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Edited Transcript of CERS.OQ earnings conference call or presentation 5-May-20 8:30pm GMT

Q2 2020 Cerus Corp Earnings Call

CONCORD Jun 15, 2020 (Thomson StreetEvents) -- Edited Transcript of Cerus Corp earnings conference call or presentation Tuesday, May 5, 2020 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Carol M. Moore

Cerus Corporation - SVP of Regulatory Affairs, Quality & Clinical

* Kevin D. Green

Cerus Corporation - VP of Finance & CFO

* Timothy J. Lee

Cerus Corporation - IR Director

* Vivek K. Jayaraman

Cerus Corporation - COO

* William M. Greenman

Cerus Corporation - President, CEO & Director

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Conference Call Participants

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* Jacob K. Johnson

Stephens Inc., Research Division - Analyst

* Joshua Thomas Jennings

Cowen and Company, LLC, Research Division - MD & Senior Research 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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Ladies and gentlemen, thank you for standing by. And welcome to the Cerus Corporation Q1 2020 Earnings Conference Call. (Operator Instructions) Please be advised that today's conference is being recorded.

It is now my pleasure to turn the call over to your host, Mr. Tim Lee. Please go ahead.

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

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Thank you, operator. And good afternoon. I'd like to thank everyone for joining us today. With me on the call are Obi Greenman, Cerus' President and Executive Chief Executive Officer; Kevin Green, Cerus' Chief Financial Officer; Vivek Jayaraman, our Chief Operating Officer; Dr. Laurence Corash, our Chief Scientific 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 first quarter ended March 31, 2020, and also describing the company's recent business highlights. You can access a copy of this announcement on the company website at www.cerus.com.

I'd like to remind you that some of the statements we'll make on this call relate to future events and performance rather than historical facts and are forward-looking statements. Examples of forward-looking statements include those related to our future financial and operating results, including our 2020 financial guidance and goals, operating expenses and gross margins, commercial development efforts, future growth and growth strategy, future product sales, product launches, the impact of current and future products on blood center operations, ongoing and future clinical trials, ongoing and future product development and the regulatory activities as well as the timing of these events and activities.

These forward-looking statements involve risks and uncertainties that can 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, 2019 and our Form 10-Q for the quarter ended March 31, 2020, 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 Vivek, who will provide an update on commercial operations and our supply chain. Kevin will then review our financial results. And finally, Obi will conclude with closing remarks.

Many of the Cerus employees have been sheltering in place and working remotely, including most of us on the call today. We are dialed in remotely to this call, so please excuse us for any lags or delays that may occur.

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. We appreciate your patience in dialing in today.

The past several months has clearly been a challenging time for the world and for businesses due to the impact of the COVID-19 pandemic. Since our fourth quarter conference call in mid-February, we implemented our crisis management plans to ensure the safety of Cerus' employees, the product supply to support our customers and the continuity of our operations. And at the same time, we've taken decisive action to help blood centers and national transfusion services, ramp up the implementation of COVID convalescent plasma programs, provide a bridging therapeutic option to acutely ill patients in multiple countries until other therapies and vaccines are available.

As of today, I'm happy to report that our thoughtful planning and our experienced team at Cerus have put us in a very strong position, not only to effectively navigate this pandemic crisis but also to reframe the opportunities set in front of us, given the increased focus on supply chain security for blood safety and availability.

It's important to recall that the basic mechanism of action of our pathogen inactivation platform was designed to deal with the emerging pathogens -- with emergent pathogens such as the SARS-CoV-2 virus. Working with our manufacturing partner, Fresenius-Kabi, and with key sub-suppliers such as Porex, part of the Filtration Group, we have increased our safety stock product inventory since the beginning of the year in anticipation of potentially increased demand. This resulted in first quarter product revenue of $18.6 million, which exceeded our internal expectations at the beginning of the year. While COVID-19 is having a profound impact on our blood center customers from both a supply and demand perspective, we are still seeing blood centers increase INTERCEPT orders in an effort to better safeguard their supply chains for blood component production.

The COVID-19 epidemic has reinforced the importance of pandemic preparedness planning at both blood centers and hospitals, especially in the context of the recent history of emerging infectious diseases. While SARS-CoV-2 is a respiratory virus, and the data suggests that it is not considered a significant transfusion transmitted infectious disease risk, the impact on the blood supply chain is still profound. In this context, the INTERCEPT Blood System is well positioned to provide a solution for blood centers and hospitals in the post-COVID era that minimizes supply chain and logistics complexity.

