Cryoport Inc (CYRX) 2017 Q1 法說會逐字稿

Good day and welcome to the Cryoport Incorporated first-quarter fiscal 2017 results conference call. Today's conference is being recorded.

At this time I would like to turn the conference over to Todd Fromer, Managing Partner of KCSA. Please go ahead, sir.

Thank you, operator. Good afternoon everyone and thank you for joining us today for Cryoport's first-quarter fiscal year 2017 conference call.

Before we begin today, I would like to remind everyone that this conference call contains certain forward-looking statements. All statements that address operating performance, events or developments that we expect or anticipate to occur 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 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 and those described from time to time in other reports which we file with the Securities and Exchange Commission.

For those of you that have dialed in by phone, there is a slide deck to accompany these comments which can be found on the events page of the investor relations section of the Company's website, Cryoport.com.

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. Good afternoon, ladies and gentlemen. Thank you for joining us today. With me this afternoon is our Chief Commercial Officer, Dr. Mark Sawicki, who will later during this call give you further context for the growing biopharma market and our expanded role within it; and Robert Stefanovich, our Chief Financial Officer, who will present our financial results for the first quarter of fiscal year 2017.

It has only been a few weeks since we held our last earnings conference call yet we continue to make meaningful progress to leverage fiscal year 2016's momentum to secure additional revenue opportunities and build out our infrastructure for our exciting future. Throughout our first quarter of fiscal year 2017, we continued to ramp new business growth by securing new clients and by expanding with existing clients. Our year-over-year growth was driven by notable advances in our biopharma and reproductive medicine markets. Revenue growth in these markets reflects the success of our ongoing investments in sales and marketing where our dedicated teams have successfully increased brand recognition and reaffirmed our reputation as a best-in-class provider of cold-chain logistics solutions.

Our continuously expanding market share is also supported by our strength and offering of temperature controlled cold-chain solutions and services which now include Cryoport Biostorage, Cryoport Temperature Control Logistics Consulting Services and our revolutionary SmartPak II Condition Monitoring System. I will discuss each of these strategic initiatives in more detail later. But first I would like to give you an update on our sales and marketing strategy.

Our core sales and marketing strategy is primarily focused on securing logistics agreements with biopharmaceutical companies in the United States and Europe. This involves logistics solutions for biologic commodities in support of preclinical and clinical trials. During approval, due to each stages exacting beta requirements, creates long lead times. As clinical trials advance with our respective clients, our revenue ramps. It does take time and sometimes to our frustration it is not reliably predictable as each stage of trial is data-driven.

The increasing understanding of drug and therapy development in this evolving environment we are seeing evidence that our sales and marketing strategy is working. And we are confident that it is advancing our long-term growth prospects on a solid basis. Supporting clinical trials contains embedded gains which will be recognized as our clients progress through clinical trial phases and if successful, ultimately reaching commercialization phase.

As disclosed during our last quarterly call a few weeks ago reporting fiscal year 2016, we achieved a milestone at the end of June by negotiating and signing our first commercial agreement to provide logistic support for the manufacture of a multibillion-dollar drug commercially that is a multibillion-dollar commercially launched biopharma product.

In addition, during the first quarter of fiscal year 2017, we continued signing new accounts with groundbreaking life science companies. For the first quarter, this amounted to 28 new accounts. Our own boarding time for strategic accounts can be nine to 12 months before and impactful revenue is recorded due to the client's specific validation, audit and approval processes required by each new client. While one may view these long ramp up times as delays in revenue, it also demonstrates our clients' commitment to working at Cryoport. Once the client is signed with Cryoport, it has been our experience that they remain loyal and rely on us as a trusted partner. Cryoport now supports 90 clinical trials with 14 of them in Phase 3, the last phase before commercialization.

As you could discern, the number of trials we support continues to grow each and every quarter and on a risk-adjusted basis represents a sizable portion of what we see as our embedded growth opportunity.

From an overall Company perspective, we reported positive trends in growth in both biopharma, reproductive health markets and we are seeing signs of improvement in our animal health market. We believe that our revenue growth reported for the first quarter reflects the continuation of our growing traction and the success of our sales and marketing strategy to target agreements with major biopharmaceutical companies that have potential to significantly scale.

We are gaining market recognition and we are becoming recognized for our competencies. We are rapidly becoming the go-to partner for logistics serving biopharma.

Our revenue for the first quarter of fiscal year 2017 was $1.9 million, an increase of 34% or $0.5 million as compared to $1.4 million reported for the first quarter of fiscal year 2016. Mr. Stefanovich will provide more detail later during our call but for now I would like to comment briefly on our revenue distribution by market.

