Cerus Corp (CERS) 2008 Q3 法說會逐字稿

Welcome to the Cerus 2008 third-quarter financial results conference call. At this time, all participants on a listen-only mode. Following management's prepared remarks we will hold a question-and-answer session. (Operator Instructions).

As a reminder, this conference call is being recorded today, October 30, 2008. I would now like to turn the call Jason Spark of [Porter Novali] Life Sciences, the investor and public relations firm representing Cerus Corporation.

Thank you. Good afternoon. Cerus issued a press release today announcing Cerus's financial results for the third quarter ended September 30, 2008 and describing the Company's recent business highlights. You can access a copy of this announcement on the Company's Web site at www.Cerus.com.

Before introducing Cerus management I would like to remind you that during this call, Company management will be making forward-looking statements about commercial progress -- commercialization progress including product adoption, sales in gross margins, regulatory and governmental processes, research and development activities, cash consumption and business and financing prospects. The Company's actual results may differ materially from those suggested by forward-looking statements the Company will be making. 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 most recent quarterly report filed 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 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, Jason. I am joined today by Bill Dawson, our Chief Financial Officer and Larry Corash, our Chief Medical Officer. To begin the call I would like to provide a high-level overview of key developments since our last earnings call.

First, product sales were $3.1 million in the third quarter, up from the $2.8 million during the same period last year but down from the $4 million recognized in the second quarter this year. The pace of commercial penetration is below our target but we expect to finish the year on an up note.

Second, we're taking aggressive steps to extend our cash runaway through the end of next year. These include focusing our spending on commercializing the answers that system in Europe and initiating a small but important Phase I trial in (inaudible).

We do have growing sales and expanding gross margins. We're managing our costs very conservatively and expect our cash burn to come down significantly. We're focusing on growing our business in a sustainable manner.

Third, we have made progress with the FDA in defining a pathway forward for submitting European commercial data to support US approval of our [platelet] system.

Fourth, we signed an important agreement with the Frankfurt region of the German Red Cross to collaborate on the development of our red blood cells system. We expect to initiate a Phase I clinical trial of the modified blood cell system this quarter.

Finally, external developments continue to indicate that pathogen in activation is now being endorsed by the international blood banking community including the recent recommendation by a committee of the German Health Ministry.

Before turning the call over to Bill for our financial highlights I do want to mention that while our revenue for the quarter did not meet our expectations, Cerus's fundamental business is improving. We have continued to make progress with our three value drivers, including commercializing the Intercept platelet and plasma systems, further defining a pathway toward approval of the platelet system in the US, and continued development of the Intercept red cell system. Bill?

Thanks, Claes. Product sales in the third quarter were $3.1 million up from $2.8 million in last year's third quarter. Growth came from sales to distributors primarily in Spain.

The current quarter's product sales were down from for making dollars in the second quarter due to the affects of seasonal slowing in Europe. Through the three quarters of 2008 product sales were $12 million, up 113% over the $5.6 million of sales in the first three quarters of 2007.

Product sales over the last 12 months have now reached $14.4 million dollars. Total revenue for the third quarter of 2008 was $3.9 million. up from $3.2 million for the third quarter of 2007.

In addition to product sales, we recognize $787,000 of government grant revenue in the current quarter versus $114,000 of grant revenue in last year's third quarter. Total operating expenses for the third quarter of 2008 were $9.6 million, essentially flat, from the same period in 2007. Margins on product sales net royalties to Fenwal were 38% in the third quarter, down slightly from 39% in last year's third quarter when the Company's sales mix included a higher percentage of illuminator sales relative to disposable kit sales.

Margins on product sales for the first three quarters 2008 were 44%, up from 37% in the comparable period in 2007, due to both higher disposable kit volume them and proportionately more illuminators sold in 2008.

Net loss for the third quarter 2008 was $8.8 million or $0.27 per share, compared to a net loss from continuing operations of $6.8 million or $0.21 per share for the third quarter of 2007, which excludes $2.4 million or $0.08 a share in losses associated with the Company's former [immunotherapy] business which was reported as a discontinued operation in 2007.