In the search for a rapid therapeutic option to treat COVID-19 patients, one potential treatment involves collecting plasma from patients who have recovered from COVID-19, making sure it's free of coronavirus and other infectious pathogens and transfusing the plasma to people who are sick. A variant of this approach is to take the plasma and concentrate into a hyperimmune intravenous immunoglobulin, or IVIG. A large consortium of most of the leading plasma fractionation companies is working to accelerate the evaluation of IVIG and to scale up production. While it remains to be determined what will be the most effective intervention of these 2 approaches, there is a reason to believe that convalescent plasma may have other potential benefits beyond just neutralizing antibodies, including an impact on normalizing a patient's coagulation profile to prevent blood clots and a role in maintaining the health of the vascular endothelium.

Cerus is playing a key role in supporting blood centers and hospitals with their COVID convalescent plasma programs. Having been at the forefront of convalescent plasma historically, as a result of our partnership with the Gates Foundation during the Ebola outbreak in West Africa in 2014 and '15, Cerus has again taken a leadership position. We have been active in most of the countries in Europe, and particularly in Italy with our partner, Kedrion, to ramp INTERCEPT-treated CCP production during the midst of Italy's most critical period.

In France, the regulatory authority now requires INTERCEPT for CCP production. In the U.S., we have collaborated with the ABB to help with them establish a website and CCP processing protocols that can be leveraged across the national blood center infrastructure. This effort overlaps with a significant focus and funds that the FDA and American Red Cross and BARDA have dedicated to standing up the nationwide CCP program.

Based upon our previous experience with convalescent plasma and the issues of donor availability, dose and product characterization, we decided early on in this pandemic to form a research consortium with the California public health department by talent up blood services, academic laboratories at UC Davis and UC Irvine and the San Francisco-based biotech company called Enable Biosciences. We are collectively endeavoring to better assess the key characteristics that influence the potential efficacy of CCP, including the level and profile of the SARS-Cov-2 antibodies, optimal collection timing, dosing and how these factors influence responses to the therapy. We believe INTERCEPT can play an important role in CCP production since its offers the ability to reduce infectious risk in the therapy administered to patients with the damaged immune systems.

With all of our efforts around convalescent plasma and the worldwide focus on therapeutic options for critically ill COVID-19 patients, we are seeing increasing interest by customers in INTERCEPT plasma, primarily in markets outside the U.S. during the time that we've been waiting for the FDA approval of our alternate plastic INTERCEPT plasma disposable kits. With the FDA approval now in hand, we will continue to ramp production of our plasma sets to be able to meet the demand in Europe and many other countries, while bridging the current availability shortfall in the U.S. with INTERCEPT platelet sets that are being used under emergency use protocols for treating convalescent plasma.

We have thus far navigated the COVID-19 pandemic challenges, and it has provided new opportunities to reinforce the importance of our mission to ensure the safety and availability of the blood supply.

Let me now turn it over to Vivek to provide an update on the details of our commercial operations and our supply chain integrity. After Vivek's strong leadership of the commercial organization over the past 3 years, I am grateful that he has accepted an expanded role at Cerus to take on overall operations of the company related to our commercial products, including supply chain and manufacturing-supplier relationships. In this role, as our Chief Operating Officer, he is responsible for how we support all aspects of our customer engagement and maintaining their confidence in Cerus given the critical role we play in the overall blood supply chain.

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Vivek K. Jayaraman, Cerus Corporation - COO [4]

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Thank you for the kind remarks, Obi. Good afternoon, everyone. First, I wanted to express my sincere gratitude to Cerus employees worldwide for their unwavering commitment to ensure blood centers, hospitals and patients around the globe have access to INTERCEPT. Without their commitment during this time of crisis, particularly with some of the disruption beginning as the first quarter was coming to a close, we would not have been able to deliver the top line results we are sharing with you today.

As a result of the COVID-19 pandemic, blood donation and blood product use dropped sharply starting in mid-March as donor sheltered in place and as elected medical procedures were postponed. In addition, we started to hear about a slight decline in platelet utilization, even though platelets are primarily used in essential medical procedures. Nevertheless, as showcased by our strong Q1 results, global customer demand and adoption of INTERCEPT was robust.

First quarter product revenue of $18.6 million exceeded our pre-pandemic internal plans, and the outperformance was broad-based with encouraging results in all sales regions. We continue to see strong demand for INTERCEPT platelets in the U.S. Q1 2020 product revenue in North America was up 34% when compared to Q1 2019.

As we have mentioned previously, the American Red Cross is leading the push to establish pathogen reduction as a standard of care with respect to platelet safety in the U.S. We are deeply grateful to the ARC for their strong partnership and their continued leadership and vigilance. In Q1 2020, product sales to the ARC increased at an even faster rate than those reported for overall North America. The ARC remains steadfast in their efforts to make INTERCEPT the preferred method for complying with the final FDA guidance on bacterial safety for platelets.

