Infinity Pharmaceuticals Inc (INFI) 2004 Q4 法說會逐字稿

Good day, everyone and welcome to today's Discovery Partners International fourth-quarter earnings conference call. As a reminder, today's conference is being recorded. For opening remarks and introductions, I'd like to turn the conference over to Mr. Riccardo Pigliucci, Chairman and Chief Executive Officer. Please go ahead, sir.

Thank you and good morning. I'm Riccardo Pigliucci, Chairman and Chief Executive Officer of Discovery Partners International. And I would like to welcome you to Discovery Partners fourth-quarter 2004 financial results conference call.

With me today is Craig Kussman, Chief Financial Officer of Discovery Partners. In this call, we plan to review the results of the quarter and the twelve months ended December 31st, 2004, provide guidance for the remainder of 2005, and to comment on the acquisition we announced this morning of Biofrontera Discovery GmbH.

As you know, I am obliged to remind you to consider the following Safe Harbor statements regarding forward-looking statements. Statements in this conference call that are not strictly historical are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, and involve a high degree of risk and uncertainty. The Company's actual results may differ materially from those projected in the forward-looking statements due to risks and uncertainties that exist in the Company's operation, our research and development efforts and our business environment, including whether the Company's relationship with Pfizer and the NIH continues through and beyond the contractual terms; the mix and the timing of revenue from sales of products and services based on our backlog; the establishment of offshore chemistry operation; our ability to establish and maintain collaboration, execute more profitable business and realize operating efficiency; our ability to achieve expected results in 2005; and the level of expenditure necessary to enable the Company to achieve its objective of focusing its business on providing lead drug candidates to pharmaceutical companies; and the ability to acquire complementary businesses or capabilities and the integration of acquired businesses and abilities; and the trend towards consolidation in the pharmaceutical industry; quarterly sales variability; technological advances by competitors; and other risks and uncertainties more fully described in the Company's annual report on Form 10-K for the year ended December 31st, 2003, as filed with the Securities and Exchange Commission, and other SEC filings. Backlog measures are not defined by GAAP and our measurement of backlog may vary from that used by others. While we believe that long-term backlog trends serve as a usable metric for assessing the growth prospects for our business, backlog is not a guarantee of future revenues and provides no information about the timing on which future revenue may be recorded.

In addition, in response to Regulation G, we will no longer refer in our commentary or in answer to questions on past, current and future results, to non-GAAP financial measures, such as EPS or gross margin before restructuring charges, or other provisions, but would only highlight the magnitude of the charges included in the various periods, if any.

As those of you who are listening to a webcast now, this conference call is publicly available by live webcast on our website at www.DiscoveryPartners.com. This call is the property of Discovery Partners.

A copy of the prepared remarks on this call, as well as the earnings press release issued this morning, have been furnished to the Securities and Exchange Commission on Form 8-K.

Now I will turn the call over to Craig Kussman, Discovery Partners CFO, to discuss our financial performance.

Thanks, Riccardo, and good morning. Revenues for the fourth quarter ended December 31, 2004, were $14.2 million, 2 percent below the fourth quarter of 2003 and 13 percent above the third quarter 2004. The increase versus the third quarter was primarily due to an increase in chemistry and screening services, as well as higher product revenues. The decrease versus prior year was due to decreased chemistry services revenues, which offset higher Crystal Farm product revenues.

Pfizer accounted for 51 percent of our revenues for the quarter. Gross margin as a percentage of revenue for the fourth quarter of 2004 was 42 percent, unchanged from the fourth quarter of 2003 but down from the 46 percent result in the third quarter of 2004. The decrease in gross margin as a percentage of revenue versus the third quarter resulted from lower chemistry services margins caused by a lower level of the per-compound margin benefits resulting from the modifications to the Pfizer contract in early 2004, combined with lower compound production volumes, which more than offset higher product margins caused by lower inventory reserve adjustments.

The unchanged gross margin percentage versus prior year reflected the higher product margins caused by product volume and mix, and lower inventory adjustments, which offset lower service margins caused by lower chemistry service volumes and amortization of uARCS technology.

