CryoPort, Inc.

Welcome to the Cryoport First Quarter 2023 Earnings Conference Call. Our host for today's call is Todd Frommer, KCSA. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. I would now like to turn the call over to your host, Todd Frommer. You may begin.

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 other reports which we file with the Securities and Exchange Commission. It is now my pleasure 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. We appreciate you joining our earnings call today. With us this afternoon is our Chief Financial Officer, Robert Stavanovich, who is joining us remotely as he just discovered he had contracted the COVID virus, and our Chief Scientific Officer, Dr. Mark Zawicki, and our Vice President of Corporate Development and Investor Relations, Thomas Heinzen. As a reminder, we have uploaded our first quarter 2023 in-review document to our website, It can be found under investor relations in the events and presentation section. This document provides a review of our financial and operating performance and a 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'll provide a brief update on the business and then we'll move on to your questions and our answers. Crowdport reported first quarter results today with revenue of $62.8 million. This represents top-line growth of 20% or 22% at constant currency, which was fueled by continued demand for our temperature-controlled supply chain solutions for the life sciences. We achieved double-digit growth in each of our markets, including biopharma, reproductive medicine, and animal health. We continued to produce consistent growth in biopharma, with revenue increasing 19%. The regenerative medicine market continued its momentum in 2023 and drove commercial revenue growth of 28% for the first quarter. Patient demand has been robust in cellular therapy and continues to outpace commercial cellular therapy supply, which is restricted by the industry's current manufacturing capacity constraints. Having said that, we continue to see biopharma companies and CDMOs working to increase capacities. For example, Kite Pharma has announced plans to expand its global cell therapy supply chain operations located in Frederick, Maryland, with a 70,000 square foot warehouse adjacent to its existing facility for the purpose of centralizing its raw materials storage and testing. As industry manufacturing capacities increase to meet demand, Cryoport is in an excellent position to benefit from the anticipated growth in the cell and gene therapy industry with our advanced temperature control supply chain solutions, as well as our continued investment in new technology and facilities to support this demand. Turning to animal health, revenue increased 30% year over year. This growth was driven by the rising animal population, increased demand for animal protein, and increased ownership of companion animals in developed and emerging markets. These favorable trends are driving greater demand for therapeutic innovation in this industry. We're seeing higher activity from top global animal health pharmaceutical companies, and Crowdport is well positioned to serve the supply chain needs of this industry. We believe animal health is a solid market and has significant growth potential for the future. We also see significant growth potential in the reproductive medicine area, which grew 12% for this quarter. This market is primarily driven by IVF technology advancements and a rising number of fertility clinics supporting increasing fertility across the globe due to demographic and environmental challenges to childbearing. Crawford is strengthening its presence here, and our growth during this quarter was primarily driven by our continued progress in contracting with key reproductive clinic networks, as highlighted in our recent announcements regarding our support for Inception Fertility and Boston IVF, Cryoport Systems Reproductive Medicine Solutions, which are sold under the brand name Cryostork. Our financial performance for the first quarter reflected the strength and dedication of our team around the world. The saying goes, you're only as good as your people. And at Crowdport, we believe that. The results also reflect the breadth of our diversified operations, the depth of our technologically advanced supply chain solutions, as well as the strength and potential of the end customers we serve. Looking to the months ahead, recognizing current manufacturing capacity constraints for cell and gene therapies and macroeconomic headwinds, we plan to continue our momentum through the remainder of 2023. We expect to benefit from attractive trends and medical advancements that are driving growth in the cell and gene therapy industry. As of the end of the first quarter, Crowdport supported 10 commercial therapies and a total of 652 clinical trials globally, with 82 of these in Phase III. We expect up to an additional 18 anticipated application filings, 10 new therapy approvals, and an additional 11 label or geographic expansion approvals in 2023. We are a clear leader in the development of advanced therapy and advanced temperature control supply chain solutions for the life sciences industry. And we intend to further enhance our competitive advantages by remaining at the forefront of innovation. Along those lines, we recently launched the crowd portal version two logistics management system. The CrowdPortal version 2 is an ISPE GAMP 5 validated solution and provides many new features and enhancements. In fact, to our knowledge, it is the first ISPE GAMP 5 validated logistics management system serving the life sciences industry. This month, we began rolling out our next generation CrowdPort Elite Shipper. line beginning with the Elite Ultra Coal. The Elite Cryosphere will follow with introduction near the year end. These cutting-edge advanced therapy shippers will provide additional de-risking, longer-term, longer-temperature hold times, more advanced communication features, and new security controls for our customers. We're pleased with the early feedback on the launch of the Elite Ultracol. Customer feedback has been quite positive. SkyTrack Condition Monitoring System, a revolutionary condition monitoring system, is scheduled for release by year-end. This sophisticated technology platform is a generational leap to an advanced condition monitoring system that supports temperature ranges from control room temperatures to cryogenic temperatures inclusively. Turning to cryo PDP, we continue to build out one of the world's most advanced global biopharma logistics networks. This includes increased build-out in the United States and further expansion in India, Ireland, Japan, the Philippines, Poland, and Spain. Additionally, CryoGene, our biostorage operations, will be expanding into the San Antonio and Philadelphia regions during the course of the year. In addition to these activities, we also continue to increase our growth prospects through other means, such as our partnerships with Cineos, which provides for integration with our new IntegraCell platform. This platform, that is, IntegraCell, is intended to supply autologous and allogeneic cell therapies, a standardized apheresis collection process, and end-to-end cryopreservation services for leukapheresis-derived therapies. We are very excited about IntegraCell and believe it has potential to be transformative for the cell and gene therapy industry. In summary, through our many actions, our teamwork, and our commitment to make sure that Cryoport can deliver the best solutions supporting temperature control supply chain solutions for the life sciences, which in turn support life-saving cell and gene therapies, Crowdport is stronger than ever before. I want to thank you and open the floor for questions. Operator, please open the lines.

