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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 SEPTEMBER 30, 1999
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 October 31, 1999 there were 11,725,593 shares of the Registrant's
Common Stock outstanding.
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CERUS CORPORATION
QUARTERLY REPORT ON FORM 10-Q
THREE MONTHS ENDED SEPTEMBER 30, 1999
TABLE OF CONTENTS
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PAGE NO.
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Balance Sheets -
September 30, 1999 and December 31, 1998 3
Condensed Statements of Operations -
Three and nine months ended September 30, 1999 and 1998 4
Condensed Statements of Cash Flows -
Nine months ended September 30, 1999 and 1998 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 14
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 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
</TABLE>
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PART I: FINANCIAL INFORMATION
ITEM I: FINANCIAL STATEMENTS
CERUS CORPORATION
CONDENSED BALANCE SHEETS
UNAUDITED
(in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
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<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 7,472 $ 6,161
Short-term investments 40,902 13,641
Other current assets 162 312
-------- --------
Total current assets 48,536 20,114
Furniture and equipment, net of depreciation 923 725
Other assets 96 95
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Total assets $ 49,555 $ 20,934
======== ========
Liabilities and stockholders' equity (deficit)
Current liabilities:
Accounts payable to a related party $ 822 $ 12,719
Accounts payable 1,565 1,336
Accrued expenses 6,664 5,492
Deferred revenue 187 --
Current portion of capital lease obligations 32 31
-------- --------
Total current liabilities 9,270 19,578
Capital lease obligations, less current portion 123 12
Redeemable convertible preferred stock 5,000 5,000
Total stockholders' equity (deficit) 35,162 (3,656)
-------- --------
Total liabilities and stockholders' equity (deficit) $ 49,555 $ 20,934
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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 Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
1999 1998 1999 1998
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<S> <C> <C> <C> <C>
Revenue:
Development funding from related parties $ 719 $ 110 $ 1,504 $ 2,114
Government grants 273 164 666 517
-------- -------- -------- --------
Total revenue 992 274 2,170 2,631
Operating expenses:
Research and development 6,009 5,725 15,885 23,779
General and administrative 1,185 968 3,553 3,062
-------- -------- -------- --------
Total operating expenses 7,194 6,693 19,438 26,841
-------- -------- -------- --------
Loss from operations (6,202) (6,419) (17,268) (24,210)
Interest income, net 675 326 1,722 889
-------- -------- -------- --------
Net loss $ (5,527) $ (6,093) $(15,546) $(23,321)
======== ======== ======== ========
Net loss per share - basic and diluted $ (0.47) $ (0.65) $ (1.43) $ (2.51)
======== ======== ======== ========
Shares used in computing net loss per share
- basic and diluted 11,721 9,413 10,908 9,298
======== ======== ======== ========
</TABLE>
See notes to condensed financial statements
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CERUS CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
UNAUDITED
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------
1999 1998
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<S> <C> <C>
Operating activities:
Net loss $(15,546) $(23,321)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 443 454
Amortization of deferred compensation 34 72
Changes in operating assets and liabilities:
Accounts receivable from a related party -- 4,376
Accounts payable to a related party (11,897) 10,290
Other current assets 150 (26)
Other assets (1) 21
Accounts payable and accrued expenses 1,105 1,472
Deferred revenue 187 --
-------- --------
Net cash used in operating activities (25,525) (6,662)
Investing activities:
Purchases of furniture, equipment and leasehold improvements (499) (222)
Purchases of short-term investments (60,534) (25,209)
Sales of short-term investments 1,131 --
Maturities of short-term investments 32,142 17,569
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Net cash used in investing activities (27,760) (7,862)
Financing activities:
Net proceeds from sale of preferred stock 9,496 5,000
Net proceeds from issuance of common stock 45,140 3,335
Repurchase of common stock (10) --
Payments on capital lease obligations (30) (57)
-------- --------
Net cash provided by financing activities 54,596 8,278
-------- --------
Net increase (decrease) in cash and cash equivalents 1,311 (6,246)
Cash and cash equivalents, beginning of period 6,161 11,604
-------- --------
Cash and cash equivalents, end of period $ 7,472 $ 5,358
======== ========
</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 and nine month
periods ended September 30, 1999 are not necessarily indicative of the results
that may be expected for any future period.
These financial statements and notes should be read in conjunction with Cerus
Corporation's audited financial statements and notes thereto for the year ended
December 31, 1998 included in the company's 1998 Annual Report on Form 10-K.
