Daphne Taylor - Vice President, Finance & Administration and Chief Financial Officer Michael Rice - President and Chief Executive Officer Analysts Jeffrey Cohen - Ladenburg Thalmann & Co. Inc..

Good day, ladies and gentlemen, and welcome to BioLife’s Fourth Quarter 2015 Results and Business Update Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct the question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to introduce your host for today’s conference, Ms. Daphne Taylor, BioLife Solutions Chief Financial Officer. Ms. Taylor, 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 the fourth quarter and full-year of 2015. Today, we issued a press release and filed our Form 10-K Annual Report containing detailed results for the quarter.

This release is available on the Investor Relations page of our website at biolifesolutions.com. As a reminder, this call is being recorded and also broadcast live on our website. A replay of the webcast will be available through the same link for 90 days.

Before we get started, let me remind you that during the course of this conference call, we will make projections and other forward-looking statements regarding future events or the future financial performance of the company.

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 affect the company’s business and that qualify to be forward-looking statements made on this call, I refer you to our periodic and other public filings with the SEC.

Company projections and forward-looking statements are based on factors that are subject to change and therefore, these statements speak only of 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.

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

Thank you, Daphne, and thanks, everyone, for joining the call. 2015 was a year of much accomplishment and continued investments for growth, and I’m very pleased to provide some highlights and details on how the business is going and what we see in 2016 for continued growth.

I want to reiterate to you what kind of company we are and how we see our role in the very exciting and high-growth regenerative medicine market.

This base is comprised of about 700 public and private cell therapy and tissue engineering companies and dozens of leading clinical centers that traditionally perform stem-cell transplants and have now become integral partners in the completion of clinical trails of CAR-T and other cell types targeting various cancers, heart disease, and other large disease states.

We’re a tools provider offering advanced biopreservation tools and services that help our customers maximize success in cell-based therapies. Our two primary tools platforms are biopreservation media and cold chain logistic solutions.

We support our customers throughout the needle-to-needle workbook continuum, enabling improved survival and efficacy of biologic source material and manufactured cell products. With this background, I’ll give an update on our biologistex cold chain management software as a service powered by the evo Smart Shipper.

Effective cold chain logistics are crucial to the success of time- and temperature-sensitive medicine, and biologistex represents a tremendous opportunity for growth. We estimate that the addressable market for biologistex could reach $500 million over the next few years.

To recap for you, biologistex is our proprietary Cloud-based software as a service, or SaaS. Biologistex combines the evo family of Smart Shippers that have integrated payload monitoring, GPS location tracking, and cellular communication electronics with our simple and scalable Cloud-hosted app.

Our app enables shippers of time and temperature-sensitive biological materials to complete, monitor, and document the critical steps in the pack-out, distribution, and patient delivery process with real-time updates on the location of the container and critical shipment information, including payload temperature, the ambient temperature, pressure, humidity, shock, and vibration.

Subscribers can also configure alerts for destination contacts for a package approaching the delivery location, delivered, opened and how much shelf life is remaining. This last patent pending alert is critical to ensure time-sensitive biologics are administered to the patient within the validated stability period.

During Q4 and continuing this quarter, we’ve met with a number of prospective users and have deployed evos to additional users who, as part of their validation process are collecting evo performance data specific to their application of biologics cold chain management.

We look forward to some of these users sharing this data for our public use and also to their submission of this data to clinical journals in articles focused on cold chain logistics for time and temperature-sensitive cells intended for clinical use.

We’ve also been very active in discussions with global logistics providers and couriers to broaden our service offering. Based on user feedback and prospective ecosystem partner feedback, we’re confident that in 2016, we can demonstrate solid evo adoption and meaningful revenue and margin contributions.

This is a really significant growth opportunity with millions of annual cold chain shipments. I should reiterate that we believe that any organization shipping small payloads of time- and temperature-sensitive biological materials is a potential customer.

Most importantly, evo and our app support shipments from minus 80 C to plus 25 C, so we have the largest slice of the temperature continuum covered. Now, I’ll give an update on our core biopreservation media business, where we had 29% revenue growth over 2014.