First, reproductive medicine. During the first quarter, we adjusted our marketing and laid the groundwork for recapturing our growth in the reproductive medicine market. The resiliency of the US demand for human reproductive services drove solid revenue growth of 11% year-over-year for the first quarter, despite changes in international regulation in some Asian countries. Our US business actually topped 43% growth year-over-year while being offset by a 12% decline in the rest of the world market while also the previously mentioned, governmental restrictions relating to medical tourism.

Secondly, animal health; our revenue from animal health suffered primarily due to the slowdown from one of our larger clients. In the first quarter of fiscal 2017, we experienced a 15% year-over-year decline. However, we view this as temporary and continue to see a significant opportunity for growth in the animal health market. In fact, if we look at animal health revenue on a quarter-to-quarter basis, we actually increased revenue 8% over the fourth quarter of fiscal year 2016.

Thirdly, biopharma. The biopharma market is the major driver of our growth and we expect a continued increase in new clients, clinical progressions and commercialization of programs. Our revenue growth for the first quarter was primarily driven by our expanding base of biopharma clients, of which Cryoport secured 28 new clients during the quarter. Biopharma accounts for the largest portion of our total revenue and is our fastest-growing market.

Our continued progress in signing clients with groundbreaking life science companies and the world's foremost biopharmaceutical corporations positions us for future growth and continually validates our reputation as a best-in-class provider of reliable cold-chain logistics solutions. Our market in biopharma is large giving us the opportunity to continue to demonstrate our ability to further strengthen our market position and secure increasing revenues.

In response to market demand, we also rolled out several strategic initiatives during the quarter to accelerate future growth. You may remember that on our last conference call a few weeks ago we talked about Cryoport Biostorage, a service that will provide storage of biologic materials and eventually fulfillment services. A new integration capabilities for our Cryoport operating platform which provides us the ability to manage the entire logistics process, beginning with order entry, paperwork generation, automated real-time monitoring, collection of vital information and continuing to full integration of storage the film a distribution scheduling logistic support and client systems to create centralized, seamless singular data repositories providing the most comprehensive information about commodities during the logistics process and fully supporting and enhancing comprehensive and vital chain of custody and chain of condition information.

During the first quarter of fiscal year 2017, we also launched Cryoport Temperature Controlled Logistics Consulting Services to address cold-chain advisory needs expressed by our clients. This new service addresses the demand created by the worldwide advances and cellular-based therapies which are causing broad shifts and challenges for the life sciences industry and biopharma.

Specifically, these new challenges include how to obtain, properly store and transport the growing number of new individualized temperature-sensitive therapies. Our clients know that improper temperature maintenance or temperature excursions during any portion of a logistics journey can adversely affect the viability of biologically-based commodities quickly destroying tens of thousands or up to millions of dollars of irreplaceable life-saving materials. Consequently, we have identified a gap in the market for strategic global logistics planning for cryogenic cold-chain solutions in our fast-growing Life Sciences market.

As a globally recognized leader in cryogenic logistic solutions for life sciences industry, we can tailor and assemble teams of experts with unique experience at developing customized, innovative solutions to address global cold-chain logistics challenges on a holistic basis including bio-storage fulfillments for distribution and information strategies.

Cryoport Temperature Controlled logistics Consulting Services is now operational and under the direction of Ms. Tamie Joeckel, Senior Vice President, Client Services. Tamie's 25 years of pharmaceutical industry experience including logistics having worked with companies such as AmerisourceBergen, McKesson, PAREXEL and Dohmen Life Sciences put her in a unique leadership position.

Our many years of systems and logistic solutions development have put Cryoport in an excellent position to provide life sciences companies with a wealth of knowledge and best practices for cold-chain logistics. Consequently, Cryoport's Temperature Controlled Logistics Consulting Services is equipped to provide its clients with invaluable benefits and information which is an integral part of any commercial launch discussion.

Although we can't forecast the financial impact of this new service precisely, we have discussed our new consulting practice with a number of life science companies and expect it will have a meaningful revenue impact over time.

During the first quarter of fiscal year 2017, we also introduced SmartPak II condition monitoring system which provides advanced real-time communication, including condition and location data for monitoring critical biological commodities and enhancing our core Chain of Condition and Chain of Custody information. The SmartPak II measures a variety of environmental variables and works in conjunction with the Cryoportal logistics management platform to provide comprehensive and seamless monitoring of commodity conditions in Cryoport Express Shipper performance. We remain committed to staying ahead of the curve and proactively providing solutions to our clients in all markets.

