Cerus Corp (CERS) 2007 Q3 法說會逐字稿

Welcome to the Cerus Corporation third quarter 2007 financial results conference call. At this time. all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (OPERATOR INSTRUCTIONS) . As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Myesha Edwards. Thank you

Thank you, operator and good afternoon. We issued a press release today announcing Cerus financial results for the third quarter ended September 30, 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 about development, research, regulatory process, commercialization, finances, strategic, alternatives and business prospects. Our actual results may differ materially from those suggested by the 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 the disclose ours in our SEC findings, in particular, our quarterly report, filed in our most recent Form 10-Q, and annual report on Form 10-K. Including the sections 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, Cerus Corporation. Claes?

Thank you, Mayesha. I am joined today by Bill Dawson, our Chief Financial Officer. We continue to make good commercial progress during the quarter, first, product sales increased $2.8 million during the third quarter from $794,000 in the same period last year. Year-to-date product sales are $5.6 million, up significant from $2 million in the same period in 2006. We recently signed a distribution agreement to supply blood centers in Russia, and other CIS countries. There are already customers in Russia using INTERCEPT. We expect that our distributor would provide service to both existing and new customers in this territory. This market could represent as much as $54 million opportunities, if western blood standards are fully implemented. We also completed training with Grifols are distributor in Spain and Portugal and began coordinating commercial efforts with our distributors in Greece, Turkey, and Kuwait.

We're engaged in significant commercial contract negotiations in key markets, for sale in 2008 and beyond. We hope to announce agreements in the course of the first half next year. We continue to see positive follow-through from the March 2007 international consensus conference on pathogen inactivation held in Toronto. The very favorable panel recommendations which called for universal implementation of pathogen inactivation has now been published and widely circulated within the blood banking community. There's growing acceptance from pathogen inactivation generally and INTERCEPT specifically. We recently submitted an application to sell our platelet system in Switzerland and we will follow shortly with a submission for our plasma system. The address of the market for pathogen inactivation of platelets and plasma in Switzerland is over $13 million.

Let me tell you what's going on in the world that has an influence on our commercial activities. The blood supply continues to be threatened by newly emerging diseases as well as by some reemerging ones. The World Health Organization recently reported that 39 new pathogen emerged in the past 40 years. Essentially one per year. This is obviously not a temporary trend. Rather, public health officials acknowledge that it is a continual problem that requires a proactive approach. SARS, Avian flu and MRSA, the antibiotic resistant staph bacteria are vivid recent examples of emerging pathogen. Recently, you may have heard news reports of chikungunya virus infecting 250 people in the Ravenna region of Italy. Following the visit of a traveler from India. This outbreak is the first of its kind in continental Europe. The mosquito which transmits this blood Bourne virus is prevalent also in France and Spain. We understand that the European center for disease control is closely monitoring this outbreak. Another blood borne virus transmitted by mosquitoes the dengue virus has been reported in the Caribbean, Central and South American regions with the marked increase in the number of cases this year in Puerto Rico.

There is now growing awareness that Chagas diseases has spread into the general population of South Florida and Southern California as well as to other U.S. regions not previously suspected of harboring infected people. People can be infected with Chagas for many years before becoming symptomatic. This makes them silent threats to the blood supply. Even with long recognized threats to the blood supply, there are incidents of pathogens being transfused. Recently in Norway, it has been reported that one donor has infected more than 30 blood recipients with syphilis, and two new cases of HIV from blood transfusions were reported in Denmark this past summer. So the safety of the blood supply has been shown to be vulnerable to both known and emerging pathogens. Blood banker and transfusing physicians recognize that the testing paradigm they have relied upon historically is fundamental not suited to dressed threats to the blood supply for emerging pathogens. The consensus conference in Toronto last March strongly endorsed that conclusion.

The French take this stress of pathogens such as Dengue and Chagas seriously. Consequently, they have fully implemented INTERCEPT in Guatalupe and Martinique both regarded as high risk areas for these two disease. As you now, the French implemented INTERCEPT last year in La Reunion in response to chikungunya outbreak there. We understand that the French National Drug Service, EFS is planning to adopt the INTERCEPT platelet system across the whole country. The timing of this adoption is subject to the EFS and the Ministry Health working together to establish a national budget. We expect the French to reach full implementation within the next 18 months. Meanwhile, we are working to expand our existing contract to accommodate full adoption of our INTERCEPT platelet system. We would expect this expanse contract to be signed in the first half of 2008.

