Cerus Corp (CERS) 2013 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Cerus Corporation first quarter 2013 results conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. (Operator Instructions) As a reminder, today's conference call is being recorded. I'd now like to turn the conference over to your host, Ms. Lainie Corten, Senior Director of Investor Relations. Please go ahead.

Thank you, operator, and good afternoon. I'd like to thank everyone for joining us today. With me on the call are Obi Greenman, Cerus' President and Chief Executive Officer; Kevin Green, our Chief Financial Officer; Dr. Larry Corash, our Chief Medical Officer; and Carol Moore, our Senior Vice President of Regulatory Affairs, Quality and Clinical. Cerus issued a press release today announcing our financial results for the first quarter ended March 31, 2013 and describing the Company's recent business highlights. You can access a copy of this announcement on the Company website at cerus.com.

I would like to remind you that during this call, we will be making forward-looking statements including expectations regarding revenue, market adoption, production levels, annual growth rate and gross margins; and statements about operating expenses and burn rate, product demand, commercialization progress, the scope and timing of clinical trials and other research and development activities, US regulatory submissions and potential approvals including the timing thereof, potential synergies between platelet and plasma regulatory submissions and launch planning activities, potential reactions to recent US regulatory development, the sufficiency of cash resources, business prospects, and the effects of currency fluctuations.

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' annual report for the fiscal period ended December 31, 2012 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.

On today's call, we will start with the quarterly financial results from Kevin followed by Carol, who will give an update on the development program, we'll conclude our prepared remarks with commentary from Obi who will review the recent quarter's achievements. And now, it's my pleasure to introduce Kevin Green, Cerus' Chief Financial Officer.

Thank you, Lainie. Earlier today we reported Q1 2013 revenue of $9.7 million, which came entirely from INTERCEPT product sales and represents a 12% increase from the $8.7 million in product revenue from Q1 of last year. Demand for INTERCEPT disposable kits accounted for over 85% of Q1 revenue with new illuminator placements making up the remainder. With these Q1 results, we remain confident in our existing revenue guidance for full-year 2013 product revenue of $41 million to $43 million. As a reminder, this represents growth ranging from approximately 16% to 21% on a constant currency basis. This guidance does not anticipate major conversions in the largest European markets or in major new geographical markets, which could provide substantial upside if any of these conversions occur.

Our gross margins on product sales during the first quarter were 48% following the 51% we reported in Q4 and up year-over-year from the 37% we reported in Q1 of 2012. Q1 margins were favorably affected by improved overhead absorption resulting from relatively high second half 2012 manufacturing levels. Looking ahead, margins are anticipated to come down slightly from Q1 levels, but we continue to expect that our annualized margins will remain in the mid 40% at current production levels and will improve as production ramps to meet the anticipated growth in demand.

Taking a look at operating expenses, we reported $9.6 million for Q1 compared to $7.8 million during the same period in 2012 and $9 million sequentially from last quarter. As we move forward, we expect our operating expenses to increase driven in the near term by research and development costs to support the platelet and plasma PMA filings. Later in the year, we plan to incur costs as we initiate preparatory marketing activities in anticipation of the potential US commercial launches. We also expect higher research and development expenses as we conduct our European Phase III blood cell trials.

Net loss realized in Q1 was $10.3 million or $0.17 per share compared to $8.8 million or $0.17 per share realized in Q1 of last year. Although we recorded higher contribution margins from the sales of INTERCEPT during Q1, we also incurred higher operating expenses and incurred non-cash charges of $5.1 million from the mark-to-market adjustments associated with the revaluation of our outstanding warrants.

We ended Q1 with a healthy balance sheet. Largely as a result of our March public offering, we ended Q1 with cash and marketable securities of $69.2 million compared to $26.7 million at the end of 2012. Subsequent to March 31, we repaid our outstanding term debt with Comerica avoiding scheduled interest payments of nearly $400,000 over the remaining term. Our $7 million revolving line of credit with the bank is still in place affording us with $4 million in additional borrowing capacity to grow our business efficiently. In connection with the anticipated higher operating expenses, we expect our operating burn to increase this year absent revenue growth beyond what we've guided. We believe the Company is now capitalized to execute on the platelet and plasma PMA activities and bring INTERCEPT one step closer to the standard of care for blood transfusion.

