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Expert Financial Analysis and Reporting

Cryoport: Pre-Announcement of 4Q Sales Negatively Impacted Stock; I Remain Bullish on the Stock (CYRX, Buy, $18.07)

Fourth Quarter Biopharma Results Come Up Short

Cryoport pre-announced 4Q, 2019 results on Friday January 10, 2020; audited full year results will be released on March 5, 2020. Management stated that it expects to report 2019 revenues of about $33.9 million (an increase of 73%) and 4Q, 2019 revenues of around $9.2 million (up 61% from the prior year period). They further stated that they expected biopharma revenues of approximately $27.0 for 2019 (up 64%) and 4Q. 2019 revenues of $6.9 million (ahead 41%). I think that Street consensus was for about $8.0 million of biopharma revenues in 4Q, 2019 so there was a shortfall of about $1.1 million relative to expectations. The 4Q, 2019 biopharma revenues increase of 41% compared to 67% in 3Q,2019; 81% in 2Q; and 72% in 1Q.

In its quarterly filings, Cryoport breaks out results from biopharma, reproductive and animal health. Management also provides a further estimate of the component of biopharma sales stemming from support of commercial products, effectively all of which stems from the CAR-T products: Novartis’ Kymriah and Gilead’s Yescarta. By subtracting commercial sales from biopharma, we can estimate clinical trial sales. In the pre-announcement Cryoport did not speak to commercial sales because Novartis and Gilead have not yet reported their full year results. Management indicated that the shortfall in 4Q came from clinical trials. My estimate at this time is that commercial sales were $3.1 million in 4Q, 2019 versus $780,000 in 4Q, 2018. If so, revenues from clinical trials were $3.8 million in 4Q, 2019 down from $4.1 million in 4Q, 2018.

What Happened

Management won’t comment on my numbers, but did concur that the shortfall was primarily from clinical trials. Management attributed the 4Q shortfall to trial failures for two high volume trials in which endpoints were not met and several clinical trials pauses during the fourth quarter as companies either completed their clinical trial programs and prepared to file for BLAs/ MAAs or advanced from one phase to another (say phase 2 to phase 3). It is not feasible to try to analyze this on a product by product basis.

Results from clinical trials are subject to the vagaries of biotechnology research in which failures exceed successes and patient enrollment ebbs and flows as companies progress through the phases of clinical development. It seems that Cryoport just experienced an unusually large confluence of such events in this quarter. I don’t think this signals a problem with the clinical trials support part of the business. Cryoport is now supporting 436 clinical trials, an increase of 79 from 2018. In the 4Q, 12 new trials were added. Moreover, we are at the very, very beginning of the age of cell therapy and I would expect continued rapid growth in clinical trials for many, many years.

The Most Critical Aspect of the Investment Story is Support of Commercial Products

When all is said and done, the real promise of Cryoport is support of commercial products such as Kymriah and Yescarta. The revenue potential from a commercial product is many times that realized from clinical trials and the revenue stream is smooth and predictable and not subject to the fits and starts of clinical trial revenue streams. In 2019, I am estimating that commercial revenues reached $9.0 million and clinical trial revenues $18 million. My forecast is for 2024 is $66 million of commercial revenues and $40 million of clinical trial revenues.

Cryoport is now supporting the CAR-T products Kymriah and Yescarta and these account for effectively all commercial revenues. Management said that clients recently filed Biologic License Applications (BLA) or Marketing Authorization Applications (MAA) for five new therapies. This may have accounted for a meaningful part of the slowing of clinical trial sales. Management also said that it expects 10 additional commercial filings over the course of the year in 2020.

I would refer you to a report that I wrote on December 12, 2019, Exciting Clinical Data on CAR-T Drugs Points to Dramatic Growth,  that discussed why I believe that CAR-T drugs will be a major driver of growth for Cryoport. I expect that Kymriah and Yescarta will gain additional indications that should dramatically drive growth and I am also excited about the potential for BMY’s two CAR-T drugs liso-cel and lde-cell. Like Kymriah and Yescarta, liso-cel is targeted at CD-19 cancer targets. However, BMY believes that it has a superior safety profile that will enable it to used by a much wider swath of the physician community. ide-cel is the first CAR-T targeted at the BCMA antigen on multiple myeloma cells. This presents a very different, new disease target from Kymriah, Yescarta and liso-cel which target B-cell mediated hematological cancers. The opportunity in multiple myeloma may be of the same magnitude.

Investment Thesis

Earlier, I mentioned that I am projecting $66 million of commercial revenues in 2024 up from $9 million in 2019. However, this estimate is based only on prospects for Kymriah, Yescarta, liso-cell, ide-cel and other BCMA CAR-T products. I have no estimates for three other products that might go commercial in 2020 nor the potential ten new regulatory filings in 2020 and doubtless many other that will come forth in 2020 to 2024 timeframe. This is not to say that I am somehow negative on these products. It is just that I don’t yet have a firm grasp of their individual commercial potential and in some cases, I don’t even know what the products are. It seems clear that we are just seeing the tip of a very large iceberg of cell therapy products that will manifest itself over not just one decade, but several.

Obviously, I continue to believe that Cryoport is a premier growth story. The market reaction to the 4Q sales surprise is gratifying. Initially, the stock dropped sharply. I suspect that computer trading played a significant role in this as one of the factors that most influences computer generated trading is a sales or earnings surprise. Another key factor is changes in analyst’s opinions and it is encouraging that to my knowledge no analyst changed their opinion because of this 4Q event.

Looking ahead, there is some uncertainty as to whether the events that affected clinical trial sales in 4Q will affect 1Q as well. Management may or may not be able to get some fix on this by the time of the March 5 conference call on full year 2019 results. I am also acutely tuned to what commercial sales were in 4Q, 2019. My estimate, as I previously noted is $3.1 million versus $0.8 million last year. A surprise in any direction could have a noticeable affect on the stock price.

Bottom line, my enthusiastic view that this promises to be an exceptional growth stock remains firmly intact.



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