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Edited Transcript of CERS earnings conference call or presentation 30-Oct-19 8:30pm GMT

Q3 2019 Cerus Corp Earnings Call

CONCORD Nov 30, 2019 (Thomson StreetEvents) -- Edited Transcript of Cerus Corp earnings conference call or presentation Wednesday, October 30, 2019 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Kevin D. Green

Cerus Corporation - VP of Finance & CFO

* Laurence M. Corash

Cerus Corporation - Co-Founder & Chief Scientific Officer

* Timothy J. Lee

Cerus Corporation - IR Director

* Vivek K. Jayaraman

Cerus Corporation - Chief Commercial Officer

* William M. Greenman

Cerus Corporation - President, CEO & Director

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Conference Call Participants

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* Catherine Walden Ramsey Schulte

Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst

* Craig William Bijou

Cantor Fitzgerald & Co., Research Division - Research Analyst

* Harris Iqbal

Cowen and Company, LLC, Research Division - Associate

* Jacob K. Johnson

Stephens Inc., Research Division - Analyst

* Mathew Justin Blackman

Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst

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Presentation

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Operator [1]

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Good afternoon, ladies and gentlemen, and welcome to the Cerus Third Quarter 2019 and FDA Guidance Update Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to turn the conference over to your host, Mr. Tim Lee.

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Timothy J. Lee, Cerus Corporation - IR Director [2]

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Thank you, operator, and good afternoon, everyone. 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 www.cerus.com/ir.

With me on the call are Obi Greenman, Cerus' President and Chief Executive Officer; Dr. Laurence Corash, Co-Founder and Chief Scientific Officer; Kevin Green, Cerus' Chief Financial Officer; Vivek Jayaraman, Cerus' Chief Commercial Officer; and Carol Moore, our Senior Vice President of Regulatory Affairs and Quality.

Cerus issued a press release today announcing our financial results for the third quarter ended September 30, 2019, and describing the company's recent business highlights. You can access a copy of this announcement on the company's website at www.cerus.com.

I'd like to remind you that some of the statements we will make on this call relate 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 2019 financial guidance and goals, operating expenses and gross margins, 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 activities as well as the timing of these events and activities. These forward-looking statements involve risks and uncertainties 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 10-K for the year ended December 31, 2018, and our Form 10-Q for the quarter ended September 30, 2019, which we will file shortly. We undertake no duty or obligation to update our forward-looking statements.

On today's call, we'll begin with opening remarks from Obi; followed by Larry to review the FDA guidance document; followed by Vivek to provide an overview of our commercial strategy; Kevin, to review our financial results; and then Obi with closing remarks.

And now it's my pleasure to introduce Obi Greenman, Cerus' President and Chief Executive Officer.

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William M. Greenman, Cerus Corporation - President, CEO & Director [3]

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Thank you, Tim, and good afternoon, everyone. With the finalization of the FDA guidance document and coming off of a very successful AABB meeting for Cerus, we believe that we are well positioned to deliver on a new standard of care for platelet transfusion safety in the U.S. The FDA action to finalize this guidance is not only a watershed moment for transfusion medicine with regard to patient safety, but it is also a major blood safety policy event that has relevance for how global regulatory bodies ensure the safety of platelets.

In the U.S., by the end of the 18-month compliance period, the requirement is that every single one of the 2.6 million platelet units collected each year in the U.S. to be held to a new standard of safety. One could view this as an obsolescence initiative for all U.S. blood centers and that conventional platelets, as currently prepared today, will be obsolete in 17 months.

Immediately after the release of the final FDA guidance, the leadership of the American Red Cross validate the important role that INTERCEPT will play in their operations by issuing an open letter to the U.S. health care community about their intention to make INTERCEPT platelets broadly available to their hospital customers. They stated that, "The growing expansion of pathogen reduction technologies grant hospitals and blood providers economical offsets while making safer, ready to transfuse products available for patients. Pathogen reduction is the preferred approach of the American Red Cross for enhancing the safety and availability of plants for transfusion."

The purpose of this final FDA guidance document is to provide clear direction to blood centers and hospital transfusion services about how they can meet the requirements specified in the FDA Code of Federal Regulations to ensure that the risks of bacterial contamination of platelets are adequately controlled. After several draft versions of the guidance and multiple blood product advisory committee meetings on the topic, the FDA finalized the guidance to address fundamental concerns about platelet transfusion safety.

