Cerus Corp (CERS) 2005 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third quarter 2005 Cerus earnings conference call. My name is Michele, and I will be your audio coordinator for today's call. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of today's presentation. [OPERATOR INSTRUCTIONS] As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today's call, Ms. Ruey-Li Hwang, Associate Director of Investor Relations and Corporate Communications. Please proceed, ma'am.

Thank you and good afternoon. Before introducing Claes Glassell, the 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, regulatory progress, commercialization, finances and business prospects. Our actual results may differ materially from those suggested by forward-looking statements we will be making. I call your attention to the disclosure in our SEC filings, in particular, our quarterly report filed on our most recent Form 10-Q and the annual report filed on Form 10-K/A for the year ended December 31, 2004, including the section entitled "Risk Factors." To request copies of our SEC filings or our press releases, please call 925-288-6000 or find them on our website at Cerus.com. This call will be archived temporarily on our website and will not be updated during that time. I will now turn over the call to Claes.

Thank you, Ruey-Li. I am here today with Bill Dawson, our chief financial officer and David Cook, our Vice President of Research and Development. Dr. Larry Corash, our Chief Medical Officer, will also be on the line and available for questions.

In addition to the financial results we reported today, we are pleased to have announced our decision to reenter a Phase I clinical trial with our Intercept red blood cell program. We expect to enroll our first subject in the second quarter of 2006. Our decision to start clinical trials is based on a number of factors including substantial preclinical data on our modified S-303 treatment process and input from regulatory authorities.

At this time, we have made only the decision to initiate a Phase I trial, which we expect to fund through our DOD grant. Decisions to proceed further in the clinic will be based on results from this initial trial, our assessment of commercial feasibility, and input from regulatory authorities. Based on our discussions with European customers and transfusion medicine experts, we believe that offering Intercept products for all three blood components -- platelets, plasma, and red blood cells -- would make a significant impact on blood safety, satisfy an unmet medical need, and give Cerus a competitive advantage.

We are also making progress on the Intercept commercialization front. You will recall that we received CE Mark approval for platelets some time ago, however, there have been barriers to commercial penetration such as requirements for national approval and setting of reimbursement in key markets such as France the Germany.

First, in France during the quarter, we received final regulatory approval for the use of Intercept blood systems for platelets. This approval allows blood centers to start experience trials. These experience trials are designed to provide customers with practical experience for the system and promote product adoption. The results of these studies will also help in establishing reimbursement levels.

Testing reimbursement is a process involving the French National Blood Service and the Ministry of Health. We are not a direct party to this process, and therefore cannot predict how long it will take.

Second, in Germany, approvals by two regional regulatory authorities have allowed us to initiate experience studies in two blood centers. German blood centers are still required to gain approval from the central German authorities in charge of regulating the blood supply.

In summary, European market penetration is moving forward at a modest pace. We are pleased to be gaining new customers, but we remain unsatisfied with our overall share of the addressable market.

Turning to our plasma program, we are maintaining our aim to complete the submission of the European CE mark application for our INTERCEPT Plasma System by year-end.

As we make our plans for 2006 and beyond, one important consideration is the potential transition from Baxter to Cerus of commercialization rights and responsibilities. You may recall that Baxter has an option whether or not to continue as the exclusive European marketing partner for INTERCEPT platelets and plasma after 2006. If Baxter does not make the decision to continue by the contract deadline of February 2006, Cerus will reain the exclusive European commercialization rights for these products starting in 2007.

In addition, under our agreements, Baxter may make a decision regarding North American platelet rights that could result in Cerus gaining these rights as early as January 2006. While we are unaware of Baxter's plans, we are preparing for the potentiality of a transition. You will recall that Cerus has already gained worldwide rights to the red blood cell system and North American rights to the plasma system. If Baxter elects not to continue, the agreements require Baxter to continue manufacturing of platelet and plasma systems through 2008 to allow transition to alternative suppliers.

Regarding our immunotherapy programs, we are delighted to have our KBMA technology featured in the August issue of "Nature Medicine." This novel vaccine approach continues to attract attention from funding agencies and leading scientists.

As an example, we announced in Q3 the funding of a consortium using Cerus' proprietary KBMA technology to develop a prophylactic vaccine against the bacterium that causes Tularemia. Tularemia is a bacterial disease that can be transmitted to humans by contact with infected animals or by inhalation of aerosolized bacteria. There is increasing concern that this bacterium could be delivered and released in an act of bioterrorism or war. The $23 million research and development contract, of which Cerus would receive $2.8 million over three years, is funded by the National Institute of Allergy and Infectious Disease, a division of the NIH.

