Exact Sciences Corp (EXAS) 2006 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the third-quarter 2006 EXACT Sciences Corporation earnings conference call.

My name is Sharon and I will be your coordinator for today.

At this time, all participants are in a listen-only mode.

We will be facilitating a question-and-answer session at the end of this conference. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded for replay purposes.

I now would like to turn the call over to your host for today, Mr. Don Hardison, President and Chief Executive Officer for EXACT Sciences Corporation.

Please proceed.

Thank you for joining us on today's call.

After my remarks, I will ask Jeff Luber, our CFO, to provide an update on the financials.

I will then follow up with a few anticipated questions that I expect you may have, and our responses to those questions; and then we will open up the call to address any additional questions you might have.

My remarks today will focus primarily on those areas that I believe were central to our mission to establish stool DNA technology as a standard of care in the fight against colon cancer, and the resulting creation of value for EXACT Sciences and our shareholders.

I would also like to point out any forward-looking statements made during this conference call are based upon current expectations and are subject to change based on various and important factors that could affect the Company's financial results.

These factors are set forth in detail in our 2005 10-K and subsequent filings.

First, as you likely know, last week we reduced our workforce by 21 employees in order to substantially lower our expense and preserve our cash.

It was very difficult on a personal level to let so many good people go, but I firmly believe that it was the right thing to do in order to stay lean going into 2007.

Our decision was to put ourselves in a better position to take advantage of key value-creation opportunities to come.

Reducing our cash burn rate by several million dollars per year preserves resources for future investments.

We have stated on previous calls that we had enough cash to take us through December 2007.

We now believe, based on our current operating plans, that existing cash will carry us into the first quarter of 2009 without assuming any cash inflows.

Future milestone and licensing revenue from LabCorp would only further complement existing resources.

With more than two years of cash now on our balance sheet, the restructuring also removes any pressure to do a near-term financing under terms that would likely be onerous to us and to you, our shareholders.

If we're going to raise capital in the future, we would obviously like it to be on our terms, following positive news.

I realize that you don't always have that luxury; but I believe that our recent restructuring puts much of the control over our future back in our hands, in terms of our cash needs.

Getting that control back was a primary driver for our actions last week.

Several investors have asked whether last week's headcount reduction put any of our key objectives at risk.

The answer is no.

Completing the validation of Version 2 of our assay is a key objective of our scientists.

Having substantially completed the development of our Version 2 technology, we simply did not need as many scientists on the R&D side to complete optimization tasks and final validation of this 88% sensitive technology.

If we take on additional products in the future or our R&D goals change, we will address our staffing needs at that time.

For now, we are properly staffed to meet our near-term objectives on the science side.

As you know, as part of this reduction we also significantly reduced the number of sales and marketing personnel.

Given the delay in guidelines from this September until probably mid-2007, it makes more sense to defer the main thrust of our sales and marketing spending until after the guideline inclusion.

Our remaining sales, marketing, and reimbursement personnel will continue to focus on guideline inclusion; payor initiatives, including Medicare coverage; and the building of awareness among key constituents.

Additionally, it is important to note that these reductions did not negatively affect our relationship with our partner, LabCorp.

We have talked a great deal about guidelines on our recent calls, and I will come to that in a minute.

But first, I would like to focus some attention today on Medicare.

You are likely aware that we submitted a request for a national coverage decision determination with CMS sometime ago.

If approved, this could open the door to a market of more than 40 million Medicare beneficiaries.

This is the population most affected by colorectal cancer, and Medicare bears the brunt of the expense of treating colorectal cancer.

Having a non-invasive approach to get more of that population screened, to better detect the cancer early at a curable stage, would benefit Medicare greatly.

Therefore, we continue to focus a great deal of attention on this important objective.

Additionally, since Medicare is obligated to pay for screening colonoscopies for its beneficiaries, I can certainly envision a cost-effective approach for Medicare that uses stool DNA technology as a triage for getting the right people to colonoscopy.

For example, our 88% sensitive Version 2 technology could tell Medicare beneficiaries with about the same accuracy of a colonoscopy that they do not have a colon cancer.

