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Recently, Cepheid (CPHD - Analyst Report) announced collaboration with Knight Cancer Institute at Oregon Health & Science University (OHSU) to develop a menu of advanced molecular diagnostics to be carried out on its GeneXpert system.

The collaborative research will focus on clinical oncology tests, mainly breast and prostate cancer for the GeneXpert system as they are reportedly the most widely occurring cancers across the U.S. The diagnostic tests would predict the risk of recurrence of breast cancer in recently diagnosed patients and the likelihood of prostate cancer in post-surgery patients. The initiatives have been dubbed Xpert Breast Cancer Signature and Xpert Prostate Cancer Recurrence Risk, respectively. The collaboration with OHSU is expected to enhance Cepheid’s intellectual property portfolio.

Cepheid anticipates the extension of its tests menu to include a number of high-impact oncology tests in its Xpert portfolio. The collaboration is aligned with the company’s goal to provide quick, accurate and cost-effective diagnostic solutions platform for oncology patients.

Our Take

Presently, Cepheid has a broad and expanding menu of tests that run on its GeneXpert systems. Specialties covered are infectious disease, healthcare associated infections (HAI), women’s health, genetics and oncology. The company’s effort to boost its presence outside the HAI market is laudable.

Given the positive momentum of the molecular diagnostic market, Cepheid’s focus on portfolio extension is encouraging. We expect the collaboration to be beneficial for Cepheid in terms of expanding the scope of use of oncology assays in a fast growing market. Going forward, the test menu expansion is a major catalyst to enhance the company’s addressable market and fuel its growth engine.

Despite several upsides, the dismal guidance for 2013 has failed to boost investor confidence as exhibited by a downward earnings estimate revision. With the gloomy prediction, we wonder whether Cepheid’s business model can keep the positive momentum going. Accordingly, we remain on the sidelines as the stock carries a Zacks Rank #3 (Hold). Other medical stocks such as Abiomed (ABMD - Analyst Report), Cyberonics (CYBX - Analyst Report) and Myriad Genetics (MYGN - Analyst Report), carrying a Zacks Rank #2 (Buy), however, are expected to do well.

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