ThermoGenesis Holdings, Inc.
Q2 2020 Earnings Call Transcript

Published: 15 Aug 2020

[Operator:]

Good day, and welcome to the ThermoGenesis Holdings' Conference Call and Webcast to Review Financial and Operating Results for the Second Quarter Ended June 31, 2020. As a reminder, all participants will be in listen-only mode. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to our host, Paula Schwartz of Rx Communications. 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, August 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. During the second quarter of 2020, we continued to execute on our strategy to become a market leader in automated cell processing tools for the cell and gene therapy field. Notably, we were pleased to have achieved a major commercial milestone with the launch of our proprietary X-SERIES cell processing platform by our exclusive global distributor, Corning Life Sciences, under the ThermoGenesis and Corning dual brand. We are excited to have Corning as our partner, and we believe this partnership will make a meaningful impact on market penetration and revenue of the X-SERIES. As a reminder, our core competence comes from our ability to develop a range of cutting edge, automated medical devices, and systems for use in the cell gene therapy. Namely, first, the CAR-TXpress platform based on our patent protected buoyancy activated cell sorting technology or BACS. Second, that the globally recognized AXP/BioArchive platform for clinical biobanking, which allows for automated processing and cryostorage of the cord blood and clinical samples. And third, the PXP platform for point-of-care applications, namely automated processing of our autologous peripheral blood and bone marrow derived stem cells at the point-of-care. Importantly, that the platform allows for simultaneous isolation of convalescent plasma and immune cells, which is important for fighting against COVID-19. As many other companies have recently reported, our core business has also been affected by the global COVID-19 pandemic. In particular, it has had a significant impact on the cord blood industry as a whole. Resulting fewer cord blood units we installed globally during this time. Additionally, with many countries and states on lockdown, some customers opted to consume their existing safety stock of our AXP disposables, instead of placing new orders during the second quarter. That said, we do expect AXP disposable sales to increase back to their normal level after the pandemic abates. I think it is important to note that our long established and deep expertise combined with the unique flexibility of our technology platform has also enabled us to rapidly response to the urgent market need relate to the global pandemic. Towards that end, over the last few months, we continued working with our joint venture partner ImmuneCyte, mobilizing our knowledge base and global resources in the medical technology field to develop and market a range of solutions to fight COVID-19. Our strategy is multifaceted including the development of a multi-tiered approach aimed at antibody therapeutics. Our goal is simple, to address unmet medical needs, with both preventive and therapeutic treatments of the disease. As we announced yesterday, we entered into a supply agreement with BioHit Healthcare, Hefei Co., Limited to market under the ThermoGenesis brand, its SARS-CoV-2 IgM/IgG Antibody Test Kit, which has already received the Emergency Use Authorization or EUA from the U.S. Food and Drug Administration. At the same time, we [withdrew] our own previous EUA submission. The change of manufacture allows us to speed up our product to market timeline. We expect to initiate marketing of this new Test Kit on next Monday, August 19. Sorry, August 17, 2020. As a reminder, the antibody Test Kit is designed to identify COVID-19 IgG IgM antibody using a single droplet of blood from individuals who have encountered the virus in the past and developed an antibody response. Antibodies are proteins that help fight infections and prevent – and provide protections against [indiscernible], thereby conferring immunity. Of course, not everyone who has infected with COVID-19 develops symptoms. Many individuals are asymptomatic and do not know they have contracted the virus. Therefore, antibody tests in their widespread use can give individuals and Health Officers a better idea of whether someone has encountered the virus and how quickly it spreads. Given the scientific community's growing understanding of the dynamics of post zero conversions and zero diversions in COVID-19, the hope is that as this knowledge advances, people who taught – processed the antibodies may safely go back to their normal lives. We intend to further differentiate our Antibody Test Kit with the addition of a point of care reader device, which improves the speed and accuracy of the lateral flow immunoassays to detect COVID-19 antibody by an instant digital readout to eliminate human error and reduce the possibility of [false negative and false positive results]. During the quarter, our research team filed several key patent applications for the reader, to further protect our intellectual property. The reader is currently in the final stage of development, and once completed, we plan to file a separate EUA application with the FDA. The cartridge reader and companion serological assays would represent a next generation product. It will be a robust, expensive, and cloud connected device, allowing for big data analysis of results. We believe this could potentially revolutionize the law of rapid serological testing and public health monitoring during the COVID-19 crisis serving the needs of government agencies, schools, large and small employers, and others for massive screening efforts. As noted, our COVID-19 strategy does not stop here. We are also leveraging our proprietary cellular processing platform in conjunction with our antibody Test Kit to develop various therapeutic approach that may help to fight this global pandemic. Our multi-tiered strategy for COVID-19 therapies include our development of a convalescent plasma and therapeutic antibody approaches. Convalescent plasma therapy is in exploratory approach that involves giving patients an injection of a plasma from people who have recovered from COVID-19. The use of a convalescent plasma as a way to passively transfer antibody and convey disease protection dates back for decades, with some evidence for benefit against several other known viruses, such as Ebola, SARS, MERS, and influenza H1N1 virus. Previous studies and also most recent clinical study in the U.S. demonstrated safety and efficacy in the survival rate in the reduction of hospital space for MERS, SARS, and COVID-19. When challenged for developing a successful convalescent plasma strategy is the throughput and the processing efficiency. Our proprietary automated cell processing platform, the PXP 1000 allows for high efficiency processing and simultaneous isolation of convalescent plasma and immune cells. The convalescent plasma can be used alone or to produce polyclonal antibody therapies, which can potentially treat more patients in convalescent plasma alone and further mitigates the donor variability inheritance in individual convalescent plasma. The second part of our antibody strategy revolves around monoclonal antibodies. As we previously announced, our ImmuneCyte joint venture has acquired worldwide intellectual properties for the development of fully human monoclonal antibody therapeutics for COVID-19, including for high affinity monoclonal antibody drug candidates against the COVID-19 virus. These monoclonal antibody drug candidates, now under development by ImmuneCyte will further complement the convalescent plasma and polyclonal antibody approach that we are undertaking for the treatment of COVID-19. In summary, we continue to execute on both our core strategy to become a market leader in automated tools and services for the cell gene therapy market, while also leveraging our proprietary technology to develop a market, a range of solutions to fight the global pandemic. We are continuing to innovate internally. And over time, we look forward to introducing a range of additional innovative products aimed at the cell gene therapy arena, which will expand our long-term growth opportunity. I want to end by noting that we were very pleased to have announced in mid-June, ThermoGenesis addition to Russell Microcap Index. Our inclusion in the Index is a refraction of our growth as a company and allows for increased visibility among the investment community. And with that, let me turn the call over to Jeff, and share the key financial results from the second quarter. Jeff?

