ThermoGenesis Holdings, Inc.
Q1 2020 Earnings Call Transcript

Published: 15 May 2020

[Operator:]

Good day, and welcome to the ThermoGenesis Holdings' Conference Call and Webcast to Review Financial and Operating Results for the First Quarter Ended March 31, 2020. [Operator Instructions] As a reminder, today’s conference is being recorded.At this time I’d like to turn the conference call over to our host, Paula Schwartz of Rx Communications. Ma'am, please go ahead.

[Paula Schwartz:]

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 14, 2020. 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 Cauble, Chief Financial Officer.I'd now like to turn the call over to Chris. Please go ahead, Chris.

[Chris Xu:]

Thank you, Paula, and thank you to everyone for joining the call this afternoon. We appreciate you taking the time to listening in.I'm pleased to note that we continue to improve our operational and financial performance throughout the first quarter of 2020. In particular, our net revenue rose to $3.2 million, an 8% increase compared to the same quarter of 2019. While gross profit increased to $1.5 million, a 19% improvement compared to the same period last year.Cash on hand has reached $5.7 million at the end of first quarter, which was up 78% compared to the beginning of the year and up 155% compared to the same period last year. An increased revenue, gross profit and cash on hand would demonstrate a greater financial stability of the company.As a reminder, the company's core business competence still resides in its cutting edge automated medical devices and systems for the cell and gene therapy field. We continue to make impacts in the field with our core automated cellular processing products. It's also this technology platform as a whole that helps us to make our future fight against COVID-19 possible.Our cellular processing platform consists of one, the CAR-TXpress platform based on an innovative buoyancy activated cell sorting technology or BACS. The BACS technology is a patent protected high efficiency cell sorting technology using lipid micro-bubbles. The BACS technology is a key component of the CAR-TXpress technology platform, which is intended to address the critical unmet needs for large-scale cellular processing and manufacturing of the cell-based therapeutics such as CAR-T therapies.Two, our AXP/BioArchive platform for clinical biobanking, it is one of the best recognized brand in the field, which allows for automated processing and cryostorage of the cord blood and clinical samples.Three, our PXP platform for point-of-care applications, which allows for automated processing of our autologous peripheral blood and bone marrow derived stem cells at the point-of-care locations such as surgical centers or clinics. It also allows isolation of different cell fractions from the simultaneously. For example, the simultaneous isolation of convalescent plasma and immune cells.The robust product line with a strong focus in the cell gene therapy has positioned ThermoGenesis as the market leader for cell banking and cell therapy, which will sustain our growth beyond this COVID-19 pandemic. As you all well know the word COVID-19 pandemic has now affected more than 200 countries and regions, resulting over 1.4 million reported cases and more than 85,000 deaths in the United States alone.The disease has spread rapidly causing a tremendous impact on the U.S. healthcare system and leading to immense societal disruption. The public health threat posed by COVID-19 remains extremely high, both in the U.S. and globally.In order to respond to the challenges imposed by this global pandemic, during the first quarter of 2020 working together with our joint venture partner, ImmuneCyte, we began mobilizing our expertise and global resources in the medical technology field to develop a systemic approach and strategy to fight against COVID-19 virus. On March 31, we submitted notification to U.S. Food and Drug Administration or FDA with the intention to register and market the COVID-19 IgG/IgM antibody fast detection kit,In accordance to the Section 4 Part D of the policy for diagnostic test for Coronavirus disease-2019 during the public health emergency issued by FDA on March 16, 2020 in short the Policy D. The test where hereby refers to as the rapid antibody test below.On April 15, the company received acknowledge letter from FDA confirming that the ThermoGenesis COVID-19 rapid antibody test has been appropriately validated for distribution under the Policy D guideline. As of May, the company has already started to ship out our rapid antibody test to fill pre-orders and incoming orders.Additionally, we have also completed submission of additional information to the FDA requiring the views of the COVID-19 rapid antibody test under the Emergency Use Authorization pathway and we are still awaiting for the agency's response.The rapid antibody test is designed to uncover anti-COVID-19 IgM/IgG antibody using a single droplet of blood and can deliver results in under 10 minutes at an expected cost for less than $30. If the entire nation has to be tested, then we estimate that over 330 million tests could be needed in the U.S. alone and global demands continue to increase.We currently have manufacturing capacity to produce 100,000 tests per day and can scale up manufacturing to three times that amount if needed. The COVID-19 rapid antibody test detach the antibody in patients in response to COVID-19 infection. The test can be used for pre-screening for COVID-19 patients and also for identification of individuals who have encountered virus in the past and developed an antibody response.The antibody response is part of the person's protective immunity to fight against the virus. Our rapid antibody test stands apart from other DNA-based tests on the market as it does not require sophisticated laboratory instruments and the test results can be available in under 10 minutes. The format of this test resembles a home pregnancy test that many people are familiar with.The ability to quickly identify individuals who have developed antibodies or protective immunity is essential information as we look to reopen our society or our economy. The second part of our COVID-19 strategy is to develop a multi-tier antibody approach along with our ImmuneCyte joint venture partner to address critical unmet medical needs in both prophylactic means preventive and therapeutic intervention of the disease.Taking advantage of this rapid antibody test we have along with the proprietary cellular processing platform we have developed and perpetuated over the past decade. We are able to bridge engineered annuity with immunological know-how to develop various therapeutic approach that may help fighting this disease. This multi-tiered antibody approach is synergistic with our diagnostic tools and also differentiate us from other test manufacturers for COVID-19.The areas that we are working on is the convalescent plasma and therapeutic antibody field. Convalescent plasma therapy is in exploratory approach that involves giving patients an injection of the plasma from people who have recovered from COVID-19. Convalescent plasma therapy has been used in the past against several other known viruses such as Ebola, SARS, MERS and influenza H1N1 virus and have demonstrated with limited case improving survival rates and lowering hospital stays for patients with SARS in the past.Our plan is to screen and identify people with high titers of anti-COVID-19 antibodies borrowed by using our company's proprietary automated cell processing platform to simultaneously isolate convalescent plasma in immune cells. The convalescent plasma can be used alone or to produce polyclonal antibody therapies, which further mitigate the donor variabilities among individual convalescent plasma.Just a reminder, our ImmuneCyte joint venture has also recently acquired worldwide intellectual properties for the development of fully human monoclonal antibody therapeutics for COVID-19 including four high affinity monoclonal antibody-drug candidates against the COVID-19 virus. This monoclonal antibody-drug candidate under development by our 19% owned joint venture ImmuneCyte will further complement the convalescent plasma and polyclonal antibody approach that our company is undertaking.In summary, our comprehensive COVID-19 strategy combining our rapid antibody test, our convalescent plasma and polyclonal antibody therapeutic approach using our established proprietary cell processing technologies and our joint venture ImmuneCyte's recent acquired technology to develop fully human monoclonal antibody during, monoclonal antibody-drug candidate - differentiate us from many other test manufacturers and put us at the forefront in the fight against the global COVID-19 pandemic.With that let me turn the call over to Jeff to share the key financial results from the first quarter. Jeff?

