CYRX (2019 - Q1)

Welcome to the Cryoport First Quarter 2019 Earnings Call. [Operator Instructions] And the conference is being recorded. [Operator Instructions] I would now like to hand the conference over to Mr. Todd Fromer. Please go ahead. Todd Fro

Thank you, operator. Good evening, everyone, and good afternoon to everyone on the West Coast. Before we begin today, I would like to remind everyone that this conference call contains certain forward-looking statements. All statements that address our operating performance, events or developments that we expect or anticipate occurring in the future are forward-looking statements. These forward-looking statements are based on management's beliefs and assumptions and not on information currently available to our management team. Our management team believes these forward-looking statements are reasonable as and when made. However, you should not place undue reliance on any such forward-looking statements because such statements speak only as of the date when made. We do not undertake any obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events or otherwise, except as required by law. In addition, forward-looking statements are subject to certain risks and uncertainties that could cause actual results, events and developments to differ materially from our historical experiences and our present expectations or projections. These risks and uncertainties include, but are not limited to, those described in item 1a, Risk Factors, and elsewhere in our annual report on Form 10-K filed with the Securities and Exchange Commission and those described from time to time in other reports which we file with the Securities and Exchange Commission. With nothing further, I would now like to turn the call over to Mr. Jerry Shelton, Chief Executive Officer of Cryoport. Jerry, the floor is yours.

Thank you, Todd. And thank you ladies and gentlemen for joining us this afternoon. With me this afternoon is our Chief Financial Officer, Mr. Robert Stefanovich; and our Chief Commercial Officer, Dr. Mark Sawicki. As a reminder, as of last quarter, we changed the format of these earnings calls. Instead of delivering prepared remarks, we have uploaded our first quarter 2019 end review document to the Events and Presentation page of our Investor Relations website. This document provides a review of our recent financial and operational performance and a general business outlook. So if you have not had a chance to read it, I would encourage you to go to our website and download it. On this conference call, I will provide a brief general update, and then, we will move into questions and answers, where we will address queries from our shareholders and analysts regarding our company's results. For an overview of our first quarter 2019, revenue increased 65% to $6.7 million as compared to the same period in 2018. This growth was primarily driven by another strong quarter in the biopharma market where we reported $5.6 million in revenue, a 72% increase over the same period in the prior year. Notably, $1.4 million of the quarter revenue was derived from commercial agreements with Novartis and Gilead, representing a 374% increase in commercial revenue compared with the same quarter in the prior year. Revenue from our commercial agreements is now 25% of total biopharma revenue. During the quarter, we continued to add the number of clinical stage therapies we support. A net addition of 26 new clinical trials were added in the first quarter, bringing the total number of trials, we now support to 383, which includes 45 in the EMEA region, 49 of these trials are in Phase III in total. Our progress is reflected – I'm sorry, our progress is reflective of the broader growth in the global regenerative medicine market as it continues its climb. We're pleased to report that the openings of our two new logistics centers located in Amsterdam, the Netherlands, and Livingston, New Jersey have been successful. As we scale the support of our existing – with our existing clients, both these in clinical and commercial stages and onboard new clients, the short-term gross margin impact of these two new operations will decrease. Our gross margin target remains at 60%. .: We're pleased to turn in another strong quarter, and we look forward to continuing to build our company and further enhancing our incomparable supply chain services to the rapidly growing and evolving life-sciences industry. We look forward to answering your questions. So now, I'll turn the call to the operator to open the floor for questions.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Your firsts question comes from Andrew D'Silva from B. Riley FBR. Please go ahead.

Thank you very much. Good afternoon. Just a couple of quick questions on my end. Very comprehensive report, thanks for putting that out so early in the day. You touched on M&A as being a potential way to fill in some voids. I was just curious if you could give us a little bit of detail what you're missing or what you could be looking for as we kind of think about the broader landscape. And then actually before you do that, if somebody could also just while he's answering a question pull, cash flow from operations item just a stock based comp was there but I was missing CapEx and free cash flow information.

