Cerus Corp (CERS) 2007 Q4 法說會逐字稿

Greetings, and welcome to the Cerus Corporation 2007 fourth quarter and year end financial results conference call. At this time, all participants are in a listen-only mode. Following management's prepared remarks, we'll hold a question-and-answer session. (OPERATOR INSTRUCTIONS) As a reminder, this conference call is being recorded today, February 21, 2008.

I would now like to turn the call over to Ms. Stephanie Diaz of Vida Communication, the external investor relations consultant to Cerus Corporation. Please go ahead.

Thank you, operator, and good afternoon. Cerus issued a press release today announcing the company's financial results for the fourth quarter and fiscal year ended December 31, 2007, and describing the company's recent business highlights. You can access a copy of this announcement on our web site at www.cerus.com.

Before introducing Claes Glassell, President and Chief Executive Officer of Cerus, I would like to remind you that during this call, we will be making forward-looking statements about development, research, regulatory process, commercialization, finances, and business prospects. Our actual results may differ materially from those suggested by forward-looking statements we will be making and we assume no obligation to update guidance or other forward-looking statements.

I call your attention to the disclosure in our SEC filings, in particular our quarterly report filed on our most recent form 10-Q and our 2007 annual report on form 10-K to be filed shortly, including the sections entitled "Risk Factors". This call will be archived temporarily on our web site and will not be updated during that time.

I will now turn the call over to Claes Glassell, President and CEO of Cerus Corporation.

Thank you Stephanie. I'm joined today by Bill Dawson, our Chief Financial Officer, and Larry Corash, our Chief Medical Officer.

We continue to make good commercial progress during the quarter, first, product sales increased to $2.4 million during the fourth quarter, up from $926,000 in the same period last year. In addition, we booked $1.5 million in deferred revenue in the quarter.

Product sales for the full year were $8 million, up significantly from $3 million in 2006. The quarter benefited from product sales across a number of countries in Europe and in the Middle East. For the year, we added 34 new customer contracts. Through the year, we entered into distributor relationships in Spain, Portugal, Turkey, Greece, Kuwait, Russia and Poland, and more recently, Saudi Arabia.

Of importance to our U.S. strategy, we met with the FDA in late January and believe we may have established an acceptable path forward toward approval of the INTERCEPT platelet system in the U.S.

We participated in a meeting of the Advisory Committee on Blood Safety and Availability, which reports to the Secretary of Health and Human Services. The outcome of the meeting was a recommendation that the United States adopt pathogen inactivation in order to improve safety and availability of the U.S. blood supply.

We've also made progress in developing our red blood cell system and are now planning to conduct a Phase I clinical trial in the U.S. later in 2008. Perhaps the most strategic news of the past quarter was the successful spin-off of our immunotherapy business to a new company funded by leading venture capital firms. Cerus is now focused exclusively on commercializing the INTERCEPT Blood System.

Let me expand on these highlights, beginning with the spin-off of our immunotherapy business before I turn to our blood safety business. Since initiating our cancer and infectious disease programs in 2001, Cerus developed what we believe is a very promising business opportunity around our proprietary Listeria and KBMA technology platforms. By late 2007, we had successfully brought two vaccine candidates to treat cancer to the clinical trial stage.

We concluded, however, that pursuing that business opportunity to its full potential was at odds with our first priority, which is to commercialize INTERCEPT. And we concluded that our two business units were highly disparate, not only operationally, but in the eyes of the investment community. In November, we spun off our immunotherapy business into a newly formed company called Anza Therapeutics, which received initial funding from three venture capital firms, Kleiner Perkins, Sofinnova and Versant Ventures.

Effective in mid October 2007, we no longer provided funding to our immunotherapy program. We are proud of the business that we help build. And we are pleased that these three venture firms saw value in Anza. We will follow Anza's progress closely and wish David Cook, Tom Dubensky and many other former Cerus employees much success in the future.