[Jeff Cauble:]

Thank you, Chris. Net revenues for the quarter ended June 30, 2020 were 2.2 million, compared to 4.3 million for the quarter ended June 30, 2019, a decrease of 2.1 million. The decrease was driven by AXP sales, which declined by 2.2 million in the current quarter. The COVID-19 pandemic appears to be the primary driver of the decrease. With many countries and states on lockdown, some customers opted to consume their existing safety stock in lieu of placing new orders during the current quarter. We do expect AXP sales to bounce back to their prior levels as the health emergency subsides. Offsetting a decrease in AXP sales was an increase of a half million in CAR-TXpress sales, due to Corning, our distributor in this product line, adding CAR-TXpress express to its suite of products, initiating sales to customers and the quarter ended June 30 2020. We experienced a negative gross profit of 2.6 million for the quarter ended June 30, 2020. The loss was driven by an inventory reserve of approximately 3.6 million related to the on-hand inventory of COVID-19 testing kits purchased from the company's original manufacturer. Excluding this reserve, gross profit was approximately 1 million, or 44% of net revenue for the quarter ended June 30, 2020, which is in-line with the gross profit of 45% of net revenues we had in the quarter ended June 30, 2019. For the quarter ended June 30, 2020 sales and marketing expenses were 442,000, compared to 384,000 for the quarter ended June 30, 2019, an increase of 58,000. The increase was driven by expenses related to our short-term incentive program. Research and development expenses were 578,000 for the quarter ended June 30, 2020, as compared to 611,000 for the quarter ended June 30, 2019, a decrease of 33,000. The decrease was driven by lower project expenses in the quarter ended June 30, 2020. General administrative expenses for the quarter ended June 30, 2020 were 1.5 million, compared to 1.2 million for the quarter ended June 30, 2019, an increase of 300,000. The increase was driven by non-cash stock compensation expense incurred in the quarter ended June 30, 2020. Interest expense for the quarter ended June 30, 2020 was 1.3 million, as compared to 1.2 million for the quarter ended June 30, 2019, an increase of 100,000. The increase was driven by additional interest and amortization of the debt discount related to the company's credit agreement with Boyalife. For the quarter ended June 30, 2020, we reported a comprehensive loss attributable to common stockholders of 6.4 million or [$1.2 per share], based on 6.3 million weighted average, basic and diluted common shares outstanding. This compares to a comprehensive net loss of 1.3 million for $0.47 per share, based on 2.8 million weighted average basic and diluted common shares outstanding for the quarter ended June 30, 2019. At June 30, 2020, the company had cash and cash equivalents totaling 7 million as compared to 3.2 million at December 31, 2019. Working capital improved to 8 million at June 30, 2020 as compared to 3.2 million at December 31, 2019. This concludes our prepared remarks. And now, we'd like to open the call to your questions. Operator?

