Q1 2022 Cerus Corp Earnings Call
[music].
Good day, ladies and gentlemen.
Are you for standing by and welcome to dismiss Corporation first quarter 2022 earnings conference call.
At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session. Please be advised that today's conference is being recorded.
I'd now like to hand, the conference over to your speaker host today, Mr. Matt Notarianni Senior director of Investor Relations. Mr. <unk> you may begin.
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.
You can access the slides from the Investor Relations website at IR Dot Cirrus Dot com.
With me on the call are Obi Greenman, Cerus, President and Chief Executive Officer, Kevin Green <unk>, Chief Financial Officer.
Jairam and Sirius as Chief operating officer.
Carol Moore, Sirius as senior Vice President of regulatory affairs, and quality and Jessica Hanover seriousness, Vice President of corporate Affairs.
Cirrus issued a press release today announcing our financial results for the first quarter ended March 31, 2022, and describing the company's recent business highlights.
You can access a copy of this announcement on the company website at Www Dot Sirius Dot 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 <unk>.
Examples of forward looking statements include those related to our future financial and operating results, including our 2022 product revenue guidance and goals operating expenses anticipated cash used from operation gross profits and gross margins as well as commercial development efforts.
<unk> future growth and growth strategy future product sales product launches ongoing and future clinical trials ongoing and future product development and our regulatory initiatives, including the timing of these events and activities.
These forward looking statements involve risks and uncertainty that could cause actual events performance and results to differ materially.
Identified and described in today's press release and under risk factors in our Form 10-K for the year ended December 31, 2021, and our Form 10-Q for the quarter ended March 31, 2022, which we will file shortly.
We undertake no duty or obligation to update our forward looking statements.
On today's call will begin with some opening remarks from Obi followed by the bank to discuss some recent business highlights and Kevin to review our financial results.
I'll conclude with commentary from Obi with an update on our pipeline and closing remarks.
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.
For a reconciliation of non-GAAP financial measures to comparable GAAP financial measures. Please refer to today's press release.
And now it's my pleasure to introduce Obi Greenman, <unk>, President and Chief Executive Officer.
Thank you, Matt and good afternoon, everyone.
Our first quarter of 2020 'twenty to continue the momentum we have seen over the past few years as intercept adoption, particularly in the U S is ramping.
Our work is focused on establishing a new safety standard in transfusion medicine, So blood centers and transfusion services can protect patients and ensure availability of blood components.
In the context of the current pandemic and the prospect for future risk to the blood supply.
The Cirrus mission is as relevant as it has ever been over the company's history.
I am pleased that growing our top line means expanding access to intercept treated platelets and plasma for patients around the world.
After I discuss our quarterly results Vivek will spend some time today discussing recent significant announcements associated with long term contract extensions with both the American Red Cross and Fresenius Kabi.
But first let's review the first quarter revenue highlights.
Product revenues for the first quarter of 2022 are the highest for any first quarter in our history as we report year over year growth in all major geographic regions to start 2020 to 22.
With our 20th consecutive quarter of year over year revenue growth, we are demonstrating an enduring ability to expand access to intercept treated blood components, even in the face of geopolitical and economic uncertainty.
Our results were once again led by strong growth for platelets in the U S, which was up over 130% on a year over year basis.
It centers and hospitals are choosing the intercept blood system for platelets as a means to comply with the FDA bacterial safety guidance because it provides proactive broad spectrum protection against pathogens.
And just bacteria.
While also offsetting costs and generating operational benefits.
As we look to diversify the ongoing growth of the intercept platelet business in the U S and globally.
We are making solid progress with our nationwide launch of intercept fibrinogen complex, our IFC across the U S.
We have a robust funnel of accounts, we look forward to bringing online through 2022 and into 2023.
And we are just beginning to realize the leverage of our combined direct to hospital and blood center sales channels.
As we know well from our prior product launches, bringing a new product into a hospital transfusion services and changing clinical practice is a significant undertaking.
But we are benefiting from the strong clinical interest around the opportunity to improve the patient treatment paradigm through the early administration of if I bridge and enriched product without delay.
