Cerus (CERS)

Research and Development

Our research and development expenses include salaries and related expenses for our scientific personnel, payments to consultants, costs to prepare and conduct preclinical and clinical trials, third-party costs for development activities, certain regulatory costs, costs for licensed technologies, and costs associated with our infrastructure, and laboratory chemicals and supplies. Beginning January 1, 2006, our research and development expenses also include non-cash stock-based compensation as a result of adopting FAS 123R.

Research and development expenses for the year ended December 31, 2007, decreased by $1.1 million to $15.0 million from $16.0 million for the comparable period in 2006. Of the $15.0 million and $16.0 million in research and development expenses recognized during the years ended December 31, 2007 and 2006, respectively, $1.0 million and $1.1 million, respectively, was due to non-cash stock-based compensation recognized. The primary reasons for the decrease in research and development expenses for the year ended December 31, 2007 compared to 2006 include the decline in development activities associated with our plasma system subsequent to receiving CE mark in November 2006. In addition, during the second half of 2006 we initiated a Phase I clinical trial related to our red blood cell system. Costs associated with this Phase I clinical trial were higher in 2006 than in 2007, the period in which the clinical trial concluded.

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Research and development expenses for the year ended December 31, 2006, increased by $5.4 million to $16.0 million from $10.7 million for the comparable period in 2005. In 2005, we did not recognize non-cash stock-based compensation. Additional factors for the increase in research and development expenses during 2006 compared to 2005, include costs incurred to conduct a Phase I clinical trials for the red blood cell system, higher costs associated with the development of the plasma system, as well as an increase in the number of research and development personnel employed.

We anticipate that our research and development spending may increase in the future as a result of clinical trials and system development of our red blood cell system, as well as efforts to support regulatory filings and potential approvals of our platelet and plasma systems in the United States and other countries. Due to the inherent uncertainties and risks associated with developing biomedical products, including but not limited to intense and changing government regulation, uncertainty of clinical study results and uncertainty associated with manufacturing, it is not possible to reasonably estimate the costs to complete our research and development projects.

Research and Development.

During the years ended 2005 and 2004, research and development expenses include salaries and related expenses for scientific personnel, payments to consultants, payments for licensed technologies, supplies and chemicals used in in-house laboratories, costs of research and development facilities, depreciation of equipment and external contract research expenses, including clinical trials, preclinical safety studies, manufacturing development and other laboratory studies.

Research and development expenses decreased 13% to $24.1 million in the year ended December 31, 2005, from $27.7 million for 2004. Increased spending on vaccine programs, particularly in support of development of CRS-100 and CRS-207, was offset by reduced spending for our blood safety programs during 2005. Our total research and development costs included $11.0 million for our blood safety programs and $13.1 million for our immunotherapy programs for the year ended December 31, 2005, and $17.9 million for our blood safety programs and $9.8 million for our immunotherapy programs for the comparable period in 2004.

Research and Development.

Research and development expenses include salaries and related expenses for scientific personnel, third-party consultants, licensed technologies, supplies and chemicals used in in-house laboratories, costs of research and development facilities, depreciation of equipment and external contract research expenses, including clinical trials, pre-clinical safety studies, manufacturing development and other laboratory studies. Beginning on January 1, 2006, our research and development expenses also include non-cash stock-based compensation expense as a result of adopting FAS 123R.

Research and development expenses increased 6% to $7.0 million for the three months ended September 30, 2006, from $6.6 million for the comparable period in 2005. Of the $7.0 million of research and development expense recognized during the three months ended September 30, 2006, $0.3 million was due to non-cash stock-based compensation recognized under FAS 123R. Overall, the increase from the three months ended September 30, 2005 was due primarily to increased development spending related to the red blood cell program and costs resulting from initiation of Phase I clinical trials for the red blood cell system and CRS-100.

Our total research and development costs included $4.0 million for our blood safety programs and $3.0 million for our immunotherapy programs for the three months ended September 30, 2006, and $3.2 million for our blood safety programs and $3.4 million for our immunotherapy programs for the comparable period in 2005.

Research and development expenses for the nine-month period ended September 30, 2006, increased $4.5 million to $22.1 million from the corresponding period in 2005. Of the $22.1 million in research and development expenses recognized during the nine months ended September 30, 2006, $0.9 million was due to non-cash stock-based compensation recognized under FAS 123R. The increase in research and development expenses was due to increased research and development efforts relating to our red blood cell system and our CRS-100 and CRS-207 cancer immunotherapy programs as well as costs incurred to initiate Phase I clinical trials for the red blood cell system and CRS-100. Our total research and development costs included $12.2 million for our blood safety programs and $9.9 million for our immunotherapy programs for the nine months ended September 30, 2006, and $7.4 million for our blood safety programs and $10.2 million for our immunotherapy programs for the comparable period in 2005.

We anticipate our research and development expenses will continue to increase as we continue clinical development of the red blood cell system and CRS-100 and preclinical development of CRS-207.

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 pre-clinical 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; see “Risk Factors” in Part II, Item 1A below.

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Research and Development

Research and development expenses include salaries and related expenses for scientific personnel, payments to consultants, payments for licensed technologies, supplies and chemicals used in in-house laboratories, costs of research and development facilities, depreciation of equipment and external contract research expenses, including clinical trials, pre-clinical safety studies, manufacturing development and other laboratory studies. Beginning on January 1, 2006, our research and development expenses also include non-cash stock-based compensation expense as a result of adopting FAS 123R.

Research and development expenses increased 42% to $8.4 million for the three months ended June 30, 2006, from $5.9 million for the comparable period in 2005. Of the $8.4 million of research and development expense recognized during the three months ended June 30, 2006, $0.3 million was due to non-cash stock-based compensation recognized under FAS 123R. Overall, the increase from the prior year period was due primarily to increased development spending related to the red blood cell program and preparations for entering Phase I clinical trials for CRS-100.

Our total research and development costs included $4.8 million for our blood safety programs and $3.6 million for our immunotherapy programs for the three months ended June 30, 2006, and $2.6 million for our blood safety programs and $3.3 million for our immunotherapy programs for the comparable period in 2005.

Research and development expenses for the six month period ended June 30, 2006, increased $4.1 million to $15.0 million from the corresponding period in 2005. Of the $15.0 million in research and development expenses recognized during the six months ended June 30, 2006, $0.6 million was due to non-cash stock-based compensation recognized under FAS 123R. The increase in research and development expenses was due to increased research and development efforts relating to our red blood cell system and our CRS-100 and CRS-207 cancer immunotherapy programs. We anticipate our research and development expenses will continue to increase as we commence clinical trials of our CRS-100 vaccine candidate and red blood cell system.

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 pre-clinical and clinical study 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; see “Risk Factors” in Part II, Item 1A below.