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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 - Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-21937
CERUS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 68-0262011
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification Number)
2525 STANWELL DR., SUITE 300
CONCORD, CALIFORNIA 94520
(Address of principal executive offices, including zip code)
(925) 603-9071
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO[ ]
As of April 30, 1998 there were 9,243,443 shares of the Registrant's
Common Stock outstanding.
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CERUS CORPORATION
QUARTERLY REPORT ON FORM 10-Q
THREE MONTHS ENDED MARCH 31, 1998
TABLE OF CONTENTS
<TABLE>
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PAGE NO.
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Balance Sheets -
March 31, 1998 and December 31, 1997 3
Condensed Statements of Operations -
Three months ended March 31, 1998 and 1997 4
Condensed Statements of Cash Flows -
Three months ended March 31, 1998 and 1997 5
Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk 13
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PART II OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities and Use of Proceeds 14
Item 3. Defaults upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
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SIGNATURES 15
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PART I: FINANCIAL INFORMATION
ITEM I: FINANCIAL STATEMENTS
CERUS CORPORATION
CONDENSED BALANCE SHEETS
UNAUDITED
(in Thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
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<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 6,698 $11,604
Short-term investments 14,751 9,977
Accounts receivable from a related party 1,328 4,376
Other current assets 504 214
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Total current assets 23,281 26,171
Furniture and equipment, net of depreciation 990 1,032
Other assets 87 112
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Total assets $24,358 $27,315
======= =======
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 1,279 $ 1,299
Accrued expenses 3,835 3,428
Current portion of capital lease obligations 62 70
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Total current liabilities 5,176 4,797
Capital lease obligations, less current portion 31 43
Total stockholders' equity 19,151 22,475
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Total liabilities and stockholders' equity $24,358 $27,315
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</TABLE>
See notes to condensed financial statements
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CERUS CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
UNAUDITED
(in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
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1998 1997
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<S> <C> <C>
Revenue:
Development funding from a related party $ 1,426 $ 875
Government grants 186 157
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Total revenue 1,612 1,032
Operating expenses:
Research and development 4,456 4,588
General and administrative 1,021 750
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Total operating expenses 5,477 5,338
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Loss from operations (3,865) (4,306)
Interest income, net 293 245
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Net loss $(3,572) $(4,061)
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Net loss per share - basic and diluted $ (0.39) $ (0.62)
======= =======
Shares used in computing net loss per share
- basic and diluted 9,222 6,573
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</TABLE>
See notes to condensed financial statements
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CERUS CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
UNAUDITED
(in Thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
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<S> <C> <C>
Operating activities:
Net loss $ (3,572) $ (4,061)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 145 134
Amortization of deferred compensation 34 65
Changes in operating assets and liabilities:
Accounts receivable from related a party 3,048 (670)
Other current assets (290) (204)
Other assets 25 5
Accounts payable and accrued expenses 387 295
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Net cash used in operating activities (223) (4,436)
Investing activities:
Purchases of furniture, equipment and leasehold improvements (103) (309)
Purchase of short-term investments (9,774) (18,043)
Maturities of short-term investments 5,000 --
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Net cash used in investing activities (4,877) (18,352)
Financing activities:
Net proceeds from sale of preferred stock -- --
Proceeds from issuance of common stock 214 26,792
Deferred financing costs -- 969
Payments on notes receivable from shareholders -- 2
Payments on capital lease obligations (20) (39)
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Net cash provided by financing activities 194 27,724
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Net increase (decrease) in cash and cash equivalents (4,906) 4,936
Cash and cash equivalents, beginning of period 11,604 6,002
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Cash and cash equivalents, end of period $ 6,698 $ 10,938
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</TABLE>
See notes to condensed financial statements
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CERUS CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
UNAUDITED
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and pursuant to the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments, consisting
of normal recurring accrual adjustments, considered necessary for a fair
presentation have been included. Operating results for the three month period
ended March 31, 1998 are not necessarily indicative of the results that may be
expected for any future period.
In June 1997, the Financial Accounting Standards Board issued Statement No. 130,
Reporting Comprehensive Income, ("FAS 130"), and Statement No. 131, Disclosure
about Segments of an Enterprise and Related Information ("FAS 131"). FAS 130
establishes new standards for reporting and displaying comprehensive income and
its components and is effective for the March 1998 quarter. Implementation of
this standard had no effect on reported net income. FAS 131 requires disclosure
of certain information regarding operating segments, products and services,
geographic areas of operation and major customers and is effective for 1998.
