Precipio Inc (PRPO) 2011 Q3 法說會逐字稿

Good day and welcome to the Transgenomic third quarter 2011 financial results conference call. (Operator Instructions) Also note today's conference may be recorded. I'll now turn the program over to the CFO of Transgenomic, Brett Frevert. Please go ahead, sir.

Thanks, Blake. Thanks, everyone, for joining us today as we discuss the third quarter financial results. As a reminder, this conference call will be archived and accessible by both phone and Internet. Please refer to the press release, or you may go to our website, Transgenomic.com, for further details.

Our comments today will contain forward-looking statements. Forward-looking statements are any statements made that are not historical facts. These forward-looking statements are based on the current expectations of Transgenomic's management team and there can be no assurance that such expectations will come to fruition. Because forward-looking statements involve risks and uncertainties, Transgenomic's actual results could differ materially from management's current expectations. Please refer to the press release, our 10-Q, and other periodic SEC filings for information about factors that could cause different outcomes.

The information we present today is time-sensitive and is accurate only at this time. If any portion of this presentation is rebroadcast, retransmitted or redistributed at a later date, Transgenomic will not be reviewing or updating this material.

Joining me today are Craig Tuttle, our President and CEO, and Chad Richards, our Chief Commercial Officer. During today's call, Craig will provide an overview of our key business initiatives and then I will review our third quarter financial results. We will then open the call up for question and answers.

Thank you, Brett. Q3 was a great quarter for the Company. As many of you remember, after watching us for the last few years, Q3 is historically our weakest quarter of the year, as deep vacation schedules in Europe typically impact our instrument and consumables revenue and summer vacations also impact our reference laboratory business. As such, it is significant that we delivered a very strong second quarter, with growth across all three areas of our business. Our Clinical Labs Services, our Pharmacogenomic Services and our Diagnostic Tools.

As Brett will discuss later, we reported revenues of $8.3 million, representing an 87% jump over the same period of last year, an additional $500,000 or an 8.0% increase, over the second quarter of this year. Our strong topline performance year-over-year was driven by the successful integration of the FAMILION franchise, as well as organic growth in our Pharmacogenomics and Neurology Lab units, coupled with strong instrument sales.

Our topline performance, combined with our ongoing commitment to fiscal discipline, has put Transgenomic on a path toward profitability. Pro forma modified EBITDA, a measure which we believe accurately represents the strength of the underlying business, was at breakeven levels this quarter, an important milestone for the Company.

In addition, we took steps to strengthen our capital structure by entering into an agreement with the holders of our Series A Convertible Preferred Stock to amend certain terms of the preferred stock. The amendment will eliminate the liability accounting treatment, which drives the significant noncash expense that results from an increase in our stock price and changing the presentation location of the preferred stock and warrant from their current classifications to shareholder's equity.

This modification will have a significant positive impact on the Company's balance sheet and future financial results. The pro forma effect of this amendment, as September 30, 2011, is to increase shareholders' equity by $12,996,000 from a reported deficit of $1.5 million to a positive $11.491 million.

Our financial performance for the quarter clearly underscores our continued success in executing our business strategy, which stresses our ability to integrate key acquisitions, launch new products, and manage towards the bottom line while investing in what we believe are some of the most groundbreaking new technologies in our industry. I will speak more about that in a moment.

First, I would like to take some time to discuss each of our business units and review key corporate developments, beginning with our Clinical Lab Services business, which includes our FAMILION brand.

As many of you know, our FAMILION franchise includes 11 tests for inherited cardiac disorders. Sales for this unit have continued to grow over the course of 2011 and, combined with our Neurology Laboratory Testing business, have achieved a combined sales total of $4.1 million in the quarter. As the one-year anniversary of the close of our FAMILION acquisition approaches, we are clearly benefitting from the operating efficiencies and the leverage this lab business promised to deliver.

In this short period of time, we have successfully integrated two businesses, which were losing nearly $8.0 million a year, and brought them to breakeven on a modified EBITDA basis, and I commend our extended team of great people for this accomplishment. And there's significant room for growth.

As we have spoken to before, new guidelines were published this May by the American Heart Rhythm Society regarding hypertrophic cardiomyopathy testing, which we refer to as our HCM test. These new diagnostic guidelines have been very favorably received by cardiologists and strongly support the use of some of our key cardiac tests, including our HCM assay, to better diagnose patients at risk.

We are planning a major presence at the American Heart Association Annual Scientific Sessions meeting, which begins this weekend. At this meeting, we plan to launch our now clopidogrel for a Plavix response tests. As many of you may know, Plavix is the second-largest selling during worldwide to prevent clotting.

Following FDA's addition of black box warning to its label, however, it is becoming increasingly important to determine which individuals are less likely to see benefit from use of this drug and are, therefore, more susceptible to heat attack, stroke, or cardiovascular death when being prescribed this or other competing platelet-aggregation inhibitors. We will provide greater detail on our technology in an upcoming release that will coincide with the American Heart Association meeting.

The key for Transgenomic's success in clopidogrel testing will be our unique ability to combine the well-known liver and metabolism biomarker, CYP2C19, with our proprietary biomarker ABCB1, which we acquired rights to as part of the clinical data acquisition. We are using this exciting new test offering to broaden our sales efforts in cardiology, where we hope to gain additional interest in our HCM test and other key familiar assays at the same time that we discuss our proprietary Plavix response test.

