Cerus Corp (CERS) 2009 Q1 法說會逐字稿

Welcome to the Cerus 2009 first-quarter financial results conference call. (Operator Instructions). As a reminder, this conference call is being recorded today, April 30, 2009. I would now like to turn the conference call over to Mr. Jason Spark of Porter Novelli Life Sciences, the investor and public relations firm representing Cerus Corporation.

Good afternoon. Cerus issued a press release today announcing Cerus' financial results for the first quarter ended March 31, 2009 and describing the Company's recent business highlights. You can access a copy of this announcement on the Company's 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 Company management will be making forward-looking statements, including statements about commercialization progress, regulatory and governmental processes, research and development activities, finances and business prospects.

The Company's actual results may differ materially from those suggested by forward-looking statements the Company will be making. And the Company assumes no obligation to update guidance or other forward-looking statements.

I call your attention to the disclosure in the Company's SEC filings, in particular Cerus' quarterly report filed this afternoon on Form 10-Q, and annual report on Form 10-K, including the sections entitled, Risk Factors.

This call will be archived temporarily on the Company's website and will not be updated during that time.

I will now turn the call over to Claes Glassell, President and CEO of Cerus Corporation.

I am joined today by Kevin Green, our Chief Accounting Officer. Larry Corash, our Chief Scientific Officer, who normally joins us is not on the call, as he is attending a meeting of the United States Advisory Committee on Blood Safety and Availability.

As I sit here today, headlines in the global media concern the spread of the swine flu virus. This is the sort of pandemic threat that led us to develop the INTERCEPT technology in the first place. The INTERCEPT Blood System inactivates this type of virus. We are already responding to public health and regulatory agencies and potential customers to ensure the safety of the blood supply in affected regions.

The situation is quite fluid, with new developments occurring frequently. I will touch on what impact the emerging swine flu pandemic may have for Cerus and INTERCEPT in greater detail later in the call.

It has been an active, yet challenging quarter for Cerus. We took several meaningful steps toward commercial success in Europe. Nevertheless, our goal is to improve upon the level of product sales from this past quarter. Through a refocusing of the Company's resources we have significantly extended our cash runway.

Developments since our last call include, first, product sales in the first quarter of 2009 were $3.1 million, down from $4.9 million during last year's first quarter, which included $1.2 million in previously deferred revenue generated in late 2007.

Secondly, we received CE Mark approval on the new product configuration of our platelet system that we expect will make it even more attractive to prospective customers in Germany, the UK and in other countries.

Third, the Frankfurt region of the German Red Cross received their second marketing authorization to sell INTERCEPT-treated platelets, paving the way for commercial adoption, once our customer completes a study to confirm the economic and clinical advantages of INTERCEPT.

Fourth, one of the two regions of the Belgian Red Cross signed a contract to purchase the INTERCEPT platelet system. With this addition, our existing customers represent approximately 40% of the Belgian market.

Fifth, we have nearly completed enrollment in initial patient dosing in our Phase 1 red blood cell trial, and remain on track to complete that trial by mid year.

Sixth, we have had recent discussions with the FDA, which have clarified its recommendations for obtaining a US license for our platelet system, which I will expand upon later.

And finally, in March we implemented a plan to focus resources on commercializing the INTERCEPT Blood System in Europe, and realigned our cost structure accordingly. We expect the financial impact of these actions will bring operating expenses down by more than $10 million annually, and will allow us to self-fund our operations into 2010.

Both US regulatory approval of the platelet system and continued development of the red blood cell system will be put on hold or carried forward on a cash neutral basis. We hope to renew efforts on these two value drivers in the future if strategic or financial investors are available to fund these two programs beyond the limited progress that we may be able to make under government grant funding.

I will now turn the call over to Kevin to review our financial results before returning to discuss our operations in greater detail.

As Claes highlighted, product revenue for the INTERCEPT Blood System was $3.1 million during the first quarter of 2009, down from $4.9 million in the first quarter of 2008, when we recognized $1.2 million of previously deferred product revenue.

This decrease was largely due to the fact that there were no illuminator sales during the first quarter of 2009, in contrast to the first quarter of 2008. Despite the lack of illuminator sales, disposable kits in total were up in the current quarter compared to the same period in 2008.

