Cerus Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
October 30, 2024

Key Takeaways

  • For Q3 2024, Cerus reported $46 million in product revenue, up 16% year-over-year, and raised full-year product revenue guidance to $177–179 million.
  • North American INTERCEPT platelet sales remain the primary growth driver, while INTERCEPT FibroGen Complex (IFC) adoption is accelerating, supported by three new BLA approvals to expand interstate shipments.
  • Product gross margin improved to 56.9% (+200 bps YoY) and operating expenses fell 8%, driving a positive non-GAAP adjusted EBITDA of $4.4 million in Q3 versus a $1 million loss last year.
  • Cerus generated $4.1 million in operating cash flow for the quarter versus $10.5 million used in Q3 2023, ending with $75.6 million in cash, cash equivalents and short-term investments.
  • Regulatory and development milestones include a 2025 European launch of the next-generation LED illuminator platform and ongoing BARDA-funded activities to support INTERCEPT RBC approval and commercial launch.
AI Generated. May Contain Errors.
Earnings Conference Call
Cerus Q3 2024
00:00 / 00:00

There are 11 speakers on the call.

Operator

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Cerus Corporation Third Quarter 20 24 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 session.

Operator

Please be advised that this conference is being recorded. I would now like to hand the conference over to Jessica Hanover. Doctor. Hanover, you may begin.

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, Cirrus' Chief Operating Officer Kevin Greene, Cirrus' Chief Financial Officer and Carol Moore, Cirrus' Senior Vice President. Cirrus issued a press release today announcing our financial results for the Q3 ended September 30, 2024, 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 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 and operating results, including our 2024 product revenue guidance our expectations for operating cash flows and non GAAP adjusted EBITDA performance and our expected expense levels expected future growth and our growth trajectory our product supply expectations and ability to meet customer demand the potential value of and anticipated activities to be funded under our new BARDA agreement planned regulatory submissions and product launches, product expansion prospects 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, in our slide presentation and under Risk Factors in our Form 10 Q for the quarter ended September 30, 2024, 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 and the slide presentation available on our website. We'll begin today with opening remarks from Obi, followed by Vivek to discuss recent business highlights, then Kevin to review our financial results and expectations for the rest of 2024 and lastly, closing remarks from Obi. And now, it's my pleasure to introduce Obi Greenman, Pieris' President and Chief Executive Officer.

Speaker 2

Thank you, Jessica, and good afternoon, everyone. I would like to open the call with a review of our strong quarterly performance on both commercial and financial fronts, as well as our increasingly positive outlook for the full year 2024. Our North American platelet business drove our Q3 product revenue result and our INTERCEPT FibroGen Complex or IFC business in the U. S. Is gaining momentum at the same time that we are increasing supply capacity for the product.

Speaker 2

Vivek will provide additional color in his remarks. For this trajectory, we are raising our product revenue guidance to account for the positive trends in both these business segments. We are also executing on the financial measures that we have been targeting for the full year, both on the bottom line as well as operating cash flows as you will hear from Kevin shortly. With the growing scale of our business, the leverage of our business model and the discipline around our operating expenses, we've been able to consistently deliver against our quarterly financial targets. At a high level and on the heels of the Annual Meeting of the Association For the Advancement of Blood and Biotherapies or ABB earlier this month, it is gratifying to see how pathogen inactivation has become increasingly ubiquitous across the transfusion services in the U.

Speaker 2

S. And in multiple geographies from blood centers that manufacture pathogen inactivated components to the hospital clinicians who transfuse them. And sitting in the plenary session at the Houston Convention Center with thousands of ABB meeting participants listening to the presentation of the positive RECIPE Phase 3 clinical trial data was truly a rewarding experience. The further acknowledgment from the recent up to $248,000,000 BARDA contract designed to see the INTERCEPT RBC program through potential regulatory approval and product launch only added to the collective enthusiasm from our blood center customers for the recipe data. Meanwhile, the need for pathogen inactivation is ongoing.

