AngioDynamics Inc (ANGO) 2008 Q3 法說會逐字稿

Thank you, operator. Good afternoon, everyone. This is Doug Sherk with the EVC Group. Thank you for joining us this afternoon for the AngioDynamics conference call to review the financial results for the third quarter 2008 which ended February 29, 2008.

The news release announcing the third quarter results crossed the wire this afternoon shortly after the market closed. If you haven't received a copy of the release and would like one please call our office at 415-896-6820 and we'll get one to you immediately. Additionally we've arranged for a tape replay of this call which may be accessed by phone. The replay will become available at approximately 6:30 p.m. Eastern standard time this evening and remain available for seven days. The dial in number to access the replay is 800-405-2236, or for international callers 303-590-3000. Both numbers will need a passcode of 11110709, followed by the pound sign. This call is being broadcast live, and an archived replay will also be available. To access the webcast go to AngioDymanics website at www.AngioDynamics.Com.

Before we get started during the course of this conference call the Company will make projections or forward-looking statements regarding future events including statements about the sales and the Company's beliefs about its revenues and earnings for fiscal 2008. We encourage you to review the Company's past and future filings with the SEC including without limitation the Company's Forms 10-Q and 10-K which identify specific factors that may cause actual results or events to differ materially from those described in forward-looking statements. In addition, management will be reviewing various non-GAAP measures during today's call. Investors should consider these non-GAAP measures in addition to, not as a substitute for or superior to financial reporting measures prepared in accordance with GAAP. During today's call the Company will discuss non-GAAP measures adjusted income and adjusted EPS. Adjusted income and adjusted EPS excludes certain expenses relating to the acquisition of RITA Medical, stock based compensation expense, litigation damages, and others including the cash benefit from the use of acquired net operating losses and assumed taxes on net income where applicable.

Management believes these measures provide investors with useful information in comparing the Company's performance over different periods, particularly when comparing this period to periods in which the Company did incur any expenses relating to these activities or items. A reconciliation of all GAAP measures used during today's call was provided in a news release distributed this afternoon and is available on the Company's website.

Finally, during the question and answer period today we request each caller to limit themselves to two questions and then encourage requeue to ask additional questions. In advance we appreciate everyone's cooperation with this procedure. Now, I'd like to turn the call over to Eamonn Hobbs, President and Chef Executive Officer of AngioDymanics.

Thanks, Doug and good afternoon, everyone. Thank you for joining us today to review our third quarter results for fiscal 2008. With me is Joe Gersuk, our Chief Financial Officer. Our third quarter revenue of $40.7 million was in line with the preliminary results we provided four weeks ago. While revenue grew 14% on a pro forma basis as compared to the third quarter of fiscal 2007, we didn't grow as rapidly as we had expected. Our growth was limited in the quarter by a combination of several factors. We believe that we have already successfully addressed some of these factors.

The others should be addressed through a five point strategy we have put into place as part of a very focused effort by our team during the last few weeks to generate consistent, predictable growth as we move forward. I will discuss this strategy at the end of my opening remarks, before turning the call over to Joe. The third quarter revenue shortfall was not something that we took very lightly here at AngioDymanics. As I just mentioned there were several factors that combined to impact our quarter. The first factor was that we continued to experience the pricing pressure in the dialysis product market that we have seen for the last two years. Our plan to address this has been to introduce new and very innovative dialysis products that would allow us to drive a much more compelling value proposition for our customers. As we mentioned during our last call with you, we had anticipated beginning commercial shipments of our very innovative and feature rich Centros hemodialysis catheter in early Q3 but unfortunately this was delayed due to start up manufacturing issues which have now been resolved. I am now happy to announce that commercial shipments of Centros have begun. Centros is a major part of our strategy to compete in the dialysis market based on product quality, features and performance rather than price. The Centros represents a new approach for central venus dialysis catheters as the distal end has a unique curve configuration which helps to keep the fluid path of the catheter centered in the superior vena cava. Feedback so far has been very positive, and we expect to see a positive contribution from Centros during our fiscal fourth quarter results.

