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Recently, Cepheid (CPHD - Analyst Report) disclosed that it gained the market authorization for its Xpert MTB/RIF test from the U.S. Food and Drug Administration (FDA). Following the authorization, the test will be commercially available across the U.S. This comes as major positive news after the molecular diagnostic company reported dismal second-quarter results.

About Xpert MTB/RIF

Cepheid’s Xpert MTB/RIF test is designed for use on the company’s GeneXpert Systems and can be used for rapid molecular detection of Mycobacterium tuberculosis complex (MTB-complex) DNA. Further, the test can also identify rifampin-resistance associated mutations of the rpoB gene in specimens where MTB-complex DNA is ascertained.

This will enable clinicians to recognize multidrug-resistant TB. Patients suffering from multidrug-resistant TB required intensive care and prolonged therapy. Unlike other standard laboratory methods, the test results will be available rapidly, thereby, improving timeliness and standards of patient care. Considering that clinicians will have access to results in about 2 hours, the Xpert MTB/RIF test should improve patient outcomes.

According to the company, the Xpert MTB/RIF is the most innovative TB test to reach the market to date. Despite its cutting edge technology, the test can be easily carried out across multiple shifts in laboratories.

Potential Market

Despite the steady decline in TB rates in the U.S. compared with early 1900s when the disease was the leading cause of death in the country, brisk and accurate diagnosis of the disease remains a challenge. Last year, 9,951 new incidences of TB were reported in the U.S.

Since 1953, the prevalence of TB in the U.S. is at a minimum level. However, the communicability and general symptoms of the disease ensure the need for rapid detection. Furthermore, certain groups and foreign-born individuals are disproportionately affected by the disease in the U.S. The potentially fatal multidrug-resistant TB can also spread during travel. Thus, increasing awareness and brisk detection of the multidrug-resistant TB is vital to eliminate TB in the U.S.

The overseas market remains largely underpenetrated. According to World Health Organization estimates, about 8.7 new incidence of TB were reported in 2011 across the globe. As TB still remains a major cause of death in many countries, the potential market for the Xpert MTB/RIF test appears to be highly underpenetrated. The Xpert MTB/RIF test is already available in outside the U.S. and in High Burden Developing Countries (HBDC).

Our View

Despite the gloomy outlook for 2013, Cepheid’s pipeline is encouraging. Strong demand for its innovative tests should support growth going forward. The ongoing efforts on capacity expansion should enable the company to meet the currently assessed soaring market demand for its offerings.

Cepheid carries a Zacks Rank #3 (Hold). Other medical stocks such as IDEXX Laboratories Inc. (IDXX - Analyst Report), Globus Medical Inc. (GMED - Snapshot Report) and Thoratec Corp. (THOR - Analyst Report) are likely to do well. These stocks carry a Zacks Rank #2 (Buy).

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