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, 2000 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) <TABLE> <S> <C> DELAWARE 68-0262011 (State or other jurisdiction of (I.R.S. Employer Incorporation or organization) Identification Number) </TABLE> 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, 2000 there were 12,802,957 shares of the Registrant's Common Stock outstanding. - --------------------------------------------------------------------------------
2 CERUS CORPORATION QUARTERLY REPORT ON FORM 10-Q THREE MONTHS ENDED MARCH 31, 2000 TABLE OF CONTENTS <TABLE> <CAPTION> PAGE NO. -------- <S> <C> <C> PART I FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Condensed Balance Sheets - March 31, 2000 and December 31, 1999 3 Condensed Statements of Operations - Three months ended March 31, 2000 and 1999 4 Condensed Statements of Cash Flows - Three months ended March 31, 2000 and 1999 5 Notes to Condensed Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Item 3. Quantitative and Qualitative Disclosures About Market Risk 13 PART II OTHER INFORMATION Item 1. Legal Proceedings 13 Item 2. Changes in Securities and Use of Proceeds 13 Item 3. Defaults upon Senior Securities 13 Item 4. Submission of Matters to a Vote of Security Holders 13 Item 5. Other Information 13 Item 6. Exhibits and Reports on Form 8-K 14 SIGNATURES 15 </TABLE> Page 2
3 PART I: FINANCIAL INFORMATION ITEM I: FINANCIAL STATEMENTS CERUS CORPORATION CONDENSED BALANCE SHEETS UNAUDITED (in thousands) <TABLE> <CAPTION> March 31, December 31, 2000 1999 ----------- ---------- <S> <C> <C> Assets Current assets: Cash and cash equivalents $ 38,335 $ 3,537 Short-term investments 18,913 36,882 Accounts receivable from a related party 292 - Other current assets 231 238 ----------- ---------- Total current assets 57,771 40,657 Furniture and equipment, net of depreciation 1,023 999 Other assets 124 124 ----------- ---------- Total assets $ 58,918 $ 41,780 =========== ========== Liabilities and stockholders' equity Current liabilities: Accounts payable to a related party $ 944 $ 531 Accounts payable 1,507 1,480 Accrued expenses 6,535 6,664 Current portion of capital lease obligations 32 31 ----------- ---------- Total current liabilities 9,018 8,706 Capital lease obligations, less current portion 106 115 Redeemable convertible preferred stock 5,000 5,000 Total stockholders' equity 44,794 27,959 ----------- ---------- Total liabilities and stockholders' equity $ 58,918 $ 41,780 =========== ========== </TABLE> See notes to condensed financial statements Page 3
4 CERUS CORPORATION CONDENSED STATEMENTS OF OPERATIONS UNAUDITED (in thousands, except per share data) <TABLE> <CAPTION> Three Months Ended March 31, ------------------------------- 2000 1999 --------- --------- <S> <C> <C> Revenue: Development funding from related parties $ 575 $ 552 Government grants 52 192 --------- --------- Total revenue 627 744 Operating expenses: Research and development 7,071 4,462 General and administrative 1,739 1,023 --------- --------- Total operating expenses 8,810 5,485 --------- --------- Loss from operations (8,183) (4,741) Interest income, net 665 255 --------- --------- Net loss $ (7,518) $ (4,486) ========= ========= Net loss per share - basic and diluted $ (0.61) $ (0.48) ========= ========= Shares used in computing net loss per share - basic and diluted 12,282 9,421 ========= ========= </TABLE> See notes to condensed financial statements Page 4
5 CERUS CORPORATION CONDENSED STATEMENTS OF CASH FLOWS UNAUDITED (in thousands) <TABLE> <CAPTION> Three Months Ended March 31, ------------------------------- 2000 1999 --------- --------- <S> <C> <C> Operating activities: Net loss $ (7,518) $ (4,486) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 141 171 Amortization of deferred compensation 7 17 Accrued cash dividend on preferred stock, payable to a related party (166) - Changes in operating assets and liabilities: Accounts receivable from related a party (292) - Other current assets 7 (53) Other assets - 3 Accounts payable to a related party 413 120 Accounts payable and accrued expenses (268) (41) Accrued cash dividend on preferred stock, payable to a related party 166 - Deferred revenue - 396 --------- --------- Net cash used in operating activities (7,510) (3,873) Investing activities: Purchases of furniture, equipment and leasehold improvements (165) (143) Purchases of short-term investments - (17,884) Maturities of short-term investments 17,969 10,586 --------- --------- Net cash provided by (used in) investing activities 17,804 (7,441) Financing activities: Net proceeds from sale of preferred stock - 9,498 Net proceeds from issuance of common stock 24,513 186 Repurchase of common stock (1) (14) Payments on capital lease obligations (8) (10) ---------- ---------- Net cash provided by financing activities 24,504 9,660 --------- --------- Net increase (decrease) in cash and cash equivalents 34,798 (1,654) Cash and cash equivalents, beginning of period 3,537 6,161 --------- --------- Cash and cash equivalents, end of period $ 38,335 $ 4,507 ========= ========= </TABLE> See notes to condensed financial statements Page 5
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, 2000 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, 1999 included in the company's 1999 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. Research and development expenses and development revenue from Baxter and the Consortium are recognized as incurred. Page 6
7 There was no license or milestone revenue recognized in the three months ended March 31, 2000 and 1999. NOTE 5 - CAPITAL STOCK TRANSACTIONS In February 2000, Cerus completed a private placement of 1,000,000 shares of common stock to accredited investors, including Baxter Healthcare Corporation, which purchased 390,000 shares. The purchase price was $25.00 per share, and Cerus received net proceeds of $23.9 million, after deducting related expenses. Page 7
