Luminex Corporation
Q3 2008 Earnings Call Transcript

Published: 24 Nov 2008

[Operator:]

Good afternoon and welcome to the Luminex Third Quarter 2008 Earnings Conference Call. Today’s call is being recorded. At this time, for opening remarks and introductions, I would like to turn the conference over to the Director of Investor Relations, Ms. Mimi Torrington. Please go ahead.

[Mimi Torrington:]

Thank you, Dustin. Good afternoon and welcome to Luminex Corporation’s conference call to discuss third quarter 2008 financial and operational results. I am Mimi Torrigton, Director Of Investor Relations. Today Pat Balthrop, our President and CEO, and Harriss Currie, our Chief Financial Officer will discuss our third quarter 2008 results, highlights and the remaining outlook for 2008. We issued a press release earlier today announcing the company’s results for the third quarter ended September 30, 2008. Following our prepared remarks, we will have time to take your questions. In addition to the audio portion of our conference call, we have prepared a slide presentation that is available on our website at www.luminexcorp.com. To access this presentation, click on the Company tab, access the Investor Relations link, and click on the live conference call link. Our presentation will be available on our web site for six months. I’d like to take this opportunity to remind you that certain statements made during the course of this presentation may not be purely historical and consequently may be forward looking statements within the meaning of Private Securities Litigation Reform Act of 1995, including but not limited to, statements made regarding maintaining our expense levels and growing revenue, our and our partners ability to develop new products and to penetrate existing and new markets, the growth in demand for our products and technology and our partners’ ability to enhance the growth, our ability to enhance existing and develop new strategic partnership, our strategic plan for growth and our product development milestones, our ability to promptly respond to market opportunities within our existing markets and newly segments, the increasing productivity and profitability of our installed base of systems, the expansion of our assay segment product offerings and the resulting shift in our revenue mix, increased bulk purchases of our consumables in future periods, the long term value of and demand for our products in various strategic markets, our inability to weather the current economic environment based on among other things the strength of our balance sheet, the cost effectiveness of our products and the strength of our product pipeline, potential additional investment in our company as a result of consolidation in the industry, the advantages of our regulatory compliant processes, our and our partners’ ability to achieve worldwide reach for our products, our long term financial targets, the competitive advantages of our products, our business outlook and projections about revenues, cash flow, expenses and market conditions and their anticipated impact on the company, information regarding development, timing and performance of new products, and any statements of the plans, strategies and objectives of management for future operations. These forward-looking statements speak only as of the date hereof and are based on current beliefs and expectations and are subject to known or unknown risks and uncertainties, some of which are beyond the company’s control that could cause actual results or plans to differ materially and adversely from those anticipated in the forward looking statements. Factors that could cause or contribute to such differences are detailed in our press release or in our annual quarterly or other filings with the Securities and Exchange Commission. We undertake no obligation to update these forward looking statements. Also certain non-GAAP financial measures as defined by the SEC Regulation G maybe covered in this presentation. To the extent that any non-GAAP financial measures are covered, a presentation of and reconciliation of the most directly comparable GAAP financial measures will be included in this presentation and / or be available on the website at www.luminexcorp.com in accordance with Regulation G. I will now turn the call over to Pat Balthrop, President and Chief Executive Officer of Luminex.

[Pat Balthrop:]

