Precipio Inc (PRPO) 2009 Q2 法說會逐字稿

Good day, everyone, and welcome to today's program. At this time, all participants are in and listen-only mode. Later you will have the opportunity to ask questions during our question-and-answer session. Please note I will be standing by if you should need any assistance. It is now my pleasure to turn the call over to Ms. Deb Schneider. Please go ahead.

Thank you, Megan. Good afternoon. I'm Deb Schneider, Chief Financial Officer for Transgenomic. I would like to welcome all participants to our second quarter 2009 conference call where we plan to discuss our results for the three and six months ended June 30, 2009. I would like also to extend a welcome to anyone who may be listening on the webcast. I hope that you have had a chance to look over our press release that we did issue a short time ago. Before we start to review the results, I will just take a couple of minutes to get some administrative matters out of the way.

This conference call will be archived and accessible via both the internet and the telephone. Please refer to our press release from earlier today, or you may go to our website, www.transgenomic.com for further details. 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 report to the Securities and Exchange Commission. Any changes in such factors, risks and uncertainties may cause the actual results, events and performance to differ materially from those referred to in such statements. Accordingly, company claims protection of the Safe Harbor for forward-looking statements contained in the Private Securities and Litigation Reform Act of 1995 with respect to said statements. Thanks for your patience there.

I will start with our second quarter financial results for the three month period ended of June 30 2009. Today we reported net sales of $5.5 million for the three months ended June 30 2009. This was a decrease of $773,000 or 12% as compared to the same quarter in 2008. Our instrument related segment showed a decrease in net sales of $1 million or 20%. In our laboratory services segment, however, we did have an increase of 247,000 or 24% gross. I'll break each segment down a bit more for you. Our instrument related business had net sales of $4.2 million as compared to $5.2 million in the same quarter in 2008.

Within our instrument related segments, we break our sales into two components, bioinstruments bioconsumables. Bioinstrument sales were $2.3 million. This component of net sales does include both the actual instrument sales as well as the ongoing service contract we sell on the instrument. Bioinstrument sales decreased $457,000 compared to the same period in 2008. This decrease is attributable to lower the average sale prices on both our WAVE and our OEM sales.

On the OEM side, the lower average sales price was driven by the model of the instrument sold. All instruments sold in 2008 were the larger 64 sample instrument and the sales in 2009 all were the 24 sample instrument. We refer to those as our P3, the larger and our P2 is the smaller instrument. The total number of instruments sold in both periods was compatible. Bioconsumables net sales were $1.9 million. Bioconsumables net sales for the three months into the June 30, 2009 were down by $563,000 as compared to 2008. The decrease was primarily due to foreign currency fluctuations of the Great British pound to the US dollar and lower European sales volume.

The average Great British pound US dollar exchange rate for the second quarter of 2009 was 1.56 as compared to 1.97 for the comparable period in 2008 or a 21% decrease. We have seen these rates stabilize somewhat, and we did anticipate this foreign exchange of difference when we were planning 2009. Laboratory services net sales for the quarter were up 24% or $247,000. The laboratory services business includes both our molecular clinical reference laboratory and our pharmaco and genomic reference service business. The clinical reference laboratory net sales were up $303,000 or 43% as compared to the same period in 2008. Sales focus and increased customer base and expansion of our test offerings has driven this growth.

The chromosomal micro array, or CMA as we refer to this test, is our fastest growing test. The volume of CMA tests completed in the three months ended June 30, 2009 grew 56% over the volume completed in the first quarter of 2009. We have been offering this test since mid 2008, and we have seen similar growth in every quarter. Pharmaco genomic research service's net sales were down 18% or $56,000. Again, this business is likely to have spikes and be a bit more lumpy. In the second quarter of 2008, we did have one large project in this area that was approximately $250,000. In the current quarter of '09, we had a number of small projects for pharmaceutical companies that may very well turn into support of clinical trial studies. We are very excited about these potential opportunities. While the actual net sales amount may not portray growth at this point, we do believe we have a number of potentially large opportunities.

