Precipio, Inc.
Q2 2013 Earnings Call Transcript
Published:
- Operator:
- Good day. And welcome to the Transgenomic Second Quarter 2013 Financial Results Conference Call. All sites are currently in a listen-only mode. But please note there will be a question-and-answer session later on in the call. Also note today’s conference will be recorded and will be accessible both by phone and internet. Please refer to the press release about this conference call on the company’s website transgenomic.com for further detail. The company has asked that I read the following statement. Management will make comments today that contain forward-looking statements. Forward-looking statements are any statements that are made that are not historical facts. These forward-looking statements are based on current expectations of the management team and there could be no assurance that such expectations will come to fruition, because the forward-looking statements involve risks and uncertainties. Transgenomic’s actual result could differ materially for management’s current expectations. Please refer to the press release, the company’s Q-10, Q-K, and other periodic SEC filings for information about factors that could cause different outcomes. The information presented today is time sensitive and is accurate only at this time. If any portion of the call is rebroadcast, retransmitted, or redistributed at a later date Transgenomic will not be reviewing nor updating this material. I will now turn the conference over to Transgenomic CEO, Craig Tuttle. Please go ahead.
- Craig Tuttle:
- Thank you. Good afternoon everyone, and thank you for participating in today’s call. I am joined today by Mark Colonnese, our Chief Financial Officer. I’d like to start off this call by providing a brief second quarter performance summary, then I’ll provide an overview of our key business initiatives and commercial programs. I’ll then turn the call over to Mark who will review the second quarter financial results. Following that we will then open up the call for Q&A. We reported today that this year second quarter revenue is well below the same period in 2012 but this was expected. As you may recall the large revenue increase in second quarter 2012 was the result of a lab information system failure we experienced in the first quarter that year that halted testing and resulted in a large amount of the testing that couldn’t be completed in the first quarter and then rolled over into the second quarter. However, the second quarter revenues were lower than we had planned in our laboratory services segment, and this is primarily the result from lower volumes in our neurology unit which should be addressed by the upcoming launch of a number of new assays in our New Haven CLIA reference lab, and by activities we are conducting to improve the ScoliScore franchise. On the part of the site the quarter results included a very strong performance on our tools business with a number of high margin system sold in the quarter, aggressive work in feeding the market in Europe for our Amgen CE-IVD kit product line as well. In terms of our short term growth opportunities, the most critical is our diagnostic assay collaboration with Amgen that we announced briefly on last quarter’s earning call. The main component of this collaboration with Amgen has to-date been the development of colon cancer gene mutation kits for entirely new mutations that were discovered during a clinical trial that was performed in our pharma services lab previously. These new mutations uncovered additional patients who did not respond to panitumumab Amgen’s EGFR inhibitor drug for metastatic colon cancer treatment. As I noted briefly in last quarters call, these results were presented at the American Society for Clinical Oncology meeting in June. In addition physicians and clinical trial centers worldwide were alerted about these newly identified mutations and the need to test for them. In a short time since establishing and announcing this collaboration, we have developed and applied these new cancer mutation test kits to both our wave system, which we have a large number already installed and operating in Europe, as well as designing these same kits to work on our newer way of MCES the system. We have already launched these assay kits in Europe on a direct basis to our wave users and with our distribution partner Menarini we are for the wave MCE platform. As a result of our launch efforts we have established a number trial evaluations for combined wave MCE system and kit sales or simply kit sales through our waves to customers. We have already started to secure some country-wide testing contracts across Europe. We believe that sales for these kits should begin to rise, beginning in September as European laboratory startup again following their main summer vacation break. The other activities in support of t Amgen collaboration we have a number of additional new products in the near term. However, in New Haven lab we have several new key assays near launch or in final development, prior to launching these tests. And each we believe offers valuable and durable sales growth opportunities. These new assay product should further demand our market presence and sales in our neurology test portfolio as well as the new assay panels for our cardiac portfolio. We