Enzo Biochem Inc (ENZ) 2006 Q2 法說會逐字稿

Good morning and welcome to the Enzo Biochem second-quarter 2006 operating results conference call. Except for historical information, the matters discussed on this conference call may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended. Such statements include declarations regarding the intents, beliefs or current expectations of the Company and its management.

Investors are cautioned that any such forward-looking statements are not guarantees of forward future performance and involve a number of risks and uncertainties that could materially affect actual results. The Company disclaims any obligation to update any forward-looking statements as a result of developments occurring after the date of this conference call.

At this time all participants have been placed on a listen-only mode and the floor will be open for questions and comments following the presentation. I would now like to turn the floor over to your host. Mr. Weiner, the floor is yours.

Thank you and good morning. Again, I'd like to thank you for joining us for our fiscal 2006 second-quarter conference call. I'd like to spend a couple of minutes reviewing the financial results of the quarter and then I will proceed to cover a number of the important events that have taken place as well as discuss some of the strategic initiatives that we are currently exploring.

Our results in the second quarter are reflective of many things, but essentially they underscore our wide-ranging strategy at Enzo. Key elements in this strategy include advancing clinical products through the therapeutic process as well as rebuilding our life science revenues through a multi-directional approach and improving the operations of our clinical labs business through margin expansion.

(technical difficulty) this quarter were significantly impacted by increased expenses associated with Sarbanes-Oxley compliance as well as other governance and accounting expenses and legal activity. We now have an increasing number of active therapeutic projects in various phases of preclinical and clinical development and trials. Our most recent announcements concerning our programs for the treatment of HIV-1 infection as well as for Crohn's Disease underscore this activity.

Our life sciences division has been involved over the last several months in a major strategic planning initiative designed to move the division forward. The performance of the life science division has been adversely impacted by the legal disputes associated with our intellectual property. Even so, we are not satisfied with the sales performance and are acting to build both product and volume as we move into the future.

The announcement last month concerning the issuance of a key patent in the area of DNA labeling is an important component of this initiative and I will discuss this patent and its potential possible implications in a few minutes.

We recognize that Enzo's intellectual property [stake] is one of its most valuable assets. Not only are we adding new patents, but we also are involved in vigorously defending our issued patents which requires a dedicated commitment in both time and money. Also, Enzo Clinical Labs is an important asset, one that we have been expanding in terms of markets, its test menu and the technology with which we provide vital information about our patients to our physician customers. This is designed to drive profitable revenue (technical difficulty).

Fortunately Enzo is well-positioned from a financial viewpoint to underwrite these diverse activities. We remain committed to investing in projects that we believe will help to provide great (technical difficulty) Company and our shareholders. I would like to discuss our latest quarter activity and then, more specifically, comment on some of the specific events that transpired.

For the quarter which ended January 31 we reported a loss of $4.4 million or $0.14 a share versus a loss of slightly more than $0.5 million last year, that was about $0.02 a share. The main factor contributing to the loss this quarter was the substantial increase in our selling, general and administrative expenses which amounted to $7.3 million versus $4.7 million in the year ago quarter.

This increase reflects not only greater marketing activity across our division, but also much higher expenses associated with Sarbanes-Oxley (technical difficulty) and related mandatory rule 404 internal control reporting procedures, higher accounting costs and corporate governance fees, as well as a non-cash charge for option expense under SFAS 123R which is the accounting for share-based payment regulation which was put into effect.

These expenses were extremely high and we hope in future quarters they will moderate. In addition, our legal expenses rose by $400,000 as we saw increased costs involving not only litigation, but added patent prosecution costs associated with the continued development of our intellectual property portfolio. This is a very important investment to us (technical difficulty) the issuance of a very key patent this past quarter.

For the second quarter total revenues amounted to $10.1 million compared to $11.2 million in the corresponding year ago period. Gross profit totaled $6.3 (technical difficulty) with $7.8 million a year ago. Our revenue comparison on a year-over-year basis was again impacted by our ongoing legal issues involving former distributors of our life sciences products.