As we have discussed previously, the U.S. marketplace is fairly concentrated. Our 5 largest blood center families account for over 70% of nationwide platelet distributions. In late February, we convened an executive roundtable with senior leaders from the big 5 blood centers in order to better understand their plans to comply with guidance and to offer our partnership and resource support as needed. While the ARC is clearly leading the way, it was encouraging to hear the other major players express a similar belief that pathogen reduction would prove to be their first choice option for guidance compliance. While there means some near-term uncertainty about new hospital activations in a COVID-focused environment, there continues to be a strong belief that pathogen reduction will become the standard of care in the U.S.

In our current environment, we are developing strategies and action plans to get hospitals engaged and focused on complying with the guidance at a time when much of their attention is consumed by the COVID crisis. Given the current pandemic, it is unclear when we can start visiting hospitals in person to assist with operational activities in support of their efforts to go live with INTERCEPT. As a result, we have accelerated our online training and distance learning initiatives, which enables remote hospital activation. We have also worked aggressively with existing users to increase INTERCEPT penetration and help them more quickly move to 100% PR adoption.

Furthermore, we are piloting remote training and education tools for blood center commercial teams to make sure they are up-to-date and best equipped to sell and support PR efforts in this current environment. While these disruptions may slow the rate of new hospital implementation of INTERCEPT, it is our belief that this will be more than offset by increasing penetration with existing users across the globe.

Turning to Europe. We posted strong results in Q1 2020. Towards the end of March, we saw an increase in plasma kit demand from some early COVID-19 hotspots, like Italy and Spain. This increase in plasma demand contributed to our above-planned performance and also provided some pull-through for our core platelet franchise.

In Italy, our distributor partner, Kedrion, is playing a leadership role in the production and distribution of coronavirus convalescent plasma to treat COVID-19 patients. We are proud to be able to partner with them in this effort. Increased sales in Italy and Spain were slightly offset by the ongoing French ESS conversion to the DS kit. As we have noted before, product mix shifts from the single to the double kit as well as the negative impact of foreign currency translation rates will contribute to some year-over-year declines in reported revenue in France in 2020.

Switching gears to Germany. We are starting to see increasing interest in pathogen inactivation technology due in part to interest in CCP. Recently, the Paul Erling Institute endorsed PI as a mechanism to mitigate potential COVID-19-related donor deferrals. Furthermore, we had a previously issued customers accelerate their PI efforts in order to be able to offer CCP as a COVID-19 treatment. This is likely to have a full through benefit for our platelet franchise over time. While we are encouraged to see an uptick in Germany, it is still a bit premature to state with clarity how the adoption ramp will evolve. Nevertheless, as we look across our EMEA region, we are encouraged by the strength of our business.

Given the strong current and anticipated demand for INTERCEPT kits, maintaining manufacturing security and supply chain integrity continues to be a top priority. To that end, I'm happy to report that our global operations team proved up to the challenge in Q1. On an ongoing basis, we are dynamically assessing inventory levels throughout our supply chain and have increased the frequency of communication with our key suppliers and partners to ensure that we can maintain high service levels.

In manufacturing, our suppliers have implemented social-distancing measures at their factories to comply with local safety regulation, and we are assessing potential implications for production output and inventory volumes. Given our strong growth expectations, we entered 2020 in a robust inventory position, and that is certainly proving to be a prudent decision. While it is difficult to forecast exactly how the evolving pandemic will impact our supply chain, it is our belief that we have positioned ourselves to successfully meet increasing customer demand and maintain high service levels.

I am grateful to our supply chain, operations and customer services teams for their commitment to ensuring patients gain access to INTERCEPT and to our key third-party suppliers for their communication and partnership to meet unprecedented times.

In summary, while the pandemic has created disruptions, it has also provided opportunities. As a result of COVID-19, the concept of preparedness truly resonates and has taken on greater significance. Unfortunately, the rise in immune infectious disease threat is not a matter of if, but rather of when. Ensuring the global blood supply is as safe as it can be is now more important than ever. Clearly, INTERCEPT plays a major role and is an enabling technology to optimize blood safety. Cerus is well positioned to be the partner of choice in helping blood centers and hospitals maintain the safety and availability of blood components in the face of COVID-19 pandemic today and in anticipation of future disease outbreaks. We feel honored to continue this important work and are grateful to our blood center, hospital and physician partners across the world.

With that, let me turn it over to Kevin for a detailed review of the financials.

