Good day ladies and gentlemen, and welcome to the Cerus Corporation Second Quarter 2019 Earnings Conference Call. At this time all participants are in a listen-only mode. Later, we will conduct the question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, this conference call will be recorded. I would now like to introduce your host for today's conference, Lainie Corten. Please go ahead.

Thank you, operator, and good afternoon, everyone. I'd like to thank everyone for joining 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; Carol Moore, our Senior Vice President of Regulatory Affairs and Quality and Larry Corash, our Chief Scientific Officer. Cerus issued a press release today announcing our financial results for the first quarter ended June 30, 2019 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'd like to remind you that some of the statements we'll make on this call relate to future events and performance rather than historical facts and are forward-looking statements. Examples of forward-looking statements include those related to our future financial and operating results including our 2019 financial guidance and goals, operating expenses and gross margins, commercial development efforts, future growth and growth strategy, future product sales, product launches, the impact of current and future product on blood center operations, ongoing and future clinical trials, ongoing and future product development, and our regulatory activities, as well as the timing of these events and activities. These forward-looking statements involve risk and uncertainties that could cause actual events, performance and results to differ materially. They are identified and described in today's press release and under Risk Factors in our Form 10-K for the year ended December 31, 2018 and our Form 10-Q for the quarter ended June 30, 2019, which we will file shortly. We undertake no duty or obligation to update our forward-looking statements. And now it's my pleasure to introduce Obi Greenman, Cerus' President and Chief Executive Officer.

Thank you, Lainie and good afternoon. We are pleased to report another quarter of strong commercial execution, as we delivered our highest ever quarterly product revenue at $18.2 million. Growth was fueled by increasing adoption INTERCEPT platelets, both in the U.S. and abroad. Vivek will provide further detail later in the call. Based on this strong demand for INTERCEPT, we are raising our product revenue guidance range to $72 million to $75 million. Kevin will cover the specifics in his prepared remarks. I'd like to share some recent evidence of the growing awareness and clinical acceptance of pathogen activation to help safeguard the blood supply, which we have seen since we shared on our Q1 on conference call -- since when we shared on our Q1 conference call. In mid-May the FDA issued a final guidance document outlining strategies to reduce the risk of transfusion transmitted transfusion-transmitted-babesiosis. The babesiosis is transmitted by a microscopic tick borne parasite present in the Northeast and upper Midwest regions of the U.S. Many individuals infected with the DZR are asymptomatic and their blood donations have been documented to transmit disease. The babesiosis guidance document requires blood centers to collect donations in 14 states in Washington DC to either test each donation for DZR using the FDA approved nucleic acid test, or to treat each one component with an FDA approved pathogen activation technology. Recommendation applies to all three blood components and has a 12 month deadline for compliance. We think that the inclusion of pathogen reduction in this new guidance document underscores the overall utility of the INTERCEPT blood system. The simplicity of having one intervention that can meet current FDA blood safety requirements, prospectively address the potential future threats from emerging infectious diseases and help maintain blood availability has a unique appeal. It…

Thank you, Obi. I'm pleased to report that global adoption of INTERCEPT continues to ramp. We believe INTERCEPT is becoming the preferred safety options as awareness of bacterial contamination of platelets increases, and the challenges associated with current bacterial detection strategies persist. As evidence, during the last quarter we experience strong demand for INTERCEPT kits in our Europe, Middle East and Africa region, as well as in the U.S. As we stated previously, the U.S. platelet market is fairly concentrated, with the top five blood center network distributing approximately 70% of the total platelet supply. We have contracts in place with all five of these large blood centers and are actively engaged with them to increase their production and distribution of INTERCEPT platelets. Of note, the American Red Cross is at the forefront in embracing pathogen reduction technology. In fact, they had communicated broadly that pathogen reduction is a strategic priority for their organization. INTERCEPT is now being produced at 17 Red Cross manufacturing sites. Furthermore, 13 of these sites have a BLA clearance, which allows them to ship pathogen reduced platelets across state lines. Red Cross hospital customers value INTERCEPT treated platelets give the compelling clinical and logistical advantages they infer. For the Red Cross, pathogen reduction -- pathogen reduced platelets are an important contributor to restoring a sustainable blood supply. By allowing blood collectors to provide safe, effective blood products, while offsetting certain costs. Once the FDA guidance is published we anticipate our engagement with the other major blood centers to increase as they seek to realize similar benefits and follow the American Red Cross. As Obi already mentioned, there are many reasons to expect issuance of a final bacterial safety guidance this year. A recently released Department of Agriculture Appropriations Bill includes the statement that it has…

