NeuroMetrix Inc (NURO) 2008 Q1 法說會逐字稿

Good day, ladies and gentlemen and welcome to the First Quarter 2008 NeuroMetrix Inc. Earnings Conference Call. (Operator instructions) I will now turn your call over to Mr. Brad Smith, Chief Financial Officer. Please proceed, sir.

Thank you and good morning. Before we begin, I would like to briefly discuss the use of forward-looking statements on this conference call. The statements we make on this call may statements which are not historical facts and are considered forward-looking within the Private Securities Litigation Reform Act of 1995. Statements that are predictive in nature, that depend upon or refer to future events or conditions that include words such as "believe," "may," "will," "estimate," "continue," "anticipate," "intend," "expect," "plan," or other similar expressions are forward-looking statements.

Any forward-looking statements reflect current views of NeuroMetrix about future results of operations and other forward-looking information. You should not rely on forward-looking statements, because our actual results may differ materially from those indicated by these forward-looking statements, as a result of a number of important factors, including those set forth in our earnings issued earlier today, Item 1a "Risk Factors" of our annual report on Form 10-K for the year ended December 31, 2007 and our other SEC filings. NeuroMetrix does not intend to and undertakes no duty to update the information disclosed on this conference call.

I would now like to turn the call over to Dr. Shai Gozani, our CEO.

Thank you, Brad and good morning, everyone. I would like to welcome you to the NeuroMetrix first quarter 2008 conference call. I'm joined today by Brad Smith, our Chief Financial Officer and [Mark Ducette], our Controller.

NeuroMetrix is a science-based medical device company advancing patient care through the development and marketing of innovative device products that aid physicians in the diagnosis and treatment of diseases of the nervous system and neurovascular disorders and then provide regional anesthesia and pain control. Our goal is to develop into a diversified neurotechnology company.

We sell our products in the U.S. through a direct sales organization, which currently has 47 sales representatives. In the international markets, where revenues today have been modest, we sell our products through third party distribution. We outsource manufacturing to partners in Massachusetts, Europe and China.

We have four areas of focus for our product lines and product development efforts. They are neuropathy assessment, retinal imaging, perineural drug delivery, and nerve repair regeneration. I will provide updates for each during this call. However, before doing so, I have a couple of general updates and then Brad will discuss our financial results.

We announced late last week that Gary Gregory, our Chief Operating Officer, has resigned effective May 31 of this year. Gary has been an important part of our organization for the past six years and wish him well on his future ventures.

I will be taking over Gary's management responsibilities and the day-to-day responsibilities for sales and marketing organization will be assumed by Monty Hukill, our Vice President of Sales for Diagnostic Devices; Mike MacDonald, our Vice President of Marketing; and Kevin Quinn, our Vice President of Business Development, respectively. Monty, Mike and Kevin are experienced and talented managers and I look forward to working closely with them. Details on this management transition are available in our recent press release and 8-K filings.

We are in the process of evaluating our cost structure in light of decreasing revenues. We are taking measures to reduce future expenses and will continue to systemically evaluate our spending with an eye towards effectively managing our cash burn, while at the same time preserving our current product sales, supporting the commercial launch of new products and sustaining our product development efforts.

I will now turn it over to Brad Smith, our Chief Financial Officer, who'll discuss our financial results for the first quarter of this year.

Thanks Shai. Here's a recap of our financial performance for the three-month product ended March 31, 2008, which is our first quarter.

Total revenues for the first quarter of 2008 were $9.1 million, down 23% from $11.8 million in the first quarter of 2007. Revenues in the first quarter of 2008 of $9.1 million were down 9.9%, sequentially, from $10.1 million in the fourth quarter of 2007.

Biosensor revenues totaled $8.0 million or 88% of total revenue in the first quarter, and diagnostic device revenues totaled $750,000 or 8.0% of total revenue. These compares with $10.3 million in biosensor revenues in the first quarter of 200, or 87% of total revenue, and $1.3 million of diagnostic device revenues, or 11% of total revenue.

Revenues from the DigiScope used by physicians for the detection of diabetic retinopathy were $362,000 in the first quarter of 2008, or 4.0% of total revenues, compared with $206,000 in the first quarter of 2007, representing an increase of 76%.

