Precipio Inc (PRPO) 2010 Q1 法說會逐字稿

Welcome to the Transgenomic first quarter financial results conference call. (Operator Instructions). Following management's prepared remarks, we'll hold a Q&A session. (Operator Instructions). As a reminder, this conference is being recorded Wednesday, May 5, 2010. I would now like to turn the conference over to Kim Golodetz. Please go ahead, ma'am.

Thank you. This is Kim Golodetz with Lippert/Heilshorn and 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 issues financial results for the first quarter of 2010. If you have not received this news release, or would like to be added to the Company's distribution lists, 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 the 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 newer 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'd like to turn the call over to Deb Schneider. Deb?

Thank you, Kim. Good afternoon, everyone. I'd like to review with you our financial results for the three months ended March 31, 2010. Today we reported net sales for the first quarter of 5.4 million, which is an increase of 9% compared with the same period in 2009.

Sales in our Instrument-Related segment increased 12% to $4.2 million, while sales in our Laboratory Services segment were essentially flat at $1.3 million. Please note, Craig will discuss sequential growth in our Laboratory Services segment later in the call.

Within our Industry-Related segment, we break our sales into two components, bioinstruments and bioconsumables. Bioinstrument net sales, which include instrument sales as well as the ongoing service contracts we sell on these instruments increased 12% to $4.2 million.

We sold five OEM instruments in the first quarter of 2010, compared with only one in the first quarter of 2009. We also sold six OEM instruments in the fourth quarter of 2009. The average sales price was significantly higher in 2010 for these OEM instruments versus the year-ago quarter.

We sold four WAVE instruments in the first quarter of 2010 compared with seven in the first quarter of 2009. We sold 14 in the fourth quarter of 2009. The WAVE average sales price was significantly lower in the first quarter of 2010 versus the year-ago quarter.

Two of the four WAVE instruments sold in the first quarter were an older 3500 model, which has a much lower sales price. Average sales price can be affected by a number of factors, including the type of instrument, the product mix, the geographic mix, and foreign currency. Bioconsumable net sales for the 2010 first quarter were relatively flat at 1.8 million, compared with the same period in 2009.

The Laboratory Services business includes both our molecular clinical reference laboratory and our pharmacogenomics research services business. The molecular clinical reference laboratory sales were consistent with the first quarter of 2009.

Average revenue per test did decrease 5% due to the mix of tests performed, and the contractual adjustments due to Medicare and Medicaid test volumes. The decrease in average revenue per test was offset by a 5% increase in volume.

Pharmacogenomic research services net sales were relatively flat, compared with the same quarter in 2009, and were $329,000. The growth actually was 9%. However, as a dollar figure, we just had $26,000 of growth. These sales are project-based, so they're more likely to be lumpy, up and down quarter-to-quarter.

Yet, the first quarter net sales was higher than the previous three quarters. So, we have seen some growth there. In addition, our pipeline of project proposals continues to grow significantly. Existing signed contracts have approximately $1 million of potential net sales remaining on those contracts.

And in addition, we currently have over $2 million in proposals outstanding, compared with $1 million as disclosed on our fourth quarter conference call. We have seen significant growth in the proposal pipeline. We see significant opportunity here for our pharmacogenomic research services group.

Please remember, however, that both of these figures are based on an estimated number of samples from our partners for each project. Actual results can vary significantly from the estimate. As a project goes through the process, samples received can be more or less than what was estimated up front.

We do require change orders when the samples increase on a contract, which gives us the opportunity to update our projections on that side. However, on the flip side, we may not know until later in the process if there are going to be fewer samples.

And we do not penalize the partner if the samples come in lower than estimated on a project. We have seen situations where the final work may produce net sales significantly higher than the first signed contract. And likewise, we have closed a project out and had significantly less net sales than originally projected. So, we do see those things happen occasionally.

Gross profit during the 2010 first quarter was 2.9 million, or 53% of net sales, as compared to 2.8 million, or 56% of net sales a year ago. In the Industry-Related business, the gross margin for the quarter was 58%, which is down very slightly from 59% in the prior year. The decrease is primarily driven by product mix.