Thank you, Vivek and good afternoon, everyone. Today we reported second quarter product revenue of $18.2 million, an 18% increase compared to the $15.4 million reported during Q2 of 2018. On a year-to-date basis, product revenue totaled $35.7 million, up to 23% compared to the $29 million reported during the first half of 2018. Though recent revenue growth has been strong, the underlying number of INTERCEPT platelet doses produced has been growing even faster. One reason for the differential between the reported revenue and growth in demand is year-over-year changes in foreign currency exchange rates, which resulted in an FX headwind of approximately 6% compared to Q2 2018 reported revenues. French conversion to double dose kits is another factor. And I'd like to share some statistics that demonstrate the true expansion we are seeing in INTERCEPT treated platelets being made available to patients. Global demand for INTERCEPT kits increased 23% during Q2 2019, compared to the prior year period, with the greatest percentage of growth coming from the U.S. However, taking into account the French product mix shift to double dose kits, the calculated number of treated platelet doses increased approximately 40% during the second quarter compared to the prior year. We're looking at the first half of 2019 compared to that of 2018, worldwide demand for INTERCEPT kits increased nearly 30%, while the calculated number of treatable platelet doses increased by roughly 40%. In terms of product mix sold during the quarter, platelet kit sales accounted for the majority of our reported product revenue at approximately 90%. Separately reported from our product revenue, government contract revenue during the second quarter totaled $4.3 million compared to $4.0 million during the prior year period. On a year-to-date basis, government contract revenue was $8.7 million compared to $7.5 million during the 2018…

Thanks, Kevin. Today I also wanted to provide an update on three key development projects, including INTERCEPT plasma, INTERCEPT red blood cells and pathogen-reduced cryoprecipitate. It is an exciting time to be able to discuss these significant opportunities as they progress towards potential approval. First Vivek already noted the potential significance of a recent CE Mark approval for an intercept plasma kit with DEHP free plastic. We plan a similar submission in the U.S. by year end and I have already heard an interest from hospitals who are converting to universal use of pathogen reduced platelets. Second our CE Mark filing on INTERCEPT red blood cells is still under accurate review and we’re engaging frequently with our notified body the TUV and our competent authority the Irish Health Products Regulatory Authority and questions arising from our submission. We’ve already responded to and addressed a key subset of questions by the TUV and the dialog with the TUV around the new medical device regulation framework continues to be constructive as we transition from the medical device directive for our INTERCEPT red blood cells submission and for all of our products in 2020. Further in the U.S our two active Phase III site studies for INTERCEPT red cells are continuing to enroll, with a number of additional study sites coming online through the end of the year. Finally, we continue to be excited about pathogen-reduced cryoprecipitate given the potential benefit for bleeding patients and the size of the market opportunity. To help increase clinicians awareness about our cryo program over the past year we have participated in a number of conferences such as the Society of Cardiovascular Anesthesiologists, Society for Obstetric Anesthesia and Perinatology. Feedback from clinicians at these meetings on the utility of a five day broad crowd has been very…

[Operator instructions] And our first question comes from the line of Sung Ji Nam with BTIG.

Hi, thanks for taking the question and congratulations on the quarter. I just have a few quick questions. First, the 13 American Red Cross sites receiving BLA clearance that pretty much constitutes all of the sites that are pursuing that the BLAs. Is that correct?

All the manufacturing sites are receiving a BLA, so there are 17 sites that are currently manufacturing 13 of them have a BLA the other 4 are in process.

Okay. And then secondly, just curious about -- it sounds like the enrollment for the red cell trials are progressing nicely in the U.S. Just trying to get a sense of when that kind of -- when you might see that ramping up? Is it -- do you think that could happen in the second half of the year? I'm just trying to get a better sense of product revenue recognition for the remainder of the year. Or do you think that's something that would kind of ramp up more over in 2020 timeframe?

Thanks Sung Ji. I'll let Kevin handle the second part of that question. We are seeing the two study sites enrolling at a faster clip with RedeS performing really well, recipe still has a number of sites to add throughout the remainder of the year. Kevin, do you have anything you want to comment about BARDA funding routing.

Well, I think that's right. We do expect the increase as more sites and more patients are enrolling and that has kind of a cumulative effect. So sites are not rolling off, just adding additional sites, so we expect it to go up.

Okay, great. And then just lastly, from me, in terms of the red blood cell review process in Europe, could you give us -- is there any update in terms of the timeline that you guys provided last quarter, and we'd love to hear any kind of additional thoughts there. Thank you.

Yes, thanks, Sung Ji. So obviously qualifying a new GSH supplier is a top priority for us. We're actually doing that at the moment. I just came out of a trip to Switzerland, meeting with one of those suppliers, we are really encouraged by their engagement and are looking to have the new GSH supplier founded by the middle of next year. As far as the overall timelines for CD Mark approval, I think it's still a little premature for us to try and give a compressed timeline versus what we gave on the last call. But we are looking at multiple ways to try and compress that timeline.

Great, thank you so much.

Thanks.

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

Hi, thanks for taking the questions and congratulations on another record quarter. Just hoping to start off with just a couple questions on the U.S. platelet franchise and with those five blood centers that represent 70% of volumes in the U.S. are you -- you have contracts with all of them, but is the revenue generation distributed evenly throughout those five, is it really driven by one or two just try to think about where you guys sit with those contracts? And then how about all five of them make up the 70% have started to ramp up manufacturing facility you can speak to from a high level?

Yes, I think Vivek is best place to answer that question.

