This discussion and analysis should be read in conjunction with our audited
consolidated financial statements and the accompanying notes thereto included in
this Annual Report on Form 10-K for the year ended December 31, 2019. Operating
results for the year ended December 31, 2019 are not necessarily indicative of
results that may occur in future periods.

Overview



Since our inception in 1991, we have devoted substantially all of our efforts
and resources to the research, development, clinical testing and
commercialization of the INTERCEPT Blood System. The INTERCEPT Blood System is
designed for three blood components: platelets, plasma and red blood cells. The
INTERCEPT Blood System for platelets, or platelet system, and the INTERCEPT
Blood System for plasma, or plasma system, have received CE Marks and U.S. Food
and Drug Administration, or FDA, approval and are being marketed and sold in a
number of countries around the world. We sell both the platelet and plasma
systems using our direct sales force and through distributors.

The platelet system is approved in the U.S. for ex vivo preparation of
pathogen-reduced apheresis platelet components collected and stored in 100%
plasma or InterSol in order to reduce the risk of transfusion-transmitted
infection, or TTI, including sepsis, and as an alternative to gamma irradiation
for prevention of transfusion-associated graft versus host disease or TA-GVHD.
As part of the FDA's approval of the platelet system, we are required to
successfully conduct and complete two post-approval studies - a haemovigilance
study to evaluate the incidence of acute lung injury following transfusion of
INTERCEPT-treated platelets; and a recovery study of platelets treated with the
platelet system that is currently being discussed with FDA. The plasma system is
approved in the U.S. for ex vivo preparation of pathogen-reduced, whole blood
derived or apheresis plasma in order to reduce the risk of TTI when treating
patients requiring therapeutic plasma transfusion, and as an alternative to
gamma irradiation for prevention of TA-GVHD.

The INTERCEPT Blood System for red blood cells, or the red blood cell system, is
currently in development and has not been commercialized anywhere in the world.
We announced the successful completion of our European Phase 3 clinical trial of
our red blood cell system for acute anemia patients in January 2015, and in
January 2018, we reported that the primary efficacy and safety endpoints were
successfully achieved in our European Phase 3 clinical trial for chronic anemia
patients. Based on the results of those trials, we filed for CE Mark approval in
the European Union in December 2018, though we now know that we will have to
transition from the Medical Device Directive, or MDD, to the Medical Device
Regulation, or MDR, and do not expect an approval decision until 2022, if ever.
We do not yet know whether the data generated from our European Phase 3 clinical
trials will be sufficient to receive CE Mark approval. In the U.S., we
successfully completed a Phase 2 recovery and lifespan study in 2014. In 2017,
we initiated a Phase 3 clinical, double-blind study, known as the RedeS study,
to assess the safety and efficacy of INTERCEPT-treated red blood cells when
compared to conventional, un-treated, red blood cells in regions impacted by the
Zika virus epidemic. Also in 2017, we received investigational device exemption,
or IDE, approval from the FDA to initiate a Phase 3 clinical trial, known as the
ReCePI study that is designed to evaluate the efficacy and safety of
INTERCEPT-treated red blood cells in patients requiring transfusion for acute
blood loss during surgery. In addition to successfully conducting and completing
the RedeS and ReCePI studies, we will need to successfully conduct and complete
an additional Phase 3 clinical trial for chronic anemia patients, including
sickle-cell anemia patients, in the U.S. before the FDA will consider our red
blood cell system for approval. We also understand that one or more additional
in vitro studies will be required to be successfully completed and submitted to
the FDA, prior to any initiation of a potential additional Phase 3 clinical
trial. There can be no assurance that we will be able to successfully complete
any such in vitro studies, nor can there be any assurance that we and the FDA
will agree to any trial protocol we propose or that we will otherwise obtain FDA
clearance to initiate a potential additional Phase 3 clinical trial. In part, we
will seek to introduce supplemental clinical data we obtained from European
clinical trials, though we cannot assure you that we will be able to demonstrate
comparability or that the FDA will allow supplemental clinical European data. In
addition, given the need to phenotypically match donations and patients and the
existing burden of managing the production and supply to sickle-cell anemia
patients, donor recruitment in a potential additional Phase 3 clinical trial may
be difficult or impractical, which could significantly delay or preclude our
ability to obtain any FDA approval of our red blood cell system. Although we
filed for CE Mark under the MDD for the red blood cell system, we understand
that we will need to submit additional data from qualified suppliers which we
will not have prior to needing to refile under the MDR, and therefore, we do not
expect to receive any regulatory approvals of our red blood cell system prior to
2022, if ever. We must demonstrate an ability to define, test and meet
acceptable specifications for our current Good Manufacturing Practice
manufactured compounds used to prepare INTERCEPT-treated red blood cells before
we can submit and seek regulatory approval of our red blood cell system. We
understand that while the data generated from our European Phase 3 clinical
trials may be sufficient to receive CE Mark approval, we may need to generate
additional safety data from commercial use in order to achieve broad market
acceptance. In addition, these trials may need to be supplemented by additional,
successful Phase 3 clinical trials for approval in certain countries. If such
additional Phase 3 clinical trials are required, they would likely need to
demonstrate equivalency of INTERCEPT-treated red blood cells compared to
conventional, un-treated red blood cells and the significantly lower lifespan
for INTERCEPT-treated red blood cells compared to conventional, un-treated red
blood cells may limit our ability to obtain any regulatory approvals in certain
countries for the red blood cell system. As part of our development activities,
we will need to successfully complete a number of in vitro studies prior to
receiving any regulatory approvals in Europe and certain additional activities,
including successfully completing the RedeS and ReCePI studies and an additional
Phase 3 clinical trial for chronic anemia patients, including sickle-cell anemia

                                       56

--------------------------------------------------------------------------------
patients, in the U.S., prior to receiving any regulatory approvals in the U.S.
Successful completion of these activities may require capital beyond that which
we currently have or that may be available to us under our agreement with the
Biomedical Advanced Research and Development Authority, or BARDA, and we may be
required to obtain additional capital in order to complete the development of
and obtain any regulatory approvals for the red blood cell system. In addition,
if we are unable to obtain from our suppliers sufficient clinical quantities of
the active compounds for our red blood cell system meeting defined quality and
regulatory specifications or if our suppliers are not able to maintain
regulatory compliance, we may experience delays in testing, conducting trials or
obtaining approvals, and our product development costs would likely increase.

