Cerus Management Discusses Q2 2012 Results - Earnings Call Transcript

Aug. 2.12 | About: Cerus Corporation (CERS)

Cerus (NASDAQ:CERS)

Q2 2012 Earnings Call

August 02, 2012 4:15 pm ET

Executives

Lainie Corten - Director of Global Communications & Marketing

Kevin D. Green - Principal Financial Officer, Chief Accounting Officer and Vice President of Finance

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

William M. Greenman - Chief Executive Officer, President and Director

Analysts

Christopher J. Raymond - Robert W. Baird & Co. Incorporated, Research Division

Scott Gleason - Stephens Inc., Research Division

Jeremy Feffer - Cantor Fitzgerald & Co., Research Division

Zarak Khurshid - Wedbush Securities Inc., Research Division

George B. Zavoico - McNicoll, Lewis & Vlak LLC, Research Division

Brett Reiss

Operator

Good day, ladies and gentlemen, and welcome to the Cerus Corporation Third (sic)[Second] Quarter 2012 Results. [Operator Instructions] As a reminder, today's conference call is being recorded.

I'd now like to turn the conference over to your host, Ms. Lainie Corten, Investor Relations for Cerus. Please go ahead.

Lainie Corten

Thank you, operator, and good afternoon. I'd like to thank everyone for joining us today. With me on the call are Obi Greenman, Cerus' President and Chief Executive Officer; Kevin Green, our Chief Accounting Officer; and Dr. Larry Corash, our Chief Medical Officer.

Cerus issued a press release today announcing Cerus' financial results for the second quarter ended June 30, 2012, and describing the company's recent business highlights. You can access a copy of this announcement on the company website at cerus.com.

I would like to remind you that during this call, we will be making forward-looking statements, including statements about forecasts of revenue and annual growth rate; commercialization progress; regulatory and governmental processes; the scope and timing of clinical trials and other research and development activities; prospects for the CE Mark registration and other regulatory approvals; sales; operating expenses; gross margins; use of cash; finances; business prospects and the effect of currency fluctuation.

The company's actual results may differ materially from those suggested by forward-looking statements that 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, Cerus' quarterly report for the fiscal period ended March 31, 2012, on Form 10-Q, including the section entitled Risk Factors. This call will be archived temporarily on our website and will not be updated during that time.

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

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

Kevin D. Green

Thank you, Lainie. Our $9.2 million in reported revenue this quarter came entirely from product sales and represents a 37% increase from the $6.8 million in product revenue from Q2 of last year and 6% from Q1 of 2012.

I'd like to elaborate on 2 factors impacting our first half revenue growth. First, the average euro-dollar exchange rate for the second quarter was at very low levels, not seen since 2010. When compared in euros, our product revenues were up 52% year-over-year and 9% from Q1 of this year. We have a natural hedge against exchange rate fluctuations due to the fact that most of our sales are made in euros, as our cost to produce our products and cost to support our European operations. However, a weaker euro does impact our revenue as reported in dollars.

The second factor was a rebalancing of plasma production by EFS, the French National Transfusion Service. As we previously indicated, EFS' rapid adoption of INTERCEPT-treated plasma to replace methylene blue plasma in late 2011 resulted in a temporary ramp in INTERCEPT usage to treat approximately 60% of the national plasma supply.

However, EFS has consistently indicated that their 2012 plan would beat the INTERCEPT production at much lower levels. We believe that as a result INTERCEPT will be used to treat approximately 1/3 of the plasma produced for transfusion. This rebalancing was initiated during Q2 and resulted in lower plasma kit sales this quarter compared to Q1.

The EFS' 2012 INTERCEPT plasma production targets, as well as a relatively broad range of exchange rate fluctuations, were both factored into our 2012 revenue guidance. Accordingly, we believe our results for the first half of this year provide a strong foundation for meeting our 2012 guidance, which we are currently maintaining at $34 million to $36 million in product revenue.

