Q3 2022 Cerus Corp Earnings Call
Good day, and thank you for standing by while currency. These serious corporation quarter. Three 2022 earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.
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Please be advised that today's conference is being recorded and I would now like to hand, the conference over to the company for their presentation.
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 Dot Crs Dot com.
With me on the call are Obi Greenman, <unk>, President and Chief Executive Officer, Kevin Green <unk>, Chief Financial Officer, Dr. Laurence crash Cirrhosis, Chief Scientific officer.
The vacant <unk> Raman cirrhosis, Chief operating officer, and Carol Moore, Trc's Senior Vice President of regulatory affairs and quality.
Sirius issued a press release today announcing our financial results for the third quarter ended September 32022, and describing the company's recent business highlights you.
You can access a copy of this announcement on the.
Company Web site at Www Dot 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.
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 operations gross profits and gross margins as well as commercial development efforts.
It's your 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 uncertainties that could cause actual events performance and results to differ materially they are.
Are 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 September 32022, 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.
The 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.
We'll begin today with some opening remarks from Obi followed by Vivek to discuss some recent business highlights and Kevin to review our financial results. We will conclude with commentary from Obi with an update on our pipeline and closing remarks.
And now it's my pleasure to introduce Obi Greenman, <unk>, President and Chief Executive Officer.
Thank you Jessica and good afternoon, everyone as we approach cash flow breakeven with a company in the strongest financial position ever I want to start this call reflecting on our journey to this point.
To highlight the opportunities ahead of us as we advance intercept towards the standard of care in transfusion medicine around the globe.
With the continued growth of our intercept platelet business in Q3, the team has executed well both commercially and operationally.
Our steadfast goal of getting to cash flow breakeven is now within reach.
<unk> business continues to be resilient and grow.
Our performance in these uncertain times as a clear demonstration of the stickiness of our customer base.
Because the vast majority of our product revenue comes from sales of intercept kits.
We together with our manufacturing partners, including for seniors Cobby been working diligently to ensure that our supply chain can meet the increasing demands for the business.
The routine use experience with intercept products at hospitals continues to demonstrate utility and clinical benefits.
At the recent annual meeting of the society for advancement of patient blood management or Saddam.
As well as the virtual ABB annual meeting this weekend reschedule due to hurricane in.
<unk> R. A b b industry workshop on November 30th speakers are highlighting the benefits of an experience with both intercept platelets and IFC.
With intercept platelets are value proposition and safety profile has been demonstrated consistently around the globe in some cases for over a decade.
This is exemplified by our abstract selected for a plenary lecture at the upcoming virtual ABB meeting regarding France's multiyear experience within our set platelets.
Data from this study is solidly reinforced unique safety and efficacy profile associated with long term routine use of intercept platelets.
In the case of IFC. It is exciting to see more real world use cases of the product shared among peers <unk>.
Coupled with expanding availability at hospitals.
While they're still early in the launch it is clear that IFC has a critical role and rapidly addressing quag allopathy and critically bleeding patients when every minute counts.
The user experience among initial adopters of IFC has been positive, particularly due to the products immediate availability and.
And its ability to reduce the cost and operational burdens associated with the wastage of congressional proud precipitate.
Overall, our performance demonstrates the strength of our business by continued and growing demand from our blood Center and hospital customers.
We expect to finish this year strong and to drive continued growth of the intercept blood system globally well into the future.
I would like now to turn the call over to the bank to discuss the third quarter revenue highlights.
Thank you I'll be in good afternoon to everyone joining on today's call.
Private revenues for the third quarter of 2022 return percent on a year over year basis and were once again led by a strong contribution from are you less platelet franchise.
This growth reflected a few notable dynamics for which I would like to provide some additional color and.
In North America, we continued to see adoption among both large and small blood thinner customers in the quarter given.
Given the strong intercepted adoption in early 2021 added the FDA plantlet guidance compliance that line as well as our continued performance over the last three quarters. We have demonstrated that we have established a lasting demand for pathogen reduced platelets.
And EMEA consistent with prior year seasonally slower summer months resulted in to offer demand in the region during the third calendar quarter of the year.
Additionally, this year the currency headwinds, we mentioned on our second quarter call showed no signs of slowing in the third quarter.
As a result in their product sales of $13.1 million were down 12% versus the prior year period.
Moving onto I see I am pleased to report that sales at this product continued to grow on a sequential basis in the third quarter.
We are building momentum and continues to the customers adopting the product like valet children's hospital in Central California, We spoke about their experience with IFC at the recent meeting.
R. U S. Commercial organization is focused on ranting ifc's in the field as more customers experienced the benefits associated with the product and real world clinically significant.
I look forward to providing more updates on our progress with IFC and the rest of the global innocent blood system commercial portfolio. When we speak again in early 2023.