Hey, Josh. As we had indicated in the past I mentioned earlier in the call, the American Red Cross really is leading the way and they've determined that pathogen reduction is the strategic priority for them. So, they represent our single largest customer in the U.S. and certainly the largest of the take five, they're out in front in terms of securing the BLAs and some of rest. The remaining four have all started the process of producing INTERCEPT and distributing the hospital customers and there are varying degrees in terms of the level of production. But of the five, the ARC, which is by far the largest name present about 40% of the market, they're out front in terms of intercept adoption.

Great, thanks, Vivek here. And I just -- one of the follow-up, I mean clearly the FDA bacterial risk guidance document is coming soon. You guys have been ramping up manufacturing over last two years. Can you just give us an idea of where you are from a capacity standpoint and where you will sit in 2020. In terms of handling the increased demand that we forecast will be there post the guidance document?

Yes, I think we're really in a good spot now with additional capacity coming online in 2020. I think some of Kevin's comments during the prepared remarks we're really focused on that as well, as far as getting our inventory in the right position to be able to take advantage of the guidance once it is finalized. So I think all-in-all, we feel very confident on where we are going into 2020 and assuming some kind of 12 months compliance period.

Great. Just one last follow-up on INTERCEPT cryo, sounds like there's some burgeoning interest there within a couple societies and you had some constructive discussions with the FDA. Can you just help us -- just work through just what are the next steps? And when should we be thinking about submission and potential approval just so we can think about when we can start seeing cryo revenues in the U.S. in our models? Thanks a lot.

Thanks, Josh. So as I mentioned on the last call, there are some things that we're looking to do with regard to the product label. We subsequently had a discussion with the FDA on these topics and so really love that discussion encouraged about what's possible to incorporate in the final level. Does require that we do some stability and sterility studies on -- going forward and the readout of that data will be sort of towards the end of this year and to early next. So we're looking at a submission in the first half of 2020 with an approval in the second half of 2020. So I think it's -- we're still looking to see revenue contributions in the 2020 timeframe for the cryoprecipitate product.

Thanks, again.

Thank you.

Thank you. And our next question comes from the line of Jordan Abrams with Cantor Fitzgerald. Your line is now open.

Hi, guys. Thanks for taking the questions. Guidance implies second half product growth of 18% at the midpoint, and -- which is below first half product growth. What are the reasons for the slowdown? Is it just typical or conservatism? Thanks.

Kevin, you want to handle that.

I mean, look, there's FX headwinds as we commented, which continue and we saw FX rates closer to the 114 level and were down to the 110 level. So we think that has the potential to persist. I think, if you look at kind of the midpoint of our guidance. It would suggest roughly $19 million a quarter for Q3. And for -- we certainly think they given the seasonality that we will be backend loaded, but still strong growth nonetheless.

Great, thanks. And last we spoke you mentioned post GE Mark approval for red cells in Europe. The new yield requirements would only require repackaging of clinical information that you already have. Is that still your believe or is there or is there a chance that you'll have to rerun any clinical trials?

I will let Caro handle the details here. I think we're confident with regard to the submission that we put in, but we never know what the ultimate questions will be. So we are working through those questions, real time with TUV and, and we'll be doing that, so with ASPRA [ph]. But I think all-in-all, we feel confident about submission that we’ve put in and the data that’s in closing that. Carol, any additional color on that?

No, I think that's exactly right. We have a lot of data and we -- I think, we put it together in a convincing way. We now just need to wait for those reviews and questions and I think we're in a good position.

Thanks.

Thank you. [Operator Instructions] And our next question comes from the line of Catherine [indiscernible] with Baird. Your line is now open.

This is actually Tom Peterson on for Catherine. Thanks for taking the questions. I think you guys mentioned last quarter on the conversion of the double dose kits in France. So just wondering, what's the mix in terms of the overall conversion are we looking at something like 50-50 or are we still ramping towards that?

Okay. Vivek, you want to handle that?

Sure. We were estimating that exiting last quarter we’re at about at a 70-30 split between DS and single NSD for France. So they've increased their DS conversion since we last reported. We think we're getting fairly close to steady state at this point. But there are a few sites that need to continue the conversion.

Great, thanks. And then moving to Germany, maybe for a minute, do you see any contributions in the quarter? I know you are expecting maybe some small revenue in the second half. But are you still expecting sort of that larger revenue contribution sort of kicking in, in 2020?

Yes, we didn't see contributions from Germany in the quarter. As we mentioned before we anticipate Germany to start to kick-in on the top line towards the end of this calendar year with a real impact being noticeable in 2020. We continue see good progress with securing marketing authorizations and continuing to get regulatory clearances. But we really view Germany as a 2020 growth story.

Great, thanks.

Thank you.

Thank you. And that does conclude today's question and answer session. I would now like to turn the call back to Obi Greenman for any further remarks.

Thank you. Next month we will be participating in Baird's 2019 Global Healthcare Conference and Morgan Stanley's Global Healthcare Conference in New York. Look forward to seeing many of you there in person. And thank you again for joining us today and for your interest in Cerus.

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