Cerus Corp (CERS) 2004 Q1 法說會逐字稿

Welcome to the Cerus Corporation first-quarter financial results conference call. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded Monday, May 3, 2004. I would now like to turn the conference over to Alexandra Santos. Please go ahead, ma'am.

Thank you, and good afternoon. Before introducing Steve Isaacs, President and Chief Executive Officer of Cerus, I remind you that during this call, we will be making forward-looking statements that involve risks and uncertainties, including statements about development, research, commercialization, finances (ph), and business prospects. Our actual results may differ materially from the results described due to factors that include but are not limited to those discussed in our most recent annual report on Form 10-K. To request copies of the 10-K, our press releases, or financials, please call 925-288-6156 or find them on our website at Cerus.com. I will now turn the call over to Steve.

Thanks, Alex. As all of you know, Cerus made two announcements today. In addition to releasing our Q1 2004 quarterly results, we issued a separate release announcing a change in the structure of our executive team. We announced that Claes Glassell will join Cerus as President and CEO, and I will be stepping down in that capacity. I will lead today's call, which will be my final Cerus conference call. I believe I'm passing the baton to a very capable person, and I'm pleased to introduce Claes on the call today.

Thank you, Steve. I'm very pleased to be here, and I am energized by the substantial opportunity presented by Cerus. I look forward to working with the Board, the management team, and the employees. I see substantial potential in the blood safety industry and vaccine sectors, both domestically and overseas, and believe Cerus's business is anchored on a solid foundation. This combination of scientific expertise, a strong business platform, and potential for growth have attracted me to Cerus.

Thanks, Claes. Also joining me on the call today are Greg Schafer, our Chief Financial Officer, and Dr. Larry Corash, our Chief Medical Officer.

Because of the recent positive developments in our therapeutic vaccine work, I would like to begin the call by highlighting this program. Our therapeutic vaccine program is based on a technology that has been shown to induce a potent antitumor immune response in preclinical studies. These studies have shown that Cerus's proprietary technology in combination with various cancer antigens stimulates the immune system to attack cancer cells expressing those antigens. Our therapeutic vaccine program has generated a lot of positive news so far this year. In January, we acquired certain exclusive rights to a promising cancer antigen, Mesothelin. Mesothelin is prevalently (ph) expressed in pancreatic and ovarian malignancies. We are collaborating with the Johns Hopkins University to develop a therapeutic vaccine by combining Cerus's vaccine technology with Mesothelin.

In March, we reported exciting preclinical data presented jointly with MedImmune at the American Association for Cancer Research. The combination of Cerus's vaccine technology with MedImmune FA2 (ph) antigens was shown to induce a robust antitumor response and substantial prolongation of life in preclinical efficacy studies in mice. In April, we announced an agreement with MedImmune to develop and commercialize a therapeutic vaccine targeting an antigen expressed in cancers of the breast, prostate, and colon, as well as metastatic melanoma. Through this collaboration, we will have the opportunity to work with a leading biotechnology company on a promising therapeutic.

Under the terms of the agreement, MedImmune is responsible for clinical testing, manufacturing, and commercialization of any product resulting from the collaboration. Cerus will participate in the development of the therapeutic vaccine, receiving a $1 million upfront payment and 24 months of development funding, as well as developments and commercial milestone payments and royalties on future product sales. In addition, the agreement provides for an equity investment at Cerus's option based on the filing of an IND. Development funding and milestone payments exclusive of equity may total as much as $40 million, not including royalties.

In addition to the potential of the MedImmune collaboration, we intend to leverage the experience and knowledge gained to clinically validate our vaccine platform and to develop additional vaccines to target other promising antigens. Separately, we're working on vaccines using our Helinx Technology designed to develop safe and effective therapeutic and prophylactic vaccines against infectious disease.

As we increase research and development in the vaccine program, we remain focused on the Intercept blood system. The Intercept Blood System for platelets is being commercialized in Europe with Baxter Health Care in charge of distribution, sales, and marketing. Product revenues for the quarter were due primarily to repeat sales from centers in Spain, Italy, Belgium, and Norway.

