10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2013

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission file number 000-30755

CEPHEID

(Exact Name of Registrant as Specified in its Charter)

California	77-0441625
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)
904 Caribbean Drive, Sunnyvale, California	94089-1189
(Address of Principal Executive Office)	(Zip Code)

(408) 541-4191

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer	x	Accelerated Filer	¨
Non-Accelerated Filer	¨  (Do not check if smaller reporting company)	Smaller Reporting Company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ¨  Yes    x  No

As of July 23, 2013 there were 67,451,984 shares of the registrant’s common stock outstanding.

REPORT ON FORM 10-Q FOR THE

QUARTER ENDED JUNE 30, 2013

INDEX

		Page
Part I.	Financial Information
Item 1.	Financial Statements		3
	Condensed Consolidated Balance Sheets as of June 30, 2013 and December 31, 2012		3
	Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2013 and 2012		4
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2013 and 2012		5
	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2013 and 2012		6
	Notes to Condensed Consolidated Financial Statements		7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		23
Item 4.	Controls and Procedures		24
Part II.	Other Information
Item 1.	Legal Proceedings		25
Item 1A	Risk Factors		25
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		37
Item 3.	Defaults Upon Senior Securities		37
Item 4.	Mine Safety Disclosures		37
Item 5.	Other Information		37
Item 6.	Exhibits		37
Signatures			39

Cepheid^®, the Cepheid logo, GeneXpert^®, Xpert^® and SmartCycler are trademarks of Cepheid.

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CEPHEID

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

	June 30, 2013			December 31, 2012
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	85,030		$	95,779
Accounts receivable, net		47,828			43,999
Inventory		85,010			70,114
Prepaid expenses and other current assets		15,263			9,448
Total current assets		233,131			219,340
Property and equipment, net		66,232			54,830
Other non-current assets		1,078			913
Intangible assets, net		18,516			18,767
Goodwill		39,681			37,694
Total assets	$	358,638		$	331,544
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	40,436		$	33,701
Accrued compensation		19,204			16,540
Accrued royalties		7,330			7,992
Accrued and other liabilities		4,040			4,235
Current portion of deferred revenue		11,300			9,599
Current portion of notes payable		183			183
Total current liabilities		82,493			72,250
Long-term portion of deferred revenue		877			1,156
Long-term portion of notes payable		1,541			1,685
Other liabilities		9,750			8,911
Total liabilities		94,661			84,002
Commitments and contingencies (Note 6)
Shareholders’ equity:
Preferred stock, no par value; 5,000,000 shares authorized, none issued or outstanding		—			—
Common stock, no par value; 100,000,000 shares authorized, 67,430,536 and 66,603,884 shares issued and outstanding at June 30, 2013 and December 31, 2012, respectively		365,317			355,867
Additional paid-in capital		130,429			117,217
Accumulated other comprehensive income		96			56
Accumulated deficit		(231,865	)		(225,598	)
Total shareholders’ equity		263,977			247,542
Total liabilities and shareholders’ equity	$	358,638		$	331,544

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

3

CEPHEID

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
Sales	$	96,012		$	81,015		$	187,950		$	158,307
Costs and operating expenses:
Cost of sales		52,889			35,072			95,781			70,680
Collaboration profit sharing		1,425			1,645			3,535			3,329
Research and development		18,572			16,118			36,299			38,220
Sales and marketing		19,105			15,108			38,231			29,620
General and administrative		9,612			11,011			19,375			22,062
Total costs and operating expenses		101,603			78,954			193,221			163,911
Income (loss) from operations		(5,591	)		2,061			(5,271	)		(5,604	)
Other income (expense):
Interest expense, net		(35	)		—			(70	)		(11	)
Foreign currency exchange loss and other		(682	)		(572	)		(273	)		(323	)
Other expense, net		(717	)		(572	)		(343	)		(334	)
Income (loss) before income taxes		(6,308	)		1,489			(5,614	)		(5,938	)
Benefit from (provision for) income taxes		(272	)		(354	)		(653	)		1,547
Net income (loss)	$	(6,580	)	$	1,135		$	(6,267	)	$	(4,391	)
Basic net income (loss) per share	$	(0.10	)	$	0.02		$	(0.09	)	$	(0.07	)
Diluted net income (loss) per share	$	(0.10	)	$	0.02		$	(0.09	)	$	(0.07	)
Shares used in computing basic net income (loss) per share		67,295			65,695			67,061			65,361
Shares used in computing diluted net income (loss) per share		67,295			68,869			67,061			65,361

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

4

CEPHEID

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

(unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
Net income (loss)	$	(6,580	)	$	1,135		$	(6,267	)	$	(4,391	)
Other comprehensive income (loss):
Foreign currency translation adjustments		—			(85	)		—			140
Unrealized gains and losses related to cash flow hedges:
Gain/(Loss) recognized in other comprehensive income		(598	)		—			137			—
Gain reclassified from accumulated comprehensive income to the statement of operations		(63	)		—			(97	)		—
Comprehensive income (loss)	$	(7,241	)	$	1,050		$	(6,227	)	$	(4,251	)

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

5

CEPHEID

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Six Months Ended June 30,
	2013			2012
Cash flows from operating activities:
Net loss	$	(6,267	)	$	(4,391	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization of property and equipment		8,361			6,308
Amortization of intangible assets		3,146			2,633
Unrealized exchange differences		575			—
Stock-based compensation related to employees and consulting services rendered		12,806			11,567
Changes in operating assets and liabilities:
Accounts receivable		(2,586	)		761
Inventory		(14,491	)		(5,950	)
Prepaid expenses and other current assets		(6,454	)		(7,475	)
Other non-current assets		30			(105	)
Accounts payable and other current liabilities		5,669			(12,233	)
Accrued compensation		2,616			(1,312	)
Deferred revenue		1,422			438
Net cash provided by (used in) operating activities		4,827			(9,759	)
Cash flows from investing activities:
Capital expenditures		(18,974	)		(11,168	)
Payments for technology licenses		(1,125	)		—
Cost of acquisitions, net		(3,571	)		(17,462	)
Net cash used in investing activities		(23,670	)		(28,630	)
Cash flows from financing activities:
Net proceeds from the issuance of common shares and exercise of stock options		9,450			21,091
Principal payment of notes payable		(781	)		—
Net cash provided by financing activities		8,669			21,091
Effect of exchange rate change on cash		(575	)		(443	)
Net decrease in cash and cash equivalents		(10,749	)		(17,741	)
Cash and cash equivalents at beginning of period		95,779			115,008
Cash and cash equivalents at end of period	$	85,030		$	97,267

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

6

CEPHEID

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Organization and Summary of Significant Accounting Policies

Organization and Basis of Presentation

Cepheid (the “Company”) was incorporated in the State of California on March 4, 1996. The Company is a molecular diagnostics company that develops, manufactures and markets fully-integrated systems for testing in the Clinical market, as well as for application in the Company’s legacy Non-Clinical market. The Company’s systems enable rapid, sophisticated molecular testing for organisms and genetic-based diseases by automating otherwise complex manual laboratory procedures.

The Condensed Consolidated Balance Sheet at June 30, 2013, the Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2013 and 2012, the Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2013 and 2012 and the Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2013 and 2012 are unaudited. In the opinion of management, these condensed consolidated financial statements reflect all normal recurring adjustments that management considers necessary for a fair presentation of the Company’s financial position at such dates and the operating results and cash flows for those periods. The accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“U.S.”). However, certain information or footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The results of operations for such periods are not necessarily indicative of the results expected for the remainder of 2013 or for any future period. The Condensed Consolidated Balance Sheet as of December 31, 2012 is derived from audited financial statements as of that date but does not include all of the information and footnotes required by accounting principles generally accepted in the U.S. for complete financial statements. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012. Within the Condensed Consolidated Statements of Operations, the Condensed Consolidated Statements of Cash Flows and Note 3, “Segment and Significant Concentrations”, certain amounts have been reclassified to conform to the current period presentation.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from these estimates.

Fair Value of Financial Instruments

The Company defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company’s valuation techniques used to measure fair value maximized the use of observable inputs and minimized the use of unobservable inputs. The fair value hierarchy is based on the following three levels of inputs:

• Level 1—Quoted prices in active markets for identical assets or liabilities.

• Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

• Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

See Note 7, “Fair Value,” for information and related disclosures regarding the Company’s fair value measurements.

7

Inventory

Inventory is stated at the lower of standard cost (which approximates actual cost) or market cost, with cost determined on the first-in-first-out method. Accordingly, allocation of fixed production overheads to conversion costs is based on normal capacity of production. Abnormal amounts of idle facility expense, freight, handling costs and spoilage are expensed as incurred and not included in overhead. In addition, unrecognized stock-based compensation cost of $1.5 million and $1.1 million was included in inventory as of June 30, 2013 and December 31, 2012, respectively.

The following table summarizes the components of inventory (in thousands):

	June 30, 2013		December 31, 2012
Raw Materials	$	30,574	$	26,041
Work in Process		31,824		30,113
Finished Goods		22,612		13,960
Inventory	$	85,010	$	70,114

Revenue Recognition

The Company recognizes revenue from sales when there is persuasive evidence that an arrangement exists, delivery has occurred, the price is fixed or determinable and collectability is reasonably assured. No right of return exists for the Company’s products except in the case of damaged goods. The Company has not experienced any significant returns of its products. Shipping and handling costs are expensed as incurred and included in cost of sales. In those cases where the Company bills shipping and handling costs to customers, the amounts billed are classified as sales.

The Company enters into revenue arrangements that may consist of multiple deliverables of its products and services. In situations with multiple deliverables, revenue is recognized upon the delivery of the separate elements. The Company sells service contracts for which revenue is deferred and recognized ratably over the contract period.

System and other sales includes fees for technology licenses and research and development services, including research and development under grants and government sponsored research, royalties under license and collaboration agreements. Fees for technology licenses are generally fully recognized only after the license period has commenced, the technology has been delivered and no further involvement of the Company is required. When the Company has continuing involvement related to a technology license, revenue is recognized over the license term. Revenue related to research and development services is recognized as the related service is performed based on the performance requirements of the relevant contract and recoverability is reasonably assured. Under such agreements, the Company is required to perform specific research and development activities and is compensated either based on the costs or costs plus a mark-up associated with each specific contract over the term of the agreement or based on the Company’s progress to completion. Royalties are typically based on licensees’ net sales of products that utilize the Company’s technology, and royalty revenues are recognized as earned in accordance with the contract terms when the royalties can be reliably measured and their collectability is reasonably assured, such as upon the receipt of a royalty statement from the customer.

Advance payments received in excess of amounts earned, such as funds received in advance of products to be delivered or services to be performed, are classified as deferred revenue until earned.

Net Income (Loss) per Share

Basic net income (loss) per share is computed by dividing net income (loss) for the period by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing net income (loss) for the period by the weighted average number of common and common equivalent shares outstanding during the period. Potentially dilutive common shares consist of incremental common shares issuable upon exercise of stock options, employee stock purchases, restricted stock awards and restricted stock units. The Company excludes stock options from the calculation of diluted net income (loss) per share when the combined exercise price and average unamortized fair values are greater than the average market price for the Company’s common stock because their effect is anti-dilutive. These anti-dilutive common stock equivalent shares totaled 5,542,000 and 2,100,000 for the three months ended June 30, 2013 and 2012, respectively, and 5,285,000 and 4,885,000 for the six months ended June 30, 2013 and 2012, respectively.

8

The following summarizes the computation of basic and diluted income (loss) per share (in thousands, except for per share amounts):

	Three Months Ended June 30,					Six Months Ended June 30,
	2013			2012		2013			2012
Basic:
Net income (loss)	$	(6,580	)	$	1,135	$	(6,267	)	$	(4,391	)
Basic weighted shares outstanding		67,295			65,695		67,061			65,361
Net income (loss) per share		(0.10	)	$	0.02	$	(0.09	)	$	(0.07	)
Diluted:
Net income (loss)	$	(6,580	)	$	1,135	$	(6,267	)	$	(4,391	)
Basic weighted shares outstanding		67,295			65,695		67,061			65,361
Effect of dilutive securities:
Stock options, ESPP, restricted stock units and restricted stock awards		—			3,174		—			—
Diluted weighted shares outstanding		67,295			68,869		67,061			65,361
Net income (loss) per share	$	(0.10	)	$	0.02	$	(0.09	)	$	(0.07	)

Recent Accounting Pronouncements

In February 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2013-2, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (ASU 2013-2), that requires an organization to present the effects on the line items of net income of significant amounts reclassified out of Accumulated Other Comprehensive Income, but only if the item reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. ASU 2013-2 is effective for fiscal years beginning after December 15, 2012. The Company adopted ASU No. 2013-02 on January 1, 2013 on a prospective basis. The adoption had no material effect on the Company’s financial position or results of operations.

2. Intangible Assets and Goodwill

Intangible assets related to licenses are recorded at cost, less accumulated amortization. Intangible assets related to technology and other intangible assets acquired in acquisitions are recorded at fair value at the date of acquisition, less accumulated amortization. Intangible assets are amortized over their estimated useful lives, ranging from 3 to 20 years, on a straight-line basis. Amortization of intangible assets is primarily included in cost of product sales in the accompanying condensed consolidated statements of operations.

The following table summarizes the recorded value and accumulated amortization of major classes of intangible assets (in thousands):

Balance, June 30, 2013:	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Licenses	$	28,577	$	(20,525	)	$	8,052
Technology acquired in acquisitions		8,613		(7,092	)		1,521
Customer relationships and other intangible assets acquired in acquisitions		15,470		(6,527	)		8,943
	$	52,660	$	(34,144	)	$	18,516

9

Balance, December 31, 2012	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Licenses	$	27,452	$	(19,464	)	$	7,988
Technology acquired in acquisitions		8,613		(6,843	)		1,770
Customer relationships and other intangible assets acquired in acquisitions		13,700		(4,691	)		9,009
	$	49,765	$	(30,998	)	$	18,767

During the three months ended June 30, 2013, the Company purchased its Italian distributor, which was accounted for as business combination. This transaction had a total purchase price of $3.6 million, which was paid in cash. This transaction was part of the ongoing expansion of the Company’s distribution network for its equipment and reagents. A summary of the fair value of the assets acquired and the liabilities assumed is as follows: acquired intangible assets of $1.8 million, property and equipment, inventory and other assets, net of liabilities, of $0.3 million and goodwill of $1.5 million.

Amortization expense of intangible assets was $1.6 million and $1.2 million for the three months ended June 30, 2013 and 2012, respectively, and $3.2 million and $2.6 million for the six months ended June 30, 2013 and 2012, respectively. The following table summarizes the expected future annual amortization expense of intangible assets recorded on the Company’s Condensed Consolidated Balance Sheet as of June 30, 2013, assuming no impairment charges (in thousands):

For the Years Ending December 31	Amortization Expense
2013 (remaining six months)	$	2,451
2014		4,335
2015		3,395
2016		2,437
2017		2,058
Thereafter		3,840
Total expected future amortization	$	18,516

3. Segment and Significant Concentrations

The Company and its wholly owned subsidiaries operate in one business segment.

The following table summarizes total sales by type (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
Sales:
Systems and other sales	$	18,796	$	17,100	$	34,806	$	32,330
Reagent and disposable sales		77,216		63,915		153,144		125,977
Total sales	$	96,012	$	81,015	$	187,950	$	158,307

The following table summarizes sales in the Clinical and Non-Clinical markets (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
Sales by market:
Clinical Systems	$	16,711	$	13,892	$	29,248	$	26,393
Clinical Reagents		70,772		55,794		137,821		110,198
Total Clinical		87,483		69,686		167,069		136,591
Non-Clinical		8,529		11,329		20,881		21,716
Total sales	$	96,012	$	81,015	$	187,950	$	158,307

10

The Company currently sells products through its direct sales force and through third-party distributors. There were no customers that accounted for 10% or more of total sales for the three or six months ended June 30, 2013 and 2012. There was one direct customer whose accounts receivable balance represented 17% and 7% of total accounts receivable as of June 30, 2013 and December 31, 2012, respectively. The Company has distribution agreements with companies to distribute products in the U.S. and has several regional distribution arrangements throughout Europe, Japan, China, South America and other parts of the world.

The following table summarizes sales by geographic region (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
Geographic sales information:
North America
Clinical	$	49,906	$	47,467	$	102,070	$	92,967
Non-Clinical		7,463		9,494		18,854		18,359
Total North America		57,369		56,961		120,924		111,326
International
Clinical	$	37,577	$	22,219	$	64,999	$	43,624
Non-Clinical		1,066		1,835		2,027		3,357
Total International		38,643		24,054		67,026		46,981
Total sales	$	96,012	$	81,015	$	187,950	$	158,307

The Company recognized sales of $55.0 million and $53.4 million to U.S. customers for the three months ended June 30, 2013 and 2012, respectively, and $114.6 million and $105.4 million for the six months ended June 30, 2013 and 2012, respectively. The Company recognized sales of $10.8 million and $3.5 million in South Africa for the three months ended June 30, 2013 and 2012, respectively, and $19.3 million and $7.1 million for the six months ended June 30, 2013 and 2012, respectively. Other than South Africa, no other single country outside the United States represented more than 10% of the Company’s total sales or total assets in any period presented. As of June 30, 2013 and December 31, 2012, the Company has long lived-assets of $46.0 million and $36.6 million, respectively, which reside in the U.S. As of June 30, 2013 and December 31, 2012, the Company has long-lived assets of $20.2 million and $18.2 million, respectively, located outside of the U.S., which reside primarily in Sweden and countries in the European Union.

4. Employee Equity Incentive Plans and Stock-Based Compensation Expense

The following table summarizes stock-based compensation expense in the condensed consolidated statement of operations (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
Cost of product sales	$	841	$	679	$	1,381	$	1,364
Research and development		2,097		1,788		3,902		3,454
Sales and marketing		1,078		1,304		2,377		2,440
General and administrative		2,514		2,247		5,146		4,309
Total stock-based compensation expense	$	6,530	$	6,018	$	12,806	$	11,567

11

The following table summarizes option activity under all plans (in thousands, except weighted average exercise price and weighted average remaining contractual term):

	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Instrinic Value
Outstanding, December 31, 2012		6,810		$	21.81
Granted		1,203		$	38.22
Exercised		(612	)	$	13.85
Forfeited		(163	)	$	30.45
Outstanding, June 30, 2013		7,238		$	25.01		3.98	$	75,587
Exercisable, June 30, 2013		4,472		$	19.02		2.85	$	69,799
Vested and expected to vest, June 30, 2013		6,735		$	24.36		3.86	$	74,215

The following table summarizes restricted stock plan activity, which consists of restricted stock awards and restricted stock units (in thousands, except weighted average grant date fair value):

	Shares			Weighted Average Grant Date Fair Value
Outstanding, December 31, 2012		642		$	29.74
Granted		347			38.20
Vested/Released		(142	)		31.21
Cancelled		(23	)		33.35
Outstanding, June 30, 2013		824		$	32.95

12

The following table summarizes the assumptions used in determining the fair value of the Company’s stock options granted to employees and shares purchased by employees under the Employee Stock Purchase Plan (“ESPP”):

	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
OPTION SHARES:
Expected Term (in years)		4.42			4.37			4.41			4.38
Volatility		0.43			0.53			0.44			0.53
Expected Dividends		—	%		—	%		—	%		—	%
Risk Free Interest Rates		0.71	%		0.84	%		0.72	%		0.81	%
Estimated Forfeitures		7.61	%		7.63	%		7.63	%		7.63	%
Weighted Average Fair Value Per Share	$	13.77		$	15.79		$	14.02		$	15.70
ESPP SHARES:
Expected Term (in years)		1.25			1.25			1.25			1.25
Volatility		0.46			0.55			0.46			0.55
Expected Dividends		—	%		—	%		—	%		—	%
Risk Free Interest Rates		0.19	%		0.16	%		0.19	%		0.16	%
Weighted Average Fair Value Per Share	$	12.88		$	16.47		$	12.88		$	16.47

5. Income Taxes

The income tax provision of $0.3 million and $0.7 million for the three and six months ended June 30, 2013, respectively, relates primarily to ordinary tax expense of the Company’s foreign subsidiaries, partially offset by a tax benefit for research and development tax credits associated with the Company’s French subsidiary and the amortization of acquired intangibles in Sweden and South Africa.

The income tax provision of $0.4 million for the three months ended June 30, 2012 related primarily to tax expense of the Company’s foreign subsidiaries, offset by research and development tax credits and net operating losses associated with the Company’s French subsidiary and the amortization of acquired intangibles in various foreign subsidiaries. The income tax benefit of $1.5 million for the six months ended June 30, 2012 related primarily to the release of a valuation allowance in the Company’s Swedish subsidiary, research and development tax credits and net operating losses associated with the Company’s French subsidiary, and the amortization of acquired intangibles in various foreign subsidiaries, offset by the ordinary tax expense of the Company’s various foreign subsidiaries.

The Company utilizes the liability method of accounting for income taxes. Under the liability method, deferred taxes are determined based on the temporary differences between the financial statement and tax bases of assets and liabilities using enacted tax rates. The Company’s position is to record a valuation allowance when it is more likely than not that some of the deferred tax assets will not be realized. Based on all available objective evidence, the Company believes that it is more likely than not that the net U.S. deferred tax assets will not be fully realized. Accordingly, the Company continues to maintain a full valuation allowance on its U.S. deferred tax assets and will do so until there is sufficient evidence to support the reversal of all or some portion of this valuation allowance.

For federal income tax purposes, the Company has open tax years extending from 1996 through 2012 due to net operating loss carryforwards relating to these years. Substantially all material state, local and foreign income tax matters have been concluded for years through December 31, 2002. For California state income tax purposes, the Company has open years from 2000 through 2012 due to either research credit carryovers or net operating loss carryforwards.

The Company anticipates that the total unrecognized tax benefits will not significantly change within the next 12 months due to the settlement of audits and the expiration of statutes of limitations.

The Company recognizes interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. For the periods presented, the amount of any interest or penalties related to uncertain tax positions was not material.

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6. Commitments and contingencies

Purchase Commitments

The following table summarizes the Company’s purchase commitments at June 30, 2013 (in thousands):

Years Ending December 31,	Purchase Commitments
2013 (remaining six months)	$	17,013
2014		4,465
2015		1,944
2016		1,716
2017		1,716
Thereafter		—
Total minimum payments	$	26,854

Purchase commitments include purchase orders or contracts for the purchase of raw materials used in the manufacturing of the Company’s systems and reagents.

Legal Matters

In May 2005, the Company entered into a license agreement with Roche that provided it with rights under a broad range of Roche patents, including patents relating to the PCR process, reverse transcription-based methods, nucleic acid quantification methods, real-time PCR detection process and composition, and patents relating to methods for detection of viral and cancer targets. A number of the licensed patents expired in the U.S. prior to the end of August of 2010 and in Europe prior to the end of August of 2011. In August 2010, the Company terminated its license to U.S. Patent No. 5,804,375 (the “375 Patent”) and ceased paying U.S.-related royalties. The Company terminated the entire license agreement in the fourth quarter of 2011. In August 2011, Roche initiated an arbitration proceeding against the Company in the International Chamber of Commerce pursuant to the terms of the terminated agreement. The Company filed an answer challenging arbitral jurisdiction over the issues submitted by Roche and denying that it violated any provision of the agreement. A three-member panel has been convened to address these issues in confidential proceedings. On July 30, 2013, the panel determined that it had jurisdiction to decide the claims, a determination that is subject to appeal.

Management believes that it is reasonably possible that these legal proceedings could result in a material loss (i.e. the chance of the event occurring is more than remote but less than likely). However, given the nature of arbitration and the nature of the claims in this matter, the Company is unable to estimate the amount of such possible loss.

On August 21, 2012, the Company filed a lawsuit against Roche Molecular Systems, Inc. and F. Hoffman-La Roche Ltd, for a declaratory judgment of (a) invalidity, expiration and non-infringement of the ‘375 patent; and (b) invalidity, unenforceability, expiration and non-infringement of U.S. Patent No. 6,127,155 (the “155 Patent”). On January 17, 2013, the court issued an order granting a motion by Roche to stay the suit with respect to the ‘375 patent pending resolution of the above noted arbitration proceeding. In the same order, the court dismissed the Company’s suit with respect to the ‘155 patent for lack of subject matter jurisdiction, without considering or ruling on the merits of the Company’s case. The court left open the possibility that the Company could re-file its case against the ‘155 patent in the future. The Company believes that the possibility that these legal proceedings will result in a material loss is remote.

The Company may be subject to additional various claims, complaints and legal actions that arise from time to time in the normal course of business. Other than as described above, the Company believes that the possibility that any of the pending legal proceedings in which it is currently a party will result in a material loss is remote. There can be no assurance that existing or future legal proceedings arising in the ordinary course of business or otherwise will not have a material adverse effect on the Company’s business, consolidated financial position, results of operations or cash flows.

The Company responds to claims arising in the ordinary course of business. Should the Company not be able to secure the terms it expects, the above estimates may change and will be recognized in the period in which they are identified. Although the ultimate outcome of such claims is not presently determinable, the Company believes that the resolution of these matters will not have a material adverse effect on the Company’s financial position, results of operations and cash flows.

