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Cerus Corporation (NASDAQ:CERS)
Q3 2020 Earnings Call
Oct 29, 2020, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

CERS Corporation's third Quarter Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session to ask a question during the session. [Operator Instruction]

It is now my pleasure to introduce Investor Relations Director Tim Lee.

Tim Lee -- Investor Relations Director

Thank you operator, and good afternoon. I'd like to thank everyone for joining us today. As part of today's webcast, we are simultaneously displaying slides that you can follow. You can access the slides from the Investor Relations website at www.cerus.com/ir. With me in the end, the call are Obi Greenman is President, and Chief Executive Officer, Vivek Jayaraman as Chief Operating Officer, Kevin Green, Cerus' Chief Financial Officer, and Carol Moore Cerus, Senior Vice President of Regulatory Affairs, and Quality. CERUS issued a press release today announcing our financial results for the third quarter ended September 30, 2020, and describing the company's recent business highlights. You can access a copy of this announcement on the company website at www.cerus.com, I'd like to remind you that some of the statements we will make on this call relate to future events and performance rather than historical facts and are forward-looking statements. Examples of forward-looking statements include those related to our future financial and operating results, including our 2020 financial guidance and goals.

Operating expenses anticipated cash use from operations in gross margins as well as commercial development efforts future growth, and growth strategy, future product sales, product launches, ongoing and future clinical trials ongoing and future product development in our regulatory activities and clean the timing of these events and activities. These forward-looking statements involve risks and uncertainties that can cost actual events performance and results to differ materially. They are identified and described in today's press release and under risk factors in our Form 10-K for the year ended September 31, 2019, and our Form 10-Q for the quarter ended September 30, 2020, which we will file shortly. We undertake no duty or obligation to update our forward-looking statements. On today's call, we'll begin with opening remarks from Obi followed by Vivek, who will provide a commercial update. Kevin, do your financial results followed by Obi with the development pipeline update and closing remarks.

And now it's my pleasure to introduce Obi Greenman CER'S, President and Chief Executive Officer.

William 'Obi' M. Greenman -- President and Chief Executive Officer

Thank you, Tim, and good afternoon everyone. We are pleased to report another quarter of record product revenue totaling $23.6 million driven by strong commercial execution with gains in both North America and the EMEA markets. The robust top line performance in the quarter was complemented by continued progress in our development programs on all fronts. In particular, we are eagerly awaiting the FDA anticipated approval decision on pathogen reduced cryoprecipitated fibrinogen complex or PR crowd, which we think could happen next month. Later in the call, I'll share with you our pre-launch activities in preparation for the anticipated approval for PR cryo. With the compliance period for the FDA guidance document on the bacterial safety of platelets coming to a close in five months, we are seeing an increasing adoption of our technology by both blood center and hospital customers in the US, as we have previously noted, we think most US blood centers and hospitals will gravitate toward single step methods either pathogen inactivation or LVDS large volume delayed sampling to comply with the guidance.

Our discussions with blood centers and hospitals indicate that rather than the two step option, the single step method provides the operational benefits and ease of availability, when comparing INTERCEPT to LVDS we think our technology offers several advantages such as replacement of gamma irradiation, CMV serology the busier testing and Zika virus testing, which gives us conviction in our belief that INTERCEPT will become the standard of care. Vivek, will provide additional details on the US platelet market during his prepared remarks. By now, hopefully you have had a chance to review our press release detailing our third quarter results. While the COVID 19 pandemic has had an impact on our business, I continue to be impressed with how the Cerus team is navigating these challenges in support of our customers and they are increasing need a secure the safety of the blood supply, as we head into the winter months, we are seeing a substantial rise in the daily COVID 19 cases and hospitalizations, both here in the US and abroad. This surge could impact availability of blood donors and staffing that donor centers in light of the uncertainty as to where and when the COVID 19 surge will peak, we are narrowing our full year 2020 product revenue guidance range from $89 to $93 million to $89 to $91 million. Therefore, the implicit guidance range for Q4 product revenue would represent year over year fourth quarter growth between 21% and 30%, and solid sales momentum heading into 2021.

With that, let me turn the call over to Vivek from a more detailed review of our commercial operations.

