Cepheid Reports First Quarter 2007 Results

SUNNYVALE, Calif., May 3 /PRNewswire-FirstCall/ -- Cepheid (NASDAQ:CPHD) today announced financial results for the first quarter ended March 31, 2007.

Total product sales for the first quarter ended March 31, 2007 were $22.1 million, an increase of 15% from the $19.3 million for the first quarter ended March 31, 2006. Clinical product sales for the first quarter increased 103% to $7.4 million from the corresponding prior year period. Clinical product sales represented 34% of total product sales for the first quarter of 2007 compared to 19% of total product sales for the first quarter of 2006. Industrial product sales for the first quarter decreased 8% to $3.2 million from the corresponding prior year period. Industrial product sales represented 14% of total product sales for the first quarter of 2007 compared to 18% of total product sales in the first quarter of 2006. Biothreat product sales decreased 6% to $11.5 million from the corresponding prior year period. Biothreat product sales represented 52% of product sales in the first quarter of 2007 compared to 63% of total product sales in the first quarter of 2006.

Total revenues of $25.5 million for the first quarter of 2007 include $3.4 million of other revenue compared to other revenues of $0.9 million in the first quarter of 2006. Other revenues were driven largely by R&D collaborations, including assays for Tuberculosis with FIND, Avian Flu and flu A/B with the Centers for Disease Control and Prevention (CDC), hemostasis with Instrumentation Laboratories (IL), and others. The reimbursement of these research and development programs is a significant factor in determining our R&D spending levels.

Gross margin on total revenues, or total revenues less cost of goods sold, as adjusted to a non-GAAP measure (attached Table A) was 48% in the first quarter of 2007 compared to 44% for the first quarter of 2006.

Gross margin on product sales, adjusted for stock compensation expense and amortization of acquired intangibles (Table A), was 40% percent in the first quarter of 2007 compared to 42% for the first quarter of 2006. This decrease in gross margin was largely due to the higher percentage of lower margin sales through distributors in Europe (attached Table B), which have higher royalty rates on European instrument sales.

Net loss for the first quarter of 2007 was approximately $6.2 million, or $0.11 per share. This is compared to a net loss of approximately $6.7 million, or $0.15 per share, for the quarter ended March 31, 2006. Net loss for the first quarter of 2007, adjusted for stock compensation expense and the amortization of acquired intangibles (Table A) was $3.9 million, or $0.07 per share, for the first quarter of 2007 as compared to $4.9 million, or $0.11 per share, for the first quarter of 2006.

"The Company had a particularly productive first quarter with the completion of the Sangtec Molecular Diagnostics AB acquisition, the bioMerieux sepsis collaboration and the FDA clearance of the Xpert(TM) EV test. Subsequent to the close of the quarter we added to this list of accomplishments with the FDA clearance of the Xpert(TM) MRSA test and the collaboration with Instrumentation Laboratories to develop and market hemostasis tests. The clearance of the Xpert(TM) MRSA test provides us with a menu of tests on our GeneXpert(R) System which should enable us to begin to build a significant position in the Clinical Molecular Diagnostics Market," commented John Bishop, Cepheid's CEO.

Mr. Bishop added, "We are gaining traction with our Xpert(TM) GBS and EV tests. Our instrument base for GeneXpert(R) Systems increased to 166 systems during the quarter. These systems comprise 478 individual GeneXpert modules. We see the market for MRSA surveillance continuing to grow at a rapid rate. The Veterans Administration or VA hospitals initiative is an example of a relatively lengthy list of initiatives which are under development and implementation at varying levels across the U.S. in addition to programs in Europe."

"As we have planned, the Clinical market is now emerging as the key driver to the growth of our business with a substantial level of strategic opportunity. We expect our Industrial and Biothreat markets to continue to provide a continuing base of sales but growth rates will likely vary depending on other factors such as the availability of government funding for the research markets and USPS actions involving their biothreat program."

"Biothreat sales were impacted during the first quarter by additional deferred revenue recognition of $0.6 million of sales which otherwise might have been realized on the anthrax test cartridges shipped during the quarter. As noted in our Q4 2006 discussion, this action was taken in connection with our currently active negotiations with Northrop Grumman and the USPS on a five year cartridge purchase contract. As the potential five year agreement would become effective with the USPS' 2007 fiscal year beginning October 1, 2006, the potential new price point per test cartridge has been applied to test cartridge shipments for the first quarter in addition to those shipped in the fourth quarter of 2006. The deferred revenue will be recognized during 2007 in the event that we do not reach agreement on the terms of a five year purchase agreement. We should also note that in the event we do not reach agreement on the terms of a five year purchase agreement the program will continue with our existing terms which will continue to be applied on a year to year basis based upon a volume of anthrax test cartridges to be agreed for each government fiscal year. The program continues with outstanding performance as to date 4.7 million tests have been run with no false positives. This is a feat never before achieved by any molecular test system."