With that, I'd like to turn the call over to Carol for an update on our development programs.

Thank you, Kevin. I'd like to provide an update on our US regulatory submissions as well as our red blood cell clinical program. Since our announcement on the last call that we had reached agreement with the FDA to proceed with the PMA filing for INTERCEPT platelets, we've proposed a PMA show including the sequence and content of each module and received FDA agreement on that proposal. Taking advantage of the overlap in data between INTERCEPT platelets and plasma, we were able to propose a streamlined submission for INTERCEPT platelets composed of just three modules. This compares to the four modules planned for INTERCEPT plasma and leverages the synergy between the two products in terms of toxicology, manufacturing, and the shared illuminator units for both processes. The first of three platelet modules is planned for submission in September. Additional modules are expected to follow at 90-day intervals in December 2013, then March 2014, followed by a final 180-day review by the agency. This could result in an FDA response regarding approval as soon as late 2014, but clog stops during these reviews are relatively common and could extend the timeline.

Regarding INTERCEPT plasma, as you know, we submitted our first PMA module in late February. The subsequent three modules are planned for submission in May, August, and November of this year followed by the standard 180-day review period. A plasma review decision could come as early as the second half of 2014. Finally just to provide a status update on the red cell program, we are making progress on the required steps towards the initiation of both the acute and chronic anemia European Phase III red cell trials. Neither has yet begun enrolling patients, but we expect this to occur later this quarter for both trials and will be able to provide an update on the expected timing of completion once these get underway.

And now, I'd like to turn the call over to Obi.

Thank you, Carol. We are continuing to execute on sales growth in Europe as evidenced by our Q1 results and our recent announcement regarding the new contracts; Innsbruck, Austria and Hamburg, Germany. I just returned from Budapest where we held our 8th Annual INTERCEPT Symposium and there were 70 guests representing 24 different countries from Europe, the Middle East, CIS, Africa, Asia, and North and South America. And there was considerable excitement among the participants regarding the expansion of INTERCEPT into new centers and regions as well as our recent progress with the FDA in the United States.

Our FDA progress in the past two quarters has really been transformational for Cerus. We now look forward to two possible US product launches within the next few years and expect that our recent financing provides us funds we need to complete our PMA filings and to begin building our US commercial team. We are currently working with major blood centers throughout the US to understand their needs and how those may differ from our customers in Europe, the Middle East, and CIS. This will be an important factor over the next couple of years as we plan for the initial adoption in the United States. In the near term however, our most important objective is the successful execution on the platelet and plasma PMA submissions. This is a clear priority for our regulatory, clinical, and development teams and I look forward to updating you on our progress in future quarters.

Operator, please open the call for questions.

(Operator Instructions) Chris Raymond, Robert Baird & Co.

Thanks, guys. Just want to understand a little bit better the quarter-on-quarter dynamic here. This is the second I think Q1 that you guys have had that's been down sequentially. So I guess first of all, should we expect some sort of seasonality and can you maybe describe if there is any, what would be the nature of it? Is it budgetary? Like I said, it's the first question.

Kevin, why don't you handle that?

Sure, Chris. So as a typical, there is some seasonality in Q3, but not necessarily Q4 to Q1. As it relates to this particular quarter, you'll recall there's a couple of contributing factors. First of all, we had an incremental pick up in Q4 that spilled over from Q3 for revenue recognition and that was about $700,000 so culling that out, we're on par with where we were in Q4.

You're still down though, right, you were at $9.8 million in Q4 without that $700,000 pull forward.

Yes, that's right. Part of that's due to two factors, one is the French plasma which is down sequentially quarter-over-quarter, the other contributing factor is as new distributors come on board, there's an initial buy-in which is choppy and not predictable for future revenue growth and we did see some of that in Q4.

And can you --

Overall, Chris, just one other comment, you will see some choppiness quarter to quarter and that's why we issue annual guidance and I think that their current -- the way our revenue is building, it's sort of hard to predict and so we are comfortable with our annual guidance and we'll see some choppiness quarter-to-quarter.

Right. Yes, I totally understand. Just trying to understand some of the factors. Kevin, you guys have walked through FX impact in the past, I think there was probably a euro tailwind this time if I'm not incorrect. Can you maybe quantify in terms of dollars?

Sure. So the euro rates -- the average rates sequentially were up about 2% so not a huge tailwind as it relates to our guidance. We try to be somewhat (inaudible) and predictive on this and coming into the year felt that there was more downside than upside so we had a blended rate between $1.20 and $1.30 with the higher rates assumed in the early part of the year.

Okay. But can you -- so is there a dollar amount that you quantified or no?

The 2% decline or increase rather, Chris.

Okay. Thanks.

Jeremy Feffer, Cantor Fitzgerald.

Hey, guys, good afternoon. Thanks for taking my questions. First just on the platelet shell, just out of curiosity, why is it only three modules instead of four or is that just how this one is structured or is there anything specific behind that?

The way that we handled the platelet shell proposal was to consolidate some of the information that was in the modules three and four for plasma because as I mentioned earlier in the script that there is a considerable synergy between the two products in terms of some of the manufacturing and illuminator device, that sort of thing. So it made sense to try and consolidate it and also to give FDA the benefit of the synergy and review cycles.

Okay. If I think on a bigger picture level and maybe it's hard to quantify at this point, but are you seeing any -- and Obi, you touched on this a little bit from you remarks about your Budapest trip. But has there been any impact yet with the FDA now demonstrating a greater willingness to accept the technology or is there any carryover into some international markets with some greater interest in the product?

Yes, we certainly saw that in Budapest. I think it was certainly the best meeting we've had since we started in that state years ago. Just a lot of peer-to-peer dynamics that were interesting both amongst ex-US customers, but also between US customers and European customers trying to understand how the system's been working in routine use. I think this is where we see the Swiss really being very proud blood service that can reflect on their experience over the last three years or two plus years and safeguarding their blood supply. So you start seeing that dynamic happening and then I think inevitably we will start seeing the spillover effect of an FDA approval in other markets assuming we get one. We really can't quantify right now, but it is certainly something that is very important in Asia and elsewhere. In the interim, just the fact that the FDA has allowed us to proceed with the PMA submission process is being discussed widely amongst the transfusion medicine experts and again, it sort of provides the validation that we certainly didn't have before.

Okay. And then just one more and I'll jump back in queue. Obviously we saw a tick up in R&D spend, which is obvious because you've got these two PMA processes underway. Is that a good run rate that we should think about for the rest of this year at least?

Hi, Jeremy. Yes, so you should expect it to increase from Q1 levels just as a result of full effort on both platelet and plasma PMAs and then as the red cell trials initiate and enroll, that will drive higher OpEx.

Okay. Thank you very much. I'll jump back in queue.

Zarak Khurshid, Wedbush Securities.

Good afternoon. Thanks for taking my questions, guys. So how does the panel meeting factor into the timing for the platelet review?

Hey, Carol, you want to handle that?

Sure. Well, we don't know whether there would be a blood product advisory review, but if there were a review, the idea is to include that in the 180-day timing for the total review. So, I mean it would fall probably at the latter part of that window.

Got you. And then you mentioned some of the regulatory synergies, would they potentially have a panel meeting for both plasma and platelets?

Well, I don't know. I think FDA would have to make that determination based on the review at that point in time, whether that made sense or whether they had the right experts in the room so a lot of factors would go into that decision. So it may be a little early to speculate on that.

Understood. And then shifting gears to the market development efforts later this year, what exactly would those entail?

In the US, Zarak, is that what you're referring to?

Yes, that's right.

Yes. I mean -- so we're already starting to do some in vitro work with various collaborators in the US and so really more from a research collaboration standpoint, but also generating data that we need for the submissions. We plan to work with many blood centers throughout the US both on platelets and plasma and I think there's active interest and engagement on their part already and it's just -- to be frank, it's sort of fun after all these years of focusing outside of the US, it's nice first of all not to have to travel eight hours to have a meeting, but also just being able to have those discussion with US blood centers is an enjoyable experience.

Got that. And then a couple of follow-ups here. With respect to the French plasma business being down sequentially, can you just characterize currently what you think your share is of the French market? And then just curious if you've -- have you lost any customers in recent quarters and if so, why might that be the case?

In France -- I'll let Kevin handle the market share question. But we haven't lost customers in France, it's just really a function of how they choose to allocate between the three available options they have. Kevin, can you speak to the market share?

