Good day, ladies and gentlemen and welcome to the Cerus Corp. Q3 2015 Earnings Conference Call. At this time, all participants are in a listen-only-mode. [Operator Instructions] As a reminder, this conference 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, Chenoy and good afternoon. I would 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; Richard Benjamin, our Chief Medical Officer; and Larry Corash, our Chief Scientific Officer. Cerus issued a press release today announcing our financial results for the third quarter ended September 30, 2015 and also 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; customer support initiatives, U.S. customer contracts, the timing of U.S. revenues; reimbursement; Cerus’ ability to address cost concerns; resumed sales growth in Europe, including revenue inflection points and new customers; expected or anticipated regulatory submissions and approvals and the timing thereof, including the U.S. label extension submissions and a potential CE Mark submission for and approval of the red blood cell system; commercial launch of new products, including the red blood cell system or in new territories; access to debt financing; Cerus’ planned Phase 4 study, including the timing and scope thereof, and FDA guidance document and the timing and contents thereof and the timing of implementation of a new quoted federal regulations on blood component preparation and its impact on blood center operation. 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-Q filed with the SEC on August 7, 2015, under the heading Risk Factors. This call will be archived temporarily on our website and will not be updated during that time. On today’s call, we will begin with commentary from Obi, followed by Q3 financial results from Kevin. Richard will provide an update on the recent AABB conference and other U.S. market process and we will conclude with final remarks from Obi. And now, it’s my pleasure to introduce Obi Greenman, Cerus’ President and Chief Executive Officer.

Thank you, Lainie. It’s been a busy couple of weeks starting with our participation at the annual AABB meeting and culminated in the establishment of permanent P-codes for reimbursement of pathogen-reduced platelet and plasma components by the Center for Medicaid & Medicare Services, or CMS. I would like to start with a few important points about our global markets and progress to-date in 2015. In the U.S., we are seeing considerable momentum already in this launch year. We now have seven customers under contract and many active negotiations in progress. OneBlood, our most recent contract, is one of the three largest blood centers in the U.S. distributing blood components to over 200 hospitals in Florida, Georgia, and Alabama. U.S. hospitals are starting to receive INTERCEPT platelets from our earliest adopters, and in January, they will be able to build their outpatient transfusions under new P-codes specific for pathogen-reduced platelets. In addition, hospitals are likely to be influenced by an updated draft FDA guidance on bacterial safety that is expected by year end and is likely to include the use of pathogen reduction. We have had a more difficult time or a difficult year in our core European, Middle East and Africa markets. Second half economic headwinds have been stronger than we expected in the Russia region, reducing kit sales below the already low estimates that we had included in our annual revenue guidance. In addition to the challenges in those markets, several key blood centers have delayed adoption decisions. Due to these unexpected and recent developments, we now anticipate annual revenue of $34 million to $36 million. We remain confident in the longer term potential of our four EMEA markets with some opportunities taking longer to develop than we expected in early 2015. One of the largest European opportunities is the UK’s National Blood Service, the NHSBT. The NHSBT issued tenders earlier this year for both bacterial detection and pathogen activation for their entire platelet supply to allow them to choose one technology or the other going forward. We submitted our proposal in September per their deadline and the NHSBT has indicated that they will announce a technology of choice later this year. If INTERCEPT is selected, their timeline calls for a final technology validation study in early 2016 followed by implementation in the second half of the year. We have offered competitive terms to the NHSBT and believe INTERCEPT is well positioned to win their business. I will cover some more detail on the significant progress we are making on our U.S. launch later in the call. And for now, I will turn the call over to Kevin to review our Q3 financial results.

Thanks, Obi. This afternoon, we reported Q3 revenue of $8 million. This represents a 7% decrease in year-over-year kit demand and a 22% decrease as reported in U.S. dollars. Q3 revenues were impacted by a weaker than anticipated demand in Russia and more broadly, the CIS countries and certain delays in order fulfillment. Reported revenue for the first nine months of 2015 was driven primarily by the European and Middle Eastern markets with reported revenue negatively affected by a weakening of the average euro rate compared to the U.S. dollar, Cerus’ reporting currency. As Obi mentioned, Cerus has now signed seven customer contracts with blood centers in the United States. These centers collectively represent a footprint of over 200,000 kits annually. With the growing momentum we see from prospective customers, key opinion leaders and reimbursement agencies we believe we will be adding new contracts through year end. There can be a period of time for customers to implement and some blood centers need the FDA approval for platelets and 100% plasma in order to initiate production. Until we gain clarity into operational experience in the U.S. market and the translation of that into revenue, our revenue guidance will be focused on our core European, Middle Eastern and African markets. Before I get into gross margins for the quarter, I would like to start by providing some color on our recently announced 10-year supply agreement with Fresenius Kabi. The new agreement provides us with fixed descending pricing based on production volume, similar to the previous agreement. However, under the new agreement, we have much better pricing at higher levels of production and a dedicated facility for which both Cerus and Fresenius Kabi can invest in automation, cost reduction and economies of scale for current and future products. In addition, the new…