Thank you, Mimi. Good afternoon and welcome to our third quarter 2008 earnings call. We are extremely pleased with our accomplishments of the quarter. Luminex achieved profitability on a consolidated basis and set new records in total revenue, assay revenue, gross profit and royalty. Furthermore, we continue to control our SG&A expenses resulting in a very strong quarter. In addition to these positive financial results, we also advanced and finalized several important deals and milestones that we will also discuss with you today. On the call, I’ll review our financial highlights and our other significant events and achievements that occurred during the third quarter. I’ll also like to take a moment and discuss with you the current economic environment and how we believe Luminex is positioned. Harris will then provide you with a more detailed review of the financial results and I will return at the end of the call to provide an update on our annual revenue guidance, and then we will open the lines to your questions. Luminex delivered another quarter of record revenue of $28.9 million, a 49% increase over the third quarter of 2007 and 43% growth for the nine months ended September 2008. Included in this record revenue number is another quarter of the strong instrument placement with 239 systems sold and shipped. This represents eight consecutive quarters with system shipments of 200 or more. Consumables and royalties, our higher margin revenue items, grew at 47% and 45% respectively versus the third quarter of 2007. All that combined to achieve an overall gross margin of 68% for the quarter. We are continuing to manage our SG&A expenses which for the third quarter in a row came in exactly at the run rate that we established in the fourth quarter of 2007, excluding some unusual items. And finally Luminex achieved profitability during the third quarter, delivering on a consolidated basis $3.2 million of net income and $1 million of net income for the nine months ended September 30. In addition to the financial highlights of the third quarter, we also achieved several other milestones. Luminex forged a new strategic partnership with Becton Dickinson. Under the terms of this agreement, BD Diagnostics TriPath will develop market and sell new biomarker based diagnostic tests for certain cancers using Luminex’s multiplexing xMAP technology platform. We are delighted to be working with BD, a leader in global medical technology to create innovative test that will save lives. Market acceptance of xTAG RVP continues to broaden. Just recently we received clearance from Health Canada for xTAG RVP. While it is still early in the flu season, we are encouraged by the customer interest and positive feedback that we’ve received and the test is performing very well. Sales of our CF products continue to progress nicely. During the third quarter, we extended our agreement with Genzyme Genetics for one of our xTAG CF assay products. Genzyme is the third largest CF testing lab in the world, and they have been a valued customer of the company for some time. This new agreement solidifies the relationship between the two companies for several years. As part of this new agreement, the two companies agreed to a pricing change that is favorable to Luminex. As a result, we recognized a one time revenue amount in the quarter of approximately $300,000 reflecting a year to date pricing adjustment. We also made nice progress enhancing our partnerships. A cornerstone of our strategy is to have partnerships that are mutually beneficial, meaning that the partnership is synergistic by generating revenue and profit growth for both sides. From time to time, we have the opportunity to adjust our agreements, in some cases adding fields of use or eliminating fields, price changes and so on. We made good progress here and we will update you on details when they are material. Our business structure is comprised of the technology group which is our partner model and the assay group which is comprised of Luminex Molecular Diagnostics and Luminex Bioscience Group. These three groups are supported by our proprietary xMAP technology, the strategic foundation of Luminex. Flowing from the structure are our four growth strategies focusing on the following. The further development of our product pipeline which includes the development of new assay such as our RVP II, the GI and fungal panel, as well as the development of new instrument platforms such as the new FlexMAP 3D scheduled for introduction late in 2008; entering new market segments where there is a distant benefit of using Luminex technology to improve efficiency, accuracy and flexibility such as the molecular diagnostics infectious diseases segment as well as the animal health biodefense and newborn screening market. We will continue to penetrate our existing markets working with our partners to steadily expand our installed base of instruments, improved instrument utilization, and take shares with both partner menu expansion and new assay products. Finally an important facet of our growth plan is to continue to drive and develop our strategic partnership business by working closely with our current partners and selectively identifying and adding new partners that will enhance and expand Luminex’s total growth. As I mentioned, we will also modify, enhance or cancel our relationships when have the opportunity and it makes sense to do so. One of the benefits of these strategies is a more diversified portfolio of growth initiatives. Luminex is not reliant on any one market was any one project. Instead we have a range of growth initiatives that will fuel our ongoing and future growth. Executing this strategy, we have achieved several milestones so far in 2008. These include the FDA clearance of takes xTAG RVP, the shipment of our 5000th instrument, new partnerships and agreements such as those with Abbott for global distribution of RVP and with Tyson in the food safety and animal health market. We are excited about the upcoming launch of our FlexMAP 3D system which is on track for a fourth quarter market release. Manufacturing transfer has occurred and the factory is gearing up while feedback and interest in this new system continues to be positive. Future milestones include the submission of our ASR products CF70, CF97 and AJP for FDA review and clearance, and the continued development and expansion of the available manual products for both Luminex and our partners. We are on track so far as we execute our product development programs, both systems and assays. Our financial snapshot of the company’s results and progress over the past two years is very encouraging. And as you can see by the trends in the charts here, you can see why we are excited about the results we’re delivering. Revenue grew by 43% for the nine months ended September 30, all of which was organic, and revenue growth over the past two years has occurred at a compounded rate of 53% which include the effects of the acquisition. System shipments remain strong, our technology continues to be in high demand, and our business model continues to provide significant reach and growth. Our installed base grew by almost 19% since the third quarter of last year to a total of over 5600. As healthy as all that growth rate in the installed base is, please note the charts on the bottom of the slide, which display our high margin revenue items, fees and royalty. Royalty revenue in the quarter grew by 45% over the prior year, over twice that of the installed base growth demonstrating that our installed base of instruments is more and more productive and profitable. Sales of consumables were $8.3 million for the quarter, up 47% compared with the third quarter of 2007. It is important to note the upward trend of the four quarter moving average, which over the past two years has grown at a compounded average rate of 48%. We are very encouraged by this trend in the moving average and as system shipments and the number of applications increase, we expect the upward movement to continue. These trends are all very encouraging. Looking ahead, I thought it would be helpful to comment briefly on the market conditions and the economic environment as it relates to Luminex. Clearly these are turbulent times, and I think it is fair to say that we are in unchartered waters. However, it is our view that fundamentals matter, especially in times like these. So I would like to review several factors to consider when you as an investor or potential investor evaluate Luminex and our business. First, Luminex has a strong balance sheet with a significant cash position due in part to the second secondary offering that we successfully completed in June and we are generating cash. Second, our management team has consistently delivered on our commitments, achieved our milestones, and demonstrated that we can execute. Third, Luminex operates in market segments that are relatively diversified. We have products, partnerships and opportunities in life science research, we have products, partnerships and opportunities in clinical diagnostics, and products, partnerships and opportunities in specialty segments such as animal health, biodefense and newborn screening. Next, the demand for xMAP technology remains strong because of its impact on reducing labor content and improving productivity. In leaner times, where headcount reductions are rare and current laboratory staff is stretched, customers respond favorably to adopting our technology. This demand also includes our assay products. We have opportunities for growth with cost effective products like xTAG RVP, we also have additional market penetration opportunities in segments where we currently market products such as CF. And in uncertain times, avoiding risk, including regulatory risk, is common among customers. Given our favorable regulatory status, we’re a very attractive alternative source of assay products. Our partnership business model and razor blade structure provides enhanced confidence and a trail of high margin revenue. While it is true that roughly one fourth of our revenue is capital sales, very little if any of our system sales to our partners require that the end user have access to credit markets. In leaner times, capital equipment purchases are often constrained, but we have found historically that the purchase of our instrumentation is not affected very much in these type of market conditions due to the significant productivity benefits of xMAP technology and because the price point of our systems is relatively low compared with other products. While big ticket purchases are often delayed, our system at an end user price in the $50,000 range has a tendency to stay funded, especially given the cost effectiveness benefits that customers are seeking. And with an installed base of 5,600 systems now, the resulting consumable and royalty revenue streams provide stability. Finally our product pipeline is strong with productivity enhancing products like FlexMAP 3D launching in the very near term, and several others launching over the coming one or two years. These products were specifically designed to address the market needs of improving productivity, reducing labor content, and having a favorable effect on reducing healthcare costs. In current market conditions, our market research shows that our products in technology are viewed as solutions to constrained operating budgets and are therefore well received. One last point, it is also important for our investors to keep in mind that there are a couple of pending transactions that could redirect significant life science and biotech investment dollars into other companies in this space. Specifically, the pending $55 billion Roche-Genentech deal and the $6.5 billion dollar acquisition of ImClone by Lily would lead to liquidity events, which could in turn lead to dollars being reinvested into our space. Companies that are more likely to be attractive investments are those that are generating cash and have a strong balance sheet, that have a growth trajectory with a good track record of keeping commitments and execution, and with strong end user demand across the diverse health care business. Obviously, we believe that Luminex fits these criteria and therefore we believe that as a company we’re well positioned. For all these reasons in these unprecedented times, our plan is simple, to stay focused on continuing the successful execution of the strategies and plans that we have had in place over the past few years. If we do that, our company will continue to succeed. I will now turn the call over to Harriss Currie, Vice President and Chief Financial Officer of Luminex.

[Harriss Currie:]

