Cerus Corp (CERS) 2018 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Cerus Corporation First Quarter 2018 Earnings Conference Call (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to turn the conference over to Mr. Tim Lee. Sir, you may begin.

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; Richard Benjamin, our Chief Medical Officer; Kevin Green, Cerus' Chief Financial Officer; and Carol Moore, our Senior Vice President of Regulatory Affairs and Quality.

Cerus issued a press release today announcing our financial results for the first quarter ended March 31, 2018, and also describing the company's recent business highlights. You can access a copy of this announcement on the company's website at www.cerus.com.

I'd like to remind you that some of the statements we will make on the call relate to future events and performance rather than historical facts and are forward-looking statements. Examples of forward-looking statements include those related to our future financial operating results, including our 2018 financial guidance and goals, operating expenses and gross margins; commercial development efforts; future growth and growth strategy; future product sales; product launches; ongoing and future clinical trials; ongoing and future product development; and our regulatory activities as well as the timing of these events and activities. These forward-looking statements involve risks and uncertainties that could cause actual events, performance and results differ materially. They are identified and described in today's press release and under risk factors in our Form 10-K for the year ended December 31, 2017, and our Form 10-Q for the quarter ended March 31, 2018, which we'll file shortly. We undertake no duty or obligation to update our forward-looking statements.

On today's call, we'll begin with opening remarks from Obi, followed by Kevin, who will review our financial results. Richard will provide an update on our clinical programs. And finally, Obi will conclude with closing remarks.

And now it's my pleasure to introduce Obi Greenman, Cerus' President and Chief Executive Officer.

Thanks, Tim. We started 2018 on a solid note, as we made progress in the 3 key areas discussed on our fourth quarter call: the top line sales growth, the pipeline of development programs and the bottom line as measured by our operating cash burn.

Starting with the top line. The strong commercial momentum we experienced exiting 2017 continued into the first quarter, with our commercial team delivering better-than-expected results. Kevin will provide further detail, but we saw robust product demand in Q1 with first quarter product sales coming in ahead of expectations. Given current visibility into our commercial pipeline, we are raising our full year product revenue guidance range to $53 million to $55 million compared to our previous range of $51 million to $53 million. This new guidance range represents growth of 22% to 26% over full year 2017 product revenue.

In the U.S. market demand for INTERCEPT platelets more than doubled despite the lack of a final FDA guidance document regarding bacterial risk-control strategies for platelet collection and transfusion. As a result of some recently reported septic fatalities from nontreated platelet transfusions, we believe that the FDA continues to have a strong interest in safeguarding the U.S. platelet supply, which will lead to a final guidance document. Furthermore, the recent article in The New York Times about the increasing incidents of vector-borne diseases keeps the transfusion medicine field focused on the broader safety and availability benefits conferred by INTERCEPT beyond just bacterial inactivation.

In France, we recently received regulatory approval from ANSM, the French regulatory authority, for our dual-storage set for INTERCEPT platelets and for shelf life extension from 5 to 7 days. The dual-storage set and the extended shelf life should allow for increased blood center efficiencies and lower product wastage due to platelet expiry in France, more than which we believe will provide long-term competitive advantages for the INTERCEPT system.

As announced in April, Health Canada approved INTERCEPT platelets. And the estimated 150,000 platelets produced in Canada annually represents an incremental revenue driver in the mid- to long term.

Transitioning into our pipeline programs. We continue to make progress on the development of pathogen-reduced cryoprecipitate or cryo with the targeted post-thaw shelf life of 5 days compared to just 4 to 6 hours for conventional cryo. Based on our market research and ongoing conversations with physicians, including anesthesiologists, trauma surgeons and OB/GYN physicians dealing with obstetric bleeding, the timely availability of cryoprecipitate to control massive bleeding is a key challenge in patient care today. With the known challenges of making conventional cryo available for transfusion in the operating room and trauma centers, the longer post-thaw shelf life of pathogen-reduced cryo could allow transfusion services to keep pre-thawed cryo on hand. And pre-thawed product could reduce both the time to transfusion and product wastage.

Wastage of cryo -- conventional cryo due to expiry is estimated to be greater than 25% in most hospitals. We are still tracking on plans to file our PMA supplement in the first half of 2019, with the potential approval 6 months later. We believe that the extended storage cryo represents a U.S. market opportunity greater than $200 million annually and also a new business model for Cerus, in which we commercialize directly the hospitals and work with select blood centers as our manufacturing partners for the finished biologic product.

