Cerus Corporation (CERS) Earnings Call Transcript & Summary

Thank you, everyone, for joining us for the afternoon session of the First Annual Jefferies Global Plasma Summit. With us, up next, we're happy to have in attendance Cerus Corporation. We have Obi Greenman, the company's CEO. We have Kevin Green, the company's CFO. I'm going to hand it off to Obi, who'll go through some initial slides, and then we'll go into a Q&A session. Thank you both for joining us. And over to you, Obi. Thank you.

Yes. Thanks a lot, Anthony, and I want to thank Jefferies for the opportunity to present today. I'm going to go through a few slides just to give you a background of the company. But before I do that, I just wanted to make sure that I alert you to the forward-looking statements I'll be making today and our risk factors in the Forms 10-Q and 10-K. Next slide, Matt. So as a company, we have a very simple mission, and it's to make our INTERCEPT systems for the pathogen activation of blood components the standard of care across the globe in transfusion medicine. We've been -- we were founded in 1991, sort of in the midst of the HIV epidemic. And at that time, it was really a time when blood components were not safe. And although there's been a lot of progress made in various testing paradigms over the last several decades, I think what's evident from the latest pandemic is that the blood supply will never be protected unless there's a sort of proactive, always-on technology solution in place. So we have our platelet and positive systems approved in the U.S. and EMEA and are in the process of expanding geographically to APAC and LatAm. Our red blood cell system is in late-stage development. We're under regulatory review in Europe and have multiple Phase III studies underway in the United States that are supported by U.S. BARDA for the full development -- or completion of the development of that program. And then finally, we recently got approval for our INTERCEPT pathogen-reduced cryoprecipitated fibrinogen complex in the U.S. in November of last year. That's a product that has Breakthrough Device designation from the FDA to address an unmet clinical need, and we're in the process of rolling that product out in the U.S. this year and the next. The next slide. So as you can see from this slide, we have a very large TAM that we're addressing. We're the market leader and have a very concentrated customer base. And what that translates into is once we start getting scale with our business, there's a lot of leverage in the business model. And that allows us to improve gross margins and ultimately generate high free cash flow. In the United States, there's only a handful of customers. And the top 5 blood centers in the U.S. represent more than 70% of the blood supply, with the American Red Cross representing roughly 40-plus percent. And then globally, there's a lot of markets where there is only a single customer and a national transfusion service. On the next slide. Yes. For this part, you can see what our technology looks like in practice. We sell disposable sets to blood centers. That makes up roughly 95% of our total revenue. For the plasma system, there's also a device component that illuminates the treated component -- or it illuminates the component in the process, and that rakes up probably roughly 5% of our overall revenue. The way that process works, it's a simple sort of 4-step process in which the component is attached to our disposable set. It flows through a pouch containing the photochemical compound into an illumination bag. That is then illuminated for about 3 to 10 minutes, depending upon the volume of the component. And then finally, it moves through a compound adsorption device or a filter that filters out any remaining unreacted compound into the final storage bags. This process is used routinely across the globe right now in small blood centers like in Tahiti and then in large blood centers across countries like France and Switzerland. Next slide. And this just shows you, I think it's the last slide we're going to cover today, sort of the breadth of clinical experience we have now over the last couple of decades that the product has been in routine use. Now more than 8.5 million units of INTERCEPT-treated components have been transfused with a very strong safety profile. And it just shows you that we're rapidly becoming the standard of care for transfused blood components across many countries in the world. And I think that's it. I'll turn it back over to you, Anthony.

That's great, a great introduction to the overall portfolio and unique position of INTERCEPT. And maybe a good place to start, Obi, would be, look back on COVID-19 and 2020, how the cycle played out for Cerus, in particular? And maybe where we are today, March, we're coming up on the 1-year anniversary for many on COVID coming in as a cycle? But in particular, the Cerus, the company is focused on pathogen reduction in collected blood. It's a hallmark overall of Cerus as is pandemic preparedness. And so a little bit of a look back on COVID, how it's played out, but how the discussion has changed with your end customers around pandemic preparedness and how that could potentially be a long-term tailwind?

