Strata Skin Sciences Inc (SSKN) 2012 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the MELA Sciences' second quarter financial results conference call. Today's conference is being recorded.

This presentation includes forward-looking statements within the meaning of the Securities Litigation Reform Act of 1995. These statements include, but are not limited to, our plans, objectives, expectations, and intentions of other statements that contain words such as "expects", "contemplates", "anticipates", "plans", "intends", "believes", "assumes", "predicts", and variations of such words or similar expressions that predict or indicate future events or trends or that do not relate to historical matters.

These statements are based on current beliefs or expectations and are inherently subject to significant known and unknown uncertainties and changes in circumstances, many of which are beyond our control. There can be no assurances that our beliefs or expectations will be achieved. Actual results may differ materially from our beliefs or expectations due to financial, economic, business, competitive, market, regulatory, and political factors or conditions affecting the Company, and the medical device industry in general, as well as more specific risks and uncertainties facing the Company, such as those set forth in its reports on Forms 10-Q and 10-K filed with the U.S. Securities Exchange Commissions.

Factors that might cause such a difference include whether MelaFind achieves market acceptance, given the uncertainties affecting companies in the medical device industry, such as the Company, or any of these forward-looking statements may provide to be correct. Therefore, you should not rely on any such factors or forward-looking statements. The Company urges you to carefully review and consider its disclosures found in its filings with the SEC, which are available at www.sec.gov and www.melasciences.com.

At this time, I'd like to turn the conference over to Dr. Joseph Gulfo, Chairman, President, and Chief Executive Officer. Please go ahead, sir.

Thank you very much, Tom. Good afternoon and thank you for joining us for MELA Sciences second quarter 2012 conference call.

I'm pleased to report that, as we move through 2012, we are increasingly encouraged by the clinical acceptance of MelaFind and the benefits it offers. As many of you know, MelaFind is our breakthrough non-invasive and objective automated point-of-care system for use when a dermatologist chooses to obtain additional information for a decision to biopsy clinically atypical pigmented skin lesions with one or more clinical or historical characteristics of melanoma. We are still in the early stages of the commercial launch, but are ramping up rapidly.

On today's call I'm going to give a brief overview of our second quarter accomplishments, then turn the call over to Richard Steinhart, our Chief Financial Officer, for a review of the financials and then open up the call for questions.

We are pleased to report the significant achievements we are reached in the second quarter. Most importantly, we continued with our controlled and deliberate launch of MelaFind in the U.S. and in several key cities throughout Germany.

After introducing MelaFind at the American Academy of Dermatology, AAD, annual meeting in San Diego in March, we came out of the first quarter with MelaFind in the offices of a handful of dermatologists.

During the month of April, as planned, we did not place any additional MelaFind units in the field, but rather took the time to work with our initial customers to achieve several objectives.

First, we wanted to make sure we understood the various ways in which MelaFind can be incorporated into different kinds of practices. Though comprised in that handful that we placed in March, we had more skin cancer-focused doctors, academic-focused and aesthetic-focused doctors. We wanted to see how it could best be utilized in those situations.

Secondly, as we mentioned on our last quarter's call, we continue to work with our early customers to optimize our training protocol so that MelaFind can be used most effectively in the office.

And thirdly, we spent considerable time working with our early customers to train them in how to most successfully incorporate MelaFind into their practice, focusing on lesion selection and medical utility, as well as practice dynamics of staff and patient flow.

We are pleased to report that, as of now, there are more than 30 MelaFind units in dermatologists' offices in the U.S. and Germany. Based on the favorable customer feedback and consistent with our plans, we are now accelerating the pace at which we are placing MelaFind into the field.

We look forward to five dermatology meetings over the next six months where we will showcase MelaFind to a broad audience of dermatologists from around the world and at which additional data from recent studies will be presented and discussed. These meetings include the summer American Academy of Dermatology meeting next week in Boston; the American Society of Dermatologic Surgery meeting in October in Atlanta; as well as the fall and winter clinical meetings in Las Vegas and Hawaii and the American Academy of Dermatology meeting in Miami in early March.

These meetings provide a forum for us to not only generate additional sales leads and interest in MelaFind, but also to continue to teach the dermatology community how to optimize their results, which will, in turn, drive utilization.

Based on early feedback, high levels of interest and the accelerating cadence at which we have begun to place systems in the field, we believe we are on track to achieve our stated goal of placing 200 systems in the U.S. and 75 systems in Germany in our first year of commercial availability.