As you know, we sell to three strategic markets, including bio-banking, drug discovery, and regenerative medicine.

In a growing body of customer clinical trials, our flagship CryoStor and HypoThermosol clinical-grade biopreservation media products continue to displace traditional non-optimized home-brewed cocktails and commercial products, which afford only limited preservation efficacy in terms of shelf life and viability of time and temperature-sensitive therapeutic cells.

A key problem our engineered media formulations address is the conditions of cells stored or frozen in home brews. Fewer cells survive the preservation interval and those that do struggle to regain health and return to normal function. So the utility of these cells in research and clinical applications is limited.

Our proprietary CryoStor freeze media and HypoThermosol storage and shipping media are engineered to protect cells and tissues from the damaging effects of hypothermic storage, freezing, and thawing.

With the maturing momentum in the regenerative medicine market, multi-center trials and approved cellular products will require better validated preservation efficacy, transportation, and cold chain logistics to ensure that therapeutic cells provide their intended clinical benefits.

We’re the leading supplier of engineered clinical-grade biopreservation media to this strategic market. To-date, our products are embedded in the preclinical validation process and clinical trials of more than 200 cellular therapeutics.

A large majority of the private and public cellular immunotherapy companies are using our products, and we estimate that our annual revenue from an approved cell therapy using our products could range from $500,000 to $2 million. Last year, we gained 140 new customers with more than half in the regen med market.

Regen med segment revenue growth was 45% above 2014 and sales to distributors, some of which we sell through regen med end users grew 25% over 2014. In the regen med space, I should remind you that our customer relationships are very sticky.

Once our products are cited in the customer IND or BLA, we don’t anticipate pricing or competitive pressure to challenge our position as a critical supplier. I can also report that the pace of customer quality audits continues to increase. As clinical trials progress, customers seek to lock in their supplier relationships.

In our other key markets, we also gained a number of new cell suppliers. We generate or isolate and then market hepatocytes, iPS cells, mesenchymal stem cells, or MSCs, as you may know them, and other cell types for research and clinical applications.

If you follow the CAR-T cell space, you know the starting material is a leukapheresis collection of cells from a donor, who is the either the intended recipient or the cells may be used for an unrelated recipient.

We’ve made good progress in getting our of biopreservation media products embedded upstream in the logistics process of preserving these cells after collection and during shipment to the factory where the CAR-T cell dose is manufactured.

So we’re leveraging distributors relationships, clinical center contacts, and the cell therapy manufacturing labs that receive the collection and our contacts at downstream cell therapy companies that are responsible for the clinical trials and overall manufacturing process.

We actually have two workflow opportunities to help our customers improve yield, the starting material that I just mentioned and the final manufactured cell product. Again, we see a needle-to-needle customer engagement opportunity.

As we’ve mentioned, all of these biopreservation media opportunities also generate new discussions about cold chain logistics and management. In the bio-banking segment, we gained new core blood bank customers and several leading hair transplant physicians now market their use of HypoThermosol as a procedure outcome advantage to their patients.

Finally, on the generic biopreservation media front, in 2015, we launched three new products, two Dextran and Cell Thawing Media formulations used by stem cell transplant centers to transition frozen stem cells that were isolated from cord blood, bone marrow and peripheral blood to room temperature prior to patient administration.

We gained about 50 new customers with these new product launches. We also launched BloodStor 27, a cryopreservation media formulation used to freeze therapeutic platelets. In December 2015, we shipped a significant order to the Dutch Ministry of Defense and also have customers in the U.S., Canada, and Australia evaluating the product.

So to summarize our core media business, we expect 2016 to be another really strong year. In the regen med space, we are following customer trial data read-outs closely and could see some BLA approvals towards the end of the year or in Q1 2017, which could provide significantly increased demand for our products.

Now, I’ll turn the call back over to Daphne to go over our financial results and to reconfirm our expectations for 2016..