With regard to completing the full INTERCEPT product portfolio, we continue to make progress on our CE Mark submission for INTERCEPT red cells and planning for the associated launch in Europe. We're receiving interest in the product from our existing INTERCEPT customers, especially those blood services that are in routine use for 100% of their platelet supply. The positive results of our Phase III SPARC study in thalassemia patients have been well received by the transfusion medicine and hematology communities. Richard will provide more detail on the SPARC study and our progress in the U.S. with regard to the Phase III clinical development program for INTERCEPT red cells.

And finally, with regard to our bottom line, our plans are straightforward. We look to leverage the commercial investments we have made to drive long-term revenue growth, to generate economies of scale and expanding margins, to allocate resources to BARDA initiatives and to continue to reduce cash burn. As evidenced by our first quarter results, we are on track to deliver on this plan.

With that, let me turn the call over to Kevin to discuss our Q1 results.

Thank you, Obi, and good afternoon, everyone. Today, we reported first quarter product revenue of $13.6 million compared to $7 million during Q1 of 2017. Government contract revenue in Q1 of 2018 totaled $3.5 million compared to $1.4 million in the first quarter of 2017. Worldwide demand for disposable kits more than doubled in Q1 2018 when compared to the prior year, led by strong sales in platelet kits. In Q1 of 2018, platelet kits accounted for over 90% of total product revenue compared to approximately 85% in Q1 of 2017.

Looking at kit growth geographically. Demand for INTERCEPT kits in the EMEA region was up slightly more than 100% with much of that increase tied to growth from our expanded agreement with EFS in France. In North America, kit demand was up well over 150% as U.S. hospital use of INTERCEPT platelet components continued to grow.

As Obi noted in his remarks, given the outperformance in Q1 product revenue and increasing conviction in our commercial outlook, we are raising our full year product revenue guidance to a range of $53 million to $55 million.

Now turning from revenue to other first quarter results. Gross margins on product sales for the quarter were 46% compared to 47% in Q1 of 2017. A variety of offsetting factors resulted in relatively consistent year-over-year gross margins, including pricing associated with high-volume customers, product mix, economies of scale tied to the increased volumes manufactured and foreign exchange rates.

Now let's take a look at operating expenses, which were $23 million during the quarter compared to $22.8 million during Q1 of 2017. SG&A expenses during the quarter accounted for $13.6 million, consistent with Q1 2017 results. While sales increased markedly year-over-year, SG&A expenses were flat. We are beginning to realize the inherent leverage in our business and commercial investments with a relatively concentrated customer base in both EMEA and the U.S. and teams that are designed to deliver current and future revenue growth.

Research and development expenses for the quarter were $9.4 million compared to $9.2 million during the year prior. Expenses associated with the overall clinical development of our INTERCEPT red blood cell program increased. We are continuing to deliver on our plan to focus more R&D personnel on BARDA-related activities.

Our clinical programs associated with the INTERCEPT red blood cells are increasing with an expanded RedeS trial in the continental U.S. and the ReCePI trial underway. As we continue to enroll and expand the clinical activities of our red cell program, we anticipate the BARDA-related R&D expenses to increase.

Operating losses during the first quarter of 2018 were $13.4 million compared to $18.1 million for the first quarter of 2017. Net loss for the first quarter of 2018 totaled $13.9 million or $0.11 per diluted share compared to a net loss of $18.6 million or $0.18 per diluted share for the prior year period.

In terms of our balance sheet, we ended the first quarter with approximately $106 million of cash and investments on hand. We believe we are well positioned to deliver on our commercial strategy and bring pipeline products to the market, including the continued rollout of INTERCEPT in the U.S., INTERCEPT adoption throughout France and looking forward in Germany, the pursuit of CE Mark and the planned commercial launch of INTERCEPT red cells in Europe, and development completion and planned commercial launch of extended storage pathogen-reduced cryoprecipitate in the U.S.

And now, I'll turn the call over to Richard to provide you an update on our red cell program.

