Lainie Corten - Senior Director of Global Marketing & Investor Relations Kevin D. Green - Chief Financial Officer and Vice President of Finance Carol M.

Moore - Senior Vice President of Regulatory Affairs, Quality and Clinical William M. Greenman - Chief Executive Officer, President and Director Laurence M.

Corash - Co-Founder, Chief Medical Officer, Chief Scientific Officer, Senior Vice President and Director

Christopher J. Raymond - Robert W.

Baird & Co. Incorporated, Research Division Jeremy Feffer - Cantor Fitzgerald & Co., Research Division Zarak Khurshid - Wedbush Securities Inc., Research Division Joshua T.

Jennings - Cowen and Company, LLC, Research Division George B. Zavoico - MLV & Co LLC, Research Division

Thank you, operator, and good afternoon. I'd like to thank everyone for joining us today.

With me on the call are Obi Greenman, Cerus' President and Chief Executive Officer; Kevin Green, our Chief Financial Officer; Dr. Larry Corash, our Chief Medical Officer; and Carol Moore, our Senior Vice President of Regulatory Affairs, Quality and Clinical.

Cerus issued a press release today announcing our financial results for the first quarter ended March 31, 2013, and describing the company's recent business highlights. You can access a copy of this announcement on the company website at cerus.com.

I would like to remind you that during this call, we will be making forward-looking statements, including expectations regarding revenue, market adoption; production levels; annual growth rate and gross margins and statements about operating expenses and burn rates; product demand, commercialization progress; the scope and timing of clinical trials and other research and development activities; U.S. regulatory submissions and potential approvals, including the timing thereof; potential synergies between platelet and plasma regulatory submissions and launch planning activities; potential reactions to recent U.S.

regulatory developments; the sufficiency of cash resources; business prospects; and the effect of currency fluctuations. The company's actual results may differ materially from those adjusted by forward-looking statements the company will be making, and the company assumes obligation to update guidance or other forward-looking statements.

I call your attention to the disclosure in the company's SEC filings, in particular, Cerus' annual report for the fiscal period ended December 31, 2012, on Form 10-K, including the sections entitled Risk Factors. This call will be archived temporarily on our website and will not be updated during that time.

On today's call, we'll start with the quarterly financial results from Kevin, followed by Carol, who will give an update on our development programs. We'll conclude our prepared remarks with commentary from Obi who will review the recent quarter's achievements.

And now it's my pleasure to introduce Kevin Green, Cerus' Chief Financial Officer.

Thank you, Lainie. Earlier today, we reported Q1 2013 revenue of $9.7 million, which came entirely from INTERCEPT product sales and represents a 12% increase from the $8.7 million in product revenue from Q1 of last year.

Demand for INTERCEPT disposable kits accounted for over 85% of Q1 revenue, with new Illuminator placements making up the remainder. With these Q1 results, we remain confident in our existing revenue guidance for full year 2013 product revenue of $41 million to $43 million.

As a reminder, this represents growth ranging from approximately 16% to 21% on a constant currency basis. This guidance does not anticipate major conversions in the largest European markets or in major new geographical markets, which could provide substantial upside if any of these conversions occur.

Our gross margins on product sales during the first quarter were 48%, following the 51% we reported in Q4 and up year-over-year from the 37% we reported in Q1 of 2012. Q1 margins were favorably affected by improved overhead absorption resulting from relatively high second half 2012 manufacturing levels.

Looking ahead, margins are anticipated to come down slightly from Q1 levels, but we continue to expect that our annualized margins will remain in the mid-40s at current production levels and will improve as production ramps to meet the anticipated growth in demand. Taking a look at operating expenses.

We reported $9.6 million for Q1 compared to $7.8 million during the same period in 2012 and $9 million sequentially from last quarter. As we move forward, we expect our operating expenses to increase, driven in the near term by research and development costs to support the platelet and plasma PMA filings.

Later in the year, we plan to incur costs as we initiate preparatory marketing activities in anticipation of the potential U.S. commercial launches.

We also expect higher research and development expenses as we conduct our European Phase III red cell trials. Net loss realized in Q1 was $10.3 million or $0.17 per share compared to $8.8 million or $0.17 per share realized in Q1 of last year.

Although we recorded higher contribution margins from the sales of INTERCEPT during Q1, we also incurred higher operating expenses and incurred noncash charges of $5.1 million from the mark-to-market adjustments associated with the revaluation of our outstanding warrants. We ended Q1 with a healthy balance sheet.

