Cepheid (CPHD) reported a loss per share of 2 cents during the third quarter of fiscal 2010, much lower than the loss of 7 cents in the year-ago period and the Zacks Consensus Estimate of 6 cents. However, after adjusting for amortization of intangibles, the company’s reported loss per share of 1 cent compares favorably with the year-ago quarter’s loss of 6 cents.
Revenues increased 34.6% to $56.1 million, beating the Zacks Consensus estimate of $53.0 million driven by a 35% growth in product sales of $54.9 million attributable to continued adoption of its GeneXpert System in the clinical market and strong sales of reagents and disposables. Based on strong revenue growth, Cepheid was able to improve its bottom line.
Among the different markets, the Clinical segment consisting of Clinical Systems ($8.6 million) and Clinical Reagents ($33.2 million) contributed about 76% to total product sales during the quarter. Cepheid’s other markets – Industrial, Biothreat and Partner – recorded revenues of $4.7 million (down 6% year-over-year), $7.3 million (up 83%) and $1.1 million (down 41%), respectively. Sales from North America and the international market recorded a year-over-year increase of 42% and 8%, respectively.
Gross margin on product sales improved to 50% compared with 42% in the third quarter of 2009. While product sales improved 35%, cost of products sold increased 14.8% which led to an improvement in margin. Operating expenses amounted to $26.9 million, up 28.1% compared with the year-ago quarter, driven by higher research and development (25.6% annually to $10.9 million), sales and marketing (41.6% to $9.9 million), and general and administrative expenses (15.5% to $6.0 million).
During the quarter, Cepheid’s 125 GeneXpert systems and 756 modules were installed. At the end of September 2010, a cumulative total of 1,730 GeneXpert systems and 9,374 modules had been placed worldwide. At the end of the reported quarter, cash and cash equivalents were $65.2 million, up from $35.78 million at the end of December 2009.
Outlook
Based on a strong quarter, Cepheid raised its outlook for 2010. The company now expects to record revenue and loss per share of $207 million–$210 million (previous guidance was $200 million–$205 million) and 17–14 cents (25-21 cents), respectively.
Recommendation
Based on strong growth of Clinical reagents and systems, Cepheid narrowed its loss during the reported quarter and raised its outlook for fiscal 2010. 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. Being present in the molecular diagnostics segment, Cepheid has a huge potential as this segment is the fastest growing in the in vitro diagnostics market.
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 CPHD shar
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