Cerus Corporation (CERS) Q1 2015 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Cerus Corporation First Quarter 2015 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Ms. Lainie Corten. Ma'am, you may begin.

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 Chief Executive Officer; Kevin Green, our Chief Financial Officer; and Carol Moore, our Senior Vice President of Regulatory Affairs, Quality and Clinical. Cerus issued a press release today announcing our financial results for the first quarter ended March 31, 2015, and describing the company's recent business highlights. You can access a copy of this announcement on the company website at cerus.com. I would like to remind you that during this call, we will be making forward-looking statements regarding the company's expectations for its products, prospects and future results, including 2015 revenue guidance; expectations for future demand and revenue growth; operating expenses; sufficiency of cash; foreign exchange rates; Cerus' U.S. commercialization theme; customer implementation and the timing thereof; the timing of U.S. revenues; Cerus' ability to address cost concerns; resumed sales growth in Europe, including revenue inflection points and new customers; expected or anticipated regulatory submissions and approval, including U.S. label extension submissions and a potential CE Mark submission for and approval of the red blood cell system and the timing thereof; commercial launch of new products, including the red blood cell system or in new territories; access to debt financing; and Cerus' planned Phase IV study, including the timing and scope thereof. The company's actual results may differ materially from those suggested by forward-looking statements the company will be making, and the company assumes no obligation to update guidance or other forward-looking statements. I call your attention to the disclosure in the company's SEC filings, in particular in Cerus' current report on Form 10-K filed with the SEC on March 16, 2015, under the heading Risk Factors in Item 1A to that Form 10-K. This call will be archived temporarily on our website and will not be updated during that time. On today's call, we'll begin with opening remarks from Obi, followed by financial results from Kevin, and end with commentary from Obi, who will review the company's recent achievements. And now it's my pleasure to introduce Obi Greenman, Cerus' President and CEO.

Good afternoon, everyone. Before turning the call over to Kevin to update you on our financial results for Q1, I want to provide an overview of the very positive dynamics that we have observed during the first quarter after the INTERCEPT platelets and plasma approvals in the U.S. We have been positively surprised by an early high-level advocacy for pathogen reduction in the U.S. A few weeks ago, the New England Journal of Medicine published an editorial authored by Dr. Ed Snider of Yale-New Haven Hospital, and Dr. Susan Stramer and Richard Benjamin of the American Red Cross. The authors argue for an FDA mandate on pathogen reduction to mitigate residual risk due to bacterial contamination as well as established an emerging transfusion-transmitted infections. We believe that these authors have made an important policy statement about the critical role that INTERCEPT should play in safeguarding the safety and availability of the blood supply against current and future threats. The timing of this publication was especially fortuitous, coming just days before the pathogen reduction symposium sponsored by the AABB. The AABB symposium had an audience of several hundred, including well-known key opinion leaders, senior management from many U.S. blood centers and hospitals as well as the industry and the FDA. The paramount importance of the patient safety was a major theme in many of the presentations as well as the fact that affordability will always be a concern for adoption of new healthcare interventions. We are most encouraged by the survey data presented by the American blood centers from several hundred hospitals that indicated that the level of awareness and interest in purchasing was far higher than the ABC blood centers had expected. A major focus of our launch activities through our MSL program is to educate hospitals and primary care physicians to the clinical value of INTERCEPT. Presenters from the NIH and Yale-New Haven Hospital echoed that strong interest by stating their intention to become early adopters of INTERCEPT for both platelets and plasma. And we are pleased to announce that the agreement with NIH has now been executed. As part of the U.S. Department of Health and Human Services, the NIH is the primary federal agency conducting and supporting medical research for common and rare diseases. The NIH institutes and centers include the NIH Clinical Center, the nation's largest hospital dedicated to clinical research, with approximately 9,000 platelet components and 1,500 plasma components collected and transfused any way. We view their adoption as a very strong validation of the central role that INTERCEPT will play in a new blood safety policy for the U.S. Based upon our decade of experience in Europe assisting blood centers to realize operational efficiencies through adoption of INTERCEPT and our existing FDA-approved claims, we believe that the cost concerns can be readily addressed as INTERCEPT products are introduced by the U.S. blood centers. Furthermore, the appeal of a pressure platelet component with increased shelf life has real value to blood centers and hospitals. Also of note that the AABB symposium was a strong presentation by Dr. Jutzi of the Swissmedic that detailed the national Swiss Red Cross experience with INTERCEPT platelets over the last 4 years, demonstrating complete protection against bacterial sepsis, a reduction in transfusion reactions, the absence of any safety and efficacy concerns. And the data from the Swiss individual system is significant, particularly helpful for our U.S. launch. I will now turn the call over to Kevin for a review of the Q1 results, after which, I will provide some additional context around the progress on our U.S. launch and an update on our INTERCEPT development programs.

