Cerus Corp (CERS) 2006 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first quarter 2006 Cerus earnings conference call. My name is [Kolbe], and I'll be your coordinator for today. At this time, all participants are in listen-only mode. We'll be facilitating a question-and-answer session toward the end of this conference. [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, maam.

Thank you and good afternoon.

Before introducing Claes Glassell, President and Chief Executive Officer of Cerus, I remind you that during this call, we'll 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 within 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 for the year ended December 31, 2005, including the sections 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 www.cerus.com.

This call will be archived temporarily on our website and will not be updated during that time.

I will now turn the call over to Claes.

Thank you, Rui.

I'm calling today from the offices of our newly-formed European subsidiary headquartered in the Netherlands. I'm joined here with Bill Dawson, our Chief Financial Officer, and David Cook, our Vice-President of Research-and-Development. Laurence Corash, our Chief Medical Officer will also be on the line and available for questions.

On this call, I would like to update you on our first quarter progress as well as cover the financial results, including our recently completed equity financing.

As you will recall from our last earnings call, we met all of our corporate objectives for 2005, and announced our goals for 2006. Those goals reflected are continued progress across all programs. As we look further out, it was clear to us that we would need to raise additional capital to support our longer-term plans. We believe it is prudent to raise money when you can, not when you have to. We also needed to expand our long-term institutional investor base and research sponsorships. Having seen our share price increase significantly in 18 months, we felt the time was right to extend our cash runway and improve access to the capital markets.

Consequently, we embarked on the process in late-February, where we raised more than $42 million in the follow-on common stock offering. Together, with our existing cash reserves, we now have adequate resources to these reach points of meaningful value creation.

The proceeds from the offering will help us commercialize our INTERCEPT platelet and plasma systems, and from the research and development, to further advance our red blood cell and immunotherapy programs. Bill will elaborate further on the details of the offering in a few moments.

I now want to mention a number of highlights from our first quarter.

We announced in February that we gained exclusive worldwide rights to the INTERCEPT platelet and plasma systems from Baxter, excluding those rights held by BioOne in certain Asian countries. Together, with the rights to the red blood cell system, which we gained last year, we have now full control over commercializing this important technology in blood safety.

The total effect of these two agreements in 2005 and 2006, with Baxter, resulted in net gains of more than $28 million for us. They also improved our gross profit margins.

We expect 2006 to be a year of transition for Cerus in Europe. We will gradually assume all commercial and regulatory responsibilities from Baxter during the year. Since mid-February, we have established a European subsidiary in the Netherlands, and we have recruited several talented individuals.

I believe we have made a great start at building a solid sales and marketing infrastructure for Cerus-Europe. In fact, we have also begun to demonstrate tangible results of a more focused sales and marketing effort.

This quarter, we're announcing our first top-line product sales subsequent to our gaining rights from Baxter. Product sales of the platelet system reported in the first quarter were $479,000, essentially, reflecting the base of business we inherited from Baxter. However, since the agreement was signed, we have increased the number of commercial customers by a third from 15 to 20 and arranged three new experienced trials.

I want to stress that adoption of INTERCEPT by blood banks takes time from purchasing-decision to full-implementation. Changes within the blood banks operations need to be validated and approved through the quality system, and transfusing physicians need to be made comfortable with the new product.

Our key European goals for the INTERCEPT blood system for platelets in 2006, are to secure reimbursement in France and obtain in-country regulatory approvals in Germany.

As previously stated, we received national approval of the INTERCEPT blood system for platelets in France last August. We're currently assisting the French National Blood Banking Organization, EFS, in its discussions with the Ministry of Health to establish reimbursement of pathogen and activated platelets in France.

In late-2005 and early-2006, an outbreak of a mosquito-borne virus known as Chikungunya virus occurred in the French protectorate of La Réunion. According to the European Center for Disease Prevention and Control, over 230,000 people, some 30% of the population, have so far been infected during the outbreak. Symptoms of the Chikungunya infection can include fevers, severe rash, and debilitating joint pain. Moreover, at least 180 people have died.

The virus has been detected in France as well. More than 300 French tourists were diagnosed after their return to France, and there is a report of blood-borne transmission in a French hospital. This raises the risk of introduction of this virus to continental-Europe.

Based on the threat to the platelet supply posed by the emergence of this viral pathogen, the French have begun using our platelet system on La Réunion. We're pleased to have been able to help the French solve a pressing public health problem.