Research and development costs for the fourth quarter of 2004 were $1.2 million, up from $0.6 million from the fourth quarter of 2003, and down slightly from $1.3 million in the third quarter of 2004. The increase in research and development costs versus prior year resulted from the redeployment of development, scientists and engineers from direct revenue-generating activities of customer-funded R&D programs and collaborations, to internal programs focused on Crystal Farm product, compound storage solutions, in silico tools and assays and drug-discovery process development.

SG&A costs for the fourth quarter of 2004 were $3.2 million, down from $4.1 million in the fourth quarter of 2003, and down from $3.7 million in the third quarter of 2004. The decrease in SG&A costs versus the third quarter was due to lower business development costs resulting from the redeployment of development scientists back to scientific activities, and by lower incentive compensation accruals. The decrease in SG&A costs versus prior year resulted from lower incentive compensation accruals, which offset higher administrative costs associated with compliance with Sarbanes-Oxley and increased business development efforts.

The Company reported a $1.1 million profit from operations during the fourth quarter of 2004, up slightly from the $1.1 million result in the fourth quarter of 2003 and up $0.7 million versus the third quarter of 2004 results. The slight improvement versus prior year reflects lower SG&A costs, which offset higher R&D and deferred compensation costs and a lower gross margin. The increase versus the third quarter of 2004 is due to lower SG&A and R&D costs, combined with the higher gross margin. This marks the sixth consecutive quarter of operating profit.

Interest income was $0.4 million for the fourth quarter of 2004, unchanged from both the fourth quarter of 2003 and the third quarter of 2004.

Foreign exchange losses totaled $0.2 million for the fourth quarter of 2004, compared to 0.0 million in both the fourth quarter of 2003 and the third quarter of 2004. The Q4 loss resulted from the completion of two significant contracts performed by our Swiss-based subsidiary that were denominated in U.S. dollars.

Net income for the fourth quarter ended December 31, 2004, was $1.4 million or 5 cents per share compared to net income of $1.5 million or 6 cents per share in the fourth quarter of 2003, and net income of 0.8 million or 3 cents per share in the third quarter of 2004.

For the twelve months ended December 31, 2004, revenues were $51.6 million, up 3 percent from the $49.8 million result in 2003. The increase in year-over-year top-line performance is due to increases in screening services revenues and instrumentation product revenue, offset by decreases in chemistry services revenue. The decrease in chemistry services revenues resulted primarily from lower revenues generated from Pfizer. This decrease in revenue came despite the fact that we exercised our right under our agreement with Pfizer to deliver additional compounds in 2004 in an amount equal to the number of compounds scheduled for delivery in the first quarter of 2005, which resulted in $4.2 million of revenue in the fourth quarter of 2004 that will not be recognized in the first quarter of 2005. With these additional shipments, Pfizer accounted for 53 percent of our revenues for the year.

Gross margin as a percentage of revenue for the twelve months ended December 31, 2004, was 43 percent, up from 36 percent for the same period in 2003. The year-over-year increase in gross margin percentage resulted from an improvement in gross margin from screening and chemistry services, and on instrumentation products, which were partially offset by amortization of uARCS technology.

Gross margin as a percentage of screening revenue increased due to an increase in volume. Gross margin as a percentage of chemistry services revenue increased due to higher margins under our Pfizer agreement, the redeployment of scientists to research and development projects and business development initiatives, and decreases in spending, partially offset by unabsorbed overhead resulting from lower production volumes.

Gross margin as a percentage of instrumentation product revenues increased, due primarily to higher margins earned on new products compared to our historical product lines and a reduction of inventory reserve requirements in 2004 compared to 2003.

Our exercise of our right under our agreement with Pfizer to deliver additional compounds in 2004 and an amount equal to the number of compounds scheduled for delivery in the first quarter of 2005 resulted in gross margin of $3.1 million in the fourth quarter of 2004 that will not be recognized in the first quarter of 2005.

