ThermoGenesis Holdings, Inc.
Q3 2018 Earnings Call Transcript

Published: 15 Nov 2018

[Operator:]

Good day, everyone, and welcome to the Cesca Therapeutics Conference Call and Webcast to review Financial and Operating Results for the Third Quarter ended September 30, 2018. As a reminder, all participants are 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 being recorded. At this time, I’d like to introduce your host for today's conference, Paula Schwartz of Rx Communications. Please go ahead.

[Paula Schwartz:]

Thank you. Good afternoon. 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, November, 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 Dr. Chris Xu, Chief Executive Officer; and Jeff Cauble, Principal Accounting Officer. With that, let me turn the call over to Chris. Please go ahead.

[Chris Xu:]

Thank you, Paula. Good afternoon to those joining us and thank you for your interest in Cesca Therapeutics. Let me start by providing a strategic and operational update and then Jeff will review our financial results. I’m pleased to report that for the third quarter, we achieved net revenue of $3.1 million, up approximately 55% compared to the second quarter and up 67% from the first quarter of this year. Since the beginning of this year, as a result of a series of new production introductions, we have seen revenue grow steadily from 1.9 million in the first quarter to 3.1 million in the third quarter. The increase was due to the growing sales of our CAR-TXpress product line launched in May. CAR-TXpress platform is a robust and modular closed system that is designed to address the unmet need for large-scale manufacturing for cell-based therapeutics especially for the chimeric antigen T cell, CAR-T therapies for cancer. As noted, we have seen our level of sales increase steadily even with limited internal resource currently available to the company. We see this as a strong indicator for positive product reception by those in the cell and gene therapy field. The CAR-TXpress platform is built upon our 30 years of industrial experience and knowhow in developing innovative automation technologies for cell banking, cell processing and cell therapies. We remain wholly committed to becoming the full service partner of choice within the field of cell therapy research and development with a new emphasis on the fast evolving cancer immunotherapy field. CAR-T cell-based cancer therapy involves engineering of a patient’s own immune cells to identify molecule changes that occur in cancer cells and then to attack those cells. As such, CAR-T has the potential to revolutionize cancer treatment. With Gilead and Novartis as the only two companies with CAR-T immunotherapies currently approved by the U.S. FDA, the pace of development continues to increase rapidly. More and more companies are seeking to take advantage of this enormous opportunity that is highly advanced technology offering for the treatment of a range of cancers. You need only to visit the National Institutes of Health's Clinical Trials registration Web site, www.clinicaltrials.gov which reports updates daily to see that the bulk of research is being conducted in the U.S. and in China. And in those countries combined, the number of ongoing trials is approaching 400. There is a significant unmet need for more efficient and cost effective methods of manufacturing those promising yet highly costly medicine. In addition, due to the highly personalized nature of this cell-based therapy, the batch-to-batch manufacturing variability remains high. The ability to offer a solution that allow for the automation of key steps in the process provides a key critical advantage to reduce costs for those drugs that currently can run from 373,000 to 475,000 per dose per patient. Besides reducing costs, our solution should be invariable in overcoming manufacturing variabilities. As a reminder, Cesca's proprietary CAR-TXpress platform is a modular functionally-closed, semi-automated system. It uses our revolutionary buoyancy-activated cell sorting or BACS technology to dramatically reduce cell processing time, providing high cell recovery, better cell viability and overall efficiency compared to current method of ficoll-based and magnetic-beads based CAR-T cell manufacturing. In fact, our CAR-TXpress platform can reduce T cell isolation, purification and activation times