Thermogenesis Holdings Inc (THMO) 2019 Q4 法說會逐字稿

Good day, and welcome to the ThermoGenesis Holdings conference call and webcast to review financial and operating results for the year ended December 31, 2019. (Operator Instructions) As a reminder, this conference call is being recorded. I would now like to turn the conference over to our host, Paula Schwartz of Rx Communications. Please go ahead.

Thank you, operator. And this conference call contains forward-looking statements within the meaning of the federal securities laws. The company's actual results may differ materially from those projected in the forward-looking statements. Additional information concerning factors that might cause actual results to differ materially from those in the forward-looking statements is contained in the company's periodic reports filed with the Securities and Exchange Commission. The information presented today is time-sensitive and is accurate only as of the date of this call, March 24, 2020. If any portion of this call is being rebroadcast, retransmitted or redistributed at a later date, ThermoGenesis will not be reviewing or updating this material.

Participating in today's call are Dr. Chris Xu, Chief Executive Officer, and Jeff Cauble, Chief Financial Officer. I'd now like to turn the call over to Chris. Please go ahead, Chris.

Thank you, Paula, and thank you everyone for joining the call this afternoon. We appreciate you taking the time to the [saying], especially during this unprecedented time of the coronavirus pandemic. We have achieved significant improvements in our operational performance in 2019. Our net revenue has increased 35% compared to 2018. Gross profit increased 156% compared to 2018. And operational expenses decreased 77% as compared to 2018. And we achieved two quarters of cash flow positive as indicated by adjusted EBITDA in 2019.

During 2019, we continued the transformation of ThermoGenesis by taking a number of steps aimed at becoming the leading provider for cell processing tools and services in the emerging cell and gene therapy field. To better refresh our new corporate focus, on November 1, of last year, the company changed its name from Cesca Therapeutics to ThermoGenesis Holdings, Inc.

Since the 90s, ThermoGenesis has been a pioneer and a well-recognized brand for automated cell processing systems that isolates, purify and cryogenically store hematopoietic stem cells for the cord blood bank industry. We are now leveraged that [stepped] position to develop and commercialize a full range of automated medical devices and technologies for cell, gene therapies. This includes stem cell banking, point-of-cares application and large-scale cell manufacturing for immunotherapy drugs and CAR-T cell therapies.

As we discussed on the last call, we have achieved a major commercialization milestone in 2019 with the signing of a global distribution agreement with Corning for our X-Series products, which is part of our cutting edge CARTXpress technology platform. As part of the agreement, ThermoGenesis received a $2 million upfront distribution fees, and we'll continue to receive future marketing support from Corning. We expect this distribution agreement to expand the awareness and sales, our X-Series products, and through the global research market.

Outsourcing the sales and marketing of the X-Series products to a global company with well-established sales channel such as Corning will also allow us to maintain a greater focus developing additional tools and services for the cell, gene therapy and point-of-care markets.

Another important advancement in 2019 was the execution of a joint venture agreement with HealthBanks Biotech USA, to form ImmuneCyte, which is the first cGMP compliant immune cell bank in the US. ImmuneCyte mandate is to provide individuals with the opportunity to bank their own healthy immune cells for future use as a resource for immunotherapies such as pancreatic cells and CAR-T cell therapies if needed.

ImmuneCyte's isolates healthy immune cells from 150 to 200 ml of peripheral blood using our proprietary CARTXpress automated cell processing platform for immune cell banking. The joint venture also has a non-exclusive rights to purchase CARTXpress for other cell based, the CMO or CDMO services. We were pleased that ImmuneCyte has received a $3 million equity investment from a third-party private investor with an implied pre-money valuation of $50 million. The investor -- the investment coming not long after the establishment of the joint venture validates the potential of ImmuneCyte's business model and growth prospects and also increases the value of ThermoGenesis' investment in this important joint venture.

As part of the ImmuneCyte joint venture, we divested our clinical program. As a result, ThermoGenesis is now singularly focused on addressing the critical unmet cell processing and manufacturing needs of the cell, gene therapy market. And positioning the company at the forefront of this effort with great products and services.

On the product end, we continue to drive revenue with new product launches. In 2019, we were pleased to have completed the commercial launch of the next generation of AXP II System, which introduced an important enhancement to replace our original market leading AXP device, which has been used broadly among top cord blood banks worldwide.

