BioLife Solutions, Inc. (BLFS) Q4 2016 Earnings Report, Transcript and Summary

Welcome to the Fourth Quarter and Full Year BioLife Solutions Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session and instructions will follow at that time. [Operator Instructions]. I would like to introduce your host for today's conference Mr. Rod de Greef, Chief Financial Officer. Please go ahead, sir.

Thank you, Michelle. Good afternoon everyone and thank you for joining us for the BioLife Solutions conference call and webcast to review the operating and financial results for the fourth quarter and full year of 2016. Earlier this afternoon, we issued a press release which summarizes our results for these periods. This release is available on the Investor Relations page of our website at biolifesolutions.com. As a reminder, this call is being recorded and also broadcast live on our website. A replay of the webcast will be available through the same link for 90 days. Before we get started, I would like to remind everyone that during the course of this call, we will make projections and other forward-looking statements regarding future events or the future financial performance of the company. These statements are subject to many risks and uncertainties that could cause actual results to differ materially from expectations. For a detailed discussion of the risks and uncertainties that affect the company's business and that qualify to be forward-looking statements made on this call, I refer you to our periodic and other public filings filed with the SEC. Company projections and forward-looking statements are based on factors that are subject to change and therefore, these statements speak only as to the date they are given. The company assumes no obligation to update any projections or forward-looking statements except as required by law. Now, I'd like to turn the call over to Mike Rice, President and CEO of BioLife.

Thanks, Rod. Good afternoon everyone. I'm pleased to discuss our fourth quarter and full year 2016 operating results and activities we're focused on to drive growth and increased shareholder value. Afterward Rob will present our financial results and reaffirm our expectations for 2017 then we'll be glad to take your questions. I will start off with a recap of our mission, our goal is to become the leading provider of bio preservation tools for cells, tissues and organs, to facilitate basic and applied research and commercialization of new Biologic based therapies, to achieve our goal we supply best in class tools, our customers use to maintain the health and function of Biologic source material and finished products during manufacturing, storage and distribution. Our Biopreservation tools platform includes optimized proprietary clinical great preservation media solutions and smart cloud connected precision thermal shipping containers engineered to protect time and temperature sensitivity biologic payload. Looking back at 2016 we reached several milestones. First we gained 123 new customers with 65 in the regenerative medicine market. We now supply over 500 direct customers in the Bio-banking drug discovery and regenerative medicine markets. In the region med market our products are used in at least 250 applications with at least three late stage customers having already submitted or expected to submit marketing approval applications in 2017. These are Kite Pharma, Kiadis Pharma and Kolon Life Sciences. Here are some details on each customer. First off to enable worldwide distribution, Kite is freezing every manufactured dose of KTE-C19 using our CryoStor Cell Freeze media. In December 2016 Kite Pharma initiated a rolling submission of their USBLA for KTE-C19, a CAR T-Cell Therapy for the treatment of patients with relapsed refractory aggressive b-cell Non-Hodgkin Lymphoma. Kite expects to complete its BLA filing with the FDA by the end of this month. Next Amsterdam based Kiadis Pharma uses our hypothermosol seven tissue stores and shipping medium to preserve donor leukocytes that form the basis of ATIR101 t-cell product targeting patients with various blood cancers. Kiadis anticipates submitting a marketing authorization application to the European Medicines Agency this quarter for ATIR101 for blood cancer patients to reduce relapse rates, transplant related mortality and graph versus host disease. Finally in July 2016 Kolon Life Sciences submitted a BLA to the Korean Ministry of Food and Drug Safety for Invossa, first in class osteoarthritis cell based drug designed to treat osteoarthritis of the knee to a single into articular injection. Every dose of Invossa is frozen in our CryoStor Cell Freeze media. To illustrate out position as a strategic supplier to our cell therapy customers in 2016 we executed long term supply agreements with, Kite, [indiscernible] and Tissue Gene, the US developer of the Invossa product and partner with Kolon. We expect additional supply agreements will be executed in 2017. Next we recorded revenue of 8.2 million in 2016, an increase of 28% over 2015. For the five year period from 2012 to 2016, sorry pardon me, from 2012 to 2016 Bio-preservation media revenue increased at a compounded annual growth rate of nearly 30%^. 2016 growth was driven by increased sales in the region that market and from growth in orders from distributors. Now I will recap some points about each of our three strategic markets. First in the bio-banking segment we sell to Umbilical Cord Blood and Core Tissue banks, adult stem cell banks, tissue banks, viral repositories, and a growing number of hair transplant physicians. 2016 bio-banking segment revenue was 15% of the total and grew 15% over 2015. Next in the drug discovery segment we saw the pharma companies, sell suppliers, tox testing labs and personalized medicine companies, 2016 drug discovery revenue was 40% of the total and grew 16% over 2015. Lastly in the region of med market segment we sell to cell therapy and tissue engineering companies, hospital based stem cell transplant labs, university based research labs and the leading cell therapy contract research, development and manufacturing organizations. Regen med revenue in 2016 was 45% of total revenue and grew 53% over 2015. This is our most attractive market opportunity and our work over the last several years building a franchise of mark-key customers could generate significant value for shareholders as more cell therapies are approved. 2016 was another strong year of investment in re-gen med companies, the Alliance for Regenerative Medicine estimates that over 5 billion was invested in 2016 in cell-gene therapy and tissue engineering companies. I would like to remind you that common to each of these markets is a critical need to protect the various biologic materials once removed from the body. Cells, tissues and organs begin to degrade and die unless effective hypothermic preservation is employed. The key metric here is yield, in simple terms I mean how long materials can survive outside the body, how much survives the ex vivo storage period and how well the biologics survives, how healthy it is after the preservation interval. Our proprietary bio-preservation media products are optimized to protect biologic materials at low temperatures. I'm really glad to share that our website now includes a searchable database of over 250 journal articles, abstracts and posters illustrating the superior preservation performance of CryoStor and hypothermosol. Specific to the region in med market we have four discrete revenue opportunities, two on the front end with source material and two on the back end with the manufactured cell product moving from the factory to the clinic. In the vein to vein cell therapy manufacturing workflow we supply bio-preservation media with CryoStor hypothermosol and also cold chain management solutions with the evo SMART Shipper. On that point I will spend a few minutes updating you on the evo Cold Chain 2.0 solution and our JV with SAVSU. We continue to market evo to the regen med segment and recently issued a press release about the performance of evo in the immunocellular therapeutics 400 patient Phase 3 clinical trial in glioblastoma. Evo is performing at a superior level and is providing significant quantifiable performance improvements over traditional shipping containers and data loggers. Several other cell therapy companies continue to evaluate and validate evo for use in their cold chain management process. After spending two years educating the market, we feel the tide is turning toward more evo awareness and increased depreciation for better cold chain tools, we're confident the market will broadly adopt to SMART shipping containers and cloud based cold chain management tools to improve quality and distribution practices. We believe that over time increased regulatory and fair scrutiny will help drive adoption since these tools support outcomes based approval and reimbursement requirements. We look to addition customer adoptions this year and to sharing this good news with you. Next a major focus in Q4 2016 was the completion of a restructuring of our Biologistics evo joint venture with SAVSU. To reduce related BioLife operating expenses and to enable external investments to capture the significant market opportunity. Rod led to restructuring and we are glad to report that now all evo hardware and software related assets and IP are owned by one entity eliminating a potential impediment to outside investments. We retain a significant equity ownership position in the new entity now managed by SAVSU and also our exclusive distributorship in the worldwide regen and med market with a three year 20% revenue share agreement. Finally as Rod will describe in further detail we reduced Q4 2016 expenses related to the JV and anticipate further expense reductions in 2017 due to the JV restructuring. Now I will turn the call back over to Rod to review our financial results and reaffirm our expectations for 2017.

