Quarterly Report (10-q)

Date : 08/01/2019 @ 9:13PM
Source : Edgar (US Regulatory)
Stock : Cerus Corp (CERS)
Quote : 4.02  -0.07 (-1.71%) @ 2:44PM

Quarterly Report (10-q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from:              to             

Commission File Number 000-21937

 

CERUS CORPORATION

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

68-0262011

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

1220 Concord Avenue, Suite 600

Concord, California

 

94520

(Address of principal executive offices)

 

(Zip Code)

 

(925) 288-6000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Class  

Trading Symbol

Name of Each Exchange on Which Registered  

Common Stock, par value $0.001 per share

CERS

The Nasdaq Stock Market LLC

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YES       NO  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    YES       NO  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

 

 

 

 

Non-accelerated filer

  

Smaller reporting company

 

 

 

 

 

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES       NO  

As of July 22, 2019, there were 140,321,542 shares of the registrant’s common stock outstanding.

 

 

 

 


CERUS CORPORATION

FORM 10-Q

For the Quarterly Period Ended June 30, 2019

TABLE OF CONTENTS

 

PART I

FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements

1

 

Unaudited Condensed Consolidated Balance Sheets – June 30, 2019 and December 31, 2018

1

 

Unaudited Condensed Consolidated Statements of Operations – Three and six months ended June 30, 2019 and 2018

2

 

Unaudited Condensed Consolidated Statements of Comprehensive Loss – Three and six months ended June 30, 2019 and 2018

3

 

Unaudited Condensed Consolidated Statements of Stockholders’ Equity – Three and six months ended June 30, 2019 and 2018

4

 

Unaudited Condensed Consolidated Statements of Cash Flows – Six months ended June 30, 2019 and 2018

5

 

Notes to Unaudited Condensed Consolidated Financial Statements

6

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

21

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

31

Item 4.

Controls and Procedures

31

 

 

 

PART II

OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

32

Item 1A.

Risk Factors

32

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

68

Item 3.

Defaults Upon Senior Securities

68

Item 4.

Mine Safety Disclosures

68

Item 5.

Other Information

68

Item 6.

Exhibits

69

 

 

SIGNATURES

70

 

 

 

 


PART I: FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

CERUS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

 

 

 

June 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

 

 

(Unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

23,543

 

 

$

28,859

 

Short-term investments

 

 

72,659

 

 

 

88,718

 

Accounts receivable

 

 

13,432

 

 

 

8,752

 

Inventories

 

 

17,447

 

 

 

13,539

 

Prepaid and other current assets

 

 

8,756

 

 

 

7,034

 

Total current assets

 

 

135,837

 

 

 

146,902

 

Non-current assets:

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

15,345

 

 

 

8,130

 

Goodwill

 

 

1,316

 

 

 

1,316

 

Operating lease right-of-use assets

 

 

14,417

 

 

 

 

Intangible assets, net

 

 

233

 

 

 

334

 

Restricted cash

 

 

2,677

 

 

 

2,728

 

Other assets

 

 

4,802

 

 

 

4,050

 

Total assets

 

$

174,627

 

 

$

163,460

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

21,058

 

 

$

18,595

 

Accrued liabilities

 

 

16,654

 

 

 

19,800

 

Manufacturing and development obligations

 

 

6,198

 

 

 

5,928

 

Debt – revolving loan

 

 

4,496

 

 

 

 

Debt – term loan

 

 

 

 

 

7,857

 

Operating lease liabilities – current

 

 

1,711

 

 

 

 

Deferred product revenue – current

 

 

665

 

 

 

498

 

Total current liabilities

 

 

50,782

 

 

 

52,678

 

Non-current liabilities:

 

 

 

 

 

 

 

 

Debt – non-current

 

 

39,327

 

 

 

22,013

 

Operating lease liabilities – non-current

 

 

18,722

 

 

 

 

Other non-current liabilities

 

 

164

 

 

 

4,250

 

Total liabilities

 

 

108,995

 

 

 

78,941

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Common stock

 

 

140

 

 

 

136

 

Additional paid-in capital

 

 

880,622

 

 

 

863,531

 

Accumulated other comprehensive income (loss)

 

 

91

 

 

 

(281

)

Accumulated deficit

 

 

(815,221

)

 

 

(778,867

)

Total stockholders' equity

 

 

65,632

 

 

 

84,519

 

Total liabilities and stockholders' equity

 

$

174,627

 

 

$

163,460

 

 

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

1


CERUS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

UNAUDITED

(in thousands, except per share data)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Product revenue

 

$

18,209

 

 

$

15,420

 

 

$

35,713

 

 

$

28,984

 

Cost of product revenue

 

 

8,111

 

 

 

7,720

 

 

 

16,543

 

 

 

15,050

 

Gross profit on product revenue

 

 

10,098

 

 

 

7,700

 

 

 

19,170

 

 

 

13,934

 

Government contract revenue

 

