Enzo Biochem Inc (ENZ) 2006 Q3 法說會逐字稿

Welcome to the Enzo Biochem Inc. third 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 intent, belief, or current expectations of the Company and its management. Investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties that can materially affect actual results. The Company disclaims any obligations to update any forward-looking statement as a result of developments occurring after the date of this conference call. Our speaker today is Barry Weiner, President. [OPERATOR INSTRUCTIONS] I would now like the turn the floor over to your host, Mr. Weiner, the floor is yours.

Thank you, and good morning. With me today is Dr. Dean Engelhardt, Mr. David Goldberg, and Andrew Crescenza. We released our earnings report on Friday, and I trust everyone has had an opportunity to see it. I will discuss our results in just a few minutes. First, I would like to take a few minutes to review where we are and also to discuss some of the events of the recent months that we believe are important and indicative of where Enzo is headed. I would like to share with you as well some of the strategic issues that are emerging and the actions being implemented to take advantage of them. The quarter was both rewarding and challenging. Although we were pleased by progress we made in our therapeutic division, we were disappointed by certain results from our Life Sciences and Clinical Labs businesses, and have under way initiatives designed to improve these operations.

First, product development programs in our Life Sciences area have been moving well. As well, we are seeing progress in our various therapeutic programs. Certain projects such as our HIV-1 trial have taken longer than we would have liked but we are now very close to enrolling our first patients. The progress that has taken place in the IP or intellectual property front has also been significant. We are now seeing the emergence of a new patent portfolio group that is coming into our state. This group will give us fundamental coverage and portend major market opportunities. However, there are also areas that we have not been pleased with, specifically in the underperformance of sales in the Life Sciences division and the margin pressure that has affected the clinical laboratory. Significant changes in both personnel and programs which we will discuss have been implemented to help improve performance in these areas.

First, I would like to address some key issues, both strategic and operational concerning the Company. Strategically, we are especially focused on building and monetizing our intellectual property estate. We recognize that one of the key value drivers for our company in the near term could emerge from our extensive proprietary IT position in the labeling, genomics, and diagnostics field. We received two new patents recently and we are looking forward to additional patents in the near future to further our penetration into key significant markets. These patents could have far ranging applications for our ability to generate licensing revenues for our technologies and impact products that have significant potential in the markets.

In January as we previously announced, we received a patent covering our process for producing large quantities of therapeutic protein. Its applications could range from delivery of therapeutic proteins to particular target cells to facilitating delivery of regulatory RNA molecules, our antisense RNA is an example of one. This is targeted for the management of medically important diseases. It could represent a potentially safer and more efficient strategy for gene expression and protein production. In February we received still another key patent related to phosphate labeling which is a technique applicable to a wide variety of DNA diagnostic and medical research products. A number of which are in use today. This patent may impact existing markets that range from 500 million to $1 billion in annual sales currently.

Thus we have two examples of patents, one introducing a new technology and another granting Enzo rights to what may be a fundamental position in an existing important product area. The litigation expenses that we are incurring to protect and enforce our IP estate and which impacted the quarter represent in our view an important investment in the future of our company. These are designed to not only to validate our patents but represent, we believe, a future strong revenue generator that can take the form of new products sold by Enzo, royalty income as has been demonstrated by the Digene settlement or other forms of business relationships.

In therapeutics we continue to make good progress. We are applying for approval to begin a Phase II clinical test for the treatment of uveitis which involves a serious eye inflammation which we expect to commence later this year, a Phase I-II trial of our Stealth Vector technology HGTV43 for the management of HIV will begin soon with enrollment at the University of California in San Francisco. The final administrative hurdles seem about to be completed and enrollment of the first subjects is expected to get under way very soon. All in all including our two treatments for Crohn's Disease, Alequel, and EGS21 and the latter's applicability to dealing with non-alcoholic steatohepatitis or fatty liver disease, we soon will have five clinical testing programs under way.

