Thermogenesis Holdings Inc (THMO) 2020 Q4 法說會逐字稿

Good day, and welcome to the ThermoGenesis Holdings' conference call and webcast to review final and operating results for the year ended December 30, 2020. (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, ma'am.

Thank you, operator. 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 17, 2021. 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 on today's call are Dr. Chris Xu, Chief Executive Officer; and Jeff Cauble, Chief Financial Officer. I would like to now turn the call over to Chris. Please go ahead, Chris.

Thank you, Paula, and thank you to everyone joining this call this afternoon. We appreciate you taking the time to listen in. 2021 is the company's 35th year anniversary. For more than three decades, ThermoGenesis has proven its leadership position to develop and produce a long list of cutting-edge automated technologies and products for the cell banking and cell therapy field.

Some of these, such as the market best-selling AXP devices and the BioArchive system, have been broadly adopted by leading stem cell banks and medical institutes around the world. Our BioArchive, a smart cryostorage system that once was used to warehouse close to 90% of all FDA-approved drug use cord blood units, has shown by far to be the best device for cell survival for long-term cell storage. We believe it will gain new applications and new life in the era of CAR-T therapies by becoming the best choice of cryostorage for high-value clinical cell therapy products.

Just as a reminder, in 2020, ThermoGenesis markets a range of automated technologies and products for cell banking, cell processing, and cell therapies, which includes -- for large-scale cell processing and bio-manufacturing, we offer our X-SERIES laboratory-grade products, which include the X-LAB for cell isolation, the X-WASH for cell washing, and the X-MINI for high-efficiency small-scale cell purification.

Our PXP series of clinical-grade product, which including the PXP-1000 for cell isolation and PXP-LAVARE, a newly approved product for cell washing and reformulation; and our CAR-TXpress platform for large-scale bio-manufacturing, which utilize our patent-protected, buoyancy-activated cell sorting, or BACS technology instead of the traditional magnetic beads-activated cell sorting, or the MACS technology. The CAR-TXpress platform will provide a comprehensive and cost-effective cell manufacturer solution for both CAR-T, CAR-NK, and many other cell-based therapeutics.

And for clinical biobanking applications, we offer the AXP II automated cell separation system, which we launched recently to replace the market best-selling AXP system. This represents a significant advancement in automated cord blood processing and is utilized by a list of largest cord blood banks around the world including the Cord Blood Registry in the US and the Global Cord Blood Bank -- the Global Cord Blood Corporation outside the US.

The BioArchive automated cryopreservation system, which is the industry's leading smart cryopreservation and storage system, would provide the ultimate performance and protection for today's high-valued cells for tomorrow's critical therapy needs. And third, for the point-of-care application and clinical applications, we have that the PXP point-of-care system, which is a 510(k) medical device that allows for rapid and automated processing of autologous cells from peripheral blood and bone marrow at the point of care such as surgical centers and clinics.

The evolving robust product line is a strong testimony of the commitment and our leadership in the automated cell processing field for cell and gene therapy field. In June of 2020, as part of our exclusive global distribution agreement, Corning Life Sciences began to distribute our X-SERIES cell processing products under the ThermoGenesis and Corning dual brands. Also in June of 2020, the company was added to the Russell Microcap Index, which reflects our continued growth as a company.

In the past year, in responding to the global COVID-19 pandemic, the company quickly mobilized its resource and expertise and worked with our partners to develop COVID-19 diagnostics, therapeutics, and reader solutions. The company received USPTO patent approval for its reader technology in the later half of the year.

The COVID-19 landscape is changing quickly. With over 100 million doses of vaccines already being administrated in the country, we are quickly adjusting and preparing the company for going back to the normal business in the post-COVID era. As we begin our 35th year of operation in 2021, we will continue to serve our global customer in the cell gene therapy field by providing them with cutting-edge tools to meet their cell processing needs.

During 2020 and subsequent period, we completed the development and submitted a letter to file with the FDA for our newest PSP-LAVARE system, which is a GMP-compliant system that allows for fast, automated, and reliable washing and reformulation of cell therapy products. The PXP-LAVARE system is an optional accessory designed for use around the PXP-1000 system, which is an FDA 510(k) Class II-approved medical device designed to process and purify different components from the blood under a GMP comprised condition.

