CERUS CORP, 10-K filed on 3/8/2018
Annual Report
Document and Entity Information (USD $)
In Millions, except Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2017
Feb. 22, 2018
Jun. 30, 2017
Document And Entity Information [Abstract]
 
 
 
Document Type
10-K 
 
 
Amendment Flag
false 
 
 
Document Period End Date
Dec. 31, 2017 
 
 
Document Fiscal Year Focus
2017 
 
 
Document Fiscal Period Focus
FY 
 
 
Trading Symbol
CERS 
 
 
Entity Registrant Name
CERUS CORP 
 
 
Entity Central Index Key
0001020214 
 
 
Current Fiscal Year End Date
--12-31 
 
 
Entity Well-known Seasoned Issuer
No 
 
 
Entity Current Reporting Status
Yes 
 
 
Entity Voluntary Filers
No 
 
 
Entity Filer Category
Accelerated Filer 
 
 
Entity Common Stock, Shares Outstanding
 
129,597,267 
 
Entity Public Float
 
 
$ 238 
CONSOLIDATED BALANCE SHEETS (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2017
Dec. 31, 2016
Current assets:
 
 
Cash and cash equivalents
$ 13,683 
$ 22,560 
Short-term investments
47,013 
45,116 
Investment in marketable equity securities
 
3,952 
Accounts receivable
12,415 
6,868 
Inventories
14,457 
12,531 
Prepaid expenses
1,221 
1,274 
Other current assets
1,109 
1,804 
Total current assets
89,898 
94,105 
Non-current assets:
 
 
Property and equipment, net
2,119 
2,985 
Goodwill
1,316 
1,316 
Intangible assets, net
536 
738 
Restricted cash
247 
184 
Other assets
4,128 
4,148 
Total assets
98,244 
103,476 
Current liabilities:
 
 
Accounts payable
10,974 
8,587 
Accrued liabilities
11,712 
11,218 
Debt - current
 
6,934 
Deferred product revenue - current
445 
149 
Total current liabilities
23,131 
26,888 
Non-current liabilities:
 
 
Debt - non-current
29,798 
12,441 
Manufacturing and development obligations - non-current
5,766 
4,770 
Other non-current liabilities
609 
1,590 
Total liabilities
59,304 
45,689 
Commitments and contingencies
   
   
Stockholders' equity:
 
 
Preferred stock, $0.001 par value; 5,000 shares authorized, issuable in series; zero shares issued and outstanding at December 31, 2017 and 2016, respectively
   
   
Common stock, $0.001 par value; 225,000 shares authorized; 115,555 and 103,475 shares issued and outstanding at December 31, 2017 and 2016, respectively
115 
103 
Additional paid-in capital
760,225 
718,299 
Accumulated other comprehensive (loss) income
(97)
103 
Accumulated deficit
(721,303)
(660,718)
Total stockholders' equity
38,940 
57,787 
Total liabilities and stockholders' equity
$ 98,244 
$ 103,476 
CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)
Dec. 31, 2017
Dec. 31, 2016
Statement Of Financial Position [Abstract]
 
 
Preferred stock, par value
$ 0.001 
$ 0.001 
Preferred stock, shares authorized
5,000,000 
5,000,000 
Preferred stock, shares issued
Preferred stock, shares outstanding
Common stock, par value
$ 0.001 
$ 0.001 
Common stock, shares authorized
225,000,000 
225,000,000 
Common stock, shares issued
115,555,000 
115,555,000 
Common stock, shares outstanding
103,475,000 
103,475,000 
CONSOLIDATED STATEMENTS OF OPERATIONS (USD $)
Share data in Thousands, except Per Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
Income Statement [Abstract]
 
 
 
Product revenue
$ 43,568,000 
$ 37,183,000 
$ 34,223,000 
Cost of product revenue
22,531,000 
20,295,000 
23,464,000 
Gross profit on product revenue
21,037,000 
16,888,000 
10,759,000 
Government contract revenue
7,758,000 
2,092,000 
 
Operating expenses:
 
 
 
Research and development
33,710,000 
31,322,000 
25,643,000 
Selling, general and administrative
52,413,000 
48,753,000 
45,989,000 
Amortization of intangible assets
202,000 
202,000 
202,000 
Impairment of long-lived assets
150,000 
Total operating expenses
86,325,000 
80,427,000 
71,834,000 
Loss from operations
(57,530,000)
(61,447,000)
(61,075,000)
Non-operating income (expense), net:
 
 
 
Gain from revaluation of warrant liability
 
 
3,566,000 
Foreign exchange (loss) gain
(10,000)
21,000 
(396,000)
Interest expense
(3,022,000)
(2,445,000)
(1,705,000)
Other income, net
3,864,000 
1,140,000 
71,000 
Total non-operating income (expense) , net
832,000 
(1,284,000)
1,536,000 
Loss before income taxes
(56,698,000)
(62,731,000)
(59,539,000)
Provision (benefit) for income taxes
3,887,000 
175,000 
(3,671,000)
Net loss
$ (60,585,000)
$ (62,906,000)
$ (55,868,000)
Net loss per share:
 
 
 