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7. Fair Value

The following table summarizes the fair value hierarchy for the Company’s financial assets (cash equivalents) and financial liabilities (foreign currency derivatives and contingent payment) measured at fair value on a recurring basis as of June 30, 2013 and December 31, 2012 (in thousands):

Balance as of June 30, 2013:

	Level 1		Level 2		Level 3		Total
Assets:
Cash	$	85,030	$	—	$	—	$	85,030
Foreign currency derivatives		—		776		—		776
Total	$	85,030	$	776	$	—	$	85,806
Liabilities:
Foreign currency derivatives	$	—	$	891	$	—	$	891
Contingent Consideration		—		—		200		200
Total	$	—	$	891	$	200	$	1,091

Balance as of December 31, 2012:

	Level 1		Level 2		Level 3		Total
Assets:
Cash	$	84,906	$	—	$	—	$	84,906
Cash equivalent - money market funds		10,873		—		—		10,873
Foreign currency derivatives		—		1,458		—		1,458
Total	$	95,779	$	1,458	$	—	$	97,237
Liabilities:
Foreign currency derivatives	$	—	$	1,572	$	—	$	1,572
Contingent consideration		—		—		550		550
Total	$	—	$	1,572	$	550	$	2,122

The Company recorded derivative assets and liabilities at fair value. The Company’s derivatives consist of foreign exchange forward contracts. The Company has elected to use the income approach to value the derivatives, using observable Level 2 market expectations at the measurement date and standard valuation techniques to convert future amounts to a single present amount assuming that participants are motivated, but not compelled to transact.

Level 2 inputs for the valuations are limited to quoted prices for similar assets or liabilities in active markets (specifically foreign currency spot rate and forward points) and inputs other than quoted prices that are observable for the asset or liability (specifically LIBOR rates, credit default spot rates, and company specific LIBOR spread). Mid-market pricing is used as a practical expedient for fair value measurements. The fair value measurement of an asset or liability must reflect the nonperformance risk of the entity and the counterparty. Therefore, the impact of the counterparty’s creditworthiness when in an asset position and the Company’s creditworthiness when in a liability position has also been factored into the fair value measurement of the derivative instruments and did not have a material impact on the fair value of these derivative instruments. Both the counterparty and the Company are expected to continue to perform under the contractual terms of the instruments.

Level 3 liabilities, consisting of a contingent payment to be made in connection with the acquisition of a company in 2012, are valued by applying the income approach and are based on significant unobservable inputs that are supported by little or no market activity.

8. Derivative Financial Instruments

The Company uses derivatives to partially offset its business exposure to foreign currency exchange risk. The Company may enter into foreign currency forward contracts to offset some of the foreign exchange risk on expected future cash flows on certain forecasted revenue and cost of sales and on certain existing assets and liabilities.

To help protect gross margins from fluctuations in foreign currency exchange rates, a portion of forecasted foreign currency revenue and expenses of certain of the Company’s subsidiaries are hedged. The Company typically hedges portions of its forecasted foreign currency exposure associated with revenue, cost of sales and operating expenses generally up to twelve months.

The Company may also enter into foreign currency forward contracts to partially offset the foreign currency exchange gains and losses generated by the re-measurement of certain assets and liabilities. However, the Company may choose not to hedge certain foreign currency exchange exposures for a variety of reasons including, but not limited to, accounting considerations and the prohibitive economic cost of hedging particular exposures.

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The Company records all derivatives in the Condensed Consolidated Balance Sheet at fair value. The Company’s accounting treatment of these instruments is based on whether the instruments are designated as hedge or non-hedge instruments. The effective portions of cash flow hedges are recorded in accumulated other comprehensive income (“AOCI”) until the hedged item is recognized in earnings. The ineffective portions of cash flow hedges are recorded in other income and expense. Gains and losses related to derivatives that are designated as hedging instruments are recorded in the financial statement line item to which the derivative relates.

The Company had a net deferred loss associated with cash flow hedges of $0.1 million recorded in AOCI as of June 30, 2013. Deferred gains and losses associated with cash flow hedges of forecasted foreign currency revenue are recognized as a component of revenues in the same period as the related revenue is recognized, and deferred gains and losses related to cash flow hedges of forecasted expenses are recognized as a component of cost of sales, research and development expense, sales and marketing expense and general and administrative expense in the same period as the related expenses are recognized. The Company’s hedged transactions as of June 30, 2013 are expected to occur within twelve months.

Derivative instruments designated as cash flow hedges must be de-designated as hedges when it is probable the forecasted hedged transaction will not occur in the initially identified time period or within a subsequent two-month time period. Deferred gains and losses in AOCI associated with such derivative instruments are reclassified immediately into other income and expense. Any subsequent changes in fair value of such derivative instruments are reflected in other income and expense unless they are re-designated as hedges of other transactions. The Company did not recognize any significant net gains or losses related to the loss of hedge designation on discontinued cash flow hedges during the three or six months ended June 30, 2013 and 2012.

During the three months ended June 30, 2013 and 2012, the Company recognized a (loss) gain of $(0.2) million and $0.9 million, respectively, and $0.7 million and $0.6 million in the six months ended June 30, 2013 and 2012, respectively, as a component of foreign currency exchange gain (loss) and other. Gains or losses on derivatives not designated as hedging instruments are recorded in other income (expense). These amounts represent the net gain or loss on the derivative contracts and do not include changes in the related exposures or ineffective portion or amounts excluded from the effectiveness testing of cash flow hedges, which generally offset a portion of the gain or loss on the derivative contracts.

The notional principle amounts of the Company’s outstanding derivative instruments designated as cash flow hedges are $85.5 million and $79.3 million as of June 30, 2013 and December 31, 2012, respectively. The notional principle amounts of the Company’s outstanding derivative instruments not designated as cash flow hedges is $20.0 million and $9.2 million as of June 30, 2013 and December 31, 2012, respectively.

The following tables show the Company’s derivative instruments at gross fair value as reflected in the Condensed Consolidated Balance Sheets as of June 30, 2013 and December 31, 2012, respectively (in thousands):

	June 30, 2013
	Fair Value of Derivates Designated as Hedge Instruments			Fair Value of Derivates Not Designated as Hedge Instruments			Total Fair Value
Derivative Assets (a):
Foreign exchange contracts	$	729		$	47		$	776
Derivative Liabilities (b):
Foreign exchange contracts		(822	)		(69	)	$	(891	)
	December 31, 2012
	Fair Value of Derivates Designated as Hedge Instruments			Fair Value of Derivates Not Designated as Hedge Instruments			Total Fair Value
Derivative Assets (a):
Foreign exchange contracts	$	1,457		$	1		$	1,458
Derivative Liabilities (b):
Foreign exchange contracts		(1,561	)		(11	)		(1,572	)

(a) The fair value of derivative assets is measured using Level 2 fair value inputs and is recorded as other current assets in the Condensed Consolidated Balance Sheets.

(b) The fair value of derivative liabilities is measured using Level 2 fair value inputs and is recorded as accrued expenses in the Condensed Consolidated Balance Sheets.

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The following tables show the pre-tax effect of the Company’s derivative instruments designated as cash flow hedges in the Condensed Consolidated Statements of Operations for the three and six month periods ended June 30, 2013 and 2012 (in thousands):

	Three Months Ended
	Loss Recognized in OCI - Effective Portion					Gain Reclassified from AOCI into Income  - Effective Portion				Loss Recognized - Ineffective Portion and Amount Excluded from Effectiveness Testing
	June 30, 2013			June 30, 2012		June 30, 2013 (a)		June 30, 2012		Location	June 30, 2013		June 30, 2012
Cash flow hedges:
Foreign exchange contracts, net	$	(598	)	$	—	$	63	$	—	Other expense, net	$	8	$	—
Total	$	(598	)	$	—	$	63	$	—		$	8	$	—

(a) Includes gains (losses) reclassified from AOCI into net income for the effective portion of cash flow hedges, of which $(0.3) million and $0.4 million were recognized within net sales and costs and operating expenses, respectively, within the Condensed Consolidated Statement of Operations for the three months ended June 30, 2013.

	Six Months Ended
	Gain Recognized in OCI  - Effective Portion				Gain Reclassified from AOCI into Income -  Effective Portion				Loss Recognized - Ineffective Portion and Amount Excluded from Effectiveness Testing
	June 30, 2013		June 30, 2012		June 30, 2013 (a)		June 30, 2012		Location	June 30, 2013		June 30, 2012
Cash flow hedges:
Foreign exchange contracts, net	$	137	$	—	$	97	$	—	Other expense, net	$	2	$	—
Total	$	137	$	—	$	97	$	—		$	2	$	—

(a) Includes gains (losses) reclassified from AOCI into net income for the effective portion of cash flow hedges, of which ($1.0) million and $1.1 million were recognized within net sales and costs and operating expenses, respectively, within the Condensed Consolidated Statement of Operations for the six months ended June 30, 2013.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

This Quarterly Report on Form 10-Q, including this Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 that relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”, “will”, “should”, “expect”, “plan”, “anticipate”, “believe”, “estimate”, “intend”, “potential”, “project” or “continue”, or the negative of these terms or other comparable terminology. Forward-looking statements are based upon current expectations that involve risks and uncertainties. Our actual results and the timing of events could differ materially from those anticipated in our forward-looking statements as a result of many factors, including, but not limited to, the following: our ability to successfully complete and bring on-line additional manufacturing lines; our ability to manage our inventory levels; consistency of product availability and delivery; sales organization productivity; improving gross margins, execution of manufacturing operations, product sales under the High Burden Developing Country (“HBDC”) program, commercial test and commercial system sales and improvements in our manufacturing scale-up activities; our success in increasing our commercial and HBDC sales and the effectiveness of our sales personnel; the performance and market acceptance of our new products; testing volumes for our products; unforeseen supply, development and manufacturing problems; the potential need for intellectual property licenses for tests and other products and the terms of such licenses; the environment for capital spending by hospitals and other customers for our diagnostic systems; our ability to successfully introduce and sell products in the Clinical market, other than healthcare associated infections products; lengthy sales cycles in certain markets, including the HBDC program; long sales cycles and variability in systems placements and reagent pull-through in our HBDC program; the impact of competitive products and pricing; sufficient customer demand; customer confidence in product availability and available customer budgets for our customers; the level of testing at clinical customer sites, including for healthcare associated infections; our ability to consolidate customer demand through volume pricing; our ability to develop new products and complete clinical trials successfully in a timely manner for new products; our ability to obtain regulatory approvals and introduce new products; uncertainties related to FDA regulatory and European regulatory processes; our ability to respond to changing laws and regulations affecting our industry and changing enforcement practices related thereto; the product, geography and channel mix of our sales, each of which can affect our gross margins; our reliance on distributors to market, sell and support our products in certain geographic locations; the occurrence of unforeseen expenditures, asset impairments, acquisitions or other transactions; cost of litigation including settlement costs; our ability to integrate the businesses, technologies, operations and personnel of acquired companies; our ability to manage geographically-dispersed operations; the scope and timing of actual United States Postal Service (“USPS”) funding of the Biohazard Detection System (“BDS”) in its current configuration; the rate of environmental testing using the BDS conducted by the USPS, which will affect the amount of consumable products sold; underlying market conditions worldwide; and the other risks set forth under “Risk Factors” and elsewhere in this report. We neither undertake, nor assume any obligation to update any of the forward-looking statements after the date of this report or to conform these forward-looking statements to actual results.

OVERVIEW

We are a molecular diagnostics company that develops, manufactures and markets fully-integrated systems for testing in the Clinical and Non-Clinical markets. Our systems enable rapid, sophisticated molecular testing for organisms and genetic-based diseases by automating otherwise complex manual laboratory procedures. Our objective is to become the leading supplier of integrated systems and tests for molecular diagnostics. Key elements of our strategy to achieve this objective include:

• Provide a fully-integrated molecular testing solution to the Clinical market. We are focusing our investments on selling our systems and tests to the Clinical market and we believe our GeneXpert system will continue to significantly expand our presence in the Clinical market due to its ease of use, flexibility, scalability and ability to deliver accurate and rapid results. Features of the GeneXpert system and Xpert tests include:

• an approach by which the reagents are typically prepackaged in a single vessel (the test cartridge) into which the specimen is added;

• no further user intervention once the Xpert cartridge is loaded into the GeneXpert system;

• all three phases of PCR: 1) sample preparation, 2) amplification and 3) detection, are performed within the single sealed test cartridge automatically;

• primarily moderate complexity Clinical Laboratory Improvement Amendments (“CLIA”) categorized, amplified molecular tests, which means the GeneXpert system can be operated without the need for highly-trained laboratory technologists;

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• commercial availability in a variety of configurations ranging from one to 80 individual test modules, which enables testing in environments ranging from low volume to high volume, near-patient, core or central lab testing, and system capacity that can be expanded in support of growing test volumes by adding additional modules;

• notably, to our knowledge, the only truly scalable real-time PCR system that operates entirely within a closed system architecture, reducing hands-on time, reducing the likelihood of human error and contamination, and enabling nested PCR capability, a proven process for maximizing real-time PCR sensitivity; and

• full random access whereby different tests for different targets may be run simultaneously in different modules in the same GeneXpert system, which increases potential utilization and throughput of the system and also enables on-demand or “stat” testing, whereby the user can add a new test to the system at any time without regard to the stage of processing of any other test on the system.

• Continue to develop and market new tests. We plan to capitalize on our strengths in nucleic acid chemistry and molecular biology to continue to develop new tests for our systems and offer our customers the broadest menu of Xpert tests designed to address many of the highest volume molecular test opportunities. Our strategy is to offer a portfolio of Xpert tests spanning healthcare associated infections, critical infectious disease, sexual health, women’s health, virology, oncology and genetics. For example, our CT/NG test was made commercially available in the U.S. in the first quarter of 2013 and our tuberculosis test will be made commercially available in the U.S. in the third quarter of 2013.

• Obtain additional target rights. We expect to continue to expand our collaborations with academic institutions and commercial organizations to develop and obtain target rights to various infectious disease and oncology targets. For example, in the first quarter of 2013, we entered into license agreements with Oregon Health & Sciences University to further the development of our prostate and breast oncology tests. In addition, we will be focusing key business development activities on identifying infectious disease and oncology targets held by academic institutions or commercial organizations for potential license or acquisition.

• Extend geographic reach. Our international sales and marketing operations are headquartered in France. As of June 30, 2013, we had direct sales forces in the United Kingdom (“U.K.”), France, the Benelux region, Germany, Italy and South Africa, and we have offices in Dubai, China, Japan and Singapore. We acquired our distributor in Italy in April 2013. We will continue to expand our international commercial operations capability on both a direct and distributor basis in 2013 and beyond.

• Extend High Burden Developing Countries sales programs. We are developing and expect to continue to expand our presence in HBDCs following the World Health Organization’s endorsement of the Xpert MTB/RIF test in late 2010 to deliver GeneXpert systems and Xpert tests to HBDCs at a discount to our standard commercial prices. We believe that participation in the HBDC program considerably broadens the geographic reach of our products and increases recognition of the Cepheid brand and product portfolio. Our ongoing collaboration with the Foundation for Innovative New Diagnostics (“FIND”) is expected to broaden the menu of tests available to HBDC customers at special pricing considerations.

CRITICAL ACCOUNTING POLICIES, ESTIMATES AND ASSUMPTIONS

The items that we disclosed as our critical accounting policies and estimates in Management’s Discussion and Analysis of Financial Condition and Results of Operation in our 2012 Annual Report on Form 10-K filed with the Securities and Exchange Commission remain unchanged. For a description of those critical accounting policies, please refer to our 2012 Annual Report on Form 10-K.

Comparison of the Three and Six Months Ended June 30, 2013 and 2012

Sales

The following table summarizes total sales by type (in thousands, except percentages):

	Three Months Ended June 30,									Six Months Ended June 30,
	2013		2012		$ Change		% Change			2013		2012		$ Change		% Change
Sales:
System and other sales	$	18,796	$	17,100	$	1,696		10	%	$	34,806	$	32,330	$	2,476		8	%
Reagent and disposable sales		77,216		63,915		13,301		21	%		153,144		125,977		27,167		22	%
Total sales	$	96,012	$	81,015	$	14,997		19	%	$	187,950	$	158,307	$	29,643		19	%

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The following table summarizes sales in the Clinical and Non-Clinical and Other markets (in thousands, except percentages):

	Three Months Ended June 30,										Six Months Ended June 30,
	2013		2012		$ Change			% Change			2013		2012		$ Change			% Change
Sales by market:
Clinical Systems	$	16,711	$	13,892	$	2,819			20	%	$	29,248	$	26,393	$	2,855			11	%
Clinical Reagents		70,772		55,794		14,978			27	%		137,821		110,198		27,623			25	%
Total Clinical		87,483		69,686		17,797			26	%		167,069		136,591		30,478			22	%
Non-Clinical		8,529		11,329		(2,800	)		-25	%		20,881		21,716		(835	)		-4	%
Total sales	$	96,012	$	81,015	$	14,997			19	%	$	187,950	$	158,307	$	29,643			19	%

Clinical sales increased $17.8 million, or 26%, for the three months ended June 30, 2013 as compared to the same period in the prior year and increased $30.5 million, or 22%, for the six months ended June 30, 2013 as compared to the same period in the prior year. This increase in Clinical sales for the three and six month comparative periods was primarily due to growth in the commercial Clinical Reagent business associated with new GeneXpert system placements, broader test menu adoption among existing customers and increased reagent and system sales to our HBDC customers, partially offset by a decrease in commercial system sales.

Non-Clinical sales decreased $2.8 million, or 25%, for the three months ended June 30, 2013 as compared to the same period in the prior year and decreased $0.8 million, or 4%, for the six months ended June 30, 2013 as compared to the same period in the prior year. The decrease in Non-Clinical revenues for the three month comparative period was primarily due to decreases in industrial revenue, contract, grant and research revenue and sales of anthrax test cartridges under the USPS BDS program.

The following table summarizes sales by geographic region (in thousands, except percentages):

	Three Months Ended June 30,										Six Months Ended June 30,
	2013		2012		$ Change			% Change			2013		2012		$ Change			% Change
Geographic sales information:
North America
Clinical	$	49,906	$	47,467	$	2,439			5	%	$	102,070	$	92,967	$	9,103			10	%
Non-Clinical		7,463		9,494		(2,031	)		-21	%		18,854		18,359		495			3	%
Total North America		57,369		56,961		408			1	%		120,924		111,326		9,598			9	%
International
Clinical		37,577	$	22,219	$	15,358			69	%		64,999	$	43,624	$	21,375			49	%
Non-Clinical		1,066		1,835		(769	)		-42	%		2,027		3,357		(1,330	)		-40	%
Total International		38,643		24,054		14,589			61	%		67,026		46,981		20,045			43	%
Total sales	$	96,012	$	81,015	$	14,997			19	%	$	187,950	$	158,307	$	29,643			19	%

North American Clinical sales increased $2.4 million, or 5%, for the three months ended June 30, 2013 as compared to the same period in the prior year and increased $9.1 million, or 10%, for the six months ended June 30, 2013 as compared to the same period in the prior year. These increases in North American Clinical sales were driven by an increase in Xpert test sales, primarily due to growth in healthcare associated infection tests and our CT/NG test to new and existing customers, partially offset by a decrease in Clinical System sales and non-Xpert test sales. North American Non-Clinical sales decreased $2.0 million, or 21%, for the three months ended June 30, 2013 as compared to the same period in the prior year and increased $0.5 million, or 3%, for the six months ended June 30, 2013 as compared to the same period in the prior year. The decrease in Non-Clinical revenue for the three month comparative period was primarily due to decreases in industrial revenue, contract, grant and research revenue and sales of anthrax test cartridges under the USPS BDS program.

International sales increased $14.6 million, or 61%, for the three months ended June 30, 2013 as compared to the same period in the prior year and increased $20.0 million, or 43%, for the six months ended June 30, 2013 as compared to the same period in the prior year. This increase in International sales was primarily driven by clinical reagent sales, commercial Clinical system placements and growth in HBDC systems and reagents.

We recognized sales of $55.0 million and $53.4 million to U.S. customers for the three months ended June 30, 2013 and 2012, respectively, and $114.6 million and $105.4 million for the six months ended June 30, 2013 and 2012, respectively. We recognized sales of $10.8 million and $3.5 million in South Africa for the three months ended June 30, 2013 and 2012, respectively, and $19.3 million and $7.1 million for the six months ended June 30, 2013 and 2012, respectively. Other than South Africa, no other single country outside the United States represented more than 10% of our total sales or total assets in any period presented.

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Costs and Operating Expenses

The following table summarizes costs and operating expenses (in thousands, except percentages):

	Three Months Ended June 30,										Six Months Ended June 30,
	2013		2012		$ Change			% Change			2013		2012		$ Change			% Change
Costs and operating expenses:
Cost of sales	$	52,889	$	35,072	$	17,817			51	%	$	95,781	$	70,680	$	25,101			36	%
Collaboration profit sharing		1,425		1,645		(220	)		-13	%		3,535		3,329		206			6	%
Research and development		18,572		16,118		2,454			15	%		36,299		38,220		(1,921	)		-5	%
Sales and marketing		19,105		15,108		3,997			26	%		38,231		29,620		8,611			29	%
General and administrative		9,612		11,011		(1,399	)		-13	%		19,375		22,062		(2,687	)		-12	%
Total costs and operating expenses	$	101,603	$	78,954	$	22,649			29	%	$	193,221	$	163,911	$	29,310			18	%

Cost of Sales

Cost of sales consists of raw materials, direct labor and stock-based compensation expense, manufacturing overhead, facility costs and warranty costs. Cost of sales also includes royalties on systems and reagent sales, amortization of intangible assets related to technology licenses and acquired intangibles and the new U.S. medical device tax under the Affordable Care Act.

Cost of sales increased $17.8 million, or 51%, for the three months ended June 30, 2013 as compared to the same period in the prior year and increased $25.1 million, or 36%, for the six months ended June 30, 2013 as compared to the same period in the prior year. These increases were attributed to increased shipments of our system and reagent products, manufacturing inefficiencies and increased inventory reserves resulting from scaling activities, and the new U.S. medical device tax under the Affordable Care Act, which became effective January 1, 2013, partially offset by the phase-out of certain royalty payments associated with our Clinical business.

Our gross margin percentage was 45% and 57% for the three months ended June 30, 2013 and 2012, respectively, and 49% and 55% for the six months ended June 30, 2013 and 2012, respectively. These decreases were attributable to manufacturing inefficiencies and increased inventory reserves resulting from scaling activities, an increase in our HBDC sales, which have lower gross margins, and the new U.S. medical device tax under the Affordable Care Act, offset by lower royalties associated with our Clinical business.

While we expect a trend of increasing gross margins over time, we also expect moderate fluctuations from quarter to quarter, depending on product, geography and channel mix. Of note, our HBDC business contributes significantly lower gross margins than our commercial business. Overall, we expect our gross margin in the second half of the year to be flat to modestly up from the six months ended June 30, 2013.

Collaboration Profit Sharing

Collaboration profit sharing represents the amount that we pay to Life Technologies Corporation (“LIFE”) under our agreement to develop reagents for use in the USPS BDS program. Under the agreement, computed gross margin on anthrax test cartridge sales is shared equally between the two parties.

Collaboration profit sharing expense decreased $0.2 million, or 13%, for the three months ended June 30, 2013 as compared to the same period in the prior year and increased $0.2 million, or 6%, for the six months ended June 30, 2013 as compared to the same period in the prior year. The change for the three and six month comparative periods was due to the fluctuation in anthrax test cartridge sales under the USPS BDS program.

Research and Development Expenses

Research and development expenses consist of salaries and employee-related expenses, including stock-based compensation, clinical trials, research and development materials, facility costs and depreciation. Research and development expenses increased $2.5 million, or 15%, for the three months ended June 30, 2013 as compared to the same period in the prior year. The increase was primarily due to an increase in salaries and employee-related expenses, including stock compensation, and clinical trial expenses.

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Research and development expenses decreased $1.9 million, or 5%, for the six months ended June 30, 2013 as compared to the same period in the prior year. The decrease during the six month comparative period was primarily due to a decrease in clinical trials, partially offset by increases in salaries and employee-related expenses, including stock based compensation expense.

Sales and Marketing Expenses

Sales and marketing expenses consist primarily of salaries and employee-related expenses, including commissions and stock-based compensation, travel, facility-related costs and marketing and promotion expenses. Sales and marketing expenses increased $4.0 million, or 26%, for the three months ended June 30, 2013 as compared to the same period in the prior year and increased $8.6 million, or 29%, for the six months ended June 30, 2013 as compared to the same period in the prior year. The increases in both comparative periods were primarily due to an increase in salaries and employee-related expenses in connection with the expansion of our direct sales force and an increase in stock-based compensation expense.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and employee-related expenses, which include stock-based compensation, travel, facility costs, legal, accounting and other professional fees. General and administrative expenses decreased $1.4 million, or 13%, for the three months ended June 30, 2013 as compared to the same period in the prior year and decreased $2.7 million, or 12%, for the six months ended June 30, 2013 as compared to the same period in the prior year. The decrease was primarily due to a decrease in legal expenses.

LIQUIDITY AND CAPITAL RESOURCES

Cash and Cash Flow

	Six Months Ended June 30,
	2013			2012			Increase/ (Decrease)
	(In thousands)
Net cash provided by (used in) operating activities	$	4,827		$	(9,759	)	$	14,586
Net cash used in investing activities		(23,670	)		(28,630	)		4,960
Net cash provided by financing activities		8,669			21,091			(12,422	)

The net cash provided by operating activities was $4.8 million in the first six months of 2013. It was primarily comprised of the net effect of cash provided by non-cash expenses and working capital uses of cash. Non-cash expenses were comprised of stock-based compensation, depreciation and amortization expenses. The primary working capital uses of cash for the six months ended June 30, 2013 were increases in inventory, prepaid expenses, accounts receivable, accrued compensation, accounts payable, other current liabilities and deferred revenue.

The net cash used in operating activities was $9.8 million in the first six months of 2012. It was primarily comprised of net loss and the net effect of cash provided by non-cash expenses and working capital uses of cash. Non-cash expenses were comprised of stock-based compensation, depreciation and amortization expenses and amortization of intangible assets. The primary working capital uses of cash for the six months ended June 30, 2012 were decreases in accounts payable and other liabilities and accrued compensation and increases in inventory, prepaid and other current assets and other non-current assets.

The net cash used in investing activities was $23.7 million in the first six months of 2013. It was primarily comprised of capital expenditures, the cost of an acquisition and cash paid for a technology license.

The net cash used in investing activities was $28.6 million in the first six months of 2012. It was primarily comprised of capital expenditures and the cost of acquisitions, net of cash received.

