Good afternoon, ladies and gentlemen and welcome to the Cerus Third Quarter 2019 and FDA Guidance Update Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Mr. Tim Lee.

Thank you, operator, and good afternoon, everyone. I'd like to thank everyone for joining us today. As part of today's webcast, we are simultaneously displaying slides that you can follow. You can access the slides from the Investor Relations website at www.cerus.com/ir. With me on the call are Obi Greenman, Cerus' President and Chief Executive Officer; Dr. Laurence Corash, Co-Founder and Chief Scientific Officer; Kevin Green; Cerus' Chief Financial Officer; Vivek Jayaraman, Cerus' Chief Commercial 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, 2019, and describing the company's recent business highlights. You can access a copy of this announcement on the company’s website at www.cerus.com. I'd like to remind you that some of the statements we will 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, 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 uncertainty 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 September 30, 2019, which we will file shortly. We undertake no duty or obligation to update our forward-looking statements. On today's call, we'll begin with opening remarks from Obi, followed by Larry to review the FDA guidance document, followed by Vivek to provide an overview of our commercial strategy, Kevin to review our financial results and then Obi with closing remarks. Now it's my pleasure to introduce Obi Greenman, Cerus’ President and Chief Executive Officer.

Thank you, Tim and good afternoon, everyone. The finalization of the FDA guidance document and coming off of a very successful AABB meeting for Cerus, we believe that we are well positioned to deliver on a new standard of care for platelet transfusion safety in the U.S. The FDA action to finalize this guidance is not only a watershed moment for transfusion medicine with regard to patient safety, but it is also a major blood safety policy event that has relevance for how global regulatory bodies ensure the safety of platelets. In the U.S. by the end of the 18 month compliance period, the requirement is that every single one of the 2.6 million platelet units collected each year in the U.S. to be held to a new standard of safety. One could view this as an obsolescence initiative for all U.S. blood centers and that conventional platelets as currently prepared today will be obsolete in 17 months. Immediately after the release of the final FDA guidance, the leadership of the American Red Cross validated the important role that INTERCEPT will play in their operations by issuing an open letter to the U.S. healthcare community about their intention to make INTERCEPT platelets broadly available to their hospital customers. They stated that, “The growing expansion of pathogen reduction technologies grants hospitals and blood providers economical offsets while making safer, ready to transfuse products available for patients. Pathogen reduction is the preferred approach of the American Red Cross for enhancing the safety and availability of platelets for transfusion.” The purpose of this final FDA guidance document is to provide clear direction to blood centers and hospital transfusion services about how they can meet the requirements specified in the FDA Code of Federal Regulations to ensure that the risks of bacterial contamination of…

Thanks, Obi and good afternoon. On the next slide, this final guidance is important in defining a new U.S. standard of care in platelet transfusion safety. Similar to that achieved in France, Belgium, Switzerland, Austria and Kuwait. The guidance has been vetted by the transfusion medicine community and it defines specific procedures for each option. Each approach will impact blood center and hospital operational logistics, costs and regulatory compliance. These factors will determine customer decisions to achieve compliance by the deadline of March 31, 2021. Today, the majority of U.S. blood centers and hospitals are not in compliance, hence action must be taken. The final guidance is a seminal document in U.S. blood transfusion safety and it makes a compelling case for the clear advantages of INTERCEPT, the only option with safety, logistic and economic benefits beyond reducing the risk of bacterial infection. On the next slide, let me start by outlining the landscape. The FDA has defined two strategies with options to address bacterial contamination, single step options in the top section and two step options in the lower section. The two step strategies are complex and require multiple procedures, some in the blood center and some in the hospital in order to release platelets for transfusion. The timing days shown by the top blue bar from day zero to day seven marks the timeline for collection, preparation and transfusion of platelets using the various options. Today, I'll focus my comments on apheresis platelets as they account for 90% of the market and on the single step strategy options as they are the most attractive for hospitals and blood centers. I'll address specific questions on the two step strategies during Q&A. On Slide 7 to understand the guidance, I'll explain the specific terms important for understanding the various options.…