Thanks, Pat. Let’s begin the financial review with our consolidated results. As Pat mentioned earlier, total consolidated revenue for the third quarter was $28.9 million, an increase of 49% over 2007 third quarter revenue of $19.4 million. Year to date, we revenue recorded revenue of $76.3 million, an increase of 43% over the prior period revenue of $53.5 million. One item of note, year to date through the third quarter of 2008, we have exceeded our full year 2007 revenue. Gross margins for the quarter were 68%, a six point improvement over the third quarter of 2007, and gross margins year to date were 67%, again a six point improvement over the prior year. Coupled with the revenue growth referred to previously, we generated an additional $7.5 million and $18.6 million of gross profit dollars through the three and nine months ended September 30 respectively. As we have indicated previously, one of our goals for 2008 has been to hold SG&A expenses relatively flat with the fourth quarter of 2007, excluding unanticipated items, and for the third quarter in a row we delivered on that objective. Overall the growth in revenue, related margin expansion, and operating cost control were the drivers behind our profitable quarter and year to date profitability. For the third quarter of 2008, we had total consolidated revenue of $28.9 million distributed as follows $7.8 million in system revenue, representing 239 system sales and 42% revenue growth over the third quarter of 2007; $8.3 million in consumable revenue or microspheres representing 47% growth over the third quarter of 2007; $3.9 million in royalties representing 45% growth over the third quarter of 2007; $5.9 million in reagents or essays representing 100% growth over the third quarter of 2007; $1.4 million in service revenue and $1.6 million in all other revenue, which includes spare parts, shipping, license amortization and training. Our quarterly revenue distribution for the third quarter of 2008 is shown here compared to the third quarter of 2007. Note that in the prior year, our high margin items consumables, royalties and assays represented only 58% of total quarterly revenue. The current quarter has approximately 63% of these high margin items. We anticipate that these high margin items will remain a significant percentage of our revenue mix. On a year to date basis, we had total consolidated revenue of $76.3 million distributed as follows $20.7 million in system revenue representing a 23% increase over the prior year period, $23.4 million in consumable revenue representing growth of 70% over the nine months ended September 30, 2007; $10.9 million in royalties representing growth of 46% over the prior year period; $13.3 million in reagents or assays, roughly a 70% increase over the prior year; $3.9 million in service revenue and $4.1 million in all other revenue. Again we can see the higher percentage of the high margin items in the current year relative to the comparable period in 2007. One thing to keep in mind is that in the current year, we have a full nine months of LMD activity including in the year to date results, and only seven months of LMD activity year to date during 2007. This slide displays revenue by our two segments for the quarter and year to date compared with the equivalent prior year periods. In the third quarter of 2008, we experienced 41% growth in technology group revenue and 90% growth in assay group revenue compared with the third quarter of 2007. Year to date, we experienced 37% growth in technology group revenue and 74% growth in assay group revenue over the prior year period. You can see from the slide that the technology groups still represents a significant majority of our total revenue. As additional assay products are brought to market, and we continue to execute on our assay strategy and realize economic advantage of the distributor pipe addendum to our model, we expect that assay group revenue will become a more significant portion of our total revenue mix. The revenue growth in our technology group has contributed to the continued profitability of this segment, which generated $3.2 million in operating profit for the third quarter of 2008, a $3 million increase over the third quarter of 2007 and the sixth quarter in a row of technology group profitability. That assay group improved this quarterly operating loss by almost 90% over the third quarter of 2007. Another metric we use to track the progress of our business is one we refer to as cash income. Cash income is net income for the period adjusted for significant noncash items such as depreciation, amortization and stock compensation expense and nonrecurring items like the lawsuit settlement in the fourth quarter of 2007. Here you can see in the third quarter of 2008, we had approximately $6.8 million of cash income for the quarter. Also note the rather consistent improvement in the cash income metric over the past five quarters, primarily as a result of our move towards profitability and maintaining control of our noncash expenses. In our first full quarter of consolidated activity, the second quarter of 2007, as we had indicated, the acquired operations were dilutive to our previous performance. During the third and fourth quarters of 2007, and continuing through the third quarter of 2008, our efforts to grow revenues, expand margins and control expenses played a large role in the improvement in the cash income metric. On the right hand of the chart, you can see our total cash investment balance for the third quarter of 2007 through the third quarter of 2008. The message here is the increase in total cash and investments fueled by the positive cash income metric and the closing of our secondary offering on June 30 of 2008. At September 30, 2008, we had $118.7 million in total cash investments, an improvement of approximately $6 million over the June 30, 2008 balance. All of our investment balances are held in highly liquid securities and funds predominantly backed by the full faith and credit of the United States government. As a result, we do not believe there are reserves are significantly exposed to fluctuations in market activity. A reconciliation of cash income to GAAP net income is provided on a separate slide at the end of this presentation and can also be viewed on the investor relations portion of our web site at www.luminexcorp.com. This slide shows consolidated consumable revenue, consolidated royalty revenue, and the four quarter moving average of consumable revenue with the elimination of royalties paid and consumables purchased by Tm Bioscience or LMD in periods prior to the acquisition. We believe that this demonstrates the long term health of our consumable and royalty streams and we expect these trends to continue. As previously noted, consumables and royalties now account for the higher percentage of total revenues, 42% for the current quarter. Another item of note is the relative volatility of the consumable stream. Bulk purchases are those purchased in excess of $100,000 for a single customer, for the current quarter were approximately $7 million or about 84% of total consumable sales. Bulk purchases in the aggregate have continued to increase over time and it contributed to the relative consistent increases in our consumable stream on an annual basis. However we still have quarterly fluctuations for which the timing is difficult to predict. I will give a little more visibility on the bulk purchase on the next slide, but even with the volatility of bulk purchase, the long term moving average has continued to climb as a result of the climb in the aggregate consumable revenue. Additionally, the non bulk purchases have remained at fairly predictable levels between $1 million and $1.4 million over the past two years. This slide breaks out our consumable stream into bulk and non-bulk purchases. Again purchases in excess of $100,000 for a single customer are considered a bulk purchase. A couple of items of note here are the bulk purchases are by far the largest component of our consumable revenue representing well over 50% of our total consumables stream. However, the number of customers buying in bulk is a very low percentage of total purchasing customers. For the third quarter of 2008, we had bulk purchases totaling approximately $6.95 million from fourteen customers ranging from $103,000 to $2.4 million, and non-bulk purchases totaling only $1.4 million came from 305 customers. As our partners continue their development and commercialization efforts, we expect the overall dollar amount of bulk purchase to continue to climb on a long term basis. At September 30, 2008, our consolidated balance sheet reflected total cash and investments of a $118.7 million compared with $34.2 million of total cash investments at December 31, 2007. As I mentioned previously, our investment balances are held in highly liquid securities and funds predominantly backed by the full faith and credit of the United States government, and as a result, we don’t believe that our reserves are significantly exposed to fluctuations in market activity. Also as previously disclosed, Luminex recorded goodwill and acquired intangible assets in connection with the Tm Bioscience acquisition. The goodwill asset is subject to impairment analysis on a regular basis and intangible assets are amortized over their useful lives and also reviewed for impairment annually. As of September 30, 2008, our daily sales outstanding or DSO on accounts receivable was 41 days compared with 51 days at the end of 2007. At September 30, 2008, we had approximately $9.5 million of consolidated inventory and as I had indicated previously we attempt to manage our inventory to a level that appropriately reflects our current production needs and expectations of future quarterly sales. Obviously unforeseen demand can affect our ability to manufacture and deliver systems on specific requested dates. Working capital at September 30, 2008 was approximately $127 million compared with approximately $41 million at the end of 2007. The increase obviously was primarily driven by the closing of our secondary offering on June 30, 2008. As a reminder, all the initiatives that Pat and I have discussed are designed to deliver long term financial objectives from a revenue, investment and profitability perspective as you see here. Based on our current financial performance, we do not believe that these targets are unreasonable. I will now turn the call back over to Pat to review the outlook for the remainder of 2008.

