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    Cerus Corp (CERS)

    Business Description

    Cerus Corporation (CERS) is a biomedical products company dedicated to enhancing the safety of the global blood supply. The company develops and commercializes the INTERCEPT Blood System, a proprietary technology designed to reduce blood-borne pathogens and donor leukocytes in blood components intended for transfusion. Cerus operates globally, selling its products in regions such as the United States, Europe, the Middle East, and Latin America, with a focus on pathogen reduction in platelets, plasma, and red blood cells.

    1. INTERCEPT Blood System for Platelets and Plasma - Reduces pathogens in platelets and plasma to ensure safer transfusions. Approved by the FDA in the U.S. and certified in the EU, it is marketed globally.

      • Disposable Kits - Used for pathogen reduction during blood processing.
      • UVA Illumination Devices - Supports the pathogen reduction process.
      • Maintenance Services - Includes spare parts and storage solutions for illuminators.

    2. INTERCEPT Blood System for Cryoprecipitation - Produces INTERCEPT Fibrinogen Complex (IFC) for treating bleeding disorders and pathogen-reduced plasma, cryoprecipitate reduced. Approved by the FDA for use in the U.S..

    3. INTERCEPT Blood System for Red Blood Cells - Currently in development, this system is undergoing Phase 3 clinical trials in the U.S. and has a pending CE Certificate of Conformity application in the EU. It aims to reduce pathogens in red blood cells for transfusion.

    Q3 2024 Summary

    Initial Price$1.72July 1, 2024
    Final Price$1.70October 1, 2024
    Price Change$-0.02
    % Change-1.16%

    What went well

    • Strong momentum in IFC adoption, with growth driven by both new customer acquisitions and deeper penetration in existing accounts; approximately 55%-60% of customers were added this calendar year, and some institutions are now at 100% IFC usage across all clinical departments, indicating significant growth potential for this therapeutic category.
    • Upcoming launch of the LED illuminator in Europe in 2025, viewed as a foundational new platform for the business and the use of platelets and plasma in blood centers, with plans to roll out across multiple customers in 2025 and 2026, followed by a PMA submission in the U.S. in 2026; this innovation is expected to improve future processes and drive growth.
    • Strong financial outlook, with increased revenue guidance, expecting growth, sustaining gross margins, and continued leverage in operating expenses; the company is trending in the right direction and is optimistic about the future, focusing on high-return investments in capacity expansion and geographic expansion, which are beneficial to shareholders.

    What went wrong

    • Significant dependence on government funding for R&D: The company heavily relies on government contracts, such as BARDA agreements, to fund a substantial portion of its R&D expenses. Kevin Green stated, "Almost a majority of our R&D expenses are funded by BARDA... The remaining items are initiatives that are foundational to our future growth and revenue trajectory, like the LED illuminator... We're not done planning and we're not providing guidance today."
    • New LED illuminator may not improve profit margins: The upcoming LED illuminator is expected to have higher cost of goods sold (COGS), and margins are anticipated to be neutral rather than accretive. Kevin Green mentioned, "The technology is newer. The COGS will be slightly higher... We expect that the margins on that product will be neutral to our current margin business."
    • Conservative guidance despite beating estimates indicates potential uncertainties: Despite outperforming in Q3, the company maintained conservative full-year adjusted EBITDA guidance due to variability in operating expenses and margins. William Greenman said, "There is variability in operating expenses and margins... So we really want to hedge that as much as possible."

    Q&A Summary

    1. IFC Growth Outlook for 2025
      Q: How should we think about IFC growth in 2025?
      A: Management anticipates continued growth in IFC driven by both new customer acquisition and expanding usage within existing accounts. With approximately 55-60% of customers added this calendar year , recent BLA approvals enhance supply capacity to meet growing demand. Hospitals recovering from COVID are now more open to adopting new projects like IFC, creating meaningful tailwinds for 2025.

    2. Manufacturing Capacity for IFC
      Q: Do you need more manufacturing capacity for growing IFC demand?
      A: As demand for IFC grows, Cerus continues to work with blood centers to add manufacturers. The addition of three BLAs in the quarter is significant to ensure they can meet increasing demand, and they plan to recruit and partner with more blood centers to produce IFC.

    3. LED Illuminator Approval Timeline
      Q: What's the timeline for LED illuminator approval and launch?
      A: Cerus is targeting a European launch of the LED illuminator in 2025. They plan to roll it out across multiple customers throughout 2025 and '26 in Europe. A PMA submission in the U.S. is likely to take place around 2026.

    4. Impact of LED Illuminator on Margins
      Q: Will the LED illuminator affect gross margins?
      A: The LED illuminator technology is newer with slightly higher COGS and ASPs. The margins on this product are expected to be neutral to current margins. It provides a platform for future growth and potential product iterations.