Life Sciences is beginning work on a new technology for producing single copy DNA probes which we recently licensed from Children's Mercy hospital and clinics in Kansas City, Missouri. These single copy probes represent a break through approach to a more effective treatment of genetic diseases and some cancers, principally because these probes can't identify the minutest strands of DNA that most other probes cannot detect and thus are unable to pick up the slight variations that can make a crucial difference. The significance here is that we have reached out to acquire technology that is ground breaking, and which we can in this instance with our proprietary single amplification technologies enhance its performance. Additionally, this technology allows us entree into the lucrative cytogenetics market which has been estimated to be in the hundreds of millions of dollars in both products and associated services.

We are acquiring a 23,000 square foot building next to our existing research facility in Farmingdale that will house Enzo Life Sciences. This new facility will allow Enzo Life Sciences its own identity and allow it to expand into additional new space to pursue its many new product development initiatives that are currently under way. This will also allow the clinical laboratory, the necessary space for expansion into new areas of testing that are emerging in the area of predictive diagnostics, specifically molecular diagnostics and cytogenetics. The added space is a measure of the confidence with which we view our outlook. There is an important new paradigm emerging in the diagnostic space in terms of the advent of a new generation of testing for more specific targets for defining treatment as well as developing new medicines. We are very well positioned to take advantage of this with both the Life Sciences division developing and manufacturing these new tests, and the Clinical Labs servicing the medical community with them.

Not least we are making changes and expanding our organization from a personnel viewpoint. Dr. Carl Balezentis joined us last week as President of Enzo Life Sciences. He has a proven background in taking products to market and building successful businesses. In this new position he will direct Life Sciences to move more aggressively in developing its direct sales model and in the finance group Andrew Crescenza is our new Senior Vice President of Finance. Drew has a significantly broad background in various auditing, financial, and related areas. We have a number of opportunities in front of us and this significant addition to our executive staff means we will have enhanced capabilities and more versatility in the use of our time and implying our efforts in executing our strategic plan for growth and value optimization.

As for operating results, this clearly has been a challenging quarter. We continued to incur sizable litigation expenses which we regard as necessary but also an important investment. We expected to pay significant dividends and thus represent a valuable use of our assets. The other principle factor affecting results, which we will address, was competitive pricing in the Life Sciences, Genomics area, and for esoteric testing in the diagnostics laboratory group.

First, I would like to give you a brief review of the numbers. For the quarter ended April 30, 2006, we reported a loss of 3.4 million or $0.011 a share versus a loss of $1.5 million last year or $0.05 a share. Contributing to the loss this quarter as in the past was a 13% increase in our selling, general, and administrative expenses to 6.2 million versus 5.5 million in the year ago quarter. This increase reflects not only greater marketing activity across our divisions but also much higher expenses associated with Sarbanes-Oxley legislation and related mandatory rule 404 internal control reporting procedures, higher accounting and corporate governance fees, as well as noncash charge for options expense under SFAS 123-R which is the accounting for share based payment rule. In addition, our legal expenses rose by 300,000 as we saw increased costs involving not only litigation but added patent prosecution costs associated with the continued development of our intellectual property portfolio.

For the third quarter total revenues amounted to 9.6 million compared to 11 million in the corresponding year ago period. Our revenues were again impacted by ongoing legal issues involving some former distributors of our Life Sciences products. Despite our losses this quarter, our balance sheet remains strong and robust as of April 30, 2006, we had cash and cash equivalents of almost 76 million, and working capital of over 87 million, stockholder equity approached 100 million, and the Company is debt free. Overall at Enzo Biochem revenues for the nine months totaled a little under 30 million versus 32.5 million in 2005, and the net loss was 11 million or $0.35 per share versus net income of 5 million or $0.15 per share. You should note that the 2005 figure included the $14 million payment that we received from Digene as a result of the settlement of our patent infringement suit and subsequent licensing agreement.

I would like to take a moment to take a look at each of the divisions respectively. First at the clinical laboratory. Enzo Clinical Labs experienced higher unit volume for the quarter, but with increasing price pressures revenues amounted to 7.7 million against 8.6 million a year ago. Operating income was 200,000 against last year's 900,000. One significant plus at the lab was a decline in the provision for uncollectible accounts receivables from 1 million to about 500,000. The result of our aggressive and determined effort to build in greater efficiency in the crucial collection process. While our specimen count was up slightly quarter over quarter, revenue dropped about $1 million due to continuing downward reimbursement pressure.

