Precipio Inc (PRPO) 2009 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Transgenomic fourth quarter 2009 results conference call.

At this time, all participants are in a listen-only mode. Please note, today's conference may be recorded. Also note, there will be a question-and-answer session later on in the call. (Operator Instructions).

I will now turn the program over to our moderator for today, Kim Golodetz. Please go ahead.

Thank you, Blake. This is Kim Golodetz with Lippert/Heilshorn & Associates. Thank you all for participating in today's call.

Joining me from Transgenomic are Craig Tuttle, President and Chief Executive Officer; and Deb Schneider, Chief Financial Officer. Earlier today Transgenomic issued financial results for the fourth quarter of 2009. If you have not received this news release or would like to be added to the Company's distribution list, please call Lippert/Heilshorn in New York at (212) 838-3777, and speak with Cheryl Palazzo.

Before we begin, I'd like to say that certain forward-looking statements will 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 in Transgenomic's periodic filings with the Securities and Exchange Commission. Any changes in such factors, risks, and uncertainties may cause actual results, events, and performance to differ materially from those referred to in such statements.

Transgenomic expressly disclaims any obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise except as required by law. Accordingly, the Company claims protection of the Safe Harbor for forward-looking statements contained in the Private Securities and Litigation Reform act with respect to such statements.

With that said, I would like to turn the call over to Deb Schneider. Deb?

Thanks, Kim, and good afternoon, everyone.

I will start my review with results for the three months into December 31, 2009, and then I will summarize our full-year results. Today reported net sales for the first quarter of 2009 of $6.5 million, which is an increase of 6% compared to the same period in 2008. Sales in our instrument related segment increased 17% to $5.7 million while sales in our laboratory services segments declined 34% to $852,000.

First, within our instrument related segment, we break our sales into two components, bio instruments and bio consumables. Bio instrument net sales, which includes instrument sales as well as the ongoing service contracts we sell on these instruments increased 23% to $4 million. We sold 14 wave instruments in both the fourth quarters of 2009 and 2008; however, the average sales price on these wave instruments was down slightly.

We sold six OEM instruments in the fourth quarter of 2009 compared to three in the fourth quarter of 2008, and the average sales price on these OEM instruments was higher this year. Average sales price can be affected by a number of factors including: type of instrument, product mix, geographic region, and foreign currency. Bio consumable net sales for the 2009 fourth quarter increased 5% to $1.7 million compared with the same period in 2008.

Going to the laboratory services business, which includes both our molecular clinical reference laboratory and our pharmacogenomics research services business. Molecular clinical reference laboratory sales were down 29% to $655,000 reflecting a 17% decline in test volume. In addition, average revenue per test decreased 14% due to the mix of tests performed and contractual adjustments due to higher Medicare and Medicaid test volumes.

Pharmacogenomic research services net sales declined 46% to $197,000. These sales are project -based, so they are more likely to be lumpy quarter to quarter. However, in the current quarter, we had a number of small projects for pharmaceutical companies that we believe will drive participation in larger full clinical trial studies in the future for these same customers. We are very excited about some of these potential opportunities.

Gross profit during the 2009 fourth quarter was $3.4 million or 52% of net sales as compared to $3.4 million or 55% of net sales a year ago. In the instrument related business, the gross profit margin for the quarter was 56%, which is up slightly from 55% in the prior year. Stronger instrument sales in this quarter contributed to this. Also included in our cost of sales for the instrument business in the fourth quarter was an expense of $153,000 related to a review of our slow-moving and obsolete inventory. The inventory reserve was related to our older, lower instrument, which we call our WAVE MD, and then a transition in our bio consumables from a steel syringe delivery method to a disposable delivery method. The inventory obsolescence reserve equates to approximately 4% of our inventory value.

The laboratory services division had gross profit in the fourth quarter of 2009 of $203,000 or 24% of net sales as compared to a 54% gross margin a year ago. The margin decline is driven by higher operating supply costs in 2009 and lower revenues. The laboratory services group has a larger fixed overhead structure, so the decrease in revenue is substantially impacted the gross margin.

