Originally published by NDF Research
Orthocell is an emerging player in the multi-billion-dollar field of regenerative medicine.
Its unique foundation products (Ortho-ATI® for tendon repair and Ortho-ACI® for cartilage repair) provide early commercial opportunities with large addressable markets.
But, the big payday may occur this financial year with European approval (CE Mark) achieved for CelGro® and US approval to follow. CelGro® is the company’s collagen scaffold that facilitates rapid tissue regrowth across a range of indications.
We regard CelGro® as a potential breakthrough product due to its mechanical strength, natural collagen structure and versatility. CelGro® could also enjoy rapid initial revenue in dental and orthopaedic markets – potentially accelerated by commercial partnerships with large healthcare companies. CelGro®’s potential market is well in excess of US$2bn. Orthocell has further related and ground-breaking opportunities including its ‘Cell Factory’ project to harness stem cell growth factors.
Our target price for the company is A$1.75 per share (midpoint of base case: A$0.89 and optimistic case: A$2.63).
Risk Current price
Target price $1.75
Daily Turnover: ~A$36,000
Market Cap: A$32.4m
Shares Issued: 110.0m
52-Week High: $0.26
52-Week Low: $0.49
Orthocell is a commercial‐stage regenerative medicine company with a focus on cellular therapies and collagen medical devices for the repair of soft tissue injuries and musculoskeletal disorders.
Orthocell’s portfolio of products include the TGA-licensed cell therapies Autologous Tenocyte Implantation (Ortho-ATI®) and Autologous Chondrocyte Implantation (Ortho-ACI®), which aim to regenerate damaged tendon and cartilage tissue. Orthocell’s market leading tendon regeneration product is attracting interest from global health care companies. For example, Orthocell is recruiting patients for a clinical trial of Ortho-ATI®. The objective of this study is to assess the safety and effectiveness of Ortho-ATI® compared to corticosteroid injection in the treatment of rotator cuff tendinopathy and tear. The trial is being undertaken in collaboration with DePuy Synthes Products, Inc., part of the Johnson & Johnson Medical Device Companies.
The company’s other major product is CelGro®, a collagen medical device which facilitates tissue repair and healing in a variety of orthopaedic, reconstructive and surgical applications. Orthocell recently received European regulatory approval (CE Mark) for CelGro®. The collagen medical device can now be marketed and sold within the European Union for a range of dental bone and soft tissue regeneration procedures and is being readied for first approval in the US.
At the early research stage are the ‘Lab-Grown Tendon’ project, where human tendons grown in a bioreactor may be used in tendon repair; and the ‘Cell Factories’ project in which growth factors from stem cells are used for allogeneic therapies.
What is regenerative medicine and why is it significant in today’s healthcare setting?
Regenerative medicine is the use of drugs and medical devices to harness the power of stem cells and related growth factors for repairing damaged tissues and organs. This is regarded as significant because up until recently there was no way for physicians to easily repair damaged soft tissue and bone, such as hearts, joints and spinal cords. Regenerative medicine promises to be the tool to make this possible. For musculoskeletal conditions in particular, the potential is for the first ever disease-modifying therapies. Where, for example, hyaluronic acid and steroids simply provide some pain relief, tissue repair using scaffolds and/or stem cells can repair the damaged tissue responsible for that pain. By being minimally invasive, and focused on the pathology not just the symptoms, such therapies can be highly cost-effective. For example, 12% of all osteoarthritis is due to traumatic joint injury1. Proper joint repair will significantly lower the incidence of osteoarthritis in these patients.
How is Orthocell a serious regenerative medicine player?
One of Orthocell’s most notable achievements in the regenerative medicine field to date is the development of Ortho-ATI®, the first autologous therapy in the world for the treatment of tendon damage. Orthocell have demonstrated that Ortho-ATI® has significant clinical and commercial potential. On 9 November 2017 the company announced regulatory approval (CE Mark) for the marketing and distribution of CelGro® in various dental bone and soft tissue regeneration procedures in the EU.
This is the first product of a diverse suite of collagen medical devices to be commercialised from Orthocell’s CelGro® platform. CelGro® is arguably one of the best tissue repair scaffolds yet invented. Further down the track, Orthocell could potentially be the first company to develop ‘cell factories’ for allogeneic tissue repair.
Why is CelGro® a potential ‘breakthrough’ product for Orthocell?
Often in tissue repair, biocompatible scaffolds are used in order to allow new tissue to grow into place. CelGro®, which consists of high-purity natural collagen, is unique in that it is completely acellular, has ideal mechanical properties and the right ‘integration profile’ to hasten in-growth of tissue at the site of the scaffold. It also has a tunable ‘degradation profile’ once the new tissue is in place. Orthocell argues that the result is high-quality tissue repair in a range of applications, with numerous clinical studies currently ongoing expected to verify this.
Why is the CE Mark so important?
