Cerus Q3 2023 Earnings Call Transcript

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Provided by Quartr
November 2, 2023

There are 7 speakers on the call.

Operator

Good day, and thank you for standing by. Welcome to Syros Corporation Second Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer Please be advised that today's conference is being recorded. I would now like to turn the call over to Jessica Hanover, Vice President of Corporate Affairs.

Speaker 1

Thank you, and good afternoon. I'd like to thank everyone for joining us today. As part of today's webcast, We are simultaneously displaying slides that you can follow. You can access the slides from the Investor Relations website at ir. Cirrus .com.

Speaker 1

With me on the call are Obi Greenman, Cirrus' President and Chief Executive Officer Vivek Jayaraman, Cerus' Chief Operating Officer and Kevin Greene, Cerus' Chief Financial Officer. Cerus issued a press release today announcing our financial results for the Q3 ended September 30, 2023, and describing the company's recent business highlights. You can access a copy of this announcement on the company website at www.cirrus.com. I'd like to remind you that some of the statements we will make on this call related 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 updated 2023 product revenue guidance, our Q4 adjusted EBITDA commitment and our expected expense, inventory and margin profile expected future growth and our growth trajectory expected future product sales the availability and related timing of data from clinical trials and other statements that are not historical facts.

Speaker 1

These forward looking statements involve risks and uncertainties that could cause actual events, performance and results to differ materially. They are identified and described in today's press release and under Risk Factors in our Form 10 Q for the quarter ended September 30, 2023, which we will file shortly. We undertake no duty or obligation to update our forward looking statements. On today's call, we will also be discussing non GAAP financial measures, including non GAAP adjusted EBITDA. These non GAAP measures should be considered a supplement to and not a replacement for measures presented in accordance with GAAP.

Speaker 1

For a reconciliation of non GAAP financial measures To the most comparable GAAP financial measures, please refer to today's press release. We'll begin today with opening remarks from Obi, followed by Vivek And now it's my pleasure to introduce Obi Greenman, Cerus' President and Chief Executive Officer.

Speaker 2

Thank you, Jessica, and good afternoon, everyone. I would like to provide some commentary about the progress we are continuing to make this year, both on the commercial front and in the pipeline. During the Q3, we reached and surpassed the $15,000,000 mark for sales of transfusable doses for INTERCEPT kits since our initial launch of the system. I'm very proud of this important milestone, particularly with respect to the global patient impact this figure represents And the thousands of patients in countries around the world that receive INTERCEPT 3 components every day. Importantly, as we cross this $15,000,000 kit sales milestone, We are also approaching a milestone of adjusted EBITDA breakeven in this quarter, even as we invest in the geographic expansion of our business and our R and D pipeline to sustain our growth long term.

Speaker 2

Indeed, we are pleased to report that our top line performance stabilized in Q3, Returning to the levels of Q3 2022 and showing growth from the prior quarter, we expect to see our growth trajectory accelerate into the double digits As we exit 2023 and move into 2024. 3 weeks ago, I and many colleagues and customers attended our industry's top conference, The AABB Annual Meeting in Nashville, the first time it has been held in person since 2019 and notably since the FDA guidance for bacterial safety Went into effect now 2 years ago. I was particularly struck by the pervasive and positive sentiment around pathogen reduction. INTERCEPT blood system for platelets has clearly been established as an essential tool for safeguarding the blood supply here in the U. S.

Speaker 2

Meeting sessions covering IFC were also well attended with standing room only audiences and overall awareness and interest in the product was very high. The Sunday morning oral session scheduled by ABB meeting organizers, transfusion medicine leaders from both UT Southwestern and Stanford Medical Centers highlighted the realized benefits of ISC adoption in their practice. In particular, ISC enabled streamlined operations, Significantly reduced wastage and much faster availability for patient transfusion. These centers have assessed the time from physician order to delivery Since the implementation of IFC, demonstrating marked improvements in the range of 50% to 70%. Moreover, like INTERCEPT Playouts before, IFC now allows hospital transfusion services to strengthen their collaboration with their hospital clinicians to improve patient care.

Speaker 2

Well, historically, the hospital blood bank may have had to say no, given the challenges of providing conventional cryo. Now they can say yes to a demanding physician with a bleeding patient, particularly when every minute counts. Given growing interest in partnerships with blood centers for IFC, we continue to believe this product and its compelling value proposition will be meaningful to our growth trajectory. Moving on to our pipeline and in particular the INTERCEPT red blood cell or RBC program. In Q3, as planned, we completed enrollment in the BARDA funded Phase 3 RECIPE trial in cardiovascular surgery patients.