The guidance contains complicated culture-based and secondary rapid testing methods as an alternative to pathogen reduction even if those testing options require considerable operational and logistical efforts to undertake. With the final guidance document now in place in the U.S., we believe the overall simplicity of the INTERCEPT technology, combined with its broad spectrum protection against current and emerging pathogens in the blood supply, sets the stage for a multiyear cycle of sales growth.

As a foundation for this expected growth in the U.S. business, we are pleased to report another strong quarter of sales execution, with reported revenue growth across all major geographies despite a currency headwind. Third quarter product revenue totaled $18 million, a 17% increase on a reported basis with the U.S. market leading the growth.

Having just returned from the AABB meeting in Texas, we thought it would be worthwhile to have our Founder and Chief Scientific Officer, Dr. Larry Corash, walk you through the different options available to blood centers and to illustrate the advantages of INTERCEPT over the other strategies for the reduction of bacterial contamination risk detailed in the final FDA guidance document.

Following Larry, Vivek will provide a framework for our commercial strategy for the next 17 months and the discrete actions we are taking to help our customers with this transition.

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Laurence M. Corash, Cerus Corporation - Co-Founder & Chief Scientific Officer [4]

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Thanks, Obi, and good afternoon. On the next slide, this final guidance is important in defining a new U.S. standard of care and platelet transfusion safety similar to that achieved in France, Belgium, Switzerland, Austria and Kuwait. The guidance has been vetted by the transfusion medicine community, and it defines specific procedures for each option. Each approach will impact 1 center and hospital operational logistics, costs and regulatory compliance. These factors will determine customer decisions to achieve compliance by the deadline of March 31, 2021. Today, the majority of U.S. blood centers and hospitals are not in compliance. Hence, action must be taken.

The final guidance is a seminal document in U.S. blood transfusion safety and it makes a compelling case for the clear advantages of INTERCEPT, the only option with safety, logistic and economic benefits beyond reducing the risk of bacterial infection.

On the next slide, let me start by outlining the landscape. The FDA has defined 2 strategies with options to address bacterial contamination, single-step options in the top section and 2-step options in the lower section. The 2-step strategies are complex and require multiple procedures, some in the blood center and some in the hospital, in order to release platelets for transfusion. The time in days, shown by the top blue bar from day 0 to day 7, marks the time line for collection, preparation and transfusion of platelets using the various options. Today, I'll focus my comments on apheresis platelets as they account for 90% of the market and on the single-step strategy options as they are the most attractive for hospitals and blood centers. I'll address specific questions on the 2-step strategies during Q&A.

On Slide 7, to understand the guidance, I've explained the specific terms important for understanding the various options. Collection time is the time when an apheresis platelet collection is initiated and it starts the dating period for expiration of platelets. The day of collection is day 0. Expiration is the last day platelets can be transfused either 3, 5 or 7 days after initiation of collection.

Hold time is the period during which platelets are quarantined prior to sampling for bacterial culture and 12 hours after culture before they can be released for transfusion. This is required to improve the limited sensitivity of bacterial culture testing. There is no hold time for INTERCEPT platelets as bacterial testing is not required for INTERCEPT.

Available transfusion times are the days after release from bacterial testing for pathogen reduction that the platelets can be transfused. Available transfusion time is more relevant than the expiration day as all culture testing options require hold times that decrease available days for transfusion.

Sample volumes are the sample amounts taken for bacterial testing and thus not available for transfusion.

On Slide 8, the guidance specifies a sample volume of 16 milliliters per platelet container in 2 bottles for aerobic and anaerobic culture versus the pre guidance routine sample of 8 milliliters for aerobic culture only. All cultures must be monitored until the end of expiration of the platelet product.

Now on Slide 9, let's focus on the single-step strategy options. At AABB, we received feedback from hospitals indicating they prefer ready-to-use platelets that do not require added technical procedures at the hospital. This is only possible using the single-step strategy options. Hence, we expect the majority of the market to opt for a single-step strategy.

There are 3 options available under the single-step strategy. The first option is the only FDA-approved pathogen reduction system INTERCEPT. This option has no hold time delay. The earliest release time and available time for transfusion is 5 to 5.5 days shown by the green bar. The guidance states that centers already using INTERCEPT pathogen reduction need to do no more. They are in compliance. The other 2 options requiring bacterial culture testing are large volume delayed sampling or LVDS with either 36- or 48-hour hold times after collection and 12 hours of culture incubation before release for transfusion. LVDS requires a 16-milliliter sample for each platelet unit. Thus for double and triple dose collections, the total loss is 32 and 48 milliliters, respectively.

