Description
Filed with the SEC from Sep 13 to Sep 19:
IRIS International (IRIS)
Gamco Investors increased its holdings to 3,367,192 shares (8.6%) after it bought 244,014 shares from July 19 through Sept. 17 at prices from $11.06 to $19.45. Gamco also disclosed selling 1,800 shares on Aug. 21 and Aug. 22 at prices of $12.28 to $12.50 apiece. On Sept. 17, IRIS announced it would be acquired by Danaher (DHR) for $19.50 per share, a 45% premium over its prior closing price.
BUSINESS OVERVIEW
Company Overview
We are a leading manufacturer of automated in vitro diagnostic systems (IVD), sample processing products and high-value personalized diagnostics tests for use in hospitals and laboratories worldwide. Our IVD products analyze the chemistry and morphology of cells and sediments in a variety of body fluids. Our IVD products leverage our strengths in flow imaging technology, particle recognition and automation to bring efficiency to the hospital and commercial laboratories. The initial applications for our technology have been in the urinalysis market and we are the leading worldwide provider of automated urine microscopy and chemistry systems, with approximately 3,600 systems sold in over 50 countries. We are expanding our core imaging and morphology expertise into related markets, including applications in hematology and body fluids. In addition, our personalized medicine group operates a high complexity CLIA-certified laboratory for the further development and commercialization of our NADiA ultra-sensitive nucleic acid detection immunoassay platform, with applications in oncology and infectious disease.
Historically, we have predominantly focused on developing, manufacturing and commercializing in vitro diagnostics instruments and consumables for urinalysis, including our flagship iQ ® analyzers, a family of fully-automated, image-based bench-top analyzers for urine microscopy. Urine microscopy is the visualization and identification of cells and other sediments in urine. The iQ analyzer uses a proprietary flow microscope and image-analysis software that captures the morphology of cells and sediment in urine and serous fluids, and assists in their identification and classification. Our systems are designed to provide users with faster, more complete and more consistent results, while substantially reducing hands-on time spent by laboratory technicians and turnaround time, as compared to traditional manual methods.
The iQ analyzer can be seamlessly integrated with an automated urine chemistry analyzer to simultaneously perform urine microscopy and chemistry testing in a fully automated manner. Our proprietary iChem ® VELOCITY ® automated urine chemistry analyzer and a fully integrated urine microscopy and urine chemistry work-cell, called the iRICELL received FDA 510(k) clearance in March 2011 and immediately thereafter, we commenced selling these new products in the United States. Historically, in the U.S. we sold our family of iQ analyzers integrated with an automated chemistry analyzer that was sourced from a Japanese manufacturer.
We intend to solidify our leadership position in the urinalysis market, as well as enter into several adjacent markets with our product pipeline under development. To maintain our market position in urinalysis, we continue to implement improvements to our existing product lines, including enhancing our data analysis and productivity tools for our iRICELL systems, such as Edit Free Release Technology to improve turnaround time and iWare to enhance the interface to laboratory information systems, or LIS. These enhancements also allow more effective management of resources and costs in the screening of diseases such as urinary tract infection. In addition, late in 2011 we launched the iRICELL1500 in the United States, the first fully automated urine testing solution to address the specific needs of lower volume laboratories performing fewer than 70 urine tests per day.
We are also developing our 3GEMS™ (Third Generation Morphology System) platform, which will serve as the basis for our next generation products in urinalysis and an emerging pipeline of hematology products. These 3GEMS hematology products, currently in development, use image-based technology to automate the identification and characterization of blood cells. We believe an automated hematology analyzer using our proprietary imaging technology and software recognition capabilities will provide significant improvements in the identification of abnormal blood cells, including an automated, image-based expanded white blood cell differential analysis and other abnormal cell morphology. Like our urine microscopy products, these new hematology products by virtue of IRIS’s inherent capabilities to capture and analyze images are expected to significantly reduce the need for manual slide preparation and reviews under a microscope, increasing the efficiency and efficacy of what is currently a subjective and highly labor-intensive process.
Our Sample Processing group markets and develops centrifuges, DNA processing workstations and sample processing consumables. Our StatSpin ® brand bench-top centrifuges are used for specimen preparation in coagulation, cytology, chemistry and urinalysis. Our worldwide markets include medical institutions, commercial laboratories, clinics, doctors’ offices, veterinary laboratories and research facilities. As a product line extension to our manual ThermoBrite DNA processing station, in December 2011 we announced the introduction of our new ThermoBrite ® Elite Automated Laboratory Assistant, which we plan to launch in the first quarter of 2012. This new product platform provides automation for FISH (fluorescence in-situ hybridization) testing. Our Sample Processing products are sold worldwide primarily through distributors and incorporated into our OEM partners’ products.
We believe a significant driver in the future growth of diagnostics will be in personalized medicine, meaning the ability to analyze the molecular make-up of an individual patient’s cancer and assess disease progression in order to more precisely prescribe appropriate treatment. Our proprietary molecular diagnostics platform called NADiA has the ability to measure proteins below the detection thresholds of current immunoassay and molecular diagnostic methods. We believe our proprietary diagnostic products will address the need for increased sensitivity in the monitoring of disease enabling personalized treatment of cancers.
In September 2011, the FDA cleared our first NADiA assay: NADiA ProsVue™, an ultra-sensitive, blood-based test designed to be a prognostic indicator of post-prostatectomy patients at reduced risk of prostate cancer recurrence. NADiA ProsVue uses a threshold based on the slope of three successive test measurements of residual amounts of total prostate specific antigen, or tPSA, which are typically under the limit of detection of ELISA-based ultra-sensitive tPSA assays. In October 2011, we received Conformité Européenne (CE) Mark. The ProsVue commercialization strategy consists of an initial targeted direct sales approach focused on key opinion leaders and high volume urologists through our CLIA laboratory, followed by potential collaborations with major laboratories and diagnostic partners.
In September 2011, we also completed a restructuring of our Personalized Medicine division, which included downsizing and consolidating our CLIA certified laboratory operations into Iris Molecular Diagnostics. As part of this restructuring, we discontinued non-proprietary testing, but retained all licenses and high-complexity CLIA laboratory capabilities, as well as limited personnel to perform NADiA and other proprietary tests.
Market Overview and Opportunity
The global market for IVD was estimated at approximately $44 billion in 2010 and is expected to grow in the mid-single digits annually. IVD manufacturers provide products and services to the clinical laboratory industry, which is confronted with significant challenges in the current market. Healthcare professionals are demanding improved turnaround time for diagnostic tests, greater sensitivity and lower costs. To improve accuracy, productivity and efficiency, many laboratories are turning to automated methods to perform these tests.
Moreover, automated testing solutions better position laboratories to cope with the declining number of certified medical technologists available to perform tests.
Currently, we participate primarily in the urinalysis segment of the IVD market which we estimate is approximately $650 million. With the development of our hematology product, we will be able to enter a significantly larger market estimated at approximately $2.0 billion. In addition, with our expansion into molecular diagnostics, we have the opportunity to participate in the personalized medicine market. PricewaterhouseCoopers estimates the molecular diagnostics market in 2009 was $3 billion with a 15% growth rate. We believe we are well positioned to experience growth in this segment, which will include sales of our proprietary molecular tests utilizing our NADiA assays and licensing of our proprietary test platforms and technology.
Urinalysis
Urinalysis is performed as part of most routine medical examinations and is necessary for the diagnosis and monitoring of conditions such as urinary tract infection, and kidney and bladder disease. Traditionally, urinalysis comprises urine chemistry and urine microscopy tests, while urine cultures are considered part of microbiology. We believe that the advancement of automated technologies will blur this distinction, with urine cultures being performed increasingly in the same laboratories as urine chemistry and urine microscopy tests and eventually becoming part of the urinalysis market.
Urine Chemistry and Microscopy Market Overview
Urine chemistry consists of a panel of tests that identifies various chemical analytes in urine, while urine microscopy analyzes the microscopic solid particles and cells suspended in urine. Urine chemistry comprises the majority of the urinalysis market and is broadly used, with limited differentiation between products. Traditional urine microscopy is used less routinely because as a manual process it is time consuming and requires a trained medical technician to characterize sediments and cells based on their morphology. In order to reduce costs, many laboratories perform manual urine microscopy only in response to results from an initial urine chemistry test despite evidence that urine microscopy can provide a more reliable clinical diagnosis. The commercial success of our iQ analyzer is attributable to its capability to image and accurately identify particles and cells suspended in urine in a time-efficient manner eliminating manual microscopic examination.
Of the $650 million urinalysis segment, urine chemistry represented approximately $490 million and automated urine microscopy represented approximately $160 million, but growing at a much faster rate than the other urinalysis sub-segments. We estimate there are approximately 17,000 sites performing greater than 40 microscopy tests per day on a global basis including approximately 6,000 in China. These higher volume sites represent a significant opportunity for us, because they would benefit from the automation and consolidation of their urine chemistry and microscopy procedures. We believe the full automation and integration of results brought by the iQ product platform has accelerated the adoption of automated urine microscopy as a routine test. We believe approximately 50% of these targeted global sites continue to perform manual microscopy procedures. The penetration of automated urine microscopy analyzers varies significantly from country to country.