In 2016, we entered into a five-year agreement with BARDA, part of the U.S.
Department of Health and Human Services' Office of the Assistant Secretary for
Preparedness and Response, to receive funding from BARDA to support the
development of our red blood cell system, including clinical and regulatory
development programs in support of potential licensure, and development,
manufacturing and scale-up activities, as well as activities related to broader
implementation of all three INTERCEPT systems in areas of Zika virus risk. The
RedeS and ReCePI studies are being funded as part of our agreement with BARDA.
Under the contract, BARDA reimburses us for allowable direct contract costs, as
such costs are incurred, and for allowable indirect costs. See the discussion
under "BARDA" below for more information.

Our near-term capital requirements are dependent on various factors, including
operating costs and working capital investments associated with developing and
commercializing the INTERCEPT Blood System, including in connection with
continuing U.S. commercialization of our platelet and plasma systems, costs to
develop different configurations of existing products and new products,
including our illuminator, costs associated with planning, enrolling and
completing ongoing studies, and the post-approval studies we are required to
conduct in connection with the FDA approval of the platelet system, costs
associated with pursuing potential regulatory approvals in other geographies
where we do not currently sell our platelet and plasma systems, costs associated
with conducting in vitro studies and clinical development of our red blood cell
system in Europe and the U.S., costs associated with performing the agreed-upon
activities under our BARDA agreement, and costs related to creating, maintaining
and defending our intellectual property. Our long-term capital requirements will
also be dependent on the success of our sales efforts, competitive developments,
the timing, costs and magnitude of our longer-term clinical trials and other
development activities, required post-approval studies, market preparedness and
product launch activities for any of our product candidates and products in
geographies where we do not currently sell our products, and regulatory factors.
Until we are able to generate a sufficient amount of product revenue and
generate positive net cash flows from operations, which we may never do, meeting
our long-term capital requirements is in large part reliant on continued access
to funds under our BARDA agreement and the public and private equity and debt
capital markets, as well as on collaborative arrangements with partners,
augmented by cash generated from operations and interest income earned on the
investment of our cash balances. While we believe that our available cash and
cash equivalents and short-term investments, as well as cash received from
product sales and under our agreement with BARDA, will be sufficient to meet our
capital requirements for at least the next twelve months, if we are unable to
generate sufficient product revenue, or access sufficient funds under our BARDA
agreement or the public and private equity and debt capital markets, we may be
unable to execute successfully on our operating plan. We have based our cash
sufficiency estimate on assumptions that may prove to be incorrect. If our
assumptions prove to be incorrect, we could consume our available capital
resources sooner than we currently expect or in excess of amounts than we
currently expect, which could adversely affect our commercialization and
clinical development activities.

We have borrowed and in the future may borrow additional capital from
institutional and commercial banking sources to fund future growth, including
pursuant to our term loan agreement and revolving loan agreement with MidCap
Financial Trust, or MidCap, as described below, or potentially pursuant to new
arrangements with different lenders. We may borrow funds on terms that may
include restrictive covenants, including covenants that restrict the operation
of our business, liens on assets, high effective interest rates, financial
performance covenants and repayment provisions that reduce cash resources and
limit future access to capital markets. In addition, we expect to continue to
opportunistically seek access to the equity capital markets to support our
development efforts and operations. To the extent that we raise additional
capital by issuing equity securities, our stockholders may experience
substantial dilution. To the extent that we raise additional funds through
collaboration or partnering arrangements, we may be required to relinquish some
of our rights to our technologies or rights to market and sell our products in
certain geographies, grant licenses on terms that are not favorable to us, or
issue equity that may be substantially dilutive to our stockholders.

As a result of economic conditions, general global economic uncertainty,
political change, and other factors, we do not know whether additional capital
will be available when needed, or that, if available, we will be able to obtain
additional capital on reasonable terms. If we are unable to raise additional
capital due to the volatile global financial markets, general economic
uncertainty or other factors, we may need to curtail planned development or
commercialization activities. In addition, we may need to obtain additional
funds to complete development activities for the red blood cell system necessary
for potential regulatory approval in Europe, if costs are higher than
anticipated or we encounter delays. We may need to obtain additional funding to
conduct additional randomized controlled clinical trials for existing or new
products, particularly if we are unable to access any additional portions of the
funding contemplated by our BARDA agreement, and we may choose to defer such
activities until we can obtain sufficient additional funding or, at such time
our existing operations provide sufficient cash flow to conduct these trials.