NOTE 2 - COMPREHENSIVE INCOME (LOSS)
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income," requires that all items that are required to be recognized under
accounting standards as comprehensive income (revenue, expenses, gains and
losses) be reported in a financial statement that is displayed with the same
prominence as other financial statements. Cerus does not have material
components of other comprehensive income. Therefore, comprehensive loss is equal
to net loss for all periods presented.
NOTE 3 - NET LOSS PER SHARE
Cerus' net loss per share has been calculated in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings per Share." Basic and diluted
net loss per share has been computed using the weighted average number of common
shares outstanding during the period. The effect of outstanding stock options is
excluded from the calculation of diluted net loss per share, as its inclusion
would be antidilutive.
NOTE 4 - REVENUE AND RESEARCH AND DEVELOPMENT EXPENSES
Development funding from related parties includes amounts recognized under
development agreements with Baxter Healthcare Corporation and the Consortium for
Plasma Science. Development funding under the agreement with the Consortium is
in the form of payments made by the Consortium to Cerus to reimburse Cerus for
its direct expenses, plus a specified percentage for overhead and administrative
costs. Research and development expenses and development revenue from Baxter and
the Consortium are recognized as incurred.
There was no license or milestone revenue recognized in the three and nine
months ended September 30, 1999 and 1998.
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NOTE 5 - CAPITAL STOCK TRANSACTIONS
In March 1999, Baxter purchased 3,327 shares of Cerus' Series B preferred stock
for an aggregate purchase price of $9.5 million. Beginning April 21, 1999, for a
period not to exceed one year from issuance, a premium equal to 7.0% per annum
on the purchase price is being accrued. The premium is payable to the holder one
year after issuance, or upon redemption. At any time after one year from
issuance, the holder may convert the Series B preferred stock into 332,700
common shares. Cerus has the right to redeem the Series B preferred stock prior
to conversion for a payment equal to the aggregate purchase price of the shares
redeemed.
In April 1999, Cerus completed a public offering of 2,200,000 shares of common
stock at $21.00 per share. Cerus received net proceeds of approximately $42.7
million, after deducting offering expenses.
Also in April 1999, Baxter purchased 62,912 shares of Cerus' common stock
pursuant to Cerus' achievement of a milestone. The purchase price was $31.79 per
share, for an aggregate purchase price of $2.0 million.
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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 Cerus' financial
statements and accompanying notes included in this report and the company's 1998
audited financial statements and notes thereto included in its 1998 Annual
Report on Form 10-K. Operating results are not necessarily indicative of results
that may occur in future periods.
The following 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 statements will
prove to be correct. Certain important factors could cause actual results to
differ materially from those discussed in such statements, including
uncertainties associated with pre-clinical and clinical testing, market
acceptance and other factors discussed below and in the 10-K. Cerus 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 medical products based on a platform technology
that prevents nucleic acid (DNA and RNA) replication. Cerus' initial application
of this technology is the development of systems to inactivate viruses, bacteria
and other pathogens in blood components used for transfusion. Other potential
health care applications for this platform technology include treating source
plasma for fractionation, improving the outcomes of stem cell transplantation
procedures and treatments for proliferative disorders, such as restenosis.
Cerus' platelet pathogen inactivation system is in Phase 3 clinical trials in
the United States and in Europe. Cerus' fresh frozen plasma (FFP) pathogen
inactivation system is in Phase 3 clinical trials in the United States, and its
red blood cell pathogen inactivation system is in Phase 1 clinical trials in the
United States. Cerus' source plasma pathogen inactivation system is in
pre-clinical development. Cerus' allogeneic cellular immune therapy (ACIT)
program, designed to enhance the safety and efficacy of bone marrow transplants,
is in Phase 1 clinical trials in the United States.
Since its inception in 1991, Cerus has devoted substantially all of its efforts
and resources to the research and development of systems based on its platform
technologies. Cerus has been unprofitable since inception and, as of September
30, 1999, had an accumulated deficit of approximately $80.0 million. All of
Cerus' programs are in the research and development stage, and Cerus has not
received any revenue from product sales. Cerus will be required to conduct
significant research, development, pre-clinical and clinical evaluation and
regulatory compliance activities on these systems that, together with
anticipated general and administrative expenses, are expected to result in
substantial losses at least until after commercialization of its products under
development. Cerus' 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 Cerus will ever achieve a profitable
level of operations. Further, under the agreements discussed below, a
significant portion of Cerus' development funding is provided by Baxter
Healthcare Corporation based on an annual budgeting process. There can be no
assurance that these agreements will not be modified or terminated.