Largely as a result of our March public offering, we ended Q1 with cash and marketable securities of $69.2 million compared to $26.7 million at the end of 2012. Subsequent to March 31, we repaid our outstanding term debt with Comerica, avoiding scheduled interest payments of nearly $400,000 over the remaining term.

Our $7 million revolving line of credit with the bank is still in place, affording us with $4 million in additional borrowing capacity to grow our business efficiently. In connection with the anticipated higher operating expenses, we expect our operating burn to increase this year, absent revenue growth beyond what we've guided.

We believe the company is now capitalized to execute on the platelet and plasma PMA activities and bring INTERCEPT one step closer to the standard of care for blood transfusion. With that, I'd like to turn the call over to Carol for an update on our development programs.

Thank you, Kevin. I'd like to provide an update on our U.S.

regulatory submissions, as well as our red blood cell clinical program. Since our announcement on the last call that we had reached agreement with the FDA to proceed with the PMA filing for INTERCEPT platelets, we proposed a PMA show, including the sequence and content of each module and received FDA agreement on that proposal.

Taking advantage of the overlap in data between INTERCEPT platelets and plasma, we were able to propose a streamlined submission for INTERCEPT platelets composed of just 3 modules. This compares to the 4 modules planned for INTERCEPT plasma and leverages the synergy between the 2 products in terms of toxicology, manufacturing and the shared Illuminator unit for both processes.

The first of 3 platelet modules is planned for submission in September. Additional modules are expected to follow at 90-day intervals in December 2013 then March 2014, followed by a final 180-day review by the agency.

This could result in an FDA response regarding approval as soon as late 2014, but clock stops during these reviews are relatively common and could extend the timeline. Regarding INTERCEPT plasma, as you know, we submitted our first PMA module in late February.

The subsequent 3 modules are planned for submission in May, August and November of this year, followed by the standard 180-day review period. A plasma review decision could come as early as the second half of 2014.

Finally, just to provide a status update on the red cell program, we are making progress on the required steps towards the initiation of both the acute and chronic anemia European Phase III red cell trials. Neither have yet begun enrolling patients, but we expect it to occur later this quarter for both trials, and we'll be able to provide an update on the expected timing of completion once these get underway.

And now I'd like to turn the call over to Obi.

Thank you, Carol. We are continuing to execute on sales growth in Europe as evidenced by our Q1 results and our recent announcement regarding the new contracts in Innsbruck, Austria and Hamburg, Germany.

I just returned from Budapest when we held our eighth annual INTERCEPT symposium, an event with 70 guests representing 24 different countries from Europe, the Middle East, CIS, Africa, Asia and North and South America. And there was considerable excitement among the participants regarding the expansion of INTERCEPT to the new centers and regions, as well as our recent progress with the FDA in the United States.

Our FDA progress over the past 2 quarters has really been transformational for Cerus. We now look forward to 2 possible U.S.

product launches within the next 2 years and expected our recent financing to provide the funds we need to complete our PMA filings and to begin building our U.S. commercial team.

We are currently working with major blood centers throughout the U.S. to understand their needs and how those may differ from our customers in Europe, the Middle East and CIS.

This will be an important factor over the next couple of years as we plan for the initial adoption in the United States. In the near term, however, our most important objective is the successful execution on the platelet and plasma PMA submission.

This a pure priority for our regulatory, clinical and development teams, and I look forward to updating you on our progress in future quarters. Operator, please open the call for questions.

Just want to understand a little better the quarter-on-quarter dynamic here. This is the second, I think, Q1 that you guys have had to that's been down sequentially.

So I guess, first of all is should we expect some sort of seasonality, and can you maybe describe if there is any? What would be the nature of it?

Is it budgetary? I guess, that's the first question.

Kevin, why don't you handle that?

Sure, Chris. So yes, it is typical, there is some seasonality in Q3, but not necessarily Q4 to Q1.

Yes, as it relates to this particular quarter, you'll recall there's a couple of contributing factors. First of all, we had an incremental pickup in Q4 that's spilled over from Q3 for revenue recognition and that was about $700,000.

So calling that out, we're on par with where we were in Q4.

You're still down, though, I mean, right? You were $9.8 million in Q4 without that $700,000 pull forward, so...

That's right. Part of that is due to 2 factors.

One is the French plasma, which is down sequentially quarter-over-quarter. The other contributing factor is, as new distributors come on board, there's an initial buy-in which is choppy and not predictable for future revenue growth, and we did see some of that in Q4.