These folks then could be taken out of line for colonoscopy.

Based on recent correspondence we received from CMS, we believe we have resolved their question regarding the regulatory status of PreGen-Plus.

We are now working with LabCorp to provide CMS with specific information that they have recently requested regarding the assay protocol and related laboratory information.

Our intention is to quickly provide CMS all of the information they need to deem our national coverage determination application complete.

At this point, we don't have any specific timetable from CMS for when this will happen, but we will continue to quickly respond to any questions we receive from them on our application.

We are also considering other alternatives to move our application forward.

With a completed application, there is basically a nine-month timeline for CMS to act on the application.

Achieving Medicare coverage would be one of the two most important catalysts, along with guideline inclusion, for our technology.

Medicare by itself would likely be the largest value driver for EXACT, given the size of that population and the influence Medicare coverage has on other payors.

There are obviously other important payors beyond Medicare.

However, many private payors take their lead from Medicare, so a positive Medicare coverage decision could be very helpful across the reimbursement spectrum.

Many private payors are also influenced by guideline inclusion.

For instance, you may have heard us say before that 21 states require coverage for colorectal cancer screening.

Of those 21, 16 states currently mandate that payors cover colorectal cancer screening tests that are included in the screening guidelines of the American Cancer Society.

A conservative estimate is that the plans in these mandated states represent an estimated 20 million eligible covered lives over the age of 50.

Therefore, payors in these mandated states would be obvious sales targets following a positive guideline decision.

Let me give you just one example of the effect that one payor coverage decision could have on our economics.

Let's assume, for example, that we obtain a positive coverage decision from Blue Shield of California.

I use them as an example because, as you may recall, this is the entity whose technology assessment arm, the California Technology Assessment Forum or CTAF, approved stool-based DNA screening more than a year and a half ago.

In their February 2005 assessment, CTAF concluded that stool-based DNA testing was safe, effective, and improved net health outcomes in the general population.

This is, in our view, an extremely positive endorsement for our technology.

What you may not know is that many technologies don't pass their very rigorous, challenging criteria.

This rigorous criteria that CTAF used to evaluate our technology are basically the same criteria used by most Blues plans across the country.

To continue my example, Blue Shield of California happens to have approximately 3.2 million members.

If we assume that only 20% or 640,000 of these members are over the age of 50, and that only 20% of the 640,000 of this eligible group uses PreGen-Plus in a given year, then LabCorp would process approximately 130,000 PreGen-Plus tests from this single payor alone.

This is enough tests, given our royalty rate from LabCorp, to bring EXACT to breakeven.

Let me say this again.

We could achieve breakeven on just a fraction of the potential test volume from just one payor in one state.

We can't assume that this will happen just the way I describe, but it puts into context the scope of the value opportunities that exist for us, for LabCorp, and for you as an investor.

I should also mention that our technology has received a similar positive technology review from Kaiser.

So the natural question is why Blue Shield of California and Kaiser still have not issued positive coverage policy, even though stool-based DNA testing has been approved by their technology assessment arms.

In short, it comes back primarily to a positive guideline decision.

Having a substantial portion of those payors in the mandated states aboard in a reasonable amount of time post a positive guideline decision and/or a Medicare coverage decision would be a key economic driver for the technology.

The same can be said of the positive effect of securing additional self-insured employers as customers of the technology.

A large portion of the companies in the Fortune 500 are self-insured for their healthcare.

That means that they have a very strong financial incentive to lower their healthcare costs and improve the productivity of their workforce.

With the advent of Erbitux and Avastin for the treatment of colon cancer and other expensive treatments likely to be on the way, drug costs have increased and will most likely continue to increase significantly for these self-insured employers.

Catching cancer early through screening has become even more important for these employers to protect employee health and to protect the health of their bottom line.

We know that certain of these self-insured employers are waiting on a positive guideline decision before they make a final coverage decision for stool DNA screening.

Now, to address the guideline specifically.

The delay in guidelines, in our view, is based on the committee's workload in seeking to complete a top-to-bottom review of the entire screening guidelines, including new technologies as well as a review of the existing technologies.

