CN.ORTH: New Blood on The Board
CNSX:ORTH.CN | OTC:ORTIF
READ THE FULL ORTH.CN RESEARCH REPORT
Second Quarter Fiscal Year 2022 Operational and Financial Results
On September 30, 2021, Ortho Regenerative Technologies Inc. (CSE:ORTH.CN) (OTC:ORTIF) issued its 2Q:21 press release and filed its fiscal year second quarter SEDAR documents for the three months ending July 31, 2021.
Highlights for the fiscal year 2022 to-date include:
➢ Submitted Investigational New Drug (IND) application – April 2021
➢ Received Clinical Hold Letter from the U.S. FDA - June 2021
➢ Appointed two new members to its Board - June 2021
➢ Amended and extended unsecured convertible debentures and warrants - July 2021
➢ Received formal response to FDA Clinical Hold - July 2021
➢ Extension of Clinical Hold - August 2021
➢ Response to second Clinical Hold Letter - September 2021
➢ Extension of collaboration agreement with Ecole Polytechnique - September 2021
➢ Type A meeting with FDA - October 2021
No revenues were reported for the second quarter. For the three months ended July 31, 2021, compared to the three months ended July 31, 2020, operational expenses denominated in Canadian dollars (CA$) are as follows:2
➢ Research & Development expense decreased 28% to $141,000 from $195,000 driven by pursuit of an IND for Ortho’s rotator cuff program;
➢ General & Administrative expense increased 97% to $367,000 from $186,000 due to an increase in IR spending for the quarter as well as the annual audit fees booked during the quarter;
➢ Share-based compensation rose 31% to $64,000 from $49,000;
➢ Financial expenses grew 65% to $332,000 from $201,000 driven by $3.0 million NCDU financing secured in 4Q:21; and
➢ Net loss was ($904,000) vs ($631,000), or ($0.03) in both periods.
On July 31, 2021, cash on the balance sheet totaled $855,000. Cash burn for the quarter was ($771,000) and no funds were recognized in cash from financing. This compares to prior year period cash burn of ($11,000) and net cash used in financing of ($20,000) with the latter mostly related to repayment of short term debt.
IND Application for Ortho-R
Submission of Investigational New Drug Application for Ortho-R
On April 6, 2021, Ortho announced that it had submitted an IND application to the FDA for the initiation of a Phase I/II clinical trial for Ortho-R. Following the submission, the FDA raised additional questions and requested protocol modifications. In a June 4 press release, Ortho announced that a clinical hold had been placed on the trial pending the collection of additional chemistry, manufacturing and control (CMC) related data and characterization of the chitosan product. On July 20th, Ortho announced that it had formally responded to the FDA’s clinical hold, supplying all the aforementioned CMC3 and characterization information requested. Upon submission, the FDA had 30 days to respond, and on August 20th, Ortho announced that the FDA had extended the clinical hold on Ortho’s IND application for candidate Ortho-R, requesting supplemental clarifications on two advanced methods of characterization of impurities. The FDA recommended higher-resolution small molecule impurity testing. The FDA accepted the sterility and endotoxin level testing as well as identification of drug substance following reconstitution in water. On September 2, Ortho responded to the second Clinical Hold Letter, providing additional clarification on elemental impurities identification and quantification testing methods, and on October 1st, Ortho received a letter from the FDA clearing the small-molecule impurity testing issue, with Ortho committing to using a GC-LC-MS testing method. Management expects the tests to be conducted and results submitted in the coming weeks, and reiterated the target to begin patient enrollment by end of this year. IND clearance is expected in November.
Phase I/II trial
Following clearance of the IND, Ortho will begin its in-human trial. Eight clinical sites have been qualified with ongoing budget negotiation and Clinical Review Board (CRB) applications underway. Four other sites are undergoing the qualification process bringing the expected number of sites to 12. The target number of sites had been from 8 to 12 (up from the previous 6 to 10 sites) with each site adding 2 to 6 subjects per month. Management now expects first patient enrollment in calendar 4Q:21, enrollment completion in 1H:22, and study results in 1H:23. Under guidance from the FDA, the first three patients will be treated in the same center with 48 hour separation to ensure there are no safety issues. The trial will be a prospective, randomized, controlled and blinded study to evaluate safety and efficacy of Ortho-R. The treatment will be administered with standard-of-care surgery and will be compared against surgery alone.
Changes to the Board of Directors
The appointment of Howard Walthall and Tim Cunningham to the board of directors was announced in a June 2021 press release. Their experience and skill are expected to help Ortho build into a stronger orthobiologics company on both the operational and financial fronts. Each received 100,000 incentive share options with an exercise price of $0.36 expiring June 15, 2029.
Mr. Walthall’s background includes work in cellular biologics, tissue engineering, medical devices and allografts. He has extensive experience in regenerative medicine, orthopedics and advanced wound care. Howard has overseen multiple highly successful product development projects and new product launches. He is currently the President, Founder and CEO of Lumiheal Therapeutics, a company developing and commercializing a patented technology that uses fluorescent light energy to heal chronic and acute wounds, burns and surgical incisions. Previously, Mr. Walthall was the Executive Vice President Strategy and Market Development for Organogenesis where he led sales, marketing and R&D for the Surgical and Sports Medicine (SSM) product lines. He also led the overall Strategy and Business Development functions for the Company and oversaw the International business unit. Howard was the President and Chief Executive Officer of NuTech Medical where he helped build an advanced orthobiologics and wound care business leading to a successful exit via acquisition by Organogenesis. Howard holds a Bachelor of Science in Engineering Biomedical and Mechanical Engineering (B.S.E.) from Duke University, and a Juris Doctor from Samford University Cumberland School of Law.