At September 30, 2008 the Company had cash, cash equivalents and short-term investments of $29.5 million reflecting a $27.4 million cash burn since the beginning of the year.

Cash burn from the first three quarters included $5.5 million in cash invested in working capital.

As Claes mentioned, we are taking action to conserve our cash with the objective of extending our run rate through the end of next year. In addition to focusing our spending on key value drivers, we're managing our working capital tightly. While the capital markets as we all know are terrible, our fundamentals are improving. So we will be opportunistic around raising capital in the future.

I will remind you that we are [unpartnered] save for Asian rights to our Platelet and Plasma Systems. As the Intercept platform gains more widespread acceptance, we expect partnering interest will improve as well.

And earlier today we filed with the SEC a $200 million universal shelf registration statement replacing an existing shelf we had had in place since 2001 that was set to expire on December 1. Maintaining a shelf registration continues to provide us the flexibility to complete financing sufficiently and quickly.

I will now turn the call back over to Claes who will provide an overview of our business.

Thank you, Bill. I will start by stating that we are not satisfied with product sales achieved in the third quarter.

(Funds) are falling short of our expectations presently due to the lack of progress in France. In response, we have implemented organizational changes in our French operation. These changes have led to a more active dialogue with [EFS], the French National Blood Service.

We are cautious about reporting any progress prematurely since the EFS has failed over the past year or so to deliver our stated goals and timeliness with respect to adoption of the Intercept Platelet System. However, we believe that there is a chance that funds will be budgeted for implementation of [passage of an activation] for platelets starting in 2009.

We also won a small but important tender for a supply of Intercept to the French army, demonstrating the utility of Intercept in military applications. The Platelet System continues to perform well in the four regions which have implemented the technologies and the Plasma System has now been in use for more than one year in the EFS [Alsace] Regional Blood Center with good logistical and clinical outcomes.

The absolute rate of new customer adoption was comparatively slow during the quarter, affected by the summer vacation season. However, our exclusive distributors, Grifols, continues to expand Intercept penetration of the Spanish market. Since signing on last year to distribute the Intercept Blood System, Grifols now supplies Intercept to blood centers serving more than 30% of the Spanish population.

Grifols is also our distributor in Portugal and, more recently, Chile. Remember that the addressable market for platelets and plasma in Spain and Portugal is estimated at $35 million, essentially equal in size to the market opportunity in France.

We are also seeing continued to adoption in Italy, Eastern Europe and the Middle East. I am optimistic about the near-term future.

Let me expand on the market dynamics in Germany, as an example. In June the Frankfurt region of the German Red Cross, Europe's largest private collective of blood banks signed a three-year supply contract for the Platelet System. The value of the Platelets contract over three years could be as high as $20 million.

A marketing authorization from the [Paul Ehrlich] Institute is a precondition to the Frankfurt Red Cross beginning to use the Intercept Platelets System. We understand that advanced discussions are underway between the Red Cross and PEI now focus narrowly on processing parameters as the final step before issuing market authorization.

I believe the most important development that will support accelerating adoption of Intercept in Germany is a recommendation from the A.K. Bluth and Advisory Committee on the safety and supply of blood within the German Ministry of Health.

A German study found that platelets recipients run a risk of approximately one in 70 of receiving bacterially tainted blood. In response, the A.K. Bluth issued a recommendation to reduce storage life of conventional platelets from five to four days.

Clearly a reduction in storage time does not prevent transfusion transmitted bacterial infections. It only reduces the overall bacterial load that could lead to sepsis from transfusion of platelets. In contrast, pathogens activation prevents transfusion transmitted bacterial infections.

The most meaningful point for Cerus is the sole exception to the A.K. Bluth recommendation are platelets treated with pathogen [inactivation] which can continue to be stored for five days.

Let me elaborate on the importance of the reduction of storage time. Currently platelets are stored for a maximum of five days. Shortening the storage time by one day not only reduces supply but could increase wastage by an estimated 15%. This would translate to a yearly loss in Germany of approximately 50,000 platelets doses worth $18 million.

Thus, adoption of Intercept treated platelets with five day shelf life will have a substantial favorable impact on blood center economics and platelet supplies.

