Good day, ladies and gentlemen. And welcome to the Cerus Corporation Q3 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time [Operator Instructions]. As a reminder, this conference call is being recorded today November 2, 2017. I would now like to introduce your host for today’s conference, Tim Lee, Investor Relations. You may begin.

Thank you, operator, and good afternoon. I’d like to thank everyone who joined us today. With me on the call are Obi Greenman, Cerus’ President and Chief Executive Officer; Vivek Jayaraman, our Chief Commercial Officer; Kevin Green, Cerus’ Chief Financial Officer; Dr. Richard Benjamin, our Chief Medical Officer and Carol Moore, our Senior Vice President of Regulatory Affairs and Quality. Cerus issued a press release today, announcing our financial results for the third quarter ended September 30, 2017, and also describing the Company’s recent business highlights. You could access a copy of this announcement on the Company Web site at cerus.com. I’d like to remind you that some of the statements we will make on this call relate to future events and future performance rather than historical facts and are forward-looking statements. Examples of forward-looking statements include statements related to our 2017 product revenue guidance, gross margin, operating expenses, cash burn and sufficiency of cash, future product sales, mix and volume, future regulatory-related events, clinical trials and other product development activities, including risks with respect to our cryoprecipitate, activities with respect to our red cell program, our commercial goals and initiatives, including new contracts, customer activity under existing contracts and hospital implementation, the potential approval of our red cell product in Europe and the U.S. and commercial launch thereof, and the timing of the foregoing events and activities. These forward-looking statements involve risks and uncertainties that could cause actual events, performance and results to differ materially. These risks and uncertainties are identified and described in today’s press release and under risk factors in our Form 10-Q for the quarter ended September 30, 2017, that we expect to file shortly. We undertake no duty or obligation to update any forward-looking statements we make today. This call will be archived temporarily on our Web site and will not be updated during that time. On the call today, we’ll begin with opening remarks from Obi, followed by a commercial overview from Vivek then we’ll have Q3 financial results from Kevin and finally Obi will conclude the final remarks. And now, it’s my pleasure to introduce Obi Greenman, Cerus’ President and Chief Executive Officer.

Good afternoon. And thank you for joining the call today. Overall, we are encouraged by the progress we are making, both commercially and in product development. During the past two weeks, we have announced national reimbursement for pathogen reduced platelets in Germany; the tender award in Madrid for one of the largest blood centers in Spain; and our partnership with Kedrion in Italy, together with our expanded EFS contract announced this summer. Our commercial operations in Europe are gaining significant traction. While we’ve been working diligently to unlock key European markets, the progress in Germany and in France, during the last several months, has exceeded our expectations. Since July, we have installed illuminators at all EFS blood centers and the French Transfusion Service has rapidly implemented to INTERCEPT platelet system. As a result of these efforts, we have begun shipping platelet kits under the expanded agreement. Given the large national conversion and past experience in EFS centers, we are confident in their ability to implement INTERCEPT for 100% routine use during the contract period. In Germany, with reimbursement now in place, the blood centers should be ready to implement INTERCEPT as soon as they receive their marketing authorization approvals, or MAAs with the Paul Ehrlich Institute. Pathogen inactivation allows for extended days of shelf life in Germany compared to conventional platelets, which should reduce waste from expired products at the hospitals and at blood centers. With favorable reimbursement and extended shelf life in hand, we believe the German blood centers have some strong incentives to provide INTERCEPT platelets to their hospital customers. In the U.S., we saw a distinct shift in sentiment toward INTERCEPT at last month's AABB Meeting in San Diego. During previous AABB Meetings, conversations with potential customers usually revolved around live blood banks and hospitals should adopt…

Thank you, Obi. This is an exciting time for Cerus. The events of the past quarter and the compelling market opportunities in front of us give me great confidence that we can meaningfully expand patient access to safer blood. So today, Cerus is the pioneer and undisputed leader in providing pathogen reduced blood components. The market potential for our approved products is approximately $1 million. Furthermore, with line of sight for potential INTERCEPT Cryo and red cell approvals, we may soon have the opportunity to participate in segments of the transfusion medicines space with an aggregate market size north of $5 billion. Initial feedback from clinicians for pathogen reduced Cryo, which offers an extended post-thaw shelf life and immediate availability for transfusion, is very encouraging. Few companies have the potential to create and build opportunities at this magnitude. Cerus is well positioned to be first mover in many product categories, and also in many key geographies. Key to our success is pairing intelligent go-to-market strategies with disciplined commercial execution. Our results this past quarter give me confidence in our ability to deliver solid execution, going forward. Starting with the U.S., we have gained a great deal of valuable insight in the past year. This knowledge has come to a close partnership with blood centers, hospitals and clinicians. We are smarter today about the platelet production realities facing our blood center customers, and also better understand the efficiency gains required to make INTERCEPT a standard of care. Furthermore, we are more confident than ever in the clinical interest-in and demand-for pathogen reduction. Our cross-functional filed team, which includes sales, marketing, deployment and hospital affairs, are working hand-in-hand with blood banks to integrate INTERCEPT into their operations. They are also working closely with the hospitals to ensure that they are ready to…