Speaker 2

Since our last quarterly call, when we noted the rise in dengue transmission in the U. S. And Europe, multiple U. S. Public health officials have released notifications regarding the rise in the incidence of 2 emerging arthropod borne viruses, Eastern equine encephalitis virus or EEEV and Oropouch virus or OuroV.

Speaker 2

Together, EEEV and travel related Ora V cases have been reported in 12 states and U. S. Territories to date. CDC and FDA recommend donor deferrals for those recently diagnosed with these viruses, reminding our community that the potential exists for the disruption of our local blood supplies. And while there remains no evidence of transfusion transmission to date, the similarities of ROV to the Zika virus epidemic and the new evidence of vertical transmission argue that precaution and preparedness are warranted.

Speaker 2

On the development front, as we announced earlier this month, in Europe, we are closely collaborating with our notified body TUV SUD to define our strategy for a potential new and enhanced CE Mark submission for INTERCEPT red blood cells or RBCs. As we noted before, while we are disappointed that our INTERCEPT RBC filing was not approved by our competent authority, we are closely assessing the potential to include data from both and Redis clinical trials in the future filing with the intent to seek a broader patient indication for the product candidate. In the U. S, we are moving full speed ahead after extending our partnership with BARDA, which is designed to fund further development, regulatory activities and ultimately anticipated commercial readiness initiatives for INTERCEPT RBCs. We have also recently completed our regulatory submission to TUV for our LED illuminator in Europe, marking the next step in our effort to make this next generation technology platform available to our customers in that geography.

Speaker 2

Based upon extensive feedback from our customers, we believe that this new platform is eagerly awaited and will provide multiple benefits for the production of INTERCEPT treated playouts and plasma in routine. With that, I will now turn the call over to Vivek to discuss our commercial results and progress for the Q3 of 2024 as well as our outlook for the last 3 months of the year.

Speaker 3

Thank you, Obi, and good afternoon, everyone. Entering 2024, we committed to return to growth across our commercial organization. As we exited the first half of twenty twenty four, we were back on a growth trajectory and I'm pleased to report that we continued that trend in the recently completed Q3. As with prior periods in 2024, the strength of our U. S.

Speaker 3

Platelet franchise led the way and we continue to see encouraging growth in our U. S. IFC business. With respect to U. S.

Speaker 3

Platelets, we estimate that nearly 2 thirds of all platelets distributed to U. S. Hospitals are patched and reduced. We continue to make good headway with customers, plus blood centers and hospitals, who are ramping their adoption of INTERCEPT platelets, while holding strong with customers who are already at 100 percent INTERCEPT platelet adoption. We believe the marketplace views INTERCEPT treated platelets as the safest option for patients and this was supported by plenary presentations, posters and symposia activities at the annual AABB meeting earlier this month.

Speaker 3

The peer to peer interaction and support of INTERCEPT adoption was incredibly encouraging to witness. Our team simply had to facilitate introductions and the number of high volume INTERCEPT's Playlist users in attendance was significant. This dynamic also played out with international markets where we saw a good number of Canadian, Middle Eastern and European customers at the meeting and they too were eager to share their positive experiences with Intersect. Last quarter, we saw continued adoption of ISV within the U. S.

Speaker 3

As we have discussed in past quarterly calls, we are closely monitoring demand increases and working hand in glove with our blood center production partners to ensure they can deliver sufficient supply. We were pleased to see the issuance of 3 new BLA approvals in the Q3. This will enable broader interstate shipment of ISV and enable us to meet demand at many hospitals do not currently have an IFC producing blood center in their state. As with PR platelets, the recent AABB meeting was great to drive further education and awareness of IFC. Of note, we hosted a standing room only workshop where the Head of Laboratory Services at Barnes Jewish Hospital in St.

Speaker 3

Louis, Missouri described how they chose to adopt ISV 100% and the pathway they took to get there. Most encouragingly, she laid out the operational and financial benefits above and beyond the clear clinical utility that they've experienced in deciding to go all in on IFC. We are encouraged by the demand for IFC and we continue to see an increase in inbound inquiries about the product. Looking outside of the U. S, we experienced expected seasonality in our EMEA franchise and things slowed down over the summer holiday period, most notably in July August.

