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Cepheid Terminates Roche PCR License; Reports Record Revenues in Q3 2011

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Amid reporting its earnings for the third quarter of 2011, Cepheid said today that it is terminating its PCR license with Roche after determining that patents covered by the license are "not pertinent" to Cepheid's future business plans.

Cepheid also said that it recorded record revenues of $70.2 million and a profit of $1.9 million in the third quarter.

In a statement accompanying its Q3 financial earnings release, Cepheid noted that it is "terminating the remainder of its PCR license with F. Hoffman-La Roche and Roche Molecular Systems (collectively Roche) after determining that any patents remaining under the license are not pertinent to Cepheid's future business plans."

As a result of this action, Cepheid said that it expects to take a one-time charge of approximately $5.4 million to cost of product sales in the fourth quarter of 2011 to reflect acceleration of the remaining amortization of the original up-front license fee.

In a conference call today discussing the company's Q3 earnings, CEO John Bishop further detailed the license termination, noting that Cepheid had made royalty payments to Roche associated with certain TaqMan PCR process patents through August 2010 in the US and through August 2011 outside of the US.

"Those patents are expired, and as a result of our ongoing review of our test menu and development pipeline, we have determined that any patents remaining under the license are no longer pertinent to Cepheid's business plans," Bishop said.

"Note that we have not used or paid royalties to date on any patents that remained under the license," he added. "However, we did amortize the up-front license fee across all patents licensed under the original agreement," necessitating the one-time $5.4 million charge.

For the quarter ended Sept. 30, Cepheid posted revenues of $70.2 million, a 25 percent increase from the $56.1 million in receipts logged in Q3 2010.

Total product sales in Q3 2011 were $67.3 million compared to $54.9 million in the year-ago period. During the quarter Cepheid installed a total of 122 GeneXpert systems in its commercial clinical business. Additionally, the company placed a total of 141 GeneXpert systems as part of its high-burden developing country program.

Including the Q3 numbers, Cepheid has placed a total of 2,487 GeneXpert systems worldwide.

The Sunnyvale, Calif.-based molecular diagnostics developer reported net income of $1.9 million, or $.03 per share, in Q3, compared to a net loss of $1.1 million, or -$.02 per share in Q3 2010.

The company had $110.8 million in cash and cash equivalents at the end of the third quarter.

For the fiscal year 2011, Cepheid said it expects total revenue to be in the range of $269 to $272 million and net income to be in the range of $.00 to $.03 per share. This includes the one-time charge to cost of product sales related to the termination of the Roche PCR license, the company said.

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