Gross profit was $2.7 million or 48% during the second quarter of 2009 as compared to $3.7 million or 60% during the comparable period in 2008. In the instrument related business, the gross profit margin was 54%, a decrease from 63% in the same period 2008. This increase in gross margins is due to the foreign currency impact from translation of the foreign subsidiary, which I discussed earlier as well as the lower average sales price for instruments. Cost of sales for the instrument related business was flat year-over-year and the decrease in net sales falls through to impact gross profit. The laboratory services division had gross profit of $389,000 or 31% in the second quarter ended June 30, 2009 as compared to the same quarter in 2008 where gross margins were 45% from this group.

There are two causes for our lower gross margin in the clinical reference laboratory. The first is the lower average net sales per test, and this is a result of a mix in our business. We now are accepting Medicare and Medicaid, and that test volume has increased and we are seeing lower reimbursements than we were historically seeing. Our business in 2008 was primarily institutional bill with some insurance billing. The second factor relates to the cost mix of the test being sold, which increased our supply costs substantially in the second quarter.

Our direct variable cost can be significantly different from test to test. The CMA test I referred to earlier, which is our fastest-growing test, is a significantly higher direct variable costs than many others. Finally, affecting our margins in the laboratory service segment was the lower net sales in the pharmaco genomic services. In the second quarter ended June 30, 2009, we reported a net loss of $730,000 as compared to net income of $100,000 for the comparable period in 2008. Operating expenses during the period included $152,000 of foreign currency revaluation loss, which increased our expenses. This is comparable to $279,000 of foreign currency revaluation gain in the second quarter of 2008, which reduced our expenses. Without the impact of the foreign currency gain or losses, operating expenses for 2009 were $3.3 million as compared to $3.9 million in the same period in 2008. The primary decrease in operating expenses is due to no employee bonus accruals, open positions not being back filled, lower commissions related to the net sales shortfall, lower travel costs and lower stock option expense. These savings were slightly offset by increased research and development costs, primarily related to ongoing collaborations and product development.

At June 30, 2009, we had a cash balance of $4.8 million and working capital of $10.2 million. Working capital did decrease by $1.2 million from December 31 2008, primarily attributable to lower accounts receivable. Cash was unchanged from December 31 with $193,000 being provided by operations and $232,000 used for investment activities primarily to purchase proper and equipment in the laboratory service business segment. Moving on to the results of the six months ended June 30, 2009. Net sales were $10.5 million as compared to $12.5 for the comparable period in 2008, or a 16% decrease. Net sales for our instrument related business totaled $7.9 million compared to $10.5 million in 2008, which is a decrease of $2.6 million or 24%. Laboratory services revenue for the six months ended June 30 increased $530,000 or 27%. Gross profit was $5.5 million or 52% during this period as compared to $7.4 million or 59% during the comparable period in 2008.

The explanation for the decreases and changes are all very similar to the discussion points I just previously went through related to the quarter ended June 30, so I will not go through these in detail again here. Please refer to our MDNA analysis in our 10Q which will be filed with the Securities and Exchange Commission tomorrow morning. For the six month period ended June 30, 2009, we reported a net loss of $1.7 million compared to net income of $223,000 in the same period of 2008.

Operating expenses during the six month period included $390,000 of foreign currency revaluation lost, which increased expenses for the six months into June 30, 2009. Operating expenses during the period 2008 included $454,000 of foreign currency revaluation gain, which decreased the operating expenses in the period. Without the impact, again, of the end of the foreign currency gains or losses, operating expenses were $6.9 million for the six months into June 30, 2009 compared to $7.7 million for the same period in 2008 or an $800,000 decrease. Reasons for the lower operating expenses are the same as for the second quarter previously discussed. This is the end of my formal financial update. I would now like to turn this discussion over to Craig for some comments on the business before we open it up for questions.

Thanks, Deb. Good afternoon, and thanks for joining today's call. Most important for us in second quarter was to see the beginning of a recovery in instrument sales plus new quotations going out against new bids or tenders and what appears to us a significant change in the funding climate for new instrument acquisitions than we saw at the end of last year and throughout the first quarter of this year. Coupled with an increase in the laboratory service business, it is significant that sales in the quarter improved $500,000 over Q1. This, coupled with the much higher volume of instrument opportunities that we are working on for the remainder of the year suggest that the deepest effect of the financial crisis is lessening in our sector and for us. This increase is expected to continue as the worldwide economic recovery continues. Although for us, a return to our profitable quarterly performance could take until the end of the year or even into early next year.

