Cerus Corp (CERS) 2008 Q2 法說會逐字稿

Good evening, ladies and gentlemen, and welcome to the Cerus Corporation second quarter 2008 financial results. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Mr. Jason Sparks, Porter Novelli Life Sciences. Thank you, you may begin.

Thank you. Good afternoon. Cerus issued a press release today introducing Cerus's financial results for the second quarter, ended June 30th, 2008 and describing the Company's recent business highlights. You can access a copy of this announcement on the Company's website at www.Cerus.com.

Before introducing Cerus management, I would like to remind you that Company management will be making statements about commercialization progress, regulatory and governmental processes, research and development activities, finances and business prospects. The Company's actual results may differ materially from those suggested by forward-looking statements the Company will be making, and the Company assumes no obligation to update guidance or other forward-looking statements. I call your attention to the disclosure in the Company's SEC filings, in particular Cerus's quarterly report expected to be filed this afternoon, on form 10-Q and annual report on form 10-K, including the sections entitled "Risk Factors." This call will be archived temporarily on the Company's website and it will not be updated during that time.

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

Thank you, Jason. I'm joined today by Larry Corash, our Chief Medical Officer; Bill Dawson, our Chief Financial Officer who usually joins me on the call is on vacation; Howard Ervin, our Vice President, Legal Affairs; and Kevin Green, our Controller are also available for questions.

It has been another active quarter for Cerus. To begin the call, I would like to provide a high level overview of our accomplishments as well as some key external developments. First, product sales increased to $4 million during the second quarter, from $1.7 million in the same period last year. Second, we signed a long-term supply contract for the Frankfurt region of the German Red Cross. I'll share some other positive commercial developments later in in the the call. Third, in May, the Advisory Committee on Blood Safety and Availability concluded that levels of bacterial contamination in the US platelet supply are problematic. Testimony at that meeting suggested that pathogen inactivation is perhaps the only viable solution. Fourth, and to the previous point, we are actively discussing with the FDA how we might use data gathered from our European customers to support an application for regulatory approval of the platelet system in the US. Finally, we are completing the preclinical work and they're on schedule to commence a Phase 1 clinical trial later this year for the INTERCEPT red blood cell system.

In Bill's absence, I will start by going over our quarterly financial performance. The second quarter's product sales of $4 million were more than double last year's second quarter. This quarter, product sales were driven by disposable kit sales which were up 46% to $3 .5 million in the second quarter from $2.4 million the first quarter of 2008.

After adjusting for deferred revenue, product sales in the second quarter were modestly up from the first quarter of 2008. We are pleased this can be attributed to an increase in kit sales in the second quarter, representing recurring disposable sales offset by a decrease in illuminator sales. We reported a spike in illuminator sales in the first quarter, and this was the precursor to the increase in kit sales. For the six months ended June 30th, 2008, product sales were $8.9 million, compared to $2.9 million for the same period in 2007. Total revenue for the second quarter of 2008 was $4.0 million, all from product revenue, up from $3.2 million for the second quarter of 2007 which included $1.6 million of government grant revenue recognized in that quarter.

Margins were lower in the second quarter than the first. Lower margins can be attributed to our sales mix, including a higher percentage of disposable kit sales relative to illuminator sales. In addition to our customer mix, of which a large percentage were to distributors receiving wholesale pricing. Also, margins were negatively impacted by a higher cost of products sold from our manufacturer Fenwal, which we expect will level out over the course of 2008.

Total operating expenses for the second quarter of 2008 were $10.1 million, up from $9.7 million for the same period in 2007. The modest increase in our operating expenses was due to planned expansion of our sales and marketing efforts to support commercialization of the INTERCEPT blood systems.

Net loss for the second quarter of 2008 was $9.1 million or $0.28 per share. This is compared to a net loss from continuing operations of $16 million, or $0.50 per share, for the second quarter of 2007. The 2007 period included a non-cash charge of $9.5 million relating to a write-down in the carrying value of our equity interest BioOne, but excluded a $1.9 million, or $0.06 per share, in losses associated with our Immunotherapy business, which we divested late last year.

