BioLife Solutions Inc (BLFS) 2015 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to BioLife Solutions Second Quarter 2015 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session and instructions will follow at that time. If anyone should require assistance during the conference, please press star then zero on your touch tone telephone.

As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Ms. Daphne Taylor, BioLife Solutions Chief Financial Officer. Ma'am, you may begin.

Thank you operator and good afternoon everyone. Thank you for joining us this afternoon for the BioLife Solutions conference call and webcast to review the financial results for the second quarter of 2015.

Today we issued a press release and filed our Form 10-Q quarterly report containing detailed results for the quarter. This release is available on the Investor Relations page of our website at biolifesolutions.com as well as various financial websites. As a reminder this call is being recorded and also broadcast live on our website. A replay of the webcast will be available through the same link for 90 days.

Before we get started, let me remind you that during the course of this conference call, we will make projections and other forward-looking statements regarding future events or the future financial performance of the Company. These statements are subject to many risks and uncertainties that could cause actual results to differ materially from expectations or detailed discussion of the risks and uncertainties that affect the Company's business and that qualify to be forward-looking statements made on this call, I refer you to our periodic and other public filings with the SEC.

Company projections and forward-looking statements are based on factors that are subject to change and therefore these statements speak only as of the date they are given. The Company assumes no obligation to update any projections or forward-looking statements except as required by law.

Now I would like to turn the call over to Mike Rice, President and CEO of BioLife.

Thank you Daphne and thanks everyone for joining the call. I'm very pleased to provide this business update after which we'll be glad to take your questions. I'll start with an update on the commercial launch of our biologistex Cold Chain Management software as a service and I'll speak about the regenerative medicine market and the excellent market adoption we continue to see which is building additional future value for BioLife shareholders.

To recap for you, biologistex is our proprietary cloud-based cold chain management software. Our platform combines the EVO family of Smart Shippers that have integrated payload monitoring, GPS location tracking and cellular communications, electronics with our simple to use yet very powerful cloud-hosted app.

Our app enable shippers of time and temperature sensitive biologic material to complete, monitor and document critical steps in the pack-out, shipment and physical inpatient deliver process with real time updates on the location of the container and critical biologic payload information such as temperature, pressure, humidity, shock and vibration.

The EVO Smart Shippers supplied by SAVSU Technologies, our biologistex joint venture partner. The award winning, extremely simple to use super-insulating EVO Smart Shipper family currently includes different models that operate at minus 80 C using dry ice and at 2 C to 8 C and controlled ambient temperature about 20 C to 25 C using condition cold packs.

EVO also includes a novel patent pending payload carrier that helps prevent accidental freezing of the payload in colder ambient conditions. It's important to understand that shipping thermally-sensitive clinical doses at minus 80 C with dry ice or at 2 C to 8 C with cold packs is highly preferred in the regen med space since this is much easier and no liquid nitrogen logistics are required.

These are much larger addressable markets than the liquid nitrogen opportunity. Just as in traditional pharma cold chain, we believe that over time 2 C to 8 C will emergent as the dominant mode in regen med since the clinical dose can simply be removed from the shipper and administered with no thawing required and less risk of contamination.

Across the broad spectrum of cell-based therapies, we think the combination of our clinical grade HypoThermosol, 2 C to 8 C storage and shipping medium and the 2 C to 8 C EVO Smart Shipper can provide maximum yield, enhance clinical efficacy.

In numerous focus group discussions, we heard that one of the most valuable features in our app is the ability for users to configure actionable e-mail and text alerts and notifications for their own team and just as importantly for destination recipients to let them know if a payload temperature excursion has occurred, when the package is close to the destination based on the geo-fence, when the shipment has been delivered, when it was opened and most importantly, how much shelf-life or stability is remaining for the biologic payload.

This is critical to ensure that the cold chain is unbroken in the last distribution mile ending in patient administration of a time and temperature sensitive drug is completed in time and is well-documented. Several of these features I just described are covered in patent applications we filed. We believe this can really help our customers raise the quality bar in the distribution and clinical administration of time and temperature sensitive biologic medicine.

The EVO Smart Shipper design and our app enable customers to reduce pack-out errors and to ensure that biologic-based therapies are shipped and administered in conformance with the validatable process. This is vastly different from the traditional validate then assume approach currently used.