It is also important note the growth in our molecular diagnostics lab compared to last year, as Deb mentioned. We were up to 43% compared to the comparable quarter in 2008 and 62% year-to-date. This demonstrates the continued value that our diagnostic expertise brings to aiding physicians in making clinical determinations for some very difficult to diagnose genetic conditions. Our clinical sales team continues to grow or account base aggressively and our expanding footprint in both neurology and cancer diagnostic services has positioned as well to continue driving the growth of our molecular lab. Our pharmaco genomic division continues to experience quarter fluctuations and revenue based on the number of projects that we have under contracts, when samples come in for these projects and how many samples are included in each study.

But the overall posture of this business has changed over the last year significantly as we gain traction with current and potential pharmaceutical customers for our deep mutation detection capability and as these clients learn and more clearly understand the deep mutation assessment is becoming a critical measure for drug development and patient treatment selection based on each patient's cancer gene mutation status. The clearest example of this change in the market is the speed at which KRAS testing has been adopted for colon cancer drug treatment selection. KRAS testing was profiled just over a year ago at the ASCO meeting and it is now required prior to treating patients with some of the newest and most effective inhibitor chemotherapeutic agents.

For our pharmaco genomics services group, last year at this time we were working with just a few pharmaceutical companies who understood that detecting these mutations at a very sensitive level were critical in drug development and treatment selection and that the industry standard technique of SANGER sequencing was not sensitive enough to find all the mutations present in a patient's tumor. This bias in the marketplace, that standard sequencing technology would find the essential cancer associated mutations needed for diagnosis, discrimination or treatment selection has finally begun to change. The result is that pharmaceutical clients are now accepting our success improving the superiority of our mutation detection technology, and we have added several new pharmaceutical customers as a result.

Just as importantly, several clients are not interested in seeing the status of their patient mutations in circulating DNA and blood rather than just what is in the tumor. We believe this will have an increasingly significant impact on our business do to our mutation detecting sensitivity currently as well as with the new technologies that we are developing. The net result today is that we now have projects ongoing or beginning with most of the major pharmas and interest in some of our assays being adopted as potentially companion diagnostic products for new cancer therapies. Our goal for this business remains to perform key validation projects that will lead to deeper and longer clinical trial efforts and from that ,the evolution of our assays that will be used for treatment selection is now done with KRAS for colon cancer.

In addition to our financial results for the quarter, I also want to update you on the new product development efforts that we have underway. We have continued to make really strong progress in this area and have some exciting products that are now quite close to reaching the market. As a reminder, we continue to work on four key new product areas for products or assays that will be launched across all our business segments.

The first of these new product portfolios is our cancer mutation detection kit program based on our proprietary SURVEYOR Endonuclease . As you may remember, SURVEYOR is an exclusively licensed Endonuclease that makes a double stranded DNA cut at any mutation, making this cut at a very sensitive level. Employing SURVEYOR's mutation detection capability allows us to build a portfolio of cancer gene mutation detection kits for key mutations recognized for their importance in driving or regulating many cancers and an increasing number of indications directing drug selection.

The first kit that will reach the market is the KRAS assay for use in determining KRAS mutations in the colon, lung and pancreatic cancers. We have been using this assay in our pharmaceutical services lab and have demonstrated that it exceeds the detection of mutations by standard sequences but does not have the variability and false positives being seen by some competing technologies. Our KRAS assay kit runs on our WAVE system and will be launched in September to WAVE users in Europe and Asia. We will follow this launch with the kit product that will also run on a high throughput capillary electrophoresis system early next year for deeper penetration into the US market.

We've already begun developing the next series of assays to fill out this product line. It is also important to note for anyone who has forgotten or has not heard previously that our technology scans for all of the mutations that exist in a gene rather than the competing technologies being employed in similar test kits which can only detect specific and known mutations. For simple imitation detection opportunities like KRAS where the known activating mutations occur across the very small segment of the gene, a target specific technology may still be used in the market. But for other cancer driving or regulating genes that have multiple mutations that can affect them, scanning is a much more efficient and better option since the number of tests that need to be performed in larger genes or with more numerous and spread out mutations becomes truly prohibitive. Thus, we believe that our mutation kit program will have an increasing level of impact of sales and success in the market.