                                       57

--------------------------------------------------------------------------------
Although we received FDA approval of our platelet and plasma systems in December
2014, our U.S. commercial efforts in 2019 have been largely focused on enabling
blood centers that are using INTERCEPT to optimize production and increase the
number of platelet and plasma units produced and made available to patients and
continuing to develop awareness of INTERCEPT's product profile relative to other
platelet and plasma products, including conventional, un-treated components.
Significant increase in product revenue from customers in the U.S. may not
occur, if at all, until we have been able to successfully implement the platelet
and plasma systems and demonstrate that they are economical, safe and
efficacious for potential customers. In addition, to address the entire market
in the U.S., we will need to develop, test and obtain FDA approval of additional
configurations of the platelet system. In September 2019, the FDA issued a final
guidance document, "Bacterial Risk Control Strategies for Blood Collection
Establishments and Transfusion Services to Enhance the Safety and Availability
of Platelets for Transfusion." The guidance document requires all blood
collection facilities to comply with the options available under the guidance
document, which includes the INTERCEPT Blood System, for all platelet
collections, no later than eighteen months from the issuance date. Blood centers
may wait until later in the compliance grace period before beginning to take
steps to implement INTERCEPT. Should a large number of blood centers wait, we
may not have sufficient resources or product available to allow customers to
timely and successfully implement INTERCEPT before the end of the compliance
grace period. Should we be unable to manufacture INTERCEPT in sufficient
quantities in a timely manner, or have adequate resources to assist customer
with implementing the INTERCEPT Blood System, U.S. blood centers may be forced
to use alternate options allowed by the guidance document, which could
permanently impact our ability to convert those blood centers to INTERCEPT
users. We also plan to perform in vitro studies and seek a premarket approval,
or PMA, supplement to use our plasma system to produce extended-storage
cryoprecipitate and possibly other plasma derived biological products. We
currently have agreements with certain blood center manufacturing partners and
are actively working to identify additional partners to manufacture the
extended-storage cryoprecipitate. We are also working on implementing the
infrastructure we believe will be necessary to market an approved
extended-storage cryoprecipitate product directly to hospitals subsequent to
potential regulatory approval of any PMA supplement that we may propose to
submit to the FDA. Even if we were to receive approval for a PMA supplement for
extended-storage cryoprecipitate, we may not receive label claims for all
indications or for indications with the highest unmet need or market acceptance.

Outside of the U.S., we recognize product revenues from the sale of our platelet
and plasma systems in a number of countries around the world including those in
Europe, the Commonwealth of Independent States, or CIS, and the Middle East. In
July 2017, we entered into agreements with Établissement Français du Sang, or
EFS, to supply illuminators and platelet and plasma disposable kits. The
agreement for supply of illuminators and platelet disposable kits provided for a
base term of two year, with two options for EFS to extend for one year each, the
first of which, EFS exercised in 2019. In January 2020, we entered into a new
agreement with EFS to supply plasma disposable kits and maintenance services for
illuminators for a base term of two years, with two options for EFS to extend
for one year each. We understand that EFS has adopted the platelet system across
France, but cannot provide any assurance that national usage is sustainable,
since no purchase volume commitments have been made by EFS, in our current
contract or otherwise. In addition, significant product revenue from the French
market may decline or not consistently occur quarter-over-quarter. We cannot
assure that EFS will use the INTERCEPT Blood System for plasma at historical
levels or at all. We also cannot provide any assurance that we will be able to
secure any subsequent contracts with EFS or that the terms, including the
pricing or committed volumes, if any, of any future contract will be equivalent
or superior to the terms under our current contract.

If we are unable to gain widespread commercial adoption in markets where our
blood safety products are approved for commercialization, including the U.S., we
will have difficulties achieving profitability. In order to commercialize all of
our products and product candidates, we will be required to conduct significant
research, development, preclinical and clinical evaluation, commercialization
and regulatory compliance activities for our products and product candidates,
which, together with anticipated selling, general and administrative expenses,
are expected to result in substantial losses. Accordingly, we may never achieve
a profitable level of operations in the future.

In addition to the product revenues from sales of our platelet and plasma
systems, we anticipate that we will continue to recognize revenue from our BARDA
agreement. We recognize revenue associated with the BARDA agreement as qualified
costs are incurred for reimbursement over the performance period.

Fresenius

Fresenius Kabi AG, or Fresenius, manufactures and supplies the platelet and
plasma systems to us under a supply agreement, or the Supply Agreement.
Fresenius is obligated to sell, and we are obligated to purchase, finished
disposable kits for our platelet, plasma and red blood cell systems. The Supply
Agreement permits us to purchase platelet, plasma and red blood cell systems
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 are initially fixed and
decline at specified annual production levels, and are subject to certain
adjustments after the initial pricing term.

The initial term of the Supply Agreement extends through July 1, 2025, or the
Initial Term, and is automatically renewed thereafter for additional two-year
terms, or Renewal Terms, subject to termination by either party upon (i) two
years written notice prior to the

                                       58

--------------------------------------------------------------------------------
expiration of the Initial Term or (ii) one year written notice prior to the
expiration of any Renewal Term. Under the Supply Agreement, we have the right,
but not the obligation, to purchase certain assets and assume certain
liabilities from Fresenius. In the event that Fresenius refuses or is unable to
continue operating under the Supply Agreement, we may be unable to maintain
inventory levels or otherwise meet customer demand, and our business and
operating results would be materially and adversely affected. Pricing under the
agreement is established through 2020 and at which time new pricing will need to
be agreed upon by both parties or calibrated off of the pre-existing prices
using a price index for the remainder of the initial term.

Likewise, if we conclude that supply of the INTERCEPT Blood System or components
from Fresenius and others is uncertain, we may choose to build and maintain
inventories of raw materials, work-in-process components, or finished goods,
which would consume capital resources faster than we anticipate and may cause
our supply chain to be less efficient. Like most regulated manufacturing
processes, our ability to produce our products is dependent on our or our
suppliers' ability to source components and raw materials which may at times be
in short demand or obsolete. In such cases, we and/or Fresenius or other
suppliers may need to source, qualify and obtain approval for replacement
materials or components which would likely prove to be disruptive and consume
capital resources sooner than we anticipate.

See Note 13, Development and License Agreements, in Part IV, Item 15, "Exhibits and Financial Statement Schedules" of this Annual Report on Form 10-K for further information regarding the Supply Agreement with Fresenius.

BARDA



In June 2016, we entered into an agreement with BARDA to support our development
and implementation of pathogen reduction technology for platelet, plasma, and
red blood cells, including access to funding that could potentially support
various activities, including funding studies necessary to support a potential
premarket approval application, submission to the FDA for the red blood cell
system, and acceleration of commercial scale up activities to facilitate
potential adoption of the red blood cell system by U.S. blood centers.