In order to combat this we've taken steps to bring inhouse some of the more costly essays, which will not only reduce our cost of services, but enable us to provide better turn around time for our growing client base. We have brought inhouse two important and expensive tests, one is for the identification of various cancers of the blood. The other is an expansion of our molecular biology offerings in the areas of clotting factors both of these tests will be marketed to our hematology oncology client base, an important market that we are placing increasing emphasis on. As you may be aware, cancer incidences are on the rise, a factor that in some instances may simply be related to the fact that people are living longer. By adopting a more focused marketing strategy at the lab, we hope to be able to better reach this and other growing markets.

A number of other initiatives have been implemented at the lab to improve performance. Besides increasing inhouse the number of specialized tests that were previously referenced out to improve margins, we are broadening our cadre of service providers with the recent approval of our lab as a provider for Aetna, one of the largest private health insurers in the area. We also are continuing to expand our sales reach into the New Jersey and New York markets. On another strategic front we are exploring the addition of new, higher margin tests and services in the molecular diagnostic and cytogenetic areas. This is one of the fastest growing segments in the diagnostics marketplace.

Looking to Life Sciences. At Enzo Life Sciences in addition to a competitive pricing environment, direct sales lagged with the result that revenues declined to 1.9 million from 2.4 million. The revenue shortfall is not only attributable to competitive pricing in certain product categories, but is also impacted by the ongoing patent and contract litigation with former distributors. As an example, we have not recognized revenues for the nine months from a certain distributor even though it continues to sell products covered by contractual obligation. The Life Sciences division besides having extensive IP assets has an excellent technology base and new product development opportunities are plenty. In order to capitalize on these opportunities a number of strategic decisions were made to enhance the product line and refocus sales.

First, as we discussed we have appointed Dr. Carl Balezentis to the newly created position of President, Enzo Life Sciences. Carl has more than eighteen years of experience in the life sciences industry including serving as CEO of Lark Technologies. Lark has been a leading contract research organization that provides a broad range of custom molecular biology services to Life Sciences in the pharmaceutical, biotechnology, agricultural, academic and government sectors. While at Lark, Carl over saw the acquisition of the Company by Renaissance, a firm that develops technologies to improve drug discovery and marketing in the biopharma and pharmaceutical areas, and he subsequently joined Renaissance. Prior to Lark Carl was Director of Business Development for the Life Sciences division of Sigma Aldrich; he also served as a group leader at Applied Biosystems. His experience in a number of areas of Life Sciences operations makes him an ideal choice for this new position, and we are looking forward to his leadership in building the Life Sciences business.

Second, last month Enzo announced that we had inlicensed a potentially important technology involving single copy probes from the Kansas City Children's Mercy hospital and clinic in the field of cytogenetics. This is significant on a couple of points. First, this licensed technology fits in extremely well with our quarter century of gene identification experience. We will use this technology to produce in our facility a series of probes that are specifically targeted to the minutest genetic variations.

Second, Enzo will use its proprietary labeling technology to potentially increase the signal or detectability if you will of these diseases which are now concentrated in the area of constitutional or inherited disorders. This combined with Enzo's line of products for the identification of genomic variation gives the Company a comprehensive portfolio in the genetic identification area. It also allows us to market these probes not only with our existing product line but with a promising new product which I will discuss shortly for the analysis of the genomics that are archived in tissues.

Third, this technology now enables Enzo to enter the potentially lucrative field of fluorescent in situ hybridization, or FISH as it is know, a market that industry insiders claim is currently over 150 million in revenue for product sales alone and one with at least double digit growth rate increases going forward. Beyond all that, these products could benefit our clinical laboratory as well. I just stated that the market for FISH probes is estimated at about 150 million while the market for laboratory services derived using these probes is estimated to be several times greater. The average revenue per specimen is at least five to ten times what we currently recognize at the lab. In order to more fully exploit this opportunity we will begin shortly to develop a program with the goal of clinically validating these DNA probes. In so doing, the Company plans to enter the market for services as well as for selling products, thereby giving Enzo unique positioning in the marketplace.