Agreement with Baxter for the development of pathogen inactivation systems for
platelets. Cerus has a development and commercialization agreement with Baxter
for the joint development of a system for inactivation of viruses, bacteria and
other infectious pathogens in platelets used for transfusions (the "Platelet
Agreement"). The Platelet Agreement provides for Baxter and Cerus to
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generally share system development costs equally, subject to mutually agreed
budgets established from time to time, and for Cerus to receive 33.5% of revenue
from sales of inactivation system disposables after each party is reimbursed for
its cost of goods above a specified level. The Platelet Agreement also provides
for Baxter to make a $5.0 million cash milestone payment to Cerus upon approval
by the FDA of an application to market products developed under the platelet
program, comparable approval in Europe or termination of the platelet system
development program.
Cerus has received a $1.0 million equity investment under the Platelet Agreement
from Baxter and has recognized $14.7 million in revenue from Baxter cumulatively
through September 30, 1999, including $3.0 million in license fees, $2.5 million
in milestone payments and $9.2 million in development funding. License fees and
payments for achieved milestones are non-refundable and are not subject to
future performance. Development funding is in the form of balancing payments
made by Baxter to Cerus if necessary to reimburse Cerus for development spending
in excess of the levels agreed to by Baxter and Cerus. Development funding
revenue is recognized as the related project costs are incurred.
Agreement with Baxter for the development of pathogen inactivation systems for
red blood cells and FFP. Cerus also has a development and commercialization
agreement with Baxter for the joint development of systems for inactivation of
viruses, bacteria and other infectious pathogens in red blood cells and FFP for
transfusion (the "RBC/FFP Agreement").
The RBC/FFP Agreement provides for Baxter and Cerus generally to share red blood
cell system development costs equally, subject to mutually agreed to budgets
established from time to time. The RBC/FFP Agreement also provides for an equal
sharing of revenue from sales of red blood cell inactivation . disposables after
each party is reimbursed for its cost of goods and a specified percentage
allocation, not to exceed 14% of revenue, is retained by Baxter for marketing
and administrative expenses.
Under the RBC/FFP Agreement, Cerus and Baxter equally funded the FFP program
development through December 31, 1997 after which time Baxter's funding
commitment for the FFP development program is limited to $1.2 million, of which
$600,000 offset balancing payments owed to Baxter in January 1999 and $600,000
is payable to Cerus in January 2000. Baxter has an exclusive, worldwide
distribution license and will be responsible for manufacturing and marketing the
FFP product under the direction of Cerus. The RBC/FFP Agreement also provides
for Cerus to receive 75% and Baxter to receive 25% of revenue from sales of FFP
inactivation system disposables after each party is reimbursed for its cost of
goods and a specified percentage allocation, not to exceed 14% of revenue, is
retained by Baxter for marketing and administrative expenses.
Under the RBC/FFP Agreement, Cerus received $16.0 million in equity investments
from Baxter and recognized $7.4 million in revenue from Baxter cumulatively
through September 30, 1999 to fund the development of the red blood cell and FFP
systems. Development funding is in the form of payments made by Baxter to Cerus
if necessary to reimburse Cerus for development spending in excess of the levels
agreed to by Baxter and Cerus and to reimburse Cerus for fee-for-service
development activities. Development funding revenue is recognized as the related
project costs are incurred.
Agreement with the Consortium for Plasma Science. Cerus has an agreement with
the Consortium for Plasma Science for the development of a pathogen inactivation
system for source plasma. The Consortium is funded by four plasma fractionation
companies, one of which is Baxter. The Consortium, which is a separate entity
from its members, provides research and development funding worldwide for
technologies to improve the safety of source plasma. The agreement includes an
initial commitment to fund development of Cerus' proprietary technology for use
with source plasma. The initial term of the agreement is one year, beginning
January 1999. The
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agreement contemplates funding by the Consortium through regulatory approval,
with future commitments to be determined by the Consortium annually. The
agreement provides for Cerus to pay the Consortium a royalty on potential
product sales.
RESULTS OF OPERATIONS
THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1999 AND 1998
Revenue. For the three months ended September 30, 1999, development revenue from
related parties increased 552% to $0.7 million from $0.1 million for the
comparable three month period in 1998. For the nine months ended September 30,
1999, development revenue from related parties decreased 29% to $1.5 million
from $2.1 million for the comparable nine month period in 1998. The increase in
the three month period was due principally to 1999 development funding from
Baxter, relating to the platelet pathogen inactivation system, and from the
Consortium. As a result of an amendment to the Platelet Agreement, Cerus was
responsible for funding 100% of the platelet program expenses during the third
quarter of 1998. The decrease in the nine month period was primarily due to an
amendment to the RBC/FFP Agreement, as a result of which Cerus is responsible
for all development funding relating to the FFP program after 1998.