Limitations in Urine Chemistry and Microscopy
Current manual testing of urine and body fluids requires the clinical laboratory to split samples, perform automated and manual procedures and consolidate the separate results into one report. Moreover, the manual procedure for microscopy requires a qualified medical technician to accurately categorize particles and cells observed under the microscope. Therefore, these tests represent both time and cost intensive procedures for the clinical laboratory. Further, the inherent variability in sample preparation limits the quantitative and qualitative accuracy of the diagnostic result. The manual nature of urine microscopy procedures coupled with the lack of qualified personnel represent a significant market opportunity. However, the challenge remains to compete for capital for urinalysis automation versus other disciplines of the laboratory.
Laboratories typically perform microscopy and chemistry tests separately and generally perform microscopy only in the case of an abnormal chemistry result because urine microscopy is a very tedious process. If both tests are performed, the separate results must then be manually consolidated into one report or file. Without the automatic integration of both the microscopy and chemistry results, valuable clinical information may be overlooked. By reducing the amount of manual labor spent conducting these tests and by automatically integrating the chemistry and microscopy results, we believe we can improve the consistency, reliability and value of the combined results and improve specimen turnaround time.
Hematology
Hematology Market Overview
The enumeration of the various cellular components of blood is an essential part of routine medical examinations. A complete blood count, or CBC, is the most common type of blood test performed and measures the number of specific types of blood cells, including red blood cells (RBC), white blood cells (WBC), platelets, and other blood components, such as hemoglobin. In most instances, a white cell differential count, which measures the percentage of five types of white blood cells, is added to the CBC test. Variations from concentration, size, or maturity of the blood cells can be used to indicate an infection or illness. CBC tests and differential WBC counts are performed primarily in hospitals and clinical reference laboratories.
According to Global Industry Analysts, Inc., the hematology market was approximately $2.0 billion in 2011 and growing approximately 2% to 3% per year driven primarily by system replacement sales and a small increase in test volume. Over the past 15 years, innovation within this market has been limited to automation of slide making and staining and algorithmic improvements to aid in the interpretation of results.
Limitations in Hematology
Traditional CBC test instruments use indirect means to measure the type and number of blood cells rather than direct observation of the blood cells. Despite the high number of these automated CBC analyzers in use, a significant percentage of the samples require a manual cell differential count of the blood specimen under a microscope. Frequently, a manual count is required due to the inability of automated CBC and differential analyzers to discriminate the complex morphology, especially the shape, of abnormal cells, such as immature white blood cells, or the presence of diseased cells, as in the case of sickle-cell anemia. The presence of immature white blood cells is often associated with conditions such as leukemia, infection, inflammation or tissue injury. However, a manual differential count of a blood specimen must be performed by a medical technologist trained in cytology or a pathologist under a microscope — a time consuming and subjective process, resulting in longer specimen turnaround times and higher cost.
According to a 2006 study conducted by the College of American Pathologists, of the 263 US laboratories surveyed, an average of 29% of automated CBCs required a manual review, scan or differential and this percentage dramatically increased depending on the pathology of the patient population. IRIS also confirmed this manual review rate, independently through a survey. Since the hematology market is dominated by a few large companies that typically compete on their ability to marginally reduce manual review rates, we believe there is significant opportunity to offer an automated image-based instrument that has the ability to identify immature white blood cells and other anomalies in a systematic fashion and to reduce significantly the number of manual reviews performed.
Sample Processing
Sample Processing Market Overview
Nearly every patient specimen presented to a clinical laboratory for testing requires some sort of sample processing before analysis. These samples include cytologic (blood, urine and other body fluids), histologic (tissue biopsies), and other materials which may need to be separated into its different constituents. In the United States, there are over 180,000 testing sites where sample processing occurs, including hospital laboratories, independent laboratories, doctor’s offices, health maintenance organizations and community clinics.
Although testing is performed on many different types of samples, most tests are performed on blood specimens that require separation in a centrifuge. The centrifuge market comprises five segments including non-refrigerated bench-top, refrigerated bench-top, floor, high-speed and ultra-centrifuges. According to Strategic Directions International, the worldwide market for sample processing centrifuges in 2010 was estimated at $660 million, of which the market for non-refrigerated bench-top centrifuges, the market segment we serve, is estimated at approximately $100 million. To improve laboratory productivity and sample turnaround time, the trend has been towards smaller and faster bench-top models and away from large capacity floor models which have longer processing time per batch. This represents a significant opportunity for our Express line of bench-top centrifuges.
FISH (fluorescence in situ hybridization) is a cytogenetic technique that uses nucleic acid probes, which are segments of labeled DNA that are designed to hybridize or bind to the target DNA of a positive specimen. The probes are labeled with fluorescent or chromogenic molecules to enable the identification of genetic abnormalities, providing valuable information about cancer and other genetic diseases. With the increasing rate of adoption of FISH testing as standard protocol for cancer diagnostics development and application, laboratories performing as few as 10 tests per day are requiring a higher level of automation and standardization. Management estimates there are over 4,000 laboratories in the clinical and research market performing FISH testing and provides a large market opportunity for the recently introduced ThermoBrite Elite automated FISH processing system.
Limitations with Current Sample Processing Methods
The time it takes to process a sample is critical for clinical laboratories as the volume of samples to be tested increases. Each day, laboratory technicians are expected to handle thousands of samples with minimal error in a defined amount of time with limited laboratory space. In most laboratories, sample processing occurs in a central location where blood specimens are sorted and centrifuged in batches. The entire process can take up to an hour and requires dedicated resources to manage the sample flow. Once processed, the samples are often split and then sent to the various stations within the laboratory for analysis. The centralized processing of samples is thus quite inefficient as samples wait to enter the floor model centrifuge in large batches followed by long centrifugation times. In fact, many sample processing procedures create significant delays in specimen turnaround time.
In regards to FISH, the majority testing is performed manually and requires a significant amount of a skilled laboratory technician’s time and expertise. FISH procedures require numerous steps, including the successive immersion of slides in various reagents for specific time periods. These protocols are time sensitive and can take up to four to six hours of hands-on processing time. As such, a technician cannot devote attention to other laboratory tasks specifically during the pre-hybridization phase as they may risk ruining a precious patient sample. The increasing demand for these types of tests and the declining number of CLIA-certified technologists to perform them creates a significant market opportunity for the automation of FISH testing.
Personalized Medicine
Personalized medicine may be defined as giving the right treatment to the right patient at the right time. The implementation of personalized medicine has been made possible by state of the art molecular diagnostic testing. By examining the molecular make up of an individual patient’s cancer, therapy can be tailored for that specific patient, rather than blindly treating all patients with “one size fits all” drug cocktails. This leads to better management of the individual patient’s cancer, with fewer potentially ineffective drugs, reduced incidence of side effects, and overall cost savings for the healthcare industry.
Molecular Diagnostics Market Overview
Molecular diagnostic tests examine nucleic acids, including DNA and RNA, and protein biomarkers, to identify a disease, determine prognosis, monitor its progression and response to treatment, or predict individual predisposition to a disease or genetic disorder. These biomarkers can also provide information in drug discovery, preclinical drug development and patient monitoring during clinical trials. Currently, the clinical market for molecular diagnostics is primarily nucleic acid testing performed by real-time polymerase chain reaction, or PCR, instruments that amplify and detect nucleic acid targets for diseases or infections.
The analysis of DNA expression, presence of cell surface receptors, or the production of specific proteins in cells, provides the ability to characterize diseases, such as cancer and infectious diseases. As a result, the detection and identification of DNA and proteins can provide physicians with a means to tailor therapy, monitor disease progression and detect relapse.
CEO BACKGROUND
Steven M. Besbeck has served as a director since 1990. Since June 2011, Mr. Besbeck has served as managing director of Diamond Capital Advisors, LLC, a middle market investment banking firm, where he advises companies in the biomedical sector on mergers, acquisitions, and capital transactions. From October 2009 until May 2011, Mr. Besbeck served as managing director of Avant Advisory Group, a financial and management consulting firm. From 1983 to November 2007, Mr. Besbeck served as President and Chief Executive Officer of Aspyra, Inc. Aspyra, a publicly traded company (PINK:APYI), was a provider of clinical and diagnostic information systems for laboratory, pharmacy and radiology departments in hospitals, clinics and other healthcare providers. Mr. Besbeck served as a member of Aspyra’s board of directors from 1980 until his retirement in December 2007. Prior to that, Mr. Besbeck was a director, President and Chief Executive Officer of American Cytogenetics, Inc., a public company engaged in specialty clinical laboratory services from 1975 through 1983. Mr. Besbeck holds a B.S. in Finance from California State University, Long Beach. Mr. Besbeck brings over 35 years of experience in senior leadership positions in medical laboratory and device businesses, including finance, operations, and information technologies. He has led organizations that were focused on the clinical laboratory that grew through acquisition and startup of new business lines in domestic and international markets.
CĂ©sar M. GarcĂa has been a Director since November 2003 and Chairman of the Board since November 2007. He joined IRIS in January 2002 as our Executive Vice President and was appointed President in June 2003 and Chief Executive Officer in November 2003. Mr. GarcĂa has over 37 years of experience in design, manufacturing and commercialization of medical devices. From 1998 through 2001, Mr. GarcĂa was Sr. Vice President, Operations and Program Management for Cytometrics Inc., an early stage manufacturer of non-invasive, photonics-based medical devices. From 1994 to 1998, he was Vice President of Operations and Engineering at Datascope Corp., manufacturer of medical devices for interventional cardiology, anesthesiology and critical care monitoring. From 1974 to 1994, Mr. GarcĂa worked with Bayer Diagnostics (now Siemens Healthcare Diagnostics) assuming positions of increased responsibility including General Manager of Technicon Electronics Corp., a subsidiary of Bayer USA and Director of Worldwide Hematology Manufacturing and Cellular Diagnostics Research and Development. Mr. GarcĂa earned his B.S. in Industrial Engineering (Cum Laude) at the University of Puerto Rico and received an Advanced Management Certificate from Pace University. Mr. GarcĂa brings to the Board diversified experience in general management, operations, strategic planning and in the conceptualization, development and commercialization of complex diagnostic products and services for the global markets.
