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spk03: We see adoption among both large and small blood center customers in the quarter. Given the strong intercept adoption in early 2021 ahead of the FDA platelet guidance compliance deadline, 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. In EMEA, consistent with prior years, the seasonally slower summer months resulted in softer 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, EMEA product sales of 13.1 million were down 12% versus the prior year period. Moving on to IFC, I am pleased to report that sales of this product continued to grow on a sequential basis in the third quarter. We are building momentum and continue to see customers adopting the product. like Valley Children's Hospital in Central California, who spoke about their experience with ISC at the recent SABM meeting. Our U.S. commercial organization is focused on ramping ISC use in the field as more customers experience the benefits associated with the product in real-world, clinically significant settings. I look forward to providing more updates about our progress with ISC and the rest of the Global Intercept Blood System commercial portfolio when we speak again in early 2023. As Obi mentioned in his opening remarks, our rapid growth has placed added pressure on our intercept kit manufacturing and supply chain for much of 2022. I am pleased with the way we and our partners have risen to the occasion. While we have invested in inventory 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 kits. You may recall, we are well underway on a multi-year manufacturing expansion project that will enable intercept kit components and ultimately entire kits to be manufactured in the Caribbean. In addition to the economic benefits associated with bringing production online in these lower cost jurisdictions, this expansion provides us with multiple sites that will be able to make and ship products, removing this capacity constraint and allowing us to capture the significant global opportunity for our products. I will now turn it over to Kevin to discuss our results and outlook in more detail.
spk07: Thanks, Vivek, and good afternoon, everyone. Across our financials, we continue to generate strong results and execute toward our objective of cash flow break-even. Continued expansion of gross profit while realizing leverage 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 to costs incurred, either for products sold or operationally. We posted third quarter 2022 product revenue of $39.6 million, representing year over year growth of 10% 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% top line headwind year over year. As such, The majority of our growth this quarter was led by intercept platelet sales across our 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. In EMEA, 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 2023 based upon where the Euro-US dollar rates are today. While we're not providing guidance for 2023 on today's call, it is worth mentioning that at the beginning of 2022, the Euro-US dollar 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 FX negatively impact product revenues during the first several months of the new year. Our third quarter growth in the calculated number of treatable platelet doses reflects a 22% year-over-year increase in the US 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 Q3 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 for the prior year period. In addition to the work with U.S. BARDA on red blood cells and the whole blood initiative supported by the FDA, our recent award from the Department of Defense for Lyocryo, a non-frozen lyophilized formulation of IFC, will be recognized on this line over the next two years. The contract with the DOD is a milestone-based contract, which differs from the bill as incurred contracts that we have with BARDA and the FDA. Obie will discuss Lyo-Crow in more detail in his 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, 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, the strengthening U.S. dollar is 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. By 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 $20.4 million in the prior year period. While our business is not immune to the inflationary pressures that continue to make headlines, our sustained commitment, focus, and execution on driving financial discipline is allowing us to deliver operating leverage while we invest in the business and absorb these higher costs. On the bottom line, reported net loss attributable to Cirrus for the three-month ended September 30th, 2022, narrowed by $3.9 million, or 32% when compared to the same period in 2021. Net loss attributable to Cirrus for Q3 totaled $8.5 million, or 5 cents per diluted share, compared to $12.4 million, or 7 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 totaled 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, were almost two-thirds lower than the prior year-to-date total. with the 2022 year-to-date figure totaling to 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 break-even. Turning to the balance sheet and cash flows, we ended the third quarter in a strong cash position with $103.8 million of cash and cash equivalents on the balance sheet. In terms of cash utilization, our cash use from operations was $2.1 million compared to $6.6 million during the prior year period. To finish my update today, I would like to wrap up with commentary around our full year of product revenue guidance. With less than two months remaining in 2022, we now expect 2022 product revenues to be in the range of $160 to $162 million. We feel that we have good visibility into the end market demand for our products for the balance of the year. 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 out the year. With the expected growth in Q4 revenues, combined with the improved year-over-year gross margins and operating expense leverage, we continue to feel confident about our ability to realize cash flow breakeven as measured by our non-GAAP adjusted EBITDA metric. And with that, let me turn the call back over to Obi
spk01: Thank you, Kevin. Before we open up to questions, 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 platelet shelf life. You will recall we have been working with Canadian Blood Services, or CBS, to deploy the Intercept blood system in Ottawa. This approval will allow CBS to begin rolling out Intercept across their network of blood centers nationwide. Concurrently, we've also initiated an evaluation with the only other blood service in Canada, Hemo Quebec. Hemo Quebec is the exclusive blood provider in the province of Quebec with approximately 25% of Canada's annual plate of production. We hope that they will be able to benefit from the recent introduction of Intercept in the country, the comprehensive work that CBS has done both operationally and educationally with their hospital customers, and the newly approved seven-day shelf life. While we maintain a focus on financial discipline and our pursuit of cash flow breakeven, we are simultaneously committed to advancing the field of transfusion medicine by leading the science and collaborating with key investigators to improve patient care. For example, we have previously discussed a study that is sponsored by the Coalition for National Trauma Research, or CNTR, using intercept plasma for treatment of burn patients. This study has recently started enrolling and could represent a compelling potential use case for intercept plasma in the marketplace. It also highlights our ongoing efforts to develop innovative and rapidly transfusible blood components with the potential to improve treatment protocols for critically ill or wounded patients. Additionally, as mentioned by Kevin, we were recently pleased to learn that we have been awarded over $9 million by the U.S. DOD to help fund the development of Lyocryo. Lyocryo is being designed for ambient temperature shelf life stability, 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 MDR CE mark submission process with our notified body, TUV, providing feedback on our submission and closing out all of its modules. The competent authority, CBG, continues to review our dossier at this time. We continue to be pleased with the progress we are making on our U.S. Phase III clinical trials, Recipe and Redis, in close collaboration with our partners at U.S. BARDA, who have 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 REDIS. In summary, throughout the third quarter, Sears continues 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 center customers. Combined with a robust balance sheet as we approach cash flow breakeven, Cirrus is in a strong position of economic readiness and health. This will allow for continued growth and innovation that we can self-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.