The volume loss will impact collection split rates and the number of available platelet doses. With the LVDS options, the earliest possible times for transfusion are 48 to 60 hours after collection, leaving a maximum available transfusion time of 5.5 days similar to the available transfusion right of INTERCEPT but at the expense of fresh platelets and with more technical procedures.

With LVDS after release, all bacterial cultures must be monitored until expiration. This will require investment in capital equipment and personnel to manage the increased number of cultures. When a positive culture is detected, the hospitals must withdraw all the split platelet components associated with the positive culture. If any of these platelets have been transfused, primary care physicians must be alerted, patients informed and clinical evaluations performed, which may require patient blood cultures or prescription of prophylactic antibiotics. Each of these procedures impacts logistics, adds cost and creates anxiety for patients.

Lastly, while LVDS 7-day option is listed in the guidance, the culture device for this option is not currently FDA-approved.

INTERCEPT offers the following clear advantages over LVDS bacterial testing. First, on Slide 10, this shows the experience from a case study conducted at a U.S. tertiary care academic medical center. The line in orange shows that the majority of INTERCEPT platelets were transfused on day 1 and 2 in comparison to the bacterial tested platelets in blue, which were largely transfused on days 4 and 5. Fresh platelets provide better clinical responses. Notably, this study compare INTERCEPT to conventional bacterial culture. With LVDS bacterial testing, the average age of platelets at transfusion will be older than 5 days.

Secondly, INTERCEPT provides more comprehensive safety than bacterial testing. INTERCEPT inactivates bacteria, T cells, viruses and parasites. With INTERCEPT, blood centers can reduce costs by stopping gamma irradiation, CMV serology and test for Zika and Babesia.

As shown on Slide 11, blood centers using INTERCEPT have the most favorable key metrics with no hold time, shortest delay to transfusion, 5 to 5.5 days available for transfusion and no follow-up of bacterial cultures. Given the added benefits of INTERCEPT, blood centers have been able to charge a premium for INTERCEPT platelets. It is unclear if a premium can be charged for LVDS platelets as this is not a new product, only a more tested platelet component.

The value of INTERCEPT has been validated in routine use over the last decade in Europe by national blood centers for whom patient safety, cost and logistics were the primary factors in choosing INTERCEPT. INTERCEPT's prospective, ready-to-use single-step technology provides blood centers and hospitals the most cost-effective means to improve multiple aspects of patient transfusion safety.

With that, let me turn the call over to Vivek for an overview of our commercial strategy with the guidance document now in hand.

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Vivek K. Jayaraman, Cerus Corporation - Chief Commercial Officer [5]

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Thank you, Larry, and good afternoon, everyone. As Obi mentioned, we are encouraged by the continued strong customer uptake of INTERCEPT as demonstrated by our top line results in Q3 2019. Furthermore, the issuance of the final FDA guidance document serves to validate our belief that INTERCEPT will become the standard of care. I agree with Obi and Larry that the publication of final guidance is a pivotal event. Ultimately, this will accelerate a change in the standard of care with respect to bacterial safety measures for platelets, and I believe that INTERCEPT will prove to be the preferred method by which both blood centers and hospitals achieve compliance.

Last week, at the AABB meeting, I had the opportunity to speak with executives from each of the 5 largest U.S. blood centers. The centers combined to serve over 70% of the U.S. platelet market. Clearly, despite being debated and modified over the past several years, the issuance of a final guidance on September 30 took them all a bit by surprise. Fortunately for us, the AABB meeting offer an excellent point in time opportunity to engage with the centers, gain a better understanding of how they plan to address the guidance and assure them that we are well positioned to partner with them to incorporate INTERCEPT into their center as their primary approach to compliance.

While the guidance readiness of each organization varies, I came away confident that pathogen reduction will be the preferred approach at both the blood center and hospital level. For the blood centers, INTERCEPT offers the ability to release platelets earlier, provide hospitals with an innovative solution that addresses more than simply bacteria, and accordingly, realize a price uplift, which will improve their platelet margins and economics. From a hospital perspective, with INTERCEPT, they will receive a transfusion-ready product with limited to no operational impact and, most importantly, a technology with a global track record of clinical evidence in support of patient safety.

