Q2 2020 Cerus Corp Earnings Call
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Ladies and gentlemen, thank you for standing by and welcome to the Cirrus Corp. Q2, 2020 earnings Conference call.
At this time, all participants are in listen only mode.
Later, we will conduct a question and answer session and instructions will be given at that time.
Anyone should require operator assistance. Please press star then if you're on your Touchtone telephone.
I'd now like turn the conference over to.
Tinley Investor Relations Director. Please go ahead.
Thank you operator good afternoon.
I like to thank everyone for joining us today.
As part of today's webcast, where simultaneously displaying slides that you can follow <unk>.
You can access the slides from Investor Relations website at Www dot serious dot com slash IR.
With me on the call or Ob agreement, Sears is president and Chief Executive Officer.
Needless deep seriously Vice President development, and Red blood cell program meter.
Kevin Green, Sears, a chief financial Officer.
The big Tier Raman Sears is chief operating officer.
Dr launch Gresh, she was chief scientific officer.
Carol Moore, our senior Vice President of regulatory Affairs equality.
We issued a press release today announcing our financial results for the second quarter ended June Thirtyth 2020, and also describing the company's recent business highlights.
You can access a copy of this announcement on the company website at Www dot serious dot com.
I like to remind you that some this demons will make on this call relate to future events or performance rather than historical facts and our forward looking statements.
Examples of forward looking statements include those related to our future financial and operating results.
And our 2020 financial guidance and goals operating expenses gross margins.
Commercial development efforts future growth in growth strategy future product sales.
Launches.
The impact of current and future products on Blood Center operations ongoing he picked your clinical trials.
Glenn feature product development, and other 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 could differ materially.
Sure identified and described in today's press release and under risk factors in our form 10-K for the year ended December 31st 2019, and our form 10-Q, where the quarter ended June 30, 2020 for which we will file shortly.
We undertake no duty or obligation to update our forward looking statements.
Your as President and Chief Executive Officer.
Thank you Tim and good afternoon.
I'm pleased to report our highest quarterly product revenue performance to date.
At $21.5 million, despite the Q2 challenges posed by the Coven 19 pandemic.
These results are evidence of the resilience of our business. During this time and the essential and growing role that pathogen inactivation plays and helping secure the supply chains for blood safety and availability.
Dedicated team at Sears has also shown a great ability to adapt.
I am grateful for their fore sight in the crisis management planning that has allowed us to support our blood center customers throughout this period, but also to help them initiate multiple cobot 19 convalescent plasma programs at the same time.
The record product revenues in the quarter were driven by robust year over year platelet kits sales growth in the U.S., coupled with strong plasma and illuminator sales increases in our EMEA region.
In the U.S. with the March 30, Onest 2021 deadline for compliance with FDA guidance on safety now less than eight months away.
The U.S. commercial organization continues to focus its efforts on helping our blood center customers and their hospital clients to meet the deadline.
The American Red Cross the largest blood provider in the US continues to lead the transfusion medicine field forward with approximately 25% of their play that's now been intercept treated.
20 of the 23 Red Cross production sites are producing intercept platelets.
Finalizing their strategies for bacterial safety guidance compliance remains a priority for us blood centers. Despite the recent challenges of the cobot pandemic.
Just recently the Red Cross officially notified all of its hospital customers of its goal to convert to 100% pathogen reduced platelets.
In preparation the American Red Cross is directing all customers to begin updating their IP systems now to accommodate intercept treated pilots with this step alongside offering an interim bacterial testing option. The red Cross is positioned to provide platelets compliant with the FDA guidance requirements to all customers by the deadline.
Of March 2021.
The four other large blood center customers in the U.S. that in combination with the Red Cross collectively represent 70% to 75% of the overall U.S. blood supply are all currently producing intercept platelets and have acknowledged that intercept is the preferred method to comply with the FDA guidance document.
As a reminder, the overall market opportunity in the us for intercept platelets is approximately a $150 million per year. Our goal is that intercept becomes a standard of care for platelets in the U.S. and we aim to capture as much of this opportunity as possible during the next few years.
One of the key factors that could drive even faster intercept uptake the extension of the shelf life for intercept platelets from five days to seven days.
This label claim already exists and other countries, including in France in Switzerland, where the operational benefits and ease of use have been solidly documented and intercept is used for 100% of the plan supply.
We continue to make progress on the recovery and survival study necessary for our planned FDA submission for a day seven shelf life on intercept platelets.