As far as Life Sciences is concerned, I would like to comment on another product develop initiative. We have made strides in concert with Roswell Park Memorial Institute, a leading cancer research institution we have been working with developing products and protocols that allow scientists to study DNA from old, archived tissues which would facilitate retrospective genetic studies. If we are able to produce a system that is user friendly and relatively inexpensive, there could be an exceptionally wide use for this. There are literally hundreds of thousands of tissue specimens in various labs around the world that could be analyzed genetically. Such information would have wide utility in typing specific genetic modifications to a number of clinical manifestations.

Last month we presented data on this product at the micro rays and medicine conference where it was well received. Based upon the positive response, we are in the midst of setting up a number of beta test sites around the world to more fully evaluate this technology as a product. Should these results prove satisfactory, we would expect to launch this product sometime late summer/early fall. We have also begun testing for a system for rapid amplification of RNA for those researchers having very little biological starting material and which would allow the production of sufficient quantities of product to complete a genetic analysis in a matter of hours.

In the field of gene expression, obtaining samples, especially clinical ones can be an arduous task. Thus, we can facilitate the use of just a small amount of material to accomplish multiple tasks. This product would also have application in our technology for examining archived DNA tissue. As is evident, we are addressing the needs of the Life Sciences business aggressively, a new facility, new IP, new product directions to drive the revenue line, as well as a new President who will oversee and coordinate these changes and also infuse greater effectiveness in our marketing efforts.

I would like to turn to Enzo Therapeutics. At Enzo Therapeutics we have a quarter that really contributed significantly to moving forward our trials in a variety of different areas. The Phase II clinical trial of EGS21 our immune modulatory candidate drug based on glucoslyceramide and Alequel, both treatments aimed at the management of Crohn's Disease are moving along as enrollments continue in these clinical programs. Both are double blind studies so that we're unable to report results as of yet, but we're nonetheless highly expectant and looking towards a possible Phase III study. In anticipation we have been identifying sites in the U.S. in which to conduct an expanded study for both treatments.

Alequel falls into a category which we deem as personalized medicines. We envision personalized medicines gaining a larger presence as diseases become better understood at the molecular level where the pathways and mechanisms of these issues become better understood. We believe that genetic testing will become more routine and that patient populations at risk will be identified early and expand the market for treatment options. Healthcare overall is moving towards more predictive and preventive care with presymptomatic diagnosis and treatment becoming more prevalent. Much of our efforts of late have been moving in this direction.

In the case of Crohn's, for example, by approaching two different approaches to the same disease, Alequel and EGS21 we hope to accelerate the development of a range of products for treatment, not only of Crohn's, but of other immune mediated diseases such as hepatitis B, hepatitis C associated liver disease, and various forms of cancer just to name a few. In the interim we have received a $1 million grant to further our clinical work in NASH from the Bird Foundation whose mission it is to stimulate and promote support and research and development on a binational basis in order to benefit both the United States and Israel. Fatty liver diseases have not been well recognized until recently and individuals who tend to have it can go on to develop steatohepatitis which ultimately merges into a fibrosis and in certain percentage of cases end stage cirrhosis. It affects about 6 million people in the U.S. We are awaiting regulatory approval to initiate the Phase II trial.

HGTV43 as we commented earlier should be underway with the first enrollment soon. It has been an arduous process due to the pioneering nature of this product. Administrative and recruitment issues had to be resolved, and we're approaching the inauguration of this long delayed Phase I-II study. The protocol has been modified from the Phase I trial to attempt to increase the number of stem cells containing our construct that engraft the patient's bone marrow. We will use HGTV43 to transfer three antisense genes designed to interfere with the growth of HIV in certain cells. These cells are expected to replicate and differentiate within the body of infected individuals to produce CD4 plus T cells the main target of the viruses infection.

In our Phase I study no serious adverse events accompanied the infusion of such cells after we had transduced them using the HGTV43 vector and we did demonstrate long-term survival of our gene. This trial is intended to determine whether our protocol will create a supply of HIV resistant CV4 plus cells large enough to materially defer the disease progression of these infected subjects. In terms of time lines, after our medicine is introduced into the subjects, then a six month monitoring period will commence during which time the subjects will be evaluated for measurement of the infused nucleic acid sequenced in their blood cells. Following that period, more extensive analysis and evaluation will be required, but we will communicate results as fast as possible.