Adoption of FAS 131 will not have a material impact on the Company's
consolidated financial position, results of operations or cash flows.
These financial statements and notes should be read in conjunction with the
Company's audited financial statements and notes thereto for the year ended
December 31, 1997 included in the Company's Annual Report on Form 10-K.
NOTE 2 - LOSS PER SHARE INFORMATION
Net Loss Per Share
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings Per Share" ("FAS 128"), which is required to be adopted for the
period ended December 31, 1997. FAS 128 replaced the calculation of primary and
fully diluted net income (loss) per share with basic and diluted net income
(loss) per share. Unlike primary net income (loss) per share, basic net income
(loss) per share excludes any dilutive effects of options, warrants and
convertible securities.
In February 1998, Staff Accounting Bulletin No. 98 ("SAB 98") was issued which
amends the existing Securities and Exchange Commission staff guidance primarily
to give effect to FAS 128. Topic 4.D of SAB 98 revises the instructions
regarding the dilutive effects of stock issued for consideration below the
initial public offering ("IPO") price or options and warrants to purchase common
stock with exercise prices below the IPO price, previously referred to as cheap
stock. The new guidance highlights the treatment that should be given to the
dilutive effect of common stock or options and warrants to purchase common stock
issued for nominal consideration.
All net loss per share amounts for all periods have been presented, and where
appropriate, restated to conform to the FAS 128 and SAB 98 requirements. Common
stock equivalent shares from
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convertible preferred stock and from stock options and warrants are not included
as the effect is anti-dilutive.
NOTE 3 - LICENSING AGREEMENTS WITH BAXTER HEALTHCARE CORPORATION, A RELATED
PARTY OF THE COMPANY
In March 1998, the Company and Baxter Healthcare Corporation ("Baxter") entered
into an amendment to the April 1996 agreement providing that, to the extent the
approved spending for 1998 for the red blood cell project exceeds $7.3 million,
Cerus will fund all expenses for the red blood cell project in 1998 in excess of
such amount, up to the amount of the approved budget. To compensate Cerus for
such excess expenditures, Baxter will fully fund the first expenditures under
the approved budget for the red blood cell project for 1999 in an amount equal
to such excess expenditures, after which the parties shall equally share the
expenses of the red blood cell project. If for any reason there is not an
approved budget for the red blood cell project for 1999, Baxter will fully fund
the first expenditures for 1999 under the approved budget for such other
Cerus-Baxter program or programs as Cerus shall designate in an amount equal to
the Cerus 1998 excess expenditures. If by July 1, 1999, however, there is not an
approved budget for such other Cerus-Baxter program or programs that is at least
equal to such excess expenditures, Baxter will promptly pay to Cerus one-half of
the amount by which the excess expenditures exceed the amount of expenditures to
be funded by Baxter. Cerus anticipates that the expenditures for 1998 for the
plasma program will exceed the previously approved budget.
NOTE 4 - RECLASSIFICATION OF PRIOR BALANCES
Certain balances in the March 31, 1997 financial statements have been
reclassified to conform to the current period financial statement presentation.
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ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This discussion and analysis should be read in conjunction with the Company's
financial statements and accompanying notes included herein and the Company's
1997 audited financial statements and notes thereto included in the Company's
1997 annual report on Form 10-K. Operating results for the periods presented
are not necessarily indicative of results in future periods.
Except for the historical information contained herein, this discussion includes
forward-looking statements that involve risks and uncertainties. When used
herein, the words "believe," "anticipate," "expect," "estimate" and similar
expressions are intended to identify such forward-looking statements. There can
be no assurance that these beliefs and expectations will prove to have been
correct. Certain important factors could cause actual results to differ
materially from those discussed in such statements, including uncertainties
associated with preclinical and clinical testing and other factors discussed
below and in the Company's Annual Report on From 10-K. The Company undertakes no
obligation to update any of the forward-looking statements contained herein to
reflect any future events or developments.
OVERVIEW
Cerus Corporation is developing systems designed to improve the safety of blood
transfusions by inactivating infectious pathogens in blood components used for
transfusion (platelets, plasma, and red blood cells) and inhibiting the
leukocyte (white blood cell) activity that is responsible for certain adverse
immune and other transfusion-related reactions. The Company's platelet and
plasma pathogen inactivation systems are in Phase 2 clinical trials, and its red
blood cell pathogen inactivation system is in preclinical development.
