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Edited Transcript of CYRX earnings conference call or presentation 7-Nov-19 10:00pm GMT

Q3 2019 Cryoport Inc Earnings Call

Lake Forest Nov 15, 2019 (Thomson StreetEvents) -- Edited Transcript of CryoPort Inc earnings conference call or presentation Thursday, November 7, 2019 at 10:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Jerrell W. Shelton

Cryoport, Inc. - Chairman, President & CEO

* Mark W. Sawicki

Cryoport, Inc. - Chief Commercial Officer

* Robert S. Stefanovich

Cryoport, Inc. - CFO, Treasurer & Corporate Secretary

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Conference Call Participants

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* Andrew Jacob D'Silva

B. Riley FBR, Inc., Research Division - Senior Analyst

* Brandon Couillard

Jefferies LLC, Research Division - Equity Analyst

* Paul Richard Knight

Janney Montgomery Scott LLC, Research Division - MD, Head of Healthcare Research & Senior Equity Research Analyst

* Richard Kenneth Baldry

Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst

* Stephen Scott Unger

Needham & Company, LLC, Research Division - Senior Analyst

* Westley Adam Dupray

SVB Leerink LLC, Research Division - Associate

* Todd Fromer

Kanan, Corbin, Schupak & Aronow, Inc. - Managing Partner

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Presentation

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Operator [1]

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Good day, everyone, and welcome to today's Cryoport, Inc. Third Quarter 2019 Earnings Call. (Operator Instructions) Please note, this call may be recorded. (Operator Instructions) It is now my pleasure to turn the conference over to Mr. Todd Fromer, Managing Partner at KCSA.

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Todd Fromer, Kanan, Corbin, Schupak & Aronow, Inc. - Managing Partner [2]

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Thank you, operator. Before we begin today, I would like to remind everyone that this conference call contains certain forward-looking statements. All statements that address our operating performance, events or developments that we expect or anticipate occurring in the future are forward-looking statements. These forward-looking statements are based on management's beliefs and assumptions and not on information currently available to our management team. Our management team believes these forward-looking statements are reasonable as and when made. However, you should not place undue reliance on any such forward-looking statements as such statements speak only as of the date when made. We do not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

In addition, forward-looking statements are subject to certain risks and uncertainties that could cause actual results, events and developments to differ materially from our historical experiences and our present expectations or projections. These risks and uncertainties include, but are not limited to, those described in Item 1A risk factors and elsewhere in our annual report on Form 10-K filed with the Securities and Exchange Commission, and those described from time to time in other reports, which we file with the Securities and Exchange Commission.

I would now like to turn the call over to Mr. Jerrell Shelton, Chief Executive Officer of Cryoport. Jerry, the floor is yours.

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Jerrell W. Shelton, Cryoport, Inc. - Chairman, President & CEO [3]

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Thank you, Todd. Good afternoon, ladies and gentlemen. Thank you for joining us today. With me this afternoon is our Chief Financial Officer, Mr. Robert Stevanovich; and our Chief Commercial Officer, Dr. Mark Sawicki.

As a reminder, we have uploaded our third quarter 2019 in-review document to our website. It can be found in the Investor Relations section under Events and Presentations. This document provides a review of our recent financial and operational performance and the general business outlook. If you have not had a chance to read it, I would encourage you to go to the website and download it.

On this conference call, we will provide you with a brief general update, and then we'll move to the question-and-answer session, where we will address your queries regarding our company's results.

Now for the update and some granularity.

Just a few days ago, we announced our partnership with Lonza, a Swiss-based global company, which is the world's leading, most trusted integrated solutions provider to the pharmaceutical, biotech and consumer health markets. This agreement makes Cryoport the preferred partner to Lonza in certain supply chain functions for patient materials on a global basis. Lonza is supporting 150 cell and gene customers. It is one of the largest companies we have signed a partnership with to date.

