<PAGE> 1
- --------------------------------------------------------------------------------
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, 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 April 30, 1999 there were 11,704,714 shares of the Registrant's
Common Stock outstanding.
- --------------------------------------------------------------------------------
<PAGE> 2
CERUS CORPORATION
QUARTERLY REPORT ON FORM 10-Q
THREE MONTHS ENDED MARCH 31, 1999
TABLE OF CONTENTS
PAGE NO.
- --------------------------------------------------------------------------------
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Balance Sheets -
March 31, 1999 and December 31, 1998 3
Condensed Statements of Operations -
Three months ended March 31, 1999 and 1998 4
Condensed Statements of Cash Flows -
Three months ended March 31, 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 14
Item 6. Exhibits and Reports on Form 8-K 15
- --------------------------------------------------------------------------------
SIGNATURES 16
- --------------------------------------------------------------------------------
Page 2
<PAGE> 3
PART I: FINANCIAL INFORMATION
ITEM I: FINANCIAL STATEMENTS
CERUS CORPORATION
CONDENSED BALANCE SHEETS
UNAUDITED
(in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
--------- ------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 4,507 $ 6,161
Short-term investments 20,939 13,641
Other current assets 365 312
------- -------
Total current assets 25,811 20,114
Furniture and equipment, net of depreciation 697 725
Other assets 92 95
------- -------
Total assets $26,600 $20,934
======= =======
Liabilities and stockholders' equity
Current liabilities:
Accounts payable to a related party $12,839 $12,719
Accounts payable 1,470 1,336
Accrued expenses 5,317 5,492
Deferred revenue 396 --
Current portion of capital lease obligations 23 31
------- -------
Total current liabilities 20,045 19,578
Capital lease obligations, less current portion 10 12
Redeemable convertible preferred stock 5,000 5,000
Total stockholders' equity (deficit) 1,545 (3,656)
------- -------
Total liabilities and stockholders' equity (deficit) $26,600 $20,934
======= =======
</TABLE>
See notes to condensed financial statements
Page 3
<PAGE> 4
CERUS CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
UNAUDITED
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
1999 1998
--------- --------
<S> <C> <C>
Revenue:
Development funding from related parties $ 552 $ 1,426
Government grants 192 186
------- -------
Total revenue 744 1,612
Operating expenses:
Research and development 4,462 4,456
General and administrative 1,023 1,021
------- -------
Total operating expenses 5,485 5,477
------- -------
Loss from operations (4,741) (3,865)
Interest income, net 255 293
------- -------
Net loss $(4,486) $(3,572)
======= =======
Net loss per share -- basic and diluted $ (0.48) $ (0.39)
======= =======
Shares used in computing net loss per share
-- basic and diluted 9,421 9,222
======= =======
</TABLE>
See notes to condensed financial statements
Page 4
<PAGE> 5
CERUS CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
UNAUDITED
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
1999 1998
--------- --------
<S> <C> <C>
Operating activities:
Net loss $ (4,486) $(3,572)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 171 145
Amortization of deferred compensation 17 34
Changes in operating assets and liabilities:
Accounts receivable from a related party -- 3,048
Other current assets (53) (290)
Other assets 3 25
Accounts payable to a related party 120 --
Accounts payable and accrued expenses (41) 387
Deferred revenue 396 --
-------- -------
Net cash used in operating activities (3,873) (223)
Investing activities:
Purchases of furniture, equipment and
leasehold improvements (143) (103)
Purchases of short-term investments (17,884) (9,774)
Maturities of short-term investments 10,586 5,000
-------- -------
Net cash used in investing activities (7,441) (4,877)
Financing activities:
Net proceeds from sale of preferred stock 9,498 --
Proceeds from issuance of common stock 186 214
Repurchase of common stock (14) --
Payments on capital lease obligations (10) (20)
-------- -------
Net cash provided by financing activities 9,660 194
-------- -------
Net decrease in cash and cash equivalents (1,654) (4,906)
Cash and cash equivalents, beginning of period 6,161 11,604
-------- -------
Cash and cash equivalents, end of period $ 4,507 $ 6,698
======== =======
</TABLE>
See notes to condensed financial statements
Page 5
<PAGE> 6
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, 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)
In 1997, the Financial Accounting Standards Board issued Statement No. 130,
"Reporting Comprehensive Income," which 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 - DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE
In 1997, the Financial Accounting Standards Board issued Statement No. 131,
"Disclosures about Segments of an Enterprise and Related Information," which
establishes standards for the way public business enterprises report information
about operating segments in annual and interim financial statements. Cerus has
one reportable operating segment under this statement, which is the development
of systems to treat blood products, and the required disclosures are reflected
in the financial statements.