The groundbreaking research and cancer immunotherapies and regenerative medicine now dictate strict temperature and timeline compliance for all biologic materials transported around the globe. Some variables currently measured by the SmartPak II include internal and external temperatures, pressure, humidity, shock and orientation of the shipper. Additionally the SmartPak II System provides Cryoport with the ability to correlate transit related events to the impact on sample integrity, providing valuable insight on crucial logistics planning and equipment performance.

An example of this value occurred during its beta phase. The SmartPak II Condition Monitoring System benefited client by having a shipment saved during transit. In this instance, the SmartPak II notified our client care team of an extended orientation issue during a critical shipment from the United States to the Netherlands. Due to the alert sent by the SmartPak II, Cryoport Logistics Management was able to intervene and ensure the material arrived safely for the scheduled patient procedure. We do not believe that any other company in the world has the capability of advanced monitoring, communication and intervention.

Full commercial release of the SmartPak II is scheduled for August 31, 2016.

Our SmartPak II Condition Monitoring System is a leap forward from anything that is in the market today and we expect it to have a significant impact on cold-chain logistics for the life sciences industry as we have decided to be comprehensive and dynamic. By offering real-time visibility of Cryoport Express Shippers and the ability to communicate with the shippers, Cryoport is redefining effectiveness for quality control and regulatory compliance in supporting new immunotherapies and regenerative medicine.

Our leading cold-chain logistics solutions for the life sciences have become essential tools for the logistics of temperature sensitive commodities. To our knowledge, we are unmatched in the science, technology and engineering behind our solutions and services. We are committed to continuous improvement in our capabilities and supplying solutions that the global life science market is demanding and/or will require in the future.

These offerings serve to ensure that we continue to have the most comprehensive end-to-end services and tools for tailoring client specific cold-chain logistics solutions. For Cryoport, science, logistics, certainty is not just a tagline it is a mandate as we work to strengthen Cryoport's position as the go-to provider of choice for all cold-chain logistics needs in the biopharma, reproductive medicine and animal health markets.

We are proud to enter fiscal year 2017 with an undeniable strength in our business culminating in the year-to-year revenue growth of 34% for the quarter. This is a sound start to the year, particularly when viewed in the context of the many embedded growth opportunities associated with our biopharma client base.

At this point I will turn the call over to Dr. Mark Sawicki, our Chief Commercial Officer, who continues to do an excellent job in leading Cryoport's global sales and marketing initiatives. Doctor Sawicki and his sales and marketing team are enabling us to get a firm foothold in the life sciences industry and to form important client relationships with major biopharmaceutical companies. You will find Mark's comments interesting but please hold your questions for Mark until the question-and-answer period.

Mark, the floor is yours.

Thank you, Jerry. It is a pleasure to have the opportunity to speak with you today. The biopharma market continues to experience robust growth and excitement as it enters a new phase of its evolution in particular with the aggressive expansion and maturation of the regenerative medicines market. This market includes cell-based therapies which include CAR-T Therapies, gene therapies, biologics as well as tissue engineering therapies and represents more than 685 companies on a global basis.

In fact, there is mounting excitement in this space with a number of the leading CAR-T projects expected to be filing for US approval over the next 12 calendar months.

Moreover, biopharma companies continue to make significant investments in developing CAR-T cell therapies with more than $1.3 billion in financings in the recent fiscal quarter alone. Over the next 12 to 18 months we anticipate additional CAR-T projects will be filed for US approval and we expect to see the first commercial projects coming to market in the space.

What this dramatic shift means in practice is that multibillion-dollar companies have aggressively invested in the building out of their portfolios on the understanding that CAR-T cell therapy could become the standard therapy in certain refractory cancers.

Recent announced industry partnerships include a $2 billion investment by Biogen with the University of Pennsylvania to develop gene therapy treatments and Regeneron's $125 million licensing deal with Intellia Therapeutics to develop CRISPR and Cas Therapeutics.

The majority of these companies rely on Cryoport to optimize their entire logistic supply chain in support of their clinical trials and ensuing commercialization activities. The early adoption of our services in this exponential growth area of the biopharma marketplace and the potential for us to scale with our clients as their therapies are approved is very encouraging.

Our cold-chain logistics solutions are currently supporting 23 out of the 28 leading clinical stage CAR-T sell programs that are ongoing. Cryoport is also now supporting more than 90 clinical trials including 14 Phase 3 programs. In addition, at the end of the first quarter of fiscal year 2017, we signed our first agreement to support the manufacture of a multibillion-dollar commercially launched biopharma product as we previously disclosed.

