Luminex Corporation
Q4 2008 Earnings Call Transcript

Published: 6 Feb 2009

[Operator:]

Good afternoon and welcome to the Luminex Fourth 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 call over to Director of Investor Relations, Mimi Torrington.

[Mimi Torrington:]

Thank you, Melanie. Good afternoon and welcome to Luminex Corporation’s conference call to discuss fourth quarter and full year 2008 financial and operational results. I am Mimi Torrington, Director Of Investor Relations. Today Patrick Balthrop, our President and CEO, and Harriss Currie, our Chief Financial Officer will discuss our fourth quarter and full year 2008 results, highlights and the outlook for 2009. We issued a press release earlier today announcing the company’s results for the fourth quarter and year ended December 31, 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 website 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 the Private Securities Litigation Reform Act of 1995, including but not limited to, statements made regarding our strategic outlook and growth plans for our business for 2009 and beyond, the increasing productivity and profitability of our installed base of systems, the expansion of our direct assay segment product offerings and the resulting shift in our revenue mix, and improvement in gross margins, the ability of new partnerships and distribution agreements to deliver future value and expand the reach of our products, the achievement of product development milestones and full commercialization of FLEXMAP 3D, our and partners' ability to develop new products and to penetrate existing and new markets, the growth and demand for our products and technology and our partners' ability to enhance that growth, our ability to enhance existing and develop new strategic partnerships, our ability to weather the current economic environment based on among other things the strength of our balance sheet, the cost effectiveness of our products, the diversity of our customer base, the competitive benefits of our products, our regulatory focus and the and the strength of our product pipeline, potential additional investment in our company, the long-term value of and demand for our products in various strategic markets, operational trends including those related to the sales of consumables, royalties, revenues and inventory levels, maintaining our expense levels and growing revenue, increased bulk purchases of our consumables in future periods, the security of our cash reserves, our long-term financial targets, our business outlook and projections about revenues, cash flow, system shipments, 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 and 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. I will now turn the call over to Patrick Balthrop, President and Chief Executive Officer of Luminex.

[Patrick Balthrop:]

Thank you, Mimi, and good afternoon. Welcome to our fourth quarter and year-end 2008 earnings call. We're extremely pleased with out accomplishments for the year. Luminex (inaudible).

[Operator:]

Ladies and gentlemen, please standby as we're experiencing (inaudible) interruption in today's call.

[Patrick Balthrop:]

Thank you, Mimi. Good afternoon and welcome to our fourth quarter and year-end 2008 earnings call. We're extremely pleased with out accomplishments for the year. Luminex set new records in total revenue assay consumables and royalty revenue driving a new record in gross profit and bottom line profit. Furthermore, we continue to execute control of our SG&A, leveraging our operating expenses which clearly contributed to profitability. In addition to the positive financial results for the year, we also enhanced our balance sheet and advanced and finalized several strategic deals and milestones which we'll review with you today. On the call, I'll review our financial highlights, our other significant events and achievements that occurred during 2008. I'll also take a moment and discuss with you the strategic outlook for our business for 2009 and beyond. Harriss will then provide you with a more detailed review of our financial results and I'll return at the end of the call to provide our annual revenue guidance for 2009 and then we'll open up the line for you questions. We're extremely pleased with our performance in 2008. With one of the toughest economic environments in recent history, we achieved a new set of records for the company. As you saw in our press release, for 2008 we delivered record revenue of $104 million, a 39% increase over revenue for the calendar 2007. We shipped a record number of instruments with a total 915 for the year and 250 shipments in the fourth quarter. This marks the ninth consecutive quarter of system shipments over 200. In 2008, we recorded our highest ever (inaudible) in consumables revenue at $31.7 millions, an increase of 65% over 2007. Our royalty revenue, our highest margin item increased 45% over 2007 to $14.9 million. We're also pleased with the progress of our assay sales which grew 65% in absolute terms over 2007 to $18.7 million in 2008, greater than 40% of that organic growth. The combination of increased royalty consumables and assay sales drove our consolidated gross margin to a new record of 68% for 2008, an improvement of 7 points over 2007. And further we continue to leverage our operating expenses holding our SG&A to our fourth quarter 2007 run rate. Through revenue growth and improved product mix plus disciplined cost and expense management, we achieved net income for the year of $3.1 million or $0.08 a share. As we set all these records we also continued to execute our strategic growth plan designed to build value in the company over the longer term. When you examine the long term trends of our key financial metrics, you can see the results of that execution. The increased installed base now at almost 6,000 instruments continues to drive growth in consumables and royalties. Adding high-margin assays of more value per end user transaction improves performance further. This is evident in our improving gross margins, and all these trends are very favorable. In addition to these positive financial metrics, we also achieved several strategic milestones. 2008 was indeed a better year for the company. We launched two groundbreaking products, an xTAG RVP in January and FLEXMAP 3D in November. We reached a milestone in system shipments with over 5,000 instruments shipped and as you heard earlier are well on our way to 6,000 instruments shipped. We successfully completed a secondary offering raising approximately $75 million in cash and we ended 2008 with $124 million in cash and investments. Additionally, we forged several new partnership agreements with leading companies such as BD for cancer diagnostics and Tyson Foods for animal health. These are longer term strategic agreements which we believe will be valuable in the years to come. We also signed several new distribution agreements with Abbott Molecular and Mingyuan Development Company to expand the reach of our assay products domestically and globally. In addition to our financial and strategic development achievements, the company was recognized for all we had accomplished. Most recently, Luminex was named by Forbes as one of the 25 fastest-growing technology companies in America for 2008. Additionally, Luminex has been recognized throughout the year for innovation technology and our management execution. Executing our growth strategy has been a prime focus for us over the past several years. In 2005 we implemented our strategy, grew sales by 18% with gross margin of 53%. In that year we announced the cornerstone of our strategy being a significant increase in R&D investments to build our pipeline including the first ever assay development program and we announced our intent to have a best-in-class regulatory organization. In 2006, we grew revenue by 25%, gross margins improved to 61% of sales, the pipeline investment grew even more and it began to pay off. We also made strategic infrastructure investments including an investment in a lean manufacturing strategy. 2007, we grew revenue by 42%, gross margins were 61%. In 2007, we closed our first acquisition, Luminex Molecular Diagnostics giving us an assay product business in the important molecular diagnostics market and LMD has proven to be a terrific acquisition for the company. In 2007, LMD contributed some 15 or so points of the 42 points of revenue growth. And as I mentioned we have successfully continued to execute in 2008 and as we look forward to 2009 our plan is to continue to focus on the execution of this growth plan including strategic investments to help us ensure longer term growth. Our business structure is comprised of the technology group which is our partner model and the assay group which is Luminex Molecular Diagnostics and Luminex Bioscience group and all these groups are supported by our proprietary xMAP technology, the strategic foundation of Luminex and the basis of everything that we do. Going (ph) from the structure are our four growth strategies for 2009 did focus on the following