Basic
$ (0.56)
$ (0.62)
$ (0.58)
Diluted
$ (0.56)
$ (0.62)
$ (0.61)
Weighted average shares outstanding used for calculating net loss per share:
 
 
 
Basic
108,221 
101,826 
96,068 
Diluted
108,221 
101,826 
96,905 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
Statement Of Income And Comprehensive Income [Abstract]
 
 
 
Net loss
$ (60,585)
$ (62,906)
$ (55,868)
Other comprehensive (loss) income:
 
 
 
Unrealized (losses) gains on available-for-sale investments, net of taxes of zero, zero and $3,825 for 2017, 2016, and 2015, respectively
(200)
(7,186)
7,320 
Comprehensive loss
$ (60,785)
$ (70,092)
$ (48,548)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Parenthetical) (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
Statement Of Income And Comprehensive Income [Abstract]
 
 
 
Unrealized (losses) gains on available-for-sale investments, taxes
$ 0 
$ 0 
$ 3,825 
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (USD $)
In Thousands, except Share data
Total
Common Stock
Additional Paid-in Capital
Accumulated Other Comprehensive Income (Loss)
Accumulated Deficit
Balance at Dec. 31, 2014
$ 41,521 
$ 80 
$ 583,416 
$ (31)
$ (541,944)
Balance (in shares) at Dec. 31, 2014
 
80,404,000 
 
 
 
Net loss
(55,868)
 
 
 
(55,868)
Other comprehensive income (loss)
7,320 
 
 
7,320 
 
Issuance of common stock from public offering, net of offering costs
75,376 
15 
75,361 
 
 
Issuance of common stock from public offering, net of offering costs (in shares)
 
14,636,000 
 
 
 
Issuance of common stock from exercise of stock options and warrants, and purchases from ESPP
19,686 
19,682 
 
 
Issuance of common stock from exercise of stock options and/or warrants, and purchases from ESPP(In Shares)
 
4,055,000 
 
 
 
Stock-based compensation
6,730 
 
6,730 
 
 
Balance at Dec. 31, 2015
94,765 
99 
685,189 
7,289 
(597,812)
Balance (in shares) at Dec. 31, 2015
 
99,095,000 
 
 
 
Net loss
(62,906)
 
 
 
(62,906)
Other comprehensive income (loss)
(7,186)
 
 
(7,186)
 
Issuance of common stock from public offering, net of offering costs
21,981 
21,978 
 
 
Issuance of common stock from public offering, net of offering costs (in shares)
 
3,526,000 
 
 
 
Issuance of common stock from exercise of stock options and warrants, and purchases from ESPP
3,068 
3,067 
 
 
Issuance of common stock from exercise of stock options and/or warrants, and purchases from ESPP(In Shares)
 
854,000 
 
 
 
Stock-based compensation
8,065 
 
8,065 
 
 
Balance at Dec. 31, 2016
57,787 
103 
718,299 
103 
(660,718)
Balance (in shares) at Dec. 31, 2016
 
103,475,000 
 
 
 
Net loss
(60,585)
 
 
 
(60,585)
Other comprehensive income (loss)
(200)
 
 
(200)
 
Issuance of common stock from public offering, net of offering costs
30,156 
11 
30,145 
 
 
Issuance of common stock from public offering, net of offering costs (in shares)
 
10,986,000 
 
 
 
Issuance of common stock from exercise of stock options and/or warrants, vesting of restricted stock units, and purchases from ESPP
2,427 
2,426 
 
 
Issuance of common stock from exercise of stock options and/or warrants, vesting of restricted stock units, and purchases from ESPP (In Shares)
 
1,094,000 
 
 
 
Stock-based compensation
9,355 
 
9,355 
 
 
Balance at Dec. 31, 2017
$ 38,940 
$ 115 
$ 760,225 
$ (97)
$ (721,303)
Balance (in shares) at Dec. 31, 2017
 
115,555,000 
 
 
 
CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
Operating activities
 
 
 
Net loss
$ (60,585,000)
$ (62,906,000)
$ (55,868,000)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
Depreciation and amortization
1,811,000 
1,817,000 
1,699,000 
Stock-based compensation
9,355,000 
8,065,000 
6,730,000 
Changes in valuation of warrant liability
 
 
(3,566,000)
Non-cash interest expense
551,000 
1,017,000 
508,000 
Non-cash deferred manufacturing and development expense
 
 
434,000 
Deferred income taxes
(119,000)
28,000 
7,000 
Impairment of long-lived assets
150,000 
Non-cash tax expense (benefit) from other unrealized gain on available-for-sale securities
3,825,000 
 
(3,825,000)
Gain on sale of investment in marketable equity securities
(3,466,000)
(750,000)
 
Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(5,547,000)
(1,074,000)
(301,000)
Inventories
(2,092,000)
(1,781,000)
3,991,000 
Other assets
1,107,000 
1,327,000 
1,379,000 
Accounts payable
2,487,000 
3,261,000 
(3,866,000)
Accrued liabilities and other non-current liabilities
(507,000)
1,330,000 
1,359,000 
Manufacturing and development obligations
680,000 
(3,568,000)
 