Speaker 2

321 patients were transfused and are valuable in the study. We continue to anticipate database lock and the initial top line data readout from this trial in Q1 of 2024. Our second Phase 3 trial, Redis, continues to enroll as expected as well. Recently, the study's Data Safety Monitoring Board Our DSMB met and expressed no safety concerns regarding the study to date and recommended continued enrollment. This study's enrollment is now focused At the most recent investigators meeting for the RADA study held prior to the AABB annual meeting, there was enthusiasm for completing this last phase of the study in a timely way, which is now possible with the full support of the program by BARDA.

Speaker 2

I would like now to turn the call over to Vivek to discuss the Q3 commercial highlights and the outlook for the remainder of the year.

Speaker 3

Thank you, Obi, and good afternoon, everyone. As Obi mentioned, we posted a sequential uptick in total product revenue for the Q3 2020 3, returning to the levels of Q3 2022. On a global basis, we saw our platelet franchise stabilize in the 3rd quarter I'm encouraged by the momentum we see with our global sales team and their continued engagement with our blood center and hospital customers with a focus on ensuring that patients gain access to the safest blood components possible. With respect to the recently completed Q3, We experienced a strong bounce back in our U. S.

Speaker 3

Platelet franchise. Inventory levels across our key U. S. Customers have stabilized And we are seeing a small upward trend in platelet utilization. As we work to resolve product dating issues, we are seeing a return to more consistent ordering patterns.

Speaker 3

Our deployment, customer care and supply chain organizations continue to work closely with the operations groups at our blood center partners to ensure that hospitals remain well serviced and that ultimately pathogen reduced platelets are getting to patients in need. As Obi noted, the prevailing sentiment around pathogen reduced platelets at the recent AABB meeting was quite positive, And Intercept's leadership position in platelet safety in the U. S. Continues to gain strength with each passing quarter. Outside of the U.

Speaker 3

S, we have seen platelet volumes in France and Belgium stabilize consistent with the first half of the year. Recall that these markets are 100 percent intercept countries and we continue to receive their high praise for the quality and efficacy of our technology. We are seeing good growth in new regions such as the Middle East and Canada. Geopolitical concerns in the Middle East and Eastern Europe do pose a bit of a watch out, We are working closely with our distributor partners and blood center customers to ensure we can effectively meet their needs. We are particularly encouraged by our continued momentum in Canada.

Speaker 3

Canadian Blood Services or CBS has continued to make strong progress in the rollout of INTERCEPT platelets. With the successful deployment of INTERCEPT at CBS' Vancouver site in September, over 40% of CBS' platelets are now INTERCEPT treated. We expect that by the end of this year, this number will have grown such that the majority of platelets transfused in Canada will be patched and reduced with the INTERCEPT blood system. We remain on track for completion of the CVS rollout in the first half of next year. Additionally, the ongoing validation of INTERCEPT platelets by Hema Quebec, representing a quarter of the Canadian market and the only other blood provider outside of CVS in the country continues to advance.

Speaker 3

We are proud of the partnerships we have built in Canada that are enabling patient access to pathogen reduced platelets. Turning to our U. S. IFC franchise. We are starting to realize the benefit of our fully staffed and trained hospital sales organization.

Speaker 3

We've seen a significant step up in in person hospital sales calls, peer to peer networking events and engagement in clinical conferences, including the recently completed Society For the Advancement of Patient Blood Management or SABOM and the Trauma Anesthesiology Society or TASCON meeting. Clinician interest and enthusiasm for ISV is high and anecdotal experiences from early adopters like Stanford, Emory and Ohio State are resonating across the country. Furthermore, we deepened and expanded our IFC partnerships with large blood center customers during the quarter and are beginning the process of training their sales teams in order to expand hospital outreach and access. As we move further into the Q4 and approach year end, The momentum behind the U. S.

Speaker 3

ISV business is palpable and growing. I will now turn it over to Kevin to discuss our results and outlook in more detail.

Speaker 4

Thank you, Vivek, and good afternoon to everyone listening. On today's call, I'll be discussing our financial results for the Q3 as well as our product revenue guidance for these leases. I'm also going to spend some time discussing our unwavering commitment achieving adjusted EBITDA breakeven in Q4 of this year and we'll lay out the detailed success factors that will drive our expected achievement of that goal. I'll start with our top line revenue results. We posted Q3 2023 product revenue of $39,800,000 With the return to the historical levels posted during the Q3 of 2022 and up 2% sequentially from Q2.

Speaker 4

In the U. S, product revenues were down 6% year over year, but sequentially, we saw 3% growth from Q2. In EMEA, product revenues were up 4% year over year and around 1% compared to the Q2 of this year. Year over year, FX rates provided a benefit for the EMEA business of around 800 basis points. In addition to our product revenue and not included in our guidance, government contract revenue was up 10% and totaled $7,500,000 in Q3 compared to $6,800,000 for the prior year period.

