CERUS CORP, 10-Q filed on 11/1/2018
Quarterly Report
v3.10.0.1
Document and Entity Information - shares
9 Months Ended
Sep. 30, 2018
Oct. 22, 2018
Document And Entity Information [Abstract]    
Document Type 10-Q  
Amendment Flag false  
Document Period End Date Sep. 30, 2018  
Document Fiscal Year Focus 2018  
Document Fiscal Period Focus Q3  
Trading Symbol CERS  
Entity Registrant Name CERUS CORP  
Entity Central Index Key 0001020214  
Current Fiscal Year End Date --12-31  
Entity Filer Category Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Common Stock, Shares Outstanding   135,689,199
v3.10.0.1
CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Thousands
Sep. 30, 2018
Dec. 31, 2017
Current assets:    
Cash and cash equivalents $ 22,327 $ 13,683
Short-term investments 96,669 47,013
Accounts receivable 10,476 12,415
Inventories 13,322 14,457
Other current assets 7,360 2,330
Total current assets 150,154 89,898
Non-current assets:    
Property and equipment, net 3,124 2,119
Goodwill 1,316 1,316
Intangible assets, net 385 536
Restricted cash 2,729 247
Other assets 3,949 4,128
Total assets 161,657 98,244
Current liabilities:    
Accounts payable 14,333 10,974
Accrued liabilities 16,764 11,712
Debt – current 5,714  
Manufacturing and development obligations – current 5,858  
Deferred product revenue – current 533 445
Total current liabilities 43,202 23,131
Non-current liabilities:    
Debt – non-current 24,138 29,798
Manufacturing and development obligations – non-current   5,766
Other non-current liabilities 2,516 609
Total liabilities 69,856 59,304
Commitments and contingencies
Stockholders' equity:    
Common stock 136 115
Additional paid-in capital 854,653 760,225
Accumulated other comprehensive loss (326) (97)
Accumulated deficit (762,662) (721,303)
Total stockholders' equity 91,801 38,940
Total liabilities and stockholders' equity $ 161,657 $ 98,244
v3.10.0.1
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2018
Sep. 30, 2017
Sep. 30, 2018
Sep. 30, 2017
Revenue $ 15,399 $ 10,797 $ 44,383 $ 27,328
Cost of revenue 8,142 5,348 23,192 13,402
Gross profit 7,257 5,449 21,191 13,926
Operating expenses:        
Research and development 10,825 7,886 30,143 25,927
Selling, general and administrative 13,964 12,230 42,008 40,058
Total operating expenses 24,789 20,116 72,151 65,985
Loss from operations (13,604) (12,382) (39,530) (46,679)
Non-operating (expense) income, net:        
Foreign exchange gain (loss) 8   (22) (59)
Interest expense (1,053) (1,090) (2,926) (2,122)
Other income, net 513 104 1,288 3,722
Total non-operating (expense) income, net (532) (986) (1,660) 1,541
Loss before income taxes (14,136) (13,368) (41,190) (45,138)
Provision for income taxes 56 50 169 3,961
Net loss $ (14,192) $ (13,418) $ (41,359) $ (49,099)
Net loss per share:        
Basic $ (0.11) $ (0.12) $ (0.32) $ (0.46)
Diluted $ (0.11) $ (0.12) $ (0.32) $ (0.46)
Weighted average shares outstanding used for calculating net loss per share:        
Basic 134,326 109,846 130,199 106,159
Diluted 134,326 109,846 130,199 106,159
Product        
Revenue $ 15,399 $ 10,797 $ 44,383 $ 27,328
Government Contract        
Revenue $ 3,928 $ 2,285 $ 11,430 $ 5,380
v3.10.0.1
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2018
Sep. 30, 2017
Sep. 30, 2018
Sep. 30, 2017
Statement Of Income And Comprehensive Income [Abstract]        
Net loss $ (14,192) $ (13,418) $ (41,359) $ (49,099)
Other comprehensive income (loss)        
Unrealized gains (losses) on available-for-sale investments, net of taxes of zero for the three and nine months ended September 30, 2018 and 2017 91 (9) (229) (131)
Comprehensive loss $ (14,101) $ (13,427) $ (41,588) $ (49,230)
v3.10.0.1
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Parenthetical) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2018
Sep. 30, 2017
Sep. 30, 2018
Sep. 30, 2017
Statement Of Income And Comprehensive Income [Abstract]        
Unrealized (losses) gains on available-for-sale investments, taxes $ 0 $ 0 $ 0 $ 0
v3.10.0.1
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
$ in Thousands
9 Months Ended
Sep. 30, 2018
Sep. 30, 2017
Operating activities    
Net loss $ (41,359) $ (49,099)
Adjustments to reconcile net loss to net cash used in operating activities:    
Depreciation and amortization 1,109 1,359
Stock-based compensation 7,579 7,008
Non-cash interest expense 892 282
Loss on disposal of property and equipment 5  
Deferred income taxes 2 19
Non-cash tax expense from other realized gain on available-for-sale securities   3,825
Gain on sale of investment in marketable equity securities   (3,466)
Changes in operating assets and liabilities:    
Accounts receivable 1,939 (3,608)
Inventories 1,043 (1,800)
Other assets (2,724) (379)
Accounts payable 3,020 4,022
Accrued liabilities and other non-current liabilities 4,457 (1,477)
Manufacturing and development obligations (187) 600
Deferred product revenue 73 514
Net cash used in operating activities (24,151) (42,200)
Investing activities    
Capital expenditures (624) (354)
Purchases of investments (80,453) (50,183)
Proceeds from maturities and sale of investments 30,002 55,566
Net cash (used in) provided by investing activities (51,075) 5,029
Financing activities    
Net proceeds from equity incentives 7,150 2,421
Net proceeds from public offering 79,301 18,840
Proceeds from loans   30,000
Repayment of debt (99) (19,593)
Net cash provided by financing activities 86,352 31,668
Net increase (decrease) in cash, cash equivalents and restricted cash 11,126 (5,503)
Cash, cash equivalents and restricted cash, beginning of period 13,930 22,744
Cash, cash equivalents and restricted cash, end of period $ 25,056 $ 17,241
v3.10.0.1
Summary of Significant Accounting Policies
9 Months Ended
Sep. 30, 2018
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies

Note 1. Summary of Significant Accounting Policies

Principles of Consolidation and Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include those of Cerus Corporation and its subsidiary, Cerus Europe B.V. (together with Cerus Corporation, hereinafter “Cerus” or the “Company”) after elimination of all intercompany accounts and transactions. These unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, or U.S. (“GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring entries, considered necessary for a fair presentation have been made. Operating results for the three and nine months ended September 30, 2018, are not necessarily indicative of the results that may be expected for the year ending December 31, 2018, or for any future periods.

These unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the year ended December 31, 2017, which were included in the Company’s 2017 Annual Report on Form 10-K, filed with the SEC on March 8, 2018. The accompanying condensed consolidated balance sheet as of December 31, 2017, has been derived from the Company’s audited consolidated financial statements as of that date.

Use of Estimates

The preparation of financial statements requires management to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosures of contingent assets and liabilities. On an ongoing basis, management evaluates its estimates, including those related to the nature and timing of satisfaction of performance obligations, the timing when the customer obtains control of products or services, the standalone selling price (“SSP”) of performance obligations, variable consideration, accounts receivable, inventory reserves, fair values of investments, stock-based compensation, intangible assets and goodwill, useful lives of intangible assets and property and equipment, income taxes, and accrued liabilities, among others. The Company bases its estimates on historical experience, future projections, and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from those estimates under different assumptions or conditions.

Revenue

The Company adopted Accounting Standards Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers”, on January 1, 2018, using the modified retrospective method. Revenue is recognized in accordance with that core principle by applying the following five steps: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) the entity satisfies a performance obligation.

