Cepheid Reiterated Neutral - Analyst Blog
May 09 2011 - 1:50PM
Zacks
Recently, we reaffirmed our Neutral recommendation on
Cepheid (CPHD) with a target price of $34.00.
Cepheid 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.
The strong growth in the Reagents business was based on more
than 30% growth in Healthcare Associated Infections (HAI) test
portfolio. Within the HAI test portfolio, every test grew both
sequentially and on a year-over-year basis. While MRSA continues to
grow, the C. difficile test maintained its strong
performance recording more than 100% growth driven by both new
customers and higher adaptation within the installed base.
Cepheid also witnessed a strong quarter in terms of systems
placements in both its commercial business and in High Burden
Developing Countries (HBDC). Excluding HBDC, the company placed 120
GeneXpert systems during the quarter consisting of 43 in the US
(compares favorably with 36 and 31 systems in the corresponding
quarters of 2010 and 2009, respectively) and 77 in the
international market.
International system placements were driven by strong
performance in Germany, where discussions are ongoing regarding
potential guidelines for MRSA surveillance of high risk patients.
The company also placed an Infinity system in Scandinavia, which
represents its second European placement for the system.
Interest in C. difficile testing continues to
contribute to GeneXpert system demand. It is also encouraging to
note that the first Infinity system customer in Europe (a major
University in London) has witnessed a lower C. difficile
infection rate thereby resulting in fewer ward closures. Moreover,
the company is working towards expanding the test menu, which in
turn should make GeneXpert more attractive.
Cepheid recorded an adjusted gross margin of 57.5% on product
sales during the reported quarter (54.6% in the fourth quarter of
2010), and up by a noteworthy 1,100 basis points compared year over
year. This was due to a favorable product mix and a greater
proportion of higher-margin Clinical Reagent sales.
We also note that Cepheid’s royalty commitment to
Roche (RHHBY) for certain PCR-related patents had
expired in August 2010, which amounted to 7.5% of US clinical
system and test sales. The royalty phase out (May 2012) will
continue to benefit the company over the next 15 months. For the
full year, depending upon actual product and geographic mix and
HBDC contribution, Cepheid expects the adjusted gross margin in the
range of 55%−57%.
However, Cepheid continues to remain cautious about the general
capital spending environment in both the US and Europe. The company
does not expect a significant change in capital spending in 2011
compared to 2010.
Although system placements for the HBDC program during the
quarter were encouraging, Cepheid remains cautious with respect to
system placements, and any associated revenues in the near
term.
This is because revenues from this program depend on the
development of separate implementation guidelines for each country
and the availability of funding. Consequently, uncertainty remains
regarding the gestation period for funding arrangement.
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