Turning now to gross margins. Our gross margins on product sales during the quarter were 40%, up from 37% in Q1 and stable year-over-year. We continue to expect that margins will improve with increased levels of kit production, as well as from several cost reduction initiatives, which may have an impact as early as next year.

Total operating expenses for Q2 2012 were $8.4 million, compared to $8.3 million during the same period in 2011 and $7.8 million sequentially from last quarter. Q2 is a seasonally active quarter for trade shows and other marketing activities, driving slightly higher SG&A costs. Going forward, we expect operating expenses to increase, driven primarily by increased research and development expenses as our European acute anemia trial begins patient enrollment, and as we prepare for the initiation of the European chronic anemia study expected toward the end of the year.

In addition, research and development expenses will be affected by red cell development activities in the United States, including the planned initiation of our Phase II an in vitro studies.

As a result of higher revenues, consistent gross margins and relatively consistent operating expense levels, our operating losses were improved when comparing the second quarter of 2012 with that of 2011.

Net losses were $1.9 million or $0.10 per diluted share in Q2 2012, improved from the $6.4 million or $0.13 per diluted share during the same period last year. It's important to note that the change in net loss was heavily affected by a noncash gain of $3.7 million taken in Q2 of this year. Each quarter, we report mark-to-market gains or losses related to changes in the assumed fair value of Cerus' outstanding warrants.

Turning to cash. We ended the quarter with cash and marketable securities of $26.7 million compared to $31.5 million at the end of the Q1. Cash used during the quarter was higher than the $3.5 million in average quarterly burn that we expect, largely due to payments made for our first half buildup of inventory. We continue to manage our investments and working capital closely and have entered into an amendment with Comerica to increase the overall availability of our line of credit to help finance our growth. The expanded facility now provides us with access of up to $12 million of borrowing capacity.

Now, I'd like to turn the call over to Larry to provide you with an update on our development programs.

Laurence M. Corash

Thank you, Kevin, I'd like to begin with an update on our INTERCEPT red cell development program, then provide some comments about recent positive data regarding the experience with INTERCEPT platelets and plasma in France and Switzerland, as well as the U.S. dialogue regarding ongoing risks of sepsis due to platelet transfusion.

Primary reviews of our Phase III acute anemia clinical trial applications, or CTAs, have been completed in both France and Germany. We're still responding to a few remaining questions from the regulatory authorities, but do not see any barriers to initiating the study in the near term. We continue to anticipate starting enrollment later this quarter and expect this 50-patient study will take approximately 12 months to complete.

In our other European red cell Phase III study planned for 70 patients with chronic anemia, we're actively preparing CTAs for submission to the Italian health authorities. We still believe this study can be initiated in 2012 or early 2013 in Cagliari and Torino, Italy, and completed in about 2 years.

In the United States, we're working with sites in Milwaukee and Cincinnati for our red cell recovery and survival study, which we plan to initiate later this year. Note that we've previously quote this a Phase I study, but FDA recently indicated they considered this to be a Phase II study. So this will now be referred to as our U.S. Phase II trial in red cells, although the protocol remains unchanged.

As a reminder, this study will include approximately 28 healthy volunteer subjects and is a prerequisite for entering Phase III studies in the United States.

I'll now transition to some positive data for INTERCEPT coming out of both France and Switzerland. In June, we met with the French national agency for medicinal products, ANSM, for an annual review of the INTERCEPT platelet and plasma systems.

This review encompassed 6 years of experience with INTERCEPT platelets and 5 years of experience with INTERCEPT plasma. I'm pleased to report that this review strongly supports the safety of INTERCEPT platelets and plasma, and ANSM did not express any concerns about the use of these products.

In addition, Swissmedic, Switzerland's health authority, just released haemovigilance data for 2011. Their data confirmed successful implementation of INTERCEPT platelets at all 13 regional Swiss Red Cross blood centers, with INTERCEPT representing approximately 80% of the platelets produced last year. They observed the trend towards a reduction of severe transfusion reactions and have also seen no cases of bacterial sepsis in recipients of INTERCEPT platelets, reinforcing the value of the INTERCEPT technology to improve patient outcomes.