Deferred product revenue
265,000 
(445,000)
190,000 
Net cash used in operating activities
(52,235,000)
(53,529,000)
(51,129,000)
Investing activities
 
 
 
Capital expenditures
(353,000)
(563,000)
(722,000)
Purchases of investments
(68,792,000)
(82,811,000)
(90,407,000)
Proceeds from maturities and sale of investments
69,566,000 
63,450,000 
92,645,000 
Net cash provided by (used in) investing activities
421,000 
(19,924,000)
1,516,000 
Financing activities
 
 
 
Net proceeds from equity incentives and warrants
2,428,000 
3,068,000 
12,767,000 
Net proceeds from public offering
30,197,000 
22,121,000 
75,300,000 
Proceeds from loans
30,000,000 
 
10,000,000 
Repayment of debt
(19,625,000)
(622,000)
(113,000)
Net cash provided by financing activities
43,000,000 
24,567,000 
97,954,000 
Net (decrease) increase in cash, cash equivalents and restricted cash
(8,814,000)
(48,886,000)
48,341,000 
Cash, cash equivalents and restricted cash, beginning of year
22,744,000 
71,630,000 
23,289,000 
Cash, cash equivalents and restricted cash, end of year
13,930,000 
22,744,000 
71,630,000 
Supplemental disclosures:
 
 
 
Cash paid for interest
2,034,000 
1,366,000 
1,087,000 
Cash paid for income taxes
160,000 
157,000 
153,000 
Unpaid manufacturing and development obligation
 
 
$ 7,051,000 
Nature of Operations and Basis of Presentation
Nature of Operations and Basis of Presentation

Note 1. Nature of Operations and Basis of Presentation

Cerus Corporation (the “Company”) was incorporated in September 1991 and is developing and commercializing the INTERCEPT Blood System, which is designed to enhance the safety of blood components through pathogen reduction. The Company has worldwide commercialization rights for the INTERCEPT Blood System for platelets, plasma and red blood cells.

The Company sells its INTERCEPT platelet and plasma systems in the United States of America (“U.S.”), Europe, the Commonwealth of Independent States (“CIS”) countries, the Middle East and selected countries in other regions around the world. The Company conducts significant research, development, testing and regulatory compliance activities on its product candidates that, together with anticipated selling, general, and administrative expenses, are expected to result in substantial additional losses, and the Company may need to adjust its operating plans and programs based on the availability of cash resources. The Company’s ability to achieve a profitable level of operations will depend on successfully completing development, obtaining additional regulatory approvals and achieving widespread market acceptance of its products. There can be no assurance that the Company will ever achieve a profitable level of operations.

Summary of Significant Accounting Policies
Summary of Significant Accounting Policies

Note 2. Summary of Significant Accounting Policies

Principles of Consolidation

The accompanying 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 consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).

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 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 is recognized when (i) persuasive evidence of the arrangement exists; (ii) delivery has occurred or services have been rendered; (iii) pricing is fixed or determinable; and (iv) collectability is reasonably assured. The Company’s main sources of revenues for the years ended December 31, 2017, 2016 and 2015, were product revenue from sales of the INTERCEPT Blood System for platelets and plasma (“platelet and plasma systems” or “disposable kits”) and UVA illumination devices (“illuminators”).

Revenue related to product sales is generally recognized when the Company fulfills its obligations for each element of an agreement. 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 an arrangement. The Company sells its platelet and plasma systems directly to blood banks, hospitals, universities, government agencies, as well as to distributors in certain regions. 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. Deliverables and the units of accounting vary according to the provisions of each purchase order or sales contract. For revenue arrangements with multiple elements, the Company determines whether the delivered elements meet the criteria as separate units of accounting. Such criteria require that the deliverable have stand-alone value to the customer and that if a general right of return exists relative to the delivered item, delivery or performance of the undelivered item(s) is considered probable and substantially in the control of the Company. Once the Company determines if the deliverable meets the criteria for a separate unit of accounting, the Company must determine how the consideration should be allocated between the deliverables and how the separate units of accounting should be recognized as product revenue. Consideration received is allocated to elements that are identified as discrete units of accounting. Because the Company has no vendor specific objective evidence or third party evidence for its systems due to the Company’s variability in its pricing across the regions into which it sells its products, the allocation of product revenue is based on best estimated selling price for the products sold. The objective of best estimated selling price is to determine the price at which the Company would transact a sale, had the product been sold on a stand-alone basis. The Company determines best estimated selling price for its systems by considering multiple factors. The Company regularly reviews best estimated selling price. At December 31, 2017 and 2016, the Company had $0.4 million and $0.1 million, respectively, of short-term deferred revenue on its consolidated balance sheets related to future performance obligations. At each of December 31, 2017 and 2016, the Company had less than $0.1 million of long-term deferred revenue included in “Other non-current liabilities” on it consolidated balance sheets related to future performance obligations. Freight costs charged to customers are recorded as a component of product 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 14. 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.

