Cerus Corp (CERS) 2006 Q3 法說會逐字稿

Welcome to the Cerus 2006 third quarter financial results conference call. At this time, all participants are in a listen-only mode. Following management's prepared remarks, we will hold a question-and-answer session. [OPERATOR INSTRUCTIONS] As a reminder, this conference is being recorded today, October 31, 2006. I would now like to turn the call over to Miss Myesha Edwards, please go ahead.

Thank you, operator. I would first like to apologize for the delay in the start of the call as we had technical difficulties with our service provider. We issued a press release today announcing Cerus' financial results for the third quarter ended September 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 would 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 the forward-looking statements that we will be making, and we assume no obligation to update guidance or other forward-looking statements. I call your attention to the disclosure in our SEC filings, and in particular our quarterly report filed on our most recent Form 10-Q, including the section entitled risk factors. This call will be archived temporarily on our website and will not be updated during that time. I will now turn it the call over to Claes Glassell, CEO of Cerus Corporation. Claes?

Thank you, Myesha. I would also like to apologize for the delay in starting. We from Cerus were certainly ready to go by 1:30. I am joined by Bill Dawson, our Chief Financial Officer; and David Cook, our Vice President of Research and Development; as well as Larry Corash, our Chief Medical Officer.

I would like to start with a review of our European commercialization efforts. Sales of the INTERCEPT platelet system during the third quarter were $794,000, a modest increase over our second quarter financial results. As reported previously, we anticipated that in the third quarter sales growth would be slow due to the vacation period in Europe. By the end of 2006, we expect to complete the commercial transition from Baxter to Cerus.

Let me update you regarding where we stand with this transition. We have strengthened our European team and have filled several key positions. Most notably we have appointed Obi Greenman as President, Cerus Europe. Obi has extensive experience at Cerus having led business development, marketing and strategic planning activities for more than a decade. He was instrumental in the restructuring of our commercial agreement with Baxter, establishing our operations in Europe, and negotiating our Asian partnership with BioOne.

The European team now has core competencies in sales, marketing, commercial operations and quality assurance. We have put systems in place to conform to ISO 13485 regulations. We were audited to those standards during the quarter with a favorable recommendation by the auditors. We have intensified our coverage of the European market by expanding our sales force.

Our team is now in frequent and contact with [GE Accounts] analyzing the economic and logistics for implementation of INTERCEPT. We have arrangements with additional blood centers to conduct process validation for the plasma system. We believe this will facilitate purchasing positions upon receipt of CE mark and national regulatory approvals. We are looking for ways to shorten the sales cycle which is dependent on individual blood center operation requirements and the reimbursement process.

We had a successful presence at the International Society for Blood Transfusion Congress, ISBT, in Cape Town, South Africa. At ISBT, we launched the INTERCEPT Blood System under the Cerus brand for the first time. We presented 20 scientific papers. We hosted a standing room only symposium with approximately 300 attendees, and we held 10 country-specific round table sessions.

During the conference, it was encouraging to hear the positive feedback from attendees about Cerus' commitment to pathogen activation. We also heard enthusiasm about the economic and logistic synergy between our places in plasma systems. We also received and responded to INTERCEPT inquiries regarding the plasma system availability from current and potential customers.

In Europe, authorities are increasing the guide by precautionary principles in developing public policy. Health authorities in many parts of the world are preparing plans of action in the event of an outbreak of an infectious agent, such as bird flu. I would like to share an actual recent experience with a viral epidemic that impacted the blood supply.

I am referring to the outbreak in the French island of La Réunion of a mosquito-borne virus called chikungunya. At the peak of the epidemic in La Réunion, with approximately 30% of the population infected, blood collections were halted due to the concern that the virus will be transmitted by transfusion. More recently, over 1 million cases of chikungunya have been reported in India and small numbers of cases have been imported to Europe. In La Réunion, adequate supplies of red blood cells and fresh frozen plasma were maintained by air shipment from France.

However, platelets have a short shelf life and adequate supplies could not be maintained by air. The French national transfusion service ensured the availability of the platelet supply by treating locally collected platelets using the INTERCEPT platelet system. This demonstrates the importance of INTERCEPT in ensuring supply of platelets during an epidemic.

This experience, including the rapid implementation of INTERCEPT platelets, has been reported at three international meetings. This is a vivid illustration of how INTERCEPT may be used to prospectively ensure the availability of safeguard components in the face of emerging infectious agents. We plan to increase our government affairs activities in 2007 and we will communicate the valuable lessons learned from the chikungunya virus outbreak.

Commercial progress for INTERCEPT platelets and plasma in Europe remains our top priority. At the same time, in the United States we are working with the FDA to determine the dimensions of a new Phase 3 trial for platelets. We expect this trial to be at least as large as our SPRINT trial and will entail a significant financial undertaking. In order to move forward, we will look for third party financial support to fund this trial.

During the quarter, we began enrollment in our Phase 1 clinical trial for the modified INTERCEPT red blood cell system. We believe the data showing the viability of INTERCEPT red cells will be available in mid-year 2007. We are in the process of preparing our clinical plans beyond the Phase 1 study. Based on the clinical trial design options it is clear to us this will also represent a major financial commitment. Prior to committing full funding required for the Phase 3 program, we are evaluating system design options to minimize the cost of goods and optimize compatibility with the widest range of collection methods.

Therefore, we don't anticipate beginning this Phase 3 trial before the second half of 2008.

Let me now say few words our vaccines program. We have achieved an important objective by enrolling and dosing patients in our Phase One trial for CRS-100, Cerus' lead immunotherapy candidate. Enrollment has taken longer than expected partly because we underestimated the time the institutional review board processes at our participating study sites. We are in the process of initiating a third clinical site to accelerate enrollment. This study is a dose escalation study with cohorts of three patients at each dose.

We expect that fulfillment of each cohort will take approximately three months assuming we have no delay. We are hopeful we can demonstrate biological activity in patients in 2007. With regard to CRS-207 which is being developed for pancreatic and ovarian cancer we plan to submit an IND by mid-2007.

In our pre-clinical toxicology studies, we have demonstrated breaking of tolerance in non-human primates. Previously, we had shown this in mice. This is a very significant observation for an immunotherapeutic.

Finally, we would like to draw to your attention our investor and analyst day in New York City on November 9. This meeting will also be web cast live over the internet via cerus.com. The event will feature presentations from Cerus management, as well as external blood transfusion and immunotherapy experts. Now I will turn the call over to David Cook, our Vice President of Research and Development.

Thank you, Claes. I will start by highlighting our accomplishments with INTERCEPT and then review our progress in our immunotherapy programs. Our most important upcoming milestone is to complete CE mark approval for the INTERCEPT plasma system. In the third quarter, we made important progress toward this objective. The French regulatory body, AFSAPS, has completed its review of the plasma design dossier. A notified body to its product services is in the process of finalizing its assessment. We anticipate that the completion of these reviews should lead to a CE mark of the plasma system in the fourth quarter.

We also expect that AFSAPS familiarity with the plasma dossier will facilitate subsequent French national approval that is required for sales in that country. In the third quarter, we also made important progress for achieving ISO certification. ISO certification of Cerus is required for us to take over full commercial responsibilities for the platelet and plasma systems. In September, auditors from [INAUDIBLE] visited our facilities in Lewiston, the Netherlands, and Concord, California. [Tupe] auditors reviewed our quality system as well as many corporate processes, including those for product development, production, customer service, and planning. I'm pleased to announce the auditors have recommended Cerus for ISO certification. This recommendation is currently being reviewed by the ISO certification board.

Finally, in preparation for the launch of plasma, the manufacturing team is working to release disposable kits and upgraded UVA illuminators into commercial inventory. In our INTERCEPT red blood cell program, we began enrolling subjects in our Phase 1 clinical study. We anticipate completing enrollment this quarter. Based on the study design we expect to receive the last of the clinical data in the second quarter of 2007.

As a reminder, the Phase 1 study is designed to demonstrate the viability of red blood cells treated with a modified process. This process was developed to minimize the possibility of red blood cell immunoreactivity that was seen in our earlier Phase 3 study.

Turning now to immunotherapy, we have recently enrolled our first patients in the Phase 1 clinical trial of CRS-100. CRS-100 is an engineered Listeria for the treatment of liver metastatic cancer. It acts by stimulating the inmate and adaptive immune systems in the liver. In the third quarter, we also received IRB approval for a second clinical site and now have two sites actively enrolling patients. A third site is in the process of gaining IRB approval. With the availability of this third site, we expect to see enrollment move forward at a faster pace.

Our other Listeria candidate, CRS-207, is designed to stimulate key cell responses to Mesothelin. Mesothelin is a tumor antigen prevalent in pancreatic and ovarian cancers. We have now completed the in-life portion of our IND enabling toxicology study in non-human primates and laboratory analyses are being conducted.

In this study, we have documented for the first time that immune responses have broken immunological tolerance to Mesothelin. While we previously reported this in mice, we believe the primate data is much more relevant for the planned clinical study and underscores the potency of CRS-207. Upon availability of data from the first patient cohort from CRS-100 we plan to request a pre-IND meeting with FDA to discuss our proposed clinical plan for CRS-207.

An important element in our strategy is to utilize the CRS-100 clinical safety data to streamline the design of the CRS-207 study. Our plan calls for a multi-dose Phase 1 study to enhance our ability to detect immune responses in patients. Pending agreement with the FDA our plan is to file an IND by the middle of 2007.

In addition to our Listeria programs I just discussed we continue to make progress in our pre-clinical KBMA programs using government funding. Now I would like to turn the call over to Bill to review our financial results.

Thanks, David. Revenues for the third quarter of 2006 were $8 million, up from $6.9 million for the third quarter of 2005, with higher amounts attributed to increased revenues from government grant funding recognized during the quarter, as well as from European sales of the INTERCEPT platelet system, offsetting modest declines in recognition of milestone payments previously received from BioOne and MedImmune.

Total operating expenses for the third quarter of 2006 were $10.7 million, up from $8.8 million for the same period in 2005, primarily due to increased European commercialization activities, development and regulatory efforts related to the INTERCEPT red blood cell system, pre-clinical and Phase 1 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 third quarter of 2006 was $1.8 million or $0.06 per share compared to net loss of $1.7 million or $0.07 per share for the third quarter of 2005. For the nine months ended September 30, 2006, total revenues were $21.4 million compared with $18.8 million for the same period in 2005. Net loss was $7.8 million, or $0.30 per share, for the nine months ended September 30, 2006 compared to net income of $17 million, or $0.72 per diluted share, for the same period in 2005.

Net income during the nine months ended September 30, 2005 included a one-time gain of $22.1 million recognized in February of 2005 as result of a disputed loan settlement with Baxter Capital. At September 30, 2006, the Company had cash, cash equivalents and short-term investments of $69.6 million, an increase of $23.8 million from December 31, 2005, reflecting net proceeds from a March 2006 equity offering of $42.4 million, offset by cash used in domestic and European operations during the first three quarters. We have consumed $14.4 million of cash in operations thus far this year.

We now anticipate that cash burn from operations in 2006 will be at the low end or below our previous guidance range of between $25 million to $27 million. This reduction in expected cash burn is due to delayed initiation of our Phase 1 clinical trials in red blood cells and CRS-100 and collection of receivables associated with government grants.

However, we do expect our rate of cash consumption to rise from levels experienced year-to-date as we move through the fourth quarter and into next year. As of the fourth quarter, our clinical trials are now in full swing and the red blood cell system development efforts are expanding. In addition, expenses associated with our European operations, which are being partially supported through year end by funds from Baxter under terms of our February 2006 agreement, will be entirely borne by Cerus beginning in January of next year.

Finally, we expect government grant funding to decline from previous periods due largely to budget pressures in Washington. During the quarter, Cerus announced that settlement agreements had been reached in shareholder suits that had been brought against Cerus in 2003 and 2004.

The total cash settlements, which are subject to court approval, will be funded entirely by insurance carriers under our directors and officers liability insurance policy and will have no financial impact on Cerus. Now I will turn the call back over to Claes for some concluding remarks.

Thanks, Bill. In summary, in the third quarter we continued making commercial progress. We strengthened our European team and we are preparing for an anticipated launch of the INTERCEPT plasma system by year end. We were pleased that our red blood cell system is back in the clinic. We have treated the first patients in our CRS-100 clinical trial. And we look forward to providing an in-depth update on commercial and R&D progress at our upcoming investor and analyst event. Thank you for your time this afternoon and for your continuing interest in Cerus. And operator, we are now ready to take questions.

[OPERATOR INSTRUCTIONS] We'll pause for just a moment to compile the Q&A roster. Your first question comes from line of Charles Duncan.

Good afternoon, gentlemen. Congratulations on a quarter of solid progress, and thank you for taking my questions.

Thank you, Charles.

Let's see, with regard to the experience trial that is going on over in France, can you give us any additional color on how that's going and kind of what the current inventory levels are over there and when you expect it to conclude?

There are trials are going on in several sites on the INTERCEPT platelets and the objective of those trials is to collect data that will be collected by EFS, the French blood collection agency, and the used in the form of a report they will have as a foundation, or basis, for applying for reimbursement pricing in France. And that data collection should be finished before the end of the year. As far as we understand, it's moving forward. We have some interim data already, but the final report should be put together and submitted by the end of this year. Does that answer your question, Charles?

Do you think that could turn into a decision to reimburse within three months, six months, I mean if you had to kind of handicap, what do you think the turnaround is on that?

Charles, I wish I could give you an adequate assessment of French decision making processes, but I don't, I can't because we don't control that process ourselves. We are certainly doing everything we can to support that process going forward. You might hear some more comments from one of our speakers at the upcoming investors day, November 9, it's Jean Pierre [Cassanopt] from EFS Blood Center in Strassberg. So if you ask the question to him he might give you better turnarounds than I can do now.

Okay, I'll do, and then with regard to the red blood cell trial that you started, congrats on that, it sounds like the timing, it's pretty quick turnaround to data. Can you give us some thoughts on whether or not that would be in time for abstract submissions for the big blood meetings in the fall, and then, secondarily, what really are the next steps with that RBC data that you expect to take?

You know, as we said, we expect to have the final data by the middle of next year. I don't if the report will be written right away, but in terms of submitting that abstract for ISBT, which is in our view the biggest conference next year, it will too late for that for sure. And I doubt that we even will make it in time for [AABB] but possible we can do it for ASH, which has an August submission time. But I can't promise you we can do it now because it still has, assuming that everything goes well and we'll the report put together.

With regards to next steps, we are now in the middle of outlining what the next steps are. We think that, again, valuable input is being collected from the European blood centers right now, and what kind of data they would like to see in the Phase 3 clinical trials, and that's's going to help us to design that Phase 3 clinical trial.

We haven't gotten to the point yet where we have sat down and done that. Then we need to, of course, get some feedback from regulatory authorities, how they would view that Phase 3 clinical trial, if it satisfies regulatory requirements. In parallel, we are working on device development and, as David indicated we're trying to go back to square one, in some cases. We inherited some of this development from what Baxter had done, and we think we can hopefully get the cost of goods down and get the user friendliness improved compared to some prototypes that we inherited from Baxter. So we have some work ahead of us here that we are running in parallel.

Last question is, with regard to the Phase 3 for platelet you're more definitive thing you have done in the past, and it seems like it's out there a ways in mid-'08. Can you give us some color on what you need to do to accomplish, what you need to accomplish before you start that Phase 3 besides the partnering?

Well, I think the first thing we need to accomplish is to get the FDA to agree to the design of the trial. That's something we're still, we're still engaged in that process. But we felt that we should give some more definitive color on this because so far every indication is that the FDA will require a trial at least as big as SPRINT, so given that that will now expect to be the likely outcome we feel that trial will require some third party financing for that, and that third party could, incidentally, be government agencies, as well as a partner. So we'll look for that before we want to start the trial.

Thanks for the color, Claes. Good bye.

Thank you, Charles.

Your next question is from the line of David [Neergarden.]

Hey guys. I just had a quick question. Have you stopped, I know last quarter you updated us on the number of commercial centers in Europe that were reimbursunbg for INTERCEPT. Have you sort of moved away from that practice, or could you provide a little color on if at least increased the number of centers, or, you know, has the added sales coming from a higher, higher sales fees from the centers you recruited last quarter?

We're in the process of transitioning from Baxter, so we're updating our information, so we have added at least one customer, if not more, during the quarter. So when have full control of all the information, David, we plan to continue to update on that metric as we go forward. And likewise with the number of transfusions. That's a measurement that we will continue to provide guidance on, again, when we have access to the information first hand rather than second hand from Baxter.

Okay, fair enough. And going back to the U.S. platelets, you mentioned talking to third party people, including the government. Have you been in discussions already, or are you waiting to hear from the FDA a little bit more before you initiate those discussions with other parties?

Right now we're getting [INAUDIBLE] discussions with the FDA, so it's hard to submit applications for funding before you really know what you have in scope, or what you want to have funded.

Understandable. I just wanted to check on that progress. Thanks a lot.

Thank you, David.

Your next question is from the line of Liisa Bayko.

Hi. Just a couple of questions. Number one, do you think you'd be doing something like the experience trials for the plasma system, assuming it's reimbursed at some point, or sorry, approved by the end of the year? Hi, Liisa. No, actually we think that for plasma because it is being, at least in France, is being reimbursed, and in some other countries in Europe, as well. There is really no need for us to go through this stage of experience trials, we'd rather go straight to commerce and sales. Okay. Great, that makes sense. And then, second, I just wanted to maybe get an update on the progress of BioOne is making in Japan?

I think the progress in Japan has been slower than BioOne's initial estimates, and we don't really want to take responsibility for giving detailed updates. The information we have is third hand information. But clearly they are still optimistic that they will ultimately see pathogen activation implemented in Japan. I think it's more a question of timing.

Okay. And then my final question is, I know this a lot of detail based on the small sales base you have, but it looks like your cogs have gone up about 10%. Is that just due to experience trials, or what is that sort of due to?

I think it's like Bill mentioned a couple of different factors. The experience trials, actually, is not really a big portion right now because that is covered by some of the money we got settled from Baxter, but we have hired people in Europe so that adds to SG&A and we have this option accounting which now is added to our cost. And also we're seeing somewhat increased costs because of our clinical trials.

Okay, well, thanks a lot and congratulations on a good quarter of progress.

Thank you very much, Liisa.

Bye-bye.

Good bye.

I am showing there are no further questions at this time. Are there any closing remarks?

If there are no further questions, I just wanted to thank you all, again, for being on the call. We look forward to our next quarterly financial results call sometime in the early winter. Thank you, everybody.

Ladies and gentlemen, this concludes today's conference. You may now disconnect.