Daphne Taylor - VP, Finance and CFO Mike Rice - President and CEO.

Jeffrey Cohen - Ladenburg Brian Marckx - Zacks Investment.

Good day, ladies and gentlemen, and welcome to the BioLife Solutions Third Quarter 2014 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. (Operator Instructions). As a reminder, this conference call is being recorded.

I would now introduce your host for today’s conference, Daphne Taylor, CFO. You may begin..

Thank you operator and good afternoon everyone. Thank you for joining us this afternoon for the BioLife Solutions conference call and webcast to review the financial results for our 2014 third quarter ended on September 30.

Today we issued a press release and filed our Form 10-Q quarterly report containing detailed results for the third quarter of 2014. This release is available on the Investor Relations Web site -- on our Web site at www.biolifesolutions.com as well as on various financial Web sites.

As a reminder this call is being recorded and also broadcast live on our Web site. A replay of the webcast will be available through the same link for 90 days.

Before we get started, we’d like to remind you that during the course of this conference call, we may make projections and other forward-looking statements regarding future events or the future financial performance of the Company.

These include without limitation statements regarding future operating results, growth opportunities and other statements that reflect BioLife’s plans, prospects, expectations, strategies, intensions and beliefs. These statements are subject to many risks and uncertainties that could cause actual results to differ materially from expectations.

For a detailed discussion of the risks and uncertainties that effect the Company’s business and that qualify to be forward-looking statements made on this call, we refer you to our periodic and other public filings filed with the SEC, including the Forms 10-K for the fiscal year ended 2013, the quarterly Form 10-Q filings and the Forms 8-K filed today.

Company projections and forward looking statements are based on factors that are subject to change and therefore these statements speak only as of the date they are given. The Company assumes no obligation to update any projections or forward looking statements except as required by law.

Now I’d like to turn the call over to Mike Rice, President and CEO of BioLife..

Thank you, Daphne and thank you everyone for joining the call. Following our business update and review of BioLife’s third quarter 2014 performance we’ll be glad to take your questions. I will start with a Q3 overview. Overall we're pleased with our results for the third quarter.

In the quarter we reported a 24% increase in core product sales over the same period last year and this is 15% sequential growth over the last quarter. This was a record quarter for core product revenue and our fifth consecutive quarter with at least $1 million in core product revenue.

In Q3, we continue to execute to drive product adoption in our three strategic market segments of biobanking, drug discovery and regenerative medicine.

We announced that RoosterBio was using our CryoStor freeze media with their commercial human adult mesenchymal stem cell products and the Progenitor Cell Therapy, a subsidiary of NeoStem has validated an embedded CryoStor and HypoThermosol to the HC hypothermic storage and shipping media into several cell therapy development programs for NeoStem and other contract manufacturing customers.

Recall that we have previously estimated that our clinical grade bio-preservation media products are now incorporated into more than 130 customer clinical trials and new secular therapies. Turning to Biologistex, our new joint venture.

At the end of the quarter we executed several agreements with SAVSU Technologies to form a new joint venture branded as Biologistex. Through the JV we will market the new SAVSU EVO shipper, a temperature controlled container with embedded monitoring and communication electronics.

With the franchise we've built in the high grow regenerative medicine market, we have an excellent opportunity to further help our customers manage the logistics of their temperature sensitive biologic source materials and manufactured cell products.

The EVO shipper translates GPS location data and payload temperature and environmental data to a cloud based customer management portal. The portal also enables our customers to receive text and email alerts and temperature excursions and geofence alerts for shipment location tracking and arrival at the destination.

As regenerative medicine therapies continue to progress through clinical trials toward large cell commercialization, the need for improved Biologistex to monitor and manage the movement of Biologics across time and space is emerging as a critical success factor.

The EVO precision thermal shipper was designed to meet the requirements of a more robust quality and regulatory environment, which our customers recognized as coming as technologies and best practices continually evolve.

This is a really exciting opportunity for BioLife and SAVSU as global demand for cold chain shippers and instruments is expected to grow to $5 billion by 2018, with our potential addressable portion of this market being in the several hundred million dollar range.

We expect to start deploying EVO shippers to initial beta customers later this quarter with a full launch now planned at a key regenerative medicine conference in the first quarter of next year.