from eight hours just to two. Early in the third quarter, we were pleased to have had the chance to present new data at the 4th Annual CAR-TCR Summit in Boston to compare the benefit of Cesca’s BACS technology to manual cell processing systems. The data described Cesca’s quick and easy method of removing dimethyl sulfoxide or DMSO from thawed apheresis products coupled with the selection of CD3-positive T-cells. Results show that the use of the X-WASH system resulted in cell recovery of greater than 90% with no significant loss of viability during the process. This is quite compelling when you consider that current manual method can result in a loss of 50% to 90% of the target cells and can take twice as long as our semi-automated process. Data have also shown that isolation of CD3-positive cells from the [indiscernible] was fully accomplished by using our BACS technology. The mean CD3-positive cell recovery was 84% with consistently higher purity of more than 94%. Taken together, the data supports our contentions that our closed semi-automated manufacturing process leads to a more consistent CAR-T product and that translates into better safety and therapeutic efficacy. We also are encouraged by the positive initial response we have received from both industrial and academia for the CAR-TXpress product line, including the X-LAB and X-WASH system. We believe given the inherent modular design and flexibility of our system that the CAR-TXpress platform can be adapted easily with other gene and stem cell-based therapies. To better support the use of our technology for the clinical development of CAR-T therapeutics, in October we submitted to the U.S. FDA a Device Master File or MAF covering our X-LAB system. MAF is the device equivalent of a Drug Master File, or DMF. A MAF may be used in support of a premarket submission about reagents and devices used in the manufacturing and processing of the final drug products. MAF serves the purpose of providing confidential detailed information to the FDA that can be used to facilitate scientific evaluation of the safety, reliability and effectiveness of target cell manufacturing processes proposed by the principal investigators for human clinical trials. X-LAB’s MAF filing is one step furthering our commitment to support clinical development of the ever-growing cell-based therapeutic market. Finally, the July launch of our PXP System for the rapid processing of autologous bone marrow cells in the point-of-care settings was a natural extension of the X-Series platform and has met with a very positive response. The PXP System further solidifies our positioning as the leading innovator in the field of cellular processing even as we pursue the very large market for CAR-T manufacturing and related services. Looking ahead, we’ll continue to increase Cesca’s visibility in the cell therapy market. Our goal is to become the partner of choice for CAR-T researchers and manufacturers. We intend to accomplish this through sales of existing products and new planned commercial launches that extend the value of our unique technology through the marketplace. Plans are currently underway to introduce a number of new reagent kits for our X-Series product prior to year end of 2018. In addition to the positive revenue growth, the company has taken several steps to reduce costs. This includes the elimination of several senior positions in the company. No sales marketing positions were affected. This reduction was undertaken as part of a series of initiatives designed to narrow operation losses while we focus aggressive driving growth through the commercialization of our CAR-TXpress cellular processing platform and related X-Series product. Our target is to reduce expenses by up to 25% compared to the same period in 2017. We see this as supporting our goal to achieving positive net cash growth in the next 12 months. Despite various challenges, the first nine months of 2018 also were marked by impressive success. The number of products launched was noteworthy, including the AXP II system for clinical biobanking, the PXP System for point-of-care clinical applications and the X-Series product line for large scale cell processing. We aim to build on this momentum in order to drive growth in 2019 and beyond. And with that, I will turn the call over to Jeff for a more detailed review of the financials. Jeff?