Vivek K. Jayaraman -- Chief Operating Officer

Thanks, Obi, and good afternoon. First, I echo Obi's comment, as a function of the teams resilience, it is my pleasure to report another record quarter led by strong commercial execution in both our North America and EMEA Region. North American platelet kit demand increased almost 90% year-over-year and approximately 30% sequentially as adoption of INTERCEPT platelets continues to increase. We are happy to report meaningful year-over-year increases in our Q3 product sales. The four out of the five largest less than our networks in the US. These gains were led by the American Red Cross, which continues to be a strong supporter of INTERCEPT, and has stated their goal of getting to 100% INTERCEPT adoption 2023. Earlier, this month, the American Red Cross's manufacturing facility in Tulsa, Oklahoma produced their first INTERCEPT treated platelet. With the TULSA facility now online, 21 out of the 22 American Red Cross sites are making pathogen reduced platelets. As the FDA guidance compliance period nears its closed, at the end of March 2021, we believed that the overall economic and operational challenges of LVDS are increasingly being understood by US blood centers and hospitals. When compared to the relative ease of use and added value conferred by pathogen reduced platelets.

The recent virtual AABB Annual Meeting earlier this month highlighted the added relevance of pathogen reduction for protecting the integrity of the blood supply, as blood centers consider their COVID-19 experience and lessons learned toward future pandemics. We expect US demand for INTERCEPT platelet kit to continue to increase even beyond the end of the FDA guidance compliance period, eventually becoming the standard of care for platelet components over time. The seven-day shelf life claim we are seeking for INTERCEPT platelets in the US will likely be a critical determinant of the slope of our revenue ramp over the next 24 months, and create an even stronger advantage when compared to LVDS. Extending shelf life beyond the current five days has the potential for better inventory management and lower wastage rates. The COVID-19 pandemic has made it challenging to enroll our seven-day study at the pace we'd like, though we are now in the final stages of conducting the study as both clinical trial sites. We are now planning for a first quarter 2021 PMA submission with the possible FDA approval in the third quarter of 2021. We believe that the label expansion adds substantial value from the perspectives of both blood center manufacturers and transfusing hospitals, particularly as these stakeholders learn to deal with the implication that the FDA bacterial safety guidance. In the EMEA region, the commercial organization delivered another solid quarter with reported product revenue up 13% on a year-over-year basis. Increasing product revenues in France and Portugal were key contributors. We are also pleased to see the momentum for pathogen inactivation in Germany that we strike earlier this year has now translated into incremental product to sales this quarter.

The calculated number of treatable platelet doses based on kit sales improved in the quarter, contributing to the regional growth compared to the year-over-year decline we experienced in the second quarter, plasma kit sales were once again a driver and EMEA sales growth due in part to continued demand for pathogen and activated COVID 19 convalescent plasma or CCP. Since the COVID 19 pandemic has taken root the serious team has partnered with blood centers around the world and in total and helped to establish 94 new centers for the manufacture of INTERCEPT CCP while we continue to believe that the recent sales contributions from CCP manufacturer are transitory, we see this as a spotlight on the need for pandemic preparedness and of course that will help convert these customers into long-term INTERCEPT users. Fundamentally, we believe that supporting the CCP efforts of our blood center customers and their hospital partners is the right thing to do.

With that I will turn the call over to Kevin for a review of the third quarter financials.

Kevin D. Green -- Vice President Finance and Chief Financial Officer

Thank you. Vaike, and good afternoon everyone. Today, we reported third quarter 2020 product revenue of $23.6 million, which represents a 31% increase from the $18 million recorded during Q3 of last year. For the first nine months of 2020 product revenue totaled $63.7 million, up 19% compared to the $53.7 million reported during the prior year period. Global demand for INTERCEPT continued to increase during the third quarter, the calculated number of treatable platelet doses increased 23% year-over-year. I'm looking at growth through the first three quarters. The worldwide calculated number of treatable platelet doses increased over 12%. In terms of product mix, platelet kits accounted for approximately 87% of total kit sales while plasma sales accounted for the remaining 13%. This higher proportion of platelets compared to Q2 was anticipated as noted on the Q2 call when plasma gets accounted for approximately 18% largely driven by the demand for pathogen inactivated CCP. In addition to our product revenue and not included in our guidance. Government contract revenue totaled 5.6 and $16.9 million for the three-month and nine-month periods ended September 30th, 2020 respectively. Comparatively government contract revenue totaled $4.8 million in $13.6 million dollars for the corresponding prior year period. Going forward, we expect government contract revenue will continue to increase as BARDA reimbursed clinical trial activities have returned to enrolling patients and as we begin working on our whole blood initiative funded by the FDA. Now let's move the discussion to our reported gross margins.

