Precipio Inc (PRPO) 2006 Q4 法說會逐字稿

Good day, ladies and gentlemen. All sites are now online in a listen-only mode. I'll now turn the program over to the CFO of Transgenomic, Deb Schneider. Go ahead, please.

Thank you, Blake.

Good afternoon, everybody. I'd like to welcome all participants to our Fourth Quarter 2006 Conference Call and also welcome anyone who may be listening on the webcast.

I hope everyone has had a chance to review the press release we issued earlier today.

This conference call will be archived and accessible via telephone and Internet. Please refer either to our press release from earlier today, or please go to our website, www.transgenomic.com for further details.

With that complete, I'd like to introduce myself, as this is my first call. I am Deb Schneider, Chief Financial Officer for Transgenomic, Inc. I joined the Company in December, and while my tenure has been short, I am very excited to be part of the talented management team here at Transgenomic.

I want to take just a few moments to take care of some of the necessary disclosures.

Certain forward-looking statements may be made during this call that reflect management's current views and estimates of future economic circumstances, industry conditions, company performance, and financial results. Such statements are subject to factors, risks, and uncertainties described from time to time in Transgenomic, Inc.'s reports to the Securities and Exchange Commission. Any change in these factors, risks, and uncertainties may cause the actual results, events, and performance to differ materially from those referred to in such statements. Accordingly, the Company claims protection of the safe harbor for forward-looking statements contained in the Private Securities and Litigation Reform Act of 1955 with respect to all such statements.

Now, I will cover the financial results before I turn the call over to our Chief Executive Officer, Craig Tuttle, who is here with me today.

Net sales for the fourth quarter were 5.8 million, up 461,000 over the same period in 2005. Bioinstrument net sales were 3.3 million, bioconsumable net sales were 2.1 million, and Discovery Services' net sales were $421,000.

Bioinstrument net sales were up 7%. This increase was primarily driven by OEM instrument sales, offset by continued WAVE instrument sale decreases. Bioconsumables were up 4%, or $75,000. Discovery Services' net sales were up 61%, or $160,000. This growth in Discovery Services comes primarily from the CLIA Laboratory sales ramp-up.

Gross profit from continuing operations for the fourth quarter of 2006 was $3 million, up $695,000 from the same period in 2005. The increase was primarily driven by the increase in net sales, combined with slightly lower cost of goods.

Gross profit margins were 52%, up from 44% in the same time in 2005.

Our loss from continuing operations for the fourth quarter of 2006 was $877,000, compared to a $1.8 million loss for the same period in 2005. The improvement here resulted primarily from 719,000 of charges in the fourth quarter of '05 related to the debt extinguishment, along with the gross profit improvement discussed above.

Net sales for the year ended December 31, 2006 were $23.4 million, down 2.4 million from the same period in '05. The sales components include bioinstrument sales of 13.6 million, bioconsumable sales of 8.7 million, and Discovery Services' net sales of 1.1 million.

Bioinstrument sales were down 6%, or 823,000. This really is all driven by lower WAVE instrument sales, somewhat offset by our increased OEM sales. Bioconsumable net sales were down 3%, or $262,000, and Discovery Services' net sales were down 55%, or $1.3 million. The decrease in Discovery Services was attributable to the revenue in 2005 associated with the large pharmaceutical company who did a significant amount of work with us last year. This was somewhat offset by other research work and CLIA Laboratory Services' growth in 2006.

What I would like to note here is the fourth quarter increase I talked about earlier is certainly a better portrayal of what we expect in the future from Discovery Services.

Gross profit from continuing operations for the year ended December 31, 2006 was 11.4 million, down $1 million from the same period in '05, largely driven by lower net sales of 2.4 million.

Gross profit margins in 2006 were 49%, comparable to the prior year.

Loss from continuing operations for the year ended December 31 of 2006 was 2.9 million, showing 2 million in improvement over the full-year 2005. The improvement was driven primarily by the nonrecurring debt extinguishment charges and impairment charges that totaled 966,000 in 2005, interest expense of approximately 1.9 million in 2005, and these were somewhat offset by the decrease in gross profit already discussed above.

