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Cepheid Reports 2009 Third Quarter Results
Date:10/28/2009

SUNNYVALE, Calif., Oct. 28 /PRNewswire-FirstCall/ -- Cepheid (Nasdaq: CPHD) today reported revenue for the third quarter of 2009 of $41.6 million. Net loss was $3.8 million, or $(0.07) per share, which compares to revenue of $44.9 million and a net loss of $6.6 million, or $(0.12) per share, in the third quarter of 2008.

Excluding amortization of purchased intangible assets and stock compensation expense, non-GAAP net loss for the third quarter was $0.1 million, or $(0.00) per share. This compares to a non-GAAP net loss of $2.5 million, or $(0.04) per share, in the third quarter of 2008.

"Cepheid continued to deliver against its aggressive development pipeline during the third quarter, with the commercial release of our high-throughput GeneXpert® Infinity-48 System, our Xpert® test for Clostridium difficile, and our Xpert test for HemosIL Factor II and Factor V," said John Bishop, Cepheid's Chief Executive Officer. "With our broadest test menu and system offering to date, Cepheid is defining the meaning of molecular diagnostics for labs of all sizes. This is highlighted by the rapid expansion of our Clinical Reagent business that is in a large part driven by continued adoption among our expanding GeneXpert system installed base of more than 1200 systems globally."

Operational Overview

  • Total product sales of $40.8 million in the third quarter of 2009, compared to $42.4 million in the third quarter of 2008. By industry, product sales were, in millions:
                                Three Months Ended
                                    September 30,
                               2009     2008    Change
                               ----     -----   ------
    Clinical Systems           $5.8     $10.7    -46%
    Clinical Reagents          24.1      17.2     40%
                               ----      ----
        Total Clinical         29.9      27.9      7%
    Industrial                  5.0       4.2     18%
    Biothreat                   4.0       8.6    -54%
    Partner                     1.9       1.7     15%
                                ---       ---
    Total Product Sales       $40.8     $42.4     -4%
                              =====     =====
  • By geography, product sales were, in millions:
                                 Three Months Ended
                                    September 30,
                               2009      2008   Change
                               ----      ----   ------
    North America
         Clinical             $22.9     $23.0      0%
         Other                  9.1      12.8    -29%
                                ---      ----
    Total North America        32.0      35.8    -10%

    International
         Clinical               7.0       5.0     40%
         Other                  1.8       1.6     12%
                                ---       ---
    Total International         8.8       6.6     33%
                              -----     -----
    Total Product Sales       $40.8     $42.4     -4%
                              =====     =====
  • During the quarter, Cepheid installed a total of 94 GeneXpert systems and 629 modules. As of September 30, 2009, a cumulative total of 1,241 GeneXpert systems and 6,757 modules have been placed worldwide.
  • GAAP gross margin on product sales was 42% and non-GAAP gross margin on product sales was 44%, which compares to 44% and 45%, respectively, in the third quarter of 2008.
  • Cash, cash equivalents and investments, net of associated debt, were $43.8 million as of September 30, 2009.
  • DSO was 46 days.

Business Outlook

For the fiscal year ending December 31, 2009, the company expects:

  • Total revenue to be in the range of $165 to $169 million;
  • Net loss in the range of $(0.42) to $(0.45) per share;
  • Non-GAAP net loss in the range of $(0.13) to $(0.16) per share.

Non-GAAP net loss excludes approximately $16 million related to stock compensation expense, $1 million related to the amortization of acquired intangibles, and $0.7 million related to restructuring expenses.

Accessing Cepheid's Q309 Results Conference Call

The company will host a management presentation at 2:00 p.m. Pacific Time on Wednesday, October 28, 2009 to discuss the results. To access the live webcast, please visit Cepheid's website at www.cepheid.com/investors 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 may also listen to the live teleconference call by dialing (866) 783-2142 (domestic) or (857) 350-1601 (international), and entering participant code 30186203. A replay will be available for seven days beginning at 4 p.m. Pacific Time. Access numbers for this replay are (888) 286-8010 (domestic) and (617) 801-6888 (international), with participant code 49827607.

About Cepheid

Based in Sunnyvale, Calif., Cepheid (Nasdaq: CPHD) 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. 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.