Our Neurology testing also continues to outpace historical levels. Net sales for the neurology tests were up 17% over the third quarter of 2010. This is due to continued penetration of this market by our expert commercial team and the continued development of high quality and informative assays.

As we announced in June, we launched a new second-generation sequencing-based mitochondrial assay we trade-named the Nuclear Mitome Test. It is a 400-gene screen of the nuclear genes linked to mitochondrial function. Not only has this test been very well received by mitochondrial physicians and has a current list price of $17,000, it has helped and will continue to help drive significant sales in this division. This test provides very useful clinical information at understanding the underlying disease that physicians have to deal with in diagnosing patients afflicted with mitochondrial disorders.

Turning to our Pharmacogenomic Services business, pharmaceutical interest in our Genomic Services remains very high, with our breakthrough ICE COLD-PCR technology serving as a catalyst for new contracts and repeat business. Based on the timing of when projects arrive, or when specimens arrive, we clearly see some variability in quarter-to-quarter revenues.

That said, our average growth rate in this business shows a doubling in year-over-year revenue. Contributing to this are both a better understanding of the application of pharmacogenomics in cancer treatment across the industry and the growing number of key pharmaceutical partners in this space who see the unequaled strength of our technologies, both in terms of sensitivity - the highest in the market - and comprehensive scanning ability for the ability of our technologies to find all the mutations in the target genes of interest. I will speak to this more in a moment.

Continued growth in this area, we expect, will not only make it a very profitable business, but will fuel exponential growth in our Reference Laboratory and Kits businesses, especially the opportunity to enter into companion diagnostic product agreements with some of these pharma partners in supportive treatment selection for patients who will be tested to determine if they will respond to these pharmaceutical companies' new drugs.

For our Diagnostic Tools business, we reported strong revenues in the quarter, reflecting some carryover in instrument sales from the second quarter, which occurred early in the third quarter and combined with strong instrument and consumable sale in the quarter. It is important to note that each instrument sale translates into additional revenue for our Consumables and Service contracts, providing a stream of repeat revenue going forward.

In terms of growing our Diagnostic Tools business, we recently announced two significant distribution agreements, which will help to expand our footprint in key markets.

On November 7th, we announced a distribution agreement with A. Menarini Groups, Menarini Diagnostics Division, for the sale and marketing of our WAVE MCE instruments and consumables and our SURVEYOR Scan mutation detection products in the European Union. This transaction has significant revenue potential; enough, we believe, to reach several million euros a year in sales over the next several years.

We also announced just yesterday an agreement with ScreenCell, a Paris-based company, for the sale and marketing of its ScreenCell filtration device portfolio. ScreenCell filtration devices are devoted to isolation of circulating rare cells such as circulating tumor cells. Which may simplify and improve noninvasive access to tumor cells from patient blood for use in early diagnosis, disease monitoring and recurrence monitoring, employing our ultrasensitive mutation detection technologies for assessing mutations in these isolated circulating tumor cells. Or, as we call them, CTCs.

We will initially market these devices to pharmaceutical and research organizations, as research interest in CTCs is quite high for both groups and we will also continue our application work to apply our mutation detection technologies to these captured CTCs for developing combined assay kit products for CTC mutation testing. A proof of concept study for this approach was completed at the Dana Farber Cancer Institute and these data were presented at both this year's AACR and ASCO cancer meetings.

That brings me to one of our core growth initiatives. That is the opportunity we see in oncology pharmacogenomics and the investment we are making in this area. Transgenomic has a very proud 13-year history of market leadership in DNA mutation detection and discovery. Our technologies are both sensitive and detect very low mutation levels, as well as enables scanning for all mutations in a specimen.

This approach differs from technologies which are targeted for known mutations only, an obvious handicap in a disease like cancer where each patient's cancer is unique and demands highly sensitive mutation scanning for early detection of important genetic changes.

The combination of our technologies, WAVE Systems, SURVEYOR, BLOCker Sequencing and ICE COLD-PCR, enable us to create breakthrough technologies for enhancing the ability of Sanger Sequencing, the most familiar sequencing method in industry and academia, to detect and identify mutations at, or significantly beyond, the levels achieved with allele-specific probes, or by employing ICE COLD-PCR and BLOCker Sequencing, even next generation sequencing technology.

So, combining BLOCker and ICE COLD-PCR, we can achieve the highest sensitivity mutation detection in the market, all on standard Sanger Sequencing instrumentation without any change. The power of this from both a research and commercial perspective cannot be understated.

Furthermore, we can achieve this level of detection in blood and other fluids, rather than through painful and often dangerous tumor biopsies. A fluid or blood-based biopsy carries a number of obvious advantages; including safety, as well as the ability to more frequently, more accurately, and less invasively monitor each patient for response to therapy and for resistance.

Our agreement with ScreenCell provides for the exclusive use of their technology in combination with ours, further enhancing this capability by enabling testing of circulating tumor cells, as well as circulating mutated DNA for blood.

