NDF Research provides independent research coverage of ASX-listed Life Science companies, Part 2 of their report on Orthocell is provided below:
Tendon repair is an area of unmet medical need. Tendons are the fibrous connective tissues in the body, mostly made from collagen, which attach muscles to bone and help those bones to move. Tendons are easily injured because they bear much of the stress when the muscle contracts, and they are less vascularised than muscle, making them slower to heal when damaged. Consequently, tendon injury, called tendinopathy, is commonplace in advanced industrial countries. And yet, in spite of this, ‘the ideal treatment for tendinopathy’, as one reviewer recently put it, ‘is still nebulous’.
– Tendinopathy is a large market opportunity. There are no exact figures on the prevalence of all tendinopathies however it could be >6% of the adult population.
– Standard of care for tendinopathy is still being worked out. Traditionally tendinopathy has been treated in the first instance with anti-inflammatories such as corticosteroids, with only short-term benefit, and if the injury is slow to heal, with surgery. Two more recent trends have been ‘needling’ and ‘platelet-rich plasma’ (PRP), where a common aim in each case is to harness growth factors that will prompt tissue regeneration. In needling, a special needle is thrust into the tendon to make it bleed and bring about the influx of growth factors. PRP takes advantage of the fact that the platelet-derived growth factors in such a blood product can do likewise, although there is a paucity of controlled, randomised studies on duration of effect.
Orthocell clinical data suggests its Ortho‐ATI® is a superior tendon repair product. Ortho-ATI®, initially developed in 2006, is Orthocell’s Autologous Tenocyte Implantation treatment for tendinopathy. In an Ortho- ATI® procedure, a sample of healthy tendon tissue is biopsied from the patient (usually from the patellar tendon near the knee), with the tenocytes from those cells expanded in Orthocell’s laboratory in the Australian city of Perth over a 4-to-6 week period, after which they are returned to the patient. The product grew out of an insight from Orthocell founder Professor Ming-Hao Zheng that tenocytes, the characteristic cells in tendons, were slow growing but that phenotypically stable tenocytes could nonetheless be cultured in therapeutically relevant numbers and in a reasonable time-frame in a culture medium. Once these new tenocytes were in place they could pump out the right kind of collagen and other non-collagenous matrix proteins that would restore a cohesive tendon with normal structure and function. Orthocell’s clinical data suggests Ortho-ATI® is a superior tendon repair approach to needling, PRP and other therapies because no other approach can put these important building blocks of tendons in place. This insight led to a global regenerative medicine breakthrough – in 2010 Ortho-ATI® became the first approved cell therapy for tendon repair in the world, and the clinical evidence behind Ortho-ATI® has grown considerably since then.
The data on Ortho‐ATI® has been very good so far. Five main human studies have borne out the clinical effectiveness of Ortho-ATI® in tendinopathy to date. An original clinical study in 2008 in tennis elbow established the product’s early clinical effectiveness and durability, while an as-yet-unpublished study from 2015 in severely- affected tennis elbow patients showed that Orthocell’s product could work after everything else had failed.
- A Phase 1 study in Lateral Epicondylitis, 2008‐2015. This study, which commenced in 2008, tracked 17 patients in Perth with Lateral Epicondylitis after they received Ortho-ATI®. Lateral Epicondylitis is commonly called ‘tennis elbow’. Orthocell’s tennis elbow patients, whose condition was over six months old at the time of treatment, registered a statistically significant (p < 0.001) reduction in pain scores (86% mean reduction over 12 months), an improvement in grip strength (85% mean increase over 12 months), an improvement in overall elbow function (94% mean increase over 12 months), and an improvement in the grade of tendinopathy, as measured by MRI. This data was published in the American Journal of Sports Medicine in September 2013. The American Journal of Sports Medicine also published, in April 2015, long-term follow up data with average duration of 4.5 years showing that Ortho-ATI® was genuinely disease-modifying. This data, which first became available in August 2014, showed that, over time, the patients’ grip strength continued to improve (from 85% over baseline at 12 months to 207% over baseline at 4.5 years) while the initial reduction in pain scores and improvement in elbow function were maintained (83% versus 86% and 87% versus 94% respectively). The data set for this study was one of the longest assembled for a cellular therapy up to that time.
- Phase 1 study in gluteal tendinopathy, 2010‐2017. This study, which commenced in 2010, evaluated 12 patients with serious gluteal tendinopathy where the average symptom duration had been 33 months and where patients had failed all previous therapies. Damage to the gluteal tendons affects hip and thigh movement. Orthocell reported in 2014 that 8 of the 12 patients reported that they were ‘satisfied’ or ‘highly satisfied’ with the treatment after 12-months. In November 2014, the company disclosed two-year data from the 12 patients showing statistically significant reductions in pain scores (VAS), an improvement in hip function (Oxford Hip Score) and an improvement in quality of life (SF36 PCS). In December 2016 Orthocell indicated that the average quality-of-life increase had been 148%. The data was finally published in the Orthopaedic Journal of Sports Medicine in February 2017. Gluteal tendinopathy may affect >23.5% of women and >8% of men over the age of 50.