Its been estimated that the lifetime costs for treating HIV infected individuals with the current regimes which include protease inhibitor therapy can exceed $150,000 annually. It is our hope that our innovative approach for this treatment could become a viable complement to existing therapies if not used alone in the treatment at least in some combination with them adding to a much -- hopefully much lower cost of treatment.

Adding to the pipeline of our oral immune tolerization platform is our project for the treatment of autoimmune uveitis. Uveitis is a condition of the posterior of the uvea, the sheath around the eyeball that is in most instances caused by an immune attack on the privileged site in the back of the eye. Chronic inflammation can progress to a loss of visual acuity and sometimes blindness. Our medicine is designed to operate on a platform of tolerization or in a sense, an antigenic mimic. It is administered orally under conditions where it will cause the body to be tolerant. It was developed in Germany under an orphan drug license, and we are now in the midst of finalizing our application to conduct a Phase II trial. This is a smaller market as its orphan drug status would indicate but it is nonetheless important and fits in neatly with our general approach of using tolerizing medications to surmount the immune reaction in certain diseases, Crohn's just being one of the others besides the uveitis that we're dealing with.

We are also on work on two other compounds, 3C3 and 1C15 with which we are collaborating with St. Jude's Medical Center and the University of Connecticut. These are focused on bone growth. The preclinical data which we continue to amass suggests that these compounds have utility in persons suffering from osteoporosis and bone fractures as well as in certain forms of derived bone cancer. What uveitis, bone treatment, and single copy DNA probes all have in common is that they show that we remain alert to opportunities to bring into Enzo treatments and modalities that complement our existing and growing base of therapeutic and genetics knowledge. In addition to inhouse development of associated products, we have not been adverse to acquiring allied technologies that could be profitably combined with our fundamental knowledge base. They complement our focus on inhouse developments which we are confident will yield enhanced value.

Before we open up to questions I would like to comment on the performance of the stock which clearly we believe at this level does not reflect the inherent values within our company. We are determined and committed to bringing the appropriate understanding of our corporate potential to Wall Street and steps are being put into place to heighten the awareness of Enzo in the financial community. This week we will be presenting at the Needham & Company's fifth annual Biotechnology and medical technology conference. We are a unique organization with unique opportunities. The values that are embodied in our patent estate are yet to be fully appreciated. The product direction that we have taken has been pioneering and today we're seeing markets and product capabilities begin to emerge with our strategic direction envisioned two decades ago. Unlike many biotechnology companies our corporate structure provides for value optimization through many different path ways. We believe we are at a special point in time where we'll be able to capitalize on our strengths with the resultant values inherent in our company being recognized. With that I would like to now turn this over to questions.

[OPERATOR INSTRUCTIONS] Your first question is from Robert Smith from the Center For Performance.

Good morning.

Good morning.

Barry, what has to happen to move the Crohn's trials to a Phase III, and what might be a reasonable time line?

Bob, this is Dean Engelhardt.

Yes.

We're currently enrolling actually two separate Crohn's trials and the patients are coming in, and we have every reason to believe that this -- the format that we're using would be appropriate for a Phase III trial, so frankly we just have to accumulate patient data. As Barry pointed out, these are double blind, so even we don't know, at this point, we don't know the answers, and we won't know until -- we're going to prevent ourselves from knowing until the trial is closed and the data are presented to us, and then we can analyze them, but this is a process -- as Barry pointed out correctly, we are at this point interviewing potential sites in the United States with the idea that we can accelerate patient data accumulation by adding more sites both continuing where we're performing the trial right now and also adding one, two, or perhaps even three sites in the United States to speed up this Phase II process.

Our goal here, Bob, is to create a statistically significant presence in the population of enrollees in this particular trial. We are pushing very aggressively to enhance the enrollment and move the numbers up. We do have a fair number of people now enrolled and they continue to enroll. We're looking forward towards the end of the summer to have some guidance as to where this could lead to us. But we are pushing forward. We are also anticipating the needs of a Phase III trial and as Dean commented we are now initiating the discussions to develop the sites in the United States to move this trial here.

Wat would be your best guess as far as a time line for Phase III?

