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spk05: Good day and welcome to the Cirrus Corporation's first quarter 2023 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. To ask a question during the session, you will need to press star 1-1 on your telephone. You will hear an automated message advising you that your hand is raised. To withdraw your question, simply press 1-1 again. As a reminder, today's conference is being recorded. I would now like to turn the conference over to your host, Jessica Hanover, Vice President of Corporate Affairs. Jessica, please go ahead.
spk01: 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.cirrus.com. With me on the call today are Obi Greenman, Cirrus's President and Chief Executive Officer, Kevin Green, Cirrus's Chief Financial Officer, Dr. Lawrence Korash, Cirrus's Chief Scientific Officer, Vivek Jayaraman, Cirrus's Chief Operating Officer, and Carol Moore, Cirrus's Senior Vice President of Regulatory Affairs and Quality. Cirrus issued a press release today announcing our financial results for the first quarter ended March 31, 2023, and describing the company's recent business highlights. You can access a copy of this announcement on the company website at www.cirrus.com. I'd like to remind you that some of the statements we will make on this call related to future events and performance rather than historical facts and our forward-looking statements. Examples of forward-looking statements include those related to our future financial and operating results, including our 2023 product revenue guidance and goals, operating expenses, anticipated cash use from operations, gross profits and gross margins, as well as commercial development efforts, 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 risk and uncertainty that could cause actual events, performance, and results to differ materially. They are identified and described in today's press release and under risk factors in our form 10Q for the quarter ended March 31, 2023, 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. These non-GAAP measures should be considered a supplement to and not a replacement for measures presented in accordance with GAAP. For 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 Obie, followed by Vivek to discuss some recent business highlights, and Kevin to review our financial results and expectations for 2023. And now, it's my pleasure to introduce Obie Greenman, Cirrus's President and Chief Executive Officer.
spk08: Thank you, Jessica, and good afternoon, everyone. 2023 has begun as we previously anticipated, and looking ahead, we are confident in our outlook for the full year. Accordingly, we are reiterating our full-year product revenue guidance range of $165 to $170 million. In the first quarter, we successfully completed a debt refinancing, which Kevin will cover later in greater detail, and we ended the quarter with a strong cash position. We remain committed to reaching adjusted EBITDA break-even this year as we grow the top line while managing operating expenses in a disciplined manner. This should allow us to self-fund the growth in our commercial business, our manufacturing capacity, and our pipeline. We are proud to see the continued and growing role that pathogen inactivation with the intercept blood system plays in efforts to safeguard the blood supply globally. Earlier this year, we were pleased by the acceptance and subsequent publication in the journal Transfusion of our longitudinal analysis of reported annual hemovigilance data from France's regulatory authority, ANSM, covering over 11 years and over 1 million intercept-treated platelet components transfused. The data shows stable platelet utilization trends coupled with reduced patient risk of adverse health effects during France's conversion to universal seven-day intercept platelets. In particular, no transfusion transmitted bacterial infections were reported with intercept platelets compared to 46 infections, including six deaths with conventional platelets. We're also making progress on our APAC strategy. During the quarter, we entered into a new supply agreement with the Hong Kong Red Cross Transfusion Service, which has now initiated use of intercept plasma to complement its ongoing use of intercept platelets. At a much larger scale, and in line with our previous comments during the 2022 year-end call in February, in collaboration with our China JV partner, ZBK, we have submitted our intercept playlet dossier to the Chinese regulatory authority, NMPA. I recently visited ZBK in China with our new board director, Dr. Hua Shan, I left our meeting with optimism for the opportunities ahead of us in China, where platelet demand outstrips supply, and the need for increased platelet transfusion safety and availability is high. Over 2.5 million platelet doses are transfused each year in China, and this figure is expected to grow in the low double digits for the next decade to become the largest market opportunity for Intercept globally. There's also strong interest by our partner, ZBK, in pathogen-reduced red blood cells in China, a market opportunity that is growing rapidly and expected to double the size of the U.S. market by 2030. We received MDR certification for intercept platelet processing sets in the European Union during the first quarter as well. I am proud of this year's team for achieving this milestone in such a timely manner. particularly as we know the MDR transition has created challenges across the industry. With respect to our Intercept red blood cell program, we've continued to work on the questions we received from our EU competent authority, CBG. In the U.S., enrollment continued during the first quarter in our Phase III red blood cell clinical trials, and we continue to track to our previously communicated timeline the completing enrollment this year for the RECIPE study and next year for the RETA study. supported by continued funding from BARDA. During the quarter, we received a commitment from BARDA for an additional $33 million. The ongoing partnership with BARDA for the development of the U.S. Red Blood Cell Clinical Program reminds us again of how pathogen reduction of blood components has also been incorporated into efforts around the globe to safeguard the blood supply. This was also evident a few weeks ago in an international symposium organized by Canadian Blood Services and HEMA Quebec to discuss strategies to mitigate the risk of transfusion transmitted infections following removal of blood donor deferrals. Multiple speakers recognized the important role of pathogen reduction for blood safety and availability, including positive commentary on the experience to date in Canada. From daily protection from bacterial contamination of platelets to pandemic preparedness against emerging pathogens, The Intercept blood system continues to be recognized and utilized to ensure patients have access to safe and effective blood components when needed. I would like now to turn the call over to Vivek to discuss the first quarter commercial highlights.