The submission is targeted by the end of this year early next and we anticipate possible FDA approval for this seven day claim in mid 2021.
In the context of the FDA guidance for platelets safety potential for a day seven claim combined with the pandemic preparedness facilitated by pathogen reduction strongly favors the choice of intercept for both blood centers and hospitals.
The security afforded by treating playing the units versus just testing them is a simple concept that resonates well during the covered crisis.
The need for current a virus convalescent plasma and the desire to pathogen and activate it helped drive plasma kit sales and new customer illuminator placements in EMEA, which helped fuel a solid Q2 performance in the region.
We think the illuminator placements in the quarter bode well for additional kit sales downstream.
While uncertainty about the covert 19 impact on the global healthcare systems and economy persist in the second half for 2020, we're confident in our ability to deliver on our guidance of $89 million to $93 million and product revenue this year.
Looking beyond EMEA, we're excited about our recently announced five year contract with the Hong Kong, Greg Cross for intercept platelets.
The Hong Kong Red Cross as a member of the influential Asia Pacific Blood network, and the key opinion leader globally.
This is a very strategic account and represents an important beachhead for serious to expand its presence in Asia Pacific in the coming quarters. We look forward to sharing with you are expanding initiatives in APAC.
In parallel with our commercial activities, our product pipeline continues to advance and positions us well to sustain our revenue growth going forward.
As previously announced the PMA supplement application for our pathogen reduced craft precipitated by Brinderson complex was submitted to the FDA at the end of May.
Given the 180 day review clock on PMA supplements, we believe pathogen reduced crap precipitated by Brinderson complex or pathogen reduced cryo could receive FDA approval as early as the end of this calendar year.
With the potential approval now less than five months away, we've expanded our pre launch preparation, including incremental hires to the therapeutics team that will lead our commercialization efforts.
We continue to be excited about the launch because of the potential clinical benefit for bleeding patients.
And the size of the overall market opportunity in the us.
We're also on track to submit for a new technology add on payment or end tap with CMS in October to further support the economic utility of our pathogen reduced crowd product at the hospital.
If possible receipt of the Untap in 2021 could expand access a pathogen reduced cryo to bleeding patients subsequent to the launch and thereby accelerate overall product adoption.
Let me now turned over to Dr. Neenah musty to provide a clinical and regulatory update on our red blood cell program.
Which remains our single largest opportunity given the volume of red cells transfused globally.
Red cells are the most frequently transfused blood component and we are the only company in the world developing it pathogen inactivation system for red cells and correspondingly the only company with a full pathogen inactivation portfolio.
Your Mufti has been with Sears for 13 years and has been our vice president of development since 2012.
During her tenure she oversaw the program development for the PMA submission and subsequent FDA approvals for both intercept platelets and plasma.
With increasing importance of the red cell launch, we appointed needed to lead the intercept red cell team with two main goals progressed, the CE Mark approval and product launch in advance to a PMA submission for the red cell product in the U.S.
Thank you only.
Im pleased to provide an update on our red blood cell program.
Many of you are aware that development halftime further program or not and E. R. Straight forward that we've made solid progress on the development pathway to bring the product tomorrow.
Recent assortment symptom that combined work on various chemistry manufacturing and control activity.
Putting the qualification of nuclear island suppliers.
Though some clarity around the clinical approval pathway.
Recent discussions with European and U.S. regulatory agencies have provided clarity on pathways to registration.
Let's start with here, where our CE Mark application will be repeated under the new medical device regulation or MDR pathway.
We are transitioning our submission made under the medical device tourettes in our MDD TV MDR here.
Although there has been a recent one year extension for submission under the MDR nothing to May 2021, due to Kevin 19 deterioration of RFP process under the MDP would exceed from May 2021 date.
As there was felt we submitted our MDR pre application to TV, our notified body engine tiny tiny.
During the agreement on a modular submission process from four separate much though.
We plan to submit modulus munden two of our CE Mark application under the MDR pathway.
Q3 20 timing.
The first two months will consist of the clinical and Nonclinical safety data as well as the data are in vitro RPC quality and pathogen inactivation.
Module, three which includes the chemistry manufacturing control data for the active stuff, Jim I'm, not telling him and the quench Sir you from activation process gratifying is targeted for submission in Q2 2021.
This module or include the qualification data from our Nick or compliance plan.
In addition to TV module free will also need to be reviewed by the Irish Kotick regulatory authority, our age you're right. Our constant 30 for this submission.
H.P. arrays review process is a minimum of 210 days and will define the timeline for approval.