The back-end database provides robust quality metrics for continuous quality improvement and we have great reverse logistics built into our app to make it easier for customers to get the reusable EVO returned and ready for the next use. This is a really a powerful platform and we're looking forward to amassing a significant base of subscribers to our service.

The biologic cold chain market with hundreds of thousands of annual shipments is significant and it's a completely complementary addressable market for BioLife. A recent independent market research report estimates that in 2014, $8.4 billion was spent on cold chain logistics of pharmaceuticals with 5.6 billion for transportation and the remaining $2.8 billion for specialized packaging and instrumentation.

For biologistex, we already have several post launch enhanced features plan for future releases and we're taking an open platform approach. So over time, our subscribers will have several choices to engage in our value stack from less expensive limited feature options to bring your own shipping container, to bring your own electronics, to renting standalone electronics for use with any container, all the way up to using our best in class EVO Smart Shipper with integrated electronics and all the noble features in our app.

We also believe we can create a number of partnering opportunities with freight forwarders like [Tony Inego], parcel delivery companies like UPS, DHL and FedEx and white glove courier services including Marken and World Courier. I should also remind you that we believe once the benefits of biologistex are known to regulators and payers, these influencing groups can directly and indirectly help raise awareness of current unmet need and the benefits of cloud-based biologistex.

To me, success looks like biologistex emerging as the dominant cloud-based cold chain management service for time and temperature sensitive biologic materials management. Our sales and marketing activities are ramped up to support our anticipated initial customer shipments this quarter with the hiring of experienced sales account managers that have [contacts] and industry experience having sold for traditional container suppliers and white glove courier services.

We're well into our marketing launch activity this quarter with e-mail blast, advertising, trade show participation and other activities to drive awareness and generate leads. It's really important to note that while our high value regen med customer based is an obvious initial target, with biologistex, we gained access to the rest of the cell therapy, regenerative medicine, drug discovery and biobanking companies who are not currently using our bio preservation media products.

So you can see, biologistex is a complementary, we had separate strategic growth opportunity for BioLife. Other potential markets include new temperature sensitive vaccines and pharmaceuticals, biobanking specimens for personalized medicine and veterinary medicine. The way to think about this is that any organization that is transporting or shipping time or temperature sensitive biologic material is a potential customer.

Turning to subscription pricing for biologistex, we're taking a unique approach for the reusable EVO Smart Shipper and our cloud-based app with a fixed monthly cost that's about $200 per shipment. This is competitive and value-based.

To wrap it up on biologistex, we're completing end to end user testing this month on the app and putting the EVO smart shipper into some really demanding,constructive design, mechanical testing and thermal performance testing. With a few remaining cosmetic improvements to complete, sale and inventory should arrive later this month and we expect initial deployment of EVO's to subscribe our customers next month with modest revenue reported for Q3.

I would like to make some comments about the regenerative medicine market and the excellent continued adoption we're seeing of CryoStor and HypoThermosol. Our proprietary clinical grade biopreservation media products. Funding in this segment continues at a blistering pace. The Alliance for Regenerative Medicine or ARM just issued their Q2 and first half 2015 data report.

Globally, companies and the combined regenerative medicine and advanced therapies field raised about $5 billion in the second quarter of 2015 and $7.6 billion in the first half of this year, up 129 or 137% respectively compared to the same time period last year. So far this year in Europe, regen med and advanced therapy companies raised $1.5 billion in the first half of the year, up 183% compared to the first half of 2014.

I'm pleased to share that we have several EU and U.K. regen med customers using our products in their preclinical work and clinical trials including Activartis, Adaptimmune, Celyad formerly known as Cardio3, DCPrime, GSK, [Kratos] Pharma, [Fraunhofer], [Rinron], TCBiopharm, TiGenix, TxCell and several more than we can't disclose.

As we recently announced in the press release, we believe our biopreservation media products integrated into the preclinical validation work and clinical trials of about 200 cell or tissue-based products and therapies with a large concentration in various T-cell immunotherapies including CAR T-cells, tumor infiltrating lymphocytes and dendritic cell vaccines and therapies targeting blood cancers and solid tumors.

To give you a sense of the financial strength of our regen med customer-based, recently the combined market caps of our publicly traded cell therapy customers exceeded $18 billion and this excluded several large pharma customers that have ongoing R&D in cell therapy. I remind you that we believe our annual revenue opportunity from any of the 200 cell therapy candidates being developed by our customers, if approved and manufactured at scale, could be $500,000 to $2 million annually.