Thanks, Mike. I’d like to provide some comments on our 2015 results and our exceptions for 2016. Fourth quarter 2015 revenue was $1.8 million, representing our highest revenue quarter for biopreservation media products. For the year, total revenue was $6.5 million, almost all of which was biopreservation media product revenue.

Biopreservation media revenue for the year was up 29% for – from 2014 with significant revenue growth from our customers in the regen med segment, which outpaced 2014 by 45%. This is due to increased sales to current customers, early clinical phase sales to new customers, and sales to our network and distributors.

For 2016, we expect total revenue to be at least $10 million. This includes expected growth in revenue from our preservation media to be in the range of 20% to 30% and meaningful revenue from biologistex cold chain logistics customers. Gross margin in the fourth quarter was 63% and it was 59% for the full-year of 2015.

This is up significantly from 49% for the fourth quarter of 2014, due to the increase in revenue concentration from sales of our biopreservation media products. This increase in gross margin is a key indicator of the leverage we have in our operations and the impact of increased productions in sales.

We expect overall gross margin for the full year 2016 to be in range of 55% to 65%. Operating expenses in Q4 were $2.5 million, and for the full-year, OpEx was $8.8 million. The Q4 number is up over Q3’s OpEx of $2.3 million with the increases being primarily due to continued build out of our team to support the biologistex business.

We expect 2016 operating expenses to be up modestly over 2015. We used $6.1 million in cash in 2015 and we ended the year with about $4 million.

Based on our revenue and expense expectations, we expect to use a significant portion of this during 2016, but also continue to believe that we have sufficient cash for each positive cash flow by the end of the year. In January, we filed a shelf registration statement with the SEC, registering up to $20 million in equity for future fundraising.

We filed this to provide greater flexibility to raise capital if needed in the future, to strengthen our working capital position and or to provide additional capital for product development. We may use this tool over the next three years if market conditions are favorable. And now, I’d like to turn the call back over to Mike..

Thanks again, Daphne. I’ll close with some comments and then we’ll be glad to take your questions.

We finished 2015 on a really strong note with 29% growth in core product sales, confirmation of use of our products in, at least, 25 additional customer cell therapy clinical trials, strong sales to distributors, and a very high level of activity in engagement with prospective customers and partners of both biologistex and evo.

This year, we’re focused our growing our core business, converting biologistex leads into opportunities and close sales, and building an ecosystem of cold chain partners and service providers to disrupt the current limited alternatives our customers have. I want to thank you for your interest in BioLife. And now we will open the call for questions.

Operator?.

Thank you. [Operator Instructions] And our first question comes from the line of Jeffrey Cohen with Ladenburg. Your line is open..

Hi, Mike and Daphne, how are you?.

Hi, Jeffrey, how are you doing?.

And so two questions for you.

Could you walk through SAVSU in a little greater detail as far as how it looks currently, number of deployments, number of orders, back orders, customers, et cetera?.

Not at this time, Jeff. So we really look forward to being able to provide some color on that when it becomes meaningful, but not at this time. We’re working hard to build a wonderful business with biologistex and evo, but it’s premature at this time for us to comment with any specific details..

Okay.

So based on your gross margin estimates for 2016, it sounds like SAVSU will drive it higher, or is that just increased efficiencies on the base business or both?.

It’s a combination of both, Jeff. But we do expect overall margins to be in the range that I said..

Okay.

And for 2016, do you expect quarters to sequentially grow, or how might that look? Would it look like a crescendo? Would it look even? Would it look lumpy for the following few quarters?.

I think, Jeff, what we expect is typical with the way that the cycle is go in this space. It will be a ramp, back-end loaded as typically experienced on the media side and I would imagine with the pace of adoption and evo, the same thing there. So you could assume some not flat, but really back-end loaded to the last two to three quarters of the year.

Okay?.

Okay.

And could you talk a little bit about – with your expectant 50%-ish growth rate for the coming year? Would you expect that could continue to accelerate as time went on into 2017, or is that largely dependent upon commercialized products – commercialized drugs in the marketplace?.