There'll be mentioned in his opening remark or rapid growth is placed added pressure on our intercept manufacturing and supply chain for much of 2022.
I am pleased with the way, we and our partners have risen the vacation, while we have invested unknowns alright to help ease the burden in the short term we continue to find ourselves in a position of active inventory management with our global distribution of kit.
You may recall, we are well underway on a multiyear manufacturing is passion project that will enable intercept kit component and ultimately entire kit to be manufacturing in the Caribbean. In addition to the economic benefits associated with bringing production online in the lower cost jurisdiction. This expansion provides us with multiple sites that we'll be able.
The make and ship product, removing this capacity constraint and allowing us to capture the significant global opportunity for our products.
I will now turn it over to Kevin.
Discuss our results and outlook in more detail.
<unk> I'm good afternoon, everyone.
[noise] across our financials, we continue to generate strong results.
Execute toward our objective of cash flow breakeven.
Continued expansion of gross profit.
While realizing leveraged from our operating expenses are again driving the progress.
We expect this dynamic to continue as we close out the year without performance on the top line relative costs incurred.
Either for products sold or operationally.
We posted third quarter of 2022 product revenue of $39.6 million.
Presenting year over year growth of 10% bye.
Led by sales in North America during the quarter.
Foreign exchange pressure on the top line was more impactful than we previously expected.
And resulted in a 6% topline headwind year over year.
As such the majority of our growth. This quarter was led by intercept platelets sales across R. U S customer base with sales to the largest blood center customers growing 22% on a year over year basis, and other U S customers growing 27% year over year.
As previously mentioned the continued strength of the U S dollar negatively impacted their comparable growth year over year as reported in U S dollars.
This headwind has been impacting us for a good portion of 2022 and is likely to continue well into 2000 twenty-three based upon where the euro U S dollars rates are today.
While we're not providing guidance for 2023 O today's call. It is worth mentioning that the beginning of 2022.
Zero U S dollars rate was around 115.
So even without further dollar strengthening we anticipate our full year 2022 product revenue could be negatively impacted in the neighborhood of $7 million.
Additionally, with the potential for this dynamic to persist into 2023.
We expect to continue to see effects negatively impact product revenues during the first several months of the new year.
Our third quarter growth and the calculated number of treatable plagued with doses reflects a 22% year over year increase in the U S and a 13% increase internationally.
On a year to date basis, the number of doses has grown by 62% year over year in the U S and 19% internationally.
In terms of product mix for the quarter sales of intercept disposable kits represented over 94% of our queue three product revenue.
In addition to our product revenue and not included in our guidance.
Government contract revenue totaled $6.8 million in Q3.
Versus $6 million from the prior year period.
In addition to the work with U S Bardon red blood cells, and the whole blood initiatives supported by the F. D. A R.
A recent award from the Department of Defense for <unk> trial.
Non frozen lyophilize formulation of I F C will.
Will be recognized on this line over the next two years.
The contract with the D O D as a milestone based contract which differs from the bill has incurred contracts that we have with Barbara and the F. D. A.
Obi will discuss my Ohio in more detail in these closing comments.
Turning now to our product gross profit and gross margins.
Our third quarter product gross profit was $21.9 million compared to $18.5 million during the prior year period and.
An increase of over 18% year over year.
Product gross margin for the quarter was 55.4%, which increased 410 basis points when compared to the prior year period.
And improved 350 basis points sequentially.
As we discussed last quarter with the majority of our Cogs denominated in euros.
Strengthening U S dollars actually beneficial to our gross margins.
Particularly for sales of products that are U S dollar denominated.
Moving on.
Our third quarter operating expenses totaled $36.1 million roughly in line with the prior year period and included $5.8 million in non-cash stock based compensation.
Like specific expense type.
Third quarter, R&D expense totaled $16.2 million compared to $15.3 million during the prior year.
Third quarter, SG&A expense was $19.9 million compared to $24 million in the prior year period.
While our business is not immune to the inflationary pressures that continued to make headlines are sustained commitment focus and execution on driving financial discipline is allowing us to deliver operating leverage while we invest in the business of absorb these higher costs.
On the bottom line ripped.
Reported net loss attributable to serious for the three months ended September 30th 2022.
Narrowed by $3.9 million or 32% when compared to the same period in 2021.
Net loss attributable to serious for Q3.
A total of $8.5 million or five cents per diluted share compared to $12.4 million or seven cents per diluted share for the prior year period.
Our third quarter losses as reported by our non-GAAP adjusted EBITDA were less than half of where they were a year ago and told to a negative $2.7 million.
Compared to a negative $5.6 million during the third quarter of 2021.