A second factor impacting our fiscal third quarter Sales was that we were unable to make up the Centros sales shortfall with one of our go to products the VenaCure NeverTouch. NeverTouch sales were very limited by supply constraints and we were virtually hand to mouth during all of the fiscal third quarter. Over the past three quarters we have completely transferred production of NeverTouch from an outside supplier to our production facility in Queensbury. Q3 was the first quarter in which NeverTouch was produced exclusively in Queensbury, and although we experienced strong 15% year-over-year growth in the NeverTouch kit sales, we were unable to build sufficient product to meet the even stronger market demand for the product. We believe that these production start up issues are now behind us and that we will have ample inventory not only to meet market demand but also to be able to drive demand to even higher levels in Q4.

Another factor impacting our fiscal third quarter sales was the growth rate of our ports business. We expected the growth in port sales would be closer to the 20% growth rate achieved in the second quarter. In fact, port sales grew 14% this quarter as the recently introduced Smart Pot CT fully met our expectations, while conventional port sales fell behind our expectations. We are addressing this issue with a more focused sales program in Q4.

The fourth factor impacting the quarter was angiographic product sales were somewhat below expectations but still grew by 5% over the prior year. The oncology products group produced another stand up sales result this quarter, with 26% pro forma growth in the period and 24% growth year-to-date. Our market leading devices including RF electrodes, surgical resection devices and embolization product and hands-on excellent salesforce continued to produce excellent results for us. We continue to manage the business very efficiently. We generated operating income of $7.6 million and net income of $4.9 million or $0.20 per share for the quarter. Operating cash flow was again very strong for the quarter with a record of $9.9 million generated during this quarter and 20.1 million for the fiscal year to date. This is nearly a sixfold increase over the $3.4 million reported in the fiscal year to date period, and cash and investments totaled $89 million at quarter end.

During the quarter our R&D effort continued to generate clinical progress in the field. For example, Dr. Steven Ash presented preliminary results from a study of Centros at the ISET meeting which sands for the International Symposium on Endovascular Therapy in January. In addition we continue to work closely wit Oncobionic on the Irreversible Electroporation development program. We have begun a pilot human malignant prostate trial in Florida this week and expect a similar pilot trial to begin in Italy this month. We now expect reportable clinical data in early June. With the delivery of this clinical data, we would then expect to close the Oncobionic acquisition shortly thereafter. We will also be placing the 20 IRE systems with key opinion leaders during Q4 and Q1. We expect that these first IRE clinical sites will then start to generate additional human use data which will support our commercial rollout of the IRE systems during Q2 of next fiscal year. Now, I'd like to spend a few minutes to discuss the five point strategy we've put in place to generate more consistent and predictable growth as we move the Company forward. We believe that we will begin to see results of this strategy beginning with the current quarter that ends May 31.

One of our strengths is our strong and diverse portfolio of high quality products as well as many very unique products under development. Our current product lines, as well as our product development programs, provide us with solid potential to continue to grow our top line. To maximize the potential of our product lines, our first step in our plan is to increase the salesforce in our interventional products group or IPG which is the group experiencing slower than anticipated revenue growth. We currently have 57 direct territories, sales representatives in our domestic IPG group, though we have not made any expansions to our IPG direct salesforce since 2006. This has resulted in a significant growth to our already very high sales per rep figure of more than $1.8 million per sales person for the first nine months of fiscal 2008 which is an excellent number and is a testament to the hard work and dedication of our team. However, our IPG product portfolio has grown substantially with the addition of the RITA product lines as well as other new products launched over the last 18 months and we realize we need to increase our IPG salesforce to further drive territory, efficiency and revenue growth. We believe adding sales representatives over the next few months will help drive revenue growth in all of our IPG product lines as well as provide additional leverage for our new products that are currently in our pipeline.

Our domestic oncology products group or OPG salesforce made up of 28 territories is generating excellent growth which was 26% in Q3, but with only an average sales per representative of $1 million. Clearly, this sales group can handle significant additions to their sales bag, and we expect that the rollout of IRE will provide ample opportunity for the OPG average sales per rep to increase significantly. The second step is to focus on the national account market which includes hospitals and medical system purchasing organizations. Prior to our acquisition of RITA, we did not have scale to access the several hundred million dollar market. We believe this business will be driven by product quality and service rather than price and we believe AngioDymanics is a great fit. We have focused Rob Rossell, our Vice President of Corporate Accounts on this major opportunity and expect our first account wins in the first half of fiscal 2009.