The second product area we are focusing on is designed to measure mitochondrial DNA damage caused by free radicals. As I have mentioned before, we have obtained an exclusive license for this technology. The patents we licence allow us full rights to apply this test to cancer, cardiac disease, diabetes, nerve degenerate diseases and aging assessment. We have completed development and have a robust assays for measuring the damage to mitochondrial DNA and have completed some screens in cancer. We have submitted and will continue to submit research and SBIR grants to gain funding to support the broad clinical validation studies needed to commercialize this technology as well as pursuing clinical validation collaborators that are interested in further validating this technique and we will be launching this assays to or pharmaceutical customers shortly.

The third and probably highest impact new product area we are working on is NuroPro assays for Alzheimer's and Parkinson's disease. We are making considerable progress in completing technology transfer and clinical validation studies in anticipation of a commercial launch of both assays in the next quarter -- in the fourth quarter, I'm sorry. We believe that these assays will contribute increasingly to the diagnosis staging in clinical treatment research for both of these diseases. We also believe that this assay technology can be extended and validated for detecting any other forms of dementia, although those studies will not begin until later next year.

A key finding that has recently been made with these assays which also bears further validation it has been the ability of both assays to discriminate between early and later stages of both diseases suggesting that both assays could be used to help screen for disease process earlier and aid patients in beginning therapy sooner with an impact that benefits their long-term outcome. The last area we are concentrating on is further developing and evaluating the mutation enhancement technology from the Dana Farber Cancer institute. This technology called Cold PCR dramatically enhances the amplification of mutations and we are applying it to cancer gene mutation detection. Our goal is to couple the high amplification of mutations possible with Cold PCR with our SURVEYOR in the nucleus to potentially develop more sensitive assays to offer through our services labs and in the future, develop the technology into assay kits.

Finally, I want to acknowledge and thank all of our colleagues at the company for their efforts and responding to the current economic downturn and the sacrifices that they have made. Moreover, I want to thank each and every one of our employees for helping us drive the growth we have experienced in our services businesses. The progress we are making in developing in our key new products and in seeking out new instrument sales, service and reagent sales opportunities to help us begin the return to the growth in profitable performance we realized in 2008. All these efforts, coupled with an improving economy, will prove essential for our continued growth and success. With that, we are now happy to take any questions that you might have.

(Operator Instructions). Or first question will come from the site of Chrystyna Bedrij. Your line is now open.

Hi, Craig. Hi, Deb?

How are you?

Good, how are you?

Good.

Congratulations, sounds like you are continuing to make progress on many fronts in a difficult environment. Anyway. I have one long question. If that is okay.

We are waiting.

(laughter) You mentioned your strong progress on your new product development efforts, mainly the KRAS, the NuPro, the Mitro and the Cold PCR. If you could just reiterate and maybe expand a bit on the first product area, the KRAS kit and your experience thus far and feedback thus far with your current pharmaceutical customers if you can, and their experience of the product and have obviously had an opportunity to use it and maybe compare and contrast it to what is currently available in the marketplace.

I had to take notes. I am happy to respond to that.

Okay.

I will start with -- and maybe we can have a separate question for the other products that we have in development.

Sure, thanks.

Clearly, KRAS is an important assay because ASCO -- a year ago, ASCO is the American Society of Clinical Oncology, it became apparent in all the papers published and reported on at that meeting that for colon cancer patients, a KRAS mutation with the newest treatment options, if those treatments options, Vectibix or Urbatouch were given to a colon cancer patient and they had a KRAS mutations, they did worse clinically with both shortened overall survival and shortened progression free survival. So a market was created overnight, 200,000 patients in the US and another 200,000 in Europe and seemingly, a similar number in Asia. In Europe, that test is now required before a patient can be treated with Vectibix and the FDA has now agreed on a retrospective basis to include that testing requirement on all colon cancer patients before they receive both of those products. In that case -- and the reimbursement on this product is $500 for a CPT code. So, you can tell that a huge market was created overnight.