Speaker 3

Nonetheless, we continue to see encouraging progress in our key growth geographies and are excited about the prospects for INTERCEPT adoption in key strategic markets. We will keep you posted as we make progress on key international market development initiatives. Lastly, I want to thank and acknowledge our global supply chain and logistics teams who continue to navigate challenging situations while ensuring that customer impact is mitigated. Despite the recent dock worker strike along the U. S.

Speaker 3

Eastern seaboard, we were able to meet all customer requests within Q3. As we discussed earlier this year, the supply chain team did fantastic work helping to navigate any concerns with short dated product and ensure that customers were not only getting product, but also able distribute to their hospital customers in a timely manner. The logistics teams are always behind the curtain and rarely recognized, but I want to be explicit in my gratitude for all the work they do to support the global sales team and most importantly, our blood center and hospital customers. As evidenced by raising our product revenue guidance for the full year, we are confident that our business is once again on a growth trajectory. What's most exciting is to see both existing and new customers realize the clinical benefits of fast introduction and become advocates for the technology.

Speaker 3

I look forward to updating you on our continued progress and I thank you for your support of and interest in our efforts. I'd like to hand the call over to Kevin to update you on our financial results.

Speaker 4

Thanks, Vivek. Good afternoon and thank you all for joining us. On today's call, I'll be discussing our financial results for the Q3 of 2024. As we near the end of the year, I'll also provide some color related to our strong progress on the financial goals we set out at the beginning of the year. To start, we posted product revenue of $46,000,000 for the Q3 of 2024.

Speaker 4

This represents year over year growth of 16% and brings product revenue for the 1st 9 months of the year to $129,500,000 up 18% from the prior year period. North American platelet sales continued to be the major contributor to our product revenue growth during the quarter. In the U. S, Q3 2024 product revenues exceeded prior year levels by 17%. With Canadian Blood Services now at 100% entering the 3rd quarter, sales in this geography were an important contributor to our year over year growth as well.

Speaker 4

In EMEA, 3rd quarter product revenues were relatively stable to slightly higher compared to the prior year period and to the Q2 of 2024. FX rates provided a slight tailwind for the EMEA business of around 1% over the prior year period. On a consolidated basis, FX rates were less impactful benefiting the top line results by approximately 40 basis points. Also for Q3, we posted ISD product revenue of $2,300,000 up from $1,700,000 in the prior year period, driven by more standing orders and depth within existing accounts. In addition to our product revenue and not included in our guidance, government contract revenue totaled $4,600,000 in Q3 compared to $7,500,000 for the prior year period.

Speaker 4

The completion of our U. S. Phase 3 RECIPE clinical trial was the primary driver for the decline. As we look ahead, we expect government contract revenue will increase from Q3 levels due to a variety of factors, including enrollment ramping up at sites participating in our Redis clinical study, activities supporting our new BARDA contract, which will overlap with the prior contract and the ongoing development work with other government agencies. As a reminder, included in our government contract revenue are the revenues recognized as reimbursement under our contracts with BARDA, our agreement with the FDA to further whole blood pathogen reduction and our milestone based agreement with the U.

Speaker 4

S. Department of Defense for myophilized IFC. Turning now to our product gross profit and gross margins. Our Q3 product gross profit was $26,200,000 compared to $21,800,000 during the prior year period, an increase of 20% year over year. Product gross margins for the Q3 were 56.9 percent, up 200 basis points from the 54.9% reported in Q3 of last year and the 54.7% from Q2 of this year.

Speaker 4

The improvement in gross margins was primarily driven by lower product costs and lower supply chain costs for warehousing and freight. Absent any unanticipated factor, we continue to expect that gross margins will remain relatively close Q3 levels for the balance of the year. Moving on, our 3rd quarter operating expenses, which totaled $31,800,000 were down 8% from the $34,500,000 of Q3 of 2023. Included in the operating expenses for Q3 of last year were $1,600,000 of restructuring charges, which were not incurred in the current year quarter. Q3 2024 operating expenses included $5,800,000 in non cash stock based compensation.