Thank you, Kevin. Last week we participated at the AABB conference in Anaheim. This is the largest blood banking conference globally. It was a critical event for the U.S. team. I will provide a summary of the key AABB activities and discussion and then invite Obi to add his impressions. At AABB, I had the pleasure of chairing our evening corporate symposium which featured speakers from Bloodworks Northwest, Roswell Park Cancer Institute, Mayo Clinic and UC San Diego. All expressed the intention to introduce pathogen reduced products to reduce the risks of transfusion, though none are yet under contract for receiving INTERCEPT platelets or plasma. In particular, the risk of bacterial sepsis you have seen as substantial is the strongest driver for their planned near-term adoption of INTERCEPT platelets. The pending FDA guidance on bacterial safety is providing a strong motivation to look at pathogen reduction as a potential alternative to point of release testing. And hospitals that have seen recent cases of sepsis are keen to adopt measures to prevent future cases. The speakers identified some challenges to the initial introduction of pathogen reduction. This included compatibility with processing specification and the lack of claims for platelets in 100% plasma, triple doses and old blood platelets. Uncertainty around how blood centers will price pathogen with this component was also mentioned as well as timing for the availability of reimbursement. CMS’ subsequent issuance of P-codes, outpatient reimbursement is not clear. We believe the rate set for 2016 will help drive blood center pricing strategies to their hospitals. Some blood centers may not be able to convert their full platelet production immediately, but they are able to start with the proportion to ramp up over time. Others, such as the ARH [ph], report 97% compatibility with their current processes. An approach…

Thank you, Richard. It’s really great to have you on the team now. Pathogen reduction was very much a hot topic this year at AABB, in addition to the 14 Cerus abstracts, the corporate symposium and booth. Pathogen reduction was featured on the scientific program and came up frequently in the Q&A, after Blood Center and Transfusion Service presentations on various topics. Conference participants were eager to see which of their peers are already moving forward to implement the technology. Our seven U.S. customers are actively planning their implementations or in some cases, already distributing the pathogen reduced products to their customers. Suncoast into our model are fully implemented and actively rolling out INTERCEPT players to their hospitals. The NIH presented their target timelines during the one of the scientific sessions, indicating they plan to convert their entire platelet production to INTERCEPT by year end. Unyts, Community Blood Center of the Carolinas, Bonfils and OneBlood are all working on their implementation plans. For Bonfils and OneBlood, our pending claim for platelets and 100% plasma will be a factor in their timelines. We continue to expect the late Q1 label extension approval for platelets and 100% plasma. But we don’t believe this claim is gating to signing up additional customers. We also recognized that most blood centers in the U.S. are currently producing platelets and 100% plasma and thus will not be able to produce INTERCEPT platelets until this is approved, unless they like to move to play that evident solution. We are also continuing to assemble the data necessary to submit for additional critical claims like extended storage and treatment of triple-dose apheresis platelets and pooled random donor platelets prepared from whole blood. These submissions are all targeted for 2016. As a final U.S. update, we are very pleased last…

Thank you. [Operator Instructions] And our first question comes from Caroline Corner of Cantor Fitzgerald. Your line is now open. Please go ahead.

Hi, guys. Thanks for all the color. Very helpful. And good to see you guys laying such good groundwork in the U.S. market. I have a question about the UK market. It sounds like that decision you submitted in September – it sounds like the decision from the UK was going to be kind of an all-or-nothing type of arrangement. Can you go through the size of the UK market here and how you are feeling about the outcome, how confident are you that you are going to be the one picked?

