Chembio Diagnostics Inc (CEMI) 2012 Q2 法說會逐字稿

Greetings and welcome to the Chembio Diagnostics second-quarter 2012 financial results conference call. At this time all participants are in a listen only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions).

As a reminder this conference is being recorded. It is now my pleasure to introduce Bobbie Coco. Please go ahead.

Good morning. This is Bobbie Coco with Chembio Diagnostics, Inc., thank you all for participating in today's call. Joining me are Larry Siebert, Chief Executive Officer, and Richard Larkin, Chief Financial Officer.

This morning Chembio Diagnostics announced financial results for the second quarter of 2012 and filed its quarterly report on Form 10-Q with the SEC. These documents, as well as an updated investor presentation and fact sheet, may now all be viewed and downloaded by going to www.Chembio.com and selecting Investor Center.

If you would like to be added to the Company's distribution list please call Chembio Diagnostics at 631-924-1135 and ask for Susan Norcott or e-mail her at snorcott@chembio.com.

Before we begin I would like to caution that comments made during this conference call by management will contain forward-looking statements that involve risks and uncertainties regarding the operations and future results of Chembio Diagnostics. I encourage you to review the Company's past and future filings with the Securities and Exchange Commission including, without limitation, the Company's Forms 10-K and 10-Q, which identifies specific factors that may cause actual results or events to differ materially from those described in the forward-looking statements.

Furthermore, the content of this conference call contains time sensitive information that is accurate only as of the date of this live broadcast. August 9, 2012. Chembio Diagnostics undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call.

With that said I would like to turn the call over to Larry Siebert. Larry.

Thanks, Bobbie. Good morning everyone and thanks for joining us. Our second-quarter financial results continued the strongly mentioned begun earlier in the year with product sales at nearly double and operating income that was up 160% as compared with the second quarter of last year.

These gains were led by increased purchase orders from the Oswaldo Cruz Foundation, or FIOCRUZ, our license and technology transfer partner in Brazil, and from continued strong growth of our rapid HIV tests in the US market. We also had higher sales of our lateral flow HIV test to Africa and to Asia as compared to last year's period.

We look forward to continued growth of our business, particularly our Dual Path Platform product line throughout the balance of this year and beyond.

During the second quarter we completed a 3,000 patient clinical trial in support of US Food and Drug Administration approval of our DPP HIV 1/2 Assay, which is a rapid point-of-care test for the qualitative detection of HIV 1 and 2 antibodies and that is designed for use with oral fluid or blood samples.

We also made progress in our efforts to capitalize on our unique opportunity to participate in the new HIV self-test or over-the-counter market opportunity, make progress on our Syphilis Screen & Confirm Tests, and made progress toward development of an HCV or hepatitis C test.

In addition, we advanced a number of internally and externally funded development activities for single and Multiplex tests. I will address these in greater detail after Rich reviews the second-quarter financials. And, finally, during the second quarter we completed the uplifting of our common stock to the NASDAQ Capital Market, which we're very pleased about.

I will have a few more specific comments on our Q2 activities and recent developments, and we will then open up the call for some questions. But before I do that I would like to now turn the call over to our Chief Financial Officer, Richard Larkin, to go through the Q2 financial results in some greater detail. Rich.

Thanks, Larry, and welcome everyone. Total revenues for the second quarter of 2012 were $6.08 million, up 68% compared with revenues of $3.61 million for the second quarter of 2011.

Our product sales increased 95% to $5.81 million from $2.97 million in the prior period. Our research and development milestone, grant and royalty revenues for the second quarter of 2012, however, decreased to $273,000 from $640,000 in the same period of 2011.

Our gross profit dollars increased 25% to $2.57 million in the 2012 second quarter as compared with $2.01 million in the 2011 second-quarter. And this was due to changes in product mix and lower R&D contract, grant, licensing and royalty revenues.

Our product gross profit dollars for the second quarter of 2012 increased 63% to $2.30 million as compared with $1.41 million in the comparable period of 2011.