Yes.

Our interest was in participating in that in particular because our SURVEYOR enzyme allowed us to scan for all of the mutations that exist. So, there is six bas pair regions or two codons in KRAS where most of the activating mutations are, but there is another site where they are also observed some. And the current leader in testing in that has what is called aliospecific technique. In our studies, some of the trials are ongoing still, but some of these comments are based on data that was published at the American Cancer Research meeting, ACR, just a few months ago. And the aliospecific techniques are showing fairly high false positive rates. That is really the worst case that can occur in these patients, because you are going to tell them that they have a KRAS mutation and should not get these treatment methodologies or these new treatment drugs and in fact, they should.

What we are seeing with our technology is that we are finding more mutant KRAS patients than is found by sequencing -- standard sequencing, which validates that we are more sensitive, but not so sensitive to the fact that we are miscalling patients. So, that continues in our trials, and we think that that to have a substantial impact. Obviously, that kit will run on our WAVE system, but that same kit will run on a variety of other instruments. So, we are going to extend those applications rapidly and look for combining that kit with a higher throughput instrument as another option to gain sales momentum in the US..

So, again, the kit will launch in September. We know we have interest in our current cancer testing labs in Europe because as a reminder, everyone, all of the large consortiums labs in Europe use our WAVE system to do their BRCA 1 and 2 testing for mutations that lead to breast and ovarian cancer. So that is a great target market for us, and we certainly hope to have some immediate sales into those customers as well as a variety of other WAVE users across Europe and Asia. There are not nearly as many instruments in the WAVE system in the US. Particularly in clinical settings, it's much more of a research based instrument in its applications in the US. And so we think that we need a high throughput option to offer in the US nd so we are working in that to develop a collaboration and get a product available as quickly as possible. So hopefully, that answers that question. We certainly expect --

It sounds like a big win.

Yes. Not only is that a big win, but if you remember, there is 200,000 colon cancer patients in the US and Europe, so that is a huge market. The kits sales tend to be a portion of the CPT code value, but that is still -- it's a $100 million market that is created in this case. But the same number -- and so KRAS mutations in colon cancer run at about a 40% rate. In lung cancer, they run at about 20%.

And so it is equally important in lung cancer for treatment with drugs like Tarceva, and it is also important in pancreatic cancer where KRAS mutations run as high as 80% (inaudible) patient. We see the need to screen KRAS in all of those cancers. So that goes from -- that is about a million patients a year in the US and Europe. But on top of that, there is the rest of the KRAS pathway as well as some other cancer regulating genes that also suffer mutations that are going to constitutively drive growth and drive the cancer rate below KRAS. There is a variety of protein targets, and that is where we are developing our second generations of these SURVEYOR based kits. So we see an easy potential to build a portfolio of 20 assays kits that will detect mutations that are involved in the cancer or in a cancer and as such, that we will become increasingly valuable in augmenting the selection of drugs and also better understanding the drivers of these cancers.

So net-net, you are better than the closest competitor as depicted in this AACR paper?

Correct. It was a poster at AACR?.

Yes, and that was covering KRAS, right?

Yes, m'aam.

Thank you.

Absolutely.

I will let someone else ask a question because I could be here all night. Thanks.

Thanks, Crystyna.

And it looks like we will take our next question from the site of Al Shams. Your line is now open.

Yes, good afternoon. I was wondering if I was going to be able to get in to ask a question. I don't know a lot about the products and the markets and the technology and the medical -- the medicine behind all this, but I do know financial statements, and we need to get more revenues, and I really wonder if we are going to -- if we've really got a chance to getting to a critical size as a public company in terms of revenues. I just don't think it being a $25 million company really is sustainable for a public company. So I would like your comments on that. What are the target revenues are, let's say a year and half for two years down the road, what we are shooting for? Does it make sense for us to be viable as a public company with this level of revenues?

