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Cepheid: GeneXpert Placements High, Currency Woes Stay

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On May 26, we issued an updated research report on Sunnyvale, CA-based molecular diagnostics company – Cepheid – which develops and markets fully integrated systems for clinical and non-clinical market tests. The company currently carries a Zacks Rank #3 (Hold).

Cepheid started 2016 on a promising note with its first-quarter results squarely beating the Zacks Consensus Estimate. Moreover, record placements of the company’s legacy GeneXpert system buoy optimism.

Moreover, management is confident that Cepheid will continue to witness impressive adoption and growing demand for both its new and existing Xpert tests. Evidently, during the first quarter, HAI franchise remained the largest dollar contributor to Cepheid’s Reagent revenues while management witnessed a gradual expansion in the Critical Infectious Disease franchise supported by consistent growth in its Flu, Flu/RSV and TB-related assays.

With respect to overseas markets, Cepheid’s HPV testing is being used as a primary screening test in certain regions of Italy and Spain. Meanwhile, Scotland has made a move to HPV primary screening while the Netherlands is expected to do the same by 2016. Cepheid also intends to foray into emerging countries of Asia and Latin America as well as Japan.

In terms of pipeline development, Cepheid’s Xpert Carba-R test is under FDA review and is expected to be launched commercially before the end of the second quarter of 2016. Currently, Xpert Trichomonas for male urine claim is on track for FDA submission. On successful launch, this will be the first FDA-cleared molecular test in the market with a male urine claim.

On the flip side, foreign currency headwinds remain a major issue. In the first quarter, strengthening of the U.S. dollar affected Cepheid’s overseas business; the extent of which is however expected to reduce in the second quarter as management foresees some signs of stabilization in the dollar movement.

Nevertheless if the company’s hedging program fails to be effective against the frequently fluctuating U.S. dollar, Cepheid’s operations will face a major blow. Competitive headwinds and adverse legal issues also continue to pose threats to the stock.

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Better-ranked medical stocks are SurModics, Inc. (SRDX - Free Report) , Baxter International Inc. (BAX - Free Report) and Boston Scientific Corporation (BSX - Free Report) . While SurModics and Baxter sport a Zacks Rank #1 (Strong Buy), Boston Scientific carries a Zacks Rank #2 (Buy).

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