Cepheid’s ( CPHD - Analyst Report ) Xpert CT/NG test has been recently categorized as ‘Moderate Complexity’ under the Clinical Laboratory Improvement Amendments (CLIA) by the U.S. Food and Drug Administration (FDA). Earlier, in December 2012, the company gained FDA clearance to market its Xpert CT/NG test.

About Xpert CT/NG

Cepheid’s Xpert CT/NG is an innovative qualitative in-vitro molecular diagnostic test, based on the GeneXpert Systems, for the detection and differentiation of Chlamydia trachomatis (CT) and Neisseria gonorrhoeae (NG). The test ensures same-day patient consultation and possible treatment for two of the most common sexually transmitted bacterial infections in the U.S.

Thus far, Cepheid’s latest offering is the only molecular test for CT/NG to be categorized as Moderately Complex. The categorization will extend the testing universe which benefits from molecular diagnostics.

The categorization is a milestone towards improvement of sexual health and prevention of sexually transmitted diseases in the U.S. With accessibility to over 20,000 Moderately Complex U.S. labs and 7,000 High Complexity U.S. labs, Xpert CT/NG should lead to lower rates of sexually transmitted disease going forward.

Potential Market

Chlamydia is the most common sexually transmitted bacterial infection in the U.S. Despite widespread prevalence, the market for chlamydia testing remains largely untapped. In 2011, the disease infected more than a million Americans. According to guidelines by the Centre for Disease Control and Prevention (CDC), women aged 25 and under should undergo annual testing for chlamydia. However, statistics suggest that only 38% of sexually active women were tested in 2011.

Gonorrhea is the second most commonly reported bacterial infectious disease in the U.S. Per CDC estimates, more than 700,000 individuals in the U.S. are infected with gonorrhea annually. However, more than 50% of these cases remain undiagnosed. While reported cases of gonorrhea decreased during 2007-2011, the figures for chlamydial infections remain alarmingly high.

Based on a recent study by the Institute of Medicine and the National Research Council, the highest rate of sexually transmitted diseases in youths was recorded in the U.S. when compared with 23 other developed nations. The quick diagnosis and treatment of CT/NG and other sexually transmitted diseases will help in controlling the epidemic of such diseases in the country.

Our View

We currently have a long-term Neutral recommendation on the stock which carries a Zacks Rank #3 (Hold). We believe that Cepheid’s growth prospects are very attractive as the molecular diagnostic franchise is the fastest growing segment in the in-vitro diagnostics market.

The company has been consistently working on expanding its portfolio of tests. We are encouraged by Cepheid’s pipeline development as it targets commercialization of 37 tests in the U.S. and 36 tests in the offshore market by the end of 2017.

However, the company should take note of portfolio expansion of other players in the industry. Its peers Becton Dickinson and Company ( BDX - Analyst Report ) and QIAGEN N.V. ( QGEN - Snapshot Report ) carry a Zacks Rank #2 (Buy).