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Nordion (NYSE:NDZ)

Q1 2013 Earnings Call

March 06, 2013 9:30 am ET

Executives

Ana Raman - Director of Investor Relations

Steve M. West - Chief Executive Officer, President, Director, Member of Technology Committee and Interim Chief Operating Officer of Targeted Therapies

G. Peter Dans - Chief Financial Officer and Senior Vice President

Analysts

Lennox Gibbs - TD Securities Equity Research

Neil Maruoka - Canaccord Genuity, Research Division

Douglas Miehm - RBC Capital Markets, LLC, Research Division

David Krempa - Morningstar Inc., Research Division

Varun Choyah - CIBC World Markets Inc., Research Division

Operator

Good morning, ladies and gentlemen. Welcome to the Nordion First Quarter Results Conference Call. [Operator Instructions] I would now like to turn the meeting over to Ms. Ana Raman, Investor Relations. Please go ahead, Ms. Raman.

Ana Raman

Thanks, Jason. Good morning and welcome to Nordion's First Quarter Fiscal 2013 Earnings Call and Webcast. On the call this morning are our Chief Executive Officer, Steve West; and our Chief Financial Officer, Peter Dans. The format for our call will be that Steve and Peter will provide their perspectives, and then we'll open up the lines for questions to analysts. Slides have been posted to accompany this webcast.

As per Slide 2, which contains our caution on forward-looking statements, please note that today's comments do contain forward-looking information, so actual results may differ materially from expected results because of various risk factors. These factors are described in Nordion's quarterly and year-end filings, which are available on SEDAR, EDGAR and the company's website. Results have been prepared under U.S. GAAP, and all amounts mentioned are in U.S. dollars except when otherwise noted.

Turning to Slide 3, we have included certain non-GAAP measures. These include adjusted net income and adjusted earnings per share. These non-GAAP measures exclude certain items and are intended by management to provide investors with a meaningful, consistent comparison of the company's core operating results. This information should be considered as a supplement to, and not a substitute for, the corresponding financial measures prepared in accordance with GAAP.

Our first quarter news release was issued yesterday after market close. You can find it on our website at www.nordion.com. With that, I'll turn it over to Steve.

Steve M. West

Well, thank you, Ana, and good morning to everyone joining us today. Nordion generated solid first quarter results across our 3 business lines. Revenues of $53.7 million were up slightly compared to the same period last year. In Q1, TheraSphere generated revenue of $12 million, which is 9% up over the same period last year. Sterilization revenue of $16.4 million increased 2% compared with Q1 2012.

Our Medical Isotopes saw revenue of $25.2 million. While this was a decrease of $0.7 million or 2.6% compared with Q1 of 2012, Medical Isotope volumes were above our expectations for the quarter. We announced in January that Nordion initiated a review of strategic alternatives with the assistance of Jefferies. Now the review is still in its early stages. We believe it's an important step in evaluating appropriate strategic options and creating future opportunities for Nordion. Nordion remains focused on our operations, customers and execution of our planned business strategies as we progressed through this review.

In the quarter, we were pleased to announce Grant Gardiner has been appointed as Senior Vice President, General Counsel and Corporate Secretary, and Grant will serve as our legal officer responsible for all global legal matters effective March 18, 2013. Now Grant has a strong background in leading cross-listed, publicly-traded companies through complex legal, governance and compliance landscapes. He joins us from his previous leadership role as Assistant General Counsel at BlackBerry, formerly known as Research In Motion, and is expected to play an important role in the execution of our strategic priorities.

Also in Q1, we confirmed that we are pursuing our rights under the Isotope Production Facilities Agreement, or IPFA, and filed an amended statement of claim with the Ontario Superior Court of Justice against AECL, for damages of $243.7 million. Based on the current schedules, we continue to expect documentary production and discoveries to begin in 2013 and, and this matter, will not be set for trial before mid-2014. As stated, we believe we have a strong case for negligence and breach of the IPFA against AECL.

Now, as well last week, Minister Oliver announced that in the coming months, the Government of Canada will engage in a competitive procurement process to restructure the management and operation of Atomic Energy of Canada's limited nuclear laboratories. This follows the Government of Canada's request for expression of interest process undertaken last year. The announcement is not expected to impact our current supply from AECL.

We are in agreement with Minister Oliver that the Chalk River laboratories are a key asset to Canada's nuclear industry and we are pleased that the government is supporting Canada's nuclear industry through access to science, technology facilities and expertise.