On the market today, there are several panels that are essential for diagnosing and then determining which drug the cancer patient will respond to and that list is growing almost daily. That said, we know that for example in colon cancer, 40% of the patients have K-RAS mutations that cause resistance to drugs like Erbitux and Vectibix. Unfortunately, another 10% harbor N-RAS mutations that also confer resistance and mutations in the PIC2CA gene are responsible for about 6.0% more of the resistance seen from colon cancer patients and so on.

So, to find what a patient would be resistant to, their tumors would need to be consistently tested for all of these potential resistance-conferring mutations. Today, generally only K-RAS is tested routinely and then not for every patient. Clearly, as the market for personalized medicine develops, there is tremendous potential for more comprehensive genomic testing to support accurate drug selection.

In colorectal cancer alone, both for clinical trials and the broader market, we see a potential market taking shape that could be very large, at least $100 million, when all of these resistance-conferring mutations are monitored appropriately. Other cancers and other emerging data about key mutations and means of targeting them suggest that similarly-sized markets should emerge in a variety of other cancer indications.

So our effort to strongly participate in this market takes on several components for a thorough foundation. We continue to invest in key technologies and intellectual property, such as our exclusive acquisition of licensing rights to the PIC3CA assay, our agreement with ScreenCell and our licensing of ICE COLD-PCR to help build panels and products that are unique to us.

Our development efforts to date have led to the development of five ICE COLD-PCR assays that we are now offering to pharmaceutical partners and include a K-RAS mutation kit, which we will begin beta testing in the next quarter. This first kit will be combined, shortly, with ICE COLD-PCR kits for mutation detection in additional cancer resistance-conferring genes called D-RAF and PIC3, plus several additional tests which will be available soon.

We will continue to convert ICE COLD-PCR assays from our Pharmacogenomics Lab into kit products for direct sales worldwide, providing laboratories everywhere the most sensitive mutation detection technology employing all the instrument tools that they already have in their labs.

By demonstrating the medical and pharmacoeconomic rationale for treatment decisions with existing and emerging therapies, we hope that our technologies will help shape the future oncology treatment landscape, while providing for great progress in the treatment of these diseases. Everyone in the healthcare chain of cancer treatment, from patients to providers, wants the most effective treatments given to patients who will respond best to them and, conversely, not treating patients with drugs and other treatment methods that they will not benefit from.

In summary, we had a great quarter, with progress on each component of our business. We remain pleased with the continuing development of our three core businesses and we're very excited about the prospect of our emerging technologies. These technologies and their tremendous value potential come into sharper focus every day.

Let me now turn the call over to Brett for a detailed review of our financials. Brett?

Thanks, Craig. Let me begin with a quick review of the third quarter results.

We reported revenue for the third quarter of $8.3 million, an increase of 87% compared with $4.4 million for the same quarter of last year. This was also an increase of 8.0% over second quarter of 2011. For the nine months ended September 30th, total revenues were $23.4 million, an increase of 56% compared with $15 million for the same period last year.

Sales for the FAMILION franchise were $3.0 million for the third quarter, up 11% over the second quarter, and for the first nine months of the year FAMILION net sales were $8.0 million.

For the third quarter, we reported $1.1 million in net sales related to our Neurology testing unit. Although this is slightly lower than our second quarter levels, it is still higher than our historical averages and we expect revenues to remain high. In fact, for the first nine months of 2011 we reported $3.0 million in net sales, which is higher than the $2.8 million reported during the same period last year.

We reported $552,000 in revenue related to the Pharmacogenomic segment. This was lower than the second quarter, which we talked about earlier as being a breakout $1.0 million quarter. So the $552,000 was lower than Q2 due to the timing of the large-scale clinical sample testing for a major client in second quarter, which produced the record level $1.0 million for that unit.

Aside from the quarter-over-quarter comparison, we continue to experience growth in this area of the business. For the first nine months of 2011, we have increased revenues from our Pharmacogenomics business to $1.8 million, an 85% increase over 2010.

We reported $3.6 million in the third quarter related to the Diagnostic Tools segment, which, of course, is comprised of Bioinstruments and Bioconsumables. Bioinstruments include the actual technical instruments themselves, as well as the service contracts and that increased to $2.3 million from $1.4 million a year ago, driven again in part by the timing of some of the instrument orders that Craig mentioned earlier.

Bioconsumables were $1.3 million for the quarter, down from the $1.8 million a year ago. For the first nine months of 2011, revenue from our Diagnostic Tools segment totaled $10.1 million; comprised $5.4 million of Bioinstruments and $4.7 million in Bioconsumables.

Total Company gross profit for the third quarter was up to $4.4 million, or 54% of net sales, compared to $2.0 million, or 46% of net sales a year ago. For the nine months ended September 30th, total gross profit was 56%, compared to 49% a year ago.

Clinical Labs had a gross margin of 60% of net sales during the third quarter of 2011, compared with a gross margin of 27% during the same period last year. For the first nine months, the Clinical Labs margin was 59%, compared to 42% for the nine months of last year. The increase in 2011 is due to higher revenue, which directly impacts the margin.

Operating expenses were $4.9 million during the third quarter of 2011, compared to $2.8 million during the same period of 2010. Operating expenses increased, primarily due to the acquisition of the FAMILION business, including the noncash charges of $300,000 related to the amortization on the intangibles. Operating expenses for the nine months ended September 30th were $16 million, compared to $9.6 million during the same period last year.

