Cryoport, Inc. (CYRX) Q3 2018 Earnings Report, Transcript and Summary

Greetings, and welcome to Cryoport, Inc. Third Quarter 2018 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to Todd Fromer, Managing Partner at KCSA Strategic Communications. Thank you. You may begin.

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 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, 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 experiences and our present expectations or projections. These risks and uncertainties include, but are not limited to, those described in item 1a, Risk Factors, 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 file with the Securities and Exchange Commission. I would now like to turn the call over to Mr. Jerry Shelton, Chief Executive Officer of Cryoport. Jerry, the floor is yours.

Thank you, Todd. Good afternoon ladies and gentlemen, and thank you for joining us today. With me this afternoon is our Chief Commercial Officer, Dr. Mark Sawicki; and our Chief Financial Officer, Mr. Robert Stefanovich. Later on this call, Dr. Sawicki will provide you with his comments on our business development activities, and Mr. Stefanovich will detail our financial results for the quarter. The third quarter was a very strong quarter for our company as we made meaningful progress in securing new clients, forming strategic partnerships, investing in long-term growth strategy and growing revenue. Revenue increased 76% year-over-year to $5.3 million for the quarter. This growth was driven by a record 37 new clinical trial agreements we secured during the quarter, in addition to approximately $555,000 in commercial revenue as we scaled our global agreements supporting Novartis’ Kymriah and Gilead’s Yescarta, the first two FDA-approved CAR-T cell therapies. Our progress at Cryoport reflects broad achievements as the global regenerative market continues its climb to an inflection point. In total, four market authorization applications or MAAs have been filed in the European Union so far this year, and one biologic license application, or BLA, has been filed in the United States. Moreover, 27 regenerative medicine advanced therapy designations, or RMAT designations, 17 breakthrough designations, and 43 fast track designations have been granted by the FDA. As anticipated, the European Commission granted market authorization for both Gilead’s Yescarta and Novartis’ Kymriah, approving these treatments for use in the 28 countries of the European Union, Norway, Iceland, and Lichtenstein. Moreover, Yescarta and Kymriah also received National Health Service approval for the United Kingdom. As a reminder, Cryoport’s agreements with Gilead and Novartis cover all these expansions of services. On Gilead’s recent earnings call, its management team stated that it expects Yescarta to be authorized at approximately 20 E.U. sites by the end of 2018, and we’re working diligently to enable and ensure the delivery of this therapy to new patient populations at all these sites. Likewise, Novartis’ sales strategy is also progressing and we are working closely alongside them to prepare for commercial launches in Europe and beyond. In September, Novartis received approval by Health Canada for the treatment of relapse/refractory pediatric and young adult acute lymphoblastic leukemia, or ALL patients; and relapse/refractory adult diffuse large B cell lymphoma, or DLBCL patients, and announced its plans to invest in the production of cell and gene therapies at its site in Switzerland as well as entering into a strategic collaboration with Cellular Biomedicine Group to manufacture and supply Kymriah in China. We view all these investments as indicative of the expected reach of Kymriah, and we are committed to supporting Novartis as it manages its global commercialization process. As we become more entrenched in the regenerative medicine market as a core part of the manufacturing and commercialization process, the pace at which we are securing new business continues to accelerate. Over the last 12 months, we have added a net total of 100 clinical programs, bringing the grand total of clinical trials supported by Cryoport to just under 300 -- 295, to be exact. This rapidly-increasing number of clinical stage therapies and the diverse range of therapies we support illustrates the need for the high-quality systems and solutions that only Cryoport can provide. Our business is rapidly gaining momentum as advances in the regenerative medicine market propel these therapies toward commercialization. In fact, 38 clinical