Now, on to our sole focus: blood safety. Commercial adoption of our platelet and plasma systems continues to build. Results for the year reflected purchases of the INTERCEPT Blood System in many countries across Western and Eastern Europe and the Middle East. We would characterize these product sales as a broad indication of early adoption of the INTERCEPT Blood System.

We continue to attach much importance to France and Germany. They are sizable markets and we are dedicating a lot of efforts toward commercial adoption in those countries. I am as disappointed as many of you that the progress in these two countries has been slower than we were led to believe. But, please remember that we are addressing a total market in Europe and the Middle East of roughly $500 million for platelets and plasma system sales. France and Germany only make up about 20% of that potential market.

We are building a commercial base to address the whole market. We now have 35 Cerus employees and eight current distributor relationships to drive broad adoption across Europe and the Middle East. Product sales revenue nearly tripled year over year. And while revenue from product sales of $2.4 million in the fourth quarter was down modestly from the third quarter, we are confident that we are building a broad and sustainable base of customers that will drive sales growth in the future.

As Bill will touch on later on this call, we booked an additional $1.5 million of deferred product sales revenue at year end, relating to sales activity that occurred during the fourth quarter, so we are entering 2008 with considerable momentum.

As we move into 2008, we are expanding the geographic breadth of sales into more countries and also expect to achieve more significant adoption in some of the key countries where we have cultivated early adopters.

2008 will be an important year for us in Germany. We estimate the addressable market in Germany to be in excess of $60 million for platelets and plasma.

A year ago, the first German blood center received marketing authorization from the Paul Ehrlich Institute or PEI (which is the German equivalent to the FDA for blood products). In subsequent meetings with the PEI, they indicated that other German blood centers can reference this marketing authorization to simplify the process for all other German blood centers.

Roughly 80% of the German market is controlled by the German Red Cross, which is divided into four regions that operate somewhat autonomously. The largest region of the German Red Cross has headquarters in Frankfurt. The Frankfurt region provides roughly 1/3 of the German platelet supply. They are awaiting authorization from the Paul Ehrlich Institute to market platelets treated with INTERCEPT.

The Frankfurt region has historically been an early adopter of new blood safety measures. We are also actively working with the other regions of the German Red Cross and with leading university hospitals, encouraging them to follow Frankfurt's lead.

We are also assisting the Frankfurt region in preparing for their regulatory submissions for the INTERCEPT plasma system.

Switching to France, a representative of the French National Blood Service, EFS, first stated publicly almost a year ago that EFS intended to adopt the INTERCEPT platelet system across the whole country. The President of EFS has since stated his support for implementation of pathogen inactivation for platelets in France. Four of the 18 EFS regions have now fully converted to our platelet system. Once all are converted, we estimate the annual sales volume of disposable platelet kits will be $30 million for France alone.

However, the timing of platelet adoption across France continues to be subject to the EFS and the Ministry of Health agreeing on a national budget. We are actively engaged in lobbying public affairs efforts and direct meetings with all the relevant parties to obtain the budget required for national implementation.

We had originally been led to believe by EFS representatives that full adoption would occur by the end of 2008. Realizing that the timing is outside of our direct control, we are hopeful that the EFS reaches full implementation of our platelet system within the next 18 months. Later in 2008, we hope to expand our existing contract with EFS to accommodate broader adoption of our INTERCEPT platelet and plasma systems.

Importantly, earlier this month, platelet and plasma components treated with INTERCEPT were listed in the French Official Journal with specific reimbursement codes and prices. This now makes it possible for transfusing physicians across France to prescribe these products under the official formulary.

With respect to plasma, we are currently supplying one EFS center, which has converted fully under our existing contract. EFS has communicated its intent to implement pathogen inactivation of plasma throughout the country. We expect INTERCEPT to capture a substantial share of that market, though we expect to share the market with two older pathogen inactivation approaches, solvent detergent and methylene blue.

The current plasma supply situation in France is tight. Converting to INTERCEPT would improve availability of this critical blood component.