We will be able to have a better judgment of that when we see the data from this Phase II trial. We again are looking towards the end of the summer to get a direction as to where this will lead us. We are optimistic that decision points will be able to be made about that time.

Thank you.

Thank you. [OPERATOR INSTRUCTIONS] Your next question is from Robert Gould, a private investor.

I would just like to follow-up on that Crohn's question. That specifically is what is that you're waiting for by the end of the summer to give you guidance? I thought I heard two different things. I thought I heard that there was -- that you needed more numbers, and that's why you were going to the United States for more or for added sites for more end. I also heard that it was Phase III that was at other sites. Is it both, and if so, why are there problems with the numbers in Israel?

This is again Dean Engelhardt speaking. We have a certain number of patients scheduled for Israel, and when that number is reached we will then carry through the process and close that trial and analyze those data. We are coming to the United States to add additional subjects, and these subjects will be in a Phase II format in the United States, not a Phase III. It will be a double blind, randomized Phase II. We're going to, depending upon the results of either of these trials, remember there are two trials going on with two different drug candidates. We will continue to expand those data if they're directionally positive in the United States, and very clearly our goal is to reach enough statistical significance that we can rationalize moving into a Phase III trial. As I said, we have every reason to believe the medicine that we're delivering now and the strategy that we're using will be a strategy that we would put into a Phase III trial, so we're not in the dose escalation phase of our trials now. We believe we're accumulating data with the idea of moving into a Phase III as soon as we reach statistical significance.

I think just to elaborate on that, then to reiterate what Dean said, we are continuing towards a targeted number of subjects to reach statistical relevance in our Israeli trial at the moment. At the same time we realize that to expedite this and to move it as quickly as we can we need to expand the number of sites. We're bringing it to the United States because we believe we can open it up to the opinion leaders in the United States as well to participate in these trials. These trials which initially will begin as a Phase II double blind study in the U.S. will ultimately be the sites for Phase III trials as we can emerge into that.

We would expand the number of course moving into Phase III we would continue to add sites until we could get enough sites that we would expect to enroll the number of subjects we would need in order to get statistical significance for FDA application.

The number of patients that -- the percent of patients that will be done in Israel as a percent of patients of completion of the Phase II total trial would -- if you say that at the end of this summer you should have those numbers, does Israel comprise 60%, 50%, 90%? What guesstimate of a percent of the ultimate number of patients that you're going to have in Phase II will be completed in Israel?

I don't mean to seem to be weaseling around on that question, but it really depends upon the delta. It really depends upon the signal above placebo. We would anticipate it might be as low as 20% or it might be as high as 40%, again, depending upon the delta, and those are guesses. I don't want to be held to them. But the principle moving into a Phase III, the data that you have made in a Phase II is totally applicable of course for a Phase III if you haven't changed your medication. We're going to begin accumulating data, and at a certain point we will go through the transition into a Phase III if as we expect our current mode of medication remains unchanged. I am sorry to seem I am not giving you a real clear answer, but we don't know the results yet from this particular double blind, and that will materially affect the number of patients we'll have to enroll in order to get final approval.

Just so I am clear about the numbers, the 20 to 40% is the number that will have comprised what needs to be still done or what has been done?

No. That is the delta of above placebo. I think I have made a mistake even by using the 20 to 40%.

That was unclear to me. That's why I want to clarify.

The 20 to 40% is the number that represents the rate of response or remission above placebo.

Right.

That is not representative of the percentage of people that will comprise the totality of the number of tests.

Is there any sense of how much -- how many more patients or enrollees you are going to need in the United States in a range and how much time that might take.

Well, the reason we're setting up the trial sites in the U.S. is to get a head start in anticipation of the data. The number of patients will be determined by the ultimate statistical values that have generated from the Israeli trial.

Thank you.

Thank you.

Thank you. Your next question is from Keith Markey of Value Line.

Good morning and thank you for taking my question.

Good morning.

I was just wondering are you working with a CRO to do your Crohn's disease trials?

We are not in Israel. But we are going to use a CRO to continue to expand beyond two or three sites in the United States. It makes sense given the size of our company.