Thank you, Obi. This afternoon, we reported Q1 revenue of $7.7 million. Compared to Q1 of 2014, this represents an increase of 17% in kit demand, but a 2% decrease in revenue as reported in U.S. dollars. With first quarter 2015 revenue derived exclusively from European and Middle Eastern markets, the difference between reported revenue and kit demand results from weakness in the euro compared to the U.S. dollar. First quarter 2015 results, therefore, reflect a 17% growth in kit demand despite the softness in the Russian market and weakness in Europe. In the U.S., we signed our first 2 customer contracts during the first quarter, although we did not recognize any revenue. We now have produced kits with the final approved labels and are beginning to supply these blood centers. Although we've seen early wins with these customer contracts, including the NIH contract that Obi mentioned earlier, we continue to see 2015 as a market-developing year for the U.S. By this, we mean that U.S. contracts will be signed, but we won't have full clarity on kit demand until we see centers implement the product, complete the necessary regulatory submissions and begin to introduce the product to hospitals. Therefore, we reiterate our 2015 revenue guidance of $36 million to $38 million based on our core European and Middle Eastern markets. This guidance anticipates demand growth of approximately 15% to 20% in those markets, offset by the impact of a relatively weak euro to dollar exchange rate. Gross margins for the quarter were 39% compared to 47% in the prior year. Similar to the top line, margins for the first quarter of 2015 were impacted by exchange rate fluctuations. Most of our inventory is procured in euro and most sales are also made in euro, creating a very efficient cash flow hedge. However, as reported in U.S. dollars under GAAP, revenues are recorded at the foreign exchange rates in effect at the time of sale, whereas the cost of that product sold is recorded at the historical foreign exchange rates in effect at the time the inventory was purchased. As there's been a significant weakening of the euro since the third quarter of 2014, this has negatively impacted Q1 2015 margins by more than 5%. Turning now to operating expenses. Total operating expenses for Q1 were $17.3 million compared to $12.9 million during Q1 of the prior year. The year-over-year increase in operating expenses was driven by the growth in SG&A expenses incurred in support of U.S. commercialization, incremental costs associated with our ongoing IDE studies and incremental development cost to further expand our U.S. label claims and product configurations. Looking ahead, we anticipate operating expenses will increase as we complete the buildout of our commercial team for the American markets, initiate further development studies in support of U.S. label claim expansion, initiate and enroll our U.S. post-marketing hemovigilance studies and complete the CMC activities necessary to expedite our CE Mark registration and commercialization of INTERCEPT red cells. Net losses for the quarter were $9.5 million or $0.17 per diluted share. Comparatively, net loss was $200,000 or $0.12 per diluted share in Q1 of 2014. Net losses were impacted by mark-to-market adjustments of the company's outstanding warrants, which resulted in noncash gains of $6.3 million and $9 million for the first quarters of 2015 and 2014, respectively. Net losses were also impacted by foreign exchange losses of $1.1 million in Q1 of 2015, whereas foreign exchange impact was negligible in Q1 of 2014. Now looking at the balance sheet. We ended the first quarter with cash, cash equivalents and short-term investments of approximately $112 million compared to $51 million at the end of 2014. This past January, we completed a public offering of common stock, which contributed approximately $75 million in net proceeds. Our credit facility provides up to $20 million in additional term loans, $10 million of which is conditioned upon achieving consolidated trailing 6-month revenues at a specified level. We continue to believe that with our current cash position and additional funds available, we are well positioned to execute on the commercialization of the INTERCEPT in the United States and to complete the development and regulatory work necessary to bring the red blood cell product to the European market. And now, I'd like to turn the call back over to Obi.