As we analyze our new partnership with Lonza, we think the financial opportunity to Cryoport will equate to $25 million to $30 million in new revenue in the next 5 years. We believe that the partnership -- this partnership is another clear validation of the utmost trust that the world's best life sciences providers place in Cryoport's supply chain solutions.

Moving to our financial results. In the third quarter of 2019, our revenue increased 81% to $9.6 million as compared to the same period of 2018. The strong performance was primarily driven by our record revenue from our commercial agreements supporting Gilead's YESCARTA and Novartis' KYMRIAH, which contributed $2.6 million in the third quarter of 2019, representing an increase of $2 million compared with the third quarter of 2018. This also represents a 39% sequential quarterly increase in revenue over the second quarter of 2019. We're pleased with this performance, which is driven by continued ramp in volumes as these lifesaving therapies reach increasing patient populations across the world. We anticipate the continued rollout of these products together with bluebird bio's anticipated commercial launch of ZYNTEGLO in early 2020 and followed by others later that year to drive continued meaningful revenue growth throughout 2020.

As we look at the remainder of 2019 and into 2020, we expect the regenerative medicine market to continue to gain pace with several of our biopharma clients expected to report significant events, such as commercial approval or BLA/MAA filings. This was also our first full quarter reporting revenue from CryoGene, our Houston-based biostorage business, which we acquired this past May. CryoGene expands our temperature control solutions within the regenerative medicine ecosystem and is proving to be an excellent strategic fit for Cryoport. We have also already started to leverage CryoGene with cross-selling opportunities that we believe will enable us to provide more comprehensive supply chain solutions to existing and prospective clients and drive revenue growth.

During the quarter, we also continued to add to the number of clinical trial therapies we support. Cryoport is now supporting a net total of 425 clinical trials as of September 30, 2019, compared with 323 for the same quarter last year. This includes 54 in Phase III compared to 46 in the same quarter last year.

Now I'll turn the call over to the operator to open the telephone lines for your questions and our answers.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We'll take a question from Paul Knight of Janney Montgomery.

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Paul Richard Knight, Janney Montgomery Scott LLC, Research Division - MD, Head of Healthcare Research & Senior Equity Research Analyst [2]

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Jerry, could you -- I know you mentioned there is 54 customers in Phase III. And then later in the press release, you talk about 95 according to the Alliance for Regenerative Medicine. Is it fair to say that you have 54 of the 95? Or is there something in that data that kind of is not quite that easy -- straight forward?

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Jerrell W. Shelton, Cryoport, Inc. - Chairman, President & CEO [3]

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Paul, that's a good question. I'm going to turn that over to Mark Sawicki, who is more -- who is closer to that data than I am.

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Mark W. Sawicki, Cryoport, Inc. - Chief Commercial Officer [4]

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Yes. So it's a reasonable correlation. It may not be letter to letter, the exact same number, but I would say it's an expectation that's appropriate when -- if you're looking at it from a modeling standpoint.

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Paul Richard Knight, Janney Montgomery Scott LLC, Research Division - MD, Head of Healthcare Research & Senior Equity Research Analyst [5]

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And Jerry, as we now move further into your corporate history in a quarter like this with the commercial success being pretty big. Can you talk -- what are you seeing as barriers to entry to what you do? Has that -- what's changed in the last quarter or 2, in your mind, as you look at how good of a spot and how tough it would be to replicate what you do?