Beth Y. Karlan, M.D. has served as a director since May 2009. Dr. Karlan currently is the Associate Director, Women’s Cancer Programs at the Samuel Oschin Comprehensive Cancer Institute at Cedars-Sinai Medical Center in Los Angeles, CA and has served in such capacity since 2002. Dr. Karlan has also served as its Director, Division of Gynecologic Oncology, Department of Obstetrics and Gynecology since 1995. Dr. Karlan is a professor of Obstetrics and Gynecology at the Geffen School of Medicine at UCLA and was appointed to such position in 2001. Dr. Karlan has authored over 200 peer-reviewed articles and has been the recipient of numerous honors and awards in her field. Dr. Karlan holds a Bachelor of Arts degree in Biochemical Sciences from Harvard-Radcliffe College and earned her Medical Degree from Harvard Medical School. Dr. Karlan’s experience as a practicing physician with expertise in oncology enables her to offer valuable perspectives on the commercialization of our products.
David T. Della Penta has been a Director since July 2010. Mr. Della Penta serves as a Founding Partner and Board member of Challenger Capital, an independent financial services institution offering a full suite of investment banking services. He previously served as President and Chief Operating Officer of Fisher Scientific International (NYSE: FSH), a global supplier of life-science products, from 1998 until his retirement in November 2006. Prior to 1998, Mr. Della Penta served as President of Nalge Nunc International Corporation, a subsidiary of Sybron International Corporation, a manufacturer of laboratory products. Mr. Della Penta received his Bachelor of Arts in Business Administration and an Executive MBA from the Rochester Institute of Technology in 1969 and 1981, respectively. Mr. Della Penta brings to the Board senior management experience from global organizations that are substantially larger than IRIS.
Rick Timmins has served as a director since January 2010. Mr. Timmins is a former Vice President-Finance of Cisco Systems, Inc. (Nasdaq:CSCO) and Motorola Inc. (NYSE:MOT). While at Cisco, from 1996 through 2007, he served in positions of increasing responsibility including Corporate Controller and Vice President of Cisco Sales Finance, where he led a 400-person finance team for this $35 billion Dow Jones Industrial component company. Prior to Cisco, Mr. Timmins held various senior executive finance roles with Motorola, where he served last as Vice President-Finance of Motorola Semiconductor MPU and MCU Groups, leading finance organizations which partnered with the largest parts of Motorola’s semiconductor group, including manufacturing, design, sales and marketing on a global basis. Before that, as Vice President-Finance for Motorola Japan, he was responsible for all of Motorola’s finance functions in Japan at a time when revenues at Motorola Japan grew 13-fold to $2.3 billion from $180 million. Mr. Timmins currently serves as a member of the board of directors and lead director for Ultratech, Inc. (Nasdaq:UTEK), a $200 million leading supplier of lithography and laser-processing systems used to manufacture semiconductor devices. He is also Chairman of Ultratech’s audit committee and is a member of its compensation committee. He also serves on the boards of Socialware, a privately held company specializing in social business management in the financial services industry, and Nexersys, a privately held company specializing in personal fitness equipment. Mr. Timmins, a former Certified Public Accountant, received his Bachelor of Science degree in Accounting and Finance from the University of Arizona in 1973, and his Master of Business Administration from St. Edward’s University in June 1979. He resides in Austin, Texas. Mr. Timmins brings to the Board senior management experience from global organizations that are substantially larger than IRIS.
Edward F. Voboril has served as a director since July 2008 and was appointed Lead Director in March 2009. Mr. Voboril currently serves as the Chairman of the Board of Analogic Corporation (NASDAQ: ALOG) and serves on its audit and nominating and corporate governance committees. He has served on ALOG’s board of directors since 1990. Mr. Voboril previously served as the Chairman of the Board of Directors of Greatbatch, Inc. (NYSE: GB), developer, designer, and manufacture of critical components for implantable medical devices, from 1997 until his retirement in January 2008. He also served as GB’s President and Chief Executive Officer from 1990 to August 2006. Prior to this, he served as Vice President and General Manager of the Biomedical Division of PPG Industries and held senior executive positions in the medical businesses of Honeywell, General Electric, Syntex and Litton Industries. In addition, from 1995 to 1998, he was President of the Health Care Industries Association (HCIA), a non-for-profit trade association and networking support organization in Western New York that provides professional services for healthcare industries and institutions. Mr. Voboril is presently an adjunct professor of engineering and chairman of â€NUvention’ at the Center for Entrepreneurship and Innovation at Northwestern University, and previously served on the manufacturing council of the United States Department of Commerce. He holds a Bachelor of Science degree in Industrial Engineering from Northwestern University and an MBA from Harvard University where he was a Baker Scholar. Mr. Voboril has over 40 years in medical technology with an emphasis in general management, strategic planning and international exposure with organizations that are substantially larger than IRIS.
Stephen E. Wasserman has served as a director since April 2006. Mr. Wasserman is a consultant primarily to healthcare related organizations through his company, Wasserman & Associates, and a private investor. From 1997 until his retirement in 2006, he served as Group Vice President– Diagnostic Systems Products of Olympus America, Inc, a subsidiary of Tokyo based Olympus Corporation, where he was also a member of the Global Management Committee for In Vitro Diagnostics. From 1994 to 1997 Mr. Wasserman was Chief Financial Officer of Datascope Corporation, formerly a NASDAQ listed manufacturer and global marketer of medical devices where he was also President, Patient Monitoring Division from 1994 to 1996. Prior to Datascope, from 1989 to 1993, he served as Vice President of NY Blood Center Inc and General Manager of Melville Biologics, a subsidiary that manufactured biopharmaceutical products. He also was a founder and Chairman of the NY Biotechnology Association from 1990 to 1994. From 1981 to 1989, Mr. Wasserman held senior management positions with Technicon Instruments Corp. (now part of Siemens Healthcare Diagnostics) in Tarrytown, NY. Mr. Wasserman is Certified Public Accountant and earned a BBA from City College of New York, Baruch School of Business. In 2008 he earned the Certificate of Director Education from the National Association of Corporate Directors. Mr. Wasserman is a seasoned executive with 20 years experience leading global in vitro diagnostic and medical device companies in growth situations created by internal programs as well as business combinations He brings to the Board his knowledge of our laboratory and hospital customers, experience in working with hospital buying groups, and understanding of the dynamics of our industry.
MANAGEMENT DISCUSSION FROM LATEST 10K
Overview
IRIS International, Inc. consists of three operating units in three business segments as determined in accordance with Financial Accounting Standards Board (“FASB”) ASC Topic 280, Segment Reporting . Our in vitro diagnostics segment, also called Iris Diagnostics Division (IDD), designs, manufactures and markets systems, consumables and supplies for urinalysis and body fluids. Our Iris Sample Processing (ISP) segment markets small centrifuges and other processing equipment and accessories for rapid specimen processing, as well as, equipment for fluorescent in-situ hybridization (FISH). Our Personalized Medicine (PMD) segment combines the research and development operations of Iris Molecular Diagnostics and our CLIA laboratory, Arista Molecular, Inc. Under this segment we consolidate all operations for the development and commercialization of proprietary cancer diagnostic tests and related technology, including ProsVue, our recent FDA cleared prognostic prostate cancer test.
Iris Diagnostics Division
Our core IVD business is in the urinalysis market and we are the leading worldwide provider of automated urine microscopy systems, with more than 3,600 iQ microscopy analyzers shipped to date in over 50 countries. We generate revenues primarily from sales of instruments, consumables and service. Revenues from instruments include global sales of urine microscopy and chemistry analyzers. In September 2008, we released our proprietary iChemVELOCITY automated urine chemistry analyzer and a fully integrated urine microscopy and urine chemistry work-cell, called the iRICELL in some international markets. In March 2011, we received FDA clearance on our 510(k) application for these products and commenced selling them in the United States. Historically, we sold our family of iQ analyzers integrated with an automated chemistry analyzer that was sourced from a Japanese manufacturer.
Our consumables revenues result from sales of chemical reagents, urine test strips, calibrators and controls. Service revenues are derived primarily from annual service contracts purchased by our domestic customers after the initial year of sale, which is covered by product warranty, and spare parts purchased by international customers. Once the analyzers are installed, we generate recurring revenue from sales of consumables. Recurring consumable and service revenue should continue to expand as the installed base of related instruments increases.
In the United States, France, Germany and the United Kingdom sales of our urinalysis systems are direct to the end-user through our sales force. All other international sales are through independent distributors. International sales represented 33% and 34% of consolidated revenues for the years ended December 31, 2011 and 2010, respectively. Since the majority of international sales are made through independent distributors, gross profit margin is lower than domestic sales of the same products, but we incur minimal sales, service and marketing costs for such sales.
Iris Sample Processing
Our Iris Sample Processing group markets and develops centrifuges, semi-automated DNA processing workstations and sample processing consumables. Our StatSpin ® brand bench-top centrifuges are used for specimen preparation in coagulation, cytology, chemistry and urinalysis. Our worldwide markets include medical institutions, commercial laboratories, clinics, doctors’ offices, veterinary laboratories and research facilities. Our Sample Processing products are sold worldwide primarily through distributors and incorporated into our OEM partners products.