will cover these assays in more detail and in press releases over the next quarters call depending up on the release date. But our expectations are these test offer significant advantages compared to tests already in the market. We have continued making progress on the clinical validation of our ICE COLD-PCR and blocker sequencing technologies. As a reminder ICE COLD-PCR is supported by multiple validation studies they are attempting to confirm reproducible mutation detection improvement reaching from 1000 to 10,000 times greater sensitivity than traditional sequencing in PCR technologies that enable us to test for mutations in blood or in circulating tumor cells. We reported at ASCO the results of a research collaboration with the MD Anderson Cancer Center demonstrating the ability to attack mutations and circulating tumor cells that were matched to those of the patients tumor. The CTCs or circulating tumor cells were isolated from the blood of a lung a cancer patient using ApoCells Apostring technology then tested using ICE COLD-PCR, compared to normal sequencing we were able to detect more patient specimens containing cancer related mutations due to ICE COLD-PCR’s enrichment capability. Now, we have also completed studies performing ICE COLD-PCR in front of next generation sequencing and demonstrated marked improvement of next gen sequencing on tumor tissue when combined with ICE COLD and rewardingly we have been granted an additional STTR Grant from the National Institute of Health in collaboration with the Dana Farber Cancer Institute for studying ICE COLD-PCR and cancer. In addition to ICE COLD, our proprietary sequencing technology which we call BLOCker sequencing is beginning clinical validation testing with potential commercial partners. As a reminder BLOCker sequencing directly replaces Sanger sequencing using the same reagent and installed system that Sanger sequencing is performed on but with at least a 10 fold improvement in sensitivity. We believe that this is pivotal for mutation confirmation of next gen sequencing or direct sequencing of tumor tissue for uncovering mutations of Sanger sequencing misses. And if noted we are actively seeking licensing partners for this technology as well, validating this technology for use in our CLIA lab for gaining more sensitivity on our Rascan test for colon cancer gene mutation testing. Returning to our ScoliScore assay we are also continuing to complete studies, our investigator sponsored evaluations and subsequent publications. These further publications should prove invaluable and more deeply defining the clinical utility of this assay and should also help us improve reimbursement more broadly for the test. In summary, we believe that our current and soon to reach market products will continue to enhance our product portfolio with cutting edge products and services which should combine for continued growth of the company. With that I’ll turn the call over to Mark for deeper review of our second quarter results. Mark.
- Mark Colonnese:
- Thanks Craig. As a reminder earlier in the year we consolidated our clinical laboratories and pharmacogenomics service business segments into a single segment given their highly complementary nature and going forward it will be referred to as our Laboratory Services Segment. Now, we look at the financials reported earlier today. Net sales for the second quarter of 2013 were $7.3 million compared with $9.1 million for the same period in 2012. The decline was entirely due to lower sales in our laboratory services segment as we were up against an unusually high prior year quarter. As Craig mentioned in last year second quarter we processed a record number of tests as a result of reducing the test backlog arose following the first quarter 2012 LIMS software failure. And as such, the decline was primarily volume related. Revenue in the Diagnostic Tools segment was slightly higher than last year’s level as we had higher instrument sales that were partially offset by lower consumables. These offsetting percentages in the tools segments were each about 7% respectively for those two units. Gross profit was $3.4 million or 47% of net sales, compared with gross profit of $4.6 million or 50% of net sales for the same period in 2012. The decrease in gross profit was attributable to lower margin in our Laboratory Services segment, related to the impact of the lower test volumes and fixed costs. Again because of the high test volume last year our margins were unusually high in that period. We saw an improvement in our diagnostic tools gross profit due to higher equipment revenues at higher margins. Last year a relatively high percent of our instruments sales were through our distributor at lower distributor level margins. Operating expenses were $6.3 million during the second quarter of 2013, compared to $5.9 million in the prior year. The increase in operating expenses was due to higher costs related to the expansion of our field sales force and research and development activities related to converting a number of our tests to a more efficient Next-Generation Sequencing instrument platform. The net loss in the second quarter of 2013 was $2.9 million or $0.03 a share compared with a net loss of $0.6 million or $0.01 a share in the second quarter of 2012. To address our loss situation