CERS: When FDA Approvals get markets excited without any valid reason for it

Nice Headlines featuring FDA Approvals for CERSs INTERCEPT

Blood System (IBS) causing investors to lose sight of fundamentals.
- See you back to reality in 2015 once the XMAS insanity is over meaning <$4 -

FDA Approvals for INTERCEPT Blood System (Approval 1: IBS for Plasma on Dec. 16 + Approval 2:
IBS for Platelets on Dec 19) caused the Price per Share of CERS to spike by as much as 44.96%

In my view, the recent price action at CERS clearly shows that market participants over-reacted to the
Approvals news forgetting about the Fundamentals as well as the real Market opportunity.
DESPITE THE RECENT FDA APPROVAL, CRES WILL CONTINUE TO BE A LOSS GENERATING COMPANY FOR
THE FORSEABLE FUTURE

Did you know that despite having been approved for many years in Europe IBS for plasma and
platelets failed to reach even a 10% penetration of the Potential Markets disclosed by CRES to its
investors?
Did you know that the U.S. Market (per company definition) is no larger than the EU Market)?
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CERS: When FDA Approvals get markets excited without any valid reason for it
CRES is a biomedical products company focused on developing and commercializing the INTERCEPT
Blood System to enhance blood safety. INTERCEPT Blood System has been demonstrated to inactivate a
broad range of viruses, bacteria and parasites that may be present in donated blood.
The company has worldwide rights for our INTERCEPT Blood System for three blood components: plasma,
platelets, and red blood cells.
Product or Product Candidate Under
Development
Product or Development Status
INTERCEPT
SystemPlatelets

Blood Commercialized in a number of countries in Europe, the CIS, the Middle

East and selected countries in other regions around the world
United States: Phase III clinical trials completed; PMA filed; FDA
substantive review of filing in process

INTERCEPT
SystemPlasma

Blood Commercialized in a number of countries in Europe, the CIS, the Middle

East and selected countries in other regions around the world
United States: Approved on December 17, 2014

INTERCEPT
SystemRed Blood Cells

Blood Phase I clinical trial completed in 2010; Phase III trials for acute anemia
and, separately, chronic anemia ongoing in Europe
United States: Phase II recovery and lifespan study in process and in
vitro studies planned

Last week (December 17th, 2014), CERS announced that the FDA approved INTERCEPT Blood System
for PLASMA in the U.S. resulting in an increase of $85m (22.59%) in the Value of the Company. On Friday
the news of the FDA approval of INTERCEPT Blood System for PLATELETS sent the Price up another
10.39% at Open.

DESPITE THE RECENT FDA APPROVAL, CRES WILL CONTINUE TO BE A LOSS GENERATING COMPANY FOR
THE FORSEABLE FUTURE

In 2013, CERS quantified the Global Market Potential for INTERCEPT Blood System as follows (Link):

CERS: When FDA Approvals get markets excited without any valid reason for it
Over the Past Decade, CERS has been commercializing its Products (IBS for Platelets + Plasma) in Europe,
CIS & ME, serving a $475m Potential Market (as defined/specified by the Company). Yet, Sales have been
Stagnant over the Last 3 years not even crossing the 10% Market Penetration Threshold.

01/29/2007, when CERUS reported IBS receiving first approval in Germany and Claes Glassell, president
and CEO commented: "This is a very important step for Cerus in commercializing the INTERCEPT blood
system in Germany, the largest national market in Europe."
Yet, as you can see from the Table Above, as of 2013 Significant Product Revenue from Germany
(LARGETST NATIONAL MARKET IN EUROPE, according to CERS) is still Missing.

If past Product Introduction Dynamics are representative of the Future, it looks like FDA approval
(Approval 1: Dec. 17) of IBS for Plasma could results in $21m p.a. Additional Revenue for CERS (3-4
Years from now at a 10% Penetration rate, similar to the one achieved in Europe).
FDA green light for IBS for Platelets (Approval 2: Dec 19) could result in $24.5m p.a. additional revenue
for CERS (3-4 years from now at a 10% Penetration rate, similar to the one achieved in Europe).
It follows that the 2 FDA Approvals that Caused PPS to spike by as much at 45% will results in
Real/Likely Revenue increase for CERS being at < $50m p.a. ($21m + $24.5m = $45.5m)

