Cryoport, Inc. (CYRX) Q1 2022 Earnings Report, Transcript and Summary

Thank you for standing by. This is the conference operator. Welcome to the Cryoport Inc. First Quarter 2022 Earnings Call. As a reminder, all participants are in listen-only and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. [Operator Instructions] I would now like to turn the conference over to Todd Fromer with KCSA. Please go ahead.

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 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 the other reports, which we file 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 us this afternoon is our Chief Financial Officer, Mr. Robert Stefanovich; our Chief Scientific Officer, Dr. Mark Sawicki; and our Vice President of Corporate Development and Investor Relations, Thomas Heinzen. As a reminder, we have uploaded our first quarter 2022 and 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 the general business outlook. If you have not had a chance to read it, I would encourage you to go to the website and download it. I will provide a brief update on the business and then move into answering your questions. Our first quarter was solid. Our financial results reflected continued growth and strong performance that was partially offset by the adverse impact of the fire at our New Prague, Minnesota manufacturing plant of approximately $9.4 million. We believe the impact from the fire is isolated to the first quarter, and we intend to recapture the revenue throughout the remainder of 2022. The plant is now operating at full capacity and the demand and backlog at our cryogenic equipment and systems continues to be very strong. During the quarter, our pipeline of potential commercial customers and return to medicine continue to grow with the total number of clinical trials supported by Cryoport reaching a record 609 trials at the end of the first quarter 2022, an increase of 12% over the first quarter of 2021 and 30% higher than the first quarter 2020. It is worth noting that a record 81 of these trials are now in Phase 3, up from 69 at the same time last year. Demand for our cryogenic equipment systems and services continues to be very strong. To meet the industry demand, we will be expanding capacities in all business units as well as growing our global footprint. The following are but a few examples. One, next month, we will have the grand openings of two Global Supply Chain Centers, one in Houston, Texas; the other in Morris Plains, New Jersey. These new Global Supply Chain Centers are the beginning of a Global Supply Chain Center Network, which is complemented by our acquisition of Cell&Co, which is located in Clermont-Ferrand, France and we'll be expanding to Paris. Two, we will continue making acquisitions to expand our first choice courier network for biopharma. Three, our world-class biostorage platform will be expanded from Houston into San Antonio and Philadelphia. And four, we will continue to increase our cryogenic systems manufacturing capacities, both incrementally and through plant expansions. These expansions will be augmented with the launch of multiple new services, products across -- new services and products across our company such as expansion of consulting services, the introduction of fully validated Cryosphere and a new model of the fusion cryogenic freezer. Through these and other initiatives, our vision of becoming the most comprehensive and compelling supply chain provider serving the life sciences industry is coming to fruition. And we are further strengthening our position as the partner of choice for our markets and especially in supporting regenerative medicines from concept to market. Our global markets are facing many diverse challenges today. And while we are not totally immune to global macro conditions, we continue to see strong demand for our products, systems and services. And that is reflected in the guidance that we have provided for full year 2022 revenue of $260 million to $265 million. This revenue guidance represents solid growth of 17% to 19% and is driven by current and expected demand across our business units. Further reflection of our confidence is our business -- in our business outlook could be seen in the $100 million share repurchase program authorized by our Board of Directors. Through April 30th, we repurchased approximately $23 million in shares and remain in the market. Our financial position remains strong with approximately $600 million in cash to support our growing business. We see opportunities to continue executing our strategy of building the most comprehensive and compelling supply chain provider serving the life sciences industry through organic growth, acquisitions and partnerships. Despite the current turmoil in the capital markets, we are well positioned to continue our track record of strong growth and market share gains for the foreseeable future. Now, we'll be happy to entertain your questions. So, operator, if you'll please open the lines for questions.

Certainly. We'll now begin the question-and-answer session. [Operator Instructions] Our first question is from John Sourbeer with UBS. Please go ahead.

Hi thanks for taking my question and congrats on the quarter and the initial guidance here for 2022. Just curious if you could kind of elaborate on some of the puts and takes in the guidance for the year? And does that include any of the recapture of the MVE fire headwinds?

John, that's a good question. I'm going to turn that to Robert, Robert Stefanovich.