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Kevin D. Green, Cerus Corporation - VP of Finance & CFO [5]

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Thank you, Vivek, and good afternoon, everyone. Today, we reported first quarter 2020 product revenue of $18.6 million, up 6% from the $17.5 million recorded during Q1 of 2019. The foreign exchange rates negatively impacted the year-over-year comparable results by approximately 2%.

To evaluate our results without the impact of foreign currency exchange rates or product mix shifts, we track the calculated number of treatable platelet doses, which increased nearly 14% year-over-year. Platelet kit sales accounted for approximately 90% of recorded product revenue, similar to the prior year period, making the treatable doses comparison a true barometer for the top line. We believe this metric is reflective of the underlying strength of our business.

Though we have not currently experienced a disruption to our commercial business, the COVID-19 pandemic has clearly created uncertainty for all businesses, including Cerus and our suppliers. While the crisis persists, we have less visibility into our full year outlook. But based on the current trends and the medically essential nature of transfused blood components, we are cautiously optimistic. Clearly, while there will be puts and takes, we expect our reported product revenue growth to accelerate, driven by both increased demand for our platelet kits and a renewed interest in our plasma product, in part driven by convalescent plasma.

Accordingly, today, we are reaffirming our full year 2020 product revenue guidance range of $89 million to $93 million, representing growth of approximately 20% to 25%. Separately and not included in our guidance, government contract revenue recognized under our BARDA agreement totaled $6 million during the first quarter of 2020 compared to $4.5 million during Q1 of 2019.

In the short term, as a result of the current COVID-19 outbreak, most RedeS and ReCePI sites are temporarily suspending enrollment. Accordingly, we anticipate that we could see a decrease in BARDA reported revenue while this persists. As the issues related to the pandemic subside, we do expect study enrollment and the corresponding BARDA-related revenue to increase meaningfully.

Now let's move the discussion from revenue to our reported gross margins. For the fourth quarter, gross margins were 55% compared to 52% for the prior year period. The improvement in gross margin was attributable to economies of scale and lower per unit cost of goods sold. The lower per unit costs resulted from increased manufacturing levels over the past year implemented to meet current and expected growth in demand for our products. Additionally, gross margin improved year-over-year as a result of the shift to the double-dose platelet kits in France.

Based on our reaffirmed guidance and assuming steady foreign currency exchange rates, we expect gross margins will be relatively stable in the mid-50% range for the balance of 2020.

I'd now like to discuss operating expenses, which totaled $31.7 million during the quarter compared to $29.6 million during Q1 of 2019. The noncash stock-based compensation costs comprised $3.8 million or almost 12% of total operating expenses during the quarter. Of the total operating expenses, SG&A expenses during the quarter accounted for $15.9 million compared to $16.2 million during Q1 of 2019. Noncash stock-based compensation for SG&A was close to $3 million during the quarter compared to $2.4 million in the prior year. The overall decrease in our SG&A expenses was driven by lower marketing and travel-related expenses, as many industry trade shows were either canceled or postponed due to the COVID-19 pandemic.

Turning now to research and development expenses. R&D expenses for the quarter totaled $15.8 million compared to $13.4 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, namely our triple platelet set and extended storage platelet set, both for the U.S. market. In addition, activities related to the red blood cell program in the U.S. under our BARDA agreement were up year-over-year.

Interest expenses decreased $2 million during the first quarter of 2020 compared to the same period in the prior year. In conjunction with our March 2019 debt refinancing and move to our current growth capital facility and revolving line of credit, we incurred onetime expenses tied to the prepayment of our previous loan agreement in Q1 of 2019.

Now let's look at the bottom line. Net loss for the first quarter totaled $16.5 million or $0.10 per diluted share compared to a net loss of $18.8 million or $0.14 per diluted share for the prior year period.

I'd like to make a few comments about our balance sheet now. We ended the quarter with cash, cash equivalents and short-term investments on hand totaling $133 million. The capital we have on hand will allow us to execute against our strategy to make INTERCEPT the preferred choice of blood centers and hospitals in the U.S., as they prepare to comply with the FDA guidance by March 2021. In addition, we are well capitalized to fund our commercial launch of pathogen-reduced cryo, which we expect in early 2021.

I'd like to close with a statement about our financial focus and plan. We are confident in our ability to continue growing not only the top line but long-term gross margin expansion while delivering leverage from our SG&A investments. In addition, many of our current non-BARDA research and development programs are expected to be near completion, and our BARDA-related research and development costs are reimbursed and recorded as an offsetting government contract revenue on our P&L. In short, we are focused on advancing not only platelets and plasma globally but bringing pathogen-reduced cryo to the market, launching red blood cells in Europe and ultimately, the U.S., all while moving the company toward operating income.

