Cerus Corp (CERS) 2018 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Cerus Corporation Third Quarter 2018 Earnings Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded. I would now like to introduce to hold for today's call, Mr. Tim Lee, Investor Relations Director. 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; Kevin Green, Cerus' Chief Financial Officer; Vivek Jayaraman, Cerus' Chief Commercial Officer; and Carol Moore, our Senior Vice President of Regularly Affairs and Quality.

Cerus issued a press release today, announcing our financial results for the third quarter ended September 30, 2018, and also describing the company's recent business highlights. You can access a copy of the announcement on the company's website at www.cerus.com.

I would like to remind you that some of the statements we will make on this call relates 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 and 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 risk and uncertainty that can cause actual events, performance and results to differ materially. They are identified and described in today's press release under the risk factor 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, September 30, 2018, which we will 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'll review our financial results and Obi will conclude with his closing remarks.

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

Thank you, Tim, and good afternoon, everyone. We are pleased to report another strong quarter with growth across all major geographies. Third quarter product revenue totaled $15.4 million, 43% increase year-over-year. During the ongoing commercial momentum through the first 3 quarters, we raised our product revenue guidance once again to a new revised range of $58 million to $60 million. This revised range represents the increase of 33% to 38%, compared to 2017 product revenue. Kevin will provide additional details on the third quarter financials later on this call.

We recently returned from this year's AABB meeting, which is a key event for us each fall. As largest U.S. blood-banking conference, it provides a unique annual opportunity to understand the state of the industry and to monitor key national trends over time. I would like to share some of our observations from the 2018 AABB, which took place 2 weeks ago in Boston.

First, we were struck to see that in just 2 short years' pathogen reduction has evolved from a controversial hot topic to a mainstream subject. In 2016, many blood centers were still questioning whether pathogen reduction was effective, compatible and/or affordable. I credit the diligent effort of our U.S. commercial team for the educational initiatives that have clearly answered these questions in the minds of most attending the AABB meeting in Boston. With the top 5 U.S. blood centers all on various stages of INTERCEPT platelet adoption, we believe there is an increasing awareness about the benefits conferred by pathogen inactivation as well as the chronic underreporting of septic transfusion events associated with conventional platelet transfusions. Second, the INTERCEPT red cell program is increasingly prominent as a pending addition to our portfolio. INTERCEPT red cells were covered in presentations from our clinical investigators as well as our blood center partners. As blood centers begin to anticipate the planned red cell launch in Europe, the value of pathogen reduction across all 3 blood components is becoming tangible. The possibility of replacing gamma radiation, CMV testing and possibly even antibody testing for other pathogens has a strong appeal for blood bankers as they look to cost-effectively safeguard the blood supply going into the next decade.

Finally, this year's AABB meeting was immediately preceded by the trauma hemostasis and oxygenation research meeting knowns as THOR. THOR provides the physician centric forum to discuss the challenges related to resuscitation and coagulopathy, associated with traumatic injury, applying lessons learned from the battlefield trauma during the wars in Afghanistan and Iraq. These attending trauma surgeons, anesthesiologists and hematologists are all dedicated to improving care of civilian trauma patients as well as current and future war fighters. At this year's meeting, we are heartened to see that, that audience embraced the central role of cryoprecipitate in improving trauma surgery outcomes.

A few brief remarks about our INTERCEPT red cell program before you move on to the financial update. As you will recall, 60-day prior notification to TÜV is a critical step as we approach our planned red cell CE Mark submission. We completed this step in October and remain on track to deliver on this important regulatory milestone by the end of this year. With regards to our U.S. Phase III RedeS and ReCePI studies, we now have 3 of the targeted 4 blood center sites, producing red cell units up for our trials. And the most recent addition is the Central California Blood Center whose products will soon begin to support the pending initiation of the ReCePI study. We anticipate the first ReCePI patient enrollment -- the first ReCePI patient enrollment will begin shortly within the next week or 2.

