CryoPort (NASDAQ:CYRX) Q2 2020 Earnings Call

0:00 Good day and welcome to the CryoPort, Inc. second quarter 2020 earnings results call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Josh Romer. Please go ahead, sir. Thank you, operator. 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.

0:47 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 experience 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 filed with the Securities and Exchange Commission. I would now like to turn the call over to Mr. Jerrell Shelton, Chief Executive Officer of PryorPort.

1:33 Jerry, the floor is yours. Thank you, Todd. Good afternoon, ladies and gentlemen. We appreciate you joining our earnings call today. With me this afternoon is our Chief Financial Officer, Mr. Robert Stefanovich, our Chief Commercial Officer, Dr. Mark Sawicki, and our Vice President of Corporate Development and Investor Relations, Thomas Heinzen. As a reminder, we have uploaded our second quarter 2020 website. It can be found under the Investor Relations section in the Events and Presentation section. This document provides a review of our recent financial and operational performance in general business outlook. If you haven't had a chance to read it, I'd encourage you to go to the website and to download it.

2:18 As with previous quarters on this conference call, we will provide you with a brief general update and then we'll move to addressing your queries regarding our company's results. I'd like to start this call by stating that our second quarter results reflect the strength and resilience of our company. where we saw continued year-on-year growth despite the challenging environment caused by the COVID-19 pandemic. Thanks to the tireless work of our colleagues around the world, we continue to successfully navigate the external realities and we remain focused on our mission of supporting life and health by delivering reliable and comprehensive temperature control supply chain solutions for the life sciences industry through our innovation, advanced technologies, and global supply chain network.

3:06 We reported revenue of $9.4 million for the second quarter of 2020, an increase of 11% when compared to the second quarter of 2019. Our growth was primarily driven by revenue from our commercial agreements with Gilead's Yescarta and Novartis' Camaraya, which contributed $2.6 million in the second quarter of 2020, representing a 38% increase when compared to the second quarter of 2019. In addition, bioservices revenue was $1.3 million as compared to $600,000 last year, which was represented by revenue from a partial quarter as it was the quarter in which CroweGene was acquired.

3:52 Although 56 clinical trials were suspended during the second quarter due to COVID-19 pandemic, we are pleased that only three remain suspended as of the end of the second quarter. as sponsors worked hard to get their clinical trials restarted and patients treated. None of the remaining trials, to our knowledge, had been terminated. We continue to see momentum in the life sciences industry as the development of regenerative therapies accelerates and demand for our temperature control supply chain solutions intensifies. Both Gilead, Kite, and FedEx renewed their agreements with Cryoport for temperature control solutions. During the second quarter, the FDA approved Tocardus, manufactured by Gilead's Kite, which brings the number of commercial regenerative therapies we support to four.

4:43 Chymriah by Novartis, Viscarda and Tocardus by Gilead's Kite, and Zentenglo by Bluebird Bio. We also support Marilucelle, developed by Bristol-Myers Squibb, which was recently validated by the European Medicines Agency. Through our innovation, advanced technology, and global supply chain network, has achieved a leading position providing temperature control supply chain support capabilities for life sciences industry and especially for the fast-growing, high-value, life-saving cell and gene therapy market. In continuance of building our global alliances and further extending our leadership position in the industry, we have signed a new partnership with MediPal Holdings, one of the leading pharmaceutical distributors in Japan, to provide an integrated end-to-end distribution solution for specialty cell and gene therapies.

5:38 This special partnership is an important step that helps us grow our services in APAC region and supplement our Cryoport Express global supply chain network. In closing my comments, I would like to mention our successful convertible debt offering of $111 million. With this addition, our balance sheet is robust and provides us with significant flexibility to continue to develop our Cryoport Express global supply chain network to invest in the development of our advanced technologies to further the development of competencies within our team and to position us for acquisitions that are either supplementary and or complementary to our market footprint. Now I'd like to turn the call over to the operator to open the telephone lines for your questions.

6:25 Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you're using your speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star 1 if you'd like to ask a question. Our first question is from Puneet Sudha with SVP Learne. Please go ahead. Hi, guys. This is Scott Mofali on for Puneet. Thanks for taking the question. So I wanted to... Hey, how you doing, Jerry? So I want to get in first with the commercial business. It's great to see Ducardis add to the fold in terms of the products you're supporting and LysoCell advancing closer to commercialization.

