents a unique opportunity within our POC platform. This technology, which has yet to be proven in human clinical trials, has shown in pre-clinical animal models that the human derived AIP cells produce insulin in a glucose-sensitive manner. This trans-differentiation technology is licensed by our Israeli SubsidiaryOrgenesis Ltd. (the "Israeli Subsidiary") and is based on the work of Professor ("Prof.") Sarah Ferber, our Chief Scientific Officer and a researcher at Tel Hashomer Medical Research Infrastructure and Services Ltd. (“THM”) in Israel. OurThe development plan calls for conducting additional pre-clinical safety and efficacy studies with respect to diabetes and other potential indications prior to initiating human clinical trials.
With respect to this trans-differentiation technology, we own or have exclusive rights to ten (10) United States and nineteen (19)eight (8) foreign issued patents, nine (9)five(5) pending applications in the United States, thirty-two (32)thirty-three (33) pending applications in foreign jurisdictions, including Europe, Australia, Brazil, Canada, China, Eurasia, Israel, Japan, South Korea, Mexico, and Singapore, and four (4)one (1) international Patent Cooperation Treaty (“PCT”("PCT") patent applications. These patents and applications relate, among others, to (1) the trans-differentiation of cells (including hepatic cells) to cells having pancreatic β-cell-like phenotype and function and to their use in the treatment of degenerative pancreatic disorders, including diabetes, pancreatic cancer and pancreatitis, and (2) scaffolds, including alginate and sulfated alginate scaffolds, polysaccharides thereof, and scaffolds for use for cell propagation, transdifferentiation,trans-differentiation, and transplantation in the treatment of autoimmune diseases, including diabetes.
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Our CDMO platform operates through Masthercell Global, which currently consists ofWe conduct the following subsidiaries: MaSTherCell in Belgium, Atvio in Israel and CureCell in South Korea and Masthercell U.S., LLC in the United States, each having unique know-how and expertise for manufacturing in a multitude of cell types. As partactivities of our United States (“U.S.”POC platform through our wholly-owned subsidiaries, including Orgenesis Maryland Inc. (the "U.S. Subsidiary"), Orgenesis Belgium SRL (the "Belgian Subsidiary") activity, we intend to also set up a CDMO facility in the United States. and Orgenesis Ltd. (the "Israeli Subsidiary").
We believe that, in-order to provide the optimal service to our customers, we need to have a global presence. Our POC platform is focused on providing our POC Development Services toward a goal of allowing us to be able to bring new products to patients faster and in a more cost-effective way. We target the international market as a key priority through our network of facilities that provide development, manufacturing and logistics services, utilizing our advanced quality management system and experienced staff. All of these capabilities offered to third-parties are utilized for our internal development projects, with the goal of allowing us to be able to bring new products to patients faster and in a more cost-effective way.
The CDMO platform was historically operated through (i) majority-owned Masthercell Global strives to provide services that are all compliant with Good Manufacturing Practice, or GMP, requirements, ensuring identity, purity, stability, potency(which consisted of the following two subsidiaries: MaSTherCell S.A. in Belgium ("MaSTherCell"), and robustnessMasthercell U.S., LLC in the United States ("Masthercell U.S.") (collectively, the "Masthercell Global Subsidiaries")), (ii) wholly-owned Atvio Biotech Ltd. in Israel ("Atvio"), and 94.12% owned CureCell Co., Ltd. in South Korea ("CureCell"). Each of these subsidiaries has unique know-how and expertise for manufacturing in a multitude of cell therapy products for clinical phase I, II, III and through commercialization.
types.
We operateoperated our CDMOPOC and the PTCDMO platforms as two separate business segments.
Overview for Advanced Therapy Medicinal Products (ATMPs)
Advanced Therapy Medicinal Product (“ATMP”("ATMP") means any of the following medicinal products for human use:
An STMP contains cells or tissues that have been manipulated to change their biological characteristics or cells or tissues not intended to be used for the same essential functions in the body. A TEP contains cells or tissues that have been modified so they can be used to repair, regenerate or replace human tissue. A GTMP contains genes that lead to a therapeutic, prophylactic or diagnostic effect and work by inserting “recombinant”"recombinant" genes into the body, usually to treat a variety of diseases, including genetic disorders, cancer or long-term diseases. A recombinant gene is a stretch of DNA that is created in the laboratory, bringing together DNA from different sources. Combined ATMPs contain one or more medical devices as an integral part of the medicine, such as cells embedded in a biodegradable matrix or scaffold. Although STMPs and GTMPs currently dominate the market, in order to access the market potential and trends in the future, other cell products are likely to be essential in all of these categories.
Furthermore, we believe that autologous therapies will beare a substantial segment of the ATMP market. Autologous therapies are produced from a patients’patient's own cells, instead of mass-cultivated donor-cells, or allogeneic cells. Allogeneic therapies are derived from donor cells and, through the construction of master and working cell banks, are produced on a large scale. Autologous therapies are derived from the treated patient and manufactured through a defined protocol before re-administration and generally demand a more complex supply chain. Currently with the ATMP network relying heavily on production and supply chain of manufacturing sites, we believe our POCare modelPOC platform may help overcome some of the development and supply challenges with bringing these therapies to patients.
CDMOPOC Business
Companies developing cell therapies need to make a decision early on in their approach to the transition from the lab to the clinic regarding the process development and manufacturing of the cells necessary for their respectiveOur therapeutic treatments. Of the companies active in this market, only a small number have developed their own GMP manufacturing facilities due to the high costs and expertise required to develop these processes. In addition to the limitations imposed by a limited number of trained personnel and high infrastructure/operational costs, the industry faces a need for custom innovative process development and manufacturing solutions. Due to the complexity and diversity of the industry, such solutions are often customized to the particular needs of a company and, accordingly, a multidisciplinary team of engineers, cell therapy experts, cGMP and regulatory experts is required. Such a unique group of experts can exist only in an organization that both specializes in developing characterization assays and solutions and manufactures cell therapies.
Companies can establish their own process and GMP manufacturing facility or engage a contract manufacturing organization for each step. A CDMO is an entity that serves other companies in the pharmaceutical industry on a contract basis to provide comprehensive services from cell therapy development through cell therapy manufacturing for and end-to-end solution. Due to the complexity, global outreach needs, redundancy and operational costs of manufacturing biologics and cell therapies, the CDMO business is expanding. With more than 861 companies in the field of cell therapy worldwide (versus 580 in 2015) and 959 clinical trials underway by the end of the first quarter of 2018 (versus 486 in first quarter of 2015), we believe that the industry shows a rapid growth rate accompanied by a lack of sufficient GMP manufacturing capacities (Source:Informa, 2015 and 2018). Over recent years, advances in the field of cell therapy, including the growth of autologous CAR T-cell therapies, led to a significant increase in investment in the industry. T-cells, the backbone of CAR T-cell therapy, are often called the workhorses of the immune system because of their critical role in orchestrating the immune response and killing cells infected by pathogens. The therapy requires drawing blood from patients and separating out the T-cells. Next, using a disarmed virus, the T-cells are genetically engineered to produce receptors on their surface called Chimeric Antigen Receptors, or CARs. The genetically modified T-cells that are re-injected into the patient are then much more effective at targeting and killing tumors.
Two landmark U.S. Food Drug Administration (the “FDA”) approvals in CAR T-cell therapy significantly impacted the cell therapy industry. In August 2017, Novartis’s CAR T-cell therapy, Kymriah, was approved for relapsed/refractory acute lymphoblastic leukemia for pediatric and young adult patients, making it the first cell-base immunotherapy to move across the finish line in the United States. Kymriah received a second FDA approval to treat appropriate relapsed/refractory patients with large B-cell lymphoma in May 2018. Europe has also followed this path as, in August 2018, the European Commission approved Kymriah based on the first global CAR-T registration trials, which included patients from eight European countries and demonstrated durable responses and a consistent safety profile in relapsed/refractory pediatric B-cell ALL and r/r DLBCL. Furthermore, after Gilead's acquisition of Kite Pharma, Inc. for $12 billion in 2017, Kite Pharma’s CAR T-cell therapy, Yescarta, was approved for adult patients with relapsed/refractory large B cell lymphoma after two or more lines of systemic therapy (Source: Alliance for Regenerative Medicine). We believe that these approvals are indicative of the future potential of many more cellular therapies that address a wide range of diseases. Celgene Corporation (“Celgene”) acquired Juno Therapeutics, Inc., another pioneer in the CAR-T space, in January 2018 for approximately $9 billion. Then, Bristol-Myers Squibb Company, in their pursuit of this new space of cancer treatments, acquired Celgene in January 2019 for approximately $74 billion.
The complexity of manufacturing individual cell therapy treatments poses a fundamental challenge for cell therapy-based companies as they enter the field. This complexity potentially casts a spotlight on improved cGMP, large-scale manufacturing processes, such as the services provided by Masthercell Global. Manufacturing and delivery can be more complex in cell therapy products than for a typical drug. In the U.S., only a few dozen specialized hospitals are currently qualified to provide CAR T treatments, which require retrieving, processing and then returning immune cells to the patient, all done under strict cGMP, as well as monitoring and treating side effects. These factors provide real incentives for cell therapy companies to seek third-party partners, or contract manufacturers, who possess technical, manufacturing, and regulatory expertise in cell therapy development and manufacturing such as cell therapy CDMOs like MaSTherCell. Additionally, establishing a manufacturing facility for cell therapy requires specific expertise and significant capital which can delay the clinical trials by at least 2 years. As companies are looking to expedite their market approval, utilization of a CDMO can result in faster time to market and overall lower expenditure.
Integration of development and manufacturing and logistics services through Masthercell Global (and its subsidiaries) provide the basis for generating a recurring revenue stream, as well as carefully managingefforts underlying our fixed cost structure to maximize optionality and drive down production cost. We believe that Masthercell Global is also beneficial for our own manufacturing needs and provides us, and our customers, with enhanced control of material supply for both clinical trials and the commercial market.
Consolidation of CDMO Entities and Strategic Funding
On June 28, 2018, the Company, Masthercell Global, Great Point Partners, LLC, a manager of private equity funds focused on growing small to medium sized heath care companies (“Great Point”), and certain of Great Point’s affiliates, entered into a series of definitive strategic agreements intended to finance, strengthen and expand Orgenesis’ CDMO business. In connection therewith, the Company, Masthercell Global and GPP-II Masthercell, LLC, a Delaware limited liability company (“GPP-II”) and an affiliate of Great Point, entered into a Stock Purchase Agreement (the “SPA”) pursuant to which GPP-II purchased 378,000 shares of newly designated Series A Preferred Stock of Masthercell Global (the “Masthercell Global Preferred Stock”), representing 37.8% of the issued and outstanding share capital of Masthercell Global, for cash consideration to be paid into Masthercell Global of up to $25 million, subject to certain adjustments (the “Consideration”). Orgenesis holds 622,000 shares of Masthercell Global’s Common Stock, representing 62.2% of the issued and outstanding equity share capital of Masthercell Global. An initial cash payment of $11.8 million of the Consideration was remitted at closing by GPP-II, with a follow up payment of $6,600,000 to be made in each of years 2018 and 2019 (the “Future Payments”), or an aggregate of $13.2 million, if (a) Masthercell Global achieves specified EBITDA and revenues targets during each of these years, and (b) the Orgenesis’ shareholders approve certain provisions of the Stockholders’ Agreement referred to below on or before December 31, 2019. None of the future Consideration amounts, if any, will result in an increase in GPP-II’s equity holdings in Masthercell Global beyond the 378,000 shares of Series A Preferred Stock issued to GPP-II at closing. The proceeds of the investment will be used to fund the activities of Masthercell Global and its consolidated subsidiaries. Notwithstanding the foregoing, GPP-II may, in its sole discretion, elect to pay all or a portion of the future Consideration amounts even if the financial targets described above have not been achieved and the Orgenesis Stockholder Approval has not been obtained. In satisfaction of the two conditions described above, Masthercell Global achieved the specified EBITDA and revenues targets in 2018 as described in the SPA and obtained the approval from its requisite shareholders on October 23, 2018. As such, Masthercell Global received the First Future Payment of $6,600,000 on January 16, 2019.
In connection with the entry into the SPA, and pursuant to the terms hereof, described above, each of the Company, Masthercell Global and GPP-II entered into the Masthercell Global Inc. Stockholders’ Agreement (the “Stockholders’ Agreement”) providing for certain restrictions on the disposition of Masthercell Global securities, the provisions of certain options and rights with respect to the management and operations of Masthercell Global, certain favorable, preferential rights to GPP-II (including, without limitation, a tag right, drag right and certain protective provisions), a right to exchange the Masthercell Global Preferred Stock for shares of Orgenesis common stock and certain other rights and obligations. In addition, after the earlier of the second anniversary of the closing or certain enumerated circumstances, GPP-II is entitled to effectuate a spinoff of Masthercell Global and the Masthercell Global Subsidiaries (the “Spinoff”). The Spinoff is required to reflect a market value determined by one of the top ten independent accounting firms in the U.S. selected by GPP, provided that under certain conditions, such market valuation shall reflect a valuation of Masthercell Global and the Masthercell Global Subsidiaries of at least $50 million. In addition, upon certain enumerated events as described below, GPP-II is entitled, at its option, to put to the Company (or, at Company’s discretion, to Masthercell Global if Masthercell Global shall then have the funds available to consummate the transaction) its shares in Masthercell Global or, alternatively, purchase from the Company its share capital in Masthercell Global at a purchase price equal to the fair market value of such equity holdings as determined by one of the top ten independent accounting firms in the U.S. selected by GPP-II, provided that the purchase price shall not be greater than three times the price per share of Masthercell Global Preferred Stock paid by GPP-II and shall not be less than the price per share of Masthercell Global Preferred Stock paid by GPP-II. GPP-II may exercise its put or call option upon the occurrence of any of the following: (i) there is an Activist Shareholder of the Company; (ii) the Chief Executive Officer and/or Chairman of the board of directors of the Company resigns or is replaced, removed, or terminated for any reason prior to June 28, 2023; (iii) there is a Change of Control event of the Company; or (iv) the industry expert director appointed to the board of directors of Masthercell Global is removed or replaced (or a new such director is appointed) without the prior written consent of GPP-II. For the purposes of the foregoing, the following definitions shall apply: (A) “Activist Shareholder” shall mean any Person who acquires shares of capital stock of the Company who either: (x) acquires more than a majority of the voting power of the Company, (y) actively takes over and controls a majority of the board of directors of the Company, or (z) is required to file a Schedule 13D with respect to such Person’s ownership of the Company and has described a plan, proposal or intent to take action with respect to exerting significant pressure on the management of or directors of, the Company; and (B) “Change of Control” shall mean any of: (a) the acquisition, directly or indirectly (in a single transaction or a series of related transactions) by a Person or group of Persons of either (I) a majority of the common stock of the Company (whether by merger, consolidation, stock purchase, tender offer, reorganization, recapitalization or otherwise), or (II) all or substantially all of the assets of the Company and its Subsidiaries (but only if such transaction includes the transfer of Securities held by the Company), (b) if any four (4) of the directors of the Company as of June 28, 2018 are removed or replaced or for any other reason cease to serve as directors of the Company, (c) the filing of a petition in bankruptcy or the commencement of any proceedings under bankruptcy laws by or against the Company, provided that such filing or commencement shall be deemed a Change of Control immediately if filed or commenced by the Company or after sixty (60) days if such filing is initiated by a creditor of the Company and is not dismissed; (d) insolvency of the Company that is not cured by the Company within thirty (30) days; (e) the appointment of a receiver for the Company, provided that such appointment shall constitute an Change of Control immediately if the appointment was consented to by the Company or after sixty (60) days if not consented to by the Company and such appointment is not terminated; or (f) or dissolution of the Company.
The Stockholders’ Agreement further provides that GPP-II is entitled, at any time, to convert its share capital in Masthercell Global for the Company’s common stock in an amount equal to the lesser of (a)(i) the fair market value of GPP-II’s shares of Masthercell Global Preferred Stock to be exchanged, as determined by one of the top ten independent accounting firms in the U.S. selected by GPP-II and the Company, divided by (ii) the average closing price per share of Orgenesis Common Stock during the thirty (30) day period ending on the date that GPP-II provides the exchange notice (the “Exchange Price”) and (b)(i) the fair market value of GPP-II’s shares of Masthercell Global Preferred Stock to be exchanged assuming a value of Masthercell Global equal to three and a half (3.5) times the revenue of Masthercell Global during the last twelve (12) complete calendar months immediately prior to the exchange divided by (ii) the Exchange Price; provided, that in no event will (A) the Exchange Price be less than a price per share that would result in Orgenesis having an enterprise value of less than $250,000,000 and (B) the maximum number of shares of Orgenesis Common Stock to be issued shall not exceed 2,704,247 shares of outstanding Orgenesis Common Stock (representing approximately 19.99% of then outstanding Orgenesis Common Stock), unless Orgenesis obtains shareholder approval for the issuance of such greater amount of shares of Orgenesis Common Stock in accordance with the rules and regulations of the Nasdaq Stock Market. Such shareholder approval for a greater number was obtained on October 23, 2018.
Great Point and Masthercell Global entered into an advisory services agreement pursuant to which Great Point is to provide management services to Masthercell Global for which Great Point will be compensated at an annual base compensation equal to the greater of (i) $250,000 per each 12 month period or (ii) 5% of the EBITDA for such 12 month period, payable in arrears in quarterly installments; provided, that these payments will (A) begin to accrue immediately, but shall not be paid in cash to Great Point until such time as Masthercell Global generates EBITDA of at least $2,000,000 for any 12 month period or the sale of or change in control of Masthercell Global, and (B) shall not exceed an aggregate annual amount of $500,000. Such compensation accrues but is not owed to Great Point until the earlier of (i) Masthercell Global generating EBITDA of at least $2 million for any 12 months period following the date of the agreement or (ii) a Sale of the Company or Change of Control of the Company (as both terms are defined therein).
GPP Securities, LLC, a Delaware limited liability company and an affiliate of Great Point and Masthercell Global entered into a transaction services agreement pursuant to which GPP Securities, LLC is to provide certain brokerage services to Masthercell Global for which GPP Securities LLC will be entitled to a certain Exit Fee and Transaction Fee (as both terms are defined in the agreement), such fees not to be less than 2% of the applicable transaction value.
Corporate Reorganization
Contemporaneous with the execution of the SPA and the Stockholders’ Agreement, Orgenesis and Masthercell Global entered into a Contribution, Assignment and Assumption Agreement pursuant to which Orgenesis contributed to Masthercell Global the Orgenesis’ assets relating to the CDMO Business (as defined below), including the CDMO subsidiaries (the “Corporate Reorganization”). In furtherance thereof, Masthercell Global, as Orgenesis’ assignee, acquired all of the issued and outstanding share capital of Atvio, the Company’s Israel based CDMO partner since May 2016, and 94.12% of the share capital of CureCell, the Company’s Korea based CDMO partner since March 2016. Orgenesis exercised the "call option" to which it was entitled under the joint venture agreements with each of these entities to purchase from the former shareholders their equity holding. The consideration for the outstanding share equity in each of Atvio and CureCell consisted solely of Orgenesis common stock. In respect of the acquisition of Atvio, Orgenesis issued to the former Atvio shareholders an aggregate of 83,965 shares of Orgenesis common stock. In respect of the acquisition of CureCell, Orgenesis issued to the former CureCell shareholders an aggregate of 202,846 shares of Orgenesis common stock subject to a third-party valuation. Together with MaSTherCell S.A., Atvio and CureCell are directly held subsidiaries under Masthercell Global (collectively, the “Masthercell Global Subsidiaries”).
Masthercell Global, through the Masthercell Global Subsidiaries, will be engaged in the business of providing manufacturing and development services to third parties related to cell and gene therapy products, processes and solutions and providing related manufacturing or development services, and the creation and development of technology, intellectual property, tools and optimizations in connection with such manufacturing and development services for third parties (the “CDMO Business”). Under the terms of the Stockholders’ Agreement and SPA, Orgenesis has agreed that so long as it owns equity in Masthercell Global and for two years thereafter it will not engage in the CDMO Business, except through Masthercell Global. Notwithstanding the foregoing, nothing in the Stockholders’ Agreement or the SPA prohibits or restricts the Company’s ability to conduct any business outside the CDMO Business and the Company retained the right to research, manufacture, develop and conduct all other activities related to the development, discovery, manufacturing and commercialization of therapeutic products, and the process, methods and services thereof (including, without limitation, such therapeutic products for itself and in which the Company has an economic interest or any relationship with any Third Party in which the Company has an economic interest or that are created, developed, manufactured or sold by a joint venture, partnership or collaboration between the Company and a Third Party) with a Third Party. For purposes hereof, the term “Third Party” shall mean any entity (other than our Company or our subsidiaries) with whom we (or our subsidiaries) has a collaboration, joint venture, partnership or similar economic relationship for the development of a product with therapeutic use where the primary purpose of such collaboration, joint venture, partnership or relationship is not the manufacturing related to such product. We intend, through our direct subsidiaries, to continue engaging in such research, marketing, development, selling and commercialization of such therapeutic products either for our own internal purposes or with Third Parties.
Masthercell Global’s Business
Our subsidiary, Masthercell Global, is a CDMO specialized in cell therapy development for advanced therapeutically products. In the last decade, cell therapy medicinal products have gained significant importance, particularly in the fields of ex-vivo gene therapy and immunotherapy. While academic and industrial research has led scientific development in the sector, industrialization and manufacturing expertise remains insufficient. Masthercell Global plans to fill this gap by providing three types of services to its customers: (i) process and assay development services and (ii) current Good Manufacturing Practices (cGMP) contract manufacturing services and (iii) technology innovation and engineering services. These services offer a double advantage to Masthercell Global’s customers. First, customers can continue allocating their financial and human resources on their product/therapy, while relying on a long-term reliable and trusted partner for their process development/production. Second, through its subsidiaries, it allows customers to benefit from Masthercell Global’s expertise in cell therapy manufacturing and all related aspects.
Masthercell Global continues to invest in its manufacturing capabilities and services to offer a “one-stop-shop” service to its customers from pre-clinical up to commercial development. MaSTherCell S.A., Masthercell Global’s Belgian subsidiary, has recently inaugurated a new production center in Gosselies, doubling its manufacturing capacity from 600 sqm GMP area to 1,200 sqm. This new facility can also accommodate commercial manufacturing. Masthercell Global’s Israeli-based CDMO, Atvio, has relocated its process engineering activities into a new and larger facility located at Bar-Lev industrial park. These subsidiaries, including Masthercell Global’s Korea-based CDMO, have started to offer viral vector CDMO services. Our target customers are primarily cell therapy companies that are in clinical trials with the aim of accompanying them as their manufacturing and logistic partner once their product candidates reach commercial stage.
We devote significant resources to process development and manufacturing in order to optimize the safety and efficacy of our future product candidates for our customers, as well as our cost of goods and time to market. This integration of development, manufacturing and logistics services through Masthercell Global aims to provide the basis for generating a recurring revenue stream, as well as carefully managing our fixed cost structure, maximize optionality, and drive long-term cost of goods as low as possible. We believe that operating our own manufacturing facility provides us with enhanced control of material supply for both clinical trials and the commercial market, will enable the more rapid implementation of process changes, and will allow for better long-term margins.
Masthercell Global continues to invest resources to maintain best practices in quality service, quality control, quality assurance and permanent staff training to uphold the highest standards to serve its customers. Masthercell Global (through itself and its subsidiaries) has built-up a team of more than 140 industry experts in Belgium, 30 experts in Korea, 19 experts in Israel and 3 people in the US. The entire team is dedicated to support process development and manufacturing efforts in a fast, safe and cost-effective way. Masthercell Global’s strategy is to build long term relationships with its customers in order to help them bring highly potent cell therapy products faster to the market and in cost-effective ways. To provide these services, Masthercell Global relies on a team of dedicated experts both from academic and industry backgrounds. It operates through state-of-the-art facilities organized as a global network in Belgium, Israel, Korea and soon in the U.S. This network of facilities operates on a common Quality Management System backbone enabling for streamlined technology transfers among the different sites.
Our Growth Strategy
In light of the globalization of the industry in general and the therapeutics industry in particular, adding to that the high cost of reaching the market, developers of cell therapies see themselves as global organizations and build their models on global markets. As cell therapies are based on living cells, they are limited in their ability to be centrally manufactured. An additional challenge for globalization is the fact that the regulatory requirements for the therapies is not harmonized between jurisdictions, presenting additional operational challenges.
We have leveraged the recognized quality expertise and experience in cell process development and manufacturing of our Belgian subsidiary, MaSTherCell S.A., to first-class entities in Israel and Korea and to build a global CDMO in the cell therapy development and manufacturing area. We believe that cell therapy companies need to be global in order to truly succeed. We target the international manufacturing market as a key priority through joint-venture agreements that provide development capabilities, along with manufacturing facilities and experienced staff.
The main revenue drivers of our growth strategy on a global reach are the number of batches and the number of patients per manufacturing batch. These parameters vary along the development cycle of the new treatments (starting from as few as 20 patients in Phase I to thousands of patients when reaching commercialization). When a client reaches the commercial stage, their demand for manufacturing substantially increases, while barriers preventing the client from switching to another manufacturing organization remain extremely high. The difficulty in transferring CDMOs is a function of the tech transfer of such complex manufacturing processes being extremely lengthy, requiring many months of training highly specialized employees, while also possibly requiring new regulatory approvals. Therefore, we believe we are well positioned to continue expanding our revenue for the following reasons:
Current CDMO Facilities
MaSTherCell S.A.
MaSTherCell S.A. in Belgium is in the European hub for the continental activities of the global CDMO network and the globally-recognized center of excellence of the GMP manufacturing activities of the group. At the heart of MaSTherCell is a team of more than 140 highly dedicated experts combining strong experience in cGMP cell therapy manufacturing with a technology-focused approach and a substantial knowledge of the industry. As a one-stop shop, they provide services from technology selection, business modeling to GMP manufacturing, process development, quality management and assay development. MaSTherCell's teams are fully committed to helping their clients fulfill their objective of providing sustainable and affordable therapies to their patients. The company operates in a validated and flexible facility located in Biowin, the strategic center of Europe within the Walloon healthcare cluster. The facility in Belgium has received the final cGMP manufacturing authorization from the Belgian Drug Agency (AFMPS) in September 2013 and a renewal in October 2017 for cell-based therapies manufacturing. It spreads over 2,000 sqm including 1,200 sqm of GMP area.
Atvio Biotech Ltd.
Atvio Biotech Ltd. in Israel is a specialized process and technology development firm focused on custom-made process development, upscaling design from lab to industry innovation and automation procedures, which are extremely essential in the cell therapy industry. Atvio is located in Bar-Lev Industrial Park utilizing the exclusive Israeli innovative ecosystem and highly experienced and talented associates including Ph.D. holders and biotechnology engineers. The center provides end to end solutions to cell therapy industries, process development capabilities and proficiency, custom-made engineering and a uniquePOC platform for creative design and process optimization. The company spreads over 1300 sqm2 of labs and offices resulting in an efficient and unique environment for cell therapy development.
CureCell Co. Ltd.
CureCell Co. Ltd. in Korea has a particular focus on developing innovative cell therapies for both the Korean and international markets. Together, with promising in-house research programs, the foreign technologies are currently under development for the rapidly growing Asian market well beyond the Korean market offering the most favorable environment for the cell therapy industry in the world. Through close collaboration with leading medical and academic facilities, CureCell is accelerating the development of foreign technologies in Korea and is well positioned to expand international markets for Korean technologies.
Planned CDMO Facilities
We are currently preparing to launch a new production center in Houston, Texas in the United States, which we expect will become operational during fiscal 2020. We will continue to engage in discussions with other strategic partners throughout the world to set up CDMO facilities in other geographic locations.
Our Competitive Advantages
We believe that we offer the following benefits to our CDMO clients:
We enable our clients to go faster to the market in a cost-effective way. We continue to invest in our manufacturing capabilities and expertise to offer a “one-stop-shop” service to our customers from pre-clinical up to commercial development. This can also include preferred access to critical raw materials supplies. This stems from the finding that these companies' processes have to be set up right from the start in order for them to obtain approved products that have the simplest possible process and with the lowest possible cost of goods sold (COGS).
Quality. We work alongside our customers to transform the promises of their cell-based therapies into a robust and scalable process, compliant with GMP requirements. Our stringent quality system is applied throughout the process and ensures identity, purity, stability, potency and robustness of cell therapy products from clinical phase I, II, III to commercialization. We continue to invest resources to maintain best practices in quality service, quality control, quality assurance and permanent staff training to uphold the highest standards.
Transforming academic technology to clinical and commercial manufacturing. One of the major issues with moving cell therapy products from “bench to manufacturing bedside” has been manufacturing bottlenecks. The heterogeneous nature of cell therapy products has introduced manufacturing complexity and regulatory concerns, as well as scale-up complexities that are not present within traditional pharmaceutical manufacturing. Over the years, MaSTherCell has developed experience and expertise necessary for transforming academic concepts into a clinical manufacturing program to support all phases of clinical trials. This includes assessing the clinical efficiency of the laboratory concept but also the development of efficient, robust and scalable manufacturing processes, including technology engineering service, when needed.
Access to a global network. Many companies developing autologous cell therapies envision using multiple manufacturing sites and processing centers to distribute the workload and minimize the shipping distances for such time- sensitive products. Many cell therapy products are fragile preparations that must be shipped and applied to a patient rapidly. This time pressure means that standard product-release testing procedures are not feasible. In particular, sterility testing often cannot be completed before patient treatment. This unique challenge in cell-therapy manufacturing requires tighter environmental and handling controls to greatly reduce any risk of sterility failure. Biotechnology companies have to anticipate their success and the logistics to cure at point of care. Therefore, the setup of a global CDMO meets this requirement and is the strategy behind our establishment of our CDMO facilities in Korea and Israel, and in the U.S. in the future. To comply with anticipated regulatory harmonization, we have also invested in our Quality and Management Systems (QMS) and to structure them in a way they could be shared with either affiliated companies or business partners, and even with customers or prospects. South Korea, Israeli and European requirements are essentially the same, allowing Masthercell Global to implement its QMS model in a quick and efficient way. This truly international footprint will give us a unique competitive advantage, thereby filling the gap of biotechnology companies’ requirement of “quality comparability” between the respective regional sites.
Central continental locations to deal with key logistics challenges. With respect to this challenge, through our subsidiaries, Masthercell Global has built up the following:
Providing value-added manufacturing capacity. One of the biggest challenges is developing reliable (quality) and robust manufacturing processes for cell-based therapy products that ensure adequate product safety, potency, and consistency at an economically viable cost. Additionally, manufacturing quality and comparability is at the heart of biotechnology companies’ challenges. MaSTherCell has built-up a strong expertise to customize the production and manufacturing process to suit the particular needs of a given client. This process facilitates a deep understanding of clients’ needs and facilitates a long term revenue generating relationship.
Competition in the CDMO Field
We compete with a number of companies both directly and indirectly. Key competitors include the following CMOs and CDMOs: Lonza Group Ltd, Progenitor Cell Therapy (PCT) LLC (acquired by Hitachi), WuxiAppTec (WuXi PharmaTech (Cayman) Inc.), Cognate Bioservices Inc., Apceth GmbH & Co. KG, Eufets GmbH, Fraunhofer Gesellschaft, Cellforcure SASU, Cell Therapy Catapult Limited and Molmed S.p.A. Some of these companies are large, well-established manufacturers with financial, technical, research and development and sales and marketing resources that are significantly greater than those that we currently possess.
More generally, we face competition inherent in any third-party manufacturer’s business - namely, that potential customers may instead elect to invest in their own facilities and infrastructure, affording them greater control over their products and the hope of long-term cost savings compared to a third party contract manufacturer. To be successful, we will need to convince potential customers that our current and expanding capabilities are more innovative, of higher-quality and more cost-effective than could be achieved through internal manufacturing and that our experience and quality manufacturing and process development expertise are unique in the industry. Our ability to achieve this and to successfully compete against other manufacturers will depend, in large part, on our success in developing technologies that improve both the quality and profitability associated with cell therapy manufacturing. If we are unable to successfully compete against other manufacturers, we may not be able to develop our CDMO business plans which may harm our business, financial condition and results of operations.
We believe that Masthercell Global’s services differ from our competition in two major aspects:
* Diagram above signifies “one-stop-shop service offering” from process development through quality manufacturing and logistics to point of care.
We strengthen our position by our “one-stop-shop” service offering, from pre-clinical to commercial, with a clear focus on COGS of manufacturing processes. This differentiation results in a price premium compared to other CMO’s as we operate with a lean organization focused solely on cell therapy. Quality is a critical aspect of our industry, and we believe we have developed unique expertise in this field. We devote significant resources to process development and manufacturing in order to optimize the safety and efficacy of our future product candidates for our customers, as well as our cost of goods and time to market. Our goal is to carefully manage our fixed cost structure, maximize optionality, and drive long-term cost of goods as low as possible. We believe that operating our own manufacturing facility, which provides us with enhanced control of material supply for both clinical trials and the commercial market, will enable a more rapid implementation of process changes, and will allow for better long-term margins.
Finally, we have sought to establish manufacturing centers in regions which logistically offers an ideal location given the high concentration of companies active in cell therapy, including potential clients and companies with complementary know-how, products and services.
CDMO Government Regulation
We are required to comply with the regulatory requirements of various local, state, national and international regulatory bodies having jurisdiction in the countries or localities where we manufacture products or where our customers’ products are distributed. In particular, we are subject to laws and regulations concerning research and development, testing, manufacturing processes, equipment and facilities, including compliance with cGMPs, labeling and distribution, import and export, facility registration or licensing, and product registration and listing. As a result, our facilities are subject to regulation by the FDA, as well as regulatory bodies of other jurisdictions, such as the EMA, Health Canada, and the Australian Department of Health, depending on the countries in which our customers market and sell the products we manufacture and/or package on their behalf. We are also required to comply with environmental, health and safety laws and regulations, as discussed below. These regulatory requirements impact many aspects of our operations, including manufacturing, developing, labeling, packaging, storage, distribution, import and export and record keeping related to customers' products. Noncompliance with any applicable regulatory requirements can result in government refusal to approve facilities for manufacturing products or products for commercialization.
Manufacturing facilities that produce cellular therapies are subject to extensive regulation by the FDA. In particular, FDA regulations set forth requirements pertaining to establishments that manufacture human cells, tissues, and cellular and tissue-based products (“HCT/Ps”). Title 21, Code of Federal Regulations, Part 1271 provides for a unified registration and listing system, donor-eligibility, current Good Tissue Practice ("cGTP"), and other requirements that are intended to prevent the introduction, transmission, and spread of communicable diseases by HCT/Ps. More specifically, key elements of Part 1271 include:
Masthercell Global currently collects, processes, stores and manufactures HCT/Ps, including the manufacture of cellular therapy products. Therefore, Masthercell Global must comply with cGTP and with the current Good Manufacturing Practices (“cGMP”) requirements that apply to biological products. Cell and tissue-based products may also be subject to the same approval standards, including demonstration of safety and efficacy, as other biologic and drug products if they fail to meet all HCT/P criteria set forth in Title 21, Code of Federal Regulations, Section 1271.10.
The U.S. Federal Food, Drug, and Cosmetic Act (the “FD&C Act”) and FDA regulations govern the quality control, manufacture, packaging, and labeling procedures of products regulated as a drug or biological products, including cellular therapies comprising HCT/Ps. These laws and regulations include requirements for regulated entities to comply with cGTPs applicable to the specific product(s). The cGTPs are designed to ensure that a facility's processes - and products resulting from those processes - meet defined safety requirements. The FDA's objective in requiring compliance with cGTP standards is to protect the public health and safety by ensuring that regulated products (i) have the identity, strength, quality and purity that they purport or are represented to possess; (ii) meet their specifications; and (iii) are free of objectionable microorganisms and contamination. As a central focus of the cGTP requirements, regulated entities must design and build quality assurance safeguards into the manufacturing processes and the production facilities for regulated products and must ensure the consistency, product integrity, and reproducibility of results and product characteristics. This is done by implementing quality systems and processes including appropriate, controlled procedures, specifications and documentation. In addition, drug manufacturers and certain of their subcontractors are required to register their establishments with FDA and certain state agencies. Registration with the FDA subjects entities to periodic unannounced inspections by the FDA, during which the agency inspects manufacturing facilities to assess compliance with applicable cGTPs. The FDA may also initiate for-cause investigations of manufacturing facilities if it learns of possible serious regulatory violations at such facilities. Accordingly, manufacturers must continue to expend time, money, and effort in the areas of production and quality control to maintain compliance with cGTPs. Failure to comply with applicable FDA requirements can result in regulatory inspections and associated observations, warning letters, other enforcement measures requiring remedial action, and, in the case of failures that are more serious, suspension of manufacturing operations, seizure of product, injunctions, product recalls, fines, and other penalties. We believe that our facilities are in material compliance with applicable, existing FDA requirements. Additionally, FDA, other regulatory agencies, or the U.S. Congress may be considering, and may enact laws or regulations regarding the use and marketing of stem cells, cell therapy products, or products derived from human cells or tissue. These laws and regulations may directly affect us or the business of some of Masthercell’s Global’s clients and, therefore, the amount of business Masthercell Global receives from these clients.
The Clinical Laboratory Improvement Amendments (“CLIA”) extends U.S. federal oversight to clinical laboratories that examine or conduct testing on materials derived from the human body for the purpose of providing information for the diagnosis, prevention, or treatment of disease or for the assessment of the health of human beings. CLIA requirements apply to those laboratories that handle biological matter. CLIA requires that these laboratories be certified by the government, satisfy governmental quality and personnel standards, undergo proficiency testing, be subject to biennial inspections and remit fees. The sanctions for failure to comply with CLIA include suspension, revocation, or limitation of a laboratory's CLIA certificate necessary to conduct business, fines, or criminal penalties. Additionally, CLIA certification may sometimes be needed when an entity, such as Masthercell Global, desires to obtain accreditation, certification, or license from non-government entities for cord blood collection, storage and processing.
Our customers’ products must undergo pre-clinical and clinical evaluations relating to product safety and efficacy before they are approved as commercial therapeutic products. The regulatory authorities having jurisdiction in the countries in which our customers intend to market their products may delay or put on hold clinical trials, delay approval of a product or determine that the product is not approvable. The FDA or other regulatory agencies can delay approval of a drug if our manufacturing facilities are not able to demonstrate compliance with cGTPs, pass other aspects of pre-approval inspections (i.e., compliance with filed submissions) or properly scale up to produce commercial supplies. The FDA and comparable government authorities having jurisdiction in the countries in which our customers intend to market their products have the authority to withdraw product approval or suspend manufacture if there are significant problems with raw materials or supplies, quality control and assurance or the product is deemed adulterated or misbranded. In addition, if new legislation or regulations are enacted or existing legislation or regulations are amended or are interpreted or enforced differently, we may be required to obtain additional approvals or operate according to different manufacturing or operating standards or pay additional fees. This may require a change in our manufacturing techniques or additional capital investments in our facilities.
Certain products manufactured by us involve the use, storage and transportation of toxic and hazardous materials. Our operations are subject to extensive laws and regulations relating to the storage, handling, emission, transportation and discharge of materials into the environment and the maintenance of safe working conditions. We maintain environmental and industrial safety and health compliance programs and training at our facilities.
Prevailing legislation tends to hold companies primarily responsible for the proper disposal of their waste even after transfer to third party waste disposal facilities. Other future developments, such as increasingly strict environmental, health and safety laws and regulations, and enforcement policies, could result in substantial costs and liabilities to us and could subject the handling, manufacture, use, reuse or disposal of substances or pollutants at our facilities to more rigorous scrutiny than at present.
Our CDMO operations involve the controlled use of hazardous materials and chemicals. We are subject to federal, state and local laws and regulations in the U.S. governing the use, manufacture, storage, handling and disposal of hazardous materials and chemicals. Although we believe that our procedures for using, handling, storing and disposing of these materials comply with legally prescribed standards, we may incur significant additional costs to comply with applicable laws in the future. Also, even if we are in compliance with applicable laws, we cannot completely eliminate the risk of contamination or injury resulting from hazardous materials or chemicals. As a result of any such contamination or injury, we may incur liability or local, city, state or federal authorities may curtail the use of these materials and interrupt our business operations. In the event of an accident, we could be held liable for damages or penalized with fines, and the liability could exceed our resources. Compliance with applicable environmental laws and regulations is expensive, and current or future environmental regulations may impair our contract manufacturing operations, which could materially harm our business, financial condition and results of operations.
The costs associated with complying with the various applicable local, state, national and international regulations could be significant and the failure to comply with such legal requirements could have an adverse effect on our results of operations and financial condition. See “Risk Factors—Risks Related to Our CDMO Business — Extensive industry regulation has had, and will continue to have, a significant impact on our CDMO business, and it may require us to substantially invest in our development, manufacturing and distribution capabilities and may negatively impact our ability to generate and meet future demand for our products and improve profitability” for additional discussion of the costs associated with complying with the various regulations.
PT Business
Our therapeutic development efforts in our cell therapy business are focused on advancing breakthrough scientific achievements in the field of autologous therapies which have a curative potential. We base our development on therapeutic collaborations and in-licensing with other pre-clinical and clinical-stage biopharma companies as well as direct collaboration with research and healthcare institutes. We are engaging in therapeutic collaborations and in-licensing with other academic centers and research centers in order to pursue emerging technologies of other ATMPs in cell and gene therapy in such areas as cell-based immunotherapies including, but not limited to, cell-based immunotherapies, therapeutics for metabolic diseases, neurodegenerative diseases and tissue regeneration. Each of these customers and collaborations represents a growth opportunity and future revenue potential as we out-license these ATMPs through regional partners to whom we also provide regulatory, pre-clinical and training services to support their activity in order to reach patients in a point-of-care hospital setting.
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POC Revenue Model
We are establishing and positioning our POC platform in order to bring therapies to patients in a scalable way via a network of leading healthcare facilities active in autologous cell therapy product development, including facilities in Germany, Austria, Greece, the U.S., South Korea, Japan, Singapore, Latin America, the United Kingdom, Spain, Israel, Russia and China. We believe that our unique understanding of industry needs allows us to offer our clients a range of technologies and processes that potentially generate revenues from our POC Development Services. This may include:
POC Strategy
Our aim is to provide a pathway to bring ATMPs in the cell and gene therapy industry from research to patients worldwide through our POC platform. We define point-of-care CGT as a process of collecting, processing and administering cells within the patient care environment, namely through academic partnerships in a hospital setting. We believe this approach is an attractive proposition for personalized medicine because point-of-care therapy facilitates the development of technologies through our strategic partnerships and utilizes closed systems that have the potential of reducing the required grade of clean room facilities, thus substantially reducing manufacturing costs. Furthermore, cell transportation, which is a high-risk and costly aspect of the supply chain, could be minimized or eliminated. These therapies span a wide range of treatments including, but not limited to, cell-based immunotherapies, therapeutics for metabolic diseases, neurodegenerative diseases and tissue regeneration. Activities in the POC platform include a multitude of cell therapies, including autoimmune, oncologic, neurologic and metabolic diseases and other indications, including scaffolds for cell implantation, polypeptide conjugates for autoimmune diseases, and cancer vaccines.
While our POC business strategy is currently limited to early stage development to overcome certain industry challenges, we intend to continue developing a global point-of-care network, with the goal of developing ATMPs, and namely autologous cell therapies, via joint ventures with partners who bring strong regional networks. Such networks include partnerships with local hospitals which allows us to engage in continuous in-licensing of, namely, autologous therapies from academia and research institutes, co-development of hospital and academic-based therapies, and utilization of hospital networks for clinical development of therapies.
We consider the following to be the four pillars in order to advance our POC business strategy:
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PTPOC Subsidiaries, Clinical Pipeline and Collaboration Agreements
We carry out our POC business through three wholly-owned and separate subsidiaries. We intend to devote significant resources to process development and manufacturing in order to optimize the safety and efficacy of our future product candidates, as well as our cost of goods and time to market. Our goal is to carefully manage our fixed cost structure, maximize optionality, and drive long-term cost of goods as low as possible.
We carry out our PT business through three wholly-owned and separate subsidiaries. This corporate structure allows us to simplify the accounting treatment, minimize taxation and optimize local grant support. The subsidiaries related to this business are as follows:
We have embarked on a strategy of collaborative arrangements with strategically situated third partiesregional JV partners around the world. We believe that these parties have the expertise, experience and strategic location to advance our PT therapy business.POC platform. Activities in our PTPOC platform include:
Strategic CGT Collaborations
Trans-differentiation Technology
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Background on Our Transdifferentiation Technology
Diabetes Mellitus (“DM”), or simply diabetes, is a metabolic disorder usually caused by a combination of hereditary and environmental factors, and results in abnormally high blood sugar levels (hyperglycemia). Diabetes occurs as a result of impaired insulin production by the pancreatic islet cells. The most common types of the disease are Type-1 Diabetes (“T1D”) and Type-2 Diabetes (“T2D”). In T1D, the onset of the disease follows an autoimmune attack of β-cells that severely reduces β-cell mass. T1D usually has an early onset and is sometimes also called juvenile diabetes. In T2D, the pathogenesis involves insulin resistance, insulin deficiency and enhanced gluconeogenesis, while late progression stages eventually lead to β-cell failure and a significant reduction in β-cell function and mass. T2D often occurs later in life and is sometimes called adult onset diabetes. Both T1D and late-stage T2D result in marked hypoinsulinemia, reduction in β-cell function and mass and lead to severe secondary complications, such as myocardial infarcts, limb amputations, neuropathies and nephropathies and even death. In both cases, patients become insulin-dependent, requiring either multiple insulin injections per day or reliance on an insulin pump.
Diabetes is one of the most challenging health problems in the 21st Century, resulting in staggering health, social,developmental fate of cells from the liver or other tissues and economic impacts.transdifferentiating them into "pancreatic beta cell-like" AIP cells for patients with Type 1 Diabetes is currently the fourth or fifth leading cause of death in most developed countries("T1D"), acute pancreatitis and has been declared an epidemic in many developing and newly industrialized nations.
Within the field of cell therapy, research and development using stem cells to treat a host of diseases and conditions has greatly expanded. All living complex organisms start as a single cell that replicates, differentiates (matures) and perpetuates in an adult organism throughout its lifetime. Stem cells (in either embryonic or adult forms) are primitive and undifferentiated cells that have the unique ability to transform into or otherwise affect many different cells, such as white blood cells, nerve cells or heart muscle cells. Ourother insulin deficient diseases. The technology employs a molecular and cellular approach directed at converting liver cells into functional insulin-producing cells as a treatment for diabetes. This new therapeutic approach does not use stem cells, but rather is focused on the use of autologous, fully mature, adult cells.
There are two general classes of cell therapies: allogeneic and autologous. In allogeneic procedures, cells collected from a person (the donor) are transplanted into or used to develop a treatment for another patient (the recipient) with or without modification. In cases where the donor and the recipient are the same individual, these procedures are referred to as “autologous”.
Our treatment for diabetes focuses on autologous cells that offer a low likelihood of rejection by the patient. We believe the long-term benefits of this treatment can best be achieved with an autologous product. For our purposes in the treatment of diabetes, our cells are derived from the liver or other adult tissue and are transdifferentiatedtrans-differentiated to become adult Autologous Insulin Producing (“AIP”)AIP cells.
Through This technology, which has yet to be proven in human clinical trials, has shown in relevant animal models that the human derived AIP cells produce insulin in a glucose-sensitive manner. No adverse effects were observed in any of the animal studies. This trans-differentiation technology is licensed by our Israeli Subsidiary and Belgian subsidiaries, our goal is to advance our AIP cell-based therapy into clinical development. AIP cells utilize the technology of ‘cellular trans-differentiation’ to transform an autologous adult liver cell into a fully functional and physiologically glucose-responsive insulin-producing cell. Treatment with AIP cells is expected to provide Type 1 Diabetes patients with long-term insulin independence. Because AIP cells are autologous, this benefit should be achieved and maintained without the need for concomitant immunosuppressive therapy.
Threats from Pancreas Islet Transplantation and Cell Therapies
To date, a significant portion of the amount invested in diabetes related research and development activities has been directed toward prevention and lifestyle management rather than toward the development of a cure. For some patients with severe and difficult to control diabetes (hypoglycemic unawareness), islet transplants are considered. Pancreatic islets are the cells in the pancreas that produce insulin. Scientists use enzymes to isolate the islets from the pancreas of a deceased donor. Because the islets are fragile, transplantation must occur soon after they are removed. Typically, a patient receives at least 10,000 islet “equivalents” per kilogram of body weight, extracted from pancreases obtained from different donors. Patients often require two separate transplants to achieve insulin independence.
Transplants are often performed by an interventional radiologist, who uses x-rays and ultrasound to guide placement of a catheter - a small plastic tube - through the upper abdomen and into the portal vein of the liver. The islets are then infused slowly through the catheter into the liver. The patient receives a local anesthetic and a sedative. In some cases, a surgeon may perform the transplant through a small incision, using general anesthesia. Because the islets are obtained from cadavers that are unrelated to the patient, the patient needs to be treated with drugs that inhibit the immune response so that the patient doesn’t reject the transplant. In the early days of islet transplantation, the drugs were so powerful that they actually were toxic to the islets; improvements in the procedure are widely used and are now referred to as the Edmonton Protocol.
Pancreatic islet transplantation (cadaver donors) is an allogeneic transplant, and, as in all allogeneic transplantations, there is a risk for graft rejection and patients must receive lifelong immune suppressants. Though this technology has shown good results clinically, there are several setbacks, such as patients being sensitive to recurrent T1D autoimmune attacks and a shortage in tissues available for islet cells transplantation.
Pancreatic islet auto transplantation is a means of reducing the risk of brittle diabetes following total pancreatectomy. In 1977, researchers at the University of Minnesota School of Medicine pioneered the first Total Pancreatectomy with Islet Autologous Transplant (“TP-IAT”) for the treatment for induced diabetes post-surgery. At that time, islet cell isolation techniques, which had been pursued to treat insulin-dependent diabetes via allotransplant, yielded variable results and raised uncertainty regarding the future efficacy of TP-IAT. Since then, advances in isolation and purification have improved islet transplant outcomes, and the practice of TP-IAT has expanded. In the United States, there are currently approximately 12 centers performing TP-IAT, with 1 to 2 centers annually establishing programs; there is no available information on the worldwide use of this procedure.
TP-IAT has the distinct advantage of allowing patients the ability to avoid the significant postoperative complication of surgically induced brittle diabetes. The severity of brittle diabetes, a condition in which a patient experiences both severe hyper and hypoglycemic episodes, should not be underestimated; in one early series, 50% of late deaths after TP were secondary to iatrogenic hypoglycemic episodes. Although total pancreatectomy in the era of modern endocrine and exocrine replacement therapy has witnessed improvements in long-term morbidity and mortality, it remains one of the most morbid abdominal operations performed today.
Our Solution
We are developing and bringing to clinical stage a technology that is based on the published work of Prof. Sarah Ferber, our Chief Scientific Officer and a researcher at THM, that demonstrates the capacityTel Hashomer Medical Research Infrastructure and Services Ltd. ("THM") in Israel. Our development plan calls for conducting additional pre-clinical safety and efficacy studies with respect to induce a shift in the developmental fate of cells from the liver into “pancreatic beta cell-like” insulin-producing cells. Furthermore, those cells were found resistantdiabetes and other potential indications prior to the autoimmune attackinitiating human clinical trials and able to produce insulin in a glucose-sensitive manner. Our cell therapy business derives from a licensing agreement entered into as of February 2, 2012 by Orgenesis Ltd.,complete, through our Israeli Subsidiary and THM pursuantBelgian Subsidiary the development of the closed loop system in order to whicheffectively manufacture the cells in a point-of-care setting.
With respect to our Israeli Subsidiary was granted a worldwide royalty bearing antrans-differentiation technology, we own or have exclusive licenserights to certain information regarding a molecularten (10) United States and cellular approach directed at converting livereight (8) foreign issued patents, five (5) pending applications in the United States, thirty-three (33) pending applications in foreign jurisdictions, including Europe, Australia, Brazil, Canada, China, Eurasia, Israel, Japan, South Korea, Mexico, and Singapore, and one (1) international PCT patent applications. These patents and applications relate, among others, to (1) the trans-differentiation of cells into functional insulin-producing(including hepatic cells) to cells as a treatment for diabetes (the “THM License Agreement”).
Toward this goal, we are workinghaving pancreatic β-cell-like phenotype and function and to advance a unique product into clinical development. AIP cells utilize the technology of ‘cellular trans-differentiation’ to transform an autologous adult liver cell into an adult, fully functional and physiologically glucose-responsive pancreatic-like insulin producing cell. Treatment with AIP cells is expected to provide diabetes patients with long-term insulin independence. Our aim is to develop our AIP cell therapytheir use in the treatment of degenerative pancreatic disorders, including diabetes, by essentially correcting malfunctioning organs with new functional tissues created frompancreatic cancer and pancreatitis, and (2) to scaffolds, including alginate and sulfated alginate scaffolds, polysaccharides thereof, and scaffolds for use for cell propagation, trans-differentiation, and transplantation in the patient’s own existing organs.treatment of autoimmune diseases, including diabetes.
BecauseOn June 11, 2019, the United States Food & Drug Administration ("FDA") granted Orphan Drug Designation for our AIP cells are autologous,as a cell replacement therapy for the treatment of severe hypoglycemia-prone diabetes resulting from total pancreatectomy ("TP") due to chronic pancreatitis. The incidence of diabetes following TP is 100%, resulting in immediate and lifelong insulin-dependence with the loss of both endogenous insulin secretion and that of the counter-regulatory hormone, glucagon. Glycemic control after TP is notoriously difficult with conventional insulin therapy due to complete insulin dependence and loss of glucagon-dependent counter-regulation. Patients with this benefit should be achievedcondition experience both severe hyperglycemic and maintained withouthypoglycemic episodes.
On April 29, 2019, we received Institutional Review Board ("IRB") approval to collect liver biopsies from patients at Rambam Medical Center located in Haifa, Israel for a planned study to confirm the needsuitability of liver cells for concomitant immunosuppressive therapy.personalized cell replacement therapy for patients with insulin-dependent diabetes resulting from total or partial pancreatectomy. The procedure to generate AIP cells begins with liver tissue accessed via needle biopsy from a patient. The liver tissue is then sent to a CDMO, such as MaSTherCell, where biopsied liver cells are isolated, expandedintended to be bio-banked for potential future clinical use. The first patients are expected to be enrolled during this calendar year 2020. The goal of the proposed study, entitled "Collection of Human Liver Biopsy and Whole Blood Samples from Type 1 Diabetes Mellitus (T1DM), Total or Partial Pancreatectomy Patients for Potential use as an Autologous Source for Insulin Producing Cells in Future Clinical Studies," is to confirm the suitability of the liver cells for personalized cell replacement therapy, as well as eligibility of patients to participate in a future clinical study, as defined by successful AIP cell production from their own liver biopsy. The secondary objective of the study is to evaluate patients' immune response to AIPs based on the patient's blood samples and followed by subcutaneous implantation into the patients' arm which would represent the first human trial. During the study, liver samples will be collected and then processed and stored in specialized, clinical grade, tissue banks for potential clinical use. The propagated cells will be maintained in a tissue bank and are intended to be utilized in a future clinical study, in which the cells will be trans-differentiated into AIP cells. The final product is a solution of AIP cells, which are packaged in an infusion bag and sentadministered back to the patient’s treating physician wherepatients as a potential treatment. This personalized autologous process will be performed under our POC platform in which the patient liver samples are processed, cryopreserved and potentially re-injected, all in the medical center, or point-of-care setting, under clinical grade/GMP level conditions.
In June 2019, we received additional Institutional Review Board ("IRB") approval to collect liver biopsies from patients at a leading medical center in United States for a planned study to confirm the suitability of liver cells for personalized cell replacement therapy for patients with insulin-dependent diabetes resulting from total pancreatectomy (the granted Orphan Drug Designation indication). The liver cells are transplanted back intointended to be bio-banked at the patient’sNew York Blood Center for potential future clinical use. In October 2019, a liver via portal vein infusion. The entire process,sample from biopsy to transplantation, isthe first recruited patient was collected and processed and stored at this same New York Blood Center in specialized, clinical grade, tissue banks for potential clinical use. Additional patients are expected to take 5-6 weeks.
Unique Benefits of AIP Cells
be enrolled during 2020.
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We believe that our singular focus on the acquisition, development, and commercialization of AIP cells may have many and meaningful benefits over other technologies, including:
We are aware of no other company focused on development of AIP cells based on trans-differentiation. The pharmaceutical industry is fragmented, and it is a competitive market. We compete with many pharmaceutical companies, both large and small and there may be technologies in development of which we are not aware.
We believe our ability to further develop our AIP cells is augmented by the following:
IP Strength - Orgenesis has broad patent claims on itsour process and hashave both issued and pending patents in the U.S. and internationally. The patent portfolio includes granted patent US 8119405, entitled “Methods"Methods of inducing regulated pancreatic hormone production in non-pancreatic islet tissues,”" which includes broad claims on trans-differentiating any mature, non-pancreatic cell type into an islet cell phenotype. Importantly, the company’sour IP portfolio is not dependent on processes owned by other companies, such as embryonic stem cell technologies, production of endodermal intermediates or reprogramming (iPS) technologies. As a result, we have both the company has both freedom to operate and the ability to obstruct competitors in developing autologous cells for treatment of diabetes.
Simplicity - There is no need for anti-rejection treatment or encapsulation. Using liver as pancreatic progenitor tissue allows the diabetic patient to be the donor of his own insulin-producing tissue, thus allowing autologous implantations with no need for anti-rejection therapy, which restricts the target population only to adult, severe diabetic patients. Moreover, drugs used for preventing the allo-transplanted tissue rejection are deleterious to insulin producing cell function and to the patient.
Safety - the generated cells do not regress to pluripotency, and no adverse effects of uncontrolled cells proliferation occur. The cells are already mature and can be inserted in to the patient following extensive quality assurance testing. Moreover, our cells transplanted in rodents do not cause any adverse effects even following many weeks in the animals.
Availability - Sufficient liver cells to treat a patient as well to store cells for additional future treatments may be generated. The cells can be frozen and thawed, without losing theOur trans-differentiation capacity for up to 20 passages in culture. It is anticipated that a biopsy from the diabetic patient's own liver is sufficient to generate enough insulin-producing cells to replace the entire cell function and control blood glucose level. As opposed to islets that are non-dividing (i.e., post-mitotic), it is necessary to use stem cells to generate sufficient numbers of cells that are then differentiated.
Future Product Candidates-Currently, liver cells are best suited for generating AIP cells. Future products may involve the use of cell types other than liver that are more easily accessible from the diabetic patient or from unrelated donors. Additionally, other adult cells (i.e. fibroblasts) may be studied for trans-differentiation into functional cells in diseases other than insulin-dependent disorders (i.e. neurodegenerative).
The THM License Agreement
Our cell therapy businesstechnology derives from a licensing agreement entered into as of February 2, 2012 by Orgenesis Ltd., our Israeli Subsidiary, and THM pursuant to which our Israeli Subsidiary was granted a worldwide royalty bearing and exclusive license to certain information regarding a molecular and cellular approach directed at converting liver cells into functional insulin producing cells as a treatment for diabetes (the “THM"THM License Agreement”Agreement"). By using therapeutic agents (i.e., PDX-1, and additional pancreatic transcription factors in an adenovirus-vector) that efficiently convert a sub-population of liver cells into pancreatic islets phenotype and function, this approach allows the diabetic patient to be the donor of his own therapeutic tissue. We believe that this provides major competitive advantage to the cell transformation technology of our Israeli Subsidiary.
As consideration for the license, our Israeli Subsidiary has agreed to pay the following to THM:
1) A royalty of 3.5% of net sales;
2) 16% of all sublicensing fees received; 3) An annual license fee of $15,000, which commenced on January 1, 2012 and is due once every year thereafter (the "Annual Fee"). The Annual Fee is non-refundable, but it shall be credited each year due, against the royalty noted above, to the extent that such are payable, during that year; and 4) Milestone payments as follows: a) $50,000 on the date of initiation of phase I clinical trials in human subjects; b) $50,000 on the date of initiation of phase II clinical trials in human subjects; c) $150,000 on the date of initiation of phase III clinical trials in human subjects; d) $750,000 on the date of initiation of issuance of an approval for marketing of the first product by the FDA; and e) $2,000,000, when worldwide net sales of products have reached the amount of $150,000,000 for the first time (the "Sales Milestone"). |
As of November 30, 2018,December 31, 2019, our Israeli Subsidiary has not reached any of these milestones.
In the event of an acquisition of all of the issued and outstanding share capital of the Israeli Subsidiary or of us and/or consolidation of the Israeli Subsidiary or us into or with another corporation (“Exit”("Exit"), under the THM License Agreement, THM is entitled to elect, at its sole option, whether to receive from us a one-time payment based, as applicable, on the value at the time of the Exit of either 463,651 shares of our common stock or the value of 1,000 ordinary shares of the Israeli Subsidiary at the time of the Exit. If THM elects to receive the consideration as a result of an Exit, the royalty payments will cease.
If THM elects to not receive any consideration as a result of an Exit, THM is entitled under the THM License Agreement to continue to receive all the rights and consideration it is entitled to pursuant to the THM License Agreement (including, without limitation, the exercise of the rights pursuant to future Exit events), and any agreement relating to an Exit event shall be subject to the surviving entity’sentity's and/or the purchaser’spurchaser's undertaking towards THM to perform all of the Israeli Subsidiary's obligations pursuant to the THM License Agreement.
The Israeli Subsidiary agreed to submit to THM a commercially reasonable plan which shall include all research and development activities as required for the development and manufacture of the products, including preclinical and clinical activities until an FDA or any other equivalent regulatory authority’sauthority's approval for marketing and including all regulatory procedures required to obtain such approval for each product candidate (a “Development Plan”"Development Plan"), within 18 months from the date of the THM License Agreement. Under the THM License Agreement, the Israeli Subsidiary undertook to develop, manufacture, sell and market the products pursuant to the milestones and time-frame schedule specified in the Development Plan. The Israeli Subsidiary submitted the Development Plan in May 2014.
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Under the THM License Agreement, THM is entitled to terminate the THM License Agreement under certain conditions relating to a material change in the business of our Israeli Subsidiary or a breach of any material obligation thereunder or to a bankruptcy event of our Israeli Subsidiary. Under certain conditions, our Israeli Subsidiary may terminate the THM License Agreement and return the licensed information to THM.
Collaboration Agreement with Hemogenyx Pharmaceuticals Plc
On October 18, 2018, we entered into a collaboration agreement with Hemogenyx to collaborate on the development and commercialization of Hemogenyx's Human Postnatal Hemogenic Endothelial (Hu-PHEC) technology, a cell replacement product candidate that is being designed to generate cancer-free, patient-matched blood stem cells after transplantation into the patient.
Collaboration Agreement with Immugenyx, LLC
On October 16, 2018, we entered into a collaboration agreement with Immugenyx, LLC ("Immugenyx"), a wholly owned subsidiary of Hemogenyx Pharmaceuticals Plc ("Hemogenyx"), to collaborate with us to further the development and commercialization of its advanced hematopoietic chimeras, which is a new type of humanized mouse with a functional human immune system that is being developed by Immugenyx as an in vivo platform for disease modelling, drug and cell therapy development.
Collaboration Agreement with Tarus Therapeutics, Inc.
On February 27, 2019, we entered into a collaboration agreement with Tarus Therapeutics Inc., a Delaware corporation ("Tarus"), in connection with the collaboration in the funding, development and commercialization of certain technologies, products and patents of Tarus in the areas of therapeutics for cancer and other diseases in the field of cell therapies and their combination with checkpoint inhibitors comprised of Adenosine Receptor Antagonists. The parties plan to enter into pre-clinical studies as part of the preparations to clinical studies submission during 2020.
Joint Venture Agreement with Theracell Advanced Biotechnology
On February 14, 2019, we entered into a joint venture agreement with Theracell Advanced Biotechnology, a corporation organized under the laws of Greece ("Theracell"), pursuant to which the parties will collaborate in the clinical development and commercialization of the Company's products in Greece, Turkey, Cyprus and Balkan countries and the clinical development and commercialization of Theracell's products worldwide. On February 14, 2019, we entered into a master service agreement with Theracell whereby, subject to mutually agreed timing and definition of the scope of services, we provide regulatory services, pre-clinical studies, intellectual property services, GMP process translation services and co-development services to Theracell.
During the year ended December 31, 2019, we recognized POC development service revenue in the amount of $857 thousand, and Theracell invoiced us in the amount of $698 thousand for expenses related to activities in the territory.
Joint Venture Agreement with First Choice International Company, Inc.
On March 12, 2019, we entered into a joint venture agreement with First Choice International Company, Inc., a corporation organized under the laws of Delaware ("First Choice"), pursuant to which the parties will collaborate in the clinical development and commercialization of our products in Panama and certain other Latin American countries as agreed by the parties (the "Territory") and the clinical development and commercialization of First Choice's products worldwide (other than in the Territory).
Joint Venture Agreement with KinerjaPay Corp.
On May 6, 2019, we entered into a joint venture agreement with KinerjaPay Corp., a Delaware corporation ("KinerjaPay"), pursuant to which the parties will collaborate in the clinical development and commercialization of our products in Singapore and the introduction of KinerjaPay products to be offered for sale by us globally outside Singapore.
Master Services Agreement with Adva Biotechnology Ltd.
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On January 28, 2018, we entered into a Master Services Agreement with Adva Biotechnology Ltd. ("Adva") pursuant to which we/and or our affiliates are to provide certain services relating to development of products and in-kind funding to Adva, and upon completion of the development of the products, Adva agreed to enter into supply agreements with us and/or our affiliates to purchase the products at a specified discount pricing from their then standard pricing.
Collaboration and License Agreement with Mircod Limited
On June 19, 2018, we entered into a Collaboration and License Agreement ("Mircod Collaboration Agreement") with Mircod Limited, a company formed under the laws of Cyprus ("Mircod"), for the adaptation of Mircod's background technologies related to biological sensing for use for the Company's clinical development and manufacturing projects (the "Development Project"). In October 2019, the Mircod Collaboration Agreement was amended to include, among other things, the formation of a wholly owned U.S. subsidiary to perform the duties of Mircod under the Mircod Collaboration Agreement. During 2018 and 2019, we transferred $104 and $108 thousand respectively to Mircod under the Development plan, and Mircod completed certain aspects thereof but the Development Project was not completed at December 31, 2019.
Joint Venture Agreement with Image Securities Ltd (a related party)
On July 11, 2018, we entered into a joint venture agreement with Image Securities Ltd., a corporation with its registered office in Grand Cayman, Grand Cayman Islands ("India Partner"), pursuant to which we agreed to collaborate in the development and/or marketing, clinical development and commercialization of cell therapy products in India. The India Partner will collaborate with a network of healthcare facilities and a healthcare infrastructure as well as financial partners to advance the development and commercialization of the cell therapy products in India. Effective January 1, 2019, the Company entered into a master service agreement for the provision of certain POC services. Payments of $1.5 million for these POC services were received during 2019. Total amount of$1,270 thousand was recognized as income during the year ended December 31, 2019. Prior to the establishment of the JV Entity, all activities are being carried out by the India Partner.
Research and License Agreement with B.G. Negev Technologies and Applications Ltd. and The National Institute of Biotechnology in the Negev Ltd.
On August 2, 2018 and November 25, 2018, respectively, we entered into research and license agreements (the "BGN Agreements") with B.G. Negev Technologies and Applications Ltd. ("BGN") and/or The National Institute of Biotechnology in the Negev Ltd. Under the terms of the BGN Agreements, we will collaborate on the research and development of BGN's dissolvable carriers for cell culturing and for developing and commercializing technology directed to RAFT modification of polysaccharides and use of a bioreactor for supporting cell constructs. We have received the exclusive, worldwide rights to make, develop and commercialize technologies utilizing the dissolvable carriers for cell culturing, with an initial focus on autoimmune diseases. This unique technology has the potential to allow us to reduce the cost and complexity of manufacturing of our cell therapy programs.
Joint Venture Agreement with HekaBio K.K.
On July 10, 2018, we entered into a joint venture agreement with HekaBio K.K., a corporation organized under the laws of Japan, pursuant to which we agreed to collaborate in the clinical development and commercialization of cell and gene therapeutic products in Japan (the "HB JVA"). The parties intend to pursue the joint venture through a newly established Japanese company which we, or we together with a designee, will hold a 49% participating interest therein, with the remaining 51% participating interest being held by HB (the "HB JV Company"). On October 3, 2018, we entered into a license agreement with the HB JV Company pursuant to the joint venture agreement pertaining to the licenses described therein.
Agreements with Cure Therapeutics
During 2018, we entered into a collaboration agreement with Cure Therapeutics in connection with the development of therapies based on NK cells and Liver cells. The NK cell-based technology offers enhancement of NK potency via proprietary platform of activation & expansion, concentrating of NK as well as NK homing technology that will improve the therapeutic effect of NK cell therapy on malignant disease. The agreement is governed by a joint steering committee and carried out in accordance with the projects' work plans. Effective July 1, 2019, we entered into a master service agreement for the provision of certain POC services to Cure Therapeutics in Korea and Japan.
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As of December 31, 2019, the Company has incurred $1.1 million of expenses in relation to the project. As part of the agreement, Cure Therapeutics has subcontracted development and contract manufacturing activates to CureCell, for which service revenue of $323 thousand has been recognized.
Effective July 1, 2019, the Company entered into a master service agreement for the provision of certain POC services to Cure Therapeutics in Korea and Japan. A total of $982 thousand for these POC services was recognized as income during the year ended December 31, 2019.
Sponsored Research and Exclusive License Agreement with Columbia University
Effective April 2, 2019, we and The Trustees of Columbia University in the City of New York, a New York corporation ("Columbia"), entered into a Sponsored Research Agreement (the "SRA") whereby we will provide financial support for studying the utility of serological tumor marker for tumor dynamics monitoring. Under the terms of the SRA, we shall pay $300 thousand per year for three years, or for a total of $900 thousand, with payments of $150 thousand due every six months. Effective April 2, 2019, we and Columbia entered into an Exclusive License Agreement (the "Columbia License Agreement") whereby Columbia granted to us an exclusive license to discover, develop, manufacture and sell product in the field of cancer therapy. In consideration of the licenses granted under the Columbia License Agreement, we shall pay to Columbia (i) a royalty of 5% of net sales of any patented product sold and (ii) 2.5% of net sales of other products. Tech transfer from Columbia to us has been completed. We are now working on the completion of all the IND enabling requirements in order to get into Phase I study in a year's time under point-of-care centers.
Broaden Bioscience and Technology Corp
On November 10, 2019, the Maryland Subsidiary and Broaden Bioscience and Technology Corp, a Delaware corporation ("Broaden"), entered into a joint venture agreement (the "Broaden JVA") pursuant to which the parties will collaborate in the development and/or marketing, clinical development and commercialization of cell therapy products and the setting up of POC processing facilities in China and the Middle East.
Caerus Therapeutics Corporation (a related party)
In October 2019, we concluded a license agreement with Caerus Therapeutics Corporation, a Virginia company ("Caerus"), pursuant to which Caerus granted us, among others, an exclusive license to all Caerus IP relating to Advance Chemeric Antigen Vectors for Targeting Tumors for the development and/or commercialization of certain licensed products. In consideration for the license granted to us under this agreement, we shall pay Caerus feasibility fees, annual maintenance fees and royalties of sales of up to 5% and up to 18% of sub-license fees. Through this joint venture, the parties co-develop a novel CART and CAR-NK platform for the treatment of solid tumors. The development is at a pre-clinical stage.
ExcellaBio Ltd.
During 2018, we entered into an agreement (the "ExcellaBio Agreement") with ExcellaBio Ltd. ("ExcellaBio") for certain technologies developed by Sabina Glozman including an exosome-like membrane nanostructure (Bioxome™) and related processes for the production of exosomes/extracellular vesicles (EVs). These vesicles can be used for delivery of designed target cargo such as genes to specific cells. Under the ExcellaBio Agreement, we will have the exclusive, worldwide rights to certain commercial applications of the technology arising from the collaboration. Tech transfer and manufacturing process development for Bioxomes production was completed. Pre-clinical studies are ongoing.