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 1999 audited financial statements and notes thereto included in its 1999 Annual Report on Form 10-K. Operating results for the periods presented 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 Form 10-K. Cerus undertakes no obligation to update any of the forward-looking statements contained herein to reflect any future events or developments. Helinx is a trademark of Cerus Corporation. Intercept is a trademark of Baxter International, Inc. OVERVIEW Cerus Corporation is developing systems to improve the safety of the world's blood supply. Cerus and its partner Baxter Healthcare Corporation are developing the Intercept(TM) Blood Systems for platelets, fresh frozen plasma (FFP) and red blood cells. The Intercept Blood Systems are intended to target and inactivate blood-borne pathogens such as HIV and hepatitis B and C, as well as leukocytes, while leaving the therapeutic properties of the blood components intact. An estimated four million units of platelets, seven million units of FFP and 34 million units of red blood cells are transfused annually in the Unites States, Western Europe and Japan. Intercept Blood Systems are the first application of Cerus' Helinx(TM) technology. Cerus' Helinx technology has the ability to prevent the replication of viruses, bacteria and other pathogens and to control cellular proliferation. In addition to the Intercept Blood Systems, potential health care applications for this technology include treating source plasma for fractionation, improving the outcomes of stem cell transplantation procedures and treatments for proliferative disorders. The Intercept Platelet System is in Phase 3 clinical trials in the United States and in Europe. The Intercept Plasma System is in Phase 3 clinical trials in the United States, and the Intercept Red Blood Cell System is in Phase 1 clinical trials in the United States. Cerus is also conducting a Phase 1 clinical trial of Helinx T-cells in its allogeneic cellular immunotherapy (ACIT) program to improve the outcome of bone marrow transplantation procedures. 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, development and clinical testing of systems based on its Helinx technology. Cerus has Page 8
9 been unprofitable since inception and, as of March 31, 2000, had an accumulated deficit of approximately $95.2 million. All of Cerus' systems are in the research and development stage, and Cerus has not received any revenue from product sales. Cerus must 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 the Intercept Blood 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 development funding for the Intercept Blood Systems is provided by Baxter 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 the Intercept Platelet System. 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 generally to share system development costs equally, subject to mutually determined budgets established from time to time, and for Cerus to receive approximately 33.5% of revenue from sales of inactivation system disposables after each party is reimbursed for its cost of goods above a specified level. Baxter has an exclusive, worldwide distribution license and will be responsible for manufacturing and marketing the Intercept Platelet System following regulatory approval. The Platelet Agreement also provides for Baxter to make a $5 million cash milestone payment to Cerus upon approval by the U.S. Food and Drug Administration of an application to market products developed under the platelet program, comparable approval in Europe or termination of the platelet system development program. Agreement with Baxter for the development of the Intercept Red Blood Cell System and Intercept Plasma System. 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 Intercept Red Blood Cell System development costs equally, subject to mutually determined budgets established from time to time. Cerus is solely responsible for funding the development costs of the Intercept Plasma System. Baxter has an exclusive, worldwide distribution license and will be responsible for manufacturing and marketing the Intercept Red Blood Cell System and Intercept Plasma System following regulatory approvals. The RBC/FFP Agreement also provides for an equal sharing of revenue from sales of Intercept Red Blood Cell System disposables, and for Cerus to receive 75% and Baxter to receive 25% of revenue from sales of Intercept Plasma 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. From inception through March 31, 2000, Cerus has received $46.7 million in equity investments from Baxter and has recognized $22.5 million in revenue. 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 determined by Baxter and Cerus. Development funding revenue is recognized as the related project costs are incurred. Page 9
10 Agreement with the Consortium for Plasma Science. In December 1998, Cerus and the Consortium for Plasma Science entered into an agreement for the development of a pathogen inactivation system for source plasma used for fractionation. The Consortium is co-funded by four plasma fractionation companies: Alpha Therapeutics Corporation, Aventis Behring, Bayer Corporation and 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. Under the agreement, the Consortium is funding development of Cerus' proprietary technology for use with source plasma, subject to an annual review process. Subject to the Consortium meeting certain funding requirements, Cerus will pay the Consortium a royalty based on a percentage of product sales, if any. The initial term of the agreement expires on June 30, 2000. There is no guarantee that the agreement will be renewed. RESULTS OF OPERATIONS THREE MONTH PERIODS ENDED MARCH 31, 2000 AND 1999 Revenue. Cerus anticipates that its sources of revenue until product sales occur will be limited to payments under collaboration