At June 30th, 2008, the company had cash, cash equivalent, and short-term investments of $39 million, reflecting $17.9 million in cash burn since the beginning of the year. Cash burn for the first half included $5.5 million in cash consumed in working capital. In June, we put in place a $10 million revolving credit facility with Wells Fargo bank. Terms of the credit facility allow Cerus to draw down funds as needed for working capital and general corporate purposes. Interest is payable either at the bank's prime rate or LIBOR plus 2%. We believe our cash balance and borrowing capacity will be adequate to fund operations into the second half of 2009.

Shifting now to a more detailed discussion of our commercial progress. I am pleased that the product sales performance was broad based. We continued to make sales to an existing base of customers and distributors in the Nordics, France, (inaudible), and eastern Europe, among others. Unlike last quarter when we sold a proportionately large number of illuninators, revenues in the second quarter were made up predominantly of platelets and plasma system disposable kits. We're pleased by the uptake in disposable kit utilization as we believe it demonstrates growing market adoption. Importantly, we have achieved this growth in kit sales without any appreciable movement on the part of the French Blood Service which remains in the budget stalemate with the Ministry of Health.

Now I want to expand on progress in two countries - Spain and Germany. As you recall, last year we announced a distribution agreement with Grifols, which has a market leading position in Spain's transfusion medicine market, and business relationships with the country's 18 regional Blood Centers. In less than one year after signing on to distribute the INTERCEPT blood system, Grifols is supplying INTERCEPT to Blood Centers serving more than 30% of the Spanish market. Grifols is also our distributor in Portugal and most recently Chile. The adjustable markets for platelets and plasma in Spain and Portugal is estimated at $35 million. An opportunity comparable in size to France. We're pleased with Grifol's progress and expect further penetration of their territories in the coming quarters.

During the second quarter we also signed our potentially largest commercial contract to date. In June, we agreed to a three-year contract to implement the INTERCEPT system for the German Red Cross in Baden-Württemberg-Hessen, in what we refer to as the Frankfurt region. This region represents the largest group of independent Blood Centers in Europe. The value to Cerus of the contract over three years could be as high as $20 million. The three-year term and commercial sales will begin after the Frankfurt Red Cross gains marketing authorization from the Paul Ehrlich Institute, or PEI, and completes an experienced study. The Frankfurt Red Cross has received and already responded to questions from the PeI for their application for marketing approval. They have also begun deployment and training at their Blood Centers.

This agreement is a significant win for Cerus, as the Frankfurt region of the German Red Cross is viewed as a leader in the international (multiple speakers) community. The President of the Frankfurt Red Cross is also the current President of the International Society of Blood Transfusions. (multiple speakers) Our expectation is that adoption in the Frankfurt region, which makes up roughly a quarter of the German blood supply, should lead to adoption by others in Germany and will have a ripple effect across western Europe.

We are continuing to expand our geographic reach. As we announced last week, we signed distribution agreements in Poland, Indonesia and Chile. I am particularly pleased that Grifols, our distributor in Spain and Portugal, proposed a geographic expansion to their territory by adding Chile, where they also have a strong presence. Through the efforts of our new distributor in Poland our reach into eastern Europe has been expanded, while the agreement in Indonesia gives us broader reach into the Asia-Pacific region. Together, these new regions give us an estimated $25 million in new market opportunities for the INTERCEPT platelet and plasma systems.

To touch briefly on France, there continues to be budget stalemate between the French National Blood Service and the Ministry of Health. The French Minister of Health has publicly expressed concern about the potential for the Chikungunya virus to spread into continental France. Timing of a budget resolution in France is out of our control and we're not in a position to make any projections. However, we see the expressed concern in France as an encouraging sign that additional funds may be made available for INTERCEPT. The INTERCEPT product has performed well in the four regions we have been marketing in France and we expect adoption into additional French territories in due time.