Finally, I've just returned from a workshop in Bethesda, Maryland sponsored by the American Association of Blood Banks, or AABB, on the issue of bacterial contamination of platelet components. The purpose of this meeting was to consider the current level of risk posed by contaminated units and whether additional measures such as point of release testing should be implemented. You may have seen the recent article about this event that appeared in the Wall Street Journal.

It was clear from the data presented that bacterial contamination remains a real concern despite widespread use of bacterial detection. Experts estimate that approximately 1 in 1,500 platelet units are contaminated, even with use of culture detection methods. This can translate to a patient risk of approximately 1 in 250 during a 30-day period of transfusion support because transfusion recipients usually receive multiple units over the course of their therapy. Also clear from the dialogue was that the addition of new tests can only incrementally reduce the problem, while adding complexity and expense for those performing the assay.

The discussion perfectly illustrated both the need for and the advantages of using pathogen inactivation to protect platelet recipients from sepsis. Though this event was focused on the current situation in the United States, the inadequacy of bacterial detection methods is a global issue, and many of our customers choose INTERCEPT as a way to avoid or replace bacterial testing for platelet products.

The U.K. recently announced the tender for evaluation of pathogen inactivation technology to potentially replace bacterial culture testing in the future. And we believe these events may influence other blood services using bacterial detection to consider use of pathogen inactivation.

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

William M. Greenman

Thank you, Larry. As you've just heard, red cell development activities have been a major focus for our clinical and regulatory teams over the past quarter. We're making good progress toward our goals of initiating the European Phase III acute and chronic anemia trials and the U.S. Phase II recovery and survival study.

According to the current estimated timelines, we would expect to report data from the Phase III acute trial and the U.S. Phase II study next year, and the Phase III chronic study as early as 2014.

The platelet and plasma development programs in the U.S. also remain a priority for Cerus. We expect upcoming FDA discussions for both of these programs in the coming months. For plasma, we still need to hear the FDA's response regarding our proposal to collect safety data in Europe for INTERCEPT plasma used to treat TTP. For platelets, we will discuss a newly submitted Cerus proposal that would entail both a prospective safety study and routine use in Europe, and a randomized controlled study to assess efficacy in the U.S. We may be able to provide an update on the next quarterly call.

We delivered solid growth in the second quarter revenue, driven primarily by a significant increase in platelet kit demand, with INTERCEPT kits continuing to represent the vast majority of our product revenue. We are mindful of the macroeconomic conditions in Europe, but to date, our experience continues to indicate that blood safety is relatively immune to health care austerity measures. We also believe it is important to systematically expand our markets outside of Europe, developing a broad base of customers across multiple regions.

The quarter also saw important data from national individuals programs in France and Switzerland, confirming the safety of the product and supporting the clinical benefit of INTERCEPT in tens of thousands of transfusions. This overwhelmingly positive experience from our existing customers is our strongest sales tool, and we believe this had been the key to our consistent revenue growth and critical to the prospect of INTERCEPT becoming the standard of care for blood safety.

Before concluding, I wanted to comment on Fresenius' pending acquisition of Fenwal, our contract manufacturer for the INTERCEPT platelet and plasma kits. Over the last 2 years, there has been heavy consolidation in the blood collection industry, with 3 major players emerging: Terumo Caridian, Haemonetics-Pall and Fresenius-Fenwal. With the combined Fresenius-Fenwal group potentially emerging as a dominant force within the industry, we look forward to the possibility of expanding our relationship and collaborating on many geographic opportunities.

In conclusion, I am pleased with our performance in the first half of 2012. Our $18 million in revenue puts us in an excellent position to deliver on our guidance of $34 million to $36 million for the year. I look forward to updating you now on initiation of our European Phase III red cell study on our next quarterly call.

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

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Chris Raymond of Robert Baird.