Thank you, Kevin. We've had a busy and productive start to 2015 with a major focus on the U.S. launch. Even though our Q4 call was just 2 months ago, we have seen some important dialogue regarding the draft FDA bacterial safety guidance document for platelets. You may recall the draft guidance was released in early December, just prior to our INTERCEPT approvals. Comments submitted during the 90-day review period on the draft guidance were posted online in March, and we are gratified to see consistent comments from the AABB, the American Red Cross, and many other significant organizations in the transfusion medicine industry, all urging for the inclusion of pathogen reduction in the final guidance document. The perceived complexity and cost of the testing scheme that the FDA provided in the draft guidance makes it clear why pathogen reduction is seen as an attractive replacement for both primary and secondary bacterial detection methods. Turning now to progress with our early adopters. The first U.S. Illuminators were shipped in late March, and we now can begin supplying blood centers with kits. Both SunCoast and Delmarva planned to complete their initial installation and training in Q2 and then start making INTERCEPT platelets available to hospitals in the June-July time frame. There continues to be strong interest in the product from other U.S. blood centers, and we'll announce these new contracts as they are signed. In addition to blood centers, many of the premier hematology/oncology and stem cell transplant hospitals, subcollect some proportion or all of their platelet component supply. As we move forward with our proposed Phase IV platelet study in the second half of this year, we're seeing a high level of interest from these sites and they are likely to move more quickly than larger blood centers. The Phase IV study is anticipated to include up to 10 to 15 hospitals, but because of the current interest, we may expand beyond that number. We will provide further updates as we finalize the protocol with the FDA and initiate the clinical sites. With regard to our ongoing development activities for the U.S. market, we submitted our filing to the FDA for INTERCEPT platelets and 100% plasma in late March. With at least 6 months for the FDA review, this project extension will potentially be available in Q4 of this year. The majority of players in the U.S. are currently produced in 100% plasma, so although blood centers and hospitals can elect to transition their production to platelet additive solution for more immediate access to INTERCEPT, we believe it is critical to provide as much flexibility to blood centers as possible. Our development team is also making progress on another important FDA submission for 7 to 8 platelets, which we are targeting to submit as early as Q4. As Kevin commented earlier, we are well capitalized to accomplish our key development goals, both for the U.S. market and also toward the INTERCEPT red blood cell CE Mark filing. We’re seeing demand growth in our European and Middle East markets with the possibility of significant inflection points in major markets like France and U.K. over the next year or 2. The launch in the U.S. has benefited from a confluence of events related to the regulatory and blood safety policy environment for the bacterial safety of platelets and the early advocacy we have seen as evidenced by the recent New England Journal Editorial and the AABB pathogen reduction symposium. Operator, please open the call for questions.

[Operator Instructions] And our first question comes from the line of Drew Jones with Stephens.

Could you talk a little bit about the domestic market? And it seems like most of the domestic market for platelet is collections in the double market. How does that impact the cost to the blood centers?

Drew, yes, so the vast majority of collections are double-dosed collections. There are singles and triples, but on average, I would say, you sort of get 2 units for every [indiscernible] collection, and that represents about 90% of the market in the United States. From a cost standpoint, it's just roughly the cost of the double set is in the sort of $110, $120 range. So on a per unit cost, it's roughly in the sort of $60 range. And we start to see that there are a lot of tests that can replaced, but also, as I indicated in my prepared remarks, one of the things that we're really focusing on is sort of the impact on platelet shelf life and the subsequent impact on platelet wastage. So it can really be a very, very cost-effective on a per seat -- per unit basis.

And obviously, a lot of tailwinds domestically, but just to touch on some of those international opportunities, you hinted at a second ago. Can you give us an update on where France stands, where the U.K. tender and maybe where we stand with Russia right now?

