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Cepheid Q3 Sales Rise 15 Percent as Firm Lands Major Reference Lab Customers

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NEW YORK (GenomeWeb) — Cepheid said last week that its third quarter revenues grew 15 percent year over year driven primarily by stronger than expected commercial clinical revenue resulting from new Xpert assays and customer types.

Specifically, the company disclosed that in Q3 it landed as customers two major US reference labs that, taken together, are expected to eventually account for some half a million Xpert tests annually.

Cepheid CEO John Bishop discussed these items and more — including the company's potential foray into Ebola diagnostics — during a conference call following release of the company's Q3 earnings.

For the three months ended Sept. 30, Cepheid logged revenues of $115.2 million, a 14 percent increase over $100.1 million in the same quarter last year, and beating the average Wall Street estimate of $110 million.

Total clinical revenues were up 17 percent at $107.1 million, as clinical systems revenues edged downward 3 percent to $17 million from $17.5 million in the year-ago period, but clinical reagents revenues jumped 21 percent to $90.1 million from $74.4 million.

Cepheid said that it installed a total of 173 GeneXpert molecular diagnostic systems through its commercial clinical business in the quarter, and an additional 284 GeneXpert systems through its high-burden developing country (HBDC) program. A full recap of the company's Q3 earnings can be found here.

During the earnings call, Bishop said that commercial clinical test revenue grew $14 million, or 23 percent, from the same quarter a year ago, driven by growth in hospital-acquired infections, chlamydia/gonorrhea, group B Strep, and tuberculosis tests, in that order. The third quarter, he noted, also represented the company's largest ever sequential increase in commercial clinical test revenue, up $6.4 million from the second quarter.

The company's HAI revenue — derived largely from its Xpert C. difficile assay — grew in the low double digits year over year, and was the largest dollar contributor to growth. Meantime, Xpert CT/NG revenue more than doubled year over year to approximately $7 million; and commercial Xpert MTB/RIF revenue grew more than 50 percent from a year ago.

Notably, Bishop said that Xpert GBS sales more than doubled year over year, benefitting from a new high-volume reference lab customer.

"We have been focusing more intently on our strategy to extend Cepheid's reach beyond our traditional hospital lab customers and in to other customer segments … [and] the third quarter was particularly exciting in this regard," Bishop said.

In September Cepheid landed as a customer its first major US reference lab, which the company declined to disclose. However, Bishop noted that the customer has equipped its lab with 10 GeneXpert Infinity systems and is expected to ramp to about 400,000 Group B Strep tests on an annual basis. "I'm pleased to report that account initiation is proceeding ahead of our original plans," Bishop said.

Furthermore, the company added a second large national US reference lab as a customer late in the third quarter that is expected to ramp up to approximately 100,000 tests per year, comprising MRSA, C. diff, and GBS. All of the tests for this customer will run on a number of GeneXpert 16 systems that will be installed during the fourth quarter of 2014 and the first quarter of 2015 under a reagent rental program.

"These are exciting and we think game-changing placements for Cepheid," Bishop said. "We have long asserted that the GeneXpert system is the most efficient molecular diagnostic system available for customers of all sizes, and we look forward to further demonstrating this point as we deepen our relationship with these and other lab partners over time."

Further elaborating in response to an analyst question, Bishop called the reference lab wins "icebreakers" in terms of market penetration.

"The big thing that we're looking for is getting them used to working with and realizing the benefits of the systems," Bishop said. "As those benefits are realized then they're broadly applicable to almost the entire menu … and then importantly as we come now with these virology products that [are] high volume. So this is going to position us well for getting going at a faster rate in the independent lab market and then moving to the hospital market."

Menu expansion

During the third quarter Cepheid added two new tests to its GeneXpert menu: Xpert Flu/RSV and Xpert Trichomonas, both of which received CE marking and are now commercially available in Europe.

In addition, Bishop noted that Xpert Flu/RSV, as well as Xpert Norovirus, are currently under review with the US Food and Drug Administration. These tests were submitted to the FDA at the end of July and early September, respectively, and Cepheid expects no change in their commercial release timelines.

Similarly, the company does not expect any change to the commercialization timeline for its Xpert HIV Viral Load, slated for CE IVD marking around the end of the year; Xpert HIV qualitative and HCV viral load, expected to garner the CE IVD mark in Q1 or Q2 of 2015; and Xpert Trichomonas, which is currently available outside the US but is targeted for FDA submission in Q1 2015.

Finally, Xpert Carba-R and CLIA-waived Xpert Flu RSV continue to be targeted for commercial release in the US in 2015; while Xpert Bladder continues to be targeted for a commercial release outside the US in late 2015.

Outside of infectious disease diagnostics, Bishop noted that the company's "Honeycomb" initiative — the development of a GeneXpert consumable cartridge capable of interrogating as many as 1,000 gene targets both qualitatively and quantitatively for multiplexed oncology testing — is progressing well.

"During the third quarter, we demonstrated consistent PCR reactions in our 1,000-microwell injection molded honeycomb tube," Bishop said. "We continue to expect to deliver the honeycomb system to the biologics team in 2015 and look forward to updating you on our progress in the quarters ahead."

Eyeing Ebola

Also in response to an analyst's query, Bishop discussed the possibility of Cepheid tackling Ebola diagnostics with its GeneXpert system.

Specifically, Bishop noted that Cepheid's previous biothreat detection experience leaves it "well-positioned" to address Ebola diagnostics, adding that the company could build off of a 2006 initiative under which the Canadian government awarded Cepheid funding to develop in-field assays for the Ebola, Lassa fever, and Marburg viruses.

"We're currently speaking right now with a number of potential partners to incrementally invest or provide funding" for the development of an Ebola diagnostic, Bishop said, stressing that the company first and foremost is focused on test menu expansion through 2017 in order to drive revenue growth.

"While we’re looking to meet the needs of the emergency, we don't want to end up totally diverging from our strategic direction," Bishop said. "That said, I will tell you that we have very clear solid initiatives that are currently under discussion, if these become funded."

Another advantage that Cepheid might have in this market is its HBDC program, which has already placed thousands of GeneXpert systems for tuberculosis testing in many countries currently ravaged by the Ebola virus.

"We could be in a position to implement actual field training with an alternative test out of our menu, but get them used to running the GeneXpert system within an eight-week period," Bishop said. "I'd also expect to have a prototype Ebola assay available for our evaluation and to begin utilization with the field group in eight weeks."

Following that, Bishop noted, the company would expect to have a preproduction test available in about 16 weeks, and a fully vetted test in about seven months. "But what's more important is that tests would be available to start to utilize in the field … in that 16-week period."

Still, Bishop noted that the company is looking into outside funding sources for such an initiative, as well as "working with laboratories that have access to [biosafety level 4] facilities which would be required for this kind of a program."

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