Cerus Corp (CERS) 2006 Q2 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Cerus 2006 second quarter financial results conference call.

[OPERATOR INSTRUCTIONS]

As a reminder, this conference is being recorded today, August 3, 2006.

I would now like to turn the call over to Ms. Myesha Edwards. Please go ahead.

Thank you, and good afternoon.

We issued a press release today announcing Cerus' financial results for the second quarter ended June 30, 2006, and describing the Company's recent business highlights. You can access a copy of this announcement on our website at www.cerus.com.

Before introducing Claes Glassell, President and Chief Executive Officer of Cerus, I'd like to remind you that during this call we will be making forward-looking statements that involve risks and uncertainties, including statements about development, research, regulatory process, commercialization, finances and business prospects.

Our actual results may differ materially from those suggested by forward-looking statements we will be making and we assume no obligation to update guidance or other forward-looking statements during this conference call. I call your attention to the disclosure in our SEC filings in particular our quarterly reports filed on our most recent Form 10Q including the section entitled risk factors. This call will be archived temporarily on our website and will not be updated during that time.

I would now like to turn the call over to Claes.

Thank you, Myesha.

I'm here today with Bill Dawson, our Chief Financial Officer, and David Cook, our Vice-President of Research and Development.

We're pleased to announce that sales of the INTERCEPT platelet system during the second quarter of $776,000 grew by over 60%compared to our first quarter financial results. We've added some new customers and existing ones continue to purchase in greater quantities.

Although the sales growth is encouraging, the absolute numbers are still small and it is too early to extrapolate that growth rate for future quarters, in particular, the third quarter is a vacation period in Europe. Cumulatively, more than 34,000 transfusions have now been made using INTERCEPT's treated platelets.

During the quarter, we continued making progress in establishing the infrastructure and hiring key sales and operations personnel necessary to drive adoption of the INTERCEPT blood system in the European union. To date, we have hired nearly 20 employees and consultants focusing our efforts in France, Germany, Belgium, Holland, Spain, and Italy.

We intend to pursue distributorship arrangements in certain countries not covered by our own sales force. We're also expanding the number of experienced studies at blood centers where we believe the likelihood of future commercial adoption is high. In such experienced studies, we provide illuminators and disposable kits to blood centers free of charge and we assist them in the collection of economic and operational data that could justify adoption.

We are working with EFS, the French national blood service to introduce the INTERCEPT platelet system through experienced studies in the EFS network of blood transfusion centers. The EFS center in Strasbourg has been designated as the French center of excellence for pathogen and activation. Cerus has started supplying kits to support 12,000 platelet doses over an extended study period for this center.

This represents a full conversion of that center's current unit volume to INTERCEPT treated platelets. Data from Strasbourg and other centers will be used to support a reimbursement decision which we anticipate to occur in 2007.

As customers use INTERCEPT, we are receiving increasing feedback from transfusing physicians that they are seeing a significant reduction in transfusion reactions. In Germany, a leading center in Luebeck is currently in the review process to receive marketing authorization for platelets treated with the INTERCEPT system.

They have gained a provision of manufacturing license under which they have transfused more than 350 units of pathogen inactivated platelets. In Belgium, six centers are purchasing INTERCEPT for routine use under a government program for evaluation of the platelet system.

Data from one of these centers will be reported at the international society for blood transfusion, ISBT and they're meeting in September in Capetown, South Africa. We're seeing good progress in Spain, Italy, Scandinavia and Russia.

We remain optimistic that we will receive CE Mark approval for the INTERCEPT plasma systems by year-end allowing us to launch a broad European sales effort shortly thereafter. Existing reimbursement levels in several countries should facilitate commercial adoption. Our platelet customers have expressed an appreciation of the synergies of the INTERCEPT system because it is the first system to use a single device for two components.

In advance of product launch, we continue to undertake a number of individual studies for the plasma system to provide additional experience to perspective customers. Overall, customers seem to be impressed with the throughput of the device and the quality of the treated plasma.

