Cepheid Inc. priced a public offering of 5.5 million shares of common stock at $11.25 per share for about $62 million - a funding that will push forward its development of systems for biothreat detection.
A developer of genetic analysis systems that can be used, the company says, "when and where" they are needed, Sunnyvale, Calif.-based Cepheid will use the funds for research and development, sales and marketing, and "general operating expenses," said John Bishop, CEO of the company. The percentage to be allocated to each sector has not been determined, Bishop said, speaking from Chicago after concluding a week-long road show. He added that the financing should close next week around Feb. 18.
Still in the developmental stage, Cepheid's preliminary 2003 year-end numbers show a loss of $17.3 million, but Bishop said that the company "potentially could reach break-even by the fourth quarter of this year or first quarter of 2005, depending upon programs that we have under way with the [U.S.] Post Office."
That program is in Phase I and involves the integration of Cepheid's GeneXpert module and test cartridges into the Biohazard Detection System (BDS) developed by Northrop Grumman, of Los Angeles, for screening mail within the U.S. Postal Service (USPS), particularly for anthrax.
The federal government has allocated $175 million for the Phase I contract for deployment of the BDS systems at post offices, and Cepheid will receive an estimated 15 percent to 17 percent of that funding, or between $26 million and $30 million, Bishop said.
"We're actually shipping production modules currently for them to be installed in the production units of the BDS," he said. "We expect implementation of the production units to get under way in about a March time frame."
He explained that Grumman's BDS system is a device that is placed over the mail-processing line in order to collect the air around that area. The sample analysis is carried out by the GeneXpert system, comprised of an "instrument module that does the amplification work" and a disposable test cartridge, Bishop explained.
He said that the system's unique feature is its automated way of acquiring the target specimen and preparing the sample for accessing its genetic material. "It completes all the testing requirements so that you get an accurate answer as to what's happening right there on the scene."
The system "is a very elegant, very accurate technology, but you don't have to have a highly qualified technologist to run it," he added, noting that is what makes it particularly applicable to the widespread use required by the postal service.
The company reported in January that the GeneXpert technology will be used in a biothreat detection system, called Bio-Seeq Mail Sentry, produced by Smiths Detection, a division of UK-based Smiths Group plc.
Key to the company's future cash flow is the sales of the single-use disposable modules for the system, Bishop said.
Bishop said that with the conclusion of the Phase I USPS contract, the service has "an option, at their discretion," for placement of additional instruments and test cartridges in a Phase II contract. "Beyond [Phase] I and II, then we would expect ongoing demand from the post office," Bishop said.
Overall, he said that the current and potential work with the USPS "will produce the largest near-term revenue" for the company. "Behind that, we have a number of projects under way in the clinical area."
The company already markets a test for diagnosing Group B streptococcus. And Cepheid will be adding additional diagnostic products during 2004, "some with partners," Bishop said, adding that it has various products designed for the clinical research market to be rolled out "later in the year as well."
He described the research products as targeted to "researchers working within academia - anything from university-based hospital laboratories [and] clinical-type research to large hospital institutions that have a research arm." The application will be to establish correlations "between genetic targets and disease occurrence and outcomes."
Cepheid in January projected its 2004 sales to range from $42 million to $46 million and will report final 2003 results Feb. 17.
Cepheid has granted the underwriters an option to purchase up to another 825,000 shares of common stock to cover overallotments. UBS Securities LLC, of New York, is acting as sole book-running manager for the offering, and William Blair & Co. in Chicago; C.E. Unterberg, Towbin in Denver; and Rodman & Renshaw Inc. in New York are acting as co-managers.
Coming off the road show, Bishop said that the result has been "good investor support - now our job is to give them a nice return on their investment."