Quarterly report pursuant to Section 13 or 15(d)

COLLABORATIONS, LICENSE AGREEMENTS AND COMMITMENTS

v3.19.1
COLLABORATIONS, LICENSE AGREEMENTS AND COMMITMENTS
3 Months Ended
Mar. 31, 2019
COLLABORATIONS, LICENSE AGREEMENTS AND COMMITMENTS [Text Block]

NOTE 5 – COLLABORATIONS, LICENSE AGREEMENTS AND COMMITMENTS

Consolidation of CDMO Entities and Strategic Funding

            As described in Note 10 to the financial statements as of November 30, 2018, in June 2018, the Company, Masthercell Global, and Great Point Partners, LLC, and certain of Great Point’s affiliates, entered into a series of definitive strategic agreements intended to finance, strengthen and expand Orgenesis’ CDMO business. An initial cash payment of $11.8 million of the consideration was remitted at closing by GPP-II ($1.5 Million of the initial capital contributed to Masthercell Global was used to reimburse the investors for their fees and expenses incurred in conjunction with this transaction (net payment of $10.3 million)), with a follow up payment of $6.6 million to be made in each of years 2018 and 2019 or an aggregate of $13.2 million if certain conditions are met. Masthercell Global achieved the specified targets in 2018 and as such, Masthercell Global received the first payment of $6.6 million on January 16, 2019.

HekaBio K.K

            As described in Note 10 to the financial statements as of November 30, 2018, on July 10, 2018, the Company and HekaBio K.K. (“HB”), a corporation organized under the laws of Japan entered into a Joint Venture Agreement (the “HB JVA”) pursuant to which the parties will collaborate in the clinical development and commercialization of regeneration and cell and gene therapeutic products (hereinafter the “Products”) in Japan (the “Project”).

            On February 14, 2019, the Company entered into a Master Services Agreement with HekaBio whereby the Company, subject to mutually agreed timing and definition of the scope of services, will provide POC services and co-development services to HekaBio.

            Apart from the above, there was no activity in the HB JVA during the transition period of one month ended December 31, 2018 and three months ended March 31, 2019.

Image Securities Ltd.

            As described in Note 10 to the financial statements as of November 30, 2018, on July 11, 2018, the Company and Image Securities Ltd., a corporation with its registered office in Grand Cayman, Grand Cayman Islands (“India Partner”) entered into a Joint Venture Agreement (the “India JVA”) pursuant to which the parties will collaborate in the development and/or marketing, clinical development and commercialization of cell therapy products in India (the “Cell Therapy Products”). The India Partner will collaborate with a network of healthcare facilities and a healthcare infrastructure as well as financial partners to advance the development and commercialization of the Cell Therapy Products. During February 2019 the Company transferred a further $1 M to India JVA. As of March 31, 2019, the Company had advanced $2 million in total to the JV, reflected in the Balance Sheet as loan to related party under non-current assets (held under escrow).

            As part of the agreement, the Indian joint venture will procure consulting services from the Company. On February 14, 2019, the Company entered into a Master Services Agreement for the provision of certain consulting services. The Company, subject to mutually agreed timing and definition of the scope of services, will provide regulatory services, pre-clinical studies, Intellectual property services, POC services and co-development services to the joint venture. The first payment of $1 million for these consulting services was received during February 2019 and has been recognized as income received in advance on the balance sheet.

            Apart from the above, there was no activity in the Indian JVA during the transition period of one month ended December 31, 2018 and the three months ended March 31, 2019.

Hemogenyx Pharmaceuticals PLC.

            As described in Note 10 to the financial statements as of November 30, 2018, on October 18, 2018, the Company and Hemogenyx Pharmaceuticals PLC., a corporation with its registered office in the United Kingdom and Hemogenyx-Cell (“H-Cell"), a corporation with its registered office in Belgium (together “Hemo”) which are engaged in the development of cell replacement bone marrow therapy technology entered into a Collaboration Agreement (the “Hemo agreement”) pursuant to which the parties will collaborate in the funding of the continued development of, and commercialization of the Hemo technology via the Hemo group companies. Pursuant to the Hemo agreement the Company and Hemogenyx LLC (“Hemo-LLC”) (a wholly owned USA subsidiary of Hemo) entered into a loan agreement. During the transition period of one month ended December 31, 2018, the Company advanced an additional $0.25 million under the loan agreement which was charged to expenses under ASC 730-10-50 and 20 - 50 and presented as research and development costs.

