Nanosphere, Inc. (NASDAQ:NSPH)
Investor Day Conference Call
March 20, 2014 8:00 AM ET
Michael McGarrity – President and Chief Executive Officer
Bert K. Lopansri – Intermountain Healthcare, Infectious Diseases
Nathan A. Ledeboer – Medical College of Wisconsin, Clinical Microbiology
John Roger Moody – Chief Financial Officer
Kenneth D. Bahk – Chief Strategy Officer
We’ll start in a minute while we’re waiting, I’ll draw your attention to our forward-looking statements guidance. So please take that into consideration, as we had another program this morning.
Okay, good morning everybody, I’m Michael McGarrity President and Chief Executive Officer of Nanosphere, and we would like to thank you all for joining us this morning. I would like to begin by introducing our participants for our program this morning. First from Nanosphere are Roger Moody, our Chief Financial officer who most of you know. I would also like to introduce in the back Dr. Ken Bahk who some of you may not know Ken service as our Chief Strategy Officer, and I think you will see some of his efforts this morning from a standpoint of recognized strategy in our key applications for our technology. Ken has his Ph.D in Biochemistry and Molecular Biology, as well as Masters in Neurobiology and Physiology, and Masters in Business Administration. And Ken has held leadership positions with both the Association for Molecular Pathology and American Association for Clinical Chemistry.
We’re also very fortunate to have two industry representatives here this morning and also customers of ours is first is Dr. Bert Lopansri. Dr. Lopansri is Associate Professor of Medicine at the University of Utah and practices in the division of Infectious Disease at Intermountain Medical Center in Salt Lake, Utah. And Dr. Lopansri will provide perspective and experience on our bloodstream infection assays both are gram-positive and gram-negative and the value proposition that you went through with some of you are familiar with based on our experiences in 2013, we’re very, very happy to have Dr. Lopansri with us.
Also with us a number of you may know is Dr. Nathan Ledeboer. Dr. Ledeboer is Director of – is the Associate Professor of Pathology at Medical College of Wisconsin and Medical Director of Microbiology and Molecular Pathology at Dynacare and Froedtert Hospital. And Dr. Ledeboer will provide perspective on our enteric panel, which we’re very excited about it, as you know that’s in the FDA for a review currently. Dr. Ledeboer served as one of our clinical study sites and represent. Not only data by perspective on the value proposition of that assets as well.
So, we [indiscernible] join here share this morning and I’d like to begin emphasize in our excitement as a company and I behalf of our [indiscernible] where we are as a company. You’re going to here three terms from this morning repeatedly. Let’s going to be believe evidence in value and we really believe as a company in our mission to improve patient care to lower cost to the healthcare system into deliver exceptional customer value. Now realize that’s like [indiscernible] but many companies pursue this we believe we will provide evidence that we’re indeed saving lives, decreasing morbidity and reducing the spread of antibiotic resistance. We also that evidence that we’re reducing length of stay, antibiotic saving and demonstrating economic outcomes across the spectrum of hospitals in United States.
And we’re delivering customer value to our laboratories to clinicians and to administrators. We believe that we provide unique value to the full spectrum of healthcare here in the United States and to our international partners.
And finally, that our development is always customer base. Next, I think you’ll see evidence of that this morning from the standpoint of the value that we provide with bloodstream infection and have that begin a number of years ago before some of the current situations where people were fully aware off. We also believe we’ll win, and we recognized that there would be competition, there is competition, there is more competition coming. We understand that we have a real belief and evidence that we will win. It’s largely based on our installed base of over 200 U.S. microbiology customers and growing and then we have leverage through our immediately defined and expanding menu to build our revenue base.
Secondly, we have a reliable and reversible technology. And I think it’s easy to underestimate that 200 customer base, but what we’re particularly proud off is the performance of our technology in our customers’ hands across that customer base. Not just in our FDA studies in our internal validation, and our customers have validated our assay to change therapy for critically ill patients, you need to be right all the time.
We also demonstrated our capability to take not only organisms, but the key resistance markers. And you will hear this morning more information about our additional capability and a very proprietary capability to detect proteins in a number of different ways for a number of different applications that we believe will drive significant value for the company.
And we will also detect demonstrated capability to provide flexible reporting within our multi-plexed broad panel. And we have applications that were in development that will provide flexibility for the laboratory to respond to the way clinicians and physicians order tests and treat patients of different patient populations.