Our research and development expenses decreased to $0.98 million in the second quarter of 2012 from $1.16 million in the prior year period. The decrease was primarily due to lower clinical trial expenses as we completed the DPP HIV trials in April of 2012.

For the three months ended June 30, 2012, our general -- selling, general and administrative expenses increased to $1.08 million from $688,000 in the prior year period. This was largely due to higher commissions on DPP product sales to Brazil, the initiation fee that we paid to list on NASDAQ, as well as to higher wages and stock-based compensation.

Our operating income for the second quarter of 2012 was $512,000 compared with $197,000 for the second quarter of 2011.

Net income for the second quarter of 2012 was $309,000 or $0.04 per diluted share compared with net income of $195,000 or $0.02 per diluted share for the comparable period in 2011.

I would like to note that the second-quarter 2012 net income included $203,000 in income tax provision, which reflects approximately the amount of income taxes that would be attributable to the Company's profit for the quarter if the Company did not have an operating loss carry forward to offset income taxes payable.

Our cash at the end of the quarter increased by $1.38 million from December 31, 2011. That was primarily due to our net income, net of non-cash items, of $1.63 million together with the decrease of Accounts Receivable by $783,000, and an increase in customer deposits of $416,000.

This was then partially offset by an increase in inventories of $841,000, an increase in fixed assets and deposits of $448,000, and a decrease in our accrued expenses and payables of $149,000, along with increase in our prepaid assets of $55,000.

For our six-month results and additional information I would refer you to our Form 10-K, which was filed with the Securities and Exchange Commission this morning.

And now I would like to turn it back over to Larry. Larry.

Thanks, Rich. I would like to just highlight some of our selected development activities, and we will then open up the call to your questions.

First, regarding the now pending FDA approval of our DPP HIV 1/2 Assay for use with oral fluid or blood samples. With the completion during Q2 of our 3,000 patient clinical trial, and the submission of Module 3 to the FDA in June, we have now completed -- we have now have a completed PMA submission to the FDA, and we hope to schedule our preapproval inspection soon.

We anticipate a FDA approval, or at least an approvable PMA decision, before the end of 2012. We would then immediately apply for a CLIA waiver, which should allow us to launch the product in mid-2013.

Second, on our DPP Syphilis Screen & Confirm, we made progress during the quarter in initiating studies that would support a de novo FDA 510 (k) clearance regulatory pathway for this product. Once these studies are completed, which we anticipate will be during the current quarter or in Q4, we will schedule a meeting with the FDA to discuss these results, together with all of the other results of previous data that we have collected -- that we have for this product.

On this product I should also note that we were invited to a recent meeting that was hosted by the APHL, which is the Association of Public Health Laboratories, and CDC STD, which is Sexually Transmitted Disease Steering Committee, which was organized to discuss the potential for new STD technologies, the impact of these technologies on public health laboratories, and the opportunities to develop STD diagnostics where tests are currently lacking.

And one of the top tests that was identified was a need for exactly what we have developed, a rapid point-of-care test for syphilis that detects both treponemal and nontreponemal antibodies; therefore, we firmly remain committed to commercializing this product in the US and abroad.

Third, regarding our SURE CHECK HIV rapid test for home use. Let me first say that the SURE CHECK HIV product is a unique and simple format, and one I believe will be very conducive to becoming a consumer test. Currently it continues to do very well in the US professional market, marketed as Clearview Complete HIV distributed pursuant to our exclusive marketing agreement with Alere, as well as internationally in certain markets where we sell it directly under our SURE CHECK label.

As such, we continued to make progress toward completing the requirements for submitting an IDE, which is an Investigational Device Exemption application to the FDA. Which when granted will enable us to commence clinical trials with respect to a home use plus self-testing claim commencing those trials in 2013.

And you will probably know that there has been significant recent developments related to this market opportunity, including in July where the FDA approved the first consumer performed at home HIV test of a competitor of ours. And I believe Chembio is very well-positioned for this market, not only with our SURE CHECK format but potentially with our other HIV tests as well.

We have provided information in our 10-Q filing today concerning our unique position for this new and exciting market, and we are looking forward to seeing how it develops in the months ahead.