Our FDA-mandated training program has been optimized with the input of actual customers. There are two parts to the training - one to use MelaFind and how to use MelaFind. The one portion teaches about the intended use population and can be taken online.

The how-to use MelaFind portion of the training is hands-on in their office. It takes about 30 minutes and is followed by a short written and practical test. Once this has been completed, the system can be installed and is ready for use. This describes the FDA-required training for all dermatologists prior to placing the system. However, this is just one element of the training and education that we are providing.

Our more significant collaboration and training effort comes after system placement and these are designed in ensuring the long-term success of our model. We are working closely with dermatologists to assist them to use MelaFind the way in which it was intended so that it provides comparable clinical results to those demonstrated in the studies to date, and importantly, so that it contributes to their office efficiency. This continues to be the major focus for us in the first 12 months.

In addition to practice dynamics and staff interaction with the system, we are focusing on the medical messaging and the clinical application of MelaFind. To assist in this process, in the quarter we hired an Assistant Medical Director who is a board certified dermatologist and user of MelaFind. Who better than a practicing dermatologist and user of the system to work with other dermatologists in helping them understand the medical benefits and appropriate use of MelaFind?

From a qualitative perspective, I am thrilled to report that MelaFind is doing exactly what we expected. We are now aware of four melanomas that our dermatologist customers have told us would not have been detected without MelaFind. We have also been informed about several clinically ambiguous lesions on cosmetically sensitive areas of the body that were not biopsied, in part due to the information that MelaFind provided.

Equally, from a practice efficiency and dynamics perspective, we have seen that patients enjoy the MelaFind experience and from a staff perspective, it's incorporation into the typical workflow has not been difficult. We have been told by several dermatologists and staff members that MelaFind is the easiest piece of equipment to use in the practice.

We continue to optimize our messaging and training materials with each bit of fundamental feedback that we receive. We share these best practices across customers and we are now qualifying more potential customers and scheduling more placements.

In the second quarter we also continued to build our sales, field service, and medical affairs capabilities. We added 4 sales people, a technical support engineer and as mentioned, an assistant medical director to help us reach our goals. This is an exciting time at the Company.

The anecdotal stories that we are hearing continue to be very positive. Initial usage is in line with our expectations and even though most of the MelaFind systems have not been in the fields for long, usage range from once per day to six times per day. We are finding that as dermatologists learn to incorporate MelaFind into their practice, they are conservative for the first several weeks but increase their utilization over time. This is encouraging for two reasons.

First, most of our customers have only had MelaFind in their office for less than two months and because we include a box of 25 cards with the system on installation, there is lag time until we see reorders. Despite this, we have already seen some of our early customers begin to reorder cards, in step with the gradual increase in usage as they get more comfortable with MelaFind and increase utilization.

Secondly, we have not even begun to drive patient awareness or usage, so this is also very encouraging. All of our marketing efforts to date have been focused on helping customers appropriately use MelaFind as opposed to driving throughput. We expect this focus to be the case through the next two quarters, as we continue to focus on system placement and optimizing results. We look forward to rolling out tactics to promote patient awareness, demand, and utilization in the fourth quarter and beyond.

In Germany, we are placing more systems and qualifying additional customers. The German Reader study, which included over 200 dermatologists, has been completed and data were released in the second quarter. The study was highly statistically significant, with positive clinical results demonstrating that dermatologists, who incorporated MelaFind into their biopsy decision-making process for the detection of melanoma at its earliest, most curable stages, outperformed those who did not have the MelaFind information.

This was the largest study of its kind and importantly, favorable clinical results are consistent with studies performed with dermatologists in the U.S. The data were presented by principle investigators Dr. Axel Hauschild, Professor of Dermatology from the University Hospital of Kiel, at the 23rd Practical Dermatology & Venereology Conference, also known as FoBI, in Munich in July. The data will also be presented at the upcoming German Skin Cancer Society meeting in September.

We have been working with dermatologists in Germany much in the same way that we are working with them in the U.S. The first priority is for MelaFind to be used appropriately for optimal clinical outcomes. The next priority is for MelaFind to be used in a manner that augments practice efficiency and dynamics. We expect to place an increasing number of systems in Germany in the upcoming months in route to our goal.

Operationally, we have readied our organization and we are confident that we have ensured a secured supply MelaFind handheld devices for the next three years. In the second quarter, we ramped up our contract manufacturing by expanding the utilization of existing capabilities and adding a new manufacturing day to further increase capacity.