Yes. I think it's a great question. Clearly, the pandemic has highlighted the risk to supply chain and specifically the blood supply chain, given the importance of having blood available to maintain modern health care. If the blood supply shuts down, the position of health care shuts down. And so I think that initially, the big concern was, is there going to be an impact on donor availability? No. I guess, first and foremost, it was unknown at the beginning of the pandemic whether COVID-19 was going to be a transfusion-transmitted disease. And fortunately, it turned out it wasn't. But we were able to show very early on that we inactivated COVID-19 based upon some historical work that we've done around coronaviruses and specifically SARS but also MERS as well, the Middle East respiratory virus. And I think more broadly, it just sort of highlights that pandemics will continue to affect the globe, and you're never quite certain whether the next emerging pathogen will be transfusion-transmitted or not. And so as I mentioned in my prepared remarks, there is a focus now by governments and national transfusion services to how do they have a prospective or proactive solution in place that's always on to address the potential risks to the blood supply. The other thing that happened early on was the realization that if we were unable to supply our customers for whatever reason, given their dependence on Cerus, that, that would be potentially catastrophic. And I think what we've really been able to demonstrate now to our customers who are -- where we're the sole supplier is that we were able to supply even in the midst of a pandemic and that our business continuity planning is strong and improving such that we can supply the globe in the event of future pandemics. I think there was initial concerns around manufacturing and distribution, whether we were able to get products to blood services around the world. And we were able to demonstrate that.

Maybe pivot to the recent 4Q results and just the outlook on guidance. And so the company put out product guidance, 15% to 20% growth, compares to 23% growth coming out of last year. However, that 23% does have a little bit of a COVID benefit to it. And so how much of the 15% to 20% outlook for 2021 is just tough comparables to COVID relative to just your base business on pathogen-reduced blood component uptake, whether it be blood banks or hospitals, just continuing and returning to the normalized growth trend?

Yes. The way we're thinking about our guidance when we put it out in early January was that there's still sort of uncertainty as to what the impact of COVID would be on national transfusion services both in Europe and the U.S. -- or the blood supply in the U.S. And so we wanted to be a little bit conservative to start the year. I think unlike a lot of med tech companies, we chose to provide guidance and we maintained guidance last year. So I think there's a lot of opportunity that's sort of coming down the pike in 2021 and going into 2022. But as we provided guidance in the first part of this year, it was more a function of just the uncertainty in the midst of the pandemic and sort of where we were in the U.S. at the time. Hopefully, as people get vaccinated, we'll have more clarity going into the next couple of quarters here. But we feel pretty optimistic about the year.

If I could add to that.

Absolutely, Kevin.

'20 -- Q4, as we commented on the call, we had a number of sites globally, but concentrated in the U.S., that took devices as they were setting up their operations. Now we have all 22 Red Cross sites producing INTERCEPT-treated components. That's -- the placement of devices is not a sustainable business. It's the kit -- recurring kit revenue. The other thing that provides tough comps is just the FX tailwind that we saw last year. We went from an environment where euro rates were in the $1.10s and ended in the -- close to $1.20. We're not anticipating that we'll be able to continue throughout 2021. So to some extent, a tough comp in addition to what Obi mentioned.

That's helpful, Kevin. And maybe we'll transition in INTERCEPT platelets. And we spoke earlier in the year, Obi and Kevin, about the FDA guidance updates that were issued last year. And so maybe for the audience, just a quick recap on those FDA guidance updates as it relates to platelet collections and what are the renewed time lines for 2021. And then we can go into some particulars.

Yes. For the broader audience, yes, the FDA has been increasingly concerned over the last 5-plus years about the contamination of platelet components because they're stored at room temperature with bacteria, leading ultimately to septic transfusion events and fatalities. And so in -- this was October of 2019, they issued a final guidance on bacterial safety of platelet components and recommended a number of different ways that blood centers could potentially mitigate that risk. The first and foremost would be the use of pathogen inactivation and then a number of other measures. And Matt, I don't know if you want to put up that slide that just shows you -- yes, here, thank you. Shows you the different options that were put forth by the FDA with the majority of them being ways to improve the sensitivity of bacterial culture. And now as of a function of COVID, the FDA provided a little leeway for blood centers and hospitals with regard to the compliance timing. And that got pushed out from April 1 of this year to October 1. So it gave the blood centers and the hospitals another 6 months. We're definitely seeing that the majority of blood centers across the U.S. are sort of moving towards 2 options, pathogen reduction and then the other one being what's called here LVDS or large-volume delayed sampling, which is a method by which they delay the testing to improve the sensitivity of culture but also take a larger sample volume. I think as it relates to our business, we actually have seen this as sort of ending up being a net benefit because more and more blood centers are ramping their production of INTERCEPT-treated platelet components and seeing what the hospital uptake is going to be before they are moving to LVDS. So it's actually given us a little bit more runway going into the final compliance deadline.