Yes. So with regard to France, our contract is up for renewal in the late Q3 time frame. And I believe, as you probably saw in the AABB PI symposium, they spoke about the adoption of an additional site for platelets in France. But we'll have to see how those discussions go with the EFS when we approach the contract renewal period. With regard to the U.K., the tender process is ongoing, and we would imagine that a tender award would take place before the end of the year. And with regard to Russia, there are ongoing headwinds there, just as a function of what's going on with healthcare spending in Russia. But we are working diligently to try and improve the situation and would hope to see improvement over the second half.

And our next question comes from the line of Zarak Khurshid with Wedbush Securities.

Just curious, if you could put some numbers around the NIH contract in terms of the potential benefit to the top line? And if you had a sense for how long it might take for them to implement and validate?

Thanks, Zarak. It's roughly about $500,000 a year if they were in 100% routine. I think what our plan is to, obviously, go through the validation process with them and then enroll them into our Phase IV site. So the impact on revenue from that single contract is probably not that significant in 2015.

Understood. And then just a follow-up on your sort of ongoing conversations with some of the larger blood centers out there, what are the rate-limiting factors in closing a contract with one of these large centers?

Yes. So with the larger centers, they've also got a number of operations and ultimately, we have to get their establishment license to ship products out-of-state. And they can inherently, just takes them a little bit longer to take decisions and to take this on. I think a lot of the pace of adoption for these bigger centers will be a function of the demand that they get from their hospital customers, and that's where I think we feel very confident about where this is heading, because of the large amount of inbound interest we have from the large stem cell transplant hospitals and hemo/onco hospitals who want to participate in the Phase IV study, but also, I think more importantly, are very concerned about patient safety. And I think that was, again, a theme from the meeting last week in Bethesda was basically, they see pathogen reduction as being critical to the sustainability of blood safety and availability in the United States, and that the key hospital customers who have seen septic events with platelet transfusions, I want to make sure that, that doesn't happen again.

Got it. And then one last one just on the nice European kit growth, was that driven by one or a few geographies? Or would you say it was more broad based?

It's sort of broad based. I mean, I think what we are beginning to see is the impact of the Flanders Red Cross coming online, and also the Karolinska contract. It was primarily a function of our direct sales efforts. And as you would expect, our direct sales versus distributor sales are shifted to roughly a 2/3, a 3/4 to 1/4 ratio. So it really is a function of our plan to go direct and better represent our products in the markets where we think we can make a difference.

Great. That reminds me of a follow-up. So in Flanders, are you fully rolled out with the contract there?

Yes, we're in routine use as of April. Yes.

And our next question comes from the line of Jeff Elliott with Baird. Jeffrey T. Elliott - Robert W. Baird & Co. Incorporated, Research Division: First one is on SunCoast and Delmarva, Obi, can you talk about the experience so far? Any surprises with the rollout?

Yes. I think what we've been most impressed with the organization's sort of strategic vision for how this is going to get rolled out and how they sort of see it as quarter for their longer term strategic plans. It's a very much of an integrated effort between our deployment teams and our MSL teams in support of those blood centers. And importantly, both of the leaders of those 2 organizations, really, are folks who have influence within the industry, I believe. So I think it's been pretty seamless and on track, and we're looking forward to distributing the product in the June-July time frame. We're helping them get to the point where they can distribute INTERCEPT treating components to their hospital customer in that time frame. Jeffrey T. Elliott - Robert W. Baird & Co. Incorporated, Research Division: That's good. Do you have any sense on the level of hospital interest that they're seeing? Is there any way to quantify how quickly that they could see uptake?

It's a little bit hard. I mean, Delmarva's largest customer is right across the street from them. And so we've seen a lot of -- we've had a lot of interactions with that hospital. At the same time, I think there's been a lot of in interest from the SunCoast customers as well. And as I sort of alluded to during my prepared remarks, they're just -- all the major stem cell transplant, the premier ones in the United States and hemo/onco hospitals have expressed interest. And I'm not really sure if I've heard of one hospital that hasn't expressed interest in the product. And some of this is just a function of the extraordinary measures that they go to, to try and prevent bacterial sepsis in their patients from platelet transfusions. We've heard that some hospitals are Gram staining their products because -- day 4 and day 5 because they've had septic fatalities. Jeffrey T. Elliott - Robert W. Baird & Co. Incorporated, Research Division: Got it. And then can we get an update on the -- your reimbursement efforts? I guess, your efforts to help secure reimbursement? It sounds -- you're just talking at AABB, it sounds like you're pretty optimistic, but can we get an update there?