Okay. And you mentioned earlier about the cytogenetic assays that you're working on partly for Life Sciences and partly for the Clinical Labs. Will the single first test that you're working on be available through both of your divisions initially or is it originally going to be a product for sale by Life Sciences?

Keith, hi, it is David Goldberg speaking. The answer to that is the plan is first to offer these up as DNA probes that we will sell to our Life Sciences divisions through their sale and marketing. Simultaneously as Barry indicated, we're looking to expand our menu in the cytogenetics area in the clinical labs. The reason for that is, among other things, the reimbursement rates on these tests are quite high, substantially higher than the average specimen that we and most laboratories receive now. So the idea would be to work on those simultaneously. Because of the fact that we're one of the few companies that has both a clinical laboratory as well as some experience in producing products, we hope to offer them both ways, and thus be able to capture a more substantial portion of the market.

Great. Thank you very much.

Thank you.

Thank you. Your next question is from Robert Smith of the Center For Performance.

Could you bring us up to date on the initiatives in hepatitis B as to what's happening there?

We have a number of programs in the hepatitis B area ongoing right now. We have been in discussion, and I have commented on this in prior calls, with parties in Asia to initiate clinical trials in this area. Hepatitis B, is as you may or may not know, is a predominant disease in Asia specifically in China which is probably the single largest disease in China. We, over the last year-and-a-half or so have worked aggressively with our sell lines to be able to create a sell line that would manufacture product at a cost structure that could be applicable to this part of the world. The economics of this particular product are crucial to its success in penetrating parts of the world where it is most dominant. We have been in discussions with parties to initiate certain trials. We are working with different people right now, and I think the area that this will appear in will be an area such as China and perhaps India. We are aggressively in the midst of exploring certain opportunities.

I can't comment on the specifics and the timing, but it is an area of particular interest for us because this product could potentially be appealing in this part of the world, again because of its form of administration, because of the cost structure, and because of its need and currently there really are not very strong products out there that can impact this particular disease in an economic -- that carry with it an economic cost structure that can be acceptable to these populations. It is something that is being pursued, and obviously when a definitive approach is consummated, we will certainly report it to you.

Anything that you might share with us about the diagnostics platform in that area?

I am sorry, which area? I didn't quite understand the question.

The diagnostics platform, the inchworm and associated efforts?

Well, we're involved in negotiations, and this is Dean speaking, Bob, and therefore I think we're being a little quiet about it at this point. I want to reaffirm that it is without a doubt the superior method of nucleic acid amplification, far superior to the PCR, the method that is at this point generally accepted as the standard, and remember, you may say who cares, PCR is well established. Well, the answer is if you have a machine that is essentially a black box, then inchworm amplification is cheaper, and actually also more accurate than PCR so the consumer doesn't care what's in the black box. They care about what they have to pay and what the quality of the final result is. It remains I assure you, the superior technology for DNA amplification.

Also I would like to comment that the amplification approach is integrated into very fundamental aspects of our overall intellectual property state in the area of gene labeling and amplification technology. And as you are aware, as many people are aware, we do have some rather important and extensive litigations in motion with certain parties in which many of these technologies could be intertwined, and it is public record that we have been in discussion with certain parties, and there are other ongoing discussions taking place in which this as well as other technologies may have applicability in an overall resolution of our issues with them.

Finally, how would you characterize the present working relationship with the FDA?

Great. What's the issue? We have an excellent relationship with the FDA. That's all I can say. It is great.

Well, we have no issues. We have been very cooperative, they have been supportive as well as directionally guidant to us. We actually have had I think a very positive experience with them.

Thank you very much.

I believe according to--.

I would now like the hand the floor back to Mr. Weiner for any closing remarks.

Just like to thank you for your patience on this phone call, and presence here. Again, I would mention that we will be speaking at the Needham conference. We will be putting out a release on the webcast of that particular conference so you can follow that through the system as well. Thank you. We look forward to reporting to you at the next quarter.

A replay of this broadcast will be available until Monday, June 26, at 12:00 midnight. You may access this replay by dialing 1-877-519-4471. The pin number is 7487781. This replay is also available over the Internet at www.investorcalendar.com. This concludes today's teleconference. You may disconnect your lines at this time and have a wonderful day.