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Cepheid Eyes Expansion in HAI Test Market as MRSA Assay Helps Drive Q2 Revenue Growth

This story originally appeared in Biocommerce Week, a newsletter that has been discontinued.
 
Cepheid this week posted a 37 percent increase in second-quarter revenues driven by a 165 percent increase in revenues from clinical products, particularly its molecular diagnostic assay for methicillin-resistant Staphylococcus aureus (MRSA).
 
Even though Cepheid did not have the benefit of a full quarter of sales for the Xpert MRSA test, which was cleared by the US Food and Drug Administration in April, company officials this week cited the test and the firm’s GeneXpert instruments as the primary drivers of revenue growth.
 
The company is developing a variety of molecular diagnostics assays for hospital-acquired infections (HAI) and expects its clinical products to continue to provide the majority of revenues going forward.
 
Cepheid reported second-quarter revenues of $27.2 million compared with $19.8 million in the second quarter last year. The firm said product sales accounted for $23.6 million of total revenues in the quarter, of which $9.4 million came from instrument sales and $14.2 million came from reagents and disposables.
 
Contracts, grants, and research revenue brought in $3.6 million.
 
Cepheid posted a net loss of $5.2 million, or $.10 per share, compared with a net loss of $7 million, or $.13 per share, in the comparable period last year.
 
The firm’s R&D costs rose 29.3 percent to $7.4 million from $5.8 million year over year.
 
Clinical Products Rise Sharply
 
The primary contributor to the revenue growth was the firm’s clinical products, which rang up sales of $10.6 million. Cepheid officials said that market adoption of the firm’s GeneXpert System and its Xpert MRSA test drove sales in this area. Sales of industrial products rose 43 percent to $4 million for the quarter, while biothreat products declined 26 percent to $9 million.
 
Cepheid said the decrease in its biothreat business was due to a planned reduction in the price of Cepheid’s Anthrax cartridges to the United States Postal Service that is linked to a five-year agreement that the company is currently negotiating with USPS.
 
The MRSA test runs on the company’s GeneXpert system and rapidly identifies methicillin-resistant S. aureus,which is the leading cause of nosocomial infections and kills as many as 100,000 patients a year in the US. Industry analysts agree that the market potential for a rapid molecular test for MRSA is massive, and Cepheid officials have estimated the market at $3 billion. Right now, Cepheid’s primary competition comes from Becton Dickinson, which is the only other firm to sell an FDA-cleared molecular-based MRSA assay.
 
“We continue to see the rapidly growing market in hospital-acquired infections as a key near-term opportunity,” Cepheid CEO John Bishop said during the conference call. “Specifically, we see the MRSA testing market to be one of our most significant business opportunities, [and] legislative activities continue to fuel development of this market.”
 
For example, New Jersey Governor Jon Corzine signed into law last week a bill requiring identification and colonization of MRSA patients by screening on admission.
 
Bishop said that since the MRSA test was cleared in mid-April, “26 VA hospitals are using the GeneXpert system to meet their MRSA testing objectives.” The firm also noted that roughly 40 percent of its MRSA test sales are to Veterans Administration hospitals, which have been early adopters of molecular diagnostic assays for HAI.
 
In addition to the MRSA test, Cepheid also sells molecular assays, the Xpert EV for identification of enteroviral meningitis and the Xpert GBS for Group B streptococcus, that have been cleared by the FDA for use on the GeneXpert platform.
 

“We see the MRSA testing market to be one of our most significant business opportunities, [and] legislative activities continue to fuel development of this market.”

Adding to Cepheid’s revenues in the quarter were sales of products from the recently acquired Sangtec Molecular Diagnostics, which brought Cepheid a portfolio of real-time PCR-based assay kits for a variety of infectious diseases that affect immunocompromised patients (see BioCommerce Week 2/21/2007). Bishop said Sangtec’s revenue contribution was “in line with expectations,” but he did not provide an exact figure.
 
Bishop said the firm leased a third building in Sunnyvale, Calif., to keep up with manufacturing demand for its systems, and its direct sales force now has 28 sales people.
 
As of the end of the second quarter, Cepheid had 252 GeneXpert systems placed worldwide, up from 166 at the end of the first quarter. Of those placements, 159 are in Europe and 93 are in the US, company officials said.
 
Cepheid also has a number of molecular diagnostic products in development, with a primary focus on HAI assays.
 
“Development of our combination MRSA/SA product for use in diagnosing skin and soft tissue infections and for use with blood culture testing is progressing,” said Bishop. “We continue to expect to release the products for both indications in Europe as a CE-marked product in the fourth quarter of this year.
 
“We expect to file 510(k)s with the FDA during the first quarter of 2008, and expect to release the product in the US subsequent to the receipt of FDA clearance,” he said. “In addition, we’re developing products for C. difficile and vancomycin-resistant Enterococcus, which will round out our hospital-acquired infection portfolio.”
 
Cepheid also is developing tests for drug-resistant tuberculosis, sepsis, flu, and tests for Factors II and V in hemostasis testing. In addition, the firm intends to develop a genotyping test for patients taking warfarin.
 
Cepheid finished the quarter with $7.2 million in cash and cash equivalents.
 
The firm expects 2007 product revenues of between $105 million and $108 million, and total revenue to be between $117 million and $123 million.
 
Cepheid’s shares closed at $15.56 on Tuesday, up 89 percent for this year. The firm’s shares have been the biggest gainer among stocks in the BCW Index since the beginning of 2007.

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