Yes. So what we're looking to do is secure -- work with our -- actually, the blood center suppliers, to help secure outpatient T code for INTERCEPT platelets. Presently exist for T codes, for platelet components with a significant up charge associated with gamma radiation and CMV negative results. So it would seem necessary that the hospitals would be able to bill for INTERCEPT-treated platelet components for the outpatient transfusions. In parallel -- I think, to note, I guess, is that we're seeing a pretty dramatic increase in outpatient platelet transfusions as a function of sort of the acquisition of community oncology practices and trying to reduce costs so they transfuse in the outpatient settings. So the extent that we can get this T code established and a possibility of a temporary T code to which the hospitals can bill against, it would really improve the overall situation for this hospital customers because it will almost be a revenue center for them. Jeffrey T. Elliott - Robert W. Baird & Co. Incorporated, Research Division: And what's the timing of that? Is that later this year? Or when would you expect that?

The T codes would like -- could be as early as 2016, but most likely 2017. And in the interim period, we're trying to establish temporary code that hospitals could bill towards so it wouldn't necessarily be something that holds people back. It's just a way that -- I think that historically, I'm not really sure that the blood centers and hospitals have realized what a high proportion of platelets are getting transfused in the outpatient, and that's actually maybe something that just happened in the last sort of 1 to 3 years. Jeffrey T. Elliott - Robert W. Baird & Co. Incorporated, Research Division: Got it. And then one follow-up here. Kevin, can you quantify the headwind from the Russian economy? Is that around 5 points right now?

Yes. Well, it's about 10% historically. So about $1 million a quarter for us. So it is significant headwind. Jeffrey T. Elliott - Robert W. Baird & Co. Incorporated, Research Division: Are you seeing that, that all went away? Or...

It did in Q1. That kind of -- we've anticipated this coming into the Q4 call. And we -- as I think Obi mentioned earlier, we're optimistic that we can turn that around, but there are significant headwinds in Russia and it's baked into our guidance.

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

I just wanted to start on the New England Journal of Medicine Editorial and then a lot of the sentiment coming out of the AABB symposium about the FDA mandating bacterial reduction -- pathogen reduction, excuse me, particularly for platelets. And I was just wondering if there's a -- what -- how should we be thinking about the potential for time line? I know it's the FDA and it's an agency, but is there any potential that we could see final guidance before the end of 2015?

Yes. I think it's really more of something in the range of 12 to 18 months. They've got to take into consideration all the comments that they received, and then reissue or come up with a final document. Maybe I'll turn it over to Carol because I think she may have a broader perspective than I have on that. So...

No, I think that's true, Obi, they are required to deal with the comments. And then certainly, the momentum that we've heard is to include pathogen reduction in the guidance document itself. So the FDA will have to make some policies with regard to how to integrate the pathogen reduction into the concept of increased safety for platelets, and how it will be provided as an option to bacterial detection. So that's a lot for them to consider. And I think it is fair to say it's at least 12 months to get that document completed.

Okay. And is there any potential for the AABB to create a standard for facilities that want to be AABB accredited?

I think they already have. So the 5.1.5.1. standard already anticipates that blood centers can either do pathogen reduction or they can do bacterial culture. Obviously, the draft FDA guidance document is potentially recommending more stringent criteria for bacterial detection methods. But in the interim, there is an established 5.1.5.1. standard for accreditation purposes.

Okay. That's great. And then just lastly, the cost equation was an important -- was pulled out as an important dynamic at the AABB symposium, but you answered, Obi, a question earlier about cost. But can you talk about longer term about some of the cost offsets, whether it be 7-day shelf life versus some of the longer-term potential for cost reductions and offset to the kit pricing?