As we have previously noted, the American Red Cross has fully embraced pathogen reduction as their preferred option and has proactively communicated that to the U.S. health care community. Fundamentally, they state that their approach to guidance starts with patient safety as their primary motivation, and as such, INTERCEPT is their clear choice.

During the AABB, we held a pathogen reduction networking meeting with representatives from the 5 largest blood centers, and it was very encouraging to see the ARC continuing to take a strong leadership position with respect to adoption of pathogen reduction technologies.

With 17 months remaining in the compliance period, we are working diligently with our blood centers partners to ensure that patients gain access to the safest blood available. Much of this work has been underway for quite some time.

More specifically, we are focused on the following key action between now and year-end.

First, starting with the big 5 blood centers, we are working to understand the desired INTERCEPT production level by Q1 2021 and making sure to secure commitments and allocate kit supply accordingly. Second, we are working closely with blood centers to help align their production with hospital demand in order to optimize efficient distribution and use of PR platelets. Third, utilizing our deployment team, we are actively mapping INTERCEPT's production processes and blood center operation in order to optimize compatibility with current platelet collection or modify collection and production processes as needed to enable maximum INTERCEPT production. Fourth, led by our hospital affairs team, we are formalizing the hospital targeting and onboarding schedule to streamline the transition to INTERCEPT platelets during the compliance period. Fifth, we have prepared and are actively providing educational materials and economic models to facilitate hospital contracting for INTERCEPT platelets and to address questions from nonclinical decision-makers who are motivated to ensure that their hospital can quickly and economically achieve compliance.

These are just a few examples of the work streams in which the commercial team is actively engaged. In parallel, our operations team has spent the better part of the past 12 to 18 months, ensuring that we are guidance-ready. For example, we have enhanced our supply chain with both increased inventory levels on hand, along with expanded disposable kit manufacturing capacity should we see a significant spike in customer demand. While it is still very early in the compliance period, we are encouraged by the initial indications for our blood center customers and the hospitals that they serve. Coming out of the AABB, it was clear that one-step solutions are preferred, and on those one-step solutions, INTERCEPT confer the greatest benefits to all key stakeholders.

Looking outside of the U.S., we believe that final FDA guidance does have implications for platelet safety policy worldwide. Many regions, for example, the Middle East, take their cue with respect to production and quality standards from the AABB. Given the guidance document, those AABB standards will soon reflect the new best practices in place to comply with the FDA guidance. In addition, the economic benefits and ease of use will be further validated in the context of the coming broad U.S. INTERCEPT experience. When combined with our experience in France as well as other countries that have adopted INTERCEPT at 100%, we believe that pathogen reduction continues to make strong progress towards becoming the global standard of care.

With our current fourth quarter outlook, 2019 top line revenue will be more than 2x that of 2016 sales. Across the world, many more patients now have access to INTERCEPT and the safety benefits that it provides. Looking forward, I am confident that we have a technology platform that can drive compelling growth, and even more importantly, we have the people and plans in place to make that growth a reality. These are certainly very exciting times at Cerus.

With that, let me now hand it over to Kevin to review our financial results.

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Kevin D. Green, Cerus Corporation - VP of Finance & CFO [6]

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Thank you, Vivek, and good afternoon, everyone.

Today, we reported third quarter 2019 product revenue of $18 million, up 17% from the $15.4 million recorded during Q3 of last year. The strength of the U.S. dollar relative to the euro continues to be a headwind, which impacted the year-over-year growth by approximately 5%. On a year-to-date basis, product revenue totaled $53.7 million, up 21% compared to the $44 million reported during the first 9 months of 2018.

Similar to the quarterly revenue results, year-to-date product revenues compared to 2018 were impacted by approximately 6% due to the strengthening of the U.S. dollar relative to the euro.

Global demand for INTERCEPT continued to increase. The calculated number of treatable platelet doses increased nearly 20% year-over-year. And looking at growth through the first 3 quarters, the worldwide calculated number of treatable platelet doses increased over 30%.

In terms of product mix sold during the quarter, platelet kit sales accounted for approximately 85% of revenue. During the quarter, we did see slightly more illuminator sales as usual with incremental placements spread globally.

The underlying momentum in our business is running ahead of plan and is expected to accelerate further. However, the FX headwinds we are facing are persistent. As such, we are reaffirming our full year product revenue guidance range of $72 million to $75 million, which represents an 18% to 20% growth rate compared to 2018 product revenue.