Research development costs for 2004 were $4.3 million, up from $2.6 million in 2003. The increase in research and development costs resulted from the redeployment of development scientists and engineers from direct revenue-generating activities of customer-funded R&D programs and collaborations, to internal programs focused on Crystal Farm product, compound storage solutions, in silico tools, and assays and drug-discovery process development.

SG&A costs for 2004 were $14.1 million, up from $14 million in 2003. The increase in SG&A costs versus 2003 is due to higher business-development activities and professional services fees primarily related to Sarbanes-Oxley compliance, which more than offset savings resulting from lower incentive compensation accruals and the consolidation of facilities.

There were no restructuring costs in 2004, compared to 1.9 million in 2003 related to the closure of the Company's Tuscon facility.

The Company reported a $2.7 million profit from operations during 2004 compared to a loss from operations of $0.8 million in 2003, which included $1.9 million of restructuring costs. This substantial improvement is primarily due to the improvement in gross margin, and the lack of restructuring charges, offset partially by increases in research and development and stock-based compensation amortization.

Interest income for 2004 was $1.4 million, down from $1.8 million for the same period last year, due to lower yields on our investment portfolio, as well as realized losses during 2004.

Net income for the twelve months ended December 31, 2004 was $3.9 million, or 15 cents per share on a fully diluted basis, compared to net income of $1.1 million or 4 cents per share, including $1.9 million or 8 cents per share of restructuring costs for the same period in 2003.

Cash, cash equivalents and short-term investments at December 31, 2004, were $80 million, an increase of $1.1 million from the balance at September 30, 2004, due primarily to net cash flow provided by operations.

Now let me ask Riccardo to review the operations for the fourth quarter of 2004, comment on the Biofrontera Discovery GmbH acquisition announced this morning, and on the key milestones for 2005.

Thank you, Criag. I hope your voice gets better by the question-and-answer period. I am very pleased to again report a profitable quarter and the highest annual revenue and profits in the history of Discovery Partners. We have just concluded a very eventful quarter and an even more eventful year.

Since our last conference call, we have continued to ramp up our efforts to establish the molecular library Small Molecule Repository as part of the NIH Roadmap initiative. Thousands of compounds have been selected and have been evaluated at our South San Francisco facility.

We are very pleased to also report that the NIH has selected DPI as the provider of the automated storage and retrieval system for this program. This new and highly automated (ph) system, referred to as the Universal Store, was developed by Discovery Partners and was recently introduced to the market at the Laboratory of Commissions (ph) Symposium in San Jose, California, in January, 2005.

The first system was delivered and commissioned in late December to the Tucson, Arizona operation of Sanofi-Aventis. The Universal Store can store and retrieve millions of compounds in multiple formats; and cherry-pick up to 20,000 compounds per day for subsequent high-throughput screening, all under a (indiscernible) atmosphere and a temperature of minus 20 degrees Centigrade. The Universal Store will be available in various configurations ranging in price from $750,000 to $2 million. We will deploy two Universal Store systems for the NIH program, with the first expected to be installed at our South San Francisco facility during the second quarter of (ph) 2005.

Our discovery system division and Bruker AXS also announced yesterday at a Pittcon 2005 conference in Orlando, Florida, the launch of Crystal Farm 150, a new bench top protein and imaging and crystalization system that complements the larger and fully automated Crystal Farm 400 system.

Our drug discovery efforts continue to be validated with the establishment of new alliances, such as our recently announced alliance with Biovitrum AB and to work together to identify small-molecule, lead to (ph) compounds suitable for advancing targets within the metabolic disease area.

In addition, we continue to invest in internal R&D to develop new tools to enhance our discovery capabilities. In January, we announced the establishment of a panel of assays for in silico and in vitro ADME -- Absorption, Distribution, Metabolism And excretion -- and safety profiling. The in silico tools and assay are applicable for the design of compounds in lead generation, in expansion and lead optimization programs, and would allow annotation of compounds for ADME and safety characteristics in the lead selection and optimization projects.

