Good morning. Josh Jennings from the Medical Devices Team at TD Cowen. We are moving through the devices track here on the third day of the 44th Annual Healthcare Conference. We're excited to have executives from Cerus join us today, CEO Obi Greenman, and CFO Kevin Green. We're gonna hand it over to you, Obi, for a presentation and Kevin, and then we'll have some time for Q&A at the end.
Yeah, that sounds good.
Great. Thank you.
Thanks a lot, Josh and Eric, for the invitation here to the TD Cowen 44th Annual Healthcare Conference. I'll go ahead and get started here, but I'll be tag-teaming the presentation with Kevin Green today since we had our earnings call yesterday and wanted to highlight the first in our company's history of reporting Adjusted EBITDA positivity of $5 million. And Kevin will go into more details in that regard. Before I get started, I wanted to at least acknowledge our safe harbor language and, well, making a few forward-looking statements today and refer you to the risk factors as defined or discussed in the SEC Forms 10-K and 10-Q. You know, just quickly as an introduction, Cerus has been in the business of pathogen inactivation of transfused blood components for many years.
We are the market leader with over 20 years of commercial experience now on a global basis. We have global sales in over 40 countries around the world, and that continues to expand. Our mission really is quite simple in that we expect to be the standard of care in transfusion medicine around the globe, and that provides a very significant market opportunity to continue to penetrate for the years to come.
And then, as of Q4 of last year, we surpassed the cumulative kit sales to treat 16 million transfused platelet and plasma doses, which really is an important milestone as you reflect on the number of patients that are impacted on a daily basis by our technology. Our technology for inactivating pathogens and transfused blood components covers individual components, platelets, plasma, red cells, and INTERCEPT Fibrinogen Complex, which is commonly called cryoprecipitate, which is a derivative of plasma.
So, as I mentioned, as we surpassed the 16 million transfused platelet and plasma doses mark, it, you know, made us all sort of reflect on the number of patients that are impacted by our technology on a daily basis. So, thousands of patients are transfused with INTERCEPT-treated components each day. And also, our products are used in blood centers around the globe, so they're actually being used to create these components on a daily basis, which puts, you know, I guess, a significant responsibility on the shoulder of the company because we are now core to the safety and availability of blood components in many countries around the world.
This is probably most profoundly demonstrated in a presentation earlier this year put on by—it was a symposium put on by Yale University, the American Red Cross, and Association for the Advancement of Blood & Biotherapies, or AABB, focused on the security or actually insecurity of the platelet supply in the United States. What really struck me was how ubiquitous our technology has become across the world, specifically in the United States and Canada where all of our products are now treated with INTERCEPT, and that's continuing to expand. So, I'll turn it over to Kevin to talk about, you know, why we're so excited about this other milestone that I mentioned up front around Adjusted EBITDA positivity and our company's strong focus on making sure that's sustainable and improving in the years to come.
Thank you, Obi. So, over the following few slides, I thought I would do a recap of the key points of our earnings call, and really set a foundation for why we're excited about the future. You know, as you can see here, we reported $46.8 million for Q4, which was up 18% sequentially, 6% year-over-year. That culminated in $156.4 million for the year, which is somewhat of an anomalous result because, for those that have followed the company for a while, the customer base that we have is, you know, they, they take a while to, to make a decision, but they're very sticky. So we, you know, as you convert new customers and as you increase penetration, you really establish a new foundation for each succeeding period.
We are re-providing guidance or reiterating guidance for 2024 in the range of $172 million-$175 million, returning back to double-digit growth for the year. If you use 2022 as kind of a baseline because, as I said, 2023, we did have some anomalous results in the first half. We're seeing strong growth coming out of our platelet franchise in both Europe and in the United States. This year, we're providing guidance for our INTERCEPT Fibrinogen Complex product, which is fairly nascent in its launch. And as Obi just mentioned, that guidance is $8 million-$10 million, which represents 30%-50% growth over the 2023 numbers. Right now, we're about 60%, a little over 60% penetrated in the U.S. for the platelet franchise.
As we continue to gain market share and reach a saturation level, IFC is really the kind of midterm growth driver for the company. So, we're excited about that launch. We're excited about the growth prospects, as evidenced by some of the large national blood services that have adopted the technology and the increased number of hospitals that are embracing the technology. Below the top line, our gross margin profile continues to be fairly stable. We expect slight improvement for 2024. It's really a economies of scale. We sell a disposable kit. As we produce more and more and absorb overhead, we get leverage from that manufacturing. So, we should see continued improvement in the overall margin profile. And with that, as a backdrop and the growth, then focusing on our operating expenses, which is a very important component.
