Cepheid And Anthrax

Over on the Cepheid cartridge teardown post someone left an interesting comment about regarding Cepheids biothreat project (Anthrax testing) with the USPS.

Back in 2001 Anthrax was mailed to 17 individuals causing 5 deaths. In the aftermath of these attacks the USPS setup an Anthrax detection system.

Called the “Biohazard Detection System” (BDS) the system has two components. One component performs continuous air collection, collected material is then loaded a second automated qPCR detection component. The qPCR component was developed by Cepheid and appears to have been the first deployment of the GeneXpert approach. Which they then more widely deployed in diagnostics.

In the USPS BDS system testing occurs every hour, and takes ~30mins. It’s capable of unattended operation for 10 hours. This could be something similar to a 16 module GeneXpert system. With someone coming along every 10 hours and loading new cartridges.

The USPS had thousands¹ of BDS systems, consuming ~2 million cartridges a year.

Initial development of the system appears to have cost USPS ~$532M. With an estimated consumables cost of $525 over the first 5 years. Based on the 2004 annual report, about 15% of this went to Cepheid², ~$78M.

In 2005 and 2006, when the project was running the majority of Cepheids sales went to USPS³, peaking at 72% of sales, $57M in 2005. Diagnostics however was rapidly growing… and by the time Cepheid was acquired by Danahar in 2015, “non-clinical” was only 5% of their revenue ($28M).

And at this point it’s unclear if the BDS system is still running. The most recent associated contracts I could find date to 2022, if it is it seems likely it’s been scaled back significantly.

Thoughts

Biothreat and Biodefense can be an interesting early source of funding for many companies. Oxford Nanopore also received grant funding for direct detection of Anthrax:

This kind of funding is often prompted by external events (like the 2001 Anthrax attacks). And can lead to a short term influx of funding. In Cepheids position, where the majority of their revenue was coming from Biothreat surveillance, it must have been tempting to lean into this. Either attempting to deploy these solutions more widely, or expand into other Biothreat/defense applications.

However, much as we saw with the pandemic⁴, funding driven by external events can be limited and shorted lived.

Cepheid however seemed to capitalize perfectly on this Biothreat application, building a platform suitable not only to address the customer requirements, but bootstrapping the development of their sample-to-answer qPCR platform. And growing it into a billion dollar business.

Notes

2015 10K:

2006 10K:

2007 USPS competition report:

Cepheid 2007 10K:

1. “At the end of 2005, the Postal Service finished installation of 1,373 systems, including contingency units”

2. “A Northrop Grumman-led consortium that includes Cepheid and other subcontractors has developed the Biohazard Detection System (BDS) for the United States Postal Service (USPS). This consortium was awarded a production contract that included a $175.0 million first phase, with the USPS having an option for a second phase, which was exercised subsequent to the close of the quarter ended December 31, 2004. Based on the orders received through the end of the fi rst quarter of 2005, we have received approximately 15% to 17% of the first phase amount. We expect to begin shipping GeneXpert modules to be utilized with phase 2 installations during the first quarter 2005.”

3. At least Biothreat which I think is entirely due to the USPS project

4. Where there was a sudden rush to fund all kinds of at-home test systems or other pandemic related products many of which failed to gain traction/further investment.