UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: November 30, 2016
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 number 000-54329
ORGENESIS INC.
(Exact name of registrant as specified in its charter)
Nevada
State or other jurisdiction
of incorporation or organization
98-0583166
(I.R.S. Employer
Identification No.)
20271 Goldenrod Lane, Germantown, MD 20876
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (480) 659-6404
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act:
Common Stock, par value $0.0001 per share
(Title of class)
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 [ ]
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Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted 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 and post 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, or a smaller reporting
company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
Large accelerated filer [ ]
Non-accelerated filer [ ]
(Do not check if a smaller reporting company)
Accelerated filer [ ]
Smaller reporting company [X]
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 116,615,693 shares of common stock outstanding as of February 28, 2017. The aggregate market value of the
common stock held by non-affiliates of the registrant as of February 27, 2017 was $60,098,916 as computed by reference to the closing
price of such common stock on OTCQB on such date.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant intends to file a definitive proxy statement pursuant to Regulation 14A in connection with its 2017 Annual Meeting of
Stockholders within 120 days after the close of the fiscal year covered by this Form 10-K. Portions of such proxy statement are
incorporated by reference into Items 10, 11, 12, 13 and 14 of Part III of this report.
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ORGENESIS INC.
2016 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
Page
PART I
ITEM 1. BUSINESS
ITEM 1A. RISK FACTORS
ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 2. PROPERTIES
ITEM 3. LEGAL PROCEEDINGS
ITEM 4. MINE SAFETY DISCLOSURES
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
ITEM 6. SELECTED FINANCIAL DATA
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9B. OTHER INFORMATION
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTORS INDEPENDENCE
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
ITEM 16. SUMMARY
SIGNATURES
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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
Form 10-K. Certain statements made in this discussion are "forward-looking statements" within the meaning of The Private Securities
Litigation Reform Act of 1995. Forward-looking statements are projections in respect of future events or financial performance. In some
cases, you can identify forward-looking statements by terminology such as “may,” “should,” “expects,” “plans,” “anticipates,” “believes,”
“estimates,” “predicts,” “potential,” or “continue” or the negative of these terms or other comparable terminology. Forward-looking
statements made in an annual report on Form 10-K include statements about our:
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ability to continue as a going concern;
ability to obtain sufficient capital or strategic business arrangements to maintain our operations and realize our business plan,
including our financial obligations under various strategic collaboration arrangements;
our ability to develop through our Israeli subsidiary to the clinical stage a new technology to transdifferentiate liver cells into
functional insulin-producing cells, thus enabling normal glucose regulated insulin secretion, via cell therapy;
our belief that one of our principal competitive advantages is our cell transdifferentiation technology being developed by our Israeli
subsidiary and being able to compete favorably and profitably as a CDMO in the regenerative medicine sector;
belief that our diabetes-related treatment seems to be safer than other options;
expectations regarding our Israeli subsidiary’s ability to obtain and maintain intellectual property protection for our technology and
therapies;
ability to commercialize products in light of the intellectual property rights of others;
ability to obtain funding necessary to start and complete such clinical trials;
belief that Diabetes Mellitus will be one of the most challenging health problems in the 21st century and will have staggering health,
societal and economic impact;
relationship with with Tel Hashomer - Medical Research, Infrastructure and Services Ltd. (“THM”) and the risk that THM may
cancel the License Agreement;
expenditures not resulting in commercially successful products;
ability to grow the business of MaSTherCell, which we acquired in our fiscal year 2015, as our principal Contract Development and
Manufacturing Organization (“CDMO”) business;
ability to fund the operational and capital requirements of our CDMO business and its global expansion
successful integration of our clinical and CDMO strategy;
ability to contract with third-party suppliers and manufacturers and their ability to perform adequately;
ability to attract and retain key scientific or management personnel and to expand our management team;
accuracy of estimates regarding expenses, future revenue, capital requirements, profitability, and needs for additional financing; and
extensive industry regulation, and how that will continue to have a significant impact on our business, especially our product
development, manufacturing and distribution capabilities.
These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in
the section entitled “Risk Factors” set forth in this Annual Report on Form 10-K for the year ended November 30, 2016, any of which may
cause our company’s or our industry’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’s or its industry’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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ITEM 1. BUSINESS
Corporate Overview
PART I
Orgenesis Inc. is among the first of a new breed of regenerative therapy companies with expertise and unique experience in cell
therapy development and manufacturing. We are a fully-integrated biopharmaceutical company focused not only on developing our trans-
differentiation technologies for diabetes and vertically integrating manufacturing that can optimize our abilities to scale-up our technologies
for clinical trials and eventual commercialization, but also to apply our disciplined execution to emerging technologies of other cell therapy
markets in such areas as cell-based cancer immunotherapies and neurodegenerative diseases. This integrated approach supports our
business philosophy of bringing to market significant life-improving medical treatments.
Our cell therapy technology for diabetes derives from published work of Prof. Sarah Ferber, our Chief Science Officer and a
researcher at Tel Hashomer Medical Center, a leading medical hospital and research center in Israel (“THM”), who established a proof of
concept that demonstrates the capacity to induce a shift in the developmental fate of cells from the liver and transdifferentiating
(converting) them into “pancreatic beta cell-like” insulin-producing cells. Furthermore, those cells were found to be resistant to
autoimmune attack and to produce insulin in a glucose-sensitive manner in relevant animal models. Our development activities with respect
to cell-derived and related therapies, which are conducted through Orgenesis Ltd., our Israeli subsidiary, have, to date, been limited to
laboratory and preclinical testing. Our development plan calls for conducting additional preclinical safety and efficacy studies with respect
to diabetes and other potential indications.
Our Belgian-based subsidiary, MaSTherCell SA, is a contract development manufacturing organization, or CDMO, specialized in
cell therapy development for advanced medicinal products. In the last decade, cell therapy and regenerative medicine 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 plans to fill this
gap by providing two types of services to its customers: (i) process and assay development and optimization services and (ii) current Good
Manufacturing Practices (cGMP) contract manufacturing services. These services offer a double advantage to MaSTherCell's customers.
First, customers can continue allocating their financial and human resources on their product/therapy, while relying on a trusted partner for
their process development/production. Second, it allows customers to leverage MaSTherCell's expertise in cell therapy manufacturing and
all related aspects. As the industry continues to mature and a growing number of cell therapy companies approach commercialization, we
believe that MaSTherCell is well positioned to serve as an external manufacturing source for cell therapy companies.
In furtherance of our business strategy, we are leveraging the recognized expertise and experience in cell process development and
manufacturing of MaSTherCell, and our international joint ventures, to build a global and fully integrated bio-pharmaceutical company in
the cell therapy development and manufacturing area. 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. All of these
capabilities offered to third-parties are mobilized for our internal development projects, allowing the Compamy to be in a position to bring
new products to the patients faster and at a fraction of the costs.
We need to raise significant capital in order to realize our business plan. See “Risk Factors”.
Cell Therapy and Regenerative Medicine Field
Regenerative medicine is the process of replacing or regenerating human cells, tissues or organs to restore normal function. Our
business model is focused on two of these areas – manufacturing and treating patients.
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First, through our wholly-owned CDMO subsidiary, MaSTherCell, we have built a unique and fundamental base platform of know-
how and expertise for a multitude of cell types. MaSTherCell has strategically positioned us in the cell therapy market on multiple levels as
the cell therapy industry continues to evolve. Our goal is to maintain our reputation as a premier service provider in the regenerative
medicine industry by leveraging the experience and expertise of MaSTherCell as a recognized leader of cell therapy development and
manufacturing.
Second, on our clinical development side, through our Israeli subsidiary, our goal is to advance a unique cell-based therapy, the
Autologous Insulin Producing (“AIP”) cells, 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 the AIP cells are autologous,
this benefit should be achieved and maintained without the need for concomitant immunosuppressive therapy.
Cell therapy is the prevention or treatment of human disease by the administration of cells that have been selected, multiplied and
manipulated outside the body (ex vivo). To date, the most common type of cell therapy has been the replacement of mature, functioning
cells through blood and platelet transfusions. Since the 1970s, first bone marrow and then blood and umbilical cord-derived stem cells have
been used to restore bone marrow, as well as blood and immune system cells damaged by chemotherapy and radiation used to treat many
cancers. These types of cell therapies are standard of practice world-wide and are typically reimbursed by insurance.
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. Our cell therapy
development efforts do not use stem cells, but rather are focused on the use of fully mature, adult cells; for our purposes in the treatment of
diabetes, our cells are derived from the liver or other adult tissue and are transdifferentiated to become adult AIP 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.
Various cell therapies are in clinical development for an array of human diseases, including autoimmune, oncologic, neurologic and
orthopedic diseases, among other indications. Orgenesis, as well as other companies, are developing cell therapies that are designed to
address cancers, ischemic repair and immune modulation. While no assurances can be given regarding future medical developments, we
believe that the field of cell therapy holds the promise to address several medical conditions and minimize or ameliorate the pain and
suffering from many common diseases and/or from the process of aging.
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.
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Diabetes is one of the most challenging health problems in the 21st century, incurring staggering health, societal, and economic
impact. Diabetes is currently the fourth or fifth leading cause of death in most developed countries. Diabetic has been declared an epidemic
in many developing and newly industrialized nations.
Threats from Pancreas Islet Transplantation and Cell Therapies
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 Edomonton
Protocol.
Studies and Reports
Since reporting their findings in the June 2000 issue of the New England Journal of Medicine, researchers at the University of
Alberta in Edmonton, Canada, have continued to use and refine Edmonton Protocol to transplant pancreatic islets into selected patients with
T1D that is difficult to control.
In 2005, the researchers published 5-year follow-up results for 65 patients who received transplants at their center and reported that
about 10 percent of the patients remained free of the need for insulin injections at 5-year follow-up. Most recipients returned to using
insulin because the transplanted islets lost their ability to function over time, potentially due to the immune suppression protocol, which
prevents the immune rejection of the implanted cells. The researchers noted, however, that many transplant recipients were able to reduce
their need for insulin, achieve better glucose stability, and reduce problems with hypoglycemia, also called low blood sugar level.
In its 2006 annual report, the Collaborative Islet Transplant Registry, which is funded by the National Institute of Diabetes and
Digestive and Kidney Diseases, presented data from 23 islet transplant programs on 225 patients who received islet transplants between
1999 and 2005. According to the report, nearly two-thirds of recipients achieved “insulin independence” - defined as being able to stop
insulin injections for at least 14 days - during the year following transplantation. However, other data from the report showed that insulin
independence is difficult to maintain over time. Six months after their last infusion of islets, more than half of recipients were free of the
need for insulin injections, but at 2-year follow-up, the proportion dropped to about one-third of recipients. The report described other
benefits of islet transplantation, including reduced need for insulin among recipients who still needed insulin, improved blood glucose
control, and greatly reduced risk of episodes of severe hypoglycemia.
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In a 2006 report of the Immune Tolerance Network’s international islet transplantation study, researchers emphasized the value of
transplantation in reversing a condition known as hypoglycemia unawareness. People with hypoglycemia unawareness are vulnerable to
dangerous episodes of severe hypoglycemia because they are not able to recognize that their blood glucose levels are too low. The study
showed that even partial islet function after transplant can eliminate hypoglycemia unawareness.
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.
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Our Solution
We are developing and bringing to the clinical stage a technology that is based on the published work of Prof. Sarah Ferber, our
Chief Science Officer and a researcher at THM, demonstrated the capacity 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 to be resistant to the autoimmune attack and to
produce insulin in a glucose-sensitive manner.
The License Agreement
Our cell therapy business 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 “License 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)
2)
3)
4)
A royalty of 3.5% of net sales;
16% of all sublicensing fees received;
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
Milestone payments as follows:
a)
b)
c)
d)
e)
$50,000 on the date of initiation of phase I clinical trials in human subjects;
$50,000 on the date of initiation of phase II clinical trials in human subjects;
$150,000 on the date of initiation of phase III clinical trials in human subjects;
$750,000 on the date of initiation of issuance of an approval for marketing of the first product by the FDA; and
$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, 2016, 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 the Company and/or
consolidation of the Israeli Subsidiary or the Company into or with another corporation (“Exit”), under the License Agreement, THM is
entitled to elect, at its sole option, whether to receive from the Company a one-time payment based, as applicable, on the value at the time
of the Exit of either 5,563,809 shares of common stock of the Company 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 License Agreement to continue to
receive all the rights and consideration it is entitled to pursuant to the 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’s and/or the
purchaser’s undertaking towards THM to perform all of the Israeli subsidiary's obligations pursuant to the 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’s approval for marketing and including all regulatory procedures required to obtain such approval for
each product candidate (a “Development Plan”), within 18 months from the date of the License Agreement. Under the 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 License Agreement, THM is entitled to terminate the 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 License Agreement and return the licensed information to
THM.
In May 2015, the Israeli Subsidiary entered into a research service agreement with the Licensor. According to the agreement, our
Israeli Subsidiary will perform a study at the facilities and use the equipment and personnel of the Sheba Medical Center, for the
consideration of approximately $110 thousand for a year. In May 2016, the Israeli Subsidiary renewed the research agreement for an
additional year with annual consideration of approximately $88 thousand.
Subject to raising the necessary funding, we intend to advance our cell therapy business by furthering this licensed technology to a
clinical stage. 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 believe that operating our own manufacturing
facility will provide the Company 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.
Toward this goal, we are working to advance a unique product that combines cell-based therapy and regenerative medicine, (AIP)
cells, 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. Because the AIP cells are autologous, this benefit should be
achieved and maintained without the need for concomitant immunosuppressive therapy. 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 central facility where biopsied liver cells are isolated,
expanded and trans-differentiated into AIP cells. The final product is a solution of AIP cells, which are packaged in an infusion bag and sent
back to the patient’s treating physician where the cells are transplanted back into the patient’s liver via portal vein infusion. The entire
process, from biopsy to transplantation, is expected to take 5-6 weeks.
Unique benefits of AIP cells
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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:
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Physiologically glucose-responsive insulin production within one week of AIP cell transplantation;
Insulin-independence within one month;
Single course of therapy (~10-year insulin-independence);
No need for concomitant immunosuppressive therapy;
Return to (near) normal quality of life for patients;
Single liver biopsy supplies unlimited source of therapeutic tissue (bio-banking for future use if needed);
Highly controlled and tightly closed GMP systems; and
Quality Control of final product upon release and distribution
We are aware of no other company focused on development of AIP cells based on transdifferentiation. 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.
Marketing
Our plan is to market and sell AIP cellular therapy as a stand-alone product, and to provide supporting education and services to
physicians and the healthcare providers that support them. In addition, we expect to provide appropriate and supportive services to the
distribution networks that make our product available to treating physicians and facilities. Once marketing authorization is granted, we plan
to market our product in the North American, European and Asian regions.
As part of our long-term strategy, we will consider clinical development and commercialization collaborations and/or partnerships
with international companies involved in the diabetes therapeutic area. Currently, leading companies in this field include Novo Nordisk,
Takeda Pharmaceutical, Eli Lilly, GlaxoSmithKline, Sanofi Aventis and Merck.
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).
Competition
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 global diabetes market comprising the insulin, insulin analogues and other anti-diabetic drugs has been evolving rapidly.
Today’s overall diabetes market 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.
Collaboration Agreements Relating to the Diabetes Business
In order to develop our cell therapy business, we have embarked on a strategy of collaborative arrangement with strategically
situated third parties around the world. We believe that these parties have the expertise, experience and strategic location to advance our
clinical development business.
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Russia
On November 12, 2015, our Israeli subsidiary entered into a collaboration agreement with Biosequel LLC, a company incorporated
and existing under the laws of Russia (“Biosequel”), to collaborate in carrying out clinical trials and eventually marketing the Company’s
products in Russia, Belarus and Kazakhstan. The collaboration is divided into two stages, with the first focused on obtaining the requisite
regulatory approvals for conducting clinical trials, as well as performing all clinical and other testing required for market authorization in
the defined territory. The second stage will focus on marketing the products in the territory and will be subject to obtaining requisite
approvals for such marketing. Biosequel will fund the costs for the first stage, which is expected to last for five or more years, but such
stage may terminate earlier if the necessary regulatory approvals for commencement of clinical trials are not obtained by the second
anniversary of the agreement or if the malting approvals are not obtained with 48 months following the commencement of the clinical
trials. The collaboration agreement is also terminable under certain limited conditions relating to a party’s insolvency or bankruptcy related
event or breach of a material term of the agreement and force majeure events or upon the termination of the THM License Agreement. As
of the date of this report, Biosequel is in the first stage of the collaboration and performing the work needed in order to obtain the requisite
regulatory approvals for conducting clinical trials.
China, China, Hong Kong SAR and Macau SAR
On February 18, 2016, our Israeli subsidiary entered into a Collaboration Agreement (the “Collaboration Agreement) with Grand
China Energy Group Limited with headquarters in Beijing, China (“Grand China”) to collaborate in carrying out clinical trials and
marketing the Company’s autologous insulin producing cell therapy product in the Peoples Republic of China, Hong Kong and Macau,
based on achieving certain pre-market development milestones that include Grand China obtaining the requisite regulatory approvals for
commercialization of our AIP cells, including performing all clinical and other testing required for market authorization in each jurisdiction
in the territory. Upon achieving the pre-market development milestones by Grand China, the parties will collaborate on marketing the
products in the territory. Grand China will bear all costs associated with the pre-marketing development efforts in the territory, which is
expected to last for approximately four years. Subject to the completion of the pre-marketing development milestones, our Israeli
Subsidiary has agreed to grant to Grand China, or a fully owned subsidiary thereof, under a separate sub-license agreement, an exclusive
sub-license to the intellectual property underlying solely for commercialization of the Company’s products in each such jurisdiction in the
territory where all of the pre-marketing development required to commercialize the AIP cells have been successfully completed by Grand
China. Grand China has agreed to pay annual license fees, ongoing royalties based on net sales generated by Grand China and its
sublicensees, milestone payments and sublicense fees.
Research and Development Expenditures
We incurred $2,637 thousand in research and development expenditures in the last fiscal year ended November 30, 2016, of which
$480 thousand was covered by grant funding ($1,860 thousand for the year ended November 30, 2015, of which $793 thousand was
covered by grant funding).
Contract Development and Manufacturing Business
Our Belgian-based subsidiary, MaSTherCell, is a CDMO specialized in cell therapy development for advanced therapeutical
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 plans to fill this gap by providing two types of services to its customers: (i)
process and assay development services and (ii) current Good Manufacturing Practices (cGMP) contract manufacturing services. These
services offer a double advantage to MaSTherCell's customers. First, customers can continue allocating their financial and human resources
on their product/therapy, while relying on a trusted partner for their process development/production. Second, it allows customers to benefit
from MaSTherCell's expertise in cell therapy manufacturing and all related aspects.
MaSTherCell's target customers are primarily cell therapy companies that are in pre- or early-stage clinical trials (Phase I/II).
MaSTherCell has continued to invest in its manufacturing capabilities to offer a “one-stop-shop” service to its customers from pre-clinical
up to commercial. 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). MaSTherCell
continues to invest resources to maintain best practices in quality service, quality control, quality assurance and permanent staff training to
uphold the highest standards. Therefore, MaSTherCell'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 relies on a
team of dedicated experts both from academic and industry backgrounds. It operates through state-of-the-art facilities located just 40
minutes from Brussels, which have received the final cGMP manufacturing authorization from the Belgian Drug Agency (AFMPS) in
September 2013.
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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 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.
The Company believes that the combination of growing recurring revenue and profits through its manufacturing activities and the
commercialization of its Type 1 diabetes therapies is the de-risked, value-driving factor of the business.
Joint Ventures in the CDMO Field
We have established collaboration agreement for the CDMO activity and the main focus, initially, has been Asia (Korea, Singapore
and India) and Israel. We are leveraging the experience and expertise of MaSTherCell to build out a global network of CDMO centers.
Korea
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On March 14, 2016, we entered into a Joint Venture Agreement (the “JVA”) with CureCell pursuant to which we are collaborating in
the contract development and manufacturing of cell therapy products in Korea. From the execution date of the JVA until the date of the
filing of this report on Form 10-K, CureCell has procured the GMP facility and has recruited the appropriate staff in Korea. Under the JVA,
the Company and CureCell each undertook to remit, within two years of the execution of the JVA, $2 million to the JV Company, of which
$1 million is to be in cash and the balance in an in-kind investment, the scope and valuation of which shall be preapproved in writing.
Through the date of the filing of this annual report on Form 10-K, we remitted to CureCell $595 thousand by way of a convertible loan.
Our intention by the obligation of the agreement is to pursue the joint venture through a newly established Korean company (the “JV
Company”) in which each party will have 50% from the participating interest of the JV Company subject to the fulfillment by each party of
his obligations under the JVA. In addition to that, the JVA provides that, under certain specified conditions, we can require CureCell to sell
to us its participating (including equity) interest in the JV Company in consideration for the issuance of the Company’s common stock
based on the then valuation of the JV Company. As of November 30, 2016, the obligations of each party under the JVA have not been
fulfilled and we are working on establishing the new JV Company.
Israel
On May 10, 2016, we and Atvio Biotech Ltd., an Israeli company (“Atvio”) entered into a joint venture agreement pursuant to which
the parties are collaborating in the contract development and manufacturing of cell and virus therapy products in the field of regenerative
medicine in the State of Israel. The parties are pursuing the joint venture through Atvio, in which we are holding a 50% participating
interest therein, with the remaining 50% participating interest are being held by the other shareholders of Atvio. Up to the current date,
Atvio has procured, at its sole expense, a GMP facility and has been recruited 4 employees in Israel. Subject to the work plan that was
approved by Atvio and us, we will remit to Atvio a total of $1 million to defray the costs associated with the setting up and the maintenance
of the GMP facility, all or part of which may be contributed by way of in kind services as agreed to in the work plan. The Company’s
funding is made by way of a convertible loan to Atvio, which shall be convertible at our option at any time into 50% of the then
outstanding equity capital immediately following such conversion. The joint venture agreement provides that, under certain specified
conditions, either we can require the Atvio Shareholders to sell to us their participating (including equity) interest in Atvio or the Atvio
Shareholders can require from us to purchase their respective participating and equity holdings in Atvio, in each case in consideration for
the issuance of our common stock based on the then specified valuation of Atvio. As of November 30, 2016, we have remitted to Atvio a
total of $111 thousand, under and subject to the terms of the joint venture agreement.
Competition in the CDMO Field
MaSTherCell competes 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, Pharmacell BV, 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. MaSTherCell's services differ from these companies in two major aspects:
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Quality and expertise of its services: Clients identify the excellence of its facility, quality system, and people as a major
differentiating point compared to competitors; and
Flexible and tailored approach: MaSTherCell's philosophy is to build a true partnership with its clients and adapt itself to the clients’
needs, which entails no “off-the-shelf process” nor in-house technology platform, but a dedicated person in plant (of client), joint
steering committees on each project and dedicated project managers.
MaSTherCell strengthens its leading position investing in a one-stop-shop service offering from pre-clinical to commercial with a
clear focus on COGS of manufacturing processes. Neither of these differentiating points results in a price premium compared to other
CMO’s as MaSTherCell operates with a lean organization focused solely on cell therapy.
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Finally, MaSTherCell is the only CDMO located in Belgium which logistically offers an ideal location given the high concentration
of companies active in cell therapy (potential clients and companies with complementary know-how, products and services).
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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 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 four (4) United States and seven (7) foreign issued patents, three (2) pending applications in the
United States, eleven (11) pending applications in foreign jurisdictions: Europe, Australia, Brazil, Canada, China, Eurasia, Israel, Japan,
South Korea, Mexico, and Singapore, and one (1) international PCT patent application, relating to the transdifferentiation 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.
Granted United States patents which are directed to methods of making transdifferentiated cells will expire between 2021 and 2024,
excluding any patent term extensions that might be available following the grant of marketing authorizations. Granted patents outside of
the United States directed to making transdifferentiated cells and their uses will expire between 2020 and 2024. We have pending patent
applications for methods of making our product, the product itself, and methods of using the product that, if issued, would expire in the
United States and in countries outside of the United States between 2034 and 2035, 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. These pending patent applications are directed to the following specific compositions and methods: a method of producing a
transdifferentiated population of cells, a population of transdifferentiated cells, a method of treating a degenerative pancreatic disorder in a
subject in need, a method of isolating a population of cells that have an enriched capacity for transcription factor induced
transdifferentiation, an isolated population of cells having enriched transdifferentiation capacity, a method of increasing transdifferentiation
efficiency in a population of cells, a population of liver cells enriched for cells predisposed to transdifferentiation, and a method of
manufacturing a population of human insulin producing cells and the population of cells produced by the recited manufacturing method.
Government Regulation
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 seems to be of the highest benefit. We believe that it seems to be 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 since 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 like 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 FDA as “minimally manipulated”.
An additional autologous cell therapy approach already used in man is autologous chondrocyte implantation (ACI). In the United
States, Genzyme Corporation provides the only FDA approved ACI treatment: Carticel. The Carticel treatment is designated for young,
healthy patients with medium to large sized damage to cartilage. During an initial procedure, the patient’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.
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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.
Regulatory Process in the United States
Our product is subject to regulation as a biological product under the Public Health Service Act and the Food, Drug and Cosmetic
Act. FDA generally requires the following steps for pre-market approval or licensure of a new biological product:
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Pre-clinical laboratory and animal tests conducted in compliance with the Good Laboratory Practice, or GLP, requirements to assess
a drug’s biological activity and to identify potential safety problems, and to characterize and document the product’s chemistry,
manufacturing controls, formulation, and stability;
Submission to FDA of an Investigational New Drug, or IND application, which must become effective before clinical testing in
humans can start;
Obtaining approval of Institutional Review Boards, or IRBs, of research institutions or other clinical sites to introduce a first human
biologic drug candidate into humans in clinical trials;
Conducting adequate and well-controlled human clinical trials to establish the safety and efficacy of the product for its intended
indication conducted in compliance with Good Clinical Practice, or GCP requirements;
Compliance with current Good Manufacturing Practices (cGMP) regulations and standards;
Submission to FDA of a Biologics License Application (BLA) for marketing that includes adequate results of pre-clinical testing and
clinical trials;
FDA reviews the marketing application in order to determine, among other things, whether the product is safe, effective and potent
for its intended uses; and
Obtaining FDA approval of the BLA, including inspection and approval of the product manufacturing facility as compliant with
cGMP requirements, prior to any commercial sale or shipment of the pharmaceutical agent. FDA may also require post marketing
testing and surveillance of approved products, or place other conditions on the approvals.