Beyond Germany and France, we are making good progress in many other countries. Our Spanish distributor, Grifols, is now adding new customers for the INTERCEPT platelet and plasma systems. This is early proof of how well-positioned Grifols is within Spain's blood banking community.

In Italy, there was a local outbreak of Chikungunya in the region around Ravenna. This is the first mosquito transmission of the virus in continental Europe. Over 250 people became infected in a matter of weeks as mosquitoes transmitted the disease from a single traveler who had been to India. That region of Italy has now implemented the INTERCEPT Blood System. Other regional and national blood centers are now on the watch for signs of Chikungunya outbreaks as spring approaches.

The Chikungunya virus has mutated and is now spread through a mosquito species that is much more prevalent in Europe and the United States.

Progress in Russia and Eastern Europe has been a bright spot for us. The combination of rapidly-growing economies and improving standards of healthcare have contributed to an openness to bypass the testing paradigm and go straight to pathogen inactivation.

In the Middle East, our new distributor in Kuwait recently won a tender to supply the INTERCEPT platelet system to the Kuwaiti national blood service.

In addition, early in 2008, we entered into a distribution agreement in Saudi Arabia, which represents an addressable market of $15 million. So, we have a growing list of commercial users and we estimate that well over 100,000 platelet units treated with INTERCEPT have been transfused in hospital settings.

Over the past year, there were a number of significant events that supported pathogen inactivation in blood products. We have previously discussed the strong recommendation coming out of the International Consensus Conference held in Toronto.

In the United States, the Department of Health and Human Services is charged with oversight of the nation's blood supply and held a similar conference in January of this year. It's Advisory Committee on Blood Safety and Availability, or ACBSA, convened a two-day meeting of regulators, scientists, clinicians, transfusing physicians, blood bankers and industry participants from around the world to help form a view on how the United States should approach pathogen inactivation.

The outcome was very positive. The ACBSA recommended that the United States implement pathogen inactivation technology as a means of ensuring the safety of the blood supply, particularly in light of threats from emerging pathogens and concerns around pandemics.

The old paradigm of screening and testing also came under fire as diagnostic test manufacturers testified that they are not always willing for economic reasons to spend the necessary R&D funds to develop new tests for emerging pathogens. This stated position on the part of diagnostic companies leaves the world's blood supply vulnerable to pathogens for which no tests are available.

As a stark example, some 6,000 cases of Dengue fever, a blood-borne virus transmitted by mosquitoes, have been reported in Puerto Rico. There is no approved test for Dengue and the blood supply there may be at risk. Another recent development has increased the urgency for the United States to adopt pathogen inactivation. The U.S. platelet supply is very tight. An increase in shelf life would increase platelet availability by reducing discards due to outdating.

A study, called The Passport Study, has sought to establish the safety of conventional platelets tested for bacterial contamination and stored for seven days.

The study was halted when levels of bacterial contamination were found to be more than five-fold higher than the minimum accepted by the FDA. Of great concern to the U.S. blood banking community was that, despite measures to eliminate bacterial contamination through testing, greater than one in 2,000 platelet units were found to contain bacteria.

Patients in our SPRINT trial on average received six units of platelets, so the Passport Study findings suggest the risk of bacterial contamination may be on the order of one in 330 per patient. That is an unacceptably high risk, which can clearly be addressed by the INTERCEPT platelet system.

The outcomes of the Toronto Consensus Conference, the ACBSA meeting, and the Passport Study are hard to ignore. Equally hard to ignore are regulatory approvals and commercial use of INTERCEPT in Europe and elsewhere. We believe the FDA is now fully aware of these facts.

In a meeting we held with the Office of Blood Review at the FDA in late January, the FDA staff reversed their long-held position that we needed to conduct another large Phase III trial in order to gain U.S. approval. They indicated that they would now consider using data gathered from commercial use of the platelet system in Europe, in combination with our existing SPRINT Phase III trial data, as a basis for potentially approving the INTERCEPT platelet system.

This approach would remove a very significant regulatory hurdle for Cerus in the U.S. It permits us to collect data while selling product in Europe, in contrast to funding another expensive U.S. trial. This change in position allows us to put increased priority on pursuing approval in the United States.

