Thermogenesis Holdings Inc (THMO) 2020 Q3 法說會逐字稿

Good day, and welcome to the ThermoGenesis Holdings conference call and webcast to review the financial and operating results for the third quarter ended September 30, 2020. (Operator Instructions)

As a reminder, this call is being recorded.

I would now like to turn the conference over to our host, Paula Schwartz, Rx Communications. Please go ahead.

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, November 12, 2020. If any portion of this call is being rebroadcast, retransmitted or redistributed at a later date, ThermoGenesis will not be reviewing or updating the materials.

Participating on 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 to everyone for joining the call this afternoon. We appreciate you taking the time to (inaudible).

During the third quarter of 2020, as COVID-19 cases continue to escalate worldwide, we continue to evaluate our strategies to cope with the global pandemic. Meanwhile, we continue to serve our global customers in the cell gene therapy field by providing them with the cutting edge tools to meet with their cell processing needs.

As a reminder, for the past 20 years, the company's core business competence resides in its leadership and ability to develop cutting edge tools and systems for the cell processing in the cell gene therapy field. And our products include the CAR-TXpress platform based on the latest highly innovative buoyancy activated cell sorting technology.

The X-BACS technology is our patent protected, high efficiency cell sorting technology using lipid microbubbles instead of the traditional magnetic beads activated cell sorting or [MACS]. The BACS technology is such a key component of the CAR-TXpress platform, which is intended to address the critical unmet need for large-scale cellular manufacturing for the cell-based therapies.

The CAR-TXpress system itself is a multi-modular based system that offers customers a seamless solution for cell processing, selection, washing, the formulation, and cryopreservation. Providing a comprehensive and commercial viable serial manufacturing solution for CAR-T, CAR-NK, and other cell-based therapeutics.

Two, the AXP Bioarchive platform, which is a leading automated cell processing and smart cloud storage platform for clinical biobanking. The AXP system represents a significant advancement in the automated [cord] blood processing allowing for fast automated and high-quality stem cell enrichment from cord blood. The Bioarchive system is the industry's leading smart cloud preservation system, providing the ultimate performance and protection for today's high valued cells for tomorrow's critical therapy needs.

And three, our PXP platform for point-of-care applications, which allows for rapid and automated processing of autologous cells from peripheral blood or bone marrow at the point of care, which such as surgical centers or clinics. It also allows isolation of a different cell fractions from the blood simultaneously. For example, the simultaneous isolation of convalescent plasma in the immune cells. This robust product line with a strong focus in the cell gene therapy markets has made ThermoGenesis a market leader in automated cell processing technology for cell banking and cell therapies.

Our newest platform, the CAR-TXpress system significantly increase the cell processing efficiency that reduces the cell processing time and cost. We are further exploring strategies to initiate our own commercial manufacturing service using the CAR-TXpress system in the year of 2021.

As many companies have recently reported, our core business was also affected by the COVID-19 pandemic. COVID-19 has had a significant impact on the cord blood banking industry as a whole, resulting a fewer corporate units being stored globally during this time. Additionally, with many countries and states on lockdown, some customers have opt to consume their existing safety stock of our AXP disposables instead of placing new orders during the third quarter. That said, we do expect sales of our cord products to increase back to your pre-pandemic level after house emergency subsides.

It is important to note that our long established expertise, combined with the unique flexibility of our technology platform has enabled us to also respond quickly to the urgent market needs related to the global pandemic. Towards that end, over the past few months, we continued working with our joint venture partner, ImmuneCyte to mobilize our knowledge base and global resources in the medical technology field to evaluate a range of solutions to fight COVID-19. We continue to refine our strategy to address unmet medical needs with the development of both preventive and therapeutic treatments for the disease.

During the third quarter, we entered into a definitive agreement with BioHit Healthcare Limited to market under the Thermogenesis brand a SaaS-CoV-2 IgM/IgG antibody test kit, which has already received emergency use authorization from the US FDA. The antibody test kit is designed to identify COVID-19 IgM/IgG antibodies using a single droplet of blood from the individual who has encountered the virus in the past and develop an antibody response. Antibodies, as you know, are proteins that help fight infections and provide protection against reinfection, therefore, confer immunity.

We also recently were issued a patent from the United States Patent and Trademark Office for our new test reader technologies, which improves the speed and accuracy of the lateral throat immuno assay to detect COVID-19 antibodies via an instant digital readout. This eliminates human error and reduce the possibility of false negative or false positive results. We believe this could potentially change the law of rapid serological testing and public health monitoring during the COVID-19 crisis.

In summary, we continue to explore and execute strategy to become a market leader in automated cell processing tools and services to provide for the cell gene therapy market while also evaluating a range of solutions to fight the global COVID-19 pandemic. We are also continuing to explore opportunities to co-develop, to in-license, and to acquire additional innovative products and solutions, which would be synergistic to our current portfolio of products.

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

Yes. Thank you, Chris.

Net revenues for the three months ended September 30, 2020, were $2.4 million compared to $4.1 million for the three months ended September 30, 2019, a decrease of 1.7 million or 42%. The decrease was driven by lower AXP disposable and CAR-TXpress sales. The COVID-19 pandemic appears to be the main driver of the decline as fewer cord blood units are being stored globally during the pandemic.

Gross profit was $1.5 million or 64% of net revenues for the three months ended September 30, 2020, compared to $1.9 million or 47% of net revenues for the quarter ended 30 September 30, 2019, a decrease of about $400,000. The decrease was driven by the decline in AXP disposable and CAR-TXpress sales partially offset by a refund of approximately $800,000 for testing kits, reducing the inventory reserve from the prior quarter.