Hi, Al. I will answer that. On one hand, clearly, there is a catastrophic market condition going on that everyone suffers in. And there are few players that are doing well in the industry at this time, and there is a lot that are not. I think the forecast is for 300 biotechs to go all of business this year. And I have not looked at other industries to know that and understand any numbers there, but clearly, we are in a global meltdown and hoping to claw back to a recovery across many sectors. In terms of a $25 million company being a viable, well, guess what, if you are making money and our revenue and profit positive, I think you are a viable company and you are in business. Now, if you are asking about dynamic growth and what drives greater interest in a stock --

Let's stay with viability first and foremost. We are not generating cash as we sit right now. We have got a limited amount of cash. We can't go long on this program.

That is true.

Al, I don't think we disagree with that. Craig talked about the four or five products that we believe will be rolled out in the next two quarters, two to three-quarters, and we do believe that each one of those has fairly significant potential.

Okay. Well, let's try to categorize it. Can we be $40 million in the year and half? And at that level, are we able to absorb the public cost, the cost of being a public company? Auditing, legal, listing fees, things of that nature? Plus the cost of sustaining the business?

Add stocks to that Al. But the bottom line is last year we finally got to a point where we were sustainable and without this economic meltdown, we would have continued that trend. And then the goal for any company is to try and find means to growth. So, I do not use a science here to try to confuse anybody, but I do want to make investors and the public aware that this is really complicated. Our space is very complicated, because pharmaceutical companies have significant challenge -- many challenges, quite frankly. And diagnostic companies face just as many challenges in terms of which technologies to pursue, what targets to pursue, how much investment to make around them, and then you have to wait and see that the biology works. So this is not like building bumpers. You don't get that opportunity to participate in this market. Clearly, I would advise any investor that if they think that anything is guaranteed in biotech that they need to go to a different sector, because you always have to worry about what the biology is going to do at the end of the day.

Yes, well we know that nothing is guaranteed in anything.

So let me try and -- can I finish, please?

Sure.

Let me try and put a little focus around -- and I have mentioned this at previous calls, so I am going to repeat myself. But the one key change that I think we've brought to the company as a management team compared to where it operated previously is a real focus on growth opportunities that we can protect with a patent fence and either developing them internally or licensing them or licensing them and developing them further. So, let's start with KRAS. That is a $100 million market. I don't have any plans to capture that market overnight. Some people sequence. There is a couple other kids on the markets. One of them is doing a poor job, and we think we will dominate, although that kit is the current market leader, so we plan to attack that kit.

So that is a $100 million market just in colon cancer. When it applies to lung cancer, it's another $100 million market and then pancreatic cancer is a third of that. There is 35,000, 37,000 new cases of pancreatic cancers a year, and you know how devastating that disease is. And I haven't gotten to any of the other cancers with this. So that is a significant market for us. But if you start to peel apart the cancer process below that, there is, as I mentioned, about 20 other mutations -- 20 other genes that you should look at for mutations, and I can tell you the pharmas are looking there. So, we are offering those services with them, and the potential to have an exclusive with them on a test that directs the use of their drug is also in the $50 million to $100 million range, so you have to work on those. I can't discuss them right now, but certainly, we are in those discussions with pharmas.

Now, coming against the new assays that we are working on, we license Parkinson's and Alzheimer's because there is immediate need for that test. There are no available techniques that really diagnose those diseases other than touch, feel, smell, standing and what have you. Ultimately, a diagnosis takes place over time after all of the damage occurs and the condition is relatively irreversible. So, the earlier you can determine those diseases in a patient, the faster that you can put them on appropriate treatment that will lessen the disease, slow down the decline or even hold the patient where they are at. And both of the assays that we have appear to be able to do that. So, in terms of Alzheimer's disease, there are 50,000 -- I'm sorry That is 500,000 new patients a year, and that is growing. That is going to actually grow at a significant rate because of the health of the current US population and it's susceptibility to chronic disease.

So although there are 5 million cases of Alzheimer's in the US right now with an extraordinary amount of cost associated with it, that is point to grow to 2050 to be -- I think the production is 15 million. So, we are going to triple the level of Alzheimer's in the country based on obesity of our population. That's for Parkinson's. So now you are talking about 500,000 new patients a year Alzheimer's times $1,000 a test. That is a significant market and we have licensed that assay and will offer that beginning in Q4.

