Cepheid's Xpert CT/NG assay for the detection and differentiation of Chlamydia trachomatis and Neisseria gonorrhoeae, launched in the US at the start of the year, has seen the greatest uptake of any new Xpert test since Xpert MRSA, President and CEO John Bishop said recently.
This early success, Bishop said, indicates that Cepheid can take "considerable market share" in the burgeoning CT/NG molecular testing market and is a sign that customers are "willing to view the GeneXpert as a broad molecular system" and not just a platform for hospital-acquired infection testing — the company's bread and butter to this point.
Bishop discussed the uptake of Cepheid's Xpert CT/NG test, as well as several other business items, in a conference call last week recapping the company's earnings in the first quarter of 2013 — a quarter in which the company saw revenues rise 19 percent year over year driven primarily by sales in its HAI test portfolio.
Of note, during the call Bishop told investors and analysts that the company's high-burden developing country program, covering sales of its Xpert MTB/RIF assay, continues to grow; that the company's recent manufacturing woes have largely been solved but still linger; and that Cepheid continues to expand internationally, with plans to establish three new overseas offices this year.
But the main thrust of the conference call was an update on the early uptake of Xpert CT/NG, which was approved by the US Food and Drug Administration and which achieved a CLIA moderate complexity designation in January (PCR Insider 1/3/2013 and 1/17/2013).
The assay enters a crowded and competitive market for molecular testing of chlamydia and gonorrhea — a market that includes "first-generation" molecular tests such as Hologic's Gen-Probe Aptima Combo 2, Becton Dickinson's ProbeTec assay, and the Roche Cobas Amplicor CT/NG, as well as newer molecular tests and instrument platforms from the likes of those vendors and others, including Abbott, Qiagen, Alere, and Meridian Biosciences.
Bishop said during the call that Cepheid "couldn't be more excited" about the Xpert CT/NG launch, noting that the product began shipping to US commercial customers in late January. By March 31, he added, about 10 percent of Cepheid's North American GeneXpert customers — more than 130 customers — were already using or validating the new assay.
"This is clearly an exciting start, though I would remind you that it can take up to three months for customers to move from validation to routine usage," Bishop said. "Long term, we certainly believe we can take considerable market share in this large market." He provided the caveat, however, that "as an established market, accounts may have contractual commitments which may slow their move to the GeneXpert system for CT/NG. Also bear in mind that other than [Xpert] MRSA, no Xpert test has contributed more than $10 million in revenue in its first 12 months in the US."
Bishop said that, as expected, most early adopters of Xpert CT/NG were existing GeneXpert customers, but he added that some customers in the first quarter bought new GeneXpert platforms primarily for the purpose of implementing Xpert CT/NG.
Of the early adopters, he noted, approximately 40 percent were previously sending their CT/NG testing out to a core lab; about 30 percent were transitioning from Hologic's Gen-Probe PACE, a well-established non-amplified DNA probe assay; and about 15 percent were moving from BD's ProbeTec assay.
"The remaining adopters were either using the BD Viper, Roche Amplicor, Roche Cobas, or [Hologic's] Gen-Probe Aptima [Combo 2 direct tube sampling], highlighting the broad applicability of Xpert CT/NG to a wide range of customers," Bishop said.
Examples of early Xpert CT/NG customers included a "multi-test customer at a large hospital" that replaced a combination of PACE and send-out testing; a 400-bed hospital that replaced PACE and consolidated Xpert CT/NG testing with Xpert Clostridium difficile and group B Streptococcus testing; and a multi-hospital system with its own reference lab that runs more than 10,000 CT/NG tests per year, which had already been a GeneXpert customer and added Xpert CT/NG to complement an existing high-throughput platform.
Bishop also highlighted a large hospital that replaced Roche Amplicor with Xpert CT/NG; a veteran's administration hospital customer that added Xpert CT/NG to its growing menu of Xpert tests; and a group clinical practice with more than 20 clinicians in four locations that bought a GeneXpert System to run about 300 tests per month instead of sending tests to a reference laboratory. The latter, Bishop noted, "is an emerging opportunity for Cepheid, and we believe Xpert CT/NG will extend our footprint beyond the hospital setting."