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Jerrell W. Shelton, Cryoport, Inc. - Chairman, President & CEO [6]

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Paul, that's another good question. We continue to strengthen, our market of course, is growing. It's a very -- it's an expanding universe in many, many ways. So we know we're going to get competition in various sorts over time, but our strength is growing all of the time. And it's being recognized, such as our partnership with Lonza. It starts with our Cryoportal Logistics Management system flowing through to the -- to our Cryoport Express Shippers. We're announcing the first new advanced therapy shipper in the world. This -- and it will be -- we have announced it, and it will be rolling out in December. We -- and then it moves from there to other IT like the SmartPak II Condition Monitoring System, which talks with the Cryoportal Logistics Management System in near real-time. It actually talks with it. We can communicate and actually monitor in detail. Our expertise is consistently growing on the inside. We have products and services. So the point is that we have a system, and it's more than just any one thing at Cryoport. It's the system that sets us apart from everyone else in the world. So to replicate it, it will take -- it would take -- to replicate Cryoport, it would take a lot of time and a lot of money. So that's where I think we are -- I think we're in a great position.

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Paul Richard Knight, Janney Montgomery Scott LLC, Research Division - MD, Head of Healthcare Research & Senior Equity Research Analyst [7]

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And then the last one for me would be the Lonza transaction, obviously, a very prestigious firm in the industry, and you're guiding, in this comments, $25 million to $30 million over the next 5 years. How do you get to those numbers? It would seem to me that if you have an approved therapy, and they can achieve the $10 million goal per therapy, it would seem like $25 million to $30 million is kind of conservative. So what's your rationale behind that $25 million to $30 million?

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Jerrell W. Shelton, Cryoport, Inc. - Chairman, President & CEO [8]

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Paul, it is a conservative number. And as you know, we tend to be on the conservative side. We don't want to disappoint anyone in terms of the outlook. We don't want to overstate our position. We're solid. So we took our base with Lonza today. We extrapolated that based on growth factors. But as far as going to any specific therapies, certainly, if there's a blockbuster, one blockbuster alone can be $30 million to us. So we are -- we definitely are on the conservative side, Paul.

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Operator [9]

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We'll take our next question from Puneet Souda of SVB Leerink.

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Westley Adam Dupray, SVB Leerink LLC, Research Division - Associate [10]

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This is Wes Dupray on for Puneet. And I guess, just kind of building off Paul's first question regarding trials. I know that there's some market share gain, especially in Phase II trials. It looks like you guys added 5, while the market was down 23, at least according to the data in the release. Can you kind of just talk about where the -- what's driving this incremental share? Is it just turnover and Phase I is rolling into Phase II? And is that also being seen in Phase III as well?

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Jerrell W. Shelton, Cryoport, Inc. - Chairman, President & CEO [11]

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I want to push that question over to Mark Sawicki, Puneet, for an answer.

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Mark W. Sawicki, Cryoport, Inc. - Chief Commercial Officer [12]

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Yes. So there's a couple of things that we can look at here from the perspective of looking at, obviously, how we relate to the overall share in the space and our representation on it. First and foremost is, we are the leader in the space when it comes to distribution of these types of therapies. And as the leader, obviously, folks seek us out in many cases versus us having to go out and pound the pavement and identify opportunities to drive programs into our portfolio. We're also extremely sticky. So we have a pre-existing long-standing set of relationships, where as those clinical trials mature or new clinical trials come online, they automatically initiate with their existing relationship with us. And so we have a captive market, so to speak, to capture and pull that share. So when you look at those factors as well as, obviously, our advantages as it pertains to our solution as a whole, it provides an attractive space for our clients to continue to work with us. And honestly, that's one of the biggest reasons we continue to pull share.

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Westley Adam Dupray, SVB Leerink LLC, Research Division - Associate [13]

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Great. And then I guess, moving to commercial, you guys have made some good progress this year, especially this quarter. So I guess, looking into 2020 as new therapies get to the approval line, any additional facility expansion that's needed? Anything in Europe to support ZYNTEGLO? And I guess, just -- what are your expectations for the 2 current products ramping next year as well?

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Jerrell W. Shelton, Cryoport, Inc. - Chairman, President & CEO [14]

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Well, the 2 current products will -- certainly will continue to ramp in, and they're coming along very nicely. Then of course, we'll have ZYNTEGLO, and we expect that there'll be more. But we can handle all of that within our current system. We won't need to expand in order to handle those volumes.

