Cerus(CERS) - 2019 Q3 - Quarterly Report

FORM 10-Q Filing Information This section details the Form 10-Q filing, registrant status, outstanding shares, and stock exchange listing Filing Details Confirms Form 10-Q filing, registrant status, outstanding shares, and stock exchange listing - The registrant is a large accelerated filer and has filed all required reports during the preceding 12 months[2] - As of October 21, 2019, there were 142,088,830 shares of the registrant's common stock outstanding[2] - The company's common stock (CERS) is registered on The Nasdaq Stock Market LLC[4] PART I FINANCIAL INFORMATION This part presents unaudited condensed consolidated financial statements and management's discussion and analysis ITEM 1. FINANCIAL STATEMENTS Presents Cerus Corporation's unaudited condensed consolidated financial statements and detailed notes Unaudited Condensed Consolidated Balance Sheets Balance sheets show slight asset increase, notable liability increase, and decreased stockholders' equity Condensed Consolidated Balance Sheet Highlights (in thousands) | Category | Sep 30, 2019 | Dec 31, 2018 | | :-------------------------- | :----------- | :----------- | | Total Assets | $164,438 | $163,460 | | Total Liabilities | $103,630 | $78,941 | | Total Stockholders' Equity | $60,808 | $84,519 | | Current Assets | $126,317 | $146,902 | | Current Liabilities | $45,559 | $52,678 | Unaudited Condensed Consolidated Statements of Operations Statements of operations show increased revenue, higher R&D and SG&A expenses, and a larger net loss Key Operating Results (in thousands, except per share data) | Category | Three Months Sep 2019 | Three Months Sep 2018 | Nine Months Sep 2019 | Nine Months Sep 2018 | | :----------------------------------- | :-------------------- | :-------------------- | :------------------- | :------------------- | | Product revenue | $18,019 | $15,399 | $53,732 | $44,383 | | Government contract revenue | $4,827 | $3,928 | $13,554 | $11,430 | | Total operating expenses | $32,221 | $24,789 | $92,979 | $72,151 | | Net loss | $(17,967) | $(14,192) | $(54,321) | $(41,359) | | Net loss per share (Basic and diluted) | $(0.13) | $(0.11) | $(0.39) | $(0.32) | - Product revenue increased by 17% for the three months and 21% for the nine months ended September 30, 2019, year-over-year[13] - Research and development expenses increased by 49% for the three months and 46% for the nine months ended September 30, 2019, year-over-year[13] Unaudited Condensed Consolidated Statements of Comprehensive Loss Statements of comprehensive loss detail net loss and other comprehensive income/loss from available-for-sale investments Comprehensive Loss (in thousands) | Category | Three Months Sep 2019 | Three Months Sep 2018 | Nine Months Sep 2019 | Nine Months Sep 2018 | | :------------------------------------------------------ | :-------------------- | :-------------------- | :------------------- | :------------------- | | Net loss | $(17,967) | $(14,192) | $(54,321) | $(41,359) | | Unrealized gains (losses) on available-for-sale investments, net of taxes | $48 | $91 | $420 | $(229) | | Comprehensive loss | $(17,919) | $(14,101) | $(53,901) | $(41,588) | Unaudited Condensed Consolidated Statements of Stockholders' Equity Stockholders' equity statements detail changes from December 2018 to September 2019, reflecting stock issuances, compensation, and net losses Stockholders' Equity Changes (in thousands) | Category | Dec 31, 2018 | Sep 30, 2019 | | :---------------------------------------------------------------------------------------------------- | :----------- | :----------- | | Total Stockholders' Equity | $84,519 | $60,808 | | Issuance of common stock from exercise of stock options, vesting of restricted stock units, and ESPP purchases (9 months) | $684 (Q1), $558 (Q2), $1,586 (Q3) | | | Issuance of common stock from public offering, net of offering costs (9 months) | $9,836 (Q2), $7,914 (Q3) | | | Stock-based compensation (9 months) | $2,878 (Q1), $3,139 (Q2), $3,595 (Q3) | | Unaudited Condensed Consolidated Statements of Cash Flows Cash flow statements show increased cash used in operations, a shift to cash provided by investing, and reduced cash from financing Cash Flow Summary (in thousands) | Category | Nine Months Sep 2019 | Nine Months Sep 2018 | | :-------------------------------------------------- | :------------------- | :------------------- | | Net cash used in operating activities | $(57,277) | $(24,151) | | Net cash provided by (used in) investing activities | $18,784 | $(51,075) | | Net cash provided by financing activities | $34,003 | $86,352 | | Net (decrease) increase in cash, cash equivalents and restricted cash | $(4,490) | $11,126 | | Cash, cash equivalents and restricted cash, end of period | $27,097 | $25,056 | Notes to Unaudited Condensed Consolidated Financial Statements These notes explain accounting policies, financial instruments, inventory, liabilities, debt, commitments, equity, compensation, taxes, and agreements Note 1. Summary of Significant Accounting Policies This note outlines significant accounting policies, including revenue recognition, R&D, cash, investments, inventory, stock compensation, income taxes, and new pronouncements - The company's main