By Ben Butkus
Cepheid last week reported revenue growth of greater than 30 percent in both the fourth quarter and full year in 2011, driven by a record number of placements for its GeneXpert molecular diagnostics platform; gradual uptake of its higher throughput GeneXpert Infinity system; and broader adoption of its molecular testing menu.
In addition, CEO John Bishop noted that the company saw strong contributions to 2011 revenue from sales of its GeneXpert platform and Xpert MTB/RIF test for multi-drug-resistant tuberculosis through its high-burden developing country program.
Bishop also noted that the company remains on schedule for continued expansion of its Xpert test menu, including an assay for chlamydia and gonorrhea expected to be launched this year; and he provided updates surrounding the firm's geographical expansion, its biothreat detection collaboration, its strategy for commercializing CLIA-waived diagnostic products, and a new BCR-ABL test.
Bishop discussed these items and more during a conference call last week recapping Cepheid's fourth-quarter and full-year 2011 financial performance.
For the fourth quarter ended Dec. 31, Cepheid recorded revenue of $80 million, a 36 percent increase over the prior year, driven by a nearly $20 million increase in its clinical business, Bishop said. Fourth-quarter clinical sales of $69 million were up 39 percent from Q4 2010, "driven as anticipated by strong system placements, particularly in North America and in our [high-burden developing country] business and strong reagent growth," Bishop said.
In North America, Cepheid placed a record 88 GeneXpert systems in the fourth quarter, including a record 14 Infinity systems, half of which were sold to new high-volume customers. This was complemented by a "solid performance in international placements" with 87 systems placed, including two Infinities, "predominantly in Europe, despite a challenging economic environment," Bishop said.
For all of 2011, Cepheid placed a record 254 GeneXpert systems in North America, compared to 190 in 2010; 164 in 2009; and 200 in 2008. Outside North America, the company placed 311 commercial systems, which also established a new record, beating the 295 systems placed in 2010, Bishop noted. In total, Cepheid placed 983 GeneXpert systems in 2011, more than double the 485 it sold in 2010.
With a strong established platform base in both the US and Europe, Cepheid is also reaping the associated clinical reagent revenue. Bishop said that entering 2012, the company's clinical reagent revenue represents an annualized business of close to $200 million.
Bishop underscored the fact that Cepheid's strong performance in Q4 and 2011 reflected growth not only in its commercial business but also in its high-burden developing country, or HBDC, business, which is primarily driven by the company's Xpert MTB/RIF test.
"Xpert MTB/RIF was a strong contributor to year-over-year and sequential reagent growth in Q4," Bishop said. "Sequentially, [TB testing] grew more than 70 percent [in Q4], driven primarily by our HBDC business, but also supported by growth in our commercial TB business."
For full-year 2011, Cepheid placed 418 GeneXpert systems with HBDC programs. Xpert MTB/RIF contributed approximately $15 million to 2011 revenue, with a roughly 60 percent/40 percent revenue split between the company's HBDC and commercial operations.
During the fourth quarter, the company placed an additional 181 GeneXpert systems in HBDC geographies. Cepheid now has a presence in 48 of the 145 eligible HBDC countries, Bishop said, noting that combined HBDC system and test revenue contributed approximately $9 million in revenues in Q4 and just under $20 million for the full year, split roughly equally between systems and reagents.
"This places it as our third largest Xpert test … and significantly ahead of our next largest products," Bishop said. "It is clear then, that our HBDC program has seen impressive interest and uptake during its fourth year."
Expanding Xpert Menu
Cepheid's commercial Xpert test menu revolves primarily around tests for hospital-acquired infections, influenza, and tuberculosis, and the company saw strong growth in these areas as expected.
However, the company is also in the midst of rolling out an extensive test menu in other infectious disease areas and women's health. In particular, Cepheid has in the past half year been building anticipation and presenting positive data surrounding its Xpert CT/NG test for detecting the organisms that cause chlamydia and gonorrhea.
"In November, we shared clinical data highlighting … comparable performance [of Xpert CT/NG] to the market leader," Bishop said. "Xpert CT/NG continued to make progress through the clinical trial process with no change to our previous target release dates of the first half of 2012 outside of the US and second half of 2012 in the US," he added.