Speaker 4

By specific expense type, 3rd quarter R and D expenses totaled $14,000,000 compared to $16,800,000 during the prior year period. Similar to our Q1 and Q2 results, this 17% decline was driven primarily by the completion of the RECIPE clinical trial and the effects of the restructuring implemented mid year last year. While we don't expect significant movement in our R and D expenses for the Q4, we would expect to see a modest increase as run of sites ramp enrollment and as we begin activities covered under our new BARDA contract. 3rd quarter SG and A expenses were $17,800,000 compared to $16,200,000 during the prior year period. We continue to generate increasing levels of leverage from our SG and A expenses.

Speaker 4

We expect that to continue and do not anticipate significant swings in SG and A for the remainder of 2024. Let's now focus on the bottom line and non GAAP adjusted EBITDA results. On the bottom line, reported net loss attributable to Cerus for the 3 months ended September 30, 2024 improved significantly when compared to the same period in the prior year. Net loss attributable to Cerus for Q3 narrowed by 60 percent to $2,900,000 or $0.02 per diluted share compared to $7,300,000 or $0.04 per diluted share for the prior year period. As a measure of the operating leverage we're generating, the net loss for Q3 was less than our non cash stock based compensation mentioned previously, suggesting that the business is making significant strides operationally.

Speaker 4

On a non GAAP adjusted EBITDA basis, Q3 of 2024 generated a positive adjusted EBITDA of $4,400,000 compared to a loss of nearly $1,000,000 for the prior year period. For the 9 months ended September 30, we have now turned the corner and have posted positive adjusted EBITDA of $2,500,000 year to date. We're pleased with the adjusted EBITDA result and are increasingly confident in our ability to deliver a positive adjusted EBITDA for 2024 as a whole. As we look ahead, we expect more of the same with the expected growth contemplated in our revised guidance, a continued focus on generating leverage from our operating expenses and stable gross margins, which are all expected to contribute to the anticipated achievement of our 2024 adjusted EBITDA goal. On the balance sheet and associated cash flows, we ended the 3rd quarter with a cash position of $75,600,000 of cash, cash equivalents and short term investments on the balance sheet.

Speaker 4

Operationally, we continue to deliver positive operating cash flows. For the Q3, we generated positive operating cash flows of $4,100,000 compared to cash used for the operations of $10,500,000 during the Q3 of 2023. Cash flow from operations for the 9 months ended September 30, 2024 totaled $6,400,000 compared to cash used from operations of $28,000,000 in the prior year period. We will continue to focus on our cash flows as we work to improve the health of our balance sheet. Turning now to our guidance.

Speaker 4

As you've heard from both Obi and Vivek, we are increasingly confident in our top line at this point in the year. And so we are raising our full year 2024 product revenue guidance to the range of $177,000,000 to $179,000,000 up from our prior range of $175,000,000 to $178,000,000 In tandem, we are raising the bottom end of our full year 2024 IFC revenue guidance to a new range of $9,000,000 to $10,000,000 from $8,000,000 to $10,000,000 With that, I'd now like to turn the call back over to Obi for some closing remarks.

Speaker 2

Thank you, Kevin. We are very pleased to be continuing to execute on the ambitious goals we've set out at the beginning of the year. With 2 months left in 2024, we feel confident about where we stand relative to these goals and are looking forward to sharing our expectations for 2025 with you in just a couple of months. Most importantly, we know that our growth as a company is a direct reflection of the confidence that our customers have in Syrris and the INTERCEPT technology, enabling patients across the globe to have access to safe blood when they need it most and creating a new standard of care in transfusion medicine. It is an honor to partner with our customers as well as organizations like U.

Speaker 2

S. BARDA as we continue to focus on meeting this need. Thank you for your continued interest in Cerus. I will now turn the call over to the operator for questions.

Operator

Thank you. Our first question comes from Ross Osborne with Cantor Fitzgerald. Your line is open.

Speaker 5

Hi, guys. This is Matthew Park on for Ross. Thanks for taking the questions tonight. I just want to start off talking about the IFC business here. Now that you've added on an additional 3 BLA approvals, do you anticipate needing additional manufacturing capacity to meet this growing demand or do you feel comfortable at current levels?