In the Laboratory Services division, the gross profit in the first quarter of 2010 was $483,000, or 38% of net sales, as compared to a 49% gross margin a year ago. The margin decline is driven by higher operating supply costs in 2010, staff added to strengthen our Laboratory Services team, and the lower reimbursement due to contractual adjustments on Medicare and Medicaid noted above.

In addition, some of our pharmacogenomic projects carry very low margins at the outset, with expectations of future margin increases once programs get underway in a more robust fashion, particularly as some of the smaller projects convert to larger full clinical trial participation.

We're reporting a net loss for the first quarter of 2010 of $324,000, which compares with a net loss of $953,000 for the comparable period in 2009. Operating expenses were 3.3 million for the first quarter 2010, which is a decrease from the 3.8 million for the comparable quarter in 2009.

Operating expenses during 2010 included 52,000 of foreign currency reevaluation loss, as compared to 238,000 of foreign currency loss in the same quarter of 2009. So, we have seen improvement there. Other decreases in operating expenses included positions that were eliminated during 2009, open positions that were not completely filled during the first quarter of 2010, lower outside professional fees, less travel, and lower stock option expense.

Research and development costs were relatively flat in both quarters. As of March 31, 2010, we had cash and equivalence of 5.9 million, and working capital of 9.9 million. During the quarter, we generated $392,000 of cash from operating activities, which was partially offset by capital equipment purchases of $47,000.

Working capital decreased from December 31, 2009 by $459,000, primarily due to increased accounts payable and accrued expenses. Included in this area was $423,000 representing a partial prepayment for six WAVE instruments that were shipped in April.

Revenues for these instruments will be recognized in the second quarter of 2010. We believe that the Company continues to have a very strong working capital position. For more detail, please refer to our MD&A Analysis and our 10-Q which will be filed tomorrow. That includes my 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. Craig?

Thanks, Deb. And I'd like to add my thanks to each of you for joining us on today's call. Actually, I'm speaking to you today from Chicago where I'm attending the BIO International Convention, where I'll be presenting at the Industrial Forum shortly in support of our pharmacogenomic services lab business.

I plan to speak about our Laboratory Services capabilities to potential pharma partners as we continue to expand our client base amongst major pharmaceutical companies, as well as pursuing companion diagnostic opportunities with these companies.

There's a great deal of interest in this science, as personalized medicine is now experiencing enormous growth and certainly heightened visibility. And we believe we have positioned Transgenomic to play an important role in these advances.

During the first quarter, we continued to work on developing our COLD-PCR technology, which is able to locate genetic mutations with sensitivity as much 100-fold greater enrichment than competing technologies. If you recall, we licensed this technology from the Dana-Farber Cancer Institute in September last year.

As I described in detail during our last conference call, by starting the PCR reaction at a very specific but lower temperature than normal PCR, we are able to enrich the mutant DNA molecules in a sample mixture, and thus detect mutations with much greater sensitivity.

We currently have three projects underway with pharmaceutical partners to apply COLD-PCR to specific cancer-associated genes to detect low-level mutations in these genes and blood. Our expectation for this technology is that we can use it to develop companion diagnostics for selecting the appropriate drug for patients, or vice versa.

Based on testing mutations in patients' blood, rather than in the tumors directly. We've recently reported demonstrating 100% concordance between our mutation results obtained in plasma with the matched tumor K-RAS genotype. And we continue to work on developing surveyor-based mutation kits for other key resistance, confirming mutations in such as BRAF and other EFGR pathway genes, as well as beginning development for detecting mutations in the master regulating protein gene, p53.

This will be a pivotal development project for us, as few other technologies are able to support a kit product to detect mutations in genes as complex as p53. We believe that we further develop these assays and add COLD-PCR technology to them, that we will increase the number of discovery and clinical trial projects that we engage with our pharmaceutical partners, and we'll make an important contribution to the field of personalized medicine with blood-based detection upon going to these processes.

Our pharmacogenomic services hold excellent potential for the growth of Transgenomic. As Deb indicated, at the end of the quarter we had more than 2 million in proposals outstanding to pharmaceutical companies, compared to 1 million in proposals pending at the end of December.