The third step is to advance R&D pipeline conversion efficiency. We believe our current pipeline is the strongest in our Company's history filled not only with base hits but also with some potential home runs, and that we need to improve our efficiency and predictability in getting these new innovative products out and into the hands of our salesforce to drive revenue growth. Additionally we are continuing to bring product lines that as previously been manufactured by subcontractors in house. This process has been slower than expected but has the potential to yield excellent margin gains and control going forward. Together, this improved manufacturing process will help match our growing salesforce and enable us to capitalize on the strengths of our growing product line.

The fourth step is to undertake product life cycle management. Our ability to maintain a diverse product portfolio ensuring we don't put all of our eggs in one basket, is a reason our Company has performed well despite litigations, market concerns, or increased competition concerning any specific product line. As some of our legacy products have evolved into market leading positions in markets that are experiencing single digit growth, we are finding it more challenging to grow at rates faster than the market. With this in mind, we will begin reviewing strategic alternatives for certain businesses in favor of advancing faster growing product segments.

Finally, our fifth step is to continue to actively pursue tuck-in product line acquisitions to supplement our existing offering and leveraging our salesforce. We have always maintained an opportunistic stance and if the right opportunity came along we would capitalize to enhance near and long term growth. We believe that with these five active steps we can build momentum and increase our top line growth rate. We have already implemented the necessary expense controls and lowered operating costs, and should be able to generate solid leverage off of improved top line performance. I think we have learned some lessons from our fiscal third quarter and believe we have a solid foundation established in order to act on our five step process.

Before I turn the call over to Joe, I'd like to briefly address the very positive development we announced this afternoon, and that is the settlement with Diomed. Rather than continue to pursue the legal course through a lengthy and costly appeals process, we've entered an agreement with Diomed to resolve our legal differences and as part of that agreement we will pay Diomed $7 million. In addition to putting this distraction behind us, the agreement allows us to book a gain of $3.2 million in the fiscal third quarter due to the amount we have accrued during the last fiscal year after the unfavorable jury decision. Joe will give you more details on this development during his remarks, which can begin right now.

Thank you, Eamonn, and good afternoon, ladies and gentlemen. Following our March 6, sales pre-announcement today we're reporting final financial results for our fiscal third quarter. While third quarter sales were below original Wall Street and Company expectations we performed well on a number of financial metrics this quarter including our highest ever gross profit margin, record cash flow from operations in a fiscal quarter and good operating expense management. In addition, as Eamonn just noted, we are pleased to report that we have settled a patent litigation with Diomed. Before I review our financial performance for the quarter let me briefly summarize the positive financial impact of the settlement of this litigation.

Following the March 2007 jury verdict and subsequent monetary judgment award, AngioDymanics recorded a $9.6 million litigation provision in its fiscal third quarter of '07 and the provision that increased to $10.2 million primarily as a result of interest accrued on the award. Under the terms of the settlement we will make a single payment of $7 million to Diomed. The resulting $3.2 million reversal of the unused litigation provision is shown in the income statement this quarter. The after-tax impact on net income is $2 million or $0.08 per share. As operating performance, third quarter net sales increased by $14 million or 52% to $40.7 million. $11.2 million of the increase was attributable to the sale of products acquired from RITA Medical Systems and the balance, or $2.8 million was in AngioDymanics products. This represents a 12% growth rate in AngioDymanics product sales while sales of RITA Medical products grew by 17% on a pro forma basis. You'll recall that our fiscal third quarter results a year ago included slightly more than one month sales of RITA Medical, following the closing of the acquisition on January 29, 2007.

Total Company sales then grew by 14% on a pro forma basis in the third quarter and follows first and second quarter pro forma growth rates of 12% and 11% respectively. From a product group perspective the interventional products group constituted $31.3 million or 77% of total sales, while the oncology products group constituted $9.4 million or 23% of total sales. $3.7 million or 9% of sales were recorded in international markets. Continuing down the income statement the gross profit margin improved to 62.2% this quarter, from 61.3% in the second quarter, and 59.6% a year ago. The improvement from one year ago reflects the higher gross margin on RITA Medical products. Improvements from the second quarter reflects a favorable sales mix and the in house production of NeverTouch as discussed earlier. Our gross margins have continued to improve throughout the year and we're at 61.2% year-to-date which is well within our original margin goal of 61 to 62% for the fiscal year.