In November 2010, we acquired the assets of a multi-purpose, bench-top instrument platform for automating highly repetitive, manual laboratory protocols for FISH testing and other slide-based cytogenetic applications. The automated product, now called ThermoBrite Elite, is a complementary product to our successful ThermoBrite ® DNA Hybridization System and in line with our entry into personalized medicine with emphasis on cancer diagnostics. The product prototypes and proprietary technology assets were purchased for $3.2 million in cash from BioMicro Systems, Inc. Although BioMicro Systems built and tested working prototypes, several elements of this platform required further enhancement in order to improve reliability and serviceability. The product is expected to be launched in the first quarter of 2012.
Personalized Medicine
Our Personalized Medicine segment is leveraging our proprietary NADiA and Microbubble Isolation Technology platforms to develop ultra-sensitive and precise diagnostic tests to aid in the early detection of disease relapse, monitor treatment and potentially provide better therapeutic outcomes.
In September 2011, we received 510(k) clearance for our NADiA ProsVue prognostic prostate cancer test. This test is indicated for use as a prognostic marker in conjunction with clinical evaluation as an aid in identifying post radical prostatectomy patients at reduced risk for recurrence of prostate cancer and therefore is expected to reduce unnecessary treatment of certain post-prostatectomy men. In October 2011, we received Conformité Européenne (CE) Mark for NADiA ProsVue, which allows it to be marketed in the European Union and other countries that recognize the CE Mark.
In September 2011, we also completed a restructuring of our Personalized Medicine division, which included downsizing and consolidating Arista Molecular’s operations into Molecular Diagnostics. As part of this restructuring, we discontinued non-proprietary testing services such as flow cytometry, FISH, cytology services and the non-proprietary molecular pathology menu. Arista retained all licenses and high-complexity CLIA laboratory capabilities, as well as limited personnel to perform NADiA and other proprietary tests. The restructuring provides significant cost reductions and enhanced profitability in our business. For the year ended December 31, 2011, we recognized restructuring expenses and impairment of asset charges of $1.6 million and $5.8 million, respectively. The simplification of our business model should allow us to concentrate our resources on our new product pipeline and other strategic initiatives. See Note 4 — “Restructuring and Impairment of Assets,” in the accompanying notes to financial statements for more information about the restructuring of our Personalized Medicine segment.
Research and Development
We have invested significant capital to acquire technologies and to increase our investment in research and development both to sustain the technological leadership of our existing core product lines in urinalysis and sample processing and as part of our growth strategy to broaden our product pipeline into new high value segments such as hematology and personalized medicine. The decision to diversify into IVD market segments in which we do not presently participate has adversely affected our earnings growth over the last four years, as we have invested significantly in research and development without any corresponding revenues from new products still in development. Our investment in new product platforms, however, is of strategic importance and is necessary to position the company for significant revenue and earnings acceleration in future years. Research and development expense increased to $16.2 million, or 14% of revenue, in 2011 compared to $14.6 million, or 14% of revenue, in 2010. Of these expenditures, approximately $5.9 million and $7.0 million was invested in 2011 and 2010, respectively, in our NADiA and hematology platforms. Included in the 2011 hematology spending was the receipt of $1.5 million from our Japanese co-development partner for milestones achieved. For 2012, we anticipate that research and development expense will increase to approximately 15% to 16% of revenue because our Iris Diagnostics Division will be concurrently developing two next generation platforms, one for urinalysis and one for hematology, both based on our 3GEMS system architecture.
Critical Accounting Policies
The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles and our discussion and analysis of our financial condition and results of operations require us to make judgments, assumptions, and estimates that affect the amounts reported in our consolidated financial statements and accompanying notes. Note 2 of the Notes to Consolidated Financial Statements of this Form 10-K describes the significant accounting policies and methods used in the preparation of our consolidated financial statements. We base our estimates on historical experience and on various other assumptions we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. We regularly discuss with our audit committee the basis of our estimates. Actual results may differ from these estimates and such differences may be material.
We believe the following critical accounting policies, among others, affect our more significant judgments and estimates used in the preparation of our consolidated financial statements:
Revenue recognition: IDD and Sample Processing – Revenues are primarily derived from the sale of IVD instruments, sales of consumable supplies and services for IVD systems as well as sales of sample processing instruments and related supplies. Revenue is recognized once all of the following conditions have been met: (i) an authorized purchase order has been received in writing with a fixed and determinable sales price; (ii) customer credit worthiness has been established; and (iii) delivery of the product based on shipping terms.
Revenue is recorded in accordance with the provisions of FASB ASC Topic 605 “Revenue Recognition”, which generally require revenue earned on product sales involving multiple-elements to be allocated to each element based on the relative fair values of those elements if sold separately. Multiple elements of certain domestic product sales include IVD instruments, training, consumables and service.
Accordingly, we allocate revenue to each element in a multiple element arrangement based on the element’s respective fair value, with the fair value determined by the price charged when that element is sold separately and specifically defined in a quotation or contract.
A portion of our revenues are derived from sales-type leases as we provide lease financing to certain customers that purchase our diagnostic instruments. Leases under these arrangements are classified as investment in sales-type leases. These leases typically have terms of five years. Revenue from sales-type leases is recognized when collectability of the minimum lease payments is reasonably predictable and no important uncertainties surround the amount of unreimbursable costs yet to be incurred by us as lessor under the lease. The minimum lease payments that accrue to our benefit as lessor are recorded as the gross investment in the lease. The difference between the gross investment in the lease and the sum of the present value of the minimum lease payments and unguaranteed residual value, accruing to our benefit as lessor, are recorded as unearned income.
We have certain government contracts with cancellation clauses or renewal provisions that are generally required by law, such as (i) those dependent on fiscal funding outside of a governmental unit’s control; (ii) those that can be cancelled if deemed in the tax payers’ best interest; and (iii) those that must be renewed each fiscal year, given limitations that may exist on multi-year contracts that are imposed by statute. Under these circumstances and in accordance with the relevant accounting literature, as well as considering our historical experience, a thorough evaluation of these contracts is performed to assess whether cancellation is remote or whether exercise of the renewal option is reasonably assured.
We recognize revenues from service contracts ratably over the term of the service period, which typically ranges from twelve to sixty months. Payments for service contracts for purchased instruments are generally received in advance. Deferred revenue represents the revenues to be recognized over the remaining term of the service contracts.
Revenue recognition: Personalized Medicine — Revenues related to our Personalized Medicine segment are recorded in accordance with FASB ASC 605-10-S99-1, “Revenue Recognition”, when (i) the price is fixed or determinable, (ii) persuasive evidence of an arrangement exists, (iii) the service is performed and (iv) collectability of the resulting receivable is reasonably assured.
Our Personalized Medicine testing services are performed based on a written test requisition form and revenues are recognized once the diagnostic services have been performed, the results have been communicated to the ordering physician and when collectability is reasonably assured. We report revenues based on the amount expected to be collected from payors.
Inventory valuation — We value inventories at the lower of cost or market value on a first-in, first-out basis. Provision for potentially obsolete or slow-moving inventory is made based on management’s analysis of inventory levels and future sales forecasts.
Goodwill and Intangible Assets – Our intangible assets consist of goodwill and intangible assets with indefinite lives such as a CLIA license, which are not being amortized and intangible assets with a finite life, which are being amortized over useful lives ranging from 3 to 20 years. All intangible assets are subject to impairment tests on an annual or periodic basis. Goodwill and intangible assets with indefinite lives are evaluated in accordance with FASB ASC Topic 350, The Intangibles — Goodwill and Other , based on various analyses, including a comparison of the carrying value of the reporting unit to its estimated fair value and discounted cash flow. The analysis necessarily involves significant management judgment to evaluate the capacity of an acquired business to perform within projections. Intangible assets with a finite life are evaluated for impairment using the methodology set forth in FASB ASC Topic 360, Property, Plant and Equipment . Recoverability of these assets is assessed only when events have occurred that may give rise to a potential impairment. When a potential impairment has been identified, forecasted undiscounted net cash flows of the operations to which the asset relates are compared to the current carrying value of the long-lived assets present in that operation. If such cash flows are less than such carrying amounts, long-lived assets, including such intangibles, are written down to their respective fair values. See Note 4 — “Restructuring and Impairment of Assets” for a discussion of impairment recorded in 2011.
Substantially all of the goodwill resides in the Personalized Medicine reporting unit.
Capitalized software — We capitalize certain software development costs in connection with our development of our analyzers in accordance with FASB ASC Topic 985, Software . We capitalize software development costs once technological feasibility is established and such costs are determined to be recoverable against future revenues.
Capitalized software development costs are expensed to cost of sales over periods of up to five years. When, in management’s estimate, future revenues will not be sufficient to recover previously capitalized software development costs, we will expense such items as additional software development amortization in the period the impairment is identified. Such adjustments are normally attributable to changes in market conditions or product quality considerations.
Income taxes — We account for income taxes in accordance with FASB ASC Topic 740, Income Taxes , which requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the differences between the financial statement and the tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense represents the tax payable for the period and the change during the period in deferred tax assets and liabilities.
We account for uncertain tax positions in accordance with FASB ASC Topic 740-10 which prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return and also provides guidance on various related matters such as derecognition, interest, penalties and disclosures required. We recognize interest and penalties, if any, related to unrecognized tax benefits in income tax expense.