Many of the initial pharma projects that we obtained are smaller discovery efforts. But, when completed successfully many are then converted to fuller, clinical investigations or full-blown clinical trials with much higher contract values. These larger projects will be fueling compounding growth of this business as more projects are performed simultaneously.

However, we do not always enjoy direct quarter-over-quarter growth for some of these trials, as patient recruitment drives our testing volume quarterly, rather than our staff or testing capability. We do believe that a growing number of these projects will convert to larger trials over time, particularly as we find companion diagnostics for new drugs that can move through the regulatory pathway, and potentially resurrect older drugs, should we be able to find a genetic basis for a drug's failure.

During the April meeting with American Association of Cancer Research, news from the conference of advances in cancer diagnostics and personalized medicine was plentiful. Much of it reached the mainstream press. Now, Transgenomic was pleased to have presented three posters there.

The first was titled "Quantitative Assessment of Mitochondrial DNA Damaged 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 in this cancer.

This is a very interesting finding, and one of the first applications of our exclusively-licensed Mitochondrial DNA Damage assay. We are obviously extending this work to look at other indications, now including cardiac assessment, aging, and the possibility of using this measure to determine chemotherapy and radiation therapy targeting, as well as other potential diagnostic or prognostic applications.

Second poster, related to our surveyor nuclease K-RAS mutation detection kit that we have just launched in Europe. In the poster, the authors concluded that the use of our SURVEYOR Scan K-RAS Kit can detect colon cancer related K-RAS mutations using the kit on our WAVE system.

And that this kit allows a substantial decrease in the sequencing burden in colorectal cancers. They also state that this method has been successfully applied to activating mutations in the BRAF and PIK3CA genes, as well. They also discussed the expected utility, the extension of SURVEYOR Scan to mutation analysis and key tumor suppressor genes such as p53.

And the third AACR poster was titled "Very High Sensitivity Detection of K-RAS Exon 2 Mutations Using Vast COLD-PCR". This poster was co-authored by the inventor of the technology from the Dana-Farber Cancer Institute, and, in essence, supports our thesis that COLD-PCR dramatically improves the sensitivity of mutation detection in a variety of patient samples, including blood, compared to standard sequencing techniques.

We expect to continue to publish and present our work throughout the year, and we'll update you when we do. Also, during the first quarter we continued to refine our platform technologies for us in drug discovery and diagnostic screening. And I am pleased that in recent weeks we achieved a number of milestones.

In Europe, we've re-launched our new K-RAS test kit which uses our SURVEYOR nuclease technology. We launched this kid after incorporating change uncovered in our field clinical trials that enabled us to shorten the test protocol time by almost two hours, thus making the kit more efficient to run and more attractive to our customers.

We also completed our first customer sale for this kit in the second quarter. We continue to work on additional assays to add to a panel of kits that we are developing to test for resistance to cancer treatment with epidermal growth factor receptor inhibitors, with plans to continue extending this menu list of important cancer gene mutation assays further.

We also completed technical development of our autism test. Following rapidly on the licensing of the intellectual property for this assay from IntegraGen in February, we will be prepared to launch this assay before the end of second quarter as noted previously.

This test determines if there is an increased risk of autism in a newborn with an autistic older, biological sibling. According to the Centers for Disease Control, currently one in 110 newborns will develop autism in the United States. And given that early intervention can have a significant impact on the outcomes for those with autism, and that currently the average age of identification for this disorder is 53 months, when treatment options become more limited, we expect demand for this test to be high.

We believe this represents a significant market opportunity for our molecular lab business. In addition to performing this assay in our CLIA-certified laboratory and selling the assay through our field sales organization, we will also be cooperating with IntegraGen to effectively market this assay.

In fact, May is Autism Awareness Month, and we will be certainly including this intention in our upcoming marketing campaign for the assay. We also expect these selling efforts to drive higher sales for our Chromosomal Micro Array test as a combined test panel for identifying autism. We continue to work on Parkinson's and Alzheimer's diseases, and hope to be able to update you more fully on launch plans for those assays later this year.