In summary, we've made substantial progress in the second quarter. We are now marketing in 30 countries and we have shipped more than 200,000 kits. We're making very significant progress in Spain, Germany and eastern Europe, and we're continuing to reach into other markets, such as Indonesia and Chile through distribution agreements. We will continue to seek out commercial opportunities worldwide as interest in INTERCEPTs and pathogen inactivation grows.

Now, I will turn the call over to Dr. Larry Corash.

Thank you, Claes. This year's International Society of Blood Transfusion Congress in Macao, China confirmed Cerus as the leading company in pathogen inactivation. With our clinical collaborators, we presented 32 studies on the INTERCEPT blood systems.

I would like to provide some greater detail on several key studies that illustrate the impact of the INTERCEPT system on healthcare outcomes. Firstly, in a growing post-marketing experience study, the safety and efficacy of platelet products prepared with the INTERCEPT blood system were confirmed in a multi-year, multi-national active hemovigilance program based on surveillance of roughly 16,000 INTERCEPT platelet transfusions. Two unique studies compared the economic and clinical impact of the INTERCEPT platelet system to conventional platelet components in routine use.

In a Belgium tertiary-care hospital, during a three-year period, nearly 8,000 INTERCEPT platelet transfusions were given to a broad patient population for a spectrum of indications, in comparison to over 6 ,800 conventional platelet transfusions in a prior comparable three-year period. The INTERCEPT treated platelet components were well tolerated and did not increase per-patient utilization of blood products. Importantly, INTERCEPT avoided adoption -- avoided implementation of testing for bacterial contamination, replaced gamma irradiation, enabled seven-day storage of platelet components, and replaced testing for cytomegalovirus, known as CMV. This latter point is especially important as CMV negative platelet components are frequently in short supply. With INTERCEPT, wastage rates in this center declined from 9% to 1%. Thus INTERCEPT increased available platelets supplies and reduced costs due to wastage.

A second study by a regional French Blood Center compared the utilization and safety of over 13,000 INTERCEPT platelet components with over 10,500 conventional platelet components during two 1-year periods. With INTERCEPT, this center observed a 74% reduction in acute transfusion reactions. And similar to the experience in Belgium, this center avoided use of bacteria testing, replaced gamma irradiation, and replaced CMV testing without increased utilization of blood components. Data from these types of studies provide a compelling rationale for INTERCEPT.

Another study by the EFS-Alsace regional Blood Center evaluated the routine use of INTERCEPT plasma to replace quarantine plasma. The study concluded that the INTERCEPT plasma system effectively replaced quarantine plasma to meet the needs of the entire region. In fact, with INTERCEPT, the inventory of plasma available for transfusion increased due to elimination of the quarantine inventory resulting in decreased operational and energy costs.

Turning to the United States, we presented at the May meeting of the Advisory Committee on Blood Safety and Availability. This is a standing committee of the Department of Health and Human Services, HHS, and a representative of the FDA is a permanent member. As a follow-up to a January session, the meeting in May dealt with how policy-makers should respond to the ongoing problem of bacterial contamination in the US blood supply. Data presented at the May meeting confirmed the prevalence of bacterial contamination in platelet products and that it was greater than previously recognized. And the incidence of sepsis and other adverse transfusion reactions were under-reported in the United States.

The Advisory Committee also heard invited testimony from Dr. William Murphy, National Medical Director of the Irish Blood Transfusion Service. He reported a study showing that routine bacterial testing only detected 29% of contaminated platelet units. When asked what action he planned to take based on these data, Dr. Murphy advised the committee that he had recommended implementation of pathogen inactivation as the best available solution to the problem of bacterial contamination. In a July response to the recommendation for pathogen inactivation provided by the Advisory Committee, the assistant secretary of HHS emphasized the department's commitment to the development and validation to pathogen inactivation technologies, urging that this additional layer of security to blood safety become a reality.