Research and Development Expenses

Research and development (“R&D”) expenses are charged to expense when incurred, including cost incurred pursuant to the terms of any contract that has been awarded to the Company by the U.S. government. 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 government contracts. 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 are designated as available-for-sale and classified as short-term investments or investment in marketable equity securities. 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 “Net unrealized (losses) gains on available-for-sale investments, net of taxes” on the Company’s consolidated statements of comprehensive loss. Realized gains (losses) from the sale of available-for-sale investments were recorded in “Other income, net” on the Company’s 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 consolidated statements of operations.

Restricted Cash

As of December 31, 2017 and 2016, the Company also had certain non-U.S. dollar denominated deposits recorded as “Restricted cash” in 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 December 31, 2017, 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 consolidated balance sheets and records a charge on its consolidated statements of operations as a component of selling, general and administrative expenses.

The Company had three customers that accounted for more than 10% of the Company’s outstanding trade receivables at both December 31, 2017 and 2016. These customers cumulatively represented approximately 53% and 46% of the Company’s outstanding trade receivables at December 31, 2017 and 2016, respectively. To date, the Company has not experienced collection difficulties from these customers.

Inventories

At December 31, 2017 and 2016, 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 December 31, 2017 and 2016, 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 both December 31, 2017 and 2016, the Company had $0.1 million 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.

 

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. The amortization of the Company’s intangible assets, net, is recorded in “Amortization of intangible assets” on the Company’s consolidated statements of operations. 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. For further details regarding the impairment analysis, reference is made to the section below under “Long-lived Assets.” See Note 6 for further information regarding the Company’s impairment analysis and the valuation of goodwill and intangible assets, net.

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 12 for further information regarding the Company’s stock-based compensation assumptions and expenses.

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 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 2016 and California tax returns for years through 2016 remain subject to examination by the taxing jurisdictions due to unutilized net operating losses and research credits. The Company continues to carry a full 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, warrants, and restricted stock units, which are calculated using the treasury stock method.

For the years ended December 31, 2017, 2016 and 2015, certain potential 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 following table sets forth the reconciliation of the numerator and denominator used in the computation of basic and diluted net loss per share for the years ended December 31, 2017, 2016 and 2015 (in thousands, except per share amounts):

 

 

 

Year Ended December 31,

 

 

 

2017

 

 

2016

 

 

2015

 

Numerator for Basic and Diluted:

 

 

 

 

 

 

 

 

 

 

 

 

Net loss used for basic calculation

 

$

(60,585

)

 

$

(62,906

)

 

$

(55,868

)

Effect of revaluation of warrant liability

 

 

 

 

 

 

 

 

(3,566

)

Adjusted net loss used for dilution calculation

 

$

(60,585

)

 

$

(62,906

)

 

$

(59,434

)

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

Basic weighted average number of shares outstanding

 

 

108,221

 

 

 

101,826

 

 

 

96,068

 

Effect of dilutive potential shares

 

 

 

 

 

 

 

 

837

 

Diluted weighted average number of shares outstanding

 

 

108,221

 

 

 

101,826

 

 

 

96,905

 

Net loss per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.56

)

 

$

(0.62

)

 

$

(0.58

)

Diluted

 

 

(0.56

)

 

 

(0.62

)

 

 

(0.61

)

 

The table below presents shares underlying stock options, restricted stock units, and employee stock purchase plan rights 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 years ended December 31, 2017, 2016 and 2015 (shares in thousands):

 

 

 

Year Ended December 31,

 

 

 

2017

 

 

2016

 

 

2015

 

Weighted average number of anti-dilutive potential shares:

 

 

 

 

 

 

 

 

 

 

 

 

Stock options

 

 

17,373

 

 

 

15,592

 

 

 

13,681

 

Restricted stock units

 

 

1,225

 

 

 

576

 

 

 

 

Employee stock purchase plan rights

 

 

21

 

 

 

43

 

 

 

5

 

Total

 

 

18,619

 

 

 

16,211

 

 

 

13,686

 

 

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 December 31, 2017 and 2016.

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 3 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 will supersede 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. Subsequently, the FASB has issued the following standards related to ASU 2014-09: ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net); ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing; ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients; and ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. The Company will adopt these ASUs on January 1, 2018, using the modified retrospective approach. To date the Company has primarily derived its revenues from product sales of its INTERCEPT Blood System and reimbursement under its U.S. government contract. The Company has categorized its current revenue streams into homogenous populations based on the terms and conditions included in the contracts of its customers to date. The Company has completed the evaluation of the impact of the adoption to the Company’s financial statements, and the evaluation of the accounting policies as well as the disclosure requirements under the new standard. The Company has concluded that the adoption of ASU 2014-09 will not have a material impact on its 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 will adopt this ASU on January 1, 2018. The adoption of this ASU is not expected to 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. The standard is effective for annual periods beginning after December 15, 2018, and interim periods thereafter, with early application permitted. The Company does not anticipate early adoption of the new standard and is currently assessing the future impact of this ASU on its consolidated financial statements. The Company anticipates that the Company’s operating lease commitments will be subject to the new standard and be recognized as operating lease liabilities and right-of-use assets upon the adoption of this ASU, which will increase the total assets and total liabilities on the Company’s Consolidated Balance Sheets. The adoption of this ASU is not expected to have a material impact on the Company’s Consolidated Statements of Operations.