The CE Mark allows CelGro® to be sold within EU countries and provides a strong foundation for additional dental bone and soft tissue regeneration regulatory applications in other key markets such as the US. Orthocell has a clear commercialisation strategy in place to drive initial sales of CelGro® and the company is in discussion with strategic commercial partners for product distribution in Europe and other key regions. Orthocell is also currently in discussions with selected Key Opinion Leaders in the dental and bone regeneration fields, who play an important role in driving broader market adoption. The CE Mark also validates the potential of the entire technology platform by endorsing CelGro®’s clinical performance and quality manufacturing, and by enabling other potential future indications, including peripheral nerve repair and hernia repair.
What are autologous and allogeneic therapies, and which is more important in the regenerative medicine field?
In autologous therapy, a patient’s own tissue is engineered and given back to them. Autologous therapies tend to be expensive because of the need to individually manufacture each dose. By contrast allogeneic therapies, where recipients receive tissue or stem cells from unrelated donors, will be lower-cost because they can be marketed ‘off-the-shelf’. However allogeneic therapies are, at this stage, not suitable for every indication in regenerative medicine. In tendon repair, for example, allogeneic cell sources are very difficult to achieve where typically Mesenchymal Stem Cells will not engraft into the tendon and will only act as a stimulus2. Orthocell’s autologous therapies are cost-effective because they are ‘fit for purpose’ and work better than current commercially-available alternatives.
If Orthocell is so good, why is it currently capitalised at only US$24.9m (A$31.9m)?
We believe that most publicly traded biotech and medical device companies in the regenerative medicine field are undervalued because of historical debates over the ethical use of stem cells in medicine and because of the fact that most stem cell therapies are still in clinical development. We believe the recent encouraging article in the New England Journal of Medicine from FDA commissioner Scott Gottlieb and his colleague Peter Marks, director of the FDA’s Center for Biologics Evaluation and Research, on stem cell regulation3 will help change public perceptions on the sector. Meantime, for Orthocell, its second breakthrough product has achieved regulatory approval in Europe and its tissue-engineering processes are non-controversial. The recent achievement of the CE Mark approval has derisked CelGro®. We expect further regulatory approvals of CelGro® in other jurisdictions (such as the US) and across other indications (such as nerve, tendon and ligament) to provide key catalysts for the stock, by validating the Orthocell platform and providing more understanding of its many big-market applications.
Ten reasons to look at Orthocell:
- Regenerative medicine is becoming big business. With International health authorities focusing on accelerating the introduction of regenerative medicine through accommodating policies; with sophisticated stem cell products performing well in late stage clinical trials; and with products like CelGro® gaining their first regulatory approval, we believe we are in the early stages of a boom in regenerative medicine.
- The market for repairing damaged tissue is significant. Injuries such as tennis elbow and ACL rupture are commonplace not just in sport4 but in life and work. Musculoskeletal conditions accounted for approximately 8% of the global disease burden in 20105 so there are multi-billion- dollar opportunities for the best, most cost-effective therapies. The acquisition of LifeCell by Allergan in February 2017 for US$2.9bn, and Rotation Medical by Smith & Nephew for US$125m upfront In October 2017, illustrates the upside for companies that are successful in this field.
- Orthocell’s Ortho‐ATI® is a market‐leading product, as the only regenerative-medicine-based product currently available for the repair of damaged tendons.
- Orthocell has received its first regulatory approval for CelGro®, with other major markets to follow. CelGro® is a platform technology with multiple applications including bone, tendon, nerve and cartilage repair. The product has performed well in numerous clinical studies since 2015.
- The upside for CelGro® in the dental field is particularly significant, with advances in dental implant technology driving the need for membranes that can work with bone graft substitutes.
- Orthocell’s portfolio of regenerative medicine technologies are attracting interest from global health care companies. For example, Orthocell is recruiting patients for a clinical trial of Ortho- ATI®. The objective of this study is to assess the safety and effectiveness of Autologous Tenocyte Injection (Ortho-ATI®) compared to corticosteroid injection in the treatment of rotator cuff tendinopathy and tear. The trial is being undertaken in collaboration with DePuy Synthes Products, Inc., part of the Johnson & Johnson Medical Device Companies.
- Ortho‐ACI® has been a dependable foundation product, with considerable advantages over earlier chondrocyte injection therapies. Ortho-ACI® has been marketed by Orthocell since 2010, with over 480 patients treated to date.
- Orthocell is working on allogeneic products. The company’s ‘Lab-Grown Tendon’ and ‘Cell Factories’ projects have the potential to become the Next Big Things in tissue engineering
- Orthocell has a solid management team. Founder and CEO Paul Anderson has built the company over ten years into a regenerative medicine contender with autologous products on the market and allogeneic projects in the pipeline. We are backing Anderson and the executive team as they have skills and previous success in building revenue-stage Life Sciences companies
- Orthocell is undervalued,on our numbers.We value Orthocell at A$0.89 per share (basecase) and A$2.63 (optimistic case) using a probability-weighted DCF-based valuation of the lead products. Our A$1.75 per share price target sits at about the midpoint of our valuation range.
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