Government contract revenue totaled $4.8 million and $13.6 million for the 3- and 9-month period ended September 30, 2019, respectively. These were both up from the $3.9 million and $11.4 million reported during the comparable periods in 2018.

Now let's move the discussion to our reported gross margins. Gross margin on product sales have been continuing to improve throughout 2019. For the quarter, gross margins were 58% compared to 47% for the prior year period. The significant improvement was attributable to economies of scale and lower per kit COGS resulting from the increased volume of kits manufactured. Additionally, gross margins improved as a result of the favorable product mix shift to double-dose platelet kits in France and to a lesser extent favorability in FX rates.

On a year-to-date basis, gross margins were 55% compared to 48% during the first 9 months of 2018. We expect gross margins will be sustainable in the mid-50s for the balance of the year.

I'd now like to discuss operating expenses which totaled $32.2 million during the quarter compared to $24.8 million during Q3 of 2018. Of the total, SG&A expenses during the quarter accounted for $16.1 million compared to $14 million during Q3 of 2018. The increase was driven from investments we have made in our supply chain capabilities which will allow us to more efficiently and effectively supply the expected ramp in demand for INTERCEPT kits. In addition, SG&A expenses were higher during the current period due to the initiated preparatory activities for our anticipated U.S. pathogen-reduced cryoprecipitate launch as well as higher noncash compensation costs.

On a year-to-date basis, SG&A spending during the first 9 months totaled $49 million compared to $42 million during the first 3 quarters of 2018. We expect SG&A to remain stable for the balance of the year, and looking ahead, we expect to drive leverage.

Research and development expenses for the quarter totaled $16.1 million compared to $10.8 million during the prior year. The increase in R&D expenses was largely due to product enhancement initiatives and activities tied to label claim expansion, including extended shelf life of INTERCEPT platelets and our triple-dose platelet kits.

In addition, development activities to support our anticipated PMA supplement for pathogen-reduced cryoprecipitate as well as activities tied to the development of our red blood cell program drove portions of the increase in R&D. On a year-to-date basis, R&D expenses totaled $43.9 million compared to $30.1 million during the prior year period.

Net loss for the third quarter totaled $18 million or $0.13 per diluted share compared to a net loss of $14.2 million or $0.11 per diluted share for the prior year period. Year-to-date, net loss was $54.3 million or $0.39 per diluted share compared to a net loss of $41.4 million or $0.32 per diluted share during the first 3 quarters of 2018.

In terms of cash used from operations, during the third quarter, we have a special onetime milestone payment to Fresenius Kabi of $6.2 million, which was contractual and has been accrued since 2015. In addition, we have continued to invest in working capital, namely inventory, in anticipation of the increased demand. Going forward, we expect this build to normalize and grow in line with sales. Therefore, on a pro forma basis, without the investments in working capital from both accounts receivable and inventory and excluding the onetime payment, cash use from operations during the third quarter totaled $11.4 million.

Looking ahead to the fourth quarter, we expect cash used from operations to be closer to $10 million. We ended the third quarter with $85.1 million of cash, cash equivalents and short-term investments on hand, which we believe is sufficient to fund operations for at least 2 years and provide ample runway to execute on our strategy. In addition, we have increased borrowing options on our debt facility and revolving line of credit.

With that, let me turn the call back over to Obi for some closing comments.

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William M. Greenman, Cerus Corporation - President, CEO & Director [7]

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Thank you, Kevin.

I'd like to take a few minutes to provide an update on our 2 key development programs, pathogen-reduced cryoprecipitate and our red blood cell program in Europe and here in the U.S.

First, with regard to our cryo PMA supplement, we are tracking on plan for an FDA submission in the first half of 2020 under our breakthrough device designation. Based on that timing, we expect a possible regulatory approval in the second half of 2020. In parallel with these efforts, we are building out the infrastructure and a small team to be able to launch the product successfully within the Level 1 and 2 trauma hospitals in the States initially where we have our manufacturing partnerships. The interest in this product continues to be strong for the treatment of major bleeding events at hospitals.

Turning to our red blood cell program, we're making progress in our effort to validate a new glutathione supplier. Vendor qualification is on track for the first half of 2020. As it relates to our CE Mark submission, the file is still under review at TÜV, our notified body, and we are in the process of closing out sections of our submission review. At this juncture, we still expect our CE Mark review to transition to the medical device regulation process in mid-2020 from the current medical device directive. And as such, we anticipate our final approval timing to be in the 2022 time frame unless we realize opportunities to compress the MDR review timing.