The Company’s main source of revenue is product revenue from sales of the INTERCEPT Blood System for platelets and plasma (“platelet and plasma systems” or “disposable kits”), UVA illumination devices (“illuminators”), spare parts and storage solutions, and maintenance services of illuminators. The Company sells its platelet and plasma systems directly to blood banks, hospitals, universities, government agencies, as well as to distributors in certain regions. For all sales of the Company’s INTERCEPT Blood System products, the Company uses a binding purchase order or signed sales contract as evidence of a contract and satisfaction of its policy. Generally, the Company’s contracts with its customers do not provide for open return rights, except within a reasonable time after receipt of goods in the case of defective or non-conforming product. The contracts with customers can include various combinations of products, and to a lesser extent, services. The Company must determine whether products or services are capable of being distinct and accounted for as separate performance obligations, or are accounted for as a combined performance obligation. The Company must allocate the transaction price to each performance obligation on a relative SSP basis, and recognize the revenue when the performance obligation is satisfied. The Company determines the SSP by using the historical selling price of the products and services. If the amount of consideration in a contract is variable, the Company estimates the amount of variable consideration that should be included in the transaction price using the most likely amount method, to the extent it is probable that a significant future reversal of cumulative revenue under the contract will not occur. Product revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration to which the Company expects to receive in exchange for those products or services. Product revenue from the sale of illuminators, disposable kits, spare parts and storage solutions are recognized upon the transfer of control of the products to the customer. Product revenue from maintenance services are recognized ratably on a straight-line basis over the term of maintenance as customers simultaneously consume and receive benefits. Freight costs charged to customers are recorded as a component of revenue. Taxes that the Company invoices to its customers and remits to governments are recorded on a net basis, which excludes such tax from product revenue.

The Company receives reimbursement under its U.S. government contract with the Biomedical Advanced Research and Development Authority (“BARDA”) that supports research and development of defined projects. See “Note 10. Development and License Agreements—Agreement with BARDA” below. The contract generally provides for reimbursement of approved costs incurred under the terms of the contract. Revenue related to the cost reimbursement provisions under the Company’s U.S. government contract are recognized as the qualified direct and indirect costs on the projects are incurred. The Company invoices under its U.S. government contract using the provisional rates in the government contract and thus is subject to future audits at the discretion of government. These audits could result in an adjustment to government contract revenue previously reported, which adjustments potentially could be significant. The Company believes that revenue for periods not yet audited has been recorded in amounts that are expected to be realized upon final audit and settlement. Costs incurred related to services performed under the contract are included as a component of research and development or selling, general and administrative expenses in the Company’s consolidated statements of operations. The Company’s use of estimates in recording accrued liabilities for government contract activities (see “Use of Estimates” above) affects the revenue recorded from development funding and under the government contract.

 

Disaggregation of Product Revenue

Product revenue by geographical locations of customers during the three and nine months ended September 30, 2018 and 2017, were as follows (in thousands):

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Product revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Europe, Middle East and Africa

 

$

11,866

 

 

$

9,045

 

 

$

34,890

 

 

$

22,793

 

North America

 

 

3,117

 

 

 

1,524

 

 

 

8,653

 

 

 

3,872

 

Other

 

 

416

 

 

 

228

 

 

 

840

 

 

 

663

 

Total product revenue

 

$

15,399

 

 

$

10,797

 

 

$

44,383

 

 

$

27,328

 

 

Contract Balances

The Company invoices its customers based upon the payment terms in the contracts, which is generally from 30 to 60 days. Accounts receivable are recorded when the Company’s right to the consideration are estimated to be unconditional. The Company had no contract assets at September 30, 2018 and December 31, 2017.

Contract liabilities mainly consist of deferred product revenue related to uninstalled illuminators, unshipped products, and maintenance services. Maintenance services are generally billed upfront at the beginning of each annual service period and recognized ratably over the service period. The increase in the deferred product revenue balance for the nine months ended September 30, 2018 is primarily driven by performance obligations not satisfied but invoiced as of September 30, 2018, offset by $0.3 million of revenue recognized that were included in the deferred product revenue balance as of December 31, 2017.

The Company applies an optional exemption to not disclose the value of unsatisfied performance obligations for contracts that have an original expected duration of one year or less.

 

Research and Development Expenses

Research and development (“R&D”) expenses are charged to expense when incurred, including cost incurred pursuant to the terms of the Company’s U.S. government contract. Research and development expenses include salaries and related expenses for scientific and regulatory personnel, payments to consultants, supplies and chemicals used in in-house laboratories, costs of R&D facilities, depreciation of equipment and external contract research expenses, including clinical trials, preclinical safety studies, other laboratory studies, process development and product manufacturing for research use.

The Company’s use of estimates in recording accrued liabilities for R&D activities (see “Use of Estimates” above) affects the amounts of R&D expenses recorded from development funding and under its U.S. government contract. Actual results may differ from those estimates under different assumptions or conditions.

Cash Equivalents

The Company considers all highly liquid investments with original maturities of three months or less from the date of purchase to be classified as cash equivalents. These investments primarily consist of money market instruments, and are classified as available-for-sale.

Investments

Investments with original maturities of greater than three months primarily include corporate debt and U.S. government agency securities that are designated as available-for-sale and classified as short-term investments. Available-for-sale securities are carried at estimated fair value. The Company views its available-for-sale portfolio as available for use in its current operations. Unrealized gains and losses derived by changes in the estimated fair value of available-for-sale securities were recorded in “Unrealized losses on available-for-sale investments, net of taxes” on the Company’s unaudited condensed consolidated statements of comprehensive loss. Realized gains (losses) from the sale of available-for-sale investments, if any, were recorded in “Other income, net” on the Company’s unaudited condensed consolidated statements of operations. The costs of securities sold are based on the specific identification method, if applicable. The Company reported the amortization of any premium and accretion of any discount resulting from the purchase of debt securities as a component of interest income.

The Company also reviews its available-for-sale securities on a regular basis to evaluate whether any security has experienced an other-than-temporary decline in fair value. Other-than-temporary declines in market value, if any, are recorded in “Other income, net” on the Company’s unaudited condensed consolidated statements of operations.

Restricted Cash

As of September 30, 2018, the Company’s “Restricted cash” primarily consisted of a $2.5 million of letter of credit relating to the lease of the Company’s new office building. As of September 30, 2018 and December 31, 2017, the Company also had certain non-U.S. dollar denominated deposits recorded as “Restrict cash” related to compliance with certain foreign contractual requirements.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash equivalents, available-for-sale securities and accounts receivable.

Pursuant to the Company’s investment policy, substantially all of the Company’s cash, cash equivalents and available-for-sale securities are maintained at major financial institutions of high credit standing. The Company monitors the financial credit worthiness of the issuers of its investments and limits the concentration in individual securities and types of investments that exist within its investment portfolio. Generally, all of the Company’s investments carry high credit quality ratings, which is in accordance with its investment policy. At September 30, 2018, the Company does not believe there is significant financial risk from non-performance by the issuers of the Company’s cash equivalents and short-term investments.

Concentrations of credit risk with respect to trade receivables exist. On a regular basis, including at the time of sale, the Company performs credit evaluations of its significant customers that it expects to sell to on credit terms. Generally, the Company does not require collateral from its customers to secure accounts receivable. To the extent that the Company determines specific invoices or customer accounts may be uncollectible, the Company establishes an allowance for doubtful accounts against the accounts receivable on its unaudited condensed consolidated balance sheets and records a charge on its unaudited condensed consolidated statements of operations as a component of selling, general and administrative expenses.

The Company had two and three customers that accounted for more than 10% of the Company’s outstanding trade receivables at September 30, 2018 and December 31, 2017, respectively. These customers cumulatively represented approximately 61% and 53% of the Company’s outstanding trade receivables at September 30, 2018 and December 31, 2017, respectively. To date, the Company has not experienced collection difficulties from these customers.