[Harriss Currie:]

Thanks, Pat. Let's begin the financial review with a look at our key metrics. Earlier, Pat reviewed our annual performance and long-term trends on those key metrics. I'll provide additional insight and detail for the quarter and year. Revenue grew by 31% for the three months ended December 31, 2008 over that of the prior year period, all of which was organic. And revenue growth over the past two years has occurred at a compound annual growth rate of 41% including the effects the LMD acquisition. System shipments remained strong with 250 systems shipped in the fourth quarter of 2008 and our technology continues to be in high demand and our business model continues to provide significant reach and growth. Royalty revenue in the fourth quarter of 2008 grew by 44% over the equivalent prior year period, over twice that of the install base growth indicating that our install base of instruments is becoming more productive and profitable. Sales of consumables were 8.3 million for the fourth quarter of 2008, up 53% compared with the fourth quarter of 2007. It's important to note the upward trend of the four-quarter moving average which over the past two years has grown at a compound annual rate of 46%. We're very encouraged by this trend of the moving average and the system shipments and the number of applications increase, we expect the upward movement to continue. This slide is the summary of the operating results reported in today's release. Total consolidated revenue for the fourth quarter was 28.2 million, an increase of 31% over 2007 fourth quarter revenue of 21.5 million. For the full year 2008, as Pat mentioned, we reported revenue of 104.4 million, an increase of 39% over full year 2007 revenue. Consolidated gross margin for the fourth quarter was 69%, a 7-point improvement over the fourth quarter of '07. Gross margin for the full year 2008 was 68%, again a 7-point improvement over the prior year. Coupled with the revenue growth we referred to previously, we generated an additional 6.3 million and 24.9 million of gross profit dollars for the 3 and 12 months ended December 31, 2008 respectively over those of the 2007 equivalent periods. As we've indicated previously, one of our goals for 2008 was to hold SG&A expenses relatively flat with the fourth quarter 2007 excluding unusual items and for the fourth quarter in a row, we've delivered on that objective. We'll take a look at a chart of the actual operating expenses in just a bit that supports this achievement. Overall, the growth in revenue related to margin expansion and operating cost control were the primary drivers behind our profitable fourth quarter and full year 2008. Earlier I referred to the overall revenue growth for the full year 2008 over that of 2007 of 39%. The most significant contributors to that growth rate for 2008 came from our high-margin items, consumables, royalties and assays. Here we can see that royalties individually grew by 45% over the 2007 figures and assays and consumables each grew by 65% over 2007 assays and consumables revenue. On the next slide, we'll look at the components of revenue and their relative contribution to our total revenue figure. For the fourth quarter 2008, we had total consolidated revenue of 28.2 million distributed as follows