Immugenyx LLC

            As described in Note 10 to the financial statements as of November 30, 2018, on October 16, 2018, the Company and Immugenyx LLC, (“Immu”), which is engaged in the development of technology related to the production and use of humanized mice, entered into a Collaboration Agreement (the “Immu agreement”) pursuant to which the parties will collaborate in the funding of the continued development of, and commercialization of the Immu technology. Pursuant to the Immu agreement the Company and Immu entered into a loan agreement. During the transition period of one month ended December 31, 2018, the Company advanced an additional $0.25 million under the loan agreement which was charged to expenses under ASC 730-10-50 and ASC 20-50 and presented as research and development costs..

Theracell Advanced Biotechnology

            On February 14, 2019, the Company and Theracell Advanced Biotechnology (“Theracell”), a corporation organized under the laws of Greece entered into a Joint Venture Agreement (the “JVA”) pursuant to which the parties will collaborate in the clinical development and commercialization of the Company’s products (hereinafter the “Company Products”) in Greece, Turkey, Cyprus and Balkan countries (the “Territory”) and the clinical development and commercialization of Theracell’s products (hereinafter the “Theracell Products”) worldwide (the “Project”). The parties intend to pursue the Project through a joint venture (“JV”). Until the JV is set up, all activities will be carried out by Theracell. The Company by itself, or together with a designee, will hold a 50% participating interest in the JV, with the remaining 50% participating interest being held by Theracell or its affiliate following the contribution of each party to the JV. The JV will have a steering committee that will act as the Board of the JV and shall be composed of two members appointed by each party and one industry expert.

            Under the JVA, each party shall invest up to $10 million in funding, of which $5 million shall be provided in the form of in-kind contributions. Each party shall also have the right to invest an additional $10 million as a convertible loan, if such financing is determined to be necessary by the steering committee of the JV (“Additional Investment Round”). The terms of such investment, if any, will be on terms mutually agreeable to the parties, provided that the minimum pre-money valuation for any such investment shall not be less than $20 million and if one party invests pursuant to this option and the other does not invest at that time, the other party has a right to make the necessary investment to retain their pro rata share for a period of 2 years.

            Under the JVA, the Company can require Theracell 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 an agreed upon formula for determining JV Company valuation which in no event shall be less than the higher of (i) $20 million, (ii) two times the revenues of the JV, (iii) four times the EBITDA of the JV or (iv) the valuation of the JV in its last Additional Investment Round. In addition, if the parties decide to sell the JV, they will agree on the terms to be offered.

            In addition, under the JVA, the Company shall, subject to fulfilment of Theracell’s terms to the JV, grant the JV Company an exclusive license to certain intellectual property of the Company as may be required for the JV Company to develop and commercialize the Products in the Territory. In consideration of such license, the JV Company shall pay the Company, in addition to other payments, royalties at the rate of 15% of the JV Company’s net sales of Company Products in the Territory.

            In addition, under the JVA, Theracell shall, subject to fulfilment of the Company’s terms to the JV, grant the JV Company an exclusive license to certain intellectual property of Theracell as may be required for the JV Company to develop and commercialize the Products globally. In consideration of such license, the JV Company shall pay Theracell, in addition to other payments, royalties at the rate of 15% of the JV Company’s worldwide net sales of Theracell Products.

            Any new inventions discovered during the Project shall belong to the JV and will be licensed to the Company on a non-exclusive, worldwide (other than the Territory), royalty free basis.

            On February 14, 2019, the Company entered into a Master Services Agreement with Theracell whereby the Company, subject to mutually agreed timing and definition of the scope of services, provide regulatory services, pre-clinical studies, intellectual property services, GMP process translation services and co-development services to Theracell during 2019.

           Apart from the above, there was no activity in the Theracell JVA.

First Choice International Company, Inc.

            On March 12, 2019, the Company and First Choice International Company, Inc., (“First Choice”), a corporation organized under the laws of Delaware entered into a Joint Venture Agreement (the “JVA”) pursuant to which the parties will collaborate in the clinical development and commercialization of the Company’s products (hereinafter the “Company Products”) in Panama and certain Latin American Countries (the “Territory”) and the clinical development and commercialization of First Choice’s products (hereinafter the “First Choice Products”) worldwide (other than in the Territory) (the “Project”). The parties intend to pursue the Project through a joint venture (“JV”). Until the JV is set up, all activities will be carried out by First Choice. The Company by itself, or together with a designee, will hold a 50% participating interest in the JV, with the remaining 50% participating interest being held by First Choice or its affiliate or other party following the contribution of each party to the JV. The JV will have a steering committee that will act as the Board of the JV and shall be composed of two members appointed by each party and one industry expert.

