CPHD Cepheid (MM)

Cepheid (CPHD) reported an adjusted EPS of 2 cents during the first quarter of fiscal 2011, much better than the loss of 6 cents in the year-ago period and the Zacks Consensus Estimate of a loss of 1 cent.

Revenues during the quarter increased 25.4% to $60.2 million, beating the Zacks Consensus Estimate of $57 million. The upside was driven by a 22% growth in product sales to $57.6 million attributable to strong sales of reagents and systems. Based on strong revenue growth, Cepheid was able to improve its bottom line.

Among the different markets, the Clinical segment consisting of Clinical Systems (up 20% year over year to $11.6 million) and Clinical Reagents (up 31% to $38.6 million) contributed about 87.2% to total product sales during the quarter. Cepheid’s Non-Clinical business dropped 6% year over year to $7.4 million. Sales from North America and the international market recorded a year-over-year increase of 14% and 53%, respectively.

Gross margin on product sales improved to 56% compared with 45% in the first quarter of 2010. While product sales improved 22%, cost of products sold declined by 3% leading to an improvement in margin. Operating expenses amounted to $32.6 million, up 33.8% compared with the year-ago quarter, driven by higher research and development (39.9% annually to $13.6 million), sales and marketing (27.4% to $11.4 million), and general and administrative expenses (33.5% to $7.6 million).

During the quarter, Cepheid’s 120 GeneXpert systems were installed. In addition, the company placed 58 GeneXpert systems as part of its High Burden Developing Country Program (HBDC) Program. Including the HBDC systems, a cumulative total of 2,038 systems have been placed worldwide as of March 31, 2011. At the end of the reported quarter, cash and cash equivalents were $80.5 million, up from $79.5 million at the end of December 2010.

Outlook

Cepheid reiterated its outlook for 2011 with revenues in the range of $245 million–$255 million. Moreover, the company expects bottom-line results within a loss of 1 cent to a profit of 4 cents per share.

Recommendation

With a broad portfolio of tests, the company is one of the leading players in the healthcare associated infections (HAI) market. Moreover, Cepheid has an attractive pipeline, the approval of which should boost revenues further.

However, we remain concerned about a tight spending environment in the current recessionary situation, which is impacting the ability of healthcare providers to purchase capital equipment. Moreover, the company faces tough competition from several players.

We maintain our ‘Neutral’ recommendation on Cepheid.

 
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