[Patrick Balthrop:]

Thank you, Harriss. We currently expect full year 2009 revenue to be between $130 million and $140 million representing an increase in our top line of between 25% and 34% of reported 2008 revenue. This is of course in line with our previously stated long-term guidance around the expected revenue growth of greater than 25% annually. In terms of system sales and placements as we have previously stated, we continue to currently expect to place between 175 and 225 Luminex systems per quarter in 2009, the pricing dependent on a configuration mix, product mix and partner mix. This is consistent with the indications we have made previously. In addition, we advise that our investors hold us accountable for continuing to deliver against our strategic plan and our product development milestones. 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 as you just heard Harriss mention. We believe that this investment in combination with the significant R&D investments being made by our partners will help ensure the long-term competitive advantage of Luminex and xMAP technology. Finally, although not part of our official guidance, our goal for SG&A is to continue to manage our expenses closely while allowing for some incremental increase to fund our long-term growth initiatives. In summary, we’re extremely pleased with our 2008 results and we’re excited about 2009, continuing to execute our growth plans, advancing our product pipeline, and enhancing relationships with our key partners. We expect to continue to honor our commitments by achieving all of our milestones and demonstrating our ability to execute. This ends our formal remarks today. We’ll now open the line for questions. Melanie, if you could please open the line.

[Operator:]

(Operator Instructions) We’ll take our first question from Un Kwon-Casado of Pacific Growth Equities.

[Un Kwon-Casado:]

Great. Thanks very much. Harriss, I was wondering, would you be able to break out your gross margins by segment?

[Harriss Currie:]

Yeah. Let me get the -- let me pull that up here. Give me just a second. If you have a follow-up question, go on and ask it. I’ll get that to you.

[Un Kwon-Casado:]

Sure. Okay. Okay. So one for Pat. Within your revenue guidance, I was wondering could you provide a little bit more color on which line items you expect to be the key drivers? Do you expect the growth to be balanced across both segments?

[Patrick Balthrop:]

Yes, we do. The key line items of course are systems and in particular there our current install base and that install base growing, which we expect to continue; the growth in consumables and the growth in royalties. Again, based on the investments by our partners and the continuing placement of production systems, we expect those trends to continue. As you may remember from our previous conversations, the relationship between the growth rates there are a critical thing to pay attention to. The increase in the install base being historically in the 20% range, the growth in our royalties being on a compound basis in the mid-30s, and our bead revenue being higher yet again. The relationship between those three is very important because the beads outgrowing the others is a good thing because that means that our partners are buying beads from us and then developing applications that will continue to drive royalties and growth in the future. Our growth in our assay group will be driven by additional penetration with our current products, whether that’s cystic fibrosis, RVP, and so on and the launch of the products that I mentioned during my remarks, which would include applications in the animal health segment in newborn screening. So for all those reasons, we expect our growth rates to be balanced across the two groups.

[Un Kwon-Casado:]

Okay, great.

[Harriss Currie:]

Un, the margins for our two groups. Technology group had 65% margins for the fourth quarter and the assay group actually had about 83% gross margins from the fourth quarter.

[Un Kwon-Casado:]

Wow. And so, on the assay front, do you expect that to continue in ’09?

[Harriss Currie:]

We expect to continue that pretty favorable margins in the assay group, which is one of the reasons that we formed it, but I can’t really comment on exactly where those margins will fall out because it’s highly dependent upon the product mix within the assay group. So we’re like it is in the technology group where if you have a, you know, higher percentage of consumables or royalties, you get much higher margin. So it’s different assays at different margins, so I would certainly expect them to remain favorable. I can’t comment on whether they’ll be at that level.

[Un Kwon-Casado:]

Okay. Fair enough. And then just one quick one for Pat. With respect to the guidance, what type of flu season have you baked in?

[Patrick Balthrop:]

Well, the flu season -- I can’t really say that we baked in a particular rate of the flu season. I will say, however, that as you -- as it relates to RVP, that the product acceptance for RVP has been good and as we’ve expected. But as you may have noticed in your research and in your reading, the season so far is relatively light. If you look at the CDC data and other sources, it indicates that at least so far the flu season is less severe than any of the past few years. But I think we have to wait and see what happens in the coming weeks because the flu season typically peaks around the end of February, beginning of March. The good news is we’re adding customers at our expected rate. The number of customers that we have that require a new instrument is a bit higher than we had originally expected. And so, the result of that is that the time that we’re experiencing from receiving the customers’ orders actually generating revenue is a bit longer than we anticipated. So that’s also affecting the sales ramp. That obviously is something that we are actively addressing. And so, for all those reasons, we expect RVP to obviously be a good contributor to our growth. But to your point, we are seeing the fact that this flu season is relatively light.