Speaker 2

Thanks, Matthew. Vivek, do you want to handle this? Sure.

Operator

I'd be

Speaker 3

happy to. Thanks for the question. We continue to work with blood centers to add manufacturers for IFC. And as demand grows, we anticipate we anticipate we'll continue to grow supply as well. The addition of the 3 BLAs in the quarter is certainly significant to ensure that we can continue to meet the demand that we're seeing growing.

Speaker 3

But we anticipate that demand will continue to grow and as such, we'll continue to recruit and partner with more blood centers to produce IFC.

Speaker 5

Great. That makes sense. And then I guess just one more for me. With the LED illuminator, have you guys noticed and are obviously have you gotten positive feedback from AABB? What does the timeline look like for receiving an approval decision here?

Speaker 5

And is there a replacement timeline with the legacy device? Thanks.

Speaker 2

Yes. Thanks, Matthew. So right now we're targeting a launch for the LED illuminator in Europe in 2025. We really see this sort of the foundational new platform for our business and for the use of playouts and plasma in blood centers. Right now, the assumption is that we'll be rolling this out across multiple customers throughout 2025 and 2026 in Europe.

Speaker 2

And then, we're still in the process of putting together a PMA submission in the United States for the LED eliminator, that's likely to take place more in the 2026 timeframe. So overall, we're really excited about getting this product to market. It's been a partnership with a lot of our blood center customers in the development of this program. And it really also is an important element of our innovating on the technology going forward, allowing us to improve the process in the future.

Speaker 5

Got it. That's it for me. Congrats again on the quarter.

Speaker 2

Thanks, Matthew.

Operator

One moment for our next question. Our next question comes from Matt Blattman with Stifel. Your line is open.

Speaker 6

Hi, guys. This is Colin on for Matt. I wanted to start with a couple on IFC and what's driving the recent momentum in guidance range. Is this growth primarily from new customers or going deeper into your existing accounts or both? How should we think about the number of accounts you guys are in today versus the potential opportunity for what's out there?

Speaker 6

Thanks.

Speaker 2

Yes. Thanks for calling for the question. Vivek, would you mind taking this one as well?

Speaker 3

Sure, I'd be happy to. So to answer the question, growth is coming both from depth within existing customers as well as new customer acquisitions. We estimate that roughly 55%, 60% of customers were added this calendar year. So those are new customers, but then those that started last year, many of them started in one clinical area of the hospital and as they generated evidence of the value of IFC that sort of moved out to other clinical departments and then there are certain institutions I referenced Barnes Jewish and St. Louis earlier that are now 100 percent IFC across all of their clinical departments.

Speaker 3

So we're seeing good growth in both areas and for our sales organization and our production partners really the focus is on getting existing customers to 100% and then continuing to fill that funnel with new hospital targets and you also look at Ghana, they are getting onboarded as each month passes. So it's great to see because we think that provides us with significant runway for this therapeutic category.

Speaker 6

Thank you. That's really helpful. And it does look like IFC is going to exit the year at around $3,000,000 to $4,000,000 quarterly run rate. So should we be thinking about IFC in 2025? What are the key growth drivers for next year in particular?

Speaker 6

And is something in the $15,000,000 range a reasonable starting point for the full year number? Thank you.

Speaker 2

Yes. Thanks, Paul. Obviously, we're not going to be providing guidance today on the call for ISC revenue in 2025, but I think Vivek can give you a little bit more color on sort of why we believe there's momentum growing just based upon the demand we're seeing and are now increasing ability to supply that demand.

Speaker 3

Yes. So I think the drivers remain largely the same. We referenced the fact that three BLAs were issued for production partners on last quarter. There's a little bit of ramp up time once they get the BLA to increase their manufacturing base and start to distribute product, but all of that will drive growth. That also gives both the blood centers and our team greater conviction around opening up new accounts, so they know supply will be there.