Thank you, Larry and good afternoon, everyone. As Obi mentioned, we are encouraged by the continued strong customer uptake of INTERCEPT as demonstrated by our top line results in Q3 2019. Furthermore, the issuance of the final FDA guidance document that validate our belief that INTERCEPT will become the standard of care. I agree with Obi and Larry that the publication of final guidance is a pivotal event. Ultimately this will accelerate a change in the standard of care with respect to bacterial safety measures for platelets, and I believe that INTERCEPT will prove to be the preferred method by which both blood centers and hospitals achieve compliance. Last week, at the AABB meeting, I had the opportunity to speak with executives from each of the five largest U.S. blood centers. The centers combined to serve over 70% of the U.S. platelet market. Clearly, despite being debated and modified over the past several years, the issuance of a final guidance on September 30 took them all a bit by surprise. Fortunately for us, the AABB meeting offered an excellent point in time opportunity to engage with the centers, gain a better understanding of how they plan to address the guidance and assure them that we are well positioned to partner with them to incorporate INTERCEPT into their center as their primary approach to compliance. While the guidance readiness of each organization varies accumulate confidence that pathogen reduction will be the preferred approach at both the blood center and hospital level. For the blood centers, INTERCEPT offers the ability to release platelets earlier, provide hospitals with an innovative solution that addresses more than simply bacteria, and accordingly to realize price uplift, which will improve their platelet margins and economics. From a hospital perspective, with INTERCEPT, they will receive a transfusion ready…

Thank you, Vivek, and good afternoon, everyone. Today, we reported third quarter 2019 product revenue of $18 million, up 17% from the $15.4 million recorded during Q3 of last year. The strength of the U.S. dollar relative to the Euro continues to be a headwind, which impacted the year-over-year growth by approximately 5%. On a year-to-date basis, product revenue totaled $53.7 million, up 21% compared to the $44 million reported during the first nine months of 2018. Similar to the quarterly revenue results, year-to-date product revenues compared to 2018 were impacted by approximately 6% due to the strengthening of the U.S. dollar relative to the Euro. Global demand for INTERCEPT continues to increase. The calculated number of treatable platelet doses increased nearly 20% year-over-year. I’m looking at growth through the first three quarters, the worldwide calculated number of treatable platelet doses increased over 30%. In terms of product mix sold during the quarter, platelet kit sales accounted for approximately 85% of revenue. During the quarter, we did see slightly more illuminator sales than usual with incremental placements spread globally. The underlying momentum of our business is running ahead of plan and is expected to accelerate further. However, the FX headwinds, we are facing our persistent. As such, we are reaffirming our full year product revenue guidance range of $72 million to $75 million, which represents an 18% to 20% growth rate compared to 2018 product revenue. Government contract revenue totaled $4.8 million and $13.6 million for the three and nine-month period ended September 30, 2019 respectively. These are both up from the $3.9 million and $11.4 million reported during the comparable periods in 2018. Now let's move the discussion to our reported gross margins. Gross margins on product sales have been continuing to improve throughout 2019. For the quarter, gross…

Thank you, Kevin. I'd like to take a few minutes to provide an update on our two key development programs, pathogen reduced cryoprecipitate and our red blood cell program in Europe and here in the U.S. First, with regard to our cryo PMA supplement, we're tracking on plan for an FDA submission in the first half of 2020 under our breakthrough device designation. Based on that timing, we expect a possible regulatory approval in the second half of 2020. In parallel with these efforts, we are building out the infrastructure and the small team to be able to launch the product successfully within the level one and two trauma hospitals in the States initially where we have our manufacturing partnerships. The interest in this product continues to be strong for the treatment of major bleeding events in hospitals. Turning to our red blood cell program, we're making progress in our effort to validate and glutathione supplier, vendor qualification is on track for the first half of 2020. As it relates to our CE Mark submission, the file is still under review at TUV, our notified body and we are in the process of closing out sections of our submission review. At this juncture, we still expect our CE Mark review to transition to the medical device regulation process in mid-2020 from the current medical device directive. And as such, we anticipate our final approval timing to be in the 2022 timeframe, unless we realize opportunities to compress the NVR review timing. In the U.S., enrollment in our two Phase 3 studies, RedeS and ReCePI continues with our goal of getting 10 sites up in enrolling in the ReCePI study by the year end this year. We're tracking to deliver on that goal. With the final guidance document setting that pace…

[Operator Instructions] Your first question comes from the line of Craig Bijou from Cantor Fitzgerald. Craig, your line is now open.

Great. Good afternoon, guys. Thanks for taking the questions. Let me start with the guidance and just a couple on that. One, I just kind of wanted to see if you guys were surprised by anything that ended up in the final guidance. And then secondly, from your early discussions, and I know you guys have plans to have more discussions and work with some of the centers, but I was wondering if you could maybe provide some details on, what you're hearing from the blood centers that the key decision points? What are their concerns? How are they weighing the different options?