So even handicapping the potential for clinical and commercial success, you can see we gained a critical mass of customers and have tremendous upside growth potential in this segment. For following our phase III customers estimated dates for data readouts and BLA submissions annually, we could see significant increases in demand for our biopreservation media products starting late next year. Meanwhile with our opportunity to build biologistex into the leading cold chain management solution for time and temperature sensitive biologic materials, we're setting the stage for increased shareholder value as we execute our growth plan.

Now I'll turn the call back over to Daphne to go over our detailed financial results for the quarter and to provide our expectations for the rest of the year.

Thanks Mike. Second quarter 2015 revenue was $1.5 million made primarily up of core product revenue of $1.4 million with the remaining $100,000 from the wrap-up of a contract manufacturing agreement. Core product revenue for the six months ended June 30, 2015 was $2.9 million. This is up 32% from the same period last year.

This revenue growth was heavily driven by increased sales for our customers in the regen med segment which is growing over 60% compared to last year. We continue to expect full year 2015 core products revenue to come in at 20% to 30% over last year with continued significant growth from the franchise we are building in regen med.

Additionally as Mike mentioned, we expect to start reporting revenue from the biologistex service in the third quarter of this year and we will provide you with some additional metrics on future calls. Gross margin in the second quarter was 55%. This is up significantly from 45% a year ago when we were still recording high-levels of low margin contract manufacturing revenue. Gross margin for the first half of the year is 57%. This is up to midpoint of the range that we continue to expect for the full year of 55% to 60%.

Operating expenses in Q2 were $2 million which is slightly lower than Q1 but this is higher than last year's Q2 OPEX of $1.4 million. For the six months ended June 30, 2015, OPEX was $4 million compared to $2.7 million in 2014. This increased over last year is due mainly to investments that we made in headcount and spending related to the development and commercialization of our biologistex software service.

We expect G&A and R&D expenses to continue at about the same level as Q2 for the remaining quarters in 2015 with about a $250,000 uptake in G&A in Q3 and Q4 due to the timing of recognizing our JV participation fee. We expect sales and marketing expenses to increase in Q3 with one-time initial marketing expenses we plan to incur as we bring the biologistex services to market. We should see sales and marketing expenses come down in Q4 from the Q3 high point.

In Q2, we used $1.7 million in cash as expected and we ended the quarter with $6.9 million. We continue to expect to end the year with the $4 million in cash and furthermore we expect that now we have sufficient cash to reach positive cash flow in 2016.

I will now turn the call back over to Mike.

Thanks again Daphne. I'd like to close with some comments to convey our focus on executing to become the leading provider of biopreservation tools for cells, tissues and organs. This is our mission and everything we do is intended to help our customers to put patients first.

We believe biologic-based medicine using living cells and tissues is the future of health care. It's all about preserving precious biologic materials and providing tools to maintain viability and to ensure effective biologistex are employed to pack, ship, track and administer the therapy within the shelf life and to be able to document all of this.

This is what we're providing with our bio preservation media products and our Biologistex Cold Chain Management app. Overall, we accomplished much in Q2 and look forward to reporting in our progress during future calls. Thank you for your interest in BioLife.

Now we'll open the call for questions. Operator?

(Operator Instructions).

Our first question comes from the line of Brian Marckx with Zacks Investment Research. Your line is now open.

Hi Daphne and Mike. Daphne, can you --

Hi Brian.

Can you talk about -- hi, can you talk about selling and marketing expense again in Q2. I don't think I got the gist of it and it's up quite a bit from Q1, so if you can just kind of help me there.

Oh yes, basically up from Q1 because we actually hired a couple of people during the quarter to basically continue the roll out of our biologistex service but they're pretty much dedicated just to the biologistex process. And then we're starting to ramp up in Q3, we'll have a pretty big ramp up in cost for the marketing roll out.

Got you and then Q4 will come down from I guess Q3 would probably be higher than Q2?

I think that's a pretty good estimate.

Okay.

It will definitely come down from Q3.

Okay, all right. And so relative to biologistex, I think one of the -- one of the things that had been -- holding it up in terms of the launch date was the software development and the IP, if you can just give me kind of quick status on that, that would be great.