While also reducing frequent conventional blood product wastage.
Hospitals that have adopted IFC are quickly seen numerous benefits compared to conventional cryoprecipitate.
Perhaps the most compelling example is at the University of Florida, Shands Hospital, where IFC has now been included in the first round of the institutions massive transfusion protocol and wastage rates had been reduced from over 20% to less than <unk>, 5%.
With an estimated demand for fibrinogen expected to grow in the mid teens over the next five years.
We are excited to be rolling out IFC across the country at a time when the awareness around early fiber engine delivery is growing both as a function of improved coagulation monitoring and lower transfusion thresholds.
I would now like to hand, the call over to Vivek to provide some updates about two of our partners the American Red Cross and Fresenius Kabi.
Thank you Obi and good afternoon.
It is great to be able to share. These results with you. All today. In addition to the strong start to the year I wanted to spend a few moments talking about a couple of recent developments that position us well for the long term both commercially and operationally.
First last week, we made an exciting announcement regarding our relationship with the American Red Cross.
We are honored to have announced a five year contract extension for intercept platelets with the American Red Cross as you know the Red Cross is responsible for supplying you ought to about 40% of its blood products.
Their leadership in the areas of transfusion medicine like blood safety serves as a model for other blood centers and national transfusion services globally.
Because of <unk> constant focus on patient safety and timely compliance with the FDA guidance on platelet bacterial risk mitigation.
Red Cross has become the largest producer of intercept components and is now our largest customer.
The intercept blood system for platelets and routine use that each have the right profit 22, platelet production sites across the U S.
This contract extension will help them realize their stated goal to transition toward a full pathogen reduced platelet supply and represents yet another validation of the intercept blood system and its ability to improve platelet availability, while avoiding operational benefits when standardizing with an intercept treated platelet inventory.
Moving on to another recent announcement, we have also signed a 10 year contract extension with <unk> for the production of intercept.
We're very excited about this agreement as well.
Raul team at Fresenius Kabi than a key partner for more than 20 years and with this new agreement, we are able to ensure that additional capacity as well as redundancy in our manufacturing facilities are in place for the next day.
And then anticipation that ever increasing production volume disagreement will allow us to realize additional economies of scale and also improve the cost profile for the intercept portfolio.
On a related note our manufacturing capacity efforts that we highlighted on our last quarterly call continued attractive plant.
Look forward to completing the rest of this work, including obtaining the necessary regulatory approvals, which will help bring this capacity online.
I'll now turn it over to Kevin discuss our results in more detail.
Thanks, Vivek and good afternoon, everyone.
I'm pleased to provide the following update to you all today recapping, our first quarter and also spending some time discussing our non-GAAP adjusted EBITDA measure, which we are reporting alongside our GAAP results today.
Our first quarter of 2022 product revenue of $37 $4 million reflects year over year growth of 60%.
And importantly, all of our major regions.
North America EMEA.
EMEA and rest of world posted positive growth during the quarter.
As anticipated the growth in sales we saw in North America continues to lead the way up 130% versus the prior year period.
As a bit of context, our first quarter revenue in North America of $22 2 million nearly as large as our total global product revenue wise during the first quarter of 2021.
Within North America.
Our sales to the top five U S blood centers and the sales to the group of blood centers outside of the top five.
<unk> grew by more than a 100% year over year.
Turning to EMEA.
<unk> returned to strong growth in the first quarter of 2022 up 11% year over year.
And up 19%, excluding the negative impact of foreign currency.
Growth in the region was broad based during the quarter. Despite the turmoil that has been capturing headlines in eastern Europe in particular.
Moving on to our calculated platelet dose metrics, our first quarter growth in the calculated number of treatable platelet doses reflects a 141% year over year increase in the U S and a 28% increase internationally.
In terms of product mix for the quarter.
Sales of intercept disposable kits represented nearly 98% of our Q1 product revenue.
In addition to our product revenue and not included in our guidance.
Government contract revenue totaled $5 $6 million in Q1 versus $6 2 million for the prior year period.
Turning now to our gross profit and gross margins.