Agreement with Regents of the University of California
On December 20, 2019, we and the Regents of the University of California ("University") entered into a joint research agreement in the field of therapies and processing technologies according to an agreed upon work plan. According to the agreement, we will pay the University royalties of up to 5% (or up to 20% of sub-licensing sales) in the event of sales that includes certain types of University owned intellectual property.
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Joint Venture Agreement with SBH Sciences, Inc.
On May 15, 2019, we entered into a Joint Venture Agreement with SBH Sciences, Inc., a Massachusetts corporation ("SBH"), for the establishment of a joint venture with SBH for the purpose of collaborating in the field of gene and cell therapy development, process and services of bio-exosome therapy products and services in the areas of diabetes, liver cells and skin applications, including wound healing.
During the third quarter of 2019, we transferred $50 thousand to SBH. Apart from the above, there was no material activity in the SBH Collaboration.
Competition in the Cell Therapy Field
The biopharmaceutical industry, and the rapidly evolving market for developing cell-based therapies is characterized by intense competition and rapid innovation. Our competitors may be able to develop other compounds or drugs that are able to achieve similar or better results. Our potential competitors include major multinational pharmaceutical companies, established biotechnology companies, specialty pharmaceutical companies, universities, and other research institutions. Many of our competitors have substantially greater financial, technical and other resources, such as larger research and development staff and experienced marketing and manufacturing organizations as well as established sales forces. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large, established companies.
Trans-differentiation Technology
The current treatment for T1D, and some T2D, is constant monitoring of blood glucose and a highly controlled diet, coupled with multiple daily insulin injections. Despite the use of insulin and advances in its delivery, pharmaceutical insulin injections cannot replicate the level of feedback control afforded by naturally occurring intact beta cells. Even with the most diligent insulin use, the adverse short- and long-term effects of diabetes include life-threatening episodes of low blood sugar, nerve damage, blindness, kidney damage, erectile dysfunction, foot ulcers leading to amputations, and cardiovascular disease. Research has shown that, on average, the life expectancy of a person with T1D is reduced by approximately 12 years when compared to the general population.
T1D inflicts a significant economic cost on the U.S. healthcare system, estimated at $14.4 billion annually, and it is expected that a therapy that can modify the course of T1D could potentially achieve significant cost savings, and thus command high market penetration and premium pricing. In the near future, the market for T1D is expected to continue to be dominated by insulin replacement therapies.
Currently, there are no approved therapies for new onset T1D with potential curative effect but only regimens such as insulin or adjuvants to insulin that address the disease when the pancreas can no longer produce insulin. While not a direct competitor, in a more advanced population of T1D, sotagliflozin, an oral adjunctive therapy to insulin, is expected to receive FDA approval following positive results from a pivotal Phase 3 trial conducted by Lexicon Pharmaceuticals in collaboration with Sanofi SA and JDRF. There are multiple agents in development targeting the modification of the course of the disease. Current approaches in development can be broadly divided into immune modulatory agents that attempt to improve metabolic function by rescuing insulin producing beta cells, or regenerative agents that attempt to replace beta cells. From a broad review of these agents and approaches, no other autologous therapy for T1D is expected to be in advanced clinical trials or provide direct competition to our AIP cells in the near future. OtherAnother allogeneic approaches, such as Viactye’sapproach being Viactye's PEC-01 technology entered clinical trial phase 1 in July 2017. Semma therapeutics, a US company developing patient specific induced pluripotent stem cells may enter clinical trialstrial in the near future.
Insulin therapy is used for Insulin-Dependent Diabetes Mellitus (IDDM) patients who are not controlled with oral medications, although this therapy has well-known and well-characterized disadvantages. Weight gain is a common side effect of insulin therapy, which is a risk factor for cardiovascular disease. Injection of insulin causes pain and inconvenience for patients. Patient compliance and inconvenience of self-administering multiple daily insulin injections is also considered a disadvantage of this therapy. The most serious adverse effect of insulin therapy is hypoglycemia.
The biopharmaceutical industry, and the rapidly evolving market for developing cell-based therapies is characterized by intense competition and rapid innovation. Our competitors may be able to develop other compounds or drugs that are able to achieve similar or better results. Our potential competitors include major multinational pharmaceutical companies, established biotechnology companies, specialty pharmaceutical companies, universities, and other research institutions. Many of our competitors have substantially greater financial, technical and other resources, such as larger research and development staff and experienced marketing and manufacturing organizations as well as established sales forces. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large, established companies.
Specifically, we face significant competition from companies in the insulin therapy market. Insulin therapy is widely used for Insulin-Dependent Diabetes Mellitus (IDDM) patients who are not controlled with oral medications. The global diabetes market comprising the insulin, insulin analogues and other anti-diabetic drugs has been evolving rapidly. A look at the diabetes market reveals that it is dominated by a handful of participants such as Novo Nordisk A/S, Eli Lilly and Company, Sanofi-Aventis, Takeda Pharmaceutical Company Limited, Pfizer Inc., Merck KgaA, and Bayer AG.
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PT Revenue ModelPOC
Through analysisCurrently, we know of the cell therapy landscape,no other companies pursuing a business model similar to what we are introducing a novel POCare therapy business model withdeveloping under our goal of bringing autologous therapies in a cost-effective, high-quality and scalable manner to patients. We are establishing and positioningPOC platform. However, our PT business in order to bring POCare therapies to patients in a scalable way via a network of leading healthcare facilities active in autologous cell therapy product development, including facilities in Germany, Austria, Greece, the U.S., Korea and Japan.
Our unique understanding of industry needs allows us to offer our clients a range of technologies and processes that potentially generate revenues. This may include:
PT Business Strategy
Our aim is to provide a pathway to bring ATMPscompetitors in the cellCGT field who are significantly larger and gene therapy industry frombetter capitalized than us could undertake strategies similar to what we are pursuing and even develop them at a much more rapid rate. These potential competitors include the same multinational pharmaceutical companies, established biotechnology companies, specialty pharmaceutical companies, universities, and other research to patients worldwide through our POCare network. We define POCare cell and gene therapy as a process of collecting, processing and administering cells withininstitutions that are operating in the patient care environment, namely through academic partnerships in a hospital setting. We believe this approach is an attractive proposition for personalized medicine because POCare therapy facilitates the development of technologies through our strategic partnerships and utilizes closed systemsCGT field. In that have the potential of reducing the required grade of clean room facilities, thus substantially reducing manufacturing costs. Furthermore, cell transportation, which is a high-risk and costly aspect of the supply chain, could be minimizedrespect, smaller or eliminated.
While our PT business strategy is currently limited to early stage development to overcome certain industry challenges, we intend to continue developing a global POCare network, with the goal of developing ATMPs, and namely autologous cell therapies, via joint ventures with partners who bring strong regional networks. Such networks include partnerships with local hospitals which allows us to engage in continuous in-licensing of, namely, autologous therapies from academia and research institutes, co-development of hospital and academic-based therapies, and utilization of hospital networks for clinical development of therapies.
We consider the followingearly-stage companies may also prove to be the four pillars in order to advance our PT business strategy:
significant competitors, particularly through collaborative arrangements with large, established companies.
Grant Funding
Walloon Region, Belgium, Direction Générale Opérationnelle de l'Economie, de l'Emploi & de la Recherche (“DGO6”("DGO6")
i. On March 20, 2012, MaSTherCell was awarded an investment grant of Euro 1.2 million from the DGO6. This grant is related to the investment in the production facility with a coverage of 32% of the investment planned. As of November 30, 2018, the DGO6 transferred to MaSTherCell the entire amount.amount to MaSTherCell. On February 10, 2020, we sold MaSTherCell.
ii. On November 17, 2014, the Belgian Subsidiary, received the formal approval from the DGO6 for a Euro 2 million ($2.4 million) support program for the research and development of a potential cure for Type 1 Diabetes. The financial support was composed of a Euro 1,085 thousand (70% of budgeted costs) grant for the industrial research part of the research program and a further recoverable advance of Euro 930 thousand (60% of budgeted costs) of the experimental development part of the research program. In December 2014, the Belgian Subsidiary received advance payment of Euro 1,209 thousand under the grant. The grants are partially refundable subject to certain conditions and are also subject to conditions and restrictions with respect to the Belgian Subsidiary’sSubsidiary's work in the Walloon Region and ownership of results of the research program.Region. In addition, the DGO6 is also entitled to a royalty upon revenue being generated from any commercial application of the technology. In 2017, the Companywe received final approval from the DGO6 for Euro 1.8 million costs invested in the project out of which Euro 1.2 million founded by the DGO6. As of November 30, 2018, the CompanyDecember 31, 2019, we repaid $34 thousand (Euro 30 thousand) to the DGO6 a total amount of $57 thousand (Euro 51 thousand) and $152amount of $124 thousand was recorded in other payables in the financial statements.payables.
iii. Inln April 2016, the Company's Belgian Subsidiary received the formal approval from DGO6 for a Euro 1.3 million ($1.5 million) support program for the development of a potential cure for Type 1 Diabetes. The financial support was awarded to the Belgium Subsidiary as a recoverable advance payment at 55% of budgeted costs, or for a total of Euro 717 thousand ($800 thousand). The grant will be paid over the project period. On December 19, 2016, theThe Belgian Subsidiary received advance payment of Euro 359438 thousand ($374491 thousand). Up through November 30, 2018,December 31, 2019, an amount of Euro 303358 thousand was recorded as a deduction of research and development expenses and $64an amount of Euro 80 thousand was recorded as advance payments on account of the grant. The grants are partially refundable subject to certain conditions and are also subject to conditions and restrictions with respect to the Belgian Subsidiary’s work in the Walloon Region and ownership of results of the research program.
iv. On October 8, 2016, the Belgian Subsidiary received the formal approval from the DGO6 for a Euro 12.3 million ($12.8 million) support program for the GMP production of AIP cells for two clinical trials that will be performed in Germany and Belgium. The project will be heldconducted during a period of three years that commenced oncommencing January 1, 2017. The financial support is awarded to the Belgium Subsidiarysubsidiary at 55% of budgeted costs, or for a total of Euro 6.8 million ($7 million). The grant will be paid over the project period. On December 19, 2016, the Belgian Subsidiary received a first payment of Euro 1.7 million ($1.8 million). Up through November 30, 2018, $1.1December 31, 2019, an amount of Euro 1.5 million was recorded as a deduction of research and development expenses and $847an amount of Euro 143 thousand was recorded as advance payments on account of the grant. The grants are partially refundable subject to certain conditions and are also subject to conditions and restrictions with respect to the Belgian Subsidiary’s work in the Walloon Region and ownership of results of the research program.
Israel-U.S. Binational Industrial Research and Development Foundation (“BIRD”("BIRD")
On September 9, 2015, the Israeli Subsidiary entered into a pharma Cooperation and Project Funding Agreement (“CPFA”("CPFA") with BIRD and Pall Corporation, a U.S. company. BIRD will give a conditional grant of $400 thousand each (according to terms defined in the agreement), for a joint research and development project for the use of Autologous Insulin Producing (AIP) Cells for the Treatment of Diabetes (the “BIRD Project”"BIRD Project"). The BIRD Project started on March 1, 2015. Upon the conclusion of product development, the grant shall be repaid at the yearly rate of 5% of gross sales. The grant will be used solely to finance the costs to conduct the research of the project during a period of 18 months starting on March 1, 2015. On July 28, 2016, BIRD approved an extension for the project period until May 31, 2017 and the final report was submitted to BIRD. To date,As of December 31, 2019, the Israeli Subsidiary received $200a total amount of $299 thousand under the grant. Up through November 30, 2018, $359 thousandgrant and the project was recorded as a deduction of research and development expenses and $159 thousand was recorded as a receivable on account of the grant.
completed.
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Korea Israel Industrial R&D Foundation (“KORIL”("KORIL")
On March 14, 2016, the Israel Subsidiary entered into a collaboration agreement with CureCell, initially for the purpose of applying a grant from KORIL for pre-clinical and clinical activities related to the commercialization of the Israel Subsidiary AIP cell therapy product in Korea. The parties agreed to carry out at their own expenses and their respective commitments under the work plan approved by KORIL and any additional work plan to be agreed upon between the Israeli Subsidiary and CureCell. The Israeli Subsidiary will own sole rights to any intellectual property developed from the collaboration which is derived under the Israeli Subsidiary’sSubsidiary's AIP cell therapy product, information licensed from THM. Subject to obtaining the requisite approval needed to commence commercialization in Korea, the Israel subsidiary has agreed to grant to CureCell, or a fully owned subsidiary thereof, under a separate sub-license agreement an exclusive sub-license to the intellectual property underlying the Company’sour API product solely for commercialization of the Israel Subsidiary’sSubsidiary's products in Korea. As part of any such license, CureCell has agreed to pay annual license fees, ongoing royalties based on net sales generated by CureCell and its sublicensees, milestone payments and sublicense fees. Under the agreement, CureCell is entitled to share in the net profits derived by the Israeli Subsidiary from world-wide sales (except for sales in Korea) of any product developed as a result of the collaboration with CureCell.collaboration. Additionally, CureCell was given the first right to obtain exclusive commercialization rights in Japan of the AIP product, subject to CureCell procuring all the regulatory approvals required for commercialization in Japan. As of November 30, 2018,December 31, 2019, none of the requisite regulatory approvals for conducting clinical trials had been obtained.
On May 26, 2016, the Israeli Subsidiary and CureCell entered into a pharma CPFA with KORIL. KORIL will give a conditional grant of up to $400 thousand each (according to terms defined in the agreement), for a joint research and development project for the use of AIP Cells for the Treatment of Diabetes (the “KORIL Project”"KORIL Project"). The KORIL Project started on June 1, 2016. Upon the conclusion of product development, the grant shall be repaid at the yearly rate of 2.5% of gross sales. The grant will be used solely to finance the costs to conduct the research of the project during a period of 18 months starting on June 1, 2016. On July 26, 2018, KORIL approved an extension for the project period until May 31, 2019.2019 and was further extended to May 2020. During 2019 the grant was assigned to Cure Therapeutics from CureCell. As of November 30, 2018,December 31, 2019, the Israeli Subsidiary and CureCell received $440 thousand under the grant.
Maryland Technology Development Corporation
On June 30, 2014, the Company’sour U.S. Subsidiary entered into a grant agreement with Maryland Technology Development Corporation (“TEDCO”("TEDCO"). TEDCO was created by the Maryland State Legislature in 1998 to facilitate the transfer and commercialization of technology from Maryland’sMaryland's research universities and federal labs into the marketplace and to assist in the creation and growth of technology based businesses in all regions of the State. TEDCO is an independent organization that strives to be Maryland’sMaryland's lead source for entrepreneurial business assistance and seed funding for the development of startup companies in Maryland’sMaryland's innovation economy. TEDCO administers the Maryland Stem Cell Research Fund to promote State funded stem cell research and cures through financial assistance to public and private entities within the State. Under the agreement, TEDCO has agreed to give the U.S. Subsidiary an amount not to exceed approximately $406 thousand (the “Grant”"Grant"). The Grant will be used solely to finance the costs to conduct the research project entitled “Autologous"Autologous Insulin Producing (AIP) Cells for Diabetes”Diabetes" during a period of two years. On June 21, 2016, TEDCO approved an extension for the project period until June 30, 2017.
On July 22, 2014 and September 21, 2015, the U.S. Subsidiarywe received an advance payment of $406 thousand on account of the Grant. Through November 30, 2018,
CDMO Business
Companies developing cell therapies need to make a decision early on in their approach to the transition from the lab to the clinic regarding the process development and manufacturing of the cells necessary for their respective therapeutic treatments. Of the companies active in this market, only a small number have developed their own GMP manufacturing facilities due to the high costs and expertise required to develop these processes. In addition to the limitations imposed by a limited number of trained personnel and high infrastructure/operational costs, the industry faces a need for custom innovative process development and manufacturing solutions. Due to the complexity and diversity of the industry, such solutions are often customized to the particular needs of a company and, accordingly, a multidisciplinary team of engineers, cell therapy experts, cGMP and regulatory experts is required. Such a unique group of experts can exist only in an organization that both specializes in developing characterization assays and solutions and manufactures cell therapies.
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Companies can establish their own process and GMP manufacturing facility or engage a contract manufacturing organization for each step. A CDMO is an entity that serves other companies in the pharmaceutical industry on a contract basis to provide comprehensive services from cell therapy development through cell therapy manufacturing for and end-to-end solution. Due to the complexity, global outreach needs, redundancy and operational costs of manufacturing biologics and cell therapies, the CDMO business is expanding. The complexity of manufacturing individual cell therapy treatments poses a fundamental challenge for cell therapy-based companies as they enter the field. This complexity potentially casts a spotlight on improved cGMP, large-scale manufacturing processes, such as the services provided by MaSTherCell. Manufacturing and delivery can be more complex in cell therapy products than for a typical drug. For example, in the U.S., only a few dozen specialized hospitals are currently qualified to provide CAR T treatments, which require retrieving, processing and then returning immune cells to the patient, all done under strict cGMP, as well as monitoring and treating side effects. These factors provide real incentives for cell therapy companies to seek third-party partners, or contract manufacturers, who possess technical, manufacturing, and regulatory expertise in cell therapy development and manufacturing such as cell therapy CDMOs like MaSTherCell. Additionally, establishing a manufacturing facility for cell therapy requires specific expertise and significant capital which can delay the clinical trials by at least two years. As companies are looking to expedite their market approval, utilization of a CDMO can result in faster time to market and overall lower expenditure.
Our decision to purchase MaSTherCell in 2015 was based on our having identified an industry trend and unmet demand for first-in-class cell and gene therapy CDMO services. Meanwhile, we believe the market opportunity and value proposition for our POC platform has continued to increase, as these solutions uniquely enable localized CGT development, processing and supply within the patient care setting. As such, our decision to sell Masthercell was not only based on the significant value we received as a result of the Masthercell Sale, but also the need for the CDMO business to be developed and scaled to its full potential by a much larger and financially capable enterprise, thereby enabling us financially and strategically to focus our efforts around our POC platform which we believe represents a major paradigm shift and will play a major role in the future of the CGT market due to the following factors:
Regarding the Masthercell sale, see Note 23 (d) to Item 8 of this Form 10K.
Current Development Facilities
Atvio Biotech Ltd.
Atvio Biotech Ltd. in Israel is a specialized process and technology development firm focused on custom-made process development, upscaling design from lab to industry innovation and automation procedures, which are extremely essential in the cell therapy industry. Atvio is located in Bar-Lev Industrial Park utilizing the exclusive Israeli innovative ecosystem and highly experienced and talented associates including Ph.D. holders and biotechnology engineers. The center provides end to end solutions to cell therapy industries, process development capabilities and proficiency, custom-made engineering and a unique platform for creative design and process optimization. The company spreads over 1300 square meters of labs and offices resulting in an efficient and unique environment for cell therapy development. In connection with the sale of Masthercell, the Company utilized $356 thousand from the grant and recorded it as a deduction of research and development expenseshas agreed that Atvio will sell to client only in the statementState of comprehensive loss.Israel, solely (x) for customers located within the State of Israel or (y) with respect to therapies intended for distribution solely within the State of Israel.
CureCell Co. Ltd.
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CureCell Co. Ltd. in Korea has a particular focus on developing innovative cell therapies. Together, with promising in-house research programs, the technologies are currently under development for the rapidly growing Korean market offering the most favorable environment for the cell therapy industry in the world. Through close collaboration with leading medical and academic facilities, CureCell is accelerating the development of foreign technologies in Korea. In connection with the sale of Masthercell, the Company has agreed that CureCell will sell to client only in South Korea, solely (x) for customers located within South Korea or (y) with respect to therapies intended for distribution solely within South Korea.
Research and Development
We incurred $ 13,432 , $7,386 and $3,326 thousand$1,558 thousands in research and development expenditures in the fiscal years ended December 31, 2019 and November 30, 2018 and 2017,for the one month ended December 31, 2019, respectively, of which $ 974 , $922 thousand and $848$127 thousand was covered by grant funding. The increase in research and development expenses was due to an increase in salaries and related expenses for the year ended November 30, 2018,December 31, 2019, as compared to 20172018 and reflects management’smanagement's plan to move our transdifferentiationtrans-differentiation technology to the next the stage towards clinical studies. In the fiscal yearyears ended 2019 and 2018, we focused mainly on setting up infrastructure and regulatory approvals for sourcing of liver tissue and biopsies and combining the in-vitro research to increase insulin production and secretion with our pre-clinical studies’studies' aim to evaluate the efficacy and safety of the product in animal models. In this respect, new transdifferentiationtrans-differentiation methods are being evaluated. Sourcing of the starting material (liver sampling and cell collection) and upscaling of virus production and cell propagation using advance technologies complement this effort with the target to establish start to end production capabilities. Our research and development scope was also expanded to the evaluation and development of new cell therapies related technologies in the field of immunoncology,immuno-oncology, liver pathologies and tissue regeneration.
Intellectual Property
We will be able to protect our technology and products from unauthorized use by third parties only to the extent it is covered by valid and enforceable claims of our patents or is effectively maintained as trade secrets. Patents and other proprietary rights are thus an essential element of our business.
Our success will depend in part on our ability to obtain and maintain proprietary protection for our product candidates, technology, and know-how, to operate without infringing on the proprietary rights of others, and to prevent others from infringing it proprietary rights. Our policy is to seek to protect our proprietary position by, among other methods, filing U.S. and foreign patent applications related to our proprietary technology, inventions, and improvements that are important to the development of our business. We also rely on trade secrets, know-how, continuing technological innovation, and in-licensing opportunities to develop and maintain our proprietary position.
We own or have exclusive rights to ten (10) United States and nineteen (19)eight (8) foreign issued patents, nine (9)five (5) pending applications in the United States, thirty-two (32)thirty-three (33) pending applications in foreign jurisdictions, including Europe, Australia, Brazil, Canada, China, Eurasia, Israel, Japan, South Korea, Mexico, and Singapore, and four (4)one (1) international Patent Cooperation Treaty (“PCT”("PCT") patent applications. These patents and applications relate, among others, to (1) the trans-differentiation of cells (including hepatic cells) to cells having pancreatic β-cell-like phenotype and function and to their use in the treatment of degenerative pancreatic disorders, including diabetes, pancreatic cancer and pancreatitis, and (2) scaffolds, including alginate and sulfated alginate scaffolds, polysaccharides thereof, and scaffolds for use for cell propagation, transdifferentiation,trans-differentiation, and transplantation in the treatment of autoimmune diseases, including diabetes.
Granted U.S. patents, which are directed among others to compositions comprising sulfated polysaccharide bioconjugates, modified polysaccharides, and epithelial organoids having liver phenotype, will expire between 2025 and 2027, excluding any patent term extensions that might be available following the grant of marketing authorizations. Patents granted in Australia, France, Germany, Israel, Switzerland, and the United Kingdom, which are directed among others to compositions comprising sulfated polysaccharide bioconjugate, and to epithelial organoids having liver phenotype, will expire between 2025 and 2027, excluding any patent term extensions that might be available following the grant of marketing authorizations. Granted U.S. patents, which are directed, among others, to methods of inducing pancreatic hormone expression, methods of inducing a beta cell phenotype, methods for transdifferentiating cells, and methods of producing hydrogels, will expire between 2020 and 2035, excluding any patent term extensions that might be available following the grant of marketing authorizations. Patents granted in Australia, Canada, France, Germany, Israel, Italy, and the United Kingdom, which are directed, among others, to methods of inducing pancreatic hormone expression, methods of inducing a beta cell phenotype, and methods of producing hydrogels, will expire between 2020 and 2024, excluding any patent term extensions that might be available following the grant of marketing authorizations. A granted U.S. patent which is directed, among others, to components of a bioreactor will expire in 2024, excluding any patent term extensions that might be available following the grant of marketing authorizations. Patents granted in Austria, France, Germany, Israel, and the United Kingdom, which are directed, among others, to components of a bioreactor, will expire in 2024, excluding any patent term extensions that might be available following the grant of marketing authorizations.
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We have pending U.S. patent applications directed, among others, to compositions comprising clusters of transdifferentiated cells, modified polysaccharides, and dermatological compositions. If issued, these applications would expire between 2036 and 2038, excluding any patent term adjustment that might be available following the grant of the patent and any patent term extensions that might be available following the grant of marketing authorizations. We have pending patent applications in Australia, Brazil, Canada, China, Eurasia, Europe, Israel, Japan, the Republic of Korea, Mexico and Singapore directed, among others, to compositions comprising sulfated polysaccharide bioconjugates, modified polysaccharides, and multi-compartment hydrogel. If issued, these applications would expire between 2026 and 2036, excluding any patent term adjustment that might be available following the grant of the patent and any patent term extensions that might be available following the grant of marketing authorizations. We have pending U.S. patent applications directed, among others, to methods of isolating cells predisposed to transdifferentiation,trans-differentiation, methods of manufacturing insulin producing cells, and methods for treating autoimmune diseases. If issued, these applications would expire between 2035 and 2037, excluding any patent term adjustment that might be available following the grant of the patent and any patent term extensions that might be available following the grant of marketing authorizations. We have pending patent applications in Australia, Brazil, Canada, China, Eurasia, Europe, Israel, Japan, the Republic of Korea, Mexico and Singapore directed, among others, to methods of producing transdifferentiatedtrans-differentiated cells having beta cell phenotype, methods for treating a liver disease, and methods for treating autoimmune disorders. If issued, these applications would expire between 2035 and 2038, excluding any patent term adjustment that might be available following the grant of the patent and any patent term extensions that might be available following the grant of marketing authorizations. We have PCT applications directed, among others, to compositions comprising clusters of transdifferentiated cells, compositions comprising vascular secretome components, methods of producing thereof, and methods for treating liver diseases with the compositions thereof. If issued, National Phase applications claiming benefit of those PCT applications would expire in 2038, excluding any patent term adjustment that might be available following the grant of the patent and any patent term extensions that might be available following the grant of marketing authorizations.
Government Regulation
Development Business
We are required to comply with the regulatory requirements of various local, state, national and international regulatory bodies having jurisdiction in the countries or localities where we manufacture products or where our customers' products are distributed. In particular, we are subject to laws and regulations concerning research and development, testing, manufacturing processes, equipment and facilities, including compliance with cGMPs, labeling and distribution, import and export, facility registration or licensing, and product registration and listing. As a result, our facilities are subject to regulation in Israel and South Korea. We are also required to comply with environmental, health and safety laws and regulations, as discussed below. These regulatory requirements impact many aspects of our operations, including manufacturing, developing, labeling, packaging, storage, distribution, import and export and record keeping related to customers' products. Noncompliance with any applicable regulatory requirements can result in government refusal to approve facilities for manufacturing products or products for commercialization.
Our customers' products must undergo pre-clinical and clinical evaluations relating to product safety and efficacy before they are approved as commercial therapeutic products. The regulatory authorities having jurisdiction in the countries in which our customers intend to market their products may delay or put on hold clinical trials, delay approval of a product or determine that the product is not approvable. The regulatory agencies can delay approval of a drug if our manufacturing facilities are not able to demonstrate compliance with cGTPs, pass other aspects of pre-approval inspections (i.e., compliance with filed submissions) or properly scale up to produce commercial supplies. The government authorities having jurisdiction in the countries in which our customers intend to market their products have the authority to withdraw product approval or suspend manufacture if there are significant problems with raw materials or supplies, quality control and assurance or the product is deemed adulterated or misbranded. In addition, if new legislation or regulations are enacted or existing legislation or regulations are amended or are interpreted or enforced differently, we may be required to obtain additional approvals or operate according to different manufacturing or operating standards or pay additional fees. This may require a change in our manufacturing techniques or additional capital investments in our facilities.
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Certain products manufactured by us involve the use, storage and transportation of toxic and hazardous materials. Our operations are subject to extensive laws and regulations relating to the storage, handling, emission, transportation and discharge of materials into the environment and the maintenance of safe working conditions. We maintain environmental and industrial safety and health compliance programs and training at our facilities.
Prevailing legislation tends to hold companies primarily responsible for the proper disposal of their waste even after transfer to third party waste disposal facilities. Other future developments, such as increasingly strict environmental, health and safety laws and regulations, and enforcement policies, could result in substantial costs and liabilities to us and could subject the handling, manufacture, use, reuse or disposal of substances or pollutants at our facilities to more rigorous scrutiny than at present.
Our development operations involve the controlled use of hazardous materials and chemicals. Although we believe that our procedures for using, handling, storing and disposing of these materials comply with legally prescribed standards, we may incur significant additional costs to comply with applicable laws in the future. Also, even if we are in compliance with applicable laws, we cannot completely eliminate the risk of contamination or injury resulting from hazardous materials or chemicals. As a result of any such contamination or injury, we may incur liability or local, city, state or federal authorities may curtail the use of these materials and interrupt our business operations. In the event of an accident, we could be held liable for damages or penalized with fines, and the liability could exceed our resources. Compliance with applicable environmental laws and regulations is expensive, and current or future environmental regulations may impair our contract manufacturing operations, which could materially harm our business, financial condition and results of operations.
The costs associated with complying with the various applicable local, state, national and international regulations could be significant and the failure to comply with such legal requirements could have an adverse effect on our results of operations and financial condition. See "Risk Factors-Risks Related to Our CDMO Business - Extensive industry regulation has had, and will continue to have, a significant impact on our CDMO business, and it may require us to substantially invest in our development, manufacturing and distribution capabilities and may negatively impact our ability to generate and meet future demand for our products and improve profitability" for additional discussion of the costs associated with complying with the various regulations.
CGT Business
We have not sought approval from the FDA for the AIP cells. Among all forms of cell therapy modalities, we believe that autologous cell replacement therapy is of the highest benefit. We believe that it is safer than other options as it does not alter the host genome but only alters the set of expressed epigenetic information that seems to be highly specific to the reprogramming protocol. It provides an abundant source of therapeutic tissue, which is not rejected by the patient and does not have to be treated by immune suppressants. It is highly ethical because no human organ donations or embryo-derived cells are needed. The proposed therapeutic approach does not require cell bio-banking at birth, which is both expensive and cannot be used for patients born prior to 2000.
Over the past decade, many studies published in leading scientific journals confirmed the capacity of reprogramming adult cells from many of our mature organs to either alternate organs or to “stem"stem like cells”cells". Most widely used autologous cell replacement protocols are used for autologous implantation of bone marrow stem cells. This protocol is widely used in patients undergoing a massive chemotherapy session that destroys their bone marrow cells. However, the stem cells used for cancer patients delineated above do not require extensive manipulation and is regarded by the FDA as “minimally"minimally manipulated.”
"
An additional autologous cell therapy approach already used in man is autologous chondrocyte implantation (“ACI”("ACI"). In the United States, Genzyme Corporation provides the only FDA approved ACI treatment called Carticel. The Carticel treatment is designated for young, healthy patients with medium to large sized damage to cartilage. During an initial procedure, the patient’spatient's own chondrocytes are removed arthroscopically from a non-load-bearing area from either the intercondylar notch or the superior ridge of the medial or lateral femoral condyles.
To aid us in our efforts to achieve the highest level of compliance with FDA requirements, we have looked to hire experts in the field of pharmaceutical compliance.
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Regulatory Process in the United States
Our potential product iscandidates are subject to regulation as a biological product under the Public Health Service Act and the Food, Drug and Cosmetic Act. The FDA generally requires the following steps for pre-market approval or licensure of a new biological product:
Regulatory Process in Europe
The European Union (“EU”("EU") has approved a regulation specific to cell and tissue therapy product,products, the Advanced Therapy Medicinal Product (“ATMP”("ATMP") regulation. For products such as our AIP cells that are regulated as an ATMP, the EU directive requires:
As in the U.S., prior to the general regulatory process of a new biologic products, we will prosecute an Orphan Drug Designation for treatment of Patients with Established Diabetes Mellitus (“DM”("DM") Induced by Total pancreatectomy. In the EU, in order to be qualified, the prevalence must be below 5 per 10,000 of the EU population, except where the expected return on investment is insufficient to justify the investment.
Authorized orphan medicines benefit from 10 years of protection from market competition with similar medicines with similar indications once they are approved. Companies applying for designated orphan medicines pay reduced fees for regulatory activities. This includes reduced fees for protocol assistance, marketing-authorization applications, inspections before authorization, applications for changes to marketing authorizations made after approval, and reduced annual fees.
Clinical Trials
Typically, both in the U.S. and the EU, clinical testing involves a three-phase process, although the phases may overlap. In Phase I, clinical trials are conducted with a small number of healthy volunteers or patients and are designed to provide information about product safety and to evaluate the pattern of drug distribution and metabolism within the body. In Phase II, clinical trials are conducted with groups of patients afflicted with a specific disease in order to determine preliminary efficacy, optimal dosages and expanded evidence of safety. In some cases, an initial trial is conducted in diseased patients to assess both preliminary efficacy and preliminary safety and patterns of drug metabolism and distribution, in which case it is referred to as a Phase I/II trial. Phase III clinical trials are generally large-scale, multi-center, comparative trials conducted with patients afflicted with a target disease in order to provide statistically valid proof of efficacy, as well as safety and potency. In some circumstances, the FDA or EMA may require Phase IV or post-marketing trials if it feels that additional information needs to be collected about the drug after it is on the market. During all phases of clinical development, regulatory agencies require extensive monitoring and auditing of all clinical activities, clinical data, as well as clinical trial investigators. An agency may, at its discretion, re-evaluate, alter, suspend, or terminate the testing based upon the data that have been accumulated to that point and its assessment of the risk/benefit ratio to the patient. Monitoring all aspects of the study to minimize risks is a continuing process. All adverse events must be reported to the FDA or EMAEMA.
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The FDA has granted Orphan Drug designation for our AIP cells as a cell replacement therapy for the treatment of severe hypoglycemia-prone diabetes resulting from TP due to chronic pancreatitis. The FDA's Orphan Drug Designation Program provides orphan status to drugs and biologics which are defined as those intended for the safe and effective treatment, diagnosis or prevention of rare diseases/disorders that affect fewer than 200,000 people in the United States. Orphan designation qualifies the sponsor of the drug for various development incentives, including eligibility for seven years of market exclusivity upon regulatory approval, exemption from FDA application fees, tax credits for qualified clinical trials, and other potential assistance in the drug development process.
Employees
As of November 30, 2018,December 31, 2019, we had an aggregate of 231309 employees working at our Company and subsidiaries. Subsequent to the Masthercell Sale on February 10, 2020, we had an aggregate of 71 employees. In addition, we retain the services of outside consultants for various functions including clinical work, finance, accounting and business development services. Most of our senior management and professional employees have had prior experience in pharmaceutical or biotechnology companies. None of our employees are covered by collective bargaining agreements. We believe that we have good relations with our employees.
Subsidiaries
Orgenesis Inc. is a Nevada corporation and, as of the date of this filing, our subsidiaries currently consist of Masthercell Global Inc., a Delaware corporation (“Masthercell Global”), Orgenesis SPRL,Belgium SRL (formerly known as Orgenesis SPRL) , a Belgian-based entity (the “Belgian Subsidiary ”)"Belgian Subsidiary"), Orgenesis Ltd., an Israeli corporation (the “Israeli Subsidiary”"Israeli Subsidiary"), and Orgenesis Maryland Inc., a Maryland corporation. Masthercell Global’s wholly-owned subsidiaries include MaSTherCell S.A. (“MaSTherCell”), a Belgian-based entity, Cell Therapy Holdings S.A., a Belgian-based entity, Masthercell U.S., LLC, a U.S.-based entity,corporation, Atvio Biotech Ltd. (“Atvio”("Atvio"), an Israeli-based CDMO, and CureCell Co. Ltd. (“CureCell”("CureCell"), a Korea-based CDMO (Orgenesis owned(of which Orgenesis owns 94.12%). During and as of CureCellDecember 31, 2019, Masthercell Global's subsidiaries included MaSTherCell S.A. ("MaSTherCell") (of which was consolidated into Masthercell Global).
The corporate organization diagram below shows how we classify each subsidiaryGlobal held 83.32%), a Belgian-based entity, and each joint venture partner between its two business units:
wholly-owned Cell Therapy Holdings S.A., a Belgian-based entity and Masthercell U.S., LLC, a U.S.-based entity.
Corporate and Available Information
Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports are available free of charge though our website (http://www.orgenesis.com) as soon as practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission (the “SEC”"SEC"). Except as otherwise stated in these documents, the information contained on our website or available by hyperlink from our website is not incorporated by reference into this report or any other documents we file, with or furnish to, the SEC.
ITEM 1A. RISK FACTORS
An investment in our common stock involves a number of very significant risks. You should carefully consider the following risks and uncertainties in addition to other information in this report in evaluating our company and its business before purchasing shares of our company’scompany's common stock. Our business, operating results and financial condition could be seriously harmed due to any of the following risks. You could lose all or part of your investment due to any of these risks.
Risks Related to Our Company and POC Business
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We will need to raisedeploy our capital from the sale of Masthercell in ordera manner to realizescale our POC business plan,to show demonstrable revenue and market value for our shareholders, the failure of which could adversely impact our operations.operations and the price of our stock.
On February 2, 2020, we entered into a Stock Purchase Agreement (the "Purchase Agreement") with GPP-II Masthercell LLC ("GPP" and together with Orgenesis, the "Sellers"), Masthercell Global Inc. ("Masthercell") and Catalent Pharma Solutions, Inc. (the "Buyer"). Pursuant to the terms and conditions of the Purchase Agreement, on February 10, 2020, the Sellers sold 100% of the outstanding equity interests of Masthercell to Buyer (the "Sale") for an aggregate nominal purchase price of $315 million, subject to customary adjustments. After accounting for GPP's liquidation preference and equity stake in Masthercell as well as SFPI - FPIM's interest in MaSTherCell S.A., distributions to Masthercell option holders and transaction costs, we received approximately $126.7 million at the closing of the Sale transaction, of which $7.2 million was used for the repayment of intercompany loans and payables.
We expect to use the net proceeds from the sale of Masthercell to continue to grow our POC cell therapy business and to further the development of ATMPs. Although we currentlynow have sufficient capital resources for the next 12 months without adequate funding or a significant increase in revenues,and the foreseeable future, we may not be able to expand our global CDMO network, establish additional CDMO facilities in the United States or other parts of the world, implement our POCare therapyPOC business seek out strategic CDMO acquisitions,and commence clinical trials for our diabetes solution or respond to competitive pressures. As of November 30, 2018, we had available cash resources of $16.1 million.
Overall, we have fundedpressures due to other non-financial factors beyond our cash needs from inception through the date hereof with a series of debt and equity transactions, grants from governmental agencies and, more recently, through cash flow from our revenue generating operations from Masthercell Global.
We expect to continue to finance our operations, acquisitions and develop strategic relationships, primarily by issuing equity or convertible debt securities, which could significantly reduce the percentage ownership of our existing stockholders. Furthermore, any newly issued securities could have rights, preferences and privileges senior to those of our existing common stock. Moreover, any issuances by us of equity securities may be at or below the prevailing market price of our common stock and in any event may have a dilutive impact on your ownership interest, which could cause the market price of our common stock to decline. We may also issue securities in one or more of our subsidiaries, and these securities may have rights or privileges senior to those of our common stock.
We may have difficulty obtaining additional funds as and when needed, and we may have to accept terms that would adversely affect our stockholders. In addition, any adverse conditions in the credit and equity markets may adversely affect our ability to raise funds when needed. Any failure to achieve adequate funding will delay our development programs and product launches and could lead to abandonment of one or more of our development initiatives, as well as prevent us from responding to competitive pressures or take advantage of unanticipated acquisition opportunities. Any additional equity financing will likely be dilutive to stockholders, and certain types of equity financing, if available, may involve restrictive covenants or other provisions that would limit how we conduct our business or finance our operations.
control.
We are not profitable as of November 30, 2018,December 31, 2019, have limited cash flow and, unless we increase revenues and cash flow or raise additional capital, we may be unable to take advantage of any commercial opportunities that arise orto expand CDMO operations, allour POC business, the perceived value of whichour company may decrease and our stock price could adversely impact us.be affected accordingly.
For the fiscal year ended November 30, 2018December 31, 2019 and as of the date of this report, we assessed our financial condition and concluded that we have sufficient resources for the next 12 months from the date of the report.report as a result of the receipt of the net proceeds from the sale of Masthercell. Our auditor’sauditor's report for the year ended November 30, 2018December 31, 2019 does not include a going concern opinion on the matter. However, management is still required to assess our ability to continue as a going concern. We had a net loss of $19.1 million for the year ended November 30, 2018. During the same period, cash used in operations was $15.7 million, the working capital surplus and accumulated deficit as of November 30, 2018 were $13.2 million and $62.4 million, respectively. Management is unable to predict if and when we will be able to generate significant positive cash flowrevenues or achieve profitability. Our plan regarding these matters is to strengthen our revenues and continue improving the net results in the CDMO segment and to raise additional equity financing to allow us the ability to cover our cash flow requirementsPOC business into fiscal year 2019.2020. There can be no assurances that we will be successful in increasing revenues, improving CDMO segmentour POC results or that financingthe perceived value of our company will be available or, if available, that such financing will be available under favorable terms.increase. In the event that we are unable to generate adequatesignificant revenues to cover expenses and cannot obtain additional financing into fiscal year 2019, we may need to cut back or curtailin our expansion plans.
POC business, our stock price could be adversely affected.
We will need to grow the size and capabilities of our organization, and we may experience difficulties in managing this growth.
As of November 30, 2018,December 31, 2019, we had 231309 employees. Following the sale of Masthercell, we had 71 employees. As our development and commercialization plans and strategies develop, we must add a significant number of additional managerial, operational, sales, marketing, financial, and other personnel. Future growth will impose significant added responsibilities on members of management, including:
Our future financial performance and our ability to commercialize our product candidates will depend, in part, on our ability to effectively manage any future growth, and our management may also have to divert a disproportionate amount of its attention away from day-to-day activities in order to devote a substantial amount of time to managing these growth activities. This lack of long-term experience working together may adversely impact our senior management team’steam's ability to effectively manage our business and growth.
We currently rely, and for the foreseeable future will continue to rely, in substantial part on certain independent organizations, advisors and consultants to provide certain services. There can be no assurance that the services of these independent organizations, advisors and consultants will continue to be available to us on a timely basis when needed, or that we can find qualified replacements. In addition, if we are unable to effectively manage our outsourced activities or if the quality or accuracy of the services provided by consultants is compromised for any reason, our clinical trials may be extended, delayed, or terminated, and we may not be able to obtain regulatory approval of our product candidates or otherwise advance our business. There can be no assurance that we will be able to manage our existing consultants or find other competent outside contractors and consultants on economically reasonable terms, if at all. If we are not able to effectively expand our organization by hiring new employees and expanding our groups of consultants and contractors, we may not be able to successfully implement the tasks necessary to further develop and commercialize our product candidates and, accordingly, may not achieve our research, development, and commercialization goals.
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We depend on key personnel who would be difficult to replace, and our business plans will likely be harmed if we lose their services or cannot hire additional qualified personnel.
Our success depends substantially on the efforts and abilities of our senior management and certain key personnel. The competition for qualified management and key personnel, especially engineers, is intense. The loss of services of one or more of our key employees, or the inability to hire, train, and retain key personnel, especially engineers and technical support personnel, could delay the development and sale of our products, disrupt our business, and interfere with our ability to execute our business plan.
Currency exchange fluctuations may impact the results of our operations.
The provision of services by our subsidiary, Masthercell Global, arewere usually transacted in U.S. dollars and European currencies.currencies during the year ended December 31, 2019. Our results of operations are affected by fluctuations in currency exchange rates in both sourcing and selling locations. Although we enter into foreign currency exchange forward contracts from time to time to reduce our risk related to currency exchange fluctuation, ourOur results of operations may still be impacted by foreign currency exchange rates, primarily, the euro-to-U.S. dollar exchange rate. In recent years, the euro-to-U.S. dollar exchange rate has been subject to substantial volatility which may continue, particularly in light of recent political events regarding the European Union, or EU. Because we do not hedge against all of our foreign currency exposure, our business will continue to be susceptible to foreign currency fluctuations.
We have entered into collaborations and may form or seek collaborations or strategic alliances or enter into additional licensing arrangements in the future, and we may not realize the benefits of such alliances or licensing arrangements.
We may form or seek strategic alliances, create joint ventures or collaborations, or enter into additional licensing arrangements with third parties that we believe will complement or augment our development and commercialization efforts with respect to our product candidates and any future product candidates that we may develop. Any of these relationships may require us to incur non-recurring and other charges, increase our near and long-term expenditures, issue securities that dilute our existing stockholders, or disrupt our management and business. In addition, we face significant competition in seeking appropriate strategic partners for which the negotiation process is time-consuming and complex. Moreover, we may not be successful in our efforts to establish a strategic partnership or other alternative arrangements for our product candidates because they may be deemed to be at too early of a stage of development for collaborative effort and third parties may not view our product candidates as having the requisite potential to demonstrate safety and efficacy. Further, collaborations involving our product candidates, such as our collaborations with third-party research institutions, are subject to numerous risks, which may include the following:
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As a result, if we enter into collaboration agreements and strategic partnerships or license our products or businesses, we may not be able to realize the benefit of such transactions if we are unable to successfully integrate them with our existing operations and company culture, which could delay our timelines or otherwise adversely affect our business. We also cannot be certain that, following a strategic transaction or license, we will achieve the revenue or specific net income that justifies such transaction. Any delays in entering into new collaborations or strategic partnership agreements related to our product candidates could delay the development and commercialization of our product candidates in certain geographies for certain indications, which would harm our business prospects, financial condition, and results of operations.
Our success depends on our ability to protect our intellectual property and our proprietary technologies.
Our commercial success depends in part on our ability to obtain and maintain patent protection and trade secret protection for our product candidates, proprietary technologies, and their uses as well as our ability to operate without infringing upon the proprietary rights of others. We can provide no assurance that our patent applications or those of our licensors will result in additional patents being issued or that issued patents will afford sufficient protection against competitors with similar technologies, nor can there be any assurance that the patents issued will not be infringed, designed around or invalidated by third parties. Even issued patents may later be found unenforceable or may be modified or revoked in proceedings instituted by third parties before various patent offices or in courts. The degree of future protection for our proprietary rights is uncertain. Only limited protection may be available and may not adequately protect our rights or permit us to gain or keep any competitive advantage. Composition-of-matter patents on the biological or chemical active pharmaceutical ingredients are generally considered to offer the strongest protection of intellectual property and provide the broadest scope of patent protection for pharmaceutical products, as such patents provide protection without regard to any method of use or any method of manufacturing. While we have an issued patent in the United States with a claim for a composition directed to a vector comprising a promoter linked to a pancreatic and duodenal homeobox 1 (PDX-1) polypeptide, and a carrier, a multicompartment hydrogels, epithelial organoids, tissue grafts, and compositions comprising sulfated polysaccharides, we cannot be certain that the claim in our issued patent will not be found invalid or unenforceable if challenged.
We cannot be certain that the claims in our issued United States methods of use patents will not be found invalid or unenforceable if challenged. We cannot be certain that the pending applications covering composition-of-matter of our transdifferentiated cell populations will be considered patentable by the United States Patent and Trademark Office (USPTO), and courts in the United States or by the patent offices and courts in foreign countries, nor can we be certain that the claims in our issued patents will not be found invalid or unenforceable if challenged. Even if our patent applications covering populations of transdifferentiated cells issue as patents, the patents protect a specific transdifferentiated cell product and may not be enforced against competitors making and marketing a product that has the same activity. Method-of-use patents protect the use of a product for the specified method or for treatment of a particular indication. This type of patents may not be enforced against competitors making and marketing a product that has cells that may provide the same activity but is used for a method not included in the patent. Moreover, even if competitors do not actively promote their product for our targeted indications, physicians may prescribe these products “off-label.”"off-label." Although off-label prescriptions may infringe or contribute to the infringement of method-of-use patents, the practice is common and such infringement is difficult to prevent or prosecute.
We have exclusive rights to ten (10) United States (US) patents, one (1) of which is directed, among others, to a composition comprising a vector comprising a promoter linked to PDX-1 and having a term of 2021, three (3) having a term of 2023 and directed, among others, to methods of inducing endogenous PDX-1 expression in a human differentiated primary non-pancreatic cell, inducing or enhancing a pancreatic islet cell phenotype in non-pancreatic cells, and increasing PDX-1 induction in non-pancreatic primary cells; one (1) having a term of 2024 and directed, among others, to components of a bioreactor; two (2) having a term of 2026 and directed, among others, to a bioconjugate molecules comprising a sulfated polysaccharide; one (1) having a term of 2027 and directed, among others, to an epithelial organoid; one (1) having a term of 2033 and directed, among others, to methods for producing scaffolds; and one (1) having a term of 2034 and directed, among others, to methods for producing transdifferentiated cells. Further, we have exclusive rights to nineteen (19) foreign issued patents (six (6) patents granted in Australia, France, Germany, Israel, Switzerland, and the United Kingdom, having a term between 2025 and 2027, directed among others to compositions comprising sulfated polysaccharide bioconjugate, and to epithelial organoids having liver phenotype; eight (8) patents granted in Australia, Canada, France, Germany, Israel, Italy, and the United Kingdom, having a term between 2020 and 2024, and directed among others to methods of inducing pancreatic hormone expression, methods of inducing a beta cell phenotype, and methods of producing hydrogel; and five (5) patents granted in Austria, France, Germany, Israel, and the United Kingdom, having a term of 2024 and directed among others to components of a bioreactor. We also have nine (9) pending applications in the United States, which if granted would have a term of 2036-2038; thirty two (32) pending applications in foreign jurisdictions, including Europe, Australia, Brazil, Canada, China, , Eurasia, Israel, Japan, South Korea, Mexico, and Singapore, which if they were to be granted would have a term of 2026-2036; and four (4) International Patent Cooperation Treaty (“PCT”("PCT") patent applications, which if filed and granted as national phase applications would have a term of 2028. These pending applications are directed, among others, to the trans-differentiation of cells (including hepatic cells) to cells having pancreatic β-cell phenotype and function, and their use in the treatment of degenerative pancreatic disorders including diabetes, pancreatic cancer, and pancreatitis; and to scaffolds, including alginate and sulfated alginate scaffolds, polysaccharides thereof, and scaffolds for use for cell propagation, transdifferentiation,trans-differentiation, and transplantation in the treatment of autoimmune diseases, including diabetes.diabetes..
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The patent application process is subject to numerous risks and uncertainties, and there can be no assurance that we or any of our future development partners will be successful in protecting our product candidates by obtaining and defending patents. These risks and uncertainties include the following:
In addition, we rely on the protection of our trade secrets and proprietary know-how. Although we have taken steps to protect our trade secrets and unpatented know-how, including entering into confidentiality agreements with third parties, and confidential information and inventions agreements with employees, consultants and advisors, we cannot provide any assurances that all such agreements have been duly executed, and third parties may still obtain this information or may come upon this or similar information independently. Additionally, if the steps taken to maintain our trade secrets are deemed inadequate, we may have insufficient recourse against third parties for misappropriating its trade secrets. If any of these events occurs or if we otherwise lose protection for our trade secrets or proprietary know-how, our business may be harmed.
If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization of our product candidates.
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We face an inherent risk of product liability as a result of the clinical testing of our product candidates and will face an even greater risk if we commercialize any products. For example, we may be sued if our product candidates cause or are perceived to cause injury or are found to be otherwise unsuitable during clinical testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability or a breach of warranties. Claims could also be asserted under state consumer protection acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our product candidates. Even a successful defense would require significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may result in:
Because our products have not reached clinical or commercial stage, we do not currently carry clinical trial or product liability insurance. In the future, our inability to obtain sufficient product liability insurance at an acceptable cost to protect against potential product liability claims could prevent or inhibit the commercialization of products we develop, alone or with collaborators. Such insurance policies may also have various exclusions, and we may be subject to a product liability claim for which we have no coverage.
It may be difficult to enforce a U.S. judgment against us, our officers and directors and the foreign persons named in this Annual Report on Form 10-K in the United States or in foreign countries , or to assert U.S. securities laws claims in foreign countries or serve process on our officers and directors and these experts.
While we are incorporated in the State of Nevada, currently a majority of our directors and executive officers are not residents of the United States, and the foreign persons named in this Annual Report on Form 10-K are located in Israel and Belgium. The majority of our assets are located outside the United States. Therefore, it may be difficult for an investor, or any other person or entity, to enforce a U.S. court judgment based upon the civil liability provisions of the U.S. federal securities laws against us or any of these persons in a U.S. or foreign court, or to effect service of process upon these persons in the United States. Additionally, it may be difficult for an investor, or any other person or entity, to assert U.S. securities law claims in original actions instituted in foreign countries in which we operate. Foreign courts may refuse to hear a claim based on a violation of U.S. securities laws on the grounds that foreign countries are not necessary the most appropriate forum in which to bring such a claim. Even if a foreign court agrees to hear a claim, it may determine that foreign law and not U.S. law is applicable to the claim. If U.S. law is found to be applicable, the content of applicable U.S. law must be proved as a fact, which can be a time-consuming and costly process. Certain matters of procedure will also be governed by foreign countries law. There is little binding case law in foreign countries addressing the matters described above.
We may be subject to numerous and varying privacy and security laws, and our failure to comply could result in penalties and reputational damage.
Risks RelatedWe are subject to Our CDMO Business
Whilelaws and regulations covering data privacy and the protection of personal information, including health information. The legislative and regulatory landscape for privacy and data protection continues to evolve, and there ishas been an increasing numberfocus on privacy and data protection issues which may affect our business. In the U.S., numerous federal and state laws and regulations, including state security breach notification laws, state health information privacy laws, and federal and state consumer protection laws, govern the collection, use, disclosure, and protection of product candidatespersonal information. Each of these laws is subject to varying interpretations by courts and government agencies, creating complex compliance issues for us. If we fail to comply with applicable laws and regulations we could be subject to penalties or sanctions, including criminal penalties if we knowingly obtain or disclose individually identifiable health information from a covered entity in clinical trials with a smaller numbermanner that is not authorized or permitted by the Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic and Clinical Health Act, or HIPAA.
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Numerous other countries have, reached commercial production, cell therapy isor are developing, laws governing the collection, use and transmission of personal information as well. The EU and other jurisdictions have adopted data protection laws and regulations, which impose significant compliance obligations. In the EU, for example, effective May 25, 2018, the GDPR replaced the prior EU Data Protection Directive (95/46) that governed the processing of personal data in the European Union. The GDPR imposes significant obligations on controllers and processors of personal data, including, as compared to the prior directive, higher standards for obtaining consent from individuals to process their personal data, more robust notification requirements to individuals about the processing of their personal data, a developing industrystrengthened individual data rights regime, mandatory data breach notifications, limitations on the retention of personal data and a significant global market for manufacturing services may never emerge.
Cell therapy is in its early stagesincreased requirements pertaining to health data, and is still a developing areastrict rules and restrictions on the transfer of research, with few cell therapy products approved for clinical use. Manypersonal data outside of the existing cellular therapy candidates are basedEU, including to the U.S. The GDPR also imposes additional obligations on, novel cell technologiesand required contractual provisions to be included in, contracts between companies subject to the GDPR and their third-party processors that are inherently riskyrelate to the processing of personal data. The GDPR allows EU member states to make additional laws and regulations further limiting the processing of genetic, biometric or health data.
Adoption of the GDPR increased our responsibility and liability in relation to personal data that we process and may not be understood require us to put in place additional mechanisms to ensure compliance. Any failure to comply with the requirements of GDPR and applicable national data protection laws of EU member states, could lead to regulatory enforcement actions and significant administrative and/or accepted by the marketplace, making it difficult for their own fundingfinancial penalties against us (fines of up to enable themEuro 20,000,000 or up to continue their business. In addition to providing in-house process development and manufacturing expertise for our own product candidates in development, Masthercell Global provides development and manufacturing of cell and tissue-based therapeutic products in clinical and pre-clinical trials. The number of people who may use cell or tissue-based therapies, and the demand for cell processing services, is difficult to forecast. If cell therapies under development by us or by others to treat disease are not proven safe and effective, demonstrate unacceptable risks or side effects or, where required, fail to receive regulatory approval, our manufacturing business will be significantly impaired. While the therapeutic application of cells to treat serious diseases is currently being explored by a number of companies, to date there are only a handful of approved cell therapy products in the U.S. Ultimately, our success in deriving revenue from manufacturing depends on the development and growth of a broad and profitable global market for cell-, gene- and tissue-based therapies and services and our ability to capture a share of this market through our global CDMO network.
Masthercell Global's revenues may vary dramatically change from period to period making it difficult to forecast future results.
Masthercell Global (which includes our CDMO subsidiaries) (“Masthercell” or “Masthercell Global”) recorded revenues of approximately $22 million for the year ended November 30, 2018, representing an increase of 92% over the same period last year. The nature and duration of Masthercell’s contracts with customers often involve regular renegotiation of the scope, level and price of the services we are providing. If our customers reduce the level of their spending on research and development or are unsuccessful in attaining or retaining product sales due to market conditions, reimbursement issues or other factors, our results of operations may be materially impacted. In addition, other factors, including the rate of enrollment for clinical studies, will directly impact the level and timing of the products and services we deliver. As such, the levels of our revenues and profitability can fluctuate significantly from one period to another and it can be difficult to forecast the level of future revenues with any certainty. Furthermore, a dramatic change in our future revenue may result an impairment of our goodwill.
The loss of one or more of MaSTherCell’s major clients or a decline in demand from one or more of these clients could harm MaSTherCell’s business.
MaSTherCell has a limited number of major clients that together account for a large percentage4% of the total revenues earned. Overworldwide annual turnover of the pastpreceding financial year, MaSTherCell has increased its client portfoliowhichever is higher), and diversified sourcecould adversely affect our business, financial condition, cash flows and results of revenues, butoperations.
We are increasingly dependent on information technology and our systems and infrastructure face certain risks, including cybersecurity and data storage risks.
Significant disruptions to our information technology systems or breaches of information security could adversely affect our business. In the ordinary course of business, we collect, store and transmit confidential information, and it is critical that we do so in a secure manner in order to maintain the confidentiality and integrity of such confidential information. Our information technology systems are potentially vulnerable to service interruptions and security breaches from inadvertent or intentional actions by our employees, partners, vendors, or from attacks by malicious third parties. Maintaining the secrecy of this confidential, proprietary, and/or trade secret information is important to our competitive business position. While we have taken steps to protect such information and invested in information technology, there can be no assurance that such clientsour efforts will continue to use MaSTherCell’s services atprevent service interruptions or security breaches in our systems or the same levelunauthorized or at all. A reductioninadvertent wrongful access or delaydisclosure of confidential information that could adversely affect our business operations or result in the loss, dissemination, or misuse of critical or sensitive information. A breach of our security measures or the accidental loss, inadvertent disclosure, unapproved dissemination or misappropriation or misuse of trade secrets, proprietary information, or other confidential information, whether as a result of theft, hacking, or other forms of deception, or for any other cause, could enable others to produce competing products, use our proprietary technology and/or adversely affect our business position. Further, any such interruption, security breach, loss or disclosure of MaSTherCell’s services, including reductions or delays dueconfidential information could result in financial, legal, business, and reputational harm to market, economic or competitive conditions,us and could have a material adverse effect on MaSTherCell’s business, operating results and financial condition.
MaSTherCell’s business is subject to risks associated with a single manufacturing facility.
The majority of Masthercell Global’s contract manufacturing services are from MaSTherCell S.A., our Belgian subsidiary and are dependent upon its single fully operational facility located in Gosselies (Belgium). A catastrophic loss of the use of all or a portion of the manufacturing facility due to accident, fire, explosion, labor issues, weather conditions, other natural disaster or otherwise, whether short or long-term, could have a material adverse effect on MaSTherCell’s customer relationships and financial results. While its global network partners offer alternative manufacturing sites as part of a disaster recovery plan, this may require it to invest significant time and effort in tech transfer.
If MaSTherCell loses electrical power at its manufacturing facility, its business operations may be adversely affected.
If MaSTherCell loses electrical power at its manufacturing facility for more than a few hours, MaSTherCell would be unable to continue its manufacturing operations for an extended period of time. Additionally, MaSTherCell does not have an alternative manufacturing location located nearby. While MaSTherCell implemented remediation measures to address this risk by setting up a back-up generator allowing it to provide for its manufacturing power consumption needs for a few hours and by being granted a priority access to power in case of global power outage, in the industrial park in Belgium where its premises are located, these measures may not prevent a significant disruption in MaSTherCell’s manufacturing operations which could materially and adversely affect its business operations during an extended period of power outage.
The logistics associated with the distribution of materials produced by MaSTherCell for third parties and for us are significant, complex and expensive and may negatively impact our ability to generate and meet future demand for our products and improve profitability.
Current cell therapy products and product candidates have a limited shelf life, in certain instances limited to less than 12 hours. Thus, it is necessary to minimize the amount of time between when the cell product is extracted from a patient, arrives at our facility for processing, and is returned for infusion in the patient. To do so, we need our cell therapy facilities to be located in major population centers in which patients are likely to be located and within close proximity of major airports. In the future, it may be necessary to build new facilities or invest into new technologies enabling final formulation at point of care, which would require a significant commitment of capital and may not then be available to us. Even if we are able to establish such new facilities or technologies, we may experience challenges in ensuring that they are compliant with cGMP standards, EMEA requirements, and/or applicable state or local regulations. We cannot be certain that we would be able to recoup the costs of establishing a facility in a given market. Given these risks, we could choose not to expand our cell processing and manufacturing services into new geographic markets which will limit our future growth prospects.
Product liability and uninsured risks may adversely affect MaSTherCell’s continuing operations and damage its reputation.
MaSTherCell operates in an industry susceptible to significant product liability claims. MaSTherCell may be liable if it manufactures any product that causes injury, illness, or death for intentional or gross fault on its part. In addition, product liability claims may be brought against MaSTherCell’s clients, in which case MaSTherCell’s clients or others may seek contribution from MaSTherCell if they incur any loss or expenses related to such claims. These claims may be brought by individuals seeking relief or by groups seeking to represent a class. While MaSTherCell’s liability may be limited to instances where it was grossly negligent, nonetheless, the defense of such claims may be costly and time-consuming and could divert the attention of MaSTherCell’s management and technical personnel.
A breakdown or breach of MaSTherCell’s information technology systems could subject MaSTherCell to liability.
MaSTherCell relies upon its information technology systems and infrastructure for its business. The size and complexity of MaSTherCell’s computer systems make it potentially vulnerable to breakdown and unauthorized intrusion. MaSTherCell could also experience a business interruption, theft of confidential information, or reputational damage from industrial espionage attacks, malware or other cyber-attacks, which may compromise MaSTherCell’s system infrastructure or lead to data leakage, either internally or at MaSTherCell’s third-party providers.
Similarly, data privacy breaches by those who access MaSTherCell’s systems may pose a risk that sensitive data, including intellectual property, trade secrets or personal information belonging to MaSTherCell or its employees, clients or other business partners, may be exposed to unauthorized persons or to the public. Even if MaSTherCell runs regular IT security audits by third-parties, there can be no assurance that MaSTherCell’s efforts to protect its data and information technology systems will prevent breakdowns or breaches in MaSTherCell’s systems that could adversely affect its business and result in financial and reputational harm to MaSTherCell.
We face competition from other third party contact manufacturers, as well as more general competition from companies and academic and research institutions that may choose to self-manufacture rather than utilize a contract manufacturer.
We face competition from companies that are large, well-established manufacturers with financial, technical, research and development and sales and marketing resources that are significantly greater than those that we currently possess. In addition, certain of our leading competitors, such as Lonza Group, WuXi AppTec and PCT have international capabilities that we do not currently possess though we are pursuing.
More generally, we face competition inherent in any third-party manufacturer’s business - namely, that potential customers may instead elect to invest in their own facilities and infrastructure, affording them greater control over their products and the hope of long-term cost savings compared to a third party contract manufacturer. To be successful, we will need to convince potential customers that our current and expanding capabilities are more innovative, of higher-quality and more cost-effective than could be achieved through internal manufacturing and that our experience and quality manufacturing and process development expertise are unique in the industry. Our ability to achieve this and to successfully compete against other manufacturers will depend, in large part, on our success in developing technologies that improve both the quality and profitability associated with cell therapy manufacturing. If we are unable to successfully compete against other manufacturers, we may not be able to develop our CDMO business plans which may harm our business, financial condition andposition, results of operations.
Extensive industry regulation has had, and will continue to have, a significant impact on our CDMO business, and it may require us to substantially invest in our development, manufacturing and distribution capabilities and may negatively impact our ability to generate and meet future demand for our products and improve profitability.
Although we seek to conduct our business in compliance with applicable governmental healthcare laws and regulations, these laws and regulations are exceedingly complex and often subject to varying interpretations. The cell therapy industry is the topic of significant government interest, and thus the laws and regulations applicable to our business are subject to frequent changeoperations and/or reinterpretation. As such, therecash flow.
There can be no assurance that we will be able to develop in-house sales and commercial distribution capabilities or will haveestablish or maintain relationships with third-party collaborators to successfully commercialize any product in the resources, to maintain compliance with all such healthcare lawsUnited States or overseas, and regulations. Failure to comply with such healthcare laws and regulations couldas a result, in significant enforcement actions, civil or criminal penalties, which along with the costs associated with such compliance or with enforcement of such healthcare laws and regulations, may have a material adverse effect on our operations or may require restructuring of our operations or impair our ability to operate profitably.
Joint-venture partnerships integration into our global CDMO network would be subject to various risks and uncertainties and may involve significant time and attention, all of which could disrupt or adversely affect our business and harm our reputation.
We need our cell therapy facilities to be located in major population centers in which patients are likely to be located and within close proximity of major airports. To do so, we intend to build up a global CDMO network partnership offering alternative manufacturing sites for our third-party clients currently operating out of Belgium, Korea and Israel. The failure to provide harmonized manufacturing quality standards between the current and any future sites to our clients and compliance with local regulatory agencies requirements could have a material adverse effect on our reputation, business, operating results and financial condition.
We are highly dependent on our key personnel, and if we are not successful in attracting, motivating and retaining highly qualified personnel, we may not be able to successfully implementgenerate product revenue.
A variety of risks associated with operating our business strategy.
Our abilityinternationally could materially adversely affect our business. We plan to competeseek regulatory approval of our product candidates outside of the United States and, accordingly, we expect that we, and any potential collaborators in those jurisdictions, will be subject to additional risks related to operating in foreign countries, including:
These and other risks associated with our planned international operations may materially adversely affect our ability to attract, motivateattain or maintain profitable operations.
Risks Related to the Sale of Masthercell
Our results of operations will differ materially from any expectations or guidance previously provided by us concerning future financial results, and retain highly qualified managerial, scientific and medical personnel. We are highlyour future financial results will be dependent on our management and onability to grow our trained staff turnover. If the staff turnover increases, it could result in additional hiring and training expenses, potentially delays in product development and manufacturing and harm our businessPOC business.
Masthercell and our growth. CompetitionCDMO business accounted for skilled personnel is intense and the turnover rate can be high, which may limit our ability to hire and retain highly qualified personnel on acceptable terms or at all.
To induce valuable employees to remain at our company, in addition to salary and cash incentives, we have provided stock option grants that vest over time. The value to employees of these equity grants that vest over time may be significantly affected by movements in our stock price that are beyond our control and may at any time be insufficient to counteract more lucrative offers from other companies. Although we have employment agreements with our key employees, some of these employment agreements provide for at-will employment, which means that anymost of our employees could leave our employment at any time, with or without notice. We do not maintain “key man” insurance policies onrevenues. Accordingly, following the livesconsummation of all of these individuals or the lives of any of our other employees.
Masthercell Global may not receive the future payments pursuant to the Stock Purchase Agreement with GPP-II.
The purchase price for the Masthercell Global Preferred Stock was up to $25 million, subject to certain adjustments, of which $11.8 million was paid in cash at closing. The Stock Purchase Agreement also requires GPP-II to make up to two additional payments to Masthercell Global if certain specified EBITDA (as defined in the Stock Purchase Agreement) and revenue targets are satisfied by Masthercell Global during each of years 2018 and 2019. For each of those fiscal years in which such specified EBITDA and revenue targets are satisfied by Masthercell Global, GPP-II will be obligated to pay an additional $6.6 million, subject to adjustment, to Masthercell Global shortly after the end of that fiscal year.
To earn such contingent payment for the 2018 fiscal year, Masthercell Global must have (i) during any twelve month period ending on or prior to December 31, 2018, generated Net Revenue equal to or greater than €14,100,000 and EBITDA equal to or greater than €1,800,000, and (ii) by December 31, 2018, obtained stockholder approval of the Stockholders’ Agreement Terms in accordance with law the and in a manner that will ensure that GPP-II is able to exercise its rights under the Stockholders’ Agreement without any further action or approval by GPP-II, us, our stockholders, or any other person, which includes the stockholder approval sought in our proxy statement for our annual meeting of stockholders (“Proper Approval”). In satisfaction of these conditions, Masthercell Global achieved the specified EBITDA and revenues targets in 2018 as described in the SPA and received $6,600,000 of the Future Payments on January 16, 2019 and received approval from the requisite shareholders on October 23, 2018.
To earn such contingent payment for the 2019 fiscal year, Masthercell Global must (i) during any twelve-month period ending on or prior to December 31, 2019, generate Net Revenue equal to or greater than €19,100,000 and EBITDA equal to or greater than €3,900,000, and (ii) by December 31, 2019, obtain Proper Approval, if not already obtained. Accordingly, if our stockholders do not approve the Stockholders’ Agreement Terms and do not meet the applicable Net Revenue and EBITDA targets, Masthercell Global will not be eligible to receive the future payments. In addition, in such event, GPP-II will obtain the right to put to us (or, at our discretion, to Masthercell Global if Masthercell Global shall then have the funds available to consummate the transaction) its shares in Masthercell Global.
GPP-II may force the sale of Masthercell, Global which may result in GPP-II receiving a greater value thanour financial results will differ materially from our previous results and the guidance and expectations we had previously provided. In addition, our future financial results will be dependent primarily on our ability to grow our POC business. See "Item 1A. Risk Factors - Risks Related to Our Company and its shareholders.POC Business" in this report for a description of the risks related to our POC business.
At any time following the earlier to occur of (i) after June 28, 2020 or (ii) Masthercell Global’sThe failure to generate positive EBITDA for any twelve (12) month period as determined on a quarterly basis prior to June 28, 2020 or its failure to generate at least $1,000,000 of EBITDA during any such twelve (12) month period after June 28, 2020 (collectively, a “Material Underperformance Event”), GPP-II haseffectively utilize the right, in its sole discretion, to approve and forceproceeds from the sale of Masthercell Global. While we have the right of first refusal with respect to acquiring Masthercell Global in its entirety, if GPP-II elects to exercise such a right and if we are not in the position to acquire Masthercell Global, GPP-II may causeadversely affect our business.
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The proceeds from the sale of Masthercell Globalwere received by us and not our shareholders. We used or will use a portion of the proceeds to any third partyrepay certain outstanding indebtedness and to pay for certain additional transaction costs associated with the sale. We will also be paying taxes on terms GPP-II approves on an arm’s length basis and subject to the receiptproceeds. The remainder of a fairness opinion. If this occurs, we are contractually obligated to approve such a sale and execute any documents as required by GPP-II. We must also share in any costs and expenses relating to such a sale on a pro rata basis. Based on this, therethe proceeds may be a situation where GPP-II approves a sale that is more valuableused, at the discretion of our Board of Directors, for working capital and other general corporate purposes, including, among other things, to grow our POC business and to further the development of Advanced Therapy Medicinal Products. We could also potentially identify and acquire, or beneficialpartner on the development of, other product candidates. However, we do not have agreements or commitments for any such acquisitions or partnerships at this time. Our failure to GPP-II than to our Company and our shareholders, and we will not be able to prevent such a transaction. Aeffectively utilize the proceeds from the sale of Masthercell Global could have impactsadversely affect our ability to the CDMO activities of Orgenesis as conducted through Masthercell Globalsuccessfully grow our POC business and to Orgenesis’ overall value as a whole.