We now need to reach agreement with the FDA on what would constitute acceptable data from Europe. It is likely that we will need to collect data from future transfusions.

Now, let me give you a brief update on where we are with red cells. Since our last conference call, we continue to make significant progress in modifying our red blood cell system. We have been engaged in further development efforts to address the issues identified in a recent Phase I trial and optimize the process for blood center operations.

We now believe we have a solution that both reduces antibody reactivity to treated red cells AND avoids storage conditions that reduce red cell lifespan. We are planning to initiate a new Phase I clinical trial before year-end.

Meanwhile, we continue to work on commercial system design and design of Phase III trials with potential customers. If all goes well, we hope to begin acute and chronic arms of the Phase III trial in approximately two years' time. We are also exploring strategies that could allow us to move through those trials more quickly and expedite regulatory approvals.

I will now turn the call over to Bill to review our financial highlights.

Thanks, Claes. Before getting into our year-end results, I want to touch on the effect of the spin-off of our immunotherapy business on reported financial performance.

Historically, we have reported financial performance in two segments: blood safety and immunotherapy. In addition to direct segment revenue and cost of revenue, we also allocated direct and indirect R&D and SG&A expenses by segment.

As a consequence of the spin-off, financial results for all past periods have been restated to reflect our immunotherapy business as a discontinued operation. Included in the discontinued operation are immunotherapy revenue, cost of revenue, and direct and indirect R&D expenses related to that segment. The continuing operation includes the blood safety revenue, cost of revenue, direct and indirect R&D expenses of that segment and all SG&A expenses for both segments.

The spin-off of our immunotherapy business was accomplished in the fourth quarter. In exchange for the assets and IP that made up our immunotherapy business, we received an equity interest in Anza of 15.5% and the potential to receive milestone payments in excess of $90 million plus royalties upon successful development in commercialization of certain product candidates.

As of mid October, we no longer funded the operations of that business.

Total revenue for the year ended December 31, 2007, was $11 million. This compares with $30.3 million in 2006, when $22.5 million of milestone payments from BioOne and development funding under agreements with Baxter were recognized. We recognized no such revenue in 2007.

In addition, as anticipated, we recognized $1.8 million less in government grant funding in 2007 as compared to the prior year. However, product revenue for the INTERCEPT Blood System increased to $8 million during 2007, up 169% from $3 million during 2006. We also booked $1.5 million in deferred product revenue at December 31, 2007, resulting from sales activity during the fourth quarter.

At year end, we did not have all the contract documentation necessary to recognize these sales as revenue, according to generally accepted accounting principles.

Cost of product sales was $5.2 million in 2007, up from $1.5 million in 2006. Cost of product sales in 2007 included royalties payable to Baxter and then Fenwall. Under our agreements with Baxter, we paid no royalties on product sales in 2006.

Total operating expenses for 2007 were $49 million, up from $31.1 million in 2006, primarily due to higher SG&A expenses associated with our commercialization efforts of the INTERCEPT Blood System in Europe, and to a $9.5 million noncash write-down of our equity holding in BioOne, taken in the second quarter of 2007.

Net loss from continuing operations for 2007 was $39.1 million, compared to net profit of $2.4 million for 2006. Net loss from discontinued operations was $6.2 million in 2007, compared to a net loss of $7.1 million in 2006. Net loss for 2007 was $45.3 million, or $1.42 per share, compared to a net loss of $4.8 million, or $0.18 per share in 2006.

Turning to results of the fourth quarter, total revenue for the three months ended December 31, 2007, was $2.4 million derived entirely from product sales. Again, revenues recognized in the fourth quarter of 2007 did not include $1.5 million in deferred sales that we are carrying into 2008.

Total revenue for the fourth quarter of 2006 was $13.7 million of which $926,000 was from product sales. The remaining $12.7 million in revenue recognized in the fourth quarter of 2006 consisted of $12.2 million of milestone payments from BioOne and development funding under agreements with Baxter recognized during the quarter, as well as $562,000 in government grant funding.

