Recently, we upgraded
Cepheid
(
CPHD
) to Outperform from Neutral impressed as we are by its strong
system placements over the past few quarters and a robust growth
outlook.
System placements continue to remain strong as Cepheid has been
expanding its test menu besides entering into strategic
partnerships to support distribution. We are impressed with the
record placement of 175 GeneXpert systems in the last reported
quarter in its commercial business, taking the total number of
systems placed during 2011 to a healthy 565. Moreover, system
placements under the High Burden Developing Countries ('HBDC')
category were also encouraging.
Apart from expansion of its menu, Cepheid is also looking toward
widening its market reach in both the US and international markets.
Since the company records only 20% of its Clinical revenues from
outside the US, it has a lot of room for market share gains
overseas. The company is in the process of expanding its
direct sales force in Germany and South Africa. Having witnessed
strong potential in the healthcare associated infection ('HAI')
market in Germany, Cepheid acquired the business from its
distribution partner in early January and plans to acquire its
distributor in South Africa shortly. Germany presents the largest
revenue opportunity in Europe, given its upcoming infection control
mandate. The company has established its operation in China and
Japan and is working on securing regulatory approval for certain
Xpert products there.
Cepheid is also working on expanding its portfolio of tests.
Although the company is one of the leading players in the HAI
segment, it is also looking to make inroads in the non-HAI markets,
which include critical infectious diseases, women's health,
virology, and oncology and genetics. Several tests are under
development and the company is looking at launching 10 new tests in
each of these markets in the 2013-2014 timeframe. The company is
also targeting up to seven CLIA waived tests by the end of 2016,
which would significantly expand the market potential of the
GeneXpert system beyond hospitals and reference laboratories. The
company has accelerated the development of CLIA-waived Xpert test
(targeted for flu) and expects the product to be available in the
US during the 2013-14 flu season. Successful commercialization of
these tests should further improve Cepheid's top line going
ahead.
However, the current economic uncertainty continues to be a
major headwind for the company. Cepheid's peers such as
Myriad Genetics
(
MYGN
) and
Genomic Health
(
GHDX
) are also suffering from these external factors. Despite high
system placements under the HBDC Program, the company prefers to
maintain a guarded stance. Consequently, the company provided a
wide guidance range of 30−50% growth of HBDC revenues during 2012
given the uncertainties in the funding environment.
Our recommendation is backed by a Zacks #1 Rank (Strong Buy) in
the short term.
CEPHEID INC (
CPHD
): Free Stock Analysis Report
GENOMIC HEALTH (
GHDX
): Free Stock Analysis Report
MYRIAD GENETICS (
MYGN
): Free Stock Analysis Report
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