programs that we support are already in Phase III trials, the final phase before commercialization. Now, with the industry approaching an inflection point and as we move into year two of approval processes, we are expecting at least one BLA filing to occur before year’s end, bringing the 2018 BLA MAA total to six. And we anticipate at least another six to be filed in 2019. These numbers are based on internal information and the public forecast from the Alliance for Regenerative Medicine. To expand our reach even further within the regenerative medicine industry, we’re forming strategic partnerships that will enable us to deliver our recently-launched chain of compliance solution, which offers full traceability of equipment, processes and handling of cells and gene therapies while in transit to biopharmaceutical companies globally. Last quarter, we discussed why World Courier, which is part of AmerisourceBergen, chose to partner with Cryoport to integrate our full suite of temperature-controlled solutions into its global network. This expansion means that Cryoport’s complete suite of temperature-controlled logistics solutions for the life sciences industry is now offered through World Courier’s global network of more than 140 company-owned offices operating in 50 countries. This quarter, we signed a strategic partnership with Be The Match BioTherapies to deliver end-to-end supply chain services to the cell and gene therapy industry. Be The Match offers integrated systems and software to manage the collection and delivery of cellular therapies. It is leading the charge to develop a more efficient and standardized cell therapy supply chain and with more than 30 years of experience, its expertise includes management of 22,000 cell and blood shipments annually. Our collaboration supports efforts by both Be The Match and Cryoport to standardize critical elements of the cell therapy supply chain as well as processes in apheresis and transplant center networks. By pairing Cryoport’s expertise and temperature-control logistics with Be The Match BioTherapies’ expertise in apheresis center and on boarding management, case management and logistics, clinical research and outcomes data collection and analysis, we will offer full end-to-end supply chain and outcome support for companies developing and delivering autologous and allogeneic cell and gene therapies. The enabling operating platform that we provide manages more cell therapy products than any other solution in the marketplace, enabling cell and gene therapy companies to more rapidly discover, develop and deliver next-generation therapies. Building out our systems, solutions and infrastructure, whether through strategic partnerships such as those with Be The Match BioTherapies and World Courier, or investments in businesses such as our state-of-the-art global logistics centers in New Jersey and The Netherlands, ensures that we can achieve deeper integration into our clients’ systems and processes, scale our operations and retain our market-leading position as a best-in-class specialty logistics solutions provider for the life sciences industry. To advance these objectives, we’re also looking at diversifying our portfolio solutions through M&A activity. For several months, we have diligently been identifying potential acquisition targets and we are currently in discussions with several companies. Any acquisition target that we pursue will have solutions and systems that deepen and/or are complementary to our existing offering for our life sciences market. While the aforementioned initiatives among others, continue to advance our strategy in the biopharma market, we’re also focused on executing on our growth strategies in both reproductive medicine and animal health. Revenue from our reproductive medicine market was strengthened 43% year-over-year driven by both domestic and international demand. The launch of CryoStork Insurance which is designed to better serve intended parents as disclosed in our last earnings call, further contributed to our growth in this market. Revenue to our animal health market, representing approximately 5% of our total revenue, declined by 8% compared to the third quarter of 2017. The biopharma market continues to be our primary focus; however, we will also continue to pursue growth opportunities in both reproductive medicine and animal health. Now for more detailed information on our sales and marketing activity initiatives, successes and outlook, I will turn the call over to Dr. Mark Sawicki, our Chief Commercial Officer.