NOTE 4 - REVENUE AND RESEARCH AND DEVELOPMENT EXPENSES
Development funding from a related party includes amounts recognized under a
development agreement with the Consortium for Plasma Science. Development
funding under this agreement 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. Development revenue and
research and development expenses are recognized as incurred.
There was no license or milestone revenue recognized in the three months ended
March 31, 1999 and 1998.
Page 6
<PAGE> 7
NOTE 5 - CAPITAL STOCK TRANSACTIONS
In March 1999, Baxter Healthcare Corporation purchased 3,327 shares of Cerus'
Series B preferred stock for an aggregate purchase price of $9.5 million.
Beginning April 21, 1999, Cerus will pay the holder a premium equal to 7.0% per
annum interest on the purchase price for a period not to exceed one year. 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 $43.4
million.
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.
Page 7
<PAGE> 8
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 preclinical 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 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 a Phase 3 clinical trial in Europe to obtain
a CE Marking and has completed Phase 2 clinical trials in the United States. In
conjunction with the United States Food and Drug Administration, Cerus has
determined the preliminary framework of the protocol for a Phase 3 clinical
trial in the United States. Cerus' FFP pathogen inactivation system is in Phase
2 clinical trials in the United States, and its red blood cell pathogen
inactivation system and its allogeneic cellular immunotherapy (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 March 31,
1999, had an accumulated deficit of $68.9 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, preclinical 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 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
Page 8
<PAGE> 9
a $5.0 million cash milestone payment to Cerus upon the approval by the FDA of
an application to market products developed under the 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 March 31, 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 pathogen inactivation systems
for red blood cells and FFP (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 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 $14.0 million in equity investments
from Baxter and recognized $7.3 million in revenue from Baxter cumulatively
through March 31, 1999 to fund the development of the red blood cell and FFP
systems. Under this agreement, Cerus received an additional $2.0 million from
Baxter in April 1999 as an equity investment in common stock as a result of the
achievement of a milestone. 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.
Page 9
<PAGE> 10
RESULTS OF OPERATIONS
THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
Revenue. Development revenue from related parties decreased approximately
61% to $0.6 million for the three months ended March 31, 1999 from $1.4 million
for the comparable three month period in 1998. This decrease is 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. Cerus did not recognize any license or milestone revenue in the three
months ended March 31, 1999 and 1998.
Government grant revenue remained relatively unchanged, increasing
approximately 3% to $192,000 for the three months ended March 31, 1999 from
$186,000 for the comparable three month period in 1998 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.
Revenue under the agreements with Baxter was approximately 55% of total revenue
for the three months ended March 31, 1999, compared with approximately 88% for
the comparable three month period in 1998. There can be no assurance that the
agreements with Baxter will not be terminated or amended such that the
development revenue from Baxter is reduced or eliminated in future periods.
Research and Development Expenses. Overall, research and development expenses
remained unchanged at $4.5 million for the three months ended March 31, 1999
and 1998. Cerus anticipates that research and development expenses will
increase as its platelet and FFP systems enter Phase 3 clinical trials and as
development activities relating to its other products increase. Within the
individual projects, changes in research and development expenses are
attributable to the following factors:
Platelet Pathogen Inactivation System. Research and development expenses in
the platelet program remained relatively consistent at $1.5 million for the
three months ended March 31, 1999 and 1998. Increased costs for toxicology
studies in the quarter offset reduced clinical trial expenses. Cerus
anticipates that research and development expenses will increase for the
platelet pathogen inactivation system with increased clinical trial
activity in the United States and Europe.