Yes, super question, Jeff. And while we haven’t given any guidance on future years or out years, we would expect, at least, to be maintained to that regard. The thing to remember is that, currently the preservation media business has no revenue from any customers that have an approved product, okay? So zero.

And while we’re really optimistic that in the last-half of this year and perhaps the first quarter of next year, we’ll see some BLA approvals that will drive increased demand. That is really the wonderful upside that we have here.

With 200 shots on goal with customer clinical trials, we would expect really healthy growth in the out years and without specific ranges. But I mean, you can hear what I’m saying here, it’s a great opportunity..

Perfect. Okay, that does it for me. Thanks a lot for taking the questions..

Okay, great..

All right. Thanks, Jeff..

Thank you. [Operator Instructions] And our next question comes from the line of [indiscernible] of Laidlaw & Company. Your line is open..

Hello. Hi, thanks for taking the question..

Hi, Yel [ph]..

Hi, Yel..

Hi, how are you? I don’t know how I get that new name, but I’m fine with that. Just – congrats on the progress. I just would like to know a little bit more in terms of your projection for 2016 with $10 million, at least, $10 million of revenue.

Should we see that as more conservative or more aggressive projections, and what’s the general basis for that projection as well? Thanks..

Yes, great questions, Yel. So I’ll take the first one first. So we try to be very pragmatic in the guidance that we give. We certainly want to meet it, if market conditions and everything goes, and all of our execution plans hold, and we’ve been really good at that. So that’s all I would say with that.

I’m not going to handicap to you whether you – we think we’re sandbagging. I’m not going to do that, but we’re pragmatic, let me say that.

Now, how do we get to that number? Well, if you take 20 to 30 points growth on the core preservation media business, you get to 8 or so, and the remainder would clearly be coming from biologistex, okay?.

Okay, great. Yes, I think that’s helpful and I appreciate that, and congrats on the progress..

Thanks very much..

Thanks, Yel..

It’s a fun year. We got a lot done, but we’re not slowing down at all..

Sounds good..

Thank you. [Operator Instructions] And our next question comes from the line of Peter Brophy [ph]with [IMA Inc.] [ph] Your line is open..

Hey, Mike, Daphne..

Hi, Peter..

Could you – where was I here? Could you talk a little bit about – so, you’ve been in this statement of being in more than 200 clinicals for a number of quarters in a row. And you said you added 140 new customers in 2016, 50% of which are in regenerative medicine segment.

And clearly, you follow the money that Juno got from Celgene and Merck has given to Kite as is just two examples. But there’s just a flood of money going into more experimentation. And so since I know – since you said it in the past that going through the distributors, you don’t always know who the end customer is.

Do you expect, as the year progresses, that that number of being in 200, approximately studies is going to be increasing or do you expect it’s going to kind of just – is that just sort of a soft number that you throw out there? Is there any more definition that can be put on that?.

Yes, it’s a great question, Peter, thanks for asking. So we feel really good about how we can support that number. It’s more than that now. But what we like to do Peter is, we like to continue to scrub, be able to verify and then give an update when the number is kind of a meaningful increase over the last number. And we’re getting there.

So we definitely think the number’s going to go up throughout this year, and it’s not only from what you mentioned where oftentimes we’ll learn from a distributor that they have a clinical end user.

Typically, what happens is the distributor will bring us in to provide some scientific or technical support, and we’ve done that on a number of occasions, so that’s great.

But no doubt, the pull-through that we can expect to see from our current customers as they submit INDs for perhaps the same cell type or different cell types in new clinical indications, that’s been a really nice driver of this. And then the last component of why we think the number is going to go up is precisely what you mentioned.

With the amount of funding coming into the space and the number of new company spin-outs and startup that are either purely commercial or they’re backed with partnerships to academic or clinical centers, where captured several of those last year and I think we’re going to continue to do so.

So really all over the – with everything I just mentioned, I’m feeling really good that by the end of 2016, we’ll have a really nice number and it will be be much more than a modest increase over 200.

okay?.

Okay. And then just if I could ask, I think you touched this. I just want to make sure I understand it. In the process whereby a cell is taken out of a patient, goes to the factory, they do whatever they’re going to do and they send it back.