As you can see, over time, we've continued to leverage the investments we've made in SG&A. SG&A, as a percentage of overall product revenue, continues to decline. We expect that will be durable, and, you know, we'll see that effect in 2024 as well. I mentioned that the customers are sticky. I think an important consideration for our overall improvement to EBITDA on a go-forward basis is this leverage that we can get from the business. The customer base, while sticky, is also very concentrated. There's about 100 customers in the U.S., about 300 in Europe. We are calling on most of those customers already. And so, as we generate more and more revenue, we really won't need to invest a proportionate amount of capital to gain that revenue.
On the R&D side as well, we're very focused and, on prioritization of projects that we believe will drive value for shareholders. A lot of our R&D is reimbursed by, the government. So, we have three awards with the U.S. with, with U.S. government agencies. One with BARDA to support our red cell program. Another with the FDA to support a whole blood pathogen reduction initiative. And lastly, an agreement that we have with the U.S. Department of Defense for a lyophilized or freeze-dried INTERCEPT Fibrinogen Complex. So, in summary and then this is a an eye chart here, but I think it's important if you look at the, the bottom line, our Adjusted EBITDA metric is an EBITDA metric by any common definition, with the exception that we also back out the revenue that we receive from those government contracts and the associated expenses.
The idea is to isolate the commercial business on a go-forward basis. In addition, we back out non-cash stock-based compensation. As Obi mentioned in his opening remarks, Q4 was a target quarter for us to reach neutrality on Adjusted EBITDA. In fact, we exceeded that. We generated about $5 million, just over $4.5 million of Adjusted EBITDA positivity. And if you think back to the comments that I made earlier, we've got a growing revenue base with a sticky customer base that we service extremely well. We've got an INTERCEPT Fibrinogen Complex product that's growing. It's a $300 million+ market opportunity, so we're really just scratching the surface there. We've got stable and improving margins, and we've got leverage in our operating expenses.
So, we feel fairly confident that we're going to continue to see improvements in the overall Adjusted EBITDA metric. With that said, I do think there's the potential to have some chop quarter- to- quarter. But overall, our focus and direction is to improve upon that Q4 2023, you know, break-even goal that we had and continue to drive leverage and value creation. Lastly, I would say 2024 is a period on the cash flow side where, beyond Adjusted EBITDA, we expect that our burn rates will come down dramatically, and have the potential to generate operating cash flows.
We, you know, 2023, if you look at the succession of quarters, we built up a lot of inventory. We expect that to reverse. We start with the guidance that we have of $172 million-$175 million in top line, we'll convert that inventory into cash. And on the payable side, we'll maintain December 2023 levels. With that, I'll turn it back over to Obi.
Thanks, Kevin. For those of you in the room that may not know a lot about transfusion medicine, I thought I'd give a brief primer on the field and its inherent complexity to maintain the safe blood supply globally. So, you know, obviously, blood transfusions are critical supportive therapy for many patient indications. And as modern healthcare evolves globally, the need for blood components continues to increase.
There's about more than 100 million units of blood are donated per year worldwide. Typically, donors come into blood centers. They donate the blood. That's then processed into the individual components, platelets, plasma, red cells, and cryoprecipitate. Those are then shipped to hospitals, which are the customers of the blood centers. And then ultimately, those products are then distributed to patients and the clinicians that transfuse them. Our technology, the INTERCEPT Blood System, is applied to all four blood components.
For the platelet, plasma, and fibrinogen complex products, we use a photochemical 'cause those products allow for UVA transmissivity, because they're more or less clear. Whereas red cells don't allow for a photochemical approach, because they contain hemoglobin and those absorb in the UVA spectrum that's used to activate the photochemical approach used for platelets and fibrinogen and plasma.
The technology we use is targets nucleic acid, DNA, and RNA to prevent pathogen proliferation. The next slide sort of shows how that happens. So, the photochemical amotosalen binds to the DNA or RNA. And then when it is activated by UVA light, it creates a covalent crosslink to the single-stranded or double-stranded DNA or RNA. And that inactivates pathogens like viruses, bacteria, protozoa like malaria, spirochetes, which is syphilis, as well as leukocytes, which are white blood cells that can create Transfusion-Associated Graft-Versus-Host Disease.
