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BLFS: Q2 Results: Core Products Revenue Remains Strong

By Brian Marckx, CFA


Q2 Results: Core Products Revenue Remains Strong, Look For Total Revenue To P/U Later in 2014… 

BioLife Solutions (BLFS) announced results for Q2 2014.  While revenue and gross margin were largely in-line with our estimates, operating expenses came in meaningfully higher - at least a portion of which management indicated on the call were related to preparations for launch of their biologistex cold-chain shipping solution.  BLFS has also recently made some investments in personnel, including beefing up its sales and marketing initiatives. 

Revenue was $1.2M, down 48% yoy and slightly lower than our $1.3M estimate.  All of the revenue decrease was a result of the loss of the major contract manufacturing customer (Organ Recovery Systems).  Contract manufacturing revenue fell 90% from $1.4M in Q2 2013 to just $135k in Q2 2014.  Meanwhile the core products business remained strong, generating $1.08M in revenue (in-line with our $1.2M estimate), representing yoy growth of 14%.  Q2 marks the fourth straight quarter where product revenue breached $1M.  Management reiterated product sales growth guidance of 25% - 35% for the full year.

As the contract manufacturing business is relatively low-margin (~10% GM), the hit to gross profit with the loss of the great majority of this revenue in Q2 was somewhat muted.  Q2 gross margin came in at 45%, up slightly from 43.7% in Q1 of this year but vastly improved from the 35.6% in Q2 2013.

OpEx were $1.43M, up considerably from $912 in Q2 2013 and $1.27M in Q1 2014 and higher than our $1.27M estimate.  As noted, the jump in operating expenses mostly relates to operational-related investments, which we think should result in eventual revenue opportunities and related growth.  One such opportunity, the biologistex thermal shipping monitoring and tracking service and SAVSU containers, is expected to launch in Q4 of this year.  The investments in sales and marketing, including personnel additions, is also already producing results - which includes BLFS's cryopreservation media now being used in approximately 130 clinical trials, which is up from about 100 at the beginning of this year.  

BLFS's tenacity in growing revenue also resulted in them scoring a new contract manufacturing customer, Somahlution LLC, a Junipter, FL based biotech company.  Under the agreement, BLFS will manufacture Somahlution's DuraGraft, a solution used in the storage of veins harvested for use in heart bypass and other surgeries.  And while it's too early to tell what this will mean to BLFS in terms of replacing the totality of the revenue lost from the termination of the manufacturing relationship with ORS, it is clearly a positive event.  Somahlution is currently seeking regulatory approvals to market DuraGraft in certain (undisclosed) geographic locations - timing of expected regulatory approvals has also not been made public.  BLFS expects to start shipping manufactured product to Somahlution in Q4, although its unclear how meaningful the initial orders may be. 

Net loss and EPS were $883k and ($0.07) compared to $283k loss and ($0.06) in Q2 2013 and our $633k loss and ($0.05) estimates.  We are maintaining our Outperform rating and $7.50/share price target. 


Q2 cash flow used in operating activities was $874k.  Excluding changes in working capital, cash used was $716k.  Cash balance (including liquid investments), which was recently bolstered by the $13.6M (net) equity issuance in March, stood at $11.9M at Q2 quarter end.  The balance sheet is also debt-free following the conversion of debt (and interest) to equity which happened in Q1.         

BLFS To Launch New Thermal Shipper Tracking & Monitoring Service

In April BioLife announced that they will launch a new thermal shipping monitoring and tracking service called "biologistex".  

The service encompasses the SAVSU thermal transport containers (in Q3 2013 BLFS became an exclusive distributor of SAVSU containers) with embedded monitoring sensors and a cloud-based web portal.  The SAVSU containers ("EVO") have configurations to maintain temperatures at 2-80 C or approximately -800 C.  The monitoring sensors are embedded in the containers and provide information on temperature, tilt, pressure and location - as well as other information to assure the integrity of the container and biological sample throughout the entire transportation process.  The monitoring information is transmitted to a cloud-based web portal where it is available for direct access to customers.  BLFS did not disclose specific details about revenue model but did note that the EVO containers will be available to rent on a monthly basis.

BLFS will be addressing a frozen packaging materials market that remains highly antiquated and mostly dominated by the use of dry ice in Styrofoam containers.  Relative flimsy and unreliable packaging can often result in temperature excursions inside the container and damage to the container during transport and handling.  These can be detrimental to the health of the specimen sample inside.  Sample integrity is often critical, particularly in the case of clinical trials where strict protocols means patient samples may not be able to be redone if lost or damaged - which can add more cost and time to potentially already expensive and lengthy trials.     

While non-optimized packaging remains common, the industry is shifting towards more reliable containers partly as a result of a major increase in the number of temperature-controlled biological products - which offers an opportunity for SAVSU and BLFS.  According to the Biopharma Cold Chain Sourcebook, published by Pharmaceutical Commerce, cold-chain biopharmaceutical distribution is expected to grow 55% from 2010 to 2016. 

In contrast to run-of-the-mill retail coolers, the EVO containers were developed to be highly durable (the company website has a compelling video that demonstrates just how durable), to minimize risk of temperature excursions and, with the available monitoring, customers can be assured of sample health as well as the location of the container in real-time.  Availability of the two container configurations provides another advantage as most biotech products (including vaccines and blood products) must be kept cold but not frozen (i.e. 2-80 ) while others must be kept frozen.      

We view biologistex as a possible complementary revenue opportunity for BLFS and offering potential synergies with its core cryopreservation customer base - particularly as BLFS's cryopreservation media are being used in over 100 clinical trials.  And as each of these markets are closely related and significant in terms of both current size and expected future growth, the marriage of the two offerings under BLFS's umbrella provides the potential to steepen the rate of the company's already robust product revenue growth and leverage their current operational infrastructure.       


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