Expert Financial Analysis and Reporting

Cryoport announced that it has closed on an investment from the healthcare investing firm Petrichor for $25 million. Petrichor will purchase 1 million shares at $10.00 per share or $10 million and will also fund a $15 million convertible note. The latter is convertible into common shares at a price of $13.11 so that if converted, it would result in an additional 1.14 million shares being issued. The note has a five-year term and bears cash interest at a rate of the 3-month LIBOR plus 6.0% per annum. This will increase the share count in the short term from 29.2 million shares by 3% to 30.2 million and over the longer term by 7% to 31.3 million. However, as I explain  later in this report, this financing could be meaningfully accretive to EPS.

I believe that Cryoport raised this money to pursue a rollup strategy that has been used very successfully by Repligen (one of my longstanding recommendations). That company has built a very successful business providing innovative technologies and solutions for the bioprocessing of biologic drugs. Repligen started small with the production of protein A ligands which are critical to the manufacturing of monoclonal antibodies. From this  small base importantly using acquisitions, it was able to build a global footprint and to achieve critical mass so that large biopharma companies came to regard it as a dependable partner.

Repligen identified and began to acquire smaller, privately owned firms that manufactured products compatible with its technology focus and customer base. These smaller companies generally lacked readily available access to the capital markets, did not have a global presence and were of such small size that biopharma companies were apprehensive about doing business with them. An association with Repligen solved these serious issues. Moreover, Repligen resources allowed rapid and meaningful expansion into its infrastructure so that the sales growth rate was meaningfully enhanced. This acquisition strategy has nearly doubled the organic growth rate of Repligen and created much market enthusiasm.

Cryoport ended 3Q, 2018 with $24 million of cash. I am projecting a cash burn of $1.1 million in 4Q,2018 and I am further projecting that the company will achieve positive EBITDA in 2019. I do not see this fund raising as being needed to fund  operations. I think that it is a warchest to make acquisitions. Moreover, I think that the raise may signal that they have identified one or more acquisition targets. Stay tuned. Cryoport has built a strong and credible position in cryogenic shipping with large biopharma and has a global reach. In these ways, it is similar to Repligen. Whether or not Cryoport can duplicate the success of Repligen’s  rollup strategy remains to be seen. However, it has the potential to add a very meaningful new growth element to the investment outlook