Speaker 3

So that will continue to drive the therapy adoption and top line growth in the 2025. And then what we're seeing as well, if you think about what hospitals went through with COVID in terms of budget crisis and really having tremendous issues staffing, maintaining staff at hospitals. They were really low to take on new projects. Certain hospitals recovered at a faster rate. What we're seeing now is as more hospitals feel like they're in a stronger financial position and they're fully staffed and they are amenable to starting taking on new projects like ISB and that dovetails with what they're hearing at conferences like the recently attended AABB where they're seeing podium presentations about the technology.

Speaker 3

So all of these things are dovetailing the other to create what we believe are meaningful tailwinds supporting our business.

Speaker 6

I appreciate the additional color. I'll hop back in queue. Thanks.

Speaker 2

Thank you.

Operator

One moment for our next question. Our next question comes from Jacob Johnson with Stephens. Your line is open.

Speaker 7

Hey, thanks. And I'll echo my congrats on the quarter and a preemptive apologies for the another 2025 question. Obi, you've mentioned that you'll address that in a couple of months. And maybe a bit nitpicky, but if I look at kind of the midpoint of the guidance, what it implies for 4Q, it implies kind of a mid single digit growth rate in the 4th quarter. Again, understanding it's too early to guide to 2025, but could you maybe just frame up why or why not that's the best jumping off point for next year and ISV may be the answer, but just any thoughts there?

Speaker 2

Yes. I mean, I think as we were looking at the guidance for this quarter, 2 months left in the year, we just really wanted to provide our best sort of projection for what the growth looked like for the remaining 2 months. But I think Vivek can sort of give you a sort of a perspective on sort of why we did that and sort of the optimism going into 2025?

Speaker 3

Yes, I think you captured most of it. I mean, at this point, with October nearly done and 2 months remaining, we have good insight into what orders are out there, what new accounts will open. Things will flow down a little bit as we head into the holidays. So some of those de novo account openings may move to early 2025. But fundamentally, if you look at inventory levels with our key customers as well as the feedback we're getting from hospitals about their initial experiences with IFC, all of these things right now are trending positive, which is what gives us confidence about how we'll close the year and the fact that we'll have a bit of a tailwind entering into 2025.

Speaker 3

Not to be too demure, but as mentioned earlier, I think we'll reserve a more detailed discussion about 2025 outlook until early next year. But what's encouraging to me is we had committed to returning to growth this year after a challenging 2023. We sort of put the foundational pieces in place with our Q1 and Q2 performance and then we were able to add another solid quarter here in Q3 and we're sort of heads down sprinting to it again in Q4.

Speaker 7

Got it. Thanks for that. And then Obi, just on this next gen illuminator, you mentioned some good feedback from customers and their interest in it. Can you just talk about the value proposition of this next gen illuminator for your customer base as we think about adoption upon potential approval?

Speaker 2

I think fundamentally for our customers what they really depend on is our supply chain continuity and also the performance of our system. Because as you might imagine, since they've adopted our technology at 100% in many markets, if for whatever reason, our supply chain wasn't solid, and that means both on the kit side, but also on the operational side with the device that would shut down their blood supply. Historically, we've had a very reliable system with the current INT-one hundred lumator and then moving into a new platform, if you will, with this LED based illuminator, we had to have something that was equally robust, but also provided them with the assurance that this is something that they can rely on day in, day out. And so as we were developing this with their input, we were really looking at how do we make it easier for them to use as they're processing hundreds of units of playouts and plasma every day. And then sort of just thinking about in the context of decades, how do we have something that they feel is state of the art and is not going to create problems for them in the future with regard to supply chain continuity.

Speaker 2

So the great thing about it is just that the throughput and ease of use feedback that we've gotten now as we've had numerous discussions with the European customers who will be receiving the LED eliminator in 2025. The feedback is uniformly positive and it's easier for them from a staffing and day to day operational perspective. And then I also mentioned this, I do think it's a foundational platform for how we evolve the technology going forward that was built into it, so that we have flexibility on how to improve the system and iterate on sort of the process, if you will, so that we ultimately have something that increases ease of use, but ultimately potentially impacts our COGS profile as well.

Speaker 7

Got it. Super helpful. I'll leave it there. Thanks for taking the questions. Thanks, Jacob.

Operator

One moment for our next question. Our next question comes from Joshua Jennings with TD Cowen. Your line is open.