Loss from discontinued operations was 164,000 and $468,000 for the quarter and the year ended December 31, 2006.

As noted in our recent 8-K filing, we have completed the sale of the facility in Glasgow, Scotland. There should be minimal costs associated with this going forward. I know this was a long time coming, and we are pleased to focus our efforts elsewhere.

At December 31, 2006, we had cash of 5.9 million and working capital of 10.3 million. In addition, subsequent to year-end, we received approximately 2.7 million net from the sale of the Glasgow, Scotland facility.

With the recent announcement involving further consolidation of our facilities, which Craig will touch on later, we are taking the necessary steps to position the Company for future opportunities, and the facility consolidation that we did announce was that we are consolidating our Cramlington, England production facility into Omaha, Nebraska.

Continued focus on operating expense management and cash flow remain integral parts of our day-to-day management.

Now, I would like to turn the call over to Craig.

Thank you, Deb.

I will make some prepared remarks and then field questions, of course.

Now, 2006 was a significant and successful year for the Company. Several key milestones were achieved, which have collectively positioned the Company well for future growth and financial stability. I will speak to each of these accomplishments briefly and then entertain any specific questions that arise from the listeners on the Webcast. I'll also address our revenue performance briefly and comment on our future activities to grow revenue in 2007 and beyond.

Regarding new product launches, the release of our Surveyor DNA Mismatch Cleavage Enzyme for Capillary Electrophoresis should be a successful product in the market. When coupled with typical [inaudible] sequencing on capillary electrophoresis platforms, this Surveyor application significantly improves the detection or discovery of mutation as compared to that observed with direct sequencing.

Our team of scientists here have consistently reported substantial improvement in the accuracy and efficiency of mutation detection by implementing Surveyor-based scanning as an integral part of their mutation analysis workflow. The technology is versatile and well suited for labs tackling high throughput mutation screening projects, as well as labs that perform routine analysis of patient samples. With the inherent ability to check both known and unknown mutations and demonstrate a utility for the detection of somatic mutations associated with cancer and disease-associated germline mutations, the technology is poised to help scientists make even more discoveries and improve disease detection. We believe that this product has a market value of several million dollars, and we have initiated discussions with leading sequencing platform manufacturers to realize this product's full revenue opportunity.

Another key accomplishment for the Company has been our ongoing growth from the Laboratory Services business. Our combined revenue grew an additional 110K in Q4 over Q3, and we have recently announced several key partnerships that will further improve revenue from this business segment.

For example, our CLIA-certified reference laboratory recently reported a partnership with ARUP Laboratories, one of the largest clinical reference labs in the U.S., for our mitochondrial disease-testing services. ARUP provides clinical testing services to over 3,000 hospitals in the U.S., and we expect strong gains in our reference lab business based on this partnership.

In addition, we have added several new customers for mitochondrial diagnostics testing services. We remain only one of a few labs in the U.S. to focus on diagnostic services for these diseases, which are both difficult to diagnose and detect.

Our OEM system sales reached just under 1 million in Q4. Our cytogenetics harvester platform drove the majority of these revenues. This product continues to be received extremely well in the market and has now been placed in many prominent hospital and clinical reference laboratories in the U.S. and Europe.

Sales in this segment were affected by one supplier, who entered receivership during Q4, but that situation has been resolved, and we are confident that we can further extend our sales results through 2007 and beyond.

We did enhance our management team during the quarter and have recently added two new directors to the Board, and we expect to continue strengthening our Board in the current fiscal year.

One of the most significant achievements in 2006 was the completion of our extensive cancer mutation discovery project. I've spoken about this activity previously but wanted to reemphasize the clinical importance and future opportunities that we believe this evolving intellectual property will drive.

