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Cepheid Provides Update on Manufacturing Woes; Reports Early Q4 '12 Revenue of $92M

NEW YORK (GenomeWeb News) — Cepheid said today that it has made "significant progress" toward fixing manufacturing woes for its Xpert diagnostic test cartridges despite "higher-than-anticipated demand" for a number of its Xpert tests in the fourth quarter.

Cepheid also reported preliminary fourth-quarter revenue of approximately $92 million — short of company guidance of $94 million and analysts' consensus estimates of $93.6 million. The company said that this preliminary revenue figure reflected stronger-than-expected sales into commercial clinical markets offset by a shortfall in product sales through its high-burden developing country program.

In a statement provided ahead of Cepheid's presentation at the JP Morgan Healthcare conference in San Francisco, CEO John Bishop said that "the underlying causes" of the company's manufacturing challenges in meeting Xpert test demand in the second half of 2012 have been resolved.

In addition, Bishop noted that Cepheid has installed a second "reagents on board automation line" ahead of schedule at its Sunnyvale, Calif., facility, further expanding the company's manufacturing capacity.

"Further, we are accelerating the completion of a second ROBAL line in our Swedish facility by one year and expect to have the line functional in the second half of this year," Bishop said.

Cepheid in September disclosed manufacturing issues related to the plastic parts used in its Xpert cartridges. The problem led to a $6.7 million cartridge backlog, accounts being placed on allocation, and a disruption to new revenue generation in the third and fourth quarters of 2012.

Cepheid has said that it expected to resolve its manufacturing issues by November, but as recently as last week analysts were expressing concern that the problem had extended beyond that to negatively affect fourth-quarter revenues.

Today Bishop acknowledged these concerns, noting that while many of the company's Xpert tests came off allocation in the fourth quarter as expected, "our operational remedies took several weeks longer than we originally anticipated. Having taken the extra time, however, we are confident that we are building a world-class manufacturing operation capable of meeting increasing product demand and ensuring a consistent supply of our growing menu of tests for all Xpert customers."

Nevertheless, due to stronger-than-anticipated demand, certain Xpert products remain on allocation, particularly Xpert MRSA and Xpert Flu, Bishop said.

Based partly on the unexpectedly high sales of these products, as well as Xpert C. difficile and GeneXpert system placements, Cepheid said it expects Q4 commercial clinical product revenue of $72 million. The company in October had provided guidance of approximately $69 million.

Offsetting these gains, however, the company expects revenue of approximately $10 million from its HBDC clinical program — which is essentially related to sales of GeneXpert systems and test for tuberculosis testing in the developing world. Cepheid had previously provided guidance of $16 million for its HBDC clinical program.

Cepheid said HBDC revenue was affected by variability in systems placements in addition to supply-related delays in the company's international manufacturing operation, which it expects will be fully resolved during the first quarter of 2013.

Cepheid also said that it expects to report bottom-line results just above the upper end of its previously announced non-GAAP EPS guidance ranges of $0.10 to $0.12. Full year non-GAAP net income per share excludes the effect of approximately $26 million related to stock-based compensation expense, approximately $15 million related to a litigation settlement, approximately $2.8 million related to the amortization of acquired intangibles, and a $1.8 million tax benefit related to an inter-company intellectual property transaction.

In late Tuesday trading on Nasdaq, shares of Cepheid were up nearly 5 percent at $34.25.

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