Q4 2023 Cryoport Inc Earnings Call

Participants

Todd Fromer; IR; KCSA Strategic Communications

Jerrell Shelton; President & CEO; Cryoport, Inc.

Robert Stefanovich; CFO & Treasurer; Cryoport, Inc.

Mark Sawicki; CSO; Cryoport, Inc.

Thomas Heinzen; VP, Corporate Development and Investor Relations; Cryoport, Inc.

Puneet Souda; Analyst; Leerink

David Saxon; Analyst; Needham & Company, LLC

Tejas Savant; Analyst; Morgan Stanley & Co. LLC

John Sourbeer; Analyst; UBS

Brandon Couillard; Analyst; Jefferies LLC

David Larsen; Analyst; BTIG

Yuan Zhi; Analyst; B. Riley FBR, Inc.

Paul Knight; Analyst; KeyBanc Capital Markets

Presentation

Operator

Good afternoon, and welcome to Cryoport fourth quarter and full-year 2023 conference call. (Operator Instructions) As a reminder, this call is being recorded. I would now like to turn the call over to your host, Todd Fromer from KCSA Strategic Communications. Please go ahead.

Todd Fromer

Thank you, Operator. Before we begin today, we'd like to remind everyone that this conference call contains certain forward-looking statements, all statements that address our operating performance, events or developments that we expect or anticipate occurring in the future are forward-looking statements. These forward-looking statements are based on management's beliefs and assumptions and not on information currently available to our management team and our management team believes that these forward-looking statements are reasonable as and when made.
However, you should not place undue reliance on any such forward-looking statements because such statements speak only as of the date when made. And we do not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information or future events or otherwise, except as required by law.
In addition, forward-looking statements are subject to certain risks and uncertainties that could cause actual results, events and developments to differ materially from our historical experience and are present expectations or projections. These risks and uncertainties include, but are not limited to, those described in Item 1A, Risk Factors and elsewhere in our annual report on Form 10 K filed with the Securities and Exchange Commission and those described from time to time in the other reports which we filed with the Securities and Exchange Commission.
With nothing further, it is now my pleasure to turn the call over to Mr. Jerrell Shelton, Chief Executive Officer of Cryoport. Jerry, the floor is yours.

