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Cepheid Delays Launch of Omni Point-of-Care MDx System

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NEW YORK (GenomeWeb) – Cepheid said yesterday that it will delay the international market launch of its point-of-care platform, the Omni, by one year to the third quarter of 2017.

The firm's stock fell sharply on the news, down more than 19 percent on Nasdaq at mid-day trading following the announcement.

Cepheid first unveiled the Omni in July 2015, when it also announced plans to develop a line of more rapid tests, called Xpert Xpress.

In an earnings call yesterday recapping the firm's first quarter earnings, Cepheid CEO John Bishop said that the decision was motivated by two factors: the desire to engineer the Omni so that it can be compatible with more tests in the future, and new business opportunities the firm sees for its existing GeneXpert platform and newly developed, rapid Xpress tests.

"We believe it is the right decision to extend development up front rather than release the [Omni] system with a functionality that might be restrictive on future strategic plans," Bishop said during the call.

Bishop said a number of tests are successfully running on the system and the majority of the test components are fully operational and functioning as expected, including "the electronics [and] medical aspects in addition to the fluidics, ultrasonics, and software."

Now, the firm is going to invest extra time to ensure that the detection and amplification module of the system, which it refers to as I-CORE, is "functioning in a fully robust manner such that it will address both our current and future test menu."

Bishop later added that the Omni launch delay takes into account all the possible engineering the firm might want to do. "It's not good that one has to delay, but if we need to do it, let's do it one time," he said.

The firm also sees market potential for its GeneXpert systems with the Xpress tests that it had not previously appreciated.

"Based on early market feedback and changing clinical practices, we have identified an opportunity to broaden our penetration in the US point-of-care market by leveraging our broad test menu and accelerating the development of certain Xpert Xpress tests for use on our existing GeneXpert Systems," Bishop said, though he did not specify which ones.

The firm is currently targeting the 2017/2018 flu season to deliver the first Xpert Xpress tests on GeneXpert systems for the CLIA-waived market. Cepheid's Xpert Flu+RSV Xpress test was waived in December. This waiver helped guide the change in course, enhancing confidence that the firm could bring other Xpress tests through the regulatory process as well, Bishop said.

Many of the tests in the broad GeneXpert test menu — 20 tests in the US and 23 internationally — will be ported to Xpert Xpress, and menu size is also encouraging, Bishop said, as it potentially outstrips competitors in the CLIA-waived market.

However, Bishop said in the earnings call that Cepheid will delay the launch of its Group A Strep Xpress test to 2017 from a previously announced timeframe of sometime in 2015 or 2016.

Bishop further added that the firm has decided to build on its experience with the CLIA-waived single module GeneXpert System, and now plans to introduce its existing two- and four-module GeneXpert systems to the CLIA-waived market.

"We believe that this, coupled with our Xpert Xpress program to provide tests with significantly shorter times to results, should provide a differentiated point-of-care product portfolio, which will be even more compelling when later combined with the Omni system."

Cepheid also announced it has contracted with an additional US distributor, McKesson, adding to recent distribution agreements with Henry Schein and Medline.

These distributors will now target the 10,000 immediate opportunities the firm sees in non-acute settings, such as moderately complex physician's offices and CLIA-waived testing environments.

"We believe that utilization of our existing GeneXpert II and GeneXpert IV systems, combined with our developing Xpress test menu, will provide distribution partners with an even more compelling and differentiated molecular diagnostics offering intended to broaden our penetration of the point-of-care and [physician's office labs] markets."

The chlamydia and gonorrhea testing market will be a particular focus going forward. Initial experience with the new distributor partners has "made it clear that CT/NG could prove a particularly strong performer in the point-of-care, with this test driving many of the early discussions that Henry Schein has been having with prospective accounts," Bishop said. The firm also sees opportunity in possible shifts in clinical practices for hospital-acquired infection testing.

Although the proposed price of the Omni had implied that it would have a market advantage, the firm now sees the rapid, proven testing provided on the four-module GX IV system as a selling point.

Those systems are admittedly "more expensive" however, and Cepheid will be working with distributors to place them on a reagent rental basis. The firm had previously stated a $2,895 system cost for Omni, versus $17,500 for GX IV, with both running assays costing $10 to $19 per test.

Investors and analysts reacted negatively to the news. Besides the hit to Cepheid's stock, Wells Fargo analyst Tim Evans wrote in a research note that the revised POC strategy "leaves us scratching our head."

"The traditional GeneXpert seems too expensive to be a POC instrument and reagent rental models present problems," he said, adding that Cepheid "took pains to explain the superiority of the Omni at its 2015 analyst day [in terms of] pricing, design, speed … [and] we think buyers would be reluctant to purchase an expensive legacy instrument knowing a more sophisticated and less expensive instrument is on the way."

Analysts at Leerink, meanwhile, noted the Omni delay may be a positive for Alere and Roche, both of which already have point-of-care molecular tests in the US market.