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Westley Adam Dupray, SVB Leerink LLC, Research Division - Associate [15]

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Okay. Great. And then, I guess, just final one on the Lonza partnership earlier this week. Can you just maybe give us a little bit more information on the nature of the partnership? I guess what's the customer overlap? And I guess what does it mean for Cryoport? And how does the Cryogene expansion factor in here? I mean I know Cryogene is centered in Houston and Lonza has a marquee facility there. So I guess what are the additional benefits and what additional investment is going to be needed in the future?

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Jerrell W. Shelton, Cryoport, Inc. - Chairman, President & CEO [16]

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Well. So I'm going to let Mark answer the first part of that in terms of the Lonza partnership that we're talking about. And then -- and Cryogene certainly will play a role, but there are other aspects to that as well that -- so I'll let him answer that part, and then we'll come back to other -- the second part of your question.

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Mark W. Sawicki, Cryoport, Inc. - Chief Commercial Officer [17]

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Yes. Fundamentally, the relationship itself is a global agreement. So it covers all of the Lonza facilities, all of their cell and gene facilities as well as it gives them option from a support standpoint for any non-cell and gene facility as well within Lonza network. And the short answer is, in essence, anything that is related to cell and gene that moves from one location to another, we will be supporting. And so it's a significant opportunity from our perspective. Obviously, it conveys a nice advantage for our existing mutual clients, but it also provides a significant advantage for cross-referrals and to build out our portfolio as well as theirs with relationships that they may have that we don't or vice versa.

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Jerrell W. Shelton, Cryoport, Inc. - Chairman, President & CEO [18]

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So then the second part of that question, Puneet, in terms of Cryogene and in terms of build out in the future. Cryogene is already playing a role with Lonza today, and they will continue to play an expanded role. But we -- and we will also be building out our infrastructure. I've talked about this on other calls, and we are currently in process of leasing more property and building properties out, and at the appropriate time, we'll announce those. So we'll be building out for organic growth. And then certainly, we're on the lookout for appropriate acquisitions as well.

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Operator [19]

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We'll take our next question from Andrew D'Silva of B. Riley FBR.

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Andrew Jacob D'Silva, B. Riley FBR, Inc., Research Division - Senior Analyst [20]

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Congrats on the progress. Just not to beat a dead horse, but on the Lonza partnership, really curious on how it expands your reach with existing partnerships that already utilize Lonza? I'm sure there's a lot of -- or at least some overlaps. And so if you could give an example of, say, a customer that you previously had that was using Lonza's manufacturing facility and ways that this partnership enhances your existing partnership there. And then as it relates to the expansion down in Houston, that's strictly for the logistics side, it's not tied to Cryogene's legacy biostorage business? Correct.

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Jerrell W. Shelton, Cryoport, Inc. - Chairman, President & CEO [21]

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Wait a minute, which expansion in Houston were you referring to? Our expansion in Houston? Andrew, you there?

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Andrew Jacob D'Silva, B. Riley FBR, Inc., Research Division - Senior Analyst [22]

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Yes, yes, your expansion in Houston. Can you hear me?

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Jerrell W. Shelton, Cryoport, Inc. - Chairman, President & CEO [23]

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Yes, yes, yes. All right. So Mark, do you want to start off with that?

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Mark W. Sawicki, Cryoport, Inc. - Chief Commercial Officer [24]

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Yes. So there's a couple of factors. Let me kind of walk through what the advantages to our mutual client base is. For us, there's a couple of things. First and foremost, in the short term, it provides us with the ability to expand the scope of what we are doing with those clients, which may include other temperature ranges, like our C3 2-8°C product as well as storage at the Cryogene and our new bioservices competencies as they come online. But it also provides our client base and Lonza and ourselves with progression, which provides more regulatory focus on those mutual programs. It gives us more rapid scalability as well as them from a support standpoint for our client base, especially those that are moving into late clinical. And in some cases, in our minds, it can provide some opportunity for acceleration of some of the regulatory events that lead to filing activity through some of the integration work that we'll be doing with Lonza as well as our mutual client base.