With that, let me turn it back over to Obi for a few closing comments.

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William M. Greenman, Cerus Corporation - President, CEO & Director [6]

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Thanks, Kevin. With the COVID pandemic and the increased emphasis on supply chain security for blood centers, the relevance of our full INTERCEPT product portfolio has never been more important. I would like to provide an update on our 2 key development projects: pathogen-reduced cryoprecipitate and INTERCEPT red blood cells. As we announced on April 20, we amended our contract with BARDA for the INTERCEPT RBC program, to include another $14 million in funding to support our ongoing clinical trials and to further evaluate the efficacy of INTERCEPT to inactivate SARS-CoV-2. With the additional funding, the potential value of the contract now totals $214 million in non-dilutive capital. BARDA has been a fantastic partner in our clinical development and manufacturing scale-up activities. Though all enrollment in our Phase III U.S. studies has been impacted by the COVID-19 pandemic due to key hospital sites suspending research activities, we are planning to reinitiate site enrollment as quickly as possible.

That said, some sites continue to enroll in both the RedeS and ReCePI studies, and we've been notified by some additional sites that they are ready to initiate now. In Europe, as a result of the COVID-19 pandemic, the implementation of the MDR regulatory pathway has been postponed to May of 2021. After discussions with our regulatory body, TUV, we are moving forward with the transition to the MDR submission pathway for INTERCEPT RBCs now so as to not delay it further.

While we are still projecting a possible 2022 time line for approval of the CE Mark, the overall timing will be better defined once we have clarity on the modular submission schedule under the MDR. We should have more visibility on our ability to compress the review time line by our next quarterly call. To date, our submission dossier continues to advance, and we are making solid progress on our CMC activities, including the inclusion of data from our new glutathione supplier.

Finally, with regard to our pathogen reduced cryo program, we continue to be excited about the opportunity and the overall impact on our product portfolio. Our pathogen-reduced cryoprecipitate is designed to be a source of fibrinogen and other coagulation factors. Development continues to track on plan, and we expect to file the PMA supplement this quarter, which could set the stage for FDA approval later this year and a commercial launch in early 2021. The recent FDA approval of our alternate plastics INTERCEPT plasma kit was a prerequisite for this submission.

In conclusion, in spite of the global COVID-19 challenges, the company is in a good place with a number of commercial and regulatory milestones to be realized through the end of this year. While we still have some risk around the monthly production output from our manufacturing operations, we are in a solid position and stand to benefit from the increased awareness about the importance of preparedness planning for the next wave of this pandemic and for future pandemic threats.

I would like to conclude with an expression of gratitude for the resilience of the Cerus team at this time. We also have a profound appreciation for all of the heroic work our blood center and national transfusion service customers are doing to stand up COVID convalescent plasma production around the globe. Their focus on responding to the urgent request from families in need and on helping these acutely ill COVID patients is remarkable.

Operator, please open the call for questions.

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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 Matthew Blackman from Stifel.

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Mathew Justin Blackman, Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst [2]

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If I could start, maybe a big picture question for Obi and even Vivek, if you want to chime in. And you alluded to it in both of your prepared comments, but perhaps just to be more direct. As you think about your key growth drivers over the next several years, so you U.S. platelet adoption, the pipeline, does COVID slow you down at all as you execute against those drivers? Or maybe, in fact, could it potentially accelerate adoption of the portfolio as the value proposition becomes increasingly more compelling and obvious. And I've got a couple of follow-ups.

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

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Thanks, Matthew. And I'll start and then probably turn it over to Vivek for maybe some more specifics on a country-by-country basis. So I think on the whole, clearly, INTERCEPT was developed back in the early '90s to deal with the pandemic threats at that time, the HIV and hepatitis in the blood supply. And there's been a number of pandemic threats over the last 25 years. And obviously, there'll be additional ones in the future. So I think what this highlights for Cerus is sort of, I guess, an affirmation of the company's mission and what we're trying to do to safeguard blood safety and availability globally. So I think it really does create an awareness opportunity for us to work with our blood center customers and those that are not yet customers to understand sort of why this safeguards the overall blood supply chain.

Clearly, I think there's some issues that we discussed in our prepared remarks around sort of how quickly hospitals come back online and start doing elective procedures and our ability to go out and talk to those hospitals sort of onboarding them.

But on the margin, I'd say this really sort of is an opportunity for Cerus to reframe its opportunity set.

Maybe Vivek can give you some more specifics around the U.S. market and the markets in Europe.