In March 2016, the FASB issued ASU No. 2016-09, Compensation-Stock Compensation (Topic 718):Improvements to Employee Share-Based Payment Accounting, which requires entities to record all excess tax benefits and tax deficiencies as income tax expense or benefit in the income statement when awards vest or are settled, and eliminates additional paid-in capital pools. The ASU also changes the accounting for an employee’s use of shares to satisfy the employer’s statutory income tax withholding obligation, and the accounting for forfeitures, and provides two practical expedients for nonpublic entities. The Company adopted this ASU in the first quarter of fiscal year 2017 and it did not have a significant impact on the Company’s consolidated financial statements.

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 does not anticipate early adoption of the new standard and is currently assessing the future impact of this ASU on the Company’s consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which removes Step 2 from the goodwill impairment test and modifies the goodwill impairment to be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill allocated to that report unit. The standard is effective for annual periods beginning after December 15, 2019, and interim periods thereafter, with early application permitted for impairment tests performed after January 1, 2017. The Company adopted this ASU in the first quarter of fiscal year 2017 and it had no impact 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 will adopt this ASU on January 1, 2018. The adoption of this ASU is not expected to have a material impact on the Company’s consolidated financial statements.

 

Available-for-sale Securities and Fair Value on Financial Instruments
Available-for-sale Securities and Fair Value on Financial Instruments

Note 3. 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 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

 

 

The following is a summary of available-for-sale securities at December 31, 2016 (in thousands):

 

 

 

December 31, 2016

 

 

 

Amortized Cost

 

 

Gross

Unrealized Gain

 

 

Gross

Unrealized Loss

 

 

Fair Value

 

Money market funds

 

$

8,991

 

 

$

 

 

$

 

 

$

8,991

 

United States government agency securities

 

 

8,030

 

 

 

 

 

 

(1

)

 

 

8,029

 

Corporate debt securities

 

 

37,110

 

 

 

 

 

 

(23

)

 

 

37,087

 

Marketable equity securities

 

 

 

 

 

3,952

 

 

 

 

 

 

3,952

 

Total available-for-sale securities

 

$

54,131

 

 

$

3,952

 

 

$

(24

)

 

$

58,059

 

 

Available-for-sale securities at December 31, 2017 and 2016, consisted of the following by contractual maturity (in thousands):

 

 

 

December 31, 2017

 

 

December 31, 2016

 

 

 

Amortized Cost

 

 

Fair Value

 

 

Amortized Cost

 

 

Fair Value

 

One year or less

 

$

38,836

 

 

$

38,781

 

 

$

54,131

 

 

$

54,107

 

Marketable equity securities

 

 

 

 

 

 

 

 

 

 

 

3,952

 

Greater than one year and less than five years

 

 

12,032

 

 

 

11,990

 

 

 

 

 

 

 

Total available-for-sale securities

 

$

50,868

 

 

$

50,771

 

 

$

54,131

 

 

$

58,059

 

 

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):

 

 

December 31, 2017

 

 

Less than 12 Months

 

 

12 Months or Greater

 

 

Total

 

 

Fair Value

 

 

Unrealized Loss

 

 

Fair Value

 

 

Unrealized Loss

 

 

Fair Value

 

 

Unrealized Loss

 

Money market funds

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

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

)

 

 

December 31, 2016

 

 

Less than 12 Months

 

 

12 Months or Greater

 

 

Total

 

 

Fair Value

 

 

Unrealized Loss

 

 

Fair Value

 

 

Unrealized Loss

 

 

Fair Value

 

 

Unrealized Loss

 

Money market funds

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

United States government agency

  securities

 

6,035

 

 

 

(1

)

 

 

 

 

 

 

 

 

6,035

 

 

 

(1

)

Corporate debt securities

 

34,086

 

 

 

(23

)

 

 

 

 

 

 

 

 

34,086

 

 

 

(23

)

Total available-for-sale securities

$

40,121

 

 

$

(24

)

 

$

 

 

$

 

 

$

40,121

 

 

$

(24

)

 

As of December 31, 2017, 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 years ended December 31, 2017, 2016 and 2015, 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 $3.5 million, $0.8 million and minimal gross realized gains during the years ended December 31, 2017, 2016 and 2015, respectively. The Company did not record any gross realized losses during the years ended December 31, 2017, 2016 and 2015.  

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 December 31, 2017, 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 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 fair values of the Company’s financial assets and liabilities were determined using the following inputs at December 31, 2016 (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

 

$

8,991

 

 

$

8,991

 

 

$

 

 

$

 

United States government agency securities

 

Short-term investments

 

 

8,029

 

 

 

 

 

 

8,029

 

 

 

 

Corporate debt securities

 

Short-term investments

 

 

37,087

 

 

 

 

 

 

37,087

 

 

 

 

Marketable equity securities

 

Marketable equity securities

 

 

3,952

 

 

 

3,952

 

 

 

 

 

 

 

Total financial assets

 

 

 

$

58,059

 

 

$

12,943

 

 

$

45,116

 

 

$

 

 

 The Company did not have any transfers among fair value measurement levels during the years ended December 31, 2017 and 2016.