Thanks, Josh. In high level, I mentioned, when Drew asked the question before, it is roughly what the per unit cost would be to a blood center. And that's roughly in the range of what the ABC survey mentioned and that hospitals would be willing to pay. It's really ultimately up to the blood centers to price it how they see fit. And accordingly, we're trying to provide label claims that really allow blood centers the optimal flexibility to realize an upcharge for INTERCEPT-treated platelets. And associated with that or directly related to that is the 7-day shelf life, which would take what is today a 3-day effective shelf life for platelets. Platelets are released on the end of the day, day 2, typically, and have a 5-day shelf life. If we are successful on obtaining that 7-day shelf life from the United States, not only are you able to release the product 1 day earlier with INTERCEPT because you don't have to do bacterial culture, but you'd also have an additional 2 days on the back end. To remind you, that is a claim that we have in Europe and we have a lot of data coming out of Europe, and we still have additional studies to do in the United States, a recovery and survival studies which are underway, and then a dossier to submit to the FDA in Q4. I think just that logistical value of that claim alone would be significant for blood centers and hospitals. And then beyond that, I think the impact of the potential final guidance document from the FDA would be significant on hospitals, especially if they were required to do point-of-release tests for platelets with a shelf life beyond day 4. From what we've heard, that would be something that would be very challenging for hospitals to undertake, and obviously very expensive. And then finally, what Jeff mentioned, it was that we're trying to secure outpatient reimbursement for INTERCEPT platelets, which again would be something that the hospitals really value when trying to recover the cost of INTERCEPT platelets for their outpatient transfusions.

Our next question comes from the line of Karen Koski with BTIG.

Just two quick questions. Just first, we appreciate the color on the U.S. postmarketing study. Should we be thinking that there are some potential INTERCEPT adopters that are on the sidelines waiting to see if they're included in the study before adopting? And if so, when will those centers be notified? And thus, if they're not going to adopt?

Yes. Thanks, Karen. I wouldn't say that we're precluding any participation from sites. We're just basically moving forward, and at some point in time, we'll be saturated, I guess, with having enough sites. That being said, they can always participate in hemovigilance studies that we would be supporting. And I think it's important to note also that if a site does participate in Phase IV, it doesn't preclude them from routine use. The Phase IV is sort of specific to hemo patients so they can use INTERCEPT platelets for their general patient population as well.

Okay. I mean, could there be some centers just kind of waiting to figure out the logistics of being part of the study and kind of adopting commercially? Or is that another fair way to look at it?

I think the way -- it's a good question in that it's the hospitals, they're trying to figure out how they're going to get product to be able to participate in the study. And so for example, there are a number of hospitals that are supplied by the American Red Cross. And so in order for them to participate, they have to get INTERCEPT-treated components from the American Red Cross. So it does create an interesting dynamic because of their desire to participate and just how quickly they actually would be able to get those INTERCEPT-treated components. That being said, they can start with conventional product before they crossover to the INTERCEPT-treated product.

Okay. And then just on France, I know you mentioned that some additional sites are coming on board with platelets. Is that within your expectation? Or is that kind of a positive surprise?

Yes, so there's one other site that was mentioned during the talk at the AABB PI symposium last week, and that is within our expectation.

And our next question comes from the line of Thomas Yip with MLV & Co. Wing Cheung Yip - MLV & Co LLC, Research Division: While we understand that 2015 will be a market for about a year for the U.S. market, and as we learned today that there's definitely plenty going on, on both regulatory and commercial products. Can you perhaps give us a little bit of detail on approximately when you expect to see the first quarter of revenue related to INTERCEPT in the U.S. market?

Yes. Thanks, Thomas. So it's basically starting now. So we have Illuminators that have been shipped and we have kits that are available to ship as well. So that's beginning in Q2, but it will be relatively small until we get additional sites up and going. And just getting them through the validation process doesn't require a lot of kits. Wing Cheung Yip - MLV & Co LLC, Research Division: Sure, definitely we understand that. And as you alluded to the labor expansion, that should definitely help revenue as well. I guess, my next question is related to the TRUE study with the American Red Cross, will that remain related to platelets only? Or would that expand to plasma or even red cells by any chance?

Yes. So the TRUE study is a study that we're conducting under IDE with the American Red Cross in Puerto Rico for chikungunya and dengue prevention. So right now, the focus of that study is on INTERCEPT platelets. And we don't have any plans at the time being to transition to INTERCEPT plasma or INTERCEPT red cells.