Since the receipt of a letter of approval from as saps (ph) for Intercept platelets in France, we continue our discussions with French regulatory agencies to complete the standard product registration and establish reimbursement. Meanwhile, several blood centers in Germany continue their evaluations of Intercept platelet. Cerus continues to support Baxter's activities towards adoption of Intercept platelets in Europe. At the same time launch is underway in Europe, we see an opportunity for Intercept emerging in Japan based on the reported failures of nucleic acid tests to detect hepatitis and HIV in blood donations.

For Intercept plasma, Baxter and Cerus are working to prepare the regulatory submission for European CE mark clearance for Intercept plasma. We believe the environment in Europe favors its adoption, as certain ministries of health in Europe already require that plasma collections be either quarantined or treated with a pathogen inactivation process.

Research continues with our S-303-based red cell program. We are conducting studies to understand the underlying cause of the antibody observation, and are evaluating products and process enhancements essential to proceeding with clinical testing.

I'll now turn the call over to Larry for a clinical and regulatory update.

Thanks, Steve. In Europe, transfusion of Intercept platelets continues during this past quarter. We have active centers in Italy, Belgium, Denmark, Norway, and Spain. In one Belgian center, more than 1,000 Intercept transfusions have been administered.

Process validation studies continue in additional centers in Germany, Austria, Spain, and France. The work in France is expanding to an additional collection platforms other than the Amicus and Bucky Code (ph) systems. In collaboration with the French national transfusion service, AFS, Baxter and Cerus are conducting the logistics study and an economic analysis of Intercept in EFS blood centers. Process validation on multiple collection platforms is important for product adoption in France.

Furthermore, studies are underway in other European blood centers to evaluate the potential for extending storage of Intercept platelets to seven days to replace bacterial testing and to expand the experience in pediatric patience. Each of these activities is expected to support the adoption of Intercept platelets.

I recently met with clinicians from Spain, Norway, and Belgium prescribing Intercept platelets for their patients. Feedback indicates that the Intercept process integrates well into the routine workflow of these centers and requires minimal extra labor costs to implement. We continue to observe acceptance of Intercept pathogen inactivation as replacement for bacterial cultures, CMB testing, and gamma irradiation, thus validating the economic benefits of the technology. We will be presenting papers at the European Hematology Association and the International Society for Blood Transfusion meetings later this quarter.

In the United States, the two-step process regarding the clinical modicum (ph) of our PMA is underway, and the independent panel is expected to complete its data review in the current quarter. We intend to use these data in our discussions with the FDA regarding the supplemental clinical trial protocol. The manuscript for quoting (ph) the Sprint trials has been accepted for publication in the journal of the American Society of Hematology, Blood, and will appear online this quarter.

This past quarter, the Japan Red Cross completed a series of studies at the Tokyo, Hayichi (ph), and Hokkaido blood centers. The studies confirmed the inactivation efficacy of the Intercept process for both viruses and bacteria.

In our plasma program, we completed the last of the three studies, plasma exchange for treatment of thrombotic thrombocytopenic purpura. We look forward to announcing the data from this study as soon as we have completed the analysis. It will be included in our planned submission later this year seeking European regulatory approval for this product.

In addition, to gain early customer experience with plasma, we have initiated work at three leading European blood centers for process validation of the Intercept Blood System for plasma. We continue to experience strong interest for Intercept plasma in Europe driven in part by the complementary effect of a common platform for treatment of plasma and platelets.

In our red blood cell program, we are completing follow-up with the patients, and thus far have identified no adverse health effects or additional antibodies in any patients in our Phase III trials. The red cell task force is conducting experiments to elucidate the potential mechanism of antibody development. As planned, we developed new immunology reagents in an animal model to investigate the formation of S-303 antibodies. Work will commence this quarter with this model to define the physiology of S-303-dependent antibody formation and to evaluate changes in the red cell process to resolve this problem.

In our vaccine program, Cerus scientists continue their work in the development of novel technologies for effective therapeutic and prophylactic vaccines. The vaccine program has two objectives -- one, to develop therapeutic vaccines for treatment of cancers that currently have limited therapeutic options; and two, to develop new therapeutic and prophylactic vaccines against infectious diseases for which current vaccines are ineffective or have inadequate safety margins.