The five-year agreement with BARDA and its subsequent modifications provide for
the reimbursement of certain amounts incurred by us in connection with our
satisfaction of certain contractual milestones. Under the agreement, we are
reimbursed and recognize revenue as qualified direct contract costs are incurred
plus allowable indirect costs, based on approved provisional indirect billing
rates, which permit recovery of fringe benefits, overhead and general and
administrative expenses. BARDA has committed to reimburse certain of our
expenses related to the clinical development of the red blood cell system during
a base period, or the Base Period, and under exercised option periods, or Option
Periods, in an aggregate amount of up to $103.2 million. If we satisfy
subsequent milestones and BARDA were to exercise additional Option Periods, the
total funding opportunity under the BARDA agreement could reach up to $201.2
million over the five-year agreement period. If exercised by BARDA in its sole
discretion, each subsequent Option Period 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. We are currently responsible for co-investment of approximately $5.0
million, and would be responsible for an additional $9.6 million, if certain
additional Option Periods are exercised by BARDA. Through December 31, 2019, we
have incurred approximately $0.8 million related to the co-investment. BARDA
will make periodic assessments of our progress and the continuation of the
agreement is based on our 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
for convenience at any time.

Although BARDA has committed to reimburse us for up to $103.2 million in
expenses to date, we may not receive all of these funds if BARDA were to
terminate the agreement. Amounts invoiced and currently payable under the BARDA
agreement are subject to future audits at the discretion of the government.
These audits could result in an adjustment to revenue previously reported, which
potentially could be significant. In addition, activities covered under the base
period and exercised options may ultimately cost more than is covered by the
BARDA contract or require a longer performance period to complete than is
remaining on our agreement; if BARDA were unable to secure or allow additional
funding or allow for additional time for completion, we would have to incur
additional costs to complete the activities or terminate the activities before
completion.

Cantor

See Note 10, Stockholders' Equity, in Part IV, Item 15, "Exhibits and Financial
Statement Schedules" of this Annual Report on Form 10-K for further information
regarding the sales agreement with Cantor Fitzgerald & Co. for the issuance and
sale of our common stock.

                                       59

--------------------------------------------------------------------------------

Critical Accounting Policies and Management Estimates



The preparation of financial statements requires us to make estimates,
assumptions and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosures of contingent assets
and liabilities. On an ongoing basis, we evaluate our estimates, including those
related to product revenue recognition and government contract revenue. We base
our estimates on historical experience and on various other assumptions that we
believe to be reasonable under the circumstances, the results of which form our
basis for making judgments about the carrying value of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
those estimates under different assumptions or conditions.

We believe the following critical accounting policies require us to make significant judgments and estimates used in the preparation of our financial statements:



• Revenue-Revenue is recognized in accordance with Accounting Standards
Codification ("ASC") Topic 606, "Revenue from Contracts with Customers", 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 main source of our revenue is product revenue from sales of the INTERCEPT
Blood System for platelets and plasma, or the platelet and plasma systems or
disposable kits, UVA illumination devices, or illuminators, spare parts and
storage solutions, and maintenance services of illuminators. We sell the
platelet and plasma systems directly to blood banks, hospitals, universities,
government agencies, as well as to distributors in certain regions. For all
sales of our INTERCEPT Blood System products, we use a binding purchase order or
signed sales contract as evidence of a contract and satisfaction of our policy.
Generally, our contracts with 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. We 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. We must allocate the transaction price to each performance
obligation on a relative standalone selling price, or SSP basis, and recognize
the revenue when the performance obligation is satisfied. We determine the SSP
by using the historical selling price of the products and services. If the
amount of consideration in a contract is variable, we estimate the amount of
variable consideration that should be included in the transaction price. Product
revenue is recognized upon transfer of control of promised products or services
to customers in an amount that reflects the consideration that we expect 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 invoiced to our customers and remitted to governments
are recorded on a net basis, which excludes such tax from product revenue.

• Government contract revenue-Revenue related to the cost reimbursement
provisions under our BARDA agreement is recognized as the allowable direct
contract costs plus allowable indirect costs are incurred based on approved
provisional indirect billing rates, which permit recovery of fringe benefits,
overhead and general and administrative expenses. Direct costs incurred under
cost reimbursable contracts are recorded as research and development expenses or
general and administrative expenses. Payments to us pursuant to our BARDA
agreement are provisional payments subject to adjustment upon audit by the
government. These audits could result in an adjustment to revenue previously
reported, which adjustments potentially could be significant. Management
believes that revenue for periods not yet audited has been recorded in amounts
that are expected to be realized upon final audit and settlement. When the final
determination of the allowable costs for any year has been made, revenue and
billings may be adjusted accordingly in the period that the adjustment is known.

Results of Operations

Years Ended December 31, 2019, 2018 and 2017



Revenue


                                    Year Ended December 31,                        % Change
(in thousands, except
percentages)                   2019          2018          2017        2019 to 2018       2018 to 2017
Product revenue              $  74,649     $  60,908     $  43,568          23%               40%
Government contract revenue     19,125        15,143         7,758          26%               95%
Total revenue                $  93,774     $  76,051     $  51,326          23%               48%

Product revenue increased by $13.7 million during the year ended December 31, 2019, compared to the year ended December 31, 2018, primarily due to year-over-year sales volume growth in disposable kit sales in the U.S., the majority of which resulted from the


                                       60

--------------------------------------------------------------------------------
increased adoption of the platelet system in the U.S., and increased disposable
kit sales in the Middle East, partially offset by product mix in France and the
deterioration in the Euro relative to the U.S. dollar during the year ended
December 31, 2019, compared to the year ended December 31, 2018, as most
non-U.S. product revenue has been invoiced and transacted in Euro, and reported
in U.S. dollars.