Jerrell Shelton

Thank you, Todd, and good afternoon, ladies and gentlemen. Thank you for joining our earnings call today with us this afternoon as Chief Financial Officer, Robert Stefanovich; our Chief Scientific Officer, Dr. Mark Sawicki; and our Vice President of Corporate Development and Investor Relations, Thomas Heinzen.
As a reminder, we have uploaded our fourth quarter and full year 2023 and review document to our website. It can be found under Investor Relations in the News and Events section. This document provides a review of our financial and operational performance and a general business outlook. If you've not had a chance to read it I would encourage you to go to our website and download it. I'll provide you with a brief update on our business, and then we'll move into answering your questions in today.
We reported total revenue of $233.3 million for fiscal year 2023, which was within our guidance range. 2023 turned out to be a challenging global operating environment, which impacted revenue across all of our business units. Product revenue was lower than historical levels, even as MVE. revenue began to stabilize in the last quarter of the year. At the same time, in 2023, we saw further growth in service revenue as it became a greater part of our business.
Our service business is the core driver of our growth, generating over $144 million in revenue, which represents 62% of our total. As part of this growth, we had a year-over-year growth in BioStorage BioZ service revenue of 45% and commercial Cell and Gene Therapy revenue of 33%. As of December 31, 2023. We supported a record of 675 clinical trials worldwide, a net increase of 21 clinical trials over last year with 82 of these in Phase three as well as 311 in Phase two. I think it's important to point out that our clinical trial portfolio constitutes a significant long-term revenue growth opportunity for Cryoport as most therapies proceed through clinical trials toward commercialization.
We currently support 14 commercial therapies, up from four up from 10 in the prior year. We expect that number to grow again this year, driven by an anticipated 17 application filings and an anticipated nine new therapy approvals. In fact, we have already had two new therapy approved two new therapies approved and one BLA filing this year. So we're off to a pretty good start. Product revenue in 2023 was lower than historical levels as reported previously, our M. two E. biological solutions revenue began to stabilize in the latter part of the year, putting the short-term anomalies in perspective in the E as a global leader in the manufacture of cryogenic systems, it is a resilient business and through cost controls, it has been able to maintain strong margins and generate considerable cash flow for our company.
We remain confident in MVE. and its future. I think for cell and gene therapy industry is still in a nascent stage that will develop. And the way we can do that will develop in a way that will transform the way we practice medicine for the betterment of mankind. The the actions we take daily are to support that vision, not just for the short term, but for the longer term as well. To that end, a few of the actions we took during 2023 to further position ourselves for continued growth and industry leadership included making targeted investments in our business and forming strategic relationships with respected partners. For example, we acquired bluebird Express, a provider of time-sensitive domestic and international transportation services with the intent to strengthen cryo PDP's USA rollout.
We also completed the acquisition of Tech from a life sciences technology company that provides next-generation communication and condition monitoring technology for the Life Sciences. It is true that the tactical investments with strategic impacts such as these that we have had over the years, expanded our solutions beyond logistics and transformed our Company into a robust platform of temperature control, supply chain solutions for life sciences with a focus on cell and gene therapy, we pay attention to the development of our ecosystem and to the to that end, we developed additional strategic partnerships.
In 2023, including forming a new collaboration with Cell and Gene Therapy Catapult network in Stevenage, England to provide integrated logistics support through its manufacturing innovation center through this partnership we are establishing our first U.K. logistics center to support cell and gene therapy clinical trials and future commercial growth throughout Europe. Stevenage is located in the center of the Golden Triangle arguably the most cell and gene therapy concentrated activity in all of Europe. We also expanded our relationship with NMDP. biotherapies, formerly known as B., the matched therapies in which it will be leveraging our new Integra cell platform and support of allogeneic donor recruitment collection and cryopreservation.
In Asia Pac, we developed a strategic partnership with Nippon Express headquartered in Tokyo, which will build on to our growing A-Pac presence and bolster our Temperature Control supply chain solutions worldwide. Our business development activities included welcoming a number of key new clients from which revenue will ramp up over time. For example, Sarepta's gene therapy LVDS for the treatment of Duchenne muscular dystrophy has ramped up treating patients much faster than Wall Street had predicted and by June of this year, Sarepta may receive a label expansion for OV. Does that remove all the current age restrictions, other positive client developments that have continued into 2024 include the FDA's commercial approval of Iovance biotherapies Amtech.
The therapy for advanced melanoma, the FDA's commercial approval of crisper and Vertex of the cast Gavi for the treatment of sickle cell and beta, our Talison female and the FDA's acceptance for prior priority review of Adaptimmune biologic license application for Alpha cell and investigational engineered T cell therapy for advanced synovial sarcoma as these and other anticipated therapies are introduced into the market and begin to ramp up. Our commercial revenue will grow, driving further growth in logistics and bio service revenue.
We continue to set a new standard for the cell and gene therapy industry, as evidenced by the launch of innovative and revolutionary products and services, including the Cryoport elite line of shippers, which include the cross-border lead Ultra coal minus 80 shipper. These cutting edge shippers are set and setting a new bar exceeding industry standards, temperature hole times and providing additional risk mitigation. Our advanced integrated technologies, enable data management and transparency verified through our training and compliance service platform. With product introductions like these, we continue to expand our Indian solutions for the care and transport of cell and gene therapies.
The developments and actions I've outlined today are just a few examples of solid foundation. Cryoport continues to build to support our long term growth strategy growth in the cell and gene therapy market alone, along with other sectors of the Life Sciences pause over the last year or so. But we expect 2024 to show progressive improvement throughout the year. Therefore, we're providing a full year 2024 revenue guidance in the range of $242 million to $252 million.
As we move through 2024, we will continue to focus on leveraging our growth drivers and strengthening our industry leading brands to better serve our clients while capitalizing on the growth of the cell and gene therapy industry. As more of these life-saving therapies receive regulatory approval globally, we believe 2024 will be a year of progressive advancement in our business with stronger overall growth in our service business.
That concludes my prepared remarks, and now we're happy to take your questions. Operator, please open the lines for questions.

Question and Answer Session

Operator

(Operator Instructions)
Puneet Souda, LeerinkPartners.

Puneet Souda

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Jerrell Shelton

Jerry, I'm not going to be clearly low end of your company.
I can't understand your question. Hopefully, you now know I'm going to read it yes, on top of that because of the of the.
Thank you.
Operator, why don't you go to the next question?
Tony, why don't you tried to fix your situation and hop back in Nelson, if you can tie to my review of your

Operator

David Saxon, Needham.

David Saxon

Oh, great.
Hi, guys.
Good afternoon.
Thanks.
For taking my questions. Hopefully you can hear me a little better on what I wanted to.
Okay. Great.
On to the comments around NDMDE. stabilizing in the fourth quarter. It sounds like the rest of the portfolio yet is seeing growth. So I wanted to ask about the cadence of revenue throughout the year and looking back, you do typically grow sequentially off the fourth quarter. So with kind of what you saw in the fourth quarter, should we think about that trend continuing and seeing growth sequentially in the first quarter and any reaction to consensus at around $62 million for the first quarter. And then all of a quick follow-up.