Speaker 8

Hi, good afternoon. Thanks for the questions and it's great to see the continued momentum. Wanted to follow ups, one on IFC. Sorry if I didn't capture this, but just wanted to get a sense of the rollouts of future BLA approvals. Are there any other blood center partners that are or BLAs are pending?

Speaker 8

Should we expect more BLA approval announcements in the next 6 to 12 months?

Speaker 2

Yes. Thanks, Josh. And again, I'll turn it over to Vivek for some IC.

Speaker 3

So we do have other blood center production partners who are in the process of pulling together BLA applications. Obviously, timing on that can vary, but we do anticipate more BLAs to come through in 2025 and beyond. And so what's most exciting about the recent approvals is we believe that there with these approvals, there is sufficient capacity in terms of production headroom to allow us to continue to be aggressive in terms of driving demand. And that was something that we were always laser focused on because we knew once we got to the fall Congress season with the papers that were being submitted for publication and the podium presentations that were being accepted that there was going to be a flurry of new information release both single center experience as well as broader data sets that supported IFCs. We wanted to make sure that we're in a position that we could offer up the product once the new people would start to say, hey, I want to bring that into my institution.

Speaker 3

So we'll continue to monitor this and work in lockstep to make sure one thing doesn't run too far ahead of the other. But right now, we feel like we're in a pretty solid position.

Speaker 8

Excellent. And just wanted to just get a refresh on ASP for the LED illuminator. And just thinking about once that approval hits and there is this replacement cycle kicking in, will that have an impact on gross margins? I believe this is a gross margin accretive system, but I just wanted to check that box. Thanks for taking the questions.

Speaker 2

Yes. Thanks a lot, Josh. I'll let Kevin.

Speaker 4

Yes. Thanks, Josh. We haven't really commented. I think it's a bit premature since we don't have approval yet for the LADV illuminator. With that said, the technology is newer.

Speaker 4

The COGS will be slightly higher and as a result, we expect the ASPs will be slightly higher. As far as a booster to overall gross margins, I think in and of itself, you shouldn't expect that. We expect that the margins on that product will be neutral to our current margin business. However, it does provide us with a platform for future growth on geographical expansion and in the future potentially product iterations because of that platform. So hopefully that answers your question.

Speaker 8

It does. And just one quick follow-up just on the IP side. This kind of extends some of that IP protection timeline, it's my understanding too, but can

Speaker 4

you just refresh there? Thanks again.

Speaker 2

Yes. Clearly, there's a lot of IP that we've developed for this system over the course of last 5 years and it does extend, I think the mode that we're building for the business. And it's obviously IP that we filed globally as well. So it improves the IP profile for the product, for our global business.

Speaker 4

Great. Thanks, Tobey.

Speaker 2

Yes. Thanks a lot, Josh.

Operator

One moment for our next question. Our next question comes from Mark Massaro with BTIG. Your line is open.

Speaker 9

Hey guys, this is Vivien on for Mark. Thanks for taking the questions. So just on the government contract revenue, I heard your remarks on why Q3 was a little bit light. How should we just think about the run rate or a good baseline here? And I just wanted to clarify, the newer BARDA contract should flow into our models more so looking to 2025?

Speaker 9

Thanks.

Speaker 2

Yes. Thanks a lot, Bijan. And Kevin, do you want to handle that?

Speaker 4

Sure. Yes, Bijan. So let's take the 2016 contract in isolation. We had year over year lighter revenues because of the study completion. As the new sites with Redis begin, well, they have begun, but as they ramp up production, we expect that the revenues and the expenses associated will ramp up over the course of the next 12 to 15 months.

Speaker 4

At that same time, less so in Q4, but really in 2025 activities under the new 2024 BARDA contract will begin in earnest. There's $32,000,000 committed over several years. And while we're not giving guidance on that, the activity certainly will start in 2025 and will ramp up. At the same time, the RES trial will complete, the 2016 contract will conclude and then we'll be at a more plateaued level with ongoing initiatives under the new agreement.