Yes, sure Brian, Mike here. So right on, on the IP front, I think I mentioned during the last call that we had contemplated filing some patent [app source] and new features which we did and we have another app going in shortly. And we're really thinking long-term and evolution of feature sets and what's unique. And I think we're building a fantastic platform that will have functionality that no one else can and having IP protection and spending the time and the money to try to get that ahead of time clearly makes sense, so on the software side as well as on the hardware side.

The app is beautiful and we think it's just elegantly simple, yet it's very powerful. So compared to some of the experience that we all go to now when we try to ship something and using a shipper's website and we're a long way from that. I'm feeling really good about that.

On the EVO side, we made some pretty significant improvements to the shipper, working in concert with SAVSU with some very important material changes added some delay but that supply chain is now intact and the payload carrier itself is now a number innovations that we felt it was best to wait, so we could come to market with these innovations and I'll be able to talk a lot more about that in the next month, particularly with regard to payload carrier and some of the novelty and how it's different, how it will do a great job to help customers just have a much simpler pack-out process and the payload courier works in concert with the cold packs.

Cold pack technology has remained fairly stable for many, many years without a lot of innovation and we have definitely innovated there. So, I look forward to giving you all some updates on that down the road but that's the [ball] on the delay and again feeling good about choices we made to just wait until it could be much more potent, and we're just about there, so really excited about it.

So just for clarity on the software side in terms of the IP that is -- that is already lockdown or that's' going to be lockdown here in the near future?

What we're going to come to launch with Brian is clearly lockdown. We're obviously filing patents to make sure that if there's an opportunity to gain some protection, we're going to do that but we know the landscape well. And we think release 1.0 which is coming here in the next -- just a short few weeks is going to be really great but clearly we have our eyes to future releases and we're talking not just incremental improvements but an entire sort of platform approach about how we can open this up and everything we can add to it, so yes good to go.

Okay, sort of a I guess a bigger picture question on biologistex, one of the I think, one of the risk of an endeavor like this is that you kind of outspend yourself trying to generate adoption and shipping volume and then sort of eventually revenue. It can be very sales and marketing intensive, so can you kind of give us a sense of how sales intensive the business is that you -- that you expect in terms of incremental spend in sales and marketing?

In a way and I guess the way that I like to answer your question is to first remind you and our listeners that at least within the regen med space because we have this critically amassed group of customers who trust us, who had great performance with our biopreservation media products. While it's not the exact same call point in terms of who we're making decisions on logistics and containers and things like that, it's still fairly interwoven.

So, our approach is to do what we did on the media site and that's go to the top of the quality chain there because the quality of folks clearly are hired [measured] and fired based on what their clinical materials do what they're supposed to. And they also have the oversight of shipping logistics to a large degree and data management on the backside. So, I think what I'm trying to say to you is that this isn't -- this isn't a sort of thing we have to pour just buckets of money to try to gain relationship and awareness and see the need.

The unmet needs are out there. The lessons had been learned in cold chain pharma. We're bringing all of our knowledge including one of the leading former consultants to cold chain pharma now works for us. And so he's been instrumental in helping us really educate the regen med space and cell therapy customers about what they don't know.

And so based on our previous credibility and our supplier relationship that this is a great complement. Now this isn't to say that regen med is the only opportunity by a long shot. You know, there are still a number of broader markets including traditional cold chain pharma where at least for new drugs and vaccines, we'll have a [listening] for the opportunity to innovate and not just to continue to use the sort of archaic solutions and containers that had been traditionally.

So, I hear you, it's a really good question to ask. You know if you -- if you think Daphne's comment that achieving positive cash flow some time next year, we can think about spend for that. And clearly we're going to spend what we need to on sales and marketing but her commentary on the ramp for that peaking in Q3 and coming down and having some sustain level, we think we got it right size for the right amount of spending. And when the demand is there to add more sellers, we're going to do that at the right pace.

Can you give me kind of a sense on how many -- how many new sales people you expect to bring on say through the end of this current year that is going to support this new biologistex business?

Vaguely, I guess the way I choose to answer is that I think if you ask me by the end of 2016 what the sales team looks like, you know that's probably a cadre of six to eight sellers and a manager of something like that.

Okay, all right, thank you.

You're welcome. Good question.

Thanks Brian.

As a reminder, ladies and gentlemen, if you would like to ask a question at this time, please press star and then one on your touch tone telephone.

And I am showing no further questions at this time, I would like to turn the call back to Mike Rice for closing remarks

All right, thanks everyone for joining us on today's call and good evening.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a wonderful day.