We are pleased to report net income for the fourth quarter of 2009 of $129,000 versus a net loss of $219,000 for the comparable period in 2008. Operating expenses during the 2009 quarter included a nominal amount of foreign currency revaluation loss. This compares to $530,000 in foreign currency revaluation gain, which decreased our operating expenses in the fourth quarter of 2008. In addition, if you remember, operating expenses in 2008 included a goodwill impairment charge of $638,000 and a small restructure charge of $110,000. Without the impact of these items, operating expenses for 2009 were $3.1 million as compared to $3.2 million in the same period of 2008, relatively flat. The primary decreases in operating expenses included eliminated or open positions that were not filled and lower stock option expense, which was offset largely by higher research and development costs.

Let's move on to the results for the year ended December 31, 2009. Net sales for 2009 were $22 million as compared to $24 million for 2008 or an 8% decrease. Net sales for our instrument related business declined 12% to $17.5 million. Bio instrument net sales decreased 9% to $10.2 million due to a change in product mix as well as a decrease in service contract net sales. We sold 11 OEM instruments in 2009 versus 13 OEM instruments in 2008, or 2 less. We sold 32 WAVE systems in 2009 compared to 30 in 2008, or 2 more here.

The WAVE instruments have a lower average sales price compared to the OEM instruments. As with our fourth quarter results, the average sales price was higher on OEM instruments in 2009, but lower on the WAVE instruments. Factors affecting the average sales price, again, can be product, model mix of instruments sold, geographic region, foreign exchange, and price pressure. There was also a decrease related to service contract net sales for the full year. This reduction was primarily related to foreign currency exchange impact in Europe of $400,000 and a smaller amount related to fewer service contracts renewed.

Bio consumable net sales for 2009 decreased 15% to $7.3 million compared to 2008. The primary reason for the decrease is negative impact in the European area on foreign currency exchange rates and then a smaller usage decline globally. Laboratory services revenue for 2009 full-year increased 7% to $4.6 million. More specifically, the molecular clinical reference laboratory net sales increased 23% to $3.5 million as we added 92 new customers in 2009. This higher customer base, along with increased test volumes, aided this growth. Our test volume increased 45% compared with 2008. The average revenue per test, however, decreased by 15% due to the mix of tests performed and contractual adjustments due to Medicare and Medicaid test volumes.

Pharmacogenomic's research services that sales were down 26% to $1 million. We continued to be impacted by project pipeline and recurring business in 2009. As we head into 2010, however, we have a strong team in place and a stronger backlog of projects committed from our business partners than ever before. Depending on when we receive our samples on some of these projects, our first quarter net sales could certainly be larger than any other quarter in 2009.

In addition, our pipeline of proposals out to these partners is close to $1 million. While we do not know if we will receive the business on all of these, it is extremely encouraging to see the list of potential projects continue to grow. And some of our customers are coming back with multiple project requests. We actually just put a proposal out for $100,000 today. So we are seeing a lot more activity there.

Gross profit in 2009 was $11.6 million or 53% of sales as compared to $13.6 million or 57% in 2008. Lower net sales coupled with a large fixed component of expense in many areas of the business affected this gross margin. For 2009, we reported a net loss of $1.9 million compared to a net loss of $495,000 in 2008. 2009 operating expenses included $292,000 of foreign currency revaluation loss. In 2008, operating expenses included a $1 million of foreign currency revaluation gain.

A goodwill impairment charge of $638,000, and a restructuring charge of $118,000. Without the impact of these items, operating expenses were $13.2 million for 2009, down significantly from $14.3 million in 2008. This decrease was largely driven by lower SG&A expenses offset by an increase in R&D spend. SG&A expenses were lower due to decreased salaries related to open and eliminated positions. Commissions were lower, travel expense was lower, and stock option expense was lower. Research and development costs increased from $2.5 million in 2008 to $3.2 million in 2009 or $700,000. The majority of the increase is due to collaboration projects including Power Three for Alzheimer's and Parkinson's disease and Dana-Farber for COLD-PCR.