As more clinical data is generated and results are interpreted, the more and more likely it appears that regenerative medicine will become an integral part of the teacher of healthcare. We are extremely excited that Cryoport is so well-positioned to leverage this industry growth. There are now more than 685 companies involved in gene and cell therapies worldwide and they are supporting more than 728 clinical trials including 66 Phase 3 programs and the number of new entrants continues to accelerate.

It's hard to over emphasize how important Cryoport solutions are to the success of this market. Biopharmaceuticals are incredibly sensitive to these slide is changes in temperature, pressure, humidity or other conditions. A very specialized approach to transporting biologic materials is absolutely vital to maintain the integrity of the product, especially for air cargo shipments where temperature excursions account for approximately $12 billion in pharmaceutical product loss each year according to the International Air Transport Association.

As only publicly listed -- the only publicly listed pure play cryogenic logistics provider to the biopharma space, we operate in a very niche and lucrative segment of this market. Cryoport has been very active in client engagement in this space. As I stated previously, we have expanded the number of clinical trials we support to 90 including 14 Phase 3 trials which has expanded our market share in this space to more than 12% of the total clinical market and 21% of the Phase 3 pipeline. And in fact, of those 14 Phase 3 projects, we are heavily engaged in commercialization discussions with six companies on their launch needs, the earliest of which is set to launch in late fiscal year 2017 or early fiscal year 2018.

In addition, we also signed for the support of our first commercial program with one of the largest pharmaceutical companies in the Americas, supporting a multibillion-dollar biologic product that is already on the market. Although this happened in the first quarter of fiscal year 2017, we had already disclosed it on the fourth-quarter call for fiscal year 2016, so we will not readdress it here.

I would like to reiterate however that this was a very important milestone for Cryoport as it validates our competency to support commercial programs for the clients we are currently working with. This includes clients of the 90 clinical trials we currently support and gives us a new world renowned customer in the biologic therapeutics market which is estimated to represent more than 20% of the worldwide pharmaceutical market in 2017. We expect this program as well as the maturation of the clinical programs in our portfolio to accelerate our revenues in the biopharma space throughout fiscal year 2017.

Thank you. I will be happy to take questions during the Q&A period. Now I will turn the floor back to Jerry.

Thank you, Mark. Now for a more detailed discussion of our financial report for the first quarter fiscal year 2017, I would like to introduce our Chief Financial Officer, Mr. Robert Stefanovich. Robert?

Thank you, Jerry. Good afternoon, everyone. I will now review the financial results for the first quarter of fiscal year 2017, provide some additional comments and then turn the call back over to Jerry.

As a reminder, our current fiscal year ends March 31, 2017, and today we are reporting on our first quarter of fiscal year 2017 which ended June 30. Now to our first-quarter results.

Our net revenues for the first quarter were $1.9 million, an increase of 34% or $486,000 as compared to $1.4 million reported for the same quarter last year. As you can see, we continue to show strong double-digit revenue growth. This growth was driven by our biopharma clients where revenue increased by 60% to $1.3 million compared to $0.8 million for the prior year first quarter. We added 28 additional new clients in this market and now supporting 90 clinical trials of which 14 trials are in Phase 3. This increased activity in biopharma and the clinical trials space in particular continues to be the growth engine for Cryoport with a promise of significant revenue streams as these clinical trials advance and resulting therapies are commercialized.

Although not all drugs will move through the commercialization phase, given our broad client base in the biopharma market, our overall commercial success is not tied to the success of one particular drug or therapy. We believe this to be important to investors as the assess their investment risks in this attractive market.

Revenue in the reproductive medicine market increase by 10% to $370,000 for the quarter compared to the last year's first quarter. This increase was primarily driven by revenue growth in the US market of 43% partially offset by a lower revenue ramp of 12% year-over-year related to regulatory changes in Asia regarding medical tourism.

Our revenue in animal health decreased 15% to $229,000 for the quarter compared to the same period in the prior year due to the lower shipping volumes we mentioned during our last earnings call but they did grow sequentially by 8% compared to the previous quarter.

Gross margin for the quarter was 41% as compared to 34% for the same period last year. This is an improvement of over 6 percentage points and reflects several management initiatives to drive margin growth towards our target of 60% as we grow the business and benefit from economies of scale.

The improved gross margin was driven by increased business volume and pricing adjustments as well as a reduction in freight as a percentage of revenues. Operating expenses increased $0.7 million for the three months or 31% as compared to the prior year quarter. General and administrative expenses increased by $288,000 or 25% for the quarter. This increase is primarily due to increases in non-cash stock-based compensation expense of $222,000, facility expenses of $42,000 related to the move to our new facilities in Irvine, California, and an increase in salaries and associated employee costs.