One of our corporate goals in 2006 is to gain clarity with the FDA around the regulatory pathway for INTERCEPT platelets in the U.S. As you know, we now have full regulatory responsibility for INTERCEPT in the U.S.

In late March, we met with the FDA to discuss our phase-three development plan for the INTERCEPT blood system for platelets. As a result of the meeting, we continue to expect that the FDA will require an additional phase-three clinical trial to evaluate the efficacy and safety of the platelet system as compared to conventional platelets.

We will engage in further discussions with the FDA concerning the overall scope and design for an additional trial. We will then be in a position to make a strategic decision on our next steps in the U.S. Dave will elaborate further on the details of FDA interactions in a few moments.

Whereas to test blood system for red cells, we've previously announced our intention to re-enter Phase I clinical trials. We expect to enroll our first patient in mid-2006, subject to obtaining FDA concurrence on our clinical protocol. We plan to complete our IDA amendment filing in the second quarter of 2006, and we hope to complete the enrollment of the trial by year-end.

As you will recall, we filed a CE Mark application for our INTERCEPT plasma system in late-December, 2005. If the regulatory review process goes smoothly, we anticipate receiving approval in time to launch the plasma system in Europe by year-end.

We made progress during the quarter in our immunotherapy programs as well, having received clearance from the FDA to proceed with our phase-one clinical trial with CRS-100 in patients with liver metastatic cancer. We hope to enroll our first patients in the coming weeks. We also continue to be encouraged by the progress with our KBMA technology, including promising results in our anthrax program.

David will elaborate further now on research-and-development achievements in the quarter.

Thanks, Claes. I'll start by providing a bit more background on our recent meeting with FDA.

We met to discuss the re-analysis of pulmonary adverse events from the Sprint trial for the INTERCEPT platelet system. Cerus had asked an independent panel of pulmonary experts to design a study to evaluate clinically serious pulmonary events in the Sprint trial. The panel recommended a blinded re-analysis of primary patient data using objective diagnostic criteria. The FDA was also consulted on the design of the study. Using these objective criteria, the expert physician panel concluded there was no difference in the rate of clinically serious pulmonary adverse events between test and reference groups in the Sprint trial. This conclusion was consistent with our findings in the original clinical trial report.

We submitted the re-analysis to FDA in 2005, and met with them in March to discuss the study. FDA's overall response was that the re-analysis was not sufficient enough to address their questions because the original Sprint trial was not prospectively designed to assess pulmonary events. While we believe strongly in the validity of the expert panel's conclusion, we must concede to the FDA's position. Therefore, we would expect that the next trial of INTERCEPT platelets in the U.S. will have to contain predefined criteria to assess pulmonary events.

One consequence of including pulmonary criteria is that the next trial may need to be as large or larger than the original Sprint study, which enrolled more than 600 subjects. Our next steps for the agency are to begin discussions on the scope and design of the study. We expect to complete this discussion before the end of 2006. To put this in context, we also submitted the re-analysis report last year to European regulatory authorities, and they have not raised any issues with the study.

I'm pleased to announce that Cerus will have a significant presence at the biannual meeting of the International Society for Blood Transfusion in September. This is the major international meeting for the European transfusion medicine community. 19 scientific abstracts have been submitted featuring INTERCEPT, based both on work performed at Cerus and studies conducted by our European customers. We continue to build the scientific and medical case for broad-based option of INTERCEPT in Europe. We'll have further comments regarding our presence at the ISBT team meeting on our second quarter earnings call.

In our red blood cell program, we continue to expect that we'll be initiating a phase-one trial by mid-year. This trial is a randomized crossover study to evaluate the 24-hour recovery and life-span of INTERCEPT red blood cells using our modified process and healthy volunteers. The results from this trial are important because they will allow us to approach physicians and solicit their participation in more advanced patient studies involving INTERCEPT red blood cells.

In the first quarter, we also made substantial progress developing the RBC treatment system. Our goal was to develop a semi-automated device and a low-cost disposable set to facilitate product of option and use in blood centers. We have manufactured the initial prototype of the system that will be used for advanced clinical studies and have begun laboratory evaluations of this device.

Turning now to our immunotherapy programs, we also made substantial progress in the first quarter. As previously announced, we received FDA clearance to conduct our phase-one study with CRS-100 and engineered Listeria for the treatment of liver metastatic cancer. Patient enrollment should begin at John Hopkins University shortly.

A second U.S. clinical site is also in the process of gaining approval. The trial is an open-label, single-dose study to determine the maximum tolerated dose of CRS-100. The protocol has a provision to enroll up to ten patients at the maximum tolerated dose in order to explore the safety profile and gain data on the biological activity of CRS-100. We hope to emerge from this trial with a solid understanding of the therapeutic window and immune response profile in order to move into phase-two studies.