With respect to plasma, we are currently supplying one EFS standard, which has converted fully under our existing contract. EFS has communicated its intention to implement pathogen inactivation of plasma throughout the country. We expect INTERCEPT to capture a substantial share of that market. The current plasma supply situation in France is tight. Converting to INTERCEPT will improve availability of this critical blood component.

Turning to Germany, the largest region of the German red cross is located in Frankfurt and includes seven primary centers. The region has applied for authorization from the Paul Ehrlich Institute to market platelets with INTERCEPT, which the region expects will be issued by year-end. We're also assisting the Frankfurt region in preparing for their regulatory submissions for the INTERCEPT plasma system. After the PEI marketing approval comes through, we expect to sign the commercial contract for the Frankfurt red cross, for a progressive rollout beginning in 2008. The Frankfurt region provides roughly 1/3 of the German platelet supply. They have historically been early adapters of new blood measures, meanwhile, we are actively working with the three other regions of the German red cross and with leading university hospitals encouraging them to follow Frankfurt's lead. We estimate the adressable market in Germany to be $76 million for platelets and plasma.

In September, the Spanish national ministry of health fell in line with the consensus conference recommendation. The ministry communicated on its website that it now considers pathogen inactivation to be a valid approach to enhancing blood safety in Spain. This pronouncement should be supportive to the sales efforts of our Spanish distributior, Grifols.

Commercial adoption is now beginning to accelerate. Quarterly product sales have grown to $1.2 million to $1.7 million, and now to $2.8 million over the first three quarters of 2007. Representing accelerating quarter- over- quarter growth, 41% from Q1 to Q2 and 65% from Q2 to Q3.

Our commercial launch of the plasma system is beginning to have an impact. We are addressing a $500 million market for platelets and plasma assistance sales in Europe and some non-European countries. While we are happy with $2.8 million sales this quarter, there is tremendous opportunity and challenge in front of us. With high relative growth rates off a low base it is difficult to predict with precision how the next few months and quarters will play out. But clearly, commercial momentum for INTERCEPT is building.

As you know, INTERCEPT is the only integrated system approved for inactivating pathogens in platelets and plasma. We believe our platelet and plasma systems are superior to other approaches. Cerus has developed its INTERCEPT blood systems to pharmaceutical standards, by that, I mean that we have tested the system rigorously in preclinical and clinical settings before obtaining regulatory approval. We have sought and received national registrations in countries recognized for rigorous regulatory standards. To give our customers confidence in the INTERCEPT technology. We are also gathering significant post approval data in Europe through our active hemovigilance program We now have data on over 28,000 transfusions, using the INTERCEPT platelet system. This data suggests that INTERCEPT platelets are not only safe and function normally, but the transfusion related side effects are dramatically reduced. With the significant preclinical toxicological clinical and commercial use data we have set a very high bar for competitors to overcome. Importantly, the recommendations coming out of the Toronto consensus conference put considerably weight on the depths, breadth and quality of scientific, clinical and commercial data. We believe our data is and will be a distinct competitive advantage.

Further to that point we continue to present data at industry conferences to demonstrate the performance of INTERCEPT in commercial use. Notably, two studies, each showed reduction in adverse transfusion related reactions, by 80% to 90%. It is particularly important that in one study, in pediatric patients. These trends were even stronger. Data gathered by the Mont Godinne Blood Center in Belgium, over three years of routine use, suggest that the adoption of the INTERCEPT system reduced platelet wastage from a historical rate of 9.1% down to 1.2%. This translates to a very significant operational cost savings. Conclusions from the 4-year Italian study suggest that INTERCEPT treated platelets function with the same therapeutic efficacy as non-treated platelets in both adult and pediatric transfusion patients. And an additive of great benefit and a comparison of the cost effectiveness lead the commission to conclude that the use of INTERCEPT treated platelets is acceptable and improved transfusion safety.