Jerrell Shelton

David, as you know, we don't give quarterly guidance, but I think, you know, the assumption about your trend, I think is fine. I mean what we what we suggested and I tried to suggest in my comments, was progressive improvement throughout the year. The industry did take a haircut for the past couple of years in terms of funding and in terms of growth and so forth. And but we think that's coming back, we think the funding is off to a good level. We've as I mentioned, we've got a couple of therapies already approved, and we think we're off to a good start so we think we will be progressively better throughout the year.
And we mentioned of the services revenue being really the growth driver. So if you look at the 23 performance and two of the critical revenue streams that we've seen significant growth in both on the commercial revenue side, where we're seeing growth of 33% year over year and actually 36% in Q4 or the BioStorage services revenue, where we've seen again, 45% year over year growth. So those are some of the leading service revenues that we also expect to continue to grow in 24 as well.
And David will have progressive improvement. And number two, I mean that's I mean that is a great business that it owns the data. It's the dominant share of the market, and it is a great business. It's the number one grower who cryogenic systems manufacturer in the world, and it's highly lauded and there is need for biologic storage all around the world and so that but that will come back. It just comes back. It will come back over time.
Okay.

David Saxon

And of super helpful. So thank you for that. And then I wanted to ask on the P and specifically the gross margin. And you know, it was fairly stable through the third quarter and then came down a bit in the fourth. So what happened during the quarter to cause that sequential contraction? And then for 2024, and you know, how should we think about the gross margin for this year? Thanks so much.

Jerrell Shelton

Yes, again, you on gross margin, you're right. If you look at overall gross margins, we ended Q4 at 42.6 and versus the 43.8%. And we've seen services revenue being being relatively flat year over year and then seeing a little bit more of a dip on the product side and some in some instances, we'll will have in Q4 kind of additional kind of cost increase the amount of initial true-ups. So I would expect some of that to alleviate going forward in in Q1 and beyond. But our yes, I would expect for modeling purposes, BARBARA stabilization of gross margin, again also with the increase in our business increasing progressively throughout the year.

David Saxon

Great. Thank you so much.

Operator

Haas Savant, Morgan Stanley.

Tejas Savant

Hey, guys.
Hey, guys. Good evening, Jay.
One for you on the guide. I'm just curious about what exactly are you baking in for the biopharma funding recovery? Are you essentially assuming current demand conditions continue through the rest of the year? Or are you baking in something like a recovery in the back half beyond just easier comps? And then similar sort of question on the China situation as well I mean, clearly was a weak geography for you in 23 as it was for a lot of other life science companies.

Jerrell Shelton

Are you baking in some sort of a recovery there in MB. into the guide in the back half, it changes in terms of the overall funding for for biopharma for by biotech and especially for cell and gene therapy we think that will be improving on a progressive basis throughout the year. And all of this is, you know, notwithstanding any geopolitical unrest or geopolitical tilting or anything. But we think given the situation that we have right now, it will be progressing on a on a on a on a progressive basis as regard to China and China is in a depression and a recession, and it could be a depression. But I think it's in a recession right now and it's going to remain in a recession for a while.
We don't depend on China for a lot of our volume. I mean, it's less than 4% of our total revenue is it is a more significant part of the East revenue, but we're taking action at MBE. two to do a couple of things. One, we will be manufacturing freezers and eMeta domestically in China that will take about a year to implement but we will be manufacturing them in China and meeting to meet President. She's 2025 initiative of making China buy in China. We're happy to do that. That plant has produced freezers in the past, and we have the capacity to ramp up freezer manufacturing in China. So we think that will that will help alleviate part of the situation. But China the pressure on China is going to continue for a while. We don't see China recovering this year for sure, Badri data.

Robert Stefanovich

I'd just add one thing on the M on the bio services or the biopharma funding situation. So I just want to make sure everybody is aware. And obviously, the improvement in the funding for the biopharma space is a long-term benefit for us because it three and recapitalize a lot of the portfolio and allows them to reinitiate clinical programs. And but that does that's not an instantaneous benefit. The benefit is really focused around what Jerry had mentioned in his opening comments is, is all of the new and the approval activity. We see upwards of another nine therapies that may be approved. This year. And so that's because that's where you're going to start to see that significant improvement and contribution later in the year as well as the diversification of revenue into the bio services space as we had already mentioned, as well as that commercial revenue piece.

Tejas Savant

Got it.
That's super helpful.
And then just peeling back the layers at MB a little bit, Jay, can you share some color on what the order book sort of looks like, you know, how month over month things have trended that you've consistently talked of margins holding up really well in that business, even with the top-line headwinds, do you envision a situation where you need to perhaps like lean in on that pricing lever a little bit more than 24 to help nudge a high end freezer sales? And then any color on that $50 million non-cash impairment on MB in the quarter?
Thanks.

