Cryoport Inc (CYRX) 2020 Q2 法說會逐字稿

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. Todd Fromer. 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 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 experience and our present expectations or projection. 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.

I would now like to turn the call over to Mr. Jerrell Shelton, Chief Executive Officer of Cryoport. 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 '20

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website. It can be found under the Investor Relations section, in the Events & Presentations section. This document provides a review of our recent financial and operational performance and 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.

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-controlled supply chain solutions for the life sciences industry through our innovation, advanced technologies and global supply chain network.

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' KYMRIAH, 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 Cryogene was acquired.

Although 56 clinical trials were suspended during the second quarter due to COVID-19 pandemic, we are pleased that only 3 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, have been terminated.

We continue to see momentum in the life sciences industry as the development of regenerative therapies accelerates and demand for our temperature-controlled supply chain solutions intensifies, both Gilead's Kite and FedEx renewed their agreements with Cryoport for temperature-controlled solutions. During the second quarter, the FDA approved TECARTUS, manufactured by Gilead's Kite, which brings the number of commercial regenerative therapies we support to 4, KYMRIAH by Novartis, YESCARTA and TECARTUS by Gilead's Kite and ZYNTEGLO by bluebird bio. We also support Maraleucel, developed by Bristol Myers Squibb, which was recently validated by the European Medicines Agency.

Through our innovation, advanced technology and global supply chain network, Cryoport has achieved a leading position providing temperature-controlled 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. 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.

(Operator Instructions) Our first question is from Puneet Souda with SVB Leerink.

This is Scott Mafale on for Puneet. So I want to get in first with the commercial business. It's great to see TECARTUS added to the fold in terms of the products you're supporting and liso-cel advancing closer to commercialization. Given the dynamics between the ramp-up of these 2 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. Yes. So obviously, as these products launch -- let's start with TECARTUS. From our perspective, I think that we will absolutely see revenue associated with TECARTUS in this fiscal year. And I think the ramp will be slightly faster than you would have seen from either YESCARTA or KYMRIAH. It'll probably top out a little bit less than YESCARTA, KYMRIAH on a -- at maturation at this point in time.

As it relates to ZYNTEGLO, I think that's going to be a bit smaller. In fact, it will 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. 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?

So -- yes. I think Dr. Sawicki can answer that.

Yes. Let me just kind of give you a little bit of a high level here. So from our perspective, the logistics 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 a coordinated vaccine rollout in the United States at this point.

So that's -- most likely, we're going to have a lot of companies supporting this effort. It's going to be convoluted, and we will -- 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. 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?

Yes. We're seeing a lot of activity. Mark, do you want to comment on that?

Yes. 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 are up 120%. And we expect upwards of another 6 BLA or MAA filings this year and upwards of 17 next year. So we're very excited about the space.

And our next question comes from Jacob Johnson with Stephens.

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?

Jacob, would you -- did you get -- I didn't quite -- we didn't quite understand your question, Jacob. Could you rephrase that? Could you rephrase it?

Yes. Just how should we think about like the long-term growth of your revenues from clinical trials? I mean 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 the quarter that it's maybe not a simple number for people like me?

Jacob, it's not a simple number. And 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 as -- in trials as trials do advance, if they get to the next stage.

That's why we report net numbers because there's a lot of activity in trials. There's fallout and then there are adds, and we report the net number of adds that we have each quarter. Tom, do you want to comment further on that?

Yes. 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 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.

Yes. 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.

Got it. I appreciate the tag-team answer there. And then I attended a webinar with Dr. Sawicki where you presented alongside with Lonza a week or 2 ago. I guess the CDMOs continue to expand in the cell and gene therapy space. Are they 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?

Yes. I think obviously, the fact that we are copresenting content to the market demonstrates the strength of that relationship. We continue to work towards maturation of that relationship. Our perspective is that, 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. And so our goal is to have very strong relationships with the CDMO industry.

And our next question comes from Steve Unger with Needham.

Great. First question, could you just give us some more color on the Medipal 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 cold chain across the board? Or is that cryogenic only? And then what are the implications -- when does the -- do you actually start to see revenues?

So it's across the board. But each region -- remember, Steve, we divide the world into 3 regions, into EMEA -- I mean like most companies, into EMEA, the Americas and Asia Pac. And Asia Pac is beginning to develop, then 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 -- 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 and -- to our global supply chain network that we're building out.