Yes. I will quickly cover the size of the market and speak to what we think the likelihood of success is there, but I think having Richard on board to speak about bacterial contamination and platelet supply really is one of the key decisions points for the UK NHSBT. So, I will let him speak to the current risk that exists in the UK blood supply and in general. The UK collection distributes about 300,000 platelets a year. I think that really translates into 100,000 to say 125,000 kits, because they are moving more to the double dose and even triple dose collection format. And so we don’t know what the final operational efficiencies will be realized, but that you need to translate it into kits ultimately for the market opportunity for us. And with that, I will turn it over to Richard to answer the second half of the question.

Absolutely. Thank you, Obi. Having worked quite closely with NHSBT over the last couple of years in this area of bacteria, it was with interest when they introduced bacterial detection in 2011, perhaps the most stringent implementation of any country in the world. They were very hopeful for a very safe system. However, they have now reported at least five false negative cases resulting in at least two septic transfusion reactions that we know about. And the impression was gained that they were the solutions, in fact, with the safety they were getting. The UK understand, have product liability for any death or sepsis around bacteria. And they are really very interested in finding a safer system. So, I think, they look at our system very, very seriously in the light of their experience.

And who else are they considering?

Well, I think that the tender was structured to really position bacterial detection versus pathogen and activation. And so for bacterial detection, it’s the system they have implemented already which is BacT/ALERT system and for pathogen activation that’s us and our competitor. I think that one thing to note there though is that in the SaBTO report, so that UK has a blood policy group called SaBTO, the only technology that they really recommended for implementation in the context of that report was INTERCEPT.

Great. Thanks. That’s helpful. And then turning back to the U.S. market then, given now that you have five customers that you have announced, can you talk about in terms of the amount of units of platelets and plasma, where you are in terms of number of units versus the whole U.S. market? How many of these – how much of these current five customers cover?

We actually have seven customers now with the announcement today. And the announcement today was for OneBlood, which added another 160,000 potential platelet doses. I think you have to try and translate that into kits again as far as what the size of the opportunity is. And so I think the backlog for, I guess, that’s the best way to describe it is around 200,000 kits if you combine platelets and plasma together. So, if we are able to translate all those seven customers into routine use, it represents roughly around a 200,000 kits a year for us.

Thanks. That’s helpful. Thank you.

Yes. Thanks Carol.

Thank you. And our next question comes from Jeff Elliott of Robert W. Baird. Your line is now open. Please go ahead.

Yes. Thanks for the question and congrats on the momentum. My question is about 2016 and I understand if you don’t want to give guidance today, but there is a wide range of estimates out there and consensus and I think to help us kind of get in line with where we should be, there is a couple of things that I think would help us model 2016 more effectively. The first is really on Russia or CIS more broadly. I guess can you help us understand what the impact was on the third quarter and how we should think about that over the next couple of quarters?

Yes. I think I will turn that over to Kevin. Just at a high level, we have been trying to make progress with our distribution markets with some of the setbacks we have had in the last couple of years and transitioning to direct model in Southern Europe, for example. But maybe Kevin can speak to the impact for this quarter and going forward.

Sure. So, Jeff thanks. What we mentioned in our prepared remarks it’s Russia and really the CIS countries in general. That’s we factored some of the headwind into our guidance, but we certainly have seen a bit more severe headwind than we had anticipated, particularly in the CIS markets. So, as we move forward, you can use historical experiences, a proxy in the CIS markets including Russia have been as high as 20% of our business. So, with those headwinds, we will be working to alleviate them, but we don’t anticipate that they are going to change dramatically in the near-term.

So maybe asking that one a different way. I guess where is that at today? Is that at zero or are you still getting some revenue in the CIS now?

Well, it’s choppy. So for sure, it’s choppy. And the third quarter, it was very anemic. Fourth quarter historically tends to be a strong quarter for us, but the headwinds in Russia and CIS in general can get to exist.

Got it. Okay. And then the other area that I suspect is kind of a wide range of expectations on the U.S. and again with seven signed customers there, there is a lot of momentum, but then I think when you realistically think about what that initial slope will look like and when you factor in timing of label expansion. I guess, is there a rule of thumb you would have? I am not asking for guidance here but is there a rule of thumb and how much you could expect say in maybe year one of a contract versus the endgame? Is it – should we look at the contracts you had signed before today? I think that was around somewhere maybe $4 million and I assume maybe half of that would come next year. Is that a way to think of it or is there a better rule of thumb that would apply for us for next year?