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Vivek K. Jayaraman, Cerus Corporation - COO [4]

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Thanks, Obi, and thanks for the question, Mat. I think that Obi has summarized it well. If I take a step back and sort of take the long view, I think that this situation with COVID-19 does help to further clarify the importance of the need for optimize blood safety. So I think it will serve to be a tailwind for us because as Obi indicated, our origin really deals with responding to a pandemic and as folks think about the important of proactively implementing public health and safety measures, I think you'll see an increased interest in adopting pathogen-reduction technologies.

Acutely, though, I think visibility into the puts and takes are a little more difficult. We talked a bit about the impact commercially in the U.S. in terms of being able to engage hospitals and visit them in person, and that's a little bit cloudy now as hospitals have been aggressively restricting visitors to focus on their COVID response. We're also actively managing the operations and supply chain component of our business. I think we feel like we're in a pretty good position now. But as social distancing measures and things of that nature are implemented in areas where we manufacture, that all obviously have implications for our product supply and ultimately, our ability to provide product. I think in most cases, we're in pretty solid shape. And so that's reflected in our Q1 results and our decision to maintain our full year guidance.

So I think net-net of it, what you'll see is a renewed interest in plasma, and we're seeing that in a few key geographies in Europe and the U.S. and that continued push forward to standard of care in the U.S. in terms of our platelet franchise.

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Mathew Justin Blackman, Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst [5]

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All right. Guys, I appreciate that response, those responses. Maybe just to dovetail on that, the platelet demand. Again, in the U.S., it still sounds like Red Cross is a major driving force. You talked a little bit about some of your conversations with the other 4, but is the major inflection for, we'll call it, the other 4, is it just a matter of time? Or is there something specific that when you speak to them, they call out as a barrier to adoption? Of course, I'm talking beyond COVID. Is there anything in those conversations that consistently comes up as a reason why perhaps they're not moving as fast as the Red Cross? And then 1 follow-up after that.

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William M. Greenman, Cerus Corporation - President, CEO & Director [6]

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So I'll let me cover the specifics of the big 5. One thing I wanted to point out per your previous question as well, Mat, is that the guidance document that the FDA finalized around platelet safety in September of last year, really speaks to bacterial contamination risk alone. And so of all the options that were presented for blood centers to be compliant with that guidance document, the INTERCEPT technology is the only one that deals with future pandemic threats. So I think that's a really important thing to sort of recognize in the context of the FDA guidance compliance period.

Maybe Vivek, you can add some more color around how the big 5 are thinking about pathogen activation.

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Vivek K. Jayaraman, Cerus Corporation - COO [7]

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Sure. I'd be happy to. Mat, to your question about -- for the other 4 of the big 5, are there any particular sticky items or barrier to their adoption that are perhaps having to move more slowly than Red Cross. I think first, the Red Cross candidly was the first to sort of speak clearly and make a decision around what they wanted to do with pathogen reduction independent of the guidance document. So they communicated prior to finalization of the guidance document that they intended to move aggressively and make PR a strategic priority. So they had a bit of a head start. And as we've talked about in the past, there are regulatory items like securing BLAs, things of that nature that on some level, have a certain amount of lead time between submitting and then securing those clearances. And so the other blood centers are working through those or working through the operational activities and they're partnering with their hospital customers to get them onboarded with INTERCEPT.

Now for de novo hospital customers, with de novo with respect to INTERCEPT platelets they're dealing with the added challenge of trying to get attention and gain access to these sites and this COVID-focused environment, whereas the Red Cross had activated a number of hospitals prior to the pandemic and so now are moving towards driving them towards standard of care.

So those are probably -- I wouldn't say there are any unique barriers necessarily. It's really a matter of just when they started in earnest relative to when the ARC started in earnest. But what's encouraging to me is the destination for all of them is clear to the same place, which ultimately will be to a safer blood supply.

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

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No, that's very helpful as always. And then the last one here on the pipeline. How do we read the additional funding from BARDA for the red cell program? Is it simply, think of it as sort of an offset from what you need to spend? Or could that incremental infusion of cash somehow accelerate your ability once the trials are back up and running, does it accelerate your time lines at all for being able to complete that trial now that you've got more additional funds? That's all I have.

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

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Yes. Thanks, Mat, The way I look at it is BARDA's very supportive of what we're trying to do with regard to getting the red cell program to a PMA approval and have it available to safeguard the red cell supply in the United States. That was the overall mission from the inception of the collaboration. And they just saw that this was an opportunity to fund not only clinical trial activities, but also the SARS-CoV-2 and activation work across the full INTERCEPT portfolio. So I think it's just a reaffirmation of their support for our endeavors and certainly in the context of this COVID-19 pandemic, the rationale for their support from the previous pandemic around -- epidemic, if you will, for -- around Zika, it's been supported in that regard.