Stock based compensation — The Company accounts for stock based compensation under FASB ASC Topic 718, Compensation — Stock Compensation which requires compensation costs related to share-based transactions, including employee stock options, to be recognized in the financial statements based on fair value.
Comparison of Year Ended December 31, 2011 to 2010
Consolidated revenues for the year ended December 31, 2011 increased 10% over the prior year to $118.3 million from $107.7 million in 2010. International revenues accounted for approximately 33% of consolidated revenue in 2011 compared to 34% in 2010. Revenues in the IDD urinalysis segment increased 11% to $103.6 million in 2011, from $93.2 million in the prior year. Sales of IDD instruments increased 6% to $33.9 million from $32.1 million in the prior year. The continued increase in IDD instrument sales is primarily driven by the introduction of iChemVELOCITY and iRICELL workstations.
IDD consumables and service increased during the year to $69.7 million from $61.1 million, an increase of 14% over 2010, primarily due to the larger installed base of iQ automated microscopy analyzers and the introduction of the Chem VELOCITY in most major markets. In particular, we experienced an increase in sales of Japanese sourced chemistry strips due to higher utilization in the US market. We expect sales of our iChemVELOCITY strips to accelerate with the introduction of the iChemVELOCITY in the domestic market and expected availability in additional international markets pending product registration in those countries.
Revenues derived from Sample Processing instruments and supplies modestly increased to $14.5 million, a 1% increase over 2010 revenues of $14.4 million. Revenues were favorably impacted by strong sales to US distribution partners and partially offset by weaker sales internationally, particularly in Eastern Europe. We expect to accelerate growth in this segment with the planned release of the ThermoBrite Elite in the first quarter of 2012.
Personalized Medicine revenues in 2011 totaled $192,000 as compared to $69,000 in 2010. All of this revenue came from non-proprietary testing services provided by Arista Molecular, which were discontinued in September 2011.
Consolidated gross profit margin remained at 51% in 2011 compared to 51% in 2010. Excluding losses from the Personalized Medicine CLIA laboratory, Arista Molecular, segment in both periods, consolidated gross margin was 52% in 2011 compared to 51% in 2010. Instrument margins increased in 2011 versus last year but this was offset by lower consumable and service margins, primarily due to higher costs for Japanese sourced chemistry strips due to the appreciation of the yen versus a year ago.
The gross profit margin of our IDD instruments was 39% in 2011 compared to 34% in 2010. The increase is primarily due to higher instrument volume and the initiation of sales of iChem VELOCITY in the U.S, whose cost is lower than the Japanese-sourced chemistry analyzer sold until December 2010.
The gross profit margin of our IDD consumables and service decreased to 58% in 2011 compared to 60% in 2010, primarily attributable to higher costs for Japanese sourced chemistry strips due to the appreciation of the Yen versus a year ago, as well as a modest increase in service personnel to support our increasing installed base.
Gross profit margin for our Sample Processing instruments and supplies segment increased to 55% in 2011 from 54% in 2010. The increase is primarily due to favorable product mix and cost reduction initiatives.
Marketing and selling expenses totaled $23.1 million, or 20% of revenues, in 2011 as compared to $19.8 million, or 18% of revenues in 2010. The increase primarily results from $1.5 million of expenses related to Arista’s operations, additional personnel and related costs of $802,000, travel and entertainment and shows expense of $497,000 as well as higher commissions and GPO fees of $479,000 from increased sales. Excluding Arista, marketing and selling expenses for our core business were approximately 17% of revenue in both periods.
General and administrative expenses increased to $19.1 million, or 16% of revenues, in 2011, from $17.4 million or 16% of revenues in 2010. This increase primarily relates to $1.7 million of corporate overhead, which included personnel and related costs, recruiting and relocation and board compensation.
Research and development expense increased to $16.2 million, or 14% of revenues, in 2011 from $14.6 million, or 14% of revenues in 2010. The increase was primarily attributable to $1.7 million in personnel and related costs, partially offset by other lower miscellaneous expenses, as we continue to invest heavily in research and development for the continued development of our diagnostics product pipeline, including our 3GEMS urinalysis and hematology programs. Net R&D expense for 2011 includes $1.5 million in payments from Fujirebio related to our joint development agreement on the 3GEMS Hematology Analyzer which partially offsets research and development expenditures for this product.
MANAGEMENT DISCUSSION FOR LATEST QUARTER
Overview
IRIS International, Inc. consists of three operating units in three business segments as determined in accordance with FASB ASC Topic 280, Segment Reporting . Our in-vitro diagnostics segment, also called Iris Diagnostics Division (IDD), designs, manufactures and markets systems, consumables and supplies for urinalysis and body fluids. Our Iris Sample Processing segment markets small centrifuges and other processing equipment and accessories for rapid specimen processing, as well as DNA processing stations for cytogenetic testing procedures such as fluorescent in-situ hybridization (FISH). Our Personalized Medicine segment combines our subsidiaries Iris Molecular diagnostics, dedicated to research and development of personalized medicine products and Arista Molecular, Inc., our CLIA certified high-complexity laboratory. Under the Personalized Medicine segment we consolidate all operations for the development and commercialization of proprietary cancer diagnostic testing services and related products, including NADiA ProsVue, our recent FDA cleared prognostic prostate test.
Iris Diagnostics Division
Our core business is in the urinalysis market and we are the leading worldwide provider of automated urine microscopy systems, with approximately 3,800 iQ microscopy analyzers shipped to date in over 50 countries. We generate revenues primarily from sales of instruments, consumables and service. Revenues from instruments include global sales of urine microscopy analyzers and sales of chemistry analyzers. In September 2008, we released our proprietary iChemVELOCITY automated urine chemistry analyzer and a fully integrated urine microscopy and urine chemistry work-cell, called the iRICELL in some international markets. In March 2011, we received FDA clearance on our 510(k) application for these products and commenced selling them in the United States. Historically, we sold our family of iQ analyzers integrated with an automated chemistry analyzer that was sourced from a Japanese manufacturer.
Our consumables revenues result from sales of chemical reagents, urine test strips, calibrators and controls. Service revenues are derived primarily from annual service contracts purchased by our domestic customers after the initial year of sale, which is covered by product warranty, and spare parts purchased by international customers. Once the analyzers are installed, we generate recurring revenue from sales of consumables. Recurring consumable and service revenues should continue to expand as the installed base of related instruments increases.
In the United States, France, Germany, and the United Kingdom, sales of our urinalysis systems are direct to the end-user through our sales force. All other international sales are through independent distributors. International sales represented 34% and 33% of consolidated revenues for the six months ended June 30, 2012 and 2011, respectively. Since the majority of international sales are made through independent distributors, gross profit margin is lower than domestic sales of the same products, but we incur minimal sales, service and marketing costs for such sales.
Sample Processing
Our Iris Sample Processing group markets and develops centrifuges, semi-automated DNA processing workstations and sample processing consumables. Our StatSpin ® brand bench-top centrifuges are used for specimen preparation in coagulation, cytology, chemistry and urinalysis. Our worldwide markets include medical institutions, commercial laboratories, clinics, doctors’ offices, veterinary laboratories and research facilities. Our Sample Processing products are sold worldwide primarily through distributors and incorporated into our OEM partners products.
In March 2012, we launched the ThermoBrite ® Elite, a multi-purpose, bench-top instrument platform for automating highly repetitive, manual laboratory protocols for FISH testing and other slide-based cytogenetic applications. This product is a natural extension to the successful ThermoBrite ® DNA Hybridization System and in line with our entry into personalized medicine with emphasis on cancer diagnostics.
Personalized Medicine
Our Personalized Medicine segment is leveraging our proprietary NADiA technology platform to develop ultra-sensitive and precise diagnostic tests to aid in the early detection of disease relapse and potentially provide better therapeutic outcomes.
In September 2011, we received 510(k) clearance for our NADiA ProsVue prognostic prostate cancer test. This test is indicated for use as a prognostic marker in conjunction with clinical evaluation as an aid in identifying post radical prostatectomy patients at reduced risk for recurrence of prostate cancer and therefore is expected to reduce unnecessary treatment of certain post-prostatectomy men. In October 2011, we received Conformité Européenne (CE) Mark for NADiA ProsVue, which allows it to be marketed in the European Union and other countries that recognize the CE Mark. We have begun accepting blood samples as a result of significant progress on our NADiA ProsVue targeted launch focused on urologists performing a high number of prostatectomies.
In September 2011, we also completed a restructuring of our Personalized Medicine division, which included downsizing and consolidating Arista Molecular’s operations into Molecular Diagnostics. As part of this restructuring, we discontinued non-proprietary testing services such as flow cytometry, FISH, cytology services and the non-proprietary molecular pathology menu. Arista retained all licenses and high-complexity CLIA laboratory capabilities, as well as limited personnel to perform NADiA and other proprietary tests. The restructuring provides significant cost reductions and enhanced profitability in our business. For the year ended December 31, 2011, we recognized restructuring expenses and impairment of asset charges of $1.6 million and $5.8 million, respectively. The simplification of our business model should allow us to concentrate our resources on our new product pipeline and other strategic initiatives. See Note 4, Restructuring and Impairment of Assets , in the accompanying notes to financial statements for more information about the restructuring of our Personalized Medicine segment.
Critical Accounting Policies
The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles and our discussion and analysis of our financial condition and results of operations require us to make judgments, assumptions, and estimates that affect the amounts reported in our consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. We regularly discuss with our audit committee the basis of our estimates. Actual results may differ from these estimates and such differences may be material.