Despite our losses this quarter our balance sheet remains strong. As of January 31, 2006 we had cash and marketable securities of over $76 million and working capital of over $90 million, stockholder's equity exceeded $102 million and the Company remains debt free. Financially we are well-positioned to pursue our directions.

At Enzo Clinical Labs revenues rose just slightly on a quarter-over-quarter (technical difficulty) of $8 million. Gross profit was off about $500,000 due to higher operating costs such as reagent costs, especially those related to esoteric testing. Additionally, we have completed the upgrades of our Enzo direct laboratory computer systems. We continue to increase the number of physicians that are using our proprietary Web-based system, EnzoDirect.com, which allows physicians to view our laboratory results from any Web enabled computer.

We also completed the correlation studies needed to bring in-house two important categories of tests -- panels for testing the sensitivity of patients to various allergens, and a more sensitive assay for the identification of multiple myeloma in serum. These tests carry higher margins.

At Enzo Life Sciences revenues were $2.1 million for the quarter, this was a decrease from $3.3 million a year ago and was the result of decreased or lost sales volume from distributors and the ongoing legal issues that we have with them. As an example, in fiscal 2005 the Company recognized $800,000 in revenue from a single distributor with whom we have an ongoing legal dispute.

Additionally, as we said before, we have not experienced the increase in direct sales volume that we would like; therefore we have made and will continue to make changes at Life Sciences to improve its performance. This division has undertaken new initiatives which we hope will produce improved results.

Some examples of such initiatives include our acceptance of an invitation to deliver a presentation at a prestigious focus conference on the use of arrays in medicine next month where many prospective clients are in attendance. It includes the development of a major sales promotion aimed at academia for the marketing of our new labeled DNA building blocks and a more concerted effort directed towards early adopters in the field genomic analysis for cancer and developmental disorders.

On the product development front, we are about to begin beta testing for a system for rapid amplification of RNA so that those individuals that have very little starting material can now produce sufficient quantities of product to complete genetic analysis in a matter of hours.

As we have indicated in the past in the field of gene expression, obtaining samples, especially clinical ones, can be an arduous task. And the smaller the amount of the material that a researcher needs to use to study which genes are turned on or off the greater the number of analyses that can be performed.

Additionally, we have made strides in concert with a leading cancer research institution attempting to develop products and protocols that allow scientists to study DNA from old archived tissue samples which would permit them to undertake retrospective genetic studies. This is an important project; if we are able to produce a system that is user-friendly and relatively inexpensive there could be wide application for such a system as there are literally hundreds of thousands of tissue specimens in various labs around the world that could be analyzed genetically. Such information could have wide utility in tying specific genetic modification to a number of clinical manifestations.

Another initiative to enhance the productline opportunities of the life sciences division is to seek to partner or acquire additional product lines to enhance our current offerings to the research marketplace. In this area we have recognized the opportunity of expanding our efforts into the immunological products market to complement our existing efforts in genomics.

Last month we announced the issuance of a key patent which describes nucleic acid labeling techniques applicable to a wide variety of DNA diagnostic and medical research products. This patent focuses on the phosphate portions of nucleic acids or DNA that link the various nucleotides that carry the genetic code. The issued patent, among other aspects, covers nucleic acid labeling molecules that are attached through the phosphate portion of the DNA or nucleic acid either directly or indirectly. Such technology can be applied to a range of commercial products, some of which are currently being used for both diagnostics and research.

DNA diagnostic testing as a rapidly growing area of molecular medicine which uses gene identification for diagnostic and prognostic applications. It is estimated that the current annual market for gene-based testing ranges from $500 million to as high as $1 billion currently. Among the labeling elements covered by this patent are fluorescent, semi luminescent and chemical molecules that are labeling components most commonly used in medical research and in diagnostic applications.

