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Cepheid Reports Second Quarter Revenue of $42.1 Million

65 Percent Increase in Product Sales Driven by Robust MRSA Growth

SUNNYVALE, Calif., July 24 /PRNewswire-FirstCall/ -- Cepheid (Nasdaq: CPHD) today reported revenue for the second quarter of 2008 of $42.1 million, an increase of 55% over the second quarter of fiscal 2007. Net loss was $7.5 million, or $(0.13) per share, which compares to revenue of $27.2 million and a net loss of $5.2 million, or $(0.10) per share, in the second quarter of fiscal 2007.

Excluding amortization of purchased intangible assets and stock compensation expenses, non-GAAP net loss for the second quarter was $3.5 million, or $(0.06) per share. This compares to a non-GAAP net loss of $2.7 million, or $(0.05) per share, in the second quarter of fiscal 2007.

"We are continuing to see rapid development of the Healthcare Associated Infection (HAI) market as sales for our Xpert(TM) MRSA test increased by 35% from the first quarter reaching approximately $11 million," said John Bishop, Cepheid's Chief Executive Officer. "Providing the fastest time-to-result in the industry, our GeneXpert(R) System continues to be the HAI molecular platform of choice, resulting in year-over-year growth in our clinical business of 186% for the first half of 2008."

"While our core clinical product laboratory sales grew to record levels in the second quarter, non-core clinical sales of products to other companies were below our expectations and we expect non-core clinical sales of products to other companies to continue to be below our expectations for the remainder of 2008," continued Bishop. "Our gross margin on product sales was also below our expectations as a result of a problem in the production of a cartridge part. Given that this was occurring with high volume production at an incidence rate of less than 1%, this could have taken an extended period to find and resolve. However, our operations team did an outstanding job in quickly finding the cause and correcting the problem w>Cash flows from operating activities:

Net loss $(9,376) $(11,394)

Adjustments to reconcile net loss to net

cash used in operating activities:

Depreciation and amortization 3,129 2,558

Amortization of intangible assets 2,310 2,050

Amortization of prepaid compensation expense 126 125

Stock-based compensation related to employees

and consulting services rendered 6,968 4,299

Deferred rent 376 8

Changes in operating assets and liabilities:

Accounts receivable 2,690 (6,884)

Inventory (4,419) (5,352)

Prepaid expenses and other current assets (1,239) (764)

Other non-current assets (161) 210

Accounts payable and other current

liabilities 5,333 545

Income taxes payable (213) -

Accrued compensation (210) 393

Accrued expense for patent-related matter - (3,350)

Deferred revenue (1,348) 1,921

Net cash provided by (used in)

operating activities 3,966 (15,635)

Cash flows from investing activities:

Capital expenditures (9,000) (2,955)

Payments for technology licenses - (4,737)

Cost of Sangtec acquisition, net of cash

acquired - (27,341)

Proceeds from maturities of marketable

securities 2,550 39,500

Proceeds from the sale of fixed assets 1,011 -

Transfer to unrestricted cash 517 -

Net cash provided by (used in) investing

activities (4,922) 4,467

Cash flows from financing activities:

Net proceeds from the issuance of common

shares and exercise of stock options and

awards 9,333 1,523

Principal payments under equipment financing - (257)

Payment of note payable (4) (44)

Net cash provided by financing activities 9,329 1,222

Effect of exchange rate change on cash 17 (64)

Net increase (decrease) in cash and cash

equivalents 8,390 (10,010)

Cash and cash equivalents at beginning of

period 16,476 17,186

Cash and cash equivalents at end of period $24,866 $7,176



(in thousands, except per share data)

Three Months Ended Six Months Ended

June 30, June 30,

2008 2007 2008 2007

Cost of product sales $22,870 $13,879 $45,856 $27,756

Stock compensation expense (247) (36) (597) (302)

Amortization of acquired inventory

step-up in basis - (106) - (170)

Amortization of purchased intangible

assets (241) (122) (482) (297)

Non-GAAP measure of cost of product

sales $22,382 $13,615 $44,777 $26,987

Gross margin on product sales per GAAP 41% 41% 43% 39%

Gross margin on product sales per

Non-GAAP 43% 42% 45% 41%

Research and development $10,964 $7,439 $20,862 $14,361

Amortization of purchased

intangible assets (24) (24) (48) (48)

Stock compensation expense (1,414) (1,047) (2,677) (1,791)

Non-GAAP measure of cost of research

and development $9,526 $6,368 $18,137 $12,522

Sales and marketing $7,434 $5,067 $14,375 $9,560

Amortization of purchased

intangible assets (21) (18) (42) (23)

Stock compensation expense (909) (424) (1,754) (795)

Non-GAAP measure of cost of sales

and marketing $6,504 $4,625 $12,579 $8,742

General and administrative $5,518 $4,038 $10,265 $7,973

Stock compensation expense (1,137) (791) (1,940) (1,411)