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Andrew Jacob D'Silva, B. Riley FBR, Inc., Research Division - Senior Analyst [25]

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Okay. Great. And can you maybe just elaborate a little bit on the comments that were in the report that you put out related to the Cryoshuttle business. I'm assuming that means you can start recognizing some sort of like almost courier-style revenue versus the legacy business, which is really more on the logistics back-end side?

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Jerrell W. Shelton, Cryoport, Inc. - Chairman, President & CEO [26]

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Yes, we can do all those things. We can provide a better service to our clients, they are within the -- 1.5 hours of our facilities. There will be less handing off and less touching of our shippers. We'll know -- we'll have more surety about the delivery of the -- of our shippers and so forth. We also -- we actually will support couriers and support their services as well because, as you know, many carriers use strangers or they use part-time help. And so we can support that as well. The Cryoshuttle is another revenue stream. This is the beginning. We have one Cryoshuttle in each operation, and we'll scale that as volumes continue to increase and as our network of supply chain centers grows.

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Andrew Jacob D'Silva, B. Riley FBR, Inc., Research Division - Senior Analyst [27]

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Okay. And how should we think about revenue associated with that? I know that on the courier side of things, it can be a pretty large chunk of (inaudible).

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Jerrell W. Shelton, Cryoport, Inc. - Chairman, President & CEO [28]

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It's just beginning, Andrew. So we'll have to postpone the answer to that question until we have more experience, but -- because it's just beginning.

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Andrew Jacob D'Silva, B. Riley FBR, Inc., Research Division - Senior Analyst [29]

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Okay. Great. And my last question, you noted 68 new clients in your report. Just curious what you define as a new client? Would it be just a brand new entity? Or would it be subsidiaries within existing companies that you already work with? I just want to understand that metric a little better.

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Jerrell W. Shelton, Cryoport, Inc. - Chairman, President & CEO [30]

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Mark, do you want to take that?

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Mark W. Sawicki, Cryoport, Inc. - Chief Commercial Officer [31]

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Yes, I'm happy to. But what did you -- what number are you referring to? I'm sorry, I didn't catch the first part of it.

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Andrew Jacob D'Silva, B. Riley FBR, Inc., Research Division - Senior Analyst [32]

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Yes. In your third quarter end review, you noted that there were already 68 new clients year-to-date, and I was...

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Mark W. Sawicki, Cryoport, Inc. - Chief Commercial Officer [33]

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Year-to-date? Right. Okay. Yes. So we define a new client very simply, it's -- a new client as an organization that has not worked with us in the past, and it's restricted to the biopharma space. So we're not including a one-off transactional relationship with the University of Maryland, for example. So it would be finite biotech contract manufacturing, CROs and others that are tangible in the space and have not worked with us in the past.

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Andrew Jacob D'Silva, B. Riley FBR, Inc., Research Division - Senior Analyst [34]

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Okay. Good. Good. That's what I was worried about. Perfect. That's great. Congratulations on the progress and good luck closing out the year.

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Operator [35]

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We'll move next to Brandon Couillard of Jefferies.

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Brandon Couillard, Jefferies LLC, Research Division - Equity Analyst [36]

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Staying with Lonza, is the $25 million to $30 million, is that cumulative? Or is that, let's say, a year 5 number? And when do you expect those revenues to start becoming material in 2020?

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Jerrell W. Shelton, Cryoport, Inc. - Chairman, President & CEO [37]

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It's a cumulative conservative estimate, Brandon, and we expect that to be on a ramp -- on a continuous ramp. So we're already getting some benefit from it, and that will continue to accelerate.

