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Cepheid Reaches Agreement Aimed at Increasing Adoption of TB Test in Developing World

NEW YORK (GenomeWeb News) – Cepheid announced the first agreement to buy down the price of the Xpert MTB/RIF test in order to drive adoption of the technology in resource-poor areas of the world with multi-drug-resistant tuberculosis.

The agreement with the Bill and Melinda Gates Foundation, the US President's Emergency Plan for AIDS Relief (PEPFAR), the US Agency for International Development (USAID), and Unitaid was announced after the close of the market on Monday. As part of the agreement, the first in an expected series, Cepheid will make the Xpert MTB/RIF test available at $9.98 per test, compared to its regular price of $16.86. The Gates Foundation is funding an initial payment of $3.5 million to make the test immediately available at the lower price in 145 High Burden Developing Countries (HBDC).

Cepheid said that it expects to recognize the initial payment of $3.5 million as revenue at $6.88 per test, pending the execution of the agreements with the remaining collaborators. Afterward, the remainder will be recognized over 18 months.

Xpert MTB/RIF is a fully automated nucleic acid amplification test for the rapid testing of tuberculosis, and the World Health Organization endorsed it in late 2010, about a year-and-a-half after it was launched. Two months ago, Unitaid said its board approved $30 million in funding to increase adoption of the test in HBDCs.

Cepheid said, however, last month that the announcement was "premature" and negatively impacted revenues for its second quarter as many customers delayed buying the test in anticipation of the price reduction.

Investment analysts reacted positively to the announcement, saying the funding from the Gates Foundation could serve as a bridge to a completed agreement between Cepheid and the other charitable organizations to fully fund the buy-down program.

Nicholas Jansen of Raymond James Equity Research said that Cepheid has placed instruments in 75 of the 145 HBDC-eligible nations and the lower price point will "likely accelerate the adoption of this test over the coming quarters. … [W]e view today's announcement as a positive and consistent with our accelerating growth thesis for 2013, with better visibility into [Q3] estimates likely a positive for near-term sentiment."

Brian Weinstein at William Blair raised his third-quarter and full-year 2012 estimates for Cepheid by $1.5 million. The $3.5 million from the Gates Foundation will cover 508,721 tests, he said.

In Tuesday morning trade on the Nasdaq, shares of Cepheid were up almost 12 percent at $38.12.

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