Yes. Yes. So, for the full year guidance, we have $260 million to $265 million. Just a couple of notes. One, that does include the revenue that we expect to achieve for the full year. So any revenue that we recapture from Q1 that resulted from the entire damage in New Prague is included therein. Also, if you look at the next nine months or the next three quarters, we're looking at about a 23% to 26% growth based on that annual guidance. So obviously, we are quite bullish about the prospects for the full year 2022.

Got it. And then I guess just a little bit about the fire in New Prague on the recapture there. Is that recapturing from making up from lost sales? Or is there insurance payments involved that -- any way just to think about the cadence there for the rest of the year?

Yes, John, that's -- I mean, we won't have a financial impact because -- on the bottom-line because the insurance will take care of that. But our manufacturing team is committed to make up that $9.4 million, $9.5 million loss that we had in the first quarter over the rest of the year. The progress in getting the plant back up and running is going very smoothly. People are really dedicated to making up the lost revenue and making sure that our customers are served in the way that they have traditionally been served for 60 years.

Appreciate it. And then, I guess, just lastly, public market biotech funding has been a little light year-to-date coming off of record years the last two years. Have you noticed any changes or impacts in your clinical trial business there just from maybe emerging biotech-type players?

Let me start the answer, and then I'll turn it to Mark Sawicki. We haven't really noticed any changes in our clinical trial activity. As you know, the number we report every quarter is a net number. There's always action of new starts and then terminations of trials. So, the net number is what we report every quarter. And as you -- as I mentioned earlier, we ended up with 81 of our 609 trials in Phase 3. So Mark, you may want to add to that?

Yes, Jerry, thanks. I'll just add a little bit here. Yes. So if we actually take a look at our core competency as it relates to clinical support, we focus on the cell and gene space. And in fact, the activity level there has been very strong, if not actually increasing a little bit. We think that there is a very deep pool of financing that's been afforded to these organizations. Many of them have multiple years of cash on hand and are well-established entities that have a deep pipeline. So we feel very, very bullish about the environment as evidenced by, obviously, our continued progress in the space and the progress overall.

Thanks for taking my question.

Thank you.

The next question is from Brandon Couillard with Jefferies. Please go ahead.

Hey thanks. Good afternoon. Jerry, maybe just starting with the guidance issuance. Just philosophically, can you just speak to why you feel comfortable starting to issue guidance now? And in terms of the components for the year, what are you assuming for commercial biopharma revenues and secondarily, MVE growth for the full year if you care to go into further detail?

Yes, it's a good question, Brandon, because we, up to this point, have not given guidance on revenue. And we think, first of all, it's -- we're right at the prefaces of expectations of guidance. I mean, we are going to be achieving $260 million to $265 million in revenue. And so that was one aspect. The other aspect is just to give the market the certainty and the confidence that -- to share the confidence that we have with the market. It's very easy to read a lot of negative things into the turmoil that's happening today. And I think that we're vastly oversold at -- where we are in the market is absurd. And so we want to share our confidence with the market and let folks know what the year does look like from our point of view. So that was a -- those are the two bigger factors. As far as MVE goes, we don't give guidance on units. So I don't -- I can't talk about that except to say that the backlogs are strong at MVE, and there's been no diminution of demand. In fact, it's continued to be very, very strong and has been strong for a good while. Robert, you may wish to add to what I just said?

Yes. Maybe just what you already said, and obviously, we're confident. And we wanted to give investors and analysts kind of that level of confidence for 2022. You may recall, Brandon, in the past, we did talk about the business units really to reflect the acquisition of CRYOPDP and MVE and to look at organic growth versus the acquisitions. Now, this is really one operating platform with the businesses. So, we don't specifically talk about revenue guidance for MVE Biological Solutions or CRYOPDP, but have both expected to grow meaningfully and contribute to the overall results. And then as you would expect, Cryoport Systems in terms of growth rates is expected to lead the pack.