Additionally, development revenue from Baxter for the red blood cell pathogen
inactivation system for the nine month period ended September 30, 1999 was
significantly less than in the comparable nine month period in 1998. This
decrease was due mostly to reduced expenses incurred by Cerus on this project in
1999, while Baxter's spending remained relatively constant. Decreased revenue
from Baxter was partially offset by development revenue from the Consortium
recognized in 1999. Cerus did not recognize any license or milestone revenue in
the three and nine months ended September 30, 1999 and 1998.
Government grant revenue increased 67% for the three months ended September 30,
1999 from the comparable three month period in 1998, and increased 29% for the
nine months ended September 30, 1999 from the comparable nine month period in
1998. The increases were 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 Cerus and is not necessarily
indicative of future grant revenue. Cerus' current government grant expires in
September 2002. There can be no assurance that Cerus will receive additional
government grants in the future.
Research and Development Expenses. Research and development expenses increased
5% to $6.0 million for the three months ended September 30, 1999 from $5.7
million for the comparable period in 1998, and decreased 33% to $15.9 million
for the nine months ended September 30, 1998 from $23.8 million for the
comparable period in 1998. The increase in the three month period was due
principally to the addition of research and development personnel, increased
costs for toxicology studies and clinical trials, and increased expenses
incurred for fee-for-service development activities at Baxter relating to the
FFP program. The decrease in the nine month period was primarily due to a
one-time expense of $8.3 million which was included in research and development
expenses for the nine months ended September 30, 1998. This one-time expense of
$8.3 million in 1998 related to Cerus' purchase of an increased share of future
platelet pathogen inactivation system revenue. In addition, Cerus incurred
research and development expenses in the second and third quarter of 1998
related to an amendment to the Platelet Agreement, under which Cerus was
responsible for funding 100% of the platelet program expenses during those
periods. Notwithstanding the effects of these items, research and development
expenses increased in the nine month period due to the addition of research and
development personnel, increased costs for toxicology studies and clinical
trials, and increased expenses incurred for fee-for-service development
activities at Baxter relating to the FFP program. Cerus anticipates that
research and development expenses will increase as activities relating to its
Phase 3 clinical trials for platelet and FFP systems and development activities
relating to its other programs expand.
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General and Administrative Expenses. General and administrative expenses
increased 23% to $1.2 million for the three months ended September 30, 1999 from
$1.0 million in the comparable three month period in 1998, and increased 16% to
$3.6 million for the nine months ended September 30, 1999 from $3.1 million for
the comparable nine month period in 1998. The increases were primarily
attributable to increased personnel levels associated with expansion of Cerus'
operations. Cerus expects that general and administrative expenses will continue
to increase in the future as development activities expand.
Interest Income, Net. Net interest income increased 109% to $0.7 million for the
three months ended September 30, 1999 from $0.3 million for the comparable three
month period in 1998, and increased 96% to $1.7 million for the nine months
ended September 30, 1999 from $0.9 million for the comparable nine month period
in 1998. These increases were due to higher average cash balances in the three
and nine month periods ended September 30, 1999 resulting from proceeds from the
issuance of preferred stock to Baxter in March 1999 and Cerus' public offering
of common stock and issuance of common stock to Baxter in April 1999 (see
Liquidity and Capital Resources). Interest expense remained relatively unchanged
for the three and nine months ended September 30, 1999 compared to the same
periods in 1998.
LIQUIDITY AND CAPITAL RESOURCES
Cerus' sources of capital to date have consisted of public offerings and private
placements of equity securities, development funding by Baxter and the
Consortium, United States government grants and interest income. To date, Cerus
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.
In March 1999, Baxter purchased 3,327 shares of Cerus' Series B preferred stock
for an aggregate purchase price of $9.5 million. Beginning April 21, 1999, for a
period not to exceed one year from issuance, a premium equal to 7.0% per annum
on the purchase price is being accrued. The premium is payable to the holder one
year after issuance, or upon redemption. At any time after one year from
issuance, the holder may convert the Series B preferred stock into 332,700
common shares. Cerus has the right to redeem the Series B preferred stock prior
to conversion for a payment equal to the aggregate original purchase price of
the shares redeemed.
