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Cepheid Q4 Revenues Rise 71 Percent as It Trims Net Loss

This article has been updated to include comments from a conference call and a stock quote.
 
NEW YORK (GenomeWeb News) – Cepheid reported today that its fourth-quarter revenues rose 71 percent, driven by increasing adoption of its GeneXpert system among hospitals outside of the Veterans Administration system, as the firm cut its net loss 36 percent year over year.
 
Sunnyvale, Calif.-based Cepheid generated revenues of $40.4 million for the three-month period ended Dec. 31, up from revenues of $23.6 million in the fourth quarter of 2006. The firm had instrument sales of $15.6 million compared with $6.9 million in last year’s Q4, while reagent and disposable revenues jumped to $21.3 million from $14.7 million and contract revenue increased to $2.7 million from $1.6 million.
 
Fourth-quarter revenues were driven by increased adoption of the firm’s GeneXpert molecular diagnostic system and methicilllin-resistant Staphylococcus aureus assay. As of the end of 2007, Cepheid placed 2,569 GeneXpert modules in the market, up from 1,583 modules at the end of the second quarter of 2007, CEO John Bishop said during a conference call.
 
“While our success in the Veterans Administration program drove our MRSA business in Q3 2007, general hospital adoption outside of the VA hospital system drove our MRSA fourth-quarter business,” said Bishop. “In the US, we added three additional GeneXpert system placements in VA accounts during the fourth quarter and 73 GeneXpert system placements in the general hospital population. As of the end of Q4, general hospital accounts comprised 52 percent of our MRSA accounts,” he said.
 
Cepheid’s fourth-quarter net loss dropped to $5.3 million, or $.10 per share, from $8.3 million, or $.15 per share, year over year.
 
The firm’s R&D costs climbed 29.8 percent to $8.7 million from $6.7 million, and its SG&A expenses jumped 74 percent to $12.7 million from $7.3 million. Last year’s fourth-quarter results also included a $3.35 million expense for a “patent-related matter,” which was not repeated in the fourth quarter of 2007.
 
The expense in the year-ago quarter was related to a licensing agreement with Idaho Technology to settle a PCR technology patent lawsuit.
 
For full-year 2007, Cepheid’s revenues increased 48 percent to $129.5 million from $87.4 million. Its net loss for the year was $21.4 million, or $.39 per share, compared with a net loss of $26 million, or $.50 per share, in 2006.
 
The increase in product sales for full-year 2007 reflects a 211 percent increase in clinical product sales, the company said, which more than offset a 15 percent decrease in biothreat sales compared to 2006. Industrial product sales were flat for full-year 2007 at $14.7 million.

“As of the end of 2007, we fully crossed over from a company predominantly driven by biothreat product sales to a company driven by clinical product sales,” Bishop said during the call. “Fifty-two percent of our product sales in 2007 were from the clinical market, as compared to 24 percent in 2006. Biothreat sales were 35 percent of total product sales in 2007, versus 58 percent in 2006, while industrial sales were 13 percent of the total product sales in 2007, versus 18 percent in 2006,” he said.

Cepheid’s R&D expenses increased 31.4 percent to $31.4 million from $23.9 million year over year, and SG&A costs rose 55.1 percent to $41.1 million from $26.5 million.
 
In January, Cepheid completed training 15 new staffers within the firm’s sales organization, said Bishop. The firm currently has 43 people involved in sales, corporate account management, and field technical support in the US and intends to continue expanding its sales force “in line with market demand for the GeneXpert system and its associated Xpert tests,” said Bishop.
 
Cepheid finished 2007 with $16.5 million in cash and cash equivalents.
 
The firm expects full-year 2008 revenues to be in the range of $182 million to $189 million. It expects to report net income for 2008, excluding stock compensation expense and amortization of acquired intangibles, in the range of $3 million to $5 million. Analysts who cover the firm had expected, on average, a loss of $7.4 million for 2008.
 
Cepheid expects during 2008 to introduce new tests in Europe for the hospital-acquired infections market, including assays for vancomycin-resistant Enterococci and C. difficile. Bishop said the firm intends to seek clearance of those assays in the US in 2009.
 
“We have also expanded our development plan to include a nasal specimen application of our matrixed MRSA, SA, and mecA tests for pre-surgical testing,” Bishop said. “This product is also expected to be released in Europe as a CE-marked product at the end of this year and in the US following FDA clearance in 2009. Work is also continuing on the potential 2009 release of a CLIA-waived product for MRSA surveillance, which will extend the market to nursing home testing,” he said.
 
Bishop noted that legislation for mandated surveillance MRSA testing in the US on both a state and national level is progressing, which should help drive future revenue growth. Four states have already enacted such legislation for all high-risk patients entering hospitals, and there is similar legislation pending in another seven states and the District of Columbia, he said.

In addition, federal legislation was introduced in December, which included provisions for near-term implementation of mandated surveillance in all acute care hospitals for high-risk patients, and surveillance of all acute care hospital admissions by 2012.

 
In early Friday trade on the Nasdaq, shares of Cepheid were down 3.6 percent at $27.97.

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