Our first quarter gross profit was $19 4 million compared to $12 $3 billion during the prior year period.
An increase of 58% year over year.
The increase in gross profit was primarily driven by the higher product sales.
Product gross margins for the quarter were 51, 7%, which increased 60 basis points when compared to our Q4 2021 product gross margin.
As we noted throughout 2021.
Our product gross margins were negatively impacted by higher sales volume of single dose kits to U S customers.
It had leveled out over the course of the year from a sequential basis.
We expect to return to gross margin expansion on a full year basis. In 2022 is ongoing headwinds associated with elevated freight costs are expected to be offset.
By a more favorable product mix.
What was the beneficial Cogs impact, resulting from the recent decline in the euro.
Moving on.
Our first quarter operating expenses, which totaled $34 $8 billion were fairly flat versus the prior year period.
And included $6 4 million.
Noncash stock based compensation.
As you've heard me say over the years, we believe our business is structured to be able to generate significant operating leverage and I'm pleased that once again, we are demonstrating our financial discipline in real time.
But specific expense type first quarter research and development expense totaled $14 1 million compared.
Compared to $15 7 million during the prior year.
As we've seen projects reached completion and the associated spend roll off we continue to invest in new R&D projects in support of our pipeline.
Including the new OLED based illuminator.
First quarter SG&A expense was $27 million.
Up 8% versus the prior year period.
With our existing commercial infrastructure, we have strong conviction that we will continue to see operating leverage as our product sales growth.
On the bottom line reported net loss attributable to <unk> for the three months ended March 31, 2022 decreased when compared to the same period in 2021.
Net loss attributable to <unk> for Q1 totaled $12 3 million or <unk> <unk> per diluted share.
Compared to $17 5 million or.
Or <unk> 10 per diluted share for the prior year period.
I would now like to take a few moments to discuss our non-GAAP adjusted EBITDA measure, which we have broken out for you for the first time this quarter.
Youll recall this measure is intended to provide you with a view on how efficiently our commercial business is tracking to cash flow breakeven.
Which has been and continues to be a critical focus of the entire organization.
As you can see on the current slide we are prepared to calculation of this measure for the last five quarters.
For the first quarter of 2022, our non-GAAP adjusted EBITDA was a negative $3 7 million.
Compared to a negative $11 5 million during the first quarter of 2021.
To help everyone with historical bodily we've provided the remaining quarterly reconciliations for 2021 and plan to continue to report this metric in future quarters as well.
Over the last five quarters, we have seen a continued sequential improvement in our non-GAAP adjusted EBITDA.
Turning to the balance sheet and cash flows.
First quarter of each year is typically our largest cash burn quarter due to a variety of seasonal items, such as payment of certain accrued liabilities.
With that said, we ended the first quarter and a strong cash position.
With $108 $6 billion of cash and cash equivalents on the balance sheet.
In terms of cash flows cash used from operations was $21 $5 billion for the first quarter compared to $17 5 million in the prior year period.
Wrapping up my prepared remarks.
With one full quarter behind us and the continued strong demand in the market.
Today, we are raising our 2022 product revenue guidance range from $157 million to $164 million.
To a new range of 160 to 165 billion.
Which now reflects year over year growth in a range of 22% to 26%.
As we indicated on our fourth quarter call a few months ago. We continue to closely manage the strong global customer demand, we're seeing against our existing manufacturing capacity and inventory on hand.
Additionally, the recent change in foreign currency rates in particular, the U S dollar to euro results in a modest pressure to our top line versus our expectations earlier this year, but it's also offset further down the P&L, resulting in a neutral impact to the bottom line.
Taken together 2022 is shaping up to be another strong year of growth for cerus as we make solid progress on our key initiatives for the year.
Including.
Facilitating further adoption of intercept in Europe , and the U S.
Increasing our manufacturing capacity to meet the growing demand.
Launching our IFC product nationwide.
Executing on our targeted R&D portfolio.
And moving towards our non-GAAP adjusted EBITDA breakeven goal.
With that let me turn the call back over to Obi to provide an update on our pipeline as well as a few closing comments.