[Pat Balthrop:]

Regarding our annual revenue guidance, as you saw in the press release, we are increasing our previously stated guidance of between $95 million and $105 million of revenue for the year 2008 to between $102 million and $107 million of revenue for 2008. In addition, we advised that our investors hold us accountable for continuing to deliver against our strategic plan and product development milestones. We have previously stated and now believe even more strongly that our regulatory compliant processes, procedures and status will be a strategic advantage for years to come. With regard to expenses over the longer term, we intend to invest in R&D and scale this expense with the company’s growth, eventually arriving at 15% of revenue. We believe that this investment in combination with the significant investments being made by our partners will ensure the long term competitive advantage xMAP technology. Finally, our goal for SG&A is to manage our expenses closely holding them in 2008 at or near the fourth quarter 2007 run rate net of onetime items and foreign currency exchange impact. In summary, we are extremely pleased with our third quarter results. We are continuing to execute our growth plan progressing our product pipeline, and we’re advancing relationships with our key partners. Looking ahead to the fourth quarter, which has historically been our highest quarter for instrument shipments, we expect to finish the year strong within the range mentioned earlier of between $102 million and $107 million. These are extraordinary times and I want to reassure our shareholders and the investment community that Luminex has consistently delivered our objectives for growth and profitability. We believe Luminex is in a very good position to achieve our goals for 2008 and we remain optimistic about 2009 and beyond. This ends our formal remarks today. We will now open the line for your questions. Dustin, if you could open the line for the Q&A, please?

[Operator:]

Thank you, sir. (Operator instructions). We will go first to Dan Leonard with First Analysis.

[Dan Leonard:]

Hi.

[Pat Balthrop:]

Hi, Dan.

[Dan Leonard:]

First question on the fourth quarter revenue guidance, it looks like you’re giving yourself room for revenue to fall sequentially which isn’t something we have seen in some time. Why would you expect revenue could fall sequentially?

[Pat Balthrop:]

Well let me emphasize that we don’t necessarily expect revenue to fall sequentially, Dan, but we do have, as we mentioned from time to time one time events such as bulk purchases and so on that could make any quarter go up or down. And so given as you heard in Harriss’ remarks, those bulk purchases would be, he is using that as one example, can range from $100,000 up to in excess of $2 million. That can create that type of fluctuation. So we wanted to make sure that we reflected that in our guidance. Over the longer term of course whether revenue occurs in say the third quarter or the fourth quarter for the first quarter, as it relates to bulk purchases, it doesn’t really have a material impact on the company. Dan Leonard – First Analysis

[Pat Balthrop:]

We have not disclosed that, but I can give you some – I can give you a way to think about it. The ASP, just to refresh your memory about the current system, the LX200, I use that as a comparison, we recognized revenue at the $30,000-ish range when we ship an instrument and invoice our partners. The price at retail is between $40,000 and $50,000 dollars. The way to think about the FlexMAP 3D is an upscale type of product. So we expect the end user price to be in that $85,000 to $90,000 range and our price to our partners to be equivalently less in the overall scheme to give our partners the appropriate margins incentive to sell the hardware.

[Dan Leonard:]

Okay, that’s helpful. And then finally, Pat, you mentioned in your prepared remarks that you would be looking to either modify, enhance or cancel relationships with some of your partners. So could you give me more color on your thought process as you reevaluate some of those relationships?

[Pat Balthrop:]

Sure. In the strategic context, Dan, we have been pretty consistent about the fact that we believe that a valuable partnership has a couple of key elements. One is typically, a successful partnership is one that is with a market leader, either a worldwide multinational company or a company who is particularly dominant in the market segment where they compete with Luminex technology. Two examples of that would be our two largest partners which we disclosed in our K, which is our two largest partners historically have been Bio-Rad who fits the first part of the profile, that is a large multinational company who has made significant commitments to the technology. And the second largest partner we have had historically is One Lambda who is the worldwide leader in this segment where they compete which is HLA transplant. Using those two examples, we believe and the data supports when we analyze them internally that a successful partnership is companies that fit that profile, but the most important thing is they’re making significant investments in the technology which lead to them making money and Luminex making money. And so when we have the opportunity, we evaluate our current partnerships and in some cases, because they’re working well, we reevaluate them and add to the partnership by giving them additional fields of use where they will develop applications. In other cases, we may cancel fields of use because the partner has no plans to deploy in that area. And the other two possibilities are that we cancel partnership relationships when we have the opportunity to do so because they don’t fit the criteria I just mentioned. And the fourth one is, we would enter into a brand new one like we did with Becton-Dickinson because they fit that criteria that I started with. So every situation is a little bit different, Dan, but we put everything through the filter as I’ve just described and it appears to be working for us.

[Dan Leonard:]

Okay, thank you.

[Operator:]

We’ll go next to Scott Gleason with Stephens.

[Scott Gleason:]

Hi, Patrick, Harriss, thanks for taking my question.

[Pat Balthrop:]

Hi, Scott.

[Scott Gleason:]

Hi, Patrick. I was wondering if you could may be comment on the RVP panel and stocking for the upcoming flu season in the quarter and may be what the contribution was there?

[Pat Balthrop:]

Yes, so we have in the assay numbers that we talked about, Scott, we obviously have a number of products and RVP is one of those. The other products just to be clear that are included in that assay number includes our cystic fibrosis products, RVP, of course, our Ashkenazi Jewish Heritage panel, a microRNA products, and our pneumococcal panel and so on. In the number is the $300,000, so one time number that I mentioned during my prepared remarks for the CF to reflect the new terms of the CF contract we have with Genzyme. Other fluctuations that can occur from time to time may be the timing of orders for some of the high volume customers and of course what you mentioned which is the seasonality of RVP and the fact that customers may be stocking. I will tell you that the market opportunity for RVP remains very attractive. We remain very excited about what the potential it has. Although we don’t disclose individual sort of line item revenue, I will tell you that RVP certainly grew over the prior quarter and we are pleased with how it’s going. But it is also important to keep in mind that every flu season is a little different and that the rate of revenue that we would expect to have say in the fourth quarter versus the third would really depend on things like how – at what rate the samples are arriving in the laboratories for analysis which are related to the flu season. So I want to make sure that you understand, that in that assay number which obviously grew very nicely, are a number of elements and RVP is one of those and it did grow over the prior quarter, but you also need to keep the other factors in mind.

[Scott Gleason:]

Okay, thanks a lot. And Patrick, you guys have seen very nice expense control throughout the year. Can you may be step forward a little bit into 2009 and give us a little bit of granularity on what we would expect in terms of SG&A?