We are committed to the expansion of our brand especially within immune-oncology area and aim to continue providing improvement in new technologies and devices especially in our proprietary CAR-TXpress platform. To elucidate the significant market potential and the unmet need of the cell gene therapy field, currently, there have already been four CAR-T therapies approved by the FDA. But each will cost between $300,000 to close to $500,000 per dose.

CAR-T cell therapy, although proven to be highly effective for treatment of certain blood cancers, creating a huge cost area for thousands and millions of patients who could benefit from it. Our mission is to increase patient accessibility to these life-saving therapies by reducing their future manufacturing costs.

According to a recent report from the Deloitte, there are over 1,000 cell gene therapy clinical trials currently in the way. The industry could see a wave of FDA approvals with as many as 10 to 20 new therapies per year starting in 2025. And this will likely accelerate over time.

There is a significant unmet need in manufacturing these highly promising cell-based therapies. Not only are they complicated and expensive to manufacture, currently 65% to 70% of the cell gene therapy companies outsource their manufacturing. And there is only very limited capacity in the industry. It is therefore more important than ever to ensure these cell therapy development companies can rely on the manufacturing of high-quality clinical-grade cell therapies at a commercial scale.

With that in mind, ThermoGenesis in plans to utilize its highly efficient CAR-TXpress platform, which could significantly increase cell processing efficiency by up to 16-fold as compared to the traditional method and to decrease the manufacturing cost by up to 60%. In the coming year, we plan to initiate our own commercial manufacturing services by using our CAR-TXpress platform.

Under this new direction, we intend to convert the company from a product-only medical device company to a contract manufacturing service provider in the cell gene therapy field. This will provide our customer with best cell manufacturing solutions and address significant unmet needs for the field. This, in our mind, will also significantly increase our shareholder value in the future.

In summary, we continue to explore and execute strategies that will position ThermoGenesis as a leading provider in automated cell processing tools and services for the cell gene therapy market. We will be increasingly focused on the service side of the business. And we are continuing to explore opportunities to co-develop, in-license, and acquire additional innovative products and service capacities which could be synergistic with our current portfolio.

And with that, let me turn the call over to Jeff to share the key financial results from 2020. Jeff?

Thank you, Chris. As we have previously discussed, fewer cord blood units were stored globally in 2020 due to the COVID-19 pandemic impacting our core business. Net revenues were down 25% to $9.7 million for the year ended December 31, 2020.

The decrease was primarily due to fewer AXP disposable and BioArchive device sales. Now we do expect these revenues to rebound increasing back to pre-pandemic levels after the health emergency subsides.

Our gross profit was $1.3 million for the year, a decrease of $4.4 million or 78%. The decline was primarily due to a disposition expense of approximately $2.8 million for the remaining inventory of COVID-19 testing kits purchased in the second quarter.

Operating expenses were $10.2 million for the year ended December 31, 2020, as compared to $10.4 million for the year ended December 31, 2019, a decrease of 3%. Interest expense increased to $7.9 million for the year ended December 31, 2020, as compared to $4.5 million in 2019. The increase was driven by a $2.5 million noncash accelerated expense of the unamortized debt discount associated with the portions of the revolving credit agreement with Boyalife Asset Holding II which were converted in 2020.

For the year ended December 31, 2020, the company reported a comprehensive loss attributable to common stockholders of $16.3 million or $2.60 per share based on approximately 6.3 million weighted average basic and diluted common shares outstanding. This compares to a comprehensive net loss of $9.5 million or $3.36 per share based on approximately 2.8 million weighted average basic and diluted common shares outstanding for the year ended December 31, 2019.

The company finished the year with an improved balance sheet, which includes cash on hand of $7.2 million as compared with $3.2 million at December 31, 2019. Working capital also increased up to $9.2 million at December 31, 2020 as compared to $3.2 million at December 31, 2019. This concludes our prepared remarks, so now we would like to open the call for your questions. Operator?

(Operator Instructions) Sean Lee, HC Wainwright.

Good afternoon, Chris and Jeff, and thanks for taking my questions. My first question is on the ongoing pandemic and its effect on the business. So with vaccine efforts in full swing in most countries around the world, have you seen any rebound so far in your cord blood business? And when do you expect business levels could potentially return to pre-pandemic levels?

So yes. Thank you, Sean. And I will take a try to answer your question. Yes. And with the global pandemic -- and it has been a year since the start of the pandemic. We start to see gradually some of our users of our technologies start to rebound.