We reported a net loss for the third quarter 2011 of $1.5 million, or $0.03 a share, compared with a net loss of $898,000, or $0.02 a share, for the third quarter 2010. For the nine months ended September 30th we reported a net loss of $10.9 million, or $0.22 a share, compared with a net loss of $2.4 million, or $0.05 a share during the same period last year.

The increase in the net loss for the first nine months of '11, compared to 2010, is attributable, in part, to the noncash preferred stock valuation charges of approximately $6.9 million, amortization-related to the acquired intangibles, stock options, and interest expenses.

So, with all of that, I'd like to call your attention to our pro forma modified EBITDA, in which we strip out all of those. We view this as an appropriate and sound measure of the real business results.

For the third quarter we achieved breakeven on a pro forma modified EBITDA basis and actually, slightly positive at $29,000 for the third quarter of 2011 compared to a loss of $1.4 million in the third quarter of 2010.

A September 30th, we had working capital of $3.6 million, including cash and cash equivalents of $1.4 million.

At this point, I will now turn the call back over to Craig.

Thanks, Brett. So we had a very positive third quarter and are pleased with our financial performance year-to-date, particularly as it relates to the integration of the FAMILION business. We are making great progress in our efforts to generate additional topline growth as we expand into new markets and launch new product offerings in all areas of our business.

Most importantly, we are focusing on maintaining our leadership position in personalized medicine by bringing in and developing cutting edge technologies that capitalize on the most recent relevant discoveries in molecular genetics. We look forward to updating you on our efforts in future calls.

Before we open the telephone line to questions, I wanted to remind you of a feature which we have added to our website in the "Investor Relations" tab. We have a "Text Box" link there where you can submit questions for this earnings call.

We will now open the call to questions. Blake?

(Operator Instructions) Matt Hewitt, Craig-Hallum Capital Group, LLC

Good afternoon, gentlemen.

Hi Matt.

Hi. Congratulations on hitting the EBITDA, adjusted EBITDA profitability in the quarter. I know it's something that you guys have been striving for and it appears almost a quarter earlier than maybe that you had anticipated. I've got a few questions here.

First of all, you showed pretty good expense control here in this quarter, in particular. Would you say that this is a more normalized run rate or are there some additional synergies that you anticipate garnering from the FAMILION acquisition?

I would have to say that this is a good normal run rate for the business. We have completed our integration of almost all of the CLIA testing performed in Omaha into the New Haven laboratory and therefore don't expect significant increased operating efficiencies. However, of course we continue to work in that area and always look for appropriate technologies or solutions that increase our throughput levels.

Okay. Alright, thank you. I guess getting to some of these opportunities that you're excited about, I think we are more excited about, the WAVE MCE, I believe that -- I know you just launched it, but I would imagine that you've had some initial feedback at least. What can you tell us along those lines?

We've actually employed similar technologies to the WAVE MCE I our lab, here in Omaha for quite some time, with very successful results. Because the technology, Micro-Capillary Electrophoresis, enables us to actually accelerate the testing that we wouldn't normally do on other technologies here.

So, from that, we had a good, sound basis for using our SURVEYOR Scan assays and therefore are now our SURVEYOR Scan kits on a very similar platform, which we have now termed WAVE MCE. That system has already gone through extensive testing in our hands and then, of course, some relevant clinical trials leading up to the launch by Menarini Diagnostics across the entire European Union.

So our excitement really comes from the fact that Menarini has tremendous depth. By the way, it's although private, we believe they're roughly a EUR3.5 billion company, with a broad reach across worldwide, but in particular their diagnostics, which is very strong in Europe.

And their strategy here is to sell directly to pathologists and pathology laboratories, bringing the pathologists more deeply into molecular testing, compared to where they have been. Much to the same effort and solution or success that Genoptix and Clarient brought to the U.S. in a host of molecular testing around cancer. So, with that strategy in mind, we're very excited about the opportunity with A. Menarini Diagnostics.

Have you gotten any feedback from A. Menarini? Like I said, I realize it's just recent, but has there been an initial feedback from them as far as customer response?

We actually completed two clinical trials with them prior to completing the evaluation phase of the collaboration. And last week Chad Richards and I were invited to Paris, where they brought in 200 pathologists along with some world-leading experts in digestive system cancers, to portray the current state of the art in biomarker discovery and application -- or diagnostic applications to cancer. And there was just a groundswell of interest in both our collaboration, as well as the information that was provided.

So, I must say, I haven't participated in a launch of a collaboration and new product to that record level in a number of years. So, again, our forecast for that business really is based on their success, but it will run to the tune of several million dollars a year.

That's very helpful, thank you. As far as the ScreenCell announcement, obviously anything that's going to be driving increased adoption of your ICE COLD-PCR, the SURVEYOR Scan is a positive. But could you help us understand what is -- how do you view the initial market opportunity as you target the research and pharma companies and maybe longer-term, once I, guess, as it becomes more of a standard? Help us think about those two pieces.

