NSPH

Nanosphere, Inc. (NSPH)

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Nanosphere, Inc. (NSPH)

Q3 2012 Earnings Call

November 7, 2012 5:00 PM ET

Executives

Bill Moffitt – President and CEO

Mike McGarrity – VP, Sales and Marketing and Chief Commercial Officer

Roger Moody – VP, Finance, Treasurer and CFO

Analysts

Brandon Couillard – Jefferies

Matt Dolan – Roth Capital Partners

Bill Quirk – Piper Jaffray

Frank Barresi – Ameriprise Financial

Presentation

Operator

Welcome to the Third Quarter 2012 Nanosphere Earnings Call. Nanosphere would like to state that certain statements made during this conference call, which are not based on historical facts, may be deemed to constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Because these forward-looking statements involve known and unknown risks and uncertainties, these are important factors that could cause actual results, events or developments to differ materially from those impressed or implied by these forward-looking statements.

Such factors include those described from time to time in Nanosphere’s filings with the United States Securities and Exchange Commission. Please note that Nanosphere undertakes no duties to update this information.

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

Bill Moffitt

Thank you, Darcel. Good afternoon everyone, and thanks for joining us for Nanosphere’s Investor Conference Call covering the third quarter of 2012. In a few moments I’ll turn the call over to Mike McGarrity, Chief Commercial Officer and Roger Moody, Chief Financial Officer, who will provide you additional insights into our third quarter results. But first I’ll give you my perspective on our progress.

There are four primary points to make today. First, our U.S. business is robust as evidenced by placements in Q3, our building customer pipeline moves traffic in attendance at our workshop at the annual meeting of the Association for Molecular Pathology and customer interest in our growing pipeline of new products.

Of the nearly 100 systems placed in the U.S. in the last year 90% are running or validating the blood stream infection assay and nearly half are running or intend to validate our respiratory virus assay this flu season. Second, we expect U.S. placements to continue to ramp in successive quarters. But we are experiencing softness in Europe as both macro and microeconomic factors are affecting our entire industry.

Over the past four quarters we’ve seen the mix of international system placements fall as a percentage of total placements, dropping from an average of about 35% of placements to a low of 20% during this third quarter. We expect this softness in the markets in Europe to continue. Therefore we are guiding expectations to around the low-end of our previously stated ranges for placements, until such time as we have clearer visibility to the market in Europe and to our timing for entry into additional markets in the Asia Pacific region, where we are in discussions with potential partners.

Our third quarter revenue is reflective of lower instrument sales in international markets and the 90 day customer validation lag for our blood stream infection assay. Instrument revenue is affected as a greater percentage of placements are in the U.S., where reagent rental agreements are more prevalent than outright sales, which is the predominant method of international placements through distributors.

Installations of the blood stream infection assay only commenced in the first week of July. With an approximately 90 day cycle from placement to usage as customers work through training and the validation process, we expect to see early customer revenue from our blood stream infection assay in this fourth quarter.

My final point is that our product pipeline continues to grow and create significant customer interest. Early in the third quarter we submitted our C. difficile assay to the FDA. We would expect to hear initial comments and questions from the FDA sometime later this quarter. Our gram-positive assay and our enteric assay are both coming along well through internal verification studies.

External clinical studies on the enteric assay have started and we expect to bring up additional study sites over the coming weeks. Our goal is to CE Mark the gram-positive assay right after the first of the year and submit the enteric panel to the FDA in the New Year as well.

Now, I’ll turn the call over to Mike, to expand further on our commercial progress. Mike?

Mike McGarrity

Thanks Bill. We had 50 new customer placements in the third quarter. Bringing our install base to more than 200 and we continue to make progress in building our customer pipeline, driven by our gram-positive blood culture assay. The pipeline is also fortified by those awaiting our gram-positive C. difficile and enteric panels. While it is traditionally difficult to project respiratory season dynamics we would also expect to see initial usage in our respiratory customer sides.

Q3 consumed our commercial organization focusing on upgrading software and beginning to move blood culture customers through the training and validation process and into live utilization and implementation. We have stated that we believe this process will take an average of 90 days. Our validated customers have so far met this expectation since our launch in early July and the remainder are entering or moving through that validation process.

Our commercial team is organized to support the customer through this process in order to ensure timely and successful implementation. We recently attended the Association for Molecular Pathology meeting, where we hosted a workshop featuring presentations of data related to our blood culture assay, as well as early clinical experience with our C. difficile and enteric panels by Cedars-Sinai Medical Center and Medical College of Wisconsin respectively. These presentations highlighted the accuracy, clinical utility and economic impact of our microbiology menu, and we are well attended, and well received.

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