CERUS CORP, 10-Q filed on 5/7/2019
Quarterly Report
v3.19.1
Document and Entity Information - shares
3 Months Ended
Mar. 31, 2019
Apr. 25, 2019
Document And Entity Information [Abstract]    
Document Type 10-Q  
Amendment Flag false  
Document Period End Date Mar. 31, 2019  
Document Fiscal Year Focus 2019  
Document Fiscal Period Focus Q1  
Trading Symbol CERS  
Entity Registrant Name CERUS CORP  
Entity Central Index Key 0001020214  
Current Fiscal Year End Date --12-31  
Entity Filer Category Large Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Common Stock, Shares Outstanding   137,835,944
v3.19.1
CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Thousands
Mar. 31, 2019
Dec. 31, 2018
Current assets:    
Cash and cash equivalents $ 29,002 $ 28,859
Short-term investments 71,426 88,718
Accounts receivable 13,756 8,752
Inventories 15,778 13,539
Prepaid and other current assets 4,958 7,034
Total current assets 134,920 146,902
Non-current assets:    
Property and equipment, net 16,089 8,130
Goodwill 1,316 1,316
Operating lease right-of-use assets 15,631  
Intangible assets, net 284 334
Restricted cash 2,725 2,728
Other assets 4,961 4,050
Total assets 175,926 163,460
Current liabilities:    
Accounts payable 20,912 18,595
Accrued liabilities 18,397 19,800
Manufacturing and development obligations 5,962 5,928
Debt – current   7,857
Operating lease liabilities – current 1,560  
Deferred product revenue – current 763 498
Total current liabilities 47,594 52,678
Non-current liabilities:    
Debt – non-current 39,433 22,013
Operating lease liabilities – non-current 19,311  
Other non-current liabilities 88 4,250
Total liabilities 106,426 78,941
Commitments and contingencies
Stockholders' equity:    
Common stock 138 136
Additional paid-in capital 867,091 863,531
Accumulated other comprehensive loss (70) (281)
Accumulated deficit (797,659) (778,867)
Total stockholders' equity 69,500 84,519
Total liabilities and stockholders' equity $ 175,926 $ 163,460
v3.19.1
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Cost of revenue $ 8,432 $ 7,330
Gross profit 9,072 6,234
Operating expenses:    
Research and development 13,440 9,437
Selling, general and administrative 16,161 13,607
Total operating expenses 29,601 23,044
Loss from operations (16,068) (13,355)
Non-operating expense, net:    
Foreign exchange (loss) gain (162) 108
Interest expense (2,924) (915)
Other income, net 422 331
Total non-operating expense, net (2,664) (476)
Loss before income taxes (18,732) (13,831)
Provision for income taxes 60 54
Net loss $ (18,792) $ (13,885)
Net loss per share:    
Basic $ (0.14) $ (0.11)
Diluted $ (0.14) $ (0.11)
Weighted average shares outstanding used for calculating net loss per share:    
Basic 137,108 124,814
Diluted 137,108 124,814
Product    
Revenue $ 17,504 $ 13,564
Government Contract    
Revenue $ 4,461 $ 3,455
v3.19.1
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Statement Of Income And Comprehensive Income [Abstract]    
Net loss $ (18,792) $ (13,885)
Other comprehensive income (loss)    
Unrealized gains (losses) on available-for-sale investments, net of taxes 211 (329)
Comprehensive loss $ (18,581) $ (14,214)
v3.19.1
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - USD ($)
shares in Thousands, $ in Thousands
Total
Common Stock
Additional Paid-in Capital
Accumulated Other Comprehensive Income (Loss)
Accumulated Deficit
Balance at Dec. 31, 2017 $ 38,940 $ 115 $ 760,225 $ (97) $ (721,303)
Balance (in shares) at Dec. 31, 2017   115,555      
Net loss (13,885)       (13,885)
Other comprehensive income (loss) (329)     (329)  
Issuance of common stock from public offering, net of offering costs 57,262 $ 15 57,247    
Issuance of common stock from public offering, net of offering costs (in shares)   14,039      
Issuance of common stock from exercise of stock options, vesting of restricted stock units, and ESPP purchases 1,295 $ 1 1,294    
Issuance of common stock from exercise of stock options, vesting of restricted stock units, and ESPP purchases (in shares)   951      
Stock-based compensation 2,315   2,315    
Balance at Mar. 31, 2018 85,598 $ 131 821,081 (426) (735,188)
Balance (in shares) at Mar. 31, 2018   130,545      
Balance at Dec. 31, 2018 84,519 $ 136 863,531 (281) (778,867)
Balance (in shares) at Dec. 31, 2018   136,853      
Net loss (18,792)       (18,792)
Other comprehensive income (loss) 211     211  
Issuance of common stock from exercise of stock options, vesting of restricted stock units, and ESPP purchases 684 $ 2 682    
Issuance of common stock from exercise of stock options, vesting of restricted stock units, and ESPP purchases (in shares)   965      
Stock-based compensation 2,878   2,878    
Balance at Mar. 31, 2019 $ 69,500 $ 138 $ 867,091 $ (70) $ (797,659)
Balance (in shares) at Mar. 31, 2019   137,818      
v3.19.1
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Operating activities    
Net loss $ (18,792) $ (13,885)
Adjustments to reconcile net loss to net cash used in operating activities:    
Depreciation and amortization 729 413
Stock-based compensation 2,878 2,315
Non-cash interest expense 197 269
Changes in operating assets and liabilities:    
Accounts receivable (5,004) 1,926
Inventories (2,286) 1,224
Other assets 2,165 (1,475)
Accounts payable 2,597 (122)
Accrued liabilities and other non-current liabilities (4,809) (1,340)
Manufacturing and development obligations (118) 164
Deferred product revenue 265 186
Net cash used in operating activities (22,178) (10,325)
Investing activities    
Capital expenditures (3,315) (52)
Purchases of investments (1,000) (56,941)
Proceeds from maturities and sale of investments 17,500 12,250
Net cash provided by (used in) investing activities 13,185 (44,743)
Financing activities    
Net proceeds from equity incentives 710 1,295
Net proceeds from public offering   57,564
Proceeds from loans, net of discount 39,433  
Repayment of debt (31,010) (32)
Net cash provided by financing activities 9,133 58,827
Net increase in cash, cash equivalents and restricted cash 140 3,759
Cash, cash equivalents and restricted cash, beginning of period 31,587 13,930
Cash, cash equivalents and restricted cash, end of period $ 31,727 $ 17,689
v3.19.1
Summary of Significant Accounting Policies
3 Months Ended
Mar. 31, 2019
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 months ended March 31, 2019, are not necessarily indicative of the results that may be expected for the year ending December 31, 2019, 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, 2018, which were included in the Company’s 2018 Annual Report on Form 10-K, filed with the SEC on February 27, 2019. The accompanying condensed consolidated balance sheet as of December 31, 2018, 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, accrued liabilities, and incremental borrowing rate, 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 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. 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 product 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 product 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 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 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 condensed 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 months ended March 31, 2019 and 2018, were as follows (in thousands):

