Cerus Corp (CERS) 2002 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Cerus Corporation fourth quarter and year end financial results conference call. During the presentation all participants will be in a listen only mode. Afterwards we will conduct a question and answer session. If you have a question press the 1 and the 4. This conference is being recorded Thursday January 30th, 2003. I would like to turn the conference over to Sylvia Wheeler, Director of Corporate Communications and Investor Relations. Please proceed.

Good afternoon, this is Sylvia Wheeler. Before introducing Steve Isaacs, President and CEO of Cerus, I would remind you that we are going to make forward-looking statements, factors include but not limited to those discussed in our annual report form 10-K and form 10-Q. Please call 925-288-6036 or find them on our website at Cerus.com. I will now turn the call over to Steve.

Thanks, Sylvia. Good afternoon everyone. Joining me are Jim Vaughn, vice president of marketing, Dr. Larry Corash, our chief medical officer, and Gregory Schafer, our chief financial officer. I will begin with our general business overview and followed by a commercialization update by Jim. Larry will go over our clinical and regulatory progress, and Larry will release our Q4 and year-end financial results. In closing, I will speak for our plans going forward and we will open the call for questions.

I would like to begin the call with some very good news. As we announced last week, commercialization has began in Europe with Internet with the Intercept blood system for platelets, and our [inaudible] were booked in late December. Details mark our transition from a R&D company to a revenue generating entity. In addition to being a landmark event for Cerus, the introduction of intercept in Europe is significant to the transfusion community because it is the first and only pathogen inactivation system available for platelets.

Since our initial launch in September, we have sold units in Italy, Portugal, and the Nordics and received commitments from several other countries. For sales of each country are important as they plant the seed for broader penetration within their respective markets. We are pleased with the progress that our Baxter colleagues are making for successful commercialization of the Intercept blood system for platelets. I've asked Jim Vaughn to provide additional detail about the launch.

Before I review the year let me quickly review additional milestones achieved since our call in October. In addition to the launch of our first commercial product, we received CE market approval for platelets collected on Baxter’s [inaudible] system. We received another CE mark approval for preparation which will allow Intercept use on platelets collected on Hemonetic [inaudible] platforms. We submitted an additional module to the FDA for the Intercept platelet PMA. We received notice from the FDA that two additional modules from our PMA relating department code dynamics were accepted and closed. We reported new data on an activation of Parvo virus B19, a blood born virus that has been of concern to the blood transfusion centers. We initiated a phase 1 clinical trial for our [abscene bar virus] (ph) vaccine, in collaboration with the Johns Hopkins University. We strengthened our cash balance with a $50 million draw from the Baxter loan. And we named Larry Corash to our board of directors.

I draw particular attention to the two additional CE mark in Europe expanding our access to platelets collected on Baxter’s [AMIS], and platelets collected on the Hemonetics and [coh] platforms. With CE marks now approved for these additional platforms, we have approved systems compatible with over 90% of the European platelet market. On the U.S. front, submission to the FDA of the illumination device module and platelet PMA represents another important milestone. We continue to work on preparing remaining modules, including gathering the necessary data for stability and shelf life of the product.

With product sales underway in Europe, we maintain high visibility within the transfusion industry through scientific publications and presentations which support the power of our pathogen and activation technology used in Intercept. These include our presentations at the American society of hematology meeting in December, on the power of healing to inactivate Parvo V-19, a non-envelope virus and an inactivation of the Protozoans responsible for malaria, [shoggus] disease, and [lex maniasus], which are serious growing threats to the blood supply. Larry will provide more detail on the ag presentations during his update later on the call.

On the financing front our take down of the $50m loan from Baxter strengthens our position. The loan has attractive terms and helps us achieve our goal and maintaining a strong cash position and of course a greater operational flexibility as we continue development of our systems for plaza plasma and red blood cells. As you know we are also working with collaborators to evaluate therapeutic applications of our healings technology. A phase 1 clinical trial was initiated at the Johns Hopkins university to evaluate an [apcine barviruis](ph) vaccine using our technology to raise immunity to the virus in organ transplant patients. This is very exciting work that may lead to additional vaccine programs for Cerus.

During the quarter, we also appointed another board member. Dr. Laurence Corash, Cerus chief medical officer, was named to the board following the planned transition from the board of Dr. John Hearst, vice president of research and development and a co-founder of Cerus. As most of you know, Larry leads our strategy on clinical development and medical affairs. As we seek to promote adoption and use of the Intercept blood system, Larry's reputation and knowledge of the field is ever more critical to raise awareness of Intercept to the transplant community. We look forward to his contributions to the board. And on behalf of all of our board members, I would like to express our gratitude to John Hearst for his many years of service as a great board member

John will continue to lead our [epsteine bar] virus program and other early research programs as vice president of new science opportunities at Cerus.

Now, for a quick review of last year. Our accomplishments in 2002 were significant. And further position Cerus as a premier biopharmaceutical company. We’ve joined the ranks of other companies that have successfully developed their technology through to commercialization in essentially untapped markets. In addition, we can also point to a number of accomplishments in the area of regulatory affairs, marketing and clinical development over the course of 2002. We celebrated product approval, successful completion of regulatory reviews and closure on pivotal clinical trials.

We have also faced challenges which confront companies advancing to the commercial arena, including challenges in the areas of new product rollout, commercial scale of manufacturing and extended regulatory reviews. As we tackled many issues in close collaboration with our partner Baxter Healthcare, we overcame hurdles and delivered on our promise to improve blood safety. As we enter 2003, we will build on momentum around the launch of the Intercept blood system for platelets in Europe. And are gathering final data to complete our application for U.S. approval of the product.