As the leading group within the German Red Cross, the Frankfurt region has come to understand the economic and clinical advantages of Intercept. Now that A.K. Bluth had issued this recommendation, we have seen a strong increase in interest from other blood banks in Germany. We expect that blood centers responsible for 60% of German platelets production will have deployed the Intercept Platelet System by the end of 2009.

Belgium is also moving toward adoption. In the quarter the Belgium High Council of Health recommended the use of pathogenic inactivation for platelets. We are now hopeful that the Royal decrease for reimbursement that we had been waiting for may be published by year end. We have already assisted blood centers in preparing for adoption of the Intercept Platelet System. So we expect topline contributions from Belgium sales early next year.

We also expect that the Irish National Blood Service will adopt the Intercept System. As in Germany, a study in Ireland revealed unacceptably high rates of bacterial contamination in the platelets supply. Consequently, the head of the Irish Blood Service has elected to adopt inactivation and Intercept is the only pathogen inactivation the Irish have found meets their clinical and commercial requirements.

Validation of the Intercept system is now underway, while budget discussions proceed. We expect that increasing adoption in Ireland, Spain, Germany and Belgium will put pressure on France.

While blood centers have taken incremental steps in lieu of bold advances the direction is clear and the impact of the recent AK Bluth recommendation, the decision of the German Red Cross to adopt their Platelet System, and the overall focus on bacterial contamination is driving a new consensus around the priority of pathogenic inactivation.

I will now ask Larry Corash to comment briefly on our other two value drivers' progress with the FDA and our red cell program.

Regarding our second value driver, we have made good progress with the FDA in understanding what we will need to do to obtain regulatory approval for the Platelets System in the United States. As you recall the FDA agreed in January to consider data from commercial use of the Intercept Platelets System in Europe in lieu of requiring we conduct yet another US Phase II clinical trial.

Early this summer, we submitted a proposal for collection of European data. After an internal review, the FDA responded with proposed changes to our submission. The FDA is engaging with us to arrive at a mutually acceptable path forward. We have had several interactions with key members of the FDA's review staff to discuss data gathering protocols and end points.

Based on these discussions we now believe prospective collection of European data will be sufficient to meet the FDA's requirements. We expect we will be able to compile, analyze and file these data for less than $5 million.

Once we have written agreements with the FDA on a protocol, we will provide guidance to investors as to the timing. With respect to our third value driver, we are about to take a significant step forward with our red blood cells system. We expect to initiate a Phase I trial, using the modified system this quarter.

The trial is small and inexpensive but well-powered, requiring 28 healthy volunteers at two centers in the United States and is expected to be completed within the first half of next year.

As with past trials, we will be measuring post-transfusion circulation and lifespan of treated red blood cells in comparison to untreated red cells. Presuming that the trial goes well, regulatory bodies concur with our development plan and sufficient funding is available. We would expect to begin a Phase III trial in 2010, with potential CE Mark certification as early as 2012. A portion of the future cost to the red cell program may be covered by Department of Defense funds, already in the federal budget.

As disclosed on our last call, we intend to pursue a regulatory approval pathway for our system first for acute and indications followed by approval for chronic anemia indications. Recall that in our prior Phase III trial with the original system we met our end points in the acute anemia trial. So we are optimistic that we can repeat that result in the new trial.

The acute anemia indication makes up 80% of the $4 billion worldwide adjustable market opportunity for red blood cell pathogen inactivation. During the third quarter we announced an important collaboration with the Frankfurt region of the German Red Cross for the development of our red blood cell system.

The German Red Cross will contribute personnel at its own cost in support of commercial product development, which we value in the single digit millions. Importantly, they are consulting with us to ensure that our system is compatible with blood center operations throughout the international blood banking community. They were motivated not only by a desire to make their blood supply even safer but also because their diligence revealed that the Intercept Red Blood Cells System is superior to other approaches.

With that I will turn the call back over to Claes for some concluding remarks.

Thank you, Larry. There's been a perception among blood bankers that the blood supply is safe. Recent events with emerging pathogens and study of bacterial contamination have fundamentally changed that perception.

