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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 JUNE 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 July 31, 1999 there were 11,717,494 shares of the Registrant's
Common Stock outstanding.
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CERUS CORPORATION
QUARTERLY REPORT ON FORM 10-Q
THREE MONTHS ENDED JUNE 30, 1999
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 -
June 30, 1999 and December 31, 1998 3
Condensed Statements of Operations -
Three and six months ended June 30, 1999 and 1998 4
Condensed Statements of Cash Flows -
Six months ended June 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>
June 30, December 31,
1999 1998
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<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 9,479 $ 6,161
Short-term investments 48,846 13,641
Other current assets 233 312
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Total current assets 58,558 20,114
Furniture and equipment, net of depreciation 698 725
Other assets 94 95
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Total assets $59,350 $20,934
======= =======
Liabilities and stockholders' equity (deficit)
Current liabilities:
Accounts payable to a related party $ 5,664 $12,719
Accounts payable 1,635 1,336
Accrued expenses 6,235 5,492
Deferred revenue 163 --
Current portion of capital lease obligations 14 31
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Total current liabilities 13,711 19,578
Capital lease obligations, less current portion 8 12
Redeemable convertible preferred stock 5,000 5,000
Total stockholders' equity (deficit) 40,631 (3,656)
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Total liabilities and stockholders' equity (deficit) $59,350 $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 Six Months Ended
June 30, June 30,
--------------------- -----------------------
1999 1998 1999 1998
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<S> <C> <C> <C> <C>
Revenue:
Development funding from related parties $ 233 $ 578 $ 785 $ 2,004
Government grants 201 167 393 353
-------- -------- -------- --------
Total revenue 434 745 1,178 2,357
Operating expenses:
Research and development 5,414 13,598 9,876 18,054
General and administrative 1,345 1,073 2,368 2,094
-------- -------- -------- --------
Total operating expenses 6,759 14,671 12,244 20,148
-------- -------- -------- --------
Loss from operations (6,325) (13,926) (11,066) (17,791)
Interest income, net 792 270 1,047 563
-------- -------- -------- --------
Net loss $ (5,533) $(13,656) $(10,019) $(17,228)
======== ======== ======== ========
Net loss per share - basic and diluted $ (0.48) $ (1.48) $ (0.95) $ (1.86)
======== ======== ======== ========
Shares used in computing net loss per share
- basic and diluted 11,553 9,246 10,496 9,239
======== ======== ======== ========
</TABLE>
See notes to condensed financial statements
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CERUS CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
UNAUDITED
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------------
1999 1998
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<S> <C> <C>
Operating activities:
Net loss $(10,019) $(17,228)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 327 296
Amortization of deferred compensation 26 53
Changes in operating assets and liabilities:
Accounts receivable from a related party -- 4,371
Accounts payable to a related party (7,055) 8,300
Other current assets 79 (89)
Other assets 1 21
Accounts payable and accrued expenses 912 743
Deferred revenue 163 --
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Net cash used in operating activities (15,566) (3,533)
Investing activities:
Purchases of furniture, equipment and leasehold improvements (300) (135)
Purchases of short-term investments (49,678) (12,626)
Sales of short-term investments 1,131 --
Maturities of short-term investments 13,342 9,700
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Net cash used in investing activities (35,505) (3,061)
Financing activities:
Net proceeds from sale of preferred stock 9,496 --
Net proceeds from issuance of common stock 44,924 221
Repurchase of common stock (10) --
Payments on capital lease obligations (21) (42)
-------- --------
Net cash provided by financing activities 54,389 179
-------- --------
Net increase (decrease) in cash and cash equivalents 3,318 (6,415)
Cash and cash equivalents, beginning of period 6,161 11,604
-------- --------
Cash and cash equivalents, end of period $ 9,479 $ 5,189
======== ========
</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 six month
periods ended June 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 six months
ended June 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 systems designed to improve the safety of blood
transfusions by inactivating viruses, bacteria and other infectious pathogens
and inhibiting the leukocyte (white blood cell) activity responsible for certain
adverse immune and other transfusion-related reactions in blood components used
for transfusion (platelets, fresh frozen plasma ("FFP") and red blood cells).
Cerus' platelet pathogen inactivation system is in Phase 3 clinical trials in
the United States and in Europe. Cerus' FFP pathogen inactivation system is in a
Phase 3 clinical trial in the United States, and its red blood cell pathogen
inactivation system and its allogeneic cellular immune therapy (ACIT) program
are in Phase 1 clinical trials in the United States. Cerus' source plasma
pathogen inactivation system is in pre-clinical development.
Since its inception in 1991, Cerus has devoted substantially all of its efforts
and resources to the research and development of systems to treat blood
products. Cerus has been unprofitable since inception and, as of June 30, 1999,
had an accumulated deficit of approximately $74.4 million. All of Cerus' systems
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 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 the approval
by the FDA of an application to market products developed under the
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platelet program or comparable approval in Europe or upon 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 $14.3 million in revenue from Baxter cumulatively
through June 30, 1999, including $3.0 million in license fees, $2.5 million in
milestone payments and $8.8 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 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 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 $7.3 million in revenue from Baxter cumulatively
through June 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 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.
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RESULTS OF OPERATIONS
THREE AND SIX MONTH PERIODS ENDED JUNE 30, 1999 AND 1998
Revenue. For the three months ended June 30, 1999, development revenue from
related parties decreased 60% to $0.2 million from $0.6 million for the
comparable three month period in 1998. For the six months ended June 30, 1999,
development revenue from related parties decreased 61% to $0.8 million from $2.0
million for the comparable six month period in 1998. The decrease was primarily
due to the June 1998 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 six month period ended June 30, 1999 was
significantly less than in the comparable six month period in 1998. This was due
mostly to decreased expenses incurred by Cerus on this project in 1999, while
Baxter's spending remained relatively consistent. Cerus did not recognize any
license or milestone revenue in the three and six months ended June 30, 1999 and
1998.