Inventories
Inventories

 

Note 4. Inventories

Inventories at December 31, 2017 and 2016, consisted of the following (in thousands):

 

 

 

December 31,

 

 

 

2017

 

 

2016

 

Work-in-process

 

$

4,299

 

 

$

5,044

 

Finished goods

 

 

10,158

 

 

 

7,487

 

Total inventories

 

$

14,457

 

 

$

12,531

 

 

Property and Equipment, net
Property and Equipment, net

Note 5. Property and Equipment, net

Property and equipment, net at December 31, 2017 and 2016, consisted of the following (in thousands):

 

 

 

December 31,

 

 

 

2017

 

 

2016

 

Leasehold improvements

 

$

5,698

 

 

$

5,678

 

Machinery and equipment

 

 

2,028

 

 

 

1,925

 

Demonstration equipment

 

 

177

 

 

 

167

 

Furniture and fixtures

 

 

904

 

 

 

871

 

Computer equipment

 

 

514

 

 

 

603

 

Computer software

 

 

2,932

 

 

 

2,908

 

Consigned equipment

 

 

1,190

 

 

 

1,058

 

Construction-in-progress

 

 

70

 

 

 

62

 

Total property and equipment, gross

 

 

13,513

 

 

 

13,272

 

Accumulated depreciation and amortization

 

 

(11,394

)

 

 

(10,287

)

Total property and equipment, net

 

$

2,119

 

 

$

2,985

 

 

Depreciation and amortization expense related to property and equipment, net was $1.2 million, $1.1 million and $1.1 million for the years ended December 31, 2017, 2016 and 2015, respectively. The impairment of long-lived assets were zero, $0.2 million, and zero for the years ended December 31, 2017, 2016 and 2015, respectively. As part of the Company’s 2016 review of property and equipment, an impairment of long-lived assets on the consolidated statement of operations was recorded for construction-in-progress related to a deposit associated with a terminated agreement.   

Goodwill and Intangible Assets, net
Goodwill and Intangible Assets, net

Note 6. Goodwill and Intangible Assets, net

Goodwill

During the year ended December 31, 2017, the Company did not dispose of or recognize additional goodwill. On August 31, 2017, the Company performed its impairment test of goodwill. As described in Note 2 above, the Company applied the enterprise approach by reviewing the quoted market capitalization of the Company as reported on the Nasdaq Global Market to calculate the fair value. In addition, the Company considered its future forecasted results, the economic environment and overall market conditions. As a result of the Company’s assessment that its fair value of the reporting unit exceeded its carrying amount, the Company determined that goodwill was not impaired.

Intangible Assets, net

The following is a summary of intangible assets, net at December 31, 2017 (in thousands):

 

 

 

December 31, 2017

 

 

 

Gross

Carrying Amount

 

 

Accumulated

Amortization

 

 

Net

Carrying Amount

 

Acquisition-related intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

Reacquired license - INTERCEPT Asia

 

$

2,017

 

 

$

(1,481

)

 

$

536

 

Total intangible assets

 

$

2,017

 

 

$

(1,481

)

 

$

536

 

 

The following is a summary of intangible assets, net at December 31, 2016 (in thousands):

 

 

 

December 31, 2016

 

 

 

Gross

Carrying Amount

 

 

Accumulated

Amortization

 

 

Net

Carrying Amount

 

Acquisition-related intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

Reacquired license - INTERCEPT Asia

 

$

2,017

 

 

$

(1,279

)

 

$

738

 

Total intangible assets

 

$

2,017

 

 

$

(1,279

)

 

$

738

 

 

During the years ended December 31, 2017, 2016 and 2015, there were no impairment charges recognized related to the Company’s intangible assets.

At December 31, 2017, the expected annual amortization expense of the intangible assets, net is $0.2 million beginning with the year ending December 31, 2018, through the year ending December 31, 2019, and $0.1 million for the year ending December 31, 2020.

Marketable Equity Investments
Marketable Equity Investments

Note 7. Marketable Equity Investments

In connection with the agreements to license the immunotherapy technologies to Aduro Biotech, Inc., (“Aduro”) in 2009, the Company received preferred shares of Aduro, a privately held company at the time the Company received such shares. Pursuant to these license agreements, the Company was eligible to receive a 1% royalty fee on any future sales resulting from the licensed technology. For the years ended December 31, 2017, 2016 and 2015, the Company had not received any royalty payments from Aduro pursuant to this agreement. The Company historically accounted for the investment under the cost method of accounting with a net carrying value of zero. In April 2015, Aduro’s common stock began trading on the Nasdaq Global Select Market, under the symbol “ADRO”. At the time of Aduro’s initial public offering (“IPO”), the Company’s preferred shares in Aduro converted to 396,700 shares of common stock, and the fair value of the Company’s investment became readily determinable and, as a result became a marketable equity security. Therefore, the Company no longer accounted for the investment in Aduro under the cost basis of accounting. The Company reflected the investment in Aduro as an available-for-sale security included in investment in marketable equity securities on the Company’s consolidated balance sheets (Note 3) and adjusted the carrying value of this investment to fair value each quarterly reporting period, with changes in fair value recorded within other comprehensive income (loss), net of tax. During the years ended  December 31, 2017 and 2016, respectively, the Company sold 346,700 and 50,000 shares of Aduro common stock and recognized a gain of $3.5 million and $0.8 million in “Other income, net” on the Company’s consolidated statements of operations. As of December 31, 2017, the Company had no remaining investment in Aduro’s common stock.