The blood supply is not safe enough and pathogenic inactivation is the solution. We believe a heightened sense of urgency as illustrated by the AK Bluth recommendation will lead to accelerated adoption.

In summary, I'm very encouraged by what's happening with Intercept antimarket and I expect a strong fourth quarter. Step-by-step we are making progress on each of our three value drivers, and we are conserving cash to ensure that we can reach significant points of value creation with our current resources.

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

(Operator Instructions). Lisa Bayko, JMP Securities.

Can you talk about the split between disposable kits and the illuminator units?

I think we want go away from giving you exact numbers (inaudible) and just guide on the break down in sales between this -- and percentage of overall sales. Bill, do you have any data on that?

Lisa, illuminators made up less than 10% of total.

Okay, great. And then in terms of your cash runway, I know you mentioned second quarter; and now, you have the shelf. Before you had talked about your strategy of a revolving line of credit which I know you have from Wells Fargo for $10 million.

Is that still your approach going forward? How should we think about this shelf that you just filed?

Lisa, the shelf is simply to replace the one we've had since 2001. Any [filer] that had a shelf up from 2005 or prior has their shelf expire on December 1. So, we replaced ours and I suspect many others.

That is not signaling a change in your strategy?

No, it's not. As we said in our prepared remarks maintaining a shelf provides us flexibility to do financings quickly and efficiently. And what we said on the call about having the objective of extending our runway through the end of the year is without benefit of financings.

(inaudible) credit line.

I noticed you had a negative balance for your interest and other income line and it has never been that way before. But you did not use any of your revolving credit. So, what is the terms of that?

We had a $[1.3] million loss from foreign currency this quarter. The dollar has gotten a little stronger.

And then -- sorry if I'm just asking a lot of questions here. The written agreement with FDA that you want to obtain before starting those trials. I know you can't give us timing on the trials but can you give us some general parameters about how to think of when that agreement might be reached?

You know it's something we had hoped to have before the end of the year but I think we will take the time necessary to make sure we have a protocol that we think is a practicable feasible, doable patent and that will give us a minimum amount of risk. I think whenever you go into collecting data from phase for setting, there's always some risk of confounding factors and we want to minimize that.

So we want to be sure we have the protocols. I think what we're finding with the [FCA] is the constructive dialogue even if it may take longer than the end of the year, I think it is worth it to get to a safe protocol.

So, is that maybe like a first-half '09 would you feel pretty confident with that range?

I think we would expect to have that nailed down in the first-half. We are already building the structure in Europe and looking at how we will do this. But I think that would be a reasonable time frame to get that in writing.

Great. And then if you can just walk through what gives you confidence? You mentioned you're pretty confident about Belgium starting to have some topline contribution in the beginning of the year. And then Germany, fully using Intercept for platelets by the end of '09. And France, you have a new team there.

Can you walk through each of those regions and tell us, specifically, what is giving you confidence you are going to be able to achieve those?

I think starting with Belgium, it is simply the process that has been going on there in getting this royal decree, which is necessary for reimbursement. It's now advanced to a stage where it is very, very close to completion and I don't see any major obstacles for that process to be completed.

It was -- for a while there was political turmoil but that is settled down now. And there is a ministry in place and we have this High Council recommendation which was also an important factor.

So it would be hard for me to see anything stopping that process from leading to a royal decree which would provide the necessary reimbursement that the Belgians are looking for.

With regard to Germany, this is really reflecting the level of activity we see from customers. So we talked a lot about the Red Cross in Frankfurt and they are the lead in this. But there are now several other Red Cross operations as well as university centers, plus the privately owned operator in Germany that are all proceeding forward with either obtaining the necessary manufacturing licenses or already having those proceedings with application for the marketing licenses for the PI.

So we again take great comfort in the fact that they wouldn't go through that exercise if they did not have the intention to start using the product.

Okay.

And finally France, I hesitate to say too much about France because we have been somewhat negatively surprised by the events in the past. So I think the new team has gotten off to a good start and we're getting information now that I think is accurate and good.

But that is all I'm going to say about that.