We can share that our plan is to rent the reasonable EVO shippers to our customers for a monthly fee, similar to a cellphone plan, and rental provides access to the Biologistex management portal and the durability of the EVO shipper supports reuse and we expect the use for life of at least 12 to 24 months.

At this point, we are not ready to provide guidance or forecast of rental fees, total revenue or unit deployment overtime and we look forward to discussing and reporting these key execution metrics in the future. Now I'd like to recap some highlights in our core markets.

In the regenerative medicine market, which we continue to be -- consider to be more strategic, we believe our products are being used in more than 130 customer clinical trials of novel cell based products and therapies. This number is up from 50 that we reported in October of 2012.

Our success in driving adoption in the regen med space is founded on two key differentiators. First, our products are optimized for low temperature biology and provide significant yield and shelf life improvements for our customers as compared to using traditional home brew preservation cocktails and other commercial, yet not optimized formulas.

These yields in shelf life improvements can be easily monitored by our customers and while our products are premium priced, the value added significant and in some cases may be a primary determinant of commercial success.

The other factors is the quality and regulatory footprint we've established for our clinical grade bio preservation media products.

The combination of cGMP manufacturing, ISO-1345 certification, use of high surveyable grade components, no use of animal human serum or protein and FDA master files has established our products as best in class and are highly aligned with the quality and regulatory requirements that our customers must meet.

We’re also very well positioned to participate in the growth of an emerging high profile segment within the regen med space, which is cell based immunotherapy. Most of the major participants in this space have incorporated our bio preservation media products.

It’s a very exciting part of oncology care with several recent reports of very promising clinical benefits for cancer patients. If you follow the space you’re also aware of the significant investing activities over the last year or so.

Worldwide we believe the demand for bio preservation media is expected grow from $345 million now to over $800 million by 2019 and we believe that the regen med space represents our breakout growth opportunity. We sell both directly and indirectly through our network and distributors to this market. Turning now to drug discovery.

In the drug discovery segment, our products are used to preserve frozen and fresh cells during storage and shipment from cell suppliers to their customers. We use these cells in high blueprint [ph] screening for drug discovery, toxicology testing and other diagnostic purposes with the end users being primarily big pharma.

Our products are used with most cell types and are growing customer list includes Life Technologies, Cellular Dynamics, Lonza, Stem Cell Technologies, Triangle Research Labs and Chemocare, Diagnostic Hybrids, [indiscernible] and XenoTech. So we have a really solid customer base in this key market.

Biobanking is our third strategic market, comprised of core blood banks, tissue banks, stem cell banks and bio repositories and we have several market leading and marquee customers in the space. Our products are used by these customers to more effective transport biologics to their storage facilities and to improve survival during long term storage.

A promising sub-segment of the biobanking space is the hair transplantation market. In this market our HypoThermosol cell and tissue storage medium is used to preserve hair graphs while outside the body.

We believe we have 60 physicians in our group routinely using HypoThermosol, several of which have anecdotally reported benefits of extending the ex-vivo storage interval for the graphs, maintaining viability and promoting faster engraftment, less elsedima and less shading, all of which can enhance the patient experience with satisfaction with a very expensive auto pocket procedure.

This about a $25 million addressable market for us and patient indication and physician Web site advertising are augmenting our own sales and marketing activities. Now I’d like to provide an update on Somahlution.

As we’ve discussed before we’re pursuing contract manufacturing opportunities and we utilize some of our excess capacity which we developed to be ready to fulfill product demand from our strategic markets.

In July we announced that we signed a multiyear manufacturing agreement with Somahlution based in Jupiter, Florida, to manufacture their DuraGraft tissue storage media. DuraGraft is a tissue preservation solution for storage of harvested saphenous veins that are used to coronary artery bypass graft and other vascular access surgeries.

DuraGraft was marketed for several years under a different brand name and used in more than 10,000 patients. Somahlution has prepared a significant body of clinical literature on its use.

Somahlution believes that the worldwide market potential for DuraGraft is based on CABG and peripheral vascular bypass rates, which are currently more than one tenth of 1% of the population. Annually 600,000 CABG and more than 500,000 peripheral vascular surgeries are performed in the U.S. and EU alone.