Thank you, Jerry. It’s a pleasure to have the opportunity to speak with you today. Cryoport operates at the cutting edge of the life sciences industry, and in many cases facilitates future directionality of systems, processes and regulatory requirements in support of regenerative medicine distribution on a global scale. The regenerative medicine sector is approaching a noteworthy inflection point. Four transformative products are now on the market and accessible to greater numbers of patients every day through label expansion and additional geographic approvals. Dozens of additional therapies are in late-stage studies with four marketing authorization applications, or MAAs, having been filed in the European Union so far this year, and one biologics license application, or BLA, filed in the United States. Moreover, as Jerry mentioned earlier on the call, 27 RMAT designations, 17 breakthrough designations and 43 fast-track designations have been granted. No less impressive is the financing activity in this space. Year-to-date, the regenerative medicine industry has raised $10.3 billion in financing with IPOs and venture capital raises this year already being much higher than previous-year totals. All of this activity in the space has led to multiple notable clinical milestones in 2018, including the following. Novartis released data in June from its Julie trial of Kymriah, which demonstrated more than one year durability of response in adults with relapsed or refractory DLBCL. Mesoblast release data on remestemcel for the treatment of acute grafts versus host disease, showing an 87% 28-day survival rate and a 75% overall survival rate for the often-fatal condition. BluebirdBio presented positive data from its Phase III trial of its LentiGlobin gene therapy for patients with transfusion-dependent beta thalassemia and non-beta0-beta0 genotypes. Kiadis Pharma received RMAT status in the U.S. for ATIR101, and anticipates MAA approval in early 2019 for ATIR101, an adjunctive immunotherapeutic administered in combination with hematopoietic stem cell transplantation. Novartis and Gilead-Kite have received marketing approvals for the respective CAR-T products in Europe and the U.K. And Enzyvant initiated a rolling biologics licensing application or BLA for RVT-802 for the treatment of complete DiGeorge anomaly. We are supporting a rapid development in the regenerative therapy market as discussed. We are now supporting 295 clinical trials, of which 38 are in Phase III. Our momentum has caused us to develop and open two new, state-of-the-art logistics centers located in Livingston, New Jersey and Amsterdam, Netherlands, in the most recent quarter. These facilities complement our logistics centers in Irvine, California, and Singapore, and provide Cryoport the ability to effectively scale in support of our existing portfolio of clinical and commercial clients as well as enabling our client base to have flexibility and redundancy in support of their groundbreaking, life-saving therapies. In addition to global capacity enhancements being implemented in the most recent fiscal quarter, Cryoport continues to drive standards in support of the various standards coordinating bodies working to define appropriate controls in regenerative therapy distribution in support of emerging standards such as ISO/TC 276. The latest of these endeavors is our emerging chain of compliance initiative for regenerative medicine distribution, which is rapidly becoming the standard for insuring product integrity. Chain of compliance provides complete traceability of the equipment, processes and logistics handling used in managing the environmental control of the therapy while it is in transit. Turning to animal health, we have recently onboarded a number of new companion animal clinical trials that tend to produce lumpy revenue recognition early in their clinical development. We anticipate that these will start to ramp in the coming quarters. Finally, within our reproductive medicine market, we experienced a 43% year-over-year increase in demand for our services. We attribute this increase to our expanded partnerships with a growing number of clinics within the United States and abroad that are now referring increasing volumes through our CryoStork service offering. In addition, the launch of our CryoStork Insurance product is now being offered to intended parents as additional protection for their reproductive materials against the unlikely risk of damage and loss when being transported between fertility clinics or healthcare centers. This is a sensitive area for our clients. We are seeing increasing adoption of this service throughout our clinic network and direct client base as it is unique to the marketplace. Thank you. I will now turn the call back over to Jerry.