spk03: Thank you, Obi, and good afternoon to everyone joining on today's call. First quarter sales results were in line with our expectations given some of the previously referenced customer inventory reduction measures that took place during the period. From a platelet perspective, both in the U.S. as well as the EMEA region, we enjoyed continued engagement with existing customers while also taking tangible steps towards unlocking future growth opportunities. We are fortunate to have global leaders in the field of transfusion medicine that have decided to protect 100% of their platelet supply with Intercept. Their decisions resonate with customers across the globe as new blood centers and hospitals implement pathogen reduction. With Charité Hospital in Berlin now transfusing Intercept platelets, Seven of the top 10 hospitals in the world utilize Intercept to help safeguard at least some portion of their platelet supply. We are fortunate to collaborate with these world-leading institutions and take our responsibility as a trusted partner very seriously. As previously noted, we are undergoing a significant restructuring of our U.S. commercial organization in order to optimize our customer-facing efforts and expand our presence in hospitals. I'm pleased to report that we have filled all but one of our open sales positions. Throughout this process, we've been impressed with the caliber of applicants. As we transition to more clinician-facing sales activities, it is imperative that we employ experienced hospital-based sales professionals. This is especially important for the IFC rollout as we retain responsibility for clinical awareness and demand generation. We have almost doubled our hospital sales staff over the past year. With respect to ISC, we are setting the stage for accelerating product adoption. We are working to generate use case data that will further support the value proposition for ISC, including a recently initiated study with a prominent academic medical center in New York. We are looking forward to continuing to share clinician experiences with ISC at upcoming clinical conferences, including the Society for Obstetric Anesthesia and Perinatology and the Society of Cardiovascular Anesthesiologists annual meeting. In international markets, we continue to push to enter new markets and broaden global patient access to Intercept. For example, we are fully engaged in our support of Canadian Blood Services, or CVS, as they continue to roll out Intercept platelets across their service area. As previously described, we anticipate 12 to 18 months for full deployment across all CVS sites. This process is progressing well, and we are grateful for our partnership with CVS. We have initiated a validation study with Hema-Quebec, the other blood supplier in Canada, to evaluate the utilities intercept in their platelet production operation. With the upcoming Canadian Society of Transfusion Medicine conference later this month, we are excited to share news of our progress in Canada with a broader clinical audience. While Q1 2023 presented significant headwinds, I am encouraged by the way the global team navigated the challenges. We exited the quarter in a strong position with existing customers while simultaneously making material strides cultivating new ones. We grew and enhanced our hospital-facing staff while continuing to accumulate clinical evidence in support of our products. In sum, we are well positioned to grow the business and, most importantly, drive expanded patient access to Intercept as we push to do our part to help safeguard the global blood supply. I will now turn it over to Kevin to discuss our results and outlook in more detail.