With our first product now a reality we remain confident that we have chosen the ideal partner in Baxter to sell, market and distribute the system. Baxter’s experience with customers in the transfusion medicine marketplace and healthcare policy makers in various companies is critical to our success as we undertake commercial rollout of our first product.

Launching Intercept in Europe is the beginning of our mission to address the $2.5b blood safety market with pathogen inactivation products. Indeed we believe the learnings and successes we have gained with platelets will be beneficial as we pursue late stage development and commercialization of Intercept plasma and red blood cell products. I'll now turn the call over to Jim Vaughn for a commercialization update.

Thanks, Steve. It has been very exciting and momentous to announce our first revenues generated by EU launch of the Intercept platelet system. The sales occurred in the tail end of December 2002, with Lisbon, Portugal and [Molairmo], Italy, to be the first to purchase the Intercept Blood system. These early adopters have two common factors which stand out. Each purchasing center had a high degree of operating independence and was able to move quickly on their decisions to order. Second, we have learned that the European directive on blood safety coupled with the cost benefits of the elimination of Gamma irradiators, and [silo magnilo] virus testing played a role in convincing the authorities’ purchasing centers to initiate use of the Intercept blood system.

The Baxter sales organizations have created a great deal of momentum. And continue to bear down with all their sales and marketing resources. The overarching strategy is to implement and brand all platelets as Intercept platelets. An example of creating the demand in product branding is seen throughout Germany where Baxter transfusion therapeutics has teamed up with Baxter oncology to target hematologists with the Intercept platelet message. This is the result of an even greater resolve from the German centers to complete validations and gain approvals for the implementation of more than 320,000 units annually to Intercept platelets. The blood banking market is careful in implementing any changes to their manufacturing of blood components.

Strict government oversight coupled with the various requirements in place to ensure safety will continue to be gating issues to the speed of adoption. Unlike a pharmaceutical launch, where early adopters prescribe a new product, the Intercept platelet system requires a broad commitment from centers to add additional subs or manufacture a platelet component. The benefit of this commitment means that patients who receive platelets will likely receive Intercept-treated platelets. While this requires a great deal of commercial effort up front, the result will be a very high barrier for new entrance and a continuous revenue stream from the sales of disposable kits.

Many of the smaller European countries have required their government required validations. The platelet market in these countries comprise nearly 25% of the 1.3 platelet doses annually in Europe. The effort to complete the remaining country validations continues. As we look forward to 2003, the Nordic countries are favorite for large scale adoption. The U.K. with over 200,000 platelet units annually has also initiated validation. U.K. sensitivity around blood safety was demonstrated in the unprecedented move on a U.S. supplier of plasma to secure greater levels of blood safety for U.K. patients. France, comprising a market of 180,000 platelet units annually, has begun both co- and single-donors validations with great results.

Within the U.S., there is heightened awareness of the risk of transfusions with an infection. Due to the latest emerging virus West Nile. Large-scale recalls of blood components derived from donors potentially infected with West Nile virus underscore the demand for a comprehensive solution to blood safety that the Intercept blood system can provide. Recall that we reported robust inactivation of West Nile virus at the AABB meeting last October.

Separately, concerns about terrorism have initiated the renewal of smallpox vaccination of selected health care workers. This is on new donor referral rules to respond to this new threat to the blood supply. This new restriction on the donor pool comes upon the heels of restrictions for donors who have lived in Europe or traveled abroad to certain risk areas.

The current system which is stressed by a limited supply of qualified donors would benefit greatly from a comprehensive solution. That could bring much-needed relief to the continually shrinking donor pool. And curb the expense imposed by layering on test after test to deal with emerging viral, bacterial and parasitic threats to the blood supply.

Overall the European launch and recent developments within the U.S. have amplified the need for our Intercept system. Validations continue to move forward throughout Europe, driven by Baxter's commitment to commercialize the entire platform. The commercial teams have done an outstanding job of informing the academic, medical, government and patient groups of every key European market. We continue to see positive confirmation of new centers adopting Platelets. We look forward to sharing the results over the following quarters. I will now turn the call over to Larry Corash for a clinical update.

Thanks Jim. Late last quarter in collaboration with our sales colleagues at Baxter oncology, I visited centers in [opsen] and [estin] Germany in preparation for the start of their process validation studies. Earlier this month I toured blood centers in Stockholm and [inaudible] Sweden, Oslo Norway, and [Helsinki] Finland, with the Baxter Nordic intercept product team. Process validation studies with Intercept system for [buffy] code platelets are complete in many Nordic centers and continue in others. Shortly after receipt of the CE mark for single donor platelets, the first blood center completed process validation studies with the Baxter amicus K platelet system. This same center will now conduct a process validation study using the Intercept preparation kit. And a second platelet collection platform. Of note, the Copenhagen blood bank has completed process validation studies with Intercept platelets stored for seven days. The conclusion from this study was that the Intercept process provided platelets with acceptable invitro platelet function for up to seven days of storage. The Nordic countries have taken the lead in evaluating the potential for extended platelet storage with Intercept. An important economic benefit for pathogen inactivation technology.

As we work with treating physicians, including stem cell transplant physicians, we are seeing acceptance of healing technology and a replacement for gamma radiation to prevent transfusion associated graph versus host decease. Our abstract on prevention of graph versus host disease, based on the Euro-spread trials, has been accepted for presentation at the European bone marrow transplant association meeting. On the U.S. front, we expect to have meetings with the FDA in the coming months to review outstanding PMA modules. Specifically, we believe they will be focused on the clinical module including approvability of the data submitted. Or additional clinical data or re-analysis of existing data will be required.