in the second quarter, we took steps to reduce our current spend level in our sales force, in our lab operations and in our administrative departments. We will begin to see the benefit from these cost reductions starting in the third quarter. Modified EBITDA, which is a non-GAAP measure that Transgenomic views as an appropriate and sound measure of the Company's results was a loss of $2.2 million for the second quarter of 2013 compared to a $0.6 million loss for the same period in 2012. Cash and cash equivalents were $6.4 million at June 30, 2013, compared with $4.5 million at the end of the year. Now turning to the six month financial results. Net sales for the six months ended June 30, 2013 were $14.7 million compared with $16.3 million for the same period in 2012. The decrease from last year was principally driven by a 14% decrease in the Laboratory Services segment, reflecting lower test volumes and lower average sales prices per test. The volume decline was primarily in our neurology business and we believe resulted from extensions needed in our product offerings. We’ll be correcting that this quarter with a launch of a number of new products as Craig mentioned that in many cases will be significant enhances over competitive tests. Gross profit was $7.1 million or 48% of net sales, compared with gross profit of $7.7 million or 47% of net sales for the same period in 2012. The decrease in gross profit was largely attributed to lower margins in our Laboratory Services segment related to lower test volumes, as well as modestly lower average sales prices. This decline was partially offset by a modest increase in our Diagnostic Tools gross margin due to the sale of higher margin instruments. As you recall last year, a higher percentage of our instrument sales were through our distributor at lower distributor margins. Operating expenses were $13.8 million for the six months ended June 30, 2013, compared with $11.5 million for the prior year period. The increase was due to higher costs related to the expansion of our field sales force and a higher bad debt provision that we booked last quarter. Net loss for the six months ended June 30th was $6.5 million or $0.08 a share compared with a net loss of $3.3 million or $0.05 a share during the comparable period of 2012. With that I’ll turn the call back to Craig.
- Craig Tuttle:
- Thanks Mark. In conclusion we remain proud of the progress we made with all of these mentioned programs. We entered into a major collaboration with Amgen which we believe will be an important value driver for the company going forward. As we look ahead to the remainder of 2013 and beyond it remains our goal to increase revenues in both our lab services and diagnostic tools segments. With the commercialization of the CRC RAScan product, as well as through a number of innovative new products at the same time growing our fundamental core business. As a leading global biotechnology company advancing personalized medicine in cardiology, oncology and inherited diseases, we will continue to provide world class clinical and research services and launch new clinically relevant genetic testing products for oncology and cardiology as well as in other high value pipeline areas. At this time we are happy to take any questions that you have.
- Operator:
- (Operator Instructions) We’ll take our first question from Matt Hewitt with Craig-Hallum please go ahead.
- Matt Hewitt:
- Good afternoon, gentlemen. Thank you for taking the questions. I’m going to start with a couple of real overview questions before I drill in a little bit but there has been a lot of noise over the past few weeks regarding the CMS proposed reimbursement rates for 2014 and I am wondering if you could play off for us what if any impact you see from those proposed rates if they were to go through as proposed. Obviously there is hope and expectations that they will be revised upward. But what – if you look at your business today, what percentage is Medicare Medicaid reimbursed and how much of those revenue do you think would be impacted by these proposed rates?
- Mark Colonnese:
- Okay, I saw the questions. The percentages are relatively small in Medicare, it’s between 10% and 15% of our business, Medicaid we actually stopped accepting Medicaid tests last – beginning of last quarter, for some time now in fact for a couple of years, we have been getting sub optimal or no payments from Medicaid and I think we kept that going for probably longer than the rest of the industry has, but we are no longer accepting state Medicaid and that’s part of the reason for some of our volume declines in this quarter. Regarding the new MOHAT (ph) codes this has been somewhat of a problem for us in that a lot of our tests are rare inherited diseases and many of those don’t have pricing attached to the codes. In fact I would say our Medicare contractor NGS is the laggard in the field and so we actually have quite a high receivable, we’re only been reimbursed for one test now, so the major impact on us at this point has been cash flow basis. We fully expect to be reimbursed for all of our tests. These are all tests that have been reimbursed by Medicare for years and our payers are certainly paying them for us as well. So we think at this point in time it’s going to be largely a transient issue for us.