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2019

 

 

2018

 

Product revenue:

 

 

 

 

 

 

 

 

Europe, Middle East and Africa

 

$

12,653

 

 

$

11,006

 

North America

 

 

4,551

 

 

 

2,387

 

Other

 

 

300

 

 

 

171

 

Total product revenue

 

$

17,504

 

 

$

13,564

 

 

Contract Balances

The Company invoices its customers based upon the 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 March 31, 2019 and December 31, 2018.

Contract liabilities mainly consist of deferred product revenue related to maintenance services, unshipped products, and uninstalled illuminators. 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 three months ended March 31, 2019 is primarily driven by performance obligations not satisfied but invoiced as of March 31, 2019, offset by $0.2 million of revenue recognized that were included in the deferred product revenue balance as of December 31, 2018.

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 March 31, 2019, the Company’s “Restricted cash” primarily consisted of a letter of credit relating to the lease of the Company’s new office building. As of March 31, 2019 and December 31, 2018, the Company also had certain non-U.S. dollar denominated deposits recorded as “Restrict 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 March 31, 2019, 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 three and two customers that accounted for more than 10% of the Company’s outstanding trade receivables at March 31, 2019 and December 31, 2018, respectively. These customers cumulatively represented approximately 59% and 50% of the Company’s outstanding trade receivables at March 31, 2019 and December 31, 2018, respectively. To date, the Company has not experienced collection difficulties from these customers.