Since its inception in 1991, Cerus has devoted substantially all of its efforts
and resources to the research, development and clinical testing of techniques
and systems for inactivating pathogens in transfusion blood components. The
Company has been unprofitable since inception and, as of March 31, 1998, had an
accumulated deficit of approximately $38.4 million. All of the Company's planned
pathogen inactivation systems are in the research and development stage. The
Company will be required to conduct significant research, development, testing
and regulatory compliance activities on these products that, together with
anticipated general and administrative expenses, are expected to result in
substantial losses at least until commercialization of its products under
development. The Company's ability to achieve a profitable level of operations
in the future will depend on its ability to successfully complete development,
obtain regulatory approvals and achieve market acceptance of its pathogen
inactivation systems. There can be no assurance that the Company will ever
achieve a profitable level of operations. Further, under the agreements
discussed below, a significant portion of the Company's development funding is
provided by Baxter Healthcare Corporation ("Baxter") based on an annual
budgeting process. There can be no assurance that these agreements will not be
modified or terminated as provided for in the agreements.
In December 1993, Cerus entered into a development and commercialization
agreement with Baxter to develop a system for inactivation of pathogens in
platelets used for transfusions. The agreement provides for Baxter and the
Company to generally share system development costs equally, subject to mutually
agreed budgets established from time to time. The agreement also provides for a
sharing of revenue from sales of inactivation system disposables, after each
party is reimbursed for its cost of goods above a specified level. Under this
agreement, the Company received a $1.0 million equity investment from Baxter and
has recognized approximately $13.8 million in revenue from Baxter, including
$3.0 million in license fees, $2.5 million in milestone payments and
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approximately $8.3 million in development funding. At March 31, 1998, the
Company had recognized as revenue all license fees and milestone payments under
this agreement. License fees and payments from achieved milestones are
non-refundable and are not subject to future performance. Revenues under this
agreement were $290,000 for the three months ended March 31, 1998, and consisted
solely of development funding. In January 1997, the Company and Baxter amended
the agreement to provide that the Company would receive an additional 2.2% of
the adjusted product revenue from the sale of the platelet pathogen inactivation
system disposables in return for payment by the Company to Baxter of $5.5
million in 1997 in four equal quarterly installments for development costs.
In January and July 1995, Cerus received approximately $2.6 million from Baxter
in connection with interim funding agreements related to the development of
pathogen inactivation systems for plasma and red blood cells used for
transfusions. In April 1996, Cerus entered into a second development and
commercialization agreement with Baxter, principally focused on the plasma and
red blood cell pathogen inactivation systems. The agreement provides for Baxter
to make certain equity investments, including two future milestone-based
investments of $5 million each at 120% of the market price at the time of the
investment. The agreement also provides for Baxter and the Company to generally
share development costs of the systems equally, subject to mutually agreed
budgets established from time to time. The agreement further provides for the
Company and Baxter to equally share gross profits from the sale of inactivation
system disposables, after deducting from such gross profits a specified
percentage allocation to be retained by the marketing party for marketing and
administration expenses. As of March 31, 1998, the Company has recognized
approximately $6.8 million in revenue for development funding from Baxter and
has received $11.0 million in equity investments from Baxter under this
agreement. Revenues under this agreement were $1.1 million for the three months
ended March 31, 1998, and consisted solely of development funding.
In March 1998, the Company and Baxter Healthcare Corporation ("Baxter") entered
into an amendment to the April 1996 agreement providing that, to the extent the
approved spending for 1998 for the red blood cell project exceeds $7.3 million,
Cerus will fund all expenses for the red blood cell project in 1998 in excess of
such amount, up to the amount of the approved budget. To compensate Cerus for
such excess expenditures, Baxter will fully fund the first expenditures under
the approved budget for the red blood cell project for 1999 in an amount equal
to such excess expenditures, after which the parties shall equally share the
expenses of the red blood cell project. If for any reason there is not an
approved budget for the red blood cell project for 1999, Baxter will fully fund
the first expenditures for 1999 under the approved budget for such other
Cerus-Baxter program or programs as Cerus shall designate in an amount equal to
the Cerus 1998 excess expenditures. If by July 1, 1999, however, there is not an
approved budget for such other Cerus-Baxter program or programs that is at least
equal to such excess expenditures, Baxter will promptly pay to Cerus one-half of
the amount by which the excess expenditures exceed the amount of expenditures to
be funded by Baxter. Cerus anticipates that the expenditures for 1998 for the
plasma program will exceed the previously approved budget. Cerus and Baxter are
in discussions regarding the level of funding each company will support in 1998
for the plasma program.
