Thermogenesis Holdings Inc (THMO) 2011 Q4 法說會逐字稿

Good afternoon, and welcome to the ThermoGenesis fiscal year 2011 year end conference call and webcast. All participants will be in listen only mode. (Operator Instructions). After today's presentation, there will be an opportunity to ask questions. (Operator Instructions). Please note this event is being recorded. I would now like to the conference over to Matthew Plavan, Chief Financial Officer and Executive Vice President of Business Development. Please go ahead.

Thank you, and good afternoon, everyone. With me today is Mel Engle, Chairman and Chief Executive Officer. Mel will review key events at the Company since our last call and during fiscal 2011 and provide an update on our strategic plan. I will follow up with a discussion of our financial results and for the quarter, and then we will open the call up to your questions.

Before turning the call over to Mel, let remind you that the statements made during this conference call that are not historical facts and are forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in these statements. Including, but not limited to, certain delays beyond the Company's control with respect to market acceptance of new technologies and products, delays in testing and evaluation of products, initiating and successful completion of clinical evaluations and trials for new claims on existing products, capital resources required to fully execute business plans and other risks detailed from time to time in the Company's filings with the SEC. Now, I would like to turn it over to Mel.

Thanks, Matt, and good afternoon, everyone. We are broadcasting today our conference call from New York City. ThermoGenesis will be speaking tomorrow at the Rodman & Renshaw Annual Global Investment Conference at 10.00 AM at the Waldorf Astoria. If you are in town, you may want to catch the presentation. Or you can avail yourselves on the worldwide web to hear our presentation.

The Company realized some important milestones in the fourth quarter of fiscal 2011, highlighted by FDA clearance of our 510(k) submission for the use of ResQ system technology and the preparation of Autologous Platelet Rich Plasma, or PRP. In addition, we initiated the commercial launch and ResQ for bone marrow indications in India following its registration approval in the prior quarter and continue to advance our clinical evaluation efforts. These are among a number of the other major accomplishments of the Company realized during fiscal 2011, and I will highlight them now.

First, the FDA's 510(k) clearance of ResQ for PRP that I have referred to a moment ago, we have had a highly encouraging discussion with potential partners, and anticipate announcing our first distribution agreement in sports medicine by the early part of next quarter. Second, our ability to achieve a strong improvement in the Company's financial performance due to improved gross margins, reduced operating expenses and improved operating efficiencies. As I will discuss shortly, we reduced our net loss year-over-year by more than the 50% and recorded the lowest annual net loss in 15 years. Third, our major progress in China, and this includes A, our promising relationship with Nanchang Memorial Medical Institute, better known as Nanchang, that entails a 4 year distribution agreement for ResQ and MXP in China and Hong Kong. In addition, Nanchang also has committed to adopt the AXP and BioArchive for use in their cord blood banks in China.

B, we signed exclusive product purchase agreement for the AXP and BioArchive with Beike Biotechnology in China. We will be collaborating with Beike on the development of new enabling technologies to maximize automation of their workflow process for the expansion of certain kinds of stem cells from umbilical cords and cord blood. [Boil Life] became the first operating cord blood stem cell bank in China to commit to the AXP and BioArchive. We are hopeful to receive registration approval in China for the AXP by the end of our second fiscal quarter, and for our bone marrow products for the fourth quarter of fiscal 2012. More about that later. Our agreements with Nanchang, Beike and Boil Life provide us with a strong footprint for our cord blood and bone marrow products in China. To compliment these relationships, we also signed an agreement with Dr. Gu, a leading clinician in China to conduct a multi center clinical evaluation for ResQ in treating critical limb ischemia, or CLI, in their patients.