Government grant revenue in the current quarter was $403,000, compared to $117,000 in the first quarter of 2008. Total revenue for the first quarter of 2009 was $3.5 million, down from $5 million for the first quarter of 2008, due primarily to decreased product sales, offset by modestly higher government grant revenue.

Total operating expenses for the first quarter of 2009 were $8.8 million, down from $9.9 million for the same period in 2008. The decrease in our operating expenses was due to reduction in SG&A and R&D expenses, partially upset by nonrecurring restructuring costs of $712,000 associated with the Company's restructuring plans, which were announced in March 2009.

Net loss for the first quarter of 2009 was $7.4 million or $0.23 per share, compared to a net loss of $5.9 million or $0.18 a share for the first quarter of 2008.

As Claes mentioned in his opening remarks, we have begun implementing a plan to focus our resources on commercializing the INTERCEPT platelet and plasma systems in Europe, and realign our cost structure accordingly. As a consequence of our restructuring, and the associated reduction in force that we announced in March, we expect to reduce our operating expense levels meaningfully, and carefully manage our investment in working capital as we move forward.

At March 31, 2009, the Company had cash, cash equivalent and short-term investments of $15.4 million, reflecting $7.2 million in cash burn since the beginning of the year. We expect the rate of cash consumed during the remainder of 2009 to be significantly reduced relative to the first quarter of 2009, in large part due to the expected savings resulting from our restructuring plans. As a consequence, we expect existing cash resources to be adequate to fund our operations into 2010.

Now I would like to turn the call back over to Claes for a discussion of first quarter highlights.

The global economic environment is challenging; we all know that. Public health initiatives, and blood banking more narrowly, are not immune from the poor economy. Our sales in the first quarter reflect that. Purchase decisions are being delayed, as is customer implementation, even once they have decided to adopt INTERCEPT.

Against this background, we are pleased with some recent developments that did not have a material effect on first-quarter results. I would like to amplify on each of them.

First, we announced in early April that we had received CE Mark approval of a new configuration of our platelet system. Prospective customers, especially in Germany and the UK, collect large amounts of platelets from each donor. A dual bag kit, in which two therapeutic platelet doses are pathogen inactivated would fit into their practices more readily.

Germany and the UK are Europe's two largest markets, so we pay particular attention to this market request. After some design work and regulatory efforts on our end, we were pleased to announce CE Mark approval of the two bag disposable platelet kit. This has the benefit of significantly lowering the per unit cost of INTERCEPT. The average selling price of the two bag kit is at a significant premium to the single bag kit, while the cost of goods is only slightly higher. So we expect to end up with a much higher margin product as well.

Second, we announced that the Frankfurt region of the German Red Cross had received an additional marketing authorization from the Paul Ehrlich Institute. This authorization allows the German Red Cross to sell platelets prepared from donations pooled from multiple donors via the Buffy Coat method. The German Red Cross is now set to begin an internal study to confirm the economic and clinical benefits of the INTERCEPT platelet system. We expect that once they complete this study, we will start selling to them commercially.

We are excited about these two developments for a number of reasons. Since the Frankfurt Red Cross is Europe's largest independent group of blood banks, we believe their adoption of INTERCEPT will represent a real tipping point in commercialization.

The other three German Red Cross organizations, as well as several unaffiliated blood centers, are in various stages of product evaluation and regulatory submissions, though all are likely keeping an eye on progress in Frankfurt.

A week later we announced that the French-speaking portion of the Belgium Red Cross, or SFS, have signed a contract to purchase the INTERCEPT platelet system. SFS controls roughly 30% of the Belgium market.

With shipments to SFS already underway, we expect this contract to add to product sales in the second quarter. What is noteworthy is that the SFS chose to sign the contract rather than continue waiting for formal government approval for reimbursement, specific to the INTERCEPT-treated platelets. Clearly the SFS concluded that the benefits of adopting INTERCEPT outweighed the risks of waiting for incremental reimbursement.

Our attention is now focused on helping secure full reimbursement for INTERCEPT and adoption in the remainder of the Belgium market.

Turning to the FDA, we had been pursuing a plan to conduct a study in Europe at sites where INTERCEPT platelets are already in routine clinical use. In theory such a study would have been less expensive and time-consuming to complete than a Phase 3 trial in the US.

After numerous iterations of draft protocols with the FDA, it now appears that the Europe-based study design would likely result in too many confounding variables due to differences in collection methods and clinical practice between the US and Europe.

