Business Update Call
We cover CryoPort (OTC:CYRX) with an Outperform rating and a $3.00 price target. CryoPort's CEO Larry Stambaugh held a business update call March 27th. There were no significant surprises, but the call did provide some greater insight into various aspects of the business, including shipping volumes and operational and personnel changes. Stambaugh also offered some general guidance relative to the company's near-term strategy and expected financial performance. Highlights of the call included:
Sales / Marketing
Sales have been well below expectations since the commercial launch about nine months ago. This has been a learning process, which included finding out more about CryoPort's target customers. The company will use this knowledge in its recently implemented strategy of focusing on improving the selection of target customers and increasing the speed of customer adoption. More specifically, this strategy focuses on penetration at each individual market segment (i.e., stem cell lines) instead of a broader approach. The strategy will target companies that CryoPort has identified as potential early adopters, including in-vitro fertilization clinics, stem cell companies, and cell lines through inside sales programs, calling lists, and sales literature (which includes customer testimonials).
Stambaugh noted that for the most part the changes the company has implemented have gone well, but also implied that the recent termination of CryoPort's chief commercial officer was related to the CCO not being effective enough in implementing this strategy. Stambaugh did not provide specifics, so it is difficult to gauge exactly what the issues were; the company is in the process of hiring another CCO and indicated that a candidate has been identified with an offer expected shortly. CryoPort will also be adding two new salespeople: a sales director for the San Francisco area (replacing the prior San Francisco sales director who was recently let go) and a sales director for the Mid-Atlantic area (replacing the prior Mid-Atlantic sales director who was hired by DHL). CryoPort expects the recent change in strategy, new hires and new board members to facilitate accelerated sales and customer adoption.
Shipping Volumes / Customer Count
Shipping volumes have been increasing, although they remain relatively immaterial, especially from a revenue perspective. CryoPort expects shipping volume to significantly ramp up over the next 12 months as implied by their general financial guidance, which is discussed below. Customer count has also been on the rise. As a reminder, the customer adoption process can be lengthy and often requires multiple test shipments as part of these potential customers' evaluation process of CryoPort's container and shipping services. The customer count figures here include organizations in the evaluation phase.
In calendar 2011, there were 172 firms that conducted at least one frozen shipment with CryoPort, up from 71 firms in calendar 2010. Sixty-two firms made two or more shipments in 2011, up from 29 in 2010, and 28 firms made five or more shipments in 2011, up from 12 in 2010.
In fiscal Q4 (ending March 31, 2012), 116 firms have shipped with CryoPort, up from 42 customers in fiscal Q4 2011.
With regard to evaluating CryoPort Express, Stambaugh noted that there are approximately 80 organizations currently evaluating CryoPort Express for their frozen shipping needs. Of these, about 35 could be projected to ultimately ship more than 15,000d shipments in aggregate per month when fully adopted (we note that the company will not hit this level of shipment volume in the near future).
Target Customer Segments
Central Labs: involved in collecting and transporting clinical trial samples. ACM Global has been using CryoPort for intralab shipments and will begin offering CryoPort's services to its customers this fiscal year. CryoPort is currently in the evaluation phase with five other central labs, which includes a request for proposal from one of these labs. The company's new larger container, which launched earlier in calendar 2012, has been well received and is expected to be an important component in targeting central labs, CROs, and other large customers.
CROs: involved in running clinical trials for pharmaceutical and biotech companies. CryoPort is in discussions with two large CROs and expects that, initially, shipments for these companies will be lab-to-lab.
Biotech / Pharma: have a number of very large firms that are in the evaluation process, including Pfizer (PFE), GlaxoSmithKline (GSK), Bristol-Myers (BMY), and Novartis (NVS). The company has already begun shipments with Sigma-Aldrich (SIAL), ImClone Systems, BD Biosciences, Genoptix, and others. Stambaugh noted that CryoPort has also recently gotten confirmation from a "large European pharmaceutical company" (the name of the company was not disclosed) that they will begin shipping cell lines with CryoPort Express at an initial volume of "a few hundred" shipments per month.
Diagnostic Companies: Caris Life Sciences has been shipping using CryoPort and has added shipping sites every month of this year. CryoPort expects Caris will continue to add sites throughout 2012. Management hopes to replicate the model used with Caris to score business from additional diagnostic companies.
Research Institutions / University Hospitals: CryoPort was featured in a "60 Minutes" piece in January in which Duke University used one of its containers to ship stem cells; the segment referred to the company's container as "the highest medical standard." Stambaugh noted during the call that CryoPort has shipped for several more research institutions and expects to use these as introductions to further penetrate this segment.
FedEx / DHL Partnerships
Stambaugh noted that commercialization via FedEx (FDX) has grown slower than initially anticipated due to difficulties in signing up customers, specifically noting separate web portals as a hindrance. Discussions also include the possibility of a CryoPort sales rep completing the final closing of prospective customers instead of a FedEx rep, which has been the procedure to date. Stambaugh mentioned that FedEx has recently increased the number of sales managers dedicated to placing the CryoPort Express orders. FedEx's order entry system now allows customer information to be automatically placed into CryoPort's web portal, which will hopefully facilitate the sales and closing process. FedEx has introduced CryoPort Express to several new customers in the past few months and these customers are now beginning to ship. CryoPortcontinues to work with DHL to tap into that company's customer base.
Fiscal Q4 2012 revenue will be approximately $175,000 (in line with our estimate), which would result in full-year fiscal 2012 revenue of about $554,000. Management expects the first half of 2013 to show "consistent but modest growth in revenue from quarter to quarter," and for this to growth rate to accelerate later that year. Growth is expected to be driven by the signing of new customers and increasing shipments from existing customers. Management now expects that CryoPort can reach cash flow positive by spring 2013 (i.e., early fiscal 2014). Stambaugh also noted that he thinks the company can reach cash flow positive without the need for additional equity financing.
Carlton Johnson announced his resignation from CryoPort's board of directors March 1st. On March 29th, Steve Wasserman was named to fill Johnson's vacated board seat. Per CryoPort's press release:
Mr. Wasserman is currently on the Board of the medical diagnostics firm Iris International, and serves as chairman of the compensation committee. Previously he served as group vice president of the Diagnostic Systems Products division of Olympus America, a leading medical technology company, as well as a member of the executive committee for American Operations. Earlier in his career he was chief financial officer and treasurer of Datascope Corporation, where he was also president of its Patient Monitoring Division, general manager for Melville Biologics, and vice president and general manager of Technicon (now part of Siemens Healthcare Diagnostics). Mr. Wasserman received his Bachelor's in Business Administration from City College of New York, and is a Certified Public Accountant.
CryoPort also expects to add an additional director in the future, increasing the size of the board.
CryoPort currently has enough container inventory to supply a volume of approximately 7,000 shipments per month. The company ballparks the watermark to reach cash flow positive will require approximately 10,000 shipments per month.