On our Q1 conference call, we communicated that the FDA is now open to reviewing data from commercial use of the platelet system in Europe. These data, together with data from our Phase 3 SPRINT study, may be supportive of a product approval in the United States. We've spent the last several months understanding the depth, breadth, and quality of the data we can derive from the European databases. We recently submitted a proposal to the FDA to gather and analyze commercial use data and we are now engaged in active discussions with the agency about that proposal.

With respect to our red blood cell program, we've made considerable progress through extensive pre-clinical in vivo and in vitro studies with our modified system to support reentry into the clinic. Also, we conducted market studies and held focus-group meetings with potential customers to validate the feasibility of our modified red cell process for implementation in routine use. Market research has led us to an important change in the clinical, regulatory and commercial strategies for red cells. The worldwide addressable market for pathogen inactivation of red blood cells is approximately $4 billion. Of that market, 80%, or $3.2 billion, is from the use of red cells for support of acute anemia related to cardiac surgery, trauma, organ transplantation and other major surgical procedures. Transfusion of red cells for chronic anemia indications, such as sickle cell anemia and thalassemia, make up the remainder of the market.

We now intend to pursue an acute anemia indication for our red blood cell system supported by clinical trials and a regulatory process independent of the chronic anemia indication. This strategy is designed to pursue a more rapid and less expensive pathway to commercialization for a substantial segment of the market. Because of our prior clinical success with the acute anemia indication, we believe we can enroll fewer patients in a new Phase 3 trial more quickly than required for a chronic anemia indication. And with a more straightforward demonstration of safety and efficacy. Importantly, customers and regulators have given us encouraging feedback regarding this approach.

While it is ultimately desirable to have a system approved for both indications, the market appears to be eager to adopt pathogen inactivated red cells for the predominant acute anemia indication before a chronic indication is approved. We expect to begin a Phase 1 clinical trial to measure the viability of red cells treated with the modified process in Q4 with completion by mid 2009. We've commenced work on the design of Phase 3 trials for both acute and chronic indications, including both US and European site selection.

I'll now turn the call back to Claes for concluding remarks.

Thank you, Larry. In summary, Cerus has established itself as the leader in pathogen inactivation. The accomplishments we've discussed today point to progress on each of our three value drivers. Those being commercial sales of the INTERCEPT platelet and plasma systems, the finding a pathway towards approval of the platelet system in the US, and clinical development of INTERCEPT blood systems for red blood cells.

Operator, I would now like to open the call for questions.

Thank you. Ladies and gentlemen, we will now be conducting a question and answer session. (OPERATOR INSTRUCTIONS) Our first question comes from the line of Daniel Owczarski with Avondale.

Thanks. Good afternoon, Claes and Dr. Corash. I was hoping that maybe, Dr Corash, you can speak a little bit more on this focus on chronic and not going after the acute anemia so much. Or at least separating it out to the chronic patients. Can you talk about what that does to a Phase 3 study as far as either complexity or patient size or length or how much easier it makes it, you know, to focus out those chronic -- to do that chronic arm?

Well, let me just emphasize that our first indication is for acute anemia which is the largest part of the addressable market. So our strategy, to be very clear, is to focus on the acute indication and then follow on with the chronic indication.

Now, for the acute indication, we did an earlier Phase 3 clinical trial which, although we terminated it early because of an antibody response in one patient in our chronic trial, we were able to meet our primary end-point. So we have valuable data from that trial to use in support of a registration process. So we are now looking at an additional Phase 3 clinical trial for the acute indication that would be smaller in scope than our initial acute trial. And also smaller in scope than the subsequent trial that we will do for chronic anemia, which we believe can be accomplished more quickly and get us to the regulatory process.

I think you were clear. I think you just -- I obviously misspoke. But could you give us any order of magnitude -- what kind of -- how much smaller patient size or how much easier this would be for the acute?