Operating expenses were $20.9 million in the third quarter excluding the gain on the litigation settlement. Comparisons to prior year expense levels are not meaningful due to last year's third quarter accounting for the RITA acquisition and litigation costs. This quarter's operating expenses include $2.9 million in noncash charges for stock based compensation and amortization of purchased intangibles. Excluding the stock based compensation and amortization of purchased intangibles as well as the litigation settlement, operating expenses were 44.1% of sales in the quarter. Operating income was $7.6 million in the quarter, and excluding the amortization of the intangibles the stock based compensation and the litigation gain, operating income is $7.3 million or 18% of sales for the quarter. The comparable third quarter margin a year ago was 11.9% excluding the R&D charge related to the RITA acquisition and the litigation provision. This nearly 6 percentage point improvement is indicative of the success of our ongoing integration efforts and the cost savings from the acquisition of RITA Medical.

Below the operating profit line you'll note that the other income declined by nearly $770,000 from a year ago. This decline reflects interest expense on the convertible debt assumed in the RITA acquisition and the $180,000 decline in the value of interest rate hedge that does not qualify for hedge accounting under the accounting rules. Nonetheless the hedge is effective from an economic standpoint. After income taxes are taken into account the result is $4.9 million in net income or $0.20 in diluted earnings per share. As noted in the release, non-GAAP adjusted income was $7.2 million in the quarter or $0.30 per diluted share, demonstrating the strong cash generating capability of our business model as we integrate RITA into AngioDymanics. Through the third quarter, adjusted income has totaled $20.7 million or $0.85 per diluted share. The balance sheet remains very strong as we ended the quarter with nearly $90 million in cash and marketable securities, $104 million in working capital and $17 million in long term debt. Included in the marketable securities line of our February 29, balance sheet are a total of $11 million in auction rate securities.

Since the balance sheet date we have reduced our holdings of these securities to $4 million, most of which are issued and backed by the State of New York. Accounts receivable represents 51 days sales outstanding. Cash flow is again exceptionally strong in the third quarter as shown in the cash flow statement of release. In the quarter we generated nearly $10 million in cash flow from operations bringing the year-to-date total to $20.1 million.

Finally, when we pre-released back on March the 6th, we revised our sales for the year to a range of 165 million to $167 million. We are reiterating that top line range today, and offer the following guidance for the year that ends on May 31. We expect gross margin to be in the 61 to 62% range, GAAP operating income of 22 million to $23 million, GAAP EPS of $0.58 to $0.61, and non-GAAP adjusted income of at least $29 million. Adjusted income is defined as net income plus stock based compensation, amortization of purchase intangibles, and cash tax savings from the use of RITA NOLs and excludes the settlement of the Diomed patent litigation. Finally, as we noted in this afternoon's news release, we expect to provide preliminary thoughts on fiscal 2009 guidance shortly after conclusion of fiscal 2008. I'll now turn the call back to the operator to start the question and answer session.

All right, thank you, sir. Ladies and gentlemen, We will begin our question and answer session. (OPERATOR INSTRUCTIONS) Our first question will be coming from Phil Nalbone with RBC. Please go ahead.

Hi, good afternoon. First question relates to the IRE clinical development effort. Eamonn, what exactly do you mean by reportable clinical outcomes by the June time frame? What exactly do you expect that we will have learned about the utility of this technology and what sort of real world use do you think that those insights will enable?

Well, our pilot trial that began this week in Florida and we expect to have wrapped up by the end of the month will demonstrate the ability of the IRE technology to ablate malignant prostate cancer in humans. We'll have a -- it's a small series. It really isn't going to generate statistically significant data, but it will present to us very compelling data that we can follow-up with a much larger study that will generate statistically significant results. The end points are needle biopsy at 14 days to confirm that the cancer has been ablated, and completely ablated, followed by routine and continuous PSA blood tests for basically the life of the patient to make sure there's recurrence. So we're optimistic that this pilot trial is and subsequent pilot trials are going to present pretty compelling evidence that IRE does in fact translate to humans very effectively from the extensive pre-clinical animal work we've conducted, and are going to initiate more specific clinical trials with the idea of obtaining more specific indications past our current FDA approval for the general indication of soft tissue ablation.