In summary, using our own mutation discovery tools, proprietary procedures, and expertise, we analyzed over 1,200 tumor specimens from a significant number of different cancer types and scanned for mutations across the number of important signaling pathway and growth-regulating genes. We discovered a large number of mutations never reported previously, including studies from the Cancer Genome Atlas Project, and we are in the process of submitting a panel of patents based on these discoveries.

Our expectation is that these mutation discoveries and patent submissions will provide us with a portfolio of key cancer-linked gene mutations that can be used to assess drug targets and improve drug design, diagnose and monitor disease, direct targeted therapy based on mutation status, predict cancer reoccurrence, and detect the emergence of drug resistance.

Finally, we analyzed and planned a cost-reduction effort that is now being implemented to reduce our overall cost structure. As we recently announced, we are looking to gain an annualized cost savings of approximately 1.5 million once all the components of our plan are implemented.

Our goals for 2007 include continued expense management, beginning the detailed validation needed for our newly discovered cancer-linked mutation intellectual property, developing key partnerships and collaborations around this IP, and initiating the next phase of the research plan. Coupled with the anticipated growth in our laboratory services group, stable sales in our core mutation detection analysis business, and further growth in our OEM products business, we look to reach breakeven performance in the near future.

With the sale of our facility in Glasgow and improving management of our costs, we have the financial resources in place to sustain our current activities and begin to achieve our growth initiatives.

That ends the prepared statements I have, and we are now ready to take questions from the audience.

[OPERATOR INSTRUCTIONS]

It looks like our first question comes from the site of Steven Becker of Greenway Capital. Go ahead, please.

Hey, guys. How are you?

We're good, Steve.

Quick question for you. This might be a tricky one to answer, but can you give us a sense what the cost savings are from the consolidation of the facility in Scotland?

Our plan is -- well, we're still looking at 1.5 million on a consolidated basis, so we have a few more activities that are in process, and we just can't talk about those yet, Steve.

Well, I'm not talking about anything that's in process. I'm talking about what you've already announced if we'd -- for instance, in the most recent quarter, if that had been thoroughly accomplished prior to the most recent quarter, are we talking about $100,000 of savings or 200, or kind of roughly what would that look like on a quarterly basis?

And, Steve, you're talking Cramlington, not Scotland, right?

I'm sorry; what did you -- you just sold the facility in --

Well, we sold the facility in Scotland, but that was the [S&A] business that had been shut down previously.

Oh, yes, I'm sorry. I'm mixed up. Cramlington, yes.

Specifically, the facility in Cramlington, we anticipate cost savings of roughly $1 million when that is annualized -- saving once that is consolidated into our Omaha facility.

Terrific. And the -- and you gave this number. I just want to make sure. What does the pro forma cash look like post the sale of the Scotland facility?

If you take the 5.9, and then Scotland was 2.7, so you'd be at about 8.6.

Terrific. Thank you very much.

Next, we have a question from the site of [James Colter], a private investor. Go ahead, please.

Yes. Why didn't this stock trade today?

This is Deb. To my knowledge, it could have traded. I just think there was no activity. I mean there should have been no reason why it could not trade.

There was no activity all day long. Very unusual.

I know. I would agree. I was watching it.

Do you anticipate any problems connected with the fact that you've been de-listed or are now on the pink sheet?

Well, we're actually on the over-the-counter bulletin board, which is a little bit different than pink sheets, but it is not [NASDAQ].

Yes.

I'll take the question. It's a great question, and we've analyzed that very thoroughly. We did contact our key institutional investors just to make sure there wasn't interest in a reverse split to maintain the NASDAQ listing because at that time and up until I think we really get good traction on our IP, it was -- it seems more appropriate to focus internally and go ahead and work on the things that will create value.

Okay. All right. Thank you.

[OPERATOR INSTRUCTIONS]

It appears we have no further questions from the phone lines.

Okay, we'll thank everyone for participating. I do want to say that we are optimistic about the position and the repositioning of the Company. We're very optimistic -- I am personally quite optimistic -- on the intellectual property that we're developing, and I hope to be able to share significant developments with you as we move forward on that. Thanks again for participating.