Thermogenesis Holdings Inc (THMO) 2012 Q3 法說會逐字稿

This is the Chorus Call operator. Welcome to the ThermoGenesis third quarter fiscal 2012 results conference call.

Before we begin, we remind you that the statements during this conference call are not historical facts and are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in those 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; initiation and successful completion of clinical evaluations and trials for new claims on existing products; regulatory approvals where required; capital resources to fully execute business plans and other risks detailed from time-to-time in the Company's filings with the SEC.

(Operator Instructions) For your information, this conference call is being recorded. I would now like to turn the conference call over to Matthew Plavan, Chief Executive Officer. Please proceed, Mr. Plavan.

Thank you, operator and good afternoon, everyone. I'm pleased that you're joining us and I look forward to updating you on key events since our last call, a period marked by an important product approval in China, a significant milestone in our strategy to divest the noncore businesses and a major reduction in our cash burn due to a strategic realignment of the Company.

Our last call with you came shortly after the Company's reorganization, which was to address the continued softness in the U.S. and European cord blood business and the uncertainty of timing around product approvals in key geographies. Furthermore, it was designed to streamline our operations and more closely align our resources with our near-term outlook for revenues and the likely timing of new opportunities to help us better manage our cash resources, ensure our sustainability in the near-term and to better position us to realize progress with our long-term growth strategy.

As I'll discuss in a moment, our cash containment efforts were apparent during the quarter, as our cash balance at the end of the third quarter reflected cash burn of just over $200,000 from the prior quarter. Finally, this reorganization is designed to facilitate our ability to be more responsive to our customers and our business partners.

We have had two important developments relative to our initiatives in China over the past several weeks. Beginning with the registration approval by China's State Food and Drug Administration of our BioArchive System, enabling our direct commercial sale into the People's Republic of China. This approval actually came a bit ahead of our expectations and facilitates our ability to achieve first-mover advantage for automated processing and storage in the countries core blood market.

We already have a strong footprint in the market with three leading Chinese stem cell banks, as customers, including Nanshan, BoyaLife and Beike Biotech; we expect to record some initial revenues from this approval in the current quarter, with a meaningful adoption ramping through the course of 21013.

The second important development was Beike becoming the first company in China to achieve accreditation from the AABB, formerly the American Association of Blood Banks. This accreditation provides Beike, which is committed to the adoption of the AXP and the BioArchive, a strong platform for which to deliver their cord blood business in China.

I'm also pleased to report today that Asahi Kasei has received reimbursement approval for the CryoSeal in Japan and that they intend to exercise their option to purchase the worldwide rights to this product. Asahi had the option to purchase the worldwide rights of the products for a total of $2.0 million in cash over the next 90 days, which will take us through June 30th. We're meeting with Asahi next week and hope to finalize our agreement with them at that time.

Securing this option and selling the wound care business to Asahi is a significant milestone achievement for us, as it not only enhances our current cash position by over 20%, but also commences the final phase in divesting this noncore asset, freeing up essential resources to dedicate to our core regenerative medicine initiatives.

Before I speak to other events in the quarter, allow me to review our financial results for the fiscal third quarter.

Revenues for the third quarter of fiscal 2012 were $4.9 million versus $5.2 million in the third quarter a year ago and $4.8 million in the prior quarter. In comparing this quarter to the same quarter a year ago, BioArchive sales were down $360,000 due to a continued tightness in the capital budgets globally and a wind down of the ThermaLine business, which negatively impacted revenues by approximately $330,000.

However, these decreases were offset by a $765,000 revenue improvement related to the final purchase of the CryoSeal devices by Asahi in connection with their registration efforts in Japan. Further, these quarter's revenues do not yet reflect the impact of expected future core blood product revenues from China and Southeast Asia, or the new bone marrow and PRP revenues from our Arthrex deal. We expect these revenues to ramp up in the balance of 2012 here.

Gross margins for the quarter were 24% versus 39% in the third quarter a year ago and 36% in the prior quarter. Our gross margin in the quarter reflects the impact of manufacturing of these CryoSeal systems that we sold to Asahi. Since we have not manufactured these devices in quite some time, some additional attention to their production was necessary, resulting in the margins on these devices being virtually zero.

Another factor was that we added to inventory reserves associated with the remaining CryoSeal device inventory component and the sunset of the ThermoLine product line. These two factors combined to create a drag on margins of approximately 12 basis points. Additionally, margins were impacted by another 5 basis points due to an increase in our reserves as we accelerated our customers' transitions into newer processing disposables.

Operating expenses in the quarter were $2.9 million, comparable to those in the same quarter a year ago versus $3.0 million in the prior quarter. We would expect quarterly operating expenses to be in the range of those in the third quarter over the near-term. Due to the reorganization, we will benefit from the declines in G&A costs, but invest those dollars in sales and marketing and research and development going forward.

The net loss for the quarter was $1.8 million or $0.11 per share, compared to a net loss of $845,000 or $0.06 per share in the same period a year ago. About $600,000 of our loss in the quarter can be attributed to the CryoSeal and ThermoLine divestiture and discontinuation activities that I just mentioned.

However, we expect continuing improvement in our financial resources and to see further organizational optimization associated with these divestitures and our recent strategic reorganization.

With respect to the balance sheet, we ended the quarter with cash of $8.5 million versus $8.7 million at the end of the prior quarter, reflecting our ability to now better manage our cash resources.

Our cash balance was $12.3 million at the end of fiscal 2011. Use of cash for operations in the first nine months of fiscal 2012 was $3.3 million.

Keep in mind that I expect an approximate $2.0 million infusion of cash during the current quarter as a result of pending transaction with Asahi.

