BioLife Solutions, Inc. — 2018 Form 10-K
Reporting period: Year ended December 31, 2018. This is an annual report; the supplied filing text does not provide a separate fourth-quarter income statement. BioLife develops and sells biopreservation media and related services for cells, tissues and organs, including products used in regenerative medicine, biobanking and drug discovery.
Financial performance and liquidity
| Metric | 2018 | 2017 |
|---|---|---|
| Revenue | $19.742 million | $11.022 million |
| Gross profit / gross margin | $13.525 million / 68.5% | $6.746 million / 61.2% |
| Operating expenses | $9.863 million | $7.802 million |
| Operating income (loss) | $3.662 million | $(1.056) million |
| Net income (loss) attributable to common shareholders | $2.927 million | $(2.728) million |
| Diluted earnings (loss) per share | $0.14 | $(0.21) |
| Cash from operating activities | $2.348 million | $0.605 million |
| Cash and cash equivalents at year-end | $30.657 million | $6.663 million |
- Revenue grew 79%, reflecting higher volume and average selling price: liters sold increased to 9,789 from 6,105, while average selling price rose to $2,017 per liter from $1,805.
- Regenerative medicine revenue increased 108% to $11.029 million; distributor revenue rose 99% to $6.418 million. CryoStor accounted for 88% of revenue, up from 77%.
- Gross margin improved on higher selling prices, product mix and lower overhead per liter, partly offset by higher raw-material and direct-overhead costs. Operating expenses rose 26%, primarily due to compensation, hiring and quality-system consulting.
- Cash from investing activities was $(6.500) million, including $6.0 million invested in SAVSU. Financing activities provided $28.146 million, including $20.0 million from a private stock investment and $12.9 million from option and warrant exercises; preferred-stock redemptions used $4.25 million.
- At year-end, total assets were $45.467 million and total liabilities were $2.319 million. Cash substantially exceeded reported liabilities; those liabilities included deferred rent and other items. The filing does not provide a clear aggregate figure for borrowings in this summary.
Material changes and notable items
- BioLife reported its first full year of profitability, compared with a 2017 loss. Net income before preferred dividends was $3.266 million; income-tax expense was zero, and a full valuation allowance remained against deferred tax assets.
- Cash increased by $23.994 million, primarily from equity financing and exercises of options and warrants, rather than operating cash generation alone.
- BioLife redeemed all Series A preferred stock during 2018 for $4.25 million. Common shares outstanding increased to 18.547 million at year-end from 14.021 million.
- The company increased its SAVSU ownership to approximately 44% after $6 million of investment and received an 18-month option to acquire the remaining 56%. The option consideration is the greater of 1 million BioLife shares or approximately $23 million of BioLife stock, calculated at exercise.
- HypoThermosol-related U.S. Patent 6,045,990 was scheduled to expire in April 2019, with foreign counterparts expiring in July 2019; BioLife cited trade secrets and know-how as additional protection.
Outlook, risks and contingencies
- Management stated that available cash was expected to meet liquidity needs for more than one year, based on current revenue and expense expectations. It cautioned that weaker-than-expected revenue or insufficient expense control could require additional financing.
- Management expected regenerative medicine and distributor sales to continue growing over the next one to five years as customers obtain regulatory and marketing approvals. The filing gives no formal revenue or earnings guidance.
- Growth and sales depend partly on customers’ therapies receiving approval and achieving commercial success. BioLife estimated use of its products in more than 300 cell- and tissue-therapy applications, but these applications are not assured to reach commercial scale.
- Revenue is concentrated: two customers represented approximately 29% of 2018 revenue; CryoStor represented 88%. Three customers accounted for 71% of year-end gross accounts receivable. Dependence on key customers, products and markets is a material risk.
- Other risks include reliance on outside suppliers and a single Bothell manufacturing site, competition, intellectual-property protection and patent expiration, SAVSU’s losses and limited control, and potential dilution from securities issuance. BioLife reported no material legal proceedings and no off-balance-sheet arrangements.
- After year-end, on March 13, 2019, BioLife agreed to acquire Astero Bio Corporation, subject to closing conditions. Consideration includes $12.5 million base value (cash payments, including a deferred payment), up to $3.5 million in annual revenue-based earnouts, and a separate $5.0 million cumulative-revenue earnout. The filing describes escrow arrangements as well.
- The financial statements received an unqualified audit opinion, and the auditor also gave an unqualified opinion on internal control over financial reporting. The company reported effective disclosure controls and internal controls.
Important facts for investors to verify
- Customer concentration, CryoStor dependence and the extent to which the 2018 growth rate is sustainable.
- Whether customer therapies using BioLife products receive approvals and translate into recurring commercial-scale demand.
- Competitive and pricing effects following the 2019 expiration of the HypoThermosol-related patents.
- Terms, funding, dilution and execution risks of the SAVSU purchase option and the Astero acquisition, including earnouts and closing conditions.
- Cash needs after the equity-driven 2018 funding increase, and the effect of outstanding options and warrants on future share count.
- Realization and potential use of net operating loss carryforwards: the filing reports $35.147 million of NOLs and a full valuation allowance, and notes that utilization may be limited.