Well, first of all, let me say that our experience in the prior Phase 3 clinical trial was at the acute trial, because it only involves seven days of transfusion support, was considerably easier to achieve and enroll than the chronic trial. Remember that the chronic trial required six months of support in one arm and then crossover to the other arm. So until we have definitive discussions with the regulatory agencies on the size of the study required to complete this registration, it's premature to comment on the size. But I will say that seven days of transfusion support is much easier for us to manage. And cardiac surgery patients and other surgical patients are much more widely accessible to us than thalassemia and sickle cell anemia patients.

Great. Now, just to switch a little bit, Claes -- you had the nice announcement with the new distributors in Chile, Indonesia and Poland and do you expect them to be purchasing illuminators to have equipment in stock right away?

There will be definitely some fairly small but, nevertheless, there will be some purchases up front so that they can satisfy any customer demands right away.

Okay. Any idea on what type, what numbers, or give us an idea of how many illuminators would be interested in?

First of all, I don't think we have any of those sales happening in Q2, so they will happen in Q3. But I don't normally, we don't give out numbers. But they're not more than, I would say, combined more than a couple of hundred thousand dollars or so.

Okay. And then just last question -- You talked about increasing your investment in sales and marketing. Could you give us anymore details about that?

Well, you know, during the course of '07, we were building up our forces in Europe. So when we compare quarter over quarter spending, of course we now have a larger number of people, so that's an important factor in and of itself. And we also -- as we pay people in Europe, we pay them in Euros, and, as you know, that hasn't become cheaper over the years as well. So it is part of our planned expansion that we're building up the team. As a consequence of that, they will cost more money.

Okay. Thank you.

Thank you. Our next question comes from the line of Liisa Bayko with JMP securities. Please proceed with your question.

Hi there. Congratulations. It looks like things are pointed in the right direction. Phase 1 for red blood cells -- can you give us an update on the status of when that will start?

Well, our current projection is that the next Phase 1 clinical trial will start in the fourth quarter of this year.

And then is it possible to give us a breakdown in terms of sales between the plasma and platelet sales?

We haven't gotten into that much detail yet, Liisa. Maybe one day we will. But, for the time being we're just reporting all sales -- (inaudible). We break it down to illuminators and kits, but that's as far as we go.

Okay.

But platelets are the predominant sale. That much I can tell you.

And what are the regions right now that are sort of adopting it at the fastest rate?

I think that this last quarter certainly we saw very profitable developments in Spain, as we mentioned, and we're seeing, I would say, a lot of interest now, broad based, in several parts around Europe as well as through our distributor networks. I wouldn't single out any particular region to be hotter than the other. But I think the announcement of our deal with the German Red Cross has clearly been noticed by a number of centers that are now coming to us and are showing more interest.

And then Germany, we're just -- are we still just waiting for Germany to -- for the Frankfurt region to give their final stamp of approval?

Since the last quarterly call, as you may remember, they were waiting to hear back from PEI on their marketing authorization application, so they now have heard back and been provided with a list of question around that application. They're mainly of, I would say, a bureaucratic nature. But they still need to be responded to. And those responses have now been prepared and submitted to PEI. So I think we're in the final leg of the approval process now with PEI. But I'm not going to sit here and guess on a specific date when they will have the approval.

Okay. Fair enough. And then are we still tracking third quarter to get an update on your regulatory strategy for the US?

I think we're going to give ourselves to the third quarter conference call just to make sure we have as much information as possible.

Okay. Great. And then one final sort of technical question, I just noticed your investment income or that other income line item went down significantly. Can you just maybe explain what's going on there?

That's probably -- well, Kevin, you're on the line. I think this has got to do with our interest rate goes down as we start burning through cash, so we have less interest because we have less cash in the bank. But also I think we've taken a few adjustments on our investments just to make sure that we're conservative in our portfolio. As you know, many of our investments are subject to the credit market upheaval.