Great. I will handle the first part of that question, Craig. And then let Vivek hand the second part. So and as far as being surprised by anything, the guidance, I don't think we were, definitely reflected the previous graft. The one thing that to take note of this, that they did draw distinctions between the one-step and the two-step processes that Larry outlined during the prepared remarks. And I think it clearly coming out of AABB and there was a strong preference for the ones that processes, because the hospitals really don't want to undertake any additional manipulations of the platelets. And so I think that was – it was good that the FDA outlined the various options, so clearly such that there wasn't any confusion. Maybe Vivek, do you want to handle the second part of the question about what came out of AABB?

We've indicated in the past and perhaps the thing that continues to be most encouraging is for some time now, even prior to the guidance when filed the American Red Cross has stated that pathogen reduction technology is not from those are a strategic priority for them. So when we think about the ARC represents nearly 40% of the total U.S. market. So out of the gate, you're talking about 40% of the market that is clearly behind our technology. Similarly, we had a number of meetings with executives some of the big five blood centers. And now across the board, we heard from forward interest in adopting PR technology. I think the thing that folks are trying to work through now is understanding, okay, what are the underlying mechanics that allows us to make those real. So what are the operational things that we need to put in place from a production standpoint, so that we can maximize the INTERCEPT production. How do we need to think about our hospital contracting and working with hospitals, so they can onboard products, so there are number of work stream that blood centers will need to go through and hospitals as relative sort of adopt to this new standard. But certainly, I came out of that meeting and I think my colleagues would agree feeling really excited about our ability to offer INTERCEPT more patients here in the U.S.

Got it. That’s very helpful. And then just as a follow-up on that, do you guys have talked about the ARC and obviously, they've been at the forefront of adopting INTERCEPT. It's their preferred approach, as evidenced by the open letter. So that's been driving a lot of your U.S. platelet growth for the last several quarters. So just wondering to get your thoughts, is there – can that accelerate from this point going forward, so that you can actually see even stronger growth out of the ARC than you have over the last several quarters?

I think that can obviously, as we get further granularity into where they want to produce more platelets and what hospital customer demand they want to address first. We'll have the better understanding of that. But certainly, there is headroom within the ARC to drive accelerated growth. And I do believe that they'll serve as a marker that others will follow as they think about adopting pathogen reduction technologies. So yes, there's certainly had room for us to drive not only U.S. growth or more specifically growth in the ARC.

Great. Thanks. I'll hop back in the queue.

Your next question comes from the line of Mathew Blackman from Stifel. Mathew, your line is now open.

Good afternoon, everyone. Thanks for taking the questions. We're all sitting here trying to think through a framework for how the next 17 months could play out just as you are. And so maybe just in the simplest terms, should we think about a potential adoption acceleration being more backend loaded over the next 17 months, as you said, work through education and contracting and training, et cetera? Could it be more balanced over the period with let's say the big five existing customers with existing INTERCEPT infrastructure, perhaps ramping faster over that time horizon?

Yes, clearly, I think that the blood centers will be looking how do they meet the compliance timeline. So I think in that context it will be more backend loaded. And I think we do feel like there will be an acceleration throughout the period, as you know, sort of the momentum from increasing the overall capacity of INTERCEPT production allows for broader fulfillment of the hospital level. And what we've heard distinctly from the hospitals that have decided to adopt INTERCEPT as they'd like to be 100%. And so they may not get there by the time – by the end of the compliance period, but that's where they want to go. And clearly as more capacity comes into the system, you'll see acceleration. So to answer your question completely, I think it will be more backend loaded, but definitely acceleration throughout the period.

Okay. Then just a couple of quick follow-ups. How important is it now for you to get double sets approved in the U.S. Is that at all gating factor for some of these sites? And can you remind us of the timing of approval there and then just one more follow-up after that?

Yes, so just to be clear, we do have approvals for both single and double sets today. And so what you're probably alluding to as the triple storage kit that we have approved in Europe. We are anticipating that will be filed, we submitted for approval during the compliance period, actually in the second half of next year. So I think it will be a factor, but ultimately what we've seen, even with the large blood centers like the American Red Cross is that they are able to get close to 70%, 80% compatible with INTERCEPT and maybe even beyond that independent of the TS kit availability. So I think throughout the compliance period, as I mentioned before, we should have this at the backend of the compliance period. It will –we don't think that'll be gaining.

Okay. And then the last question on the red cell program in Europe, I may be reading a bit too much into your comments. But I think you said first half 2020 now for qualification of a new supplier. And I think in the past you'd get sort of set it as a mid 2020 timeframe. So did I hear that right? Or am I just overthinking and if that's the case, is it moving a little bit faster?

Well, I think it's moving quickly, but I think what we said in the prepared remarks, maybe I miss spoke, it was mid 2024 having that validated for our CE mark submission. So I think it is moving quickly. We have two suppliers as I've mentioned historically on previous calls that we're qualifying, but we're happy with the progress we've made today.

