ThermoGenesis Holdings, Inc.

Good day and welcome to the Thermogenesis Holdings conference call and webcast to review financial and operating results for the year ended December 31st of 2021. As a reminder, all participants are in a listen-only mode. There will be an opportunity to ask questions at the end of today's presentation. If you would like to ask a question, please press star then 1 on your telephone keypad. And if you wish to withdraw your question, please press star then 2. If you should need assistance during the conference call, please signal our operator by pressing the start key, then zero. As a reminder, this conference is being recorded. I would now like to turn the conference over to our host today, Ms. Paula Schwartz of RX Communications. Please go ahead.

Thank you, operator. This conference call contains forward-looking statements within the meaning of the federal securities laws. The company's actual results may differ materially from those projected in the forward-looking statements. Additional information concerning factors that might cause actual results to differ materially from those in the forward-looking statements is contained in the company's periodic reports filed with the Securities and Exchange Commission. The information presented today is time-sensitive and is accurate only as of the date of this call, March 28, 2022. If any portion of this call is being rebroadcast, retransmitted, or redistributed at a later date, Thermogenesis will not be reviewing or updating this material. Participating on today's call are Dr. Chris Hsu, Chief Executive Officer and Jeff Cobble, Chief Financial Officer. I'd like to now turn the call over to Chris. Please go ahead.

Thank you, Paula. And thank you for everyone to join us for our fiscal year 2021's earning call this afternoon. We appreciate you taking the time to listen in. For the past two years, our industry and the entire world have been affected by the COVID-19 global pandemics. we are happy to see that we are now getting close to the end of that. And our customers and our clients are rebounding in many aspects. As for thermogenesis, we are not only taking this opportunity to grow our existing business, but also to get ready to transform the company into a new direction for its future growth. Ever since we established in 1986, For more than 30 years, thermogenesis has always been focused on the development and production of cutting-edge automated cell processing medical devices for the cell banking and cell therapy industry. For example, we have supplied many automated cell processing and cryogenic storage technologies towards major public and private cord blood banks. Our bio-archive smart cryo-storage system warehoused close to 90% of all U.S. FDA biological license application or BLA-approved clinical grade core blood units. Our AXP system has processed more than 1.2 million samples worldwide since its launch in nearly 40 countries and 140 institutes. In the past two years, we continued to develop more FDA-approved medical devices for point-of-care clinical applications and for large-scale cell therapy manufacturing. These intellectual properties, proprietary technologies, and know-hows are invaluable assets to the company. In the past five years, cell therapies have become the next pillar of medicine. In 2017, the U.S. FDA approved the first CAR-T cell therapy, ChemRyder, which uses cancer patients' own immune cells and turned that into a cell therapy for the treatment of acute lymphoblastic leukemia. The CAR-T cell therapy demonstrated close to 90% response rate in the relapsed and refractory cancer patient group. Or in other words, patients who have failed chemotherapy, radiation, and all other therapeutic options. By the end of 2021, FDA has approved five CAR-T therapies for various forms of blood cancers. And globally, there were over 1,200 CAR-T cells-related clinical trials registered on the National Institute of Health website, targeting a variety of blood and solid tumors. One of the major issues with moving cell therapy products from bench to bedside has been the manufacturing bottleneck. The heterogeneous and personalized nature of the cell therapy product has introduced manufacturing and scaling up complexities that are not seen with the traditional pharmaceutical products. A significant number of cell therapy-based companies are seeking external service providers for their cell manufacturing needs. We believe that we can leverage our extensive IP and proprietary cell processing technologies to more effectively address cell manufacturing needs. With that said, Thermogenesis plans to launch its own contract manufacturing service for cell therapy products, leveraging our significant amount of IP and proprietary technologies in the cell processing and cell manufacturing field. By doing so, we are transforming thermogenesis from a traditional medical device company to a contract development and manufacturing organization, or CDMO, for cell therapy manufacturing. The company plans to develop and operate the CDMO business through a newly formed division named TG Biosynthesis. TG Biosynthesis intends to provide high-quality development and manufacturing capacities, cell and tissue processing development, quality system, regulatory compliances, and other cell manufacturing solutions for clients with therapeutic candidates in various stages of preclinical or clinical development. As you may have seen in our press announcement in 10K files today, which is March 28, 2022, Thermogenesis entered into a licensing and technology access agreement with Boyle Life Genomics for a license in the U.S. to use Boyle Life Genomics patents and know-hows related to cell processing and manufacturing. where Life Genomics is an affiliate of our Chairman and CEO, Dr. Chris Hsu, and is a China-based cell manufacturing organization that has developed substantial manufacturing technologies related to cell manufacturing services. Also, on March 24, 2022, Thermogenesis entered into a long-term lease agreement with Z3 Investment another affiliate of our chairman and CEO, to lease approximately 35,500 square feet of space in Sacramento, California, to build out a current good manufacturing practice or GMP-compliant cell manufacturing facility with 12 CGMP clean room suites. The planned build-out is expected to complete in six to nine months. We are targeting to launch our CDMO service to customers by the end of 2022. We look forward to reporting more of this exciting transformation in the coming months. And with that, let me turn the call over to Jeff to share the key financial results for the year 2021. Jeff?