Meanwhile, we’ve received notification from the FDA that the responses to their questions on the two modules in the PMA relating to [pharmical]-dynamics are sufficient for acceptance closure of these modules. This was very good news which was well received to our teams as they continue to respond to FDA questions on remaining PMA modules.

In December at the American society of hematology meeting we presented seven abstracts pertaining to the Intercept platelet system. These abstracts covered additional data from the sprint trial, a cost effectiveness analysis of Intercept platelets and data on single donor platelets on the Hemonetics MCS plus platform. Also we presented data on the inactivation of the parvo virus V-19, a non-envelope virus. This virus is one of the few non-envelope viruses transmitted by blood components causes bone marrow failure in patients with disorders such as sickle cell disease.

This is the first study showing inactivation using a sensitive infectivity assay. Infectivity assays are the gold standard for demonstrating pathogen inactivation. In addition, we presented studies on the inactivation of the parasites that cause malaria, Shagus disease and, [letch maniasus]. Each of these pathogens is considered an emerging threat to the blood supply. And impacts donor availability due to travel restrictions.

Lastly, our report of the Europe’s bright study will be published on March 15th in Blood, the journal of the American society of hematology. In our plasma program, we have completed two of the three comprehensive U.S. phase 3 trials of the Intercept plasma system to provide the basis for both European and U.S. applications. The phase 3C study of plasma exchange for [Thrombotic], [inaudible], [perpera] or TTP, has completed 27 patients of the required 30. As noted last quarter, we received permission from FDA to lock the database. And unbind the study to facilitate submission of a report on efficacy and safety. We will do this in coordination with the final manufacturing module so for the moment we're continuing to enroll patients in the phase 3C study.

As mentioned previously, we received confirmation from our European regulatory agency, TUV, that the phase 3A and 3B studies are sufficient for the CE mark for the Intercept plasma system. We expect that invitro studies will suffice for validation of the commercial system in Europe. We’ll file the phase 3C study as a European supplement to support the launch of Intercept plasma.

Many components are shared with plasma are shared with platelets and thus we expect to achieve leverage in the plasma CE mark registration. We continue to experience strong interest for intercept plasma in Europe, driven by the complementary effect of a common platform for treatment of plasma and platelets. With respect to Intercept red cells, we continue to transfuse patients in both phase 3 studies this past quarter. In the acute study, we're enrolling patients at five centers. And now have transfused 40% of the required patients, slightly ahead of schedule for this study.

In the chronic study, we're active at five centers and are more than 30% enrolled. Despite this rate of enrollment in the chronic Study, we're opening more centers this quarter to increase our access to patients as the current rate of accrual is below our target. We're working with each of our centers to reach more patients who are eligible with our study within the active centers. The chronic study is a two-treatment period crossover study that requires patients to complete both active transfusion periods and a follow-up period. Depending on the type of patient, the active transfusion phase can last between 12 and 20 months.

Our collaborative research program with the Department of Defense continues. We recently received a fundable score for our next year of research support which is entering the advance development phase. The 2003 Defense Department appropriation bill contains funding for continuation of research in blood safety and availability. Cerus has four projects under this program. In activation of unusual pathogens of particular concern to the military blood supply, extension of liquid red cell storage, development of freeze dried plasma, and rapid decontamination of whole blood under battle field conditions.

With respect to cellular immunotherapy, our collaborative trial with the national marrow donor program is in position to begin enrollment. This multicenter study will enroll patients for matched unrelated stem cell transplants using Helinx T cells as supplement to the stem cell grafts. Our collaborative trial of a cellular vaccine against the Epstein Barr virus, EBV, is starting at Johns Hopkins University. This study will evaluate on a [ontologour] B-cell vaccine against EBV in patients undergoing heart lung transplants. EBV infection in immuno-suppressed patients results in a malignant lymphoma which can result in loss of the organ graft with the immuno-suppressive therapy is reduced in order to treat lymphoma.

These trials using Helinx chemistry to modulate the immune function mark the extension of our platform technology into the field of cellular immunotherapy. We’ll keep you posted on results as we move forward. Now

Greg will review the financial results for the quarter.

Thank you, Larry. Our fourth quarter results were in line with our expectations with a net loss for the quarter of 99 cents, giving us a net loss for the year of $3.61. This compares with losses of 86 cents and $3.27 for the comparable periods of 2001. Our cash balance at the end of the year was $64.3m.

Subsequently in January we increased our available working capital by drawing $50m from the Baxter loan facility. Together, this compares with a $123.5m balance at the end of 2001. Our cast use from operations for the fourth quarter was approximately $17.3m. We expect our current funding to be sufficient to support our development activities for the next 18 to 24 months.

Turning to the income statement, we reported our first product revenue from the Intercept platelet sales in Europe which came in late December. We also reported $1.6m from development, primarily for work performed under our agreements with the U.S. armed forces. Our R&D spending of $15.1m for the quarter was a slight increase over the last quarter due in part to increased investment in Intercept development at Baxter. We expect our R&D spending to be flat or increase slightly through 2003 with our expected total R&D spending for the year to be between $60m and $65m. GNA expense was $2.6m for the quarter and $11.3m for the year. And we expect our GNA expense in 2003 to be approximately $12m.

Net interest income for the quarter was approximately $350,000, about $130,000 less than last quarter due to declining interest rates and the lower cash balance we carried for the fourth quarter. Going forward into 2003, we will accrue a non-cash interest expense related to the Baxter credit facility. Recall that no principal or interest payments are due under the facility until the year 2008. Now I'd like to turn it back to Steve for some concluding remarked remarks and then we'll take your questions.