Fourth and final about yellow, which contains information on the manufacturing at that processing and ultra step and final packaging is planned for submission at the end of Q2 2021.
Based on the anticipated review timeline type of TV and HP area, we expect the mark approval for intercept red blood cells in 2022.
Switching to our U.S. Red blood cell program, we recently met with the FDA to discuss the chronic transfusion study requirement Springs M- submission.
Jerry not discussion we proposed expanding our current rental study to include patients to receive multiple RBC transportation to support a chronic anemia indication or the product rather than conducting additional standalone phase three study that's previously planned.
The agency agreed to this approach, thereby shortening the timeline to obtain data in patients that received multiple RPC transfusions.
As a result, we submitted our revised protocol for the greatest study to the FDA and are in discussions with BARDA to fund this protocol expansion.
Despite the impact of Kevin 19 on the Red cell U.S. clinical trial program, we are working with our clinical trial sites to reestablish enrollment plans through the remainder of Twentytwenty and into 2021.
We will share updates on the overall Pmeight mission schedule later this year.
In summary, with a clear CE, Mark Redknapp and alignment with the FDA on the clinical trial requirements are chronically transfused patients require threepl may submission our efforts to commercialize the intercept red blood cell system in the European and U.S. markets remain on track.
With a renewed focus on pandemic preparedness by government officials, we look forward to offering a full intercept port folio to our blood center customers.
Let me now turn it over to Kevin for an update on the second quarter financial.
Thank you Neenah and good afternoon, everyone.
As there'll be mentioned earlier, we posted record product revenue during the second quarter totaling $21.5 million.
This represents an 18% increase compared to the $18.2 million reported during Q2 2000 and drink.
Foreign currency exchange rates negatively impacted reported Q2 sales by approximately 1%.
On a year to date basis reported product revenue totaled $40.1 million.
Up 12% compared to the $35.7 million reported during the first half of 2000 drinking.
Foreign currency exchange rate negatively impacted reported year to date sales by approximately 1.5%.
While others continue to grapple with a dynamic impact of the cobot 19 pandemic be intercept business has remained resilient.
We certainly saw some unusual inventory management and demand from blood centers during Q2.
With certain customers choosing to bring down their existing quit with inventory while accelerating their use of plasma side.
In part for starters koby to convalescent plasma.
As such the total number of kit sales was up on a global basis.
While the calculated number of treatable platelet goes is shipped was essentially flat during the quarter.
Looking ahead, we expect that the quite rip business will be the primary growth driver for the balance of the year.
Although we may see continued interest on our plasma kits compared to our previous expectations.
For the year recalculated number of treatable platelet doses and the number of kits sold have increased 6%.
To illustrate the Q2 dynamic query care accounted for approximately 82% of total kit sales, while plasma sales accounted for approximately 18%.
In recent quarters, the mix was closer to 90 Pam.
Government contract revenue in support of our BARDA collaboration is reported separately from our product revenue and totaled $5.3 million during the second quarter.
Compared to $4.3 million during the prior year period.
On a year to date basis government contract revenue was $11.4 million compared to $8.7 million during the 2019 period.
Now, let's move to our reported gross margins.
Gross margins on product sales for the quarter were consistent for both Q2 2020 in 2019 at 55%.
On a year to date basis gross margins were 55% compared to 54% during the first half of 2019.
We saw offsetting factors in our gross margin composite during both Q2 and for the year to date basis.
With volumes and foreign exchange rate, providing an improvement.
Offset by product mix.
Namely increase plasma in illuminator sales.
Turning now to operating expenses.
Operating expenses totaled $31.7 million for the quarter compared to $31.2 million for Q2 of 2019.
On a year to date basis operating expenses totaled $63.5 million compared to $60.8 million for the first half of 2019.
Specifically.
Streaming expenses during the quarter accounted for $16.1 million compared to $16.7 million for Q2 of 2019.
A key driver of which was a slowdown in travel and conference attendance. During Q2 as a result of the shelter in place experienced during the quarter.
We're also seeing continued leverage with our commercial teams.
Driving revenue growth without incurrence of additional costs.
Similarly on a year to date basis, assuming the spending totaled $32 million.
Compared to $32.9 million during the first half 2019.
Research and development expenses for the quarter totaled $15.6 million.
Compared to $14.4 million during the prior year.
The higher R&D expenses were driven by increased activity for the U.S. Red blood cell program supported by BARDA.
Work on our triple set configuration and extended shelf life for our U.S. platelet product as well as development efforts on a next generation eliminate.