GPP-II may, under certain circumstances, assume control of the Board of Directors of our subsidiary, Masthercell Global,develop cell therapy product candidates, which would result in our inability to control and direct the activities of such subsidiary.
Currently, the Board of Directors of Masthercell Global is comprised of seven (7) directors, four (4) of whom are appointed by us (one of whom must be an industry expert (the “Industry Expert Director”)) and three (3) of whom are appointed by GPP-II. In the event the Industry Expert Director is removed or replaced without the prior written approval of GPP-II, or a Material Underperformance Event has occurred after June 28, 2020, GPP-II has the right to increase the size of the Board of Directors of Masthercell Global and appoint additional directors to fill such vacancies so that GPP-II appointments represent a majority of the directors. If this were to occur, GPP-II would control the Board of Directors of Masthercell Global and will be entitled to direct its activities and approve any transactions of Masthercell Global, even if such transactions provide greater value to GPP-II than they do to Orgenesis and its stockholders. This lack of control could diminishcause the value of Masthercell Global as it relates to Orgenesis’ overall activity and significantly impact CDMO activities of Orgenesis as conducted through Masthercell Global.
GPP-II has the right to buy our shares in Masthercell Global upon the occurrence of certain events resultingyour investment in Orgenesis not holding any shares in Masthercell Global.to decline.
GPP-II has the right to purchase allThe announcement of the sharessale of stock we hold in Masthercell Global if anymay adversely affect our POC business and other activities.
The announcement of the following occurs: (i) there is an Activist Shareholder (as defined in the Stockholders’ Agreement) of the Company; (ii) the Chief Executive Officer and/or Chairman of the Board of Directors of the Company is replaced prior to June 28, 2023; (iii) there is a Change of Control (as defined in the Stockholders’ Agreement) of the Company; or (iv) the Industry Expert Director is removed or replaced without the prior written consent of GPP-II. If any of these events occur, GPP-II, upon notice to the Company, can force the Company to sell all of the securities it holds in Masthercell Global to GPP-II based upon a valuationsale of Masthercell Global to be determined by one of the top ten (10) independent third-party accounting firms in the United States with experience in performing valuations as selected by GPP-II. This right of GPP-II expires if GPP-II fails to exercise this right within three (3) years from the first occurrence of any of the events listed above. In the event GPP-II does exercise its right following the occurrence of any such event, Orgenesis shall cease to be a stockholder of Masthercell Global and will no longer derive any benefits from this subsidiary or its activities. This would alsomay adversely affect the CDMO activities being conducted by Orgenesis through Masthercell Global.
GPP-II has the right to effectuate a spin-off of our subsidiary, Masthercell Global
In addition to the other rights GPP-II has obtained under the Stockholders’ Agreement, GPP-II also has the right to effectuate a spin-off of Masthercell Global upon the earlier to occur of: (i) any of the four events listed in the section above or (ii) ninety (90) days after GPP-II provides the Company of its intent to exercise this right provided that such notice cannot be delivered by GPP-II before June 28, 2020. Such a spin-off would be based on a valuation of Masthercell Global as determined in accordance with the terms of the Stockholders’ Agreement. If such a spin-off was completed, there is a chance that Masthercell Global would no longer be a subsidiary of Orgenesis, which would result in a significant loss of value to Orgenesis. In addition, without control or ownership of Masthercell Global, Orgenesis’ ability to conduct CDMO activities independently would also be greatly affected in the event such a spin-off is completed.
If GPP-II opts to exchange its Masthercell Global Preferred Stock for shares of our common stock, we could potentially issue a substantial number of shares of our common stock to GPP-II, which may result in significant dilution to our existing stockholders.
The Stockholders’ Agreement provides that GPP-II is entitled, at any time, to convert its share capital in Masthercell Global for our common stock (such exchange option being the “Stock Exchange Option”). Under the Stock Exchange Option, GPP-II is entitled to exchange the Masthercell Global Preferred Stock for our common stock based on an exchange price (as defined in the Stockholders’ Agreement) that is not currently known. If GPP-II opts to exchange its Masthercell Global Preferred Stock for shares of our common stock, we could potentially issue a substantial number of shares of our common stock to GPP-II. The common stock issuable to GPP-II upon exchange of the Masthercell Global Preferred Stock for our common stock could have a depressive effect on the markettrading price of our common stock, our business and our relationships with clients, customers, suppliers and employees. Additionally, employees working in our POC business may become concerned about the future of such business, and lose focus or seek other employment.
We are subject to a non-competition covenant under the Purchase Agreement, which will limit our ability to engage in the CDMO business except with respect to certain of our subsidiaries' operations in South Korea and Israel.
For a period of three (3) years in the European Union and five (5) years in the United States and the rest of the world (other than the European Union), and a period of three (3) years in the European Union, in each case from and after the sale of Masthercell February 10, 2020 closing date (the "Non-Competition Period"), we are subject to a non-competition covenant made in the Purchase Agreement that restricts our ability to engage in the CDMO business except with respect to certain of our subsidiaries' operations in South Korea and Israel. During the Non-Competition Period, we will be restricted from engaging in the business of providing on a contract basis to third-party customers cell or gene therapy development, analytical or manufacturing services or related products, including the development, analysis and manufacture of plasmids or genetically modified autologous or allogeneic cells; other cell characterization and engineering services; related analytical or bioanalytical services; or related fill and finish or other packaging services; provided, however, that we shall not be restricted from engaging in (i) our current or currently proposed POC business, (ii) research, manufacturing, development and other activities related to the research, development, manufacturing, discovery and commercialization of therapeutic products or technologies or (iii) our subsidiaries' CDMO operations in South Korea and Israel. This limitation may negatively impact the scope and/or volume of our business, which may adversely affect our financial condition and results of operations. In addition, certain third party acquirers of our current business would be subject to these limitations during the Non-Competition Period, which may limit our opportunities with respect to a future sale transaction of our current business during the Non-Competition Period that may otherwise be favorable to our stockholders.
We are obligated to indemnify Catalent for certain losses resulting from breaches of certain representation and warranties set forth in the Purchase Agreement relating to the sale of Masthercell.
Under the terms of the Purchase Agreement, we are obligated to indemnify Catalent for certain losses resulting from breaches of certain representations and warranties in the Purchase Agreement as well as certain litigation relating to the sale of Masthercell. Any and all such liability would reduce the net proceeds from the sale of Masthercell that are available for our use.
We may be exposed to litigation related to the sale of Masthercell from the holders of our stock.
Transactions such as the sale of Masthercell are sometimes subject to lawsuits by increasingstockholders. Because the numberholders of our stock did not receive any consideration from the sale of Masthercell, it is possible that they may sue us or our Board of Directors. Such lawsuits could result in substantial costs and divert our management's attention from other business concerns, which could seriously harm our business.
Because we are expected to have significantly less revenue and significantly fewer assets following the sale of Masthercell, there is a possibility that such lack of revenues and diminished assets may affect our ability to satisfy the continued listing standards of the Nasdaq, which could result in the delisting of our common stock.
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The continued listing standards of the Nasdaq Capital Market include, among other things, requirements that we maintain certain levels of stockholders' equity, market capitalization and/or minimum trading price. Even though we currently satisfy these requirements, following the sale of Masthercell, we will be smaller with limited revenue and significantly fewer assets, which may cause us to fail to satisfy the continued listing standards of the Nasdaq Capital Market. In the event that we are unable to satisfy such continued listing standards, our common stock may be delisted from the Nasdaq Capital Market. Any delisting of our common stock from such market could adversely affect our ability to attract new investors, decrease the liquidity of our outstanding shares of common stock, outstanding. Such downward pressurereduce our flexibility to raise additional capital, reduce the price at which our common stock trades and increase the transaction costs inherent in trading such shares with overall negative effects for our stockholders. In addition, delisting of our common stock could encourage short sales bydeter broker-dealers from making a market in or otherwise seeking or generating interest in our common stock, and might deter certain investors, whichinstitutions and persons from investing in our securities at all. For these reasons and others, delisting could place further downward pressure onadversely affect the price of the common stock. Accordingly, the number of shares of outstandingour common stock, may increase significantlyour business, our financial condition and the ownership interests and proportionate voting powerresults of the existing stockholders may be significantly diluted.
operations.
Risks Related to Our Trans-Differentiation Technologies for Diabetes
THM is entitled to cancel the THM License Agreement.
Pursuant to the terms of the THM License Agreement with THM, the Israeli Subsidiary must develop, manufacture, sell and market the products pursuant to the milestones and time schedule specified in the development plan. In the event the Israeli Subsidiary fails to fulfill the terms of the development plan under the THM License Agreement, THM shall be entitled to terminate the THM License Agreement by providing the Israeli Subsidiary with written notice of such a breach and if the Israeli Subsidiary does not cure such breach within one year of receiving the notice. If THM cancels the THM License Agreement, our PTPOC business may be materially adversely affected. THM may also terminate the THM License Agreement if the Israeli Subsidiary breaches an obligation contained in the THM License Agreement and does not cure it within 180 days of receiving notice of the breach. Any termination or cancellation of the THM License Agreement is likely to materially adversely affect our business and prospects.
Our success will depend on strategic collaborations with third parties to develop and commercialize therapeutic product candidates, and we may not have control over a number of key elements relating to the development and commercialization of any such product candidate.
A key aspect of our strategy is to seek collaboration with a partner, such as a large pharmaceutical organization, that is willing to further develop and commercialize a selected product candidate. To date, we have not entered into any such collaborative arrangement. By entering into any such strategic collaboration, we may rely on our partner for financial resources and for development, regulatory and commercialization expertise. Our partner may fail to develop or effectively commercialize our product candidate because they:
We may not be able to enter into a collaboration on acceptable terms, if at all. We face competition in our search for partners from other organizations worldwide, many of whom are larger and are able to offer more attractive deals in terms of financial commitments, contribution of human resources, or development, manufacturing, regulatory or commercial expertise and support. If we are not successful in attracting a partner and entering into a collaboration on acceptable terms, we may not be able to complete development of or commercialize any product candidate. In such event, our ability to generate revenues and achieve or sustain profitability would be significantly hindered and we may not be able to continue operations as proposed, requiring us to modify our business plan, curtail various aspects of our operations or cease operations.
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Third parties to whom we may license or transfer development and commercialization rights for products covered by intellectual property rights may not be successful in their efforts and, as a result, we may not receive future royalty or other milestone payments relating to those products or rights.
If we are unable to successfully acquire, develop or commercialize new products, our operating results will suffer. Our future results of operations will depend to a significant extent upon our ability to successfully develop and commercialize our technology and businesses in a timely manner. There are numerous difficulties in developing and commercializing new technologies and products, including:
As a result of these and other difficulties, products in development by us may not receive timely regulatory approvals, or approvals at all, necessary for marketing by us or other third-party partners. If any of our future products are not approved in a timely fashion or, when acquired or developed and approved, cannot be successfully manufactured, commercialized or reimbursed, our operating results could be adversely affected. We cannot guarantee that any investment we make in developing product will be recouped, even if we are successful in commercializing these products.
Our research and development programs are based on novel technologies and are inherently risky.
We are subject to the risks of failure inherent in the development of products based on new technologies. The novel nature of our cell therapy technology creates significant challenges with respect to product development and optimization, manufacturing, government regulation and approval, third-party reimbursement and market acceptance. For example, the FDA and EMA have relatively limited experience with the development and regulation of cell therapy products and, therefore, the pathway to marketing approval for our cell therapy product candidates may accordingly be more complex, lengthy and uncertain than for a more conventional product candidate. The indications of use for which we choose to pursue development may have clinical effectiveness endpoints that have not previously been reviewed or validated by the FDA or EMA, which may complicate or delay our effort to ultimately obtain FDA or EMA approval. Our efforts to overcome these challenges may not prove successful, and any product candidate we seek to develop may not be successfully developed or commercialized.
Extensive industry regulation has had, and will continue to have, a significant impact on our business, especially our product development, manufacturing and distribution capabilities.
All pharmaceutical companies are subject to extensive, complex, costly and evolving government regulation. For the U.S., this is principally administered by the FDA and to a lesser extent by the Drug Enforcement Administration (“DEA”("DEA") and state government agencies, as well as by varying regulatory agencies in foreign countries where products or product candidates are being manufactured and/or marketed. The Federal Food, Drug and Cosmetic Act, the Controlled Substances Act and other federal statutes and regulations, and similar foreign statutes and regulations, govern or influence the testing, manufacturing, packing, labeling, storing, record keeping, safety, approval, advertising, promotion, sale and distribution of our future products. Under these regulations, we may become subject to periodic inspection of our facilities, procedures and operations and/or the testing of our future products by the FDA, the DEA and other authorities, which conduct periodic inspections to confirm that we are in compliance with all applicable regulations. In addition, the FDA and foreign regulatory agencies conduct pre-approval and post-approval reviews and plant inspections to determine whether our systems and processes are in compliance with current good manufacturing practice (“cGMP”("cGMP") and other regulations. Following such inspections, the FDA or other agency may issue observations, notices, citations and/or warning letters that could cause us to modify certain activities identified during the inspection. FDA guidelines specify that a warning letter is issued only for violations of “regulatory significance”"regulatory significance" for which the failure to adequately and promptly achieve correction may be expected to result in an enforcement action. We may also be required to report adverse events associated with our future products to FDA and other regulatory authorities. Unexpected or serious health or safety concerns would result in labeling changes, recalls, market withdrawals or other regulatory actions.
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The range of possible sanctions includes, among others, FDA issuance of adverse publicity, product recalls or seizures, fines, total or partial suspension of production and/or distribution, suspension of the FDA’sFDA's review of product applications, enforcement actions, injunctions, and civil or criminal prosecution. Any such sanctions, if imposed, could have a material adverse effect on our business, operating results, financial condition and cash flows. Under certain circumstances, the FDA also has the authority to revoke previously granted drug approvals. Similar sanctions as detailed above may be available to the FDA under a consent decree, depending upon the actual terms of such decree. If internal compliance programs do not meet regulatory agency standards or if compliance is deemed deficient in any significant way, it could materially harm our business.
The European Medicines Agency (“EMA”("EMA") will regulate our future products in Europe. Regulatory approval by the EMA will be subject to the evaluation of data relating to the quality, efficacy and safety of our future products for its proposed use. The time taken to obtain regulatory approval varies between countries. Different regulators may impose their own requirements and may refuse to grant, or may require additional data before granting, an approval, notwithstanding that regulatory approval may have been granted by other regulators.
Regulatory approval may be delayed, limited or denied for a number of reasons, including insufficient clinical data, the product not meeting safety or efficacy requirements or any relevant manufacturing processes or facilities not meeting applicable requirements.
Further trials and other costly and time-consuming assessments of the product may be required to obtain or maintain regulatory approval. Medicinal products are generally subject to lengthy and rigorous pre-clinical and clinical trials and other extensive, costly and time-consuming procedures mandated by regulatory authorities. We may be required to conduct additional trials beyond those currently planned, which could require significant time and expense. In addition, even after the technology approval, both in the U.S. and Europe, we will be required to maintain post marketing surveillance of potential adverse and risk assessment programs to identify adverse events that did not appear during the clinical studies and drug approval process. All of the foregoing could require an investment of significant time and expense.
We have never generated any revenue from therapeutic product sales and our ability to generate revenue from product sales and become profitable depends significantly on our success in a number of factors.
We have no therapeutic products approved for commercial sale, have not generated any revenue from product sales, and do not anticipate generating any revenue from product sales until sometime after we have received regulatory approval for the commercial sale of a product candidate. Our ability to generate revenue and achieve profitability depends significantly on our success in many factors, including:
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Even if one or more of the product candidates that we develop is approved for commercial sale, we anticipate incurring significant costs associated with commercializing any approved product candidate. Our expenses could increase beyond expectations if we are required by the U.S. Food and Drug Administration, or the FDA, or other regulatory agencies, domestic or foreign, to change our manufacturing processes or assays, or to perform clinical, nonclinical, or other types of studies in addition to those that we currently anticipate. If we are successful in obtaining regulatory approvals to market one or more of our product candidates, our revenue will be dependent, in part, upon the size of the markets in the territories for which we gain regulatory approval, the accepted price for the product, the ability to get reimbursement at any price, and whether we own the commercial rights for that territory. If the number of our addressable disease patients is not as significant as we estimate, the indication approved by regulatory authorities is narrower than we expect, or the reasonably accepted population for treatment is narrowed by competition, physician choice or treatment guidelines, we may not generate significant revenue from sales of such products, even if approved. If we are not able to generate revenue from the sale of any approved products, we may never become profitable.
We have concentrated our research and development efforts on technology using cell-based therapy, and our future success is highly dependent on the successful development of that technology for diabetes.
We have developed a technology that demonstrates the capacity to induce a shift in the developmental fate of cells from the liver and differentiating (converting) them into “pancreatic"pancreatic beta cell-like”cell-like" insulin-producing cells for patients with diabetes. Based on licensed know-how and patents, our intention is to develop our technology to the clinical stage for regeneration of functional insulin-producing cells, thus enabling normal glucose regulated insulin secretion, via cell therapy. By using therapeutic agents (i.e., PDX-1, and additional pancreatic transcription factors in an adenovirus-vector) that efficiently convert a sub-population of liver cells into pancreatic islets phenotype and function, this approach allows the diabetic patient to be the donor of his/her own therapeutic tissue and to start producing his/her own insulin in a glucose-responsive manner, thereby eliminating the need for insulin injections. Because this is a new approach to treating diabetes, developing and commercializing our product candidates subjects us to a number of challenges, including:
When we commence our clinical trials, we may not be able to conduct our trials on the timelines we expect.
Clinical testing is expensive, time consuming, and subject to uncertainty. We cannot guarantee that any clinical studies will be conducted as planned or completed on schedule, if at all. We expect that our early clinical work will help support the filing with the FDA of an IND for our product in fiscal 2019.2020. However, we cannot be sure that we will be able to submit an IND in this time-frame, and we cannot be sure that submission of an IND will result in the FDA allowing clinical trials to begin. Moreover, even if these trials begin, issues may arise that could suspend or terminate such clinical trials. A failure of one or more clinical studies can occur at any stage of testing, and our future clinical studies may not be successful. Events that may prevent successful or timely completion of clinical development include:
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Any inability to successfully complete preclinical and clinical development could result in additional costs to us or impair our ability to generate revenue. In addition, if we make manufacturing or formulation changes to our product candidates, we may be required to, or we may elect to conduct additional studies to bridge our modified product candidates to earlier versions. Clinical study delays could also shorten any periods during which our products have patent protection and may allow our competitors to bring products to market before we do, which could impair our ability to successfully commercialize our product candidates and may harm our business and results of operations.
Our clinical trial results may also not support approval, whether accelerated approval, conditional marketing authorizations, or regular approval. The results of preclinical and clinical studies may not be predictive of the results of later-stage clinical trials, and product candidates in later stages of clinical trials may fail to show the desired safety and efficacy despite having progressed through preclinical studies and initial clinical trials. In addition, our product candidates could fail to receive regulatory approval for many reasons, including the following:
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Further, failure to obtain approval for any of the above reasons may be made more likely by the fact that the FDA and other regulatory authorities have very limited experience with commercial development of our cell therapy for the treatment of Type 1 Diabetes.
Our product candidates may cause undesirable side effects or have other properties that could halt their clinical development, prevent their regulatory approval, limit their commercial potential, or result in significant negative consequences.
As with most biological drug products, use of our product candidates could be associated with side effects or adverse events which can vary in severity from minor reactions to death and in frequency from infrequent to prevalent. Any of these occurrences may materially and adversely harm our business, financial condition and prospects.
Research and development of biopharmaceutical products is inherently risky.
We may not be successful in our efforts to use and enhance our technology platform to create a pipeline of product candidates and develop commercially successful products. Furthermore, we may expend our limited resources on programs that do not yield a successful product candidate and fail to capitalize on product candidates or diseases that may be more profitable or for which there is a greater likelihood of success. If we fail to develop additional product candidates, our commercial opportunity will be limited. Even if we are successful in continuing to build our pipeline, obtaining regulatory approvals and commercializing additional product candidates will require substantial additional funding and are prone to the risks of failure inherent in medical product development. Investment in biopharmaceutical product development involves significant risk that any potential product candidate will fail to demonstrate adequate efficacy or an acceptable safety profile, gain regulatory approval, and become commercially viable. We cannot provide you any assurance that we will be able to successfully advance any of these additional product candidates through the development process. Our research programs may initially show promise in identifying potential product candidates, yet fail to yield product candidates for clinical development or commercialization for many reasons, including the following:
If any of these events occur, we may be forced to abandon our development efforts for a program or programs, or we may not be able to identify, discover, develop, or commercialize additional product candidates, which would have a material adverse effect on our business and could potentially cause us to cease operations.
Our product candidates are biologics and the manufacture of our product candidates is complex and we may encounter difficulties in production, particularly with respect to process development or scaling-out of our manufacturing capabilities.
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If we encounter such difficulties, our ability to provide supply of our product candidates for clinical trials or our products for patients, if approved, could be delayed or stopped, or we may be unable to maintain a commercially viable cost structure. Our product candidates are biologics and the process of manufacturing our products is complex, highly regulated and subject to multiple risks. The manufacture of our product candidates involves complex processes, including the biopsy of tissue from a patient’spatient's liver, propagation of the patient’spatient's liver cells from that liver tissue to obtain the desired dose, trans-differentiating those cells into insulin-producing cells ex vivo and ultimately infusing the cells back into a patient’spatient's body. As a result of the complexities, the cost to manufacture biologics is generally higher than traditional small molecule chemical compounds, and the manufacturing process is less reliable and is more difficult to reproduce.
Our manufacturing process will be susceptible to product loss or failure due to logistical issues associated with the collection of liver cells, or starting material, from the patient, shipping such material to the manufacturing site, shipping the final product back to the patient, and infusing the patient with the product, manufacturing issues associated with the differences in patient starting materials, interruptions in the manufacturing process, contamination, equipment or reagent failure, improper installation or operation of equipment, vendor or operator error, inconsistency in cell growth, failures in process testing and variability in product characteristics. Even minor deviations from normal manufacturing processes could result in reduced production yields, product defects, and other supply disruptions. If for any reason we lose a patient’spatient's starting material or later-developed product at any point in the process, the manufacturing process for that patient will need to be restarted and the resulting delay may adversely affect that patient’spatient's outcome. If microbial, viral, or other contaminations are discovered in our product candidates or in the manufacturing facilities in which our product candidates are made, such manufacturing facilities may need to be closed for an extended period of time to investigate and remedy the contamination. Because our product candidates are manufactured for each particular patient, we will be required to maintain a chain of identity and tractability of all reagents and viruses involved in the process with respect to materials as they move from the patient to the manufacturing facility, through the manufacturing process, and back to the patient. Maintaining such a chain of identity is difficult and complex, and failure to do so could result in adverse patient outcomes, loss of product, or regulatory action including withdrawal of our products from the market. Further, as product candidates are developed through preclinical to late stage clinical trials towards approval and commercialization, it is common that various aspects of the development program, such as manufacturing methods, are altered along the way in an effort to optimize processes and results. Such changes carry the risk that they will not achieve these intended objectives, and any of these changes could cause our product candidates to perform differently and affect the results of planned clinical trials or other future clinical trials.
Although we are working to develop commercially viable processes, doing so is a difficult and uncertain task, and there are risks associated with scaling to the level required for advanced clinical trials or commercialization, including, among others, cost overruns, potential problems with process scale-out, process reproducibility, stability issues, lot consistency, and timely availability of reagents or raw materials. We may ultimately be unable to reduce the cost of goods for our product candidates to levels that will allow for an attractive return on investment if and when those product candidates are commercialized.
We expect that continued development of our manufacturing facility via MaSTherCell and our global CDMO network will provide us with enhanced control of material supply for both clinical trials and the commercial market, enable the more rapid implementation of process changes, and allow for better long-term margins. We may establish multiple manufacturing facilities as we expand our commercial footprint to multiple geographies, which may lead to regulatory delays or prove costly. Even if we are successful, our manufacturing capabilities could be affected by cost-overruns, unexpected delays, equipment failures, labor shortages, natural disasters, power failures and numerous other factors that could prevent us from realizing the intended benefits of our manufacturing strategy and have a material adverse effect on our business.
In addition, the manufacturing process for any products that we may develop is subject to FDA and foreign regulatory authority approval process, and we will need to contract with manufacturers who can meet all applicable FDA and foreign regulatory authority requirements on an ongoing basis. If we are unable to reliably produce products to specifications acceptable to the FDA or other regulatory authorities, we may not obtain or maintain the approvals we need to commercialize such products. Even if we obtain regulatory approval for any of our product candidates, there is no assurance that either we or our CDMO subsidiaries and joint ventures will be able to manufacture the approved product to specifications acceptable to the FDA or other regulatory authorities, to produce it in sufficient quantities to meet the requirements for the potential launch of the product, or to meet potential future demand. Any of these challenges could delay completion of clinical trials, require bridging clinical trials or the repetition of one or more clinical trials, increase clinical trial costs, delay approval of our product candidate, impair commercialization efforts, increase our cost of goods, and have an adverse effect on our business, financial condition, results of operations and growth prospects.
The manufacture of biological drug products is complex and requires significant expertise and capital investment, including the development of advanced manufacturing techniques and process controls. Manufacturers of biologic products often encounter difficulties in production, particularly in scaling up or out, validating the production process, and assuring high reliability of the manufacturing process (including the absence of contamination). These problems include logistics and shipping, difficulties with production costs and yields, quality control, including stability of the product, product testing, operator error, availability of qualified personnel, as well as compliance with strictly enforced federal, state and foreign regulations. Furthermore, if contaminants are discovered in our supply of our product candidates or in the manufacturing facilities, such manufacturing facilities may need to be closed for an extended period of time to investigate and remedy the contamination. We cannot assure you that any stability failures or other issues relating to the manufacture of our product candidates will not occur in the future. Additionally, our manufacturers may experience manufacturing difficulties due to resource constraints or as a result of labor disputes or unstable political environments. If our manufacturers were to encounter any of these difficulties, or otherwise fail to comply with their contractual obligations, our ability to provide our product candidate to patients in clinical trials would be jeopardized. Any delay or interruption in the supply of clinical trial supplies could delay the completion of clinical trials, increase the costs associated with maintaining clinical trial programs and, depending upon the period of delay, require us to begin new clinical trials at additional expense or terminate clinical trials completely.
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Cell-based therapies rely on the availability of reagents, specialized equipment, and other specialty materials, which may not be available to us on acceptable terms or at all. For some of these reagents, equipment, and materials, we rely or may rely on sole source vendors or a limited number of vendors, which could impair our ability to manufacture and supply our products.
Manufacturing our product candidates will require many reagents and viruses, which are substances used in our manufacturing processes to bring about chemical or biological reactions, and other specialty materials and equipment, some of which are manufactured or supplied by small companies with limited resources and experience to support commercial biologics production. We currently depend on a limited number of vendors for certain materials and equipment used in the manufacture of our product candidates. Some of these suppliers may not have the capacity to support commercial products manufactured under GMP by biopharmaceutical firms or may otherwise be ill-equipped to support our needs. We also do not have supply contracts with many of these suppliers and may not be able to obtain supply contracts with them on acceptable terms or at all. Accordingly, we may experience delays in receiving key materials and equipment to support clinical or commercial manufacturing.
For some of these reagents, viruses, equipment, and materials, we rely and may in the future rely on sole source vendors or a limited number of vendors. An inability to continue to source product from any of these suppliers, which could be due to regulatory actions or requirements affecting the supplier, adverse financial or other strategic developments experienced by a supplier, labor disputes or shortages, unexpected demands, or quality issues, could adversely affect our ability to satisfy demand for our product candidates, which could adversely and materially affect our product sales and operating results or our ability to conduct clinical trials, either of which could significantly harm our business.
As we continue to develop and scale our manufacturing process, we expect that we will need to obtain rights to and supplies of certain materials and equipment to be used as part of that process. We may not be able to obtain rights to such materials on commercially reasonable terms, or at all, and if we are unable to alter our process in a commercially viable manner to avoid the use of such materials or find a suitable substitute, it would have a material adverse effect on our business.
We currently have no marketing and sales organization and have no experience in marketing therapeutic products. If we are unable to establish marketing and sales capabilities or enter into agreements with third parties to market and sell our product candidates, we may not be able to generate product revenue.
We currently have no sales, marketing, or commercial therapeutic product distribution capabilities and have no experience in marketing products. We intend to develop an in-house marketing organization and sales force, which will require significant capital expenditures, management resources, and time. We will have to compete with other pharmaceutical and biotechnology companies to recruit, hire, train, and retain marketing and sales personnel. If we are unable to or decide not to establish internal sales, marketing and commercial distribution capabilities for any or all products we develop, we will likely pursue collaborative arrangements regarding the sales and marketing of our products. However, there can be no assurance that we will be able to establish or maintain such collaborative arrangements, or if we are able to do so, that they will have effective sales forces. Any revenue we receive will depend upon the efforts of such third parties, which may not be successful. We may have little or no control over the marketing and sales efforts of such third parties, and our revenue from product sales may be lower than if we had commercialized our product candidates ourselves. We also face competition in our search for third parties to assist us with the sales and marketing efforts of our product candidates.
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There can be no assurance that we will be able to develop in-house sales and commercial distribution capabilities or establish or maintain relationships with third-party collaborators to successfully commercialize any product in the United States or overseas, and as a result, we may not be able to generate product revenue.
A variety of risks associated with operating our business internationally could materially adversely affect our business. We plan to seek regulatory approval of our product candidates outside of the United States and, accordingly, we expect that we, and any potential collaborators in those jurisdictions, will be subject to additional risks related to operating in foreign countries, including:
These and other risks associated with our planned international operations may materially adversely affect our ability to attain or maintain profitable operations.
We face significant competition from other biotechnology and pharmaceutical companies, and our operating results will suffer if we fail to compete effectively.
The biopharmaceutical industry, and the rapidly evolving market for developing cell-based therapies is characterized by intense competition and rapid innovation. Our competitors may be able to develop other compounds or drugs that are able to achieve similar or better results. Our potential competitors include major multinational pharmaceutical companies, established biotechnology companies, specialty pharmaceutical companies, universities, and other research institutions. Many of our competitors have substantially greater financial, technical and other resources, such as larger research and development staff and experienced marketing and manufacturing organizations as well as established sales forces. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large, established companies. Mergers and acquisitions in the biotechnology and pharmaceutical industries may result in even more resources being concentrated in our competitors. Competition may increase further as a result of advances in the commercial applicability of technologies and greater availability of capital for investment in these industries. Our competitors, either alone or with collaborative partners, may succeed in developing, acquiring or licensing on an exclusive basis drug or biologic products that are more effective, safer, more easily commercialized, or less costly than our product candidates or may develop proprietary technologies or secure patent protection that we may need for the development of our technologies and products.
Specifically, we face significant competition from companies in the insulin therapy market. Insulin therapy is widely used for Insulin-Dependent Diabetes Mellitus (IDDM) patients who are not controlled with oral medications. The global diabetes market comprising the insulin, insulin analogues and other anti-diabetic drugs has been evolving rapidly. A look at the diabetes market reveals that it is dominated by a handful of participants such as Novo Nordisk A/S, Eli Lilly and Company, Sanofi-Aventis, Takeda Pharmaceutical Company Limited, Pfizer Inc., Merck KgaA, and Bayer AG. Even if we obtain regulatory approval of our product candidates, we may not be the first to market and that may affect the price or demand for our product candidates. Additionally, the availability and price of our competitors’competitors' products could limit the demand and the price we are able to charge for our product candidates. We may not be able to implement our business plan if the acceptance of our product candidates is inhibited by price competition or the reluctance of physicians to switch from existing methods of treatment to our product candidates, or if physicians switch to other new drug or biologic products or choose to reserve our product candidates for use in limited circumstances. Additionally, a competitor could obtain orphan product exclusivity from the FDA with respect to such competitor’scompetitor's product. If such competitor product is determined to be the same product as one of our product candidates, that may prevent us from obtaining approval from the FDA for such product candidate for the same indication for seven years, except in limited circumstances.
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We are highly dependent on our key personnel, and if we are not successful in attracting, motivating and retaining highly qualified personnel, we may not be able to successfully implement our business strategy.
Our ability to compete in the highly competitive biotechnology and pharmaceutical industries depends upon our ability to attract, motivate and retain highly qualified managerial, scientific and medical personnel. We are highly dependent on our senior management, particularly our Chief Scientific Officer, Prof. Sarah Ferber, and our Chief Executive Officer, Vered Caplan. The loss of the services of any of our executive officers, other key employees, and other scientific and medical advisors, and our inability to find suitable replacements, could result in delays in product development and harm our business. Competition for skilled personnel is intense and the turnover rate can be high, which may limit our ability to hire and retain highly qualified personnel on acceptable terms or at all.
To induce valuable employees to remain at our company, in addition to salary and cash incentives, we have provided stock option grants that vest over time. The value to employees of these equity grants that vest over time may be significantly affected by movements in our stock price that are beyond our control and may at any time be insufficient to counteract more lucrative offers from other companies. Although we have employment agreements with our key employees, most these employment agreements provide for at-will employment, which means that any of our employees could leave our employment at any time, with or without notice. We do not maintain “key man”"key man" insurance policies on the lives of all of these individuals or the lives of any of our other employees.
Risks Related to our Common Stock
If we issue additional shares in the future, it will result in the dilution of our existing stockholders.
Our articles of incorporation authorizes the issuance of up to 145,833,334 shares of our common stock with a par value of $0.0001 per share. Our Board of Directors may choose to issue some or all of such shares to acquire one or more companies or products and to fund our overhead and general operating requirements. The issuance of any such shares will reduce the book value per share and may contribute to a reduction in the market price of the outstanding shares of our common stock. If we issue any such additional shares, such issuance will reduce the proportionate ownership and voting power of all current stockholders. Further, such issuance may result in a change of control of our company.
Our stock price and trading volume may be volatile, which could result in losses for our stockholders.
The equity trading markets have recently experienced high volatility resulting in highly variable and unpredictable pricing of equity securities. If the turmoil in the equity trading markets continues, the market for our common stock could change in ways that may not be related to our business, our industry or our operating performance and financial condition. In addition, the trading volume in our common stock may fluctuate and cause significant price variations to occur. Some of the factors that could negatively affect our share price or result in fluctuations in the price or trading volume of our common stock include:
Many of these factors are beyond our control, and we cannot predict their potential effects on the price of our common stock. In addition, the stock market is subject to extreme price and volume fluctuations. During the past 52 weeks ended November 30, 2018,December 31, 2019, our stock price has fluctuated from a low of $4.50$2.60 to a high of $14.68 (adjusted to account for the 1:12 reverse split implemented in November 2017).$5.60. This volatility has had a significant effect on the market price of securities issued by many companies for reasons unrelated to their operating performance and could have the same effect on our common stock.
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No assurance can be provided that a purchaser of our common stock will be able to resell their shares of common stock at or above the price that they acquired those shares. We can provide no assurances that the market price of common stock will increase or that the market price of common stock will not fluctuate or decline significantly.
We do not intend to pay dividends on any investment in the shares of stock of our company.
We have never paid any cash dividends, and currently do not intend to pay any dividends for the foreseeable future. The Board of Directors has not directed the payment of any dividends and does not anticipate paying dividends on the shares for the foreseeable future and intends to retain any future earnings to the extent necessary to develop and expand our business. Payment of cash dividends, if any, will depend, among other factors, on our earnings, capital requirements, and the general operating and financial condition, and will be subject to legal limitations on the payment of dividends out of paid-in capital. Because we do not intend to declare dividends, any gain on an investment in our company will need to come through an increase in the stock’sstock's price. This may never happen, and investors may lose all of their investment in our company.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not Applicable.
ITEM 2. PROPERTIES
We do not own any real property. A description of the leased premises we utilize in several of our facilities is as follows:
Entity
| Property Description
| |
Orgenesis Inc./Orgenesis Maryland Inc.
| These are the Company's principal offices:
| |
Orgenesis | Ltd. |
|
| |||
CureCell |
|
| |
Atvio Biotech |
|
|
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We believe that our facilities are generally in good condition and suitable to carry on our business. We also believe that, if required, suitable alternative or additional space will be available to us on commercially reasonable terms.
ITEM 3. LEGAL PROCEEDINGS
We are not involved in any pending legal proceedings that we anticipate would result in a material adverse effect on our business or operations.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT’SREGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Until March 13, 2018, the Company’sCompany's common shares were traded under OTC Market Group’sGroup's OTCQB. FromSince March 13, 2018, the Company's common stock beganhas been listed for trading on the Nasdaq Capital Market (Nasdaq CM) under the symbol “ORGS.”
"ORGS."
As of February 11, 2019,March 6, 2020, there were 156108 holders of record of our common stock, and the last reported sale price of our common stock on the Nasdaq CM on February 12, 2019March 6, 2020 was $4.88.$4.02. A significant number of shares of our common stock are held in either nominee name or street name brokerage accounts, and consequently, we are unable to determine the total number of beneficial owners of our stock.
Dividend Policy
To date, we have paid no dividends on our common stock and do not expect to pay cash dividends in the foreseeable future. We plan to retain all earnings to provide funds for the operations of our company. In the future, our Board of Directors will decide whether to declare and pay dividends based upon our earnings, financial condition, capital requirements, and other factors that our Board of Directors may consider relevant. We are not under any contractual restriction as to present or future ability to pay dividends.
Unregistered Sales of Equity Securities
During the fiscal year ended November 30, 2018,December 31, 2019, our financing activities consisted of the following:
(1) In January 2017, the Company entered into definitive agreements with an institutional investor for the private placement of 2,564,115 units of the Company’s securities for aggregate subscription proceeds to the Company of $16 million at $6.24 price per unit. Each unit is comprised of one share of the Company’s Common Stock and one warrant, exercisable over a three-years period from the date of issuance, to purchase one additional share of Common Stock at a per share exercise price of $6.24 (“Unit”). The subscription proceeds have been paid to the Company on a periodic basis through October 2018.
In July 2018, the Company entered into definitive agreements with assignees of the aforementioned institutional investor whereby these assignees remitted $4.6 million in respect of the units available under the original subscription agreement that had been subscribed for, entitling such investors to 702,307 units, with each unit being comprised of (i) one share of the Company's common stock and (ii) one three-year warrant to purchase up to an additional one share of the Company’s common stock at a per share exercise price of $6.24.
During the year ended November 30, 2018 and 2017, the investor and the assignees remitted to the Company $11.5 and $4.5 million, respectively, and the Company issued 1,813,687 and 721,160 Units, respectively.
(2) During the fiscal year ended November 30, 2018, the Company entered into definitive agreements with accredited and other qualified investors relating to a private placement of 1,237,642 units. Each unit is comprised of (i) one share of the Company’s common stock and (ii) three-year warrant to purchase up to an additional one share of the Company’s Common Stock at a per share exercise price of $6.24, for aggregate proceeds to the Company of approximately $7.7 million.
(3) During the year ended November 30, 2018, investors exercised 136,646 warrants into 136,646 shares of the Company’s Common Stock, for aggregate proceeds of $853 thousand.
(4) In November 2018,April 2019, we entered into unsecureda convertible note agreementsloan agreement with accredited oran offshore investorsinvestor for an aggregate amount of $625 thousand.$500 thousand into the U.S. Subsidiary. The loans bear an annual interest rate of 2% and mature in three years unless converted earlier. The holders,investor, at theirits option, may convert the outstanding principal amount and accrued interest under those notesthis note into 89,285 shares of our common stock and 89,285 three-year warrants to purchase up to an additional 89,285 shares of our common stock at a per share exercise price of $7. In$7.00; or into shares of the initial two years,U.S. Subsidiary at a valuation of the holders haveU.S. Subsidiary of $50 million.
(2) During May 2019, we entered into a private placement subscription agreement with an investor for $5 million. The lender shall be entitled, at any time prior to or no later than the rightmaturity date, to convert the outstanding principal amount, and accrued interest into sharesunits of capital stock of Hemogenyx-Cell, a subsidiary of Hemogenyx Pharmaceuticals Plc, at a price per share based on a pre-money valuation of Hemogenyx-Cell of $12 million (the “Hemogenyx Securities”), pursuant to the collaboration agreement with Hemogenyx Pharmaceuticals Plc.
(5) In November 2018, we entered into unsecured convertible note agreements with accredited or offshore investors for an aggregate amount of $625 thousand. The loan bears an annual interest rate of 2% and matures in three years unless converted earlier. The holders, at their option, may convert the outstanding principal amount and accrued interest under those notes into 89,285 shares of our common stock and 89,285 three-year warrants to purchase up to an additional 89,285(1) shares of our common stock at a conversion price per share exerciseequal to $7.00 and (2) warrants to purchase an equal number of additional shares of our common stock at a price of $7.$7.00 per share.
(3) In May 2019, we agreed to enter into a 6% convertible loan agreement with a lender for an aggregate amount of $5 million. The lender shall be entitled, at any time prior to or no later than the initial two years, the holders have the rightmaturity date, to convert the outstanding principalamount, into units of (1) shares of our common stock at a conversion price per share equal to $7.00 and (2) warrants to purchase an equal number of additional shares of our common stock at a price of $7.00 per share. As of the date of the filing of this Annual Report on Form 10-K, the loan had not yet been received by the Company
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(4) In June 2019, we entered into private placement subscription agreements for convertible notes with lenders for an aggregate amount of $2 million. The lenders shall be entitled, at any time prior to or no later than the maturity date, to convert the outstanding amount, into units of (1) shares of our common stock at a conversion price per share equal to $7.00 and (2) warrants to purchase an equal number of additional shares of our common stock at a price of $7.00 per share.
(5) During October 2019, we entered into a Private Placement Subscription Agreement and Convertible Credit Line Agreement (collectively, the "Credit Line Agreements") with four non-U.S. investors (the "Lenders"), pursuant to which the Lenders furnished to the Company access to an aggregate $5.0 million credit line (which consists of $1.25 million from each Lender) (collectively, the "Credit Line"). Pursuant to the Credit Line Agreements, the Company is entitled to draw down an aggregate of $1 million (consisting of $250,000 from each Lender) of the Credit Line in each of October 2019 and November 2019. In each of December 2019, January 2020 and February 2020, the Company may draw down an additional aggregate of $1 million (consisting of $250,000 from each Lender), until the total amount drawn down under the Credit Line reaches an aggregate of $5 million (consisting of $1.25 million from each Lender), subject to the approval of the Lenders.
Pursuant to the terms of the Credit Line Agreements and the Notes, the total loan amount, and all accrued but unpaid interest thereon, shall become due and payable on the second anniversary of the Effective Date (the "Maturity Date"). The Maturity Date may be extended by each Lender in its sole discretion and shall be in writing signed by the Company and the Lender. Interest on any amount that has been drawn down under the Credit Line accrues at a per annum rate of eight percent (8%). At any time prior to or on the Maturity Date, by providing written notice to us, each of the Lenders is entitled to convert its respective drawdown amounts and all accrued interest, into shares of capitalthe Company's common stock, par value $0.0001 per share (the "Common Stock"), at a conversion price equal to $7.00 per share.
Furthermore, upon the drawdown of Immugenyx, LLC,$500 thousand from each Lender and, together with the other Lenders, a subsidiarydrawdown of Hemogenyx Pharmaceuticals Plc,an aggregate of $2 million under the Credit Line, the existing warrants of the Lenders to purchase shares of Common Stock shall be amended to extend their exercise date to June 30, 2021 and the Company will issue to each of the Lenders warrants to purchase 50,000 shares of Common Stock at an exercise price of $7.00 per share. The new warrants will be exercisable for three (3) years from the Effective Date. During October 2019, such drawdown was reached and the warrants were issued.
The lenders shall be entitled, at any time prior to or no later than the maturity date, to convert the outstanding amount, into units of 1 share of our common stock at a conversion price per share equal to $7.00.
As at December 31, 2019, we had received $3.650 million from the Convertible Credit Line investment comprised of $1.15 million from one investor, $1 million from a second investor, and $750 thousand from two of the other lenders.
(6) In December 2019, we entered into private placement subscription agreements with investors for an aggregate amount of $250 thousand. The lenders shall be entitled, at any time prior to or no later than the maturity date, to convert the outstanding amount, into shares of our common stock at a conversion price per share equal to $7.00. In addition, the Company granted lender 183,481 warrants to purchase 183,481 additional shares of our common stock at a price of $7.00 per share based on a pre-money valuation of Immugenyx of $8 million (the “Immugenyx Securities”), pursuant to the collaboration agreement with Immugenyx, LLC.
share.
All of the securities issued in the transactions described above were issued without registration under the Securities Act in reliance upon the exemptions provided in Section 4(2) or Regulation S of the Securities Act. Except with respect to securities sold pursuant to Regulation S, the recipients of securities in each such transaction acquired the securities for investment only and not with a view to or for sale in connection with any distribution thereof. Appropriate legends were affixed to the share certificates issued in all of the above transactions. Each of the recipients also represented that they were “accredited investors”"accredited investors" within the meaning of Rule 501(a) of Regulation D under the Securities Act or had such knowledge and experience in financial and business matters as to be able to evaluate the merits and risks of an investment in its common stock. All recipients had adequate access, through their relationships with the Company and its officers and directors, to information about the Company. None of the transactions described above involved general solicitation or advertising.
Issuer Purchases of Equity Securities
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We do not have a stock repurchase program for our common stock and have not otherwise purchased any shares of our common stock.
ITEM 6. SELECTED FINANCIAL DATA
Not applicable.
ITEM 7. MANAGEMENT’SMANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management’sManagement's Discussion and Analysis of Financial Condition and Results of Operations is intended to provide information necessary to understand our audited consolidated financial statements for the two-year periodfiscal years ended December 31, 2019 and November 30, 2018 and one month ended December 31, 2018 and highlight certain other information which, in the opinion of management, will enhance a reader’sreader's understanding of our financial condition, changes in financial condition and results of operations. In particular, the discussion is intended to provide an analysis of significant trends and material changes in our financial position and the operating results of our business during the fiscal year ended November 30, 2018,December 31, 2019, as compared to the fiscal year ended November 30, 2017.2018 and the one month ended December 31, 2018. This discussion should be read in conjunction with our consolidated financial statements for the two-yearfiscal years ended December 31, 2019 and November 30, 2018 and one-month period ended November 30,December 31, 2018 and related notes included elsewhere in this Annual Report on Form 10-K. These historical financial statements may not be indicative of our future performance. This Management’sManagement's Discussion and Analysis of Financial Condition and Results of Operations contains numerous forward-looking statements, all of which are based on our current expectations and could be affected by the uncertainties and risks described throughout this filing, particularly in “Item"Item 1A. Risk Factors.”
"
Corporate Overview
We are a biotechnology company specializing in the development, manufacturing and provision of technologies and services in the cell and gene therapy industry.therapies ("CGTs") through point-of-care solutions. We operatehave historically operated through two independent business platforms: (i) a point-of-care (“POCare”) cell therapy ("POC") platform (“PT”) and (ii) a Contract Development and Manufacturing Organization (“CDMO”("CDMO") platform, conducted through our subsidiary, Masthercell Global.which provided contract manufacturing and development services for biopharmaceutical companies (the "CDMO Business"). Through our PT business,the POC platform, our aim is to further the development of CGTs, including Advanced Therapy Medicinal Products (“ATMPs”("ATMPs"), through collaborations and in-licensing with other pre-clinical and clinical-stage biopharmaceutical companies and research and healthcare institutes to bring such ATMPs to patients. These therapies span a wide range of treatments including, but not limited to, cell-based immunotherapies, therapeutics for metabolic diseases, neurodegenerative diseases and tissue regeneration. We out-licenseout-license these ATMPs, thus far primarily through joint venture ("JV') agreements, with regional partners including pharmaceutical and biotech companies as well as research institutions and hospitals. These regional partners have cell therapies in clinical development and are to whom we also provide manufacturing know-how, assay services, licensing, regulatory assistance, pre-clinical studies, intellectual property services, and trainingco-development services (collectively "POC Development Services") to support their activity in order to reach patients in a point-of-care hospital setting. Currently, our POC Development Services constitute the entirety of our revenue from the POC platform. Through ourthe CDMO platform, we arehad focused on providing contract manufacturing and development services for biopharmaceutical companies.companies, and we continue to provide such CDMO, or development, services in Israel and South Korea.
On February 2, 2020, we entered into a Stock Purchase Agreement (the "Purchase Agreement") with GPP-II Masthercell LLC ("GPP" and together with the Company, the "Sellers"), Masthercell Global Inc. ("Masthercell") and Catalent Pharma Solutions, Inc. (the "Buyer"). Pursuant to the terms and conditions of the Purchase Agreement, on February 10, 2020, the Sellers sold 100% of the outstanding equity interests of Masthercell to Buyer (the "Masthercell Sale") for an aggregate nominal purchase price of $315 million, subject to customary adjustments. After accounting for GPP's liquidation preference and equity stake in Masthercell as well as SFPI - FPIM's interest in MaSTherCell S.A., distributions to Masthercell option holders and transaction costs, we received approximately $126.7 million. Our audited financial statements and this Management's Discussion and Analysis of Financial Condition and Results of Operations contains the consolidated results of Masthercell as of and through December 31, 2019.
Our therapeutic development efforts in our PTPOC business are focused on advancing breakthrough scientific achievements in ATMPs, and namely autologous therapies, which have a curative potential. We base our development on therapeutic collaborations and in-licensing with other pre-clinical and clinical-stage biopharma companies as well as direct collaboration with research and healthcare institutes. We are engaging in therapeutic collaborations and in-licensing with other academic centers and research centers in order to pursue emerging technologies of other ATMPs in cell and gene therapy in such areas asincluding, but not limited to, cell-based immunotherapies, therapeutics for metabolic diseases, neurodegenerative diseases and tissue regeneration.regeneration Each of these customers and collaborations represents a growth opportunity and future revenue potential as we out-license these ATMPs through regional partners to whom we also provide regulatory, pre-clinical and training services to support their activity in order to reach patients in a point-of-care hospital setting.
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We carry out our PTPOC business through three wholly-owned and separate subsidiaries. This corporate structure allows us to simplify the accounting treatment, minimize taxation and optimize local grant support. The subsidiaries related to this business are Orgenesis Maryland Inc., in the U.S., Orgenesis SPRL,Belgium SRL (formerly Orgenesis SPRL), in the European Union and Orgenesis Ltd. in Israel.
During the periods covered by this report, we carried out our CDMO business through our subsidiaries Masthercell Global (of which we owned 62.2%), Atvio Biotech Ltd. ("Atvio"), an Israeli-based CDMO, and CureCell Co. Ltd. ("CureCell"), a Korea-based CDMO (of which we own 94.12%). Masthercell Global's subsidiaries, included MaSTherCell S.A., a Belgian-based entity ("MaSTherCell") (of which Masthercell Global owned 83.32%), wholly-owned Cell Therapy Holdings S.A., a Belgian-based entity, and Masthercell U.S., LLC, a U.S.-based entity.
Our subsidiary, Masthercell Global is a CDMO specialized in cell therapy development for advanced therapeutically products. In
During the last decade, cell therapy medicinal products have gained significant importance, particularly in the fields of ex-vivo gene therapyperiods covered by this report, we operated our POC and immunotherapy. While academic and industrial research has led scientific development in the sector, industrialization and manufacturing expertise remains insufficient. Masthercell Global plans to fill this gap by providing three types of services to its customers: (i) process and assay development services and (ii) current Good Manufacturing Practices (cGMP) contract manufacturing services and (iii) technology innovation and engineering services. These services offer a double advantage to Masthercell Global’s customers. First, customers can continue allocating their financial and human resources on their product/therapy, while relying on a long-term reliable and trusted partner for their process development/production. Second, through its subsidiaries, it allows customers to benefit from Masthercell Global’s expertise in cell therapy manufacturing and all related aspects.
Masthercell Global’s wholly-owned subsidiaries include MaSTherCell S.A., a Belgian-based subsidiary and a Contract Development and Manufacturing Organization (“CDMO”) specialized in cell therapy development and manufacturing for advanced medicinal products, Atvio Biotech Ltd. (“Atvio”), an Israeli-based CDMO and CureCell Co. Ltd. (“CureCell”), a Korea-based CDMO.
We operate our CDMO and the PT businesses as two separate business segments.
Corporate History
We were incorporated in the state of Nevada on June 5, 2008 under the name Business Outsourcing Services, Inc. Effective August 31, 2011, we completed a merger with our subsidiary, Orgenesis Inc., a Nevada corporation, which was incorporated solely to effect a change in its name. As a result, the Companywe changed itsour name from “Business"Business Outsourcing Services, Inc.”" to “Orgenesis"Orgenesis Inc.”
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On October 11, 2011, we incorporated Orgenesis Ltd. as our wholly-owned subsidiary under the laws of Israel. On February 2, 2012, Orgenesis Ltd. signed and closed a definitive agreement to license from Tel Hashomer - Medical Research, Infrastructure and Services Ltd. (“THM”("THM"), a private company duly incorporated under the laws of Israel, patents and know-how related to the development of AIP (Autologous Insulin Producing) cells.
On November 6, 2014, we entered into an agreement with the shareholders of MaSTherCell S.A. to acquire MaSTherCell S.A. On March 2, 2015, we closed on the acquisition of MaSTherCell whereby it became a wholly-owned subsidiary of Orgenesis. Through MaSTherCell, we became engaged in the CDMO business. Currently,As of December 31, 2019, most of the Company’sour revenues arewere generated through MaSTherCell.
On June 28, 2018, the Company,we, Masthercell Global, Great Point Partners, LLC, a manager of private equity funds focused on growing small to medium sized heath care companies (“("Great Point”Point"), and certain of Great Point’sPoint's affiliates, entered into a series of definitive strategic agreements intended to finance, strengthen and expand Orgenesis’our CDMO business. In connection therewith, the Company,we, Masthercell Global and GPP-II Masthercell, LLC, a Delaware limited liability company (“GPP-II”("GPP-II") and an affiliate of Great Point, entered into a Stock Purchase Agreement (the “SPA”"SPA") pursuant to which GPP-II purchased 378,000 shares of newly designated Series A Preferred Stock of Masthercell Global (the “Masthercell"Masthercell Global Preferred Stock”Stock"), representing 37.8% of the issued and outstanding share capital of Masthercell Global, for cash consideration to be paid into Masthercell Global of up to $25 million, subject to certain adjustments (the “Consideration”"Consideration"). Orgenesis holdsAt such time, we held 622,000 shares of Masthercell Global’sGlobal's Common Stock, representing 62.2% of the issued and outstanding equity share capital of Masthercell Global. An initial cash payment of $11.8 million of the Consideration was remitted at closing by GPP-II, with a follow up payment of $6,600,000 to be made in each of years 2018 and 2019, (the “Future Payments”), or an aggregate of $13.2 million (the "Future Payments"), if (a) Masthercell Global achievesachieved specified EBITDA and revenues targets during each of these years, and (b) the Orgenesis’Orgenesis' shareholders approveapproved certain provisions of the Stockholders’Stockholders' Agreement referred to below on or before December 31, 2019. NoneBoth of the future Consideration amounts, if any, will result in an increase in GPP-II’s equity holdings in Masthercell Global beyond the 378,000 shares of Series A Preferred Stock issued to GPP-II at closing.these conditions were met and we received both milestone payments.
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Contemporaneous with the execution of the SPA, Orgenesiswe and Masthercell Global entered into a Contribution, Assignment and Assumption Agreement pursuant to which Orgenesiswe contributed to Masthercell Global the Orgenesis’our assets relating to the CDMO Business (as defined below), including the CDMO subsidiaries (the “Corporate Reorganization”"Corporate Reorganization"). In furtherance thereof, Masthercell Global, as Orgenesis’our assignee, acquired all of the issued and outstanding share capital of Atvio, the Company’sour Israel based CDMO partner since May 2016, and 94.12% of the share capital of CureCell, the Company’sour Korea based CDMO partner since March 2016. OrgenesisWe exercised the” call option”the "call option" to which it waswe were entitled under the joint venture agreements with each of these entities to purchase from the former shareholders their equity holding. The consideration for the outstanding share equity in each of Atvio and CureCell consisted solely of Orgenesisour common stock. In respect of the acquisition of Atvio, Orgenesiswe issued to the former Atvio shareholders an aggregate of 83,965 shares of Orgenesisour common stock. In respect of the acquisition of CureCell, Orgenesis Inc.we issued to the former CureCell shareholders an aggregate of 202,846 shares of Orgenesis Common Stockour common stock subject to a third-party valuation. Together with MaSTherCell S.A., Atvio and CureCell arewere directly held subsidiaries under Masthercell Global (collectively, the “Masthercell"Masthercell Global Subsidiaries”Subsidiaries").
On August 7, 2019, we, Masthercell Global and GPP (the "Parties") entered into a Transfer Agreement (the "Transfer Agreement"). As a result of the Transfer Agreement, Masthercell Global transferred all of its equity interests of Atvio and CureCell to us in exchange for one dollar ($1.00). The Transfer Agreement also contains agreements made with respect to certain intercompany loans. We accounted for the Transfer Agreement as a transaction with non-controlling interest.
Material Developments During Fiscal 20182019
Funding from SFPI
Institutional Review Board Approval
On November 15, 2017,April 29, 2019, we MaSTherCellannounced that we had received Institutional Review Board (IRB) approval to collect liver biopsies from patients at Rambam Medical Center located in Haifa, Israel for a planned study to confirm the suitability of liver cells for personalized cell replacement therapy for patients with insulin-dependent diabetes resulting from total or partial pancreatectomy. The liver cells are intended to be bio-banked for potential future clinical use.
The goal of the proposed study, entitled "Collection of Human Liver Biopsy and Whole Blood Samples from Type 1 Diabetes Mellitus (T1DM), Total or Partial Pancreatectomy Patients for Potential use as an Autologous Source for Insulin Producing Cells in Future Clinical Studies," is to confirm the Belgian Sovereign Funds Société Fédérale de Participations et d'Investissement (“SFPI”suitability of the liver cells for personalized cell replacement therapy, as well as eligibility of patients to participate in a future clinical study, as defined by successful Autologous Insulin Producing (AIP) cell production from their own liver biopsy. The secondary objective of the study is to evaluate patients' immune response to AIPs based on the patient's blood samples and followed by subcutaneous implantation into the patients' arm which would represent the first human trial. We have developed a novel technology based on technology licensed from Tel Hashomer Medical Research Infrastructure and Services Ltd., utilizing liver cells as a source for AIP cells as replacement therapy for islet transplantation.
During the study, liver samples will be collected and then processed and stored in specialized, clinical grade, tissue banks for potential clinical use. The enrollment for the study's 20 patients commenced in May 2019. The propagated cells will be maintained in a tissue bank and are intended to be utilized in a future clinical study, in which the cells will be transdifferentiated and administered back to the patients as a potential treatment. This personalized autologous process will be performed under our POC model in which the patient liver samples are processed, cryopreserved and potentially re-injected, all in the medical center under clinical grade/GMP level conditions.
Joint Venture Agreement with First Choice International Company, Inc.
On March 12, 2019, the Company and First Choice International Company, Inc. ("First Choice") entered into a Subscription and ShareholdersJoint Venture Agreement (the “ SFPI Agreement”"JVA") pursuant to which SFPI completedFirst Choice will collaborate with the Company to further the clinical development and commercialization of the Company's cell regeneration and gene therapeutic products in Panama and Latin America countries (the "Territory") and the Company will collaborate with First Choice to further the clinical development and commercialization of products to be introduced by First Choice, which will be offered for sale by the Company globally outside of the Territory. The parties intend to pursue the joint venture through a newly established company (hereinafter the "JV Company") which the Company by itself, or together with a designee, will hold a 50% participating interest therein, with the remaining 50% participating interest being held by First Choice by itself, or together with a designee.
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Pursuant to the terms of the JVA, the JV Company will initially be owned 100% by First Choice and, until such JV Company is established, all activities in the Territory will be carried out through First Choice. Upon the Company's request, First Choice will transfer all activities, and results, data, information, material, IP, know-how, contracts, licenses, authorizations, permissions, grants, obligations and assets related to such activities to the JV Company. In addition, each party shall be required to exert best commercial efforts to carry out, in a timely and professional manner, its respective obligations according to a detailed work plan to be agreed upon by First Choice and Company within no later than sixty (60) days following the execution of the JVA.
Debt Financing Agreements
In April 2019, we entered into a convertible loan agreement with an equity investment in MaSTherCell in theoffshore investor for an aggregate amount of €5 million (approximately $5.9 million), for approximately 16.7% of MaSTherCell.$500 thousand into the U.S. Subsidiary. The equity investment commitment included the conversion ofinvestor, at its option, may convert the outstanding loanprincipal amount and accrued interest under this note into shares and three-year warrants to purchase shares of Euro 1.07 million (approximately $1.18 million), previously made by SFPI to MaSTherCell.
Following the SFPI investment in MaSTherCell, in November 2017, MaSTherCell announced the expansion by 600m²our common stock at a per share exercise price of its facility in Belgium with a dedicated, late-stage clinical and commercial cGMP unit, which was opened in the first quarter of 2019. This new expansion enables MaSTherCell to augment its commercial capabilities in Europe with five state-of-the-art advanced manufacturing units and extended GMP-accredited quality control (QC) laboratories. On June 13, 2018, SPFI has paid the balance of Euro 1.9 million (approximately $2.3 million) to MaSTherCell.
Consolidation of CDMO Entities and Strategic Funding
On June 28, 2018, the Company, Masthercell Global Inc., a Delaware company and a newly formed subsidiary$7.00; or into shares of the Company that holds our business relating toU.S. Subsidiary at a valuation of the third party contract manufacturing for cell therapy companies (CDMO) (“Masthercell Global”), Great Point Partners, LLC, a managerU.S. Subsidiary of private equity funds focused on growing small to medium sized heath care companies (“Great Point”), and certain of Great Point’s affiliates,$50 million.
In May 2019, we entered into a seriesprivate placement subscription agreement with a non-U.S. investor for $5 million. The lender shall be entitled, at any time prior to or no later than the maturity date, to convert the outstanding amount, into units of definitive strategic agreements intended(1) shares of our common stock at a conversion price per share equal to finance, strengthen$7.00 and expand Orgenesis’ CDMO business. (2) warrants to purchase an equal number of additional shares of our common stock at a price of $7.00 per share.
In connection therewith, the Company, Masthercell Global and GPP-II Masthercell, LLC, a Delaware limited liability company (“GPP-II”) and an affiliate of Great PointJune 2019, we entered into Stock Purchase agreementprivate placement subscription agreements with investors for an aggregate amount of $2 million. The lenders shall be entitled, at any time prior to or no later than the maturity date, to convert the outstanding amount, into units of (1) shares of our common stock at a conversion price per share equal to $7.00 and (2) warrants to purchase an equal number of additional shares of our common stock at a price of $7.00 per share.
In October 2019, we entered into a Private Placement Subscription Agreement and Convertible Credit Line Agreement (collectively, the "Credit Line Agreements") with four non-U.S. investors (the “SPA”"Lenders"), pursuant to which GPP-II purchased 378,000 sharesthe Lenders furnished us access to us of newly designated Series A Preferred Stockan aggregate $5.0 million credit line (which consists of Masthercell Global (the “Masthercell Global Preferred Stock”$1.25 million from each Lender) (collectively, the "Credit Line"), representing 37.8%. Pursuant to the Credit Line Agreements, we are entitled to draw down an aggregate of $1 million (consisting of $250,000 from each Lender) of the issued and outstanding share capital of Masthercell Global, for cash consideration to be paid into Masthercell Global of up to $25 million, subject to certain adjustments (the “Consideration”). Orgenesis holds 622,000 shares of Masthercell Global’s Common Stock, representing 62.2% of the issued and outstanding equity share capital of Masthercell Global. An initial cash payment of $11.8 million of the Consideration was remitted at closing, with a follow up payment of $6,600,000 to be madeCredit Line in each of years 2018October 2019 and November 2019. In each of December 2019, (the “Future Payments”)January 2020 and February 2020, we were entitled to draw down an additional aggregate of $1 million (consisting of $250,000 from each Lender), oruntil the total amount drawn down under the Credit Line reaches an aggregate of $13.2$5 million if (a) Masthercell Global achieves specified EBITDA and revenues targets during(consisting of $1.25 million from each of these years, and (b)Lender), subject to the Orgenesis’ shareholders approve certain provisionsapproval of the Stockholders’ Agreement referredLenders.
Pursuant to below on or before December 31, 2019. Nonethe terms of the future Consideration amounts, if any, will result in an increase in GPP-II’s equity holdings in Masthercell Global beyond the 378,000 shares of Series A Preferred Stock issued to GPP-II at closing. The proceeds of the investment will be used to fund the activities of Masthercell Global and its consolidated subsidiaries. Notwithstanding the foregoing, GPP-II may, in its sole discretion, elect to pay all or a portion of the future Consideration amounts even if the financial targets described above have not been achievedCredit Line Agreements and the Orgenesis Stockholder Approval has not been obtained. In satisfaction ofNotes, the first of the two conditions described above, Masthercell Global achieved the specified EBITDAtotal loan amount, and revenues targets in 2018 as described in the SPAall accrued but unpaid interest thereon, shall become due and received $6,600,000 of the Future Paymentspayable on January 16, 2019.
In connection with the entry into the SPA described above, each of the Company, Masthercell Global and GPP-II entered into the Masthercell Global Inc. Stockholders’ Agreement (the “Stockholders’ Agreement”) providing for certain restrictions on the disposition of Masthercell Global securities, the provisions of certain options and rights with respect to the management and operations of Masthercell Global, certain favorable, preferential rights to GPP-II (including, without limitation, a tag right, drag right and certain protective provisions), a right to exchange the Masthercell Global Preferred Stock for shares of Orgenesis common stock and certain other rights and obligations. In addition, after the earlier of the second anniversary of the closingEffective Date (the "Maturity Date"). The Maturity Date may be extended by each Lender in its sole discretion and shall be in writing signed by us and the Lender. Interest on any amount that has been drawn down under the Credit Line accrues at a per annum rate of eight percent (8%). At any time prior to or certain enumerated circumstances, GPP-IIon the Maturity Date, by providing written notice to us, each of the Lenders is entitled to effectuate a spinoffconvert its respective drawdown amounts and all accrued interest, into shares of Masthercell Global and the Masthercell Global Subsidiaries (the “Spinoff”). The Spinoff is required to reflect a market value determined by one of the top ten independent accounting firms in the U.S. selected by GPP-II, provided that under certain conditions, such market valuation shall reflect a valuation of Masthercell Global and the Masthercell Global Subsidiaries of at least $50 million. In addition, upon certain enumerated events as described below, GPP-II is entitled, at its option, to put to the Company (or, at Company’s discretion, to Masthercell Global if Masthercell Global shall then have the funds available to consummate the transaction) its shares in Masthercell Global or, alternatively, purchase from the Company its share capital in Masthercell Globalour common stock at a purchaseconversion price equal to $7.00 per share.
Furthermore, upon the fair market valuedrawdown of such equity holdings as determined by one$500 thousand from each Lender and, together with the other Lenders, a drawdown of an aggregate of $2 million under the Credit Line, the existing warrants of the top ten independent accounting firms in the U.S. selected by GPP-II, provided that theLenders to purchase priceshares of our common stock shall not be greater than three times the price per share of Masthercell Global Preferred Stock paid by GPP-IIamended to extend their exercise date to June 30, 2021 and shall not be less than the price per share of Masthercell Global Preferred Stock paid by GPP-II . GPP-II may exercise its put or call option upon the occurrence of anywe will issue to each of the following: (i) there is an Activist Shareholder of the Company; (ii) the Chief Executive Officer and/or Chairman of the board of directors of the Company resigns or is replaced, removed, or terminated for any reason priorLenders warrants to June 28, 2023; (iii) there is a Change of Control event of the Company; or (iv) the industry expert director appointed to the board of directors of Masthercell Global is removed or replaced (or a new such director is appointed) without the prior written consent of GPP-II. For the purposes of the foregoing, the following definitions shall apply: (A) “Activist Shareholder” shall mean any Person who acquirespurchase 50,000 shares of capital stock of the Company who either: (x) acquires more than a majority of the voting power of the Company, (y) actively takes over and controls a majority of the board of directors of the Company, or (z) is required to file a Schedule 13D with respect to such Person’s ownership of the Company and has described a plan, proposal or intent to take action with respect to exerting significant pressure on the management of or directors of, the Company; and (B) “Change of Control” shall mean any of: (a) the acquisition, directly or indirectly (in a single transaction or a series of related transactions) by a Person or group of Persons of either (I) a majority of theour common stock at an exercise price of $7.00 per share. The new warrants will be exercisable for three (3) years from the Company (whether by merger, consolidation, stock purchase, tender offer, reorganization, recapitalization or otherwise), or (II) all or substantially all ofEffective Date. During October 2019, such drawdown was reached and the assets of the Company and its Subsidiaries (but only if such transaction includes the transfer of Securities held by the Company), (b) if any four (4) of the directors of the Company as of June 28, 2018 are removed or replaced or for any other reason cease to serve as directors of the Company, (c) the filing of a petition in bankruptcy or the commencement of any proceedings under bankruptcy laws by or against the Company, provided that such filing or commencementwarrants were issued.
The lender shall be deemed a Change of Control immediately if filed or commenced by the Company or after sixty (60) days if such filing is initiated by a creditor of the Company and is not dismissed; (d) insolvency of the Company that is not cured by the Company within thirty (30) days; (e) the appointment of a receiver for the Company, provided that such appointment shall constitute an Change of Control immediately if the appointment was consented to by the Company or after sixty (60) days if not consented to by the Company and such appointment is not terminated; or (f) or dissolution of the Company .
The Stockholders’ Agreement further provides that GPP-II is entitled, at any time prior to or no later than the maturity date, to convert its share capital in Masthercell Global for the Company’soutstanding amount, into units of shares of our common stock in an amount equal to the lesser of (a)(i) the fair market value of GPP-II’s shares of Masthercell Global Preferred Stock to be exchanged, as determined by one of the top ten independent accounting firms in the U.S. selected by GPP-II and the Company, divided by (ii) the average closingat a conversion price per share equal to $7.00.
As of Orgenesis Common Stock duringDecember 31, 2019, we had received $3.65 million from the thirty (30) day period ending onConvertible Credit Line investment comprised of $1.15 million from one investor, $1 million from a second investor, and $750 thousand from two of the other lenders.
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In December 2019, we entered into private placement subscription agreements with investors for an aggregate amount of $250 thousand. The lenders shall be entitled, at any time prior to or no later than the maturity date, that GPP-II providesto convert the exchange notice (the “Exchange Price”) and (b)(i) the fair market valueoutstanding amount, into units of GPP-II’s shares of Masthercell Global Preferred Stock to be exchanged assumingour common stock at a value of Masthercell Global equal to three and a half (3.5) times the revenue of Masthercell Global during the last twelve (12) complete calendar months immediately prior to the exchange divided by (ii) the Exchange Price; provided, that in no event will (A) the Exchange Price be less than aconversion price per share that would result in Orgenesis having an enterprise value of less than $250,000,000 and (B)equal to $7.00.
FDA Approval for Orphan Drug Designation for AIP Cells
On June 11, 2019, the maximum number of shares of Orgenesis Common Stock to be issued shall not exceed 2,704,247 shares of outstanding Orgenesis Common Stock (representing approximately 19.99% of then outstanding Orgenesis Common Stock), unless Orgenesis obtains shareholder approvalFDA granted Orphan Drug Designation for our AIP cells as a cell replacement therapy for the issuancetreatment of such greatersevere hypoglycemia-prone diabetes resulting from total pancreatectomy ("TP") due to chronic pancreatitis. The incidence of diabetes following TP is 100%, resulting in immediate and lifelong insulin-dependence with the loss of both endogenous insulin secretion and that of the counter-regulatory hormone, glucagon. Glycemic control after TP is notoriously difficult with conventional insulin therapy due to complete insulin dependence and loss of glucagon-dependent counter-regulation. Patients with this condition experience both severe hyperglycemic and hypoglycemic episodes.