Is that a twofold opportunity for you? In other words, are they putting in a different solution on the way in as well as on the way out?.

Damn, Peter, another great question. We actually have four opportunities with every clinical customer, four. We have two on the front and two on the back. The two are the front for media in a cold chain shipping container and good logistics, that’s with the starting our source material.

And then on the back-end with the final manufacturer dose, we have two more opportunities, again, for the preservation media, whether it’s pressure frozen, and then with a really robust engineered shipping container to make sure that that final dose arrives intact is alive to the clinics, so it can be administered to the patient.

So right on, man, I’m really glad that you highlighted that..

And since the biologistex in the guidance, obviously there is an expectation now that’s being put in place. And we – and I know that you announced one reference customer, but you haven’t talked who else, although, you’ve said obviously, you’ve got a good inside track through the storage media.

But so if you look at what Kite is doing, look what Juno is doing, you read about the factory model being the way the CAR-T anyway is going to work. I know that you’ve been reticent about talking in details of how the business model will work or how the pricing works.

But could you just kind of explain because it’s such a different business model than your media and I’m not sure exactly how the margin aspect of it works.

But can you give us, any kind of – more of an explanation of how the business model will work on the biologistex side?.

Sure. I can give you a reminder or reiterate the way we are rolling biologistex out, and that’s a SaaS or that’s a software as a service model.

We’re not paying for software seat so to speak, but customers are ranking individual containers and the monthly cost for the rental of a single container varies based on the term of the rental, okay? So if you rent for two years, it’s lower.

If you rent it for four months, because you only need that for a short-term clinical trial, you’ll pay more per month. Now, you might remember, Peter, I’ve talked about how with the very cool return or reverse logistics built into our app, we make it really easier for customers to get it back and use it again. So evo was very rugged.

It’s designed for reuse and repeated use and the testing supports that. So that’s the notion, here. If customers came to us and said we’d rather just buy it outright, we don’t want to rent it, well, of course, if it’s meaningful economics, we’ll be flexible and we’ll find a way to make that work for both sides.

But right now, going forward, it’s a SaaS rental model and there are some decent examples of how we think that can work. But no doubt, it’s disruptive and we’re going to make sure that in this dynamic environment, we’ll be really flexible, because it’s really all about adoption..

And so if I just may, to make sure I understand, so if somebody rents the unit for a fixed period of time and that is a revenue to you and how that is accounted for is another issue.

But depending on whether they use it more or less, does that in any way affect the revenue stream that you would be getting out of that?.

No, not at all. It’s in [Multiple Speakers]…..

So what about the individual – is the customer, therefore, paying, let’s just say it goes on a FedEx. So is the customer getting billed – so does that -- you don’t participate in any of the costs beyond the manufacturer of the evo unit and renting that and receiving that.

So in terms of the operating cost of actually sending it via FedEx or whatever, that is – you’re not – you don’t participate in that aspect of the costs?.

I’m glad you asked. I can clarify that. So you might remember that with selected carriers, customers can actually pay for and procure the freight and have it billed all inclusive of our invoice to them.

In other cases, they might not want to do that, but in some cases they might, and in fact, we might actually start to report freight revenue as a pass-through both on the top line and then maybe some slight margin and an expense as well, but we’ll sort that out.

But the cost per evo that I’m talking about when I saw it’s a fixed cost per month, that’s the use of the evo access to the cloud and all the data for as many shipments as you can track and turn around and use within the given month’s period.

And if they have other costs for the actual freight or perhaps maybe a white glove courier picks it up and does some things, those would be outside of our arrangement with our customer, okay?.

Okay. That’s great. Okay. Thanks very much..

Great questions. Thank you..

Thank you. And this does conclude our Q&A session for today. I would now like to turn the call back over to Mike Rice for any closing remarks..

All right. Thanks, everyone, for your interest in BioLife. I wish you a good evening..

Ladies and gentlemen, thank you for participating in today’s conference. That does conclude the program and you may now disconnect. Everyone have a great day..