Speaker 4

Included in our government contract revenue are the revenues reimbursement under our contract with BARDA, our agreement with the FDA to further whole blood pathogen reduction and our milestone based agreement with the U. S. Department of Defense for LIO IFC. Let's now turn to our product gross profit and gross margins. Our 3rd quarter product gross profit was $21,800,000 consistent with the prior year period.

Speaker 4

Product gross margins for the quarter were 54.9%, fairly stable when compared to the prior year and Q2, especially when considering the impact of FX rates. We expect the remainder of the year to be reasonably consistent with current margin levels. Moving on, our 3rd quarter operating expenses, which totaled $34,500,000 were $1,600,000 lower than the prior year period. Q3 2023 operating Expenses included $4,000,000 in non cash stock based compensation. By specific expense type, 3rd quarter R and D expense totaled $16,800,000 compared to $16,200,000 during the prior year period.

Speaker 4

During the quarter, we saw increased R and D activity associated with our next generation illuminator, along with increases in our BARDA agreement for INTERCEPT treated red blood cells. 3rd quarter SG and A expense was $16,200,000 compared to $19,900,000 during the prior year period. The decrease in SG and A expense was tied to our June restructuring and decreased non cash stock based compensation. Also included in our operating expenses for the Q3 was a restructuring charge of 1 point $6,000,000 related to office leases. As you can see from our operating expense declines, the impact of our June restructuring has started to be realized.

Speaker 4

On the bottom line, reported net loss attributable to Cerus for the 3 months ended September 30, 2023 improved when compared to the same period in the prior year. Net loss attributable to Cerus for Q3 totaled $7,300,000 or $0.04 per diluted share compared to $8,500,000 or $0.05 per diluted share for the prior year period. Despite the incremental $1,600,000 recorded as an adjustment to our restructuring, our reduced operating expenses were the largest factor for the improved bottom line. Moving on to our adjusted EBITDA metric. 3rd quarter non GAAP adjusted EBITDA improved by 64% to a negative $1,000,000 compared to a negative $2,700,000 during the Q3 of 2022 and a negative $4,700,000 during the Q2 of this year.

Speaker 4

On the balance sheet and associated cash flows, We ended the Q3 with a strong cash position of $79,000,000 of cash, cash equivalents and short term investments on the balance sheet. In terms of cash utilization, our cash used from operations was $10,500,000 for the Q3 compared to $2,100,000 during the prior year period. We expect cash used from operations to narrow significantly as we move ahead. While we implemented a number of measures in Q3 Aimed at rightsizing our inventory levels over time, we continued to see an increase of inventory during the 3rd quarter. We expect the measures implemented to take effect during the Q4 and well into 2024, allowing us to sell down net inventory levels As we announced earlier today, we are adjusting our full year 2023 product revenue guidance to a range of $155,000,000 to $158,000,000 This is primarily due to the delayed execution of the now signed National IFC sales agreement.

Speaker 4

That said, this new guidance range implies a strong sequential performance for the business in Q4 of this year, aligned with our expectations for growth. Throughout the year, we've been steadfast in our pursuit of reaching adjusted EBITDA breakeven this year. Before turning the call back over to Obi for closing remarks, I'd like to walk you through the detailed factors that we expect will allow us to realize Goal for Q4. 1st, as we've been foreshadowing over the past several quarters and consistent with our guidance, We expect to see significant growth in the top line during the Q4. 2nd, our margin profile has remained stable Despite a rise in USD euro rates, which most of our cost of products sold is nominated from, and we expect margins will remain relatively stable in Q4.

Speaker 4

Finally, as we saw during the Q3, we expect our operating expenses will continue to come down The combination of these factors provides us with a strong confidence in the expected success of reaching adjusted EBITDA breakeven in Q4 and laying a foundation for continued financial improvement. With that, I'd now like to turn the call back over to Obi for closing remarks.

Speaker 2

Thank you, Kevin. While 2023 has been a challenging year, we remain confident in both the near term growth trajectory and the longer term prospects for Cerus. During the Q3, we started to see a return to top line growth, which continues as we move through the Q4. We made strong progress on key pipeline activities, which bodes well for future technology adoption. Finally, from a bottom line perspective, thanks to the entire team's focus, We are poised to hit our goal of adjusted EBITDA breakeven in the Q4 of this year.

Speaker 2

The Sears team has proven quite resilient in the face of many challenges, And I appreciate everyone's unwavering focus on our mission to help safeguard the global blood supply. Thank you for your continued interest in Cerus. I will now turn the call over to the operator for questions.

Operator

Thank you. I will now open the line for questions. Okay. And our first question is from the line of Matt Blackman with Stifel. Please proceed.