Thank you. If you would like to ask a question, please press star 1 on your telephone keypad now. You'll be placed into the queue in the order received. Please be prepared to ask your question when prompted. Once again, if you have a question, please press star 1 on your phone now. Our first question today comes from Suda with SVB Securities.

Yeah. Hi, guys. Thanks for taking my question. So first one on MBE and cryo PDP. I don't know if you provided that. I apologize. I missed that number. And just given the sort of evolving macro environment here and biotech funding, you know, is there any change to the sort of the low teens, I believe, for MBE and PDP growth expectations for this year? Are you seeing any, you know, change in the demand in the business there for the cryogenic products there as well as the shipping services?

You know, is this Puneet? Yes. Puneet, this is, they're good questions. And look, we are not immune to macroeconomic headwinds. And so, you know, we see some mixed activity going on and nothing, Nothing that I can finger on and put and tell you that with a definition that there's anything disruptive or so forth. But we are not immune to those general conditions. MBE is returning to normal mix and normal production levels. Cryo PDP is also, you know, it is currently working at its current production, normal production levels, what we had forecasted. And cryoport systems, is moving along very nicely, as is CrowdG. So across the board, you know, we have our fingers crossed. We are optimistic that, you know, our guidance will be, you know, continue to be exactly what it is and what we've reiterated this quarter.

Okay. That's helpful. And maybe if I could just follow up on that. You know, overall the biotech funding environment has been tougher. I'm just wondering what your conversations have been on the CDMOs and that might be seeing some of this and directly with emerging biotechs. You know, in past you've called out some headwinds related to customers trying to, you know, preserve, you know, capital. You know, we saw some attrition here in phase one trials in the quarter as well. So just curious to hear what you're hearing with the earlier stage biotechs and, you know, maybe a question for Mark if he's there. It's more on business development activities. Can you give us sort of what you're hearing from the customers? Thank you.

Yeah, I'll start off, and then turn it to Mark. But look, the things that we've said before, we continue, and what I just said to your earlier question, the macroeconomic environment is unclear. If anyone has clarity on it, I would certainly like to hear it, because I don't have it, and I don't see it. So that is, how do you face it? So in some places, you're doing well. Some places, you're not doing so well. Sometimes you get encouragement. Sometimes you get discouragement. It's not... it's just probably a magnification of normal business times. But the MVE, as I said earlier, MVE has returned to its normal mix of products. And our discussions with customers that you ask about, I think, indicate there is some some reservation about starting new trials, perhaps. But, you know, most of our contraction was in phase two. It wasn't in phase one this time. So it's mixed. And so I'll turn it to Mark, who's closer to the marketplace.

Anthony, you know, overall, I think what you're seeing is the folks are really focusing on their winners and really driving those programs that have the highest probability to monetize as quickly as possible. And so we do see a consistent progression of programs through the pipeline. You know, we see Phase 1 is going to Phase 2. Phase 2 is going to Phase 3. We see a robust filing activity. And we anticipate continuing to see that robust activity throughout the balance of the year. So, you know, I don't think it's necessarily a negative environment. I think the environment is really focused around around putting their cash against those programs will have the quickest return on investment. That's what I think we're seeing for the market. You know, our contract partners, you know, all have a very, very optimistic view of the Celadine space, you know, overall. So I don't think that from a contract research or manufacturing standpoint there's any reservation around the Celadine space right now.

Can I just add one other thing in here, Puneet, for you for some more color? And this is in the Q1 review piece that you may not have had a chance to go through. But in Q1, of the 37 trials that popped out, 21 of those trials were completed versus 16 terminated. So that's a good sign because those trials can move on to the next phase. So that's the maturation that Mark was talking about. And the number of ads we had in the first quarter was 35. And the number of ads we had in the fourth quarter of last year was 31. So we are still seeing new trials come in and new trials start. And the good news is the pipeline keeps maturing.

Right. Yeah, so the activity is still there. They're just focusing it.

Got it. That's helpful. And if I could just squeeze the last one in our own commercial. You know, we're hearing about capacity expansions, efforts for capacity expansions around cell therapies. among some of the larger companies maybe, or the larger companies are seeing projects from some of the smaller companies just because they have more larger resources and capacities in terms of cell therapy. So are you, maybe this is a question for Mark, are you seeing any upside from that? What are your expectations for the commercial expansion of the existing therapies through the year? Thank you.