We believe KBMA's technological breakthrough has broad therapeutic potential in the areas of infectious disease. Potential therapeutic applications include hepatitis B and C. This is a platform that can be used for both proprietary and partnered programs. The business model for KBMA is similar to that of our Listeria products. Our biodefense funding is validation of the value of the approach, and allows us to further develop the platform in a financially disciplined way. An early objective is to be in clinical trials in 2007 with a therapeutic product based on this technology.

In our cancer programs, we continue to make steady progress. We are currently evaluating data from late-stage preclinical studies. We are maintaining our goal of filing an IND by year-end for our first product candidate, CRS-100, assuming favorable outcome of the data. As a reminder, CRS 100 is a Listeria-based therapeutic designed to treat cancers that have spread to the liver.

The two other Listeria-based immunotherapy programs, our own CRS-207 and MEDI 543, which we’ve partnered with Medimmune, are continuing to make good progress. We are targeting entering clinical trials with CRS-207 in the second half of 2006. CRS 207 combines our Listeria technology with Mesothelin, a proprietary and validated antigen that we have licensed exclusively from Johns Hopkins and Chugai. Mesothelin is prevalently expressed in pancreatic and ovarian tumors.

During the quarter, we also received a milestone payment from Medimmune for the selection of a clinical candidate for MEDI 543. We, of course, cannot comment on the timeline for MEDI 543 entering the clinic,. hHowever, Medimmune's strain selection decision reflects their continuing pursuit of the MEDIi 543 development project.

Now I'll turn the call over to David Cook, our Vice President of Research and Development.

Thanks, Claes. I'd like to elaborate on the rationale behind our decision to reenter the clinic for our red blood cell program and then provide an update on our R&D progress in immunotherapy.

As previously disclosed, we halted our Phase III trials for the red blood cell program in 2003 after two patients in the chronic arm of the trial developed antibodies to red blood cells treated with our S-303 compound. Importantly, there were no adverse health effects associated with these antibodies.

Since then, we have been working to understand the mechanism of this antibody response and to develop a modified process, which prevents antibody recognition of Intercept red blood cells.

After intensive effort by a small team of Cerus scientists, we showed that antibody reactivity is due to S-303 bound the surface of red blood cells. Importantly, we have developed a modified process that reduces this finding by 95 percent or more. Pathogen inactivation and red blood cell function are preserved.

The modified treatment is similar to the original process, thus allowing us to leverage much of the safety data accumulated to date. It uses the same two reagents as the original system, the concentration of one component, glutathione, has been increased in order to reduce the binding of S-303 to red blood cells.

When red cells treated with the modified process are exposed to antibodies from patients, there is not detectable reaction. To confirm our findings with patient antibodies, we have developed a rigorous animal model, in which rabbits are artificially immunized to have high levels of antibody against S-303. We have shown that when red cells prepared with a modified process are transfused into these animals, they exhibit normal viability. Thus, even in the presence of high levels of antibodies, red cells prepared with the modified process do not appear to be reactive.

A Phase I trial in healthy subjects should start in the second quarter of next year, once we have completed our manufacturing preparations and formally attained regulatory clearance. Our Phase I study is designed to measure the viability of red cells prepared with a modified process. Subsequent trials will be required in patients to assess whether red cells treated with our modified process are therapeutically equivalent to conventional red cells, both in terms of safety and efficacy.

Turning now to our plasma program, we completed the last of our three Phase III clinical trial reports for the plasma system this quarter. We are maintaining our objective of following our CE mark application by year-end. The competent authority for our CE mark review is AFSSAPS, the French regulatory authority. This may facilitate the acceleration of the subsequent national review process that is required.

On the immunotherapy front, we are evaluating data with CRS-100 from our recent multi-dose, non-human primate studies. If favorable, these studies will allow us to complete the IND filing for CRS-100, which is targeted for year-end. In the last quarter, we completed our multi-dose toxicology and biodistribution studies in the mouse. We also initiated the institutional review board filings of our clinical protocol at Johns Hopkins to facilitate the start of CRS-100 clinical studies in early 2006.

In infectious disease, we believe recombinant KBMA vaccines may have important commercial applications as immunotherapy for chronic intracellular infections, such as hepatitis B and C and perhaps HIV. KBMA vaccines elicit potent T cell immune responses. It is precisely these responses that are required for the immune system to eradicate intracellular infections.