Inventories

At September 30, 2018 and December 31, 2017, inventory consisted of work-in-process and finished goods only. Finished goods include INTERCEPT disposable kits, illuminators, and certain replacement parts for the illuminators. Platelet and plasma systems’ disposable kits generally have 18 to 24 months shelf lives from the date of manufacture. Illuminators and replacement parts do not have regulated expiration dates. Work-in-process includes certain components that are manufactured over a protracted length of time before being sold to, and ultimately incorporated and assembled by Fresenius Kabi Deutschland GmbH or Fresenius, Inc. (with their affiliates, “Fresenius”) into the finished INTERCEPT disposable kits. The Company maintains an inventory balance based on its current sales projections, and at each reporting period, the Company evaluates whether its work-in-process inventory would be sold to Fresenius for production of finished units in order to sell to existing and prospective customers within the next twelve-month period. It is not customary for the Company’s production cycle for inventory to exceed twelve months. Instead, the Company uses its best judgment to factor in lead times for the production of its work-in-process and finished units to meet the Company’s forecasted demands. If actual results differ from those estimates, work-in-process inventory could potentially accumulate for periods exceeding one year. At September 30, 2018 and December 31, 2017, the Company classified its work-in-process inventory as a current asset on its consolidated balance sheets based on its evaluation that the work-in-process inventory would be sold to Fresenius for finished disposable kit production within each respective subsequent twelve-month period.

Inventory is recorded at the lower of cost, determined on a first-in, first-out basis, or net realizable value. The Company uses significant judgment to analyze and determine if the composition of its inventory is obsolete, slow-moving or unsalable and frequently reviews such determinations. The Company writes down specifically identified unusable, obsolete, slow-moving, or known unsalable inventory that has no alternative use in the period that it is first recognized by using a number of factors including product expiration dates, open and unfulfilled orders, and sales forecasts. Any write-down of its inventory to net realizable value establishes a new cost basis and will be maintained even if certain circumstances suggest that the inventory is recoverable in subsequent periods. Costs associated with the write-down of inventory are recorded in “Cost of product revenue” on the Company’s consolidated statements of operations. At September 30, 2018 and December 31, 2017, the Company had $0.3 million and $0.1 million, respectively, recorded for potential obsolete, expiring or unsalable product.

Property and Equipment, net

Property and equipment is comprised of furniture, equipment, leasehold improvements, construction-in-progress, information technology hardware and software and is recorded at cost. At the time the property and equipment is ready for its intended use, it is depreciated on a straight-line basis over the estimated useful lives of the assets (generally three to five years). Leasehold improvements are amortized on a straight-line basis over the shorter of the lease term or the estimated useful lives of the improvements. As of September 30, 2018 and December 31, 2017, the Company capitalized construction-in-progress costs included in Property and Equipment, net, on the Company’s consolidated balance sheets, of $1.5 million and zero, respectively, related to leasehold improvements, of which $0.8 million was unpaid as of September 30, 2018.

Goodwill and Intangible Assets, net

Intangible assets, net, which include a license for the right to commercialize the INTERCEPT Blood System in Asia, are subject to ratable amortization over the original estimated useful life of ten years. Accumulated amortization of intangible assets as of September 30, 2018 and December 31, 2017, was $1.6 million and $1.5 million, respectively. The changes in intangible assets, net during the three and nine months ended September 30, 2018 and 2017, were results of amortization expense. Goodwill is not amortized but instead is subject to an impairment test performed on an annual basis, or more frequently if events or changes in circumstances indicate that goodwill may be impaired. Such impairment analysis is performed on August 31 of each fiscal year, or more frequently if indicators of impairment exist. The test for goodwill impairment may be assessed using qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than the carrying amount. If the Company determines that it is more likely than not that the fair value of a reporting unit is less than the carrying amount, the Company must then proceed with performing the quantitative goodwill impairment test. The Company may choose not to perform the qualitative assessment to test goodwill for impairment and proceed directly to the quantitative impairment test; however, the Company may revert to the qualitative assessment to test goodwill for impairment in any subsequent period. The quantitative goodwill impairment test compares the fair value of each reporting unit with its respective carrying amount, including goodwill. The Company has determined that it operates in one reporting unit and estimates the fair value of its one reporting unit using the enterprise approach under which it considers the quoted market capitalization of the Company as reported on the Nasdaq Global Market. The Company considers quoted market prices that are available in active markets to be the best evidence of fair value. The Company also considers other factors, which include future forecasted results, the economic environment and overall market conditions. If the fair value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess, limited to the carrying amount of goodwill in the Company’s one reporting unit.

 

The Company performs an impairment test on its intangible assets if certain events or changes in circumstances occur which indicate that the carrying amounts of its intangible assets may not be recoverable. If the intangible assets are not recoverable, an impairment loss would be recognized by the Company based on the excess amount of the carrying value of the intangible assets over its fair value. During the three and nine months ended September 30, 2018 and 2017, there were no impairment charges recognized related to the acquired intangible assets.

Long-lived Assets

The Company evaluates its long-lived assets for impairment by continually monitoring events and changes in circumstances that could indicate carrying amounts of its long-lived assets may not be recoverable. When such events or changes in circumstances occur, the Company assesses recoverability by determining whether the carrying value of such assets will be recovered through the undiscounted expected future cash flows. If the expected undiscounted future cash flows are less than the carrying amount of these assets, the Company then measures the amount of the impairment loss based on the excess of the carrying amount over the fair value of the assets.

Foreign Currency Remeasurement

The functional currency of the Company’s foreign subsidiary is the U.S. dollar. Monetary assets and liabilities denominated in foreign currencies are remeasured in U.S. dollars using the exchange rates at the balance sheet date. Non-monetary assets and liabilities denominated in foreign currencies are remeasured in U.S. dollars using historical exchange rates. Product revenues and expenses are remeasured using average exchange rates prevailing during the period. Remeasurements are recorded in the Company’s consolidated statements of operations.

Stock-Based Compensation

Stock-based compensation expense is measured at the grant-date based on the fair value of the award and is recognized as expense on a straight-line basis over the requisite service period, which is the vesting period, and is adjusted for estimated forfeitures. To the extent that stock options contain performance criteria for vesting, stock-based compensation is recognized once the performance criteria are probable of being achieved.

For stock-based awards issued to non-employees, the measurement date at which the fair value of the stock-based award is measured to be the earlier of (i) the date at which a commitment for performance by the grantee to earn the equity instrument is reached or (ii) the date at which the grantee’s performance is complete. The Company recognizes stock-based compensation expense for the fair value of the vested portion of the non-employee stock-based awards in its consolidated statements of operations.

See Note 8 for further information regarding the Company’s stock-based compensation expense.

Income Taxes

The provision for income taxes is accounted for using an asset and liability approach, under which deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company does not recognize tax positions that do not have a greater than 50% likelihood of being recognized upon review by a taxing authority having full knowledge of all relevant information. Use of a valuation allowance is not an appropriate substitute for derecognition of a tax position. The Company recognizes accrued interest and penalties related to unrecognized tax benefits in its income tax expense. To date, the Company has not recognized any interest and penalties in its unaudited condensed consolidated statements of operations, nor has it accrued for or made payments for interest and penalties. Although the Company believes it more likely than not that a taxing authority would agree with its current tax positions, there can be no assurance that the tax positions the Company has taken will be substantiated by a taxing authority if reviewed. The Company’s U.S. federal tax returns for years 1998 through 2017 and California tax returns for years through 2017 remain subject to examination by the taxing jurisdictions due to unutilized net operating losses and research credits. The Company continues to carry a valuation allowance on substantially all of its net deferred tax assets.

Net Loss Per Share

Basic net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding for the period. Diluted net loss per share gives effect to all potentially dilutive common shares outstanding for the period. The potentially dilutive securities include stock options, employee stock purchase plan rights and restricted stock units, which are calculated using the treasury stock method. For the three and nine months ended September 30, 2018 and 2017, all potentially dilutive securities outstanding have been excluded from the computation of dilutive weighted average shares outstanding because such securities have an antidilutive impact due to losses reported.

