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GeneXpert Sales to VA Boost Cepheid’s Q3 Results; New MRSA Test to Launch in 2008

This story originally appeared in Biocommerce Week, a newsletter that has been discontinued.
 
Cepheid officials said last week that sales of the company’s GeneXpert system and test cartridges, particularly to hospitals in the US Veterans Administration network, pushed its third-quarter revenues up 53 percent.
 
Since its molecular test for methicillin-resistant Staphylococcus aureus was cleared by the US Food and Drug Administration in April, a growing portion of the firm’s revenue has steadily shifted from the biothreat and industrial markets to the clinical market. Cepheid also has plans to release a combination MRSA test next year to help guide physicians’ therapeutic choices, as well as a CLIA-waived test.
 
For the third quarter ended Sept. 30, Cepheid’s revenues increased to $36.3 million from $23.8 million year over year. Cepheid CEO John Bishop said the results were driven by GeneXpert sales, as the firm’s instrument sales rose roughly 118 percent to $15.9 million.
 
In total, the firm sold 106 GeneXpert systems in the third quarter — 78 systems in the US and 28 systems in Europe. The MRSA test is the primary driver of sales of the GeneXpert system right now, company officials said.
 
“With revenues of $89 million for the nine months ended September 30 of this year, we have already exceeded revenues generated for all of 2006,” Bishop said during the firm’s third-quarter conference call last week. “These results are driven by the positive market reception of the GeneXpert system and the rapidly developing healthcare-acquired infection market.”
 
Cepheid’s reagent and disposable sales increased 18 percent to $18.1 million, while its contract revenues more than doubled to $2 million, and government and government-sponsored research revenue rose 125 percent to $289,000.
 
Sales to clinical markets shot up to $20.7 million in the quarter from $5.8 million in the comparable period last year, while sales to the biothreat market dropped to $8.9 million from $12 million, and sales to industrial markets declined to $4.4 million from $4.8 million.
 
Cepheid’s installed base of GeneXpert diagnostic modules rose to 1,786 worldwide, an increase of 800 modules over the second quarter. The GeneXpert currently is sold with one to 16 modules, depending on the customers’ use for the platform.
 
“With the introduction of our new Infinity series of GeneXpert systems currently in development, accounts will have the ability to configure systems with up to 72 modules,” said Bishop. He said that enhanced capacity would be coupled with “near-term improvement of our existing MRSA test, reducing the time to result to 50 minutes from the current 72 minutes.”
 
The number of tests that can be run on the Infinity system, which is expected to be launched in mid-2009, will increase from 1,440 to 2,074 tests per 24-hour period, he added. However, company officials did not say when they expect to launch the Infinity system.
 
Cepheid added 51 VA hospital accounts during the third quarter, according to Bishop. The GeneXpert system is now installed in 77 of roughly 97 VA hospitals that have chosen to run molecular-based diagnostics for MRSA surveillance programs, he said.
 
There are roughly 142 VA hospitals overall that plan to implement MRSA surveillance programs, Cepheid officials said. While there are 97 doing molecular-based testing, Cepheid hopes to convert some of the remaining hospitals that are doing standard culture methods.
 
“When the VA initiative was undertaken they specifically funded 50 VAs, and we see the results of the program were very favorable … [so] other VAs went and found the money to implement molecular [tests] out of their general budgets,” Rob Koska, senior vice president of worldwide commercial operations, said during the call.
 
Although Bishop acknowledged during the call that the mix of customers had shifted in the quarter to more VA hospitals versus hospitals outside of that network, the firm expects that shift to reverse during the fourth quarter.
 
In addition, Cepheid’s forecast is for revenue that is virtually flat with third-quarter revenues. “We had a bolus of unit instrument sales going in the third quarter that rounded out the VA’s program, which goes hand in hand with the closeout of the government’s fiscal year,” Bishop explained.
 
“What we‘re expecting to see in the fourth quarter will be additional accounts coming on line, and then filling in [revenues] with more cartridge utilization,” he said. “So I would expect our fourth-quarter sales will be more test-driven rather than equipment-driven as what we saw in the third quarter.”
 
Cepheid officials declined to discuss how many hospitals outside of the VA system are using the GeneXpert system now or how many of those types of hospitals purchased systems during the third quarter. However, Koska said there is “broad-based activity” in states where legislation is driving utilization of the MRSA test.
 

“By 2012, we believe that the annual expenditures of MRSA surveillance and diagnosis will be in the area of $1.4 billion in the US alone.”

“New Jersey, Illinois, and Pennsylvania have already passed laws mandating active MRSA surveillance for all high-risk patients entering hospitals,” said Bishop. He noted that New York State has introduced similar legislation, and 27 states currently require the reporting of hospital-acquired infections.
 
New MRSA Tests
 
In addition to its current MRSA test, which is cleared in both the US and Europe, Cepheid is developing a combination test that will identify MRSA, Staph aureas and the MEC A gene. Bishop said this combined product would be used for specimens from skin and soft-tissue infections and blood-culture bottles.
 
“We believe this combination will be important in providing clinically actionable results and avoiding potential false clinical positives,” said Bishop. The firm anticipates releasing this product in Europe by the end of this year, and hopes to obtain FDA clearance and launch the test in the US in the second half of 2008.
 
In an effort to capitalize on the growing number of states requiring MRSA surveillance at hospitals, nursing homes, and other healthcare facilities, Cepheid intends to launch a CLIA-waived test that would expand the market for the assay.
 
“We do plan to bring out an MRSA product that will be CLIA exempt,” Bishop said during the call. “What got our attention on that immediately was the Pennsylvania law,” which covers nursing homes that have a particularly high number of patients that need to be screened. “We’re going to be moving aggressively with that program,” he added.
 
“By 2012, we believe that the annual expenditures of MRSA surveillance and diagnosis will be in the area of $1.4 billion in the US alone,” said Bishop.
 
This market potential has led several other molecular diagnostic developers to recently state their intentions to bring competing tests onto the market over the next few years. Meanwhile, other firms — such as Bio-Rad Laboratories and Invitrogen this week (see Briefs) — have introduced updated culture methods aimed at providing more rapid MRSA surveillance.
 
In addition to the MRSA tests, Cepheid is developing tests for Clostridium difficile, which will detect a gene associated with hypervirulence, as well as a test for vancomycin-resistant Enterococcus, which will be used for surveillance purposes.
 
Net Loss Up on Higher Costs
 
Cepheid’s third-quarter net loss increased roughly 18 percent to $4.7 million, or $.09 per share, from $4 million, or $.07 per share, in the year-ago period.
 
The firm’s R&D spending rose 50 percent to $8.4 million from $5.6 million year over year, while selling, general, and administrative costs jumped 79 percent to $10.9 million from $6.1 million.
 
Cepheid is in the process of expanding its US sales and field service support organization aimed at the HAI market. It plans to hire an additional 15 sales and marketing staffers by the first quarter of 2008 — up from its current staff of 28 in those departments.
 
Cepheid finished the third quarter with around $8.3 million in cash and cash equivalents.
 
The company projected total revenues for fiscal year 2007 to be in the range of $124 million to $127 million, an increase over its previous guidance of revenue between $117 million and $123 million for the year. Its net loss guidance of between $19 million and $22 million for fiscal 2007 was unchanged.

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