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New York Times
A Bug Rises, and With It a Company
Andrew Pollack
March 4, 2008
Patients might not particularly like the new admission procedure at a growing number of hospitals: having what looks like an elongated Q-Tip stuck up their noses. But it smells great to Cepheid.

Cepheid, a biotechnology company in Silicon Valley, sells a rapid genetic test to detect MRSA, an antibiotic-resistant "superbug" that has received considerable media coverage and kills more Americans than AIDS.

With fear of the germ rising, and some states calling for mandatory screening, hospitals are snapping up Cepheid's product in order to test incoming patients by using it with a nasal swab.

Cepheid's stock has more than tripled in the last year, and the 12-year-old company expects its first annual profit, excluding stock option expenses, in 2008.

"We're in the right place at the right time with the right technology," said Dr. David H. Persing, the chief medical officer for Cepheid, which is based in Sunnyvale, Calif.

But the company's share price has been plunging in recent trading because of stock sales by insiders. And Cepheid and its product are also at the heart of a major medical debate.

Some infectious-disease experts say that screening for MRSA - and then isolating patients who carry the bacterium - can more than pay for itself in prevented infections. But critics say that the move toward screening is being driven by corporate marketing and a political response to public fear. They say screening and isolation are costly and logistically difficult, and that it is better to take steps - like encouraging hand washing - that fight all infections.

"You actually in the end save more lives than by doing an MRSA-specific approach," said Dr. Michael Edmond, an epidemiologist at Virginia Commonwealth University. Dr. Edmond said MRSA accounted for only 1 in 20 infections in the intensive care units at the university's medical center.

The first randomized clinical trial of screening found that the strategy did not reduce the rate of colonization and infection by MRSA in intensive care units, according to results presented at a conference last year.

But some experts dismiss the findings because the trial, sponsored by the National Institutes of Health, used a testing procedure other than Cepheid's that took several days to produce results.

Cepheid's only competitor in rapid genetic testing for MRSA is the big medical products supplier BD, also known as Becton, Dickinson. But other companies - including Roche, Gen-Probe, Third Wave and Qiagen - are expected to enter the market in the coming years.

People can have MRSA in their nasal passages and show no symptoms. But the germ can spread from them to other patients, usually via health care workers or unsterilized equipment.

So "colonized" patients, as the carriers are known, are isolated in private rooms, and health care workers wear gloves and gowns when they visit. Some hospitals also use special baths and ointments to try to decontaminate carriers, particularly those headed to surgery, because colonized patients are at a greater risk of having the germ enter their bloodstream when they are cut open.

Four states - Illinois, Minnesota, New Jersey and Pennsylvania - mandate that hospitals screen at least certain patients. Other states, as well as Congress, are considering such legislation.

MRSA, or methicillin-resistant Staphylococcus aureus, usually causes boils on the skin. It is resistant to many common antibiotics, although some others usually work.

Scientists at the federal Centers for Disease Control and Prevention estimated in October that serious infections caused by the bacterium might be twice as common as previously thought, striking more than 94,000 Americans in 2005 and killing nearly 19,000 of them. There were about 17,000 AIDS deaths in 2005, the center estimated.

And while people once became infected with MRSA primarily in hospitals, the bug is now spreading through schools and gymnasiums. A 12-year-old boy in Brooklyn and a teenager in Virginia died last year from such infections.

One person infected last year, apparently at his local gym, was John L. Bishop, the chief executive of Cepheid (pronounced SEF-ee-id, and named for a type of star used to help measure distances in space). Mr. Bishop said the infection, which caused blisters on a hand and a foot, was diagnosed with one of his company's tests. He then took two antibiotics for 17 days.

"In this case, I was fortunate because we knew immediately what it was," he said.

Hospitals can detect MRSA by growing the nasal sample in culture. That costs only a few dollars but takes a day or two to get the answer. In the meantime, uncolonized patients will be isolated unnecessarily or colonized patients will not be isolated.