- Case study in rotator cuff injury, 2011‐2013. In 2011 Ming-Hao Zheng and his colleagues administered Ortho-ATI® to a 20-year-old elite gymnast with a rotator cuff tendon injury. Damage to these tendons impacts the ability of a person to rotate their shoulder, something vitally important to gymnasts. At the 12-month timepoint after receiving Ortho-ATI®, Zheng’s gymnast was reporting substantial improvement of clinical symptoms and was back in competition. This favourable outcome was reported in the journal BMJ Case Reports in January 2013.
- Study in severely‐affected Lateral Epicondylitis patients on Workers’ Compensation, 2015. Orthocell reported in October 2015 that Ortho-ATI® had proved effective in the treatment of 25 people with work- related Lateral Epicondylitis where the injury had inhibited their ability to work, where those patients had failed other modes of therapy, and where the symptoms had persisted for an average of 22 months. Ortho-ATI® was able to return 88% of these patients to work, most within 1-3 months, with a return to pre-injury productivity by a little over five months. Orthocell has indicated that it intends to publish this retrospective data in a suitable journal.
- Case study in rotator cuff injury, 2017. In this case study an elite swimmer returned pain-free to full training, and international-level competition only four months after treatment. This favourable outcome was reported in the Physical Therapy in Sport journal in October 2017.
Collaboration with DePuy Synthes Products, Inc., part of the Johnson & Johnson Medical Device Companies.
The two big indications – tennis elbow and rotator cuff injury. Possibly 2-3% of the adult population has rotator cuff tendinopathy35 and around 1-2% each have Lateral Epicondylitis as well as a related condition called Medial Epicondylitis (commonly called ‘golfer’s elbow’). We argue below that tennis elbow and rotator cuff alone can create sizeable commercial opportunities for Orthocell and whoever chooses to partner with the company to take Ortho-ATI® forward.
Orthocell has optimised its manufacturing for Ortho‐ATI® over the last seven years. Orthocell brought Ortho- ATI® onto the Australian market in 2010 via the then-prevailing local regulations that licensed manufacturers of human tissue rather than approved individual human tissue products. In Orthocell’s case, the company set up an ISO-146441 compliant GMP manufacturing facility on the campus of Murdoch University in Perth’s southern suburbs for which a license was granted in January 2010. In 2011, the Therapeutic Goods Administration (Australia’s version of the FDA) changed the regulations so that individual biologicals had to be approved, but grandfathered products such as Ortho-ATI® so long as the manufacturers filed a design dossier, which Orthocell did in 2013. Orthocell is continuing with its application for the inclusion of Ortho-ATI® on the Australian Register of Therapeutic Goods (ARTG), the official list of the country’s approved medical products, as a ‘Class 3 biological’. We believe this transition has eased the path towards gaining FDA and CE Mark approvals for Ortho-ATI® given the heavy emphasis that drug and medical device regulators are now placing on GMP manufacturing as part of their overview of product safety in the regenerative medicine field.
Ortho‐ATI® is starting to go global. Currently Ortho-ATI® is available only in Australia and New Zealand, and, since 2015, in Hong Kong, but Orthocell now has big plans for the product in multiple new markets.
– Australia/New Zealand, with the help of a contract sales force: Locally, the patient numbers to date have been relatively small – around 450 over the last seven years. That said, the Australian business has proved a valuable testbed. Orthocell charges A$3,200 per injection for Ortho-ATI®, which it argues makes the product highly cost effective. Up until recently Orthocell itself handled marketing of Ortho- ATI® to radiologists, sports medicine specialists and physiotherapists in conjunction with select distributors. In October 2017 the company announced that a local medical device distributor called Surgical Specialties would handle distribution of Ortho-ATI® in the markets in which it is currently available, as well as the foundation Ortho-ACI® product we discuss below. We think this move is a good one since it allows better training of surgeons and treating physicians, and allows Orthocell to learn about distribution ahead of the global roll-out of CelGro®.
- The US: Orthocell flagged in December 2016 that it is preparing for a pre-IND meeting with the FDA ahead of a planned Phase 2 study in Lateral Epicondylitis. Orthocell now expects this meeting to take place in the second quarter of 2018 and the study to initiate shortly thereafter.
- Japan: Orthocell will likely seek to leverage the abridged approval process that currently applies in Japan for new regenerative medicines.
Rotator cuff is a US$6.5bn market opportunity for Ortho‐ATI®. Assume
- 1.5% of the population will suffer a rotator cuff injury in any one year;
- 35% of these patients are symptomatic and will therefore seek treatment options;
- 15% of the symptomatic patients will undergo arthroscopic rotator cuff surgery and the other 85% ‘conservative treatment’, such as steroids, hyaluronic acid injections and physical therapy;
- For the surgery patients, 33% of the procedures will not work;
- For the non-surgical patients, 25% will not have satisfactory outcomes.