Also, we're very happy to have recently announced that Katherine Richardson has joined Transgenomic as Technical Director, with responsibility for our Laboratory Services businesses. In her new capacity with us, Dr. Richardson will be managing the day-to-day operations of both our molecular diagnostics lab and our pharmacogenomics lab.

She has an impressive background with more than 25 years of experience in molecular biology research, particularly in oncology, and in laboratory-operating procedures. Dr. Richardson comes to us from OSI Pharmaceuticals, where she worked for a number of years. We are very pleased that someone of Dr. Richardson's status has chosen to join us.

Turning now to instrument sales, our instrument sales increased 12% year-over-year. Although they were not quite as strong as in the recently reported fourth quarter, when the timing of several OEM instrument sales shifted from the third into the fourth quarter, we are pleased with our efforts and the sale of five OEM systems and four WAVE systems in the quarter. And while the second quarter is not over yet, we do anticipate instrument sales to grow in the quarter above what we already achieved in Q1.

Although our year-over-year revenue from our molecular lab and our pharmacogenomic services labs were little changed in this quarter, revenue from both were considerably greater on a sequential quarter basis. And given the growth and the backlog of contracts that we've both mentioned today, I think this bodes very well for continued growth throughout the rest of the year.

Before I open up the call for your questions, I'd like to reiterate that we are very pleased with our current molecular diagnostics position and potential for future growth. We expect both our K-RAS assay and our autism test to be additive to [unintelligible] revenues.

We are hopeful that some of our pharma programs will be expanded to larger clinical trial yet this year, thus enabling us to show additional growth in pharmacogenomic services revenues throughout the year. And we also expect that as we further develop COLD-PCR, the number of development projects and clinical evaluations that we have with pharmaceutical companies will increase. That includes my prepared remarks for this afternoon, and I'll now open up the call to your questions. Operator, if you would, please.

(Operator Instructions). One moment please for the first question. And our first question will come from Christina Bedrij from Griffin Securities.

Good afternoon, Craig and Deb.

Hi, Christina.

Hi. Obviously congratulations on the progress on so many of these fronts, and thanks for taking my question. And thank you for the presentation. I thought it was a great one today. And I was just hoping that you could maybe expand further on your developing test kit strategy, especially now that you have your COLD-PCR technology and, in terms of your cancer gene mutation kits.

But also, I don't know if you can talk about it, but what are the primary, current, and future indications you might be exploring for the COLD-PCR, in terms of blood, but maybe even saliva and urine-based testing? And finally, you mentioned the p53 tumor suppressor protein and things like that earlier on the call, if you could just expand on that further that would be obviously greatly appreciated.

Okay. I think that's a complex question, but it's a great one. So, one benefit of our SURVEYOR technology is that it will detect any mutation, or difference, that exists in a sample that you're measuring. And it's very sensitive, certainly more sensitive than typical sequencing that's done in 95% of the labs in the world. So, that's already an inherent improvement over what one would normally get when trying to measure a patient sample.

But, even then, that isn't accurate or sensitive enough to get to the ultimate goal that we have which is the ability to find these mutations in circulating DNA, in blood, or saliva, or urine, as you mentioned. So, the ability to extend that sensitivity substantially by using COLD-PCR is a wonderful combination. And as such, we look at, beginning with the K-RAS kit that we're developing now, or we've developed and launched, now we'll apply COLD-PCR to that K-RAS kit and can get even better sensitivity.

That's been very exciting to some of the pharma partners that we've approached. And we've already done studies there and have others ongoing. The other side of this, or the other side to your question is that K-RAS is just the first protein that's well-known to confer resistance to anti-EGFR treatment in colon cancer. But, there are two other important genes, I did mention them in my presentation, BRAF and PIK3CA.

Yes.

Those also confer resistance to anti-EGFR treatment in colon cancer. And by extension, also in lung cancer. So, the two-fold answer to your question is that we are certainly developing all of the pathway genes that are important in current medication selections. And soon, future medication selections, because we know there's a variety of therapeutics being developed throughout the EGFR pathway but also other pathways. And our SURVEYOR technique allows us to efficiently test for those.