The net cash provided by financing activities was $8.7 million in the first six months of 2013. It was primarily comprised of net proceeds from the issuance of common shares and exercises of stock options.

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The net cash provided by financing activities was $21.1 million in the first six months of 2012. It was comprised of net proceeds from the issuance of common shares and exercises of stock options.

Our sales, earnings, cash flows, receivables and payables are subject to fluctuations due to changes in foreign currency exchange rates. Our risk management strategy utilizes foreign currency contracts to manage our exposure to foreign currency volatility that exists as part of our ongoing business operations. We utilize cash flow hedge contracts to reduce the exchange rate impact on a portion of the net revenue or operating expense of certain anticipated transactions. In addition, we use balance sheet hedge contracts to reduce the exchange rate risk associated primarily with foreign currency denominated receivables and payables. As of June 30, 2013, we had open cash flow and balance sheet hedge contracts with future settlements within one to twelve months. Contracts were primarily denominated in euros, Swedish krona, British pounds and South African rand. We do not enter into any foreign exchange derivative instruments for trading or speculative purposes. The notional principal amounts of our outstanding derivative instruments designated as cash flow hedges are $85.5 million and $79.3 million as of June 30, 2013 and December 31, 2012, respectively. The notional principal amounts of our outstanding derivative instruments not designated as cash flow hedges was $20.0 million and $9.2 million as of June 30, 2013 and December 31, 2012, respectively.

Off-Balance-Sheet Arrangements

As of June 30, 2013, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K promulgated under the Securities Act of 1933.

Financial Condition Outlook

We plan to continue to make expenditures to expand our manufacturing capacity and to support our activities in sales and marketing and research and development. These expenditures may vary from quarter to quarter. We plan to continue to support our working capital needs and anticipate that our existing cash resources will enable us to maintain currently planned operations. Based on past performance and current expectations, we believe that our current available sources of funds will be adequate to finance our operations for at least the next year. This expectation is based on our current and long-term operating plan and may change as a result of many factors, including our future capital requirements and our ability to increase revenues and reduce expenses, which depend on a number of factors outside our control including general global economic conditions. For example, our future cash use will depend on, among other things, market acceptance of our products, the resources we devote to developing and supporting our products, continued progress of our research and development of potential products, our ability to gain FDA clearance for our new products, the need to acquire licenses to new technology or to use our technology in new markets, expansion through acquisitions and the availability of other financing.

In the future, we may seek additional funds to support our strategic business needs and may seek to raise such additional funds through private or public sales of securities, strategic relationships, bank debt, lease financing arrangements, or other available means. If additional funds are raised through the issuance of equity or equity-related securities, shareholders may experience additional dilution, or such equity securities may have rights, preferences, or privileges senior to those of the holders of our common stock. If adequate funds are not available or are not available on acceptable terms to meet our business needs, our business may be harmed.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign Currency Risk

We operate primarily in the U.S. and a majority of our revenue, cost, expense and capital purchasing activities for the six months ended June 30, 2013 were transacted in U.S. dollars. As a corporation with international and domestic operations, we are exposed to changes in foreign exchange rates. We have operations in Sweden, France, Germany, Italy, South Africa, the Benelux region, Japan, China and the United Kingdom, and we pay payroll and other expenses in local currencies. In the six months ended June 30, 2013 and 2012, international sales were 36% and 30%, respectively, of our total sales. Our international sales are predominantly in European countries. Our exposures to foreign currency risks may change over time and could have a material adverse impact on our financial results.

We will continue to use hedging programs in the future and may use currency forward contracts, currency options and/or other derivative financial instruments commonly utilized to reduce financial market risks if it is determined that such hedging activities are appropriate to reduce risk. A 10% change in the exchange rates upward or downward in our portfolio of foreign currency contracts would have decreased or increased, respectively our unrealized gain by $3.0 million at June 30, 2013 and unrealized gain by approximately $1.6 million at December 31, 2012. We do not hold or purchase any currency contracts for trading purposes.

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ITEM 4. CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, as amended (Exchange Act), as of the end of the period covered by this Quarterly Report on Form 10-Q.

Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2013, our disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There were no changes in our internal control over financial reporting during the quarter ended June 30, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

In May 2005, we entered into a license agreement with Roche that provided us with rights under a broad range of Roche patents, including patents relating to the PCR process, reverse transcription-based methods, nucleic acid quantification methods, real-time PCR detection process and composition, and patents relating to methods for detection of viral and cancer targets. A number of the licensed patents expired in the U.S. prior to the end of August of 2010 and in Europe prior to the end of August of 2011. In August 2010, we terminated our license to U.S. Patent No. 5,804,375 (the “375 Patent”) and ceased paying U.S.-related royalties. We terminated the entire license agreement in the fourth quarter of 2011. In August 2011, Roche initiated an arbitration proceeding against us in the International Chamber of Commerce pursuant to the terms of the terminated agreement. We filed an answer challenging arbitral jurisdiction over the issues submitted by Roche and denying that we violated any provision of the agreement. A three-member panel has been convened to address these issues in confidential proceedings. On July 30, 2013, the panel determined that it had jurisdiction to decide the claims, a determination that is subject to appeal. We believe that we have not violated any provision of the agreement and that the asserted claim of the “375 Patent” is expired, invalid, unenforceable, and not infringed.

We believe that it is reasonably possible that these legal proceedings could result in a material loss (i.e. the chance of the event occurring is more than remote but less than likely). However, given the nature of arbitration and the nature of the claims in this matter, we are unable to estimate the amount of such possible loss.

On August 21, 2012, we filed a lawsuit against Roche Molecular Systems, Inc. and F. Hoffman-La Roche Ltd, for a declaratory judgment of (a) invalidity, expiration and non-infringement of the “375 Patent”; and (b) invalidity, unenforceability, expiration and non-infringement of U.S. Patent No. 6,127,155 (the “155 Patent”). On January 17, 2013, the court issued an order granting a motion by Roche to stay the suit with respect to the “375 Patent” pending resolution of the above noted arbitration proceeding. In the same order, the court dismissed our suit with respect to the “155 Patent” for lack of subject matter jurisdiction, without considering or ruling on the merits of our case. The court left open the possibility that we could re-file our case against the “155 Patent” in the future. We believe that the possibility that these legal proceedings will result in a material loss is remote.

We may be subject to additional various claims, complaints and legal actions that arise from time to time in the normal course of business. Other than as described above, we believe that the possibility that any of the pending legal proceedings in which we are currently a party will result in a material loss is remote. There can be no assurance that existing or future legal proceedings arising in the ordinary course of business or otherwise will not have a material adverse effect on our business, consolidated financial position, results of operations or cash flows.

ITEM 1A. RISK FACTORS

You should carefully consider the risks and uncertainties described below, together with all of the other information included in this Report, in considering our business and prospects. The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations. The occurrence of any of the following risks could harm our business, financial condition or results of operations.

We have a history of operating losses and may not achieve profitability for 2013.

For 2012 and prior to 2011, we incurred operating losses in each annual fiscal year since our inception. For the six months ended June 30, 2013, we reported net loss of $6.3 million. We experienced a net loss of $20.0 million in 2012, and we achieved profitability for the first time in 2011, with a net profit of $2.6 million. As of June 30, 2013, we had an accumulated deficit of approximately $231.9 million. Our ability to be profitable for fiscal 2013 and beyond will likely depend on our ability to continue to increase our revenues, which is subject to a number of factors including our ability to continue to successfully penetrate the Clinical market, our ability to successfully market the GeneXpert system and develop and market additional GeneXpert tests, our ability to secure regulatory approval of additional GeneXpert tests, our ability to continue to grow sales of our healthcare associated infection and other tests, the extent of our participation in the USPS BDS program and the operating parameters of the USPS BDS program, which will affect the rate of our consumable products sold, our ability to compete effectively against current and future competitors, the increasing number of competitors in our market that could reduce the average selling price of our products, the development of our HBDC sales program, the amount of products sold through this program and the extent of global funding for such programs, our ability to penetrate new geographic markets, global economic and political conditions and our ability to increase manufacturing throughput. Our ability to be profitable also depends on our expense levels and product gross margin, which are also influenced by a number of factors, including the mix of revenues from Clinical reagent sales and GeneXpert system sales as opposed to GeneXpert Infinity system sales and the sales under our HBDC program, which both have lower gross margins, the resources we devote to developing and supporting our products, increases in manufacturing costs associated with our operations, our ability to improve manufacturing efficiencies, including improvements in our manufacturing scale-up activities, our ability to manage our inventory levels, third-party freight costs, the continued progress of our research and development of potential products, the ability to gain FDA clearance for our new products, license fees or royalties we may be required to pay, and the potential need to acquire licenses to new technology or to use our technology in new markets, which could require us to pay unanticipated license fees and royalties in connection with these licenses. For example, for the three months ended June 30, 2013, we recorded an additional

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reserve of approximately $3.0 million of inventory. Our manufacturing expansion efforts may prove more expensive than we currently anticipate, and we may not succeed in increasing our revenues to offset higher expenses. These expenses, among other things, may cause our net income and working capital to decrease. If we fail to grow our revenue, manage our expenses and improve our gross margin, we may not achieve profitability. If we fail to do so, the market price of our common stock will likely decline.

Our operating results may fluctuate significantly, our customers’ future purchases are difficult to predict and any failure to meet financial expectations may result in a decline in our stock price.

Our quarterly operating results may fluctuate in the future as a result of many factors, such as those described elsewhere in this section, many of which are beyond our control. Because our revenue and operating results are difficult to predict, we believe that period-to-period comparisons of our results of operations are not a good indicator of our future performance. Our operating results may be affected by the inability of some of our customers to consummate anticipated purchases of our products, whether due to adverse economic conditions, changes in internal priorities or, in the case of governmental customers, problems with the appropriations process and variability and timing of orders. Additionally, we have experienced, and expect to continue to experience, meaningful variability in connection with our commercial system placements and system placements and reagent pull-through in our HBDC program. This variability may cause our revenues and operating results to fluctuate significantly from quarter to quarter. Additionally, because of the limited visibility into the actual timing of future system placements, our operating results are difficult to forecast from quarter to quarter. Additionally, we expect moderate fluctuations from quarter to quarter in gross margin depending on product, geography and channel mix, as well as the revenue contribution from our HBDC program, which has lower margin than our other products. If revenue declines in a quarter, whether due to a delay in recognizing expected revenue, adverse economic conditions and unexpected costs or otherwise, our results of operations will be harmed because many of our expenses are relatively fixed. In particular, research and development, sales and marketing and general and administrative expenses are not significantly affected by variations in revenue. However, if we have an unexpected increase in costs and expenses in a quarter, our quarterly operating results will be affected. For example, for the three months ended June 30, 2013, we incurred certain costs and inventory reserve provisions related to our manufacturing scale-up activities. If our quarterly operating results fail to meet or exceed the expectations of securities analysts or investors, our stock price could drop suddenly and significantly.

If we are unable to manufacture our products in sufficient quantities and in a timely manner, our operating results will be harmed, our ability to generate revenues could be diminished, and our gross margin may be negatively impacted.

Our revenues and other operating results will depend in large part on our ability to manufacture and assemble our products in sufficient quantities and in a timely manner. For example, we recently experienced lower than expected revenue due primarily to intermittent interruptions in the supply of Xpert cartridge parts, which also negatively impacted the efficiency or our manufacturing operations and our resulting gross margin. Any interruptions we experience in the manufacturing or shipping of our products could delay our ability to recognize revenues in a particular quarter and could also adversely affect our relationships with our customers and erode customer confidence in our product availability. Manufacturing problems can and do arise, and as demand for our products increases, any such problems could have an increasingly significant impact on our operating results. In the past, we have experienced problems and delays in production that have impacted our product yield and the efficiency of our manufacturing operations and caused delays in our ability to ship finished products, and we may experience such delays in the future. We may not be able to react quickly enough to ship products and recognize anticipated revenues for a given period if we experience significant delays in the manufacturing process. In addition, we must maintain sufficient production capacity in order to minimize such delays, which carries fixed costs that we may not be able to offset if orders slow, which would adversely affect our operating margins. If we are unable to manufacture our products consistently, in sufficient quantities, and on a timely basis, our revenues from product sales, gross margins and our other operating results will be materially and adversely affected.

We have a limited number of suppliers for critical product components, and if such suppliers fail to deliver key product components in a timely manner, our manufacturing ability would be impaired and our product sales could suffer.

We depend on a limited number of suppliers that supply some of the components used in the manufacture of our systems and our disposable reaction tubes and cartridges. Strategic purchases of components are necessary for our business. If we need alternative sources for key component parts for any reason, these component parts may not be immediately available to us. If alternative suppliers are not immediately available, we will have to identify and qualify alternative suppliers, and production of these components may be delayed. We may not be able to find an adequate alternative supplier in a reasonable time period or on commercially acceptable terms, if at all. Shipments of affected products have been limited or delayed as a result of such problems in the past, and similar problems could occur in the future. For example, we recently experienced intermittent interruptions in the supply of Xpert cartridge parts, which negatively impacted our product sales. In December 2012, we acquired one of our plastic molders with the objective of expanding and improving the reliability of our supply chain. In addition, many companies are experiencing financial difficulties as a result of the continued economic uncertainty. We cannot be assured that our suppliers will not be adversely affected by this uncertainty or that they will be able to continue to provide us with the components we need. Our inability to obtain our key source supplies for the manufacture of our products may require us to delay shipments of products, harm customer relationships or force us to curtail or cease operations.

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Our sales cycle can be lengthy, which can cause variability and unpredictability in our operating results.

The sales cycles for our systems can be lengthy, particularly during uncertain economic conditions, which makes it more difficult for us to accurately forecast revenues in a given period, and may cause revenues and operating results to vary significantly from period to period. For example, sales of our products often involve purchasing decisions by large public and private institutions and any purchases can require many levels of pre-approval. In addition, certain Non-Clinical sales may depend on these institutions receiving research grants from various federal agencies, which grants vary considerably from year to year in both amount and timing due to the political process. Additionally, participants in our HBDC program may be dependent on funding from governmental agencies and/or non-governmental organizations and, accordingly, such customers’ purchase decisions may not be within their direct control and may be subject to lengthy administrative processes, the result of which is that the sales cycle in our HBDC program is lengthy and unpredictable. As a result, we may expend considerable resources on unsuccessful sales efforts or we may not be able to complete transactions on the schedule anticipated.

If we cannot continue to successfully commercialize our products, our business could be harmed.

If our tests for use on our systems do not gain continued market acceptance, we will be unable to generate significant sales, which will prevent us from achieving profitability. While we have received FDA clearance for a number of tests, these products may not continue to experience increased sales. Many factors may affect the market acceptance and commercial success of our products, including:

• the timely expansion of our menu of tests;

• our ability to fulfill orders;

• the results of clinical trials needed to support any regulatory approvals of our tests;

• our ability to obtain requisite FDA or other regulatory clearances or approvals for our tests under development on a timely basis;

• the demand for the tests we introduce;

• the timing of market entry for various tests for the GeneXpert and the SmartCycler systems;

• our ability to convince our potential customers of the advantages and economic value of our systems and tests over competing technologies and products;

• the breadth of our test menu relative to competitors;

• changes to policies, procedures or what are considered best practices in clinical diagnostics, including practices for detecting and preventing healthcare associated infections;

• the extent and success of our marketing and sales efforts;

• the functionality of new products that address market requirements and customer demands;

• the level of reimbursement for our products by third-party payers; and

• the publicity concerning our systems and tests.

In particular, we believe that the success of our business will depend in large part on our ability to continue to increase sales of our Xpert tests and our ability to introduce additional tests for the Clinical market. We believe that successfully expanding our business in the Clinical market is critical to our long-term goals and success. We have limited ability to forecast future demand for our products in this market. In addition, we have committed substantial funds to licenses that are required for us to compete in the Clinical market. If we cannot successfully penetrate the Clinical market to fully exploit these licenses, these investments may not yield significant returns, which could harm our business.

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The regulatory processes applicable to our products and operations are expensive, time-consuming, and uncertain and may prevent us from obtaining required approvals for the commercialization of some of our products.

In the Clinical market, our products are regulated as medical device products by the FDA and comparable agencies of other countries. In particular, FDA regulations govern activities such as product development, product testing, product labeling, product storage, premarket clearance or approval, manufacturing, advertising, promotion, product sales, reporting of certain product failures and distribution. Some of our products, depending on their intended use, will require premarket approval (“PMA”) or 510(k) clearance from the FDA prior to marketing. The 510(k) clearance process usually takes from three to four months from submission but can take longer. The PMA process is much more costly, lengthy and uncertain and generally takes from six months to one year or longer from submission. Clinical trials are generally required to support both PMA and 510(k) submissions. Certain of our products for use on our GeneXpert and SmartCycler systems, when used for clinical purposes, may require PMA, and all such tests will most likely, at a minimum, require 510(k) clearance. We are planning clinical trials for other proposed products. Clinical trials are expensive and time-consuming. In addition, the commencement or completion of any clinical trials may be delayed or halted for any number of reasons, including product performance, changes in intended use, changes in medical practice and the opinion of evaluator Institutional Review Boards. Additionally, since 2009, the FDA has significantly increased the scrutiny applied to its oversight of companies subject to its regulations, including 510(k) submissions, by hiring new investigators and increasing inspections of manufacturing facilities. In January 2011, the FDA announced that it will endeavor to streamline its 510(k) review process and the FDA’s Center for Devices and Radiological Health, or CDRH, issued an implementation plan containing 25 specific actions to be implemented in 2011 relating to the 510(k) review process and associated administrative matters. We continue to monitor the CDRH’s implementation of its plan of action and analyze how its decisions will impact the approval of our products. The CDRH also deferred action on several other initiatives, including the creation of a new class of devices that would be subject to heightened review processes, until the Institute of Medicine issues a related report on the 510(k) regulatory process, which was released in late July 2011. Many of the actions proposed by the CDRH could result in significant changes to the 510(k) process, which could complicate the product approval process, although we cannot predict the effect of such changes and cannot ascertain if such changes will have a substantive impact on the approval of our products. If we fail to adequately respond to the increased scrutiny and streamlined 510(k) submission process, our business may be adversely impacted.

Failure to comply with the applicable requirements can result in, among other things, warning letters, administrative or judicially imposed sanctions such as injunctions, civil penalties, recall or seizure of products, total or partial suspension of production, refusal to grant premarket clearance or PMA for devices, withdrawal of marketing clearances or approvals, or criminal prosecution. With regard to future products for which we seek 510(k) clearance or PMA from the FDA, any failure or material delay to obtain such clearance or approval could harm our business. If the FDA were to disagree with our regulatory assessment and conclude that approval or clearance is necessary to market the products, we could be forced to cease marketing the products and seek approval or clearance. With regard to those future products for which we will seek 510(k) clearance or PMA from the FDA, any failure or material delay to obtain such clearance or approval could harm our business. In addition, it is possible that the current regulatory framework could change or additional regulations could arise at any stage during our product development or marketing, which may adversely affect our ability to obtain or maintain approval of our products and could harm our business.

Our manufacturing facilities located in Sunnyvale and Lodi, California, Seattle, Washington and Stockholm, Sweden, where we assemble and produce the GeneXpert and SmartCycler systems, cartridges and other molecular diagnostic kits and reagents, are subject to periodic regulatory inspections by the FDA and other federal and state and foreign regulatory agencies. For example, these facilities are subject to Quality System Regulations (“QSR”) of the FDA and are subject to annual inspection and licensing by the States of California and Washington and European regulatory agencies. If we fail to maintain these facilities in accordance with the QSR requirements, international quality standards or other regulatory requirements, our manufacturing process could be suspended or terminated, which would prevent us from being able to provide products to our customers in a timely fashion and therefore harm our business.

Our HBDC program exposes us to increased risks of variability and unpredictable operating results.

Our HBDC program exposes us to risks that are additional and different from the risks associated with our other commercial operations, including among other things:

• the participants in our HBDC program are located in less developed countries, exposing us to customers in countries that may have less political, social or economic stability and less developed infrastructure and legal systems;

• the sales cycle in our HBDC program is lengthy and unpredictable, as HBDC program participants are frequently dependent upon governmental agencies and/or non-governmental organizations with additional administrative processes, causing variability and unpredictability in our operating results;

• our HBDC business has lower gross margins and, therefore, growth in our HBDC business negatively impacts our gross margins as a whole; and

• our collaborative partners and other supporters, such as FIND, BMGF, USAID, Unitaid and the World Health Organization, may cease to devote financial resources to or otherwise cease to support our HBDC program.

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An increase in variable and unpredictable operating results and/or an adverse development relating to one or more of these risks could negatively impact our business, results of operations and financial condition. Additionally, our HBDC program facilitates the expansion of our other commercial operations into additional geographic locations and, to the extent that our HBDC program is ineffective as a result of one or more of these risks, the international expansion of our other commercial operations could suffer.

We rely on licenses of key technology from third parties and may require additional licenses for many of our new product candidates.

We rely on third-party licenses to be able to sell many of our products, and we could lose these third-party licenses for a number of reasons, including, for example, early terminations of such agreements due to breaches or alleged breaches by either party to the agreement. If we are unable to enter into a new agreement for licensed technologies, either on terms that are acceptable to us or at all, we may be unable to sell some of our products or access some geographic or industry markets. We also need to introduce new products and product features in order to market our products to a broader customer base and grow our revenues, and many new products and product features could require us to obtain additional licenses and pay additional license fees and royalties. Furthermore, for some markets, we intend to manufacture reagents and tests for use on our systems. We believe that manufacturing reagents and developing tests for our systems is important to our business and growth prospects but may require additional licenses, which may not be available on commercially reasonable terms or at all. Our ability to develop, manufacture and sell products, and our strategic plans and growth, could be impaired if we are unable to obtain these licenses or if these licenses are terminated or expire and cannot be renewed. We may not be able to obtain or renew licenses for a given product or product feature or for some reagents on commercially reasonable terms, if at all. Furthermore, some of our competitors have rights to technologies and reagents that we do not have which may put us at a competitive disadvantage in certain circumstances and could adversely affect our performance.

We may face risks associated with acquisitions of companies, products and technologies, and our business could be harmed if we are unable to address these risks.

In order to remain competitive, obtain key competencies, consolidate our supply chain or sales force, acquire complementary products or technologies, or for other reasons, we may seek to acquire additional businesses, products or technologies. Even if we identify an appropriate acquisition or are presented with appropriate opportunities to acquire or make other investments, we may not be successful in negotiating the terms of the acquisition, financing the acquisition, consummating the acquisition or effectively integrating the acquired business, product or technology into our existing business and operations. For example, in April of 2013, we acquired our Italian distributor. We have limited experience in successfully acquiring and integrating businesses, products and technologies, and even if we are able to consummate an acquisition or other investment, we may not realize the anticipated benefits, including our recent acquisitions. We may face risks, uncertainties and disruptions, including difficulties in the integration of the operations and services of these acquisitions or any other acquired company, integration of acquired technology with our products, diversion of our management’s attention from other business concerns, the potential loss of key employees or customers of the acquired businesses and impairment charges if future acquisitions are not as successful as we originally anticipate. If we fail to successfully integrate the recently acquired manufacturing company and distributors or any other acquired companies, assets, products or technologies that we acquire, our business could be harmed. Furthermore, we may have to incur debt or issue equity securities to pay for any additional future acquisitions or investments, the issuance of which could be dilutive to our existing shareholders. In addition, our operating results may suffer because of acquisition-related costs or amortization expenses or charges relating to acquired intangible assets. Furthermore, identifying, contemplating, negotiating or completing an acquisition and integrating an acquired business, product or technology could significantly divert management and employee time and resources.

The current uncertainty in global economic conditions makes it particularly difficult to predict product demand and other related matters, and makes it more likely that our actual results could differ materially from expectations.

Our operations and performance depend on global economic conditions, which have been adversely impacted by continued global economic uncertainty, concerns over the downgrade of U.S. sovereign debt and monetary and financial uncertainties in Europe and other foreign countries. These conditions have and may continue to make it difficult for our customers and potential customers to accurately forecast and plan future business activities, and have caused our customers and potential customers to slow or reduce spending, particularly for systems. Furthermore, during economic uncertainty, our customers have experienced and may continue to experience issues gaining timely access to sufficient credit, which could result in their unwillingness to purchase products or an impairment of their ability to make timely payments to us. If that were to continue to occur, we may experience decreased sales, be required to increase our allowance for doubtful accounts and our days sales outstanding would be negatively

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impacted. Even with economic recovery, it may take time for our customers to establish new budgets and return to normal purchasing patterns. We cannot predict the reoccurrence of any economic slowdown or the strength or sustainability of the economic recovery, worldwide, in the U.S. or in our industry. These and other economic factors could have a material adverse effect on demand for our products and on our financial condition and operating results.

If certain of our products fail to obtain an adequate level of reimbursement from third-party payers, our ability to sell products in the Clinical market would be harmed.

Our ability to sell our products in the Clinical market will depend in part on the extent to which reimbursement for tests using our products will be available from government health administration authorities, private health coverage insurers, managed care organizations, and other organizations. There are efforts by governmental and third-party payers to contain or reduce the costs of health care through various means, and the continuous growth of managed care, together with efforts to reform the health care delivery system in the U.S. and Europe, has increased pressure on health care providers and participants in the health care industry to reduce costs. Consolidation among health care providers and other participants in the healthcare industry has resulted in fewer, more powerful health care groups, whose purchasing power gives them cost containment leverage. Additionally, third-party payers are increasingly challenging the price of medical products and services. Furthermore, we are unable to predict what effect the current or any future healthcare reform will have on our business, or the effect these matters will have on our customers. If purchasers or users of our products are not able to obtain adequate reimbursement for the cost of using our products, they may forego or reduce their use. Significant uncertainty exists as to the reimbursement status of newly approved health care products and whether adequate third-party coverage will be available.