[Pat Balthrop:]

The short answer is not really, but we have – we are in the process of finalizing our 2009 budget. I would tell you that we obviously expect to scale R&D with the company ultimately arriving at 15% revenue targets that we have established. I don’t mean to imply that we will achieve that in 2009, but that is certainly the direction that we’re headed. SG&A, we expect will continue to increase over time but not just at the same rate as it did from 2007 against prior years. So I am giving myself a little bit of room as we finalize our 2009 financial plan to be able to make the appropriate strategic investments that allow us to grow the company. So I am not in a position now to tell you what that really means in terms of dollars or percent growth. I think by the time we do our next quarter, our fourth quarter call, where we talk about 2009 guidance, I think we may be able to talk more intelligently about that.

[Scott Gleason:]

Okay, fair enough. And then just one last question, Patrick, some of your commentary on bulk orders and disposable utilization, should we read into that any caution looking into the fourth quarter that there might be something that could cause that to may be go down a little bit, just given the timing of the orders?

[Pat Balthrop:]

As you know, we initiated annual revenue guidance for the first time this year and so we are basically updating it now. And we established the range that we have for a reason and I mentioned in response to the earlier question that there are a number of factors that can – that can fall, that can make revenue fall into one quarter or another. And so that’s all contemplated in the annual revenue number of $102 million to $107 million.

[Scott Gleason:]

Okay, thanks a lot. Thanks for taking my questions.

[Operator:]

We will go next to Eric Cristello [ph] with Thomas Weisel Partners.

[Eric Cristello:]

Hi, good afternoon guys. Thank you for taking my questions. Just the one in for Peter tonight, I guess on the FlexMAP 3D, could you may be – is that going to be higher margin product versus the older systems, or is it going to be in line or maybe a little over, could you talk about that?

[Pat Balthrop:]

Well, obviously, we don’t provide specific product line guidance in terms of revenue or margin. However, we would expect on a per transaction basis, the FlexMAP 3D to be more profitable than our current instrument.

[Eric Cristello:]

Okay, fair enough. And on the automation side, is there any more information as far as upfront automation through a collaboration or through your own development?

[Pat Balthrop:]

Well, automation as you mentioned Eric is obviously a very important issue in our market and it is an important strategic issue for the company. We look at automation in what I will describe as a continuum. We believe that the longer term automation strategy for the company needs to be sample in, answer out, right, sort of put the sample in, press the button, get the answer. We don’t have that today of course. However there are some markets where just because of the sheer magnitude of the amount of testing to be done, that sample in, answers out, just doesn’t fit the customer’s throughput needs and that’s why you have companies like Tiken [ph] for example that is in the front end liquid handling business, who do very well serving those high volume labs in particular, who run all their tests in batch format. The other thing to keep in mind is that the molecular diagnostics market, particularly the high volume tests, because of the way those tests are performed with amplification and addition of enzymes and so on, are very difficult to do in high volume anyway in anything other than a batch format. So for all those reasons we have a multi tiered approach to our automation strategy which includes doing liquid handling for those markets and for those customers where batch processing is called for. We intend to do that by way of relationships with one or more liquid handling companies. Up to in the longer term developing in the context of our system that we have in the pipeline beyond FlexMAP 3D, a sample in, answer out, type of format. So we believe one size doesn’t fit all in terms of our instrumentation, we also believe that one size does not fit all as it relates to automation, and so we are taking a multi varied approach there. In the short term, when we have a situation where we have a customer who requires an automation solution, we work with those automation companies to make sure that we deliver that to the customer.

[Eric Cristello:]

Okay, great. Thank you for color. Just one more quick question, are there any updates on the Tyson collaboration as far as timelines?

[Pat Balthrop:]

Other than to say that we are currently working with Tyson very closely and we are hopeful about having products available sometime in 2009, we’re being a little cautious about that because of the regulatory environment. To be perfectly candid is that is one that we are less familiar with than we are with FDA, because that is a USDA regulated market. And so we have hired the appropriate exports to guide us through that but we are giving ourselves a little bit of flexibility in terms of when we can market products because of that particular factor. I would say on the science and the test development side, things are progressing as we would expect. So therefore we’d only expected it to be material in 2009 although we do expect to have products available in 2009.

[Eric Cristello:]

Great, thank you very much.

[Operator:]

We’ll go next to Daniel Owczarski with Avondale Partners.

[Daniel Owczarski:]

Yes, thanks. Hi, ,Pat. Hi, Harriss. Congratulations.

[Pat Balthrop:]

Hi, Dan.

[Daniel Owczarski:]

I know you get this question almost every quarter but the 239 system placements, another real strong effort, any specific markets that were stronger, any types of customers that you saw a real pick up there?

[Pat Balthrop:]

I would say the short answer to your question, Dan, is no except to say that we didn’t see any unusual peaks or valleys in any of the markets where our partners operate. We’re very pleased with the trends of course. Demand appears to be at an all time high for the reasons that I mentioned during my call or during my formal remarks on the call. Obviously it is eight quarter at over 200, and I also mentioned that historically anyway our fourth quarter of any year is the year where we do more systems than we do than any of the three quarters. And so for all those reasons, we are very pleased with how things are going and have no reason to believe that that would change.

[Daniel Owczarski:]

Okay. And then for FlexMAP, it sounds like you guys are really, really close, what still needs to be done or can you talk about what a launch would look like, or what would the steps be to launch?

[Pat Balthrop:]

Well we have a – where we are in the development process, Dan, is that we have executed a manufacturing transfer and are in the process of manufacturing systems in the factory. So I think I made the comment during my remarks that we have executed the transfer and we are gearing up the factory. So what that means is we are obviously making sure that we have all the different components and necessary parts and inventory and such. We may very well launch the product in the fourth quarter, it may spill into the first quarter. I think I mentioned before that the only reason why we would expect it to spill into the first quarter is because once we hit Thanksgiving then it is just not a good time to introduce a new product. And so we may wait till the first quarter to do it just because we think we get more traction by doing so. In terms of how the product is being received and so on, we are very pleased. I will tell you, customers – to just refresh your memory, customers will buy this system for one or two reasons because it’s twice or three times as fast in terms of samples per hour in comparison to the current product, or they will buy it for its increased multiplexing capabilities, up to 500. We believe the up to 500 capabilities will be more longer term in nature in terms of their attractiveness to the customer because those market segments where over 100 multiplexing capabilities are relevant, are more emerging markets than they are current markets. The good news is we have a product that addresses significant unmet needs in the marketplace which is they want a faster multiplexing platform and we could do that for them. And then for those customers that have over 100 multiplexing needs, we can also deliver that need more longer term. The segments where the instruments will fit in the short and medium term, will be higher volume labs which will include big pharma, large volume biotech, high volume academic centers, reference labs and so on. So I wouldn’t expect obviously – I would advice you not to expect to see a comparable revenue shipment number in comparison with the LX200, right? That’s just by definition the number of customers that fit the criteria that I just described as a lower number.

[Daniel Owczarski:]

Okay. And then just last question go back to flu, we noticed that the CDC is actually offering I think a molecular flu panel that just got approved. Are you aware of that one, could you talk about it and how does it match up with the RVP?