Non-GAAP measure of cost of

general and administrative $4,381 $3,247 $8,325 $6,562

Income (Loss) from Operations $(7,513) $(5,981) $(10,985) $(13,161)

Stock compensation expense 3,707 2,298 6,968 4,299

Amortization of acquired inventory

step-up in basis - 106 - 170

Amortization of purchased

intangible assets 286 164 572 368

Non-GAAP measure of Income (Loss)

from Operations $(3,520) $(3,413) $(3,445) $(8,324)

Net Income (Loss) $(7,526) $(5,241) $(9,376) $(11,394)

Stock compensation expense 3,707 2,298 6,968 4,299

Amortization of acquired inventory

step-up in basis - 106 - 170

Amortization of purchased

intangible assets 286 164 572 368

Non-GAAP measure of Net Income

(Loss) $(3,533) $(2,673) $(1,836) $(6,557)

Basic and Diluted net income (loss)

per share $(0.13) $(0.10) $(0.17) $(0.21)

Stock compensation expense $0.07 $0.05 $0.13 $0.08

Amortization of acquired inventory

step-up in basis $- $- $- $-

Amortization of purchased

intangible assets $- $- $0.01 $0.01

Non-GAAP measure of Net Income (Loss) $(0.06) $(0.05) $(0.03) $(0.12)

Shares used in computing basic and

diluted net income (loss) per share 57,054 55,149 56,603 55,081

ith no impact on product availability. We expect our product gross margin to return to first quarter levels in the current third quarter."

Operational Overview

-- Total product sales increased 65% to $39.0 million, from $23.6 million

in the second quarter of fiscal 2007. By industry, product sales

were, in millions:

Three Months Ended June 30

2008 2007 Change

Core Clinical $20.9 $6.1 239%

Clinical Partner 5.0 4.5 13%

Total Clinical 25.9 10.6 144%

Industrial 3.7 4.0 -7%

Biothreat 9.4 9.0 4%

Total Product Sales $39.0 $23.6 65%

-- System product sales increased 32% to $12.4 million from $9.4 million

in the second quarter of fiscal 2007.

-- Test and disposable sales increased 87% to $26.5 million from $14.2

million in the second quarter of fiscal 2007.

-- By geography, product sales were, in millions:

Three Months Ended June 30

2008 2007 Change

North America $29.7 $18.2 64%

Europe 9.0 5.1 74%

Rest of World 0.3 0.3 1%

Total Product Sales $39.0 $23.6 65%

Excluding biothreat revenue to the US Postal Service, North America sales increased 121% when compared to the same quarter a year ago.

-- During the quarter, Cepheid installed a total of 108 GeneXpert systems

and 426 modules, primarily in North America and Europe. As of June

30, 2008, a cumulative total of 717 GeneXpert systems and 3,560

modules have been placed worldwide.

-- GAAP gross margin on product sales was 41% and non-GAAP gross margin

on product sales was 43%, which compares to 41% and 42% in the second

quarter of fiscal 2007.

-- Cash, cash equivalents and investments increased to $46.8 million as

of June 30, 2008.

-- DSOs improved to 40 days.

Business Outlook

For the fiscal year ending December 31, 2008, the Company expects:

-- Total revenue to be in the range of $173 to $177 million, of which

product sales are expected to be in the range of $164 to $167 million.

o Xpert MRSA test sales are expected to be in the range of $52 to

$55 million.

-- Net loss for 2008 is expected to be in the range of $20 to $22

million, or $(0.35) to $(0.38) per share.

-- On a non-GAAP basis, net loss is expected to be in the range of $4 to

$6 million, or $(0.07) to $(0.10) per share.

-- Non-GAAP net loss excludes approximately $15 million related to stock

compensation expense and $1 million related to the amortization of

acquired intangibles.

Accessing Cepheid's Q208 Earnings Conference Call

The company will host a management presentation at 1:30 p.m. Pacific Time on Thursday, July 24, 2008 to discuss the results. To access the live webcast, please visit Cepheid's website at at least 15 minutes before the scheduled start time to download any necessary audio or plug-in software. A replay of the webcast will be available shortly following the call and will remain available for at least 90 days.

Interested participants and investors may also listen to the live teleconference call by dialing 866-825-1692 (domestic) or 617-213-8059 (international), and entering participant code 92219619. A replay will be available for seven days beginning at 3:30 p.m. Pacific Time. Access numbers for this replay are 888-286-8010 (domestic) and 617-801-6888 (international), with participant code 37466812.

About Cepheid

Cepheid (Nasdaq: CPHD), based in Sunnyvale, Calif., is an on-demand molecular diagnostics company that develops, manufactures, and markets

fully-integrated systems and tests 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.

Use of Non-GAAP Measures

The Company has supplemented its reported GAAP financial information with non-GAAP measures that do not include employee share-based compensation expense and amortization of purchased intangible assets. The presentation of this additional information is not meant to be considered in isolation or as a substitute for results prepared in accordance with GAAP. The Company's management uses the non-GAAP information internally to evaluate its ongoing business, continuing operational performance and cash requirements, and believes these non-GAAP measures are useful to investors as they provide a basis for evaluating the Company's cash requirements and additional insight into the underlying operating results and the Company's ongoing performance in the ordinary course of its operations.