As of December 31, 2009, we had a cash balance of $5.6 million and working capital of $10.4 million. During the year, we generated $1.3 million of cash from operating activities, which was offset by $377,000 of capital equipment purchase. The operating cash generation was largely driven by strong management of accounts receivable collections and tighter inventory control. Working capital decreased by $1 million due to the lower accounts receivable and inventory balance. We believe the Company continues to have a very strong working capital position. For more detail, please refer to our MDNA analysis in our 10K., which we plan to file tomorrow.

That concludes my financial update. Thank you for your time today. 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. And my thanks to each of you for joining us on today's call.

The fourth quarter in recent weeks were very exciting for us at Transgenomic. We had a number of activities and milestones that hold potential to greatly increase Transgenomic's presence in the molecular diagnostic industry and to positively affect the financial performance of our company for many years to come. We added to and enhanced our platform technologies for use in drug discovery and in diagnostic screening. On today's call, I will speak little more than I did last quarter about COLD-PCR, now that we have a few months work with this technology under our belt. We are delighted with our decision to execute the broad and exclusive license agreement with Dana-Farber Cancer Institute for COLD-PCR. And I will review for you what that technology may allow us to do.

COLD-PCR stands for coamplification at lower denaturation temperature PCR. The traditional method of searching for genetic mutation begins with amplifying a region of DNA by PCR, which results in multiplication of the gene for analysis. This is performed at a temperature that is sufficiently high to cause the two zipper-like strands of DNA to un-zip or melt. However, due to the sensitivity constraints of standard sequencing, some mutations that are present at a low concentration may not be detected. For instance, when a biopsy sample has mostly normal tissue and only a small amount of cancer tissue in it.

By starting the amplification reaction at a very specific cooler temperature, we are able to enrich the mutant DNA molecules in the mixture, and thus pick up mutations with the sensitivity as much as 50 times more than competing technologies; thereby, giving us the opportunity to develop mutation tests with exquisite sensitivity. And then add these tests to our product offerings.

Let's talk about what the sensitivity means for us. By improving sensitivity and obtaining a more accurate picture of mutated DNA molecules, we may be able to discover why and how certain drugs work in some people and not in others. We also may be able to detect disease earlier and subsequently monitor the disease and therapeutic response. This knowledge may allow the resurrection of a number of drug candidates that failed in pivotal trials as well as new testing that could be initiated in a much more tightly targeted patient population.

As personalized medicine continues to evolve, we have contracts in place with three pharmaceutical companies and are in discussions with many more for the use of COLD-PCR to understand the mechanism of action of various drugs and the predictive value of a custom diagnostic assay for improvement of patient care. In addition to recognizing revenues from this work, our goal is to develop companion diagnostic assays, which will drive revenues in both kit sales and testing services performed at our CLIA lab.

We are working diligently to validate COLD-PCR, and were pleased to have announced earlier this month that in a study we conducted in conjunction with a pharmaceutical company that we validated our COLD-PCR technology's ability to detect colorectal tumor associated KRAS mutations with 100% concordance between our mutation results obtained in plasma and the matched tumor KRAS genotype. We have just posted on information piece on this work to our website, and I invite you all to review it.

We are also working on assays for a number of other mutations including B-RAF and melanoma and colon cancer, and several other cancer types, pick 3CA, and ovarian and breast cancer, and P53 and a host of different cancers. And we plan to investigate the detection of fetal mutations in maternal blood using COLD-PCR as well. We will continue our validation studies throughout the year and update you as the results are obtained.

The early diagnosis of Parkinson's disease is an important area for us, and we are assembling the building blocks that we believe ultimately will allow us to be a meaningful participant in this area. During the quarter, we signed an exclusive licensing option with Gene Solutions for a set of validated mitochondrial DNA mutations found in Parkinson's Disease patients. We believe these mutations can form the basis of a novel and accurate diagnostic test that will work with Transgenomic's platform mitochondrial mutation detection technology. Also in our CLIA lab, we completed the clinical validation of the neuro-pro Parkinson's disease test, thereby, fulfilling the terms of our licensing and collaboration agreement with Power Three Medical.