Clearly despite all the funding and advocacy efforts of community-based organizations, and despite all the professional market testing options that are there here in the US today, according to the CDC there is still approximately -- or there are approximately 1.2 million people in the US that are HIV positive, yet approximately 20% of those individuals are not aware of their status.

And those who do not know they are HIV positive, are unknowingly responsible for up to 70% of the 50,000 new HIV infections that occur each year.

And I would add that some of the surveys that were presented also showed that some people who have not chosen to be tested through the available means would be tested with an over-the-counter test, which is certainly one of the major factors for the FDA granting approval to our competitor's tests.

Moving on to some of our other tests under development. Fourth, keeping in numerical order, is our hepatitis C or HCV point-of-care rapid test development activity. We reported in June the results of a study that was published in the Journal of Clinical Virology of our first-generation test. And now during this quarter in Q4 we will be evaluating some new biomarkers to determine whether and the extent to which we can improve the performance and develop differentiated features and claims as compared to the previously referenced first-generation test and the existing competitive product in the market today.

If we can, we would proceed with a full development program, and we could complete development and commence clinical trials as soon as the end of next year.

The development of an HCV point-of-care rapid diagnostic test has become more important as this past May the US CDC published for public comment draft recommendations for testing all individuals in the US between the ages of 45 and 65, which age group represents a substantial portion of the estimated 3 million individuals in the US who are infected with this disease, but are unaware of their status.

With the number of new anti-retroviral therapies approved or pending approval by the FDA, we believe that over time, but not overnight, these new recommendations will be implemented and funded, similar to other CDC recommendations including, of course, their recommendations for HIV tests that we have benefited from over the last several years, but it also had taken some time to be funded and implemented.

I would just like to also mention some of our other (technical difficulty) to this. DPP HIV Syphilis, we received significant interest in this new multi (technical difficulty). We have only just completed development of this test, but we believe there are opportunities for it in a number of markets.

Second, our Multiplex Influenza Immunity test. As we reported in July, we entered into a follow-on milestone-based development agreement for nearly $0.5 million based on our previous successful initial development of this test with a private contractor to the US CDC utilizing our patented DPP, and that work is now underway.

Next, DPP Tuberculosis. We are in the midpoint of our three-year $2.9 million SBIR Phase II grant from the US NIH. And we recently have identified new markers and are evaluating new detection technologies to further improve the performance of this development activity.

And more generally we are assessing a large pipeline of additional new product opportunities, both as OEM development projects and/or as Chembio-branded products. As if we don't have enough on our plate, but we are still have a few things that we are very excited about and we are filtering those projects appropriately.

Finally, before I open the call to questions I just want to repeat that we are very pleased to announce our listing on the NASDAQ Capital Markets in June. And I thank our Board and our shareholders for their support in this decision.

Obviously, the NASDAQ platform offers Chembio and its current and prospective investors a significantly expanded trading platform for Chembio's stock and for investor awareness, and what we consider to be a very compelling growth story. So we're very glad to have taken that step.

So with that, we look forward to building on the strong momentum of the first half for the rest of the year. And we are confident that the year will continue with positive results and developments. Thank you all for listening, and now, operator, we are happy to take some questions.

(Operator Instructions). Scott Gleason, Stephens.

Thanks for taking my questions and congratulations on the progress you guys have made, it is really impressive. I guess as first question, Larry, can you talk a little bit in more detail about what you guys are seeing in terms of market share in the US market with your HIV test?

I don't think you guys gave out the growth rate that you saw in the quarter on a year-over-year basis. I would just be curious on kind of your thoughts there.

Well, we did give out the growth rate of our US rapid HIV test sales in terms of dollars on a year-over-year basis. So I don't have the number offhand, but while I'm talking, Rich, can pick up that number -- but it was significant.

We have experienced good growth in that -- the market through our collaboration with Alere. And the market overall in over the last several years has been expanding. It seems that, at least in this most recent quarter, when you combine the results that we had with those of OraSure and Trinity, who are the other two players, that at least this current period, it has slowed down.