Christopher J. Raymond - Robert W. Baird & Co. Incorporated, Research Division

I'm just kind of curious, so your margins have been very consistent, as you guys pointed out, which would indicate you have not seen a lot of pricing pressure. Can you maybe talk about how much in Europe? Especially price comes into the conversation with new conversions or centers that you're bringing online. And then I got a follow-up.

William M. Greenman

Thanks, Chris. I think -- since we took over the commercialization of INTERCEPT in late 2006 from Baxter when we got the rights back, we've really seen remarkably consistent pricing and haven't really seen it drop at all, if you look across all the different product lines. With regard to price being an important decision -- important factor in decision for the customers, it obviously is because typically these are large blood services and often times national or government bodies, so price is an issue. But I think it also speaks to the value that INTERCEPT can provide. And so we are constantly looking at how we can take out cost for them. At the end of the day, once a customer has adopted the technology, we never hear about price again really. I think they see the value in using the technology in routine use and the various benefits associated with having a longer shelf life for the platelets of going from 5 days to 7 days, or not having to maintain separate inventories of product for platelets that are gamma-irradiated, for example, are CMV 0-negative. Does that answer your question?

Christopher J. Raymond - Robert W. Baird & Co. Incorporated, Research Division

Definitely. And just to be clear, so -- I mean, with a consistent margin, but obviously the higher rate of revenue, is it safe to assume that you haven't had to make a lot of concessions on that front? It's just it's a topic that comes up and then you all really get through it?

William M. Greenman

That's right. And I think we're looking at ways to sort of improve the product profile as well. So that's always something that hopefully will allow us to increase price in the future. Around specifically a double dose, that is where we've made some progress there.

Christopher J. Raymond - Robert W. Baird & Co. Incorporated, Research Division

Great. Okay and then on finance, you highlighted conversions. I know you've talked a lot about how it's the intention to move back to -- away from the heavy reliance on INTERCEPT. Can you give a little more color on what is actually is happening there? Are they -- has it moved back towards methylene blue? Has the issue been resolved with methylene blue?

William M. Greenman

No. So methylene blue is no longer in the journal publications or JOs. So it's no longer a product that's available on the French market. So it's officially being withdrawn. The EFS has 3 options with regard to the production of plasma. One is INTERCEPT, the other one is their solvent-detergent treatment facility in Bordeaux. And the third one is quarantine. And so what we believe that's happening is that they have basically rebalanced their production levels sort of across all 3 products, and with the goal of to sort have equal shares for all 3 products to manage risk.

Operator

Our next question comes from Scott Gleason of Stephens.

Scott Gleason - Stephens Inc., Research Division

I guess, the first one is sort of when we look at France, just to kind of back on that, on the topic there of what's going on with EFS. Can you give us maybe a little bit of a sense for when we look at this quarter maybe where you were on a percentage of the volume basis? Just to kind of think when we think about the headwind going into the next quarter. And I guess, did you guys end the quarter with kind of a 30% level, or are you still meaningfully higher than that? And we kind of see that progression continue to kind of go down throughout the third quarter? And I guess just on that same topic, based on our checks with blood banks, quarantine is not a very popular option with them. Do you think there's a potential, I guess, for pushback at the blood bank level to the EFS where they could change that policy going forward?

William M. Greenman

Thanks, Scott. And I think one thing that's been clear is that the customers that are using INTERCEPT really liked it a lot, and it really makes it easy for them on a logistical sense. With regard to sort of where we ended up, I think we're basically in the 30-plus percentile range as far as market share. So I think we're really stable there going through the end of the year, is what we think. Obviously, that's subject to where -- how they're able to supply their demand needs for the other products. And to your point, I think quarantine does have a lot of limitations. And fundamentally, from our perspective, it's sort of going back with regard -- going in reverse with regard to blood safety as opposed to moving forward.