Let me give you an update on where we are with red cells. We are actively working toward re-entering Phase III clinical trials into 2009. The gating event to reach this milestone is the development of a commercially ready device. Our first prototype already has been developed. We are now refining the kits and system design. In parallel, we have begun initial trial design and site selection work. We're also exploring strategies that could allow us to move through those trials more quickly and gain early European approval. Key activities between now and then involve performing studies to optimize the current profits before initiating a Phase I study clinical trial in 2008. We have had historical challenges with the red cell program. But let's not forget that we have been very close to having clinical result that we feel would have supported product approval. We are optimistic that we will have a process that addresses those challenges.

As a last point on INTERCEPT. We remain focused, first and foremost on commercializing the INTERCEPT blood system in Europe. However, we are certainly not forgetting about the United States as the addressable market for our system is nearly as large as the market in Europe. The threat to the blood supply in the U.S. from emerging pathogens are just as real as in Europe. We've shared with the FDA our belief that an additional Phase III trialfor the platelet system is not feasible given logistics, time and cost considerations. We are now exploring whether we can generate the data from the platelet system in Europe that would be acceptable to the FDA, over the next several months, we hope to get gain a better understanding as to whether this approach could lead to product approval in the U.S.

Turning to immunotherapy, we have enrolled one more cohort of patients in our CRS 100 clinical trial. We also expect the first patient to be enrolled soon in the phase one clinical trial for CRS 207. We continue to believe that the underlying science has great promise in cheating cancer and infectious disease. However, we have taken the strategic decision to focus our efforts and resources on our blood safety business. I'm happy to report that we are now in advanced negotiations to spin-off the immunotherapy business to new investors so there's no insurance we will reach final agreement. Under the scenario in exchange for our immunotherapy assets, we would receive an equity interest of less than 20%, and milestones and royalties in the future. We do not expect to receive any up front cash. We would no longer be obligated to fund operations which we estimated would consume $14 million of our cash in 2007. With this spin-off behind us, management will be able to focus its entire attention on blood safety. We expect to make a further announcement with regard to this potential transaction before year-end. I will now turn the call over to Bill to review our financial highlights.

Thanks, Claes. Revenues for the third quarter of 2007, were $3.7 million down from $8 million for third quarter of 2006. When $2.6 million of milestone payments from BioOne, and development funding under agreements with Baxter and Medimmune were recognized. We recognized no such revenue in Q3, 2007. In addition, we recognize $3.6 million less in government grant funding in the third quarter of 2007 as compared to the prior year period. However, product revenue for the INTERCEPT blood system increased to $2.8 million during the third quarter of 2007 up 248% from $794,000 during the third quarter of 2006. Revenue from government grants declined as expected from $4.6 million in the third quarter of 2006 to $938,000 in Q3 2007. Total operating expenses for the third quarter of 2007 were $14.2 million , up from $10.7 million from the same period in 2006, primarily due to an increase of $1.3 million in costs of products sold, and $2 million higher in selling, general and administrative expenses associated with our commercialization efforts of the INTERCEPT system in Europe.

Net loss for the third quarter of 2007 was $9.2 million or $0.29 per share compared to a net loss of $1.8 million or $0.06 per share for the third quarter of 2006. We ended the third quarter with cash and marketable securities of $69 million, reflecting an operating cash burn of $24.7 million over the first three quarters, including only $5.4 million in the third quarter. In the fourth quarter, the rate of cash consumption will likely increase due to growing working capital requirements and other year-end factors. However, we now believe we will burn less than the previous guidance of $42 million over the course of 2007 and should end the year with more than $55 million in cash and marketable securities. I also want to reiterate our guidance that we do not expect to raise additional equity capital in the foreseeable future. While we have not yet given guidance on cash burn for 2008 and beyond, I do want to touch briefly on some forward looking points. We expect our immunotherapy business to consume on the order of $14 million in cash this year.

