Cryoport, Inc. — 2017 Form 10-K
Business and reporting period. Cryoport provides temperature-controlled logistics, packaging, monitoring and information technology for life sciences shipments, with a focus on cryogenic and cell-therapy logistics. This report covers the year ended December 31, 2017. Because the company changed its fiscal year-end, the comparable calendar-year 2016 results are unaudited; the nine-month 2016 transition period is not directly comparable.
Financial performance and liquidity
| Metric | 2017 | 2016 calendar year |
|---|---|---|
| Revenue | $11.95 million | $7.68 million |
| Gross profit / margin | $5.97 million / 49.9% | $3.10 million / 40.4% |
| Operating loss | $7.89 million | $8.77 million |
| Net loss | $7.90 million | $13.11 million |
| Net loss per share | $0.34 | $0.93 |
| Cash used in operating activities | $3.58 million | $5.72 million |
| Cash used in investing activities | $1.80 million | $1.07 million |
| Cash provided by financing activities | $15.90 million | $6.06 million |
Revenue increased 55.7%, led by biopharmaceutical services, which grew 71.9% to $9.11 million. Reproductive medicine revenue rose 11.4% to $1.71 million, while animal-health revenue increased 34.3% to $1.14 million. Gross margin improved by about 9.5 percentage points, which management attributed to higher shipment volume, pricing changes, lower freight costs as a share of revenue and reduced fixed manufacturing costs.
At year-end, cash and cash equivalents were $15.04 million, working capital was $15.11 million, and the company reported no debt. Related-party notes were repaid in full in April 2017. Financing included $11.4 million net proceeds from a March 2017 stock offering and $5.2 million from option and warrant exercises. Cash and cash equivalents included approximately $14.8 million above FDIC insurance limits.
Material changes and operating developments
- Net loss narrowed from $13.11 million to $7.90 million. The comparison benefited in part from the absence of $4.20 million of 2016 warrant inducement and repricing expense.
- Operating expenses rose to $13.86 million from $11.87 million. Engineering and development expense more than doubled to $1.21 million, including investment in the next-generation Cryoportal platform, monitoring systems and packaging.
- The company added approximately 83 biopharmaceutical clients and supported 214 clinical trials at year-end, including 26 Phase III trials.
- In 2017 Cryoport signed agreements to manage clinical and commercial CAR-T shipments for Novartis and Kite/Gilead, and launched its C3 solution for 2–8°C shipments.
- Stock-based compensation was $3.55 million. The company had 25.7 million common shares issued and outstanding at year-end; its filing reported 27.34 million outstanding as of March 1, 2018.
Outlook, risks and unusual items
Management expects growing clinical-trial activity to support future revenue as trials advance and therapies are commercialized. The filing provides no specific revenue, earnings or cash-flow guidance. Management also stated that additional capital may be needed until sustained profitable operations are achieved.
- Profitability and funding: Cryoport has incurred losses in every fiscal year since operations began and reported an accumulated deficit of $131.4 million. Continued investment may require further equity or debt financing, with potential dilution or restrictive covenants.
- Commercial execution: Customer qualification and adoption can take months or longer; there is no assurance that logistics partners or customer agreements will produce significant revenue or cash flow. Zoetis was described as the company’s largest customer, although no single customer accounted for more than 10% of 2017 revenue.
- Operational and technology exposure: The company relies on third-party carriers, selected suppliers and an outside software developer for continued Cryoportal development. It also identifies cyberattack, shipment disruption, product-liability and regulatory-compliance risks.
- Equity and tax items: Options and warrants represent potential dilution. Federal and state net operating loss carryforwards may be limited by ownership changes; the company had not completed a Section 382 study. The 2017 Tax Act reduced deferred tax assets by approximately $8.0 million, offset by a corresponding valuation-allowance reduction, with no net tax-provision impact reported.
- Subsequent event: In February 2018, a warrant exchange and exercise generated $4.7 million gross proceeds. The associated $899,400 repricing expense was to be recorded in the first quarter of 2018, not 2017.
The independent auditor issued unqualified opinions on the 2017 financial statements and internal control over financial reporting; management reported effective controls and no material weaknesses.
Key facts investors should verify
- Confirm the basis of comparison: 2016 calendar-year results are unaudited, and the company’s fiscal-year change makes some presented periods non-comparable.
- Assess whether clinical-trial growth and the Novartis and Kite/Gilead relationships translate into recurring commercial revenue and improved operating cash flow.
- Monitor customer concentration, particularly Zoetis, and the terms and performance of shipping-partner agreements.
- Evaluate cash runway against operating and investment cash use, and track future financing needs, share issuance, warrants and options.
- Review the impact of the February 2018 warrant transaction and the potential Section 382 limits on tax attributes.