Fourth, we strengthened our balance sheet by approximately $4 million in growth capital through our offering of stock and warrants in March and added a new institutional shareholder. Fifth, we achieved important milestones in India, including the aforementioned regulatory approval for ResQ in the initiation of a CLI clinical evaluation for ResQ with our partner there, Totipotent. This study, along with Dr. Gu's study in China is emblematic of our strategy to expand clinical evaluation efforts to generate positive data about the use of our products to facilitation their adoption. Before discussing these and other accomplishments in more detail, I will provide a brief overview of our financial results for the quarter and yearend.

Revenues for the fourth quarter of fiscal 2011 were $5.4 million, in line with the expectations outlined in our prior call and compared to $7.2 million in the same quarter one year ago and $5.2 million in the prior quarter. Our performance in the fourth quarter of fiscal 2011 was affected by the continued softness in the cord blood market in the US and Europe, consistent with what we have discussed with you in the past. Generally, approval timelines for our products in key international markets such as China and India are taking longer than our original expectations. We believe these delays are bureaucratic in nature and not systemic to our products.

Finally, we did experience some modest growth year-over-year in ResQ product revenues. Total year revenues for fiscal year 2011 were $23.4 million, which is a slight increase over revenues in fiscal 2010. Our revenue performance for the year reflected our ability to offset, in part, the slowdown in the US and European cord blood markets with growth in the Latin American and rest of world markets while we continue to be the market share leader in the US in cord blood. Additionally, we experienced a $1.7 million increase in ResQ revenues as selling technologies continue to expand its presence in the bone marrow market, and an $800,000 year-over-year increase in BioArchive's non-disposable revenues, driven in great part by continued expansion in international markets.

We were pleased with our ability to reduce our net loss for approximately $2.6 million, or 51% for the year, despite phenomenal growth in revenues year-to-year due to the measurable improvements in gross margin and a more than $1 million decline in operating expenses. As we have addressed in prior calls, our ongoing operating costs, which are really our cost of goods sold and operating expenses, were reduced due to expense controls, more cost effective disposal manufacturing and reduced headcount. These savings were offset by banking and other fees related to our investments in business development initiatives. Matt will provide additional color on our financial results during his comments, and I will turn now to accomplishments on our business and provide you with some perspectives on the Company's future outlook.

First, as noted earlier, we were pleased to receive FDA's 510(k) clearance for ResQ for PRP in June. The ResQ technology has been demonstrated to be well suited for the preparation of PRP, and clinical literature indicates that there is a wide range of potential applications for PRP, including orthopedic and cardiovascular indications. We have in place our license and distribution agreement with BioParadox Inc. focusing on point of care cardiovascular therapies and with our new FDA clearance, we expect to complete our first agreement for sports medicine during the next quarter and initiate commercial sales in the PRP market by the second half of fiscal 2012.

Second, in the cord blood market, we are continuing to work with our partners in China on advancing the product registration process. We are seeing continued growth in this market. In fact, China cord blood recently announced a nearly 45% increase in cord blood banks subscribers for their fiscal year ended in March, and the expectation is that the market will continue to grow at a considerable rate for the foreseeable future. Our automated AXP product entry will be a natural fit as this market growth has been driven using only manual methods of cell separation to date. These metrics support our belief that the cord blood market in China could equal or surpass the US market and reach $200 million by the middle of the decade. We believe our technology and the outstanding partnerships we have fostered in the market provide us with a strong first mover advantage for both our cord blood and bone marrow products.

Our position in China should provide us a strong foundation from which to build our business in other Asian markets. Recently, Beike, which has adopted our cord blood processing and storage technology, has opened a second cord blood location and have several other cord blood stem cell banks in the country. We are in the process of completing the training and validation process in the anticipation of their use of our technologies in the near future. I should also note that during the fourth quarter, we made an initial shipment of AXP systems and disposables to CEI, which are being placed with customers in Mexico and Brazil. We see these 2 countries as important growth opportunities for us, and we expect an upward ramp in our business from these geographies during fiscal 2012.