[Un Kwon-Casado:]

Okay. Thanks very much.

[Operator:]

Next, we’ll go to Daniel Owczarski from Avondale Partners.

[Daniel Owczarski:]

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

[Patrick Balthrop:]

Yeah.

[Harriss Currie:]

Hi, Dan.

[Daniel Owczarski:]

Can you talk a little bit about the instrument revenue just on a sequential basis? It seems like the system placement number is up, but is it right in thinking that the instrument revenue sequentially is down? And if that is the case, what’s happening there?

[Harriss Currie:]

Really, the -- as I think we’ve talked about before, Dan, our instrument revenue going up or down oftentimes is a result of the partner mix and we’ve added partners during the life of the company at some different pricing based on when they came in and took a risk on our technology. So there are partners today with more favorable pricing than others and depending on how that mix lays out it can affect the average price per system that we sell these for. Overall, for us, what’s -- although system revenues are important, what’s more important to us is increasing that overall install base because that’s what pulls through those high margin items -- the consumables, the royalties, and the assays -- that generate the real margins for us.

[Daniel Owczarski:]

Okay. And then as far as the FlexMAPS, it sounds like you’ve got at least a couple out there. Do you have any idea yet about utilization of consumables that compared to the legacy of the 200 system? What potentially consumable-wise how much more that could drive through a single system?

[Patrick Balthrop:]

Dan, I would say that the way to think about that is the FlexMAP 3D is targeted at higher-volume labs as you know already. And we expect to have that product going to full market release in the second quarter to third quarter of this year. The early placements that we have will go to some strategically important customers, including the ones that we booked in the fourth quarter. So the way to think about FlexMAP 3D from a volume throughput perspective is consistent with the speed of the instrument relative to the LX200, which is about a 3X number. I think that would be a reasonable assumption to make. And although it might be higher than that I think that that would be a reasonable assumption.

[Daniel Owczarski:]

Okay. And then, Harriss, just to look at the tax rate in the quarter, is there anything one time in nature there, or is that state taxes? And I guess how shall we think about that tax rate from a modeling perspective in ’09?

[Harriss Currie:]

That’s interesting. You should ask that question. Unfortunately, we got caught a little bit for the year by the State of California deciding to -- to not allow the use of NOL carry-forwards for two years. And as you can imagine, there’s a lot of high-tech companies in California. We have significant sales in California. Therefore, when you do the math, we have to allocate a portion of our revenues in cost and profitability in California and we weren’t able to perfect those profits in the current year with our California NOL. So that drove some increase in our tax rate, our affected tax rate. Overall, ultimately, once we exhaust the NOLs, state NOLs, in the United States, plus our federal NOL and then our Canadian NOLs, our tax rate will ultimately settle in at a little over 30%. But I would certainly suggest that it’s modestly high now and should California lift the inability to use those in a couple of years, as I said they’re going to, quite possibly we could go slightly now.

[Daniel Owczarski:]

Okay, thank you.

[Operator:]

Next, we’ll go to Herb Buchbinder from Wachovia Securities.

[Herb Buchbinder:]

Hi, Pat and Harriss.

[Patrick Balthrop:]

Hi, Herb.

[Harriss Currie:]

Hi, Herb.

[Herb Buchbinder:]

Can you elaborate on anything going on in the bio defense area? Any specific programs that you can talk about that may influence this business at least in ’09?

[Patrick Balthrop:]

Well, I can’t make any specific comments or commitments about 2009, Herb. Bio defense remains an important segment for the company. We have as you may remember had grants and collaborations in the past that have been effective for the company. We have participated in various programs based on those grants with significant potential, including programs like the BioWatch program from the Determine of Homeland Security. And we continue to pursue those. We believe that there is real opportunity for us in this segment over the longer term and we plan to aggressively pursue those opportunities. But beyond that, we’re not really able to discuss any specifics.

[Herb Buchbinder:]

Okay. Is there anything in the third quarter margin versus the fourth quarter that you can comment on? I guess you took a little bit less to the bottom line in the fourth quarter. But is there any mix issues (inaudible) tax rate issues, so that’s on the pre-tax standpoint. But anything that we should be aware of?

[Patrick Balthrop:]

Yeah. I think the two big things to keep in mind, Herb, are the number of instruments at the 250 level and the mix thereof that Harriss just mentioned in response to a prior question. And then in the third quarter, as we reported on the call, we also had a one-time margin impact in the $350,000 range based on a contract that we signed with one of our large customers Gensan Genetics (ph) which is one of our cystic fibrosis customers when we extended the agreement we have with them over -- in the additional several years.