Finally, we have financial strength and pricing to address our customer demand and we believe we have a competitive cost structure that will allow us to continue to not only be competitive, but get us to cash flow break-even and beyond.
I would like to point to two key drivers, most of you are familiar with these. We’ve spoken about these in the past for our considerable market opportunity. It’s really the conversion to sample the result and high count multi-plexing and the original conversion of sample to result allowed for neurology type testing that convert to rapid more accurate molecular methods.
The microbiology lab is running more complex, panels to address more complex disease states. And we believe that that conversion is based on two critical factors. Those culture methods will only convert if we can deliver rapid and clinically actionable results that will do two things. First, that will address improved outcomes and improves healthcare economics. This is the definition of accountable care. This is what every hospital whether it’s a 200-bed community hospital or an academic medical centers chasing and will be forced to chase if they want to be paid.
We have demonstrated the ability to address both of these challenges for hospitals and provide them with a vehicle to accountable care. We alluded to our competitive landscape, we respect a number of the technologies on the left of the slide that you see, you are familiar with them, we respect them and we believe there are excellent applications for them to provide platforms. We do believe however that there are number of filters that are needed to address some of the complexities that we are addressing from a standpoint of healthcare and disease phase and when you filter for a high count multiplexing and sample to result. Through 2015 we view the competitive landscape as Nanosphere and BioFire.
And we also respect their technology as applied. We do believe that we have demonstrated performance and set a bar for performance in a customer base that has not been matched by any competitor. We also believe that we have a competitive filter associated with that performance as well as the price and design of our panels that has been truly customer driven.
And as I referred to earlier we have additional filter of our protein capabilities that we think will take the next step in advancing the diagnosis and treatment of critical disease phase.
I want to comment on the building blocks of our immediate market opportunity. If you look at the way we built our current menu from our blood stream infection, this is U.S. based market opportunity for our Gram-Positive assay and our Gram-Negative essay. And I clearly stated our optimism and excitement for our enteric panel, that’s based in the fact that a significant majority of our current U.S. microbiology install base will plan to bring up our Gram-Negative essay.
In addition they are also planning to bring up our enteric panel and we believe our respiratory panel expanded panel that is in development will provide unique and proprietary flexibility for laboratories to adopt respiratory molecular testing. And these are the building blocks with our current install base and the reason why we believe we have significant leverage to take our market opportunity in the U.S. from $300 million to over a $1 billion with menu that we expect to deliver in 2014.
Dr. Ledeboer will speak more to the value proposition of enteric, but I just want to point out to those of you, you have been spending so much time over the past year talking about our blood stream infections in our Gram-Positive and Gram-Negative assays. We are as equally excited if not more about our enteric panel from a standpoint of the market opportunity, the market size and the clinical justification, and laboratory justification and the value proposition.
And it’s very, very similar to the bloodstream infection challenge from a standpoint of the money that is spent in diagnosing and treating these patients but it’s somewhat different because unlike the blood stream infection were the majority of the value is on a rule-in. We believe a significant aspect to the value proposition for our Enteric panel’s rapid and accurate rule out. And as you see 3.7 million emergency department visits, in 2010 resulted in 1.3 million hospitalizations.
Now we know and we say that the data suggest that 90% of these patients are negative Dr. Ledeboer, will provide data that shows that’s actually higher that close to 95% of these patients samples are negative. But presumably the inpatient admissions are because you need a two day rule out with current culture methods.
So our ability to impact this $6 billion and spend and $1.8 billion associated with those unnecessary inpatient admissions would be very, very compelling both clinically and economically and our sensitivity and specificity is Dr. Ledeboer will highlight, will allow laboratory to reduce work flow cost and labor associated with these negative tests.
I commented about our efforts to develop panels that are not only clinically relevant but solve problems for our customers. And we are very proud at Nanosphere of the work we have done to address blood stream infections. And our unique capability to address success, not only from a rapid identification, but without the resistance markers that we have on our panel, both Gram Positive and unlike any other technology assay or opportunity out there with our Gram Negative panels to attack resistance markers.
We started this effort years ago, that effort is now paying off as the recognition for the challenge associated with antibiotic resistance and responsibility that’s been driven to address antibiotic resistance is clear and evident. And you can see it in the CVC Wall Street Journal articles and in President Obama’s initiatives to address these Superbugs and these Superbugs you will see Dr. Lopansri, will speak up on our Gram Negative panel and the challenge with resistance markers that we had never seen in the U.S. and that we are now seeing.