In India, we continue to advance our bone marrow product initiatives with our partner, Totipotent. Since receiving regulatory approval for ResQ in India, Totipotent has initiated a commercial sales program there. In addition, Totipotent has started an evaluation of our ResQ technology for PRP. The use of new stem cell technologies in India is expanding, and we believe ResQ can be an important player in the market. The CLI evaluation we are conducting for ResQ with Totipotent in India continues to enroll patients. Totipotent is also in the process of developing additional ResQ clinical evaluations it can execute through its more than 50 partner hospitals.

With respect to our other clinical evaluation programs, some quick updates include first, the CLI study for MXP in Naples completed enrollment. Due the unfortunate illness of our primary investigator, enrollment will be capped at approximately 10 patients versus our target for a greater enrollment number. However, we remain pleased with the first year results reported in last year's ISCT conference in Italy. First year data established the safety of the MXP for use in CLI and generated encouraging initial efficacy data regarding increased circulation to occluded extremities. We will continue to provide relevant updates as we follow these patients through the second year of the study.

The ResQ evaluation being conducted by selling technologies in conjunction with UC Davis has enrolled 10 of the 20 planned patients. The study is exploring the use of ResQ in the development of stem cell therapy for non-union and long bone fractures. The protocol for the CLI clinical evaluation we are conducting with Dr. Gu in China has been approved by the Chinese authority We expect enrollment of approximately 25 patients will be completed by early calendar 2012 in up to 3 centers in China. Patients will be evaluated at 1 and 6 months for limb salvage and amputation rates, pain-free walking and blood profusions, among other metrics. We expect initial data from this study will be presented in the spring with the full dataset published in a peer review journal approximately one year later.

Before providing some perspectives on our outlook for the Company, I want to knowledge that are the service of Dr. Mahendra Rao who served on our Board of Directors for more than 3 years. Dr. Rao resigned from the Board in July as he has taken a position with the National Institute of Health and is precluded from remaining on our Board due to the federal government conflict of interest regulations. He provided our management team great counsel during his time with the Company.

At the same time, I'm delighted to welcome Robin Stracey who has taken Dr. Rao's seat on the Board. Robin is the Chairman, President and CEO of Cantimer, Inc. in Menlo Park, California. Cantimer develops miniaturized detection and measurement systems for a broad range of targets such as viruses, proteins, electrolytes, et cetera. Cantimer's initial focus is on the prevention of dehydration related to conditions of at-risk populations, including infants and the elderly. Previously, he served as President and Chief Exec Officer of Applied Imaging, a leading medical device company in the fields of clinical cytogenetics, digital pathology and cancer research, which is now part of Danaher Corporation. He has more than 30 years of management experience in the healthcare sector with companies such as Thermo Fisher Scientific, Dade Behring and DuPont. Robin brings a wealth of experience in both the life science tools and diagnostic sectors, and his industry expertise will be of great value as we implement our growth initiatives.

As we begin 2012 -- fiscal 2012, I think it is important to articulate why we are confident about the Company's future. First, we are experiencing growing interest in our cord blood and bone marrow offerings in expanding markets such as China and India, and we are partnered with leaders in these important geographies. Second, we have an achievable plan in place to leverage our technology assets and expand our regulatory and clinical initiatives to facilitate regulatory approval and increase adoption as evidenced by our recent ResQ PRP and 510(k) clearance. During fiscal 2012, a significant portion of our engineering research and development expenditures will be applied towards our current offering to enhance quality and achieve lower manufacturing costs and also to evaluate product line extensions and enhancements

Third, the Company's position for more positive bottom-line performance with a lower cost of goods, as reflected in our increased gross margins. In addition, we are successfully managing operating expenses while making prudent investments in growth initiatives that could provide us long-term and lasting returns. Forth, with our solid balance sheet of more than $12 million in cash and no debt, we have the resources to fund the product development and commercialization elements of our growth strategy. However, we will remain opportunistic with regards to possible enhancements of our cash reserves in light of the inherent uncertainty in the global markets we are targeting. We believe the growth capital we raised earlier this year will enable us to fund programs that will facilitate the development and launch of new products and expansion into new markets, as well as improved manufacturing efficiencies, business development partnerships and strategic joint ventures.

