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Sunnyvale biotech firm’s cheaper lab testing system gains popularity

By Joe Ciolli | 31 Jan 2011

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Cepheid, a Sunnyvale molecular diagnostics company, posted record earnings last quarter due to strong adoption of its various lab tests. (Photo courtesy of Cepheid)

Molecular diagnostics company Cepheid (CPHD) on Jan. 28 reported record net income and revenue figures, helped largely by strong market adoption of its GeneXpert automated lab testing system and other laboratory tests.

Cepheid reported fourth-quarter net income of $1.3 million, or 2 cents per share, compared to a loss of $49.2 million, or 7 cents per share, over the same period the previous year. This marked the first quarterly profit in the company’s 14-year history, and narrowly outpaced consensus analyst estimates, which projected a fourth-quarter loss of 2 cents per share.

Revenue for the quarter rose 19 percent to $58.7 million from $49.2 million, exceeding Wall Street estimates of $56.1 million.

For the full fiscal year 2010, Cepheid posted a net loss of $5.9 million, or 10 cents per share, compared to a net loss of $22.5 million, or 39 cents per share, in 2009. The company reported revenue of $212.5 million for 2010, a 25 percent increase from $170.6 million the previous year. Both of these figures slightly outperformed analyst estimates, which projected a 15 cent per share net loss and revenue of $209.4 million.

Cepheid’s GeneXpert provides a quick, on-demand way for labs to analyze samples. The product integrates all steps required for DNA/RNA test preparation, making sample analysis easier.

In a conference call with analysts, Cepheid chief executive officer John Bishop explained the company’s performance. “Globally, we placed almost 500 new systems during the year, highlighting continued adoption in the clinical community, where we believe the GeneXpert system is well on its way to becoming the platform of choice.”

Bishop also credited increased awareness of GeneXpert and the Cepheid name to the system’s September 2010 mention in the New England Journal of Medicine, the selection of the product by pharmaceutical titan Novartis AG, and an endorsement from the World Health Organization.

Avondale Partners analyst Dan Owczarski provided a more tepid review: “I don’t think the raw number of systems they have installed is all that spectacular. But they have the highest growth rate in molecular diagnostics … that’s up 44 percent for the quarter, and means customers are using their product like crazy.”

For fiscal 2011, Cepheid expects to post net income ranging from a loss of 1 cent per share to a gain of 4 cents per share. The company also projects that total revenue will be in the range of $245 million to $255 million.

Owczarski commented on Cepheid’s 2011 guidance, saying, “They’re probably being prudent. But overall it’s very healthy guidance, and I think very achievable. I get the sense that they want to continue their track record of doing a little bit better than what people think.”

Shares of the Sunnyvale, Calif.-based company closed on Jan. 27 at $24.18 and rose 3 percent to $25.00 in after-hours trading on the NASDAQ Stock Market. Shares have risen 18 percent in value since Cepheid last raised its full-year 2010 outlook in October.

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