Yes. That's a great question, Matt. There's actually three legs to that and to walk you through our strategy and what we've encountered to date, number one, we were made aware of the ScreenCell products through the Dana Farber and as such, applied our ICE COLD-PCR technology to circulating tumor cells isolated by their device in a collaboration with Dana Farber and ScreenCell. And those are the results that we -- I mentioned that we published at AACR and ASCO.

The way the ScreenCell device works, compared to - and it's in our press release - but EPCAM-based selection of differentiated tumor cells.

The ScreenCell device collects all rare cells circulating in blood, both mesenchymal cells, as well as the differentiated cells and unfortunately, also white blood cells and so they're just like in a tumor specimen. There could be a confluence of wild-type DNA and you need an enrichment technology like ICE COLD-PCR that can zero in on just the tumor cells and then diagnose or complete the mutation profile within them. It's going to be relevant for a diagnostic or a recurrence or disease monitoring.

So, when you combine ICE COLD-PCR with a device like ScreenCell, we think that that's one of the best options for monitoring patients and, conversely, of course ICE COLD-PCR can be used on circulating mutations in blood. So I guess what I'm saying about this is we cover both sides of the diagnosis modality of looking in blood.

The second leg on that I just want to go to is that in showing these results at ASCO and AACR, we were approached primarily by pharmaceutical representatives, pharmaceutical company representatives who were very intrigued by the technology and the capability. So, in fact, circulating tumor cell research is still in its infancy, but there's a tremendous amount of interest that was generated at both of those shows, primarily by pharmaceutical researchers. And as such, that's where we will begin selling the device, just because we have gained so many leads from those organizations where there's interest.

And of course, the third leg is then to go beyond those efforts just like we do with our ICE COLD-PCR strategy now, develop the assays for pharmacogenomics partners and then bring it into our clinical lab and perform the clinical validation studies that can convert them into actual products that we sell broadly.

So the future intent for this technology, on both ICE COLD-PCR in circulating blood and certainly ICE COLD-PCR on circulating tumor cells is to provide combined products with both the ScreenCell device and our ICE COLD-PCR kits.

As far as from a financial -- and that's great and sounds like a tremendous opportunity, but as far as from a financial is this going to be a slow ramp until you see some greater adoption? Or could this be step functions as you do more work, as papers are released, as it gains more buzz? How should we think about it from a financial perspective?

We clearly think that it is a step function, where the more data that become available proving the use of CTCs and clearly our technologies for completing mutation profiles in them gain traction, then we will see more interest. At the same time, just having the device available and having a distribution agreement in place allows us to begin selling it immediately, which we had not been able to do in reality, even though we were showing data combined with that product all summer long. Actually, from late fall over late spring.

So, we're glad to really have this agreement in place so that we can begin actual sales and we do have a number of interested pharma partners already who want to look at the device in CTCs.

Great. One more and then maybe I'll jump back in the queue. Last quarter you mentioned that there were a couple of large pharma contracts, or potentially large pharma contracts that you were in negotiation. Could you update us on the status of those?

Sure, Matt. I'll take that one. This is Chad. We actually received the LOIs back from the customer this past week. We need to review them from their legal content and then respond to the customer on whether or not we accept them as they are, but the contracting process is moving forward and we expect to have the final contracts for those completed, hopefully, by the end of Q4.

That's great. I'll jump back in the queue. Thank you.

Brian Marckx, Zacks Investment Research, Inc.

Hi guys.

Hi Brian.

If I gather it right, the Menarini deal is already into effect now and is Menarini selling the MCE instrument commercially now?

Menarini has -- we did the presentation this past Saturday and they plan to do sale training and actually launch the product among their sales team into the broader market in the first quarter.

Okay. And it sounds like this is -- you're pretty excited about this deal and I now Menarini and I know they're a big organization. But is it enough, do you think, to reignite the instrument business where it shows year-over-year growth?

We believe that that will be the case, yes.

Okay and is that -- do you think that's a 2012 event?

We should start to see sales growth from the Menarini agreement in 2012, absolutely.

Beginning in the first quarter.

Okay. Do you expect that the instrument business will show year-over-year growth beginning in 2012?

That's a great question. Our analysis right now is it's based on having that agreement with Menarini that it will.

Okay.

We expect continued sales with our OEM products in the cytogenetics area. We still continue to sell WAVE systems and we certainly service and sell consumables to WAVE users worldwide.

Okay. On the pharmacogenomics business, it came in significantly softer than what I expected this quarter. Is this more of sort of a delayed timing issue or is there anything fundamentally different today versus, say, two quarters ago?

I think the key fundamental difference is we've continued to expand the size and number of pharmas that we do services for and the way I looked at last quarter was that we received a very, or rather Q2, we received a very large order on a somewhat rushed basis. And so we hammered that one out in the quarter with a lot of hard work to get it done and that allowed us to reach that high level.

But again, fundamentally, we expect the business to continue at least at maybe you'd say at a minimum of the current level, with spikes that go up to that level or beyond, because of the larger projects that we have coming in now, but it is still and that's what we try and relate to, strongly, in all of our communications. So, this is a lumpy business, based on when -- not just when we sign a multimillion dollar contract, which we love to do, however, also, when we get samples in. And that is always at the expense of when we can start a project and we do rely on our pharma partners to bring those in.

Okay.

Also, it relates to when clinical trials start, when patients are recruited and then samples are available. So that adds to the complexity of that in terms of a planning process.