Sales and marketing expenses increased $312,000 or 35% for the quarter. This increase is primary due to increases in salaries and associated employee costs in the aggregate amount of $133,000 incurred to expand our sales and logistics force, targeted marketing initiatives to support our sales efforts in the amount of $111,000, non-cash stock-based compensation expense of $27,000, and facility expenses of $26,000 related to our office move.

Research and development expenses increased $58,000 or 75% for the quarter as compared to the prior year first quarter. This increase was primarily due to salary and associated employee costs related to the addition of a research and development engineer. Our research and development efforts are focused on continually improving the features of the Cryoport Express Solutions including the Company's cloud-based logistics management platform, the Cryoportal, the Cryoport Express Shippers and development of additional accessories to facilitate the efficient shipment of life science commodities using our solution.

In addition, research and development efforts have been directed towards developing our advanced condition monitoring system to SmartPak II.

Net loss attributable to common stockholders for the three-month period ended June 30, 2016, was $3.9 million or $0.28 per share compared to $6.6 million or $1.31 per share in the last fiscal year's first quarter.

Q1 of fiscal year 2017 included warrant repricing expenses of $1.9 million related to the warrant tender offer that was completed April 7, 2016. And Q1 of fiscal year 2016 included a preferred stock beneficial conversion charge of $4.5 million. These are both non-cash charges.

Cash and cash equivalents as of June 30, 2016 was $4.5 million compared to $2.8 million at fiscal year end March 31, 2016. In addition to the cash on hand, we completed two equity raises during the quarter. In April, we completed a warrant tender offer raising $2.5 million in gross proceeds and in June, we completed a rights offering for gross proceeds of $1.3 million.

In addition, we just commenced an exchange offer with respect to the Company's outstanding 7.1 million warrants with an exercise price of $3.57 per share. For a limited period of time, the Company's offering to the holders the opportunity to exchange such warrants for an equal number of warrants to purchase one share of common stock at an exercise price of $1.50 per share, condition upon the immediate exercise of such warrants and one warrant to purchase one share of common stock at an exercise price of $3 per share for every four warrants exercised. This equates to 25% warrant coverage.

The supplemental warrants have a put option that is triggered when our common stock equals or exceeds $4.50 per share for 10 consecutive trading days. The offering is scheduled to end September 16, 2016. The funds raised in the exchange offer will be used for working capital purposes and to continue to drive customer acquisition and revenue growth. This exchange offer is also expected to reduce our warrants outstanding which improves our capital structure. We filed a prospectus outlining the terms and conditions for this offering last week.

We currently have 50.2 million shares of common stock and 9.1 million warrants outstanding. We have no preferred stock outstanding. And lastly we filed, we just filed our Form 10-Q with the SEC.

With that, I will turn back to Jerry. Jerry?

Thank you, Robert. (inaudible) I would like to thank all of our loyal, long-term shareholders for supporting us in this pivotal time in our development. As you have heard, much of our future growth will be fueled by regenerative medicine which is a cutting-edge area of healthcare that has been on the receiving end of billions of dollars of investment in recent years and over the next months and years is expected to become an increasingly normalized treatment option.

We have described ourselves in the past as a crucial supporting service to the life sciences, the pick and shovel of regenerative medicine as we are a support system for the multibillion-dollar corporations that have invested in this space.

In addition, it's important to note that with every quarter passing, we become more and more established with an increasing number of clients.

Our advanced solutions require talented people in multiple leading edge technologies to provide the reliability essential to maintaining our role as a trusted third-party cold-chain logistics provider to the life sciences industry, attributes that cannot be easily replicated.

As a result, we have faced minimal competition in a high-growth sector leaving our team well-positioned to seek new clients and grow market share. By significantly investing in our research and development work, we are ensuring that our solutions will remain unmatched by new entrants to the market.

Our client list demonstrates that our solutions are in demand by even the most discriminating of biopharma companies. By embracing the long ramp up times for new clients, we have established a strong foundation for growth as a result of the embedded opportunities inherent in our existing client base.

Financially we are in the strongest position of our existence. We understand the cost of growth. As for uses of funds, infrastructure development and maintenance keeping it in tune with industry demands, having qualified and trained people, having sufficient facilities in inventory and having sufficient working capital requires continuous investment. It is our goal to become cash flow positive as soon as practical. However, these are essential investments.