Somahlution obtained CE mark approval for DuraGraft in late September. So we’re in the process of completing our process engineering and validation work for this customer, which should be finished by the end of the quarter. Assuming demand for DuraGraft meets Somahlution’s forecast, we expect to report material revenue from this customer in 2015.

As we said before, we’ll continue to seek out contract manufacturing opportunities that are aligned with our capabilities and expertise to leverage our manufacturing capacity.

I’ll conclude by saying that we’re pleased to be experiencing growth in core product sales in all of our strategic markets and to be in a position to grow our business with the addition of complementary offerings like Biologistex and new highly aligned contract manufacturing agreements like we executed with Somahlution while setting the stage for a very exciting 2015.

Now I’ll turn the call back over to Daphne to go over our detailed financial results for the quarter..

Thanks Mike. Revenue was $1.2 million in the third quarter which is entirely made up of sales of our proprietary bio preservation media products. Core product revenue was up 24% from the same quarter of last year and 15% from the second quarter of this year.

While our core product revenue was up this quarter, total revenue declined 42% from the third quarter of 2013. That with no contract manufacturing being reported this quarter.

We should remind you that we believe we could experience some lumpiness in sales of our core products from quarter-to-quarter, especially in regenerative medicine market based on the progress of our customers' clinical trials. We continue to see growth in the strategic regenerative medicine segment with sales so far this year of over a $1 million.

Also for the first time in 2014, we expect over a $1 million in annual sales to distributors. Gross margin in Q3 was 47.3%, compared with 41% in the second quarter of 2013 and 45% in the second quarter 2014, reflecting the value of growing our higher margin core product revenue with all the revenue in Q3 coming from our core product sales.

We reported a net loss in the third quarter of this year of $862,000 compared to approximately $310,000 in the third quarter of 2013 and $883,000 in the second quarter of this year. Two primary factors contributed to the increase in the net loss this year compared to last year.

First as I said, revenue and associated gross margin declined significantly, this reflecting the impact of the loss of the contract manufacturing revenue due to termination of a contract manufacturing agreement in March of this year. Second, our operating expenses increased by about $0.5 million this quarter compared to the same period last year.

Included in this increase was $80,000 in legal costs related to forming the Biologistex joint venture and $83,000 in G&A expense which represents the first 12 month containment that we will make to SAVSU related to their participation in the Biologistex joint venture.

The monthly payments will total $1 million per our agreement with SAVSU and those will be reflected in G&A expenses. Also included in the increase in operating expenses over Q3 of last year is higher spend on investor relations and shareholder communications of about $100,000 related to increased efforts in these areas.

These costs are somewhat lower than the second quarter and it will fluctuate somewhat based on our participation in certain conferences and other events.

Compared to Q3 of last year, director's compensation and D&O increased also by about $60,000 and personnel cost, including salaries bonuses, stock comp and benefits increased by about $40,000 and these costs were minus second quarter. We didn't see any significant fluctuations this quarter in R&D cost compared to last quarter or last year.

Finally we ended the quarter with cash and cash equivalents of $11 million creating about $900,000 this quarter. We believe we are well positioned to take advantage of strategic growth opportunities.

However, we continue to expect to incur losses for the near term as we increase spending in sales and marketing and prepare for the launch of Biologistex in Q1. I will now turn the call back over to Mike..

first, adoption of our core products by new customers and with growth driven by customer clinical trial progression; next, Biologistex revenue; and finally shipments of DuroGraft to Somahlution. Thank you for your interest in BioLife. We look forward to future updates on our next call.

We'll be presenting LD Micro Conference in December and attending the JPMorgan Conference in January, and we will be glad to meet if you have interest. Now I'll open the call to questions.

Operator?.

[Operator Instructions]. Our first question comes from the line of Jeffrey Cohen of Ladenburg. Your line is now open..

So is the relationship with the Progenitor, has that become material yet as far as contract size or order size?.

Jeff, it's becoming more meaningful to us. I don't want to get into on we would rank on a customer ranking, but no doubt as they continue to land more contract manufacturing agreements of their own and our products are embedded. We would expect to see increased growth in shipments of products to Progenitor.

In addition to how they're using the products with the -- some of the NeoStem clinical candidates..

Okay.