And then, we can apply COLD-PCR with each of those to get even more sensitivity, particularly as some of the cancers require that, because they're, for example in lung cancer, very small tumors with very low mutant load. And I think the last thing to note is that the SURVEYOR technology is really one of the only few vehicles that you can use, again coupled with COLD-PCR, to look at complex genes, like p53, which are known to undergo many more mutations than some of the more simple genes, such as K-RAS or BRAF.

In fact, in K-RAS, there's only six positions in that gene where there are known activating mutations. And so, it's a, I'll say, relatively easy test to develop. And if you're using some of the competing techniques, you need a specific assay for each potential change. But, that's six assays. When you get into a gene like p53 that can have dozens of activating or gain-of-function mutations, you need to be able to test for all of those, and now you're talking about 20 or 40 reactions.

And quite quickly the other technologies lose their ability to be efficient and cost effective. So, that's why we're excited about the combination. And we're certainly excited about filling out that menu of cancer pathway genes as quickly as possible.

Right. Obviously impressive, and I guess, do you see it as equivalent, in terms of a diagnostic tool, at this point, to invasive technologies, or invasive techniques?

Well, yes, I see it as equivalent. But, there will have to be adoptions of the technique and certainly much more significant validation.

Yes, yes, but that's huge.

And we're undergoing that already in terms of some early on discovery projects with some pharma partners, where we're looking at mutations in blood, versus the mutations in the actual patient tumors. We actually have one study that we're starting where the patient's tumor DNA is no longer available. So, if we can find the mutations in blood, this will actually resurrect and save their study. So, that will be very exciting, and a good proof of the principle that we're trying to apply. But, when--.

--Is that one of the three new ones that you mentioned--?

--Yes, it is.

Yes. Okay, all right.

Or that's a component, one of them. So, in all cases, these techniques have to be well-documented and validated and published in scientific journals. And all of that is required before they become standard of care in current clinical practice. But, it's certainly our goal to be able to do that. And by having these base technologies, the body fluid that we look at is somewhat immaterial to us, as long as there will be circulating DNA.

So, saliva's actually an easier sample to obtain than blood, in every case, and easier to ship and transport. And so, therefore, more cost effective and more patient-centric. So, we're anxious to look at that, as well. But, it will still have to be done.

Well, thank you. That's most helpful. And I'll come back if there's time to ask another question.

Thanks.

Okay, thanks.

(Operator Instructions). Our next question will come from Darrell Weber from Wells Fargo.

Hi, Craig. Nice quarter. I have a couple questions, three, in particular. First one concerns the p53 pathway, which I believe the previous person asked a number of questions on. That's a big area. If you guys figure out a way to find drugs that are specific to this pathway, have you thought about the relationship with a pharma partner?

In other words, now while you're making the sale of the instrument using your technology, but if something were to come out of that, would you get any--or have you talked about getting any royalties on a drug that's developed? My second question, you mentioned there's $2 million in proposals. Do you anticipate that being shipped during the year 2010?

And the third question is, in the filing which you just put out, the 8-K, and also in your comments, you've mentioned that you believe demand will be high for your autism tests. Can you be more specific? Can you give us more color on what that means?

Good questions, Darrell, thanks. So, to answer the first question, there isn't much actually going on in the therapeutic area around p53. There are certainly some drug programs to actually try and inhibit p53 in cases where it's undergone activating mutations, or gain-of-function mutations. Actually, my view on that is, in the first clinical indication, much more prognostic. So, for example, in epithelial ovarian cancers, those patients that have p53 mutations just do worse than patients that don't have p53 mutations.

And then, in pancreatic cancer, for example, where there are 95% K-RAS mutant positive cancers, once that p53 mutation set occurs, those cancers go metastatic very quickly. So, it's a good measure we see early on for just looking at how this cancer will progress in these individuals, and thereby, we hope, directing more aggressive or less aggressive treatments.