Parkinson's disease is only one of many diseases that may be diagnosed by looking at mitochondrial genetic damage. (Inaudible) Where we have licensed COLD-PCR technology or through the use of prodiomics upon which the Power Three neuro-pro assays employ. We are also looking at mitochondrial mutations in Alzheimer's disease, heart disease, and other diseases that may be caused by oxidative stress. And we have the exclusive license to perform this testing in our laboratory or convert these tests into a kit format which we can sell broadly.

We are very pleased to have announced earlier today the signing of a licensing agreement with IntegraGen for the intellectual property related to a test that would determine if there is an increased risk for developing autism. This test, which is based on eight snips, is directed toward the newborn sibling of an older child with autism. These siblings have more than twice the chance of becoming autistic. It has been shown that early intervention can have a significant impact on the development of an autistic child, but for many, intervention is not early enough as the diagnosis is not made until the child is on average 53 months of age. Recent research has shown that there are signs of developing autism as early as 12 months of age, but these signs are often missed.

By developing and commercializing this test, we can provide a valuable service for parents of children in the elevated risk group. This test is expected to have a fairly rapid path to market and can be run with our own copy number variation chip, which can also detect deletion that also lead to this disorder. It will be developed in our CLIA laboratory and marketed through our lab sales team. We expect to be marketing this test in the second quarter of the year.

More broadly speaking, we are very cognizant of the work that must be done to validate our studies in order to maintain credibility among the scientific community. We are pleased to be presenting at a number of upcoming scientific conferences. We will have a significant presence at the upcoming American Association for Cancer Research Conference in Washing DC being held April 17th through the 21st. We will be presenting three aspects at the AACR meeting. The first is titled quantitative assessment if mitochondrial DNA damage differentiates long-term and short-term survivors with glioblastoma, where we found a statistically significant correlation between the level of mitochondrial DNA damage and patient survival with this cancer.

The second relates to our surveyor nucleus KRAS mutual detection kit; and the authors conclude that the use of our surveyor scan KRAS kit can decrease sequencing burden in colorectal cancers. They also state that this method has been successfully applied to activating mutations in the B-Raf and Pic3CA genes as well. They add, "The extension of surveyor scanned to mutation analysis in tumors suppressor genes such as P53, in which inactivating the mutations may be present in multiple exon in numerous locations is anticipated to be of significant utility since mutation-specific methods are not practical and sequencing requirements are on us." That's the end of that quote.

And the third AACR aspect is entitled very high sensitivity detection of KRAS exon 2 mutations using fast COLD-PCR. This study was co-authored by the inventor of the technology from the Dana-Farber Cancer Institute and in essence supports our thesis that COLD-PCR improves sensitivity of detection in samples like in blood. We expect to continue to publish and present our work throughout the year and will update you when we do. So I think you can understand how excited we are about these developments, but we are also pleased to have a very solid instrument business as well.

With instrument sales of $4 million for the quarter, our sequential quarter improvement was significant, aided by the timing of several OEM instrument sales that shifted from the third quarter into the fourth. Our OEM sales were extremely strong in the fourth quarter; and as the economy improves, we hope to see continued strength here. We also expect that as we develop our cancer gene mutation kids, particularly those using COLD-PCR, we will derive higher sales through instrument and lab service commercial channels. We currently have CLIA certification in 48 states, and will work to complete certification in the remaining two states yet in the first half of this year. And we have recently hired additional sales professionals to help drive our penetration and revenue.

Before I open the call up to your questions, I'd like to review some of the milestones we expect to achieve in the coming years. We expect to complete the soft launch of our KRAS assays we received feedback on the current version from our clinical trials, and make the improvements recommended to improve the tests and add additional tests to this panel. We will launch an assay to determine the autism risk for siblings within families who already have one child with autism. We look forward to launching an assay for the early detection of Parkinson's disease, and we will be adding new projects with pharmaceutical companies in the companion diagnostics space.