And maybe to pick up there a bit. When you think of the percent of U.S. blood banks that are still moving toward compliance here, I mean, how many -- what percent across the United States are not compliant or moving toward compliance just to sort of think about the opportunity into October 1 in those terms in terms of potential uptake of one of these 2 solutions weighing into the back half of the year?

We don't have exact clarity on where the different hospitals are across the country with regard to compliance with the final guidance. So it does vary. Some folks -- some academic sites have said, "Okay, we want to be maintaining that April 1 deadline just because we're concerned about patient safety. And we're already -- we're moving our direction anyways until the FDA provided an extra 6 months of cushion." And others have said, "Well, we're going to look at implementing in the summer, or we're going to go all the way up to the final deadline of October 1." I think more importantly, the American Red Cross, which represents about 40-plus percent of the overall market, has communicated clearly to all of their hospital customers that they plan to be compliant by the summer and that they are going to be moving to 100% INTERCEPT over the course of the next couple of years. So they want to be there by 2023 with 100% pathogen reduction just because of the benefits conferred by the process not only for bacteria but for emerging infectious diseases. And also, as importantly, it helps them maintain a better supply chain by having a single method or a single SKU. So there's just a -- it makes it easier for them to manage their overall platelet supply chain that they're just doing pathogen reduction. And I think that same sentiment is being adopted by a number of the other big blood centers in the U.S.

The guidance documents call out a number of different acquisition methods, automated methods, apheresis, whole blood-derived or pooled, and so maybe this is a little bit in the weeds. But just when you think about those 3 acquisition methods in bringing in pathogen reduction, does that provide any unique hurdles for noncompliant blood banks? Or is it sort of a one size fits all and there's a deadline, they have to get on board, and one way or another, most blood banks are going to move in that direction and hospitals?

You definitely get the sense that they're -- they definitely see the compliance deadline as being -- having teeth. And it's also, I think, driven a lot of -- historically, the majority of the market has been apheresis, collection of platelet components, and that seems to -- this final guidance seems to be moving the overall blood supply in the United States increasingly to apheresis. So I think apheresis platelets probably make up 90 -- close to 95% of all platelet transfusions in the U.S. now. And I just have to imagine that just given the requirements for platelet components that, that will continue to move closer to 100% with time.

A little bit on the dollar opportunity. Cerus has shared in the past $150 million U.S. market opportunity specific to INTERCEPT platelet. And so maybe can you walk through some of those statistics a bit just in terms of where penetration is today? You mentioned American Red Cross looking to standardize. What does American Red Cross represent as a percent of that total opportunity?

Yes. Matt, I don't know if you want to pull that. Thank you. So the overall market, as we assessed it, is about $150 million. It's roughly 2.5 million platelet components a year. And that -- sort of the organic growth for platelet demand in the U.S. continues to grow at roughly 3% to 4% annually. As you can see from this slide, roughly the top 5 blood centers, including the American Red Cross, represent 70-plus percent of the market, and we're present in all those 5 blood centers. I think they're sort of on a different spectrum. A number of those blood centers are a little more passive with regard to what they're offering their hospital customers where others are really leaning in on pathogen inactivation and the benefits conferred by our system. I think the other thing that is worth noting here is the overall effective platelet shelf life. So we are going to be filing for a 7-day label claim for platelets in the United States like we have that claim in Europe, in France and Switzerland, where it really takes the overall wastage rate for platelet components down to sort of sub-1% levels. And it's pretty clear from our discussions with all the major blood centers and hospitals that if we get that 7-day label claim in the second half of this year, that there really is not a choice. So what I think that means for -- if we ended -- our 2020 revenue in the United States was roughly around $31 million, $32 million. There's a lot of upside for growth over the next coming couple of years with regard to penetration in the U.S.

And you have a number of other end customers presented here, Vitalant, NYBC, OneBlood, Versiti. And so when you think about timing, American Red Cross is out there with a specific goal. I mean, are any of these companies close to announcing time lines as well?