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 and restructuring charges. 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) on its results of operations.

Amortization of purchased intangible assets. The company incurs amortization of purchased intangible assets in connection with acquisitions. 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.

Restructuring expenses. The company excluded expenses associated with its Q109 restructuring from its results for non-GAAP net loss for the first nine months of 2009 and also from its outlook for non-GAAP net loss for fiscal 2009. The company excluded these items as it believes such amounts are non-recurring in nature, and do not have a direct impact on the operation of the company's core business.

Patent License Amortization

Our internal periodic review of our patent license useful lives during the second quarter of 2009 identified that the useful lives of certain patents were miscalculated at the time those patents were acquired, thus those patent licenses were being amortized over incorrect useful lives. This error resulted in the understatement of amortization expense over several reporting periods, starting in 2004.

On October 1, 2009, the Company filed a Form 10-K/A which restated the consolidated balance sheets as of December 31, 2008 and 2007 and the consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2008, and provided supplementary financial data for each of the eight quarters in the period ended December 31, 2008 correcting the patent license errors.

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, product pipeline, demand for certain products, future revenues and future net loss. 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: the uncertain impact of the significant global economic downturn on our business, and that of our customers, potential customers and business partners; 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 levels of testing for Healthcare Associated Infections (HAIs); the company's ability to successfully introduce and sell products in clinical markets other than HAIs; 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 intellectual property licenses for 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; 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 2008, its most recent Quarterly Report on Form 10-Q, 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 TABLES FOLLOW

                                CEPHEID

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


                                Three Months Ended      Nine Months Ended
                                    September 30,          September 30,
                                --------------------    -----------------
                                2009       2008         2009         2008
                                ----       ----         ----         ----

                                       As Restated (1)         As Restated (1)

    Revenues:
     System sales             $10,628    $13,961      $27,448       $40,708
     Reagent and disposable
      sales                    30,170     28,432       89,498        82,558
                             --------   --------     --------      --------
       Total product sales     40,798     42,393      116,946       123,266
     Other revenues               837      2,522        4,477         8,532
                             --------   --------     --------      --------
    Total revenues             41,635     44,915      121,423       131,798
                             --------   --------     --------      --------
    Costs and operating
     expenses:
     Cost of product sales     23,765     23,792       67,705        69,985
     Collaboration profit
      sharing                   1,306      2,460        6,547         8,970
     Research and development   8,744     11,611       29,397        32,473
     Sales and marketing        7,040      7,871       20,769        22,246
     General and
      administrative            5,223      5,517       15,832        15,782
     Gain from legal
      settlement                 (243)         -         (243)            -
     Restructuring charge           -          -          747             -
                             --------   --------     --------      --------
       Total costs and
        operating expenses     45,835     51,251      140,754       149,456
                             --------   --------     --------      --------
    Loss from operations       (4,200)    (6,336)     (19,331)      (17,658)
    Other income, net             116       (906)         647           567
                             --------   --------     --------      --------
    Loss before income tax
     benefit                   (4,084)    (7,242)     (18,684)      (17,091)
    Income tax benefit            245        614          464           750
                             --------   --------     --------      --------
    Net loss                  $(3,839)   $(6,628)    $(18,220)     $(16,341)
                             ========   ========     ========      ========

    Basic and diluted net
     loss per share            $(0.07)    $(0.12)      $(0.31)       $(0.29)
                             ========   ========     ========      ========
    Shares used in computing
     basic and diluted net
     loss per share            58,335     57,538       58,075        56,917
                             ========   ========     ========      ========
    (1) See discussion in press release.