Jerrell Shelton

Well, yes, I'll answer the first part and Robert can answer the latter. The latter question. We don't actually comment on details on any of our business units, so I don't really want to comment on those. I can tell you that the margin has to do with a superlative management of our management team and MBE. doesn't an incredible job of managing manufacturing operations and the cost to be in line with revenue and so that the in terms of leaning on a price lever, we that's that we are always looking at our pricing. We annually. We look at our pricing and we look at it more frequently if we have, I'd need to. But I don't think we'll be leaving on that lever in any disproportionate way in the ease that healthy business. It's doing it's doing well. Even under these conditions, it continues to generate cash flow. It's a strong business and it is the dominant player and cryogenic systems manufacturer controlling some 65, 70% of the market. And so we're very confident in MVE. I'm not concerned we're in we're in this business for the long term. We're not in it for the short term.
Now Robert can comment on your question regarding goodwill impairment, absolutely.

Robert Stefanovich

Ltc business, this is your standard accounting approach. So when you look at the non-cash impairment charge and the reduction in goodwill related to MVE Biological Solutions. The acquisition that we completed in Q4 of 2020 is really based on the drop in revenue that we've seen in Q2 of 23, which continued kind of more or less flat over Q3 and Q4 because of leveled out. And with that, we had to adjust our financial modeling and do a quantitive quantitative impairment assessment and that led to that onetime charge reducing the goodwill, no other goodwill or intangible assets were considered impaired.
So that's really the explanation.

Tejas Savant

Got it.
That's super helpful. And then one final one for you. Gary, I know you were doing advanced therapy. We conference in Miami. Just any color on just customer feedback and traction there. And as you talk to them about perhaps some of your upcoming products or recently launched products, whether it's the HV. three ship or perhaps the Fusion 2.0, et cetera. Where do you sense the most the unmet need and excitement? And then where do you see the most traction over the next couple of years for you guys?

Jerrell Shelton

You know, of changes?
It's a really good question, but it's a very complicated answer in the sense that we have of 20 some odd initiatives going on inside the Company, right now building out for for the future. And we are constantly reprioritizing to meet market market needs as they come up. The HV. three shipper is going to be is going to be a fantastic addition to our product line because it will reduce the total cost of shipping for the for the manufacturers on the Fusion line as it's developed and especially as we develop the 800 series, the smaller series will open up markets that we've never been in a little open up second and third floors of the Broad Institute for example to cite just one customer that I think we can cite above fusions because of plumbing issues that could get they could use it flexibly owned on higher floors.
And so that's a that's a very exciting product. The Vario, which can be, which is energy conserving energy efficient unit, can be down up and down for different temperature ranges from minus all20 the way up to two cryogenic temperatures. We have Integra sale coming on where we're going to be furnishing optimized cryo approved process for Reese's and which will standard, which will be standard and standardized.
And there will be that will be producing more robust material will be cryopreserved to allow manufacturers to insert the materials when they need when they want to as opposed when they have to from a being fresh material will be called reserve to expand manufacturing capacity to improve the quality of the therapies. That will be more consistent there will be more consistent. And this is another standard-setting thing that we're doing. And we're opening up this gene therapy business minus 80, whether with the Cryoport elite Ultra coal.
So it goes on and on. And we just bought tech format, which I mentioned in my comments, is an incredible communications and temperature monitoring system. You know, that will start over time to tie all of our companies together and give us the most complete chain of compliance in the world from our it will be terribly exciting as it gets into that process. So those are just a few things.
And we have levels of priority is not just one priority is levels of priority as we serve the industry we're rolling out to, of course, grow PDP in the United States. It already has a number one footprint in Asia Pac and also in India, and we're just now rolling it out in the United States. It's been underway for a while. We acquired bluebird to accelerate that. We're opening up operations to supplement that and to build out the can continue to build out that operation. So we have a host of things going on that there are meeting that are not only meeting the industry, but anticipating where the industry will be and help enabling it to to grow and to prosper, and that's both in cell and gene therapy.

Tejas Savant

Got it. Appreciate the color, guys, and best of luck with the year.
Thank you very much.

Operator

Puneet Souda, Leerink Partners.

Puneet Souda

Okay.
Get hopefully you got me okay.

Jerrell Shelton

It was a much better company, right.

Puneet Souda

So just then if you can help me a little bit on the on the guide, I mean came in on the lower end of the guide itself. That was flat for the year. And you are seeing some improvement in MVE., as you pointed out and sequential improvement. But China is still not improving. So, you know, sort of taking all that in.
I guess my main question is you're implying about a 6% growth this year in 24. And what's what is actually sort of embedded in that guide is what are the levers that you think could push that 6% growth potentially higher and is there or is there enough sort of lack of better word conservatism baked into that?