Great, thank you, Eamonn. My second question relates to kind of fixing what went wrong during the third quarter. I think you were very clear that the fix is in on the first two of the four issues, Centros and the NeverTouch manufacturing issues. I'm not as clear on what the fix is for the challenges hat you faced in the conventional port access business and the slowness in the angiographic product set. Can you talk about your responses to those issues?

Sure. On the port side we saw really superb growth in SmartPort CT cells. It really exceeded our expectations. We did see some concern, or have some concern about the sales of the standard ports. Standard ports were not a focus at all during Q3, and all eyes were on the SmartPort CT sales. We've modified the salesforce commission plan for Q4 to hopefully address that by enticing the salespeople to pay more attention to the maintenance business of the standard port business as well as drive the SmartPort CT business forward. With regard to the, what was the--?

Angiographic.

Oh, the angiographic catheters, we're in a situation there where we're the clear market leader, and the market is only growing at mid single digits and we're basically growing at the market-rate right now at 5%, so our challenge there is to figure out how to change the value proposition so we can grow our revenues there with new product introductions and higher priced products, higher margin products, because it's clearly an issue of diminishing returns to look for more market share, because we have such a commanding lead already so we're a bit of a victim of our own success with that product line, and are looking to do all of the above, plus as I mentioned, we're for the first time, as a Company, looking at product life cycle management, and we've really never had to do that in the past, but we've matured to the point and some of our products have matured to the point where it makes sense to now look at the right strategy for those types of things.

Great. Thank you very much, Eamonn. Good luck.

Thank you, Phil.

Thank you. Our next question is coming from the line of Christopher Warren, with Friedman Billings Ramsey.

Thanks so much for taking the question. Can you talk to us about how much R&D dollars went into the IRE and how that spending should sort of progress through the next couple of quarters?

Wow, the IRE investment to date would be measured in, well, in the millions of dollars and between I would say between 5 million to $10 million, which has happened over the last seven years, far more closely weighted towards the more recent years. Five of that was a deposit with Oncobionic in the $25 million buyout that's a stage file and the other, I don't have the exact figures but somewhere in the neighborhood of between 2 million to $5 million that we've invested ourselves in the development of the IRE system in close collaboration with Oncobionic. How things should pan out is that we expect that although we have an FDA approval for the soft tissue ablation, we're going to be looking to expand that or I should say refine that indication to more specific indications like organ specific liver, lung, kidney, bone, prostate, et cetera, and those trials are going to be significant expenses and we're looking at, we haven't actually finalized our budget for next fiscal year so I couldn't tell you what the R&D expenditures are going to be, because that hasn't been decided yet, but IRE is going to be a big part of where we put our money.

Great. Thanks and if you could just talk a little bit about the rationale for insourcing manufacturing and maybe line out in the months to come or what inning you're in there relative to where you want to be?

Well, one of the more recent vertical integrations was the NeverTouch which we mentioned, and we are having that made outside in Q1 and in Q2 we sort of had parallel manufacturing in and out and in Q3 we were solely manufacturing in house, and we did that really for the usual reasons, control and gross margin improvement or lower cost. The dialysis catheters we've been systematically vertically integrating those over the years, weaning ourselves away from outside manufacturing where it made sense, so the real driver there is just blocking and tackling of good operational manufacturing business in trying to reduce our costs and gain control. And we look at it at -- the vast majority of our products are manufactured internally but where we leverage outside manufacturing, we always look to vertically integrate that over time.

Do you think we could see more of that in the months to come?

Definitely.

Okay. Thanks very much for the questions. I appreciate it.

Thank you, Chris.

Thank you our next question is coming from the line of Jayson Bedford with Raymond James.

Good afternoon, guys. Just a couple quickies. Any way you can quantify the impact of the VenaCure shipping delay and then are you on a back order situation right now?

Well, Q3 was hand them out throughout the quarter. We were back ordered in NeverTouch, VenaCure NeverTouch, really throughout the quarter, and really put our salesforce in a tight spot in that they had to spread inventory around as judiciously as possible to keep all of our customers sort of immune to the, all of our existing customers immune to the inventory tightness. It's hard to quantify what that could have been, as far as the impact, but we're north of seven figures is very realistic. Because there was no clear air at all, there was no way to drive the VenaCure NeverTouch sales during the quarter. Quite the opposite. We were scrambling all quarter. We're in clear air now and we're sitting on a very solid inventory position in our NeverTouch product and expect that to end, have definitely focused the salesforce on going after business once again. So it was a very material part of our shortfall in Q3. Okay, and so it sounds like it was at least $1 million impact in the quarter? Yes.