We will continue to manage costs responsibly while aggressively growing the business and putting it in a position of dominance for the future which we think is the right strategy for serving the market on a sustainable basis and creating shareholder value.

In short, we are proud of the progress we have made to date. We will continue to prudently invest in our business to grow it, protect its market position and endeavor to maximize shareholder value. We are an incredibly excited about our future. Personally, I think we are now in the time long-term shareholders have anticipated.

Thank you for joining us today. We hope you found our call informative. We appreciate your supports and your confidence in Cryoport. This ends our formal remarks, our prepared remarks. Now I will turn the floor back to Mr. Fromer who will open the call for questions.

Thank you, Jerry. Operator, could you please begin to take questions.

(Operator Instructions). [Fred Ora], a private investor.

Hi, Jerry. I had a couple of just mechanical questions. First of all, I really appreciate management trying to give us some metrics so we can get a feel for how revenues may progress in terms of customer count and the count of trials that are in various stages. I think you gave us some metrics, estimates on potential revenues from clients in each stage of clinical trials.

But I believe you said that you had ended the March quarter with 78 client relationships and added 28 in the first quarter and ended with 90. Does that mean that there were 15 or 16 failures within clinical trial of the customers you had at the end of March or are you counting customers that are not quite up and running it? I just wanted a little more clarity on that particular number.

That's a good catch and I'm going to turn the call to Mark because he will have the answer at the tip of this tongue.

Thank you, Jerry. So the numbers you are looking at are two different things. So first and foremost, the 78 supported clients with a number clinical trials we are supporting at the end of the last fiscal year, that number has increased by 12 trials to 90 clinical trials. The total number of clients that we are supporting is well over 500 clients and so we've added 28 new clients to that roster of over 500 clients. And I don't have the exact number in front of me but it is probably close to 600 at this point.

Are the multi-hundreds of clients you are supporting, what are they doing? Are they going to be entering clinical trials at some future date or I don't understand what you mean by supporting them.

Well, there is a wide diversity beyond clinical trials that require the type of services that we support. So (multiple speakers) cell lines and tissue samples and organs and all kinds of other elements that aren't necessarily clinical related.

Okay. I was trying to build a revenue model in your pharma division based just on clinical trial work and I can't do that is what you are telling me.

That is correct.

Okay. And the second thing that again going back to your last conference call, Jerry tried to give us some metrics with regard to your revenue potential as you move through the various clinical trial stages. And it looks to me like many of the CAR-T trials in Phase 3 currently are quite small in number so I am presuming that those Phase 3 trials if they are up and running are not nearly commensurate with the kinds of revenue potential that Jerry had mentioned in that call. I have seen some of these trials but as few as 20 to 30 patients and I don't think that generates very much shipment volume for you guys. Is that a reasonable takeaway for me to make in your opinion?

It is very difficult, you can't just go in and look at a clinicaltrials.gov data base to get an understanding of shipment volumes. You may have a treatment that has one shipment per patient, you may have a trial that has 16 to 20 shipments per patient. It is very, very varied. So the biggest limiting factor in regards to revenue generation around clinical trials is their patient enrollment and whether or not they are on target or they are slow in regards to their enrollment processes. That is where we see the most volatility

And of the 14 Phase 3s, I assume some of those are still in the recruitment stage and not actually up and running?

I think that is a fair assessment.

Okay. Final question, will you start to book revenues in the current quarter from the commercial customer you signed late last -- you announced at the last conference call?

The answer is yes. There will be a ramp up there. It doesn't -- the floodgates don't just open.

I understand but you will start seeing some shipment volumes from that customer in the current quarter?

Yes, they have started shipping with us, that is correct.

You guys are completely wrecking my ability to forecast revenues. But anyway what are you going to do. And by the way, I was very impressed with the cost of goods sold numbers on that revenue increment. It gives a lot of credence to Jerry's long-term forecast of trying to approach 60% gross margins because it looks like that is in fact that is what you demonstrated incrementally in the quarter. So kudos. With that, I will shut up.

David Halperin, Stifel.

Good afternoon. As before I have a couple of questions for different players here. Jerry, I would like to start with you. You were touting your relationship with Kite earlier but recently they announced a 10-year supply agreement with BioLife Solutions. How does that impact our relationship with Kite?

It is totally separate. The 10-year relationship with BioLife Solutions is for a cryo solution. It has nothing to do with what we do nor does BioLife Solutions have anything that is competitive with Cryoport. We are in the cryogenic logistics area. The primary product for BioLife Solutions is cryo solutions and they are quite good at that. So that is their 10-year agreement. It doesn't impact us at all. In fact we are very quite close to Kite.