Craig, I am not trying to be difficult, but here is my point. I will give you guys the benefit of the doubt on the science of the products, et cetera, the market is super. But we have a business problem in the sense that we may run of cash, okay, as an organization before all this stuff connects. That is my concern.

It is a justifiable concern, and we certainly anticipate addressing that.

Okay.

But no, I cannot give you any color on that.

Okay. Do you think is reasonable that we can be a $40 million company in side of 18 months?

18 months might be tight, but we could be a $100 million within that time frame depending on the uptick in the new tests that we are performing. And actually, the strategy that I brought to the company should really give us a step function in growth as each of these new tests come out. So, we have a CLIA certified lab here which means that with internal validation and internally developed, we can launch an assay against a disease state. We always need publications to support it and sell it, but then once we have it offered in our laboratory, we can develop the data to go ahead and submit that to the FDA. Then we can develop kits that we can sell in combination with instruments to everybody in the marketplace.

Okay.

So, the -- I'll tell you, we know that we are maintaining our cash as tight as we can. You've heard that we have reduced expenses considerably.

No, I appreciate that. I appreciate that.

I think we've got a much happier story than a lot of other biotechs, that is all I can tell you.

Well, I will give someone else to ask a call. Thank you, then.

And it looks like our next question will come from the site of [Mark Merrill]. Your line is now open.

Hi, good afternoon, Deb and Craig.

Hi, Mark.

Congratulations on the continuing progress in difficult times, and thank you for taking my question. You briefly mentioned that you are developing and evaluating Cold PCR mutation enhancement technology with the Dana Farber Cancer Institute. I am just wondering if you could expand a bit and provide a bit of color on the technology itself and on the potential opportunities.

That is a great question, and the answer is yes and no. Yes, I will talk about it a little bit. No, I don't want to uncover everything that we are going to do in that area because we haven't put many patent apps together around it. And certainly, the Dana Farber holds patent applications on the technology. The essential element of the technology is it does PCR at a different temperature, a lower temperature. And the term Cold PCR is misleading, because it is a couple of degrees colder compared to where you normal run PCR. But that allows the mutation to actually melt more so than anything else and the preliminaries can penetrate there where you build primers and what have you. You basically amplify the mutation as compared to a normal PCR, which will amplify what is mostly there.

So if mutations are very rare, that is what it is difficult to find them, and that is why we do very well with our current scanning techniques with both WAVE and SURVEYOR. Our expectation with and our experience with Cold PCR is that it can -- adding the proprietary technology that we brought to bear on it, you get a 40 to 50 fold or maybe 30 to 50 fold enhancement or amplification of the mutation itself. So, our goal is clearly to see if we can apply that to KRAS in circulating DNA and other cancer genes. So, that is really all I want to go into there. We have an option to license that. We have asked Dana Farber to exercise the option now, because we have done enough studies to show that this technique works. As I said, developed some proprietary methods of our own around it. But, again, it is a pretty big opportunity for us. I think long term, it definitely is.

Okay, okay. Thanks a lot, thanks again for taking my question.

Sure, absolutely.

(Operator Instructions). Our next question will come from the site of Don Steincamp. Your line is open.

Thank you. Very good conference call so far, Craig. I have a couple of questions. First, why didn't you hedge your dollar exposure in the last year instead of having all of these big losses?

I guess I can point in one direction, Don. If you are talking about the sales results in 2009 versus 2008 --

Yes.

That is all I can assume. And if you are talking about foreign exchange, the -- I don't have an answer. That is just what happens. And we don't arbitrage against it, because our sales are somewhat low, and we do not see the ability to have significant protection in that area, although we have looked at it.

Don, we have looked at it. We have spent quite a bit of time with our bank in regards to hedging the receivables. So, from a -- looking at the receivables and stuff and where we would be able to hedge with the cost and stuff, I don't think we've had as much of an issue there. It truly is the conversion of our foreign sub, so it is not as relative as cash. We are collecting cash in the euro and stuff over there. It really is just the conversion of our UK subsidiary into the US consolidation.

Okay, okay. Then on a the Alzheimer's and Parkinson's, which seems like a great opportunity, would you -- is this a -- are these blood tests? What is the source of this test?