For many years, Nordion has and continues to play a key part in the medical isotopes supply chain. Supply of medical isotopes is a critical part of the Canadian and global health care system. Our priority remains providing a reliable source of medical isotopes to the health care community.

Now please turn to Chart 6 in the presentation, and I'll turn to our fourth -- first quarter segment results, starting with TheraSphere.

TheraSphere revenue for Q1 2013 of $12 million increased by $1 million or 9% compared to the same period last year, primarily due to adoption in new clinics. In Q1, we brought on 6 new sites in Europe and the Middle East and 4 in United States. We anticipate growth to be lower for the first quarter of 2013, with expected growth in the second half of fiscal 2013 to be stronger than in the first half of this year, and we continue to forecast annual growth in the mid-teen percent range.

U.S. TheraSphere growth in the first quarter was solid. However, we experienced some softness in Europe, primarily due to reimbursement challenges in Germany. We are currently working with Germany's reimbursement bodies as well as our customers to resolve these challenges. As part of our global growth plan, Nordion is establishing further distribution in Europe and the Middle East. During the first quarter, we made progress in setting up new distributors, which should be active later in the year. Now we anticipate these distributors to support growth in subsequent quarters. Additionally, we're also working on reimbursement in key European markets, supported by our new market access function.

We just announced a new and improved global TheraSphere.com website providing liver cancer patients with localized resources and treatment center listings, and offering physicians easy access to clinical trial information, publication data, our new iPad app and our unique preceptor program. Physicians will also benefit from the site's online ordering for standard and custom doses of TheraSphere.

Now we will still continue to make progress in the Asian market. Last quarter, we mentioned that we plan to make investments in the Asian market, including Hong Kong, Taiwan, Singapore and South Korea. And we expect to receive registration in these countries in late 2013 or in 2014.

On the clinical trial front, Nordion STOP-HCC trial, designed to demonstrate the efficacy of TheraSphere in patients with unresectable hepatocellular carcinoma, has initiated sites outside of the U.S., in Canada and Europe, and has experienced traction in our patient enrollment in these geographies. We're also currently examining ways to support enrollment in our EPOCH trial, which is designed to evaluate safety and efficacy of TheraSphere in patients with metastatic colorectal carcinoma of the liver who have failed first-line chemotherapy. Physician and patient feedback indicates support for TheraSphere as demonstrated through our continued growth. Now we intend to make the planned and necessary investments in this product to unlock its treatment potential and its value in the market.

Now let's turn to our Sterilization Technologies segment, which is on Chart 7. Sterilization Technologies revenue for Q1 was $16.4 million, up 2%, compared with the same period last year. Cobalt revenue of $15.4 million decreased by 2% from last year due to timing of shipments to our customers and our customer mix in each respective period. Sterilization-Other revenue of $1.1 million positively offset the decrease in Cobalt revenue due to an increase in refurbishment work performed on existing production radiators.

I view Sterilization Technologies as a stable and long-term business. It is characterized by high barriers to entry in terms of supply of cobalt-60, regulatory and licensing requirements and the logistical requirements due to the nature of its nuclear-based material. Nordion has been in the gamma industry now for over 40 years and has effectively managed its long-term supply over this period. Nordion has long-term contracts in place with 3 suppliers that operate nuclear power generators in which cobalt-60 is irradiated. These include Bruce Power and Ontario Power Generation, both based in Ontario, and Russia's JSC Isotope. Each of these suppliers has several reactors that irradiate cobalt for us. We employ a multifaceted strategy in response to changes in the supply landscape. We work closely with CANDU reactor operators and monitor refurbishment schedules with current partners as well as new production capacity opportunities. Cobalt deliveries are adjusted as required within the boundaries of long-term supply agreements, and we have already achieved diversified production outside of the CANDU platform through the development and supply in Russia.

Our global reach and our technological expertise enable us the potential to add additional capacity through conversion of other CANDU reactors that are not currently producing cobalt or through the conversion of other nuclear plant designs as we have done previously in Russia.

As a pioneer in the gamma industry, Nordion is viewed as both a market and as a thought leader. Nordion personnel lead key industry groups that advocate for gamma technology. Scott McIntosh, our Chief Operating Officer of specialty isotopes, serves as a Director of the International Irradiation Association, which is a not-for-profit organization, that supports the global irradiation industry. Paul Gray, who's our VP of Global Logistics, serves as the Chairman of the Gamma Industry Processing Alliance, which is an association representing large scale gamma irradiation facilities and cobalt-60 suppliers across North America. This level of involvement allows us to shape the discussion and create meaningful relationships with other leaders in the market. We implement a high-touch approach with our customers through regular conversations and direct research to understand their need and the demand for our products. So Sterilization continues to be a solid performing business, thanks to the hard work of a talented and dedicated team.