Our KBMA vaccines are designed to block microbes' ability to replicate, while preserving their ability to express proteins in order to generate a potent immune response. KBMA vaccines combine the potency of live vaccines with the safety of killed vaccines, and they leverage the science and clinical experience behind our INTERCEPT blood safety products.

In the area of biodefense, KBMA vaccines may be suitable for rapidly developing more potent, protective vaccines against anthrax, tularemia, and bubonic plague, for example. The source of funding our work in anthrax has been our grant from the National Institutes of Health (NIH), which we announced last year, and our ongoing support from the Department of Defense.

As Claes mentioned earlier, we also received funding this quarter from the NIAID to develop a prophylactic vaccine against Tularemia. Cerus scientists are participating in a consortium whose goal is to develop a Tularemia vaccine based on our proprietary KBMA technology.

I'll now turn over the call to Bill Dawson, our Chief Financial Officer, for a discussion of the third quarter financial results.

Thanks, David. Revenues for the third quarter were $6.9 million, up from $3.5 million for the third quarter of 2004, primarily due to amounts recognized in the current period from past up-front payments from BioOne Corporation and Medimmune for which revenue recognition was deferred as well as from higher funding from U.S. Armed Forces.

Total operating expenses for the third quarter of 2005 were $8.8 million, up from $7.6 million for the same period in 2004 due primarily to increased preclinical activities associated with our Listeria programs.

Net loss for the third quarter of 2005 was $1.7 million, or $0.07 per share compared to a net loss of $5.1 million, or $0.23 per share for the third quarter of 2004. The net loss in the current period reflects both increased funding for our research and development programs and a significant reduction in interest expense as a result of the February 2005 settlement of the loan dispute for Baxter Capital offset somewhat by increased operating expenses.

For the nine months ended September 30, 2005, total revenues were $18.8 million compared to $11.0 million for the same period in 2004. Net income was $17.0 million, or $0.72 per diluted share for the nine months ended September 30, 2005, compared to a net loss of $25.8 million, or $1.17 per share for the same period in 2004. Net income for the nine-month period in 2005 includes a one-time gain of $22.1 million, recognized in February 2005 as a result of the loan settlement.

We are maintaining our goal of ending the year with an excess of $45 million in cash. We ended the third quarter with $49.2 million of cash, cash equivalents, and short-term investments.

Now I'll turn the call back over to Claes for some concluding remarks.

Thank you, Bill. We continue to make good progress in transforming Cerus into a patient-focused, product-driven company. As you will recall, we set very ambitious goals for 2005. They included filing an IND for cancer, filing a CE mark application for plasma, resolving the litigation with Baxter, making a decision whether to reenter the clinical with red cells, and ending the year with more than $45 million in cash. We are well on our way to meeting all these objectives, and I would like to take this opportunity to thank all of our employees for their hard work and dedication. Each and every employee contributes to the success of Cerus, and I wanted to acknowledge their efforts here today. And now I would be happy to respond to questions.

[OPERATOR INSTRUCTIONS] Ira Sochet [ph] of Sochet and Company.

Nice quarter. You commented that you expect to end the year with 45 -- are you there? Okay -- with $45 million which indicates, roughly, a $4 million cash burn. Do you have a projection for next year's cash burn?

We are saying we will end the year with minimum of $45 million. It could turn out to be better than that, but that's the goal to get there, and we think we're making good progress towards that. We haven't yet put together any guidance for next year's cash burn.

When the payment due to Baxter on the remaining debt?

By the end of 2006.

And is there anything new with BioOne?

Not that we can tell you about on this call. They continue to make good progress in their territory, but there is nothing, I think, worth commenting on this call today.

[OPERATOR INSTRUCTIONS] Michael Savronsky [ph] of Onyx Options.

Do you have an anticipated cost for the reentering of the Intercept red blood cell trials?

Well, the only cost that we have estimated, so far -- we don't have the exact estimated, but the Phase I, the cost of the Phase I trial, which will be covered entirely by DOD money. We haven't sat down and prepared detailed plans beyond that.

So there isn't actually any cash burn from it?

That will not have any impact on our cash burn next year.

[OPERATOR INSTRUCTIONS] Gentlemen, at this time I am currently showing we have no questions in the queue.

Well, thank you all for listening and participating today. We greatly appreciate your interest in Cerus, and this concludes our call for the quarter. I hope you will join us again when we report our results from the fourth quarter and year-end 2005. Thank you.

Ladies and gentlemen, thank you for your participation in today's conference call. This does conclude your presentation, and you may now disconnect.