Speaker 9

Perfect. Understood. And then just one on the bottom line. I think adjusted EBITDA beat us and you felt a nice leverage there. It looks like you did maintain the full year guidance on that front, which seems a little bit conservative maybe.

Speaker 9

Is there any reason for that trend to change looking at Q4 or just, I guess what's driving the conservatism there? Thanks.

Speaker 4

Yes, Vivien. Well, our guidance was neutrality. We're tracking to slightly better than that as you pointed out. No real reason for the conservatism other than there's a lot of moving parts and we don't want to get out ahead of ourselves. What we do expect is that with the increased revenue guidance, we would expect obviously growth there, sustaining our gross margins and continued leverage in operating expenses.

Speaker 4

There is variability in operating expenses and margins as you know though. So we really want to hedge that as much as possible, but we are trending in the right direction and are optimistic about the future.

Speaker 9

Perfect. Thanks for taking the questions.

Speaker 2

Thank you.

Operator

One moment for our next question. Our next question comes from Bill Bogleman with Craig Hallum. Your line is open.

Speaker 10

Hey, guys. A little bit of a similar question to what you just got, but not in the context of guidance. Just Kevin, can you help us think about sort of the sustainability of the cash flow from this point forward? Obviously, there'll be quarterly variability given working capital and whatnot. But are we sort of tracking to a $16,000,000 cash flow run rate?

Speaker 10

What are sort of the puts and takes as we move forward here?

Speaker 4

Yes. Thanks, Bill. I'm going to ask you to go back to our Q4Q1 calls, where we thought we would end this year was having the opportunity to generate operating cash flows and that was a function of growth in the top line management of our margins and OpEx, getting continued leverage out of the investments that we've made. That's all happening. In addition, we felt like we had built so much inventory over the course of 2023 that we'd be in a position where we could convert some of those components of raw materials into finished kits without having to replenish that.

Speaker 4

And that would help the cash flows that certainly has played out as you look at our balance sheet. We also said at that time in 2025, we'll have to rebuild the working capital in the inventory to meet growing demand. But we also expect that the business will be at a run rate where those investments in working capital will be offset with just natural operating bottom line. So I don't want to comment on what you should expect as far as cash flow generation long term, just the qualitative levers that we're looking at and that we're pulling to make sure that we're managing things appropriately and that our balance sheet remains healthy.

Speaker 10

And do we think of in terms of product development of tech, do we think of that as almost being to what degree is that fully funded because of your BARDA relationship and to what degree do you bear the burden of additional R and D expenses?

Speaker 4

Well, it's certainly a significant, but almost a majority of our R and D expenses are funded by BARDA. That's especially true today with multiple BARDA agreements. We also have the whole blood initiative with the FDA and the lyophilized IFC. So that is a major component of our overall R and D expense. The remaining items are initiatives that are foundational to our future growth and revenue trajectory like the LED illuminator.

Speaker 4

I expect that that mix will continue as we move forward. We don't think there's going to be drastic swings in R and D expense as we move into 2025, but we're not done planning and we're not providing guidance today.

Speaker 10

Okay. And then just other and again, not guidance, but other uses of cash that we should be thinking about going forward in terms of capital expense or

Speaker 3

etcetera?

Speaker 4

Well, clearly the working capital items that we commented on, we maintain the revolving line of credit for that exact reason. It's down year over year as we ended ninethirtytwenty 24. We'll continue to look at the opportunities to leverage that and offset any balance sheet cash that we would have to fund for that. And then beyond, probably CapEx, on COGS reduction initiatives and capacity expansion initiatives. Lastly, I'd say geographic expansion to the extent that we have the opportunity to expand geographically placed devices.

Speaker 4

Those are all high return investments that we think would be beneficial to shareholders.

Speaker 7

Okay. Thanks a lot.

Speaker 2

Thanks a lot, Bill.

Operator

And I'm not showing any further questions at this time. I'd like to turn the call back over to Obi for any closing remarks.

Speaker 2

Well, thank you all again for joining us today and for your interest in Cerus. Later this year, we'll be participating in investor conferences hosted by Stifel, Stephens and Craig Hallum, after which we look forward to speaking with you again in the New Year. Thanks again.

Operator

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

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