And can you maybe...

Overall, Chris, just one other comment, we will see choppiness quarter-to-quarter and that's why we issue annual guidance and I think is that, yes, with our current -- yes, the way our revenues is building, it's sort of hard to predict, and so we're comfortable with our annual guidance and you'll see some choppiness quarter-to-quarter.

Right. Yes, I know, I totally understand that.

I'm just trying to understand some of the factors. And then, can you -- Kevin, you guys have walked through FX impact in the past.

I think there was probably a euro tailwind this time, if I'm not incorrect. Can you maybe quantify in terms of dollars?

Sure. So the euro rates, the average rates are sequentially -- were up about 2%, so not a huge tailwind.

As it relates to our guidance, we try to be somewhat thoughtful and predictive on this, in coming into the year, felt that there was more downside than upside. So we had a blended rate between 1.20% and 1.30%, with the higher rates assumed in the early part of the year.

Okay. But can you -- is there a dollar amount you have quantified or no?

2% decline -- or increase, rather, Chris.

First, just on the platelet shell, just out of curiosity, why is it only 3 modules instead of 4? Is that just how this one is structured, or is there anything specific behind that?

The way that we handled this, the platelet shell proposal was to consolidate some of the information that was in the 3 modules -- 3, and 4 for plasma because, as I mentioned earlier in the script that there is a considerable synergy between the 2 products in terms of some of the manufacturing in Illuminator device, that sort of thing, so it was -- made sense to try and consolidate it and also to give FDA the benefit of this synergy in review cycles.

Okay. If I think on a bigger picture level, and maybe it's hard to quantify at this point, but are you seeing any -- and Obi, you touched on this a little bit from your remarks about your Budapest trip, but has there been any impact yet with the FDA now demonstrating a greater willingness to accept the technology?

Or is there any carryover into some international markets with some greater interest in the product?

Yes, we certainly saw that in Budapest. I think it was certainly the best meeting we've had since we've started this 8 years ago, but just a lot of peer-to-peer dynamics that were interesting both amongst x-U.S.

customers, but also between U.S. customers and European customers trying to understand how the business has been working in routine use.

I think this is where we see the Swiss really being very proud through blood service -- very proud of blood service that you can reflect on their experience over the last 3 years or 2-plus years and safeguarding their blood supply. So you start seeing that dynamic happening.

And then I think inevitably, we will start seeing the spillover effect of an FDA approval in other markets, assuming we get one, that we really can't quantify right now, but it is certainly something that is very important in Asia and elsewhere. In the interim, just the fact that the FDA has allowed us to proceed with the PMA submission process is being discussed widely amongst the transition medicine experts.

They can sort of provide the validation that we, to a certain extent, didn't have before.

Okay. And then just one more and I'll jump back in queue.

Obviously, we saw a tick up in R&D spend, which is obvious because you've got these 2 PMA processes underway. Is that a good run rate that we should think about for the rest of this year at least?

Jeremy, yes. So we should expect it to increase from Q1 levels as the result of full effort on both platelet and plasma and PMAs, and then as the red cell trials initiated and rolled, that will drive a higher OpEx.

So how does a panel meeting factor in to the timing for the platelet review?

Carol, do you want to handle that?

Sure. Well, we don't know whether there would be a product advisory review.

But if there were -- they review, the idea is to include that in the 180-day timing for the total review. So it would fall probably at the latter part of that window.

Got you. And then you mentioned some of the regulatory synergies.

Would they potentially have a panel meeting for both plasma and platelets?

Well, I don't know. I think FDA would have to make that determination based on the review at that point in time, whether that made sense or whether they have the right experts in the room.

So a lot of factors would go into that decision, so it may be a little early to speculate on that.

Understood. And then shifting gears to the market development efforts later this year, what exactly would those entail?

In the U.S., Zarak, is that what you're referring to?

Yes, that's right.

Yes, I mean, so we're already starting to do some in vitro work with various collaborators in the U.S. And so really, more from a research collaboration standpoint, but also in generating data that we need for the submissions, we plan to work with many blood centers throughout the U.S.

both on platelets and plasma. And I think there's active interest and engagement on their part already, and it's just, to be frank, it sort of fun after all these years of focusing outside of the U.S.

It's nice, first of all, not to have to travel 8 hours to have a meeting, but also just being able to have this discussion with the U.S. blood centers is an enjoyable experience, so...

I bet. And then a couple of follow-ups here on -- with respect to the French plasma business being down sequentially, can you just characterize currently what your -- what you think your share is of the French market?