Now there are certainly some changes ongoing with respect to where and how the procurement of rapid HIV test are being procured. And so it may be -- we are still looking for growth quarter-over-quarter or certainly for the year. There are -- certainly can be differentials between what we show and what is actually happening in the market, because Alere purchases the inventory from us and then they -- you know, they don't obviously separately report their sales to the HIV test market the way OraSure and Trinity do, just because it is a much smaller percentage for them.

But our products have been very well-received. They are competitively priced. I noted that OraSure noticed that some of their reduction in sales was due to price competition. And I think that though there is still, I think, growth in this market there is a need for more testing; there is no question about that. And I think it is more -- it may be that it is a temporary change in how and where the procurement are being funded, where the focus is, and we may see a resumption of the overall market growth. Who benefits from that growth will remain to be seen.

To answer your question for the three months, we increased year-over-year by $795,000 or 51%, and for the six month we increased by $1.1 million or roughly 32%.

Okay, great. And then, I guess, when you guys look at the home use opportunity, I guess, are you guys potentially considering a partnering decision there to help with the funding of the -- or of the clinical trials?

I guess, also, do you guys have an estimate on about how much it might cost to basically go through the three modules with the FDA?

The answer to your first question is, yes, we are considering a partnering option. And we have not taken any option off the table at this early stage. As you know, it is a three-year plus or minus process from starting the clinical trials. I think it will be less time than what our friends at OraSure took for -- because they were the first and they had to help create the rules of the road along the way, and probably there were some other delays as well. So that is the answer to the first question.

In terms of the cost, it is several million dollars. Whether it is $4 million, $6 million or $8 million, I think that will ultimately depend upon a number of factors. Certainly, if we continue to generate the cash flow that we have been, we can fund it internally, but we are certainly not closed to potentially sharing that cost with others who would add value to the overall equation.

Okay, great. And then just last question. When we look at the DPP product being approved in the US, can you talk a little bit about how you guys plan to transition that from a direct standpoint, how that buildout could look? Thanks for taking my questions guys.

Sure. We are considering a number of options as it relates to that. We certainly have considered and are actively considering directly marketing it. We have other distribution options that we have entertained. And we are focusing on right now getting the approval and establishing the marketing claims that we will have for this product, which we are very excited about. And then I think we will choose which is the best option for commercializing a product. So I'm a little bit avoiding your question because I don't have a final answer as to which way we're going to go.

Great, thanks again guys.

Raymond Myers, The Benchmark Company.

Larry, in the 10-Q it says that you expect strong increased revenue this year from FIOCRUZ in Brazil. Is that expectation to be further growth over the high levels that we are seeing already in the first half or is this as compared to the lower prior-year comparison?

Well, certainly, it will be higher than last year. We only started shipping in the second quarter of last year, if I recall (inaudible).

Yes, so the year-to-date number for Brazil is --? We have said all along that we would do at least $9 million this year in Brazil. And we are certainly well on our way toward doing that.

Year-to-date we are at $4.9 million. So if we stayed at that rate we will exceed that $9 million revenue rate. I can't tell you exactly whether we are going to exceed the first-half rate, but we are certainly going to be close to being able to do that, if not actually achieving that.

So directionally do we expect the second half of the year to be roughly similar to the first half in terms of total revenue or how should we think about that?

I think that if you think about it roughly equal to what we had in the first half that would be a sound way to think about it.

Okay, great. And then, also, in the second quarter in the Q there was some discussion about manufacturing inefficiencies and scrap that lowered the gross margin in the second quarter. Can you elaborate on that and discuss whether we might expect that to continue? And where should we expect gross margin to be in the second half?

Yes, a good question. We had a combination of things that occurred in the second quarter, which impacted the gross margin, which we don't expect to recur, including some specific -- lot-specific manufacturing defects that we needed to scrap. And, secondly, we did have some inventory of some product that had expired that was unique to a particular customer that was not able to reorder.

So those are two things that I don't expect to continue, and that we should resume our positive improvements in our gross margin as our product mix continues to improve.

