Introduction and Investment Thesis
Cryoport (CYRX) provides a cold chain platform serving the life sciences industry where it helps preserve and transport temperature-sensitive biopharma therapies. This platform includes the storage medium, the end to end logistics platform, and an integrated cloud-based IT layer. This tech layer provides the end-customer a way to order, track, and manage shipments through Cryoport. The actual transport hardware that Cryoport provides consists of liquid nitrogen or phase-change technology that allows for consistently low temperatures.
Cryoport’s key customers include Novartis (NYSE:NVS), which is using Cryoport to manage the shipping and storage of its core CAR-T therapy (Kymriah) as well as Kite, which is using Cryoport for its own CAR-T therapy (Yescarta).
From a COVID perspective, although there was an impact from clinical trials being delayed due to sponsor choice or due to difficulties in enrolling, this was offset by the company’s recent acquisitions (MVE and CRYOPDP). Just to give a sense of the scale of these acquisitions, Cryoport as a standalone entity reported revenues of $33.9MM in FY’19 while MVE reported FY’19 revenues of $84MM and CRYOPDP reported ~$50MM of FY’19 revenues. Both acquisitions are immediately accretive and will almost 5x the company’s revenue scale on an FY’19 basis. This dynamic drove the relatively strong price performance even through the pandemic as seen below. It also drives my bullishness on the company as the largest scaled player in the space with a diversified cold chain offering.
More importantly, Cryoport offers investors a way to play the cell therapy boom without taking direct clinical development risk. In general, cell therapies are a new treatment paradigm that is quickly gaining traction ever since the first major therapies (Yescarta and Kymirah) were approved. According to Deloitte, the overall cell and gene therapy market is expected to grow from $1B in 2018 to $12B in 2025, which translates to over a 36% CAGR. This is driven not only by the strong efficacy of cell/gene therapies coming to market but also by the significant pipeline assets that are currently in development. In fact, the FDA expects over 30-60 drug approvals in this space by 2030.
Cryoport, currently, works with over 500 cell/gene therapies currently in clinical development or roughly half the market. The total number of therapies in clinical development has grown considerably over the last few years, and by having such a large part of the market, the company is relatively insulated from one-off trial failures so long as the aggregate number of trials continues to grow, which I believe it will. Furthermore, given the importance of the cold chain in cell/gene therapies, companies almost always retain the vendor they used in the clinical trial stage for post-approval commercialization. And given that volumes during commercialization are larger than those at the trial stage, it also drives the opportunity for significant revenue upside as these drugs are commercialized. We are only at the beginning stages of commercialization for this class of therapies, and with Cryoport having the pivotal market position in the space, I am very bullish on the company’s growth prospects.
Looking at the company’s most recent quarterly results, the company has been able to demonstrate strong growth even through this pandemic with revenues up 17% YoY. Furthermore, net loss declined YoY which illustrates the improving profitability and operating leverage in the model. To note, both the MVE and CRYOPDP acquisitions are expected to close post Q3 and are thus not reflected in the numbers below. However, we expect the net impact to be positive with both acquisitions adding over $100MM in run-rate revenues while also being accretive to earnings from closing.
In terms of competition, although there are players that offer bits of pieces of Cryoport’s offering, Cryoport still has the advantage of being the largest scaled player in the space. As an example, one of Cryoport’s competitors is BioLife Solutions (NASDAQ:BLFS). However, they focus more on the biopreservation side of the equation vs. the entire cold chain logistics cycle side.
COVID is a key risk here as continued pandemic-related disruptions may halt or push back clinical trials, which is the major driver of the company’s revenue base. Furthermore, it also has an impact on commercialized therapies as hospital capacity and stay at home orders may make it difficult for patients to get treatment.
The company is still net income negative, and although well capitalized for now, there is a risk that the company will need to raise a dilutive equity round at some point to continue to fund growth. This is particularly so if the company continues to push on the M&A front to boost growth.
Valuation and Conclusion
The company currently trades at ~9x EV to forward revenue. This is based on an enterprise value of $1.7B and the forward revenue estimate (FY’21) of $196MM (analyst average). However, given the company’s strong product portfolio, market-leading traction, strong inorganic growth strategy, as well as the large revenue opportunity once more cell therapies are commercialized, I believe that a ~13x EV to forward revenue multiple is roughly fair. This would generate around 44% upside from current levels.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.