BLFS - Initiating Coverage
Brian Marckx, CFA
We have initiated coverage of BioLife Solutions, Inc. . See below for access to our full 13-page report on the company which includes our financial model and provides further discussion about the company, their biopreservation media products and competitive advantages, target markets, and growth strategy.
BioLife Solutions, Inc., headquartered in Bothell, Washington, has a main focus on the development and manufacture of biopreservation media products for cells, tissues and organs. Biopreservation media are solutions used to maintain the viability of biological material such as cells (including stem cells), whole blood, and tissues following removal from the body, during storage and transportation, and while undergoing handling, manipulation and processing by researchers engaged in regenerative medicine product development. Demand for biopreservation media is estimated to grow at an annual rate of almost 20% over the next several years. BioLife expects to benefit from the emerging field of regenerative medicine (including cell therapy and tissue engineering) which has recently experienced rapid growth, largely as a result of recent advancements and findings using stem cells to regenerate and repair tissues and organs, as well as to treat a number of diseases.
The company's current suite of biopreservation media products includes HypoThermosol, CryoStor, and generic BloodStor which are marketed to regenerative medicine companies, hospital-based stem cell transplant centers, pharmaceutical companies, cord blood and adult stem cell banks, hair transplant surgeons, and suppliers of cells to the drug discovery, toxicology testing and diagnostic markets. The company also has a contract manufacturing business which provides aseptic media formulation, fill and fin¬ish services.
The contract manufacturing business, which management recently noted should generate one to two million dollars in revenue in 2012 as a result of the signing of a key customer during 2011, is expected to provide a source of near-term revenue and cash flow to help fund the further development and commercialization of the biopreservation business, which BioLife expects to provide the bulk of revenue and drive earnings for the long-term.
BioLife's strategy is to build greater visibility and awareness of the benefits of their biopreservation products compared to the "home-brews" that currently dominate the market. Key advantages such as extended shelf-life and higher preserved-cell yields translate into reduced input costs (i.e. - lower COGS) and greater stability of finished products for customers in regenerative medicine, biobanking and drug discovery. BioLife will use this as part of their marketing message as they look to grow their direct and distributor customer base which already encompasses ~400 organizations including some leading life sciences companies such as Life Technologies, Sigma-Aldrich, Cellular Dynamics and Athersys.
Revenue could potentially really ramp for the long-term if development-stage therapies using BLFS's biopreservation media gain FDA approval and are commercialized. This would offer a significantly greater upside revenue opportunity for BioLife as well as a much more stable source of revenue than as a supplier in the R&D process.
BioLife sells their biopreservation products directly to customers as well as indirectly through distributors. Approximately 80% of the $2.8 million in total revenue in 2011 came from product sales directly to customers. Contract manufacturing revenue has been immaterial but is expected to be much more meaningful in 2012 as a result of the aforementioned contract signed in late 2011.
Q1 2012 revenue was $836k, including $738k from biopreservation sales directly to customers. Management's most recent financial guidance (provided in the Q1 earnings release on May 14th) for 2012 is for total revenue of approximately $4.1 million, including $1 million - $2 million from the contract manufacturing business (it's currently unclear exactly how much contribution from contract manufacturing management assumes in order to meet the $4.1MM revenue guidance). While management's guidance also includes lower gross margins in 2012 due to a greater percentage of revenue coming from the lower margin contract manufacturing business as well as a forecasted increase in operating expenses (as a result of increased selling and product development spend), management believes the anticipated growth in revenue will push them to positive operating cash flow in 2012.
BioLife is focused on not only growing revenue but also on diversifying the customer base in order to dilute customer concentration and the related revenue volatility risk. To that point, they continue to increase their total (indirect and direct) customer base (currently at ~400) and in 2011 had no customer that accounted for more than 10% of revenue. This compares to 2009 and 2010 when one customer accounted for 21% and 16% of sales, respectively.
We currently model 2012 revenue of $3.8 million. We assume sales to the new contract manufacturing customer commence in Q2 but provide a larger contribution in the second half of the year. Based on our estimated revenue, we think BioLife may not achieve positive operating cash flow during the current year unless they're able to significantly trim operating expenses and maintain gross margin very near the 2011 level. Also in contrast to management's expectations, we think BioLife may need to raise additional operating capital during 2012, which we believe would likely continue to come from promissory notes.
BioLife's strategy to grow their customer base includes building greater visibility and awareness of the benefits of their biopreservation products compared to competitors', especially the various "home-brews" that currently dominate the market. This includes continuing to attend and present at industry conferences, active engagement and site visits with prospective customers by BLFS' Chief Technology Officer (a recognized expert in the field of biopreservation), maintaining current and building new distribution relationships, and a recent free-sample campaign whereby BLFS is giving away samples of HypoThermosol and CryoStor so prospective customers can test for themselves the superiority of the products compared to competitors'.
Our out-year (> 2013) revenue estimates are based on very general assumptions, including that contract manufacturing revenue can be maintained at the ~$1.5 million annual level and biopreservation product sales are driven largely from continued increases in the customer base. If and when one or more therapies currently in clinical testing that are using BioLife's biopreservation media gain FDA approval, this could spark a significantly greater ramp in revenue. Management believes that each regenerative medicine product that reaches worldwide commercialization could be worth as much as $1 million - $2 million in revenue (three to five years after launch) to BioLife as the biopreservation media supplier. While we do not yet model any revenue contribution related to supplying an approved therapy, when there is greater visibility on the potential for that happening, we will update our model accordingly.
To access a complimentary copy of the full BLFS initiation report, please visit Brian Marckx's analsyt page at scr.zacks.com.