Yes, Robert, if you don't mind, I'm going to add one more. Brandon, I want to just comment on your commercial question here. So as you're aware, we were just talking about it, we focus on a portfolio approach to the clinical and commercial space. And our focus has historically been on growing our clinical trial pipeline and supporting those through commercial launch. That's obviously demonstrating success, and we expect that commercial growth to continue for four primary reasons. One, we're going to see a continued number of approved therapies that expand out on a global basis, which we're seeing evidence of already with additional approvals of folks like Novartis and others. These approved therapies can move into earlier lines of treatment. The Kite -- Gilead/Kite product has moved to second-line BMS, will be filing for second line, for example, which substantially increases the addressable patient population. And these approved therapies continue to expand indications, right, as well as new therapy launches. So, the four of those obviously bode very well from a commercial standpoint for us for the foreseeable future.

Got it, that's helpful. And then a follow-up on MVE, you mentioned supply constraints. Is that mainly a cost dynamic? Or is that also limiting your ability to ship product? And then secondly, you talked about in the packet expanding capacity in the U.S. Can you just be more specific about the timeline for that new capacity coming on board?

Yes. I mean, the capacity expansion is taking place as we speak on an incremental basis. I mean, we've added shifts. We've added people. We've rearranged some of the processes. So that's incremental, but we also are planning an actual plant expansion, and that will take a year or so. But it's in the process.

Got you. Okay. And then last one. Jerry, you got $600 million cash on the balance sheet, not burning that much unlike a lot of other smaller companies. You put a little bit to work on the share repurchase front. But just curious to get an update on what you see in terms of the acquisition pipeline and where your priorities would be right now? Thanks.

Well, the acquisition pipeline is made up of those areas that we've talked about in the past. And of course, we're filling in gaps. And we do intend, as I mentioned in my remarks, to be the most compelling, most comprehensive supply chain support system for the life sciences in the world. And so if you look at our acquisitions, strategic acquisitions take a much longer time, and they're rare. They don't come along every day. Tactical acquisitions, you've seen us make several of those, and you will see us continue to make tactical acquisitions. The one that we made just recently of Cell&Co is what I call a tactical acquisition with a strategic impact. And that it cut out a couple of years of development that we had to go through to qualify ourselves in EMEA because of its licensing and its position. So -- and the competency of that staff. It's got a fantastic staff. So we do have a robust acquisition pipeline. We're looking at a lot of opportunities in the space, and we're eager to announce them as they come along. Our cash reserves are very important to us and -- but we are always mindful that this is shareholder money. And we are prudent in the way we allocate our cash, the way we invest our cash. We don't talk about spending cash. We talk about investing our cash because we're going to return on everything on every dollar. So it's a great -- we have a great outlook. We are in a great position. There's a strong position, but that's about as far as I can go in commenting on how we will be using that capital other than the purchase we -- the repurchase we made on the stock.

Very good. Thank you.

The next question is from Puneet Souda with SVB Securities. Please go ahead.

Yes, Michael on for Puneet this morning. Congrats. Thank you for the question. My first one is about a recent proposal, policy proposal from CMS. We saw suggesting like a 3% decline to CAR-T reimbursement, which continues to be lower than hospital costs. So, overall, I was just wondering if reimbursement update overall changing your view on uptake for CAR-T in the market?

So, I'm going to start -- answer a couple of things, and then turn it to Dr. Sawicki because he's closer to this. But look, this is a nascent industry. And I think for anyone to be too laser focused on any particular element right now is -- it should be taken in context with the fact that it is nascent. It's just beginning. I mean, it's taken a long time for us to get to this point. But we still aren't -- to use the baseball metaphor, we still aren't out of the first inning. So that doesn't really concern us all that much because there's a different -- the paradigm is changing on a consistent basis. So, from that, I'm going to let Mark talk about his views and what he's seeing in the marketplace.

No, I think that Jerry is absolutely correct. Just to add to that. The biggest limitation on the space right now isn't reimbursement, it's honestly manufacturing capacity overall. And you can look at this very clearly. Our -- a lot of our commercial clients are very candid about, obviously, the impact and shortage of either drug product manufacturing capacity or viral vector manufacturing capacity. And they're all investing substantially in this space as it relates to bringing new capacity online. So, from our perspective, that's the biggest impact on scalability is bringing that capacity online. The second is moving these products into earlier lines of treatment. The earlier that they bring them online, and obviously, there's a cost justification that they can use as it relates to the overall spend against the patient demographic component. And a lot of them are using that as an angle that addresses that reimbursement issue. So, from our perspective, that's a nonissue. It's really going to be the manufacturing capacity that has the biggest impact on adoption over the next couple of years.