Finally, a last note concerning our license with Power Three medical. We contend that our license agreement with Power Three medical, including our exclusive worldwide license rights included in this licence agreement remains in force. And we have, unfortunately, filed litigation in federal court to validate that position. Due to the nature of the situation and the pending litigation, I cannot comment further.

That concludes my prepared remarks for this afternoon. I will now open up the call to your questions. Thank you.

(Operator Instructions).

It looks like our first comes from the site of [Mark Merrill]. Please go ahead.

Good afternoon, Craig. Congratulations on a strong quarter, and thank you very much for taking my question.

Hi, Mark. Good afternoon. Thank you.

I am wondering if you could briefly discuss a little bit more your newly licensed IP in autism and your newly announced genetic test for autism. Specifically if you could outline a bit possibly the potential market opportunity and speak a little bit more about some of the science behind the test, I would appreciate it.

That's a good question, Mark. Thank you.

The test that we have licensed the intellectual property from IntegraGen is based on a large volume of work that was done both in Europe and in the US to identify eight snips or a single nucleotide polymorphism that have small changes in DNA, that relate to a much higher risk of autism in a second child where the first child in a family already has the disorder. So, the use of that test is, like I mentioned in my prepared remarks, an aide in early selection of children that are extremely high risk for developing autism and suggesting, when combined with our CMA testing that may or may not indicate some deletions that are consistent with autism disorder, that these children should have intervention treatment therapy as early as possible to improve their potential outcome.

The total market for the test in the US is--since the disorder is now affecting approximately one in 100 newborns . Annually, that works to about 80,000 families that are affected with autism annually in the US, which is truly a healthcare disaster and emergency situation in our opinion. And the potential revenue from that based on this test and how we are planning to price it is between $80 million to $120 million annually once you capture the bulk of the market.

Okay. Sounds great.

As a quick follow-up, is this test at all connected with some of your previous research surrounding mitochondrial DNA and autism?

That is also a great question.

We have done some studies in the autism space with one of the leading autism centers in the US. What we found, and in that study I was using our mitochondrial DNA damage assay. What we found is that there are some autism patients that do have mitochondrial--discernible mitochondrial DNA damage, but it is not consistent across the entire patient population. That suggests to us that there is a large range of problems with children that are diagnosed with this spectrum--broad spectrum disorder, and it means to me that there are several forms of this disorder.

We would love to have something that is an easier to run test and an earlier predictor. Clearly, you would make the leap that if you can test the child for these mutations or these snips, that you could also look in maternal DNA for them. And at some point in the future, one could speculate that that is a good application for COLD-PCR because of the sensitivity it presents. But that is speculative at the moment.

Okay. Well, thanks again for taking my question.

My pleasure.

(Operator Instructions).

Next we go to the site of Chrystyna Bedrij. Please go ahead.

Good afternoon, Craig and Deb.

Hi Chrystyna.

Hi. Congratulations on the progress both fundamentally and strategically.

Just a couple questions, and thanks for taking my question. It sounds like you experienced a more normalized economic environment this quarter, especially for your instrument sales. I was wondering if you might be comfortable talking about guidance for the next quarter or year in terms of instrument sales.

That is a great question, and I love to be placed on the spot. What I can relate about Q4 in terms of its volume of instruments and the laboratory services business that we enjoyed in the quarter, it is certainly more similar to what we saw repeatedly in 2008. Obviously, like many companies, 2009 dawned pretty--fairly dark for us.

We certainly had an impact on both our instrument sales and on our reference laboratory business, and even some impact on the pharma business because we saw companies--sorry, countries lose their funding, for example. That funding became available towards the end of the year, and we still see that funding becoming available. So I guess the good news is that even in Q1 we are seeing at least tenders and quotes going out for instruments that we know have been desired by laboratorians for a year or two. We think some of those will actually occur in Q1.

