The following discussion and analysis of the financial condition and results of
our operations should be read together with the financial statements and related
notes of
Cautionary Statement Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements,
including the anticipated future impact of the ongoing COVID-19 global pandemic
on our business operations, that involve risks and uncertainties, as well as
assumptions that, if they never materialize or prove incorrect, could cause our
results of operations to differ materially from those expressed or implied by
such forward-looking statements. The statements contained in this Quarterly
Report on Form 10-Q that are not purely historical are "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Forward-looking statements are often identified by the use of
words such as, but not limited to, "anticipate," "believe," "can," "continue,"
"could," "estimate," "expect," "intend," "may," "plan," "project," "seek,"
"should," "target," "will," "would" and similar expressions or variations
intended to identify forward-looking statements. These statements are based on
the beliefs and assumptions of our management based on information currently
available to management. These forward-looking statements are subject to
numerous risks and uncertainties, including the risks and uncertainties
described under the section titled "Risk Factors" in our Annual Report on Form
10-K for the fiscal year ended
Overview
We are a dedicated CDMO that provides a comprehensive range of services from process development to CGMP clinical and commercial manufacturing, focused on biopharmaceutical drug substances derived from mammalian cell culture. With 27 years of experience producing monoclonal antibodies and recombinant proteins, our services include CGMP clinical and commercial product manufacturing, bulk packaging, release and stability testing and regulatory submissions support. We also provide a variety of process development services, including upstream and downstream development and optimization, analytical methods development, testing and characterization.
Strategic Objectives
We have established and are currently executing on the following strategic objectives:
· Invest in additional manufacturing capacity and resources required for us to
achieve our long-term growth strategy and meet the growth-demand of our
customers' programs, moving from development through to commercial
manufacturing;
· Broaden our market awareness through a diversified yet flexible marketing
strategy;
· Continue to expand our customer base and programs with existing customers for
both process development and manufacturing service offerings; and
· Increase our operating profit margin to best in class industry standards.
16 First Quarter Highlights
The following summarizes select highlights from our first quarter ended
· Reported revenues of
compared to the same prior year period;
· Reported net income attributable to common stockholders of
· Appointed
Green has more than 30 years of experience in the global pharmaceutical and
healthcare services industry with significant expertise in the contract
manufacturing of novel pharmaceutical products;
· Increased our customer base with the addition of three new customers to whom we
are initially providing for a range of services including technical transfer,
process development and scale-up, with a view towards anticipated future
manufacturing services;
· Validated remediation to the specific piece of equipment that caused an
interruption of production in the second half of fiscal 2020. The validation process entailed the completion of multiple successful revenue-generating production campaigns using this equipment. All batches deferred from fiscal 2020 have now been completed resulting in first quarter fiscal 2021 revenues of$4.3 million ; and
· Continued to advance the pre-engineering, design and permitting work required
to allow us to break ground on a facility expansion when we determine it is appropriate; Impact of COVID-19 Pandemic
In
The full extent to which COVID-19 will directly or indirectly impact our
business, financial condition, and results of operations will depend on future
developments that are highly uncertain and cannot be accurately predicted,
including new information that may emerge concerning COVID-19, the actions taken
to contain it or treat its impact and the economic impact on local, regional,
national and international markets. We will continue to assess the potential
impact of the COVID-19 pandemic on our business, financial condition, and
results of operations. For a further discussion of potential risks to our
business from the COVID-19 pandemic, please refer to "Part I, Item 1A-Risk
Factors" in our Annual Report on Form 10-K for the fiscal year ended
Performance and Financial Measures
In assessing the performance of our business, we consider a variety of performance and financial measures. The key indicators of the financial condition and operating performance of our business are revenues, gross profit, selling, general and administrative expenses and operating income.
We intend for this discussion to provide the reader with information that will assist in understanding our consolidated financial statements, the changes in certain key items in those consolidated financial statements from period to period and the primary factors that accounted for those changes.
Revenues
Revenues are derived from services provided under our customer contracts and are disaggregated into manufacturing and process development revenue streams. The manufacturing revenue stream generally represents revenue from the manufacturing of customer products derived from mammalian cell culture covering clinical through commercial manufacturing runs. The process development revenue stream generally represents revenue from services associated with the custom development of a manufacturing process and analytical methods for a customer's product.