To date, the Company has not received any revenue from product sales, and it
will not derive revenue from product sales unless and until one or more planned
products receives regulatory approval and achieves market acceptance. The
Company anticipates that, until product sales occur, its sources of revenue will
be limited to payments under development and commercialization agreements with
Baxter in the area of blood component pathogen inactivation, payments from the
United States government under research grant programs, payments from future
collaboration agreements, if any, and interest income. Under the agreements with
Baxter, all research, development, preclinical and clinical costs of the
pathogen inactivation projects are shared equally by Cerus and Baxter. Because
more of such research and development is typically performed
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internally at Cerus than at Baxter and because Cerus is generally responsible
for engaging third parties to perform certain aspects of these projects, the
Company's research and development expenses have exceeded Baxter's expenses. As
a result, the Company has recognized revenue from Baxter, giving rise to a
receivable due from Baxter and corresponding periodic balancing payments to the
Company. At December 31, 1997, the amount of the Baxter receivable was
approximately $4.4 million. On February 13, 1998, Baxter paid Cerus
approximately $4.5 million in satisfaction of such receivable and anticipated
adjustments. At March 31, 1998, the amount of the Baxter receivable was
approximately $1.3 million. Through March 31, 1998, the Company had recognized
approximately $20.6 million in revenue under its agreements with Baxter,
including the license fee and milestone amounts described above, and
approximately $3.3 million under United States government grants.
RESULTS OF OPERATIONS
The following discussion compares the results of operations for the three month
periods ended March 31, 1998 and March 31, 1997. The operating results for these
periods are not necessarily indicative of operating results in future periods.
The following comparative information should be read in conjunction with the
financial statements and notes, as well as the other information presented
herein.
Revenue. Under the development agreements with Baxter, Cerus shares development
costs equally with Baxter. For this reason, periodic development revenue
recognized by Cerus from Baxter varies with the amount by which Cerus'
development costs exceed Baxter's development costs for the given period.
Development revenue earned under these agreements increased 63% to approximately
$1.4 million for the three months ended March 31, 1998 from approximately
$870,000 for the same three months in 1997. This increase is due to the
relatively larger increase in the Company's costs associated with the platelet,
plasma and red blood cell pathogen inactivation systems (see Research and
Development Expenses below) to Baxter's costs associated with the development of
the system disposables and instruments. The Company did not recognize any
milestone or license fee revenue from Baxter for the three month periods ending
March 31, 1997 and March 31, 1998.
Government grant revenue increased 19% to approximately $190,000 for the three
months ended March 31, 1998 from approximately $160,000 for the same three
months in 1997 primarily due to periodic changes in grant-related activity. In
general, grant-related activity is a function of how that activity fits into the
overall development activity at the Company and is not necessarily indicative of
future grant revenue. There can be no assurance that the Company will receive
additional government grants in the future.
Revenue under the agreements with Baxter was 88% of total revenue for the three
months ended March 31, 1998, compared with 85% for the same three months in
1997. The Company anticipates that revenue from Baxter will continue to be the
Company's primary source of revenue in future periods. There can be no assurance
that the agreements with Baxter will not be terminated or amended such that the
development revenue from Baxter is affected in future periods.
Research and Development Expenses. Research and development expenses decreased
3% to approximately $4.5 million for the three months ended March 31, 1998 from
approximately $4.6 million for the same three months in 1997. Changes in
research and development expenses are attributable to the following factors:
Platelet Pathogen Inactivation System. Research and development
expenses in the platelet program increased approximately 13% to
approximately $1.5 million for the three months ended March 31, 1998
from approximately $1.3 million for the same three months in 1997.
This increase is due principally to increased clinical trial and
toxicology costs associated
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with the program. The Company anticipates that research and
development expenses will increase for the platelet pathogen
inactivation system as the Company expands its clinical trial
activity relating to this program.