Other Developments and Agreements During Fiscal 2019
Joint Ventures, Collaborations and License Agreements During Fiscal 2019
On February 14, 2019, we entered into a joint venture agreement with Theracell Advanced Biotechnology, a corporation organized under the laws of Greece ("Theracell"), pursuant to which the parties will collaborate in the clinical development and commercialization of the Company's products in Greece, Turkey, Cyprus and Balkan countries and the clinical development and commercialization of Theracell's products worldwide. On February 14, 2019, we entered into a master service agreement with Theracell whereby, subject to mutually agreed timing and definition of the scope of services, we provide regulatory services, pre-clinical studies, intellectual property services, GMP process translation services and co-development services to Theracell during 2019. During the year ended December 31, 2019, we recognized POC development service revenue in the amount of shares of Orgenesis Common Stock$857 thousand.
On February 27, 2019, we entered into a collaboration agreement with Tarus Therapeutics Inc., a Delaware corporation ("Tarus"), in accordanceconnection with the rulescollaboration in the funding, development and regulationscommercialization of certain technologies, products and patents of Tarus in the areas of therapeutics for cancer and other diseases in the field of cell therapies and their combination with checkpoint inhibitors comprised of Adenosine Receptor Antagonists. The parties plan to enter into pre-clinical studies as part of the Nasdaq Stock Market. Such shareholder approvalpreparations to clinical studies submission during 2020.
On March 12, 2019, we entered into a joint venture agreement with First Choice International Company, Inc., a corporation organized under the laws of Delaware ("First Choice"), pursuant to which the parties will collaborate in the clinical development and commercialization of our products in Panama and certain other Latin American countries as agreed by the parties (the "Territory") and the clinical development and commercialization of First Choice's products worldwide (other than in the Territory).
Effective April 2, 2019, we and The Trustees of Columbia University in the City of New York, a New York corporation ("Columbia"), entered into a Sponsored Research Agreement (the "SRA") whereby we will provide financial support for studying the utility of serological tumor marker for tumor dynamics monitoring. Under the terms of the SRA, we shall pay $300 thousand per year for three years, or for a greater number was obtained on October 23, 2018.
Great Pointtotal of $900 thousand, with payments of $150 thousand due every six months. Effective April 2, 2019, we and Masthercell GlobalColumbia entered into an advisory servicesExclusive License Agreement (the "Columbia License Agreement") whereby Columbia granted to us an exclusive license to discover, develop, manufacture and sell product in the field of cancer therapy. In consideration of the licenses granted under the Columbia License Agreement, we shall pay to Columbia (i) a royalty of 5% of net sales of any patented product sold and (ii) 2.5% of net sales of other products. Tech transfer from Columbia to us has been completed. We are now working on the completion of all the IND enabling requirements in order to get into Phase I study in a year's time under point-of-care centers.
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On May 6, 2019, we entered into a joint venture agreement with KinerjaPay Corp., a Delaware corporation ("KinerjaPay"), pursuant to which Great Point isthe parties will collaborate in the clinical development and commercialization of our products in Singapore and the introduction of KinerjaPay products to provide management services to Masthercell Globalbe offered for which Great Point will be compensated at an annual base compensation equal to the greater of (i) $250,000 per each 12 month period or (ii) 5% of the EBITDA for such 12 month period, payable in arrears in quarterly installments; provided, that these payments will (A) begin to accrue immediately, but shall not be paid in cash to Great Point until such time as Masthercell Global generates EBITDA of at least $2,000,000 for any 12 month period or the sale of or change in control of Masthercell Global, and (B) shall not exceed an aggregate annual amount of $500,000. Such compensation accrues but is not owed to Great Point until the earlier of (i) Masthercell Global generating EBITDA of at least $2 million for any 12 months period following the date of the agreement or (ii) a Sale of the Company or Change of Control of the Company (as both terms are defined therein).by us globally outside Singapore.
GPP Securities, LLC, a Delaware limited liability company and an affiliate of Great Point and Masthercell GlobalOn May 15, 2019, we entered into a transactionJoint Venture Agreement with SBH Sciences, Inc., a Massachusetts corporation ("SBH"), for the establishment of a joint venture with SBH for the purpose of collaborating in the field of gene and cell therapy development, process and services of bio-exosome therapy products and services in the areas of diabetes, liver cells and skin applications, including wound healing.
In October 2019, we concluded a license agreement with Caerus Therapeutics Corporation (a related party), a Virginia company ("Caerus"), pursuant to which GPP Securities, LLCCaerus granted us, among others, an exclusive license to all Caerus IP relating to Advance Chemeric Antigen Vectors for Targeting Tumors for the development and/or commercialization of certain licensed products. In consideration for the license granted to us under this agreement, we shall pay Caerus feasibility fees, annual maintenance fees and royalties of sales of up to 5% and up to 18% of sub-license fees. Through this joint venture, the parties co-develop a novel CART and CAR-NK platform for the treatment of solid tumors. The development is to provide certain brokerage services to Masthercell Global for which GPP Securities LLC will be entitled toat a certain Exit Feepre-clinical stage.
On November 10, 2019, the Maryland Subsidiary and Transaction Fee (as both terms are defined in the agreement), such fees not to be less than 2 percent of the applicable transaction value.
Corporate Reorganization
Contemporaneous with the execution of the SPABroaden Bioscience and the Stockholders’ Agreement, Orgenesis and Masthercell GlobalTechnology Corp, a Delaware corporation ("Broaden"), entered into a Contribution, Assignment and Assumption Agreementjoint venture agreement (the "Broaden JVA") pursuant to which Orgenesis contributed to Masthercell Global the Orgenesis’ assets relating to the CDMO Business (as defined below), including the CDMO subsidiaries (the “Corporate Reorganization”). In furtherance thereof, Masthercell Global, as Orgenesis’ assignee, acquired all of the issued and outstanding share capital of Atvio, the Company’s Israel based CDMO partner since May 2016, and 94.12% of the share capital of CureCell, the Company’s Korea based CDMO partner since March 2016. Orgenesis exercised the” call option” to which it was entitled under the joint venture agreements with each of these entities to purchase from the former shareholders their equity holding. The consideration for the outstanding share equity in each of Atvio and CureCell consisted solely of Orgenesis common stock. In respect of the acquisition of Atvio, Orgenesis issued to the former Atvio shareholders an aggregate of 83,965 shares of Orgenesis common stock. In respect of the acquisition of CureCell, Orgenesis Inc. issued to the former CureCell shareholders an aggregate of 202,846 shares of Orgenesis Common Stock subject to a third-party valuation. Together with MaSTherCell S.A., Atvio and CureCell are directly held subsidiaries under Masthercell Global (collectively, the “Masthercell Global Subsidiaries”).
Masthercell Global, through the Masthercell Global Subsidiaries,parties will be engagedcollaborate in the businessdevelopment and/or marketing, clinical development and commercialization of providing manufacturing and development services to third parties related to cell therapy products and the creationsetting up of POC processing facilities in China and development of technology,the Middle East.
On December 20, 2019, we and optimizations in connection with such manufacturing and development services for third parties (the “CDMO Business”). Under the termsRegents of the Stockholders’ Agreement, Orgenesis has agreed that so long as it owns equity in Masthercell Global and for two years thereafter it will not engageUniversity of California ("University") entered into a joint research agreement in the CDMO Business, except through Masthercell Global (but may continuefield of therapies and processing technologies according to engage in its other areasan agreed upon work plan. According to the agreement, we will pay the University royalties of business). In addition, except for certain limited circumstances, eachup to 5% (or up to 20% of Orgenesis and GPP-II agreedsub-licensing sales) in the Stockholders’ Agreement to not recruit or solicit or hire any officer or employeeevent of Masthercell Globalsales that was or is involved in the CDMO Business.
We intend, through our direct subsidiaries, to continue to engage in the manufacturing, researching, marketing, developing, selling and commercializing (either alone or jointly with third parties) products that are not directly related to the CDMO business, including, joint ventures, collaboration, partnership or similar arrangement with a third party.
includes certain types of University owned IP.
Change of Fiscal Year
On October 22, 2018, the Board of Directors of the Company approved a change in the Company’sCompany's fiscal year end from November 30 to December 31 of each year. This change to the calendar year reporting cycle began January 1, 2019. As a result of the change, the Company will haveis reporting a December 2018 fiscal month transition period, the results of which will beis separately reported in the Company’s Quarterly Report on Form 10-Q for the calendar quarters ending March 31, 2019, June 30, 2019 and September 30, 2019, and in the Company’sthis Annual Report on Form 10-K for the calendar year ending December 31, 2019.
Collaboration Agreements with Immugenyx and Hemogenyx
On October 16, 2018, we entered into a collaboration agreement with Immugenyx, LLC (“Immugenyx”), a wholly owned subsidiary of Hemogenyx Pharmaceuticals Plc (“Hemogenyx”). Immugenyx will collaborate with the Company to further the development and commercialization of its advanced hematopoietic chimeras (“AHC”). AHC, a new type of humanized mouse with a functional human immune system, is being developed by Immugenyx as an in vivo platform for disease modelling, drug and cell therapy development. Pursuant to the terms of the agreement, we shall receive the worldwide rights to market the products and shall serve as a global distributor of Immugenyx’s products. Immugenyx will retain exclusive rights to manufacture, make and supply to the Company or our affiliates all the Immugenyx technology and/or licensed products that are marketed, sold or otherwise commercialized by the Company. In consideration Financial information for the license, we and/or our affiliates will advance to Immugenyx a convertible loanyear ended December 31, 2018 has not been included in an amount of no less than $1.0 million for advancing the development of humanized mice models and related antibody development. We also agreed to pay a royalty of 12% of our net revenues resulting from the sale or licensing of products involving the use of Immugenyx’s AHC technology. As of November 30, 2018, we have funded $0.5 million.
On October 18, 2018, we entered into a collaboration agreement with Hemogenyx Pharmaceuticals Plc to collaborate on the development and commercialization of Hemogenyx’s Human Postnatal Hemogenic Endothelial (“Hu-PHEC”) technology. Hu-PHEC is a cell replacement product candidate that is being designed to generate cancer-free, patient-matched blood stem cells after transplantation into the patient. Pursuant to the terms of the agreement, we shall manufacture and supply all Hu-PHEC related products both during and following completion of clinical trials. We shall also receive the worldwide rights to market the products and shall serve as a global distributor of Hemogenyx’s Hu-PHEC related products. In considerationthis Form 10-K for the license, we and/or our affiliates will advance to Hemogenyx a convertible loan in an amount of no less than $1.0 million for advancing the development of the Hu-PHEC technology. We also agreed to pay a royalty of 12% of our net revenues resulting from the sale or licensing of products involving the use of Hemogenyx’s Hu-PHEC technology. As of November 30, 2018, we have funded $0.5 million.
Convertible Note Agreements
During November 2018, we entered into private placement subscription agreements (the “Hemogenyx-Cell Subscription Agreement”) with certain accredited investors (the “Investors”), pursuant to which we agreed to sell an aggregate principal amount of $625,000 in a 2% Unsecured Convertible Note (the “Hemogenyx Convertible Note”), which is convertible, at the discretion of the Investor, into eitherfollowing reasons: (i) units, each unit consisting of one share of common stock of the Company, par value $0.0001 per share (“Common Stock”) and one three-year warrant to purchase one share of Common Stock at an exercise price of $7.00 per share, at a conversion price of $7.00 per unit (the “Units”) or (ii) shares of capital stock of Hemogenyx-Cell, a subsidiary of Hemogenyx, at a price per share based on a pre-money valuation of Hemogenyx-Cell of $12,000,000 (the “Hemogenyx Securities”) pursuant to the previously disclosed collaboration agreement with Hemogenyx.
In addition, on such same month, we entered into a private placement subscription agreement (the “Immugenyx Subscription Agreement”) with the Investors, pursuant to which we agreed to sell an aggregate principal amount of $625,000 in a 2% Unsecured Convertible Note (the “Immugenyx Convertible Note ”). The Investors may convert all or any portion of the outstanding principal amount of the Immugenyx Convertible Note, plus accrued interest thereon, into the, at the discretion of the Investors, either (i) units, each unit consisting of one share of common stock of the Company, par value $0.0001 per share (“Common Stock”) and one three-year warrant to purchase one share of Common Stock at an exercise price of $7.00 per share, at a conversion price of $7.00 per unit (the “Units”) or (ii) shares of capital stock of Immugenyx , at a price per share based on a pre-money valuation of Immugenyx of $8,000,000 (the “Immugenyx Securities”) pursuant to the previously disclosed collaboration agreement with Immugenyx.
The entire principal amount, plus accrued interest thereon, shall automatically convert into Units if at any time from and after the date hereof, the closing price of the Company’s Common Stock on the Nasdaq Capital Market (or other national stock exchange or market on which the Common Stock is then listed or quoted) equals or exceeds $20.00 per share (which amount may be adjusted for certain capital events, such as stock splits) for thirty (30) consecutive trading days.
The Convertible Notes contain standard and customary events of default including, but not limited to, failure to make payments when due, failure to observe or perform covenants or agreements contained in the Convertible Notes, the breach of any material representation or warranty contain therein or the bankruptcy or insolvency of the Company. If any event of default occurs, subject to any cure period, the full principal amount, together with interest (including default interest of 12% per annum) and other amounts owing in respect thereof to the date of acceleration shall become, at the Investor’s election, immediately due and payable in cash.
The Warrants included in the Units expire three years from the date of issuance and have an exercise price of $7.00 per share. If at any time from and after the date of issuance, the closing price of our Common Stock on the Nasdaq Capital Market (or other national stock exchange or market on which the Common Stock is then listed or quoted) equals or exceeds $20.00 per share (which amount may be adjusted for certain capital events, such as stock splits, as described herein) for thirty (30) consecutive trading days, then the Company shall have the right to require the holder to exercise all or any portion of the Warrant still unexercised for a cash exercise into shares of Common Stock in accordance with the terms of the Warrant.
Results of Operations
Comparison of the year ended November 30, 2018 toprovides a meaningful comparison for the year ended December 31, 2019; (ii) there are no significant factors, seasonal or other, that would materially impact the comparability of information if the results for the year ended December 31, 2018 were presented in lieu of results for the year ended November 30, 20172018; and (iii) it was not practicable or cost justified to prepare this information.
Results of Operations
Comparison of the Year Ended December 31, 2019 to the Year Ended November 30, 2018 and for the One Month Ended December 31, 2018.
Our financial results for the year ended November 30, 2018December 31, 2019 are summarized as follows in comparison to the year ended November 30, 2017:2018 and for the one month ended December 31,2018:
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Year Ended | One Month Ended | ||||||||
December 31, | November 30, | December 31, | |||||||
2019 | 2018 | 2018 | |||||||
(in thousands) | |||||||||
Revenues | $ | 33,256 | $ | 18,655 | $ | 1,852 | |||
Cost of sales | 18,232 | 10 , 824 | 1,221 | ||||||
Research and development expenses and Research and development service expenses, net | 12,458 | 6 , 464 | 1,431 | ||||||
Amortization of intangible assets | 2,061 | 1,913 | 179 | ||||||
Selling, general and administrative expenses | 25,337 | 16,303 | 1,984 | ||||||
Other income | (228 | ) | (2,930 | ) | - | ||||
Share in losses of associated company | - | 731 | - | ||||||
Financial expense, net | 874 | 3,117 | 27 | ||||||
Loss before income taxes | $ | 25,478 | $ | 17,767 | $ | 2,990 |
Revenues
The following table shows the Company's revenues by major revenue streams.
Year Ended November 30, | ||||||||||
2018 | 2017 | |||||||||
(in thousands) | ||||||||||
Revenues | $ | 18,655 | $ | 10,089 | ||||||
Cost of sales | 10,824 | 6,807 | ||||||||
Research and development expenses, net | 6,464 | 2,478 | ||||||||
Amortization of intangible assets | 1,913 | 1,631 | ||||||||
Selling, general and administrative expenses | 16,303 | 9,189 | ||||||||
Other income | (2,930) | - | ||||||||
Share in losses of associated company | 731 | 1,214 | ||||||||
Financial expense, net | 3,117 | 2,447 | ||||||||
Loss before income taxes | $ | 17,767 | $ | 13,677 | ||||||
Year Ended | One Month Ended | ||||||||
December 31, | November 30, | December 31, | |||||||
2019 | 2018 | 2018 | |||||||
(in thousands) | |||||||||
Revenue stream: | |||||||||
CDMO | $ | 30,147 | $ | 18,655 | $ | 1,852 | |||
POC Services | 3,109 | - | - | ||||||
Total | $ | 33,256 | $ | 18,655 | $ | 1,852 |
Our revenues for the year ended December 31, 2019 were $33,256 thousand, as compared to $18,655 thousand for the year ended November 30, 2018, representing an increase of 78%. Revenues
Year Ended November 30, | |||||||||
2018 | 2017 | ||||||||
(in thousands) | |||||||||
Services | $ | 14,065 | $ | 8,024 | |||||
Goods | 4,590 | 2,065 | |||||||
Total | $ | 18,655 | $ | 10,089 | |||||
All for the one month ended December 31, 2018 were $1,852 thousand. The increase in revenues for the year ended December 31, 2019 compared to the corresponding period in 2018 is attributable to our POC services revenue which we recognized for the first time in 2019, as well as an increase in the revenues were derivedprovided by MaSTherCell S.A., resulting primarily from the CDMO segment, mostextension of which wereexisting customer service contracts with biotechnology clients and from revenues generated from our Belgian Subsidiary, MaSTherCell S.A. We believeexisting manufacturing agreements. Management believes that revenue diversification by source in the CDMO segment, together with a leading position in immunotherapy and, in particular, CAR T-cell therapy development and manufacturing, strengthened MaSTherCell’sMaSTherCell's resilience in the industry.
Our revenues for the year ended November 30, 2018 were $18,655 thousand, as compared to $10,089 thousand for the corresponding period in 2017, representing an increase of 85%. The increase in revenues for the year ended November 30, 2018 compared to the corresponding period in 2017 is attributable to an increase in the projects provided by MaSTherCell S.A, resulting primarily from the extension of existing customer service contracts with biotechnology clients, as well as from revenues generated from existing manufacturing agreements.
In addition, we acquired all the issued and outstanding share capital of Atvio, our Israel-based CDMO partner since August 2016, and 94.12% of the share capital of CureCell, our Korea-based CDMO partner since March 2016, which are both reflected in the increase in our revenues from services provided of $1,174 thousand during the year ended November 30, 2018.
Backlog
We define our backlog as products that we are obligated to deliver or services to be rendered based on firm commitments relating to purchase orders received from customers. As of November 30, 2018,December 31, 2019, MaSTherCell S.A. had a backlog of approximately $12.6$19 million, consisting of services that we expect to deliver into fiscal year 2019.2020.However, no assurance can be provided that such contracts will not be cancelled, in which case we will not be authorized to deliver and record the anticipated revenues.
Expenses
Cost of Revenues
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Year Ended November 30, | |||||||||
2018 | 2017 | ||||||||
(in thousands) | |||||||||
Salaries and related expenses | $ | 4,915 | $ | 2,642 | |||||
Stock-based compensation | 126 | - | |||||||
Professional fees and consulting services | 145 | - | |||||||
Raw materials | 4,614 | 2,692 | |||||||
Depreciation and amortization expenses, net | 391 | 986 | |||||||
Other expenses | 633 | 487 | |||||||
$ | 10,824 | $ | 6,807 | ||||||
Year Ended | One Month Ended | ||||||||
December 31, | November 30, | December 31, | |||||||
2019 | 2018 | 2018 | |||||||
(in thousands) | |||||||||
Salaries and related expenses | $ | 7,333 | $ | 4,915 | $ | 457 | |||
Stock-based compensation | 116 | 126 | 13 | ||||||
Professional fees and consulting services | 223 | 145 | 32 | ||||||
Raw materials | 9,024 | 4,614 | 558 | ||||||
Depreciation and amortization expenses, net | 979 | 391 | 62 | ||||||
Other expenses | 557 | 633 | 99 | ||||||
$ | 18,232 | $ | 10 , 824 | $ | 1,221 |
Cost of revenues for the year ended November 30, 2018December 31, 2019 were $10,824$18,232 thousand, as compared to $6,807$10,824 thousand during the same period in 2017, representing an increase of 59%. The increase for the year ended November 30, 2018, representing an increase of 68%. Cost of revenues for the one month ended December 31, 2018 were $1,221 thousand. The increase for the year ended December 31, 2019 as compared to the corresponding period in 20172018 is primarily attributed to the following:
(i) An increase in salaries and related expenses of $2,418 thousand, primarily attributable to an increase of activities and operational staff. This is in line with the increase in revenue of MaSTherCell S.A., as well as the inclusion of salaries and related expenses of CureCell which was consolidated from July 2018. (ii) An increase in raw materials of $4,410 thousand, mainly attributed to the growth in the volume of services provided by MaSTherCell S.A., both from existing and new manufacturing agreements. (iii) An increase in depreciation and amortization expenses, net of $588 thousand, primarily attributable to the increase in the property, plants and equipment. Cost of |
Research and Development Expensesand Research and Development Services, net:
Year Ended November 30, | |||||||
2018 | 2017 | ||||||
(in thousands) | |||||||
Salaries and related expenses | $ | 2,077 | $ | 1,181 | |||
Stock-based compensation | 659 | 711 | |||||
Professional fees and consulting services | 605 | 854 | |||||
Lab expenses | 3,370 | 287 | |||||
Depreciation expenses, net | 320 | 110 | |||||
Other research and development expenses | 355 | 183 | |||||
Less – grant | (922) | (848) | |||||
Total | $ | 6,464 | $ | 2,478 |
Year Ended | One Month Ended | ||||||||
December 31, | November 30, | December 31, | |||||||
2019 | 2018 | 2018 | |||||||
(in thousands) | |||||||||
Salaries and related expenses | $ | 3,262 | $ | 2,077 | $ | 251 | |||
Stock-based compensation | 762 | 659 | 56 | ||||||
Professional fees and consulting services | 1,823 | 605 | 62 | ||||||
Lab expenses | 3,231 | 3,370 | 1,118 | ||||||
First Choice JVA, see Note 12 | 2,741 | - | - | ||||||
Depreciation expenses, net | 563 | 320 | 24 | ||||||
Other research and development expenses | 1,050 | 355 | 47 | ||||||
Less - grant | (974 | ) | (922 | ) | (127 | ) | |||
Total | $ | 12,458 | $ | 6,464 | $ | 1,431 |
The increase in research and development expenses reflects management’smanagement's determination to move transdifferentiatingits trans-differentiation technology to the next the stage towards clinical studies.trials. In the fiscal year ended 2018,December 31, 2019, we focused primarilycontinued to focus on combining the in vitro research to increase insulin production and secretion with pre-clinical studies aiming to evaluate the efficacy and safety of the product in rodents' model. In addition, we evaluated new transplantation methods during this period. Sourcing of the starting material (liver sampling and cell collection) and upscaling of virus production and cell propagation using advanced technologies complement this effort with the target to establish start to endstart-to-end production capabilities.
The scope of research and development expenses was also expanded to the evaluation and development of new cell therapies related technologies in the field of immunoncology,immuno-oncology, liver pathologies and others. In furtherance of these developments, salaries and related expenses increased for the year ended December 31, 2019 compared to year ended November 30, 2018, compared to 2017, primarily due to the expansion of our development team in Israel and Belgium.
Included in the research and development expenses are research and development services expenses.
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Research and development expenses for the year ended December 31, 2019 were $12,458 thousand, as compared to $6,464 thousand for the year ended November 30, 2018, representing an increase of 93%. Research and development expenses (net) for the fiscal yearone month ended November 30,December 31, 2018 were $6,464 thousand, as compared to $2,478 thousand for the same period in 2017, representing an increase of 160%.$1,431 thousand. The increase in research and development, net expenses in the year ended November 30, 2018December 31, 2019 is primarily attributable to the following:
(i) An increase in salaries and related expenses of $1,185 thousand, primarily attributable to an increase of activities and operational staff and the provision of research and development services.
(ii) The First Choice JVA (See Note 12 to Item 8 of this Annual Report on Form 10-K for further details).
(iii) An increase in other research and development expenses of $695 thousand, as a result of expenses related to new therapies and collaborations (See Note 12 to Item 8 of this Annual Report on Form 10-K for further details).
Selling, General and Administrative Expenses
Year Ended November 30, | |||||||||
2018 | 2017 | ||||||||
(in thousands) | |||||||||
Salaries and related expenses | $ | 4,581 | $ | 2,862 | |||||
Stock-based compensation | 3,399 | 1,155 | |||||||
Accounting and legal fees | 2,528 | 1,773 | |||||||
Professional fees | 2,000 | 2,017 | |||||||
Rent and related expenses | 1,281 | 859 | |||||||
Business development | 1,557 | 599 | |||||||
Other general and administrative expenses | 957 | (76) | |||||||
Total | $ | 16,303 | $ | 9,189 | |||||
Year Ended | One Month Ended | ||||||||
December 31, | November 30, | December 31, | |||||||
2019 | 2018 | 2018 | |||||||
(in thousands) | |||||||||
Salaries and related expenses | $ | 8,413 | $ | 4,581 | $ | 575 | |||
Stock-based compensation | 2,179 | 3,399 | 665 | ||||||
Accounting and legal fees | 2,849 | 2,528 | 325 | ||||||
Professional fees | 3,992 | 2,000 | 129 | ||||||
Rent and related expenses | 2,706 | 1,281 | 155 | ||||||
Business development | 2,375 | 1,557 | 101 | ||||||
Expenses related to collaboration with Theracell (see note 12) | 689 | - | - | ||||||
Depreciation expenses, net | 203 | 7 | - | ||||||
Other general and administrative expenses | 1,931 | 950 | 34 | ||||||
Total | $ | 25,337 | $ | 16,303 | $ | 1,984 |
Selling, general and administrative expenses for the fiscalyear ended December 31, 2019 were $25,337 thousand, as compared to $16,303 thousand for the year ended November 30, 2018, were $16,303 thousand, as compared to $9,189 thousand for the same period in 2017, representing an increase of 77%55%. Selling, general and administrative expenses for the one month ended December 31, 2018 were $1,984 thousand. The increase for the year ended December 30, 2019 is primarily attributable to:
(i) An increase in salaries and related expenses of $3,832 thousand, as a result of additional managerial appointments especially in CureCell, Atvio and Masthercell Global not previously consolidated.
(ii) A decrease in stock-based compensation of $1,220 thousand, as a result of options granted to employees and consultants.
(iii) An increase in professional fees of $1,992 thousand, as a result of increased fees incurred at MaSTherCell as well as professional fees incurred at Masthercell Global, CureCell and Atvio not previously consolidated.
(iv) An increase in rent and related expenses of $1,425 thousand, mainly related to the occupation of additional space rented by MaSTherCell S.A. and Masthercell USA and rent and related expenses of CureCell (not previously consolidated).
(v) An increase in business development of $818 thousand, related to the increase in the related activities during the year especially at Masthercell Global.
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(vi) An increase in other general and administrative expenses of $981 thousand, related mainly to Masthercell Global.
Financial Expenses, net
Year Ended November 30, | |||||||||
2018 | 2017 | ||||||||
(in thousands) | |||||||||
Changes in fair value financial liabilities and assets measured at fair value | $ | 50 | $ | (902) | |||||
Stock-based compensation related to warrants granted debt holders | 180 | 1,497 | |||||||
Interest expense on convertible loans and loans | 2,753 | 1,233 | |||||||
Foreign exchange loss, net | 129 | 562 | |||||||
Other expenses | 7 | 57 | |||||||
Total | $ | 3,117 | $ | 2,447 | |||||
Year Ended | One Month Ended | ||||||||
December 31, | November 30, | December 31, | |||||||
2019 | 2018 | 2018 | |||||||
(in thousands) | |||||||||
Decrease in fair value financial liabilities and assets measured at fair value | $ | 63 | $ | 48 | $ | - | |||
Stock-based compensation related to warrants granted debt holders | - | 180 | - | ||||||
Interest expense on convertible loans and loans | 657 | 2,753 | 40 | ||||||
Foreign exchange loss (income), net | 350 | 129 | (5 | ) | |||||
Other expenses (income) | (196 | ) | 7 | (8 | ) | ||||
Total | $ | 874 | $ | 3,117 | $ | 27 |
Financial expenses, net for the fiscalyear ended December 31, 2019 were $874 thousand, as compared to $3,117 thousand for the year ended November 30, 2018, increased by $670 thousand, compared torepresenting a decrease of 72%. Financial expenses, net for the same periodone month ended December 31, 2018 were $27 thousand. The decrease in 2017. The increase in2019 financial expenses is primarily attributable to:
(i) A decrease in Interest expense on convertible loans and loans of $2,096 thousand, most of which were converted in 2018.
(ii) A decrease in Other expenses (income) of $203 thousand,.
Tax expenses (income)
Year Ended November 30, | |||||||||
2018 | 2017 | ||||||||
(in thousands) | |||||||||
Tax expenses (income) | $ | 1,337 | $ | (1,310) | |||||
Total | $ | 1,337 | $ | (1,310) | |||||
Year Ended | One Month Ended | ||||||||
December 31, | November 30, | December 31, | |||||||
2019 | 2018 | 2018 | |||||||
(in thousands) | |||||||||
Tax expenses (income) | $ | 563 | $ | 1,337 | $ | (83 | ) | ||
Total | $ | 563 | $ | 1,337 | $ | (83 | ) |
Tax expenses, net for the fiscalyear ended December 31, 2019 were $563 thousand, as compared to $1,337 thousand for the year ended November 30, 2018, increased by $2,647 thousand, comparedrepresenting a decrease of 58%. Tax income for the one month ended December 31, 2018 was $83 thousand. The decrease in 2019 is mainly due to the same period in 2017. The increase inhigher tax expenses isin 2018 mainly due to a decrease in deferred taxes related to carryforward losses in MaSTherCell S.A.
Working Capital
November 30, | ||||||
2018 | 2017 | |||||
(in thousands) | ||||||
Current assets | $ | 30,297 | $ | 7,295 | ||
Current liabilities | 17,145 | 16,914 | ||||
Working capital (deficiency) | $ | 13,152 | $ | (9,619) |
As of | ||||||
December 31, | December 31, | |||||
2019 | 2018 | |||||
(in thousands) | ||||||
Current assets | $ | 25,979 | $ | 28,058 | ||
Current liabilities | $ | 31,579 | $ | 17,161 | ||
Working capital (deficiency) | $ | (5,600 | ) | $ | 10,897 |
Current assets decreased by $2,079 thousand between December 31, 2018 and December 31, 2019., which was primarily attributable to the following: (i) a decrease in cash and cash equivalents due the payment of operating expenses; (ii) an increase in inventory and accounts receivable at Masthercell as a result of increased sales, (iii) an increase in grants receivable, and (iv) GPP receivables due to us at December 31, 2018 received during 2019.
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Current liabilities increased by $23,002$14,418 thousand between December 31, 2018 and December 31, 2019., which was primarily attributable to the following: (i) an increase in cashaccounts payable and cash equivalentsaccrued expenses due to proceeds from private placements of debt and equity securities and a cash payment and receivable of $16.9 million from GPP-II to our subsidiary, Masthercell Global;expanded operations, (ii) an increase in inventoryemployees and accounts receivable due torelated payables, (iii) increased advanced grant related payables, (iv) increased contract liabilities as a result of increased sales at Masthercell, and (v) the acquisitionrecording of CureCell and (iii) higher salescurrent maturities of MaSTherCell.
operating leases (See Note 10).
Liquidity and Capital Resources
Year Ended | One Month Ended | ||||||||
December 31, | November 30, | December 31, | |||||||
2019 | 2018 | 2018 | |||||||
(in thousands) | |||||||||
Net loss | $ | (26,041 | ) | $ | (19,104 | ) | $ | (2,907 | ) |
Net cash used in operating activities | (13,220 | ) | (15,682 | ) | (1,077 | ) | |||
Net cash used in investing activities | (13,778 | ) | (6,268 | ) | (592 | ) | |||
Net cash provided by financing activities | 24,098 | 35,060 | 197 | ||||||
Net change in cash and cash equivalents and restricted cash | $ | (2,900 | ) | $ | 13,110 | $ | (1,472 | ) |
Year Ended November 31, | |||||||||
2018 | 2017 | ||||||||
(in thousands) | |||||||||
Net loss | $ | (19,104) | $ | (12,367) | |||||
Net cash used in operating activities | (15,682) | (3,833) | |||||||
Net cash used in investing activities | (6,268) | (3,404) | |||||||
Net cash provided by financing activities | 35,060 | 8,365 | |||||||
Increase in cash and cash equivalents | $ | 13,110 | $ | 1,128 | |||||
As mentioned in Note 23(d) to Item 8 of this Annual Report on Form 10-K, on February 2, 2020, we entered into a Stock Purchase Agreement (the "Purchase Agreement") with GPP-II Masthercell LLC ("GPP" and together with us, the "Sellers"), Masthercell Global Inc. ("Masthercell") and Catalent Pharma Solutions, Inc. (the "Buyer"). Pursuant to the terms and conditions of the Purchase Agreement, on February 10, 2020 the Sellers sold 100% of the outstanding equity interests of Masthercell to Buyer (the "Masthercell Sale") for an aggregate nominal purchase price of $315 million, subject to customary adjustments. After accounting for GPP's liquidation preference and equity stake in Masthercell as well as SFPI - FPIM's interest in MaSTherCell S.A., distributions to Masthercell option holders and transaction costs, we received approximately $126.7 million, of which $7.2 million was used for the repayment of intercompany loans and payables.
Since inception,During the year ended December 31, 2019, we have funded our operations through various financing activities consisting of proceeds primarily throughfrom private placements of our equity securities, debt securities and debtequity-linked instruments in the net amount of approximately $ 11.4 million and $ 13.2 million from GPP. In addition, we generated cash flow through revenues generated from our POC services and the activities of MaSTherCell S.A.,S.A, our Belgian Subsidiary. As of November 30, 2018, we had positive working capital of $13.2 million, including cash and cash equivalents and restricted cash of $16.5 million.
Net cash used in operating activities for the year ended December 31, 2019 was approximately $15.7$13 million, for the fiscal year ended November 30, 2018, as compared withto net cash used in operating activities of approximately $3.8$16 million and 1 million for the same period in 2017. year ended November 30, 2018 and for the one month ended December 31, 2018, respectively.
We expanded our pre-clinical studies in the U.S., Israel, Belgium and South Korea. The increase reflects management’smanagement's focus on moving our trans-differentiation technology with first indication in Type 1 Diabetes to the next stage towards clinical trials. We also expanded our global activity of the CDMO business with Masthercell Global, while maintaining the same level of cash usedtrials as well as investments in operating activities as a result of the increased revenues at our subsidiaries MaSTherCell, Cure Cellnew collaborations and Atvio, thereby increasing gross profit and generating cash to pay our ongoing operating expenses. Additionally, we improved payment terms to our service providers.
therapies.
Net cash used in investing activities for the fiscalyear ended December 31, 2019 was approximately $14 million, as compared to net cash used in investing activities of approximately $6 million and 1 million for the year ended November 30, 2018 was approximately $6.3 million, as compared with approximately $3.4 millionand for the same period in 2017.one month ended December 31, 2018, respectively. Net cash used in investing activities was primarily for POC related activities and additions to fixed assets at our subsidiaries, MaSTherCell, CureCelland Atvio.
During the year ended November 30, 2018, our financing activities consisted of proceeds from private placements of our equity securities, warrants exercise and equity-linked instruments in the net amount of approximately $21.5 million and $12.6 million from SFPI and GPP.
Liquidity and Capital Resources Outlook
We believe that the proceeds from the Masthercell Sale, as well as our business plan, will provide sufficient liquidity to fund our operating needs for at least the next 12 months. However, there are factors that can impact our ability to continue to fund our operating needs, including:
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On February 10, 2020, we received approximately $126.7 million net proceeds from the sale of Masthercell, of which $7.2 million was used for the repayment of intercompany loans and payables. In addition, on January 20, 2020, we entered into a Securities Purchase Agreement with certain investors pursuant to which we issued an aggregate of 2,200,000 shares of our common stock and warrants to purchase up to an aggregate of 1,000,000 shares of our common stock, which resulted in our receipt of gross proceeds of approximately $9.24 million before deducting related offering expenses.
IfBased on our current cash resources and commitments, we cannot effectively manage these factors,believe that we may needwill be able to raise additional capital before such date to fundmaintain our operating needs.
From December 1, 2017 tocurrent planned POC development activities and expected level of expenditures for at least 12 months from the date of this Annual Report on Form 10-K,the issuance of the financial statements. Also, if there are further increases in operating costs in general and administrative expenses for facilities expansion, research and development, commercial and clinical activity or decreases in revenues from customers, we funded our operations primarily from the proceeds from private placementsmay decide to seek additional financing. In addition, additional funds may be necessary to finance some of our equity securitiescollaborations and convertible debt and from revenues generated by Masthercell Global, mainly revenues generated from MaSTherCell. From December 1, 2017 through November 30, 2018, we received, through MaSTherCell, proceeds of approximately $17.3 million in revenues and accounts receivable from customers, $12.6 million from SFPI and GPP-II and $21.5 million from private placements to accredited investors of our equity and convertible debt, net of finders’ fees, and exercise of warrants. In addition, from December 1, 2018 through February 13, 2019, we raised $0.25 million from the private placement of our equity-linked securities, $6.6 million from GPP and proceeds of approximately $4.7 million in accounts receivable from customers of MaSTherCell.joint ventures.
We believe that the investment consummated in June 2018 by an affiliate of GPP in our newly formed subsidiary, Masthercell Global, which has included to the date of this report a total net amount of $16.9 million and, subject to meeting certain specified financial targets and other conditions over the course of 2019, an additional $6.6 million, should cover the costs associated with the current business plan of Masthercell Global.
In December 2018, we entered into a Controlled Equity Offering Sales Agreement, or Sales Agreement, with Cantor Fitzgerald & Co., or Cantor, pursuant to which we may offer and sell, from time to time through Cantor, shares of our common stock having an aggregate offering price of up to $25.0 million. We will pay Cantor a commission rate equal to 3.0% of the aggregate gross proceeds from each sale. Shares sold under the Sales Agreement will be offered and sold pursuant to our Shelf Registration Statement on Form S-3 (Registration No. 333-223777) that was declared effective by the Securities and Exchange Commission on March 28, 2018, or the Shelf Registration Statement, and a prospectus supplement and accompanying base prospectus that we filed with the Securities and Exchange Commission on December 20, 2018. We have not yet sold any shares of our common stock pursuant to the Sales Agreement.
Critical Accounting Policies and Estimates
Our significant accounting policies are more fully described in the notes to our financial statements included in this Annual Report on Form 10-K for the fiscal year ended November 30, 2018.December 31, 2019. We believe that the accounting policies below are critical for one to fully understand and evaluate our financial condition and results of operations.
Fair Value Measurement
The fair value measurement guidance clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in the valuation of an asset or liability. It establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under the fair value measurement guidance are described below:
Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities;
Level 2 - Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; or
Level 3 - Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).
We did not have any Level 1, or Level 2 assets and liabilities as of November 30, 2018 and 2017.
The derivative liabilities are Level 3 fair value measurements; we did not have any Levelor 3 assets and liabilities as of December 31, 2019 and November 30, 2018.
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Business Combination
The Company allocatesWe allocate the purchase price of an acquired business to the tangible and intangible assets acquired and liabilities assumed based upon theirour estimated fair values on the acquisition date. Any excess of the purchase price over the fair value of the net assets acquired is recorded as goodwill. Acquired in-process backlog, customer relations, brand name and know how are recognized at fair value. The purchase price allocation process requires management to make significant estimates and assumptions, especially at the acquisition date with respect to intangible assets. Direct transaction costs associated with the business combination are expensed as incurred. The allocation of the consideration transferred in certain cases may be subject to revision based on the final determination of fair values during the measurement period, which may be up to one year from the acquisition date. The Company includesWe include the results of operations of the business that it haswe have acquired in itsour consolidated results prospectively from the date of acquisition.
acquisition .
If the business combination is achieved in stages, the acquisition date carrying value of the acquirer’sacquirer's previously held equity interest in the acquiree is re-measured to fair value at the acquisition date; any gains or losses arising from such re-measurement are recognized in profit or loss.
Redeemable Non-controlling Interest
Non-controlling interests with embedded redemption features, whose settlement is not at the Company’sour discretion, are considered redeemable non-controlling interest. Redeemable non-controlling interests are considered to be temporary equity and are therefore presented as a mezzanine section between liabilities and equity on the Company'sour consolidated balance sheets. Subsequent adjustment of the amount presented in temporary equity is required only if the Company'sour management estimates that it is probable that the instrument will become redeemable. Adjustments of redeemable non-controlling interest to its redemption value are recorded through additional paid-in capital.
Revenue Recognition
The Company recognizes revenue for services linked to cell process development and cell manufacturing services based on individual contracts in accordance with Accounting Standards Codification (“ASC”) 605,Revenue Recognition,when the following criteria have been met: persuasive evidence of an arrangement exists; delivery of the processed cells has occurred or the services that are milestones based have been provided; the price is fixed or determinable and collectability is reasonably assured. The Company determines that persuasive evidence of an arrangement exists based on written contracts that define the terms of the arrangements. In addition, the Company determines that services have been delivered in accordance with the arrangement. The Company assesses whether the fee is fixed or determinable based on the payment terms associated with the transaction and whether the sales price is subject to refund or adjustment. Service revenues are recognized as the services are provided. In addition, as part of the services, the Company recognizes revenue based on use of consumables, which it received as reimbursement on a cost-plus basis on certain expenses.
Goodwill
Goodwill represents the excess of the purchase price of acquired business over the estimated fair value of the identifiable net assets acquired. Goodwill is not amortized but is tested for impairment at least annually (at November 30)December 31), at the reporting unit level or more frequently if events or changes in circumstances indicate that the asset might be impaired. The
Commencing from the fourth quarter of 2019, we early adopted a new guidance which simplifies the test for goodwill impairment. Under the new guidance, the we perform our quantitative goodwill impairment test is applied by performing a qualitative assessment before calculating the fair value of the reporting unit. If, on the basis of qualitative factors, it is considered not more likely than not that the fair value of the reporting unit is less than the carrying amount, further testing of goodwill for impairment would not be required. Otherwise, goodwill impairment is tested using a two-step approach.
The first step involves comparing the fair value of its reporting unit with our carrying value. If the reporting unitunit's carrying value is determined to be greater than its fair value, an impairment charge is recognized for the amount by which the carrying amount.value exceeds the reporting unit's fair value. If the fair value of the reporting unit is determined to be greater than its carrying amount, there is no impairment. If the reporting unit’s carrying amount is determined to be greater than the fair value, the second step must be completed to measure the amount of impairment, if any. The second step involves calculating the implied fair value of goodwill by deducting the fair value of all tangible and intangible assets, excluding goodwill, of the reporting unit from the fair value of the reporting unit as determined in step one. The implied fair value of the goodwill in this step is compared to the carrying value of goodwill. If the implied fair value of theapplicable goodwill is less than the carrying value of the goodwill, an impairment loss equivalent to the differencenot impaired and no further testing is recorded.
required.
Income Taxes
Deferred income tax assets and liabilities are computed for differences between the financial statement and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities.
In addition, our management performs an evaluation of all uncertain income tax positions taken or expected to be taken in the course of preparing our income tax returns to determine whether the income tax positions meet a “more"more likely than not”not" standard of being sustained under examination by the applicable taxing authorities. This evaluation is required to be performed for all open tax years, as defined by the various statutes of limitations, for federal and state purposes.
On December 22, 2017, the President of the United States signed and enacted into law H.R. 1 (the “Tax Reform Law”). The Tax Reform Law, effective for tax years beginning on or after January 1, 2018, except for certain provisions, resulted in significant changes to existing United States tax law, including various provisions that are expected to impact us. The Tax Reform Law reduces the federal corporate tax rate from 35% to 21% effective January 1, 2018. We have analyzed the provisions of the Tax Reform Law to assess the impact on our consolidated financial statements.
Impairment of LongLivedLong-lived Assets
We will periodically evaluate the carrying value of longlivedlong-lived assets to be held and used when events and circumstances warrant such a review and at least annually. The carrying value of a longlivedlong-lived asset is considered impaired when the anticipated undiscounted cash flow from such asset is separately identifiable and is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the longlivedlong-lived asset. Fair value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. Losses on longlivedlong-lived assets to be disposed of are determined in a similar manner, except that fair values are reduced for the cost to dispose.
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Newly Issued and Recently IssuedAdopted Accounting StandardsPronouncements
In January 2016, the Financial Accounting Standards Board (“FASB”) issued guidance on recognition and measurement of financial assets and financial liabilities (ASU No. 2016-01) that will supersede most current guidance. Changes to the U.S. GAAP model primarily affect the accounting for equity investments, financial liabilities under the fair value option and the presentation and disclosure requirements for financial instruments. In addition, the FASB clarified guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The accounting for other financial instruments, such as loans, investments in debt securities, and financial liabilities, is largely unchanged. The classification and measurement guidance became effective as of December 1, 2018. We do not expect the implementation of this new pronouncement to have a material impact on our consolidated financial statements.
In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09 “RevenueASC 606 - Revenue from Contracts with Customers (Topic 606)” (“Topic 606”) that will supersede most current revenue recognition guidance, including industry specific guidance. Under
On December 1, 2018, the Company adopted the new accounting standard ASC 606, Revenue from Contracts with Customers and the related amendments ("New Revenue Standard") to all contracts, using the modified retrospective method. The cumulative effect of initially applying the new revenue standard was immaterial.
Revenue Recognition Prior to the Adoption of the New Revenue Standard
Refer to Note 2 of item 8 of this form 10-K.
Revenue Recognition Following the Adoption of the New Revenue Standard
Our agreements are primarily service contracts that range in duration from a good or servicefew months to one year. We recognize revenue when control of these services is transferred to the customer when (or as) the customer obtains control of the good or service, which differs from the risk and rewards approach under current guidance. The guidance provides a five-step analysis of transactionsfor an amount, referred to determine when and how revenue is recognized. Other major provisions include capitalization of certain contract costs, consideration of the time value of money inas the transaction price, and allowing estimates of variablewhich reflects the consideration to which we are expected to be recognized before contingenciesentitled in exchange for those goods or services.
A contract with a customer exists only when:
For the majority of our contracts, we receive non-refundable upfront payments. We do not adjust the promised amount timingof consideration for the effects of a significant financing component since we expect, at contract inception, that the period between the time of transfer of the promised goods or services to the customer and uncertaintythe time the customer pays for these goods or services to be generally one year or less. Our credit terms to customers are in average between thirty and ninety days.
We do not disclose the value of revenue and cash flows arising from an entity’sunsatisfied performance obligations for contracts with customers. original expected duration of one year or less.
Disaggregation of Revenue
The guidance is effective in annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. The Company will implementfollowing table disaggregates our revenues by major revenue streams.
Year Ended December 31, 2019 | Transition Period, One-Month Ended December 31, 2018 | |||||
Revenue stream: | ||||||
Cell process development services | $ | 19,928 | $ | 1,488 | ||
Tech transfer services | 5,396 | 364 | ||||
POC development services | 3,109 | - | ||||
Cell manufacturing services | 4,823 | - | ||||
Total | $ | 33,256 | $ | 1,852 |
Nature of Revenue Streams
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During the guidance for our annual period ending on December 31, 2019covered by this report, we operated through two platforms: (i) a point-of-care cell therapy platform ("POC") and interim periods within such annual periods, using the modified retrospective method(ii) a Contract Development and will adjust the accumulated deficit and deferred revenue asManufacturing Organization ("CDMO") platform. As of the adoption date. second quarter of 2019, we commenced our POC development services. Through our CDMO platform, we are focused on providing contract manufacturing and development services for biopharmaceutical companies.
Under current GAAP, the Company recognizesWe have three main revenue for services linked to cell process development based on both the input and output methods of measurement. The Company has evaluated the application of the requirements of ASC 606 to ‘recognize revenue when or as the entity satisfies a performance obligation to its business. The Company has several types of revenue contracts:
The Company has concluded that under the revised standard, contracts forstreams from our CDMO platform: cell process development services, aretech transfer services, and upon success, cell manufacturing services.
POC Development Services
Revenue recognized under contracts for POC development services may, in some cases a single performance obligation (where promises offered to customers are not distinct within the context of the contract), and in other cases havecontracts, represent multiple performance obligations (where promises to the customers are distinct) in circumstances in which the work packages are not interrelated or the customer is able to complete the services performed independently or by using our competitors.
For arrangements that include multiple performance obligations, the transaction price is allocated to the identified performance obligations based on their relative standalone selling prices.
We measure the revenue to be recognized over time on a contract by contract basis as services are provided.
Cell Process Development Services
Revenue recognized under contracts for cell process development services may, in some contracts, represent multiple performance obligations (where promises to the customers are distinct) in circumstances in which the work packages and milestones are not interrelated or the customer is able to complete the services performed independently or by using our competitors. In all casesother contracts when the above circumstances are not met, the promises are not considered distinct and the contract represents one performance obligation. All performance obligations are satisfied over time. Undertime, as there is no alternative use to the new standard,services it performs, since, in nature, those services are unique to the Company will recognizecustomer, which retain the ownership of the intellectual property created through the process. Additionally, due to the non-refundable upfront payment the customer pays, together with the payment term and cancellation fine, it has a right to payment (which include a reasonable margin), at all times, for work completed to date, which is enforceable by law.
For arrangements that include multiple performance obligations, the transaction price is allocated to the identified performance obligations based on their relative standalone selling prices. For these contracts, the standalone selling prices are based on our normal pricing practices when sold separately with consideration of market conditions and other factors, including customer demographics and geographic location.
We measure the revenue to be recognized over time usingon a contract by contract basis, determining the use of either a cost-based input method or output method, depending on whichever fairlybest depicts the transfer of control over the life of the performance obligation.
Tech Transfer Services
Revenue recognized under contracts for tech transfer services are considered a single performance obligation, as appropriate.all work packages (including data collection, GMP documentation, validation runs) and milestones are interrelated. Additionally, the customer is unable to complete services of work performed independently or by using our competitors. Revenue is recognized over time using a cost-based input method where progress on the performance obligation is measured by the proportion of actual costs incurred to the total costs expected to complete the contract.
Cell Manufacturing Services
Regarding revenuesRevenues from cell manufacturing services the Company concluded that these comprisedrepresent a single performance obligation.obligation which is recognized over time. The progress towards completion will continue to be measured on an output measure based on direct measurement of the value transferred to the customer (units produced).
The Company has concluded that under the revised standard, contracts for Tech Transfer services are considered a single performance obligationSignificant Judgement and will be measured over time using a cost based input method where progress on the performance obligation is measured by the proportion of actual costs incurred to the total costs expected to complete the contract.Estimates
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The cost-based and output methods of revenue recognition require the Companyus to make estimates of costs to complete itsour projects and the percentage of completeness on an ongoing basis. Significant judgment is required to evaluate assumptions related to these estimates. The effect of revisions to estimates related to the transaction price (including variable consideration relating to reimbursement on a cost-plus basis on certain expenses) or costs to complete a project are recorded in the period in which the estimate is revised. The adoption
Practical Expedients
As part of ASC 606, we have adopted several practical expedients including our determination that we need not adjust the promised amount of consideration for the effects of a significant financing component since we expect, at contract inception, that the period between when we transfer a promised service to the customer and when the customer pays for that service will be one year or less.
Reimbursed Expenses
We include reimbursed expenses in revenues and costs of revenue as we are primarily responsible for fulfilling the promise to provide the specified service, including the integration of the new standard is not expectedrelated services into a combined output to the customer, which are inseparable from the integrated service. These costs include such items as consumable, reagents, transportation and travel expenses, over which we have discretion in establishing prices.
Change Orders
Changes in the scope of work are common and can result in a materialchange in transaction price, equipment used and payment terms. Change orders are evaluated on a contract-by-contract basis to determine if they should be accounted for as a new contract or as part of the existing contract. Generally, services from change orders are not distinct from the original performance obligation. As a result, the effect that the contract modification has on the total stockholders’ equitycontract revenue, and measure of progress, is recognized as an adjustment to revenue when they occur.
Costs of December 1, 2018.Revenue
Costs of revenue include (i) compensation and benefits for billable employees and personnel involved in production, data management and delivery, and the costs of acquiring and processing data for our information offerings; (ii) costs of staff directly involved with delivering services offerings and engagements; (iii) consumables used for the services; and (iv) other expenses directly related to service contracts such as courier fees, laboratory supplies, professional services and travel expenses.
Contract Assets and Liabilities
Contract assets are mainly comprised of trade receivables net of allowance for doubtful debts, which includes amounts billed and currently due from customers.
The activity for trade receivables is comprised of:
Year Ended December 31, 2019 | Transition Period, One-month Ended December 31, 2018 | |||||
Balance as of beginning of period | $ | 3,226 | $ | 4,151 | ||
Additions | 26,148 | 1,612 | ||||
Collections | (20,803 | ) | (2,561 | ) | ||
Exchange rate differences | (86 | ) | 24 | |||
Balance as of end of period | $ | 8,485 | $ | 3,226 |
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The activity for contract liabilities is comprised of:
Year Ended December 31, 2019 | Transition Period, One-month ended December 31, 2018 | |||||
Balance as of beginning of period | $ | 5,175 | $ | 5,317 | ||
Adoption of ASC 606: | - | (8 | ) | |||
Additions | 9,850 | 28 | ||||
Realizations | (6,307 | ) | (251 | ) | ||
Exchange rate differences | (92 | ) | 89 | |||
Balance as of end of period | $ | 8,626 | $ | 5,175 |
ASU 2018-07 Stock based Compensation
In November 2016,June 2018, the FASB issued ASU 2016-18, Statement of Cash Flows2018-07, "Compensation-Stock Compensation (Topic 230)718): Restricted Cash (a Consensus ofImprovements to Nonemployee Share-Based Payment Accounting." This guidance simplifies the FASB Emerging Issues Task Force) (“ASU 2016-18”), which requires entities to include amounts generally described as restricted cash and restricted cash equivalents in cash and cash equivalents when reconciling beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-18 is effectiveaccounting for annual reporting periods (including interim periods within those annual reporting periods) beginning after December 15, 2017. The Company adopted this standard during the year ended November 30, 2018.
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)” (“ASU 2016-02”), which supersedes the existing guidance for lease accounting, “Leases (Topic 840)”. ASU 2016-02 requires lessees to recognize leases on their balance sheets, and leaves lessor accounting largely unchanged.non-employee share-based payment transactions. The amendments specify that ASC 718 applies to all share-based payment transactions in ASU 2016-02 arewhich a grantor acquires goods and services to be used or consumed in a grantor's own operations by issuing share-based payment awards. The standard is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early applicationadoption is permitted, but no earlier than an entity's adoption date of Topic 606, "Revenue from Contracts with Customers." This standard, adopted as of January 1, 2019, had no material impact on our consolidated financial statements for the year ended December 31, 2019.
ASC 842 - Leases
In February 2016, the FASB issued ASU 2016-02 "Leases" (the "new lease standard"). The guidance establishes a right-of-use model ("ROU") that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all entities. ASU 2016-02 requires aleases. Leases are classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. The guidance became effective on January 1, 2019. A modified retrospective transition approach foris required, applying the new standard to all leases existing at or entered into after, the date of initial application, with an option to elect to use certain transition relief. We expect to applyapplication.
The Company adopted the ASU without adjustingnew lease standard and all the comparative periodsrelated amendments on January 1, 2019 and if applicable, recognizing a cumulative effect adjustment toused the opening balanceeffective date as the Company's date of retained earnings ininitial application. Consequently, financial information was not updated and the period of adoption. We are currently evaluatingdisclosures required under the impact of this new standard are not provided for dates and periods before January 1, 2019.
For more information, see Notes 2 (t) and 10 of Item 8 on our consolidated financial statements.this form 10K.
Recently Issued Accounting Pronouncements, Not Yet Adopted
In June 2016, the FASB issued ASU 2016-13 “Financial"Financial Instruments-Credit Losses-Measurement of Credit Losses (Topic 326)” (“ASU 2016-13”). ASU 2016-13 requireson Financial Instruments." This guidance replaces the current incurred loss impairment methodology with a methodology that financial assets measured at amortized cost be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis. The income statement reflects the measurement of credit losses for newly recognized financial assets, as well as the expected credit losses during the period. The measurementand requires consideration of expected credit losses is based upon historical experience, current conditions, anda broader range of reasonable and supportable forecasts that affect the collectability of the reported amount. Credit losses relatinginformation to available-for-sale debt securitiesinform credit loss estimates. The guidance will be recorded through an allowance for credit losses rather than as a direct write-down to the security. ASU 2016-13 is effective for Smaller Reporting Companies (SRCs, as defined by the SEC) for the fiscal yearsyear beginning after December 15, 2019,on January 1, 2023, including interim periods within those fiscal years. Early adoption is permitted as ofthat year. We are currently evaluating this guidance to determine the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We do not expect the implementation of this new pronouncement toimpact it may have a material impact on our consolidated financial statements.
In May 2017, the FASB issued ASU 2017-09, “Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting” (“ASU 2017-09”), which gives direction on which changes to the terms or conditions of share-based payment awards require an entity to apply modification accounting in Accounting Standard Codification (“ASC”) Topic 718. In general, entities will apply the modification accounting guidance if the value, vesting conditions or classification of the award changes. ASU 2017-09 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. We do not expect the implementation of this new pronouncement to have a material impact on our consolidated financial statements.
In JuneNovember 2018, the FASB issued ASU 2018-07, “Compensation – Stock Compensation2018-18 "Collaborative Arrangements (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting” that expands808)-Clarifying the scope ofinteraction between Topic 808 and Topic 606." The amendments provide guidance on whether certain transactions between collaborative arrangement participants should be accounted for as revenue under ASC Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. An entity606. It also specifically (i) addresses when the participant should apply the requirements of ASC Topic 718 to nonemployee awards except for certain exemptions specifiedbe considered a customer in the amendment.context of a unit of account, (ii) adds unit-of-account guidance in ASC 808 to align with guidance in ASC 606 and (iii) precludes presenting revenue from a collaborative arrangement together with revenue recognized under ASC 606 if the collaborative arrangement participant is not a customer. The guidance is effective for fiscal years beginning after December 15, 2018, including interim reporting periods within that fiscal year. Early adoption is permitted, but no earlier than an entity’s adoption date of Topic 606. We do not expect the implementation of this new pronouncement to have a material impact on our consolidated financial statements.
In January 2017, FASB issued Accounting Standards Update (ASU) 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which eliminated the calculation of implied goodwill fair value. Instead, companies will record an impairment charge based on the excess of a reporting unit’s carrying amount of goodwill over its fair value. This guidance simplifies the accounting as compared to prior GAAP. The guidance isbe effective for fiscal years beginning after December 15, 2019. Early adoption is permitted and should be applied retrospectively. We are currently evaluating this guidance to determine the impact it may have on our consolidated financial statements.
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In December 2019, the FASB issued ASU 2019-12 "Income Taxes (Topic 740)-Simplifying the Accounting for Income Taxes" ("the Update"). The amendments in this Update simplify the accounting for income taxes by removing the following exceptions in ASC 740: (1) exception to the incremental approach for intra-period tax allocation when there is a loss from continuing operations and income or a gain from other items; (2) exception to the requirement to recognize a deferred tax liability for equity method investments when a foreign subsidiary becomes an equity method investment; (3) exception to the ability not to recognize a deferred tax liability for a foreign subsidiary when a foreign equity method investment becomes a subsidiary; and (4) exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year.
In addition, this Update also simplifies the accounting for income taxes in certain topics as follows: (1) requiring that an entity recognize a franchise tax (or similar tax) that is partially based on income as an income-based tax and account for any incremental amount incurred as a non-income-based tax; (2) requiring that an entity evaluate when a step up in the tax basis of goodwill should be considered part of the business combination in which the book goodwill was originally recognized and when it should be considered a separate transaction; (3) specifying that an entity can elect (rather than be required to) allocate the consolidated amount of current and deferred tax expense to a legal entity that is not subject to tax in its separate financial statements; and (4) requiring that an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company does not expectis currently evaluating this guidance to determine the implementation of this new pronouncement toimpact it may have a material impact on its consolidated financial statements.
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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information called for by Item 8 is included following the “Index"Index to Financial Statements”Statements" on page F-1 contained in this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act and regulations promulgated thereunder) as of November 30, 2018,December 31, 2019, or the Evaluation Date. Based on such evaluation, those officers have concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective.
Management’sManagement's Report on Internal Control over Financial Reporting
Our management, under the supervision of theChief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting for our company. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, the company’scompany's principal executive and principal financial officers and effected by the company’scompany's board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of our company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our company’scompany's assets that could have a material effect on the financial statements.
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The CureCell and Atvio acquisitions which were completed in the second half of 2018 were excluded from management’s evaluation of internal control over financial reporting as of November 30, 2018. Curecell and Atvio, collectively, represent 5% of our total consolidated assets and 6% of our total consolidated revenues as of and for the year ended November 30, 2018.
Our management, with the participation of ourChief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our internal control over financial reporting as of November 30, 2018.December 31, 2019. In making this evaluation, our management used the criteria set forth in the Internal Control —- Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on this evaluation, management concluded that our internal control over financial reporting was effective as of November 30, 2018December 31, 2019 based on those criteria.
Attestation Report of Independent Registered Public Accounting Firm
The effectiveness of our internal control over financial reporting as of November 30, 2018December 31, 2019 has been audited by Kesselman & Kesselman, a member firm of PricewaterhouseCoopers International Limited (“PwC”("PwC"), an independent registered public accounting firm, as stated in their report which is included under "Item 8-8 - Financial Statements".
Statements and Supplementary Data."
Changes in Internal Control Over Financial Reporting
Prior to listing our common stock on the Nasdaq Capital Market, we identified a material weaknessThere were no changes in our internal control over financial reporting as of November 30, 2017. As defined in Regulation 12b-2 underthat occurred during the Securities Exchange Act of 1934, a “material weakness” is a deficiency,quarter ended December 31, 2019 that have materially affected, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our company’s annual or interim financial statements will not be prevented or detected on a timely basis. The deficiency inare reasonably likely to materially affect, our internal control over financial reporting was due to the applied risk-based approach which is indicative of many small companies with limited number of staff in corporate functions which have insufficient segregation of duties and insufficient controls over period end financial disclosure and reporting processes. Subsequently, the following had occurred in order to remediate the material weakness: (a) during the fiscal year ended November 30, 2018, we hired additional qualified personnel to the corporate finance team, as well as to our subsidiaries; (b) in the beginning of the third quarter of 2018, we engaged an internal control Sarbanes and Oxley (SOX) expert to assist us in improving our internal processes and in reviewing the design and implementation of our internal control over financial reporting; (c) during the year ended November 30, 2018, our procedures of internal control over financial reporting and made changes to our processes to improve controls and increase efficiency, by implementing new, more efficient consolidating activities, and migrating processes. Management believes that due to the foregoing, as of November 30, 2018, it has remediated the material weakness previously identified.reporting.
ITEM 9B. OTHER INFORMATION
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None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The following table sets forth certain information regarding our each of our current Directors and Executive Officers. The age of each Director and Executive Officer listed below is givenOfficers as of November 30, 2018.
March 9, 2020.
Name | Age | Position | ||
Vered Caplan | 51 | Chief Executive Officer and Chairperson of the Board of Directors | ||
Neil Reithinger | 50 | Chief Financial Officer, Secretary and Treasurer | ||
Sarah Ferber | 65 | Chief Scientific Officer | ||
David Sidransky (1) | 59 | Director | ||
Guy Yachin (1) | 52 | Director | ||
Yaron Adler (1) | 49 | Director | ||
Ashish Nanda (1) | 54 | Director | ||
Mario Philips | 50 | Director (appointed in January 2020) |
(1) |
A member on each of the audit, compensation and nominating and corporate governance committees. |
Our Executive Officers
Vered Caplan –- Chief Executive Officer and Chairperson of the Board of Directors
Ms. Caplanhas served as our CEO andChairperson of the Board of Directors since August 14, 2014, prior to which she served as Interim President and CEO commencing on December 23, 2013. She joined our Board of Directors in February 2012. She has 25years of industry experience, previously holding positions asCEO of Kamedis Ltd.from 2009 to 2014, CEO of GammaCan International Inc. from 2004 to 2007,2007. She also served as a director of the following companies: Opticul Ltd., Inmotion Ltd., Nehora Photonics Ltd., Ocure Ltd., Eve Medical Ltd., Menopause and PMS and Biotech Investment Corp. Ms. Caplan holds a M.Sc. in biomedical engineering from Tel Aviv University specializing in signal processing; management for engineers from Tel Aviv University specializing in business development; and a B.Sc. in mechanical engineering from the Technion–Technion- Israel Institute of Technology specialized in software and cad systems.
Neil Reithinger –- Chief Financial Officer, Secretary and Treasurer
Mr. Reithinger was appointed Chief Financial Officer, Secretary and Treasurer on August 1, 2014. Mr. Reithinger is the Founder and President of Eventus Advisory Group, LLC, a private, CFO-services firm incorporated in Arizona, which specializes in capital advisory and SEC compliance for publicly-traded and emerging growth companies. He is also the President of Eventus Consulting, P.C., a registered CPA firm in Arizona. Prior to forming Eventus, Mr. Reithinger was Chief Operating Officer & CFO from March 2009 to December 2009 of New Leaf Brands, Inc., a branded beverage company, CEO of Nutritional Specialties, Inc. from April 2007 to October 2009, a nationally distributed nutritional supplement company that was acquired by Nutraceutical International, Inc., Chairman, CEO, President and director of Baywood International, Inc. from January 1998 to March 2009, a publicly-traded nutraceutical company and Controller of Baywood International, Inc. from December 1994 to January 1998. Mr. Reithinger earned a B.S. in Accounting from the University of Arizona and is a Certified Public Accountant. He is a Member of the American Institute of Certified Public Accountants and the Arizona Society of Certified Public Accountants.
Prof. Sarah Ferber –- Chief Scientific Officer
Prof. Ferber has served as the Company’sCompany's Chief Scientific Officer since her appointment on February 2, 2012. Since 2017, Prof. Ferber has been the Principal Investigator of cell therapy for TMU DiaCure. Prof. Ferber studied biochemistry at the Technion under the supervision of Professor Avram Hershko and Professor Aharon Ciechanover, winners of the Nobel Prize in Chemistry in 2004. Most of the research was conducted in Prof. Ferber’sFerber's Endocrine Research Lab. Prof. Ferber received Teva, Lindner, Rubin and Wolfson awards for this research. Prof. Ferber’sFerber's research work has been funded over the past 15 years by the JDRF, the Israel Academy of Science foundation (ISF), BIODISC and DCure. Prof. Ferber earned her B.Sc. from Technion-Haifa, a M.Sc. in Biochemistry from Technion-Haifa and a Ph.D. in Medical Sciences from Technion-Haifa. She also holds a Post Doctorate degree in Molecular Biology from Harvard Medical School and a degree in Cell Therapy Sciences from UTSW, Dallas.
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Dr. Denis Bedoret – General Manager of MaSTherCell, S.A.
Dr. Bedoret has served as the General Manager of MaSTherCell since his appointment on July 6, 2017. Dr. Bedoret joined MaSTherCell in October 2016 as Chief Business and Administration Officer. Prior to joining MaSTherCell, from January 2014 to September 2016, he held the position of Chief Operations Officer at Quality Assistance, a leading European analytical CRO where he was also member of the board of directors. Between September 2011 and January 2014, Dr. Bedoret served as Engagement Manager at McKinsey & Company, focusing on bio-pharmaceutical projects. Through those experiences, he gained a strong expertise in biologicals, FDA and EMA regulations, as well as team management. He holds a degree in Veterinary Medicine, a Ph.D. in Life Sciences from ULg and a post-doctorate degree in Immunology from Harvard Medical School.
On September 5, 2018, Dr. Bedoret was promoted to Managing Director of MaSTherCell. On January 22, 2019, Dr. Bedoret was appointed as President of Masthercell Global.
Our Directors
Dr. David Sidransky –- Director
Dr. Sidransky has served as a director since his appointment on July 18, 2013. Dr. Sidransky is a renowned oncologist and research scientist named and profiled by TIME magazine in 2001 as one of the top physicians and scientists in America, recognized for his work with early detection of cancer. Since 1994, Dr. Sidransky has been the Director of the Head and Neck Cancer Research Division at Johns Hopkins University School of Medicine’sMedicine's Department of Otolaryngology and Professor of Oncology, Cellular & Molecular Medicine, Urology, Genetics, and Pathology at the John Hopkins University School of Medicine. Dr. Sidransky is one of the most highly cited researchers in clinical and medical journals in the world in the field of oncology during the past decade, with over 460 peer reviewed publications. Dr. Sidransky is a founder of a number of biotechnology companies and holds numerous biotechnology patents. Dr. Sidransky has served as Vice Chairman of the board of directors, and was, until the merger with Eli Lilly, a director of ImClone Systems, Inc., a global biopharmaceutical company committed to advancing oncology care. He is serving, or has served on, the scientific advisory boards of MedImmune, LLC, Roche, Amgen Inc. and Veridex, LLC (a Johnson & Johnson diagnostic company), among others and is currently on the board of Directors of Galmed and Rosetta Genomics Ltd. and chairs the board of directors of Advaxis and Champions Oncology, Inc. Dr. Sidransky served as Director from 2005 until 2008 of the American Association for Cancer Research (AACR). He was the chairperson of AACR International Conferences during the years 2006 and 2007 on Molecular Diagnostics in Cancer Therapeutic Development: Maximizing Opportunities for Personalized Treatment. Dr. Sidransky is the recipient of a number of awards and honors, including the 1997 Sarstedt International Prize from the German Society of Clinical Chemistry, the 1998 Alton Ochsner Award Relating Smoking and Health by the American College of Chest Physicians, and the 2004 Richard and Hinda Rosenthal Award from the American Association of Cancer Research. Dr. Sidransky received his BS in Chemistry from Brandies University and his medical degree from Baylor College of medicine where he also completed his residency in internal medicine. His specialty in Medical Oncology was completed at Johns Hopkins University and Hospital.
We believe Dr. Sidransky is qualified to serve on our Board of Directors because of his education, medical background, experience within the life science industry and his business acumen in the public markets.
Guy Yachin –- Director
Mr. Yachin has served as a director since his appointment on April 2, 2012. Mr. Yachin has served as the President and CEO of Serpin Pharma, a clinical stage Virginia-based company focused on the development of anti-inflammatory drugs, since April 2013. Mr. Yachin is the CEO of Oasis Management, a Maryland-based consulting company, since 2010. Mr. Yachin is the CEO of NasVax Ltd., a company focused on the development of improved immunotherapeutics and vaccines. Prior to joining NasVax, Mr. Yachin served as CEO of MultiGene Vascular Systems Ltd., a cell therapy company focused on blood vessels disorders, leading the company through clinical studies in the U.S. and Israel, financial rounds, and a keystone strategic agreement with Teva Pharmaceuticals Industries Ltd. He was CEO and founder of Chiasma Inc., a biotechnology company focused on the oral delivery of macromolecule drugs, where he built the company’scompany's presence in Israel and the U.S., concluded numerous financial rounds, and guided the company’scompany's strategy and operation for over six years. Earlier, he was CEO of Naiot Technological Center Ltd., and provided seed funding and guidance to more than a dozen biomedical startups such as Remon Medical Technologies Ltd., Enzymotec Ltd. and NanoPass Technologies Ltd. He holds a BSc. in Industrial Engineering and Management and an MBA from the Technion –- Israel Institute of Technology. Mr. Yachin served on the board of Peak Pharmaceuticals, Inc. from March 2014 to April 2016.
We believe Mr. Yachin is qualified to serve on our Board of Directors because of his education, experience within the life science industry and his business acumen in the public markets.