The life sciences industry is highly competitive and subject to rapid technological change, if our competitors and potential competitors develop superior products and technologies, our competitive position and results of operations would suffer.

We face intense competition from a number of companies that offer products in our target markets, some of which have substantially greater financial resources and larger, more established marketing, sales and service organizations than we do. These competitors include:

• companies developing and marketing sequence detection systems for industrial research products;

• diagnostic and pharmaceutical companies;

• companies developing drug discovery technologies; and

• companies developing or offering biothreat detection technologies.

Several companies provide systems and reagents for DNA amplification or detection. Life Technologies and Roche sell systems integrating DNA amplification and detection (sequence detection systems) to the commercial market. Roche, Abbott, Becton Dickinson, Qiagen, Hologic, Luminex and Meridian sell sequence detection systems, some with separate robotic batch DNA purification systems and sell reagents to the Clinical market. Other companies, including Siemens, Hologic and bioMerieux, offer molecular tests. Additionally, we anticipate that in the future, additional competitors will emerge that offer a broad range of competing products.

The life sciences industry is characterized by rapid and continuous technological innovation. We may need to develop new technologies for our products to remain competitive. One or more of our current or future competitors could render our present or future products obsolete or uneconomical by technological advances. In addition, the introduction or announcement of new products by us or others could result in a delay of or decrease in sales of existing products, as we await regulatory approvals and as customers evaluate these new products. We may also encounter other problems in the process of delivering new products to the marketplace such as problems related to design, development or manufacturing of such products, and as a result we may be unsuccessful in selling such products. Our future success depends on our ability to compete effectively against current technologies, as well as to respond effectively to technological advances by developing and marketing products that are competitive in the continually changing technological landscape.

If our products do not perform as expected or the reliability of the technology on which our products are based is questioned, we could experience lost revenue, delayed or reduced market acceptance of our products, increased costs and damage to our reputation.

Our success depends on the market’s confidence that we can provide reliable, high-quality molecular test systems. We believe that customers in our target markets are likely to be particularly sensitive to product defects and errors. Our reputation and the

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public image of our products or technologies may be impaired if our products fail to perform as expected or our products are perceived as difficult to use. Despite testing, defects or errors could occur in our products or technologies. Furthermore, with respect to the BDS program, our products are incorporated into larger systems that are built and delivered by others; we cannot control many aspects of the final system.

In the future, if our products experience a material defect or error, this could result in loss or delay of revenues, delayed market acceptance, damaged reputation, diversion of development resources, legal claims, increased insurance costs or increased service and warranty costs, any of which could harm our business. Such defects or errors could also prompt us to amend certain warning labels or narrow the scope of the use of our products, either of which could hinder our success in the market. Furthermore, any failure in the overall BDS program, even if it is unrelated to our products, could harm our business. Even after any underlying concerns or problems are resolved, any widespread concerns regarding our technology or any manufacturing defects or performance errors in our products could result in lost revenue, delayed market acceptance, damaged reputation, increased service and warranty costs and claims against us.

If product liability lawsuits are successfully brought against us, we may face reduced demand for our products and incur significant liabilities.

We face an inherent risk of exposure to product liability claims if our technologies or systems are alleged to have caused harm or do not perform in accordance with specifications, in part because our products are used for sensitive applications. We cannot be certain that we would be able to successfully defend any product liability lawsuit brought against us. Regardless of merit or eventual outcome, product liability claims may result in:

• decreased demand for our products;

• injury to our reputation;

• increased product liability insurance costs;

• costs of related litigation; and

• substantial monetary awards to plaintiffs.

Although we carry product liability insurance, if we become the subject of a successful product liability lawsuit, our insurance may not cover all substantial liabilities, which could harm our business.

If our direct selling efforts for our products fail, our business expansion plans could suffer, and our ability to generate revenue will be diminished.

We have a relatively small sales force compared to some of our competitors. In addition, we have recently undergone changes in the leadership of our sales organization and are conducting a search for an executive to lead our North American sales and marketing organizations. If our direct sales force is not successful, or new additions to our sales team fail to gain traction among our customers, we may not be able to increase market awareness and sales of our products. If we fail to establish our systems in the marketplace, it could have a negative effect on our ability to sell subsequent systems and hinder the planned expansion of our business.

If our distributor relationships are not successful, our ability to market and sell our products would be harmed and our financial performance will be adversely affected.

We depend on relationships with distributors for the marketing and sales of our products in the Clinical and Non-Clinical markets in various geographic regions, and we have a limited ability to influence their efforts. We expect to continue to rely substantially on our distributor relationships for sales into other markets or geographic regions, which are key to our long-term growth strategy. Relying on distributors for our sales and marketing could harm our business for various reasons, including:

• agreements with distributors may terminate prematurely due to disagreements or may result in litigation between the partners;

• we may not be able to renew existing distributor agreements on acceptable terms;

• our distributors may not devote sufficient resources to the sale of our products;

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• our distributors may be unsuccessful in marketing our products;

• our existing relationships with distributors may preclude us from entering into additional future arrangements with other distributors; and

• we may not be able to negotiate future distributor agreements on acceptable terms.

If any of our distribution agreements are terminated or if we elect to distribute new products directly, we will have to invest in additional sales resources, including additional field sales personnel, which would significantly increase future selling, general and administrative expenses. We may not be able to enter into new distribution agreements on satisfactory terms, or at all. If we fail to enter into acceptable distribution agreements or fail to successfully market our products, our product sales may decrease. We may be exposed to risks as a result of transitioning a territory from a distributor sales model to a direct sales model, such as difficulties maintaining relationships with specific customers or hiring appropriately trained personnel, any of which could result in lower revenues than we previously received from our distributor in that territory.

We may be subject to third-party claims that require additional licenses for our products and we could face costly litigation, which could cause us to pay substantial damages and limit our ability to sell some or all of our products.

Our industry is characterized by a large number of patents, claims of which appear to overlap in many cases. As a result, there is a significant amount of uncertainty regarding the extent of patent protection and infringement. Companies may have pending patent applications, which are typically confidential for the first eighteen months following filing, which cover technologies we incorporate in our products. Accordingly, we may be subjected to substantial damages for past infringement or be required to modify our products or stop selling them if it is ultimately determined that our products infringe a third party’s proprietary rights. Moreover, from time to time, we are subject to patent litigation and receive correspondence and other communications from companies that ask us to evaluate the need for a license of patents they hold, and indicating or suggesting that we need a license to their patents in order to offer our products and services or to conduct our business operations. For example, we are currently engaged in litigation as further described in Part II, Item 1 “Legal Proceedings.” Additionally, in September 2012, we entered into an agreement with Abaxis pursuant to which, in exchange for a one-time payment by us to Abaxis of $17.3 million, all present and future litigation relating to the alleged infringement of certain Abaxis patents by us and our counterclaims against Abaxis were resolved. Even if we are successful in defending against claims, we could incur substantial costs in doing so. Any litigation related to existing claims and others that may arise in the future would likely consume our resources and could lead to significant damages, royalty payments or an injunction on the sale of certain products. Any additional licenses to patented technology could obligate us to pay substantial additional royalties, which could adversely impact our product costs and harm our business.

If we fail to maintain and protect our intellectual property rights, our competitors could use our technology to develop competing products and our business will suffer.

Our competitive success will be affected in part by our continued ability to obtain and maintain patent protection for our inventions, technologies and discoveries, including our intellectual property that includes technologies that we license. Our ability to do so will depend on, among other things, complex legal and factual questions. We have patents related to some of our technology and have licensed some of our technology under patents of others. Our patents and licenses may not successfully preclude others from using our technology. Our pending patent applications may lack priority over applications submitted by third parties or may not result in the issuance of patents. Even if issued, our patents may not be sufficiently broad to provide protection against competitors with similar technologies and may be challenged, invalidated or circumvented.

In addition, there are numerous recent changes to the patent laws and proposed changes to the rules of the U.S. Patent and Trademark Office, which may have a significant impact on our ability to protect our technology and enforce our intellectual property rights. For example, in September 2011, the U.S. enacted sweeping changes to the U.S. patent system under the Leahy-Smith America Invents Act, including changes that would transition the U.S. from a “first-to-invent” system to a “first to file” system and alter the processes for challenging issued patents. These changes could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents. In addition to patents, we rely on a combination of trade secrets, copyright and trademark laws, nondisclosure agreements, licenses and other contractual provisions and technical measures to maintain and develop our competitive position with respect to intellectual property. Nevertheless, these measures may not be adequate to safeguard the technology underlying our products. For example, employees, consultants and others who participate in the development of our products may breach their agreements with us regarding our intellectual property, and we may not have adequate remedies for the breach. We also may not be able to effectively protect our intellectual property rights in some foreign countries, as many countries do not offer the same level of legal protection for intellectual property as the

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U.S. Furthermore, for a variety of reasons, we may decide not to file for patent, copyright or trademark protection outside of the U.S. Our trade secrets could become known through other unforeseen means. Notwithstanding our efforts to protect our intellectual property, our competitors may independently develop similar or alternative technologies or products that are equal or superior to our technology. Our competitors may also develop similar products without infringing on any of our intellectual property rights or design around our proprietary technologies. Furthermore, any efforts to enforce our proprietary rights could result in disputes and legal proceedings that could be costly and divert attention from our business.

The U.S. Government has certain rights to use and disclose some of the intellectual property that we license and could exclusively license it to a third party if we fail to achieve practical application of the intellectual property.

Aspects of the technology licensed by us under agreements with third party licensors may be subject to certain government rights. Government rights in inventions conceived or reduced to practice under a government-funded program may include a non-exclusive, royalty-free worldwide license to practice or have practiced such inventions for any governmental purpose. In addition, the U.S. government has the right to require us or our licensors (as applicable) to grant licenses which would be exclusive under any of such inventions to a third party if they determine that: (1) adequate steps have not been taken to commercialize such inventions in a particular field of use; (2) such action is necessary to meet public health or safety needs; or (3) such action is necessary to meet requirements for public use under federal regulations. Further, the government rights include the right to use and disclose, without limitation, technical data relating to licensed technology that was developed in whole or in part at government expense. At least one of our technology license agreements contains a provision recognizing these government rights.

We may need to initiate lawsuits to protect or enforce our patents, which would be expensive and, if we lose, may cause us to lose some, if not all, of our intellectual property rights, and thereby impair our ability to compete.

We rely on patents to protect a large part of our intellectual property. To protect or enforce our patent rights, we may initiate patent litigation against third parties, such as infringement suits or interference proceedings. For example, in August 2012, we initiated a legal proceeding in the U.S. District Court for the Northern District of California requesting such court to find that we do not infringe certain patents held by Roche. These lawsuits could be expensive, take significant time and divert management’s attention from other business concerns. They would also put our patents at risk of being invalidated or interpreted narrowly, and our patent applications at risk of not issuing. We may also provoke these third parties to assert claims against us. Patent law relating to the scope of claims in the technology fields in which we operate is still evolving and, consequently, patent positions in our industry are generally uncertain. We cannot assure you that we would prevail in any of these suits or that the damages or other remedies awarded, if any, would be commercially valuable. During the course of these suits, there may be public announcements of the results of hearings, motions and other interim proceedings or developments in the litigation. Any public announcements related to these suits could cause our stock price to decline.

Our international operations subject us to additional risks and costs.

We conduct operations on a global basis. These operations are subject to a number of difficulties and special costs, including:

• compliance with multiple, conflicting and changing governmental laws and regulations;

• increased regulatory risk, including additional regulatory requirements different or more stringent than those in the United States;

• laws and business practices favoring local competitors;

• foreign exchange and currency risks;

• exposure to risks associated with sovereign debt uncertainties in Europe and other foreign countries;

• difficulties in collecting accounts receivable or longer payment cycles;

• import and export restrictions and tariffs;

• difficulties staffing and managing foreign operations;

• difficulties and expense in enforcing intellectual property rights;

• business risks, including fluctuations in demand for our products and the cost and effort to conduct international operations and travel abroad to promote international distribution and overall global economic conditions;

• multiple conflicting tax laws and regulations; and

• political and economic instability.

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We intend to expand our international sales and marketing activities, including through our direct sales operations and through relationships with additional international distribution partners. We may not be able to attract international distribution partners that will be able to market our products effectively or may have trouble entering geographic markets that are less receptive to sales from foreign entities.

Additionally, our continued expansion into less developed countries in connection with our HBDC program, which may have less political, social or economic stability and less developed infrastructure and legal systems, heightens the exposure of the risks set forth above. As we continue to expand our operations into less developed countries, we will increase our exposure to the above risks. An adverse development relating to one or more of these risks, or any other risks associated with our operations in less developed countries, could adversely affect our ability to conduct and expand our business, which could negatively impact on our business, results of operations and financial condition.

Our international operations could also increase our exposure to international laws and regulations. If we cannot comply with foreign laws and regulations, which are often complex and subject to variation and unexpected changes, we could incur unexpected costs and potential litigation. For example, the governments of foreign countries might attempt to regulate our products and services or levy sales or other taxes relating to our activities. In addition, foreign countries may impose tariffs, duties, price controls or other restrictions on foreign currencies or trade barriers, any of which could make it more difficult for us to conduct our business.

The nature of some of our products may also subject us to export control regulation by the U.S. Department of State and the Department of Commerce. Violations of these regulations can result in monetary penalties and denial of export privileges.

Our sales to customers outside the U.S. are subject to government export regulations that require us to obtain licenses to export such products. If the U.S. government was to amend its export control regulations, such amendments could create uncertainty in our industry, result in increased costs of compliance, and further restrict our ability to sell our products abroad. In particular, we are required to obtain a new license for each purchase order of our biothreat products that are exported outside the U.S. Delays or denial of the grant of any required license, or changes to the regulations that make such delays or denials more likely or frequent, could make it difficult to make sales to foreign customers and could adversely affect our revenue. In addition, we could be subject to fines and penalties for violation of these export regulations if we were found in violation. Such violation could result in penalties, including prohibiting us from exporting our products to one or more countries, and could materially and adversely affect our business.

If we fail to retain key members of our staff, our ability to conduct and expand our business would be impaired.

We are highly dependent on the principal members of our management and scientific staff. The loss of services of any of these persons could seriously harm our product development and commercialization efforts. In addition, we require skilled personnel in areas such as microbiology, clinical and sales, marketing and finance. We generally do not enter into employment agreements requiring these employees to continue in our employment for any period of time. Attracting, retaining and training personnel with the requisite skills remains challenging, particularly in the Silicon Valley, where our main office is located. If at any point we are unable to hire, train and retain a sufficient number of qualified employees to match our growth, our ability to conduct and expand our business could be seriously reduced.

If we become subject to claims relating to improper handling, storage or disposal of hazardous materials, we could incur significant cost and time to comply.

Our research and development processes involve the controlled storage, use and disposal of hazardous materials, including biological hazardous materials. We are subject to foreign, federal, state and local regulations governing the use, manufacture, storage, handling and disposal of materials and waste products. We may incur significant costs complying with both existing and future environmental laws and regulations. In particular, we are subject to regulation by the Occupational Safety and Health Administration (“OSHA”) and the Environmental Protection Agency (“EPA”), and to regulation under the Toxic Substances Control Act and the Resource Conservation and Recovery Act in the U.S. OSHA or the EPA may adopt regulations that may affect our research and development programs. We are unable to predict whether any agency will adopt any regulations that would have a material adverse effect on our operations.

The risk of accidental contamination or injury from hazardous materials cannot be eliminated completely. In the event of an accident, we could be held liable for any damages that result, and any liability could exceed the limits or fall outside the coverage of our workers’ compensation insurance. We may not be able to maintain insurance on acceptable terms, if at all.

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If a catastrophe strikes our manufacturing or warehousing facilities, we may be unable to manufacture or distribute our products for a substantial amount of time and we may experience inventory shortfalls, which would cause us to experience lost revenues.

Our manufacturing facilities are located in Sunnyvale and Lodi, California, Seattle, Washington and Stockholm, Sweden. Although we have business interruption insurance, our facilities and some pieces of manufacturing equipment are difficult to replace and could require substantial replacement lead-time. Various types of disasters, including earthquakes, fires, floods and acts of terrorism, may affect our manufacturing facilities. Earthquakes are of particular significance since our primary manufacturing facilities in California are located in an earthquake-prone area. In the event our existing manufacturing facilities or equipment are affected by man-made or natural disasters, we may be unable to manufacture products for sale or meet customer demands or sales projections. If our manufacturing operations were curtailed or ceased, it would seriously harm our business.

We might require additional capital to respond to business challenges or acquisitions, and such capital might not be available.

We may need to engage in additional equity or debt financing to respond to business challenges or acquire complementary businesses and technologies. Equity and debt financing, however, might not be available when needed or, if available, might not be available on terms satisfactory to us. In addition, to the extent that additional capital is raised through the sale of equity or convertible debt securities, the issuance of these securities could result in dilution to our shareholders. In addition, these securities may be sold at a discount from the market price of our common stock and may include rights, preferences or privileges senior to those of our common stock. If we are unable to obtain adequate financing or financing on terms satisfactory to us, our ability to continue to support our business growth and to respond to business challenges could be significantly limited.

Our participation in the USPS BDS program may not result in predictable revenues in the future.

Our participation in the USPS BDS program involves significant uncertainties related to governmental decision-making and timing of purchases and is highly sensitive to changes in national priorities and budgets. The USPS reported more than $15 billion and $5 billion in losses for the 2012 and 2011 fiscal years, respectively. Budgetary pressures may result in reduced allocations to projects such as the BDS program, sometimes without advance notice. We cannot be certain that actual funding and operating parameters, or product purchases, will occur at currently expected levels or in the currently expected timeframe.

We rely on relationships with collaborative partners and other third parties for development, supply and marketing of certain products and potential products, and such collaborative partners or other third parties could fail to perform sufficiently.

We believe that our success in penetrating our target markets depends in part on our ability to develop and maintain collaborative relationships with other companies. Relying on collaborative relationships is risky to our future success for these products because, among other things:

• our collaborative partners may not devote sufficient resources to the success of our collaboration;

• our collaborative partners may not obtain regulatory approvals necessary to continue the collaborations in a timely manner;

• our collaborative partners may be acquired by another company and decide to terminate our collaborative partnership or become insolvent;

• our collaborative partners may develop technologies or components competitive with our products;

• components developed by collaborators could fail to meet specifications, possibly causing us to lose potential projects and subjecting us to liability;

• disagreements with collaborators could result in the termination of the relationship or litigation;

• collaborators may not have sufficient capital resources;

• collaborators may pursue tests or other products that will not generate significant volume for us, but may consume significant research and development and manufacturing resources; and

• we may not be able to negotiate future collaborative arrangements, or renewals of existing collaborative agreements, on acceptable terms.

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Because these and other factors may be beyond our control, the development or commercialization of these products may be delayed or otherwise adversely affected.

If we or any of our collaborative partners terminate a collaborative arrangement, we may be required to devote additional resources to product development and commercialization or we may need to cancel some development programs, which could adversely affect our product pipeline and business.

We enter into collaborations with third parties that may not result in the development of commercially viable products or the generation of significant future revenues.

In the ordinary course of our business, we enter into collaborative arrangements to develop new products or to pursue new markets. These collaborations may not result in the development of products that achieve commercial success, and these collaborations could be terminated prior to developing any products. In addition, our collaboration partners may not necessarily purchase the volume of products that we expect. Accordingly, we cannot be assured that any of our collaborations will result in the successful development of a commercially viable product or result in significant additional future revenues in the future.

New regulations related to “conflict minerals” may cause us to incur additional expenses and could limit the supply and increase the cost of certain metals used in manufacturing our products.

On August 22, 2012, the Securities and Exchange Commission adopted a new rule requiring disclosures by public companies of specified minerals, known as conflict minerals, that are necessary to the functionality or production of products manufactured or contracted to be manufactured. The new rule, which is effective for 2013 and requires a disclosure report to be filed by May 31, 2014, will require companies to perform due diligence, disclose and report whether or not such minerals originate from the Democratic Republic of Congo or an adjoining country. The new rule could affect sourcing at competitive prices and availability in sufficient quantities of certain minerals used in the manufacture of our products, including tantalum, tin, gold and tungsten. The number of suppliers who provide conflict-free minerals may be limited. In addition, there may be material costs associated with complying with the disclosure requirements, such as costs related to determining the source of certain minerals used in our products, as well as costs of possible changes to products, processes, or sources of supply as a consequence of such verification activities. Within our supply chain, we may not be able to sufficiently verify the origins of the relevant minerals used in our products through the due diligence procedures that we implement, which may harm our reputation. We are currently investigating the use of conflict materials within our supply chain.

We maintain cash balances in our bank accounts that exceed the FDIC insurance limitation.

We maintain our cash assets at commercial banks in amounts in excess of the Federal Deposit Insurance Corporation insurance limit of $250,000. In the event of the commercial banks failing, we may lose the amount of our deposits over any federally-insured amount, which could have a material adverse effect on our financial conditions and our results of operations.

Compliance with regulations governing public company corporate governance and reporting is complex and expensive.

Many laws and regulations, notably those adopted in connection with the Sarbanes-Oxley Act of 2002 by the SEC, the Dodd-Frank Wall Street Reform and Consumer Protection Act and the NASDAQ Stock Market, impose obligations on public companies, such as ours, which have increased the scope, complexity, and cost of corporate governance, reporting, and disclosure practices. Compliance with these reforms and enhanced new disclosures has required and will continue to require substantial management time and oversight and requires us to incur significant additional accounting and legal costs. The effects of new laws and regulations remain unclear and will likely require substantial management time and oversight and require us to incur significant additional accounting and legal costs. Additionally, changes to existing accounting rules and standards and the implementation of new accounting rules or standards, such as the new lease accounting or revenue recognition rules, may adversely impact our reported financial results and business, and may further require us to incur greater accounting fees.

Our operating results could be materially affected by unanticipated changes in our tax provisions or exposure to additional income tax liabilities.

Our determination of our tax liability (like any company’s determination of its tax liability) is subject to review by applicable tax authorities. Any adverse outcome of such a review could have an adverse effect on our operating results and financial condition. In addition, the determination of our provision for income taxes and other tax liabilities requires significant judgment including our determination of whether a valuation allowance against deferred tax assets is appropriate. We expect to maintain such valuation allowance so long as there is insufficient evidence that we will be able to realize the benefit of our deferred tax assets. We reassess the realizability of the deferred tax assets as facts and circumstances dictate. If after future assessments of the realizabilty of the deferred tax assets, we determine that a lesser or greater allowance is required, or that no such allowance is appropriate, we will

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record a corresponding change to the income tax expense and the valuation allowance in the period of such determination. The uncertainty surrounding the future realization of our net deferred tax assets could adversely impact our results of operations. Although we believe our estimates and judgments are reasonable, including those related to our valuation allowance, the ultimate tax outcome may differ from the amounts recorded in our financial statements and may materially affect our financial results in the period or periods for which such determination is made.

Our stock price is highly volatile and investing in our stock involves a high degree of risk, which could result in substantial losses for investors.

The market price of our common stock, like the securities of many other medical product companies, fluctuates over a wide range, and will continue to be highly volatile in the future. During the three months ended June 30, 2013, the sale price of our common stock on the NASDAQ Global Select Market ranged from $31.56 to $40.31 per share. Because our stock price has been volatile, investing in our common stock is risky. Furthermore, volatility in the stock price of other companies has often led to securities class action litigation against those companies. Any future securities litigation against us could result in substantial costs and divert management’s attention and resources, which could seriously harm our business, financial condition and results of operations.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Not Applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not Applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable.

ITEM 5. OTHER INFORMATION

Not Applicable.

ITEM 6. EXHIBITS

(a) Exhibits

Exhibit Number		Incorporated by Reference			Filing	Filed
	Exhibit Description	Form	File No.	Exhibit	Date	Herewith
10.1*	Offer Letter by and between Cepheid and Warren C. Kocmond.	8-K	000-30755	10.01	05/07/13
10.2*	Change of Control Retention and Severance Agreement by and between Cepheid and Warren C. Kocmond.	8-K	000-30755	10.02	05/07/13
10.3*	Separation Agreement, effective as of July 16, 2013, between Cepheid and Humberto Reyes.					X
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.					X
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.					X
32.1**	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*					X
32.2**	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*					X

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Exhibit Number		Incorporated by Reference			Filing	Filed
	Exhibit Description	Form	File No.	Exhibit	Date	Herewith
101**	The following materials from Cepheid’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2013, formatted in XBRL (Extensible Business Reporting Language): (i) the unaudited Condensed Consolidated Balance Sheets, (ii) the unaudited Condensed Consolidated Statements of Operations, (iii) the unaudited Condensed Consolidated Statements of Cash Flows, and (iv) Notes to Condensed Consolidated Financial Statements, tagged as blocks of text.*

* Management contract or compensatory plan or arrangement.

** This exhibit is being furnished and is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Report), irrespective of any general incorporation language contained in such filing.

38

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized, in the City of Sunnyvale, State of California on this 7th day of August 2013.

CEPHEID

(Registrant)

/s/ John L. Bishop

John L. Bishop

Chairman, Chief Executive Officer and Director

(Principal Executive Officer)

/s/ Andrew D. Miller

Andrew D. Miller

Executive Vice President, Chief Financial Officer

(Principal Financial and Accounting Officer)

39

Exhibit Index

Exhibit Number	Exhibit Description
10.1*	Offer Letter by and between Cepheid and Warren C. Kocmond (incorporated by reference to Exhibit 10.01 of the Company’s Form 8-K filed on May 7, 2013).
10.2*	Change of Control Retention and Severance Agreement by and between Cepheid and Warren C. Kocmond (incorporated by reference to Exhibit 10.02 of the Company’s Form 8-K filed on May 7, 2013).
10.3*	Separation Agreement, effective as of July 16, 2013, between Cepheid and Humberto Reyes.
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
32.2**	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
101**	The following materials from Cepheid’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2013, formatted in XBRL (Extensible Business Reporting Language): (i) the unaudited Condensed Consolidated Balance Sheets, (ii) the unaudited Condensed Consolidated Statements of Operations, (iii) the unaudited Condensed Consolidated Statements of Cash Flows, and (iv) Notes to Condensed Consolidated Financial Statements, tagged as blocks of text.*

* Management contract or compensatory plan or arrangement.