And our next question comes from the line of Caroline Corner with Cantor Fitzgerald. Caroline V. Corner - Cantor Fitzgerald & Co., Research Division: Most of mine have been answered now, but just broadly speaking, as you're building the market in the U.S., you've got to get these blood centers on board producing the platelets and plasma for sale to the hospitals. As you're reaching out to the blood centers and the hospitals, can you walk us through, where is the challenge for you from a commercialization standpoint? Is it driving the pull from the hospitals? Or driving the push from the blood centers? Just trying to figure out, looking forward, when we think about some of these points where we could see a big change, what's going to drive some of that? Where we're going to see an inflection point in the U.S. down the road?

Yes. Thanks, Caroline. As I alluded to in my prepared remarks, I think what we've been positively surprised by is the level of interest coming from the hospital. So we have an MSL team that is largely built out now, and they're interacting with these possible transfusion services and hemo/onco stem cell transplant groups. And there's just a lot of interest coming from a very long queue of hospitals. I think the challenges we're having right now is just a function of being able to go out and talk to everyone, given the demand for medians. On the blood center side, I think they're supportive. There's a little bit of -- just sort of waiting a little bit around, having the availability of platelets and 100% plasma available. But at the same time, there are a number of centers that are looking to convert over to INTERCEPT and platelet as solution because they see demand from their hospitals for that. But all in all, I think what we're most excited about is just the demand coming from the hospitals, because at the end of the day, that's really what's going to make move things, is that the hospital customers of the blood centers want the product and want to start the Phase IV study and want to do something about patient safety.

And our next question comes from the line of George Zavoico with Jones Trading.

First one has to do with cost reductions, cost offsets. One of the things that was clear from the AABB symposium was the tremendous variability in cost of components in various countries and various markets. How important is it for you guys when you pitch to the hospitals or the blood centers to do an accurate center-specific or territorial-specific cost-effectiveness analysis to try and help them understand exactly how much money they'll be saving or how much cost they would have to additionally incur?

Yes. I think, obviously, it varies blood center to blood center and how they account for things. And cost is certainly a big issue for blood centers in the United States and globally for that matter. So to the extent that you can show that they can save money and then also upcharge the product, I think that's really the key question. I think there's sort of a coalescing of the thought around the idea that they can upcharge, and certainly, the precedent for the upcharge associated with T code for gamma radiance and CMV seronegative platelet components of north of $100 is a great precedent. So if you look at it, just from a cost savings standpoint, they can reduce cost, they can reduce wastage associated with longer shelf life. And then ultimately, if the hospitals don't have to incur the cost of a point-of-release test, there's a lot of cost savings there. And then more broadly, if they can upcharge the hospitals for INTERCEPT-treated platelet components and plasma components, it's a win for them.

So maybe when you do these analyses, the answer seems to be that in most, if not all cases, there's actually cost saving when all of that is taken into account. Is that pretty much correct, even with the upcharge? Or with $100 upcharge, say?

Well, I said that the upcharge will provide them profit. And if we're looking just at the blood center cost, I think there is a way to get the cost neutrality, but it's highly dependent upon blood centers' operations. And so it's sort of hard to have a general discussion that's applicable to all blood centers. So we're obviously trying to do that in partnership with a number of blood centers and hospitals in the Jeff McCulloough paper, which I believe is present transfusion. But I think, as you noted, George, at the symposium, not everyone buys into all the assumptions that go into those models. And so it does, at times, have to be sort of center-by-center analysis, which is something that we're used to.

And next question regards to Delmarva and SunCoast, there's not going to be 100% switch from non-INTERCEPT to INTERCEPT platelets. There's going to be some transition period. How do you expect that to evolve, number one? And number two, for the INTERCEPT platelets, are these supposed to be characterized whether the customer's going to stop NAT testing and start bac culture testing already or is that they still have to do that because of the existing regulations?