Okay, thank you guys. That really helps. And then my other question is about the new Bioservice facilities. I was wondering if you had any updates on like the revenue ramp-up for these facilities? And I know last quarter, you said you're thinking 2023 is when they'll actually start meaningfully contributing to revenue. Just wanted to see if there's any update on the outlook?

Again, I'm going to start the answer and then turn it to Dr. Sawicki. But these -- so when you think about Bioservices, I want you to think about Global Supply Chain Centers because that's what these are. This is a dream. It is a revolutionary service, although some folks don't like to look at it exactly that way. But Bioservices comes in as a part of the supply chain center, which will -- so what that means is we'll have world-class logistics services combined with Bioservices, which includes biostorage, secondary labeling, kitting, fulfillment. It's made to make -- to fulfill allogeneic product. Remember, about a third of our trials are allogeneic. So, it's married there and it will provide a lot of services, and that's the core though. It's built around fulfilling the allogeneic therapies as they come to market. Very few places, in fact, hardly any that we know of are equipped in that way. We're very excited about these. And these supply chain centers, which include Bioservices, these first two are in Houston and Morris Plains are just the beginning, of course. And then Cell&Co that I mentioned is -- will be adopted to that system. It's already a biostorage operation, and it will be converted to that system. And that Paris operation that Mark has planned will be a part of that system. But you'll see us opening up more supply chain centers and creating that global supply chain network, and the network is really important. So my guess is that eventually, we'll have 18 to 25 Global Supply Chain Centers around the world forming that network. And there's a lot of power in having a network because you have redundancy, you have backup, you have more surety, you have less risk by having a network. So, I'll let Mark take it from there.

Yes, the only thing I'll add, and Jerry is absolutely right. The only thing I'll add on it is both of the facilities in the U.S. have their formal grand openings in June. However, there's already robust client activity related to bringing product and activity into both locations. Obviously, the timing and the reason that we were saying that you'll see a more material impact in 2023 is the validation and onboarding processes of moving clinical activity or commercial activity into a new space takes some time. And so that time is -- affords the quality systems and others from these organizations to make those transitions. But the client activity is extremely robust already in both facilities. And we stand by the fact that these will be very, very actively and heavily used as these organizations complete their validation processes.

Okay. Thanks for the color there. Yes, thank you very much.

Thank you.

The next question is from David Saxon with Needham. Please go ahead.

Hi guys. This is Joseph on for David. Just one from us today. I appreciate you guys giving guidance. Maybe if you could add some more color on some of the other financial targets. You guys have talked about in the past 55% gross margin, 30% EBITDA margin. 2025, you guys were talking about an ambitious target of $650 million to $750 million. I guess like where is the timeline for those different targets? And kind of what needs to happen, what's going to go into that over the next five or so years for that to happen?

Well, I'll start and then turn it to Robert. The -- our target of $650 million to $750 million remains in place by 2025, but we have no reason to back off of that target. And we think it's -- we continue to think it's achievable. The -- then what goes into that is going to be organic growth and acquisitions just as we -- just -- is the normal thing that we're doing today. And it's going to be -- it will be organic growth. It will be a tactical acquisition, strategic acquisitions if we're lucky and then -- and partnerships and alliances to move us forward. And Robert, you may want to comment on margins and other metrics.

Yes. No, just a few things. And you're absolutely right, the target gross margin is 55%. The adjusted EBITDA is 30%. Again, you have to step back and look at where we are right now. Early stages of the cell and gene therapy market, we are the leader in this space, and we're constantly expanding our solutions and with that, our revenue capture and then market share on a global basis. So with us supporting 609 clinical trials, the maturing of that clinical trial base with now 81 trials in Phase 3, I mean, this is a significant number. So we believe that the result in commercial revenue that we can support will one, lead to expansion of margins, increase economies of scale and drive the adjusted EBITDA bottom-line. Right now, we're still in that building phase. There's only a few commercial therapies in the market. So, you'll continue to see us build out the Global Supply Chain Centers that Jerry was talking about. And in spite of that, we still keep a positive adjusted EBITDA for the quarter. We expect that to continue over time. So, we do think it's the aspirational target set about year and a half ago is achievable, and then we're working hard to make that happen.