** This exhibit is being furnished and is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Report), irrespective of any general incorporation language contained in such filing.

40

EX-10.3

Exhibit 10.3

July 15, 2013

Via Hand Delivery

Humberto Reyes

Re: Terms of Separation

Dear Humberto:

This letter confirms the agreement (this “Agreement”) between you and Cepheid, a California corporation (the “Company”), concerning the terms of your separation from employment and offers you certain benefits in exchange for a general release of claims and covenant not to sue, as provided in further detail below. If you agree to abide by the terms outlined in this Agreement, please sign and return this Agreement to me in the timeframe provided below but, in all events, no earlier than July 16, 2013.

1. Separation: Officer Resignation: As we have discussed, your employment will conclude on July 16, 2013 (the “Separation Date”). By your signature below, you confirm and acknowledge that you are resigning as the Company’s Executive Vice President, Chief Operating Officer and from any other officer positions that you held with the Company or any of its subsidiaries as of the Separation Date.

2. Acknowledgement of Payment of Final Wages: By your signature below, you confirm and acknowledge that, on the Separation Date, the Company has paid you for all wages, salary, bonuses, commissions, reimbursable expenses, accrued vacation and any similar payments due you from the Company as of the Separation Date. By signing below, you acknowledge that the Company does not owe you any other amounts.

3. Separation Benefits: In exchange for your agreement to the general release and waiver of claims and covenant not to sue set forth in Sections 9 and 10 hereof and your other promises herein, the Company agrees to provide you the following benefits following the Effective Date (as defined below) of this Agreement:

(a) Severance: The Company agrees to provide you with a lump sum severance payment in the amount of $400,000, less applicable federal and state payroll deductions, which equals one year of your annual base salary. This payment shall be paid within sixty (60) days following the Separation Date, provided this Agreement is effective as of that time.

(b) COBRA Payment: Subject to your timely election to continue your existing health benefits under COBRA, and consistent with the terms of COBRA and the Company’s health insurance plan, the Company will provide you a taxable lump sum payment in an amount equal to pay the employer portion of the insurance premiums to continue your existing health benefits under COBRA for twelve (12) months following the Separation Date, as such premiums would be measured on the

Humberto Reyes

Page 2

Separation Date, less applicable federal and state payroll deductions (the “COBRA Payment”). The COBRA Payment shall be made within sixty (60) days following the Separation Date, provided this Agreement is effective as of that date. You will remain responsible for, and must continue to pay, the portion of premiums, co-payments, etc. that you would have paid had your employment continued.

(c) Acceleration of Certain Equity Awards: Effective on the Separation Date, the Company agrees to accelerate the vesting of the 2010 and 2011 Unvested Options and the 2010 and 2011 Unvested RSUs (each as defined below), such that the 2010 and 2011 Unvested Options and the 2010 and 2011 Unvested RSUs shall be deemed vested pursuant to the terms set forth in Sections 6(a) and 6(b) hereof.

(d) Extension of Exercise Period: The Company agrees to extend the post-termination period for you to exercise the Option Vested Shares (as defined below), pursuant to the terms set forth in Section 6(a) hereof.

(e) Mutual Non-Disparagement: The Company agrees to enter into a mutual non-disparagement provision with you as provided in Section 11 hereof

For the avoidance of doubt, under all circumstances, all payments under Sections 3(a) and 3(b) hereof will be made before March 15, 2014.

By signing below, you acknowledge that (i) this offer of benefits supersedes and replaces any prior commitments to or agreements with you regarding compensation or benefits to be offered or paid to you in connection with your separation, including pursuant to Section 2 of that certain Amended and Restated Change of Control Retention and Severance Agreement, dated as of December 15, 2008, between you and the Company, as amended on April 29, 2010 (together, the “Change of Control Agreement”), and (ii) you will be receiving the benefits outlined in this Section 3 in consideration for (and expressly conditioned upon you) waiving your rights to claims referred to in this Agreement and would not otherwise be entitled to such benefits.

4. Return of Company Property: As a condition precedent of the provision of separation benefits described in Section 3 above, you hereby warrant to the Company that you have returned to the Company all property or data of the Company of any type whatsoever that has been in your possession, custody or control.

5. Proprietary Information: You hereby acknowledge that you are bound by the Employee Invention Assignment and Confidentiality Agreement attached hereto as Exhibit A (the “IAACA”) and that as a result of your employment with the Company you have had access to the Company’s Proprietary Information (as defined in the IAACA), that you will hold all Proprietary Information in strictest confidence and that you will not make use of such Proprietary Information on behalf of anyone. You further confirm that you will deliver to the Company on or before the Separation Date all documents and data of any nature containing or pertaining to such Proprietary Information and that you will not take with you any such documents or data or any reproduction thereof.

6. Equity Awards:

(a) Stock Options: Pursuant to your stock option grant agreements with the Company dated November 30, 2004, April 27, 2005, April 26, 2006, October 31, 2006, April 25, 2007, April 24, 2008, April 28, 2009, April 29, 2010, April 25, 2011 and April 24, 2012 (collectively, the

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“Option Grant Agreements”) and the Company’s 1997 Stock Option Plan and 2006 Equity Incentive Plan, each as amended and restated from time to time (together, the “Plans,” and collectively with the Option Grant Agreements, the “Stock Option Agreements”), you have been granted options to purchase an aggregate of 632,500 shares of the Company’s common stock (the “Options”). As of the Separation Date, the Options will have vested and remain unexercised as to 83,229 shares (the “Vested Options”) and will remain unvested as to 65,314 shares (the “Unvested Options”). Because your employment is ending on the Separation Date, none of the Unvested Options would vest in the usual course. The Stock Option Agreements generally provide that you will have ninety (90) days following the Separation Date to exercise any Vested Options. After such date, you will no longer have a right to exercise the Options as to any shares. However, if you execute this Agreement and it becomes effective on its terms, (i) the Company will accelerate the vesting of the Unvested Options that are subject to the Stock Option Agreement dated April 29, 2010 and the Stock Option Agreement dated April 25, 2011 (the “2010 and 2011 Unvested Options”) such that the 2010 and 2011 Unvested Options (a total of 30,782 shares) will become vested and will become exercisable by you (the “Accelerated Options”) and (ii) the post-termination period to exercise the Vested Options and Accelerated Options shall be extended to the one-year anniversary of the Separation Date, but no in event will you be entitled to exercise any of the Options following their original expiration date as set forth in their respective Option Grant Agreements (and your options granted on November 30, 2004 and April 25, 2007 will expire during 2014). Your rights concerning the Options will continue to be governed by the Stock Option Agreements, as amended consistent with the terms herein.

(b) Restricted Stock Units: Pursuant to your restricted stock unit agreements with the Company dated April 29, 2010, April 25, 2011, April 24, 2012 and April 29, 2013 and the Plans (collectively, the “RSU Agreements”), you have been granted restricted stock units settleable for 20,834 shares of the Company’s Common Stock (“RSUs”). As of the Separation Date (provided you remained continuously employed through that date), you will remain unvested as to 12,916 shares (the “Unvested RSUs”). Because your employment is ending on the Separation Date, none of the Unvested RSUs would vest in the usual course. However, if you execute this Agreement and it becomes effective on its terms, the Company will accelerate the vesting of the Unvested RSUs that are subject to the RSU Agreement dated April 29, 2010 and the RSU Agreement dated April 25, 2011 (the “2010 and 2011 Unvested RSUs”) such that the 2010 and 2011 Unvested RSUs (a total of 3,854 RSUs) will become vested and will be settled by the Company for shares of the Company’s common stock pursuant to the terms of the RSU Agreements. Your rights concerning the RSUs will continue to be governed by the RSU Agreements, as amended consistent with the terms herein.

(c) Other Equity Awards: You acknowledge and agree that you have no rights in or to the Company’s capital stock, equity grants to acquire shares of the Company’s capital stock or other ownership interest in the Company except as set forth herein.

7. Code Section 280G: In the event that the benefits provided for in this Agreement or otherwise payable to you (a) constitute “parachute payments” within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”) and (b) but for this Section 7, would be subject to the excise tax imposed by Section 4999 of the Code, then, at your discretion, your benefits under this Agreement shall be payable either (i) in full, or (ii) as to such lesser amount which would result in no portion of such benefits being subject to the excise tax under Section 4999 of the Code, whichever of the foregoing amounts, taking into account the applicable federal, state and local income taxes and the excise tax imposed by Section 4999, results in the receipt by you on an after-tax basis, of the greatest amount of benefits under this Agreement, notwithstanding that all or some portion of such benefits may be taxable

Humberto Reyes

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under Section 4999 of the Code. Any reduction shall be made in the following manner: (A) first a pro- rata reduction of (1) cash payments subject to Section 409A of the Code as deferred compensation and (2) cash payments not subject to Section 409A of the Code, and (B) second a pro rata cancellation of (1) equity-based compensation subject to Section 409A of the Code as deferred compensation and (2) equity- based compensation not subject to Section 409A of the Code. Reduction in either cash payments or equity compensation benefits shall be made pro-rata between and among benefits which are subject to Section 409A of the Code and benefits which are exempt from Section 409A of the Code. Unless the Company and you otherwise agree in writing, any determination required under this Section 7 shall be made in writing by the Company’s independent public accountants (the “Accountants”), whose determination shall be conclusive and binding upon you and the Company for all purposes. For purposes of making the calculations required by this Section 7, the Accountants may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of Sections 280G and 4999 of the Code. The Company and you shall furnish to the Accountants with such information and documents as the Accountants may reasonably request in order to make a determination under this Section 7. The Company shall bear all costs the Accountants may reasonably incur in connection with any calculations contemplated by this Section 7.

8. Code Section 409A: To the extent (a) any payments or benefits to which you become entitled under this Agreement, or under any other agreement or Company plan, in connection with your termination of employment with the Company constitute deferred compensation subject to Section 409A of the Code and (b) you are deemed at the time of such retirement or termination of employment to be a “specified employee” under Section 409A of the Code, then such payments shall not be made or commence until the earliest of (i) the expiration of the six (6)-month period measured from the date of your “separation from service” (as such term is at the time defined in Treasury Regulations under Section 409A of the Code) from the Company; or (ii) the date of your death following such separation from service; provided, however, that such deferral shall only be effected to the extent required to avoid adverse tax treatment to you, including (without limitation) the additional twenty percent (20%) tax for which you would otherwise be liable under Section 409A(a)(1)(B) of the Code in the absence of such deferral. Upon the expiration of the applicable deferral period, any payments which would have otherwise been made during that period (whether in a single sum or in installments) in the absence of this Section 8 shall be paid to you or your beneficiary in one lump sum (without interest). Any retirement or termination of your employment is intended to constitute a “separation from service” and will be determined consistent with the rules relating to a “separation from service” as such term is defined in Treasury Regulation Section 1.409A-1. This Agreement shall be interpreted and administered in a manner so that any amount or benefit payable hereunder shall be paid or provided in a manner that is either exempt from or compliant with the requirements of Section 409A of the Code and applicable regulations thereunder. It is intended that each installment of the payments provided hereunder constitute separate “payments” for purposes of Treasury Regulation Section 1.409A-2(b)(2)(i). It is further intended that payments hereunder satisfy, to the greatest extent possible, the exemptions from the application of Section 409A of the Code (and any state law of similar effect) provided under Treasury Regulations Section 1.409A-1(b)(4) (as a “short-term deferral”) and Section 1.409A-1 (b)(9) (as a “separation pay due to involuntary separation”). To the extent any payment hereunder may be classified as a “short-term deferral” within the meaning of Section 409A, such payment shall be deemed a short- term deferral, even if it may also qualify for an exemption from Section 409A of the Code under another provision of Section 409A of the Code. To the extent that any payment under this Agreement is subject to Section 409A of the Code and ambiguous as to its compliance with Section 409A of the Code, the provision will be read in such a manner so that all payments hereunder comply with Section 409A of the Code. Except as otherwise expressly provided herein, to the extent any expense reimbursement or the

Humberto Reyes

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provision of any in-kind benefit under this Agreement is determined to be subject to Section 409A of the Code, the amount of any such expenses eligible for reimbursement, or the provision of any in-kind benefit, in one calendar year shall not affect the expenses eligible for reimbursement in any other taxable year (except for any lifetime or other aggregate limitation applicable to medical expenses), in no event shall any expenses be reimbursed after the last day of the calendar year following the calendar year in which you incurred such expenses, and in no event shall any right to reimbursement or the provision of any in-kind benefit be subject to liquidation or exchange for another benefit.

9. General Release and Waiver of Claims:

(a) The payments and promises set forth in this Agreement are in full satisfaction of all accrued salary, vacation pay, bonus and commission pay, profit-sharing, stock, stock options, RSUs or other ownership interest in the Company, termination benefits or other compensation to which you may be entitled by virtue of your employment with the Company or your separation from the Company, including the Change of Control Agreement. To the fullest extent permitted by law, you hereby release and waive any other claims you may have against the Company and its owners, agents, officers, shareholders, employees, directors, attorneys, subscribers, subsidiaries, affiliates, successors and assigns (collectively “Releasees”), whether known or not known, including, without limitation, claims under any employment laws, including, but not limited to, claims of unlawful discharge, breach of contract, breach of the covenant of good faith and fair dealing, fraud, violation of public policy, defamation, physical injury, emotional distress, claims for additional compensation or benefits arising out of your employment or his separation of employment, claims under Title VII of the 1964 Civil Rights Act, as amended, the California Fair Employment and Housing Act and any other laws and/or regulations relating to employment or employment discrimination, including, without limitation, claims based on age or under the Age Discrimination in Employment Act or Older Workers Benefit Protection Act, and/or claims based on disability or under the Americans with Disabilities Act.

(b) By signing below, you expressly waive any benefits of Section 1542 of the Civil Code of the State of California, which provides as follows:

“A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.”

(c) You and the Company do not intend to release claims that you may not release as a matter of law, including but not limited to claims for indemnity under California Labor Code Section 2802, or any claims for enforcement of this Agreement. To the fullest extent permitted by law, any dispute regarding the scope of this general release shall be determined by an arbitrator under the procedures set forth in Section 12 hereof.

10. Covenant Not to Sue:

(a) To the fullest extent permitted by law, at no time subsequent to the execution of this Agreement will you pursue, or cause or knowingly permit the prosecution, in any state, federal or foreign court, or before any local, state, federal or foreign administrative agency, or any other tribunal, of any charge, claim or action of any kind, nature and character whatsoever, known or unknown, which you may now have, have ever had, or may in the future have against Releasees, which is based in whole or in part on any matter released by this Agreement.

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(b) Nothing in this Section 10 shall prohibit you from filing a charge or complaint with a government agency where, as a matter of law, the parties may not restrict his ability to file such administrative complaints. However, you understand and agree that, by entering into this Agreement, you are releasing any and all individual claims for relief, and that any and all subsequent disputes between you and the Company shall be resolved through arbitration as provided in Section 12 hereof.

(c) Nothing in this Section 10 shall prohibit or impair you or the Company from complying with all applicable laws, nor shall this Agreement be construed to obligate either party to commit (or aid or abet in the commission of) any unlawful act.

11. Nondisparagement: You agree that you will not disparage Releasees or their products, services, agents, representatives, directors, officers, shareholders, attorneys, employees, vendors, affiliates, successors or assigns, or any person acting by, through, under or in concert with any of them, with any written or oral statement. The Company agrees that its current officers and directors will not disparage you with any written or oral statement. Nothing in this Section 11 shall prohibit you or the Company from providing truthful information in response to a subpoena or other legal process or the Company from making public disclosures consistent with applicable law, rules and regulations, including, without limitation, the Securities Exchange Act of 1934, as amended.

12. Arbitration: Except for any claim for injunctive relief arising out of a breach of a party’s obligations to protect the other’s proprietary information, the parties agree to arbitrate, in Santa Clara County, California through JAMS, pursuant to JAMS rules for arbitration of employment disputes, any and all disputes or claims arising out of or related to the validity, enforceability, interpretation, performance or breach of this Agreement, whether sounding in tort, contract, statutory violation or otherwise, or involving the construction or application or any of the terms, provisions, or conditions of this Agreement. Any arbitration may be initiated by a written demand to the other party. The arbitrator’s decision shall be final, binding, and conclusive. The parties further agree that this Agreement is intended to be strictly construed to provide for arbitration as the sole and exclusive means for resolution of all disputes hereunder to the fullest extent permitted by law. The parties expressly waive any entitlement to have such controversies decided by a court or a jury.

13. Attorneys’ Fees: If any action is brought to enforce the terms of this Agreement, the prevailing party will be entitled to recover its reasonable attorneys’ fees, costs and expenses from the other party, in addition to any other relief to which the prevailing party may be entitled.

14. No Admission of Liability: This Agreement is not and shall not be construed or contended by you to be an admission or evidence of any wrongdoing or liability on the part of Releasees, their representatives, heirs, executors, attorneys, agents, partners, officers, shareholders, directors, employees, subsidiaries, affiliates, divisions, successors or assigns. This Agreement shall be afforded the maximum protection allowable under California Evidence Code Section 1152 and/or any other state or federal provisions of similar effect.

15. Complete and Voluntary Agreement: This Agreement, together with Exhibit A hereto, the Stock Option Agreements and the RSU Agreements, constitute the entire agreement between you and Releasees with respect to the subject matter hereof and supersede all prior negotiations and agreements, whether written or oral, relating to such subject matter, including the Change of Control Agreement.

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You acknowledge that neither Releasees nor their agents or attorneys have made any promise, representation or warranty whatsoever, either express or implied, written or oral, which is not contained in this Agreement for the purpose of inducing you to execute the Agreement, and you acknowledge that you have executed this Agreement in reliance only upon such promises, representations and warranties as are contained herein, and that you are executing this Agreement voluntarily, free of any duress or coercion.

16. Severability: The provisions of this Agreement are severable, and if any part of it is found to be invalid or unenforceable, the other parts shall remain fully valid and enforceable. Specifically, should a court, arbitrator, or government agency conclude that a particular claim may not be released as a matter of law, it is the intention of the parties that the general release, the waiver of unknown claims and the covenant not to sue above shall otherwise remain effective to release any and all other claims.

17. Modification: Counterparts: Facsimile/PDF Signatures: It is expressly agreed that this Agreement may not be altered, amended, modified, or otherwise changed in any respect except by another written agreement that specifically refers to this Agreement, executed by authorized representatives of each of the parties to this Agreement. This Agreement may be executed in any number of counterparts, each of which shall constitute an original and all of which together shall constitute one and the same instrument. Execution of a facsimile or PDF copy shall have the same force and effect as execution of an original, and a copy of a signature will be equally admissible in any legal proceeding as if an original.

18. Review of this Agreement: You understand that you may take up to twenty-one (21) days to consider this Agreement and, by signing below, affirm that you were advised to consult with an attorney prior to signing this Agreement. You also understand that you may revoke this Agreement within seven (7) days of signing this document and that the benefits to be provided to you pursuant to Section 3 hereof will be provided only at the end of that seven (7) day revocation period.

19. Effective Date: This Agreement is effective on the eighth (8th) day after it is signed by you and the Company, without revocation by you.

20. Governing Law: This Agreement shall be governed by and construed in accordance with the laws of the State of California.

[Remainder of Page Intentionally Left Blank]

Humberto Reyes

Page 8

We appreciate your contributions to the Company and wish you the best in any future endeavors.

	Sincerely,
	Cepheid
	By:	/s/ John L. Bishop
	Name:	John L. Bishop
	Title:	Chairman and Chief Executive Officer
READ, UNDERSTOOD AND AGREED
/s/ Humberto Reyes	Date:	7/12/13
Humberto Reyes
7/16/13

EXHIBIT A

EMPLOYEE INVENTION ASSIGNMENT AND CONFIDENTIALITY AGREEMENT

CEPHEID MULTISTATE EMPLOYEE INVENTION ASSIGNMENT AND

CONFIDENTIALITY AGREEMENT

In consideration of, and as a condition of my employment with Cepheid, a California corporation (the “Company”), I hereby represent to, and agree with the Company as follows:

1. Purpose of Agreement. I understand that the Company is engaged in a continuous program of research, development, production and marketing in connection with its business and that it is critical for the Company to preserve and protect its “Proprietary Information” (as defined in Section 7 below), its rights in “Inventions” (as defined in Section 2 below) and in all related intellectual property rights. Accordingly, I am entering into this Employee Invention Assignment and Confidentiality Agreement (this “Agreement”) as a condition of my employment with the Company, whether or not I am expected to create inventions of value for the Company.

2. Disclosure of Inventions. I will promptly disclose in confidence to the Company all inventions, improvements, designs, original works of authorship, formulas, processes, compositions of matter, computer software programs, databases, mask works, chemical formulations, nucleic acid sequences, assay methods and protocols, manufacturing methods and protocols, and trade secrets that I make or conceive or first reduce to practice or create, either alone or jointly with others, during the period of my employment, whether or not in the course of my employment, and whether or not patentable, copyrightable or protectable as trade secrets (the “Inventions”).

3. Work for Hire; Assignment of Inventions. I acknowledge and agree that any copyrightable works prepared by me within the scope of my employment are “works for hire” under the Copyright Act and that the Company will be considered the author and owner of such copyrightable works. I agree that all Inventions that (i) are developed using equipment, supplies, facilities or trade secrets of the Company, (ii) result from work performed by me for the Company, or (iii) relate to the Company’s business or current or anticipated research and development (the “Assigned Inventions”), will be the sole and exclusive property of the Company and are hereby irrevocably assigned by me to the Company. Attached hereto as Exhibit A is a list describing all inventions, original works of authorship, developments and trade secrets which were made by me prior to the date of this Agreement, which belong to me and which are not assigned to the Company (“Prior Inventions”). I acknowledge and agree that if I use any of my Prior Inventions in the scope of my employment, or include them in any product or service of the Company, I hereby grant to the Company a perpetual, irrevocable, nonexclusive, world-wide, royalty-free license to use, disclose, make, sell, copy, distribute, modify and create works based on, perform or display such Prior Inventions and to sublicense third parties with the same rights.]

Revised 5/1/08

CEPHEID Employee Invention Assignment

and Confidentiality Agreement

Page 2 of 6

4. Employee’s Rights to Inventions.

(a) California Employees: I have been notified and understand that the provisions of Sections 3 and 5 of this Agreement do not apply to any Assigned Invention that qualifies fully under the provisions of Section 2870 of the California Labor Code, which states as follows:

ANY PROVISION IN AN EMPLOYMENT AGREEMENT WHICH PROVIDES THAT AN EMPLOYEE SHALL ASSIGN, OR OFFER TO ASSIGN, ANY OF HIS OR HER RIGHTS IN AN INVENTION TO HIS OR HER EMPLOYER SHALL NOT APPLY TO AN INVENTION THAT THE EMPLOYEE DEVELOPED ENTIRELY ON HIS OR HER OWN TIME WITHOUT USING THE EMPLOYER’S EQUIPMENT, SUPPLIES, FACILITIES, OR TRADE SECRET INFORMATION EXCEPT FOR THOSE INVENTIONS THAT EITHER: (1) RELATE AT THE TIME OF CONCEPTION OR REDUCTION TO PRACTICE OF THE INVENTION TO THE EMPLOYER’S BUSINESS, OR ACTUAL OR DEMONSTRABLY ANTICIPATED RESEARCH OR DEVELOPMENT OF THE EMPLOYER; OR (2) RESULT FROM ANY WORK PERFORMED BY THE EMPLOYEE FOR THE EMPLOYER. TO THE EXTENT A PROVISION IN AN EMPLOYMENT AGREEMENT PURPORTS TO REQUIRE AN EMPLOYEE TO ASSIGN AN INVENTION OTHERWISE EXCLUDED FROM BEING REQUIRED TO BE ASSIGNED UNDER CALIFORNIA LABOR CODE SECTION 2870(a), THE PROVISION IS AGAINST THE PUBLIC POLICY OF THIS STATE AND IS UNENFORCEABLE.

(b) Certain Employees Outside California:¹ I have been notified and understand that the provisions of Sections 3 and 5 of this Agreement do not apply to any Assigned Invention that qualifies fully under the provisions of the following: 19 Delaware Code §8; Kansas Statute Annotated §44-130; §765 of the Illinois Compiled Statute 1060/2; Minnesota Statute §181.78; North Carolina General Statute §66-57.1; Revised Code of Washington §49.44.140; and Utah Code Annotated §34-39-3; which provide that any provision in an employment agreement requiring the employee to assign any of the employee’s rights in any invention to the employer does not apply to an invention for which no equipment, supplies, facility, or trade secret information of the employer was used and which was developed entirely on the employee’s own time, unless the invention relates to the business of the employer or actual or demonstrably anticipated research or development, or the invention results from any work performed by the employee for the employer.

¹  This section is applicable to employees in Delaware, Kansas, Illinois, Minnesota, North Carolina, Washington, and Utah.

Revised 5/1/08

CEPHEID Employee Invention Assignment

and Confidentiality Agreement

Page 3 of 6

5. Assignment of Other Rights. In addition to the foregoing assignment of Assigned Inventions to the Company, I hereby irrevocably transfer and assign to the Company: (i) all worldwide patents, patent applications, copyrights, mask works, trade secrets and other intellectual property rights, including but not limited to rights in databases, in any Assigned Inventions, along with any registrations of or applications to register such rights; and (ii) any and all “Moral Rights” (as defined below) that I may have in or with respect to any Assigned Inventions. I also hereby forever waive and agree never to assert any and all Moral Rights I may have in or with respect to any Assigned Inventions, even after termination of my work on behalf of the Company. “Moral Rights” mean any rights to claim authorship of or credit on an Assigned Inventions, to object to or prevent the modification or destruction of any Assigned Inventions [or Prior Inventions licensed to Company under Section 3], or to withdraw from circulation or control the publication or distribution of any Assigned Inventions [or Prior Inventions licensed to Company under Section 3], and any similar right, existing under judicial or statutory law of any country or subdivision thereof in the world, or under any treaty, regardless of whether or not such right is denominated or generally referred to as a “moral right.” Notwithstanding the foregoing, I will have the right to claim participation in the development, creation, or modification of the Assigned Inventions on my resume or in my curriculum vita; provided that I obtain Company’s approval for such disclosures before providing the disclosure to any third-party.