Now let's turn to Medical Isotopes, which is on Chart 8. Medical Isotopes revenue for Q1 of 2013 of $25.2 million decreased by $0.7 million or 2.6% compared with Q1 of 2012. Contract Manufacturing revenue increased in this past quarter and more than offset decreases in reactor and Cyclotron isotope revenues. While the year-over-year revenue decreased for the business, it performed well above our expectations for the quarter, mainly due to the stronger-than-expected revenue from reactor isotopes resulting from the ongoing outage of the prime reactor in Europe that supplies our competitors. Our operational team has been working very closely with the team at AECL, who operate the NRU reactor, to address customer needs during this outage. We demonstrated Nordion's capability to quickly address spot orders of moly, encouraging customers to turn to Nordion for supply to offset the gap in their supply chains.

Now while the duration of this outage is still uncertain, we are continuing to provide a quick turnaround of this needed supply to customers worldwide. So the decline in Medical Isotopes revenue in 2013 is now expected to be in the mid-teen percent range due to the benefit we're seeing from this outage. First is an approximate 20% decline that we forecasted in Q4 2012. Our Medical Isotopes team, led by our new General Manager, Tom Burnett, has demonstrated agility and customer focus in addressing this situation. Now as in previous years, AECL has announced that the NRU reactor will undergo a 30-day shutdown for planned maintenance. This is scheduled from mid-April to mid-May. According to AECL, this shutdown remains on schedule and we continue to anticipate supply interruption during that period. As the planned shutdown straddles our second and third quarters, we expect to see a revenue reduction in each of those quarters, and we are working closely with our customers during this planned outage to reach demand.

So in conclusion, I am pleased with our first quarter results. Nordion remains a strong brand in the global health care marketplace due to a knowledgeable and experienced employee base, quality products, strong customer relationships and world-class facilities.

But we still have work to do and continue to make the investments necessary to capitalize on opportunities and enhanced value for our shareholders. And now to provide you with more details on the Q1 financials, I will turn the call over to Peter Dans.

G. Peter Dans

Thanks, Steve, and good morning, everyone. I'll start with Chart 10. Nordion achieved revenue of $53.7 million in our first fiscal quarter, up 1%, compared to revenue of $53 million in the same period last year. We had a GAAP net loss of $0.3 million, which was $0.6 million unfavorable compared to the previous year, resulting in 0 earnings per share for our fiscal first quarter of this year.

On an adjusted basis, we achieved net income of $4.1 million, down 42%, compared to $7.1 million in the first quarter of 2012. This translated to an adjusted earnings per share of $0.07, down from $0.11 per share last year.

Gross margin percentages this past quarter were 52%, relatively flat to Q1 2012. On a consolidated business segment basis, earnings were down 32% to $9.1 million in Q1 2013 due to higher TheraSphere spending, higher pension cost across all 3 segments and an unfavorable foreign exchange impact due to the strengthening of the Canadian dollar relative to the U.S. dollar. As you may recall, a significant majority of our SG&A expenses are denominated in Canadian dollars.

If you now move to Chart 11. Targeted Therapies revenue grew 9% in the first quarter of 2013 versus 2012 due to an increase in sales volumes, mainly from the adoption of TheraSphere at new centers. We anticipated relatively lower growth in the first quarter with growth forecasted to strengthen in the second half of the fiscal year as we begin to bring new distributors online.

Targeted Therapies segment earnings was down 54% year-over-year, reflecting higher TheraSphere sales and marketing activities as well as increased general and administrative support functions such as health care, health market access to support reimbursement efforts, and clinical and medical affairs. We continue to expect TheraSphere growth in the mid-teen percentage range on an annual basis.

Now moving to Chart 12. Sterilization Technologies revenue increased by 2% in the first quarter to $16.4 million. With the increase in revenue from refurbishment work performed on existing production irradiators positively offsetting the decrease in cobalt-60 revenue, segment earnings for Sterilization Technologies decreased by 21% to $3.5 million mainly due to higher pension related costs.

Sterilization Technologies revenue for 2013 is expected to be approximately the same as in 2012, and we are on track to this guidance.