We have concluded that the more appropriate pathway to gain regulatory approval of the platelet system in the US would be to conduct a second randomized Phase 3 trial using US sites, perhaps in conjunction with a Phase 4 trial in Europe.

This development does not change our current plans. We will not pursue US approval, and the trials that would be required, without financial support from partners, investors or public-sector agencies.

Turning to our red cell program, I am pleased to report on this call that we have enrolled nearly all patients in our Phase 1 red blood cell trial. The study involved 28 subjects at two sites in the US. The study is open label and resulting data should not take long to gather. So we would expect to comment on clinical results on our next quarterly conference call.

In addition, we are pleased to have been awarded a $1.7 million research grant from the US Department of Defense, which will help fund our red blood cell program going forward.

Like all of you, we are closely watching the news of rapidly spreading swine influenza. This imminent threat of a pandemic provides another clear demonstration of the need for prospective protection of the blood supply. We stepped into a similar situation in 2006 on a smaller scale when an outbreak of the Chikungunya virus threatened to shut down the blood supply in La Reunion.

Adoption of INTERCEPT by the French within two weeks re-opened access to local donors. It was a striking demonstration of the role pathogen inactivation has in protecting the world's blood supply from emerging pathogens.

We have published data and had a label claim that INTERCEPT inactivates flu virus in both platelets and plasma. We are already in contact with European customers and policymakers to help them understand how pathogen inactivation can help maintain blood safety and availability. We expect that this threat may accelerate adoption of INTERCEPT.

Public health agencies around the world are still developing responses to the global threat of swine flu, including their specific plans for national blood supplies. Belgium has recognized the role of pathogen inactivation in pandemic blood safety for some time. And the High Council of Health's 2008 recommendation for universal use of pathogen inactivation of platelets specifically mentioned its value in case of pandemic flu.

Importantly, Germany's regulatory agency, the PEI, just yesterday issued a new mandate acknowledging the safety added by pathogen inactivation. The mandate requires that blood banks turn away potential donors who have recently traveled to North or South America, or been in close contact with such travelers, unless the blood banks employ pathogen inactivation technologies, such as INTERCEPT.

Our existing customers are very happy with the security that INTERCEPT provides for their platelets and plasma supplies. And their proactive adoption of pathogen inactivation will allow them greater freedom to respond to the many other challenges facing blood centers under pandemic conditions.

The global spread of swine flu is precisely the sort of public health threat for which we developed the INTERCEPT Blood System. We are doing the right things to ensure that we will realize our full potential for our shareholders, but also and importantly, for blood transfusion recipients throughout the globe, who may be at risk of transfusion transmitted diseases that INTERCEPT can prevent.

Operator, I would now like to open the call for questions.

(Operator Instructions). Brett Rice, Janney Montgomery Scott.

Could you tell me how many countries are you marketing INTERCEPT now versus last year?

We are selling into 18 countries, but we are marketing in more than that. I don't think we have a number of how many more we are marketing into. That is probably around 30.

Is there a number -- how many additional countries this year than last year, ballpark?

I think it is three, four, five that we are selling into so far this year.

You touched on it in your remarks, but can you give us a little bit more color, in terms of the sense of urgency on the part of the European blood banks to -- in the interest in our product with the swine flu issue?

As you know, this is a story that is just breaking. I think that they are now almost on a daily basis is growing concern. And you see the World Health Organization upgrading its alert basis. As that happens, everybody who is concerned with anything to do with this flu, of course, are raising their awareness. And we are making sure that both politicians, blood bankers and responsible people are aware of the fact that the pandemic situation will represent a severe threat to both availability and safety of blood.

The thing with PEI happened yesterday, and I think that is -- we always considered PEI to be somewhat of a leader in Europe when it comes to taking steps and be proactive. I expect that we will see other agencies around Europe adopting measures as well.

I've got a couple of other questions, but I will drop back in the queue to allow others to ask.

Daniel Owczarski, Avondale Partners.

Can you go over again what you had said about the platelets and what -- have you come to a definitive agreement with the FDA for -- I think, you called it a second Phase 3 study?

No, we haven't. This is still a work in progress. But we have been having numerous contacts with them, and we have typically provide them with suggested protocols for data gathering to address their questions. And as we do so -- every time we do so, it has to be stated that when you do data gathering in Europe and commercial use, it highlights that there are differences in operations in Europe and the US.