This review, in the past, has included recommendations for both the asymptomatic average risk patient population that we target, but also has included recommendations for those with inherited forms of colorectal cancer.

Among the new technologies they are reviewing include stool-based DNA, virtual colonoscopy, and immunochemical fecal occult blood testing for screening.

But they are also reviewing the current screening methods, such as flexible sigmoidoscopy, guaiac fecal occult blood testing, and double contrast barium enema, that have been in the guidelines for years.

Couple this with the fact that the committee itself is made up of representatives from multiple medical societies as well as the American Cancer Society, with seemingly disparate interests, and you have a recipe for delay, in our opinion.

This delay is taking longer than any of us originally expected.

But based on conversations we have had with some of the members of the group, I believe the committee will arrive at a decision late in the spring or early summer of 2007.

I also remain very optimistic on our being included in the guidelines.

This is an evidence-based process, and stool DNA testing is based on a decade of medical evidence, including a landmark study published in the New England Journal of Medicine in 2003.

In our opinion, stool DNA testing is no longer an emerging technology.

It is on the market today.

It is saving lives.

It's passed the rigorous technical assessments of two of the nation's major healthcare payors, Kaiser and Blue Shield of California.

In addition to what the committee has also received on stool DNA technology, there will also be the [PB2] publication on our 88% sensitivity results which should be published in quarter one 2007.

Our understanding is that additional support in the form of a favorable cost-effectiveness study manuscript will be submitted to a peer-reviewed journal soon.

These data will provide other useful information for the committee members to consider.

On a related note, it is interesting that the Journal of the American Cancer Society, Cancer, recently published the results of a large epidemiology study funded by the NCI, NIH, that sought to determine which of the following would likely have the biggest impact on mortality from colon cancer -- screening, treatment, or behavioral modification.

The authors concluded that screening offers the most promise in reducing colorectal cancer mortality in the U.S.; and that newer screening interventions were going to be needed if the American Cancer Society is going to realize the goal of reducing mortality from colon cancer by 50% by the year 2015.

The authors of this study specifically say that newer prevention screening and treatment options, such as effective low-risk chemoprevention, virtual colonoscopy, fecal DNA testing, and new combination therapies, will be necessary.

While the authors' conclusions and the study's presence in the Journal of the American Cancer Society do not necessarily mean that stool DNA screening will be included in the screening guidelines, the message of the study is clear.

More needs to be done now on the screening front if the ACS is going to reduce the more than 150 deaths per day from colon cancer.

It is obviously our hope that the guideline writers heed the call of the authors in this important NCI-funded study.

So to review, the reductions we implemented last week do not in anyway, in our view, endanger the primary value creations for EXACT.

We are on target for our final validation of the new version of the technology.

We are working to influence a positive guideline decision.

We're actively working CMS on our Medicare application.

We continue to develop relationships with key payors and self-insured employers.

We continue our dialogue with the FDA for a future kit version of the technology.

And our relationship with our strategic partner, LabCorp, remains strong.

Now, I will turn it over to Jeff for his report.

Thanks, Don.

For the quarter ended September 30, 2006, the Company generated a net loss of $3.1 million or $0.12 per share.

This compares to a net loss of $3.3 million or $0.13 per share for the quarter ended September 30, 2005.

The decrease in net loss for Q3 2006 as compared to the comparable quarter last year resulted primarily from Effipure write-offs of $300,000 recorded in the quarter ended September 30, 2005, in connection with excess inventory levels.

Revenues of $1.2 million for the quarter ended September 30, 2006, were essentially flat when compared to the same quarter of 2005, and were made up primarily of the amortization of upfront license fee payments from LabCorp.

Total operating expenses were $4.5 million in the quarter ended September 30, 2006, including approximately $700,000 of noncash stock-based compensation.

Total operating expenses for the third quarter of 2005 were $4.4 million and included a noncash stock-based compensation credit of approximately $80,000.

The increase in noncash stock-based compensation of approximately $800,000 was due primarily to our adoption of FAS 123(R) on January 1, 2006, and was partially offset by lower sales and marketing and research and development spending in the quarter ended September 30, 2006, as compared to the same quarter of 2005.