Brian, if you would and I haven't seen your model, obviously, but if you're looking at pharma, say from Q1 '10 forward, we were running 329, 310, 346 and we were kind of at that maybe a rough thumbnail average, rolling four quarters of 3.25 to 3.50. We had just again a blockbuster Q2 of the $1.0 million, but to come back --to come in to Q3 with 550 by historic standards is a phenomenal quarter.

Yes.

So the scientists over in pharma were still running full speed, by all means. We just didn't have them work until midnight and two, like we did in the million dollar quarter.

Yes, okay and it's tough to predict, based on timing from customers. I understand that. Okay. One last one on financing do you guys expect kind of in the near-term and you have some PDX health notes that I think are coming up. Is there an opportunity, do you think, to refinance those?

We will certainly look to refinance those at more advantageous rates, but if you question is around cash, we've added some cash. We're expecting some upcoming collections that will help us there and we do have the warrant with Third Security for $3.0 million. So, if we thin on cash, we will look for that as support and it's to them, in that case, but they're a very supportive investor.

Okay, perfect. Thanks a lot.

Pleasure, thanks.

Chrystyna Bedrij, Griffin Securities, Inc.

Good afternoon, Craig, Chad, Brett. Hi.

Hi Christina.

Hi and obviously, congratulations on a great quarter, too, right?

Thank you. We think that. We're just really happy with this quarter. This is a fun call.

Yes. First time in a long time. It's great and thanks for the comprehensive review and all the questions have been great as well. I just have a couple additional questions, if I could.

Please.

Okay, thanks. And I know you reviewed a lot of this, but maybe you can just summarize the lineup and maybe the timelines in terms of short-term and medium-term catalysts, your milestones, your product launches, what are the value drivers here and kind of what's the order?

Well, okay, come and write our strategy plan. That's a very thorough question and quite frankly, I have to do it by business segment, quite frankly. So, because of the immediacy, I would say the first to tee up in clearly our clopidogrel assay that we launch next week and the reason that we believe that that has strong economic value.

Number one, clopidogrel testing, based on CYP2C19, the liver biomarker, is growing significantly in the marketplace, after some time, certainly because of the black box warning that the FDA has put on it.

Yes.

But there's just -- and I was going to go into this so maybe you won't ask it or have to ask it, if you're interested.

I was going to ask it, but go ahead.

So I might as well lead into that, but there was paper published in JAMA just last week and it was even highlighted in Forbes, that a group in France did a four-year multicenter study on thousands of patients and what they found was that CYP2C19 is not enough for predicting all of the events that will occur following stent treatment. Basically a response to Plavix and actually the poor outcome of thrombosis and, as such, you really need to add ABCB1.

The issue with Plavix itself -- remember Plavix is going generic very shortly and will be a very inexpensive treatment option and is already the second-largest treated drug in the world. So it's a pro drug, alright. So that means that you have to metabolize it. That's why it's important to look at the liver metabolic pathway isodine, called CYP2C19, that metabolized it.

But the other side of that is actually you have to -- when you ingest it, because it's taken orally, you have to transport it through the gut wall and that's where ABCB1 comes in. So mutations in ABCB1 can be used to predict which patients will take the drug up better than others.

So, really, the outcome of the study is that you need to combine those two independent factors to have the best option and treatment prognostics for patients. And the point that I really want to make here is that ABCB1 is ours. It came to us through the clinical data acquisition and it's one of the key biomarkers from that acquisition that we've been leading up to launching, so we think that's a very significant launch.

And since it's a product and service test that we will be approaching all cardiologists with, we're certainly going to use that opportunity to leverage our expert FAMILION sales team that already calls on cardiologists, but with certainly a bias to the channelopathy cardiologists because of the genetic testing that we do. But we're going to broaden our mix for HCM and some of the other key assays that we have and introduce to these cardiologists more broadly. So we think we're uniquely placed there and --.

And that's this weekend or --?

Yes.

Okay.

Yes it is, beginning Sunday at the American Heart Association meeting.

Okay.

So that's the first to tee up and we think that's significant. The next to tee up, really, is we have pharma partners that are already interested in the ScreenCell device, so we're approaching them. There's actually ongoing right now a circulating tumor cell meeting in San Diego and we have our VP of R&D there, along with several representatives from ScreenCell and our pharmacogenomics sales team. So that's getting launched today, quite frankly.

Okay.

So, yes, thanks to move quickly and then most significantly, next up will really be the Menarini business, because that's truly a significant business. They will be placing orders for instruments quite soon and as those move out, then replacing that and then the kit sales will tail that a little bit, but will occur very shortly thereafter.

So, I think those are the three keys that we're planning on, but then, of course, ICE COLD-PCR, the first kit for K-RAS is now done from development and we're beginning clinical trials of that, I think, in two weeks.

Are there any big labs interested in that, or?

There's really big labs interested in it, but I can't go into beyond that.

Okay.

And again, the benefit with that technology is that if you have -- and this is -- I forget what the total is, but at least 20,000 labs across the world, globally having Sanger Sequencing equipment in their lab. If you have Sanger Sequencing setup, you can run ICE COLD-PCR and thereby gain sensitivity beyond what you with the next generation sequencing.