Moving to Chart 13, the Medical Isotopes segment contributed revenue of $25.2 million, which was down 2.6% compared to the same period last year. Reactor isotope revenue, which represents the majority of Medical Isotopes' revenue, decreased by 3% to $20.4 million. The decrease was lower than management initially expected due to additional orders received as a result of the ongoing shutdown of a primary reactor that supplies our competitors. Accordingly, we have revised our annual revenue forecast for the business from approximately a 20% decline in revenue to a decline in the mid-teen percentage range.

Cyclotron isotope revenue was 8% lower than last year due to lower demand for Iodine-123, which is used to help diagnose thyroid disease. And Contract Manufacturing revenue increased 6% as a result of higher sales price.

During the quarter, we completed the windup of a U.S. pension plan associated with the former MDS Pharma Services business we sold in 2010. As a result of the windup, we recorded a loss of approximately $7 million and made a pension settlement payment of $5.5 million. Our balance sheet remained solid with $88 million of cash and cash equivalents as of January 31. The cash balance was down $22 million from Q4 2012, primarily due to an increase of $36 million in restricted cash that was used for collateral for letters of credit under our credit facility.

Partially offsetting this use of cash, we received approximately $24 million in onetime receipts this past quarter relating to tax refunds, a partial payment of a note receivable and a payment related to certain litigation matters. We continue to manage our financial liquidity prudently, making appropriate investments to support improvements to the operational performance and to grow our business.

This concludes my financial review. I'll now turn it back to the operator so we can open the lines for questions.

Question-and-Answer Session

Operator

[Operator Instructions] The first question is from Lennox Gibbs of TD Securities.

Lennox Gibbs - TD Securities Equity Research

Just as -- with respect to TheraSphere, the FDA reg state that an HUD cannot be sold for a profit, but you booked a profit this quarter and you've done so for just over the last several years. Can you clarify your compliance standing relative to the U.S. reg, please? And then, explain how you're going to manage U.S. profitability until such time as TheraSphere receives a PMA.

Steve M. West

Good morning, Lennox. You're absolutely correct in your -- in the interpretation of an HUD or an HDE device in the United States. As you know, we don't segment out our numbers when we report by geography. So I would point out to you that the numbers that we report are for our global operations and are not restricted to the United States.

Lennox Gibbs - TD Securities Equity Research

Understood. So are you saying that you're reinvesting or have been reinvesting all of your U.S. revenues and the sort of the profits we are seeing are x U.S.?

Steve M. West

So -- yes. I mean the requirement in foreign HDE under -- and the HUD is that a company -- the HDE is meant to be an opportunity for a company to provide a product or a therapy to patients in need while it's securing a -- in this case, a premarket authorization. Under the terms and conditions of that, Lennox, companies are not expected to make a profit but are allowed to utilize, for example, their R&D costs. And so, to give an example, the clinical trial costs for the HCC trials are allowed to be amortized off against any profits that would have been made otherwise.

Lennox Gibbs - TD Securities Equity Research

So just to be clear then, so you have been reinvesting all of your U.S. revenues and none of the profits that we've been seeing are U.S. origin?

Steve M. West

Yes. I mean, as you well know, Nordion ensure that it's a compliant organization. And we do self report to the authorities in United States on an annualized basis regarding this.

Lennox Gibbs - TD Securities Equity Research

Okay. Good. So on a go-forward basis, just to be clear, you won't be booking -- how are you going to manage U.S. profitability then until such time as TheraSphere gets the PMA? We should assume then that there will be no U.S. profitability, is that correct?

Steve M. West

We don't segment out our reporting of profitability by geography. We will, and obviously, we strive to maintain compliance with all of the regulatory requirements.

Operator

The next question is from Neil Maruoka of Canaccord Genuity.

Neil Maruoka - Canaccord Genuity, Research Division

Just a quick question on your -- the pension costs that were allocated across the segments, and the segment earnings were under pressure a little bit. SG&A costs were higher across all segments. Can you provide some additional granularity on the higher pension cost for this year? What proportion of the guided $7 million increase is noncash? And how will the value adjustments, they seem -- impact the longer term cash funding costs?

G. Peter Dans

So Neil, I'll take that. So in terms of the incremental costs we're seeing in Q1, that does relate to the $7 million we provided guidance for at the end of the year. And again, these are costs that we record from an accounting perspective. Our funding, as I think you're aware, is done on a different basis where we look at the pension plan from a solvency perspective. So this amortization of cost doesn't affect the cash funding that we have to make. But it is driven by similar factors and that with the declining interest rates that we've seen over the past number of years that driven up the accounting costs as well as the cash funding.