The FDA's position is always, well -- they said, our questions really were raised based on the SPRINT trial. So you've got to be able to find answers to those questions in settings which are very similar to those settings. And that is not so easy in Europe.

We are now concluding that the more likely setting where we can get those answers will be in the US.

And your feelings on a Phase 4 in Europe, that that is going to be part of it too?

I think that is something we are looking at. And it is a question of whether we could separate efficacy and safety data, and collect the safety data in Europe and the efficacy in the US. But I don't want to go too far down that road, because again, as I said before, we did not have an agreed protocol with them yet. But I think that this is going to lead us to such a protocol.

Then you talked about getting a grant from the Department of Defense for red blood cells. Is that phased-in or do you get that full amount up front, or how does that -- how do you earn that?

That grant is going to be paid out for activities that we do during the course of 2009.

So that all hits this year.

Yes.

Then last question about this whole influenza. What is the United States' stance on influenza in the blood supply? Is that being tested for at all, or do you just simply ask donors up front if they have been ill, or is it even seen as being transferable from donor to patient?

I think that there is no tests that I am aware of that is being routinely used to test for influenza. I think that people are asked if they have fevers or any other symptoms. And if they do, I think that there is a donor deferral criteria, so that they are not allowed to donate.

I don't know that there is a -- that there is proof, either to prove that influenza can be transmitted by blood transfusion, nor to disprove it. So I think that the fact that there is a deferral criteria, if there is a safety measurement in case it is transmitted by blood.

With regards what the US are doing, I mentioned in the beginning of the call that Larry Corash is attending an Advisory Committee meeting today. And I think that they will be discussing this on the meeting. So there may be recommendations coming out from that meeting.

Raymond Welch, UBS Financial Services.

Thank you, Claes, for taking this question. The incubation period for the flu is two days. Do I understand that correctly?

I have seen some numbers varying anything from one day up to six days, but I don't know. I think two days seems to be a number that people come back to.

If during that period of times someone were to donate blood there is a risk that it could taint the blood?

Correct.

But we are not absolutely certain of that?

Well, it certainly would taint the blood. I don't know what effect it has. I don't think we are certain of that. But as I mentioned before on Dan's question, these exclusion criteria for donors are put in place just to be sure that it won't happen.

So, I mean, excluding donors with flu is actually not new or exclusive to swine flu. I think it has been done in the past for other flu types as well.

Shawn DuBravac, FIG.

For the operating expenses for this year, did you say they are going to be down $10 million versus last year, roughly?

So what we are saying is that they are going to go down by more than $10 million on an annualized basis, but we had a first quarter without that impact.

So down $10 million on an annualized basis versus 2008?

That's right.

(Operator Instructions). Brett Rice, Janney Montgomery Scott.

I don't know whether you break this out. The disposable kit sales in the first quarter versus the fourth quarter, do you have a number on that?

We don't typically give numbers on that in detail. I think this quarter was -- if you go back a year ago, we had sales of a lot of illuminators. It was an extraordinary high number of illuminators. We felt at that time it was appropriate to point that out, just because it was such a high number. But otherwise, we really don't want to get too much into details between kits and illuminators. So I don't have a ready answer for you on that. But sequentially they are up. That much I know.

The portion of the cash that is in -- let me just look at the 10-Q -- in short-term investments, there is no issues on that, that is safe and sound?

I will let Kevin answer that one.

Yes, it is safe and sound. Going back to 2007, we had taken other than temporary impairments on our portfolio. We stopped doing so in the third quarter of 2008, because the remaining investments were sound. So we don't feel at this point that we've got any exposure.

I can roughly reduce the cash burn per quarter by about $2.5 million -- you know, $10 million divided by 4, or $2.5 million, is that a good way to look at it?

Kevin, I will let you take that as well.

I think a good way to look at it is, looking at Q1 as the high burn quarter for the remainder of the year. We expect a downward stair step from there as the full effect of our restructuring plans take place. All we can say is we will have cash at the end of 2009.

Thank you. And congratulations on your new position, Kevin.

Thank you so much.

(Operator Instructions). Seeing as there are no further questions, I would like to turn the call back to management for any concluding remarks.

Thank you for joining us today. We look forward to updating you on our second quarter conference call in the middle of the summer. Thank you.

Ladies and gentlemen, this concludes today's teleconference. Thank you for your participation.