ThermoGenesis Holdings, Inc.
Q1 2018 Earnings Call Transcript

Published: 15 May 2018

[Operator:]

Good day everyone, and welcome to the Cesca Therapeutics Conference Call and Webcast to review financial and operating results for the First Quarter Ended March 31, 2018. As a reminder, all participants will be in a listen-only mode. There will be an opportunity for you to ask questions at the end of today’s presentation. [Operator Instructions]. Today’s conference call is also being recorded. At this time I would like to introduce your host for today’s conference, 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 might 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 conference call, May 14, 2018. If any portion of this call is being rebroadcast, retransmitted or redistributed at a later date, Cesca will not be reviewing or updating this material. Participating on today’s call are Joe Balagot, Senior Vice President of Corporate Development

[Joe Balagot:]

Thank you, Paula. Good afternoon everyone and thank you for joining us. I’ll start by providing a strategic and operational update and then Jeff will wrap up with a review of the financials. We will then take your questions. Since our acquisition of SynGen in July of last year, we have been focused almost exclusively on advancing development of our portfolio of Novel Cellular Processing Solutions, which we refer to a CAR-TXpress. I am pleased to say that in the relatively short amount of time since that acquisition, we have introduced our first products for the research market, expanded into higher value CDMO services and strengthened our intellectual property estate. I will elaborate further on each of these important developments in a moment. As a reminder CAR-TXpress is a semi automated platform that enables CAR-T developers to manufacture high quality clinical grade CAR-T cells in a functionally closed system at a robust scale. CAR-T therapeutics are among the most advanced cancer therapies in the immuno-oncology field. They use a patient’s own immune system to fight cancer cells. At the end of 2017 there were over 400 CAR-T related immuno-oncology clinical trials register globally on the National Institutes of Health, clinicaltrials.gov website. However, the complexity of CAR-T manufacturing processes is the main driver of the high cost of these therapies, which can range from $373,000 to $475,000 per dose. Also since each therapy is a personalized batch of one, this significantly limits the ability to manufacture these high effective cell-based drugs at scale. High drug cost and low capacity therefore stand as significant barriers effecting the future application of and affordability of these new immunotherapies. With our CAR-TXpress platform, researchers and developers can automate key steps in the CAR-T manufacturing process, leading to reduced manufacturing time and lower costs, while at the same time improving cell yields and consistency. We continue to execute on our strategic vision for the company, which is to be the full service partner of choice within the field of CAR-T research and development and with the number of CAR-T clinical trials ongoing in the U.S., China and elsewhere, we believe we can play a key role in expanding and accelerating the available of these lifesaving therapies, while creating significant value for our shareholders. Now digging a bit more into the recent developments, during the quarter we announced the introduction of our first off-the-shelf kit for the research use only market called the X-Mini. X-Mini allows researchers to experiment and familiarize themselves with micro-bubble technology using our BACS re-agents as opposed to traditional BACS technology. We also announced two important evaluation agreements for our X-Series products with leading academic institutions. One with the University Of North Carolina, Lineberger Advanced Cellular Therapeutics Facility and the other with a leading and U.S. Academic Research Institution, which prefers we do not disclose their name at this time. Both of these institutions are recognized leaders and pioneers in the research and development of CAR-T based therapeutics and we are delighted that they have selected our products for these important evaluations. These evaluation agreements are an important part of our business development efforts as they will provide important third party validation of the X-Series product performance data we have produced in our own labs. Furthermore, some of the most exciting work in the field of CAR-T continues inside these academic institutions and we believe working with these institutions early on to help improve their manufacturing process will lead to future opportunities for Cesca down the road. The data we receive from these evaluations will also yield important information on the benefits of our CAR-T expressed platform as compared to existing CAR-T manufacturing processes and workflows. Data that we and/or partners will look to publish in future pre-reviewed scientific journalist. We continue to pursue additional evaluation agreements with academic research institutions, as well as CAR-T industry manufacturers, including some of the leading players in this space and we would expect data from these evaluations will drive future product sales and collaboration opportunities. During the quarter we also made significant progress expanding our growth opportunities beyond off-the-shelf kits and into contract development and manufacturing or CDMO services. We entered into a collaboration with IncoCell Tianjin Ltd. in China, whereby IncoCell will use our X-Series products in the delivery of its CAR-T related and other cellular processing CDMO services in the Asia Pacific countries. This relationship is very important to us as China and the U.S. represent the two countries with the highest number of ongoing CAR-T clinical trials. Having a local presence in China through our relationship with IncoCell for our X-Series products enables us to tap into these clinical trials, while participating in the future success of IncoCell. Our vision is to be a full service partner to CAR-T manufactures and this collaboration is a significant step towards realizing that vision. The early results of this collaboration have been fruitful and we are pursuing additional CDMO collaborations in other important territories, including the U.S. We also continue to strengthen the intellectual properties