ThermoGenesis Holdings, Inc.

Good day, and welcome to the Thermogenesis Holdings conference call and webcast to review financial and operating results for the first quarter ended March 31st, 2023. As a reminder, all participants will be in listen-only mode. There will be an opportunity to ask questions at the end of today's presentation. If you'd like to ask a question, please press star, then 1 on your phone. If you wish to withdraw your question, please press star, then 2. If you should need assistance during the conference call, please signal an operator by pressing star then zero. As a reminder, this conference call is being recorded. I'd now like to turn the conference over to our host, 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, May 15th, 2023. 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 Xu, Chief Executive Officer, and Jeff Cobble, Chief Financial Officer. I'd now like to turn the call over to Chris. Please go ahead, Chris.

Thank you, Paula, and thank you to everyone for joining the call this afternoon. We appreciate you to take the time to listen in. During the first quarter, we are making progress towards executing our plans to transform the from a medical device company to an integrated contract development and manufacturing organization, or CDMO, for the cell and gene therapy market. In March 2023, we closed a $3 million private placement, which will help support the planned launch of our CDMO business. The goal is to leverage our unique and proprietary automated and semi-automated cell processing technologies, including the Kachi Express platform, to manufacture future cell gene therapies cheaper and more efficiently. To that end, we have made significant headway building out a 12-unit ready-to-start CGMP suite at our 35,500 square foot facility in Sacramento. These class seven clean rooms are designed to meet the highest scientific quality and regulatory requirements that would be ideal for the early stage companies and institutions developing next generation of cancer medicines such as CAR-C cell therapies. and to accelerate direct candidates into connect quicker and safer. Our goal is to establish solutions for customers in order to streamline the supply chain, increase manufacturing predictability, and manage overall risk. We have begun to market this turnkey solution to early stage life science cell gene therapy companies who are looking to jumpstart their development efforts and scale up in the same facility. We expect the ReadyStop CGMP suite to be available for these two customers in the second or third quarter of this year. As you may know, for over 35 years, Thermogenesis has pioneered the development and manufacturing of a series of innovative automated technologies and products specifically for the cell banking and cell therapy industry. In fact, Thermogenesis has been the leading provider of choice for automated cell processing and automated smart cloud storage technologies for some of the world's most important public and private cell banks. Our bioarchive smart file storage systems has warehoused close to 90% of all U.S. FDA VLA-approved clinical-grade cobalt units, or CBUs, and our AXP system has been used to process well over a million samples from well over 100 institutes globally. In addition to our manufacturing know-how in cell gene therapies, the intellectual properties that we have amassed over the years are invaluable. Driving our shift to a CDMO in large part is the continued growth of the industry, focusing on the potentials for personalized cell and gene therapies. Since 2017, six autologous CAR-G cell therapies have been approved by the FDA. CAR-G therapies were approved as the last line of defense for those patients who did not respond to other therapeutic options. More recently, there have been several CAR-G trials that have shown that such therapies can outperform second-line or standard of care options, indicating that the applications for CAR-T cell therapy may expand in the future. Recent reports show that the industry anticipates additional FDA approvals with as many as 10 to 20 new cell therapies potentially being approved for commercialization annually starting in 2025. With more cell therapies, such as CAR-T cell therapies, receive FDA approval, the demand for manufacturing of these lifesaving therapies continues to grow. As we speak, there are more than 350 U.S. companies alone working in the cell therapy arena. and more than 1,000 pipeline assets in clinical development globally, targeting a range of blood and solid tumors. While a majority of this innovative research was driven by small to medium-sized biotech companies and medical research centers, the demand for third-party manufacturers continued to grow. Each of our well-encompassing ReadyStart CGMP suites will provide a flexible option, enabling small to medium-sized companies to achieve their anticipated milestones faster and more efficiently. Additionally, our team's strong expertise in regulatory affairs and product commercialization will help accelerate the development of our customers' products, allowing them to focus on their science while Thermogenesis will manage the regulatory and quality compliance associated with running a GMP facility. With Thermogenesis strong intellectual property position, cutting-edge technology and manufacturing service expertise, our new facility will have the ability to address the increased demand for cell gene therapy manufacturer capabilities. We will remain focused on launching the CDMO service and Ready Start CGMP unit to customers in the cell gene therapy field in the next few months. And with that, let me turn the call over to Jeff to share the key financial results for the first quarter. Jeff?