Our backlog at the end of the quarter was $1.3 million and was mainly comprised of Res-Q and AXP disposables.

As I mentioned earlier, our recent positive steps in the China cord blood market with our BioArchive approval and the AABB accreditation for Beike; with respect to the ASP in China, we had a couple of new banks in China install a system for evaluation purposes while we await regulatory approval. We've been anticipating a fairly straightforward review and approval process in China, based on its existing approval in other major markets, including the U.S., Canada, the UK and most of Europe.

The China SFDA has, nevertheless, come back with several questions regarding detailed answers -- that required detailed answers from us and we're in the process of addressing them. Given its broad approval and adoption in other regions, we're disappointed that product characterization and performance data for the product that we provided to the other agencies is not swiftly passing through the SFDA.

We're in the process of developing an estimate of the impact of this request for additional information and the potential of additional testing on our launch timing for the ACP into China. As I referenced earlier, with our new organization, we are better positioned to weather any delays.

An important milestone in the Company's product line extension strategy was our agreement with Arthrex, announced in January, for marketing a private label Res-Q system and for the preparation of platelet-rich plasma, or PRP, from whole blood and bone marrow concentrates that can be used at the point-of-care. Arthrex has a significant share of these markets and during the quarter we implemented training and sales support, as we prepare to rollout this program later this year.

With regard to the regulatory approval status of the Arthrex PRP and BMC disposables, the application for the 510(k) approval are under review by the FDA and are active with routine exchange of questions between the FDA examiners and our regulatory staff. We've heard nothing from the FDA that would suggest any significant issues. However, this back and forth for the Q&A exchange has, when we look out into the future, we're expecting that initial revenues from this program will start in probably a quarter or so.

In the meantime, based on Arthrex' enthusiasm regarding our technology, we continue to engage with them in meaningful discussions regarding additional collaborations we would hope to report on and the progress of such discussions by our next call.

With regard to cord blood expansion efforts, we are redoubling our efforts to achieve market share gains not only by replacing competitor's automated systems, but also through the conversion of manual processing banks to automated systems.

We remain the only provider of cord blood products and services to be offered to our customers in both processing and storage solutions. We believe this gives us much greater leverage against the competition, as they typically are focused in processing exclusively when it comes to automation. This is both the case in existing and new markets. While China and India are prime targets for these efforts, we also believe that there are opportunities for us in other geographies, including the U.S., Europe and Latin America.

Turning to our future opportunities, as we've discussed with you in the past, an important element of our long-term strategic growth involves the disposition of our two noncore businesses, the ThermoLine and the CryoSeal. This will enable us to focus our financial and management resources on our core growth opportunities.

Earlier in the call I mentioned our positive progress with the CryoSeal divestiture via the Asahi relationship. However, with respect to ThermoLine, we've determined, after lengthy negotiations with several parties, that it's in the best interest of our shareholders to sell off the remaining ThermoLine inventory and sunset the business. We are in the process of implementing that effort and we'll expect to have it completed within the next 6-to-12 months.

Stepping back for a moment now, I'd like to discuss the ongoing implications of our growth strategy that has exciting implications for the future, what we believe to be a near-term opportunity to meaningfully enhance our current and prospective customers' perceptions of the intrinsic value of our technology. We believe it will also lead us to an enhanced appreciation of our value in the market.

As I discussed on our last call, a key aspect of our strategy is to evolve beyond the design and commercialization of enabling technologies and tools to become more integrally involved in the delivery of therapeutics, as we believe that is where a real opportunity for meaningful, long-term growth exists.

In fact, we've articulated that our initial step in this direction was to secure royalty and revenue sharing arrangements whereby TG provides the best in class tools and knowhow to companies in the discovery and development stage of stem cell therapeutics in exchange for becoming the embedded tool in the approved therapies. An example of this would be the Arthrex deal.

At the same time, our continued discussions during the quarter with other parties in a number of exciting areas, such as spinal and cardiovascular cell therapy, have brought further clarity to the therapeutic opportunity at hand for TG. It's become increasingly clear that TG's cell processing, handling and preservation knowhow, coupled with the attributes of its base business, represents significant potential value to a number of clinically-oriented organizations focused on the development and delivery of therapeutics at the point-of-care.

They desire for access to this knowhow and the potential for synergistic revenues by combining outside product pipelines are tangible. The leveraging of our organic efforts, combined with strategic alliances through our business development activities, including an increased focus on the therapeutic market we believe provide a long-term cycle of value-creation for the Company.

In closing, our Company resources are better aligned with overall strategic goals, current revenues and likely timing of new market opportunities. We see continued opportunities for leveraging our base platforms into new markets and new indications, particularly bone marrow and PRP in the areas such as cardiovascular, spine, and cartilage repair, as well as potentially cord and adipose tissue.

We will continue to leverage our core competencies in engineering and scientific innovation to develop automated GMP products that enable clinicians to practice cell therapy at the point-of-care or in the lab.

And lastly, in addition to pursuing execution of our base business milestones, including opening up China and Southeast Asia to our products and ramping up partners like Arthrex, we will aggressively pursue the closure of those strategic alliances that we believe best leverage our organic capabilities and thrust us into the high-value therapeutic markets.

As you can see from our use of cash drug the quarter, we're also better positioned to manage our resources through more predictable revenues and reduced operating expenses. In addition, we are positioned to enhance our gross margins through improved manufacturing efficiencies and the elimination of the noncore businesses.

Thank you again for joining us today and we'll now open up the call for questions.

(Operator instructions) Showing no questions, I will now turn the conference back over to Mr. Plavan for any closing remarks.

Okay. It looks like there are no questions today. We very much appreciate your attendance in the call and we'll look forward to updating you soon in the future. Have a nice day.

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