Cryoport: Delivering Results

I often refer to Silicon Valley as having a printing press for making money. It literally seems to grow on trees not only down in the valley, but in the whole Bay Area. However, despite the conception of every twenty-something becoming a billionaire overnight, the reality is it’s not such an easy game at all, creating winning companies from unproven ideas.

In actuality, Silicon Valley is more reminiscent of the California Gold Rush. In the two big industries of technology and biotechnology, there are indeed some huge winners. But, there are even more companies that didn’t strike it rich. For every Facebook there’s a bunch of MySpaces, for every Amgen there’s twenty InspireMDs.

It really isn’t an easy game taking a concept and turning it into a successful public company. And, investing in them is just as tricky. This is particularly true in biotech where every company has what seems to be a “cure for cancer”, yet few make it past the FDA into active sales to patients.

The latest Gold Rush has been around a branch of biopharma called Regenerative Medicine, which deals with the process of replacing, engineering or regenerating human cells, tissues or organs to restore or establish normal function. This is a branch of healthcare also referred to as personalized medicine, and it’s attracting investment dollars like crazy; $2.5 billion was raised for investment in this field in the first quarter of 2017 alone.

Much like the ‘49ers in the original Gold Rush, some of these companies will strike gold. Their medicines will work, patients will be cured and investors will be enriched. However, don’t expect all companies to accomplish this. If history is any guide (and it usually is), the vast majority of drugs will fail, taking their sponsors down with them. According to BIO (see chart below), only 9.6% of all drugs make it from Phase I to FDA approval.

The miners of the Gold Rush suffered from long odds like the biopharma companies of today. Yet, despite digging for gold being a very inexact science, there was an sure and easy way to profit from the hopes and efforts of those miners. During the Gold Rush, the most  way to make money was to sell supplies to the miners. “Selling shovels in a Gold Rush” has become terminology for making low risk money from a groundswell of prospectors. It worked then and it works today.

Cryoport is selling “shovels” to biopharma prospectors
Regenerative medicines are made by taking cells from sick patients. These cells are then genetically modified and expanded in-vitro. Finally, they are reinfused into the patient ready to fight the tumor.

The genetic modification side of this business is quite obviously the tricky side. Attaining success in modifying cells will be the major sticking point for most companies when they confront the FDA. Some will make it through there; others won’t be so fortunate.

However, along that path to potential success lies a commonality among all these companies. They are creating biologics that need to be shipped to patients for infusion. Sounds simple, right? Just call up FedEx and they’ll deliver your product to the end user.

The reality is that companies can’t simply just put the biologics into a box and send them. That’s because these medicines are created in-vitro and, if left alone, will continue to morph and modify themselves. So, regenerative medicine companies need to stop modification of their medications at the exact point when the medications are ready for injection into the patient. To do this, they cryogenically freeze the meds.

When I think of cryogenic freezing, I automatically recall Austin Powers and Dr. Evil. To escape into the future, they both cryogenically froze their bodies, preserving them in the exact state they were in forever. This is what most people think of when you say cryogenics and, while freezing oneself for the future might never work, the concept behind cryogenic freezing is quite accurate. By taking the temperature down to -196°C, modified medicines cease any and all activity and are capable of being shipped in that state without altering their efficacy at all.

This is the shovel that Cryoport is selling to the biopharma miners; they will ship cryogenically frozen medication to patients. It’s a necessity that is required by every one of the drug companies involved in regenerative medicine. And, Cryoport is the only company with a solution that can guarantee successful shipments of these medications.

Cryoport’s Competitive Positioning
From Cryoport’s website, here’s what they offer pharmaceutical companies. “Cryoport’s SmartPak II™ works in conjunction with our Cryoportal™ logistics management platform to provide real-time information reporting about your shipment, integrating condition monitoring, logistics and shipper qualification performance in a single data steam. Additionally, Cryoport’s 24/7 customer service team proactively monitors each shipment, allowing for intervention when necessary. When you need nonstop visibility of your materials from point of origin to destination, Trust Cryoport.”

This is not sending your nephew a birthday present. Shipping cryogenically frozen medication involves real time tracking, temperature maintenance, and a lot of extracurriculars beyond a box and delivery trucks.