Gross margins for the quarter were 54% compared to 58% for the prior year period. Gross margins during the quarter were negatively impacted by a non-routine period charge of approximately $870,000 or 3.7% points of revenue due to certain inventory components that failed to meet the company's quality standards. That period charge was partially offset by economies of scale and lower per-unit costs, as a result of our increased manufacturing volumes and the benefit of foreign exchange rates. On a year-to-date basis, gross margins were 55% and consistent with the levels reported during the first nine months of 2019. We continue to expect gross margins will be in the mid-50s for the balance of the year. I would now like to discuss operating expenses, which totaled $32.2 million during the quarter and were largely unchanged compared to the prior year period. Of the total Q3 operating expenses, SG&A expenses accounted for approximately $16.3 million and were relatively flat compared to the prior year. For the first three quarters of 2020 SG&A spending totaled $48.3 million, down compared to $49 million reported during the first three quarters of 2019, the slight decline in SG&A expenses during the nine month period was primarily due to lower travel and marketing related expenses as a result of the COVID-19 pandemic. Research and development expenses for the quarter totaled $15.9 billion and remained relatively flat compared to the $16.1 million during the prior year.

On a year-to-date basis, R&D expenses totaled $47.3 million compared to $43.9 million during the prior year period. The increase in R&D expenses was tied to our red blood cell program, as well as product enhancement initiatives and programs intended to expand label claims for our US platelet business. Reported net loss and per share losses for the three and nine months ended September 30, 2020 narrowed considerably over the same period in 2019. Reported net loss for Q3 totaled $14.1 million or $0.08 per diluted share compared to $18 million or $0.13 per diluted share for the prior year period. On a year-to-date basis net loss was 40, $5.5 million or $0.28 per diluted share compared to a net loss of $54.3 million or $0.39 per diluted share for the 2019 period. In terms of our balance sheet, we ended the third quarter in a strong position with approximately $135.1 million of cash, cash equivalents and short-term investments on hand. Cash used from operations has been and is expected to be narrower for the full year compared to the previously anticipated $50 to $60 million range. The improvement is driven by increased revenues, steady gross margins and leverage from our SG&A spend.

With that let me turn the call back over to Obi for some closing comments.

William 'Obi' M. Greenman -- President and Chief Executive Officer

Thank you, Kevin. Before opening up the call for questions. I would like to spend a few minutes providing a pipeline update. Based on our ongoing conversations with the FDA during their review of our PR cryo PMA supplement, we remain optimistic for an anticipated favorable FDA approval decision in late November. We are in the late stages of building out our therapeutic sales team and preparing them to target hospitals with level one and level two trauma centers, which regularly manage life threatening bleeding events. As a reminder, with an anticipated five day post our shelf life, pure cryo can be stocked and ready to transfuse liquid form and hospital blood banks, operating rooms and emergency departments. Allowing for immediate administration to critically bleeding patients in need of fibrinogen and other clotting factors. Following the anticipated FDA approval, our blood center manufacturing partners can begin manufacturing PR cryo including performing the necessary validations and quality control analysis, there must be completed prior to distributing the product hospitals. Therefore, we expect PR cryo commercial sales could begin in the first half of 2021. Regarding hospital reimbursement for PR cryo earlier this month, we submitted an application to the Center for Medicare and Medicaid Services for a new technology add-on payment or NTAP. NTAPs are intended to provide additional reimbursement to help offset the incremental cost to hospitals.