Jerrell Shelton

Well, you know, we did take a conservative approach for need. And we looked at all of our business units and we built our forecast from the ground up. And certainly we think that there are some upsides that that could happen this year. There could be more therapies approved that they can read. We have our existing therapies, but therapies could ramp quicker, both of which I alluded to a little bit earlier, some of our introductions of products this year, it could be could be adopted much quicker than than we than we forecast. So we definitely have upside but we wanted to be conservative. We're not interested in disappointing anyone and we will and our business plan is around that.
Robert, would you like to comment any further on that note, I'll just say I'll echo what Jerry said.

Robert Stefanovich

Yes, if you look again at the outlook for 24 and you look at what we've achieved and some of the key areas in 23, you can see the continuum of services revenue growing, in particular, the other commercial revenue, in particular, the BioStorage bio services revenue and those are really some of the leads. And like Jerry mentioned, there's a few new initiatives that are coming online this year. And if they ramp faster, that can contribute more more and more revenue. And again, we certainly took a conservative look, if you talk to other companies in the life science tool space areas and saying they're being cautiously optimistic and we are as well. But that's that's kind of where we stand.

Puneet Souda

Okay.
That's helpful. And then just following up on PRO PDP. as well. I mean, the combined pro PDP. and MV. is still, I believe, more than 60% of your revenue. You know, could you maybe just elaborate a bit on should we start thinking about the normalized sort of growth rate at NVE. similar to what you acquired it when you, you know, at the time of acquisition and correct me if I'm wrong, it was low single digit to maybe mid single digit and Pro PDP. was not far from that.
So maybe just help us understand what's the normalized sort of growth rate we should to be thinking for these two, these two businesses?

Jerrell Shelton

Once you start to fall out and I don't pair these businesses together, they're totally different businesses and they're totally serve totally different parts of the market with totally different missions.
So I'll take them one at a time on IMVE., I think once we've pulled out of this well, I think you will be able to you'll be able to assume the growth rates are maybe even a little bit better than the single digits, maybe maybe in the low double digits once it's out out of out of this well. So what we created below what created this?
We do have some hypotheses. It's not you know, they're there. And I mentioned in the past that you know, there was some there was a pullback on capital expenditures. What we've all known that because the economy has been in a cautious mode for over a year with the overall global activities and capital budgets have been affected. But I also think that there was this was in our processes on my part. This is not factual, but it is about this is that there was a little bit of a buildup during the COVID period of time of capacity and that capacity is being filled up now once has been filled up you'll see that the normal rates look, biological material was being produced all of the time and is being produced in great quantities all the time. It has to be stored and there's no way to avoid it.
The cryogenics are the the the way that you store that material. So it will come back and we're very confident. And MDE. is positioned in the market, its products of the way it the way it serves the market and its long-term prospects. It's there. We think they're outstanding and there will be new products and new services coming out of in the overtime as well and some diversification of revenue streams that over time.
As far as cloud PDP. goes crowd, PDP. is the world's third largest specialty carrier serving biotech biopharma. It is rolling out in the United States. We've been in that process now for a while, but we did buy Blue Bird Express in order to accelerate that process. We've had 10 years experience with bluebird Express at Cryoport Systems.
We know the quality of that operation and its people. And so we know, it's a great addition and we continue to build out in the United States. We will we will find that we will fund our momentum in the United States as we as we build out the structure and as bluebird has some impact on that growth in the United States. So it I think that the growth rates there will be a little bit in excess of what they were. There will still be in the low single digits once it finds its footing in the United States. Other parts of the world are doing fine in low double digits, Jerry, that low single digits, sorry to re-clarify, was it single digits and that's and that's what he meant.

Puneet Souda

And sorry, just clarify. That's low single digits for the US part of the business and double digits for international?

Jerrell Shelton

Yes.
Yes, yes, exactly.

Puneet Souda

Okay.
And just last question, if I may, just on the Alabama IVF decision, does that can you outline of what's the impact for you and what changes you have to bring about in your network for that?

Jerrell Shelton

Alabama was down was not a big impact on us. We got more publicity than we did anything else out of Alabama that we do. We do ship in and out of Alabama. And when the Supreme Court rule is it did we suspended shipments until we could understand the situation. We suspended business there, both for MVE. and Cryoport Systems and cryo as well as grow PDP. So so we did suspend business there until we got a clear reading, then a new law was passed and we opened up Alabama again. So we're doing business in Alabama. Things are business as usual in Alabama at this point, but we certainly are monitoring that situation. Just in case there's a change of mine in that state, but it was it was a it was you did create a lot of publicity.

Puneet Souda

Okay.
Thank you, guys.

Operator

John Sourbeer, UBS.