Thanks, Greg. Looking ahead, I expect the momentum of our European launch to result in significant market penetration of Intercept platelets during 2003. Baxter sales teams have a great start with centers in multiple countries currently ordering Intercept. Beyond these early adopters, Baxter sales and marketing efforts are focused on expanding commercial reach. And I remain very confident we will achieve our commercial goals for Intercept platelets. Our top priority at Cerus is to support Baxter’s efforts for fully penetrating the $115m European platelet market. And leveraging the excitement and enthusiasm there to pave the way for approval and adoption here in the United States. For platelets in the U.S., in collaboration with Baxter, we are working to complete the PMA submission which will be dependent for discussions with the FDA on the clinical module and availability of tables results.

Meanwhile, as intended with the modular submission, we are able to work with the FDA to answer any questions they have on the modules already submitted and under review. This process is working as planned and has resulted in the acceptance and closure of four modules of the PMA application. Of course acceptance and closure of modules do not guarantee ultimate approval, but is quite encouraging as we seek to complete the process.

For the Intercept plasma system, Baxter continues to work to make necessary design changes to improve commercial manufacturability. While we are confident that the problem will be solved, the fix is taking longer than we expected. Once we pinpoint an optimal design, we can begin our manufacturing runs and stability studies which can ultimately be used in the manufacturing section for the regulatory submission. At this time, it is difficult to predict how long this will take and when regulatory submissions will be completed.

A key part to our multi-product strategy is the Intercept red blood cell system. As Larry mentioned we are actively enrolling in both phase 3 trials, approaching quite rapidly in the acute study while experiencing slower than expected enrollment in the chronic trial. We believe our strategy to expand clinical sites will address enrollment rates. We will carefully watch these rates for the next few months making adjustments to expedite the trial as needed. Once we have better clarity on enrollment, we can provide further guidance.

In summary, we are looking forward to another very productive year. We will continue to focus on commercialization of Intercept platelets and late stage development of Intercept plasma and red blood cells. As we target the broader $2.5b market opportunity for the pathogen inactivation products. We will work to continue development of our pipeline products us using Helinx technology and therapeutic applications primarily through external funding.

We appreciate your support and look forward to keeping you apprised of our progress. I will now open the call to questions.

Thank you. Ladies and gentlemen, if you would like to register a question please press the 1 followed by the 4 on your telephone. You will hear a three-tone prompt to acknowledge your request. If you would like to withdraw your registration, please press the one followed by the 3. If you are using your speaker phone please lift the hand set before your request.

Our first question comes from Katherine Martinelli from Merrill Lynch. Please proceed.

Hi guys. First, in terms of the uptake in Europe. You guys went under the marketing initiatives with Baxter, no real sense for what we should be thinking for the revenue ramp other than a significant penetration for platelets this year. Can you give some sense of what pricing is looking like? Or what you're expecting of penetration rates in Europe?

Sure, Katherine. Baxter is working very hard and having a lot of success in many different countries in Europe. In terms of the pricing, that's really Baxter's information. And we're not at liberty to talk specifically about what's being charged for the Intercept system.

In terms of where we're going downstream, I'll ask Jim to give you some general guidance on what is going on in various countries. How the validations are going and how we see 2003 kind of unfolding.

Sure. Hi, Katherine. I need to clarify a bit more. We have completed validation at least in terms of what's required by governments in a number of the smaller countries in Europe. And so now, as I discussed earlier, we have access to probably maybe about 25% of the total platelet doses. And so throughout the remainder of the year we're going to be completing what government requirements and validations and so forth with the remaining countries. And they include the larger key countries, U.K., France and Germany. As we complete those they'll obviously be able to come online with an opportunity to punch the Intercept platelet system.

The current plan and approach is that we're going to continue to sell into those smaller countries which we've been able to complete those validations. And then over the course of the year we anticipate continued completion of those government required validations. And hopefully of course in those centralized countries, complete the mandations so we can have full breadth of sales.

Okay. With respect to the U.S. with four of the modules -- I believe you have a total of 11 accepted -- should we assume that your targeted approval of year end this year is no longer realistic?

I think that would be a good assumption Katherine.

Any sense of what you guys are now targeting? Is it doable in the first half of '04? What are your kind of new milestones for that?

Let me tell you the pieces that we have in front of us here. We do have the majority of the modules in. We had a big one go in this quarter as we reported. The device module is actually 15,000 pages.

The other module we’ve been talking about for some time is the stability module, that's up and running. We're getting the data as it comes off. And our target is to get that final technical module in a mid-year time frame. And we think we're going to be successful in doing that.

But the real gating factor is the questions that we have on some of the modules -- as I said before what happens is the module goes in, we get some questions, we respond to those questions and that can cycle three two or three times. We have put four of the modules away, others are almost done. We do have the clinical module. The FDA has some Questions on that module. We are going to be meeting with them in the next few months to sort that out. So it is going to depend really on their response when we can actually complete the filing. Because the modules can go in but the filing really is not complete until as all those questions are answered. And that's a little bit open-ended at this point. So it's difficult to, with accuracy, predict an answer to your question.

Steve, when you mentioned possibly needing additional clinical data, what would be the parameters around that data? What exactly would the FDA be looking for that could require additional trials?

Sure. Let me take a stab at that then I'll ask Larry to comment. We don't know that we're going to need any additional clinical data. We do know the FDA has questions about the data in the module. And the outcomes are that either they accept the data we've given them, they could ask for reanalysis of the data. Or because we have used a different set -- it's actually the set that we're now selling in Europe -- the commercial set is different than the set we use in the actual sprint clinical trial. They could ask for some additional work with that final commercial set. And what that could be there is a range of possibilities. That's just an example of something they could ask for, but I'll ask Larry to give you a little bit more color on that.