As a reminder, we acquired EyeTel Imaging in late December of 2007 and previously had a sales and marketing license from EyeTel to sell the DigiScope into the physician office market. We signed up approximately 60 new DigiScope customers in the first quarter of 2008.

The total number of active NC-stat customer accounts, which is based on a 12-month look-back period, was relatively flat at 5,575 in the first quarter of 2008, compared with 5,555 in the fourth quarter of 2007. And the average usage per account was also relatively flat at $5,700 per account in the first quarter of 2008, compared with $5,800 in the fourth quarter of 2007.

During the first quarter of 2008, our overall gross margins were 72.6%, compared with 71.8% in the fourth quarter of 2007 and compared with 73.7% in the first quarter of 2007. The gross margin for biosensors was 73.6% in the first quarter, compared with 73.1% in the fourth quarter of 2007 and compared with 73.8% in the first quarter of 2007. The ASP was relatively unchanged in each of these periods at approximately $35 per biosensor.

Our device gross margins for the first quarter of 2008 were 72.3%, compared with 70.6% in the fourth quarter of 2007 and compared to 82 % in the first quarter of 2007. The decrease in device gross margin percentage compared with the first quarter of 2007 was due to lower ASP of the devices, down from 4,200 in the first quarter of 2007 to 3,300 in the first quarter of 2008.

Overall gross margins were impacted by a 50.2% gross margin on DigiScope revenues, compared with 30.7% in the fourth quarter of 2007 and compared with 18.2% in the first quarter of 2007. With the acquisition of EyeTel in late 2007, we expect that the gross margin on the DigiScope will continue to increase in 2008 on a comparative basis versus 2007, since we will no longer be remitting a portion of revenues to EyeTel, although we will be recording depreciation of the DigiScope units as cost of revenues.

Out total operating expenses in the first quarter of 2008 were $17.1 million. This included a non-cash goodwill impairment change of $5.8 million, which I will elaborate on shortly. Total operating expenses for the first quarter of 2007 were $10.5 million.

Operating expenses increased in the first quarter of 2008 compared to the same period in 2007 as a result of additional hires to support our product development efforts for ADVANCE and NAVIGATOR and to work on improvements to existing products, including the DigiScope, and due to increased professional fees.

With regard to the goodwill impairment, we took a charge of $5.8 million in the first quarter of 2008, as a result of the decline in the Company's market capitalization during the quarter to a level below the Company's net book value. This had nothing to do with our outlook for the EyeTel acquisition, which is where the goodwill is originally recorded in connection with the acquisition of EyeTel.

As a result of EyeTel's operations being incorporated into the Company's one reporting unit or segment, potential goodwill impairment has to be reviewed at the reporting unit level, which for us is currently the entire enterprise. The market assessment, based on the Company's total marketing capitalization of $23 million as of March 31, 2008, compared with our net book value, including goodwill, well in excess of $40 million, leading us to believe that goodwill had become impaired and we recorded a non-cash charge of $5.8 million for goodwill impairment, as required with the provisions of SFAS 142.

The GAAP net loss in the first quarter of 2008 was $10.8 million, including the $5.8 million goodwill impairment change, and also including a write-down of approximately $650,000 for our investment in Cyberkinetics due to what we consider to be an other-than-temporary decline in the market value of this investment. In comparison, the net loss for the first quarter of 2007 was $1.4 million.

Basic and diluted GAAP net loss per share was $0.79 in the first quarter of 2008, including the impact of $0.43 per share for the goodwill impairment change. The basic and diluted net loss per share in the first quarter of 2007 was $0.11 per share.

Turning now to our financial position as of March 31, 2008, our cash, cash equivalents, and short-term investments totaled $26.6 million, compared with $29.7 million as of the end of 2007. The use of cash was primarily driven by the net loss from operations, adjusted for non-cash items, including the goodwill impairment change, as well as stock-based compensation.

Cash used in operations was $4.1 million after adjusting for all of these non-cash items. This included an investment in working capital of approximately $800,000, primarily an investment in inventories. We also had $1.0 million in cash that became unrestricted during the first quarter of 2008, as a result of a favorable negotiation and an extension of our facility lease.

