The last few days have been exciting for Cerus (NASDAQ:CERS) investors. The company first received FDA approval to treat plasma taken from Ebola survivors for immune therapy, and has now received the go-ahead to use its INTERCEPT blood system for treatment of plasma. The shares have risen almost 60% in the last few months, and can go even higher. Cerus is expecting to receive approval to treat platelets in the first half of 2015, and that would be another important catalyst for the share price. After being restricted to Europe for almost a decade, Cerus has finally made its way across the Atlantic.
Cerus Corporation is a biomedical products company which develops and commercializes the INTERCEPT blood system. The system has been designed to control biological replication and target inactive blood-borne pathogens. The system is effective in combating bacteria, viruses, parasites and also destructive white blood cells. At the same time, it also protects the therapeutic properties of plasma and platelets. The company is currently marketing this system through its in-house sales force. However, it also has a collaboration agreement with Baxter (NYSE:BAX) for the commercialization and further development of INTERCEPT.
The last couple of months have been magical, to say the least, for Cerus investors. The shares have soared to $5.8 from under $3.5 in October, a rise of around 60%. The primary reason behind this spectacular rise has been two very important nods from the FDA.
At the end of November, the FDA approved the use of the INTERCEPT blood system to treat convalescent plasma collected from patients infected with Ebola for passive immune therapy. This plasma is collected from patients who have survived Ebola, and is used for passive immune therapy on current patients. The problem is that the plasma can carry pathogens which are undetected. The INTERCEPT system "cleans" this plasma by removing these undetected pathogens. The Emory University hospital is conducting the trail and storing the plasma treated using INTERCEPT.
The approval to treat Ebola plasma was just a precursor to better things coming for Cerus investors. Yesterday, the FDA also gave approval for the use of INTERCEPT for the treatment of plasma. The system is now approved for the ex vivo preparation of plasma. This will reduce the risk of TTI (Transfusion Transmitted Infections) for patients who require a plasma transfusion. The current methods of pathogen detection are reactionary in nature. The tests are conducted for suspected pathogens, but only if the risk has been identified. On the other hand, the proactive "inactivation" methodology of INTERCEPT ensures that all pathogens are eliminated, whether they are detected or not.
INTERCEPT is being used in Europe for the last 8 years, and it's high time that it is approved by the FDA. The company is now trying to get approval for the use of the system for the treatment of platelets, and this approval should come through by the first half of 2015.
The company has been reporting quarterly revenues in the range of $8 to $10 million the last few quarters. The annual revenue for the year ended December 2013 was $39 million. The gross profits are a healthy 45%, but the company has still incurred losses due to high SG&A and R&D expenses. These expenses are typically high for small companies developing new products or marketing their products themselves. The SG&A expenses have been a relatively stable ~80% of total sales. However, the R&D expenses spiked in the recently concluded quarter, from being around 50% of sales to 69% of sales. The company has stepped up R&D in order to get FDA for wider application of the INTERCEPT system, and has found success in this regard.
There seems to be no immediate threat of share dilution, as the cash balance is healthy at $47 million. The cash flow to operations was ($11.7) million during the recently concluded quarter. This was a slight rise of $2 million quarter-over-quarter due to rise in R&D and SG&D. If the company continues to burn $11 million in operations every quarter, the current cash pile will last it around 4 quarters.
The sell side is expecting revenues to go around 30% year-over-year by the end of 2015. Even these estimates seem conservative if the company gets platelets treatment approval for INTERCEPT. The mean sell side target price for Cerus is $7, a 20% upside from current levels. There are 5 analysts covering the stock, and all have a buy or strong buy rating. The high price target is $8, and the lower target is $6. Increase in revenues from the U.S. approval will push the shares towards the higher price targets.
Due to the approval of INTERCEPT in the U.S., Cerus is a strong buy. The shares will rise further following the upcoming approval in 2015. The opening up of the U.S. markets will be a major revenue boost for the company. Any news in regard to U.S. distribution or collaboration can work as a positive catalyst for the shares.
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