The use of the phosphate portion of the nucleic asset as the site of the label provides a number of benefits to the end-user. The chemistry for attachment can be done easily and cost effectively; placement of the label at this side allows DNA pro hybridization to be measured while the molecule is being replicated. In addition, this technology can be used with a variety of labeling molecules, making it an extremely versatile methodology for DNA or gene-based diagnostic testing. We are now valuating the commercialization opportunities associated with this patent and it is one we are very excited about.

Let me turn to Enzo Therapeutics. The last several weeks have been extremely busy and productive ones in this division. Yesterday we completed the formal initiation of our Phase I/II trial for HIV. Earlier this month we announced that we have received approval from the committee on human research at the University of California San Francisco to continue the clinical evaluation of our Stealth Vector HGTV43 gene construct.

It's estimated by the Centers for Disease Control in Atlanta that one of every 300 individuals in the United States is infected with HIV. The protocol now underway has been modified from the Phase I trial to attempt to increase the number of stem cells containing our construct that engraft in patients' bone marrow. We will use HGTV43 to transfer three antisense genes designed to interfere with the growth of HIV-1 into blood stem cells. These cells are expected to replicate and differentiate within the body of the infected subject to produce CD4+ T cells, the main target of the virus' infection.

In our Phase I study (technical difficulty) adverse events accompanied the infusion of such cells after we had transduced them via HGTV43 and we were able to demonstrate long-term survival of our gene medicine. This trial is intended to determine whether our protocol will create a supply of HIV resistant CD4+ cells large enough to materially defer the disease progression of these infected subjects.

In terms of a timetable for this clinical trial, the formal initiation has taken place. We will now begin the process that will lead to the enrollment of subjects and begin infusing them with our medicine. This procedure is approximately a 24-hour process and then a six-month monitoring period will commence during which time these subjects will be evaluated for the measurement of the infused nucleic acid sequence in their bloods.

In this clinical trial we are assaying for effectiveness as well as safety. We have demonstrated on a small number of patients an adequate level of safety that we've decided to and been allowed to move forward. Efficacy that we're measuring here is the restoration of the immune system and we're doing that in a couple of ways. Aside from the traditional way of measuring the number of CD4 cells and the number of HIV virus particles in serum, we're also measuring whether there's an increased diversity in the immune system. In other words, whether increasingly more individual immune reactions take place using an assay that is known as the immuno scope.

We're also looking for the (technical difficulty) cells which is the loss of these naive T cells is very characteristic of the progression of HIV infection into AIDS. So this trial has the new feature that we're actually now looking to see whether our gene transfer procedures are not only safe but also efficacious in the management of AIDS -- HIV infection long-term.

By the way, that was Dean Engelhardt who just returned this morning from California after initiating this trial. I suspect he's a little sleepy and forgot to mention his name. Current HIV therapies involve medication with a nucleocide or a nonnucleocide reversed transcriptase inhibitors and/or protease inhibitors in various combinations. They have demonstrated clinical benefits in many patients. However, HIV-1 can escape drug mediated suppression by genetic mutation.

Failure to take medications as prescribed may increase the likelihood of HIV-1 mutating to drug resistance. Moreover, a number of side effects of some of these therapies, especially protease inhibitors, have been reported recently. These side effects can include neurologic and renal problems and it's been estimated that the lifetime cost for treating HIV infection in these individuals can exceed $150,000 just on a reagent base.

It's our hope that our innovative approach for this disease, or the treatment of this disease, could become a viable complement to existing therapies if not used alone in the treatment of this devastating disease. It is a very pioneering approach and one that we are extremely excited to pursue.

Overall we are (technical difficulty) changing paradigm in pharmaceutical product development and we have been designing our programs to address these new pharmaceutical trends and the HIV product is one of them. Historically disease has been defined by its symptoms and as we move into new directions we are more closely looking at the mechanism of these diseases and designing very specific approaches to intervene at a biological level which is exactly what we are doing with the HIV product.

Also historically there was a general consensus on the uniformity of a given disease and the uniformity of patients who present with the disease. And today we recognize more of a heterogeneity of the disease with a uniqueness of interaction within given patients and thus we are designing and (technical difficulty) on modes of product development directions that have a more personalized reliability in certain patients.