Yaron Adler –- Director
Mr. Adler has served as a director since his appointment on April 17, 2012. Mr. Adler is the chairman of ExitValley Ltd., an equity-based crowdfunding platform, since April 2014 and the co-founder of a startup incubator, We Group Ltd. In 1999, Mr. Adler co-founded IncrediMail Ltd. and served as its CEO until 2008 and President until 2009. In 1999, prior to founding IncrediMail, Mr. Adler consulted Israeli startup companies regarding Internet products, services and technologies. Mr. Adler served as a product manager from 1997 to 1999, and as a software engineer from 1994 to 1997, at Tecnomatix Technologies Ltd., a software company that develops and markets production engineering solutions to complex automated manufacturing lines that fill the gap between product design and production, and which was acquired by UGS Corp. in April 2005. In 1993, Mr. Adler held a software engineer position at Intel Israel Ltd. He has a B.A. in computer sciences and economics from Tel Aviv University.
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We believe Mr. Adler is qualified to serve on our Board of Directors because of his education, success with early-stage enterprises and his business acumen in the public markets.
Ashish Nanda –- Director
Mr. Nanda has served as a director since his appointment on February 22, 2017. Since 1998, Mr. Nanda has been the Managing Director of Innovations Group, one of the largest outsourcing companies in the financial sector that employs close to 14,000 people working across various financial sectors. Since 1992, Mr. Nanda has served as the Managing Partner of Capstone Insurance Brokers LLC and, since 2009, has served as Managing Partner of Dive Tech Marine Engineering Services L.L.C. From 1991 to 1994, Mr. Nanda held the position of Asst. Manager Corporate Banking at Emirates Banking Group where he was involved in establishing relationships with business houses owned by UAE nationals and expatriates in order to set up banking limits and also where he managed portfolios of USD $26 billion. Mr. Nanda holds a Chartered Accountancy from the Institute of Chartered Accountants from India.
We believe that Mr. Nanda is qualified to serve on our Board of Directors because of his business experience and strategic understanding of advancing the valuation of companies in emerging industries.
There are no family relationships between any of the above executive officers or directors or any other person nominated or chosen to become an executive officer or a director. Pursuant to an agreement entered into between us and Image Securities fzc. (“Image”("Image"), forso long as Image’sImage's ownership of our company is 10% or greater, itwas granted the right to nominate a director to our Board of Directors. Mr. Nanda was nominated for a directorship at the 2017 annual meeting in compliance with our contractual undertakings.
Mario Philips - Director
Mr. Philips was appointed as a director in January 9, 2020. Since March 2019, Mr. Philips has been Chief Executive Officer of PolyNeuroS, a drug company based in France that has developed a diagnostic platform technology for neurodegenerative diseases in combination with a therapy to cure neurodegenerative diseases such as ALS and Parkinson's. Mr. Philips also acts as strategic partner for the private equity fund, Archimed, and has been the Chairman of the Board for its portfolio company, Clean Biologics since July 2019.
Prior to that Mario acted as VP/GM for Danaher Pall Biotech business with full P&L responsibility for a $1,3B business unit. Mario joined Pall in February 2014, as part of the Pall acquisition of ATMI Life Sciences, and was appointed to Vice President and General Manager to lead the Single-Use Technologies BU. In this role he was responsible for leading and executing an aggressive investment and growth strategy.
Mario joined ATMI in 1999 with ATMI's acquisition of MST Analytics, Inc., serving as European Sales Manager for ATMI Analytical Systems. In 2004, Mario was appointed to General Manager of ATMI Packaging, a role he held through 2010 when he was promoted to the position of Senior Vice President and General Manager, ATMI Life Sciences. In that role, he was responsible for developing and executing all business strategies, including the introduction of new products and service solutions for the Life Sciences industry. A strong leading innovative IP portfolio was created, Pall acquired the business in 2014.
Mario also held in the past several board member positions in the life sciences industry with Austar Life Sciences (China), Disposable Lab (France) and Artelis (Belgium).
We believe that Mr. Philips is qualified to serve on our Board of Directors because of his business experience and strategic understanding of advancing the valuation of companies in emerging industries.
Board of Directors
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Our Board of Directors currently consists of fivesix (6) members. All directors hold office until the next annual meeting of stockholders. At each annual meeting of stockholders, the successors to directors whose terms then expire are elected to serve from the time of election and qualification until the next annual meeting following election.
Management has been delegated the responsibility for meeting defined corporate objectives, implementing approved strategic and operating plans, carrying on our business in the ordinary course, managing cash flow, evaluating new business opportunities, recruiting staff and complying with applicable regulatory requirements. The Board of Directors exercises its supervision over management by reviewing and approving long-term strategic, business and capital plans, material contracts and business transactions, and all debt and equity financing transactions and stock issuances.
Director Independence
Our Board of Directors is comprised of a majority of independent directors. In determining director independence, the Company uses the definition of independence in Rule 5605(a)(2) of the listing standards of The Nasdaq Stock Market.
The Board has concluded that each of Dr. Sidransky, and Messrs. Yachin, Adler, Philips and Nanda is “independent”"independent" based on the listing standards of the Nasdaq Stock Market, having concluded that any relationship between such director and our company, in its opinion, does not interfere with the exercise of independent judgment in carrying out the responsibilities of a director.
Board Committees
Our Board of Directors has established an Audit Committee, a Compensation Committee and a Nominating and Corporate Governance Committee, with each comprised of independent directors in accordance with the rules of The Nasdaq Stock Market and applicable federal securities laws and regulations. The members of each committee are Dr. Sidransky and Messrs. Adler and Yachin.
On January 9, 2020, Mr. Mario Philips was appointed to the Company's Audit Committee.
Each committee operates under a written charter that has been approved by our Board of Directors. Copies of our committee charters are available on the investor relations section of our website, which is located athttp://www.orgenesis.com.
www.orgenesis.com.
Audit Committee
The Audit Committee (a) assists the Board of Directors in fulfilling its oversight of: (i) the quality and integrity of our financial statements; (ii) our compliance with legal and regulatory requirements relating to our financial statements and related disclosures; (iii) the qualifications and independence of our independent auditors; and (iv) the performance of our independent auditors; and (b) prepares any reports that the rules of the SEC require be included in our proxy statement for our annual meeting.
The Audit Committee held ninesix meetings in fiscal 2018.2019. In addition, the Audit Committee reviewed and approved various corporate items by way of written consent during the fiscal year 2018.2019. The Board has determined that each member of the Audit Committee is an independent director in accordance with the rules of The Nasdaq Stock Market and applicable federal securities laws and regulations. In addition, the Board has determined that Dr. Sidransky is an “audit"audit committee financial expert”expert" within the meaning of Item 407(d)(5) of Regulation S-K and has designated him to fill that role. See “Directors,"Directors, Executive Officers and Corporate Governance – Directors”- Directors" above for descriptions of the relevant education and experience of each member of the Audit Committee.
At no time since the commencement of the Company’sCompany's most recently completed fiscal year was a recommendation of the Audit Committee to nominate or compensate an external auditor not adopted by the Board of Directors.
The Audit Committee is responsible for the oversight of our financial reporting process on behalf of the Board of Directors and such other matters as specified in the Audit Committee’sCommittee's charter or as directed by the Board of Directors. Our Audit Committee is directly responsible for the appointment, compensation, retention and oversight of the work of any registered public accounting firm engaged by us for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for us (or to nominate the independent registered public accounting firm for stockholder approval), and each such registered public accounting firm must report directly to the Audit Committee. Our Audit Committee must approve in advance all audit, review and attest services and all non-audit services (including, in each case, the engagement and terms thereof) to be performed by our independent auditors, in accordance with applicable laws, rules and regulations.
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Compensation Committee
The Compensation Committee (i) assists the Board of Directors in discharging its responsibilities with respect to compensation of our executive officers and directors, (ii) evaluates the performance of our executive officers, and (iii) administers our stock and incentive compensation plans and recommends changes in such plans to the Board as needed.
The Compensation Committee acted by unanimous written consent or held one meetingfive meetings in fiscal 2018.2019. In addition, the Compensation Committee reviewed and approved various corporate items by way of written consent during the fiscal year 2018.2019. The Board of Directors has determined that each member of the Compensation Committee is an independent director in accordance with the rules of The Nasdaq Stock Market and applicable federal securities laws and regulations.
Nominating and Corporate Governance Committee
The Nominating and Corporate Governance Committee assists the Board in (i) identifying qualified individuals to become directors, (ii) determining the composition of the Board and its committees, (iii) developing succession plans for executive officers, (iv) monitoring a process to assess Board effectiveness, and (v) developing and implementing our corporate governance procedures and policies.
The Nominating and Corporate Governance Committee acted by unanimous written consent or held onethree meeting in fiscal 2018.2019. The Board has determined that each member of the Nominating and Corporate Governance Committee is an independent director in accordance with the rules of The Nasdaq Stock Market and applicable federal securities laws and regulations.
DELINQUENT SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
REPORTS
Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”"Exchange Act"), requires officers and directors of the Company and persons who beneficially own more than ten percent (10%) of the Common Stock outstanding to file initial statements of beneficial ownership of Common Stock (Form 3) and statements of changes in beneficial ownership of Common Stock (Forms 4 or 5) with the SEC. Officers, directors and greater than 10% stockholders are required by SEC regulation to furnish us with copies of all such forms they file.
Our records reflect that all reports which were required to be filed pursuant to Section 16(a) of the Securities Exchange Act of 1934, as amended, were filed on a timely basis, except that two reports,one report, covering an aggregate of twothree transactions, were filed late by Vered Caplan, two reports, covering an aggregate of two transaction,transactions, were filed late by David Sidransky, one report,two reports, covering an aggregate of one transaction, wasseven transactions, were filed late by Yaron Adler, two reports, covering an aggregate of three transactions, were filed late by Guy Yachin, one report covering an aggregate of one transaction, was filed late by Yaron Adler,Denis Bedoret, two reports, covering an aggregate of two transactions, were filed late by Ashish Nanda, one report, covering an aggregate of one transaction, was filed late by Sarah Ferber, one report, covering an aggregate of eighttwo transactions, was filed late by Hugues Bultot,Neil Reithinger and an initial report of ownership was filed late by David Sidransky and each of Denis Bedoret, Ashish Nanda and Denis Bedoret did not timely file one report covering an aggregate of one transaction.
Neil Reithinger.
Corporate Code of Conduct and Ethics
Our Board of Directors has adopted a written code of business conduct and ethics that applies to our directors, officers and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. Copies of our corporate code of conduct and ethics are available, without charge, upon request in writing to Orgenesis Inc., 20271 Goldenrod Lane, Germantown, MD, 20876, Attn: Secretary and are posted on the investor relations section of our website, which is located at www.orgenesis.com. The inclusion of our website address in this Annual Report on Form 10-K does not include or incorporate by reference the information on our website into this Annual Report on Form 10-K. We also intend to disclose any amendments to the Corporate Code of Conduct and Ethics, or any waivers of its requirements, on our website.
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ITEM 11. EXECUTIVE COMPENSATION
The following table shows the total compensation paid or accrued during the last two fiscal yearyears ended December 31, 2019 and November 30, 2018 and the December 2018 transition period, to our Chief Executive Officer, our Chief Financial Officer and our two next most highly compensated executive officers who earned more than $100,000 during the fiscal year ended November 30, 2018December 31, 2019 and were serving as executive officers as of such date (the “named"named executive officers”officers").
Summary Compensation Table
Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards ($) | Option Awards ($) (1) | Non-Equity Incentive Plan Compensa- tion ($) | Non-qualified Deferred Compensation Earnings ($) | All Other Compensa- tion ($) (2) | Total ($) |
Vered Caplan CEO (3) | 2019
December 2018
2018 | 250,000
25,000
226,122 | 200,000
-
350,000 | -
-
- | 871,036
149,048
1,318,771 | -
-
- | -
-
- | 77,020
5,554
80,697 | 1,398,056
179,602
1,975,590 |
Neil Reithinger CFO, Treasurer & Secretary | 2019
December 2018
2018 | 213,653
21,650
266,452 (4) | -
-
- | -
-
- | 22,970
3,442
139,590 | -
-
- | -
-
- | -
-
- | 236,623
25,092
406,042 |
Denis Bedoret, President of MaSTherCell Global (5)(6) | 2019
December 2018
2018 | 221,954
13,314
211,847 (6) | 33,249
6,047
56,539 | -
-
- | 66,157
5,004
20,214 | -
-
- | -
-
- | -
-
- | 321,360
24,365
288,600 |
Darren Head, CEO of Masthercell Global (5) | 2019
December 2018 | 250,000
- | 112,500
- | -
- | 9,241
348,916 | -
- | -
- | 120,000
- | 491,741
348,916 |
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In accordance with SEC rules, the amounts in this column reflect the fair value on the grant date of the option awards granted to the named executive, calculated in accordance with ASC Topic 718. Stock options were valued using the Black-Scholes model. The grant-date fair value does not necessarily reflect the value of shares which may be received in the future with respect to these awards. The grant-date fair value of the stock options in this column is a non-cash expense for the Company that reflects the fair value of the stock options on the grant date and therefore does not affect our cash balance. The fair value of the stock options will likely vary from the actual value the holder receives because the actual value depends on the number of options exercised and the market price of our Common Stock on the date of exercise. For a discussion of the assumptions made in the valuation of the stock options, see Note | |
(2) | For |
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(3) | Due to cash flow considerations, part of the amounts earned have been deferred periodically and, as of November 30, 2018, an aggregate of $195,501 has been deferred by agreement and accrued by the Company. See below under |
(4) | As of November 30, 2018, an aggregate of $18,276 has been deferred and accrued by agreement and accrued the Company. See below under |
(5) | As of |
(6) | On July 6, 2017, |
All Other Compensation
The following table provides information regarding each component of compensation for fiscal years 2019 and 2018 and 2017the December 2018 transition period included in the All Other Compensation column in the Summary Compensation Table above. Represents amounts paid in New Israeli Shekels (NIS) and converted at average exchange rates for the year.
Name | Year | Automobile and Communication Related Expenses $(1) | Israel- related Social Benefits $ | Total $ |
Vered Caplan |
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December 2018
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1,143
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4,411
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5,554
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(1) |
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Represents for Ms. Caplan, a leased automobile and communication expenses. | |
(2) | These are comprised of |
Outstanding Equity Awards at November 30, 2018December 31, 2019
The following table summarizes the outstanding equity awards held by each named executive officer of our company as of November 30, 2018.
Name | Grant Date | Number of Shares Underlying Unexercised Options (#) Exercisable | Number of Shares Underlying Unexercised Options (#) Unexercisable | Option Exercise Price ($) | Option Expiration Date | |||||
Vered Caplan | 02-Feb-12(1) | 278,191 | - | 0.0012 | 02-Feb-22 | |||||
22-Aug-14(1) | 230,189 | - | 0.0012 | 22-Aug-24 | ||||||
09-Dec-16(2) | 145,834 | 20,833 | 4.8 | 09-Dec-26 | ||||||
06-Jun-17(3) | 83,334 | - | 7.2 | 06-Jun-27 | ||||||
28-Jun-18(4) | - | 250,001 | 8.36 | 28-Jun-28 | ||||||
22-Oct-18(5) | - | 85,000 | 5.99 | 22-Oct-28 | ||||||
Neil Reithinger | 01-Aug-14(6) | 16,667 | 6 | 01-Aug-19 | ||||||
09-Dec-16(2) | 72,918 | 10,416 | 4.8 | 09-Dec-26 | ||||||
Dr. Denis Bedoret
| 14-May-18(7) | 1,875 | 13,125 | 8.43 | 14-May-28 | |||||
Prof. Sarah Ferber | 02-Feb-12(1) | 231,826 | - | 0.0012 | 02-Feb-22 | |||||
22-Oct-18(5) | - | 3,750 | 5.99 | 22-Oct-28 |
December 31, 2019.
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Name |
| Grant Date |
| Number of Shares Underlying Unexercised Options (#) Exercisable |
| Number of Shares Underlying Unexercised Options (#) Unexercisable |
| Option Exercise Price ($) |
| Option Expiration Date |
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Vered Caplan |
| 02-Feb-12(1) |
| 278,191 |
| - |
| 0.012 |
| 02-Feb-22 |
|
| 22-Aug-14(1) |
| 230,189 |
| - |
| 0.0012 |
| 22-Aug-24 |
|
| 09-Dec-16(1) |
| 166,667 |
| - |
| 4.80 |
| 09-Dec-26 |
|
| 06-Jun-17(1) |
| 83,334 |
| - |
| 7.20 |
| 06-Jun-27 |
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| 28-Jun-18(1) |
| 250,000 |
| - |
| 8.36 |
| 28-Jun-28 |
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| 22-Oct-18(3) |
| 21,250 |
| 63,750 |
| 5.99 |
| 22-Oct-28 |
Neil Reithinger |
| 09-Dec-16(1) |
| 83,334 |
| - |
| 4.80 |
| 09-Dec-26 |
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| 08-Mar-19(2) |
| 6,250 |
| 18,750 |
| 5.07 |
| 08-Mar-29 |
Dr. Denis Bedoret |
| 14-May-18(2) |
| 11,250 |
| 3,750 |
| 8.43 |
| 14-May-28 |
Darren Head |
| 12-Sep-18(1) |
| 20,000 |
| - |
| 5.30 |
| 12-Sep-28 |
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(1) | The options were fully vested as of |
(2) | The options vested on a quarterly basis over a period of two years from the date of grant. |
| |
The options vest on a quarterly basis over a period of four years from the date of grant. |
Masthercell Global Option Plan
The following table summarizes the outstanding equity awards held by each named executive officer of Masthercell Global as of December 31, 2019.
Name |
| Grant Date |
| Number of Shares Underlying Unexercised Options (#) Exercisable |
| Number of Shares Underlying Unexercised Options (#) Unexercisable |
| Option Exercise Price ($) |
| Option Expiration Date |
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Dr. Denis Bedoret |
| 12-Dec-18(1) |
| 2,222 |
| 14,445 |
| 13.52 |
| 12-Dec-28 |
Darren Head |
| 10-Dec-18(2) |
| 44,444 |
| - |
| 13.52 |
| 10-Dec-28 |
(1) | The options were fully vested as of December 31, 2019. |
| The options vested on a yearly basis over a period of |
Option Exercises in 20182019
There were no option exercises by our named executive officers during our fiscal year ended November 30, 2018.
December 31, 2019 or the December 2018 transition period.
Narrative Disclosure to Summary Compensation Table
Vered Caplan
On August 14, 2014, our Board of Directors confirmed that Ms. Vered Caplan, who has served as our President and Chief Executive Officer on an interim basis since December 23, 2013, was appointed as our President and Chief Executive Officer. In connection with her appointment as our President and Chief Executive Officer, on August 22, 2014, our wholly-owned Israeli Subsidiary, Orgenesis Ltd., entered into a Personal Employment Agreement with Ms. Caplan (the “Caplan"Caplan Employment Agreement”Agreement"). The Caplan Employment Agreement replaced a previous employment agreement with Ms. Caplan dated April 1, 2012 pursuant to which she had served as Vice President.
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On March 30, 2017, we and Ms. Caplan entered into an employment agreement replacing the Caplan Employment Agreement (the “Amended"Amended Caplan Employment Agreement”Agreement"). Under the Amended Caplan Employment Agreement, which took effect April 1, 2017, Ms. Caplan's annual salary continued at $160,000 per annum, subject to adjustment to $250,000 per annum upon the listing of the Company’sCompany's securities on an Exchange. Ms. Caplan is also entitled to an annual cash bonus with a target of 25% of base salary, provided that the actual amount of such bonus may be greater or less than the target amount. Ms. Caplan was entitled to a signing bonus of $150,000 upon execution of the Amended Caplan Employment Agreement. Under the Amended Caplan Employment Agreement, Ms. Caplan is entitled to the following social benefits typically provided to Israeli employees, computed on the basis of her base salary: (i) Manager's Insurance under Israeli law pursuant to which the Company contributes between 6.5% and 7.5% (and Ms. Caplan contributes an additional 6%), (ii) severance pay under Israeli law pursuant to which the Company contributes 8 1/3% and (iii) Education fund pursuant to which the Company continues to contribute $3,677 a year. In addition, Ms. Caplan is also entitled to paid annual vacation days, annual recreation allowance, sick leave and expenses reimbursement. In addition, we provide Ms. Caplan with a leased company car and a mobile phone.
Either we or Ms. Caplan may terminate the employment under the Amended Caplan Employment Agreement upon six months prior written notice. Upon termination by us of Ms. Caplan’sCaplan's employment without cause (as defined therein) or by Ms. Caplan for any reason whatsoever, in addition to any accrued but unpaid base salary and expense reimbursement, she shall be entitled to receive an amount equal to 12 months of base salary at the highest annualized rate in effect at any time before the employment terminates payable in substantially equal installments. Upon termination by us of Ms. Caplan’sCaplan's employment without cause (as defined therein) or by Ms. Caplan for any reason following a Change of Control (as defined therein), in addition to any accrued but unpaid base salary and expense reimbursement, she shall be entitled to receive an amount equal to 18 months of one and a half times annual base salary at the highest annualized rate in effect at any time before the employment terminates payable in substantially equal installments.
On May 10, 2017, we and Ms. Caplan further amended the Amended Caplan Employment Agreement pursuant to which Ms. Caplan is entitled to a grant under the 2017 of options (the “Initial Option”"Initial Option") to purchase 83,334 shares of the Company’sCompany's common stock at a per share exercise price equal to the Fair Market Value (as defined in our 2017 Equity Incentive Plan (the “2017 Plan”"2017 Plan")) of the Company’sCompany's common stock on the date of grant The.The amendment further provides that beginning in fiscal 2018, subject to approval by the compensation committee, Ms. Caplan is entitled to an additional option (the “Additional Option”"Additional Option"; together with the Initial Option, the “Options”"Options") under the 2017 Plan for up to 250,000 shares of common stock of the Company to be awarded in such amounts per fiscal year as shall be consistent with the Plan, in each case at a per share exercise price equal to the Fair Market Value (as defined in the Plan) of the Company’sCompany's common stock on the date of grant.
In 2018, following the listing of the company’sCompany's securities on the NASDAQ market,Nasdaq, Ms. Caplan’sCaplan's annual salary was raised to $250,000. On June 6, 2017 and June 28, 2018 the compensation committee approved a grant of 83,334 and 250,001250,000 stock options, respectively. In October 2018, Ms. Caplan was awarded a further bonus of $200,000 and 85,000 stock options. For additional information, see the Outstanding Equity Awards table above.
The employment agreement also contains restrictive covenants for customary protections of the Company's confidential information and intellectual property.
Neil Reithinger
Mr. Reithinger was appointed Chief Financial Officer, Treasurer and Secretary on August 1, 2014. Mr. Reithinger’sReithinger's employment agreement stipulates a monthly salary of $1,500; payment of an annual bonus as determined by the Company in its sole discretion, participation in the Company’sCompany's pension plan; grant of stock options as determined by the Company; and reimbursement of expenses. In addition, on August 1, 2014, the Company entered into a financial consulting agreement with Eventus Consulting, P.C., an Arizona professional corporation, of which Mr. Reithinger is the sole shareholder (“Eventus”("Eventus"), pursuant to which Eventus has agreed to provide financial consulting services to the Company. In consideration for Eventus’Eventus' services, the Company agreed to pay Eventus according to its standard hourly rate structure. The term of the consulting agreement was for a period of one year from August 1, 2014 and automatically renews for additional one-year periods upon the expiration of the term unless otherwise terminated. Eventus is owned and controlled by NeilMr. Reithinger. As of November 30, 2018,December 31, 2019, Eventus wasand Mr. Reithinger were owed $18,276$37,555 and $2,365 respectively for accrued and unpaid services under the financial consulting agreement.
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Prof. Sarah Ferber
Our wholly-owned Israeli Subsidiary, Orgenesis Ltd., entered into a Personal Employment Agreement with Prof. Ferber on February 2, 2012 to serve as Chief Scientific Officer (the “Ferber Employment Agreement”) on a part time basis. Under the Ferber Employment Agreement, Prof. Ferber earned an annual salary of the current New Israeli Shekel equivalent of $232,000 since September 2013. However, in order to reduce operating expenses and conserve cash, Prof. Ferber has been deferring a part of her salary and social benefits due thereon until such time as our cash position permits payment of salary in full without interfering with our ability to pursue our plan of operations, and, as of November 30, 2018, such deferred amount totaled an aggregate of $404,791. Under the Ferber Employment Agreement, Prof. Ferber is entitled to the following social benefits out of her base salary typically provided to Israeli employees: (i) Manager’s Insurance under Israeli law pursuant to which the Company contributes 2.5% (and Prof. Ferber contributes an additional 3.5%) and, in addition, the Company contributes 1.25% towards loss of working capacity disability insurance, (ii) pension plan to which the Company contributes 3.75% (and Prof. Ferber contributes an additional 3.5%), (iii) severance pay under Israeli law pursuant to which the Company contributes 8 1/3% and (iv) Education fund pursuant to which the Company contributes 7.5% (and Prof. Farber contributes an additional 2.5%). In addition, Prof. Ferber is also entitled to paid annual vacation days, annual recreation allowance, sick leave and expenses reimbursement. In addition, we provide Prof. Ferber with a mobile phone.
The Ferber Employment Agreement does not specify a stated term and either we or Ms. Ferber are entitled to terminate Prof. Ferber’s employment upon four months’ notice other than in the case of a termination for cause. The Ferber Employment Agreement contains customary provisions regarding confidentiality of information, non-competition and assignment of inventions.
In October 2018, Prof. Ferber was awarded 3,750 options. The options shall vest in equal quarterly installments over four years.
Denis Bedoret
Effective October 24, 2017, our subsidiary, MaSTherCell, entered into a management agreement with BM&C SPRL/BVBA, a Belgian company owned by Denis Bedoret, for certain services to be performed by Dr. Bedoret on an exclusive and full-time basis (the “Bedoret Agreement”"Bedoret Agreement"). The agreement appoints Dr. Bedoret as General Manager of MaSTherCell, requires him to work 220 days annually and stipulates compensation based on revenue with (i) a daily rate of Euro 800 until such time that MaSTherCell’sMaSTherCell's annual revenue reaches Euro 10 million, (ii) a daily rate of Euro 850 until such time that MaSTherCell’sMaSTherCell's annual revenue reaches Euro 15 million and (iii) a daily rate of Euro 900 until such time that MaSTherCell’sMaSTherCell's annual revenue exceeds Euro 15 million. Dr. Bedoret is also entitled to expense reimbursement and a bonus equivalent to up 15% of the annual fees approved by MaSTherCell’sMaSTherCell's Board of Directors, subject to goals and achievements to be agreed upon by the parties. Dr. Bedoret is also entitled to participation in Orgenesis’Orgenesis' equity incentive plan after six months after the effective date. The Bedoret Agreement also contains customary termination clauses.
In May 2018, Dr. Bedoret was awarded 15,000 options. The options shall vest in equal quarterly installments over two years.
On September 5, 2018, Dr. Bedoret was promoted to Managing Director of MaSTherCell. On January 22, 2019, Dr. Bedoret was appointed to President of Masthercell Global.
Darren Head
Darren Head was appointed as President of Masthercell Global on June 28, 2018. He was promoted to the position of CEO of Masthercell Global on January 22, 2019. Mr. Head's employment contract granted him a base salary from 2019 (the "Base Salary") of $250,000 per annum provided, that (i) in the event that the U.S. Subsidiary of the Company has achieved revenue of at least $1,000,000 (but less than $3,000,000) for any trailing twelve (12) month period, then Employee's Base Salary shall thereafter be $325,000 per annum and (ii) in the event that the U.S. Subsidiary of the Company has achieved revenue of at least $3,000,000 for any trailing twelve (12) month period, then Employee's Base Salary shall thereafter be $400,000 per annum. In addition to the Base Salary, Mr. Head received an annual bonus of $150,000 for each calendar year and 44,444 options as per Masthercell Global's option plan.
In September 2018, Darren Head was awarded 20,000 options. The options vested upon grant.
Potential Payments upon Change of Control or Termination following a Change of Control
Our employment agreements with our named executive officers provide incremental compensation in the event of termination, as described herein. Generally, we currently do not provide any severance specifically upon a change in control nor do we provide for accelerated vesting upon change in control. Termination of employment also impacts outstanding stock options.
Due to the factors that may affect the amount of any benefits provided upon the events described below, any actual amounts paid or payable may be different than those shown in this table. Factors that could affect these amounts include the basis for the termination, the date the termination event occurs, the base salary of an executive on the date of termination of employment and the price of our common stock when the termination event occurs.
The following table sets forth the compensation that would have been received by each of the Company’sCompany's executive officers had they been terminated as of November 30, 2018.December 31, 2019.
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Accrued | ||||||||||||
Name | Salary Continuation |
Bonus | Vacation Pay | Total Value | ||||||||
Vered Caplan | $ | * | $ | 62,500 | $111,731 | $174,231 | ||||||
Prof. Sarah Ferber | $ | - | $ | - | $183,534 | $183,534 |
Salary | Accrued | |||||||||||
Name | Continuation | Bonus | Vacation Pay | Total Value | ||||||||
Vered Caplan | $ | * | $ | 62,500 | $ | 144,298 | $ | 206,798 |
(*)
Termination by Company without cause: $250,000
Termination without cause following a change in control: $375,000
Director Compensation
The following table sets forth for each non-employee director that served as a director during the year ended December 31, 2019 certain information concerning his or her compensation for the year ended November 30, 2018:December 31, 2019 and the December 2018 transition period:
Year Ended December 31, 2019
Name | Fees Earned or Paid in Cash ($) | Stock Awards ($) | Option Awards ($)(1) | Non-equity Incentive Plan Compensation ($) | Nonqualified Deferred Compensation Earnings ($) | All Other Compensation ($) | Total ($) | Fees Earned or Paid in Cash ($) | Stock Awards ($) | Option Awards ($) (1) | Non-equity Incentive Plan Compensation ($) | Nonqualified Deferred Compensation Earnings ($) | All Other Compensation ($) | Total ($) |
Guy Yachin | 147,290 | - | 83,480 | - | 230,770 | 52,500 | - | 104,498(2) | - | 156,998 | ||||
Yaron Adler | 6,680 | - | 83,480 | - | 90,160 | 52,500 | - | 104,498(3) | - | 156,998 | ||||
Dr. David Sidransky | 15,195 | - | 104,537 | - | 119,732 | 75,000 | - | 106,118(4) | - | 181,118 | ||||
Hugues Bultot | 1,480 | - | - | - | 1,480 | |||||||||
Ashish Nanda | 4,375 | - | 12,900 | - | 17,275 | 52,500 | - | 98,556(5) | - | 151,056 |
Month Ended December 2018 Transition Period
Name | Fees Earned or Paid in Cash ($) | Stock Awards ($) | Option Awards ($) (1) | Non-equity Incentive Plan Compensation ($) | Nonqualified Deferred Compensation Earnings ($) | All Other Compensation ($) | Total ($) |
Guy Yachin | 4,375 | - | 12,599 | - | - | - | 16,974 |
Yaron Adler | 4,375 | - | 12,599 | - | - | - | 16,974 |
Dr. David Sidransky | 6,250 | - | 12,770 | - | - | - | 19,020 |
Ashish Nanda | 4,375 | - | 10,254 | - | - | - | 14,629 |
(1) | In accordance with SEC rules, the amounts in this column reflect the fair value on the grant date of the option awards granted to the named executive, calculated in accordance with ASC Topic 718. Stock options were valued using the Black-Scholes model. The grant-date fair value does not necessarily reflect the value of shares which may be received in the future with respect to these awards. The grant-date fair value of the stock options in this column is a non-cash expense for the Company that reflects the fair value of the stock options on the grant date and therefore does not affect our cash balance. The fair value of the stock options will likely vary from the actual value the holder receives because the actual value depends on the number of options exercised and the market price of our common stock on the date of exercise. For a discussion of the assumptions made in the valuation of the stock options, see Note |
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(2) | Aggregate number of option awards outstanding as of December 31, 2019 was 122,184 of which (i) 109,684 options are exercisable as of December 31,2019 and (ii) 12,500 options are exercisable on December 17, 2020. Does not include $192 thousand related to options held by Caerus Therapeutics LLC over which Mr. Yachin does not have beneficial control. |
(3) | Aggregate number of option awards outstanding as of December 31, 2019 was 141,825 of which (i) 129,325 options are exercisable as of December 31,2019 and (ii) 12,500 options are exercisable on December 17, 2020. |
| |
(4) | Aggregate number of option awards outstanding as of December 31, 2019 was 104,201 of which (i) 91,701 options are exercisable as of December 31,2019 and (ii) 12,500 options are exercisable on December 17, 2020. |
(5) | Aggregate number of option awards outstanding as of December 31, 2019 was 39,600 of which (i) 27,100 options are exercisable as of December 31,2019 and (ii) 12,500 options are exercisable on December 17, 2020. |
All directors receive reimbursement for reasonable out of pocket expenses in attending Board of Directors meetings and for participating in our business.
On April 2, 2012, we entered into an agreement with Guy Yachin to serve as a member of our Board of Directors for a consideration of $2,500 per month and an additional payment for every Board of Directors’ meeting at the rate of $300 for the first hour of attendance and $200 for each additional hour or portion of an hour.
On April 17, 2012, we entered into an agreement with Yaron Adler to serve as a member of our Board of Directors. In consideration for Dr. Sidransky’s services, we pay for his attendance at Board of Directors’ meetings at the rate of $300 for the first hour of attendance and $200 for each additional hour or portion of an hour.
On July 17, 2013 we entered into an agreement with Dr. David Sidransky to serve as a member of our Board of Directors. In consideration for Dr. Sidransky’s services, we pay for his attendance at Board of Directors’ meetings at the rate of $300 for the first hour of attendance and $200 for each additional hour or portion of an hour.
Compensation Policy for Non-Employee Directors.
In October 2018, the Board of Directors adopted a compensation policy for non-employee directors which replaced the non-employee director compensation terms discussed above. By its terms, the policy became effective November 2018. Under the adopted policy, each director is to receive an annual cash compensation of $30,000 and the Chairman and Vice Chairman is paid an additional $15,000 per annum. Each committee member will be paid an additional $7,500 per annum and each committee chairman is to receive $15,000 per annum. Cash compensation will be made on a quarterly basis.
All newly appointed directors also receive options to purchase up to 6,250 shares of the Company’sCompany's common stock. All directors are entitled on an annual bonus of options for 12,500 shares and each committee member is an entitled to a further option to purchase up to 1,250 shares of common stock and each committee chairperson to options for an additional 2,100 shares of common stock. In addition, the Chairman and Vice Chairman shall be granted an option to purchase 4,200 shares of the Company’sCompany's ordinary shares. In all cases, the options are granted at a per share exercise price equal to the closing price of the Company’sCompany's publicly traded stock on the date of grant and the vesting schedule is determined by the compensation committee at the time of grant.
Compensation Committee Interlocks and Insider Participation
None of our executive officers has served as a member of the Board of Directors, or as a member of the compensation or similar committee, of any entity that has one or more executive officers who served on our Board of Directors or Compensation Committee during the fiscal year ended November 30, 2018.December 31, 2019.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth certain information with respect to the beneficial ownership of our common stock as of February 13, 2019March 9, 2020 for (a) the named executive officers, (b) each of our directors, (c) all of our current directors and executive officers as a group and (d) each stockholder known by us to own beneficially more than 5% of our common stock. Beneficial ownership is determined in accordance with the rules of the SEC and includes voting or investment power with respect to the securities. We deem shares of common stock that may be acquired by an individual or group within 60 days of February 13, 2019March 9, 2020 pursuant to the exercise of options or warrants to be outstanding for the purpose of computing the percentage ownership of such individual or group but are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person shown in the table. Except as indicated in footnotes to this table, we believe that the stockholders named in this table have sole voting and investment power with respect to all shares of common stock shown to be beneficially owned by them based on information provided to us by these stockholders. Percentage of ownership is based on 15,620,97118,361,050 shares of common stock outstanding on February 13, 2019
March 9, 2020.
Security Ownership of Greater than 5% or Greater Beneficial Owners
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Name and Address of Beneficial Owner | Amount and Nature of Beneficial Ownership(1) | Percent(1) |
Oded Shvartz 130 Biruintei Blvd. Pantelmon Ilfov, Romania | 1,830,658 | 11.72% |
Image Securities fzc. 2310, 23rd floor, Tiffany Towers, JLT Dubai, UAE | 2,336,390(2) | 13.39% |
SFPI - FPIM (Societe Federale de Participations et d'lnvestissement) SA Avenue Louise 32, bte 4 at 1050 Bruxelles, Belgium, BCE n° 253.445.063 | 947,055(3) | 5.72% |
Name and Address of Beneficial Owner | Amount and Nature of Beneficial Ownership (1) | Percent(1) |
Oded Shvartz 130 Biruintei Blvd. Pantelmon Ilfov, Romania | 1,830,658 | 9.07% |
Image Securities fzc. 2310, 23rd floor, Tiffany Towers, JLT Dubai, UAE | 3,304,497 (2) | 15.25% |
Yehuda Nir 20271 Goldenrod Lane Germantown, MD 20876 | 2,311,336 (3) | 11.18% |
Shutfut-Menayot Chul-Haphoenix Amitim | 1,253,132 (4) | 6.39% |
Sphera Global Healthcare Master Fund | 1,213,971 (5) | 6.20% |
Security Ownership of Directors and Executive Officers
Name and Address of Beneficial Owner | Amount and Nature of Beneficial Ownership(1) | Percent(1) |
Vered Caplan c/o Orgenesis Inc. 20271 Goldenrod Lane Germantown, MD 20876 | 1,040,256 | 5.36% |
Neil Reithinger 14201 N. Hayden Road, Suite A-1 Scottsdale, AZ 85260 | 92,709 | <1% |
Dr. Denis Bedoret c/o Orgenesis Inc. 20271 Goldenrod Lane Germantown, MD 20876 | 13,125 (8) | <1% |
Guy Yachin c/o Orgenesis Inc. 20271 Goldenrod Lane Germantown, MD 20876 | 109,684 (9) | <1% |
Dr. David Sidransky c/o Orgenesis Inc. 20271 Goldenrod Lane Germantown, MD 20876 | 91,701 (10) | <1% |
Yaron Adler c/o Orgenesis Inc. 20271 Goldenrod Lane Germantown, MD 20876 | 192,629 (11) | 1.04% |
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Ashish Nanda c/o Orgenesis Inc. 20271 Goldenrod Lane Germantown, MD 20876 | 27,100 (12) | <1% |
Mario Philips c/o Orgenesis Inc. 20271 Goldenrod Lane Germantown, MD 20876 | - (13) | - |
Darren Head 20271 Goldenrod Lane Germantown, MD 20876 | 20,000 (14) | - |
Directors & Executive Officers as a Group (9 persons) | 1,587,204 | 8.64% |
Prof. Sarah Ferber c/o Orgenesis Inc. 20271 Goldenrod Lane Germantown, MD 20876 | 232,295(6) | 1.47% |
Dr. Denis Bedoret c/o Orgenesis Inc. 20271 Goldenrod Lane Germantown, MD 20876 | 5,625(7) | <1% |
Guy Yachin c/o Orgenesis Inc. 20271 Goldenrod Lane Germantown, MD 20876 | 80,934(8) | <1% |
Dr. David Sidransky c/o Orgenesis Inc. 20271 Goldenrod Lane Germantown, MD 20876 | 62,501(9) | <1% |
Yaron Adler c/o Orgenesis Inc. 20271 Goldenrod Lane Germantown, MD 20876 | 163,879(10) | 1.04% |
Ashish Nanda c/o Orgenesis Inc. 20271 Goldenrod Lane Germantown, MD 20876 | -(11) | - |
Directors & Executive Officers as a Group (8 persons) | 1,539,241 | 9% |
Notes:
(1) | Percentage of ownership is based on |
(2) | Consists of (i) 1,832,538ordinary shares and (ii) 1,471,959 ordinary shares issuable upon exercise of outstanding warrants at a price of$6.24 per share. The warrants are exercisable over a |
| |
Consists of (i) | |
(4) | Consists of (i) 861,528 ordinary share |
(5) | Consists of (i) 834,605 ordinary sharesand |
issuance.
| |
(6) | Consists of (i) |
Does not include options for |
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(7) | |
Consists of | |
(8) | Consists of 13,125 ordinary shares issuable upon exercise of outstanding options at a price of $8.43 per share. Does not include options for |
| Consists of (i) 39,267ordinary shares issuable upon exercise of outstanding options at a price of$10.2 per share and (ii) 41,667ordinary shares issuable upon exercise of outstanding options at a price of$4.80 per |
(10) | Consists of (i) 20,834 ordinary shares issuable upon exercise of outstanding options at a price of$ |
| Consists of (i) 63,304 ordinary shares, (ii) 58,908 ordinary shares issuable upon exercise of outstanding options at a price of $9.48 per share and (iii) 41,667 ordinary shares issuable upon exercise of outstanding options at a price of $4.80 per share and (iv) 28,750 ordinary shares issuable upon exercise of outstanding options at a price of $5.99 per share. Does not include options for |
(12) | Including 27,100 ordinary shares issuable upon exercise of outstanding options at a price of $5.99 per share. Does not include options for 12,500 shares of common stock with an exercise price of $2.99 per share that are exercisable on December 17, 2020. |
(13) | Does not include options for 6,250 shares of common stock with an exercise price of $4.70 per share that are exercisable in three equal instalments over three anniversaries starting on January 9, 2021. |
(14) | Including 20,000 ordinary shares issuable upon exercise of outstanding options at a price of $5.30 per share. |
Securities Authorized for Issuance Under Existing Equity Compensation Plans
The following table summarizes certain information regarding our equity compensation plans as of November 30, 2018:
December 31, 2019:
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Plan Category |
Number of Securities to be Issued Upon Exercise of Outstanding Options |
Weighted-Average Exercise Price of Outstanding Options | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) |
| (a) | (b) | (c) |
Equity compensation plans approved by security holders (1) | 1,275,034 | $6.58 | 1,724,966 |
Equity compensation plans not approved by security holders | 1,788,798 | $3.35 | 316,676 |
Total | 3,063,832 | $4.69 | 2,041,642 |
(1) Consists of the 2017 Equity Incentive Plan and the Global Share Incentive Plan (2012). For a short description of those plans, see Note 16 to our 2019 Consolidated Financial Statements included in this Annual Report on Form 10-K for the year ended December 31, 2019.
Plan Category |
Number of Securities to be Issued Upon Exercise of Outstanding Options |
Weighted-Average Exercise Price of Outstanding Options | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) |
(a) | (b) | (c) | |
Equity compensation plans approved by security holders(1) | 1,040,942 | $7.05 | 709,058 |
Equity compensation plans not approved by security holders(2) | 1,805,465 | $3.37 | 300,009 |
Total | 2,846,407 | $4.72 | 1,009,067 |
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTORS INDEPENDENCE
Transactions with Related Persons
Except as set out below, as of November 30, 2018,December 31, 2019, there have been no transactions, or currently proposed transactions, in which we were or are to be a participant and the amount involved exceeds the lesser of $120,000 or one percent of the average of our total assets at year-end for the last two completed fiscal years, and in which any of the following persons had or will have a direct or indirect material interest:
● any director or executive officer of our company;
● any person who beneficially owns, directly or indirectly, shares carrying more than 5% of the voting rights attached to our outstanding shares of common stock; ● any promoters and control persons; and ● any member of the immediate family (including spouse, parents, children, siblings and in laws) of any of the foregoing persons. |
On September 15, 2014, the Company received a loan in the principal amount of $100,000 from Yaron Adler Investments (1999) Ltd., an entity of which Mr. Yaron Adler, one of the Company’sCompany's non-employee director, is the sole shareholder. The loan, with an original interest rate of 6% per annum, was repayable on or before March 15, 2015. The Loan currently bears a default interest rate of 24% per annum and, as of November 30, 2017, the outstanding balance on the note was $166,581. The loan was converted into our common stock in 2018.
In January 2017, the Company entered into definitive agreements with Image Securities fzc. (“Image”("Image") for the private placement of 2,564,115 units of the Company’sCompany's securities for aggregate subscription proceeds to the Company of $16 million at $6.24 price per unit. EachIn July 2018, the Company entered into definitive agreements with assignees of Image whereby these assignees remitted $4.6 million in respect of the units available under the original subscription agreement that have not been subscribed for, entitling such investors to 702,307 units, with each unit isbeing comprised of (i) one share of the Company’s Common StockCompany's common stock and a(ii) one three-year warrant exercisable over a three-years period from the date of issuance, to purchase up to an additional one additional share of Common Stockthe Company's common stock at a per share exercise price of $6.24. The subscription proceeds were payable on a periodic basis. Each periodic payment of subscription proceeds was evidenced by the Company’s standard securities subscription agreement. During the year ended November 30, 2017, Image remitted $4.5 million to the Company, in consideration of which, the investor received 721,160 shares of the Company’s Common Stock and three-year warrants to purchase up to an additional 721,160 shares of the Company’s Common Stock at a per share exercise price of $6.24.
In July 2018, the Company entered into definitive agreements with assignees of Image whereby these assignees remitted $4.6 million in respect of the units available under the original subscription agreement that have not been subscribed for, entitling such investors to 702,307 units, with each unit being comprised of (i) one share of the Company's common stock and (ii) one three-year warrant to purchase up to an additional one share of the Company’sCompany's common stock at a per share exercise price of $6.24.
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During 2018, the Company raised $6.9 million from Image entitling it to 1,111,380 shares of Common Stock and three-year warrants for an additional 1,111,380 shares of the Company’sCompany's Common Stock at a per share exercise price of $6.24. Following this remittance and those referred to in the previous paragraph, the Company received a total of $16 million out of the committed $16 million subscription proceeds under such agreement
Pursuant to an agreement entered into between the Company and Image,so long as Image’sImage's ownership of the company is 10% or greater, itis entitled to nominate a director to the Company’sCompany's Board of Directors. Mr. Nanda was nominated for a directorship at the 2018 annual meeting in compliance with our contractual undertakings.
Pursuant to our Audit Committee charter adopted in March 2017, the Audit Committee is responsible for reviewing and approving, prior to our entry into any such transaction, all transactions in which we are a participant and in which any parties related to us have or will have a direct or indirect material interest.
Named Executive Officers and Current Directors
For information regarding compensation for our named executive officers and current directors, see “Executive"Executive Compensation.”
"
Director Independence
See “Directors,"Directors, Executive Officers and Corporate Governance –- Director Independence”Independence" and “Directors,"Directors, Executive Officers and Corporate Governance –- Board Committees”Committees" in Item 10 above.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The Boardof Directors of the Companyhas appointed Kesselman & Kesselman, a member firm of PricewaterhouseCoopers International Limited (“PwC”("PwC") as our independent registered public accounting firm (the “Independent Auditor”"Independent Auditor") for the fiscal year ending November 30, 2018.ended December 31, 2019. The following table sets forth the fees billed to the Company for professional services rendered by PwC for the years ended December 31, 2019 and November 30, 2018, and 2017:for the one month transition period ended December 2018:
Services | 2019 | December 2018 | 2018 | ||||||
Audit Fees (1) | $ | 426,040 | 43,882 | 365,300 | |||||
Audit-Related fees (2) | 26,900 | - | 16,475 | ||||||
Tax fees (3) | 18,300 | - | 31,822 | ||||||
Other | 49,500 | - | - | ||||||
Total fees | $ | 520,740 | 43,882 | 413,597 |
(1) Audit fees consisted of audit work performed in the preparation of financial statements, as well as work generally only the independent registered public accounting firm can reasonably be expected to provide, such as statutory audits.
(2) Audit related fees consisted principally of audits of employee benefit plans and special procedures related to regulatory filings in 2019.
Services | 2018 | 2017 | |||
Audit Fees (1) | $ | 365,300 | $ | 211,000 | |
Audit-Related fees (2) | 16,475 | 22,000 | |||
Tax fees (3) | 31,822 | - | |||
Total fees | $ | 413,597 | $ | 233,000 |
(3) The tax fees were paid for reviewing various tax related matters. |
Policy on Audit Committee Pre-Approval of Audit and Permissible Non-audit Services of Independent Public Accountant
Consistent with SEC policies regarding auditor independence, the Audit Committee has responsibility for appointing, setting compensation and overseeing the work of our independent registered public accounting firm. In recognition of this responsibility, the Audit Committee has established a policy to pre-approve all audit and permissible non-audit services provided by our independent registered public accounting firm.
-79-
Prior to engagement of an independent registered public accounting firm for the next year’syear's audit, management will submit an aggregate of services expected to be rendered during that year for each of four categories of services to the Audit Committee for approval.
1. Auditservices include audit work performed in the preparation of financial statements, as well as work that generally only an independent registered public accounting firm can reasonably be expected to provide, including comfort letters, statutory audits, and attest services and consultation regarding financial accounting and/or reporting standards.
2. Audit-Related services are for assurance and related services that are traditionally performed by an independent registered public accounting firm, including due diligence related to mergers and acquisitions, employee benefit plan audits, and special procedures required to meet certain regulatory requirements.
3. Tax services include all services performed by an independent registered public accounting firm’sfirm's tax personnel except those services specifically related to the audit of the financial statements, and includes fees in the areas of tax compliance, tax planning, and tax advice.
4. Other Fees are those associated with services not captured in the other categories. The Company generally does not request such services from our independent registered public accounting firm.
Prior to engagement, the Audit Committee pre-approves these services by category of service. The fees are budgeted and the Audit Committee requires our independent registered public accounting firm and management to report actual fees versus the budget periodically throughout the year by category of service. During the year, circumstances may arise when it may become necessary to engage our independent registered public accounting firm for additional services not contemplated in the original pre-approval. In those instances, the Audit Committee requires specific pre-approval before engaging our independent registered public accounting firm.
The Audit Committee may delegate pre-approval authority to one or more of its members. The member to whom such authority is delegated must report, for informational purposes only, any pre-approval decisions to the Audit Committee at its next scheduled meeting.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)
(1) Financial Statements |
Our consolidated financial statements are set forth in Part II, Item 8 of this Annual Report on Form 10-K and are incorporated herein by reference.
(2) Financial Statement Schedules |
No financial statement schedules have been filed as part of this Annual Report on Form 10-K because they are not applicable or are not required or because the information is otherwise included herein.
(3) Exhibits required by Regulation S-K
No. |
Description
3.1* | |
3.2 | |
3.3 | Articles of Merger (incorporated by reference to an exhibit to our current report on Form 8-K, filed on September 2, 2011) |
-80-
10.16 | |
10.17 | |
10.18 | |
10.19 | |
10.20 | |
10.21 |
-81-
No. | Description |
10.22 | |
10.23 | |
10.24 | |
10.25 | |
10.26 | |
10.27 | |
10.28 | |
10.29 | |
10.30 | |
10.31 | Joint Venture Agreement between the Company and First Choice International Company, Inc. dated March 12, 2019 (incorporated by reference to an exhibit to our quarterly report on Form 10-Q, filed on May 8, 2019) |
10.32 | Convertible Loan Agreement between Orgenesis Maryland Inc. and Yosef Ram dated April 12, 2019 (incorporated by reference to an exhibit to our quarterly report on Form 10-Q, filed on May 8, 2019) |
10.33 | Joint Venture Agreement between the Company and KinerjaPay Corp. dated May 6, 2019 (incorporated by reference to an exhibit to our quarterly report on Form 10-Q, filed on May 8, 2019) |
10.34 | Convertible Loan Agreement, dated April 10, 2019, by and between the Company and Investor (incorporated by reference to an exhibit to our quarterly report on form 10-Q, filed on November 7, 2019) |
10.35 | Form of Subscription Agreement, dated May 17, 2019, by and between the Company and Investor (incorporated by reference to an exhibit to our quarterly report on form 10-Q, filed on November 7, 2019) |
10.36 | Form of Subscription Agreement, dated May 30, 2019, by and between the Company and Investor (incorporated by reference to an exhibit to our quarterly report on form 10-Q, filed on November 7, 2019) |
10.37 | Form of Subscription Agreement, dated June 6, 2019, by and between the Company and Investor (incorporated by reference to an exhibit to our quarterly report on Form 10-Q, filed on November 7, 2019) |
10.38 | |
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*Filed herewith
**Furnished herewith
ITEM 16. FORM 10-K SUMMARY
Not applicable.
-83-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
ORGENESIS INC.
By: /s/ Vered Caplan | |
Vered Caplan | |
Chief Executive Officer and Chairperson of the Board of Directors (Principal Executive Officer) | |
Date: |
By: /s/ Neil Reithinger | |
Neil Reithinger | |
Chief Financial Officer, Treasurer and Secretary (Principal Financial and Accounting Officer) | |
Date: |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By: /s/ Vered Caplan | |
Vered Caplan | |
Chief Executive Officer and Chairperson of the Board of Directors (Principal Executive Officer) | |
Date: |
By: /s/ Neil Reithinger | |
Neil Reithinger | |
Chief Financial Officer, Treasurer and Secretary (Principal Financial | |
Date: |
By: /s/ Guy Yachin | |
Guy Yachin | |
Director | |
Date: |
By: /s/ David Sidransky | |
David Sidransky | |
Director | |
Date: |
By: /s/ Yaron Adler | |
Yaron Adler | |
Director | |
Date: |
By: /s/ Ashish Nanda | |
Ashish Nanda | |
Director | |
Date: |
By: /s/ Mario Philips |
Mario Philips |
Director |
Date: March 9, 2020 |
-94--84-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ORGENESIS INC.
CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2019
TABLE OF CONTENTS
Page | |
CONSOLIDATED FINANCIAL STATEMENTS: | |
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholdersshareholders of Orgenesis Inc.:
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Orgenesis Inc. and its subsidiaries (the “Company”"Company") as of November 30,December 31, 2019 and December 31, 2018 and 2017, and the related consolidated statements of comprehensive loss, changes in equity and cash flows for each of the two years inended December 31, 2019 and November 30, 2018 and the one month period ended November 30,December 31, 2018, including the related notes (collectively referred to as the “consolidated"consolidated financial statements”statements"). We also have audited the Company's internal control over financial reporting as of November 30, 2018,December 31, 2019, based on criteria established inInternal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of November 30,December 31, 2019 and December 31, 2018, and 2017, and the results of its operations and its cash flows for each of the two years inended December 31, 2019 and November 30, 2018 and the one month period ended November 30,December 31, 2018 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of November 30, 2018,December 31, 2019, based on criteria established inInternal Control - Integrated Framework (2013) issued by the COSO.
Change in Accounting Principle
As discussed in Note 2(t) to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’sManagement's Report on Internal Control overOver Financial Reporting.Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’sCompany's consolidatedfinancial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidatedfinancial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
As described in Management’s Report on Internal Control over Financial Reporting, management has excluded CureCell and Atvio from its assessment of internal control over financial reporting as of November 30, 2018 because they were acquired by the Company in purchase business combinations during 2018. We have also excluded CureCell and Atvio from our audit of internal control over financial reporting. CureCell and Atvio are wholly-owned subsidiaries whose total assets and total revenues excluded from management’s assessment and our audit of internal control over financial reporting represent 5% and 6% respectively, of the related consolidated financial statement amounts as of and for the year ended November 30, 2018.
F-2
Definition and Limitations of Internal Control over Financial Reporting
A company’scompany's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’scompany's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’scompany's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Kesselman & Kesselman
Certified Public Accountants (Isr.)
A member firm of PricewaterhouseCoopers International Limited
Tel-Aviv, Israel
March 9, 2020
We have served as the Company’sCompany's auditor since 2012.
F-3
ORGENESIS INC.
CONSOLIDATED BALANCE SHEETS
(U.S. Dollars, in thousands)
December 31, | |||||||
2019 | 2018 | ||||||
Assets | |||||||
CURRENT ASSETS: | |||||||
Cash and cash equivalents | $ | 11,388 | $ | 14,612 | |||
Restricted cash | 653 | 387 | |||||
Accounts receivable, net | 8,485 | 3,226 | |||||
Prepaid expenses and other receivables | 1,227 | 1,132 | |||||
GPP receivable, see Note 3 | - | 6,600 | |||||
Grants receivable | 2,183 | 441 | |||||
Inventory | 2,043 | 1,660 | |||||
Total current assets | 25,979 | 28,058 | |||||
NON CURRENT ASSETS: | |||||||
Deposits | $ | 625 | $ | 143 | |||
Loan to related party, see Note 12(e) | 2,623 | 1,012 | |||||
Property, plants and equipment, net | 24,454 | 12,458 | |||||
Intangible assets, net | 14,206 | 16,642 | |||||
Operating lease right-of-use assets | 9,585 | - | |||||
Goodwill | 14,941 | 15,266 | |||||
Other assets | 82 | 297 | |||||
Total non-current assets | 66,516 | 45,818 | |||||
TOTAL ASSETS | $ | 92,495 | $ | 73,876 |
November 30, | ||||||
2018 | 2017 | |||||
Assets | ||||||
CURRENT ASSETS: | ||||||
Cash and cash equivalents | $ | 16,064 | $ | 3,519 | ||
Restricted Cash | 392 | - | ||||
Accounts receivable, net | 4,151 | 1,336 | ||||
Prepaid expenses and other receivables | 913 | 841 | ||||
GPP receivable, see Note 3 | 6,600 | - | ||||
Receivables from related party | - | 691 | ||||
Grants receivable | 441 | 183 | ||||
Inventory | 1,736 | 725 | ||||
Total current assets | 30,297 | 7,295 | ||||
NON CURRENT ASSETS: | ||||||
Bank deposits | 85 | - | ||||
Loan to related party, see Note 11(e) | 1,007 | - | ||||
Call option derivative | - | 339 | ||||
Investments in associates, net | - | 1,321 | ||||
Property and equipment, net | 11,901 | 5,104 | ||||
Intangible assets, net | 16,700 | 15,051 | ||||
Goodwill | 15,165 | 10,684 | ||||
Other assets | 292 | 78 | ||||
Total non-current assets | 45,150 | 32,577 | ||||
TOTAL ASSETS | $ | 75,447 | $ | 39,872 |
F-4
ORGENESIS INC.
CONSOLIDATED BALANCE SHEETS
(U.S. Dollars, in thousands)
December 31, | ||||||
2019 | 2018 | |||||
Liabilities and equity | ||||||
CURRENT LIABILITIES: | ||||||
Accounts payable | $ | 11,305 | $ | 4,583 | ||
Accrued expenses and other payables | 1,987 | 1,499 | ||||
Employees and related payables | 3,719 | 3,052 | ||||
Advance payments on account of grant | 2,750 | 1,603 | ||||
Short-term loans and current maturities of long term loans | 763 | 641 | ||||
Contract liabilities | 8,626 | 5,175 | ||||
Current maturities of finance leases | 291 | 226 | ||||
Current maturities of operating leases | 1,722 | - | ||||
Current maturities of convertible loans | 416 | 382 | ||||
TOTAL CURRENT LIABILITIES | 31,579 | 17,161 | ||||
LONG-TERM LIABILITIES: | ||||||
Non-current operating leases | $ | 7,524 | $ | - | ||
Loans payable | 1,230 | 1,633 | ||||
Convertible loans | 12,143 | 1,214 | ||||
Retirement benefits obligation | 41 | 280 | ||||
Deferred taxes | 1,926 | 1,656 | ||||
Long-term finance leases | 688 | 661 | ||||
Other long term liabilities | 331 | 297 | ||||
TOTAL LONG-TERM LIABILITIES | 23,883 | 5,741 | ||||
TOTAL LIABILITIES | 55,462 | 22,902 | ||||
COMMITMENTS | ||||||
REDEEMABLE NON CONTROLLING INTEREST | 30,955 | 24,224 | ||||
EQUITY: | ||||||
Common stock of $0.0001 par value, 145,833,334 shares authorized, 16,140,962 and 15,540,333 shares issued as of December 31, 2019 and December 31, 2018, respectively | 2 | 2 | ||||
Additional paid-in capital | 94,691 | 90,597 | ||||
Accumulated other comprehensive income | 213 | 669 | ||||
Accumulated deficit | (89,429 | ) | (65,163 | ) | ||
Equity attributable to Orgenesis Inc. | 5,477 | 26,105 | ||||
Non-controlling interests | 601 | 645 | ||||
TOTAL EQUITY | 6,078 | 26,750 | ||||
TOTAL LIABILITIES AND EQUITY | $ | 92,495 | $ | 73,876 |
November 30, | ||||||
2018 | 2017 | |||||
Liabilities and equity | ||||||
CURRENT LIABILITIES: | ||||||
Accounts payable | $ | 3,804 | $ | 3,914 | ||
Accrued expenses and other payables | 2,269 | 1,435 | ||||
Employees and related payables | 3,006 | 2,961 | ||||
Related parties | - | 116 | ||||
Advance payments on account of grant | 1,724 | 1,719 | ||||
Short-term loans and current maturities of long term loans | 647 | 378 | ||||
Deferred income | 5,317 | 3,611 | ||||
Current maturities of convertible loans | 378 | 2,780 | ||||
TOTAL CURRENT LIABILITIES | 17,145 | 16,914 | ||||
LONG-TERM LIABILITIES: | ||||||
Loans payable | $ | 1,662 | $ | 2,118 | ||
Convertible loans | 1,038 | 2,415 | ||||
Retirement benefits obligation | 265 | 6 | ||||
Deferred taxes | 1,702 | 690 | ||||
Other long term liabilities | 833 | - | ||||
TOTAL LONG-TERM LIABILITIES | 5,500 | 5,229 | ||||
TOTAL LIABILITIES | 22,645 | 22,143 | ||||
COMMITMENTS | ||||||
REDEEMABLE NON CONTROLLING INTERESTEQUITY: | 24,153 | 3,606 | ||||
Common stock of $0.0001 par value, 145,833,334 shares authorized, 14,951,783 and 9,872,659 shares issued as of November 30, 2018 and November 30, 2017, respectively | 1 | 1 | ||||
Additional paid-in capital | 88,082 | 55,334 | ||||
Receipts on account of shares to be allotted | 2,253 | 1,483 | ||||
Accumulated other comprehensive income | 425 | 1,425 | ||||
Accumulated deficit | (62,411 | ) | (44,120 | ) | ||
Equity attributable to Orgenesis Inc. | 28,350 | 14,123 | ||||
Non-controlling interests | 299 | - | ||||
TOTAL EQUITY | 28,649 | 14,123 | ||||
TOTAL LIABILITIES AND EQUITY | $ | 75,447 | $ | 39,872 |
The accompanying notes are an integral part of these consolidated financial statements.
F-5
Year ended | ||||||
November 30, | ||||||
2018 | 2017 | |||||
REVENUES | $ | 18,655 | $ | 10,089 | ||
COST OF REVENUES | 10,824 | 6,807 | ||||
GROSS PROFIT | 7,831 | 3,282 | ||||
RESEARCH AND DEVELOPMENT EXPENSES,net | 6,464 | 2,478 | ||||
AMORTIZATION OF INTANGIBLE ASSETS | 1,913 | 1,631 | ||||
SELLING, GENERAL AND ADMINISTRATIVEEXPENSES | 16,303 | 9,189 | ||||
OTHER INCOME,net | (2,930 | ) | - | |||
SHARE IN LOSSES OF ASSOCIATED COMPANY | 731 | 1,214 | ||||
OPERATING LOSS | 14,650 | 11,230 | ||||
FINANCIAL EXPENSES,net | 3,117 | 2,447 | ||||
LOSS BEFORE INCOME TAXES | 17,767 | 13,677 | ||||
TAX EXPENSES (INCOME) | 1,337 | (1,310 | ) | |||
NET LOSS | $ | 19,104 | $ | 12,367 | ||
NET INCOME ATTRIBUTABLE TO NON-CONTROLLING INTERESTS (INCLUDINGREDEEMABLE) | (813 | ) | - | |||
NET LOSS ATTRIBUTABLE TO THE COMPANYLOSS PER SHARE: | $ | 18,291 | $ | 12,367 | ||
Basic | $ | 1.43 | $ | 1.28 | ||
Diluted | $ | 1.43 | $ | 1.31 | ||
WEIGHTED AVERAGE NUMBER OF SHARES USEDIN COMPUTATION OF BASIC AND DILUTEDLOSS PER SHARE: | ||||||
Basic | 13,374,103 | 9,679,964 | ||||
Diluted | 13,374,103 | 9,714,252 | ||||
COMPREHENSIVE LOSS - | ||||||
Net loss | $ | 19,104 | $ | 12,367 | ||
Other Comprehensive (income) loss – Translation adjustment | 1,000 | (2,630 | ) | |||
Comprehensive loss | $ | 20,104 | $ | 9,737 | ||
Comprehensive income attributed to non-controlling interests (including redeemable) | (813 | ) | - | |||
COMPREHENSIVE LOSS ATTRIBUTED TOORGENESIS INC. | $ | 19,291 | $ | 9,737 |
ORGENESIS INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(U.S. Dollars, in thousands, except share and per share amounts)
Year ended | One month ended | ||||||||
December 31, | November 30, | December 31, | |||||||
2019 | 2018 | 2018 | |||||||
REVENUES | $ | 33,256 | $ | 18,655 | $ | 1,852 | |||
COST OF REVENUES | 18,232 | 10,824 | 1,221 | ||||||
COST OF RESEARCH AND DEVELOPMENT AND RESEARCH AND DEVELOPMENT SERVICES, net | 12,458 | 6,464 | 1,431 | ||||||
AMORTIZATION OF INTANGIBLE ASSETS | 2,061 | 1,913 | 179 | ||||||
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES | 25,337 | 16,303 | 1,984 | ||||||
OTHER INCOME, net | (228 | ) | (2,930 | ) | - | ||||
OPERATING LOSS | 24,604 | 13,919 | 2,963 | ||||||
FINANCIAL EXPENSES, net | 874 | 3,117 | 27 | ||||||
SHARE IN LOSSES OF ASSOCIATED COMPANY | - | 731 | - | ||||||
LOSS BEFORE INCOME TAXES | 25,478 | 17,767 | 2,990 | ||||||
TAX EXPENSES (INCOME) | 563 | 1,337 | (83 | ) | |||||
NET LOSS | $ | 26,041 | $ | 19,104 | $ | 2,907 | |||
NET LOSS ATTRIBUTABLE TO NON-CONTROLLING INTERESTS (INCLUDING REDEEMABLE) | (1,920 | ) | (813 | ) | (163 | ) | |||
NET LOSS ATTRIBUTABLE TO THE COMPANY | $ | 24,121 | $ | 18 ,291 | $ | 2,744 | |||
LOSS PER SHARE: | |||||||||
Basic | $ | 1.77 | $ | 1.43 | $ | 0.19 | |||
Diluted | $ | 1.77 | $ | 1.43 | $ | 0.19 | |||
WEIGHTED AVERAGE NUMBER OF SHARES USED IN COMPUTATION OF BASIC AND DILUTED LOSS PER SHARE: | |||||||||
Basic | 15,907,995 | 13,374,103 | 15,423,040 | ||||||
Diluted | 15,907,995 | 13,374,103 | 15,423,040 | ||||||
COMPREHENSIVE LOSS | |||||||||
Net loss | $ | 26,041 | $ | 19,104 | $ | 2,907 | |||
Other Comprehensive (income) loss - Translation adjustment | 456 | 1,000 | (244 | ) | |||||
Comprehensive loss | $ | 26,497 | $ | 20,104 | $ | 2,663 | |||
Comprehensive income attributed to non-controlling interests (including redeemable) | (1,920 | ) | (813 | ) | (163 | ) | |||
COMPREHENSIVE LOSS ATTRIBUTED TO THE COMPANY | $ | 24,577 | $ | 19 ,291 | $ | 2,500 |
The accompanying notes are an integral part of these consolidated financial statements.
F-6
Common Stock | |||||||||||||||||||||||||||
Receipts on | Accumulated | Non- | |||||||||||||||||||||||||
Additional | Account of | Other | Equity | Controlling | |||||||||||||||||||||||
Par | Paid-in | Share to be | Comprehensive | Accumulated | Attributable to | ||||||||||||||||||||||
Number | Value | Capital | Allotted | Income (loss) | Deficit | Orgenesis Inc. | Interest | Total | |||||||||||||||||||
BALANCE AT DECEMBER1, 2016 | 9,508,068 | $ | 1 | $ | 45,454 | $ | - | $ | (1,205 | ) | $ | (31,753 | ) | $ | 12,497 | $ | - | $ | 12,497 | ||||||||
Changes during the Yearended November 30, 2017: | |||||||||||||||||||||||||||
Stock-based compensation to employees and directors | 1,536 | 1,536 | 1,536 | ||||||||||||||||||||||||
Stock-based compensation to service providers | 79,167 | * | 1,828 | 1,828 | 1,828 | ||||||||||||||||||||||
Beneficial conversion feature of convertible loans and warrants issued | 2,814 | 2,814 | 2,814 | ||||||||||||||||||||||||
Issuances of shares and warrants from equity investments and Issuance, cancellation of contingent shares, and receipts on account of shares and warrants to be allotted | 285,424 | * | 3,702 | 1,483 | 5,185 | 5,185 | |||||||||||||||||||||
Comprehensive income (loss) for the year | 2,630 | (12,367 | ) | (9,737 | ) | (9,737 | ) | ||||||||||||||||||||
BALANCE AT NOVEMBER30, 2017 | 9,872,659 | $ | 1 | $ | 55,334 | $ | 1,483 | $ | 1,425 | $ | (44,120 | ) | $ | 14,123 | $ | - | $ | 14,123 |
F-7ORGENESIS INC.
Receipts on | Accumulated | Equity | |||||||||||||||||||||||||
Additional | Account of | Other | Attributable | Non- | |||||||||||||||||||||||
Par | Paid-in | Share to be | Comprehensive | Accumulated | to Orgenesis | Controlling | |||||||||||||||||||||
Number | Value | Capital | Allotted | Income (loss) | Deficit | Inc. | Interest | Total | |||||||||||||||||||
BALANCE ATDECEMBER 1, 2017 | 9,872,659 | $ | 1 | $ | 55,334 | $ | 1,483 | $ | 1,425 | $ | (44,120 | ) | $ | 14,123 | $ | - | $ | 14,123 | |||||||||
Changes during the Yearended November 30, 2018: | |||||||||||||||||||||||||||
Stock-based compensation to employees and directors | 2,426 | 2,426 | 2,426 | ||||||||||||||||||||||||
Stock-based compensation to service providers | 315,198 | * | 1,938 | 1,938 | 1,938 | ||||||||||||||||||||||
Issuance of shares and warrants due to conversion of convertible loans and shares in escrow account | 1,486,722 | * | 7,511 | 7,511 | 7,511 | ||||||||||||||||||||||
Issuance of shares related to acquisition of Atvio and CureCell | 286,811 | * | 2,452 | 2,452 | 299 | 2,751 | |||||||||||||||||||||
Issuance of warrants and Beneficial conversion feature of convertible loans | 438 | 438 | 438 | ||||||||||||||||||||||||
Issuance of shares and warrants and receipts on account of shares to be allotted | 2,853,747 | * | 18,021 | 770 | 18,791 | 18,791 | |||||||||||||||||||||
Issuance of shares due to exercise of warrants | 136,646 | 846 | 846 | 846 | |||||||||||||||||||||||
Adjustment to redemption value of redeemable non-controlling interest | (884 | ) | (884 | ) | (884 | ) | |||||||||||||||||||||
Comprehensive loss for the year | (1,000 | ) | (18,291 | ) | (19,291 | ) | (19,291 | ) | |||||||||||||||||||
BALANCE ATNOVEMBER 30, 2018 | 14,951,783 | $ | 1 | $ | 88,082 | $ | 2,253 | $ | 425 | $ | (62,411 | ) | $ | 28,350 | $ | 299 | $ | 28,649 |
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(U.S. Dollars, in thousands, except share amounts)
Number | Par Value | Additional Paid-in Capital | Receipts on Account of Share to be Allotted | Accumulated Other Comprehensive Income (loss) | Accumulated Deficit | Equity Attributable to Orgenesis Inc. | Non- Controlling Interest | Total | |||||||||||||||||||
BALANCE AT DECEMBER 1, 2017 | 9,872,659 | $ | 1 | $ | 55,334 | $ | 1,483 | $ | 1,425 | $ | (44,120 | ) | $ | 14,123 | $ | - | $ | 14,123 | |||||||||
Changes during the Year ended November 30, 2018: | |||||||||||||||||||||||||||
Stock-based compensation to employees and directors | 2,42 6 | 2,426 | 2,426 | ||||||||||||||||||||||||
Stock-based compensation to service providers | 315,19 8 | * | 1,938 | 1,938 | 1,938 | ||||||||||||||||||||||
Issuance of shares and warrants due to conversion of convertible loans and shares in escrow account | 1,486,722 | * | 7,511 | 7,511 | 7,511 | ||||||||||||||||||||||
Issuance of shares related to acquisition of Atvio and CureCell | 286,811 | * | 2,452 | 2,452 | 299 | 2,751 | |||||||||||||||||||||
Issuance of warrants and Beneficial conversion feature of convertible loans | 438 | 438 | 438 | ||||||||||||||||||||||||
Issuance of shares and warrants and receipts on account of shares to be allotted | 2,853,747 | * | 18,021 | 770 | 18,791 | 18,791 | |||||||||||||||||||||
Issuance of shares due to exercise of warrants | 136,646 | 846 | 846 | 846 | |||||||||||||||||||||||
Adjustment to redemption value of redeemable non-controlling interest | (884 | ) | (884 | ) | (884 | ) | |||||||||||||||||||||
Comprehensive loss for the year | (1,000 | ) | (18,291 | ) | (19,291 | ) | (19,291 | ) | |||||||||||||||||||
BALANCE AT NOVEMBER 30, 2018 | 14,951,783 | $ | 1 | $ | 88,082 | $ | 2,253 | $ | 425 | $ | (62 , 4 11 | ) | $ | 28,350 | $ | 299 | $ | 28,649 |
*Represents an amount lower than $ 1 thousand
The accompanying notes are an integral part of these consolidated financial statements.