- Matt Hewitt:
- Thank you very much for that detail. It’s helpful. And Craig maybe as a follow-up to that and again high level question here. But, given your position in this community how do you view, I am hearing from some investors that this is basically to squash any reason for lab services companies to develop new test, what is your sense given that you’re on some boards and you meet with a lot of the key players in the space. How do you see CMSs and even the FDAs moves here over the past couple of quarters?
- Craig Tuttle:
- That’s also a great question, Matt. You know, we have to look at that and try and address that. First of all, let me provide a little bit more color to what Mark answered. You remember that Palmetto who was the Medicare provider company. They used to cover California and many of those South Western states, issued reimbursement codes that we on the industry thought were too low and that cry resulted in them repealing that frankly and bringing out reimbursement levels that were almost entirely consistent with pricing that we saw in 2012. So, we were all relieved in that and I think they’ve been somewhat the leader in this entire effort as many of you know out there. Unfortunately our provider is slow as Mark said to fill out those codes and one in particular I think they are lower than what we had anticipated. But that’s been appealed as the CMS process provided or requested and we’ve also appealed to get the second gene paid. So I think it ends up like everyone in the industry, sooner or later this testing has to get done, physicians needs this to diagnose patients and to help in treatment of patients. In the case of our CRC Scan kits you have to do this testing before you can prescribe Panitumumab successfully. So I think the testing still gets done, clinicians are still going to look for innovation, and I believe that overall the industry is going to find a way to pay for it. I am not as confident in Medicaid for example, you might recall that in the Affordable Care Act the legislation required states that opted into that program to pay 75% of Medicare rates. And we would have accepted that based on getting no payment for samples previously unfortunately all the states that have opted in to-date and we tested this are not paying for genetic testing. So that’s impacting patients and I think there will be a ground around that and hopefully not litigation but clearly grounds well in supportive of getting this testing done.
- Matt Hewitt:
- Okay, thank you. Maybe not a dig into your direct Mark on the quarter a little bit. You just mentioned C-GAAP but you didn’t mention it earlier on in your prepared remarks. I’m just curious how that ramp is going current state and maybe what your expectations are for the remainder of this year and going into next year.
- Mark Colonnese:
- Right now clearly the reimbursement level for C-GAAP was well our required threshold. So we had deemphasized the test simply because we cannot make money at it in the short term. They said we’ve appealed the price initially from our from NGS or MCO or Medicare provider was I think as well as $115 we have list price of $750 and they came back at roughly at $190 right now and we simply that’s below fully loaded costs and billing et cetera and isolation kits for the tests. So, we de-emphasized it and we’re waiting for that reimbursement to improve. And the other problem we’ve had with C-GAAP I think as we’ve noted before is that we couldn’t get reimbursement for the second gene which was critical in matching half of the patients who are susceptible to problems with (inaudible). As such we believe that as soon as this is improved, and again those appeals were due to CMS in July, so we believe they would be acted on within this quarter and there is a large amount of effort being provided by many of the professional organizations to try and get adequate code levels and full code pressing applied. So I think the bottom line we’ll be providing you with updates as more news comes out but that’s the situation with C-GAAP at the moment. I will say that we are launching broader panel of metabolic involved genes that will help some of the proprietary as well that will help track and help patients treat – I’m sorry help physicians treat cardiac patients. So we’ll talk about more on that assay shortly.
- Matt Hewitt:
- Okay. Now you said is some of the issues that you are seeing does that caused others like the big lab company and others that were offering at least one of the genes for C-GAAP. Have they basically pulled their tests from the market to you or what are they doing to deal with the reimbursement issues?
- Craig Tuttle:
- I don’t think anyone has pulled the test from the market that we’ve heard, except one or two smaller labs that have stopped doing cardiac testing and I think it’s volume related. In our case, we’re not pulling the test by any means n we have some commit physicians that really appreciate the value it provides and continue to order it. We just like to make an appropriate profit from doing that and selling it.
- Matt Hewitt:
- Okay. Secondly congratulations obviously on the Amgen relationship, it sounds like that it’s progressing nicely. And I think you just mentioned that you essentially in order to get a prescription for the drug. You need to run your tests first. What kind of a ramp are you anticipating or should we be anticipating in the back half of this year or more importantly as we get into next year with a full year under your belt.