spk04: Thanks, Vivek, and good afternoon, everyone. Today, I'd like to discuss our financial results for the first quarter, but also spend some time outlining the building blocks we've put in place for strategic financial health as we move ahead and return to growth. Specifically, I'll be discussing our focus on achieving breakeven on adjusted EBITDA, including gross margin expansion initiatives and management of operating expenses. as well as our recently completed term loan and revolving line of credit refinancing and expansion. Consistent with our expectations, we posted first quarter 2023 product revenue of $31 million, representing a year-over-year decrease of 17%. This was primarily driven by U.S. customers that recalibrated their inventory levels in an effort to manage their supply chains and working capital. We understand that this dynamic is largely complete and expect that we will see a return to more normalized order patterns and growth. Customers continue to prioritize intercept and build a bacterial safety compliance strategy inclusive of our product offerings. In EMEA, product revenues were down 5% year over year and up 4% sequentially. The year over year decline was almost exclusively driven by FX rates. Euro to U.S. dollar exchange rates averaged 1.07 during the first quarter of 2023 compared to approximately 1.12 in the prior year quarter. In addition to our product revenue and not included in our guidance, government contract revenue totaled $7.5 million in Q1 compared to $5.6 million for the prior year period. Included in our government contract revenue are the revenues recognized as reimbursement under our contract with BARDA, our agreement with the FDA to further whole blood pathogen reduction, and our more recent lyophilized pathogen reduced cryoprecipitate agreement with the U.S. Department of Defense. Turning now to our product gross profit and gross margins. Our first quarter, product gross profit was $17.3 million compared to $19.4 million during the prior year period, driven by the lower top line. However, product gross margin for the quarter improved meaningfully to 55.8%, up over 400 basis points when compared to the prior year period gross margin of 51.7%. This marks the fifth consecutive quarter of gross margin improvement and was driven by economies of scale, certain COGS reduction initiatives that are currently providing a benefit, and to a lesser extent, foreign exchange rates, whereby we sell and recognize revenue in EMEA at current FX rates by selling Euro-denominated inventory purchased several months ago at lower FX rates. We are working closely with our manufacturing partners and have several additional COGS reduction initiatives underway, which we expect will contribute to continued margin expansion over time. These include expansion into additional lower-cost sites for certain components and completed kits. Moving on, our first quarter operating expenses totaled $38.9 million, an increase of 12% over the prior year period, and included $5.7 million in non-cash stock-based compensation. By specific expense type, first quarter R&D expense totaled $17.4 million, compared to $14.1 million during the prior year. The increase in R&D expense was driven by additional personnel, the overall cost of attracting and retaining talent, and costs associated with our Next Generation Illuminator and increased government contract work. First quarter SENA expense was $21.6 million compared to $20.7 million in the prior year period. the slight increase in SG&A expense is primarily due to costs associated with increased U.S. sales team members brought on to drive growth in platelet and IFC sales, legal fees, and the overall cost of attracting and retaining our employees. On the bottom line, reported net loss attributable to SARIS for the three-month end of March 31, 2023, widened by $3.3 million, or 27% when compared to the same period in 2022. Net loss attributable to SPHERIS for Q1 totaled $15.6 million, or $0.09 per diluted share, compared to $12.3 million, or $0.07 per diluted share for the prior year period. Our first quarter losses, as reported by our non-GAAP adjusted EBITDA, to a negative $9.8 million compared to a negative $3.7 million during the first quarter of 2022. Turning to the balance sheet and cash flows, we ended the first quarter in a strong cash position with $94.7 million of cash and cash equivalents on the balance sheet. In terms of cash utilization, our cash use from operations was $8.5 million compared to $21.5 million during the prior year period. This improvement came despite the lower revenues and a marked investment in inventory for future growth. In March, we completed the refinancing of our term loan and revolving line of credit with MidCap. The revised terms allow for an additional three or more years of runway before principal must be repaid. In addition, we have two optional tranches for additional capital. to help us invest in cost reduction and capacity expansion initiatives. Additionally, we've expanded the revolving letter credit to allow us to offset investment in working capital as our business continues to grow. This amended facility with MidCap should provide us sufficient capital for the foreseeable future and is a testament to the trust that MidCap has in our business, despite an extremely difficult credit market. In closing, as we advance through 2023, we expect the resolution of the challenges that impacted our U.S. product revenue, and we reiterate our full year 2023 guidance range of $165 to $170 million. With the future growth in our commercial business, steady, if not improving, gross margin contribution, and management of our operating expenses, we remain committed to achieving break-even for adjusted EBITDA this year. With that, let me turn the call back over to the operator for Q&A.
spk05: Thank you. At this time, we will conduct the Q&A session. As a reminder, to ask a question, you'll need to press star 1 1 on your telephone and wait for your name to be announced. To withdraw your questions, simply press star 1 1 again. Please stand by while we compile the Q&A roster. And our first question comes from the line of Brandon Folks with Cantor Fitzgerald. Brandon, your line is open. Please go right ahead.