Turning to our red blood cell program, we anticipate initiating the Phase I trial in healthy volunteers in the next few weeks at two sites in the U.S. and we expect to complete enrollment in that trial before year-end. We continue to work diligently on defining a robust device and disposable system for later stage clinical trials and potential commercial use.

Sales will have a significant presence at the ISBT conference. This is the major international meeting in transfusion medicine and it will be well attended by the European transfusion medicine community. As one of the most important blood banking conferences of the year, we are proud to be exhibiting at this conference under the Cerus name for the first time.

We are continuing our discussions with the FDA about the regulatory path in the U.S. for the INTERCEPT Blood System and in particular for the platelet system. These discussions will cover both high-level policy issues focusing on the risks and benefits of pathogen inactivation of donated blood components as well as more specific topics relating to appropriate trial design and points and sites.

The outcome of these activities will help us set priorities in our overall INTERCEPT development strategy. During the quarter, Cerus continued to advance its immunotherapy programs. Our lead product candidate, CRS-100 is being developed for treatment of patients with metastatic liver cancer.

We are currently open for enrollment in our CRS-100 clinical trial at our first site, Johns Hopkins. We anticipate adding one or two additional trial sites in the second half of this year. We continue to make very encouraging process in our preclinical immunotherapy programs as well, with CRS-207 a vaccine candidate indicated for pancreatic and ovarian cancers.

We have demonstrated in an animal model that we can break tolerance to Mesothelin the validated antigen that we have licensed exclusively from Johns Hopkins and Chugai Pharmaceuticals. Breaking tolerance is as you know very important in immunotherapy. David will expand on this finding in just a minute.

In this quarter, we have also received new brand funding from the National Institute of Health to investigate the use of our proprietary Listeria platform as a therapeutic agent in the treatment of Hepatitis C. There are many capable biopharmaceutical companies that are contributing to advances in this field.

The intention of our approach is to expand the number of patients that can receive therapy. Government funding will allow us to determine the role that Listeria might play in combination therapy to treat this infectious disease.

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

Thanks, Claes.

I'll start by highlighting our accomplishments regarding INTERCEPT and then discuss our immunotherapy programs. As you recall, Cerus filed as CE Mark dossier for our INTERCEPT plasma system last December. This application was filed with Cook product services. It is currently being reviewed by Cook and by our competent authority, the French regulatory body, AFSATs.

This review focuses on manufacturing, product performance, and clinical safety and efficacy in order to gain CE Mark approval. We anticipate that AFSAT's familiarity with the plasma dossier will facilitate subsequent French national approval that is required for sales in that country.

Cerus is also preparing for certification under the ISO system as part of the regulatory transition from Baxter. Medical device manufacturers are required in Europe to be certified under the ISO system.

Cerus will need ISO certification as a prerequisite to receiving the CE Mark for the plasma system. ISO certification is also required for Cerus to sell the INTERCEPT platelet system under its own label.

Assuming the successful ISO audit and timely completion of our CE Mark application, we anticipate receiving approval for plasma before the end of the year. In our INTERCEPT red blood cell program, we are making good progress toward initiating Phase 1 clinical studies. Institutional review boards at two sites are currently reviewing the protocol. We anticipate enrollment of our first subject in the next few weeks.

The Phase 1 study is a test of the viability of red blood cells after pathogen and activation treatment and extended storage. The study measures both the 24-hour recovery and the life span of treated red blood cells in healthy adult volunteers. We will be implementing the INTERCEPT process using a manual system that we believe closely mimics a semi-automated device that we expect to implement in later clinical trials.

Our planning for advanced RBC clinical trials is also proceeding. We are actively working on our strategy for studies to support licensure and we'll be consulting with regulatory bodies later this year to validate our proposal. At the same time, we're using the remainder of 2006 to address additional design aspects of the RBC system. Our goal by the end of the year is to gain clarity on both the clinical development plan and the final details of the system so that we can approach physicians to participate in advanced clinical studies.