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Brandon Couillard, Jefferies LLC, Research Division - Equity Analyst [38]

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Okay. And then on YESCARTA and KYMRIAH, your percentage revenue capture as a total -- as a percentage of total end drug sales ticked up quite a bit to about 1.3% in the third quarter. Can you just sort of elaborate on some of the drivers of that? How you were able to better monetize those relationships and the additional runway that may be left to continue to sell those clients more services related to those 2 drugs?

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Jerrell W. Shelton, Cryoport, Inc. - Chairman, President & CEO [39]

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Mark?

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Mark W. Sawicki, Cryoport, Inc. - Chief Commercial Officer [40]

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Yes. So just 1 second here. So we have seen an increase in the percentage. It's been a steady increase. And typically, when we see that increase in share, when it comes to a given relationship, it's due to the expansion of the types of business that we're doing with these clients. So it'll move beyond just strictly a transactional shipment. It'll move into consulting support, program management support, maybe logistics support and some other componentry along those lines. So that's the premise as to what you see a diversification on a per-shipment basis.

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Brandon Couillard, Jefferies LLC, Research Division - Equity Analyst [41]

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Okay. And then last one. Jerry, you've raised capital twice in the last year. Just curious why you think a buyback authorization right now for where you stand in your sort of growth phase is the best use of capital?

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Jerrell W. Shelton, Cryoport, Inc. - Chairman, President & CEO [42]

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Well, our best use of capital will be -- is our organic growth, I mean, and supporting the organic growth and building out our infrastructure. And then, of course, you have to finance the growth of the business, in general, accounts receivable and inventory and that sort of thing. So we're in a good position right now to do -- to execute. And so I think we're -- I think that's -- we're fine right now. We won't need to be back -- I don't foresee going back to market right now.

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Robert S. Stefanovich, Cryoport, Inc. - CFO, Treasurer & Corporate Secretary [43]

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And to your question related to the share repurchase program we put in place. That was really adding a vehicle that the Board approved. At certain thresholds and certain times, that may become attractive to us and beneficial to the shareholders. Not at this point in time, but we wanted to have that availability for us to do that should that moment arise.

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Jerrell W. Shelton, Cryoport, Inc. - Chairman, President & CEO [44]

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It's really a management tool.

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Operator [45]

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We'll move next to Richard Baldry of Roth.

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Richard Kenneth Baldry, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [46]

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Sort of asking similar questions but in a different way. One of the commercial therapies had sort of sideways to narrowly down revenue quarter, but you continued to grow pretty strongly through that. So -- and I'm wondering how connected their growth and yours -- obviously, long term, it has to be connected, but what mechanisms kind of separate that on a short-term basis?

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Mark W. Sawicki, Cryoport, Inc. - Chief Commercial Officer [47]

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Right. So from a long-term basis, we're very optimistic about both programs. We -- both of these guys are investing significant amounts of money in the success of the space with a lot of new brick and mortar. They're putting new facilities up on a global basis. And then if you look at the earnings releases from both parties, Gilead noted on their Q3 call that they expect the reimbursement from the NTAP that started on October 1 to have a positive impact on, obviously, the volumes that they're supporting, and ultimately, the revenues associated with that. From a visibility standpoint, we have recurring discussions with both parties, and I can't give you, obviously, feedback on what those entail. But from our perspective, we remain very bullish on both from an opportunity of increasing revenue over the next quarters and years.

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Richard Kenneth Baldry, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [48]

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Okay. And then when I look into the OpEx side and then back out sort of the onetime charges, it looks like that the growth you said of $1.7 million year-over-year would leave the June to September operating expense line very flat. So I'm sort of surprised given the overall very fast rate of growth that you can even do that for a single quarter. So can you talk about how much leverage you do see on the OpEx side? Was there anything anomalous between whatever, Q1, Q2, Q3 that allowed that to be pretty flat between Q2 and Q3 that we might not see short term?