Also historically a given treatment was looked at as being universal in treating an ailment and today we view that -- we are seeing the initiation of what we call personalized or individualized therapies that are in certain cases very specialized in targeting the given mechanisms of disease states. And this is true of our Alequel product. This is coupled with the recognition of the advantage of having predictive markers to guide the efficacy of these individualized approaches.

We believe that we are appropriately positioned directionally in targeting medical approaches to meet the new directions and trends of pharmaceutical development and it's an area that we have focused extensive attention on and I think have been building a pharmaceutical pipeline that I think falls within the upcoming developments and trend lines of new products here.

The other exciting news in our therapeutics group deals with the announcement we released early this morning concerning the initiation of a new Phase II clinical trial to evaluate our immunomodulatory candidate drug, EGS21, as a treatment for the management of Crohn's Disease. We completed a Phase I safety trial with this compound last year. We are commencing the study in part because of the promising preclinical work that was carried out by our scientists and collaborators which we have presented at a number of prominent meetings recently. These results demonstrated that EGS21 works on immune regulatory natural killer T cells and could possibly there interfere or impact the immune response in the body by modulating its function and adjusting it to a normal stage.

This program is not designed to replace Alequel. In fact, we are also continuing to enroll additional subjects for an expanded Phase II trial for Alequel, our immune regulation product for Crohn's Disease. Additionally, we are also evaluating several potential trial sites in the United States in order to provide us with a more diverse population and expended trial base.

Alequel is a method of selectively eliminating a specific immune response by tolerizing the body against the antigen that's inducing this response. So it is a very selective and very precise strategy for eliminating a given immune response. In the case of Crohn's Disease the immune response is undoubtedly caused -- according to our data, is undoubtedly caused by antigens that are present in the mucosal lining of the gut. So that's the source of our medicine -- individual medicine (technical difficulty) individualized medicine from an individual person that's manufactured and given to that person and to no one else.

The Glucosylceramide, the EGS21 reagent is a reagent that, if it works in the body as it works by our preclinical testing, binds to and shuts down a cell that's like one of the first steps in inducing the inflammatory response. Therefore it's a more general anti-inflammatory. It's working by going in early in the inflammatory [spot] at the innate level in fact, the first line of defense and blocking that response. Crohn's Disease is an immune mediated disorder and the antigens that are causing it are undoubtedly in the mucosal lining of the gut. That is one strategy.

A second strategy is EGS21 which is the fact that Crohn's Disease is accompanied by and probably promoted by the inflammatory response. So the Alequel and the EGS21, while we're using them to treat the same presentation, are actually working by quite different mechanisms. And while we don't know for sure, it is -- one theory we're working on is these strategies could be even complementary; they could both be used to increase the efficacy of -- to reach an efficacy better than each individual separate treatment.

I would point out also that the EGS21 has been used in an open label trial for the treatment of NASH. And again, NASH is an immune mediated inflammation of the liver. A lot of people correlate it with being obese. A lot of people have fat actually accumulating in their liver. This is called steatosis. And some minority of those people, perhaps as many as 2% of all Americans, this steatosis becomes inflamed and the liver becomes the site of an immune attack for reasons at this point not fully understood.

And again, EGS21 acting as an early anti-inflammatory agent has been shown in animal model systems to effectively ameliorate this inflammation. And as I say, we're now engaged not only in using EGS21 for the inflammatory (technical difficulty) but in addition we're using it to deal with the inflammatory aspects of NASH, nonalcoholic steatohepatitis.

Crohn's is a significant market and it's a significant challenge for the medical community. There are over half a million affected individuals in the U.S. and perhaps an equal amount in Europe. The disease is triggered by an immune inflammatory response that can cause extensive internal damage and it can strike people of all ages, but it's most commonly found in individuals under 30.

When you look at the cost to treat this disease, we are looking at estimates in excess of $1 billion. So having multiple products targeted towards this particular indication is certainly economically viable and sensible as an approach to determining a product that will find a success ratio here.