And it resulted in a pretty unprecedented landmark recommendation by the CVC and I think this is really important, before I turn the discussion over to Dr. Lopansri, I just want to highlight the burden and threat posed by Antibiotic-Resistant infections that they are risk obviously to human and economic health. That the overuse of antibiotics is the single most important factor causing these and an urgent action is needed now by everybody involved in the treatments spectrum.
We find to four key actions which is very powerful, two of them, the first two are obvious right in avoid infections and track infections. The second two are to improve antibiotic stewardship and use. Now from my perspective, antibiotic stewardship even over the last few years was kind of a stick endeavor. It is no longer an Ultrasensitive endeavor as a practically applied mandate in all of our customers in all of the hospitals in the United States.
And they also call for development and implementation of drugs which Dr. Lopansri will point to is not something that we believe is happening as quickly as necessary to address these, but the development of diagnostic tests. We believe at Nanosphere that we are in the right place at the right time with the right results and the right solution to address these CDC mandates.
And excited is the wrong term to use, because they’ve got compelling situation that the global healthcare system is in. But we feel very confident and probably we can address this challenge and that we have an available solution for these hospitals and customers today.
So I promise I will turn the podium over to Dr. Lopansri. But I think it’s an appropriate introduction for him to comment on the validation of the opportunity of this bloodstream infection of these gram-positive and gram-negatives. And a lot of you in the room and potentially listening and have gone through this process of adoption and implementation of this customer base.
We’re very confident in broad market adoption and it’s based in a couple of key factors. 200 hospitals represent approximately 5% of the 4,000 or so U.S. hospital microbiology labs. We believe in the first 12 months to 18 months of market launch with that’s a meaningful adoption, but just as importantly, that customer base expanse as I mentioned the full spectrum of hospitals signaling and allowing for adoption of our sample-to-result modular platform in every hospital in the United States.
Are we putting that into our guidance? Absolutely not. Do we believe we have data to support that? It has not been easy. Those of you who have invested in our company and who have been along for our updates understand it has not been easy it was a lot more difficult that we anticipate it.
We required data, we required experience and it takes references, it takes customers talking to customers, physicians talking to physicians, laboratories talking to pharmacies. We believe we understand it, we believe we have the data to drive it and we believe we have leverage in this experience and our leadership position.
And I like to introduce Dr. Lopansri as an example of that customer experience and the value that we believe we are driving, Bert Lopansri.
Bert K. Lopansri
Thank you sir, good morning everyone and it’s an honor for me to here to, Mike could ask me to come share some perspectives clinical perspectives of the impact of these rapid molecular diagnostic platforms in the clinical arena and what I thought I do was really frame this talk around three real important questions that Mike had post to me, when we talked few weeks ago; the first one is what is the clinical importance of such a diagnostic platform.
The second is why is there such a delay in implementing these platforms. And the third is what does the future hold for these platforms. I’m going to take you all the way back to the beginning of antibiotic period as Mike alluded to antibiotic resistance is the defining issue in infectious diseases today, and is not a new issue. It has been around since the beginning of the antibiotic era, and this is an excerpt from an op-ed piece written by Alexander Fleming, describing the problems the potential problems with overuse of antibiotics, the problems associated with development of antibiotic resistance and transfer of antibiotic resistant organisms from patient to patient.
Since that time there has been continued evaluation and the drumbeat just kept getting louder and louder, with emergence of new resistant organisms and each new generation of resistant organisms was met with a new antibiotic or a new series of antibiotics to help combat those issues, and this is important because it’s well known and accepted that time is everything when dealing with a septic patient. So the rapid institution of effective antibiotic therapy is a critical component of septic patients to reduce mortality and these antibiotic resistant organisms pose a great challenge to that, so it’s really become standard practice to start by broad spectrum antibiotics.
So, by that I mean nat pump [ph] and these are regimens that kill just about everything, in order to increase the likelihood that the patient receives an effective antibiotic. And that’s also endorsed by several society guidelines, and but the caveat to all that is that once you have your microbiology data you drawback the antibiotics, so you stop your nat pump [ph] strategy and send in the snipers. So you want to do targeted antibiotic therapy once you have microbiology data available, and it really hasn’t been until recently that the time, fix identification and resistance detection has been shortened.
