Today, I'm considering a long position in an emerging micro cap called BioLife Solutions, Inc. (NASDAQ:BLFS). This article serves as a supplement to my PRO thesis that I wrote in late May, as well as an update article written earlier this week, (accessible here and here). For those readers who are unfamiliar with BioLife, however, the company operates within the life sciences industry, has a $32 million market cap and is listed on the Nasdaq. In order to gain more insight, I conducted an email interview with Michael Rice, CEO of BioLife.
Mr. Rice holds an impressive resume. Before joining BioLife as president and a member of the board of directors in 2006, he acquired more than 20 years of leadership and entrepreneurial experience. Most recently, Mr. Rice was the senior business development manager for medical and wireless products at AMI Semiconductor (AMIS). Some of his prior positions include director of Marketing and Business Development at Cardiac Science Inc., vice president, Sales and Marketing for TEGRIS Corporation and various sales and marketing management roles at Physio Control Corporation prior to its acquisition by Medtronic Inc. Following are excerpts from the interview:
At the time of our previous conversation several months ago, BioLife shares traded around $2.20-$2.30 a share. Going into late July, BioLife shares have settled significantly higher ($2.60-$2.80), after retreating from a high of $3.60 during intraday trading earlier this week. First off, I would like to get your thoughts on BioLife's impressive stock performance, in addition to what this could indicate going forward.
CEO Rice: Thank you for noticing, Trevor. We believe our continued execution of our business plan, as updated to the investment community via press releases, is being noticed and appreciated by investors. Our press release about our new contract manufacturing agreement with Somahlution was another indication of our efforts to replace the revenue lost with the cancellation of our previous agreement with ORS. We also continue to see further adoption of our products in the regenerative medicine space, and specifically, in the cell-based cancer immunotherapy section, which is very high-profile, and holds the potential to revolutionize oncology care by improving and extending the lives of cancer patents throughout the world.
You mentioned in my last interview that one of the primary risks facing the company is a sustained negative sentiment about the regenerative medicine segment, which could impact BioLife. Given the latest uptrend in BLFS stock, do you think we're possibly experiencing a market reversal, or is increasing valuation specific to BioLife?
CEO Rice: The regen med space is challenging for many investors, who may have unrealistic expectations of the timing of product approvals and hence, material positive impacts on our business as a critical supplier to the space. We're focused on what we can control, which is increasing product adoption and supporting customers throughout their clinical trials. We believe that continued market education is required to clarify our role as a key tools supplier with a stellar clinical customer base, and to this end, we've greatly expanded our investor outreach program and activities.
One of BioLife's latest developments is a biologistex service, which you previously outlined. How well has this service been integrated with the new EVO smart controlled temperature containers, and are clinicians and patients receiving it positively so far?
CEO Rice: We are working hard to fully launch our biologistex service later this year. Initial responses have been very positive and we believe a significant opportunity exists for us to capture a meaningful share of the market for small form factor insulated containers for cells and tissues.
In the past few months, BioLife took a major hit in its contract manufacturing business, as the company terminated its agreement with Organ Recovery Systems after getting confirmation that no further purchase orders would be issued. This customer accounted for around 90% of BioLife's contract manufacturing revenue. What some didn't account for is the possibility that another agreement would be established to offset this revenue loss, which is exactly what BioLife managed to do, given the new contract manufacturing agreement announced earlier this week. Could you please explain the value potential of this new contract?
CEO Rice: It is premature to provide guidance on the potential value of this agreement prior to Somahlution receiving regulatory approval but we believe that should this occur, this agreement could result in material revenue and gross profit for BioLife. We hope to be able to provide updated guidance on this customer and agreement later this year, and we anticipate initial product shipments will begin in the fourth quarter of 2014.
As a followup, do you believe that the new contracting agreement is priced into the stock at this point?
CEO Rice: We do not believe so, since we have not yet reported any revenue from the agreement nor provided any forward-looking guidance.
With the contract manufacturing business heating up, is BioLife optimistic that it can establish more agreements with other potential customers?
CEO Rice: We continue to prospect for additional highly-aligned opportunities to leverage our manufacturing expertise and production capacity. High-quality ascetic formulation, fill, and finish are core capabilities that support production of our own products and offer the opportunity to augment our business by pursuing very selective new opportunities.
At this time, given the new manufacturing contract, which business segment is BioLife's main value driver?
CEO Rice: Marketing our core, proprietary biopreservation media products remains our key focus and we have recently recruited and hired additional sales and marketing team members to strengthen our team so we can drive faster business growth.
It seems that BioLife is well prepared to meet the future demand for biopreservation media, considering its business model is well positioned to reap the benefits of over 100 clinical products using Cryostor and HypoThermosol. What time do you project BioLife to begin experiencing significant revenue growth from this business segment?
CEO Rice: We continue to see the 2016-2021 five-year span as the time period when a number of customers could progress through clinical trials and require significantly larger quantities for our products.
Would you please comment on the recent progress that BioLife has made in acquiring new clinical customers?
CEO Rice: In October 2012, we estimated our products were being used in more than 50 customer clinical trials. This increased to more than 85 in September 2013, more than 100 in January 2014, and now we believe more than 130. We have also been successful in seeing our products adopted in the veterinary regenerative medicine market, which is somewhat less regulated and carries huge upside, considering the current spend for veterinary care throughout the world.
I find it remarkable that Cryostor and HypoThermosol continue to be in high demand. Do you suspect that increasing awareness of BioLife's superior technology is the reason for this sustained growth?
CEO Rice: I believe this is due to a number of factors; first, we have been able to disclose more customer names and specific uses, which builds confidence and tends to de-risk the consideration for using our products by new prospective customers. Next, the level of technical and product support we provide is really remarkable, considering we're a small company. Our chief technology officer, Aby J. Mathew, PhD, leads this effort and he has become a trusted advisor to our customers and a leading biopreservation expert.
Additionally, the body of independent data supporting the superior biopreservation outcomes enabled by the use of products continues to grow and we use this data as support to encourage new prospects to evaluate and adopt our products. Lastly, the quality and regulatory footprint of our products is completely aligned with the increasing scrutiny new clinical customers face in working to get clinical trials approved.
Do you suspect that the home-brewed cell preservation paradigm could be evaporating?
CEO Rice: We believe it is still the predominant preservation cocktail, but over the next several years, we will capture a meaningful share of the spend for the components used to make home-brew formulations.
You recently bought shares on the open market. Could you please explain why you are so confident in BioLife?
CEO Rice: My position is that BioLife is now able to fully execute our business plan. We have plenty of cash from the recent equity offering and eliminated all debt. I feel very positive about our ability to grow our core products business in our key markets of biobanking, drug discovery, and regenerative medicine; launch biologistex; and meet demand for Somahlution's OEM product.
Thank you for your time.
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.
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