Okay. Robert, I haven't had an opportunity to read this recent filing on the warrant conversion pricing, it just came out I think Friday. But how much are you expecting to raise from that and how is that going to impact the consolidated statement of operations?

We just commenced with it. We do know that there is shareholder interest. But we are not at this stage in the position really to say where it will come out, what the participation will be but we do believe it is an attractive offering to the investors that hold these warrants. At the same time, it allows us to bring in funds and any additional warrant that we issue as I mentioned earlier, there is a trigger and that will then enforce the conversion and bring additional funds into the Company as well.

But you may be statement at the end of your presentation that it wasn't going to impact the number of common shares outstanding. I'm confused by that. Did I hear you correctly in what you said?

No, no. Let me clarify, you did not. So it really allows us to eliminate some of the warrant overhang so it will add additional common stock that are registered under the registration statement that we filed last week. But it will reduce the warrant overhang that we have.

Okay, got it. Mark, I have a question for you. This contract manufacturer that Fred was just talking about, they are unnamed. At some point are you going to be able to tell us who that is?

Yes, that is our goal. One of the challenges that we have is there is a large number of our clients that view us as a competitive advantage and almost proprietary information. And so we have to massage that in which to get them to allow was to disclose obviously the nature and the extent of the relationship itself. Our goal is as it matures that we will be able to name names so to speak.

And I just wanted to clarify one other aspect on that BioLife Solutions that Jerry was talking about. So what BioLife does is they produce what is called a cryo preservatives. So this is the actual solution that the cells are suspended in when they are frozen. So it has nothing to do with actual transportation, it has to do with the laboratory processes of freezing and thawing the cells. They are two different things.

But in the announcement that they made, they said that they were going to support Kite throughout the entire process which hinted that that would include the transportation logistics.

It has nothing to do with -- it was the movement of cryo preserved materials at all whatsoever.

You could say that. Remember it is a solution, you have to transport the materials and solutions and that is very skillfully phrased so they do a good job in an area of their cryo solutions.

One of the things you have to differentiate with it is that a lot of folks will talk about logistics of movement of materials around within laboratory settings as logistics but it is on-site laboratory logistics. And I do believe that they are trying to at least put a product on the market that will facilitate movement of aphaeresis product around at 2 degrees to 8 degrees. That is not cryogenic though.

Okay. Do we support BioLife Solutions, are they a customer of yours?

No, they are not currently a customer but we do have conversations and I'm associated with their CEO and know him reasonably well. We are not close or anything of that nature nor do we have any kind of a strategic agreement but we do talk from time to time.

Okay. Let me move on. Can you give us any background as to why Levi & Korsinsky is investigating you for possible breaches of fiduciary duty by the Board?

Yes, I can give you a point of view. They are a disreputable outfit that does what a lot of law firms do. They try to extort things. We have received nothing from Levi from any court or anyone else. We are totally above board. They have no basis for what they are doing but it is Wall Street's version of ambulance chasers as far as I'm concerned.

Probably a short seller put them up to it to try to keep our stock price down because we have an offering out. Who knows, it is all speculation. You are in this game for a lot longer than I am, David, on that side so you probably have your own suspicions as to who it is. But it is part of a hazard of being a public company, something that -- that we have to put up with but it is certainly not desirable. There is no basis for it.

But I also know that these guys frequently extract money from firms frequently.

I can't do much about that except find out what is going on after the call. I was as surprised to see that as anyone just before the call. Very strategically timed by the people who are trying to do what you just suggested, extract funds from a company.

All right. My last question, Jerry, is for you. I am on the same page as you guys, I want the same outcome you want and I'm very excited for what you are doing. But reality is that last year after coming up awfully short of your estimates that you gave us you withdrew your revenue guidance, you withdrew all of your estimates as to when we would get to cash flow breakeven and we had three capital raises all of which are dilutive to existing shareholders. But yet you rewarded yourself with a substantial amount of stock. I don't have the exact number but I thought it was 800,000 shares.

Although you continue with your optimistic outlook that you just gave us today, you have yet to materially capture even really a minute fraction of the global deep frozen market which I think you yourself said exceeds $1.5 billion. So can you give us a hint as to what we should expect for your compensation for this year?

I need to correct your assertion and certainly your understanding if you stated your understanding. First, I don't award myself anything. I work for the shareholders through a Board of Directors. The Board of Directors controls the compensation to me. I take a miniscule amount of cash in this Company, probably a sixth of what -- or even less than that, 10% of what before coming (inaudible) to work. Those options are at $5 a share at this point so that you just mentioned. So to imply that I have some kind of a gift is ridiculous. I am incentivized by the same thing that any other shareholder is incentivized by in addition to the personal investment, cash investment, that I made in the Company to keep it alive and support it and to get it to the point that it is right now.