So this really, I think, one of the most promising targeted sequencing or target enrichment technologies available. And so, that will begin with just K-RAS and B-RAF and PIC3CA shortly thereafter and then we'll continue to flush out that menu from the assays that we're running in our pharma lab. So, every time we get a request from a pharma group, we turn that into an ICE COLD application and then we convert that to a kit, if the market demand is there.

Okay.

I think the last thing we're going to do is start offering molecular profiling services in cancer based on our use of these key genes, which is certainly new from us as well. That will be more closer to second quarter next year.

Second quarter. That's a good lineup. And if I could ask another question?

Of course.

Okay. And Chad mentioned this a few minutes ago, so he opened it up. You talked about getting an LOI this past week. Is that a transformative LOI? I don't know if you can talk to it. Are we talking a small lump or a big lump?

No, I'm sorry. Maybe I used the wrong word. Is it (inaudible - background noise) a contract for a pharmaceutical project.

Okay. Any more detail on that, or not?

(Inaudible - background noise) big. We think that the two contracts that we're working on right now will be about $1.0 million each.

Okay, so that's -- those are good contracts.

Yes, they're both Phase III trials.

Okay. That's good. That's great, thanks.

But to build on that, Chrystyna, we have others in discussion and again, the best take home note from that business and how its matured is that we truly now are doing studies with, not every quarter, but with every major pharma. So that's been the transition that we've wanted in that business and by offering ICE COLD-PCR we're gaining additional interest.

(Inaudible - multiple speakers)

And part of the interest driver, one of the key interest drivers is that the FDA only accepts Sanger data, so clearly all the pharmas that we've spoken to are interested in using a selection technique for their trials just looking at blood and that just gives them a lot higher efficiency. They don't need to deal with the tumor and biopsies and slides and small tumors, biopsies at times that they run out of and then have difficulties in their trials. So that's where we're seeing continued our expanding interest.

Yes, I think it's going to be big. But anyway, just one more and I'll get back in the queue. In terms of, well, the amendment, that's great, clearly a positive and nice on the PS's part. But, anyway, what are your plans, I guess, for a major market listing?

There was two criteria to hit the New York Stock Exchange, AMEX, and those are $2.00 a share and no negative shareholder equity and so this very supportive agreement with their security removes all of that negative shareholder equity as an issue completely. It cleans up the balance sheet nicely. And the other is we have to hit $2.00 a share, at least to be other American exchange and I believe $5.00 to hit NASDAQ. So, if the interest in the stock increases even more so, we'll look for that to occur.

We don't have plans to at the moment, to look at it in reverse, to try and get on an exchange. We think that the value in the stock and as we continue to haves quarters like this and even better in the future, that that will drive the stock up to a level where we'll reach a market or reach an exchange.

Agreed. Anyway, thank you very much and that's great.

Pleasure. Thanks.

Thanks.

Mark Merrill, Griffin Securities, Inc.

Hi Mark.

Hi, good afternoon. Yes, hi Craig, Brett and Chad. Thanks so much for taking my questions and congratulations on all the recent progress.

Thank you.

I just have two quick questions for you. I'm wondering if, first, you could provide a bit more detail on how your ultrasensitive technologies could be used with pharmaceutical partners in the companion diagnostic setting, both from a business strategy and scientific perspective. And maybe your thoughts on some of the key market opportunities there and your plans for approaching those markets.

That's a great question. The answer is a little broader than I think first blush. Number one, we are developing ICE COLD-PCR from the techniques that we've been offering to pharmas now for almost a year and we'll continue to build kit products that then can be used in clinical validations or clinical utility studies with academics to get publications that will drive more demand for ICE COLD-PCR and its associated products with pharmas, as we work with them, to show that they can test in blood. And therefore, select patients for trials where they know they will, or they will surmise if they respond, based on looking in blood.

And the third leg, quite frankly, is t them begin selling these kits ubiquitously, worldwide. Coupled with BLOCker sequencing on Sanger Sequencing platform to anyone who's interested. And of course that'll be driven early on by researchers or academic partners or just pure academics that will publish and/or begin to offer this in their services. And then the last leg there is if pharmas have good success with these, they will certainly want to turn them into companion diagnostics and that's the last tier that I think is going to take a little longer, but certainly offers the greatest opportunity.

Okay, thank you and, well, I had a question about blood, but you spent a lot of time reviewing blood samples, so --.

But I'd add, just to add to it, because you did as, Mark, and apologize for not answering completely. What we see right now is the opportunity to just find these circulating mutations in blood, or, fortunately with the ScreenCell device in circulating tumor cells and to provide our unique solution in terms of very sensitive mutation detection.

But the next tier of that is to then, with validation in the market, to start looking at characterizing patients using blood rather than the biopsy and/or repeat biopsies in particular. So another advent from these technologies is we hope to see as an emerging interest is in a term that's been coined is liquid biopsy and quite frankly, what you're doing is monitoring a patient's mutation profile based on circulating mutations or circulating tumor cells, and hopefully, the change in those that occur during treatment.

So it's not impossible to repeat biopsy patients, but it certainly is dangerous and expensive, so if you can do that just by looking at a blood sample or circulating tumor cell samples, all the more power to the technology and therefore the economic benefit. That's certainly a benefit to the patient as well. So that offers a really big win for everyone involved.