[Pat Balthrop:]

Yes, so you’re right. We have, Dan, the CDC got a product that they have cleared by the FDA for respiratory viruses. I think the thing to keep in mind here is that the places where this product will be used will be public health labs. And in particular the product is cleared on a particular applied biosystems instrument platform. And I have Doug Bryant here, I am going to ask him – do you know the number of that system, Bryant?

[Doug Bryant:]

It is 7500, and there are about 25 of them.

[Pat Balthrop:]

Yes. So I’ll ask Doug to continue. He has more of the details there, Dan.

[Doug Bryant:]

There are about 25 of them. So 25 of the labs have the capability of running the flu systems. I’d see probably demand there as well as continued demand and some regard for our product as well.

[Pat Balthrop:]

Yes. So I think the way to think about that CDC product, Dan, is to keep in mind that it was cleared by FDA as ours was on a particular instrument system. In our case, it was cleared on our LX200 system. In their case, it was cleared on the 7500. One of the key things to keep in mind is there is 25 of their systems placed in the labs that are relevant and of course we have a lot more than that. And so in the public health market where I want to be clear we are actively marketing our respiratory viral panel product in the public health labs, but I think the competitive nature of the CDC just will be limited because of that instrument placement number that we just talked about.

[Daniel Owczarski:]

Okay. I also thought maybe it was a smaller panel that what you are offering?

[Pat Balthrop:]

It does have different constituents than what we have to offer for sure. And I’ll just leave without going into additional detail, Dan. I’ll just say that from our point of view, we are aware of the CDC product. To be perfectly candid, we don’t expect it to be a significant issue for us in the marketplace.

[Daniel Owczarski:]

Okay. That is great. Thanks Pat.

[Operator:]

We’ll go next to Derik De Bruin with UBS.

[Dan:]

Hi, guys. This is Dan [ph] in for Derek. Just looking at fourth quarter, in terms of placement of your instruments and having it be historically the strongest quarter, but you also have the impending launch of the FlexMAP, should we think about the number of placements being a little bit lower as customers anticipate launch? Or should we sort of think of it trending the same for the fourth quarter?

[Pat Balthrop:]

Well, no, I don’t think so. I don’t think you should think about it that way. We are obviously very pleased with how our instrument placements have gone, and as I mentioned in response to an earlier question, we have no reason to believe that that will change. The fourth quarter is in fact traditionally our highest system sales quarter of the year. And as I also mentioned that we don’t expect to have significant I should say FlexMAP 3D shipments in the fourth quarter if we had any. But as I also mentioned, the labs where the FlexMAP 3D will be sold are typically a customer segment that is familiar with our technology but does not actively use it because our current system doesn’t have the adequate speed because it is a very high volume lab. And then down the road, because they need greater 100 plex capability. So another way of saying that is, I am putting words in your mouth here, should we expect fewer LX200 systems as customers wait for FlexMAP 3D, the answer to that question is, no, you shouldn’t expect that.

[Dan:]

Okay, thank you. And then turning to the margins, you had said that you had significant room for capacity utilization with regards to manufacturing. What should we look for there as you scale up that portion of the business?

[Pat Balthrop:]

Could you clarify your question what should you look for in what regards?

[Dan:]

In terms of margin improvement as you scale up the assay business given that with the purchase of Tm, you did have excess capacity there?

[Pat Balthrop:]

We did. When we acquired the business, the factory was running at 20% or so. And so the good news is, that we don’t have – we don’t have to have any significant capital expense investments to expand the factory either in Toronto on here in Austin although we have done some work in both places to I would say improve productivity but not to any significant degree. We don’t expect any future CapEx requirements. On the margin side, the thing to keep in mind is, a key part of our business strategy in particular our manufacturing strategy is built on the system side on the Toyota principles around lean manufacturing. The result of that is that the percent of our cost of goods sold that is labor and overhead is a very low number, like less than 5% of our cost of goods sold. So we wouldn’t expect there to be any material effect associated with factory absorption on the system side. And without going into a cost accounting speech here, we would expect the same effect to be in Toronto. So therefore the good news is, we don’t have to expand our manufacturing capabilities, but I don’t think you should necessarily expect there to see any margin of accretion-- significant margin accretion as a result of that.

[Dan:]

Okay, thank you. Two quick questions for Harriss, I was wondering whether you might have any loose assumptions for FX impact on the top, at the bottom, either next quarter or next year and then also whether or not a tax rate around what we saw this quarter might also be fair?

[Harriss Currie:]

Yes, for us the FX effects are minimal because the majority of our contracts with our partners are all denominated in U.S. dollars, so we bill in U.S. dollars, they pay in U.S. dollars. We do have the location in Canada but a lot of the sales in Canada as well are back into the United States and sold in U.S. dollars. So the exposure there is minimal at best from an FX standpoint. The only really large item on the balance sheet is debt security in Canadian dollars, and certainly with the massive change in exchange rates in Canada and U.S. you might have something, but we’re not anticipating anything like that. 2009, unfortunately, is a little far out but we do anticipate that as we expand our operations globally that we certainly may be exposed modestly more to FX than we are today. As we do that, we’ll certainly keep you updated.

[Dan:]

Okay, thanks guys. Nice quarter.

[Operator:]

We will go next to Herb Buchbinder [ph] with Wachovia.

[Herb Buchbinder:]

Pat and Harriss, good job. I’ve got two quick questions, the article in The Wall Street Journal about the RPV panel implied a six to seven hours time, is there anything that you can work on to speed that up and how important is that particularly in use in the emergency room? And second is there anything new in the biodefense area? Those are two questions I have got.

[Harriss Currie:]

So the article in The Wall Street Journal was one we’re glad to see and it was accurate and that six hour sample that answer time frame is accurate. Keep in mind Herb that there is no molecular diagnostic on DNA type test that is done in emergency rooms of any type, including this one because of the capabilities that are required to do a the DNA amplification and the other somewhat sophisticated things that have to be done. But I think it is also fair to say that we would be able to sell more if we had a product that was faster and easier which is why we are developing one. We creatively call that product RVP II, it’s our crack marketing team at work there, Herb. And that product is in the pipeline and is scheduled to go through clinicals and if we hit those timelines be cleared by the FDA in time for the flu season in about a year from now. And so when we roll the current product out, it’s been well received but we also have gotten feedback that customers would prefer a product that is faster and easier. So we’re developing one and we expect to have it available in a little less than one year.

[Herb Buchbinder:]

Will the new product add any additional tests or it’d be the same number of tests as the existing labs ?