F-8F-7
Year ended November 30, | ||||||
2018 | 2017 | |||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||
Net loss | $ | (19,104 | ) | $ | (12,367 | ) |
Adjustments required to reconcile net loss to net cash used in operating activities: | ||||||
Stock-based compensation | 4,364 | 3,364 | ||||
Share in losses of associated company | 731 | 1,214 | ||||
Depreciation and amortization expenses | 2,624 | 2,598 | ||||
Net gain on remeasurement of previously equity interest in Atvio and CureCell to acquisition date at fair value | (4,509 | ) | - | |||
Change in fair value of warrants and embedded derivatives | 26 | (826 | ) | |||
Change in fair value of convertible bonds | (192 | ) | ||||
Interest expense accrued on loans and convertible loans (including amortization of beneficial conversion feature) | 2,564 | 1,110 | ||||
Increase (decrease) in deferred taxes | 1,982 | (1,310 | ) | |||
Changes in operating assets and liabilities: | ||||||
Decrease (increase) in accounts receivable, net | (2,901 | ) | 33 | |||
Increase in inventory | (931 | ) | (265 | ) | ||
Increase in other assets | (19 | ) | (3 | ) | ||
Decrease (increase) in prepaid expenses, other accounts receivable and GPP receivable | 380 | (107 | ) | |||
Decrease in related parties, net | (532 | ) | (583 | ) | ||
Decrease in accounts payable | (796 | ) | (933 | ) | ||
Increase in accrued expenses | 428 | 92 | ||||
Increase (decrease) in employee and related payables | (105 | ) | 1,142 | |||
Increase in deferred income | 1,309 | 1,044 | ||||
Increase (decrease) in advance payments and receivables on account of grant | (193 | ) | 2,156 | |||
Net cash used in operating activities | (15,682 | ) | (3,833 | ) | ||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||
Purchase of property and equipment | (5,556 | ) | (975 | ) | ||
Investments in associates | - | (2,429 | ) | |||
Long-term bank deposits | (15 | ) | - | |||
Increase in loan to JV with a related party | (1,000 | ) | - | |||
Acquisition of CureCell, net of cash acquired (see Note 4) | 58 | - | ||||
Acquisition of Atvio, net of cash acquired (see Note 4) | 245 | - | ||||
Net cash used in investing activities | (6,268 | ) | (3,404 | ) | ||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||
Short-term line of credit | - | (21 | ) | |||
Proceeds from issuance of shares and warrants (net of transaction costs) | 17,392 | 5,297 | ||||
Redeemable non-controlling interest | 14,058 | 2,349 | ||||
Proceeds from receipts on account of shares to be allotted | 2,252 | - | ||||
Repayment of short and long-term debt | (377 | ) | (1,108 | ) | ||
Repayment of convertible loans and convertible bonds | (177 | ) | (4,051 | ) | ||
Proceeds from issuance of convertible loans (net of transaction costs) | 1,912 | 5,899 | ||||
Net cash provided by financing activities | 35,060 | 8,365 | ||||
NET CHANGE IN CASH AND CASH EQUIVALENTS | 13,110 | 1,128 | ||||
EFFECT OF EXCHANGE RATE CHANGES ON CASH ANDCASH EQUIVALENTS | (173 | ) | 1,497 | |||
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR | 3,519 | 891 | ||||
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF YEAR | $ | 16,456 | $ | 3,519 | ||
SUPPLEMENTAL NON-CASH FINANCING ACTIVITY | ||||||
Conversion of principal amount and accrued interest of convertible loans and bonds to common stock and warrants | $ | 7,511 | $ | 1,277 | ||
Classification of loan receivable into services to be received from CureCell | $ | 836 | - | |||
Leases of Fixed assets | $ | 955 | - | |||
Receivable from GPP | $ | 6,600 | - | |||
SUPPLEMENTAL INFORMATION ON INTEREST PAID IN CASH | - | $ | 903 |
ORGENESIS INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(U.S. Dollars, in thousands, except share amounts)
Number | Par Value | Additional Paid-in Capital | Receipts on Account of Share to be Allotted | Accumulated Other Comprehensive Income (loss) | Accumulated Deficit | Equity Attributable to Orgenesis Inc. | Non- Controlling Interest | Total | |||||||||||||||||||
BALANCE AT DECEMBER 1, 2018 | 14,951,783 | $ | 1 | $ | 88,082 | $ | 2,253 | $ | 425 | $ | (62,411 | ) | $ | 28,350 | $ | 299 | $ | 28,649 | |||||||||
ASC 606 implementation | (8 | ) | (8 | ) | (8 | ) | |||||||||||||||||||||
Balance at December 1, 2018, adjusted | 14,951,783 | $ | 1 | $ | 88,082 | $ | 2,253 | $ | 425 | $ | (62,419 | ) | $ | 28,342 | $ | 299 | $ | 28,641 | |||||||||
Changes during the one month ended December 31, 2018: | |||||||||||||||||||||||||||
Stock-based compensation to employees and directors | 274 | 274 | 355 | 629 | |||||||||||||||||||||||
Stock-based compensation to service providers | 38,069 | * | 105 | 105 | 105 | ||||||||||||||||||||||
Beneficial conversion feature of convertible loans and warrants issued | 63 | 63 | 63 | ||||||||||||||||||||||||
Issuance of shares and warrants and receipts on account of shares to be allotted | 550,481 | 1 | 2,253 | (2,253 | ) | 1 | 1 | ||||||||||||||||||||
Adjustment to redemption value of redeemable non-controlling interest | (180 | ) | (180 | ) | (180 | ) | |||||||||||||||||||||
Comprehensive loss for the period | 244 | (2,744 | ) | (2,500 | ) | (9 | ) | (2,509 | ) | ||||||||||||||||||
BALANCE AT DECEMBER 31, 2018 | 15,540,333 | $ | 2 | $ | 90,597 | $ | - | $ | 669 | $ | (65,163 | ) | $ | 26,105 | $ | 645 | $ | 26,750 |
*Represents an amount lower than $ 1 thousand
The accompanying notes are an integral part of these consolidated financial statements.
F-9
ORGENESIS INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(U.S. Dollars, in thousands, except share amounts)
Number | Par Value | Additional Paid-in Capital | Receipts on Account of Share to be Allotted | Accumulated Other Comprehensive Income (loss) | Accumulated Deficit | Equity Attributable to Orgenesis Inc. | Non- Controlling Interest | Total | |||||||||||||||||||
BALANCE AT DECEMBER 31, 2018 | 15,540,333 | $ | 2 | $ | 90,597 | $ | - | $ | 669 | $ | (65,163 | ) | $ | 26,105 | $ | 645 | $ | 26,750 | |||||||||
Changes during the Year ended December 31, 2019: | |||||||||||||||||||||||||||
Stock-based compensation to employees and directors | 2,106 | 2,106 | 58 | 2,164 | |||||||||||||||||||||||
Stock-based compensation to service providers | 75,629 | * | 893 | - | 893 | 893 | |||||||||||||||||||||
Stock-based compensation to strategic collaborations, (see note 12) | 525,000 | * | 2,641 | 2,641 | 2,641 | ||||||||||||||||||||||
Issuance and modification of warrants and Beneficial conversion feature of convertible loans | 515 | (145 | ) | 370 | 370 | ||||||||||||||||||||||
Transaction with non-controlling interest GPP (See Note 1) | 2,034 | 2,034 | 2,034 | ||||||||||||||||||||||||
Adjustment to redemption value of redeemable non-controlling interest | (4,095 | ) | (4,095 | ) | (4,095 | ) | |||||||||||||||||||||
Comprehensive loss for the year | (456 | ) | (24,121 | ) | (24,577 | ) | (102 | ) | (24,679 | ) | |||||||||||||||||
BALANCE AT DECEMBER 31, 2019 | 16,140,962 | $ | 2 | $ | 94,691 | $ | - | $ | 213 | $ | (89,429 | ) | $ | 5,477 | $ | 601 | $ | 6,078 |
*Represents an amount lower than $ 1 thousand
The accompanying notes are an integral part of these consolidated financial statements.
F-10
ORGENESIS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. Dollars, in thousands)
Year ended | One month ended | ||||||||
December 31, | November 30, | December 31, | |||||||
2019 | 2018 | 2018 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||||
Net loss | $ | (26,041 | ) | $ | (19 ,104 | ) | $ | (2,907 | ) |
Adjustments required to reconcile net loss to net cash used in operating activities: | |||||||||
Stock-based compensation | 3,057 | 4,364 | 734 | ||||||
Stock-based compensation for strategic collaborations | 2,641 | - | - | ||||||
Gain from sale of property, plants and equipment | (29 | ) | - | - | |||||
Share in losses of associated company | - | 731 | - | ||||||
Depreciation and amortization expenses | 3,806 | 2,62 4 | 265 | ||||||
Net gain on remeasurement of previously equity interest in Atvio and CureCell to acquisition date at fair value | - | (4,509 | ) | - | |||||
Change in fair value of warrants and embedded derivatives | - | 26 | - | ||||||
Net changes in operating leases | (339 | ) | - | - | |||||
Interest expense accrued on loans and convertible loans (including amortization of beneficial conversion feature) | 387 | 2,56 4 | 12 | ||||||
Changes in operating assets and liabilities: | |||||||||
Decrease (increase) in accounts receivable, net | (5,308 | ) | (2,901 | ) | 951 | ||||
Decrease (increase) in inventory | (414 | ) | (931 | ) | 89 | ||||
Increase in other assets | (46 | ) | (19 | ) | (3 | ) | |||
Effect of exchange differences on inter-company balances | 214 | - | - | ||||||
Decrease (increase) in prepaid expenses, other accounts receivable | (112 | ) | 380 | (213 | ) | ||||
Change in related parties, net | - | (532 | ) | - | |||||
Increase (Decrease) in accounts payable | 4,626 | (796 | ) | 743 | |||||
Increase (decrease) in accrued expenses and other payable | 271 | 428 | (421 | ) | |||||
Increase (decrease) in employee and related payables | 474 | (105 | ) | 45 | |||||
Increase (decrease) in contract liabilities | 3,536 | 1,30 9 | (181 | ) | |||||
Change in advance payments and receivables on account of grant, net | (247 | ) | (193 | ) | (133 | ) | |||
Increase (decrease) in deferred taxes | 304 | 982 | (58 | ) | |||||
Net cash used in operating activities | $ | (13,220 | ) | $ | (15,682 | ) | $ | (1,077 | ) |
CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||
Sale of property, plants and equipment | 79 | - | - | ||||||
Purchase of property, plants and equipment | (12,129 | ) | (5,556 | ) | (535 | ) | |||
Long-term deposits | (228 | ) | (15 | ) | (57 | ) | |||
Increase in loan to JV with a related party (see Note 12 e) | (1,500 | ) | (1,000 | ) | - | ||||
Acquisition of CureCell, net of cash acquired (see Note 4) | - | 58 | - | ||||||
Acquisition of Atvio, net of cash acquired (see Note 4) | - | 245 | - | ||||||
Net cash used in investing activities | $ | (13,778 | ) | $ | (6,268 | ) | $ | (592 | ) |
CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||
Payment received from redeemable non-controlling interest related to GPP transaction see note 3 | 13,200 | - | - | ||||||
Proceeds from issuance of shares and warrants (net of transaction costs) | - | 17,392 | - | ||||||
Redeemable non-controlling interest | - | 14,058 | - | ||||||
Proceeds from receipts on account of shares to be allotted | - | 2,252 | - | ||||||
Repayment of short and long-term debt and Finance Leases | (772 | ) | (377 | ) | (53 | ) | |||
Repayment of convertible loans and convertible bonds | - | (177 | ) | - |
F-11
Proceeds from issuance of convertible loans (net of transaction costs) | 11,400 | 1,912 | 250 | ||||||
Proceeds from issuance of loans payable | 270 | - | - | ||||||
Net cash provided by financing activities | $ | 24,098 | $ | 35,060 | $ | 197 | |||
NET CHANGE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH | $ | (2,900 | ) | $ | 13,110 | $ | (1,472 | ) | |
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS | (58 | ) | $ | (173 | ) | $ | 15 | ||
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF YEAR | $ | 14,999 | 3,519 | 16,456 | |||||
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF YEAR | $ | 12,041 | $ | 16,456 | $ | 14,999 | |||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW TRANSACTIONS: | |||||||||
Interest paid in cash during the year | $ | 157 | $ | 134 | $ | 15 | |||
Income taxes, net of refunds paid in cash during the year | $ | 156 | $ | - | $ | - | |||
SUPPLEMENTAL NON-CASH FINANCING AND INVESTING ACTIVITIES | |||||||||
Conversion of principal amount and accrued interest of convertible loans and bonds to common stock and warrants | $ | - | $ | 7,511 | $ | - | |||
Classification of loan receivable into services to be received from CureCell | $ | - | $ | 836 | $ | - | |||
Transaction costs of issuance of convertible loans | $ | 546 | $ | - | $ | - | |||
Receivable from GPP | $ | - | $ | 6,600 | $ | - | |||
Right-of-use assets obtained in exchange for new operation lease liabilities, net | $ | 8,229 | $ | - | $ | - | |||
Purchase of property, plant and equipment included in accounts payable | $ | 1,584 | $ | - | $ | - | |||
Finance Leases of property, plant and equipment | $ | 355 | $ | 955 | $ | - |
The accompanying notes are an integral part of these consolidated financial statements.
F-12
ORGENESIS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 –- DESCRIPTION OF BUSINESS
a.General
Orgenesis Inc., a Nevada corporation (the “Company”"Company"), is a biotechnology company specializing in the development, manufacturing and provision of services in the cell and gene therapy industry.therapies ("CGTs") through point-of-care solutions. The Company operateshas historically operated through two independent business platforms:(i) a point-of-care (“POCare”) cell therapy (“PT”("POC") platform and (ii) a Contract Development and Manufacturing Organization (“CDMO”("CDMO") platform, conducted through its subsidiary, Masthercell Global Inc., a Delaware corporation.which provided contract manufacturing and development services for biopharmaceutical companies (the "CDMO Business"). Through the PT business,POC platform, the Company’sCompany's aim is to further the development of CGTs, including Advanced Therapy Medicinal Products (“ATMPs”("ATMPs"), through collaborations and in-licensing with other pre-clinical and clinical-stage biopharmaceutical companies and research and healthcare institutes to bring such ATMPs to patients. These therapies span a wide range of treatments including, but not limited to, cell-based immunotherapies, therapeutics for metabolic diseases, neurodegenerative diseases and tissue regeneration. The Company out-licenseout-licenses these ATMPs, thus far primarily through joint venture ("JV') agreements, with regional partners including pharmaceutical and biotech companies as well as research institutions and hospitals. These regional partners have cell therapies in clinical development and are to whom we also provide manufacturing know-how, assay services, licensing, regulatory assistance, pre-clinical studies, intellectual property services, and co-development services (collectively "POC Development Services") to support their activity in order to reach patients in a point-of-care hospital setting. Currently, the Company's POC Development Services constitute the entirety of our revenue from the POC platform. Through the CDMO platform, the Company had focused on providing contract manufacturing and development services for biopharmaceutical companies, and it continues to provide such CDMO, or development, services in Israel and South Korea.
The Company's therapeutic development efforts in its POC business are focused on advancing breakthrough scientific achievements in ATMPs, and namely autologous therapies, which have a curative potential. It bases its development on therapeutic collaborations and in-licensing with other pre-clinical and clinical-stage biopharma companies as well as direct collaboration with research and healthcare institutes. It is engaging in therapeutic collaborations and in-licensing with other academic centers and research centers in order to pursue emerging technologies of other ATMPs in cell and gene therapy in such areas including, but not limited to, cell-based immunotherapies, therapeutics for metabolic diseases, neurodegenerative diseases and tissue regeneration Each of these customers and collaborations represents a growth opportunity and future revenue potential as it out-licenses these ATMPs through regional partners to whom the Companyit also provideprovides regulatory, pre-clinical and training services to support their activity in order to reach patients in a point-of-care hospital setting. Through
The Company conducted the CDMOPOC platform through its wholly-owned subsidiaries. The subsidiaries are as follows:
Activities in the PT business includeand preparation of European clinical trials.
The CDMO platform operates through (i) majority-owned Masthercell Global Inc. (“ Masthercell Global”), which(which currently consists of the following two subsidiaries: MaSTherCell S.A (“MaSTherCell”)S.A. in Belgium Atvio Biotech Ltd. (“Atvio”("MaSTherCell") in Israel, CureCell Co., Ltd. (“CureCell”) in South Korea and Masthercell U.S., LLC in the United States ("Masthercell U.S.") (collectively, the “" Masthercell Global Subsidiaries”Subsidiaries")), having(ii) wholly-owned Atvio Biotech Ltd. in Israel ("Atvio"), and 94.12% owned CureCell Co., Ltd. in South Korea ("CureCell"). Each of these subsidiaries had unique know-how and expertise for manufacturing in a multitude of cell types.
F-13
Masthercell Global strives to provide services that are all compliant with GMP requirements, ensuring identity, purity, stability, potency and robustness ofis a CDMO specialized in cell therapy productsdevelopment for clinical phase I, II, IIIadvanced therapeutically products.
During the periods covered by this report, we operated our POC and through commercialization. (Masthercell U.S. LLC was incorporated in June 2018 and had no activity as of November 30, 2018).
MaSTherCell Global, through the Masthercell Global Subsidiaries, is engaged in the business of providing manufacturing and development services to third parties related to cell therapy products, and the creation and development of technology, and optimizations in connection with such manufacturing and development services for third parties (the “CDMO Business”).
The Company operates its CDMO and PT businessbusinesses as two separate business segments.
These consolidated financial statements include the accounts of Orgenesis Inc. and its subsidiaries, including those of the U.S. Subsidiary, the Belgian Subsidiary, the Israeli Subsidiary, Masthercell Global Subsidiaries; Orgenesis SPRL (the “Belgian Subsidiary”), a Belgian-based subsidiary which is engaged in development and manufacturing activities together with clinical development studies in Europe; Orgenesis Maryland Inc. (the “U.S. Subsidiary”), a Maryland corporation;its subsidiaries, Atvio and Orgenesis Ltd., an Israeli corporation, (the “Israeli Subsidiary”).CureCell.
F-10
As used in this report and unless otherwise indicated, the term “Company”"Company" refers to Orgenesis Inc. and its subsidiaries (“Subsidiaries”("Subsidiaries"). Unless otherwise specified, all amounts are expressed in United States Dollars.
Until March 13, 2018, the Company’sCompany's common shares were traded on OTC Market Group’sGroup's OTCQB, at which point the Company's common stock began to be listed and traded on the Nasdaq Capital Market under the symbol “ORGS”"ORGS."
On February 2, 2020, the Company entered into a Stock Purchase Agreement (the "Purchase Agreement") with GPP-II Masthercell LLC ("GPP" and together with the Company, the "Sellers"), Masthercell Global Inc. ("Masthercell") and Catalent Pharma Solutions, Inc. (the "Buyer"). Pursuant to the terms and conditions of the Purchase Agreement, on February 10, 2020, the Sellers sold 100% of the outstanding equity interests of Masthercell to Buyer (the "Masthercell Sale") for an aggregate nominal purchase price of $315 million, subject to customary adjustments. After accounting for GPP's liquidation preference and equity stake in Masthercell as well as SFPI - FPIM's interest in MaSTherCell S.A., distributions to Masthercell option holders and transaction costs, we received approximately $126.7 million. These financial statements contain the consolidated results of Masthercell as of and through December 31, 2019.
The Stock Purchase Agreement contains customary representations, warranties, and covenants of the Sellers and the Buyer. From the date of the Stock Purchase Agreement until the closing of the Sale, the Sellers are required to operate Masthercell's business in the ordinary course and to comply with certain covenants regarding the operation of the business. Subject to certain limitations, the Company is required to indemnify the Buyer for losses resulting from breaches of certain representations and warranties made by the Company in the Stock Purchase Agreement.
The Company determined that the Masthercell business met the criteria to be classified as a discontinued operation as of the first quarter of 2020.
b.Change in Fiscal Year End
On October 22, 2018, the Board of Directors of the Company approved a change in the Company’sCompany's fiscal year end from November 30 to December 31 of each year. This change to the calendar year reporting cycle beganbecame effective on January 1, 2019. As a result of the change, the Company will haveis reporting a December 2018 fiscal month transition period, the results of which will beis separately reported in the Company’s Quarterly Report on Form 10-Q for the calendar quarter ending March 31, 2019, June 30, 2019, September 30, 2019 and in the Company’sthis Annual Report on Form 10-K for the calendar year endingended December 31, 2019.
c. Liquidity
As ofpermitted under SEC rules, prior-period financial statements have not been recast as management believes the year ended December 31, 2019 provides a meaningful comparison for year ended November 30, 2018 and recasting prior-period results is not practicable or cost justified.
c.Liquidity
As of December 31, 2019, the Company has accumulated losses of approximately $62.4 million. Although the Company is showing positive revenues and gross profit trends in the CDMO platform, the Company expects to incur further losses in the PT business.$89 Million.
To date, the Company has been funding operations primarily from the proceeds from private placements of the Company’s equity securities and convertible debt and from revenues generated by Masthercell Global, mainly revenues generated from MaSTherCell S.A. in Belgium. From December 1, 2017 through November 30, 2018,On February 10, 2020, the Company received through MaSTherCell,approximately $126.7 million of which $7.2 million was used for the repayment of intercompany loans and payables from the Masthercell sale. In addition, on January 20, 2020, the Company, entered into a Securities Purchase Agreement with certain investors pursuant to which the Company received gross proceeds of approximately $17.3$9.240 million in revenues and accounts receivable from customers, $12.6 million from SFPI and GPPbefore deducting related offering expenses. (See also Note 3) and $21.5 million from the private placement to accredited investors of the Company's equity and convertible loans net of finders’ fees, convertible loans and exercise of warrants. In addition, from December 1, 2018 through February 13, 2019, the Company raised $0.25 million from the private placement referred to above of unsubscribed units under such investor’s subscription agreement, $6.6 million from GPP (See Note 3(b)) and proceeds of approximately $4.7 million in accounts receivable from customers of MaSTherCell.note 23).
F-14
Based on its current cash resources and commitments, the Company believes it will be able to maintain its current planned development activityactivities and correspondingexpected level of expenditures for at least 12 months from the date of the issuance of the financial statements, although no assurance can be given that it will not need additional funds prior to such time. Ifstatements. Also, if there are unexpectedfurther increases in operating costs in general and administrative expenses orfor facilities expansion, research and development, expenses,commercial and clinical activity or decreases in MaSTherCell's income,revenues from customers, the Company will needmay decide to seek additional financing.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The accounting policies adopted are generally consistent with those of the previous financial year.
a.Use of Estimates in the Preparation of Financial Statements
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the financial statement date and the reported expenses during the reporting periods. Actual results could differ from those estimates.
b.Business Combination
The Company allocates the purchase price of an acquired business to the tangible and intangible assets acquired and liabilities assumed based upon their estimated fair values on the acquisition date. Any excess of the purchase price over the fair value of the net assets acquired is recorded as goodwill. Acquired in-process backlog, customer relations, brand name and know how are recognized at fair value. The purchase price allocation process requires management to make significant estimates and assumptions, especially at the acquisition date with respect to intangible assets. Direct transaction costs associated with the business combination are expensed as incurred. The allocation of the consideration transferred in certain cases may be subject to revision based on the final determination of fair values during the measurement period, which may be up to one year from the acquisition date. The Company includes the results of operations of the business that it has acquired in its consolidated results prospectively from the date of acquisition.acquisition .
F-11
If the business combination is achieved in stages, the acquisition date carrying value of the acquirer’sacquirer's previously held equity interest in the acquire is re-measured to fair value at the acquisition date; any gains or losses arising from such re-measurement are recognized in profit or loss.
c.Cash Equivalents
The Company considers all short term, highly liquid investments, which include short term bank deposits with original maturities of three months or less from the date of purchase, that are not restricted as to withdrawal or use and are readily convertible to known amounts of cash, to be cash equivalents.
d. Bank Deposits
Bank deposits with maturity of more than one year are considered long-term. The fair value of bank deposits approximates the carrying value since they bear interest at rates close to the prevailing market rates.
e. Research and Development, net
Research and development expenses include costs directly attributable to the conduct of research and development programs,activities, including the cost of salaries, stock-based compensation expenses, payroll taxes and other employees' benefits, lab expenses, consumable equipment and consulting fees. All costs associated with research and developments are expensed as incurred. Participation from government departments and from research foundations for development of approved projects is recognized as a reduction of expense as the related costs are incurred.
f. e.Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its Subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.
g. f.Non-Marketable Equity Investments
F-15
The Company’sCompany's investments in certain non-marketable equity securities in which it has the ability to exercise significant influence, but it does not control through variable interests or voting interest.interests. These are accounted for under the equity method of accounting and presented as Investment in associates, net, in the Company’sCompany's consolidated balance sheets. Under the equity method, the Company recognizes its proportionate share of the comprehensive income or loss of the investee. The Company’sCompany's share of income and losses from equity method investments is included in share in losses of associated company.
The Company reviews its investments accounted for under the equity method for possible impairment, which generally involves an analysis of the facts and changes in circumstances influencing the investments.
h. g.Functional Currency
The currency of the primary economic environment in which the operations of the Company and part of its Subsidiaries are conducted is the U.S. dollar (“("$”" or “dollar”"dollar"). The functional currency of the Belgian Subsidiaries is the Euro (“("€”" or “Euro”"Euro"). The functional currency of CureCell is the Won (“KRW”("KRW"). Most of the Company’sCompany's expenses are incurred in dollars, and the source of the Company’sCompany's financing has been provided in dollars. Thus, the functional currency of the Company and its other subsidiaries is the dollar. Transactions and balances originally denominated in dollars are presented at their original amounts. Balances in foreign currencies are translated into dollars using historical and current exchange rates for nonmonetary and monetary balances, respectively. For foreign transactions and other items reflected in the statements of operations, the following exchange rates are used: (1) for transactions –- exchange rates at transaction dates or average rates and (2) for other items (derived from nonmonetary balance sheet items such as depreciation) –- historical exchange rates. The resulting transaction gains or losses are recorded as financial income or expenses. The financial statements of the Belgian Subsidiaries and CureCell are included in the consolidated financial statements, translated into U.S. dollars. Assets and liabilities are translated at year-end exchange rates, while revenues and expenses are translated at yearly average exchange rates during the year. Differences resulting from translation of assets and liabilities are presented as other comprehensive income.
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i. h.Inventory
The Company’sCompany's inventory consists of raw material for use for the services provided. The Company periodically evaluates the quantities on year end.hand. Cost of the raw materials is determined using the weighted average cost method. The inventory is recorded at the lower of cost or net realizable value.
j. i.Property, plant and Equipment
Property, plant and equipment are recorded at cost and depreciated by the straight-line method over the estimated useful lives of the related assets.
Annual rates of depreciation are presented in the table below:
Weighted Average | |
Useful Life (Years) | |
Production facility | 5-20 |
Laboratory equipment | 5 |
Office equipment and computers | 3-5 |
j.Intangible assets
Intangible assets and their useful lives are as follows:
Useful Life (Years) | Amortization Recorded at | |
Comprehensive Loss Line Item | ||
Customer Relationships | 3-10 | Amortization of intangible assets |
Brand | 10 | Amortization of intangible assets |
Know-How | 12 | Amortization of intangible assets |
Backlog | 2 | Amortization of intangible assets |
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Intangible assets are recorded at acquisition cost less accumulated amortization and impairment. Definite lived intangible assets are amortized over their estimated useful life using the straight-line method, which is determined by identifying the period over which the cash flows from the asset are expected to be generated.
k.Goodwill
Goodwill represents the excess of the purchase price of acquired business over the estimated fair value of the identifiable net assets acquired. Goodwill is not amortized but is tested for impairment at least annually (at November 30)December 31), at the reporting unit level or more frequently if events or changes in circumstances indicate that the asset might be impaired. The
Commencing from January 1, 2019, the Company has early adopted a new guidance which simplifies the test for goodwill impairment test is applied by performing a qualitative assessment before calculatingimpairment. Under the fair value ofnew guidance, the reporting unit. If, on the basis ofCompany may first assess qualitative factors to determine whether it is considered not more likely than not that the fair value of thea reporting unit is less than its carrying amount. If the Company performs a qualitative assessment and concludes that it is more likely than not that the fair value of a reporting unit exceeds its carrying amount, further testing ofvalue, goodwill is not considered impaired and the impairment test is not required. However, if the Company concludes otherwise, it is then required to perform a quantitative assessment for impairment would not be required. Otherwise,goodwill impairment. Under the new guidance, the Company performs its quantitative goodwill impairment is tested using a two-step approach.
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The first step involvestest by comparing the fair value of its reporting unit with its carrying value. If the reporting unitunit's carrying value is determined to be greater than its fair value, an impairment charge is recognized for the amount by which the carrying amount.value exceeds the reporting unit's fair value. If the fair value of the reporting unit is determined to be greater than its carrying amount, there is no impairment. If the reporting unit's carrying amount is determined to be greater than the fair value, the second step must be completed to measure the amount of impairment, if any. The second step involves calculating the implied fair value of goodwill by deducting the fair value of all tangible and intangible assets, excluding goodwill, of the reporting unit from the fair value of the reporting unit as determined in step one. The implied fair value of the goodwill in this step is compared to the carrying value of goodwill. If the implied fair value of theapplicable goodwill is less than the carrying value of thenot impaired and no further testing is required. The goodwill an impairment loss equivalent to the differencevaluation is recorded. considered as significant estimate.
There were no impairment charges in 2019 and 2018 and 2017.the month ended December 31, 2018, See note 7 for the Company's goodwill impairment analysis.
l.Impairment of Long-lived Assets
The Company reviews its property, plants and equipment, intangible assets subject to amortization and other long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset class may not be recoverable. Indicators of potential impairment include: an adverse change in legal factors or in the business climate that could affect the value of the asset; an adverse change in the extent or manner in which the asset is used or is expected to be used, or in its physical condition; and current or forecasted operating or cash flow losses that demonstrate continuing losses associated with the use of the asset. If indicators of impairment are present, the asset is tested for recoverability by comparing the carrying value of the asset to the related estimated undiscounted future cash flows expected to be derived from the asset. If the expected cash flows are less than the carrying value of the asset, then the asset is considered to be impaired and its carrying value is written down to fair value, based on the related estimated discounted cash flows. There were no impairment charges in 2019 and 2018 and 2017.the month ended December 31, 2018.
m. Revenue Recognition
The Company recognizes revenue for services linked to cell process development and cell manufacturing services based on individual contracts in accordance with Accounting Standards Codification (“ASC”) 605,Revenue Recognition,when the following criteria have been met: persuasive evidence of an arrangement exists; delivery of the processed cells has occurred or the services that are milestones based have been provided; the price is fixed or determinable and collectability is reasonably assured. The Company determines that persuasive evidence of an arrangement exists based on written contracts that define the terms of the arrangements. In addition, the Company determines that services have been delivered in accordance with the arrangement. The Company assesses whether the fee is fixed or determinable based on the payment terms associated with the transaction and whether the sales price is subject to refund or adjustment. Service revenues are recognized as the services are provided. In addition, as part of the services, the Company recognizes revenue based on use of consumables, which it received as reimbursement on a cost-plus basis on certain expenses.
n. Financial Liabilities Measured at Fair Value
1)Fair Value Option
Topic 815 provides entities with an option to report certain financial assets and liabilities at fair value with subsequent changes in fair value reported in earnings. The election can be applied on an instrument by instrument basis. The Company elected the fair value option to its convertible bonds. The liability is measured both initially and in subsequent periods at fair value, with changes in fair value charged to finance expenses, net (See Note 17).
2)Derivatives
Embedded derivatives are separated from the host contract and carried at fair value when (1) the embedded derivative possesses economic characteristics that are not clearly and closely related to the economic characteristics of the host contract and (2) a separate, standalone instrument with the same terms would qualify as a derivative instrument. The derivative is measured both initially and in subsequent periods at fair value, with changes in fair value charged to finance expenses, net. As to embedded derivatives arising from the issuance of convertible debentures (See Note 17).
o. Income Taxes
1) With respect to deferred taxes, income taxes are computed using the asset and liability method. Under the asset and liability method, deferred income tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using the currently enacted tax rates and laws. A valuation allowance is recognized to the extent that it is more likely than not that the deferred taxes will not be realized in the foreseeable future.
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2) The Company follows a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the available evidence indicates that it is more likely than not that the position will be sustained on examination. If this threshold is met, the second step is to measure the tax position as the largest amount that is greater than 50% likely of being realized upon ultimate settlement.
3) Taxes that would apply in the event of disposal of investment in Subsidiaries have not been taken into account in computing the deferred income taxes, as it is the Company’sCompany's intention to hold these investments and not realize them.
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p. n.Stock-based Compensation
The Company accounts for employee stock-based compensation in accordance with the guidance of ASC Topic 718,Compensation - Stock Compensation, which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their grant date fair values. The fair value of the equity instrument is charged to compensation expense and credited to additional paid in capital over the period during which services are rendered. The Company recorded stock based compensation expenses using the straight line method. Forfeitures are recognized as they occur.
The Company follows ASC Topic 505-50,Equity-Based Paymentsadopted the FASB issued ASU No. 2018-07, Compensation-Stock Compensation (Topic 718) Improvements to Non-Employees, for stock optionsNonemployee Share-based Payments. This ASU was issued to consultantssimplify the accounting for share-based transactions by expanding the scope of Topic 718 from only being applicable to share-based payments to employees to also include share-based payment transactions for acquiring goods and other non-employees. In accordanceservices from nonemployees.
The Company adopted this guidance effective January 1, 2019, with ASC Topic 505-50, these stock options issued as compensation for services provided to the Company are accounted for based upon the fair value of the options. The fair value of the options granted is measuredno material impact on a final basis at the end of the related service period and is recognized over the related service period using the straight-line method.its consolidated financial statements.
q. o.Redeemable Non-controlling Interest
Non-controlling interests with embedded redemptionfeatures,redemption features, whose settlement is not at the Company’sCompany's discretion, are considered redeemable non-controlling interest. Redeemable non-controlling interests are considered to be temporary equity and are therefore presented as a mezzanine section between liabilities and equity on the Company's consolidated balance sheets. Subsequent adjustment of the amount presented in temporary equity is required only if the Company's management estimates that it is probable that the instrument will become redeemable. Adjustments of redeemable non-controlling interest to its redemption value are recorded through additional paid-in capital.
r. p.Loss per Share of Common Stock
Basic net loss per share is computed by dividing the net loss for the period by the weighted average number of shares of common stock outstanding for each period. Diluted net loss per share is based upon the weighted average number of common shares and of common shares equivalents outstanding when dilutive. Common share equivalents include: (i) outstanding stock options and warrants which are included under the treasury share method when dilutive, and (ii) common shares to be issued under the assumed conversion of the Company’sCompany's outstanding convertible loans and debt, which are included under the if-converted method when dilutive (See Note 14)15).
s. q.Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentration of credit risk consist of principally cash and cash equivalents, bank deposits and certain receivables. The Company held these instruments with highly rated financial institutions and the Company has not experienced any significant credit losses in these accounts and does not believe the Company is exposed to any significant credit risk on these instruments apart of accounts receivable. The Company performs ongoing credit evaluations of its customers for the purpose of determining the appropriate allowance for doubtful accounts. An appropriate allowance for doubtful accounts is included in the accounts and netted against accounts receivable. In the year ended November 30, 2018 December 31, 2019 the Company has not experienced any material credit losses in these accounts and does not believe it is exposed to significant credit risk on these instruments. In the year ended November 30, 2017, the Company has recorded an allowance of $897 thousand.
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Bad debt allowance is created when objective evidence exists of inability to collect all sums owed it under the original terms of the debit balances. Material customer difficulties, the probability of their going bankrupt or undergoing economic reorganization and insolvency or material delays in payments are all considered indicative of reduced debtor balance value.
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t. r.Beneficial Conversion Feature (“BCF”("BCF")
When the Company issues convertible debt, if the stock price is greater than the effective conversion price (after allocation of the total proceeds) on the measurement date, the conversion feature is considered "beneficial" to the holder. If there is no contingency, this difference is treated as issued equity and reduces the carrying value of the host debt; the discount is accreted as deemed interest on the debt (See Note 8).
u. s.Other Comprehensive Loss
Other comprehensive loss represents adjustments of foreign currency translation.
v. t.Newly issued and recently adopted Accounting Pronouncements
1) In January 2016, the FASB issued guidance on recognition and measurement of financial assets and financial liabilities (ASU No. 2016-01) that will supersede most current guidance. Changes to the U.S. GAAP model primarily affect the accounting for equity investments, financial liabilities under the fair value option and the presentation and disclosure requirements for financial instruments. In addition, the FASB clarified guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The accounting for other financial instruments, such as loans, investments in debt securities, and financial liabilities, is largely unchanged. The classification and measurement guidance became effective as of December 1, 2018. The Company does not expect to have a material impact on its consolidated financial statements.
2) In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09 “RevenueASC 606 - Revenue from Contracts with Customers (Topic 606)” (“Topic 606”) that will supersede most current revenue recognition guidance, including industry specific guidance. Under
On December 1, 2018, the Company adopted the new accounting standard a good or service is transferredASC 606, Revenue from Contracts with Customers and the related amendments ("New Revenue Standard") to the customer when (or as) the customer obtains control of the good or service, which differs from the risk and rewards approach under current guidance. The guidance provides a five-step analysis of transactions to determine when and how revenue is recognized. Other major provisions include capitalization of certain contract costs, consideration of the time value of money in the transaction price and allowing estimates of variable consideration to be recognized before contingencies are resolved in certain circumstances. The guidance also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’sall contracts, with customers. The guidance is effective in annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. The Company will implement the guidance for our annual period ending on December 31, 2019 and interim periods within such annual periods, using the modified retrospective method and will adjustmethod. The cumulative effect of initially applying the accumulated deficit and deferrednew revenue asstandard was immaterial.
Revenue Recognition Prior to the Adoption of the adoption date.New Revenue Standard
Under current GAAP, theThe Company recognizesrecognized revenue for services linked to cell process development and cell manufacturing services based on bothindividual contracts in accordance with Accounting Standards Codification ("ASC") 605, Revenue Recognition, when the inputfollowing criteria have been met: persuasive evidence of an arrangement exists; delivery of the processed cells had occurred or the services that are milestones based had been provided; the price is fixed or determinable and output methodscollectability is reasonably assured. The Company determined that persuasive evidence of measurement. an arrangement exists based on written contracts that define the terms of the arrangements. In addition, the Company determined that services had been delivered in accordance with the arrangement. The Company assessed whether the fee was fixed or determinable based on the payment terms associated with the transaction and whether the sales price was subject to refund or adjustment. Service revenues were recognized as the services were provided. In addition, as part of the services, the Company recognized revenue based on use of consumables, which it received as reimbursement on a cost-plus basis on certain expenses.
Revenue Recognition Following the Adoption of the New Revenue Standard
The Company's agreements are primarily service contracts that range in duration from a few months to one year. The Company recognizes revenue when control of these services is transferred to the customer for an amount, referred to as the transaction price, which reflects the consideration to which the Company is expected to be entitled in exchange for those goods or services.
A contract with a customer exists only when:
For the majority of its contracts, the Company receives non-refundable upfront payments. The Company does not adjust the promised amount of consideration for the effects of a significant financing component since the Company expects, at contract inception, that the period between the time of transfer of the promised goods or services to the customer and the time the customer pays for these goods or services to be generally one year or less. The Company's credit terms to customers are in average between thirty and ninety days.
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The Company does not disclose the value of unsatisfied performance obligations for contracts with original expected duration of one year or less.
Nature of Revenue Streams
The Company operated through two platforms: (i) a point-of-care cell therapy platform ("POC") and (ii) a Contract Development and Manufacturing Organization ("CDMO") platform. Through its CDMO platform, the Company is focused on providing contract manufacturing and development services for biopharmaceutical companies. As of the second quarter of 2019, the Company commenced its POC development services.
The Company has evaluated the application of the requirements of ASC 606 to recognizethree main revenue when or as the entity satisfies a performance obligation tostreams from its business. The Company has several types of revenue contracts:
a) CellCDMO platform: cell process development services, tech transfer services, and upon success, cell manufacturing services.
The Company has concluded thatCell Process Development Services
Revenue recognized under the revised standard, contracts for cell process development services aremay, in some cases a single performance obligation (where promises offered to customers are not distinct within the context of the contract), and in other cases havecontracts, represent multiple performance obligations (where promises to the customers are distinct). in circumstances in which the work packages and milestones are not interrelated or the customer is able to complete the services performed independently or by using competitors of the Company. In all casesother contracts when the above circumstances are not met, the promises are not considered distinct and the contract represents one performance obligation. All performance obligations are satisfied over time. Undertime, as there is no alternative use to the new standard,services it performs, since, in nature, those services are unique to the customer, which retain the ownership of the intellectual property created through the process. Additionally, due to the non-refundable upfront payment the customer pays, together with the payment term and cancellation fine, it has a right to payment (which include a reasonable margin), at all times, for work completed to date, which is enforceable by law.
For arrangements that include multiple performance obligations, the transaction price is allocated to the identified performance obligations based on their relative standalone selling prices. For these contracts, the standalone selling prices are based on the Company's normal pricing practices when sold separately with consideration of market conditions and other factors, including customer demographics and geographic location.
The Company will recognizemeasures the revenue to be recognized over time usingon a contract by contract basis, determining the use of either a cost-based input method or output method, depending on whichever fairlybest depicts the transfer of control over the life of the performance obligation.
Tech Transfer Services
Revenue recognized under contracts for tech transfer services are considered a single performance obligation, as appropriate.all work packages (including data collection, GMP documentation, validation runs) and milestones are interrelated. Additionally, the customer is unable to complete services of work performed independently or by using competitors of the Company. Revenue is recognized over time using a cost-based based input method where progress on the performance obligation is measured by the proportion of actual costs incurred to the total costs expected to complete the contract.
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b) Cell manufacturing servicesManufacturing Services
Regarding revenuesRevenues from cell manufacturing services the Company concluded that these comprisedrepresent a single performance obligation.obligation which is recognized over time. The progress towards completion will continue to be measured on an output measure based on direct measurement of the value transferred to the customer (units produced).
c) Tech transferPOC Development Services
The Company has concluded thatRevenue recognized under the revised standard contracts for Tech TransferPOC development services are considered a singlemay, in some contracts, represent multiple performance obligation and will be measured over time using a cost-based input method where progress on the performance obligation is measured by the proportion of actual costs incurredobligations (where promises to the total costs expectedcustomers are distinct) in circumstances in which the work packages are not interrelated or the customer is able to complete the contract.services performed independently or by using competitors of the Company.
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For arrangements that include multiple performance obligations, the transaction price is allocated to the identified performance obligations based on their relative standalone selling prices.
The Company measures the revenue to be recognized over time on a contract by contract basis as services are provided.
Significant Judgement and Estimates
The cost-based and output methods of revenue recognition require the Company to make estimates of costs to complete its projects and the percentage of completioncompleteness on an ongoing basis. Significant judgment is required to evaluate assumptions related to these estimates. The effect of revisions to estimates related to the transaction price (including variable consideration relating to reimbursement on a cost-plus basis on certain expenses) or costs to complete a project are recorded in the period in which the estimate is revised.
Practical Expedients
As part of ASC 606, the Company has adopted several practical expedients including the Company's determination that it need not adjust the promised amount of consideration for the effects of a significant financing component since the Company expects, at contract inception, that the period between when the Company transfers a promised service to the customer and when the customer pays for that service will be one year or less.
Reimbursed Expenses
The adoptionCompany includes reimbursed expenses in revenues and costs of revenue as the Company is primarily responsible for fulfilling the promise to provide the specified service, including the integration of the new standard is not expectedrelated services into a combined output to the customer, which are inseparable from the integrated service. These costs include such items as consumable, reagents, transportation and travel expenses, over which the Company has discretion in establishing prices.
Change Orders
Changes in the scope of work are common and can result in a materialchange in transaction price, equipment used and payment terms. Change orders are evaluated on a contract-by-contract basis to determine if they should be accounted for as a new contract or as part of the existing contract. Generally, services from change orders are not distinct from the original performance obligation. As a result, the effect that the contract modification has on the total stockholders’ equitycontract revenue, and measure of progress, is recognized as an adjustment to revenue when they occur.
Costs of December 1, 2018.Revenue
3) Costs of revenue include (i) compensation and benefits for billable employees and personnel involved in production, data management and delivery, and the costs of acquiring and processing data for the Company's information offerings; (ii) costs of staff directly involved with delivering services offerings and engagements; (iii) consumables used for the services; and (iv) other expenses directly related to service contracts such as courier fees, laboratory supplies, professional services and travel expenses.
ASU 2018-07 Stock based Compensation
In November 2016,June 2018, the FASB issued ASU 2016-18, Statement of Cash Flows2018-07, "Compensation-Stock Compensation (Topic 230)718): Restricted Cash (a Consensus ofImprovements to Nonemployee Share-Based Payment Accounting." This guidance simplifies the FASB Emerging Issues Task Force) (“ASU 2016-18”), which requires entities to include amounts generally described as restricted cash and restricted cash equivalents in cash and cash equivalents when reconciling beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-18 is effectiveaccounting for annual reporting periods (including interim periods within those annual reporting periods) beginning after December 15, 2017. The Company adopted this standard during the year ended November 30, 2018.
4) In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)” (“ASU 2016-02”), which supersedes the existing guidance for lease accounting, “Leases (Topic 840)”. ASU 2016-02 requires lessees to recognize leases on their balance sheets, and leaves lessor accounting largely unchanged.non-employee share-based payment transactions. The amendments specify that ASC 718 applies to all share-based payment transactions in ASU 2016-02 arewhich a grantor acquires goods and services to be used or consumed in a grantor's own operations by issuing share-based payment awards. The standard is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early applicationadoption is permitted, but no earlier than an entity's adoption date of Topic 606, "Revenue from Contracts with Customers." This standard, adopted as of January 1, 2019, had no material impact on the Company's consolidated financial statements for the year ended December 31, 2019.
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ASC 842 - Leases
In February 2016, the FASB issued ASU 2016-02 "Leases" (the "new lease standard"). The guidance establishes a right-of-use model ("ROU") that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all entities. ASU 2016-02 requires aleases. Leases are classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. The guidance became effective on January 1, 2019. A modified retrospective transition approach foris required, applying the new standard to all leases existing at or entered after, the date of initial application, with an option to elect to use certain transition relief. application.
The Company expects to applyadopted the ASU without adjustingnew lease standard and all the comparative periodsrelated amendments on January 1, 2019 and if applicable, recognizing a cumulative effect adjustment toused the opening balanceeffective date as the Company's date of retained earnings ininitial application. Consequently, financial information was not updated and the period of adoption. The Company is currently evaluatingdisclosures required under the impact of this new standard on its consolidated financial statements.are not provided for dates and periods before January 1, 2019.
5) For more information, see Note 10.
Recently issued accounting pronouncements, not yet adopted
In June 2016, the FASB issued ASU 2016-13 “Financial"Financial Instruments-Credit Losses-Measurement of Credit Losses (Topic 326)” (“ASU 2016-13”). ASU 2016-13 requireson Financial Instruments." This guidance replaces the current incurred loss impairment methodology with a methodology that financial assets measured at amortized cost be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis. The income statement reflects the measurement of credit losses for newly recognized financial assets, as well as the expected credit losses during the period. The measurementand requires consideration of expected credit losses is based upon historical experience, current conditions, anda broader range of reasonable and supportable forecasts that affect the collectability of the reported amount. Credit losses relatinginformation to available-for-sale debt securitiesinform credit loss estimates. The guidance will be recorded through an allowance for credit losses rather than as a direct write-down to the security. ASU 2016-13 is effective for Smaller Reporting Companies (SRCs, as defined by the SEC) for the fiscal yearsyear beginning after December 15, 2019,on January 1, 2023, including interim periods within those fiscal years. Early adoption is permitted as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.that year. The Company does not expectis currently evaluating this guidance to determine the impact it may have a material impact on its consolidated financial statements.
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6) In May 2017, the FASB issued ASU 2017-09, “Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting” (“ASU 2017-09”), which gives direction on which changes to the terms or conditions of share-based payment awards require an entity to apply modification accounting in Accounting Standard Codification (“ASC”) Topic 718. In general, entities will apply the modification accounting guidance if the value, vesting conditions or classification of the award changes. ASU 2017-09 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company does not expect the implementation of this new pronouncement to have a material impact on its consolidated financial statements.
7) In JuneNovember 2018, the FASB issued ASU 2018-07, “Compensation – Stock Compensation2018-18 "Collaborative Arrangements (Topic 718): Improvements to Nonemployee Share-based Payment Accounting” that expands808)-Clarifying the scope ofinteraction between Topic 808 and Topic 606." The amendments provide guidance on whether certain transactions between collaborative arrangement participants should be accounted for as revenue under ASC Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. An entity606. It also specifically (i) addresses when the participant should apply the requirements of ASC Topic 718 to nonemployee awards except for certain exemptions specifiedbe considered a customer in the amendment.context of a unit of account, (ii) adds unit-of-account guidance in ASC 808 to align with guidance in ASC 606 and (iii) precludes presenting revenue from a collaborative arrangement together with revenue recognized under ASC 606 if the collaborative arrangement participant is not a customer. The guidance is effective for fiscal years beginning after December 15, 2018, including interim reporting periods within that fiscal year. Early adoption is permitted, but no earlier than an entity’s adoption date of Topic 606. The Company don’t expect to have a material impact on its consolidated financial statements.
8) In January 2017, FASB issued Accounting Standards Update (ASU) 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which eliminated the calculation of implied goodwill fair value. Instead, companies will record an impairment charge based on the excess of a reporting unit’s carrying amount of goodwill over its fair value. This guidance simplifies the accounting as compared to prior GAAP. The guidance isbe effective for fiscal years beginning after December 15, 2019. Early adoption is permitted and should be applied retrospectively. The Company does not expectis currently evaluating this guidance to determine the implementation of this new pronouncement toimpact it may have a material impact on its consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12 "Income Taxes (Topic 740)-Simplifying the Accounting for Income Taxes" ("the Update"). The amendments in this Update simplify the accounting for income taxes by removing the following exceptions in ASC 740: (1) exception to the incremental approach for intra-period tax allocation when there is a loss from continuing operations and income or a gain from other items; (2) exception to the requirement to recognize a deferred tax liability for equity method investments when a foreign subsidiary becomes an equity method investment; (3) exception to the ability not to recognize a deferred tax liability for a foreign subsidiary when a foreign equity method investment becomes a subsidiary; and (4) exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year.
In addition, this Update also simplifies the accounting for income taxes in certain topics as follows: (1) requiring that an entity recognize a franchise tax (or similar tax) that is partially based on income as an income-based tax and account for any incremental amount incurred as a non-income-based tax; (2) requiring that an entity evaluate when a step up in the tax basis of goodwill should be considered part of the business combination in which the book goodwill was originally recognized and when it should be considered a separate transaction; (3) specifying that an entity can elect (rather than be required to) allocate the consolidated amount of current and deferred tax expense to a legal entity that is not subject to tax in its separate financial statements; and (4) requiring that an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements.
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NOTE 3 –- REDEEMABLE NON CONTROLLING INTEREST
See note 1 regarding the Masthercell sale
a.Subscription and Shareholders Agreement with Belgian Sovereign Funds Société Fédérale de Participationset d'Investissement ("SFPI").
On November 15, 2017, the Company, MaSTherCell and SFPI entered into a Subscription and Shareholders Agreement (“("SFPI Agreement”Agreement") pursuant to which SFPI made an equity investment in MaSTherCell in the aggregate amount of Euro 5 million (approximately $5.9 million), for approximately 16.7% of MaSTherCell (SFPI received B-shares of MaSTherCell which have the same voting, dividend and other rights as the existing shares of MaSTherCell). The equity investment commitment included the conversion of the outstanding loan and accrued interest of Euro 1.07 million (approximately $1.18 million), previously made by SFPI to MaSTherCell. In November 2017, the initial subscription amount of Euro 2 million ($2.3 million) was paid by SFPI to MaSTherCell. The proceeds from the investment are to be used in accordance with the long-term business plan that was appended to the SFPI Agreement which includes, without limitation, expanding MaSTherCell’sMaSTherCell's facilities in Belgium with the addition of five new cGMP manufacturing cleanrooms. The agreement contains customary representations, warranties and covenants by MaSTherCell and the Company, in respect of which the Company has undertaken to indemnify SFPI for the consequences of any breach thereof by MaSTherCell or the Company.
Under the Agreement, SFPI has the right to appoint one member to the board of directors of MaSTherCell’s five personMaSTherCell's five-person board. In addition, the holders of the B-Shares have a right to, along with the Company, appoint an independent director who will serve as the chairman of the board of MaSTherCell for a renewable three yearthree-year term. The agreement provides that, under certain specified circumstances, SFPI is entitled to transfer its equity interest in MaSTherCell to the Company at a price equal to the total investment amount, plus a specified annual premium ranging from 10% to 25%, depending on the year following the subscription in which the put is exercised.
Under the terms of the agreement since the Company listed to Nasdaq, SFPI is entitled to convert its MaSTherCell’ sMaSTherCell equity interest (using an exchange rate of approximately $0.85), into shares of Common Stock of the Company based upon a conversion price of $6.24, the exercise period of the option is 3 years from the closing date of the SFPI Agreement. The $6.24 conversion price represents the price after the previous stock split of the Company.
F-18
Furthermore, under the agreement, the Company had the right to spin-off the CDMO business into a Subsidiary provided that the Subsidiary adhered to the terms of the agreement. In June 2018, the Company effectuated such a spin-off and consolidated the CDMO business into Masthercell Global and Masthercell Global adhered to the terms of this agreement. Also, the Company possesses a drag along right under the Agreement whereby if the Company transfers all or the majority of its shares in MaSTherCell, it can force SFPI to do the same. (See also Note 3(b)).
On June 13, 2018, SFPI has paid into MaSTherCell the remaining amount of Euro 1.9 million (approximately $2.3 million) to complete its subscription obligations under the agreement.
Due to the embedded redemption feature whose settlement is not at the Company discretion, the Company accounted for the investment made by SFPI as a redeemable non-controlling interest. As of December 31, 2019 and November 30, 2018, and 2017the SFPI investment was presented as redeemable non-controlling interest in the balance sheet, in the amount of $5.8$6.0 million and $3.6,$5.8, respectively.
b.Stock Purchase Agreement and Stockholders’Stockholders' Agreement with Great Point Partners, LLC (“GPP”("GPP")
On June 28, 2018, the Company, Masthercell Global GPP, and certain of GPP’sGPP's affiliates, entered into a series of definitive strategic agreements intended to finance, strengthen and expand Orgenesis’Orgenesis' CDMO business. In connection therewith, the Company, Masthercell Global and GPP-II Masthercell, LLC, a Delaware limited liability company (“GPP-II”("GPP-II") and an affiliate of GPP entered into Stock Purchase Agreement (the “SPA”"SPA") pursuant to which GPP-II purchased 378,000 shares of newly designated Series A Preferred Stock of Masthercell Global (the “Masthercell"Masthercell Global Preferred Stock”Stock"), representing 37.8% of the issued and outstanding share capital of Masthercell Global, for a cash consideration to be paid into Masthercell Global of up to $25 million, of which $13.2 million was subject to certain contingencies described below (the “Consideration”"Consideration"). Orgenesis holds 622,000 shares of Masthercell Global’s Common Stock, representing 62.2% of the issued and outstanding equity share capital of Masthercell Global. An initial cash payment of $11.8 million of the Consideration was remitted at closing by GPP-II. $1.5 Million of the initial capital contributed to Masthercell Global was used to reimburse the investors for their fees and expenses incurred in conjunction with this transaction (net payment of $10.3 million). Under the terms of the SPA the follow up payments willwere to be in the amount of $6.6 million to be made in each of years 2018 and 2019 (the “Future Payments”"Future Payments"), if (a) Masthercell Global achievesachieved specified EBITDA and revenues targets during each of these years, and (b) the Orgenesis’Orgenesis' shareholders approveapproved certain provisions of the SPA entered into by these parties. Such shareholder approval was obtained on October 23, 2018. NoneMasthercell Global achieved the specified EBITDA and revenue targets in both 2018 and 2019, and the Company received an aggregate of the future Consideration amounts, if any, will result$13.2 million from GPP in an increase in GPP-II’s equity holdings in MaSTherCell.2019.
F-23
In connection with the entry into the SPA as described above, each of the Company, Masthercell Global and GPP-II entered into the Masthercell Global Inc. Stockholders’Stockholders' Agreement (the “Stockholders’ Agreement”"Stockholders' Agreement") providing for certain restrictions on the disposition of Masthercell Global securities, the provisions of certain options and rights with respect to the management and operations of Masthercell Global, certain rights to GPP-II (including, without limitation, a tag along right, drag along right and certain protective provisions). After the earlier of the second anniversary of the closing or certain enumerated circumstances, GPP-II is entitled to effectuate a spinoff of Masthercell Global and the Masthercell Global Subsidiaries (the “Spinoff”"Spinoff").
The Spinoff is required to reflect a market value, provided that under certain conditions, such market valuation shall reflect a valuation of Masthercell Global and its Subsidiaries of at least $50 million. In addition, upon certain enumerated events described below, GPP-II is entitled, at its option, to put to the Company (or, at Company’sCompany's discretion, to Masthercell Global if Masthercell Global shall then have the funds available to consummate the transaction) its shares in Masthercell Global or, alternatively, purchase from the Company its share capital in Masthercell Global at a purchase price equal to the fair market value provided that the purchase price shall not be greater than three times the price per share of Masthercell Global Preferred Stock paid by GPP-II and shall not be less than the price per share of Masthercell Global Preferred Stock paid by GPP-II. GPP-II may exercise its put or call option upon the occurrence of any of the following: (i) there is an Activist Shareholder of the Company; (ii) the Chief Executive Officer and/or Chairman of the board of directors of the Company resigns or is replaced, removed, or terminated for any reason prior to June 28, 2023; (iii) there is a change of control event of the Company as defined in the Stockholders’Stockholders' Agreement; or (iv) the industry expert director appointed to the board of directors of Masthercell Global is removed or replaced (or a new such director is appointed) without the prior written consent of GPP-II.
F-19
Activist Shareholder shall mean any Person who acquires shares of capital stock of the Company who either: (x) acquires more than a majority of the voting power of the Company, (y) actively takes over and controls a majority of the board of directors of the Company, or (z) is required to file a Schedule 13D with respect to such Person’sPerson's ownership of the Company and has described a plan, proposal or intent to take action with respect to exerting significant pressure on the management of or directors of, the Company.
The Stockholders’Stockholders' Agreement further provides that GPP-II is entitled, at any time, to convert its share capital in Masthercell Global for the Company’sCompany's common stock in an amount equal to the lesser of (a)(i) the fair market value of GPP-II’sGPP-II's shares of Masthercell Global Preferred Stock to be exchanged, divided by (ii) the average closing price per share of the Company’sCompany's Common Stock during the thirty day period ending on the date that GPP-II provides the exchange notice (the “Exchange Price”"Exchange Price") and (b)(i) the fair market value of GPP-II’sGPP-II's shares of Masthercell Global Preferred Stock to be exchanged assuming a value of Masthercell Global equal to three and a half (3.5) times the revenue of Masthercell Global during the last twelve (12) complete calendar months immediately prior to the exchange divided by (ii) the Exchange Price; provided, that in no event will (A) the Exchange Price be less than a price per share that would result in Orgenesis Inc. having an enterprise value of less than $250 million and (B) the maximum number of shares of the Company’sCompany's Common Stock to be issued shall not exceed 2,704,247 shares, unless the Company obtains shareholder approval for the issuance of such greater amount of shares of the Company in accordance with the rules and regulations of the Nasdaq Stock Market.
Great Point and Masthercell Global entered into an advisory services agreement pursuant to which Great Point is to provide management services to Masthercell Global for which Great Point will be compensated at an annual base compensation equal to the greater of (i) $250 thousand per each 12 month period or (ii) 5% of the EBITDA for such 12 month period, payable in arrears in quarterly installments; provided, that these payments will (A) begin to accrue immediately, but shall not be paid in cash to Great Point until such time as Masthercell Global generates EBITDA of at least $2 million for any 12 month period or the sale of or change in control of Masthercell Global, and (B) shall not exceed an aggregate annual amount of $0.5 million. Such compensation accrues but is not owed to Great Point until the earlier of (i) Masthercell Global generating EBITDA of at least $2 million for any 12-month period following the date of the agreement or (ii) a Sale of the Company or Change of Control of the Company (as both terms are defined therein).
F-24
GPP and Masthercell Global entered into a transaction services agreement pursuant to which GPP is to provide certain brokerage services to Masthercell Global for which GPP will be entitled to a certain exit fee and transaction fee (as both terms are defined in the agreement), such fees not to be less than 2 percent of the applicable transaction value.
Each of the agreements described above terminated upon the sale of Masthercell Global on February 10, 2020.
Due to the embedded redemption feature whose settlement is not at the Company discretion, the Company accounted for the investment made by GPP as a redeemable non-controlling interest. As of December 31, 2019, the GPP redeemable non-controlling interest in the amount of $18.4.was $25 Million.
On November 30, 2018 Masthercell Global achieved the specified EBITDA and revenues targets for 2018 as described in the SPA. The Company reflected the $6.6 million in the balance sheet as GPP receivable. On January 16, 2019, GPP-II remitted to Masthercell Global the $6.6 million.
NOTE 4-4 - CORPORATE REORGANIZATION AND EXERCISE OF CALL OPTIONS OF CURECELL AND ATVIO
Description of the TransactionTransactions
Contemporaneous with the execution of the SPA and the Stockholders’Stockholders' Agreement (see Note 3)Notes 3 and 13), the Company and Masthercell Global entered into a Contribution, Assignment and Assumption Agreement pursuant to which the Company contributed to Masthercell Global assets relating to the CDMO platform including: (i) all of the Company’sCompany's holdings in Masthercell Global SubsidiariesSubsidiaries; (ii) the debt in the total amount of $2.3 million owed to the Company by Atvio and CureCellCureCell; (iii) the license agreement between the Company and MaSTherCell dated December 30, 2016; (v) the Joint Venture Agreement with Atvio dated May 10, 2016 (as amended on May 30, 2016); (vi) the SFPI Agreement and (vii) the Joint Venture Agreement between Orgenesis and CureCell dated March 14, 2016 (the “Corporate Reorganization”"Corporate Reorganization"). See Note 12(b)13(b).
F-20
In furtherance thereof, Masthercell Global, as the Company assignee, acquired all of the issued and outstanding share capital of Atvio and 94.12% of the share capital of CureCell. The Company exercised the "call option" to which it was entitled under the joint venture agreements with each of these entities to purchase from the former shareholders their equity holding. The consideration for the outstanding share equity in each of Atvio and CureCell consisted solely of the Company Common Stock.
In respect of the acquisition of Atvio, the Company issued to the former Atvio shareholders an aggregate of 83,965 shares of Company’sCompany's Common Stock. In respect of the acquisition of CureCell, the Company issued the former CureCell shareholders an aggregate of 202,846 shares of the Company Common Stock. The exercise of the call options of CureCell and Atvio, pursuant to which the Company obtained effective control over such entities, was accounted for as a business combination. The results of operations of CureCell and Atvio have been included in the Company’sCompany's condensed consolidated statements of operations starting from June 28, 2018, the date on which the Company obtained effective control of CureCell and Atvio. Before the closing date Atvio and CureCell were associated companies, see Note 12.13. The net gain on remeasurement of the previously held equity interest in Atvio and CureCell to acquisition date fair value was $4.5 million.
CureCell
The following table summarizes the allocation of purchase price to the fair values of the assets acquired and liabilities assumed as of the transaction date:
F-25
Total assets acquired: | |||
Cash and cash equivalents | $ | 58 | |
Property, plants and equipment, net | 1,104 | ||
Inventory | 148 | ||
Other assets | 300 | ||
Other Intangible assets (a) | 3,933 | ||
Goodwill (b) | 3,950 | ||
Total assets | 9,493 | ||
Total liabilities assumed: | |||
Deferred income from the Company and others | 1,945 | ||
Deferred taxes | 80 | ||
Fair value of convertible loan from the Company | 892 | ||
Non-controlling interests* | 299 | ||
Other liabilities | 1,487 | ||
Total liabilities | 4,703 | ||
Total consideration transferred | $ | 4,790 | |
Fair value of 36.4% of shared issued * | 1,853 | ||
Acquisition date fair value of previously held equity interest | 2,937 | ||
Total consideration transferred | $ | 4,790 |
* Fair value of the consideration is based on the company’scompany's market share price.
a. The allocation of the purchase price to the net assets acquired and liabilities assumed resulted in the recognition of other intangible assets which comprised of: Customer Relationships of $859 and “Know How”"Know How" of $3,074. These other intangible assets have a useful life of 10 and 12 years, respectively. The useful life of the other intangible assets for amortization purposes was determined considering the period of expected cash flows generated by the assets used to measure the fair value of the intangible assets adjusted as appropriate for the entity-specific factors, including legal, regulatory, contractual, competitive, economic or other factors that may limit the useful life of intangible assets.
F-21
The fair value of the Know How was estimated using a relief of royalties’royalties' approach. Under this method, the fair value of the Know How is equal to the royalty fee that the owner of the Know How could profit from if he was to license the Know How out.
Customer Relationships were estimated using a discounted cash flow method with the application of the multi-period excess earnings method. Under this method, an intangible asset’sasset's fair value is equal to the present value of the incremental after-tax cash flows attributable only to the subject intangible asset after deducting contributory asset charges. An income and expenses forecast were built based upon revenue and expense estimates.
b. The primary items that generate goodwill include the value of the synergies between the acquired company and the Company and the acquired assembled workforce, neither of which qualifies for recognition as an intangible asset. The Goodwill is not deductible for tax purposes.
Atvio
The total consideration of Atvio of $890 thousand was attributed mainly to goodwill.
Pro forma Impact of Business Combination
The unaudited pro forma financial results have been prepared usingOn August 7, 2019, the acquisition method of accountingCompany, Masthercell Global and are based on the historical financial informationGPP-II Masthercell, LLC, a Delaware limited liability company ("GPP-II"), (the "Parties") entered into a Transfer Agreement (the "Transfer Agreement"). As a result of the Company, Atvio and CureCell. The unaudited pro forma condensed financial results have been prepared for illustrative purposes only and do not purport to be indicativeTransfer Agreement, Masthercell Global transferred all of the results of operations that would have resulted had the acquisitionits equity interests of Atvio and CureCell occurred at the beginning of the fiscal year, or of future results of the combined entities.to Orgenesis Inc in exchange for one dollar ($1.00). The unaudited pro forma condensed financial information does not reflect any operating efficiencies and expected realization of cost savings or synergies associatedTransfer Agreement also contains agreements made with the acquisition.
respect to certain intercompany loans. The acquired business contributed revenues of $1.1 millionCompany accounted for the period of June 28, 2018 to November 30, 2018. The following unaudited pro forma summary presents consolidation information of the CompanyTransfer Agreement as if the business combination had occurred on December 1, 2017:a transaction with non-controlling interest.
Year Ended November 30, | ||||||
2018 | 2017 | |||||
(in thousands) | ||||||
Revenue | $ | 18,794 | $ | 10,216 | ||
Net loss | $ | 20,919 | $ | 14,520 |
F-26
NOTE 5 - SEGMENT INFORMATION
The Chief Executive Officer ("CEO") is the Company’sCompany's chief operating decision-maker ("CODM"). Management has determined that there are two operating segments, based on the Company's organizational structure, its business activities and information reviewed by the CODM for the purposes of allocating resources and assessing performance.
CDMOPOC Platform
The CDMO platform is comprised of a specialization in cell therapy development and comprised of two types of services to its customers: (i) manufacturing and development services and (ii) cGMP contract manufacturing services. The CDMO platform operates through Masthercell Global, which currently consists of MaSTherCell in Belgium, Atvio in Israel and CureCell in South Korea, having unique know-how and expertise for manufacturing in a multitude of cell types. The CDMO activities include the operations of Masthercell Global, Atvio and CureCell from the date of the Corporate Reorganization.
PT Business
F-22
Through the PT business,POC platform, the Company is focused on (i) the development of proprietary cell and gene therapies, including theits autologous trans-differentiation technology, and(ii) therapeutic collaborations and licensing with other pre-clinical and clinical-stage biopharmaceutical companies and research and healthcare institutes.institutes and (iii) regulatory services, pre-clinical studies, intellectual property services, and co-development services ("POC development services"). Currently, the Company's POC development services constitute the entirety of the Company's revenue in the POC platform.
CDMO Platform
The CODMCDMO platform was comprised of a specialization in cell manufacturing and development and includes two types of services to its customers: (i) manufacturing and development services and (ii) current good manufacturing practice ("cGMP") contract manufacturing services. The CDMO platform operated (i) through Masthercell Global, which currently consists of MaSTherCell in Belgium and Masthercell U.S. in the United States, and (ii) through subsidiaries Atvio in Israel and CureCell in South Korea, each having unique know-how and expertise for manufacturing in a multitude of cell types. See Note 23 (d) regarding the Masthercell sale.
The Company does not review assets by segment, therefore the measure of assets has not been disclosed for each segment.