surrounding this novel technology platform. In March, we filed a new patent application covering cell activation and transduction. This patent application covers our method for further simplifying the processes of T-cell activation and transduction within our proprietary CAR-TXpress workflow to enable additional manufacturing steps to be completed within a single cartridge, from initial preprocessing of blood or Leukopoiesis product through to T-cell activation and transduction. If and when this patent is granted, we believe this will significantly improve the commercial appeal of our CAR-TXpress platform. This application, together with our other applications and two patents that were granted late last year reflect our track record of innovation in the cellular processing field. The key to the CAR-TXpress platform is our proprietary Buoyancy-activated cell sorting technology or BACS for short. As a reminder, BACS employs microscopic bubbles to isolate a specific cell type from a complex mixture of cells such as blood using standard laboratory equipment. These micro-bubbles bind to antibodies on their surface, enabling them to bind specifically to a single desired target cell type. Through centrification the target cells float to the top of the host liquid, while the non-target cells sink to the bottom. We recently presented a poster at the 2018 meeting of the International Society of Cellular Therapy in Montreal, Canada, suggesting that BACS resulted in higher target cell recovery rates with greater levels of viability and purity, relative to more traditional ficoll base and magnetic bead based isolation procedures, which are high inefficient by comparison. As more CAR-T therapeutics enter clinical trials, we firmly believe that factors like cost, efficiency and consistency, each of which Cesca is addressing with CAR-TXpress will be critical success factors for the entire field. For those who maybe newer to our story, our device segment product line includes some of our legacy core blood banking products. The first is BioArchive for cryogenic cellular product storage, is an automated controlled rate liquid nitrogen freezer intended for the cryopreservation and single cassette-based storage of clinical samples. The BioArchive provides customers who need cryogenic cellular product storage with a solution that combines the individualized sample storage retrieval capacity and real-time chain of custody management. AXP for stem cell banking is a proprietary automated system for the isolation collection and storage of hematopoietic stem cell concentrates, derived from cord blood and peripheral blood. Now that said, much of our future success is depended on our CAT-TXpress platform that includes the following X-Series products. X-Lab for cell isolation is a semi-automated functionally closed Ficoll free system for the rapid isolation of different target cells from various sources, including blood samples, bone marrow aspirates and Leukopoiesis products. X-BACS for cell purification is a semi-automated function enclosed system that employs micro-bubbles to isolate target cells through Buoyancy-activated cell sorting. These micro-bubbles bind to antibodies on their surface, enabling them to bind specifically to the desired target cell. Subsequent collection of the floating target cell coated with micro-bubbles provides a highly purified preparation of target cells with high recovery efficiency and cell viability. X-Wash for washing and reformulation is a semi-automated function enclosed system that separates, washes and volume reduces frozen cells or cell cultures to a programmable volume. With these and the recent launch of our first off-the-shelf kit, the X-Mini which was introduced in April, later this year we plan to begin marketing a number of other off-the-shelf kits. These include the X-Auto for the research market and in 2019 the X-Clini, our first kit for the commercial manufacture of clinical grade CAR-T cells compliant with GMP standards. Give what we anticipate to be a broad range of CAR-T manufacturing solutions, not only have we initiated numerous discussions with key industry players, but I can also say that we are experiencing a good deal of inbound interest from potential partners and collaborators as well, as word travels that Cesca CAR-TXpress platform may offer important advantages over today’s cell manufacturing process. In particular, we intend to take advantage of the opportunity to cell kits to CAR-T developers and research institutions, looking to automate specifics parts of the manufacturing process. We can also partner in the actual development of the next wave of CAR-T therapeutics with our CDMO capabilities. Our stated goal is to remain flexible, so that we can address the needs of many different constituents within the CAR-T industry, as well as the broader immunotherapy ecosystem. As noted on last quarter’s call, our early discussions with potential partners have been productive and we look forward to providing more specifics on future calls. Moving on, as some of our listeners today will recall, early in the first quarter we announced the launch of our second generation AXP II system for the advanced isolation, collection and storage of hematopoietic stem cell concentrates from cord blood and peripheral blood. AXP II includes key enhancements such as a docking station and proprietary software which represent the most significant enhancements to automated code blood processing in several years, further solidifying our market position and reputation in this market. We count many of the world's leading public and private cord blood banks among our current longtime customers, a strongest endorsement of this technology. We are proud that ThermoGenesis remains a pioneer in the development and commercialization of automated technologies for both cell-based therapeutics and bioprocessing, providing the market with a portfolio of products that offer distinct advantages, including hands free operation, high volume processing and recovery rates that are among the highest in the industry. The most recent introduction of AXP II and CAR-TXpress reflect the continuation of our top tier position in the field. In closing, I believe the progress that we have made in recent months sets us up for a transformative and successful year ahead. And with that, I’ll turn the call over to Jeff for a more detailed review of the financials. Jeff.