Yes. I'm not sure they all announced time lines as clearly as the American Red Cross has. But yes, Versiti and OneBlood are moving aggressively towards getting INTERCEPT in place with all of their hospital customers. So I'm pretty optimistic there. And Vitalent and New York Blood Center are just being a little bit more, I'd say, passive. But they're just offering both options, saying it's the hospital's choice with different price points for INTERCEPT versus LVDS. And again, I think that's where the 7-day label claim may drive share more quickly with those 2 accounts just because of the hospital demand for the product.

And maybe a final question here on platelets would be an updated look at Europe. Europe is ahead of the United States in terms of pathogen screened and inactivated platelets, but there are pockets of opportunity in Europe. So anything of note as you look at Europe on this front?

Yes. So we are the standard of care in France, Switzerland, Belgium, most of Austria, I think there's maybe one site left there. So there's multiple countries in Europe where 100% of the platelet products are treated with our technology. I think if you look at this map that Matt just pulled out, clearly, the U.K. and Germany are big open spots on the map here. We do have a stronger presence in Germany and have incremental reimbursement in place in 2020 that should benefit the adoption of the technology in 2021 and 2022. So I think Germany is clearly a focus, roughly 600,000 platelet doses a year there. The U.K., I think, will -- they historically used LVDS with good success in protecting their platelet supply. But I think in general, there's sort of an appreciation for the benefits conferred by INTERCEPT and makes the effective shelf life being as long as it is that we'll get there in some of these other markets. So a lot of room to grow on this map, but I think the history of our efforts in many of the countries in Europe are starting to pay off as we grow the market share.

I'm going to shift to cryoprecipitation. The company issued an FDA clearance for cryoprecipitation on INTERCEPT, allowing it to produce both pathogen-reduced fibrinogen complex, Cryo FC, as well as pathogen-reduced plasma. And so before we get into time lines and markets, can you provide just an overview on specific protocols that are in place right now in blood bank and hospital supply chains around massive transfusion protocols, in particular, and sort of what this represents in terms of the hurdle and how this indication could sort of alleviate some of these bottlenecks?

Yes. Thanks for the question, Anthony. So many hospitals across the country, especially level 1 and level 2 trauma hospitals, have in place massive transfusion protocols that are activated when patients are bleeding, such that they -- you're trying to correct the bleed and keep a patient alive. This is especially relevant for trauma victims but also for maternal hemorrhage, where women are bleeding to death during childbirth. And one of the challenges is that with the increasing use of viscoelastic monitoring, which is a coagulation monitoring in hospitals to assess where the deficit is in bleeding, both hematics and instrumentation labs have devices, their TEG and ROTEM platforms, that are used broadly across the U.S. now. And as a function of that coagulation monitoring, they're very often picking up fibrinogen deficit as being the major cause of bleeding. And the remedy for that is the administration of cryoprecipitate. But because of the way cryo is currently stored, frozen and the dosing, it typically doesn't -- is not made available to these patients until sort of round 3 of the MTP activation. And so our goal with our product is to try and move it forward in the treatment paradigm. And accordingly, if you can address the bleed earlier, you theoretically would reduce the need for the future rounds of blood components. Each one of these rounds probably cost on the order of $5,000 just given the number of red cells, plasma and platelet components transfused. And the final thing I'd mention is there's a large study that's underway right now in the U.K. in which they're looking at the early administration of cryo to try and affect mortality. That's called the CRYOSTAT 2 study. To the extent that study proves a beneficial -- that there is a mortality benefit to earlier use of cryo, we think that really could accelerate the use of our product, just given the ease of use and the dosing configuration.

Maybe to shift into rollouts, both direct and indirect, for cryoprecipitation. And so 4 states in total, inclusive of California, Texas, as you list here, Louisiana, Wisconsin. Was there any delays as it relates to COVID in 2020? That will be question A; and then B, how this plays out through 2021 state by state? Will all 4 states turn on simultaneously? Will there be a step function? How should we think about the rollout in 2021 on the direct side?