Regarding CRS-207, we have reached agreement with FDA on the toxicology studies necessary to support a phase-one multidose trial. CRS-207 is a Listeria strain engineered to stimulate immune responses to Mesothelin for treatment of pancreatic and ovarian cancer. We've completed manufacturing of the toxicology lot of CRS-207. We anticipate starting toxicology studies this month and completing them before year-end.

Finally, we continue to make important progress in developing our KBMA vaccine platform through NIH-supported studies. I reported last quarter that initial anthrax vaccine proof-of-concept studies had been successfully completed in mice. We have now moved the work into more advanced models with continuing success.

Most recently, rabbits were vaccinated with two different KBMA anthrax vaccines at the University of New Mexico. These animals were fully protected from a challenge with a lethal dose of anthrax spores produced from the Aims strain. As many of you may know, the Aims strain is the agent that was used in the terror attacks in the fall of 2001 in the United States.

Now, I would like to turn the call over to Bill to review our financial results.

Thanks, David.

Our financial objectives entering this year were two-fold -- first, to rebuild and re-establish institutional ownership as well as research coverage; and second, to strengthen our balance sheet by eliminating the remaining Baxter debt and raising additional equity capital. The recently-completed follow-on offering went a long way toward meeting those objectives.

I would like to put our current financial status into historical perspective.

In the summer of 2004, we had lost much of our institutional investor following and all of our research analysts. By year-end 2004, we had cut our burn-rate to sustainable levels, but we still had a significant outstanding loan liability owed to Baxter relative to our cash.

Last year, we cut our operating burn-rate and recognized a gain of 22.1 million upon settling our loan dispute with Baxter on favorable terms. We ended 2005 with 45.8 million in cash equivalents, with only 4.5 million remaining on our loan balance with Baxter. As Claes mentioned earlier, we completed an equity offering in mid-March in which we raised 42.4 million in net proceeds from the sale of 5,175,000 shares of common stock at an offering price of $8.75 per share. Robert W. Baird and JMP Securities acted as co-lead managers of the offering.

In keeping with our objective to broaden our institutional shareholder base, we embarked on a full 2.5-week road show. We met with well over 60 institutional investors who are now familiar with our story and aware of the fundamentals that drive our company.

We completed the offering by welcoming roughly 20 new institutional investors as shareholders of the Company. While we had hoped for a better share price, we were able to attract top-tier institutional buyers for all of the offered shares, including a full exercise of the over-allotment option.

We also achieved our objective of rebuilding research coverage. Three analysts now cover us -- Liisa Bayko of Next Generation Research; Chris Raymond from Robert W. Baird; and Charles Duncan from JMP Securities.

Turning to our financial results for the first quarter, revenues were $7 million, up from 6.4 million for the first quarter of 2005, with increased amounts recognized in the current period from the amortization of past up-front payments from BioOne Corporation and Medimmune, from which revenue recognition was deferred in product sales revenues, offsetting somewhat lower funding from U.S. Armed Forces.

Total operating expenses for the first quarter of 2006 were $10 million, up from $7.5 million for the same period in 2005, due primarily to increased European commercialization activities, development and regulatory efforts related to the INTERCEPT red blood cell program, preclinical activities associated with our immunotherapy programs, and the implementation of stock-option expensing under FAS 123(R).

Net loss was 0.9 million, or $0.04 per share, for the three months ended March 31, 2006, compared with net income of 21.4 million, or $0.92 per diluted share, for the same period in 2005. The net loss in the current period includes a one-time non-operating gain of 1.8 million recognized in connection with this past February's restructured agreement with Baxter, while last year's first quarter results included a one-time non-operating gain of 22.1 million associated with the February 2005 restructuring of the Baxter commercialization and loan agreements.

At the end of March 31, 2006, the Company had cash, cash equivalents, and short-term investments of $82.8 million, an increase of 37 million from the balance at year-end, reflecting net proceeds from the equity offering, offset by cash used in operations during the quarter, as well as its sources and uses related to the 2006 agreement with Baxter, a one-time disbursement from Baxter largely offset by our repayment of the Baxter loan. We are now debt-free.

For 2006, we anticipate a cash-burn from operation in the range of 25 to $27 million. The increase in burn from 2005 is attributable to our taking on responsibilities for commercializing the INTERCEPT blood system in Europe, and increasing our investment in our immunotherapy and red blood cell programs. I'll now turn the call back over to Claes for some concluding remarks.