And then just curious if you -- have you lost any customers in recent quarters? And if so, why might that be the case?

In France, I'll let Kevin handle the market share question. But we haven't lost customers in France.

It's just really a function of how they choose to allocate between the 3 available options they have. But Kevin can speak to the market share.

Yes, so there's -- the French have said that they want a mix of the available platforms, which is their own solvent detergent facility, quarantine and INTERCEPT. The tender which -- with which we've been selling and/or continue sell really affords them a broad range from 25% to over 100% of market share.

And right now, we're operating by the lower end of that range. But hypothetically, if they had any issues with their solvent detergent facility or disruption, there could be upside for us.

Got it. And then one final kind of bigger picture European question, I guess, have you lost any customers through -- anywhere in Europe as a result of, I guess, governmental, budgetary issues, macro issues, et cetera?

We have not lost any customers related to macro or government budgetary issues. We have lost a single customer to a competitor on an island off of Spain.

Obi, you talked about some of the positive sentiments generated by the FDA opening up a regulatory pathway for both platelets and plasma in Budapest. Can you talk what whether or not the Swissmedic and Swiss Red Cross national hemovigilance data provided any extra juice as well?

Yes, I mean, the Chief Medical Officer of the Swiss Red Cross actually spoke at our meeting and presented the latest data. So I think that it's just very encouraging to have that -- those number of platelets in a regulated individual system that's not Cerus-owned or Cerus-sponsored.

So I think that's a big benefit we have now based upon in many years that we've been operating in Europe. I don't know, Larry, do you have anything else you want to comment or, any related issues.

Well, I think that one of the most important things that Dr. Mansouri presented was that over the last decade, prior to the inception of INTERCEPT, they've been seeing annual top utilization growth of platelet components as more therapies are opened up to -- particularly to older patients.

And with the introduction of INTERCEPT, they've actually now seen a reduction in that trend. People were fearful that INTERCEPT would increase that consumption, and they've actually seen a moderation of that, which I think it shows that the product is very effective.

And they also saw the same thing for red cells. There's been no increase in red cell utilization in Switzerland, which is a mark of the hemostatic efficacy of the product.

Does that answer your question?

Could you just talk about the red blood cell utilization in Switzerland again? Is that what you said?

That's what I said. So in other words, that's going to look at efficacy of platelet components in a very big picture.

If platelets don't work, you'll have more bleeding and you'll have more use of red cells. And what they've seen in Switzerland is actually flat to a downward trend in the 2 years since they adopted INTERCEPT.

So I interpret that as very good information.

I thought that we had some off-label use going on in Switzerland for a minute.

Never in Switzerland.

Can you talk at all about -- just in terms of assuming that in the future you get platelet and plasma approval in the U.S. and with this relative reduction in the timeline for approval for platelets, what type of benefit you could see by launching both indications at the same time in the U.S.?

And does that change at all in terms of your strategy, in terms of how you're approaching those 2 launches?

It certainly does. I mean, initially, we're talking just about the plasma pathway.

I think, actually, the platelet pathway now is, from a launch perspective, takes priority in the sense that there is really a more definitive unmet clinical need and better value proposition for that product. And so we believe that will sort of carry some of the plasma adoption.

The other thing we have to closely monitor is the recent Octapharma approval and subsequent launch for Octaplas. And so I think we'll benefit from being second to market where you can see how they're doing and moderate or modify our launch plans accordingly.

I think what we've seen in Europe, based upon having both products available, is that ultimately, it just gives you more to talk about with customers. And certain -- some customers will have a priority -- focused on platelets and others will be focused on plasma.

And ultimately, from our perspective, at least, it makes sense to have this united in all of your components so you can realize the benefit of safeguarding your blood supply.

And just in your initial conversation with U.S. blood centers, how much of those discussions are focused on cost?

A lot of it is on cost. I think that in the current health care environment in the United States, the hospital purchasing people have a lot of power for everything.

So what we're really very much focused on is what is the value proposition that we provide to the blood centers as far as potential cost takeouts. We believe that there are some substantial economic benefits associated with INTERCEPT there.

And then ultimately, what's the value proposition to the hospital, which corresponds with platelet shelf life and create and reduce transfusion reactions, but probably the biggest issue there is, as we've discussed previously, is volatility and the dynamic related to point a release testing, which will take place on hospitals, that's what was recommended by the American Association of Blood Banks in October 2012. It's currently not a mandate yet, but it's just that discussion is ongoing.