[Herb Buchbinder:]

Okay. All right. Thank you very much.

[Operator:]

Next, we’ll go to Peter Lawson from Thomas Weisel Partners

[Patrick Donnelly:]

This is actually Patrick Donnelly for Peter. How are you, guys?

[Patrick Balthrop:]

Hi, Patrick.

[Harriss Currie:]

Hi, Patrick.

[Patrick Donnelly:]

I was just wondering, I know you gave a little bit of color on tax and where it’s going to end up, but what do you think that’s going to be for 2009?

[Harriss Currie:]

Unfortunately, Patrick, we’re not providing line item guidance for income statements for ’09. We certainly can talk to you about overall annual revenue projection. I believe that as I said after a few years, enough NOLs will settle in a little above 30. I’m hesitant to comment for the year 2009 where that might fall out.

[Patrick Donnelly:]

Okay. And then with the product mix heavy on bulk orders, have you seen a slowdown there with the general economy or do you foresee anything like that?

[Patrick Balthrop:]

No. Short answer is no. We have, you know, the -- many of the partners, all the partners that we have, they order in bulk. Have made long-term commitments to the technology and are making substantive investments in the technology and expanding the number of assays and applications that they have available. And so, the timing of the bulk orders is primarily driven by their need to continue to expand and to continue to put -- to buy feeds (ph) from us so that they can take them into the factory and serve the ongoing utilization of the instruments that are already in the field. And so, the bulk order phenomenon is driven primarily by those factors rather than any outside economic factors.

[Patrick Donnelly:]

Okay. And when do you see the assay group breaking even?

[Harriss Currie:]

Hopefully, soon. But we obviously have a little ways to go.

[Patrick Donnelly:]

Okay.

[Harriss Currie:]

Again, we don’t provide specific guidance by segment or anything below the topline revenue. So I’m hesitant to comment there.

[Patrick Donnelly:]

Great. Thank you.

[Operator:]

Next, we’ll go to Sean Rodriguez (ph) from Cowen and Company.

[[Sean Rodriguez]:]

Hey, guys. Good afternoon.

[Patrick Balthrop:]

Hi.

[Harriss Currie:]

Hi.

[[Sean Rodriguez]:]

With regard to your guidance, I know that over the past couple of quarters, there are some acquisitions. Your platform has gotten into the hands of some pretty established names. Example, (inaudible). Would you say your guidance reflects the same level of contributions -- your expectations for the same level of contributions for those legacy partnerships or maybe increased expectations for those?

[Patrick Balthrop:]

I would say the way to think about that is primarily this way. The consolidation is taking place in the marketplace, including the ones that you mentioned. One of our partners (inaudible) being acquired by (inaudible), Tepnel being acquired by Gen-Probe. You know, that trend may continue, but if that happens to your point, I think it’s proven to be beneficial to Luminex, at least it has in the past. And also to your point, we think it will be beneficial going forward only because the companies that are in effect being acquired by larger entities are being acquired by companies who have more significant resources and that they can apply to both product development as well as sales and marketing efforts. We have seen that in the past when smaller private partners of ours have been acquired by companies such as Millipore and what is now Life Technologies. However, I think the -- if you look at what’s happened in those cases, it’s been more of a longer term impact rather than an immediate impact because as you might imagine, it takes time for those larger entities to apply the resources to expand the number of applications that are available to get the products into the bags of their sales people around the world. So I think as you imply, it’s a positive outcome, but to expect it to be an immediate short-term measurable effect I think may not be the best way to think about it.

[[Sean Rodriguez]:]

Right. Thanks. And another one with regard to your guidance, there’s another established competitor of yours with a pretty comparable platform, at least from an instrument perspective, that’s been increasingly vocal about their expectations for gaining increased traction with their instrument in ’09. Does your guidance reflect in any way increased competition just overall?

[Patrick Balthrop:]

Who’s the competitor you’re talking about?

[[Sean Rodriguez]:]

Illumina.

[Patrick Balthrop:]

Yeah. So, well, I think the best way of answering that is that we expect the demand for our technology to basically continue at its prior rate. The market activity for Illumina’s Bead Express in our market segments is basically approaching zero. As you may have noted in their recent comments, their activity appears, what they said, is in the agricultural market. And the other thing to keep in mind is that the number of instrument placements that Luminex has as we just mentioned on the call is approaching 6,000. The number that Illumina has in the field is a two-digit number. And so, it’s a great company and I think the technology they have is fine. But the number of instrument placements, the number of instrument applications, the fact that we have significant market reach and assay applications and FDA-cleared labs and so on basically says to me that the possibility of Illumina being a significant competitive effect on Luminex in the short-term is a remote possibility.