The therapeutic cancer vaccine platform is based on genetically attenuated strains of the intracellular bacterium, Listeria monocytogenes. As part of our developmental work in collaboration with scientists from MedImmune, Cerus scientists demonstrated that proprietary attenuated strains of Listeria induced potent immune responses and stimulated robust cellular immunities specific for an expressed protein that is relevant to a designated cancer. These studies demonstrated that FA2, the MedImmune target antigen, was expressed using the Cerus vaccine platform and induced strong therapeutic responses in animal cancer models. This work was reported at the recent American Association for Cancer Research meeting.

Cerus's vaccine team is now conducting similar studies with Mesothelin, the target antigen licensed from Johns Hopkins University. Importantly, this antigen has been validated as an effective therapeutic target in Phase I clinical trials by our collaborators at Johns Hopkins. Based on our continued preclinical investigations, Cerus believes this novel platform has broad applications for development of therapeutic vaccines.

And now, Greg will review the financial results for the quarter.

Thanks, Larry. Earlier today, we announced the loss for the quarter of 42 cents per share. This compares to the net loss of $1.07 for the comparable period in 2002. The per-share loss narrowed due to an increase in development revenue from the Armed Forces collaborative agreement and reduced R&D investment. Our cash balance at the end of the quarter was $99.4 million compared with a $110 million balance at the end of 2003. Our cash use from operations for the first quarter was approximately $10.6 million.

We reported $3.6 million in revenue for the quarter, including approximately $3.2 million of development revenue from work performed under agreements with the U.S. Armed Forces. The remaining $400,000 was from grant funding and revenue (technical difficulty), including funding from Baxter for Intercept development. $52,000 (ph) from the sale of Intercept platelets system in Europe (ph) was recorded as deferred revenue.

Our R&D spending of $8.7 million for the quarter was a decrease of approximately $1 million from last quarter, due primarily to the continued reduction of activities relating to the red blood cell program. We expect our R&D spending for 2004 to be in the range of 30 to $35 million, as we indicated last quarter.

G&A expense was $3.1 million for the quarter, compared to $2.7 million for the same period last year. Net interest expense for the quarter was $1.1 million, and includes interest expense on the loan facility from Baxter. Under the terms of the loan facility with Baxter, no payments of principal or interest are due until 2008, but we have recorded the entire balance as a current liability to be conservative, due to Baxter's assertion that the principal and interest are currently due.

Now I would like to turn it back to Steve for some concluding remarks, and then we will take your questions.

Thanks a lot, Greg. I leave Cerus at a time of great potential for the company and in good hands for future success. Our outstanding employees and excellent science (ph) have always been our strengths, and we have both at Cerus today. With Intercept, Cerus has a licensed product being sold in several different European countries and a promising second product expected to be filed this year. Beyond Intercept, Cerus has developed a highly promising vaccine platform based on strong collaborations and excellent science, and has just begun an alliance with MedImmune to help realize the potential of the platform.

Cerus has always been well-financed, and continues to demonstrate its ability to obtain funding from grants, partnerships, the equity markets, and most recently, the Department of Defense. I'm extremely proud of our achievements over my twelve years of service to Cerus and its shareholders, and I look forward to and expect future success under the capable leadership of Cerus's new CEO, Claes Glassell.

Thank you. And I will now open the call to questions.

(OPERATOR INSTRUCTIONS). Cyrus Mystics (ph), Morgan Stanley.

Glenn (ph) is on the road, so I am filling in from here. Just a question on the cash used and the cash use going forward. Did you say it was 10.6 million this quarter?

That's right. 10.6 from operations.

And how has that changed -- or has that changed in going forward?

We expect cash use for the year to be in the 30 to $35 million range. In the first quarter, we experienced a couple of things. One, we reduced our payables to a related party, and that was to Baxter. And secondly, we increased our receivable -- or we have an increased receivable from our collaboration under the Armed Forces. So if you net those out, it would bring us to a burn rate of about $8 million, which is what we expect going forward -- in that range.

Okay. And has there been any change in that loan? Or is that still up in the air -- that $50 million loan?

There has been no change in the status. The loan under its terms is due and payable in 2008. As we have said before, Baxter has asserted that it's due today, and we're going to work out -- through the court, it looks like.

Okay. And I think last quarter we had the plasma CE mark submission for sort of the end of this year, for the quarter (ph) this year. Is that still a reasonable timing?

