Patience is a virtue, and in the case of Cerus (NASDAQ: CERS) it may eventually lead to a nice payday for patient investors. Cerus is the developer of the Intercept biomedical kit for neutralizing viruses, bacteria and parasites in donated blood. The stock has floundered over the last few months, but recent developments suggest the company is staring to hit its stride.

Investors cheered as Cerus delivered a surprisingly upbeat fourth-quarter earnings report on March 7. The highlights were the 10% percent revenue growth rate (to $10.7 million) and the smaller than expected loss (13 cents per share vs. the expected 15 cents).

Even more encouraging was the presence of $71 million in cash  on the balance sheet with a modest burn rate of $13 million per quarter.

Perhaps the best news in the report was that Cerus placed 36 new Intercept systems in hospitals in Q4, more than the combined total from the first three quarters of the year. The company increased its 2017 revenue guidance to $45-$50 million. 

Of course there is risk with Cerus, since it’s a small company dependent on a single product for now. Indeed, the major areas of concern are: 1) the coordination of the supply chain of platelets for the growing network of hospitals using Intercept; 2) the upcoming Food and Drug Administration (FDA) approval, which is expected but not guaranteed to endorse bacterial containment as provided by Intercept as the standard for blood processing centers; and 3) the unresolved science issues regarding Intercept use in red blood cells, which must be cleared up before the FDA approves that application.

The good news is that the company is capable of addressing and successfully resolving all of these concerns. Indeed, management has now obtained detailed guidelines from the FDA regarding the red blood cell approval issues and is close to starting Phase III clinical trials on several related indications. It is also encouraging that the process for the European approval of Intercept for red blood cells is moving forward, although nothing is guaranteed. This is a crucial milestone because European approval is often a prelude to a green light from the U.S. FDA.

If Intercept is widely adopted, Cerus could grab a sizeable slice of a multibillion-dollar pie. The company has received $45 million in U.S. government grants and is expecting another $140 million, which will likely accelerate the process of getting Intercept out in the field, initially for platelets and plasma but eventually for red blood cells. Indeed, 2017 is likely to prove a pivotal year for this small company, which is slowly transforming from a concept-stage microcap to a credible biomedical products marketer. Buy CERS below the revised limit of $5.50.

– Joe Duarte