Product revenue increased by $17.3 million during the year ended December 31,
2018, compared to the year ended December 31, 2017, primarily due to
year-over-year sales volume growth in disposable kit sales in Europe, the
majority of which resulted from the nationwide adoption of the platelet system
in France, and increased disposable kit sales for the platelet system in the
U.S. and, to a lesser extent, improved foreign exchange rates for the Euro.
These increases were partially offset by decreased average selling prices to our
largest customers.

We anticipate product revenue for INTERCEPT disposable kits will increase in
future periods driven by the expected expansion of U.S. sales as increased
market acceptance of the INTERCEPT Blood System and adoption of the INTERCEPT
Blood System in geographies where commercialization efforts are underway.
However, a deterioration of the Euro relative to the U.S. dollar has in the past
and could in the future have a material impact on our product revenues, as a
significant portion of our product revenue is expected to come from Euro
denominated markets over the near term. As a result of these and other factors,
the historical results may not be indicative of INTERCEPT Blood System product
revenue in the future.

We recognized $19.1 million, $15.1 million and $7.8 million of revenue from our
BARDA agreement during the years ended December 31, 2019, 2018 and 2017,
respectively, as a result of the direct and indirect contract costs incurred
under the BARDA agreement. As our RedeS and ReCePI studies continue to enroll
patients, and as additional other qualified clinical and development activities
potentially increase under the exercised Option Periods, we anticipate that
reported BARDA revenue will increase.

Cost of Product Revenue



Our cost of product revenue consists of the cost of the INTERCEPT Blood System
sold, provisions for obsolete, slow-moving and unsaleable product, certain order
fulfillment costs, to the extent applicable, and costs for idle facilities.
Inventory is accounted for on a first-in, first-out basis.




                                    Year Ended December 31,                        % Change
(in thousands, except
percentages)                   2019          2018          2017        2019 to 2018       2018 to 2017
Cost of product revenue      $  33,419     $  31,634     $  22,531          6%                40%




Cost of product revenue increased by $1.8 million during the year ended
December 31, 2019, compared to the year ended December 31, 2018. The increase
was primarily due to the increase of sales in the current period compared to the
same period of the prior year, partially offset by volume tier discounts from a
contract manufacturer.



Cost of product revenue increased by $9.1 million during the year ended
December 31, 2018, compared to the year ended December 31, 2017. The increase
was primarily due to the increase in the volume of INTERCEPT platelet kits sold
in the current year compared to the prior year. Cost of product revenue was also
impacted by less favorable foreign currency exchange rates related to inventory
production compared to prior year.

Our gross margin on product sales was 55% during the year ended December 31,
2019, compared to 48% during the year ended December 31, 2018.The increase in
gross margin on product sales was primarily due to lower pricing from a contract
manufacturer, improved product mix with respect to sales in France, and
increased demand for platelet products.

Our gross margin on product sales was 48% during the year ended December 31,
2018, compared to 48% during the year ended December 31, 2017. Gross margin on
product sales remained relatively flat in both periods.

Changes in our gross margin on product sales are affected by various factors,
including the volume of product manufactured and the relative per unit pricing
in our agreement with Fresenius, exchange rate of the Euro relative to the U.S.
dollar, manufacturing and supply chain costs, the mix of product sold, and the
mix of customers to which products are sold. We may encounter unforeseen
manufacturing difficulties which, at a minimum, may lead to higher than
anticipated costs, scrap rates, or delays in manufacturing products. In
addition, we may face competition which may limit our ability to maintain
existing selling prices for our products which in turn would negatively affect
our reported gross margins on product sales. Our gross margins on product sales
may be impacted in the future based on all of these and other criteria.

We expect to build inventory levels that will be sufficient to meet forecasted demand but expect those levels will exceed levels produced in 2019.


                                       61

--------------------------------------------------------------------------------

Research and Development Expenses



Our research and development expenses include salaries and related expenses for
our scientific personnel, non-cash stock based compensation, payments to
consultants, costs to prepare and conduct preclinical and clinical trials,
third-party costs for development activities, certain regulatory costs, costs
associated with our facility related infrastructure, and laboratory chemicals
and supplies.




                                    Year Ended December 31,                        % Change
(in thousands, except
percentages)                   2019          2018          2017        2019 to 2018       2018 to 2017
Research and development     $  60,376     $  42,564     $  33,710          42%               26%




Research and development expenses increased $17.8 million during the year ended
December 31, 2019, compared to the year ended December 31, 2018, primarily due
to increased costs associated with product enhancements and initiatives for
expanded label claims, activities related to the BARDA agreement, and increased
development activities to support the anticipated launch of extended-storage
cryoprecipitate.



Research and development expenses increased $8.9 million during the year ended
December 31, 2018, compared to the year ended December 31, 2017, primarily due
to costs associated with clinical development of our INTERCEPT red blood cell
system, our pursuit of supplemental approvals for the platelet and plasma
systems, and activities related to the BARDA agreement.

We expect to incur additional research and development costs associated with
planning, enrolling and completing our required post-approval studies for the
platelet system, pursuing potential regulatory approvals in other geographies
where we do not currently sell our platelet and plasma systems, planning and
conducting in vitro studies and clinical development of our red blood cell
system in Europe and the U.S., completing activities to support our CE Mark
submission for our red blood cell system in Europe, new product development and
product enhancements, including potential new label claims, and costs associated
with performing the activities under our BARDA agreement. Due to the inherent
uncertainties and risks associated with developing biomedical products,
including, but not limited to, intense and changing government regulation,
uncertainty of future preclinical studies and clinical trial results and
uncertainty associated with manufacturing, it is not possible to reasonably
estimate the costs to complete these research and development projects. We face
numerous risks and uncertainties associated with the successful completion of
our research and development projects, which risks and uncertainties are
discussed in further detail under "Item 1A-Risk Factors" in Part I of this
Annual Report on Form 10-K.