Thank you Kevin.
Before we open up to questions I wanted to touch on a few quick updates about our R&D pipeline that continues to make good progress to start 2022.
First in China, we continue to work with our joint venture partner <unk> to bring intercept platelets to this sizable market.
While the recent Covid imposed lockdowns have continued the challenges associated with regular meetings and other interactions in country. Our teams have been working together virtually on the plan to submit intercept platelets to the Chinese regulatory authorities with the goal of making this filing by the end of 2022.
As a reminder, the need for an additional in country clinical study beyond our previously completed Hong Kong study will be determined by the NFPA regulators after our filing.
Finally, with regard to intercept red cells, our European submission continues through the CE Mark progress as a class III medical device, but the timeline has been impacted by bandwidth constraints by the competent authority CPG, who like all others across Europe have fallen behind schedule due to the M. D D to MTR trans.
<unk> for medical devices.
In the U S. BARDA continues to fund and support our phase III clinical studies, where we are seeing an uptick in enrollment as a function of the COVID-19 impact waning a bit across the U S sites.
That said, we still see some regional differences in hospital engagement and there remains an effort across the country to minimize blood component transfusions as a function of the national blood availability crisis during the pandemic.
In summary, the entire Cirrus team continues to execute to make intercept available to more patients across the globe each day.
And we expect this to continue in the near term with our current portfolio of intercept platelets plasma and IFC and over the long term with the addition of intercept for red cells and with continued geographic expansion to large markets like China.
As we scale the business I am pleased with our progress to drive towards cash flow breakeven, which will provide us with the flexibility to self fund our growth initiatives and our strong R&D pipeline.
We believe our currently approved intercept products intercept for red cells, and future product iterations position Cirrus as a leader in the field of transfusion medicine for many years to come.
With that let me turn it back over to the operator for Q&A.
Thank you Sir.
Ladies and gentlemen, if you have a question at this time. Please press Star then the number one key on your Touchtone telephone is your question has been answered or you wish to remove yourself from Mchugh. Please press the pound key.
Our first question comes from Brandon Folkes, Sorry, our first question comes from Matthew Blackman from Stifel. Your line is open.
Thanks for taking my question just two for me to start.
Maybe Kevin just a housekeeping one.
Trust me, if I'm doing the math right.
If I heard you correctly, the FX impact in the first quarter was that roughly $1 million. That's number one and then you sort of touched on this I was hoping to get a little bit more granularity, but in the new guidance, what what's in there for FX versus maybe how we started the year I clearly youre absorbing it with outperformance just just curious what the Delta is.
In the new guidance versus where we started and then just one follow up after that.
Yes sure.
Matt Youre right.
For the quarter was about $1 million or.
Roughly 4% year over year impact.
On the bottom line.
Almost a wash given that we source most of our product in euro or selling that to U S customers. So.
As we begin to sell.
<unk> that we procured at lower FX rates, we will see some benefit from that as the U S continues to grow.
As far as what's in our guidance.
Hey.
We felt confident.
Raising guidance, both lower end and top end, but with that said do feel like there is some headwind potentially relative.
Relative to Q1 and for sure where we started the year. So we had originally anticipated the year with.
Roughly a $1 15 right in mind.
Adjusted that down a bit who knows where it ends up but.
We feel like we.
Factored that in to the new guidance range.
Okay I appreciate it and then.
The follow up maybe.
First for Vivek, and maybe Kevin two to fall, but just.
A little bit more color on the Red Cross contract Vivek.
How does that improve your visibility your ability to forecast and I guess part of your ability to serve the broader U S market and then I'll just layer in a question for Kevin How do we think about if at all the impact on the P&L.
So I assume there are price volume tiers in there I guess the question really asking is should we be thinking about anything incremental.
That was somehow impact the top line or margins just given the size of Red cross as a customer thanks.
Yes, I think you can handle both those questions for management.
Ed.
Sure happy to thanks for the question Matt.
I think starting off more analyzing the contract extension with the American Red Cross.
It's critically important in large part because we did stated explicitly that they wanted to get to a 100% PR discipline. The contractual relationship in place I think it enables us.
