Cerus Corporation Form 10-Q Summary
Business context and reporting period
Cerus Corporation develops and commercializes the INTERCEPT Blood System for pathogen reduction of blood components. Commercial products include platelet and plasma systems, INTERCEPT Fibrinogen Complex and related disposable kits, illuminators, spare parts and maintenance services. The red blood cell system remains in development and has not been commercialized.
This filing covers the quarter and nine months ended September 30, 2022. The financial statements are unaudited and prepared under U.S. GAAP. Cerus reported 177.4 million shares outstanding at September 30, 2022, and 177.4 million shares outstanding as of October 20, 2022.
Financial performance and key metrics
| Metric | Three months ended September 30 | Nine months ended September 30 |
|---|---|---|
| Total revenue | $46.3 million, up 10% | $137.0 million, up 25% |
| Product revenue | $39.6 million, up 10% | $118.0 million, up 30% |
| Government contract revenue | $6.8 million, up 13% | $19.0 million, up 3% |
| Gross profit on product revenue | $21.9 million | $62.6 million |
| Product gross margin | 55%, versus 51% | 53%, versus 52% |
| Loss from operations | $(7.4) million | $(24.1) million |
| Net loss attributable to Cerus | $(8.5) million | $(29.2) million |
| Loss per share | $(0.05) | $(0.17) |
Revenue growth was primarily driven by higher U.S. disposable platelet kit volume, partly related to the FDA platelet safety guidance effective October 1, 2021. U.S. product revenue was $26.1 million in the third quarter and $73.9 million for the nine months, compared with $20.9 million and $45.2 million, respectively, in the prior-year periods.
Research and development expense was $16.2 million in the quarter and $45.5 million year to date. Selling, general and administrative expense was $19.9 million in the quarter and $60.2 million year to date. Interest expense increased to $1.4 million in the quarter and $4.1 million year to date, primarily because of the additional $15.0 million term-loan tranche drawn in March 2021.
Cash flow, liquidity and debt
| Balance sheet or cash flow item | September 30, 2022 | December 31, 2021 |
|---|---|---|
| Cash and cash equivalents | $28.9 million | $48.8 million |
| Short-term investments | $75.0 million | $80.6 million |
| Restricted cash | $2.0 million | $2.3 million |
| Total liquidity including restricted cash | $105.8 million | $131.6 million |
| Working capital | $69.7 million | $108.5 million |
| Total debt | $69.7 million | $69.4 million |
Net cash used in operating activities was $23.9 million for the first nine months of 2022, compared with $32.7 million in the prior-year period. Investing activities provided $1.1 million, while financing activities provided $3.7 million. Cash, cash equivalents and restricted cash decreased by $20.2 million during the period to $30.9 million.
Debt comprised $55.0 million of term-loan principal and $14.9 million drawn on a $15.0 million revolving facility. The term loan was classified as $27.5 million current and $27.5 million non-current before discount. The term loan bears interest at a spread plus the greater of 1.80% or one-month LIBOR and had an effective interest rate of approximately 8.80% at September 30, 2022. Principal amortization is scheduled to begin in 2023, with $41.25 million of principal due in 2023 and $13.75 million in 2024. The company was in compliance with its debt covenants at quarter-end.
Material changes versus the prior comparable period
- Total revenue increased 10% in the quarter and 25% for the first nine months, led by U.S. platelet kit sales.
- Product gross margin improved to 55% in the quarter and 53% year to date, primarily reflecting geographic and product mix, including greater U.S. and platelet kit sales.
- Operating loss narrowed from $11.1 million to $7.4 million in the quarter and from $42.0 million to $24.1 million year to date.
- Net loss attributable to Cerus narrowed from $12.4 million to $8.5 million in the quarter and from $45.3 million to $29.2 million year to date.
- Operating cash burn improved by $8.8 million year to date, but liquidity declined by $25.8 million from year-end 2021.
- Current debt increased substantially because $27.5 million of term-loan principal became current; total debt was approximately flat.
- Unrealized losses on available-for-sale investments increased to $3.2 million at September 30, 2022, compared with $0.3 million at year-end 2021, primarily reflecting higher interest rates. No credit-loss allowance was recorded.
Guidance, outlook, commentary and risks
Management expects future product revenue growth from continued U.S. adoption of INTERCEPT, broader market acceptance, expansion in additional geographies and increased IFC revenue. The filing does not provide a specific quantitative revenue or earnings forecast. Management expects government contract revenue to remain broadly consistent with historical long-term trends, while noting that COVID-19 has affected BARDA-funded activities.
BARDA had committed up to $148.9 million as of September 30, 2022, with potential total funding of up to $245.9 million through December 31, 2025 if additional option periods are exercised. Funding is contingent on milestones and government decisions, and BARDA may terminate the agreement for convenience. The filing’s risk-factor discussion presents slightly different aggregate figures; investors should reconcile the definitive contract amounts.
In September 2022, Cerus entered into a two-year Department of Defense agreement with a potential value of $9.1 million for pathogen-reduced, lyophilized cryoprecipitate. The filing states that development work had not yet begun as of September 30, 2022. Cerus also entered into a 2022 manufacturing agreement with Fresenius extending disposable-kit manufacturing through December 31, 2031.
Key risks include continued operating losses and cash burn; substantial debt maturities beginning in 2023; possible need for additional equity or debt financing and related dilution; dependence on BARDA funding; clinical-trial and regulatory delays for the red blood cell system; COVID-19 effects on customers, suppliers and clinical sites; inflation, higher interest rates and foreign-exchange volatility; reliance on Fresenius and other sole or limited-source suppliers; illuminator redesign and component obsolescence; concentrated customers, including the American Red Cross; and uncertainty regarding adoption, reimbursement and regulatory approvals.
As of September 30, 2022, the company had $17.3 million of short-term and $15.4 million of long-term purchase commitments that were not recorded on the balance sheet. Operating lease liabilities had a present value of $17.7 million. The company stated that it had no off-balance-sheet arrangements and no material legal proceedings.
Investor verification checklist
- Verify the timing and funding sources for the $41.25 million of scheduled 2023 term-loan principal repayments.
- Assess whether cash, investments, operating cash flow, product revenue and BARDA reimbursements will be sufficient to fund operations and development for at least the next 12 months.
- Track U.S. platelet kit adoption, customer concentration and the sustainability of American Red Cross and other major-customer volumes.
- Monitor BARDA option-period exercises, milestone performance, allowable-cost audits and the potential for funding delays or termination.
- Evaluate progress, enrollment and regulatory requirements for the RedeS and ReCePI trials and the red blood cell system’s European certification application.
- Assess Fresenius manufacturing expansion, sole-source dependencies, supply-chain constraints and the timing and approval of the redesigned illuminator.
- Reconcile the differing BARDA funding figures presented in the notes and risk-factor discussion.
- Review potential equity issuance under the remaining approximately $96.8 million capacity of the at-the-market sales agreement and the resulting dilution risk.