Okay, thanks so much for the clarification there. Lastly, just quickly, I'm wondering which of your technologies and/or products do pharmaceutical partners find the most exciting or they're most interested in when they come across you and they year about you?

Yes. Right now, I would have to say it's split between circulating tumor cells and ICE COLD-PCR and/or the combination of those two. So that's great, because that's where we're heading with the combined direction.

Okay, well thanks so much and congratulations again on the quarter.

Thanks, Mark.

[Bob Dolph], Webster Bank

Yes. Hello. This is Dolph and I was wanting to ask about -- initially, I think, Craig, a year ago you gave guidance. You thought it would be, after the acquisition of clinical data, you believe that we'd be looking at $35 million to $38 million in revenue for the full year and is there any possible way you can get to that? You're at $23 million now for the last nine months. Another $8.0 million would be closer to $31 million and that would be inside your low range. Any comments on that?

That's a great question. I will say that, with the integration that our FAMILION got off to a little bit of slow start. There was a lot of testing done, as there always is, the year before, at the end of patients' copays and what have you. So the beginning of the year is always a little slower.

That said, though, the business has now finally reached the level we predicted for it or had hoped for it to be at this point and clearly we hope to maintain at that level and grow it, but the actual, the answer is we think we'll have a good quarter. We're not giving guidance, but certainly we hope to have a quarter as close to this one, so that's where we expect to revenues to end for the year.

Okay. Thank you.

Matt Hewitt, Craig-Hallum Capital Group, LLC

Just a couple follow-up questions. First, the new Plavix response assay that you're going to be launching here it sounds like this week. Do you have any sense -- or what is the overall market size or how should we be thinking about that from a financial market opportunity?

That's a good question. There's two issues that make us hesitate to respond. One is that clopidogrel testing, or Plavix testing using 2C19 has to date been a little bit slow for adoption, even though there's a black box warning and treating cardiologists and/or other folks prescribing Plavix, particularly in GPs, don't really understand the black box warning and even in genomic testing for the most part and that's just the state of the art. As such, it's a little bit difficult to reach everyone in that case.

In stents it's much easier to predict sales, because we know the number of procedures. We know typically the physicians or cardiologists that are active in that and can reach them with our sales team. So that said, we don't have a forecast for where we're going to hit in 2012 with this, but we're certainly working on it. I wish I had a better answer for you.

Well, from our -- I guess just in general, not -- just a broad base. Is it a $50 million annual market opportunity that, as you see increased awareness of the black box warning, it could grow to $100 million? Just a real general ball park, how do I get a sense for how big this market is?

I have seen predictions for the market and if all patients were tested, in the $500 million level.

Okay.

So that's pretty clear, because it is the second most prescribed drug in the world. So, unfortunately, the uptake has been a little slow and as such, we think the current market and I have to look to some of the competitive labs that offer 2C19 testing alone and we think it's roughly a $10 million level at the moment.

Well, that's helpful. At least it gives us a general idea of where it is, where it can grow to. To more, one the Nuclear Mitome test that you launched in the quarter. I know that you had a backlog that you were expecting to complete in I think it was the September month. Have you been able to back fill that and what has been your initial feedback from the payers as far as a reimbursement rate? Is it in line with what you had been expecting? Or what can you tell us along those lines?

I think it's exactly as we anticipated. Some of the payers understand genetic testing and CPT Code stacking and so we know one payer has paid and Medicare has paid, so -- and we know that the reimbursement level that those payer have provided. Other payers put it into a better or deep analysis category and those analyses are going forward.

Okay. That's good and then lastly and I realize that you don't provide guidance, but as we start to think about 2012 topline growth rate, obviously it'll be a normalized growth rate. You won't have the distortion from FAMILION. How should we be -- I mean, should we be thinking and obviously there are a number of variables that will come into play, but base case, I mean, is this -- do you see your topline growing 10%, 20%? How should we be thinking of it in general terms for a growth rate next year?

Of course, Matt, I'd like to 87% every quarter. We're going through that exercise, actually, in a couple of weeks to start building the plan for next year, but we kind of look at -- if we take our current run rate, which we believe we can at least keep static. But our plan is to grow the FAMILION business, to continue growing our neurology business and then some of these individual opportunities that should grows substantially.

Our HCM test and the Plavix test next year, coupled with Menarini, I don't know if it's a $2.0 million or $3.0 million or $5.0 million opportunity in 2012, but we certainly know that that's going to grow and we think grow dynamically. We're looking at other assays to load into that and that WAVE MCE platform as well and some that have substantial growth opportunities. So we'll build that model relatively soon, but clearly we believe that there's good growth opportunities for next year.

ICE COLD-PCR kits, pharma, we already know we have some clinical trials that are much bigger than we've done to date, so we expect that business to continue growing.

So, again, across all the areas of the business we see growth and again, if we can provide guidance we will certainly do so.

Alright. That's helpful. Thank you.

Pleasure.

And it looks like we have no further questions.

Great. Thanks, Blake. Well, with that, I'd like to thank you all for participating on the call, for the great questions that you asked and I look forward to speaking to you again next quarter. Thanks.