That's right, Claes. So we've got a couple of factors. We've got lower investment balances. We've got lower yields. And we also got out from under a couple of mortgage-backed big investments.

Okay. So you won't have anymore?

All right. Thanks.

Thanks.

Thank you. Our next question comes from the line of Chris Raymond from Robert Baird. Please proceed with your question.

Thanks, guys. Maybe to kind of continue along Liisa's line with a little bit of detail -- You guys have talked a lot about progress ex-Europe. And I know you might not be willing to break it out. But can you kind of give directionally where your revenue base is, Europe versus ex-Europe, now and maybe compare it to how it was at the end of last year?

It really fluctuates a lot quarter over quarter, Chris. I think that this last quarter was actually -- the strongest single country was Spain. So this last quarter I think if it was more western Europe than eastern Europe. Last quarter Russia was the leading country. So I think what we're seeing is still quarter over quarter fluctuations.

So is it still Europe that dominates? Because you've talked about Kuwait?

Yes. Europe -- certainly if you include both east and western Europe, Europe is, by far, the dominant market for us.

Okay. And then also just to clarify the situation in Germany. I know you're waiting for PEI's approval and you mentioned that they had some questions. You also have talked about, in your press release today and also previously, the completion of a hemovigilance trial. Is that a German-specific trial, or is that the program that Larry was referring to or is it something --? What's the time line for that? Is that the gating factor? Maybe just give us a little detail because it's unclear to me if you're waiting for that or if you're waiting for the questions to be answered or really what is holding it up?

No. That trial is planned to start pretty soon. It's a specific trial for Germany, specific for the Frankfurt Red Cross. And this is something we agreed with them at a stage when we felt it was useful for them to develop their own specific data together with their customers to illustrate the impact of INTERCEPT on transfusion reactions, which I think is an important argument when they switch to INTERCEPT treated platelets. But that's the main purpose of that trial. And it will start as soon as they have the PEI approval. They already have the kits and the illuminators ready and they're good to start as soon as that happens.

So wait. You can't start selling products until it's completed?

No, we can't. But we think that's going to be -- that's why we have been saying that we don't expect sales under the terms of that agreement to start until 2009. So they will be going through three kits and collecting the data in the rest of this year.

Oh. Not until 2009? .

Yes.

Okay. And so also maybe just to ask a little bit about the US, I just want to make sure, has anything changed between today and May 2nd when you had your the last call? I know you discussed that -- your open discussions with FDA and I think the next catalyst, as I understand it, in the US, is to announce a plan in the third quarter.

Yes. So what has changed between May and now is that we have submitted a proposal to the FDA, a specific proposal, and we have began the discussion around that proposal. So that is a step forward. And that doesn't mean we have a conclusion yet. But we're making progress.

Okay. And but -- and I just want to understand. So you just said that you would have something to say about this on your third quarter call. When I went back and looked at what you said in May, you said you would have it in the third quarter. So can you assume that that's a little bit of a delay?

Well, I'm just -- I don't know whether -- it really depends, Chris, on what the outcome will be. So I don't want to -- you know, if we have an outcome that is of a nature that it warrants a press release, we might do it in the third quarter. If we don't have an outcome that warrants a press release, we'll probably comment on it in the call. So I don't think it signifies a delay right now.

Thank you.

Thanks.

Thank you. Our next question comes from the line of Brett Reiss with Janney Montgomery Scott.

Good afternoon. Thank you. Could you tell me how many illuminators were sold in the second quarter versus how many in the first quarter?

Kevin, do you have those exact numbers?

I do, Claes. So with the -- excuse me, with the impact of the deferred revenue, six illuminators were sold in the second quarter as opposed to 23 in the first.

Forgive me. Say the number again in the second quarter.

In the second quarter, including the impact of any deferred revenues, it's six.

Right.

And in Q1 it's 23.

Okay. And one other question, if I may. The decision that you make to cover a region using a distributor versus your own direct sales force, can you kind of walk me through why you use one or the other?

