Cryoport, Inc. Q2 FY2021 Earnings Call

Thank you, operator. Before we begin today, I would like to remind everyone that this conference call contains certain forward-looking statements. All statements that address our operating performance, events or developments that we expect or anticipate occurring in the future are forward-looking statements. These forward-looking statements are based on management's beliefs and assumptions and not on information currently available to our management team. Our management team believes that these forward-looking statements are reasonable as and when made. However, you should not place undue reliance on any such forward-looking statements, because such statements speak only as of the date when made. We do not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information or future events or otherwise, except as required by law. In addition, forward-looking statements are subject to certain risks and uncertainties that could cause actual results, events and developments to differ materially from our historical experience and our present expectations or projections. These risks and uncertainties include, but are not limited to those described in Item 1A, risk factor and elsewhere in our Annual Report on Form 10-K filed with the Securities and Exchange Commission, and those described from time-to-time in other reports, which we filed with the Securities and Exchange Commission. It is now my pleasure to turn the call over to Mr. Jerrell Shelton, Chief Executive Officer of Cryoport. Jerry, the floor is yours.

Thank you, Todd. Good afternoon, ladies and gentlemen. We appreciate you joining our earnings call today. With me this afternoon is our Chief Financial Officer, Mr. Robert Stefanovich; our Chief Scientific Officer, Dr. Mark Sawicki; and our VP of Corporate Development and Investor Relations, Thomas Heinzen. As a reminder, we have uploaded our second quarter 2021 review document to our website. It can be found under Investor Relations in the 'Events and Presentations' section. This document provides a review of our recent financial and operational performance and a general business outlook. If you've not had a chance to read it, I would encourage you to go to the website and download it. Now, for a brief update followed by your questions regarding our second quarter results. I'm happy to report that the second quarter of 2021 was another record quarter for Cryoport. Our performance in the second quarter follows on the heels of our record performance in the first quarter and was driven by strong results across all business units, reflecting the continued successful execution of our strategy. We've achieved growth in the number of clinical trials supported, grew revenue from commercial agreements, and continued outstanding growth in our legacy businesses, Cryoport Systems and CRYOGENE. We continued to scale MVE Biological Solutions and CRYOPDP and closed on two international acquisitions to further expand our geographic footprint in key locations. As we continue to build our leadership position with market-leading temperature-control supply chain solutions for the life sciences industry, we achieved a 55% organic growth rate year-over-year. We also benefited from significant contributions from our recent acquisitions of MVE Biological Solutions and CRYOPDP. Most importantly, we delivered robust growth in all markets we serve, which are Biopharma, Animal Health, and Reproductive Medicine. We are particularly pleased with the growth we see in cell and gene therapy, where we are now supporting 561 regenerative medicine clinical trials. This represents an advancement of 14% from the same period in the prior year. Our pipeline of potential commercial customers is currently the largest in our history. We also are supporting eight commercial therapies in regenerative medicine, including SKYSONA, a one-time gene therapy for the treatment of early cerebral adrenoleukodystrophy by bluebird bio, which was granted market authorization by the European Commission on July 21st, 2021. On the financial front, total revenue in the second quarter of 2021 was $56.2 million, up from $9.4 million in the same period of the prior year, representing an increase of 498%. Our Biopharma/Pharma business accounted for approximately 81% of our total revenue in the period and remained strong. This was a revenue increase of 431% over the second quarter of 2020. For comparison purposes, the organic growth rate in this market was an impressive 51%. Revenue from our eight commercial agreements increased 26% year-over-year. Looking ahead, we expect revenue to continue to accelerate in the back half of the year as commercial therapies continue to ramp up on a global basis. In recent months, there have been significant milestones accomplished in the regenerative medicine market around the world. Expanding globally is an important initiative for us, as we are experiencing increasing demand for our solutions in the regenerative medicine market. To that end, we've recently acquired Critical Transport Solutions Australia or CTSA, a market leader focused on premium healthcare logistics management services, specializing in time and temperature critical solutions for the medical and Biopharma/Pharma markets headquartered in Sydney, Australia. We also acquired F-airGate, a provider of innovative temperature-controlled supply chain solutions, headquartered in Brussels, Belgium, which supports our expansion of presence in the EMEA region. These additions to Cryoport are in strategic locations, where hundreds of cell and gene therapy trials are underway, as well as an increasing number of commercial approvals, such as the marketing approval of KYMRIAH in Australia in February 2021. In the second quarter, we also launched our new Cryoport Systems/CRYOPDP global logistics center in Osaka, Japan, which we set up to support commercial launch activities and client needs that we believe will further accelerate growth in APAC. Our pledge of generating $100 million of revenue and cost synergies between CRYOPDP and Cryoport Systems is underway and proceeding on schedule. In summary, we are pleased with our quarterly results, the initiatives that are underway, and the progress we are making. We now have 33 facilities in 16 countries, covering key biopharmaceutical clusters in the Americas, EMEA, and Asia-Pac. Consequently, we are very well positioned to continue to execute on our growth plans. We're especially proud of our people. Our dedicated global teams are driven by passion for the markets we serve and the contributions we make to the support and advancement of the life sciences industry. Ladies and gentlemen, that concludes my prepared remarks. Operator, please open the lines for questions.