Demand management forecasting operations planning standpoint to step into the next few years very confident that that.
That demand will be there and we can sort of prompt the manufacturing.
Machinery accordingly.
The NRC and the FTA agreements really kind of go hand in glove.
In terms of progress visibility forecasting all of those.
<unk> improved in large part.
As Dave brought all of their manufacturing centers online.
Interesting thing to note and I think that bodes.
Well for us on a going forward basis, we are starting to see some.
Your line market growth in the marketplace and some.
Some increase in the <unk>.
Signage at that market and so obviously that goes to.
PR both of those.
Factors accretive or benefit it's still early days to be very definitive about that but certainly the initial trends are encouraging.
Yeah, I'll defer to Kevin maybe discussion around potential P&L impact in margins, but at the day for us it increases our level of confidence and conviction to step forward in terms of their I think continue to be at.
Major growth driver for our overall business.
Okay.
Yes.
I don't have a whole lot to add there I think.
You know.
It certainly gives us confidence coupled with the new manufacturing agreement with Fresenius Kabi too.
Expand geographically and return to economies of scale, which admittedly in 2021, we did benefit from.
So I think those two combined are fairly subtle contracts for the company.
Alright, Thanks again, everybody congrats.
Thanks, Matt.
Our next question comes from Brandon Folkes with Cantor Fitzgerald. Your line is open.
Alright, thanks for taking my questions and congratulations on the quarter.
So maybe just following on in the Red Cross contract.
How should we think about that contract being.
Memorialize, then maybe driving others to follow the rig cost as needed.
Towards higher power levels.
Any precedent in terms of how we should think about how long that could take or how impactful that maybe towards others.
Yes. Thanks for the question Brandon I'll take a shot at that and maybe they can add some more.
Active as well, but fundamentally the American Red Cross.
As a leader in the field as it relates to blood safety policy and things that the Red Cross does either operationally or four.
Blood safety reasons.
Does carry over to other institutions, both in the U S and globally. So I think what we've been able to accomplish with the Red Cross and thanks to their early advocacy for pathogen reduction is to really show the or demonstrate the operational benefits.
And sort of in an environment, where there is increasing platelet demand and inadequate supply or at least the pandemic effect on donor availability, you're actually able to see the benefits of early release of products and so a better.
Better shelf life combined with the fact that intercept platelets have a single SKU. If you will in the sense that obviates the need to do CMV testing or gamma radiation. So you have a single product code that could be moved around hospitals.
Between between hospitals more efficiently.
Thank you Joe any other thoughts on that.
What I would add is that the leadership that the American Red Cross.
John even prior to the contract.
Tension with respect to the open letter they wrote to the industry and their mid towards ensuring that.
Blood products are distributed and recognized for the value they deliver as opposed to being viewed as commodity is all of those efforts already impacting the market and often times hospital customers in the U S have multiple blood products suppliers, yet they want to standardize on a particular platform.
Their platelets from the Red cross or pathogen reduced that's creating a push on their other suppliers to harmonize the crompton pathogen reduced.
<unk> and so we are seeing that start to take place and as Obi indicated.
As you well know.
This is a multibillion dollar industry, but it's really a cottage industry. There is a small number of customer as they interact with each other at congresses start to resume in person activity and even in a virtual setting the American Red Cross story in terms of their adoption of fat reduction in the benefits has provided not only them in.
<unk>, but also their hospital customers and their patients that messaging is getting out there. So predicting the exact timing of how it influences upticks from others.
Inexact science, but we're certainly seeing the impact and the influence that they have across not only the U S. But globally in terms of blood safety.
Great. Thank you I appreciate all the color from both you and congratulations again.
Okay. Thanks, a lot Brandon I appreciate it.
Again, if you would like to ask a question. Please press star one on your Touchtone telephone. Your next question is from Josh Jennings with Cowen Your line is open.
Hi, This is Eric on for Josh Thanks for taking the question.
Just thinking about the U S intercept platelets platelet business excuse me are there any international adoption decisions that could go series is way in the near to medium term I. Appreciate the update on the China submission that set for later this year, but can we get an update on any other potential international market opportunities that could materialize in the next 12 months or so.