Thank you, Mark. Now for a detailed financial report of our third quarter, I’ll turn the call over to our Chief Financial Officer, Mr. Robert Stefanovich. Robert, the floor is yours.

Thank you, Jerry. Good afternoon, everyone. I will review results for the three and nine month period ended September 30th, 2018, provide some additional comments, and then turn the call back to Jerry. For the nine month period, net revenue increased by 61%, or $5.3 million, to $13.9 million compared to $8.6 million for the same period in the prior year. Biopharma, our largest market, representing 83% of our total net revenue for the 9 month period, increased by 76% over the prior year from $6.6 million to $11.6 million. This was a result of the continued increase of the number of biopharmaceutical clients utilizing our services, the increase in clinical trials supported for these clients, and the scale of the commercial launches of Yescarta and Kymriah. Our revenue from animal health decreased by 4% to $748,000 for the nine months of 2018 compared to the same period in 2017. Revenue from our largest animal health client, Zoetis, increased by 13%. However, this increase was more than offset by the effect of a larger laboratory move that was carried out during the second and third quarter of 2017 as well as one of our animal health clients discontinuing trial activity towards the end of 2017. Revenue in our reproductive medicine market increased by 27% over the prior-year period to $1.6 million. This increase was driven primarily by an increase in revenues in the U.S. market. The recent introduction of CryoStork insurance, which is designed to better serve intended parents, was launched in response to the rise in demand for assisted reproductive medicine and was well-received. We continued to see a growing demand for comprehensive and reliable solutions in this market, and intend to build out our leadership position. Gross margin for the nine month period ended September 30th, 2018 was 53%, or $7.4 million, compared to 49%, or $4.3 million, for the prior year period. This increase in gross margin by approximately 4 percentage points was primarily due to the economies of scale resulting from the increased business volume and pricing adjustments combined with a reduction in freight as a percentage of revenues, which was partially offset by the running costs of our new logistics centers in Livingston, New Jersey, and Amsterdam, The Netherlands, that both commenced operations during the third quarter of 2018. Operating expenses increased by $4 million for the nine month period ended September 30th, 2018, or 40% as compared to the prior year. This increase is primarily a result of building out our organization in support of the increase in our business volume and expected growth. Non-cash stock based compensation expense and startup costs for the new logistics centers in Livingston, New Jersey and Amsterdam, The Netherlands. In short, it was primarily driven by the continued build out of our infrastructure. We reported no interest expense for the nine months ended September 30th, 2018, compared to interest expense in the prior period of $16,000. Net loss for the nine months ended September 30, 2018 was $7.3 million, or $0.26 per share compared to a net loss of $5.6 million, or $0.25 per share, for the same period of 2017. The net loss for the nine month period ended September 30th, 2018 included a one-time non-cash charge of $0.9 million as a result of the one tender offer completed in February of this year. Adjusted EBITDA for the nine month period ended September 30, 2018 continued to improve to a negative $1.8 million compared to a negative $2.6 million for the same nine month period in the prior year, even with the ongoing investments we are making to build out our organization, and enhance our global footprint through our new logistics centers. Now moving to our quarterly results, for the third quarter, net revenue increased by $2.3 million, or 76%, to $5.3 million compared to $3 million for the prior year third quarter. The quarterly performance was driven by our success in the biopharma market where revenue increased by 91% over the prior year quarter from $2.3 million to $4.5 million. The increase in the number of clinical trials and ramp in revenues from the two commercial therapies we are currently supporting were the growth drivers for this quarter, and are expected to drive future revenue acceleration as clinical trials advance and are commercialized, and commercial therapies ramp and are launched in new geographies or for additional indications. Our biopharma revenue represented 85% of revenue for the quarter. Our revenue from animal health decreased 8% to $230,000 for the quarter compared to the same period in 2017. Zoetis continues to be our largest client in this market, and we are currently in the process of extending our agreement with Zoetis. Revenue in the reproductive medicine market increased by 43% over the prior year third quarter, to $584,000. This increase was due to an increase in the U.S. market of 30% and an increase in the international market of 102%, driven by the continued success of our marketing campaigns, maturing of commercial relationships with key fertility clinics as well as expansion of our suite of logistics solutions, including CryoStork. Gross margin for the third quarter of 2018 was 52%, or $2.7 million, compared to 54% or $1.6 million for the prior year quarter. Bringing our new logistics centers in Livingston, New Jersey and Amsterdam, Netherlands online impacts gross margin in the short term. However, as business volume ramps and the utilization of these logistics centers increases, gross margins will increase. As we have mentioned on previous calls, our target gross margin is 60%. Operating expenses increased by $1.3 million for the three month period ended September 30th, 2018, or 36% as compared to the prior year. This increase is primarily due as a result of building out organization and support of the expected increase in business volume, non-cash stock-based compensation expense, and startup costs for the new logistics centers. We continue to invest in building out our organization, expertise and infrastructure to meet the growing demand of our solutions and expected ramp in business. Net loss for the third quarter of 2018 was $2.1 million, or $0.07 per share, compared to a net loss of $2 million or $0.08 per share for the third quarter of 2017. Adjusted EBITDA for the third quarter of 2018 improved to a negative $0.4 million compared to a negative $0.8 million for the prior year third quarter. We ended our third quarter with a strong cash position, and are debt-free, reporting $23.7 million in cash, cash equivalents and short-term investments compared to $15 million as of December 31, 2017. Lastly, we filed our Form 10-Q for the three month and nine month periods ended September 30th, 2018, with the SEC today. Now, I will return the call back to Jerry. Jerry?

Thank you, Robert. Operator, please open the call for questions.