In the U.S., enrollment in our 2 Phase III studies, RedeS and ReCePI, continues with our goal of setting 10 sites up and enrolling in the ReCePI study by the year-end this year. We are tracking to deliver on that goal.

With the final guidance document setting a pace and tempo for our INTERCEPT platelets option in the U.S. over the coming 17 months and our planned INTERCEPT cryo launch in the second half of next year, 2020 is shaping up to be a great year for Cerus. While we have a lot of work to do over the coming period in 2020 and 2021 to help our customers manage the transition to the FDA guidance compliance, our mission to make INTERCEPT the standard of care in the U.S. is more clearly defined and relevant than ever. We take comfort in the talent of our customer-facing team to execute on this plan and our historical track record in facilitating nationwide conversions like in France in the end of 2017.

I believe it's important to convey the optimism that the Cerus team has coming out of the AABB meeting. All subset of the blood centers and hospitals are still developing a strategy for being compliant with the final guidance. Majority of the blood centers have put a stake in the ground around the central role that INTERCEPT will play in their operations. The onus is now clearly on the Cerus team to help them maximize their production of INTERCEPT platelet components and to facilitate the hospital adoption to ease the transition to a new standard of care in platelet safety. We are looking forward to a strong close to the year.

With that, let me turn it back to the operator for Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from the line of Craig Bijou from Cantor Fitzgerald.

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Craig William Bijou, Cantor Fitzgerald & Co., Research Division - Research Analyst [2]

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Let me start with the guidance and just a couple on that. One, just kind of wanted to see if you guys were surprised by anything that ended up in the final guidance.

And then secondly, from your early discussions, and I know you guys have plans to have more discussions and work with some of the centers, but I was wondering if you could maybe provide some details on what you're hearing from the blood centers, the key decision points, what are their concerns, how are they weighing the different options.

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William M. Greenman, Cerus Corporation - President, CEO & Director [3]

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Great. I'll handle the first part of that question, Craig, and then let Vivek handle the second part. So as far as being surprised by any of the guidance, I don't think we were definitely reflected the previous draft. The one thing to take note of is they did draw distinctions between the one-step and the 2-step processes that Larry outlined during the prepared remarks. And I think it clearly -- coming out of AABB, there was a strong preference for the one step processes because the hospitals really don't want to undertake any additional manipulations of the platelets. And so I think that was -- it was good that the FDA outlined the various options so clearly such that there wasn't any confusion.

Maybe, Vivek, you want to handle the second part of that question about what came out of AABB with regards to the key customers?

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Vivek K. Jayaraman, Cerus Corporation - Chief Commercial Officer [4]

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Sure. Thanks for the question, Craig. As we've indicated in the past, and perhaps the thing that continues to be most encouraging is for some time now, even prior to the guidance going final, the American Red Cross has stated that pathogen reduction technology, offering those are a strategic priority for them. So when you think about the ARC, it represents nearly 40% of the total U.S. market. So out of the gate, you talked about 40% of the market that is clearly behind our technology. Similarly, we had a number of meetings with executives from the big 5 blood centers, and across the board, we heard foreign interest in adopting PR technology. I think the thing that folks are trying to work through now is understanding, okay, what are the underlying mechanics that allows us to make those real, so what are the operational things that we need to put in place from a production standpoint so that we can maximize INTERCEPT production, how do we think about our hospital contracting and working with hospitals so they can onboard products.

So there are a number of work streams that blood centers will need to go through and hospitals as well to sort of adopt to this new standard. But certainly, I came out of that meeting, and I think my colleagues would agree, feeling really excited about our ability to offer INTERCEPT to more patients in the U.S.

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Craig William Bijou, Cantor Fitzgerald & Co., Research Division - Research Analyst [5]

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Got it. It's very helpful. And then just as a follow-up on that, you guys have talked about the ARC, and obviously, they've been at the forefront of adopting INTERCEPT. It's their preferred approach as evidenced by the open letter. So that's been driving a lot of your U.S. platelet growth for the last several quarters. So just wanted to get your thoughts. Is there -- can that accelerate from this point going forward so you can actually see even stronger growth out of the ARC than you have over the last several quarters?