And then, as more treatments become available, I think that's when we'll have better documentation of the assay working with COLD-PCR and alternative body fluids, hopefully as a screening test, and in that regard, if and when we start those pharmacogenomic studies. Now, in contracting, it would be great to position it so that we do get a royalty. But, we aren't at that stage yet. But, I will definitely now include that in our plans. As regards to the 2 million contracts in 2010, certainly some of those will be realized.

And we expect that backlog, or at least that proposal level to increase quarterly. But, no, I don't think that all of that will be realized. We certainly have projects that are ongoing that will be realized. And as some of these projects run out, for example, at clinical trials some of these trials take one to two years to run. And recruitment is certainly the same problem that we and the pharma companies suffer from, as they try and find the patients that fit into their clinical requirements for getting treatment and then looking to see what the outcomes are.

But, we are definitely anticipating a significant increase, even to the tune of doubling our pharmacogenomic business in this year compared to last year. And lastly, the demand on the autism test, working with the partner that we have, they've been researching this area for roughly three years in the US. So, we've been going to the pediatrician meetings and the child development meetings, and the autism meetings and showing the clinicians about their developing data.

So, instead of just launching a new assay and going out and looking to educate physicians, there actually already exists some knowledge of this assay in the market. And IntegraGen has been marketing this assay, as I mentioned, and has a list of many interested clinicians that will begin ordering the test when it's available, as they have patients. It could be that some of them learned of this test two years ago and might've had a patient at that time, so they needed the test ordered.

But, those will certainly be primary targets for us to go and educate that the test is available. Now, the total market for this test is roughly $30 million to $40 million, we believe. It could be higher. But, there is roughly one in 110 newborns are diagnosed with autism. I believe the number of newborns in the US is 4 million today. So, it's a very simple measure to say there's 40,000 newborns that develop autism annually, and at $1,000 a test, there's the total market for this assay if we were to get 100% of the testing.

And that really is just a strict function of how many individuals suffer from the disorder. And I might have that number wrong in the top of my head. But, in terms of demand, we expect, of course, when we launch the assay, to begin a very heavy marketing and public relations effort.

And hopefully media relations, where the popular press learns about the test, in combination with this being Autism Awareness Month, such that that patient awareness will help drive parents to look for clinicians that will offer the test, if they're worried about their second child having autism, or an autism risk, after the first child does. So, in terms of a forecast, there is only so much you can do at launch. But, we certainly see the ability for potentially $1 million to $2 million in sales yet this year. And more than double that next year.

If this test were to expand rapidly, you would have capacity to do the tests, correct?

Yes, we do. And in fact, we could add that further capacity quickly. So, we don't have any concerns on the capacity side of this test. Once it reaches 40 million I guarantee we'll be able to support that, as well. I think the other thing to note which is important is that we've completed the license agreement with IntegraGen in just February. And so, it took us a very short time to develop the technique and validate it in our lab and work with the sample set from them to validate that the test works as required, and very accurately.

And so, then, we can move quickly into launch. So, I think we're a great partner in that regard. We already call on pediatric neurologists and neurologists. We're going to need to extend that into pediatricians, of course. But, that's something we certainly anticipate doing. And as interest rises in the test, we'll clearly add to our field sales team, as well.

Just one follow-up. You had mentioned that you're prepared to do a media public relations campaign. Could you be a little more specific on what we could expect, with respect to the autism product? And secondly, do you believe we'll get some endorsement from some of the autism organizations? Thank you.

Those are great questions again. Kim's on the phone, so Kim can actually tell you how they help in that regard. But, clearly this is an important assay. So, it's our expectation that when our media firm approaches national media sources, that they'll be interested in picking up the story. And I'll say I'm relying on that, of course. In addition, we expect to have marketing campaigns for this that include print media to the appropriate clinicians, as well as handouts.

Handouts for the publication that exist already, white papers that describe what the test does and how it works and what to use it for clinically, for end-users or clinicians. Third leg of that is actually to get key opinion leaders. Then, we're also of benefit here that IntegraGen has developed some of those key opinion leaders. One of them that worked quite closely with them during development of the assay and clinical validation has now switched roles and become the CFO for Autism Speaks.