Our sales and marketing spending was lower in Q3 2006 when compared to Q3 of 2005 because we had fewer headcount in this functional area and we spent less on promotional activities.

Our R&D spending was also lower in Q3 '06 when compared to Q3 '05 due to reductions in headcount and clinical study costs.

As you may recall during Q3 of 2005, our R&D group was focused on activities related to the completion of the clinical study of Version 2 of our stool-based DNA technology.

These activities resulted in higher R&D costs during Q3 2005 as compared to Q3 2006.

As Don mentioned, on October 17 we announced a restructuring plan to reduce our cost structure in order to preserve cash to capitalize on key catalysts going forward.

This restructuring plan included the termination of 21 employees across all functions of the Company.

We expect to record charges of approximately $700,000 in Q4 of 2006 in connection with onetime termination benefits provided to terminated employees, including severance, medical coverage, and outplacement assistance.

We also expect, based on current operating plans, that these restructuring activities will result in $1.5 million in savings in salary-related costs in 2007, which is net of certain retention payments that we expect to make to our remaining employees; and $2.4 million in savings in salary-related costs annually thereafter.

We also expect to realize additional savings in certain nonemployee related costs.

We're also reviewing our facility needs and may incur additional restructuring charges in the form of write-offs of fixed assets or other facility-related costs in the event we consolidate our current facilities or move to a new facility.

Our cash, cash equivalents, and marketable securities balance at the end of Q3 2006 was approximately $24.4 million.

With the cost reductions I just described, our expectation is that at our current level of operations our cash will last into the first quarter of 2009.

We will update this spending guidance if our operating plans materially change.

Remember, this projection assumes no milestone payments from LabCorp, and no material outflows relating to technology acquisition or third-party licensing rights.

We will continue to manage our spending levels and will adjust our operating plans accordingly as the guideline status becomes clearer.

Now I am going to turn the call back to Don.

Thanks, Jeff.

Before we open the floor up for your questions, we went to address a few questions that we have already received and give you our answers to them.

Question number one.

When will the PB2 paper be published?

What impact do you believe it will have on the guidelines process?

You probably recall that the PB2 manuscript describes the results of a recent study of our advanced technology led by Dr. Steven Itzkowitz of the Mount Sinai School of Medicine in New York.

The study reported 88% sensitivity for colorectal cancer across 40 cancer samples and 122 normals.

As previously indicated, this study has been accepted for publication by a major gastroenterology journal.

We believe it will likely be published in the first quarter of 2007.

The guideline writers also have a copy of this manuscript, and they do know that it is currently in press.

While we are excited about this data and what it says about the evolution of stool DNA testing, I believe that the near-term -- near decade of clinical evidence supporting our Version 1 technology is likely to be more impressive to guideline writers given the data's sheer breadth and depth.

That being said, this newest data sends a clear message that stool DNA testing works very well and is based on science that allows for regular improvements in both performance and in simplification that can lead to lower costs.

Question two.

Can you provide more detail on the Medicare process and the next steps?

In terms of the next steps with Medicare, once Medicare deems our application complete, there is typically a nine-month window for public comment on the application and deliberation by CMS prior to a decision.

We are currently in the process of responding to CMS's questions on the application.

Once CMS is satisfied with our responses to their request, the next logical step is for the agency to deem the application complete and a public comment period to commence.

What is the status of your IBD product and FDA plans?

Whether we choose to develop an IBD test kit for stool DNA testing will depend in large part upon whether stool DNA is included in screening guidelines.

There is obviously much expense and management time required to pursue development and regulatory approval of an FDA-approved IBD test kit.

Until we have the guidelines answered for the homebrew version of the test on the market today, I don't think it makes sense to invest a whole lot of time and energy on the product side just yet.

We will, however, continue to talk with the agency to understand what would be required for an approval.

Our current thinking is that once we have more clarity on guidelines, we will adjust our plan accordingly around an FDA-approved kit version of the technology.

Is there an update on when LabCorp intends to launch the PB2 assay?

A specific date has not been set.