With that, let me turn it over to Kevin for a review of the financial results.

Thank you, Obi, and good afternoon, everyone. Today we reported third quarter 2018 product revenue of $15.4 million, up 43% from the $10.8 million recorded for Q3 of last year. Disposable kit sales were once again the primary driver of growth during the quarter, which was partially offset by a decline in the year-over-year illuminator sales. Recall that in Q3 of 2017, we benefited from the initial shipment of illuminators tied to our expanded supply agreement with the EFS, the French National Blood Service. On the year-to-date basis, product revenue totaled $44.4 million, up 62%, compared to the $27.3 million recorded during the first 3 quarters of 2017. Worldwide demand for our disposable kits increased 85% when comparing Q3 2018 to the prior year period. North American kit growth was once again a strong contributor to the global growth in kit demand. On a year-to-date basis, demand for disposable kits increased 86%, compared to the same period the prior year.

From a product mix perspective, platelet kits accounted for over 90% of the product revenue during the recently completed quarter, compared to approximately 75% in the prior year.

Separately, and not included in our revenue guidance, government contract revenue during the third quarter of 2018 totaled $3.9 million, compared to $2.3 million during the third quarter of 2017.

On a year-to-date basis, government contract revenue was $11.4 million for the first 3 quarters of 2018, compared to $5.4 million in the prior year period. As Obi noted in his earlier remarks, given our strong performance and increasing conviction in our commercial outlook, we recently raised our full year product revenue guidance to a range of $58 million to $60 million, compared to our previous range of $56 million to $58 million. We anticipate strong kit demand again in Q4, which when measured against Q4 of 2017, should be taken with the context that we reported approximately $3 million of atypical orders during Q4 of last year. Those atypical orders include the illuminator sales to stand up all EFS sites, the initial stocking of single-dose EFS kits, the initial purchase by our Italian distributor Kedrion and from other orders from southern EU customers.

Now turning from revenue to other third quarter results. Gross margins on product sales for the quarter were 47%, compared to 50% for Q3 of 2017. The year-over-year change in gross margins was largely attributable to the volume-based pricing associated with current high-volume customers, offset by lower per unit cost of goods sold and to a lesser extent reduced by unfavorable foreign currency exchange rates. As a reminder, our disposable kits are sold and manufactured in Europe and as such, reported product revenue and cost of product revenue are impacted by shifts in the foreign exchange rates. Year-to-date, gross margins were 48%, compared to 51% during the first 9 months of 2017. The year-over-year gross margin change was driven by the same factors which affected the quarterly comparison.

I'd now like to discuss operating expenses which totaled $24.8 million during the quarter, compared to $20.1 million during Q3 of 2017. On a year-to-date basis, operating expenses were $72.2 million, compared to $66 million during the first 9 months of 2017.

Of the $24.8 million of Q3 2018 operating expenses, SG&A expenses accounted for $14 million compared to $12.2 million in Q3 2017. Year-to-date, our SG&A spend has been $42 million, compared to $40.1 million during the same period in 2017. The slight year-over-year increase in SG&A was primarily due to increased commercial activity in the U.S., and we expect SG&A expenses to remain relatively stable through year-end, as we continue to realize leverage from our P&L.

Research and development expenses for the quarter were $10.8 million, compared to $7.9 million during the year prior. The increase was primarily tied to the clinical development of INTERCEPT red blood cells, including preparation for the planned CE Mark submission later this year and clinical activities for our Phase III studies in the U.S, as well as activities aimed at expanded label claims on INTERCEPT platelets and plasma.

Through the first 9 months, R&D expenses totaled $30.1 million, compared to $25.9 million in the prior year period.

Net loss for the third quarter of 2018 totaled $14.2 million or $0.11 per diluted share, compared to a net loss of $13.4 million or $0.12 per diluted share for the prior year period.

Year-to-date, net loss totaled $41.4 million or $0.32 per diluted share, compared to a net loss of $49.1 million or $0.46 per diluted share in the first 9 months of 2017.