As we expected, there has been and continues to be significant media interest in MelaFind, with national coverage on The View and local coverage in several markets across the country, including Miami, Washington, D.C., Atlanta, Virginia and New York. Our dermatologist customers are eager to spread the word and have been on TV a number of times.

I will now turn the call over to Richard Steinhart, our Chief Financial Officer.

Good afternoon, everyone, and thank you, Joseph.

Revenues for the three months ended June 30, 2012 were $75,757 compared to no revenue reported in the same period in 2011 and up from revenues of $11,750 reported during our first quarter of 2012.

Our deferred revenue for the second quarter was $70,724 versus no deferred revenue for the second quarter of last year 2011 and up from $17,250 of deferred revenue in the first quarter of this year.

You have to remember that we have what the accountants call "a contract with multiple elements of delivery" and we must defer a significant portion of our placement fee despite the fact that we do get this cash on installation. As a result, deferred revenues reflect the time recognition of the installation fee revenue over the term of the user agreement, which is generally two years.

Moving on, gross profit for the second quarter of 2012 was a loss of $296,000

R&D expenses for the second quarter were $1.7 million versus $2.6 million reported for the same period last year. The decrease in research and development expenses is primarily attributable to the reallocation of certain expenses to properly reflect commercial operations and we had a reduction of labor and material costs at our contract manufacturer, Askion, in Germany.

G&A expenses, general and administration, which includes our sales expenses, were $3.5 million for the second quarter of 2012 versus $2.2 million reported in the same period last year. As you would expect, the increase is primarily attributable to the expansion of our sales force, the incremental marketing costs and increase in direct costs associated with the placement of MelaFind systems in doctors' offices here in the U.S. and in Germany.

Our net loss for the second quarter of 2012 was $5.5 million, or a loss of $0.18 per share, versus the reported net loss in the second quarter of 2011 of $4.8 million, or a loss of $0.19 per share.

As of the end of the second quarter, the Company's cash and cash equivalents were $17.2 million.

It's important that we point out that we continue to be focused on expense control despite the significant ramp up of marketing activities. We think we have controlled our cash expenditures as tightly as possible and we'll continue to watch the burn rate very closely over the next few months.

I would now like to turn the call back to Joseph for his concluding remarks and open it up for questions.

Thanks, Richard.

We are pleased to report the many achievements we have reached in the second quarter of 2012, most notably the continuation of our commercial launch of MelaFind into the U.S. and Germany, which is proceeding as expected in accordance with our internal plans.

We are looking forward to continuing the rollout of MelaFind through the remainder of the year and putting the device into the hands of an increasing number of dermatologists and we'll continue with our deliberate and controlled approach, as we work to optimize usage and ensure the product's longer-term success.

In conclusion, we are confident in our people and the power of our strategic plan and we continue to execute with passion and purpose.

We will now open the call up for questions.

(Operator instructions) Josh Jennings, Cowen & Company

Hi. Good afternoon, gentlemen. Thanks for getting me on. Just to start with, you mentioned that your early adopters are using the MelaFind Scan at the rate of up to 6 times per day. I'm just curious how quickly -- initially, they start off slow, as you mentioned. How quickly do they get up to that high level of utilization?

And then, just can you comment on your previous assumption of one patient or one scan per hour for practices that adopt MelaFind. Is that assumption more or less conservative, now that you have these initial systems installed and up and running?

Okay. So, the practice that I highly using it at that level was actually the very first customer, so it took a little while. The second customer went up to 4 times a day after a little while. Josh, I'd say about a quarter. You see them getting used to it and then increasing their utilization.

Great and then, just in terms of the assumption of, I think, in sort of the business model --.

Yes.

Practices of 1 patient or 1scan per hour. Is that where you find that assumption?

Yes. Sure.

Is that still sort of a roughly conservative assumption, or more do you find it to be more aggressive, or how you're looking at that assumption now?

No, yes, thank you. No, I feel very good about that still. I feel the same as I did always. You know, as I said in my comments, we have yet to begin to promote utilization. One customer in Germany went and did some advertising on his own and we helped him. He wanted some graphics and whatnot and he then got 10 patients a day coming in and that persisted over a few weeks and then it dropped after the effect of the advertising went away and he wants to do another round of advertising now. So we saw an incredible spike on some local advertising.

So we have not begun to do -- to give the practices any of the tools that we're planning to give them and do the kinds of patient awareness, efficient patient awareness techniques in the office through the practice and through the Internet that we're going to do. So I feel very, very good about the goal of 1 per hour and I think we have some very good early evidence of that.