Selling, General, and Administrative Expenses



Selling, general, and administrative expenses include salaries and related
expenses for administrative personnel, non-cash stock based compensation,
expenses for our commercialization efforts in a number of countries around the
world including those in U.S., Europe, the CIS and the Middle East, Asia, Latin
America, and expenses for accounting, tax, internal control, legal, and facility
and infrastructure related expenses, and insurance premiums.




                                    Year Ended December 31,                        % Change
(in thousands, except
percentages)                   2019          2018          2017        2019 to 2018       2018 to 2017
Selling, general and
administrative               $  66,205     $  56,841     $  52,615          16%                8%




Selling, general, and administrative expenses increased by $9.4 million during
the year ended December 31, 2019, compared to the year ended December 31, 2018,
primarily due to higher non-cash stock compensation, investments in our supply
chain capabilities and to a lesser extent, investments in preparatory activities
for the anticipated launch of extended-storage cryoprecipitate.



Selling, general, and administrative expenses increased by $4.2 million during
the year ended December 31, 2018, compared to the year ended December 31, 2017,
primarily due to headcount and compensation related costs.

We anticipate our selling, general, and administrative spending to remain relatively consistent over the coming year.


                                       62

--------------------------------------------------------------------------------

Non-Operating Income (Expense), Net

Non-operating expense, net consists of foreign exchange gains and losses, interest charges incurred on our debt, and other non-operating gains and losses, including interest earned from our short-term investment portfolio.




                                    Year Ended December 31,                        % Change
(in thousands, except
percentages)                   2019          2018          2017        2019 to 2018       2018 to 2017
Foreign exchange loss        $     (86 )   $     (87 )   $     (10 )       (1%)               770%
Interest expense                (6,065 )      (4,008 )      (3,022 )        51%               33%
Other income, net                1,396         1,748         3,864         (20%)             (55%)
Total non-operating expense,
net                          $  (4,755 )   $  (2,347 )   $     832         103%              (382%)

Foreign exchange gain (loss)



Foreign exchange loss remained flat during the year ended December 31, 2019,
compared to the year ended December 31, 2018, and remained flat during the year
ended December 31, 2018, compared to the year ended December 31, 2017, primarily
due to relatively consistent changes in foreign exchange rates for the Euro.

Interest expense



Interest expense increased $2.1 million during the year ended December 31, 2019,
compared to the year ended December 31, 2018, primarily due to the loss of $2.1
million on the extinguishment of the loan and security agreement, or the Oxford
Term Loan Agreement, with Oxford Finance LLC. See Note 8, Debt, in Part IV, Item
15, "Exhibits and Financial Statement Schedules" of this Annual Report on Form
10-K for more information.

Interest expense increased $1.0 million during the year ended December 31, 2018,
compared to the year ended December 31, 2017, primarily due to increased average
outstanding debt balance, and, to a lesser extent, due to the increased interest
rate, under our Amended Credit Agreement with Oxford, see discussion under the
heading "Debt" below.

Other income, net

Other income, net decreased by $0.4 million during the year ended December 31,
2019, compared to the year ended December 31, 2018, primarily due to the
decrease of interest income from our investments in marketable securities during
the year ended December 31, 2019.

Other income, net decreased by $2.1 million during the year ended December 31,
2018, compared to the year ended December 31, 2017, primarily due to the
realized gain from the sale of our remaining shares of Aduro Biotech, Inc., or
Aduro, common stock of approximately $3.5 million, during the year ended
December 31, 2017, partially offset by the increase of interest income from our
investments in marketable securities during the year ended December 31, 2018.

Provision for Income Taxes


                                      Year Ended December 31,                          % Change
(in thousands, except
percentages)                    2019             2018          2017        2019 to 2018       2018 to 2017
Provision for income taxes   $      263       $      229     $   3,887          15%              (94%)

For the year ended December 31, 2019 and 2018, we recorded a tax expense of $0.3 million and $0.2 million, respectively, which was primarily a result of our Cerus Europe B.V. subsidiary's operating profit.





Due to our history of cumulative operating losses, management has concluded
that, after considering all of the available objective evidence, it is not
likely that all our net deferred tax assets as of December 31, 2019 will be
realized. Accordingly, substantially all of our U.S. deferred tax assets
continue to be subject to a valuation allowance as of December 31, 2019. As of
December 31, 2019, there have been no material changes to our total amount of
unrecognized tax benefits.



On December 22, 2017, tax legislation informally titled the Tax Cuts and Jobs
Act, or the Tax Act, was signed into law, which significantly changes the
Internal Revenue Code of 1986, as amended. The Tax Act did not impact the tax
expense recorded for 2017 or 2018 due to our continuing operating losses and the
valuation allowance against substantially all of our deferred tax assets, but
did have other tax related effects. One component of the Tax Act is a provision
which required the deemed distribution of the accumulated earnings of Cerus
Europe B.V. during the year ended December 31, 2017. As a result, we realized a
deemed income inclusion of $3.2 million associated with our permanently
reinvested earnings in our subsidiary. This deemed inclusion reduced the net
operating loss

                                       63

--------------------------------------------------------------------------------

for the year but did not result in any cash outlays. We did not make any actual distribution of accumulated earnings and continue to maintain the funds as permanently reinvested outside the U.S.

Liquidity and Capital Resources

In recent years, our sources of capital have primarily consisted of public issuance of common stock, debt instruments, and to a lesser extent, cash from product sales and reimbursements under our BARDA agreement.