Inventories

At March 31, 2019 and December 31, 2018, 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 March 31, 2019 and December 31, 2018, the Company classified its work-in-process inventory as a current asset on its condensed 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 condensed consolidated statements of operations. At March 31, 2019 and December 31, 2018, the Company had $0.4 million and $0.3 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. During the three months ended March 31, 2019 and 2018, the Company had non-cash purchases of capital expenditures of $2.9 million and less than $0.1 million, respectively.

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 March 31, 2019 and December 31, 2018, was $1.7 million and $1.7 million, respectively. 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 months ended March 31, 2019 and 2018, 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 condensed 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 condensed 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, California tax returns for years through 2017, and Netherlands tax returns for years 2015 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 months ended March 31, 2019 and 2018, 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 months ended March 31, 2019 and 2018 (shares in thousands):

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2019

 

 

2018

 

Weighted average number of anti-dilutive potential shares:

 

 

 

 

 

 

 

 

Stock options

 

 

17,648

 

 

 

17,879

 

Restricted stock units

 

 

2,247

 

 

 

1,579

 

Employee stock purchase plan rights

 

 

7

 

 

 

92

 

Total

 

 

19,902

 

 

 

19,550

 

 

Leases

 

The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets and operating lease liabilities on the condensed consolidated balance sheets. As of March 31, 2019 and December 31, 2018, the Company did not have finance leases.

 

ROU assets and operating lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The ROU asset also includes any lease payments made and excludes lease incentives. The lease terms may include options to extend or terminate the lease when it is reasonably certain to be exercised. Operating leases are recognized on a straight-line basis over the lease term.

 

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 March 31, 2019 and December 31, 2018.

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

Recently adopted accounting pronouncements

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 condensed consolidated 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. 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. The Company adopted the new accounting standard on January 1, 2019, using the modified retrospective method and elected the package of practical expedients for expired or existing contracts, which allowed the Company not to reassess (1) whether contracts are or contain leases, (2) lease classification and (3) initial direct costs. The Company recorded right-of-use assets of $2.4 million in “Operating lease right-of-use assets” on the Company's condensed consolidated balance sheets, and lease liabilities of 2.4 million in aggregate in “Operating lease liabilities – current” and “Operating lease liabilities – non-current” on the Company’s condensed consolidated balance sheets on the adoption date. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.

Recently issued accounting pronouncements not yet adopted

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 condensed consolidated financial statements.

 

v3.19.1
Available-for-sale Securities and Fair Value on Financial Instruments
3 Months Ended
Mar. 31, 2019
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 March 31, 2019 (in thousands):

 

 

 

March 31, 2019

 

 

 

Amortized

Cost

 

 

Gross

Unrealized Gain

 

 

Gross

Unrealized Loss

 

 

Fair

Value

 

Money market funds

 

$

4,145

 

 

$

 

 

$

 

 

$

4,145

 

United States government agency securities

 

 

7,488

 

 

 

 

 

 

(11

)

 

 

7,477

 

Corporate debt securities

 

 

64,008

 

 

 

18

 

 

 

(77

)

 

 

63,949

 

Total available-for-sale securities

 

$

75,641

 

 

$

18

 

 

$

(88

)

 

$

75,571

 

 

The following is a summary of available-for-sale securities at December 31, 2018 (in thousands):

 

 

 

December 31, 2018

 

 

 

Amortized

Cost

 

 

Gross

Unrealized Gain

 

 

Gross

Unrealized Loss

 

 

Fair

Value

 

Money market funds

 

$

6,167

 

 

$

 

 

$

 

 

$

6,167

 

United States government agency securities

 

 

15,971

 

 

 

 

 

 

(23

)

 

 

15,948

 

Corporate debt securities

 

 

73,028

 

 

 

2

 

 

 

(260

)

 

 

72,770

 

Total available-for-sale securities

 

$

95,166

 

 

$

2

 

 

$

(283

)

 

$

94,885

 

 

Available-for-sale securities at March 31, 2019 and December 31, 2018, consisted of the following by contractual maturity (in thousands):

 

 

 

March 31, 2019

 

 

December 31, 2018

 

 

 

Amortized

Cost

 

 

Fair

Value

 

 

Amortized

Cost

 

 

Fair

Value

 

One year or less

 

$

75,641

 

 

$

75,571

 

 

$

85,227

 

 

$

84,957

 

Greater than one year and less than five years

 

 

 

 

 

 

 

 

9,939

 

 

 

9,928

 

Total available-for-sale securities

 

$

75,641

 

 

$

75,571

 

 

$

95,166

 