Scott Gleason - Stephens Inc., Research Division

Okay, obviously, you guys are almost already at 30% in the quarter here, so no overall headwind quarter-to-quarter. So that means that obviously you haven't seen a lot of growth sequentially in other areas, kind of get with where you were in the first quarter and fourth quarter. Can you talk about where some of that growth is coming from on a country-by-country basis?

William M. Greenman

Well, we're not going to be breaking it down by country, but I think fundamentally the growth is coming from platelet kit demand. And if you think about what our year-over-year growth and overall kit demand, it's up. It was 40--

Kevin D. Green

37%.

William M. Greenman

Yes, 40% or so. So I think we are seeing new customers coming online or the full year effect, like in Switzerland of having them in routine years. So and we'll continue to hope to announce new customers coming online through the second half of this year.

Scott Gleason - Stephens Inc., Research Division

Okay, great. And then you guys referenced the evaluation tender with the U.K. What's the next step, or what's the next milestone that we should expect to hear there in terms of kind of just watching the progress of what could be happening with that?

William M. Greenman

Yes, so basically their contract in the U.K. for bacterial culture is up at the end of 2013, roughly. And so the way this tender sort of arose, that we're in discussions with them about their experience with bacterial culture. And obviously, it's got a lot of limitations as everyone knows. And at the end of the day, it only protects 40% of the positive units. And so it was clear that they were interested in working with us to evaluate whether INTERCEPT could be an option for them after this contract expires. But then, once they started talking with us about how to proceed, it became clear that even -- in order to just do an evaluation, they would have to go to tender for that as well. So we would hope to have some clarity around this towards the end of this year, early next, start the evaluation and then move into a formal tender process maybe in the middle of 2013 or end of 2013.

Scott Gleason - Stephens Inc., Research Division

Great. And can you -- I guess, when we look at this, the platelet piece for the U.K, can you remind us of the size of that market opportunity?

William M. Greenman

Yes, I think it's roughly around -- what is it about?

Kevin D. Green

I think it's close to a $40 million.

Laurence M. Corash

300,000.

William M. Greenman

300,000, yes, doses.

Scott Gleason - Stephens Inc., Research Division

Okay. So $30 million or so roughly?

William M. Greenman

Yes, roughly around there, yes.

Operator

Our next question comes from Jeremy Feffer of Cantor Fitzgerald.

Jeremy Feffer - Cantor Fitzgerald & Co., Research Division

I just wanted to ask sort of a general big picture question on seasonality. I know you guys aren't -- it's not necessarily traditional health care where you see a slowdown in the calendar third quarter, but is there any element of seasonality?

William M. Greenman

Historically, there has been. And I think part of it's just hard to find people in July and August in Europe, so trying to follow-up on meetings and sales calls. Yes, so for our existing business, there's not a lot of seasonality with regard to platelet and plasma kit demand. But just as far as we have seen, the third quarter being soft in the past.

Jeremy Feffer - Cantor Fitzgerald & Co., Research Division

Okay. And then I wanted to come back to one of the comments you made about cash burn being a little bit higher in the quarter. Where do you expect it for the next few quarters, especially given the ramp up in these trials?

Kevin D. Green

So, Jeremy, I think what we said on average for the year, we would expect to burn about $3.5 million a quarter. Certainly, in the first half of the year, we built a lot of inventory. So that was at a slightly elevated clip. So we would expect, on average, in the back half of the year to be able to get some efficiencies.

Jeremy Feffer - Cantor Fitzgerald & Co., Research Division

Okay. And so with this new -- with the expansion of this facility, I think you said you've got another $12 million of capacity. How much liquidity do you have? How much -- how long can you last right now with your existing balance sheet?

Kevin D. Green

Yes, so it's all a function of how quickly our top line is growing, and how quickly we're accelerating the red cell programs. The red cell trials are largely funded beyond that, anything in the U.S. would be incremental to what we have contemplated. So I guess the other point I'd make is the credit facility is a total of a $12 million facility. And that's up from the $10 million before we entered into the amendment.

Operator

Our next question comes from Zarak Khurshid of Wedbush Securities.