Okay. And then just my second question around the more rapid R&D conversion, it seems like that's more aimed at improving manufacturing efficiencies. I'm just wondering, are there any new initiatives in place or that you plan on implementing to stimulate new product flow?

Well, there are. There are a number of new initiatives. The ink isn't quite dry on many of them, but what we're trying to improve upon is the predictability of new products coming out of the pipe, so that we can be much more consistent in our ability to generate revenues from them, in a predictable fashion, and that's a blocking and tackling kind of scenario, where new product development and research and development is notoriously hard to predict and the best way of making it more predictable is to not forecast new product sales until you have the product in the bag, so to speak. And to be far more conservative on new product sales because of the inherent delays associated with new product development, and the nature of the beast. So I think we're paying a tremendous amount of attention to that. I think it is going to have a very positive effect on our ability to predict where our business is going to be.

Okay, thank you.

Our next question is from the line of Jason Mills with Canaccord Adams.

Thanks, hey, Eamonn, thanks for taking the question. First, perhaps Joe, this is a question for you. Your guidance for earnings this year, fiscal 2008 was GAAP guidance. The pro forma guidance I presume would just be to subtract the $0.08 or so from the Diomed gain. Is that correct or are there other moving parts there? That was just a clean up question I wanted to ask.

Yes, that would be it, the $0.08 on the gain.

So somewhere around $0.50 to $0.53 pro forma?

Correct.

And then, Eamonn, on the national account business which is one point of the five point plan for predictable accelerating growth going forward, I was curious how you will measure success. You mentioned perhaps somewhat surprisingly to me that you think that that part of the business will be driven or focused, or that area of business will be contingent on service and quality as opposed to price and we hear in many other medical device markets that national accounts or GPOs are focused on price so I was just curious whether you'll be focused more in judging success of that part of your five point plan in terms of revenue or gross profit dollars and is there perhaps an impact down the road to gross margins, would you give up gross margin for a bit bigger piece of that pie I guess is what I'm asking?

Well, with regard to national account business, we don't anticipate that there's going to be any gross margin impact. We, in analyzing the contract pricing of products that are most amenable to national accounts such as vascular access products and dialysis products, we were very pleasantly surprised to find out that the pricing was very competitive. It wasn't competitive with market praises that we're used to. So that didn't scare us off, and I would say, with the advent of national accounts and although there's a lot of, certainly a lot of rhetoric about how they've driven prices down, if you look at medical device companies overall in the last 10 years their gross margins have certainly not gone down or suffered because of national accounts, so if you do lower price, you pick up so much incremental volume that you can make it up with a lower cost and maintain your gross margin or you don't have to lower your price.

Great. And then just lastly, what are your plans for fresh iteration within your angiographic catheter division. You touched on briefly it being an impact in the quarter and you also touched on Jason's question new R&D initiatives. Those two things match up over the course of the next handful of quarters?

Yes. The Angiographic product line to give you a hint, I don't want to give away too much competitive information, but to give you a little hint, our Angiographic products are a very very broad line of products unto themselves and we have a number one market position in peripheral vascular angiographic catheters but the range of products in that line range anywhere from $17 up to hundreds of dollars, and we're looking at initiatives to potentially convert customers to a higher value platform that has a much higher ASP, and similar or better percent gross margin to where they are now. So we're looking at up selling opportunities in that product segment because there's no way we're going to drive the market growth past the 4 or 5 or 6% that, depending on which study you read right now that it is growing at today. We're just, it is what it is, and -- but, if we can can convert a customer who is buying a $17 catheter to a $35 catheter, that would obviously be very very accretive to our growth in that segment.

Right. Thank you very much.

(OPERATOR INSTRUCTIONS) Our next question is from the line of Greg Brash with Sidoti & Company.

Hi, thanks for taking my call. Eamonn, do you think maybe you could run down besides IRE and the Centros, some of the new products in the pipeline that you're pretty excited about and how important are these new products to reach your goal, I know you've stated a goal in the past of 20% revenue growth and is that goal still achievable in light of just some of the slowdown in growth this year?