[[Sean Rodriguez]:]

Got it. Good enough. And just one more from me. What proportion of your installed base would you say would you estimate is still consuming product? And maybe a follow-up to that, what do you think the mean lifespan of your instruments is?

[Patrick Balthrop:]

Yeah. We believe the mean lifespan is in the six to seven-year range. Our current estimate of the install base that is idle is to be perfectly honest, an educated guess, I don’t want to imply this accounting grade level of accuracy or precision here, we believe the number of systems that are idle is less than 10% of the install base. If you look at the number of instruments that we’ve shipped over the last several years, say, the last four or five years, our belief is the vast majority approaching 100% of those are active in the field. Most of those instruments that would be idle today would be instruments that were shipped in the first year or two of the company’s commercial period, which was started in the year 2000.

[[Sean Rodriguez]:]

Great. Thanks very much.

[Operator:]

Next, we’ll go to Alastair Mackay from Garp Research & Securities.

[Alastair Mackay:]

Yeah. Patrick, you mentioned that there were 250 units installed and three FlexMAPs. So just to be clear, is that arithmetic 250 LX100’s and 200’s series and then three FlexMAPs?

[Patrick Balthrop:]

Yes.

[Alastair Mackay:]

Okay, great. Can you talk a little about the breakdown in terms of product use with respect to immunoassay and protein uses as compared to nucleic acid uses?

[Patrick Balthrop:]

Are you specifically talking about life science research in this case?

[Alastair Mackay:]

In overall general terms.

[Patrick Balthrop:]

Okay. So, well, the percentage of our life science research business, so these would be partners such as Bio-Rad Life Technologies, Millipore, et cetera. The percentage of their business that is proteins is 100%. We do have some nucleic acid activity in life science research. It’s primarily gone with entities that would be not served by our partners but would be beads that would be bought by, say, a broad institute or a Stanford on a direct basis and then that would result in a home-brew assay that they would develop on their own using their own nucleic acid methods. So the vast majority, you know, approaching 100% of our life science research business is on the protein side. Now, if you move in to diagnostics, that’s a different story and it’s a more difficult question to answer. And the reason for that is because we clearly know within our molecular diagnostics business, you know, that that’s obviously 100% nucleic acid. But we also have certain partners and particularly those in HLA transplant, partners such as One Lambda and Tepnel where when we deliver beads to them, some of those beads are used for traditional immunoassay protein based assays and some of the beads that we sell them are used for nucleic acid based methods because in the HLA market, of course, they use both. So it’s a more difficult question to answer on the diagnostic side.

[Alastair Mackay:]

Okay, great. And then if I can ask one question about RVP. We heard some feedback I guess you might say on three issues. One that you’d mentioned in previous calls is the list of viruses that are covered and the prospects for expanding that in second generation. And then the other two are sample prep time and concerns about possible cross contamination? Any comments on those issues?

[Patrick Balthrop:]

Well, I think the -- we do, as you may remember, Alastair, have in the pipeline an improvement to our current product that will be less hands-on time and faster in terms of time to result. That product will be available for the flu season that will be taking place a year from now, so we expect to have the product available in the late summer timeframe in time for the upcoming flu season. The products we’re selling for this flu season, the one that we’re in at the moment, is the current product that we have. And the reason frankly we’re making the investment to improve the product is because we think we can get more customers if we make it easier to use and faster. And so, that’s why we’re doing it. On the issue of the coverage of the number of respiratory viruses -- or respiratory infection, excuse me, that are covered by the 12 viruses that we include, that number is 85%, 86% and our market research has confirmed that that is a robust number that is well received by clinicians. If we were to -- if we had the -- in contrast, if we had the product that we sell in Europe available in the United States, that 85% number would be 91%. And so, the relative improvement by adding those additional markers would be on a per marker basis about 1% of the respiratory infection.

[Alastair Mackay:]

Great. Thanks very much.

[Operator:]

Next, we’ll go to Scott Gleason from Stephens.

[Scott Gleason:]

Hey, Patrick and Harriss. Thanks for taking my question.

[Patrick Balthrop:]

Hey, Scott.

[Harriss Currie:]

Hey, Scott.

[Scott Gleason:]

Just real quick, Pat, can you remind us of, when we look at bulk quarters as a percentage of sales, you guys said it was around 80%, 82% this quarter, how that has kind of trended historically, and then maybe give us some guidance going forward with where you think that number could go?

[Patrick Balthrop:]

I’ll have Harriss answer that if that’s okay.