LabCorp has expressed great interest in the new technology and continues to evaluate it against internal protocols and requirements for launching a new diagnostic test.

They are excited about the fact that there will be a peer-reviewed publication supporting the new technology in the first quarter of '07.

When I have more details on this, I intend to update you.

For now, details on the specific launch dates and plans for commercial introductions will have to wait.

Question five.

Do you think the guideline writers will delay the decision again?

Can you provide more color on why you think they delayed the decision from September?

The guidelines process, as we have said in the past, is fairly opaque as the ACS does not make public its formal process for evaluating new technologies for potential inclusion in screening guidelines.

That being said, I have had numerous conversations with people close to the process; and I believe that the committee will arrive at a decision no later than late spring.

I also expect, based on their June correspondence to us, that they will move to publish their guideline decision as soon as possible thereafter.

In terms of the reasons for the delay following their September meeting in Washington, D.C., my understanding is that the members of the ACS and the multi-society task force wanted more time to address multiple screening technologies, including immunochemical fecal occult blood testing, virtual colonoscopy, stool DNA testing, and newer devices used for endoscopic screening.

Rather than issue multiple updates at various times throughout the year, they have apparently taken a broader approach of evaluating multiple technologies and seeking to issue a single guideline update instead.

While this makes logical sense, it is also obviously frustrating for us and for the many companies affected by this delay.

We also should not forget that 150 people a day are dying from colon cancer in the U.S. alone; and the delay in the inclusion of new technologies like ours in guidelines only perpetuates, in our review, the tragic rate of mortality.

Question six.

Have you considered broadening your product focus beyond what you have today?

The answer is yes.

We regularly look at and consider other technologies that might be a complement to our business.

While I can't get into details, I can say that I have yet to see a technology that offers as broad and promising a market as the one we are currently focusing on.

I also know that in the healthcare field having good IP-protected technology is only a piece of the puzzle.

You need to build consensus among thought leaders, have a solution for national infrastructure to deliver and sell your product, and you need to be endorsed by the relevant organizations or regulatory body.

We will continue to evaluate other technologies and business opportunities, but we will never lose sight of what it really takes to build a sustainable business in healthcare.

This will not come at the expense of doing all we can to establish stool DNA as a standard of care for early detection of colon cancer and seeing it obtain its rightful share of the screening market.

What is your plan if you don't get in the guidelines?

Like any company with an important strategic milestone ahead of it, we will make adjustments, just as we did last week, and put in place contingencies as appropriate if we don't get in.

Beyond that, I am not going to comment publicly on that scenario until the proper time.

I remain very optimistic about our prospects for inclusion and believe that the data we have submitted in support of stool DNA testing speaks for itself.

Finally, when do you plan to raise money?

At the end of September, as Jeff reported, we had $24.4 million in cash on hand, which at our current expense level will carry us into quarter one of 2009.

Like any company, we regularly and realistically evaluate our capital needs and make decisions accordingly.

Beyond what I have already said, I'm not going to make any definitive comment or publicly hypothesize regarding raising money based on various event outcomes or market contingencies.

As I mentioned in my remarks, one of our objectives for our reduction last week was to make sure we were in control of our own destiny; and that we did not want to be in a position where we needed money and the terms would undoubtedly have been unfavorable both to us and to you.

With that being said, we will now open up the floor to your questions.

(OPERATOR INSTRUCTIONS) [Michael Moskoff], [MRM Capital].

A couple of clarifications.

You guys mentioned that late spring, early summer of '07, which was delayed.

Just correct me if I am wrong.

You said because you had conversations with them in September?

Or that is just the impression that you had, that it is not going to be an '06 event?

I don't think it's going to be an '06 event based on some conversations we have had with some members of the committee.

I think their original intention was to have this deliberation completed this fall and have a publication out in January-February of 2007.

But just based on what we are hearing, I just don't think that is a reasonable thing to happen.

Therefore, we think it is more likely from what we have heard to be late spring or possibly early summer.

We think there is pressure on the committee to get this thing done.

But as we tried to state in our comments, we think the process and what they decided to review is probably more involved than they originally thought.