Thank you. [Operator Instructions] Our first question is from Jason Seidl with Cowen & Company. Please proceed

Hey guys, this is Adam on for Jason. Thank you for taking my question. I guess first of all, just looking at the growing cash balance cash and short-term investment balance on your balance sheet, I know you guys talked a little bit about the M&A that you guys are looking at. But maybe could you just touch a little bit more on that? What are you looking for in an acquisition as you approach that? And is this situation where you guys are approaching targets, or targets are coming and approaching you about taking them over? Thanks.

Well, thank you for the question. It’s both. Targets are approaching us, and we certainly are investigating and approaching targets. So it’s the typical M&A, it’s a mix of things. A lot of attention is being gained by the market, and the activities in the market. So it’s what you would expect these days. So in terms of the kinds of acquisitions we’re looking for, it’s the same M&A activity that I’ve described before. It’s filling out our vision of our specialty logistics mandate for serving the life sciences. It’s everything from the point of origin to the points of destination, and so that includes packaging, information technology, logistics expertise, information -- as I said earlier, information-type companies and software, and storage, fulfillment, those type of activities. Anything that’s in that logistics chain is something that we’re interested in.

Got. Thank you for that. And maybe just a second one here from me. So in terms of the CryoStork insurance product that you guys have, I guess comparing that to some of your other product offerings, looks like this is more of an asset-lite, or financial services type of product. So I guess I was wondering, are you guys going to look more at doing more kind of financial services-types of products, or is this a one-off thing for you guys? And not something that you’ll look to expand on or kind of diversify with going forwards? Thanks.

Yes. I’m going to direct that question to Mark Sawicki, but the short answer is, no, we’re not looking for other financial-type products. Mark will tell you more about the characteristics of that offering.

The short answer is, I think we’ve talked about this before. Our focus is around risk management for our clients. And since IVF is a business-to-consumer product, the insurance product itself is a risk mitigation or risk management platform or offering for them. And so it kind of ties back to that compliance-related element that we’ve been talking about over the last few quarters.

Got it. Well, that’s it from me, guys. Thank you so much. Appreciate it.

Thank you.

Thank you.

Our next question is from Andrew D’Silva with B. Riley FBR. Pleases proceed with your question. Andrew D’Silva: Hey, good afternoon. Congrats on the progress. Thanks for taking my questions. I was jumping between a couple calls, so I apologize if you already answered some of these questions. I’m just kind of a little bit curious as far as how you’re viewing your position right now within the broader landscape. Are you seeing opportunities with partners when you start with one trial, as they initiate a second or third clinical trial that you’re getting put into more and more spots earlier in the process, say you get in a Phase III with somebody and as they ramp up a Phase I you’re automatically implemented in there?

Yes. Andrew, thank you, that’s a really interesting question, and we’re happy to address it. I’m going to address that to Mark to answer for you.

Sure. So our entire strategy over the last couple of years is to develop a first-mover advantage in the space. And we’ve really been focused on getting in early and becoming very, very sticky with our clients. And so our entire service platform itself has been centered around customer experience, the ability to support an ever-increasing aspect of their portfolio itself, and cover all of their programs. So we have many, many relationships where we start with one program and we’re now supporting 10 to 15 programs or more. So yes, that’s absolutely an objective of ours. Andrew D’Silva: Is there a substantial customer concentration when we start thinking about it at a Phase III or overall clinical trial level? I know you’re working with some of the heavy hitters in the space. I would imagine it’s a little bit top-heavy, but just based on the sheer numbers it’s kind of hard to tell?

Well its -- I think it’s fairly easy to take -- if you take a look at the Alliance for Regenerative Medicine quarterly reports that come out, you can extrapolate what our position is against that. And we have by far the largest market share in this space throughout all the phases, and that’s something that we fully intend on maintaining and expanding on. Andrew D’Silva: Okay. And now that you’re starting to get a little bit more clarity from your already-existing commercialized partners and more BLAs are being filed, do you feel good about where you stand on that commercial $2 million to $20 million range, once scale happens with these products? Or do you want to expand it a little bit, or narrow it? Just curious on how you view that.

Andrew, that’s a good question, and I think maybe both Mark and Robert have comments on that, so let’s start with Mark and then Robert will have some comments.