[Harriss Currie:]

Scott, over time, if we will look back probably over the past three or four years, what you’d see is that those non-bulk orders have tended to be right around that million dollars, $1.2 million, $1.5 million range and really haven’t moved up that much. So, as our quarterly consumable revenue has increased over time, what we found is that bulk orders as a percentage of total consumable revenue has increased over that same time period. The 10 to 12 customers or partners of ours that buy in bulk are buying in larger lots now than they did two or three years ago.

[Scott Gleason:]

Okay, great. And then would you guys care to comment on, you know, the weak flu season and especially in the fourth quarter, you know, maybe just give us some granularity on what potential impact was on re-order rates in the fourth quarter for the upper respiratory viral panel?

[Harriss Currie:]

Well, I think we obviously are not in a position, Scott, to talk about individual line item revenue. All I can really tell you is that the flu season this year, as I mentioned in response to an earlier question, is in fact relatively light. That’s well known in the marketplace. And so, the issue was not really the ability to add customers. It was the fact that samples were not arriving into the labs for the customers that we had added at the rate that we had forecasted. And so, for all those reasons, we are seeing a relatively light flu season. But as I also mentioned earlier, I think it’s very important, based on the more recent trends, if you, again, look at CDC data and other third party sources, the expectation for the flu season to be increasing and peaking in the coming weeks and so on seems to be a good assumption. So we just have to wait and see. You know, every flu season is a little different. And so, whether it will be equivalent to or less than what we’ve seen in the past is still to be determined.

[Scott Gleason:]

Great. And then just one last question. Pat, are you guys kind of ready to talk about finalized pricing on FlexMAP 3D? And then maybe can you compare and contrast from a margin standpoint where that system, the gross margin would be, relative the LX 200?

[Patrick Balthrop:]

I think the way to think about that is, let me start with LX 200 just to give you some relative numbers there. So our average selling price across all of our blended partners for LX 200 is about $30,000. The end-user price is in the mid $40,000 to $50,000 range. If you look at FlexMAP 3D, the best way to think about that is basically to double those numbers more or less. And I think that that would be a safe assumption.

[Scott Gleason:]

Okay. I agree. And then on a margin basis, Pat, can you give us any help there at all?

[Patrick Balthrop:]

On a gross margin basis, you know, obviously too, we can’t talk really about individual product costs. But if you think about FlexMAP 3D as being an accretive product line, that’s also a reasonable assumption.

[Scott Gleason:]

Okay, great. Thanks for taking my questions.

[Operator:]

Next, we’ll go to Bruce Cranna from Leerink Swann.

[Kelley Roche:]

Hi, everyone. This is actually Kelley Roche for Bruce this afternoon. How are you doing?

[Patrick Balthrop:]

Fine. How are you?

[Harriss Currie:]

Hi, Kelly.

[Kelley Roche:]

Good. I was just wondering if you could maybe talk about, you know, your growth you’re expecting this year in ’09, sort of where you think the bulk of the growth is going to come from, either research markets, diagnostics, or the specialty. I know, you know, you touched upon earlier the drivers of the growth. But are there certain areas of those specific end-users you see doing particularly well? Thanks.

[Patrick Balthrop:]

Well, I would say the growth we expect to be relatively balanced. Over time, we’ve had, in terms of our total revenue mix, we’ve had an increasing portion of our revenue on a year-to-year-to-year basis coming from the diagnostics market. We expect that trend to continue. So, we expect a larger portion of our revenue to come from the diagnostics market in ’09 than in 2008. That’s what the historical data would imply. And we think that that historical data will hold. And as you know from our public filings, our largest partners, for example, our two largest partners are Bio-Rad and One Lambda. We expect them to remain large partners of ours based on their install base and their commitment to the technology. One Lambda, of course, is only a diagnostics company. Bio-Rad operates in both segments, both life science research and diagnostics. And so, whether it’s beads, royalties, systems or assay group, we expect an overall quite balanced performance. But as we introduce new products in the assay group, obviously, we expect that to represent an ever-increasing portion of our revenue. And the majority of that is in the diagnostics market.

[Kelley Roche:]

Okay, thanks. And the other, you know, is there a kind of a percentage you think of your customers that are based out of academic or research labs?

[Patrick Balthrop:]

Within research, academic in contrast to pharma biotech, you mean?

[Kelley Roche:]

Yeah.

[Patrick Balthrop:]

We believe that within the life science research market, it’s a difficult question for us to answer because we serve those markets by way of our partners. And so, I can only give you an estimate. But we believe that the majority of our research market is coming from academia versus pharma. Within academia, of course, the data shows that about 80% of academic funding on a rule of thumb basis comes from NIH. And then we all know what’s happened to the NIH project both prior and then with the recent stimulus package. So, for all those reasons, we expect the Luminex portion of the academic research source of funding to remain robust.

[Kelley Roche:]

Okay, thank you so much.

[Operator:]

Next, we’ll go to Matthew Scalo from Canaccord Adams.