[Operator:]

[Operator Instructions] Our first question is from Sean Lee with H.C. Wainwright. Please go ahead.

[Sean Lee:]

Good afternoon, Chris and Jeff and thanks for taking my questions. Just – my first one is on the existing AXP and CAR-TX businesses. So, you mentioned part of the – major part of the decreased revenues this quarter was due to the less ordering from the AXP customers, with the countries that are gradually reopening around the world, do we expect the revenues to bounce back once they reopen?

[Jeff Cauble:]

Yes, we do.

[Sean Lee:]

Do you expect a timetable for that? For example, you mentioned, your customers have been using their existing safety stocks, do you have any insight into how much of that is left? Or when would they be – do we expect to see a gradual rebound or do you expect to like for the – to go back up to pre-pandemic levels very quickly for your sales I mean?

[Jeff Cauble:]

I think it'll be a little bit of a gradual increase, but we will start to see the increase in the third quarter, so, right now. You know, and as things open up, more and more over the next few months, we will expect those sales to get back closer to normal at that time.

[Sean Lee:]

I see. And as for the CAR-TXpress sales has the Corning launch being up to going according to your expectations or do you feel that there was a major impact from the pandemic as well?

[Chris Xu:]

So, for the X-SERIES, those are the business customers. So, we are happy that Corning launched that in June. And in that sense, we are a facilitator. So, we are facilitating the marketing efforts of Corning in full extent. And we are very happy to see that the entire sales volume start to pick up. So, - but, I mean in terms of a pandemic – global pandemic, that which affect the entire industry in general, currently as you're asked to uncertainty as far as how the pandemic will go, which direction it will go. So, we are eager to see how that pandemic is developed, but we are very optimistic on the overall outcome.

[Sean Lee:]

I see. That’s good. My next questions are on the antibody detection and COVID-19 testing kits. So, I was wondering what prompted the switch to a new manufacturer yesterday and also the previous stuff that you have, are you going to market that alongside with the new one, and as far as the – also as a follow-up on market growth, the majority of the testing done are still the antigen tests. So, what sort of institutions are you mostly targeting with the antibody tests? Have many customers being reached out to you for these tests yet?

[Chris Xu:]

Okay. So, to answer, those are two parts of your question. The first is, what prompt the switch of a manufacturer. So, we have submitted as we reported previously, and we have received Policy D authorization under the FDA guidelines. However, we have submitted the EUA and waiting for the FDA decision on that. Our submission of our 125 tests to the moment this week has not been tested by the NCI at the FDA level. So, we have made a quick decision that since we reach out to various different manufacturer and this particular manufacturer did have a OEM approval – sorry EUA approved product. By changing them that really speed up our product to customer timeline. Because over the past month or so, we have received quite a bit of order and these orders are all pending a EUA approval. So, we felt a quick change of an EUA product as that really speed up or deliver to our customers to fulfill their orders. The second part of the question is, with regard to whether our test [indiscernible] the response of antibody or test the response of the antigen. I have presumed it's the virus here, per se. So, currently our assay asset is approved by the EUA is detaching the antibody, the individuals in antibody response. In other words, it's an indirect test. A test answers whether one has been exposed to the virus or not, but it did not tell where someone has an ongoing viral infection at that particular moment. It has a different purpose than testing the virus per se. Just to make this – just to give a full answer to your question, we are contemplating developing various different assay that will address the entity, in this case the virus in the body. However, this is, yet, we haven't had an existing product ready to release yet, but keep tuning to our conference call and our website, and we will update those periodically with any advances.

[Sean Lee:]

Oh, great. Thanks for taking my questions. That’s all I have.

[Operator:]

The next question is from [Andrew Ely], a Private Investor. Please go ahead.

[Unidentified Analyst:]

Hi, gentlemen, I wanted to ask you, what are the particular numbers of units that you sold of each of the products that you offer?

[Chris Xu:]

That's the – assuming you including the different antibody or the automation. Those I think the details…

[Unidentified Analyst:]

[Indiscernible] details in the CAR-TXpress.

[Chris Xu:]

I think the detail the item might number you are seeing our quarterly reports. There are a number of table that elucidates those out. And Jeff, do you want to add some more?

[Jeff Cauble:]

Yeah, no. Yeah. So, the AXP is 2.2 million and the CAR-TXpress is about 700,000 this quarter.

[Unidentified Analyst:]

And that's the number of units, correct?

[Jeff Cauble:]

No, that's dollars.

[Unidentified Analyst:]

Okay. I was asking for number of units.

[Jeff Cauble:]

Yeah, I'd have to follow up with that. With that question. I don't have the number of units in front of me, just dollars.

[Unidentified Analyst:]

Okay, thank you. I'll [see back the time].

[Operator:]

This concludes our question-and-answer session. I would like to turn the conference back over to Chris Xu for any closing remarks.

[Chris Xu:]

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

[Operator:]

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