 

The table below presents potential shares that were excluded from the calculation of the weighted average number of shares outstanding used for the calculation of diluted net loss per share. These are excluded from the calculation due to their anti-dilutive effect for the three and nine months ended September 30, 2018 and 2017 (shares in thousands):

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Weighted average number of anti-dilutive potential shares:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock options

 

 

17,882

 

 

 

17,629

 

 

 

18,137

 

 

 

17,424

 

Restricted stock units

 

 

1,989

 

 

 

1,313

 

 

 

1,865

 

 

 

1,211

 

Employee stock purchase plan rights

 

 

3

 

 

 

 

 

 

2

 

 

 

11

 

Total

 

 

19,874

 

 

 

18,942

 

 

 

20,004

 

 

 

18,646

 

 

Guarantee and Indemnification Arrangements

The Company recognizes the fair value for guarantee and indemnification arrangements issued or modified by the Company. In addition, the Company monitors the conditions that are subject to the guarantees and indemnifications in order to identify if a loss has occurred. If the Company determines it is probable that a loss has occurred, then any such estimable loss would be recognized under those guarantees and indemnifications. Some of the agreements that the Company is a party to contain provisions that indemnify the counter party from damages and costs resulting from claims that the Company’s technology infringes the intellectual property rights of a third party or claims that the sale or use of the Company’s products have caused personal injury or other damage or loss. The Company has not received any such requests for indemnification under these provisions and has not been required to make material payments pursuant to these provisions.

The Company generally provides for a one-year warranty on certain of its INTERCEPT blood-safety products covering defects in materials and workmanship. The Company accrues costs associated with warranty obligations when claims become known and are estimable. The Company has not experienced significant or systemic warranty claims nor is it aware of any existing current warranty claims. Accordingly, the Company had not accrued for any future warranty costs for its products at September 30, 2018 and December 31, 2017.

Fair Value of Financial Instruments

The Company applies the provisions of fair value relating to its financial assets and liabilities. The carrying amounts of accounts receivables, accounts payable, and other accrued liabilities approximate their fair value due to the relative short-term maturities. Based on the borrowing rates currently available to the Company for loans with similar terms, the Company believes the fair value of its debt approximates their carrying amounts. The Company measures and records certain financial assets and liabilities at fair value on a recurring basis, including its available-for-sale securities. The Company classifies instruments within Level 1 if quoted prices are available in active markets for identical assets, which include the Company’s cash accounts and money market funds. The Company classifies instruments in Level 2 if the instruments are valued using observable inputs to quoted market prices, benchmark yields, reported trades, broker/dealer quotes or alternative pricing sources with reasonable levels of price transparency. These instruments include the Company’s corporate debt and U.S. government agency securities holdings. The available-for-sale securities are held by a custodian who obtains investment prices from a third party pricing provider that uses standard inputs (observable in the market) to models which vary by asset class. The Company classifies instruments in Level 3 if one or more significant inputs or significant value drivers are unobservable. The Company assesses any transfers among fair value measurement levels at the end of each reporting period.

See Note 2 for further information regarding the Company’s valuation of financial instruments.

New Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which provides a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance. This ASU is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The Company adopted the new accounting standard on January 1, 2018, using the modified retrospective method, and the adoption had no impact on the Company’s consolidated financial statements.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments-Overall (Subtopic 825-10), which requires all equity investments to be measured at fair value with changes in the fair value recognized through net income (other than those accounted for under equity method of accounting or those that result in consolidation of the investee). The amendments also require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. In addition, this ASU eliminates the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities and the requirement to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet for public business entities. The Company adopted this ASU on January 1, 2018, and the adoption had no impact on the Company’s consolidated financial statements.

In June 2018, the FASB issued ASU No. 2018-07, Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which simplifies the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees, with certain exceptions. The standard is effective for annual periods beginning after December 15, 2018, and interim periods thereafter, with early application permitted. The Company early adopted this new accounting standard on July 1, 2018, and the adoption did not have a material impact on the Company’s consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases, which, for operating leases, requires a lessee to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in its balance sheet. The standard also requires a lessee to recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term, on a generally straight-line basis. This ASU will be effective for annual periods beginning after December 15, 2018, and interim periods thereafter, with early application permitted. Entities are required to adopt this ASU using a modified retrospective approach for all leases that exist at or commence after the beginning of the earliest comparative period presented. In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, which provides for certain practical expedient when implementing the new leases standard. Companies may apply the practical expedient either retrospectively or prospectively. The Company will adopt these ASUs on January 1, 2019, using the modified retrospective approach and will apply the practical expedient prospectively. The Company is currently assessing the future impact of these ASUs on its consolidated financial statements. To date the Company has completed a high level review of its lease model, determined the scope of work, and is in the process of performing an analysis of lease contracts. The Company anticipates that the Company’s operating lease commitments will be subject to the new standard. The Company will recognize right-of-use assets and lease liabilities on the Company’s consolidated balance sheets upon the adoption of these ASUs, which will increase the Company’s total assets and total liabilities. The Company will continue to monitor industry activities and any additional guidance provided by regulators, standards setters, or the accounting profession as an ongoing component of its assessment and implementation plans.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires measurement and recognition of expected credit losses for financial assets held. The standard is effective for annual periods beginning after December 15, 2019, and interim periods thereafter, with early application permitted. The Company plans to adopt this ASU on January 1, 2020, using the modified retrospective transition method. The Company is currently assessing the future impact of this ASU on the Company’s consolidated financial statements.

In May 2017, the FASB issued ASU No. 2017-09, Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting, which provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The Company adopted this ASU on January 1, 2018, and the adoption did not have a material impact on the Company’s consolidated financial statements.

 

 

v3.10.0.1
Available-for-sale Securities and Fair Value on Financial Instruments
9 Months Ended
Sep. 30, 2018
Fair Value Disclosures [Abstract]  
Available-for-sale Securities and Fair Value on Financial Instruments

Note 2. Available-for-sale Securities and Fair Value on Financial Instruments

Available-for-sale Securities

The following is a summary of available-for-sale securities at September 30, 2018 (in thousands):

 

 

September 30, 2018

 

 

 

Amortized Cost

 

 

Gross

Unrealized Gain

 

 

Gross

Unrealized Loss

 

 

Fair Value

 

Money market funds

 

$

6,591

 

 

$

 

 

$

 

 

$

6,591

 

United States government agency securities

 

 

20,944

 

 

 

 

 

 

(41

)

 

 

20,903

 

Corporate debt securities

 

 

76,051

 

 

 

 

 

 

(285

)

 

 

75,766

 

Total available-for-sale securities

 

$

103,586

 

 

$

 

 

$

(326

)

 

$

103,260

 

 

The following is a summary of available-for-sale securities at December 31, 2017 (in thousands):

 

 

December 31, 2017

 

 

 

Amortized Cost

 

 

Gross

Unrealized Gain

 

 

Gross

Unrealized Loss

 

 

Fair Value

 

Money market funds

 

$

3,758

 

 

$

 

 

$

 

 

$

3,758

 

United States government agency securities

 

 

11,252

 

 

 

 

 

 

(24

)

 

 

11,228

 

Corporate debt securities

 

 

35,858

 

 

 

 

 

 

(73

)

 

 

35,785

 

Total available-for-sale securities

 

$

50,868

 

 

$

 

 

$

(97

)

 

$

50,771

 

 

Available-for-sale securities at September 30, 2018 and December 31, 2017, consisted of the following by contractual maturity (in thousands):

 

 

September 30, 2018

 

 

December 31, 2017

 

 

 

Amortized Cost

 

 

Fair Value

 

 

Amortized Cost

 

 

Fair Value

 

One year or less

 

$

75,555

 

 

$

75,361

 

 

$

38,836

 

 

$

38,781

 

Greater than one year and less than five years

 

 

28,031

 

 

 

27,899

 

 

 

12,032

 

 

 

11,990

 

Total available-for-sale securities

 

$

103,586

 

 

$

103,260

 

 

$

50,868

 

 

$

50,771

 

 

The following tables show all available-for-sale marketable securities in an unrealized loss position for which an other-than-temporary impairment has not been recognized and the related gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position (in thousands):

 

 

September 30, 2018

 

 

Less than 12 Months

 

 

12 Months or Greater

 

 

Total

 

 

Fair Value

 

 

Unrealized Loss

 

 

Fair Value

 

 

Unrealized Loss

 

 

Fair Value

 

 

Unrealized Loss

 

United States government agency securities

$

17,908

 

 

$

(35

)

 

$

2,994

 

 

$

(6

)

 

$

20,902

 

 

$

(41

)

Corporate debt securities

 

72,740

 

 

 

(279

)

 

 

1,996

 

 

 

(6

)

 

 

74,736

 

 

 

(285

)

Total available-for-sale securities

$

90,648

 

 

$

(314

)