I think with the prototype set that we used in the United States, as you know from our description of the clinical trial data, we saw variability in dosing. All of the doses were within acceptable limits but we had more variability within the dosing than we can now achieve with the final integrated set. We have done a city study in Europe with the final integrated set. And we are prepared to show those data to the FDA. But they may ask for independent data in the United States. We won't really know that until we have a full discussion with them. And we expect that discussion to take place sometime within the coming months.

Thank you.

We have another question, it is from Glenn Reicin. Please proceed, from Morgan Stanley.

Hi folks. Bunch of questions here. With respect to the type of data that the FDA would presumably want. Is this all sort of short term acute data, do we have to go back and actually get human data here? And look at response times over several weeks or months?

I think it's really hard to predict, Glenn, until we have that conversation with the agency. As to what type of data. We don't even know for certainty yet whether or not additional data would be required or reanalysis of data that we already have. And we're trying to get clarity on that issue.

You know, Glen, I mean we've been cycling with the FDA on their questions. And we've done a couple of rounds. We're going to be sending in a major response in the next few weeks. Then we will meet with the FDA on those questions. And we're just trying to be very forthcoming in saying that the outcome of that could be a request for more clinical data. We don't know that's going to be the case at all. But you know, it's a possibility, therefore we just want to let you know that's there.

All right. And on the European front, when a country starts validating -- are we assuming that you are going to penetrate that 25% this year?

Yeah, I'm going to let Jim answer that question.

I think part of the assumption -- it is difficult to come out and say what individual centers are all going to do. But it's been clear in the past that when people go through the process to do validations, practice and update their own manufacturing steps that require SOPs and so forth, that they're clearly heading down the path. And clearly signaling the fact that they're anticipating the adoption of that product.

I was sort of thinking what Baxter was saying this year about their transfusion therapy business. They were saying it was going to be up eight to 11% assuming really that most of the growth comes from [alex] and from pathogen activation. Back of the envelope that sound like that would serve a $40m number which would translate in the $10m for you guys. Is that good back of the envelope math here?

You have to talk to Harry about that what he means. Transfusion therapy has a bunch of different products. They have [alex], they have pathogen [inaudible], they have their whole blood business. I wouldn't want to guess what he's thinking when he made that statement. But I do -- I will say that Baxter is extremely enthusiastic about these products. They are putting more and more people on it. They've got a very impressive marketing and sales force in the field. Al Heller, Harry's right hand guy, is on the governance committee for the Intercept programs now. Monthly meetings at very high levels. Baxter is very focused on these programs.

If I could clarify something regarding your question earlier with regards to this 25% number. I just want to make it sure that it is understood. What I'm referring to is 25% of the total of platelet doses in Europe are represented by these smaller European countries that have completed the government required validations. Now, within some of those centers obviously, they still have to complete their own internal SOP validations and so forth before they may be eligible to purchase the system. I wanted to make sure you understood that.

I understand it. But at some point you're going to have to make some commitments in terms of revenue expectations and time lines. You're going to have to say what you expect in terms of platelet revenues. And in terms of when you expect approvals for platelets in the United States.

Yes, we're trying to tell you what we know right now. And some of the information such as the meetings coming up on the clinical module with the FDA making a specific call difficult. In terms of the revenue estimates, we think things are going quite well. We work very closely with Baxter. Jim and Larry are in Europe a lot with the sales force, and we expect good things in 2003. But because of some of the mechanical issues of the SOPs and validations and getting folks set up, it makes new product and new market. It makes it difficult to predict what the revenues are going to be.

Hemonetics -- what are they showing in terms of demand?

We’re working with a couple strategies. One is to integrate the system into their collection platform. The other is to address the Hemonetic product through the kits that allow collection from the Hemonetics device. And then use with the existing Intercept device, it is that latter kit that will initially be used. Larry, you have been in Europe talking to customers. What are they saying?

We're working with a number of customers and working with the Hemonetics people on their process validation studies. I'm not aware of any sales on the Hemonetics platform but customers are engaged around it. And particularly in France where there are a lot of doses, the Hemonetics platform is an important platform for them. So the work is going forward.

Okay. Two other questions and I'll get back in line. For plasma are we still assuming second half '04 introduction in the United States?

No, we're not. I don't think so, Glenn. As I said, Baxter is working hard to correct the issue with the compound absorption device. There are various prototypes on the table right now. We have a couple that look very good. Those have to be manufactured, triple lots have to be made have to be put up in stability.

I'm not ruling out that particular date but I'm not going to stick it out there right now either. You know, it depends on how rapidly the manufacturing issues can be resolve.

And RB source tab for ‘05?

Larry you want to comment around chronic trial date?

I think the chronic trial is now one of several gating factors obviously in the red cell program. As I said we're doing very well in the acute trial. The chronic trial -- we are seeing some variability in the duration of transfusion intervals for these patients which is going to govern the length of the trial. We're trying to stay away from the longer interval patients and focus on patients who will complete more quickly. And I think it's still a little early for us to tell, because we're only about 30% enrolled. And what we're doing is moving out to more centers to take some of the patients that we know will get their transfusions over a shorter period of time.

So depending on how well we do with those patients, I think that will be a governing factor of when we can get that clinical segment completed.

So no commitment?

Can't commit right now. It's still I think a little too early for us in the trial because we're only about a third of the way into it. So I think when we get a little further into it, we will have a better fix. And I think we'll be able to give you better advice on it.