6. Assistance. I agree to assist the Company in every proper way to obtain for the Company and enforce patents, copyrights, mask work rights, trade secret rights and other legal protections for the Company’s Assigned Inventions in any and all countries. I will execute any documents that the Company may reasonably request for use in obtaining or enforcing such patents, copyrights, mask work rights, trade secrets and other legal protections. My obligations under this paragraph will continue beyond the termination of my employment with the Company, provided that the Company will compensate me at a reasonable rate after such termination for time or expenses actually spent by me at the Company’s request on such assistance. I appoint the Secretary of the Company as my attorney-in-fact to execute documents on my behalf for this purpose.

7. Proprietary Information. I understand that my employment by the Company creates a relationship of confidence and trust with respect to any information of a confidential or secret nature that may be disclosed to me by the Company or a third party that relates to the business of the Company or to the business of any parent, subsidiary, affiliate, customer or supplier of the Company or any other party with whom the Company agrees to hold information of such party in confidence (the “Proprietary Information”). Such Proprietary Information includes, but is not limited to, Assigned Inventions, marketing plans, product plans, business strategies, financial information, forecasts, personnel information, customer lists and data, and domain names.

Revised 5/1/08

CEPHEID Employee Invention Assignment

and Confidentiality Agreement

Page 4 of 6

8. Confidentiality. At all times, both during my employment and after its termination, I will keep and hold all such Proprietary Information in strict confidence and trust. I will not use or disclose any Proprietary Information without the prior written consent of the Company, except as may be necessary to perform my duties as an employee of the Company for the benefit of the Company. Upon termination of my employment with the Company, I will promptly deliver to the Company all documents and materials of any nature pertaining to my work with the Company and, upon Company request, will execute a document confirming my agreement to honor my responsibilities contained in this Agreement. I will not take with me or retain any documents or materials or copies thereof containing any Proprietary Information.

9. No Breach of Prior Agreement. I represent that my performance of all the terms of this Agreement and my duties as an employee of the Company will not breach any invention assignment, proprietary information, confidentiality or similar agreement with any former employer or other party. I represent that I will not bring with me to the Company or use in the performance of my duties for the Company any documents or materials or intangibles of a former employer or third party that are not generally available to the public or have not been legally transferred to the Company.

10. Efforts; Duty Not to Compete. I understand that my employment with the Company requires my undivided attention and effort during normal business hours. While I am employed by the Company, I will not, without the Company’s express prior written consent, provide services to, or assist in any manner, any business or third party if such services or assistance would be in direct conflict with the Company’s business interests.

11. Notification. I hereby authorize the Company to notify third parties, including, without limitation, customers and actual or potential employers, of the terms of this Agreement and my responsibilities hereunder.

12. Non-Solicitation of Employees/Consultants. During my employment with the Company and for a period of one (1) year thereafter, I will not directly or indirectly solicit away employees or consultants of the Company for my own benefit or for the benefit of any other person or entity.

13. Non-Solicitation of Suppliers/Customers. During my employment with the Company and after termination of my employment, I will not directly or indirectly solicit or take away suppliers or customers of the Company if, in so doing, I use or disclose any trade secrets or proprietary or confidential information of the Company. I agree that the non-public names and addresses of the Company’s customers, and all other confidential information related to them, including their buying and selling habits, special needs and satisfaction, created or obtained by me during my employment, constitute trade secrets or proprietary or confidential information of the Company.

Revised 5/1/08

CEPHEID Employee Invention Assignment

and Confidentiality Agreement

Page 5 of 6

14. Injunctive Relief. I understand that in the event of a breach or threatened breach of this Agreement by me the Company may suffer irreparable harm and will therefore be entitled to injunctive relief to enforce this Agreement.

15. Severability. Except as specifically provided herein, this Agreement will be governed by and construed in accordance with the laws of the State of California, without giving effect to its laws pertaining to conflict of laws. If any provision of this Agreement is determined by any court or arbitrator of competent jurisdiction to be invalid, illegal or unenforceable in any respect, such provision will be enforced to the maximum extent possible given the intent of the parties hereto. If such clause or provision cannot be so enforced, such provision shall be stricken from this Agreement and the remainder of this Agreement shall be enforced as if such invalid, illegal or unenforceable clause or provision had (to the extent not enforceable) never been contained in this Agreement.

16. Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered will be deemed an original, and all of which together shall constitute one and the same agreement.

17. Entire Agreement. This Agreement and the documents referred to herein constitute the entire agreement and understanding of the parties with respect to the subject matter of this Agreement, and supersede all prior understandings and agreements, whether oral or written, between or among the parties hereto with respect to the specific subject matter hereof.

18. Amendment and Waivers. This Agreement may be amended only by a written agreement executed by each of the parties hereto. No amendment of or waiver of, or modification of any obligation under this Agreement will be enforceable unless set forth in a writing signed by the party against which enforcement is sought. Any amendment effected in accordance with this section will be binding upon all parties hereto and each of their respective successors and assigns. No delay or failure to require performance of any provision of this Agreement shall constitute a waiver of that provision as to that or any other instance. No waiver granted under this Agreement as to any one provision herein shall constitute a subsequent waiver of such provision or of any other provision herein, nor shall it constitute the waiver of any performance other than the actual performance specifically waived.

19. Successors and Assigns; Assignment. Except as otherwise provided in this Agreement, this Agreement, and the rights and obligations of the parties hereunder, will be binding upon and inure to the benefit of their respective successors, assigns, heirs, executors, administrators and legal representatives. The Company may assign any of its rights and obligations under this Agreement. No other party to this Agreement may assign, whether voluntarily or by operation of law, any of its rights and obligations under this Agreement, except with the prior written consent of the Company.

Revised 5/1/08

CEPHEID Employee Invention Assignment

and Confidentiality Agreement

Page 6 of 6

20. Further Assurances. The parties agree to execute such further documents and instruments and to take such further actions as may be reasonably necessary to carry out the purposes and intent of this Agreement.

21. “At Will” Employment. I understand that this Agreement does not constitute a contract of employment or obligate the Company to employ me for any stated period of time. I understand that I am an “at will” employee of the Company and that my employment can be terminated at any time, with or without notice and with or without cause, for any reason or for no reason, by either the Company or myself. I acknowledge that any statements or representations to the contrary are ineffective, unless put into a writing signed by the Company. I further acknowledge that my participation in any stock option or benefit program is not to be construed as any assurance of continuing employment for any particular period of time. This Agreement shall be effective as of the first day of my employment by the Company, which is November 30, 04.

CEPHEID:		Employee:
By:	/s/ Kari Vaatveit	/s/ Humberto V. Reyes
		Signature
Name:	Kari Vaatveit	Humberto V. Reyes
		Name (Please Print)
Title:	Dir, HR

Revised 5/1/08

EX-31.1

Exhibit 31.1

Certification of Chief Executive Officer

Pursuant to Section 302 of the

Sarbanes-Oxley Act of 2002

I, John L. Bishop, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Cepheid;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 7, 2013

/s/ John L. Bishop

John L. Bishop

Chairman, Chief Executive Officer and Director

(Principal Executive Officer)

EX-31.2

Exhibit 31.2

Certification of Chief Financial Officer

Pursuant to Section 302 of the

Sarbanes-Oxley Act of 2002

I, Andrew D. Miller, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Cepheid;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 7, 2013

/s/ Andrew D. Miller

Andrew D. Miller

Executive Vice President, Chief Financial Officer

(Principal Financial Officer)

EX-32.1

Exhibit 32.1

Certification of Chief Executive Officer Pursuant to

18 U.S.C. Section 1350,

As Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report of Cepheid (the Company) on Form 10-Q for the quarter ended June 30, 2013, as filed with the Securities and Exchange Commission on the date hereof (the Report), I, John L. Bishop, as Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 7, 2013

/s/ John L. Bishop

John L. Bishop

Chairman, Chief Executive Officer and Director

(Principal Executive Officer)

This certification accompanies this Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933 or the Securities Exchange Act of 1934 (whether made before or after the date of the Report), irrespective of any general incorporation language contained in such filing.

EX-32.2

Exhibit 32.2

Certification of Chief Financial Officer Pursuant to

18 U.S.C. Section 1350,

As Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report of Cepheid (the Company) on Form 10-Q for the quarter ended June 30, 2013, as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Andrew D. Miller, as Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 7, 2013

/s/ Andrew D. Miller

Andrew D. Miller

Executive Vice President, Chief Financial Officer

(Principal Financial Officer)

This certification accompanies this Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933 or the Securities Exchange Act of 1934 (whether made before or after the date of the Report), irrespective of any general incorporation language contained in such filing.

XML

Intangible Assets and Goodwill (Tables)

6 Months Ended

Jun. 30, 2013

Goodwill And Intangible Assets Disclosure [Abstract]

Net Carrying Value and Accumulated Amortization of Major Classes of Intangible Assets

The following table summarizes the recorded value and accumulated amortization of major classes of intangible assets (in thousands):

Balance, June 30, 2013:	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Licenses	$	28,577	$	(20,525	)	$	8,052
Technology acquired in acquisitions		8,613		(7,092	)		1,521
Customer relationships and other intangible assets acquired in acquisitions		15,470		(6,527	)		8,943
	$	52,660	$	(34,144	)	$	18,516

Balance, December 31, 2012	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Licenses	$	27,452	$	(19,464	)	$	7,988
Technology acquired in acquisitions		8,613		(6,843	)		1,770
Customer relationships and other intangible assets acquired in acquisitions		13,700		(4,691	)		9,009
	$	49,765	$	(30,998	)	$	18,767

Expected Future Annual Amortization Expense of Intangible Assets

The following table summarizes the expected future annual amortization expense of intangible assets recorded on the Company’s Condensed Consolidated Balance Sheet as of June 30, 2013, assuming no impairment charges (in thousands):

For the Years Ending December 31	Amortization Expense
2013 (remaining six months)	$	2,451
2014		4,335
2015		3,395
2016		2,437
2017		2,058
Thereafter		3,840
Total expected future amortization	$	18,516

XML

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Income Statement [Abstract]
Sales	$ 96,012	$ 81,015	$ 187,950	$ 158,307
Costs and operating expenses:
Cost of sales	52,889	35,072	95,781	70,680
Collaboration profit sharing	1,425	1,645	3,535	3,329
Research and development	18,572	16,118	36,299	38,220
Sales and marketing	19,105	15,108	38,231	29,620
General and administrative	9,612	11,011	19,375	22,062
Total costs and operating expenses	101,603	78,954	193,221	163,911
Income (loss) from operations	(5,591)	2,061	(5,271)	(5,604)
Other income (expense):
Interest expense, net	(35)		(70)	(11)
Foreign currency exchange loss and other	(682)	(572)	(273)	(323)
Other expense, net	(717)	(572)	(343)	(334)
Income (loss) before income taxes	(6,308)	1,489	(5,614)	(5,938)
Benefit from (provision for) income taxes	(272)	(354)	(653)	1,547
Net income (loss)	$ (6,580)	$ 1,135	$ (6,267)	$ (4,391)
Basic net income (loss) per share	$ (0.10)	$ 0.02	$ (0.09)	$ (0.07)
Diluted net income (loss) per share	$ (0.10)	$ 0.02	$ (0.09)	$ (0.07)
Shares used in computing basic net income (loss) per share	67,295	65,695	67,061	65,361
Shares used in computing diluted net income (loss) per share	67,295	68,869	67,061	65,361

XML

Employee Equity Incentive Plans and Stock-Based Compensation Expense

6 Months Ended

Jun. 30, 2013

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Employee Equity Incentive Plans and Stock-Based Compensation Expense

4. Employee Equity Incentive Plans and Stock-Based Compensation Expense

The following table summarizes stock-based compensation expense in the condensed consolidated statement of operations (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
Cost of product sales	$	841	$	679	$	1,381	$	1,364
Research and development		2,097		1,788		3,902		3,454
Sales and marketing		1,078		1,304		2,377		2,440
General and administrative		2,514		2,247		5,146		4,309
Total stock-based compensation expense	$	6,530	$	6,018	$	12,806	$	11,567

The following table summarizes option activity under all plans (in thousands, except weighted average exercise price and weighted average remaining contractual term):

	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Instrinic Value
Outstanding, December 31, 2012		6,810		$	21.81
Granted		1,203		$	38.22
Exercised		(612	)	$	13.85
Forfeited		(163	)	$	30.45
Outstanding, June 30, 2013		7,238		$	25.01		3.98	$	75,587
Exercisable, June 30, 2013		4,472		$	19.02		2.85	$	69,799
Vested and expected to vest, June 30, 2013		6,735		$	24.36		3.86	$	74,215

The following table summarizes restricted stock plan activity, which consists of restricted stock awards and restricted stock units (in thousands, except weighted average grant date fair value):

	Shares			Weighted Average Grant Date Fair Value
Outstanding, December 31, 2012		642		$	29.74
Granted		347			38.20
Vested/Released		(142	)		31.21
Cancelled		(23	)		33.35
Outstanding, June 30, 2013		824		$	32.95

The following table summarizes the assumptions used in determining the fair value of the Company’s stock options granted to employees and shares purchased by employees under the Employee Stock Purchase Plan (“ESPP”):

	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
OPTION SHARES:
Expected Term (in years)		4.42			4.37			4.41			4.38
Volatility		0.43			0.53			0.44			0.53
Expected Dividends		—	%		—	%		—	%		—	%
Risk Free Interest Rates		0.71	%		0.84	%		0.72	%		0.81	%
Estimated Forfeitures		7.61	%		7.63	%		7.63	%		7.63	%
Weighted Average Fair Value Per Share	$	13.77		$	15.79		$	14.02		$	15.70
ESPP SHARES:
Expected Term (in years)		1.25			1.25			1.25			1.25
Volatility		0.46			0.55			0.46			0.55
Expected Dividends		—	%		—	%		—	%		—	%
Risk Free Interest Rates		0.19	%		0.16	%		0.19	%		0.16	%
Weighted Average Fair Value Per Share	$	12.88		$	16.47		$	12.88		$	16.47

XML

Organization and Summary of Significant Accounting Policies - Components of Inventories (Detail) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Inventory Disclosure [Abstract]
Raw Materials	$ 30,574	$ 26,041
Work in Process	31,824	30,113
Finished Goods	22,612	13,960
Inventory	$ 85,010	$ 70,114

XML

Segment and Significant Concentrations (Tables)

6 Months Ended

Jun. 30, 2013

Segment Reporting [Abstract]

Total Sales by Type

The following table summarizes total sales by type (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
Sales:
Systems and other sales	$	18,796	$	17,100	$	34,806	$	32,330
Reagent and disposable sales		77,216		63,915		153,144		125,977
Total sales	$	96,012	$	81,015	$	187,950	$	158,307

Product Sales Information by Segments

The following table summarizes sales in the Clinical and Non-Clinical markets (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
Sales by market:
Clinical Systems	$	16,711	$	13,892	$	29,248	$	26,393
Clinical Reagents		70,772		55,794		137,821		110,198
Total Clinical		87,483		69,686		167,069		136,591
Non-Clinical		8,529		11,329		20,881		21,716
Total sales	$	96,012	$	81,015	$	187,950	$	158,307

Segment Product Sales by Geography Region

The following table summarizes sales by geographic region (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
Geographic sales information:
North America
Clinical	$	49,906	$	47,467	$	102,070	$	92,967
Non-Clinical		7,463		9,494		18,854		18,359
Total North America		57,369		56,961		120,924		111,326
International
Clinical	$	37,577	$	22,219	$	64,999	$	43,624
Non-Clinical		1,066		1,835		2,027		3,357
Total International		38,643		24,054		67,026		46,981
Total sales	$	96,012	$	81,015	$	187,950	$	158,307

XML

Commitments and contingencies - Summary of Purchase Commitments (Detail) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013
Commitments And Contingencies Disclosure [Abstract]
2013 (remaining six months)	$ 17,013
2014	4,465
2015	1,944
2016	1,716
2017	1,716
Thereafter
Total minimum payments	$ 26,854

XML

Intangible Assets and Goodwill - Net Carrying Value and Accumulated Amortization of Major Classes of Intangible Assets (Detail) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Acquired Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	$ 52,660	$ 49,765
Accumulated Amortization	(34,144)	(30,998)
Net Carrying Amount	18,516	18,767
Licenses [Member]
Acquired Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	28,577	27,452
Accumulated Amortization	(20,525)	(19,464)
Net Carrying Amount	8,052	7,988
Technology acquired in acquisitions [Member]
Acquired Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	8,613	8,613
Accumulated Amortization	(7,092)	(6,843)
Net Carrying Amount	1,521	1,770
Customer relationships and other intangible assets acquired in acquisitions [Member]
Acquired Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	15,470	13,700
Accumulated Amortization	(6,527)	(4,691)
Net Carrying Amount	$ 8,943	$ 9,009

XML

Intangible Assets and Goodwill - Additional Information (Detail) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012	Dec. 31, 2012
Goodwill And Intangible Assets Net [Line Items]
Amortization expense of intangible assets	$ 1,600,000	$ 1,200,000	$ 3,146,000	$ 2,633,000
Goodwill	39,681,000		39,681,000		37,694,000
Italian distributor [Member]
Goodwill And Intangible Assets Net [Line Items]
Total purchase price of transactions	3,600,000
Acquired intangible assets	1,800,000		1,800,000
Property and equipment, inventory and other assets, net of liabilities	300,000		300,000
Goodwill	$ 1,500,000		$ 1,500,000
Minimum [Member]
Goodwill And Intangible Assets Net [Line Items]
Estimated useful lives of intangible assets			3 years
Maximum [Member]
Goodwill And Intangible Assets Net [Line Items]
Estimated useful lives of intangible assets			20 years

XML

Employee Equity Incentive Plans and Stock-Based Compensation Expense - Summary of Option Activity (Detail) (USD $) In Thousands, except Per Share data, unless otherwise specified	6 Months Ended
	Jun. 30, 2013
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]
Shares, Outstanding, Beginning Balance	6,810
Shares, Granted	1,203
Shares, Exercised	(612)
Shares, Forfeited	(163)
Shares, Outstanding, Ending Balance	7,238
Shares, Exercisable, June 30, 2013	4,472
Shares, Vested and expected to vest, June 30, 2013	6,735
Weighted Average Exercise Price, Outstanding, Beginning Balance	$ 21.81
Weighted Average Exercise Price, Granted	$ 38.22
Weighted Average Exercise Price, Exercised	$ 13.85
Weighted Average Exercise Price, Forfeited	$ 30.45
Weighted Average Exercise Price, Outstanding, Ending Balance	$ 25.01
Weighted Average Exercise Price, Exercisable, June 30, 2013	$ 19.02
Weighted Average Exercise Price, Vested and expected to vest, June 30, 2013	$ 24.36
Weighted Average Remaining Contractual Term, Outstanding, June 30, 2013	3 years 11 months 23 days
Weighted Average Remaining Contractual Term, Exercisable, June 30, 2013	2 years 10 months 6 days
Weighted Average Remaining Contractual Term, Vested and expected to vest, June 30, 2013	3 years 10 months 10 days
Aggregate Intrinsic Value, Outstanding, June 30, 2013	$ 75,587
Aggregate Intrinsic Value, Exercisable, June 30, 2013	69,799
Aggregate Intrinsic Value, Vested and expected to vest, June 30, 2013	$ 74,215

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Derivative Financial Instruments - Additional Information (Detail) (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013 Cash flow hedges [Member] Fair Value of Derivates Designated as Hedge Instruments [Member]	Dec. 31, 2012 Cash flow hedges [Member] Fair Value of Derivates Designated as Hedge Instruments [Member]	Jun. 30, 2013 Cash flow hedges [Member] Fair Value of Derivates Not Designated as Hedge Instruments [Member]	Dec. 31, 2012 Cash flow hedges [Member] Fair Value of Derivates Not Designated as Hedge Instruments [Member]
Derivative Financial Instruments [Line Items]
Net deferred loss associated with cash flow hedges	$ 0.1		$ 0.1
(Loss) gain recognized for foreign currency forward contracts	(0.2)	0.9	0.7	0.6
Notional principle amounts of Company's derivative instruments					$ 85.5	$ 79.3	$ 20.0	$ 9.2

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Segment and Significant Concentrations - Product Sales Information by Segments (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Revenue from External Customer [Line Items]
Total sales	$ 96,012	$ 81,015	$ 187,950	$ 158,307
Operating Segments [Member] | Clinical Systems [Member]
Revenue from External Customer [Line Items]
Total sales	16,711	13,892	29,248	26,393
Operating Segments [Member] | Clinical Reagents [Member]
Revenue from External Customer [Line Items]
Total sales	70,772	55,794	137,821	110,198
Operating Segments [Member] | Clinical [Member]
Revenue from External Customer [Line Items]
Total sales	87,483	69,686	167,069	136,591
Operating Segments [Member] | Non-Clinical [Member]
Revenue from External Customer [Line Items]
Total sales	$ 8,529	$ 11,329	$ 20,881	$ 21,716

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Derivative Financial Instruments - Pre-tax Effect of Derivative Instruments Designated as Cash Flow Hedges in Condensed Consolidated Statements of Operations (Parenthetical) (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Derivative Instruments, Gain (Loss) [Line Items]
Net sales	$ 96,012	$ 81,015	$ 187,950	$ 158,307
Costs and operating expenses	101,603	78,954	193,221	163,911
Reclassified from AOCI [Member] | Foreign exchange contracts, net [Member] | Cash flow hedges [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Net sales	(300)		(1,000)
Costs and operating expenses	$ 400		$ 1,100

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Organization and Summary of Significant Accounting Policies - Computation of Basic and Diluted Income (Loss) Per Share (Detail) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Organization And Summary Of Significant Accounting Policies [Line Items]
Net income (loss)	$ (6,580)	$ 1,135	$ (6,267)	$ (4,391)
Basic weighted shares outstanding	67,295	65,695	67,061	65,361
Effect of dilutive securities:
Diluted weighted shares outstanding	67,295	68,869	67,061	65,361
Net income (loss) per share	$ (0.10)	$ 0.02	$ (0.09)	$ (0.07)
Basic [Member]
Organization And Summary Of Significant Accounting Policies [Line Items]
Net income (loss)	(6,580)	1,135	(6,267)	(4,391)
Basic weighted shares outstanding	67,295	65,695	67,061	65,361
Effect of dilutive securities:
Net income (loss) per share	$ (0.10)	$ 0.02	$ (0.09)	$ (0.07)
Diluted [Member]
Organization And Summary Of Significant Accounting Policies [Line Items]
Net income (loss)	$ (6,580)	$ 1,135	$ (6,267)	$ (4,391)
Basic weighted shares outstanding	67,295	65,695	67,061	65,361
Effect of dilutive securities:
Stock options, ESPP, restricted stock units and restricted stock awards		3,174
Diluted weighted shares outstanding	67,295	68,869	67,061	65,361
Net income (loss) per share	$ (0.10)	$ 0.02	$ (0.09)	$ (0.07)

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012
Cash flows from operating activities:
Net loss	$ (6,267)	$ (4,391)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization of property and equipment	8,361	6,308
Amortization of intangible assets	3,146	2,633
Unrealized exchange differences	575
Stock-based compensation related to employees and consulting services rendered	12,806	11,567
Changes in operating assets and liabilities:
Accounts receivable	(2,586)	761
Inventory	(14,491)	(5,950)
Prepaid expenses and other current assets	(6,454)	(7,475)
Other non-current assets	30	(105)
Accounts payable and other current liabilities	5,669	(12,233)
Accrued compensation	2,616	(1,312)
Deferred revenue	1,422	438
Net cash provided by (used in) operating activities	4,827	(9,759)
Cash flows from investing activities:
Capital expenditures	(18,974)	(11,168)
Payments for technology licenses	(1,125)
Cost of acquisitions, net	(3,571)	(17,462)
Net cash used in investing activities	(23,670)	(28,630)
Cash flows from financing activities:
Net proceeds from the issuance of common shares and exercise of stock options	9,450	21,091
Principal payment of notes payable	(781)
Net cash provided by financing activities	8,669	21,091
Effect of exchange rate change on cash	(575)	(443)
Net decrease in cash and cash equivalents	(10,749)	(17,741)
Cash and cash equivalents at beginning of period	95,779	115,008
Cash and cash equivalents at end of period	$ 85,030	$ 97,267

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Intangible Assets and Goodwill

6 Months Ended

Jun. 30, 2013

Goodwill And Intangible Assets Disclosure [Abstract]

Intangible Assets and Goodwill

2. Intangible Assets and Goodwill

Intangible assets related to licenses are recorded at cost, less accumulated amortization. Intangible assets related to technology and other intangible assets acquired in acquisitions are recorded at fair value at the date of acquisition, less accumulated amortization. Intangible assets are amortized over their estimated useful lives, ranging from 3 to 20 years, on a straight-line basis. Amortization of intangible assets is primarily included in cost of product sales in the accompanying condensed consolidated statements of operations.

