By John Vandermosten, CFA
CNSX:ORTH.CN | OTC:ORTIF
READ THE FULL ORTH.CN RESEARCH REPORT
Third Quarter Fiscal Year 2021 Operational and Financial Results
Ortho Regenerative Technologies Inc. (CNSX:ORTH.CN) (OTC:ORTIF) reported third quarter fiscal year 2021 financial and operational results and submitted its SEDAR filings on December 18, 2020. During 3Q:21, extending from August 1 to October 31, 2020, Ortho raised a total of $2.6 million1 through two non-brokered private placements, Ortho-R was designated a Drug/Biologic combination product by the FDA, Ortho-R continued progress toward US Phase I/II trials and began trading on US OTCQB under the ticker ORTIF. Following the quarter, Ortho completed another non-brokered private placement for gross proceeds of $3.0 million. This report is the first update since our November 23rd initiation. Ortho is on its way to begin clinical studies and believes that the investigational new drug (IND) application for Ortho-R in rotator cuff repair will take place in the first part of January 2021 with first patient enrollment to begin following clearance.
In the financial sphere, no revenues were recognized in 3Q:21 and operating expense fell 11% to $634,000 relative to 3Q:20. For the three months ended October 31, 2020, compared to the three months ended October 31, 2019:2
‣ Net expenses for R&D were $191,000, down 55% from $421,000 ($347,000 with adjustment for tax credit), primarily on timing of non-recurrent expenses related to the pivotal Ortho-R animal study completed in 1Q:21, including $14,000 in tax credits absent in Q3:20;
‣ G&A expenses were $342,000, up 35% from $254,000, on an increase in investor relations spending, partially offset by a decrease in other consulting fees;
‣Share-based compensation was $101,000, up 181% from $36,000 as options were issued to staff, consultants and board members including non-recurrent grant to scientific advisory board as well as contractual vesting for management on outstanding options;
‣Financial expenses were $179,000, compared with $49,000. The change was primarily driven by an increase in the company’s interest-bearing financing in FY21 as a result of $3.2 million in CDU3 financings;
‣The above resulted in a net loss of ($813,000) vs ($760,000) in the prior period.
As of October 31, 2020, cash was $809,000 and cash burn was ($1.5 million) for the quarter, just over twice the ($0.7) million recognized in the prior year period. Financing cash flows were $2.3 million reflecting proceeds from issuance of units.
During the third quarter, Ortho-R was designated a Drug/Biologic by the FDA, the company’s shares began trading on OTCQB market in the US under the ticker ORTIF, Mukesh Ahuja was appointed as VP Clinical and Medical Affairs and Ortho closed two consecutive non-brokered private placements with combined gross proceeds of $2.6 million. Following the end of the reporting period, Ortho completed another non-brokered private placement for gross proceeds of $3.0 million.
Candidates
Ortho’s lead candidate, Ortho-R is preparing to enter the clinic. The product is built on the company’s RESTORE platform and is applied to rotator cuff tear (RCT) injury repair. Ortho-R recently completed its animal pivotal trials which generated positive results in March 2020 and follow-on histology results in July, providing the necessary data to consult with the FDA and develop an investigational new drug (IND) application. We anticipate that the IND will be submitted in the first part of January which, if no questions are raised, will allow Ortho to begin clinical trials in 1Q:21.
Ortho has provided guidance for its meniscus program which is expected to start in early 2021, funding permitting.4Contract research organization selection and protocol development will be followed by a six-month study in 36 sheep. Interim data will be provided at the three month mark and study results are targeted to be available by 1H:22. Further updates will be provided when available.
Non-brokered Private Placements
In August and September 2020, Ortho completed two consecutive placements under the same terms. The placements were non-brokered and private, together totaling $2.6 million.The first placement issued 7,733,812 units at a purchase price of $0.32 per unit for gross proceeds of $2,474,820. Each unit consisted of one class A share and one share purchase warrant. Each warrant is exercisable into one share at $0.50 for 36 months from closing. Included were further stipulations pertaining to VWAP over any consecutive 20 trading days greater or equal to $1.00 giving the company the option to give notice to warrant holders, at any time after February 5, 2021, of 30 days until unexercised warrant expiry. The first issue was supported by $353,000 from internal funding sources. The subsequent placement was again non-brokered and private, conducted on the same terms as the former, issuing 430,000 units at $0.32 per unit yielding proceeds of $137,600, bringing the total of the two issues to $2.6 million.
On December 3, 2020, Ortho announced that it had completed yet another non-brokered private placement of secured non-convertible debenture units for gross proceeds of $3.0 million. Insider contributions totaled $350,000. Ortho issued 3,000 secured non-convertible debenture units at $1,000 per unit for gross proceeds of $3.0 million. Each debenture unit consists of one three-year 10% secured non-convertible debenture in principal amount of $1,000 and 500 class A share purchase warrants, exercisable at $0.75 at any time up to 36 months following closing. Proceeds from the raise will be used toward Ortho-R IND submission, clinical site qualification and training, Ethical Review Boards approval and administration, patient enrollment and general corporate administration.
Summary
Ortho RTI has developed a promising product that will enter the clinic shortly. The unmet need in rotator cuff tear and meniscus tear (MT) repair is clear and sizable, which should provide substantial demand following approval. With a recent string of fundraising successes and progress with the FDA, we anticipate a relatively rapid development process as Ortho advances from pilot to pivotal trials, regulatory authority approval and first sales by 2025 in the United States. 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. All reported currency in Canadian Dollars unless otherwise stated.
2. Prior year income statement items have been changed from originally reported numbers due to alternate recognition of an investment tax credit of $74.
3. Convertible Debenture Units
4. See Exhibit I below for timeline detail on the meniscus program.
5. ORTH 3Q:21 Financial Report