It's a remarkable number of new developments just in a few months since our last call to conclude an equally eventful year. We started with the February signing of the multi-million dollar agreement with Pfizer, renewing their commitment into 2005. In May, we assisted our largest shareholder, the Applera Corp., to place 7.2 million shares into the market in an orderly way with a fully underwritten secondary offering. And in August, we were awarded a major multi-year contract with the NIH to establish and manage the small-molecule repository of up to 1 million compounds as part of the NIH Roadmap initiative.

In addition to the obvious financial award, this 24 million contract (technical difficulty) to DPI at the center of the largest scientific endeavor initiated by the NIH since the human genome project. And as I highlighted, DPI's capability to scientists worldwide for the academia and in the pharmaceutical industry. All in all, a very busy and productive year, in which we have again delivered the performance we promised.

What is less evident, just looking at these results, is the challenges that we faced in achieving our objectives for the year. In the course of our efforts over the year, we have realized that the market for outsourced discovery chemistry and research is fundamentally changing. Offshore providers and large pharma going directly offshore have put enormous pressure on prices and commoditizes many of our offerings. Our offense (ph) to establish a foothold in India has been very successful, but we realize that for DPI to continue to grow profitably and for the long-term, we need to continue to add more value to our offering in the U.S. and in Europe, and not just become a broker of commodity labor from an offshore location.

Our success with the Pfizer collaboration has resulted from our adding value to the processes and the chemistry, not just in efficiently executing a series of standard protocols. The same is true of our collaborations with Allergan, Octavian (ph) and several others.

We have therefore decided to accelerate in 2005 our migration towards establishing ourselves as the premier provider of integrated drug discovery capabilities to pharmaceutical companies, and away from services that compete with offshore providers. We will concentrate our efforts and demonstrate our ability to deliver compounds that have a high likelihood of becoming drugs, and continue to announce our profile in the scientific community. We will focus on this approach even if this means adding additional resources, acquiring new capabilities, temporarily increasing the risk sharing profile of the Company, or foregoing profitability for a limited amount of time. We are not, and do not intend to become, a therapeutic Company. But we will continue to strive to highlight and capture the value-added that our scientists can contribute to the drug discovery process, and definitely distance ourselves from being perceived as a commodity provider.

The acquisition of Biofrontera Discovery GmbH in Heidelberg, Germany announced this morning is the first step we are taking in order to achieve our objectives. The addition of this operation will substantially expand our drug discovery platform with a highly diverse laboratories of natural compounds, fermentation and isolation of natural products, and structural elucidation.

Biofrontera Discovery will be highly complementary to our drug discovery capability, and will allow current and future collaborators of DPI to access a seamless discovery platform, that can offer the best in small molecule synthetic chemistry and profound knowledge in natural compound chemistry, as well as many (indiscernible) capabilities in both the U.S. and Europe.

Biofrontera Discovery has operated until now as an internal drug discovery group within Biofrontera AG (ph), and therefore currently has no independent revenue streams. We expect that we will begin to market their capabilities immediately as part of our overall internal drug discovery effort. And we have projected that this will not only result in a new revenue stream for DPI, but we also generate enhanced revenues at our Gewerbestrasse (ph) and U.S. operations.

While we are redirecting the Company towards our stated goals, we also need to maintain our overall (ph) revenue base at levels that can absorb the fixed costs inherent in being a publicly traded company. Although we fully expect that Pfizer will remain one of our major customers after the completion of our current contract, we need to be prepared for the possibility of reduced revenue in 2006. For this reason, in addition to concentrating on expanding the Company through organic growth or acquisition of complementary technology platforms, such as Biofrontera Discovery, we are actively pursuing the acquisitions of companies with recurring revenues and profit that can complement our offerings, absorb part of our infrastructure, and leverage our capabilities.

Independent from any M&A activity, we will continue to strive to contain our fixed and variable costs of doing business, by continuing to carefully manage our expense base. We will also potentially continue to add offshore capabilities if and when appropriate, but will only do it to become more flexible and more profitable.

