Cepheid Reports Third Quarter 2005 Results
Thursday November 3, 4:05 pm ET
43% Increase in Product Sales Drive 45% Increase in Total Revenues
Product Sales for the Nine Months Period Increase by 90%
SUNNYVALE, Calif., Nov. 3 /PRNewswire-FirstCall/ -- Cepheid (Nasdaq: CPHD - News) today announced financial results for the quarter and nine months ended September 30, 2005.
Product sales for the quarter ended September 30, 2005 increased 43% to approximately $19.2 million from approximately $13.4 million for the corresponding prior year period while product sales for the nine months ended September 30, 2005 increased 90% to approximately $58.2 million from approximately $30.6 million for the corresponding prior year period. The increase in product sales for the quarter and nine months ended September 30, 2005 as compared to the corresponding prior year periods was primarily due to a 103% and 266%, respectively, increase in reagent and disposable sales, respectively.
Total revenues for the quarter ended September 30, 2005 increased 45% to approximately $20.4 million compared to approximately $14.1 million for the corresponding prior year period while total revenues for the nine months ended September 30, 2005 increased 88% to approximately $61.4 million from $32.6 million for the corresponding prior year period. The increase in total revenue for both the quarter and nine months ended September 30, 2005 as compared to the corresponding prior year periods was due primarily to the increase in product sales. Contract revenue of $0.8 and $2.2 million for the quarter and nine months ended September 30, 2005 was primarily derived from the amortization of up-front license fees in connection with the Company's collaboration with bioMerieux.
Gross Margin Dollars on product sales (total product sales less cost of product sales) for the quarter and nine months ended September 30, 2005 increased by 28% and 76%, respectively as compared to the corresponding prior year periods. The gross margin percentage on product sales for the quarter ended September 30, 2005 decreased to 40% from 44% in the corresponding prior year period and decreased to 42% for nine months ended September 30, 2005 as compared to 46% for the corresponding prior year period. The decline in gross margin percentage on product sales for the nine months ended September 30, 2005 as compared to the corresponding prior year period was due primarily to the impact of production problems with the anthrax test cartridge occurring in the second and third quarters. The resulting manufacturing inefficiencies and inventory exposures are not expected to recur in the fourth quarter. In addition, amortization of up front license fees and higher ongoing royalty costs associated with the Company's patent license agreements entered into with Applera Corporation and F. Hoffman-LaRoche Ltd in the second and third quarter of 2004 as well as one time favorable pricing achieved in the first quarter of 2004 which did not occur in the nine months ended September 30, 2005 further impacted the gross profit margin. Gross margin on product sales for the full year 2005 is expected to be in the range of 40% to 45%.
Net loss for the quarter and nine months ended September 30, 2005 was approximately $3.3 million, or $0.08 per share and $10.4 million, or $0.24 per share, respectively, compared to a net loss of approximately $2.9 million, or $0.07 per share and $10.8 million, or $0.26 per share, respectively, for the corresponding prior year periods.
"We continued to realize substantial growth in product sales during the quarter. However, our realized rate of growth in gross profit on product sales was less than the actual rate achieved for product sales. This is due to the negative impact of manufacturing inefficiencies and inventory exposure on production of our anthrax test cartridges, which occurred during the quarter. During the course of an extensive process review, we believe we have identified the underlying root cause of our current and previous quarter inefficiencies. A solution for this problem has been identified and implemented. Further, we have implemented additional process controls to rapidly identify any quality variants early in each production run. As a result, we expect to see an improvement of approximately three to four percentage points in future gross profit margins on product sales, which we expect to begin to realize in the fourth quarter," stated John Bishop, Cepheid's CEO.
Mr. Bishop continued, "Sales in our clinical market segment were particularly strong in the third quarter followed by sales in the biothreat segment. ASR products for Flu A/B, mecA, M. pneumoniae and RSV were released to the market during the quarter. This brings our available ASR product menu to twelve products. We currently have clinical trials underway for Group B Strep (GBS) on both our SmartCycler® and GeneXpert® systems and Enterovirus (EV) on the GeneXpert® system. Subsequent to the close of the quarter, we announced the release of the GeneXpert system in the clinical molecular research market along with a BCR/ABL (RUO) product. These products will be available for shipment on November 15, 2005."