Excellent. And then asking about the clinical trial and R&D expense, those were lower in the second quarter. When do you expect clinical trial expenses to start to ramp higher given the very rich pipeline that you're planning?

Probably not until next year. Again, because while we do have some expenses that we are incurring now with respect to completing the requirements for the IDE, other than hopefully restarting whatever clinical trials we are required to do for syphilis, which I can't really put a timetable on, or a number on for this year, but I can't imagine that given where we are that it is going to be significant.

Those -- the IDE for the SURE CHECK home use is really the only thing that we have earmarked for spending for the balance of this year, which is only going to be about $200,000 -- $200,000 to $250,000 in all of -- in Q3 and Q4 combined.

So there may be some other small expenses related to the ongoing activities with respect to the DPP HIV oral fluid assay for FDA approval, but that is going to be very modest. So the main expenses won't start for syphilis, for HIV, for HCV -- HIV home use that is -- won't kick in until during the course of next year.

Excellent. And of the many opportunities you have, I believe that the first -- or the next new product launch will be the DPP test oral fluid for the US clinical market for HIV rapid testing. Can you discuss the market opportunity there, and what the support that might have for your results in the second half next year and beyond?

For the oral fluid HIV test, is that what you said?

Yes, yes.

So we think there is an excellent opportunity for that product. There is only one oral fluid HIV test. It has -- there has been no alternative to that product. It is -- we believe that there are customers that would like an alternative that still want to test with oral fluids. More importantly, that there are patients and clients that want to be tested with oral fluids. And if they can be convinced that we have a competitive, compelling product offering, I think there is an outstanding opportunity.

Specifically what the numbers are, I am not going to venture to guess what we might sell in launching the product in the second half of next year. But it is not going -- we're not going to -- it is going to be a slow process that we will start to invest in at the end of next year. But we think that there is a segment of the market that, through our blood tests and the other blood tests that are not accessing, that where there is a request, a desire for an alternative oral fluid test.

That is great. Thank you, Larry.

Brian Marckx, Zacks Investment Research.

Great quarter again. Relative to the OTC HIV program, is it your expectation that the size of the trials will be similar to what OraSure conducted?

That remains to be seen. I think that going in that has to be the default assumption, but other conclusions, other pathways, other numbers may apply. I think that we are assuming that the various phases that the FDA required of OraSure will be required of us.

That doesn't necessarily mean that we need to spend as much money per patient or do other things in the same way that they expended their money, so that remains to be seen. But certainly going to be the phases that are required by the FDA. We have every expectation of that. It is possible it could change. We will certainly probe on those issues, as well as the number of patients. But we will have to see exactly what we are going to need to do when we meet with FDA after we get our IDE.

Okay. And on to the feasibility study for the HCV test, when do you expect to have results? And can you tell us what the comparative tests that you're comparing it against are?

So, well, there are several immunoassay HCV test out there today. There is one point-of-care test that is OraSure's, also a antibody detection test. And so we will certainly be comparing that aspect of our tests to those EIA tests. That is the performance benchmark for the immunoassay test.

Whether we are able to bring in additional features, for example, antigen detection, to be able to detect cases earlier than when antibodies occur. And as you may know, this disease may lie dormant even though people were exposed to it decades ago, they might not have today antibodies, but there may be the ability to detect antigens.

So those are some of the things that we would be looking at. Today there is no, as far as I'm aware of, no antigen test -- certainly no point-of-care antigen test that is FDA approved. So we are looking at some detection technologies and other markers to potentially develop that kind of claim. And there are some products approved overseas that have antigen detection claim, as I understand it, but not here.

There are RNA tests, and there are PCR tests, which are of course much more time-consuming and more expensive. But those are -- that is not the technology that we would be employing.

Then -- and when do you think you may have results of the feasibility study?

I think we will have -- we are doing that now. Probably by the end of the year we will have some preliminary indication as to what we could do. That would be a guesstimate. I don't -- we have just gotten these new materials in literally in the last number of days, and so we are just starting that program now -- Or restarting it, guess. So that is a guess. We haven't -- I don't have a more specific timetable than that right now.