Yes, it is a blood test.

And could it be used for screening of 50 year-olds to see if there is Alzheimer's or Parkinson's developments?

That is a great question, and I have two answers. One is more palatable. The answer long-term is probably yes. The short-term answer is that these tests are designed to indicate what we know our early stage marker profiles that discriminate normals from people having the disease. And actually, early stage discrimination when you are developing a test like this is the exact opposite of the screening indication you are talking about. We have to know that someone has the disease before we can say that we test it correctly when you are developing a test. But then once you have that tests validated, proven and working in the laboratory, then you start to extend the studies of looking at exactly what you are talking about, because we know that the damage that leads to Alzheimer's and potentially Parkinson's as well starts much earlier, and Alzheimer's might start as early as the 40s or certainly 50s in terms of the cerebral vascular issues that lead to the disease. So, the long-term answer is, yes, absolutely, and we certainly plan to do those studies when we can both afford them or get funding for them or have enough reach into the market and revenues to support them. And clinicians know that they need those studies as well, and they are looking for a technique to do that.

And then who is -- how much of the $500 or $1,000 Medicaid reimbursement comes through a TBI? What percent of that charge finds its way to you?

I think you are asking the opposite, which is -- the CPT code roll up on that assay is -- CPT code, yes, yes. -- about $50, so we know that our price will be roughly $1,000 on the test, and the CPT code that we will get will give us $800 and whatever is, $850 of reimbursement on that test. We do have a royalty to pay on that. I won't disclose the royalty, it is confidential. But we know that we can make a significant profit margin on this assay. Again, we hope that by having a target population of 500,000 patients who are diagnosed with the disease annually that this could be used in all of those cases at some point in the future. But then as you ask, then we expect that it would be used, I don't say in ten years from now but in two to three years from now, increasingly in the screening roll. And that is when you see a patient at a certain age and you would go ahead and do the test to see if they have early stages of the disease, and it could be much more treatable at that age.

The same goes for the colon cancer?

Well, in every case, the earlier you find these diseases, the better the outcome is. On a whole, if you look at stage four cancer, which is metastatic, the outcomes are almost always negative. Clearly, the overall survival is limited, and it is just a terrible time to find these diseases. And the opposite occurs when you find them in stage one. Stage four lung cancer, average survival is six months. Stage one lung cancer, the five-year survival is, I think in high 90's, high 90% and you do not even do chemo. They just do surgery and cut out the node or nodule, and off you go.

So if you can find cancer in those early stages, the same thing occurs, but the outcomes are actually better because survival will be longer. With Alzheimer's, I think the overall survival is 11 years from diagnosis -- confirmed diagnosis. Parkinson's is somewhat similar. So, that is our goal in the cancer area as well.

As I mentioned, we are already looking with pharmas at what we can see in circulating DNA and blood. At present, we have got very sensitive technology, but we see some of the new developments that we are doing that will give us a look into even deeper sensitivity.

Well, you are actually really working with some of the big pharma companies to get in bed with them and have them use your technology for screening or whatever.

Absolutely. I guess the only disappointment I have there is that all of those relationships are held confidential, and the data from them are confidential. So, the pharmas know it, we know it, and I can't tell you.

Sure, sure, sure. Now, the other question is I know Lee Cop, he is here in Minneapolis. I know his (inaudible) fund has a lot of shares and they are always buying more. And there's somebody or some source of selling that keeps the price from going above $0.40. Do you know who that -- what organization is that's always selling stock when it hits $0.40?

I don't get a report from our bankers as to exactly who is selling shares all the time. I certainly hear feedback from many of our investors that they see shares come out and they can discern who is selling them. I believe the source of almost all of the shares that have been in play of late are those that have been held since the 2005 pike that was done, and they are just like the biotech arena. There is some financial institutions that didn't make the cut in this economic crisis, and I believe a couple of those may be selling shares.

Okay.

(Operator Instructions). And it appears that we have no further questions at this time.

Great. Well, thanks everyone. I look forward to talking to you next quarter.

This does conclude today's teleconference. You may disconnect at any time. Thank you and have a wonderful night.