The following table summarizes the recorded value and accumulated amortization of major classes of intangible assets (in thousands):

Balance, June 30, 2013:	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Licenses	$	28,577	$	(20,525	)	$	8,052
Technology acquired in acquisitions		8,613		(7,092	)		1,521
Customer relationships and other intangible assets acquired in acquisitions		15,470		(6,527	)		8,943
	$	52,660	$	(34,144	)	$	18,516

Balance, December 31, 2012	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Licenses	$	27,452	$	(19,464	)	$	7,988
Technology acquired in acquisitions		8,613		(6,843	)		1,770
Customer relationships and other intangible assets acquired in acquisitions		13,700		(4,691	)		9,009
	$	49,765	$	(30,998	)	$	18,767

During the three months ended June 30, 2013, the Company purchased its Italian distributor, which was accounted for as business combination. This transaction had a total purchase price of $3.6 million, which was paid in cash. This transaction was part of the ongoing expansion of the Company’s distribution network for its equipment and reagents. A summary of the fair value of the assets acquired and the liabilities assumed is as follows: acquired intangible assets of $1.8 million, property and equipment, inventory and other assets, net of liabilities, of $0.3 million and goodwill of $1.5 million.

Amortization expense of intangible assets was $1.6 million and $1.2 million for the three months ended June 30, 2013 and 2012, respectively, and $3.2 million and $2.6 million for the six months ended June 30, 2013 and 2012, respectively. The following table summarizes the expected future annual amortization expense of intangible assets recorded on the Company’s Condensed Consolidated Balance Sheet as of June 30, 2013, assuming no impairment charges (in thousands):

For the Years Ending December 31	Amortization Expense
2013 (remaining six months)	$	2,451
2014		4,335
2015		3,395
2016		2,437
2017		2,058
Thereafter		3,840
Total expected future amortization	$	18,516

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Income Taxes

6 Months Ended

Jun. 30, 2013

Income Tax Disclosure [Abstract]

Income Taxes

5. Income Taxes

The income tax provision of $0.3 million and $0.7 million for the three and six months ended June 30, 2013, respectively, relates primarily to ordinary tax expense of the Company’s foreign subsidiaries, partially offset by a tax benefit for research and development tax credits associated with the Company’s French subsidiary and the amortization of acquired intangibles in Sweden and South Africa.

The income tax provision of $0.4 million for the three months ended June 30, 2012 related primarily to tax expense of the Company’s foreign subsidiaries, offset by research and development tax credits and net operating losses associated with the Company’s French subsidiary and the amortization of acquired intangibles in various foreign subsidiaries. The income tax benefit of $1.5 million for the six months ended June 30, 2012 related primarily to the release of a valuation allowance in the Company’s Swedish subsidiary, research and development tax credits and net operating losses associated with the Company’s French subsidiary, and the amortization of acquired intangibles in various foreign subsidiaries, offset by the ordinary tax expense of the Company’s various foreign subsidiaries.

The Company utilizes the liability method of accounting for income taxes. Under the liability method, deferred taxes are determined based on the temporary differences between the financial statement and tax bases of assets and liabilities using enacted tax rates. The Company’s position is to record a valuation allowance when it is more likely than not that some of the deferred tax assets will not be realized. Based on all available objective evidence, the Company believes that it is more likely than not that the net U.S. deferred tax assets will not be fully realized. Accordingly, the Company continues to maintain a full valuation allowance on its U.S. deferred tax assets and will do so until there is sufficient evidence to support the reversal of all or some portion of this valuation allowance.

For federal income tax purposes, the Company has open tax years extending from 1996 through 2012 due to net operating loss carryforwards relating to these years. Substantially all material state, local and foreign income tax matters have been concluded for years through December 31, 2002. For California state income tax purposes, the Company has open years from 2000 through 2012 due to either research credit carryovers or net operating loss carryforwards.

The Company anticipates that the total unrecognized tax benefits will not significantly change within the next 12 months due to the settlement of audits and the expiration of statutes of limitations.

The Company recognizes interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. For the periods presented, the amount of any interest or penalties related to uncertain tax positions was not material.

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Segment and Significant Concentrations

6 Months Ended

Jun. 30, 2013

Segment Reporting [Abstract]

Segment and Significant Concentrations

3. Segment and Significant Concentrations

The Company and its wholly owned subsidiaries operate in one business segment.

The following table summarizes total sales by type (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
Sales:
Systems and other sales	$	18,796	$	17,100	$	34,806	$	32,330
Reagent and disposable sales		77,216		63,915		153,144		125,977
Total sales	$	96,012	$	81,015	$	187,950	$	158,307

The following table summarizes sales in the Clinical and Non-Clinical markets (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
Sales by market:
Clinical Systems	$	16,711	$	13,892	$	29,248	$	26,393
Clinical Reagents		70,772		55,794		137,821		110,198
Total Clinical		87,483		69,686		167,069		136,591
Non-Clinical		8,529		11,329		20,881		21,716
Total sales	$	96,012	$	81,015	$	187,950	$	158,307

The Company currently sells products through its direct sales force and through third-party distributors. There were no customers that accounted for 10% or more of total sales for the three or six months ended June 30, 2013 and 2012. There was one direct customer whose accounts receivable balance represented 17% and 7% of total accounts receivable as of June 30, 2013 and December 31, 2012, respectively. The Company has distribution agreements with companies to distribute products in the U.S. and has several regional distribution arrangements throughout Europe, Japan, China, South America and other parts of the world.

The following table summarizes sales by geographic region (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
Geographic sales information:
North America
Clinical	$	49,906	$	47,467	$	102,070	$	92,967
Non-Clinical		7,463		9,494		18,854		18,359
Total North America		57,369		56,961		120,924		111,326
International
Clinical	$	37,577	$	22,219	$	64,999	$	43,624
Non-Clinical		1,066		1,835		2,027		3,357
Total International		38,643		24,054		67,026		46,981
Total sales	$	96,012	$	81,015	$	187,950	$	158,307

The Company recognized sales of $55.0 million and $53.4 million to U.S. customers for the three months ended June 30, 2013 and 2012, respectively, and $114.6 million and $105.4 million for the six months ended June 30, 2013 and 2012, respectively. The Company recognized sales of $10.8 million and $3.5 million in South Africa for the three months ended June 30, 2013 and 2012, respectively, and $19.3 million and $7.1 million for the six months ended June 30, 2013 and 2012, respectively. Other than South Africa, no other single country outside the United States represented more than 10% of the Company’s total sales or total assets in any period presented. As of June 30, 2013 and December 31, 2012, the Company has long lived-assets of $46.0 million and $36.6 million, respectively, which reside in the U.S. As of June 30, 2013 and December 31, 2012, the Company has long-lived assets of $20.2 million and $18.2 million, respectively, located outside of the U.S., which reside primarily in Sweden and countries in the European Union.

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Derivative Financial Instruments - Derivative Instruments at Gross Fair Value Reflected in Condensed Consolidated Balance Sheets (Detail) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Derivatives, Fair Value [Line Items]
Foreign exchange contracts, Assets	$ 776	$ 1,458
Foreign exchange contracts, Liabilities	(891)	(1,572)
Fair Value of Derivates Designated as Hedge Instruments [Member]
Derivatives, Fair Value [Line Items]
Foreign exchange contracts, Assets	729	1,457
Foreign exchange contracts, Liabilities	(822)	(1,561)
Fair Value of Derivates Not Designated as Hedge Instruments [Member]
Derivatives, Fair Value [Line Items]
Foreign exchange contracts, Assets	47	1
Foreign exchange contracts, Liabilities	$ (69)	$ (11)

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Intangible Assets and Goodwill - Expected Future Annual Amortization Expense of Intangible Assets (Detail) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013
Goodwill And Intangible Assets Disclosure [Abstract]
2013 (remaining six months)	$ 2,451
2014	4,335
2015	3,395
2016	2,437
2017	2,058
Thereafter	3,840
Total expected future amortization	$ 18,516

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Segment and Significant Concentrations - Segment Product Sales by Geography Region (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Revenues from External Customers and Long-Lived Assets [Line Items]
Total sales	$ 96,012	$ 81,015	$ 187,950	$ 158,307
Reportable Geographical Components [Member] | North America [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Total sales	57,369	56,961	120,924	111,326
Reportable Geographical Components [Member] | North America [Member] | Clinical [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Total sales	49,906	47,467	102,070	92,967
Reportable Geographical Components [Member] | North America [Member] | Non-Clinical [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Total sales	7,463	9,494	18,854	18,359
Reportable Geographical Components [Member] | International [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Total sales	38,643	24,054	67,026	46,981
Reportable Geographical Components [Member] | International [Member] | Clinical [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Total sales	37,577	22,219	64,999	43,624
Reportable Geographical Components [Member] | International [Member] | Non-Clinical [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Total sales	$ 1,066	$ 1,835	$ 2,027	$ 3,357

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Income Taxes - Additional Information (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Income Tax Disclosure [Abstract]
Benefit from (provision for) income taxes	$ (272)	$ (354)	$ (653)	$ 1,547

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CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)	Jun. 30, 2013	Dec. 31, 2012
Statement Of Financial Position [Abstract]
Preferred stock, par value
Preferred stock, shares authorized	5,000,000	5,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value
Common stock, shares authorized	100,000,000	100,000,000
Common stock, shares issued	67,430,536	66,603,884
Common stock, shares outstanding	67,430,536	66,603,884

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Derivative Financial Instruments

6 Months Ended

Jun. 30, 2013

Derivative Instruments And Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments

8. Derivative Financial Instruments

The Company uses derivatives to partially offset its business exposure to foreign currency exchange risk. The Company may enter into foreign currency forward contracts to offset some of the foreign exchange risk on expected future cash flows on certain forecasted revenue and cost of sales and on certain existing assets and liabilities.

To help protect gross margins from fluctuations in foreign currency exchange rates, a portion of forecasted foreign currency revenue and expenses of certain of the Company’s subsidiaries are hedged. The Company typically hedges portions of its forecasted foreign currency exposure associated with revenue, cost of sales and operating expenses generally up to twelve months.

The Company may also enter into foreign currency forward contracts to partially offset the foreign currency exchange gains and losses generated by the re-measurement of certain assets and liabilities. However, the Company may choose not to hedge certain foreign currency exchange exposures for a variety of reasons including, but not limited to, accounting considerations and the prohibitive economic cost of hedging particular exposures.

The Company records all derivatives in the Condensed Consolidated Balance Sheet at fair value. The Company’s accounting treatment of these instruments is based on whether the instruments are designated as hedge or non-hedge instruments. The effective portions of cash flow hedges are recorded in accumulated other comprehensive income (“AOCI”) until the hedged item is recognized in earnings. The ineffective portions of cash flow hedges are recorded in other income and expense. Gains and losses related to derivatives that are designated as hedging instruments are recorded in the financial statement line item to which the derivative relates.

The Company had a net deferred loss associated with cash flow hedges of $0.1 million recorded in AOCI as of June 30, 2013. Deferred gains and losses associated with cash flow hedges of forecasted foreign currency revenue are recognized as a component of revenues in the same period as the related revenue is recognized, and deferred gains and losses related to cash flow hedges of forecasted expenses are recognized as a component of cost of sales, research and development expense, sales and marketing expense and general and administrative expense in the same period as the related expenses are recognized. The Company’s hedged transactions as of June 30, 2013 are expected to occur within twelve months.

Derivative instruments designated as cash flow hedges must be de-designated as hedges when it is probable the forecasted hedged transaction will not occur in the initially identified time period or within a subsequent two-month time period. Deferred gains and losses in AOCI associated with such derivative instruments are reclassified immediately into other income and expense. Any subsequent changes in fair value of such derivative instruments are reflected in other income and expense unless they are re-designated as hedges of other transactions. The Company did not recognize any significant net gains or losses related to the loss of hedge designation on discontinued cash flow hedges during the three or six months ended June 30, 2013 and 2012.

During the three months ended June 30, 2013 and 2012, the Company recognized a (loss) gain of $(0.2) million and $0.9 million, respectively, and $0.7 million and $0.6 million in the six months ended June 30, 2013 and 2012, respectively, as a component of foreign currency exchange gain (loss) and other. Gains or losses on derivatives not designated as hedging instruments are recorded in other income (expense). These amounts represent the net gain or loss on the derivative contracts and do not include changes in the related exposures or ineffective portion or amounts excluded from the effectiveness testing of cash flow hedges, which generally offset a portion of the gain or loss on the derivative contracts.

The notional principle amounts of the Company’s outstanding derivative instruments designated as cash flow hedges are $85.5 million and $79.3 million as of June 30, 2013 and December 31, 2012, respectively. The notional principle amounts of the Company’s outstanding derivative instruments not designated as cash flow hedges is $20.0 million and $9.2 million as of June 30, 2013 and December 31, 2012, respectively.

The following tables show the Company’s derivative instruments at gross fair value as reflected in the Condensed Consolidated Balance Sheets as of June 30, 2013 and December 31, 2012, respectively (in thousands):

	June 30, 2013
	Fair Value of Derivates Designated as Hedge Instruments			Fair Value of Derivates Not Designated as Hedge Instruments			Total Fair Value
Derivative Assets (a):
Foreign exchange contracts	$	729		$	47		$	776
Derivative Liabilities (b):
Foreign exchange contracts		(822	)		(69	)	$	(891	)
	December 31, 2012
	Fair Value of Derivates Designated as Hedge Instruments			Fair Value of Derivates Not Designated as Hedge Instruments			Total Fair Value
Derivative Assets (a):
Foreign exchange contracts	$	1,457		$	1		$	1,458
Derivative Liabilities (b):
Foreign exchange contracts		(1,561	)		(11	)		(1,572	)

(a) The fair value of derivative assets is measured using Level 2 fair value inputs and is recorded as other current assets in the Condensed Consolidated Balance Sheets.

(b) The fair value of derivative liabilities is measured using Level 2 fair value inputs and is recorded as accrued expenses in the Condensed Consolidated Balance Sheets.

The following tables show the pre-tax effect of the Company’s derivative instruments designated as cash flow hedges in the Condensed Consolidated Statements of Operations for the three and six month periods ended June 30, 2013 and 2012 (in thousands):

	Three Months Ended
	Loss Recognized in OCI - Effective Portion					Gain Reclassified from AOCI into Income  - Effective Portion				Loss Recognized - Ineffective Portion and Amount Excluded from Effectiveness Testing
	June 30, 2013			June 30, 2012		June 30, 2013 (a)		June 30, 2012		Location	June 30, 2013		June 30, 2012
Cash flow hedges:
Foreign exchange contracts, net	$	(598	)	$	—	$	63	$	—	Other expense, net	$	8	$	—
Total	$	(598	)	$	—	$	63	$	—		$	8	$	—

(a) Includes gains (losses) reclassified from AOCI into net income for the effective portion of cash flow hedges, of which $(0.3) million and $0.4 million were recognized within net sales and costs and operating expenses, respectively, within the Condensed Consolidated Statement of Operations for the three months ended June 30, 2013.

	Six Months Ended
	Gain Recognized in OCI  - Effective Portion				Gain Reclassified from AOCI into Income -  Effective Portion				Loss Recognized - Ineffective Portion and Amount Excluded from Effectiveness Testing
	June 30, 2013		June 30, 2012		June 30, 2013 (a)		June 30, 2012		Location	June 30, 2013		June 30, 2012
Cash flow hedges:
Foreign exchange contracts, net	$	137	$	—	$	97	$	—	Other expense, net	$	2	$	—
Total	$	137	$	—	$	97	$	—		$	2	$	—

(a) Includes gains (losses) reclassified from AOCI into net income for the effective portion of cash flow hedges, of which ($1.0) million and $1.1 million were recognized within net sales and costs and operating expenses, respectively, within the Condensed Consolidated Statement of Operations for the six months ended June 30, 2013.

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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Statement Of Income And Comprehensive Income [Abstract]
Net income (loss)	$ (6,580)	$ 1,135	$ (6,267)	$ (4,391)
Other comprehensive income (loss):
Foreign currency translation adjustments		(85)		140
Unrealized gains and losses related to cash flow hedges:
Gain/(Loss) recognized in other comprehensive income	(598)		137
Gain reclassified from accumulated comprehensive income to the statement of operations	(63)		(97)
Comprehensive income (loss)	$ (7,241)	$ 1,050	$ (6,227)	$ (4,251)

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CONDENSED CONSOLIDATED BALANCE SHEETS (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Current assets:
Cash and cash equivalents	$ 85,030	$ 95,779
Accounts receivable, net	47,828	43,999
Inventory	85,010	70,114
Prepaid expenses and other current assets	15,263	9,448
Total current assets	233,131	219,340
Property and equipment, net	66,232	54,830
Other non-current assets	1,078	913
Intangible assets, net	18,516	18,767
Goodwill	39,681	37,694
Total assets	358,638	331,544
Current liabilities:
Accounts payable	40,436	33,701
Accrued compensation	19,204	16,540
Accrued royalties	7,330	7,992
Accrued and other liabilities	4,040	4,235
Current portion of deferred revenue	11,300	9,599
Current portion of notes payable	183	183
Total current liabilities	82,493	72,250
Long-term portion of deferred revenue	877	1,156
Long-term portion of notes payable	1,541	1,685
Other liabilities	9,750	8,911
Total liabilities	94,661	84,002
Commitments and contingencies (Note 6)
Shareholders' equity:
Preferred stock, no par value; 5,000,000 shares authorized, none issued or outstanding
Common stock, no par value; 100,000,000 shares authorized, 67,430,536 and 66,603,884 shares issued and outstanding at June 30, 2013 and December 31, 2012, respectively	365,317	355,867
Additional paid-in capital	130,429	117,217
Accumulated other comprehensive income	96	56
Accumulated deficit	(231,865)	(225,598)
Total shareholders' equity	263,977	247,542
Total liabilities and shareholders' equity	$ 358,638	$ 331,544

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Segment and Significant Concentrations - Additional Information (Detail) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013 Segment	Jun. 30, 2012	Dec. 31, 2012
Segment Reporting Information [Line Items]
Number of operating business segments			1
Percentage of one direct customer to total product sales	10.00%	10.00%	10.00%	10.00%
Maximum percentage of accounts receivable by any one customer	17.00%		17.00%		7.00%
Product sales to customers	$ 96,012,000	$ 81,015,000	$ 187,950,000	$ 158,307,000
Maximum sales contribution by any other country, percentage			10.00%
Maximum assets contribution by any other country, percentage	10.00%		10.00%
U.S. [Member]
Segment Reporting Information [Line Items]
Product sales to customers	55,000,000	53,400,000	114,600,000	105,400,000
Long lived-assets	46,000,000		46,000,000		36,600,000
South Africa [Member]
Segment Reporting Information [Line Items]
Product sales to customers	10,800,000	3,500,000	19,300,000	7,100,000
Sweden and Countries in the European Union [Member]
Segment Reporting Information [Line Items]
Long lived-assets	$ 20,200,000		$ 20,200,000		$ 18,200,000

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Organization and Summary of Significant Accounting Policies - Additional Information (Detail) (USD $) In Millions, except Share data, unless otherwise specified	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012	Dec. 31, 2012
Organization Consolidation And Presentation Of Financial Statements [Abstract]
Unrecognized stock-based compensation cost			$ 1.5		$ 1.1
Total anti-dilutive common stock equivalent shares	5,542,000	2,100,000	5,285,000	4,885,000

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Fair Value - Assets and Liabilities Measured at Fair Value on Recurring Basis (Detail) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash	$ 85,030	$ 84,906
Cash equivalent - money market funds		10,873
Foreign currency derivatives	776	1,458
Assets Total	85,806	97,237
Foreign currency derivatives	891	1,572
Contingent consideration	200	550
Liabilities Total	1,091	2,122
Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash	85,030	84,906
Cash equivalent - money market funds		10,873
Foreign currency derivatives
Assets Total	85,030	95,779
Foreign currency derivatives
Contingent consideration
Liabilities Total
Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash
Cash equivalent - money market funds
Foreign currency derivatives	776	1,458
Assets Total	776	1,458
Foreign currency derivatives	891	1,572
Contingent consideration
Liabilities Total	891	1,572
Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash
Cash equivalent - money market funds
Foreign currency derivatives
Assets Total
Foreign currency derivatives
Contingent consideration	200	550
Liabilities Total	$ 200	$ 550

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Employee Equity Incentive Plans and Stock-Based Compensation Expense - Summary of Restricted Stock Plan Activity (Detail) (Restricted Stock Awards and Restricted Stock Units [Member], USD $) In Thousands, except Per Share data, unless otherwise specified	6 Months Ended
	Jun. 30, 2013
Restricted Stock Awards and Restricted Stock Units [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Outstanding, Beginning Balance, Shares	642
Granted, Shares	347
Vested/Released, Shares	(142)
Cancelled, Shares	(23)
Outstanding, Ending Balance , Shares	824
Weighted Average Grant Date Fair Value, Outstanding, Beginning Balance	$ 29.74
Weighted Average Grant Date Fair Value, Granted	$ 38.20
Weighted Average Grant Date Fair Value, Vested/Released	$ 31.21
Weighted Average Grant Date Fair Value, Cancelled	$ 33.35
Weighted Average Grant Date Fair Value, Outstanding, Ending Balance	$ 32.95

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Employee Equity Incentive Plans and Stock-Based Compensation Expense - Summary of Assumptions to Estimate Fair Value (Detail) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Option Shares [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected Term (in years)	4 years 5 months 1 day	4 years 4 months 13 days	4 years 4 months 28 days	4 years 4 months 17 days
Volatility	0.43%	0.53%	0.44%	0.53%
Expected Dividends
Risk Free Interest Rates	0.71%	0.84%	0.72%	0.81%
Estimated Forfeitures	7.61%	7.63%	7.63%	7.63%
Weighted Average Fair Value Per Share	$ 13.77	$ 15.79	$ 14.02	$ 15.70
Employee Stock Purchase Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected Term (in years)	1 year 3 months	1 year 3 months	1 year 3 months	1 year 3 months
Volatility	0.46%	0.55%	0.46%	0.55%
Expected Dividends
Risk Free Interest Rates	0.19%	0.16%	0.19%	0.16%
Weighted Average Fair Value Per Share	$ 12.88	$ 16.47	$ 12.88	$ 16.47

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Fair Value

6 Months Ended

Jun. 30, 2013

Fair Value Disclosures [Abstract]

Fair Value

7. Fair Value

The following table summarizes the fair value hierarchy for the Company’s financial assets (cash equivalents) and financial liabilities (foreign currency derivatives and contingent payment) measured at fair value on a recurring basis as of June 30, 2013 and December 31, 2012 (in thousands):

Balance as of June 30, 2013:

	Level 1		Level 2		Level 3		Total
Assets:
Cash	$	85,030	$	—	$	—	$	85,030
Foreign currency derivatives		—		776		—		776
Total	$	85,030	$	776	$	—	$	85,806
Liabilities:
Foreign currency derivatives	$	—	$	891	$	—	$	891
Contingent Consideration		—		—		200		200
Total	$	—	$	891	$	200	$	1,091

Balance as of December 31, 2012:

	Level 1		Level 2		Level 3		Total
Assets:
Cash	$	84,906	$	—	$	—	$	84,906
Cash equivalent - money market funds		10,873		—		—		10,873
Foreign currency derivatives		—		1,458		—		1,458
Total	$	95,779	$	1,458	$	—	$	97,237
Liabilities:
Foreign currency derivatives	$	—	$	1,572	$	—	$	1,572
Contingent consideration		—		—		550		550
Total	$	—	$	1,572	$	550	$	2,122

The Company recorded derivative assets and liabilities at fair value. The Company’s derivatives consist of foreign exchange forward contracts. The Company has elected to use the income approach to value the derivatives, using observable Level 2 market expectations at the measurement date and standard valuation techniques to convert future amounts to a single present amount assuming that participants are motivated, but not compelled to transact.

Level 2 inputs for the valuations are limited to quoted prices for similar assets or liabilities in active markets (specifically foreign currency spot rate and forward points) and inputs other than quoted prices that are observable for the asset or liability (specifically LIBOR rates, credit default spot rates, and company specific LIBOR spread). Mid-market pricing is used as a practical expedient for fair value measurements. The fair value measurement of an asset or liability must reflect the nonperformance risk of the entity and the counterparty. Therefore, the impact of the counterparty’s creditworthiness when in an asset position and the Company’s creditworthiness when in a liability position has also been factored into the fair value measurement of the derivative instruments and did not have a material impact on the fair value of these derivative instruments. Both the counterparty and the Company are expected to continue to perform under the contractual terms of the instruments.

Level 3 liabilities, consisting of a contingent payment to be made in connection with the acquisition of a company in 2012, are valued by applying the income approach and are based on significant unobservable inputs that are supported by little or no market activity.

