Cerus Corp (CERS) 2009 Q2 法說會逐字稿

Greetings ladies and gentleman and welcome to the Cerus Corporation's Second Quarter 2009 Financial Results. 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 call is being recorded.

I would now like to turn the call over to Mr. Jason Spark, of Porter Novelli Life Sciences, the Investor and Public Relations Firm representing Cerus Corporation.

Thank you and Good Afternoon. Cerus issued a press release today announcing Cerus' financial results for the second quarter ended June 30, 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 CEO 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, sales, operating expenses, sufficiency of cash resources, projected time to profitability, 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 for the fiscal quarter ended March 31, 2009, 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 & CEO of Cerus Corporation.

Thank you Jason. I am joined today by Kevin Green, our Chief Accounting Officer, as well as Larry Corash, our Chief Medical Officer. As you will recall from our last conference call in April, Cerus took steps at the end of the first quarter to focus resources on commercial success in Europe, reduce our operating expenses, and carry forward our development programs with significantly reduced cash expenditures. Today, I am pleased to report that we have been successful in all three of those areas.

First, regarding commercial success, we recorded second quarter revenue of $4.2 million, representing an increase of more than 20% over the first quarter. During the quarter, we achieved a conversion of approximately 40% of the Belgian market to routine use of INTERCEPT platelets. Belgium also recently mandated national use of platelet pathogen inactivation.

In addition, we expanded our distribution relationship with Grifols to include Italy, and today we are pleased to announce an extension of our contact with France's National Blood Service in two additional regions.

Second, as a result of our operational focus and restructuring, we have reduced our cash burn by 65% from the first quarter. This operation and discipline in combination with increasing sales, reduces the amount of funding that we will need prior to reaching profitability, which in turn, provides greater flexibility on the timing and structure of any corporate financing activity.

And finally, third, we continue to advance in our INTERCEPT development programs. Specifically, we submitted a proposed platelet Phase III clinical protocol to the FDA, and have completed enrollment in our Phase I red cell trial.

Let me now tell you why we are seeing this increase in momentum in the markets. Many threats to blood safety have been identified and addressed through donor deferrals and increased testing. However, there are significant remaining threats in the form of bacterial contamination, and the risk of emerging pathogens, such as H1N1, Dengue, [Chikungunya], (inaudible), and others. New pathogens will continue to appear, representing new threats to blood safety. INTERCEPT addresses these threats by inactivating a broad spectrum of pathogens.

Bacterial contamination of platelets in particular is increasingly being recognized as a highly significant infectious risk to transfusion recipients. Fatalities due to bacterial contamination of platelet components continues to be reported, most recently, in the 2008 UK Serious Hazards of Transfusion Report.

In the United States, the Passport Study demonstrated that approximately 1 in 2,000 platelet units are contaminated with bacteria, even after use of the most sensitive testing methods. For the average cancer patient, who may receive five transfusions, this translates into a substantial risk.

The blood safety risk from bacteria and emerging pathogens have recently been addressed by Belgium's High Council of Health, and by Germany's Transfusion Safety Advisory Committee, the AK Bluth.

Importantly, this week, the AABB, an organization which creates blood banking standards internationally, has formally acknowledge pathogen inactivation as an alternative to bacterial detection. These standards carry global recognition, and INTERCEPT is well positioned to replace or supersede bacterial detection. I will now turn the call over to Kevin, to review our financial results before returning to discuss our commercial and development progress in greater detail. Kevin.

Thank you Claes. As Claes highlighted, total revenue was $4.2 million during the second quarter of 2009, up from $4.0 million in total revenue recognized during the second quarter of 2008. Revenue recognized from the INTERCEPT blood system was $3.9 million in the second quarter of 2009, steady from $4.0 million in revenue recognized in the second quarter of 2008, when we recognized approximately $300,000 of previously deferred product revenue, which was originally sold in 2007. Government grant revenue recognized during the second quarter of 2009 was $335,000, compared to no such revenue recognized in the same period of last year.

Total operating expenses for the second quarter of 2009 were $7.2 million, down from $10.1 million for the same period last year. Second quarter 2009 operating expenses including $129,000 in non-recurring restructuring costs associated with our previously announced plan. The decrease in our operating expenses was an effect of implementing the restructuring plan. We expect our operating expenses in the near term to modestly decline from second quarter levels.