[Pat Balthrop:]

We’ll have to wait and see. Obviously we’d like to have more constituents. The challenges that are associated with adding constituents to in contrast to the current product as it relates to FDA’s willingness to clear those additional constituents, I think we will have to – we will have to try to get over those hurdles as we go through the submission. We are obviously very confident that the product in terms of its current number of constituents within the U.S. is twelve that we would be able to get at least twelve in our RVP II. If we do that we think we have a product that will be best in class. If we can get more than that, we would be able to obviously no better. You also asked about the biodefense thing, Herb, which is an important segment for us. We’ve had grants and collaboration in this area in the past. They have been somewhat small, those grants and collaborations, but they have been effective. We scaled that effort up over the past couple of years and particularly over the past 12 months and we participated in a number of programs there that have significant potential. We have also recently interacted with to a significant degree with legislators and other government officials in the appropriate agencies and with legislators on both sides of the aisle regarding our plans and opportunities in this particular area. And so we think there is a real opportunity for us in biodefense. I would characterize it as more intermediate to longer term in nature, but we plan to pursue those opportunities and see if we can turn this into a robust business for the company. Obviously we’re not able to discuss any specifics as it relates to that because it is too speculative in nature and because of some of the commitments we made. But I want you to understand that we’re in the process of actively pursuing them.

[Herb Buchbinder:]

Does the new President have any impact on this, or is it out of this control?

[Pat Balthrop:]

We believe that if anything the new President will represent an incremental opportunity in this area in contrast with the current one.

[Herb Buchbinder:]

Okay, very good.

[Operator:]

We’ll go next to Doug Schenkel with Cowen & Co..

[Sean:]

Good afternoon guys. This is Sean [ph] in for Doug. Now that you guys have a little more experience with the RVP test in the fields, can you give us any feedback on what you are hearing from the labs, the customers about how they’re dealing with reimbursement, how successful they have been stacking codes, et cetera?

[Pat Balthrop:]

Yes, I can. I will tell you that the experience that we had with customers is somewhat variable depending on which state they are in because reimbursement is a bit different from state to state. As you may know the way the reimbursement works in this particular area until we have a product specific CPT code in place which we don’t have, at least not yet, I think customers submit for reimbursement using respiratory viral panel by in two pieces. One is for amplification process and the other is for the testing process. Each customer makes their own decision about how they go about doing that, but our advice to them is that they do it in a way that will – that does not necessarily take full advantage of the reimbursement that they could receive, because that number in the case of a 12 constituent panels would be several hundred dollars of reimbursement. And they don’t need that level of reimbursement. And my experience in the industry over three decades now has been, to be frank, if you get too greedy by doing stuff like that, you end up attracting attention you don’t want. So we make a recommendation that they use these so called general codes until we have a specific CPT code. That number that we advise them and again the customer makes the final decision here is typically about $200 or so reimbursement number and remembering that what they pay at retail is significantly lower than that, in the $50 range is so. And so there’s plenty of margin in there for them and there is plenty of margin in there for us in that strategy. So reimbursement is obviously a very important issue. Customers ask us for our suggestions we provide them but we also make sure they understand that the final decision about how to pursue that is theirs. And those customers that have told us that they would like to follow our suggestion, they’ve had a fair amount of success getting the appropriate reimbursement.

[Sean:]

Got it, that is helpful. Now is your expectation that you might have an independent CPT code in time for the RVP II launch next flu season?

[Pat Balthrop:]

Let me say we are working in that direction. It is a difficult thing to predict because of the process you have to go through, you have to get involved with AMA, go through what they call their crosswalk process and so on, and present that to CMS. And so when you’re dealing with that many organizations over which we have limited control, it is a bit like FDA in that you can make some assumptions and work hard but at the end of the day you don’t really have full control over it. Obviously it would be ideal if we could do that and we’re working hard to try to achieve that but I don’t want to give you any guarantees in that direction.

[Sean:]

Great, thanks. And onto 3D, if we assume, may be it comes at the higher range of the ASP range that you provided around $90,000, would you suspect that the ability for your instruments at this stage relatively cushioned from the capital improvements squeezes, will that dynamic be maintained with an instrument in that price range in your opinion?

[Pat Balthrop:]

I think it would probably be enhanced in that situation because of the throughput and the multiplexing capability. You know picture in your mind a customer who is currently doing 15 or 20 cytokines, let’s say, in extremely high volumes, and the number of microtiter plates they have stacked up as they process thousands of samples a night, and if they have the opportunity to combine all those 15 or 20 cytokines into one microtiter well, then they end up being 15 or 20 times as productive. And we’re not talking about a capital purchase here that would be seven figures and two comments. We are talking about something that would be less than six figures in total. And so I think we have to wait. I think we have to wait and see but we worked pretty hard on trying to understand this. And based on the feedback we have gotten from partners and the market research we’ve done and so on, we think if anything it is even more effective because of those productivity enhancements that it delivers and therefore even more likely to stay on that capital equipment purchase list that these large labs put together.

[Sean:]

Good enough, thanks. And one last on the microRNA panel, I know it’s a small product for you guys, but just sort of looking at the way microRNA citations have been tracking on pub med and then just looking forward at the agenda for ASHG next week, it is pretty obvious that microRNA is a pretty hot area of research right now. Have you seen any change in demand or interest for the panel over the last couple of months?

[Pat Balthrop:]

So I’m going to ask the Doug Bryant, our Chief Operating Officer to respond to that.

[Doug Bryant:]

Just with the number of papers and the level of interest and the number of talks we seen at various symposiums and shows, you would expect an uptick and we are seeing that. But as you point out, it is still a very small part of our sales today.

[Sean:]

Sure, great thanks. Thanks a lot guys.

[Operator:]

Our next question Matthew Scalo with Canaccord Adams.

[Matthew Scalo:]

Hi, guys. Very good quarter here.

[Pat Balthrop:]

Thanks, Matt.

[Harriss Currie:]

Hey, Matt.

[Matthew Scalo:]

I had a couple of quick questions, I heard the comments about submission for the CF test, the ASRs. I thought that was supposed to be done by the end of September, have you already submitted that or…

[Pat Balthrop:]

Yes, so the issue around the ASRs and CF in particular is that the first thing that I think we should start with this how the product itself is performing, which is it is performing very well. And the ASRs we expect that we have – will be submitted for review by FDA in the near future. You may recall, Matt, from previous discussions that FDA’s Officer of In Vitro Diagnostics published a letter from Dr. Steve Gutman [ph] who is the Director of OIBD on June 6, which remembering on the date are the 12 month anniversary of the original ASR guidance which was issued in September of 2007 that called for a period of enforcement discretion of 12 months, which as you point out would expire in September of 2008. But in that letter that they sent on June 6 of this year, they confirmed want FDA had communicated to us in the past and what we in turn have said to our investors which is in summary if the company is adhering to FDAs guidelines regarding ASRs, by doing things such as conducting the pre IDE meetings with FDA in anticipation of conducting clinicals for eventual submission that FDA would extend the enforcement discretion for that company after the September 15 deadline and that that company’s ASRs will be continued to be sold after September. We can confirm that we have adhered to FDA guidelines that were called for in that letter and that we’ve had the pre IDE meetings with FDA and that our ASRs will be able to continue to be sold. We expect to proceed and are in the process of doing the clinicals and so on, and that we will continue to sell the products until such time as we summit the products to FDA and get clearance for those. And so the root cause there, Matt, is it was really – it is my personal opinion that the agency entered into their guidance document with the best of intentions not recognizing the amount of work it was going to take on their part once companies started to do the work and file their submissions and so on. They came to recognize that which led to the June 6 letter and the good news is that we were ahead of schedule with them every step of the way. So the key milestone was to get FDA’s agreement on the way we are going to conduct the clinical trials, that is what that pre IDE meeting is all about. We have done that, we’re doing the work, and we will make the submissions and so on, and so we’re in pretty good shape.