- Craig Tuttle:
- I think that 2014 will be a much bigger impact for the company on a revenue basis, but there is two drivers immediately that should support sales of the test in the near term. One is that Amgen is – this is information from Amgen and it was presented at ASCO but they have submitted for frontline treatment for Vectibix or Panitumumab in Europe and that should be granted sometime yet this year, so that’s a key driver because that moves the indication up and brings more patients that will be treated with the drug which is both good for the patients and good for Amgen revenue but those patients need to be tested for the broader panel. And one thing that remains significant in my mind is that we don’t commonly get to announce some of the phase 2 or phase 3 studies that we do for pharma, and I know investors are always interested about that. But in this case, there is one that we are now able to announce because the data we presented and we were presented as the contributing laboratory or CRO lab for that those discovery. And these unique mutations that weren’t known or expected in some cases and hence they do have to be tested. So in terms of the ramp rate we have – Matt I think the progression of this which might be exciting to (inaudible) that we contracted with this collaboration with Amgen just really like in May and by July we had kits ready to go to market and so we began those early evaluations and of course now unfortunately there is a slowdown in progress for selling products into the hospitals and laboratories in Europe because of their summer break. So we expect that to ramp back up again in September. We already have some customers that are going to be running our kits or those who are going to be using the (inaudible) and associated kits. We’re in deep collaboration with Amgen for helping them get products across Europe because they know it’s essential.
- Matt Hewitt:
- That’s going to be great news when you get that going. As far as total market opportunity or how should we be thinking about that? Is that something that could maybe drive a million dollar worth of business in Q or Q3 might be tough given that’s it just a part of quarter but Q4 and growing from there in 2014?
- Mark Colonnese:
- Well I guess I’ll back into that number for you.
- Matt Hewitt:
- Okay.
- Mark Colonnese:
- Because we’re not providing guidance as you know. But remember I believe we reported in the last conference call that there is 50,000 patients in Europe on biologics and 50,000 in the US can be assumed at Amgen’s. Volume of that is roughly 10,000 in both. But their goal is certainly to move up in that mix. And of these 50,000 conceivably all should be tested right now for the expanded panel because not just Panitumumab but Cetuximab should – I mean we do not have clinical data on that but Cetuximab should work the same because the target is the same protein or receptor rather to just shut down that growth signaling. So, we think that conceivably that’s only 50% of the colon cancer patients are eligible on the mutation profile, double the amount of patient that receive drug should be tested. So that kind of gives you our thinking about what the total market is and now it’s really a function of how much of that testing do we get right now we’re on the only company that has these products in the market. We’re the only ones that know what these mutations are. And Amgen’s reported the Axons but the not the specific mutations. So that puts us in a great position to be able to provide these products immediately.
- Craig Tuttle:
- I think one of the things that can help you with your modeling Matt is that we know today that the KRAS too excited being reimbursed in Europe. Across Europe on average at about $200 a test. Of course we’ll be testing for multiple number of those Axons so we do think the reimbursement should be higher than that.
- Matt Hewitt:
- Okay. No, that’s perfect. And I am not trying to force you to give guidance or anything but that’s very helpful, it helps us to quantify the opportunity and I guess track your progress. Maybe one more from me and I’ll jump back in the queue let somebody else jump on here. It was good to hear about the cash position little bit better than I had anticipated and it sounds like you’ve taken some steps here already this quarter to reduce that burn rate of at least going forward over the near term. What type of cash burn or should we anticipate or when should we be expecting breakeven from the profitability standpoint?
- Craig Tuttle:
- Yes, Matt unlike our – like our previous calls we aren’t really providing guidance and the time to cash flow positivity. We will say we’re encouraged by the projects that we anticipate are going to come out of our Amgen collaboration. The new products we’re launching including CRC Rscan and others in our laboratory service businesses and of course the cuts that we’ve talked about. So we think the combination of these things will go a long way contributing to our achieving positive cash flow.
- Matt Hewitt:
- Fair enough. All right, I’ll jump back in the queue. Thank you guys.
- Operator:
- Thank you. (Operator Instructions) We’ll go back to Matt Hewitt. Please go ahead.