Yes. So there is -- the French have said that they want a mix of the available platforms, which is their own solvent detergent facility quarantine and INTERCEPT. The tender with which we've been selling under and continue to sell really affords them a broad range from 25% to over 100% market share. Right now we're operating at the lower end of that range, but hypothetically if they had any issues with their solvent detergent facility or disruption, there could be upside for us.

Got it. And then one final kind of bigger picture European question. I guess have you lost any customers anywhere in Europe as a result of I guess governmental budgetary issues, macro issues, et cetera?

We have not lost any customers related to macro or government budgetary issues. We have lost a single customer to a competitor on an island off of (inaudible).

Great, thanks.

(Operator Instructions) Josh Jennings, Cowen and Company.

Good afternoon. Thanks a lot. Obi, you talked about some of the positive sentiments generated by the FDA opening up a regulatory pathway for both platelets and plasma in Budapest. Can you talk about whether or not the Swissmedic and Swiss Red Cross national haemovigilance data provided any (inaudible) as well?

Yes. I mean the Chief Medical Officer of the Swiss Red Cross actually spoke at our meeting and presented the latest data so I think it's just very encouraging to have those number of players in a regulated individual system that's not Cerus owned or Cerus sponsored. So I think that's a big benefit we have now based upon the many years that we've been operating in Europe. Larry, do you have anything else you want to comment (inaudible)?

Well, I think one of the most important things that the documents presented was that over the last decade prior to the inception of INTERCEPT, they've been seeing annual top utilization growth of platelet components as more therapies are opened up particularly to older patients and with the introduction of INTERCEPT, they've actually now seen a reduction in that trend. People were fearful that INTERCEPT would increase that consumption and they've actually seen a moderation of that, which I think shows that the product is very effective and they also saw the same thing for red cells. There's been no increase in red cell utilization in Switzerland, which is a mark of the haemostatic efficacy of the product.

Does that answer your question, Josh?

You talked about the red blood cell utilization in Switzerland again, is that what you said?

That's what I said. So in other words, that's the way to look at efficacy of platelet components in a very big picture. If platelets don't work, you'll have more bleeding and you'll have more use of red cells. And what they've seen in Switzerland is actually flat to a downward trend in the two years since they adopted INTERCEPT so I interpret that as very good information.

Thanks. I thought that we had some off-label use going on in Switzerland for a minute. Thanks for clarifying. Can you talk at all about just in terms of assuming that in the future you get platelet and plasma approval in the US and with this relative reduction in the timeline for approval for platelets, what type of benefit you could see by launching both indications at the same time in the US and does that change at all in terms of your strategy, in terms of how you're approaching those two launches?

It certainly doesn't. I mean initially we were talking about just the plasma pathway. I think actually the platelet pathway now from a loss perspective takes priority in the sense that there is really a more definitive unmet clinical need and better value proposition for that product and so we believe that will sort of carry some of the plasma adoption. The other thing we have to closely monitor is the recent Octapharma approval and subsequent launch for octaplas and so I think we'll benefit from being second to market where we can see how they're doing and model our launch plans accordingly. I think what we've seen in Europe based upon having both products available is that ultimately it just gives you more to talk about to customers and some customers will have a priority focused on platelets and others will be focused on plasma and ultimately from our perspective at least, it makes sense to have all your products that you can realize the benefit of safeguarding your blood supply.

Just in your initial conversations with US blood centers, how much of those discussions are focused on cost?

A lot of it is on cost. I think that in the current healthcare environment in the United States, the hospital purchasing people have a lot of power for everything. So what we're really very much focused on is what is the value proposition that we provide to the blood centers as far as potential cost takeouts. We believe that there are some substantial economic benefits associated with INTERCEPT there and then ultimately, what's the value proposition to the hospital which corresponds with platelet shelf life and reduced transfusion reactions. But probably the biggest issue there is as we've discussed previously is this evolving dynamic related to point of release testing, which will take place in hospitals. That's what was recommended by the American Association of Blood Banks in October of 2012. It's currently not a mandate yet, but it's just that discussion is ongoing and to the extent that hospitals have to incur that cost and the logistical complexity from point of issue tests then value proposition that the blood centers can provide to the hospitals with an INTERCEPT platelet component rises dramatically. So I think what you'll see from us over the coming 12 to 24 months is just an increasing focus on really documenting the economic benefits of INTERCEPT platelets to both the blood center and hospitals and publishing that information so that it's widely understood.

Thanks for that. And then lastly just an update on the red blood cell trials you provided, any update on the Phase I crossover study and when we'll see at least topline results from that? Is that still months ahead?

Yes, I'll turn it over to Carol. So just make sure you're clear, we now describe that as a Phase II study. I'm turning it over to Carol to update you on that.

Yes. We are fully enrolled on that study and continuing to work on it. We at this point are not certain when we can release the information just because the FDA would like to have a look at it before we publish anything. So we are working on that study right now.

Okay, great. Thanks.

George Zavoico, MLV & Company.

Hi. Thanks for taking my questions. Hi, everyone. You mentioned you signed some new agreements with suppliers in Innsbruck in Austria and in Hamburg in Germany. Could you just mention how that adds to the penetration in both of those countries and what the potential market size of those might be?

Yes. I believe that Innsbruck is the second largest blood center in Austria I believe and it does about 4,000 or 5,000 platelet units a year. So it's a reason we find opportunities for Cerus on an annual basis and I think it just takes up our overall market share in Austria closer to I believe 30%, 25%. And then in Germany, the Hamburg Blood Center still has yet to get into routine use because they're awaiting their marketing authorization from Paul Ehrlich Institute, but it's also a reasonably sized blood center on an annual basis. I think it's roughly 8,000 units a year and -- but I'd say that's not as influential in the context of the overall German market as the Innsbruck side is for the Austrian market.

So in Innsbruck, it might be opening the door a little bit wider for further penetration in Austria, is that what you mean?

Yes. It just becomes more and more the standard of care in Austria. And I think they're also influenced by the events in the United States that there's an increasing understanding that the pathogen activation of platelet components is the way forward.

And perhaps their neighbor in Switzerland as well.

Yes, that's for sure.

And with the additional centers on board, are you planning to expand at all the size of the sales organization in Europe?

Modestly. I think it's relatively built out right now for what we believe we need to see substantial revenue growth. We have representation in most of the countries where we're direct and then obviously every other distributor network, we kind of have added some folks to the regions that are covered by distributors just so that we have Cerus personnel on the ground to help the distributors out and interact with customers directly. But I think to the extent that we're adding headcount to the European organization, it's not more than ones and twos, just specific to certain opportunities.

Okay. And regarding the economic impact of incorporating and adopting INTERCEPT as you mentioned before, are you -- I mean if you look at various organizations or I mean various companies as they move into markets, they sometimes rely on individual centers providing their own studies, individual site-specific studies and then perhaps the company sort of pulls out to do some sort of analysis that combines it, perhaps directed and funded by the sponsor being you in this case. So do you see sort of both studies going forward or are you going to rely on the individual centers or how do you plan to do those economic pharmacoeconomic analysis?

Well, we have an active Phase IV effort underway sort of on a global basis and at the same time, our marketing team here obviously has an overall publication strategy. One of the components of that is to publish on the economic value proposition for INTERCEPT. And although we've been very much European focused over the last several years because of the situation of not having a clear pathway forward, now we're redirecting our efforts to US customers who can help us with those studies and ultimate publication. So I think we're doing what you suggest already.

Okay. Going to the point of release testing, which appears imminent in the US, how prevalent is that in the various European markets?

It's not very prevalent, that or even bacterial culture is not prevalent and so that obviously I think begs the question of well -- I think the way I would look at is that all the different national blood services and regulatory agencies are closely monitoring this US situation and are influenced by that. However, that precipitate regulatory action or policy changes in Europe is still TBD, but I think what is clearly evident now is just the bacterial actual contamination rate is better understood as a function of the five plus years that the American Red Cross has been testing with bacterial culture. And prior to that, that data wasn't available so the actual is an incident of transfusion transmitted infections from bacteria wasn't clearly understood. And I think the other thing, and Larry can comment on this, is just the data we now have out of the individual systems in places like France and Switzerland do document our ability to prevent the transfusion transmitted fatalities associated with bacteria.

Okay, great. Thank you very much.

I'm showing no further questions at this time and I'd like to turn the conference back over to Mr. Obi Greenman for any closing remarks.

Well, thank you for joining us today. We look forward to updating you again on our next call in late July. Thank you.

Ladies and gentlemen, this does conclude today's conference. You may all disconnect and have a wonderful day.