Yes, Thanks, a lot Eric I'll start and again I'll.
Turn it over to Vic for additional perspective.
Just have completed.
The submission for seven days in Canada are happy to see.
That.
Deployment sort of evolve quickly and so we're hoping to see some real progress later this year and into 2023.
I think there's it's always difficult to speculate on when some of these key markets given that there is oftentimes just a single transfusion service that's running the business in these.
Transfusion medicine business in these countries.
There are always a number that are sort of in play.
And.
Obviously, you know one of the key questions as always is around Germany, given the size of that market.
I'll, maybe turn over to Victor.
Sure.
Context there.
I think you said it well I'll be I mean, if you look at Canada and the progress. We've made there we anticipate impact really just start to show up later this year and into 2023. Similarly, we've talked in the past about Germany, that's the single largest market.
In Western Europe , and we're seeing good customer interest there, which we believe should start to materialize here over the course of the next couple of years old So the one <unk>.
Watch out is just where we are with the pandemic and avoidance of any major ways going forward, but a lot of the initial spade work in some of these key geographies has been done so it's a matter of continuing to push forward.
There are some there are some other markets, where we have tender activity ongoing but speculating on when a tender may come to fruition, though is a bit.
Theyre risky so we haven't necessarily bang down those in terms of Ireland forecast, but our goal is to have sufficient arrows in our quiver as such that when things materialize.
Layer on meaningful growth opportunities.
Course of the past three years, but it's been pretty compelling top line progress. So the international geographies will continue to be critically important for us on a going forward basis.
Those will be complemented by.
Continuing strength in our U S franchise.
Okay understood and on the IFC launch, it's great to see you, making progress picking up delays with your partners across the country.
When should we be thinking about a potential inflection point for IFC and our models here is early 2023 kind of the right way to be thinking about that.
Yeah. Thanks, Eric it's been great to see the progress we've made on the BLA is in that really opening up.
Asian wide launch here in Q1.
I think certainly with some of the headwinds that have been presented by.
Covid and just sort of access to hospitals.
It's hard to make the progress.
That you'd like to make but at the same time, we're really excited about the clinician interest in the <unk>.
Contracting that's underway, but I think just to maybe give additional perspective again VIX closest to this debate.
Additional thoughts.
Sure I'd say that.
The progress with our production partners and their ability to ramp supply coupled with.
But I think as a validation of the clinical unmet need and the unique utility the IFC brings to clinicians we've made meaningful progress on all of those fronts.
De novo products as Youre, probably aware, we ended up having to go to that new product committee that hospitals are.
Group purchasing networks and those new product committee meetings has.
Been held less frequently in COVID-19 than previously if you think about all the work we did on the platelet side a lot of the foundational work in terms of getting on contract getting incorporated.
Hospital.
Systems things of that nature that occurred before.
Covid crisis hit so when Covid hit we were really driving same store sales and going deep.
Here, we're trying to do a lot of that initial preparatory work in the midst of Covid now access is starting to open up a little bit more we our reps have been able to get into hospitals get in front of C. Suite executives are key hospital networks, and we're starting to generate those initial influencers.
Key customers as evidenced by what we've seen in parts of the U S and so Brian .
But things are opening up and I think we're pretty optimistic and that should lead to over the course of the next few years in 'twenty, three and beyond really the IFC business.
Being at.
A strong driver.
In addition to our overall top line progress.
That's great. Thank you for the questions.
Thanks, a lot Eric.
Once again, if anyone would like to ask a question. Please press Star then the number one on your Touchtone telephone.
I am showing no further questions at this time I would now like to turn the conference back for President and CEO Obi Greenman.
Well, thanks, very much for joining us today and for your continued interest in Cirrus. We're looking forward to updating you on our progress throughout the remainder of the year and later this summer on our Q2 results. Thanks very much.
Thank you so much for centers.
Ladies and gentlemen. This concludes today's conference. Thank you again for your participation and have a wonderful day you may all disconnect.
Okay.
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