Yes. So just to make sure that the audience is clear, this is a little different business model for Cerus than what we historically have had, where we sold -- historically, we sold disposable kits to blood centers. In this model, we're partnering with the blood centers so that their manufacturing partners, they receive a manufacturing margin. But we're ultimately selling the finished biologic to the hospital customers. So that's part of the reason why we're launching into these 4 states where we have partnerships established, and those blood centers in each of these states are currently validating the production process. We will have product available in Q2 in each one of those states and then really with a focus in 2021 on the nearly 100 level 1, level 2 trauma hospitals in these states, representing roughly 25% of the estimated trauma cases in the U.S. Once we get the BLAs established, so essentially the manufacturing licenses for each one of these blood centers, they'll then be able to ship product out of state. So we'll anticipate a nationwide rollout in 2022. And so it's a really nice setup. At least, the way we're thinking about it is that you sort of -- you're going to pilot the launch in the first year once we will get the new technology add-on payment in October, and that really sort of sets the stage for a broader nationwide rollout in 2022.

And so when we think about -- and you mentioned here, I call it the Medicare new tech add-on payment, I didn't catch that last night when I was going through the documentation but submitted in October 2020, decision in '21, just I guess specific timing on the tech add-on payment.

Yes. So I think that's -- as we said here, I think it's likely -- not likely to be delayed. So we're expecting it sometime in the October time frame. And I think we do benefit from the FDA Breakthrough Device designation because that sort of streamlines the submission process for this NTAP. And we're optimistic. But until we have it in hand, we don't know for certain. So...

And maybe last one here would be just the segmentation between the end markets, in particular. So Obi, you mentioned fibrinogen, on the one hand, deficiency as it relates to -- or that's linked to massive hemorrhage. But there's also pathogen-reduced plasma, which is used to treat TTP. And so when you think about those 2 as being 2 specific end indications and really being demand drivers, how do you sort of view those 2? And what do you think between the 2 is the bigger demand driver?

Yes. Our focus in the near term is clearly on the pathogen-reduced cryoprecipitated fibrinogen complex, just given the unmet need and the reception that we've heard from the hospitals to date, that this is really going to streamline ease of use and availability. The derivative products -- so both these products are made from INTERCEPT plasma. The derivative products are sort of the PR-Cryo FC but also the other one is, I guess we call it, cryo-poor plasma. It's not that interesting of a name, but it's -- it has received approval for use in therapeutic plasma exchange for TTP patients. We do believe that product has a lot of potential utility in other indications like volume resuscitation as well as treatment of burns and things like that. So we'll have to evaluate that and sort of seek approvals for additional indications for that product over time. Yes. So I think the clear focus in the near term is going to be on cryo.

And then to close out, maybe on red cell. The product is moving through the European MDR process, I guess clearance expected in 2022. When you stack rank red cell, it's the largest TAM opportunity for the company. And so what are your expectations coming out of the MDR process? And then on the U.S. side, the RedeS study and CePI (sic) [ ReCePI ] study, those had enrollment delays in 2020. What should we be expecting in terms of reengaging on the enrollment side for those 2 studies?

Yes. I mean, currently, the red cell program is the largest market opportunity for the company. And it completes the portfolio for blood centers. So it really does allow them to look at systematically on how they would rationalize the current testing paradigm and really put in place -- or realize the full benefits of pathogen inactivation for all 3 components. So we're going to be launching with the customers who have moved aggressively on INTERCEPT platelets, for sure. Initially, the product, when it's approved, will be -- have sort of a limited throughput, meaning that it probably can do 50-plus units a day. So it's a relatively manual process. We have a number of activities underway to scale that operational efficiency or operational ease of use. A lot of that is being supported by U.S. BARDA as far as sort of systems for increasing ease of use and throughput. But just the initial launch constraints around blood center operational throughput will limit it to certain indications, we imagined. And then with regard to the United States, those studies are still enrolling. We did run into some challenges during COVID as a function of patient enrollment at sites as well as standing up new sites. But I think we're starting to see that thaw, if you will, and patients are being enrolled in both of those studies. And we're just looking at ways that we can further accelerate the enrollment in RedeS now that we've rolled in the chronic transfusion study requirement into that study. We've got to make sure that we enroll sickle cell, thal and various chronic anemia patients into that study as quickly as we can.

And with that, we are at the end of our allotted time here. And so I want to thank you, Obi, Kevin and Matt, for joining us this year. We wish the team the best of luck in 2021, and we look forward to speaking again soon.

Thank you.

Thanks a lot, Anthony. We really appreciate the opportunity. Thank you.

Excellent. Thank you so much.