John Sourbeer

Good evening and thanks for taking the question. I just wanted to dig in a little bit more on the commercial revenues. I think they slowed quarter over quarter. Any additional details you can provide there on the quarter ended.
Also, how do you think about the high level this ramps out over the next year, given some of the recent approvals and the outlook for approvals in 2024.

Jerrell Shelton

We'll let John Musk, let Robert start with giving you some factual information. And then unlike for Mark to comment on what's happening in the market because what's happening in the markets pretty exciting.

Robert Stefanovich

And the latter probably is the most important because those are the drivers for the revenue in 24 and beyond. But look, if you look at the commercial revenue and we think I mentioned on the last quarterly call, when you look at our quarterly revenue look at a trailing 12 months average, but where you look at even the full year or the Q4 commercial revenue ramped into 33% to 36% growth some years. So we continue to see strong growth in commercial revenue. It's now $22 million of total revenue. So it's starting to become a more substantial portion of our services revenue, and we expect that to continue.
Mark, do you want to talk about the size of the market dynamics that we're seeing?

Mark Sawicki

Yes, yes, absolutely.
Thanks.
Thanks, Robert.
Yes.
So as Robert said, I mean, looking at looking at this on an aggregate 12 months, some basis is extremely important because anytime you have new therapies launches, there's some volatility in the early phases, they start to ramp. However, the law of aggregation is what we're really looking at here, we're seeing very, very strong approval activity. And in fact, I think between the end of 23 and 24, maybe the strongest 18 months in the history of the Celgene space. From an approval standpoint, there are three BLA filings completed in Q4, which is the Adaptimmune ImmunityBio Nautilus one new approval in Q4.
We've already had two new approvals in Q one, another 17 possible filings in 2024, of which one has already been filed. We are projecting the potential of nine new therapies in 2024 plus potentially another another two already commercialized products getting earlier line approval, which will substantially increase the addressable patient population and five label extend extend expansions. And so there's a ton of activity and we already see the potential for another 11 possible filings in 2025. So that's the huge driver in oh and I think if you look at it overall that the growth rate there is going to be consistent with where the market has been with our numbers, some of the numbers that Robert had presented for the foreseeable future.

John Sourbeer

Thanks for those details. And I believe a portion of the convertible debt is due next year, the Company has a strong cash position on the balance sheet.
Just any color maybe for Robert, just on COMPANIES financing plans going forward?

Robert Stefanovich

Yes, absolutely. So we're off to we're in a strong position now. We have a strong balance sheet with strong cash, some Yes, as of December end, the the convertible debt, really the substantial portion of the convertible debt is due December of 2026. So we still have some time, as I recall, in two three we did buy back some of the convert, you know, for us about $25 billion, somebody direct about $31 million. We paid about $25 million in cash for that. So we had about $5.7 million gain just because of the transaction. And we'll continue to look at some of the convert buyback. We're looking at the longer term strategy that we're still mapping out. But at this point in time, we're in a good position. As you recall, the convert asking 2.75% interest and like I said, is due in December of 26. And so we still have some time to evaluate the best options for them.

John Sourbeer

And then last question I had was on Integra. So endo leak freeze. This question I just wanted clarification, is that currently live and then just outlook and for that segment for the year?

Jerrell Shelton

No, it will become live in the last half of the year.

John Sourbeer

Got it.
Thanks, Rich.

Operator

Brandon Couillard, Jefferies.

Puneet Souda

Thanks.

Brandon Couillard

This is Matt on for Brandon, appreciate all the color already on 24. I guess maybe for Jay or Robert, just talk a little bit about your guidance philosophy and visibility in 2014. I think historically, you've had the most visibility in Cryoport Systems. But from where we sit today, just the level of visibility you have across systems, MVPDP. and Kroger and then you also just remind us how much of the MP business goes through distributors today. Thanks.

Jerrell Shelton

Yes, no, absolutely.
No.
Like we said, we did take a conservative view at creating the estimates for for the year?
Tom, we do have a feel forecasts from our clients, especially for Gripen systems in terms of what their expectations are. We did trying to do a bottoms up for for our services and our product revenue to determine the revenue guidance for the year. I'm clearly, as Gerard mentioned RMB, we have to take a very conservative look at growth over the last three quarters, it's been pretty much the same level after that drop from Q1 to Q2.
And so we are taking a very conservative approach in terms of the ramp on the product revenue side. And clearly, like we mentioned, there's there's some upside opportunity on the services side driven by cell and gene therapy market in particular, both on the commercial revenue side as well as on the file storage file services side. But that's really how we approached it. And we were hoping actually that we'll be able to exceed the estimates.

Robert Stefanovich

And Brandon, your last part of your question was how much of the business is through distributors and that 70 about 70 75%. Thanks.