 

$

94,885

 

 

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):

 

 

March 31, 2019

 

 

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

$

 

 

$

 

 

$

7,477

 

 

$

(11

)

 

$

7,477

 

 

$

(11

)

Corporate debt securities

 

 

 

 

 

 

 

47,479

 

 

 

(77

)

 

 

47,479

 

 

 

(77

)

Total available-for-sale securities

$

 

 

$

 

 

$

54,956

 

 

$

(88

)

 

$

54,956

 

 

$

(88

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 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

$

14,948

 

 

$

(22

)

 

$

999

 

 

$

(1

)

 

$

15,947

 

 

$

(23

)

Corporate debt securities

 

60,813

 

 

 

(231

)

 

 

9,976

 

 

 

(29

)

 

 

70,789

 

 

 

(260

)

Total available-for-sale securities

$

75,761

 

 

$

(253

)

 

$

10,975

 

 

$

(30

)

 

$

86,736

 

 

$

(283

)

 

As of March 31, 2019, 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 months ended March 31, 2019 and 2018, 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 did not record any gross realized gains or losses from the sale or maturity of available-for-sale investments during the three months ended March 31, 2019 and 2018.

 

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 March 31, 2019, 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 March 31, 2019 (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

 

$

4,145

 

 

$

4,145

 

 

$

 

 

$

 

United States government agency securities

 

Short-term investments

 

 

7,477

 

 

 

 

 

 

7,477

 

 

 

 

Corporate debt securities

 

Short-term investments

 

 

63,949

 

 

 

 

 

 

63,949

 

 

 

 

Total financial assets

 

 

 

$

75,571

 

 

$

4,145

 

 

$

71,426

 

 

$

 

 

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

 

$

6,167

 

 

$

6,167

 

 

$

 

 

$

 

United States government agency securities

 

Short-term investments

 

 

15,948

 

 

 

 

 

 

15,948

 

 

 

 

Corporate debt securities

 

Short-term investments

 

 

72,770

 

 

 

 

 

 

72,770

 

 

 

 

Total financial assets

 

 

 

$

94,885

 

 

$

6,167

 

 

$

88,718

 

 

$

 

 

The Company did not have any transfers among fair value measurement levels during the three months ended March 31, 2019.

v3.19.1
Inventories
3 Months Ended
Mar. 31, 2019
Inventory Disclosure [Abstract]  
Inventories

Note 3. Inventories

Inventories at March 31, 2019 and December 31, 2018, consisted of the following (in thousands):

 

 

 

March 31,

2019

 

 

December 31,

2018

 

Work-in-process

 

$

4,342

 

 

$

3,075

 

Finished goods

 

 

11,436

 

 

 

10,464

 

Total inventories

 

$

15,778

 

 

$

13,539

 

v3.19.1
Accrued Liabilities
3 Months Ended
Mar. 31, 2019
Payables And Accruals [Abstract]  
Accrued Liabilities

Note 4. Accrued Liabilities

Accrued liabilities at March 31, 2019 and December 31, 2018, consisted of the following (in thousands):

 

 

 

March 31,

2019

 

 

December 31,

2018

 

Accrued professional services

 

$

8,323

 

 

$

4,544

 

Accrued compensation and related costs

 

 

6,490

 

 

 

10,765

 

Accrued development costs

 

 

1,908

 

 

 

1,965

 

Other accrued expenses

 

 

1,676

 

 

 

2,526

 

Total accrued liabilities

 

$

18,397

 

 

$

19,800

 

v3.19.1
Debt
3 Months Ended
Mar. 31, 2019
Debt Disclosure [Abstract]  
Debt

Note 5. Debt

Debt at March 31, 2019, consisted of the following (in thousands):

 

 

 

March 31, 2019

 

 

 

Principal

 

 

Unamortized

Discount

 

 

Total

 

Term Loan Credit Agreement

 

$

40,000

 

 

$

(567

)

 

$

39,433

 

Less: debt – current

 

 

 

 

 

 

 

 

 

Debt – non-current

 

$

40,000

 

 

$

(567

)

 

$

39,433

 

 

Debt at December 31, 2018, consisted of the following (in thousands):

 

 

 

December 31, 2018

 

 

 

Principal

 

 

Unamortized

Discount

 

 

Net Carrying

Value

 

Oxford Term Loan Agreement

 

$

30,000

 

 

$

(130

)

 