Okay and then to get to get back to Germany. You talked about Frankfurt and there's other Red Cross private blood banks and the university centers. If you think about the ones that are actually in the process of filing these marketing our manufacturing license applications, what percentage of Germany are we talking about?

On the call we said we actually expand expect by the end of '09, 60% of the German platelet supply. Operations that we presented in the market will have begun deployment.

Okay. And then so just thinking about how -- this is my last question -- how the sales trend looks. With a decrease in sales was driven by France does that mean they have matched out their initial contract with the guys or are they just not using as much? What is the deal?

I think, to be clear, first of all we decreased compared to second quarter but we actually increased year-over-year. And in France, so the disappointment was compared to what we had expected from Q3 we would've expected France would begin deploying in more centers than they had. So that was our disappointment or the main source of our disappointment for Q3.

The demand is actually rising in France in the centers. But total number of units of platelets and plasma units notes in France that will be transfused in 2008 will increase anywhere between 5 and about 8% over 2007.

Okay. I guess my question is that if the sales quarter-over-quarter are down what is bringing that down?

Part of it bringing you down in Q3 was seasonality. As you know, the Europeans tend to take three to four weeks off in the third quarter and they did that this year too. When that happens you have of course you have a reduction in any kind of plant procedures that would require [transfusions].

And the other thing that affects the third quarter seasonality have an effect as well on validations going on with new customers. They are reluctant to begin a validation process that would take more than one month. They won't start it in July and will see personnel go home in August and then come back in September.

So those are the two factors that impacted us because of seasonality.

All right. Thanks.

Daniel Owczarski. Avenue Partners.

Thanks. Good afternoon. Can you talk a little bit about the expense control? You talked about aggressive steps to reduce expenses, managing costs, reducing cash burn. Can you talk about any specifics that you can do that is not going to impact you placing the Intercept systems?

We began this exercise already, Dam. I would say we are still in the process of renewing. reviewing. We're going through line item by line items and what is across the board focusing and setting priorities very narrowly and that's what we said on the call. We're not going to start doing thing that will jeopardize our ability to commercialize the system. Nor are we going to do anything that will jeopardize the Phase I red cell trial that we are starting.

But we are looking at very much what can we do on third-party marketing and things of that nature that's somewhat more discretionary. And any and every other expense you can control.

I guess to go back to the FDA platelets that there is a defined pathway but then you are also waiting for a written protocol. So the defined halfway -- is that -- that they have accepted prospective data, is that what you mean by that?

We have narrowed down the pathway to being a prospective data gathering in Europe. As we started this latest round of discussions with the FDA initially, we could choose either a -- an analysis of retrospective data or a prospective data gathering.

So what now is clear to us is that the option of doing it retrospectively is not available to us. And we have now put together a proposal for a prospective data gathering that is under review by them and we will touch back with them before the end of this year and get their feedback.

And I think -- I don't know if it was last quarter or earlier in the year you talked about new distribution agreements in Chile, Indonesia, Poland. Is there any movement or contribution there yet?

No, as far as we know, these distributors are working actively on promoting the product and getting started. But there's no -- [we] don't have any insight on third quarter sales.

And my last question would be government contracts. What is the outlook there? And has that changed? Has that become more favorable now than it was at the beginning of the year?

It has. We have been, as you know, on the receiving end of government sponsorship for many years and we have already gotten line item approved in the existing budget for next year spending, which is up from this year.

On top of that there was a specific (inaudible) safety line item put into a -- I think it was a war, [Iraq war bill] that was passed during the summer so that opens up for us to apply for significant larger funds over a five-year time horizon. We have gone through the necessary filing for that money. If it gets to us either whole or part, we will know that by probably the middle of next year or maybe third quarter next year. And we can start drawing down funds in that case for the second half of next year.

Until we get word as to what we may be awarded under that grant it would not be wise for us to tell you how big that bread box is.

I did just have one more clarification question. Is that with the recent German announcement or recommendation about the four-day platelets is that --? Maybe I missed it. Is that a recommendation or is that going to be implemented soon?

The way we understand how it works, it is a recommendation because it was issued by an advisory body. So the German landscape as we understand is that once that recommendation is out, it is up to the individual blood centers to adopt it or not.