Alequel falls into the category which we deem, again, as a personalized medicine and we envision personalized medicine spanning a much larger presence as disease becomes better understood at a molecular level into the future. We are looking more and more into the pathways and mechanisms that target and trigger these particular indications. We also believe that genetic testing will become more routine and that patient populations at risk will be identified earlier and this will lead to expanded markets for treatment options.

On an overall basis healthcare is trending towards more predictive and preventive care with the opportunity for what we look at in terms of presymptomatic diagnosis and treatment becoming more prevalent. So we are, again, very excited about these different approaches.

We are also planning later this year to initiate a Phase II clinical trial to test the efficacy of our experimental drug, B27PD, as a treatment for autoimmune Uveitis. Uveitis is an inflammation of part of the eye that is known as the uvea. And this is a disease that can progress to blindness. In addition, we are continuing development work on 3C3, a small molecule that preclinical studies have shown increased bone mass in laboratory animals. An increase in bone mass might be useful in the management of post menopausal osteoporosis, bone fracture healing and bone reabsorption in the jaw.

So we have an extremely full, growing pipeline in our therapeutic area. We are moving these through the pipeline in an orderly and we think economic fashion and we see a critical mass developing that we believe will (technical difficulty) give us options into the future for multiple strategies to exploit these products both by direct selling them, licensing them, partnering them or other forms a commercial approach that can create value into the future.

And as you can see, Enzo's therapeutic pipeline is one with depth and breadth. We have been focusing our platform on platform technologies in which we've developed numbers of compounds that may show efficacy against a number of diseases. And as we move further into clinical evaluation of these compounds we will continue to explore our strategic alternatives and they are multiple.

In conclusion, the second quarter was one of challenges and one of progress. We at Enzo today are a strong, diversified company. We have multiple distinct opportunities to create value. We are very enthused; everyone is working extremely hard and diligently. And we're highly optimistic as to where we are heading. On that note I would like to open the floor to questions.

(OPERATOR INSTRUCTIONS). Keith Markey, ValueLine.

Good morning. If I could I have two quick related questions. One is can you give us a sense as to your R&D expenditures for the remainder of this fiscal year? Should we model based on what we've seen in the first half? And secondly, could you describe a little bit about how HGTV43 differs from the earlier antisense therapy that you have tested?

Why don't we start with the latter question?

HGTV43 is the same vector that we've been using. We're very proud of the vector; it has many safety features built into it in terms of blocking insertional promotion for example and also blocking immune attack upon your transduced cells. What we're doing is using a strategy to increase the -- a strategy that is known to increase the (indiscernible) of bone (technical difficulty) circulating stem cells in traditional treatment.

What we're doing is ablating our patients, partially ablating with an outpatient procedure; we're providing a total body irradiation for our (indiscernible) subjects in the trial. And as I say, this is a strategy that is known to increase engraftment. So the last trial that we did we had engraftment that was reasonably stable up -- in one instance up to five years and we got evidence of the engineered gene functioning.

What we're intending to do now is to increase the number of such engraftments cells so that we can get a large enough cohort that we can hope to reconstitute the immune system at least at a high enough level with the HIV-resistance cells to begin to reconstitute the immune diversity that this system is able to provide. So an outpatient ablation is the new issue that we're putting into this trial.

Thank you. I was wondering -- I think during your presentation you mentioned the use of three different antisense genes in this particular trial. Is that the same number as were incorporated in the initial trial?

Yes, in the initial trial, and we're using the same vector. We've embedded an antisense sequence into a U1 RNA gene and it has a couple of very good properties as far as we've been able to observe. First of all, the sequence we've put in is so large that in our hands the virus is not -- HIV has not escaped from the antisense coverage even when multiply challenged by HIV. Our antisense sequences are between 60 and 70 nucleotides long. By and large the antisense strategies that have been in current use and even the new ones called RNAi, the target size is much smaller and much more subject to single mutational escapes. So our antisense sequences are large.