Cost of product sales was $1.7 million in the fourth quarter of 2007, up from $705,000 in the fourth quarter of 2006. Cost of product sales in the fourth quarter of 2007 included royalties payable to Fenwall but none in the fourth quarter of 2006.

Total operating expenses for the fourth quarter of 2007 were $11.6 million, up from $8.1 million in 2006 primarily due to higher SG&A expenses associated with our commercialization efforts of the INTERCEPT Blood System in Europe.

Net loss from continuing operations in the fourth quarter of 2007 was $10.2 million compared to a net profit of $5.7 million for the comparable period in 2006. Net loss from discontinued operations was $1.2 million in the fourth quarter of 2007 compared to a net loss of $2.7 million in the fourth quarter of 2006.

Net loss for the fourth quarter of 2007 was $11.4 million, or $0.36 per share compared to net income of $3 million, or $0.10 per share in the fourth quarter of 2006.

We ended the year with cash and marketable securities of $56.9 million, reflecting a cash burn of $36.6 million over the course of 2007. We expect that our current cash balance will be adequate to fund operations into 2009. We expect that as product sales grow, and with it working capital, longer term cash needs may be funded with institutional and commercial debt.

I would now like to turn the call back over to Claes for some concluding remarks.

Thanks, Bill. In summary, we are pleased to have completed the spin-off of our immunotherapy business and to be a focused blood safety company. Now, the measurement of our success is sales growth in Europe, regulatory progress in the U.S. and clinical advancement for our red cell program. We are pleased with the momentum that we gained in 2007 and we look forward to a productive 2008.

Operator, please open the call up for questions.

Thank you. Ladies and gentlemen, we will now be conducting a question-and-answer session. (OPERATOR INSTRUCTIONS) One moment please while we poll for questions. Our first question comes from Liisa Bayko with JMP Securities. Please proceed with your question.

Thanks for taking my call. Can you maybe just talk a little bit more about the deferred revenue and sort of characterize that a little bit more and then maybe describe why we haven't seen that in prior periods.

Liisa, this is Bill. The deferred revenue came about, as I said, because of sales activity that did occur in the fourth quarter and it is a case where notwithstanding the fact that we had sales and in fact shipped product, we did not have all of the necessary contractual documentation in place at the end of the period in order to recognize it as revenue under GAAP.

We are dealing with a number of customers in far-flung areas of the world that may or may not always appreciate what GAAP requires, but we do.

It's not something we hope to repeat. We've certainly made it a point to our sales force, what it takes to recognize revenue but the facts are we have to stick with our principles and I mean that both literally and figuratively. So, we are carrying into 2008 $1.5 million of deferred revenue.

Okay. And then with that -- is that going to make sort of the first quarter lumpy, assuming that you recognize in the first quarter and then sort of make that a little lump and then maybe we'll see the second quarter slightly down because you had to move out this $1.5 million to the first quarter?

We're not going to give guidance on a quarterly basis going forward but we certainly have wind in our sails going into the year.

Okay. And then just a question about the G&A. I notice there was a -- you know, an increase there. Was that due to the transaction that you had in the fourth quarter or is that a run rate going forward?

I think that -- I took some time in my prepared comments that spell out how we accounted for the discontinued operation in the 2007 number reflects the entire G&A of the company, immunotherapy included. I'm actually happy with that in that that historical number is indicative of our run rate.

I mean for the fourth quarter.

For the fourth quarter, it is really -- because that's more Q over Q, that's more indicative of how we're running our business.

Okay.

There is some money in the fourth quarter G&A associated with the Anza transaction.

Okay. Okay, great. I'll get back in the queue. Thank you.

Thank you. Our next question comes from Amy Stevens with Susquehanna Financial Group. Please proceed with your question.

Yes. Okay. Thank you, hi, guys.

Hi, Amy.