I'll close my INTERCEPT comments by reminding you that Cerus will have a significant presence at the ISBT meeting in September. We'll use the meeting to launch Cerus as the commercial supplier of the INTERCEPT product family. We are scheduled to have 21 abstracts at ISBT, several representing data from customers in routine use. In addition to featuring the approved platelet system, we hope to make customers familiar with the plasma system prior to its planned introduction later in the year.

Turning now to immunotherapy, we continue to make important progress with CRS-100, our lead program. CRS-100 is an engineered Listeria for the treatment of liver metastatic cancer. It acts by stimulating the innate and adaptive immune systems in the liver. In the second quarter, we received IRB approval at our lead clinical site for our Phase 1trial. Phase I, I'll remind you is an open label, single dose study to determine the maximum tolerated dose and biological activity of CRS-100.

We are open for enrollment but have not treated patients. We hope to emerge from this trial with a solid understanding of the immune response profile for CRS-100 to support future studies. In order to facilitate enrollment, we have identified two other clinical sites which are in the process of gaining IRB approvals.

Our other Listeria candidate, CRS-207 is designed to stimulate T-cell responses to Mesothelin. Mesothelin is a tumor antigen prevalent in pancreatic and ovarian cancers. An important accomplishment in the second quarter was the demonstration that CRS-207 treatment leads to breaking of immunological tolerance to Mesothelin in mice.

Cancer escapes the immune system because the immune system becomes tolerant to the immunological differences in the cancer cell. The ability of CRS-207 to break tolerance underscores the potency of the Listeria system. Many late-stage cancer vaccines have lacked the potency to break tolerance and we believe that potency is the key to an effective cancer immunotherapy.

On the development front, we're making good progress towards a CRS-207 IMD filing. Our multi-dose toxicology study is proceeding on schedule. Importantly, we've shown that non-human primates in this study generate anti-Mesothelin T-cell responses. This toxicology study along with clinical date from CRS-100 will form primary safety data to support the clinical testing of CRS-207.

I'm pleased to announce that Cerus recently received funding from NIH to develop an effective HDV therapeutic using our Listeria platform. The funding goes to a consortium of researches at Cerus and Johns Hopkins University to develop a Listeria-based vaccine expressing HDV antigens.

The award is for a total of $1 million over three years. It is significant that NIH has selected the Listeria approach as a promising avenue to address this chronic illness and we look forward to working with a team at Johns Hopkins. Based on its ability to activate immune responses in the liver, we are also providing CRS-100 to academic investigators to study its use for the treatment of Hepatitis C.

Now I'd like to turn the call over to Bill to review our financial results.

Thanks, David.

Revenues for the second quarter of 2006 were $6.5 million, up from $5.5 million in the second quarter of 2005. With higher amounts attributed to increased revenues from milestone payments previously received from Bio1 as well as recognition of European sales of the INTERCEPT platelet system, offsetting modest declines in government grant funding.

Total operating expenses for the second quarter of 2006 were $12.4 million, up from $8.5 million for the same period in 2005. Primarily due to the increased European commercialization activities, development and regulatory efforts related to the INTERCEPT red blood cell system, pre-clinical and Phase I clinical trial activities associated with our immunotherapy programs, and beginning in 2006 recognition of non-cash stock-based compensation expenses recognized in accordance with FAS 123R.

Net loss for the second quarter of 2006 was $5.1 million or $0.18 per share compared with a net loss of $2.8 million or $0.12 per share for the second quarter of 2005. For the six months ended June 30, 2006, total revenues were $13.5 million compared to $11.9 million for the same period in 2005. Net loss was $6.0 million or $0.24 per share for the six months ended June 30, 2006.