Imagine, if you will, a drug trial that costs tens of millions of dollars, totally screwed up by a shipping company not handling the medication properly. This would be a nightmare and, even worse, might not even be noticed causing a potentially efficacious treatment to be discarded. Thus, even though the transport of medications is a tiny piece of the puzzle, it is an equally important component and needs to be undertaken thoughtfully and judiciously.

Now, if you’ve read this far I’m sure you’ve bought into the thesis that cryogenic shipping is essential for regenerative medicine and are now wondering how, over time, Cryoport will be able to compete with the likes of FedEx, UPS and DHL.

This is a very valid question. Those companies have hundreds of thousands of employees, trucks, planes, etc. It’s obviously cheaper for them to make a delivery than for Cryoport to do so.

The answer to this dilemma is simple: Cryoport isn’t competing with the major shippers directly, instead they are working with them. The company is already in a direct partnership will all three of the major shipping companies.

When a biotech company wants to ship something cryogenically frozen, they can go to the shipper of your choice. Here’s how it works from the FedEx website.

FedEx Introduces New Solution For Deep Frozen Shipments…The solution uses liquid nitrogen dry vapor technology that maintains a temperature of below -150 degrees Celsius for up to 10 days using the CryoPort Express® Dry Shipper…Customers place orders online through a customized FedEx portal. FedEx provides the pre-conditioned container to the customer to load their temperature-sensitive product. FedEx then delivers the container to its final destination while actively monitoring the shipment and intervening if needed during transit. Finally, FedEx picks up the container and returns it for refurbishing.

Cryoport has put a lot of time and money into developing not only their transport containers, but the whole logistical solution. Meanwhile, the shippers are not in the business of monitoring medicines, they are in the business of logistics. It makes a lot of sense for them to take all the shipping business and leave the tricky, niche parts up to Cryoport.

At the same time, since this is a small part of the cost of these medicines, the focus will always remain on the quality of the delivered product, not upon the expense of the shipping. For a drug company, they are going to be very happy to use one of the major shippers as long as there’s confidence in a successful delivery. As such, there’s not a major push for a second shipping solution and Cryoport has a nice, dominant, role in this niche industry.

As discussed previously, the regenerative medicine space is garnering a lot of investment dollars. Each of these companies involved in creating medicines here will go through the same process as they work their way to FDA approval. First pre-clinical, then phase 1, 2 and 3 trials, which then lead towards filing of a BLA (Biologics License Application) with the FDA. If it gets approved, they market the drug and, hopefully, garner lots of sales.

This process, from the outside, looks a lot like a funnel. There are many companies involved in preclinical trials, fewer in phase 1, etc. Currently, there are no approved drugs in this space and only two companies, AstraZeneca and Kite Pharma, have filed BLAs. Both these companies are CYRX clients. Furthermore, Cryoport expects 3-4 additional BLAs to be filed in 2017.

As a drug works its way through this FDA process, it involves increasingly more patients in the trials. Which, directly translates into more revenues for its shipping providers. Here’s an overview of the trials taking place now, from Cryoport’s presentation.

For every approved BLA by a customer of Cryoport, they expect to receive between $2 – $20M in annual shipping revenue. The broad range depends upon the drug, its target disease, and the size of the patient population.

This means that Cryoport’s potential marketplace will be increasing dramatically over the next few years as more regenerative medicines garner approval. The gains to CYRX’s revenue line should be exponential for several years.

As shown above, the list of Cryoport’s clients is a “Who’s Who” of the pharmaceutical industry, including giants such as Merck and Bristol Myers. Just looking at the trials that involve current customers of CYRX, there are (besides the two aforementioned BLAs already filed) 139 trials taking place in various stages of Phase I – III. The potential market size, just using an average of $10M in CYRX revenue per approved drug, is therefore well over a billion.

No one would expect all these drugs to be approved, nor for CYRX’s revenue to approach that number any time in the next 5 or more years. However, this little exercise does demonstrate the large potential of this market, and the upside available for Cryoport in terms of revenue and, eventual, profitability.

Delivering on Potential
As the title of this article states, Cryoport is delivering results. In a nascent market, they are gaining customers and have dominant market share, with both BLAs filed being by their customers. These results are showing in the earnings of CYRX, as their revenue has not only grown rapidly the last few years, but is accelerating as we speak.

The proof is always in the numbers, and the above chart shows that Cryoport is executing on its potential. With a strong product offering, great partners, coupled with a large and rapidly growing space, Cryoport is looking well positioned to continue delivering upon its promise.

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