We expect a decision on our NTAP submission next year with an anticipated favorable decision allowing the additional reimbursement to begin in Q4 of 2021. Lastly, while the focus of our launch will be on PR cryo, it's important to note that we also simultaneously filed a PMA supplement for a second blood component that is a byproduct of the PR cryo manufacturing process. The second component is called pathogen reduced plasma cryoprecipitate reduced. Our proposed indication for use is transfusion or therapeutic plasma exchange in patients with thrombotic thrombocytopenia Tripura or PPP. We believe this pathogen reduced plasma product may have utility and other areas of unmet clinical need associated with therapeutic if races and possibly volume resuscitation which we plan to explore further post approval. Overall, we are excited about adding both new therapeutic products to our portfolio. Moving on to our red blood cell development program in Europe as planned, we submitted the first two modules as part of the CE Mark review process. The final two modules are planned for submission in the second quarter of 2021. In the US, our two Phase III studies are advancing. While the COVID 19 pandemic continues, we anticipate ongoing uncertainty with regard to the pace of clinical trial enrollment and new site activation's. As a consequence, completing the Phase III trials in the US for the red blood cell program is a gating item for the PMA submission timeline.

We believe that the future PMA submission process will benefit significantly from all the documentation previously prepared for the European regulatory submission, especially as it relates to the CMC and commercial manufacturing, scale-up work. Finally earlier this month, we received an $11 million funding commitment from the FDA to support the development of novel blood technologies to enable to pathogen inactivation of whole blood. We believe this is yet another strong indication of the FDA is advocacy for the role that pathogen inactivation can play as a foundational strategy to safeguard the blood supply to prepare for future pandemic threats alongside the US BARDA funding for the INTERCEPT red blood cell program. Sirius has been the beneficiary of a clear focus by the US government on ensuring blood safety and availability, given its critical role in the provision of healthcare. In closing, the resilience of our team and the relevance of our technology and pandemics have help position the company for record sales over the coming quarters as we execute against our top line, bottom line and pipeline goals even as we work through the COVID-19 challenges as a nation with that.

Let me turn the call back to the operator for Q&A.

Questions and Answers:

Operator

Thank you. Operator Instruction Our first question comes from the line of Mathew Blackman with Stifel.

Mathew Blackman -- Stifel -- Analyst

Paul, let me, let's start with Kevin on guidance. If I just look at the third quarter geographic performance in particular that they really steep US growth in question. It would seem that and you tell me if I'm wrong here that the narrow range for the full year is coming more from Europe and the US, is that fair. And some of the follow-on to that is I want to understand the potential COVID headwind that you called that you called out my sense is that you didn't see much of an impact in the first or second quarter.

William 'Obi' M. Greenman -- President and Chief Executive Officer

So wondering what potentially may be going on here in the latter part of the year. That gives you a little bit of pause, I think now, I'll start and then ask Vivek to chime in with a lot of part of that question. I think you're right, largely, we continue to see really strong growth in the US and expect that that will continue for the fourth quarter and beyond. But we are hearing quite a bit of news and concern coming out of Europe with the spike in cases and we want to be conservative here. And we're not really sure where that's going to hit or or how long or at what magnitude, and so we felt it prudent to narrow the range of guidance, and then Vivek, if I can ask you to chime in on the last part of that question.

Vivek K. Jayaraman -- Chief Operating Officer

Yes. Yes, sure happy to. Hey, Matt. Thanks for. Thanks for the question and thanks for dialing in. I think Kevin expressed that well you in the US as you accurately point out, we are experiencing strong growth and we continue to expect that strong growth will be an ongoing dynamic both in the fourth quarter and beyond. Part of that is a function of the fact that we got the significant amount of headroom still in the US. Right. So there is room to grow where we're a little bit more consciences in markets where we have 100% share in Western Europe, where overall platelet utilization is coming down a bit because elective procedures are being either canceled or postponed, similar to what we saw earlier this year and our share there won't change at all, just the total number of procedures and platelet usage. We anticipate will decline. I'm little bit and that's a function of both hospitals pushing off fees procedures in a year or this week, the France is going back into a locked down. And then also the need for blood centers to really focus and I'm gonna recruitment because they're seeing some drop out there in terms of donors coming in. So you're right to point it's principally an international dynamic at play, but our US growth will continue to be strong.