 

$

4,990

 

 

$

(12

)

 

$

95,638

 

 

$

(326

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2017

 

 

Less than 12 Months

 

 

12 Months or Greater

 

 

Total

 

 

Fair Value

 

 

Unrealized Loss

 

 

Fair Value

 

 

Unrealized Loss

 

 

Fair Value

 

 

Unrealized Loss

 

United States government agency securities

$

8,729

 

 

$

(24

)

 

$

 

 

$

 

 

$

8,729

 

 

$

(24

)

Corporate debt securities

 

35,785

 

 

 

(73

)

 

 

 

 

 

 

 

 

35,785

 

 

 

(73

)

Total available-for-sale securities

$

44,514

 

 

$

(97

)

 

$

 

 

$

 

 

$

44,514

 

 

$

(97

)

 

As of September 30, 2018, the Company considered the declines in market value of its marketable securities investment portfolio to be temporary in nature and did not consider any of its investments other-than-temporarily impaired. The Company typically invests in highly-rated securities, and its investment policy limits the amount of credit exposure to any one issuer. The policy generally requires investments to be investment grade, with the primary objective of minimizing the potential risk of principal loss. Fair values were determined for each individual security in the investment portfolio. When evaluating an investment for other-than-temporary impairment, the Company reviews factors such as the length of time and extent to which fair value has been below its cost basis, the financial condition of the issuer and any changes thereto, changes in market interest rates, and the Company’s intent to sell, or whether it is more likely than not it will be required to sell, the investment before recovery of the investment’s cost basis. During the three and nine months ended September 30, 2018 and 2017, the Company did not recognize any other-than-temporary impairment loss. The Company has no current requirement or intent to sell the securities in an unrealized loss position. The Company expects to recover up to (or beyond) the initial cost of investment for securities held.

The Company recognized zero gross realized gains and less than five thousand dollars of gross realized losses from the sale of available-for-sale investments during the three and nine months ended September 30, 2018. The Company recognized zero and $3.5 million of gross realized gains from the sale of available-for-sale investments during the three and nine months ended September 30, 2017, respectively, which were reclassified out of accumulated other comprehensive income into “Other income, net” on the Company’s consolidated statements of operations. The Company did not record any gross realized losses from the sale or maturity of available-for-sale investments during the three and nine months ended September 30, 2017.

 

Fair Value Disclosures

The Company uses certain assumptions that market participants would use to determine the fair value of an asset or liability in pricing the asset or liability in an orderly transaction between market participants at the measurement date. The identification of market participant assumptions provides a basis for determining what inputs are to be used for pricing each asset or liability. A fair value hierarchy has been established which gives precedence to fair value measurements calculated using observable inputs over those using unobservable inputs. This hierarchy prioritized the inputs into three broad levels as follows:

Level 1: Quoted prices in active markets for identical instruments

Level 2: Other significant observable inputs (including quoted prices in active markets for similar instruments)

Level 3: Significant unobservable inputs (including assumptions in determining the fair value of certain investments)

Money market funds are highly liquid investments and are actively traded. The pricing information on these investment instruments are readily available and can be independently validated as of the measurement date. This approach results in the classification of these securities as Level 1 of the fair value hierarchy.

To estimate the fair value of Level 2 debt securities as of September 30, 2018, the Company’s primary pricing service relies on inputs from multiple industry-recognized pricing sources to determine the price for each investment. Corporate debt and U.S. government agency securities are systematically priced by this service as of the close of business each business day. If the primary pricing service does not price a specific asset a secondary pricing service is utilized.

The fair values of the Company’s financial assets and liabilities were determined using the following inputs at September 30, 2018 (in thousands):

 

 

 

Balance sheet

 

 

 

 

 

Quoted

Prices in

Active

Markets for Identical

Assets

 

 

Significant

Other

Observable

Inputs

 

 

Significant Unobservable Inputs

 

 

 

classification

 

Total

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

Money market funds

 

Cash and cash equivalents

 

$

6,591

 

 

$

6,591

 

 

$

 

 

$

 

United States government agency securities

 

Short-term investments

 

 

20,903

 

 

 

 

 

 

20,903

 

 

 

 

Corporate debt securities

 

Short-term investments

 

 

75,766

 

 

 

 

 

 

75,766

 

 

 

 

Total financial assets

 

 

 

$

103,260

 

 

$

6,591

 

 

$

96,669

 

 

$

 

 

The fair values of the Company’s financial assets and liabilities were determined using the following inputs at December 31, 2017 (in thousands):

 

 

Balance sheet

 

 

 

 

 

Quoted

Prices in

Active

Markets for Identical

Assets

 

 

Significant

Other

Observable

Inputs

 

 

Significant Unobservable Inputs

 

 

 

classification

 

Total

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

Money market funds

 

Cash and cash equivalents

 

$

3,758

 

 

$

3,758

 

 

$

 

 

$

 

United States government agency securities

 

Short-term investments

 

 

11,228

 

 

 

 

 

 

11,228

 

 

 

 

Corporate debt securities

 

Short-term investments

 

 

35,785

 

 

 

 

 

 

35,785

 

 

 

 

Total financial assets

 

 

 

$

50,771

 

 

$

3,758

 

 

$

47,013

 

 

$

 

 

The Company did not have any transfers among fair value measurement levels during the three and nine months ended September 30, 2018.

v3.10.0.1
Inventories
9 Months Ended
Sep. 30, 2018
Inventory Disclosure [Abstract]  
Inventories

Note 3. Inventories

Inventories at September 30, 2018 and December 31, 2017, consisted of the following (in thousands):

 

 

 

September 30,

2018

 

 

December 31,

2017

 

Work-in-process

 

$

3,685

 

 

$

4,299

 

Finished goods

 

 

9,637

 

 

 

10,158

 

Total inventories

 

$

13,322

 

 

$

14,457

 

 

v3.10.0.1
Accrued Liabilities
9 Months Ended
Sep. 30, 2018
Payables And Accruals [Abstract]  
Accrued Liabilities

Note 4. Accrued Liabilities

Accrued liabilities at September 30, 2018 and December 31, 2017, consisted of the following (in thousands):

 

 

 

September 30, 2018

 

 

December 31, 2017

 

Accrued compensation and related costs

 

$

8,509

 

 

$

7,372

 

Accrued professional services

 

 

3,806

 

 

 

1,811

 

Accrued development costs

 

 

1,293

 

 

 

794

 

Other accrued expenses

 

 

3,156

 

 

 

1,735

 

Total accrued liabilities

 

$

16,764

 

 

$

11,712

 

 

v3.10.0.1
Debt
9 Months Ended
Sep. 30, 2018
Debt Disclosure [Abstract]  
Debt

Note 5. Debt

Debt at September 30, 2018, consisted of the following (in thousands):

 

 

 

September 30, 2018

 

 

 

Principal

 

 

Unamortized Discount

 

 

Total

 

Loan and Security Agreement

 

$

30,000

 

 

$

(148

)

 

$

29,852

 

Less: debt – current

 

 

(5,714

)

 

 

 

 

 

(5,714

)

Debt – non-current

 

$

24,286

 

 

$

(148

)

 

$

24,138

 

 

 

Debt at December 31, 2017, consisted of the following (in thousands):

 

 

 

December 31, 2017

 

 

 

Principal

 

 

Unamortized Discount

 

 

Net Carrying

Value

 

Loan and Security Agreement

 

$

30,000

 

 

$

(202

)

 

$

29,798

 

Less: debt – current

 

 

 

 

 

 

 

 

 

Debt – non-current

 

$

30,000

 

 

$

(202

)

 

$

29,798

 

 

 

Principal and interest payments on debt at September 30, 2018, are expected to be as follows (in thousands):

 

Year ended December 31,

 

Principal

 

 

Interest

 

 

Total

 

2018

 

$

 

 

$

689

 

 

$

689

 

2019

 

 

7,857

 

 

 

2,470

 

 

 

10,327

 

2020

 

 

8,571

 

 

 

1,689

 

 

 

10,260

 

2021

 

 

8,572

 

 

 

891

 

 

 

9,463

 

2022

 

 

5,000

 

 

 

2,554

 

 

 

7,554

 

Total

 

$

30,000

 

 

$

8,293

 

 

$

38,293

 

Loan and Security Agreement

Prior to December 31, 2016, the Company maintained a five year loan and security agreement (the “Term Loan Agreement”) with Oxford Finance LLC (“Oxford”), under which the Company borrowed $20.0 million. The Company received $10.0 million from the first tranche (“Term Loan A”) in June 2014. The second tranche of $10.0 million (“Term Loan B”) was drawn in June 2015. Term Loan A bore an interest rate of 6.95%. Term Loan B bore an interest rate of 7.01%. Term Loans A and B were set to mature on June 1, 2019, with various interest only periods.