Year to date, R&D expenses totaled $31.4 million compared to $27.9 million for the prior year period.
Net loss for the second quarter totaled $14.9 billion or nine cents per diluted share compared to a net loss of $17.6 million or 13 cents per diluted share for the prior year period.
Year to date net loss was $31.3 million or 19 cents per diluted share compared to a net loss of $36.4 million were 26 cents per diluted share during the first half of 2019.
In terms of our balance sheet, we ended the second quarter with approximately $136.5 million or cash cash equivalents in short term investment going in.
Given our current expectations and guidance.
We continue to believe 2020 cash used from operations will be in the $50 million to $60 million range with $27.6 million already recorded during the first half a year.
With that let me turn the call back over to Ob.
Thank you Kevin as you can tell from our comments today, our topline pipeline and the bottom line results are progressing in the right direction. Despite the ongoing endemic.
We are increasingly excited with how we are positioned for continued revenue growth as a function of the required compliance with the FDA guidance on platelet safety.
From a global perspective, the inherent value a proactive approach to blood safety.
Over the historically reactive testing strategy has taken on new significance with our customers.
The challenges of rapidly developing assays for Sars koby too that are sufficiently sensitive and specific has illustrated the fundamental weakness of the current blood testing paradigm to secure blood safety against emerging infectious disease threats.
It is the same testing paradigm that requires three different assays to ensure blood safety against just hepatitis B alone.
Just another two different assays each that are required for both HIV and hepatitis C.
And even with this strategy of multiple redundant tests there remains a concern about window period transfusion transmitted infections when blood donors are still infectious, but the test cannot detect the viral pathogen in their blood.
In July publication in the American Society of Hematologist Journal Blood raises some new concerns about the sensitivity of current blood screening assays for HIV.
During the era of rapidly growing use of HIV pre exposure profile access or prep and anti retroviral therapies.
The possibility that these blood donors are not identified by current tests per event HIV contaminated blood products from entering the blood supply.
Highlights the critical role that intercept can an already does play and creating a proactive blood safety paradigm.
Well that is protecting against emerging infectious disease threats like chicken Gonya, Zika and now source koby too.
Our addressing the gaps in the current testing and donor deferral paradigm intercept provides a global solution for a global unmet need.
During the coming months with this pandemic a period to increase in the U.S. and globally serious will continue to focus on ensuring that we are able to support the current and future growth of our business. While at the same time readying ourselves for two key product launches.
Operator, please open the call for questions.
Thank you.
Ladies and gentlemen, if you would like to ask a question at this time. Please press Star then one and you touched on telephone to withdraw your question. Please press the pound key again to ask a question at this time, Please press star one.
And our first question comes from Matthew Bachmann from Stifel. Your line is now open.
Hi, good afternoon, everyone. Thanks for taking the questions maybe it will be to start appreciate the color on and U.S. adoption at at the Red Cross now it I think he said, 25% intercept platelet next can you just remind us where are the red cross was saying that the end of 2019, just to get a sense of the ramp and any.
Color on where are the other big for blood banks are today.
Yes, I think it makes joined us on the call today, so given his area of responsibilities, but commercial operations in the U.S. I'll, let him answer that question.
Sure happy to Hey, Matt Thanks for the question.
As well on your end, we did a RSP has been climbing pretty steadily really didn't even before the guidance was finalized if you recall they made the decision to go to 100% PR independent of guidance. The there on ahead relative to the other for a but we'd like it fine.
As an easier comp it.
Our blood center families in the US account for about 70% nationwide distribution that we're in a position where we've made good progress with all all of them, which is encouraging I think the thing that we're most excited about is the fact that they're seeing now 20 sites manufacturing intercept platelet, though we saw pretty significant ramp up in Q1 with yours.
Thanks to their actual platelet penetration meant to gain more encouragingly, we saw pretty big step up in terms of their production.
Volumes in percentages that will bode well for future quarters.
Alright, great appreciate that it got a couple of follow ups just curious on the seven day at U.S. label I assume that's just literally a label change rather than customers needing to do something differently from a process standpoint. It is is that first I'll go to a fair characterization.
And so the follow up to that is is it also fair to say that beyond also improving productivity and efficiency in the.
Relative value versus the other one step options that this would also help.
Augment Ah so the argument for a premium price as a premium price you guys are asking for on intercept and I've got one more question after that.
Yeah, So you're right Matt this would be a label change. So we believe will be 180 day review after we get the submission and so.