Segment data for the year ended December 31, 2019 is as follows:
CDMO | POC Business | Corporate and Eliminations | Consolidated | |||||||||
(in thousands) | ||||||||||||
Revenues from external customers | $ | 33,312 | $ | 3,109 | $ | (3,165 | ) | $ | 33,256 | |||
Cost of revenues | (19,213 | ) | - | 2,076 | (17,137 | ) | ||||||
Cost of research and development and research and development services, net | (470 | ) | (9,145 | ) | 1,123 | (8,492 | ) | |||||
Operating expenses | (15,063 | ) | (7,858 | ) | (34 | ) | (22,955 | ) | ||||
Other income | 228 | - | - | 228 | ||||||||
Segment operating profit (loss) | $ | (1,206 | ) | $ | (13,894 | ) | $ | - | $ | (15,100 | ) | |
Adjustments to presentation of segment Adjusted EBIT | ||||||||||||
Depreciation and amortization | (3,783 | ) | (23 | ) | (3,806 | ) | ||||||
Segment performance | $ | (4,989 | ) | $ | (13,917 | ) | $ | (18,906 | ) |
F-27
Reconciliation of segment performance to loss for the year:
Year ended December 31, 2019 | |||
in thousands | |||
Segment subtotal performance | $ | (18,906 | ) |
Stock-based compensation | (3,057 | ) | |
Stock-based compensation to First Choice | (2,641 | ) | |
Financial expenses, net | (874 | ) | |
Loss before income tax | $ | (25,478 | ) |
Segment data for the year ended November 30, 2018 is as follows:
Corporate | ||||||||||||||||||||||||
PT | and | |||||||||||||||||||||||
CDMO | Business | Eliminations | Consolidated | CDMO | POC Business | Corporate and Eliminations | Consolidated | |||||||||||||||||
(in thousands) | (in thousands) | |||||||||||||||||||||||
Revenues from external customers | $ | 22,582 | $ | - | $ | (3,927 | ) | $ | 18,655 | $ | 22,582 | $ | - | $ | (3,927 | ) | $ | 18,655 | ||||||
Cost of revenues | (11,541 | ) | 1,235 | (10,306 | ) | (11,541 | ) | 1,235 | (10,306 | ) | ||||||||||||||
Segment gross profit (loss) | 11,041 | - | (2,692 | 8,349 | 11,041 | - | (2,692 | ) | 8,349 | |||||||||||||||
Research and development expenses, net | (39 | ) | (7,931 | ) | 2,485 | (5,485 | ) | (39 | ) | (7 ,931 | ) | 2,485 | (5,485 | ) | ||||||||||
Operating expenses | (6,889 | ) | (6,224 | ) | 207 | (12,906 | ) | (6,889 | ) | (6,224 | ) | 207 | (12,906 | ) | ||||||||||
Other expenses | (77 | ) | - | (77 | ) | (77 | ) | - | (77 | ) | ||||||||||||||
Segment operating profit (loss) | 4,036 | (14,155 | ) | - | (10,119 | ) | $ | 4,036 | $ | (14,155 | ) | $ | - | $ | (10,119 | ) | ||||||||
Adjustments to presentation of segment Adjusted EBIT | Adjustments to presentation of segment Adjusted EBIT | |||||||||||||||||||||||
Depreciation and amortization | (2,613 | ) | (11 | ) | (2,624 | ) | (2,613 | ) | (11 | ) | (2,624 | ) | ||||||||||||
Segment performance | 1,423 | (14,166 | ) | (12,743 | ) | $ | 1,423 | $ | (14,166 | ) | $ | (12,743 | ) |
Reconciliation of segment performance to loss for the year:
Year ended November 30, 2018 | |||
in thousands | |||
Segment subtotal performance | $ | (12,743 | ) |
Stock-based compensation | (4,364 | ) | |
Financial expenses, net | (2,938 | ) | |
Net gain on remeasurement of previously equity interest in Atvio and CureCell to acquisition date fair value | 4,509 | ||
Transaction expenses related to GPP agreement | (1,500 | ) | |
Share in losses of associated companies | (731 | ) | |
Loss before income tax | $ | (17,767 | ) |
F-28
Segment data for the yearone-month transition period ended November 30, 2017December 31, 2018 is as follows:
Corporate | ||||||||||||||||||||||||
CT | and | |||||||||||||||||||||||
CDMO | Business | Eliminations | Consolidated | CDMO | POC Business | Corporate and Eliminations | Consolidated | |||||||||||||||||
(in thousands) | (in thousands) | |||||||||||||||||||||||
Revenues from external customers | $ | 11,484 | $ | - | $ | (1,395 | ) | $ | 10,089 | $ | 2,377 | $ | - | $ | (525 | ) | $ | 1,852 | ||||||
Cost of revenues | (6,356 | ) | 638 | (5,718 | ) | (1,314 | ) | - | 167 | (1,147 | ) | |||||||||||||
Gross profit | 5,128 | - | (757 | ) | 4,371 | |||||||||||||||||||
Segment gross profit (loss) | 1,063 | - | (358 | ) | 705 | |||||||||||||||||||
Research and development expenses, net | (2,517 | ) | 757 | (1,760 | ) | (78 | ) | (1,573 | ) | 301 | (1,350 | ) | ||||||||||||
Operating expenses | (4,699 | ) | (3,335 | ) | (8,034 | ) | (776 | ) | (600 | ) | 57 | (1,319 | ) | |||||||||||
Operating profit | 429 | (5,852 | ) | - | (5,423 | ) | ||||||||||||||||||
Other income | - | - | - | |||||||||||||||||||||
Segment operating profit (loss) | $ | 209 | $ | (2,173 | ) | $ | - | $ | (1,964 | ) | ||||||||||||||
Adjustments to presentation of segment Adjusted EBIT: | ||||||||||||||||||||||||
Depreciation and amortization | (264 | ) | (1 | ) | (265 | ) | ||||||||||||||||||
Segment performance | $ | (55 | ) | $ | (2,174 | ) | $ | (2,229 | ) |
Adjustments to presentation of segment Adjusted EBIT
F-23
Depreciation and amortization | (2,720 | ) | (6 | ) | ||
Segment performance | (2,291 | ) | (5,858 | ) |
Reconciliation of segment performance to loss for the transition period, one-month ended December 31, 2018: | |||
Transition Period, one- month ended December 31, 2018 (in Thousands) | |||
Segment performance | $ | (2,229 | ) |
Stock-based compensation | (734 | ) | |
Financial expenses, net | (27 | ) | |
Loss before income tax | $ | (2,990 | ) |
Geographic, Product and Customer Information
Substantially allMost of the Company's revenues and long-lived assets are located in Belgium through its subsidiary, MaSTherCell. Net revenues from single customers from the CDMO segment that exceed 10% of total net revenues are:
Year Ended | Year Ended | Year ended | One month ended | ||||||||||||
November 30, | November 30, | December 31, | November 30, | December 31, | |||||||||||
2018 | 2017 | 2019 | 2018 | 2018 | |||||||||||
(in thousands) | (in thousands) | ||||||||||||||
Customer A | $ | 2,338 | $ | 4,115 | $ | - | $ | 2,338 | $ | - | |||||
Customer B | $ | 4,374 | $ | 2,837 | $ | 8,789 | $ | 5,236 | $ | 593 | |||||
Customer C | $ | - | $ | 2,055 | $ | 3,218 | $ | 3,002 | $ | 267 | |||||
Customer D | $ | 5,236 | $ | - | $ | 3,824 | $ | 2,242 | $ | 266 | |||||
Customer E | $ | 2,242 | $ | - | $ | 3,458 | $ | - | $ | 266 | |||||
Customer F | $ | 3,755 | $ | 1,372 | $ | - |
The CDMO business has substantially diversified revenues by source signing contracts with biotech companies in their respective cell-based therapy field.
F-29
Property, plants and equipment, net and right-of-use assets by geographical location were as follows:
December 31, | ||||||
2019 | 2018 | |||||
(in thousands) | ||||||
United States | $ | 16,708 | $ | - | ||
Belgium | $ | 14,303 | $ | 10,313 | ||
Korea | $ | 1,127 | $ | 1,062 | ||
Israel | $ | 1,901 | $ | 1,083 | ||
Total | $ | 34,039 | $ | 12,458 |
NOTE 6 –- PROPERTY, PLANTS AND EQUIPMENT
The following table represents the components of property, plants and equipment:
November 30, | December 31, | |||||||||||
2018 | 2017 | 2019 | 2018 | |||||||||
(in thousands) | (in thousands) | |||||||||||
Cost: | ||||||||||||
Production facility | $ | 11,413 | $ | 6,246 | $ | 23,111 | $ | 12,150 | ||||
Office furniture and computers | 1,875 | 353 | 2,296 | 1,211 | ||||||||
Lab equipment | 3,292 | 2,039 | 5,661 | 3,909 | ||||||||
16,580 | 8,638 | |||||||||||
Less – accumulated depreciation | (4,679 | ) | (3,534 | ) | ||||||||
Subtotal | 31,068 | 17,270 | ||||||||||
Less - accumulated depreciation | (6,614 | ) | (4,812 | ) | ||||||||
Total | $ | 11,901 | $ | 5,104 | $ | 24,454 | $ | 12,458 |
Depreciation expense for the years ended December 31, 2019 and November 30, 2018 and 2017 was $711were $ 1,745 thousand and $1,096 thousand, respectively. Depreciation expense for the one month ended December 31, 2018 was $86 thousand.
NOTE 7 –- INTANGIBLE ASSETS AND GOODWILL
F-24
Changes in the carrying amount of the Company’sCompany's goodwill in our CDMO platform for the years ended November 30,December 31, 2019 and 2018 and 2017 are as follows:
(in thousands) | |||
Goodwill as of November 30, 2017 | $ | 10,684 | |
Goodwill acquired | 4,918 | ||
Translation differences | (437 | ) | |
Goodwill as of November 30, 2018 | 15,165 | ||
Translation differences | 101 | ||
Goodwill as of December 31, 2018 | $ | 15,266 | |
Translation differences | (325 | ) | |
Goodwill as of December 31, 2019 | $ | 14,941 |
Goodwill Impairment
The Company reviews goodwill for impairment annually and whenever events or changes in circumstances indicate the carrying amount of goodwill may not be recoverable. The Company performed a quantitative two-stepor qualitative assessment for goodwill impairment for each reporting unit.
Reporting Unit of MaSTherCell’MaSTherCell' s Goodwill
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The Company performed a qualitative assessment based on actual results and future growth as well as Masthercell's position in the market. As a result of this assessment the Company concluded that no impairment charge was required.
Reporting Unit of Atvio's and CureCell's Goodwill
As part of the first step of the two-step impairment test, the Company compared the fair value of the reporting unit to herits carrying value and determined that the carrying amount of the unit do not exceed herits fair value. The Company estimated the fair value of the unit by using an income approach based on discounted cash flows. The assumptions used to estimate the fair value of the Company’sCompany's reporting unit were based on expected future cash flows and an estimated terminal value using a terminal year growth rate based on the growth prospects for each reporting unit. The Company used an applicable discount rate which reflected the associated specific risks for the reporting unit future cash flows.
CureCell's Goodwill
Key assumptions used to determine the estimated fair value of CureCell include: (a) expected cash flow for the five-yearfour-year period following the testing date (including market share, sales volumes and prices, costs to produce and estimated capital needs); (b) an estimated terminal value using a terminal year growth rate of 2%3% determined based on the growth prospects; and (c) a discount rate of 15%18.9%. Based on the Company’sCompany's assessment, as of November 30, 2018, December 31, 2018 and 2017, respectively,December 31, 2019, the carrying amount of its reporting unit does not exceed its fair value.value and therefore no impairment charge was required.
A decrease in the terminal year growth rate of 1% or an increase of 1% to the discount rate would reduce the fair value of the reporting unit by approximately $1,126$336 thousand and $1,961$607 thousand, respectively. These changes would not result in an impairment.impairment of approximately $187 thousand and $458 thousand, respectively. A decrease in the terminal year growth rate and an increase in the discount rate of 1% would reduce the fair value of the reporting unit by approximately $2,899$894 thousand. These changes would not result in an impairment.
Reporting Unit of Atvio’s Goodwill and Reporting Unit of CureCell’sAtvio's Goodwill
As ofKey assumptions used to determine the year ended November 30, 2018 the Company elected to preform qualitative assessment. Due to theestimated fair value measurement that was performedof Atvio include: (a) expected cash flow for the four-year period following the testing date (including market share, sales volumes and prices, costs to produce and estimated capital needs); (b) an estimated terminal value using a terminal year growth rate of 3% determined based on June 28, 2018 as partthe growth prospects; and (c) a discount rate of the business combination.17.8%. Based on the Company’sCompany's assessment, as of November 30, 2018, December 31, 2018 and December 31, 2019, the carrying amount of its reporting unit does not exceedsexceed its fair value.value and therefore no impairment charge was required.
A decrease in the terminal year growth rate of 1% or an increase of 1% to the discount rate would reduce the fair value of the reporting unit by approximately $149 thousand and $245 thousand, respectively. These changes would result an impairment of approximately $85 thousand and $181 thousand, respectively. A decrease in the terminal year growth rate and an increase in the discount rate of 1% would reduce the fair value of the reporting unit by approximately $371 thousand.
Other Intangible Assets
Other intangible assets consisted of the following:
November 30, | November 30, | December 31, | December 31, | |||||||||
2018 | 2017 | 2019 | 2018 | |||||||||
(In thousands) | (In thousands) | |||||||||||
Gross Carrying Amount: | ||||||||||||
Know How | $ | 20,344 | $ | 17,998 | $ | 20,068 | $ | 20,498 | ||||
Backlog | 117 | - | - | 372 | ||||||||
Customer relationships | 1,245 | 1,280 | ||||||||||
Brand name | 1,344 | 1,370 | ||||||||||
22,657 | 23,520 | |||||||||||
Accumulated amortization | (8,451 | ) | (6,878 | ) | ||||||||
Net carrying amount of other intangible assets | $ | 14,206 | $ | 16,642 |
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Customer relationships | 1,274 | 369 | ||||
Brand name | 1,359 | 1,418 | ||||
23,094 | 19,785 | |||||
Accumulated amortization | 6,394 | 4,734 | ||||
Net carrying amount of other intangible assets | $ | 16,700 | $ | 15,051 |
Intangible assetassets amortization expenses were approximately $1.9$2.1 million and $1.8 and$1.9 million for the years ended December 31, 2019 and November 30, 2018, and 2017, respectively. Amortization expense for the one month ended December 31, 2018 was $179 thousand.
Estimated aggregate amortization expenses for the five succeeding years ending November 30on December 31thst are as follows:
2019 | 2020 to 2023 | |||||
(in thousands) | ||||||
Amortization expenses | $ | 2,086 | $ | 7,929 |
2020 | 2021 to 2024 | |||||
(in thousands) | ||||||
Amortization expenses | $ | 1,993 | $ | 7,741 |
NOTE 8–8- CONVERTIBLE LOANS
a. Long term convertible loans outstanding as of December 31, 2019 and December 31, 2018 are as follows:
Principal Amount | Issuance Year | Interest Rate | Maturity Period | Exercise Price | BCF | |||||||||||
(in thousands) | (Years) | |||||||||||||||
Convertible Loans Outstanding as of December 31, 2019 | ||||||||||||||||
$ 1,500 | 2018 | 2% | 3 | 7.00 (1 | ) | 124 | ||||||||||
11,400 | 2019 | 6%-8% | 2-5 | 7.00 (2 | ) | - | ||||||||||
$ 12,900 | ||||||||||||||||
Convertible Loans Outstanding as of December 31, 2018 | ||||||||||||||||
$ 1,500 | 2018 | 2% | 3 | 7.00 (1 | ) | 124 |
Convertible Loans converted during the year ended November 30, 2018
Shares and Warrants Issued Upon Conversion | |||||||||||||||
Principal Amount | Issuance Year | Interest Rate | Maturity Period | Exercise Price | BCF | Accumulated Interest Up to Conversion Date | Shares | Warrants (6) | |||||||
(in thousands) | |||||||||||||||
220 | 2018 | 6% | 2 | $ 6.24 | $ 87 | $ | 2 | 35,543 | 35,543 | ||||||
500 (3) | 2018 | 6% | 0.5 | 6.24 | 106 | 4 | 80,756 | 80,756 | |||||||
5,050 | 2017 | 6% | 2 | 6.24 | 2,311 | 235 | 846,961 | 846,961 | |||||||
798 (4) | 2017 | 6% | 0.5-1.7 | 6.24 | 81 | 40 | 134,372 | 34,269 | |||||||
1,388 | 2016 | 6% | 2 | 6.24 | 251 | 132 | 243,443 | 243,443 | |||||||
100 | 2014 | 6%/24% (5) | 0.5 | 4.80 | 85 | 81 | 37,662 | - | |||||||
8,056 | 494 | 1,378,737 | 1,240,972 |
There were no repayments of convertible loans during the fiscal years ended November 30, 2018 and 2017 are as follows:December 31, 2019 and month ended December 31, 2018. In addition, there were no conversions during the fiscal year ended December 31, 2019 and the month one ended December 31, 2018.
Shares and Warrants | ||||||||||||||||||||||||
Issued Upon Conversion | ||||||||||||||||||||||||
Accumulated | Shares | Warrant | ||||||||||||||||||||||
Interest Up to | s | |||||||||||||||||||||||
Principal | Issuance | Interest | Maturity | Exercise | Conversion | (5) | ||||||||||||||||||
Amount | Year | Rate | Period | Price | BCF | Date | ||||||||||||||||||
(in | (in thousands) | |||||||||||||||||||||||
thousands) | (Years) | |||||||||||||||||||||||
Convertible Loans Outstanding as of November 30, 2018 | ||||||||||||||||||||||||
$ 1,250 | 2018 | 2% | 3 | $ | 7 | (1) | 114 | $ | - | - | - |
Convertible Loans converted during the year ended November 30, 2018 | ||||||||||||||||||||||||
220 | 2018 | 6% | 2 | $ | 6.24 | 87 | $ | 2 | 35,543 | 35,543 | ||||||||||||||
500 (2) | 2018 | 6% | 0.5 | $ | 6.24 | 106 | 4 | 80,756 | 80,756 | |||||||||||||||
5,050 | 2017 | 6% | 2 | $ | 6.24 | 2,311 | 235 | 846,961 | 846,961 | |||||||||||||||
798 (3) | 2017 | 6% | 0.5-1.7 | $ | 6.24 | 81 | 40 | 134,372 | 34,269 | |||||||||||||||
1,388 | 2016 | 6% | 2 | $ | 6.24 | 251 | 132 | 243,443 | 243,443 | |||||||||||||||
100 | 2014 | 6%/24% | (4) | 0.5 | $ | 4.8 | 85 | 81 | 37,662 | - | ||||||||||||||
8,056 | $ | 494 | 1,378,737 | 1,240,972 | ||||||||||||||||||||
Convertible Loans repaid during the year ended November 30, 2017 | ||||||||||||||||||||||||
$ 400 (6) | 2017 | 6% | 0.25 | $ | 6.24 | - | - | - |
(1) The holders, at their option, may convert the outstanding principal amount and accrued interest under this note into a total of 178,570219,018 shares and 178,570219,018 three-year warrants to purchase up to an additional 178,570219,018 shares of the Company’sCompany's common stock at a per share exercise price of $7. In the initial two years, the holders have the right to convert the outstanding principal amount and accrued interest into shares of capital stock of Hemogenyx-Cell or Immugenyx, LLC according under the relevant note agreement, subsidiaries of Hemogenyx Pharmaceuticals Plc, at a price per share based on a pre-money valuation of Hemogenyx-Cell or Immugenyx, LLC of $12 million and $8 million, respectively, pursuant to the collaboration agreement with Hemogenyx Pharmaceuticals Plc and Immugenyx, LLC. As of November 30, 2018,December 31, 2019, the loans are presented in long term convertible notes in the balance sheet. See Note 11(f)12(f) and 11(g)12(g).
F-26F-32
(2) The holders, at their option, may convert the outstanding principal amount and accrued interest under this note into a total of 1,673,913 shares and 1,110,736 three-year warrants to purchase up to an additional 1,110,736 shares of the Company's common stock at a per share exercise price of $7. See also Notes 14a(2), 14a(3), 14a(5), 14a(6) and 14a(7).
(3) On the issuance date of the note the Company issued to certain investors 40,064 three-year warrants to purchase up to an additional one share of the Company’sCompany's common stock at a per share exercise price of $6.24.
(3)(4) On the issuance date of the note the Company issued to certain investors 145,509 three-year warrants to purchase up to an additional one share of the Company’sCompany's common stock at a per share exercise price of $6.24.
(4)(5) The Company failed to reimburse the loan by the maturity date, therefore the interest expenses increase to loan had a default interest of 24% under the terms of the agreement.
(5)(6) The warrant, exercisable for a period of three years from the date of conversion, for an additional share of Common Stock, at a per share exercise price of $6.24.
(6) The principal amount and accrued interest were repaid by the Company on March 7, 2017. The fair value of the shares as of March 7, 2017, was $494 thousand and was recorded as financial expenses.
b. On February 27, 2017, the Company and Admiral Ventures Inc. (“Admiral”("Admiral") entered into an agreement resolving the payment of convertible loan received in prior years and owed to Admiral. Under the terms of the settlement agreement, Admiral extended the maturity date to June 30, 2018. The Company agreed to pay to Admiral, on or before March 1, 2017, between $0.3 million and $1.5 million. Further, beginning April 2017, the Company agreed to make a monthly payment of $125 thousand on account of remaining unpaid balance, and also agreed to remit additional payments under the term of the agreement. The Company accounted for the above changes as a modification of the old debt.
During the year ended November 30, 2017, the Company repaid $1,875 thousand on account of the principal amount and accrued interest. In January 2018, the Company repaid the remaining of accrued interest in total amount of $179 thousand. In 2018 and 2017 the Company was in arrears in its payment obligations under such agreement therefore, the Company issued to Admiral 120,193 units as forbearance fees according to the terms of the agreement. Each unit consisting of one share of the Company’sCompany's common Stock and one three-year warrant exercisable into an additional share of common stock at a per share exercise price of $6.24. The fair value of the units was recorded as financial expenses during the year ended November 30, 2018 and 2017 in the total amount of $179 and 983thousand, respectively, out of which $434 thousand reflect the fair value of the warrants using the Black-Scholes valuation model.
c. On November 2, 2016, the Company entered into unsecured convertible note agreements with accredited or offshore investors for an aggregate amount of NIS 1 million ($280 thousand). The loan bears a monthly interest rate of 2% and mature on May 1, 2017, unless converted earlier. On April 27, 2017 and November 2, 2017, the Company entered into extension agreements through November 2, 2017 and May 2, 2018, respectivelyrespectively.
F-27F-33
In March 2018, the investor submitted a notice of its intention to convert into shares of the Company's common stock the principal amount and accrued interest of approximately $383 thousand outstanding. A related party of such investor at the same time, exercised warrants issued in November 2016 to purchase shares of the Company's Common Stock. The exercise price of the warrants and conversion price were fixed at $0.52 per share (pre-reverse stock split implemented by the Company in November 2017). There is a significant disagreement between the Company and these two entities as to the number of shares of Common Stock issuable to these entities, and they contend that the number of shares of Common Stock issuable to them should not consider the reverse stock split. The Company rejects these contentions in their entirety and, based on the advice of specially retained counsel, believes that these claims are without legal merit and not made in good faith. The Company intends to vigorously defend its interests and pursue other avenues of legal address. Through its counsel, the Company has advised these entities that unless they withdraw their request within a specified period, the Company will cancel the above referenced agreements and these parties’parties' right to receive any shares of the Company’sCompany's Common Stock. In April 2018, the Company withdrew the agreements and deposited the shares in total amount of 107,985 issued under those agreements and the principal amount and accrued interest of the loan in escrow account. The deposit of the principal amount and accrued interest presented as restricted cash in the balance sheet as of November 30, 2018.
d. In January 2017, MaSTherCell repaid all but one of its bondholders (originally issued on September 14, 2014), and the aggregate payment amounted to $1.7 million (€1.5 million). On January 17, 2017, the remaining bondholder agreed to extend the duration of his Convertible bond until March 21, 2017. In consideration for the extension, the Company issued to the bondholder warrants to purchase 8,569 shares of the Company’s Common Stock, exercisable over a three-year period at a per share exercise price of $6.24. The fair value of those warrants as of the date of grant was $20 thousand using the Black-Scholes valuation model.
On March 20, 2017, the remaining bondholder converted his convertible bonds into 40,682 shares of the Company’s Common Stock (See also note 13(c)).December 31, 2019.
NOTE 9 –- LOANS
a.Terms of Long-term Loans
Principal | Year of | November 30, | Principal | Year of | December 31, | ||||||||||||||||||||||||
Amount | Grant Year | Interest Rate | Maturity | 2018 | 2017 | Amount | Grant Year | Interest Rate | Maturity | 2019 | 2018 | ||||||||||||||||||
(in thousands) | (in thousands) | (in thousands) | (in thousands) | ||||||||||||||||||||||||||
Long-term loan (*) | € | 1,400 | 2012 | 4.05% | 2022 | $ | 700 | $ | 899 | € | 1,400 | 2012 | 4.05% | 2022 | $ | 512 | $ | 692 | |||||||||||
Long-term loan | € | 1,000 | 2013 | 6%-7.5% | 2023 | 869 | 977 | 1,000 | 2013 | 6%-7.5% | 2023 | 776 | 858 | ||||||||||||||||
Long-term loan | € | 790 | 2012-2016 | 5.5%-6% | 2021-2024 | 461 | 620 | 790 | 2012-2015 | 5.5%-6% | 2021-2024 | 314 | 454 | ||||||||||||||||
$ | 2,030 | $ | 2,496 | $ | 1,602 | $ | 2,004 | ||||||||||||||||||||||
Current portion of loans payable | Current portion of loans payable | (368 | ) | (378 | ) | Current portion of loans payable | (372 | ) | (371 | ) | |||||||||||||||||||
$ | 1,662 | $ | 2,118 | $ | 1,230 | $ | 1,633 |
(*) The loan has a business pledge on the Company’sCompany's assets at the same value.
b.Terms of Short-term Loans and Current Portion of Long-Term Loans
November 30, | December 31, | |||||||||||||||||||
Currency | Interest Rate | 2018 | 2017 | Currency | Interest Rate | 2019 | 2018 | |||||||||||||
(in thousands) | (in thousands) | |||||||||||||||||||
Current portion of loans payable | Euro | 4.05% | $ | 168 | $ | 169 | Euro | 4.05% | $ | 174 | $ | 168 | ||||||||
Current portion of loans payable | Euro | 6%-7.5% | 67 | 70 | Euro | 6%-7.5% | 66 | 70 | ||||||||||||
Current portion of loans payable | Euro | 5.5%-6% | 133 | 139 | Euro | 5.5%-6% | 132 | 133 | ||||||||||||
Short term loans | KRW | 3.02%, 4.15% | 279 | - | KRW | 3.61% | 260 | 270 | ||||||||||||
Short term loans | KRW | 6.00% | 131 | - | ||||||||||||||||
$ | 647 | $ | 378 | $ | 763 | $ | 641 |
NOTE 10 - LEASES
As of January 1, 2019, the Company adopted ASU No. 2016-02, "Leases (Topic 842)," which requires leases with durations greater than twelve months to be recognized on the balance sheet. The Company adopted the standard using the modified retrospective approach with an effective date as of the beginning of our fiscal year, January 1, 2019. The total impact of the adoption of this standard at January 1, 2019 is an increase of assets and liabilities in the amount of 2,909 thousand. The weighted average discount rate used in the adoption date was 5.6%. Prior year financial statements were not recast under the new standard and, therefore, those amounts are not presented below. The Company elected the package of transition provisions available for expired or existing contracts, which allowed us to carryforward our historical assessments of (1) whether contracts are or contain leases, (2) lease classification and (3) initial direct costs.
The Company leases research and development facilities, equipment, offices and cars under finance and operating leases. For leases with terms greater than 12 months, the Company record the related asset and obligation at the present value of lease payments over the term. Many of the leases include rental escalation clauses, renewal options and/or termination options that are factored into the determination of lease payments when appropriate.
The Company's leases do not provide a readily determinable implicit rate. Therefore, the Company estimated the incremental borrowing rate to discount the lease payments based on information available at lease commencement.
Manufacturing facilities
The Company leases space for its CDMO facilities in Belgium, Israel and the United States under operating lease agreements. The leasing contracts are for a period of 1 - 16 years .
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Research and Development facilities
The Company leases space for its research and development facilities in South Korea under an operating lease agreement. The leasing contracts are for a period of 2 years .
Equipment
The Company leases laboratory equipment in Belgium under several finance lease agreements. The equipment is the basic material for our new production center (such as incubator, laminar flow and bio-reactor). Each leasing contract is valid for a term of 5 years .
Offices
The Company leases space for offices in Belgium and Israel under operating leases. The leasing contracts are valid for terms of 1 - 5 years These contracts are considered as operational leasing and under operating lease right-of-use assets.
Cars
The Company leases cars. Each leasing contract is valid for a term of 2 - 4 years . These contracts are considered as operational leasing and operating lease right-of-use assets.
Lease Position
The table below presents the lease-related assets and liabilities recorded on the balance sheet.
December 31, 2019 | |||
Assets | |||
Operating Leases | |||
Operating lease right-of-use assets | $ | 9,585 | |
Finance Leases | |||
Property, plants and equipment, gross | 1,348 | ||
Accumulated depreciation | (247 | ) | |
Property, plants and equipment, net | $ | 1,101 | |
Liabilities | |||
Current liabilities | |||
Current maturities of operating leases | $ | 1,722 | |
Current maturities of long-term finance leases | $ | 291 | |
Long-term liabilities | |||
Non-current operating leases | $ | 7,524 | |
Long-term finance leases | $ | 688 | |
Weighted Average Remaining Lease Term | |||
Operating leases | 10 years | ||
Finance leases | 3.5 years | ||
Weighted Average Discount Rate | |||
Operating leases | 5.6% | ||
Finance leases | 6.0% |
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Lease Costs
The table below presents certain information related to lease costs and finance and operating leases during the year ended December 31, 2019.
Year ended December 31, 2019 | |||
Operating lease cost: | $ | 1,994 | |
Finance lease cost: | |||
Amortization of leased assets | $ | 214 | |
Interest on lease liabilities | $ | 20 | |
Total finance lease cost | $ | 234 |
The table below presents supplemental cash flow information related to leases during the year ended December 31, 2019:
Year ended December 30, 2019 | |||
(in Thousands) | |||
Cash paid for amounts included in the measurement of leases liabilities: | |||
Operating leases | $ | 2,320 | |
Finance leases | $ | 267 | |
Right-of-use assets obtained in exchange for lease obligations: | |||
Operating leases, net | $ | 8,229 | |
Finance leases | $ | 355 |
Undiscounted Cash Flows
The table below reconciles the undiscounted cash flows for each of the first five years and total of the remaining years to the finance lease liabilities and operating lease liabilities recorded on the balance sheet.
Operating Leases | Finance Leases | |||||
Year ended December 31, | ||||||
2020 | $ | 1,532 | $ | 314 | ||
2021 | 1,145 | 252 | ||||
2022 | 1,032 | 233 | ||||
2023 | 925 | 174 | ||||
2024 | 773 | 56 | ||||
Thereafter | 8,310 | - | ||||
Total minimum lease payments | 13,717 | 1,029 | ||||
Less: amount of lease payments representing interest | (4,471 | ) | (50 | ) | ||
Present value of future minimum lease payments | 9,246 | 979 | ||||
Less: Current leases obligations | (1,722 | ) | (291 | ) | ||
Long-term leases obligations | $ | 7,524 | $ | 688 |
Future minimum lease payments as of November 30, 2018
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Future minimum lease commitments under non-cancelable operating lease agreements are as follows:
2019 | $ | 783 | |
2020 | 626 | ||
2021 and thereafter | 3,504 | ||
Total | $ | 4,913 |
Future minimum lease payments as of December 31, 2018
No material change in the month ended December 31, 2018.
Lease facilities in the United States
During January 2019, Masthercell U.S. executed a lease agreement for production facilities in the United States. Under the terms of the agreement, Masthercell U.S. leased approximately 32,011 square feet for 180 months. Masthercell U.S. advanced $1.6 million on account of a security deposit, tenant improvement allowance and prepaid base rent.
Lease facilities in Belgium
In March 2019, Masthercell announced plans to establish a new, state-of-the-art production site in the Gosselies Biopark in Belgium, designed to manufacture late-stage and commercially approved cell and gene therapy products. In connection with this announcement, the Company signed a lease agreement for a 61,354 square foot building.
NOTE 11 - COMMITMENTS
See note 12 for additional commitments for funding of the ventures of the company.
a.Maryland Technology Development Corporation
On June 30, 2014, the Company’sCompany's U.S. Subsidiary entered into a grant agreement with Maryland Technology Development Corporation (“TEDCO”("TEDCO"). TEDCO was created by the Maryland State Legislature in 1998 to facilitate the transfer and commercialization of technology from Maryland’sMaryland's research universities and federal labs into the marketplace and to assist in the creation and growth of technology-based businesses in all regions of the State. Under the agreement, TEDCO paid to the U.S Subsidiary an amount of $406 thousand (the “Grant”"Grant"). On June 21, 2016 TEDCO has approved an extension until June 30, 2017. Through November 30, 2018, the Company utilized $356 thousand from the grant and recorded it as a deduction of research and development expenses in the statement of comprehensive loss.
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b..Department De La Gestion Financiere Direction De L’analyseL'analyse Financiere (“DGO6”("DGO6")
(1) On March 20, 2012, MaSTherCell was awarded an investment grant from the DGO6 of Euro 1.2 million. This grant is related to the investment in the production facility with a coverage of 32% of the investment planned. As of November 30,In 2018, the DGO6 transferredthetransferred the entire amount to MaSTherCell .MaSTherCell.
(2) On November 17, 2014, the Belgian Subsidiary, received the formal approval from the DGO6 for a Euro 2 million ($2.4 million) support program for the research and development of a potential cure for Type 1 Diabetes. The financial support was composed of Euro 1,085 thousand (70% of budgeted costs) grant for the industrial research part of the research program and a further recoverable advance of Euro 930 thousand (60% of budgeted costs) of the experimental development part of the research program. In December 2014, the Belgian Subsidiary received advance payment of Euro 1,209 thousand under the grant. The grants are subject to certain conditions with respect to the Belgian Subsidiary’sSubsidiary's work in the Walloon Region. In addition, the DGO6 is also entitled to a royalty upon revenue being generated from any commercial application oftheofthe technology. In 2017 the Company received by the DGO6 final approval for Euro 1.8 million costs invested in the project out of which Euro 1.2 million founded by the DGO6. As of November 30, 2018,December 31, 2019, the Company repaid to the DGO6 a total amount of $34$57 thousand (Euro 3051 thousand) and amount of $152$124 thousand was recorded in other payables.
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(3) ln April 2016, the Company's Belgian Subsidiary received the formal approval from DGO6 for a Euro 1.3 million ($1.5 million) support program for the development of a potential cure for Type 1 Diabetes. The financial support was awarded to the Belgium Subsidiary as a recoverable advance payment at 55% of budgeted costs, or for a total of Euro 717 thousand ($800 thousand). The grant will be paid over the project period. On December 19, 2016, theThe Belgian Subsidiary received advance payment of Euro 359438 thousand ($374491 thousand). Up through November 30, 2018,December 31, 2019, an amount of Euro 303358 thousand ($402 thousand) was recorded as deduction of research and development expenses and an amount of $64Euro 80 thousand was recorded as advance payments on account of grant.
b.(4) On October 8, 2016, the Belgian Subsidiary received the formal approval from the DGO6 for a Euro 12.3 million ($12.8 million) support program for the GMP production of AIP cells for two clinical trials that will be performed in Germany and Belgium. The project will be heldconducted during a period of three years commencing January 1, 2017. The financial support is awarded to the Belgium subsidiary at 55% of budgeted costs, a total of Euro 6.8 million ($7 million). The grant will be paid over the project period. On December 19, 2016, the Belgian Subsidiary received a first payment of Euro 1.7 million ($1.8 million). Up through November 30, 2018,December 31, 2019, an amount of $1.1Euro 1.5 million was recorded as deduction of research and development expenses and an amount of $847Euro 143 thousand was recorded as advance payments on account of grant.
c.Israel-U.SIsrael-U.S. Binational Industrial Research and Development Foundation (“BIRD”("BIRD")
On September 9, 2015, the Israeli Subsidiary entered into a pharma Cooperation and Project Funding Agreement (CPFA) with BIRD and Pall Corporation, a U.S. company. BIRD will giveawarded a conditional grant of $400 thousand each (according to terms defined in the agreement), for a joint research and development project for the use Autologous Insulin Producing (AIP) Cells for the Treatment of Diabetes (the “Project”"Project"). The Project started on March 1, 2015. Upon the conclusion of product development, the grant shall be repaid at the rate of 5% of gross sales. The grant will be used solely to finance the costs to conduct the research of the project during a period of 18 months starting on March 1, 2015.To date the Israeli Subsidiary received $200 thousand under the grant.2015. On July 28, 2016, BIRD approved an extension tillfor the project period until May 31, 2017 and the final report was submitted to BIRD.
Up through November 30, 2018, an As of December 31, 2019, the Israeli Subsidiary received a total amount of $359$299 thousand under the grant and the project was recorded as deduction of research and development expenses and $159 thousand as a receivable on account of grant.completed.
d.Korea-Israel Industrial Research and Development Foundation (“KORIL”("KORIL")
On March 14, 2016, the Israel subsidiary, entered into a collaboration agreement with CureCell, initially for the purpose of applying a grant from KORIL for pre-clinical and clinical activities related to the commercialization of the Israel subsidiary AIP cell therapy product in Korea. The Parties agreed to carry out at their own expenses and their respective commitments under the work plan approved by KORIL and any additional work plan to be agreed between the Israeli Subsidiary and CureCell. The Israeli Subsidiary will own sole rights to any intellectual property developed from the collaboration which is derived under the Israeli Subsidiary’s AIP cell therapy product, information licensed from THM. Subject to obtaining the requisite approval needed to commence commercialization in Korea, the Israel subsidiary has agreed to grant to CureCell, or a fully owned subsidiary thereof, under a separate sub-license agreement an exclusive sub-license to the intellectual property underlying the Company’s API product solely for commercialization of the Israel subsidiary products in Korea. As part of any such license, CureCell has agreed to pay annual license fees, ongoing royalties based on net sales generated by CureCell and its sublicensees, milestone payments and sublicense fees. Under the agreement, CureCell is entitled to share in the net profits derived by the Israeli Subsidiary from world-wide sales (except for sales in Korea) of any product developed as a result of the collaboration with CureCell. Additionally, CureCell was given the first right to obtain exclusive commercialization rights in Japan of the AIP product, subject to CureCell procuring all the regulatory approvals required for commercialization in Japan. As of November 30, 2018, none of the requisite regulatory approvals for conducting clinical trials had been obtained.
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On May 26, 2016, the Israeli Subsidiary and CureCell entered into a pharma Cooperation and Project Funding Agreement (CPFA) with KORIL. KORIL will give a conditional grant of up to $400 thousand each (according to terms defined in the agreement), for a joint research and development project for the use of AIP Cells for the Treatment of Diabetes (the “Project”"Project"). The Project started on June 1, 2016. Upon the conclusion of product development, the grant shall be repaid at the yearly rate of 2.5% of gross sales. The grant will be used solely to finance the costs to conduct the research of the project during a period of 18 months starting. On July 26, 2018 KORIL approved extension for the project period till May 31, 2019.2019 and was further extended to May 2020. During 2019, the grant was assigned to CureTherapeutics from CureCell. As of November 30, 2018, TheDecember 31, 2019, the Israeli Subsidiary and CureCell received total amount of $440 thousand under the grant. Up through November 30, 2018, The Israeli Subsidiary recorded an amount of $279 thousand as a deduction of research and development expenses and $119 thousand as a receivable on account of grant, and CureCell recorded $134 thousand as advance payments on account of grant.
e.BIRD Secant
On July 30, 2018, Orgenesis Inc and Atvio entered into a collaboration agreement with Secant Group LLC (“Secant”("Secant"). Under the agreement, Secant will engineer and prototype 3D scaffolds based on novel biomaterials and technologies involving bioresorbable polymer microparticles, while Atvio will provide expertise in cell coatings, cell production, process development and support services. Under the agreement, Orgenesis is authorized to utilize the jointly developed technology for its autologous cell therapy platform, including its Autologous Insulin Producing (“AIP”("AIP") cell technology for patients with Type 1 Diabetes, acute pancreatitis and other insulin deficient diseases. In the beginning of 2018, Atvio entered into a Cooperation and Project Funding Agreement (CPFA) with BIRD and Secant. BIRD will give a conditional grant up to $450 thousand each to support the joint project (according to terms defined in the agreement).
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As of November 30, 2018,December 31, 2019, Atvio received a total amount of $125$305 thousand under the grant. Up through November 30, 2018,December 31, 2019, an amount of $275$164 thousand was recorded as deduction of research and development expenses and $163$35 thousand as a receivable on account of grant.
f.Lease Agreement
The Company leases office space for its CDMO facilities and research and development facilities in Belgium, Korea, Israel and the United States of America under several lease agreements. The expiration dates of the lease agreements for the facilities in each country are as follow:
*The company signed a new lease agreement during January 2019, see Note 21(f)
Future minimum lease commitments under non-cancelable operating lease agreements are as follows:
2019 | $ | 783 | |
2020 | 626 | ||
2021 and thereafter | 3,504 | ||
Total | $ | 4,913 |
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NOTE 11 –12 - COLLABORATION AND LICENSE AGREEMENTS
a.Adva Biotechnology Ltd.
On January 28, 2018, the Company and Adva Biotechnology Ltd. (“Adva”("Adva"), entered into a Master Services Agreement (“MSA”("MSA"), under which the Company and/or its affiliates are to provide certain services relating to development of products to Adva, as may be agreed between the parties from time to time. Under the MSA, the Company undertook to provide Adva with in kind funding in the form of materials and services having an aggregate value of $750approximately $760 thousand at the Company’sCompany's own cost in accordance with a project schedule and related mutually acceptable project budget. The Company entered into an agreement with Atvio, to fulfill its obligations pursuant this MSA. As of November 30, 2018,MSA and it completed its contractual obligations under the Company incurred a total expense of $361 thousand.contract during 2019.
In consideration for and subject to the fulfillment by the Company of such in-kind funding commitment, Adva agreed that upon completion of the development of the products, the Company and/or its affiliates and Adva shall enter into a supply agreement pursuant to which for a period of eight (8) years following execution of such supply agreement, the Company and/or its affiliates (as applicable) is entitled (on a non-exclusive basis) to purchase the products from Adva at a specified discount pricing from their then standard pricing. The Company and/or its affiliates were also granted a non-exclusive worldwide right to distribute such products, directly or through any of their respective contract development and manufacturing organization (CDMO) service centers during such term. The MSA shall remain in effect for 10 years unless earlier terminated in accordance with its terms.
b.Tel Hashomer Medical Research, Infrastructure and Services Ltd(“THM” ("THM").
On February 2, 2012, the Company’sCompany's Israeli Subsidiary entered into a licensing agreement with THM. According to the agreement, the Israeli Subsidiary was granted a worldwide, royalty bearing, exclusive license to trans-differentiation of cells to insulin producing cells, including the population of insulin producing cells, methods of making this population, and methods of using this population of cells for cell therapy or diabetes treatment developed by Dr. Sarah Ferber of THM.
As consideration for the license, the Israeli Subsidiary will pay the following to THM:
1) A royalty of 3.5% of net sales; 2) 16% of all sublicensing fees received; 3) An annual license fee of $15 thousand, which commenced on January 1, 2012 and shall be paid once every year thereafter. The annual fee is non-refundable, but it shall be paid each year against the royalty noted above, to the extent that such are payable, during that year; and 4) Milestone payments as follows: a. $50 thousand on the date of initiation of phase I clinical trials in human subjects; b. $50 thousand on the date of initiation of phase II clinical trials in human subjects; c. $150 thousand on the date of initiation of phase III clinical trials in human subjects; d. $750 thousand on the date of initiation of issuance of an approval for marketing of the first product by the FDA; and e. $2 million when worldwide net sales of Products (as defined in the agreement) have reached the amount of $150 million for the first time, (the "Sales Milestone").
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As of November 30, 2018,December 31, 2019, the Israeli Subsidiary had not reached any of these milestones.
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In the event of closing of an acquisition of all of the issued and outstanding share capital of the Israeli Subsidiary and/or consolidation of the Israeli Subsidiary or the Company into or with another corporation (“Exit”("Exit"), the THM shall be entitled to choose whether to receive from the Israeli Subsidiary a one-time payment based, as applicable, on the value of either 463,651 shares of common stock of the Company at the time of the Exit or the value of 1,000 shares of common stock of the Israeli Subsidiary at the time of the Exit.
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c. Mircod Limited
On June 18,19, 2018, the Company and Mircod Limited, a company formed under the laws of Cyprus (“Mircod”("Mircod") entered into a Collaboration and License Agreement (the “Mircod"Mircod Collaboration Agreement”Agreement") for the research, development and commercializationadaptation of potential keyMircod's background technologies related to biological sensing for use for the Company's clinical development and manufacturing projects (the “Development Project”"Development Project").
The Development Project is to be carried out in accordance with an agreed development plan. Under the Mircod Collaboration Agreement, subject to fulfillment of Mircod's obligations, Company is required to pay Mircod certain amounts in accordance with the agreed upon budget. Under the Mircod Collaboration Agreement, all results of such collaboration (“Development Project Results”("Project Results") shall be jointly owned by Mircod and the Company. The Company was granted an exclusive, worldwide sub licensable license under Mircod’sMircod's right in such Project Results to use and commercialize Project Results and a non-exclusive license under Mircod's background technology to the extent required to use and commercialize the Project Results in consideration for a royalty of 5% of net sales (as defined in the Collaboration Agreement) of productsbiological systems of devices incorporating Project Results.
SubjectResults ("Products"). Upon and subject to completion of the Development Project, Mircod and the Company are to negotiate and enter into a manufacturing and supply agreement under which Mircod is to manufacture and supply products incorporating the Project ResultsProducts only to Company and/or its affiliates and, at the Company’sCompany's request, to provide support and maintenance service for such products.Products. If, for whatever reason, the parties fail to enter into such manufacturing and supply agreement within 90 days of the completion of the Development Project or if Mircod is unable to perform such services, then: (i) the Company is entitledshall be required to pay Mircod a one-time payment of $80,000; (ii) the Company and its affiliates shall have the exclusive right to manufacture the products, in which event Mircod will be entitled to a payment of $80,000Products; and (iii) and royalties on Net Sales are to increaseof Products shall be increased to 8% of Net Sales.
In addition, Mircod shall form a wholly owned US subsidiary named Mircod Biotech ("Mircod subsidiary"), and that the Mircod Subsidiary shall perform the duties of Mircod under the Collaboration Agreement, provided that Mircod shall remain responsible for the performance of the Mircod Subsidiary. At any time, the Company shall have the option, at its sole discretion, to transfer and require Mircod or the Mircod Subsidiary to transfer the Project and/or the rights and licenses granted by Mircod to a joint venture company ("JV Entity") which shall be established by the Parties for the purposes of carrying out the Development Project and commercializing the Product, and in which the the Company and Mircod will each hold 50%. The Company shall also have the option to, at its sole discretion and subject to all rules and regulations to which it is then subject, require Mircod to transfer to the the Company the entirety of Mircod's equity interest in the JV Entity for a consideration of shares of common stock of the Company according to an agreed formula. The Parties agreed to amend the development plan to reflect the fact that the Parties shall collaborate with each other on: (i) Point of Care processing, regulatory and therapy development; (ii) setting up one or more point of care processing facilities in institutions or hospitals the territory of Russia; (iii) supply of the Company's products and services within Russia and (iv) clinical, regulatory, development and commercialization in Russia. The Company may, at its sole discretion agree to provide Mircod with a convertible loan (which may be converted into shares of Mircod then outstanding or into the JV Entity, upon a valuation to be agreed between the Parties and validated by a third party subject to terms to be agreed upon by the parties in a separate convertible loan agreement. The convertible loan will be used to finance the modification of the processing facility or facilities including, planning, designing, testing, training and supervising, as required for obtaining cGMP status approval(s) and/or relevant certification for any processing facility and other activities. As of November 30, 2018,at December 31, 2019, the Developments Project hasloan agreement was not completed.executed and the JV Entity was not incorporated.
d. HekaBio K.K
On July 10, 2018, the Company and HekaBio K.K. (“HB”("HB"), a corporation organized under the laws of Japan entered into a Joint Venture Agreement (the “HB JVA”"HB JVA") pursuant to which the parties will collaborate in the clinical development and commercialization of regeneration and cell and gene therapeutic products (hereinafter the “Products”"Products") in Japan (the “Project”"Project"). The parties intend to pursue the joint venture through a newly established Japanese company (hereinafter the “JV Company”"JV Company") which the Company by itself, or together with a designee, will hold a 49% participating interest therein, with the remaining 51% participating interest being held by HB. HB will fund, at its sole expense, all costs associated with obtaining the requisite regulatory approvals for conducting clinical trials, as well as performing all clinical and other testing required for market authorization of the Products in Japan.
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Under the JVA, each party may invest up to $10 million, which may take the form of a loan, if (i) such additional sum is deemed required, as determined by the steering committee.committee or (ii) for a party to maintain its pro-rata interest in the JV Company. The terms of such investment, if any, will be on terms mutually agreeable to the parties, provided that the minimum pre-money valuation for any such investment shall not be less than $10 million. As at December 31, 2019 no investments were made. Additionally, HB was granted an option to affect an equity investment in the Company of up to $15 million within the next 12 months on mutually agreeable terms. If such investment is in fact consummated, the Company agreed to invest in the JV Company by way of a convertible loan an amount equal to HB’sHB's pro-rata participating interest in the JV Company, which initially will be at 51%. Such loan may then be converted by the Company into share capital of the JV company at an agreed upon formula for determining JV Company valuation which in no event shall be less than $10 million. Under the JVA, the Company can require HB to sell to the Company its participating (including equity) interest in the JV Company in consideration for the issuance of the Company’sCompany's common stock based on an agreed upon formula for determining JV Company valuation which in no event shall be less than $10 million.
In addition, under the JVA, the Company shall grant the JV Company an exclusive license to certain intellectual property of the Company as may be required for the JV Company to develop and commercialize the Products in Japan. In consideration of such license, the JV Company shall pay the Company, in addition to other payments, royalties at the minimum rate of 10% of the JV Company’sCompany's net sales of Products.
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It was further agreed that the JV Company shall grant the Company (and its affiliates) a non-exclusive, worldwide (other than Japan), royalty-free and fully paid-up license to use and practice, for any purpose, new inventions, discoveries and intellectual property rights that are generated by and/or on behalf of HB and/or the JV Company in connection with the Project.
On October 3, 2018, the Company entered into a License Agreement with the JV Company pursuant to the JVA pertaining to the licenses described above.
Apart from the above, as of November 30, 2018,December 31, 2019, no activity had begun in the said JVand no investments were made therein.
e.Image Securities Ltd. (a related party)
On July 11, 2018, the Company and Image Securities Ltd., a corporation with its registered office in Grand Cayman, Grand Cayman Islands (“("India Partner”Partner") entered into a Joint Venture Agreement (the “India JVA”"India JVA") pursuant to which the parties will collaborate in the development and/or marketing, clinical development and commercialization of cell therapy products in India (the “Cell"Cell Therapy Products”Products"). The India Partner will collaborate with a network of healthcare facilities and a healthcare infrastructure as well as financial partners to advance the development and commercialization of the cell therapy products.Cell Therapy Products.
The India JVA becomesbecame effective upon the consummation of an equity investment by the India Partner in the Company of $5 million within 15 days of the execution of the India JVA through the purchase of units of the Company securities at a per unit purchase price payable into the Company of $6.24, with each unit comprised of one share of the Company and three-year warrant for the acquisition of an additional common share at a per share exercise price of $6.24. Following the consummation of such equity investment in the Company, on October 18, 2018, the Company entered into a convertible loan agreement with the India Joint Venture company (“("India JV”JV") pursuant to which the Company agreed to invest $5 million into the India JV. The loan is convertible into equity capital of the India JV at an agreed upon formula for determining India JV valuation. The investment in the Company by the India Partner was the consummation of the previously disclosed private placement subscription agreement entered into in December 2016 between the Company and an affiliate of the India Partner pursuant to which the closing of such subscription agreement was by the terms thereof delayed until terms comprising the India JV were mutually agreed to. As of November 30, 2018,December 31, 2019, the Company has advanced $1$2.5 million to the JV Company under the convertible loan agreement (held under escrow), the loan will bear interest of 6% per annum and the outstanding amount (principal and interest) will be payable after two years. The loan was presented in the balance sheet as loan to related party.
Under the India JVA, the India Partner agreed to invest in the JV $10 million within 12 months of the incorporation of the India JV. If for whatever reason such investment is not made by the India Partner within such time, then the Company is authorized to convert its above-referenced loan into 50% of the equity capital of the India JV on a fully diluted basis, provided that if the pre-money valuation of the India JV is then independently determined to be less than $5 million, then such conversion to be effected inon the basis of such valuation. Under the India JVA, the Company can require the India Partner to sell to the Company its entire equity interest in the JV Company in consideration for the issuance of the Company's common stock based on an agreed upon formula for determining JV Company valuation.
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Effective January 1, 2019, the Company entered into a master service agreement for the provision of certain POC services. Payments of $1.5 million for these POC services were received during 2019. Total amount of $1,270 thousand was recognized as income during the year ended December 31, 2019. Prior to the establishment of the JV Entity, all activities are being carried out by the India Partner.
Apart from the above, as of November 30, 2018,there was no material activity had begun.
As part of the agreement,with respect to the Indian joint venture will procure consulting services fromJV Entity during the Company in the amount of $1 million per month –year ended December 31, 2019. See also Note 21(c).note 23.
f.Hemogenyx Pharmaceuticals PLC.
On October 18, 2018, the Company and Hemogenyx Pharmaceuticals PLC., a corporation with its registered office in the United Kingdom and Hemogenyx-Cell (“("H-Cell"), a corporation with its registered office in Belgium (together “Hemo”"Hemo") which, who are engaged in the development of cell replacement bone marrow therapy technology, entered into a Collaboration Agreement (the “Hemo agreement”"Hemo Agreement") pursuant to which the parties will collaborate in the funding, of the continued development, of, and commercialization of the Hemo technology via the Hemo group companies.Hemo. Pursuant to the Hemo agreement the Company and Hemogenyx LLC (“Hemo-LLC”("Hemo-LLC") (a wholly owned USAUS subsidiary of Hemo) entered into a loan agreement on November 7, 2018 according to which the Company agreed to loan Hemo-LLC not less than $1 million by way of a convertible loan. On November 25, 2018 the Company and Hemo entered into a License and Distribution agreement according to which Company received the worldwide rights to market the products under the agreement in consideration for the payment of a 12% royalty all subject to the terms of the agreement. On November 25, 2018, the Company and H-Cell signed an Exclusive Manufacturing agreement according to which the Company will receive the exclusive right to manufacture certain of H-Cell products.
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As of November 30,During 2018 the Company advanced $0.5$0.75 million to Hemo as a convertible loan and an additional $0.25 million was advanced in December 2018 (see Note 21(b)). Thethe entire loan as of November 30, 2018, in the amount of $0.5 million, was charged to expenseexpenses under ASC 730-10-50 and 20-50 and presented as research and development costs.
During 2019, no further transfers were made to Hemo.
See Note 8 (a).8.
g.Immugenyx LLC.
On October 16, 2018, the Company and Immugenyx LLC., a corporation with its registered office in the USA (“Immu”("Immu") which, who is engaged in the development of technology related to the production and use of humanized mice entered into a Collaboration Agreement (the “Immu agreement”"Immu Agreement") pursuant to which the parties will collaborate in the funding, of the continued development, of, and commercialization of the Immu technology. Pursuant to the agreement, the Company received the worldwide rights to market the products under the agreement in consideration for the payment of a 12% royalty all subject to the terms of the agreement. Pursuant to the Immu agreement the Company and Immu entered into a loan agreement on November 7, 2018 according to which the Company agreed to loan Immu not less than US$1 Million by way of a convertible loan. As of November 30,
During 2018 the Company advanced $0.5$0.75 million to Hemo as a convertible loan and an additional $0.25 million was advanced in December 2018 (see Note 21(b)). Thethe entire loan as of November 30, 2018, in the amount of $0.5 million, was charged to expenseexpenses under ASC 730-10-50 and 20-50 and presented as research and development costs.
During 2019, no further transfers were made to Immu. See also Note 8 (a).8.
h.BG Negev Technologies and Applications (“BGN”("BGN").
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On August 2, 2018, the Company’s USACompany's U.S. Subsidiary entered into a licensing agreement with BGN. According to the agreement, the USAU.S. Subsidiary was granted a worldwide, royalty bearing, exclusive license to develop and commercialize a novel alginate scaffold technology for cell transplantation focused on autoimmune diseases.
On November 25, 2018, the Company’s USACompany's U.S. Subsidiary entered into a further licensing agreement with BGN. According to the agreement, the USAU.S. Subsidiary was granted a worldwide, royalty bearing, exclusive license to develop and commercialize technology directed to RAFT modification of polysaccharides and use of a bioreactor for supporting cell constructs.
As consideration for the licenses, the USAU.S. Subsidiary will pay royalties of between 2%4% and 7% (subject to rate reductions to 5% and 4%, respectively, in specific circumstances) of net sales of the licensed product, sub-license fees of between 15% and 20% of sub-license income received, license fees of $10,000 per year per license, and milestone and budget payments according to agreeagreed upon work plans to BGN.
During 2019, the Company was charged $352 for development work by BGN.
i.Collaboration agreementCure Therapeutics
During 2018, the Company and Cure Therapeutics entered into a collaboration agreement for the development of therapies based on liver and NK cells. The agreement will be governed by a joint steering committee and carried out in accordance with the projects' work plans. Under the plan, each party will generally bear its own share of expenses. As of November 30, 2018,For the year ended December 31, 2019, the Company has incurred $1.2$1.1 million of research and development expenses (2018: $1.5 million) in relation to the project. As part of the agreement, Cure Therapeutics hashad subcontracted development and contract manufacturing activates to CureCell, for which service revenue of $1 million$323 for the year ended December 31, 2019 thousand has been recognized.recognized (2018: $1 million).
Effective July 1, 2019, the Company entered into a master service agreement for the provision of certain POC services to Cure Therapeutics in Korea and Japan. $982 Thousand for these POC services were recognized as income during the year ended December 31, 2019.
j.Collaboration Agreement with Tarus Therapeutics, Inc.
On February 27, 2019, the Company and Tarus Therapeutics Inc., a Delaware corporation, ("Tarus") entered into a Collaboration Agreement (the "Tarus Agreement") for the collaboration in the funding, development and commercialization of certain technologies, products and patents of Tarus in the areas of therapeutics for cancer and other diseases in the field of cell therapies and their combination with checkpoint inhibitors comprised of Adenosine Receptor Antagonists. Under the terms of the Tarus Agreement and subject to final due diligence and approved financing of the Company, the Company and/or one or more qualified investors (the "Investors") shall advance to Tarus a convertible loan in an amount of not less than $1,750 thousand and up to $3,000 thousand (the "Loan Agreement"). As of December 31, 2019, the loan agreements have not been concluded, nor has any financing been made to Tarus. As part of such Loan Agreement, and subject to approval by the board of directors of the Company, the Investors shall have the right, within two years of the date of the Loan Agreement, to convert the outstanding convertible loan into either (i) shares of Tarus at a price per share based on a pre- money valuation of $12,500 thousand or (ii) shares of the Company's common stock at a price per share set in accordance with an approved financing of the Company, with such terms as approved by the Company in its sole discretion. In the event the Investors elect to convert into shares of the Company's common stock, the Company shall have the right upon notice to Tarus to receive the same number of shares of capital stock of Tarus that the Investors would have received had the Investors converted their convertible loans into shares of Tarus. Further, as part of the Loan Agreement, the Company shall advance to Tarus up to $500 thousand within fourteen days of execution of the Loan Agreement. Subject to the closing of the Loan Agreement, the Company and/or the Investors shall have an option, exercisable by sending written notice to Tarus at any time through the second anniversary of the closing of the Loan Agreement, to invest additional funds in an amount of up to $1,250 thousand and not less than $500 thousand in Tarus. The Company will also have the right to appoint and/or replace one member of board of directors of Tarus. Upon and subject to the execution of a definitive development and manufacturing agreement between the Company and Tarus ("Manufacturing and Supply Agreement"), the Company, or one or more of its affiliates, shall manufacture and supply to Tarus and any of its affiliates, licensees, assignees of interest all requirements for all cell therapy elements of any combination therapy incorporating the technology of Tarus. Following the conclusion of the clinical development stage of each product emanating from the technology of Tarus, the cell therapy component of any such product borne out of the technology of Tarus shall be exclusively supplied by the Company under the Manufacturing and Supply Agreement. If the Company and Tarus fail to sign such Manufacturing and Supply Agreement for any given Tarus product, Tarus shall pay the Company an amount equal to four percent (4%) of gross revenues derived by Tarus from such Tarus products.
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Apart from the above, there was no activity in the Tarus collaboration.
k.Theracell Advanced Biotechnology
On February 14, 2019, the Company and Theracell Advanced Biotechnology ("Theracell"), a corporation organized under the laws of Greece, entered into a Joint Venture Agreement (the "Greek JVA") pursuant to which the parties will collaborate in the clinical development and commercialization of the Company's products (hereinafter, the "Company Products") in Greece, Turkey, Cyprus and Balkan countries (the "Territory") and the clinical development and commercialization of Theracell's products (hereinafter, the "Theracell Products") worldwide (the "Project"). The parties intend to pursue the Project through a joint venture ("JV") by forming a JV entity (the "Greek JV Entity"). Until the Greek JV Entity is formed, all JV activities are being carried out by Theracell. The Company by itself, or together with a designee, will hold a 50% participating interest in the Greek JV Entity, with the remaining 50% participating interest being held by Theracell or its affiliate following the parties' contributions to the Greek JV Entity as set forth under the Greek JVA. The Greek JV Entity will have a steering committee that will act as the board of directors of the Greek JV Entity and shall be composed of a total of five members, with two members appointed by each party and one industry expert.
Under the Greek JVA, each party shall be responsible for providing up to $10 million in funding, of which $5 million shall be provided in the form of in-kind contributions. Each party shall also have the right to invest up to an additional $10 million, if such financing is determined to be necessary by the steering committee of the Greek JV Entity or if a party wishes to maintain its pro rata participating interest upon a future financing round in the Greek JV Entity ("Additional Investment"). The terms of such Additional Investment, if any, will be on terms mutually agreeable to the parties, provided that the minimum pre-money valuation for any such Additional Investment shall be at least $20 million. Any Additional Investment by a Party may lead to dilution of the other Party's participating interest unless such other party provides the requisite investment to maintain its participating percentage within two (2) years of such Additional Investment.
Under the Greek JVA, the Company can require Theracell to sell to the Company its entire participating interest in the Greek JV Entity in consideration for the issuance of the Company's Common Stock based on an agreed upon formula for determining the Greek JV Entity's valuation, which shall be the higher of (i) $20 million, (ii) two times the revenues of the Greek JV Entity, (iii) four times the EBITDA of the Greek JV Entity or (iv) the valuation of the Greek JV Entity in its last Additional Investment round. If the parties decide to sell the Greek JV Entity, they will mutually agree upon the terms of such sale.
Under the Greek JVA, the Company shall, subject to fulfilment of Theracell's obligations under the Greek JVA, grant the Greek JV Entity an exclusive license to certain intellectual property of the Company as may be required for the Greek JV Entity to develop and commercialize the Company Products in the Territory. In consideration for such license, the Greek JV Entity shall pay the Company, royalties at the rate of 15% of the Greek JV Entity's net sales of Company Products in the Territory.
In addition, under the Greek JVA, Theracell shall, subject to fulfillment of the Company's obligations under the Greek JVA, grant the Greek JV Entity an exclusive license to certain intellectual property of Theracell as may be required for the Greek JV Entity to develop and commercialize the Theracell Products globally. In consideration of such license, the Greek JV Entity shall pay Theracell, in addition to other payments, royalties at the rate of 15% of the Greek JV Entity's worldwide net sales of Theracell Products.
Any new intellectual property discovered in connection with the development undertaken by the Greek JV Entity shall belong to the Greek JV Entity and such intellectual property will be licensed to the Company on a non-exclusive, worldwide (other than the Territory, as defined in the Greek JVA), royalty free basis.
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On February 14, 2019, the Company entered into a master service agreement with Theracell whereby the Company, subject to mutually agreed timing and definition of the scope of services provided regulatory services, pre-clinical studies, intellectual property services, GMP process translation services and co-development services to Theracell during 2019. During the year ended December 31, 2019, the Company recognized POC development service revenue in the amount of $857 thousand.
During 2019 the Company recorded expenses related to activities in the territory in the amount of $698 thousand. Prior to the establishment of the JV Entity, all activities were being carried out by Theracell.
Apart from the above, there was no material activity under the Greek JVA and the Greek JV had not yet been incorporated.
l.First Choice International Company, Inc.
On March 12, 2019, the Company and First Choice International Company, Inc. ("First Choice"), a corporation organized under the laws of Delaware, entered into a Joint Venture Agreement (the "Panama JVA") pursuant to which the parties will collaborate in the clinical development and commercialization of the Company's products (hereinafter the "Company Products") in Panama and certain other Latin American countries as agreed by the parties (the "Territory") and the clinical development and commercialization of First Choice's products (hereinafter the "First Choice Products") worldwide (other than in the Territory) (the "Project"). The parties intend to pursue the Project through a joint venture ("Panama JV") by forming a JV entity ("Panama JV Entity"). Until the Panama JV Entity is formed, all Panama JV activities will be carried out by First Choice within the Territory. Upon formation of the Panama JV Entity, the Company by itself, or together with a designee, will hold a 50% participating interest in the Panama JV Entity, with the remaining 50% participating interest being held by First Choice or its affiliate or partner. The Panama JV Entity will have a steering committee that will act as the board of directors of the Panama JV Entity and shall be composed of five members, with two members appointed by each party and one industry expert.
Under the Panama JVA, each party shall endeavor to provide up to $5 million in funding for development, either through investment instruments or in-kind contributions within the first three (3) years of the Panama JV. Each party shall also have the right to invest additional funds in the Panama JV Entity (which such investment(s) may also be in the form of a convertible loan), if such financing is determined to be necessary by the steering committee of the Panama JV Entity or to maintain such Party's pro-rata share of the Panama JV Entity ("Additional Investment").
In order to compensate First Choice for the Panama JV activities that First Choice has already completed prior to the Panama JVA, the Company paid First Choice $100,000. In addition, it issued to First Choice 525,000 shares of Common Stock. These payments and the value of Common Stock issued in the amount of $2.6 million were charged to research and development expenses during the year ended December 31, 2019 under ASC 730-10-50 and ASC 20-50.
Each of the Company and First Choice shall provide strategic guidance to the Panama JV Entity and the Company shall provide hospital (management) services to the Panama JV Entity, among other POC development services as shall be set forth in a master service agreement to be negotiated in good faith and entered into by the parties.
Under the Panama JVA, the Company can require First Choice to sell to the Company its participating interest in the JV Entity in consideration for the issuance of the Company's Common Stock by dividing an agreed upon Panama JV Entity valuation by the weighted average price of the Company's Common Stock during the three (3) trading day preceding the closing of such sale. The Panama JV Entity valuation will be the higher of (i) two times the revenues of the Panama JV Entity, (ii) four times the EBITDA of the Panama JV Entity or (iii) the valuation of the Panama JV Entity in its last Additional Investment round. If the parties decide to sell the Panama JV Entity, they will mutually agree on the terms of such sale.
Under the Panama JVA, the Company shall, subject to fulfilment of First Choice's obligations under the Panama JVA, grant the Panama JV Entity an exclusive license to certain intellectual property of the Company as may be required for the Panama JV Entity to develop and commercialize the Company Products in the Territory, subject to minimum sales obligations. In consideration of such license, the Panama JV Entity shall pay the Company royalties at the rate of 15% of the Panama JV Entity net sales of Company Products sold in the Territory.
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In addition, under the Panama JVA, First Choice shall, subject to fulfilment of the Company's obligations under the Panama JVA, grant the Panama JV Entity an exclusive license to certain intellectual property of First Choice as may be required for the Panama JV Entity to develop and commercialize the First Choice Products globally. In consideration of such license, the Panama JV Entity shall pay First Choice, royalties at the rate of 15% of the Panama JV Entity's worldwide net sales of First Choice Products. Additionally, and for separate consideration to the Company, First Choice shall be granted a limited, non-exclusive license to certain Company owned rights relating to the Human Papilloma Virus.
Any new inventions discovered during the development with respect to the Panama JV shall belong to the Panama JV Entity and will be licensed to the Company on a non-exclusive, worldwide (other than the Territory), royalty free basis.
At the request of either party, the parties shall discuss between them in good faith the terms upon which a party may convert its participating interests in the Panama JV Entity into streaming royalties based on Panama JV Entity's revenues.
Apart from the above, there was no activity in the Panama JVA and the Panama JV had not been incorporated.
m.KinerjaPay Corp.
On May 6, 2019 (the "Effective Date"), the Company and KinerjaPay Corp., a Delaware corporation, entered into a Joint Venture Agreement (the "Singapore JVA") pursuant to which the parties will collaborate in the clinical development and commercialization of the Company's products in Singapore and the introduction of KinerjaPay products to be offered for sale by the Company globally outside Singapore. The parties intend to pursue the joint venture through a newly established company (hereinafter the "Singapore JV Entity"), which the Company by itself, or together with a designee, will hold a 51% participating interest therein, with the remaining 49% participating interest being held by KinerjaPay Corp.
Under the Singapore JVA, each party shall endeavor to provide the Singapore JV Entity up to $5 million within three (3) years of the Singapore JVA. Funding may be provided in part in the form of convertible loans, in-kind contributions, including intellectual property, and services related to advancement of the Singapore JV Entity. The Company's in-kind contribution may be in the form of 250,000 shares of the Company's restricted stock, issuable to KinerjaPay or KinerjaPay designated third party (instead of to the Singapore JV Entity) on the Effective Date and to be held in escrow by the Company to be released to KinerjaPay in return for services to be provided by KinerjaPay or KinerjaPay designated third party as will be mutually agreed between the parties.
Under the Singapore JVA, the Company can require KinerjaPay to sell to the Company its participating interest in the Singapore JV Entity in consideration for the issuance of the Company's common stock based on an agreed upon formula for determining Singapore JV Entity valuation.
Apart from the above, there was no activity in the Singapore JV Entity and the Singapore JV had not been incorporated.
n.Sponsored Research and Exclusive License Agreement with Columbia University
Effective April 2, 2019, the Company and The Trustees of Columbia University in the City of New York, a New York corporation, ("Columbia") entered into a Sponsored Research Agreement (the "SRA") whereby the Company will provide financial support for studying the utility of serological tumor marker for tumor dynamics monitoring. Under the terms of the SRA, the Company shall pay $300 thousand per year for three years, or for a total of $900 thousand, with payments of $150 thousand due every six months.
Effective April 2, 2019, the Company and Columbia entered into an Exclusive License Agreement (the "Columbia License Agreement") whereby Columbia granted to the Company an exclusive license to discover, develop, manufacture, sell, and otherwise distribute certain product in the field of cancer therapy. In consideration of the licenses granted under the Columbia License Agreement, the Company shall pay to Columbia (i) a royalty of 5% of net sales of any product sold which incorporates a licensed Columbia patent and (ii) 2.5% of net sales of other products. In addition, the Company shall pay a flat $100 thousand fee to Columbia upon the achievement of each regulatory milestone.
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o.IRB Approval for Liver Cell Collection
On April 29, 2019, the Company received Institutional Review Board ("IRB") approval to collect liver biopsies from patients at Rambam Medical Center located in Haifa, Israel for a planned study to confirm the suitability of liver cells for personalized cell replacement therapy for patients with insulin-dependent diabetes resulting from total or partial pancreatectomy. The liver cells are intended to be bio-banked for potential future clinical use.
The goal of the proposed study, entitled "Collection of Human Liver Biopsy and Whole Blood Samples from Type 1 Diabetes Mellitus (T1DM), Total or Partial Pancreatectomy Patients for Potential use as an Autologous Source for Insulin Producing Cells in Future Clinical Studies," is to confirm the suitability of the liver cells for personalized cell replacement therapy, as well as eligibility of patients to participate in a future clinical study, as defined by successful AIP cell production from their own liver biopsy. The secondary objective of the study is to evaluate patients' immune response to AIPs based on the patient's blood samples and followed by subcutaneous implantation into the patients' arm which would represent the first human trial. The Company has developed a novel technology based on technology licensed from Tel Hashomer Medical Research Infrastructure and Services Ltd., utilizing liver cells as a source for AIP cells as replacement therapy for islet transplantation.