In summary, we believe managing the Company with a balanced mix of growing revenues and investments for the future represents the best strategy for maximizing shareholder value. Our strategic focus going forward to achieve sustained profitability is based on 3 fundamental principles which we believe will enable us to capture more of the value chain. And these 3 principles are; first, growing our core business to the geographic expansion and entry into the indications utilizing our existing commercialized platforms and line extensions. We will seek to maximize the reach and efficacy of our global sales and distribution efforts, particularly in the high-growth markets such as China, India, Russia and Brazil and accelerate our efforts to achieve product registration and regulatory approvals in these new markets.

Second, turbo charging our core business growth through business development, targeting product develop partnerships, new technology acquisitions and strategic alliances. Potential opportunities include new platform processing systems such as expanded cord blood market applications and adjacent markets including cell expansion, harvest and administration. And finally, third, expanding the clinical efficacy data set for our platform products to enhance their therapeutic value and drive adoption for current and future indications. The FDA process regarding device approval is currently in flux, and we are anticipating future regulations will result in the need for more devices to receive class 2 510(k) clearances. Therefore we have to plan for filing 510(k) clearance in each new indication we pursue. As a result, we are planning to increase our research and development investments to fund the necessary clinical studies that will be necessary to achieve these clearances.

As regenerative medicine market continues to grow at double-digit rates, we are excited about the potential product and geographic opportunities that lie ahead. We are believe we are well positioned for the future. Thank you again for joining us today, and I look forward to speaking with you during the Q&A session. I will now turn the call over to Matt.

Thanks, Mel. Before reviewing our financial results for the quarter and the full fiscal year, I want to update you on our corporate and business development initiatives, beginning with ThermoLine business. Based on the less than satisfactory purchase offers we received for this product line, we've determined that it's in the best interests of our stockholders to sunset the product over the next 12 to 18 months. While this prolongs our attachment to the product, it does provide better shareholder value than selling the assets below net book value. Do not expect this process to have a material impact on our financial results during that period.

Turning from a moment to the investiture of the CryoSeal device, we're happy to report that on August 31, 2011, Asahi received official approval from Japan's Ministry of Health to market the CryoSeal in Japan. Now, the last step for Asahi to successfully commercialize the project will be to obtain reimbursement approval, which they estimate they will secure by the end of the June quarter next year. Although we have sold the rights to the CryoSeal to Asahi in Japan, the reason obtaining reimbursement approval is relevant to ThermoGenesis is twofold. One, they will require us to build and sell them an initial lot of devices which will drive some near-term non-recurring revenue for the Company; and 2, they will have only 90 days left after that point to exercise their option to acquire the rights to the product for the rest of the world. For our option agreement with Asahi, should they choose to do so, the option prepayable to ThermoGenesis would be somewhere between $1.5 million and $2 million, depending on the point in time they decided to exercise that right.

In terms of our business development activities, we continue to advance discussions with potential partners in our space that could lead to new market introductions for possible projects in the development space. I am also pleased to announce that in early August, Kevin Cooksy joined the Company as Vice President of Business Development. Kevin has a broad range of experience in the life sciences sector. He was most recently Vice President of Business Development and Licensing for Perlegen Sciences, a diagnostic and medical device company. Before that, he was associated with several companies including Agilent Technologies and Nektar Therapeutics. His presence will help us accelerate the business development programs as we have discussed during today's call. I also want to mention that we are making good headway with our manufacturing cost reduction efforts, and we expect to realize even greater benefits of our disposable manufacturing costs beginning in the second half of fiscal 2012.