FFP Pathogen Inactivation System. Research and development expenses in the
FFP program increased approximately 32% to $1.4 million for the three
months ended March 31, 1999 from $1.1 million for the comparable three
month period in 1998. This increase is primarily due to Cerus fully funding
the FFP program in 1999. In the three month period ended March 31, 1998,
Baxter partially funded the FFP program. Cerus anticipates that research
and development expenses relating to clinical trials will continue to
increase with increased clinical trial activity related to this program.
Red Blood Cell Pathogen Inactivation System. Research and development
expenses in the red blood cell program decreased approximately 51% to $0.8
million for the three months ended March 31, 1999 from $1.6 million for the
comparable three month period 1998. This decrease is due principally to a
decrease in toxicology costs from those incurred in 1998 when the program
was in pre-clinical development. Increased clinical trial costs in
Page 10
<PAGE> 11
the current quarter partially offset this reduction. Cerus anticipates that
research and development expenses will increase as clinical trial
activities increase in this program.
Other Research and Development Activities. Research and development
expenses in Cerus' ACIT program increased for the three months ended March
31, 1999 compared to the same three months in 1998, as preparation has
begun for a Phase 1 clinical trial. In addition, Cerus' source plasma
project commenced activities in January 1999. Cerus anticipates that
research and development expenses for these programs will increase as
development activities expand throughout 1999 and beyond.
General and Administrative Expenses. General and administrative expenses
remained unchanged at $1.0 million for the three months ended March 31, 1999
and 1998. Cerus expects that general and administrative expenses will increase
in the future as development activities expand.
Interest Income, Net. Interest income decreased to $255,000 for the three
months ended March 31, 1999 from $293,000 for the comparable three month period
in 1998. These changes are due to fluctuations in cash balances resulting from
operating expenses and proceeds from Cerus' private placements of equity to
Baxter (see Liquidity and Capital Resources). Interest expense remained
relatively unchanged for the three months ended March 31, 1999 as compared to
the same period 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,
Cerus will pay the holder a premium equal to 7.0% per annum interest on the
purchase price for a period not to exceed one year. 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.
At March 31, 1999, Cerus had cash, cash equivalents and short-term investments
of $25.4 million.
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 $43.4
million. 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 April 30, 1999, Cerus had cash, cash equivalents and short-term
investments of approximately $69.2 million.
Net cash used in operating activities was $3.9 million for the three months
ended March 31, 1999, compared to $0.2 million for the same period in 1998,
resulting primarily from net losses of $4.5 million offset by changes in other
operating balances. Net cash used in investing activities in the three month
period ended March 31, 1999 of $7.4 million resulted principally from purchases
of $17.9 million of short-term investments offset by the maturities of $10.6
million of short-term investments. Working capital increased to $5.8 million at
March 31, 1999 from $0.5 million at December 31, 1998, primarily due to
financing activities.
Page 11
<PAGE> 12
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.
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 March 31, 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 $25.4 million at March 31,
1999, approximately 18% 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 currently have a contingency
plan in the event that its or its significant suppliers' systems are not Y2K
compliant.
Page 12
<PAGE> 13
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 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.
Cerus' programs 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. 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.
Page 13
<PAGE> 14
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 March 3, 1999, the Company sold 3,327 shares of unregistered preferred stock
to Baxter Healthcare Corporation for an aggregate purchase price of $9.5
million. At any time after one year from the date of issuance, the shareholders
may convert the preferred stock into 332,700 shares of the Company's common
stock. Such sale of preferred 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.
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
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
Page 14
<PAGE> 15
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
March 31, 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: May 10, 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
Sequentially
Exhibit Numbered
No. Description Page
- ------- ------------------ ------------
27.1 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 4,507
<SECURITIES> 20,939
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 25,811
<PP&E> 3,198
<DEPRECIATION> 2,501
<TOTAL-ASSETS> 26,600
<CURRENT-LIABILITIES> 20,045
<BONDS> 0
5,000
9,498
<COMMON> 9
<OTHER-SE> (7,962)
<TOTAL-LIABILITY-AND-EQUITY> 26,600
<SALES> 0
<TOTAL-REVENUES> 744
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,485
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (4,486)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,486)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,486)
<EPS-PRIMARY> (0.48)
<EPS-DILUTED> (0.48)
</TABLE>