Assume further that the surgery and non-surgery treatment failures then became candidates for Ortho-ATI®. Across the billion people in the four major markets that Orthocell wishes to address, this would represent 1.4 million patients. At US$4,500 per patient, a price that would likely be cost-effective given our estimate of US$15,000 for rotator cuff repair costs in the US, Ortho-ATI® is a US$6.5bn opportunity.
Lateral Epicondylitis is a US$1.5bn market, at least. Assume
- 0.3% of the population will suffer a from tennis elbow in any one year.
- 10% of cases will prove refractory to conservative treatment and may transition to surgery.
Assume further that patients that who would ordinarily be referred to surgery become candidates for Ortho- ATI®. At US$4,500 per treatment, this would represent a US$1.5bn opportunity. US$4,500 is cost effective here because around one in five patients with Lateral Epicondylitis still need care a year after first diagnosis. Ortho- ATI® has potential to markedly cut the cost of this care.
Ortho‐ACI® was Orthocell’s foundation product. Ortho-ACI®, Orthocell’s cartilage repair product, was what enabled the company to be started in 2006. Autologous Chondrocyte Implantation, similar to Autologous Tenocyte Implantation, involves biopsying a sample of cartilage tissue from the patient, extracting and then expanding the chondrocytes from the cartilage, and returning them to the site of cartilage injury.
Ortho‐ACI® is a superior third‐generation ACI product. Orthocell did not invent Autologous Chondrocyte Implantation – it had been pioneered in the mid-1990’s by a group at the University of Göteborg in Sweden and then commercialised by a German company called Verigen. That company gained FDA approval for the product, which it called MACI and is now called Carticel, in 1997. The major US biotech company Genzyme acquired Verigen in 2005. Around that time Paul Anderson and Ming-Hao Zheng, who had brought Verigen’s product to Australia, set out to create a better ACI solution. What they ended up with, and were able to market from 2010 after the manufacturing facility was licensed, could best be described as ‘third generation’ ACI:
- The first generation ACI approach saw the chondrocytes kept in place at the site of the defect by way of a flap made out of periosteum, the outermost layer of bone. This was an effective therapy but had the problem of graft hypertrophy, where scar tissue formed around the edges of the periosteal flap.
- Second generation ACI solved the problem of keeping the chondrocytes in place through the use of bioengineered collagen or synthetic membranes as the placement agent. A recently approved second generation ACI, which is now marketed as MACI, was originally developed, as we noted above, by Verigen and Genzyme and is now a product of the US regenerative medicine company Vericel. MACI (Matrix-induced Autologous Chondrocyte Implantation), is cultured chondrocytes on a porcine collagen membrane for the treatment of full-thickness cartilage defects of the knee.
- Third generation ACIs such as Ortho-ACI® took the membrane idea a step further and used three- dimensionally constructed scaffolds that could grow cells faster and could be quickly fitted into place using fibrin glue. Ortho-ACI® uses a porcine-derived collagen scaffold. Typically for Ortho-ACI® the cell expansion process takes only 4-5 weeks versus closer to 8 weeks for first and second-generation approaches.
Ortho‐ACI® has a long history of clinical use now. As with Ortho-ATI®, Ortho-ACI® was able to be used clinically in Australia without specific product approval through the tissue manufacturer regulations that existed prior to 2011. The product was included on the ARTG in May 2017. By then >380 patients had been treated. Orthocell reported retrospective data on 38 patients with articular cartilage defects in October 2015 showing 89% ‘good to excellent’ outcomes on MRI assessment and 83% on arthroscopic assessment. In Australia, Orthocell markets Ortho-ACI® at A$6,500 per injection. The company started offering Ortho-ACI® in Singapore in November 2015.
Ortho‐ACI® is a valuable product, but Orthocell now has bigger fish to fry. In itself, Ortho-ACI® is not as valuable as Ortho-ATI® because there are competing ACI approaches for cartilage repair. That said, we expect there will be partnering opportunities for Ortho-ACI® given the market need and the treatment outcomes that have been demonstrated to date. The real utility of Ortho-ACI®, however, is the collagen scaffold that was developed for it, which became Orthocell’s CelGro® product.
Ortho‐ACI® will compete is a >US$300m market globally. Vericel estimates that the annual US incidence of full- thickness cartilage defects of the knee is 46,000 patients but that MACI’s market is only 11,000 patients once age (age 18-55 – the pivotal studies didn’t evaluate patients over 55), insurance status and level of physical activity is taken into account. That said, at US$10,000 per procedure with Ortho-ACI® there is probably a US$300m-350m opportunity across Orthocell’s target market.
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