[Jeff Cauble:]

Thank you, Joe. Net revenues for the first quarter of 2018 were $1.9 million as compared to $3.3 million for the quarter ended March 31, 2017. The decline in revenues was driven by deceased AXP disposables sales in China. Gross profit for the first quarter of 2018 was $352,000 or 19% of net revenue compared to $1.4 million or 42% of net revenue for the comparable period in 2017. The decrease in gross profit margin percentage was primarily due to decreased overhead absorption and higher costs of the result of the merger with SynGen, which was completed in July of 2017. Sales and marketing expenses for the first quarter of 2018 were $325,000 as compared to $335,000 for the quarter ended March 31, 2017. Research and development expenses for the first quarter of 2018 were $1 million compared to $567,000 for the comparable period in 2017. The increase is primarily due to additional headcount and expenses related to the ongoing development of our X-Series products and CAR-TXpress platform. General and administrative expenses for the first quarter of 2018 were $2.2 million compared to $2.6 million for the same period in 2017. The decrease is driven by a reduction in legal expenses due to the settlement of the SynGen litigation. At March 31, 2018, the company had cash and equivalents of $2.9 million and working capital of $3.9 million as compared to cash and equivalents of $3.5 million and working capital of $6 million at December 31, 2017. That concludes our prepared remarks. And now we'd like to open the call for your questions. Operator?

[Operator:]

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

[Unidentified Analyst:]

Thank you. Hi Joe, I have a few questions, but let me ask you one by one. The first one being, your recent announcement of two evaluations of academic institutes. So what should we expect from these relationships? How do you plan to use these evaluations in commercializing the X-Series products?

[Joe Balagot:]

Yeah thanks, R.K. So I guess let me speak to UNC first, because actually we are going to be at UNC at the end of this week, actually performing the training for that evaluation. So what we expect to get from this is basically UNC will be able to do a side by side comparison of CAR-TXpress versus their existing manual processing. It’s important because UNC is one of the academic institutions in the U.S. who are actually treatment patients with CAR-T therapy. So it’s important for us get this third party validation of some of the data that we’ve already produced in some of our own labs. So we are very, very optimistic that coming out the evaluation we’ll be able to hopefully corroborate some of our own data that we produced internally with an external third party. And so obviously we will be able to use that as we sort of talk to other interested parties. Secondly, UNC has also told us that they are interested in publishing some of that data. So we would hopefully expect them to publish some of the data coming out of their evaluation, some scientific journalists, sometime maybe this year of course. But if they choose to do that that will limit our ability to be able to talk publicly about that data until it’s formally published. But again, I think that the third party validation of having some of that work published goes a long way to helping our business development efforts. The other institution that at this point we prefer we not name them is also doing a similar type of e-val. Unfortunately because they would rather stay anonymous at this point, it’s really hard for me to give you details on what might come out of that evaluation. What I can say is we are going to be also performing that evaluation over the next month or so or actually sorry, probably the next month and a half, sometime in June. So hopefully we’ll have the results of that evaluation and to the extent we can publicly disclose that to investors, we will.