In April 1999, Cerus completed a public offering of 2,200,000 shares of common
stock at $21.00 per share and received net proceeds of approximately $42.6
million, after deducting offering expenses. Also in April 1999, Cerus sold
62,912 shares of common stock to Baxter pursuant to Cerus' achievement of a
milestone under the RBC/FFP Agreement. The purchase price was $31.79 per share,
for an aggregate purchase price of $2.0 million.
At September 30, 1999, Cerus had cash, cash equivalents and short-term
investments of approximately $48.4 million.
Net cash used in operating activities was $25.5 million for the nine months
ended September 30, 1999, compared to $6.7 million for the same period in 1998,
resulting primarily from net losses of $15.5 million and payments of $13.3
million to reduce amounts owed to Baxter for the purchase of additional revenue
share on the platelet pathogen inactivations system and balancing payments for
research and development activities, offset by changes in other operating
balances. Net cash used in investing activities in the nine month period ended
September 30, 1999 of $27.8 million resulted principally from purchases of $60.5
million of short-term investments offset by the sales and maturities of $33.3
million of short-term investments. Working capital increased to $39.3 million at
September 30, 1999 from $0.5 million at December 31, 1998, primarily due to
financing activities.
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Cerus believes that its available cash balances, together with anticipated cash
flows from existing development and grant arrangements, will be sufficient to
meet its capital requirements for at least the next twelve months. These
near-term capital requirements are dependent on various factors including the
development progress of Cerus' pathogen inactivation systems and other programs;
payments by Baxter and the Consortium; and costs related to creating,
maintaining and defending Cerus' intellectual property position. Cerus'
long-term capital requirements will be dependent on these factors and on Cerus'
ability to raise capital through public or private equity or debt financings or
through additional collaborative arrangements or government grants, the
achievement of milestones, regulatory approval and successful commercialization
of Cerus' pathogen inactivation systems and other products under development,
competitive developments and regulatory factors. Future capital funding
transactions may result in dilution to investors in Cerus. There can be no
assurance that capital will be available on favorable terms, if at all. There
can be no assurance that Cerus will be able to meet its capital requirements for
this or any other period.
FINANCIAL INSTRUMENTS
Cerus maintains an investment portfolio of various issuers, types and
maturities. These securities are generally classified as available for sale and,
consequently, are recorded on the balance sheet at fair value with unrealized
gains or losses reported as a separate component of stockholders' equity, if
material. Unrealized gains and losses at September 30, 1999 and December 31,
1998 were not material. Cerus' investments primarily consist of short-term money
market mutual funds, United States and state government obligations and
commercial paper. Of Cerus' investments balance of $40.9 million at September
30, 1999, approximately 10% have original maturity dates of less than 90 days
and approximately 70% of this balance have original maturities of 90 days to one
year. Cerus does not believe its exposure to interest rate risk to be material
given the short-term nature of its investment portfolio.
IMPACT OF THE YEAR 2000
The Year 2000 ("Y2K") issue is the result of computer programs using a two-digit
format, as opposed to four digits, to indicate the year. Such computer systems
will be unable to interpret dates beyond the year 1999, which could cause a
system failure or other computer errors, leading to disruptions in operations.
Cerus has implemented a program to assess its exposure from Y2K related failures
in its internal systems and those of its significant suppliers. Cerus has
identified internal computer systems and software and instrumentation that are
critical to its operations and may be subject to the Y2K issue, such as
microprocessor-based analytical equipment. Cerus has upgraded, replaced and
performed testing of its software, and believes that the related computer
systems and equipment will function properly with respect to dates in the year
2000 and thereafter. However, there can be no assurance that date-related
failures will not occur and materially adversely affect Cerus' operations and
financial position. Cerus estimates that the total costs incurred to date and to
be incurred associated with the upgrade and conversion of existing computer
software relating to the Y2K issue are less than $100,000. There can be no
assurance that the total costs will not exceed Cerus' estimate.
Cerus has also contacted its key third-party suppliers, including Baxter, to
assess their compliance with the Y2K issue. Based on information received from
these key third-party suppliers, Cerus does not believe there is a need to take
remediating action with respect to these suppliers; however, there can be no
assurance that these suppliers and other companies on which Cerus relies will
not experience Y2K issues that will have a material adverse effect on its
operations and financial position. Cerus does not have a contingency plan in the
event that its or its significant suppliers' systems are not Y2K compliant.