Yes. Obviously being a year in from an experience base on commercial products, I think our expectations have -- we maintain our confidence in that expectation. Robert, you want to add on that at all?

No, I just want to support that and as you know, Andy, there’s a lot of activity going on not only in the U.S. and Europe, but our clients in the commercialization is also moving into Asia, China and Japan. So as that evolves, we’ll get greater clarity as to the range of business that we can get through those commercial therapies in those regions as well. Andrew D’Silva: Perfect. Thank you. Last question for me, one of your, I guess quasi-competitors, possible supplier, announced that they had a partnership with one of your partner subsidiaries. And I was curious if you had any plans of moving to different temperature ranges? I believe this one was closer to dry ice versus cryogenic storage capacity levels.

We’ll direct that to Mark.

Yes. So, there’s definitive inherent liabilities in the distribution of live cell-based products on dry ice. The particular instance that you’re referring to, they had a clinical history of using this and what we’re seeing in most cases is folks that have been using dry ice for distribution, they can’t change that in mid-phase. And so what their goal, and many times their strategy is, to launch that product using that existing package and then optimize and manage risk after a commercial launch occurs. And so, our strategy with those folks is to allow them to get out and market, and then transition them to a lower risk, higher quality option which is the conversion of dry ice into the liquid nitrogen format. And that’s what we stick by. Andrew D’Silva: Okay. Perfect. Thank you. I’ll take everything else offline. Thanks for the time. Good luck going forward.

Thank you.

Our next question is from Jason Kolbert with H.C. Wainwright. Please proceed with your questions.

This is Dr. Edward Marks on for Jason. Just wondering now that you have some of the new logistics centers open and available, how much do you think they contributed to this increase in trials that you’ve seen this quarter, especially since they were only recently-opened?

The contribution was minimal, because they were only recently-opened.

Okay. So do you expect significantly more pull-through in some of the next quarters, or do you think it’s going to take a couple more years to get them fully online?

That -- we think that locality, location is important. The logistics centers generally take about six months or so to get fully up and operational. Both these new centers are operational now and servicing our clients. And so we feel confident with those centers and with their contribution for the future.

Okay. Thanks. And just switching gears a little bit, I’m just wondering what you’re projecting as the ramp for Kymriah and Yescarta, especially as they get some more new approvals in a lot of different geographies?

Mark’s very close to that so I’ll let him answer that question.

I mean it’s very simple. We rely on our clients’ projections. It’s not something that we can disclose, realistically. It’s confidential.

Okay. Thanks guys. Appreciate the time.

Yes. Maybe I just to add to that, in the prior calls we’ve given a range of $8 million to $10 million annualized revenue once those therapies are fully commercially launched.

Right. Thank you for that clarification.

Our next question is from Paul Knight with Janney. Please proceed with your question.

Hi, Jerry. Congratulations on the quarter. Are you releasing the revenue per -- for the approved therapies or is it kind of an inferred from the discussion on number of trials?

Paul, let’s talk about that again. Say that -- rephrase that, would you?

Are you releasing the revenue you’re getting out of the commercial customers? And then really my question is, I think we can all back out that that was kind of in line with at least what I was thinking, but I’m trying to really get to the point of, you had 295 trials. You’ve kind of averaged $14,000 to $15,000 per trial customer historically. Is that average going up for these trial customers? And then, can you talk about the ramp of your commercial side?

Okay. So, Paul, I think I understand your question. In my comments I mentioned that we had $555,000 of revenue recognition from -- in this quarter from commercial products. And of course, they’re on a ramp, and as Mark disclosed earlier, we don’t try to -- we take the company’s forecast. We don’t try to modify that in any way in terms of what the future looks like. In terms of our revenue per phase of trial, it’s pretty much what we’ve talked about before. In Phase I, its $15,000 to -- what does it range, Robert? It’s $15,000 to -- what is the range, do you remember?

$15,000 to $75,000 and then we have Phase II is $75,000 to $250,000. And then we have Phase III, they can be up to $1 million. It really depends on what indication it is, the number of patients involved in the trial.

And then of course, commercialization, our range is wide but it depends on the indication. It’s $2 million to $20 million once it’s commercialized.