"Industrial product sales were impacted in the first quarter by a slow down in government research funding. We currently expect funding to continue to be an issue for the Industrial market throughout 2007."

2007 Outlook

Commenting on Cepheid's outlook for 2007, Mr. Bishop stated:

         "We continue to expect 2007 to be a significant year of achievement
         in the Clinical market. The early FDA clearance of our Xpert MRSA
         product should add to the expected growth in our clinical sales.  We
         continue to expect to receive a CLIA Moderate Complexity
         categorization for the Xpert MRSA test.  As noted in our previous
         discussion, we continue to expect to see a rapidly developing MRSA
         market opportunity. In addition to the growing interest in our Xpert
         EV and GBS products we are seeing increased demand for our GeneXpert
         system with the mix favoring our GX-XVI system."

         "Based upon early indications of our success in the Clinical market
         we are evaluating a potential further expansion of our U.S. direct
         sales force ahead of planned additions. Our new product launches are
         also being supported with increased marketing and promotional
         expenses as the rate of product adoption will have a determining
         impact on our timeline to profitability and positive cash flow."

         "We also continue to expect our other revenues to double, or possibly
         triple, last year's other revenues, potentially reaching the $12 to
         $15 million range. These programs are being supported with
         significant investments in research and development."

         "Our own product development programs are underway for MRSA/MSSA in
         skin and soft tissue infections and for use with blood culture
         testing in addition to C. difficile and VRE. Additional collaborator,
         foundation and government funded programs are underway for drug
         resistant tuberculosis, sepsis, flu, and tests for factors II and V
         in hemostasis testing. We expect to release the Xpert MRSA/MSSA in
         skin and soft tissue infections and for use with blood culture
         testing in Europe as a CE marked product during the fourth quarter
         this year."

         "Systems development programs are currently underway for a six color
         capability for the GeneXpert, a GX-I system and the GX-HV system, a
         48 module high volume robotic system which will automatically load
         and unload test cartridges.  The six color project is expected to
         provide the ability to simultaneously test for up to 15 different
         targets in a single test cartridge and is expected to be available in
         production systems by the end of 2007.  The GX-I system is also
         expected to be available for shipment before the end of 2007."

         "We expect sales in the Industrial market to continue to be effected
         by a decrease in available government research funding. As a result,
         we expect Industrial sales to be flat to slightly down in 2007 as
         compared to 2006."

         "In the Biothreat market, we expect to either complete the five year
         contract under mutually agreeable terms with Northrop Grumman and the
         USPS during the second quarter or to return to use of a year-by-year
         contract and the corresponding pricing matrix. The USPS anthrax test
         cartridge volume for the USPS' fiscal year 2007 is expected to be
         approximately the same as that for fiscal 2006, which was
         approximately 2 million. However, based on a potential shift of BDS
         units in conjunction with the deployment to flats canceller systems
         during USPS' fiscal year 2008 starting October 1st, 2007, we expect
         to see a decrease in test cartridge volume for our calendar year
         2007. This will be partially offset by a corresponding increase in
         the price per test cartridge."

         "We expect to complete integration of Cepheid AB, based in Bromma,
         Sweden, by the fourth quarter and we are on track to introduce the
         products for CMV, EBV, and VZV in the U.S. before the end of the
         year."

         "Given the mix of positive factors in the Clinical market and other
         factors which may affect the Industrial and Biothreat markets we are
         going to maintain our previously announced guidance for 2007."

         "On a consolidated basis, we currently expect our 2007 total revenues
         to be in the range of $112 million to $120 million, with product
         sales to be in the range of $100 million to $105 million. We expect
         our 2007 net loss, not including the effect of stock compensation
         expense which is currently estimated at $7 million and any
         amortization expense arising from our announced acquisitions, to be
         in the range of $8 million to $11 million or $0.14 to $0.20 per share
         based on expected weighted average shares outstanding of
         55.6 million. We expect our 2007 net loss, when including the effect
         of stock compensation expense but not any amortization expense
         arising from our announced acquisitions, to be in the range of
         $15 million to $18 million or $0.27 to $0.32 per share based on
         expected weighted average shares outstanding of 55.6 million. We
         expect our quarterly operating results to show a definitive trend
         towards profitability in the second half of 2007 based upon
         successful introduction of our Xpert EV and Xpert MRSA IVD tests in
         the U.S. market. We expect to achieve positive operating cash flow by
         the end of 2007 and to be profitable for the entire year of 2008."