 

4,266

 

 

 

4,047

 

 

 

8,727

 

 

 

7,502

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

14,417

 

 

 

9,881

 

 

 

27,857

 

 

 

19,318

 

Selling, general and administrative

 

 

16,740

 

 

 

14,437

 

 

 

32,901

 

 

 

28,044

 

Total operating expenses

 

 

31,157

 

 

 

24,318

 

 

 

60,758

 

 

 

47,362

 

Loss from operations

 

 

(16,793

)

 

 

(12,571

)

 

 

(32,861

)

 

 

(25,926

)

Non-operating expense, net:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange gain (loss)

 

 

105

 

 

 

(138

)

 

 

(57

)

 

 

(30

)

Interest expense

 

 

(1,150

)

 

 

(958

)

 

 

(4,074

)

 

 

(1,873

)

Other income, net

 

 

337

 

 

 

444

 

 

 

759

 

 

 

775

 

Total non-operating expense, net

 

 

(708

)

 

 

(652

)

 

 

(3,372

)

 

 

(1,128

)

Loss before income taxes

 

 

(17,501

)

 

 

(13,223

)

 

 

(36,233

)

 

 

(27,054

)

Provision for income taxes

 

 

61

 

 

 

59

 

 

 

121

 

 

 

113

 

Net loss

 

$

(17,562

)

 

$

(13,282

)

 

$

(36,354

)

 

$

(27,167

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

$

(0.13

)

 

$

(0.10

)

 

$

(0.26

)

 

$

(0.21

)

Weighted average shares used for calculating net loss per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

 

138,281

 

 

 

131,352

 

 

 

137,698

 

 

 

128,101

 

 

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

2


CERUS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

UNAUDITED

(in thousands)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net loss

 

$

(17,562

)

 

$

(13,282

)

 

$

(36,354

)

 

$

(27,167

)

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gains (losses) on available-for-sale investments, net of taxes

 

 

161

 

 

 

9

 

 

 

372

 

 

 

(320

)

Comprehensive loss

 

$

(17,401

)

 

$

(13,273

)

 

$

(35,982

)

 

$

(27,487

)

 

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

 

 

3


CERUS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

UNAUDITED

(in thousands)

 

 

 

Three Months Ended June 30, 2019

 

 

Three Months Ended June 30, 2018

 

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Accumulated

Other

Comprehensive

 

 

Accumulated

 

 

Total

Stockholders'

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Accumulated

Other

Comprehensive

 

 

Accumulated

 

 

Total

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Deficit

 

 

Equity

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Deficit

 

 

Equity

 

Balances at beginning of period

 

 

137,818

 

 

 

138

 

 

 

867,091

 

 

 

(70

)

 

 

(797,659

)

 

 

69,500

 

 

 

130,545

 

 

 

131

 

 

 

821,081

 

 

 

(426

)

 

 

(735,188

)

 

$

85,598

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(17,562

)

 

 

(17,562

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(13,282

)

 

 

(13,282

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

161

 

 

 

 

 

 

161

 

 

 

 

 

 

 

 

 

 

 

 

9

 

 

 

 

 

 

9

 

Issuance of common stock from public offering, net

   of offering costs

 

 

1,978

 

 

 

2

 

 

 

9,834

 

 

 

 

 

 

 

 

 

9,836

 

 

 

1,780

 

 

 

2

 

 

 

11,908

 

 

 

 

 

 

 

 

 

11,910

 

Issuance of common stock from exercise of stock options,

   vesting of restricted stock units, and ESPP purchases

 

 

265

 

 

 

 

 

 

558

 

 

 

 

 

 

 

 

 

558

 

 

 

1,137

 

 

 

 

 

 

3,616

 

 

 

 

 

 

 

 

 

3,616

 

Stock-based compensation

 

 

 

 

 

 

 

 

3,139

 

 

 

 

 

 

 

 

 

3,139

 

 

 

 

 

 

 

 

 

2,593

 

 

 

 

 

 

 

 

 

2,593

 

Balances at end of period

 

 

140,061

 

 

$

140

 

 

$

880,622

 

 

$

91

 

 

$

(815,221

)

 

$

65,632

 

 

 

133,462

 

 

$

133

 

 

$

839,198

 

 

$

(417

)

 

$

(748,470

)

 

$

90,444

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 2019

 

 

Six Months Ended June 30, 2018

 

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Accumulated

Other

Comprehensive

 

 

Accumulated

 

 

Total

Stockholders'

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Accumulated

Other

Comprehensive

 

 

Accumulated

 

 

Total

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Deficit

 

 

Equity

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Deficit

 

 

Equity

 

Balances at beginning of period

 

 

136,853

 

 

 

136

 

 

 

863,531

 

 

 

(281

)

 

 

(778,867

)

 

 

84,519

 

 

 

115,555

 

 

 

115

 

 

 

760,225

 

 

 

(97

)

 

 

(721,303

)