William 'Obi' M. Greenman -- President and Chief Executive Officer

Okay. I guess I think most will have you. I heard you mentioned that I think you said you saw growth in four of the five major US Blood Banks. But I think if you could just get a little bit more color on the progress outside of the, in the Big four outside of the Red Cross, how are those conversations going, what is the feedback and do you feel increasingly more confident getting to similar, utilization rates that Red Cross has very publicly called out as the line in the sand they drawn, just give us an update on how those conversations are going.

Vivek K. Jayaraman -- Chief Operating Officer

Yes, sure, I'd be happy so one of the things that we've talked about in the past 2, we've made a concerted effort to focus on the big five blood center families, which represent North of 70% of nationwide distribution of platelets, and the feedback that we've been receiving is that their intention is to move toward PR standard of care. And that's been really consistent across all but all those blood center family. Now, the rate of growth in the timeline differs. I think, part of that's a function of where they are on the operational side of the house, in terms of incorporating optimization measures for production and getting those things ramped. But, what we've seen really across the board is increased engagement with hospital moving toward getting PR platelets on their hospital contracts, and really understanding that there is both significant clinical value that they can offer with PR platelets and there is also an opportunity for them to improve their margin profiles on what's historically been their highest margin product, which is platelets. So, you know there, we think, whether it's there. He has an explicit, but with the other big five centers, our channel checks and feedback directly from them that they intend to make PR really their go to overtime in terms of how they address platelet safety.

Mathew Blackman -- Stifel -- Analyst

Okay. And then one last quick one, I just want to confirm that the slight push out on the 7-day label, that's entirely enrollment pace driven. There's nothing else going on that we need to be concerned about?

Tim Lee -- Investor Relations Director

Yes, then loss from other i was wondering that, sorry go ahead Obi.

William 'Obi' M. Greenman -- President and Chief Executive Officer

I think we're targeting submission in Q1, and that's largely a function of wrapping up the final 12 subjects that's well under way that is obviously mentioned. So I think we're optimistic that we'll have a label claim assuming the FDA moves forward with that submission and through the 180-day review time frame in the second half of next year. So will come into play at a very important time.

Mathew Blackman -- Stifel -- Analyst

All right. Thank you very much guys.

William 'Obi' M. Greenman -- President and Chief Executive Officer

Yes. Thanks Mat.

Operator

Thank you. And your next question comes from the line of Josh Jennings with Cowen.

Josh Jennings -- Cowen -- Analyst

Hi guys, this is Eric on for Josh. I was just curious on the opportunity in Asia, you were delivered a positive update on Hong Kong over the summer and we've heard about the potential for a joint partner in China. While, Japan still reviewing the technology. I was just wondering if there's been any further progress to note in those two markets. Thank you.

Tim Lee -- Investor Relations Director

Vivek, do you want to cover, what's happened in Hong Kong as far as getting of the Hong Kong Red Cross up and going and then I'll be back can elaborate on what we're doing an impact.

Vivek K. Jayaraman -- Chief Operating Officer

Sure, I'd be happy too. What was the encouraging this past quarter in Hong Kong as we were able to get in, with our technical services team, get those illuminator is deployed and installed and they are now producing INTERCEPT platelets in Hong Kong. So that's been encouraging progress there and we really do you view that as a sort of a beachhead for us in Asia-Pacific region. That's a very influential customer who has a I think significant sway over the Asia Pacific blood network and then Obi, I'll defer to you in terms of the China and Japan updates OK.

William 'Obi' M. Greenman -- President and Chief Executive Officer

Yes. Yes, more broadly, I think across APAC. There is an awareness around the need for pandemic preparedness and securing both safety and availability China overtime will clearly be the largest market for transfused blood components globally. We will continue to see double-digit growth rates and overall platelet demand and availability in China. And there is a strong realization there that pathogen inactivation of platelets is for the, the ultimate a transformational change to blood safety that's required, it also theoretically will increase availability. Most of the platelets in China today are derived from if raises and they can't really meet the current demand and overtime, the ability to do pooled whole blood drive platelets in China will increase overall availability. So that's a strong selling point for us. We are in continue discussions with joint-venture partner there and hope still hope to have something to announce before the end of this year. And then in other markets, the Japan Red Cross is the other major market there. I think they really do look to what's happening across the globe, and specifically what happens with the American Red Cross. And so, I think over time what we should see increased awareness on their end as to how INTERCEPT has rolled out in the United States on the back of the FDA guidance for platelet safety in United States.