On April 27, 2017, the Term Loan Agreement was amended to include an additional interest-only period for all advances under the Term Loan Agreement. As amended, the Company was required to make interest only payments from May 2017 through December 2017, followed by eighteen months of equal principal and interest payments thereafter. The Company determined that each of these amendments to the Term Loan Agreement resulted in a debt modification. As a result, the accounting treatment for the Term Loan continued under the interest method, with a new effective interest rate based on revised cash flows calculated on a prospective basis upon the execution of each of these amendments to the Term Loan Agreement. The Company was also required to make a final payment equal to 7% of the principal amounts of the Term Loans drawn payable on the earlier to occur of maturity or prepayment. 

On July 31, 2017 (the “Closing Date”), the Company entered into an amended and restated loan and security agreement (the “Amended Credit Agreement”) with Oxford, which amends and restates the Term Loan Agreement in its entirety. The Amended Credit Agreement provided for secured growth capital term loans of up to $40.0 million (the “2017 Term Loans”). All of the Company’s current and future assets, excluding its intellectual property and 35% of the Company’s investment in Cerus Europe B.V., are secured for its borrowings under the Amended Credit Agreement. The 2017 Term Loans were available in two tranches. The first tranche of $30.0 million (“2017 Term Loan A”) was drawn by the Company on July 31, 2017, with the proceeds used in part to repay in full all of the outstanding term loans under the Term Loan Agreement of $17.6 million and the final payment of the Term Loan Agreement of $1.4 million. The availability of the second tranche of $10.0 million (“2017 Term Loan B”) expired on May 14, 2018, and the Company did not elect to draw the 2017 Term Loan B. The 2017 Term Loan A requires interest-only payments through February 1, 2019, followed by 42 monthly payments of equal principal plus declining interest payments. The 2017 Term Loan A bears interest at a rate equal to the greater of (i) 8.01% and (ii) the three-month U.S. LIBOR rate plus 6.72%. The interest rate on the 2017 Term Loan A at September 30, 2018, was approximately 9.12%. The Company will also be required to make a final payment fee of 8.00% of the principal amount of the 2017 Term Loan A. The Amended Credit Agreement contains certain nonfinancial covenants, with which the Company was in compliance at September 30, 2018.

v3.10.0.1
Commitments and Contingencies
9 Months Ended
Sep. 30, 2018
Commitments And Contingencies Disclosure [Abstract]  
Commitments and Contingencies

Note 6. Commitments and Contingencies

Operating Leases

The Company leases its office facilities, located in Concord, California and Amersfoort, the Netherlands, and certain equipment and automobiles under non-cancelable operating leases with initial terms in excess of one year that require the Company to pay operating costs, property taxes, insurance and maintenance. The leases expire at various dates through 2029, with certain of the leases providing for renewal options, provisions for adjusting future lease payments based on the consumer price index, and the right to terminate the lease early. The Company’s leased facilities qualify as operating leases and as such, are not included on its consolidated balance sheets.

Future minimum non-cancelable payments under leases as of September 30, 2018, are as follows (in thousands):

Year ended December 31,

 

 

Lease Payments

 

2018

 

 

$

545

 

2019

 

 

 

3,306

 

2020

 

 

 

2,362

 

2021

 

 

 

2,209

 

2022

 

 

 

2,234

 

Thereafter

 

 

 

16,860

 

Total

 

 

$

27,516

 

Financed Leasehold Improvements

In 2010, the Company financed $1.1 million of leasehold improvements. The Company pays for the financed leasehold improvements as a component of rent and is required to reimburse its landlord over the remaining life of the respective leases. At September 30, 2018, the Company had an outstanding liability of $0.2 million related to these leasehold improvements, of which $0.1 million was reflected in “Accrued liabilities” and $0.1 million was reflected in “Other non-current liabilities” on the Company’s consolidated balance sheets.

Purchase Commitments

The Company is party to agreements with certain suppliers for certain components of the INTERCEPT Blood System. Certain of these agreements require minimum purchase commitments from the Company.

v3.10.0.1
Stockholders' Equity
9 Months Ended
Sep. 30, 2018
Equity [Abstract]  
Stockholders' Equity

Note 7. Stockholders’ Equity

 

Public Offering of Common Stock

In January 2018, the Company issued and sold 14,030,000 shares of the Company’s common stock, par value $0.001 per share, at $4.10 per share in an underwritten public offering. The proceeds to the Company from this offering were approximately $57.2 million, net of the underwriting discount and other issuance costs.

Sales Agreement

On May 5, 2016, the Company entered into Amendment No. 2 to the Controlled Equity OfferingSM Sales Agreement (as amended on May 5, 2016, the “Prior Cantor Agreement”) with Cantor Fitzgerald & Co. (“Cantor”) that provided for the issuance and sale of shares of the Company’s common stock having an aggregate offering price of up to $132.2 million through Cantor. As a result of Amendment No. 2, at May 5, 2016, the Company had $70 million of common stock available to be sold under the Prior Cantor Agreement.

On August 4, 2017, the Company entered into Amendment No. 3 to the Cantor Agreement (as amended on August 4, 2017, the “Amended Cantor Agreement”). The Amended Cantor Agreement became effective on January 8, 2018, and provides for the issuance and sale of shares of the Company’s common stock having an aggregate offering price of up to $70.0 million through Cantor, which amount included the $31.4 million of unsold shares of common stock available for sale under the Prior Cantor Agreement immediately prior to the effectiveness of the Amended Cantor Agreement. Under the Amended Cantor Agreement, Cantor also acts as the Company’s sales agent and receives compensation based on an aggregate of 2% of the gross proceeds on the sale price per share of its common stock. The issuance and sale of these shares by the Company pursuant to the Amended Cantor Agreement are registered under the Securities Act of 1933, as amended. During the nine months ended September 30, 2018, 3.2 million shares of the Company’s common stock were sold under the Amended Cantor Agreement for net proceeds of $22.3 million. At September 30, 2018, the Company had approximately $47.3 million of common stock available to be sold under the Amended Cantor Agreement.

v3.10.0.1
Stock-Based Compensation
9 Months Ended
Sep. 30, 2018
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]  
Stock-Based Compensation

Note 8. Stock-Based Compensation

Employee Stock Purchase Plan

The Company maintains an Employee Stock Purchase Plan (the “Purchase Plan”), which is intended to qualify as an employee stock purchase plan within the meaning of Section 423(b) of the Internal Revenue Code. Under the Purchase Plan, the Company’s Board of Directors may authorize participation by eligible employees, including officers, in periodic offerings. Under the Purchase Plan eligible employee participants may purchase shares of common stock of the Company at a purchase price equal to 85% of the lower of the fair market value per share on the start date of the offering period or the fair market value per share on the purchase date. The Purchase Plan consists of a fixed offering period of 12 months with two purchase periods within each offering period. At September 30, 2018, the Company had 0.8 million shares available for future issuance.