Do you have any customers there that are 10% plus customers?.

Daphne, what did we report in the Q?.

So we had two customers. Yes..

Were they identified by name or just two?.

No, we didn't identify them by name, sorry..

Okay. And could you talk about the clinical pathway for our Somahlution. I'd hate for you to have to speak on their behalf but from your point of reference, what does it look like as far as timing for them to be on the market selling..

Yes. It wouldn't be right for me to say Jeff. That would be pure speculation. But we know that with the CE mark approval in Europe and the obvious pathway in the U.S. is a 510-K approval and where they are in that, I can't say..

Did they file it?.

It's not that I don't want to say. I don't know. .

Did they file the 510-k yet? They submitted?.

I don't know Jeff and you can imagine even if I did know, unless they put they information out publically, it wouldn't be appropriate for me to comment on it. .

Okay.

Could you comment a little bit on gross margins? Could you envision that they would continue to grow? Are they going to break through the 50% level in the near term and I suppose through the medium term?.

Well I think there are two factors. First is overall product sales and then throughput in factory and better utilization right. So as demand in the core products increased, we would expect to see an increase in gross margin and then to the extent that Somahlution becomes a meaningful product revenue for us over the next several quarters.

You can recall that we’ve said that the economics in this contract are better than what we had with the last contract manufacturing customer. So those two factors alone would give me confidence that we would see continued increase in gross margin over the next several quarters..

Okay.

Are the gross margin of Somahlution greater than last year or equal to the gross margins from the third quarter?.

I'm not sure I understand your question.

Are you asking if the proposed gross margins or estimated gross margins?.

Yes..

No, that obvious because the contract manufacturing deal on that, that’s never going to be as good as sales of your own proprietary products..

Got it. And one more if I may so. Daphne, you went quickly. I missed down on a couple of things. So the increase for the quarter for G&A was attributable to IR, PR and conferences.

Is that right?.

Compared to last quarter actually if you take out the cost that we paid to SAVSU and lawyers for forming the JV, we were actually below where we were at last year and pretty much in line with where we were at in Q2.

But compared to last year yeah we had about $163,000 related to the JV, $100,000 increased spend in IR, some additional cost for higher D&O insurance based on doing the fund raising and directors compensation of $50,000. And then some other costs, $40,000 more in personnel cost and just various other things..

Okay.

So, going forward or at least for the next few quarters, should we assume that G&A kind of has a level here in line with Q2 and Q3?.

Well, not entirely because we’re going to continue to see three payments of about $250,000 per quarter related to the participation fee retain to that we're paying to SAVSU. So that would be on top of the Q2 run rate basically..

And that would be under G&A?.

Right..

Those payments, okay.

So it should be a bit higher than what we’ve expected thus far?.

Right and that’s, as well, that will be for 12 months. So we’ve already paid warrants. So 11 more months of that and then that will go away..

Okay, three more quarters of that?.

Right. But then in addition we’re -- as we said we’re starting to ramping up more of Biologistex and we’re going to see some increased cost related to that on a consolidated basis, which is how we’ll be reporting that going forward.

So we started hiring some people and we’re going to continue to hire as we need to for operations and we’ll see some ramp up in our cost related to that?.

Okay.

So headcount increased for operations or for sales and marketing?.

For all areas of the whole company. Basically as we incorporate the Biologistex into our operations. So sales and marketing operations, D&A, basically all across the board..

Okay.

And what’s the composition of spend as far as that goes with relationship for the joint venture?.

You mean personnel versus other costs or?.

Yes..

We've said that we’re going to have to spend some money to get it off the ground with regards to product development and marketing launch and then the rest of it will be primarily personnel cost and buying inventories..

Thank you again ladies and gentlemen [Operator Instructions]. Our next question comes from the line of Brian Marckx of Zacks Investment. Your line is now open..

Can you talk about the Biologistex? It sounds like you have a rental of the containers and you have a logistics platform of cloud -- the cloud based logistics platform.

Can you talk about what the functionality is of the logistics platform and is that a separate revenue opportunity from the rental of the containers? And is that only developed and functional right now?.

Yes, great questions Brian. So, first the EVO shipper is a smart shipper. It has this cell phone and it has this temperature and other multi-parameter electronic sensing devices built into the base.