    5. Government Contract Revenue and BARDA
      Q: How should we think about government contract revenue and the new BARDA contract?
      A: The 2016 BARDA contract had lighter revenues due to study completion. As new sites ramp up, revenues and associated expenses will increase over the next 12-15 months. Activities under the new 2024 BARDA contract, with $32 million committed over several years, will begin in earnest in 2025.

    6. Sustainability of Cash Flow
      Q: How sustainable is cash flow going forward?
      A: Cerus expects to generate operating cash flows as a result of top-line growth, margin management, and OpEx leverage. Inventory built in 2023 can be converted into finished kits without replenishing, aiding cash flows. In 2025, working capital will need to be rebuilt to meet growing demand, but this should be offset by operating income.

    7. R&D Expenses and Funding
      Q: To what extent are R&D expenses funded by BARDA?
      A: A significant portion of R&D expenses are funded by BARDA, especially with multiple agreements in place. Initiatives like the whole blood program and lyophilized IFC are major components. Remaining expenses are for foundational initiatives like the LED illuminator.

    8. Uses of Cash Going Forward
      Q: What are other uses of cash we should consider?
      A: Cerus plans to manage working capital, potentially leveraging their revolving line of credit. Other uses include CapEx for COGS reduction initiatives, capacity expansion, and geographic expansion, which are viewed as high-return investments.

    9. Adjusted EBITDA and Guidance Conservatism
      Q: Is the full-year adjusted EBITDA guidance conservative?
      A: While tracking slightly better than neutral guidance, management maintains caution due to many moving parts. They expect growth with increased revenue guidance, sustaining gross margins, and continued OpEx leverage. Variability in operating expenses and margins drives a conservative stance.

    10. Value Proposition of LED Illuminator
      Q: What is the value proposition of the LED illuminator for customers?
      A: The LED illuminator offers improved throughput and ease of use. It ensures supply chain continuity and reliable performance, which is critical for customers processing hundreds of units daily. It's a foundational platform for future technological evolution, potentially impacting COGS positively.

    11. Future BLA Approvals for IFC
      Q: Should we expect more BLA approvals for IFC?
      A: Cerus anticipates more BLAs to come through in 2025 and beyond. Other blood center partners are preparing BLA applications, and the timing may vary. Recent approvals provide sufficient capacity to aggressively drive demand.

    12. Intellectual Property Extension
      Q: Does the LED illuminator extend IP protection?
      A: Yes, the development of the LED illuminator over the past five years has generated significant IP, extending the company's moat. This IP is filed globally, improving the product's IP profile worldwide.

    Key Metrics

    View all financials →
    Revenue by Segment - in Millions of USDFY 2013Q1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024
    Product Revenue30.97438.8539.7746.77156.36738.3745.07946.02
    Government Grants and Cooperative Agreements Revenue--------
    Government Contract Revenue7.5028.887.486.5730.4305.035.4404.64
    Total Revenue38.47647.7347.2553.34186.79743.4050.51950.66
    KPIs - Metric (Unit)FY 2013Q1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024
    Shelf Life of Platelet Kits (U.S.) [Months]6666-121212
    Shelf Life of Platelet Kits (Global) [Months]6666-121212
    Shelf Life of Platelet Kits (Global) Extended [Months]24242424-242424
    Shelf Life of Plasma Kits [Months]6666----
    Shelf Life of Plasma Kits Extended [Months]24242424-242424
    Shelf Life of IFC Product [Days]5555-555
    FDA Agreement Value [$ Million]11.111.111.111.1-11.111.111.1
    DoD Agreement Value [$ Million]9.117.817.817.8-17.817.817.8
    BARDA Committed Funding [$ Million]181.9182.0185.5185.5-185.5185.5185.5
    BARDA Total Funding Opportunity [$ Million]278.9278.9270.2270.2-270.2270.2270.2

    Executive Team

    NamePositionStart DateShort Bio
    William M. GreenmanPresident, Chief Executive Officer, and DirectorApril 2011Joined Cerus in 1995 as Director of Business Development. Held roles including Senior VP of Business Development and Marketing, Chief Business Officer, and President of Cerus Europe. Holds a B.A.S. in economics and biological sciences from Stanford University.
    Kevin D. GreenVice President, Finance, and Chief Financial OfficerFebruary 2013Previously served as VP, Finance and Chief Accounting Officer from March 2009. Held financial management roles at Macromedia, Inc. from 2000 to 2006. Certified public accountant with a BS in Accounting from California State University, Fresno.
    Vivek JayaramanChief Operating OfficerMarch 2020Previously Chief Commercial Officer from August 2016. Held leadership roles at TriVascular Technologies, Inc. and Medtronic, Inc. Holds an MBA from the Wharton School and dual bachelor’s degrees from the University of Michigan.
    Richard BenjaminChief Medical OfficerJuly 2015Former Chief Medical Officer for the American Red Cross (2006–2015). Board Member and Regional Director for North America for the International Society of Blood Transfusion. Adjunct Full Professor of Pathology at Georgetown University. Holds a Ph.D. from Cambridge University and completed post-doctoral research at Stanford University.
    Chrystal JensenChief Legal Officer and General CounselDecember 2012Former Senior Corporate Counsel at Zynga Inc. (2011–2012) and partner at Cooley LLP. Specializes in corporate and securities law. Holds a BS from the University of Colorado and a JD from the University of Chicago.
    Carol M. MooreSenior Vice President, Regulatory Affairs and QualityFebruary 2013Previously VP, Regulatory Affairs, Quality and Clinical (2008–2013). Held roles at Bayer Corporation, including VP, Worldwide Regulatory Affairs. Focused on registration and compliance of biological and biotech products. Holds a BS in Biological Science from California State University, Hayward.
    Dean GregoryMember, Board of DirectorsJuly 1, 2024 (expected)Brings over 30 years of experience in global blood transfusion and cell therapy. Former President, Global Commercial Operations, Med Tech at Fresenius Kabi. Held leadership roles at Fenwal Inc. and Baxter International. Focused on commercialization, product development, and strategy in transfusion medicine and cell therapy.