Okay. All right, thanks, Larry, I appreciate it.

Aaron Fletcher, Bios Research.

Great quarter and thanks for taking my questions. One question just is kind of to bounce off of Scott's earlier question, which was what is causing the growth within the US market? You highlighted the price differentiation between your guy's product and then the OraSure product. And I was curious if you had any thoughts on if there was some marketing -- extra marketing that is going into it, maybe ease-of-use, differences and specificity or sensitivity, or if you think that price is what is driving the market share growth to you guys are seeing?

I think it is a combination of all those things. As I think you know, maybe you don't, in the US market we don't market our product.

Correct.

Okay. So Alere is marketing the products and we certainly are in communication with Alere about how we are doing, how they are doing with our products. And we get answers that cover all those potential reasons. And that is what makes them, and has made them, a very good partner is that they are selling a product based upon its features. They're able to sell the product competitively as and when they need to. And I think that -- what I can say is that when it comes to blood tests we have the best products in the US market.

It is my opinion, but that is -- I think that is what customers are seeing, and that is why we are doing so well with our products and Alere is doing so well with our products.

And do you have any idea on what Alere is maybe marketing -- money that they are putting into marketing your product in terms of dollar amounts for the first half of the year, anything of that nature?

I have -- I mean, they are -- we don't see their marketing budget.

Okay. They haven't made anything public.

No.

That allows you to make anything public on --.

Only that they are working very hard and that they are certainly doing -- attending trade shows and conferences and supporting their customers the way we would want them to. And (technical difficulty) we don't have specific numbers. And if we did they would probably be confidential. I am sure they would be.

Okay. And then you had mentioned earlier in the process that once you guys got approval that you would then file for the CLIA waiver and begin marketing in probably the first -- around the middle of 2013.

Correct.

And I was wondering can you -- would you be willing to or can you -- I mean, I know you can, but would you start marketing or start moving forward with it before you get the CLIA waiver, or are you going to specifically wait until that CLIA waiver comes?

I think the latter, because for these kinds of products a CLIA waiver is tantamount to having approval, because of the kinds of customers that you need to sell to. That doesn't mean that we would not potentially start, as we have already started, to tell selected individuals about the product. But in terms of actually selling, it would be premature to actually be selling the product without CLIA waiver.

And then to go back to the differentiation, what do you see as differentiation in your DPP product versus OraQuick? In terms of do you think there will be a price differentiation as well sensitivity, specificity, et cetera?

We think that the DPP product has a number of features that will offer competitive advantage, including performance, ease of use, other features relating to how the test is performed, and also, performance on blood samples, as well as oral fluid samples, which is outstanding.

So we are developing that marketing package, and when we are ready to release it and, which will be after we get approval from the FDA -- we will get into the more specifics.

Okay. In terms of -- I know it is perhaps premature in terms of pricing, but it has been successful. You guys have had success with a price differentiation in the professional market. Do you think that you will also try to maintain a price differentiation after you get the approval potentially later this year or is it too early?

I don't want to --.

I understand. All right, last question is in terms of the over-the-counter HIV market and program, I would be curious as to what you think the retail market size is for the over-the-counter program. I know OraSure has come out with up to $500 million in annual sales. And here at Bios Research we find that to be potentially over exaggerated considering that is actually higher than the over-the-counter pregnancy tests that are out there.

But I am just curious if you guys have done any study on that or have any thoughts, and to what you guys are estimating potential size is.

We have certainly looked at all the information that you are referring to. And I think the best indicator for us will be the actual reception by the market in the months ahead. There will be no better indication than that.

No, absolutely not.

And so we have the luxury of being able to see that without having to invest a lot of money between now and then, but we are certainly moving forward on the assumption that there is a market opportunity. Maybe it is not as big as some of those estimates, but we do believe that even if it is significantly smaller than that estimate it is still attractive for us, and we are uniquely positioned to be the second player in that market.

Yes, I think you guys are very a well-run Company in terms of expenses versus making sure you make profit, even if that was 1/10 the size of it.