That's a good question, Andy. Thank you very much. The M&A we've addressed consistently each quarter and I wouldn't say anything this quarter any differently than we've said we are looking methodically and carefully at acquisition candidates, and potential candidates and those candidates would be to either deepen our solutions or in adjacencies. And the natural adjacencies would be in things like storage and other forms of software. That's our M&A activity. We do have a pipeline and we are vigorously looking into the marketplace. But as you know, there's got to be a seller as well as a buyer so, acquisitions generally are opportunistic and we are pursuing that avenue. As far as the second question, in terms of cash flow and expenses, I'm going to turn that to Robert Stefanovich for your answer.

Yes, just a couple of data points, and after we'll be filing our 10-Q next Wednesday on May 8 as well. We have our CapEx about $1.1 million for the quarter, net cash used is operating activities about $200,000. Total financing activities about $1.3 million, and that's really cash receipts from the exercise of once primarily and then if we look at all net cash used in investing activities about $4.6 million that's really just us investing the cash that we have. We have about $15 million in short-term investments as all balance of $47.3 million.

Yes. And I was trying to translate some of that off the balance sheet tied into the P&L and everything, but it looks like your cash burn is actually better than we were expecting at this point. Are you guys where you would expect to be? Or are you missing some additional overhead costs that we should expect to layer in? Or just kind of the real rate we should anticipate?

Now, you look at some what we did over 2018 and we talked about that and building out the infrastructure, building out quality systems and also the costs related to setting up the new global logistics centers in Amsterdam and in New Jersey. So a lot of that has happened 2018. So you look at it going forward in 2019, I would expect to really see that more flatten out. Certainly, we'll make investments as we go, but I'd expect it to be somewhat flat.

Okay, good. And on the commercial partner front, give a little bit of color on there, is there may be a benchmark or a way to help us think about how many commercial partners you would anticipate having by the end of this year. At least help us kind of set a baseline expectation for how to model going in to 2020 and 2021?

I'm going to turn that to Mark Sawicki for your answer.

Yes, just a clarity. You're referring to actual commercialize on market or filed?

On market.

On market. So I think, on market, you may have one, maybe. I mean it depends on timing. Filed is a couple more than that I would say.

Okay, okay, good. And just a last question on my end is just related to new partners. Obviously, you brought on Amgen and cellularity and handful of others this quarter, is there additional – what is your target right now? I mean, it seems like you have a pretty good footprint around all the major players. Is there much more work that needs to be done on that side? Or is it just really growing within the market or the partners you reestablished relationships with?

To be frank, it's both. I mean we're always trying to capture as much share as we can in the marketplace. I mean we think that we're in a very good position from a clinical trial acquisition standpoint. But we're not going to rest on our loyals. We're going to continue to try to drive that number up as quickly and as aggressively as we can. And concurrently, try to, obviously, deepen and broaden the relationships that we already have established to drive per account or per clinical basis revenue up.

Okay, great. Thank you very much. Good luck through the rest of the year.

Thank you.

Thank you.

Thank you. Your next question comes from Paul Knight from Janney Montgomery. Please go ahead.

Hi Jerry. Can you talk about what is driving this commercial? I mean, we see the improved revenue from the sales of these therapeutic lines of course. Is it they are also accelerating their network. It's obviously exceeding the growth rate of the therapeutics. What's happening in this commercialization channel that you're having to do for them?

I'll turn out to Mark to answer it Paul, because he's closer to that, than I am.

I think, some of this, if you're talking about the average multiple on a per patient basis, they're diversifying the clinical base – or commercial base of these accounts with additional country launches, moving material longer distances and into additional countries is more complex and inherently, obviously the cost basis would be slightly than doing it for domestic U.S. distribution. I think that’s probably what you are referring to, but clarify with me if you – if that's not the intent you had?

Yes. Your growth certainly is even exceeding their revenue ramp, which does seem to be better though.

No, I agree, I mean. As I had mentioned before, as these relationships mature, the complexity of the revenue that's generated goes far beyond just strictly per shipment transaction.

And then regarding the clinical trial customer, the Phase I, II, III, what are you doing to increase revenue per customer? Are you charging for consulting? What do you do to pick up preclinical for customer revenue? Or even better ask the question.

So that's absolutely right. I absolutely right. I mean, what we're trying to do is, we're trying to provide a broader base of support and so consulting activity is a very good example, program management activity. Other things along those lines in addition to, obviously, the transactional distribution elements of a clinical trial.

Okay, thank you very much.

Thank you, Paul.