$

29,870

 

Less: debt – current

 

 

(7,857

)

 

 

 

 

 

(7,857

)

Debt – non-current

 

$

22,143

 

 

$

(130

)

 

$

22,013

 

 

 

Principal, interest and fee payments on debt at March 31, 2019, are expected to be as follows (in thousands):

 

Year ended December 31,

 

Principal

 

 

Interest and Fees

 

 

Total

 

2019

 

$

 

 

$

2,250

 

 

$

2,250

 

2020

 

 

 

 

 

3,335

 

 

 

3,335

 

2021

 

 

 

 

 

3,326

 

 

 

3,326

 

2022

 

 

15,000

 

 

 

2,909

 

 

 

17,909

 

2023

 

 

20,000

 

 

 

1,315

 

 

 

21,315

 

2024

 

 

5,000

 

 

 

1,270

 

 

 

6,270

 

Total

 

$

40,000

 

 

$

14,405

 

 

$

54,405

 

Loan and Security Agreement

Prior to March 29, 2019, the Company maintained a loan and security agreement (the “Oxford Term Loan Agreement”) with Oxford Finance LLC (“Oxford”). The Oxford Term Loan Agreement provided for secured growth capital term loans of up to $40.0 million. The Oxford Term Loan Agreement was 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 previous Term Loan Agreement of $17.6 million and the final payment of the previous 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.

 

On March 29, 2019 (the “Closing Date”), the Company entered into a Credit, Security and Guaranty Agreement (Term Loan) (the “Term Loan Credit Agreement”) with MidCap Financial Trust (“MidCap”) to borrow up to $70 million in three tranches (collectively “2019 Term Loan”), with a maturity date of March 1, 2024. The first advance of $40.0 million (“Tranche 1”) was drawn by the Company on March 29, 2019, with the proceeds used in part to repay in full the outstanding term loans and fees under the Oxford Term Loan Agreement. The Company repaid principal and interest in an aggregate amount equal to approximately $31.2 million and prepayment fees in an aggregate amount equal to approximately $0.6 million. As of March 31, 2019, all obligations under the Oxford Term Loan Agreement have terminated. As a result, the Company recorded a loss of $2.1 million on the extinguishment of Oxford term loans in “Interest expense” on the Company's condensed consolidated statements of operations. The second advance of $15.0 million (“Tranche 2”) will be available to the Company from January 1, 2020 through December 31, 2020, subject to the Company’s satisfaction of certain conditions described in the Term Loan Credit Agreement, and (ii) the third advance of $15.0 million (“Tranche 3”) will be available to the Company starting April 1, 2020, through March 31, 2021, subject to the Company’s satisfaction of certain other conditions described in the Term Loan Credit Agreement. The borrowings under the 2019 Term Loan bears interest at the sum of a fixed percentage spread and the greater of (i) 1.8% or (ii) one month LIBOR. The effective interest rate on the Term Loan at March 31, 2019 was approximately 8.20%. All three tranches require interest only payments through April 1, 2022, followed by 24 months of payments with interest and equal payment of principal. The interest only payment period can be extended for 12 months upon achievement of a specified trailing twelve month net revenue target. Prepayments of the 2019 Term Loan under the Term Loan Credit Agreement, in whole or in part, will be subject to early termination fees which decline each year until the fourth anniversary, at which time there is no early termination fee. Upon the final payment, the Company must also pay an exit fee calculated based on a percentage of the aggregate principal amount of all tranches advanced to the Company.

 

The Company also entered into a Credit, Security and Guaranty Agreement (Revolving Loan) (the “Revolving Loan Credit Agreement”) with MidCap on March 29, 2019, to initially borrow up to $5.0 million. The amount borrowed under the Revolving Loan Credit Agreement can be increased, upon request by the Company by up to an additional $15.0 million, subject to agent and lender approval and the satisfaction of certain conditions. The Revolving Loan Credit Agreement has a maturity date of March 1, 2024. Amounts drawn under the Revolving Loan Credit Agreement bear interest at the sum of a fixed percentage spread and the greater of (i) 1.80% or (ii) one month LIBOR. There are also fractional fees based on the amounts either drawn or undrawn. If the Revolving Loan Credit Agreement is terminated before maturity or the funding obligation is permanently reduced, there are declining fees for the entirety of its term. No amounts were borrowed under the Revolving Loan Credit Agreement as of March 31, 2019.