Working capital was $30.9 million as of March 31, 2008 compared with $33.3 million as of the end of 2007. The decrease in working capital was due to decreased cash and investment balances, offset partially by an investment in inventory of $600,000.

Our DSO, our day sales outstanding, was relatively unchanged at 55 days as of March 31, 2008, compared with 54 days in 2007. Our inventory turn rate was 1.8 in the first quarter of 2008, compared with 2.2 in the fourth quarter of 2007 and compared with 2.7 for the full year ended December 31, 2007. The decrease in inventory turn is due to our investment in inventories of ADVANCE, which just received FDA 510(k) clearance for market in the U.S. and Shai will comment further on that.

As of December 31, 2007 there was long-term debt on our balance sheet. That was the same at the end of the first quarter of 2008, other than a small, capitalized lease obligation of about $15,000.

So, to summarize our first quarter of 2008 financial performance, revenues totaled $9.1 million. We incurred a net loss of $10.8 million, which included the goodwill impairment change of $5.8 million and we ended the first quarter with $26.6 million in cash and investments.

This concludes the financial update portion of the conference call and I'd like to turn it back over to Shai.

Thank you, Brad. I will now discuss each of our product lines, including those that have been commercialized and those that are in the development stage, first with respect to neuropathy assessments.

In the first quarter we generated revenues for our neuropathy assessment products of $8.7 million, which was down 24% from the same quarter last year. The breakdown for the first quarter of 2008 was $750,000 in device revenues and $8.0 million in revenues from consumables. All device sales were of NC-stat devices and accessories and all consumable sales were for our neuro-specific electrodes, which we call biosensors.

Consistent with our experience over the past several years, about two-thirds of revenues were generated from sales to primary care and internal medicine physicians and one-third of our revenues were generated from sales to specialists.

We believe that the decrease in our revenues from our neuropathy assessment products was due to continuing reimbursement difficulties faced by customers using NC-stat devices. The AMA CPT editorial panel considered reimbursement coding for nerve conduction studies performed using the procedures, such as with the NC-stat System, at its February 2008 meeting.

We had hoped that the AMA CPT editorial panel would have determined that the existing Category I CPT Codes were applicable to nerve conduction studies performed using the NC-stat System or assigned a series of new Category I CPT codes for such studies. Our view was shared and supported by professional medical societies representing over 100,000 physicians. To our collective disappointment, the only vote that occurred at the meeting was a vote on the Category III code.

However, if and until the AMA CPT publishes a new code set, which typically occurs in July or January each year for Category III codes, there are no new nerve conduction CPT codes or any changes to the CPT codes for nerve conduction studies. In the event that a Category III CPT code is published, which describes nerve conduction studies as they are performed with NC-stat, it would likely result in limited Medicare reimbursement for such studies. A Category III code could also adversely impact reimbursement by other third party payors.

We are doing everything possible to ensure that the AMA CPT process is fair, transparent, adheres to the predefined Category I and III coding definitions, and considers all valid scientific data in an unbiased and professional manner. In this effort we are working with supportive professional medical societies.

A decision to reconsider past votes and the process for addressing past decisions rests with the executive committee of the CPT editorial panel, CPT staff members and other AMA administrative staff. These parties may decide to reconsider nerve conduction study CPT codes at the June 2008 meeting, but there's no requirement that they do so.

Participants in the AMA CPT process must adhere to confidentiality requirements and therefore, until the AMA CPT finalizes and publishes a position, we cannot comment further on the outcome of the February meeting or our strategies for addressing past or future AMA CPT decisions.

This reimbursement environment creates marketing challenges for the NC-stat. As such, we expect to focus our marketing efforts for the NC-stat in markets less susceptible to the constraints of traditional reimbursement. These markets include a subset of primary care and other physicians, HMOs with capitation, physicians and heath systems using self-pay models, industrial pre-placement and wellness programs, clinical studies, and research applications.

At the present time, we do not have reliable estimates for the portion of our current NC-stat business, which fall into these categories, or the overall size of these markets. We expect to improve our understanding of these markets over the next several quarters.