The reason this works in blood components is that blood components are enucleated and don't contain any functioning DNA or RNA. And therefore, by targeting nucleic acid, you're targeting the pathogens in the blood component. And that technology then is incorporated into disposable sets that Kevin mentioned, that we sell to blood centers around the world. So, it's really a razor-razor blade model in which the disposable set revenue represents 95%+ of our overall revenue on an annual basis.
So, it really is a recurring revenue model that Kevin mentioned. And you know, once you've got the investment in place, it really is sustainable on its own. An example of that is that Switzerland now has been using the technology for over a decade. And we really don't have anyone in Switzerland servicing that account other than ongoing sort of technical support when they need it.
It is really a technology that's implemented completely and seamlessly into blood center operations. Just to quickly go through the process, the component, whether it's platelets or plasma, is sterilely docked or sterilely connected to this set. The red pouch in this diagram contains the photochemical. It's then transferred by gravity into the illumination container, which is then placed into the illumination device or illuminator. And that then is turned on for roughly three to 10- minutes, depending upon the volume of the blood component. It then is transferred into a CAD step or a compound absorption device step. There's two different ways to do that, one for platelets and one for plasma. And then that removes all the residual photochemical or amotosalen and then ultimately goes into the final storage bag.
So, in practice, this process takes a fairly limited amount of hands-on time and is really seamless in blood center operations. The total addressable markets that we're looking at for intercept are significant. For platelets alone, it's about $1.3 billion globally. Plasma is about $700 million. As Kevin mentioned before, the intercept fibrinogen complex in the United States, we estimate to be approximately $300 million a year, using conventional cryoprecipitate as the metric for that TAM. Then importantly, as I mentioned upfront, the demand for blood components continues to increase, specifically with regard to platelets. And so, we do see that the global TAM for platelets will increase over the next five to seven years, past $1.5 billion, and in the U.S., past $200 million, just given the inherent demand for platelet components and the insufficient supply.
Because of the importance of the INTERCEPT Fibrinogen Complex to our future growth, I thought I'd spend a few moments on that. As we were developing this product, we were really focused on an unmet clinical need. And that's the impact that hemorrhage has as the leading cause of preventable death and to date, especially in young people, from traumatic injury, and to date, that's been unaddressed. And so, when we were developing the product profile for INTERCEPT Fibrinogen Complex, we were really focused on four key attributes. Obviously, we were focused on protecting patients, and that's where the INTERCEPT technology comes in. We also wanted to make sure that the coagulation factors in the IFC product were sufficient to really provide a robust dose of fibrinogen and other coagulation factors to the patient.
Then, we wanted to make sure, just given the importance of time during hemostatic resuscitation associated with trauma or major bleeding events, that you really could get that product to the patient as quickly as possible. Lastly, just given the current issues with conventional cryoprecipitate and the wastage rates of roughly 30% in many hospitals, we wanted to make sure that we had a product that would reduce that waste significantly. So, you know, one of the ways to think about this is that, in massive transfusion protocols for major hemorrhagic events or trauma, as I mentioned, time matters a lot. They have these rounds of blood components that come into the OR or, essentially, coolers. Those are then given to the patient in multiple rounds until the patient stops bleeding or is resuscitated.
And today, with conventional cryoprecipitate, where the room temp storage is only good for four to 6- hours, that delays the availability of cryo until the third round of the MTP. With our product, which has a five-day effective shelf life after thawing, you can provide that product upfront in the first two rounds of the MTP, really impacting the overall hemostatic resuscitation of the patient. And this is something that hospitals and clinicians around the country are very focused on. Another way of looking at this is in a diagram that came out in a paper this week, actually, in the Transfusion journal, by a number of leading experts in the field, including one of our employees, Nadia Kettner. And the way to look at this is each one of these bars represents the initial rounds of the MTP protocol.
As you can see on the left, where you have a balanced ratio of blood components being used in each round of one-to-one, one red cell, one plasma, and one platelet. But without having cryoprecipitate as a source of fibrinogen, concentrated fibrinogen until round two, three, or four, you see a dramatic impact on the overall levels of fibrinogen. So, you really don't get the necessary fibrinogen dose in to create hemostasis, after the patient's gotten up to 8- liters of blood components in those first two rounds, leading to some kind of dilutional coagulopathy. Whereas when you model in what the impact of IFC is for when it's being delivered in the first two rounds of the MTP, you do get to 200-300 milligrams per deciliter of fibrinogen in the patient.