spk06: Thank you.
spk05: At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. Please stand by while we compile the Q&A roster. And our first question comes from Matthew Blackman of Stifel. Matthew, you have the line.
spk02: Good afternoon, everybody. Thank you for taking my questions. I've got two. And, Kevin, maybe to start with you, just given the significant progress made on leverage, the sustained top-line growth, when do you feel like you'll be able to, you know, plant a flag on when you'll cross to breakeven? You know, all things equal, the trajectory feels like we could get there in the first half of 23. Does that seem reasonable, or what are some of the things you're contemplating when thinking about when you can cross into breakeven? And I've got one follow-up.
spk06: Thanks, Matt.
spk07: Yeah, I don't know that I'd handicap a timeline, because we're really narrowing in on that, as you saw from the current results. And we followed our queue concurrently here, and you'll see cash from operations is just a smidge over 2 million. So I feel like we're really auguring in there. And as I mentioned in the prepared remarks, with the growth and the top line and expansion of our margins, I think we're 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 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.
spk02: All right. I appreciate that. And then other for Obi or Vivek, just curious if there's a way to frame on platelets, the U.S. platelets. Is there a way to frame what's left to tackle from a market penetration standpoint? Is the heavy lifting getting new blood banks on board, or is it really trying to ramp existing users to higher utilization rates? I assume it's some combination of both, but is one of those still larger opportunities left to penetrate? Thanks.
spk01: Thanks, Matt. Vivek, why don't you take that?
spk03: Sure, happy to. Thanks for the question, Matt. I think you're right to categorize it as a little bit of both. Proportionally, if you had to say where the most significant opportunity existed in terms of driving continued growth in the U.S. platelet market, it still exists with going deeper with current users. As you'll recall, we made a very conscious decision to focus our efforts initially on blood center families that represented 70% of 75, 80% of the market. There's still plenty left to go there. There are de novo users to pick up along the way as well, but of the two, the greatest opportunity continues to exist with our current users, which is really great, frankly, because we're over a lot of the initial costs associated with getting those programs started, training their operations staff, et cetera.
spk02: I appreciate it. Thank you so much.
spk05: Thanks, Matt. Thank you, Matt. Our next question comes from Brandon Foulkes of Cancer Fitzgerald. Brandon, you will have the stage now.
spk04: All right, thanks for taking my questions and congratulations on all the progress. Maybe just two from me as well. Can you just maybe talk about the potential for intercepts in Canada? Just what sort of penetration rate should we be thinking about that you could achieve across the Canadian blood services? And then secondly, I think gross margin is doing very well. I heard the comment on Forex. So maybe just, could we just add some commentary there on a fundamental basis on the continued progress on gross margin expansion? Thank you.
spk01: Thanks, Brandon. I'll take that first part of the question, and then Kevin, maybe you can handle the gross margin expansion question. So as it relates to Canada, it's about 180,000 transfusions on an annual basis, and that's split between two large blood services, Canadian Blood Services, which represents about 75% of the overall market in Canada, and then Hemo Quebec, which handles all the blood collection in the province of Quebec. We have a very close relationship with CBS and have deployed the technology in one of their main centers in Ottawa. They were waiting for this seven-day approval to more broadly roll out the technology across all their blood centers throughout Canada. And so there's a very clear schedule and timeline for doing that. So we do anticipate that we'll capture most of that business with Canadian Blood Services. And then also we have an ongoing evaluation agreement with HemoQuebec and are really hoping that that will allow them to look at the technology and the operational synergies with their collections. And I think they're also talking with CBS, so leveraging the extensive work that CBS did in order to get to this point. So we're very optimistic about the business in Canada over the next sort of 12 to 24 months. Kevin, you want to handle the gross margin question?
spk07: Sure. So let me start by saying that the FX impact on our margins thus far for the year have been fairly modest relative to what we expect as we move forward. And the reason for that is obviously we carry a level of inventory on our balance sheet, and that is relieved at historical rates. And so to the extent that we sell in a given period, we're selling product that was, you know, in the case of a strengthening dollar environment, we're selling that product that was costed at a higher FX rate. As we build in with the U.S. dollar strengthening and we sell that forward in future periods, that's when we'll really see the benefit. But regardless of the impact of FX, We have been and are recognizing economies of scale and overall improvement in our margin profile by way of product mix, but also the new agreement that we're presenting is copy. And quite honestly, just the growth in the overall volume. And that's something that we do expect to continue regardless of effects rates, which, as I mentioned just a moment ago, we also expect will be providing some tailwind as we move forward in time.
spk04: Great. Thank you very much and congratulations on the progress.
spk05: Thank you, Brandon. All right. At this time, I would like to return it back to Mr. Obi Greenman for some closing remarks.
spk01: Great. Well, thank you again for joining us today and for your interest in Cirrus. We look forward to providing you with an update on the end of 2022 and our expectations for 2023 when we report on our results in the new year. Thanks again for joining today.
spk05: Thank you, everyone, for your participation in today's conference. This does conclude the program, and you may now disconnect.
spk06: The conference will begin shortly. To raise your hand during Q&A, you can dial star 1 1.
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