Thank you. Our first question will come from Brandon Couillard with Jefferies.

Hey, guys. This is Matt on for Brandon today. Thanks for taking the question. Just to start off, you pointed out a number of CRO and CDMO partners, and that's been a space you guys have been increasingly focused on. Can you just talk a little bit more about the evolution of those relationships, what benefits Cryoport gets as well as the partners, and then maybe the most traction you're seeing at those guys within the broader Cryoport portfolio?

Matt, that's a good question. I'll turn it to Mark.

Yes, Matt. Thanks for the question. We appreciate it. So obviously, our strategy around CDMO and CRO engagement isn't new. We initiated that strategy, which was first announced with our relationship with Lonza a couple of years ago, and the benefits to the CRO and CDMO industry really tie into providing their client base with a better risk mitigated platform for distribution of the products in the clinical programs that these guys support. And so they view this as an extension of their quality platform, and it allows them to really eliminate risk-related elements associated with product distribution or clinical trial support. We see these things continue to mature. In fact, we see nice growth in this space specifically, around the strategic initiative and we think that will continue.

Thanks. That's helpful. And then one on PDP and another nice quarter of growth here. I think you guys also noted something like a 75% increase just in terms of the volume of quotations year-on-year. Any color you can provide on just what's driving that increase, is it existing customers looking for PDP services, new customers to the Cryoport platform, just any additional color there that you guys can share? Thanks?

Yes, Matt. An award is focused, I mean, remember these companies, CRYOPDP was a part of Air Liquide earlier, a large company, a very small fish in a big bowl. So, focus is the primary thing, our management team is outstanding and they're focused on cell and gene therapy. So, they are certainly getting some of the benefits of being a Cryoport company at this point, but that's - those are the drivers.

And Jerry, the other thing I would add is, we are seeing an impact on the synergy-related activities between Cryoport Systems and CRYOPDP, which is driving some of that contribution as well.

Okay, great. And then last one. Just on the MVE facility, I think you said you're going to add a second shift to your - any color on when that will be fully up and running? And then could we think about that as essentially doubling the capacity there? And then for Robert, anything to spike out in terms of additional or stepped-up cost related to adding that second shift at that facility? Thanks, guys.

Matt, we have three factories within the MVE location; Chengdu, China; New Prague, Minnesota; and Ball Ground, Georgia. The second shift that you've referred to is being added in Ball Ground, Georgia, where we manufacture the larger freezers, the stainless-steel freezers. It takes a couple of months to recruit the appropriate people and then to train them on the MVE methods. I would expect a couple of months, then you would expect the efficiency to continue to improve after that. It won't quite double the capacity, but it will substantially increase the capacity and thereby, we will reduce our lead times, which is what we have the objective of doing.

Yes. And this is Robert. There is really nothing to add to it. There is nothing unusual in terms of adding the capability or capacity to MVE. Yes, certainly, we are making an upgrade in all parts of our organization, just related to the expected growth and demand in our solutions, but there's really nothing unusual or extraordinary to point out there.

Super thanks. I'll leave it there. Thanks.

And our next question will come from Andrew D'Silva with B. Riley Securities.

Hey, good afternoon, guys. Congrats on the progress. I'm sorry if I missed any of this total view, your review doc, and I was on another call too, so that happened. Thank you. But as far as the two acquisitions though, was there a price that was set there that you can share? And then I was also curious as you start to integrate in some of these tuck-ins, do you expect that you'll be able to grow the business effectively with the current infrastructure in place or do you continue to expect to have an additional tuck-in?

Andrew, at some point, growth certainly requires additional infrastructure, people, investments, financing of accounts receivable, working capital etc. But those are normal things. The leadership team and the fundamental team, they're fantastic, both of those teams are just fantastic teams. They're getting accustomed to the Cryoport way of doing business and to be focused on a particular area that is cell and gene therapy, in addition to the other markets that we serve in the life sciences. So, it's going very well and I don't anticipate anything other than the demands that come with growth.