2008 Equity Incentive Plan and Inducement Plan

The Company also maintains an equity compensation plan to provide long-term incentives for employees, contractors, and members of its Board of Directors. The Company currently grants equity awards from one plan, the 2008 Equity Incentive Plan (the “2008 Plan”). The 2008 Plan allows for the issuance of non-statutory and incentive stock options, restricted stock, restricted stock units (“RSUs”), stock appreciation rights, other stock-related awards, and performance awards which may be settled in cash, stock, or other property. On June 6, 2012 and June 12, 2013, the stockholders approved amendments to the 2008 Plan (collectively the “Amended 2008 Plan”) such that the Amended 2008 Plan had reserved for issuance an amount not to exceed 19.5 million shares. On June 10, 2015, the Company’s stockholders approved an amendment and restatement of the 2008 Plan that increased the aggregate number of shares of common stock authorized for issuance under the 2008 Plan by 5,000,000 shares. On June 7, 2017, the Company’s stockholders approved an amendment and restatement of the 2008 Plan that increased the aggregate number of shares of common stock authorized for issuance under the 2008 Plan by 6,000,000 shares. Awards under the Amended 2008 Plan generally have a maximum term of 10 years from the date of the award. The Amended 2008 Plan generally requires options to be granted at 100% of the fair market value of the Company’s common stock subject to the option on the date of grant. Options granted by the Company to employees generally vest over four years. RSUs are measured based on the fair market value of the underlying stock on the date of grant and will generally vest over three years. Performance-based stock or cash awards granted under the Amended 2008 Plan are limited to either 500,000 shares of common stock or $1.0 million per recipient per calendar year. The attainment of any performance-based awards granted shall be conclusively determined by a committee designated by the Company’s Board of Directors. At September 30, 2018, 25,000 performance-based stock awards were outstanding. On August 31, 2016, the Company’s Board of Directors adopted the Cerus Corporation Inducement Plan (the “Inducement Plan”), and reserved 1,250,000 shares of its common stock under the Inducement Plan to be used for the issuance of non-statutory stock options and restricted stock units to individuals who were not previously employees or directors of the Company, as an inducement material to the individual’s entry into employment with the Company. The terms and conditions of the Inducement Plan are substantially similar to the Amended 2008 Plan. Effective June 7, 2017, the Company no longer issues shares from the Inducement Plan.

At September 30, 2018, the Company had an aggregate of approximately 23.2 million shares of its common stock subject to outstanding options or unvested RSUs, or remaining available for future issuance under the Amended 2008 Plan and the Inducement Plan, of which approximately 17.6 million shares and 2.0 million shares were subject to outstanding options and unvested RSUs, respectively, and approximately 3.6 million shares were available for future issuance under the Amended 2008 Plan. The Company’s policy is to issue new shares of common stock upon the exercise of options or vesting of RSUs.

Activity under the Company’s equity incentive plans related to stock options is set forth below (in thousands except per share amounts):

 

 

 

Number of

Options Outstanding

 

 

Weighted

Average

Exercise

Price per

Share

 

Balances at December 31, 2017

 

 

17,138

 

 

$

4.27

 

Granted

 

 

3,145

 

 

 

4.61

 

Exercised

 

 

(1,906

)

 

 

3.43

 

Forfeited

 

 

(604

)

 

 

4.66

 

Expired

 

 

(151

)

 

 

5.93

 

Balances at September 30, 2018

 

 

17,622

 

 

 

4.39

 

 


Activity under the Company’s equity incentive plans related to RSUs is set forth below (in thousands except per share amounts):

 

 

Number of

RSUs

Unvested

 

 

Weighted

Average

Grant Date

Fair Value

per Share

 

Balances at December 31, 2017

 

 

1,256

 

 

$

4.53

 

Granted (1)

 

 

1,382

 

 

 

4.45

 

Vested

 

 

(521

)

 

 

4.45

 

Forfeited

 

 

(139

)

 

 

4.20

 

Balances at September 30, 2018

 

 

1,978

 

 

 

4.52

 

 

(1)

Includes the number of shares issuable under the performance-based restricted stock unit awards granted during the nine months ended September 30, 2018.

 

The Company uses the Black-Scholes option pricing model to determine the grant-date fair value of stock options and employee stock purchase plan rights. The Black-Scholes option pricing model is affected by the Company’s stock price, as well as assumptions regarding a number of complex and subjective variables, which include the expected term of the grants, actual and projected employee stock option exercise behaviors, including forfeitures, the Company’s expected stock price volatility, the risk-free interest rate and expected dividends. The Company recognizes the grant-date fair value of the stock award as stock-based compensation expense on a straight-line basis over the requisite service period, which is the vesting period, and is adjusted for estimated forfeitures.

v3.10.0.1
Income Taxes
9 Months Ended
Sep. 30, 2018
Income Tax Disclosure [Abstract]  
Income Taxes

Note 9. Income Taxes

The Company recorded income tax expense of $0.1 million and $0.2 million for the three and nine months ended September 30, 2018, respectively, primarily related to the operating income of the Company’s Cerus Europe B.V. subsidiary. The Company recorded income tax expense of $0.1 million for the three months ended September 30, 2017, primarily for the earnings of its European subsidiary. The Company recorded income tax expense of $4.0 million for the nine months ended September 30, 2017, primarily due to the sale of the Company’s shares of the common stock of Aduro Biotech, Inc.

 

During the three months ended September 30, 2018, the Company completed its review of the amounts provisionally recorded as of December 31, 2017 related to the Tax Cuts and Jobs Act (the “Tax Act”). As a result of this review, there were no adjustments to the provisionally recorded amounts.

v3.10.0.1
Development and License Agreements
9 Months Ended
Sep. 30, 2018
Development And License Agreements [Abstract]  
Development and License Agreements

Note 10. Development and License Agreements

Agreements with Fresenius

Fresenius manufactures and supplies the platelet and plasma systems to the Company under a supply agreement (the “Supply Agreement”). Fresenius is obligated to sell, and the Company is obligated to purchase, finished disposable kits for the Company’s platelet and plasma systems and the Company’s red blood cell system product candidate (the “RBC Sets”). The Supply Agreement permits the Company to purchase platelet and plasma systems and RBC Sets from third parties to the extent necessary to maintain supply qualifications with such third parties or where local or regional manufacturing is needed to obtain product registrations or sales. Pricing terms per unit are initially fixed and decline at specified annual production levels, and are subject to certain adjustments after the initial pricing term. Under the Supply Agreement, the Company maintains the amounts due from the components sold to Fresenius as a current asset on its accompanying consolidated balance sheets until such time as the Company purchases finished disposable kits using those components.

The Supply Agreement requires us to make certain payments totaling €8.6 million, or the Manufacturing and Development Payments, to Fresenius. In 2016, we paid €3.1 million to Fresenius. In August 2018, we entered an amendment to the Supply Agreement modifying the remaining €5.5 million to be paid in August 2019. The Manufacturing and Development Payments liability is accreted through interest expense based on the estimated timing of its ultimate settlement. As of September 30, 2018, the Company accrued $5.9 million (€5.0 million) related to the Manufacturing and Development Payments. As of December 31, 2017, the Company accrued $5.8 million (€4.8 million) related to the Manufacturing and Development Payments.

The Supply Agreement also requires the Company to make payments to support certain projects Fresenius has and will perform on behalf of the Company related to certain R&D activities and manufacturing efficiency activities for which certain assets have been established in the Company’s condensed consolidated balance sheets. The manufacturing efficiency asset is expensed on a straight line basis over the life of the Supply Agreement. The prepaid asset related to amounts paid up front for the R&D activities to be conducted by Fresenius on behalf of the Company is expensed over the period which such activities occur. The following table summarizes the amounts of prepaid R&D asset and manufacturing efficiency asset at September 30, 2018 and December 31, 2017 (in thousands).

 

 

 

September 30, 2018

 

 

December 31, 2017

 

Prepaid R&D asset – current (1)

 

$

33

 

 

$

114

 

Prepaid R&D asset – non-current (2)

 

 

2,176

 

 

 

2,162

 

Manufacturing efficiency asset (2)

 

 

1,656

 

 

 

1,839

 

 

 

 

 

 

 

 

 

 

(1)

Included in “Other current assets” in the Company's consolidated balance sheets.

(2)

Included in “Other assets” in the Company's consolidated balance sheets.

 

The initial term of the Supply Agreement extends through July 1, 2025 (the “Initial Term”) and is automatically renewed thereafter for additional two year terms (each, a “Renewal Term”), subject to termination by either party upon (i) two years written notice prior to the expiration of the Initial Term or (ii) one year written notice prior to the expiration of any Renewal Term. Under the Supply Agreement, the Company has the right, but not the obligation, to purchase certain assets and assume certain liabilities from Fresenius.