At December 31, 2019, we had cash, cash equivalents, and restricted cash of
$37.4 million, of which $35.0 million was included in cash and cash equivalents,
and $2.4 million was included as restricted cash. At December 31, 2018, we had
cash, cash equivalents, and restricted cash of $31.6 million, of which $28.9
million was included in cash and cash equivalents, and $2.7 million was included
as restricted cash. Our cash equivalents primarily consist of money market
instruments, which are classified for accounting purposes as available-for-sale.
In addition, we had $50.7 million of short-term investments at December 31,
2019, and $88.7 million at December 31, 2018. We also had total indebtedness of
approximately $44.4 million under our Credit, Security and Guaranty Agreement
(Term Loan), or the Term Loan Credit Agreement, and our Credit, Security and
Guaranty Agreement (Revolving Loan), or the Revolving Loan Credit Agreement,
both with MidCap Financial Trust, at December 31, 2019, and $29.9 million under
our Oxford Term Loan Agreement at December 31, 2018, respectively. Excess cash
is typically invested in highly liquid instruments of short-term investments
with high-quality credit rated corporate and government agency fixed-income
securities in accordance with our investment policy.

Operating Activities



Net cash used in operating activities was $65.8 million during the year ended
December 31, 2019, compared to $31.2 million net cash used during the year ended
December 31, 2018. The increase in net cash used in operating activities was
primarily related to increased operating expenditures, the timing of payments
and purchases related to inventories, the timing of sales during the year ended
December 31, 2019, as compared to the year ended December 31, 2018, and the
one-time payment of $6.1 million to Fresenius in August 2019.

Net cash used in operating activities was $31.2 million during the year ended
December 31, 2018, compared to $52.2 million net cash used during the year ended
December 31, 2017. The decrease in net cash used in operating activities was
primarily related to increased product sales and reimbursements from the BARDA
agreement, the timing of accounts receivable collections, and the timing of
payments and purchases related to inventories and research and development
activities during the year ended December 31, 2018, as compared to the year
ended December 31, 2017.

Investing Activities



Net cash provided by investing activities was $28.2 million during the year
ended December 31, 2019, compared to $43.8 million net cash used in investing
activities during the year ended December 31, 2018. The change period over
period was primarily due to higher proceeds from the maturity and sale of our
investments to support operations, and capital expenditures related to our
headquarters relocation during the year ended December 31, 2019, couples with
lower purchases of investments as compared to the year ended December 31, 2018.

Net cash used in investing activities was $43.8 million during year ended December 31, 2018, compared to $0.4 million net cash provided by investing activities during the year ended December 31, 2017. The change period over period was primarily the result of higher purchases of investments due to the proceeds from our January 2018 public offering of common stock, and lower proceeds from the sale of our marketable securities during the year ended December 31, 2018, as compared to the same period in 2017.

Financing Activities



Net cash provided by financing activities was $43.5 million during the year
ended December 31, 2019, compared to $92.8 million net cash provided during the
year ended December 31, 2018. The decrease in net cash provided by financing
activities was primarily due to the proceeds of approximately $57.2 million, net
of the underwriting discounts and other issuance costs, received from our
January 2018 public offering of common stock, partially offset by the net
principal proceeds of $7.8 million received from the Term Loan Credit Agreement
described in more detail above during the year ended December 31, 2019.

Net cash provided by financing activities was $92.8 million during the year
ended December 31, 2018, compared to $43.0 million net cash provided during the
year ended December 31, 2017. The increase in net cash provided by financing
activities was primarily due to the proceeds of approximately $57.2 million, net
of the underwriting discounts and other issuance costs, received from our
January 2018 public offering of common stock, partially offset by the proceeds
received from the 2017 Term Loans described in more detail above during the year
ended December 31, 2017.

                                       64

--------------------------------------------------------------------------------

Working Capital

Working capital decreased to $77.8 million at December 31, 2019, from $94.2 million at December 31, 2018, primarily due to the cash used to support ongoing operations which resulted in lower cash and cash equivalent balances.

Capital Requirements



Our near-term capital requirements are dependent on various factors, including
operating costs and working capital investments associated with developing and
commercializing the INTERCEPT Blood System, including in connection with the
continuing U.S. commercial launch of our platelet and plasma systems, costs to
develop different configurations of existing products and new products,
including our illuminator, costs associated with planning, enrolling and
completing ongoing studies, and the post-approval studies we are required to
conduct in connection with the FDA approval of the platelet system, costs
associated with pursuing potential regulatory approvals in other geographies
where we do not currently sell our platelet and plasma systems, costs associated
with conducting in vitro studies and clinical development of our red blood cell
system in Europe and the U.S., costs associated with performing the agreed-upon
activities under our BARDA agreement, and costs related to creating, maintaining
and defending our intellectual property. Our long-term capital requirements will
also be dependent on the success of our sales efforts, competitive developments,
the timing, costs and magnitude of our longer-term clinical trials and other
development activities, required post-approval studies, market preparedness and
product launch activities for any of our product candidates and products in
geographies where we do not currently sell our products, and regulatory factors.
Until we are able to generate a sufficient amount of product revenue and
generate positive net cash flows from operations, which we may never do, meeting
our long-term capital requirements is in large part reliant on continued access
to funds under our BARDA agreement and the public and private equity and debt
capital markets, as well as on collaborative arrangements with partners,
augmented by cash generated from operations and interest income earned on the
investment of our cash balances. While we believe that our available cash and
cash equivalents and short-term investments, as well as cash received from
product sales and under our agreement with BARDA, will be sufficient to meet our
capital requirements for at least the next twelve months, if we are unable to
generate sufficient product revenue, or access sufficient funds under our BARDA
agreement or the public and private equity and debt capital markets, we may be
unable to execute successfully on our operating plan. We have based our cash
sufficiency estimate on assumptions that may prove to be incorrect. If our
assumptions prove to be incorrect, we could consume our available capital
resources sooner than we currently expect or in excess of amounts than we
currently expect, which could adversely affect our commercialization and
clinical development activities.