    Questions to Ask Management

    1. With your gross margins expected to remain relatively stable near current levels, what specific strategies do you have to significantly improve margins moving forward?
    2. Given that a significant portion of your R&D expenses are funded by BARDA, how are you preparing for potential fluctuations in government funding, and what steps are you taking to mitigate risks associated with this dependency?
    3. Considering the anticipated regulatory approval of the LED illuminator in Europe in 2025 and the PMA submission in the U.S. in 2026, how does this timeline affect your competitive positioning, and what measures are you taking to address any potential market challenges?
    4. As demand for INTERCEPT Fibrinogen Complex (IFC) grows, do you anticipate any manufacturing capacity constraints, and how might these impact your ability to meet customer demand and revenue growth targets?
    5. With the completion of the ReCePI trial and the planned conclusion of the RedeS trial, how do you plan to offset the potential decrease in government contract revenue and sustain growth in this area?

    Past Guidance

    Q3 2024 Earnings Call

    • Issued Period: Q3 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Full-Year 2024 Product Revenue Guidance: Revised upward to $177 million to $179 million, up from the prior range of $175 million to $178 million.
      2. Full-Year 2024 INTERCEPT Fibrinogen Complex (IFC) Revenue Guidance: Revised upward to $9 million to $10 million, up from the prior range of $8 million to $10 million.
      3. Gross Margins: Expected to remain close to Q3 2024 levels of 56.9% for the balance of the year.
      4. Adjusted EBITDA: Expected to deliver positive adjusted EBITDA for FY 2024.
      5. Operating Expenses:
        • SG&A expenses: No significant swings anticipated for the remainder of 2024.
        • R&D expenses: Expected to see a modest increase in Q4 2024 due to ramping enrollment in the RedeS clinical study and activities under the new BARDA contract.

    Q2 2024 Earnings Call

    • Issued Period: Q2 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Full-Year 2024 Product Revenue Guidance: Raised to $175 million to $178 million, up from the prior range of $172 million to $175 million.
      2. Full-Year 2024 IFC Revenue Guidance: Reiterated at $8 million to $10 million.
      3. Adjusted EBITDA: Committed to achieving positive adjusted EBITDA for FY 2024.
      4. Gross Margins: Expected to remain stable at approximately Q2 levels (54.7%) for the balance of the year.
      5. Operating Expenses:
        • SG&A expenses: No significant swings anticipated for the remainder of 2024, with continued leverage expected.

    Q1 2024 Earnings Call

    • Issued Period: Q1 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Full-Year 2024 Product Revenue Guidance: Expected to be $172 million to $175 million, reflecting double-digit growth from 2023 levels.
      2. Full-Year 2024 IFC Revenue Guidance: Expected to be $8 million to $10 million, representing growth of approximately 25% to 50% compared to 2023 IFC sales.
      3. Non-GAAP Adjusted EBITDA: Committed to achieving adjusted EBITDA breakeven for FY 2024.
      4. Operating Cash Flow: Anticipates potentially generating positive operating cash flows for FY 2024, with some possible quarterly fluctuations.

    Q4 2023 Earnings Call

    • Issued Period: Q4 2023
    • Guided Period: FY 2024
    • Guidance:
      1. 2024 Product Revenue Guidance: Expected to be $172 million to $175 million, reflecting double-digit growth from 2023.
      2. 2024 IFC Revenue Guidance: Expected to be $8 million to $10 million.
      3. Non-GAAP Adjusted EBITDA: Aims to sustain or improve upon the positive non-GAAP adjusted EBITDA achieved in Q4 2023 for FY 2024, though some quarter-to-quarter fluctuations are expected.
      4. Operating Cash Flows: Expects improvements in operating cash flows for FY 2024 and potentially achieving positive operating cash flows for the year.