Update: BioLife's New Manufacturing Agreement And Additional Clinical Customer Reaffirms Bull Thesis

Jul.29.14 | About: BioLife Solutions, (BLFS)


BioLife recently announces a 3-year contract manufacturing services agreement with privately held Somahlution LLC, offsetting the loss in manufacturing revenue from the since-terminated manufacturing agreement with Organ Recovery Systems.

In June, BioLife acquired an additional clinical customer, France-based TxCell, for its media biopreservation segment, bolstering its royalty portfolio for Cryostor by as much as $2 million/year post regulatory approval.

As a result, I'm updating my bull thesis and reaffirming why I think BioLife remains a highly undervalued company operating in the life sciences industry.

In May I wrote a PRO article with a thesis stating that BioLife Solutions Inc. (NASDAQ:BLFS) is an undervalued and de-risked, long-term life sciences investment opportunity, but a sustained negative sentiment surrounding the regenerative medicine sector, a lack of awareness of BioLife's rather speculative CryoStor and HypoThermosol media biopreservation segment, and a general market decline were holding back shares. Nevertheless, I'm reaffirming my bull thesis to account for the recently announced, multi-year contract manufacturing agreement with Somahlution LLC, as well as the acquisition of a new Cryostor clinical customer, TxCell, which creates an additional $2 million/year opportunity, following possible regulatory approval of TxCell's immunotherapy, Ovasave.

First, at the time of writing back in May, I asserted that BioLife's termination of its manufacturing contract with Organ Recovery Systems--after getting confirmation that no further purchase orders would be issued--would have a great impact on its contract manufacturing business. After all, this customer accounted for around 90% of BioLife's contract manufacturing revenue, so I was admittedly pessimistic that BioLife's contract manufacturing segment could be sustained moving forward. However, BioLife shares surged to a high of $3.60 in intraday trading immediately following its announcement of a new 3-year contract manufacturing services agreement with Somahlution LLC. BioLife CEO Mike Rice stated that the company expects to begin product delivery of DuraGraft to Somahlution in Q4 2014, which I suspect will help offset the sharp decline in manufacturing revenue seen in Q2. In addition, I believe BioLife's ability to attract new customers like Somahlution is an encouraging sign since it's evident that its media preservation technology is gaining traction within the industry. Thus, it's very possible that more contract manufacturing agreements could be announced moving forward.

And second, as I correctly asserted in my last article, BioLife's media biopreservation products, Cryostor and HypoThermosol, would continue to attract new clinical customers. On July 17, BioLife announced that Cryostor will be used in TxCell's Phase 2b study of the immunotheraphy Ovasave. As it stands, the approximate revenue from this agreement is $15,000, as typical clinical customers are valued anywhere between $20,000 to $100,000 in product revenue from pre-clinical to Phase 3, and 30 percent of this revenue is unlocked in Phase 2. However, TxCell can extend this agreement beyond Phase 2 trials. If so, and if and when Ovasave receives regulatory approval and TxCell commences large-scale manufacturing of the product, CEO Rice estimates revenue potential to be anywhere between $500,000 to $2 million/year. Nevertheless, with only a 35 percent success rate for Phase 2 non-oncology clinical products, I reaffirm my previous guidance since the single product is not statistically supported to receive regulatory approval. As a result, I maintain that 13 out of over 100 clinical stage products using Cryostor and HypoThermosol are likely to receive regulatory approval, and BioLife could be poised to generate around $20 million by 2018 and $69 million in revenue by 2022.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.