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Jerrell W. Shelton, Cryoport, Inc. - Chairman, President & CEO [49]

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Robert, will answer that question, Rich.

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Robert S. Stefanovich, Cryoport, Inc. - CFO, Treasurer & Corporate Secretary [50]

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Yes, you're absolutely right. When you pull out the noncash charge, and you look at the operating expense, we've been pretty disciplined in terms of maintaining the infrastructure that we need and keeping the costs down. We want to drive positive EBITDA growth. At the same time, we will continue to build out our infrastructure in 2020 and build out the organization, but we try to do that together with the expected revenue ramp. So yes, you can see some increase in operating expenses going forward, but it will be moderate, as we've done in the past as well.

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Richard Kenneth Baldry, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [51]

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And maybe asking almost the same question in a different way. Revenues sequentially were up $1.1 million and adjusted EBITDA was up $900,000 roughly, so that translation is obviously extremely high. I think long term, we can't probably count on that, right? But again, was there any onetime-oriented things there or just a catch-up period where some of your invested expenses, you could go more sideways on than not, even while that revenue ticked up?

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Robert S. Stefanovich, Cryoport, Inc. - CFO, Treasurer & Corporate Secretary [52]

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So again, I think what -- if you look at the quarters forward, what you will see is -- you will see some additional investments in our infrastructure. We talked a little bit about expansion in Houston as well as expansion of other areas and setting up our bioservice capabilities. So yes, you will see a little bit more burden going forward. So you can't extrapolate that out just from this one quarter in terms of the correlation between revenue growth and positive adjusted EBITDA. But at the same time, we'll continue to drive that positive adjusted EBITDA, and we'll continue to be very disciplined in terms of how we grow our infrastructure.

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Operator [53]

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We'll move next to Steve Unger of Needham.

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Stephen Scott Unger, Needham & Company, LLC, Research Division - Senior Analyst [54]

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Just a couple of questions. On the gross margin expansion, I was just curious, is that essentially the ramp in commercial revenues? Or are you getting better gross margins out of the Cryogene acquisition?

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Jerrell W. Shelton, Cryoport, Inc. - Chairman, President & CEO [55]

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Rich, you're going to see our gross margin fluctuate between 50%, 55% for a while. Our target is still 60%, it remains at 60%, it will be at 60%. But you're going to see some fluctuations as we build out our infrastructure. For more, Robert, do you have other things to say about that?

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Robert S. Stefanovich, Cryoport, Inc. - CFO, Treasurer & Corporate Secretary [56]

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No, I think you're right. If you look at the kind of adjusted growth -- gross margins for the quarter and they're at 52%, 52.3% for this quarter. And ultimately, we expect it to go up. But Jerry's absolutely right, you'll still see some fluctuation as we build out the infrastructure globally.

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Stephen Scott Unger, Needham & Company, LLC, Research Division - Senior Analyst [57]

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Got it. And then...

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Robert S. Stefanovich, Cryoport, Inc. - CFO, Treasurer & Corporate Secretary [58]

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And then in terms of Cryogene. Cryogene, obviously, as Jerry mentioned early on in his opening comments, Cryogene is moving forward as we expected. Their current run rate is $4.7 million in revenues. They are profitable as a division. So that compared to their 2018 revenue of $3.9 million is close to a 20% growth rate. So we're very happy about the acquisition and the integration of Cryogene into the organization.

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Stephen Scott Unger, Needham & Company, LLC, Research Division - Senior Analyst [59]

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That's great. And then in looking at the market data, were you guys surprised by the sequential decline in the Phase II number of trials and? What should we make of that as far as sort of what's going on as far as the development pipeline?