We do see some strengthening in the laboratory business both from the CLIA side as well as the pharma side. In particular, we have added some important customers in Q1. That is typical for us. The process is usually that we do a small study with a pharma company and once that proves positive, then we move into a next study that is more mature. And then eventually move and do a clinical trial.

So, there is strong--in addition to that, there is certainly strong excitement in the pharmaceutical marketplace as we're calling on transational groups for understanding how COLD-PCR will contribute to their patient selection and what have you. Particularly, since you can look at blood now. At least we are--early indications are that you can look in blood.

So, the summary for Q1 is we think it will be a good quarter. We are excited by that. We are excited to keep putting money in the bank as well.

I appreciate that answer.

Just a quick follow-up, if I could. And it is just a follow-up also on what you just said here and I think Deb mentioned that the outcome for the number of small projects--although those finished, it sounded positively. And those will drive new larger opportunities. And I don't know, in terms of your new pharma customers and your old, smaller pharma customers, can you discuss which products or projects they find currently of most interest utility in terms of your menu? Is that something you can share? In other words, what seems to be hot?

Clearly, COLD-PCR in blood is hot. The reason for that is, as I have discussed before, we have done some work for pharmas previously where we've looked at circulating DNA containing mutations that are the same mutations that are in the tumors. Unfortunately, what we were seeing at that time with as sensitive a technique as we can develop, which is running at say 1% of mutant to wild type, which is seemingly the limit that all technologies run into to try to find these mutations.

Now with COLD-PCR, we are 50 fold higher than that. That opens up this whole new arena that I've been speaking about of looking for these circulating mutations in blood or in other body fluids like urine or in saliva, even. So, we are rapidly trying to approach those opportunities, both for pharmas, but also with collaborators abroad so we can expand the indications for COLD-PCR.

I will say, the rest of the pharma studies that we continue to do are all around mutation assessment for a variety of key cancer genes that range from the RAS pathway, Pic3CA, etc.; but other pathways as well, and those pathways are now expanding. The one thing that I think is a reward for us after many years of kind of being out alone here on this platform is that very sensitive DNA mutation is important now. In my opinion, I don't think that that was appreciated as much in the past. And many of the studies that were done on cancer and continue to be done are broad-based screens that don't have the most sensitive technologies applied to find the most minute amounts of mutations that exist or mutant DNA that exists.

That's okay if you don't have a driving mutation or one that is conferring resistance. But when you do, then you have to find it. There is a renewed interest there. There is also a renewed interest from the pharmaceutical partners that we have for our ability to produce a companion diagnostic. In that light, we can apply COLD-PCR to our current and expanding kit portfolio, for example. And that should give us really industry-leading position there as well.

And that attraction, I think, is what is really driving deeper interest from pharmaceutical companies that, in particular, three years ago would not consider us as a service provider. I think as a total, we did projects for 23 pharmas in 2009. And as Deb said, we've got a million dollars out in quote, plus a good quarter's worth of work going on right now, both here and through our R&D lab in Gaithersburg where we've developed the R&D aqueduct applications of COLD-PCR.

Hopefully, that is a thorough enough answer.

No, it's great. That's fantastic. Obviously, exciting possibilities. Thanks for the follow-up question. I appreciate it.

My pleasure.

(Operator Instructions).

We also have a question from the site of [Larry Hopfensberger]. Please go ahead.

Hey, Craig. How are you doing? Good quarter.

Hey, Larry. Thanks. How are you?

Good. I'm sitting her more excited than ever.

Me too.

About your quarter and the prospects you have going forward here.

But I am a looking at your comment and outlook, and I just have a few questions, one, two, three. You say in your comment and outlook, you say, for example, early this month we announced that in a study we conducted in conjunction with a major pharmaceutical company, we validated COLD-PCR technologies to detect colorectal tumor associated KRAS mutations with 100% concordance between Transgenomic's mutation results obtained in plasma and the matched tumor KRAS (inaudible) types.

You are beginning to sound like a scientist.

That sounds like disruptive technology to me and you had a major pharmaceutical company involved in it. Is that a major disruptive technology?

That is a great question, Larry.