But if something were to happen in Germany such as a transfusion of a bacteria-contaminated platelet causing sepsis or any other [adversive] end, if that happens with a platelet donation that is five days old that has not been done in -- or been done against the recommendation, that puts the liability on the blood center or the transfusing physician.

From that point of view, it is a fairly important recommendation and historical -- but we've seen in history it seems to suggest that it tends to be followed.

Okay, thank you.

Chris Raymond. Robert W. Baird.

Thanks for taking the question. I hopped on a little bit late so I apologize if this is redundant. But I think it is kind of important. Larry alluded to FDA's acceptance or agreement that you could use European commercial data for filing.

Can you kind of walk through that? The decision, the timing? What steps specifically. I think you gave some detail but I would like to explore maybe in a little bit more when you think things are going to play out with that regard.

We have submitted to them a protocol synopsis and a high-level view of how we would obtain and collect that data. We are in the middle of discussions with them now. There have been some back and forth over that and we are waiting to hear their ultimate response. From that we will been craft a full protocol.

So, but you did get an agreement in principle?

We have an agreement in principle they would accept prospectively collected European data to answer these questions.

How many data points -- how many, I would say patients, but blood samples or blood products?

These are patients and we are looking at a study there in size at least in our proposal; and I can't tell you that that is final yet but we believe it is statistically powered that looks at 400 patients with the Intercept platelets and 400 patients with conventional platelets.

These are in centers that are transfusing and these are in hematology, oncology patients that are transfusing between 800 and 900 of these types of patients per year. So the patients are readily available. Whether or not that will be the ultimate size of the population study we need to finalize that with the agency. We believe that is within the range of a powered study.

This is for platelets only?

This is for platelets only.

So, you will be looking at viability all of those parameters you've looked at before, right?

No. It is going to be somewhat more limited in its focus because of the nature of the study. And we will be primarily looking at a clinical hemostasis which is what we looked at in the spring trial, where we successfully met those end points. And we will also be looking at a focused array of adverse events where FDA would like to have more data collection.

These would be paying patients? Correct?

These are all paying patients. In paying for product. Yes. That is one of the great advantages of doing this in Europe.

So if you started in January of '09 could this be end rolled, wrapped up and data collected by the end of '09?

I think that one year would be a reasonable time frame. It depends of course on getting the logistic in place and how fast we can made with the centers but we have had very good cooperation with them in the past.

And then potentially filing in 2010?

That is right. That would be a reasonable time frame.

Okay and I'm not hearing Claes protest so I guess that is okay.

I am letting Larry do all the heavy lifting here.

(Operator Instructions) Brett Rice. Janney Montgomery Scott.

Good afternoon. There have been some articles about contaminated blood in England. Anything happening in the UK?

We've seen those articles and the short answer to your question is, yes, there's a lot happening in the UK. We've been mounting what I would think is a quite extensive effort to build advocacy for pathogen inactivation. The British National Blood Supply actually has a pretty big sales collaboration with the Irish together with the Scottish and Wales.

So the decision by the Irish National Blood Supply to go forward with pathogen [activation] is also very closely monitored by the Brits.

So just to amplify we've met with members of Parliament who have oversight of blood safety and medical technology. And also with the UK military because there is great concern on their part about the safety of their blood supply.

I have a question on the logistics and the manner in which the S3 was piled. I got all the -- when it came out over the newswire services at about 1:10. I got a lot of calls on that and your description in the call that it is merely replacing a facility that was expiring makes it sound a lot more benign then when it hit the newswire services.

So I'm wondering, when it came out, could that have been in the release because you are in a market that shoots first and asks questions later. And then, just the timing of the relief. Why right before the conference call?

Two things. One, we wanted to speak to the fact that we had refreshed our shelf on the call and not file a shelf after the call, and then not have a forum to discuss it. It is as benign as you suggest.

I would acknowledge that this is a market where people shoot first and ask questions later which is what we chose to file it so quickly before our call. And I will emphasize again for all that are listening that any company that had a shelf that was filed in 2005 or earlier has those shelves expiring at the end of November.