Regulatory Process in Europe
The European Union (“EU”) has approved a regulation specific to cell and tissue therapy product, the Advanced Therapy Medicinal
Product (ATMP) regulation. For products such as our AIP that are regulated as an ATMP, the EU Directive requires:
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Compliance with current Good Manufacturing Practices, or cGMP regulations and standards, pre-clinical laboratory and animal
testing;
Filing a Clinical Trial Application (CTA) with the various member states or a centralized procedure; Voluntary Harmonization
Procedure (VHP), a procedure which makes it possible to obtain a coordinated assessment of an application for a clinical trial that is
to take place in several European countries;
Obtaining approval of Ethic Committees of research institutions or other clinical sites to introduce the AIP into humans in clinical
trials;
Adequate and well-controlled clinical trials to establish the safety and efficacy of the product for its intended use; and
Submission to EMEA for a Marketing Authorization (MA); Review and approval of the MAA (Marketing Authorization
Application).
Clinical Trials
Typically, both in the U.S. and the European Union, 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, 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 EMA.
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Employees
As of November 30, 2016, we had 80 full-time employees and 8 consultants working at our Company and subsidiaries. Most of our
senior management and professional employees have had prior experience in pharmaceutical or biotechnology companies. None of our
employees is covered by collective bargaining agreements. We believe that our relations with our employees are good.
Subsidiaries
In addition to our Israeli Subsidiary and MaSTherCell, we have the following subsidiaries:
On July 31, 2013, we incorporated a wholly-owned subsidiary in Maryland, Orgenesis Maryland Inc., or the U.S. Subsidiary, which
was formed as the U.S. center for research and development and manufacturing scale-up for our technology. The U.S. Subsidiary received a
grant from TEDCO which is being used for pre-clinical research and will oversee initiation and conduct of our Phase 1 clinical trial
program. The TEDCO grant is further discussed below.
On October 11, 2013, Orgenesis Ltd. incorporated a wholly-owned subsidiary in Belgium, Orgenesis SPRL, our Belgian Subsidiary,
which is engaged in development and manufacturing activities together with clinical development studies in Europe. The incorporation of
Orgenesis SPRL followed a strategic decision in May 2013 to work with Pall Life Science Belgium BVBA (formerly ATMI BVBA), a
Belgian company, to supply disposable bioreactors as the major component in our product manufacturing. In addition, we made another
strategic decision in September 2013 to work with MaSTherCell, which we subsequently acquired, in order to develop a manufacturing
process and to manufacture our product. Both companies are located in Belgium.
A breakdown of our various subsidiaries is as follows:
Entity
Orgenesis Ltd.
Orgenesis Maryland Inc.
Orgenesis SPRL (1)
Cell Therapy Holding SA (2)
MaSTherCell SA
Percentage of
Ownership
100%
100%
95%
100%
62%
Location
Israel
United States of America
Belgium
Belgium
Belgium
(1)
(2)
Orgenesis Ltd. owns 5% of Orgenesis SPRL.
Cell Therapy Holding SA owns 38% of MaSTherCell SA.
Grant Funding
Walloon Region, Belgium, Direction générale opérationnelle de l'Economie, de l'Emploi & de la Recherche (“DGO6”)
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On March 20, 2012, MaSTherCell was awarded an investment grant from the DGO6 €1,421 thousand. This grant is related to the
investment in the production facility with a coverage of 32% of the investment planned. A first payment of €568 thousand has been
received in August 2013. In December 2016, the DGO6 paid to MaSTherCell €669 on account of the grant, and the remaining grant
amount has been declined.
On November 17, 2014, Orgenesis SPRL, our Belgian subsidiary, received the formal approval from the DGO6 for a €2.015 million
($2.4 million) support program for the research and development of a potential cure for Type 1 Diabetes. The financial support is
composed of a €1,085 thousand (70% of budgeted costs) grant for the industrial research part of the research program and a further
recoverable advance of €930 thousand (60% of budgeted costs) of the experimental development part of the research program. On
December 9 and 16, 2014, Orgenesis SPRL received €651 thousand and €558 thousand under the grant, respectively. In addition, the
DGO6 is also entitled to a royalty upon revenue being generated from any commercial application of the technology. Up through
November 30, 2016, an amount of $1.4 million (€1.1 million) was recorded as deduction of research and development expenses and an
amount of $109 thousand was recorded as advance payments on account of grant.
In April 2016 Orgenesis SPRL received the formal approval from DGO6 for a budgeted €1,304 thousand ($1,455 thousand) support
program for the development of a potential cure for Type 1 Diabetes. The financial support is awarded to Orgenesis SPRL as a recoverable
advance payment at 55% of budgeted costs, or for a total of EUR 717 thousand ($800 thousand). The grant will be paid over the project
period. On December 19, 2016, Orgenesis SPRL received a first payment of €359 thousand ($374 thousand).
On October 8, 2016, Orgenesis SPRL received the formal approval from the DGO6 for a budgeted €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 held 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 €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 €1.7 million ($1.8 million).
Israel-U.S Binational Industrial Research and Development Foundation (“BIRD”)
On September 9, 2015, Orgenesis Ltd, our Israeli subsidiary, entered into a pharma Cooperation and Project Funding Agreement
(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 Autologous Insulin Producing (AIP) Cells for the
Treatment of Diabetes (the “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. Up to date the Israeli Subsidiary received $200 thousand under the grant. On July 28, 2016
BIRD approved an extension until May 31, 2017.
Korea Israel Industrial R&D Foundation (“KORIL”)
On May 26, 2016, Orgenesis Ltd, our Israeli subsidiary, entered into a pharma Cooperation and Project Funding Agreement (CPFA)
with KORIL and CureCell. 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 Autologous Insulin Producing (AIP) Cells for the Treatment of Diabetes (the
“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 June 1, 2016. On June 2016, the Israeli Subsidiary received $160 thousand under the grant.
Maryland Technology Development Corporation
On June 30, 2014, our U.S. Subsidiary entered into a grant agreement with Maryland Technology Development Corporation
(“TEDCO”). TEDCO was created by the Maryland State Legislature in 1998 to facilitate the transfer and commercialization of technology
from Maryland’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.
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TEDCO is an independent organization that strives to be Maryland’s lead source for entrepreneurial business assistance and seed funding
for the development of startup companies in Maryland’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”). The Grant
will be used solely to finance the costs to conduct the research project entitled “Autologous Insulin Producing (AIP) Cells for Diabetes”
during a period of two years. On June 21, 2016 TEDCO has approved an extension until June 30, 2017.
On July 22, 2014 and September 21, 2015, the U.S subsidiary received an advance payment of $406 thousand on account of the
grant. Through November 30, 2016, the Company utilized $272 thousand. The amount of grant that was utilized through November 30,
2016, was recorded as a deduction of research and development expenses in the statement of comprehensive loss.
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 made available free of charge though our Internet website (http://www.orgenesis.com) as soon as practicable after such material is
electronically filed with, or furnished to, the Securities and Exchange Commission. 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 Securities and Exchange Commission.
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’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 Financial Condition and Capital Requirements
We have incurred substantial losses and negative cash flow from operations in the past, and expect to continue to incur losses
and negative cash flow for the foreseeable future.
We have a limited operating history, limited capital, and limited sources of revenue. Through November 30, 2016, we have incurred
aggregate net losses of approximately $29.8 million. Our net losses for the years ended November 30, 2016 and 2015 were approximately
$9.2 million and $4.5 million, respectively. As of November 30, 2016, our cash and cash equivalents were $0.9 million.
All revenues to date have been generated by our Belgian-based subsidiary MaSTherCell S.A. MaSTherCell's current operating plan
will require additional capital to fund, among other things, the operation, enhancement and expansion of our operations and facilities
footprint to satisfy increasing market demand. See below under “Risks Related to Our CDMO Business.”
We have not generated revenues in our diabetes technology business, and any revenues that we may generate are not expected in the
foreseeable future to be sufficient to cover costs attributable to that business. Ultimately, we may never generate sufficient revenue from
our cellular therapy business for us to reach profitability, generate positive cash flow or sustain, on an ongoing basis, our current or
projected levels of product development and other operations.
If we fail to obtain the capital necessary to fund our operations, our financial results, financial condition and ability to
continue as a going concern will be adversely affected and we will have to delay, reduce the scope of or terminate some or all of our
research and development programs and may be forced to cease operations.
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Our current operating plan will require significant levels of additional capital to fund the continued development of our cell therapy
product candidates and the operation, enhancement and expansion of our manufacturing operations and our clinical development activities.
Our consolidated financial statements for the year ended November 30, 2016 have been prepared assuming that we will continue as
a going concern. Our recurring losses from operations and our stockholders’ deficit raise substantial doubt about our ability to continue as a
going concern. As a result, our independent registered public accounting firm included an explanatory paragraph in its report on our
consolidated financial statements for the year ended November 30, 2016 with respect to this uncertainty. We do not anticipate generating
meaningful revenue in the foreseeable future and we will need to raise additional capital to fund our operating requirements and continue as
a going concern. In addition, the perception that we may not be able to continue as a going concern may cause others to choose not to deal
with us due to concerns about our ability to meet our contractual obligations and may adversely affect our ability to raise additional capital.
Based upon our current plan of operations, and assuming we raise capital as and when needed, we anticipate spending approximately
$11 million on manufacturing and scale-up activities during the 12 months ending November 30, 2017. Our capital requirements will
depend on many factors, including:
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The number and type of product candidates that we pursue;
The progress, timing, scope, number and complexity of preclinical studies and clinical trials that we undertake;
The timing and cost involved in obtaining FDA and other regulatory approvals;
Costs related to maintaining, expanding and enforcing our intellectual property portfolio;
Whether we enter into joint venture, licensing, collaboration or other strategic transactions involving funding or otherwise relating to
research and development, manufacturing or marketing activities, and the scope and terms of any such arrangements;
The time and cost necessary to launch and successfully commercialize our product candidates, if approved;
the cost of expansion of our development and manufacturing operations, including but not limited to the costs of expanded facilities,
equipment costs, engineering and innovation initiatives; and
Our ability to support, both financially and operationally, our joint venture collaborations including CureCell Co., Ltd. and Atvio
Biotech Ltd.
We may seek to raise additional capital through equity or debt financing and collaborative arrangements, or some combination
thereof. Substantially all of our operating capital requirements since inception have been provided by existing investors, on an as needed
basis. Additional capital may not be available on acceptable terms, or at all. If we raise capital through the sale of equity-based securities,
dilution to our then-existing equity investors would result. If we obtain capital through the incurrence of debt, we would likely become
subject to covenants restricting our business activities, and holders of debt instruments would have rights and privileges senior to those of
our equity investors. In addition, servicing the interest and repayment obligations under borrowings would divert funds that would
otherwise be available to support research and development, clinical or commercialization activities. Should we obtain capital through
collaborative arrangements, these arrangements may require us to relinquish some rights to our technologies or product candidates. We
may consequently become dependent on third parties.
If we are unable to obtain adequate financing on a timely basis, we may be required to delay, reduce the scope of or eliminate one or
more of our planned research and development programs and otherwise limit or cease our operations.
We owe significant amounts of money under convertible loan agreements and, unless these amounts are converted or we
raise significant working capital we may not be able to pay them when due.
As of February 28, 2017, we owed approximately $7.8 million in principal amount and accrued interest under convertible loan
agreements with third party lenders with maturity dates between March 21, 2017 and February 28, 2019. The operative agreements provide
that the holders of these notes can voluntarily convert them into shares of our common stock at fixed pre-arranged rates and, for
approximately $4 million in principal amount of these loans, there are mandatory conversion features which provide that the loans are
mandatorily converted into common stock at fixed per-arranged rates upon the occurrence of certain specified conditions, including the
trading of our stock price at above $0.52 (adjusted for capital adjustments) for a specified number of trading days. Unless these outstanding
amounts are converted (whether mandatorily or voluntarily) or we raise sufficient working capital, we may not be able to repay these notes
at their stated maturity. Non-payment of these amounts will entitle the holders to take action to recovered payment, which may result in
attachments or liens on our asset. Any of these developments will have a material adverse effect on our business, financial condition and
prospects.
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We have incurred losses since inception and may never achieve or sustain profitability.
We have incurred significant operating losses. We expect to incur operating losses for the foreseeable future. We had an
accumulated deficit of $29.8 million as of November 30, 2016. Currently, our revenues are not substantial enough to cover our operating
expenses. The extent of future operating losses is highly uncertain, and we may never achieve or sustain profitability.
Risks Relating to the Biopharmaceutical Business
THM is entitled to cancel the License Agreement.
Pursuant to the terms of the 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, THM shall be entitled to terminate the 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 License Agreement, our business may be materially adversely affected. THM may also terminate the License Agreement if the
Israeli Subsidiary breaches an obligation contained in the License Agreement and does not cure it within 180 days of receiving notice of the
breach. Any termination or cancellation of the License Agreement is likely to materially adversely affect our business and prospects.
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:
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successfully achieving major developmental steps required to bring the product to a clinical testing stage and clinical testing may not
be positive;
developing, testing and manufacturing products in compliance with regulatory standards in a timely manner;
the failure to receive requisite regulatory approvals for such products in a timely manner or at all;
developing and commercializing a new product is time consuming, costly and subject to numerous factors, including legal actions
brought by our competitors, that may delay or prevent the development and commercialization of our product;
incomplete, unconvincing or equivocal clinical trials data;
experiencing delays or unanticipated costs;
significant and unpredictable changes in the payer landscape, coverage and reimbursement for our future product;
experiencing delays as a result of limited resources at the U.S. Food and Drug Administration (“FDA”) or other regulatory agencies;
and
changing review and approval policies and standards at the FDA and other regulatory agencies.
As a result of these and other difficulties, products in development by us may or 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.
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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 has 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, which may complicate or delay our effort to ultimately obtain FDA 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”) 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”)
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” 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.
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’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.
For Europe, the European Medicines Agency (“EMEA”) will regulate our future products. Regulatory approval by the EMEA 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.
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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.
We have never generated any revenue from 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 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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completing research regarding, and nonclinical and clinical development of, our product candidates;
obtaining regulatory approvals and marketing authorizations for product candidates for which we complete clinical studies;
developing a sustainable and scalable manufacturing process for our product candidates, including establishing and maintaining
commercially viable supply relationships with third parties and establishing our own manufacturing capabilities and infrastructure;
launching and commercializing product candidates for which we obtain regulatory approvals and marketing authorizations, either
directly or with a collaborator or distributor;
obtaining market acceptance of our product candidates as viable treatment options;
addressing any competing technological and market developments;
identifying, assessing, acquiring and/or developing new product candidates;
negotiating favorable terms in any collaboration, licensing, or other arrangements into which we may enter;
maintaining, protecting, and expanding our portfolio of intellectual property rights, including patents, trade secrets, and know-how;
and
attracting, hiring, and retaining qualified personnel.
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 beta 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 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:
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obtaining regulatory approval from the FDA and other regulatory authorities that have very limited experience with the commercial
development of our technology for diabetes;
developing and deploying consistent and reliable processes for engineering a patient’s liver cells ex vivo and infusing the engineered
cells back into the patient;
developing processes for the safe administration of these products, including long-term follow-up for all patients who receive our
products;
sourcing clinical and, if approved, commercial supplies for the materials used to manufacture and process our products;
developing a manufacturing process and distribution network with a cost of goods that allows for an attractive return on investment;
and
establishing sales and marketing capabilities after obtaining any regulatory approval to gain market acceptance.
When we are able to 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 2016. 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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the inability to generate sufficient preclinical or other in vivo or in vitro data to support the initiation of clinical studies;
delays in reaching a consensus with regulatory agencies on study design;
the FDA not allowing us to use the clinical trial data from a research institution to support an IND if we cannot demonstrate the
comparability of our product candidates with the product candidate used by the relevant research institution in its clinical studies;
delays in obtaining required Institutional Review Board, or IRB, approval at each clinical study site;
imposition of a temporary or permanent clinical hold by regulatory agencies for a number of reasons, including after review of an
IND application or amendment, or equivalent application or amendment; as a result of a new safety finding that presents
unreasonable risk to clinical trial participants; a negative finding from an inspection of our clinical study operations or study sites;
developments on trials conducted by competitors for related technology that raises FDA concerns about risk to patients of the
technology broadly; or if FDA finds that the investigational protocol or plan is clearly deficient to meet its stated objectives;
delays in recruiting suitable patients to participate in our clinical studies;
difficulty collaborating with patient groups and investigators;
failure to perform in accordance with the FDA’s current good clinical practices, or cGCPs, requirements, or applicable regulatory
guidelines in other countries;
delays in having patients complete participation in a study or return for post-treatment follow-up;
patients dropping out of a study;
occurrence of adverse events associated with the product candidate that are viewed to outweigh its potential benefits;
changes in regulatory requirements and guidance that require amending or submitting new clinical protocols;
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changes in the standard of care on which a clinical development plan was based, which may require new or additional trials;
the cost of clinical studies of our product candidates being greater than we anticipate;
clinical studies of our product candidates producing negative or inconclusive results, which may result in our deciding, or regulators
requiring us, to conduct additional clinical studies or abandon product development programs; and
delays in manufacturing, testing, releasing, validating, or importing/exporting sufficient stable quantities of our product candidates
for use in clinical studies or the inability to do any of the foregoing.
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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the FDA or comparable foreign regulatory authorities may disagree with the design or implementation of our clinical trials;
the population studied in the clinical program may not be sufficiently broad or representative to assure safety in the full population
for which we seek approval;
we may be unable to demonstrate that our product candidates’ risk-benefit ratios for their proposed indications are acceptable;
the results of clinical trials may not meet the level of statistical significance required by the FDA or comparable foreign regulatory
authorities for approval;
we may be unable to demonstrate that the clinical and other benefits of our product candidates outweigh their safety risks;
the FDA or comparable foreign regulatory authorities may disagree with our interpretation of data from preclinical studies or
clinical trials;
the data collected from clinical trials of our product candidates may not be sufficient to the satisfaction of the FDA or comparable
foreign regulatory authorities to obtain regulatory approval in the United States or elsewhere;
the FDA or comparable foreign regulatory authorities may fail to approve the manufacturing processes, our own manufacturing
facilities, or our third-party manufacturers’ facilities with which we contract for clinical and commercial supplies; and
the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner
rendering our clinical data insufficient for approval.
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.
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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, or 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 beyond the net proceeds of this offering 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:
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our platform may not be successful in identifying additional product candidates;
we may not be able or willing to assemble sufficient resources to acquire or discover additional product candidates;
our product candidates may not succeed in preclinical or clinical testing;
a product candidate may on further study be shown to have harmful side effects or other characteristics that indicate it is unlikely to
be effective or otherwise does not meet applicable regulatory criteria;
competitors may develop alternatives that render our product candidates obsolete or less attractive;
product candidates we develop may nevertheless be covered by third parties’ patents or other exclusive rights;
the market for a product candidate may change during our program so that the continued development of that product candidate is
no longer reasonable;
a product candidate may not be capable of being produced in commercial quantities at an acceptable cost, or at all; and
a product candidate may not be accepted as safe and effective by patients, the medical community or third- party payers, if
applicable.
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.
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’s liver, propagation of the
patient’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’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, 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’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’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 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.
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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 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 or our CMOs 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 CMOs 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.
On July 3, 2014, our Belgian Subsidiary entered into a service agreement with MaSTherCell, pursuant to which MaSTherCell will
function as our CMO and conduct certain clinical tests related to diabetes treatment research. The term of the service agreement will run
until all work is completed (or by either party providing 30 days’ written notice of termination) in order to develop a manufacturing process
and to manufacture our product. While we anticipate that MaSTherCell will be able to sufficiently support our needs as a CMO, we may
need to find other CMOs to meet our clinical and manufacturing needs, of which there are a limited number of third-party manufacturers.
This exposes us to the following risks:
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We may be unable to identify manufacturers on acceptable terms or at all because the number of potential manufacturers is limited
and the FDA must approve any manufacturers. This approval would require new testing and good manufacturing practices
compliance inspections by FDA. In addition, a new manufacturer would have to be educated in, or develop substantially equivalent
processes for, production of our products;
Other manufacturers may have little or no experience with autologous cell products, which are products made from a patient’s own
cells, and therefore may require a significant amount of support from us in order to implement and maintain the infrastructure and
processes required to manufacture our product candidates;
Our third-party manufacturers might be unable to timely manufacture our product or produce the quantity and quality required to
meet our clinical and commercial needs, if any;
Contract manufacturers may not be able to execute our manufacturing procedures and other logistical support requirements
appropriately;
Our future contract manufacturers may not perform as agreed, may not devote sufficient resources to our products, or may not
remain in the contract manufacturing business for the time required to supply our clinical trials or to successfully produce, store, and
distribute our products;
Manufacturers are subject to ongoing periodic unannounced inspection by the FDA and corresponding state agencies to ensure strict
compliance with current good manufacturing practices, or cGMP, and other government regulations and corresponding foreign
standards. We do not have control over third-party manufacturers’ compliance with these regulations and standards;
We may not own, or may have to share, the intellectual property rights to any improvements made by our third-party manufacturers
in the manufacturing process for our products;
Our third-party manufacturers could breach or terminate their agreement with us;
Raw materials and components used in the manufacturing process, particularly those for which we have no other source or supplier,
may not be available or may not be suitable or acceptable for use due to material or component defects;
Our contract manufacturers and critical reagent suppliers may be subject to inclement weather, as well as natural or man-made
disasters; or
Our contract manufacturers may have unacceptable or inconsistent product quality success rates and yields.
Each of these risks could delay or prevent the completion of our clinical trials or the approval of any of our product candidates by
the FDA, result in higher costs or adversely impact commercialization of our product candidates. In addition, we will rely on third parties
to perform certain specification tests on our product candidates prior to delivery to patients. If these tests are not appropriately done and test
data are not reliable, patients could be put at risk of serious harm and the FDA could place significant restrictions on our company until
deficiencies are remedied.
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.
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.
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Manufacturing our product candidates will require many reagents, 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, 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 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 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 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.
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:
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unexpected changes in tariffs, trade barriers, price and exchange controls, and other regulatory requirements;
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economic weakness, including inflation, or political instability in particular foreign economies and markets;
compliance with tax, employment, immigration, and labor laws for employees living or traveling abroad;
foreign taxes, including withholding of payroll taxes;
foreign currency fluctuations, which could result in increased operating expenses and reduced revenue, and other obligations
incident to doing business in another country;
difficulties staffing and managing foreign operations;
workforce uncertainty in countries where labor unrest is more common than in the United States;
potential liability under the Foreign Corrupt Practices Act of 1977 or comparable foreign laws;
challenges enforcing our contractual and intellectual property rights, especially in those foreign countries that do not respect and
protect intellectual property rights to the same extent as the United States;
production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and
business interruptions resulting from geo-political actions, including war and terrorism.
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’ 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’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.
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.
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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 management,
particularly our chief science 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, 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” insurance
policies on the lives of all of these individuals or the lives of any of our other employees.
Risks Related to our Company and Business Generally
Our success will depend on strategic collaborations with third parties to develop and commercialize 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:
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do not have sufficient resources or decide not to devote the necessary resources due to internal constraints such as limited cash or
human resources;
decide to pursue a competitive potential product developed outside of the collaboration;
cannot obtain the necessary regulatory approvals;
determine that the market opportunity is not attractive; or
cannot manufacture or obtain the necessary materials in sufficient quantities from multiple sources or at a reasonable cost.
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.
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.
We will need to grow the size and capabilities of our organization, and we may experience difficulties in managing this
growth.
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As of November 30, 2016, we had 80 full-time 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:
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identifying, recruiting, integrating, maintaining, and motivating additional employees;
managing our internal development efforts effectively, including the clinical and FDA review process for our product candidates,
while complying with our contractual obligations to contractors and other third parties; and
improving our operational, financial and management controls, reporting systems, and procedures.
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. Our efforts to manage our growth
are complicated by the fact that only our chief executive officer has been with us since before August 2014. This lack of long-term
experience working together may adversely impact our senior management team’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.
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 and 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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collaborators have significant discretion in determining the efforts and resources that they will apply to a collaboration;
collaborators may not pursue development and commercialization of our product candidates or may elect not to continue or renew
development or commercialization programs based on clinical trial results, changes in their strategic focus due to the acquisition of
competitive products, availability of funding, or other external factors, such as a business combination that diverts resources or
creates competing priorities;
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collaborators may delay clinical trials, provide insufficient funding for a clinical trial, stop a clinical trial, abandon a product
candidate, repeat or conduct new clinical trials, or require a new formulation of a product candidate for clinical testing;
collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with our
products or product candidates;
a collaborator with marketing and distribution rights to one or more products may not commit sufficient resources to their marketing
and distribution;
collaborators may not properly maintain or defend our intellectual property rights or may use our intellectual property or proprietary
information in a way that gives rise to actual or threatened litigation that could jeopardize or invalidate our intellectual property or
proprietary information or expose us to potential liability;
disputes may arise between us and a collaborator that cause the delay or termination of the research, development or
commercialization of our product candidates, or that result in costly litigation or arbitration that diverts management attention and
resources;
collaborations may be terminated and, if terminated, may result in a need for additional capital to pursue further development or
commercialization of the applicable product candidates; and
collaborators may own or co-own intellectual property covering our products that results from our collaborating with them, and in
such cases, we would not have the exclusive right to commercialize such intellectual property.
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, 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.”
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.
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Our issued patent having a claim for a composition comprising a vector comprising a promoter linked to PDX-1 is expected to expire
in the United States in 2021. Our additional patents to methods of use of the vector, and pending patent applications to transdifferentiated
cell populations made by a process of contacting non-pancreatic β-cells and their use to treat various indications are expected to expire at
various times that range from 2023 (for issued United States patents) to potentially 2035 (for pending patent applications if patents were to
issue on the pending applications filed thereon).
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:
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the USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee
payment and other provisions during the patent process. There are situations in which noncompliance can result in abandonment or
lapse of a patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an
event, competitors might be able to enter the market earlier than would otherwise have been the case;
patent applications may not result in any patents being issued;
patents that may be issued or in-licensed may be challenged, invalidated, modified, revoked, circumvented, found to be
unenforceable or otherwise may not provide any competitive advantage;
our competitors, many of whom have substantially greater resources and many of whom have made significant investments in
competing technologies, may seek or may have already obtained patents that will limit, interfere with or eliminate our ability to
make, use, and sell our potential product candidates;
there may be significant pressure on the U.S. government and international governmental bodies to limit the scope of patent
protection both inside and outside the United States for disease treatments that prove successful, as a matter of public policy
regarding worldwide health concerns; and
countries other than the United States may have patent laws less favorable to patentees than those upheld by U.S. courts, allowing
foreign competitors a better opportunity to create, develop and market competing product candidates.
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.
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 successful defense would require significant financial and management resources. Regardless of the merits or eventual outcome,
liability claims may result in:
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decreased demand for our products;
injury to our reputation;
withdrawal of clinical trial participants and inability to continue clinical trials;
initiation of investigations by regulators;
costs to defend the related litigation;
a diversion of management’s time and our resources;
substantial monetary awards to trial participants or patients;
product recalls, withdrawals or labeling, marketing or promotional restrictions;
loss of revenue;
exhaustion of any available insurance and our capital resources;
the inability to commercialize any product candidate; and
a decline in our share price.
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.
Because some of our directors and officers are not residents of the United States, investors may find it difficult to enforce,
within the United States, any judgments obtained against some of our directors and officers.
Some of our directors and officers are not residents of the United States, and all or a substantial portion of their assets is located
outside the United States. As a result, it may be difficult for investors to enforce within the United States any judgments obtained against
some of our directors and officers, including judgments predicated upon the civil liability provisions of the securities laws of the United
States or any state thereof.
Risk Related to our CDMO Business
We need additional financing to grow our CDMO operations; if we are unable to raise additional capital, as and when
needed, or on acceptable terms, we may be forced to delay, reduce or eliminate the expansion of our contract development and
manufacturing operations.
MaSTherCell's current operating plan will require additional capital to fund, among other things, the operation, enhancement and
expansion of our operations and facilities footprint to satisfy increasing market demand. The amount and timing of our future capital
requirements also will likely depend on many other factors, including:
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the cost of expansion of our contract development and manufacturing operations, including but not limited to, the costs of expanded
facilities, equipment costs, engineering and innovation initiatives and personnel; and
the opportunity to produce therapies in commercial phases for a customer which will require large production units.
Ultimately, we may be unable to raise capital on terms that are acceptable to us, if at all. Our inability to obtain necessary capital or
financing to fund our future operating needs could adversely affect our business, results of operations and financial condition.
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MaSTherCell has incurred substantial losses and negative cash flow from operations in the past, and expects to continue to
incur losses and negative cash flow for the foreseeable future.
MaSTherCell has a limited operating history, limited capital, and limited sources of revenue. Since its inception in 2011 and
licensing in 2013 through November 30, 2016, the project revenues generated doubled every year but have not been sufficient to cover
costs attributable to that business. Relying on commercial efforts and increasing visibility and recognition of our manufacturing subsidiary,
we believe MaSTherCell will reach profitable operations, but can provide no assurance that will ever be achieved. Based upon current
plans, it is expected that MaSTherCell will reach a positive EBITDA in 2017 and would be break-even in 2018. We expect continued
significant expenses associated with the development, marketing and sales of our services. As a result, we may not generate significant
revenues in the future. Failure to generate significant revenues in near future may cause us to reduce or cease activities or limit our
expansion. Our ability to achieve and maintain profitability and positive cash flow is dependent upon our ability to generate revenues,
manage expenses, and compete successfully with our direct and indirect competitors.
A significant global market for our third-party manufacturing services at MaSTherCell may never emerge.
At MaSTherCell, the current market and our existing contracts principally consist of providing consulting and manufacturing of cell
and tissue-based therapeutic products in clinical trials. Cell therapy is in its early stages and is still a developing area of research, with few
cell therapy products approved for clinical use. Many of the existing cellular therapy candidates are based on novel cell technologies that
are inherently risky and may not be understood or accepted by the marketplace, making it difficult for their own funding to enable them to
continue their business. The number of people who may use cell or tissue-based therapies and thus the demand for stem cell processing
services is difficult to forecast. If cell therapies under development by our customers to treat disease are not proven effective, demonstrate
unacceptable risks or side effects or, where required, fail to receive regulatory approval, our 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 products in the United States, Asia and in Europe. Ultimately, our success in developing our contract development and
manufacturing business depends on the development and growth of a broad and profitable global market for cell- and tissue-based therapies
and services and our ability to capture a share of this market through MaSTherCell. One of the key success factors in commercializing new
therapies lies in the stringent management of Cost of Goods sold (COGS); MaSTherCell continues to work on this challenge, although there
is no assurance that such work will yield an outcome that produces a commercially viable cost in the future.
MaSTherCell's revenues may vary dramatically change from period to period making it difficult to forecast future results.
MaSTherCell recorded revenues of $6.4 million for the year ended November 30, 2016. 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, dramatically change in our future revenues forecasting 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 percentage of the total revenues earned. Over
the past year, MaSTherCell has increased its client portfolio, but there can be no assurance that such clients will continue to use
MaSTherCell’s services at the same level or at all. A reduction or delay in the use of MaSTherCell’s services, including reductions or
delays due to market, economic or competitive conditions, could have a material adverse effect on MaSTherCell’s business, operating
results and financial condition.
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MaSTherCell has a finite manufacturing capacity, which could inhibit the long-term growth prospects of this business.
MaSTherCell currently provides services and produces materials for clinical trials at its existing manufacturing facilities in Gosselies
(Belgium), which it has designed and operated to be compliant with GMP requirements. While we believe these facilities provide it with
sufficient capacity to meet expected near term demand, it is possible that the demand for its services and products could exceed its existing
manufacturing capacity. It may become necessary or desirable for it to expand its manufacturing capabilities for cell therapy services and
products in the future which may require it to invest significant amounts of capital and to obtain regulatory approvals. In this regard, we are
reviewing opportunities for expansion to both commercial level and international manufacturing capabilities. If we are unable to meet rising
demand for products and services on a timely basis or unable to maintain cGMP compliance standards, then it is likely that our clients and
potential clients will elect to obtain the products and services from competitors, which could materially and adversely affect the level of our
revenues and our prospects for growth.
MaSTherCell’s business is subject to risks associated with a single manufacturing facility.
MaSTherCell’s contract manufacturing services are dependent upon a single facility located in Gosselies (Belgium). A catastrophic
loss of the use of all or a portion of MaSTherCell’s 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.
If MaSTherCell loses electrical power at its manufacturing facility, its business operations may be adversely affected.
MaSTherCell owns a back-up generator allowing it to provide for its manufacturing power consumption needs for a few hours.
However, 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 because MaSTherCell does not own any other back-up power source
large enough to provide for its manufacturing power consumption needs. Additionally, MaSTherCell does not have an alternative
manufacturing location. Therefore, a significant disruption in MaSTherCell’s manufacturing operations could materially and adversely
affect its business operations during an extended period of power outage.
We have a limited marketing staff and budget for our MaSTherCell operations, which could limit our ability to grow this
business.
The degree of market acceptance of our products and services depends upon a number of factors, including the strength of our sales
and marketing support. If our marketing is not effective, our ability to generate revenues could be significantly impaired. The newness of
the industry and capital constraints provide challenges to our marketing and sales activities at MaSTherCell, and the failure to attract a
sufficient base of customers will affect our ability to increase our revenues and operate profitably.
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.
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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. 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. 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 or
interrupt the operation of its business.
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. 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 established as well as other emerging companies, which could divert clients to our competitors,
result in pricing pressure and significantly reduce our revenue.
We expect existing competitors and new entrants to CDMO market to constantly revise and improve their business models in
response to challenges from competing businesses, including ours. Some of our competitors and potential competitors have significantly
greater resources than we do. Increased competition may result in pricing pressure for us in terms of the prices we are able to negotiate to
receive from a client. If we cannot compete successfully against our competitors, our ability to grow our business and achieve profitability
could be impaired.
Risks Relating 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 authorize the issuance of up to 1,750,000,000 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.
-38-
Trading of our stock is restricted by the Securities Exchange Commission’s penny stock regulations, which may limit a
stockholder’s ability to buy and sell our common stock.
The Securities and Exchange Commission has adopted regulations which generally define “penny stock” to be any equity security
that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions.
Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to
persons other than established customers and “accredited investors”. The term “accredited investor” refers generally to institutions with
assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000
jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from
the rules, to deliver a standardized risk disclosure document in a form prepared by the Securities and Exchange Commission, which
provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide
the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the
transaction and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and
offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior
to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny
stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special
written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the
transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the
stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our
securities. We believe that the penny stock rules discourage investor interest in and limit the marketability of our common stock.
FINRA sales practice requirements may also limit a stockholder’s ability to buy and sell our stock.
In addition to the “penny stock” rules described above, the Financial Industry Regulatory Authority (“FINRA”) has adopted rules
that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the
investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers,
broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives
and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced
securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that
their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for
our stock.
The market for our common stock is illiquid and the price of our common stock may be negatively impacted by factors that
are unrelated to our operations.
Although our common stock is currently listed for quotation on the QB, there is no market for our common stock. Even when a
market is established and trading begins, trading through the OTCQB is frequently thin and highly volatile. There is no assurance that a
sufficient market will develop in our stock, in which case it could be difficult for stockholders to sell their stock. The market price of our
common stock could fluctuate substantially due to a variety of factors, including market perception of our ability to achieve our planned
growth, quarterly operating results of our competitors, trading volume in our common stock, changes in general conditions in the economy
and the financial markets or other developments affecting our competitors or us. In addition, the stock market is subject to extreme price
and volume fluctuations. 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.
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. 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’s price. This
may never happen and investors may lose all of their investment in our company.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not Applicable.
-39-
ITEM 2. PROPERTIES
We do not own any real property. A description of our properties is as follows:
Entity
Property Description
Orgenesis Inc./Orgenesis Maryland Inc.
These are the principal offices
•
•
•
Located at 20271 Goldenrod Lane, Germantown, MD 20876.
Occupy office space at the Germantown Innovation Center.
Cost is $200 per month on a month-to-month contract.
MaSTherCell SA, Cell Therapy Holding SA and Orgenesis SPRL
•
•
•
All activities located in Gosselies, Belgium, in the I-Tech Incubator.
Property consists of:
•
Operational production and Office area is area represent +/-
1,911 m²
Monthly costs are approximately €27.4 thousand Lease
agreement for the office expires on November 11, 2027.
Lease agreement for the operational production area expires on
March 31, 2027
The new production area designed during 2016, to be built in
2017 and operational during 2018.
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.
-40-
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
Market information
Our common stock is quoted on the OTCQB under the symbol “ORGS.” Set forth below are the range of high and low bid
quotations for the period indicated as reported by the OTC Markets Group for the periods provided. The market quotations reflect inter-
dealer prices, without retail mark-up, mark-down or commissions and may not necessarily represent actual transactions.
Quarter Ended
Year Ended November 30, 2016
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Year Ended November 30, 2015
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
High
Low
$ 0.43
$ 0.52
$ 0.38
$ 0.39
$ 0.48
$ 0.55
$ 0.73
$ 0.69
$ 0.30
$ 0.28
$ 0.25
$ 0.27
$ 0.30
$ 0.33
$ 0.50
$ 0.38
As of February 28, 2017, there were 67 holders of record of our common stock. 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 number of beneficial
owners of our stock.
Dividend Policy
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
There were no securities sold by us during the three months ended November 30, 2016 that were not previously reported.
Issuer Purchases of Equity Securities
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.
-41-
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Corporate Overview
Orgenesis is among the first of a new breed of regenerative therapy companies with expertise and unique experience in cell therapy
development and manufacturing. We are building a fully-integrated biopharmaceutical company focused not only on developing our trans-
differentiation technologies for diabetes and vertically integrating manufacturing that can optimize our abilities to scale-up our technologies
for clinical trials and eventual commercialization, but also do the same for the technologies of other cell therapy markets in such areas as
cell-based cancer immunotherapies and neurodegenerative diseases. This integrated approach supports our business philosophy of bringing
to market significant life-improving medical treatments.
Our cell therapy technology derives from published work of Prof. Sarah Ferber, our Chief Science Officer and a researcher at THM,
a leading medical hospital and research center in Israel, who established a proof of concept that demonstrates the capacity to induce a shift
in the developmental fate of cells from the liver and transdifferentiating (converting) them into “pancreatic beta cell-like” insulin-producing
cells. Furthermore, those cells were found to be resistant to autoimmune attack and to produce insulin in a glucose-sensitive manner in
relevant animal models. Our development activities with respect to cell-derived and related therapies, which are conducted through the
Israeli Subsidiary, have, to date, been limited to laboratory and preclinical testing. Our development plan calls for conducting additional
preclinical safety and efficacy studies with respect to diabetes and other potential indications.
Our Belgian-based subsidiary, MaSTherCell S.A., is a contract development manufacturing organization, or CDMO, specialized in
cell therapy development for advanced medicinal products. In the last decade, cell therapy and regenerative medicine 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 plans to fill this
gap by providing two types of services to its customers: (i) process and assay development and optimization services and (ii) current Good
Manufacturing Practices (cGMP) contract manufacturing services. These services offer a double advantage to MaSTherCell's customers.
First, customers can continue allocating their financial and human resources on their product/therapy, while relying on a trusted partner for
their process development/production. Second, it allows customers to leverage MaSTherCell's expertise in cell therapy manufacturing and
all related aspects. As the industry continues to mature and a growing number of cell therapy companies approach commercialization, we
believe that MaSTherCell is well positioned to serve as an external manufacturing source for cell therapy companies.
In furtherance of our business strategy, we are leveraging the recognized expertise and experience in cell process development and
manufacturing of MaSTherCell, and our international joint ventures, and to build a global and fully integrated bio-pharmaceutical company
in the cell therapy development and manufacturing area. 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. All of these
capabilities offered to third-parties are mobilized for our internal development projects, allowing the Compamy to be in a position to bring
new products to the patients faster and at a fraction of the costs.
Current Financial and Operational Highlights
During fiscal 2016 and through February 27, 2017, we raised approximately $7.3 million from the private placement of our equity,
equity-linked and convertible debt securities. In addition, in January 2017, we entered into definitive agreements with an institutional
investor for the private placement of units of our common stock and common stock purchase securities for aggregate subscription proceeds
to the Company of $16 million payable periodically through August 2018. As of the date of this report on Form 10-K, we received $1
million of these subscription proceeds. In addition, through fiscal 2016, our Belgian based subsidiary, Orgenesis SPRL, was awarded grants
from the regional Walloon of € 13.5 million (approximately $7.7 million as of the date of this report), of which €7.4 million (approximately
$7.7 million) was funded.
-42-
Our other Belgian based subsidiary, MaSTherCell, recorded revenues of approximately $6.4 million during fiscal 2016, representing
a 115% increase over the amount of revenues recorded in fiscal 2015. As of the date of this report on Form 10-K, MaSTherCell had
backlog of approximately $7.3 million (€ 6.9 million). We define our backlog as products and services that MaSTherCell is obligated to
deliver based on firm commitments relating to contracts with its customers. 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.
In January 2017, our subsidiary, MaSTherCell, paid out €1.5 million (approximately $1.7 million) in principal amount and accrued
interest owing under a series of bonds that were issued by it in 2014 and came due September 2016.
In February 2017, we and Admiral Ventures Inc. (“Admiral”), a creditor, reached a settlement agreement pursuant to which
approximately $1.9 million due and payable has been extended to June 2018. Under the terms of the agreement, we agreed to pay to
Admiral by March 1, 2017, $1.5 million on account of the amounts due to it. We also agreed to pay to Admiral, commencing April 2017,
$125 thousand each calendar month to reduce the amounts outstanding and also agreed to remit from the equity investment subscription
proceeds raised after February 28, 2017 of $500 thousand or more, 20% of such proceeds, and of $1 million or more, 25% of such
proceeds.
In addition, we have agreed to prepay, on our about March 7, 2017, approximately $402,500 of principal and accrued interest on
short-term loans.
Critical Accounting Policies and Use of Estimates
The discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have
been prepared in accordance with generally accepted accounting principles in the United States. The preparation of these financial
statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those
related to revenue recognition, bad debts, investments, intangible assets and income taxes. Our estimates are based on historical experience
and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these
estimates.
We have identified the accounting policies below as critical to our business operations and the understanding of our results of
operations.
Business Combination
We allocated the purchase price of the business we acquired 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 from us 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. We included the results of operations of the business that we
acquired in the consolidated results prospectively from the date of acquisition, when control was obtained.
Intangible Assets
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 over their estimated period of useful life, which is determined by
identifying the period over which the cash flows are expected to be generated.
-43-
Goodwill
Goodwill represents the excess of the purchase price of an 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), at the reporting unit level or
more frequently if events or changes in circumstances indicate that the goodwill might be impaired. The 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 the reporting unit to its carrying amount. 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 the goodwill is less than the carrying value of the goodwill, an impairment loss
equivalent to the difference is recorded.
As of November 30, 2016, the fair value of the reporting unit, CDMO, exceeded the carrying value by approximately $3 million. A
decrease in the terminal year growth rate of 1% and an increase in the discount rate of 1% would reduce the fair value of the reporting unit
by approximately $4 million and would result in an impairment. Given the small amount that the fair value exceeded the carrying value of
the reporting unit, a negative change in the future to the income approach based on discounted cash flows of a number of assumptions
(including the expected cash flows, discount rate, growth rate and terminal rate) will result in an impairment. Given that the reporting unit
is still in its growth stage, there can be no assurance that an impairment may not occur in the near future.
Impairment of Long-lived Assets
We are reviewing the property 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 2016 and 2015.
Revenue Recognition
We recognize the 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. We determine that persuasive evidence of
an arrangement exists based on written contracts that define the terms of the arrangements. In addition, we determine that services have
been delivered in accordance with the arrangement. We assess 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.
We also incur revenue from selling of some consumables which are incidental to the services provided as foreseen in the clinical
services contracts. Such revenue is recognized upon delivery of the processed cells in which they were consumed.
-44-
Results of Operations
Comparison of the Year Ended November 30, 2016 to the Year Ended November 30, 2015
Our loss before income tax for the year ended November 30, 2016 are summarized as follows in comparison to its expenses for the
year ended November 30, 2015:
Revenues
Cost of revenues
Research and development expenses, net
Amortization of intangible assets
General and administration expenses
Financial expenses (income), net
Share in losses of associated company
Loss before income taxes
Revenues
Year Ended November 30,
2016
6,397 $
7,657
2,157
1,620
6,240
(659)
123
10,741 $
2015
(in thousands)
2,974
3,880
1,067
1,203
4,035
(1,850)
5,361
$
$
All revenues were sourced from the Company’s Belgian-based subsidiary, MaSTherCell S.A.
The Company’s revenues for the year ended November 30, 2016 are summarized as follows in comparison to its revenues for the
year ended November 30, 2015:
Services
Goods
Total
Year Ended November 30,
2016
2015
(in thousands)
4,683 $
1,714
6,397 $
1,917
1,057
2,974
$
$
Revenues for the year ended November 30, 2016, increased by 115% or $3.4 million compared to 2015. The increase in revenues is
partially attributable to the fact that our CDMO activities were consolidated the entire year ($1.6 million) while in 2015 operations
commenced only following the acquisition of MaSTherCell in March 2015, In addition to that, an increase of $1.5 million in revenues is
primarily attributable to the increase in the volume of our services and sales of consumables attributable to two major clients and the
remaining increase of $0.3 million is mainly due to revenues from new clients.
Expenses
Cost of Sales
Salaries and related expenses
Professional fees and consulting services
Raw Material
Depreciation and amortization expenses
Other expenses
Total
-45-
Year Ended November 30,
(in thousands)
2016
2015
$
$
3,356 $
967
1,769
1,299
266
7,657 $
1,319
413
1,260
781
107
3,880
Cost of sales for the year ended November 30, 2016 increased by 97%, or $3.8 million, compared to 2015. An increase of 39%, or
$1.5 million, in costs of sales for the year ended November 30, 2016 compared to 2015 was due to consolidation of the full period results
of MaSTherCell in 2016.
Salaries and related expenses for the year ended November 30, 2016 increased by 154%, or $2 million compared to 2015. The
increase in salaries and related expenses for the year ended November 30, 2016 compared to 2015, was due to recruitment by MaSTherCell
of new employees as part of our plans to expand the manufacturing facility’s capacity in Belgium and to addition of staff to support the
increase in the volume of services provided. Accordingly, MaSTherCell employed as of November 30, 2016 an average of 80 compared to
35 employees in the corresponding period last year.
Professional fees and consulting services for the year ended November 30, 2016, increased by 134%, or $554 thousand, compared to
2015. Of the increase in professional fees and consulting services 160 thousand is partially attributable to the engagement of two new
consultants and a new service provider.
Raw materials for the year ended November 30, 2016, increased by 40%, or $509 thousand, compared to year ended November 30,
2015 due to the increase in the volume of our services and the execution of two qualification runs.
Amortization and depreciation expenses, net for the year ended November 30, 2016, increased by 66%, or $518 thousand, compared
to the year ended November 30, 2015 as a result of depreciation expenses of equipment purchased during 2016 for two production rooms
and a new clean room.
Research and Development Expenses
Salaries and related expenses
Stock-based compensation
Professional fees and consulting services
Lab expenses
Other research and development expenses
Less – grant
Total
Year Ended November 30,
(in thousands)
2016
2015
$
$
1,040 $
327
400
691
179
(480)
2,157 $
550
129
476
468
237
(793)
1,067
The increase in salaries and related expenses for the year ended November 30, 2016 compared to 2015 is primarily due to the
expansion of our development team in Belgium from one part time employee to three employees. In addition, during the year 2016 we
expanded our research and development team in our Israeli subsidiary compared to last year.
Professional fees and consulting services for the year ended November 30, 2016 compared to 2015, decreased by 15%, or $76
thousand, and is attributable to the merger with MaSTherCell, which was one of our subcontractors for the DGO6 project before the
acquisition.
The increase in lab expenses in the year ended November 30, 2016 compared to 2015 is primarily attributable to a final experiment
held by Pall Life Science Belgium BVBA (“Pall”) and a tech transfer held in second quarter of 2016, regarding the work done by Pall to
MaSTherCell. And due to an extending of our development work in the Belgium subsidiary and MaSTherCell.
The increase in stock-based compensation expenses for the year ended November 30, 2016 compared to 2015 is mainly due to a new
grant of options for one of the executives recorded in amount of $164 thousand and $33 thousand recorded due to change in the fair value
valuation of options granted to one of our consultant in August 2014.
-46-
Selling, General and Administrative Expenses
Salaries and related expenses
Stock-based compensation
Accounting and legal fees
Professional fees
Rent and related expenses
Business development
Expenses related to a JV
Other general and administrative expenses
Total
Year Ended November 30,
(in thousands)
2016
2015
$
$
241 $
2,334
786
845
798
397
497
342
6,240 $
874
674
633
1,045
291
326
192
4,035
Selling, general and administrative expenses for the year ended November 30, 2016 increased by 54%, or $2,205 thousand,
compared to 2015. The increase in selling, general and administrative expenses activities is partially attributable to increase in
MaSTherCell’s selling, general and administrative expenses of $1.5 million in the first quarter of 2016, compared to the corresponding
period last year which was consolidated only from March 2, 2015.
Furthermore, the decrease in salaries and related expenses in year ended November 30, 2016 compared to 2015 is primarily
attributable due to a non-cash income of $637 thousand recorded in 2016 resulting from the release and waiver agreement with our former
Chief Executive Officer in our US subsidiary, who resigned during 2016 from his position and released us from any obligations and
liabilities.
Stock-based compensation expenses during the year ended November 30, 2016 increased by 246%, or $1,660 thousand, compared
2015 and was primarily attributable to new option grants to two executives made on April 27, 2016 for which we recorded a charge in the
amount of $468 thousand, and a charge of $179 thousand due to the modification our former Chief Executive Officer in our US subsidiary’s
options and stock-based compensation and charges in the amount of $1,151 thousand related to options and shares previously granted to
seven consultants.
Accounting and legal fees expenses for the year ended November 30, 2016 increased by 24%, or $153 thousand, compared to 2015.
The increase is primarily attributable to legal fees of $107 thousand incurred in connection with a new patent application that our Israeli
subsidiary submitted in twelve countries and increase of $125 thousand in legal fees due to the legal services provided in connection with
our new strategic collaborations and agreements which amounts were offset by a decrease of $116 thousand in accounting expenses due to a
reduction in third party services resulting from the reallocation of the work to our employees.
Rent and related expenses increased by 174%, or $507 thousand, during the year ended November 30, 2016 compared to 2015 and is
primarily attributable to leasing of additional offices premises for our subsidiary MaSTherCell.
Business development expenses increased by 121%, or $71, thousand during the year ended November 30, 2016 compared to 2015
and is primarily attributable to an increase in the number of conferences we attended for purposes of marketing our CDMO business for our
subsidiary MaSTherCell.
Expenses related to the Korean joint venture are comprised of our 50% participating interest in the expenses accrued during the year
ended November 30, 2016, which primarily consisted salary expenses and construction costs of the new production area in Korea under our
joint venture with Curecell.
The increase in selling, general and administrative expenses for the year ended November 30, 2016 compared to 2015 was partially
offset by a decrease of $200 thousand in professional fees due to reduced reliance on outside professionals.
-47-
Financial Expenses (Income), net
Decrease in fair value of warrants and financial
liabilities measured at fair value
Stock-based compensation related to warrants
granted due to issuance of credit facility
Interest expense on convertible loans
Foreign exchange loss, net
Other income
Total
Year Ended November 30,
(in thousands)
2016
2015
$
$
(1,587) $
(2,596)
208
694
31
(5)
(659)
726
50
(30)
(1,850)
Financial income for the year ended November 30, 2016, decreased by 64%, or $1,191 thousand, compared to 2015. The decrease in
financial income is primarily attributable to a decrease of $1,009 thousand in the interest income from the changes in fair value of warrants
and financial liabilities measured at fair value.
This change was mainly due to (i) a decrease of $417 in the income recorded from changes in fair value related to price protection
derivative and warrants expired during the year ended November, 2015, (ii) a decrease of $1,113 thousand in the interest income from
changes in fair value of convertible bonds primarily resulting from changes in our assumptions related to the occurrence of the convertible
bonds conversion option during the year 2015 and (iii) $229 thousand loss from extinguishment of a convertible loan and (iv) a decrease of
$728 thousand in income from changes in the fair value of the embedded derivatives, due to the fact that in 2015 there was a strong impact
of the decrease in the share price. This decrease was partially offset by interest income of $1,476 thousand in 2016 from changes in fair
value of the price protection derivative, due to changes in our assumptions related to the probability of activating the anti-dilution
mechanism.
In addition, part of the decrease is primarily attributable to $208 thousand of stock-based compensation expenses related to warrants
granted due to expiration of our credit facility.
Working Capital Deficiency
Current assets
Current liabilities
Working capital deficiency
November 30,
2016
2015
(in thousands)
4,205 $
14,576
(10,371) $
8,206
16,476
(8,270)
$
$
Current assets decreased by $4 million, which was primarily attributable to a decrease of $3.3 million in cash and cash equivalents
that were used for, among other things, the repayment of short and long-term debt in amount of $2.1 million, purchase of property and
equipment in amount of $1.4 million for the manufacturing facility in Belgium in order to meet customers’ demands and expanding
capacity. Furthermore, the prepaid expenses and other receivables decreased by $0.5 million and the grants receivable decreased by $0.5
million mainly due to reduction in the expected receivables from the DGO6 resulting from DGO6’s of certain expenses. This was partially
offset by an increase of $0.1 million in inventory.
Current liabilities decreased by $1.9 million, which was primarily attributable to a decrease of $1.7 million in short-term loans and
current maturities of long term loans, a decrease of $0.4 million in current maturities of convertible loans following a decrease of $0.9
million conversion to equity, increase of $0.3 due to a new convertible loan and due to increase of $0.2 changes in fair value. In addition to
that the price protection derivative decreased by $1.5 million (due to changes in our assumptions related to the probability of activating the
anti-dilution mechanism and the decrease in the life of the price protection derivative). This was offset by an increase in the amount of $1.7
million in accounts payable and employee.
-48-
Cash Flows
Net loss
Net cash used in operating activities
Net cash used in investing activities
Net cash provided by financing activities
Decrease in cash and cash equivalents
Year Ended November 30,
2016
2015
(in thousands)
$
$
(9,194) $
(3,783)
(1,536)
2,123
(3,196) $
(4,461)
(2,706)
(932)
6,666
3,028
The increase in net cash used in operating activities for year ended November 30, 2016, compared to 2015, was mainly due to the
CDMO activities that commenced following the acquisition of MaSTherCell in March 2015 and the expansion of our production factory
that included, among other things, doubling the number of employees and renting additional area and doubling our volume of revenues.
The increase in amount of $0.6 million in net cash used in investing activities for year ended November 30, 2016, compared to 2015,
was due to increase of $0.5 million in purchase of property and equipment in order to fulfill the plan for expanding the manufacturing area
of MaSTherCell in Belgium and also to fund $0.1 million investments in Atvio.
The decrease in amount of $4.5 million in net cash provided by financing activities for year ended November 30, 2016, compared to
2015, primarily attributable to decrease of $2.8 million in the proceeds from issuance of shares and warrants, decrease of $2.8 million in the
proceeds from issuance of loans payable which was offset by decrease in amount of $0.3 due to repayment of short and long-term debt and
due increase in amount of $0.6 million in the net proceeds from issuance of convertible loans in the amount.
Liquidity & Capital Resources
We need to raise additional operating capital in order to maintain our operations and realize our business plan. Management believes
that funds on hand, as well as the subscription proceeds through our fiscal year 2017 of $7 million that we anticipate receiving (out of a
total of $15 million subscription proceeds that we are to receive on a periodic basis through August 2018), will allow us to conduct
operations as presently conducted through the end of fiscal year 2017, without the planned CDMO facility expansion. We may need to
raise additional operating capital in fiscal 2018 in order to maintain operations and to realize our business plan. Without additional sources
of cash and/or the deferral, reduction, or elimination of significant planned expenditures and debt repayment, we may not have the cash
resources to continue as a going concern thereafter.
Going Concern
The consolidated financial statements contained in this report have been prepared assuming that the Company will continue as a
going concern. We have net losses for the period from inception (June 5, 2008) through November 30, 2016 of $29.8 million as well as
negative cash flows from operating activities. Management estimate that the cash and cash equivalents balance as of November 30, 2016 of
$891 thousand will allow the Company to continue its operations and activities for a period of less than one quarter, without additional
funding. Presently, the Company does not have sufficient cash resources to meet its plans in the twelve months following November 30,
2016. These factors raise substantial doubt about our ability to continue as a going concern. Management is in the process of evaluating
various financing alternatives for operations, as we will need to finance future research and development activities and general and
administrative expenses through fund raising in the public or private equity markets.
We have been funding operations primarily from the proceeds from private placements of our convertible and equity securities and
from revenues generated by our subsidiary MaSTherCell. During fiscal 2016 and through February 27, 2017, we raised approximately $8.3
million from the private placement of our equity, equity linked and convertible debt securities. In addition, in January 2017, we entered into
definitive agreements with an institutional investor for the private placement of units of our common stock and common stock purchase
securities for aggregate subscription proceeds to the Company of $16 million, payable periodically through August 2018. As of the date of
this report, we received $1 million of these subscription proceeds. In addition, through fiscal 2016, our Belgian based subsidiary, Orgenesis
SPRL, was awarded grants from DGO6 of € 13.5 million (approximately $7.7 as of the date of this report), of which €7.4 million
(approximately $7.7 million) was funded.
-49-
The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. There
can be no assurance that management will be successful in implementing a business plan or that the successful implementation of a
business plan will actually improve the Company’s operating results. If the Company is unable to obtain the necessary capital, the
Company may have to cease operations.
Cash Requirements
Our plan of operation over the next 12 months is to:
•
•
•
•
•
•
•
initiate regulatory activities in Europe and the United States;
locate suitable facility on the U.S. for tech transfer and manufacturing scale-up;
purchase equipment needed for its cell production process;
hire key personnel including, but not limited to, a chief medical officer, chief science officer and chief operating officer;
collaborate with clinical centers and regulators to carry out clinical studies and clinical safety testing;
identify optional technologies for scale up of the cells production process; and
initialize efforts to validate the manufacturing process (in certified labs).
We estimate that our operating resources and expenses for the next 12 months as of November 30, 2016 will be as follows:
Revenues
Grant income
Industrial loans
Manufacturing wages
Other Manufacturing expenses
R&D wages
R&D subcontractors
Other R&D expenses
G&A expenses
Expansion of CDMO facilities
Manufacturing costs
Property and equipment investments
Total
$
$
11,109
6,974
2,062
(4,300)
(5,699)
(1,121)
(6,314)
(1,766)
(3,952)
(3,996)
(2,500)
(3,177)
(12,680)
Future Financing
We will require additional funds to implement our growth strategy for our business. In addition, while we have received various
grants that have enabled us to fund our clinical developments, these funds are largely restricted for use for other corporate operational and
working capital purposes. As mentioned above we raised additional capital to both supplement our clinical developments that are not
covered by any grant funding and to cover our operational expenses. In February 2017, we entered into a definitive agreement with an
institutional investor for the private placement of units of our securities for aggregate subscription proceeds of $16 million. The
subscription proceeds are payable on a periodic basis through August 2018. We may raise the additional funds required through equity
financing, debt financing, or other sources, which may result in further dilution in the equity ownership of our shares. There can be no
assurance that additional financing will be available when needed or, if available, that can be obtained on commercially reasonable terms. If
we will not be able to obtain the additional financing on a timely basis as required, or generate significant material revenues from
operations, we will not be able to meet our other obligations as they become due and will be forced to scale down or perhaps even cease our
operations.
-50-
Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the
Company’s 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 to Financial 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
Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in
the Company’s reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported
within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the
Company’s management, including the Company’s president and chief executive officer (who is the Company’s principal executive
officer) and the Company’s chief financial officer, treasurer, and secretary (who is the Company’s principal financial officer and principal
accounting officer) to allow for timely decisions regarding required disclosure. In designing and evaluating the Company’s disclosure
controls and procedures, the Company’s management recognizes that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired control objectives, and the Company’s management is required to
apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. The ineffectiveness of the Company’s
disclosure controls and procedures was due to material weaknesses identified in the Company’s internal control over financial reporting,
described below.
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over the Company’s financial reporting. In
order to evaluate the effectiveness of internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act of
2002. Our management, with the participation of the Company’s principal executive officer and principal financial officer has conducted an
assessment, including testing, using the criteria in Internal Control - Integrated Framework, issued by the Committee of Sponsoring
Organizations of the Treadway Commission (“COSO”) (2013). Our system of internal control over financial reporting is 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. Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. This assessment included review of the documentation of controls, evaluation of the
design effectiveness of controls, testing of the operating effectiveness of controls and a conclusion on this evaluation. Based on this
evaluation, the Company’s management concluded its internal control over financial reporting was not effective as of November 30, 2016.
The ineffectiveness of the Company’s internal control over financial reporting was due to the following material weaknesses which are
indicative of many small companies with small number of staff:
-51-
(i)
(ii)
inadequate segregation of duties consistent with control objectives; and
ineffective controls over period end financial disclosure and reporting processes.
Our management believes the weaknesses identified above have not had any material effect on our financial results. However, we
are currently reviewing our disclosure controls and procedures related to these material weaknesses and expect to implement changes in the
next fiscal year as resources allow, including identifying specific areas within our governance, accounting and financial reporting processes
to add adequate resources to potentially mitigate these material weaknesses.
Our management will continue to monitor and evaluate the effectiveness of our internal controls and procedures over financial
reporting on an ongoing basis and is committed to taking further action and implementing additional enhancements or improvements, as
necessary and as funds allow.
Because of its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. 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. All internal control systems, no matter how
well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance
with respect to financial statement preparation and presentation.
Management’s Remediation Plan
We took several steps to enhance and improve the design of our internal control over financial reporting. As of the report date, we
have not been able to remediate the material weaknesses identified above. To remediate such weaknesses, we plan to implement additional
steps following changes in the next fiscal year as resources allow:
(i)
(ii)
appoint additional qualified personnel to address inadequate segregation of duties and ineffective risk management and implement
modifications to our financial controls to address such inadequacies; and
adopt sufficient written policies and procedures for accounting and financial reporting.
The remediation efforts set out in (i) is largely dependent upon our company securing additional financing to cover the costs of
implementing the changes required. If we are unsuccessful in securing such funds, remediation efforts may be adversely affected in a
material manner. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all
control issues, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-
making can be faulty and that breakdowns can occur because of simple error or mistake.
Management believes that despite our material weaknesses set forth above, our consolidated financial statements for the year ended
November 30, 2016 are fairly stated, in all material respects, in accordance with US GAAP.
Changes in Internal Control Over Financial Reporting
During the three months ended November 30, 2016, there were no changes in our internal control over financial reporting that have
materially affected, or are reasonably likely to materially affect the Company’s internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
Appointment of Ashish Nanda to the Board of Directors
On February 22, 2017, the board of directors (the “Board”) appointed Ashish Nanda to serve on the Board. The appointment takes
effect March 6, 2017. Mr. Nanda was designated as a director by an institutional shareholder with whom we entered into a definitive
investment agreement, the material terms of which were disclosed in our current report on Form 8-K which we filed with the Securities and
Exchange Commission on February 23, 2017. As of the date of this report on Form 10-K, Mr. Nanda has not been appointed to any
committee of the Board.
-52-
Mr. Nanda is the Managing Director of Innovations Group. Innovations and its group companies is one of the largest outsourcing
companies in financial sector with clients including banks such as Dunia Finance, Majid al Futtaim, Citibank, First Gulf Bank and Telecom
companys such as Etisalat & du. Innovations employs close to 7,000 people working across various sectors.
There are no family relationships between Mr. Nanda and any director or other executive officer of Orgenesis, and, except as
otherwise disclosed above, he was not selected by the Board to serve as a director pursuant to any arrangement or understanding with any
person. Mr. Nanda has not engaged in any transaction that would be reportable as a related party transaction under Item 404(a) of
Regulation S-K.
Grant of Stock Options
On December 19, 2016, the Board granted options to senior executive officers and non-management employees to purchase a total of
7,750,000 shares of the Company’s Common Stock.
From the above grants, Vered Caplan, the Company’s Chief Executive Officer received options to purchase 2,000,000 shares of the
Company’s Common Stock; Neil Reithinger, the Company’s Chief Financial officer, received options to purchase 1,000,000 shares; each
of Guy Yachin, Yaron Adler and David Sidransky, non-employee directors received options to purchase 500,000 shares; and Hugues
Bultot, a director and Chief Executive of our subsidiary received options to purchase 500,000 shares. The Board also awarded options for
2,750,000 shares of our common stock to our non-management employees.
The options granted by the Board to the executives and directors have a two-year vesting term. The options have an exercise price
per share equal to $0.40, which was above the closing price per share of $0.39 of our Common Stock on December 19, 2016, the grant date.
-53-
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
PART III
The information required by this Item is incorporated by reference to the Company's definitive proxy statement for the 2017 annual
meeting of stockholders.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to the Company's definitive proxy statement for the 2017 annual
meeting of stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The information required by this Item is incorporated by reference to the Company's definitive proxy statement for the 2017 annual
meeting of stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTORS INDEPENDENCE
The information required by this Item is incorporated by reference to the Company's definitive proxy statement for the 2017 annual
meeting of stockholders.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this Item is incorporated by reference to the Company's definitive proxy statement for the 2017 annual
meeting of stockholders.
-54-
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Exhibits required by Regulation S-K
PART IV
No.
3.1
3.2
3.3
3.4
3.5
3.6
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
Description
Articles of Incorporation (incorporated by reference to an exhibit to a registration statement on Form S-1 filed on April 2,
2009)
Certificate of Change (incorporated by reference to an exhibit to a current report on Form 8-K filed on September 2, 2011)
Articles of Merger (incorporated by reference to an exhibit to a current report on Form 8-K filed on September 2, 2011)
Certificate of Amendment to Articles of Incorporation (incorporated by reference to an exhibit to a current report on Form
8-K filed on September 21, 2011)
Amended and Restated Bylaws (incorporated by reference to an exhibit to a current report on Form 8-K filed on September
21, 2011)
Certificate of Correction dated February 27, 2012 (incorporated by reference to an exhibit to a current report on Form 8-
K/A filed on March 16, 2012)
Convertible Loan Agreement dated December 6, 2013 with Mediapark Investments Limited (incorporated by reference to
our current report on Form 8-K filed on December 16, 2013)
Investment Agreement dated December 13, 2013 with Kodiak Capital Group, LLC (incorporated by reference to our
current report on Form 8-K filed on December 16, 2013)
Registration Rights Agreement dated December 13, 2013 with Kodiak Capital Group, LLC (incorporated by reference to
our current report on Form 8-K filed on December 16, 2013)
Form of subscription agreement (incorporated by reference to our current report on Form 8-K filed on March 4, 2014)
Form of warrant (incorporated by reference to our current report on Form 8-K filed on March 4, 2014)
Consulting Agreement dated April 3, 2014 with Aspen Agency Limited (incorporated by reference to our current report on
Form 8-K filed on April 7,2014)
Stock Option Agreement dated April 3, 2014 with Aspen Agency Limited (incorporated by reference to our current report
on Form 8-K filed on April 7,2014)
Form of subscription agreement with form of warrant (incorporated by reference to our current report on Form 8-K filed
on April 28, 2014)
Convertible Loan Agreement dated May 29, 2014 with Nine Investments Limited (incorporated by reference to our current
report on Form 8-K filed on May 30, 2014)
Services Agreement between Orgenesis SPRL and MaSTherCell SA dated July 3, 2014 incorporated by reference to our
current report on Form 8-K filed on July 7, 2014)
Financial Consulting Agreement dated August 1, 2014 with Eventus Consulting, P.C., (incorporated by reference to our
current report on Form 8-K filed on August 5,2014)
Personal Employment Agreement dated August 1, 2014 by and between Orgenesis, Inc. and Neil Reithinger (incorporated
by reference to our current report on Form 8-K filed on August 5, 2014)
Personal Employment Agreement dated as of July 23, 2014 by and between Orgenesis Maryland Inc. and Scott Carmer
(incorporated by reference to our current report on Form 8-K filed on August 6, 2014)
Release Agreement dated November 26, 2016 by and between Orgenesis Maryland Inc., Orgenesis Inc. and Scott Carmer
(incorporated by reference to our current report on Form 8-K filed on November 23, 2016)
Personal Employment Agreement dated August 22, 2014 by and between Orgenesis Ltd. and Vered Caplan (incorporated
by reference to our current report on Form 8-K filed on August 25, 2014)
Share Exchange Agreement dated November 6, 2014 with MaSTherCell SA and Cell Therapy Holding SA (collectively
“MaSTherCell”) and each of the shareholders of MaSTherCell (incorporated by reference to our current report on Form 8-
K filed on November 10, 2014)
-55-
No.
10.21
10.22
10.23
10.24
10.25
21.1
31.1*
31.2*
32.1*
32.2*
99.1
99.2
99.3
99.4
101*
Description
Addendum No. 1 to Share Exchange Agreement dated March 2, 2015 with MaSTherCell SA, Cell Therapy Holding SA and
their shareholders (incorporated by reference to the Company’s current report on Form 8-K filed on March 5, 2015)
Escrow Agreement dated February 27, 2015 with the shareholders of MaSTherCell SA and Cell Therapy Holding SA and
bondholders of MaSTherCell SA and Securities Transfer Corporation (incorporated by reference to the Company’s current
report on Form 8-K filed on March 5, 2015)
Orgenesis Inc. Board of Advisors Consulting Agreement dated March 16, 2015 (incorporated by reference to the
Company’s current report on Form 8-K filed on March 17, 2015)
Addendum No. 2 to Share Exchange Agreement dated March 2, 2015 with MaSTherCell SA, Cell Therapy Holding SA and
their shareholders (incorporated by reference to the Company’s current report on Form 8-K filed on November 13, 2015)
Joint Venture Agreement
List of Subsidiaries of Orgenesis Inc.
Certification Statement of the Chief Executive Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002
Certification Statement of the Chief Financial Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002
Certification Statement of the Chief Executive Officer pursuant to Section 906 of the Sarbanes Oxley Act of 2002
Certification Statement of the Chief Financial Officer pursuant to Section 906 of the Sarbanes Oxley Act of 2002
Global Share Incentive Plan (2012) (incorporated by reference to our current report on Form 8K filed on May 31, 2012)
Appendix – Israeli Taxpayers Global Share Incentive Plan (incorporated by reference to our current report on Form 8K
filed on May 31, 2012)
Audit Committee Charter (incorporated by reference to our current report on Form 8K filed on January 15, 2013)
Compensation Committee Charter (incorporated by reference to our current report on Form 8K filed on January 15, 2013)
Interactive Data Files pursuant to Rule 405 of Regulation ST.
*Filed herewith
ITEM 16. SUMMARY
Not applicable.
-56-
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.
SIGNATURES
ORGENESIS INC.
By: /s/ Vered Caplan
Vered Caplan
President, Chief Executive Officer and Chairperson
of the Board (Principal Executive Officer)
Date: February 28, 2017
By: /s/ Neil Reithinger
Neil Reithinger
Chief Financial Officer, Treasurer and Secretary
(Principal Accounting Officer)
Date: February 28, 2017
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/ Guy Yachin
Guy Yachin
Director
Date: February 28, 2017
By: /s/ David Sidransky
David Sidransky
Director
Date: February 28, 2017
By: /s/ Yaron Adler
Yaron Adler
Director
Date: February 28, 2017
By: /s/ Etti Hanochi
Etti Hanochi
Director
Date: February 28, 2017
By: /s/ Hugues Bultot
Hugues Bultot
Director
Date: February 28, 2017
-57-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ORGENESIS INC.
CONSOLIDATED FINANCIAL STATEMENTS AS OF NOVEMBER 30, 2016
TABLE OF CONTENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets
Consolidated Statements of Comprehensive Loss
Consolidated Statements of Changes in Equity (Capital Deficiency)
Consolidated Statements of Cash Flows
Page
F-2
F-3
F-5
F-6
F-7
Notes to Consolidated Financial Statements
F-8 to F-42
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders of
ORGENESIS INC.
We have audited the accompanying consolidated balance sheets of Orgenesis Inc. and its subsidiaries as of November 30, 2016 and 2015,
and the related consolidated statements of comprehensive loss, changes in equity (capital deficiency) and cash flows for each of the two
years in the period then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the
Company at November 30, 2016 and 2015, and the results of their operations and cash flows for each of the two years in the period then
ended, in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As
discussed in Note 1b to the financial statements, the Company has suffered recurring losses from operations and has cash outflows from
operating activities that raise substantial doubt as to the Company's ability to continue as a going concern. Management’s plans in regard to
these matters are also described in Note 1b. The financial statements do not include any adjustments that might result from the outcome of
this uncertainty.
Tel-Aviv, Israel
February 28, 2017
Kesselman & Kesselman
Certified Public Accountants (Isr.)
A member firm of PricewaterhouseCoopers International Limited
F-2
ORGENESIS INC.
CONSOLIDATED BALANCE SHEETS
(U.S. Dollars in thousands)
Assets
CURRENT ASSETS:
Cash and cash equivalents
Accounts receivable, net
Prepaid expenses and other receivables
Grants receivable
Inventory
Total current assets
NON CURRENT ASSETS:
Property and equipment, net
Restricted cash
Intangible assets, net
Goodwill
Other assets
Total non current assets
TOTAL ASSETS
F-3
$
November 30,
2016
2015
891 $
1,229
779
906
400
4,205
4,573
5
15,050
9,584
70
29,282
33,487
4,168
1,173
1,118
1,446
301
8,206
4,296
5
16,653
9,535
53
30,542
38,748
ORGENESIS INC.
CONSOLIDATED BALANCE SHEETS
(U.S. Dollars in thousands)
November 30,
2016
2015
Liabilities and equity (net of capital deficiency)
CURRENT LIABILITIES:
Short term bank credit
Accounts payable
Accrued expenses and other payables
Employees and related payables
Related parties
Advance payments on account of grant
Short-term loans and current maturities of long term loans
Deferred income
Current maturities of convertible loans
Convertible bonds
Price protection derivative
Investments in associate, net
TOTAL CURRENT LIABILITIES
LONG-TERM LIABILITIES:
Loans payable
Convertible loans
Warrants
Retirement benefits obligation
Put option derivative
Deferred taxes
TOTAL LONG-TERM LIABILITIES
TOTAL LIABILITIES
COMMITMENTS
REDEEMABLE COMMON STOCK
EQUITY (CAPITAL DEFICIENCY):
Common stock of $0.0001 par value, 1,750,000,000 shares authorized,
114,096,461 and 55,835,950 shares issued and outstanding as of
November 30, 2016 and November 30, 2015, respectively
Additional paid-in capital
Receipts on account of shares to be allotted
Accumulated other comprehensive loss
Accumulated deficit
21
4,554
1,205
1,680
42
243
1,111
1,273
2,541
1,818
76
12
14,576
3,291
1,059
1,843
5
273
1,862
8,333
22,909
-
12
41,605
(1,205)
(29,834)
TOTAL EQUITY (CAPITAL DEFICIENCY)
TOTAL LIABILITIES AND EQUITY (NET OF CAPITAL DEFICIENCY)
$
10,578
33,487 $
The accompanying notes are an integral part of these consolidated financial statements.
F-4
3,475
816
1,348
42
307
2,829
1,216
3,022
1,888
1,533
16,476
2,540
1,382
5
3,327
7,254
23,730
21,458
6
14,229
1,251
(1,286)
(20,640)
(6,440)
38,748
ORGENESIS INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(U.S. Dollars in thousands, except share and per share amounts)
REVENUES
COST OF REVENUES
GROSS LOSS
RESEARCH AND DEVELOPMENT EXPENSES, net
AMORTIZATION OF INTANGIBLE ASSETS
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
OPERATING LOSS
FINANCIAL INCOME, net
SHARE IN LOSSES OF ASSOCIATED COMPANY
LOSS BEFORE INCOME TAXES
INCOME TAX BENEFIT
NET LOSS
LOSS PER SHARE:
Basic
Diluted
WEIGHTED AVERAGE NUMBER OF SHARES USED
IN COMPUTATION OF BASIC AND DILUTED
LOSS PER SHARE:
Basic
Diluted
OTHER COMPREHENSIVE LOSS -
Net loss
Translation adjustments
TOTAL COMPREHENSIVE LOSS
For the Year Ended
November 30,
2016
2015
6,397 $
7,657
1,260
2,157
1,620
6,240
11,277
(659)
123
10,741
(1,547)
9,194 $
0.09 $
0.09 $
2,974
3,880
906
1,067
1,203
4,035
7,211
(1,850)
5,361
(900)
4,461
0.08
0.11
102,258,854
102,258,854
55,798,416
56,920,912
9,194 $
(81)
9,113 $
4,461
1,268
5,729
$
$
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
F-5
BALANCE AT
DECEMBER 1,
2014
Changes during the
Year ended
November 30, 2015:
Stock-based
compensation to
employees and
directors
Stock-based
compensation to
service providers
Warrants issued to
credit providers
Issuances of shares
Shares cancellation
Receipts on account
of shares to be issued
Comprehensive loss
for the year
BALANCE AT
NOVEMBER 30,
2015
Changes during the
Year ended
November 30, 2016:
Stock-based
compensation to
employees and
directors
Stock-based
compensation to
service providers
Warrants and shares
issued due to
extinguishment of a
convertible loan
Beneficial conversion
feature of convertible
loans
Issuances of shares
from investments and
conversion of
convertible loans
Reclassification of
redeemable common
stock**
Comprehensive loss
for the year
BALANCE AT
NOVEMBER 30,
2016
ORGENESIS INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (CAPITAL DEFICIENCY)
(U.S. Dollars in thousands, except share amounts)
Common Stock
Number
Par
Value
Additional
Paid-in Capital
Receipts on Account of
Share to be Allotted
Accumulated Other
Comprehensive Loss
Accumulated
Deficit
Total
55,970,565
$
6
$
13,152
$
60
$
(18) $
(16,179) $
(2,979)
115,385
(250,000)
713
90
208
60
6
(60)
1,251
713
90
208
1,257
(1,268)
(4,461)
(5,729)
55,835,950
2,650,000
288,462
12,920,325
42,401,724
114,096,461
$
6
$
14,229
$
1,251
$
(1,286) $
(20,640) $
(6,440)
1,103
1,613
114
257
2,835
21,454
*
*
2
4
(1,251)
1,103
1,613
114
257
1,586
21,458
$
12
$
41,605
$
-
$
(1,205) $
(29,834)
10,578
81
(9,194)
(9,113)
*Represents an amount lower than $ 1 thousand
**Including outstanding contingent share, see Note 11(d)
The accompanying notes are an integral part of these consolidated financial statements.
F-6
ORGENESIS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss
Adjustments required to reconcile net loss to net cash used in operating activities:
Stock-based compensation
Share in losses of associated company
Loss from extinguishment of a convertible loan
Depreciation and amortization expenses
Change in fair value of warrants and embedded derivatives
Change in fair value of convertible bonds
Interest expense accrued on loans and convertible loans (including amortization of
beneficial conversion feature)
Changes in operating assets and liabilities:
Increase in accounts receivable
Increase in inventory
Increase in other assets
Decrease (increase) in prepaid expenses and other accounts receivable
Increase in accounts payable
Increase in accrued expenses
Increase in employee and related payables
Increase in deferred income
Increase in advance payments and receivables on account of grant
Decrease in deferred taxes
Net cash used in operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment
Investments in Associates
Restricted cash
Acquisition of MaSTherCell, net of cash acquired, see note 3
Short term investments and deposits
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term line of credit
Proceeds from issuance of shares and warrants
Proceeds from issuance of loans payable
Repayment of short and long-term debt
Proceeds from issuance of convertible loans (net of transaction costs)
Net cash provided by financing activities
NET CHANGE IN CASH AND CASH EQUIVALENTS
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
CASH AND CASH EQUIVALENTS AT END OF YEAR
SUPPLEMENTAL NON-CASH FINANCING ACTIVITY
Conversion of loans (including accrued interest) to common stock and warrants
Reclassification of redeemable common stock to equity
Warrants to be issued to credit providers
SUPPLEMENTAL INFORMATION ON INTEREST PAID IN CASH
Year Ended November 30,
2015
2016
$
(9,194) $
(4,461)
803
1,991
(1,375)
(1,221)
502
(731)
(87)
(22)
(1,083)
1,497
538
353
1,039
451
(900)
(2,706)
(982)
(5)
305
(250)
(932)
(14)
4,203
3,946
(2,419)
950
6,666
3,028
(174)
1,314
4,168
2,869
123
229
2,923
(1,732)
(84)
283
(54)
(101)
(17)
136
1,079
399
352
53
499
(1,546)
(3,783)
(1,425)
(111)
(1,536)
21
1,488
1,121
(2,106)
1,599
2,123
(3,196)
(81)
4,168
891 $
1,028
21,458
$
106 $
208
125
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
F-7
ORGENESIS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED NOVEMBER 30, 2016 AND 2015
NOTE 1 – DESCRIPTION OF BUSINESS
a.
General
Orgenesis Inc. (the “Company”) was incorporated in the state of Nevada on June 5, 2008, under the name Business Outsourcing
Services, Inc. Effective August 31, 2011, the Company completed a merger with its subsidiary, Orgenesis Inc., a Nevada corporation which
was incorporated solely to effect a change in its name. As a result, the Company changed its name from “Business Outsourcing Services,
Inc.” to “Orgenesis Inc.” The consolidated financial statements include the accounts of Orgenesis Inc., its wholly-owned subsidiaries
MaSTherCell S.A (the “MaSTherCell”), its Belgian based subsidiary and a contract development manufacturing organization, or CDMO
(see also note 3), specialized in cell therapy development for advanced medicinal products; Orgenesis SPRL (the “Belgian Subsidiary”), a
Belgian based subsidiary which is engaged in development and manufacturing activities together with clinical development studies in
Europe, and later on to be the Company’s center for activities in Europe; Orgenesis Maryland Inc. (the “U.S. Subsidiary”) a Maryland
corporation, and Orgenesis Ltd. an Israeli corporation.
The Company is a regenerative therapy company with expertise and experience in cell therapy development and manufacturing.
The Company’s cell therapy technology derives from published work of Prof. Sarah Ferber, our Chief Science Officer and a
researcher at Tel Hashomer Medical Research (“THM”), a leading medical hospital and research center in Israel, who established a proof of
concept that demonstrates the capacity to induce a shift in the developmental fate of cells from the liver and transdifferentiating
(converting) them into “pancreatic beta cell-like” insulin-producing cells. Its development activities with respect to cell-derived and related
therapies, which are conducted through Orgenesis Ltd. (the “Israeli Subsidiary”), have, to date, been limited to laboratory and preclinical
testing.
On May 10, 2016, the Company and Atvio Biotech Ltd., (“Atvio”) entered into a Joint Venture Agreement (the “JVA”) pursuant to
which the parties agreed to collaborate in the contract development and manufacturing of cell and virus therapy products in the field of
regenerative medicine in Israel. See also Note 6.
As used in this report and unless otherwise indicated, the term “Company” refers to Orgenesis Inc. and its wholly-owned subsidiaries
(“Subsidiaries”). Unless otherwise specified, all amounts are expressed in United States dollars.
b.
Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going
concern. As of November 30, 2016, the Company had not achieved profitable operations, has accumulated losses of approximately $29.8
million (since inception), has negative cash flows from operating activities, has a working deficiency of $10.3 million and expects to incur
further losses in the development of its business. Presently, the Company does not have sufficient cash and other resources to meet its
requirements in the following twelve months. These factors raise substantial doubt about the Company's ability to continue as a going
concern. The Company’s continuation as a going concern is dependent on its ability to obtain additional financing as may be required and
ultimately to attain profitability. The Company needs to raise significant funds on an immediate basis in order to continue to meet its
liquidity needs, realize its business plan and maintain operations. The Company’s current cash resources are not sufficient to support its
operations as presently conducted or permit it to take advantage of business opportunities that may arise. Management of the Company is
continuing its efforts to secure funds through equity and/or debt instruments for its operations.
The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. There
can be no assurance that management will be successful in implementing a business plan or that the successful implementation of a
business plan will actually improve the Company’s operating results. If the Company is unable to obtain the necessary capital, the
Company may have to cease operations
F-8
The Company has been funding its operations primarily from the proceeds from private placements of the Company’s convertible
and equity securities and from revenues generated by MaSTherCell. From December 2015 through November 2016, the Company received
proceeds of approximately $6.1 million from customers, $1.1 million (Euro 1 million) loan, $1.5 million from a private placement to
certain accredited investors of its equity and equity linked securities and $1.6 million from proceeds of convertible loans. In addition, after
the period ended November 30, 2016, the Company raised an additional $5.2 million from the proceeds of a private placement to certain
accredited investors of its equity and equity linked securities and convertible loans, $1.9 million from customers and $2.1 (Euro 2 million)
from new approved Walloon Region, Belgium, Direction générale opérationnelle de l'Economie, de l'Emploi & de la Recherche ("DGO6")
grants (See Note 20).
NOTE 2- SUMMARY OF 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. As applicable to
these consolidated financial statements, the most significant estimates and assumptions relate to the valuation of stock based compensation,
valuation of financial instruments measured at fair value and valuation of impairment of goodwill and intangible assets.
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.
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.
Restricted Cash
The company has restricted cash deposited as a guarantee for the use of the Company's credit card. The Company classifies these
amounts as a non-current asset since the Company expects to continue the use of the credit card for the foreseeable future.
e.
Research and Development, net
Research and development expenses include costs directly attributable to the conduct of research and development programs,
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-9
f.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned Subsidiaries. All intercompany
transactions and balances have been eliminated in consolidation.
g.
Non Marketable Equity Investments
The Company’s investments in certain non-marketable equity securities in which it has the ability to exercise significant influence,
but does not control through variable interests or voting interests, are accounted for under the equity method of accounting and presented as
Investment in associates, net, in the Company’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’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.
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”). The functional currency of the Belgian Subsidiaries is the Euro (“€” or “Euro”). Most of the
Company’s expenses are incurred in dollars and the source of the Company’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 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.
i.
Inventory
Inventory is stated at the lower of cost or net realizable value with cost determined under the first-in-first-out (FIFO) cost method.
The entire balance of inventory at November 30, 2016, consists of raw material.
j.
Property and Equipment
Property 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:
Production facility
Laboratory equipment
Office equipment and computers
F-10
Weighted Average
Useful Life (Years)
10
5
3-5
k.
Intangible Assets
Intangible assets and their useful lives are as follows:
Backlog
Customer Relationships
Brand
Know-How
Weighted Average
Useful Life (Years)
1.75
7.75
9.75
11.75
Amortization Recorded at
Comprehensive Loss Line Item
Cost of revenues
Amortization of intangible assets
Amortization of intangible assets
Amortization of intangible assets
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.
l.
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), at the reporting unit level or more
frequently if events or changes in circumstances indicate that the asset might be impaired. The 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 the reporting unit to its carrying amount. 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 the goodwill is less than the carrying value of the goodwill, an impairment loss
equivalent to the difference is recorded.
m.
Impairment of Long-lived Assets
The Company reviews its property 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 2016 and 2015.
n.
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.
F-11
The Company also incurs revenue from selling of some consumables which are incidental to the services provided as foreseen in the
clinical services contracts. Such revenue is recognized upon delivery of the processed cells in which they were consumed.
o.
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 also Note 15).
2)
Warrants and Price Protection Mechanism Derivative Classified as a Liability
Warrants that entitle the holder to down-round protection (through ratchet and anti-dilution provisions) and price protection
mechanism derivatives in respect of shares entitled to down-round protection are classified as liabilities on the balance sheet. 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 15).
3)
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 15.
p.
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.
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’s intention to hold these investments and not realize them.
q.
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.
F-12
The Company follows ASC Topic 505-50, Equity-Based Payments to Non-Employees, for stock options issued to consultants and
other non-employees. In accordance 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 measured 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.
r.
Redeemable Common Stock
Common stock with embedded redemption features, such as an unwind option, whose settlement is not at the Company’s discretion,
are considered redeemable common stock. Redeemable common stock is 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. Upon termination of the redemption features, the redeemable common stock are reclassified into equity.
s.
Loss per Share of Common Stock
Net loss per share, basic and diluted, is computed on the basis of the net loss for the period divided by the weighted average number
of common shares outstanding during the 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 under the
Company’s Global Share Incentive Plan (2012) 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’s outstanding convertible loans, which are included under the
if-converted method when dilutive. See Note 12.
t.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentration of credit risk consist of principally cash and cash
equivalents, restricted cash 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, 2016, the Company has recorded an
allowance of $336 thousand ($0 in the year ended November 30,2015).
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
u.
Beneficial Conversion Feature (“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(c)).
v.
Other Comprehensive Loss
Other comprehensive loss represents adjustments of foreign currency translation.
F-13
w.
Newly Issued Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09
(“ASU 2014-09”) "Revenue from Contracts with Customers." ASU 2014-09 will supersede most current revenue recognition guidance,
including industry-specific guidance. The underlying principle is that an entity will recognize revenue upon the transfer of goods or
services to customers in an amount that the entity expects to be entitled to in exchange for those goods or services. On July 9, 2015, the
FASB deferred the effective date of the standard by one year, which results in the new standard being effective for the Company at the
beginning of its first quarter of fiscal year 2018. In addition, during March, April and May 2016, the FASB issued ASU No. 2016-08,
Revenue from Contracts with Customers : Principal versus Agent Considerations (Reporting Revenue Gross versus Net), ASU 2016-10,
Revenue from Contracts with Customers : Identifying Performance Obligations and Licensing and ASU 2016-12, Revenue from Contracts
with Customers : Narrow-Scope Improvements and Practical Expedients, respectively, which clarified the guidance on certain items such as
reporting revenue as a principal versus agent, identifying performance obligations, accounting for intellectual property licenses, assessing
collectability and presentation of sales taxes. The FASB also agreed to allow entities to choose to adopt the standard as of the original
effective date. As applicable for the Company, the effective date for adopting the ASU is for the year ending November 30, 2019. The
Company is currently evaluating the impact of this new standard on its consolidated financial statements.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall: Recognition and Measurement of Financial
Assets and Financial Liabilities. The pronouncement requires equity investments (except those accounted for under the equity method of
accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net
income. ASU 2016-01requires public business entities to use the exit price notion when measuring the fair value of financial instruments
for disclosure purposes, requires separate presentation of financial assets and financial liabilities by measurement category and form of
financial asset, and eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to
estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost. These changes become
effective for the Company's fiscal year beginning January 1, 2018. The Company is currently evaluating the impact of this new standard on
its consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), 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. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018 and interim periods within those
fiscal years. Early application is permitted for all entities. ASU 2016-02 requires a modified retrospective approach for all leases existing
at, or entered into after, the date of initial application, with an option to elect to use certain transition relief. The Company is currently
evaluating the impact of this new standard on its consolidated financial statements.
In March 2016, the FASB issued ASU 2016-06, Contingent Put and Call Options in Debt Instruments (Topic 815), which requires
that embedded derivatives be separated from the host contract and accounted for separately as derivatives if certain criteria are met. One of
those criteria is that the economic characteristics and risks of the embedded derivatives are not clearly and closely related to the economic
characteristics and risks of the host contract (the “clearly and closely related” criterion). The amendments in this Update clarify what steps
are required when assessing whether the economic characteristics and risks of call (put) options are clearly and closely related to the
economic characteristics and risks of their debt hosts, which is one of the criteria for bifurcating an embedded derivative. Consequently,
when a call (put) option is contingently exercisable, an entity does not have to assess whether the event that triggers the ability to exercise a
call (put) option is related to interest rates or credit risks. The amendments are an improvement to GAAP because they eliminate diversity
in practice in assessing embedded contingent call (put) options in debt instruments. The amendments in this ASU are effective for fiscal
years beginning after December 15, 2016, and interim periods within those fiscal years. Early adoption is permitted for all entities. The
Company is currently evaluating the impact of this new standard on its consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, as part of its
simplification initiative. The areas for simplification in this update involve several aspects of the accounting for share-based payment
transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the
statement of cash flows. Some of the areas for simplification apply only to nonpublic entities. The amendments in this ASU are effective
for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Early application is permitted for all
entities. The Company is currently evaluating the impact of this new standard on its consolidated financial statements.
F-14
In August 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update (“ASU”) 2016-15,
Statement of Cash Flows Classification of Certain Cash Receipts and Cash Payments, which clarifies existing guidance related to
accounting for cash receipts and cash payments and classification on the statement of cash flows. This guidance is effective for fiscal years,
and interim periods within those years, beginning after December 15, 2017, and early adoption is permitted. The Company is currently
evaluating the impact of this new standard on its consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and
Cash Payments, which clarifies how companies present and classify certain cash receipts and cash payments in the statement of cash flows.
The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early
adoption is permitted, including adoption in an interim period. The Company currently assessing the impact that this updated standard will
have on the consolidated financial statements and footnote disclosures
In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for
Goodwill Impairment, which simplifies the goodwill impairment test by eliminating the need to determine the fair value of individual
assets and liabilities of a reporting unit to measure goodwill impairment. The same impairment assessment applies to all reporting units
including those with zero or negative carrying amounts. A goodwill impairment will represent the excess of a reporting unit's carrying
amount over its fair value. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the
quantitative impairment test is necessary. The amendments in ASU No. 2017-04 should be applied on a prospective basis. Disclosure of the
nature and reason for the change in accounting principle upon transition is required. For public business entities, the amendments in this
ASU are effective for annual or interim goodwill impairments tests in fiscal years beginning after December 15, 2019. Early adoption is
permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently
evaluating the impact of this new standard on its consolidated financial statements.
NOTE 3 – ACQUISITION OF MASTHERCELL
Description of the Transaction
The Company entered into a share exchange agreement dated November 3, 2014, as subsequently amended (the "SEA"), with
MaSTherCell SA, Cell Therapy Holding SA (collectively “MaSTherCell”). Pursuant to the SEA, which closed on March 2, 2015 in
exchange for all of the issued and outstanding shares of MaSTherCell, the Company issued to the former shareholders of MaSTherCell an
aggregate of 42,401,724 shares (the “Consideration Shares”) of common stock at a price of $0.58 per share for an aggregate price of $24.6
million. Out of the Consideration Shares, 8,173,483 shares were allocated to the bondholders of MaSTherCell in case of conversion of the
Convertible Bonds, as detailed below.
On November 12, 2015, the Company and MaSTherCell and each of the former shareholders of MaSTherCell (the “MaSTherCell
Shareholders”), entered into an amendment (“Amendment No. 2”) to the SEA. Under Amendment No. 2, the MaSTherCell Shareholders
option to unwind the transaction as contained in the original Share Exchange Agreement (the “Unwind Option”) was extended to
November 30, 2015. In addition, the Company agreed to remit to MaSTherCell, by way of an equity investment, the sum of $4.1 million (€
3.8 million) by November 30, 2015, to be followed by a subsequent equity investment by December 31, 2015 in MaSTherCell of $1.3
million (€1.2 million).
In connection with the equity investment, on December 10, 2015, the Company agreed to invest $2.4 million (€2.2 million) in
MaSTherCell equity. The Company’s agreement represents an increase of $1.1 million (€ 1 million) over the amount which the Company
was previously obligated to invest in MaSTherCell under SEA as additional equity and replaces any funding obligation that the Company
had under the SEA, as amended.
F-15
On December 10, 2015, the Company remitted to MaSTherCell € 3.8 million or $4.1 million (out of the original obligation for
investment of €6 million). As a result, the Unwind Option was canceled and all the shares that were issued, have been reclassed from
redeemable common stock into equity.
During the year ended November 30, 2016, the Company remitted to MaSTherCell an additional $1.5 million (€ 1.4 million), in
compliance with its obligations. See also Note 20 (a).
MaSTherCell Convertible Bonds
On September 18, 2014, MaSTherCell entered into convertible bond agreements with certain of MaSTherCell’s existing and part of
the SEA, the parties agreed that, in case of conversion of the Convertible Bonds upon Uplisting (listing of the Company’s shares on
NASDAQ or any other national exchange in the United States which provides at least the same level of liquidity) within 14 months of the
closing date, the bondholders are entitled to convert into a total of 8,173,483 out of the Consideration Shares. In case the bondholders elect
to not convert and are repaid, the Consideration Shares will be reduced by the amount remaining outstanding to the bondholders. To that
effect, the number of Consideration Shares to be released back to the Company, is determined by dividing the subscription amount of the
outstanding Convertible Bonds plus interest owed thereunder (converted into USD at the currency exchange rate applicable on the day of
conversion) by the consideration shares attributable to the MaSTherCell bondholders and by applying the resulting quotient to actual total
number of Consideration shares. The conversion option of expired in May 2016. See also Notes 11(d) and 20 (d).
The Company recorded the Convertible Bonds on its consolidated balance sheet at their fair value (See Note 15).
Fair Value of Consideration Transferred
On the acquisition date, the fair value of the total consideration transferred to acquire MaSTherCell was as follows (in thousands):
Total purchase consideration:
Redeemable common stock
Less convertible bonds
Total fair value of consideration transferred
$
$
24,592
3,134
21,458
The following table summarizes the allocation of purchase price to the fair values of the assets acquired and liabilities assumed as of
the acquisition date (in thousands):
Total assets acquired:
Cash and cash equivalents
Property and equipment
Inventory
Other current assets
Other intangible assets
Goodwill
Total assets
Total liabilities assumed:
Deferred income
Deferred taxes
Loan payables
Other liabilities
Total liabilities
Total consideration transferred
F-16
$
$
305
4,236
231
1,664
18,977
10,106
35,519
947
4,440
6,998
1,676
14,061
21,458
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 $349 thousand, Know-How of $17,037 thousand, Backlog of $250 thousand and
Brand Name of $1,341 thousand. These other intangible assets have a useful life between 1.75 and 11.75 years. 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.
The fair value of the Know-How was estimated using a relief of 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.
The fair value of the Backlog was estimated using the income approach. An income and expense forecast was built based upon
Backlog revenue estimates and the cost to perform each contract. On this basis, a free cash flow for the asset was derived, under several
assumptions.
Customer Relationships and Brand Name were estimated using a discounted cash flow method with the application of the multi-
period excess earnings method. Under this method, an intangible asset’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 was
built based upon specific intangible asset revenue and expense estimates.
Acquired goodwill is not amortized unless impaired. Goodwill isn't amortized for tax purposes.
Acquisition-related Costs
Acquisition-related expenses consist of transaction costs which represent external costs directly related to the acquisition of
MaSTherCell and primarily include expenditures for professional fees such as legal, accounting and other directly related incremental costs
incurred to close the acquisition by both the Company and MaSTherCell.
Acquisition-related expenses for the year ended November 30, 2015 were $258 thousand. These expenses were recorded to selling
and general administrative expense in the consolidated statements of comprehensive loss.
NOTE 4 - SEGMENT INFORMATION
The Chief Executive Officer ("CEO") is the Company’s chief operating decision-maker ("CODM"). Following the acquisition of
MaSTherCell, 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.
CDMO
The Contract Development and Manufacturing Organization (“CDMO”) activity is operated by MaSTherCell, which specializes in
cell therapy development for advanced medicinal products. MaSTherCell is providing two types of services to its customers: (i) process and
assay development services and (ii) GMP contract manufacturing services. The CDMO segment includes only the results of MaSTherCell.
CTB
The Cellular Therapy Business (“CTB”) activity is based on our technology that demonstrates the capacity to induce a shift in the
developmental fate of cells from the liver and differentiating (converting) them into “pancreatic beta cell-like” insulin producing cells for
patients with Type 1 Diabetes. This segment is comprised of all entities aside from MaSTherCell.
F-17
The Company assesses the performance based on a measure of "Adjusted EBIT" (earnings before financial expenses and tax, and
excluding share-based compensation expenses and non-recurring income or expenses). The measure of assets has not been disclosed for
each segment.
Segment data for the year ended November 30, 2016 is as follows:
Revenues from external customers
Cost of revenues
Research and development expenses, net
Operating expenses
Depreciation and amortization expense
Segment Performance
Stock-based compensation
Financial income (expenses), net
Share in losses of associated company
Loss before income tax
CDMO
CTB
Corporate
and
Eliminations
Consolidated
6,853 $
(6,915)
(2,239)
(in thousands)
$
(1,725)
(1,667)
(456) $
557
(101)
(2,918)
(5,219) $
(5)
(3,397)
$
$
(2,661)
659
(123)
6,397
(6,358)
(1,826)
(3,906)
(2,923)
(8,616)
(2,661)
659
(123)
(10,741)
Segment data for the year ended November 30, 2015 is as follows:
Revenues from external customers
Cost of revenues
Research and development expenses, net
Operating expenses
Depreciation and amortization expense
Segment Performance
Stock -based compensation
Acquisition costs
Financial income (expenses), net
Loss before income tax
CDMO
CTB
Corporate
and
Eliminations
Consolidated
3,320 $
(3,099)
(1,304)
(in thousands)
$
(1,279)
(1,799)
(346) $
346
(1,984)
(3,067) $
(5)
(3,083)
$
$
(803)
(258)
1,850
2,974
(3,099)
(933)
(3,103)
(1,989)
(6,150)
(803)
(258)
1,850
(5,361)
Geographic, Product and Customer Information
a.
b.
Substantially all of the Company's revenues and long lived assets are located in Belgium.
Net revenues from single customers from the CDMO segment that exceed 10% of total net revenues are:
F-18
Customer A
Customer B
NOTE 5 – PROPERTY AND EQUIPMENT
The following table represents the components of property and equipment:
Cost:
Production facility
Office furniture and computers
Lab equipment
Less – accumulated depreciation
Total
Year Ended Year Ended
November 30, November 30,
2016
2015
$
$
(in thousands)
3,754 $
1,742 $
1,921
626
November 30,
2016
2015
(in thousands)
$
$
4,403 $
211
1,491
6,105
(1,532)
4,573 $
3,638
120
1,200
4,958
(662)
4,296
Depreciation expense for the years ended November 30, 2016 and 2015 was $1,160 thousand and $681 thousand, respectively.
NOTE 6 – INVESTMENTS IN ASSOCIATE, NET
On May 10, 2016, the Company and Atvio entered into a joint venture agreement (the “JVA”) pursuant to which the parties agreed
to collaborate in the contract development and manufacturing of cell and virus therapy products in the field of regenerative medicine in
Israel. The parties pursued the joint venture through Atvio, in which the Company have a 50% participating interest therein in any and all
rights and obligations and in any and all profits and losses.
Under the JVA, Atvio has procured, at its sole expense, a GMP facility and appropriate staff in Israel. The Company will share with
Atvio the Company’s know-how in the field of cell therapy manufacturing, which knowhow will not include the intellectual property
included in the license from the Tel Hashomer Hospital in Israel to the Israeli Subsidiary. Atvio's operations have begun on September
2016.
Subject to the adoption of a work plan acceptable to the Company, the Company shall remit to Atvio $1 million to defray the costs
associated with the setting up and the maintenance of the GMP facility, all or part of which may be contributed by way of in kind services
as agreed to in the work plan. The Company’s funding will be made by way of a convertible loan to Atvio, which shall be convertible at the
Company’s option at any time into 50% of the then outstanding equity capital (proportional to the loan amount actually remitted)
immediately following such conversion. As of November 30, 2016, the Company remitted to Atvio total of $111 thousand.
The Company concluded that based on the terms of the agreement, it has the ability to exercise significant influence in Atvio, but
does not have control. Therefore, the investment is accounted for under the equity method.
The table below sets forth a summary of the changes in the investment for the year ended November 30, 2016:
F-19
Opening balance
Investments
Share in losses
November 30,
2016
(In thousands)
$
$
-
111
(123)
(12)
In addition, at any time following the first anniversary year of the Effective Date the Company has the option to require the Atvio
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 shareholders shall have the option to require the Company to purchase from Atvios' shareholders
their entire interest in Atvio for the consideration specified in the agreement. The above-mentioned options are accounted as derivatives
and measured at fair value and presented in the balance sheet in "put option derivative" line item. (See Note 15).
NOTE 7 – INTANGIBLE ASSETS AND GOODWILL
Changes in the carrying amount of the Company’s goodwill for the years ended November 30, 2016 and 2015 are as follows:
Goodwill as of December 1, 2014
Goodwill as acquired
Translation differences
Goodwill as of November 30,2015
Translation differences
Goodwill as of November 30,2016
Goodwill Impairment
(in thousands)
$
$
10,106
(571)
9,535
49
9,584
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-step assessment for goodwill impairment for the
CDMO unit.
As part of the first step of the two-step impairment test, the Company compared the fair value of the reporting units to their carrying
values and determined that the carrying amount of the units do not exceed their fair values. 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’s
reporting units 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
CDMO unit future cash flows.
Key assumptions used to determine the estimated fair value include: (a) expected cash flow for the five-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 the growth prospects ; and (c) a discount rate of 15.3% and 17.2% .
Based on the Company’s assessment as of November 30, 2016 and 2015 respectively , the carrying amount of its reporting unit does not
exceeds its fair value.
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 $1.6 million and $2.4 million, respectively. These changes would not result in an impairment. 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 $4 million and would resulting an impairment.
F-20
Other Intangible Assets
Other intangible assets consisted of the following:
Gross Carrying Amount:
Know How
Backlog*
Customer relationships
Brand name
Accumulated amortization
Net carrying amount of other intangible assets
November 30,
2016
November 30,
2015
(In thousands)
$
$
16,158
237
331
1,272
17,998
2,948
15,050
16,073
237
330
1,266
17,906
1,253
16,653
*As of November 30, 2016 the backlog has been fully amortized.
Intangible asset amortization expenses were approximately $1.8 and $1.7 million for the years ended November 30, 2016 and 2015
respectively.
Estimated aggregate amortization expenses for the five succeeding years ending November 30 th are as follows:
Amortization expenses
NOTE 8– CONVERTIBLE LOAN AGREEMENTS
2017
2018 to 2021
(in thousands)
1,615 $
6,462
$
(a) During the year ended November 30, 2015 and 2014, the Company entered into six convertible loan agreements (out of which five
during 2015) with new investors for a total amount of $1 million (the “Convertible Loans”), interest is calculated at 6% annually and was
payable, along with the principal on or before the maturity date.
On April 27, 2016 and December 23, 2015, the holders of all the Convertible Loans and the Company agreed to convert the
Convertible Loans and accrued interest into units of the Company’s common stock, each unit comprising one share of the Company’s
common stock and one three-year warrant to purchase an additional share of the Company’s common stock at an exercise price of $0.52.
Upon conversion of the Convertible Loans, the Company issued an aggregate of 1,976,330 shares of Common stock and three year
warrants to purchase up to an additional 1,976,330 shares. Furthermore, the Company agrees that in the event the Company issues any
common shares or securities convertible into common shares in a private placement for cash at a price less than $0.52 (the “New Issuance
Price”) on or before December 23, 2016, the Company will issue to the subscribers, for no additional consideration, additional common
stock . As of the date of the approval of these financial statements, the shares anti-dilution protection mechanism described above, has
expired and no shares were issued under this provision.
The table below presents the fair value of the instruments issued as of the conversion dates and the allocation of the proceeds (for
the fair value as of November 30, 2016, see Note 15):
Warrants component
Price protection derivative component
Shares component
Total
F-21
Total Fair Value
(in thousands)
December 23,
2015
April 27,
2016
$
$
323 $
34
614
971 $
13
2
32
47
(b) On April 27, 2016, the Company entered into an assignment and assumption of debt agreement with Nine Investments Ltd. (“Nine
Investments”) and Admiral Ventures Inc. (“Admiral”). Pursuant to the terms of a Convertible Loan Agreement dated May 29, 2014, as
amended on December 2014 (collectively, the "Loan Agreement"), Nine Investments agreed to assign and transfer to Admiral all of the
Company’s obligations for the outstanding amount of the Loan Agreement. Additional amendments to the provisions of the Loan
Agreement were included the following:
(1) Extending the due date of the loan of $1.5 million through September 30, 2016;
(2) The Company paid to Admiral an extension fee in the form of 288,461 units, each unit was comprised of one common share and
one, three-year warrant converted into one common share at an exercise price of $0.52 per common share. The fair value of the
warrants as of the grant date was $34 thousand. Using the Black-Scholes model, the shares were valued at the fair value of the
Company’s common stock as of April 27, 2016, or $0.28; and
(3) The Company shall accrue additional interest totalling $55 thousand for the period from January 31, 2015 to December 31,
2015. In addition, the interest rate shall be 12% per annum commencing from January 1, 2016.
The Company accounted for the above changes as an extinguishment of the old debt and issuance of a new debt. As a result, a loss
of $229 thousand was recorded within financial expenses.
As of the date of the approval of these financial statements, the Company has not repaid any portion of the loan, and the Company
and Admiral have entered into a debt settlement agreement extending the maturity to June 2018. See Note 20(g).
(c) During the year ended November 30, 2016 the Company entered into several unsecured convertible note agreements with accredited
or offshore investors for an aggregate amount of $1.4 million. The loans bear an annual interest rate of 6% and mature in two years, unless
converted earlier. Upon an occurrence of a default, the loans bear interest at a per annum rate of 12%.
Under the operative agreement , the entire principal amount under the notes and accrued interest automatically convert into “Units”
(as defined below) upon the earlier to occur of any of the following: (i) the closing of an offering of equity securities of the Company with
gross proceeds to the Company greater than $10 million (“Qualified Offering”) (ii) the trading of the Company’s common stock on the
over-the counter market or an exchange at a weighted average price of at least $0.52 for fifty (50) consecutive trading days, or (iii) the
listing of the Company’s Common Stock on a U.S. National Exchange (each a “Conversion Event”). Each $0.52 of principal amount and
accrued interest due shall convert into (a “Unit”), consisting of one share of Common Stock and one three-year warrant exercisable into an
additional share of common stock at a per share exercise price of $0.52, provided that, if more favorable to the holder, any principal amount
and accrued interest due shall convert into securities on the same basis as such securities are sold in the Qualified Offering. At any time, the
holder may convert the principal amount and accrued interest outstanding into Units as provided above. In addition, if a Conversion Event
does not occur within 12 months of the issuance date hereof, then the holder, at its option, may convert the outstanding principal amount
and accrued interest under this note into either (i) Units as provided above, or (ii) shares of the Company’s common stock at a per share
conversion price of $0.40.
Since the stock price is greater than the effective conversion price on the measurement date, the conversion feature is considered
"beneficial" to the holders and equal to $257 thousand. The 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.
The transaction costs were approximately $176thousand, out of which $55 thousand as stock based compensation due to issuance of
warrants. See also Note 13(d).
F-22
(d) On November 2, 2016 the Company entered into unsecured convertible note agreements with accredited or offshore investor for an
aggregate amount of NIS 1 million ($262 thousand). The loan bear an monthly interest rate of 2% and mature on May 1, 2017, unless
converted earlier. The holder, at its option, may convert the outstanding principal amount and accrued interest under this note into either
shares of the Company’s common stock at a per share conversion price of $0.52.
The Company allocated the principal amount of the convertible loan and the accrued interest thereon based on their fair value. The
table below presents the fair value of the instrument issued as of November 2, 2016 and the allocation of the proceed (for the fair value as
of November 30, 2016, see Note 15):
Embedded derivative component
Loan component
Total
Total Fair Value
(in thousands)
November 2,
2016
$
$
40
222
262
The transaction costs were approximately $29 thousand, out of which $8 thousand as stock based compensation due to issuance of warrants.
See also Note 13(d).
NOTE 9 – LOANS
a.
Terms of Long-term Loans
Principal
Amount
(in thousands)
€1,400
€1,000
€790
€800
€1,000
Long-term loan a (*)
Long-term loan b
Long-term loan c
Long-term loan e
Long-term loan f
Current portion of loans
payable
Grant Year
Interest Rate
Year of
Maturity
November 30,
2016
2015
2012
2013
2012-2016
2014
2016
4.05%
6%-7.5%
5.5%-6%
Euribord + 2%
7%
2022
2023
$
2020-2024
2016
2019
$
$
(in thousands)
952 $
1,000
739
1,063
3,754 $
(463)
3,291 $
1,086
1,089
802
529
3,506
(966)
2,540
(*) The loan has a business pledge on the Company’s assets at the same value .
b.
Terms of Short-term Loans and Current Portion of Long Term Loans
Current portion of loans payable a
Current portion of loans payable b
Current portion of loans payable c
Current portion of loans payable e
Short term-loans*
Short term-loan**
Currency
Interest Rate
2016
2015
November 30,
Euro
Euro
Euro
Euro
Euro
Euro
4.05% $
6%-7.5%
5.5%-6%
Euribord +
2%
$
7%
6.3%
(in thousands)
145 $
135
183
463 $
648
$
1,111 $
139
166
132
529
966
1,334
529
2,829
F-23
*
**
On various dates from September 14, 2015 through the year 2015, MaSTherCell received short term loans from management and
shareholders for a total amount of €1,247 thousand, which bear an annual interest rate of 7%. No maturity dates were defined.
On October 30, 2015, MaSTherCell received from ING bank in Belgium a short term credit facility for a maximum amount of €500
thousand, which bear interest rate of libor plus a margin defined by the bank. On December 2015, MaSTherCell repaid the loan.
NOTE 10 - COMMITMENTS
a.
Tel Hashomer Medical Research, Infrastructure and Services Ltd (“THM”).
On February 2, 2012, the Company’s Israeli Subsidiary entered into a licensing agreement with THM (the “Licensor”). According to
the agreement, the Israeli Subsidiary was granted a worldwide, royalty bearing, exclusive license to transdifferentiation 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 the Licensor:
1)
2)
3)
4)
A royalty of 3.5% of net sales;
16% of all sublicensing fees received;
An annual license fee of $15 thousand, which commenced on January 1, 2012 and shall be paid 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
Milestone payments as follows:
a)
b)
c)
d)
e)
$50 thousand on the date of initiation of phase I clinical trials in human subjects;
$50 thousand on the date of initiation of phase II clinical trials in human subjects;
$150 thousand on the date of initiation of phase III clinical trials in human subjects;
$750 thousand on the date of initiation of issuance of an approval for marketing of the first product by the FDA; and
$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”).
As of November 30, 2016, the Israeli Subsidiary has not reached any of these milestones.
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”), the Licensor shall be entitled to choose
whether to receive from the Israeli Subsidiary a one-time payment based, as applicable, on the value of either 5,563,809 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.
In May, 2015, the Israeli Subsidiary entered into a research service agreement with the Licensor. According to the agreement, the
Israeli Subsidiary will perform a study at the facilities and use the equipment and personnel of the Sheba Medical Center, for the
consideration of approximately $110 thousand for a year. In May 2016, the Israeli Subsidiary renewed the research agreement for an
additional year with annual consideration of approximately $ 88thousand.
b.
Maryland Technology Development Corporation
On June 30, 2014, the Company’s U.S. Subsidiary entered into a grant agreement with Maryland Technology Development
Corporation (“TEDCO”). TEDCO was created by the Maryland State Legislature in 1998 to facilitate the transfer and commercialization of
technology from Maryland’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’s lead source for
entrepreneurial business assistance and seed funding for the development of startup companies in Maryland’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”). The Grant will be used solely to finance the costs to conduct the research project entitled
“Autologous Insulin Producing (AIP) Cells for Diabetes” during a period of two years. On June 21, 2016 TEDCO has approved an
extension until June 30, 2017 ..
F-24
On July 22, 2014 and September 21, 2015, the U.S Subsidiary received an advance payment of $406 thousand on account of the
grant. Through November 30, 2016, the Company utilized $272 thousand. The amount of grant that was utilized through November 30,
2016, was recorded as a deduction of research and development expenses in the statement of comprehensive loss.
c.
Department De La Gestion Financiere Direction De L’analyse Financiere (“DGO6”)
i.
ii.
iii.
iv.
On March 20, 2012, MaSTherCell was awarded an investment grant from the DGO6 of €1,421 thousand. This grant is related
to the investment in the production facility with a coverage of 32% of the investment planned. A first payment of €568
thousand has been received in August 2013. In December 2016, the DGO6 paid to MaSTherCell €669 on account of the grant
and the remaining grant amount has been declined.
On November 17, 2014, the Company's Belgian Subsidiary, received the formal approval from the DGO6 for a €2.015
million ($2.4 million) support program for the research and development of a potential cure for Type 1 Diabetes. The
financial support is composed of a €1,085 thousand (70% of budgeted costs) grant for the industrial research part of the
research program and a further recoverable advance of €930 thousand (60% of budgeted costs) of the experimental
development part of the research program. On December 9 and 16, 2014, the Belgian Subsidiary received €651 thousand and
€558 thousand under the grant, respectively. The grants are subject to certain conditions with respect to the Belgian
Subsidiary’s work in the Walloon Region. In addition, the DGO6 is also entitled to a royalty upon revenue being generated
from any commercial application of the technology. Up through November 30, 2016, an amount of $1.4 million (€1.1
million) was recorded as deduction of research and development expenses and an amount of $109 thousand was recorded as
advance payments on account of grant.
In April 2016, the Belgian Subsidiary received the formal approval from DGO6 for a budgeted €1,304 thousand ($1,455
thousand) support program for the development of a potential cure for Type 1 Diabetes. The financial support is awarded to
the Belgium subsidiary as a recoverable advance payment at 55% of budgeted costs, or for a total of €717 thousand ($800
thousand). The grant will be paid over the project period. On December 19, 2016, the Belgian Subsidiary received a first
payment of €359 thousand ($374 thousand).
On October 8, 2016, the Belgian Subsidiary received the formal approval from the DGO6 for a budgeted €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 held 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 €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 €1.7 million ($1.8 million).
d.
Israel-U.S Binational Industrial Research and Development Foundation (“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 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 Autologous Insulin Producing (AIP) Cells for the Treatment of
Diabetes (the “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. Up to date the Israeli Subsidiary received $200 thousand under the grant. On July 28, 2016 BIRD
approved an extension till May 31, 2017.
F-25
Up through November 30, 2016, an amount of $211 thousand was recorded as deduction of research and development expenses and
receivable on account of grant.
e.
Korea-Israel Industrial Research and Development Foundation (“KORIL”)
On May 26, 2016, the Israeli Subsidiary entered into a pharma Cooperation and Project Funding Agreement (CPFA) with KORIL
and CureCell. 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 Autologous Insulin Producing (AIP) Cells for the Treatment of Diabetes (the “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
June 1, 2016. On June 2016, the Israeli Subsidiary received $160 thousand under the grant
Up through November 30, 2016, an amount of $40 thousand was recorded as deduction of research and development expenses and
receivable on account of grant.
f.
Lease Agreement
MaSTherCell has an operational lease agreement for the rent of offices for a period of 12 years expiring on November 30, 2027. The
costs per year are €328 thousand (approximately $348 thousand).
g.
Collaboration agreement
1) On November 12, 2015, the Company, through its wholly owned Israeli subsidiary, entered into a Collaboration Agreement (the
“Collaboration Agreement) with Biosequel LLC, a company incorporated under the laws of Russia (“Biosequel”) to collaborate, on a non-
exclusive basis, in carrying out clinical trials and eventually marketing the Company’s products in Russia, Belarus and Kazakhstan. The
collaboration is divided into two stages, with the first focused on obtaining the requisite regulatory approvals for conducting clinical trials,
as well as performing all clinical and other testing required for market authorization in the defined territory. The second stage will focus on
marketing the products and will be subject to successful market acceptance. Biosequel will fund the costs for the first stage, which is
expected to last for five or more years, but may terminate earlier if the necessary regulatory approvals are not obtained by the second
anniversary of the agreement. The Collaboration Agreement is also terminable under certain limited conditions relating to a party’s
insolvency or bankruptcy related event or breach of a material term of the agreement and force majeure events. The Company shall be the
sole and exclusive owner of any and all results of the pre-marketing approval R&D and clinical trials. As of the date of this report,
Biosequel is in the first stage of the collaboration and preforming the work needed in order to obtain the requisite regulatory approvals for
conducting clinical trials.
2) On February 18, 2016, the Israel subsidiary entered into a collaboration agreement with Grand China Energy Group Limited with
headquarters in Beijing, China (“Grand China”) to collaborate in carrying out clinical trials and marketing the Company’s autologous
insulin producing cell therapy product in the Peoples Republic of China, Hong Kong and Macau, based on achieving certain pre-market
development milestones that include Grand China obtaining the requisite regulatory approvals for commercialization of our AIP cells,
including performing all clinical and other testing required for market authorization in each jurisdiction in the territory. Upon achieving the
pre-market development milestones by Grand China, the parties will collaborate on marketing the products in the territory. Grand China
will bear all costs associated with the pre-marketing development efforts in the territory, which is expected to last for approximately four
years. Subject to the completion of the pre-marketing development milestones, the Israeli Subsidiary has agreed to grant to Grand China, or
a fully owned subsidiary thereof, under a separate sub-license agreement, an exclusive sub-license to the intellectual property underlying
solely for commercialization of the Company’s products in each such jurisdiction in the territory where all of the pre-marketing
development required to commercialize the AIP cells have been successfully completed by Grand China. Grand China has agreed to pay
annual license fees, ongoing royalties based on net sales generated by Grand China and its sublicensees, milestone payments and sublicense
fees. As of November 30, 2016, none of the requisite regulatory approvals for conducting clinical trials had been obtained.
F-26
3) On March 14, 2016, the Israel subsidiary, entered into a collaboration agreement with CureCell Co., Ltd. (“CureCell”), initially for the
purpose of applying for a grant from the Korea Israel Industrial R&D Foundation ("Koril-RDF") for pre-clinical and clinical activities
related to the commercialization of Orgenesis Ltd.’s AIP cell therapy product in Korea ("Koril Grant"). Subject to receiving the Koril Grant,
the Parties agreed to carry out at their own expense their respective commitments under the work plan approved by Koril-RDF 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 of the regulatory approvals required for commercialization in Japan. As of November 30, 2016, none of the requisite
regulatory approvals for conducting clinical trials had been obtained. See also Note 10(e).
4) On March 14, 2016, Orgenesis Inc. and CureCell entered into a Joint Venture Agreement (“CureCell JVA”) pursuant to which the
parties are collaborating in the contract development and manufacturing of cell therapy products in Korea. Under the CureCell JVA,
CureCell is to procure, at its sole expense, a GMP facility and appropriate staff in Korea for the manufacture of the cell therapy products.
The Company will share with CureCell the Company’s know-how in the field of cell therapy manufacturing, which know-how will not
include the intellectual property included in the license from the Tel Hashomer Hospital in Israel to the Israeli subsidiary. The parties intend
to pursue the joint venture through a newly established Korean company (the “JV Company”) which each party will have 50% from the
participating interest of the JV Company subject to the fulfillment by each Party of his obligations under the CureCell JVA. Under the
CureCell JVA, the Company and CureCell each undertook to remit, within two years of the execution of the CureCell JVA, $2 million to
the JV Company, of which $1 million is to be in cash and the balance in an in-kind investment, the scope and valuation of which shall be
preapproved in writing by CureCell and the Company. The Company’s funding is made by way of a convertible loan. The CureCell JVA
provides that, under certain specified conditions, the Company can require CureCell to sell to the Company its participating (including
equity) interest in the JV Company in consideration for the issuance of the Company’s common stock based on the then valuation of the JV
Company. As of November 30, 2016 the Company remitted to CureCell $595 thousand. The obligations of each party under the CureCell
JVA have not been fulfilled as of November 30, 2016.
As of November 30, 2016, prior to the formal incorporation of the JV company, the actual joint operations already began.
Company's share in the expenses incurred through balance sheet date was $497 thousand and was recorded by the Company as part of its
Selling, General and Administrative expenses.
h. On November 18, 2016, Mr. Scott Carmer, the Chief Executive Officer of the U.S Subsidiary, resigned from his position in order to
pursue other interests. The Company’s Chief Executive Officer assumed his position. In connection with his resignation the Company
entered into a Release Agreement pursuant to which the Company agreed that Mr. Carmer will be able to exercise options to purchase up to
1,641,300 shares of the Company’s common stock previously issued to him through their original exercise period and Mr. Carmer waived,
released and forever discharge Company from any claims, demands, obligations, liabilities, rights, causes of action and damages. In
furtherance thereof, on November 18, 2016, Mr. Carmer and the Company entered into a Strategic Advisory Agreement whereas he will
continue to serve the Company as a non-employee advisor on its activities in the U.S. and internationally. The Company accounted for the
above changes as a waiver of Mr. Carmer’s accrued salary and modification of his options. As a result, a non-cash net income of $458
thousand was recorded within financial expenses.
NOTE 11 – EQUITY (CAPITAL DEFICIENCY)
a.
Share Capital
F-27
The Company’s common shares are traded on the OTCQB Venture Market under OTC Market Group’s OTCQB tier under the
symbol “ORGS”.
F-28
b.
1)
2)
Financings
During the year ended November 30, 2016, the Company entered into definitive agreements with accredited and other qualified
investors relating to a private placement (the “Private Placement”) of (i) 2,860,578 shares of the Company’s common stock and (ii)
three year warrants to purchase up to an additional 2,860,578 shares of the Company’s Common Stock at a per share exercise price
of $0.52. The purchased securities were issued pursuant to subscription agreements between the Company and the purchasers for
aggregate proceeds to the Company of $1,488 thousand. Furthermore, in certain events the subscribers received anti-dilution
protection for issuance at less than their purchase price (See also Note 15).
The Company allocated the proceeds from the private placement based on the fair value of the warrants and the price protection
derivative components. The residual amount was allocated to the shares.
The table below presents the fair value of the instruments issued as of the closing dates and the allocation of the proceeds (as to the
fair value as of November 30, 2016, see Note 15):
Warrants component
Price protection derivative component
Shares component
Total
Total Fair
Value
(in thousands)
466
$
84
938
1,488
$
During the year ended November 30, 2015, the Company entered into definitive agreements with accredited investors relating to a
private placement (the “Private Placement”) of (i) 8,083,416 shares of the Company’s common stock and (ii) three year warrants to
purchase up to an additional 8,083,416 shares of the Company’s Common Stock at a per share exercise price of $0.52for aggregate
proceeds of $4,203 thousand. Furthermore, in the event the Company issues any common shares or securities convertible into
common shares in a private placement for cash at a price less than $0.52 before November 30, 2016, the Company will issue, for no
additional consideration, additional common shares to subscribers. This provision was expired as of the date of this report (See also
Note 15).
The Company allocated the proceeds from the private placement based on the fair value of the warrants and the price protection
derivative components. The residual amount was allocated to the shares.
The table below presents the fair value of the instruments issued as of the closing date and the allocation of the proceeds (as to the
fair value as of November 30, 2016 and 2015, see Note 15):
Warrants component
Price protection derivative component
Shares component
Total
c.
Credit Facilities
Total Fair
Value
(in thousands)
1,390
$
1,529
1,284
4,203
$
On October 30, 2015, the Company entered into securities purchase agreements with two accredited investors pursuant to which
these lenders (”Lenders”) furnished to the Company access to a $5 million credit line ( “Credit Facility Agreements”). The facilty
terminated on November 30, 2016 without being utilized by the Company. In consideration of the funding commitment under the Credit
Facility Agreements, the Company issued to these Lenders warrants to purchase up to an aggregate of 2,358,000 shares of the Company’s
Common Stock at a per share exercise price of $0.53 per share (the “Commitment Warrants”). The Warrants become first exercisable on
November 30, 2016 and continue to be exercisable through the third anniversary thereof. The fair value of the Commitment Warrants as of
the date of issuance was $208 thousand using the Black-Scholes valuation model based on the following assumptions: dividend yield of
0% for all years; expected volatility of 80%; risk free interest of 0.34% and an expected life of one year.
F-29
d.
Contingent Shares
According to the SEA, in case MaSTherCell is repaying the principal amount and the accrued interest of the Convertible Bonds, the
Consideration Shares will be reduced and released back to the Company. To that effect, the number of Consideration Shares to be released
back to the Company, shall be determined by dividing the subscription amount 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.
During January 2017, MaSTherCell repaid amounts owing under the bonds to all but one bondholder for aggregate payments of $1.7
million (€1.5 million). On January 17, 2017, one of the bondholders agreed to extend the duration of his convertible bond until March 21,
2017.
To that effect 3,157,716 shares out of the Consideration Shares have been released back to the Company and have been transferred into
treasury shares . See Note 20(d).
e.
Warrants
As part of the Company’s private placements as described in Notes 11b, the Company issued warrants as follows:
(1) Warrants which are subject to exercise price adjustments - presented as a financial liability as of November 30, 2016
Issuance
Date
October 2015
November 2015
December 2015
February 2016
March 2016
April 2016
May 2016
June 2016
July 2016
Number of
Warrants
Issued and
Outstanding
192,308
7,891,109
2,111,038
192,308
769,231
490,293
288,462
865,384
120,192
12,920,325
For the fair value calculation of these warrants, see Note 15.
Exercise
Price /
Adjusted
Exercise
Price
0.52
0.52
0.52
0.52
0.52
0.52
0.52
0.52
0.52
$
$
$
$
$
$
$
$
$
F-30
Expiration
Date
March 2018
November 2018
December 2018
February 2019
March 2019
April 2019
May 2019
June 2019
July 2017
(2) Warrants which are not subject to exercise price adjustments – presented in equity as of November 30, 2016
Exercise Price /
Grant
Date
November 2013
December 2013
March 2014
April 2014
July 2014
July 2014
August 2014
October 2015
December 2015
April 2016
August 2016
September 2016
October 2016
November 2016
Number of
Warrants Issued
and Outstanding
$
200,000
$
1,032,695
$
713,023
$
384,615
$
192,308
$
144,230
$
115,385
$
2,358,490
$
30,613
$
288,461
$
215,655
$
7,692
$
7,701
$
840,369
6,531,237
Adjusted
Exercise
Price
0.5
0.5
0.52
0.52
0.52
0.52
0.52
0.52
0.52
0.52
0.52
0.52
0.52
0.52
Expiration
Date
November 2018
March 2017
March 2017
April 2017
July 2017
July 2017
August 2017
October 2018
December 2018
April 2019
August 2019
September 2019
October 2019
November 2019
NOTE 12 – LOSS PER SHARE
The following table sets forth the calculation of basic and diluted loss per share for the periods indicated:
Year Ended
November 30,
2016
2015
(in thousands,
except per share data)
Basic:
Loss for the year
Weighted average number of common shares outstanding
Loss per common share
Diluted:
Loss for the year
Changes in fair value of embedded
derivative and interest expenses on convertible bonds
Change in fair value of warrants
Loss for the year
Weighted average number of shares used in the computation of
basic loss per share
Number of dilutive shares related to convertible bonds
Number of dilutive shares related to warrants
Weighted average number of common shares outstanding
9,194 $
$
102,258,854
$
0.09 $
4,461
55,798,416
0.08
$
$
9,194
9,194
102,258,854
102,258,854
4,461
1,272
559
6,292
55,798,416
873,380
249,116
56,920,912
Loss per common share
$
0.09 $
0.11
F-31
Basic loss per share for the year ended November 30, 2016, does not include 8,173,484 contingent shares see also Note 11(d).
Diluted loss per share does not include, 17,045,564 shares underlying outstanding options, 19,451,562 shares issuable upon exercise
of warrants, 386,537 shares due to stock-based compensation to service providers and 7,863,205 shares upon conversion of convertible
notes for the year ended November 30, 2016, because the effect of their inclusion in the computation would be anti-dilutive.
Basic loss per share for the year ended November 30, 2015, does not include 42,401,724 of redeemable common stock since the
contingent criteria regarding the Unwind Option had not been met as of November 30, 2015.
Diluted loss per share does not include 42,401,724 redeemable common stock, 12,899,314 shares underlying outstanding options,
7,546,750 shares issuable upon exercise of warrants and 1,100,000 shares upon conversion of convertible notes for the year ended
November 30, 2015, because the effect of their inclusion in the computation would be anti-dilutive.
NOTE 13 – STOCK-BASED COMPENSATION
a.
Global Share Incentive Plan
As of November 30, 2016 , the Company has one stock option plan, the Global share incentive plan (2012) (the “Plan”), under
which, the Company had reserved a pool of 12,000,000 shares of the Company’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.
b.