            Under the JVA, each party shall invest up to $5 million in funding, of which some of this investment may be provided in the form of in-kind contributions within three years. Each party shall also have the right to invest additional funds in the JV (which such investment(s) may also be in the form of a convertible loan), if such financing is determined to be necessary by the steering committee of the JV or to maintain such Party’s pro-rata share of the Company (“Additional Investment Round”).

            In order to compensate First Choice for the work that has already been completed, the Company paid First Choice $50,000 and will thereafter pay an additional $50,000. In addition, it has issued to First Choice 375,000 shares of Common Stock and will issue another 150,000 shares in September 2019. These payments and value of Common Stock issued in the amount of $2.6 Million were charged to Research and Development expenses in the quarter ended March 31, 2019 under ASC 730-10-50 and ASC 20-50.

            Each of the Company and First Choice shall provide strategic guidance and the Company shall provide hospital (management) services to the JV, among other services as shall be set forth in a Master Services Agreement to be negotiated in good faith and entered into by the Parties.

            Under the JVA, the Company can require First Choice to sell to the Company its participating (including equity) interest in the JV in consideration for the issuance of the Company’s common stock based on an agreed upon formula for determining JV Company valuation shall divided by the weighted average price of Orgenesis’ common stock during the three (3) trading day preceding the closing of such sale. The JV valuation will be the higher of (i) two times the revenues of the JV, (ii) four times the EBITDA of the JV or (iv) the valuation of the JV in its last Additional Investment Round. In addition, if the parties decide to sell the JV, they will agree on the terms to be offered.

            In addition, under the JVA, the Company shall, subject to fulfilment of First Choice’s obligations to the JV, grant the JV an exclusive license to certain intellectual property of the Company as may be required for the JV to develop and commercialize the Products in the Territory, subject to minimum sales obligations. In consideration of such license, the JV shall pay the Company, in addition to other payments, royalties at the rate of 15% of the JV net sales of Company Products in the Territory.

            In addition, under the JVA, First Choice shall, subject to fulfilment of the Company’s obligations to the JV, grant the JV an exclusive license to certain intellectual property of First Choice as may be required for the JV to develop and commercialize the Products globally. In consideration of such license, the JV shall pay First Choice, in addition to other payments, royalties at the rate of 15% of the JV’s worldwide net sales of First Choice Products. Additionally, and for separate consideration, First Choice shall be granted a limited, non-exclusive license to certain rights relating to the Human Papilloma Virus.

            Any new inventions discovered during the Project shall belong to the JV and will be licensed to the Company on a non-exclusive, worldwide (other than the Territory), royalty free basis.

          At the request of Orgenesis, the Parties shall discuss between them in good faith the terms upon which Orgenesis may convert its Participating Interests in the JV into streaming royalties based on JV’s revenues.

            Apart from the above, there was no activity in the First Choice JVA.

Cure Therapeutics Collaboration Agreement

            As described in Note 10 to the financial statements as of November 30, 2018, during 2018, the Company and Cure Therapeutics entered into a collaboration agreement for the development of therapies based on liver and NK cells. $331 thousand was charged during the one month ended December 31, 2018 and $166 thousand was charged during the three months ended March 31, 2019. As of March 31, 2019, the Development Project has not been completed. As part of the agreement, Cure Therapeutics has subcontracted development and contract manufacturing activities to CureCell.  $82 thousand was recognized during the one month ended December 31, 2018 and $208 thousand was recognised during the three months ended March 31, 2019.

Grants

            In December 2018, the Belgian subsidiary received the approval of a new grant from the Walloon Region for financial support of a maximum of Euro 317 thousand ($350 thousand in USD) in a program for the development of gene-therapy research for diabetes 1 treatment. The program is planned to start in 2019 for a 2 -year period until 2021. In the first quarter of 2019 the Belgian subsidiary received an advance payment of grant in the amount of Euro 80 thousand ($90 thousand in USD).

            In February 2019, the Israeli subsidiary and a Canadian partner received the approval of a new grant from the Canada-Israel Industrial Research and Development Foundation for financial support in a program for pre-clinical development of insulin producing cells using advanced gene delivery platforms. In terms of the grant, the Israeli subsidiary can receive support of up to 100 Thousand Canadian Dollars ($75 Thousand in USD). The program is planned to start in 2019 for a 2 -year period until 2021.

See Note 8 regarding Lease commitments.