17 Gross Profit
Gross profit is equal to revenues less cost of revenues. Cost of revenues reflects the direct cost of labor, overhead and material costs. Direct labor costs include personnel costs within the manufacturing, process and analytical development, quality assurance, quality control, validation, supply chain and facilities functions. Overhead costs include the rent, common area maintenance, utilities, property taxes, security, materials and supplies, software, small equipment and deprecation costs of all manufacturing and laboratory locations.
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses are composed of corporate-level expenses including personnel and support costs of corporate functions such as executive management, finance and accounting, business development, legal, human resources, information technology, project management, and other centralized services. SG&A expenses include corporate legal fees, audit and accounting fees, investor relation expenses, non-employee director fees, corporate facility related expenses, and other expenses relating to our general management, administration, project management, and business development activities. SG&A expenses are generally not directly proportional to revenues, but we expect such expenses to increase over time to support the needs of our growing company.
Results of Operations
The following table compares the unaudited condensed consolidated statements of
operations for the three months ended
Three Months Ended July 31, 2020 2019 $ Change Revenues$ 25,392 $ 15,254 $ 10,138 Cost of revenues 16,848 14,168 2,680 Gross profit 8,544 1,086 7,458 Operating expenses: Selling, general and administrative 3,825 4,459 (634 ) Operating income (loss) 4,719 (3,373 ) 8,092 Interest and other income, net 11 209 (198 ) Net income (loss)$ 4,730 $ (3,164 ) $ 7,894
Three Months Ended
Revenues
Revenues for the three months ended
$ millions
Net increase in manufacturing revenues
$ 10.1 18
Additionally, growth in manufacturing revenues during the current-year period
was supplemented by
Gross Profit
Gross profit for the three months ended
Selling, General and Administrative Expenses
SG&A expenses were
$ millions
Decrease in separation related expenses
0.4
Net decrease in all other SG&A expenses (0.2 ) Total decrease in SG&A expenses
$ (0.6 ) Operating Income (Loss)
Operating income was
Liquidity and Capital Resources
Our principal sources of liquidity are our existing cash and cash equivalents.
As of
We currently anticipate that our cash and cash equivalents as of
In the event we are unable to generate sufficient cash flow to support our current operations, we may need to raise additional capital in the equity markets in order to fund our future operations. We may raise funds through the issuance of debt or through the public offering of securities. There can be no assurance that these financings will be available on acceptable terms, or at all. Our ability to raise additional capital in the equity and debt markets is dependent on a number of factors including, but not limited to, the market demand for our common stock. The market demand or liquidity of our common stock is subject to a number of risks and uncertainties including, but not limited to, our financial results, economic and market conditions, and global financial crises and economic downturns, including those caused by widespread public health crises such as the COVID-19 pandemic, which may cause extreme volatility and disruptions in capital and credit markets. If we are unable to fund our continuing operations through these sources, we may need to restructure, or cease, our operations. In addition, even if we are able to raise additional capital, it may not be at a price or on terms that are favorable to us. Any of these actions could materially harm our business, financial condition, results of operations, and future prospects.
19 The following table presents our cash flows from operating, investing and financing activities for the three months endedJuly 31, 2020 and 2019 (in thousands): Three Months EndedJuly 31, 2020 2019
Cash, cash equivalents and restricted cash (1)
(2,273 ) (2,468 ) Net cash used in investing activities (489 ) (38 ) Net cash used in financing activities (5,289 ) (901 )
___________
(1) As of
included$0.4 million and$1.2 million , respectively, that was restricted from general use, related to cash that was pledged as collateral under letters of credit under the terms of certain facility lease agreements.
During the three months ended
Net cash used in operating activities for the three months ended
Net cash used in operating activities for the three months ended
During the three months ended
Net cash used in investing activities for the three months ended
Net cash used in investing activities for the three months ended
During the three months ended
Net cash used in financing activities for the three months ended
20
Net cash used in financing activities for the three months ended
Contractual Obligations
During the three months ended
Critical Accounting Policies and Estimates
Our discussion and analysis of our consolidated financial condition and results
of operations are based on our consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in
Recent Accounting Pronouncements
For a discussion of recent accounting pronouncements applicable to us, please refer to Note 2, Summary of Significant Accounting Policies, in the accompanying notes to our unaudited condensed consolidated financial statements.
Backlog
Our backlog represents, as of a point in time, future revenue from work not yet
completed under signed contracts. As of
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