TheStreetSweeper issues an alert for Orgenesis (ORGS) investors.
A few days after trading began on the Nasdaq and a few months after a reverse split, Orgenesis stock has gone crazy … not in a good way.
It’s not good because the business has not changed and simply can’t support the $150+ million stock market valuation.
Though it touts itself as a medical product company, the truth is that it is multi-millions of dollars, tremendous dilution to stockholders and many years away from getting its diabetes product to market… if it ever happens.
Instead, Orgenesis is actually in the fiercely competitive world of manufacturing drugs for other companies. The company has the arguable disadvantage of an overseas manufacturing plant. Plus Orgenesis lost $12.4 million from its manufacturing business last year alone.
The company’s viewpoint is here. Meanwhile, let’s consider five top risks presented by Orgenesis:
*1. Cash Hungry
On revenue of $3.4 million, Orgenesis net loss hit $865,000 just last quarter.
That was considered a good quarter. So it’s easy to see that the company must survive on a steady diet of stock selling and convertible debt. In the last couple of months, the company had to enact a private stock offering to raise $1.2 million so it could keep the lights on a couple more quarters.
Even though it has done almost nothing to advance its technology, the company burns through about $1 million per quarter. Any attempt to advance would require some 50 times that figure
It’s hard to take the former “Business Outsourcing Services” seriously, as it began repositioning itself as a drug development company back in 2011. The company has had plenty of time to advance, yet its working capital is a negative … $-10 million.
*2. Loans Coming Due
The company’s debt is piling up and clamoring for attention as notes convertible to stock come due.
The company warns that other than converting those notes to stock or somehow raising a lot of money, “we may not be able to pay them when due.”
“As of November 30, 2017, we owed approximately $8.7 million in principal amount and accrued interest under convertible loan agreements with third party lenders with varying maturity dates, the latest of which is August 22, 2019.”
The company discloses under a recent $6.8 million convertible note arrangement, it will issue 1.09 million shares of stock and warrants for another 1.09 million shares … exercisable at just $6.24 per share.
*3. Overseas Ownership, Operations
Most Orgenesis directors and executive officers live in Israel and Belgium.
“The majority of our assets are located outside the United States,” SEC filings state.
If the company has nothing to distinguish itself in the highly competitive outsource drug manufacturing business … besides a foreign plant and other assets, that’s not much.
Foreign ownership and assets can be risky because U.S. investors may well have trouble asserting any claims in other countries, and the U.S. courts and securities laws may be ineffective overseas.
*4. Potentially Dilutive Raise Looms
As debt payments and expenses build up, Orgenesis is feeling the pressure to raise more money.
With the stock price rocketing, it makes sense for the company to jump out before too long with a stock sale, complete with the potential to water down small investors’ share value.
And the dilutive stock offerings will likely just keep on coming.
The company discloses:
“We expect to continue to finance our operations, acquisitions and develop strategic relationships, primarily by issuing equity or convertible debt securities, which could significantly reduce the percentage ownership of our existing stockholders.”
*5. No Institutional Ownership; Former Investor Sells
Meanwhile, no analysts cover the stock and institutional ownership is zilch. The one institution that held a measly 250 shares has now sold out completely.
If the big banks took a look at the company, it would become clear that in both manufacturing and drug product development, Orgenesis simply lacks the means to compete with the big boys.
Based on the financial condition, foreign asset base, lack of analyst coverage and zero institutional interest, the company appears destined to struggle to maintain its minor league position.
Indeed Orgenesis has existed since 2008 and is still losing money year after year; still has not advanced its technology to the point of even attempting to get FDA approval. We will continue digging into this stock.
It took a reverse stock split and new Nasdaq listing for Orgenesis stock to produce a $150-plus million stock market valuation. But the business simply can’t support this stock price for long.
We believe the stock is teetering at the edge of decline … and will likely soon plummet more than 50%.
* Important Disclosure: The owners of TheStreetSweeper hold a short position in ORGS and stand to profit on any future declines in the stock price.
* Editor’s Note: As a matter of policy, TheStreetSweeper prohibits members of its editorial team from taking financial positions in the companies that they cover. To contact Sonya Colberg, the author of this story, please send an email to firstname.lastname@example.org.