Yes. I don't think it will fundamentally accelerate things. It just allows us to open sites and maintain the schedule.

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Operator [10]

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

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Joshua Thomas Jennings, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [11]

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Congratulations on the progress, and thanks for the work your team is doing on the -- this COVID convalescent plasma. Just wanted to start. We've heard -- some of our checks suggested that in the United States, in particular, with electric procedures declining that hospital -- platelet demand from hospital customers to blood centers has declined. You guys are clearly on a different track than the overall platelet market in the United States as centers are still adopting, so you're not linked to those curves. But can you help us understand what the market is seeing just overall in the United States from a platelet demand and maybe also in Europe?

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William M. Greenman, Cerus Corporation - President, CEO & Director [12]

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Josh, yes. Why don't you handle that, Vivek?

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Vivek K. Jayaraman, Cerus Corporation - COO [13]

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Sure. I'd be happy to. Josh, thanks for the question. Yes, as I indicated in my comments earlier, really at the start, kind of the early mid-March time frame, we were hearing from our customers a lot of concerns about probably a significant drop-off in blood donors coming in. And then similarly, as they were trying to understand how their hospital partners are going to react to some concerns about the postponement in the elective procedures having impact on the utilization of blood components. And there was an acute drop in the number of donors, which was fairly quickly followed by a pretty meaningful surge of folks going in and wanting to do their specific duty and donate blood. And while there -- while we have seen a reduction in blood product utilization, to your point earlier, because -- and it's even for platelets as well, but seeing as you correctly summarized earlier, it's still the amount of headroom that we have in terms of increasing the percent of overall platelets that are PR-treated provides us sufficient cover under which to grow. So we were able to do that.

But I think it won't be, frankly, until we start to see the elective procedures come back, the patients start to present back in both inpatient outpatient settings that will have a better sense of how platelet volumes, whether conventional or PR-treated level out. But we certainly did see even for platelet components, a bit of a drop-off in terms of utilization due to COVID-19 issue.

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Joshua Thomas Jennings, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [14]

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Great. And just a follow-up on the red blood cell receptor platelet opportunity. We had expert consultant suggest that this pandemic could kind of let a fire on the FDA and potentially spark accelerated review pathway or expedited review, breakthrough designation or something along those lines. One is that. I know it's hard to call, but is that -- has there been any buzz around that? And then secondarily, just on the CE Mark path, can we -- I just want to make sure I'm clear on the description here, you guys are going to use the MDR pathway. But could we potentially see an approval time line that's in front of that 2022 year that's been put on the tape historically?

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William M. Greenman, Cerus Corporation - President, CEO & Director [15]

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Yes. Thanks, Josh. I'll take a shot at that and maybe then turn it over to Carol for some comments around sort of how the FDA might look at this. We obviously have ongoing discussions with the FDA about what the clinical requirements are for an approval -- a PMA approval in the United States. And so that's a dialogue that's underway. And I think right now, the general disposition of the FDA historically has been that they wanted to approve the product for all indications. And so that required a fairly robust data set to be able to do that.

And so before I turn it over to Carol to answer sort of the specifics around what might be possible. I just -- I'll cover the MDR question you had. So I think as I discussed in the prepared remarks, we'll have more clarity around what the actual calendar looks like as far as the modular submission schedule for that MDR pathway by the next quarterly call. So I think it's probably safer to say, hey, let's give you an update in the end of July or early August on that. But I think that we've had good discussions with TUV so far, and we'll just have to see sort of what their thoughts are on the time line for that modular submission schedule, what they can handle. And then ultimately, what HPRA can handle, which is our notified body -- I'm sorry, competent authority for the submission.

Carol, do you want to comment anything on the FDA thinking in the context of COVID-19?

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Carol M. Moore, Cerus Corporation - SVP of Regulatory Affairs, Quality & Clinical [16]

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Well, I think, Obi, you've summed it up just right. I think that just the point that I would emphasize is that we are in constant discussion with the FDA about all of our products and opportunities that might exist. We are not shy about asking for out of the box considerations in terms of moving our products forward and obtaining the licenses as quickly as we can or moving -- trying to do part of our study pre license and consider collecting the rest of the study data post-license. So we don't have any of those paths solidified at this point. But it is an important effort that we maintained to continue to look at the global environment, especially as it impacts the U.S. patients and discuss those opportunities with FDA and have them give us some feedback on -- their point of view.

But I think Obi's point about seeking a license that covers all indications for red cells is important because that alone will save us time rather than doing individual studies. And so we are trying to keep that in balance with our requests for discussion and evaluation with FDA.