We've have -- one of our dermatologists in Germany is using it on 10% of her patients. She has a practice where she doesn't see as many patients as the market research says on average they do, but she's using it on 10% of her patients. I mean, she -- this is someone who really loves the product, has introduced us to five other people, one of which already has signed on and we're in the process of seeing the other four.

So it's amazing. The people who get it, use it and see the value and love it, you see the utilization go up, certainly, absolutely, and as a percentage of the patients they see. So I feel very confident.

Excellent and just in terms of your early adopters, how are they finding the patient self-pay model working? What are they reporting back to you in terms of what type of level of patient pushback are they seeing, if any, and if you can quantify that, that'd be great and then just what price point are dermatologists securing, an average?

I'm aware of $200. Several practices charging $200. I'm aware of a practice charging $125. I think I'm aware of a $150.

I have a $175.

You have a $175, Richard, you're telling me?

Yes.

So, of all the ones that I'm personally aware of, are charging over $100. There are patients that don't want it done, right. I have heard of that, because of -- I'm sorry. Please hold on a minute. What are you reading? Who don't want it because of the price. But this is -- we haven't begun to advertise and do the information about the disease and the importance and all that. So I think that that is -- yes, thank you. Richard wrote me a note that outside New York we're seeing lower and I agree with that, than the $200 or $175. So, sure, we've heard from some that there are patients that don't want it done and it's because of price, but that was expected as well.

So, until we really optimize things, get more systems out and really are able to segment the market and see exactly the profile of the practices that are getting to the level of usage, once we really start the usage campaigns, I really can't comment or think about any modification of the approach, based on that.

Alright and just in -- you have this -- the leads generated American Academy of Dermatology, I think you commented before, are over 200 and you have these upcoming dermatology scientific or medical sessions that are coming, where you're going to be able get in front of physicians. Can you give us any back of the scenes, behind the scenes color on the demand, the interaction you've had with physicians the American Academy of Dermatology where you had these lead and sort of the next steps in terms of accelerating installments?

Yes. We engage -- it's funny, over the years, you meet customers and people to say market research and they tend to come back and visit you and we certainly look forward to meeting additional people. But, also, continue to talk to the people that we've met over the years and there's great interest. There's just excellent interest and we've been, with our strategy of the controlled rollout, been basically metering ourselves.

So we look forward to -- and it's a good thing we did. We're learning the best way to message. We're sharing best practices among doctors, so the strategy really, really is working. The demand is there and the prudence of getting these out, responding to seeing doctors' response and how it works in the practice and optimizing our messaging, I think, is the way to go. As we now go back to the customers, excuse me the patient customers, the leads we have and engage them more meaningfully about now, what it's going to take now that we're in a position to bring it to them.

Do I look forward to these interactions? Both, again, to see people that we know are interested and to engage new people as well. And at these conferences, with data being presented on MelaFind and people talking about MelaFind, it definitely will encourage current users and they themselves will be able to hear about others using it and maybe even learn a few best practices from those interactions. So that's what we're really looking forward to at these meetings - rekindling, meeting some new people, more information about MelaFind being discussed, translating into continued demand and increased utilization.

A last one for me. Just any update on post-approval study in terms of timelines for enrollment, choosing trial centers and the design? Thanks a lot, guys.

We actually are still finalizing the protocol with FDA, literally as we speak. So the size of the study is, as I reported previously, about half the size of the pivotal trial. The pivotal trial was 1,800 lesions, so half the size. We need to have one center per state that we are in up to a finite number, I think. I don't know what it is. It's up to either 6 or 8, something like that.

And the period of the study will proceed, I estimate, would be about I'd say about 4 years. I think there's a couple years for accrual, a few years of follow-up as needed. In those rough brush strokes, it's the same as we've talked about previously, but the protocol has not been finalized yet. We're literally finalizing it as we speak.

John Sullivan, Leerink Swann & Company

Hey, guys, good afternoon.

Hi, John.

Hi, John.

A couple of quick questions. Rich, can you help us regarding how should we think about the revenues this quarter? What percentage of the revenues, even roughly, came from new placements in the quarter and new sales in the quarter versus revenues that were begin rolled in from last quarter's sales?

Sure. Sure, John. Well, since we're still early on, the majority, a vast majority of the revenue in this quarter are from new customers, placement fees and whatnot.

Okay. Okay and just would you mind telling us again exactly how the instrument sale, how revenues get taken in?

Sure. So, there's initially a $7,500 placement fee and the accountants generally let us recognize about $1,500 of that when we place the unit and the balance of $6,000 that's recognized over the 2-year life of the contract.