Yes. So you have 2 questions .The first is sort of an all or nothing approach. And so I think what we'll see is that Delmarva will gradually get to routine use for our -- for 100% of their components, but it'll do it maybe on a hospital-by-hospital basis as opposed to 100% of their supply overnight. And obviously, it takes them some time to transition. And then, I guess, I forgot your second question, oh, it's around getting rid of bacterial culture and NAT. So NAT is pretty much regulated into blood components, and so it's next to impossible to replace unless there is an FDA law change. But with regard to bacterial culture, I think it was pretty clear at the AABB symposium and clear from our discussions with Delmarva and SunCoast that they plan to remove that from their platelet-production process.

Okay, great. And finally, can you comment on the IDE on the Ebola? Because the Ebola is really waning now. Is that kind of dormant now? Or...

Carol, do you want to handle it?

Sure. We think it's still a very important activity in our IDE as it remains open. Emory is kind of -- the Emory University is the primary collection site, although we have some other satellite sites that are feeding into that. At Emory, they've created a repository of INTERCEPT-treated plasma, and I think they believe that it may be necessary at some point. The Ebola epidemic kind of waxes and wanes and it may be on decline, which is good news, but certainly there's a lot of reason to be concerned that situations can arise where it could flare up again. And so Emory remains committed to maintaining supply of convalescent plasma, and we will help them do that as long as they think that they would like to maintain that bank. And we're working closely with them to keep that IDE in the current status and figure out what the next steps will be after that.

And our next question comes from the line of Zarak Khurshid with Wedbush Securities.

Obi, you just made a comment about the demand for meetings. I was curious if you had any color on how the sales cycle might be shaping up in the U.S.? How does that compare to the European experience? And given the void between the first contracts and now, how do you feel about the size of the U.S. commercial team and just the general selling approach?

Yes, thanks, Zarak. We're almost built out. I think we'll be fully built out as sort of Q3, Q4 this year, as we have added a number of people since the last call a couple of months ago. I think that-- your question around the demands coming from the hospitals is for medians. We just have a lot of -- so these blood centers serve a lot of hospitals. And so once we sign up the customers, there's a lot of demand to go out and help them sort of detail their customer -- their hospital customers about the value afforded by INTERCEPT and the clinical data, et cetera, et cetera. So that's what my comment alluded to. And I think as far as the sales cycle is concerned, we do have a very strong queue of hospital contracts, and we just started trying to work through those and get the final details signed. And other than that, I think -- the other question you had was just around how does this compare to Europe? And I try to allude to this during the prepared remarks, but it’s really surprising to see so much just sort of organic advocacy coming from the key opinion leaders in the field. That's something that we were hoping for, and obviously, we've been working with a number of these investigators and they're knowledgeable about the European experience. But I think they see a fundamental need for pathogen reduction to safeguard the blood supply. And I think that perspective was articulately laid out or eloquently laid out in the New England Journal Editorial by these authors. So I think that that's sort of a, at least a general feeling that you could -- you can certainly pick up at the AABB symposium last week. And having that come in the first quarter after 3 months of being on the market I think is fantastic.

And our next question comes from the line of Martin Howard with Bryn Mawr Trust.

You're going to spend a lot of money on salesman and research, improving up the red cell stuff, when do you think it might actually show a profit? 2019? 2018?

Well, I think that's certainly a function of what our top line sales are. The market opportunities that we're selling into are significant. So as you know, north of $700 million between Europe and the U.S. If we're successful in making that the standard of care, I think we'll rapidly get to profitability. At the same time, I think we do have ongoing expenses related to the red cell program that we'll continue to invest in because that's a multibillion-dollar opportunity, and we don't want to keep that product to the market longer than we have to.

Okay, yes. That's -- my next question is, being optimistic but conservative, you think you could get 30%, 40%, 50% of the world market, say, in 5 years?

Well, in the U.S. and Europe, I think it does ultimately come down to relatively binary sort of decision-making. There's not that many blood center customers between the U.S. and Europe, and so we do believe that there will be a tipping point at some point in time. We've seen that tipping point happen in places like Switzerland and Belgium, where it is 100% of the supply. And our corporate mission is clearly to make INTERCEPT the standard of care globally, and that would anticipate 100% penetration.

And I'm showing no further questions at this time. I would now like to turn the call back over to Obi Greenman for closing remarks.

Well, thank you for joining us all today. We look forward to updating you again on our Q2 call in July. Thanks very much.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a wonderful day.