[Matthew Scalo:]

Perfect. That great clarity, thank you. Could I ask about the FX from Harriss’ comments, but could you just gave me a rough range percentage of the installed base that is overseas?

[Harriss Currie:]

The percentage of the installed base that is overseas is probably about 40% or so, that is ex-U.S. However the sales of those items overseas are all predominantly made in U.S. dollars. So it really has no FX effect except for the purchasing party. They have an FX effect.

[Matthew Scalo:]

Fair enough. And then as far as I would like to go back to RVP , we haven’t seen kind of a sequential increase in the reagent sales in the third quarter, looking back last year it actually dropped sequentially. Was there growth in CF or could we kind of attribute that sequential increase to the RVP?

[Pat Balthrop:]

So, the assay sales remembering now that CF and RVP and microRNA and so on are all – we all capture them in what we call our assay sales, so the growth number there were actually very high, the percent I think year over year.

[Harriss Currie:]

I think I might be able to help you a little bit. We were flat first quarter to second quarter, and then third quarter obviously that we just talked about we are up. One thing to remember is that the assay group revenue today is a very small number and therefore variations in for instance the CF revenue stream that historically has been the largest component of that for the LTM, it was greater than 70% of the total revenue. So we are a major customer to postpone sort of the same effect as it was to consumables to postpone a purchase or move up a purchase because of the run on testing services, that can have an effect on the revenue today, a material effect on a very small number. So until we get our assay group revenue with a number of significant products, with the RVP test, for instance the CF test, and some of the other ones that we are working in the pipeline, I believe that over time what you see is the effects of volatility on any individual test will decrease. Overall, the growth in the quarter was attributable to almost all of our assay products, so we had success with all of them. So we’re certainly happy with that.

[Matthew Scalo:]

Okay. And then just the contribution from Abbott and Fisher, did they contribute equally in the quarter or are there slightly differences in timelines, and I’m just thinking about the distribution from RVP?

[Pat Balthrop:]

I would say the contribution from Fisher and Abbott remains equivalent in comparison to each other. We’re still playing a role in getting the products sold and the reason for that is because those two organizations are coming up the learning curve. But it is also true that we have – we have been through the training with their sales forces and all that stuff in advance of the flu season. So we’re pleased with how that is going, we obviously as you might imagine believe there’s opportunities for improvement there and we’re working hard on those.

[Matthew Scalo:]

Congratulations, this was a very nice quarter.

[Pat Balthrop:]

Thanks.

[Operator:]

We’ll go next to Dana Walker with Kalmar Investments.

[Dana Walker:]

Hi, I have been lulled into almost forgetting what I wanted to talk about. Good evening. I believe you said earlier this year that you would hope to have newborn products on the market by the end of 2008. Where would that stand?

[Pat Balthrop:]

I would say that we are pleased with how we’re doing there. I would tell you that the APHL meeting which occurred just last week in San Antonio, that is the Association Of Public Health Labs, which is where newborn screening fits, as you might imagine, we had a significant presence there, everything there went well. We have an initial product that we expect to roll out. Whether we get it out this year or not, I think is too early to say. We expect it to certainly be available in 2009. I do recall making that comment to you and I believed it at the time, Dana. I’m not sure we’re going to get the product out in 2008 though.

[Dana Walker:]

We’ll let that slide.

[Pat Balthrop:]

Thank you.

[Dana Walker:]

You are welcome. Your technology business was up about $2 million or about 10% sequentially. Could you comment on anything in particular end market wise that would have been important drivers to that?

[Pat Balthrop:]

Well, I think the one thing to keep in mind is the ever growing installed base and the utilization of the current instruments. So our bead revenue grew by – this is annual now – 45% over the same period last year, while our installed base grew by 19%. So what that means is that the average utilization of beads consumed per quarter per instrument is growing quite nicely. So that is part of the factor. Royalties obviously continued – as a result of a previous comment – royalties obviously are continuing to grow nicely at about that same 40% rate. We also had a solid instrument quarter. There was no one particular partner, no one particular market segment. What we have been working on for the last several years is making sure that in the technology group we have a solid partnership strategy that we have a series of focus partners that are deploying the technology, and so we’re not dependent on any one partner. We just have a partnership strategy that once you stack all those partners on top of each other, we get the results that we deliver. So no one thing to point to.

[Dana Walker:]

That’s all I have. Thank you.

[Operator:]

And we have a follow from Dan Leonard with First Analysis.

[Dan Leonard:]

Just a quick question for Harriss. Harriss, I realize you’re not exposed in foreign currency on the revenue line, but in the cost line, you do have a number of costs in Canada. So could you help us understand how the stronger U.S. dollar versus Canadian dollar, the magnitude of the impact that it will have on the P&L?

[Harriss Currie:]

Again the impact on our P&L from a foreign currency standpoint is very modest. A number of costs in our Canadian entity are denominated in U.S. dollars. And so really the only true effect is on payroll for the employees there and there are a number of Canadian employees that actually work in the U.S. are paid in U.S. dollars. So again the effect is minimal there from a foreign currency standpoint between the U.S. and Canada. Should we be as I said earlier become more global and I am certainly we will, that exposure could certainly increase, but from a U.S. dollar Canadian dollar standpoint, we have any potential foreign exchange fluctuations well covered.

[Pat Balthrop:]

So, Dan, this is Pat. So the costs that are denominated in U.S. dollars basically means a lot of our suppliers are in the U.S. And so we ship the product across the border, we have sort of a foreign currency event. We ship and then we denominate all our sales in U.S. dollars, so it gets reversed in effect right if there is one, and so that is what Harriss means.

[Dan Leonard:]

Thank you.

[Operator:]

And at this time, there appear to be no further questions. I would like to turn things back over to Mr. Balthrop for any additional or closing comments.

[Pat Balthrop:]

Well, once again we’re very pleased with what we’ve delivered, the results we delivered in the third quarter. We continue to execute our growth strategy. In these unprecedented times, we believe the secret to our success will be that we continue to stay focused on executing the plan. And if we do that, our company will be successful and we will look forward to sharing with you that success when we talk to you in about 90 days. Thanks very much.

[Operator:]

And again that does conclude today’s conference call. Thank you for your participation, and you may disconnect at this time.