Okay and part of the $7,500 placement fee is the card with, did you say, 25?

Right. That's right. So there's -- generally, we sell the cards in boxes of 50, but in installations we give them 25 to start. That's exactly right.

Right.

So that's part of it and there's a clinical camera that goes with the system and that's part of what we can recognize, because we do sell them the clinical camera.

I understand.

Okay.

So, it's around 20% of the placement fee you can bring in, in the first quarter, and then the rest of it is amortized roughly equally. You're anticipating, did you say 30 months?

No, not 30; 24 months. So generally, it's $250 a month, John, so that's typically what we do.

Okay.

And we may adjust that a little bit here and there, but that's probably a good way to look at it.

Sure, understood. And then, is there anything you can say, even of an informal nature, regarding what sort of success you might have had since the end of the quarter? Is demand continuing to build? How should we think of almost halfway into the third calendar quarter?

Yes. So, we've placed additional systems. The demand is strong. We ended the quarter with, as we said, 25 customers and as I said in my comments here, we're over 30 now, so we're making progress and as per planned. So we will give precise numbers, John, at the end of each quarter, but just to give you an indication, yes we continue to make progress through the summer here.

Okay, thanks so much. And my last question, I guess in this area is, is there anything -- if investors or analysts are wondering, like, is there a way to characterize a pipeline or number of dermatologists from whom you've had a specific outreach, things like that? Is there any contemplation of guidance of backlog or pipeline or anything like that?

I think reporting on the actual placements at this stage, given the stated goals of the 200, I think we'll be able to track progress very well that way, is the most prudent thing to do and I think you'll see in the next quarters. You saw a big jump from the first quarter where we were on the market for just a few days with a handful to over 25. I think you'll see as big a jump as well, or bigger, in the next quarter. So, I think, given how early we are here, I think those are the best metrics of how we actually performed and you'll be able to see, vividly, the execution.

Okay-dokes. Thanks very much.

Alright. Thanks, John.

Scott Gleason, Stephens, Inc.

Joe, Richard, thanks for taking my questions.

Sure, Scott.

You guys, a couple things I thought maybe I could dig into a little bit here. So you guys had said on the call that you didn't place any systems throughout the month of April, so it sounds like the placements were pretty back half weighted in terms of the quarter. Can you maybe give us a little bit of a sense for the timing of the installations? Were a large number in the last couple of weeks of the quarter?

Yes, a large -- yes, exactly, large in June, exactly.

Okay. So, really, though, the counts aren't going to be up and running until kind of more in the third quarter from a timeframe standpoint?

No, that's right. Exactly and we added the sales reps and trained them in May, okay, so the bulk of the activity, of course, is in June, so a great question.

Alright. Thanks, Joe, and then, I guess when we look at your guys' guidance, placed 200 U.S. systems and 75 outside the U.S. by the end of March, can you maybe give us a little bit of sense for kind of how that ramp might shape up just in terms of the trajectory? Like on a per-quarter basis to get to that kind of goal, I guess, by the March timeframe?

Well, with 30 out in how many months left to go, the math is there and we will, with each successive month, we will increase that capability, right, so we are managing the Company extremely efficiently. So, the demand of headcount, both from a sales perspective and from a technical support perspective and medical affairs perspective, as it takes time to hire and train those people, we are doing that very methodically and efficiently so that we can use our resources optimally and achieve our goals.

So, again, you would expect to see an incremental increase with virtually each succeeding month -- not every, you'll see that we'll add some total and put out quite a significant number each month going forward, but you'll see that increase, okay, slowly. So the remaining months we have left and remaining systems we want to put out still back-weighted, but not logarithmically. We'll leave it at that.

Great and then, Joe, just a last question. When we think about your manufacturing capacity right now, is that any type of constraint on the number of systems you could place or --?

Yes.

Or do you guys find there --?

Yes. Yes, but --.

Of if you wanted to place --?

Yes, no, no, listen, great point. I left that off my list earlier. Exactly right. The manufacturing by design. We didn't want to go and put a second and third shift in and have so many on the shelf until we got out there and saw the demand and gauged it and did the planning around that.

So it's all -- this strategy was taken into account given it's a breakthrough product, given the kind of -- we're building the capability as we go on many fronts and also the manufacturing capability. So, all of which are being augmented and as we go, given the demands of our business plan and our projections, so thank you for pointing that out. All hand-in-hand.

Okay. Thanks for taking my questions, guys.