Yes, that is a reasonable timing for the plasma submission. We're doing all the things that have to be done. As Larry said, the Phase III-C trial has now wrapped up, and we'll be announcing data from that soon. So we believe we're on the track for the filing by the end of year for the CE mark.

And then the U.S. filing is sometime after that?

Yes, sometime after that.

Okay. Nothing more specific? It's not a quarter after or six months after, or --?

No, we're -- you know, we're going to take a look at the timing of the U.S. filing once we get the CE mark in. And we're also obviously working with the FDA on the platelet filing. So we'll consider all that information to determine when the plasma filing occurs.

And then I think -- the timing of a U.S. submission for the platelets market is still kind of up in the air. Is that too hard to nail down, or can you give us an idea?

Well, you know, there's really two things we're doing with the FDA. One is we're reanalyzing some of the data from the Sprint trial, and as Larry said, we expect to basically have that data back in within the quarter, basically. And then once that data is in, we're going to go to FDA and talk to them about what the supplemental clinical trial would look like. And we think there's a relationship between the data coming out of the first part and the trial that we'll have to do in the second part. So that is sort of the sequence. We expect to get the data analysis done within the next quarter, and then we'll be talking to the FDA after that.

Okay. So maybe late '04 start to that -- is that possible?

Well, you know, I wouldn't say it's impossible, but it all depends on the conversation with the FDA. The FDA wants (ph) supplemental trial work, and as we've talked about in the past, it has to do with the final configuration of the set. And we feel very strongly that we've got a good set. We demonstrated that in our Phase III-B trial in Europe. We think the data is excellent.

So as you know, what drives trial size is endpoints. And so we're going to talk to the FDA once we get this data analysis done about the endpoints. And that will determine the size of the trial and when we are able to get the trial going. So it's very hard to put a fixed date on that at this point in time.

(OPERATOR INSTRUCTIONS). Robert King, Peninsula Capital.

Thank you for all the great work you've done. I think you've -- it's been a tough go with the environment we have dealt with, and I think you've just done a fabulous job and thank you for all that work.

Well, I thank you for the comment, Bob. I think we've got the Company in a good position. I think the vaccine work is very exciting. We do have the approved product in Europe. We're bringing in Claes with a lot of experience behind him to take the reins. And I feel very comfortable about that, and I see good things in the future for us.

Good. One question I have is -- a little bit more detail, if you can rough it out in terms of the financials relative to the deal with MedImmune. I think I understood the comment that it was approximately a $40 million total cash deal, including milestones pre-royalties -- is that correct?

Yes, that's right.

And can you give us some sense as to -- what are the key milestones, and how that amount of money might come to the company, if successful?

Well, we're not going into great detail about how that works. But I think the milestones are important, and actually, we've got Dr. David Cook here with us who really has been responsible for driving this program home with a couple of other people. So I think maybe David could spend a couple of minutes talking about what the milestones are and what the meaning is. In the aggregate, there are about $40 million as we said. In addition to that, there are royalties which are typical for this type of deal. And then there is an equity investment as well, plus the $1 million upfront, plus the R&D funding. But just to give you a little bit of color on the milestones, I would give that to David.

Thank you.

This is David Cook. So the deal really is fairly conventional in terms of milestones. There are specific milestones for accomplishments during the collaboration phase, which has P (ph) set at two years; and then additional milestones based on clinical success Phase I, Phase II, Phase III; and obviously substantial milestones upon regulatory approval. So I think beyond that, you can fill in the details. But it is a fairly conventional structure.

And I think I misunderstood what the equity situation is?

Yes, there's just an additional equity investment. It's at our option, and it has got (ph) filing of the IND. And you know, we're just not specifying the exact amount of that equity investment at the present time.

We're talking about equity that MedImmune would make in Cerus?

That's right, yes; they would buy in Cerus stock. So we will take a look at the company at that point in time, Bob, and decide depending on all the standard factors whether we'd want to go forward with that or not.

Okay. Thank you very much.

(OPERATOR INSTRUCTIONS). There are no further questions at this time. I will now turn the call back to you. Please continue with your presentation or closing remarks.

Thank you very much everybody. And as I said, I think there are great things to look forward to with respect to Cerus, and we're turning the reins over to Claes, and you'll be hearing from him next time. So thank you very much.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation, and ask that you please disconnect your lines.