SUNNYVALE, Calif., Nov. 1 /PRNewswire-FirstCall/ -- Cepheid today announced financial results for the third quarter ended September 30, 2007. Key results for the third quarter 2007 include:
Total revenues of $36.3 million for the third quarter of 2007 included $34.0 million of product sales and $2.3 million from contracts, grants and research revenue. Other revenue predominantly consists of reimbursement for research and development collaborations, including partnerships to develop assays for Tuberculosis with FIND and hemostasis with Instrumentation Laboratories.
Total product sales for the third quarter ended September 30, 2007 increased 50 percent to $34.0 million from $22.6 million for the third quarter 2006. The increase in product sales for the third quarter 2007 reflects a 258 percent increase in clinical product sales, which more than offset a 26 percent decrease in biothreat sales and an 8 percent decrease in industrial sales, compared to the third quarter of 2006.
The increase in clinical sales was driven by market adoption of both the GeneXpert(R) System and the Company's menu of available tests, specifically the Xpert(TM) MRSA product that provides rapid detection of Methicillin- resistant Staphylococcus aureus (MRSA). The Company focused on GeneXpert System installations during the third quarter, and expects test sales volumes to increase as accounts become fully operational. The U.S. Food and Drug Administration cleared Cepheid's Xpert MRSA test in April 2007.
As of September 30, 2007, Cepheid has installed 1,786 diagnostic GeneXpert modules in Europe and the U.S., which is an increase of 800, or 81 percent, from the second quarter of 2007. Providing unique account scalability, the GeneXpert System is presently configurable with anywhere from one to 16 modules. The new Infinity Series of GeneXpert Systems, currently in development, will extend this capability up to 72 modules. This configuration flexibility and volume capacity has been particularly attractive to large hospitals seeking on-demand test capability as they have made time-critical, active MRSA surveillance a priority.
The third quarter 2007 product sales illustrate the overall shift of Cepheid's business towards the substantially larger, higher-margin clinical market, away from the historically less consistent biothreat and industrial markets. The industrial market segment is now primarily supported by distributors, which results in a lower average selling price for products realized by the company, as compared to prices realized through direct sales. This was the primary driver for the decrease in product sales for the industrial market. The decrease in third quarter 2007 biothreat sales compared to the prior year quarter was the result of a planned decrease in the purchase price of Anthrax test cartridges to the United States Postal Service (USPS) in conjunction with a five-year contract and a shift in distribution of the quarterly purchase volumes taken during the 2007 USPS fiscal year.
GAAP-based gross margin on product sales was 41 percent for the third quarter of 2007, which is the same as the third quarter of 2006. Gross margin on product sales, without stock compensation expense and the amortization of acquired intangibles, was 43 percent for the third quarter of 2007, compared to 42 percent for the third quarter of 2006.
GAAP net loss for the third quarter of 2007 was approximately $4.7 million, or $0.09 per share, as compared to a net loss of approximately $4.0 million, or $0.07 per share, for the third quarter 2006. Net loss for the third quarter of 2007, adjusted for stock compensation expense and the amortization of acquired intangibles, was $1.5 million, or $0.03 per share, as compared to $2.4 million, or $0.04 per share, for the third quarter of 2006. See the attached table for a reconciliation of GAAP and Non-GAAP amounts.
"Our third quarter results were driven by recognition of the value that the GeneXpert System brings to laboratories of all sizes in its ability to provide clinically useful results on an on-demand basis, twenty-four hours a day, seven days a week. We believe this attribute to be a key benefit to hospitals large and small in advancing the ability to reduce Healthcare Acquired Infection (HAI)," said John Bishop, Cepheid's Chief Executive Officer. "As has been recently noted in the press nationwide, HAI is a significant problem. Unfortunately, the HAI problem also involves infections resulting from multiple organisms in addition to MRSA. We are actively developing additional tests for vancomycin-resistant enterococcus (VRE) and C. difficile. In addition, we expect the ability to more effectively combat community-acquired MRSA will be better enabled by the unique scalability and ability of the GeneXpert System to function in both highly complex laboratories and moderately complex settings such as hospital emergency departments. Based on our success, and the rapidly developing market, we are continuing to accelerate our investment in sales and marketing infrastructure."
Third Quarter 2007 and Recent Business Highlights
In the third quarter 2007, Cepheid received two Veterans Affairs Federal Supply Service Schedule (VA/FSS) contracts. The contracts are expected to streamline the acquisition process and ensure VA hospitals and other federal agencies can purchase GeneXpert Systems and Xpert MRSA test kits without individual negotiations. To date, Cepheid has already won competitive contracts for MRSA testing in 77 out of approximately 97 VA hospitals looking to implement PCR-based MRSA surveillance, which includes a gain of 51 accounts in the third quarter.
As noted, Cepheid is continuing to accelerate expansion of its U.S. sales and field service support organization based on the rapidly developing HAI market. The Company plans to bring the total sales and field service support personnel from 28 to 43 by the first quarter of 2008. Recruiting is currently underway for various positions in sales and marketing.
During the third quarter 2007, Northrop Grumman signed a five-year agreement with Cepheid to purchase up to $200 million in Bacillus anthracis (anthrax) test cartridges and associated materials for use in Biohazard Detection Systems installed at USPS mail processing centers nationwide. Under the agreement, the annual purchase quantity of anthrax tests will be determined prior to initiation of the USPS fiscal year, October 1 through September 30. The Company has received a purchase order for approximately two million anthrax test cartridges for the USPS fiscal 2008.