Now, I want to talk about this question, this was a fascinating question that Mike had posed to me. Why does acceptance and implementation of such a technology, takes such a long time, and to Mike based on my experience that, the answer to that question is pretty simple there are two really strong forces that you’re facing. One is clinical skepticism and I have to fully disclose it. I was one of those skeptics when I learned – certainly reading about these technologies. And the second one is, well, how is implementing these technologies going to impact the bottom line. As Mike alluded to, the landscape and reimbursement is changing. The dollars are shrinking. So we have to really be cautious about what we spend our money on in the healthcare setting.
But underlying those two forces are several little things that go. It’s not clinical skepticism just because we just don’t believe anything. It’s lack of awareness as one. So two years ago, when I was asked about the Verigene BC-GP, my first question was what’s BC-GP. The second one is disruption to the status quo. I’ve been doing it this way for 10 years. It’s working for me. So why should I change anything. The third factor is you really have to prove the clinical value and there’s not been a lot of data. Data are starting to emerge, but some of them could be misleading and some may not apply to our organization or other organizations.
Consequently, there is really nobody to pick-up the ball and push it forward. So there’s no stakeholders and there’s really no incentive to change and that is, the innovators will pain in my perspective. But that’s just my take based on my clinical experiences and observations over the last decade or so.
So I really wanted to know is there anything written about it and I’m not going to go into great detail about this. So I visited with Professor Google for a little bit and pointed me to this book, Diffusion of Innovations. And as I read through the book, I don’t know if any you’ve read this book, but it really captures in essence all the challenges and the skepticism and the uncertainties that I thought about as I was evaluating such technology and gathering information and it describes some of the key elements that go into adoption of novel technologies. If you really want to know why things take so long, I encourage you to read this book.
Now here’s a summary of some of the existing data out there about the impact of some of the rapid diagnostic platforms and results range from no difference all the way to really astronomical differences. And I should point out that this particular study with use of PNA-FISH showed no difference, but that one was in the absence of antimicrobial stewardship. The rest of studies are combined rapid technology with a dedicated team of pharmacists and infectious disease doctors to really contact clinicians when the results are available and what they show is all the other studies with antimicrobial stewardship show a improvement in antibiotic use and some of them show pretty significant changes in length of stay, and then these cost figures here and these are some of the things that lead to some skepticism, these are important studies that really pave the way to show that these technologies can impact bottom line.
But the question as I look through these data, the question that came to my mind is, this is the part of our institution, my facility. Is this – are we geared to really take advantage of these advances. So I approached Nanosphere and asked them what their thoughts are on letting us have a look at one of their BCGP platform and trial it and pilot it, but we did so under the context of a quality improvement project or outcome study.
And the reason why I was interested in looking at this platform was this right here, the resistance markers the ability to detect the mecA gene has been around for quite some time. What really fascinated me and treat me was the ability to detect the Van A or Van B genes which are present in vancomycin-resistant enterococcus and then the ability to detect these gram-negative resistance markers particularly this ESBL type, the CTX-M type ESBL, I’ll talk about that here shortly.
So Nanosphere was kind enough to support our evaluation. They donated instruments and some support for data analysts and we set out to do this quality improvement project and just to show you the timeline of how we approach things between March and May of 2013, we did a verification where we would gather the technology in the lab, trained all our lab techs on it and really try to get a good idea of how well it performs and does it perform as advertised. And it pretty quickly became apparent that this is something different. Early on in our evaluation at VRE was detected, vancomycin-resistant enterococci, at that point we thought this is important. I just have to call and talk to the team.
So I called the intense care team and told them, hey look we have reason to believe that this is going to be a resistant organism. So you need to institute infection control procedures and change our antibiotics. And that was done and it was accomplished two days earlier than when the final results came out and that’s huge. It took two days of exposure without the appropriate infection control procedures, puts people in the unit at risk, it also puts the patient at risk because, with VRE most of the time patients are not started on the appropriate antibiotic therapy from the beginning of illness.