[Jeff Cauble:]

Thank you, Chris. Net revenues for the three months ended September 30, 2018 rose 44,000 to 3.11 million as compared with 3.07 million last year for the quarter ended September 30, 2017. Additionally, net revenues increased by 55% or 1.1 million as compared to the previous quarter ended June 30, 2018. The increase in net revenues was driven primarily by new customer adoption of our CAR-TXpress products. Gross profit for the three months ended September 30, 2018 was 655,000, or 21% of net revenue. This compared with 931,000, or 30% of net revenue, for the same quarter last year. The decrease in gross profit was primarily driven by increased overhead costs and lower overhead absorption rates. Sales and marketing expenses were 364,000 for the current quarter, down 30% compared with 517,000 for the quarter ended September 30, 2017. The decrease was due to SynGen merger integration expenses incurred in the prior year. Research and development expenses were 611,000 as compared to 1.1 million in last year’s third quarter. The decrease was driven primarily by a reduction in personnel costs as a result of the June 2018 reduction in force. General and administrative expenses of 1.6 million were down 5% compared with 1.7 million in the third quarter of 2017. The higher fees in the 2017 period were primarily related to the June 30, 2017 audit which was incurred in the September 2017 quarter. Since the Company has transitioned to a December 31 year end, there was only a review not an audit performed for the quarter ended June 30, 2018. For the three months ended September 30, 2018, the company reported a comprehensive loss attributable to common stockholders of 2.6 million, or $0.12 per share, based on approximately 22.1 million weighted average basic and diluted common shares outstanding. This compares to a net loss of 2.3 million, or $0.24 per share, based on approximately 9.9 million weighted average basic and diluted common shares outstanding for the quarter ended September 30, 2017. At September 30, 2018, cash and equivalents totaled 2.2 million as compared with 3.5 million at June 30, 2018. Working capital was 3.6 million compared to 6 million in the prior quarter. That concludes our prepared remarks. And now we’d like to open the call for your questions. Operator?

[Operator:]

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

[Sean Lee:]

Good afternoon, guys, and thank you for taking my questions. My first question is a high-level one. Now that X-LAB – you have X-LAB, X-BACS and X-WASH in the market, I’m just wondering whether you plan on introducing any additional modules to the CAR-TXpress or do you feel like you already have good coverage of all the major steps in T cell processing?

[Chris Xu:]

Okay. Thanks, Sean. The question is since we have the X-LAB, X-WASH and the X-BACS introduced already, what’s other product launch plans? So the answer is for the device, those three constitute the major modulus for CAR-TXpress. So we are satisfied with the current launch. And for that the intention is to have them filed with the U.S. FDA for the Device Master File as I introduced in the script, in the earnings call. In terms of new products, we will be introducing reagents that’s designed for different applications. For instance, it can be applied to isolation of CD3 T cells or it can be applied to isolation of CD34 stem cells or be applied to natural killer cells, et cetera. So we will be seeing more product launch really to expand the usage in application of our devices.

[Sean Lee:]

I see. Thank you for clearing that. You also mentioned the Device Master File for the FDA. Does that only cover X-LAB or does that cover the other cartridges as well? And what’s your estimated timeline for it?

[Chris Xu:]

So far the Device Master File has been filed with U.S. FDA as the X-LAB system. So we intend to file the similar Device Master File for the X-WASH and the X-BACS in the next 12 months, which really those systems share a very similar backbone in engineered designs and in lots of its reagent – they share lots of reagent as well. So timeline speaking, it’s the next 12 months you will see that.

[Sean Lee:]

Great. My last question is on your revenues. Could you give us a little more color on your revenue breakdown, like between your legacy products versus your CAR-TXpress products? And also have you started seeing reorders from your CAR-TXpress customers or is it still mainly new account growth at this point?

[Chris Xu:]

So in terms of revenue growth, last quarter we had the first full quarter since we launched the CAR-TXpress platform. So with that, I think that has contributed from a new account perspective the growth for the last quarter. Our historical revenue has been also grown since some of the – we start to expand with some of the new accounts as well. Jeff, you can comment on that.

[Jeff Cauble:]

Sean, so the 3.1 million for this quarter, about 0.5 million of that was for X-Series products. The balance of that was for legacy products. And we had seen – we are going to see a steady flow of sales coming through with X-Series as it’s with the system. Once systems get installed, we continue to have cartridge sales moving forward for those accounts. So we are seeing customers reorder cartridges that have systems installed at this time.

[Sean Lee:]

Thank you very much, guys. That’s all I have.

[Chris Xu:]

Thank you, Sean.

[Operator:]

[Operator Instructions]. Ladies and gentlemen, at this time 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 everybody for participating on today’s call. Our team is focused on strengthening our financial position reaching cash flow positive status this coming year. And continue to expand our reach within the cell therapy market. I look forward to updating you again at the year end. Good day.

[Operator:]

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