I just wanted to follow up a little bit on your comments regarding the FDA and their willingness or possible willingness to accept commercial data in order to get an approval there on the platelet side. Now, would they -- you then said something about how it would probably have to be transfusions yet to come. So, is the implication there that commercial data that you've actually already accumulated would probably not be acceptable because maybe you haven't kept certain metrics or followed certain guidelines? Is that how you meant that?

Larry, could you take that?

Yes. FDA clearly expressed interest in the European data, but what they prefer are data that are collected in a prospective way. They are being given the data that we have already collected and what they are most interested in are prospective data where we can compare regions that have adopted the technology with regions which are still using the conventional technology.

And there is the opportunity to do that in some of the European countries and so that was their first preference and we will continue to work out that plan with them.

Okay. Okay. And in terms of -- you mentioned Saudi Arabia, we just talked about Kuwait a little bit before. But I hadn't heard as much about Saudi Arabia. Can you talk about how that might funnel into your revenue stream in '08. I know you're not giving guidance obviously but just from a timing prospective, when might that start to have an impact?

First of all, Kuwait is seen as somewhat of a leader in I think that part of the world for the fight now going forward. I think it is a good indication that other blood centers in that whole region will be interested in starting up INTERCEPT. We expect to see some sales revenue in 2008. I won't sit here now and guess how much it is going to be.

All right. That's fine. Then in terms of the deferred revenue, was that from one contract or was that from a number of contracts?

It was from several.

Okay. Okay. And then are you hearing back -- just in terms of Gambro, are you aware of them signing up any specific contracts in Europe?

No, we're not. I've asked that question with fairly high frequency to our sales team and we are not hearing anybody signing up with them yet.

Okay. Thank you.

We also think that we have a pretty good intelligence on what goes on in the market and our approach is really to try to make it clear to customers that they are in many other respects data driven and that they should remain data driven when they evaluate us and them, and we think that the data will speak much to our advantage.

Is there any possibility that some of the delay that we're seeing in France and Germany, if you want to call it that, is it consequence of them needing to get up to speed and evaluate Gambro even though, you don't feel it is competitive but --

No, I really don't believe that at all because my own view is that the data that Gambro has or will have will be insufficient for in country approvals and then they still have to go through the in country approval processes in both of those countries. We've been through that process and it took us a long time to get there. And we have much, much better data sets.

So, I would question A, whether they can get through that hurdle at all, and B, the time it would take. So, I think what we're facing right now is actually independent of anything that Gambro is doing.

Let me just add a little bit of color to Claes's comment on that. You have to remember that the Gambro CE mark is for a class 2 device. And the Cerus CE mark is for a class 3 device.

Class 2 devices are not sufficient for the processing of blood components in France and Germany. So, that's why we have obtained a class 3 device CE mark registration.

Thank you. Our next question comes from Scott Lewis with Lewis Capital Management. Please proceed with your question.

Thank you. Good afternoon. Thanks for taking the call. I was wondering if you could discuss at all what the first two or three milestones might be from Anza and how they're progressing towards those milestones.

You know, I think that's a question better directed at the Anza management these days. We have a small minority stake in the company. And we don't participate in their day to day decisions and setting of objectives and milestones.

They are in clinical trial so I would assume that any kind of results from clinical trials will be important for them but I wouldn't want to go further than that.

Well, I meant the milestones where you receive payments --

I'm sorry. I misunderstood your question.

Sure.

Scott, this is Bill. Why don't I take that. Of the -- in excess of $90 million in milestones, virtually all of them come after product approval and having reached the thresholds of commercial sales. So these are well out into the future.

Okay. Great. Thank you.

Thanks.

Thank you. Our next question comes from Matthew Campbell with Knott partners. Please proceed with your question.

Hi, it is Matthew Campbell.

Hi, Matt.

How are you? I was just curious on a few different things, I was wondering if you're still comfortable with getting a new tender in France and a new tender-- a contract done with the GRC in the first half of the year, would be the first question.

The tender, I think is-- depends on how long time it will take to negotiate the tender and that's something which I think is a big question mark. But of course, the course of DRK, I feel pretty comfortable we'll have something before or in the first half.

