What happens to a company that develops a product for customers who not only don't want it, but are getting ready to fight against it?

One word: trouble.

This is something for investors in

Cerus

(CERS) - Get Report

to ponder. TheCalifornia-based biotech firm is in the late stages of developing ablood-cleansing system that rids viruses, bacteria and other bad stuff that can cause disease, infections, even death, in patients who get blood transfusions or blood products.

Providing this new level of safety for the worldwide blood supply could generate upward of $300 million in revenue for Cerus and its marketing partner

Baxter

(BAX) - Get Report

by 2006, according to some bullish Wall Street analysts.

But while Cerus executives push the idea of creating a 100% safe blood supply, there is another side of the story. Some of the very customers who would buy and use Cerus' Intercept Blood Systems -- U.S. blood banks and hospitals -- believe blood cleansing is unnecessary and too expensive.

Cerus has not yet offered official guidance on the cost of its system, but it acknowledges that it will significantly increase the cost of processing a unit of blood.

Kicking and Screaming

"The blood banking industry won't adopt Cerus'

blood-cleansing system unless pushed to do so," says Kim-Anh Nguyen, associate medical director at the University of California San Francisco Blood Center.

This sets up an interesting fight. Even Cerus' critics believe itsIntercept Blood Systems for platelets, plasma and red blood cells stands a good chance of gaining approval from the Food and Drug Administration late next year. Simply put, the blood-cleansing system works and seems to be safe -- results of late-stage tests released earlier this week bolster this view. Cerus is expected to gain approval in Europe first.

But the U.S. is the biggest market, and unless U.S. regulators mandate the system's use -- not 100% guaranteed -- Cerus could find sales highly disappointing. Shares of Cerus closed Wednesday at $46.50 per share.

Since the terrorist attacks of Sept. 11, Americans have been obsessed with safety, with the primary debate being over the cost of achieving it.

This same debate has now reached the U.S. blood supply.

Jed Gorlin, medical director of the Memorial Blood Centers ofMinnesota, says multiple layers of blood screening tests currently in use -- most recently a new

nucleic acid test for HIV and Hepatitis C -- have virtually eliminated these deadly diseases from the U.S. blood supply.

The only significant risk that remains, he says, is from bacterialinfection of platelets, but even here, the problem is relatively small.

"About 25 people in this country are killed by blood transfusions each year," Gorlin says. "About 15 to 20 of these people die because they get the wrong blood type. Only 5 to 10 people per year are killed by bacterial infections."

What Price Safety?

Gorlin acknowledges that Cerus' blood-cleansing system would be aneffective way to eliminate the dangers of bacterial infections, but only where cost is not an issue. In reality, major blood banks and hospitals, which buy blood from them, have difficulty paying for current tests.

"At some point, we do need to say enough is enough," says Gorlin. "If the FDA requires us to cleanse blood, we'll do it, of course. But if they don't make it mandatory, I don't see many blood centers adopting it."

Steve Isaacs, Cerus' CEO, acknowledges that many blood banks andhospitals are not yet on board, but that the Intercept system has keyadvantages that will eventually win skeptics over.

"Our technology inactivates everything you don't want in blood,including things that blood banks don't test for," he says, adding thatthis includes viruses and other pathogens that have not yet beendiscovered.

While it won't happen right away, Isaacs believes that ablood-cleansing system like Intercept will obviate the need for some of the more sophisticated and expensive blood screeners, like nucleic acidtesting.

"What we're going to demonstrate is that our system is cost-beneficial to blood centers and hospitals, while it's clear that

nucleic acid testing is not."

Tough Call for the Feds

So if the FDA approves Cerus' blood-cleansing system as expected, does it also make it mandatory?

Precedent says no. Last January, a governmental bloodsafety advisory panel recommended that the U.S. Department of Health and Human Services require all donated blood be filtered of potentiallydangerous white blood cells, another blood safety measure known as"universal leukoreduction."

The recommendation has sparked a firestorm of debate. The American Red Cross, which collects half of the nation's blood, supports universalleukoreduction on safety grounds, as do some blood specialists andhospitals. Another proponent was

Pall Corp.

(PLL) - Get Report

, which makes the blood filters used in the process.

But opponents say the new procedure, if made mandatory, would add $300 million to $500 million annually to the costs borne by the blood collection and screening industry -- costs that can't be reimbursed. Instead, these opponents, which include powerhouse groups like the American Medical Association, the American Hospital Association and America's Blood Centers, the lobbying group for community blood banks, want HHS to make universal leukoreduction a voluntary safety measure.

So far, opponents seem to have the upper hand. Lately, federal health regulators have stepped back from endorsing the advisory panel'srecommendation, and only a small percentage of the nation's donated blood is now leukoreduced. Sales of Pall's leukoreduction blood filters have been weaker than expected as a result.

The Approval Hurdle

As Cerus' blood-cleansing system gets closer to FDA approval, it will face a similar level of opposition.

Isaacs says Cerus is ready for the possibility that it doesn't receive an FDA mandate. The company, along with Baxter, plans to take the advantages of its blood-cleansing system to individual doctors, who are less cost-sensitive, as well as patients, who have an insatiable desire for the safest blood possible. This latter group might just be the wild card that saves Cerus' day.

"Americans tolerate absolutely zero risk when it comes to the safety of the blood supply," says Jeff Kahn, director of the Center for Bioethics at the University of Minnesota. "Maybe it's because Americans, as patients, never see the real cost of screening or cleansing blood," he says. "Maybe they would feel differently if they had to actually pay for it. But as long as they don't, Americans will always demand that every step be taken to make blood as safe as possible."

And that's clearly what Cerus is counting on.