Plasma Pathogen Inactivation System. Research and development
expenses in the plasma program increased approximately 77% to
approximately $1.1 million for the three months ended March 31, 1998
from approximately $600,000 for the same three months in 1997. This
increase is due principally to increased clinical trial and, to a
lesser extent, increased toxicology costs associated with the
program. The Company anticipates that research and development
expenses relating to clinical trials will continue to increase as
the Company expands its clinical trial activity relating to this
program.
Red Blood Cell Pathogen Inactivation System. Research and
development expenses in the red blood cell program increased
approximately 44% to approximately $1.6 million for the three months
ended March 31, 1998 from approximately $1.1 million for the same
three months in 1997. This increase is due principally to increased
clinical trial costs and, to a lesser extent, increased toxicology
costs, partially offset by reduced product manufacturing costs. The
Company anticipates that research and development expenses relating
to clinical trials will increase as the Company expands development
activity relating to this program.
Additionally, the first of four equal quarterly payments related to the January
1997 amendment to the December 1993 agreement described above was made in the
first quarter of 1997 and accounts for approximately $1.4 million of the
research and development costs for that period. No such payment was made in the
first quarter of 1998.
The Company anticipates that research and development expenses will continue to
increase in the future as it expands its activity related to its pathogen
inactivation system development and it initiates new research and development
programs.
General and Administrative Expenses. General and administrative expenses
increased 36% to approximately $1.0 million for the three months ended March 31,
1998 from approximately $750,000 for the same three months in 1997. This
increase is primarily attributable to increased personnel levels associated with
expansion of the Company's operations and to increased professional fees and
other costs associated with being a publicly-held company. The Company
anticipates that general and administrative expenses will continue to increase
in the future as additional personnel are added to support its operations.
Interest Income, Net. Interest income increased to approximately $300,000 for
the three months ended March 31, 1998 from approximately $250,000 for the same
three months in 1997. This increase is due to increased average cash balances
related to proceeds from the Company's initial public offering and the related
private placement to Baxter (see Liquidity and Capital Resources below).
Interest expense remained relatively unchanged from the quarter ended March 31,
1998 as compared to the same period in 1997.
LIQUIDITY AND CAPITAL RESOURCES
In January 1997, the Company completed an initial public offering of 2,000,000
shares of Common Stock, generating net proceeds (after deduction of offering
costs) of approximately $21.1 million. Concurrent with this offering, the
Company sold directly to Baxter an additional 496,878 shares of its Common Stock
for an aggregate purchase price of approximately $5.5 million. In October 1997,
the Company completed a private placement of 217,202 shares of Common Stock to
Baxter for an aggregate purchase price of approximately $5.0 million. In
addition to these financings, the Company's sources of capital to date have
consisted of private placements of preferred and common equity securities,
project funding by Baxter, United States government
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grants and interest income. To date, the Company has not received any revenue
from product sales, and it will not derive revenue from product sales unless and
until one or more planned products receives regulatory approval and achieves
market acceptance. At March 31, 1998, the Company had cash and cash equivalents
of approximately $21.4 million.
Net cash used in operating activities was approximately $220,000 for the three
months ended March 31, 1998, compared to $4.4 million for the same period in
1997, resulting primarily from net losses of $3.6 million offset by a reduction
in development funding receivable from Baxter of $3.0 million due to a periodic
balancing payment received in February 1998. Net cash used in investing
activities in the three month period ended March 31, 1998 of approximately
$100,000 resulted from purchases of furniture and laboratory and computer
equipment.
The Company's future capital requirements and the adequacy of its available
funds will depend on many factors, including progress of the platelet program
and the related clinical trials; progress of the plasma and red blood cell
programs; achievement of milestones leading to a milestone payment and equity
investments by Baxter; regulatory approval and successful commercialization of
the Company's pathogen inactivation systems; costs related to creating,
maintaining and defending the Company's intellectual property position; and
competitive developments. The Company believes that its available cash balances,
together with anticipated cash flows from existing Baxter and grant
arrangements, will be sufficient to meet its capital requirements for at least
the next twelve months. There can be no assurance that the Company will be able
to meet its capital requirements for this or any other period. In the event that
additional capital is required, the Company may seek to raise that capital
through public or private equity or debt financings or through additional
collaborative arrangements or government grants. Future capital funding
transactions may result in dilution to investors in the Company. There can be no
assurance that such capital will be available on favorable terms, if at all.