Brandon Couillard

And then you guys spiked out in the deck of 950 or so industry clinical trials Cryoport supporting 600, 75 or 70% of those. Is there scope for that to go higher over time? Or is there kind of a theoretical limit we should think about in terms of market share for those industry clinical trials?

Jerrell Shelton

Mark. I'm going to turn it to you.

Mark Sawicki

So yes, I mean, we're obviously always trying to capture more share. You know, the biggest driver for share capture for us over the next 12 to 18 months in this space is going to be around the negative 80 space. We launched the lead altered foam product, the middle of last year. We're already seeing substantial pickup with that product line. And historically, without a negative 80 offering or our penetration in gene therapy distribution, that mandate was manage, the negative 80 was minimal. And so this is there's some nice opportunity for upside in that space.
In on the cryo side, obviously, we're moving from a 70% market share. A much higher is more of a challenge. So that's going to most of that growth will come out of come out of the market dynamics and our continued drive to capture as much of that portfolio as we can.
The bigger thing to think about is obviously the drive into maintaining that 70 plus percent market share into commercial, which we've had a very, very good track record of doing.

Brandon Couillard

Thanks. And one last quick one for Joe. Would just love to get your updated thoughts on how you're thinking about profitability. Clearly, you've laid out a lot of growth areas that you're investing in. But as we look out into 25 and beyond, how do you think about balancing some of those growth investments and looking to turn profitable on an adjusted EBITDA basis? Thanks.

Jerrell Shelton

Well, the way I think about them upfront is all all the projects that we undertake. All the initiatives that we have going on are they they withstand financial scrutiny. And so and they are accretive. And so when I said earlier, you know, we constantly are reprioritizing those initiatives and they are they will start to roll out just as the the lead Ultraco just just rolled out, you'll see the HV. three rolling out soon. You'll see Entegris over the last half of this year and you'll see more more progress on the Fusion product and so forth. So so I think very positively about them. They're going to have a going to have a revenue impact. They're going to have profitability impact.

Brandon Couillard

Super. Thank you.

Jerrell Shelton

Thank you, Randy.

Operator

David Larsen, BTIG

David Larsen

I think I heard you say in your prepared remarks that you were generating some revenue from from our genetic services. I think you said a client was storing some product in anticipation of Eligen AX. And but I heard you also say that they were using Entegris. So did I hear that correctly? And just any thoughts there on the progress at Allergan actually making the market would be very helpful. Thank you.

Jerrell Shelton

We have one supporting already supporting a fairly large portfolio of allogeneic therapies, constitute nearly 30% of our overall portfolio. So it's a substantial number of products in that product to those activities.
Go from from, like you said, storage through distribution as it stands today. And tech resell, as Jerry had mentioned, is not only the doors are not open there on those facilities that they'll open in the second half of this year. However, we're already very heavily engaged with our clients. We already have clients going in and auditing the facilities even before the doors are open and we have the relationship that Gerry also mentioned in the prepared remarks with the MDP. or National Marrow Donor Program who which we're teaming up with them where they're going to be managing all the donor recruitment. And we'll be doing all the cryopreservation through our facility in Houston for the United States on behalf of MDP. So and that's all focused around Eligen contributions.

David Larsen

Okay, great. And then what should we expect for commercial revenue growth going forward is 30% to 40% per year reasonable? And how would you expect these new therapies that are now commercially available to ramp in terms of, you know, revenue contribution? Any thoughts there would be great. Thank you.

Robert Stefanovich

Yes, I guess I can tell it.
Yes.
So from my perspective, the easiest way for you guys to look at the ramp associated with any given therapy is to go to through the audit, the analyst reports for those therapies. And for those companies, right, they do a lot of diligence on the space and come back and provide their guidance as it relates to projected ramp any we do get forecasts from all of our clients as it relates to commercial, but it's not something that we can disclose publicly.
However, with the portfolio that's in place today, and all of the filing activity that we are seeing ongoing through late 23 and through 24, I think the rates that you guys have been seeing historically and where that we saw in Q4, 33% year over year. You know that that 30 plus range is probably in a reasonable expectation for commercial revenue for the next couple of years.

David Larsen

And then just one last quick one. Demand for large freezers within MVE., just any more color there would just be very helpful. Thanks.

Jerrell Shelton

again to our desire demand in the E is normalized is it's no different than historical patterns with them.
The mix, David.

David Larsen

Okay. Thanks a lot. I'll hop back in the queue. Thank you.

Jerrell Shelton

Thank you.

Operator

Yuan Zhi, B. Riley Securities.

Yuan Zhi

I'm Jerry. Probably there are a lot of biotech companies pivoting sales therapy from kind of their treatment to ultimately new India-based. I'm curious if this applications or clinical trials in autoimmune disease have meaningfully help the crowd port this campaign itself.