Thanks, Kevin. Progress on the development and clinical pathway for our red cell program continues. Let me start with an update on the development of our Ultra-Performance Liquid Chromatography or UPLC assay required for commercial lot release in support of our CE Mark submission, which is anticipated later this year. I'm pleased to report that we have transferred the UPLC assay to a contract testing laboratory and successfully validated the method. An important next step for our CE Mark submission is the testing of the validation lots and the release of material.

We are seeing much improved consistency with the new UPLC assay. The assay is robust and reproducible, and we are confident in our ability to submit the CE Mark filing by the end of this year utilizing data collected with the assay. As many of you are aware, approval times for CE Mark have been lengthening as a function of the new medical device directive in the EU. As such, we anticipate the CE Mark revenue and approval process could take 15 months or more. That should put us in a position to potentially launch INTERCEPT red blood cells in Europe and other countries that accept CE Mark approval in the 2020 time frame.

Shifting gears to the red cell development program in the U.S. We have expanded the clinical sites for RedeS, our Phase III study, evaluating INTERCEPT red blood cells in Zika-impacted areas, from Puerto Rico into Texas and Florida. With the expansion into the continental U.S. and revitalized posthurricane engagement by our Puerto Rican sites, we anticipate the rates of enrollment to accelerate.

In terms of our second U.S. Phase III study, ReCePI, which is evaluating the use of INTERCEPT-treated red blood cells in patients undergoing complex cardiovascular surgery, there is substantial interest in participation from the study sites that have been contacted to date, and we are targeting the first patient to be enrolled this summer.

As Obi mentioned, earlier this year, we reported top line results from the SPARC study, our Phase III study in transfusion-dependent thalassemia patients. Following the top line release, we held an investigators meeting in March to review the clinical study report and the safety and efficacy data. There was broad consensus by the hematology experts in attendance about the importance of this clinical study to inform future clinical use for the support of patients requiring chronic transfusion in general and thalassemia patients in particular.

With respect to the results of the study, the safety profile of INTERCEPT red cells was comparable with conventional red cells. Plans for presentations and publications of the findings were discussed and agreed upon.

Processing and laboratory data from the SPARC study will be presented next month at the ISBT meeting in Toronto. And the initial safety and efficacy results will be presented at the European hematology meeting in Stockholm, Sweden, in mid-June. Further presentations at U.S. hematology and transfusion medicine meetings are planned for the fall.

With that, let me turn it back to Obi for some closing remarks.

Thank you, Richard. I'd like to close by reminding everyone of our corporate mission: To establish INTERCEPT as the standard care for transfused blood components globally and to enable our blood center customers to do everything in their power to deliver safe and effective blood products to patients.

While we have much work ahead of us in order to fully realize our mission, we are seeing clear evidence of sustained success with INTERCEPT platelets in routine use as evidenced by our first quarter results.

Having just returned from a great meeting with Kedrion, our new partner in Italy, I was reminded of the importance of what we do at Cerus. Last summer, during a chikungunya outbreak in Lazio, the region of Italy that includes Rome, the entire platelet supply would have been shut down if it were not for the INTERCEPT system. Fortunately, as a result of the regional implementation of INTERCEPT, no patients were denied the platelet transfusion during that difficult period.

As we move towards the launch of red cells in Italy, the Kedrion and Cerus teams are excited about safeguarding the entire Italian blood supply, especially for the many chronically transfused thalassemia patients that are well represented by patient advocacy groups there in Italy.

Before we open up the call for questions, I wanted to conclude our prepared remarks with an acknowledgment of the Cerus' team's efforts, supporting transfusion services around the globe. The results we reported today were the culmination of the team's persistence in our shared endeavor to enhance blood safety. We have a great team here at the company, and our knowledge and expertise is unmatched in the industry.

Operator, please open the call for questions.

(Operator Instructions) Our first question comes from Craig Bijou from Cantor Fitzgerald.

Let me just start well -- first, let me start with congrats on a very strong quarter. I wanted to see if there was -- I know in the last quarter, you called out some stocking orders, and that's kind of what drove some of the growth. So I wanted to see if there was any onetime items in the quarter because they did come in well above what we were expecting. And then maybe if you could also parse out the FX impact that you saw during the quarter?