I think -- the decision-making process is really that we're saying some markets are core. We think that they are of such critical mass that we can cover them effectively and somewhat economically well with our own people.

Right.

If you talk about a country like Russia, it is culturally as well as geographically very disperse. And even though it's a significant market potential, I think we would be requiring -- I think a big challenge for us to be able to banish that and we're happy to work through a distributor there. So I think we make those decisions based on, basically, market-to-market decisions.

One comment on the illuminator sales. I think it's important to point out that occasionally we place illuminators without selling them. And we collect the money for those in the form of a surcharge on the kits over some time frame.

Right.

So illuminator sales -- it's not always a measurement of how many new customers we have converted.

Oh, well, did you place illuminators in the second quarter over and above the six that you just stated?

Yes, we did. Oh, okay. I don't have the number in my head actually but we did.

Okay. And you did the same thing in the first quarter as well?

I think we did, yes.

Okay.

So that's partly why illuminator sales appear to be a little bit more lumpy also.

Okay. All right. Thanks for answering my questions.

Thank you.

Thank you. Our next question comes from the line of [Ira Socket] with [Socket] (inaudible). Please proceed with your question.

Hello, Claes. If you're going to be starting your Phase 1 trial in the fourth quarter of this year and Phase 3 trial next year, and you got budget pretty good on what you're going to be spending, can you give us -- it's a two part question -- Roughly, what kind of cash burn you're anticipating going past into 2009? And whether or not you're talking to any partners, prospective partners, on the blood cell part of your operation?

Okay. So we haven't actually said 2009 For Phase 3. Larry mentioned, we're still working on the design and review with regulatory bodies, so we're going to give more guidance as we have that clear. But we certainly are planning to get it started as quickly as we can once we have the Phase 1 trial results.

So to your second question, there are a number of interested potential parties in our red cell program. Maybe the most -- in my view, most attractive of them is the US Government. They've been, as you may recall, supporting our work with grants over the years. And I think, to date, we have collected more than $40 million in grants from the US Government. So we're hopeful that they -- we certainly hear indications that they are interested in continuing supporting our red blood cell program. But I don't know -- we don't know and don't want to speculate about what kinds of amounts would be forthcoming from them right now. In addition to that, there are people that we are in touch with, the list of potential partners is actually not huge, but it's nice to have people who are showing more interest in this.

So part of our business model is to look at partners that can help us, either by financing or by a combination of financing as well as potentially getting rights to geographical territories that we wouldn't consider as being core. So that's also ongoing discussions. But I don't want do give you the idea we're about to announce any agreement any time soon. So we still have a long way to go.

Okay. Would 2009 -- do you feel comfortable that you can get through the first half without having to go beyond that $10 million loan?

You know, we haven't given guidance on cash burn even for 2008, nor for 2009. So we're comfortable that we have more than 12 months worth right now. So that gives us time to explore a lot of different alternatives.

Very good. Thank you.

Thanks.

Thank you. Our final question is a follow-up from the line of Daniel Owczarski. Please proceed with your question.

Just a quick follow-up. You started touching it on it a little bit, Claes. I wanted to talk about government grants, government contracts, and if the outlook for this year has changed any. Is there any more opportunity than when you last spoke after the last quarter's conference call?

There are opportunities. But I don't think they will have an impact on our cash flow in '08. The nature of these grants is that they have a certain process they have to go through. So even once the grants are approved by the Senate and Congress, they have to work their way through a fairly bureaucratic process. So we have pretty good visibility on what we expect to get. And what we're hopeful now is that there will be grants that will be approved later this year that will help us in '09 and 2010. So we hope to have some visibility of what the grants will be before the end of the year, but in terms of cash flow they will not be in '08 but rather '09 and 2010.

Okay. Thank you.

Thank you. At this time there are no further questions. Gentleman, do you have any closing comments?

Well, I want to thank you all for joining us today. We look forward to updating you on our third quarter conference call in late October. Thank you.

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