And to the extent that hospitals have to incur that cost and logistical complexity, a point of issue test, then the value proposition of the blood centers can provide to the hospitals with an INTERCEPT platelet component rises dramatically. So I think what you'll see from us over the coming 12 to 24 months is just an increase in focus on really documenting the economic benefits of INTERCEPT platelets to both the blood center and hospitals and publishing that information so that it's widely understood.

And lastly, just an update on the red blood cell trials you provided. Any update on the Phase I crossover study, and when we'll see the -- at least top line results from that?

Is that still months ahead?

Yes, I'll turn it over to Carol. So just to make sure you're clear, we've now described that as a Phase II study, so I'll turn it over to Carol to update you on that.

Yes, we are -- we're fully enrolled on that study and continuing to work on it. We are, at this point, are not certain when we can release the information just because the FDA would like to have a look at it before we publish anything, so we are working on that study right now.

You mentioned you signed some new agreements with suppliers in Innsbruck and in Austria and in Hamburg in Germany. Could you just mention how that adds to the penetration on both of those countries and what the potential market size of those might be?

Yes, so I believe that for Innsbruck, it's the second largest blood center in Austria, I believe, and it does about, I think, 4,000 to 5,000 platelet units a year. So it's a reasonably sized opportunity for Cerus on an annual basis.

And I think it just takes up our overall market share in Austria close to, I believe, around 30%, 25%. And that in Germany, the Hamburg blood center still has yet to get into routine use because early in their marketing authorization from the Paul Erlich Institute, but it's also a reasonably sized blood center.

On an annual basis, I think it's roughly 1,000 units a year, and -- but I would say that's not as influential in the context of the overall German market as the Innsbruck side is for the Austrian market.

So the Innsbruck might be opening the door a little wider for further penetration in Austria, is that what you mean?

Yes, I think it just becomes more and more the standard of care in Austria, and so -- and I think they're also influenced by the events in the United States as there's an increasing understanding of the pathogen activation of platelet components is the way forward.

Yes, and perhaps their neighbor in Switzerland as well?

Yes, that's for sure.

And with the additional centers on board, are you planning to expand at all the size of the sales organization in Europe?

Modestly, I mean, I think it's relatively built out right now from what we believe we need to see substantial revenue growth. We have representation in most of the countries where we're direct and then obviously, we have a distributor network.

We've had added some folks to the regions that are covered by the distributors just so that we have Cerus personnel on the ground to help the distributors out and interact with customers directly. But I think to the extent that we're adding headcount to the European organization, it's not more than ones and twos, just specific to a certain opportunities.

And regarding the economic impact of incorporating and adopting INTERCEPT, as you mentioned before, are you -- I mean, as you look at various organizations. I mean, various companies, as they move into markets, they sometimes rely on individual centers providing their own studies, individual site-specific studies and then perhaps the company sort of pulled out and did sort of analysis that combines it, perhaps directed and funded by the sponsor being you in this case.

So do you see sort of both studies going forward or are you going to rely on the individual centers? Or how do you plan to do those economic -- pharmacoeconomic analysis?

Well, we have active Phase IV effort underway sort of on a global basis. And at the same time, our marketing team here, obviously, has an overall publication strategy.

One of the components of that is to publish on the economic value proposition for INTERCEPT. And although we've been very much European-focused over the last several years because of the situation not having a clear pathway forward, now we're redirecting our efforts to U.S.

customers who can help us with those studies and ultimate publications. So I think we're doing what you suggest already.

Okay. And regarding to the point of release testing, which it appears imminent in the U.S., how prevalent is that in the various European markets?

It's not very prevalent. That or [ph] even bacterial culture is not prevalent, and so that, obviously, I think, begs the question of -- well, or I think the way I would look at it is that all of these different national blood services and regulatory agencies are closely monitoring this U.S.

situation and are influenced by that. And whether that precipitates regulatory action or policy changes in Europe, it's still TBD.

But I think what is clearly evident now is just the bacterial contamination rate is better understood as a function of the 5-plus years that the American Red Cross has been testing with bacterial culture. And prior to that, that data wasn't available, so the actual incidents of transfusion-transmitted infections from bacteria wasn't clearly understood.

And I think the other thing, and Larry can comment on this, is just the data that we now have out of the hemovigilant systems in a place like France and Switzerland do document our ability to prevent the transfusion-transmitted fatalities associated with bacteria.

Well, thank you for joining us today. We look forward to updating you again on our next call in late July.

Thank you.