We launched the NC-stat within the UK in the fourth quarter of 2007 and continued to build this market in the first quarter of this year. Although our international sales are currently small, we believe that the NC-stat and our other products have opportunities outside the U.S. We are selling the NC-stat into the UK through third party distribution and expect to use a similar approach in all international markets. We are evaluating additional international opportunities with potential launches later in 2008.

We recently announced that we received FDA 510(k) clearance for our ADVANCE System. In contrast to the NC-stat, ADVANCE is a traditional system. The primary regulatory predicate for ADVANCE as a key point device originally manufactured and marketed by Medtronic, Inc., to neurologists and physical medicine and rehabilitation physicians for the performance of traditional nerve conduction studies and invasive electromyography procedures.

ADVANCE supports the performance of nerve conduction studies using any procedure, including the procedure that we believe is presently regarded as traditional and reimbursed under current nerve conduction CPT codes.

Although ADVANCE leverages our experience with the NC-stat, it is a new and distinct product platform. It differs from the NC-stat in a number of important ways. First, it is not automated but rather provides computer-aided features like other traditional systems on the market.

Second, it supports nerve conduction testing with any electro-methodology, including individually placed electrodes. It is also backwards compatible with our line of neuro-specific electrodes or biosensors. Third, it provides real time waveform review and cursor editing so a physician has complete control over the results and finally, it supports invasive electromyography procedures using electromyography needles.

We expect to launch ADVANCE in the second quarter, following final manufacturing ramp-up. We are also in the process of expanding our consumables offerings for ADVANCE with the addition of new lines of disposable electrodes and single-use concentric electromyography needles. We have built up our inventory of ADVANCE devices and therefore will not be supply-limited, although some of the accessories and consumables may be on backorder at launch.

We expect the list price for the device to be approximately $7,500, although the ASP is unclear due to potential discounting, particularly for early adopters. We have not finalized pricing for ADVANCE accessories and consumables. Although we cannot provide detailed data on gross margins, our expectation is that the device and consumables gross margins will range from about 50% to 70%.

We will market ADVANCE domestically through our direct sales organization, primarily to specialists including neurologists, physician medicine and rehabilitation physicians, neurosurgeons, hand surgeons and other specialists who we believe are more likely to perform traditional nerve conduction studies and invasive electromyography procedures.

In addition to potential new customers we will approach specialists currently using the NC-stat, which represents about one-third of current NC-stat users. We believe that the technological and clinical features of ADVANCE, it's overall cost and the exceptional customer and technical support provided by NeuroMetrix will be attractive compared to other devices in this market segment.

We are also in the process of obtaining a CE Mark for ADVANCE and expect to complete that by the third quarter. At that time, we anticipate marketing ADVANCE alongside the NC-stat in the UK and will consider other international markets.

Moving on now to our retinal imaging business. We acquired EyeTel Imaging at the end of 2007. We have largely completed integration of EyeTel operations and product development into NeuroMetrix. In the first quarter, we generated revenues from our retinal imaging products of $362,000, which was up 76% from the same quarter last year.

We also signed up 60 new DigiScope customers in the first quarter. Substantially all of these revenues were generated from the physician office diabetic retinopathy screening market. We believe that existing NC-stat users, particularly those with diabetic populations, represent an attractive potential market for the DigiScope that we have only started to tap.

We also launched the DigiScope platform into the optometry market at the end of the first quarter, placing 4.0 units within vision centers. In this effort we are building on successful pilot trials by EyeTel in major vision centers, such as Wal-Mart and For Eyes. We believe that annual optometry retinal imaging market is over $200 million and is incompletely penetrated.

Moving on to our third area, which is perineural drug delivery. The term "perineural" stands for near and around a peripheral nerve. Perineural drug delivery is a class of procedures where pharmacological agents are placed in close proximity to nerves, such as for regional anesthesia, pain control and treatment of neuropathies. Perineural drug delivery is an established market that we believe may be several hundred million dollars annually in the U.S. We also believe that there are market expansion opportunities through introduction of improved technologies.