Zarak Khurshid - Wedbush Securities Inc., Research Division

Can you talk about kind of the near-term opportunities, or how you're thinking about the near-term opportunities in the Middle East and in Latin America given some of the recent progress in those geographies?

William M. Greenman

Yes, so in the Middle East, I think we mentioned this on the last call, it was -- we did a press release around King Faisal Hospital going into routine use. And that's been a very positive experience for that blood center, but also for the region. So we do see that as sort of a reference center, and are in a number of discussions with blood centers throughout the Middle East. So that's a positive experience. We also have the Israeli approvals for both platelets and plasma in our discussions with their blood servers about possibly moving to INTERCEPT. So I think there's lot of opportunities there that hopefully, we'll be able to report on throughout the second half of this year. And then with regard to South America, we're still -- we've got sales in Chile, but we're still sort of on a regulatory approval pathway process for Brazil and Mexico right now. And we're looking at expanding our distribution network into all the countries in South America. And we definitely have major issues associated with their blood supply, whether it's hepatitis or HIV or Chagas, for example. Larry, do you have anything else you want to comment on South America?

Laurence M. Corash

No, I think that an important thing to focus on, we were -- ISBT was just held in Cancun, Mexico, so there was very heavy participation. And I think that the emerging pathogen focus in those countries, plus the current state of nucleic acid testing makes pathogen inactivation very attractive to them because they have high endonicity rates for hepatitis B, and HIV continues to be a major problem in some of those countries.

William M. Greenman

We'll actually be issuing our INTERCEPT e-news next week, and I think many of you are subscribers to that. And it will be a full replay of the symposium that we held at the ISBT in Cancun in both English and Spanish, if you wanted to.

Zarak Khurshid - Wedbush Securities Inc., Research Division

Sounds good. And then just as a follow-up, shifting gears to Europe. Where do you -- what do you think there is the most -- or greatest potential for inflection in the business within Europe? And would that be along kind of the plasma or the platelets opportunities?

William M. Greenman

I think we have opportunities in both. For platelets, the concern around bacterial contamination really is still pressing for many blood services, especially for those that haven't implemented bacterial culture. As Larry mentioned in the script, there are -- even if you've implemented bacterial culture, there's increasing recognition that, that doesn't solve the problem. As far as major inflection points here, a couple of decision -- a couple of blood services, like in the U.K. and France, would be very binary in nature if they were to take a decision. Whereas in Germany, we are hoping to make progress there. And they have -- as I believe you know, Zarak, have implemented a mandate for doing a 4-day shelf life or INTERCEPT in Germany, and so that could be meaningful as well.

Operator

[Operator Instructions] Our next question comes from George Zavoico of MLV & Company.

George B. Zavoico - McNicoll, Lewis & Vlak LLC, Research Division

A couple of questions to Larry regarding the AABB workshop. The conclusion seems pretty final with regard to this. And then recently, there was an article about how if nurses are overwhelmed in hospitals if they get one more patient to take care of, that increases the risk of bacterial contamination. That doesn't necessarily apply to the blood supply, but it does mean that if you increase the complexity of the procedure of that, you might introduce another element of error. So Larry, do you think this is dead now in terms of incorporating point-of-release testing? Or is there still some life left in it?

Laurence M. Corash

Well, I don't think it's dead. I think what's happening is that because bacterial detection has not resolved the problem, that point-of-release testing is being used by some blood centers. But when you combine that, and you do combine it with bacterial culture, you're now spending between $60 and $70 per therapeutic dose of platelets, and you have a very complicated logistical situation where you have to continue to track the bacterial cultures and recall anything that's positive, and you've got the demand for doing your point of release testing either in the blood center at the time they issue you the product or in the hospital proximate to the time they transfused the product. And so those logistics in terms of labor alone, plus the record-keeping and the opportunity for an error, I think, highlight the value of pathogen inactivation. And we know that in Europe you can eliminate all of that by using pathogen inactivation upfront in the blood center.