Yes. Maybe just to add to it. In terms of the acquisition of the CTSA and F-airGate in Belgium, they are both, and I think Jerry referred to previously as tactical acquisitions; what was the strategic impact, it's really the capabilities, the global footprint that was key. They are both accretive, in terms of the purchase considerations, it's a combination of upfront and earn-out with item combined in the $7 million range - sorry, revenue is obviously below that, but it's accretive both from our yield out perspective as well as from a revenue perspective.

Okay, perfect. Thank you very much for that. And then as far as the clinical trials that you're involved in. I've noticed since the pandemic really started a Phase I trial in the growth, they're kind of slowed down a little bit. But it seems to have accelerated once again in the second quarter and I was curious if that was directly related to COVID-19 dynamics improving? Or if there was anything else going on, that's what we should be thinking about?

Mark, you're going to take…

There's nothing, there's nothing that's influencing the shift in numbers between a Phase I and Phase II. It's strictly, just the nature of the programs that are being brought into our portfolio. I don't think there's a COVID-related impact on that.

And Andrew, this is biology. I would say, it is data-driven; it is time-driven. All curves should be smooth one quarter to another, it's telling but not all that telling; you need to smooth the trends.

Maybe just one thing to point out. Andy, it's Tom. The number of IPOs, as you know, is just increasing. We're on pace for a record number of biotech IPOs and FPOs, the trial starts as well.

Yes.

Yes, that makes sense. Thanks for the color. And the last question I have is just related to shipper inventory. You're obviously growing very fast and now, you have eight approved therapies that you're supporting and the volume quickly increases there. I was curious how you feel about your current capacity as it stands today, or is there going to be, or do you need to do some more work on just adding more doors and things of that?

Andrew, look, we manufacture doers as well. I mean, that's part of the - that was part of the one of the reasons for acquiring MVE. So, we're in pretty good shape there.

Yes. To be honest, we really track our inventory management as it relates to the forecasts that are provided by our client base. And obviously, adding a specific contingency in there for growth. So, we know well in advance of when we need to add inventory and we have a very well-defined supply chain to address any requirements there.

So, Mark is speaking, as you know, at Cryoport Systems level?

Correct.

Okay. So, remember, we're at four different companies, we manufacture as well as - and that question sounds like a legacy question.

Yes.

Perfect. Sorry, I got just one more quick one. Obviously, CRYOPDP had a very strong quarter and you gave some indication that going forward, it's just continuing. I was curious if we should expect that segment to continue to grow throughout the year or is the sequential uptick any sort of seasonality or anything else that you could point to?

Andrew, we don't give guidance specifically, but you can expect continued growth in these companies that are stated. When quizzed about why we acquired them? We bought them for the future, not for the past and they're on a track, they're on a track now that's very exciting. So, you can expect continued performance.

Great job. Thanks for taking my questions and I'll hop back in the queue.

Thank you.

Thanks, Andrew.

And we will now take a question from David Saxon with Needham.

Hey, this is Joseph filling in for David. I have a couple of questions regarding the recent announcement about your partnership with Cellenkos to provide a comprehensive range of services excluding MVE. My understanding is that you are supplying Cryoport Systems, along with logistics through CRYOPDP and some storage capacity with CRYOGENE. I'm curious about how this partnership has been progressing, how the synergies have benefited you, and whether there are additional clients from CRYOPDP that have started using Cryoport System services. Also, I’d like to know how all of this has evolved more broadly.

This is part of our overall synergy strategy, right. And part of the reason that we purchased CRYOPDP was to be able to leverage their relationships into the Cryoport Systems network and vice versa. Ultimately, our goal is for our entire portfolio to be able to be supported by the family of Cryoport, Inc. companies and this is one example of it. There are absolutely other examples that are ongoing at this time and it'll be a continued strategy for our synergy revenue targets that Jerry has talked about in the past.

Okay, great. That's helpful. And then maybe, I guess another one, going back to these clinical trials, looking back on the last six months or a year, obviously, clinical trials under the responses that Cryoport involved is at a record high, looking at trial starts for Phase I, III or III. Are you seeing this trend go up at all, just throughout the pandemic recovery?

I mean the numbers continue to grow, right. When we publish numbers on a quarterly basis that give you guys an indication of our presence in sharing the space. We saw strong growth again in this most recent quarter. Our ultimate goal is to continue to capture share in addition to obviously meeting the objectives of the overall growth of the space. I don't anticipate any change to that strategy and the resulting performance based on that.