[Matthew Scalo:]

Hi, guys.

[Patrick Balthrop:]

Hi.

[Matthew Scalo:]

Just a couple of quick questions on the RVP side. So, you’ve addressed this as far as, you know, maybe taking a little bit longer time from installation to revenue. But is it – it’s not so much the flu season per se as it is – is it branding of the RVP test to the referring doctors? The referring doc have a choice of how the reference lab runs the sample? Number 1 and number 2, because it possibly uncertainty on the reimbursement of the tests that’s also potentially elongating this process?

[Patrick Balthrop:]

No. On the reimbursement side, Matt, we’re hearing no feedback from the field regarding uncertainty or issues around reimbursement. It is true that the cycle time from receiving the customer order to the date that they go live has been extended somewhat because the number of customers that we are adding that require a new instrument is a higher percentage than we had forecasted originally. We are accessing our current install base at a very aggressive rate. So, it’s – I don’t want to imply that that’s not happening. It’s just that, you know, the assumptions that we made when we originally put our financial forecast together. So, we believe that we’ll be able to add customers when we have RVP 2 available because it will be easier and faster. We believe that that will be enhanced as we continue to increase our install base. And obviously, we’re actively – we’re taking active steps to ensure that we can aggressively add more customers and reduce the cycle time from order to revenue.

[Matthew Scalo:]

Okay. Could I ask you just with flu season being strong in the first quarter versus, say, third or fourth quarter, you know, will you see or do you expect to see assay revenue grow sequentially in the first quarter?

[Patrick Balthrop:]

Yeah, we can’t really comment on that, Matt, from, you know, first of all, as you know, we don’t provide quarterly guidance. But the other reason why I think it would be – the other thing to keep in mind I guess is that we have a lot of products that we are developing that we’ll be introducing through 2009. We’re selling the RVP now. We’ll introduce RVP 2 in time for the upcoming flu season. We have other products in the assay group. We have current products that we’re actively adding to customers, the number of purchasing customers and so on with our – via our relationship with Fisher and Abbott and so on. So, I want to make sure that you’re not assuming that what will drive sequential growth from revenue from quarter to quarter in assay revenue is driven only by the flu season. There are many other factors that could come into play there.

[Matthew Scalo:]

Okay, fair enough. On the FlexMAP 3D, I know there’s only less than a handful there. But are you seeing one test or another that’s I guess taken off on the system?

[Patrick Balthrop:]

Well, we have a relatively – as you heard during Harriss’ remarks, we had the three shipments that we delivered in the fourth quarter and over the first half of this year, we moved into full market launch, we’re doing the necessarily work with these strategically important customers. And it’s frankly taking us into new segments that will be large pharma. So, the three systems that we delivered in the fourth quarter, for example, Matt, were delivered to a household name, big pharma customer who is, in this case, using them for protein-based applications. So, as we have said, consistently, the enhanced throughput for FlexMAP 3D is going to take us and our partners into higher volume labs that we’ve been able to serve before. I believe the key to any system and its success in the marketplace is driven by the number of assay applications that are available. And as you may remember, we designed the FlexMAP 3D system so that all the assays that are available and compatible with our current LX 200 system are also compatible with FlexMAP 3D. And since in the research side, most of those are protein applications, we expect that protein applications will be – the early adopted methods for FlexMAP 3D as well.

[Matthew Scalo:]

Okay. That’s helpful. And then just last question as far as March 3rd, the Investor Day, any product launches that you anticipate announcing?

[Patrick Balthrop:]

You have to be present to win that.

[Matthew Scalo:]

Okay. I’ll try. Thanks, Pat.

[Operator:]

Next, we’ll go to Dan Leonard from First Analysis.

[Dan Leonard:]

Hi. Good afternoon.

[Patrick Balthrop:]

Good afternoon.

[Harriss Currie:]

Good afternoon

[Dan Leonard:]

Have you guys talked yet about the anticipated timing for some of your new multiplex assay in the assay group, for example, the fungal panel or the GI panel or the central nervous system panel?

[Patrick Balthrop:]

We did not mention it on the call, Dan, but we expect those not to be 2009 products introduction.

[Dan Leonard:]

Okay. So, are they pushed back to 2010 or…?

[Patrick Balthrop:]

They’re not really pushed back. They were always in 2010.

[Dan Leonard:]

Okay, thank you.

[Operator:]

There are no further questions at this point. I would like to turn the call back over to Patrick Balthrop for any additional or closing remarks.

[Patrick Balthrop:]

Thanks again for your attendance and attention today. We look forward to seeing you at the investor event in a few weeks.

[Operator:]

Ladies and gentlemen, that does conclude today’s conference call. We’d like to thank you all for your participation and have a great day.