Year to date losses as reported by our non-GAAP adjusted EBITDA, we're almost two thirds lower than the prior year to date total with the 2022 year to date figure totaling two a negative $8.8 million compared to a negative $25.3 million for the first nine months of 2021.
We are pleased with our progress on this front as we approach our stated goal of reaching cash flow breakeven.
Turning to the balance sheet and cash flows.
We ended the third quarter, and a strong cash position with $103.8 million of cash and cash equivalents on the balance sheet.
In terms of cash utilization or cashews from operations was $2.1 million compared to $6 $6 million during the prior year period.
The finished my update today I would like to wrap up with commentary around our full year product revenue guidance.
With less than two months remaining in 2022, we now expect 2022 product revenues to be in the range of 162 $162 million.
We feel that we have good visibility into the end market demand for our products to the balance of the year. However.
However, the realities of the impact of the strong U S. Dollar have served as a consistent and meaningful headwind to the top line for much of the year.
As I mentioned previously we expect a stronger dollar could end up negatively impacting our 2022 reported product revenues by approximately $7 million.
With that said, our new guidance reinforces the robust underlying growth of the business as we finish up the year.
With the expected growth in queue for revenues combined with the improved year over year gross margins and operating expense leverage we continue to feel confident about our ability to realise cash flow breakeven as measured by our non-GAAP adjusted EBITDA metric.
And with that let me turn the call back over to O B.
Thank you Kevin before we open up to questions. So I wanted to provide a few more comments on the pipeline and also some closing remarks.
As we announced earlier this week. We are pleased that we have now secured health, Canada approval for a seven day play that shelf life.
You will recall, we have been working with Canadian blood services are C. B S to deploy the intercept blood system in Ottawa.
This approval will allow C. B S to begin rolling out intercept across their network of blood Thinners nationwide.
Concurrently we've also initiated an evaluation with the only other blood services in Canada Chemo, Quebec.
Chemical that cause the exclusive blood provider in the province of Quebec, with approximately 25% of Canada's annual platelet production.
We hope that they will be able to benefit from the recent introduction of intercepting the country. The comprehensive work. The C. B S has done both operationally and educationally, where their hospital customers and the newly approved seven day shelf life.
While you may we maintain a focus on financial discipline in our pursuit of cash flow breakeven, whereas simultaneously committed to advancing the field of transfusion medicine by leading the science and collaborating with key investigators to improve patient care for.
For example, we have previously discussed his studies that is sponsored by the coalition for National Trauma Research or C. N T. R E as an intercept plasma for treatment of burn patients.
This study has recently started enrolling it could represent a compelling potential use case for intercept plasma in the marketplace. It also highlights our ongoing efforts to develop innovative and rapidly transfused blood components with the potential to improve treatment protocols for critically ill or wounded patients.
Additionally, as mentioned by Kevin We were originally pleased to learn that we have been awarded over $9 million by the U S. D O D to help fund the development of bio crowd.
<unk> has been designed for ambient temperature shelflist ability rapid availability and portability.
Which we think will enable administration to patients to remote environments, such as the battlefield with the aim of increasing survival from traumatic injury.
If successful this product could also have applications in pre hospital trauma care and in rural hospital settings.
Lastly, the intercept red blood cell program reached a milestone in the European medical device regulation or NBRC, Mark submission process with our notified bought a T V <unk>.
Providing feedback on our submission and closing out all of its modules the.
The competent authority C. B G continues to review our dossier at this time.
We continue to be pleased with the progress we're making on the R. U S phase three clinical trials recipe of lettuce in close collaboration with our partners at U S border. So.
So steadfastly supported this program in the context of pandemic preparedness, and overall blood safety and availability.
Our expectations for the completion of enrollment for these studies are consistent with our comments last quarter by the end of next year for recipe and 2024 for relatives.
And some raised throughout the third quarter shares continue to execute commercially and operationally.
We are growing a business that is highly resilient to economic downturns due to the inelastic demand from our sticky blood thinner customers.
Combined with a robust balance sheet as we approach cash flow breakeven serious as in a strong position of economic redness and help.
This will allow for continued growth and innovation that we can sell fund as we work to establish a new standard of care as a leader in the field of transfusion medicine.
With that let me turn it back over to the operator for Q&A.
Thank you at this time, we will conduct the question and answer session.
A reminder to ask a question you will need to press star One O. One on your telephone and wait for your name to be announced can you stand by while we compile the Q&A roster.
And our first question comes from Matthew Blackman of people Matthew had the line.
Hi, good afternoon, everybody. Thank you for taking my questions I I've got too.
And Kevin maybe you could start with you just give them a significant progress made on leverage that sustained top line growth when he would feel like he'll be able to.
Plant a flag on online you know cross to break even you know all things equal that.
Trajectory feels like we could get there in the first half of twenty-three does that seem reasonable or what is what is what is it.
