ThermoGenesis Holdings, Inc.
Q3 2017 Earnings Call Transcript

Published: 12 May 2017

[Operator:]

Good day everyone and welcome to the Cesca Therapeutics Fiscal Third Quarter 2017 Financial Results Conference Call and Webcast. As a reminder, all participants will be in a listen only mode. [Operator Instructions] This conference call is being recorded. I would now like to introduce you today’s host for the conference call Paula Schwartz of Rx Communications. Please go ahead.

[Paula Schwartz:]

Thank you. 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 11, 2017. If any portion of this call is being rebroadcast, retransmitted or redistributed at a later date, Cesca will not be reviewing nor updating this material. Participating on today's call are Ms. Vivian Liu, Chief Operating Officer; Mr Jeff Cauble, Principal Accounting Officer; and Dr. Dalip Sethi, Senior Director of Research & Development. Dr. Chris Xu, Chief Executive Officer is traveling today and is unable to join today’s call. I would now like to turn the call over to Vivian Liu. Please proceeed Vivian.

[Vivian Liu:]

Thank you, Paula. Good afternoon everyone and thank you for joining us today. I will start by providing a strategic and operational update for the quarter and then Jeff will follow with a review of the financials. Dr Sethi will be available for questions and answers at the end of the call. We had a busy fiscal third quarter. During the three months, we made significant and tangible progress towards strengthening and repositioning our company to become a leader in the evolving field of automated point of care cellular therapy. Specifically we strengthened our leadership team and Board of Directors, increased our financial flexibility with a $5 million line of credit backed by the Boyalife Group, created a separate subsidiary to more effectively grow and manage our core ThermoGenesis device business and we had compelling data published in two-peer reviewed medical journals. Regenerative medicine, specifically autologous cell-based therapies represent a new and rapidly evolving frontier in the treatment of a broad range of diseases. With these actions, we're confident that we can position ourselves at the forefront of this exciting field. Now digging a bit deeper into the quarter’s developments, since joining the Board of Directors in November of last year, I have been very impressed with both the Cesca team and our CEO Chris Xu’s long term vision for the company. I was therefore delighted to have been given the opportunity to join the executive management team this past February as chief operating officer. I believe Cesca has the potential to be a recognized leader in cell-based therapeutics and I'm excited to work with Chris and the rest of the leadership and board to help realize this vision. Also, in February, we announced the appointment of Doctors Russell Medford and Joseph Thomis to our Board of Directors. These appointments add significant expertise in the areas of drug development and commercialization which will serve us well as we continue to advance our clinical programs. Beginning in April 2017, Cesca has operated as two divisions. The first encompasses our core device product line for automated cellular processing and it’s known as ThermoGenesis which used to be the name of the company and remains a well-known brand name in the industry. We also have our clinical division within which we're applying our technology for the development of a range of cell-based therapeutics aimed at specific indications within the vascular area, cardiology and orthopedics. Let me first begin with a discussion of ThermoGenesis. An important component of our vision for the company is to further grow our successful device business and build on what we believe is our current leadership position in the processing of autologous cells. To that end, during the fiscal third quarter we formally established ThermoGenesis as a separate entity which we think will prove key to help us manage and grow this core business. As such, ThermoGenesis will now operate separately as a wholly owned subsidiary of Cesca with its own focused leadership team. The ThermoGenesis devices have already proven to offer distinct competitive advantages in the marketplace, including handsfree automated operations, rapid high volume cell processing and stem cell recovery rates that are consistently higher than other available systems. Our goal going forward is continue to grow with an emerging market such as India and China while expanding our footprint in the U.S. and European markets. As a reminder, the ThermoGenesis product pipeline consists of AutoXpress for the isolation and collection of hematopoietic stem cells from cord blood and peripheral blood; MarrowXpress for the isolation and collection of hematopoietic stem cells from bone marrow; CellXpress for the isolation and collection of cells from biological sources for various laboratory-based downstream applications; and BioArchive, a cryogenic system used by cord blood banks for the preservation and storage of cord blood stem cell concentrates for future use. Our flagship products AutoXpress, or AXP and BioArchive which are used by some of the largest players in the stem cell industry, including cord blood registry, MD Anderson Cancer Center, Duke University, New York Blood Center and many others. As Jeff will cover shortly, we saw a 15% increase in company revenue in the fiscal third quarter compared to the same period a year ago. This was due in large part to higher shipments of AXP consumables and devices. As a key growth driver for our company, we intend to continue to develop innovative products within the ThermoGenesis brand in order to meet the evolving needs of our growing customer base. As an example, we are currently developing AXP2 which represents the next generation of cord blood processing devices. As we discussed in some detail on our last call, we also believe that our technology can play a key role in immuno-oncology, particularly in the automation of cell processing for CAR-T based therapeutics for cancer. And what is being described as a fifth pillar of cancer treatment, immunotherapy involves engineering a patient's own immune cells to identify molecular changes that occur in cancer cells and then to attack those cells. CAR-T has a potential to revolutionize cancer treatment. We want to be part of it, so we're actively working to adapt our technology to this exciting field. Now turning to our second division, which includes our clinical programs, I am pleased to know that we continue to progress our lead program in which we are evaluating a derivative of AXP technology to treat patients with Critical Limb Ischemia, also known as CLI. CLI is the most severe form of peripheral artery disease and patients suffering with this condition typically have no remaining treatment options other than amputation. The results from our CLI feasibility study were very encouraging as we reported this March CLI patients in a study demonstrated significant improvement in wound healing, rest pain and six-minute walk distance along with a significant reduction in intermittent claudication pain. These results which were published in a peer-reviewed journal Stem Cell International are remarkable in that these patients were considered no option and were advised to undergo leg amputations in the near term. On the regulatory front, during the fiscal third quarter we obtained FDA approval for an IDE supplement for the company's revised CLI Phase 3 trial design. We’re engaged in exploratory discussions with potential partners to further advance this promising new therapeutic option. During the quarter, we also highlighted promising study data that was published in the peer-reviewed journal of Biomedical Science. The study included 24 patients with chronic non-healing ulcers and the study was conducted by researchers from Cesca and Fortis Memorial Research Institute. Wound healing was observed in some patients as early as just four weeks post treatment. As important, all patients demonstrated healing of the wound or the ulcer with 17 patients showing a 90% reduction in wound size and three patients showing an 80% to 90% reduction over the course of the 24 week follow up. These results serve as an important validation of our technology and will help us fine tune our clinical development plan and evaluate -- enable us to evaluate future growth opportunities. Currently, in addition to CLI, we're evaluating our autologous cell-based therapies for the treatment of acute ST-elevated myocardial infarction, the most serious type of heart attack, and a number orthopedic indications. I look forward to sharing updates on these programs during future calls. And now I’d like to turn the call over to Jeff for a brief review of the financial results.