Okay. With regard to Grifols, what percentage of the revenues both the 2.5 and the deferred revenues, what percentage of that did they make up of?

They did not -- there was not part of any of the deferred revenue to begin with. And we don't really want to give you exact rate country by country on how much we sell. We think we have people listening in on here that would like to have that information.

But is it fair to say that there were -- you expect to see them ramp?

Yes.

Okay.

Yes, it is.

Good. Thanks very much. I appreciate it.

Thanks, Matt.

Thank you. Our next question comes from Ronald Urvater with Capital Partners. Please proceed with your question.

Yes, thank you. Good afternoon, Claes and Bill.

Hi, Ron.

Quick question, in your opening remarks, you indicated in terms of the market in Europe, you made a difference between France, Germany and all the other countries which represented a fairly substantial percentage of European market. Could you give a little more detail on how you see those other countries enrolling in the program, in other words, a couple of different possibilities here. Are they all going to simply look to the lead of France and Germany and sit back and wait or B, are several of them prepared to act independently and what would the timing be in 2008 when some of those other revenue streams might begin to kick in?

So, I think part of our update was to tell you that there are a lot of things going on in individual countries besides France and Germany. I don't think in Europe that countries do necessarily take the lead from France and Germany. So, I think there are individual blood centers that carry a lot of weight, key opinion leader types. For instance, Frankfurt we think is such a center.

I didn't hear that.

The German Red Cross in Frankfurt.

Yes, okay.

It is headed by one of the -- I think foremost experts in Europe and I think other blood centers around Europe, not just in Germany would look at anything that they do as I think an important indication. But as you heard, in Spain, I think that the process there is moving forward very much independent of Germany and France. And similarly in Italy, I don't think they look to begin -- Germany and France. I think that we have --

You mentioned some other countries. Russia, Turkey, the Scandinavian countries, Belgium. Where do they all fit in this picture?

Russia is very independent. We've gotten a good distributor arrangement there. And we were pleasantly surprised I think to see the optimism that's been displayed by those distributors and the sales rate and their forecast of the future.

Russia, as you know, has benefited enormously from the oil price and there is a lot of money now in Russia, and there is a group of people that want to have access to much better healthcare than they had in the past. So, they're moving very quickly and in a sense, we think that they're jumping above or around the whole testing paradigm and going straight to pathogen inactivation.

As a last point on that question, I know you can't give any specific guidance but can we assume that sometime in 2008 we'll see contribution from these other countries in the revenue streams?

It is there already.

It is there already. Okay. I wasn't clear about that.

In '07 and we expect to see in '08, too.

Ron, without getting into percentage distribution, we have a small university center in Germany, Lubeck, the only German commercial customer we have. So, by definition, Germany is not contributing much to our historical numbers. Okay?

Great. Thank you.

Thanks.

(OPERATOR INSTRUCTIONS) Our next question comes from Brett Rice with Janney Montgomery Scott. Please proceed with your question.

Good afternoon, gentlemen.

Good afternoon.

Do you have any sense of how much prospective data the FDA is looking for and how long you think it will take you to compile that?

The straight answer is no, we don't. To the extent that we have an opinion, I think we don't want to communicate that right now. We are planning subsequent discussions with the FDA to clarify that and we would be happy to provide guidance while we think we have something more concrete to say but right now I think it is too early.

The people that you're discussing this with at the FDA, I mean they have authority to -- I mean this is real. I mean authority to bind the FDA. This is not frivolous. This is really a -- the beginning of a firm pathway to possibly regulatory approval in the U.S.?

These are the same people we've been dealing with since day one, the same office of blood review and the people we're dealing with are the staffers who are in charge of reviewing and making recommendations and then giving approvals.

Right. All right, thank you.

Thank you.

(OPERATOR INSTRUCTIONS) There are currently no questions in the queue at this time.

I would like to thank all of you for joining us today. We look forward to our first quarter conference call later this spring, and thank you for your attention today.

Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.