Accrued Liabilities
Accrued Liabilities

Note 8. Accrued Liabilities

Accrued liabilities at December 31, 2017 and 2016, consisted of the following (in thousands):

 

 

 

December 31,

 

 

 

2017

 

 

2016

 

Accrued compensation and related costs

 

$

7,372

 

 

$

7,098

 

Accrued professional services

 

 

2,605

 

 

 

2,511

 

Accrued insurance premiums

 

 

507

 

 

 

476

 

Accrued customer obligations

 

 

481

 

 

 

534

 

Other accrued expenses

 

 

747

 

 

 

599

 

Total accrued liabilities

 

$

11,712

 

 

$

11,218

 

 

Debt
Debt

Note 9. Debt

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

 

 

Debt at December 31, 2016, consisted of the following (in thousands):

 

 

 

December 31, 2016

 

 

 

Principal

 

 

Unamortized

Discount

 

 

Total

 

Loan and Security Agreement

 

$

19,499

 

 

$

(124

)

 

$

19,375

 

Less: debt - current

 

 

(7,013

)

 

 

79

 

 

 

(6,934

)

Debt - non-current

 

$

12,486

 

 

$

(45

)

 

$

12,441

 

 

Expected future principal and interest payments based on debt balances at December 31, 2017, are expected to be as follows:

 

Year ended December 31,

 

Principal

 

 

Interest

 

 

Total

 

2018

 

$

 

 

$

2,554

 

 

 

2,554

 

2019

 

 

7,857

 

 

 

2,280

 

 

 

10,137

 

2020

 

 

8,571

 

 

 

1,558

 

 

 

10,129

 

2021

 

 

8,572

 

 

 

822

 

 

 

9,394

 

2022

 

 

5,000

 

 

 

2,542

 

 

 

7,542

 

Total

 

$

30,000

 

 

$

9,756

 

 

$

39,756

 

 

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 provides 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 are 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 second tranche of $10.0 million (“2017 Term Loan B”) will be made available to the Company upon the Company’s achieving consolidated trailing six-month revenues as defined in the agreement (the “Revenue Milestone”). If the Revenue Milestone is achieved, the Company may draw the 2017 Term Loan B through the earlier of (i) January 31, 2019, and (ii) the date which is 60 days after the achievement of the Revenue Milestone. The 2017 Term Loans require interest-only payments through February 1, 2019, followed by 42 months payments of equal principal plus declining interest payments. However, if the Company draws the 2017 Term Loan B, then the interest-only period will be extended through August 1, 2019, and the amortization period will be reduced to 36 months. Interest on 2017 Term Loan A and 2017 Term Loan B will bear 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 of Term Loan A at December 31, 2017, was approximately 8.4%. The Company will also be required to make a final payment fee of 8.00% of the principal amounts of the 2017 Term Loans. The Amended Credit Agreement contains certain nonfinancial covenants, with which the Company was in compliance at December 31, 2017.

Commitments and Contingencies
Commitments and Contingencies

Note 10. 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 operating leases expire at various dates through 2023, 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 lease payments under operating leases as of December 31, 2017, are as follows (in thousands):

 

Year ended December 31,

 

Lease Payments

 

2018

 

$

1,387

 

2019

 

 

1,169

 

2020

 

 

239

 

2021

 

 

200

 

2022

 

 

177

 

Thereafter

 

 

17

 

Total

 

$

3,189

 

 

Rent expense for office facilities was $1.0 million, $0.8 million and $0.8 million for the years ended December 31, 2017, 2016 and 2015, respectively.

 

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 December 31, 2017, the Company had an outstanding liability of $0.3 million related to these leasehold improvements, of which $0.2 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 providers for certain components of INTERCEPT Blood System which the Company purchases from third party manufacturers. Certain of these agreements require minimum purchase commitments from the Company. The Company has paid $6.7 million, $6.9 million and $7.7 million for goods under agreements which are subject to minimum purchase commitments during the years ended December 31, 2017, 2016 and 2015, respectively. As of December 31, 2017, the Company has future minimum purchase commitments under these agreements of approximately $9.6 million, $2.4 million, $2.6 million and $4.9 million for the years ending December 31, 2018, 2019, 2020, and 2021 respectively.

In June 2014, the Company terminated its distribution agreement with one of its distributors in certain countries and entered into an agreement to provide for specific post-termination obligations (the “Transition Agreement”). The Transition Agreement expired September 30, 2014. The Company is required to pay this former distributor certain fees for platelet systems sold by the Company to any customer in certain countries commencing with the termination of the agreement through April 1, 2018, subject to a maximum payment of €3 million. As this former distributor remains as a customer in other countries, any fees paid to the former distributor related to INTERCEPT disposable kits are offset against the revenue associated with the sale of INTERCEPT disposable kits in those territories.