Sure, Craig. Yes, you're right. In Q4, there is some seasonality to orders, and there's also some choppiness with certain distributors, and then we, of course, signed up Kedrion in Q4 of last year and have the first quarter of true production for France. That's largely behind us. In Q1, we did not see any anomalies like that. With that said, there are certain seasonality to distributor orders that may or may not have been in the Q4 or Q1 period that we would expect on an annualized basis. So Q1 is a pretty solid number without the noise there. As far as FX, if you look at the year-over-year growth, as reported, it's a 94% growth. 20% of that came from FX and 74% came from organic growth.

Okay, that's helpful. And maybe I could dig into the U.S. kit or the North American kit volume. I believe you said it's well above 150%. So wanted to know, is there any revenue from Canada in there? And then beyond that, just what are you seeing, maybe, a little more color into what is really driving that kit volume growth in the U.S. and North America?

No. So we didn't have any sales in Canada, number one. And then with regard to the growth in the U.S., it's really a systematic effort on our part to ramp production at all the customers we have under contract. And we rolled out an effort last year to optimize their platelet collection so that they're comparable with INTERCEPT process, and that is paying dividends going into this year. And so we still see a lot of hospitals that are not getting the platelets -- the INTERCEPT platelets that they would like. So there are not at 100%. Typically, hospitals don't like carrying mixed inventories. And so working with our customers and specifically the American Red Cross, they're making some marked advances on the overall output of INTERCEPT platelets on a daily basis that they're realizing that centers that are in routine use right now.

Okay, that's helpful. If I can just squeeze one last one in, maybe for Kevin. Just seasonally, Q1 is typically the lowest revenue dollar amount that you guys see. So you guys beat our number on the product side by roughly $3 million. You raised guidance by $2 million. So maybe just comment on what you see for the rest of the year, maybe the cadence of the quarters? I mean, should we still expect Q1 to be the low number for the low quarterly revenue for the year?

Sure, I think, with a customer like France on, you have sort economies of scale now. We never had that. We've had a lot of smaller customers. So that does have a smoothing effect to the overall revenue. But with that said, we don't have a lot of experience operating with EFS at these volumes. In the U.S. we're making meaningful progress, and we expect that to continue. But of course, those contracts that we have with U.S. customers don't have committed volumes. And then lastly, what I would say about France is that they do with the double-dose approval. They do plan to move to a double-dose platform. And that has a positive effect for us on the bottom line, but certainly impacts the top line.

Our next question comes from Sung Ji Nam from BTIG.

I was wondering in France with the dual storage as well as the shelf life extension, is that a market expansion opportunity? Or I guess, what percentage of the market could be addressed with that?

Yes. So essentially, as Kevin just mentioned, we will potentially see a top line impact on that. We don't know when exactly. But the overall conversion to double dose, that percentage that would -- of platelets that are treated that we'd get there, we don't have visibility into how quickly that will happen and also what percentage that will ultimately get to. I think conservatively, you can say that, they may be able to do 30% of their platelets in a double-dose configuration. And as I mentioned in the prepared remarks, ultimately, that's a good thing for our customers because it does improve their operational efficiencies and just the overall cost structure for blood centers.

Okay, that's helpful. And then just another question on Canada. Could you remind us again kind of how you see that ramping over time? Is that -- what are some of the, I guess, next steps in terms of that market expanding or...

Well, similar to what we see in markets like Germany or even with the BLA process in the U.S., the 2 blood services in Canada, Canadian Blood Systems and Héma-Québec have to file for approval of the INTERCEPT-treated components with Health Canada. So that process does take a while. And so -- as I mentioned in the prepared remarks, we don't see it as a near-term opportunity, but more of a mid to long term. We do think there's real advantages, especially with the double-dose configuration in Canada with double-dose platelet preparation and ultimately getting to an extended shelf life situation with the CBS submission or to Health Canada. So I do think it's something that will happen. It's just not in an immediate time frame.

Okay, that's helpful. And then, just one more. In terms of, I was wondering if you might be able to comment on any incremental BLA approvals in the U.S. in the quarter? And how that might be progressing? And when you might be able to -- or we might be able to hear about the American Red Cross?

So your questions were, I think, you broke up at the very end, the Red Cross, BLA update. So we do not yet have a BLA approval for the American Red Cross. Those discussions are ongoing, but I think like we saw with some of the other blood centers that went beyond the 12-month initial thoughts on review time, I think it will happen in the near term, given they filed in Q1 of last year. And then with regard to the overall BLA status, currently, we have 5 BLA approvals and 8 more that are pending.

