TSO3 gets boost from FDA decision

The FDA has advised U.S. health care administrators to discontinue use of Steris Corp.’s (NYSE:STE) peracetic acid-based endoscope reprocessing device System 1 within 18 months.

In a research report, Versant Partners says the FDA decision is positive for TSO3 (TSX:TOS) because a competitor will exit the market by mid-2011.  Analyst Doug Loe writes that TSO3’s next-generation ozone-based Sterizone 125L+ has endoscope-sterilizing capabilities and is on pace for FDA approval this year.

The FDA is “monitoring the hospital sterilization market more closely than before, increasingly focused in our view on safer sterilization modalities (like ozone-based 125L+),” he adds, predicting that TSO3’s 125L+ device could be “a major revenue driver in an environment where the FDA is enforcing more rigorous performance standards.”

He rates TSO3 a “buy,” with a 12-month price target of $2.50.  The stock is trading at $1.80, up 4 cents, after the opening on Wednesday.