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Vivek K. Jayaraman, Cerus Corporation - Chief Commercial Officer [6]

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I think that can, obviously, as we get further granularity into where they want to produce more platelets and what hospital customer demand they want to address first. We'll have a better understanding of that. But certainly, there is headroom within the ARC to drive accelerated growth. And I do believe that they'll serve as a marker that others will follow as they think about adopting pathogen reduction technologies. So yes, there's certainly headroom for us to drive not only U.S. growth or more specifically growth within the ARC.

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Operator [7]

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Your next question comes from the line of Mathew Blackman from Stifel.

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Mathew Justin Blackman, Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst [8]

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We're all sitting here trying to dig through a framework for how the next 17 months could play out just as you are. And so maybe just in the simplest terms, should we think about a potential adoption acceleration being more back-end loaded over the next 17 months, as you said, work through education and contracting and training, et cetera? Could it be more balanced over the period with, let's say, the big 5 existing customers with existing INTERCEPT infrastructure perhaps ramping faster over that time horizon?

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William M. Greenman, Cerus Corporation - President, CEO & Director [9]

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Yes. Clearly, I think the blood centers will be looking how do they meet the compliance time line. So I think in that context, it'll be more back-end loaded. And I think we do feel like there will be an acceleration throughout the period as sort of the momentum from increasing the overall capacity that INTERCEPT production allows for broader fulfillment at the hospital level. And what we've heard distinctly from the hospitals that have decided to adopt INTERCEPT is they'd like to be 100%. And so they may not get there by the time -- by the end of the compliance period, but that's where they want to go. And clearly, as more capacity comes into the system, you'll see an acceleration. So the answer to your question concretely, I think it will be more back-end loaded but definitely an acceleration throughout the period.

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Mathew Justin Blackman, Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst [10]

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Okay. Then just a couple of quick follow-ups. How important is it now for you to get double sets approved in the U.S? Is that at all a gating factor for some of these sites? And can you remind us of the timing of approval there? And then just one more follow-up after that.

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William M. Greenman, Cerus Corporation - President, CEO & Director [11]

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Yes. So just to be clear, we do have approvals for both single and double sets today. And so what you're probably alluding to is the triple storage kit that we have approved in Europe. We are anticipating that, that will be filed, be submitted for approval during the compliance period, actually, in the second half of next year. So I think it will be a factor. But ultimately, what we've seen even with the large blood centers like the American Red Cross is that they are able to get close to 70%, 80% compatible with INTERCEPT and maybe even beyond that, independent of the TS kit availability. So I think throughout the compliance period, as I mentioned before, we should have this at the back end of the compliance period. It will -- we don't think that will be gating.

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Mathew Justin Blackman, Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst [12]

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Okay. And then the last question, on the red cell program in Europe. I may be reading a bit too much into your comments, Obi, but I think you said first half '20 now for qualification of a new supplier. And I think in the past, you had sort of set it as a mid-2020 time frame. So did I hear that right or am I just overthinking? And if that's the case, is it moving a little bit faster?

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William M. Greenman, Cerus Corporation - President, CEO & Director [13]

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Well, I think it's moving quickly. But I think what we said in the prepared remarks, maybe I misspoke was that mid-2020 for having that validated for our CE Mark submission. So I think it is moving quickly. We have 2 suppliers that I've mentioned historically on previous calls that we are qualifying. But we're happy with the progress we've made to date.

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Operator [14]

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Your next question comes from the line of Josh Jennings from Cowen.

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Harris Iqbal, Cowen and Company, LLC, Research Division - Associate [15]

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Harris Iqbal on for Josh. So on the pipeline for 7-day INTERCEPT platelets, can you remind us of the -- just a regulatory pathway there and timing of approval? And I guess how derisked is that approval pathway just considering the experience you've already had in Europe thus far?

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William M. Greenman, Cerus Corporation - President, CEO & Director [16]

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Well, maybe I'll answer the first part of that question, and let Larry comment just about the experience that we've had with day 6 and 7 day products in Europe for many, many years. Right now, we're anticipating to file for that approval or submitting that, say 6, 7 claim in the second half of next year. We'd anticipate right now without any clock stops, it would be about 180 -- 180-day review period. So again, an approval within the sort of time frame of final compliance. So we think that's a nice added benefit. That being said, as Larry outlined in the call, from an overall platelet shelf life perspective, we think we've got a strong position relative to the other options outlined in the guidance document, just because of the earlier release of the product and now leading to a 5 to 5.5 day shelf life for INTERCEPT.

Maybe, Larry, a few comments about just the experience we've had in Europe with day 7 products.