IMPACT OF THE YEAR 2000
Based on a recent assessment, the Company has determined that it will be
required to upgrade or replace a portion of its software so that its computer
systems will function properly with respect to dates in the year 2000 and
thereafter. The Company believes that the year 2000 issue will not pose
significant operational problems for its business activities and costs
associated with the upgrade and/or conversion of existing computer software
relating to the 2000 issue will be less than $100,000. However, there can be no
assurance that this estimate is accurate or that other companies on which the
Company relies will be converted on a timely basis and will not have an adverse
effect on the Company's operations.
ADDITIONAL RISKS
The Company's business is subject to significant additional risks, including,
but not limited to, the risks and uncertainties inherent in its research and
development efforts, including preclinical and clinical trials; the lengthy,
expensive and uncertain process of seeking regulatory approvals; dependence on
Baxter and other third parties; uncertainties associated both with obtaining and
enforcing its patents and with the patent rights of others; technological change
and competition; manufacturing uncertainties; and uncertainties regarding
government reforms and of product pricing and reimbursement levels.
In addition, the market price of the Company's Common Stock, like that of the
common stock of many other companies in similar industries, is likely to be
highly volatile. Factors such as the announcements of scientific achievements or
new products by the Company or its competitors; governmental regulation; health
care legislation; developments in patent or other proprietary rights of the
Company or its competitors, including litigation; fluctuations in the Company's
operating
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results; comments made by analysts, including changes in analysts' estimates of
the Company's financial performance; and market conditions for health care
stocks in general could have significant impact on the future price of the
Common Stock. In addition, the stock market has from time to time experienced
extreme price and volume fluctuations, which may be unrelated to the operating
performance of particular companies. There can be no assurance that fluctuations
in the price and volume of the Company's Common Stock will not occur in the
future.
The Company's pathogen inactivation systems are in the research and development
stage and will require significant additional preclinical and clinical testing
prior to submission of any regulatory application for commercial use. The
Company has not filed a product approval application with the United States Food
and Drug Administration ("FDA") or made corresponding regulatory filings in
Europe for its platelet pathogen inactivation system or for any of its other
planned products. No assurance can be given that such filings will be made or
that any of the Company's development programs will be successfully completed;
that any further Investigational New Drug ("IND") or Investigational Device
Exemption ("IDE") applications will become effective or that additional clinical
trials will be allowed by the FDA or other regulatory authorities; that future
clinical trials will commence as planned; that required United States or foreign
regulatory approvals will be obtained on a timely basis, if at all; or that any
products for which approval is obtained will be commercially successful.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not Applicable.
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PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On January 9, 1998, the Company issued a certificate for 27,011
unregistered shares of its Common Stock to CDC Realty, Inc. upon the net
exercise of a warrant to purchase 30,545 shares of Common Stock at an exercise
price of $2.619 per share. The sale was exempt from registration under the
Securities Act of 1933 under Section 4(2) thereof, as a transaction not
involving any public offering.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
ITEM 5. OTHER INFORMATION
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit
10.28* Amendment to Development, Manufacturing and Marketing
Agreement, dated as of March 6, 1998, by and between
Baxter Healthcare Corporation and the Company.
27.1 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three month period
ended March 31, 1998.
- ---------------------------
* Confidential treatment has been requested for certian portions of this
exhibit.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CERUS CORPORATION
Date: March 15, 1998 /s/ David S. Clayton
------------------- -----------------------------
David S. Clayton
Chief Financial Officer
(Principal Financial and
Accounting Officer)
Page 15
<PAGE> 16
CERUS CORPORATION
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
No. Description Page
<S> <C> <C>
10.28 Amendment to Development, Manufacturing and Marketing Agreement, --
dated as of March 6, 1998, by and between Baxter Healthcare
Corporation and the Company.
27.1 Financial Data Schedule --
</TABLE>
<PAGE> 1
***TEXT OMITTED AND FILED SEPARATELY
CONFIDENTIAL TREATMENT REQUESTED
UNDER 17 C.F.R. SECTIONS 200.80(B)4,
200.83 AND 240.24B-2
AMENDMENT TO
DEVELOPMENT, MANUFACTURING
AND MARKETING AGREEMENT
THIS AMENDMENT amends that certain AGREEMENT, dated as of April 1,
1996 (the "Agreement") between BAXTER HEALTHCARE CORPORATION, a Delaware
corporation with principal offices at One Baxter Parkway, Deerfield, Illinois
60015, and CERUS CORPORATION, a Delaware corporation, successor in interest to
STERITECH, INC., a California corporation, with principal offices at 2525
Stanwell Drive, Concord, California 94520, such amendment being effective as of
March 6, 1998.