Some of the things you're you're contemplating when when thinking about when you can cross into breakeven and I've got one follow up.
I think that yeah.
Yeah, I don't know the handicap of timeline, because we're we're really narrowing in on that as you saw from the current results in other Q <unk>.
Concurrently here and you'll see cash from operations to smooth over $2 million. So I feel like we're really honoring in there and as I mentioned in the prepared remarks.
With the growth in the top line and expansion of our margins I think we are within striking distance.
But of course, when you're narrowing in on such a fine.
Point.
The margin of error is pretty tight so I I don't want to necessarily give you a timeline, but to say that we're going to continue making progress from here and I would expect that in the near term we can plant that flag.
Alright, I appreciate that and then.
Are there for for over here for that.
If there's a way to frame.
On platelets the U S platelets way to frame, what's left to tackle from market penetration standpoint, heavy lifting getting new blood banks on board or is it really trying to ramp existing users too highly utilization rates I assume it's some combination of both but it's one of those still a larger opportunity left to penetrate thanks.
Thanks, Matt I think once you take that.
Sure happy gated. Thanks for the question that I think you're right to categorize it is a little bit of film proportionally. If you and if they were the most significant opportunity existed in terms of driving the growth in the U S. Plantlet market is still exist with that.
Killing deeper with current users.
As you recall, we made a.
Decision very conscious decision to focus our efforts initially on blood Center families represented in the afternoon 70, 580 turn on the market. There is still plenty left to go there there are the noble users to pick up along the way as well but.
To the greatest opportunity continues to this debate with our current users, which is which is really great frankly, because we're over a lot of the initial cost associated with getting this program started training their operations staff et cetera.
I appreciate it thank you so much.
Thanks for that.
Thank you Matt.
Question comes from Ah Brandon full of Cantor Fitzgerald.
<unk> you would have.
Now.
Hi, My question then congratulations.
The program and maybe just cheer for me as well.
Just maybe talk about the potential for <unk> in Canada, just what sort of pet.
<unk> right should we be thinking about.
That you could achieve across the Canadian blood services.
And then take any credit Martin is doing very well I heard they're coming on.
Experts so maybe just could we just add some commentary there in a fundamental basis on the continued progress on gross margin expansion. Thank you.
Thanks, Brandon I'll take the first part of the question and then Kevin maybe you can handle the gross margin expansion questions. So as it relates to Canada. It's about 180000 transfusions on an annual basis and Thats split between two large blood services.
<unk> blood services, which represents about 75% of the overall market in Canada, and then hemo, Quebec, which handles all the the blood blood collection in private.
Private school, but Quebec.
We have a very close relationship with CBS .
Deploy the technology in one of their main centres in Ottawa.
They were waiting for the seven day approval to more broadly rollout technology across.
Ross all their blood centers throughout Canada, and so there is a very clear Ah schedule, an timeline for doing that so we do anticipate that will capture.
Most of that business with Canadian blood services.
And then also we.
Have a an ongoing evaluation agreement with <unk>.
Really hoping that that will allow.
Them to look at the technology and the operational synergies with their their collections.
And I think they are also talking with CBS . So leveraging the extensive worst CBS did in order to get to this point so.
[noise] optimistic about the business in Canada over the next sort of 12 to 24 months.
Kevin you inhale the gross margin question.
Sure.
So let me start by saying that the F X impact on our margins thus far for the year been fairly modest relative to what we expect as we move forward in the reason for that is.
Cause obviously, we carry a level of of inventory on our balance sheet and that is relieved that the historical rates.
And so to the extent that we sell in a given period. We're we're selling product that was in the case about strengthening dollar environment.
Knowing that product that was caused it.
Higher up X Ray.
As we build and and.
With with the U S dollar strengthening and we sell that forward in future periods. That's one more really see the benefits.
But regardless of the impact of that fax.
We have been and are recognizing.
Economies of scale, an overall improvement in our margin profile.
By the way a product mix, but also the new agreement that we're presenting copy and quite honestly just split the growth in the overall volume and that's something that we do expect to continue.
Regardless of backpacks rates, which as I mentioned, just a moment ago. We also expect will be providing some tailwind.
Forward in time.
Alright, Thank you very much incorrect congratulations on the progress.
Thank you Brian .
Alright at this time I would like to send it back to.
Oh, the Greenland for some closing remarks.
Great well. Thank you again for joining us today and for your interesting Sarris, we look forward to providing you with an update.
On the end of a at the end of 2022 on the end of 2022 and our expectations for 2023, when we report on our results in the new year. Thanks again for joining the day.
Thank you everyone for your participation in today's confidence.
Does conclude the program and you may now disconnect.
The conference will begin solti to raise your hand during Q&A you can dial star one one.
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