So it -- the arrangement, you could look at a JV, you could look at an independent operation or you could look at an alliance. And here, this -- what we have here is an alliance, a partnership with Medipal that we think is going to be quite good for both of us.

And 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 -- this is Tom. So to point out 2 things: one, that KYMRIAH is now approved in Japan. And Novartis also has clinical trials now that will be going on in APAC. So the demand will be driven by the customers more than the alliance or partnership.

Does that make sense?

Yes, it does. Okay. And then could you just talk about the change that occurred with YESCARTA? I understand they're manufacturing now -- 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 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. 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. 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 TECARTUS, 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 we're -- that's what we're built for. So we're ready for TECARTUS and TECARTUS volume.

And our next question is from Andrew D'Silva with B. Riley FBR.

Sorry, I actually had trouble getting on the call, so you may have answered a couple of these questions. But just to start, Bristol-Myers Squibb had an announcement about liso-cel, 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 in the regulatory process? And is it something viable for late 2020, early 2021?

Tom, why don't you take that?

Yes, Andy. And you're right, it was a confusing news release that we had to read over a few times. So the -- their submission for -- 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 clearer. Okay. Great. And then as it relates to the ISO cell 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?

Yes. Actually, Mark and some of our other colleagues participated in 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.

Yes. So ISO/TC 276, 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 on all the calibration and usage history, traceability on the cleaning validation and recommended cleaning -- validated cleaning protocols, all of which are things that we do and differentiate ourselves in the marketplace. 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 of months ago, Novartis is talking about developing a potential gene therapy vaccine. And 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, be in cryogenic state? Or would they have to go through dry ice?

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 or vaccine hopefully for COVID hasn't even started trials yet, so it's a little early to comment on how it will 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 then my last question is just related to commercial revenue. Is the reason that it didn't really align with the increase in sales that YESCARTA and KYMRIAH recognized 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 sequentially increasing?

No, it's definitively related to the change in manufacturing location.

And our next question comes from Brandon Couillard with Jefferies.

I believe you guys launched the Cryoshuttle -- I believe you launched the Cryoshuttle offering some time around late 2Q, early June. Can you 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 also includes some parts of Europe?

The Cryoshuttle is -- derisks the process with our customers. It's because we keep our products under our control for a longer period of time. But Mark, do you want to comment further on the Cryoshuttle advantages for the clients?

Yes. So in essence, what we've done is we put service fleet proximal or within each of our logistic centers. So we have service fleet in Irvine, we have service fleet in Livingston, we have service fleet in Houston and we have service fleet in Amsterdam at this point in time. And what it does is it provides our partners the ability to utilize that service 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 how that -- our equipment is being delivered into those locations within a proximal distance of our facilities.

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, we -- by the Cryoshuttle, we've improved the reliability. We've decreased the risk. And by improving the reliability, we have some cost advantages that are built into that as well. And less people are handling it. Again, you're derisking the process. It's an important service.

Got you. If you look kind of at a high level, if we look at the share -- your share of trials, which continues to march higher, including almost 2/3 of all Phase III trials, 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 do you think your share can to continue to go as far as the outsourcing trend?

Yes. 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. I think the market demonstrates continual adoption of our platform. And 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 when you first started covering us, 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. There will be more and more trials. And of course, in terms of market share, we are the leader. But look, 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 going to grow -- 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.

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 8 years ago, I had a vision. And since that day, our team has been delivering on it. Every passing day, our collective commitment grows stronger as we believe that by providing reliable, advanced and comprehensive temperature-controlled supply chain solutions, our clients and the industry will continue to place their faith in us.

With the sustained efforts of our colleagues around the world, we have established the leading temperature-controlled 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, our 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 Cryoport Express global supply chain network. Each of these endeavors and these endeavors collectively further extend our capabilities within the life sciences industry requirement for precision, temperature-controlled supply chain solutions and support.

The number of cellular and gene therapy trials will continue to grow, and a greater number of commercial therapies will be coming to market on an accelerating basis for many years to come. To continue to support the life sciences industry and improve our industry leadership position, we are forever committed to proactively strengthening our core competencies and effectiveness. Thereby, we 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.

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.