Okay. Thank you. That’s all.

Thank you.

The next question is from Paul Knight with KeyBanc. Please go ahead.

How was the performance of Cryogene in the quarter, Rob?

Good. I mean, the Cryogene, there's a few things to say on Cryogene. Cryogene continues to perform well from a service and solutions perspective. But I think more importantly is really to highlight the expansion plans that are underway. One, the expansion that already happened in terms of the footprint in Houston. And then second, as we talked about the expansion into other geographies, which includes two additional sites in Philadelphia and in Austin. So that will further, obviously, bring revenue capture. They have a very kind of winning approach to the market in the Houston market, and we'll replicate that in those two additional locations. So, you should expect to see as those are put in place, there will be further revenue growth, profitable revenue growth from the Cryogene side.

And CRYOPDP was -- how did that perform in the quarter?

All of the business units performed well. CRYOPDP had significant growth year-over-year and performed very well. You'll continue to see acquisitions that they've made in the past. You'll see more of those as they further expand their geographic footprint in key locations. So, outside of the kind of one-time impact of the fire damage that impacted the MVE revenue, but revenues were very strong for Q1.

And last question is you seem to pay a pretty -- a nice -- a very attractive price for the Cell&Co acquisition. What was behind what was a multiple of revenue price lower than what we've seen before?

Well, I think you're right. I mean, we do have a very disciplined approach in terms of the acquisitions overall. So, you look at the cell and gene acquisition -- the Cell&Co acquisition, in particular, I think it was attractive, but it's really more the strategic element that Jerry was referring to related to Cell&Co that really will bring value, much more significant value to Cryoport and the Cryoport family of companies. So, it's really just the approach we're taking. We're looking for strong leadership and entrepreneurial spirit, which the Cell&Co management team certainly brings to the table. They have all of the certifications that would be required. So, it allows us to enter into the European market probably two years sooner than we otherwise could have through an organic buildup, and that's probably a conservative view.

So Paul, I'd just add a couple -- Paul, I'll just add a couple of things there. Remember, a big portion of that purchase price is earn out. So number one. And number two, reinforcing what Robert said about the strategic elements. In addition to meeting all the strategic elements that we wanted and accelerating us by a couple of years in EMEA, it met all of the -- our financial hurdles, our ROIC and return on investment criteria. So, it's an excellent acquisition and fantastic people.

Yes.

And just also the acquisition was $6 million, $6.7 million. And $2.7 million, that is earn-out on reaching specific milestones. The owners took some of their purchase price in shares of the company for the further upside that they see in becoming part of Cryoport.

And then last, would it be fair to assume that the pharma, biopharma clinical trial business, revenue was up sequentially with your pickup in trial count?

Yes.

You're talking about the non-commercial, yes.

Yes.

Yes.

Yes. Absolutely.

Okay. Thanks.

The next question is from David Larsen with BTIG. Please go ahead.

Hi. Congratulations on what looks to me to be like a pretty good quarter. Can you maybe just talk a bit about the impact of inflation that you're seeing on the business, specifically freight. Can you pass that through to your customers? And how quickly can you pass that through? And then also steel and then also any sort of technology components like semiconductors, in particular. And then related to inflation, just in terms of the timing of throughput in the labs, are you seeing clinical trial activity sort of just kind of like being extended, which may lead to some sort of, I guess, extended timing to recognize certain pieces of your revenue? Just any color there would be helpful.

David, let me comment on -- in the beginning. And then Robert and Mark may have some additional comments. Look, inflation is my number one worry. And because if it's not properly controlled internally, then we get margin squeezes and that sort of thing. So we have a -- we do have some inflation. We -- it hits us in all of the areas, just like it does everyone else because we're not immune to it. I mean, stainless steel, aluminum, semiconductors or all our materials as well as freight. On freight, we passed that through. That's a pass-through. On the others, we do pass that through also in terms of price increases. We look at price increases more frequently now than we've ever done ever in the past. We have early warning systems within our company -- within our companies to let finance know immediately when a price increase is sufficient, not when the order is placed, not when the purchase order is written, not when the invoice comes in, but when they -- suspicion, a price increase. And so that goes to finance, finance is alerted. And we work vigorously to make sure that we adjust our pricing to reflect the inflation that's taking place. Now that pricing sometimes is permanent if we think it's going to be permanent. And other times, it will be surcharges. And so we work hard to have, like we do on every other situation, we work hard to have control over these situations because they exist. And we face them head on, and we face them intelligently. And so far, we've been very successful in managing in that way. So, Robert, do you want to comment further on that?