7:10 Given the dynamics between the ramp-up of these two products and the host of BLAs you guys talked about in the past and that you're monitoring, how should we think about the commercial business in 2H and into 21, just the overall trajectory of that business? That's a great question for Dr. Sawicki. Thanks, Jerry. Yeah, so obviously as these products launch, you know, let's start with DeCardis. You know, from our perspective, I think that we will absolutely see revenue associated with DeCardis in this fiscal year. And I think the ramp will be slightly faster than you would have seen from either Yescarta or Kymriah. will probably top out a little bit less than Yiskar and Kim Rye on maturation at this point in time.

8:01 As it relates to Zintiglo, I think that's going to be a bit slower. In fact, it'll probably be nominal revenue associated with this year. We'll start to see contribution in 2021, I think, in a meaningful way. Okay, got it. Thank you for that. and I appreciate the incremental color on the COVID trials that you guys are supporting. Just as we look out into future quarters and into 2021, should we expect CryoPort to participate if there's a large-scale commercialization of one of these vaccine candidates? Should we expect CryoPort to be there kind of supporting that rollout? Yeah, I think Dr. Sawicki can answer that.

8:51 Yeah, let me just kind of give you a little bit of a high level here. You know, so from our perspective, you know, the logistic support for COVID-19 vaccines that are part of Operation Warp Speed are in a fluid state, and the plans are far from done or complete at this point in time. Unfortunately, there still is a significant amount of confusion around the coordinated vaccine rollout in the United States at this point. You know, so that, you know... Most likely we're going to have a lot of companies supporting this effort. It's going to be convoluted, and from our perspective, our goal is to be involved. We can't disclose, obviously, due to confidentiality what we're doing with whom, but it's too early to kind of tell you anything definitive at this point in time.

9:44 and it's one thing to support a 30 or 50 patient clinical program. It's quite another to figure out how to support and treat a global population at this point. Absolutely. Okay, I appreciate that. And just lastly on the clinical trial business, I'm sure you guys have seen in recent months there's definitely been an uplift in capital funding for the biotech market. How does this kind of impact your views of the clinical trial business and are you seeing more kind of activity at the top of the funnel just as these trials start to begin and kind of move into a point where you guys could support them? Thanks. Yeah, we're seeing a lot of activity. Mark, you want to comment on that? Yeah, I mean, we're very bullish, obviously, on the clinical trial space in regenerative medicine. The industry continues to put a substantial amount of assets into the space. I think the Alliance for Regenerative Medicine just published a report today that shows that year-over-year financings for the first half of the year up 120%.

10:43 And we expect upwards of another six BLA or MAA filings this year and upwards of 17 next year. So we're very excited about the space. Great. Thanks, guys. And our next question comes from Jacob Johnson, Stevens. Please go ahead. Hey, thanks. Maybe following up on a couple of those questions. How should we think about the long-term growth of your clinical trial revenues? I mean, how much of this will be driven by just clinical trials advancing through the process versus just an overall increase in the number of trials that you're supporting?

11:29 Jacob, we didn't quite understand your question, Jacob. Could you rephrase that? Could you rephrase it? How should we think about the long-term growth of your revenues from clinical trials? Is there a way to think about the long-term growth of that, or is it just so dependent on trials progressing and how many you can add in a quarter that it's maybe not a simple number for people like me? Jacob, it's not a simple number. The trials are going to continue. We're just in the very early, early stages of this industry. So trials will continue, and of course our revenue goes up in trials as trials do advance, if they get to the next stage.

12:19 That's why we report net numbers, because there's a lot of activity in trials. There's fallout, and then there are ads, and we report the net number of ads that we have each quarter. Tom, do you want to comment further on that? It is a blend. So it is maturation of current trials. It is the addition of new trials. and you have things that nobody sees that come into it like these COVID trials that came out of nowhere with the pandemic all of a sudden. So it's going to be a confluence of the factors. The great thing is it's not just domestic, it's global. We've seen the pickup in Europe and now we also report on the pickup in the APAC region. The only other thing I'd add is the diversification of revenue streams associated with our clinical pipeline. So as we continue to roll out our bioservices and other temperature ranges and product lines, our average share of that spend will increase over time.

13:17 Got it. I appreciate the tag team answer there. And then I attended a webinar with Dr. Sawicki where he presented alongside with Lonza a week or two ago. I guess as CDMOs continue to expand in the cell and gene therapy space, are they going focusing more on their cold chain logistics efforts? It certainly seems like Lonza is, and then maybe as a follow-up, can we just get an update on how the relationship with Lonza is progressing? Yeah, I think obviously the fact that we are co-presenting content to the market demonstrates the strength of that relationship. We continue to work towards maturation of that relationship. Our perspective is that industry is critical to development of this space and to ensuring that the space can meet the projections from a volume standpoint over time.