source of revenue is product sales of the INTERCEPT Blood System (platelet and plasma systems, illuminators, spare parts, maintenance services)[29] - Revenue from the BARDA government contract is recognized as qualified direct and indirect costs are incurred[31] Product Revenue by Geographical Location (in thousands) | Region | Three Months Sep 2019 | Three Months Sep 2018 | Nine Months Sep 2019 | Nine Months Sep 2018 | | :--------------------------- | :-------------------- | :-------------------- | :------------------- | :------------------- | | Europe, Middle East and Africa | $12,806 | $11,866 | $38,207 | $34,890 | | North America | $4,792 | $3,117 | $14,501 | $8,653 | | Other | $421 | $416 | $1,024 | $840 | | Total product revenue | $18,019 | $15,399 | $53,732 | $44,383 | - The company adopted ASU No. 2016-02 (Leases) on January 1, 2019, recognizing $2.4 million in right-of-use assets and lease liabilities[71] Note 2. Available-for-sale Securities and Fair Value on Financial Instruments This note details available-for-sale securities, including money market funds, U.S. government agency securities, and corporate debt, with fair value measurements Available-for-sale Securities at September 30, 2019 (in thousands) | Category | Amortized Cost | Unrealized Gross Gain | Unrealized Gross Loss | Fair Value | | :--------------------------------- | :------------- | :-------------------- | :-------------------- | :--------- | | Money market funds | $10,493 | $— | $— | $10,493 | | United States government agency securities | $14,511 | $8 | $— | $14,519 | | Corporate debt securities | $46,036 | $131 | $— | $46,167 | | Total available-for-sale securities | $71,040 | $139 | $— | $71,179 | Available-for-sale Securities at December 31, 2018 (in thousands) | Category | Amortized Cost | Unrealized Gross Gain | Unrealized Gross Loss | Fair Value | | :--------------------------------- | :------------- | :-------------------- | :-------------------- | :--------- | | Money market funds | $6,167 | $— | $— | $6,167 | | United States government agency securities | $15,971 | $— | $(23) | $15,948 | | Corporate debt securities | $73,028 | $2 | $(260) | $72,770 | | Total available-for-sale securities | $95,166 | $2 | $(283) | $94,885 | Fair Value Hierarchy of Financial Assets at September 30, 2019 (in thousands) | Category | Total | Level 1 | Level 2 | Level 3 | | :--------------------------------- | :------ | :------ | :------ | :------ | | Money market funds | $10,493 | $10,493 | $— | $— | | United States government agency securities | $14,519 | $— | $14,519 | $— | | Corporate debt securities | $46,167 | $— | $46,167 | $— | | Total financial assets | $71,179 | $10,493 | $60,686 | $— | Note 3. Inventories Inventory, comprising work-in-process and finished goods, increased from December 2018 to September 2019 Inventories (in thousands) | Category | Sep 30, 2019 | Dec 31, 2018 | | :---------------- | :----------- | :----------- | | Work-in-process | $5,453 | $3,075 | | Finished goods | $15,453 | $10,464 | | Total inventories | $20,906 | $13,539 | Note 4. Accrued Liabilities Accrued liabilities slightly decreased from December 2018 to September 2019, mainly due to reduced compensation Accrued Liabilities (in thousands) | Category | Sep 30, 2019 | Dec 31, 2018 | | :----------------------------------- | :----------- | :----------- | | Accrued compensation and related costs | $9,082 | $10,765 | | Accrued professional services | $4,337 | $4,544 | | Accrued development costs | $1,804 | $1,965 | | Other accrued expenses | $3,226 | $2,526 | | Total accrued liabilities | $18,449 | $19,800 | Note 5. Debt The company refinanced its debt in March 2019 with MidCap Financial Trust, replacing the Oxford Term Loan and incurring a $2.1 million extinguishment loss Debt at September 30, 2019 (in thousands) | Category | Principal | Unamortized Discount | Total | | :------------------------- | :-------- | :------------------- | :------ | | Term Loan Credit Agreement | $40,000 | $(629) | $39,371 | | Debt – non-current | $40,000 | $(629) | $39,371 | Debt at December 31, 2018 (in thousands) | Category | Principal | Unamortized Discount | Net Carrying Value | | :------------------------- | :-------- | :------------------- | :----------------- | | Oxford Term Loan Agreement | $30,000 | $(130) | $29,870 | | Less: debt – current | $(7,857) | $— | $(7,857) | | Debt – non-current | $22,143 | $(130) | $22,013 | - On March 29, 2019, the company drew $40.0 million from a new Term Loan Credit Agreement with MidCap Financial Trust, using proceeds to repay the Oxford Term Loan Agreement, resulting in a $2.1 million loss on extinguishment[87] - As of September 30, 2019, the company had borrowed approximately $5.0 million under a Revolving Loan Credit Agreement with MidCap[88] Note 6. Commitments and Contingencies This note details operating lease commitments for facilities and equipment, outlining future minimum non-cancelable payments Future Minimum Non-Cancelable Operating Lease Payments (in thousands) | Year Ended December 31, | Operating Leases | | :------------------------ | :--------------- | | Remainder of 2019 | $854 | | 2020 | $3,114 | | 2021 | $3,139 | | 2022 | $2,768 | | 2023 | $2,644 | | Thereafter | $18,701 | | Total future lease