Yes. No, just to state a few more items and emphasize one that Jerry already mentioned is the transportation piece, that is covered. And that is something that our clients are paying. So that is passed through. But if you look at maybe a different angle, if you look at our gross margins, we do believe gross margins have stabilized. We actually had a slight uptick sequentially over Q4 about 180. And we expect margins to gradually improve over the coming quarters. As Jerry mentioned, if you look at MVE, they've improved slightly sequentially, but they're still experiencing increased costs of raw materials and inventory. We build up inventory to have safety stock. So some of those costs will take time to pass through to our clients. But we do expect that to continuously improve. And like Jerry said, very, very careful and analyzing any increases that we see in the market for the products and systems that we develop.

And then there was a clinical trial element to your question that Mark can answer, I think, David.

Yes, I think the only thing I'll add to that is that we kind of addressed this earlier. We have not seen any slowdown in activity. We have not seen intentional extension of programs based on market conditions. The trial environment is still extremely robust and very strong. And we haven't seen any impact on obviously the macro events or inflationary considerations that impact any of those things. The market seems to be extremely strong at this point in time from everything that we can see.

Okay. So, the activity in like Shanghai and China, that's not having an impact on your business. Is that correct?

We don't -- on a global basis, you can see, I mean, all three geographies continue to grow the total number of trials and trial count. Now, we have not seen an impact from a geographic standpoint based on any macro environmental conditions at this point in time.

Mark is specifically referring to trials here as he's talking through that.

Right. Right. Yes. So, yes, the activity is still very strong.

Okay, that's great. Thank you. And then it sounds to me like backlog and demand is still high. Pipeline growth is good, and you're adding capacity. I think you have three MVE biologic plants that are actually creating these products. Are you building another plant or are you adding on to one of those plants in order to add more resources?

David, that's certainly a -- in the future that we will look at that. But right now, I'm focused on asset utilization. So when you have a plant that's running one shift, you can run two. If you run two, you can run three. And then if you can go back in and reengineer the plant, sometimes you can add on to the plants and that we do have that underway at both plants. We're examining adding on to the plants. Then when you do add on, sometimes you can put in automation and other labor-saving processes. So, we're looking at all of those things. But the first order of business is not to just go build a new plant. The first order of business is to improve our asset utilization, and we haven't maxed out there yet. So, that's our focus.

Okay and then just one more for me. With the $9 million in, I guess, delayed revenue, I would imagine some of your competition would be looking at that and trying to get in there and take some of that revenue. Just any thoughts on that? What has the competitive response been, if any? And just any color on sort of a competitive environment. I've gotten some questions from some investors around pricing and capabilities and so forth. Just any thoughts there would be helpful.

Yes, absolutely. It's a really good question that I'm eager to address. MVE has spent 60 years becoming the preeminent supplier of cryo systems, cryogenic freezers and doers [ph] in the world. It occupies a lotted position for the highest quality, the fairest dealings of any supplier in the world. Our customers have determined that they will ride it through with us. Now, it's called some pain for some of them because we go through a robust distribution network globally. But they -- but they've stayed with us. Now, I'm sure that the competition has benefited to some degree from the backlogs that we have, but we have those backlogs because of the loyalty of our customers. And those customers are loyal because they know they're going to be dealt with fairly, and they're going to get the highest quality product. And they're accustomed to those services. No one manufactures a product of higher quality than MVE.

Okay. Thanks very much. Appreciate it.

[Operator Instructions] Our next question is from Yuan Zhi with B. Riley Securities. Please go ahead.

Thank you for providing the full year guidance here. So, maybe, Jerry, can you talk about the rationale to select New Jersey and Houston as your logistics centers? If you can talk about the existing customers and the potential customers that you guys can cover for those two centers, that will be great. And also for those two centers, will there be any difference in terms of services provided from them?