George B. Zavoico - McNicoll, Lewis & Vlak LLC, Research Division

Were pharmacoeconomic models talked about it at the AABB? Did they actually show it? How much cost, how much more cost are being involved?

Laurence M. Corash

There was an economist who got up and gave a presentation and did it from the perspective, which is always utilized by health care economists looking at quality-adjusted life years. But when you begin to analyze the interventions in transfusion medicine, the threshold of $100,000 per intervention goes out the window because the cost of an intervention for a quality in nucleic acid testing is $4 million. And then actually a woman got up and said, "Well, my daughter died from a contaminated platelet product, so I can't put a price on that." And I think that was the chilling message that got sent.

George B. Zavoico - McNicoll, Lewis & Vlak LLC, Research Division

Okay. I have a question about Austria because you opened a -- you got your first footprint in Austria in April, I believe, with one hospital. Is that -- how big of a portion of the market in Austria is it? And do you think with the foothold there now, you might be able to get in a little bit -- increase your penetration in Austria?

William M. Greenman

We certainly see the influence of the Swiss going to 100% in the region, and the site in Vienna that started is obviously an important reference center in Austria. We're actually in discussions and working with a number of other centers at the moment. And so we believe that this ultimately will spread throughout Austria, again, throughout -- through the rest of this year to be able to announce new customers there.

George B. Zavoico - McNicoll, Lewis & Vlak LLC, Research Division

So entering into Austria, it sounds like it's going to be a little more interest -- more -- less complicated, I should say, than Germany has been?

William M. Greenman

Yes, I believe that they really are looking at what the Swiss are doing and realize the risk that they're taking by not implementing pathogen inactivation. And I think obviously the more centers that -- the more key centers that take it on, and there's roughly around 11 centers in Austria in total. But probably, 5 or 6 that are the dominant ones, it becomes hard for them, from a standard care perspective, not to implement the technology.

George B. Zavoico - McNicoll, Lewis & Vlak LLC, Research Division

Oh well, I look forward to updates in that country then. And finally, last question regarding your guidance of $34 million to $36 million product revenue for the year. For 1Q and 2Q, if you add it up, you're already halfway there. So are you being conservative, under promising? Because second half sounds like, if you're in your guidance, there's not going to be a lot of growth.

William M. Greenman

Yes, George, we are confident in the guidance that we gave. One contributing factor is the French rebalancing from plasma production. But offsetting that, obviously is what we've mentioned earlier we do have additional centers coming online and platelet production is up. The other factor is foreign exchange rates. And so we did contemplate a fairly broad range of rates in our guidance. However, current weakness in the euro is even below the level, the lower bounds that we had contemplated. And so at this point we're comfortable with the guidance at the back half of the year and then full year.

Operator

Our next question comes from Brett Reiss of Janney Montgomery Scott.

Brett Reiss

In the Far East. Is there any possibility of signing up new distributors in Japan or China for cash? Is there a kind of form of non-dilutive financing?

Kevin D. Green

Yes, so certainly we're looking at exactly those opportunities. I think blood safety continues to be a major issue in China. And it is a concern in Japan as well, as it relates to platelets. And so I think that we would anticipate identifying a partner there. I can't give you any specifics around timing for that, but we are in discussions with a number of parties in both countries.

Brett Reiss

Fair enough on timing. But is it something that could happen before the end of the year? Or even that's to holding it to a specific time line?

Kevin D. Green

It's too specific because you never know in these transactions what's going to be the final sticking point. But suffice it to say, we are in discussions with very interested parties. And part of that discussion is around how they could potentially provide non-dilutive financing to our programs.

Operator

I'm showing no further questions at this time. I would like to turn the conference back over to Mr. Obi Greenman for any closing remarks.

William M. Greenman

Well, thank you all for joining us today. We look forward to updating you again in late October for our Q3 call. Thanks very much.

Operator

Ladies and gentlemen, this does conclude today's conference. You may all disconnect, and have a wonderful day.

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