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Genetic testing involves a number of complicated steps, including sample preparation, amplification and detection. Based on state-of-the-art microfluidic and microelectronic technologies, our easy-to-use systems integrate these steps and analyze complex biological samples in our proprietary test cartridges. We are focusing our efforts on those applications where rapid genetic testing is particularly important, such as the infectious disease, cancer and biothreat testing markets.
Cepheid makes equipment capable of performing genetic analysis for medical, life sciences, and biothreat markets. The company's two major products are the SmartCycler and the GeneXpert, which enable rapid genetic testing of organism- and genetic-based diseases by automating complex laboratory procedures. The SmartCycler system integrates DNA amplification and detection, two of the three major processing steps involved in nucleic acid testing. Customers for the company's SmartCycler include the Centers for Disease Control and Prevention, the U.S. Food and Drug Administration, the National Institutes of Health, and the U.S. Army Medical Research Institute for Infectious Diseases. Cepheid's GeneXpert system adds the third primary processing step, sample preparation, to the capabilities of the SmartCycler. The GeneXpert system is sold in the biothreat market and the clinical genetic assessment market. Through a partnership with Northrop-Grumman Corp., Cepheid developed the Biohazard Detection System for the U.S. Postal Service, which is capable of detecting anthrax and other deadly pathogens. The U.S. Postal Service intends to have Biohazard Detection System units installed at 283 mail-processing centers throughout the country.
Cepheid was founded by three partners, Thomas L. Gutshall, Kurt Petersen, and M. Allen Northrup. Of the three, Petersen was the visionary, the innovative scientist who, with a passion for the potential of micro-electromechanical systems (MEMS), embodied the essence of Cepheid. "Kurt was the true pioneer of this industry," a MEMS industry analyst said in an April 2, 2001 interview with Forbes. "Many of the current MEMS applications are a direct result of Kurt's work."
A graduate of the University of California at Berkeley who earned his doctorate degree from the Massachusetts Institute of Technology, Petersen contributed significantly to the advancement of micromachining technology and its commercialization. A paper he wrote nearly 20 years before cofounding Cepheid was a seminal piece entitled "Silicon as a Mechanical Material," lending legitimacy to Petersen's entrepreneurial career. In 1982, he helped start his first company, cofounding Transensory Devices, a company that operated essentially as a research and development laboratory drawing on his expertise from his position as vice-president of technology. A short time later, Petersen launched another venture, starting a company named NovaSensor that represented one of the first successful MEMS companies. Petersen left NovaSensor in 1995 before the company was involved in several acquisitions and mergers that subsumed his creation. One year after he left NovaSensor, he collaborated with Gutshall and Northrup to form Cepheid in August 1996, a company that operated in virtual anonymity for the first five years of its existence.
Cepheid, as a corporate title, was chosen to convey the expectations of its principal founders. The term Cepheid referred to a class of stars with exceptionally regular periods of light pulsation that scientists used as reference standards for distance in the universe. With his company, Peterson intended to make MEMS-based instruments capable of analyzing deoxyribonucleic acid (DNA) quickly, instruments that could be used for a variety of purposes, such as distinguishing different types of cancer, detecting dangerous bacteria in meat and shellfish, and diagnosing sexually transmitted disease in urine samples, among a litany of other uses. "Cepheid is going to be a reference standard for DNA analysis," Peterson explained in an October 13, 2001 interview with the San Jose Mercury News.
As Cepheid set out to become the archetype of its nascent industry, Petersen took the titles of president and chief operating officer. Gutshall took the helm, assuming the posts of chairman and chief executive officer. Northrup did not take an active role in running the company until a year after its formation, when he accepted the positions of vice-president of research and chief technology officer, but his contribution to Cepheid's founding were instrumental, nevertheless. Northrup, between 1991 and 1997, served as the principal engineer at the Microtechnology Center of Lawrence Livermore National Laboratory, where the three partners licensed a technology that served as Cepheid's foundation at its birth. Starting out, Petersen, Gutshall, and Northrup focused their efforts on the detection and analysis of nucleic acid, particularly DNA, a process that involved three primary steps: sample preparation, the isolation of target cells and the separation and purification of their nucleic acids; amplification, a chemical process that creates large quantities of DNA; and detection, the method of determining the presence or absence of the target DNA generally through the use of fluorescent dyes. From Livermore, the three partners licensed technology that enabled them to integrate amplification and detection, which became the central element of the instruments developed under the Cepheid banner during the company's first decade of existence. With the technology licensed from Livermore, Cepheid's small staff of scientists began work on developing a commercially viable product, focusing its efforts on creating a device capable of quickly analyzing DNA. The process was slow and costly.
Without a marketable product, Cepheid languished in obscurity, racking up debt throughout the late 1990s. Living largely off funding from government agencies, the company labored to bring its first product to market, a device dubbed the SmartCycler that debuted in May 2000, four years after the company was incorporated. In the years leading up to the release of the SmartCycler, a device possessing unique improvements on Livermore's fast-cycling technique for preparing DNA samples, Cepheid's financial record was bleak. In 1998, revenue totaled $3.5 million, a volume matched the following year, but losses during the two years eclipsed $11 million. To help pay down some of the company's debt, Gutshall led the company toward its initial public offering (IPO) of stock in June 2000, one month after the release of the SmartCycler. The proceeds from the IPO provided some relief, but 2000 ended with another financially woeful result. Cepheid generated $7 million in revenue during the first year of the SmartCycler's presence on the market, but it lost nearly $15 million during the year.