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ADDITIONAL RISKS
Cerus' business is subject to significant additional risks, including, but not
limited to, the risks and uncertainties inherent in its research and development
efforts, including pre-clinical 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.
Cerus' programs are in the research and development stage and will require
significant additional pre-clinical and clinical testing prior to submission of
any regulatory application for commercial use. Cerus has not filed a product
approval application with the 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 Cerus' development programs will be successfully completed; that any
further Investigational New Drug or Investigational Device Exemption
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.
In addition, the market price of Cerus' 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 Cerus or its competitors; governmental regulation; health care
legislation; developments in patent or other proprietary rights of Cerus or its
competitors, including litigation; fluctuations in Cerus' operating results;
comments made by analysts, including changes in analysts' estimates of Cerus'
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 Cerus' common stock will not occur in the future.
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ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information called for by this item is provided under the caption "Financial
Instruments" under Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On November 3, 1999, the Board of Directors declared a
dividend distribution, payable to stockholders of record on November 23, 1999,
of one preferred share purchase right (a "Right") for each outstanding share of
Common Stock (par value $.001 per share). The Rights will expire 10 years after
issuance, and will be exercisable only upon the earlier to occur of (i) a public
announcement that a person or group has become the beneficial owner of 15% or
more of the Common Stock (such person or group, a "15% holder") or (ii) 10
business days following the announcement of, or announcement of an intention to
commence, a tender of exchange offer which would result in the offeror
beneficially owning 15% or more of the Common Stock. Each Right will entitle
stockholders to buy one one-hundredth of a share of Series C junior
participating preferred stock at an exercise price of $170, subject to certain
antidilution adjustments. However, if a person or group accumulates 15% or more
of the Common Stock, the Rights will no longer represent the right to purchase
preferred stock, and each Right (other than Rights held by such 15% holder and
certain related parties, which become void) will represent, for 60 days, the
right to purchase, at the exercise price, Common Stock (or in certain
circumstances, a combination of securities and/or assets) having a value of
twice the exercise price. Such an accumulation by Baxter Healthcare Corporation,
which currently is the beneficial owner of 14.3% of Cerus' Common Stock, would
not cause the Rights to become exercisable, so long as Baxter and its affiliates
hold an aggregate of 20.1% or less of Cerus' outstanding Common Stock (excluding
shares of Common Stock issuable upon conversion of Cerus' Series A and Series B
preferred stock presently held by Baxter). In addition, under certain
circumstances, if the Company is acquired by a third party or a sale of 50% or
more of the Company's assets or earning power is made to a third party, each
Right (unless previously voided) will represent the right to purchase, at the
exercise price, common stock of the acquiring entity having a value of twice the
exercise price at the time.
The Company will generally be entitled to redeem the Rights at
$.001 per Right at any time prior to a public announcement of the existence of a
15% holder.
The Rights have anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Company
on terms not approved by the Company's Board of Directors, except pursuant to an
offer conditioned on a substantial number of Rights being acquired.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
Page 14
<PAGE> 15
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
3.1* Amended and Restated Certificate of Incorporation, as amended to date
27.1 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a report on Form 8-K, dated November 3, 1999, reporting
adoption of a Stockholder Rights Plan.
- ------------------------
* Incorporated by reference to Exhibit 4.1 of the Company's Form 8-K dated
November 3, 1999.
Page 15
<PAGE> 16
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: November 12, 1999 /s/ Gregory W. Schafer
----------------- -------------------------------------------
Gregory W. Schafer
Chief Financial Officer
(Principal Financial and Accounting Officer)
Page 16
<PAGE> 17
CERUS CORPORATION
INDEX TO EXHIBITS
<TABLE>
Sequentially
Exhibit Numbered
No. Description Page
- ------- ----------------------- -----------
<S> <C> <C>
27.1 Financial Data Schedule --
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 7,472
<SECURITIES> 40,902
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 48,536
<PP&E> 3,697
<DEPRECIATION> 2,774
<TOTAL-ASSETS> 49,555
<CURRENT-LIABILITIES> 9,270
<BONDS> 0
5,000
9,200
<COMMON> 12
<OTHER-SE> 25,950
<TOTAL-LIABILITY-AND-EQUITY> 49,555
<SALES> 0
<TOTAL-REVENUES> 2,170
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 19,438
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (15,546)
<INCOME-TAX> 0
<INCOME-CONTINUING> (15,546)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15,546)
<EPS-BASIC> (1.43)
<EPS-DILUTED> (1.43)
</TABLE>
