Cepheid, Maker of Test to Spot MRSA Staph Infections, Builds Growing Presence in Washington

12/22/08Follow @xconomy

Lots of innovation is happening inside nondescript office buildings in Bothell, but this activity gets little attention because it takes place at branch operations of companies headquartered elsewhere. Cepheid, the maker of molecular diagnostic tools based in Sunnyvale, CA, is one of those companies.

So I jumped at an opportunity to interview CEO John Bishop a couple weeks ago to learn more about why a fast-growing company like Cepheid (NASDAQ: CPHD) made a strategic decision to build a 30-person chemistry team in Bothell, and why the venture is expected to grow.

First, though, a little background about the company. Cepheid’s revenues have boomed over the last six years, from about $15 million to a forecast of about $175 million for this year. One of the key drivers is a precise test for detecting MRSA bacteria—a common cause of staph infections. These bugs are growing fast, and represent about two-thirds of hospital acquired infections.

The Cepheid test tackles this problem by putting complex DNA amplification processes into a box that someone without expert lab training can operate. This is a big deal, because only about one-third of U.S. healthcare facilities have labs certified and staffed to run the DNA amplification tests needed to identify MRSA, so they have to turn to contract labs that can take three or four days to get a result. Instead of fearing the worst and putting patients on potent antibiotics, even when it isn’t necessary, hospitals can shell out as much as $60,000 for a fully-equipped Cepheid machine that can give them the answer in about an hour.

More conventional diagnostic tests use antibodies to bind with proteins in the blood, but they can be less reliable and sometimes late to set off an alarm bell. This is why companies like Roche, Abbott Laboratories, Celera, and Becton Dickinson are all pushing to grab bigger stakes in the more precise world of molecular diagnostics. “With molecular, you can see what’s going on at a causative level,” Bishop says.

So Cepheid sees demand rising, particularly as it adapts the technology to hospitals that want to spot other worrisome bugs, like multi-drug resistant tuberculosis.

But how does the Bothell team fit into a company with 500 employees in North America and Europe? It all started in late 2003 when Alexander Gall, a chemist who formerly worked at Seattle Genetics and Epoch Pharamceuticals, told Bishop he was looking for a new job (right around the time when a lot of Seattle biotechs were laying off scientists). Bishop saw an opportunity to build something around Gall, so he hired him, and put him in charge of R&D.

Gall, and the people he oversees at the Bothell group, brought an important skill in their ability to modify the individual nucleic acid base chemicals—the building blocks of DNA—that make the Cepheid machines proprietary, Bishop says. “They are brilliant nucleic acid and organic chemists,” he says.

These modifications make the difference in the test’s reliability, and speed, Bishop says. This work is so integral to the company and its ability to make specialized probes and primers that Cepheid is planning to build up manufacturing capability near the chemistry group in Bothell. This work shouldn’t be outsourced, and will be kept close by the chemistry group, because “it’s high-value work for us, and we want to keep it with technically competent individuals,” Bishop says.

Bishop wouldn’t be specific about how many people it plans to hire here, but he was unequivocal about the fact that growth is coming here. “This will be a long-term growth program in Washington,” Bishop says.

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