 

The Term Loan Credit Agreement and Revolving Loan Credit Agreement contain certain non-financial covenants, with which the Company was in compliance at March 31, 2019. Additionally, both agreements are secured by most of the Company’s assets, excluding intellectual property.

v3.19.1
Commitments and Contingencies
3 Months Ended
Mar. 31, 2019
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 operating leases expire at various dates through 2030, 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. We do not assume renewals in our determination of the lease term unless the renewals are deemed to be reasonably assured at lease commencement. The Company recorded the lease right-of-use asset and obligation at the present value of lease payments over the lease term. The rates implicit in the Company’s leases are generally not readily determinable. The Company must estimate its incremental borrowing rate to discount the lease payments to present value. Operating lease assets also include lease incentives.

 

 

Supplemental cash flow information related to operating leases is as follows (dollars in thousands):

 

 

 

Three Months Ended

 

 

 

March 31, 2019

 

Cash payments for operating leases

 

$

734

 

Right-of-use assets obtained in exchange for operating lease obligations

 

 

13,560

 

 

 

 

March 31, 2019

 

Weighted-average remaining lease term

 

9.9 years

 

Weighted-average discount rate

 

 

9.0

%

 

Future minimum non-cancelable payments under operating leases as of March 31, 2019, were as follows (in thousands):

 

 

 

Operating Leases

 

Remainder of 2019

 

$

2,796

 

2020

 

 

3,047

 

2021

 

 

3,086

 

2022

 

 

2,714

 

2023

 

 

2,610

 

Thereafter

 

 

18,690

 

Total future lease payments

 

$

32,943

 

Less imputed interest

 

 

12,072

 

Present value of lease liabilities

 

$

20,871

 

 

During the three months ended March 31, 2019 and 2018, the Company recorded operating lease cost of $0.5 million and $0.3 million, respectively. As of March 31, 2019, the Company had no leases that have not yet commenced.

Purchase Commitments

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

v3.19.1
Stockholders' Equity
3 Months Ended
Mar. 31, 2019
Equity [Abstract]  
Stockholders' Equity

Note 7. Stockholders’ Equity

Sales Agreement

On August 4, 2017, the Company entered into Amendment No. 3 to the Controlled Equity Offering SM Sales Agreement with Cantor Fitzgerald & Co. (as amended on August 4, 2017, the “Amended Cantor Agreement”). The Amended Cantor Agreement became effective on January 8, 2018, and provided 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 Fitzgerald & Co. (“Cantor”), which amount included the $31.4 million of unsold shares of common stock available for sale 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. During the three months ended March 31, 2019, no shares of the Company’s common stock were sold under the Amended Cantor Agreement. At March 31, 2019, the Company had approximately $41.6 million of common stock available to be sold under the Amended Cantor Agreement.

v3.19.1
Stock-Based Compensation
3 Months Ended
Mar. 31, 2019
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]  
Stock-Based Compensation

Note 8. 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 March 31, 2019, the Company had 0.7 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 and its subsequent amendments (collectively, the “Amended 2008 Plan”). The Amended 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. Option 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 to four 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. At March 31, 2019, 45,000 performance-based stock awards were outstanding.

At March 31, 2019, the Company had an aggregate of approximately 21.3 million shares of its common stock subject to outstanding options or unvested RSUs, or remaining available for future issuance under the Amended 2008 Plan, of which approximately 17.7 million shares and 2.4 million shares were subject to outstanding options and unvested RSUs, respectively, and approximately 1.2 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, 2018

 

 

17,560

 

 

$

4.47

 

Granted

 

 

290

 

 

 

6.13

 

Exercised

 

 

(71

)

 

 

2.90

 

Forfeited/canceled

 

 

(57

)

 

 

5.56

 

Balances at March 31, 2019

 

 

17,722

 

 

 

4.50

 

 

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, 2018 (1)

 

 

2,001

 

 

$

4.56

 

Granted (1)

 

 

1,201

 

 

 

6.79

 

Vested

 

 

(800

)

 

 

4.48

 

Forfeited

 

 

(3

)

 

 

4.32

 

Balances at March 31, 2019

 

 

2,399

 

 

 

5.70

 

(1)

Includes shares issuable under performance-based restricted stock unit awards.