And the rebound is quite imbalanced in between different countries. So US is on the verge of rebounding in lots of those cord blood business side, but we will see. We anticipate probably there is going to be another quarter or two before we actually can materialize these rebound numbers.

I see. Thanks for that. And my second question then is on the Corning partnership. I was wondering if you can provide some metrics on how that's going so far?

For example, have any significant clients signed on to the CAR-TXpress? Or are there any clinical studies that currently use the system? And finally, can you expect any milestone payments from Corning in the next 12 months?

Okay, I will take a try. And for Corning, certainly, Corning is the main market leader for our X-SERIES of products. And we have grasped that last year, mid of last year, as they started the full launch of the product. And we can see that in their website and all their media campaigns.

So very importantly is that this launch processing is in the middle of COVID global pandemic. So certainly, we can see it may affect Corning's efforts in launching this in different regions, but we are optimistic. And in this regards, we are more providing a supporting role. We let the Corning to be the main driver for this X-SERIES of products.

So at this moment, I think we are yet to see what the number would look like in the post-COVID era. Jeff, if you have anything to add?

Yes. No, I agree. I think once Corning's sales team is able to get out and go visit these customers and do some demos, I think we'll really start to see some significant adoption of the technology. I think that's where the real value is. It's where customers can see what it can do for them and how much existing customers like it. And we expect new customers to like it as well.

And then once they are able to go up and do the demos, we will see those customers begin to adopt. But we are still not quite there yet, where you got to get to a point, hopefully, very soon where they can go up and kind of hit the streets and start visiting the customer sites.

For your second question, no, we don't anticipate any additional milestone payments this year. We did receive the $2 million payment in 2019, but we don't anticipate any new ones this year.

Sean, let me add a few additional comments so that you understand the company's strategy on this entire platform related to CAR-TXpress. So we have the X-SERIES product line, which is designed for laboratory use. And the intention is to expand, to expose this technology to more labs around the world.

So Corning is really a great partnership around that with their penetration in medical laboratory in general. The company, however, is sitting back. And the company is focused on its own efforts, which is providing the service. And we are using our higher-end clinical grade, the PXP series, which deliver a clinical manufacturer service, as I alluded to in the earning call early. That is where we see a significant unmet need for the entire cell gene therapy field.

And not only so, the market is tremendously bigger than the device itself, and the potential margin is also much, much more significant. I think ThermoGenesis with its own proprietary technology really has a head, has competitive advantage in moving into that direction. So hopefully, we can update you and/or our shareholder with more exciting news in that direction especially this is the 35th year that we are in this field. I felt that this new strategic direction is going to revolutionize and revive this company to be a significant player in this area.

I see. That was helpful. Maybe to elaborate a little more on this topic then, in terms of your goal of becoming a service provider in cell processing. So what's the approximate timeline you are targeting for this service? And also are you looking to launch in the US first and then move to other geographies, or do you have another marketing mind to go first, I mean?

Yeah. So great question. And the cell gene therapy is -- number one, they are considered drugs. It's a cell-based drug as compared to chemical drugs compared to protein drugs. The difference in cell drug compared to others is that cell drug tends to have to be manufactured locally. It's not like aspirin, which you can manufacture in, for instance, Pittsburgh and ship through globally everywhere.

Cell gene therapy, you have to be manufactured in close proximity to your patient. So our intention is to launch a global CMO and CDMO business in major countries or regions, probably not starting with covering everywhere. But we are very actively looking to strategies by either co-partnering, by partnering, or acquire service capacity to enable us to move into that direction quickly.

So a short answer to your -- it's already a long answer. But basically, we are looking at this opportunity as a global opportunity. And that the key issue is we are quite different than any other ones saying they can move into the contract manufacturer area. The difference is we at ThermoGenesis is moving through this area with a strong patent-protected proprietary technology that delivers high efficiency and low manufacturer cost that could be a strong competitive advantage for us to move into this field.

Thank you, Chris. That's all the questions I have.

Thank you, Sean.

Thank you, Sean.

This concludes our question-and-answer session. I would like to turn the conference back over to Dr. Chris Xu for any closing remarks. Please go ahead, sir.

Thank you, operator. We look forward to updating you on our progresses during our first-quarter 2021 call. And thank you to everyone who participated today 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.