Basically, we did see two possible explanations:
- CryoPort is more established in the CAR-T market.
- CryoPort takes a significantly greater wallet share, as its distribution is more established.
We find little evidence of the first, so we settled on the differences in the distribution business. For distribution, BioLife depends on its 44% stake in SAVSU, which is in a much earlier state of development compared to CryoPort.
BioLife has been extending its stake in SAVSU, lately in early September last year increasing its stake from 31% to 44% for $5 million. It also has an 18-month agreement to buy the rest (company PR):
The 18-month purchase option provides BioLife, at its sole discretion, with the right to acquire the 56% of SAVSU not already owned, for the greater of 1,000,000 shares of BioLife common stock, or approximately $23 million of BioLife common stock, calculated on the day of exercise. If BioLife exercises the purchase option in the future, 75% of the shares would be issued at closing, with the remaining 25% issued upon the achievement of specific revenue milestones.
Well, on July 8, that is last Monday, the company lifted this option (company PR):
announced that it has exercised its option to acquire the remaining 56% of the outstanding shares of privately held SAVSU Technologies that BioLife currently does not own in exchange for 1.1 million shares of BioLife common stock. The acquisition will be pursuant to a share purchase agreement and is expected to close within 45 days.
This is a huge positive for BioLife, for the following reasons:
- Management argued that the purchase option (widely misunderstood at the time) gave them the certainty of buying and price, whilst giving them time to wait for the right moment, when SAVSU would be accretive.
- It signals that SAVSU itself is getting more traction.
Indeed, here is what management argued on the deal during the Q3 2018 CC:
So the fundamental driver with respect to the timing of making that final acquisition is 100% related to, at what point will consolidating their financial statements, the immediately accretive or very accretive in the near-term so that's really the driver from the timing perspective.
Apparently, management is seeing things that the rest of us are not yet seeing, although they lifted a little part of the veil in the July 2019 PR:
Since January 2019, through its relationships with the leading specialty couriers serving the regenerative medicine industry, SAVSU has supported more than 50 cell and gene therapy clinical trial-stage and commercial-stage companies by supplying evo precision shipping containers connected to the cloud-based evo.is real-time shipment visibility platform.
"More than 50 cell and gene therapy clinical trial-stage and commercial-stage companies" - that's at least 20 more than what they had previously disclosed. And, of course, one of these is Novartis (NVS) (company PR):
today announced that SAVSU Technologies, Inc. ("SAVSU") has been selected by Novartis to supply advanced cold chain management technologies for ZOLGENSMA®(onasemnogene abeparvovec-xioi), a one-time-only gene therapy for the treatment of children less than two years old with spinal muscular atrophy ("SMA"). ZOLGENSMA was approved by the FDA on May 24, 2019.
We were already a little surprised that the stock didn't move on this news given that:
- Novartis is a CryoPort customer.
- The treatment, ZOLGENSMA, has recently been FDA approved, that is, it's not a trial-based client but a commercial-stage client which tend to bring in significantly more revenue.
Novartis bought AveXis, developer of ZOLGENSMA in April 2018, for $8.7 billion, a price suggesting something about the magnitude of its business prospects, perhaps.
So, it's a fairly safe bet that SAVSU is making very good progress, and now that BioLife will own all of it, it's really complementary and fits hand in glove with BioLife's explicit aim of gaining more "wallet share" in the cell and gene therapy market, mostly through acquiring companies offering complementary products and services.
Another recent acquisition was that of Astero Bio, a producer of automated thawing devices for cell and gene therapies, for $8 million in cash. The beauty of these acquisitions is that they leverage BioLife's position selling to the same customers with the same sales force, strengthening its total solution credentials.
While we argued that the huge value gap between CryoPort and BioLife was likely due to the more advanced stage of CryoPort's distribution solution, SAVSU is making considerable progress here as well, so we're less and less convinced the huge valuation gap in favor of CryoPort is justified.
But there are those who argue that CryoPort's distribution business has a big advantage because it has been investing in large distribution centres, which SAVSU supposedly cannot match (or will be forced to match at the cost of large investments). Take, for instance, a comment by GemInvestor:
Savsu is a small little outfit out of New Mexico, not even close to the size, scale and partnership integrations that CYRX has established. Think of the capital it would take for Savsu to expand and compete on a large level.
We're not convinced of that. SAVSU has a much more asset light-business model that was explained in more detail in the Q3 2018 CC, which we have to quote at some length here (our emphasis):
SAVSU has a very differentiated and highly leverageable go-to-market strategy compared to other suppliers in the market. SAVSU's approach is to partner with the leading specialty couriers such as World Courier, Marken and Quick, by supplying their best-in-class products to the couriers who then, through their combined world-wild sales teams and support depots, market SAVSU products to cell and gene therapy companies. The couriers also service the SAVSU shipping containers to get them ready for reuse and a rental fleet model. The key point here is SAVSU is leveraging the worldwide infrastructure of its courier partners and their growth is not dependent on significant CapEx for numerous facility build-outs and ongoing OpEx to support regional service depots. It's also becoming clear as interest in SAVSU gross that the data back end and user cloud-based app are much more valued in addition to the hardware innovations in the containers. I'm glad to say that the investments BioLife made under the previous JV structure in software dev are helping to drive preference for SAVSU over competing offerings.
We recently noted a huge valuation gap between BioLife and CryoPort, both companies offering media for the transport of cells and tissues. We argued that most of the valuation gap is likely due to investors discounting SAVSU's distribution business.
We think the rationale for discounting SAVSU is rapidly disappearing in the rear-view mirror, as:
- It won a CryoPort customer with an FDA-approved therapy.
- It is increasing the number of customers it services.
- BioLife has lifted the option to buy the remaining 56% it didn't already own, signaling that SAVSU, which operates on an asset-light business model, is at or close to being accretive to BioLife's bottom line.
Given the recent slump in the shares of BioLife, we think investors are presented another opportunity to get onto this ground floor opportunity in regenerative medicine.
Disclosure: I am/we are long BLFS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.