I really like to give you some clarity, but it’s very challenging just given some of the considerations you mentioned. And also that’s it really center by center. So, those centers that are planning to go to platelets in PAS or InterSol that likely to be faster. We obviously have to get the label claim for platelets and 100% plasma. So that will delay sort of the progress on those accounts that want to stay in 100% plasma. Another consideration for certain blood centers, they ship a lot of products across state lines. They need to get their BLA up and going. So that also will impact their ability to get into routine. And I think the triple dose set for, again, a subset of customers is also important for them to get into routine. So, I think what we are going to try and do going forward is just to give you clarity on where they are on the process and then also give you clarity on those label claim extensions. And in the immediate term really focus on signing more contracts, because we are seeing increased momentum as a function of the product benefits. And I think now obviously one of the key questions was well, what can we get reimbursed in the outpatient setting and what should the up-charge be? And I think that’s now addressed as Richard alluded to in his prepared remarks.

Got it. Okay, that’s helpful. Thank you.

Thank you. And our next question comes from Zarak Khurshid of Wedbush Securities. Your line is now open. Please go ahead.

Hey, there everybody. Thanks for the question. Good afternoon. I guess one is on OneBlood and the conversations there. What guide them over the [indiscernible] and how do the P-codes factor into those discussions?

I think they have got a long history of trying to provide the safest blood products to their hospital customers and patients. So I think that obviously is the paramount concern for them. I think the fact that they are in Florida, dengue and chikungunya were a real concern last year, less so this year because they weren’t that many cases. But it was still something that made them have to develop contingency plans for donor deferral, etcetera. So that’s a reality in that part of the country. And then I think from an operational perspective, they really see the value in potentially extending platelet shelf life, getting rid of bacterial culture. Certainly, if the point of release testing becomes something that’s required in the context of the guidance document, that’s something that would have a major impact on how they distribute blood components throughout – platelet components throughout their region. And then finally, they actually have a strong interest in plasma. So, I think it was just a combination of things and I think we are optimistic that we will see other large blood centers and take the step too, soon.

So good and then following the established P-codes, I know it hasn’t been too long, but what has been the feedback so far from current customers and potential customers?

Yes, it’s been really positive. I think this is one of the biggest concerns that the blood centers have is how they are going to get reimbursed for innovation and new blood safety measures. And typically with testing, that wasn’t possible because there is not a specific is that it’s impossible to have a P-codes for that. It just sort of gets bundled into the component that’s reimbursed. And so that, I think I would really like to acknowledge the team here from an execution standpoint. The head of our MSL team, Jessica Hanover really partnered with the various blood policy groups like the American Association of Blood Banks, ABC, American Red Cross and a number of other blood centers to solicit the advocacy that resulted in this outcome. But I would say Zarak, that at a high level it’s just been really, really positive because there hasn’t been a time – this hasn’t occurred in a long time for this industry. And that’s why I think it’s just such a great thing to happen at this time.

It sounds good. And a couple of modeling questions, what was the kit growth in the quarter?

Sure Zarak. So kit growth was roughly – well, it’s actually down about 3% quarter-over-quarter. For the year, on a year-to-date basis, it’s up about 13%.

Got it. And then I know this SG&A line was down about $1 million sequentially, just curious what’s happening there and how sustainable is that improvement?

It’s just episodic. That’s just is a function of marketing events and other period costs. I think you got to look at the SG&A growth over a longer timeframe.

Great. Thanks guys.

Thanks Zarak.

Thank you. And our next question comes from Drew Jones from Stephens Inc. Your line is now open. Please go ahead.

Thanks. Good afternoon guys.

Hi, Drew.

Could you give us an update on France, do we have the additional site up and running and also how are – I guess it would be fair to call renegotiations, how are those going?

Yes. Thanks for the question. So the existing contract is not yet ended. So those discussions are ongoing to establish a new framework agreement. I think what we are seeing is that that framework is a framework that will give the French Transfusion Service or the EFS, sort of infinite flexibility with regards to what their strategy ultimately is for platelets and plasma. And so they have – for platelets, at least they have stood up in the second site in Mainland France. But it really don’t have a whole lot of visibility into what their overall strategy is for both components going forward at this time. I think overall historically, as you recall for plasma that the market share sort of varied between 30% and 60%. For the last quarter Kevin, I believe it was like 35%. So that really sort of fluctuates and ultimately we are hoping to get some additional visibility as we end the year and go into next year.

Okay. And then you touched on something as far as the new manufacturing relationship with Fresenius, did margins look much improved at higher volumes, is that just dropping the royalty payment or is there a benefit as well from new price volume breaks. And what the volumes ultimately look like at scale or margins ultimately look like at scale?