And number two, by embedding them in U1 RNA we have also managed to concentrate these antisense sequences in the nucleus or at least in an area of the cell that is exactly coincidenced with the nucleus of the cell. So we've increased the concentration within the nucleus and we've provided an antisense sequence that the virus does not seem to be able to escape from. So in that sense I believe we have superior design qualities.

We're also -- by using U1 we're harnessing, as we always try to do, harnessing a natural biological effect which is that this RNA molecule is returned to the nucleus as the ribonuclein protein (technical difficulty) and therefore it's higher concentration nucleus and has proved to be more effective than just a sort of raw piece of (technical difficulty) without any normalization to normal biological processes.

In response to your first question in terms of the RND run rate, we have been running at about $2 million a quarter in R&D expense and we anticipate that will continue. It could inch up slightly as we begin to enroll more patients and initiate more trials, but we believe for the rest of this year you can anticipate a (technical difficulty) that will be comparable to the prior two quarters with a slight increasing range in each quarter.

Thank you.

Jack [Blasday], Smith Barney.

Good morning. Two questions for you. The first is -- I believe it was back in July of '05 when you had a Markman hearing against Roche et al. We've heard nothing with regard to any announcement from the outcome of that. I was wondering if you can give us an update on that. And also, you had mentioned today that you're starting a beta test for amplification of genetic materials. How is that different from the much heralded diagnostics machine and can you update us on what's going on with regard to some kind of a fruition of bringing that to the market?

A lot of static in the line here. Could you repeat your first question?

Sure. The first question is with regard to the Markman hearing that was against Roche et al. We've not heard anything with regard to an outcome there.

We are awaiting a decision of the Markman hearing. All documentation was put into place by the end of January and we are just awaiting a decision on that. It's in the (technical difficulty).

Does that answer your question?

Sorry, I didn't hear the answer. It didn't come through.

Is it a possibility to pick up your handset, sir?

I can hear you now.

In response to the Markman hearing, we are awaiting a decision of the Markman. All documentation and procedure was completed as the end of January. It is in the hands of the court to come out with a ruling and we will obviously address that when it emerges.

I would like to comment from the Markman. The Markman addresses only part of the particular issues involved in that litigation. The cases surrounding that have both a contract element as well as a patent element. The Markman addresses only certain patent issues associated with those cases and there is a rather strong basis and activity on the contract side as well. So it's a multifaceted case and we will report on that when it happens.

As far as the mention of the beta testing, we've actually reported this before. The new product is comparable to a product that we have actually developed and introduced. However, the difference is that this is a much easier test -- it can be done much more quickly with the same accuracy. Here's what the test is, it is of great interest to determine which genes are turned on and which genes are turned off in various tissues or in the presence or absence of various medicines or drugs. And this is a very rapidly growing area both of research and in the end probably also of diagnostic and screening testing.

The traditional method for doing this allows you to amplify -- without changing the ratios, to amplify the product of genes by about 1,000 fold. Our new procedure allows a much greater amplification. So rather than having to develop which genes are functioning in a block of tissue, we can go down to a small number of cells and therefore we can get a much more accurate picture of what genes certain types of cells are turning (technical difficulty) in the presence or absence of stimulants from the outside.

So it is a test of great accuracy and it has -- it opens up an entirely new aspect of measuring gene function which is that you not just use tissue, now you can hope to go down to individual cells or individual (indiscernible) to see how they respond. Much more precise and much more informative.

Can this product be brought to market without the concerns with regard to either patent infringement or cross patent concern?

Only time will tell, but as a matter of fact I think it will, but that's my opinion. You can't say for sure one way or the other that sort of question.

Basically in our review of the issue (technical difficulty) confident that this product will be a freestanding and covered product under our own IP.

Thank you both.

(OPERATOR INSTRUCTIONS). Robert Smith, the Center for Performance Investments.

Good morning. I also have two questions. The first is, after the six-month observation period of HIV AIDS treatment, what might you be able to say publicly?