It's a really good question. And as John Dillinger says when he was interviewed at one point, he said, why do you rob banks? And he said, that's where the money is. Well, the corollary to that is we're located in these places because in Morris Plains and in Houston because that's where the customers are. We have a huge following in the Houston area. And of course, the major campuses of all the major -- roughly all the major players in the pharmaceutical industry are right there around the Morris Plains area, and that's important for us to be in those locations. So, it was a no-brainer. And then we already have the Cryogene facility in Houston, so we can create a campus effect in the Houston area. Morris Plains is very close to the Livingston operation that we have where we can better serve the customers. As far as the services from these centers, they'll be exactly the same. The SOPs will be the same. This is the network effect I was talking about earlier, where we provide redundancy and decrease risk. And we're all about cell viability and about decreasing risk around that cell viability. And we also then want to create -- we also with that network effect, then we have that redundancy where if there's a catastrophic situation in one place, the other -- another node can take over and never miss anything. We reduced the risk because plants will be able to store in more than one facility. And now it's treated exactly the same, same SOPs and all the facilities making up the supply chain -- the global supply chain network. Mark, do you want to comment any further on that?

No, I think you articulated it really well. The only other thing that I would add is as we continue to build out this network, it provides organizations the ability to truncate supply chains and to shorten them to be able to get product into the hands of the patient that much more quickly. And some of these products have a very time-sensitive aspect to them, in particular, some of the newer allogeneic portfolio that's coming through, where ours may make the difference between a successful or a non-successful outcome for things that are related to spinal cord or cardio and other aspects. So, having a network of facilities that are able to store and distribute these types of product lines will have a substantial beneficial impact for our client base over time.

Got it. Thank you, Jerry and Mark. And another question I have is in the last two quarters, the quarter-over-quarter growth of cell and gene product sales were single digits. And recently, Novartis has mentioned that they have seen lower demand for their products. So, I'm just curious what kind of signals have you guys picked out from your customers? Have you seen maybe the order number in the third quarter and fourth quarter are relatively higher than the second quarter so far?

So, I'll start, and then I'll turn it to Mark. Remember, we are the gold standard in terms of clinical trials and support of the industry. So it gives us a view that other folks don't have. And Mark has mentioned that there's a manufacturing capacity constraint. And I've mentioned, too, that this is a nascent industry. It's at the very beginning, and nothing is a straight line in the development of the industry. So, there's nothing concerning there to us. But we certainly can see how it could be concerning with other -- to others who may not be as involved in the industry and maybe looking at it as being more mature than it actually is. But it's still in these very early formative stages, and it's running short of manufacturing capacity. I'll turn it to Mark at this point.

Yes, Jerry is exactly right. The biggest issue here is manufacturing capacity issues. So if you take a look at Gilead/Kite and Bristol-Myers, for example, both of those folks have substantial additional manufacturing capacity coming online and have intimated that capacity constraints are restricting their ability to provide product for the addressable patient populations that they're going after on their product lines. Novartis has seen some loss in product revenue due to competitive factors, which they acknowledge. They've been really focused now on moving to rest of world because of some of those competitive factors. And they've also, obviously, launched -- looking at launching this new T-Charge platform, which they believe will reach substantial reduced manufacturing time, which will reduce cost but also provide a much larger volume of addressable product for patients potentially over time. Everything that you're going to see over the next one to two years in this space from a commercial standpoint is really going to be impacted by this capacity coming online as well as the move from third line to second line. And then ideally, some of them are also starting to target moving from second line to first line, which will also have a significant impact on the addressable patient population.

Got it. And one last question from me. In terms of pressure from supply chains, I've seen you guys have a better gross margin in this quarter compared to last quarter. I'm just curious generally speaking, is it getting better in the first quarter and next quarter versus last year?

We can't say that it is actually getting better. What I can tell you is that we have an incredible sourcing team across all companies. And they do just an incredible job. They foresee forecast. We provide -- put the safety stocks in that Robert referred to earlier. We are in constant contact through our quality organization as well as our procurement organization. We're not -- I would say the world is not out of its supply chain issues yet, but I will tell you this. I think that the supply chain will work its way through all of the issues in the next couple of quarters. I think it will take that long. The biggest issue right now in supply chain is containers, as you know, container availability. But that's getting better. It's not where it needs to be by a long shot. And Shanghai Harbor has a lot of the world's containers stuck in that harbor. But it will work through. And our folks are on top of things. They're booking things in advance. And like every other problem, we address it, of course, rightly and work through it. So, I guess the bottom-line is, I think it is getting better, but we're not through it yet.