So anything that comes at me that focuses on anything to do with me doing anything inappropriate is absolutely an inappropriate assertion, cannot be founded and has no basis for assertion. So that is number one.

Number two, my compensation is governed by the Board. My cash compensation is $300,000 a year and it has not gone up one nickel since I came 3.5 years ago. The Board of Directors, the compensation committee will make that decision, not me. I am simply the CEO. I work for the shareholders through the Board of Directors.

And I get all of that and I am not accusing you of anything. I am just saying as a shareholder we have been here a long time, we have heard a lot of promises and with the share price continually dropping, it allows for more dilution which we are experiencing with every capital raise and every time shares are given to your entire staff.

You know it is not just my staff, it is every shareholder, it is every employee in Cryoport because (inaudible) have options in this Company. And as far as dilution is concerned, dilution -- you can look at dilution in a number of different ways. I mean it requires investment essential investments that I tried to make clear in my comments to get the Company at scale and to get the Company to the point that it can provide the solutions that are required.

It also to get new and to continue to get new customers, it is going to require much stronger balance sheet. So I can only act responsibly. I mean my first job is to make sure that the shareholders -- it is a balance in serving your shareholder. You can have 100% of nothing or you can have a portion of something that really has some value. And what we are about here is creating true value and once we are cash flow positive, this discussion doesn't have the same kind of levity as here.

I know that long-term shareholders have suffered from the financial point of view. Believe me, I know that in spades. I talk with shareholders all the time including you from time to time and I am sympathetic to that. I have my own investments in this Company and it is all under water as well as investments in other companies that are under water. I know what shareholders feel.

We act responsibly, we make the essential investments that are necessary to get us to the place we are. Three and a half years ago we were $500,000 in revenue. We closed last year and $6 million. Sure, I missed an estimate because a couple of things didn't come through. It kind of burned me and I said I'm not making any more estimates. I'm just not going to do it. We are too small and because we are data driven, there is too much uncertainty I can't do it in good faith. So I decided not to do it because it wasn't in everyone's best interest including yours to be hanging your hat on something that I might say that has a high degree of risk involved.

So I didn't make them and I decided not to make any more. So all I can say is that we try to balance these things and I am concerned about shareholder value. I am concerned about responsibly but if I don't we don't do what we are doing now, we don't have a future.

I hope that makes sense to you, David.

[Randy Regus], private investor

Just one question. I appreciate your comments on the Bio Solutions Company. As far as the cash position, so the loss this quarter is $3.9 million, how much of that was cash? I know there was quite a bit of non-cash.

So if you look at what we have in terms of cash and non-cash for the quarter, I think last time we mentioned a cash burn of roughly about $580,000 and we don't expect the cash burn other than cash needed to build up our inventory of shippers and monetary systems but regular operating cash burn to change significantly.

Very good. That is all I have.

Stephen Balinskas, Source Capital Group.

Good afternoon. Thanks for taking my call. Actually I think Mr. Halperin scooped me a little bit because I too would like to ask about the current warrant tender. And I guess my first question is I think you are looking for a maximum up to about $9 million I think. And so if you realize something approaching the maximum, do you think (inaudible) at least a year or so or (inaudible)?

The answer to that the way you phrased is it would be up to pure speculation because first of all, we have no idea how this is going to come out. We think this is a really compelling offer for the warrant holders. But who knows how many people are going to want to buy in or you are in a financial position to buy into it. We simply don't know. So to make that speculation I don't think would be responsible right now.

Actually that had something to do with my second question. But no, if you did realize something approaching $9 million, if that might keep you funded for about a year.

But part two of my question was and this is perhaps just going to be a guesstimation on your part which I'm sure you are loathe to do. But does the current tender -- is the (inaudible) roughly the same investor base as the last one -- let me explain if I can. For the April Board tender, you guys had what I would term a pretty good take up on that tender I think 83% of the maximum you were looking for. I would call that was pretty good. These warrant holders holding warrants at 350, are they roughly the same group of investors do you believe that were holding the other warrants realized in the last tender?

I don't know that we are in a position to comment on that actually about who sold what. I just don't think that we are.

Okay, fair enough. Thank you very much.

With no other questions in queue that will conclude today's conference. Ladies and gentlemen, we thank you for your participation. You may now disconnect.