I guess the last question is just more of an investor-related question in terms of equity pricing, et cetera. You guys have been able to move up into NASDAQ, and I'm wondering if you guys intend to do any investor roadshows or if there is a potential to -- for clients to potentially get in in any future money raiser or anything that would allow warrants or something that would allow opportunity to begin to get into Chembio in a more meaningful way as their volume makes it very difficult for institutional clients to participate significantly?

I'm just curious if you guys have anything that you would be willing to share publicly or anything that you're doing to move forward with that. I know the up-listing to the NASDAQ was a big part of that, but just curious if there is any next steps?

We don't have any current plans for fundraising. We generated a significant amount of cash during the last quarter. And we do know that smaller institutional investors have started to become shareholders. I don't -- I do understand what you're saying about being able to participate in the stock, although those that are willing to be patient can.

And so I encourage you to have patience and participate as and when you can. It may take you some time to acquire your position, but that is all I can say.

We don't have any plans -- and we certainly do -- I have done and will do meetings with investors, but not for the purpose of fundraising.

Right. And will you guys begin to increase just in general roadshow by chance? I know you guys do a lot of activities within the STD market, or just getting the word out with an HIV market or HCV market, but investor conferences or held conferences are -- is there --?

Absolutely.

Okay.

That without a doubt.

Alright, well that is all my questions. Thanks again, and congratulations on another great quarter.

Joe Munda, Sidoti & Company.

Thanks for taking my questions. A lot of my questions were answered, but, Larry, with everything that is going on with the approvals and the ramping up, how should we look at CapEx? Is it going to be -- for this year and going forward is it going to be similar as it was in the first half or the second half?

This is Rich. We indicate in our MD&A that we have committed to a certain amount of CapEx. I am just trying to find the exact numbers here, bear with me. But we have committed -- here it is. We have committed to an additional $96,000, and we have about $285,000 currently in equipment deposits. And those will be coming online in the third and the fourth quarter. In our industry it is not -- you can't just buy a piece of equipment and start using it. It does have to go through a lot of steps of validation before it can be used.

So we have acquired several what we call reel-to-reel machines recently, plus other automated assembly machines within the last six months or so.

I would say that it is in the $150,000 or so per quarter, $100,000 per quarter range.

Right.

Is where we are right now. We have expanded our footprint modestly in order to find a space for some of this new equipment. That is in the form of leasehold improvements. We don't own the real estate here.

So it is not -- we do need to create some additional office space for some additional personnel we are bringing in. So those are the kinds of things. But it is not anything out of the ordinary of what we have been spending.

Okay, and then, Larry, last question. Any early indication how OraQuick is doing. Have you heard anything, seen anything, just to follow up on the last caller's comments?

About the OTC market?

Yes.

They have not launched yet. They just reported their results the other night, and I believe that they indicated that -- I didn't read the whole transcript. I heard that they are going to be selling -- that the retailers are going to be selling the product for $39. And I don't know whether somebody assumed this or this was -- they actually said this, that OraSure would be selling it to the retailers for $27, buying a $12 markup to the retailer.

So that is in the range that they initially indicated, but I think that there their actual launch is not until September or October.

It launches in October.

October.

No, I was just wondering if you had heard anything on the retail side from those guys.

Not yet. I have got -- I am anxious to see how they do, and at some point we will talk to them, but haven't yet.

Okay, all right. Thanks guys.

(Operator Instructions). Kevin Fernandez, Fernandez Financial.

It is not so much a question as it is, Larry, I just want to congratulate you and Richard on another successful quarter yet again. I think you guys are doing a fabulous job, and I mjust wanted to say congratulations. And I am proud to see you guys continuously grow, and so much more success to go.

Thanks so much, Kevin. It is nice to hear your voice. No conference call without you.

I am always there.

Gentlemen, there are no further questions at this time.

Thank you very much for your questions and your continued interest. 2012 continues to be a year of solid revenue growth with continued new product development. We look forward to delivering on our strategic plan and trust you will continue to follow our progress.

We look forward to speaking with you again when we report our third-quarter results. Thanks again and have a great day.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.