 

Valuation Assumptions for Stock-based Compensation

 

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.

v3.19.1
Income Taxes
3 Months Ended
Mar. 31, 2019
Income Tax Disclosure [Abstract]  
Income Taxes

Note 9. Income Taxes

The Company recorded income tax expense of less than $0.1 million for the three months ended March 31, 2019 and 2018, primarily related to the operating income of the Company’s Cerus Europe B.V. subsidiary.

v3.19.1
Development and License Agreements
3 Months Ended
Mar. 31, 2019
Development And License Agreements [Abstract]  
Development and License Agreements

 

Note 10. Development and License Agreements

Agreements with Fresenius

Fresenius Kabi AG (“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 condensed consolidated balance sheets until such time as the Company purchases finished disposable kits using those components.

The Supply Agreement also requires the Company to make certain payments totaling €8.6 million (“Manufacturing and Development Payments”) to Fresenius. In 2016, the Company paid €3.1 million to Fresenius. In August 2018, the Company entered into an amendment to the Supply Agreement accelerating the payment for the remaining €5.5 million to August 2019. Because these payments represent unconditional payment obligations, the Company recognized its liability for these payments at their net present value at discount rate of 9.72% based on the Company’s effective borrowing rate at that time. The Manufacturing and Development Payments liability is accreted through interest expense based on the estimated timing of its ultimate settlement. As of March 31, 2019 and December 31, 2018, the Company accrued $6.0 million (€5.3 million) and $5.9 million (€5.2 million), respectively, 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 March 31, 2019 and December 31, 2018 (in thousands).

 

 

 

March 31, 2019

 

 

December 31, 2018

 

Prepaid R&D asset – current (1)

 

$

46

 

 

$

47

 

Prepaid R&D asset – non-current (2)

 

 

2,152

 

 

 

2,156

 

Manufacturing efficiency asset (2)

 

 

1,533

 

 

 

1,594

 

 

 

 

 

 

 

 

 

 

(1)

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

(2)

Included in “Other assets” in the Company's condensed 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 $7.8 million and $5.4 million relating to the manufacturing of the Company’s products during the three months ended March 31, 2019 and 2018, respectively. The following table summarizes the amounts of the Company’s payables to and receivables from Fresenius at March 31, 2019 and December 31, 2018 (in thousands).

 

 

 

March 31, 2019

 

 

December 31, 2018

 

Payables to Fresenius (1)

 

$

7,507

 

 

$

7,812

 

Receivables from Fresenius (2)

 

 

954

 

 

 

1,777

 

(1)

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

(2)

Included in “Other current assets” in the Company's condensed 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 March 31, 2019 and December 31, 2018, $4.2 million and $2.3 million, respectively, of billed and unbilled amounts were included in accounts receivable on the Company’s condensed consolidated balance sheets related to BARDA.

v3.19.1
Segment, Customer and Geographic Information
3 Months Ended
Mar. 31, 2019
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 months ended March 31, 2019 and 2018:

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2019

 

 

2018

 

Établissement Français du Sang

 

29%

 

 

41%

 

American Red Cross

 

13%

 

 

*

 

 

v3.19.1
Summary of Significant Accounting Policies (Policies)
3 Months Ended
Mar. 31, 2019
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 months ended March 31, 2019, are not necessarily indicative of the results that may be expected for the year ending December 31, 2019, 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, 2018, which were included in the Company’s 2018 Annual Report on Form 10-K, filed with the SEC on February 27, 2019. The accompanying condensed consolidated balance sheet as of December 31, 2018, 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, accrued liabilities, and incremental borrowing rate, 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

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. 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 product 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 product 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 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 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 condensed 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 months ended March 31, 2019 and 2018, were as follows (in thousands):

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2019

 

 

2018

 

Product revenue:

 

 

 

 

 

 

 

 

Europe, Middle East and Africa

 

$

12,653

 

 

$

11,006

 

North America

 

 

4,551

 

 

 

2,387

 

Other

 

 

300

 

 

 

171

 

Total product revenue

 

$

17,504

 

 

$

13,564

 

 

Contract Balances

The Company invoices its customers based upon the 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 March 31, 2019 and December 31, 2018.

Contract liabilities mainly consist of deferred product revenue related to maintenance services, unshipped products, and uninstalled illuminators. 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 three months ended March 31, 2019 is primarily driven by performance obligations not satisfied but invoiced as of March 31, 2019, offset by $0.2 million of revenue recognized that were included in the deferred product revenue balance as of December 31, 2018.

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 Expenses