Our NAVIGATOR System is a product platform for perineural delivery of anesthetics and therapeutic drugs. This product line is designed to allow physicians to deliver pharmacological agents in very close proximity to a peripheral nerve by using the electrical responsiveness of the nerve to guide the needle. Our initial NAVIGATOR product introduction will target the regional anesthesia markets.

The use of nerve localization instrumentation and needles is standard of care for nerve block procedures, which are, increasingly, a preferred form of anesthesia for many surgical procedures, particularly within orthopedics. While the current generation of technology is generally effective, it is limited with respect to both accuracy and usability. We believe that there's a need for improvement that may be provided by our proprietary technology. After establishing our technology in anesthesia, we expect to proceed into the broader neuropathy treatment market, initially focusing on carpal tunnel syndrome.

NAVIGATOR resembles our neuropathy assessment products in that there's an electronic device, needles and disposable electrodes, and a communications link to our on-call network. We have identified a manufacturing partner for our proprietary nerve localization and drug delivery needles.

Our immediate product development milestone is to submit FDA 510(k) filings, which we would like to accomplish by the end of the third quarter 2008. We hope to launch NAVIGATOR into the regional anesthesia market in the first half of 2009 and into the neuropathy treatment market later in 2009.

Moving on to the last area of our business development focuses is nerve repair and regeneration. This quarter we co-announced with Cyberkinetics Neurotechnology Systems the formation of a joint venture called PNIR, or Peripheral Nerve Injury Repair, LLC, to develop and commercialize a therapeutic product for peripheral nerve injury, based on Cyberkinetics' Andara Oscillating Field Stimulator technology platform.

According to industry estimates, each year approximately 800,000 people in the U.S. alone sustain peripheral nerve injuries that require surgical intervention and that can result in disabilities that permanently impair sensory motor function. Of these, we estimate that as many as 100,000 people with lacerations, stress and compression injuries could benefit from nerve fiber growth repair treatment using low-level electrical fields, such as we're exploring.

The current focus of a joint venture is to decide among several different initial target markets, technological approaches, product design and form factors, and regulatory pathways. We expect to finalize these decisions during the second quarter and begin product development in the second half of the year. This is a multi-year effort that is unlikely to revenue-generating until at least 2011, assuming, of course, a successful development and regulatory pathway.

To summarize, the first quarter of 2008 continues to present our Company with challenges due, in large part, to the reimbursement difficulties faced by our NC-stat customers. We were disappointed that the February AMA CPT editorial panel meeting did not provide clarity in the form of a Category I code for nerve conduction studies as performed with the NC-stat. We look forward to working collaboratively with Medicare and commercial payors, our physician customers, professional medical societies and the AMA to address these reimbursement issues.

Most importantly, we are grateful for the opportunity to provide over 5,500 physician practices and approximately 16,000 physicians with NeuroMetrix technology. Through our products, they are able to deliver important clinical services to advance their patient care. We are proud that over 1.0 million patients have benefited from our technology since 1999.

We continue to pursue our mission of developing into a diversified neurotechnology company and are pleased in our progress with the DigiScope, ADVANCE and NAVIGATOR.

Due to uncertainty related to the prevailing reimbursement environment and new product adoption, we cannot reliably predict product sales and are therefore not in a position to comment on near- or long-term revenue levels at this time. As we transition to the Q&A session, we are pleased to discuss the first quarter of 2008 business details and our strategies to the extent possible. However, we will not provide any further guidance on future financial performance. Thank you.

Would you like to take questions?

Yes, please.

(Operator instructions) Your first question will be from the line of Juan Sanchez of [Landenberg Thomlin]. Please proceed.

Good morning, guys.

Good morning, Juan.

Hey Juan.

I would like you guys to comment on all the ways you can actually manage your costs, when it comes to the fees that you pay to all the legal fees and all the services, manufacturing, salesforce, and what can you do in all these areas going forward?

Well, as I noted right at the beginning of the call, we've already implemented a number of measures, particularly with respect to professional fees and other areas of discretionary spending that we think will be beneficial as we move forward.

On a broader base, we are looking at all possibilities, Juan, and I'm not prepared to discuss specific plans at this time, but clearly we recognize that we have to align the cost structure to the current revenue levels and are looking at ways to do that.