Comparison of Three Months Ended June 30, 2012 to Three Months Ended June 30, 2011
Consolidated revenues for the second quarter ended June 30, 2012 increased 2% to $30.9 million as compared to $30.2 million in the prior year period. IDD segment revenues increased 3% to $27.2 million in the second quarter of 2012 as compared to $26.4 million in the prior year quarter. IDD instruments revenues decreased 10% to $8.2 million in the second quarter of 2012 as compared to $9.1 million in the prior year quarter. The decrease in IDD instrument sales is primarily attributable to geographical mix, as a larger portion of unit sales were sold internationally than during the prior year. Actual iQ unit shipments were unchanged from prior year, with growth in the Asia Pacific region offset by lower shipments in the US. The quarter-over-quarter instrument revenue comparison is affected by the pent-up demand of the US launch of iChem VELOCITY and iRICELL in the second quarter of 2011 and an increase in domestic operating leases under which revenues are recorded over the term of the lease rather than at time of delivery.
IDD consumables and service revenues increased 10% to a record $19.0 million in the second quarter of 2012 as compared to $17.3 million in the prior year quarter. The increase in both consumables and service revenue was primarily due to the larger installed base of instruments. In particular, we experienced an increase in sales of our iChemVELOCITY strips as a result of increased placements of our iChemVELOCITY analyzer, which received FDA clearance in March 2011. We expect sales of our iChemVELOCITY strips to accelerate with the continued penetration of the iChemVELOCITY in the domestic market and expected availability in additional international markets pending product registration in those countries. In addition, domestic service contract revenue and international spare part sales were especially strong versus the prior year period.
Revenues from Sample Processing instruments and supplies were flat at $3.7 million in the second quarter of 2012 as compared to the prior year quarter as we begin to ramp up the release of our new product, ThermoBrite Elite, through our key distributors and OEM partners.
Personalized Medicine revenues were $0 in the second quarter of 2012 as compared to $104,000 in the prior year quarter.
Consolidated gross profit margin was 54% during the second quarter of 2012 compared to 52% in the prior year quarter. Excluding losses from the Personalized Medicine segment, consolidated gross margin in the prior year period was 54%. Consumables and service margins increased, reflecting increased utilization at our strip manufacturing facility in Germany, but were offset by a decrease in instruments and Sample Processing gross margins.
The gross margin of our IDD instruments was 40% in the second quarter of 2012 as compared to 44% in the prior year quarter. The decrease in instrument margins is primarily due to geographical mix as a larger proportion of our sales were sold to international distributors, primarily in Asia Pacific, as compared to last year.
The gross margin of our IDD consumables and services increased to 60% in the second quarter of 2011 from 58% in the prior year quarter. The increase was primarily attributable to increased volume from iChemVELOCITY strips, reducing per unit costs, an increase in international spare parts sales and domestic service contracts, partially offset by higher costs for Japanese sourced chemistry strips due to the appreciation of the Yen versus a year ago.
Gross margin for our Sample Processing segment was 53% during the second quarter of 2012 and 54% in the prior year quarter. The decrease in gross margin was primarily due to product mix.
Marketing and selling expenses decreased to $5.7 million, or 18% of revenues, in the second quarter of 2012 as compared to $6.0 million, or 20% of revenues, for the second quarter of 2011. The decrease in marketing and selling expense includes $185,000 related to reduced costs for Arista following the restructuring that occurred in September 2011, and a decrease in meetings and shows expense of $89,000. General and administrative expenses decreased to $4.3 million, or 14% of revenues, in the second quarter of 2012, as compared to $5.8 million, or 19% of revenues, in the second quarter of 2011. The decrease in general and administrative expenses includes $713,000 related to Arista as we no longer have Arista-related general and administrative expenses following the restructuring that occurred in September 2011.
Other general and administrative items include a $230,000 decrease in bonus, $506,000 decrease in deferred compensation and $200,000 decrease in corporate expenses versus the prior year period. In the second quarter of 2011, our board of directors changed the composition of non-employee director compensation to a higher proportion of stock versus stock options to conserve shares of common stock available for employee grants under our previous stock incentive plan. While the total compensation paid to non-employee directors remained the same, the change did cause us to recognize in the second quarter of 2011 100% of the equity compensation expense for non-employee directors. In previous periods, equity compensation expense was recognized over a twelve month period. In 2012, equity compensation for the board is spread over a twelve month period. Additionally, we recognized $250,000 of bonus expense during the second quarter of 2011 related to a performance based cash award to our CEO upon his achievement of two critical 2010 milestones which were delayed into 2011.
Research and development expenses increased to $5.0 million, or 16% of revenues in the second quarter of 2012, as compared to $4.5 million, or 15% of revenues, in the second quarter of 2011. The increase in research and development expense is primarily due to expenses to support our 3GEMS urinalysis and hematology programs. The second quarter of 2011 research and development expense is net of a $500,000 payment from Fujirebio related to the achievement of a milestone in our 3GEMS Hematology joint development agreement. There was no milestone payment received in the second quarter of 2012.
Interest income increased slightly during the second quarter of 2012 to $297,000 from $272,000 during the second quarter of 2011, due primarily to the increase in interest income from investment in sales-type leases. Interest expense increased to $6,000 in the second quarter of 2012 from $4,000 in the same prior year period.
Foreign exchange losses and other totaled $22,000 for the second quarter of 2012 as compared to a $28,000 gain in the prior year period.
Income tax during the second quarter of 2012 amounted to a provision of 36.1% of pre-tax income as compared to a benefit of 3.6% of pre-tax loss during the prior year period. The lower tax rate in 2011 is primarily due to the nontaxable gain on revaluation of contingent consideration recorded in 2011, as well as the federal and state research and development tax credits. Federal research and development tax credits expired in December of 2011 and have not been reenacted by Congress.
Comparison of Six Months Ended June 30, 2012 to Six Months Ended June 30, 2011
Consolidated revenues for the six months ended June 30, 2012 increased 6% to $60.8 million as compared to $57.1 million in the prior year period. IDD urinalysis segment revenues increased 8% to $53.5 million in the first half of 2012 as compared to $49.7 million in the prior year period. IDD instruments revenues increased 4% to $16.3 million in the first half of 2012 as compared to $15.6 million in the prior year period. The increase in IDD instrument sales is primarily attributable to the growth in the first quarter of 2012 which is attributable to strong growth domestically and in Asia Pacific.
IDD consumables and service revenues increased 9% to $37.2 million in the first half of 2012 as compared to $34.0 million in the prior year period. The increase in both consumables and service revenue was primarily driven by the larger installed base of instruments. In particular, we experienced an increase in sales of Japanese sourced chemistry strips due to higher utilization, and an increase in sales of our iChemVELOCITY strips as a result of increased placements. We expect sales of our iChemVELOCITY strips to accelerate now that we are selling the iChemVELOCITY in the domestic market and planned availability in additional international markets that are currently pending product registration. In addition, domestic service contract revenue and international spare part sales were especially strong versus the prior year period.
Revenues from Sample Processing instruments and supplies were flat at $7.3 million in the first half of 2012 as compared to the prior year period as we begin to ramp up the release of our new product, ThermoBrite Elite, through our key distributors and OEM partners.
Personalized Medicine revenues in the first half of 2012 were $0 as compared to $168,000 in the prior year period.
Overall gross margin increased to 53% during the first half of 2012 compared to 50% in the prior year period. Excluding losses from the Personalized Medicine segment, consolidated gross margin in the prior year period was 52%. Consumables and service margins increased, reflecting increased utilization at our strip manufacturing facility in Germany, but were partially offset by a decrease in Sample Processing gross margins.
The gross margin of our IDD instruments was flat at 40% in the first half of 2012 as compared to the prior year period.
The gross margin of our IDD consumables and services increased to 59% in the first half of 2012 from 57% in the prior year period. The increase was primarily attributable to increased volume from iChemVELOCITY strips, reducing per unit costs, an increase in international spare parts sales and domestic service contracts, partially offset by higher costs for Japanese sourced chemistry strips due to the appreciation of the Yen versus a year ago.
Gross margin for our Sample Processing segment decreased to 52% during the first half of 2012 compared to 54% in the prior year period due primarily to product mix.
Marketing and selling expenses decreased to $11.6 million, or 19% of revenues, in the first half of 2012 as compared to $11.9 million, or 21% of revenues, for the first half of 2011. The decrease includes $581,000 related to Arista, partially offset by additional personnel and related costs of $84,000, higher GPO fees of $91,000, and recruiting expense of $119,000.
General and administrative expenses decreased to $8.2 million, or 14% of revenues, in the first half of 2012, as compared to $10.6 million, or 19% of revenues, in the first half of 2011. The decrease includes $1.5 million related to Arista.
Other general and administrative items included a $580,000 decrease in deferred compensation, $185,000 decrease in corporate expenses and $135,000 decrease in recruiting and relocation expense versus the prior year period. In the second quarter of 2011, our board of directors changed the composition of non-employee director compensation to a higher proportion of stock versus stock options to conserve shares of common stock available for employee grants under our previous stock incentive plan. While the total compensation paid to non-employee directors remained the same, the change did cause us to recognize in the second quarter of 2011, 100% of the equity compensation expense for non-employee directors. In previous periods, equity compensation expense was recognized over a twelve month period. In 2012, equity compensation for the board is spread over a twelve month period. Additionally, we recognized $250,000 of bonus expense during the second quarter of 2011 related to a performance based cash award to our CEO upon his achievement of two critical 2010 milestones which were delayed into 2011.
