Overview

Before reading this report, I would suggest reviewing my initiation report on Cryoport of April 12, 2017 and my update report of July 19, 2017. Without information contained in these reports, it might be difficult to put my comments in this note in perspective. Based on new guidance from CEO Jerry Shelton, it appears that my revenue estimates for logistics sales derived from support of commercial CAR-T products from Novartis and Kite in 2020 of $3.5 million is extremely low and that $19 million be a better estimate. As a result, I am raising my 2020 price target from $14.50 to $20.00 and reaffirming my Buy on the stock. The party appears to have only just begun.

New Guidance from CEO Leads to Increased Sales Projections

Cryoport announced today that it had been selected by Novartis to provide logistics for NVS’ lead CAR-T product tisagenlecleucel (also known as CTL-019) upon approval. I can’t imagine that tisagenlecleucel will not be approved on or before its October PDUFA date following the unanimous recommendation for approval at the recent FDA Oncologics Drug Advisory Committee meeting and the breakthrough therapy status accorded it by the FDA. The Novartis decision is in no way surprising as Cryoport provided logistics support in the phase 2 pivotal trial and if you have followed my analysis, you will know that I believe that it is extremely unlikely (nearly impossible) that Novartis would even think about not using Cryoport in the commercial phase. The logistics services provided by Cryoport are part of the CMC section of the BLA filing and changing to another provider might (probably would) require a new bridging trial to demonstrate that such a change would not alter product characteristics. Obviously this is not going to happen.

The press release of July 25^th covering this announcement did not go into much detail. However, CEO Shelton later commented in a Bloomberg interview that he believed that the upcoming launch of tisagenlecleucel in pediatric r/r ALL would lead to $8 to $10 million of global revenues for Cryoport when fully launched. I assume that fully launched refers to when tisagenlecleucel hits peak sales potential. Pediatric r/r ALL has a small addressable market of 650 or so patients in the US. These patients are in a life threatening situation and there is no other viable drug alternative. Comments in the recent AdCom meeting suggested that tisagenlecleucel may be able to cure 60% of these patients. Given the small number of patients and amazing efficacy, I think that the market can be quickly penetrated so that peak sales of in the US might be reached in 2 to 3 years with the rest of the world perhaps taking a little longer.

The mode of action of tisagenlecleucel involves targeting B-cell malignancies that express the CD-19 antigen of which here are several cancers other than pediatric r/r ALL. Novartis has completed a phase 2 study of tisagenlecleucel in r/r DLBCL and I project that it will begin marketing in this indication in early 2018. It is also conducting studies in adult ALL, CLL, TFL, MCL and PMBCL. These cancer indications probably have anywhere from 50% to 200% of the sales potential of pediatric r/r ALL, but it is difficult to judge with any precision at this time due to sparsity of data and different market characteristics. For example, the addressable patient population in the US for r/r DLBCL is about 7,500 patients versus 650 for pediatric ALL. However, the cure rate is probably 30% or less versus 60%.

I don’t really have a good estimates for the sales potentials of tisagenlecleucel in r/r DLBCL; I am anxiously awaiting an AdCom meeting to get a better idea form experts on the panel on how it will be used. Because of its much lower cure rate, it is possible that only a percentage of patients will be treated rather than the whole population as in pediatric r/r ALL. Still, my guess is that global sales will be larger than pediatric r/r ALL. While precision is not possible at this time, it seems probably that the ultimate opportunity of tisagenlecleucel in B-cell malignancies expressing CD-19 could be orders of magnitude greater than the $8 to $10 million guidance just issued  for pediatric r/r ALL.

It is important to understand that Novartis will be the only marketer of a CAR-T product indicated for pediatric r/r ALL in the next year and one-half. However, there is a neck and neck race with Kite and possibly Juno to market a CAR-T drug for r/r DLBCL and other cancers listed previously. Some have expressed concern that Kite and Juno are going after the same indications as Novartis. For Cryoport, this is not an issue since it is almost certain to be the logistics supplier for these companies as well.

Investment Implications

It would appear that the pediatric r/r ALL indication could account for $8 to $10 million of revenues for Cryoport in 2020 based on CEO Shelton’s recent statement. Conservatively, the r/r DLBCL indication should be of the same order of magnitude (probably greater) of $8 to $10 million of Cryoport revenues in 2020. Note that this will be comprised of sales to Kite as well as Novartis. In addition, revenues from the additional indications- adult ALL, CLL, TFL, MCL and PMBCL- should begin to ramp in 2019 and 2020, Based on this new information, my revenue estimates for logistics support for Novartis and Kite of $1.6 million in 2018, $2.4 million in 2019 and $3.5 million in 2020 seems woefully low. As a preliminary guess, 2020 revenues from CAR-T therapies could be $19 million or more. For conservatism, I am not including any revenues from other CAR-T or gene therapy drug developers in my 2020 estimate even though I believe there is a high probability for such sales. Expressed another way, my $19 million sales estimate seems quite conservative.

At this point in time, I am changing my sales model in 2020 to fit the assumption of $19 million more of CAR-T sales. Sales projections for all other parts of the Company remain unchanged from the model shown in my initiation report. This has the result of increasing my total 2020 corporate sales estimate from $33.7 million to $52.7 million. My price target is based on a multiple of sales (see my initiation report for an explanation of the methodology). Consequently, I am increasing my 2020 price target from $14.50 to $20.00 and I continue to be a buyer of Cryoport.