So it’s measuring the payload temperature and spitting it out to the cloud, where the box is and what’s the payload temp, humidity, pressure, tilt, orientation, exposure to light, a lot of really helpful and useful environmental and physical parameters. So that is running and spitting that data to the cloud. Customers login to the portal. It’s one fee.

So for the one monthly rental fee you use the box as often as you can get it back. You can burden down the cost per shipment and then you have this all you can use data access component of the fee. So customers will actually login to the portal and they'll initiated a shipment.

So if you think about it, they login to the portal, they've got a shipper is sitting next to them and just trying to pack out. So they put their cold patch or their dry ice. They store and pack their payload, they seal up the box.

Now they’re going to log into the portal and make sure they can see the radio and it will show the location in their building and it’s very precise and then they’ll actually initiate a shipment with a carrier of their choice. The carrier will pick it up and they’ll be able to ad-hoc, login to the portal and see where the box is.

But more importantly I think from an efficiency standpoint, just set up some geo fence alerts. They don't want to be looking at this moving dot on a map. They want to get a text or email that's a saying, the box just arrived at the airport.

And with that information they'll be able to -- our customers will be able to call ahead and be very proactive and email ahead to their end users, which is the clinical site and say and say to the clinical contacts, hey the box just arrived, the cells are at the airport, should be there in 20 or 25 minutes, why don't you go ahead and prep the patient.

And the whole thing is about improving the experience by improving the logistics of this very critical temperature sensitive shipment. So that's the notion. As far as the development status of the portal, we have a portal platform that's functional right now. It's not fully developed with all of what we envision.

So you can imagine with the typical software there will be phased roll outs of additional functionality and features, but what we have now is a very nice base and we're very confident in the database that backs it up and the cloud service provider with a service associated.

I won't tell you what it is but it's one of the best two or three that are out there and so we definitely are planning to spend a reasonable amount of money to enhance the portal in the platform and add additional functionality and really, really excited about it. .

Can you talk about where the container will actually be I guess housed -- inventory will be housed? Is it at your location or is that several different location dependent on kind of where your customer base is or kind of how does that work I guess?.

That's another really good question. So we are going to have a warehouse here and a fulfillment center in our facility in Bothell, near Seattle, Washington. And so as we receive inventory from SAVSU, we're going to make sure that we have shippers ready to be deployed and rented to customers.

We will ship them out and because there is cellphone in it, we'll know where they are. So we can do a nice handholding job and help our customers know when their bosses are going to be there. And then the customers will use these and get them back themselves. So they will establish and maintain the pool of shippers.

They'll come back in, they'll get cleaned, they will get passed out again, data will get purged, a new record will get created and so on and so forth. We're certainly going to be maintaining enough inventory in Seattle here in our Bothell facility to meet what we believe our forecasted demand is..

And one more kind of on the same subject is, the target customers, clearly you guys have a lot of potential target customers just based on who you're working with now.

Is that kind of the low hanging fruit for you and do you envision expanding beyond what you have in terms of just your customers? Do you envision that you're going to go -- sell beyond that in the near term I guess?.

Yes exactly Brian, you have it exactly right. So current regen med customers are the obvious first targets.

Great relationships have already solved the key problem for them with preservation EVO with their biologics, very simple to go back, introduce a better practice and hopefully what will be emerging as a best practice while using a better insulating container that has embedded electronics and that backed up by cloud accessible data.

But no doubt, there are significant opportunities outside of our customer base in regen med, where customers or the companies are not using our preservation media for us to go and introduce a better shipping solution. So we're certainly going to do as well. And then let's not forget about biobanking and drug discovery.

Those other two segments today, those participants, they're spending a lot of money shipping stuff around in Styrofoam coolers, with a limited or modest preservation efficacy and temperature stability.

So we have a really good handle on the number of participants, how many reps we think we need to put, where they're going to go, so on and so forth and it's a great opportunity in all of our key markets. .

Thank you. [Operator Instructions]. And I am showing no further questions at this time. I'd like to hand the call back over to management for any closing remarks..

Great. Thank you very much. We really appreciate your interest in BioLife and we look forward to our next call. Have a great afternoon. Bye-bye..

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Have a great day everyone..