We have borrowed and in the future may borrow additional capital from
institutional and commercial banking sources to fund future growth, including
pursuant to the Term Loan Credit Agreement and Revolving Loan Credit Agreement,
or potentially pursuant to new arrangements with different lenders. We may
borrow funds on terms that may include restrictive covenants, including
covenants that restrict the operation of our business, liens on assets, high
effective interest rates, financial performance covenants and repayment
provisions that reduce cash resources and limit future access to capital
markets. In addition, we expect to continue to opportunistically seek access to
the equity capital markets to support our development efforts and operations. To
the extent that we raise additional capital by issuing equity securities, our
stockholders may experience substantial dilution. To the extent that we raise
additional funds through collaboration or partnering arrangements, we may be
required to relinquish some of our rights to our technologies or rights to
market and sell our products in certain geographies, grant licenses on terms
that are not favorable to us, or issue equity that may be substantially dilutive
to our stockholders.

While we expect to receive significant funding under our agreement with BARDA,
our ability to obtain the funding we expect to receive under the agreement is
subject to various risks and uncertainties, including with respect to BARDA's
ability to terminate the agreement for convenience at any time and our ability
to achieve the required milestones under the agreement. In addition, access to
federal contracts is subject to the authorization of funds and approval of our
research plans by various organizations within the federal government, including
the U.S. Congress. The general economic environment, coupled with tight federal
budgets, has led to a general decline in the amount available for government
funding. If BARDA were to eliminate, reduce or delay funding under our
agreement, this would have a significant negative impact on the programs
associated with such funding and could have a significant negative impact on our
revenues and cash flows. In addition, if we are unable to generate sufficient
perquisite Phase 3 clinical data and/or reach agreement with the FDA on an
additional Phase 3 clinical trial for chronic anemia in the U.S. for our red
blood cell system, our agreement with BARDA will be severely limited in scope or
could be terminated altogether, and our ability to complete the development
activities required for licensure in the U.S. may require additional capital
beyond which we currently have. If alternative sources of funding are not
available, we may be forced to suspend or terminate development activities
related to the red blood cell system in the U.S.

As a result of economic conditions, general global economic uncertainty,
political change, and other factors, we do not know whether additional capital
will be available when needed, or that, if available, we will be able to obtain
additional capital on reasonable terms. If we are unable to raise additional
capital due to the volatile global financial markets, general economic
uncertainty or other factors, we may need to curtail planned development or
commercialization activities. In addition, we may need to obtain additional
funds to complete development activities for the red blood cell system necessary
for potential regulatory approval in Europe, if costs are higher than
anticipated or we encounter delays. We may need to obtain additional funding to
conduct additional randomized controlled clinical trials for existing or new
products, particularly if we are unable to access any additional portions of the
funding contemplated

                                       65


--------------------------------------------------------------------------------
by our BARDA agreement, and we may choose to defer such activities until we can
obtain sufficient additional funding or, at such time, our existing operations
provide sufficient cash flow to conduct these trials.

Other Information



In January 2020, we issued and sold 16,866,667 shares of our common stock, par
value $0.001 per share, at $3.75 per share in an underwritten public offering.
The total proceeds from this offering were $63.3 million, before deducting
estimated offering expenses payable by us.

Commitments and Off-Balance Sheet Arrangements

Off-balance Sheet Arrangements

We did not have any off-balance sheet arrangements as of December 31, 2019.

Contractual Commitments

The following summarizes our contractual commitments at December 31, 2019:



                                                                                                     After 5
Contractual Commitments                Total        1 year       2 - 3 years       4 - 5 years        years
Debt                                 $  56,236     $  8,067     $      20,702     $      27,467     $       -
Operating leases                        30,988        3,307             6,181             5,447        16,053
Minimum purchase requirements           15,667        9,711             3,116               793         2,047
Other commitments                          702          684                18                 -             -

Total contractual obligations $ 103,593 $ 21,769 $ 30,017 $ 33,707 $ 18,100




Debt

See Note 8, Debt, in Part IV, Item 15, "Exhibits and Financial Statement Schedules" of this Annual Report on Form 10-K for more information on the debt under our Term Loan Credit Agreement and the Revolving Loan Credit Agreement.

Operating Leases

See Note 9, Commitments and Contingencies, in Part IV, Item 15, "Exhibits and Financial Statement Schedules" of this Annual Report on Form 10-K for more information on the operating leases.

Minimum Purchase Requirements

Our minimum purchase commitments include certain components of our INTERCEPT Blood System which we purchase from third- party manufacturers.

Other Commitments

Our other commitments primarily consist of obligations related to business insurance financing and certain other warehousing obligations.

Financial Instruments



Our investment policy is to manage our marketable securities portfolio to
preserve principal and liquidity while maximizing the return on the investment
portfolio to assist us in funding our operations. We currently invest our cash
and cash equivalents in money market funds and interest-bearing accounts with
financial institutions. Our money market funds are classified as Level 1 in the
fair value hierarchy, in which quoted prices are available in active markets, as
the maturity of money market funds are relatively short and the carrying amount
is a reasonable estimate of fair value. Our available-for-sale securities
related to corporate debt and U.S. government agency securities are classified
as Level 2 in the fair value hierarchy, which uses observable inputs to quoted
market prices, benchmark yields, reported trades, broker/dealer quotes or
alternative pricing sources with reasonable levels of price transparency. We
maintain portfolio liquidity by ensuring that the securities have active
secondary or resale markets. We did not record any other-than-temporary
impairment losses during the years ended December 31, 2019, 2018 and 2017.
Adverse global economic conditions have had, and may continue to have, a
negative impact on the market values of potential investments.

New Accounting Pronouncements



See Note 2, Summary of Significant Accounting Policies, in Part IV, Item 15,
"Exhibits and Financial Statement Schedules" of this Annual Report on Form 10-K
for more information on new accounting pronouncements.

                                       66

--------------------------------------------------------------------------------

© Edgar Online, source Glimpses