Government grant revenue increased 20% for the three months ended June 30, 1999
from the comparable three month period in 1998, and increased 11% for the six
months ended June 30, 1999 from the comparable six 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 grants expire in August 1999.
There can be no assurance that Cerus will receive additional government grants
in the future.
Research and Development Expenses. Overall, research and development expenses
decreased 60% to $5.4 million for the three months ended June 30, 1999 from
$13.6 million for the comparable period in 1998, and decreased 45% to $9.9
million for the six months ended June 30, 1998 from $18.1 million for the
comparable period in 1998. The decrease in both periods was primarily due to a
one-time expense of $8.3 million which was included in research and development
expenses for the three and six months ended June 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, in the second
quarter of 1998 there were research and development expenses of $1.9 million
related to an amendment to the Platelet Agreement, under which Cerus was
responsible for funding 100% of the platelet program expenses during that
period. Notwithstanding the effects of these items, research and development
expenses increased due to the addition of research and development personnel,
increased costs for toxicology studies 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 products expand.
General and Administrative Expenses. General and administrative expenses
increased 25% to $1.3 million for the three months ended June 30, 1999 from $1.1
million in the comparable three month period in 1998, and increased 13% to $2.4
million for the six months ended June 30, 1999 from $2.1 million for the
comparable six 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 193% to $0.8 million for the
three months ended June 30, 1999 from $0.3 million for the comparable three
month period in 1998, and increased 86% to $1.0 million for the six months ended
June 30, 1999 from $0.6 million for the comparable six month period in 1998.
These increases were due to higher average cash balances in the three and six
month periods ended June 30, 1999 resulting from proceeds from the issuance of
preferred stock to Baxter in March 1999 and Cerus' public offering of common
stock and
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issuance of common stock to Baxter in April 1999 (see Liquidity and
Capital Resources). Interest expense remained relatively unchanged for the three
and the six months ended June 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 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 $42.7
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 June 30, 1999, Cerus had cash, cash equivalents and short-term investments of
approximately $58.3 million.
Net cash used in operating activities was $15.6 million for the six months ended
June 30, 1999, compared to $3.5 million for the same period in 1998, resulting
primarily from net losses of $10.0 million and the payment of $8.3 million to
Baxter on June 30, 1999, offset by changes in other operating balances. Net cash
used in investing activities in the six month period ended June 30, 1999 of
$35.5 million resulted principally from purchases of $50.0 million of short-term
investments offset by the sales and maturities of $14.5 million of short-term
investments. Working capital increased to $44.8 million at June 30, 1999 from
$0.5 million at December 31, 1998, primarily due to financing activities.
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; 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.
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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 June 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 $58.3 million at June 30,
1999, approximately 16% have original maturity dates of less than 90 days and
approximately 68% 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 currently have a contingency
plan in the event that its or its significant suppliers' systems are not Y2K
compliant.
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
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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
The effective date of the Company's registration statements filed on Form S-3
under the Securities Act of 1933 (No. 333-72185 and No. 333-75413) was March 31,
1999 (the "Registration Statements"). The class of securities registered was
Common Stock. The underwritten public offering commenced on March 31, 1999 and
2,200,000 shares were sold in the offering for an aggregate offering price of
$46.2 million. The managing underwriters for the offering were Morgan Stanley
Dean Witter, BT Alex. Brown and SG Cowen.
On April 1, 1999, the Company sold 62,912 shares of unregistered common stock to
Baxter Healthcare Corporation for an aggregate purchase price of $2.0 million.
Such sale of common stock was exempt from registration under the Securities Act
of 1933 pursuant to 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
The Company's annual meeting of stockholders was held on July 2, 1999, to
consider and vote upon three matters. The first matter related to the election
of two director nominees: Stephen T. Isaacs and Dale A. Smith. The two directors
elected will hold office until the 2002 annual meeting of stockholders and until
their successors are elected. The votes cast and withheld for such nominees were
as follows:
<TABLE>
<CAPTION>
Nominee Votes in Favor Votes Withheld
- ------- ------------- --------------
<S> <C> <C>
Stephen T. Isaacs 10,096,783 6,005
Dale A. Smith 10,093,533 9,255
</TABLE>
The second matter related to the approval of the Company's 1999 Equity Incentive
Plan and the issuance of 580,000 shares thereunder. 9,868,463 votes were cast
for approval, 194,185 were cast against with 40,140 abstentions. The third
matter related to the ratification of the appointment of Ernst & Young LLP as
independent auditors of the Company for 1999. 10,065,150 votes were cast for
approval, 31,817 were cast against with 5,821 abstentions.
Page 14
<PAGE> 15
Based on these voting results, each of the directors nominated was elected and
the second and third matters were passed.
ITEM 5. OTHER INFORMATION
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit
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 June 30,
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: August 11, 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>
<CAPTION>
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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 9,479
<SECURITIES> 48,846
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 58,558
<PP&E> 3,356
<DEPRECIATION> 2,658
<TOTAL-ASSETS> 59,350
<CURRENT-LIABILITIES> 13,711
<BONDS> 0
5,000
9,366
<COMMON> 12
<OTHER-SE> 31,253
<TOTAL-LIABILITY-AND-EQUITY> 59,350
<SALES> 0
<TOTAL-REVENUES> 1,178
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 12,244
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (10,019)
<INCOME-TAX> 0
<INCOME-CONTINUING> (10,019)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,019)
<EPS-BASIC> (0.95)
<EPS-DILUTED> (0.95)
</TABLE>