Sales and marketing expenses were $539,000 for the three months ended September 30, 2020, as compared to $502,000 for the three months ended September 30, 2019, an increase of 7%. The increase was driven by accrued expenses related to the company's short-term incentive program and consulting expense. These increases were partially offset by lower stock compensation in the quarter ended September 30, 2020.

Research and development expenses were $750,000 for the three months ended September 30, 2020, as compared to $584,000 for the three months ended September 30, 2019, an increase of $166,000 or 28%. The increase was driven by development expenses for the COVID-19 cartridge reader.

General and administrative expenses for the three months ended September 30, 2020, were $1.3 million compared to $1.1 million for the three months ended September 30, 2019, an increase of $150,000 or 15%. The primary driver of the increase was accrued expenses related to the company's short-term incentive program and severance.

Interest expense for the three months ended September 30, 2020, was $1.5 million compared to $1.2 million for the three months ended September 30, 2019, an increase of $343,000. The increase was driven by additional interest, expense, and amortization of debt discount related to the revolving credit agreement with [Boya] life asset holding 2.

For the quarter ended September 30, 2020, the company reported a comprehensive loss attributable to common stockholders of $2.5 million or $0.37 per share, based on 6.7 million weighted average basic and diluted common shares outstanding. This compares to a comprehensive net loss of $2.3 million or $0.78 per share based on 2.9 million weighted average basic and diluted shares outstanding for the quarter ended September 30, 2019.

Adjusted EBITDA loss for the quarter ended September 30, 2020, was $672,000, as compared to adjusted EBITDA income of $125,000 for the quarter ended September 30, 2019, a decrease of almost $800,000. The adjusted EBITDA decrease was driven by lower gross profit, accruals for the company's short-term incentive program, and increased R&D expenses.

At September 30, 2020, the company had cash and cash equivalents totaling $4.4 million compared with $3.2 million at December 31, 2019. Working capital improved to $7.1 million at September 30, 2020, as compared to $3.3 million at December 31, 2019.

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

Yes, thank you. We'll now begin the question and answer session to ask a question. (Operator Instructions)

Sean Lee, H.C. Wainwright.

Good afternoon, Chris and Jeff, and thanks for taking my questions. My first one's on the company's traditional cell therapy and blood banking business. So we've seen a significant impact from the COVID pandemic for the last several quarters. And while there's some hope coming along with the vaccine developments, the pandemics is expected to last for at least several more quarters. So I was wondering whether the company has any plans with new products or new business strategies that could help I turn this around.

Yeah, hi, John. Thanks for bringing this up. Yes, the cell gene therapy is our bread and butter, and that's our core competence for the past 20 years. We have a significant advantage in this field and not only with regard to the cord blood banking industry, which as you referred to, was impacted by the COVID-19. However, there is also a surge in the global research on the immunotherapy market, especially for CAR-T, CAR-NK. And the need is very significant. There's a significant unmet need to manufacturers out south with a much higher efficiency and with lower cost. And that turns out to be a very significant unmet need.

So as many of the listener was aware that our company has launched the CAR-TXpress pretty much a year ago, [ready] in 2019. And with this product, and we have the research grades are distributed through [corny], but as we also referred to in this earning call, we intend to to look into strategies to launch our own full-service to manufacture the CAR-T, the CAR-NK to meet the market need. And that representing not only a huge market opportunity, but also a huge business opportunities that could transform the company in future. And we are very seriously looking to that.

Sounds great. And do you have an approximate timing for when the company expects to go into the full-service business?

We have. The company is a device company, historically. And we have the infrastructure. We have the technology. We want to explore the various different [angles] so that increasing the resource, the teams, and the customer, how we can best position ourselves in using this to tackle into the service, which actually creates a much higher margin. So at this moment, I think it's a little bit too early to release the full strategy. But that's certainly on our radar screen. And I hope to update our investors, our shareholder, and everybody in that in the near future.

I see. Thanks for that.

My last question is on the COVID-19 testing products. I think last month, the company received a patent for a a test reader as well. So I was wondering, so how have the commercialization efforts been going on that front? If you can provide some metrics for that? And also, where do you expect it to go over the next one to two quarters? Thanks.

Sure.Thanks again. Thanks, Sean, for the question. And the entire diagnostic field that the landscape is changing. So it changes from just looking for -- people searching for antibody tests. Now more and more require for antigen tests, and a lot more also require for a combination of antibody and antigen test. Each test has a different angle to address whether somebody has been impacting ongoing [factory] or have had response towards the virus.

And there's currently lots of unmet need for those tests. And that's why we developed this reader. So the reader is a facilitator. So that's how we see this. It helps current assay, which just give a yes or no answer, that the reader may help to elevate to the next stage. So it's almost, we opened this [pore] so that other tests can be bundled with that reader. So we open up a technology potentially for our internal use and also for co-development with other test developers.

And certainly, we are also looking to different grant opportunities to support additional use of such reader technologies. So against this -- by all those two, three different angles, you can see that the business model may be slightly different. And I think it's yet to wait and see how those different collaboration or internal development pans out.

With the ongoing pandemic, actually as everybody aware, in the last week or two, the entire nation's COVID-19 case just escalating tremendously. So with all those, it's almost at where we need to cope with such changes accordingly. And we will open this platform to allow others potentially to collaborate with us.

I see. Thanks for the additional color. That's all I have.

Thanks, Sean.

Thank you. And that does conclude the question-and-answer session. So I'd like to turn the call back over to Dr. Xu for any closing comments.

Thank you, operator. We look forward to updating you on our progress in the coming months. And thank you to everyone for participating on today's call and for your interest in Thermogenesis Holdings. And thank you all and stay safe.

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