Cepheid Thrust into the Limelight: 2001
Cepheid's fortunes did not improve until disaster struck. The SmartCycler, geared for genomics research and medical applications such as diagnosing diseased tissue, failed to elevate the company's stature in the months after its IPO. The company continued to operate as a little-known biotechnology concern involved in life sciences research, struggling to make its mark and forced to contend with problems associated with operating in the public sector. As Cepheid reached its fifth anniversary, its efforts to compete against a larger and more established competitor, Salt Lake City, Utah-based Idaho Technology Inc., caused the company to fall short of its quarterly revenue projection, evoking the displeasure of Wall Street. Worse still, Cepheid's relationship with its most important distributor, Fisher Scientific Co., soured. Fisher filed a lawsuit against Cepheid, delivering another blow to the company's esteem among analysts. Cepheid's stock, which debuted at $6 per share, plummeted to a near record low of $1.53 per share when trading closed on September 10, 2001. The following morning, disaster struck. When terrorists attacked the World Trade Center Towers in New York City and The Pentagon in Washington, D.C., the specter of bioterrorism ratcheted up within the space of hours. Fear spread throughout the nation, as pundits traded theories about the possibilities of other types of attacks against the country, including the release of deadly pathogens on the public. Cepheid, as one of the few companies capable of producing rapid and accurate biodetection units, quickly drew national interest. When trading on Wall Street resumed on September 17, 2001, Cepheid's stock nearly doubled in value. When anthrax spores sent through the U.S. mail killed five people, the threat of bioterrorism became a reality, further increasing the value of Cepheid's work. Petersen and Gutshall, who had labored in Sunnyvale largely without notice, became sought after experts in the field of biodetection, making television appearances on Good Morning America and CNN.
The attacks of September 11 brought widespread attention to Cepheid's expertise. Federal agencies used the company's technology to detect anthrax and identify its possible sources. The U.S. Army asked the company to develop a way to test for plague and botulism germs. Most important, the fear created from the anthrax attacks that ensued in the months following the attacks on the World Trade Center Towers and The Pentagon led to a partnership with Northrop-Grumman Corp., a massive defense contractor. In May 2002, Cepheid announced it was part of a consortium led by Northrop-Grumman that the U.S. Postal Service (USPS) had selected for a pilot program to install germ detectors at post office sites nationwide. In December 2002, the USPS awarded the consortium a pre-production contract for biothreat detection systems to be installed and tested at 14 mail-sorting facilities, the first step toward the potential installation of biodetectors at USPS sites throughout the country.
Although the threat of bioterrorism raised Cepheid's profile, it did not cure its financial problems. The company consistently lost money during the first years of the decade, racking up nearly $70 million in losses between 2000 and 2003. Revenues more than doubled during the period, but the $18.5 million registered in 2003 hardly represented a towering volume of business. Cepheid's leadership changed during this period, as Gutshall passed the reins of command in 2002 to John L. Bishop, who had spent the previous decade serving as president of Vysis, a genomic disease management company. When Bishop joined the company, the hopes for future profitability were pinned on the success of the company's next-generation device dubbed GeneXpert, a test version of which was delivered to the U.S. Army Medical Research Institute of Infectious Diseases in early 2002. Unlike SmartCycler, GeneXpert handled all three stages of processing nucleic acid. Processing with SmartCycler required sample preparations to be performed separately, but GeneXpert simplified DNA identification by performing all three steps in one machine.
Future Hopes Resting on GeneXpert
As Cepheid prepared for its 10th anniversary, the tone of the occasion was expected to be influenced by the success of the company's GeneXpert system and its ability to increase its presence in a variety of markets. In 2004, there were developments that boded well for a celebratory party in 2006. Early in the year, the USPS approved the contract bid of the Northrop-Grumman-led consortium. According to the terms of the contract, Cepheid was slated to install 1,784 systems to detect anthrax at 283 mail-sorting facilities, which was expected to be completed during Cepheid's 10th anniversary. At the heart of the company's biodetection units was the company's GeneXpert technology, a comprehensive DNA analysis system that made its commercial debut in the company's third fiscal quarter of 2004. Initially GeneXpert was launched in the biothreat market, a release that was expected to be followed by its debut in the clinical market in 2005 once approval from the U.S. Food and Drug Administration was received. Financially, 2004 ended with one extremely encouraging result that was tempered by the blemish of another annual loss. Revenues for the year leaped to $52.9 million, markedly higher than the $18.5 million generated in 2003. The year ended with a $13.8 million loss, however. As Cepheid's executive staff looked ahead, the likelihood of a financially successful second decade of business rested on the embrace of GeneXpert and succeeding technologies not only in the biothreat market, but also in clinical and industrial markets.
Cepheid SA (France).
Applied Biosystems Group; QIAGEN N.V.; Bio-Rad Laboratories, Inc.