Josh Jennings -- Cowen -- Analyst

Great, thank you. And then maybe just one more than seven day label claim. So in some of the countries that it's being used currently. I think France and Switzerland years of claim there, what has the experience been like so far. And then, is there anything to consider in the US market that might cause this experience to differ?

Vivek K. Jayaraman -- Chief Operating Officer

Yes. Thanks, Eric. So it's a good question. We've had a great experience over the last, let's say five years and Switzerland and France, with the seven day label claim. And that's clearly something that reduces overall wastage and improves platelet supply logistics at the blood center, but also at the hospitals. If you have remote hospitals that have a hard time managing their platelet inventories, this really gives them increased flexibility and the United States with the two one step options that we referred to in the prepared remarks, you got INTERCEPT we've currently a five day claim, but that can be released earlier. And then the LVDS claim potentially going out to seven days with blood centers that still has the LVDS has a release at day three. So the effective sulfide isn't as long, if you'd expect. So assuming that, we get this seven day label claim In the US where we have the longest effective short life and earlier release of the platelet components. So we think the benefits that we've seen in Switzerland and France we're also confer to US customers and will be a strong selling point for US hospitals specifically.

Josh Jennings -- Cowen -- Analyst

Great. Thank you for taking the questions.

Vivek K. Jayaraman -- Chief Operating Officer

Thanks, Eric.

Operator

Thank you. And our next question comes from the line of Mark Massaro with BTIG.

Mark Massaro -- BTIG -- Analyst

Hey guys, congratulations on the quarter, and thanks for taking my questions. My first question is really around COVID-19. So recognizing that obviously we're still in the pandemic and we're seeing signs of I guess we're in a second wave. Can you just maybe clarify that the lowering of at the top end of the guidance is largely are completely related to COVID-19 in Europe or we also taking some conservatism in the United States. And then the second part of that question recognizing that COVID-19 is certainly a headwind. I noticed one of your studied at ABB demonstrated that, that there was demonstrated inactivation of COVID-19 and human plasma with INTERCEPT so curious if there is any potential opportunity to make COVID-19 actually a benefit to your business, and I'm curious if you're exploring inactivation with INTERCEPT for platelets.

William 'Obi' M. Greenman -- President and Chief Executive Officer

Well, Mark, and thanks very much for the questions, so I'll cover the first part I'm not sure, clearly understood your second question, but I'll give a shot and then you correct me if and if if I've got it right or not. So specifically as it relates to the narrowing of the guidance here in Q4, it really does relate specifically to serve the resurgence of COVID, and Europe and as Vivek already mentioned just with markets were 100% penetrated to the extent that there is variability in supply and demand either is a function of elective procedures, getting pushed out or the availability of blood components period. With that's what we just looked at that, and we thought it was prudent to to narrow the range. And still represents As we mentioned 21 to 30% of growth year-over-year. So super strong growth in United States we've seen strong growth throughout the COVID-19 pandemic and that's going to continue into Q4, and allow for strong momentum going into 2021. With regard to your last question, we clearly believe that INTERCEPT very effective against in very effective in inactivating corona virus families. So we've done this historically with MERS, the Middle East respiratory virus and now with COVID, and but I guess I'm not really getting the part last part of your question as far as what you. We certainly see it, it's a benefit for future pandemic threats because of the broad spectrum of inactivation that our technology affords.

Mark Massaro -- BTIG -- Analyst

Yes, no, that's fair. I also want to ask about your expectations around the FDA approval, you're sort of in the late innings here and that comments are largely around labeling and without much heavy lifting in terms of the back and forth with the FDA.

William 'Obi' M. Greenman -- President and Chief Executive Officer

Well, had a lot of back and forth and it's been a very positive discussion to date. So yes, I guess what we can say is that we don't have any clock stops to date. But maybe I can ask Carol to opine on sort of how she sees the next month playing out, and and sort of her overall optimism for where we are today.