And a second question. I think I misunderstood. You mentioned something about the CPT editorial panel meeting coming up in June. What should we expect to happen in this meeting, if anything happens here?

A number of things can happen, none of which are known that will occur at this time. Any decision to look at the past votes, such as at the February meeting, is in the hands of primarily the executive committee of the editorial panel, as well as, of course, the AMA CPT staff and potentially other AMA staff members.

So they may decide, based on input from NeuroMetrix, from professional societies, their own judgement, to put this question back into the agenda. They may decide to consider the question within the executive committee and the executive committee, which meets at the front end of the editorial panel meeting, may decide to bring it into the editorial panel meeting.

So there are a number of ways it can end up back in the June meeting. But, at this point, we don't know if that's going to occur and in fact, it may not be known until the marketing itself, because it could be left to the executive committee to decide at the front end of the meeting.

All right. Thank you.

Jonathan Block, SunTrust Robinson Humphrey.

Hey guys, good morning.

Good morning, Jon.

Hey Jon.

Shai, this first question is for you, maybe if you can help in regards to ADVANCE. You mentioned a bunch of different areas that you're going to target, primarily neurologists, but maybe if you could help quantify what you believe is that opportunity?

Well, we don't have -- I'm not prepared to do that yet. Actually, we just got the clearance and we're obviously aligning the intended use and regulatory clearance to the markets.

But clearly there are some 13,000, 14,000 neurologists and physical medicine and rehabilitation physicians, if not more. Many of which don't perform or are not performing nerve conduction and EMG today and would be interested in acquiring technology that would allow them to do that, so there's a fairly significant opportunity of at least several thousand, if not 5,000 or more physicians targets there. So there's a very good opportunity there and obviously they have the patient flow.

Then, of course, there are the same specialist markets that we've been pursuing to date and those run in -- there's definitely tens of thousands of physicians that we could target there. This includes neurosurgeons and orthopedics surgeons and other specialists that have already become adopters of the NC-stat. So there's a large opportunity there, but its still early and so we have to do more work to really narrow down our focus.

But clearly, one key difference between ADVANCE and NC-stat, in terms of market focus, will be that we will significantly focus on the neurology and physiatry market, which we did not do with NC-stat, although there are neurologists and physiatrists using the NC-stat.

Okay, got it and then maybe for the third of your customers, for example, that are already using the NC-stat and you said you're going to target them with ADVANCE. How are you going to handle that, guys? Is it something where if they show a keen interest in adopting ADVANCE you're going to sort of swap out their NC-stat for an ADVANCE? Will there be an additional cost that goes along with that, maybe some details there?

There are probably going to be a variety of different ways that we would transition them from NC-stat to ADVANCE. Obviously we'd want to do it in a fashion that's attractive to the practice but also it also makes business sense for us. So, clearly, some kind of transition fee would be possible, depending on their ordering levels that we might modify that, up or down.

So there's not -- and not really want to discuss the details, again, because we're finalizing our plans. But we'll make it, obviously, economically attractive for them because they've already invested in the NC-stat. The important point to note in that transition market is that they've been performing the nerve conduction studies using the NC-stat procedure, if you will, or the procedure as its currently performed with the NC-stat, which is obviously highly automated, uses the biosensors and so forth.

So, in addition to adopting an ADVANCE, they also have to transition the -- if they want to get reimbursement with the traditional codes they need to modify the way they perform the procedure to use traditional methods. And so there's also some training and ramp-up that's going to be required for them to do that, so it's not just their cost a acquiring the new equipment but also their time and effort to transition the way they perform the procedure.

Okay, got it, and just two more. I think, first one is pretty straightforward. I think you mentioned roughly the $7,500 list on ADVANCE. How does that compare to some of the other nerve conduction study equipment that's out there, I believe maybe coming out of VIASYS? What's that type of equipment cost?

Yes. Most of those would run -- I mean, the lower end portable systems are being sold would run in the $12,000 to $15,000 range and then, as you get into some of the higher end systems you're going towards from $15,000 to $30,000. And there's some really, really high-end machines that would run $40,000-plus. So it's definitely a lower-cost entry point, without sacrifice functionality. In fact, in many respects it's more sophisticated, I believe, than many of the machines on the market.