spk09: Hi, thanks for taking my questions and congratulations on the progress. Can you just elaborate perhaps on how much of that Red Cross inventory work down was completed in 1Q? I think I did hear the comments that it's largely behind you, but was that largely behind you at the end of one cue. And then, um, secondly, maybe just, can you help us think about the, uh, revenue opportunity in China? Thank you very much.
spk07: Thanks, Brandon. Uh, the thing, would you like to take the first part of that question? I'll take the, uh, second part, or you can cover China as well.
spk03: Uh, sure. I'm, I'm happy to do that. And, uh, I'll, I'll hand it back to you, uh, regarding China, uh, So on the first part, you know, we do feel that most of the inventory management issues are behind us exiting Q1. And I think that is buffeted by what we're seeing so far quarter to date in terms of order patterns for Q2. And so we are encouraged about that. And it was really contemplated when we provided guidance here at the beginning of the year. With respect to China, you know, that's a tremendous market opportunity for us. So we had the opportunity to visit with our joint venture partner earlier this year, so can provide a little bit more detail. But, you know, that is a market that has the potential to be the largest market in the world in terms of platelet opportunity. And we feel like there's a tremendous clinical interest and demand for Intercept. So, Obi, I'll hand it back to you.
spk08: Yeah, the only other thing I'd say is that the interest by our Chinese partner in red cells as well was really, I thought, you know, validating just given that they see the market opportunity. Our partner there, ZBK, has about 70-plus percent market share in the pathogen-activated plasma business, so they really are very keyed in with their customers. And they also have a strong presence across the entire country, so I think it really is are happy with the progress we're making there, and it was great to get that NMDA submission in recently.
spk09: Great. Thank you very much. I appreciate you taking my question. Thanks, Brendan.
spk05: Okay. Stand by while I bring the next caller to the stage. And our next question comes from Jacob Johnson from Stevens. Jacob, your line is open. Please go right ahead.
spk06: Good afternoon. This is Mack on for Jacob. Just to follow up on the last question, now that you've submitted the dossier in China, what is the timeline for approval there?
spk08: Yeah, the next step, Mack, there is that we should hear some feedback from the NMDA as to whether they need additional in-country clinical data. We did submit a lot of data from around the world as part of that submission, so there's a degree of confidence that what we submitted may be sufficient, as well as some additional clinical study out of a study we did in Hong Kong. But we won't have visibility into whether an additional clinical trial is required until
spk06: Great. And then on the commercial reorganization and clinician focus, this seems particularly important for ISC, but what does it mean for your platelet efforts? That's a great question.
spk07: Now, Vivek, would you like to cover that?
spk03: Yeah, happy to. You know, it's beneficial on both ends. Certainly from an ISC standpoint, we own responsibility for platelet clinical awareness and demand generation. And so getting into hospitals, talking to treating clinicians is absolutely an imperative for us. So expanding the hospital-based sales team, those who have experience selling therapeutics is critical. It has significant benefits for platelets as well, because if you think about the opportunity to go into hospitals who now that Passage-reduced platelets are standard of care in the US. They're going into institutions that have similarity with PI. We can also go into hospitals that have expressed an interest in ISC earlier in the adoption curve for platelets and stoke interest there as well. So we view it as synergistic in terms of impacting both franchises, but certainly is critical to launching the new therapy with ISC.
spk06: Great. Thanks for taking the questions. Thank you.
spk05: And as a reminder, to ask a question, you'll need to press star 1-1 on your telephone and wait for your name to be announced. We are standing by for further questions. And one moment for our next question. Coming from the line of Matt Blackman at Stiefel. Matt, your line is open. Please go right ahead.
spk02: Oh, thank you, and thank you for taking my question. I apologize. I've been hopping around calls, so if I've asked something, you addressed it in the prepared comments or in the Q&A. Apologies. Two questions for me. I'm just curious, on IFC, is there any way to provide any sort of metrics to help us better understand where you are in the ramp, whether it's number of accounts or utilization? Just anything can provide a picture of the adoption curve. And then, you know, beyond clinical data generation, which we've talked about in the past? What else are you doing, you know, from a selling standpoint to help drive uptake? And then I've got a follow-up.
spk07: Yeah, thanks, Matt. Vic, again, I'll turn it over to you for answers to these questions.