Thank you, Bill.

In closing, I want to quickly summarize our accomplishments over the last few months. First, we gained exclusive worldwide rights to the INTERCEPT platelets and plasma systems from Baxter. Secondly, we raised more than $42 million, gained new research coverage from three analysts and welcomed 19 new institutional holders to our stock, and third, we established our European subsidiary and have hired key personnel.

We're pleased with our continued progress. We know that we have a lot of challenges ahead of us. We're focused on achieving the milestones we've set for our European organization, including French reimbursement and regulatory approval in Germany. We have a strong team in place, and I believe that we'll be able to continue advancing our programs and meeting the challenges.

Now, I will be happy to respond to questions.

[OPERATOR INSTRUCTIONS] Your first question comes from the line of Chris Raymond with Robert W. Baird. Please proceed.

Thanks.

A couple of milestone questions just to try to understand the timing a little bit better -- first, the -- you mentioned that you intend to be able to have the plasma system in Europe approved in time to launch by year-end. Can you maybe talk about the -- your assumption on regulatory approval, and what kind of lapse is baked -- between approval and launch, that's baked into that commentary?

Ok. So, I think the point of reference we have is the plasma approval process, and based on that, we would expect to have approval probably late-third quarter, early-fourth quarter, but, of course, there could be questions from the regulatory bodies, which we can't predict and the effect of that on timing, we cannot predict either.

So, if we do get regulatory approval, –what’s between data and launch, it is basically getting our data management system in place for the launch and--.

One other thing we need to accomplish, Chris is, we have to get an ISO certification, which is a relatively straight-forward process, but it takes time, and that's required for us to hold a CE Mark. That will occur probably in the late-third, early-fourth quarter -- about the same time that we anticipate regulatory approval.

Ok.

And on the same talk of Europe -- how many reps do you have right now on the ground as of right now, and where do you think you'll be by year-end?

Well, we have -- right now, we're in a meeting, so we have 12 people all together. They're not all dedicated sales reps, but most of them have customer interface in one way or another. But we're about eight right now totally customer interface, the rest of them are back-office kind of support.

Where do you anticipate being by year-end?

We have four vacancies right now that we're beginning -- working on filling.

Great. Ok. And then, also on the topic of Europe, you mentioned that you've increased your number of paying customers -- I believe -- by five accounts. Can you maybe describe the nature, to the degree that you're able to disclose, how big are these centers, where are they -- just to gauge what that might do to your sales trajectory going forward?

We think it's going to grow, but these are -- I would describe them as -- medium-sized centers. These are not part of the really big centers, any of them. They are in Spain and Belgium, I think, most of them.

So, they're centers, which will add to our top-line, but again, remember what I said about the time that it takes for paying customers -- the start-up time. We don't just anticipate the quantum leap because of these customers.

Okay. One final question if I may. On your red cell program, you mentioned starting up that phase-one by mid-year. Are there any critical path items that need to be cleared between now and then that we should think about that could push that back at all? What is really between here and getting started with that trial?

Chris, this is Dave again. It is pretty much straight-forward blocking and tackling, however, with one caveat we pointed out was that at the end of the day, the FDA has to review the filing and clear it for study. So, that's the one outstanding issue, and we just want to point that out.

Ok. You expect that you'll be able to start the trial right after you get FDA approval?

Correct.

Yes.

Okay. Thank you.

Thank you.

Your next question comes from the line of Charles Duncan with JMP Securities. Please proceed.

Hi, guys. Thanks for taking the call.

Quick question on platelet development -- do you anticipate being able to move forward with that in the U.S.?

Hi, Charles. I think we have to do the work with the FDA that we have ahead of us now. In the six months, we have several expectations of several meetings with them, and once we know that, I think we have to make a decision. We don't have enough information today to really make a commitment on that.

And if you do plan to go forward, is that included really in your expected R&D expenditures, Claes?

Yes. Yes, it is. But I think by the end of the year, we'll have a clear review on what the FDA and we can agree upon, and we'll look at this, and we'll look at all of our other priorities and make decisions on what we will give highest priority.

Also, let me add congratulations on the INTERCEPT revenue ramp. I had to hop onto the call late. Can you address, perhaps, the current status of the Chikungunya outbreak in France -- or in the French territory.

Well, we'll let Larry Corash, he was our Chief Medical Officer, give you a few words around that.

Okay. Thanks.