Thanks, Mike. Revenue for the fourth quarter of 2016 reached a record 2.3 million which represents a 24% increase over the fourth quarter of 2015 and as we just mentioned for the full year total revenue was 8.2 million, an increase of 28% above 2015. In addition to the strong revenue results for the year, sequentially we saw significant improvement in Q4 gross margins, lower operating expenses and a material reduction in our overall operating loss. Gross margin for the fourth quarter of 2016 was 61% when compared to 63% in 2015. Sequentially we gained four points of margin in the fourth quarter as a result of increased production levels compared to Q3. Gross margin for the full year was 58% essentially unchanged from 59% in 2015. Total operating expenses for the fourth quarter were $2 million compared to 2.5 million for the same period in 2015. Sequentially fourth quarter operating expenses decreased approximately $360,000 or 15% from Q3 as a result of reduced expenditures related to the joint venture made an anticipation of the year-end restructuring. For the full year of 2016 operating expenses were 9.6 million compared to 8.8 million in 2015. The consolidated operating loss for the fourth quarter was 627,000 compared to a loss of 1.4 million in the same period in 2015. Sequentially in Q4 we realized $500,000 or 45% reduction in total operating loss compared to Q3. The operating loss for the full year of 2016 was 4.9 million compared to 5 million in 2015. The net loss attributable to BioLife for the fourth quarter was 3.3 million compared to 1.1 million in 2015, for the full year the net loss attributable to BioLife was 6.9 million and 4.2 million for 2016 and 2015 respectively. I'd like to highlight that the net loss for the fourth quarter and the full year of 2016 includes a one-time non-cash charge of $2.8 million related to the deconsolidating of the joint venture from our financial statements as a result of our ownership dropping below 50% at year end. Excluding this one-time charge the net loss attributable to BioLife for 2016 was 4.1 million compared to 4.2 million in 2015. Going forward we will be accounting for our interest in the joint venture using the equity method. With respect to liquidity, our cash balance at year end was 1.4 million compared to 3.8 million in 2015. As we recently reported we have renegotiated and extended the maturity date and repayment schedule of our $4 million credit facility through 2022 and we received the final $1 million tranche earlier this month. We believe that our available cash in combination with our projected operating results will provide adequate liquidity for at least the next 12 months. Relative to our outlook for 2017 we reiterate our previously provided guidance that we expect our core bio-preservation media revenue to grow between 20% to 25% over 2016 reaching a minimum of 10 million for the full year. We expect gross margin for the year to be in the range of 55% to 60% with operating expenses of 8 million to 9 million. Lastly we expect to reach quarterly positive EBITDA by the end of this year. Now I'd like to turn the call back over to Mike.