Stockholders' Equity
Stockholders' Equity

Note 11. Stockholders’ Equity

Sales Agreement

On May 5, 2016, the Company entered into Amendment No. 2 to the Controlled Equity OfferingSM Sales Agreement, dated August 31, 2012, as previously amended on March 21, 2014, (together, the “Prior Cantor Agreement”) with Cantor Fitzgerald & Co. (“Cantor”) that provides 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 over the term of the Amended Cantor Agreement. 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 Amended Cantor Agreement. During the years ended December 31, 2017 and 2016, 11.0 million and 3.5 million shares, respectively, of the Company’s common stock were sold under the Prior Cantor Agreement for net proceeds of $30.3 million and $22.0 million, respectively.   

On August 4, 2017, the Company entered into Amendment No. 3 to the Prior Cantor Agreement (together, 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 includes 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 deemed an “at-the-market” offering and are registered under the Securities Act of 1933, as amended.    

Stockholder Rights Plan

In October 2009, the Company’s Board of Directors adopted an amendment to its 1999 stockholder rights plan, commonly referred to as a “poison pill,” to reduce the exercise price, extend the expiration date and revise certain definitions under the plan. The stockholder rights plan is intended to deter hostile or coercive attempts to acquire the Company. The stockholder rights plan enables stockholders to acquire shares of the Company’s common stock, or the common stock of an acquirer, at a substantial discount to the public market price should any person or group acquire more than 15% of the Company’s common stock without the approval of the Board of Directors under certain circumstances. The Company has designated 250,000 shares of Series C Junior Participating preferred stock for issuance in connection with the stockholder rights plan. As of December 31, 2017, no Series C Junior Participating preferred stock has been issued. The expiration date of the rights issued under the stockholder rights plan is October 27, 2019.

 

Stock-Based Compensation
Stock-Based Compensation

Note 12. Stock-Based Compensation

Employee Stock Plans

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 December 31, 2017, the Company had 1.2 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 December 31, 2017, no performance-based stock options 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 exclusively for the issuance of non-statutory stock options and restricted stock units to individuals who were not previously employees or directors of the Company, or who had experienced a bona fide period of non-employment, as an inducement material to the individual’s entry into employment with the Company within the meaning of Rule 5635(c)(4) of the Nasdaq Listing Rules. The Inducement Plan was approved by the Company’s Board of Directors without stockholder approval pursuant to Rule 5635(c)(4), and 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 December 31, 2017, the Company had an aggregate of approximately 26.4 million shares of its common stock subject to outstanding options or RSUs, or remaining available for future issuance under the Amended 2008 Plan, of which approximately 17.1 million shares and 1.3 million shares were subject to outstanding options and outstanding RSUs, respectively, and approximately 8.0 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, 2016

 

 

15,787

 

 

$

4.39

 

Granted

 

 

3,304

 

 

 

4.14

 

Forfeited

 

 

(1,087

)

 

 

5.18

 

Expired

 

 

(322

)

 

 

7.80

 

Exercised

 

 

(544

)

 

 

3.11

 

Balances at December 31, 2017

 

 

17,138

 

 

 

4.27

 

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

 

 

 

Number of

Shares

Outstanding

 

 

Weighted

Average

Grant Date

Fair Value

per Share

 

Balances at December 31, 2016

 

 

739

 

 

$

5.26

 

Granted

 

 

918

 

 

 

4.18

 

Forfeited

 

 

(132

)

 

 

4.53

 

Vested

 

 

(269

)

 

 

5.35

 

Balances at December 31, 2017

 

 

1,256

 

 

 

4.53

 

 

The total fair value of RSUs as of their respective vesting dates, for the years ended December 31, 2017, 2016 and 2015, were $1.0 million, zero and zero, respectively.

 

Information regarding the Company’s stock options outstanding, stock options vested and expected to vest, and stock options exercisable at December 31, 2017, was as follows (in thousands except weighted average exercise price and contractual term):

 

 

 

Number of Shares

 

 

Weighted Average

Exercise Price

 

 

Weighted Average

Remaining

Contractual Term

(Years)

 

 

Aggregate

Intrinsic Value

 

Balances at December 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock options outstanding

 

 

17,138

 

 

$

4.27

 

 

 

6.3

 

 

$

3,691

 

Stock options vested and expected to vest

 

 

16,911

 

 

 

4.27

 

 

 

6.2

 

 

 

3,681

 

Stock options exercisable

 

 

12,109

 

 

 

4.12

 

 

 

5.4

 

 

 

3,487

 

 

The aggregate intrinsic value in the table above is calculated as the difference between the exercise price of the stock option and the Company’s closing stock price on the last trading day of each respective fiscal period.

The total intrinsic value of options exercised for the years ended December 31, 2017, 2016 and 2015, was $0.6 million, $1.9 million and $1.2 million, respectively.

Stock-based Compensation Expense

Stock-based compensation expense recognized on the Company’s consolidated statements of operations for the years ended December 31, 2017, 2016 and 2015, was as follows (in thousands):