Our next question comes from Drew Jones from Stephens Inc.

Quick question on France. Do you have a feel for what level of utilization they are running right now?

Yes. I mean we believe that they are -- all their platelets are being treated with INTERCEPT at this point in time. Whether that's been fully realized from a sales perspective, I think there's still some uncertainty there on a quarterly basis. But I think we should all assume that platelets in France at this time are being treated (inaudible).

Great. And then, it sounds like you guys are pretty content with the commercial organization, commercial footprint as it exist today, is that a fair statement?

Yes. I think we're starting to see the leverage from the investments we've made historically and the scaling of revenue without having to add incremental headcount is clearly something that we see. I think obviously with the launch of something like INTERCEPT cryo where we'll have a more focused effort in the hospitals. We may add a few folks, but there's also a lot of leverage we get out of the existing commercial infrastructure that we have in selling and commercializing that product, both to hospitals and to blood centers.

Just to add on that, Drew, I think that comment or the Obi's previous comment on the leverage is true globally. It's not just the U.S. comment, and probably even more so in EMEA, if we are able to get CE Mark approval for red cells. That team has already built out and calling on customers there. So that's almost pure leverage that we get.

Our next question comes from Josh Jennings from Cowen.

Congrats on the strong start to the year. I was hoping to just start off on the pathogen-reduced cryo opportunity. We learned a lot more with the investor event you held in New York, so we appreciate that. But there seems like the value proposition for that product is very high. And I understand that it's very early, but just thinking about potential approval in 2020, the launch trajectory that we've seen here with platelets, should be the anticipating a more accelerated adoption and utilization ramp by blood centers in the U.S. because of that value proposition and the inherent need to conserve cryo and decrease wastage, but also have cryo available, the way that pathogen-reduced cryo would provide?

Yes. Clearly, I think the product specifications are compelling to transfusing physicians as you heard, Josh. And so I think there will be a demand for the product just because of the need to address bleeding patients and not having something readily available today. With regard to the revenue ramp, our focus in the immediate term will be on those states where we have manufacturing partners. So for example, we've signed up the manufacturing partner in California with the Central California Blood Center in Fresno. There are about 60 trauma centers in California. So that's one of the key target states in the U.S. And we'll look to be signing up 5 to 8 additional cryo manufacturers and looking to sort of get the state coverage we would like to optimize the launch in year 1. And then, as you can imagine, we're going to need to get BLA to able to ship product out of those states to other states. And so year 2 and 3 will see a more accelerated ramp. Year 1 will be limited to those states where we're manufacturing the cryo with our partners.

Great. And just on the guidance update and the tick up, it sounds like and I just wanted to be clear here that strength in the EMEA, particularly in France and also North America that we experienced in Q1, those are really the 2 drivers of the guidance, positive guidance revision. Is there anything else inherent in that tick up in guidance or baked into our assumed?

No. So the real drivers for Q1 were, as you said, France and the U.S.

Great. And are there any other potential approvals -- and congratulations on Canada, but any other countries that are close to a tipping point that we could see in 2018, maybe not the contributors in '18, but any other countries on the -- at that tipping point in terms of a positive approval?

Yes. Nothing, I think we would like to call out, just given the history of not knowing exactly when those will convert, but we are seeing a lot of interest in multiple countries. I think some of that is just driven by the fact that we are seen as critical mass in Europe adopting the technology and the increased awareness of platelet contamination rates. And so those 2 things really seem to be driving much greater interest. And planning, I guess, I would say by the national transfusion services. So I think we are obviously somewhat cautious about, when exactly they will go in our discussions with multiple national transfusion services about broad nationwide implementation of INTERCEPT.

(Operator Instructions) I'm showing no further questions at this time, sir.

Great. Thank you, and thank you, again, for joining us today and for your interest in Cerus. We will be presenting at the Deutsche Bank 43 -- 43rd Annual Healthcare Conference tomorrow in Boston. We look forward to seeing many of you there in person. Our second quarter call will be in early August, and we look forward to updating you at that time. Thanks very much.

Ladies and gentlemen, thank you for participating in today's event. This concludes our program. You may all disconnect, and have a wonderful day.