Outlook for Year-End 2007
Based upon market demand for the GeneXpert System and associated Xpert tests, the Company is raising its forward-looking financial guidance for product sales and resulting total revenues for 2007.
Chief Financial Officer John Sluis to Retire at the End of the Year
Cepheid also announced today that Senior Vice President and Chief Financial Officer John Sluis will retire on December 31, 2007. Sluis will remain as a consultant for one year following his retirement. The Company is currently working with an outside executive search firm relative to identifying a successor candidate.
"John has been a valuable asset to the organization and I cannot thank him enough for his contributions to Cepheid. All of us at Cepheid wish him a long and happy retirement," said Mr. Bishop. "As previously noted, John will remain as a consultant through 2008 to ensure a seamless transition with his successor."
John Sluis joined Cepheid as Vice President, Finance and Chief Financial Officer in July 2002. Prior to joining Cepheid, Mr. Sluis was Senior Vice President and Chief Financial Officer of Vysis, a genomic disease management company from June 2000 through February 2002. Before joining Vysis, he held various senior financial management positions at Sanofi Diagnostics, Gen-Probe, and American Hospital Supply Corporation.
Conference Call Information
Cepheid's CEO, John Bishop, and Senior V.P. and CFO, John Sluis will host the conference call today at 4:30 pm Eastern Time to discuss Cepheid's financial results and business highlights. Interested participants and investors may access the teleconference call by dialing 866-713-8564 (U.S./Canada) or 617-597-5312 (international), participant code 54436442. A telephonic replay will be available for seven days beginning at 6:30 p.m. Eastern Time today. Access numbers for this replay are 888-286-8010 (U.S./Canada) and 617-801-6888 (international); participant code 20626524.
This news release contains certain non-GAAP financial measures. A reconciliation of these and other measures to the comparable GAAP measures is included in this release and in the attached financial tables.
The webcast of the call can be accessed on the Investor section of Cepheid's Web site at www.cepheid.com. Web participants are encouraged to go to the Web site at least 15 minutes prior to the start of the call to register, download, and install any necessary audio software. After the live webcast, a replay will remain available in the Investors section of Cepheid's Web site for 90 days.
About Cepheid
Cepheid , based in Sunnyvale, Calif., is a molecular diagnostics company that develops, manufactures, and markets fully-integrated systems for genetic analysis in the clinical, industrial and biothreat markets. The Company's systems enable rapid, sophisticated genetic testing for organisms and genetic-based diseases by automating otherwise complex manual laboratory procedures. Cepheid's easy-to-use systems integrate a number of complicated and time-intensive steps, including sample preparation, DNA amplification and detection, which enable the analysis of complex biological samples in its proprietary test cartridges. Through its strong molecular biology capabilities, the Company is focusing on those applications where rapid molecular testing is particularly important, such as identifying infectious disease and cancer in the clinical market; food, agricultural, and environmental testing in the industrial market; and identifying bio-terrorism agents in the biothreat market. See http://www.cepheid.com for more information.
This press release contains forward-looking statements that are not purely historical regarding Cepheid's or its management's intentions, beliefs, expectations and strategies for the future, including those relating to potential growth in clinical products sales, the status of government funding, future product releases, future revenues and demand for certain test products, future net losses and profitability and other future operating results. Because such statements deal with future events, they are subject to various risks and uncertainties, and actual results could differ materially from the Company's current expectations. Factors that could cause actual results to differ materially include risks and uncertainties such as those relating to: our success in increasing direct sales and marketing organization, and the effectiveness of any new sales personnel the Company hires; the performance and market acceptance of new products; sufficient customer demand; our ability to develop and complete clinical trials successfully in a timely manner for new products to be marketed in clinical markets; uncertainties related to the FDA regulatory and European regulatory processes; the scope of actual USPS funding in the future; the rate of environmental testing using the BDS conducted by the USPS, which will affect the amount of consumable products sold; the fact that future levels of government funding are inherently uncertain; unforeseen development and manufacturing problems; the potential need for additional licenses for new tests and other products and the terms of such licenses; lengthy sales cycles in certain markets; the Company's reliance on distributors in some regions to market, sell and support its products; the occurrence of unforeseen expenditures, acquisitions or other transactions; the impact of acquisitions; the impact of competitive products and pricing; our ability to manage geographically-dispersed operations; and underlying market conditions worldwide. Readers should also refer to the section entitled "Risk Factors" in Cepheid's Annual Report on Form 10-K for 2006 and its other reports filed with the Securities and Exchange Commission.
All forward-looking statements and reasons why results might differ included in this release are made as of the date of this press release, based on information currently available to Cepheid, and Cepheid assumes no obligation to update any such forward-looking statement or reasons why results might differ.
CONTACT: John L. Bishop, CEO, john.bishop@cepheid.com, or John R. Sluis,
CFO, john.sluis@cepheid.com, both of Cepheid, +1-408-541-4191; or Media,
Chris Stamm of Schwartz Communications, +781-684-0770,
cepheid@schwartz-pr.com, for Cepheid; or Investors, Jason Spark of Porter
Novelli Life Sciences, +619-849- 6005, jspark@pnlifesciences.com
Web site: http://www.cepheid.com/
