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Cepheid Posts 28 Percent Revenue Increase but Swings to Loss

NEW YORK (GenomeWeb News) – Cepheid reported after the close of the market Thursday that its first-quarter revenues jumped 28 percent on strong clinical sales, but the firm fell just short of Wall Street's consensus estimate and swung from a profit to a loss on manufacturing scale-up.

The Sunnyvale, Calif.-based molecular diagnostics firm brought in total revenues of $77.3 million for the three-month period ended March 31, compared to $60.2 million for the first quarter of 2011. Analysts, on average, had expected revenues of $77.4 million.

Sales of its clinical products jumped 33 percent to $66.9 million from $50.2 million year over year, while non-clinical sales were $8.4 million versus $7.4 million. The firm reported system sales of $13.2 million, up from $12.7 million year over year, and reagent disposable sales of $62.1 million compared to $44.9 million for Q1 2011. Other revenues dipped to $2 million from $2.6 million.

Cepheid said that it installed a total of 122 GeneXpert systems in its clinical business during the quarter, and it placed 151 of the systems as part of its high-burden developing country program. Among its clinical placements, 48 were in North America, and 74 were placed in international markets.

Revenues related to the HBDC program were around $9 million and roughly flat compared to the fourth quarter of 2011.

Cepheid posted a net loss of $5.5 million, or $.08 per share, compared to a profit of $527,000, or $.01 per share, for the first quarter of 2011. On a non-GAAP basis, its loss per share was $.02, matching Wall Street estimates, versus earnings per share of $.08 for Q1 2011.

The firm spent $22.1 million on R&D during the quarter, up 63 percent from $13.6 million year over year. Its SG&A spending jumped 34 percent to $25.6 million from $19.1 million.

"While our revenue performance was very strong in the first quarter, our profit performance was impacted meaningfully by the scale-up of our manufacturing operations in support of our growing business, and a higher than expected investment in the completion of our CT/NG clinical trial," Cepheid CEO John Bishop said in a statement. "Looking forward, we have stepped up our diligence on expenses, and we are confident that we will return the company to profitability in the second quarter and beyond."

"We are not satisfied by our bottom-line performance, which was less than satisfactory to say the least," Bishop added on a conference call following the release of the results. "We encountered some challenges during the quarter, which resulted in lower-than-targeted gross margins. These were challenges that we did not anticipate but that we have subsequently isolated, assessed, and addressed."

He added that the firm is "confident that these challenges will be shortly behind us."

Those challenges included higher scrap costs as it expanded capacity at its Sunnyvale and Sweden manufacturing sites and higher freight costs.

Bishop noted that R&D costs also were around $2.5 million higher than expected due to accelerated completion of its clinical trial for the CT/NG test for detecting the organisms that cause chlamydia and gonorrhea, which moved some anticipated second-quarter costs into Q1.

Cepheid expects to release a CE Marked CT/NG test in Europe and to submit a 510(k) filing with the US Food and Drug Administration by the end of June, said Bishop. He added that the firm's CLIA-waived flu test is "progressing well, and we continue to target commercial release for the 2013-2014 flu season."

Clinical trials for Cepheid's Xpert TB/MTB/RIF test are ongoing. Bishop noted the FDA's recent draft guidance suggesting the reclassification of nucleic acid-based tests for detecting tuberculosis from Class III (high risk) to Class II (moderate risk). Based on this document, the firm hopes to submit the test as a de novo 510(k), Bishop said on the call, rather than as a Premarket Approval application.

"If the proposed down-classification is put into effect, we believe that this more streamlined pathway would enable Cepheid to target commercial release of the test, subject to FDA review, in the first half of 2013," said Bishop, adding that the firm is targeting the submission of a marketing application by the end of this year.

Cepheid finished the quarter with cash and cash equivalents of $104 million.

For fiscal-year 2012, Cepheid expects to report revenues of between $333 million and $347 million, and non-GAAP net income per share between $.50 and $.55.

In early Friday trade on the Nasdaq, shares of Cepheid were down around 4 percent at $38.98.

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