Since its introduction, the innovative ASP System has defined the processing standards for the cord blood industry. The significant upgrades including in the AXP II System have been well received by the market. Since its introduction, America's largest cord blood bank, CBR; and Cordlife Group, a leading provider, of cord blood banking service in Asia, have both upgraded to the AXP II System and many others are following.

We have also received Health Canada approval of the company's PXP system for automated processing of bone marrow cells at the point of care. Subsequently, we have entered into a strategic supply agreement with Orthohealing Center Management to provide that PXP system to Orthohealing Method's network of physician members, which is an important step forward for our point of care market.

As a reminder, the company currently markets three cell processing platforms. The first one is the CARTXpress platform based on innovative buoyancy-activated cell sorting or BACS or B-A-C-S, technology. BACS technology is a patent protected, high efficiency cell sorting technology using lipids microbubbles. The BACS technology is a key component of the CARTXpress technology platform, which is intended to address the critical unmet need for large-scale cellular manufacturing of CAR-T therapies.

The second platform is the AXP/BioArchive platform for clinical biobanking, which allows for automated processing and cryostorage of cord blood and clinical samples. And the third platform is the PXP platform for point of care applications, allowing automated processing of autologous peripheral bread or bone marrow derived stem cells as the point-of-care locations, such as surgical centers or clinics.

This robust product line has positioned ThermoGenesis to take advantage of the exponential growth in the global cell and gene therapy market. According to clinicaltrials.gov, the number of ongoing and pending clinical trials in the CAR-T cell therapy space alone has already surpassed 1,000 worldwide. With more of the revolutionary cell gene therapies in development coming closer to market, tabular drug developer must address the key challenges of how to manufacture clinical grade cell therapies at a commercial scale with a reasonable cost.

Traditional cell processing methodologies still in widespread use are manual and time-consuming, presenting an obstacle to large-scale manufacturing of cell, gene therapies. We believe our revolutionary CARTXpress technology platform can well address these critical unmet needs in the cell, gene therapy field.

On patient accessibility side, several recent study on the eligibility of patients for CAR-T clinical trials have shown that as many as 30% to 50% of the cancer patients may not be eligible to enroll or enrolled but failed to get sufficient CAR-T cell manufacturers for the therapy. Factors driving this provenance includes the fact that the body's immune system to decay with age and is also severely compromised during chemotherapy and radiation therapy.

Additionally, in many case of the advanced cancer, cancer cells metastasize and enter the bloodstream, not only contaminating the source, but also interfering with the body's natural production of healthy T-cells. ThermoGenesis is helping to address this issue through the ImmuneCyte joint venture, which will put the CARTXpress cellular processing platform at the cutting edge of solving the current manufacturing shortcomings for the cell, gene therapy market. ImmuneCyte will offer people the ability to bank healthy immune cells for later use in cell therapies.

In summary, we have undertaken strategic changes to ThermoGenesis and are focused on becoming a key solution provider for cellular manufacturing tools and services in the cell, gene therapy market. The products launched last year are expected to continue to drive revenue. With the continued growth in revenue and reduction in costs, we expect to see continued trend of growth and our goal of 2020 is to achieve cash flow positive for the entire year.

In addition to what I have summarized for the year of 2019, I want to provide some additional updates on the newest development of the company. The current global pandemic of coronavirus, COVID-19 has now affected more than 180 countries and regions, including over 40,000 cases in the United States alone. And actually, by today, it has already been increased to over 46,000.

The disease has spread rapidly leading to a tremendous impact on the US health care system and causing societal disruption. The public health threats posed by COVID-19 is extremely high, both globally and in the US. The company wants to take on more social responsibility and to develop critical tools and reagents that could help fight this global threat.

To effectively respond to the COVID-19 pandemic, ThermoGenesis and its joint venture ImmunoCyte are working together mobilizing their expertise, global resources and relationships in the medical technology field to develop, register, import and seek US FDA approval for the advanced point-of-care tests that will allow a rapid diagnosis of the COVID-19 virus, including asymptomatic cases. The test will it be able to be done both at the point of care setting or potentially at home without further burdening the already stressed health care system.