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Segment and Significant Concentrations - Total Sales by Type (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Segment Reporting, Revenue Reconciling Item [Line Items]
Total sales	$ 96,012	$ 81,015	$ 187,950	$ 158,307
Operating Segments [Member] | Systems and other sales [Member]
Segment Reporting, Revenue Reconciling Item [Line Items]
Total sales	18,796	17,100	34,806	32,330
Operating Segments [Member] | Reagent and disposable sales [Member]
Segment Reporting, Revenue Reconciling Item [Line Items]
Total sales	$ 77,216	$ 63,915	$ 153,144	$ 125,977

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Derivative Financial Instruments - Pre-tax Effect of Derivative Instruments Designated as Cash Flow Hedges in Condensed Consolidated Statements of Operations (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended	6 Months Ended
	Jun. 30, 2013	Jun. 30, 2013	Jun. 30, 2012
Derivative Instruments, Gain (Loss) [Line Items]
Gain (loss) Recognized in OCI - Effective Portion	$ (598)	$ 137
Gain Reclassified from AOCI into Income - Effective Portion	63	97
Loss Recognized - Ineffective Portion and Amount Excluded from Effectiveness Testing	8	2
Foreign exchange contracts, net [Member] | Cash flow hedges [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Gain (loss) Recognized in OCI - Effective Portion	(598)	137
Gain Reclassified from AOCI into Income - Effective Portion	63	97
Foreign exchange contracts, net [Member] | Cash flow hedges [Member] | Other expense, net [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Loss Recognized - Ineffective Portion and Amount Excluded from Effectiveness Testing	$ 8	$ 2

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Organization and Summary of Significant Accounting Policies (Tables)

6 Months Ended

Jun. 30, 2013

Text Block [Abstract]

Components of Inventories

The following table summarizes the components of inventory (in thousands):

	June 30, 2013		December 31, 2012
Raw Materials	$	30,574	$	26,041
Work in Process		31,824		30,113
Finished Goods		22,612		13,960
Inventory	$	85,010	$	70,114

Computation of Basic and Diluted Income (Loss) Per Share

The following summarizes the computation of basic and diluted income (loss) per share (in thousands, except for per share amounts):

	Three Months Ended June 30,					Six Months Ended June 30,
	2013			2012		2013			2012
Basic:
Net income (loss)	$	(6,580	)	$	1,135	$	(6,267	)	$	(4,391	)
Basic weighted shares outstanding		67,295			65,695		67,061			65,361
Net income (loss) per share		(0.10	)	$	0.02	$	(0.09	)	$	(0.07	)
Diluted:
Net income (loss)	$	(6,580	)	$	1,135	$	(6,267	)	$	(4,391	)
Basic weighted shares outstanding		67,295			65,695		67,061			65,361
Effect of dilutive securities:
Stock options, ESPP, restricted stock units and restricted stock awards		—			3,174		—			—
Diluted weighted shares outstanding		67,295			68,869		67,061			65,361
Net income (loss) per share	$	(0.10	)	$	0.02	$	(0.09	)	$	(0.07	)

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Commitments and contingencies

6 Months Ended

Jun. 30, 2013

Commitments And Contingencies Disclosure [Abstract]

Commitments and contingencies

6. Commitments and contingencies

Purchase Commitments

The following table summarizes the Company’s purchase commitments at June 30, 2013 (in thousands):

Years Ending December 31,	Purchase Commitments
2013 (remaining six months)	$	17,013
2014		4,465
2015		1,944
2016		1,716
2017		1,716
Thereafter		—
Total minimum payments	$	26,854

Purchase commitments include purchase orders or contracts for the purchase of raw materials used in the manufacturing of the Company’s systems and reagents.

Legal Matters

In May 2005, the Company entered into a license agreement with Roche that provided it with rights under a broad range of Roche patents, including patents relating to the PCR process, reverse transcription-based methods, nucleic acid quantification methods, real-time PCR detection process and composition, and patents relating to methods for detection of viral and cancer targets. A number of the licensed patents expired in the U.S. prior to the end of August of 2010 and in Europe prior to the end of August of 2011. In August 2010, the Company terminated its license to U.S. Patent No. 5,804,375 (the “375 Patent”) and ceased paying U.S.-related royalties. The Company terminated the entire license agreement in the fourth quarter of 2011. In August 2011, Roche initiated an arbitration proceeding against the Company in the International Chamber of Commerce pursuant to the terms of the terminated agreement. The Company filed an answer challenging arbitral jurisdiction over the issues submitted by Roche and denying that it violated any provision of the agreement. A three-member panel has been convened to address these issues in confidential proceedings. On July 30, 2013, the panel determined that it had jurisdiction to decide the claims, a determination that is subject to appeal.

Management believes that it is reasonably possible that these legal proceedings could result in a material loss (i.e. the chance of the event occurring is more than remote but less than likely). However, given the nature of arbitration and the nature of the claims in this matter, the Company is unable to estimate the amount of such possible loss.

On August 21, 2012, the Company filed a lawsuit against Roche Molecular Systems, Inc. and F. Hoffman-La Roche Ltd, for a declaratory judgment of (a) invalidity, expiration and non-infringement of the ‘375 patent; and (b) invalidity, unenforceability, expiration and non-infringement of U.S. Patent No. 6,127,155 (the “155 Patent”). On January 17, 2013, the court issued an order granting a motion by Roche to stay the suit with respect to the ‘375 patent pending resolution of the above noted arbitration proceeding. In the same order, the court dismissed the Company’s suit with respect to the ‘155 patent for lack of subject matter jurisdiction, without considering or ruling on the merits of the Company’s case. The court left open the possibility that the Company could re-file its case against the ‘155 patent in the future. The Company believes that the possibility that these legal proceedings will result in a material loss is remote.

The Company may be subject to additional various claims, complaints and legal actions that arise from time to time in the normal course of business. Other than as described above, the Company believes that the possibility that any of the pending legal proceedings in which it is currently a party will result in a material loss is remote. There can be no assurance that existing or future legal proceedings arising in the ordinary course of business or otherwise will not have a material adverse effect on the Company’s business, consolidated financial position, results of operations or cash flows.

The Company responds to claims arising in the ordinary course of business. Should the Company not be able to secure the terms it expects, the above estimates may change and will be recognized in the period in which they are identified. Although the ultimate outcome of such claims is not presently determinable, the Company believes that the resolution of these matters will not have a material adverse effect on the Company’s financial position, results of operations and cash flows.

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Organization and Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2013

Text Block [Abstract]

Organization and Summary of Significant Accounting Policies

1. Organization and Summary of Significant Accounting Policies

Organization and Basis of Presentation

Cepheid (the “Company”) was incorporated in the State of California on March 4, 1996. The Company is a molecular diagnostics company that develops, manufactures and markets fully-integrated systems for testing in the Clinical market, as well as for application in the Company’s legacy Non-Clinical market. The Company’s systems enable rapid, sophisticated molecular testing for organisms and genetic-based diseases by automating otherwise complex manual laboratory procedures.

The Condensed Consolidated Balance Sheet at June 30, 2013, the Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2013 and 2012, the Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2013 and 2012 and the Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2013 and 2012 are unaudited. In the opinion of management, these condensed consolidated financial statements reflect all normal recurring adjustments that management considers necessary for a fair presentation of the Company’s financial position at such dates and the operating results and cash flows for those periods. The accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“U.S.”). However, certain information or footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The results of operations for such periods are not necessarily indicative of the results expected for the remainder of 2013 or for any future period. The Condensed Consolidated Balance Sheet as of December 31, 2012 is derived from audited financial statements as of that date but does not include all of the information and footnotes required by accounting principles generally accepted in the U.S. for complete financial statements. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012. Within the Condensed Consolidated Statements of Operations, the Condensed Consolidated Statements of Cash Flows and Note 3, “Segment and Significant Concentrations”, certain amounts have been reclassified to conform to the current period presentation.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from these estimates.

Fair Value of Financial Instruments

The Company defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company’s valuation techniques used to measure fair value maximized the use of observable inputs and minimized the use of unobservable inputs. The fair value hierarchy is based on the following three levels of inputs:

• Level 1—Quoted prices in active markets for identical assets or liabilities.

• Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

• Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

See Note 7, “Fair Value,” for information and related disclosures regarding the Company’s fair value measurements.

Inventory

Inventory is stated at the lower of standard cost (which approximates actual cost) or market cost, with cost determined on the first-in-first-out method. Accordingly, allocation of fixed production overheads to conversion costs is based on normal capacity of production. Abnormal amounts of idle facility expense, freight, handling costs and spoilage are expensed as incurred and not included in overhead. In addition, unrecognized stock-based compensation cost of $1.5 million and $1.1 million was included in inventory as of June 30, 2013 and December 31, 2012, respectively.

The following table summarizes the components of inventory (in thousands):

	June 30, 2013		December 31, 2012
Raw Materials	$	30,574	$	26,041
Work in Process		31,824		30,113
Finished Goods		22,612		13,960
Inventory	$	85,010	$	70,114

Revenue Recognition

The Company recognizes revenue from sales when there is persuasive evidence that an arrangement exists, delivery has occurred, the price is fixed or determinable and collectability is reasonably assured. No right of return exists for the Company’s products except in the case of damaged goods. The Company has not experienced any significant returns of its products. Shipping and handling costs are expensed as incurred and included in cost of sales. In those cases where the Company bills shipping and handling costs to customers, the amounts billed are classified as sales.

The Company enters into revenue arrangements that may consist of multiple deliverables of its products and services. In situations with multiple deliverables, revenue is recognized upon the delivery of the separate elements. The Company sells service contracts for which revenue is deferred and recognized ratably over the contract period.

System and other sales includes fees for technology licenses and research and development services, including research and development under grants and government sponsored research, royalties under license and collaboration agreements. Fees for technology licenses are generally fully recognized only after the license period has commenced, the technology has been delivered and no further involvement of the Company is required. When the Company has continuing involvement related to a technology license, revenue is recognized over the license term. Revenue related to research and development services is recognized as the related service is performed based on the performance requirements of the relevant contract and recoverability is reasonably assured. Under such agreements, the Company is required to perform specific research and development activities and is compensated either based on the costs or costs plus a mark-up associated with each specific contract over the term of the agreement or based on the Company’s progress to completion. Royalties are typically based on licensees’ net sales of products that utilize the Company’s technology, and royalty revenues are recognized as earned in accordance with the contract terms when the royalties can be reliably measured and their collectability is reasonably assured, such as upon the receipt of a royalty statement from the customer.

Advance payments received in excess of amounts earned, such as funds received in advance of products to be delivered or services to be performed, are classified as deferred revenue until earned.

Net Income (Loss) per Share

Basic net income (loss) per share is computed by dividing net income (loss) for the period by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing net income (loss) for the period by the weighted average number of common and common equivalent shares outstanding during the period. Potentially dilutive common shares consist of incremental common shares issuable upon exercise of stock options, employee stock purchases, restricted stock awards and restricted stock units. The Company excludes stock options from the calculation of diluted net income (loss) per share when the combined exercise price and average unamortized fair values are greater than the average market price for the Company’s common stock because their effect is anti-dilutive. These anti-dilutive common stock equivalent shares totaled 5,542,000 and 2,100,000 for the three months ended June 30, 2013 and 2012, respectively, and 5,285,000 and 4,885,000 for the six months ended June 30, 2013 and 2012, respectively.

The following summarizes the computation of basic and diluted income (loss) per share (in thousands, except for per share amounts):

	Three Months Ended June 30,					Six Months Ended June 30,
	2013			2012		2013			2012
Basic:
Net income (loss)	$	(6,580	)	$	1,135	$	(6,267	)	$	(4,391	)
Basic weighted shares outstanding		67,295			65,695		67,061			65,361
Net income (loss) per share		(0.10	)	$	0.02	$	(0.09	)	$	(0.07	)
Diluted:
Net income (loss)	$	(6,580	)	$	1,135	$	(6,267	)	$	(4,391	)
Basic weighted shares outstanding		67,295			65,695		67,061			65,361
Effect of dilutive securities:
Stock options, ESPP, restricted stock units and restricted stock awards		—			3,174		—			—
Diluted weighted shares outstanding		67,295			68,869		67,061			65,361
Net income (loss) per share	$	(0.10	)	$	0.02	$	(0.09	)	$	(0.07	)

Recent Accounting Pronouncements

In February 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2013-2, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (ASU 2013-2), that requires an organization to present the effects on the line items of net income of significant amounts reclassified out of Accumulated Other Comprehensive Income, but only if the item reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. ASU 2013-2 is effective for fiscal years beginning after December 15, 2012. The Company adopted ASU No. 2013-02 on January 1, 2013 on a prospective basis. The adoption had no material effect on the Company’s financial position or results of operations.

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Employee Equity Incentive Plans and Stock-Based Compensation Expense - Summary of Stock-Based Compensation Expense (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total stock-based compensation expense	$ 6,530	$ 6,018	$ 12,806	$ 11,567
Cost of product sales [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation expense	841	679	1,381	1,364
Research and development [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation expense	2,097	1,788	3,902	3,454
Sales and marketing [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation expense	1,078	1,304	2,377	2,440
General and administrative [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation expense	$ 2,514	$ 2,247	$ 5,146	$ 4,309

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Employee Equity Incentive Plans and Stock-Based Compensation Expense (Tables)

6 Months Ended

Jun. 30, 2013

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Summary of Stock-Based Compensation Expense

The following table summarizes stock-based compensation expense in the condensed consolidated statement of operations (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
Cost of product sales	$	841	$	679	$	1,381	$	1,364
Research and development		2,097		1,788		3,902		3,454
Sales and marketing		1,078		1,304		2,377		2,440
General and administrative		2,514		2,247		5,146		4,309
Total stock-based compensation expense	$	6,530	$	6,018	$	12,806	$	11,567

Summary of Option Activity

The following table summarizes option activity under all plans (in thousands, except weighted average exercise price and weighted average remaining contractual term):

	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Instrinic Value
Outstanding, December 31, 2012		6,810		$	21.81
Granted		1,203		$	38.22
Exercised		(612	)	$	13.85
Forfeited		(163	)	$	30.45
Outstanding, June 30, 2013		7,238		$	25.01		3.98	$	75,587
Exercisable, June 30, 2013		4,472		$	19.02		2.85	$	69,799
Vested and expected to vest, June 30, 2013		6,735		$	24.36		3.86	$	74,215

Summary of Restricted Stock Plan Activity

The following table summarizes restricted stock plan activity, which consists of restricted stock awards and restricted stock units (in thousands, except weighted average grant date fair value):

	Shares			Weighted Average Grant Date Fair Value
Outstanding, December 31, 2012		642		$	29.74
Granted		347			38.20
Vested/Released		(142	)		31.21
Cancelled		(23	)		33.35
Outstanding, June 30, 2013		824		$	32.95

Summary of Assumptions to Estimate Fair Value

The following table summarizes the assumptions used in determining the fair value of the Company’s stock options granted to employees and shares purchased by employees under the Employee Stock Purchase Plan (“ESPP”):

	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
OPTION SHARES:
Expected Term (in years)		4.42			4.37			4.41			4.38
Volatility		0.43			0.53			0.44			0.53
Expected Dividends		—	%		—	%		—	%		—	%
Risk Free Interest Rates		0.71	%		0.84	%		0.72	%		0.81	%
Estimated Forfeitures		7.61	%		7.63	%		7.63	%		7.63	%
Weighted Average Fair Value Per Share	$	13.77		$	15.79		$	14.02		$	15.70
ESPP SHARES:
Expected Term (in years)		1.25			1.25			1.25			1.25
Volatility		0.46			0.55			0.46			0.55
Expected Dividends		—	%		—	%		—	%		—	%
Risk Free Interest Rates		0.19	%		0.16	%		0.19	%		0.16	%
Weighted Average Fair Value Per Share	$	12.88		$	16.47		$	12.88		$	16.47

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Organization and Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2013

Text Block [Abstract]

Organization and Basis of Presentation

Organization and Basis of Presentation

Cepheid (the “Company”) was incorporated in the State of California on March 4, 1996. The Company is a molecular diagnostics company that develops, manufactures and markets fully-integrated systems for testing in the Clinical market, as well as for application in the Company’s legacy Non-Clinical market. The Company’s systems enable rapid, sophisticated molecular testing for organisms and genetic-based diseases by automating otherwise complex manual laboratory procedures.

The Condensed Consolidated Balance Sheet at June 30, 2013, the Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2013 and 2012, the Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2013 and 2012 and the Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2013 and 2012 are unaudited. In the opinion of management, these condensed consolidated financial statements reflect all normal recurring adjustments that management considers necessary for a fair presentation of the Company’s financial position at such dates and the operating results and cash flows for those periods. The accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“U.S.”). However, certain information or footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The results of operations for such periods are not necessarily indicative of the results expected for the remainder of 2013 or for any future period. The Condensed Consolidated Balance Sheet as of December 31, 2012 is derived from audited financial statements as of that date but does not include all of the information and footnotes required by accounting principles generally accepted in the U.S. for complete financial statements. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012. Within the Condensed Consolidated Statements of Operations, the Condensed Consolidated Statements of Cash Flows and Note 3, “Segment and Significant Concentrations”, certain amounts have been reclassified to conform to the current period presentation.

Use of Estimates

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from these estimates.

Fair Value of Financial Instruments

Fair Value of Financial Instruments

The Company defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company’s valuation techniques used to measure fair value maximized the use of observable inputs and minimized the use of unobservable inputs. The fair value hierarchy is based on the following three levels of inputs:

• Level 1—Quoted prices in active markets for identical assets or liabilities.

• Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

• Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

See Note 7, “Fair Value,” for information and related disclosures regarding the Company’s fair value measurements.

Inventory

Inventory

Inventory is stated at the lower of standard cost (which approximates actual cost) or market cost, with cost determined on the first-in-first-out method. Accordingly, allocation of fixed production overheads to conversion costs is based on normal capacity of production. Abnormal amounts of idle facility expense, freight, handling costs and spoilage are expensed as incurred and not included in overhead. In addition, unrecognized stock-based compensation cost of $1.5 million and $1.1 million was included in inventory as of June 30, 2013 and December 31, 2012, respectively.

The following table summarizes the components of inventory (in thousands):

	June 30, 2013		December 31, 2012
Raw Materials	$	30,574	$	26,041
Work in Process		31,824		30,113
Finished Goods		22,612		13,960
Inventory	$	85,010	$	70,114

Revenue Recognition

Revenue Recognition

The Company recognizes revenue from sales when there is persuasive evidence that an arrangement exists, delivery has occurred, the price is fixed or determinable and collectability is reasonably assured. No right of return exists for the Company’s products except in the case of damaged goods. The Company has not experienced any significant returns of its products. Shipping and handling costs are expensed as incurred and included in cost of sales. In those cases where the Company bills shipping and handling costs to customers, the amounts billed are classified as sales.

The Company enters into revenue arrangements that may consist of multiple deliverables of its products and services. In situations with multiple deliverables, revenue is recognized upon the delivery of the separate elements. The Company sells service contracts for which revenue is deferred and recognized ratably over the contract period.

System and other sales includes fees for technology licenses and research and development services, including research and development under grants and government sponsored research, royalties under license and collaboration agreements. Fees for technology licenses are generally fully recognized only after the license period has commenced, the technology has been delivered and no further involvement of the Company is required. When the Company has continuing involvement related to a technology license, revenue is recognized over the license term. Revenue related to research and development services is recognized as the related service is performed based on the performance requirements of the relevant contract and recoverability is reasonably assured. Under such agreements, the Company is required to perform specific research and development activities and is compensated either based on the costs or costs plus a mark-up associated with each specific contract over the term of the agreement or based on the Company’s progress to completion. Royalties are typically based on licensees’ net sales of products that utilize the Company’s technology, and royalty revenues are recognized as earned in accordance with the contract terms when the royalties can be reliably measured and their collectability is reasonably assured, such as upon the receipt of a royalty statement from the customer.

Advance payments received in excess of amounts earned, such as funds received in advance of products to be delivered or services to be performed, are classified as deferred revenue until earned.

Net Income (Loss) per Share

Net Income (Loss) per Share

Basic net income (loss) per share is computed by dividing net income (loss) for the period by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing net income (loss) for the period by the weighted average number of common and common equivalent shares outstanding during the period. Potentially dilutive common shares consist of incremental common shares issuable upon exercise of stock options, employee stock purchases, restricted stock awards and restricted stock units. The Company excludes stock options from the calculation of diluted net income (loss) per share when the combined exercise price and average unamortized fair values are greater than the average market price for the Company’s common stock because their effect is anti-dilutive. These anti-dilutive common stock equivalent shares totaled 5,542,000 and 2,100,000 for the three months ended June 30, 2013 and 2012, respectively, and 5,285,000 and 4,885,000 for the six months ended June 30, 2013 and 2012, respectively.

The following summarizes the computation of basic and diluted income (loss) per share (in thousands, except for per share amounts):

	Three Months Ended June 30,					Six Months Ended June 30,
	2013			2012		2013			2012
Basic:
Net income (loss)	$	(6,580	)	$	1,135	$	(6,267	)	$	(4,391	)
Basic weighted shares outstanding		67,295			65,695		67,061			65,361
Net income (loss) per share		(0.10	)	$	0.02	$	(0.09	)	$	(0.07	)
Diluted:
Net income (loss)	$	(6,580	)	$	1,135	$	(6,267	)	$	(4,391	)
Basic weighted shares outstanding		67,295			65,695		67,061			65,361
Effect of dilutive securities:
Stock options, ESPP, restricted stock units and restricted stock awards		—			3,174		—			—
Diluted weighted shares outstanding		67,295			68,869		67,061			65,361
Net income (loss) per share	$	(0.10	)	$	0.02	$	(0.09	)	$	(0.07	)

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In February 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2013-2, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (ASU 2013-2), that requires an organization to present the effects on the line items of net income of significant amounts reclassified out of Accumulated Other Comprehensive Income, but only if the item reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. ASU 2013-2 is effective for fiscal years beginning after December 15, 2012. The Company adopted ASU No. 2013-02 on January 1, 2013 on a prospective basis. The adoption had no material effect on the Company’s financial position or results of operations.

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Derivative Financial Instruments (Tables)

6 Months Ended

Jun. 30, 2013

Derivative Instruments And Hedging Activities Disclosure [Abstract]

Derivative Instruments at Gross Fair Value Reflected in Condensed Consolidated Balance Sheets

The following tables show the Company’s derivative instruments at gross fair value as reflected in the Condensed Consolidated Balance Sheets as of June 30, 2013 and December 31, 2012, respectively (in thousands):

	June 30, 2013
	Fair Value of Derivates Designated as Hedge Instruments			Fair Value of Derivates Not Designated as Hedge Instruments			Total Fair Value
Derivative Assets (a):
Foreign exchange contracts	$	729		$	47		$	776
Derivative Liabilities (b):
Foreign exchange contracts		(822	)		(69	)	$	(891	)
	December 31, 2012
	Fair Value of Derivates Designated as Hedge Instruments			Fair Value of Derivates Not Designated as Hedge Instruments			Total Fair Value
Derivative Assets (a):
Foreign exchange contracts	$	1,457		$	1		$	1,458
Derivative Liabilities (b):
Foreign exchange contracts		(1,561	)		(11	)		(1,572	)

(a) The fair value of derivative assets is measured using Level 2 fair value inputs and is recorded as other current assets in the Condensed Consolidated Balance Sheets.

(b) The fair value of derivative liabilities is measured using Level 2 fair value inputs and is recorded as accrued expenses in the Condensed Consolidated Balance Sheets.

Pre-tax Effect of Derivative Instruments Designated as Cash Flow Hedges in Condensed Consolidated Statements of Operations

The following tables show the pre-tax effect of the Company’s derivative instruments designated as cash flow hedges in the Condensed Consolidated Statements of Operations for the three and six month periods ended June 30, 2013 and 2012 (in thousands):

	Three Months Ended
	Loss Recognized in OCI - Effective Portion					Gain Reclassified from AOCI into Income  - Effective Portion				Loss Recognized - Ineffective Portion and Amount Excluded from Effectiveness Testing
	June 30, 2013			June 30, 2012		June 30, 2013 (a)		June 30, 2012		Location	June 30, 2013		June 30, 2012
Cash flow hedges:
Foreign exchange contracts, net	$	(598	)	$	—	$	63	$	—	Other expense, net	$	8	$	—
Total	$	(598	)	$	—	$	63	$	—		$	8	$	—

(a) Includes gains (losses) reclassified from AOCI into net income for the effective portion of cash flow hedges, of which $(0.3) million and $0.4 million were recognized within net sales and costs and operating expenses, respectively, within the Condensed Consolidated Statement of Operations for the three months ended June 30, 2013.

	Six Months Ended
	Gain Recognized in OCI  - Effective Portion				Gain Reclassified from AOCI into Income -  Effective Portion				Loss Recognized - Ineffective Portion and Amount Excluded from Effectiveness Testing
	June 30, 2013		June 30, 2012		June 30, 2013 (a)		June 30, 2012		Location	June 30, 2013		June 30, 2012
Cash flow hedges:
Foreign exchange contracts, net	$	137	$	—	$	97	$	—	Other expense, net	$	2	$	—
Total	$	137	$	—	$	97	$	—		$	2	$	—

(a) Includes gains (losses) reclassified from AOCI into net income for the effective portion of cash flow hedges, of which ($1.0) million and $1.1 million were recognized within net sales and costs and operating expenses, respectively, within the Condensed Consolidated Statement of Operations for the six months ended June 30, 2013.

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Commitments and contingencies (Tables)

6 Months Ended

Jun. 30, 2013

Commitments And Contingencies Disclosure [Abstract]

Summary of Purchase Commitments

The following table summarizes the Company’s purchase commitments at June 30, 2013 (in thousands):

Years Ending December 31,	Purchase Commitments
2013 (remaining six months)	$	17,013
2014		4,465
2015		1,944
2016		1,716
2017		1,716
Thereafter		—
Total minimum payments	$	26,854

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Document and Entity Information	6 Months Ended
	Jun. 30, 2013	Jul. 23, 2013
Document Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2013
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q2
Trading Symbol	CPHD
Entity Registrant Name	CEPHEID
Entity Central Index Key	0001037760
Current Fiscal Year End Date	--12-31
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		67,451,984

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Fair Value (Tables)

6 Months Ended

Jun. 30, 2013

Fair Value Disclosures [Abstract]

Assets and Liabilities Measured at Fair Value on Recurring Basis

The following table summarizes the fair value hierarchy for the Company’s financial assets (cash equivalents) and financial liabilities (foreign currency derivatives and contingent payment) measured at fair value on a recurring basis as of June 30, 2013 and December 31, 2012 (in thousands):

Balance as of June 30, 2013:

	Level 1		Level 2		Level 3		Total
Assets:
Cash	$	85,030	$	—	$	—	$	85,030
Foreign currency derivatives		—		776		—		776
Total	$	85,030	$	776	$	—	$	85,806
Liabilities:
Foreign currency derivatives	$	—	$	891	$	—	$	891
Contingent Consideration		—		—		200		200
Total	$	—	$	891	$	200	$	1,091

Balance as of December 31, 2012:

	Level 1		Level 2		Level 3		Total
Assets:
Cash	$	84,906	$	—	$	—	$	84,906
Cash equivalent - money market funds		10,873		—		—		10,873
Foreign currency derivatives		—		1,458		—		1,458
Total	$	95,779	$	1,458	$	—	$	97,237
Liabilities:
Foreign currency derivatives	$	—	$	1,572	$	—	$	1,572
Contingent consideration		—		—		550		550
Total	$	—	$	1,572	$	550	$	2,122