"Recently, there has been increased discussion and concern surrounding Avian Influenza (AI). Cepheid previously discussed that we have been working with the USDA, through our CSR program, in producing an AI specific test for use in testing poultry and migratory water fowl. Further evaluation of our recently released ASR product for Flu A/B has found that this product will detect virus strains associated with AI and as such may be of help in tracking AI with regard to potential human infection."
"Sales in the biothreat market segment also continued to grow during the third quarter with continued deployment of Biohazard Detection Systems (BDS) within the United States Postal Service (USPS) processing centers and further utilization of the GeneXpert system by the Department of State (DOS). Nearly 1.5 million anthrax tests have been run within the USPS and DOS with no false positives. Currently, over 1000 GeneXpert® based systems have been deployed for routine use. We continue to expect BDS deployment within the USPS processing centers to be completed by the end of the year."
"In the Industrial market, Public Health Laboratory Issues in Brief; April 2005 reported that our SmartCycler® system is the leading real time PCR testing platform used in public health. Separately, as previously reported, a third party evaluation of products for environmental water testing found a strong performance by Cepheid's products utilizing our recently acquired scorpions technology."
2005 Outlook
Commenting on Cepheid's outlook for the remainder of 2005, Mr. Bishop stated:
"We expect to continue to make progress in the development and marketing of our clinical products. As previously stated, the GeneXpert® system and BCR/ABL (RUO) product will be available for shipment to potential clinical molecular research customers on November 15, 2005. Clinical trials for GBS are expected to be completed during the fourth quarter followed by a 510k FDA submission by the end of the year or just after the first of the year 2006. Clinical trials are also currently underway for our EV product. We expect Clinical trials for both GBS and EV to be completed during the fourth quarter. We currently expect our GBS, EV and BCR/ABL products to be CE marked and released in Europe during the first quarter of 2006. These are expected to be followed by release in the US market in the second quarter pending FDA clearance. Development of our MRSA test is continuing with a key objective focused on providing the clinician with the ability to specifically identify methicillin sensitive and resistant strains of Staphylococcus aureus (SA), and to avoid detection of staphylococcus strains that could lead to a false positive clinical result."
"We received a purchase order from Northrop Grumman for 2.3 million anthrax cartridges during the third quarter. Deliveries against this new purchase order began in August and will run through September of 2006. Development of our new 3 agent cartridge including anthrax, Y. pestis and F. tularensis is continuing and the product is expected to be available for market launch in the first quarter 2006. We expect the USPS to evaluate the product during the second and third quarters with potential routine use beginning in the fourth quarter of 2006. Separately, discussions are currently underway regarding the potential use of the GeneXpert® system with open cartridges for use by international groups interested in using their own probe and primer designs."
"We reaffirm that we expect our 2005 product sales to be in the range of $80.0 million to $84.0 million, based on anticipated sales for the USPS program and sales expected from other existing and new products. As previously stated, we expect our 2005 net loss to be in the range of $12.0 million to $14.0 million or $0.28 to $0.33 per share based on actual weighted average shares outstanding of 42.6 million as of September 30, 2005."
As of September 30, 2005, the Company had $40.2 million in unrestricted cash and marketable securities.
Conference Call Information
Cepheid's CEO, John Bishop, and Senior V.P. and CFO, John Sluis will host a conference call today at 4:30 pm (Eastern) to discuss Cepheid's financial results, business highlights and outlook. The call will be simultaneously broadcast over the Internet. Interested participants and investors may access the teleconference call by dialing 800-219-6110 (domestic) or 303-205-0044 (international). There will also be a live webcast of the call on the Investor Relations section of Cepheid's web site at www.cepheid.com. Web participants are encouraged to go to the web site at least 15 minutes prior to the start of the call to register, download, and install any necessary audio software.
After the live webcast, the call will remain available on Cepheid's website, www.cepheid.com, through November 3, 2006. A replay of the conference call will be available at 800-405-2236 (domestic) or 303-590-3000 (international) through November 10, 2005; the conference ID is 11043556. The replay will be available after 6:30 pm (Eastern).
About Cepheid
Cepheid (Nasdaq: CPHD - News), based in Sunnyvale, Calif., is a leading developer, manufacturer and marketer of fully integrated systems that enable genetic assessment when and where it is needed. Founded in 1996, the company is commercializing its technology and products worldwide for research, medical, and industrial applications requiring assessment of the human genome, infectious disease and biothreat agents. See www.cepheid.com for more information. |