As I discussed before, during 2005, we will see a further significant decline of the Pfizer business, only partially replaced by increased NIH revenues. Our current 12-months backlog of 33 million, driven by the 8 million contractual ramp-down of the Pfizer contract, is 7 million lower than a year ago at this time. And with our current, limited new business visibility, excluding any possible M&A transaction, we estimate 2005 revenues will be between 44 and $54 million. This revenue amount does not include the revenues for the two Universal Store systems to be deployed in the NIH project in 2005, as they will be recognized over the life of the NIH contract, nor any significant contribution from the Biofrontera Discovery acquisition.

During 2005, we expect to invest an amount in excess of our 2004 earnings in redirecting the Company focus to absorb the current burn rate of Biofrontera Discovery and to adopt FAS 123R as mandated on July 1st, 2005. As a result, for 2005, we project a net loss of between 2 and $6 million, absent any other M&A or restructuring activities. Without any further visibility on Pfizer's intention, it is only prudent for us to start redirecting our resources to increase our share of drug-discovery collaboration opportunities, even if this temporarily affects our ability to realize profitability.

We believe that during 2005, our performance should be judged by the attainment of specific milestones, as the acquisition of additional drug discovery capability or the signing of specific significant collaboration with major partners, rather than by tracking quarterly revenue and EPS performance. And therefore, we will not be providing quarterly guidance.

We have demonstrated over the past two years that we can deliver and meet or exceed the financial expectations that we set. Our goal for 2005 and 2006 is to demonstrate that we can build our business with a substantially reduced dependence on Pfizer, into a Company positioned to offer a higher value to our partners, with the ultimate goal of returning to growth and profitability.

This concludes the first part of our conference call. I'm available to answer questions at this time, and we urge investors and analysts to ask any and all questions, as we will not be responding to individual calls and questions regarding acquisitions, financial results, or financial guidance following the conclusion of the conference call.

Operator?

Thank you. The question-and-answer session will be conducted electronically today. (OPERATOR INSTRUCTIONS). Phil Nadeau with S.G. Cowen.

Good morning. Thanks for taking my questions. I actually have several. First, on this morning's acquisition, could you tell us how much the acquisition costs, how are you going to pay for it and whether that division is currently cash flow positive or negative?

Okay, as I mentioned before, this is a division of a pharmaceutical company that has decided to focus their expenses on products that are now on the clinical trials and, therefore, is capping (ph) the burn rate. So this group does not have recurring revenue at the present time, so it is cash flow negative, and it actually has a burn rate of around a $0.25 million a month, that order of magnitude. Obviously, we intend to reduce that burn rate significantly, and we would expect in 2006 to get the Company to break even -- that division to break even or positive. So that's the situation in terms of the burn rate and the expenses.

Will those expenses mostly be under R&D, addition?

As long as we don't have any revenue to support our cost of sales, yes, that will be under the R&D line.

Okay, great.

In terms of the costs, we have not released a specific information, but it will be a cash acquisition of a minimal amount -- it would not be significant on our cash balance.

Okay. Second, do you have any visibility on 2006 currently? Are you in discussions with Pfizer now, or do you have any major contracts in your pipeline?

We always have a series of contracts in discussion with several customers, including Pfizer. What we have found recently, and I mentioned to Pfizer at the end of the Q3 call, we find a longer time for people to make decisions, especially at Pfizer this time; there seems to be involved in a major internal reorganization. So we have not seen anything positive or negative. So the silence does not necessarily mean that it is going to be bad news. But really we have not -- really we don't have much visibility into Pfizer's intentions going forward. That's the reason that we are protecting ourselves in making sure that we have a viable business with or without Pfizer.

Any idea when we might hear one way or the other on Pfizer?

I would expect that within the next few months, and at the latest, I would expect by the third quarter, because clearly, at that time, they have automatic renewal of the contract or ending the contract.

Okay. And then in your guidance for 2005 -- I know you said you weren't going to give us guidance on non-GAAP measures. But are there any one-time or acquisition-associated non-cash charges in that guidance?

