Nanosphere, Inc. (NSPH)

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Nanosphere, Inc. (NSPH)

Q2 2008 Earnings Call Transcript

August 14, 2008 5:00 pm ET


Bill Moffitt - President and CEO

Roger Moody - CFO

Mike McGarrity - Chief Marketing Officer


William Quirk - Piper Jaffray

Bruce Cranna - Leerink Swann

Scott Gleason - Stephens Inc.

Kristen Stewart - Credit Suisse



Good day, ladies and gentlemen, and welcome to the Second Quarter 2008 Nanosphere Incorporated Earnings Conference Call. My name is Shamica and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (Operator Instructions).

Before the call begin, Nanosphere would like to state that certain statements made during the conference call which are not based on historical fact, maybe deemed to constitute forward-looking statements within the meaning of the Private Security Litigation Reform Act of 1995. Because these forward-looking statements involve known and unknown risks and uncertainties there are important factors that could cause actual results, events or developments to differ materially from those expressed or implied by these forward-looking statements.

Such factors include those described from time to time in the Nanosphere’s filings with the United States Securities and Exchange Commission including without limitation the risks described in Nanosphere’s most recent quarterly report on Form 10-Q on file with the SEC. Please note that Nanosphere undertakes no duty to update this information.

I would now like to turn the presentation over to your host for today’s call Mr. Bill Moffitt, Chief Executive Officer. Please proceed.

Bill Moffitt

Thank you, Shamica. Good afternoon, everyone, and thank you for joining for Nanosphere’s investor conference call covering the second quarter. In a few minutes I will turn the call over to Roger Moody, Chief Financial Officer of the company who will review the results we released this afternoon and to Mike McGarrity, Chief Marketing Officer of the company who will provide an update on our customer activities and sales and marketing programs.

But before turning the call over to Roger and Mike, I’d like to discuss with you the progress we are making toward building Nanosphere into a leader in molecular diagnostics and give you my perspective on our second quarter results.

As Mike will review with you shortly, new customer placements continued at about the same pace as previous quarters and we continue to receive good feedback from our customers regarding the Verigene System, its ease of use and how it meets their needs.

As Roger will review with you, revenue was down sequentially from the first quarter due to the fact that all instruments placed in the second quarter were reference agreements and reagent rentals, where we recognize system revenue as a component of future cartridge sales.

Cartridge revenue actually increased significantly in the second quarter indicative of our moving customers through the validation process and on to utilization. Let me remind you though that it is still early for this to be considered a meaningful trend, but nonetheless, this is a key indicator of adoption.

As you know, this a menu driven business, and while we continue to be encouraged by the positive reception of the Verigene System in the market, we are disappointed with the time it has taken us to get our next important assay to market.

At product launch in the fourth quarter of 2007, our objective was to place initial systems, gain customer endorsement and ramp up as the menu expanded. The cystic fibrosis assay now in final stages of clinical trials has taken longer than anticipated and that has resulted in the delay of system placements for a number of customers in the pipeline and in ramping customer cartridge volume.

This delay is the result of testing procedures used in the clinical trials. Before starting clinical trials we reached agreement with the FDA regarding certain testing procedures and how to ensure that we provided adequate testing of even the rarest of mutations in the 23 mutation panel recommended by the American College of Obstetrics and Gynecology.

We reached agreement on a protocol using cultured cell lines that would be spiked into white cell depleted whole blood, thereby, recreating a sample from which to extract and process DNA for the assay process. However, as it turns up, these cultured cell lines are not as robust as naturally occurring human white cells, and this prove to be troublesome for certain sample preparation systems.

As a result, we reviewed this with the FDA and now have a new, different agreed upon approach which will provide more robust data. But obviously such a change causes delays in completion of the trials. This change and the lead-time required from our supplier of cultured cell lines added to the timelines for these trials.

We expect to begin testing at our third and final clinical site in the next few weeks. And assuming successful completion of the testing at that site, we anticipate being able to file our 510(k) later this quarter or early in the fourth quarter.

Let me reiterate that we have a number of new customers in the pipeline awaiting the cystic fibrosis assay as well as existing customers where this assay will add the cartridge volume in the install base. We believe our value proposition for ease of use and high count multiplex assays will us the competitive advantage.

Acceleration of market penetration beyond our current linear rate of growth requires continued additions to our test menu. In that regard let me take a few more minutes now to review our progress across all development programs. Earlier this month we commenced clinical trials of our first generation respiratory panel, and believe we are on schedule to file this with the FDA by the end of this year. This panel includes tests for influenza A and B and RSV A and B and runs on the current version of the Verigene System after customer sample preparation. The second generation of this test panel targeted for the ’09-’10 flue season will run on the Verigene II, a complete sample-to-result system requiring no upfront customer sample preparation.

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