Speaker 5

Hi. This is Emily on for Matt. Just on the red blood cells in Europe, Wondering if we're still on track there for second half twenty twenty four CE Mark? And if so, just how we think through the adoption curve for that product, in particular

Speaker 2

So we as we discussed in the last Call, we're planning to respond to the CBGMEB questions, which is our competent authority In the Netherlands in Q4 of this year and then we are still on track for a possible approval In the second half of next year. As it relates to demand, we've actually done a number of interviews with various customers who are currently using the INTERCEPT And there is strong interest from our existing customers, particularly with a focus on replacing gamma radiation of red cells, which leads to a Shortened shelf life of red cells of about 2 weeks compared to a normal 42 day shelf life for red cells. And so we're looking to roll out that product then post approval initially in the context of the hemovigilance study that's being required by TUV or Our notified body in Europe, and then ultimately to a broader rollout across multiple countries. Just to remind you, there are going to be some in country approvals required in countries like France, Germany and Switzerland. The CE Mark will allow us to commercialize elsewhere without additional regulatory approvals.

Speaker 5

Great. Thanks. And just one more if I could. On the platelet rollout in other geographies, I'm wondering if there's any update on Germany and kind of how far along And then the longer term prospects, China, South Korea, etcetera?

Speaker 2

Thanks for that question. So obviously, Germany has been a long story. I think they are very influenced by what's happening around them. Specifically in the dock region, you've got Austria now, which is almost at 100% Switzerland, obviously, France. And so we are continually filing MAAs In partnership with our blood center partners in Germany and those are getting approved, still working through sort of the reimbursement Value justification at the hospital level, but we are optimistic about 2024 2025 and beyond just given the overall Use of INTERCEPT platelets across Europe.

Speaker 2

Then beyond Germany, obviously a big focus of ours is the Approval process in China and that NMPA submission and review is still underway. Nothing has really changed from the previous quarter comments On that, but we are on track for what we expected out of that process. And then obviously a number of different opportunities around the globe that we'll comment on when we have something more to say.

Speaker 5

Great. Thank you.

Speaker 2

Thanks, Emily.

Operator

Thank you. One moment for our next question. And it's from the line of Jacob Johnson with Stephens. Please proceed.

Speaker 6

Good afternoon. This is Mac on for Jacob. Just quickly, I appreciate the Directional commentary on 4Q in 2024. And understanding it's like too soon to guide here, But how much of a headwind will inventory management be in 2023? And just kind of thinking about this from a comp perspective If these revenues return next year.

Speaker 2

Yes. Thanks for the question. I don't know Vivek, would you all like to try and address that? Just I think the question Relates to the current shelf life of the kits and sort of our progress of working through that with our customers.

Speaker 3

Sure. I'd be happy to. In terms of shelf life serving as a headwind through 2024, as we indicated previously, we believe most of those issues are now Behind us and that platelet levels are stabilizing both from a collections perspective, but also from an inventory management perspective at At our Blood Center customers, so we don't anticipate that being a headwind as we enter into 2024 and obviously we'll continue to work to increase shelf life on a going forward basis as we get real time data. So, as we look towards The finish of this quarter and the beginning of the next calendar year, we anticipate that those headwinds have been largely relieved at this point.

Speaker 6

Thank you. And just quickly, it sounds like you're making good progress on I see as well. With the commercial strategy in place, how should we think about the uptake of that product in the coming years? And what are some of the key milestones you're keeping an eye on?

Speaker 2

Yes. Thanks again for that question Vivek. I think that's up your alley as well. So why don't you Sure.

Speaker 3

Yes. Happy to address that. One of the key milestones was Getting under contract with large blood centers here in the U. S. We're currently under contract for IFC with blood centers that represent roughly 60% of the cryoprecipitate market in the U.

Speaker 3

S, the key thing now is just continuing to translate Clinician level demand into committed hospital interest and having the ability for those hospitals to receive product from their blood Supplier from both suppliers is a huge enabler in that regard. So we feel pretty enthusiastic about that business given the combination of these key contracts that have not been a fully staffed and trained hospital sales force that's getting in and having a number of meetings with clinicians and directly with hospitals and then The continued sort of clinical uptake and peer to peer marketing opportunities we see as we bring more hospitals on board in terms of IFC users. So On balance, the combination of all those factors leads us to be very optimistic about this business heading into next calendar year.

Speaker 6

Thanks for taking my questions.

Speaker 2

Thank you.

Operator

Thank you. I don't see any further questions in queue. I would like to turn the call over to Obi Guieman for closing comments.

Speaker 2

Well, thank you again for joining us today and for your interest in Cerus. We look forward to updating you on our continued progress this year And next. Thanks very much.

Operator

And with that, we thank you for participating in today's conference. You may now disconnect.

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Earnings Conference Call
Cerus Q3 2023
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