Then we did our clinical valuation between June through September and we use historical controls trying to figure out what really is the impact of the technology on outcome. And this is stuff that you can see in published data already with use of the BC-GP and what we saw on the left side here is species identification and on the right side is time to resistance market detection, this is the old way of doing things by just looking at the Phenotypic method and each successive generation of rapid tests that are shown here and so this is the BC-GP and what we experienced was a pretty dramatic reduction in turn around time for a species identification and for resistance markers and that translated into pretty significant impact on antibiotic use in our facilities and duration of the broad spectrum use of the nypon use was cut in half.
The number of Vancomycin doses and the duration of Vancomycin doses was cut significantly. So that alone was important to us and that when we talked about it internally in our group comments were made that, this is we have to do this, this is the right thing to do for our patients, but we wanted to make sure, we wanted to get a sense how this would impact our financials in the bottom line and basically what we found was that there was a trend to reduction in cost, at the lower end of the range that you saw in the slide that I show preciously, so roughly about a $500,000 cost difference in the interventional period compared to the control period and this was significant in the MS assay the Methicillin Sensitive Staphylococcus infected patients.
These are results that I have shared with Nanosphere and further analysis are ongoing and we intend to have, one day once we finish our analysis, to get out this out in publication, that said okay this really led to dramatic impact and what we were able to do is to gain knowledge that this really works with advertise, didn’t really impact the status for it all, if we prove that there was some clinical value to this and we generate some data that we thought was reliable and in the process we gain a lot of stake holders, the antimicrobial stewardship team very excited about this all the infectious diseases physicians, my colleagues were excited about this and so we built a good structure to push this forward. And people were motivated to change and we didn’t really increase cost in the lab or hospital function and we gained clinical acceptance and we’re able to bring the BC-GP online eventually.
So what’s the future? I don’t know, but I will tell you the trends. This is the past, present, and future right here antibiotic resistance. To get these are the dots to connect the dwindling antibiotic pipeline, there’s increasing demands for rational use of antibiotics as Mike alluded to and there’s change in the reimbursement structure.
So this is a publication from the CDC release last year detailing the key antibiotic resistant organisms of concern and this the one the ESBLs are the ones that I’m pretty worried about. I’ve been getting many, many phone calls from out patients with respect to infections with ESBL producing organisms. And this has been a global problem for quite sometime.
In the U.S. ESBL is nothing new, it was documented in the early 90’s, but it wasn’t really until 2000 to 2003 where the CTX-M type of ESBL really established itself in the U.S. and really spread to many different communities. And there’s a lot of lack of knowledge and lack of awareness of this particular type of ESBL a year ago I’d asked my colleagues about this and mentioned you’ve receiving a few of these CTX-Ms and their comment was what’s a CTX-M?
So I think people are now starting to get aware it, but this one is a current problem and we’re seeing a lot of infections attributed to that. And the problem with the ESBLs is there’s really one effective antibiotic to treat a seriously ill patient with a serious spectrum infection from an ESBL producing organism and that’s the carbapenems. And the ESBLs story is really largely been overshadowed by the carbapenem resistant enterobacteriaceae and these bacteria are pretty much resistant to all antibiotics except one old antibiotic which has a pretty significant side effects.
And this bacteria it’s mainly equalize and Klebsiella pneumonias and the first carbapenems that was detected was called the KPC which was originally detected from a patient in North Carolina, but samples collected in 1996, but the mechanism wasn’t identified until 2001. And by 2004, 2005 pretty much there has been, there was widespread dissemination of the KPC harboring Gram-Negatives in the East Coast, travel overseas and it pretty much spread pretty rapidly. Right around the same time around 2008 there was an emergence of another resistant Gram-Negative organism, harboring the NDM gene and that’s another carbapenemases gene that inactivates just about all the antibiotics. That was originally detected in Europe traced back to South Asia, and has pretty much spread since then.
And here is the situation, in 2001 in the U.S. it was restricted to the East Coasts and by 2012 just about every state had detected these KPC harboring bacteria. That happens to come along the time where the antibiotic pipeline is drying up. Previously whenever there was a resistant organism industry we work together to solve it, but the numbers of antibiotics are dwindling and here is the current pipeline. I think there is three as of this publication, in 2013 there were three pharmaceutical companies in the antibiotics space.
And all the antibiotics in the pipeline so far listed here are active against the ESPLs, maybe active – somewhere active against pseudomonas, most are active against that KPC, but all or either have no activity against the NDM caring that organism or unknown. So as a pipeline is developing, we’ve already kind of been set back with the emergence of the novel carbapenemases producing organism and as Mike showed earlier there are increasing costs for us to really get a good hold on antibiotic use, and promote more rational antibiotic use.