                                  CEPHEID

                 CONDENSED CONSOLIDATED UNAUDITED BALANCE SHEETS
                               (in thousands)

                                                September 30,   December 31,
                                                    2009           2008
                                                -------------  ------------

                                                               As Restated (1)

                                 ASSETS
    Current assets:
     Cash and cash equivalents                     $33,341        $23,478
     Restricted cash                                     -          1,500
     Short-term investments                         25,030              -
     Accounts receivable, net                       21,065         18,952
     Inventory                                      33,425         33,498
     Prepaid expenses and other current assets       2,907          4,636
                                                 ---------      ---------
    Total current assets                           115,768         82,064
    Property and equipment, net                     25,179         24,109
    Investments                                          -         24,539
    Other non-current assets                           525            920
    Intangible assets                               32,523         33,791
    Goodwill                                        18,626         18,556
                                                 ---------      ---------
    Total assets                                  $192,621       $183,979
                                                 =========      =========

             LIABILITIES AND SHAREHOLDERS' EQUITY
    Current liabilities:
     Accounts payable                              $15,511         $9,669
     Accrued compensation                            7,244          7,919
     Accrued royalties                              10,276          5,953
     Accrued collaboration profit sharing                -          2,023
     Accrued other liabilities                       8,712          6,816
     Current portion of deferred revenue             3,114          2,834
     Bank borrowing                                 14,598         14,639
                                                 ---------      ---------
    Total current liabilities                       59,455         49,853
    Long-term portion of deferred revenue            1,970          1,753
    Other liabilities                                4,297          3,549
                                                 ---------      ---------
    Total liabilities                               65,722         55,155
                                                 ---------      ---------
    Shareholders' equity:
     Common stock                                  272,165        266,991
     Additional paid-in capital                     52,253         41,619
     Accumulated other comprehensive income
      (loss)                                           464            (23)
     Accumulated deficit                          (197,983)      (179,763)
                                                 ---------      ---------
    Total shareholders' equity                     126,899        128,824
                                                 ---------      ---------
    Total liabilities and shareholders' equity    $192,621       $183,979
                                                 =========      =========

    (1) See discussion in press release.

                                      CEPHEID

             CONDENSED CONSOLIDATED UNAUDITED STATEMENTS OF CASH FLOWS
                                   (in thousands)

                                                      Nine Months Ended
                                                        September 30,
                                                      -----------------
                                                      2009         2008
                                                      ----         ----
    Cash flows from operating activities:                     As Restated (1)
     Net loss                                      $(18,220)    $(16,341)
     Adjustments to reconcile net loss to net cash
      provided by operating activities:
     Depreciation and amortization                    6,345        5,682
     Amortization of intangible assets                5,117        3,971
     Amortization of prepaid compensation expense       147          189
     Stock-based compensation related to employees
      and consulting services rendered               11,031       10,837
     Unrealized gain on auction rate securities      (8,490)           -
     Unrealized loss on put option                    7,900            -
     Deferred rent                                       (5)         304
     Changes in operating assets and liabilities:
       Accounts receivable                           (2,113)       3,380
       Inventory                                       (319)      (5,692)
       Prepaid expenses and other current assets      1,574       (1,567)
       Other non-current assets                         394         (178)
       Accounts payable and other current
        liabilities                                   8,494        7,178
       Accrued compensation                            (675)      (2,052)
       Deferred revenue                                 498       (1,119)
                                                    -------      -------
         Net cash provided by operating activities   11,678        4,592
                                                    -------      -------

    Cash flows from investing activities:
     Capital expenditures                            (7,119)     (12,293)
     Acquisition of leasehold improvements                -          327
     Payments for technology licenses                (1,500)           -
     Cost of acquisition, net                          (148)           -
     Proceeds from sale and maturities of marketable
      securities and short-term investments             100        2,550
     Proceeds from the sale of fixed assets              16          125
     Transfer to unrestricted cash                    1,500          517
                                                    -------      -------
         Net cash used in investing activities       (7,151)      (8,774)
                                                    -------      -------

    Cash flows from financing activities:
     Net proceeds from the issuance of common
      shares and exercise of stock options and
      awards                                          5,174       11,977
     Principal payments of bank borrowing               (40)           -
     Principal payments of notes payable                  -           (4)
                                                    -------      -------
         Net cash provided by financing activities    5,134       11,973
                                                    -------      -------

    Effect of exchange rate change on cash              202          122
                                                    -------      -------
    Net increase in cash and cash equivalents         9,863        7,913
    Cash and cash equivalents at beginning of
     period                                          23,478       16,476
                                                    -------      -------
    Cash and cash equivalents at end of period      $33,341      $24,389
                                                    =======      =======
    (1) See discussion in press release.