payments | $31,220 | | Less imputed interest | $11,170 | | Present value of lease liabilities | $20,050 | - Weighted-average remaining lease term was 9.6 years and weighted-average discount rate was 9.0% as of September 30, 2019[91] Note 7. Stockholders' Equity The company sold 3.5 million shares for $17.7 million net proceeds, with $23.5 million remaining available - During the nine months ended September 30, 2019, 3.5 million shares of common stock were sold under the Amended Cantor Agreement for net proceeds of $17.7 million[95] - As of September 30, 2019, approximately $23.5 million of common stock remained available for sale under the Amended Cantor Agreement[95] Note 8. Stock-Based Compensation This note details stock option and restricted stock unit activity under equity incentive plans for the nine months ended September 30, 2019 Stock Options Activity (in thousands, except per share amounts) | | Number of Options Outstanding | Weighted Average Exercise Price per Share | | :-------------------------- | :---------------------------- | :---------------------------------------- | | Balances at December 31, 2018 | 17,560 | $4.47 | | Granted | 515 | $5.68 | | Exercised | (586) | $3.05 | | Forfeited/canceled | (410) | $5.54 | | Balances at September 30, 2019 | 17,079 | $4.53 | Restricted Stock Units (RSUs) Activity (in thousands, except per share amounts) | | Number of RSUs Unvested | Weighted Average Grant Date Fair Value per Share | | :-------------------------- | :------------------------ | :----------------------------------------------- | | Balances at December 31, 2018 | 2,001 | $4.56 | | Granted | 3,167 | $5.57 | | Vested | (879) | $4.68 | | Forfeited | (193) | $5.98 | | Balances at September 30, 2019 | 4,096 | $5.25 | - As of September 30, 2019, approximately 31.5 million shares were subject to outstanding options or unvested RSUs, or remained available for future issuance under the Amended 2008 Plan[100] Note 9. Income Taxes Income tax expense remained consistent at $0.1 million (three months) and $0.2 million (nine months) for 2019 and 2018, primarily from Cerus Europe B.V. operating profit - Income tax expense was $0.1 million for both the three months ended September 30, 2019 and 2018, and $0.2 million for both the nine months ended September 30, 2019 and 2018[103] - The tax expenses primarily resulted from the operating profit of the Cerus Europe B.V. subsidiary[103] - A valuation allowance is maintained on substantially all U.S. deferred tax assets due to cumulative operating losses[169] Note 10. Development and License Agreements This note details key agreements, including the supply agreement with Fresenius for INTERCEPT components and the BARDA agreement for red blood cell development funding - The company has a Supply Agreement with Fresenius Kabi AG for the manufacture and supply of INTERCEPT Blood System disposable kits[104] - In August 2019, the company paid the remaining €5.5 million of Manufacturing and Development Payments to Fresenius[105] Payments to Fresenius for Product Manufacturing (in thousands) | Period | 2019 | 2018 | | :-------------------- | :----- | :----- | | Three Months Sep 30 | $9,800 | $5,600 | | Nine Months Sep 30 | $23,300 | $15,700 | - The five-year agreement with BARDA provides committed funding of up to $103.2 million for clinical development of the red blood cell system, with a total funding opportunity of $201.2 million if all options are exercised[110] - As of September 30, 2019, $4.1 million of billed and unbilled amounts related to BARDA were included in accounts receivable[112] Note 11. Segment, Customer and Geographic Information The company operates in a single blood safety segment, with product revenues attributed geographically and significant customers - The company operates in only one segment: blood safety[113] Significant Customers' Contribution to Product Revenue | Customer | Three Months Sep 2019 | Three Months Sep 2018 | Nine Months Sep 2019 | Nine Months Sep 2018 | | :----------------------------- | :-------------------- | :-------------------- | :------------------- | :------------------- | | Établissement Français du Sang | 28% | 41% | 28% | 40% | | American Red Cross | 12% | <10% | 13% | <10% | ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management discusses financial performance, operational highlights, revenue/expense trends, liquidity, capital resources, and critical accounting policies Overview The company focuses on the INTERCEPT Blood System; platelet and plasma systems are commercialized, while the red blood cell system is in development, with continued losses expected - The INTERCEPT Blood System for platelets and plasma are FDA approved and marketed globally, while the red blood cell system is in development with CE Mark application filed in December 2018, but regulatory approvals not expected before 2022[122][124] - U.S. commercial efforts for platelet and plasma systems focus on implementation and awareness, with new FDA guidance requiring compliance with bacterial risk control strategies for platelets within 18 months[132] - The company expects to continue generating losses until widespread commercial adoption and positive net cash flows from operations are achieved[134](index=134&type=chunk