Thanks, Vivek. Earlier today, we reported product revenue from the most recently completed quarter of $10.8 million, up 6% from the $10.2 million reported a year earlier. This growth was derived from strong demand in platelet kits in both EMEA and the U.S., as well as from an increase in illuminator sales. Importantly, the majority of illuminator sales were the results of early deployment in France. As we speak today, illuminators have now been deployed to all EFS sites, providing a foundation for the EFS to ramp INTERCEPT production. Worldwide, platelet kit demand was up 12% or 15% on a dollar basis when comparing Q3 2017 to the same prior year period. Those gains were largely offset by a decline in plasma kit sales from both France and as a result of ordering patterns from certain Middle Eastern distributors. With the growth of platelet cells globally, platelet kits now account for more than 90% of our kit revenue. The contribution margin from product sales was also healthy during the quarter. Gross margins on product revenue were 50% compared to 46% for the prior year period. The improvement in gross margin was largely the result of sales mix with the most recent quarter dominated by platelet kit sales, which have a higher margin than plasma sales. This margin differential is driven by the lower cost of platelet kits relative to the cost of plasma kits. For the year-to-date period, margins were 51% compared to 46% for the same period in the prior year. Similar to the quarterly results, a higher proportion of platelet kits was the primary driver for the improved year-to-date margins, along with overall more efficient inventory management. I’d like to turn now to operating expenses. Total operating expenses for the most recently completed quarter were $20.1 million compared…

Thank you [Operator Instructions]. And our first question comes from the line of Drew Jones from Stephens. Your line is now open.

I wanted to start with France and the illuminator placements that you guys referenced for 3Q. Is that sufficient capacity to handle a full run rate? And then along those lines what, when we look at the kits that are getting placed there in 4Q, is there any stocking there or is it going to ramp from 4Q levels?

I'll take the first part of that question and then turn it over to Kevin. So I think the nature of your question was do they need to install any more illuminators at the regional blood centers sites at the EFS. And the answer to that question is no. So they're fully implemented and are in routine production as of today. With regard to kits that are needed for routine use, going forward, I'll turn that over to Kevin.

Yes, and I would just provide one caveat. So as reported in Q3, not all sites were up. But as we speak today, the illuminators have been deployed to all sites. It’s our understanding that the French plan, as we’ve mentioned, to make INTERCEPT standard the care over the base period. As they rollout the technology to those 17 sites, I think there will be a ramp period. There may be some stocking certainly since it's their first large orders. But we really don’t know where that is in the scheme over that base contract period.

And then maybe shifting to domestically for just a couple of quick questions, the seven BLA facilities that are pursuing BLA, what’s the total capacity in aggregate of all those blood centers?

Yes. I don’t think I can answer that precisely. But one of them is obviously the Red Cross, and so that’s 40% to 45% of the overall market. There is other -- the blood systems is another big chunk, and I think that’s on the order of 20%, 25%. So those seven additional BLAs cover the majority of the rest of the market.

And then last one for me. It sounds like there were no hiccups in terms of RBC trails as a result of Puerto Rico Hurricanes?

I’ll turn that over to Richard. Obviously, things have been shut down there and the hospitals are on generators to-date. But Rich can give you an update as to where we are today?

I guess, as you know, Puerto Rico was devastated by the Hurricane and that did shutdown enrollment at our three hospitals. And the blood centers had to import blood for a period. The blood center is back-up manufacturing blood for general use, and will soon be back-up making blood for our trial. The hospitals will take a little longer as they are still on generators, and communications are a real problem. So we are working with them as we speak to get them backup in enrollment. More importantly, I believe, we have a mainland blood center that will be up in Q1 producing red cells. And we have identified I think three sites on the mainland that we plan on bringing to recruit and enroll patients for Q1. Does that answer the question?

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

Congrats on the recent successes in Europe and on the quarter. I was hoping to just start off and ask about the 2017 guidance update. It implies a nice ramp in the fourth quarter at the mid-point of the range. And I was just hoping you could give us a little bit of color in terms of what’s the drivers there that give you confidence in the sequential top-line acceleration?

So I think, obviously, the French coming online is going to be an important driver. We don’t know exactly how that is going to shape up for the entirety of Q4. But we believe Q4 is going to be a strong quarter. And going into 2018, there is a lot of growth drivers that will support growth, going forward.

And is there anything in the U.S. or anything outside of France that we should be considering as well as we look at the implied fourth quarter revenue number?

I’ll let Kevin handle that one.

Josh, U.S. is definitely ramping as Vivek’s prepared comments alluded to, there’s nice strong growth in kit demand. Q4, as you’ll recall last year in the U.S., was dominated by illuminator sales. So we won't have that going forward, but the kit demand will be very healthy. And then beyond that, we do expect fairly strong growth in Q4 coming from certain distributor regions, in particular, the Middle East.

