Q2 2022 Thermogenesis Holdings Inc Earnings Call

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As a reminder, this conference call is being recorded.

I would now like to turn the conference over to your host, Paula Schwartz of Rx Communications. Please go ahead.

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 11, 2022. 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 Hsu, Chief Executive Officer, and Jeff Cobble, Chief Financial Officer. I'd now like to turn the call over to Chris. Please go ahead.

Thank you, Potter, and thank you to everyone for joining the call this afternoon.

We appreciate you taking the time to listen in.

Auzoia was a very quiet period for the news friends during the second quarter. We continue to progress our plans to become an integrated CDMO for the saline therapy market.

As most of you know, for over 35 years, thermogenesis has pioneered the development and manufacture of a series of innovative automated technologies and products specifically for the cell banking and cell therapy industry.

For many years, Somogenesis has been the provider of choice for automated cell processing and automated smart, cryogenic storage technologies for some of the world's most important public and private cell banks. K

Our bioRxiv cryo storage system has warehoused close to 90% of all US FDA BLA approved clinical grade cobra units or CPUs.

And our AXP system has processed well over millions and posts worldwide by approximately 140 institutes across the world.

Over the last few years, our team has continued to focus on what it does best.

successfully developing additional FDA-approved cell processing medical devices for large-scale cell manufacturing for cell therapies.

The intellectual property we have accumulated over our history is invariable and we are excited about the future.

Driving our forward-looking strategy in large part is the continued growth of the industry.

focus on the potential for personalized cell and gene therapy.

Since 2017, six autologous CAR T therapeutics have been approved by the FDA.

while CAR-T were initially approved for the last line of defense.

More recently...

There have been CAR T trials that have shown that

such therapies can outperform second line of standard care options.

which could expand its applications in the future.

Recent reports show that the industry anticipates additional FDA approvals with as many as 10 to 20 new therapies each year starting in 2025.

The potential of both seljane therapies is enormous.

And as we speak, there are more than 350 US companies alone working in the cell therapy arena.

And more than 1000 pipeline assets are in technical development globally.

targeting a range of blood and solid tumors.

With all these activities, the industry faces a daunting issue of drug manufacturing.

Group manufacturing is the largest component of the cost of CAR T cell therapies.

with list price ranging from $373,000 to $475,000, depending on the specific drug and indication.

Manufacturing costs for each dose of CAR T therapeutics currently exceeds $100,000.

79% of which is directly related to labor and the GMP facility costs.

Therefore, the significant need for CMP manufacturing at a reasonable cost for these extremely complex personalized therapies is crucial.

Yet, while clinical trials for CAR-T and other next generation cells in therapeutics have continued, the industry continues to grapple with the serious

capacity limits and high manufacturer costs.

In fact, today over 75, over 70 percent of the cell gene therapy developers outsource their manufacturing needs.

while only 5-10% of the required capacity is expected to exist for the next 10 years.

The volume of demand coupled with the technical complications has resulted in tremendous backlog.

for these at the research, technical, or commercial stage.

Moving away from manual process will be the key to facilitating fast timelines and getting these life-saving drugs from bench to bedside.

creating an important window of opportunity for thermogenesis.

All that said, during the second quarter, we took additional steps towards the launch of our TG biosynthesis.

a contract cell manufacturing service division.

The aim of the new division is to address the growing need for CDMO services by providing high quality development and manufacturing capabilities.

cell tissue processing development, quality systems.

compliance, regulatory compliance, and other self-manufactured solutions for clients with therapeutic candidates in various different stages of development.

showing intellectual property.

cutting edge technology and expertise.

and when built out the state-of-art manufacturer capabilities.

We will help address the ever-evolving manufacturing needs of organizations in the cell gene therapy field.

We expect to...

capitalized on the inefficiency of the industry to become a leading CDMO cell manufacturing service provider.

With that in mind, we began building out approximately 35,000 square foot of laboratory and office space to create a state of art CGMP compliant facility with 12 CGMP clean room suites.

This new space will go a long way to support the industry manufacturing requirements and will allow us to fully utilize our proprietary technologies.

including the Kachi Express pretzel.

which has shown the ability to reduce cell processing time by 75% and to potentially cut manufacturing costs by 50%.

and which is to more efficiently and cost effectively to produce cell gene therapy drug candidates for the industry.

And with that, let me turn the call over to Jeff to share the key financial results for the second quarter. Jeff, are you there?

turn the call over to Jeff to share the key financial results for the second quarter. Jeff?

Thank you, Chris.

Net revenues increased to $3 million for the quarter ended June 30, 2022, up 38% from Q2 of last year and 15% from last quarter.

The increase was driven by AXP disposable revenue with increased orders from both domestic and international customers.

The gross profit for the quarter ended June 30, 2022, was $900,000, or 31% of net revenue.

Our gross profit percentage for this quarter was lower than normal, primarily due to one-time charges for inventory reserves and higher pricing from our contract manufacturer.

We've implemented steps to decrease our costs going forward and expect to have our margins return to normal levels by the end of the year.

Selling general and administrative expenses were 2 million for the quarter ended June 30, 2022.

as compared to $3.5 million for the quarter ended June 30, 2021. The decrease was driven by stock compensation expense, which declined by approximately $1.9 million due to accelerated expense for stock options voluntarily surrendered in the second quarter of last year.

Research and development expenses were $400,000 for the 3 months ended June 30, 2022, as compared to $600,000 for the 3 months ended June 30, 2021.

The decreases are driven by lower personnel and project expenses.

At the quarter ended June 30, 2022, the company reported a net loss attributable to common stockholders of $2.7 million, or 20 cents per share, based on approximately 13.5 million weighted average shares outstanding.

This compares to a net loss of 4.5 million or 38 cents per share based on approximately 11.9 million weighted average shares outstanding for the quarter ended June 30th, 2021.

June 30th, 2022, the company had cash and cash equivalents totaling 4 million compared with 7.8 million December 31st, 2021. Working capital is 1.8 million on June 30th, 2022 as compared to 8.6 million on December 31st, 2021.

This concludes our prepared remarks. Now we'd like to open the call to your questions. Operator.

Thank you. We will now begin the question and answer session.

To ask a question, if you please press star then one on your touch tone phone.

If you are using a speakerphone, please pick up your handset before pressing the key.

To withdraw from the question queue, please press start and 2. At this time, we will pause momentarily to assemble our roster.

Our first question comes from Shawn Lee with HC Lane Rake. Please go ahead. meat

Good afternoon, Chris and Jeff, and thanks for taking my questions.

My first question is on the corporate banking business. I know that during the pandemic, that side of the business suffered quite a bit as there's a global slowdown in the industry. I was wondering whether there are still any lingering effects or have the business returned to a pre-pandemic level.

So I will jump on this first and then I will let Jeff to share some of the numbers.

So, overall, with all the entire industry gradually returned to its normal, so we do see recovery for this industry.

So that's a good sign. And we do see an increase in some of our consumables orders in the second quarter.

Jeff, can you share a photo of this?

Yeah, we're seeing revenues come back up to a close to pre-pandemic levels during 2022. If you just look at the...

year over year to date, they're up significantly. Our AXP revenue for the 6 months ended June 31st, 2022 is 3.7 million as compared to just 1.1 million, or pardon me, 1.4 million for the 6 months ended June 30th, 2021. So certainly we're seeing, it's a significant increase and we are seeing the revenues come back to closer to where they were prior to the pandemic.

Fantastic. That's very helpful.

My next question is on the CDMO business. So what remains to be done on the build out of the manufacturing facility? What's the expected timeline for that?

So with that, we are targeting towards the end of the year, for the first two weeks of the year.

of the first quarter of the next year. So everything is on track with our timeline and we are preparing not only the infrastructure, but also many of the internal development of different SOPs and different...

prophecies.

So overall we were on track with the development of this service. And the service remained to be in high demand.

I see, I see. And just to follow up on that, in terms of the customers that you look at target, is it just the industry or are you looking for industry plus academia? And what about in terms of geographies? Is it just going to be US customers or international ones as well? Thanks.

So let me divide that into three different categories. One is based on their size.

because for selgin therapy the manufacture cost is high and also the GMP manufacture

infrastructure.

So many of the small to medium sized companies cannot afford building their own infrastructure.

and they account for a large percentage of the total developers in the industry.

So it's natural that for them they will outsource their manufacturing capability as their requirement. So that's why 70% of the developers outsource their cell manufacturing needs.

The second way to look at the pie is a geographic

and location of the customers.

So, as we know that about one-third of the cell gene therapy were developed domestically in the States.

and there are more than two-thirds actually were developed outside the state.

So many of the developers are looking to be able to launch the product eventually in the US market. So why am I being a bug?

which requires them to carry out manufacturing and clinical trials within the states.

So, that said, there are two sort of global customers coming to the U.S. to use contract manufacturing services.

I see. Thanks. That makes it more clear. That's all the questions I have.

Oh, thanks. Thanks, Sean.

To conclude our question and answer session, I would like to turn the call back over to management for any closing remarks.

Thank you, operator. We look forward to updating you on our progress during our third quarter 2022 call. And thank you to everyone who participated today and for your interest in somogenesis holdings.

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

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