All right guys, I'll get back in queue. Thank you so much.

Thank you.

Your next question comes from the line of Josh Jennings from Cowen. Josh, your line is now open.

[Indiscernible] on for Josh. I appreciate the question. So, on the pipeline for seven day INTERCEPT platelets, can you remind us the regulatory pathway there and timing of approval? And I guess, how the risk is that approval pathway just considering the experience you have already had in Europe this far?

Well, let me answer the first part of that question. I’ll let Larry comment just about the experience that we've had with day six and seven day products in Europe for many, many years. Right now we're anticipating to file for that approval or submitting that day six, seven claim in the second half of next year. We'd anticipate right now without any clock stops, it would be about 180 day review period. So again, an approval within sort of timeframe of final compliance. So we think that's a nice added benefit. That being said, as Larry outlined in the call, from an overall platelet shelf line perspective, we think we've got a strong position relative to the other options, outline in the guidance document just because of the early release of the product and that lead into a 5 to 5.5 shelf life for INTERCEPT. Maybe Larry, a few comments about just the experience we've had in Europe with day seven products.

Yes, Josh, we've gained valuable experience particularly in Switzerland where seven day INTERCEPT platelets have been used for quite some time. We just published a paper led by Andy Boser from the Basel Red Cross in transfusion showing, first of all that with the INTERCEPT, they're only transfusing about 16% of day seven platelets. But these platelets are clinically effective and so that experience really supports what we will do in the United States.

Great. Thank you.

Your next question comes from the line of Catherine Schulte from Baird. Catherine, your line is now open.

Hi. Thanks for the questions. First you mentioned some incremental illuminator placements in the quarter. Any specific geographies to highlight for those new placements?

No, not really. They were smattered really throughout the globe. Nothing in particular, just was a little bit higher than historically given that platelets were 85% of our revenues.

Okay. And then we found a tender that it looks like you guys were awarded earlier this month in Slovenia that could contribute $4.5 million to $5 million spread over the next five years. Is this a new customer win or just an extension of an existing customer?

It’s actually customer had on board for about a decade now, so it was one of the earlier adopters of INTERCEPT and I think we were just happy that, they’re sort of experienced with INTERCEPT throughout that period has been favorable and they're a customer that would like to continue on. And I think they were looking maybe to expand on one other small site within Slovenia, but I think we've had roughly or close to 100% of that market for some time.

Great. Thank you.

Nice, Catherine.

Your next question comes from the line of Jacob Johnson from Stephens. Jacob, your line is now open.

Hey, thanks. In the press release you guys talked about platelet doses increasing 70% in the U.S. this quarter. Just interested how that compares to last quarter or is there any way you can sort of frame up that performance relative to your recent experience? Just to know how much of an uptick in demand you saw this quarter?

Yes. I mean, as far as platelet doses relative to kits, it's fairly consistent. The U.S. continues to grow proportionately. So, the growth that we reported this quarter as far as number of doses consumed is…

Got it. And then obviously a lot of focus on the potential for top line growth following the guidance. But could you guys just remind us about the outlook for gross margins as revenues grow? Should we see additional margin expansion opportunities on that line? And do you need to make any SG&A investment to support the growth outlook?

We've been making investments to ensure that we can supply the uptake and we'll continue to do that. But as far as margin expansion, I think in our prepared remarks, we said we expect that we would be in the mid-50s for the balance of the year. As we move into 2020, and of course it's all a function of the top line revenue growth and economies of scale.

Okay. Got it. And then just last quick question for me. The American Red Cross, I think they had 13 of 17 BLAs last quarter. Any update on that?

They’re still on 13, that's not really a driver right now as far as their overall availability of platelets being shipped out of state. Because the 13 sites that currently have their BLAs are mostly they're big net exports. So I think we will see additional BlAs throughout the remainder of the year and in the early next, they currently have – I think they're roughly around 22 production sites. So, I think they're getting up to full capacity with regard to the sites that they can run online. And then just within those sites, what the overall compatibility looks like and how they drive the capacity to be able to meet the hospital demand that's coming.

Got it. Thanks for taking the questions.

Yes. Thank you, Jacob.

I’m showing no further questions at this time. I would now like to turn the conference back to Mr. Tim Lee.

Thank you again for joining us today and for your interest in Cerus. Next month, we will be participating in the Stephens Conference in Nashville and the Stifel Healthcare Conference in New York. We hope to see many of you there in person. And also as a reminder, today's slides will be available on our website after the call. Thanks very much.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation and have a wonderful day.