In terms of our balance sheet, we ended the third quarter in a strong position with approximately $119 million of cash, cash equivalents and short-term investments on hand, compared to $61 million at the end of 2017.

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

Thank you, Kevin. As we recently outlined at our institutional investor meeting in Boston, we believe we are well positioned to deliver sustained top line growth, not just for the balance of 2018 but for the years to come. Comments from our external speakers at that event, Dr. Susan Stramer, Vice President of Scientific Affairs at the American Red Cross, Professor Ed Snyder from Yale University and Dr. Melissa Cushing from Weill Cornell in New York, all increased our confidence that there is a fundamental shift underway in the field of transfusion medicine. All 3 speakers participated in the compelling discussion on the momentum towards increased INTERCEPT platelet adoption in the United States.

They see pathogen reduction as necessary to address safety concerns associated with platelet associated septic transfusion events. Moreover, they articulated the value of reaching 100% pathogen reduced supply, both to simplifying institutions' inventory management and also to avoid the ethical dilemma of how to choose which patients continue to receive untreated units, if the inventory remains mixed.

Dr. Stramer also provided commentary about the importance of pathogen reduction for the American Red Cross and its long-term strategic planning. She shared the Red Cross' vision for expanding the INTERCEPT platelet reduction to meet hospital demand and drive value from this innovation in their product offering.

As expected, BLA -- BLA approvals are a critical element in their expansion plans, with an initial BLA at their Baltimore facility anticipated before year-end. Following that initial BLA approval, the Red Cross is preparing for a rolling schedule of monthly submissions across the other 12 sites currently producing INTERCEPT platelets, with the goal of all sites being licensed by late Q2 2019.

As a reminder, these additional BLA submissions will be under a CBE-30 protocol, a streamlined review process allowing changes to become effective after 30 days. This will set the stage for an accelerated expansion of INTERCEPT platelet distributions over the following to 6 to 12 months as their net platelet export centers are able to supply the Red Cross network nationally. The speakers also expressed enthusiasm about the full INTERCEPT portfolio becoming available, including both INTERCEPT red cells and INTERCEPT cryo. Emerging infectious disease risks such as from tick-born Babesia were mentioned as a particular driver for future use of INTERCEPT red cells. As well, the potential to replace the radiation was seen as an obvious benefit to the segment of patients most at risk for both infectious complications and transfusion-associated graft versus host disease. Overall, the investor day program articulated the reasons we are optimistic about the future of pathogen reduction. As you all noted from our press release yesterday about the FDA granting breakthrough device designation for our pathogen-reduced cryoprecipitate product, we are excited about addressing the unmet clinical need associated with massive bleeding.

Breakthrough status confers several advantages to our program by enabling an even more proactive dialogue with the FDA and the potential for an expedited review of our PMA supplement that we expect to submit in the second half of 2019. With the FDA validating the need for this product and the continued interest we are hearing from physicians dealing with coagulopathy and trauma, cardiovascular surgery and obstetric hemorrhage, the launch of cryo is a unique opportunity for the company. In summary, we're excited about the opportunities ahead of us and are poised to advance our mission to establish INTERCEPT as a standard of care for transfused blood components globally. Before we open up the call for questions, let me take an opportunity to recognize and acknowledge the efforts of the Cerus team for their dedication to bringing pathogen reduction technology to patients around the globe, especially the many Cerus employees that are working diligently on the red cell CE Mark submission. Operator, please open the call for questions.

(Operator Instructions) I'm showing no questions at this time. I would now like to turn the call back over to Obi Greenman for closing remarks.

Well, thank you all for joining us today and for your interest in Cerus. We will be participating in 2 upcoming Investor Conferences later this month. Next week, we'll be presenting at the Stephens conference, New York investment conference. In the following week, we will be presenting at the Canaccord Genuity Medical Technologies & Diagnostics Forum also in New York. We hope to see many of you there in person. Thanks very much.

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