So, this is really something that physicians are starting to realize and seeing in routine practice. So, now that we're 2+ years into the launch of INTERCEPT Fibrinogen Complex, and this, you know, the launch was initially during COVID, so it was sort of challenging to gain access to the hospitals, but we're really starting to see some meaningful case studies come out of major academic institutions, across the U.S. So, here you can see as it relates to improved turnaround time. And this means, you know, how quickly can you get INTERCEPT Fibrinogen Complex to the patient, once it's ordered? And, at a number of different hospitals, you're seeing 15-30-minute impact on delivery time. By the way, thinking about this is that the importance of time in treating myocardial infarction or stroke has been clearly established metric.
And now that same concept is being applied to hemostatic resuscitation. And these major academic institutions are seeing a dramatic improvement in time to delivery to the patient. And secondly, and probably equally as important for these institutions, is the significant wastage rate reduction that they're seeing compared to conventional cryoprecipitate. Not all these institutions are using INTERCEPT Fibrinogen Complex at 100%, but even when they're using 20%-50%, they're seeing a dramatic reduction in wastage rates. And for those institutions like UCSF and Stanford, which are close to 100% utilization with IFC now, they can take their wastage rates from 15%-0% . And that has a pretty profound impact on not only the economics, but the operational efficiencies realized by the blood center. Lastly, I just wanted to end on our pipeline.
As Kevin mentioned, we do still spend a significant amount of money on R&D. Fortunately, a lot of the R&D for the red cell program is covered by U.S. BARDA. They've been a fantastic partner over the last almost 10 years. We also are focused on developing a next-generation LED illuminator that extends our leadership position in the market. It really focuses on sustainability 'cause a lot of our customers are hoping that their that these products don't become obsolete, that they don't have to make changes going forward. It also creates a unique new IP position for the company as it relates to innovation. Lastly, we also are very focused on improving the product offering and cost profile for the products with the iterations on our current FDA-approved products.
With regard to red cells, we've got a number of important milestones coming up this year. The INTERCEPT red cell system is under regulatory review for CE Mark, and we're still expecting a possible approval by the end of this year. And then, we've got two Phase III trials that were funded by BARDA. The first is ReCePI. That has completed enrollment, and the database is locked. So, imminently, we'll be unblinding that data and reporting that top-line data in the near term. And then the RedeS study is still enrolling. It's now moved into the chronic transfusion phase, and we expect to complete enrollment in the RedeS study by the middle of next year. And with that, I will conclude and see if there's any questions.
Thanks, Obi. Thanks, Kevin.
You're welcome.
I was hoping, sorry, I can throw on the mic if you want to.
No, it's all right. We can hear you.
Yeah. I wanted to just talk about the congratulations to Vivek Jayaraman on the fourth quarter and the guide for 2024. I know that's been the initiative and everything has been kind of great success there. Some of the questions we get from investors are just, one is just gross margin expansion trajectory.
Yeah.
As we think about not only 2024 but into the out years.
Yeah.
Maybe it'd be worthwhile to just run through some of the expansion drivers. I mean, you guys you talked about, you know, scale, take this new product, the LED,
Yeah.
INTERCEPT system, but any and then also IFC, that gross margin creative product, and where can gross margins go over the next three to five years?
Yeah, there's a lot there as you know. So I'll start with just the economies of scale and what we've been working on for the past several years with some of our CMO partners, mainly Fresenius Kabi. Over the past two years, we have utilized their Dominican Republic facility to produce components at a much lower cost and at higher volumes, and leveraging the overhead absorption that we can generate from that facility. Those currently are being sent to France, where the complete set is assembled, sterilized, and packaged. We've also been investing with Fresenius Kabi in standing up a facility in Puerto Rico, where those components coming out of Haina would then also be assembled, sterilized, packaged, and delivered from Puerto Rico, also a lower cost jurisdiction than our current France facility.
So, that's one area that's going to drive, obviously, economies of scale, capacity expansion, but also much lower cost just on a labor rate basis and overhead absorption basis. Secondly, on the INTERCEPT fibrinogen complex product, when we first launched, we went exclusively at launch, it as a therapeutic that we sold directly to hospitals. And we had five blood centers that were manufacturing partners for us where they would use our kits, they would produce INTERCEPT fibrinogen complex, and then dropship it to the hospital that we brokered the sale with. That's still predominantly what we're seeing, and it will be the majority of our revenue for 2024. However, we also learned in that launch during COVID that the local hospital has a relationship with their blood center, and that relationship works pretty well.
We also learned that hospital contracting is somewhat cumbersome and time-consuming. And so, as a way to maintain that relationship that the local hospital has with their blood center and to shorten the overall contracting timeline, we've also now entered into a hybrid model where we'll provide kits to the local blood center to produce INTERCEPT Fibrinogen Complex for their captive customer. That, I think, over time will take share from the therapeutics model that we launched with initially. And the reason I mentioned that is the margin profile for IFC as a therapeutic is slightly dilutive to our overall consolidated margin results that we post.