Options Granted to Employees and Directors
Below is a table summarizing all of the options grants to employees and made during the years ended November 30, 2016, and 2015:
Year of
grant
No. of options
granted
Exercise price
Vesting period
Fair value at grant
(in thousands)
Expiration
period
Directors
2015
500,000 $
0.53
immediately $
vest
vest
immediately-2
Employees
2016
3,046,250 $ 0.0001-$0.36
years $
136
697
5
10
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 the last two years. The expected term
is the mid-point between the vesting date and the maximum contractual term for each grant equal to the contractual life. The fair value of
each option grant is based on the following assumptions:
Value of one common share
Dividend yield
Expected stock price volatility
Risk free interest rate
Expected term (years)
F-32
Year Ended November 30,
2016
0.28-$0.36 $
$
0%
87.4%-89%
1.32%-1.33%
5
2015
0.53
0%
85.7%
1.68%
2.5
A summary of the Company's stock options granted to employees and directors as of November 30, 2016 and 2015 and changes for
the years then ended is presented below:
Options outstanding at the beginning of the year
Changes during the year:
Granted
Expired
Forfeited
Re-designation to non- employee (see Note 10g)
Options outstanding at end of the year
Options exercisable at end of the year
2016
2015
Weighted
Average
Exercise
Price
$
0.16
0.19
0.28
0.16
0.14
Weighted
Average
Exercise
Price
$
0.27
0.53
0.68
0.5
0.16
0.09
Number of
Options
12,809,455
500,000
(2,440,120)
(528,125)
10,341,210
8,696,162
Number of
Options
10,341,210
3,046,250
(1,641,300)
11,746,160
10,557,105
The following table presents summary information concerning the options granted and exercisable to employees and directors
outstanding as of November 30, 2016:
Exercise
Prices
$
Number of
Outstanding
Options
Weighted
Average
Remaining
Contractual
Life
0.0001
0.001
0.36
0.5
0.53
0.75
0.79
0.85
5,544,155
3,338,285
300,000
400,000
500,000
250,000
942,520
471,200
11,746,160
6.8
5.2
9.4
7.7
3.5
6.6
5.6
5.5
6.1
Aggregate
Intrinsic
Value
$
(in thousands)
2,162
1,299
9
3,470
Number of
Exercisable
Options
Aggregate
Exercisable
Options
Value $
5,000,344
3,338,285
37,500
400,000
500,000
150,000
754,016
376,960
10,557,105
(in thousands)
1
3
14
200
265
113
596
320
1,512
Costs incurred with respect to stock-based compensation for employees and directors for the years ended November 30, 2016 and
2015 were $1,103 thousand and $713 thousand, respectively. As of November 30, 2016, there was $577 thousand of unrecognized
compensation costs related to non-vested employees and directors stock options, to be recorded over the next 3.42 years.
F-33
c.
Options Granted to Non- Employees
Below is a table summarizing all the compensation granted to consultants and service providers during the years ended November
30, 2016:
Year Ended November 30,
2016
No. of options
Exercise price
Vesting period
granted
Options
1,000,000*
$
0.3
Quarterly over a
period
of one year
$
Fair value at
grant
(in thousands)
Expiration
period
187
4 years
* The options shall immediately vest prior to such one-year period if there is an acquisition of 40% or more of the Company or upon
funding of $5 million.
Year Ended November 30,
2015
No. of options
Exercise price
Vesting period
granted
Fair value at
grant
(in thousands)
Expiration
period
Options
200,000
$
0.65, $0.52
Yearly over a
period of
five years
$
49
5 years
The fair value of each stock option grant is estimated at the date of grant using the Black-Scholes valuation model. The volatility is
based on historical volatility of the Company for the last two years. The expected term is equal to the contractual life, based on
management estimation for the expected dates of exercising of the options. The fair value of each grant is based on the following
assumptions:
Year Ended November 30,
Value of one common share
Dividend yield
Expected stock price volatility
Risk free interest rate
Expected term (years)
$
2015
2016
0.3, $0.34 $ 0.65, $0.53
0%
86%,89%
1.34%,1.42%
5
0%
87%,95%
1.19%,2.34%
1-9
A summary of the status of the stock options granted to consultants and service providers as of November 30, 2016, and 2015 and
changes for the years then ended is presented below:
2016
2015
Options outstanding at the beginning of the year
Changes during the year:
Granted
Expired
Re-designation to non- employee (see Note 10g)
Options outstanding at end of the year
Weighted
Average
Exercise
Number of
Options
2,658,104
Price
$
Number of
Options
0.75
2,458,104
1,000,000
0.3
200,000
1,641,300
5,299,404
0.28
0.52
2,658,104
Options exercisable at end of the year
4,647,404
0.51
1,521,624
F-34
Weighted
Average
Exercise
Price
$
0.75
0.51
0.75
0.65
The following table presents summary information concerning the options granted and exercisable to consultants and service
providers outstanding as of November 30, 2016 (in thousands, except per share data):
Exercise
Prices
$
Number of
Outstanding
Options
Weighted
Average
Remaining
Contractual
Life
Weighted
Average
Exercise
Price
$
0.28
0.3
0.50
0.54
0.61
0.65
0.69
0.96
1.40
1,641,300
1,000,000
1,080,000
100,000
100,000
100,000
706,904
100,000
471,200
5,299,404
9.4
0.25
1.67
3.53
5.98
3.2
5.5
6.35
5.38
4.7
Aggregate
Intrinsic
Value*
$
(in thousands)
181
90
Number of
Exercisable
Options
Aggregate
Exercisable
Options
Value $
(in thousands)
460
300
324
10
49
13
488
58
660
2,362
1,641,300
1,000,000
648,000
20,000
80,000
20,000
706,904
60,000
471,200
4,647,404 $
271
0.28
0.3
0.50
0.54
0.61
0.65
0.69
0.96
1.40
0.75 $
Costs incurred with respect to options granted to consultants and service providers for the year ended November 30, 2016 and 2015
was $2,543441 and $90 thousand, respectively. As of November 30, 2016, there was $167 thousand of unrecognized compensation costs
related to non-vested consultants and service providers, to be recorded over the next 4.55 years.
d.
Warrants Issued to Non-Employees
During the year ended November 30, 2016, the Company granted to several consultants 1,071,417 warrants each exercisable at
$0.52 per share for three years. The fair value of those options as of the date of grant using the Black-Scholes valuation model was
$219 thousand, out of which amount of $64 thousand is related to 271,417 warrants that were granted as a success fee with respect to
the issuance of the convertible notes during the year ended November 30, 2016.
e.
Shares Issued to Non-Employees
1) On March 1, 2016, the Company entered into a consulting agreement for professional services for a period of one year. Under
the terms of the agreement, the Company agreed to grant the consultant 250 thousand shares of restricted common stock. The fair
value of the Company’s common stock as of the date of grant was $0.30. In addition, the Company will pay a retainer fee of
$10,000 per month, consisting of $5,000 cash per month and $5,000 shall be payable in shares of the Company’s common stock at a
value equal to the price paid for the equity capital raise of at least $3 million (the “financing”). The cash fee per month and shares
shall be issued upon completion of the financing. The fair value of the shares as of November 30, 2016, was $34 thousand.
2) On April 27, 2016, the Company entered into a consulting agreement for professional services for a period of one year with
two consultants. Under the terms of the agreements, the Company agreed to grant the consultants an aggregate of 1.2 million shares
of restricted common stock that vested on grant date. The fair value of the shares as of the date of grant was $336 thousand.
3) On May 1, 2016, the Company entered into a consulting agreement for professional services for a period of one year. Under
the terms of the agreement, the Company agreed to grant a consultant 1 million shares of restricted common stock, of which the first
350,000 shares will vest immediately, 350,000 shares are to vest 90 days following the agreement date and 300,000 shares are
schedule to vest 180 following the agreement date. The fair value of the shares as of the date of grant of the first two tranches was
$249 thousand. With respect to last tranche, the fair value of the shares as of November 30, 2016, was $92.
F-35
NOTE 14 – TAXES
a.
The Company and the US Subsidiary
The Company and the US Subsidiary are taxed according to tax laws of the United States. The income of the Company is taxed in
the United States at a federal tax rate of up to 35% and state tax rate of 8.25% .
b.
The Israeli Subsidiary
The Israeli Subsidiary is taxed according to Israeli tax laws.
In January 2016, the Law for the Amendment of the Income Tax Ordinance (No. 216) was published, enacting a reduction of
corporate tax rate in 2016 and thereafter, from 26.5% to 25%.
In December 2016, the Economic Efficiency Law (Legislative Amendments for Implementing the Economic Policy for the 2017 and
2018 Budget Year), 2016 was published, introducing a gradual reduction in corporate tax rate from 25% to 23%. However, the law also
included a temporary provision setting the corporate tax rate in 2017 at 24%. As a result, the corporate tax rate will be 24% in 2017 and
23% in 2018 and thereafter.
c.
The Belgian Subsidiaries
The Belgian Subsidiaries are taxed according to Belgian tax laws. The regular corporate tax rate in Belgium for 2015 and 2016 is
34%.
d.
Tax Loss Carryforwards
1) As of November 30, 2016, the Company had net operating loss (NOL) carry forwards equal to $6.6 million that is available to
reduce future taxable income. The Company’s NOL carry forward is equal to $138 thousand, and may be restricted under Section 382
of the Internal Revenue Code (“IRC”). IRC Section 382 applies whenever a corporation with an NOL experiences an ownership
change. As a result of Section 382, the taxable income for any post change year that may be offset by a pre-change NOL may not
exceed the general Section 382 limitation, which is the fair market value of the pre-change entity multiplied by the long-term tax
exempt rate.
2) U.S. Subsidiary - As of November 30, 2016, the U.S. Subsidiary had approximately $722 thousand of NOL carry forwards that
are available to reduce future taxable income with no limited period of use.
3) Israeli Subsidiary - As of November 30, 2016, the Israeli Subsidiary had approximately $3.8 million of NOL carry forwards that
are available to reduce future taxable income with no limited period of use.
4) Belgian Subsidiaries - As of November 30, 2016, the Belgian Subsidiaries had approximately $11.7 million (€11.1 million) of
NOL carry forwards that are available to reduce future taxable income with no limited period of use.
F-36
e.
Deferred Taxes
The following table presents summary of information concerning the Company’s deferred taxes as of the periods ending November
30, 2016 and 2015 (in thousands):
November 30,
2016
2015
Net operating loss carry forwards
Research and development expenses
Employee benefits
Property and equipment
Convertible bonds
Deferred income
Intangible assets
Less: Valuation allowance
Net deferred tax liabilities
(U.S dollars in thousands)
5,658
$
268
31
(178)
45
(508)
(5,661)
(2,982)
(3,327)
8,278 $
655
152
(355)
1
(325)
(5,117)
(5,151)
(1,862) $
$
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 of its subsidiaries except MaSTherCell have recorded full
valuation allowance.
The changes in valuation allowance are comprised as follows:
Balance at the beginning of year
Additions during the year
Balance at end of year
Year Ended November 30,
2016
2015
(U.S dollars in thousands)
$
$
(2,982) $
(2,169)
(5,151) $
(1,870)
(1,112)
(2,982)
f.
Reconciliation of the Theoretical Tax Expense to Actual Tax Expense
The main reconciling item 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.
g.
Tax Assessments
1) The Company - As of November 30, 2016, the Company has received a final tax assessment up to the year 2010.
2) U.S. Subsidiary and the Israeli Subsidiary - As of November 30, 2016, the U.S. Subsidiary and the Israeli Subsidiary have not
received any final tax assessment.
3) Belgian Subsidiary - As of November 30, 2016, the Belgian Subsidiary has received a final tax assessment for the year 2014.
4) MaSTherCell - As of November 30, 2016, MaSTherCell has received a final tax assessment for the years 2012 to 2015.
h.
Uncertain Tax Provisions
As of November 30, 2016, the Company has not accrued a provision for uncertain tax positions.
F-37
NOTE 15 - FAIR VALUE PRESENTATION
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:
•
•
•
Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair
value hierarchy gives the highest priority to Level 1 inputs.
Level 2: Observable inputs that are based on inputs not quoted on active markets, but corroborated by market data.
Level 3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to
Level 3 inputs.
In determining fair value, the Company utilizes valuation techniques that maximize the use 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, 2016, and 2015, the Company’s liabilities that are measured at fair value and classified as level 3 fair value are
as follows (in thousands):
Warrants (1)
Price protection derivative (1)
Embedded derivatives convertible loans *(1)
Put option derivative (1)
Convertible bonds (2)
November 30, November 30,
2016
Level 3
2015
Level 3
$
$
1,843 $
76
240
273
1,818 $
1,382
1,533
289
1,888
* The embedded derivative is presented in the Company's balance sheets on a combined basis with the related host contract (the convertible
loans).
(1) The fair value is determined by using a Monte Carlo Simulation Model. This model, in contrast to the closed form model, such
as the Black-Scholes Model, enables the Company to take into consideration the conversion price changes over the conversion period
of the instrument, and therefore is more appropriate in this case.
(2) The fair value of the convertible bonds described in Note 3 is determined by using a binomial model for the valuation of the
embedded derivative and the fair value of the bond was calculated based on the effective rate on the valuation date (6%). The
binomial model used the forecast of the Company share price during the convertible bond's contractual term. Since the convertible
bond is in Euro and the model is in USD, the Company has used the Euro/USD forward rates for each period. In order to solve for the
embedded derivative fair value, the calculation was performed as follows:
•
•
Stage A - The model calculates a number of potential future share prices of the Company based on the volatility and risk-free
interest rate assumptions.
Stage B - the embedded derivative value is calculated "backwards" in a way that takes into account the maximum value
between holding the bonds until maturity or converting the bonds.
F-38
The following table presents the assumptions that were used for the models as of November 30, 2016:
Fair value of shares of common stock
Expected volatility
Discount on lack of marketability
Risk free interest rate
Expected term (years)
Expected dividend yield
Expected capital raise dates
Probability of external Investment in
Atvio
Orgenesis cost of debt
Revenues Multiplier distribution
Embedded
Derivative
Put Option
Derivative
Price Protection
Derivative and
Warrants
$
0.39 $
0.39
103%
-
0.38%-0.62%
0.08-0.42
0%
94%-103%
16%
0.57%-1.28%
1.9-2.6
0%
Q1-2017
63%
0.9%
20%
26%
3.34
The fair value of the convertible bonds is equal to their principal amount and the aggregate accrued interest.
The following table presents the assumptions that were used for the models as of November 30, 2015:
Fair value of shares of common stock
Expected volatility
Discount on lack of marketability
Risk free interest rate
Expected term (years)
Expected dividend yield
Expected capital raise dates
Price Protection
Derivative and
Warrants
$
0.33 $
87%-98%
14%
0.44%-1.24%
2.9-3
0%
Q2 2016-Q4
2016, Q4 2017
Embedded
Derivative
Convertible
Bonds
0.33 $
87%
-
0.11%-0.49%
0.08-0.87
0%
0.33
88%
18%
0.42%
0.8
0%
The table below sets forth a summary of the changes in the fair value of the Company’s financial liabilities classified as Level 3 for
the year ended November 30, 2016:
Balance at beginning of the year
Additions
Conversion
Changes in fair value related to Price
Protection Derivative expired*
Changes in fair value during the period
Changes in fair value due to extinguishment of convertible
loan
Translation adjustments
Balance at end of the year
Warrants
Embedded
Derivatives
Convertible
Bonds
Price
Protection
Derivative
Put Option
Derivative
(in thousands)
$
1,382 $
802
(341)
289 $
40
(10)
(87)
8
1,888 $
1,533 $
120
273
(84)
(108)
(1,469)
$
1,843 $
240 $
14
1,818 $
76 $
273
(*) During the twelve months ended November 30, 2016, 11,732,916 Price Protection Derivative have expired. There were no
transfers to Level 3 during the twelve months ended November 30, 2016.
The table below sets forth a summary of the changes in the fair value of the Company’s financial liabilities classified as Level 3 for
the year ended November 30, 2015:
F-39
Balance at beginning of the year
Additions
Changes in fair value related to warrants expired*
Changes in fair value during the period
Translation adjustments
Balance at end of the year
Warrants
Embedded
Derivatives
Convertible
Bonds
Price
Protection
Derivative
560 $
1,390
(525)
(43)
(in thousands)
992 $
112
(815)
1, 382 $
289 $
$
3,234
(1,221)
(125)
1,888 $
1,526
7
1,533
$
$
(*) During the twelve months ended November 30, 2015, 1,826,718 warrants had expired. There were no transfers to or from Level 3
during the twelve months ended November 30, 2015.
The Company has performed a sensitivity analysis of the results for the warrants fair value to changes in the assumptions for
expected volatility with the following parameters:
As of November 30, 2016
Base -10%
Base
(in thousands)
Base+10%
$
1,662 $
1,843 $
2,008
The Company has performed a sensitivity analysis of the results for the price protection derivative fair value to changes in the
assumptions expected volatility with the following parameters:
As of November 30, 2016
Base -10%
Base
(in thousands)
Base+10%
$
75 $
76 $
77
The Company has performed a sensitivity analysis of the results for the Put Option Derivative fair value to changes in the
assumptions expected volatility with the following parameters:
As of November 30, 2016
NOTE 16 – REVENUES
Services
Goods
Total
Base -50%
Base
(in thousands)
Base+50%
$
(261) $
(273) $
(280)
Year Ended November 30,
2016
2015
(in thousands)
$
$
4,683 $
1,714
6,397 $
1,924
1,050
2,974
F-40
NOTE 17 – RESEARCH AND DEVELOPMENT EXPENSES, NET
Total expenses
Less grant
Total
NOTE 18 – FINANCIAL EXPENSES (INCOME), NET
Year Ended November 30,
2016
2015
(in thousands)
$
$
2,637 $
(480)
2,157 $
1,860
(793)
1,067
Year Ended November 30,
2016
2015
(in thousands)
$
Decrease in fair value of warrants and financial liabilities measured at fair value
Stock-based compensation related to warrants granted due to issuance of credit facility
Interest expense on convertible loans
Foreign exchange loss, net
Other income
Total
$
(1,587) $
208
694
31
(5)
(659) $
(2,596)
726
50
(30)
(1,850)
NOTE 19- RELATED PARTY TRANSACTIONS
Management and consulting fees to the Chairman of the Board
Compensation to the nonexecutive directors
(except the Chairman of the Board)
Convertible loan from a related Fund*
November 30,
2016
2015
(in thousands)
57
30 $
54 $
$
71
350
$
$
* The convertible loan was granted with the same terms as the convertibles loans from third parties
NOTE 20- SUBSEQUENT EVENTS
a. During December 2016 and January 2017, the Company entered into unsecured convertible notes agreements with accredited or
offshore investors for an aggregate gross amount of $3.5 million. The notes bear an annual interest rate of 6% and mature by six months till
two years from the issuance date, unless earlier converted subject to the terms defined in the agreements.
From the above investments, the Company remitted to MaSTherCell the remain unpaid capital of $1 million (€ 932 thousand), in
compliance with its obligations.
b. On December 16, 2016, the Company entered into unsecured convertible notes agreements with accredited or offshore investor for an
aggregate amount of $250 thousand. The notes have no interest rate and mature by six months unless earlier converted any portion of the
outstanding principal amount and all accrued but unpaid interest thereon into a number of common shares of the Company at a price of
$0.4 per share. Upon the execution of the agreement the Company shall issue to the investor warrants to purchase up to 48,077 shares of
the Company’s common stock exercisable from the date of issuance through the third anniversary of the termination time), at a per share
exercise price of $0.52.
F-41
c. In February 2017, the Company entered into unsecured convertible notes agreements with accredited or offshore investors for an
aggregate amount of $100 thousand. The notes have 6% interest rate and mature by one year unless earlier converted any portion of the
outstanding principal amount and all accrued but unpaid interest thereon into a number of common shares of the Company at a price of
$0.52 per share. Upon the execution of the agreement the Company shall issue to the investors warrants to purchase up to 96,154 shares of
the Company’s common stock exercisable from the date of issuance through the third anniversary of the termination time, at a per share
exercise price of $0.52.
d. In January 2017, the Company entered into definitive agreements with accredited investors relating to a private placement of (i)
596,155 shares of the Company’s common stock and (ii) three year warrants to purchase up to an additional 596,155 shares of the
Company’s Common Stock at a per share exercise price of $0.52. The purchased securities were issued pursuant to subscription agreements
between the Company and the purchasers for aggregate proceeds to the Company of $310 thousand
e. During January 2017 MaSTherCell repaid all but one of its bondholders and the aggregate payment amounted to $1.7 million (€1.5
million). On January 17, 2017, the remain bondholder agreed to extend the duration of his Convertible bond with a principal amount of €
100,000 until March 21, 2017, (the “New Maturity Date”) and the convertible bonds will continue to accrue interest as provided in the
original agreement. In consideration of the extension, the Company agreed to issue to the bondholder warrants to purchase 102,822 shares
of Orgenesis common stock. The Warrants will be exercisable over a three-year period at a per share exercise price of $0.52. On the New
Maturity Date, the bondholder can elect to sell his bonds to the Company at a price equal to their face value, or will convert the entire
outstanding Principal Amount into shares of common stock of the Company rate of $0.22 per share. In February, the Company returned
from the escrow arrangement a total of 3,157,716 Consideration Shares to treasury, in accordance with the terms of the SEA.
f. On January 12, 2017, the Company repaid the outstanding principal amount and accrued interest in total amount of $51 thousand of
convertible loans that were issued during September 2016.
g. The Company has entered into definitive agreements with an institutional investor for the private placement of units of the Company’s
securities for aggregate subscription proceeds to the Company of $16 million. The subscription proceeds are payable on a periodic basis
through August 2018. Each Unit of securities placed is comprised of one share of the Company’s common stock and a warrant, exercisable
over a three-year period from the date of issuance, to purchase one additional share of Common Stock at a per share exercise price of $0.52.
Each periodic payment of subscription proceeds will be evidenced by the Company’s standard securities subscription agreement.
On February 16, 2017, the Investor and the Company closed on the initial payment of $1 million of the subscription proceeds and, in
connection therewith, the Company issued to the investor 1,923,077 shares of the Company’s common stock and warrants to purchase up to
an additional 1,923,077 shares of the Company’s common stock.
h. On February 27, 2017, the Company and Admiral entered into an agreement resolving the payment of amounts 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 March 1, 2017, $1,500 thousand on account of the approximately $1.9 million owed and outstanding to Admiral. Further, the
Company agreed to pay to Admiral, commencing April 2017, $125 thousand each calendar month to reduce the amounts outstanding and
also agreed to remit from the equity investment subscription proceeds raised after February 28, 2017 of $500 thousand or more, 20% of
such proceeds, and of $1 million or more, 25% of such proceeds.
F-42
Joint Venture Agreement
This Joint Venture Agreement (" Agreement") is entered into this 14, day of March, 2016 (the "Effective Date"), by and between
Orgenesis, Inc. a corporation incorporated in Nevada, USA, having an address at Signed, ("Orgenesis"); CureCell Co., Ltd. a company
organized in Korea having an address at 704 Gwangyo Business Center, 156 Gwanggyo-ro, Yeongtong-gu, Suwon, South Korea
("CureCell"); (CureCell together with Orgenesis, the "Parties" and each a "Party").
Whereas Orgenesis is engaged, inter alia, in providing Contract Development and Manufacturing services specialized in the
industrialization of cell therapy products; and
Whereas CureCell wishes to collaborate with Orgenesis in providing the following services: contract development and manufacturing in
Korea ("Territory") of cell therapy products) ("Services"); and
Whereas the Parties wish to set forth the terms for the collaboration between the Parties providing Services through a jointly owned joint
venture in the Territory;
NOW THEREFORE the Parties hereby agree as follows:
1.
PURPOSE AND OBJECT OF THE JV
1.1.
.
1.2.
The Parties agree to form the Joint Venture ("JV"), subject to the terms and conditions of this Agreement, for providing
Services in the Territory ("Project")
The JV shall be established for the exclusive purpose carrying out the Project.
1.3. Nothing in this Agreement shall be considered as a limitation of the powers or rights of any of the Parties to carry on its
independent business for its sole benefit in addition to the Project, except that the Parties undertake to use their best
endeavors to safeguard and further their common interests in relation to the Project.
1.4. Orgenesis may carry out its obligations under this Agreement, in whole or in part, through an Affiliate thereof.
For the purpose of this Agreement the term "Affiliate" shall mean any entity which directly or indirectly controls, is
controlled by or is under common control of a Party to this agreement; the term "control" as used herein shall mean the
possession of the power to direct or cause the direction of the management and the policies of an entity, whether through the
ownership of a majority of the outstanding voting rights or by contract or otherwise
2.
PARTICIPATION SHARES &ROLES; FINANCING
2.1.
The participating interests of the Parties in the JV and in any and all rights and obligations of the JV and in any movable
property or equipment acquired by the JV (except with respect to any property or equipment furnished or leased by either of
the Parties to the JV, title to which shall remain in the Party so furnishing or leasing the same), and in any and all profits and
losses which may be derived from the performance of the Services, and any liability arising out of guarantees or any other
securities (the "Participating Interests") shall be in the following proportions, subject to the fulfillment by each Party of its
respective of the financing and other obligations under sections 2.2, 2.3,2.4 and 2.6 below:
Orgenesis 50%
CureCell - 50%
CureCell herby agrees that upon Orgenesis' request that an affiliate and/or partner of Orgenesis ("Orgenesis Designated Third
Party"), shall have the right to join as a partner in the JV or shareholder in the JV Entity (as applicable), in which case the
Orgenesis Designated Third Party shall be entitled to a portion of Orgenesis' Participating Interests as shall be agreed between
Orgenesis and such Orgenesis Designated Third Party, subject to such Orgenesis Designated Third Party agreeing to be subject
to the applicable terms and conditions of this Agreement, mutatis mutandis.
2.2. CureCell shall be responsible to procure a GMP facility in the Territory ("GMP Facility") for the JV for the manufacturing of
cell therapy products. Until agreed otherwise, CureCell shall incur all costs related to such GMP Facility. CureCell will be
responsible for identifying required qualified and experienced human resources for the JV, subject to Steering Committee's
(as defined below) approval.
2.3. Within thirty (30) business days following the Effective Date, Orgenesis will submit to CureCell a description of the
Orgenesis' cell manufacturing know how required in order to operate such a GMP Facility ("Orgenesis Manufacturing
Know How") and a plan for the transfer of such Orgenesis Manufacturing Know How to the GMP Facility, as required in
order to perform the Services ("Orgenesis Manufacturing Know How"). Such Orgenesis Manufacturing Know How shall
not include any IP licensed from Sheba Medical Center. Such Orgenesis Manufacturing Know How may be used solely for
the purposes of carrying out the Project through the JV. Orgenesis shall provide the JV with all required technical support in
order to operate such a GMP Facility.
2.4. Upon the request of Orgenesis the JV shall be carried out through a company to be established by the Parties ("JV Entity"").
The relative shareholdings of each Party in the JV Entity will be based on the Participating Interests of each Party, taking into
account any loan conversions directly into CureCell or the JV Entity (as applicable) as described in section 2.6 below.
2.5.
In order to implement the Project, Orgenesis shall invest in the JV an aggregate amount of two million US Dollars
(US$2,000,000) (at least one million dollars in cash) and CureCell shall invest in the JV an additional amount of two million
US (US$2,000,000) Dollars – (at least one million dollars in cash), all over the course of the first two (2) years following the
Effective Date.