Thank you, Chris. A full discussion of our financials is available in our 10Q, so I will just take a moment to review key financials for the quarter ended March 31, 2023. Net revenues for the quarter were in line with the first quarter of last year at $2.6 million. The product mix was slightly different with higher domestic AXP disposable sales and bioarchive service revenue in the current year. Gross profit for the quarter was $1.1 million, 43% of net revenue, compared to $900,000, or 35% of net revenues, for the first quarter of 2022. The increase was driven by lower inventory reserves in the current year. Selling general and administrative expenses were $1.8 million for this quarter, as compared to $1.7 for the first quarter last year. The increase was driven by rent and operating expenses for our new CDMO facility, offset by lower personnel expenses. Interest expense was $3.9 million for the quarter, driven by non-cash amortization expenses related to the company's convertible notes. For the quarter, the company reported a comprehensive loss of $5 million, or $404 per share, based on approximately 1.3 million weighted average shares outstanding. The company ended the quarter with cash and cash equivalents of 5.9 million, as compared with cash and cash equivalents of 4.2 million at December 31, 2022. This concludes our prepared remarks, so now we'd like to open the call to your questions.

Operator?

Thank you.

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. To withdraw your question, please press star, then two. At this time, we'll pause momentarily to assemble our roster. Our first question comes from Sean Lee from HC Wainwright. Please go ahead.

Good afternoon, guys, and thanks for taking my question. I was wondering if you could provide some more color on the CDMO facility. Now that it's almost up and running, how does your pricing compare to similar facilities on the West Coast?

Hi, Sean. Thanks for the question. And currently, the entire CDMO demand, the demand for CDMO facilities are pretty high in the entire United States. And many of the facilities require up to 12 or even more, 12 to 18 months waiting period. So the average pricing for the industry also is quite significant. We price ourselves comparably to what's offered in industry with some of the initial promotions. But I think what we offer is a missing capacity that the industry currently is lacking. And these facilities are very ideal for small to medium-sized companies, and we have seen an influx of companies and visitors exploring these options. Our ads will be coming out this coming week, actually this week, to Science Magazine. So I think even with a very comparable pricing to our competitors, it's really the missing capacities that we offer. So that's in high demand.

That's great to hear. In terms of capacity then, how many doses are we talking about if all 12 of these rooms are being used?

We intend to use that through a mixture of developing our own manufacturing service and leasing out extra space to outsiders. If we use the entire manufacturer suite for ourselves, we are talking about probably close to 10,000 doses of GMT-quality clinical-ready cell gene therapy a year.

Okay, that's good to know. My last question is, as you mentioned, I've seen some of your marketing efforts already on your way as well. I was wondering whether you've had any comments or questions coming from potential customers on the facility or how to improve it.

Actually, the feedback are very positive in a way that in our facility, we have the mixture of high-end ready-stop CGMP suite and also the common lab that can be used to develop the cell therapies. which is more of a generalized wet lab. So having capacity of both in the same facility is really ideal for the entire industry, for many of the companies. We are actually, as we are aware of, probably the only one in the region or even in the nation that was providing such a combination. People seem to do like this.

Okay. That's good to hear. That's all the questions I have. Thanks again.

Great. Thanks, Sean.

Thanks, Sean. This concludes our question and answer session. I would like to turn the conference back over to Dr. Chris Zhu for any closing remarks.

Thank you, Operator. We look forward to updating you on our progress during our second quarter 2023 call. And thank you to everyone who participated today and for your interest in thermogenesis holdings. Thank you. The conference has now concluded.

Thank you for attending today's presentation. You may now disconnect.