- Matt Hewitt:
- All right. It’s just me. I’ll keep going then. Pharmacogenomics, I know that’s been a lumpy business in the past. I think last quarter following the publication at ASCO there was an increased interest or heightened awareness of ICE COLD-PCR and how that could be important especially for pharmaceutical companies that are developing some of these new drugs. What type of pipeline have you seen since that Amgen deal was announced and what should we anticipate for that pharmacogenomics going forward?
- Mark Colonnese:
- Let me just mention we will not be reporting that because of the combined segment, we’re not going to be reporting those revenues separately. I’ll let Craig deal with the pipeline questions but going forward Matt, we’re just going to report total lab services.
- Matt Hewitt:
- Fair enough.
- Craig Tuttle:
- The good news is that we have a couple of big projects in and perhaps more that will keep us very busy through the end of the year. And I think you asked a little bit about ICE COLD as well for pharma business, and I can tell you that we continue to support the clinical trials that we have ongoing on ICE COLD with leading centers like Dana Farber and MD Andersen and UPenn and etcetera and of course here pancreatic cancer with Nebraska Medical Center. And remember we have STTR grants from NIH with UNMC or the Nebraska Medical Center and Anthony Hollin (ph) lab as well as now Dana Farber that was just granted last month – the end of last month. So but with ICE COLD we were forced really to drop everything and work on these Amgen kits in a very high intensity levels. So we’re getting back to ICE COLD and also blocker sequencing and it is also rewarding to see that there is keen interest in blocker because sequencing as I mentioned in prepared remarks does not have the needed sensitivity in our experience and our belief to really validate results that are our confirmed results that are found by NextGen Sequencing on direct tumor specimens. So BLOCker sequencing should improve Sanger by 10 fold and give it the same at least the same sensitivity or even better than the NextGen platforms provide. And so the ability to confirm those oncology results. With inherited diseases I don’t believe it will be as important because those are in high concentration. So I think BLOCker sequencing should come to the force here very quickly. We also believe that as we finish development of BLOCker assays for the Rscan kit that we can provide that in our lab here in the oncology lab here and in both pharma side and the CLIA side, and that will have an improved benefit for patients because we’ll find more mutations.
- Matt Hewitt:
- Okay. Maybe two more from me. First, are there opportunities that either you’ve seen or you could work on in the future regarding maybe some partnerships. I know obviously on the pharmacogenomics side that’s something you’re constantly looking and signing new contracts. But, as you look at ScoliScore, C-GAAP some of the other tests that you have, are there opportunities or have you thought about looking at partnership opportunity where you could maybe expand your sales and marketing presence?
- Craig Tuttle:
- Absolutely. I can tell you that we h considered them and held discussions for some time and as we finished some of these we’ll be happy to announce them and at least go through how they – how we anticipate those will help the business.
- Matt Hewitt:
- Are they more with another lab group, are they with another vendor that has a part in the industry or are you thinking more is it basically contract sales organization, what type of groups are you speaking with?
- Craig Tuttle:
- Actually we’re doing all three.
- Matt Hewitt:
- Okay. And then last one for me, I just noticed and it sounds like you – it looks like I just did hear this afternoon along with your press release. But it looks like you signed an amendment to a Third Security revolver and loan agreement. I am just curious without having had a chance to kind of get through but what’s in there – was there any cost to you making that or doing that amendment, what can you provide there?
- Mark Colonnese:
- No, actually this is I think another prime example of the support we’re getting from Third Security because of our revenue numbers this quarter we’ve adjusted – we have a revenue covenant in the credit facility. We’ve adjusted those revenue numbers and the facility actually had a high rate increase if in fact we needed to change those and list those third securities come back a very reasonable adjustment to the rate which is phenomenal so another nice evidence of the partnership we’ve had with them.
- Matt Hewitt:
- So was there – and I appreciate it. Was it a small upfront type payment or a small increase in the rate that you’re paying, again I just did not have a chance to get through that.
- Mark Colonnese:
- Yes, we increased the rate on the revolver by 2 percentage points from 4.25 to 6.25.
- Matt Hewitt:
- Okay, great. All right, thank you gentlemen. That’s all I have.
- Craig Tuttle:
- Okay. Thanks Matt.