                                       CEPHEID

                RECONCILIATION OF GAAP TO NON-GAAP MEASURES (UNAUDITED)

                        (in thousands, except per share data)


                                  Three Months Ended     Nine Months Ended
                                     September 30,          September 30,
                                  ------------------     ------------------
                                  2009          2008     2009       2008
                                  ----          ----     ----       ----
                                                 As                  As
                                              Restated            Restated
                                                 (1)                 (1)
     Total Product
      Sales                      $40,798     $42,393    $116,946   $123,266
     Total Revenues              $41,635     $44,915    $121,423   $131,798

     Cost of product
      sales                      $23,765     $23,792     $67,705    $69,985
       Stock compensation
        expense                     (647)       (419)     (1,729)    (1,016)
       Amortization of purchased
        intangible assets           (324)       (241)       (972)      (723)
                                  ------      ------      ------     ------
    Non-GAAP measure of cost
      of product sales           $22,794     $23,132     $65,004    $68,246

     Gross margin on product
      sales per GAAP                 42%         44%         42%        43%
     Gross margin on product
      sales per non-GAAP             44%         45%         44%        45%

     Research and development     $8,744     $11,611     $29,397    $32,473
       Amortization of purchased
        intangible assets            (24)        (23)        (72)       (71)
       Stock compensation
        expense                   (1,048)     (1,485)     (3,769)    (4,162)
                                  ------      ------      ------     ------
     Non-GAAP measure of cost
      of research and
      development                 $7,672     $10,103     $25,556    $28,240

     Sales and marketing          $7,040      $7,871     $20,769    $22,246
       Amortization of purchased
        intangible assets            (64)        (21)       (177)       (63)
       Stock compensation
        expense                     (613)       (868)     (1,991)    (2,622)
                                  ------      ------      ------     ------
    Non-GAAP measure of cost
      of sales and marketing      $6,363      $6,982     $18,601    $19,561

     General and
      administrative              $5,223      $5,517     $15,832    $15,782
       Stock compensation
        expense                   (1,048)     (1,097)     (3,417)    (3,037)
                                  ------      ------      ------     ------
     Non-GAAP measure of cost
      of general and
      administrative              $4,175      $4,420     $12,415    $12,745

     Income (loss) from
      operations                 $(4,200)    $(6,336)   $(19,331)  $(17,658)
       Restructuring
        charge                         -           -         747          -
       Stock compensation
        expense                    3,356       3,869      10,906     10,837
       Amortization of purchased
        intangible assets            412         285       1,221        857
                                  ------      ------      ------     ------
    Non-GAAP measure of income
      (loss) from operations       $(432)    $(2,182)    $(6,457)   $(5,964)

     Net income (loss)           $(3,839)    $(6,628)   $(18,220)  $(16,341)
       Restructuring charge            -           -         747          -
       Stock compensation
        expense                    3,356       3,869      10,906     10,837
       Amortization of purchased
        intangible assets            412         285       1,221        857
                                  ------      ------      ------     ------
    Non-GAAP measure of net
      income (loss)                 $(71)    $(2,474)    $(5,346)   $(4,647)

     Basic and diluted net
      income (loss) per share     $(0.07)     $(0.12)     $(0.31)    $(0.29)
       Restructuring
        charge                         -           -        0.01          -
       Stock compensation
        expense                     0.06        0.08        0.19       0.19
       Amortization of purchased
        intangible assets           0.01           -        0.02       0.02
                                  ------      ------      ------     ------
    Non-GAAP measure of net
      income (loss)               $(0.00)     $(0.04)     $(0.09)    $(0.08)

     Shares used in computing
      basic and diluted net
      income (loss) per share     58,335      57,538      58,075     56,917

    (1) See discussion in press release.
     CONTACTS:
     For Media Inquiries:                  For Investor Inquiries:
     --------------------                  -----------------------
     Jared Tipton                          Jacquie Ross
     Cepheid Corporate Communications      Cepheid Investor Relations
     Tel: (408) 400 8377                   Tel: (408) 400 8329
     jared.tipton@cepheid.com              investor.relations@cepheid.com

SOURCE Cepheid


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