Mr. Cunningham brings over 30 years of extensive finance and operations leadership in the biotechnology and software industries to his work with his public and private Danforth clients, as a CFO with a demonstrated record of success in building startup enterprises into industry leaders and scaling larger entities globally. His expertise includes financial & strategic planning, P&L management & execution, acquisitions & divestitures, raising equity and debt and post-merger integration. Tim is a trusted advisor and subject matter expert in strategic planning and creative, scalable, business design, and has a proven track record of driving growth leading to either a successful exit via sale or IPO. Tim has raised more than $500M in private equity, public equity and debt in his career. Tim started his career in public accounting with KPMG in NYC and later with PWC in Boston. Prior to joining Danforth, Tim served as CFO at Organogenesis where he took the company public in 2018, raising $144M in equity and $100M in debt over his tenure. Tim holds an MBA from Boston University, a BS in Accounting from Boston College and is a CPA in New York & Florida.
On February 24, 2021, Ortho announced that Patrick O’Donnell was appointed to its Board, effective immediately. O’Donnell brings company-building experience as well as development and management of strategic partnerships. In addition, O’Donnell has expertise in fund raising as well as executing commercial, clinical, regulatory and reimbursement strategies. Patrick O’Donnell is President and CEO of HD LifeSciences and has over 25 years of experience leading companies in various stages, specializing in the medical device, orthobiologics and biomaterial industries targeting orthopedic, spine, neurosurgery and sports medicine markets. Prior to serving HD LifeSciences, O’Donnell was Executive Vice President and General Manager of Commercial Operations at Bonesupport A.B., co-founder and CEO of Proteothera, Inc., President and CEO of Histogenics Corporation/Prochon Biotech, Inc., Director of Global Marketing for Confluent Surgical, Inc. and held positions of escalating responsibility in sales and marketing at Johnson & Johnson, DePuy Spine. He received his bachelor’s from the University of Wisconsin-Madison.
Coincident with O’Donnell’s appointment, it was announced that Board members Michael Buschmann and Caroline Hoemann would retire from Ortho’s Board, effective February 22, 2021. Both have served Ortho for over five years as founders, inventors, and as members of both the company’s Board and Scientific Advisory Board (SAB). They will continue to serve on Ortho’s SAB, and Buschmann will continue in his position as Chief Scientific Officer.
Extension of Convertible Debentures
In July 2021, Ortho amended three series of debentures and warrants to extend their respective maturity dates. The original maturity dates of the 10% unsecured convertible debentures and share purchase warrants were extended from 24 months after their respective dates of issuance to May 1, 2023. Other parameters of the debentures and warrants remain the same.
Candidates
Ortho’s lead candidate, Ortho-R, is undergoing the final review before IND clearance and entering the clinic. The product is built on the company’s RESTORE platform and is applied to rotator cuff tear (RCT) injury repair. Ortho-R completed its animal pivotal trials and follow-on histology results, providing the necessary data to submit an IND application. An IND has been filed for Ortho-R and the company is expected to clear in November 2021, followed soon after by first enrollment prior to year-end. The Phase I/II trial for Ortho-R is expected to complete enrollment in mid-2022 generating study results by 2023.
Contract research organization selection and protocol development efforts are completed, however, Ortho has placed its meniscus program on hold with the intent to restart following the completion of the rotator cuff trial enrollment. When it restarts, a six-month study in 36 sheep will begin. Interim data will be provided at the three month mark and study results may be available before the end of 2022. Further updates will be provided when available.
Corporate Milestones
➢ IND Filing – April 2021
➢ Clinical Hold Letter – June 2021
➢ Preparation and protocol development for meniscus animal studies – mid 2021
➢ Launch of meniscus animal studies – Fall 2021
➢ Type A meeting with FDA - October 2021
➢ IND clearance - November 2021
➢ Launch of Phase I/II trial – 4Q:21
➢ Complete patient enrollment – 1H:22
➢ Phase I/II Clinical Results – 1H:23
Summary
Ortho reported FY22 second quarter financial results and updated progress in its pursuit of an IND for lead candidate, Ortho-R. Ortho-R has been subject to a delay related to two Clinical Hold Letters (CHLs), requesting additional information regarding impurities testing. Following the second quarter report, the company announced that it had come to an understanding on testing requirements with the FDA and expects resubmission of the IND and clearance by November 2021. Patient enrollment is anticipated before year end. Meanwhile, eight clinical sites have been qualified and four others are in-process.
Ortho ended the second quarter with $855,000 in cash and a quarterly burn rate of ($771,000).
The unmet need in rotator cuff tear and meniscus tear (MT) repair is clear and sizable, which should provide substantial demand following approval. Our valuation work assumes addressable markets in RCT and MT in the US, EU and Canada with an anticipated 12% probability of success due to Ortho-R’s preclinical status.
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1. Source: Second Quarter Financial Report - Fiscal Year 2022, for the period ending July 31, 2021
2. Financial statement items are denominated in Canadian Dollars.
3. Chemistry, manufacturing and controls
4. Source: April 2021 Ortho RTI Corporate Presentation.
5. Source: April 2021 Ortho RTI Corporate Presentation