Well, we don't talk about specific things in our pipeline r for competitive reasons, but I'm very excited about our pipeline. We do have a broad range of product development opportunities and projects that we're working on. With regard to our ability to drive growth back up to the 20% level, that -- new products play a huge huge part of our ability to do that, and the way we look at our business is every year, half of our growth would come from legacy products and the other half of our growth would come from brand new products recently introduced, so if we falter on the new products, our 20% growth would be 10% growth, and so new products are very very important.

Of the new products that we have disclosed, certainly next fiscal year, the SmartPort CT product line, we're expecting that that's going to continue to be a big growth driver. Centros is a big growth driver and then IRE, we are planning to commercially rollout in Q2 and that's a blockbuster product. That's a revolutionary technology that can really raise the bar and make a very material impact on our growth rate once it gains traction, so because we're going into multi-billion dollar markets ultimately with that product so even small market share attainments will move the needle quite a bit.

A question for Joe. One of the things that jumped out at me was the G&A, it was down to around $3.4 million in quarter. It's been up a little over $4 million the prior two quarters. Just wondering what's going on there and is this a level we can expect to see going forward?

Yes. One part of the decline was on the legal expense side, we had our lowest quarter of the year, legal expense, we only spent a couple hundred thousand dollars and so that was a benefit in the quarter, and apart from that, we've been working hard to eliminate a few non-essential expenses. So we're squeezing it as much as we can in order to invest elsewhere in the business primarily in R&D.

So we are either going to see an uptick next quarter because of the Venus litigation and have it come back down or how should I be looking at that?

It will certainly uptick a bit next quarter, but still be less than $4 million.

Okay, great. I had one final question. You mentioned plans to add sales reps. I don't recall if I heard you mention a number, you're at 53 right now in the interventional side. Is there a goal in mind?

We're currently at 57 on the interventional side. Territory, IPG territories, and 28 on the OPG side, plus field managers and other managers and clinical specialists and all that. So just to make sure we're talking apples-to-apples. We intend to add 8 to 10 people, 8 to 10 territories on the IPG side in the Q1 time frame. So we're out looking right now.

Okay, great. Thank you.

Thank you.

Thank you. Our next question is coming from the line of Jeff Jonas with GAMCO Investors. Please go ahead.

Thanks, guys. I was wondering if you would quantify the impact of taking some of this manufacturing in house?

Well, we don't quantify it exactly, Jeff. Specifically, as Eamonn said we've had a transition from the outside vendor over the course of three quarters and we're paying at a higher price when it was outsourced as well as the transition cost of sending people back and fourth, so we don't break it out explicitly but it's certainly inherent in the improvement in gross margin that we saw this quarter from the prior.

Okay. And when you guys talk about tuck in acquisitions are these going to be specific products, are these going to be much smaller scale than the RITA deal?

Yes, our anticipation is that it would be smaller scale than the RITA deal. We're looking for products, that can fit right in the current salesforce's bag and really leverage their ability to use the relationships that they've already established more effectively. So I don't anticipate any broad based Company acquisitions like we did with RITA, although we would never want to rule one out if a gem popped up, but I think it's far more likely that we would be looking at products and product lines that are really tuck-ins right into the bag with not too much stress.

Okay, great. Thanks a lot, guys.

Thank you. Our next question is from [Ronald Goodson], with Goodson's of Malibu. Please go ahead.

Hi. RITA shareholders were looking at a lot of buzz for the Assure product for breast RFA. We haven't heard any of that since the merger.

Well, we have conducted a number of trials on the Assure program and just a little background on Assure. Assure is a development program that RITA was conducting and that AngioDymanics has continued to evaluate the potential to utilize radio frequency ablation to create an assurance margin around an excisional breast biopsy with the idea being that every surgical excisional breast biopsy is conducted with a very very poor idea about the margin being clear and frozen sections were done and makes the surgery a lot more laborious, and the concept of actually using an RF probe to ablate a margin around the excisional cavity made a tremendous amount of sense and it still does. It's a very very appealing idea. We have been impressed with the clinical data we've received and generated. The biggest challenge we face with that development program is reimbursement. We are looking at avenues of achieving and obtaining a compelling reimbursement. It is difficult to do because although it's intuitive that ablating a margin around an excisional biopsy in a breast is a really good thing to do. It's very very hard thing to quantify how much is that worth, so the powers that be that set reimbursement levels are struggling with that, and have set the bar much higher than we think is attainable for us to show data in order to achieve compelling reimbursement, so as they say life is a negotiation and we continue to negotiate.