[Jeff Cauble:]

Thank you, Vivian. Net revenues for the three months ended March 31, 2017 were $3.3 million compared to $2.8 million for the same period in 2016. The increase in revenue was due primarily to growth in shipments of AXP devices and disposable as well as BioArchive parts and accessories. For the nine months ended March 31, 2017, net revenues were $11 million compared to $8.9 million for the nine months ended March 31, 2016. The increase is primarily a result of shipments of AXP disposables to single end user customer and distributors in China and in Europe. Gross profit for the three months ended March 31, 2017 was $1.4 million or 42% of net revenue, compared to $408,000 or 14% of net revenue for the same period in 2016. For the nine months ended March 31, 2017, gross profit was $4.3 million or 39% of net revenue compared to $1.8 million or 20% of net revenue for the corresponding 2016 period. The increase in gross profit percentage is primarily due to reduced inventory reserves and reduction in overhead costs. Sales and marketing expenses for the three months ended March 31, 2017 were $335,000 compared to $537,000 for the same period in 2016. For the nine months ended March 31, 2017 sales and marketing expenses were $1.1 million compared to $1.7 million for the comparable period in 2016, a reduction of $586,000 or 35%. The decrease is primarily due to lower personnel costs resulting from the company's September 2016 sales reorganization. Research and development expenses for the three months ended March 31, 2017 were $567,000 compared to $708,000 for the same period in 2016. For the nine months ended March 31, 2017, research and development expenses were $1.9 million compared to $2.5 million for the same period in 2016. The decrease is primarily due to lower personnel costs resulting from the company's September 2015 restructuring initiatives, as well as a reduction in rent expense as a result of consolidating the company's U.S. operations into its Rancho Cordova facility. General and administrative expenses for three months ended March 31, 2017 were $2.6 million compared to $1.9 million for the comparable period in 2016, an increase of $687,000 or 36%. General and administrative expenses for the nine months ended March 31, 2017 were $8.9 million compared to $6.3 million for the comparable period in 2016. The increase is the result of higher legal fees as well as severance and related costs. At March 31, 2017, the company had cash and equivalents of $3.8 million and working capital of $5.9 million compared to cash and equivalents of $5.8 million and working capital of $7.3 million at June 30, 2016. As Vivian noted earlier, during the quarter we closed on a $5 million unsecured line of credit backed by Boyalife Investment Fund II, that provides us with a non-dilutive source of funds that we can use to support our growth initiatives. As of March 31, 2017 we had drawn down $1.5 million from this facility. As noted earlier, beginning in April 2017 we started operating under two divisions -- the device side under ThermoGenesis, and our clinical division. Therefore we will begin segment reporting to highlight the financial results of both divisions in our fiscal fourth quarter financial reports. That concludes our prepared remarks and now we'd like to open the call for your questions. Operator?

[Operator:]

[Operator Instructions] And the first question comes from Jason Kolbert from Maxim Group. [Operator Instructions]

[Vivian Liu:]

End of Q&A

[Operator:]

Looks like this concludes our question and answer session. I would like to turn the conference back over to Vivian Liu, Chief Operating Officer for closing remarks.

[Vivian Liu:]

Thank you everybody for participating in our third quarter earnings call. We are very enthusiastic about our growth prospects and we look forward to updating you on our future progress. Thank you. See you next quarter.

[Operator:]

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