Carol Moore -- Senior Vice President, Regulatory Affairs and Quality

Thank you, Obi. And thanks for the question. Yes, I think we are very positive at this point about the progress we're making FDA has told us in a number of correspondents that are targeting to complete the review in a timely fashion and and we do when we get questions we get them by email, which is a very good way to be have an effective question and answer opportunities so that we can respond quickly and they can receive the information and process it quickly to move on to whatever else they would like to look at it in the submission. So we, we don't have any indication of any concerns from FDA there it's a reasonable set of questions and answers. And I think we remain optimistic that we will complete the process very shortly.

Mark Massaro -- BTIG -- Analyst

No, that's great. And then my final question recognizing that the FDA deadline of March 2021, is rapidly approaching and you've commented that you're seeing an increase from the other large blood centers in the United States at least four out of five in total, can you speak to maybe the rate of adoption that these other blood centers. I'm trying to recognize if there is any penalty for not complying or just how do you think of, is this going to be other blood centers dipping their toe or do you see the potential for broader adoption after March.

William 'Obi' M. Greenman -- President and Chief Executive Officer

Yes. We clearly see the March deadline is being sort of a point in time, but continued adoption in our March toward standard of care beyond that. I think Vivek already mentioned that the American Red Cross came out very clearly on sort of how they see the ramp looking through 2023, and what they are targeting a 100% I think, they mentioned that they plan to be 40% penetrated by the end of February, so sort of an advance of the final guidance compliance today. And Vivek, you want to, maybe add a few more comments just around sort of how you see that the market evolving past the March time frame?

Vivek K. Jayaraman -- Chief Operating Officer

Yes, I think the point you make about the Red Cross is a selling one of the other point that I would highlight is when we discussed the seven day label claim and the impact that will have it thing in terms of further accelerating adoption. We certainly view and we're seeing steps that the blood centers are taking now around hospital contracting, things of that nature to ensure that they can continue to make that progress. So while the guidance compliance deadline is March 31, we by no means view that is sort of what the fixed adoption will be, we in fact expect an accelerated adoption of PR beyond the guidance through the balance of the calendar year 2021, and really in 2020 and beyond. So we're and that's frankly what we, what we've been preparing for it and a big reason why this seven day label claim will be a big push in terms of driving further adoption.

Mark Massaro -- BTIG -- Analyst

Thanks, very much.

William 'Obi' M. Greenman -- President and Chief Executive Officer

Thanks a lot, Mark.

Operator

Thank you. And our next question comes from the line of Jacob Johnson with Stephens.

Jacob Johnson -- Stephens -- Analyst

Hey, thanks. Maybe just a quick follow-up on the last comment there. Just on the slight push out in the timeline for seven day platelet approval. I realize this doesn't change the long-term outlook at all, but in the near-term could this slow the ramp of adoption for platelets? Just given that I think that approval is key for some customers versus prior expectations?

Tim Lee -- Investor Relations Director

No, Vivek I think I'll turn that one to you as well. Jacob and I think that this is what you we're talking about a month or two here and so I think it overall what we're hearing from customers is that they are looking-forward to that claim in 2021 and that's still very much in the timeframe that we've talked about. Vivek, you have any other thoughts?

Vivek K. Jayaraman -- Chief Operating Officer

Yes, no, it's a fair question. I don't anticipate it slowing any near-term adoption simply because there are a number of activities prior to transacting kit that need to occur for the blood centers, and hospitals to be in a position to adopt the technology. So the production optimization measures, which we've talked about in the past need to be adopted at the bloods in our operations level at the American Red Cross has been ahead of the curve on this, but other blood center families are making the resource investments required to do that. There is also the contracting piece at the hospital that needs to occur, and so on those activities are ongoing and they're not being delayed or slowed played at all due to the timing of our data, and submissions. So I think what you'll see is continued strong progress, and then I'll simply serve as a further accelerate because by the time that arrives you will have a lot of the other operational issues either completely or primarily addressed at that point.

Jacob Johnson -- Stephens -- Analyst

Got it. That makes sense. And then, maybe a question for Kevin. I think I heard you say gross margins for the balance of the year should be in the mid-50s. I think if you like, ex the inventory charge, they would have been toward 50% this quarter. Is that a fair proxy for how we should be thinking about fourth quarter gross margins or are there some other puts and takes you need to be aware of?