Is there any chance of like a celebrity patient or an Oprah event or something that could jump start that process?

Yes, on the reimbursement side, it's -- that would potentially have a very positive effect on cash payment, but on the reimbursement side, compelling CMS for instance to establish a reimbursement level that would make it compelling or worthwhile for surgeons to actually perform the procedure post lumpectomy, that's a different kettle of fish. They aren't very impressed by any publicity unless it's a leading politician who regulates the CMS. That might have a very positive impact actually. But we'll work on that.

Thank you. Next we have a follow-up from Jason Mills.

Eamonn, thanks for taking the follow-up. Just wanted to get a sense for some products we've talked about in the past and haven't for the last couple of quarters which includes Sotradecol and the new balloon product, the new Petite Profiler product. How are those going and what do you see for products specifically for Sotradecol, maybe an update on the Kennedy Bill if it's still in process?

Well, Sotradecol is doing very very well. We're very pleased with its progress and it's still racking up growth rates that are multiples higher than our corporate growth rate, so all is well there. We see no end in sight there. All the traction we've been looking for is coming. It's really, we're going to keep beating the drum there and hopefully keep getting the benefit of that.

With regard to the Kennedy Bill and Sotradecol, the Kennedy Bill is stalled in committee. The compounding pharmacies have mobilized with scare tactics to get constituents to write their Congressional representatives and there's a lot of debate going on about it so we don't think that Bill is going to go away by any stretch of the imagination but it's not anywhere near being passed either. We have seen enforcement actions from the FDA pick up significantly with regard to compounding pharmacies, so compounding pharmacies are based on the FDAs actions on the FDAs radar screen, and that helps quite a bit.

The Profiler is doing well. We are pleased with its performance. We are putting more emphasis on it and we have been pleased with the performance of the product in the marketplace. We've had certain territories do extremely well with it and then others not focus on it enough so we're tweeking our sales management to make sure that everybody spends enough time on that product, but it's growing at a very very high rate.

Great. And just a couple quick follow-ups and I'll get back in queue. On Sotradecol, are we getting to the point of where we would get to the point that you would consider buying that business from your partner? And then secondly, not corresponding with Sotradecol, but with respect to the sales reps, believe when you acquired RITA you acquired somewhere in the mid 30s range in terms of quota carrying sales reps. At that point in time I think it got you to over 90 and now you're at 25 quota carrying so have you pared back primarily on the oncology side or have you seen some departures on the interventional side? It looks like where you are today is perhaps five or six less than where you were a year ago when you bought RITA; is that correct?

Yes, when we bought RITA there were 32 territories in the RITA salesforce and we pared it back to 28 but having said that we took few of the RITA people who were actually ex-Horizon salespeople and moved them over to our IPG salesforce. Our current numbers are 28 territories on the OPG side and 57 on the IPG side.

So 85.

85 plus, which is the same number we've had for a year.

Okay, so you pared that back pretty quickly then?

Yes.

And then it's been constant with no adds since?

That's right and as we said we're looking to add, for the first time since 2006, 8 to 10 territories on the IPG side in Q1.

Okay, and then on the Sotradecol follow-up, Eamonn, just where would it get to the point where it makes economic sense to buy that business?

We've got a ways to go I think.

Okay, thank you. Have a good evening.

Thank you, you too.

Thank you.

(OPERATOR INSTRUCTIONS) Management there are no further questions at this time. Please continue with any closing comments.

Well, I'd like to thank you all for your attention today. We look forward to updating you on the progress and appreciate your interest in AngioDymanics. Have a great evening.

Thank you, ladies and gentlemen. This does conclude the AngioDymanics third quarter 2008 conference call. If you'd like to listen to a replay of today's conference in its entirety, you can do so by dialing 1-800-405-2236 or 303-590-3000 input the access code 11110709. ACT would like to thank you very much for your participation today. You may now disconnect. Have a very pleasant rest of your day.