Again, as we started to get into the technical leads here with the nuances of this technology, the simple answer there is that if you looked at our previous ability, we were running 75%. Now we are running 100% accuracy of finding these circulated mutations in blood. I can't purport that we will always be at 100%, but what this really shows is that if you can find these mutations in blood, and their equivalent in all cases or many cases to the tumor, you don't have to find the tumor.

You don't always have to biopsy.

Yes, you don't always have to biopsy.

In some of the work that we are doing now, we have the potential for recovering or saving a clinical trial. Because once the samples begin to age and they get lost in the mix and after a number of studies have been completed, a pharma may only have blood left. And if we can find the mutation in the blood, they don't have to resurrect that tissue. Or that tissue is gone, therefore, the trial would fail, for example. So if we can rescue some trials based on COLD-PCR, that will be a tremendous help to pharma companies in the short-term.

In the longer term, it will help them utilize a blood-based test to perhaps select the right patients for a trial; and therefore, have a higher likelihood of succeeding in drug approvals. And then, finally, as a screening technology. Of course, it has to prove out, and the biology is always very complex here, but if you can find a panel of circulating DNA mutations that are indicative of ongoing oncogenesis, that is the diagnostic screen that we all dream about.

In that regard, I have to agree with you that I think this is potentially very disruptive technology . And we are very pleased to be front and center with being able to commercialize and further develop and refine the technology.

So, where are you--you launched in the last quarter, that we are speaking about, you have launched your KRAS in Europe. How is that going?

As I noted in my prepared statements, we completed clinical trials late in the quarter and began our selling efforts. We definitely have interest in the marketplace. I didn't look before this call to see the sales level for the KRAS kits, but what we did get is feedback from one of the trial sites of how we could save between two and three hours off of a KRAS kit test protocol. So, we are rapidly incorporating those changes because we think that will make the kit even much more desirable. Then we will relaunch that kit in the next month or so when those changes are completed and validated.

You say here in the next paragraph of our outlook, you say a personalized medicine continues to evolve--as personalized medicine continues to evolve, we are working with pharmaceutical companies that are in discussions with many more for the use of COLD-PCR. So you did 23 companies in 2009. When you say you are in discussions with many more, are these people--how are these people coming to you? Are they coming through articles? Are they coming through trade shows? Are they clamoring to you? What is causing--are they excited, and what is causing it?

Well, first of all, again, another good question, Larry.

They come to us by all of those mechanisms. We participate in a variety of conferences, and that is why we publish abstracts and try and get posters or podium presentations so that we can popularize the technology; and we get approached by research scientists from a variety of pharmaceutical partners , NIH, etc., at these conferences. And we do have two sales professionals that are calling on pharmaceutical companies exclusively to try and expand our CRO offering.

Now that COLD-PCR is beginning to show some real strong promise and there is increasing level of publications coming out around the technology that it is becoming better known. And from that, then now we can leverage that with our current partners but also seek out new partners. So I can tell you that we are talking about that with anyone who is interested in DNA mutation assessment for an inhibitor therapy, for example. That is a key topic in cancer treatment and cancer drug development.

You said that you've got a four quarters worth of work now. You said that the first quarter would be as good as any quarter in 2009. Can we expect north of $6.5 million then ? Maybe $7.5 million in revenue?

What I said was that Q4, 2009 was identical to the quarters or very similar to the quarters we had in 2008. So I didn't say that about Q1. I said Q1 is a good quarter and we are happy with it. And we see indications as to why we see recovery across the economy.

Larry, I think I was specifically talking in my comments about the pharmacogenomics revenue, which was less than $200,000 in fourth quarter and $1 million in total for the year. We do see that particular revenue stream increasing, and we should have a bigger quarter in first quarter than we have had.

Yes. And we would like to see that expand, certainly, now that, in particular, COLD-PCR is becoming better known.