Okay. I missed that first two minutes so I missed that at $550,000 so that seems to be better than at least what I was expecting. Can you talk about the number of facilities globally, Jerry, that you ultimately see? Is it 15? Is it 12? Is it 20? And then could you talk about, what is the cost to develop a facility like Livingston or Amsterdam?

Paul, that’s a difficult question for me to answer, because the way we will build out our centers will be based on hot-spots. We hot map all of our shipments throughout our network. And then secondarily it’ll be opportunistic, based on client demand. So it’s very difficult for me to give any kind of an estimate about how many logistics centers will ultimately be in our network.

And then CapEx, should we just refer to your CapEx on your cash flow to get a feel for that cost ramp over the last four quarters?

I think that’s reasonable. Our logistics centers are not terribly expensive to open, and or course we’ve been building inventory all along. So I think that’s a reasonable way to look at it.

And then lastly, market; was this a big number on the number of clinical trial customers? I guess there’s still a lot of momentum you’re seeing in the region space? Or can you talk about tone of business as the quarter concluded, even though I know you don’t release backlog?

Well, yes, and I’m going to turn that to Mark in just a moment. But you -- I don’t know whether you missed it or not. We do have 38 new clinical trials bringing us to just under 300 clinical trials supported in the regenerative medicine space. And as far as tone goes, I think that speaks to it, but Mark can give you more color on that.

Our trial onboard come from a couple of different sources. One is expansion of existing clients, and one of the things you see in that area is the market still has a lot of enthusiasm, in fact, increasing enthusiasm for this space. And some of these entities that we’re working with are self-ascribed that they may have as many as 80 to 90 clinical programs in the space within the next 24 months. And that’s just one client alone. So there’s a lot of additional, we’re very sticky, and so we’re able to capture that existing share. But the nature of our platform is a very regulatory-friendly platform. Our chain of compliance really ties into this traceability aspect that we’ve been talking a lot about, and it provides a lot of security in the space for our client base. So we’re still continuously adding new clients and new programs based on the fact that they view us as the most regulatory-appropriate option in support of their portfolios.

Okay. Thank you and congratulations.

Thanks Paul. Thanks very much.

Our next question is from Richard Baldry with Roth Capital. Please proceed with your question.

Thanks. Can you talk about whether the new facilities impacted the full quarter for costs, sort of a way for us to think about the gross margins in the fourth quarter, whether they’d be similar or if it wasn’t in for a full quarter maybe they’d be down a little bit?

Richard, Robert’s going to answer that question.

Yes. Hi, Richard. May I just answer your question? So if you look at the two logistics centers we set up in Netherlands and in New Jersey, we brought them online towards the end of the third quarter, so there were some costs directly associated to the gross margin. You’ll see in our 10-Q filed with the SEC that we’ve provided some additional detail around the startup costs as well. So it will have an impact temporarily as we see the logistics centers fully operational and fully covered with transactions, you’ll see that gross margin impacted somewhat for the next one or two quarters.

Okay. And maybe we’ll see this when the Q comes, but were any of those startup costs sort of one-time oriented, or is it really just operating -- standard operating expenses kind of step up on a run rate basis?

Well, it’s a combination of both. So you have onetime operating costs. They’re actually included in the operating expenses, so below the line of the gross margin. And then we have operating costs towards the end of the quarter which are in the cost of sales, on the impact in gross margin, once the facilities were live and operational. And we still believe the target of 60% is very achievable and then so, we’re still moving towards that target of 60%.

Okay. And you’ve talked a bit more -- we’ll call it actively, about acquisitions now. So can you talk about the analysis of time-to-market, maybe, versus ROI on build-versus-buy? Maybe use a use case like storage? You could obviously buy a facility that’s up and running, or build one yourself. You’ve proven able to do that. So how do you think about that? What do you thinks’ more important, being able to go quickly into the market or sort of longer ROI kind of focus? Thanks.