14:13 Our goal is to have very strong relationships with the CDMO industry. Great. I'll leave it there. Thanks for taking the questions. Thanks, guys. and our next question comes from Steve Unger with Needham. Please go ahead. Great. Hi, guys. First question. Hi. Could you just give us some more color on the MetaPAL relationship and the significance of sort of the it's a different type of relationship for you is my understanding in that it's broad distribution of product. Is that is that and many more.

15:18 and Asia Pac is beginning to develop and you're going to see a lot more activity in the future. You've seen our trials go up and there'll be other trials. It's important that we expand our network in that region and expanding in that region, it has its own peculiarities and so forth. MediPal is one of the strongest wholesalers, drug wholesalers in Japan. So, and they have some distinctive capabilities and to partner with MediPal gives us a stake in the ground, so to speak, in Japan, which is complementary to our global supply chain network that we're building out. So the arrangement, you could look at a JV, you could look at an independent operation, or you could look at an alliance.

16:06 And here, what we have here is an alliance, a partnership with MediPal that we think is going to be quite good for both of us. When do you think you'll start to see revenues from that relationship? Well, that will take some time. We have just signed the agreement. We have to develop our plans, so I can't tell you exactly when that will happen, Steve. Steve, I would like to point out two things. One, that Kimraya is now approved in Japan, and Novartis also has clinical trials now that will be going on in APAC. The demand will be driven by the customers more than the alliance or a partnership. Does that make sense?

16:53 Yes, it does. Could you just talk about the change that occurred with Yezkarta? I understand they're able to manufacture now in Europe and those implications for your commercial revenues. It sounds like you're flipping from international shipments to more and other domestic European shipments. Steve, that's a really good question, and it's one that certainly we're prepared to answer. So, Mark, would you comment on that? No, you're exactly right. We view this as a very positive development. You know, the bottom line is these companies are working tirelessly to increase their manufacturing capacity on a global basis. So long term, it's going to provide substantial upside from a volume standpoint and be able to support the European markets very effectively.

17:48 In the short term, obviously, you have a transition from complex international shipments to more straightforward domestic shipments, which has a short-term impact on revenue. Got it. Okay. And then finally, just on to Curtis, is there investment that you need to make either, I guess, primarily as far as distribution centers or mostly distribution centers, but anything else that needs to occur to get that relationship up and running? No, not at all. I mean, that's what we're built for. So we're ready for Tecardis and Tecardis volume. Excellent. Okay. Thank you very much.

18:33 Thank you, Steve. Thanks. And our next question is from Andrea DaSilva with B Reilly FBR. Please go ahead. Hey, good afternoon. Thanks for taking my questions. And sorry, I actually had trouble getting on the call, so you may have answered a couple of these questions. But just to start, you know, Bristol-Myers Squibb had an announcement about Lysosel, and it was worded a little different than most of those kinds of announcements typically are. Could you maybe give a little bit of clarity on where that is? and the regulatory process, and is it something viable for late 2020, early 2021?

19:18 Yeah, Tom, why don't you take that? Yeah, Andy, and you're right. It was a confusing news release that we had to read over a few times. So their submission at the EMA has been validated, and now it's in the review process. before hopefully it gets approved later this year or early next year. Okay, that's much more clear. Okay, great. And then as it relates to the isocell therapy transportation standards, were those the same standards you were referencing earlier in the year that you were helping draft or were involved in at least the process while they were drafting it? and if so, could you give just a little bit of color on specifically some of the aspects of it that are really fine-tuned to what you've learned as the leading logistics for cryogenic shipments?

20:25 Actually, Mark and some of our other colleagues participated on those panels and we were delighted to be in a position to be able to supply some points of view and information, but Mark can comment specifically on your question. Yeah, so ISO TC276, which is what we had talked about in previous calls, was the working group associated with developing the recommendations for ISO. ISO just launched that regulatory platform, which they call ISO 21973. And the key element behind ISO 21973 is it introduces within the logistics space a lot of traceability requirements or recommendations for traceability, which is similar to our chain of compliance that we've been talking through, which includes traceability on the equipment, traceability in all the calibration and usage history, Traceability on the cleaning validation and recommended validated cleaning protocols, all of which are things that we do and differentiate ourselves in the marketplace.

21:30 So we do believe that those recommendations are going to create a higher barrier to entry for potential competitors in the future. Interesting. Okay. And so this is a little bit off the beaten path, but If you recall, maybe a couple months ago, Novartis was talking about developing a potential gene therapy vaccine. I know that these regulations are closer to cell therapies, but would you expect that gene therapy vaccine to follow some of these cell therapy transportation standards and be in a cryogenic state, or would they have to go through dry ice?