These non-GAAP measures may be different from non-GAAP measures used by other companies. In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles. The Company believes that non-GAAP measures have limitations in that they do not reflect all of the amounts associated with its results of operations as determined in accordance with GAAP and that these measures should only be used to evaluate the Company's results of operations in conjunction with the corresponding GAAP measures.

As described above, the Company excludes the following items from one or more of its non-GAAP measures when applicable:

Employee share-based compensation expense. These expenses consist primarily of expenses for employee stock options and employee restricted stock under SFAS 123(R). The Company excludes employee share-based compensation expenses from its non-GAAP measures primarily because they are non-cash expenses that the Company does not believe are reflective of ongoing operating results. Further, as the Company applies SFAS 123(R), it believes that it is useful to investors to understand the impact of the application of SFAS 123(R) to its results of operations.

Amortization of purchased intangible assets. The Company incurs amortization of purchased intangible assets in connection with acquisitions and investments. The Company excludes these items because these expenses are not reflective of ongoing operating results in the period incurred. These amounts arise from the Company's prior acquisitions and have no direct correlation to the operation of the Company's business.

Forward Looking Statements

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 product sales, future revenues and gross margin and demand for certain products, future net income 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 the effectiveness of new sales personnel; 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; uncertainties related to the FDA regulatory and European regulatory processes; the level of testing at clinical customer sites; changes in the protocols or level of testing for MRSA and other HAIs; the mix of products sold, which can affect gross margins; the rate of environmental biothreat testing conducted by the USPS, which will affect the amount of consumable products sold to the USPS; 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 ability to continue to realize manufacturing efficiencies, which are an important factor in improving gross margins; 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; the Company's 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 2007 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.

For Media Inquiries:

Jared Tipton

Cepheid Corporate Communications

Tel: (408) 400 8377

For Investor Inquiries:

Jacquie Ross

Cepheid Investor Relations

Tel: (408) 400 8329



(in thousands, except per share data)

Three Months Six Months

Ended Ended

June 30, June 30,

2008 2007 2008 2007


System sales $12,423 $9,394 $26,747 $16,231

Reagent and disposable sales 26,530 14,190 54,126 29,420

Total product sales 38,953 23,584 80,873 45,651

Other revenues 3,097 3,589 6,010 7,066

Total revenues 42,050 27,173 86,883 52,717

Costs and operating expenses:

Cost of product sales 22,870 13,879 45,856 27,756

Collaboration profit sharing 2,777 2,731 6,510 6,228

Research and development 10,964 7,439 20,862 14,361

Sales and marketing 7,434 5,067 14,375 9,560

General and administrative 5,518 4,038 10,265 7,973

Total costs and operating expenses 49,563 33,154 97,868 65,878

Loss from operations (7,513) (5,981) (10,985) (13,161)

Other income, net 191 740 1,473 1,767

Net loss before income tax benefit (7,322) (5,241) (9,512) (11,394)

Income tax benefit (expense) (204) - 136 -

Net loss $(7,526) $(5,241) $(9,376) $(11,394)

Basic and diluted net loss per share $(0.13) $(0.10) $(0.17) $(0.21)

Shares used in computing basic and

diluted net loss per share 57,054 55,149 56,603 55,081



(in thousands)

June 30, December 31,

2008 2007


Current assets:

Cash and cash equivalents $24,866 $16,476

Marketable securities - 27,550

Accounts receivable, net 18,573 21,263

Inventory 28,505 23,821

Prepaid expenses and other current assets 3,826 2,565

Total current assets 75,770 91,675

Property and equipment, net 22,293 17,174

Investments 21,983 -

Other non-current assets 430 923

Intangible assets 38,319 40,629

Goodwill 14,844 14,844

Total assets $173,639 $165,245


Current liabilities:

Accounts payable $12,626 $10,587

Accrued compensation 8,362 8,573

Accrued royalties 6,791 6,913

Accrued collaboration profit sharing 1,388 522

Accrued and other liabilities 7,290 4,742

Income tax payable - 213

Deferred revenue 2,927 4,016

Total current liabilities 39,384 35,566

Deferred revenue 1,795 2,054

Other liabilities 1,065 690

Total liabilities 42,244 38,310

Shareholders' equity:

Common stock 264,140 254,807

Additional paid-in capital 33,930 26,697

Accumulated other comprehensive income (loss) (2,390) 340

Accumulated deficit (164,285) (154,909)

Total shareholders' equity 131,395 126,935

Total liabilities and shareholders' equity $173,639 $165,245



(in thousands)

Six Months Ended

June 30,

2008 2007

SOURCE Cepheid
Copyright©2008 PR Newswire.
All rights reserved

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