[Joe Balagot:]

But again, I think you know it’s really important for us to get into these academic institutions, because if you know [inaudible] and ESCADA [ph] originated out of MCI. So many of the leading sort of product development programs come out of academia or research. So getting in early with these types of folks I think will provide long term benefits for Cesca down the road.

[Unidentified Analyst:]

Fantastic! And then thinking about the X-Mini sale solution kit, you know which you released to the research market recently, again regarding this launch what can you tell us? How is the research market accepting this product and where do we go with this product from here?

[Joe Balagot:]

Yeah, so the launch of X-Mini, you know I guess we would call it a soft launch and actually it’s not just the research market academic institutions that have been using X-Mini. Actually some industry folks have also been asking for X-Mini, just because they want to understand how micro bubble technology works compared to magnetic bead technology, which is 25 year old technology. So from that standpoint, because this is a soft launch we now – we don’t expect to generate significant revenues from the X-Mini this year, but what it does do is it provides both researchers and industry players an opportunity to get comfortable with how micro bubbles work and that’s important as we sort of move forward into 2019 and launch X-Clini, because it’s going to be those folks who want to eventually treat patients that they are going to have to be comfortable switching from bead technology to bubble technology. You know the one thing I will say is, you know as we’ve said in the past, you know we are in discussions with potential global distribution partners, many of which have a strong presence in the research market. So I think if and when we’re able to sort of announce and secure that global distribution deal, I think we’ll have more to say about X-Mini, as well as some of the other research products that we plan to launch this year.

[Unidentified Analyst:]

Fantastic! And then about the CDMO space that you recently entered in to provide services, especially for the Asia-Pacific region, given that the whole CAR-T business and technology hasn’t been really industrialized so to speak, so what – can you help us get a sense for what sort of a market is out there for CDMO services in the CAR-T space. You know whether it’s in the Asia-Pacific region or in the – outside of that, you know let’s say eventually if you come to Europe or U.S., you know how do you think the acceptance of that is going to be?

[Joe Balagot:]

Yeah, I mean I think specifically as it relates to CDMO services, I think – and you know we’ve sort of gotten this type of information from other CDMO sources, the folks that have used CDMO’s. You know generally speaking it costs a biotech company or a pharma company anywhere between $100,000 and $150,000 to use a CDMO to manufacture product for clinical trials. So if you just think about you know the number of clinical trials that are being run currently, which are you know in terms of ones that are actually registered with clinical trials, it’s over 300, you know and a lot of those trials are maybe between 10 and 40 patients, you know some you know a 100 plus patients. I mean it’s all published there on the website. So if you think about you know the cost of each of those patients being $100,000 or $150,000, you can see how CDMO modeled to be a very lucrative business, especially for us when we can manufacture at a much lower cost, because our technology is more efficient. It takes less time to operate and you know provide additional – you know more you know – I would say higher recovery rates, so it should lessen the expansion time. So I think you know it’s sort of early days on the CDMO model for us. I think you know doing the deal in China with IncoCell was a good first step with us, because we get to leverage the efforts of IncoCell by just providing them the equipment. So we don’t get involved in any of the actual manufacturing for IncoCell. We are just providing equipment and then participating in some of that upside. So we’ll see how that goes and then in the meantime we’ll continue to talk to potential CDMO partners here in the U.S. about how we can potentially participate with them, you know whether it’s the U.S. or Europe.

[Unidentified Analyst:]

Great! Thank you Joe. Good luck with everything.

[Joe Balagot:]

Thanks R.K.

[Operator:]

Ladies and gentlemen, at this time I’d like to turn the conference call back over to management for any closing remarks.

[Joe Balagot:]

Great, thank you. So thank you for joining us this afternoon. Again, we are very pleased with the progress that we have achieved and the momentum that we have established during this first quarter and through today and we look forward to speaking with you again during our second quarter call in August.

[Operator:]

Ladies and gentlemen, that does conclude today’s conference call. We do thank you for attending. You may now disconnect your lines.