During our -- turning now to our financial results, our revenues for the quarter were $5.4 million versus $7.2 million in the fourth quarter a year ago, and $5.2 million in the prior quarter. As Mel mentioned, our revenues for the quarter reflected softness in the US and European cord blood business, offset by improvements in the ResQ disposable revenues. In addition, we had a good quarter with BioArchive's sales, selling 6 units in the quarter, including 4 in international markets. This compares to 5 BioArchive units in the prior quarter and 7 in the fourth quarter a year ago. Full-year revenues for fiscal 2011 were $23.4 million versus $23.1 million in fiscal 2010. As we have consistently stated over the course of the year, the AXP disposable revenue growth we had anticipated did not materialize due to the softening of the US and European cord blood markets resulting in a year-over-year decline in the AXP revenues of $1.5 million, or 17%. At the same time, our bone marrow business saw some good growth, generating $2.3 million in disposable revenues, an increase of $1.5 million offsetting the decline in the AXP system revenues. Gross margins for the quarter were 35%, the same as in the fourth quarter a year ago. Despite lower revenues quarter over quarter, margins remained steady due to more efficient manufacturing as evidenced by lower rework costs and more efficient operations. These initiatives have an even more pronounced impact on the full year as our gross margin for the year increased 6 basis points to 38% versus 32% in fiscal 2010.

Operating expenses in the quarter were $3 million versus $2.7 a year ago and $2.9 million in the prior quarter. As Mel mentioned, we achieved a reduction of $1 million in operating expenses for all of fiscal 2011 versus the prior year, despite approximately $500,000 in banking and consulting fees related to our business devolvement initiatives that did not occur in fiscal 2010. Operating expenses in 2010 included approximately $750,000 in non-recurring costs related to the launch of the ResQ, ASP optimization efforts and payouts to our former chief technology officer. Our net loss for the quarter was $1.2 million or $0.07 per share. This compares with a net loss of $171,000 or $0.01 per share in the fourth quarter a year ago and a loss of $845,000, or $0.06 per share in the prior quarter. For the full year of fiscal 2011, our net loss was $2.6 million, or $0.17 per share versus $5.2 million, or $0.37 per share a year ago. As Mel mentioned, this represents over a 50% improvement in our annual net loss. As a reminder, the per share numbers for all periods discussed today are split adjusted for our reverse stock split that occurred August 2010.

Our cash position at the end of 2011, was $12.3 million. This compared with $13.5 million at the end of the prior quarter and $10.7 million at the end of fiscal 2010. Our use of cash for operations during the fourth quarter was $1.1 million. With respect to our outlook for the future financial performance of the Company, we expect our revenues for the first 2 quarters of fiscal 2012 will be relatively consistent with those in the fourth quarter of 2011. While we are pleased with the growth of our cord blood business outside the US and Europe and increase market penetration of our ResQ, the uncertainty in the US and European markets that has been present during fiscal 2011 continues. We hope to see the beginnings of turnaround over the next couple quarters. We believe we will have increase in visibility into those markets early calendar 2012, and we'll provide additional commentary on our outlook by the time of our second quarter conference call. Thank you again for joining us today, and I look forward to speaking with you during our Q&A session. I will now turn the call over to the operator.

(Operator Instructions). Our first question will come from David O'Neil of [San Francisco Corp]. Please go ahead.

Mel, hi. I have been a long time shareholder. My question is, you diluted our ownership and raised $4 million, you lost $2.5 million during the year, the book value per share at this yearend is less than it was last year. Your revenues were flat, and you continue to have losses. Does the investment banker you employ pursue the sale of the Company, and if not, why not?

To answer question, no, the investment banker did not pursue a sale of the Company. We believe in the future of the Company, and we believe that the model that was outlined in my speech is a doable scenario and a doable strategy.

Thank you.

Having no further questions, this concludes our question and answer session. I would like to turn the conference back over to Mel Engle for any closing remarks.

Thank you for being with us today, I appreciate your interest in the Company.

The conference has now concluded, thank you for attending today's presentation, you may now disconnect.