Conference Call Information

Cepheid's CEO, John Bishop, and Senior V.P. and CFO, John Sluis will host a conference call today at 4:30 pm (Eastern) to discuss Cepheid's financial results, business highlights and outlook. The call will be simultaneously broadcast over the Internet. Interested participants and investors may access the teleconference call by dialing 800-257-1836 (domestic) or 303-262-2191 (international). There will also be a live webcast of the call on the Investor Relations 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, the call will remain available on Cepheid's website, www.cepheid.com, through May 3, 2008. A replay of the conference call will be available at 800-405-2236 (domestic) or 303-590-3000 (international) through May 10, 2007; the conference ID is 11089144. The replay will be available after 6:30 pm (Eastern).

About Cepheid

Cepheid (NASDAQ:CPHD), 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. The company'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 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, FDA approvals, the status of government funding, timing of future product releases, future revenues and demand for certain test products, future net losses and profitability, other future operating results, potential benefits of the recent Sangtec acquisition, the status of the USPS BDS program and collaboration and product development efforts. 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 ability to complete clinical trials successfully in a timely manner for 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 need for additional licenses for new tests and other products and the terms of such licenses; lengthy sales cycles in certain markets; our success in increasing direct sales, and the effectiveness of new sales personnel; the performance and market acceptance of new products; sufficient customer demand for new products; the Company's reliance on distributors to market, sell and support our products; the occurrence of unforeseen expenditures, acquisitions or other transactions; unforeseen issues relating to integration of acquisitions, including the operations and product lines of the acquired businesses; the ability of Cepheid to retain and motivate key employees of acquired businesses, particularly research and development personnel; incurrence of unexpected liabilities in connection with 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.

    (FINANCIAL STATEMENTS FOLLOW)

                                   CEPHEID

          CONDENSED CONSOLIDATED UNAUDITED STATEMENTS OF OPERATIONS
                    (in thousands, except per share data)

                                                  Three Months Ended March 31,
                                                     2007              2006

    Revenues:
     Instrument sales                               $6,837            $4,538
     Reagent and disposable sales                   15,230            14,734
       Total product sales                          22,067            19,272
     Contract revenues                               1,890               611
     Grant and government sponsored
      research revenue                               1,587               278
    Total revenues                                  25,544            20,161
    Costs and operating expenses:
     Cost of product sales                          13,877            11,393
     Collaboration profit sharing                    3,497             3,811
     Research and development                        6,922             5,829
     Selling, general and administrative             8,428             6,146
      Total costs and operating expenses            32,724            27,179
    Loss from operations                            (7,180)           (7,018)
    Other income, net                                1,027               346
    Net loss                                       $(6,153)          $(6,672)

    Basic and diluted net loss per share            $(0.11)           $(0.15)
    Shares used in computing basic and
     diluted net loss per share                     55,012            44,946


                                   CEPHEID

               CONDENSED CONSOLIDATED UNAUDITED BALANCE SHEETS
                                (in thousands)

                                            March 31, 2007   December 31, 2006
                   ASSETS
    Current assets:
     Cash and cash equivalents                      $7,884           $17,186
     Marketable securities                          45,750            77,750
     Accounts receivable, net                       16,644            15,246
     Inventory                                      12,951            10,240
     Prepaid expenses and other current assets       2,989             1,390
    Total current assets                            86,218           121,812
    Property and equipment, net                     15,184            14,097
    Restricted cash                                    661               661
    Other non-current assets                           378               666
    Intangible assets and goodwill                  57,908            30,425
    Total assets                                  $160,349          $167,661