Okay, last question for Greg. This loan that you're getting from Baxter. I'm thinking about your shareholder equity in the losses that you're going to be accruing this year. And what share shareholder equity will be at the end of the year relative to the debt on the cash on the balance? Why don’t we have to worry about the possible delisting, the possibility you don't have enough equity relative to your other assets? Why is this not a concern by the end of '03?

Yeah, we're not worried about that at all, Glenn. As we pointed out last quarter, this is a revolving credit facility. And the reason we pulled it down now was simply that the marketplace, or the optics of having a strong balance sheet, is extremely important in this day's market. We have an extreme amount of flexibility with this. And I think we have the availability of a bunch of financing alternatives going forward in the year.

What are the requirements of NASDAQ in terms of equity?

We haven't had to examine that because we don't think it will become an issue at all.

Okay, thank you.

Ladies and gentlemen, as a reminder to register for a question press 1 follow he by 4. We have a question from Robert King from Peninsula Capital.

Hi, Steve, Bob King calling. I guess I'm picking up on Glenn’s earlier question. And drill down a little deeper in terms of next steps with customers in Europe?

Sure. Once again I'm going to refer that question to Jim. Jim is our guy, spending most of the time over there.

Sure. I'm looking to add a little more color. I'm assuming with regard to those key countries. So as I'm looking at the opportunities, as I spoke earlier, we're currently really selling into 25% of that European market. In parallel with that, we're completing the various validations that are required for the remaining 75% of that market.

So when we take a look at that remaining 75% of the market of the 1.3m platelet doses, we're looking at U.K., France and Germany, which combined come up towards 65% of the total platelet dose. So in looking at that, and seeing that the total market opportunity in platelets still sits in Europe at about $115m, that can give you some sense I hope in terms of direction for the upcoming couple of quarters. And really with the rapid uptake anticipated in the back half of the year due to the remaining three quarters of the market, completing the various validations. And having the opportunity obviously to sell directly into that.

I can say a little bit more about those centers that have already purchased and those who are currently committing. We've got really a very quick and rapid, I feel, acceptance for those who completed their validations, completed their SOPs. The feedback we continue to receive from myself and Larry and others at Baxter with regard to the processing elements are really efficient. Even the losses previously stated, they've become much less with the various practice and the various manufacturing validations they’ve run. So on that front everything is very, very positive.

You can do market research, predict what people are saying ahead of time. But until people are buying a product and telling you the impact of the European blood directive on them as well as the fact that we're covering the VMV, cytomegalovirus, in bone marrow transplant patients. These are things that continue to break out and continue to break through and continue to threaten patients who are undergoing these procedures. So being able to inactivate it with Intercept platelet system, that is a huge benefit that nothing else currently can begin to approach.

Interestingly in a couple of centers that have already purchased as well, they were taking a look at the fact that they were going to have to replacing Gamma irradiators in their centers because of the demand that people have for Gamma irradiated platelets. Now they're saying ‘look, with Intercept platelet system, let's skip that whole purchase of what would really be an antiquated sort of scenario and go ahead and adopt the Intercept platelet system to save that in terms of substantial cost savings’. So at least over the short term that's what we're seeing.

Is there a classic reference account activity that is going on, where your early adopter is contacted by someone else who is on the edge to make a decision?

It's interesting because we have had a number of scenarios already. In parallel, in certain countries, we've had a purchase for example in one site. They have colleagues who they are very closely connected to and we are in parallel negotiations in materials of finalizing equipment. We have chosen not to give more detail because we don't want to play one off on each other when both are in parallel pursuing the finalization of the purchase.

Me coming from a more pharmaceutical background in which you have positions when you launch a new product. People can trial a new product and there is no commitment there. Because they can choose to put the next patient on what they've been using or monitor that patient and take them on or off of it over a period of time. What you are doing in this situation is you are converting that particular blood center's entire platelet processing to the Intercept blood system component such that then all platelets assumingly will be treated with Intercept platelets for that whole center. And once you complete that whole manufacturing, once you complete all that SOP work and all the processing and get it documented and prepared for what meets the government regulations, that's a huge hurdle for anybody to come in and try to displace that. And so while I think people who are anticipating all of a sudden a giant surge at the point of a CE market, I think it's been perhaps a little frustrating. I think clearly as you see the adoption move forward and with our reporting of revenues and so forth, you're going to see that those revenues will, we anticipate anyway, will certainly be sticking and holding onto and it will be continued growth over the next several years.

Finally, what is the timing you think in terms of U.K., Germany, France?

It's hard for me to predict that because they're working really with the clinical group at Baxter in terms of the actual processing. I do know that we've completed the first and second phases in France. We're anticipating a government comment as to whether or not we need to complete the third phase of that. In terms of the U.K. they have already started and completed one round of those validations in Sheffield. In France and the UK, it’s a slightly different scenario because they are making a centralized decision. The government isn't just saying to the local hospitals and blood centers, saying ‘look, you've got your budget, if you choose to purchase this platelet system, that's fine’. What they're doing is evaluating it and taking a broader look for it across the entire country. And then when they mandate it, they will have to also obviously in parallel make sure the funding is available to route all centers and throughout their entire country for it.

So I think in those centers I anticipate it to be a little bit slower and this is what I think we've been discussing. And this is the benefit of having these smaller countries come on board. Not only do they do what Steve has mentioned earlier, it adds -- I wouldn't say pressure, but information for their colleagues within their country. But as signage there is so many examples of the need and demand for a safer blood supply. And so when this occurs in these smaller countries, it will we anticipate have some impacts in terms of the remainder of Europe.

