Logistics biotech bottoms out. Why?

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    Last month, shares in Sydney-based cold chain logistics group, $CTE/Cryosite, sank to 3.2c, a record low. Market capitalization bottomed at $1.5m.

    Since then CTE shares have climbed 72%, hoisting MC to $2.57m.

    A scan of the MCs of all the ASX’s ~190 health/medical stocks reveal that – despite the SP recovery in June –Cryosite’s MC remains the lowest. Why? Does the market doubt the group's viability?

    Controlled by wealthy Melbourne-based, US-aligned water treatment entrepreneur and CTE NED Andrew Kroger, Cryosite runs a secure cold chain facility at South Granville where it stores clinical trial drugs and cord blood for stem cell use.

    It services hundreds of local and international pharmaeutical/medical clients - many of them household names.

    As it rules off an ordinary financial year, it seems set for an early return to profitability…and to paying dividends.

    Cryosite is chaired by Bryan Dulhunty, former chairman of $VLA/Viralytics.

    Dulhunty built the VLA oncology group to a market cap of ~$30m and then stepped aside in favor of Paul Hopper.

    Last year Hopper sold VLA to $MRK/Merck for ~$500m.

    Dulhunty – who runs a secretarial services business called CoSA Life Sciences – is a chartered accountant. So is CTE CEO Mark Byrne.

    They’re applying conservative accounting policies such as AASB 15. And they’re aware of the need to be frugal, disciplining cash burn and improving margins.

    Apart from the humble MC and stable management, here are eight reasons to like Cryosite:

    1. Cash of >$4m

    2. First half revenue up 35% to $4m

    3. Modest 47m shares on issue

    4. Board of Directors has "skin", owning 37% of capital

    5. Second ranking shareholder, CCA/Cell Care Australia, owns near 20%

    6. Key “helicopter” role in the $1b+ Australian clinical trial industry

    7. Servicing largely “sticky” clients who are running more than 500 clinical trials

    8. On-going subscription revenue from private blood bank

    A key factor behind Cryosite’s market savaging in the last 12 months relates to the company’s appearance in the Federal Count on charges brought by ACCC/Australian Competition and Consumers Commission.

    Cryosite pleaded it was not aware that terms of a contract to sell blood cord assets to Cell Care breached cartel rules.

    Cryosite says the contract was drafted by “external lawyers”. It has declined to publicly name them.

    The group faced possible penalties of $20m – $10m for each breach.

    Bryan Dulhunty and Mark Byrne negotiated the penalties down to 5%, writing off $1.1m including legal costs. Result: Cryosite disclosed an interim loss of $1.3m.

    Importantly – but apparently overlooked by the market – the pair negotiated a novel, long-term settlement deal with the ACCC.

    Under the deal – ticked off by an empathetic Justice Beach – Cryosite was obliged to pay just $250k up front with the balance payable over 10 years at a modest $85k a year.

    Now, with litigation issues behind them, Kroger, Dulhunty and Byrne can focus on expanding the cold chain logistics business into lucrative markets such as cellular therapies and medicinal cannabis.
 
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