So, I believe that we'll certainly have the ears of that organization. And this is all data driven. After assay functions well and it has to prove valuable in their diagnostic acumen, but, yes, absolutely, we believe that we'll get interest and support from the appropriate disease support organizations, because this is devastating diagnosis for their children. And there's a lot of interest around the area and lot of motivation. Darrell, thanks again for calling in.

Thank you.

My pleasure.

Our next question will come from Christina Bedrij from Griffin.

Craig?

Yes, ma'am.

Sorry, I lost you for a second. And I apologize if this was answered. Somehow I got off the line for a second. Can you just spec a little more what are the primary drivers of all this increased industry interest? In other words, from pharmaceutical companies, and is it mostly because you now have CRO capabilities which you didn't have before?

Or is it because you have the technology, which you have, but now you've added COLD-PCR? Or is because finally pharma's catching up, especially since they have all these inhibitor treatments that have arrived and require this kind of testing? I mean, what do you think are the key dynamics?

You've mentioned them all, but I'll add some color, because it is a great question.

Thanks.

When the WAVE was originally developed, 10 years ago or 11 years ago, it was the first product that would indicate on a very sensitive level that a mutation existed. Didn't tell you where it was. It was in this piece of DNA that you were studying, or all the mutations. So, it would show you there's more than one. And I think that what happened with that technique is that it was overwhelmed from a success basis by just straight sequencing. Everybody would just sequence everything, but they wanted it, and they wanted to sequence data anyway.

So, WAVE has a definitive audience and it has a great application and it's gained a lot of support in the market. But, sequencing was where everyone went, because they weren't as concerned about the sensitivity requirements of the test, or the sample that they were looking at. If a group looked at lung cancer and reported 500 mutations, that was great. That was new information. But, it really matters on whether they see an individual patient's tumor, and do they vary between patients.

And how do you then treat based on that, or select treatment? So, I think we're at somewhat of a perfect storm here. On one hand that [unintelligible] sequencing in many cancers is not going to be sensitive enough. And WAVE with SURVEYOR is. But, even more so, WAVE with SURVEYOR and COLD-PCR, or SURVEYOR and COLD-PCR as a kit that works on a different instrument platform, is much more desirable as a result. And so, in that regard, I think that we're now coming to a point in treatment selection where a very sensitive answer is required.

And it will be a little bit more confounding in the future, because, for example, if 1% of the cells in a tumor are resistant to your drug, you go ahead and give drugs. And previously maybe 10% were resistant, and they would give drugs again. So, we're going to continue to gain in complexity and understanding of when a drug works, when it doesn't and how to apply them in combination. But, bottom line behind all that, and the key driver is that you'll need to know what mutations are there to be able to select appropriate therapy.

So, that's becoming now well-known in the industry and in drug development. And the other side of it is that, I think, just time in [station]. We have been calling on pharma companies now for almost four years. And the extensive sensitivity story that we had didn't resonate with them, as well. And the other problem was if you're seeing a cut-off level of mutations, 10% to 20%, and someone comes with a 1% mutation, it's hard to prove that mutation's there sometimes.

So, there was some skepticism that we're now able to overcome. And so, you've got both of those factors contributing to the growth of our pharma business. And then, as you had said, we've added COLD-PCR to that, which is unique. And as such, I think, further [unintelligible] pharmas to look at us as a viable provider. And actually the fourth thing that occurred there is that we've improved our financials over the last four years, dramatically.

And as such, we now qualify as a financial--whatever financial guidelines some of the key pharmas have. And we are doing work with most of the top pharmas now, which is a reward, because some just couldn't shuttle the project to us previously because of our former financial position. So, you've got a good confluence of factors there. And that's helping drive that. And we have a couple of folks that are very active in that space, and doing a good job.

Well, congratulations.

Thanks, pleasure.

Thanks again.

Yes, thanks for your questions.

Thank you.

And there are no further questions at this time. Please proceed with your presentation or any closing remarks.

Right, well I definitely want to thank you all for listening to today's presentation, participating in the questions, and I certainly look forward to bringing [decent] results to you soon.

Ladies and gentlemen, that concludes your conference call for today. We thank you for your participation and ask that you please disconnect your line.