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Cepheid Places Next-Gen PCR Systems at VA Hospitals; Cites MRSA Tests as 'Key' Business Driver


This article was originally published on Feb. 3.

By Ben Butkus

Cepheid said last week that it recently placed an unspecified number of its newest high-throughput automated real-time PCR systems, GeneXpert Infinity, with customers at US Veterans Affairs hospitals, with which Cepheid has an ongoing sole-source contract.

Cepheid also said that it recently inked sole-source agreements with two separate entities to conduct surveillance of methicillin-resistant Staphylococcus aureus; and that its recently approved diagnostic for vancomycin-resistant enterococci received a "moderate complexity" designation under Clinical Laboratory Improvement Amendments.

Officials from the Sunnyvale, Calif.-based molecular diagnostics company disclosed the instrument placements and other news during a conference call discussing its fourth-quarter and 2009 financial results, which it released on Friday.

During the call, Cepheid CEO John Bishop said that that the company recently placed "several" of its GeneXpert Infinity systems with VA customers, "highlighting the VA's commitment to molecular testing."

In September, around the time GeneXpert Infinity became commercially available, Cepheid said that it had shipped six systems to undisclosed customers. It is unclear whether the VA placements disclosed by Bishop last week are in addition to these previous sales. Calls to the company were not returned.

Cepheid first unveiled GeneXpert Infinity in 2008 as a next-generation, high-throughput version of its flagship GeneXpert platform.

GeneXpert is a modular platform in which each module can detect six targets in a single reaction cycle with up to 12 results per assay. While the first-generation system can run a maximum of 16 modules, the Infinity system can run as many as 48 modules, resulting in the ability to run more than 1,300 tests in a 24-hour period, Bishop said.

In other news, Cepheid officials said that the company recently signed a sole-source agreement with two separate "integrated delivery networks" to implement new surveillance programs for MRSA using Cepheid's GeneXpert test.

Bishop did not disclose the identities of the delivery networks, but said that the agreements would mean that Cepheid's test will be used to monitor some 4,300 hospital beds. He discussed the agreements to support the idea that the GeneXpert MRSA test is one of Cepheid's most lucrative tests in terms of revenue, though he did not break out any specific figures.

"Although the majority of [GeneXpert] systems are placed with more than one test, MRSA continues to be a key driver," Bishop said.

As reported last week by PCR Insider sister newsletter GenomeWeb Daily News, in Q4 Cepheid also completed clinical trials for its Xpert MRSA nasal cartridge with reagents.

"This marks a significant improvement for our customers, further simplifying and reducing hands-on time," Bishop said. "It's also an important step forward for Cepheid towards our goal of bringing the first CLIA-waived PCR product test to market, which we are currently targeting next year."

Lastly, Bishop told investors that the company had recently received notification that its Xpert VanA assay, which tests for the antimicrobial resistance gene most commonly associated with vancomycin-resistant enterococci, has been categorized as a "moderate complexity" diagnostic under CLIA.

The VanA test, which was cleared last month by the US Food and Drug Administration, is the eighth out of nine Cepheid tests sold in the US to receive CLIA's moderate complexity designation, which "highlights the ease of use" of the company's Xpert tests, Bishop said.

Q4 and '09 Financials

Cepheid reported last week that its fourth-quarter revenues increased 30 percent to $49.2 million from $37.8 million for the fourth quarter of 2008 on overall strong instrument and reagent growth.

Cepheid's clinical systems sales in Q4 rose 28 percent to $10 million from $7.8 million, while its clinical reagents sales increased 54 percent to $25.6 million from $16.6 million.

Cepheid placed 134 GeneXpert instruments in the quarter, Bishop said, including 64 in North America and 70 in Europe. This essentially matched the number of instruments sold by Cepheid in Q4 2008, Bishop said.

However, Bishop noted that the Q4 '08 placements included a large number of installments at VA hospitals. Because it did not receive a similarly large order from the VA in Q4 2009, the 134 instruments sold last quarter to new customers are being considered a record by the company.

For the full year, Cepheid saw its revenues increase slightly to $170.6 million from $169.6 million in 2008. Growth in Cepheid's 2009 clinical reagent sales paralleled its Q4 growth, rising 54 percent to $89.7 million from $58.2 million in 2008. However, despite strong Q4 sales, Cepheid's full-year clinical systems revenues dropped 18 percent to $26.2 million from $32.1 million in 2008.

Bishop attributed the overall drop in clinical systems revenues to "constraints" in the capital equipment market last year.

Meantime, Cepheid's industrial product sales for Q4 rose 58 percent to $6.1 million from $3.9 million, while its biothreat sales declined 2 percent to $5.1 million from $5.2 million.

For the full year 2009, industrial product sales rose 24 percent to $19.2 million from $15.4 million; while biothreat revenues dropped 31 percent to $24.8 million from $35.8 million.

During the conference call, Cepheid Senior Vice President and CFO Andrew Miller told investors that the company expected biothreat revenues to continue to drop this year to an anticipated $17 million. This is mainly due to the renegotiation of a contract with Northrop Grumman related to the US Postal Service.

Miller said that while the old contract, which was to run through 2011, contained a minimum annual purchase commitment of 1 million Xpert tests, Cepheid may agree to decrease the minimum purchase number while extending the length of the contract and raising the price of its tests.

For fiscal year 2010, Cepheid provided revenue guidance of between $195 million and $205 million — an increase of between 14 percent and 20 percent over 2009 revenues. Bishop said that the company remains "cautious" about the capital equipment buying environment, and expects instrument placements to "continue to be lumpy" through 2010.

Meantime, the company said it expected net loss in 2010 to be between $.35 and $.27 per share. Comparatively, the company reported a net loss of $.39 per share for the full-year 2009.

Miller said that the company expects to achieve full-quarter non-GAAP profitability by the fourth quarter of this year, mainly due to the August expiration of real-time PCR-related royalties owed to Roche for US sales.

These royalty payments are equal to approximately 7.5 percent of Cepheid's US clinical test and system revenues. In 2009 Cepheid logged $115.9 million in such sales, which would equate to some $8.7 million in royalty payments coming off the books. "The impact of this on Cepheid's business model will be meaningful," Miller said.

Beyond that, Miller and Bishop said that the company also expects European royalties owed to Roche for both PCR tests and systems to come off the books in 2011.

Cepheid also expects "double-digit" PCR system royalties owed to Life Technologies unit Applied Biosystems to end in the US in May 2011 and to end in Europe in 2012. The cessation of these royalty payments will be "truly transformational to our business model," Bishop said.

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