As Claes mentioned earlier, we do not expect to fund the immunotherapy business in 2008. With greater than $55 million expected at year-end, we believe we will have adequate resources to fund our operations into 2009. We expect that as product sales grow, longer-term cash needs may be funded with institutional and commercial debt not equity. Now, I'd like to turn the call back to Claes for some

Thanks, Bill. In summary, we are pleased to see sales growing rapidly. That is the ultimate measure of our progress, we realize we still have a long way to go. But we feel the momentum is building. The acceptance of pathogen inactivation is growing and our products are enhancing the safety of the blood supply, and providing measurable patient benefits. We expect that before year-end, we will be a focused blood safety company with the financial strength to support both commercial growth and red cell development. Operator, please open the call for questions.

(OPERATOR INSTRUCTIONS) Thank you. We have a question from the line of Chris Raymond with Robert W. Baird, please provide with your question.

Hey, thanks for taking the question, guys. I just want to understand a little bit more about the details behind the revenue number. I know you don't like to give specific numbers, but obviously, 65% sequential growth is impressive. But can you maybe give under the influence a little color? Is it mostly coming from the trajectory in France or is it from somewhere else? Maybe I'll start with that.

Yes, I think -- it's been France and to some extent Spain. There were some other countries, we had hoped to get in the quarter as well but that probable isn't going to happen until Q4 instead.

Can you maybe talk a little bit about that. What was that? I mean, you guys came in just a tad light of my estimate. Which I thought was a bit of a stretch. Was part of geography? --

Eastern Europe. Would I say -- it's not going to be giving you more details of that.

Okay.

But we had a shipment that shifted to Q4.

A shipment that came in to Q4?

Yes.

Can you maybe talk a little bit about how much that was?

(inaudible) .

I'm sorry?

It would have gotten us to your goal.

Oh, that was Eastern Europe?

Yes.

If you could talk a little bit about just clarifying your plans with the immunotherapy business. Are you -- you seem pretty clear whether you get this deal done or not, should we assume that the immunotherapy business investment would not be in the P&L.

For next year, you can assume that.

Okay. That's all I had.

All right, Chris, thank you.

Thank you. Our next question comes from the line of Matthew Campbell with Knot Partners Management LLC. Please proceed with your question.

Good afternoon, gentlemen.

Hi, Matt.

I was wondering you could expand or give a few examples of how you could get the red cell approval in Europe -- in the European market moving along more quickly.

It -- Matt, at this moment in time, we're still working on designing clinical trials, and as you may recall from our prior clinical trial in Phase III, there's an acute arm and chronic arm. And the rate limiting steps in the Phase III is usually the enrollment of patients for the chronic arm. And one of the ideas we want to explore now is to perhaps enroll relatively quickly in the acute arm, and approval for interim data in the chronic arm, and continue growing data in that arm for marketing purposes. So it's -- that's the idea. We don't know for sure whether we can do it or not. But we think it's a compelling proposition that could save a significant time.

It sounds like from your commentary, that there's a possibility that you could show data on your platelet and plasma process in Europe, and use that data and maybe get the U.S. moving forward a bit faster.

Well, if it was up to us, we'd do it in a heartbeat. But we have to get the FDA on board with this. We think this is a credible approach to responding to the requirements for data that the FDA has. And now remains to be seen i our discussions with them whether they can accept both the quality of data and the quantity of data that we can generate. But it's a way to address their issues without having to go through a randomized Phase III trial with large portions of the U.S. which we think is not feasible.

Have you seen a change in the U.S. FDA's mind-set toward INTERCEPT since the Toronto meeting .

I don't know if I can comment on that. I can say that they -- the FDA were present at the Toronto conference and they have been present in other symposiums where the outcome of the conference has been quoted and they are aware of the fact that we are approved in Europe by respected regulatory agencies, and that we are approved based on the same data that the FDA has reviewed themselves. They're also aware of the fact that there is a growing body of data in Europe from Phase 4 that demonstrates that the INTERCEPT system seems to be safe and the efficacy and actually have benefits to patients. So i thin k FDA taking all these things into consideration , I would hope they would be willing to have a constructive dialogue about some other pathway of giving them the data that

Thank you very much. It sounds very upbeat.

Thank you, Matt.

Thank you. We do have a follow-up question from the line of Chris Raymond. Please proceed with your question.