A quick, do-it-yourself testing kits as simple as a routine pregnancy test or home diabetic glucose test, if approved, would allow millions of people currently quarantined at home to conduct a self-test. The first of such rapid point-of-care test could be available as early as second quarter through ThermoGenesis and ImmuneCyte. We expect to file for an expedited review process with the FDA for these tests.

And with that, let me turn the call over to Jeff to share the key financial results from 2019. Jeff?

Thank you, Chris. Net revenues for the year ended December 31, 2019, were $13 million as compared to $9.7 million for 2018, an increase of $3.3 million or 35%. The increase was driven by AXP revenues, which increased by $3.1 million in 2019 at approximately 1,300 more cases sold as compared to 2018. Additionally, AXP device sales increased by approximately $700,000 in 2019, driven by customers upgrading to AXP II devices in the current year. CARTXpress sales also increased by approximately $600,000 year over year.

Gross profit was $5.7 million or 44% of net revenues for the year ended December 31, 2019, as compared to $2.2 million or 23% of net revenues for the year ended December 31, 2018, an increase of $3.5 million or 156%. The increase was primarily due to AXP sales, which generated approximately $2.2 million more in gross profit from disposables and new device sales. The remainder of the increase is due to lower overhead costs of approximately $600,000 and increased sales of CARTXpress products, which resulted in approximately $300,000 more gross profit.

Sales and marketing expenses were $1.7 million for the year ended December 31, 2019, as compared to $1.4 million for the year ended December 31, 2018, an increase of $300,000 or 22%. The increase was driven by stock compensation and salaries and benefit expenses. Research and development expenses were $2.4 million for the year ended December 31, 2019, as compared to $3 million for the year ended December 31, 2018, a decrease of $600,000 or 20%. The decrease was primarily due to a decline in personnel costs related to the June 2018 reorganization.

General and administrative expenses for the year ended December 31, 2019, were $6.4 million compared to $8.3 million for the year ended December 31, 2018, a decrease of $1.9 million or 23%. The decrease was driven by a decline in personnel costs of approximately $1.2 million in 2019 and a loss on the disposal of fixed assets of approximately $1.3 million that was incurred in 2018. TotipotentRx G&A expenses were also down approximately $300,000 over 2018. These decreases were offset by $1.4 million expense as a result of the Mavericks lawsuit.

Interest expense increased to $4.5 million for the year ended December 31, 2019, as compared to $2.7 million for the year ended December 31, 2018, a difference of $1.8 million. The increase was driven by the amortization of the debt discount and interest expense for the convertible notes issued by the company during 2019. Additionally, current year had higher interest expense and amortization of a debt discount on the beneficial conversion feature related to the revolving credit agreement. The company recorded a non-cash loss on the extinguishment of debt of $840,000 for the year ended December 31, 2019, related to the modification of convertible note completed in July.

For the year ended December 31, 2019, the company reported a comprehensive loss attributable to common stockholders of $9.5 million or $3.36 per share based on approximately 2.8 million weighted average basic and diluted common shares outstanding. This compares to a comprehensive net loss of $39.7 million or $21.57 per share based on approximately 1.8 million weighted average basic and diluted common shares outstanding for the year ended December 31, 2018. In addition to the results reported under US GAAP, the company also uses a non-GAAP measure, adjusted EBITDA to evaluate performance, and best approximate operational cash flow.

Adjusted EBITDA loss for the year ended December 31, 2019, was $3.3 million as compared to a loss of $9.1 million for the year ended December 31, 2018, an increase of $5.8 million. At December 31, 2019, the company had cash and cash equivalents totaling $3.2 million compared to $2.4 million at December 31, 2018. Working capital was $3.2 million at December 31, 2019 as compared to $2.3 million at December 31, 2018.

This concludes our prepared remarks, so now we'd like to open the call to your questions. Operator?

We'll now begin the question-and-answer session. (Operator Instructions) There are no questions in the queue. (Operator Instructions) This concludes our question-and-answer session. I would like to turn the conference back over to Dr. Xu for any closing remarks.

Thank you, operator. We look forward to updating you on our progress in the coming months. And thank you to everyone who participated on today's call and for your interest in ThermoGenesis Holdings. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.