Neil Maruoka - Canaccord Genuity, Research Division

And so the adjustments that -- these accounting costs, will they impact the longer term cash funding cost for the pension, in your view?

G. Peter Dans

No. So they're -- again, they're disconnected from a -- in some respects, we've been funding higher than our accounting costs. So in some respects, it's really the accounting catching up partially with the funding that we've been doing in the past. But the 2 are separate in terms of how they're calculated, and this expense will not affect future funding requirements.

Neil Maruoka - Canaccord Genuity, Research Division

Okay. And just a follow-up on -- I guess, more related to Lennox's question, you guided to net loss in the Targeted Therapies segment this year. Can you give us a better idea of how the marketing costs are expected to evolve over the course of the year?

G. Peter Dans

So from a marketing cost perspective, again, we expect both the selling and marketing costs to ramp up during the year as we continue to invest particularly outside of North America, in terms of Europe, Middle East, Steve mentioned before, as well as some initial investments we're making in Asia. As well, we'll have the clinical trial ramp-up during the year. So both of those factors we expect will drive down profitability as we go through the year despite some -- the growth on the revenue line.

Steve M. West

Yes, and I'll just kind of supplement in that and build on Peter's answer, perhaps also continue to build on the question that Lennox asked. When we think about investing in TheraSphere, there are 2 elements to this. One is our clinical program and the investments that were required to fund that, both in the United States and overseas. And I would point out that any costs associated with that program related to our HCC trials can be amortized against any profitability that we would be generating. So that includes sites in Asia or in Europe as well. And then secondly, we have, what I consider, to be a more and more strictly commercial situation, where we're investing because we do have, as you know, registrations for liver neoplasia outside of the United States, which covers both -- it covers all liver, but it covers both primary and metastatic colorectal match to the liver. So again, historically, we have not funded risk-significant investments in sales and marketing in Europe and ROW. And as we indicate, towards the end of the year, as we bring on incremental resources in those markets, we do expect to receive recognition of that through improved revenues and growth.

Operator

[Operator Instructions] The next question is from Douglas Miehm of RBC Capital Markets.

Douglas Miehm - RBC Capital Markets, LLC, Research Division

Just getting to TheraSphere, you just reported a 9% increase and you're hoping to see mid-teens this year. So you're obviously going to have to be between 15% and 20%. And it looks like just given what happened last year, you're going to have some more difficult comps. And that suggests that you're obviously going to have some very strong growth potential here. I guess my question then is you mentioned something about distributors in the U.S. helping you out that way, but where is most of this growth going to be coming from? Is it going to be in Canada, is -- I mean, in the United States? Is it going to be outside of North America? Can you give us a few more details on what's going on there and if in fact, you think you can meet mid-teens growth?

Steve M. West

Yes. So I think there's a misunderstanding, there's no distributors in the United States, Doug. The distributors are actually being appointed outside of United States in jurisdictions that where either it's impractical for us to set up direct or the legislation sometimes -- very often -- requires [Audio Gap] some of which is either related to the nuclear component of the product or simply to the med tech industry. So the distributor network that we continue to expand is really ROW. And then the growth that we're expecting outside of the United States is very much in Europe, it's in some key markets, for example, in the Middle East and areas like that. So that's where we're sticking to our guidance because we see that. We also see a pretty good -- we have a very good pipeline in some of our existing markets, for example, in Germany in TheraSphere. So we are in the process now of working with a variety of institutions that we anticipate will be using TheraSphere in the not-too-distant future, but currently are not accounts of ours today and we have very, very good visibility on that. As for Canada, we -- Canada, primarily for us, I think, is more of a clinical trial initiative versus a commercial one.

Douglas Miehm - RBC Capital Markets, LLC, Research Division

Okay. The -- I guess next question then is how do you benchmark yourself then against your competition specifically in a space when they're growing so quickly? They just reported a few days ago and they're showing exceptional unit growth.