spk03: Sure, happy to. You know, and Matt, glad you could join us. I'm sure it's quite busy for you right now with peak running season. But, you know, to start off, one of the things we talked about earlier in the call was we've made a concerted effort to increase our feet on the street and we've now nearly doubled the number of hospital-based sales professionals we have within the organization. So the first thing we need to do, as you're fully aware, is really get them educated, trained, and work diligently to reduce their time for productivity so they can start generating product use cases. So what we're tracking right now is really hospital visits and engagements, and then on the front end, the contract initiation process. clinical demand generation and awareness, you know, the sort of long-haul and detent is the contracting process, depending upon the institution or group of institutions. We may have to go to a new product committee. We may have to have separate meetings to drive clinical awareness and then to speak to a non-clinical decision maker. So, it really varies by institution, but that process is something we're tracking very closely. Now that we were able to get really be successful in terms of accelerating our hiring while maintaining a high level of quality to focus on training, education, and then contract initiation. And so that's really where the bulk of the effort is for the sales team. I'll be on it next to you or I don't know, Matt, if there's a follow up on that.
spk08: I think the second part of Matt's question was just around, you know, what are we doing besides sort of the clinical studies to create awareness and, you know, maybe you can comment on some of the case studies that we're seeing coming out of the sites that are in routine use.
spk03: So certainly generating case studies and use information that we can share with other institutions and interested parties is something that's a big area of focus. You know, we recently talked about a case study that we generated coming out of the University of Florida at Shands Hospital, and you know, whether it's on the impact of IFC from a clinical value standpoint or the benefit associated with IFC relative to wastage reduction and attendant cost savings, you know, the peer-to-peer dynamic in terms of really gaining interest, credibility, and ultimately adoption of the product is critical. And so you tend to get those white papers and use cases well in advance of sort of controlled clinical data. So we're focusing on getting that out there.
spk02: Great. I appreciate that. And then, again, apologies if you updated some of the stuff that I'm about to ask, but we're having some conversations with some of the admittedly smaller blood banks, but we're hearing some pretty consistent feedback on a couple of hurdles to adoption. I'm speaking about platelets. I should have mentioned that at the outset. And the two items, and I don't think it's going to surprise you, but the two items that were most often mentioned was the seven-day label and Those two extra days were, quote, unquote, make a big difference. Just minus where we are with label expansion and if there's the potential we could see that in 2023 or is that 2024? And I guess the bigger one and seemingly harder to tackle are the guard bands. And is there anything you can do or maybe what the process is to modify those guard bands? Is it FDA driven? Is it sort of similar to the platelet guidance documents that we were waiting for all those years? I guess I don't really fully understand who sets those, and it's whether it's something that over time, you know, you can nudge maybe more favorably for Intercept. Just any commentary on both those things would be really helpful. I appreciate it. Thank you.
spk08: Yeah, I'll take a shot at that, Matt, and Vic, if you have any additional comments, please jump in, but Yeah, at least on the seven-day label claim, as you know, Matt, we have that claim broadly across Europe and also in Canada now. And so we do believe our products perform well out to a seven-day shelf life. What we need to do to get that label in the United States is to do another recovery and survival study. And right now we have a day five study that was a post-approval commitment that's underway That will inform our ability to do a day six or seven study, and we're really looking at how do we accelerate that. It won't be a 2023 event, but we definitely are focused on that. As it relates to the guard bands, you know, it's surprising because, you know, I think our largest customer, the American Red Cross, has really been able to optimize Intercept with their collection practices as it now is seen a higher split rate than they've ever had, even after implementing Intercept. And so it really comes down to sort of the operational efforts of our team with the blood center operations folks, and we know we can do that based upon our experience today in the U.S., but also more broadly across Europe. So I don't think that's a limiting factor. but it's certainly something that we have to overcome at the outset when blood centers are starting to implement intercept. Was there any additional commentary there?
spk02: No, that was helpful. Okay, thanks.
spk08: Thanks, Matt. Thank you.
spk02: No, I'm set. Thanks.
spk05: And that concludes our Q&A. I would like to turn it back to Obie Greenman, Chief Executive Officer, for closing remarks.
spk07: Well, thank you again for joining us today.
spk08: And for your interest in service, we look forward to continuing to update you on our progress throughout the rest of the year. Thanks for joining today.
spk05: This does conclude our program. You may now disconnect.
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