Net loss for the second quarter of 2009 narrowed to $6.2 million, or $0.19 per share, compared to a net loss of $8.9 million, or $0.28 per share for the second quarter of 2008. At June 30, 2009, the Company had cash, cash equivalents, and short term investments of $12.9 million, reflecting $2.5 million in cash burn since the beginning of the quarter. This represents a 65% reduction from first quarter cash burn.

We expect to continue to focus on operating expense reductions, collection efforts, and managing inventory levels closely. We also expect our product sales to increase, potentially requiring working capital investments above second quarter levels. And continued execution on our business plan, and decrease in cash burn has shortened the timing and reduced our projected cash requirements to reach profitability. In turn, extending our runway has afforded us with more flexibility with regards to financing timing and alternatives, including the potential use of non-dilutive financing sources, such as working capital credit facilities.

I will now turn the call back over to Claes for further discussion of second quarter highlights.

Thank you, Kevin. I would like to elaborate on some of our key areas of commercial success in the past quarter. In April, we announced that the French-speaking Belgian Red Cross, the SFS, has signed a contract to purchase the INTERCEPT platelet system. The SFS moved rapidly into full routine production starting in May. Taking into account our other Belgian customers, INTERCEPT is now used for 40% of this estimated $7 million market opportunity.

This month, Belgium issued a Royal Decree mandating that all platelet components must be treated with pathogen inactivation by blood centers effective no later than August of next year. Specific reimbursements for pathogen inactivated platelet products is now available to centers using the technology. With this decree, Belgium has become the first country to require universal pathogen inactivation of both platelet and plasma components for transfusion. We believe that this strong action will impact the thinking of other European nations and regulatory bodies with respect to use of pathogen inactivation.

France is also moving forward. The EFS, France's national blood service, has a new management team, and is now implementing INTERCEPT's plasma in two additional regional centers. Both centers, located in central France, are gearing up for routine production of INTERCEPT plasma in the third quarter. Like Belgium, France already requires 100% of their plasma to be pathogen inactivated. With the addition of these new sites, the INTERCEPT technology is now used in six of 17 EFS regions.

Southern Europe continues to be an important region for INTERCEPT. Our license agreement with Grifols to extend the distribution territory into Italy provides significant benefits for Cerus. Grifols is one of the largest pharmaceutical companies in Spain, and the largest European plasma fractionator. Their expertise and existing customer relationships will be particularly valuable in Italy, which is a highly fragmented market, consisting of almost 300 individual blood centers. INTERCEPT will now be sold and serviced by Grifols personnel numbering approximately 50 people devoted to Spain, Portugal, and Italy.

In Germany, the Arbeitskreis Blut's bacterial safety recommendation is to reduce platelet storage time to four days, or use pathogen inactivation to retain five day storage. This recommendation has initially resulted in broad use of a shorter shelf life in Germany, leading to increased platelet wastage rates. This logistical concern provides a clear incentive for centers to consider use of INTERCEPT in order to restore their ability to store platelets for five days.

The Frankfurt region of the German Red Cross, a significant customer representing Europe's largest independent blood service, is farthest along in their conversion to pathogen inactivation. The Frankfurt Red Cross provides approximately 30% of the German blood supply. A three year INTERCEPT supply agreement was finalized last year, anticipating implementation of INTERCEPT following completion of an internal study to support their roll-out of pathogen inactivated platelets to German hospitals. The Red Cross has already received marketing authorization from the Paul Ehrlich Institute, and is now initiating their internal study. We expect commercial sales to begin in 2010.

In addition to the tangible progress in these key countries, we see broad-based momentum building in other regions. Moreover, we are continuing to expand our geographical coverage by appointment of new distributors. I mentioned earlier that we see our development programs as critical value drivers for the future. But now, I would like to turn the call over to Larry for an update on post-marketing studies in Europe, the red cell program, and the status of INTERCEPT platelets in the United States.

Thank you Claes. We continue to ask our customers to participate in our post-marketing active hemovigilance programs for INTERCEPT platelets and plasma to demonstrate the safety profile of these products. We also gather data on how the INTERCEPT systems have been able to replace other blood transfusion safety measures, such as bacterial detection, gamma-E radiation, and testing for cytomegalovirus.

Thus far, the platelet hemovigilance program has collected data on over 16,000 transfusions in seven European countries, and the EFS Alsace center has collected data on an additional 43,000 platelet transfusions. These data show that the INTERCEPT treated platelets have comparable hemostatic efficacy relative to conventional platelets. In addition, we have collected data on almost 8,000 plasma transfusions, demonstrating comparable efficacy to conventional plasma. For both the platelet and plasma products, there have been no reports of transfusion transmission of any pathogen, which we claim to inactivate.

This quarter, the EFS Alsace region submitted its report of a three year experience with the INTERCEPT systems to the new President of EFS. This report covered their experience regarding the transfusion of over 77,000 platelet and plasma components treated with the INTERCEPT process. As previously reported at various scientific meetings, EFS Alsace confirmed the therapeutic safety and efficacy of INTERCEPT blood components.

Data from this experience also supported the allowance of a specific label claim for the INTERCEPT process to replace gamma irradiation for prevention of transfusion associated graft vs. host disease. During this three year experience, EFS Alsace demonstrated successful replacement of quarantined plasma with a five-fold net increase in available plasma inventories. We believe the data from the EFS experience and the hemovigilance programs will serve to support further adoption of INTERCEPT in France, and across Europe.

Turning the red cell program, our Phase I red blood cell trial is fully enrolled. Enrollment took slightly longer than expected due to the constrained supplies of the radioisotopes required for the study and donor availability. We expect to report the trial results in the fourth quarter.

In June, we signed an agreement, which calls for Grifols to provide for the development of commercial kit manufacturing. We expect that the Grifols agreement, in combination with our existing red cell collaboration with the German Red Cross, will allow us to make meaningful progress in the red cell program.

We continue to fund internal development efforts under an award from the Department of Defense, and we plan to apply for new awards, when and if they become available. By leveraging these collaborations, we are able to advance these programs with minimal consumption of our cash.

Regarding INTERCEPT platelets in the United States, we concluded that a second Phase III randomized clinical trial in the United States is the most expeditious way to move forward. Toward that end, we have submitted a clinical protocol to the FDA for review. This is an important step, and we look forward to sharing further information about the trial design, once we reach mutual agreement. Now, I will turn the call back to Claes.

Thank you, Larry. Before we take questions, I would like to make a few comments. Many customers have contacted us regarding pandemic preparedness planning. To date, the ongoing threat of H1N1 flu has not translated into significant increased demand for pathogen inactivation. But, we are actively involved with the blood transfusion community to encourage them to include INTERCEPT as a specific part of their preparedness plans.

Transfusion transmission of influenza virus is potentially a concern, but the larger challenge facing blood services will probably be maintaining a continued and adequate supply of blood in light of fewer available donors. We believe that INTERCEPT can help blood centers with both safety and availability issues.

The economy continues to be a serious issue for everyone, including for our customers and the government agencies that fund them. In this environment, our sales growth, expanding customer base, and government mandation and new reimbursement decisions are strong endorsements of INTERCEPT's value.

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

(Operator Instructions). Our first question comes from the line of Daniel Owczarski, Avondale Partners.

Yes, thanks, and good afternoon.

Good afternoon.

Claes, you talked about the AABB recently formally acknowledging pathogen inactivation. Can you talk a little bit more about that, and what is different about that, or why is it significant?

AABB is actually providing standards. They have a standard set, and blood centers can become accredited by AABB, but then they have to operate in conformance with all their standards. So they have for several years recognized the threat of bacteria and have in the standards already required that blood centers should use testing methods for bacteria in order to be accredited. They recently expanded that and said that the pathogen inactivation is equally useful, or they didn't comment on the usefulness but it's available for blood centers to use pathogen inactivation instead of bacterial testing.

This is important because AABB is setting standards for blood centers around the world who wish to be accredited, and it is considered to be a hallmark of quality to have an AABB accreditation. And also Larry, if you want to make any comments.

Well Dan, a very specific example is that the Kuwait Central Blood Bank is 100% INTERCEPT platelet in routine use. They are accredited, they have been accredited for some years by the American Association of Blood Banks, and when they adopted INTERCEPT, they applied to the AABB to modify the standards so that pathogen inactivation could be used in place of bacterial detection. One of the reasons they did this was because bacterial detection had failed them, and they had transfusion transmitted septic cases. So, we see this as a very important acknowledgement by the AABB as an international accreditation organization that pathogen inactivation can replace bacterial detection to improve the safety of platelet transfusions.

That's helpful. And then, as far as -- can you share how many illuminators are actually out there right now in the field, being either validated or tested, and how that number differs from the beginning of the year, and it sounds like you do have equipment in Belgium right now?

To start at the end of your question, we do have illuminators in Belgium right now, and we already see 40% of the market using INTERCEPT on a routine basis.

We have had a good quarter in terms of sales of illuminators, but we're not keeping track of the exact number that we have sold from inception, but we continue to move illuminators, and we expect to sell more of them in the rest of the year too.

Okay. So, would Belgium be just partially in the quarter, or would we see the full 40% of Belgium using it in the quarter?

It was only partial, because the SFS went into routine use in May. So we didn't see a full quarter's worth of consumption from them.

Okay. And then, last would just be, I think we asked last time, just on government grants, any other opportunities there, and I don't know if the stimulus money, if you still think there is opportunity to get some of that.

We have applications pending in the NIH Recovery Stimulus Act Program. We submitted two proposals in that program. It is highly competitive. We know that they got a very large number of applications, but we remain cautiously optimistic.

And as you know Dan, we continue to receive funding from the Department of Defense, and we will expect to more of that in this year, which has already been awarded, and we are pursuing that source of funding for coming years too.

Okay. Thanks.

Thank you. Our next question comes from the line of Liisa A. Bayko, JMP Securities. Please proceed with your question.

Hi there. It looks like you made some good progress. So the two additional centers in France, what percentage of France will that comprise, and is it platelets or plasma, or both?

They are initially on plasma, and these centers are, I would say, each center is about the same size as Alsace, but initially, they are starting with plasma, and we did not record any sales to them in Q2.

Good. And then, so for Belgium, will we assume that the market will go to 100% for you guys, or you will get some portion of the 100% because of the implement; how does that work?

It's probably too soon to say exactly how it's going to break down. One thing we can say with certainty is that the market will be 100% converted to pathogen inactivation by August of next year.

Okay. But for this quarter going for the third quarter, we expect 40%?

That's the rate, yes. And full quarter sales too SFS.

And there's about 60,000 platelets, is that correct?

In Belgium?

Yes.

Yes, that's approximately right.

Okay, great. And then, kind of where things stand now, can you break down the revenue that you've achieved for the quarter between the hardware component and the disposable?

I'll let Kevin answer this one.

Liisa, as Claes pointed out earlier, we want to get away from giving very specific guidance. We did sell illuminators in the quarter, and we had a fairly healthy quarter in both kit sales and illuminator sales, and we expect to sell more going forward.

Okay. And then, just is it possible to maybe give us a sense of the top three countries, what is the proportion of sales coming from those? Is Belgium number one, France is number two, Germany is number three, and its 30, 20, 10, or something like that?

So right now, Spain is our leading country, and I think France is two, number two.

And then, is it Belgium after that, or is it a tie?

To date, I think in the last quarter, we had a significant number of sales to Russia as well, to our distributor in Russia.

Is there a way to break it out, what percentage of sales are currently Spain, France, and Russia, this helps.

We probably can't Liisa, we don't have that data available to us right this second.

Okay. I think that's it for the time being. Your plans in terms of to sell -- I guess I will end off with one question with respect to financing. Your current plan is to explore credit facilities, is that correct?

I think our plan is to consider a variety of alternatives, including the availability of working capital facilities.

Great. Thank you so much.

(Operator Instructions). And you have another question from the line of Brett Rice from Janney Montgomery Scott. Please proceed with your question.

Hi, thanks for taking my question. There was a tremendous amount of volume the last few days in Cerus. Do you know what that was all about?

I think we have taken a principal decision not to ever comment on our stock's performance, neither with regards to volume, nor price. So no, we're not going to comment on that.

Okay. I had to hop back and forth -- if you're servicing six out of the 17 regions in France, which is 35% of the equation, do I take 35% of the $40 million to $45 million potential market in France to get a back of the envelope number of what sales we can look for in the near term there?

No, you can't do that, because the centers are certainly different in terms of the number of platelets that they treat per year, and these are not necessarily - the biggest center would obviously be Paris, so you can't just take that math. What I think is important to point out is that in France, blood component collection and distribution is operated by a centralized entity, the EFS. And we think it is logical for a centralized entity that controls the whole country to have the ambition to reach uniform status across the country. So if it starts somewhere, and they are already at 100% pathogen inactivation for plasma, we think that can give you some guidance for the future.

Okay. Thanks for taking my questions.

Thanks, Brett.

Thank you. (Operator Instructions). It appears there are no further questions. Do you have any closing comments?

Just to say thank you for joining us today. We look forward to updating you on our third quarter conference call in October. Thank you.

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