Lastly, Bishop said that Cepheid had thus far "done very well" in converting current PACE customers to Xpert CT/NG, in the wake of PACE testing being discontinued at the end of 2012. "Our product release has proved quite timely as former PACE users are forced to evaluate their options for CT/NG testing," he added. "In multiple cases, we have won this business in competitive bake-offs against the [Hologic Gen-Probe] Panther."
In other company news, Cepheid continued to ramp up its international expansion, disclosing during the call that in April it acquired its Italian distributor, the name of which PCR Insider was unable to verify prior to publication. "We are enthusiastic about the opportunity in Italy since it is the third largest IVD market in the region, with particular interest in CT/NG, C. diff, and TB," Bishop said.
In addition, Cepheid has been working closely with regulatory agencies in the Asia-Pacific region. The GeneXpert system was approved in Japan during the first quarter, and the company continues to work toward securing approval in Japan for Xpert MTB/RIF by 2014. Additionally, Xpert MTB/RIF was approved in India during Q1.
"As a further expansion of our infrastructure, we are establishing offices in Singapore, India, and Brazil," Bishop said during the call, adding that the company would share more details on these initiatives as it moves closer to generating significant revenue. "We're confident that our international expansion will be a meaningful contributor to Cepheid's growth in the years ahead," Bishop said.
Part of the reason for Cepheid's international expansion is its growing high-burden developing country, or HBDC, program, which is focused on selling Xpert MTB/RIF for detection of Mycobacterium tuberculosis and rifampin resistance outside the US, in most cases at a reduced price.
Bishop said that Cepheid placed 157 additional GeneXpert systems in HBDC countries in Q1, pushing the total number of such placements to more than 1,000 in more than 80 countries.
"South Africa was the first major adopter of the test, and while their program now has more than 250 GeneXpert systems, they remain in a ramp-up phase, so we expect their test volume will increase through 2013," Bishop said. In addition, "the next potentially large-scale initiatives to monitor TB are in India, Brazil, and China," he said. "In India, a pilot program conducted by the Revised National TB Council program … was successful, and we expect a rollout to follow, although timing is always hard to determine." Furthermore, Brazil's government recently decided to implement GeneXpert for TB management, and China is evaluating a pilot program, Bishop said.
Finally, Bishop touched upon Cepheid's manufacturing issues, which last year caused the company to not be able to meet demand for many of its Xpert tests.
Those issues, Bishop said, are largely behind the company — a fact that the company's Q1 financial results bear out.
"However, this will continue to be an area of focus for Cepheid in 2013," Bishop said. "Just like we cautioned in the first quarter, it is possible that some tests, most likely our lower-volume products, could experience short, intermittent windows of allocation. We are working diligently to minimize the impact on our customers as we complete these normalization activities."
For the quarter ended March 31, Cepheid reported total revenues of $91.9 million, up from $77.3 million a year ago, and topping the average analyst estimate of $89.1 million. Reagent and disposable sales increased to $75.9 million from $62.1 million a year ago, while system and other sales increased to $16.0 million from $15.2 million a year ago.
Cepheid placed a total of 125 GeneXpert systems, including 57 in North America, in Q1, making it the strongest first-quarter performance in the company's history, Bishop said.
"Of note, in a competitive win, 12 of these North American [Xpert] systems were part of a single deal with a multi-hospital [network] primarily to standardize their HAI testing," Bishop said. "Given the scale of this relationship, we placed these systems as part of a reagent rental contract, so there is no reported revenue this quarter for 12 of the GeneXperts included in our system count."
The largest dollar contributors to year-over-year growth were Cepheid's HAI portfolio, Xpert Flu, and Xpert CT/NG, in that order, Bishop said.
"As expected, we were not able to meet the full demand for Xpert Flu during the quarter," Bishop said. "As a result, revenue associated with Xpert Flu increased less than $1 million on a sequential basis. That said, we did ship more flu cartridges than in any previous quarter, highlighting the strong demand for this product and the necessity for Cepheid to develop excess capacity to accommodate surge demand during future flu seasons."
Cepheid had net income of $313,000, or break-even on an EPS basis, in the first quarter, compared to a net loss of $5.5 million, or $.08 per share, a year ago. On a non-GAAP basis, EPS was $.11, well above the loss of $.02 per share expected by analysts.
For full-year 2013, Cepheid reaffirmed revenue guidance of between $375 million and $385 million, with net income between a loss of $.05 per share and a profit of $.01 per share. On a non-GAAP basis, EPS is expected to be between $.41 and $.46.