Okay.

Then as far as Kaiser and Blue Cross said that they approved it from a safety point of view, but they have not accepted it as far as for their members?

Yes, what happens with a lot of these large payors, Michael, is you have to go through a technology review first.

Once you pass that, the decision is then turned over to the medical business people to decide if they want to issue a coverage decision, if you will, for the technology.

What we understand from both Kaiser and from Blue Shield of California, as two examples, is that we passed, we know we passed their technology review.

But once it gets to their business people or even their medical coverage people, they are waiting to see what happens with this guidelines thing before they issue any kind of coverage decision.

What we mean by coverage decision, just to be clear to everybody, is that most of the time when LabCorp bills a plan today that they have a contract with, they get reimbursed.

They get paid by that plan.

That is different from a coverage decision, where you go to any plan's website and see what are the covered benefits for something like colorectal cancer screening.

We want to see stool DNA testing every three to five years being a covered benefit.

That is what we need the guidelines for with, we believe, with both Kaiser and Blue Shield of California.

Last thing.

You mentioned about CMS that -- I think you said something regarding you have an alternative strategy if things don't speed up, I guess.

Yes, we are probably not at liberty to talk a lot about it right now.

But we believe that this thing with CMS, just like the guidelines, has drug along for quite a while.

If we started getting questions from CMS that we had already addressed before, we would probably go to some of our friends in Congress and other advocacy-related people and have them try to put some pressure on CMS to declare this application complete and at least get the clock started toward some kind of decision as far as the technology.

I don't think we are going to get to that.

I think what will happen is we can resolve the issues that CMS seems to have or LabCorp can resolve them; and this application can be deemed complete in the not-too-distant future.

We don't know when, but the kind of questions they are asking now are not -- don't seem to be that difficult.

Do you think that can turn out to be an '06 event?

I don't know if it could turn out to be an '06 event as far as the completed application, but there is certainly a possibility.

Once you have a completed application, just to be clear, supposedly they have nine months to do all their public comment periods and give you an answer.

So it is not out of the realm of possibility at all that we could have a completed application before the end of the year.

I just don't have any indication that is what is going to happen yet.

Is there a good shot it will be earlier than the late spring, early summer for the inclusion of the other scenario, of Medicare?

Well, I think we would have a completed application well before that time, and then add nine months or so to that would be when we could think about being in the Medicare program.

Okay.

Okay, thanks, Don.

[Second Line] Capital Management, [Larry Litton].

Kind of following up on some of these questions, I wasn't clear.

With the CMS application, there is the protocol question they have from LabCorp.

But how many questions do they have that we're trying to fill in the blanks?

Well, they originally had a question about regulatory status.

We think -- our opinion is that is behind us now.

Then, they have come back with some questions about how the assay is being run at LabCorp.

These don't seem to be onerous questions at all.

It's just they wanted to get clarification about how it is being run.

They're that broad.

They're really about how it is going to be run.

To the extent we can get those answered quickly, which is our intent and certainly LabCorp's intent, we hope that will be the end of the questions.

We can't promise you that, but we hope that is the end of it.

But you don't get a sense from them that these are all our questions; if you answer them satisfactorily, we are done?

This is a Byzantine, iterative process where they say, oh, we have got some more questions now.

It could happen the way you describe it.

It could be an iterative process where the answers generate more questions and that sort of thing.

So we are relying on the experience we have had to date.

We are certainly relying on the experience LabCorp has had with CMS.

But we also have several outside consultants who were former employees of CMS who are also advising us on this process.

Hoping that we can stay out of that kind of back and forth.

I can't promise you that is going to happen, but that is certainly our intent.

Apropos of CMS's question, I guess I have the same question.

What is LabCorp doing at this point?

We had the Effipure, then we had the bead technology, then we had the next version.

We are phasing from one technology to the next.

What product is out there?

Is there only one product out there?

What does LabCorp tell their customers in terms of the tests they are offering?

You really need to ask LabCorp about that.

But just kind of basically, the product LabCorp is offering is the product with Effipure in it, the same product they have been offering from the day they launched the product.

There is only one product out there.