 

 

38,940

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(36,354

)

 

 

(36,354

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(27,167

)

 

 

(27,167

)

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

372

 

 

 

 

 

 

372

 

 

 

 

 

 

 

 

 

 

 

 

(320

)

 

 

 

 

 

(320

)

Issuance of common stock from public offering, net

   of offering costs

 

 

1,978

 

 

 

2

 

 

 

9,834

 

 

 

 

 

 

 

 

 

9,836

 

 

 

15,819

 

 

 

17

 

 

 

69,155

 

 

 

 

 

 

 

 

 

69,172

 

Issuance of common stock from exercise of stock options,

   vesting of restricted stock units, and ESPP purchases

 

 

1,230

 

 

 

2

 

 

 

1,240

 

 

 

 

 

 

 

 

 

1,242

 

 

 

2,088

 

 

 

1

 

 

 

4,910

 

 

 

 

 

 

 

 

 

4,911

 

Stock-based compensation

 

 

 

 

 

 

 

 

6,017

 

 

 

 

 

 

 

 

 

6,017

 

 

 

 

 

 

 

 

 

4,908

 

 

 

 

 

 

 

 

 

4,908

 

Balances at end of period

 

 

140,061

 

 

$

140

 

 

$

880,622

 

 

$

91

 

 

$

(815,221

)

 

$

65,632

 

 

 

133,462

 

 

$

133

 

 

$

839,198

 

 

$

(417

)

 

$

(748,470

)

 

$

90,444

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

 

 

4


CERUS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

UNAUDITED

(in thousands)

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2019

 

 

2018

 

Operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(36,354

)

 

$

(27,167

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

1,908

 

 

 

788

 

Stock-based compensation

 

 

6,017

 

 

 

4,908

 

Non-cash interest expense

 

 

247

 

 

 

537

 

Loss on disposal of property and equipment

 

 

14

 

 

 

5

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(4,680

)

 

 

1,027

 

Inventories

 

 

(3,977

)

 

 

1,458

 

Other assets

 

 

1,817

 

 

 

(1,587

)

Accounts payable

 

 

3,229

 

 

 

154

 

Accrued liabilities and other non-current liabilities

 

 

(3,410

)

 

 

554

 

Manufacturing and development obligations

 

 

(38

)

 

 

(148

)

Deferred product revenue

 

 

167

 

 

 

216

 

Net cash used in operating activities

 

 

(35,060

)

 

 

(19,255

)

Investing activities

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(6,516

)

 

 

(145

)

Purchases of investments

 

 

(27,728

)

 

 

(75,462

)

Proceeds from maturities and sale of investments

 

 

43,000

 

 

 

24,002

 

Net cash provided by (used in) investing activities

 

 

8,756

 

 

 

(51,605

)

Financing activities

 

 

 

 

 

 

 

 

Net proceeds from equity incentives

 

 

1,270

 

 

 

4,912

 

Net proceeds from public offering

 

 

6,783

 

 

 

69,117

 

Net proceeds from revolving line of credit

 

 

4,496

 

 

 

 

Proceeds from loans

 

 

39,433

 

 

 

 

Repayment of debt

 

 

(31,045

)

 

 

(65

)

Net cash provided by financing activities

 

 

20,937

 

 

 

73,964

 

Net (decrease) increase in cash, cash equivalents and restricted cash

 

 

(5,367

)

 

 

3,104

 

Cash, cash equivalents and restricted cash, beginning of period

 

 

31,587

 

 

 

13,930

 

Cash, cash equivalents and restricted cash, end of period

 

$

26,220

 

 

$

17,034

 

 

 

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

 

 

5


CERUS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

UNAUDITED

 

Note 1. Summary of Significant Accounting Policies

Principles of Consolidation and Basis of Presentation

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

6


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 1 0 . Development and License A greements—Agreement with BARDA” . 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 and six months ended June 30, 2019 and 2018, were as follows (in thousands):

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Product revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Europe, Middle East and Africa

 

$

12,748

 

 

$

12,018

 

 

$

25,400

 

 

$

23,024

 

North America

 

 

5,158

 

 

 

3,149

 

 

 

9,709

 

 

 

5,536

 

Other

 

 

303

 

 

 

253

 

 

 

604

 

 

 

424

 

Total product revenue

 

$

18,209

 

 

$

15,420

 

 

$

35,713

 

 

$

28,984

 

 

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 June 30, 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 six months ended June 30, 2019 is primarily driven by performance obligations not satisfied but invoiced as of June 30, 2019, offset by $0.4 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.

7


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 gains (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 June 30, 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 June 30, 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 June 30, 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 June 30, 2019 and December 31, 2018, respectively. These customers cumulatively represented approximately 58% and 50% of the Company’s outstanding trade receivables at June 30, 2019 and December 31, 2018, respectively. To date, the Company has not experienced collection difficulties from these customers.

Inventories

At June 30, 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”) i