Compared to net income of $18.6 million or $0.80 per diluted share for the same period in 2005. Net income during the six months ended June 30, 2005 included a one-time gain of $22.1 million recognized in February, 2005 as a result of a disputed loan settlement with Baxter Capital. At June 30, 2006, the Company had cash, cash equivalents, and short-term investments of $76.1 million, an increase of $30.3 million from December 31,2005, reflecting net proceeds from a March 2006 equity offering of $42.4 million offset by cash used in operations during the first half as well as sources and uses of cash related to Baxter, a one-time disbursement from Baxter largely offset by our repayment of the Baxter loan. We are now debt-free.

For 2006, we continue to anticipate a cash burn from operations 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 investment in our red blood cell and immunotherapy programs.

Finally, during the quarter, Cerus was added to the NASDAQ biotechnology index and to the Russell 3000 index reflecting our increasing visibility as a publicly-traded company.

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

Thank you, Bill.

In summary, in the second quarter we continued advancing in both our blood safety and immunotherapy programs. We now have an effective team in Europe to drive commercialization of the INTERCEPT blood system. We have our own sales in the platelet system and increased the number of experienced studies.

We remain optimistic in getting the CE Mark approval and launching our plasma system in Europe by year-end. We can now say that we are a clinical stage immunotherapy company and we also look forward to enrolling patients in our red blood cell Phase I trial.

Thank you for your time this afternoon and for your continuing interest in Cerus. We are now ready to take questions.

Thank you.

[OPERATOR INSTRUCTIONS]

Your first question comes from the line of Chris Raymond with Robert W Baird and Company, please proceed.

Thanks for taking the question.

Just on the European side, last quarter you highlighted some metrics that went beyond sales. I think you mention that you'd added five paying accounts. Can you maybe give us a flavor for how many paying accounts or a range that you added this quarter?

We've added two more in the quarter and since then a couple more as well. So we're up to about 25.

25 paying accounts and can you give any color as to which countries?

The countries are Belgium, Italy, Spain, Norway, Sweden, Germany, Russia, I think that's it.

Okay. And then can you also remind us the exact--if you can, milestones or things that we should be looking for as important decisions for France to reimburse. I know you've mentioned beginning of '07 for some time, but when we hear about it, what are the specific decisions that we should hear?

I think the decision will be that the French have adopted a reimbursement pricing level for pathogen and activated platelets for the INTERCEPT system. I don't think there will be formal announcements before then.

We will try to keep you up to date as much as we are kept up to date on where the process stands. Our role in this is actually to try to help EFS collecting data that they can then submit in the formal report to the ministry of health and use that to arrive at the decision around reimbursement pricing.

If I can ask a follow-up on that, you've been doing experienced studies there for some time. Is there a tacit agreement in terms of how many data points to collect, is there some sort of stopping point that you have comfort that this isn't just sort of a continuous, free flow of free goods without any end point?

No, Chris, there's a definite number of transfusions that they have targeted carrying out with INTERCEPT, and I'm not going to give that number, but if we're tracking the way we are, that number will be reached well before the end of '06.

Great. That's all I needed, thank you.

Your next question comes from the line Charles Duncan, JMP Securities, please proceed.

Hey, guys, congratulations on a good quarter and I'm in an airport, so if there's background noise, I apologize.

Had a quick question on ISBT. Can you provide us a little bit more color as to the type of data that we should look for to be of interest that you'll be presenting there at that meeting?

I think there will be at least 21 abstracts as David mentioned. Several of them are from customers and they will report on experience of using INTERCEPT and I think in that case, you will see that INTERCEPT is easy and robust to use. In some cases, I think there might actually be some comments or some numbers on transfusion related reactions.

I'm not sure about all 21, but maybe David you can elaborate on some of that as well.

Some of it is going to be related to platelet quality. There is a study that was done in Europe on pediatric patients. There's actually going to be data reported from about, I believe it's 500 transfusions in pediatric patients reporting the safe and effective use of the treated platelets in pediatric patients.

We will have updates in our red blood cell program and of course we're very focused on introducing customers to plasma so that they understand what the product that's coming down the pipe is, what it's characteristics are. So we'll have presentations from some of the blood centers that have done the invitro studies with the plasma system as well.