- Operator:
- And it appears we have no – one moment. It looks like we do have another question. We’ll go to Larry Hopfenspirger. Please go ahead sir.
- Larry Hopfenspirger:
- Hi Craig.
- Craig Tuttle:
- Hi Larry. I can do better with your last name.
- Larry Hopfenspirger:
- Okay. I just needed a clarification on Sanger versus BLOCker.
- Craig Tuttle:
- Sure.
- Larry Hopfenspirger:
- Are you in anyway suggesting that although your tests are – your tests are more sensitive, are you suggesting we may eat into their markets and how big a market do they have?
- Craig Tuttle:
- The last time I looked the Sanger sequencing market was over a $1 billion with like technologies and other providers in that space. And as you would imagine when you much like our tools business when you an established aging product line, anything you can do to extend the life of that product portfolio would be quite welcome, particularly if it runs into aging problems. And in the case of Sanger sequencing it’s simply an issue of sensitivity when it’s applied to tumor tissues, particularly FFPE tumor tissue where the tissue is degraded based on the process after extracting it in a biopsy. So where I see BLOCker working - by the way BLOCker was discovered here based on our work in ICE COLD-PCR, so it’s proprietary to Transgenomic and we filed patents on it. And so there is no issue from the Supreme Court ruling or rulings that would impact BLOCker sequencing, for example it would be more an application that we patented. So, our belief is that it could be used as a kit and we could sell it broadly to run on Sanger platforms worldwide to validate or confirm results from NextGen sequencing that’s become more important as they are performed on cancer tissue and also we can run into the technology in our lab both for pharma customers and for CLIA customers. And the improved sensitivity simply means that lower level mutation is not discernable in Sanger sequencing reaction. By just adding the one small piece of DNA that’s our addition and our proprietary technology, you increase that sensitivity 10 fold and you’re able to see those mutations clearly and/or confirm them from other sequencing technologies. So I think it’s a significant opportunity and/or it’s an opportunity to present some licensing opportunities combined with direct sales or kit sales from us.
- Larry Hopfenspirger:
- What kind of revenue or potentially on a range?
- Craig Tuttle:
- We haven't decided. We’re not prepared to speculate there.
- Larry Hopfenspirger:
- Could it be substantive compared to the $32 million last year could it be – could have increased revenues potentially by 20%?
- Mark Colonnese:
- Larry, I think it’s significant. You have to look at this combined with ICE COLD with another technology the ones that becomes used clinically, then they both have I think large scale opportunities. I think that more important for us in the short term this relationship with Amgen will continue to mature and progress and I think result in increased benefit to both parties. So that’s where we’re really focused in the short term but we’re also supporting clinical valuations and business development activities around those technologies.
- Larry Hopfenspirger:
- Your reach out to the people using the Sanger test is through Amgen or will that be approached by your own sales force or will they be approached by your own sales force?
- Craig Tuttle:
- Well as I mentioned this will be ourselves. It will be through business development efforts as well because there are partners. So when Matt asked the earlier question they are partners that would benefit significantly from having this technology. So quite frankly the one model could be on simple royalty model where we have someone sell the kits for us.
- Larry Hopfenspirger:
- So your potential life in somebody discovering this technique or your sales people going out and knocking on their doors to introduce them to the sales technique or possibly a convention. How are the people going to find out that this is better than just the straight Sanger where they want to incorporate it on their own testing?
- Craig Tuttle:
- Well on one case there will be publications based on it that oncologists will see. More importantly, we’ve engaged very experienced business development expert. This gentleman was vice president of business development for Life Technologies and he is actively engaged in business development activities around the technology. So that’s where we see the biggest opportunity in the short term.
- Larry Hopfenspirger:
- Okay. All right. Thank you Craig.
- Craig Tuttle:
- My pleasure Larry.
- Operator:
- Thank you. It looks we have no further questions at this time, I would like to turn it back to you Mr. Tuttle for further comments.
- Craig Tuttle:
- Great. Thank you. It’s always a pleasure to share with you the progress that we’ve made. There has been a significant amount of effort across the company. It’s in my opinion just a great result to see each division able to develop products and collaborations for growth and we look forward to reporting all of that to you on next quarter’s call.
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