    LIABILITIES AND SHAREHOLDERS' EQUITY
    Current liabilities:
     Accounts payable                               $8,132            $8,977
     Accrued compensation                            3,413             3,319
     Accrued royalties                               4,807             3,516
     Accrued collaboration profit sharing            2,000             3,497
     Accrued other liabilities                       4,581             4,107
     Accrued expense for patent-related matter          --             3,350
     Current portion of deferred revenue             4,923             3,913
     Current portion of license fees payable            --               447
     Current portion of equipment financing            166               313
     Current portion of note payable                    49                11
    Total current liabilities                       28,071            31,450
    Long-term portion of deferred revenue            2,262             2,663
    Long-term portion of equipment financing             3                 3
    Long-term portion of note payable                   --                41
    Deferred rent                                      801               798
    Total liabilities                               31,137            34,955
    Commitments and contingencies
    Shareholders' equity:
    Common stock                                   251,865           251,132
    Additional paid-in capital                      17,043            15,065
    Accumulated other comprehensive loss               (57)               (5)
    Accumulated deficit                           (139,639)         (133,486)
    Total shareholders' equity                     129,212           132,706
    Total liabilities and shareholders' equity    $160,349          $167,661


         Table A - GAAP vs. Non GAAP Measures
                                                  Three months ended March 31,
                                                        2007             2006

         Total Product Sales                         $22,067          $19,272
         Total Revenues                              $25,544          $20,161

         Cost of product sales                       $13,877          $11,393
           Stock compensation expense                    266              174
           Amortization of acquired inventory
            step-up in basis                              64               --
           Amortization of purchased intangible
            assets                                       203               --
         Non-GAAP measure of cost of goods sold      $13,344          $11,219

         Gross Margin on Product Sales per GAAP          37%              41%
         Gross Margin on Product Sales per Non-GAAP       40%              42%

         Gross Margin on Total Revenues per GAAP         46%              43%
         Gross Margin on Total Revenues per Non-GAAP     48%              44%

         Research and development                     $6,922           $5,829
           Stock compensation expense                    744              593
         Non-GAAP measure of cost of research
          and development                             $6,178           $5,236
         Non-GAAP R&D measure as percent of
          Total Revenues                                 24%              26%

         Selling, general and administrative          $8,428           $6,146
           Stock compensation expense                    991              956
         Non-GAAP measure of cost of selling,
          general and administrative                  $7,437           $5,190
         Non-GAAP SG&A measure as percent of
          Total Revenues                                 29%              26%

         Net Loss                                    $(6,153)         $(6,672)
           Stock compensation expense                  2,001            1,723
           Amortization of acquired inventory
            step-up in basis                              64               --
           Amortization of purchased intangible
            assets                                       203               --
         Non-GAAP measure of Net Loss                $(3,885)         $(4,949)

         Basic and diluted net loss per
          share                                       $(0.11)          $(0.15)
           Stock compensation expense                   0.04             0.04
           Amortization of acquired
            inventory step-up in basis                  0.00                -
           Amortization of purchased
            intangible assets                           0.00                -
         Non-GAAP measure of Net Loss                 $(0.07)          $(0.11)

         Shares used in computing basic and
          diluted net loss per share                  55,012           44,946


         Table B - Instrument and Reagent Sales Mix
                                                  Three months ended March 31,
                                                       2007             2006
         Product Sales
           Instrument sales                           $6,837           $4,538
           Reagent and disposable sales               15,230           14,734
               Total product sales                   $22,067          $19,272

         Percent of Product Sales
           Instruments                                   31%              24%
           Reagents and disposables                      69%              76%
               Total product sales                      100%             100%


         Table C - Geographic Sales Mix           Three months ended March 31,
                                                        2007             2006

         Percent of Instrument and service sales
           US & ROW                                      60%              75%
           Europe                                        40%              25%
         Total Instrument and Service Sales             100%             100%


         Percent of reagent and disposable
          sales (including USPS)
           US & ROW                                      92%              98%
           Europe                                         8%               2%
         Total Reagent and Disposable Sales             100%             100%


         Percent of Reagent and Disposable
          Sales (without USPS)
           US & ROW                                      69%              91%
           Europe                                        31%               9%
         Total Reagent and Disposable Sales             100%             100%


         Percent of Total Product Sales (including USPS)
           US & ROW                                      82%              93%
           Europe                                        18%               7%
         Total Product Sales (including USPS)           100%             100%


         Percent of Total Product Sales (without USPS)
           US & ROW                                      63%              81%
           Europe                                        37%              19%
         Total Reagent and Disposable Sales             100%             100%


     CONTACTS
     At the Company:
     John L. Bishop
     CEO, Cepheid
     408-541-4191
     john.bishop@cepheid.com

     John R. Sluis
     CFO, Cepheid
     408-541-4191
     john.sluis@cepheid.com

     Financial Relations Board:
     Lasse Glassen
     Investor/Analyst Information
     310-854-8313
     lglassen@financialrelationsboard.com

Source: Cepheid

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