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Jerrell W. Shelton, Cryoport, Inc. - Chairman, President & CEO [60]

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I'll let Mark comment on that in just a moment, but I don't make too much of it. There are going to be ups and downs. I mean nothing is in a straight line. There are going to be some ups and downs, and there will be some variations. Nothing has happened to this industry in a negative way whatsoever. You have trials -- our clinical trial numbers, remember, are net number, so we take the -- it's a net of what comes in and what falls out. And so sometimes you're going to have -- you're going to be going one way or another. But overall, that trend continues to be up, and will continue to be up. We definitely are in an exploding universe. Mark, do you want to add any other color to that?

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Mark W. Sawicki, Cryoport, Inc. - Chief Commercial Officer [61]

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No, you're absolutely right, Jerry. It's very normal for -- obviously, to see some fluctuation along these lines, but the long-term inclination is for a continued increase in the space. We project from our perspective that this space in 15 years may constitute up to 1/3 of the overall market from a pharmaceutical product standpoint, and there's others in the market that also second that. What we see is, obviously, you have some of the later stage trials that have been halted or failed during the quarter. We'll have -- you'll see others that come in and backfill it. And so kind of their ratios will change based on -- it costs a lot more to run a Phase II or Phase III trial than it does a Phase I trial. So those numbers will fluctuate.

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Stephen Scott Unger, Needham & Company, LLC, Research Division - Senior Analyst [62]

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Got it. Okay. And on NTAP, I know that went into effect October 1, and I thought I'd give it a try. Has there been any impact that you can see on the market from that coming into effect for the commercial therapies on the market?

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Jerrell W. Shelton, Cryoport, Inc. - Chairman, President & CEO [63]

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Mark, I don't see it, but what do you think?

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Mark W. Sawicki, Cryoport, Inc. - Chief Commercial Officer [64]

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It's far too early. I mean if you look at the cycle times of these products, they're upwards of a month anyway. So it's too early. You're going to have to wait a few more months.

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Stephen Scott Unger, Needham & Company, LLC, Research Division - Senior Analyst [65]

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Okay. Okay, that's fine. Just thought I'd give a shot. And just lastly, on the accelerated vesting of the options, I was just curious how many shares that represented.

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Robert S. Stefanovich, Cryoport, Inc. - CFO, Treasurer & Corporate Secretary [66]

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It was about 1.6 million shares.

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Jerrell W. Shelton, Cryoport, Inc. - Chairman, President & CEO [67]

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And that's simply an accelerated vesting. It was an incentive that we put in a couple of years ago, and it worked. And so we were pleased with the fact that it worked.

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Robert S. Stefanovich, Cryoport, Inc. - CFO, Treasurer & Corporate Secretary [68]

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Yes. And just to add to that. So the charge -- the onetime noncash charge that we took this quarter would have been charges that we'd have been taking over the next couple of years. So all of that expense moved into this quarter. And so over time, you'll see a drop off in some of the stock-based compensation expense.

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Operator [69]

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At this time, I'd be happy to return the call to CEO, Jerry Shelton, for closing remarks.

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Jerrell W. Shelton, Cryoport, Inc. - Chairman, President & CEO [70]

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Thank you very much for joining us today. We really appreciate the opportunity to discuss our recent achievements and our future objectives with you. Every quarter, we make further progress advancing our leadership position in the regenerative medicine market. This quarter was no exception. We increased our market share, secured a partnership with Lonza, reported strong revenue growth and made meaningful progress growing our presence in the bioservices market through our Cryogene acquisition. We're building a strong global supply chain network, and we are uniquely positioned to meet the global demands of our biopharma clients, both in clinical and commercial settings. Most importantly, we're encouraged by the reports coming from the Alliance for Regenerative Medicine and from our own dialogue within the industry, which indicate that there will be a number of significant events, such as BLA and MAA filings and commercializations to drive our revenue growth in 2020 and beyond. We really appreciate you joining us today and the opportunity to answer your questions. Until our next meeting, our earnings call that is, we bid you a good evening.

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Operator [71]

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This does conclude today's Cryoport Inc. Third Quarter 2019 Earnings Call. You may now disconnect your lines, and everyone, have a great day.