1. AMENDMENT TO SECTION 3.3(A). Section 3.3(a) is amended to read in
full as follows:
(a) THE RED CELL PROJECT. The approved budget for 1998
for the Red Cell Project is attached hereto as Schedule A. The
parties agree to establish a reasonable budget for subsequent
periods for the Red Cell Project, unless the Management Board
determines to discontinue such Project. Each party shall perform the
respective tasks set forth on Schedule A, except as the Management
Board shall otherwise determine.
(i) All funding of the Red Cell Project was
provided by Cerus, until Regulatory Approval to commence Phase III
clinical trials in the United States or Europe under the Platelet
Agreement (the "Platelet Milestone"). Baxter shall participate in
the Red Cell Project in accordance with this Agreement, including
without limitation, the obligation to share fifty percent (50%) of
the costs and expenses of the Cooperative Development Work incurred
on or after January 1, 1997, and to market and sell the Systems for
Red Cells developed under this Agreement. Subject to Section
3.3.(a)(iii) hereof, Baxter shall pay to Cerus on the date of
achievement of the Platelet Milestone fifty percent (50%) of the
amount expended by Cerus under the Project budget from January 1,
1997 to the date of payment.
(ii) The parties acknowledge that the
Platelet Milestone was achieved on September 30, 1997.
(iii) Notwithstanding the foregoing
provisions of this Section 3.3.(a), to the extent the approved
budget for 1998 for the Red Cell Project exceeds Seven Million Three
Hundred Thousand Dollars ($7,300,000), Cerus will fund all expenses
for the Red Cell Project in 1998 in excess of such amount, up to the
amount of the approved budget
2.
<PAGE> 2
("Cerus 1998 Excess Expenditures"). To compensate for the Cerus 1998
Excess Expenditures, Baxter will fully fund the first expenditures
under the approved budget for the Red Cell Project for 1999 in an
amount equal to the Cerus 1998 Excess Expenditures, after which the
parties shall equally share the expenses of the Red Cell Project. If
there is for any reason not an approved budget for the Red Cell
Project for 1999, Baxter will fully fund the first expenditures for
1999 under the approved budget for such other Cerus-Baxter program
or programs as Cerus shall designate in an amount equal to the Cerus
1998 Excess Expenditures. If by July 1, 1999, however, there is not
an approved budget for such other Cerus-Baxter program or programs
that is at least equal to such Excess Expenditures, Baxter will
promptly pay to Cerus one-half of the amount by which the Excess
Expenditures exceed the amount of expenditures to be funded by
Baxter under the preceding sentence.
2. AMENDMENT TO SECTION 3.7(B). Section 3.7(b) is amended to read in
full as follows:
(b) RECONCILIATION OF EXPENDITURES. Unless otherwise
agreed, the Management Board shall reconcile actual cash outlays and
expenses approved by the Management Board with respect to a Project
on a semi-annual basis for the Red Cell Project and on an annual
basis for other Projects such that costs have been incurred in the
proportion of fifty percent (50%) by Baxter and fifty (50%) by
Cerus, or such other ratio as is established pursuant to Section
3.7(a). If they are not in such proportion, Cerus will make a cash
payment to Baxter, or Baxter will make a cash payment to Cerus, in
order to achieve such proportion. The payment shall be made in cash
within thirty (30) days following the determination by the
Management Board based upon the reports made pursuant to Section
3.5(a) of this Agreement.
3. SCHEDULE A. The Schedule A referred to in such amended Section
3.3(a) is attached to this Amendment.
IN WITNESS WHEREOF, this Agreement is signed by duly authorized
representatives of each party as of March 6, 1998.
BAXTER HEALTHCARE CORPORATION CERUS CORPORATION
By: /s/ Roberto Perez By: /s/ Stephen T. Isaacs
------------------------------ ------------------------------
Roberto Perez Stephen T. Isaacs
Title: President, Fenwal Division Title: President
2.
<PAGE> 3
SCHEDULE A
[...***...]
- ---------------------------------
*CONFIDENTIAL TREATMENT REQUESTED
3.
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