Joseph, maybe just to add that. It's a combination of new trials starting and the maturation of trials going from one phase to the other. And just another reminder that it's a net number and every quarter, there's going to be some trials that drop out or halt, or get approved or filed for approval. So that it's all into the mix, but it's all very, it's all looking very bullish right now.

Sure, sure, absolutely. I guess maybe, from our end, it's hard to see, obviously which trials progress from Phase I to Phase II, or maybe drop out on that Phase I? So, I guess the initiation is a little bit more, it is vague too to us. But thank you guys very much. I'll hop back in the queue.

Yes. there is more - there is a lot more flux behind the scenes than you guys know. Just like Tom said, there's always an attrition rate. So, the new starts are much higher than the quarterly numbers at a net change.

And our next question will come from David Larsen with BTIG.

Hi, congratulations on a very good quarter. Did you disclose how much revenue came from commercially-supported products? I think it was $2.5 million last quarter and about $10 million in fiscal '20, any thoughts there? And then any thoughts on which products you expect to get the most growth from this in this area, is it SKYSONA or ABECMA? Thanks.

Yes. so, the number has increased and increased nicely, it's up 26%, up to about $3.2 million for the quarter from the previous quarter. We can't disclose the mix, obviously that's confidential. Our expectation is that all of the new launches will have a definitive contribution over time to that number.

Okay. And then any thoughts on the status of the supply chain centers in Houston and in New Jersey that I think are in the process of opening, where do we stand there? And then also any thoughts on the CRYOSPHERE shipper that I think that we'll launch this year? Thanks.

Yes. So, both the facilities in Houston and Morris Plains are nearing the end of their construction phase. They will initiate their validation-related and regulatory activities in the next 60 days, both of which will open in the fourth quarter. The CRYOSPHERE is already and what's called first article. So basically, we are now starting the manufacturing for the final testing with the anticipated rollout of commercial inventory of that product in early Q1 next year.

Okay, great. Thanks so much. Appreciate it.

My pleasure.

Thank you, David.

And Jacob Johnson with Stephens has our next question.

Hey, good evening, everybody. Maybe, just the first question, I think last quarter, you guys talked about putting more freight with CRYOPDP versus third parties for customers. How much of the uptick in CRYOPDP revenues this quarter may be attributable to that? And then I guess, bigger pictures if that's something you could look to replicate elsewhere as we think about the long-term?

Yes. maybe, I'll take it real quick. We don't disclose the specific revenue of synergies we have talked about. The overall synergies that we expect to see over the next four or five years of $100 million of which 80% of that is revenue. Suffice it to say, we do see an uptick in revenue from synergies, but this is still the early phases. We expect that to continue to grow throughout the second half and next year as well. So, it is working very well and I don't know, Mark, if you want to call it anything on the cooperation there.

Yes. No, I think it's going as planned. Obviously, there's a process associated with bringing a new vendor on or a new partner on that takes time, because you have to go through a regulatory approval process that is very, very active. As Robert said, our expectation is, we are seeing growth. Our expectation is that we'll continue to accelerate in the coming quarters and into 2022.

Got it. Thanks for that, Robert and Mark. And then I guess this is my follow-up, just a kind of big picture question that you used to talk about $2 million to $20 million of revenues per commercial approval. I think that moved to $2 million to $28 million with the CRYOPDP and the MVE deals. You've owned these businesses, I guess for almost a year now. Can you just - is almost $2 million to $28 million, so the expectation or have you found some additional opportunities that maybe give you more confidence in it or think that maybe $2 million to $28 million could be something larger than that?

No. those ranges are not changing, Jacob and these therapies are just beginning to ramp. So, we're confident with our customers.

That's all. Thank you.

Thank you, Jerry.

And we will now take a follow-up question from David Saxon with Needham.

Hey, guys. Joseph again, you guys announced the Singapore facility expansion a couple of months back. I guess I've sampled, started processing through that facility and maybe, more importantly and more generally, the clinical trial landscape in APAC with Cryoport is obviously, small, but growing fast. Where do you guys see the clinical trial landscape, in terms of what you guys are involved in long-term, is this anything that could get up to the levels that we see now in America or Europe? Thanks.

Yes. it is definitively a target for us. We are putting resources into building out the acquisition of the entity in Australia is a perfect example of that to build out our ability to distribute product within Australia itself. Our expectation is that market will be the second fastest-growing market besides the U.S. in the near future and we intend on capturing as much share in that geography as we have in the U.S.