The Company made payments to Fresenius of $5.6 million and $3.0 million relating to the manufacturing of the Company’s products during the three months ended September 30, 2018 and 2017, respectively, and $15.7 million and $9.4 million during the nine months ended September 30, 2018 and 2017, respectively. The following table summarizes the amounts of the Company’s payables to and receivables from Fresenius at September 30, 2018 and December 31, 2017 (in thousands).

 

 

 

September 30, 2018

 

 

December 31, 2017

 

Payables to Fresenius (1)

 

$

6,198

 

 

$

4,687

 

Receivables from Fresenius (2)

 

 

1,714

 

 

 

231

 

(1)

Included in “Accounts Payable” and “Accrued Liabilities” in the Company's consolidated balance sheets.

(2)

Included in “Other current assets” in the Company's consolidated balance sheets.

Agreement with BARDA

In June 2016, the Company entered into an agreement with BARDA to support the Company’s development and implementation of pathogen reduction technology for platelet, plasma, and red blood cells.

The five-year agreement with BARDA and its subsequent modifications include a base period (the “Base Period”) and options (each, an “Option Period”) with committed funding of up to $103.2 million for clinical development of the INTERCEPT Blood System for red blood cells (the “red blood cell system”), and the potential for the exercise by BARDA of subsequent Option Periods that, if exercised by BARDA and completed, would bring the total funding opportunity to $201.2 million over the five-year contract period. If exercised by BARDA, subsequent Option Periods would fund activities related to broader implementation of the platelet and plasma system or the red blood cell system in areas of Zika virus risk, clinical and regulatory development programs in support of the potential licensure of the red blood cell system in the U.S., and development, manufacturing and scale-up activities for the red blood cell system. The Company is responsible for co-investment of $5.0 million and would be responsible for an additional $9.6 million, if certain Option Periods are exercised. BARDA will make periodic assessments of the Company’s progress and the continuation of the agreement is based on the Company’s success in completing the required tasks under the Base Period and each exercised Option Period. BARDA has rights under certain contract clauses to terminate the agreement, including the ability to terminate the agreement for convenience at any time.

As of September 30, 2018 and December 31, 2017, $4.0 million and $1.4 million, respectively, of billed and unbilled amounts were included in accounts receivable on the Company’s condensed consolidated balance sheets related to BARDA.

v3.10.0.1
Segment, Customer and Geographic Information
9 Months Ended
Sep. 30, 2018
Segment Reporting [Abstract]  
Segment, Customer and Geographic Information

Note 11. Segment, Customer and Geographic Information

The Company continues to operate in only one segment, blood safety. The Company’s chief executive officer is the chief operating decision maker who evaluates performance based on the net revenues and operating loss of the blood safety segment. The Company considers the sale of all of its INTERCEPT Blood System products to be similar in nature and function, and any revenue earned from services is minimal.

The Company’s operations outside of the U.S. include a wholly-owned subsidiary headquartered in Europe. The Company’s operations in the U.S. are responsible for the R&D and global and domestic commercialization of the INTERCEPT Blood System, while operations in Europe are responsible for the commercialization efforts of the platelet and plasma systems in Europe, the Commonwealth of Independent States and the Middle East. Product revenues are attributed to each region based on the location of the customer, and in the case of non-product revenues, on the location of the collaboration partner.

The Company had the following significant customers that accounted for more than 10% of the Company’s total product revenue, during the three and nine months ended September 30, 2018 and 2017:

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Établissement Français du Sang

 

41%

 

 

25%

 

 

40%

 

 

15%

 

 

v3.10.0.1
Summary of Significant Accounting Policies (Policies)
9 Months Ended
Sep. 30, 2018
Accounting Policies [Abstract]  
Principles of Consolidation and Basis of Presentation

Principles of Consolidation and Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include those of Cerus Corporation and its subsidiary, Cerus Europe B.V. (together with Cerus Corporation, hereinafter “Cerus” or the “Company”) after elimination of all intercompany accounts and transactions. These unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, or U.S. (“GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring entries, considered necessary for a fair presentation have been made. Operating results for the three and nine months ended September 30, 2018, are not necessarily indicative of the results that may be expected for the year ending December 31, 2018, or for any future periods.

These unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the year ended December 31, 2017, which were included in the Company’s 2017 Annual Report on Form 10-K, filed with the SEC on March 8, 2018. The accompanying condensed consolidated balance sheet as of December 31, 2017, has been derived from the Company’s audited consolidated financial statements as of that date.

Use of Estimates

Use of Estimates

The preparation of financial statements requires management to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosures of contingent assets and liabilities. On an ongoing basis, management evaluates its estimates, including those related to the nature and timing of satisfaction of performance obligations, the timing when the customer obtains control of products or services, the standalone selling price (“SSP”) of performance obligations, variable consideration, accounts receivable, inventory reserves, fair values of investments, stock-based compensation, intangible assets and goodwill, useful lives of intangible assets and property and equipment, income taxes, and accrued liabilities, among others. The Company bases its estimates on historical experience, future projections, and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from those estimates under different assumptions or conditions.

Revenue

Revenue

The Company adopted Accounting Standards Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers”, on January 1, 2018, using the modified retrospective method. Revenue is recognized in accordance with that core principle by applying the following five steps: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) the entity satisfies a performance obligation.

The Company’s main source of revenue is product revenue from sales of the INTERCEPT Blood System for platelets and plasma (“platelet and plasma systems” or “disposable kits”), UVA illumination devices (“illuminators”), spare parts and storage solutions, and maintenance services of illuminators. The Company sells its platelet and plasma systems directly to blood banks, hospitals, universities, government agencies, as well as to distributors in certain regions. For all sales of the Company’s INTERCEPT Blood System products, the Company uses a binding purchase order or signed sales contract as evidence of a contract and satisfaction of its policy. Generally, the Company’s contracts with its customers do not provide for open return rights, except within a reasonable time after receipt of goods in the case of defective or non-conforming product. The contracts with customers can include various combinations of products, and to a lesser extent, services. The Company must determine whether products or services are capable of being distinct and accounted for as separate performance obligations, or are accounted for as a combined performance obligation. The Company must allocate the transaction price to each performance obligation on a relative SSP basis, and recognize the revenue when the performance obligation is satisfied. The Company determines the SSP by using the historical selling price of the products and services. If the amount of consideration in a contract is variable, the Company estimates the amount of variable consideration that should be included in the transaction price using the most likely amount method, to the extent it is probable that a significant future reversal of cumulative revenue under the contract will not occur. Product revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration to which the Company expects to receive in exchange for those products or services. Product revenue from the sale of illuminators, disposable kits, spare parts and storage solutions are recognized upon the transfer of control of the products to the customer. Product revenue from maintenance services are recognized ratably on a straight-line basis over the term of maintenance as customers simultaneously consume and receive benefits. Freight costs charged to customers are recorded as a component of revenue. Taxes that the Company invoices to its customers and remits to governments are recorded on a net basis, which excludes such tax from product revenue.

The Company receives reimbursement under its U.S. government contract with the Biomedical Advanced Research and Development Authority (“BARDA”) that supports research and development of defined projects. See “Note 10. Development and License Agreements—Agreement with BARDA” below. The contract generally provides for reimbursement of approved costs incurred under the terms of the contract. Revenue related to the cost reimbursement provisions under the Company’s U.S. government contract are recognized as the qualified direct and indirect costs on the projects are incurred. The Company invoices under its U.S. government contract using the provisional rates in the government contract and thus is subject to future audits at the discretion of government. These audits could result in an adjustment to government contract revenue previously reported, which adjustments potentially could be significant. The Company believes that revenue for periods not yet audited has been recorded in amounts that are expected to be realized upon final audit and settlement. Costs incurred related to services performed under the contract are included as a component of research and development or selling, general and administrative expenses in the Company’s consolidated statements of operations. The Company’s use of estimates in recording accrued liabilities for government contract activities (see “Use of Estimates” above) affects the revenue recorded from development funding and under the government contract.

 

Disaggregation of Product Revenue

Product revenue by geographical locations of customers during the three and nine months ended September 30, 2018 and 2017, were as follows (in thousands):

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Product revenue: