Cerus Corp (CERS) 2007 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Cerus 2007 first-quarter financial results conference call. (Operator Instructions). As a reminder, this conference is being recorded today, May 1, 2007.

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

Thank you, operator, and good afternoon. We issued a press release today announcing Cerus' financial results for the first quarter ended March 31, 2007, 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 developments, research, regulatory process, commercialization, finances, strategic alternatives 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. I call your attention to our disclosure in our SEC filings, in particular, our Quarterly Report filed on our most recent Form 10-Q and Annual Report on Form 10-K, including a 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 the call over to Claes Glassell, CEO of Cerus Corporation. Claes?

Thank you. I'm joined today by Bill Dawson, our Chief Financial Officer, and David Cook, our Corporate Senior Vice President. Larry Corash, our Chief Medical Officer, joins us by telephone to answer questions.

I would like to start with a review of our commercial metrics. Sales of the INTERCEPT Blood System during the first quarter of 2007 were $1.2 million. That was our first million-dollar quarter. INTERCEPT is being used in over 45 blood centers in 13 countries. We've now shipped more than 80,000 INTERCEPT platelet and plasma kits.

As mentioned in our late February conference call, we're now engaged in a growing number of contract and tender negotiations. While they are more detailed and time-consuming than we had expected, we do believe that they will lead to significant new customer sales.

One of the most important events since I joined Cerus occurred in late March. From time to time, the international transfusion medicine community gathers to discuss pressing issues of universal concern. Such a consensus conference totally devoted to pathogen inactivation was held in Toronto, Canada. The conference was attended by more than 200 leaders from the international blood banking and transfusion medicine community. The conference was led by a panel chaired by an NIH expert in transfusion medicine.

After hearing presentations from patient advocates, experts in pharmacoeconomics and infectious disease, blood bankers, toxicologists, hematologists and representatives from leading regulatory bodies, the independent conference panel recommended broad implementation of pathogen inactivation.

The panel's conclusion was based on the recognition that new pathogens will continue to threaten the blood supply and that this threat cannot be addressed simply through a reactive strategy of surveillance, screening and testing. In addition, the panel stressed the need for a paradigm shift to take proactive measures to reinforce the public's confidence in the safety of the blood supply.

While the panel's report is still in draft form, the panel's recommendations represent a very strong endorsement for pathogen inactivation. Once published, it will set a new standard by which safety measures within the blood supply are judged. Importantly, the panel stressed that adoption of pathogen inactivation for platelets and plasma should not be delayed while pathogen inactivation for red blood cells is being developed.

Let me also share with you some important comments made during the conference regarding the INTERCEPT Blood System. A representative from the Paul-Ehrlich-Institute, the agency that governs blood components in Germany, explained the agency's rationale for approving the INTERCEPT system. PEI's approval came after rigorous review of all the same clinical data that has been submitted to other regulatory bodies. [They] Shereported that PEI found that INTERCEPT-treated platelets are safe to market and believes that the INTERCEPT platelet systems adds safety to the blood supply.

Very importantly for Cerus, a senior member of EFS, the French National Blood Service, stated at the conference that he understands that EFS intends to fully adopt the INTERCEPT platelet system by the end of 2008. This would represent roughly a $30 million annual revenue opportunity for Cerus. We believe the French EFS decision to adopt our pathogen inactivation system will set the standard for other national and regional blood centers to follow. While we do not yet have a signed contract from EFS, this public statement is very encouraging.

On our year-end conference call two months ago, we announced that the EFS had invited us to submit a tender for the supply of our platelet system to three of the 17 EFS centers in France and its territories. We've responded to additional questions and requests for clarification from French authorities and hope to have the initial tender signed within the second quarter. We continue to expect that this tender will form the contractual framework for a country-wide tender that will allow EFS to fully adopt the INTERCEPT platelet system by the end of next year.

Our commercial focus is now on negotiating contract terms, training and converting customers from routine clinical use. With the first PEI marketing approval for a customer in Germany issued earlier this year, we are initiating experience studies in additional key German blood centers where we expect commercial adoption in 2008.

We're optimistic that several other national and regional blood centers will begin purchasing the INTERCEPT Blood System in the same timeframe. We're encouraged by the customer commitment we're seeing. While I can't get into specifics until contracts are signed, we're presently negotiating one- to three-year supply agreements with multiple regional and national blood services. These are our first commercial relationships with these customers, and the process of working through contractual terms in this highly regulated market will take some time.

We began initial shipments of plasma kits to European locations in the first quarter. In France, you'll recall that we received approval for our plasma system in January, but we're still waiting for the official journal publication. We estimate the market opportunity in France for our plasma system to be between $5 and $10 million. In the meantime, we're conducting plasma pre-launch activities in France and launch activities in other countries. In Germany, the same center-by-center approval process will be used for the plasma system as was required for the platelet system.

Turning to our red blood cell program, the Phase I trial has been fully enrolled and we expect to report data in the third quarter. Interim Phase I data suggest that the treated red blood cells show recovery within a generally accepted range. However, the interim data also suggests that modifications that we made to our original process to reduce antibody reactivity have negatively impacted lifespan of the treated red cells.

To be sure that we have a robust process before commencing Phase III trials, we plan to further modify the process in order to improve the treated red blood cell lifespan and then expand our testing in healthy subjects. We now anticipate starting the Phase III trial in 2009 rather than late 2008.

With the consensus conference's recommendation for the universal adoption of pathogen inactivation, and growing demand for the INTERCEPT platelet and plasma systems, completing development of our red blood cell system is a high priority. Dave will comment further on this program later in the call.

A final point in blood safety -- BioOne has reported their first sales in Malaysia and Thailand. However, progress within the Japanese Red Cross remains behind expectations. We remain hopeful that our progress in Europe and the recent consensus conference findings will provide impetus for Asian approvals and adoption. We also understand that BioOne plans to raise additional capital this year to fund operations.

Turning to immunotherapy, last week we announced that the Company is evaluating strategic alternatives with respect to our immunotherapy business. We have had several contacts with potential strategic and financial partners. The interest in our immunotherapy programs increased after we initiated our first human clinical trial for CRS-100 last year. More recently, interests have increased as companies with later-stage immunotherapy programs have gained public attention. With the right transaction, we believe that we can unlock the value in our immunotherapy programs. I will expand on details later in the call.

Now I would like to turn the call over to Dave to expand on our research and development initiatives in both blood safety and immunotherapy.

Thanks, Claes. Our Phase I study with red blood cells is nearing completion, and we have received some interim data from our clinical sites. The purpose of this clinical trial in healthy subjects is to evaluate the proportion of transfused red cells that are still in the blood 24 hours after transfusion and also to measure the lifespan of red blood cells for up to one month. The trial compares red cells treated with the INTERCEPT process to conventional red cells.

The interim data show the following -- 24-hour recovery of INTERCEPT red cells met the generally accepted requirements. The lifespan of treated red cells is approximately 15% shorter than conventional untreated red cells. Based on market research and discussions with thought leaders, we believe that we need to offer a pathogen-inactivated red cell product whose lifespan is comparable to conventional red cells.

I want to note that the lifespan of red cells treated with the original INTERCEPT process was equivalent to conventional red cells. This is one of the reasons why we are optimistic that we can alter the current process to provide pathogen-inactivated red cells with an acceptable lifespan.

At this point, we have identified a possible cause of the decreased lifespan. The modified INTERCEPT process being tested in Phase I involves the use of higher quantities of a quencher called glutathione. The addition of higher concentrations of glutathione increases the level of salt the red cells are exposed to during storage. In lay terms, our hypothesis is that the higher salt levels dehydrate the red blood cells. Over the course of five weeks of storage, the higher salt levels may have an adverse impact on in vivo circulation of red cells.

Our current efforts, therefore, are focused on identifying treatment and storage conditions that can reduce the final concentration of salt in the red cell storage medium. Our plan is to define a technical solution to the problem and then get customer feedback on the product configuration. With that feedback in hand, we have performed a pilot clinical study in patients to validate that we have a proved red cell lifespan.

In our immunotherapy program, we have completed our first patient cohort for the CRS-100 program. The dose of 1 million live attenuated Listeria was well tolerated and there were no serious adverse events or dose-limiting toxicities. We have also seen evidence of immune stimulation, including activation of NK cells and T cells and boosting of cytokine levels in the peripheral blood of patients. We're screening patients for the next dose level, which is 30 fold higher than the first cohort.

We continue to expect to file an IND for CRS-207 by midyear. The indications for CRS-207 include pancreatic and ovarian cancers, non-small-cell lung cancer and mesothelioma. The study is designed as a multi-dose clinical trial with a primary endpoint of safety. We will be monitoring efficacy as well, including tumor response and mesothelin-specific immune response.

At the recent meeting of the American Association for Cancer Research, Cerus presented two posters. The first described in detail the mechanism of action of the CRS-100. This data demonstrates the activation of antitumor NK cells in the liver in preclinical animal models. NK cell killing of tumors in the liver ultimately leads to the systemic production of antitumor T cells. The second poster described the CRS-207 preclinical program targeting mesothelin. This presentation included data showing the potency of CRS-207, including antitumor activity in mouse models and the ability to break immunological tolerance against mesothelin in nonhuman primates.

Finally, during the quarter, we announced receipt of two separate grants to fund early-stage work on our proprietary Listeria-based vaccine platforms to both treat and prevent infections caused by Hepatitis-C virus and HIV. We hope to receive further funding of our vaccine technology from other agencies.

Now I would like to hand the call over to Bill to review our financial results from the quarter.

Thanks, Dave. Revenues for the first quarter of 2007 were $4.7 million, down from $7 million for the same quarter of 2006, primarily due to our not recognizing any milestone payments or development funding from either BioOne or MedImmune in the current quarter versus $3.8 million in the prior year's first quarter.

Product sales for the INTERCEPT Blood System during the first quarter of 2007 were $1l2 million, up from $0.5 million during the same period in 2006. Total revenues for the first quarter of 2007 were $12.6 million -- pardon me, total operating expenses for the first quarter were $12.6 million, up from $10.0 million for the same period in 2006, due primarily to increased commercialization expenses in Europe.

Net loss for the first quarter of 2007 was $6.8 million or $0.21 per share compared to a net loss of $0.9 million or $0.04 per share for the same period in 2006. Cash and short-term investments at March 31, 2007, were $79.6 million, down from $93.4 million at the end of 2006.

Cash burn for the quarter was $13.8 million, in excess of the average quarterly burn rate of $10.5 million implicit in our 2007 guidance of $42 million of cash burn for the full year. However, as mentioned on our year-end conference call in February, a number of large onetime payables totaling $3.5 million rolled into early 2007, including fees and expenses of our December financing and accruals relating to our final transition from Baxter, which fully explain the variance. Importantly, we do not intend to raise additional capital in 2007. This course of action is not affected by our efforts to seek strategic alternatives for our immunotherapy business.

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

Thanks, Bill. Let me give you some more color on our decision regarding the immunotherapy business. Cerus is a very different company today than it was in 2001, when we decided to start development of the immunotherapy programs. Since then, both our INTERCEPT and immunotherapy programs have made great progress and have shown considerable promise.

We have taken over the management of all commercial aspects of the blood safety business from Baxter. INTERCEPT is now showing tangible evidence of market acceptance and we are increasingly enthusiastic about its near-term and long-term prospects. At the same time, our immunotherapy programs have progressed to clinical stage with encouraging early results.

As we look out over the next two to four years, we can envision scenarios in which we could have several Phase II clinical trials underway in cancer and infectious disease indications. The decision we have taken opens the opportunity for third-party funding to help maximize the value of these programs.

We also are aware that our two businesses have little scientific and operational overlap. One is the commercial-stage medical device business with an international focus. The other is a promising early-stage biotechnology business.

We've also found that the two programs appeal to different sets of investors, and the majority of our current investor base is more focused on our blood safety business. We believe that there are investors or partners that would be interested in a pure-play immunotherapy opportunity and that we can create more value by operating INTERCEPT and immunotherapy as separate businesses.

For these reasons, we have concluded that Cerus' primary focus must be on our more mature blood safety business. We're considering several possible business structures. These include partnering of all of our immunotherapy programs with pharma companies. We're also evaluating combining our immunotherapy business with another public or private company. Finally, we're looking into spinning out the business segment into a new company that would be funded by institutional venture capital investors.

We have current discussions ongoing in all three potential scenarios. Importantly, any of these potential transactions would result in a significant reduction in cash burn for Cerus. It is too early to comment on the likely outcome or timing of the process, only that we're committed to its successful conclusion.

In conclusion, I would like to review the highlights of this call. We have made significant progress establishing INTERCEPT as the market leader, and we're poised to announce several customer contracts over the next several quarters. The consensus conference strongly endorsed pathogen inactivation. Our red blood cell development program requires further work, which is expected to delay entry into a Phase III trial until 2009.

The first cohort of patients in our CRS-100 Phase I trial have been dosed and we have observed clear indications of immune activation. In our CRS-207 program, we expect to file and IND by mid-2007. Finally, Cerus has made the decision to explore alternatives with respect to our immunotherapy business.

I'm very appreciative of all the hard work and dedication of our employees in both our businesses. I also want to thank our shareholders for their interest in Cerus and support for our businesses.

Operator, we will now open the call to questions.

(Operator Instructions). Liisa Bayko, Next Generation.

It's been a busy quarter for you, so congratulations on all the progress. So just to clarify, the red blood cell -- it seems like it is a quenching issue. When in 2009 do you think you will be ready to start Phase III? Is it more towards the end of the year? Is it basically a one-year delay?

This is David Cook. We expect to be able to give additional guidance later this year. Right now, we've got a six-month timeline to be back testing a new process in normal volunteers. But I think real certainty about when in 2009 is going to have to remain until later this year.

Okay. And then how long would a Phase III trial take? How long is it going to -- I guess you have to do probably two trials. How long would that take?

The longest trial is likely to be our trial in patients receiving chronic transfusions, and there, a patient would receive both test and control red cells. On average, they would receive six months of test and six months of control. So that's about a year per patient, and then there's the amount of time it takes us to fully enroll the trial. So I think you could be looking at a study of 24 months.

That makes sense. Thanks. And then, just a couple of technical questions. Is it possible to break out sales for platelets versus plasma?

Lisa, this is Bill. We don't report that level of detail. I will say only that the level of plasma system sales in the first quarter was small.

Okay. And then, in terms of Baxter royalty, is that -- is sales reported net of the Baxter royalty, or does that incorporate it into COGs, or how do you -- how do I--?

It's incorporated into cost of goods.

Okay. And then, grant funding looked like it was a little bit up. Is that your current run rate or does it kind of bounce around?

It does bump around, depending on when funds are released from the government.

Okay, and then any guidance for 2007? I didn't see you provided any before, but maybe I just --

No, we had in February given a $42 million cash burn for the year. And that's the only guidance we're likely to give.

Brent Finck, Robert W. Baird.

I wonder if you guys could tell us how many paying centers you guys have now in total?

We've added a couple during the first quarter. But I think our main focus now is on negotiations with some of the bigger ones. So that's taking up some of our time.

Okay. Will you tell how many are for plasma?

No, we haven't yet. I actually don't have that number off the top of my head.

Ron Oveter, Capital Partners.

Claes, this goes to the immunotherapy strategic decision that you have announced. A two-part question -- over the next couple of quarters as you review your strategic options, to what degree are there any internal developments within the Company that you believe would drive the discussions one way or the other? Are the clinical results likely to drive you down one path versus another? That's the first part of my question. And parenthetically, I was curious why in fact you decided to announce it publicly prior to the conclusion of the negotiations.

But the second part of my question is, is it fair to assume that if the transaction is concluded by the end of this year, because you talked about the '07 burn, that that financial consequence would result in minimizing any '08 burn and therefore minimizing any further dilution in the '08 timeframe?

I will try to answer. First of all, I think the process will be less driven by milestones or individual progress here. I think it's going to be more by the kind of partners that are looking at it -- how interested they are. Why we make it public is, quite frankly, because we think this is a very material event, and as we start approaching a broad number of potential partners, it's very hard to maintain confidentiality. So, that sort of leads us to having to disclose this to everybody at the same time.

And with regards to the '08 burn, yes, I think it's certainly our expectation that the '08 burn will be much less in immunotherapy, whether it's through partnering or any other means, than what we have seen in '07.

So I guess it's too early to say whether that will have any impact on financeability in '08?

I think it will extend our runway. That's one -- or one of the consequences that we expect to see. And I think Bill addressed the issue that we have no intention to go out and do financings in '07.

That would be the final question for today. I would like to turn it back to management for any closing remarks.

Thank you all for being on this call. We look forward to our next quarterly financial results call late in the summer. Look forward to talking to you then. Bye.

Ladies and gentlemen, that does conclude today's conference. You may now disconnect. Have a great day.