Steve M. West

Well, I'm not going to talk about competitors or specifics around their numbers. And I think our view around that is what was released recently and actually had been previously announced, that wasn't exactly new news. But we -- a couple of things. First of all, there's not a direct comparison in the sense that they -- their growth is very often in colorectal metastatic cancer in the United States, which we -- where we do not have a label. So we are restricted, obviously, to HCC in United States. For product of this type, Doug, I don't think we should be measuring it on a quarterly growth trajectory. I mean, it's much more around the market growth, are we growing above market, below market? Are we actually creating market growth ourselves? And my view is, very simply, that this is a product that has very, very good opportunities going forward for us globally. We need to build, clearly, our clinical Phase III data to support reimbursement outside the United States and to support our PMA submissions in United States. But as our product is growing and we will continue to grow in the mid-teens, I think that's a reasonable target for us, and we consider that to be a sort of a longer term perspective rather than looking at it on a quarterly basis.

Operator

The next question is from David Krempa of Morningstar.

David Krempa - Morningstar Inc., Research Division

Can you give an update on the internal investigation in terms of timing and costs, what you guys expect going forward?

G. Peter Dans

So in terms of the internal investigation, again, as per our disclosure, it's ongoing at this point in time. From a cost perspective, we did record just over $4 million in the first quarter. However, our guidance for the year remains at $10 million as our current cost estimate for the investigation as well as the remediation type actions we're taking in terms of strengthening our policies and procedures and processes within the company. So no real updates from that perspective this quarter.

David Krempa - Morningstar Inc., Research Division

Okay. And then are you still putting decisions about your cash, whether that's a dividend or the share buyback. Is that still on hold until the results of that are in, or do you feel more comfortable now that you could reinitiate the dividend?

G. Peter Dans

Again, we continue to manage our cash and look at investments in the business. The one thing I would point out from a dividend and share buyback perspective, our latest credit facility we put in place does restrict us from making those types of payments. So it's not something that we're going to be assessing in the short-term. But it's something we would consider longer term once we get through a number of uncertainties that we'd outlined earlier. So hopefully that helps.

Operator

[Operator Instructions] The next question is from Varun Choyah of CIBC.

Varun Choyah - CIBC World Markets Inc., Research Division

I've got a question on the supply of isotopes for the Sterilization business. You mentioned that some of the reactors are -- you can retrofit some of the power reactors, if need be, to kind of help increase supply. How long is that process when you retrofit a power reactor to -- for it to actually produce the cobalt isotope?

Steve M. West

Good morning, and thanks, Varun. I mean, I think there are 2 elements to that. The first is I'd characterize as sort of the negotiation discussion phase to bring on a new reactor with a new supplier. As you know, most of these reactors are fundamentally in the business of producing electricity, and so this is an ancillary activity. And then depending upon the reactor and the design of the reactor, it takes 2 to 3 years probably to get to a point where there's an opportunity to, during a shutdown, to change -- to do the necessary engineering changes. And then after that, depending upon the reactor, it will take some time to -- for the first batch of cobalt to be cooked. That could vary, as I say, depending from sort of the 18-month to 2-year timeframe, which is probably more typical of a CANDU reactor as opposed to, say, some of the Russian reactors, which take a little longer, and it can be up to 5 years before you're getting the cobalt specific activity. So it does take years and you have to plan for it, obviously, in a long-range way, and that's what we've done for the past 40 years. And we have a very good line of sight of -- on our sort of overall cobalt discharges many years out, and we plan accordingly.

Varun Choyah - CIBC World Markets Inc., Research Division

And as a follow-up question, regarding the GammaFIT initiative or like the -- or to make these areas more affordable, can you provide an update regards to like any sort of uptake, is it pretty much a long-term plan here for the market or what are you seeing there?

Steve M. West

Yes, it is a long-term sales cycle for sure. And also it is, in some sense, is a new market because we've created a capability that really didn't exist previously. So we are targeting a new customer segment that -- and that was the whole idea, of course, was to work with people that may not have the capacity to invest in a large irradiator, but would be able to work with us on a more modular design. So in any production capital sales cycle, it's generally sort of the 18-month to 2-year timeframe. And that's what I would expect with the GammaFIT. And we do have a pipeline. I guess I can say that we have a pipeline, and we are not in the position to announce anything right now. But our sales team is working on our variety of opportunities and it's pretty much where we expected from the launch.

Operator

There are no further questions registered at this time. I would like to return the meeting over to Ms. Raman.

Ana Raman

Thanks, Jason. This brings us to the end of today's first quarter 2013 earnings call. If you have additional questions, please feel free to follow up with me. Thank you.

Operator

Thank you. The conference has now ended. Please disconnect your lines at this time and we thank you for your participation.

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