We are by no means alone at least among those that want to maintain a shelf with the flexibility it affords in refreshing it.

I see the timing on it but in terms of the language that it was merely replacing an existing shelf that was expiring -- you can't put that in the press release?

You cannot. The SEC uses a shelf registration as a -- just [at a] securities registration. If we put out any press release describing the intention, etc., putting any sort of color on it, the SEC views that as part of the financing effort. And we have no present plans to use it.

So it must be filed essentially naked, by itself, without qualification or description.

Okay, fair enough. Thank you for taking my question.

Lisa Bayko, JMP Securities.

Just one follow-up. Can you give us a sense of the cost of the Phase I red blood cell trial?

Order of magnitude, I think even less than $1 million.

Okay, sounds like a good deal.

On that cash conservation side that is an investment we will make, over and over again.

Great. And just finally in terms of government grants, I didn't hear clearly what you said earlier. So the amount you have this quarter that is something you would expect to continue with that good runway?

Lisa, I would not expect more government grants this year, calendar year. As you know, the federal government is on a different calendar year than the rest of us. But on a year-over-year basis as Claes suggested we appear to be in line for more funding not less as we move forward and that is independent of the Iraq War Supplement that we referred to that we have applied for but not yet been given a grant under.

Okay, thank you.

Ronald Urvater. [Ormed].

Good afternoon. A couple of things. I want to go back first to the burn rate. I'm a little confused about something. Let me see if I understood this correctly.

So you indicated you are cutting costs and with the carrying cash that gives you runway through the end of 2009. Then I did not hear -- I wasn't sure whether that included or didn't include the $10 million line from Wells Fargo. So, that is the first part of my question.

The objective we have of getting to -- (inaudible) did not include utilizing any money from the Wells Fargo facility.

Fair enough, so then, the second part of my question if that's correct, if you look at 2010 -- I'm trying to visualize in my own mind a scenario where you would in fact have to move back to the [markets]. Because it sounds like there's a couple of possibilities where you might not have to assuming that you partnered some of the programs some time into late 2009.

Is it fair to say -- of course, it is hard to predict at this point but there is a couple different possibilities where you might not in fact have to go back to the market. Is that a fair statement or does 2010 become the year when you absolutely must go back to the markets?

I think it is fair to say, as Bill pointed out in his statements, that we are largely unpartnered except for the deal we have with [Bio One], and our progress is certainly noted by potential partners and, therefore, I would think that the -- it is fair to assume we would have a higher likelihood of being able to enter the partnership deals during the quarter of '09.

But we don't want to --.

Promise that. I understand but the implication therefore is if that were to come to pass, you might not necessarily have to go back to the equity markets.

That would be the right implication, yes.

The second question I have is more of a big picture question. I am just curious and I know these things are interrelated between the shelf life of the platelets and the unknown pathogens. And in looking at France in particular, in terms of your marketing arguments, what is that you believe to be the primary touch point that the Company speaks to in terms of marketing PI?

Maybe, Larry, you can answer. Is there a greater concern out there of unknown pathogens? Or is it the pure economics of extending the shelf life of platelets? I'm just curious. What is in the dialogue that you guys have with the opinion leaders -- let's call it in France, which seems to be a little bit of a laggard here?

Before I give Larry a chance to answer the question I think the concern around bacteria is not primarily shelf life. Now with the exception of germ where that has become an issue; but the issue of bacteria is that the level of contamination is higher than what people have actually thought before. That has been documented with the data.

It is also emphasized by the fact that the testing for bacteria that was done in the past has proven to be very inexact. And I think the third compound of concern with bacteria is that cases of sepsis, which are caused by bacterially contaminated platelets, have been under-reported because I think many times the treating physician does not correlate sepsis with the transfusion.

I think that has been now shown as well so these factors combine to illustrate that bacteria contamination is a clinical problem of much larger proportions that was thought earlier. I think the point we try to make in Germany was shelf life of course, it is a practical supply and cost implication of people trying to do something about this.

So in terms of marketing messages, I think it varies from decision-maker to decision-maker. There are those that are clearly motivated more by the threat of emerging pathogens but I think the bacterial contamination issue is now getting a lot more attention. With that, I will let Larry make his comment?