Research and development expenses increased to $9.6 million, or 16% of revenues in the first half of 2012, as compared to $8.1 million, or 14% of revenues, in the first half of 2011. The increase in research and development expense includes the development of the FISH testing bench-top platform for Sample Processing, IDD research and development costs to support our 3GEMS urinalysis and hematology programs. The first six months of 2012 research and development expense includes one payment totaling $500,000 from Fujirebio as compared to two payments for $1 million in the first six months of 2011. The payments from Fujirebio are related to our joint development agreement on the 3GEMS Hematology Analyzer which offsets research and development expenditures for this product.
Gain on revaluation of contingent consideration of $1.2 million recorded in the first half of 2011 is the result of the reduction in the fair value of the contingent consideration obligation associated with the acquisition of Arista. As a result of significant revenue shortfalls at Arista relative to previous projections for the three months ended March 31, 2011, sales projections for Arista were significantly reduced for all future periods. The revised forecast projected revenues were significantly below targets for all three years covered by the earn-out period. Management thus determined that the fair value contingent consideration obligation was zero, which resulted in a decrease of $1.2 million from December 31, 2010 to March 31, 2011. Consequently, we recognized a gain on revaluation of contingent consideration for the six months ended June 30, 2011 (recorded in March 2011). As of June 30, 2012, the fair value of the contingent consideration remained at zero.
Interest income increased slightly during the first half of 2012 to $598,000 from $549,000 during the first half of 2011, due primarily to the decrease in cash and cash equivalents partially offset by an increase in interest income from investment in sales-type leases
Foreign exchange loss and other totaled $54,000 for the first half of 2012 as compared to a $414,000 gain in the prior year period, primarily resulting from the effect of favorable foreign currency fluctuations on U.S. dollar denominated intercompany balances.
Income tax during the first half of 2012 amounted to a provision of 36.3% of pre-tax income as compared to a provision of 21.5% of pre-tax income during the prior year period. The lower tax rate in 2011 is primarily due to the nontaxable gain on revolution of contingent consideration recorded in 2011, as well as the federal and state research and development tax credits. Federal research and development tax credits expired in December of 2011 and have not been reenacted by Congress.
CONF CALL
Cesar Garcia - President and CEO
Thank you, Hewith [ph], for reading the forward-looking statements. Welcome to our first quarter 2010 earnings call. Peter Donato, CFO; Tom Adams, CTO; Tom Warekois, President of IRIS Diagnostics Division; and Bob Mello, President of our Sample Processing Division joining me today in present or by phone.
We are very pleased with our achievement of record revenue in the first quarter of 2010, our second consecutive quarter with increasing instrument sales, showing a significant recovery in capital equipments sales after the slowdown experienced in the second and third quarter of 2009.
We also pleased with our progress in all of our strategic initiative and the achievement of critical milestones that we will discuss during the second part of today’s call in our presentation. Now over to Financial Officer Peter Donato will present the financial results for the first quarter and the guidance for 2010. Peter, please proceed.
Peter Donato - CFO
Thanks, Cesar. Looking to the far right of slide 4, you can see the consolidated revenue was $26 million for the first quarter of 2010 up from $21.6 million or 20% from the first quarter of last year. The IVD segment was also up 24% to $22.3 million from $18 million last year.
IVD instrument revenue increased 45% quarter-over-quarter to just under $8 million from $5.5 million last year as instrument shift increased to 115 from 81 a year ago, although both domestic and international units increased versus the year ago period. Most of the increase came from international sales as we continue to see improvement and stabilization in hospital capital equipment spending.
IVD consumables and service revenue increased to a new record, $14.4 million representing of 15% increased over 2009, $12.5 million. This was driven by continue strong case volume in our consumable product line, although most of this year increased was due to record straight volume due to good pull through from our VELOCITY chemistry analyzer and a very strong performance from contract revenue from our service operation.
This segment of our business continues to grow and represented approximately 55% of our total consolidated revenue for the quarter. Revenue in our sample processing division was $3.7 million for the quarter up from $3.6 million a year ago. This was attributable to an increase to both consumables and service revenues.
In addition, consolidated revenue included just under $500,000 in incremental revenue from our new direct sales operation in Europe. Slide five, consolidated gross profit was $13.3 million for the quarter up 13% versus last year $11.7 million. But our margins decreased this year to 51% from 54% a year ago. Our IVD segment gross profit also increased to $11.3 million this year from just under $10 million last year, with our margins declining to 51% from 55% last year. IVD instrument gross profit increased quarter-over-quarter to $2.8 million from $2.3 million; however, our margins fell to 36% from 42% a year ago.
This year margin were negatively impacted by an unfavorable unwind of capitalize inventory revaluation booked in the fourth quarter of last year, as well as unfavorable product mix as we sold an increasing number of lower margin VELOCITY instruments while the greater portion of our IQ instrument sales came from lower margin international region.
IVD consumables and service gross profit also increased to just under $8.5 million from just over $7.5 million a year ago. But our margins fell two points to 59% from 61% last year. Margins were negatively impacted by mix in this segment as well, but most of our incremental sales increase attributable to international script sales, which carry a lower margin than our limited [ph] product line.
Gross profit in our Sample Processing Division increased to $2 million from $1.8 million last year, but their margins improving significantly to 54% from just over 49% last year. This is the -- takes a large part to a favorable product mix.
Slide six, total operating expense for the quarter was $11.9 million or 46% of sales versus $9.8 million or again, 46% of sales in the first quarter of last year. Marketing and selling expenses increased to $4.4 million but decreased to 17% of sales. That’s up from $3.9 million or 18% of sales last year, increased personnel and related benefits as well as increased commissions in some territories drove most of the increase and includes cost associated with the integration of the German and UK businesses from the working group that we purchased in January.
G&A expenses increased to $3.7 million versus $3.1 million a year ago. However, they fell to 14% of sales versus 15% of sales last year. Again, an increase in personnel and related benefits but the addition of a VP of Regulatory Affairs, IT personnel, as well as higher corporate ride [ph] recruiting fees drove most of the increase in 2010.
R&D spending was $3.7 million for the quarter, that’s up nearly $900,000 from last years $2.8 million. As the company continues to ramp up spending a [inaudible] related projects especially costs associated with regulatory submission. We also had increased spending on Hematology and hiring of additional R&D personnel including a new VP of R&D in the fourth quarter of last year.
Slide seven is our GAAP P&L, as usual I will not go line by line, but try to hit some of the highlights. As you can see we had record revenue of $26 million but the continued momentum that we saw in the fourth quarter of 2009 in unit sales with the international markets leading the way. We had a new record in consumables and service revenue with a recurring portion of our business, now its 55%. That included the record strip in service contract revenue that I mentioned earlier.
We achieved $0.06 GAAP EPS for the first quarter of 2010 versus $0.08 in the prior year period; this was due to lower overall gross margins due to the mix issues mentioned previously. Increased OpEx with the new European direct sales and the much higher rate of R&D spending, this year also included a higher tax rate.
Slide eight, the balance sheet, as you can see our cash ended strongly at $36.5 million. Our AR balances has increased slightly about $1 million from year end. This was due to a greater portion of our instrument sales occurring towards the end of the first quarter. Our inventory balance also increase slightly about a $1.5 million from year end. They continue to level off with the improvement in instruments sales volumes.
Lastly, we have a debt free balance sheet with open and available lines of credit the availability to funds deals internally if necessary, while we continue to fund all of our extensive R&D efforts with our own cash. Slide nine is the new slide and I won’t touch point by point, but I’ll try to address some of the questions I get either on the call or immediately calling. I have included the depreciation and amortization expense, cash flow, CapEx and other items.
Lastly, slide 10 is our guidance slide. We would like to reiterate our previously announced guidance for 2010 as follows; revenue in the $100 to $104 million range and the corresponding EPS of $0.40 to $0.43 per share. R&D spending should be approximately 13 plus percent of revenue and as we announced in February an additional $2.5 million to support new marketing and selling initiatives.
With that, I’ll turn it back over to Cesar.
Cesar Garcia - President and CEO
Thank you, Peter for presenting the financial report for the first quarter. And now I will present a quick overview of the business and the status reports on our major R&D initiatives.
Moving on to slide number 12. I want to recap the major objectives and initiatives for 2010. It is a same slide I represented at the last conference call. And I want to briefly talk about them before I give you full status.
The first and foremost our critical objective of the year is obtained, regulatory clearance for both NADiA ProsVue, and iChem VELOCITY.
Second, it’s very important for us to retain momentum that we gained in the fourth quarter and we are happy to report that we are happy in the first quarter and the second quarter is beginning with a good ADIR [ph].
Not only we need to get these clear but also we need to launch them. It was a successful launch of a new product initiatives and we have five, the NADiA ProsVue, the iChem VELOCITY, the iRICELL, the Cytofuge 2 and Ovatube very important it was. We want to finish implementation of the expanded international direct organization and the optimization of the international stream line [ph] in general.
As Peter mentioned, we’re accelerating the development of our next generation of core imaging platform and that's requires about $2 million of incremental and spending to support a simultaneous development of the next generation urinalysis and hematology. And finally, we want to achieve our earnings guidance with the postponing any of such initiatives that I’ve mentioned before.
