We are initiating coverage of Ortho Regenerative Technologies Inc. (CNSX:ORTH.CN) (OTC:ORTFI) with a current valuation of CAD$1.80 (1) per share. This present value is based on our estimates for development of the company’s sole product, Ortho R, for rotator cuff tear (RCT) repair and meniscus tear (MT) repair. The RCT project has substantially completed the preclinical work necessary to advance into human trials. The MT preclinical proof of concept has been successfully performed with IND-enabling preclinical work to take place in 2021. Ortho RTI has other programs that are in an earlier stage of development, which we anticipate will be advanced when specific funding is raised. We have allocated no value to these programs which represent further upside.
The company’s platform is designated RESTORE and includes lead indications in RCT and MT, which are expected to be the subjects of Biologic License Applications (BLAs) in calendar year 2024 and 2025, respectively. Another program, at the early in vivo stage, targets osteoarthritis pain and function, while three other indications at the feasibility stage address articular cartilage, ligaments/tendons and nucleus pulposus.
Ortho RTI’s technology combines its muco-adhesive, proprietary chitosan-based polymer matrix with platelet-rich plasma (PRP) or other biologics to rebuild damaged tissue and improve surgery outcomes in multiple indications. The primary material in the product, chitosan, is a polysaccharide originally derived from the chitin found in the exoskeleton of shellfish. The chitin is then purified and deacetylated to produce medical-grade chitosan. Chitosan is used in many applications including food manufacturing and production, as a pharmaceutical excipient and in surgeries. Chitosan helps blood to clot and is used as a hemostat to stop hemorrhage bleeding in wounded patients.
Ortho-R is designated as a device, drug and biologic combination product. Its approval process will be overseen by the FDA’s Center for Biologics Evaluation and Research (CBER) and evaluated by the Office for Combination Products (OCP). Ortho is conducting investigational new drug (IND) enabling work and expects to launch a 75-patient Phase I/II study in the US. Following a successful early stage trial, two Phase III studies will be required and are planned to be run in parallel in both the US as well as EU and Canada, prior to the submission of a BLA in the United States, a Marketing Authorization Application (MAA) in Europe and a new drug submission in Canada which is anticipated in 2024.
Joint surgeries are frequent, and we estimate that there are over one million rotator cuff surgeries and over 500,000 meniscus tear surgeries in Ortho’s target markets of US, EU and Canada, combined. The Ortho-R product is inexpensive to manufacture and is mixed with autologous platelet rich plasma (PRP) that is sourced from the patient minutes prior to surgery. Our literature review of both Ortho-sponsored and independent research finds evidence of a benefit from using PRP as a biologic, to improve structural integrity, decrease re-tear rates and accelerate healing. One of the shortcomings of current approaches incorporating PRP in rotator cuff repair is maintaining contact between the PRP and the surgically repaired tissue. Ortho-R seeks to address this through the development of a paste-like product that, once cured or clotted, is able to keep the PRP firmly in place allowing growth factors and cytokines to stimulate wound healing and tissue repair over an extended period of time of up to six weeks compared to less than one day for current techniques.
At the end of its second fiscal quarter ending July 31, 2020, Ortho held approximately $23,000 in cash that was augmented by another $2.6 million following the closing of two private placements finalized in early September. The company currently holds convertible debt with a face value of $3.2 million, which will mature in April 2022.
Ortho’s approach to improving the healing and success rates of various types of joint surgery addresses many of the shortcomings faced by these procedures. The RESTORE technology and Ortho-R product has demonstrated its utility in large and small animal models supporting further advancement into human clinical trials. While the company is at an early stage of development, data generated to date is highly supportive of success of the biologic-chitosan combination to enhance and accelerate healing in joint surgery. With a large pool of surgeries that can benefit from the product, the company plans to pursue clinical trials and regulatory submission to obtain approval and ultimately sign licensing agreements or partnerships to commercialize products attached to the RESTORE platform.
Key reasons to own Ortho Regenerative Technologies shares:
‣ Safe biopolymer combination product with favorable properties
◦ Rapid coagulation
◦ Avoids shrinkage
◦ Adheres to soft tissues
◦ Increases biologics residency time to augment and guide the regeneration of new tissue
‣ Demonstrated decreased tendon gap and improved bone structure in large animal RCT model
‣ No treatment-specific safety issues
‣ Sufficient capital raised to start phase I/II study in rotator cuff indication
‣ Unmet need in large markets with poor surgery success rates
◦ About half of RCT surgeries fail
◦ 20% – 40% MT surgeries fail
‣ Chitin source material is abundant and inexpensive to procure
‣ Chitosan end product (Ortho-R) is inexpensive to manufacture
‣ Biologic product uses autologous PRP which can be sourced quickly and easily
‣ Lyophilized chitosan provides long shelf life
‣ Strong intellectual property protection in three patent families
‣ Clinical trials will include pharmacoeconomic benefit analysis
‣ Experienced management team and clinical advisory board
‣ Reputable CRO (MCRA) with orthopedics and biologics regulatory and clinical research expertise
In our initiation we review the orthopedic space with a focus on the structure and common injuries of the tendon, meniscus and cartilage tissue. We further examine the prevalence of related joint disorders and discuss standard of care. The topic of report then transitions to Ortho RTI’s RESTORE technology and provides details regarding the sourcing of its components: chitosan and platelet rich plasma. We follow with a detailed review of the company’s candidates, summarize preclinical research and review the regulatory path forward. An overview of the firm’s intellectual property, risks, peers and competitors and leadership team is also provided. Finally, we discuss the assumptions in our appraisal and generate our valuation. Ortho’s RESTORE platform is at an early stage of development generating proof of concept in preclinical studies supporting advancement into clinical trials. Ortho-R shows early promise to improve surgery success rates, improve availability of growth factors and other elements into damaged tissue and improve healing times at what we expect to be a reasonable cost. We launch Ortho Regenerative Technologies at $1.80 per share.
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1. Share prices and financial statement items are denominated in Canadian Dollars.