I'm not sure if I can get you to answer this question, but very to ask it anyway. And so -- it was Matt's question, on the FDA that sparked this, you obviously wouldn't have mentioned this idea of using your commercial data for submission purposes with the FDA if you didn't have some kind of idea that there was some legitimacy to the thought. Is this an idea that came from the FDA? Or something that you suggested to them and have not yet gotten a response?

I would say it's an idea that we have -- it came to us first, and I -- at this stage, we haven't had any formal discussions with the FDA about that. But we are -- we meet with them occasionally, and we talk to them informally. So -- the notion being, Chris, that some countries in Europe in particular, France has a -- was a very well established team of individuals, programs, where actually every single transfusion is documented. They have a total of 1600 people working on nothing but monitoring transfusions. So there is a lot of dated being gathered there. And there's a historical database, prior to INTERCEPT and as they implement INTERCEPT they will have a chance to compare those data. We think it's a credible approach to propose extracting data from that system. And we'll see. It's too soon to speculate that the FDA will accept a protocol. But we do mention it because we want to let our investors know that we have been keeping up with the U.S. and we are thinking of constructs ways of getting to the market in the U.S. too.

Keeping in mind that this issue with the FDA, people have drawn the parallel with NAT testing. Is that something that you think is still fair parallel to look at in term os how that first rolled out in Europe. And it was after the fact that we saw adoption in the U. S., and maybe more the FDA being amenable to it? Should we still think of it that way?

I think there is a parallel in the fact that the Europe led the way and that FDA I think were convinced -- we're hoping in the sense to do a parallel to that.

Maybe one final follow-up too. Back to the commercial rollout in Europe. Now that you've -- you're farewell into a launch with a reimbursement an official reimbursement in France, what are you learning from the sale cycle there when you remove the primary objection. of not having in country reimbursement. What are the primary barriers?

I think it comes down to the practical implementation, Chris. that something which you have to look at some blood center to blood center-- In France, it's not like everybody has the same collection platforms, have you to calibrate, you got to adapt the selection so that it becomes adapted to using INTERCEPT. So those are more of the practical things, and I don't think we have enough experience yet to say there's a clear pattern, except what I would say is where we have implemented INTERCEPT, the feed back we have gotten is that there are pleasantly surprised to see high yields of platelets. (inaudible) It still takes some time for education and getting everything into place.

Okay. And one final final question. At one point I think you guys had mentioned that the UK being the other major country where we haven't seen a lot of action that maybe there was some interest proactively on the part of the regulators there. Can you give an update as to where that stands?

Yes, there's going to be discussions with the UK and NBS later this year. They are looking at activation more than they were before. You may know, some management changes. From the manage point of view they are seeing the benefits and they are the last to convert in Europe. It's too soon to talk about schedules or anything else like that. But we see them now being much more engaged.

Right, thanks.

Thank you.

Thank you. Our final question comes from the line of Scott Lewis, with Lewis Capital Management. Please proceed with your question.

Thanks for taking my call. Claes, you mentioned a couple instances in Europe where some known pathogens got through the blood system. Do you happen to know with a failure of a test, or a failure of the testing procedure, did you have any information on that?

I have some information. I think in Norway, the incidence of syphilis, I don't think they were testing for syphilis, even though there was a test available for many years. Most blood centers I'm aware of still carry out syphilis tests, so that was an exception. The two HIV cases in Denmark happened -- even though there was some testing in place, were pooling. It has the effects of prolonging the window period between getting infected and it shows up in the test. And I think those two infections happened during the window period.

Okay. Thank you. And just one immunotherapy question. On the CRS-100. You've gone through two cohorts and you're on your third.

That's right.

How strong of a dose is this third cohort than the first cohort?

The first cohort was one times 10 to 6. And we're now in the third cohort, we're up to 3 times 10 to the 8 You're 300 times stronger than the first cohort.

Great. Okay, thank you very much.

Thank you.

Thank you. Ladies and gentlemen, at this time, there are no further questions. Gentlemen, do you have closing comments?

Thank you for your interest in Cerus, we look forward to giving you further updates in a quarter's time. Thank you.

Thank you. Ladies and gentlemen, this concludes today's teleconference, you may disconnect your lines at this time. Thank you for your participation.