Thank you, Chris. Net revenues were $9.3 million for the year into December 31, 2021. a decrease of $450,000, or 5%, as compared to 2020. The decrease was primarily driven by a decline in CAR T Express revenues, offset by increases in BioRxiv service revenue and AXP sales. Gross profit was $3.5 million, or 38% of net revenues, for the year ended December 31, 2021, as compared to $1.3 million, or 13% of net revenues, for the year ended December 31, 2020. The increase was due to lower inventory reserves and the year ended December 31st, 2021. Selling, general and administrative expenses were 8.5 million for the year ended December 31st, 2021 as compared to 7.7 million for the year ended December 31st, 2020. The increase was driven by stock compensation expense offset by a decrease in legal, patent and other expense reductions. Research and development expenses were 2.2 million for the year end of December 31st, 2021 as compared to $2.5 million for the year end of December 31st, 2020. The decrease was driven by lower salaries and benefits and was offset by increased stock compensation expense. Interest expense declined $1.8 million to $6.1 million for the year end of December 31st, 2021 as compared to $7.9 million for the previous year. The decrease was driven by lower unamortized debt discount of the beneficial conversion factor associated with the revolving credit agreement with Boyle Life Asset Holding. For the year ended December 31st, 2021, the company reported a comprehensive loss attributable to common stockholders of $11.4 million, or $0.96 per share, based on approximately $11.8 million weighted average basic and diluted common shares outstanding. This compares to a comprehensive net loss of $16.3 million, or $2.60 per share, based on approximately 6.3 million weighted average basic and diluted common shares outstanding for the year ended December 31st, 2020. At December 31st, 2021, the company had cash and cash equivalents totaling 7.3 million compared with 7.2 million at December 31st, 2020. Working capital was 8.6 million at December 31st, 2021 as compared to 9.2 million at December 31st, 2020. This concludes our prepared remarks, so now we'd like to open the call to your questions.

Operator? We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. And to withdraw your question, please press star then 2. And at this time, we'll pause momentarily to assemble our roster. And the first question will come from Sean Lee with HC Wainwright. Please go ahead.

Good afternoon, Chris and Jeff, and thank you for taking my question. It's very good to see that the CDMO project is moving forward. I was wondering if you could provide some more details regarding how you would take this project. So first of all, What exactly are the know-hows and such that Boya Life is providing to you?

Thanks, Sean. Very nice talking to you again. So the cell manufacturer requires a cumulative knowledge, which includes some of the knowledge that company has and also some of the licensing technology from Boya Life. which including but not limited to the enzymatic combination, cocktail, process of tissue, and the potential application shipping logistics. So I think we are in a very good position that we not only have the capacity to provide this service, but also to provide proprietary service. that put us ahead of our competitors.

Thanks. I see. Then in terms of the location, then you're set on Sacramento. So what made you decide there and what is the area that the CDMO service you expect to serve? Is it just the U.S.? ?

So the current location is, which is, by the way, 35,000, next to our existing operation. We choose our location carefully because by being close to our existing facility, that allows lots of synergistic effects to take place. We can leverage our existing staff which including quality regulatory and also allows us to build out future talent pool since we are in Sacramento and also the place where UC Davis locates and there are several major universities in town. So with location, certainly we are not just servicing California, we are servicing the entire US and actually we are servicing globally because currently one-third of the clinical trials in cell gene therapy are from U.S. developers, and two-thirds are from overseas. And many of those overseas biotech companies who are developing cell gene therapies, if they intend to file R&D in the U.S., they have to have the cells manufactured locally. in accordance to U.S. regulation. And one of the major clients which we already think coming are from overseas, overseas developers trying to enter the U.S. market.

I see. Thanks for that. And my final question is the 12 clean rooms that already exist in the facility, what kind of throughput does that give you once you have it up and running? And do you need to hire a lot of additional staff in the second half of the year to get this running?

Yeah, so to give you a perspective, 12 GMP unit, historically, if it's, for example, used to manufacture CAR T therapies with previous technology, pervading technology, will roughly give you a throughput of one dose per unit per day. But that's not what we are doing here. Luckily, we have the Kachi Express, which is a proprietary manufacturing platform that will quadruple the throughput of that. So all in all, with 12 GMP units here, we are talking about roughly 10,000 clinical dose per year, which is a quite significant amount.

That was very helpful. For the second part of the question, do you expect a major stop extension in the second half of this year then?

Sorry, can you repeat that?

So do you expect a major recruitment drive in the middle and later half of this year?

Oh, yes, yes. We have a very excellent talent pool with the company who are very experienced in regulatory, in quality, and in FDA compliance. With the new CDMO service, we are taking additional staff, We are recruiting additional staff that will build out those CDMO services. So, yes, the short answer is yes, we are expanding our staff.

Great. Thanks again for taking my questions. Thank you, John.

This concludes our question and answer session. I would like to turn the call back over to Mr. Chris Hsu for any closing remarks. Please go ahead.

Thank you, operator. We look forward to updating you on our progress during our first quarter 2022 call. And thank you to everyone who participated today and for your interest in thermogenesis holdings.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.