CPHD Cepheid (MM)

Based on a recent agreement, LABSCO has become the US distribution partner for Cepheid’s (CPHD) GeneXpert systems and tests. However, the higher throughput of GeneXpert Infinity system is not covered by the agreement. LABSCO is the largest privately held distributor of clinical products in the US.

The agreement provides LABSCO the exclusive US distribution rights to the acute care hospital market, those with less than 150 beds. Additionally, LABSCO will also have non-exclusive rights to the non-acute care non-hospital market that includes surgical centers affiliated with hospitals, independent surgical centers, physician's office laboratories, group practices, and nursing homes.

Apart from expansion of its menu, Cepheid is also looking towards expanding in both the US and international market. The company is targeting its direct sales force to hospitals with more than 150 beds (almost 2100). Based on the agreement with LABSCO, Cepheid will be able to expand its reach in the US market targeting approximately 3900 hospitals with less than 150 beds.

Cepheid witnessed a strong first quarter in terms of systems placements in both 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.

Ever since GeneXpert was launched in 2006, 2038 systems were placed globally (including HBDC) including 844 systems in approximately 6000 hospitals in the US. International system placements were driven by strong performance in Germany, where discussions are in progress regarding potential guidelines for MRSA surveillance of high risk patients.

Since the company records only 20% of its Clinical revenues from outside  the US, it plans to expand its presence in this region. The steps undertaken by Cepheid include establishing presence in Asia Pacific, extending distribution reach in Latin America and India, and adopting direct sales operations in Western Europe.

However, the company continues to remain cautious about the general capital spending environment in both the US and Europe. It does not expect a significant change in the capital spending environment in 2011 compared to the previous year. Moreover, the competitive landscape is tough with the presence of Life Technologies (LIFE), Qiagen (QGEN) among others.

We are currently Neutral’ on Cepheid, which also corresponds to the Zacks #3 Rank (hold) in the short-term.

 
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