The end point will be a measure of whether or not we have increased the production of new T cells and, in addition, whether the T cell population has increased the diversity of immune response. The fact is one of the unusual and devastating properties of HIV infection is that it seems to selectively destroy cells that are involved in initiating a new immune response. And the measure of efficacy that we're going to look for in this trial is whether we can get a primary response or a memory cell response that will go to completion and create a new immune reaction within the body.

So HIV has this unusual property of sort of selectively destroying the active cells and allowing the not so active cells to remain intact and present. So the short answer then is we're looking for an increase in immune diversity (indiscernible) and six months is a valid time point to begin to get indications of this.

If your expectations are met will you be able or willing to publicly state what you see?

We've always reported when we've concluded a clinical trial. Remember, we have (multiple speakers).

I'm speaking about a patient.

Not in a patient. No, there be no reason to do that.

And how many patients would you have to work with?

We have -- at this point our allowance is for up to 15 patients. But remember, it is a relatively simple amendment of the protocol of this form to increase the number.

I understand, Dean, but in essence what I'm seeking is some kind of a timeline for an announcement about your success if you achieve it.

I'm sorry, Bob, I'm no good at timelines, I've never been.

Let me try to feed in on this one. This is a very pioneering trial, as you are aware. We have really waited and persevered quite a long time to get to this stage. We're excited about being able to get in and to see if we can validate this product. We will pursue this as quickly as we can. And believe me, depending on quantifiable measurable peer reviewed results, we will report the data as soon as we can.

And my second question (technical difficulty) in the area of hepatitis B, could you give us an overview as to what's happening there?

We over the past year, year and a half have been optimizing the manufacturing protocols. The cost structure associated with the trials for hepatitis B is extremely high and the locations where it will have applicability are outside of the United States. As a result we have been in discussions with parties in parts of the world where this product will have utility specifically in China and India. We are in discussions with various parties to execute clinical trials in those parts of the world in a form of a relationship that would possibly alleviate us of the economics of running large-scale clinical trials for this product.

The key here is economics. The cost structure associated with hepatitis B, because it is a product targeted towards third world use, is required to be very, very low end. We think we have been able to get the manufacturing specs to a level that it could be a commercially viable product in China or India today. We need to run the clinical trial process over there. We are hopeful and optimistic that we will have a partner to do such and we'll report on that as soon as it gets to a point where we are able to move forward with that.

Do you think you will have an agreement sometime this year (technical difficulty)?

I can't comment. It is something that has been in active discussion, though.

Thanks very much. Good luck.

Robert [Berlitz], Wachovia Securities.

Hello, Barry and Dean. This is George (indiscernible). I'd like to ask a question. Is it fair to assume or even think that we're a little closer or close in any proximity to a joint venture with any big pharmacy (indiscernible) after all this time, especially in the area of diagnostics where the revenues for the quarter were a little over $2 million (indiscernible)?

We have been exploring various relationships and developing productlines very, very aggressively in this particular division. Obviously I can't report on anything specifically that's taking place on a discussion level. All I can say to you is that as you might be aware we have very extensive intellectual property that covers a broad spectrum of activity in the diagnostic area.

The patent we spoke about today, the phosphate labeling patent, is just one example of a very broad approach that has applicability throughout the diagnostics industry. As a result I think what one could envision is that our IP is intertwined with the ultimate resolution or partnership in many of these given areas and, as you can assume from the multiple litigations out there that there is a significant amount of activity. Unfortunately I can't say too much because it's clouded in legal issues.

I would like to hand the floor back to Barry Weiner for any closing comments.

Thank you very much. It has been a very, very interesting quarter. One that I think is a purveyor of tremendous activity and opportunity for the Company. We as a Company are particularly excited about the directions and we look forward to reporting to you at the next conference call in June. Thank you very much.

A replay of this broadcast will be available until Tuesday, March 28th at 12 PM midnight. You may access this replay by dialing 1-877-519-4471. The pin number is 714-3926. This replay is also available (technical difficulty) Internet at www.investorcalendar.com. This concludes today's teleconference. You may disconnect your lines at this time and have a wonderful day.