The kit model, while it does cannibalize some of the top line, actually has a much better gross margin profile and probably more importantly, an operating margin profile because we don't have to carry the SG&A to sell that directly to the hospital. It's also, as I mentioned, the hospital contracts are amazingly complicated, and cumbersome, and time-consuming. So, if we can avoid that, it actually gives us the ability to gain access or gain market share much faster at a much lower cost. And then lastly, on the LED illuminator, you know, the LED illuminator itself isn't going to change margin profiles all that much. However, it is a foundational component for product iteration in the future.
While a bit premature to comment on that, I do think at least our aspirations are that that foundational component and those product iterations are going to take our overall margin profile from where we currently are in the mid-50s, so call it 56%. I think with the current product configurations, we could get to the low- to mid-60s. With that foundational piece and product configurations in the future and the economies of scale, I have every reason to believe that we can be in the low- to mid-70s.
Excellent comment. It's great to hear. And Obi, just on Kevin, on IFC, I know some of the data that centers were generating has been one of the, I guess, we were waiting on that just to kind of unlock the opportunity a little bit, also the overall business model and the strategy in terms of partnering up with.
Yeah.
Blood center versus going out of yourselves. What else is, I mean, any great guidance for 2024 on the IFC product line? I mean, what's left to unlock? I mean, how should we think about this commercialization effort from here? I mean, is this data and the publication that you cited gonna be digested by the blood center? Can we have the hospital create and the transfusion services? And how do we think about the commercialization effort.
Yeah.
For 2024 and how.
No, that's an important question. You know, so I think there's sort of three components to that, as far as an answer. So, Number 1 is we probably will now that we've got more and more hospitals bringing this online, they're not at 100% typically. So, they typically will start, you know, 10%-20%. Encouragingly, though, we're seeing that once they start, they're like, "Whoa, well, this, this specific, specialty area of the hospital, whether it's CV surgery, you know, they'll like, 'Well, this is so working so well, why don't we use it in OB-GYN or high-risk, deliveries, you know, ultimately going to trauma?'" So, we are seeing sort of the, the depth within the hospitals increasing. And so that would be one of the key things to look for. And hopefully, we can provide more examples there.
You know, I think we mentioned that the channel now is, you know, for IFC has expanded meaningfully. So, we've got two of the top, top blood centers in the country that probably control about 60% of the channel for cryoprecipitate selling INTERCEPT Fibrinogen Complex. So, I think as they see both the utility of the product and the demand coming from their hospital customers, but also the economic, ease of use for them 'cause it's easier to make IFC than conventional cryoprecipitate, and there's some other economic and operational advantages associated with IFC compared to standard, cryo, on top of it being hopefully a more, valuable product for them, that they will then be pushing this out into their channel. And as Kevin mentioned, just they already have existing contracts with the, you know, their major hospital.
So, the largest blood center in the United States probably services 2,000 hospitals. Now, all 2,000 hospitals have access to IFC going forward. And as that model transitions from a therapeutic model that Kevin mentioned to where we're selling kits to that, that blood center, I think it will improve their economics overall as well. So, you know, I think we're sort of setting the stage both from a breadth of coverage of hospitals, but also the ability to contract quickly with those hospital customers. And then lastly, your point around just sort of the, the case study, of either time to delivery, reduction in wastage, or, you know, ultimately, you'd like to be able to show, "Hey, you know, here's the clinical benefit associated with early fibrinogen." I think those are harder studies to do.
I mean, as you're well aware, there's been a number of studies looking at the time to transfuse either cryoprecipitate or whole blood transfusions, the time there and the impact on mortality as a primary clinical endpoint. Those are hard to demonstrate, but I think there's a fundamental belief that time does matter. That's clearly been demonstrated, that fibrinogen concentrates do matter or sorry, fibrinogen levels do matter early on, while you're doing a hemostatic resuscitation and that you're trying to manage the dilutional coagulopathy associated with current massive transfusion protocols. Hopefully, I answered your question here. Yeah.
Absolutely. That was very thorough. Thank you for that. And I think we just hit the end of that, the half hour.
Oh, great. Yeah.
Thank you, gentlemen, for the time participating in the healthcare conference once again this year and here to see in person.
Yeah. Thank you.
Thanks for having us. Thanks, Eric. Yeah.