22:20 Well, first off, Andy, it's Tom here. The standards are recommendations for now, and hopefully in the future the FDA, well, they've already been presented these recommendations. So until these standards are adopted by regulatory bodies around the world, it's a recommendation. So that's first off. That Novartis product on a vaccine, hopefully for COVID, haven't even started trials yet, so it's a little early to comment on how it'll ship. And I believe Novartis is contributing technology, but it's an academic institution that's going to control the design of the trial and how it's implemented. Okay. Okay, perfect. And my last question is just related to commercial revenue.

23:12 Is there a reason that it didn't really align with the increase in sales that I recognize during the quarter because of just the change in location for manufacturing for Gilead? Or were there some other nuances that resulted in your commercial revenue sequentially declining but their commercial revenue, you know, sequentially increasing? It's definitively related to the change in manufacturing location. Okay. Okay. Perfect. Thank you very, very much and best of luck going forward.

24:01 Thank you, Andy. And our next question is from Brandon Cooler with Jefferies. Please go ahead. Thanks. Good afternoon. I believe you guys launched the CryoShuttle offering sometime around late 2Q, early June. Kind of walk through what that offering does for you, initial demand and feedback, and where it's offered globally, whether it's just in the U.S. or it also includes some parts of Europe. Yeah, the CryoShuttle is de-risk the process with with our customers because we keep our products under our control for a longer period of time.

24:50 But Mark, do you want to comment further on the Crowe Shuttle advantages to the clients? Yeah, so in essence what we've done is we put surface fleet proximal or within each of our logistics centers. So we have surface fleet in Irvine, we have surface fleet in Livingston, we have surface fleet in Houston, and we have surface fleet in Amsterdam at this point in time. and what it does is it provides our partners the ability to utilize that surface fleet instead of local third-party couriers who in many cases are untrained with the equipment and don't understand it. And so instead of hiring a third-party courier to do that, they utilize our equipment and our trained drivers and we have more control and flexibility over over how our equipment is being delivered into those locations within a proximal distance of our facilities.

25:44 Adoption is going very strongly. We see significant continuous increase in the parties that are utilizing it, and we think that will continue in the foreseeable future. So, Brandon, by the Crown Shuttle, we've improved the reliability. We've decreased the risk by improving the reliability. We have some cost advantages that are built into that as well. And, you know, the less people are handling it, again, you're de-risking the process. It's an important service. That's it. If we look kind of at a high level, if we look at your share of trials, which continues to march higher, including almost two-thirds of all Phase III trials, I'm curious if you perceive some type of ceiling or level at which companies will just continue to do a portion of the logistics in-house and how much higher you think your share can continue to go as far as the outsourcing trend.

26:54 Yeah, we won't rest until we're at 100%. We think there's ample room for continuous improvement in our overall share in the marketplace. You know, I think the market demonstrates continual adoption of our platform. And, you know, there's many cases we have folks coming to us versus us chasing them down. So we think there's still significant room for improvement and continual capture of share. Brandon, remember, we're also expanding our footprint. We're quite a different company than when you first started covering us, when you first visited our facilities. You would see a lot of changes in terms of our services, our product. We're a growing company. We're dynamic. And so the footprint will change.

27:41 There will be more and more trials. And, of course, in terms of market share, we are the leader. We have some room to go in market share. We did gain some market share this quarter, and we intend to gain market share every quarter. So that means that we're in a position to grow and to keep up and to claim that space. That's what it's all about for us. Very good. Thank you. It appears there are no further questions at this time. I'd now like to turn the conference back to Mr. Jerry Shelton for any additional remarks. Thank you, operator. When I took over the leadership of this business eight years ago, I had a vision, and since that day, our team has been delivering on it.

28:29 Every passing day, our collective commitment grows stronger as we believe that by providing reliable, advanced, and comprehensive temperature control supply chain solutions, our clients and the industry will continue to place their faith in us. Through the sustained efforts of our colleagues around the world, we have established the leading temperature control supply chain services company supporting regenerative medicine globally. Through our innovation and execution, we have earned the respect of our clients and consequently have a loyal client base. Our second quarter results reflect this strength and resilience, and we're pleased to report continued year-over-year growth despite the challenging environment. We continue to execute on our organic initiatives and growth initiatives to build out our infrastructure in anticipation of our future, including investment in software infrastructure, additional new competencies, new advanced technology products, and the CrowdPort Express global supply chain network.

29:32 Each of these endeavors and these endeavors collectively further extend our capabilities within the life sciences industry Thank you very much. Thank you very much. believe that we will continue to release strategic value that will further enhance our position in the life sciences industry and consequently economic value to our shareholders.

30:22 Until our next earnings call, we bid you a good evening. Thank you. And this concludes today's call. Thank you for your participation. You may now disconnect.