Meantime, Cepheid is also putting the finishing touches on an Xpert MTB/RIF test for the US market, and continues to target 2012 to submit the test to the US Food and Drug Administration and the 2013-14 timeframe to launch the product. In addition, "our Xpert HPV, HIV, HBV, and HCV [tests] are all progressing in active development; and our women's health product for simultaneous detection of Trichomonas and Candida has moved into active development," Bishop said.
Eyeing CLIA Waivers
Cepheid has also been developing several products with the intent of obtaining CLIA waiver status. However, whereas the company previously targeted a Staphylococcus aureus assay as its first CLIA-waived test, the company has now "made a strategic decision to accelerate our development of a CLIA-waived version of our Xpert Flu product as our initial offering in this area," Bishop said, adding that this decision could accelerate development of that test so it is available by the 2013-14 flu season, as opposed to the originally planned 2014-15 season.
"One of the reasons we made the decision with flu is that we really wanted to get the flu product onto the market because that can open some other strategic initiatives that we've been talking about, and we would really like the opportunity to actively explore that," Bishop said.
Pressed further on this matter by an analyst, Bishop noted that recent flu pandemics have underscored the need for a rapid and easy-to-use test that can be administered in doctor's offices, small nurse practitioner clinics, and emergency rooms without needing to send an assay to a central laboratory.
"Where we're really looking to go is beyond the doctor's office, and then take it potentially to the … Walgreen units, CVS Pharmacy units, Wal-Mart units," Bishop said. "This is a textbook case for really trying that out, because you need the diagnostic result within 24 hours of onset. We can give the test right there."
From an economic standpoint, the company is "very, very comfortable in our ability to approach [the CLIA-waived] market, and price will not be a barrier," Bishop said. "One [erroneous] perception was that we could never be a low-cost provider. We've demonstrated clearly that we can be, but the business model that we have is to put more value into the diagnostic while pulling cost out of the healthcare system."
In addition, "because of the design of our systems, [they] are less costly to produce and overall design versus other systems that are out on the market," Bishop said.
Lastly, Bishop tied up some loose ends regarding the company's geographic expansion and biothreat detection program.
Specifically, the company within the last few weeks has taken steps to extend its direct sales operations in both Germany and South Africa. "With regards to Europe, we believe the [hospital-acquired infection] opportunity is now well-developed enough in Germany to support a direct sales organization," Bishop said. "We therefore acquired our business segment from our distribution partner there in early January. We also intend to complete the acquisition of our distributor in South Africa during the first quarter."
Taken together, the acquisitions in Germany and South Africa total approximately $18 million, Bishop said.
Further, in the Asia-Pacific region, Cepheid has made early investments in sales offices in both China and Japan; and is in the early stages of the regulatory approval process for selected products in each of those markets.
Cepheid also entered into a new five-year contract with Northrop Grumman and the US Postal Service for the purchase of anthrax test cartridges and associated materials for use in biohazard detection systems installed at USPS mail processing centers nationwide. Bishop noted that Cepheid began supplying the USPS with GeneXpert system modules and anthrax test cartridges in 2004, and to date more than 10.5 million tests have been run with no false positives.
In addition, regarding Cepheid's collaboration with Novartis in the area of BCR-ABL gene transcript monitoring in patients with Philadelphia chromosome-positive chronic myelogenous leukemia (PCR Insider, 10/14/2010), Bishop said that the partners have completed clinical trials for the first version of this assay.
"While the data looks very good, in collaboration with our partner [Novartis] we are currently considering moving directly to a version two of the test, which offers an even higher level of sensitivity than version one," he said. "This may have an incremental benefit in patient management. Discussions are still ongoing, and meantime, version one of the test is available in international markets."
Finally, Bishop updated investors on an active investigation into the reasons behind an unacceptable number of patients experiencing inconclusive test results using Cepheid's Xpert MRSA/SA-BC for detecting methicillin-resistant Staphylococcus aureus in blood culture, which in January forced the company to withdraw the product from the market for the second time (PCR Insider, 1/12/2012).
"We are investigating high invalid rates experienced by some of our Xpert blood culture customers with the target of making the test commercially available again in the US by the end of the year," Bishop said. "The international version of the product is a slightly different configuration that has not experienced similar observations. As a result, that test continues to be available on an international basis."
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