Thanks. So there is a number of I think benefits that we have realized from the Fresenius Kabi agreement including the pricing which has the near-term volumes are roughly the same, but we have much better pricing as we get economies of scale, so north of a million units a year. And then of course the cessation of the royalty is probably the single biggest near-term impact to our margins, which were 10% of overall value of platelet kits sales and 3% from plasma sales. So looking at our product mix, we have historically sold roughly 70% of our revenues coming from platelet kits, so it’s meaningful. I think as we look ahead to what that contract affords to our margins, we believe that very easily we can be in the mid-60s with this contract. And then beyond that we and Fresenius Kabi will be investing in a number of initiatives to utilize the facility and eke out economies of scale, new product configurations and importantly, lower pricing.

And then last one from me domestically, thinking about the impact of the new P-codes, if 80% of platelet transfusions are non-trauma, what percentage of those could be pushed to the outpatient setting?

Maybe I will turn it over to Larry and Richard to answer this one. I mean it really varies from what we have seen by hospital and how aggressively they are trying to reduce costs by pushing some of the outpatient transfusions for hematology-oncology patients or pushing hematology-oncology patients into the outpatient setting for their transfusions. But Larry or Richard, do you want to?

Well, I think what we are seeing is that, depending on the institution, 60% to 70% of the platelet components used are going into hematology-oncology practices. And we are seeing anywhere between 30% and 50% of those patients getting taken care of in an outpatient setting. Including now low risk transplants being done in an outpatient setting and we are seeing much more of that transition. So the P-codes are a very important factor for these oncology practices.

And maybe I could add that my experienced in my prior job was that hospitals are driven by outpatient reimbursement to move to the outpatients or in-patients depending on reimbursements. And I think this could be the strong move towards outpatient, good rationale for moving in that direction.

Thanks guys.

Thanks Drew.

Thank you. And our next question comes from Josh Jennings of Cowen and Company. Your line is now open. Please go ahead.

Great. Good evening. Thanks a lot. I just wanted to – first, congratulations on the OneBlood agreement and the P-code assignment plus openly either to hear from both Obi and Dr. Benjamin is about the competitive importance of the OneBlood agreement for some of these larger blood centers in the U.S. And how – whether we should be expecting a domino effect and just what Dr. Benjamin has experienced at Red Cross when the technology is adopted by a large competitor, how quickly historically have there been fast followers on the adoption front?

Yes. I think I will just let Richard handle that, so.

I think what the large blood centers bring to the table is the ability to export products across their boundaries and into other markets. And so they become a threat to the smaller centers we will feel that threat and I think we are beginning to see movement because of that. And I think the OneBlood contract is going to resonate through the industry.

Great. And then just on the o-U.S. business, I am not sure if I heard this or it was in the press release and I apologize if I missed it Kevin, but any way to parse out Russia and CIS in terms of what the core European growth was. And then also any updates on how Belgium is going with the Red Cross Flanders agreement and also any updates either from Sweden or other territories?

Sure. So we didn’t quantify specifically Russia, but it’s been – Russia has been upwards of 10% of our business. And then if you combine that with the other CIS territories at times, it’s been as much as 20% of our business. So, it was very anemic, suffice to say, this quarter, which was – and we knew there would be headwinds, but they have been more severe than I think we anticipated when we gave our guidance at the beginning of the year.

And then around Flanders and [indiscernible], I think those are sort of delivering as we expected at the beginning of the year in routine use, no issues and obviously contributing meaningfully to the top line.

Great. Should we be thinking that the core European business still grew in the high single-digit, low double-digits or is that not the appropriate way to think about it if you exclude the headwinds from Russia or exclude that part of your business?

Well, so there are a number of factors. I mentioned in the prepared remarks also that we had a number of orders that we expected to be fulfilled in Q3, which didn’t get fulfilled until Q4. Those were north of $1 million. So, if you factor those in and look at the kit growth quarter-over-quarter, although as we reported, it was down 7%, if you factored those in, it would have actually been up 5% and on a year-to-date basis, at 17%. So, that’s kind of where we expect the growth to be. You have been factoring in the headwinds in Russia.

Great. Thanks a lot, guys and congratulations.

Thanks, Josh.

Thank you. And I am showing no further questions at this time. I would now like to turn the call over to Mr. Obi Greenman for closing remarks.

Well, thank you for joining us today. We look forward to updating you again on our Q4 call in March of next year. Thanks very much.