Thank you, Rod. To summarize we believe 2017 can be an inflection year for BioLife, we're executing well and expect to achieve and sustain positive EBITDA by the end of the year. The two catalyst for this expected result are sustained growth and Bio-preservation media revenue driven by increased product adoption in the regen med market and from increased orders from our key distributors and reduced operating expenses resulting from the restructuring of our JV with SAVSU. We're in a really strong position as a critical supplier of reagents of services to the high growth regen med market, we're following this space closely as a few of our late stage cell therapy customers are expected to submit marketing approval applications this year. So it's an exciting time for BioLife and we're focused on execution to drive growth. Thank you for your interest in BioLife. Now we will open the call for questions. Operator?

[Operator Instructions]. Our first question comes from the line of Jeffrey Cohen with Ladenburg Thalmann. Your line is open.

Just a few issues I wanted to see if you would drill down a little bit into [indiscernible], looks like your OpEx got [indiscernible] a little bit maybe as a result of SAVSU down to in-line with 2015. How do you feel about the leverage there, should the revenues do what you are anticipating for '17 or beyond? Is the utilization there the three puts there or available to be there?

Yes, absolutely. Both in terms of the overhead related to the cost of goods, manufacturing overhead. We have significant opportunity there. In addition Jeff you know that $8 million to $9 million OpEx number that I cited as guidance for 2017 that could support 10 million in revenue and it could support significantly more than 10 million in revenue. So in my view we have a lot of leverage.

Okay. And then lastly if you could talk a little bit about new developments or on the R&D front perhaps related that through your current SKUs as far as CryoStor hypothermosol. Are there product add-ons that you see potentially in the pipeline or configurations at all that you could talk about at this point?

Not with a lot of detail, we do have some ongoing R&D and then our partner SAVSU has some really exciting R&D ongoing as well and when we're in a position to share some of that you can bet that we will.

Our next question comes from the line of Paul Knight with Janney Montgomery Scott. Your line is open. Please go ahead.

This is Carolina on for Paul Knight. My first question is regarding your growth rate, it has been tracking growth of your clients [indiscernible] in clinical trials. How about regulatory approval of our [indiscernible] accelerate that growth rate and how should we think about the likelihood of approval for this Phase 3 and Phase 2?

So we estimate that once a customer sees approval and commences full scale commercialization we believe that on an individual therapy approval basis they can add between a $0.5 million and $2 million per year in revenue, again with the caveat that’s fully baked at scale commercialization not right from the initial stage of approval. With respect to your second question as far as the attrition rate of Phase 3 cell therapies that are going to make it or not. We're not the experts I think the best thing to do is look at the individual customers and companies and equity analysts that are following them and but we're not going to be in a position to try to call the winners and losers.

This is Rod, I might add one other thing which is relative to the $10 million of guidance that we put out for 2017. We do not have any regulatory approvals baked into that number so it's just basically the organic growth that we're seeing. So any additional revenue that's generated from customers who receive approval this year would be an upside to that base number.

And then do you have realized mid-teens growth at Bio-banking and drug discovery customers, is that the correct way to think about the growth rate for these segments?

I think the way we look at the growth rates by segment is the bio-banking and drug discovery segments are growing as they have been, regen med hopefully will grow at least 50% like it did in 2016 over 2015 and so I think at least in the near term those are consistent growth rates we would apply to each segment.

[Operator Instructions]. And I'm showing no further questions at this time and I'd like to turn the conference back over to Mr. Mike Rice for any further remarks.

Thanks Michelle and thank you everyone. Good afternoon.

Ladies and gentlemen thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a great day.