The viral epidemic is not in what's known as metropolitan-France. It is on the island of La Réunion and a couple of other islands in that French protectorate, but there are 300 people who returned to France who have been infected, and there is a population of 70,000 people from those islands living in the metropolitan part of France who are a potential reservoir of infection because of their past exposure. So, you know, currently, the epidemic is continuing in La Réunion, and they've instituted the use of the INTERCEPT platelet system in routine practice.

Okay. Thanks for that color. Do you anticipate the French authorities making any more formal announcements with regard to broader reimbursement in the short-run based on that experience?

I don't think that the situation in La Réunion is necessarily going to make a big difference on the reimbursement process, but I think we're making pretty good progress in that process as well.

We have to gather some economical data, which we are in the process of doing together with some of the blood banks on the mainland in France, and I think once that information is available, the process will continue forward.

Claes, when do you anticipate increased visibility on that for investors?

I think we're going to continue to give progress updates on a quarterly basis, but we've said to people that we don't want to guide anyone to believe we're going to have reimbursement in France before the end of '06.

But you still feel comfortable in guiding that time frame?

Yes. If we say it is not before the end, I feel comfortable.

Okay.

Which means not by the end of '06 though--?

It is a bit out of our control. So--.

I hear you.

We're doing our best to guess, but we don't really hold all of the controls.

Okay. Good deal, and congrats on the progress in the quarter.

Thank you, Charles.

[OPERATOR INSTRUCTIONS] Your next question comes from the line of Michael Krahelski with Onyx Capital. Please proceed.

Good afternoon.

Good afternoon.

How much of your now-anticipated burn-rate for '06 is as a result of your recent meeting with the FDA?

I think the burn-rate was established before we met the FDA, so it hasn't been impacted by the FDA meeting.

So, the additional costs you're going to have to incur for any additional trials, that's not factored in here?

Not this year, no.

That would be an '07 cash item?

It depends -- as I said before, we are in the process now of establishing what a phase-three trial in the U.S. would look like, and once we know that, we'll be able to assign some costs to it, and then, we'll look at our overall priorities and make a decision on what way to go forward. So, we can't tell you much more about that right now.

I might also add we have not given guidance on cash burn beyond 2006. I will say, qualitatively, that we had always assumed we would need to do another phase-three trial in the U.S. for platelets in the 2007 time frame. So, that notion is baked into our longer-term thinking.

Okay. Is there a target date for when you're going to have a cash break-even quarter?

No. We have not provided any guidance on that.

Okay. Now, getting back to the offering you did recently, in light of what happened after the announcement and what happened to the stock after the actual offering was priced at $8.75, even though you got research coverage, anything you would do differently?

We've asked ourselves that question, and I think actually came up with the answer -- not much that we would want to do differently.

I think we were surprised by the share performance, but we felt the timing was good as we had said in the conference call. We felt that it was prudent to raise money when you can, not when you have to, and we took advice from a number of different people, including several banks, even banks who were not in on the deal. And based on that advice, we felt we took the right decision.

So, it could always be Monday morning quarterback, and then, come up with ideas, but I think knowing what we knew at the time, I think if we could go back, we'd do it over again.

The only reason I'm asking is because the institutional ownership is almost a double-edged sword. When it goes up, and they're all getting in, but when the stock doesn't perform on the way down, they contribute to the sell-off. That's the only reason I'm asking.

Now, is there a way to -- we can get some sales guidance for the rest of the year, or you don't offer guidance?

We just took over this responsibility for sales and marketing in the middle of February, and because of the negotiations we had with Baxter, we had to start then to build the forces that we had in Europe. Even though we had a pretty good handle on who we wanted to hire, because of the time it takes to hand in notices and everything else, we really only now have our team together. We're calling from the Netherlands because we're here for a kick-off meeting.

So, we're not in the position right now to start giving guidance. It is a little bit too soon for us.

But sequentially, quarter-over-quarter, for the second quarter, how do you see that going?

I don't think we know enough right now. We're still just getting in front of the customers with our own team, and if I started giving guidance now, I wouldn't feel confident in that. We're gaining customers, so that's a pretty good precursor for some growth.

So, the increase of five had actually been during this quarter then?

That's right.

Okay. Great.

Thank you very much.

Thank you.

At this time, there are no further questions in queue, so I will now turn the call over to Mr. Claes Glassell for closing remarks. Please proceed.

Thank you all for listening and participating today. We greatly appreciate your interest and support for Cerus, and this concludes the call. I hope you will join us again during our next quarterly conference call. Thank you.