And more broadly, Josh, I think we're seeing growth in multiple geographies right now in multiple countries. So it's confident going into next year that there's multiple leverage to pull.

And just I wanted to see if there's any update in terms of the ramp at the American Red Cross manufacturing ramp, that's going to be in play just getting out of AABB, InterSol issues is weighing the rear view mirror, BLA [Biolon] mask could come for the American Red Cross in first quarter next year. Is there any update in terms of your discussions with them in terms of how they plan on ramping up manufacturings. Any incremental sites or anything new that you can share?

I'll turn this over to Vivek in a second. But I think fundamentally what Vivek and his team have been focused on successfully over the last three months is really been to match hospital demand with production from those sites that are in routine use, and how do we ramp that production to meet that demand. But the team and I think it was evidenced t the AABB Meeting. But I think Vivek can give you specifics about what’s going on with the Red Cross?

Josh as we correctly pointed out and as Obi mentioned before, the ARC is one of those sites where we anticipate a BLA approval here in the coming weeks and months. They currently are manufacturing at 10 sites and know their plans to expand their manufacturing footprint for INTERCEPT products. And as I indicated, they presented about their experience with increasing INTERCEPT production at the AABB, and noted that their data and analysis shows that they can get north of 70% production. So they're actually in process in terms of adopting those collections and manufacturing modifications to allow for the increase in production. So we're encouraged by the progress that they're making. We continue to find them to be a good partner and so our expectation is that their partner hospitals be able to offer more of their patients INTERCEPT created platelets here in the near future.

And then last question, just on INTERCEPT cryoprecipitate. You guys were working for PMA submission. Any type of timelines in terms of when we could potentially think about approval in the U.S. and how are you thinking about that product outside the United States as well? Thanks a lot.

So the focus of 2018 is really going to be completing the in-vitro studies, the coagulation factor studies, for the final product and then running the stability time points. So that's what taking longer than we would like. I think obviously you just have to hold the product for the different stability time points and you can't really change that. So that would be to a submission in the 2019 timeframe and it's roughly six month PMA review clock. With regard to the Cryo outside of the U.S., there are several markets that use a lot of Cryo and are very interested in this five day thought label, shelf life label claim. And I think the other thing that we've seen is increasing interest in Cryo, in general, just because there are important coagulation factors in Cryo that are seen to be critical for bleeding patients, especially in the pre-hospital trauma environment. I think the increasing recognition of the need for [31.25] [indiscernible] agent, specifically but it also factor XIII and other factors early on and the treatment of these patients is driving demand or interest -- further interest in Cryo in markets that we wouldn’t have anticipated. Josh, did that answer your question?

Thank you. And our next question comes from the line of Emily Stent from Robert W. Baird. Your line is now open.

First off, congrats on the Italian distribution agreement announced earlier week. Just curious how much revenue do you think you can generate in Italy, and how quickly do you think the distributor can ramp?

We’re just starting with them. I think the nice thing is that they are a partner that really understands need for this product and is looking to establish INTERCEPT as a standard of care across all blood components to Italy. It’s a very significant market in Italy. So roughly 2.5 million red cells, I think roughly 200,000 platelet doses annually and I think close to 300,000 to 400,000 plasma units annually. And so, obviously the market, just for platelets alone, is roughly in the range of $10 million to $15 million annually. I don’t want to speculate today on what their target are, because we just announced the agreement this week. But I think there is strong interest in Italy as of late and where the chikungunya outbreak in Rome and the hospitals in Rome have been in routine use with INTERCEPT, and are ramping their demand for the product just because they’ve got this issue.

And then could you breakout how much revenue French generate in the quarter, and what level of revenue do you think France can generate this year and in 2018?

We’re not going to break it out for the quarter. And obviously, it’s early on with the contract being signed at the end of July, the new contract. I think as we said, there is about 330,000 platelet doses transfused annually in France. And so that’s roughly $20 million plus annual market opportunity for us. And so in routine that’s what you’d expect. It’s just when we get to routine production at all the sites.

Emily, what I’d say is that the Q3 French platelet demand was up just slightly from Q2. So really we’ll see the effect of this new contract as we move forward in time?

And last one for me. So after having the first customer get BLA approval last month, have seen any change in the way that Rhode Island blood veterans producing? Did the blood centers that are applying for BLAs have incremental capacity in supply to fill that out of state demand that they’re seeing?

We’ll have to see on your lateral point. And we have seen them already shipping products across the state-lines and we’re aware that they are supplying customers in Connecticut and elsewhere. So I think that this is exciting times and then we probably have an alternative way to address some of the lack of supply that we see in the market today from across interstate shipments from blood centers.

I’m not showing any further questions, at this time. I would now like to turn the call back over to Obi Greenman for any closing remarks.

Thank you all for joining us today and for your interest in Cerus. We will be presenting at two investor conferences later this month, and we look forward to seeing many of you in person at that time. Our Q4 call will be in early March and we look forwarding you at that time. 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 nice day.