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Cepheid’s GeneXpert Gains Traction Outside VA System as CEO Eyes MDx Decentralization

This story originally appeared in Biocommerce Week, a newsletter that has been discontinued.
 
Cepheid’s strategy to push sales of its GeneXpert system outside of the US Veterans Administration network appears to be paying off with an increasing portion of sales being registered among non-VA hospitals, according to CEO John Bishop.
 
While the firm’s molecular test for methicillin-resistant Staphylococcus aureus has been a primary revenue growth driver, Cepheid officials believe the firm is well positioned for growth through a planned pipeline of tests that will expand beyond the infectious disease market. They also see a significant revenue opportunity to move the firm’s tests into the CLIA lab market.
 
Cepheid has relied heavily on sales of its MRSA test and GeneXpert systems to the VA to drive revenue growth. But the firm believes its customer base is rapidly evolving beyond those hospitals as more states in the US pursue legislative initiatives mandating some form of MRSA surveillance.
 
Cepheid has capitalized on the VA’s MRSA initiative, which aims to quickly identify patients with MRSA and cut down costs associated with those infections. There are roughly 142 VA hospitals overall that plan to implement MRSA surveillance programs, Cepheid officials have said. While there are 97 doing molecular-based testing, Cepheid hopes to convert some of the remaining hospitals that are doing standard culture methods.
 
The GeneXpert system is now installed in 77 of those 97 VA hospitals, and during the third quarter alone Cepheid added 51 VA hospital accounts (see BioCommerce Week 11/7/2007). Still, the firm has faced questions from investors and analysts about its efforts to grow sales outside of that VA initiative.
 
This week, Bishop told attendees of the Piper Jaffray Health Care Conference in New York that recent sales figures show the firm is making progress among non-VA hospitals. He said that as of the end of its third quarter on Sept. 30, 64 percent of Cepheid’s GeneXpert sales had been to VA hospitals. But as of Nov. 16, that dropped to almost 53 percent as more hospitals outside the VA system adopted the platform.
 
Two primary factors have been driving sales to these non-VA hospitals. The first is a more than 50 percent increase in sales personnel currently being added to the firm. By the first quarter of 2008, Cepheid expects to have 43 salespeople in the US.
 
The second factor is an increasing number of legislative initiatives in states across the US mandating some level of MRSA surveillance. While the requirements for surveillance vary from state to state, Bishop noted that some states are already or are likely to include nursing homes in their screening efforts, which would open a greater revenue opportunity for the firm’s test and instruments.
 
“By 2012, every hospital in the country will have implemented a surveillance program,” Bishop said during his presentation.
 
In addition, he said it is likely that all hospitals in the US would eventually test high-risk patients for MRSA upon admission — following on the lead of The Netherlands, which has become a model for controlling MRSA infections in its hospitals.
 
Bishop noted that some US hospitals have even touted their adoption of Cepheid’s MRSA test in marketing materials.
 
He said the overall hospital-acquired infections testing market, including both molecular and standard culture testing, is expected to reach roughly $2.6 billion by 2012. MRSA testing is expected to account for nearly $1.4 billion of that total, said Bishop, though the market is growing rapidly and could exceed those figures.
 
MDx at Inflection Point
 
While Cepheid’s instruments and those of other molecular diagnostic players have been placed mostly in big, centralized testing labs, Bishop believes that will soon change. “Molecular diagnostics is at an inflection point” and is ready to move outside of central labs, he said.
 
With doctors needing rapid results, particularly in regard to infectious diseases, the migration of molecular diagnostic platforms into smaller CLIA-waived hospital labs and doctors’ offices will happen very soon, according to Bishop. Cepheid expects to sell its first CLIA-waived test for MRSA in 2009.
 

“By 2012, every hospital in the country will have implemented a surveillance program.”

Bishop believes that the relatively rapid time-to-result — 52 minutes — offered by the GeneXpert system gives it a key advantage over competing platforms, particularly in the HAI testing market. He noted that other systems sold by Abbott, Becton Dickinson, Roche, and Gen-Probe, take four and a half to five hours to provide results.
 
Cepheid’s MRSA test and other HAI assays are the firm’s primary focus right now, marking phase I of the firm’s product development strategy, said Bishop. Next year, the firm intends to launch a combination MRSA/SA test for skin and soft tissue infections, as well as tests for Factors II and V in hemostasis testing.
 
In 2009, Cepheid hopes to commercialize its molecular tests for C. difficile and vancomycin-resistant Enterococcus, which will round out its hospital-acquired infection portfolio. Bishop said the C. difficile test would be highly multiplexed and will target a deleted gene.
 
Cepheid also is developing a tuberculosis test that would simultaneously detect and identify drug-resistant strains of the disease.
 
Bishop said the second phase of the firm’s development plans will focus on oncology-related testing. The centerpiece of that product line will be a human papillomavirus test, which is currently in development and which the firm plans to launch in 2011-2012.
 
The HPV test is based on a family of patents the firm exclusively licensed two months ago from Swedish company Quantovir (see BioCommerce Week 9/26/2007). The test will measure HPV viral load, which the company said may help to identify patients most at risk of developing cervical cancer and will also make the test unique among current HPV DNA testing products.
 
While Qiagen is currently the only firm with an HPV molecular diagnostic test cleared for marketing in the US and Europe, several other firms, including Roche and Third Wave Technologies, have signaled their intent to enter the market within the next couple of years.
 
Bishop acknowledged that by the time Cepheid enters the market with its HPV test it may be the fifth competitor in the market, which would appear to put the firm at a disadvantage. However, Bishop said Cepheid would be able to compete on its ability to give results in a doctor’s office, since the GeneXpert is a fully contained benchtop instrument.
 
The third phase of product development will focus on genetic testing.
 
Bishop reiterated Cepheid’s guidance of revenues between $124 million and $127 million for fiscal year 2007, with a net loss in the range of $19 million to $22 million. He added that the firm expects to be profitable in fiscal 2008.

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