Cepheid's test, which looks for telltale genetic sequences, takes as little as 72 minutes. Hospitals must buy the company's GeneXpert machine, which costs about $30,000 to $150,000, depending on how many tests it can run at once. Each individual test cartridge is priced at $42.

BD's competing machine starts at about $35,000 and each test costs $25. Cepheid's test does not require the same level of expertise as BD's. And Cepheid's can test patient samples one at a time, as they come in. BD's system, geared more to high-volume laboratories, runs tests in batches, so patient samples might sit around until enough accumulate.

"By our estimate, Cepheid is winning the lion's share of the contracts," said Quintin Lai, an analyst who follows Cepheid for Robert W. Baird & Company.

Loyola University Medical Center in Maywood, Ill., chose Cepheid's system because it could be used even on nights and weekends when trained laboratory personnel might not be available, said Paul C. Schreckenberger, director of clinical microbiology.

Cepheid has sold 88 systems to Veterans Affairs hospitals, all 153 of which are moving toward screening all patients.

Still, there may be ample room for both Cepheid and BD to grow in the rapid MRSA testing business because most hospitals are not yet screening, and many of those that do are using the older culture method.

Andrew Guhl, vice president for health care infections at BD, said that one-third of the 35 million patients admitted to hospitals in the United States each year, like those going into intensive care, would be considered high risk. If only those were screened the market would reach $400 million annually, Mr. Guhl said. If all hospital patients were screened, the market could top $1 billion.

He said BD generated about $20 million in MRSA-related sales in 2007. Cepheid appears to have taken in more than $30 million since its test won approval by the Food and Drug Administration in April.

Cepheid's overall revenue grew 48 percent in 2007, to $129.5 million. The company said last Thursday that it expected 2008 revenue to reach at least $182 million. While the company sells other tests, it is the MRSA test that is driving the growth. The company's net loss in 2007, excluding certain items, was $9.3 million, or 17 cents a share, about half its loss in 2006.

Still, Cepheid's shares have fallen from a close of $31.45 on Wednesday to $24.36 on Monday. Zarak Khurshid, an analyst at Caris & Company, said the decline was caused by big sales of stock on Thursday by some insiders under prearranged plans.

Mr. Bishop, the chief executive, made his first-ever stock sale, selling 443,113 shares at prices near $30 a share for a profit of $11.6 million, after subtracting the $3.61 a share he paid to exercise options.

Future sales could depend on countering the opposition to the expansion of MRSA screening.

Dr. Henry F. Chambers, chief of infectious disease at San Francisco General Hospital, said his hospital would not have room to isolate all carriers of MRSA. Besides, Dr. Chambers said, "there are studies showing that when you isolate patients, doctors and nurses do not go into that room," and the quality of care declines.

But Dr. Lance R. Peterson of Evanston Northwestern Healthcare said that screening all incoming patients with the BD test reduced bloodstream MRSA infections by 80 percent at the system's three hospitals in the Chicago suburbs.

The estimated 50 prevented infections in the first year saved $1.2 million in treatment costs, more than offsetting the $600,000 spent on the testing, said Dr. Peterson, an epidemiologist who has been a consultant and speaker for both BD and Cepheid.

Two groups of infection-control specialists, while acknowledging the value of screening, oppose state laws that mandate it, saying that approach is too inflexible.

"We're concerned that these states are taking a micro-organism-of-the-week approach," said Kathy L. Warye, chief executive of one of the societies, the Association for Professionals in Infection Control and Epidemiology.

This is not the first time Cepheid has found itself on the front lines of the nation's defense against pathogens. Its system is used to monitor for anthrax in 273 post offices and mail sorting facilities, a response to the 2001 anthrax scare. The Postal Service uses as many as two million test cartridges a year, bringing Cepheid about $40 million in revenue last year.

The company is now developing tests for other pathogens that hospitals can run on the same machines they are buying for MRSA screening.

"There's a broad number of tests that need to be deployed," Mr. Bishop said.



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