During the study, liver samples will be collected and then processed and stored in specialized, clinical grade, tissue banks for potential clinical use. The propagated cells will be maintained in a tissue bank and are intended to be utilized in a future clinical study, in which the cells will be transdifferentiated and administered back to the patients as a potential treatment. This personalized autologous process will be performed under our POC platform in which the patient liver samples are processed, cryopreserved and potentially re-injected, all in the medical center under clinical grade/GMP level conditions.
In June, 2019, the Company received additional Institutional Review Board ("IRB") approval to collect liver biopsies from patients at a leading medical center in USA for a planned study to confirm the suitability of liver cells for personalized cell replacement therapy for patients with insulin-dependent diabetes resulting from total pancreatectomy (the granted Orphan Drug Designation indication). The liver cells are intended to be bio-banked at the New York Blood Center, NYC for potential future clinical use. In October 2019, a liver sample from the first recruited patient was collected and processed and stored at the New York Blood Center, NYC in specialized, clinical grade, tissue banks for potential clinical use.
p.Joint Venture Agreement with SBH Sciences, Inc.
On May 15, 2019, the Company entered into a Joint Venture Agreement with SBH Sciences, Inc., a Massachusetts corporation, ("SBH") for the establishment of a joint venture with SBH to collaborate in the field of gene and cell therapy development, process and services of bio-exosome therapy products and services in the areas of diabetes, liver cells and skin applications, including wound healing (the "SBH JV Agreement"). Under the terms of the SBH JV Agreement, a joint venture entity shall be formed as an LLC in the State of Delaware, with participating interests equally held by the Company and SBH (the "SBH JV Entity"). The SBH JV Agreement requires that SBH and the Company shall each contribute $250,000 to the SBH JV Entity for the purpose of carrying out the initial development activities relating to (i) a development hub for in vitro assays design, development and optimization of standard operating procedures in order to demonstrate product safety, identity, purity, content and potency for cell-based product quality control, as required by regulatory agencies and (ii) novel therapies/assays in the gene and cell therapy field. In addition to the Company's and SBH's cash contributions to the SBH JV Entity, SBH and the Company shall make an in-kind contribution toward the development activities valued at least $250 thousand (i) SBH to create and manage a certified facility, know-how related to assay development, contribution of a human cell-line bank, the provision of a fully equipped in vitro cell culture lab, and the establishment and training and performance of developed assays and for (ii) the Company to identify potential business development and revenue opportunities, regulation and intellectual property consulting, assay development as required for GMP manufacturing, budget and work planning and control testing. The board of directors of the SBH JV Entity shall be comprised of three directors with one appointed by SBH and two appointed by the Company. All intellectual property conceived or developed resulting from the business of the SBH JV Entity, that is not SBH's or the Company's background intellectual property, shall be owned exclusively by the SBH JV Entity, although the Company shall be granted the right to exclusively license any intellectual property arriving from the development activities of the SBH JV Entity, or exclusively distribute products based thereon.
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During the third quarter of 2019, the Company transferred $50 thousand to SBH. Apart from the above, there was no material activity in the SBH Collaboration and the SBH JV entity had not been incorporated as at December 31, 2019.
q.FDA Approval for Orphan Drug Designation for AIP Cells
On June 11, 2019, the FDA granted Orphan Drug Designation for the Company's AIP cells as a cell replacement therapy for the treatment of severe hypoglycemia-prone diabetes resulting from total pancreatectomy ("TP") due to chronic pancreatitis. The incidence of diabetes following TP is 100%, resulting in immediate and lifelong insulin-dependence with the loss of both endogenous insulin secretion and that of the counter-regulatory hormone, glucagon. Glycemic control after TP is notoriously difficult with conventional insulin therapy due to complete insulin dependence and loss of glucagon-dependent counter-regulation. Patients with this condition experience both severe hyperglycemic and hypoglycemic episodes.
r.Broaden Bioscience and Technology Corp
On November 10, 2019, the Maryland Subsidiary and Broaden Bioscience and Technology Corp, a Delaware corporation ("Broaden") entered into a Joint Venture Agreement (the "Broaden JVA") pursuant to which the parties will collaborate in the development and/or marketing, clinical development and commercialization of cell therapy products and the setting up of POC processing facilities in China and the Middle East (the "Project").
Under the Broaden JVA, Broaden undertook to set up a Joint Venture company ("Broaden JV Entity") to carry out the Project and until otherwise requested by the Maryland Subsidiary, will hold 100% of its equity. The Maryland Subsidiary has the right, at any time, to request that its shareholding be raised to 49% of the Broaden JV Entity and Broaden will accede to such request. Broaden shall be responsible for providing to the Broaden JV Entity the funding required to complete clinical and regulatory activities, including, pre-clinical and clinical trials as required for obtaining required regulatory approvals and/or reimbursement approval for commercialization of the Company's products and commercialization of Broaden products globally and for any and additional activities as may be defined in any work plans agreed upon, including without limitation, regulatory and management expenses. Orgenesis shall be responsible for providing to the Broaden JV Entity the funding required to complete the modification of the relevant POC facilities including, planning, designing, remodeling, testing, training and supervising, as required for obtaining cGMP status approval(s) and/or relevant certification.
Prior to and as a condition to the financing of the Broaden JV Entity by the Maryland Subsidiary and/or Broaden, the evaluation of the Broaden JV Entity will be agreed upon by the parties. The financing may be in the form of an equity financing, convertible debt or and other form agreed by the Parties
If required in order to maintain the activity of the Broaden JV Entity (as determined by the steering committee) or to maintain a Party's participating inserts in the Broaden JV Entity, each Party shall have the right, to invest additional sums in the JV Entity in an aggregate amount of up to ten million US Dollars each, of which five million may be provided in the form of in-kind contributions, and such investments may also be in the form of a convertible loan. See note 24.
At any time the Maryland Subsidiary shall have the option to require that Broaden transfer to the Maryland Subsidiary the entirety of Broaden's equity interest in the JV Entity inconsideration of such number of shares of common stock of the Company to be calculated by dividing: (A) (i) the number of Broaden JV Entity's outstanding and issued shares being purchased from the Broaden expressed as a percentage of the then total outstanding equity interest of Broaden JV Entity that Broaden holds, multiplied by (ii) the Call Valuation (where "Call Valuation" is defined as the JV Entity Valuation in addition to any other financing invested by the Parties, immediately prior to the closing of the Sale Transaction), by (B) the weighted average price of the Company's common stock during the three (3) trading day preceding the closing of the Sale Transaction. The "Broaden JV Entity Valuation" will be defined as the higher of the following: (i) the latest Additional Investment round valuation as defined in Section 3.1 above; or (ii) an amount equal to two (2) times the revenues of the Broaden JV Entity (if applicable); or (iii) an amount equal to four (4) times the EBIDA of the Broaden JV Entity.
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The Broaden JV Entity shall be governed by a steering committee which shall also serve as its Board of Directors of the JV Entity. The Steering Committee shall be composed of a total of five members with each Party having the right to appoint and replace two members and one member shall be an independent industry expert whose appointment requires the joint consent of both Parties.
Under the Broaden JVA, and subject to the entering into a separate license agreement between the Maryland Subsidiary and the JV Entity ("ORGS License"), the Maryland Subsidiary shall grant the JV Entity a non-exclusive license to certain intellectual property of the Maryland Subsidiary as may be required for the JV Entity to develop and commercialize the Maryland Subsidiary's products solely within the China, Middle East and other POC processing facilities which may be agreed upon by the Parties ("Facility"). In consideration for such license, the JV Entity shall pay the Maryland Subsidiary royalties at the rate of 10% net sales generated by the JV Entity's and/or its sublicensees with respect to providing treatment to patients within treatment facilities where such treatment utilizes the Maryland Subsidiary's Products. Broaden shall grant the JV Entity an exclusive license to certain intellectual property of Broaden ("Broaden Background IP") as may be required for the JV Entity to develop and commercialize the Broaden products globally (not including China). In consideration for such license, the JV Entity shall pay Broaden royalties at the rate of 10% of the JV Entity's or its sublicensees' net sales with respect to providing treatment to patients within treatment facilities where such treatment utilizes' Broaden products.
It was further agreed that as part of and as a condition to the ORGS Licenses, the JV Entity will grant the Maryland Subsidiary and its affiliates an: (i) exclusive, perpetual, irrevocable, worldwide, sublicensable license to make use of new intellectual property generated, conceived, developed and/or reduced to practice by and/or on behalf of Broaden and/or the Broaden JV Entity (as applicable), alone or together with others, resulting from the performance of the Project ("Project IP") for any and all lawful purposes (outside of the Facility), including without limitation, for their respective worldwide operations; and (ii) an exclusive, worldwide (not including China), sublicensable, sublicense under its rights in the Broaden Background IP, to develop and commercialize the Broaden products globally (not including China) during the term of the Broaden JVA, in consideration for the payment by the Maryland Subsidiary to the Broaden JV Entity of royalties in a minimum amount equal to fifteen percent (15%) of the net sales generated by the Maryland Subsidiary and/or its sublicensees with respect to providing treatment to patients within treatment facilities where such treatment utilizes Project IP and/or Broaden Products.
The Broaden JV Entity reserves the non-exclusive right to use the Project IP to the extent required in order to develop and commercialize ORGS Products within the Facility.
Apart from the above, as of December 31, 2019, no activity had begun in the said JV and no investments were made therein and the JV had not been incorporated.
s.Regents of the University of California
In December 2019, the Company and the Regents of the University of California ("University") entered into a joint research agreement in the field of therapies and processing technologies according to an agreed upon work plan. According to the agreement, the Company will pay the University royalties of up to 5% (or up to 20% of sub-licensing sales) in the event of sales that includes certain types of University owned IP.
t. Caerus Therapeutics Inc (a related party)
In October 2019 the Company and Caerus Therapeutics ("Caerus"), a Virginia company, concluded a license agreement whereby Caerus granted the Company an exclusive license to all Caerus IP relating to Advance Chemeric Antigen Vectors for Targeting Tumors for the development and/or commercialization of certain licensed products. In consideration for the License granted to the Company under this Agreement, the Company shall pay Caerus feasibility fees (including the grant to purchase 70,000 options in the Company, annual maintenance fees and royalties of sales of up to 5% and up to 18% of sub-license fees. Expenses in the amount of approximately $200 thousand including the fair value of the options granted were recorded as research and development expenses. The Company also has the right to instruct Caerus to transfer the license, development, development results and any other rights and licenses granted to the Company to a joint venture ("JV") in which Company shall have a 51% controlling ownership stake in the JV Entity. Upon Company's election of such option, the development shall be carried out by Caerus for the JV and the royalty, sublicense fees and annual maintenance fee shall be terminated. Company may provide requisite funding for the JV Entity as determined by the Company and Caerus.
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NOTE 12 –13 - INVESTMENTS IN ASSOCIATES, NET
a. On May 10, 2016, the Company and Atvio entered into joint venture agreement, pursuant to which the parties agreed to collaborate in the field of the CDMO in Israel (the “Atvio JVA”"Atvio JVA"). The parties pursued the joint venture through Atvio, the Company had 50% participating interest therein in any and all rights and obligations and in any and all profits and losses. Atvio's operations commenced in September 2016.
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The Company remitted to Atvio $1 million under the terms of the Atvio JVA to defray the costs associated with the setting up and the maintenance of the GMP facility. The Company’s funding was made by way of a convertible loan to Atvio, which could have been convertible at the Company’s option at any time. The Company concluded that, based on the terms of the agreement, it had the ability to exercise significant influence in Atvio, but had no control. Therefore, the investment was accounted for under the equity method. In addition, at any time following the first anniversary year of the Effective Date the Company had the option to require the Atvio’s shareholders to transfer to the Company the entirety of their interest in Atvio for the consideration specified in the agreement. Within three years from the Effective Date, the Atvio’s shareholders had the option to require the Company to purchase from Atvio's shareholders their entire interest in Atvio for the consideration based on Atvio's valuation mechanism as specified in the agreement. The above-mentioned options were accounted as derivatives and measured at fair value and was presented in the balance sheet in " put option derivative " line item (See Note 17). On June 28, 2018, the Company exercised its call options in Atvio, seeAtvio. See also Note 4.
b. On March 14, 2016, Orgenesis Inc. and CureCell entered into a joint venture agreement (the “CureCell JVA”"CureCell JVA"), pursuant to which the parties are collaborating in the field of the CDMO in Korea.
Under the CureCell JVA, CureCell had procured, at its sole expense, a GMP facility and appropriate staff in Korea for the manufacture of the cell therapy products. The Company had to share with CureCell the Company’sCompany's know-how in the field of cell therapy manufacturing All obligations were fulfilled by the parties and each party had 50% from the participating interest and in any and all profits and losses of the joint venture. The Company remitted to CureCell $2.1 million under the terms of the CureCell JVA. On June 28, 2018, the Company exercised its call options in CureCell, seeCureCell. See also Note 4.
c. The table below sets forth a summary of the changes in the investments for the yearsyear ended November 30, 2018 and 2017:2018:
November 30, | November 30, | ||||||||
2018 | 2017 | 2018 | |||||||
(In thousands) | (In thousands) | ||||||||
Opening balance | $ | 1,321 | $ | (12 | ) | $ | 1,321 | ||
Reclass with short-term receivables | (795 | ) | 118 | (795 | ) | ||||
Investments during the period | - | 2,429 | - | ||||||
Share in losses | (731 | ) | (1,214 | ) | (731 | ) | |||
Reductions due to the acquisition of CureCell and Atvio – see also Note 4 | 205 | - | |||||||
Reductions due to the acquisition of CureCell and Atvio - see also Note 4 | 205 | ||||||||
$ | - | $ | 1,321 | $ | - |
NOTE 13 –14 - EQUITY
a. a.Share CapitalFinancings
The Company’s common shares were traded on the OTCQB Venture Market under OTC Market Group’s OTCQB tier under the symbol “ORGS”. On March 13, 2018, the Company's common stock began to be listed and traded on the Nasdaq Capital Market under the symbol “ORGS.”
b.Financings
(1) In January 2017, the Company entered into definitive agreements with an institutional investor for the private placement of 2,564,115 units of the Company’sCompany's securities for aggregate subscription proceeds to the Company of $16 million at $6.24 price per unit. Each unit is comprised of one share of the Company’sCompany's Common Stock and a one warrant, exercisable over a three-years period from the date of issuance, to purchase one additional share of Common Stock at a per share exercise price of $6.24 (“Unit”("Unit"). The subscription proceeds have beenwere paid to the Company on a periodic basis through October 2018.
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In July 2018, the Company entered into definitive agreements with assignees of the aforementioned institutional investor whereby these assignees remitted $4.6 million in respect of the units available under the original subscription agreement that havewere not been subscribed for, entitling such investors to 702,307 units, with each unit being comprised of (i) one share of the Company's common stock and (ii) one three-year warrant to purchase up to an additional one share of the Company’sCompany's common stock at a per share exercise price of $6.24.
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During the year ended November 30, 2018 and 2017 the investor and the assignees remitted to the Company $11.5 and $4.5$6.9 million and the Company issued 1,813,687 and 721,160 Units, respectively.1,111,380 units.
As of November 30, 2018, 550,481 shares have not been issued and therefore the Company has recorded $2.3 million in receipts on account of shares to be allotted in the statement of equity.
In connection therewith, during the year ended November 30, 2018 and 2017, the Company had transaction costs of approximately $328 and $225 thousand, respectively, out of which $121 and $253 thousand are stock-based compensation expenses due to issuance of warrants and shares. See also Note 15(d).
(2) During the year ended November 30, 2018,April 2019, the Company entered into definitive agreementsa convertible loan agreement with accreditedan offshore investor for an aggregate amount of $500 thousand into the U.S. Subsidiary. The investor, at its option, may convert the outstanding principal amount and other qualified investors relatingaccrued interest under this note into shares and three-year warrants to a private placement of 1,237,642 units. Each unit is comprised of (i) one sharepurchase shares of the Company’sCompany's common stock and (ii) three-year warrant to purchase up to an additional one share of the Company’s Common Stock at a per share exercise price of $6.24, for aggregate proceeds to$7.00; or into shares of the U.S. Subsidiary at a valuation of the U.S. Subsidiary of $50 million. See also note 23.
(3) During May 2019, the Company entered into a private placement subscription agreement with an investor for $5 million. The lender shall be entitled, at any time prior to or no later than the maturity date, to convert the outstanding amount, into units of approximately $7.7 million.(1) shares of common stock of the Company at a conversion price per share equal to $7.00 and (2) warrants to purchase an equal number of additional shares of the Company's common stock at a price of $7.00 per share.
The transaction costs were approximately $349$497 thousand, out of which $125$97 thousand are stock-based compensation due to issuance of warrants. See also 15(d).
(3) During(4) In May 2019, the year ended November 30, 2018, investors exercised 136,646Company had agreed to enter into a 6% convertible loan agreement with an investor for an aggregate amount of $5 million. The lender shall be entitled, at any time prior to or no later than the maturity date, to convert the outstanding amount, into units of (1) shares of stock of the Company at a conversion price per share equal to $7.00 and (2) warrants into 136,646to purchase an equal number of additional shares of the Company’s Common Stock, for aggregate proceedsCompany's common stock at a price of $853 thousand.
c.Contingent Shares
According to$7.00 per share. As of the share exchange agreement signed during 2015,date of the former shareholdersfiling of MaSTherCellthis Annual Report on Form 10-K, the loan had not yet been received a “consideration of shares” of Orgenesis Inc. in exchange of their shares in MaSTherCell. At the time of MaSTherCell’s acquisition by the Company.
(5) In June 2019, the Company there was outstanding convertible bonds issued by MaSTherCell inentered into private placement subscription agreements with investors for an aggregate amount of $1.8 million (Euro 1.6 million). Under$2 million. The lenders shall be entitled, at any time prior to or no later than the share exchange agreement in case MaSTherCell is repayingmaturity date, to convert the principaloutstanding amount, and the accrued interestinto units of (1) shares of common stock of the convertible bonds,Company at a conversion price per share equal to $7.00 and (2) warrants to purchase an equal number of additional shares of the former shareholders will give backCompany's common stock at a price of $7.00 per share.
(6) During October 2019, the Company entered into a Private Placement Subscription Agreement and Convertible Credit Line Agreement (collectively, the "Credit Line Agreements") with four non-U.S. investors (the "Lenders"), pursuant to which the Lenders furnished to the Company a portionaccess to an aggregate $5.0 million credit line (which consists of $1.25 million from each Lender) (collectively, the "Credit Line"). Pursuant to the Credit Line Agreements, the Company is entitled to draw down an aggregate of $1 million (consisting of $250 thousand from each Lender) of the consideration shares. To that effect,Credit Line in each of October 2019 and November 2019. In each of December 2019, January 2020 and February 2020, the numberCompany may draw down an additional aggregate of consideration shares to be released back$1 million (consisting of $250 thousand from each Lender), until the total amount drawn down under the Credit Line reaches an aggregate of $5 million (consisting of $1.25 million from each Lender), subject to the Company, shall be determined by dividing the subscription amountapproval of the outstanding convertible bonds plus interest owed thereunder (converted into USD according to the currency exchange rate applicable on the day of conversion) by the consideration and by applying the resulting quotient to actual total number of consideration shares received by former shareholder of MaSTherCell.Lenders.
During January 2017 MaSTherCell repaid all but one of its bondholders and the aggregate payment amounted to $1.7 million (Euro 1.5 million). AccordingPursuant to the terms of the release back pursuantCredit Line Agreements and the share exchange agreement,Notes, the total loan amount, and all accrued but unpaid interest thereon, shall become due and payable on the second anniversary of the Effective Date (the "Maturity Date"). The Maturity Date may be extended by each Lender in its sole discretion and shall be in writing signed by the Company returnedand the Lender. Interest on any amount that has been drawn down under the Credit Line accrues at a per annum rate of eight percent (8%). At any time prior to treasuryor on the Maturity Date, by providing written notice to the Company, each of the Lenders is entitled to convert its respective drawdown amounts and all accrued interest, into shares of the Company's common stock, par value $0.0001 per share (the "Common Stock"), at a totalconversion price equal to $7.00 per share.
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Furthermore, upon the drawdown of 263,148 shares. These$500 thousand from each Lender and, together with the other Lenders, a drawdown of an aggregate of $2 million under the Credit Line, the existing warrants of the Lenders to purchase shares have been retiredof Common Stock shall be amended to extend their exercise date to June 30, 2021 and cancelled.the Company will issue to each of the Lenders warrants to purchase 50,000 shares of Common Stock at an exercise price of $7.00 per share. The new warrants will be exercisable for three (3) years from the Effective Date. During October 2019, such drawdown was reached and the warrants were issued. The modification of the existing warrants in the amount of $145 thousands was recorded against the accumulated deficit and the value of the new warrants in the amount of $370 thousands was offset against the convertible loan amount.
The lender shall be entitled, at any time prior to or no later than the maturity date, to convert the outstanding amount, into units of shares of common stock of the Company at a conversion price per share equal to $7.00.
As at December 31, 2019, the Company had received $3.650 million from the Convertible Credit Line investment comprised of $1.15 million from one investor, $1 million from a second investor, and $750 thousand from two of the other lenders.
The transaction costs were approximately $145 thousand, See also Note 8(d).23.
d.Warrants(7) In December 2019, the Company entered into private placement subscription agreements with investors for an aggregate amount of $250 thousand. The lenders shall be entitled, at any time prior to or no later than the maturity date, to convert the outstanding amount, into units of 1 share of common stock of the Company at a conversion price per share equal to $7.00 and warrants to purchase 183,481 additional shares of the Company's common stock at a price of $7.00 per share. The fair value of the warrants was $124 thousand using the fair value of the shares on the grant date. As of December 31, 2019, $36 thousands were offset against the convertible loan amount. No costs were recognized during the year ended December 31, 2019
(8) In December 2018, the Company entered into a Controlled Equity Offering Sales Agreement, or Sales Agreement, with Cantor Fitzgerald & Co., or Cantor, pursuant to which the Company may offer and sell, from time to time through Cantor, shares of its common stock having an aggregate offering price of up to $25.0 million. The Company will pay Cantor a commission rate equal to 3.0% of the aggregate gross proceeds from each sale. Shares sold under the Sales Agreement will be offered and sold pursuant to the Company's Shelf Registration Statement on Form S-3 (Registration No. 333-223777) that was declared effective by the Securities and Exchange Commission on March 28, 2018, or the Shelf Registration Statement, and a prospectus supplement and accompanying base prospectus that the Company filed with the Securities and Exchange Commission on December 20, 2018. The Company has not yet sold any shares of its common stock pursuant to the Sales Agreement.
b.Warrants
A summary of the Company's warrants granted to investors and as findersfinder's fees as of December 31, 2019, November 30, 2018 and 2017December 31, 2018 and changes for the yearsperiods then ended is presented below:
2018 | 2017 | December 31, 2019 | November 30, 2018 | December 31, 2018 *** | |||||||||||||||||||||||||||
Weighted | Weighted | Number of Warrants | Weighted Average Exercise Price $ | Number of Warrants | Weighted Average Exercise Price $ | Number of Warrants | Weighted Average Exercise Price $ | ||||||||||||||||||||||||
Average | Average | ||||||||||||||||||||||||||||||
Exercise | Exercise | ||||||||||||||||||||||||||||||
Number of | Price | Number of | Price | ||||||||||||||||||||||||||||
Warrants | $ | Warrants | $ | ||||||||||||||||||||||||||||
Warrantsoutstanding at the beginning of the year | 2,609,864 | 6.26 | 1,620,993 | 6.25 | |||||||||||||||||||||||||||
Changes during the year: | |||||||||||||||||||||||||||||||
Warrants outstanding at the beginning of the period | 6,286,351 | 6.29 | 2,609,864 | 6.26 | 6,512,991 | 6.27 | |||||||||||||||||||||||||
Changes during the period: | |||||||||||||||||||||||||||||||
Issued | 4,488,854 | 6.27 | 1,144,647 | 6.32 | 471,980 | 6.95 | 4,488,854 | 6.27 | 2,858 | 7.00 | |||||||||||||||||||||
Exercised | (136,646 | ) | 6.24 | - | - | - | (136,646 | ) | 6.24 | - | - | ||||||||||||||||||||
Expired | (382,414 | ) | 6.10 | (155,776 | ) | 6.24 | (748,244 | ) | 6.24 | (382,414 | ) | 6.10 | (229,498 | ) | 6.24 | ||||||||||||||||
Cancelled** | (66,667 | ) | 6.24 | - | - | - | (66,667 | ) | 6.24 | - | - | ||||||||||||||||||||
Warrantsoutstanding and exercisable at end of the year* | 6,512,991 | 6.27 | 2,609,864 | 6.26 | |||||||||||||||||||||||||||
Warrants outstanding and exercisable at end of the period* | 6,010,087 | 6.35 | 6,512,991 | 6.27 | 6,286,351 | 6.29 |
* As of December 31, 2018, and November 30, 2018, 542,465 and 2017, 769,411 and 1,066,691 warrants respectively, are subject to exercise price adjustmentsadjustments. As of December 31, 2019, there are no warrants that are subject to exercise price adjustments.
**see also Note 15(d)16(d).
F-36 *** For the month ended December 31, 2018
F-52
Year Ended | ||||||
November 30, | ||||||
2018 | 2017 | |||||
(in thousands, | ||||||
except per share data) | ||||||
Basic: | ||||||
Net loss attributable to Orgenesis Inc | $ | 18,291 | $ | 12,367 | ||
Adjustment of redeemable non-controlling interest to redemption amount | 884 | - | ||||
Net loss attributable to Orgenesis Inc. for loss per share | $ | 19,637 | $ | 12,367 | ||
Weighted average number of common shares outstanding | 13,374,103 | 9,679,964 | ||||
Basic loss per common share | $ | 1.43 | $ | 1.28 | ||
Diluted: | ||||||
Net loss attributable to Orgenesis Inc. for loss per share | $ | 19,175 | 12,367 | |||
Changes in fair value of embedded derivative and interest expenses on convertible note | - | 392 | ||||
Loss for the year | $ | 19,175 | $ | 12,759 | ||
Weighted average number of shares used in the computation of basic loss per share | 13,374,103 | 9,679,964 | ||||
Number of dilutive shares related to convertible note | - | 34,288 | ||||
Weighted average number of common shares outstanding | 13,374,103 | 9,714,252 | ||||
Diluted loss per common share | $ | 1.43 | $ | 1.31 |
NOTE 14 –15 - LOSS PER SHARE
The following table sets forth the calculation of basic and diluted loss per share for the periods indicated:
Year ended | One month ended | ||||||||
December 31, | November 30, | December 31, | |||||||
2019 | 2018 | 2018 | |||||||
(in thousands, | |||||||||
except per share data) | |||||||||
Basic: | |||||||||
Net loss attributable to Orgenesis Inc. | 24,121 | 18,291 | 2,744 | ||||||
Adjustment of redeemable non-controlling interest to redemption amount | 4,095 | 884 | 180 | ||||||
Net loss attributable to Orgenesis Inc. for loss per share | 28,216 | 19,175 | 2,924 | ||||||
Weighted average number of common shares outstanding | 15,907,995 | 13,374,103 | 15,423,040 | ||||||
Basic loss per common share | 1.77 | 1.43 | 0.19 | ||||||
Diluted: | |||||||||
Net loss attributable to Orgenesis Inc. for loss per share | 28,216 | 19,175 | 2,924 | ||||||
Loss for the year | 28,216 | 19,175 | 2,924 | ||||||
Weighted average number of shares used in the computation of basic loss per share | 15,907,995 | 13,374,103 | 15,423,040 | ||||||
Weighted average number of common shares outstanding | 15,907,995 | 13,374,103 | 15,423,040 | ||||||
Diluted loss per common share | 1.77 | 1.43 | 0.19 |
For the year ended December 31, 2019, November 30, 2018 and for the one month ended December 31, 2018, all outstanding convertible notes, options and warrants have been excluded from the calculation of the diluted net loss per share since their effect was anti-dilutive.
For the year ended November 30, 2017, all Diluted loss per share does not include 8,531,547 shares underlying outstanding options and warrants and 1,057,785970,104 shares upon conversion of convertible notes have been excluded fromloans for the calculationyear ended December 31, 2019, because the effect of their inclusion in the diluted net loss per share since their effect wascomputation would be anti-dilutive.
NOTE 15–16- STOCK-BASED COMPENSATION
a.Global Share Incentive Plan
On May 11, 2017, the annual meeting of the Company’sCompany's stockholders approved the 2017 Equity Incentive Plan (the “2017 Plan”"2017 Plan") under which, the Company had reserved a pool of 1,750,000 shares of the Company’sCompany's common stock, which may be issued at the discretion of the Company's board of directors from time to time. Under this Plan, each option is exercisable into one share of common stock of the Company. The options may be exercised after vesting and in accordance with the vesting schedule that will be determined by the Company's board of directors for each grant. The maximum contractual life term of the options is 10 years. At the Company's annual meeting of stockholders on November 26, 2019 the Company's stockholders approved an amendment to increase the number of shares authorized for issuance of awards under the Company's 2017 Equity Incentive Plan from 1,750,000 shares to an aggregate of 3,000,000 shares of Common Stock. As of November 30, 2018,December 31, 2019, total options granted under this plan are 1,040,942,1,362,133 and the total options that are available for grants under this plan are 709,058.1,724,966.
F-37
On May 23, 2012, the Company's board of directors adopted the Global Share Incentive Plan 2012 (the “2012"2012 Plan") under which, the Company had reserved a pool of 1,000,000 shares of the Company’sCompany's common stock, which may be issued at the discretion of the Company's board of directors from time to time. Under this plan, each option is exercisable into one share of common stock of the Company. The options may be exercised after vesting and in accordance with the vesting schedule that will be determined by the Company's board of directors for each grant. The maximum contractual life term of the options is 10 years. As of November 30, 2018,December 31, 2019, total options granted under this plan are 699,991,1,183,182 and the total options that are available for grants under this plan are 300,009.248,024.
F-53
b.Options Granted to Employees and Directors
Below is a table summarizing all of the options grants to employees and Directors made during the years ended December 31, 2019, and November 30, 2018 and 2017:for the one month ended December 31, 2018:
Year of | No. of options | Exercise price | Vesting period | Fair value at grant | Expiration | |||||||
grant | granted | (in thousands) | period | Year Ended | No. of options | Exercise price | Vesting period | Fair value at grant (in thousands) | Expiration | |||
Employees | 2018 | 762,400 | $4.42-$8.91 | vest immediately-4 years | $4,233 | 10 years | December 2019 | 94,500 | $3.14-$5.07 | Quarterly over a period of two years | $322 | 10 years |
Directors | 2018 | 113,800 | $5.99 | 1 year | $507 | 10 years | December 2019 | 50,000 | $2.99 | One-year anniversary | $103 | 10 years |
Employees | November 2018 | 762,400 | $4.42-$8.91 | Immediately-4 years | $4,233 | 10 years | ||||||
Directors | 2017 | 166,668 | $4.80 | 2 years | $558 | 10 years | November 2018 | 113,800 | $5.99 | One-year anniversary | $507 | 10 years |
Employees | 2017 | 525,005 | $4.8,$7.2 | vest immediately-4 years | $1,915 | 10 years |
The fair value of each stock option grant is estimated at the date of grant using a Black Scholes option pricing model. The volatility is based on historical volatility of the Company, by statistical analysis of the weekly share price for past periods based on expected term. The expected option term is calculated using the simplified method,as the Company concludes that its historical share option exercise experience does not provide a reasonable basis to estimate its expected option term.term . The fair value of each option grant is based on the following assumptions:
Year Ended November 30, | Year Ended | One month ended | |||||||||
2018 | 2017 | December 31, 2019 | November 30, 2018 | December 2018 | |||||||
Value of one common share | $4.42-$8.7 | $4.68,$7.2 | $2.99-$5.07 | $4.42-$8.7 | - | ||||||
Dividend yield | 0% | 0% | 0% | - | |||||||
Expected stock price volatility | 88%-98% | 93.8%-95.4% | 83%-88% | 88%-98% | - | ||||||
Risk free interest rate | 2.33%-3.2% | 1.89%-1.76% | 1.45%-2.47% | 2.33%-3.2% | - | ||||||
Expected term (years) | 4.13-10 | 5 | 5.38-5.56 | 5-6.06 | - |
A summary of the Company's stock options granted to employees and directors as of December 31, 2019 and November 30, 2018 and 2017 and changes for the years then ended and the one-month ended December 31, 2018 is presented below:
Year Ended December 2019 | Year Ended November 2018 | One month ended December 31, 2018 | ||||||||||||||||
| Number of Options | Weighted Average Exercise Price $ | Number of Options | Weighted Average Exercise Price $ | Number of Options | Weighted Average Exercise Price $ | ||||||||||||
Options outstanding at the beginning of the period | 2,376,427 | 4.51 | 1,605,055 | 3.11 | 2,376,427 | 4.51 | ||||||||||||
Changes during the period: | ||||||||||||||||||
Granted | 144,500 | 4.15 | 876,200 | 7.13 | - | - | ||||||||||||
Expired | (16,750 | ) | 6.01 | (61,463 | ) | 5.26 | - | - | ||||||||||
Forfeited | (38,655 | ) | 7.11 | (43,365 | ) | 4.68 | - | - | ||||||||||
Options outstanding at end of the period | 2,465,522 | 4.44 | 2,376,427 | 4.51 | 2,376,427 | 4.51 | ||||||||||||
Options exercisable at end of the period | 2,112,567 | 4.21 | 1,504,542 | 2.91 | 1,716,042 | 3.56 |
2018 | 2017 | |||||||||||
Weighted | Weighted | |||||||||||
Average | Average | |||||||||||
Exercise | Exercise | |||||||||||
Number of | Price | Number of | Price | |||||||||
Options | $ | Options | $ | |||||||||
Options outstanding at the beginning of the year | 1,605,055 | 3.11 | 978,853 | 1.92 | ||||||||
Changes during the year: | ||||||||||||
Granted | 876,200 | 7.13 | 691,673 | 5.28 | ||||||||
Expired | (61,463 | ) | 5.26 | (38,106 | ) | 7.58 | ||||||
Forfeited | (43,365 | ) | 4.68 | (27,365 | ) | 4.8 | ||||||
Options outstanding at end of the year | 2,376,427 | 4.51 | 1,605,055 | 3.11 | ||||||||
Options exercisable at end of the year | 1,504,542 | 2.91 | 1,135,107 | 2.57 |
F-54
F-38
The following table presents summary information concerning the options granted and exercisable to employees and directors outstanding as of November 30, 2018:December 31, 2019:
Weighted | |||||||||||||||||||||||||
Average | Aggregate | Aggregate | |||||||||||||||||||||||
Exercise | Number of | Remaining | Intrinsic | Number of | Exercisable | ||||||||||||||||||||
Price | Outstanding | Contractual | Value | Exercisable | Options | ||||||||||||||||||||
$ | Options | Life | $ | Options | Value $ | ||||||||||||||||||||
Exercise Price $ |
| Number of Outstanding Options |
| Weighted Average Remaining Contractual Life |
| Aggregate Intrinsic Value $ |
|
Number of Exercisable Options |
| Aggregate Exercisable Options Value $ | |||||||||||||||
(in thousands) | (in thousands) |
|
|
|
|
| (in thousands) |
|
|
| (in thousands) | ||||||||||||||
0.0012 | 462,015 | 4.78 | 2,776 | 462,015 | 1 |
| 230,189 |
| 4.65 |
| 1,072 |
| 230,189 |
| - | ||||||||||
0.012 | 278,191 | 3.18 | 1,669 | 278,191 | 3 |
| 510,017 |
| 2.09 |
| 2,371 |
| 510,017 |
| 6 | ||||||||||
2.99 |
| 50,000 |
| 9.97 |
| 84 |
| - |
| - | |||||||||||||||
3.14 |
| 5,000 |
| 9.91 |
| 8 |
| - |
| - | |||||||||||||||
4.42 | 50,000 | 9.02 | 79 | 37,500 | 166 |
| 50,000 |
| 7.94 |
| 12 |
| 50,000 |
| 221 | ||||||||||
4.5 |
| 34,000 |
| 9.47 |
| 5 |
| 6,938 |
| 31 | |||||||||||||||
4.8 | 524,999 | 8.03 | 635 | 440,104 | 2,112 |
| 525,004 |
| 6.41 |
| - |
| 510,420 |
| 2,450 | ||||||||||
5.07 |
| 54,188 |
| 9.16 |
| - |
| 13,524 |
| 69 | |||||||||||||||
5.99 | 384,050 | 9.35 | 8 | 32,750 | 196 |
| 363,426 |
| 8.32 |
| - |
| 224,319 |
| 1,344 | ||||||||||
6 | 33,334 | 5.67 | - | 33,334 | 200 |
| 16,667 |
| 4.59 |
| - |
| 16,667 |
| 100 | ||||||||||
7.2 | 83,334 | 8.51 | - | 83,334 | 600 |
| 83,334 |
| 7.44 |
| - |
| 83,334 |
| 600 | ||||||||||
8.36 | 250,000 | 9.58 | - | - |
| 250,001 |
| 8.50 |
| - |
| 250,001 |
| 2,090 | |||||||||||
8.43 | 160,994 | 9.46 | - | 14,492 | 156 |
| 151,937 |
| 8.25 |
| - |
| 83,025 |
| 700 | ||||||||||
8.91 | 30,500 | 9.55 | - | 3,813 | 34 |
| 22,750 |
| 5.79 |
| - |
| 15,125 |
| 135 | ||||||||||
9 | 20,834 | 4.63 | - | 20,834 | 188 |
| 20,834 |
| 3.54 |
| - |
| 20,834 |
| 187 | ||||||||||
9.48 | 58,908 | 3.61 | - | 58,908 | 558 |
| 58,908 |
| 2.52 |
| - |
| 58,908 |
| 558 | ||||||||||
10.2 | 39,268 | 3.51 | - | 39,267 | 401 |
| 39,267 |
| 2.43 |
| - |
| 39,267 |
| 401 | ||||||||||
2,376,427 | 7.15 | 5,167 | 1,504,542 | 4,598 |
| 2,465,522 |
| 6.01 |
| 3,552 |
| 2,112,567 |
| 8,892 |
Costs incurred with respect to stock-based compensation for employees and directors for the years ended December 31, 2019 and November 30, 2018 were $ 2,107 thousand and 2017 were $2,426 thousand and $1,536 thousand, respectively. Costs incurred with respect to options granted to employees for the one month ended December 31, 2018 was $274 thousand. As of November 30, 2018,December 31, 2019, there was $3,783 thousand$ 1,415 thousands of unrecognized compensation costs related to non-vested employees and directors stock options, to be recorded over the next 3.892.81 years.
c.Options Granted to Consultants and service providers
Below is a table summarizing all the compensation granted to consultants and service providers during the years ended December 31, 2019 and November 30, 2018 and 2017:for the one-month period ended December 31, 2018:
Fair value at | ||||||||||||
Year of | No. of options | Exercise | grant | Expiration | ||||||||
grant | granted | price | Vesting period | (in thousands) | period |
|
|
|
| Fair value at grant (in thousands) |
| |
Non-employees | 2018 | 102,763 | $4.42-$8.34 | vest immediately-4 years | $444 | 10 years | 2019 | 128,336 | $3.14-$7 | Vest immediately-5 years | $394 | 10 years |
Non-employees | 2017 | 16,668 | $4.8 | Quarterly over a period of one year | $68 | 10 years | 2018 | 102,763 | $4.42-$8.34 | vest immediately-4 years | $444 | 10 years |
The fair value of options granted during 20182019 and 20172018 to consultants and service providers, was computed using the Black-Scholes model. The fair value of each stock option grant is estimated at the date of grant using a Black Scholes option pricing model. The volatility is based on historical volatility of the Company, by statistical analysis of the weekly share price for past periods based on the expected term period, the expected term is the contractual term of each grant. The expenses are subsequently adjusted to fair value at the end of each reporting period until such options vest, and the fair value of such instruments, as adjusted, is expensed over the related vesting period. The underlying data used for computing the fair value of the options are as follows:
F-39F-55
Year Ended November 30, | ||||||
2018 | 2017 | |||||
Value of one common share | $4.42-$8.34 | $3.6-$7.44 | ||||
Dividend yield | 0% | 0% | ||||
Expected stock price volatility | 91%-95% | 87%-95% | ||||
Risk free interest rate | 2.33%-3.20% | 1.19%-1.89% | ||||
Expected term (years) | 9.79-10 | 4-5 |
Year Ended | One month ended | ||||||||
December 31, 2019 | November 30, 2018 | December 31, 2018 | |||||||
Value of one common share | $3.14-$5.07 | $4.42-$8.34 | - | ||||||
Dividend yield | 0% | 0% | - | ||||||
Expected stock price volatility | 89%-92% | 91%-95% | - | ||||||
Risk free interest rate | 1.52%-2.62% | 2.33%-3.20% | - | ||||||
Expected term (years) | 10 | 9.79-10 | - |
A summary of the status of theCompany's stock options granted to consultants and service providers as of December 31, 2019, and November 30, 2018 and 2017 and changes for the years then ended and the one-month ended December 31, 2018 is presented below:
2018 | 2017 | |||||||||||||||||||||||||||||
Weighted | Weighted | |||||||||||||||||||||||||||||
Average | Average | |||||||||||||||||||||||||||||
Exercise | Exercise | |||||||||||||||||||||||||||||
Number of | Price | Number of | Price | 2019 | 2018 | One month ended December 31, 2018 | ||||||||||||||||||||||||
Options | $ | Options | $ | Number of Options | Weighted Average Exercise Price $ | Number of Options | Weighted Average Exercise Price $ | Number of Options | Weighted Average Exercise Price $ | |||||||||||||||||||||
Options outstanding at the beginning of the year | 399,380 | 7.47 | 441,621 | 6.24 | 469,974 | 5.75 | 399,380 | 7.47 | 469,974 | 5.75 | ||||||||||||||||||||
Changes during the year: | ||||||||||||||||||||||||||||||
Granted | 102,763 | 4.92 | 16,668 | 4.80 | 128,336 | 5.65 | 102,763 | 4.92 | - | - | ||||||||||||||||||||
Expired | - | - | (58,909 | ) | 8.28 | |||||||||||||||||||||||||
Forfeited | (15,500 | ) | - | - | - | - | - | (15,500 | ) | - | - | - | ||||||||||||||||||
Cancelled | (16,669 | ) | 7.02 | - | - | (16,669 | ) | 7.02 | - | - | ||||||||||||||||||||
Options outstanding at end of the year | 469,974 | 5.75 | 399,380 | 7.47 | 598,310 | 5.76 | 469,974 | 5.75 | 469,974 | 5.75 | ||||||||||||||||||||
Options exercisable at end of the year | 436,640 | 5.75 | 379,712 | 5.76 | 539,515 | 5.88 | 436,640 | 5.75 | 438,514 | 5.75 |
The following table presents summary information concerning the options granted and exercisable to consultants and service providers outstanding as of November 30, 2018December 31, 2019 (in thousands, except per share data):
Weighted | |||||||||||||||
Average | Aggregate | Number of | Aggregate | ||||||||||||
Exercise | Number of | Remaining | Intrinsic | Exercisable | Exercisable | ||||||||||
Price | Outstanding | Contractual | Value* | Options | Options | ||||||||||
$ | Options | Life | $ | Value $ | |||||||||||
(in thousands) | (in thousands) | ||||||||||||||
3.36 | 136,775 | 7.41 | 362 | 136,775 | 460 | ||||||||||
3.6 | 83,334 | 7.25 | 201 | 83,334 | 300 | ||||||||||
4.42 | 10,325 | 9.02 | 16 | 10,325 | 46 | ||||||||||
4.8 | 16,667 | 8.03 | 20 | 16,667 | 80 | ||||||||||
5.3 | 35,000 | 9.79 | 25 | 20,000 | 106 | ||||||||||
5.99 | 25,005 | 9.9 | 13,337 | 80 | |||||||||||
6 | 90,000 | 5.67 | 90,000 | 540 | |||||||||||
6.4 | 8,333 | 9.13 | 1,667 | 11 | |||||||||||
7.32 | 8,334 | 3.98 | 8,334 | 61 | |||||||||||
8.34 | 8,600 | 9.61 | 8,600 | 72 | |||||||||||
11.52 | 8,334 | 4.35 | 8,334 | 96 | |||||||||||
16.8 | 39,267 | 3.37 | 39,267 | 660 | |||||||||||
469,974 | 6.83 | 624 | 436,640 | 2,512 |
F-56
Exercise Price $ |
| Number of Outstanding Options |
| Weighted Average Remaining Contractual Life |
| Aggregate Intrinsic Value* $ |
|
Number of Exercisable Options |
| Aggregate Exercisable Options Value $ |
|
|
|
|
|
| (in thousands) |
|
|
| (in thousands) |
3.14 |
| 15,000 |
| 9.91 |
| 23 |
| - |
| - |
3.36 |
| 136,775 |
| 6.33 |
| 179 |
| 136,775 |
| 460 |
3.6 |
| 83,334 |
| 6.17 |
| 88 |
| 83,334 |
| 300 |
4.09 |
| 25,000 |
| 9.76 |
| 14 |
| 12,500 |
| 51 |
4.42 |
| 10,325 |
| 7.94 |
| 2 |
| 10,325 |
| 46 |
4.5 |
| 13,335 |
| 9.53 |
| 2 |
| - |
| - |
4.8 |
| 16,668 |
| 6.95 |
| - |
| 16,668 |
| 80 |
5.07 |
| 5,000 |
| 9.19 |
| - |
| 1,000 |
| 5 |
5.3 |
| 35,000 |
| 8.71 |
| - |
| 29,375 |
| 156 |
5.99 |
| 25,005 |
| 8.82 |
| - |
| 21,671 |
| 130 |
6 |
| 90,000 |
| 4.59 |
| - |
| 90,000 |
| 540 |
7 | 70,000 | 9.83 | - | 70,000 | 490 | |||||
7.32 |
| 8,334 |
| 2.89 |
| - |
| 8,334 |
| 61 |
8.34 |
| 8,600 |
| 8.52 |
| - |
| 8,600 |
| 72 |
8.43 |
| 8,333 |
| 8.05 |
| - |
| 3,332 |
| 28 |
11.52 |
| 8,334 |
| 3.26 |
| - |
| 8,334 |
| 96 |
16.8 |
| 39,267 |
| 2.29 |
| - |
| 39,267 |
| 660 |
|
| 598,310 |
| 6.77 |
| 308 |
| 539,515 |
| 3,175 |
Costs incurred with respect to options granted to consultants and service providers for the yearyears ended December 31, 2019 and November 30, 2018 were $ 330 thousand and 2017 was $331 thousand respectively.
Offsetting costs incurred with respect to options granted to consultants and $322 thousand, respectively.service providers for the one month ended December 31, 2018 were $2 thousand. As of November 30, 2018,December 31, 2019, there was $157 thousand$ 137 thousands of unrecognized compensation costs related to non-vested consultants and service providers, to be recorded over the next 3.135.59 years.
F-40
d.Warrants and Shares Issued to Non-Employees
The fair value of Common Stock issued was the share price of the shares issued at the day of grant.
1) During the year ended December 31, 2019, the Company granted to several consultants 88,499 warrants each exercisable between $4.3 and $7.00 per share for three years. The fair value of those options as of the date of grant using the Black-Scholes valuation model was $155 thousand, out of which $97 thousand is related to 57,142 warrants granted as a success fee with respect to the issuance of the convertible notes.
2) In September 2019, the Company entered into an investor relation services, marketing and related services agreement. Under the terms of the agreement, the Company agreed to issue the consultant 40,174 shares of restricted common stock, of which the first 20,087 shares will be held in escrow by the Company until the six months anniversary of the agreement and 20,087 shares will be issued on the six months anniversary of the agreement to be held in escrow by the company until the one year anniversary of the agreement. The fair value of the shares was $165 thousand using the fair value of the shares on the grant date. $82 thousand was recognized during the year ended December 31, 2019.
3) In March 2019, the Company issued First Choice 525,000 shares of Common Stock. The value of Common Stock issued in the amount of $2.6 million were charged to research and development expenses during the year ended December 31, 2019. (See note 12 to Item 8 of this Form 10K for further details).
4) In December 2018, the Company entered into an investor relation services, marketing and related services agreement. Under the terms of the agreement, the Company agreed to issue the consultant 10,000 shares of restricted common stock, of which the first 2,500 shares vested on the signing date, and 7,500 shares are to vest monthly over 3 months commencing January 2019. As of December 31, 2019, 10,000 shares were fully vested. The fair value of the shares was $51 thousand using the fair value of the shares on the vesting dates. $37 thousand was recognized during the year ended December 31, 2019.
F-57
5) In December 2018, the Company entered into a separate investor relations services, marketing and related services agreement. Under the terms of the agreement, the Company agreed to issue the consultant 40,000 shares of restricted common stock, of which the first 6,667 shares vested on the signing date, and 33,333 shares vested monthly over five months commencing January 2019. As of December 31, 2019, 40,000 shares were fully vested. The fair value of the shares was $200 thousand using the fair value of the shares at the vesting dates. $163 thousand was recognized during the year ended December 30, 2019.
6) During the year ended November 30, 2018, the Company granted to several consultants 78,782 warrants each exercisable between $6.24 and $15.41 per share for three years. The fair value of those warrants as of the date of grant using the Black-Scholes valuation model was $350 thousand. The warrants granted as a success fee with respect to private placement and the issuance of convertible loans.
2)7) In January 2018, the Company entered into a consulting agreement with a financial advisor for a period of one year. Under the terms of the agreement, the consultant was entitled to receive $60 thousand and 19,000 units of the Company securities. Each unit is comprised of (i) one share of the Company's common stock and (ii) a three-year warrant to purchase up to an additional one share of the Company's Common Stock at a per share exercise price of $6.24. The fair value of the units as of the date of grant was $171 thousand, out of which $62 thousand reflect the fair value of the warrants using the Black-Scholes valuation model. In July 2018, the board approved an additional issuance of 6,629 shares and three-year warrants to purchase up to 6,629 shares of the Company's Common Stock at a per share exercise price of $6.24. The fair value of the units as of the date of grant was $88 thousand.
8) In December 2017, the Company entered into investor relations services, marketing and related services agreements. Under the terms of the agreement, the Company agreed to grant the consultants a total of 195,000 shares of restricted common stock, out of which the first 50,000 shares will vest after 30 days from the signing date, and 145,000 shares are to vest monthly over 15 months commencing February 2018. As of November 30, 2018, 140,000December 31, 2019, all shares were vested. The fair value of the shares as of the date of grant was $1,439 thousand.
3) In January 2018, the Company entered into a consulting agreement with a financial advisor for a period of one year. Under the terms of the agreement, the consultant was entitled to receive $60 thousand and 19,000 units of the Company securities. Each unit is comprised of (i) one share of the Company’s common stock and (ii) a three-year warrant to purchase up to an additional one share of the Company’s Common Stock at a per share exercise price of $6.24. The fair value of the units as of the date of grant was $171 thousand, out of which $62 thousand reflect the fair value of the warrants using the Black-Scholes valuation model. In July 2018, the board approved an additional issuance of 6,629 shares and three-year warrants to purchase up to 6,629 shares of the Company’s Common Stock at a per share exercise price of $6.24. The fair value of the units as of the date of grant was $88 thousand.
4) During the year ended November 30, 2017, the Company granted to several consultants 53,148 warrants each exercisable at $6.24 or $10.20 per share for three years. The fair value of those options as of the date of grant using the Black-Scholes valuation model was $211 thousand, out of which $169 thousand is related to 38,001 warrants granted as a success fee with respect to the issuance of the convertible notes.
NOTE 16 –17 - TAXES
a.Corporate taxation in the U.S.
The applicable corporate U.S. Federal Income tax rate forapplicable to the Company and the U.S.its US subsidiaries is 21% following the U.S. Tax Cuts and Jobs Act (the “TCJA”), excluding state tax and local tax. On December 22, 2017, the TCJA was signed into law, which among other changes reduced the federal corporate income tax rate from 35% to 21%, effective January 1, 2018..
As of November 30, 2018,December 31, 2019, the Company has an accumulated tax loss carryforward of approximately $19$37 million (as of November 30,December 31, 2018, approximately $19 million).
For U.S. federal income tax purposes, net operating losses ("NOLs") arising in tax years beginning after December 31, 2017, approximately $12.8 million). Under U.S.the Internal Revenue Code of 1986, as amended (the "Code") limits the ability to utilize NOL carryforwards to 80% of taxable income. In addition, NOLs arising in tax laws,years ending after December 31, 2017 can be carried forward indefinitely, but carryback is generally prohibited. NOLs generated in tax years beginning before January 1, 2018 will not be subject to certain limitations,the taxable income limitation, and NOLs generated in tax years ending before January 1, 2018 will continue to have a two-year carryback and twenty-year carryforward period. Deferred tax losses expire 20 yearsassets for NOLs will need to be measured at the applicable tax rate in effect when the NOL is expected to be utilized. The changes in the carryforward/carryback periods as well as the new limitation on use of NOLs may significantly impact the Company's valuation allowance assessments for NOLs generated after the year in which incurred. UtilizationDecember 31, 2017.
In addition, utilization of the U.S. net operating lossesNOLs may be subject to substantial annual limitation under Section 382 of the Code due to an "ownership change" within the "change in ownership" provisionsmeaning of Section 382(g) of the Internal Revenue Code of 1986 and similar state provisions. TheCode. An ownership change, subjects pre-ownership change NOLs carryforwards to an annual limitation, may resultwhich significantly restricts the ability to use them to offset taxable income in periods following the expirationownership change. In general, the annual use limitation equals the aggregate value of net operating losses before utilization.the Company's stock at the time of the ownership change multiplied by a specified tax-exempt interest rate.
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b.Corporate taxation in Israel
The Israeli Subsidiaries are taxed in accordance with Israeli tax laws. The corporate tax rates applicable to 20182019 and 20172018 are 23% and 24% respectively..
As of November 30, 2018,December 31, 2019, the Israeli Subsidiaries has an accumulated tax loss carryforward of approximately $7.3$10 million (as of November 30, 2017,December 31, 2018, approximately $5.8$7 million). Under the Israeli tax laws, carryforward tax losses have no expiration date.
c.Corporate taxation in BelgianBelgium
The majority of the Company’s tax expense are as a result of Masthercell SA’s operations. The Belgian Subsidiaries are taxed according to Belgian tax laws. The corporate tax rate applicable to 2020, 2019- 20182019-2018 are 25% and 2017 are 25%, 29.58% and 34%.
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As of November 30, 2018,December 31, 2019, the Belgian Subsidiaries has an accumulated tax loss carryforward of approximately $5.9$7 million (€5.26 million), (as of November 30, 2017 $15.8December 31, 2018 $9 million). Under the Belgian tax laws there is are limitation on accumulated tax loss carryforward deductions of Euro 1 million per year.
d.Corporate taxation in Korea
The basic Korean corporate tax rates are currently: 10% on the first KRW 200 million of the tax base, 20% up to KRW 20 billion, , 22% up to KRW 300 billion and 25% for tax base above KRW 300 billion. In addition, the local income tax rate is 1% on the first KRW 200 million of taxable income, 2% on taxable income over KRW 200 million up to KRW 20 billion, 2.2% of taxable income over KRW 20 billion up to 300 billion and 2.5% on taxable income over KRW 300 billion.
As of November 30, 2018,December 31, 2019, CureCell has an accumulated tax loss carryforward of approximately $3.2$3 million (KRW 3,4213,486 million), (as of December 31, 2018, approximately $3 million).
e.Deferred Taxes
The following table presents summary of information concerning the Company’sCompany's deferred taxes as of the periods ending November 30,December 31, 2019 and December 31, 2018 and 2017 (in thousands):
November 30, | ||||||||||||
2018 | 2017 | December 31, 2019 | December 31, 2018 | |||||||||
(U.S dollars in thousands) | (U.S. dollars in thousands) | |||||||||||
Net operating loss carry forwards | $ | 8,868 | $ | 11,893 | $ | 14,807 | $ | 9,765 | ||||
Research and development expenses | 2,915 | 1,065 | 2,172 | 3,065 | ||||||||
Employee benefits | 181 | 180 | 314 | 181 | ||||||||
Property and equipment | (47 | ) | (61 | ) | ||||||||
Deferred income | (117 | ) | (292 | ) | ||||||||
Property, plants and equipment | (36 | ) | (51 | ) | ||||||||
Loans | - | (117 | ) | |||||||||
Contract liabilities | (104 | ) | (118 | ) | ||||||||
Intangible assets | (4,142 | ) | (5,117 | ) | (3,452 | ) | (4,115 | ) | ||||
Other | 11 | - | ||||||||||
Less: Valuation allowance | (9,235 | ) | (8,358 | ) | (15,638 | ) | (10,266 | ) | ||||
Net deferred tax liabilities | $ | (1,702 | ) | $ | (690 | ) | $ | (1,926 | ) | $ | (1,656 | ) |
Realization of deferred tax assets is contingent upon sufficient future taxable income during the period that deductible temporary differences and carry forwards losses are expected to be available to reduce taxable income. As the achievement of required future taxable income is not considered more likely than not achievable, the Company and all its subsidiaries except MaSTherCell Atvio and CureCell have recorded full valuation allowance.
The changes in valuation allowance are comprised as follows:
Year Ended November 30, | ||||||
2018 | 2017 | |||||
(U.S dollars in thousands) | ||||||
Balance at the beginning of year | $ | (8,358 | ) | $ | (5,151 | ) |
Additions during the year | (877 | ) | (3,207 | ) | ||
Balance at end of year | $ | (9,235 | ) | $ | (8,358 | ) |
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Year Ended | Transition Period, One-month Ended | ||||||||
December 31, 2019 | November 30, 2018 | December 31, 2018 | |||||||
(U.S dollars in thousands) | |||||||||
Balance at the beginning of year | $ | (10,266 | ) | $ | (8,358 | ) | $ | (9,235 | ) |
Additions during the year | (5,372 | ) | (877 | ) | (1,031 | ) | |||
Balance at end of year | $ | (15,638 | ) | $ | (9,235 | ) | $ | (10,266 | ) |
f.Reconciliation of the Theoretical Tax Expense to Actual Tax Expense
The main reconciling itemitems between the statutory tax rate of the Company and the effective rate is the provision for full valuation allowance with respect to tax benefits from carry forward tax losses and changes in cooperate tax rate in the U.S and Belgium.
g.Uncertain Tax Provisions
ASC Topic 740, “Income Taxes”"Income Taxes" requires significant judgment in determining what constitutes an individual tax position as well as assessing the outcome of each tax position. Changes in judgment as to recognition or measurement of tax positions can materially affect the estimate of the effective tax rate and consequently, affect the operating results of the Company. As of November 30, 2018,December 31, 2019, the Company has not accrued a provision for uncertain tax positions.
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NOTE 1718 - FAIR VALUE PRESENTATIONREVENUES
The Company measures fair value and discloses fair value measurements for financial assets and liabilities. Fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The accounting standard establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which are described below:
In determining fair value, the Company utilizes valuation techniques that maximize the useDisaggregation of observable inputs and minimize the use of unobservable inputs, to the extent possible, and considers credit risk in its assessment of fair value.
As of November 30, 2017, the Company’s liabilities that are measured at fair value and classified as level 3 fair value are as follows (in thousands):
* The embedded derivative is presented in the Company's balance sheets on a combined basis with the related host contract (the convertible loans).
The fair value is determined by using a Black-Scholes Model.Revenue
The following table presentsdisaggregates the assumptions thatCompany's revenues by major revenue streams.
Year Ended December 31, 2019 | Transition Period, One-Month Ended December 31, 2018 | |||||
Revenue stream: | ||||||
Cell process development services | $ | 19,928 | $ | 1,488 | ||
Tech transfer services | 5,396 | 364 | ||||
POC development services | 3,109 | - | ||||
Cell manufacturing services | 4,823 | - | ||||
Total | $ | 33,256 | $ | 1,852 |
Contract Assets and Liabilities
Contract assets are mainly comprised of trade receivables net of allowance for doubtful debts, which includes amounts billed and currently due from customers.
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The activity for trade receivables is comprised of:
Year Ended December 31, 2019 | Transition Period, One-month Ended December 31, 2018 | |||||
Balance as of beginning of period | $ | 3,226 | $ | 4,151 | ||
Additions | 26,148 | 1,612 | ||||
Collections | (20,803 | ) | (2,561 | ) | ||
Exchange rate differences | (86 | ) | 24 | |||
Balance as of end of period | $ | 8,485 | $ | 3,226 |
The activity for contract liabilities is comprised of:
Year Ended December 31, 2019 | Transition Period, One-month ended December 31, 2018 | |||||
Balance as of beginning of period | $ | 5,175 | $ | 5,317 | ||
Adoption of ASC 606: | - | (8 | ) | |||
Additions | 9,850 | 28 | ||||
Realizations* | (6,307 | ) | (251 | ) | ||
Exchange rate differences | (92 | ) | 89 | |||
Balance as of end of period | $ | 8,626 | $ | 5,175 |
* Out of which $4,897 thousand and $251 thousand were used forrealized from the models as of November 30,2017:
Embedded | Put Option | |
Derivative | Derivative | |
Fair value of shares of common stock | $ 4.38 | |
Expected volatility | 77% | 54% |
Discount on lack of marketability | - | 12% |
Risk free interest rate | 1.21%-1.39% | 1.44% |
Expected term (years) | 0.17-0.42 | 0.5 |
Expected dividend yield | 0% |
The table below sets forth a summarybeginning of the changes in the fair value of the Company’s financial liabilities classified as Level 3period for the year ended November 30, 2018:
Embedded | Put Option | |||||
Derivatives | Derivative | |||||
Balance at beginning of the period | $ | 37 | $ | (339 | ) | |
Repayment | (14 | ) | - | |||
Changes in fair value during the period | (23 | ) | 49 | |||
Option disposal | - | 290 | ||||
Balance at end of the period | $ | - | $ | - |
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(*) There were no transfers to Level 3 during the twelve months ended November 30, 2018.
The table below sets forth a summary of the changes in the fair value of the Company’s financial liabilities classified as Level 3December 31, 2019 and for the yearone-month ended November 30, 2017:December 31, 2018 respectively.
Embedded | Convertible | Put Option | |||||||
Derivatives | Bonds | Derivative | |||||||
Balance at beginning of the year | $ | 240 | $ | 1,818 | $ | 273 | |||
Repayment | (876 | ) | (1,827 | ) | - | ||||
Changes in fair value during the period | 662 | 22 | (612 | ) | |||||
Translation adjustments | 11 | (13 | ) | - | |||||
Balance at end of the year | $ | 37 | $ | - | $ | (339 | ) |
(*) There were no transfers to Level 3 during the twelve months ended November 30, 2017.
The Company has performed a sensitivity analysis of the results for the Put Option Derivative fair value as of November 30, 2017 with the following parameters:
Base -50% | Base | Base+50% | |||||||
(in thousands) | |||||||||
Sensitivity analysis due to changes in the assumptions expected volatility | $ | 335 | $ | 339 | $ | 379 | |||
Sensitivity analysis due to changes in Atvio's FV | 252 | 339 | 440 |
NOTE 18 –19 - COST OF RESEARCH AND DEVELOPMENT EXPENSES,AND RESEARCH AND DEVELOPMENT SERVICES, NET
Year ended | One month ended | ||||||||||||||
December 31, | November 30, | December 31, | |||||||||||||
Year Ended November 30, | 2019 | 2018 | 2018 | ||||||||||||
2018 | 2017 | (in thousands) | |||||||||||||
(in thousands) | |||||||||||||||
Total expenses | $ | 7,386 | $ | 3,326 | $ | 13,432 | $ | 7 ,386 | $ | 1,558 | |||||
Less grants | (922 | ) | (848 | ) | (974 | ) | (922 | ) | (127 | ) | |||||
Total | $ | 6,464 | $ | 2, 478 | $ | 12,458 | $ | 6 ,4 64 | $ | 1,431 |
NOTE 19–20- FINANCIAL EXPENSES, NET
Year ended November 30, | Year ended | One month ended | |||||||||||||
2018 | 2017 | December 31, | November 30, | December 31, | |||||||||||
(in thousands) | 2019 | 2018 | 2018 | ||||||||||||
Decrease in fair value of warrants and financial liabilities measured at fair value | $ | 48 | $ | (902 | ) | ||||||||||
(in thousands) | |||||||||||||||
Increase in fair value of warrants and financial liabilities measured at fair value | $ | 63 | $ | 48 | $ | - | |||||||||
Stock-based compensation related to warrants granted due to issuance of credit facility | 180 | 1,497 | - | 180 | - | ||||||||||
Interest expense on convertible loans | 2,753 | 1,233 | 657 | 2,753 | 40 | ||||||||||
Foreign exchange loss, net | 129 | 562 | |||||||||||||
Other income | 7 | 57 | |||||||||||||
Foreign exchange loss (income), net | 350 | 129 | (5 | ) | |||||||||||
Other expenses (income) | (196 | ) | 7 | (8 | ) | ||||||||||
Total | $ | 3,117 | $ | 2,447 | $ | 874 | $ | 3,117 | $ | 27 |
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NOTE 20-21- RELATED PARTIES TRANSACTIONS
a.Related Parties presented in the consolidated statements of comprehensive loss
Year ended | One month ended | ||||||||
December 31, | November 30, | December 31, | |||||||
2019 | 2018 | 2018 | |||||||
(in thousands) | |||||||||
Stock-based compensation expenses to executive officers | $ | 974 | $ | 1,479 | $ | 506 | |||
Stock-based compensation expenses to Board Members* | $ | 414 | $ | 304 | $ | 48 | |||
Compensation of executive officers | $ | 1,497 | $ | 1,119 | $ | 527 | |||
Management and consulting fees to Board Members | $ | 233 | $ | 52 | $ | 19 | |||
Interest expenses on convertible loan from director | $ | - | $ | 13 | $ | - |
* Does not include $192 thousand related to Stock Based Compensation expenses for options exercisable at an exercise price of $7.00 per share into 70,000 ordinary shares held by Caerus Therapeutics LLC for which the director does not have beneficial control.
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For the year ended November 30, | ||||||
2018 | 2017 | |||||
(in thousands) | ||||||
Management and consulting fees to Board Members | $ | 52 | $ | 25 | ||
Stock Based Compensation expenses to Board Members | 304 | 393 | ||||
Compensation of executive officers | 1,119 | 419 | ||||
Stock Based Compensation expenses to executive officers | 1,479 | 821 | ||||
Interest Expenses on convertible loan from director | $ | 13 | $ | 55 |
b.Related Parties presented in the consolidated balance sheets
Year ended | One month ended | ||||||||
December 31, | November 30, | December 31, | |||||||
2019 | 2018 | 2018 | |||||||
(in thousands) | |||||||||
Executive officers' payables | $ | 1,329 | $ | 1,164 | $ | 984 | |||
Non-executive directors payable | $ | 202 | $ | 41 | $ | 46 | |||
Loan to Related Party. See Note 12(e)* | $ | 2,623 | $ | 1,007 | $ | 1,012 |
*This includes finance income in the amount of $123 thousand for the year ended December 31, 2019.
NOTE 22 - TRANSITION PERIOD
Comparable Financial Information
In conjunction with the Company's change in fiscal year end, the Company had a Transition Period of one month that began on December 1, 2018 and ended on December 31, 2018. The most comparable prior-year period, is the one month ended December 31, 2017.
The following table presents certain financial information during the periods presented:
Year ended November 30, | ||||||
2018 | 2017 | |||||
(in thousands) | ||||||
Convertible Loan from director | $ | - | $ | 167 | ||
Executive officers’ payables | 1,164 | 358 | ||||
Loan to Related Party. See Note 11(e) | 1,007 | - | ||||
Non-executive directors payable | $ | 41 | $ | 316 |
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Transition Period | Comparable Period | |||||
December 1 to | December 1 to | |||||
December 31, | December 31, | |||||
2018 | 2017 (Unaudited) | |||||
Total revenue | 1,852 | 802 | ||||
Operating loss | (2,963 | ) | (1,349 | ) | ||
Income tax benefit | (83 | ) | (132 | ) | ||
Net loss | (2,907 | ) | (2,056 | ) | ||
Net loss per weighted-average share, basic | (0.19 | ) | (0.20 | ) | ||
Net loss per weighted-average share, diluted | (0.19 | ) | (0.20 | ) | ||
Weighted-average shares, basic | 15,423,040 | 10,367,472 | ||||
Weighted-average shares, diluted | 15,423,040 | 10,367,472 |
NOTE 2123 - SUBSEQUENT EVENTS
a. In December 2018,On January 2, 2020, the Company entered into unsecured convertible loanprivate placement subscription agreements with accredited or offshore investors for an aggregate amount of $250 thousand. The loans bearlenders shall be entitled, at any time prior to or no later than the maturity date, to convert the outstanding amount, into units of 1 share of common stock of the Company at a conversion price per share equal to $7.00. In addition, the Company granted lender 151,428 warrants to purchase an annual interest rateequal number of 2% and mature in three years unless converted earlier underadditional shares of the same terms as the convertible loans presented in Note 8(a).Company's common stock at a price of $7.00 per share.
b. During December 2018,On January 9, 2020, the Company advancedgranted 6,250 options to a totaldirector to purchase an equal number of $0.5 million to Hemogenyx Pharmaceuticals PLC and Immugenyx PLC. See Notes 11(f) and 11(g).additional shares of the Company's common stock at a price of $4.70 per share.
c. On February 4, 2019, the Indian Joint Venture transferred the first payment of $1 million for services under the India JVA. See also Note 11(e).
d. In December 2018,January 20, 2020, the Company entered into a Controlled Equity Offering SalesSecurities Purchase Agreement (“Sales Agreement”(the "Purchase Agreement") with Cantor Fitzgerald & Co.(“Cantor”)certain investors pursuant to which the Company may offerissued and sell, from time to time through Cantor,sold, in a private placement (the "Offering"), 2,200,000 shares of the Company’sCompany's common stock having an aggregate offeringat a purchase price of $4.20 per share (the "Shares") and warrants to purchase up to $25.0 million. The Company will pay Cantor a commission rate equal to 3.0%1,000,000 shares of the aggregate gross proceeds from each sale. The Company has not yet sold any shares pursuant to the Sales Agreement.
e. During December 2018, the Company received authorization from the Direction des Programmes de recherche in Belgium that based on a program and budget of $1.5 million in the field of gene-therapy research for diabetes 1 treatment, the Company could receive up to $ 350 thousand by June 2021.
f. During January 2019, Masthercell Global executed a lease agreement for production facilities in the United States. Under the terms of the agreement, Masthercell Global leased approximately 32,000 square feet for 180 months. Masthercell Global advanced $1.6 million on account of a security deposit, tenant improvement allowance and prepaid base rent. The annual rental increases over the lease period from approximately $726 thousand to $962 thousand.
g. In December 2018 and January 2019, the Board of Directors of Masthercell Global approved option grants for the purchase of 61,111 options in Masthercell Global under the Masthercell Global option plan to Masthercell Global executives,common stock at an exercise price of $13.52.$5.50 per share (the "Warrants") which are exercisable between June 2021 and January 2023. The Company received gross proceeds of approximately $9.240 million before deducting related offering expenses. The Company has agreed to register the resale of the Shares and the shares of common stock underlying the Warrants.
F-45d. See note 1 regarding the Masthercell sale.
e. During January 2020, the Maryland Subsidiary and Broaden Bioscience and Technology Corp entered into a convertible loan agreement according to which Company agreed to lend Broaden Bioscience and Technology Corp an amount of up to $5 million as convertible loan as part of Company's investment in the Broaden JVA (see Note 12).
f. During January 2020 the Company transferred $500 thousand to Image Securities Ltd (a related party) as an additional payment under the convertible loan agreement (held under escrow).
g. During February 2020 the company repaid the convertible loan referred to in note 14 (a) 2 in the amount of $500 thousand.
h. During March 2020 the company repaid a convertible loan referred to in note 14 (a) 6 in the amount of $1.15 million.
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