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Cepheid Reports 19 Percent Revenue Rise, Says Manufacturing Issues Settled

NEW YORK (GenomeWeb News) – Cepheid reported after the close of the market Thursday that its second-quarter revenues increased 19 percent year over year, in line with its pre-announcement last week.

The firm reported total revenues of $96 million for the three months ended June 30, compared to $81 million for the second quarter of 2012. It beat Wall Street expectations of $92.2 million.

Its clinical systems sales were $16.7 million, up from $13.9 million, while its clinical reagents sales were $70.8 million versus $55.8 million. Its non-clinical revenues were $8.5 million, down from $11.3 million.

Cepheid installed a total of 156 GeneXpert systems in its commercial clinical business during the second quarter. It also placed a total of 279 GeneXpert systems as part of its High Burden Developing Country (HBDC) program. Including HBDC systems, a cumulative total of 4,552 GeneXpert systems have been placed worldwide as of the end of the quarter, said Cepheid.

"Placing 53 systems in North America was a solid performance and very comfortably within our historical range," Cepheid Chairman and CEO John Bishop said on a conference call following the release of the results. "Every one of the 53 placements was driven by multiple tests, showing the importance of the breadth of our menu in driving system placements."

"Year over year revenue growth of about $10.5 million was driven by HAIs, CT/NG, and commercial TB, in that order," he said. "MRSA surveillance was the single largest contributor, although in fact there was growth in every expert test over this period."

"While our second quarter performance for GeneXpert system and test sales in North America continues to outpace that of our key competitors, it was not in line with our growth potential in this multi-billion-dollar market," Bishop said on the call. "We cautioned on the January and April calls that there could be a lingering impact of the backorder situation, and this proved to be the case in the second quarter."

In September 2012, Cepheid said that a manufacturing issue related to its Xpert cartridges resulted in a $6.7 million backlog and accounts being placed on allocation. The problem also negatively affected new business development.

"With backorders of Xpert test cartridges now behind us, and with new leadership and a new organizational structure in manufacturing operations, we are investing aggressively and driving across-the-board improvements to ensure that Cepheid is well prepared to effectively manage the growing demand for our rapidly expanding Xpert test menu," Bishop said in a statement.

The manufacturing problems led to management changes within the company, with Warren Kocmond joining the company in May as executive vice president of global operations. Bishop noted on the call that Cepheid's VP of technical manufacturing operations and its executive director of global supply chain transitioned out of the company earlier this week.

"It will of course take several weeks for Warren [Kocmand] and his new leadership team to fully address the immediate opportunities to improve our operational efficiency," he said.

The firm posted a net loss of $6.6 million, or $.10 per share, compared to a profit of $1.1 million, or $.02 per share, for Q2 2012. An unanticipated inventory reserve of approximately $3.0 million impacted Cepheid's earnings per share by approximately $0.04.

The firm's R&D spending increased 16 percent to $18.6 million from $16.1 million, while its SG&A expenses increased around 10 percent to $28.7 million from $26.1 million.

Cepheid finished the quarter with $85 million in cash and cash equivalents.

The firm expects FY 2013 revenues to be between $380 million and $385 million, with a net loss between $.27 and $.30 per share. It expects non-GAAP EPS of $.18 to $.21.

In Friday morning trade on the Nasdaq, shares of Cepheid were down around 2 percent at $33.31.

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