Okay, thanks.

Thank you. Our next question comes from Ben Andrew from William Blair. Please proceed.

Good afternoon.

Hi, Ben.

Could you talk a little bit about the specific manufacturing issues on plasma? And what we should be looking for there in terms of milestones or complexity of those issues? Because clearly everybody is trying to get a little more perspective on timing, on that product and maybe on platelets. Let me just first start with plasma.

We have what we call a compound absorption device. And that is designed to take out the [amatoxalin] solution after the illumination is done. It takes out about 99% of the residual. We put this two log margin in our safety margins, not that we had to have it but we thought it was a very good idea because of getting that factor of 100. So it has been in the system from the beginning.

The issue we found is that when you go from the sort of low volume prototype manufacturing to the factory where it's actually manufactured with high speed manufacturing equipment. And then you put it up on stability, and this is both accelerated stability at high temperature and then room-temperature stability. We had an unacceptable number of these devices which leaked, basically. What that means is that the solution that comes in the bottom and goes out the top, it gets around the seal. And so when you end up measuring the concentration of the [amotosalen] in a few of the bags of plasma, post-treatment concentration is too high -- it exceeds our specification.

It is kind of a thorny problem because you have to figure out how to fiction this seal and there are several different approaches that have been used. We have one fix that is up in stability now and we are evaluating it. And now we have another that is close behind and we have a couple more that we're working on. But the issue is, you have to, before it's done, you have to make at least three lots and these have to be production lots, they have to be encased in the actual casing. They have to go up in stability. And then they have to, you know, be there for at least a three-month time period under accelerated conditions. And you have to analyze them and make sure the incidence per million number is acceptable. Right now we've got one lot up and running, we have another lot that we are going to be manufacturing and putting up on stability.

To give you a number and just say, ‘well, it's going to be done in the second half of this year or the first half of next year’, it really is dependent on many different variables. But the good news is that this is a solvable problem. I know it is irritating, annoying, and frustrating for you. And it is for us but it's fixable. It can be manufactured with the quality standards that Baxter and Cerus insist upon. It is not toxicology clinical safety or clinical problem -- it is a manufacturing issue specific to this. So it makes giving you guidance on timing -- we're just basically unwilling to do that right now until we understand more about what this fix is.

Let's try this another way. If the current version that you're working on works, and everything goes perfectly, what's the earliest you could be ready to finish and file the modular PMA?

That's not a number we're going to put out there right now. Because nothing ever goes perfectly. We don't want to put something out there that you're going to be disappointed with. We're looking at basically manufacturing runs that could take three to six months to do, stability that could take three months to do, preparing a file that could take three months to do. Depending on the details, those times could be shorter or longer. That's kind of the range that one could end up in to finish this up.

Again, the clinical data is fine. The tox data is fine. We just have to get Baxter -- they are the ones really doing the manufacturing because they're responsible for the manufacturing under our agreement. They're working diligently to solve this problem, but until it is solved but we're not going to pick a date. It is in the range of three to six months for manufacturing, three months for stability, and another three months to prepare the file until we can put it in.

In theory, that’s 12 to 15 months, plus or minus we don't know how much based on variability?

That's probably a best guess. The lot that we have up and running, we will be evaluating that one as we move along as well. And there's some potential for some time savings there. But right now we would like to just get additional information, report back to you next quarter on where we stand on this.

Since you got the question, I will ask Larry to share with you a little bit about what's going on with the enthusiasm for this product especially in Europe.

There is a lot of pressure in Europe to either do quarantine or have a decontamination methodology for plasma. The only one that's really in place right now is SD plasma, and SD plasma has had some problems. First of all, people don't like the pooling process. Secondly, the loss of the antithrombotic proteins has created some problems for some types of patients. And so the Europeans are very interested in a single unit decontamination process. And they've seen the clinical data and the pathogen and activation data for S-59 plasma.

So we are actively working with them on trying to basically get them educated to it. And obviously get them on the platelet platform first so they're ready to move into plasma when we're ready with that commercial system. So we are very positively encouraged by the high level of demand for the product.

One quick question I guess would be on the reimbursement side in Europe so far. What are you seeing in terms of this additional cost picked up? Is it being born by the centers or passed through? How might that develop in the bigger countries this year?

Let me comment first and then Jim. I don't think we see much push-back. They're buying it on a center-by-center basis because the validation studies have been completed and the decision is at the blood bank director level. He or she can take a look at their budget and go ahead and purchase it. So I don't think there has been a lot of push back in Portugal, Italy, the Nordics and so forth. You're looking at a couple hundred thousand doses in the U.K., and something like that in France. And so there will be a central negotiation with them on pricing. And that, once again, is in Baxter's hands. We participate in EFS and NBS meetings and so on. We'll have to see how that goes. I will say, and I will ask Jim to chime in, but I think we are pretty optimistic about pricing holding at this point. Jim.

I think you've hit it on the nail, Steve, when you mentioned at this point people have been able to absorb this, it hasn't been a stumbling block or issue. When it comes to the larger mandations, there will be a budgetary decision made and that will be included. I think what we've done here is -- we really are reviewing Intercept platelet launch as a part of a bigger opportunity, and that total opportunity is the Intercept blood system.

And our strategy is really quite clear. We want a very high adoption with Intercept platelets. We have been aggressive in terms of our sales and marketing efforts to maximize that value. And right now, with Intercept placement in Europe, we have that opportunity targeted at $115m for Europe alone, in terms of the total marketing opportunity. Our plan is to get very high adoptioning and get as close to that number as possible. Because Intercept platelets is just the very first step, at which point we are going to follow out with expanded indications into the various other blood components which are substantially larger. The plasma opportunity in terms of total doses is larger. The red cell market is really the biggest opportunity of all, by four or five fold in that of platelets in terms of total size and doses.