This somewhat reflects on both your question, Larry, as well as Chrystyna's, and that's that if you look back three years ago with this nascent business, we were--we had the same message to pharmas without the COLD-PCR addition to our portfolio. But that didn't resonate with them as much as it does now. There are more inhibitor treatments coming to market or in the clinic and/or in development that require this type of testing. So that's why there's been a growth there. Now coupled with that higher interest level, of course, now we have a technology that is revolutionary.

Is it possible to break out of this annualized $22 million to $25 million range and hit new heights?

We definitely expect that. I am not projecting when we will get there, but if you look at the growth drivers that we are working on now that we expect to have available across this year and next, an important one is filling out the panel of cancer gene mutation test kits. But then also because of our license, we can apply COLD-PCR to each of these.

So instead of having just like everyone else, a tumor associated test kit now, we can have a blood or saliva or potentially urine test kit as well. And that makes the sampling much easier. Of course, there is the clinical validation that is required in all cases to validate that it works in that tissue and in that cancer sensibly within that patient. But it is clear that personalized medicine is a broad category, now has some momentum because it is recognized clearly with the pharma partners that we have and certainly across the range of pharma companies that they need to focus on this and it is good to be in that right place at the right time. So that is one area where we expect future growth.

The other thing that I mentioned in my prepared notes that I want to stress, is that for some of the simple kits that we and other competitors have out , like KRAS and actually VRAS, there is very few mutations that are resistance conferring or driving cancer. So there are more means or technologies that can support doing those assays. However, when you get into larger genes that are maybe equally important or even more important, like P53, the only way to do that is with a technology like ours, because there's dozens of mutations in P53 that confer a variety of functional changes, gain a function, cessation of function, misregulation, etc.; and it's such an important regulator of growth and cancer. The P53 mutations occur in 50% of all cancers. So our ability to develop a P53 kit, for example, is going to be, again, revolutionary. And then we add COLD-PCR to it.

So that is another component where I see the combination helping. We will continue to license and try and develop technologies and tests that we add to our CLIA laboratory to expand that. Clearly, we continue strong efforts there. Some work, some don't. Lastly, we still have a robust instrument business. When you combine all of that, I am still very optimistic for us being able to position ourselves at least and then see the end result being increased revenues.

So putting it in layman's terms, if you are running a 440 around a track and you have got your three closest competitors to run off against, who would they be, and where are they in respect to you with the last--as you cross the finish line? Who would your competitors be? The three closest competitors. And where would they be with respect to you as you cross the finish line?

That is a great Olympics based question. They call me Bode.

It differs for each component of the business. I will start with the instrument business. Clearly, we face first and second-generation sequencing companies as competitors around our WAVE business. But now we have COLD-PCR to add to that, and remember that Sanger sequencing and COLD-PCR is exclusive for us. So anyone that's doing Sanger sequencing, which is 95% of the market, they have to come to our doorstep. That is the game changer there.

Some of the other companies that do genotyping include pirosequencing companies, Sequenome, with genotyping technologies, etc. So there are a variety of competitors in that market, and it is quite complex. So, again, I think COLD-PCR positions us well there to improve our position. In our kit business, there are a couple of competitors, really only. And one of them is DxS, a UK company that was just recently acquired for over $100 million by Qiagen. They actually have a kit that is distributed by Roche. You might have seen litigation around that distribution agreement.

Where we see that moving is clearly we will have COLD-PCR to add to our kits. And we can have the large genes that we add to that kit. So I think, ultimately, we are going to position ourselves to participate and probably dominate to a much greater extent than we do now, clearly. But in the future, that business. And then when we add that to our pharma business, now we have a functional CRO that has disruptive technology. So I see us changing our competitive footprint there. And being desirable such that pharmas will begin to ask for that technique so that other CROs that are involved in that market will come to us as an outsource partner in addition to the selling efforts that we have to try and secure business directly.

Thank you. That's enough of my domination.

Thank you.

Thanks, Larry.

It looks like we have no further questions from the phones.

Great.

Thank you, all, for participating on today's call. Thanks for your great questions. I trust we have shared with you our enthusiasm for the Company and our technologies and presented an overview of our plan. We look forward to speaking to you all again in a few months when we report first quarter results. Good day.