If I could ask a follow-up with regard to cost or the value pathogen of INTERCEPT--sorry for the noise. What is the cost per unit that you have targeted and kind of the element the value proposition that you've discussed with the French and are there points of push back?

The cost that we have provided to them is we now have a list price in Europe that is $85.00, per kit there are possibilities to negotiate discounts for large volume customers, but I don't want to give into details around that right now.

The cost offsets are that the alternatives that they produce is bacterial testing, which is a significant cost although it doesn't cover the whole 85 euros. In the case of the French, there's also cost take outs for gamma radiation and CMV testing and you can also get a benefit from the fact that the platelets can be stored seven days instead of five.

The benefit is that you can then have a longer shelf life and less discard, but perhaps the most significant cost impact is from the ability for the French to go away from a single donor collection to (inaudible-heavy accent) a pooled collection, which significantly reduces their cost for collection because they can use a less expensive kit for their primary collection.

So all that's been factored in to an economical report that we have reviewed with the EFS and that's going to form part of the supporting documentation for the reimbursement discussions.

If I can ask a follow-up to Chris' question on reimbursement in France.

You've been talking about that for a while and now it's pretty clearly an '07 event, not an '06. Can you give us some sense that the number of transfusions specifically and its necessary and efficient, the ISO certification, or is there some other kind of uncertainty in the decision process for reimbursement?

Well we've said several times now that we don't want to guide anyone's expectations to anything ahead of 2007, and partly because we are not a direct participant in these discussions so we're sitting on the sidelines providing some help, but we don't actually have a way of influencing the time schedule.

So what we do know is that there will be, as we mentioned to Chris, a report submitted, reviewed and all we can do is tell you what we have heard from the French authorities the ISO certification actually has bearing more on the filing of the plasma CE Mark file and as we are the holders of that file and we will have applied for registration in Cerus' name, we must comply with a quality system, in this case it's the ISO 13,485. So that audit is a mandatory audit it for us in order to be able to be in the future.

So there's no linkage in your mind, Claes, between reimbursement for one, and CE Mark approval for the other?

No, there isn't. One is for plasma, one is for platelets. Although we think that plasma is a different situation. As you know, there is existing reimbursement in place to transfer plasma or pathogen and activated. So there would think that the reimbursement process would be greatly simplified.

And the 12,000 or so kits that you provided to Strasbourg, does that represent an annual kind of run rate for that?

That varies a little bit, but it's not so far off an annual run rate, but we've been supplying them for a while now, so they've been gradually increasing their usage of INTERCEPT.

And you said you were at, was it 35,000 or 34,000 infusions made so far? How many do you think the French need to kind of be satisfied?

I don't think they look so much at the total number because the total number is cumulative on a worldwide basis, but in their study will look at a much smaller number than that, but the data collection has been going for a while now and as I said in my comments to Chris, we expect they will reach that number and have a report put together well before the end of '06.

Thank you, Claes.

Your next question comes from the line of Liisa Bayko with Next Generation Research.

Hi, and likewise, congratulations on a good quarter.

One question, I wanted to ask if there's been any progress in Japan or if you can make any comments about the status with Bio1?

Well, Bio1 gives us updates now and then, they really don't have any obligation to do so and they control the process in Japan. I think Bio 1 is in somewhat similar situation that we are in France. They're trying to push forward processes involving on one hand the Japanese Red Cross and on the other hand the Japanese Ministry of Health and Labor Welfare.

And I think there's been management changes at the Japanese Red Cross quite recently. They're still talking optimistically about getting Japanese Red Cross started, but I think that their time plans are now--total more about 2008.

Thank you.

Thanks.

At this time, there are no more questions in the queue. I would now like to turn the call over to Claes Glasssell for closing remarks.

Again, thank you all for being on this call and we look forward to giving you updates at our next quarterly financial results call in the fall.

Thank you very much and bye-bye.

Thank you for your participation in today's conference. This concludes the presentation. You may now all disconnect. Thank you and have a good day.