So when Larry commented earlier about our FFP or plasma opportunity, we are really happy to hear that. Because as we've launched the Intercept platelets, every center we’ve been in to talk about how easy it’s going to be to roll in plasma behind it because you’re using the same equipment, you have a very similar process, you have the same [amotosalen] component to it. So having that component roll in behind platelets is going to give us even stronger leverage, not only from a market adoption perspective, but from pricing. That should play out as we move forward with our total program.

We are quite optimistic. And our key target is to focus on what is the first step and that is the adoption for Intercept platelets.

Ben, I'll just piggyback to that a little bit. If you look at the fundamentals of the story, it is very very much intact. We are enthusiastic about the possibilities for Intercept in Europe in particular and globally in general. All the feedback we're getting is very, very positive. The issue for us is timing. We have hit these hitches with Baxter. But they will be fixed. There is great enthusiasm for this product in the marketplace. There are plasma customers in Europe today that we could ship the product to if we are ready to ship that product. There is nobody behind us. I know we'll get there. The disappointment is how long it's taking, but it is most definitely happening.

One last thing and then I'll get off. The issues specifically are plasma which will affect your timing in both the U.S. and Europe. But none of this has any potential bearing on platelets? Or is there exposure as well?

The plasma per se does not affect the platelets. The platelet issue is at the FDA level. As we said in the formal remarks, we have several meetings with the FDA in the next couple months to discuss the clinical module. The impact there could be -- we're obviously hoping and somewhat optimistic that the data that we have given them will be acceptable. They do have questions and we're prepared for those questions. We have responded to them and putting a major response in a few weeks. We'll discuss it with them. The outcome could be okay, could be to take a different look at the data through reanalysis, or it could possibly be final embodiment as the commercial system that additional clinical data could be required. But plasma in itself doesn't have bearing on platelets.

In particular, the manufacturing issues of plasma. Is there potentially a manufacturing component of platelets?

No, that's done. There's no problem with that. Just to clarify, the issue we had with platelets that we reported a couple of quarters ago was the stability on the actual amotosalen pod. And we changed that pod and put that up. Basically the same thing that we're using in Europe and those studies are now basically ongoing. So we don't expect issues there.

Ladies and gentlemen as a reminder to register for a question, please press the 1 followed by the 4. We have a question from Bill [Quirg] from RBC Capital Markets.

This is actually Steve Hamill.

Hi, Steve.

I was wondering if you could talk a little bit more about the chronic red cells trial. I am a little confused. I was under the impression that you have a chance to look at a lot of patient files. And be fairly selective about who you were going after in terms of trial sites and what kind of patient base they had. You know, even before you got an IRB approval.

That's correct, Steve. We have been in contact with a lot of the sites who had these patients. And we have looked at a lot of these patients. We have found that some of these patients are not suitable for our trial. Because they have complicating clinical conditions that when we got deeper into their medical records after we had the ability to go beyond confidentiality, we felt that they would not be good candidates for this type of trial. And so the average yield per site has been less than we initially expected. We have worked with a number of sites, and had anticipated the need to bring more sites on if we were having difficulty finding the right patients that could stay in this type of a program. And so we are in fact now doing that.

I think the other thing has been that some of these patients have longer transfusion intervals. We would rather have people with shorter transfusion intervals just because we could complete them more quickly. If we have to go to longer intervals then we will do that. But we would rather take the patients who need more transfusions at shorter intervals and can complete more quickly.

I think the other thing is that we have approval to go down to patients as young as 2 years of age. And we're enrolling a lot of young children. The consenting process is more complicated in that it tends not to be just a single parent signing off. It tends sometimes to be almost a family decision. And so you have to spend more time working with these families, and they are coming into the trial. But it's taking more time.

And so we're guardedly optimistic, but we're not hitting the target that we set for ourselves and we know what we can do about it. And so we are now bringing up some other centers that we were holding in reserve, and working with those centers as well. But we have a very good resource of patients that we will get into this trial.

We've got time for one more question.

And then in terms of the platelet customers that you've got in Europe so far. Can you tell us, are they by and large Amicus accounts or are some of these Hemonetics or Gambric accounts?

I can't comment as to the relationship in terms of how busy they were within Baxter in terms of an account. But clearly they bought the code and that is what we did the pivotal trial on has been the early users.

We just received the approval for the kit that allows us to adopt to the [inaudible] Baxter Aphoresis [inaudible] systems. So that is just beginning.

Okay. I'm sorry if you already shared This. But in terms of the validation studies, have you seen specific evidence -- and how does it compare in terms of platelet yields -- in these validation studies compared to what you've seen in your previous clinical trials?

Larry.

Yes, we're seeing very good results from optimizing the first part of the process, the collection and pooling process. In some of the centers, although we did our clinical trials with pools of five, they are doing very well with pools of four. Which is something that we told them we'd support it if they should try it. But they're getting very good doses with pools of four.

So it’s working beyond our expectations in that sense. Baxter has modified what's known as the back plate of the Opti-2 device. And helped customers improve their yield out of a single whole-blood unit and out of the Buffy-code fraction of that unit. So the yields have been very good.

Excellent, thank you.

Okay, thank you all very much. We appreciate your participation in the call. And we look forward to keeping you updated on our progress and we'll talk to you in our next call in April. Thank you.

Ladies and gentlemen that does conclude the conference call for today. We thank you for your participation and ask you to disconnect your line.