Of course, the bull thesis will be that IBS is the first/only Pathogen Reduction system approved in the
U.S. (by the FDA).
What people are probably missing here, is that the Approval of CERS IBS is a Paradigma shift within the
FDA and its way to look at PRT usage. This will likely results in other CERSs IBS competing Systems to
be approved for the U.S. Markets too (such as Mirasol from Terumo BCT see link). The following article
gives an accurate overview on Pathogen Inactivation/Reduction Methods in Blood Products-Current
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CERS: When FDA Approvals get markets excited without any valid reason for it
Approaches and Perspectives. In the EU/CIS/MI Market CERS did fail to even reach a 10% penetration of
the Market Potential it discloses/ed to investors.
ANY REASON TO THINK THIS TIME IS / WILL BE DIFFERENT? Dont think so!
Even in the FDA Press Release (Approval 1: plasma on Dec. 16), Karen Midthun, M.D., director of the
FDAs Center for Biologics Evaluation and Research implied that IBS is not UNIQUE!
The approval of devices like the Intercept Blood System allows blood establishments to prepare plasma
that carries a lower risk of transmitting infectious pathogens through transfusion, said Karen Midthun.
Markets probably mislead by the FDA Headline: FDA approves
treat plasma (Link)

first pathogen reduction system to

First Makes it sound like there is not viable alternative to treat plasma. Yet First only referred
to System. This does not mean that till before IBS approval Phatogen Reductions Methods could
no have been applied in the U.S.
The S/D {PI/PR by Solvent/Detergent (S/D)} treatment was first licensed by the US FDA in 1985 for use in
the manufacture of an anti-hemophilic factor (AHF) concentrate [3], and then applied in coagulation
factors and pooled plasma (Link)
One Disadvantage of the S/D Method is that: S/D cant inactivate non-enveloped virus, such as hepatitis
A virus (HAV) and parvovirus B19
How unfortunate IBS cant inactivate non-enveloped viruses either!

Cerus Corp. 2010 annual report Page 14.

CERS: When FDA Approvals get markets excited without any valid reason for it

DESPITE FDA APPROVAL of IBS for PLASMA and Potential APPROVAL for IBS for Platelets

CERS WONT BE ABLE TO BREAK EVEN, NOR GENERATING PROFITS FROM

OPERATIONS

Assumptions:
1.
2.
3.
4.
5.

Similar Penetrations pattern in U.S. as the one observed in EU,CIS and ME

EU,CIS,ME 9.5% growth going forward (generous given market has already been penetrated)
57% COGS
5% increase in Research and Development Expenses
Decline in S&G Expenses as % of Revenue (from 75.5% to 50%).

The bull thesis for Retail Investors:

The bull thesis Pushing CERS higher right now is best summarized by the following Seeking alpha
Article (Article here) released after Approval 1 (Dec 17):

Bottom line
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.

The opening of the U.S. markets will be a major revenue boost? Funny that in the article the market
potential has never been discussed. As shown previously U.S. Market is smaller than E.U. market

CERS: When FDA Approvals get markets excited without any valid reason for it
(per company filings) a larger EU market where CERS has even failed to reach a 10% penetration
rate after almost a Decade of Commercialization!

News in regard to U.S. distribution or collaboration? Yeah lets start to sell some hope why
not after all hope is what justify Valuation of Bio Companies ahead of Commercialization. So
unfortunate that at CERS we have 10 years of Commercialization with not much success in Europe
(or at least not enough success to justify current valuations or to report any operating profits).

As stated before, CERS has gained almost 50% for the wrong reasons! The two FDA approvals for IBS
will likely never allow the company to post green numbers. Maybe If CERS expends to ASIA and
ROW it might Break Even but that a big IF especially by looking at the Companys
performance in the Market it has entered in the Past!

http://www.interceptbloodsystem.com/intercept-in-use/overview
10 Years in the business As of today Distributing the Product in plenty of Countries worldwide and yet Just $36.1m in revenue and losing about $30m a year?

73% of CERS market potential is in the IBS for Red Cells which has however yet to be
approved and it does not look like about to happen anytime soon! Filing for CE Mark approval
anticipated in the second half of 2016 (Link)
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CERS: When FDA Approvals get markets excited without any valid reason for it

Investors in CERS can be sure only of 1Thing:

Dilution Look at the Evolution of Number of Shares outstanding over the past 17 years.