In referring to his recommended position in Cepheid (NASDAQ: CPHD), industry-leading biotech expert Michael Shulman jests, "To use a highly technical financial term: WooHoo! What a great quarter capped by a justifiably upbeat conference call."
Here, the editor of The ChangeWave Biotech Investor takes a look at the company, noting "I've been pounding the table for CPHD -- and this great quarter justifies my optimism."
"Cepheid develops and markets a diagnostic testing system called the GeneXpert that's a hardware platform for genetic tests of diseases that can be identified by their genetic code.
""There are several specific tests for this platform including MRSA, the killer staph infection that is typically found in hospitals, but is also spreading to other venues.
"In its latest quarrter, the company reported that revenues were $36.3 million, up 53% from Q3 2006. Total product sales were $34 million, up 50% and clinical product sales were $20.7 million, up 258%.
In its latest quarrter, the company reported that revenues were $36.3 million, up 53% from Q3 2006. Total product sales were $34 million, up 50% and clinical product sales were $20.7 million, up 258%.
"The GeneXpert system sales exploded! By the end of the quarter 1,376 GeneXpert System modules were installed in hospitals in the United States -- including 77 in VA hospitals, up by 51 modules in Q3 and representing a 79% share of the VA market.
"The razor and blades business model is kicking in -- sales of the one-time test cartridges were roughly $18 million with $16 million in hardware sales, boosting gross margins to 43%. Keep in mind that currently large (double-digit royalties) paid on the GeneXpert to a third party will shrink significantly by 2010.
"CPHD also announced the development of a simpler GeneXpert system called CLIA exempt, which means it can be used in smaller settings like a nursing homes -- and, of course, opening up the possibility of a huge new market.
"The company did lose money -- $4.7 million GAAP, $1.5 million non-GAAP -- but said it would be profitable on a pro forma basis (non-GAAP) in 2008. Finally, Cepheid raised revenue guidance for all of 2007 to $124 million-$127 million.
"The firm's recent conference call showed tremendous strength in the MRSA testing business. The company said it now estimates the market for MRSA testing and diagnosis will be $1.4 billion by 2012 -- and that's just in the United States.
"The company is executing well. It just boosted the throughput to 50 minutes for a test -- while competitive tests take a day for results -- and more than 2,000 tests can be done daily on the larger GeneXpert systems.
"The company had previously received two U.S. Department of Veterans Affairs Federal Supply Service Schedule (VA/FSS) contracts for the GeneXpert System and the company's test for MRSA.
"The average size of a VA hospital using the system is 256 beds, but the average size of other hospitals is 432 beds and that means sales of test cartridges will escalate, on average, as GeneXpert finds its way into more hospitals beyond the U.S. Veterans Affairs system.
"A new test for hospital infection clostridium difficile (causing extreme diarrhea) is also on target to be introduced in 2008, and a test for super-anti-biotic-resistant infection Vancomycin-Resistant Enterococcus (VRE) is also on target.
"Cepheid's stock has already had a good run, but everyone investing in the biotech segment should add some CPHD to their portfolio. In my view, Cepheid still has a very long way to run."
Each day, Steven Halpern's TheStockAdvisors.com website features the latest investment commentary and favorite stock picks of the nation's leading financial newsletter advisors.
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