The drivers do vary somewhat in the different countries even within Europe. In France, for example, pathogens and activation of plasma is legally mandated today. So, not to have pathogenic inactivation of platelet components which are higher risks is seen as a vulnerability and inconsistent.

But, the French are also in the process of changing their mix of platelets products from a very heavily [aferesis] oriented platform to a equal mix of whole blood derived and aferesis-derived platelet components which is good for pathogenic inactivation. And they realize that.

But they're going through the process of doing those conversions and also the introductions of additive solutions so that they can salvage more plasma for their fractionation business. And I think and some of the slowness in part has been driven by their desire to get well into those processes first before they take on the pathogen inactivation conversion.

So I think the sequencing has been an issue for them. All of that being said, they have implemented very successfully pathogenic inactivation of platelets in the overseas department and they are continuing that, to expand that into some other overseas regions which are not specifically legal departments of France but which are dependencies of France, where they receive higher risk.

And I think they will they expand into plasma in those regions as well as of course as Claes mentioned the French Army is starting its Intercept program. So there are pockets that are moving. There are other considerations which they feel they have to deal with first before they can wholesale engage in the Intercept platform.

This is a population's stratification question to some degree is what you're saying.

They certainly have identified some of their overseas regions as much higher risks where they have of course, have the epidemic of Chicken Gunya and currently in the Caribbean and French West Indies region they like other island countries they are experiencing a dengue virus epidemic.

That's very helpful. One last question related to the above. You have not spoken in a while and I know you are carrying it at cost on your balance sheet. The immunotherapy program. I'm just curious whether the clinical trials are underway. I know they were essentially licensed to depocket [DCs] presumably to keep it moving. Can you talk a little bit about what is happening there?

Well, first of all to correct a little that we actually carry that at a zero value. (multiple speakers)

So we don't keep as close track with them as we did before but we know they have advanced one product through phase I for the pancreatic cancer indication. I think they actually got them to a point where they have established maximum tolerable dose.

But what is going to happen afterwards with that, I'm not sure about. At the same time I know they have been focusing a lot on trying to get into clinical trials for hepatitis C. I don't think that has started yet.

But I would say I think it's in these times for us I think we would see them being funded by venture capital is a good thing.

Absolutely. It has some latent values.

It does but nothing we expect to monetize anytime soon.

Okay. Thank you very much.

[Claus Van Studerheim].

I was just curious about the Defense Department, the possible Defense Department contract grants. The reference to the Iraq War. What is the connection there. Can you say a little bit more about that subject?

Sure. First of all, we have been receiving Department of Defense funding for many, many years. I think it is eight -- six years (inaudible)? And to date something more than $40 million. So the Department of Defense have a general interest of providing as safe blood as possible to the soldiers, whether they are in theater or preparation of going in theater.

There is a continuing interest and they want Intercept to succeed. There is a more specific interest from the Army that is driven by current practices in Iraq but that is slightly different so that doesn't really relate to the funding.

But the Army would like to incorporate pathogenic inactivation in theater in Iraq because currently transfusing platelets that have not been tested. So there is a little bit higher rate of risk for contamination in theater in Iraq right now and they want to do something about that.

But that is separate from the annual funding. Does that answer your question?

That leads to another question. Do they need FDA approval before you can use it in Iraq or --. (multiple speakers)

The U.S. Army is absolutely operating under FDA regulation. So there would have to be some sort of approval or some sort of -- there are some potential opportunities to do this. But we generally think there would have to be in approval before they can make use of the products.

I think it is important to note that the grant funds that we are referring to that were part of the Defense Appropriations bill labeled the Iraq War do not directly relate to the use of Intercept in Iraq.

I see. I see. Great, thanks.

So if we were to happen to get out of Iraq with an administration change -- . (multiple speakers) that would cut off,

No, no. I understand, they wouldn't cut it off. Okay, I got it. Thanks.

There are no further questions in queue. I would like to turn the call back over to management for closing remarks.

Thank you for joining us today. We look forward to updating you on our fourth-quarter conference call in late February. Bye.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.