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Joshua Thomas Jennings, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [17]

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Understood. And the last question, just on similar type of questions with -- could COVID-19 -- could the pandemic spark regulatory decisions in other countries, but particularly want to focus on in Asia and China. China and Japan specifically, has there been any movement there in terms of -- from Cerus or from regulatory bodies or key opinion leaders from those 2 countries to move forward with pathogen-reduction adoption.

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William M. Greenman, Cerus Corporation - President, CEO & Director [18]

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Yes. Thanks, Josh. So obviously, they are big markets in Asia, and they've been hit hard by the COVID-19 pandemic. We are in ongoing discussions with potential joint venture partners in China and hope to be able to update you on next couple of quarterly calls as it relates to that effort. Clearly, the blood supply in China also has to be safeguarded. And there's a realization by many large companies in China about the need to do that. So I'm optimistic, but we prefer to defer any additional comments until; future quarterly calls. And then there's a number of other countries throughout the Asia Pacific region that are in contact with us about convalescent plasma. But I think the majority of our focus right now is still on the U.S. and EMEA, just given our supply chain and our ability to support those customers as the business grows.

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Operator [19]

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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 [20]

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Maybe while we're on the regulatory front, just one quick one. I mean, with many hospitals dealing with the pandemic and focused on saving people's lives and a number of other things right now, is that -- is there any chance that the FDA guidance for platelet safety could get pushed back from the March deadline next year? I know they already gave the industry another 3 months versus what they initially proposed. But just any chance that, that could get pushed back just as a concession to the hospital industry?

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William M. Greenman, Cerus Corporation - President, CEO & Director [21]

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Yes. Jacob, thanks for the question. So it's clearly a consideration we have. I think Vivek sort of touched on this before when he was talking about the Red Cross is that it really doesn't drive sort of the Red Cross decision-making per se. They've made a commitment to make INTERCEPT the standard of care to improve platelet safety. And then I think the FDA has given blood centers an additional 6 months on top of the 12 -- typical 12-month compliance period. So that extended it from September of this year to March of 2021. And I think it's possible that they'd say that they need additional time. I'm sure that some of the blood centers are saying that given the impact of this crisis. And at the same time, from an FDA perspective, the reason why the guidance document is in place is that patients are dying from transfusion-related sepsis for platelet transfusion. And so I think there's sort of an issue there. If you're trying to improve patient safety, you obviously want to be addressing the requirements in the guidance document.

And as I initially commented, the one thing that we should highlight is that of all the options in the guidance document, the only one that addresses SARS-CoV-2 or future pandemic threats is INTERCEPT. And so I think on the whole, even if the guidance were to be delayed, it puts us in an even stronger position, this pandemic does.

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Jacob K. Johnson, Stephens Inc., Research Division - Analyst [22]

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Got it. And maybe a question for Kevin. SG&A in the quarter was a bit lower than we expected. It sounds like maybe there's some savings from lack of trade shows, et cetera. Should we expect SG&A to kind of trend at these similar levels maybe in this next quarter, given that doesn't seem like life is going back to normal quite yet?

And then similar on the R&D line, just given the pause in enrollment for clinical studies, is it fair to assume that maybe that trend is a little bit lower as well?

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Kevin D. Green, Cerus Corporation - VP of Finance & CFO [23]

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Yes, I think you're right on both accounts. Certainly, in Q2, with the stay-in-home orders, we're doing less traveling, there's not as many conferences, and I think we could expect to see that clearly through May and maybe even beyond June. But after that, it really just depends on where everyone is and what the orders are in the pandemic stage. But we do expect ultimately to get back to business.

On the R&D front, yes, I think there will be a pause right now in enrollment. But at the same time, what our teams are really focused on is utilizing their skills in other areas covered by BARDA and making sure that once the sites open back up, we're in a great spot to really accelerate and continue enrollment. So there'll be a little bit of a dip for a period of time, but we don't expect a significant dip or a long-standing issue with the overall program.

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Operator [24]

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And I show no further questions at this time. I will turn the call back to Mr. Tim Lee for any closing remarks.

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Timothy J. Lee, Cerus Corporation - IR Director [25]

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Great. Thanks, everyone, for joining us. Thank you again for joining us on the call today and your interest in Cerus. We are planning to hold our second quarter conference call in that late July, early August time frame. In the interim, please don't hesitate to contact Investor Relations, should you have any questions. So thanks, again. Bye-bye.

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Operator [26]

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Ladies and gentlemen, this does conclude today's conference. Thank you for your participation, you may now disconnect.