Dalton Chandler, Needham & Company

Good afternoon. Let me ask you an accounting question first, Rich.

Sure, Dalton.

Since you retain ownership of the units, do those show up in your property and equipment line?

Yes.

Okay.

When they're completed and we purchase them. That's right, Dalton.

Okay and then they stay there for the life of the unit?

Sure.

Or you depreciate them over time, right?

Yes, over 3 years.

Okay and then, on -- you mentioned that you hired 4 sales reps. Is that the total number now, or was that incremental to some existing people?

Well, that's correct. We have management here, but true reps is 4, right, so the initial or early managers were the reps. Now we have 2 reps in management -- I'm sorry, 4 reps, sorry, in management.

Okay. So there are 4 people that have a sales quota, I guess. Is that --?

Yes.

Okay. I know this has come up a few times, but you do have a lot of units to place between now and the end of the year to hit your goal. Are 4 sales reps enough to get that done or do you need some additional --?

No. We'll be adding more. We'll be adding more, yes.

Okay.

And just to clarify it, everybody, the end of the year I speak of for 200 and for 75 in Germany is March 31, 2013, just to clarify. But to answer your question, yes we'll be hiring more.

Okay. I see. So you're using March 31st, because that's 12 months from when you --?

Right, from when we launched.

Okay, got it.

In fact, Richard just -- we actually -- in the third quarter now we've actually hired another sales rep and we have an offer for another, okay, so I think that's fair to talk about. So, yes, we are adding more.

Okay and just a last question. About how long does it take when a doctor says, "Yes, I want one" until he or she is actually using it in their practice?

Well, I'll take you through the steps, okay. So, adding depends on the type of institution, right. A private office is very quick. Once they decide if it's just a doctor and don't have to go to partners first, things like that, but from when they want it, the only thing in the way is reviewing the contract.

Right.

Right, the use agreement, undergoing the training and scheduling an install. That can be as quick as two weeks; it could take as long as four weeks.

Okay. Alright, thanks very much.

Greg Chodaczek, First Analysis Securities

Hey guys.

Hey, Greg.

Most of my questions have been asked already, but just a quick one. Of the 30 placements in the U.S. and in Germany, Joseph, can you talk about where are they? I know everyone keeps talking about Manhattan, Manhattan, but I'm assuming there are elsewhere in the country.

Oh, yes, please go to the "MELA Finder" on our website and you'll see we are in New York, New Jersey, Washington, D.C., Virginia, Florida, Alabama, San Diego, Arizona. So, as I said, we're going to focus mostly in the Northeast, broadly defined mid-Atlantic and in New England and true Northeast. But also, go outside our area to where KOLs and investigators work and once we're in those areas, of course you just don't go for one person; you expand out in those areas. So we are in, I think, 10, 11 U.S. cities now? No, 10 different states, right?

States. Right.

Right. Yes.

Okay and then (multiple speakers) --.

It's all delineated on that, Greg. It's all on the website. You can go there, on "MELA Finder", yes.

Okay. And Richard, can you talk about costs per MelaFind on your side?

Yes. It's consistent with what we've been saying. Right now the MelaFind costs us about $35,000 to make and our operations people are working pretty diligently and I think I've mentioned several times that a lot of that cost is labor. We do a lot of testing of MelaFind, which has resulted in really great performance in the field. We've had very, very few issues out there.

But we're looking -- right now, the operations guys are looking right now to bringing that labor down, so we can bring the cost down, and those are programs that are being instituted, an initial program now and a second one, I think, later in the third quarter, early fourth quarter, to, again, reduce labor. And it goes with the traditional looking to reduce costs on materials as well, but again, the biggest portion is labor and the guys are working on that as we speak.

And they're making progress.

Sure.

Can I assume that may take it up if you have to put a second line on?

You asked what? We did add a second shift. So what was the --?

Okay, so you have two shifts now making these?

Yes. Yes.

Okay. Thanks, guys. That's all I have to ask.

Yes, sure.

And ladies and gentlemen, that will conclude today's question and answer season. Dr. Gulfo, I'd like to turn the call back over to you for any concluding remarks.

Okay. Well, thank you very much, Tom, and thank you for everyone dialing in. We very much appreciate your interest and your participation.

We are just so very excited with the way the launch is proceeding, proceeding as planned and it's just a very exciting thing to be a part of and watch. So we look forward to updating you on the next quarter. Thank you very much.

And ladies and gentlemen, that does conclude today's conference. We appreciate your participation. You may disconnect at this time. 5