agreements, including Cerus' development and commercialization agreements with Baxter and development agreement with the Consortium, and payments from the United States government under research grant programs. Development revenue from Baxter and the Consortium was $0.6 million in the three month periods ended March 31, 2000 and 1999. Revenue earned under the agreements with Baxter is dependent on the relative spending by Cerus and Baxter on the programs for which development costs are shared. Cerus did not recognize any license or milestone revenue in the three months ended March 31, 2000 and 1999. Government grant revenue decreased 73% to $52,000 for the three months ended March 31, 2000, compared to $192,000 for the comparable period in 1999. The decrease was primarily due to the expiration of three government grants between April 1999 and August 1999. Cerus currently has one government grant which 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 58% to $7.1 million for the three months ended March 31, 2000 from $4.5 million for the comparable period in 1999. The increase was due principally to the addition of scientific personnel, and increased costs for clinical trials and toxicology studies. Cerus anticipates that its research and development expenses will continue to increase as Phase 3 clinical trials of the Intercept Platelet Systems and Intercept Plasma Systems continue, and as research and development activity relating to its other programs increases. General and Administrative Expenses. General and administrative expenses increased 70% to $1.7 million for the three months ended March 31, 2000 from $1.0 million for the comparable three month period in 1999. The increase was primarily attributable to increased personnel levels associated with expansion of Cerus' operations. Cerus expects its general and administrative expenses to continue to increase as development activities expand. Page 10
11 Net Interest Income. Net interest income increased 162% to $0.7 million for the three months ended March 31, 2000 from $0.3 million for the comparable three month period in 1999. The increase was attributable primarily to increased average cash and investments balances related to proceeds from the issuance of preferred stock to Baxter in March 1999, the public offering of common stock and private placement of common stock to Baxter in April 1999 and the private placement of common stock to accredited investors, including Baxter, in February 2000. Cerus typically maintains substantial balances of cash equivalents and short-term investments to fund future research and development activities. Cerus expects to earn interest at market rates in proportion to the securities balances it maintains. LIQUIDITY AND CAPITAL RESOURCES Cerus' sources of capital to date have consisted of public offerings and private placements of equity securities, payments received under its agreements with 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 products under development receives regulatory approval and achieves market acceptance. In February 2000, Cerus completed a private placement of 1,000,000 shares of common stock at $25.00 per share and received net proceeds of $23.9 million, after deducting related expenses. The shares were purchased by institutional and other accredited investors, including Baxter, which purchased 390,000 shares. At March 31, 2000, Cerus had cash, cash equivalents and short-term investments of $57.2 million. Net cash used in operating activities was $7.5 million for the three months ended March 31, 2000, compared to $3.9 million for the same period in 1999, resulting primarily from the net loss of $7.5 million during the period. Net cash provided by investing activities in the three month period ended March 31, 2000 of $17.8 million resulted principally from the maturities of $18.0 million of short-term investments. Working capital increased to $48.8 million at March 31, 2000 from $32.0 million at December 31, 1999, primarily due to increased cash balances, partially offset by a decrease in short-term investment balances, from 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 the Intercept Blood 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 the Intercept Blood Systems and other products under development, competitive developments and regulatory factors. Future capital funding transactions may result in dilution to investors in Cerus. Capital may not be available on favorable terms, or at all. There can be no assurance that Cerus will be able to meet its capital requirements for this or any other period. Page 11
12 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, 2000 and December 31, 1999 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 $57.2 million at March 31, 2000, approximately 67% have original maturity dates of less than 90 days and approximately 7% 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. 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 the Intercept Platelet System or for any of its other products under development. 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 12
13 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 February 16, 2000, the Company sold 1,000,000 shares of unregistered common stock in a private placement to certain institutional and other accredited investors for an aggregate purchase price of $25.0 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 13
14 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, 2000. Page 14
15 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 9, 2000 /s/ GREGORY W. SCHAFER ----------- ------------------------------------ Gregory W. Schafer Chief Financial Officer (Principal Financial and Accounting Officer) Page 15
16 CERUS CORPORATION INDEX TO EXHIBITS <TABLE> <CAPTION> Sequentially Exhibit Numbered No. Description Page --- ----------- ---- <S> <C> <C> 27.1 Financial Data Schedule --- </TABLE>