Cerus Corp., a company focused on blood pathogen inactivation methods and a developer of therapeutics, on Thursday reported a 25 percent reduction in its work force as a way of conserving cash and refocusing its research and development efforts.

Separately, Cerus, of Concord, Calif., said Baxter Capital, of Deerfield, Ill., initiated legal proceedings against it concerning the $50 million loan provided to it earlier this year. Stephen Isaacs, Cerus president and CEO said the disagreement - related to the timing of loan repayment - is not with Baxter Healthcare itself and that the filing by Baxter Capital will have no impact on the joint research and product commercialization efforts with the parent.

"Baxter Capital operates pretty much like a bank" and the issue has nothing to do with Baxter's transfusion division, he said. "Our [joint development] programs will proceed as planned."

The company's stock (NASDAQ:CERS) fell 78 cents, or 15.2 percent, to close at $4.34.

The layoffs reduce the company's work force "to around 130," Isaacs said, with about a third of the reductions in general and administrative functions, the rest primarily in the company's research and development division focused on pathogen inactivation in red blood cells using the company's Intercept system.

The company last month reported that it and Baxter voluntarily halted a Phase III trial in that program after two study patients developed antibodies to red blood cells treated with S-303, a compound used in the system.

At the time of the stoppage, Isaacs said the companies had launched an effort to determine the problem - one which had resulted in no adverse events in patients. Thursday, he said that the source of the antibodies still had not been determined and that the investigation and analysis were ongoing.

"We are not abandoning the red blood cell [inactivation] program at all," Isaacs said, but he did emphasize that the Phase III trial difficulties are sure to require additional new trial efforts. He said that once the issues of the trial are resolved, the company will not simply restart it but will have to conduct new trials "predicated on being successful in figuring out the antibody issue."

Isaacs said that the staff reduction was related to the red blood cell trial halt and an overall shift in focus to emphasize the company's Intercept programs for inactivation of pathogens in platelets and plasma.

The cutbacks and change in focus are expected to reduce the company's 2003 research and development expenses from a projected $60 million to $65 million in 2003 to around $55 million. Overall, the company projected expense reductions of $20 million to $25 million in 2003, compared to 2002.

The Intercept platelet inactivation technology was approved in Europe in 2001. Isaacs said the company is still in talks with the FDA concerning the protocol for a supplement to its Phase III trial of the Intercept platelet program in the U.S. He said that after prototype changes, "the agency asked us to go back and use the actual final, commercial version sold in Europe."

The company's Intercept Blood System for treating plasma is nearing the completion of Phase III trials, and Isaacs predicted a regulatory submission in 2004, though he did not say whether that would come in the U.S., in Europe or in both countries.

Both the platelet and plasma Intercept programs use a compound called amostosalen HCI which is turned on by ultraviolet light to inactivate a range of viruses, white blood cells and a range of other pathogens.

Besides developing the Intercept program, the company is developing applications of its Helinx technology to create vaccine and therapeutic products used to improve the success of organ and stem cell transplantation procedures. But that program is not meant to take attention from Intercept.

"We don't see ourselves shifting away from Intercept but rather embellishing it with our other programs in vaccines and oncology," he said. "The Intercept opportunity is very real, and the technology is beginning to grow its roots - it's beginning to happen in Europe and can certainly happen in the U.S."

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