Thank you. Your next question comes from Brandon Couillard from Jefferies. Please go ahead.

Thanks, good afternoon.

Hi, Brandon how are you?

Super. Jerry, I'd like to start on the new logistics centers in Livingston and Amsterdam. Could you just sort of elaborate on the revenue pull-through you are seeing at those sites? And whether you're really starting to actually pick up incremental business from the key customers of those sites perhaps with Bristol out of New Jersey? And then looking ahead, what are kind of your plans and priorities as far as adding additional logistics sites globally over the next 12 months?

Well broadly, we're in the position now to – that we're actually creating a logistics network and that network effect is our way of derisking the process even further. And that's what we're all about. We're about derisking the process and providing certainty to our clients. So now, we have five logistics centers, and at some point in the future, we definitely will add to that. They will be client-driven however, and we aren't building things prospectively. We're building them based on demand and based on visibility of our client demand. As far as the two new logistics centers, they are right on track. Our demand is growing and both of those centers are right on track in terms of the volume increases and the volume uptake. And in fact, we're looking – we may have to look at expanding our footprint in both those locations at some point in the not-too-distant future.

Let me just add to that. The sites definitely are contributing to bringing business in – directly in the drawer from a proximity basis as well.

Okay thanks. And then I'd like to touch on Amgen if we could just for a moment. You sort of speak to the type of ramp you would expect with that customer. How long it takes you to sort of get integrated into the trials? If you could speak to perhaps the number of trials, you think you might be involved in with Amgen specifically? And then it would be curious to know exactly what type of solution they were previously using before your agreement?

It’s a good question. Mark will answer that question.

Yes, so just a couple of high-level. Obviously, we can't comment on clinical trial strategy for Amgen. You'll have to look at what Amgen is predicting from that perspective. But what I can tell you is that, we're very confident in this becoming a significant relationship. And I would anticipate, within the next 12 months, it will probably be a top 10 account pretty quickly. We're actively supporting all of their cryogenic distribution throughout the entire network, and this is picking up site-by-site, program-by-program and it extends beyond just clinical trial support and also extends into their research networks and their infrastructure related to R&D that may not have anything to do with cell and gene therapy.

Okay super. One more, I would like to touch on if you can, just share with us an update on the C3 chipper and the adoption levels you kind of seen so far. Whether or not it's been a material contributor to revenues yet and perhaps the number of customers or trials that have adopted that solution so far?

Go ahead.

Yes. So we're definitely seeing adoption. This is the challenge that any new product is it takes time to get it written into clinical trial protocols and initiated, but we are absolutely seeing it supporting and increasing number of trials, and we anticipate that to continue to accelerate significantly.

Plenty, thank you.

Thank you. Thanks Brandon.

Thank you. [Operator Instructions] Your next question comes from Richard Baldry from Roth Capital. Please go ahead.

Thanks. One of the bigger investment areas in the quarter look like sales and marketing, which is up about 20% sequentially. Now you've got pretty deep reach into the clinical trial area. So could you maybe talk to us about where those additional resources are targeting? Sort of what you feel – we should expect for how fast those new marketing areas can be productive or generate incremental growth over the existing group you've got? Appreciate that, thanks.

Rich, thank you. That's a good question. And Robert has an answer for you.

Yes so in general, you also know, we have direct sales force here in the U.S. We all start ramping up the sales force in Europe. We've expanded marketing activities. And as part of the sales marketing, we have also parts of our logistics that are underlying and supporting the efforts, and then so we ramp-up the logistics support within that organization as well.

Okay, great. Thanks.

Thank you.

Thank you. This concludes the question-and-answer session. I would like to hand the call back for closing remarks.

Thank you, operator. And thank you for your questions. And thank you for joining us today. We appreciate the opportunity to report to you and to have a dialogue. In closing, I would like to say, we're pleased with the quarter and the position that we occupy today. We're building a strong, global logistics network and are uniquely positioned to meet the global demands of our biopharma clients, both in clinical and commercial settings. It's also important to note that industry commercializations are just beginning, and revenue from our commercial agreements is rapidly ramping, and it is just the beginning. Our pledge to our long-term shareholders is that we will continue to work diligently to grow our client base across all of our markets and further build our value to the life sciences industry in a lasting and meaningful way. So until our next call, I bid you good evening.