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Laurence M. Corash, Cerus Corporation - Co-Founder & Chief Scientific Officer [17]

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Yes. Josh, we've gained valuable experience in -- particularly in Switzerland, where 7-day INTERCEPT platelets have been in use for quite some time. We just published a paper led by Andy Buser from the Basel Red Cross in transfusion showing first of all that with INTERCEPT, they're only transfusing about 16% of day 7 platelets, but these platelets are clinically effective. And so that's -- that experience really supports what we'll do in the United States.

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Operator [18]

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Your next question comes from the line of Catherine Schulte from Baird.

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Catherine Walden Ramsey Schulte, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [19]

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You mentioned some incremental illuminator placements in the quarter. Any specific geographies to highlight for those new placements?

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William M. Greenman, Cerus Corporation - President, CEO & Director [20]

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No. Not really. They were matters really throughout the globe. Nothing in particular. It just was a little bit higher than historically, given that platelets were 85% of our revenues.

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Catherine Walden Ramsey Schulte, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [21]

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Okay. And then we found a tender that it looks like you guys were awarded earlier this month since Slovenia that could contribute $4.5 million to $5 million spread over the next 5 years. Is this a new customer win or just an extension of an existing customer?

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William M. Greenman, Cerus Corporation - President, CEO & Director [22]

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It is actually a customer we've had on board for about a decade now. So it was one of the early adopters of INTERCEPT. And I think we were just happy that their sort of experience with INTERCEPT throughout that period has been favorable, and they're a customer that would like to continue on. And I think we were looking maybe to expand one other small site within Slovenia, but I think we've had roughly -- close to 100% of that market for some time.

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Operator [23]

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Your next question comes from the line of Jacob Johnson from Stephens.

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Jacob K. Johnson, Stephens Inc., Research Division - Analyst [24]

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In the press release, you guys talked about platelet doses increasing 70% in the U.S. this quarter. Just interested how that compares to last quarter or is there any way you could sort of frame up that performance relative to your recent experience. Just interested to know how much of an uptick in demand you saw this quarter.

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William M. Greenman, Cerus Corporation - President, CEO & Director [25]

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Yes. I mean as far as platelet doses relative to kits, it's fairly consistent. The U.S. continues to grow proportionately. So the growth that we reported this quarter as far as number of doses consumed is healthy and we should expect will accelerate as we move forward.

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Jacob K. Johnson, Stephens Inc., Research Division - Analyst [26]

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Got it. And then, obviously, a lot of focus on the potential for top line growth following the guidance, but could you guys just remind us about the outlook for gross margins? As revenues grow, should we see additional margin expansion opportunities on that line? And do you need to make any SG&A investments to support the growth outlook?

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Kevin D. Green, Cerus Corporation - VP of Finance & CFO [27]

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Well, we've been making investments to ensure that we can supply the uptake, and we'll continue to do that. But as far as margin expansion, I think in our prepared remarks, we said we expect that we would be in the mid-50s for the balance of the year as we move into 2020, and of course, it's all a function of the top line revenue growth and economies of scale.

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Jacob K. Johnson, Stephens Inc., Research Division - Analyst [28]

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Okay. Got it. And then just last quick question from me. The American Red Cross, I think they had 13 of 17 BLAs last quarter. Any update on that?

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William M. Greenman, Cerus Corporation - President, CEO & Director [29]

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I believe they're still at 13. That's not really a driver right now as far as their overall availability of platelets being shipped out-of-state because the 13 sites that currently have their BLAs are mostly their big net exports. So I think we will see additional BLAs throughout the remainder of the year and in early next. They currently have -- I think they have roughly around 22 production sites. So I think they're getting up to I guess full capacity with regard to the sites that they get -- brought online, and then it's just within those sites, what the overall compatibility looks like and how they drive the capacity to be able to meet the hospital demand that's coming.

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Operator [30]

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I'm showing no further questions at this time. I would now like to turn the conference back to Mr. Tim Lee.

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Timothy J. Lee, Cerus Corporation - IR Director [31]

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Okay. Well, thank you again for joining us today and for your interest in Cerus.

Next month, we will be participating in the Stephens Conference in Nashville and the Stifel Healthcare Conference in New York. We hope to see many of you there in person.

And also, as a reminder, today's slides will be available on our website after the call. Thanks very much.

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Operator [32]

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Ladies and gentlemen, this concludes today's conference. Thank you for your participation, and have a wonderful day. You may all disconnect.