That’s a very helpful color. Thank you for taking my questions.

Yes.

The next question is from Jacob Johnson with Stephens. Please go ahead.

Hey good evening. One bigger picture question, then I have a modeling follow-up. Just I want to talk about these supply chain centers. And as I think about those, I kind of think about the allogeneic opportunity. And obviously you made two shipments with autologous, but -- and only one with allogeneic. But as we think about the potential volumes from allogeneic therapies and storage, kitting, packaging, can allogeneic therapy be a larger revenue opportunity for you all versus some of these autologous ones today?

Jacob, I want Mark to sort of educate you on a couple of things there because I think on the surface, I think you're exactly right in terms of what you might think on the surface about autologous versus allogeneic. But the fact is allogeneic has to be distributed. And so it's a lot more work, a lot more things going on with allogeneic. In autologous, there's duplicate doses made. So, I won't go any further. I'll just turn it over to Mark because he knows a lot more of the detail, and we'll let you take it, Mark.

Yes. It's a lot more complex than that. So, Jerry is right. The bottom-line is that an allogeneic therapy can have as many SKUs on dose, but it could have as many as a dozen doses depending on the indication and therapy class that's being addressed. So, you may have as few as one shipment. You may have as many as 12 based on the nature of the particular allogeneic therapy. But allogeneic also requires bulk storage, fulfillment, secondary labeling considerations, which provide, obviously, the supply chain centers have the capacity to support each and every one of those components from a drug product distribution basis. That doesn't mean that autologous never has those needs, right? And so one of the key elements around having a supply chain infrastructure is for drug product importation and release for a product that's manufactured in country A and dosed in country B. So, you have to go through a drug product release process, and that can only occur in a controlled environment. So one of the drivers for buying the Cell&Co, for example, acquisition is the fact that we have QPs on staffing to do drug product release for assets that are being manufactured in the U.S. and released in Europe and could also support secondary labeling considerations for in-country labeling and language-related considerations. So, there's a lot of different factors that go into drug product distribution in this space. It's not as simple as autologous is going to be manufactured in a manufacturer setting and then shipped directly to patients. You do have backup doses, and you do have other related activities occurring. However, allogeneic does, in general, have a higher demand need for a supply chain center based on long-term storage and other fulfillment-related activities in general. So, hopefully, that helps.

Super helpful. [indiscernible] And then just for Robert, just the insurance recoveries around the MVE fire. Any thoughts about the timing of when you'll receive those and we'll see those flow through numbers?

You're talking about the -- I couldn't understand the first part. Insurance? Insurance--

Yes, insurance related to the MVE fire like the business disruption.

Yes, I mean, that's an ongoing process, and it covers inventory fixed assets, the business interruption. We have adequate coverage. We've already received, I think, around $8 million from the insurance so far. So that's going very well. We're working really hand in glove with the adjuster obviously there. Their interest was to get the plant up and running as quick as we can, and we have the same interest. So, that's going to happen over the next quarters. We're probably going to be able to close it all completely by the end of the year. But most of the work should be done within the second quarter, I think.

Okay, helpful. Thank you.

This concludes the question-and-answer session. I'd like to turn the conference back over to Jerry Shelton for closing remarks.

Thank you. And thank you for the conversations we just had. I think there were good questions and all illuminating. In closing, first quarter 2022 was yet another quarter demonstrating our leadership position in temperature control supply chain solutions for the life sciences industry, supporting our markets of biopharma, animal health and reproductive medicine and especially life-saving cell and gene therapies across the clinical and commercial spectrum. Due to our comprehensive brand portfolio, growth initiatives, global reach and talented employees located in 15 nations who flawlessly execute on our winning strategy daily, we believe 2022 will be another year of results reflecting outstanding growth. We want to thank you for joining us today. We appreciate your continuing support and interest in our company. And we look forward to updating you on our progress again next quarter. We hope you have a good evening.

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant evening.