Richard, we’re about effectiveness over efficiency. We can always work on efficiency, so going quick into the market is not something that’s in the way we’re going to -- we don’t approach the market that way. We approach the market to be the most effective in the marketplace, and to be the best service to our clients, and to support regenerative therapies and the other segments of the life sciences that we serve. So there’s no bias one way or the other as to how we go into -- how we expand into the marketplace. The only bias we have is to be careful, to be effective, and to make sure that we’re safe, secure, and that we’re certain, as we say on our logo. So that’s my view about your question.

Okay. Thank you.

[Operator Instructions] Our next question is from Sean Hannan with Needham & Company. Please proceed.

Yes. Thanks for taking my question here tonight. Wanted to ask you about the products, or I’m sorry, the therapies that you’re supporting. As you look at what’s already approved in terms of out there is a commercial product, those that are in waiting in the filing or about to be in the filing process as well as then your Phase IIIs that you’re supporting, can you -- can you give us some level of indication around the degree of overlap that we might be looking at for these various biopharma companies getting at similar, same, the overlap on the indication front? Clearly in thinking about competitive dynamics, there’s going to be some influences there for ultimately how we would assume each and every one of these individually could contribute to you in terms of shipment, so, just trying to get a better perspective around that.

That’s a good question, and we toil with that to some degree. We’re not experts in that area, but Mark has some views on it that we can share.

Yes. So if you take a look at the portfolio overall, and if you guys haven’t, I would recommend that you go to the Alliance for Regenerative Medicine website. They have a clinical progression database which in essence you can look at the progression of a lot of these different programs. If you look at the next tranche of programs that are targeting commercial launch over the next 24 months. In almost every instance, these are moving beyond the hematopoietic cancer space. You have moving into things like sickle cell, and skeletal-related issues and other things. So we think that the portfolio will diversify beyond the blood cancers in the near future.

Okay. That’s very helpful. And then coming back to some of the topics that you’ve hit on for M&A, just wanted to see if I can hear kind of an over-arching set of thoughts as you speculate how this industry evolves the need for cryogenic storage, where ultimately that resides particularly as uptake continues around some of these therapies, how much that might be on-site, and whether it be some of the leading hospitals, where else it might be and to what degree it’s of interest -- or could be a risk that you would take on as this whole space and models evolve from here. Can you talk about that, both sides of the coin? That would be helpful. Thanks.

Well, that’s a broad question. I thought -- I tried to answer that a little bit earlier, but this is -- our interest goes in anything that’s in that value chain for delivering our specialty logistic services, all of those areas that we talked about earlier, the information technology. The information is very important to us. It’s an over-arching theme on everything we do, and it’s an over-arching theme in the industry at large. So information technology is an important area. Storage is definitely an important area, as is packaging. And so, all of these things are important and acquisitions, of course, are opportunistic. We do look at make/buy versus -- make versus buy risk factors, and opportunity in evaluating anything that we do in terms of expanding and growing and supporting our business.

Thanks so much.

Ladies and gentlemen, we have reached the end of our question-and-answer session. I would like to turn the conference back over to Jerry for closing remarks.

Thank you, operator. I wasn’t prepared for you exactly at that moment, so just give me one second to get back to my desk here, and give you some comments. I do want to thank everyone for joining the call today, and as we close I’d like to say that we’re pleased with our progress this quarter. The number of our pharma clients on our books is at an all-time high, and we’re supporting a record 38 Phase III clinical trials in the regenerative therapy space. We think we have a growing and robust client base that will continue to drive steady revenue growth not only in the near term, but for many, many years to come. Despite our strong foundation, we’re always looking for ways to invest in our business, to springboard our development and achieve even higher growth rates. We have a clear opportunity to gain market share and increase the number of clients we support as reflected by our client pipeline and our potential for continued expansion in our markets. Furthermore, as mentioned earlier in this call, by forming partnerships and exploring potential acquisitions, we’re building a strong ecosystem and maneuvering ourselves to become embedded in even more areas of the temperature control supply chain supporting the life sciences industry. Our market opportunity grows larger every day, and our position within it becomes even stronger. So on behalf of our entire team, we appreciate your support and participation in our endeavor to build Cryoport to its full potential. Until our next earnings call I bid you farewell, and a good evening.

Thank you. This concludes today’s conference. You may disconnect your lines at this time. And thank you for your participation.