Yes, we've got about -- a charge in Q1 of about $600,000. It will be included; it is really more of a one-time cost associated with the departure of our former chief operating officer.

Okay. And any idea what the depreciation and amortization is going to be in '05? Any idea basically whether you're going to be cash flow positive or negative?

I believe that our depreciation and amortization should be at about the 2004 levels. And if we are at the higher end of our -- the lower end of the loss range, then I would anticipate that we should be roughly about cash flow neutral.

Okay. Just two more questions. First, are we still going to see margin improvements in 2005 from current levels? And second, could you give us some idea when we will see probability again? Would that be a 2006 thing? Or are we talking a longer turnaround than that?

Let me touch on the profitability first then I'll ask Craig to comment on the margin. The profitability, we might have a quarter here or there, where depending on the shipment level, we may be profitable. But I think what you are referring to and what I call profitability is, when it's a predictable quarterly profitability. And for that, I would expect around the second half of 2006.

Yes, with respect to gross margins, we would expect those to basically fall back to 2003 levels, somewhere in that neighborhood. And the primary driver of that is the fact that the anticipated level of Pfizer compound deliveries, which, as you can see from the numbers in Q4, (inaudible) a much higher margin than the rest of our business overall. The level of those deliveries will be cut in half, roughly, from 2004 levels, in the 2005 year.

Great. Those are all my questions. Thank you very much.

(OPERATOR INSTRUCTIONS). Lawrence Hawkins with Bonanza Capital.

Good morning. Can you provide some more detail as far as the decrease in the fourth quarter SG&A costs? You know, with all the small companies that we are seeing have the expense ramp up for Sarbanes-Oxley, and then for you to have a decrease of about 900,000 year-over-year, is there, from a compensation standpoint, what's going on? And maybe this ties into the departure of the COO. And have you had any other attrition at the employee level?

The primary driver has to do with lower incentive compensation accruals. In 2003, the Company pretty much greatly exceeded its internal budget targets. And as a result, the incentive compensations were well above target.

That wasn't the case for 2004. And a large portion of that adjustment ended up hitting the fourth quarter in both years. So that's the primary driver.

Sarbanes-Oxley costs did increase our administrative costs, in the neighborhood of about $300,000 probably for the quarter.

Okay. Next question -- I'm relatively new to the story -- but if you could explain to me what's going on with inventory reserves. I noticed at the end of Q3 at least your gross balance of inventory was about $23 million. But you had a $19 million reserve against that inventory. Could you just provide some color on that?

Yes, if you go back to our history, bank in 2002 and even further back into 2001, the bulk of those inventory reserves were created -- or the inventory levels themselves -- were created when the Company's strategy was to create large libraries of chemical compounds, to develop them and then produce them, put them into inventory and then go out and market them.

The Company, in 2002, decided to basically exit that type of business. And as a result of that, we, in a sense, reserved against the entire balances of those inventories. So the amounts that we've got currently, the net inventory balance of about 3 to $4 million, is really primarily related to work in process.

And now we'll take a follow-up question from Mr. Nadeau with S.G. Cowen.

Thanks. Sorry, just one follow-up. Riccardo, when you said that you expected to go back into profitability in the second half of 2006, I understand that that's not formal guidance but of a general rule. But what in your mind are you anticipating for Pfizer revenues and for overall revenues in 2006, when you say you could become profitable? Are you expecting overall revenues to maintain flat, to grow somewhat, to decrease? Just give us some feel there. Thanks.

I mean 2006 is a long time, is a long way away. My expectation will be that by 2006, that we'll start seeing the effect of an enhanced number of deals in internal (ph) discovery area, that would increase our overall volume. I would expect still a certain level of business from Pfizer, not necessarily the current level, but certainly not at zero. So somewhere in between -- half of what we get now. And it's difficult to put a specific point. Let me just leave it that I would expect it to grow over 2005. That's what I would be striving for, in terms of putting in 2005, all of the operational investment required to get back to the growth of 2005.