Okay and then last one, Brad, I think, for you. S&M expense was up sequentially, despite about a 10% decline in revenues and I know you talked about in the past that some of the initiatives put in place post-PSS and Shine, so maybe what's going on there? And I think you alluded to a headcount. Is that it or maybe some details on S&M expense?

Yes. So you're right that the expense associated with the independent sales agencies has declined, but we took on a couple of sales reps on marketing with the acquisition of EyeTel, so that had an impact and then just overall sort of bonus/commission levels. But as Shai said, we're clearly looking at overall level of spend in all the areas of the business as we move forward.

Okay, great. Thanks, guys.

Jeff Frelick, Lazard Capital Markets.

Thanks. Good morning.

Jeff.

Hey, Shai, two quick questions on the ADVANCE. One, when will the salesforce launch meeting occur and then second, can you compare the NC-stat usage with the specialists and neurologists versus the primary care physicians?

Yes, the salesforce launch will be later this month, so we would be in a position to start truly selling the product and shipping product by June. That's our plan. So we should get some Q2 sales of ADVANCE. Obviously it won't be extremely meaningful, but at least we'll start getting traction.

In terms of the usage of the specialists versus the primary care physicians, I think was your second question, our neurology customers and physiatry customers that use NC-stat are typically very high users, comparable to our higher end PCP-type users. And that's because they're obviously seeing the patients who have neuropathies every day and are in the office five days a week seeing patients.

The specialists, particularly the surgeons, tend to be somewhat lower than the PCPs, because they're in the O.R. at least some of the days, obviously at least three days in the O.R. if not more. So the number of days they actually see patients and would do testing is lower.

So within neurology and physiatry we expect high utilization, for the obvious reasons. Within the surgery market we would expect kind of consistent with what we've seen, which is on the order of 50 to 75% or thereabouts, of the PCP usage and it has mostly to do with their time in the office seeing patients.

Okay and then, with respect to DigiScope, what are you seeing as far as average number of scans per practice?

What's the number there?

(Inaudible - microphone inaccessible).

Yes, we're still -- we're seeing in the -- and again, this is all in the physician office, diabetic retinopathy screening market. We're seeing in the order of 10 to 12 screens per month, or kind of 1.0 every other day or so. And that's definitely an area that we'd like to focus on and we believe that the number of patients that are suitable, clinically suitable for testing, is higher than that.

The optometry business is obviously very different and we expect much higher volumes, because of the very nature of that market where everybody's obviously walking in with potential vision issues, so that we'll see as we move forward. We don't have enough data yet to really comment on usage within that market.

Okay. So how would you characterize kind of the DigiScope activity in the quarter? Was it very active, a lot of demos? Did you close full -- just kind of close maybe a handful of accounts or was it maybe more of a limited number of demos but the hit ratio was much higher?

Well, I don't really have the data in front of me to tell you about the close-to-demo ratio, so I can't comment on that right now. We could -- I could try to get that data and we could talk about it another time.

But in terms of closes, we actually closed 60 new DigiScope customers during the quarter, which was fairly consistent with what we did in the fourth quarter. Which is, considering that we also spent a fair amount of time having the sales team focus on getting educated on the optometry market and the time they're spending addressing the challenges of the NC-stat business, we were pretty pleased with. But I don't have the number you're specifically looking for, a demos-to-closes, at this time.

Okay and just my last question for Brad. R&D was one of the higher levels we've seen. Was the comment that there were some hires in the quarter and is this what we should kind of expect going forward, this level?

There were some hires in the quarter that we felt we needed to move our product development efforts forward. We also, similar to my comment on S&M, we did take on some additional staff within the EyeTel operations, so that's what drove that during the quarter.

Okay. I'll jump back in the queue.

And there are no more questions. I will turn it back to Shai Gozani to close the call.

Thank you very much for your time and attention this morning. We look forward to keeping you updated as we move through the year. Thank you.

Thank you for your participation in today's conference. This concludes our presentation and you may now disconnect. Have a great day.

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