Okay, but I thought we were taking Effipure off the market because of the FDA objectives and the homebrew?

Well, they have said they -- again you need to ask them about it.

I think what they have talked to the FDA about is having that out by the end of the year and having other alternatives in there.

There are other alternatives that I know they are looking at.

I am sure they will meet whatever they told the FDA.

We took an Effipure write-off, right?

So that speaks to the fact that that is being phased out.

No?

Yes, that write-off was based on the representation that LabCorp made to FDA.

So it is driven in part by that and obviously driven in part by projections on sales.

Okay, but in terms of a next -- you're not saying anything is in terms of the next generation or a modified generation that LabCorp is offering?

You have got no perspective on sensitivity vis-a-vis the Effipure is better, it is worse, it's the same?

Part of the validations we do internally.

Although LabCorp will have other alternatives to isolate DNA -- let me say that upfront -- we are evaluating an alternative that we are comparing to Effipure.

LabCorp may choose to utilize that technology.

They won't be buying anything from us.

It is a fairly simple way of isolating DNA.

That may be one of the options that they ultimately consider.

But there are several options for isolating human DNA from samples.

That will not be a problem.

Okay.

The Version 2 test, you don't know when it's going to come on the market.

But any further clarification on what the cost would be or the price would be vis-a-vis the current test?

I know it is a simpler test.

I don't Larry.

All I know is that the test is simpler; therefore, it certainly gives more cost flexibility.

In other words, the cost of testing could be lower.

The price?

That is LabCorp's to decide and I don't know if they have made -- gotten that far along the way yet.

A lot of it is driven by the potential reimbursement based on the codes utilized for the test.

So today, those codes add up to a lot of money, for instance, probably around $1,500, although LabCorp only charges list price, $495, for the test and probably gets reimbursed something less than that.

The future, the same thing would happen.

The codes may add up to something less than what they do today.

LabCorp will base their price, I suspect -- although you need to ask them -- based on what the reimbursement is likely to be.

Okay.

How many people in sales and marketing at this point, after the cutbacks?

Six.

Six, yes.

I recognize you have a logical plan here and they are working on things that are valid.

But why not eliminate sales and marketing down to closer to zero, and just gear it up, fresh start, when we are in guidelines, basically?

It is a valid question.

It is something we considered a lot going into this decision we made last week.

In the end, what we decided was a number of those people are working either on things that are affecting guidelines, affecting CMS, and working with self-insured employers, and some other things that we're not at liberty to talk about right now, that we believe are pretty far down the line and could come to fruition even sooner maybe than a guidelines decision or a Medicare decision.

Okay, last question.

Don, you specifically say that you see this logic in the guidelines delay, in offering a comprehensive answer.

But you also cite the fact that people are dying every day.

I guess I am a little confused, because I don't see why the DNA testing is necessarily tied to virtual colonoscopy or all these other things to be reviewed.

In many ways, it seems much more logical that once they make a decision on a specific protocol, that they would approve it or not approve it.

To me, the logic would be to be going through things as they reach conclusions.

What you're saying and suggest is they haven't reached conclusions and that everything is intricately tied together.

I don't understand that.

Well, I am not sure I can make it understandable, other than this is the way they do things.

One of the things we have considered is putting on our website a link to the last two guideline articles, where they actually did the guidelines.

If you read through it, what you will see is the methodology they have used historically has been to review everything that was available around the technologies they were considering.

Now in the past, when they did this they had a review in 1996 that was published in '97; they had a review in 2002 that was published in 2003.

The technologies they were considering were colonoscopy, fecal occult blood testing, double contrast barium enema, and flexible sigmoidoscopy.

That was the only technologies available.

Today, there's new technologies available including our own.

Plus they want to go back and look and see if some of the old technologies that are in there should stay in there, such as flexible sigmoidoscopy and double contrast barium enema.

So they may have decided on our particular technology, but what they are waiting to do is to issue one peer-reviewed manuscript that would be published and that would become -- not the law of the land, but become the recommendations for guidelines.

It is just the way it is done.

Okay.

No, that's helpful.

Thank you.

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