Small Caps | Jul 26 2022
DR BOREHAM’S CRUCIBLE: ORTHOCELL
Market cap: $74.9m
Shares on issue: 197,127,913
Chief executive officer: Paul Anderson
Board: Dr Stewart Washer (chair), Mr Anderson, Matthew Callahan, Prof Lars Lidgren, Qi Xiao Zhou, Leslie Wise
Finances (March quarter 2022): receipts $313,000, operating cash outflows $2.35m, cash of $11.25m*, quarters of available funding five.
*This excludes the $23m of proceeds from the dental deal and a $2.14m research and development tax refund received in early June 2022
Notable shareholders: Ming Hao Zheng (founder and chief scientific officer) 4%, Paul Anderson/Nicole Telford 3.3%, Qixiao Zhou 3.1%, Jia Xun Xu 2.7%
By Tim Boreham
Given the current unsympathetic market conditions, any biotech that tries to raise equity will suffer the equivalent of being stabbed in the eye with a syringe.
Other non-dilutive funding sources are vital, which explains the outbreak of investor joy at Orthocell’s ((OCC)) deal in late June to sell the rights to its dental regenerative tool for $23.1m.
And just to be clear, that’s in upfront cash.
Orthocell shares vaulted as much as 50% on the deal, which involves licensing its Striate+ device to Fortune 500 company Biohorizon Implant Systems, an arm of top 500 company Henry Schein and the fourth biggest dental provider.
But it’s not just about the money.
Orthocell chief Paul Anderson says the deal validates the bona fides of the Perth-based companies wider suite of Celgro collagen based regenerative devices for skins, nerves, tendons and toes.
“We don’t see ourselves as a dental company but we know we had some very effective products used in the dental field,” Mr Anderson says.
“We never intended to build an infrastructure for our dental business, it was always a partner-driven strategy.”
The proceeds of the deal will be used for Orthocell’s nerve repair program.
Speaking of which, earlier in June, Orthocell shares also bounced on positive data from the final readout of its nerve regeneration trial (see below).
Orthocell was founded in 2016 by Mr Anderson and chief scientific officer Prof Ming Hao Zheng, former chief executive of cell therapist Verigen.
The company listed on the ASX in August 2014, having raised $8m at 40 cents a share.
Paul Anderson has been working on regenerative therapies since 2000 with Prof Zheng, of the University of WA’s Professor Minghao Zheng.
At the core of Orthocell’s is a biological collage membrane ‘platform’ device, Celgro. Celgro is the basis of Striate + and the nerve product called Remplir.
Initially Celgro was pitched at the surgical repair of bone and soft tissue, but after a recent trial involving quadriplegics the company has widened its horizons to nerve repair.
The collagen originally was derived from pigs but it’s not an oink-ment.
In January last year, the US Food and Drug Administration (FDA) approved Celgro as a 510(k) device for dental bone and tissue regeneration procedures.
In March 2022 Orthocell won local Therapeutic Goods Administration (TGA) approval to use Remplir for peripheral nerve damage repair procedures.
To date, 300 patients have been treated with Celgro under the regulator’s special access scheme, for nerve, tendon, cartilage and dental maxillo-facial procedures (teeth, jaw, bones and the face).
The company also has US, European and local approval to use Celgro in dental implant procedures. The European assent covers dental (bone) and facial (soft tissue) applications.
Dental deal delivers
Orthocell has granted the Birmingham, Alabama based Biohorizon an exclusive 25 year licensing and distribution deal for its Striate+ resorbable collage membrane, used for dental bone and regeneration procedures.
Mr Anderson notes that 40% of implants require a bone graft because the bone doesn’t have enough oomph to support the implant.
The membrane is put on top of the bone graft to encourage the bone to grow more quickly.
Mr Anderson says the deal took nine months to negotiate. Because of Covid, the parties only met face to face three days before the paperwork was signed.
But he says the deal was a culmination of two and a half years of building awareness among the clinicians who count.
The cold hard cash aside, Mr Anderson is chuffed that the deal included Orthocell having the right to manufacture the devices. The company is in the process of scaling up its 1000 square metre Perth facility to increase volume from 10,000 units a year to up to 100,000.
The company will add ten staff to its current roster of 32 employees.
Apart from receiving a manufacturing margin, Orthocell also enjoys the scale benefits from the cost of goods sold being reduced across all of it products.