Jerrell Shelton

They're in clinical trials mostly, but we do see a lot of promise there. Obviously, it's an area where the market's looking a lot at our CAR-Ts are expanding beyond oncology a lot of promise there. We're seeing some of the results of the early trials, Phase one Phase two come out with promise. So there's upside there, absolutely looking at it and it is part of our clinical trial pipeline.

Yuan Zhi

Got it. Another question related to your recent acquisitions. Can you share any update from the integration of bluebird Express as well as tax reform since the acquisition?

Jerrell Shelton

Well, the acquisition, the Bluebird it, Andrew fit like a hand in glove because it's we've known bluebird for a long time. So it's Joe. It's in process there's no, there's no nothing, nothing more to say about that, that it's in process and that the integration of the operations are moving along very, very well and then pick from increment, Al, you mentioned tech permit as well. I guess what was your question about?

Yuan Zhi

Okay. So okay. So tech protect format is quite interesting that for me, it is a is a German company that we acquired. It is some It offers communication and temperature monitoring systems that are quite advanced and that that too is in process. It's been we're looking at the impact that tech format has on our SmartPack, I mean, on our Skytrax condition monitoring system project and most likely those two will be moving intersecting and moving together.
But physician software advantages there. And also, I think the tech permit has it stands independently as well. So it's got independent orders coming in. And then I think, thirdly, I think it will serve as an integrating tool, as I mentioned in my comments earlier throughout the Company over time. So it will take some time to do all these things. But we are really excited about tech from it contact center for them?
No, back end.

Jerrell Shelton

Yes, the industry feedback on tech from it has been resoundingly positive as well.

Yuan Zhi

Got it. Thanks for the additional color there, and that's all my questions.
Thank you.

Operator

Paul Knight, KeyBanc.

Paul Knight

Jerry, on the you had mentioned the 70% market share. I mean, what's the alternative I guess is they do it themselves or another commercial vendor? What's the biggest piece of that 30?
Is it themselves or your margins are wildly what it is that I know that's a that's a global basis on policy. You have you have one large lower in manufacture in China. You have a large European manufacturer in India. And then you have a number of then you have one smaller operation in Germany and then you have a number of small small operations kind of like job shops I think it was talking about clinical trial percentage, not empty. Is I thought you were doing it in the E.

Jerrell Shelton

So yes, we have kept our clinical trials and what I want to turn that to Tom because he is the expert on clinical tests.

Thomas Heinzen

Thanks, Terry. There are alternatives. We're not a monopoly out there. There is competition. It's the same competition that's been around for years at some of our partners that we go to work with every day, especially carriers that are using either MVE.s from a product or somebody else has to compete with us, but we stand on our merits. We stand on the quality of our product, our market-leading position, all of our commercial customers, our chain of compliance and everything else we do. That's what separates us.
And that 70% is in reality higher than that because we do have a lot of the specialties that subcontract equipment through us for programs that they're supporting that we don't have visibility on. So the effective number is going to be higher than that 70%. We just don't know that exact number Okay.

Paul Knight

And then on Animal Health was down year over year.
Could you comment on that?
And then in the is down year over year, but you're saying what that stabilizing at this juncture?

Jerrell Shelton

Yes, animal health and MBO directly correlated. So if you look at the product size of the markets, this is the the reduction in revenue of the drop in revenue is really driven by the drop in MB revenue. So Animal Health and biopharma both have been impacted by EMV and what we've seen in Q2 through the throughout the remainder of the year.

Paul Knight

Okay, thank you.

Operator

Are there are no further questions at this time. I would hand over the call to Jerrell Shelton.
Please go ahead.

Jerrell Shelton

Thank you for your questions. And our discussions in closing, our 2023 results were within our guidance range and our expectations. While product revenue was lower than historical levels and the revenue begin to stabilize in the latter part of the year, and that has continued into early 2024.
Services revenue continued to become a larger part of our business, led by growth in bio storage, BioZ services and commercial cell and gene therapy. We think 2024 will be a year of progressive advancement as more therapies move toward commercialization.
In addition to our operating results in 2023. We continue to make strategic investments and establish important relationships to drive our long-term growth. We signed a number of new clients and brought new products and services to market. All of these actions continued to expand our ability to serve the cell and gene therapy industry globally and open up new revenue streams.
Barring any geopolitical breakdown, we think our outlook of a progressive improvement progressively improving market in 2024 is well founded as an established industry leader that leads the way and providing vital supply chain support to the life sciences industry. We intend to continue to grow in importance and to benefit from the growth of the cell and gene therapy industry as it becomes an even greater proportion of our business. Thank you for joining us today. We appreciate your continuing support and interest in our company, and we look forward to updating you on our progress again next quarter. We hope you have a good evening.

Operator

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation, and you may now disconnect.