[Jeff Cauble:]

Thank you, Chris.Net revenues for the three months ended March 31, 2020 were $3.2 million compared to $3 million for the three months ended March 31, 2019, an increase of $200,000 or 8%. The increase was driven by AXP disposable sales, which increased by $0.9 million in the first quarter of 2020 with approximately 400 more cases sold as compared to the same period last year. The increase was offset by a decrease of approximately 0.4 million in BioArchive device sales and slight decrease in manual disposables and CAR-TXpress sales.Gross profit was $1.5 million or 47% of net revenues for the three months ended March 31, 2020 compared to $1.3 million or 42% of net revenues for the three months ended March 31, 2019, an increase of $200,000 or 19%. The increase was driven by revenue recognized from the Corning exclusivity fee in the first quarter of 2020, which added approximately two points to the gross margin percentage and increased gross profit from AXP disposables.Sales and marketing expenses for three months ended March 31, 2020 were $0.4 million compared to $0.3 million for the three months ended March 31, 2019, an increase of $100,000 or 30%. The increase was driven by higher salaried expenses and benefits in the first quarter of 2020 as compared to the same period in 2019.Research and development expenses were just over $0.6 million for the three months ended March 31, 2020, compared to just under $0.6 million for the three months ended March 31, 2019, resulting in an increase of 46,000 or 8%. The increase was driven by higher employee benefit expenses in the first quarter of 2020 as compared to the same period in 2019.General and administrative expenses for the three months ended March 31, 2020 were $1.6 million compared to $1.3 million for the three months ended March 31, 2019, an increase of approximately $300,000. The increase was driven by legal and other expenses related to the Mavericks lawsuit, employee benefit expenses and increased expenses related to the filing of the company's 2019 10-K.Interest expense for the three months ended March 31, 2020 were $3.5 million as compared to $1.1 million for the three months ended March 31, 2019, an increase of $2.4 million. The increase was driven by $2.5 million, an accelerated non-cash amortization of the remaining unamortized debt discount associated with the portions of the Boyalife revolving credit agreement which were converted in the first quarter of 2020.For the quarter ended March 31, 2020, the company reported a comprehensive loss to common stockholders of $4.6 million for $1.11 per share based on 4,135,644 weighted average basic and diluted common shares outstanding. This compares to a comprehensive net loss of $1.9 million or $0.76 per share based on 2,461,415 weighted average basic and diluted common shares outstanding for the quarter ended March 31, 2019.In addition to the results reported under U.S. GAAP, the company also uses a non-GAAP measure, adjusted EBITDA to evaluate operating performance and to facilitate the comparison of our historical results and trends. The company uses the metrics to best approximate operational cash flow. Adjusted EBITDA loss for the quarter ended March 31, 2020 was $0.9 million as compared to a loss of $0.6 million for the quarter ended March 31, 2019, a decrease of $300,000.The primary driver of the lower adjusted EBITDA was $300,000 increase in general and administrative expenses. At March 31, 2020 the company had cash and cash equivalents totaling $5.7 million compared with $3.2 million at December 31, 2019, an increase of 78%. Working capital also improved up to $6.9 million at March 31, 2020 as compared to $3.2 million at December 31, 2019.This concludes our prepared remarks. So now, we'd like to open the call to your questions. Operator?

