Cerus Corp. (CERS), a provider of a leading system for blood infection control, and Rollins Inc. (ROL), a global leader in pest control, may gain ground if the Zika virus creates a health emergency as the summer heats up and the effects of the spring rains and travel patterns increase the U.S. mosquito population and the pattern of spread of the disease.

For that reason we are increasing our Buy Limit on CERS, a provider of blood product microbe inactivating equipment in blood products, from $7 to $8. We like the current trading pattern and the increase in positive analyst chatter on the stock.  Cerus continues to implement its business plan with the goal of increasing the distribution of its Intercept system throughout the U.S. healthcare system.  In our 5/11/16 issue we recommended buying CERS noting “a review of the last four earnings reports shows that the stock is nearly 24% higher within six weeks of the release of earnings after dropping initially.  If this pattern holds up the stock may move as high as $8 per share within six weeks of earnings.” So far, as of June 10, the stock has risen 11.9% based on the close of trading on 5/11/16. 

Cerus is a long term play that requires FDA approval for its Intercept system to be used for red blood cells (RBCs) in order for its share price to rise at a faster pace than the industry norm. Intercept is approved for use with blood platelets and plasma and the company has an agreement with the Red Cross for widespread implementation of the system throughout the U.S. transfusion network which includes hospitals and blood centers.  The process is steadily moving forward but will still take some time to deploy due to hospital system budgets and standards.  The FDA has already acknowledged that CERS’ Intercept can be useful in neutralizing the Zika virus in contaminated platelets and plasma.

Here are five facts that quantify the potential impact that the FDA’s approval for use of Cerus’ Intercept for RBC microbe inactivation:

• Every two seconds someone in the U.S. needs blood.
• Approximately 36,000 units of red blood cells are needed every day in the U.S.
• Nearly 7,000 units of platelets and 10,000 units of plasma are needed daily in the U.S.
• Nearly 21 million blood components are transfused each year in the U.S.
• The average red blood cell transfusion is approximately 3 pints.

Source: The American Red Cross

If there is a Zika crisis, it would not be surprising to see Cerus shares pick up some steam to the upside, and perhaps – although this is purely speculative – we could see an early FDA approval of Intercept for RBCs, which would increase Cerus’ revenues and earnings significantly over the next few quarters given the fact that the most common type of transfusion in the world is RBCs.  The estimated value of the U.S. blood collection, blood product management and provision market is estimated at $3 billion with some global estimates as high as $12 billion.

The Zika virus story and the reality of the disease are two different issues at the moment.  The story is slowly developing, and seems sketchy, while the incidence of the disease is very real to anyone who has been affected by it even though the numbers and the effects remain hazy.  What we know is that in South America, especially in Brazil, the virus has had major impact, with reports of at least 1000 infants being borne with smaller than normal brains as a result of Zika infections during pregnancy.  It is still unknown how many more children will be born with birth defects and whether the disease will evolve into a full blown acute health crisis along the lines of the Ebola virus since the virus is also associated with a viral paralysis syndrome.

We also know that there is the potential for a wide spread of Zika through travel and sexual transmission with cases now reported and confirmed in Texas, Puerto Rico, and New Jersey.  And more cases could develop after the Rio Olympics this summer.  Finally, a new report in The Washington Post notes that the Zika virus is now found in a new type of mosquito (Asian Tiger) which is increasing the likelihood of its presence throughout the United States since the second type of mosquito has a broader population range than the first carrier (A. aegypti).  So, in this weekly update, we’ll review two Zika related picks.

Buy Cerus Corp. (CERS) up to $8.

Rollins Rally Depends on Rainfall, Mosquito Population Growth

Two weeks ago we wrote about Rollins Inc. (ROL), the global pest control leader with high profile brands that include Orkin.  We noted that the stock has rallied eighty percent of the time during the summer months (June to September) since 2006, averaging a gain of 6.26% with four periods delivering over 10% gains and averaging 13.36%.  The pattern is related to the amount of rain in Texas and in the Florida, Georgia, and the Carolinas from May to September and the increase in mosquitoes that follows.   The emerging consensus forecast for the Atlantic Hurricane season is calling for more activity, as the El Nino weather pattern gives way to the La Nina pattern, which is associated with more Atlantic hurricanes.  If this happens, and early indications provided by three named storms since April suggest that it’s very plausible, we could have above average rainfall in the Southeast.  But for now the forecast is for average rainfall.

Buy Rollins Inc. (ROL) up to $29

BTP Special Situation Trading Alert

Buy the ProShares Ultra Short Biotech ETF (BIS) from $39-$42.  Apply a trailing 6% sell stop. Recommended on 6/10/16 via Flash Alert.  Bought at the close 6/10/16 at $39.14.

Portfolio Summary

This Week’s Changes:

Cerus Corp. (CERS) – Increase Buy Limit to $8. Bought on 11/16/15 at $5.00; 6/3/16 closing price $5.52. Dr. Duarte owns shares in CERS.

Bio-Rad Laboratories (BIO) – Bought 5/16/15 at $146.25.  6/10/16 closing price $146.78.  Raise Support Level to $138.

No Changes in the following positions:

Amgen (AMGN) – Buy up to $161. Bought on 2/1/16 at $152.75; 6/10/16 closing price $54.78. Sell Stop $149.

Celldex Therapeutics (CLDX) – Buy up to $7.00; 6/10/16 closing price $4.12.  Dr. Duarte owns shares in CLDX.

Emergent Biosolutions (EBS) – Buy up to $43; 6/10/16 closing price $42.30. Bought on 5/16/16 at $39.44.  Dr. Duarte owns shares in EBS.

Medidata Solutions (MDSO) – HOLD; Support Level at $41. Bought on 3/7/16 at $36; 6/10/16 closing price $46.79.  Dr. Duarte owns shares in MDSO.

McKesson Inc. (MCK) – Buy up to $194.   Bought on 5/26/16 at $180; 6/10/16 closing price $185.47.

Meridian Biosciences (VIVO) – Buy up to $23; 6/10/16 closing price $19.41.  Stock initially recommended on 6/29/15.  Dr. Duarte owns shares in VIVO

Novo Nordisk A/S (NVO) – Buy up to $59 as of 4/7/16.  Sell Stop is $49. Bought at $55 on 12/21/15; 6/10/16 closing price $55.36.   Dr. Duarte owns shares in NVO.

Opko Health Inc. (OPK) – Buy Range up to $11. Bought on 2/1/16 at $8.00; 6/10/16 closing price $9.30. Sell Stop at $9.  Dr. Duarte owns shares in OPK.

Rollins Inc. (ROL) – Buy up to$29. Bought on 2/22/16 at $27.38; 6/10/16 closing price $28.60. Raised Sell Stop to $24.  Dr. Duarte owns shares in ROL.

White Wave Foods Company (WWAV) – Buy up to $46;  6/10/2016 closing price $44.76. Dr. Duarte owns shares in WWAV.