Okay. Thank you, guys very much. Just that one for me.

Thank you.

And we'll move to our next question from Paul Knight with KeyBanc.

Hi, Jerry and team. Could you talk about a little bit about the competitive dynamics? It seems like you're at least keeping share and is it really firms that want to do it themselves that is your most significant competitor, Jerry?

Well yes, nothing has changed on the competitive front, Paul. We are unique. so, we do think we have an edge. But nothing actually has changed in that competitive front. Some doing it themselves is really not an option after some point at early stage maybe, Phase I. But Mark, do you want to add to that?

No, I agree. I actually think that the overall environment, there's a slight weakening from some of our competitive space. So, in fact, I think there's an opportunity to over time accelerate some of our share capture.

What's the most critical stage? Is it when they are in the early Phase I phase, or is it when they're at that BLA filing stage?

So, our goal is to capture them as early as possible, because once we have a client in our portfolio, our retention rate is nearly 100%. And so from that perspective, earlier the better. But obviously, we're always chasing every single opportunity from a portfolio standpoint even things that are mid-phase or late-phase from a capture basis. So, those are definitive targets as well.

Thank you.

We have one name remaining in the queue at this time. We'll now go to Richard Baldry with Roth Capital.

Thanks. Since the acquisition, the major acquisitions are closed in the fourth quarter. The SG&A line has had sort of a staccato performance from a higher 26 down to 21, and sort of splitting it in the current quarter at 24x7. Can you talk about how stable that number is at current levels, whether it was any one-time items in there? How do we think about the pace of that line moving on a go-forward? I know you don't guide that sorry to give us sort of a mid-level you of what - how that should move? Thanks.

Yes. maybe, just a few things. This is Robert. One year, we had stock-based compensation expense at the adjusted EBITDA reconciliation. You'll see that about $4 million of stock-based compensation expense included in Q2 that is up from Q1 that had about $3 million. As we issued equity to all employees of the new companies; MVE Biological Solutions and CRYOPDP. Among top of that, we're going to continue to build out our resources and capabilities. So, you will see some increase. But I think if you look at Q2 and use the moderate increase for Q3 and Q4, it should be on target. Again, we are bringing in additional resources building out capabilities as we expect a significant increase in demand over the next quarters and years. So that’s going to continue. But again, I'll use that as kind of the metric and build from there an increase quarter-over-quarter.

And then now, well Biopharma was up pretty strongly sequentially. Animal Health was down a little bit from again, a very general perspective; are there any seasonal trends sort of within each of those segments that we should be closely watching as we start to build our models? Thanks.

There's probably some seasonality as matter, but there's probably some seasonality especially in the Animal Health area since we - that's a significant part of MVE and it relates to the breeding seasons. But it's - I can't give you a curve on that, I can't tell you the seasonality of it just yet, Rich, but we'll be happy to share that with you as we experience that; as we have more information to share. And then just look, Biopharma market is about 81% of our business, that's where I expect significant growth. Reproductive Medicine has shown significant growth. I think the only time, where you'll see, it's not seasonality, it's really just timing. If you look at MVE Biological Solutions, there's timing of orders and size of orders. So, it's less seasonality, but it's more timing, and we have very strong demand for our solutions and for the product offering that MVE Biological Solutions has.

And as Robert said, it's a small portion. It's 81% Biopharma and probably, not going to have any impact on your modeling.

Yes. And then just to reiterate. Look, we showed record revenue, look at Q4, Q1 and Q2 significant departure from their growth profiles historically. So, we're expecting continued strong performance.

All right. thanks.

And we have no further questions queued at this time. So Jerry, I'll turn things back over to you for any additional or closing remarks.

Thank you very much and thank all of you for your questions. We appreciate your continuing support and interest in the company. In closing, let me say that we're pleased with the momentum that we've achieved in our business this year with record revenue in both the first and second quarters. We're on track to deliver another year of solid growth, as we continue to successfully execute on our strategy. Fueling our confidence are the key events from the first half of the year, which include an increasing number of clinical trials being supported, an increasing number of new biopharma customers, the continued global ramp of commercial therapies, new therapy commercial filings, and new therapy commercial approvals, and the overall interest in our advanced temperature-controlled supply chain solutions on the markets we serve. Thank you very much for joining us this afternoon. We look forward to speaking with you again next quarter. And in the meantime, we wish you and yours, the best of health and prosperity. Thank you.

And that does conclude today's conference. Once again, thank you, everyone for joining us.