Slide 15, I want to recap the accomplishment for the first quarter 2010. First quarter was a record revenue quarter with $26 million of revenue. Not to be a repetitive but I just want to -- I will mention again a few points going back to Peter's presentation. The earnings of $0.06 include approximately $0.03 per share investment in incremental R&D over approximately 900,000. Of that slightly over 200,000 is related to the NADiA ProsVue clinical study that we’ve just completed and we have incurred significant expenses in getting the VELOCITY 510(k) clinical study in process.
The gross profit was affected by the timing of the inventory revaluation, which Peter mentioned and the consumables mix. Basically we book lower IQ and living cells [ph] or higher strips sales in first quarter.
We have accomplish a significant reliability [ph] in iChem VELOCITY and that’s reflected in the increases sales and the increase in pull-through in the consumables and I will get in more detail at a later slides.
At last conference call, we reported that we need to recalled Express 4 Centrifuge, that recall behind us. We are doing that with high customer satisfaction and with retrofit accrual. So we expect no financial impact on retrofitted in 2010.
And finally, our balance sheet reached a $100 mark in assets. One of the biggest concerned in 2009 was these situation with the lack of capital funding for IV equipment purchases.
On slide 14, we summarize here the significant improvement that we have seen IVD capital equipments sales. The chart on the left hand side, the green curve, it shows improvement in terms of instrument revenue. The chart on the right side, blue shows the improvement on IQ line and the red one shows the improvement iChem VELOCITY.
So, in conclusion the instrument sales have improved as the capital markets have gradually stabilized and you see in terms of the -- on a unit basis, the iQ200, last year was shipped 398 units, over the last 12 months we have shipped 432 units, so definitely will be LTM [ph] revenue shows an improvement. In terms of the VELOCITY we shipped the 111 [ph] units in fiscal year 2009, over the last 12 months where we shipped the 148 units. Obviously in the case of the VELOCITY, the VELOCITY volume reflects the higher market acceptance of the improve iChem VELOCITY designs.
International the quality has been stronger than the US recovery. The US -- the number of units sold in the US is essentially the same as we shipped in the first quarter. Domestic sales of iQ200 exceeded 80 units in the first quarter. The good news is are the single instrument demand will resort in lower sales of consumer goods although it has a negative effect upfront because we are selling units with the lower gross margin.
But I always mentioned, I think it is very important to keep a penetration so we can harvest the consumer goods. So, the more units have been placed, the higher the consumable growth would be in future periods. As I mentioned before, we got [inaudible] momentum into the second quarter of 2010.
Slide 15, we’ll give you an update in terms of the streamlining of the commercial operations and one of them was expansion of international and direct sales in Germany, the UK and Ireland. The acquisition was completed for approximately $800,000 in cash. The integration is essentially complete and we have a management team in place and we, as Peter said we booked approximately $500,000 in incremental revenue in the first quarter.
Those are the international streamlining of the commercial channel. We challenge the distributors in China and Japan. We will please to hit both our Chinese distributors and our Japanese distributors successfully launched the iQ200 during the first quarter of 2010. Both of them are working on the registration of the iChem VELOCITY for the respective territories. The iChem VELOCITY registration takes a longer regulatory process that’s why it’s not in the market at this point of time.
We’re also very pleased to see this, the first multi-unit order for international market in a long time and that came from Mexico, however, Mexican receives a one, it’s working on it iQ200 ordered for the [inaudible] security in Mexico.
Moving on to slide 16, I’d like to elaborate little more on the iChem VELOCITY. So you know we have booked significant across in 2009. Their investment is paying off. We are seeing a significant improvement in the instrument reliability. And the retrofit keeps having implemented most -- they have been implemented in Europe and Asia. The instruments and it should be [inaudible] being increase in [inaudible] over the last two quarters. And the 510(k) clinical stories are almost complete. We are trying to make a submission on a 510(k) on schedule in the second quarter for 2010.
Moving on to slide 17, to the recap all the new product initiatives. One thing that is very important to that release a no products. I want to kind of freak [ph] that what we have done so far. In the fourth quarter of 2009 we launch, we over took slight ahead of schedule.
We thought that would be [inaudible] no psychological percentages was launch in the first quarter of 2010 on schedule. We have two new versions of iQ200. I will be launching in the second half of 2010, they are on schedule. The iChem VELOCITY are in the later stages of the 510(k). I was trying to submit in the second quarter on schedule. And then I of course for you was submitted as planned for pending the 510(k) clearing. Tom Adams will give you in more in depth status on the NADiA ProsVue. It’s also very good, very important for us and very good to report that we have initiated worked on the next generation programs.
The 3GEMS, hematology programs is gaining momentum with designing of a development agreement with [inaudible] hematology company. The development agreements for the developmental some key components that will be integrated in our 3GEMS hematology analyzer. As well we have initiated predevelopment efforts in the 3GEMS Hematology. So as we have transition that people from the velocity they would be moving into descent next generation platforms.
On the NADiA front, we haven’t stop with ProsVue and the NADiA HIV offering [ph] is progressing well and the in-house testing of the technical samples receive from the institute of human biology is in process, and we expect a complete internal development and a design verification in 2010. And I will than would require initiation of clinical stories in 2011. Before Tom gives you an update in terms of the clinical story for NADiA ProsVue, I want to recap the -- cover the quick market overview and for the NADiA ProsVue.
First I have to tell you that we’re very pleased with our results of our NADiA ProsVue retrospective clinical story. And fortunately for regulatory reasons we can not disclose the tax results. We have to wait until resources will be regulatory clearance process. Well we will give you as much as information as we can in terms of the comprehensive clinical story I have been completed. It’s also very important to mention NADiA ProsVue is the proof of concept application.
NADiA ProsVue is intended to be the proof of concept application for the NADiA platform with many other high value assays to follow. In terms of the prostate cancer application to particular the [inaudible] very compelling approximately 195 was now cases are reported every year. Those resolved in 85,000 prostrate to this for a year. And unfortunately about 27,000 men die every year in the US from prostate cancer. Prostate cancer is the second most common cancer amongst men after skin cancer.
In terms of the NADiA value proposition, overseen we have been saying over and over again the men are being treated too aggressively and unnecessarily and the objective of NADiA suited to some necessary treatment. If we can introduce radiation therapy, because of a radiation therapy over $50,000 per patient averaging. That was also result in a reduction to cancer patient and the important there is no standard program for diagnosing prostate cancer recurrence. And we believe the NADiA ProsVue could become a standard protocol for identifying stable patients to those patients will not get treated. Conversely if you are not stable you will be treated because you will be considered a patient that has a high resolve of relapse.
In prostate cancer, the focus have to be on diagnosing after prostatectomy, to moderate to high-risk patients. The low-risk patients, if those are easy to manage basically after the surgery the patients have [inaudible] with in low maybe on high and the low [inaudible] patients are basically monitor using convention of methods and systematically. I think the NADiA ProsVue would help to certify mid-risk and high-risk patients so they can -- the doctor can decide which treatment is better. Our clinical claims are very strong and we believe that investment of value will be supported by superior clinical value and superior healthcare economics and those are institutions that implement NADiA ProsVue.
And finally, piece of mind to the patients to remind us what the prostate cancer is also very important, and we believe that, that will be the key ingredient of a rapid adoption of NADiA ProsVue.
With that, I’ll transfer the call to Tom for a more in depth discussion of clinical study. Tom?
Tom Adams - CTO
Okay, for this afternoon, I am going to cover the NADiA ProsVue clinical, and on slide 19 is the clinical inclusion criteria for patients for this test. Patients were categorized as no for prostate cancer recurrence had been followed for at least 10 years. There were three samples drawn from 3 to 18 months and the close to set any two of these samples could be was two months apart. And in addition that the first sample most of had a PSA level which was less than 100 pg/ml by an FDA cleared outside.
Patients were categorized as yes for recurrence had to have evidence of a local recurrence or distant metastasis by imaging methods or biopsy or death as result of prostate cancer.
Slide 20 describes the NADiA ProsVue clinical study. This is a 300 patient retrospective study with a prognostic claim. We connected 62 different institutions and selected four institutions that is Duke, Memorial Sloan-Kettering, Eastern Virginia, University of Washington. This was 25,000 patient pool patients that were believed to have the necessary information. Of the 25,000, 611 patients were selected as meeting the inclusion criteria. We selected 392 as qualified patients and then these are randomized to I guess the 300 random patient pool.
Of these 228 were stable patients and 72 were recurrent patients. The testing was done at the Iris Sponsor Diagnostics was done on a instrument that is previously cleared by the FDA as a real time PCR instrument and we submitted the 510(k) on April 28, 2010.
Slide 21 is the status of this project as of May 3rd. As you may remember, we submitted two Pre-IDEs and the test results today give us confidence that we have addressed all of the clinical and analytical report [inaudible] necessary in that we met the primary and secondary endpoints actually of our study.
We filed the 510(k) and which is what we had agreed with the FDA. We at this point are waiting to hear for the FDA to determine whether it’s going to be processed by a normal 510(k) which would have a 90 to 120 day timeline, or the new [ph] 510(k) which we estimate may take 180 to 240 days. Obviously this timing is completely up to the FDA. This assay was a risk based prognostic, I’ll say rather than a diagnostic or therapeutic memory [ph] and it’s a first prognostic test we believe that is been submitted for diagnosing occurrence following -- or stable to this following [inaudible]. We plan to communicate the NADiA ProsVue commercialization plan over the next 90 days and we’re very excited about that since we estimate that the total aggress able market here in the US of at least $140 million for the initial NADiA ProsVue plan.
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