Kevin D. Green -- Vice President Finance and Chief Financial Officer

Yes, there was about a three over 3, little over 3.5% impact to our overall gross margin. So you're right, we would have expected with normal trading and product mix that they would have been on par with where they were last year and we do think that that's a good proxy. But we expect platelets to continue to be strong in Q2. As we discussed, we had a fairly high concentration historically speaking, a plasma kits, which carries a lower margin that's reversed. And I think as we move forward with the platelet demand that we're seeing in the US, we would expect that that the numbers would be fairly consistent. Of course, we can't predict what's going to happen with FX rates. So that's a wildcard. But assuming normalcy. I think your comments are accurate.

Jacob Johnson -- Stephens -- Analyst

Got it. Makes sense. Thanks, Kevin, and thanks for taking the questions.

Kevin D. Green -- Vice President Finance and Chief Financial Officer

Yes, thanks again.

Operator

Thank you. And as a reminder to ask a question, Operator Instruction our next question comes from the line of Brandon Folkes with Cantor Fitzgerald.

Brandon Folkes -- Cantor Fitzgerald -- Analyst

All right, thanks for taking my questions. Maybe just following on from an earlier question regarding the deadline, Could we be in a situation where centers maybe are in a position where they comply with the the deadline, but there aren't and dumped into step just because some maybe reluctance to change the standard operating procedure, just given everything else are dealing with in COVID? And then once we get past COVID, we actually see the centers moving toward INTERCEPT given its advantages. And then my second question is, can you just elaborate in terms of what you are seeing in terms of volume, blood donation centers post the quarter end? Thank you.

Kevin D. Green -- Vice President Finance and Chief Financial Officer

Thanks a lot, Brandon for the question. And I'll start then maybe they can add some comments Vivek can add some comments. I think what we're seeing is that most blood centers have already adopted INTERCEPT, and some share perform that they continue to optimize it. So they can maximize the production of INTERCEPT treated platelets to meet the demand that they're seeing from hospitals. At the same time even the Red Cross is communicated all their hospital customers that they will be providing INTERCEPT as well as LVDS platelets for a period of time, so that the hospitals have to have that in their systems to be able to accept both products just to be able to fulfill their supply requirements. So I think, to your question about sort of, is this something that transitions over time as hopefully the pandemic subsides. I think that's true to some extent I think by and large, it really comes down is our optimization of their ability to increase overall INTERCEPT platelet production. Vivek, do you have anything else you want to add to that?

Vivek K. Jayaraman -- Chief Operating Officer

I think you captured it well. And I think with you keep coming back to it, but an example of that is just what the red cross has stated explicitly to the external market that they intend to be it 100% in 2023 time frame, which I'd say implies that you'll see continued progression for them beyond the March 2021 deadline. I think the key thing is for them as messaging that to the hospitals, so I think net contracts in place and get them prepared to manage inventory, things of that nature and I think you'll see other blood center families following a similar path.

Operator

Thank you. And I'm showing no further questions at this time. So with that, I'll turn the call back to President and CEO, Obi Greenman for any further remarks.

William 'Obi' M. Greenman -- President and Chief Executive Officer

Well, thank you again for joining us today and for your interest in Cerus. Next month, we will be participating in the Stephens Virtual Investment Conference, and the Stifel virtual Healthcare Conference. We hope to connect with many of you there. Thanks again.

Operator

[Operator Closing Remarks]

Duration: 44 minutes

Call participants:

Tim Lee -- Investor Relations Director

William 'Obi' M. Greenman -- President and Chief Executive Officer

Vivek K. Jayaraman -- Chief Operating Officer

Kevin D. Green -- Vice President Finance and Chief Financial Officer

Carol Moore -- Senior Vice President, Regulatory Affairs and Quality

Mathew Blackman -- Stifel -- Analyst

Josh Jennings -- Cowen -- Analyst

Mark Massaro -- BTIG -- Analyst

Jacob Johnson -- Stephens -- Analyst

Brandon Folkes -- Cantor Fitzgerald -- Analyst

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