There's a lot of data that will go along with that submission both from the recovering survival study that I mentioned, but also the data from Europe.
What we've seen in Europe is the earlier lease that's available with interceptor early release of the play that component.
Allows for an effective shelf life. That's you know six or close to seven days at times and that really does increase the overall operational efficiency of blood centers now allows them to collect the blood.
During the week as opposed to on weekends, and it really bridges sort of supply gaps that you would otherwise see when so at least from our perspective. It does provide a a value added benefit.
The ultimate should be reflected in pricing, we already see that with fashion pathogen reduced platelets in the United States.
Yes, I think that addresses your question.
Yep and then the last question, Kevin as you said impressive SNA leverage in the quarter sorry, if I missed this but is this sort of roughly $16 million per quarter runway at run rate that the way, we should be thinking about the back half of the year on the S. DNA line specifically.
Yeah I think.
Matt I do think it'll pick up slightly.
But we're certainly seeing continued slow down in travel and conference attendance and the most of those are marketing related.
We are also is have you mentioned in his prepared remarks, starting to step up for the cryo launch.
So I think it'll be a slight step up but it's not going to be it a accelerated levels.
All right I'll hop back in queue. Thanks, so much guys congratulations on another good quarter.
Thank you.
Thank you narrow minded ladies and gentlemen to ask a question at this time you May Press Star then one on your touched on telephone.
And our next question comes from Josh Jennings from Cowen. Your line is now open.
Hi, This is there a call for Josh Thanks for taking the question and congrats on another strong quarter.
I was hoping to discuss your recent announcement out of Hong Kong with the tender offer there what's sort of opportunity do you guys see out of that market, but more broadly how do you see the opportunity in Asia Pac evolving now the Airsep has initial presence in that region.
Thanks, Eric Yeah, again ill, let the Vic handle that this is an effort that we had underway for long time in Hong Kong and we conducted the important clinical studies there over the last several years that ultimately led to the outcome, but are they can provide more.
Perspective on through the the tender, but also the larger strategy in it.
Yeah. Thanks, Ben I think the way the question was that actually frame I want to think about it perfectly you know the overall size that mark up where you that units and the tenders over the course of five years from initial thoughts about 20%, but more importantly, if you think about the influence of the Hong Kong Red Cross than.
There.
Involvement with the Asia Pacific Blood network, there, an incredibly influential customer and so as we think about whether it's further progress into mainland China or their key geographies in Asia Pacific region. This is.
With that and data very critical on strategically important beachhead.
There's a lot of untapped opportunity trials in that part of the world and so adding sort of a premium anchor tenant is a key step forward in terms of executing against our strategy.
Great. Thank you and then separately the FDA guidance window platelets safety as you highlighted.
That's only eight months away now so with that deadline approaching has the pace of intercept adoption changed in the past few weeks or should we continue to expect incremental adoption through that March 2021 timeline.
Yes, again, I'll turn that over they are just to cover sort of.
The growth in the U.S. through the remainder of the year into their compliance period.
Yes, certainly you know as as I think Kevin indicated previously and that would be certainly touch on this as well as we think out in the future period, the U.S. and particularly the U.S. platelet business is going to be probably the single most significant driver of growth and what we've been experiencing.
Year to date I think supports.
That contention there had been adds that we didn't come into the year anticipating that pandemic and as you know the hospitals here in the you ought to pad to focus on.
So the tree Asian, and really lot of elective procedures and so forth were cancelled so that you could marshall resources to address because that surge that well through the country and so that.
Invariably had an impact on platelet utilization at guidance compliant, having said that I think everyone sort of waking. After the fact that that deadline is there theres been a methodical move in terms platelet adoption independent of.
The co that pandemic, but I think you're going to see continued push for it I think the guideline compliance period coming to an end here certainly theres a bit of the wakeup call, but there are still going to be the immediate pressures relative to cover that are going to distract hospitals, but anything that you'll see really.
Solid and compelling growth out of our U.S. platelet business.
Understood. Thank you guys for the questions.
Thanks, Eric.
Thank you.
A reminder, ladies and gentlemen, if he would like to ask a question. At this time you May Press Star and then the number one and you touched on telephone.
And I'm showing no further questions at this time I'd like to turn the conference back over to I'll be greenman for any closing remarks.
Well. Thank you all again for joining US today, we will be participating in Mccann or virtual health care Conference next month and look forward to seeing a virtually many of you then thanks again for joining us today.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may now disconnect.
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