In terms of -- we have back and forth, very closer to a breakeven point around the 50 million range, or 47 to 52. So any growth in that area will put the Company back on a profitability. And fundamentally, we are keeping our expense rate very much under control. Just because we are adding a few quarters or over the period of potential losses, we haven't lost our stripes. In other words, we're still very dedicated to making this Company run as a real business, with expense control and maximizing our cost structure.

Gene Mannheimer with Roth Capital Partners.

Good morning. Can you share with us how much of the backlog is attributable to Pfizer and the NIH?

I think we would have to make a calculation exactly how much the Pfizer is because we disclose it every quarter on the Q; but I just don't remember exactly what the number is.

Yes, the amount of Pfizer backlog is about $19 million. And the amount of the NIH is in the 7 to $8 million range.

Okay. So clearly those two contracts are the majority of the backlog at this time?

Correct.

Okay. And short of giving guidance, do you have an expectation of how much Pfizer will bring in Q1 of '05?

It's difficult to say. It depends exactly how much Pfizer compounds we actually end up shipping in Q1. We're still in discussions with them. It can be anywhere between no compounds are shipped at all to the usual amount. So it's difficult for me to give you a specific number. But it is possible that we may decide it for operational reasons or for Pfizer reasons not to ship any compounds in Q1, and resume shipments later on in the year.

Okay, thanks. And then final question, in terms of the sort of renewed focus on integrated drug discovery, who would you characterize as your best comparable or best competitor that also has that focus?

It's difficult to judge; there are several companies that do similar things to us. I could mention Evotech (ph); I could mention Tripus (ph); I could mention Albany; I could mention Vertex. They all do it in a slightly different way. But they are all companies that have internal discovery capabilities. We will -- the kind of capabilities we are now putting together, especially adding the natural products and so on that can (indiscernible), we are aiming at getting bigger deals rather than just the screening or just the lead optimization. So we try to get more of, or the comprehensive deal all the way from a target to just starting to deliver a series of lead compounds that can be going into animals. So try to get much larger deal rather than the ones we have historically had in the internal discovery division.

Okay. And just one more thing. And forgive me if this was asked before. But what do you see as the potential for the NIH contract, in terms of scope and dollar amount?

The overall contract at the moment that has been signed is about $24 million over four years. And we expect this contract to be at least that amount. Actually that's definitely the amount that we have under contract. And there is a possibility to further expansion after the end of the contract or continuing to manage the compound, as well as several other fees that the NIH has sent out for screening centers and so on, to which us as well as many other people are responding. But we have no visibility on that one yet.

So there's no expectation of when they're going to make the decision on vendor of choice on that?

I believe there is something coming in the next couple of months, Q2 most likely. I think on the NIH site, there's a specific date on which the decision will be announced.

Next, Larry Brooks with Maloney Securities.

Yes, hi, good morning. I'm wondering about the acquisitions that you talk about, the goals of it seems to me accretive acquisitions. I mean, are you looking at doing this in the next month, quarter, couple of years? I mean, with all the cash that you have, that seems to be one of the keys of your Company here.

We're certainly looking -- the question was very difficult to hear; I apologize. I believe that you asked me about other acquisitions that I may be looking at --

That's correct.

And when is that going to happen, given the level of cash that we have. Was that --?

That's correct.

Okay. My expectation, like I said several other times, we are always looking at potential acquisitions, and we have been looking very seriously for quite some time. I would not like to put a specific date onto anything, because until something is signed it takes up to (indiscernible) things, you never know, you never have a deal. But we are very actively pursuing potential acquisitions. And we are fully aware that I don't want to sit forever on a pile of cash. We need to put that cash to value for the shareholders. On the other hand, I don't want to just make a bad deal just to do it fast.

And there are no further questions. Mr. Pigliucci, I will turn the conference back over to you for any closing or additional remarks, sir.

Well, thank you very much. I would just like to thank all of you for participating in this conference call, and I look forward to talking to you again soon. Thank you very much.

And that concludes today's conference. We do appreciate your participation; you may now disconnect, and have a great afternoon!