Each party shall invest an amount of at least one million US Dollars (US$1,000,000) out of the above financing to be invested
by such party in cash ("Cash Financing") and the remaining financing shall be made in-kind ("In-Kind Financing").The
scope of the In-Kind Financing and the valuation thereof will be clearly defined in writing and pre-approved in writing by all
Parties.
The transfer of the Cash Financing by Orgenesis will be made in the form of a convertible loan to be transferred to CureCell on
a predefined date ("Convertible Loan"). The dates on which the Convertible Loan and/or the In-Kind Financing (as
applicable) are actually transferred shall be referred to as the "Determination Date".
The Cash Financing and the In-Kind Financing provided by Orgenesis (and/or by the Orgenesis Designated Third Party, if
applicable) may be converted, upon Orgenesis’ request, either into shares of the JV Entity (subject to and following the
formation thereof) or into shares of CureCell (if no JV Entity is established), based on the valuation thereof on the applicable
Determination Date as shall be agreed upon by the Parties. In either case, whether the conversion is made into the shares of the
JV Entity or into shares of CureCell, the conversion value will be subject adjustment as a result of additional investments
which may take place after the Determination Date and up to the conversation date. The Steering Committee (as defined
below) will acknowledge in writing the allocation and transfer of funds and/or In-Kind Financing to the JV made by each
Party, including but not limited to the applicable Determination Date and the relevant valuation of each of the JV Entity and
CureCell on such Determination Date.
2.6. CureCell will maintain an accounting records of all expenses incurred by the JV, and of all financing provided by Orgenesis
as well as financing provided by CureCell in the JV and will provide the Steering Committee, Orgenesis with a quarterly
report detailing the use of such financing and shall further provide Steering Committee, Orgenesis full access to any such
records.
2.7.
In addition, each Party shall have the right, to invest additional sums either in the JV in the form of a Convertible Loan
described in section 2.6 above or as a direct investment into the JV Entity (the "Additional Investment"), if required (as
determined by the Steering Committee) in order to maintain the activity of the JV/JV Entity (as applicable) or to maintain
such Party's Participating Interest percentage in any future financing round. The terms of such Additional Investment shall be
negotiated in good faith and shall be mutually agreed by all Parties. The minimum valuation of future financing will be at a
pre-money valuation of four million US Dollars (US$4,000,000) subject to the fulfillment of the Parties' respective initial
financing undertakings under in section 2.5 above. Any such Additional Investment by either Party may result in a dilution of
the other Party(ies) Participating Interest unless matched by pro-rata financing.
2.8.
Each Party shall have full information and access rights in respect of the GMP Facility, the JV and the JV Entity.
3.
CALL OPTION
3.1. At any time following the occurrence of the Trigger Event (as defined below), Orgenesis shall have the option, but not the
obligation, exercisable at its sole discretion and subject to all rules and regulations to which it is then subject, including
without limitation, the rules of any U.S. national securities exchange, ("Call Option"), to require that CureCell and/or the
Orgenesis Designated Third Party (if applicable) transfer to Orgenesis the entirety of each such party’s equity interest in the
JV or the JV Entity for the Consideration (as defined below) specified below (“Sale Transaction”). The exercise of the Call
Option shall be exercisable upon written notice by Orgenesis and be subject further to an appropriate exemption from the
registration requirements under U.S. securities laws. The number of shares of common stock of Orgenesis issuable to each of
CureCell and/or the Orgenesis Designated Third Party (if applicable) as consideration in such Sale Transaction (the
“Consideration”) shall be determined by dividing the agreed upon valuation of the JV or the JV Entity and/or the Orgenesis
Designated Third Party (if applicable) immediately prior to the closing of the Sale Transaction by the higher of: (1) the daily
weighted average price of Orgenesis Inc.'s common stock during the 90 day period preceding the closing of the Sale
Transaction; or (ii) the weighted average price of Orgenesis Inc.'s common stock during the three (3) trading day preceding
the closing of the Sale Transaction. The legal form of Sale Transaction shall be determined by Orgenesis, and may include,
inter alia, a share purchase transaction, an asset purchase transaction or a merger and be evidenced by legally binding
agreement reflecting mutually agreeable terms and representations appropriate for transactions of this type. Additionally, the
Sale Transaction shall close within 60 days of the giving of notice by Orgenesis. Subject to the closing of the Sale
Transaction as herein provided and so long as the JV Entity is a viable and profitable entity, it is the intention of the parties
that Orgenesis will maintain, post closing, the JV Entity as a separate operating entity.
The JV or JV Entity (as applicable) valuation will be defined as the higher of the following: (i) the latest Additional Investment
round valuation as defined in section 2.8 above;(iii) the latest Determination Date valuation as defined in section 2.6 above; or
(iii)an amount equal to three (3) times the sales of the JV.
The "Trigger Event" shall mean the listing and trading of the common stock of Orgenesis on a U.S, National Exchange at a
market capitalization of at least one hundred million US Dollars (US$100,000,000) for ninety (90) consecutive days.
4.
WORK PLAN
4.1.
The definitive work plan, setting forth in detail the respective tasks for which each of the Parties is responsible for under the
JV together with a time schedule for the completion of such tasks (hereinafter referred to as the "Work Plan") will be agreed
upon in writing by the Parties and shall be attached to this Agreement as Exhibit A , within no later than thirty (30) days
following the Effective Date. Any change to the Work Plan shall be approved in advance by the Steering Committee (as
defined below).
4.2.
Each Party shall exert its best commercial efforts to carry out its respective tasks in a timely and professional manner in
accordance with the Work Plan.
4.3. Notwithstanding anything to the contrary that may be inferred by any provision of this Agreement, no Party shall have the
authority or right, nor shall any Party hold itself out as having theauthority or right to assume, create or undertake any
obligation of any kind whatsoever, expressed or implied, on behalf or in the name of the other Party and/or of the JV unless
otherwise agreed by the Parties in writing, and/or as set forth in this Agreement.
5.
STEERING COMMITTEE
5.1.
5.2.
The Parties shall set up a steering committee for the management of the JV, which shall also serve as the Board of Directors
of the JV Entity. ("Steering Committee ")
The Steering Committee shall be composed of a total of five (5) members: Each Party shall have the right to appoint and
replace two (2) members, which shall be fully authorized by such Party to act and decide on its behalf and one (1) member
shall be an independent industry expert to be appointed and replaced by mutual agreement of all Parties. Each Party shall be
entitled to replace its members after informing the other Party in writing. Each Party will appoint by written notice to the
other Parties the said members. The members shall be appointed by the Parties prior to the first Steering Committee meeting.
5.3. All decisions shall be taken majority by the Steering Committee.
5.4.
5.5.
The Parties shall be deemed to have delegated to the members of the Steering Committee full authority to represent and bind
the Parties in respect of all their responsibilities regarding the JV.
The Steering Committee, as the supreme and highest decision making body of the JV, shall take all major decisions on any
matter concerning the performance of the Project. The Steering Committee shall serve as the Board of Directors of the JV
Entity.
5.6. As a general rule, the Steering Committee shall meet (in person and/or via phone or video conference) at least once in every
two (2) months, unless agreed otherwise. Any Party who wishes to summon a Steering Committee meeting, shall give the
other members of the Steering Committee at least five (5) working days' prior written notice of such meeting. Such notice
shall set the date, time, place and agenda of the meeting and shall be accompanied by the relevant data and documents to be
approved in such meeting.
5.7. At the meeting of the Steering Committee other representatives of the Parties and/or legal counsels may be present without a
voting right, so that information is more complete and taking resolutions is more constructive, provided their attendance is
communicated in advance.
5.8. Until Agreed otherwise by the Parties, one member appointed by Orgenesis shall serve as chairman of the Steering
Committee ("Chairman").
5.9.
Each member of the Steering Committee has one (1) vote.
5.10. The resolutions of the Steering Committee shall be recorded in minutes and will be sent (by Email) to all members of the
Steering Committee within one week following the meeting. Such minutes shall be deemed to have been approved by the
Steering Committee if no objections are raised within a period of fourteen (14) calendar days after receipt thereof.
5.11.
In urgent cases, a unanimous decision of the Steering Committee may also be reached by E- mail or fax initiated by the
Chairman and on the occasion of the following Steering Committee meeting such decision shall be ratified and included in
the minutes;
5.12. The members of the Steering Committee will not receive any remuneration, except as may otherwise be agreed in writing by
the Parties.
6.
REPRESENTATIONS
Each Party hereby represents and warrants that it has the requisite power and authority to enter into and carry out the terms of
this Agreement and that its performance under this Agreement will not conflict with any other obligation Orgenesis may have
to any other party. Orgenesis agrees that it will notify CureCell immediately if Orgenesis becomes aware of any actual or
potential claims, suits, actions, allegations or charges that could affect either Party’s ability to fully perform its duties or to
exercise its rights under the Agreement.
7.
INDEMNIFICATION.
7.1.
7.2.
Each Party ("Indemnifying Party") agrees to indemnify, defend and hold harmless the other Parties, and their respective
officers, directors, shareholders, employees, accountants, attorneys, agents, affiliates, subsidiaries, successors and assigns
("Indemnified Party") from and against any and all third party claims, damages, liabilities, costs and out of pocket expenses,
including reasonable legal fees and expenses (collectively "Losses"), arising out of any third party claim resulting from: (i)
any breach of any express warranty, representation, covenant or obligation made by the Indemnifying Party in this Agreement
; and/or (ii) the negligence or willful misconduct of the Indemnifying Party, expect to the extent that such losses arise from:
(i) any breach of any express warranty, representation, covenant or obligation made by any of the Indemnified Parties in this
Agreement; and/or (ii) the negligence or willful misconduct of any of Indemnified Parties.
The foregoing indemnity is conditioned upon (i) prompt written notice by the Indemnified Party to the Indemnifying Party of
any claim, action or demand for which indemnity is claimed , provided that the failure to provide such notice shall not relieve
the Indemnifying Party form its indemnification obligations, except if the Indemnifying Party was prejudiced by such failure;
(ii) the opportunity to take control over the defense and settlement thereof by the Indemnifying Party; (iii) the Indemnified
Party's right to be represented by separate counsel at its own expense, provided that if the Indemnifying Party fails to assume
the defense or settle of any claim giving rise to the indemnification obligation within a relabeled period, the Indemnified
Party shall have the right to defend the claim using counsel of its choice at the expense of the Indemnifying Party and (iii)
such reasonable cooperation by the indemnified party in the defense as the indemnifying party may request. Neither Party
shall, without the prior written consent of the other Party, settle, compromise or consent to the entry of any judgment with
respect to any pending or threatened claim, such consent not to be unreasonably withheld or delayed. The indemnification
provided for under this section 7 shall remain subject to the limitation of liability described in section 8below.
8.
LIMITATIONS OF LIABILITY; AND DISCLAIMERS.
8.1.
EXCEPT FOR A BREACH OF SECTION 9 BELOW [CONFIDENTIALITY; OWNERSHIP] OR ANY LABILITY WITH
RESPECT TO HUMAN INJURY AND/OR DEATH, UNDER NO CIRCUMSTANCES SHALL EITHER PARTY BE
LIABLE TO THE OTHER PARTY FOR INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR EXEMPLARY
DAMAGES (EVEN IF THAT PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES), ARISING
FROM PERFORMANCE UNDER OR FAILURE OF PERFORMANCE OF ANY PROVISION OF THIS AGREEMENT
(INCLUDING SUCH DAMAGES INCURRED BY THIRD PARTIES), SUCH AS, BUT NOT LIMITED TO, LOSS OF
REVENUE OR ANTICIPATED PROFITS OR LOST BUSINESS.
8.2. WITHOUT DEROGATING FORM THE FORGOING, IN NO EVENT SHALL ORGENESIS BE LIABLE FOR ANY
ACTIONS OR CLAIMS OR THE LIKE BY CURECELL, THE JV, THE JV ENTITY AND/OR ANY THIRD PARTY
THAT THE ORGENESIS MANUFACTURING KNOW HOW AND/OR THE RESULTING IP RESULTS OR MAY
RESULT IN ANY INFRINGEMENT, DEPRAVATION, MISAPPROPRIATION AND/OR VIOLATING OF THE
INTELLECTUAL PROPERTY OR OTHER RIGHTS OF ANY PERSON OR ENTITY.
8.3.
THE ORGENESIS MANUFACTURING KNOW HOW IS PROVIDED "AS-IS" AND "AS AVAILABLE", ORGENESIS
MAKES NO AND HEREBY SPECIFICALLY DECLAIMS REPRESENTATION AND/OR WARRANTY CONCERNING
THE ORGENESIS MANUFACTURING KNOW HOW INCLUDING, ANY WARRANTY OF MERCHANTABILITY,
FITNESS FOR A PARTICULAR PURPOSE, COMPLETENESS, USE ACCURACY OR THAT THE AIP IP SHALL BE
USEFUL IN ANY MANNER OR COMMERCIALLY EXPLOITABLE.
9.
TERM & TERMINATION
9.1.
This Agreement shall enter into effect on the Effective Date and shall remain in effect thereafter until terminated pursuant to
this section 9 below.
9.2.
This Agreement may be terminated as follows:
9.2.1. by written agreement by all Parties;
9.2.2. by either Party upon written notice to another Party (with immediate effect), In the event of insolvency, bankruptcy, or
voluntary dissolution of the other Party hereto during the term hereof or in the event of a Party's assignment of its
assets for the benefit of creditors, and the Parties hereto shall have the rights as provided by applicable law;
9.2.3. by either Party upon written notice to the other party (with immediate effect), In the event of a force majeure event,
including, but not limited to, delay or failure in performance of this Agreement the other Party due to acts of God, acts
of governments, wars, riots, strikes, accidents in transportation, or other causes beyond the reasonable control of the
other Party that continues for longer than ninety (90) days; or.
9.2.4. by either Party upon written notice to the other Party (with immediate effect), in the event that such other Party has
committed a material breach of any of the terms and conditions of this Agreement or has materially defaulted in the
performance of any of its obligations under this Agreement, (provided that the non-breaching/non-defaulting Party has
first given the other Party written notice of the grounds supporting the material breach or default and the
breaching/defaulting Party has not cured the material breach or default within thirty (30) days of receipt of such notice)
without derogating from non-other legal and equitable remedies available to the breaching/non-defaulting Party as
provided by law, equity and/or this Agreement.
9.3.
9.4.
Sections 2.1, 2.5, 3, 6, 7, 8, 9.3, 9.4, 9.5, 10, 11, 12 and 13 hereof shall survive the expiration or termination of this
Agreement for any reason and shall remain in full force and effect thereafter.
Termination of this Agreement shall not relieve either Party of any liability which accrued hereunder prior to the effective date
of such termination, nor preclude either Party from pursuing all rights and remedies it may have hereunder or at law or in
equity with respect to any breach of this Agreement, nor prejudice either Party’s right to obtain performance of any
obligation. The remedies provided under this Agreement are cumulative, and are not exclusive of other remedies available to a
Party in law or equity.
9.5. Upon and notwithstanding the termination of this Agreement for any reason, Orgenesis shall have the right to exercise the
Call Option under Section 3, regardless of whether or not the “ Trigger Event” has already occurred at such time.
10.
CONFIDENTIALITY; OWNERSHIP
10.1. Under this Agreement, Orgenesis may disclose or reveal to CURECELL, the Orgenesis Designated Third Party, the JV the JV
Entity and/or any other entity mentioned in this Agreement, and/or their respective affiliates, Orgenesis' confidential or
proprietary information (“Confidential Information”). All information and know how in respect of the development and
manufacturing of cell therapy products, and all reports and records produced by Orgenesis shall be part of the Confidential
Information of Orgenesis. CureCell undertakes to take all steps and to ensure the JV and/or the JV Entity shall take all steps
reasonably necessary to hold Confidential Information in strict confidence and secrecy and will not and to ensure the JV
and/or the JV Entity will not use or disclose, transfer and/or publish such Confidential Information in any manner or for any
purposes not expressly contemplated by this Agreement. Each of CureCell shall not disclose and shall cause the JV Entity not
to disclose any Confidential Information except to its employees who are have a need to know such Confidential Information
for the purposes of this Agreement and who are subject to written agreements containing non-disclosure and non-use
obligations no less restrictive than those set forth herein. Each CureCell shall be responsible for any breach of this Agreement
by any of its employees.
10.2. Upon Orgenesis' request, all or any requested portion of its Confidential Information (including, but not limited to, tangible
and electronic copies, notes, summaries or extracts of any information) will be promptly returned to Orgenesis or destroyed,
and CureCell(as applicable) will provide Orgenesis with written certification stating that such Confidential Information has
been returned or destroyed.
10.3. Each of the parties will, and will cause its affiliates and representatives to, maintain in strict confidentiality this document and
any transactions contemplated hereunder, the terms set forth herein and any discussions between the Parties in such respect
except for any mention in any applications to official authorities for regulatory approval, or in the fulfillment of any duty
owed to any competent authority (including a duty to make regulatory filings and/or reports and/or reporting under the
requirements of any securities exchange).
10.4. The Parties shall consult and coordinate with each other respecting the timing and content of any publicity, press or news
releases or other public announcements regarding this Agreement and the transactions contemplated hereby and neither Party
shall use the name of the other for marketing, advertising or promotional purposes without the prior written consent of the
other Party, all except for any mention in any applications to official authorities for regulatory approval, or in the fulfillment
of any duty owed to any competent authority (including a duty to make regulatory filings and/or reports and/or reporting under
the requirements of any securities exchange) or, in the case of the Orgenesis, in the presentation of activities to its potential
investors business partners and/or collaborators.
10.5. Orgenesis is and shall remain the owner of all Orgenesis Manufacturing Know How, and of any inventions, discoveries,
improvements, derivatives, results, data, , data rights, information, know how, new-uses, compounds, formulas, processes,
manufacturing protocols, processes, clinical results, methods, techniques, products, treatments, materials, and any other
intellectual property which is generated, conceived, developed and/or reduced to practice by and/or on behalf of Orgenesis,
CureCell,and/or the JV Entity (as applicable), alone or together with others, resulting from the performance of the Project
and/or the Services activities and/or derived under, resulting form and/or otherwise related to Orgenesis' Confidential
Information (collectively "Resulting IP") and Orgenesis or any of its Affiliates may make use of the Resulting IP for any and
all lawful purposes, including without limitation, for their respective worldwide operations without further charge to
Orgenesis or any of its Affiliates. CureCell hereby assigns and shall assign and shall cause JV Entity and/or any subcontractor
and/or person and/or entity working on their behalf in the performance of the Project and/or the Services to assign to
Orgenesis or its designee, any and all rights and interests they may have in and to the Resulting IP, without further
remuneration or compensation and shall and shall cause JV Entity and/or any subcontractor and/or person and/or entity
working on their behalf to execute any document and/or take any other actions reasonably required by Orgenesis to perfect
Orgenesis rights to the Resulting IP throughout the world, at Orgenesis' expense.
10.6. Without derogating from any of the forgoing, each of CureCell specifically acknowledges and agrees that Orgenesis Inc. is a
publicly traded company and that in the course of disclosure, CureCell(as applicable) may receive certain material non-public
information (financial, commercial or other). CureCell is aware that the United States securities laws impose restrictions on
trading in securities when in possession of such information. CureCell further acknowledges and agrees that using such
information and utilizing it to its benefit may cause Orgenesis to be in violation of the applicable securities laws. CureCell
undertakes and agrees that it, the JV Entity or anyone on its behalf, shall not, directly or indirectly utilize such information in
a way which may be considered ‘inside trading’ or in any way which may be considered prohibited, restricted misappropriate
or otherwise in violation of the applicable securities laws .
11. GOVERNING LAW; DISPUTE RESOLUTION
11.1. This Agreement shall be governed by and construed and enforced in accordance with the laws of England and wales, without
regard to the conflict of laws rules thereof.
11.2.
In the event of any dispute or difference arising out or in connection with this Agreement, the same shall be settled amicably
by negotiation between the authorized senior executives of the Parties in conflict. If they fail to resolve such dispute within
thirty (30) days following the written notice of either Party to the other Party of such dispute, the same shall be resolved
through arbitration. The arbitration shall be conducted by a sole arbitrator. In the absence of agreement between the Parties on
the name of the arbitrator to be appointed within thirty (30), such arbitrator shall be appointed by the International Chamber
of Commerce (ICC). The Arbitration Proceedings shall be conducted in accordance with rules of the International Chamber of
Commerce. The venue of Arbitration Proceedings shall be London and the language used shall be English. The applicable
law shall be the Law of England and Wales.
Nothing in the forgoing shall limit either Party from pursuing an injunction or other equitable relief against the other Party, the
JV and/or the JV Entity(as applicable) and/or their respective agents in any jurisdiction in order to enforce the provisions
hereof.
12.
RULING LANGUAGE
The ruling language of this Agreement and the JV is English. To the extent practicable with third Parties, English shall be the language
used for all purposes in connection with the JV and this Agreement.
13. MISCELLANEOUS
13.1. This Agreement shall not be assigned by either Party to any third party without the written consent of the other Party which
consent shall not be unreasonably withheld; except that either Party may assign this Agreement, without such consent upon
written notice to the other party, to: (i) an Affiliate of such Party, or (ii) an entity that acquires all or substantially all of its
business or assets to which this Agreement pertains, whether by merger, reorganization, acquisition, sale or otherwise. This
Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors and permitted assigns.
13.2. This Agreement (including the exhibits hereto) sets forth the entire agreement and understanding between the Parties relative
to the subject matter contained herein and supersedes all other agreements, oral and written, heretofore made between the
Parties. Only a writing signed by all Parties may amend this Agreement or any exhibits. Such Amendment shall become
binding as of the date indicated in the amendment or the date last signed by the authorized representatives of both Parties, if
not otherwise provided for. If any one or more of the terms of this Agreement shall for any reason be held to be invalid or
unenforceable, such term shall be construed in a manner to enable it to be enforced to the extent compatible with applicable
law. Any determination of the invalidity or unenforceability of any provision of the Agreement shall not affect the remaining
provisions hereof unless the business purpose of this Agreement is substantially frustrated thereby.
13.3. Except as otherwise provided in this Agreement, all notices permitted or required by this Agreement shall be in writing and
shall be deemed to have been duly served (i) upon personal delivery (ii) upon facsimile or electronic e-mail transmission
(receipt of which has been confirmed by the recipient) or (iii) seven (7) business days after deposit, postage prepaid, return
receipt requested, if sent by reputed overnight international currier service and addressed to the address of the Parties as set
forth below or in accordance with such other address information as the Party to receive notice may provide in writing to the
other Party in accordance with the above notice provisions. Any notice given by any other method will be deemed to have
been duly served upon receipt thereof:
To Orgenesis at:
Orgenesis, Inc.
21 Sparrow Circle
White Plains NY 10605
United States of America
Email: vered.c@Orgenesis.com
Attn: Vered Caplan
With Copy to (which shall not constitute a notice):
Mark Cohen, Adv.
Pearl Cohen Zedek Latzer Baratz LLP
1500 Broadway,
New York, New York 10036
USA
Email: MCohen@PearlCohen.com
To CureCell at:
CureCell Co., Ltd.
704 Gwanggyo Business Center
156 Gwanggyo-ro, Yeongtong-gu
Suwon 16506
South Korea
Facsimile: 82 31 8064 1710
Email: david.kim@cure-holdings.com
Attn: David Kim
13.4. Each Party represents that it has been represented by legal counsel in connection with this Agreement and acknowledges that
it has participated in drafting this Agreement. In interpreting and applying the terms and provisions of this Agreement, the
Parties agree that no presumption shall exist or be implied against the Party which drafted such terms and provisions.
13.5. No waiver by any party, whether express or implied, of its rights under any provision of this Agreement shall constitute a
waiver of such party’s rights under such provisions at any other time or a waiver of such Party’s rights under any other
provision of this Agreement. The failure or delay of a party to claim the performance of an obligation of another party shall
not be deemed a waiver of the performance of such obligation or of any future obligations of a similar nature.
13.6.
It is hereby agreed and declared between the parties that they shall act in all respects relating to this Agreement (except to the
extent relating to the JV Entity) as independent contractors and there neither is nor shall there be any employer-employee or
principal-agent relationship between the Parties. Each party will be responsible for payment of all salaries and taxes and
social welfare benefits and any other payments of any kind in respect of its own employees and officers, regardless of the
location of the performance of their duties, or the source of the directions for the performance thereof.
13.7. This Agreement may be executed in any number of counterparts (including counterparts transmitted by facsimile and by
electronic mail), each of which shall be deemed an original, but all of which taken together shall be deemed to constitute one
and the same instrument.
[signature page immediately follows]
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first above written.
Orgenesis, Inc.
/s/ Vered Caplan
Signature
Vered Caplan
Name (Print)
CEO
Title
CURECELL
/s/ David Kim
Signature
David Kim
Name (Print)
CEO
Title
Exhibit 31.1
I, Vered Caplan, certify that:
CEO CERTIFICATE
PURSUANT TO SECTION 302
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of Orgenesis Inc. for the year ended November 30, 2016;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to
the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in
this report;
The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:
a.
b.
c.
d.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, 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;
Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on
such evaluation; and
Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the
Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
5.
The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the
equivalent functions):
a.
b.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial
information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the
Registrant’s internal control over financial reporting.
Date: February 28, 2017
/s/ Vered Caplan
By:
Name: Vered Caplan
Title: Chief Executive Officer (Principal Executive Officer)
Exhibit 31.2
I, Neil Reithinger, certify that:
CFO CERTIFICATE
PURSUANT TO SECTION 302
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of Orgenesis Inc. for the year ended November 30, 2016;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to
the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in
this report;
The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:
a.
b.
c.
d.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, 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;
Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on
such evaluation; and
Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the
Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
5.
The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the
equivalent functions):
a.
b.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial
information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the
Registrant’s internal control over financial reporting.
Date: February 28, 2017
/s/ Neil Reithinger
By:
Name: Neil Reithinger
Title: Chief Financial Officer, Secretary and Treasurer
(Principal Financial Officer and Principal Accounting
Officer)
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with this Annual Report on Form 10-K of Orgenesis Inc. (the “Company”) for the year ended November 30, 2016 as filed
with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, in the capacity and on the date indicated
below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to
his knowledge:
1.
2.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of
the Company.
Date: February 28, 2017
/s/ Vered Caplan
By:
Name: Vered Caplan
Title: Chief Executive Officer (Principal Executive Officer)
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
In connection with this Annual Report on Form 10-K of Orgenesis Inc. (the “Company”) for the year ended November 30, 2016 as filed
with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, in the capacity and on the date indicated
below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to
his knowledge:
1.
2.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of
the Company.
Date: February 28, 2017
/s/ Neil Reithinger
By:
Name: Neil Reithinger
Title: Chief Financial Officer, Secretary and Treasurer
(Principal Financial Officer and Principal Accounting
Officer)