[Operator:]

[Operator Instructions] And our first question today comes from Sean Lee from H.C. Wainwright. Please go ahead with your question.

[Sean Lee:]

My first question is on the company's existing businesses. So in 2019 you guys find a [corpus of Hyperion] with Corning. And that was expected to become a big driver of the company's growth over time. So I was wondering how has that turned out so far has that been significantly impacted by the COVID-19 pandemic as well or is it progressing as planned?

[Chris Xu:]

Yes okay. Thanks, Sean for bringing this question. So as people are knowing that in 2019, we signed a global distribution with Corning to distribute our X-Series products. And we expect to launch this product actually this year, but just like everybody is impact by the sudden COVID-19 pandemic, Corning being headquartered in the State of New York is certainly hit I guess, pretty hard.So with all the social distancing and home officing ongoing although we, are still keeping the line open to facilitate all the marketing preparation and needs. Certainly, we can see a slowdown in the activity in that front.

[Sean Lee:]

Thanks.

[Chris Xu:]

But I think with - globally the entire business start to reopen through a different region, we are cautiously optimistic about this entire collaboration.

[Sean Lee:]

Thanks for the additional color. Now moving onto the COVID-19 diagnostic so after the FDA has approved it for marketing in April, I was just wondering whether you - had any orders come in or whether you've seeing a lot of inbound interest and what exactly is the company's commercial strategy for the product? Would you be - to try to market it yourself or would you be looking for regional distributors?

[Chris Xu:]

Yes, okay. With regards to our COVID-19 diagnostic kit, our strategy is mainly going to distribute this through distribution channels. So at this moment, we do not anticipate to build a direct in-house team on that. We do have received various interests and from various different size of potential orders. So as we really - just released in this earning call, we start to ship in early May and that we start to feel some of these pre-orders and incoming orders.Just a reminder to everybody, I think although the potential market size, we can see, it could be significant, but also this our business is impacted by various risks and that are including somewhat we could - foresee and also some risks that we cannot initially foresee that are including - the availability of labor workforces and availability of our global shipping logistics and so on.So when we are getting close to market this within U.S. also globally we got to mitigate through all those impacts throughout the world, and some of those impacts, including shipping logistics we see could potentially impact our delivery as well. But the good thing is we are ready start shipping out.

[Sean Lee:]

Yes, Chris that was helpful. And my final question is on what upcoming events, I was wondering, what would you consider to be the major milestones that investors could look forward to over the next six to 12 months from the company?

[Chris Xu:]

Foremost, still our diagnostic kit because a lot of people see this as a key to reopen our society and reopen our economy and we want to satisfy that and we think the demand will be high. So that's our number one goal. But for the next six months, we also want to look beyond that the diagnostic kit and as we said, we are looking to various different systemic approach to fight against this COVID-19.And that will be including some of the convalescent plasma and polyclonal antibody so that address significant unmet need in the therapeutic side. So we are looking at this as a year-based strategy. We are launching, different products along the way.

[Operator:]

And our next question comes from [Charles Putman], [indiscernible]. Please go ahead with your question.

[Unidentified Analyst:]

You mentioned that you're filling pre-orders, you've begun to fill pre-orders. Can you give us an idea of maybe the volume or number and can you also speak to what you expect to hear from the FDA and what the timeline on that is?

[Chris Xu:]

Sure. We have - and we start to ship out May. We are as I said, more complicated global shipping logistics because U.S. most of the state were still closed or semi-closed. We are not still fully open in the States here. So there is availability of our working force here in the States. So we still depend quite significantly on oversea manufacturer, which were dependent, not only on the manufacturer and also shipping logistics.So we are just start to get our orders filled, because we need to get the products in this moment. So we have just from the beginning of the May, we shipped more than 10,000 testing kit. But I think that the realistic number should be bigger because with the need. And on the FDA side - that the product is available to sell under Policy D, which I described in the script early, but we also filed for an additional path which is Emergency Use Authorization.And that we have already received a pre-assigned number for that, but we are waiting for FDA to give us further feedbacks. We don't have a timeline because knowing FDA is having a pretty long list to deal with various different fronts. So routinely that will be two weeks, but at this moment, we don't have a timeline.

[Operator:]

And ladies and gentlemen, I'm showing no additional questions. I'd like to turn the conference call back over to Dr. Xu for any closing remarks.

[Chris Xu:]

Thank you, operator. We look forward to updating you on our progresses in the coming months. And thank you to everyone who participated on today's call and for your interest in ThermoGenesis Holdings.

[Operator:]

Ladies and gentlemen with that, we'll conclude today's conference call. We do thank you for joining. You may now disconnect your lines.