So, Puneet, I think the best thing to do is to take a look at page four in our quarter and review. There's a really good chart in there that really starts to – it clearly conveys the impact on volume and revenue associated with additional capacity coming online. You can see that very, very clearly when Kite brought their site in Maryland online, it more than doubled their volume in a very, very short period of time. And we know that obviously there's very active efforts ongoing with both Janssen and BMS around additional capacity, bringing that online to support their product lines. As soon as that capacity comes online, we wholeheartedly anticipate seeing that similar cadence.

You also may have seen just, I think it was early this week or late last week, J&J slash Janssen slash Legend did a deal with Novartis, whereby Novartis is going to be making a product for J&J, Ledge, and Janssen.

Out of the facility in Morris Plains. Yeah, correct.

Yeah, the Ledge one was I was referring to.

Okay, all right, great, guys. Thanks so much. Thanks.

Our next question will come from Brandon Coulard with Jefferies.

Thanks, this is Matt on for Brandon. Robert, maybe start on gross margins. Revenue was up a couple million dollars quarter over quarter, but gross margins actually contracted a bit here. Can you just provide a bit more color on what drove that? Sounds like you're still seeing some elevated costs tied to the supply chain, and then any color around gross margins moving through the rest of the year should one cue be the low point, and when do you expect those supply chain headwinds to hopefully abate?

Well, that's a great question. I do want to get some clarity on that because If you look at the gross margins for the quarter compared to last year's quarter, it's a slight improvement for the overall gross margin. If you look at the services margin, we actually have an increase from 43.1% to 46.8%. There's about 3.6 percentage points positive, so we're seeing a little bit of operating leverage on the services side, both for CryoPort systems as well as for CryoPDP's business. If you look at the product side, that's really a one-time impact. So you see a drop, which is really unusual for the MBE business, from 42% to 38%. And we expect to only see that in Q1. That's specifically related to unfavorable manufacturing variances as a result of inflationary pressures, as well as building up safety stock during the second half of the year. It's only partially offset by favorable product mix that Jerry was mentioning. But this is something that we only expect in Q1. We expect that to normalize in Q2 and for the rest of the year. So, again, positive upside on the services. You look at Q1 compared to the previous margin for Q1 of last year and Q4, and really an unusual one-time event for MDE related to the buildup of safety stock in the latter part of last year.

Thanks. That's really helpful color. And I know you guys, you know, don't talk maybe as much about specific companies, but you mentioned it in the one key recap, you know, Sarepta has been in the news here a lot out of their potential regulatory approval. You're just giving kind of the evolution of portfolio, you know, and how it's expand over time, any chance you could provide some color on where exactly you potentially serve them today, whether it's on, you know, collection, fulfillment, storage, where, you know, you might be supporting them.

Yeah, we do have a relationship with Sarepta. It's not public knowledge exactly what we're doing for them. I honestly can't tell you the extent of what that relationship is. I do think that it'll become clear in the next couple of months for you guys.

Okay, thanks. And then maybe one for Jerry. As we approach the one-year anniversary in June of the formal opening of the two new global logistic facilities in New Jersey and Texas, Just talk about how progress has trended at the centers now that you've got a few quarters under your belt, where utilization is today, and have the various services you expected to have been brought online there, those all fully up and running today? Thanks.

Yeah, absolutely. They're part of Cromport's system, so I'm going to defer to Mark in just a moment. But basically, they're unscheduled. It does take time to get facilities of this nature up to full capacity But we're making a lot of progress. Mark, do you want to add to that?

No, Jerry's absolutely right. The facilities are fully open. They are operational. The assets are averaging over one audit a week right now, which is a very, very good indication of onboarding client activity. And so if you take a look at that, there's a cycle time obviously associated with onboarding based on going through the supplier approval process. But that robust of an audit schedule is extremely positive.

Thank you.

Our next question will come from John Sarbier with UBS.

Hi.

Thanks for taking the question. I think you serve currently one allogeneic therapy. There's potential for a couple additional approvals here throughout the year. Just any color if you look back on just, you know, currently where you're serving on some of those additional revenue opportunities there given some of the allogeneic therapies and how you see that potentially playing out. year, over the next year?

Yeah, I mean, you know, as you can see in our activity, I mean, over 30% of our portfolio is allogeneic at this point in time, which is a very, very good ratio. And a fairly significant number of those are in late stage clinical, getting ready to initiate, obviously, a commercialization activity, as well as, you know, Atara, which we've historically supported and do support their commercial launch activities.

Okay, got it.

And I guess just, you know, digging in further on those commercial revenues and adding on to what Puneet asked earlier, I guess, you know, when you talk to your CDMO partners or, you know, pharma biotech partners, I guess, you know, how do you think that this is going to ramp, you know, over the next 12 months with some of that capacity coming online?

As it relates to the overall portfolio or allogeneic portfolio?