And this if you take anything away from here is, this is in a very important piece right here to if you want to try to gauge the future of multiflex technology such as the BCGP and the BCGN to prevent infection. These are the four core actions promoted by the CDC prevent infections and prevent spread of resistance. So in order to prevent the quicker you know that a patient has a resistant bacteria the quicker you can institute infection control procedures. Track antibiotic resistant organisms and when you have better data you can do better tracking and improve antibiotic prescribing and antibiotics stewardship and there are quicker trends throughout the country in developing antimicrobial stewardship programs.
So any diagnostic tests which is here in number four that improves the first three recommendations by the CDC has a pretty good future and with respect to the changing reimbursement landscape, bundle payments, the trend now is to move away from the fee for service model. So we’re moving to more quality based payment and what this means is hospitals will be reimbursed based on disease codes and it doesn’t matter if a patient is hospitalized for ten days or 20 days, you’re going to get this amount of money for patient Sepsis. And it’s in everyone’s best interest to try to keep the cost down in order to take advantage of these bundle payments that are coming. Thank you.
Thanks very much Dr. Lopansri. I’d like to transition to Dr. Ledeboer and just one comment. I think the experience that Dr. Lopansri had was clear to all of you that some of the process through adopt and implement post validation that some of our customers are growing through and I’d like to say that Dr. Ledeboer is someone that you probably know because he really has probably the earliest and most clear understand of value of some of these technologies before they become obvious. And one aspect of that was, he was one of our first gram positive blood culture adopters and we don’t lab provide it, but we commented that it took him about a week and a half to validate the test, implement it and go live and that was really on when we thought well this maybe 90 days, but this looks pretty straight forward.
We clearly under estimated the complexity of that process and Dr. Lopansri’s illustration is one that points directly to the understanding of the validation of the value, but the need to validate it even on a local level. We believe as customers are publishing it, share their experiences but we can’t contract that timeline, but it doesn’t change the value proposition that we have for every hospital to adopt this solution. So I’d like to introduce Dr. Ledeboer to share his perspective on that same value that we believe we have with the turn.
Well, thank you Mike and thank you to Nanosphere for the invitation to speak. Many of you I already know, for those of you guys that don’t me, I represent a laboratory based out at Milwaukee, Wisconsin. We are an academic lab that also is a significant volume and significant component of reference testing. So I’m the Medical Director for Microbiology and Molecular Diagnostics. Our lab does about 11 million testing a year with about a million test a year dedicated towards microbiology and molecular. And then I also serve as the Medical Director for laboratory outreach as well as reference services.
To give a bit of an idea and a bit of a perspective of the differences between with Dr. Lopansri spoken about an Enteric diseases. I want you to just consider the numbers. In the average year, there are between 250,000 and 750,000 cases of sepsis diagnosed in the U.S. every year. And it’s a significant challenge and there is significant morbidity and mortality associated with sepsis.
However, some of the data that Dr. Lopansri cited is actually quite intuitive. It’s – it makes sense. These are inpatients, these are seriously ill patients, and the faster that we can develop a diagnostic, the more quickly we can get the appropriate therapy on board, more likely a patient is to have a better outcome.
If you think about Enteric diseases, it’s an entirely different disease set. First, the population that we encountered is significantly larger with Enteric diseases we are looking at about a 100 million cases that are reported in the U.S. every year, with a vast majority of these patients resolving on their own never presenting to their physician. But even if we look at just those patients that presented their physician, this is almost exclusively in outpatient-based diagnosis.
Patient presents to their physician, we described there are symptoms which since everybody is eating breakfast, we won’t talk a lot about today, and ultimately a test maybe ordered and a treatment maybe prescribed, very few of these patients and end up becoming admitted. Those that we do see admitted typically are very old and very young. One of the other challenges associated with Enteric diseases is that there are a vast number of organisms and a vast array of causes of Enteric disease.
So thinking just about various causes, we can have things like foodborne illness, environmental causes, contagious spread from one person to another, toxin-mediated diseases. One of the things that you’ll notice and one of the things that we’re going to talk about as we move into – as we continue through the talk is, what exactly causes Enteric disease. As we look at U.S. CDC data from 2006 through 2008, you’ll notice that Norovirus accounts for about 51% of all known foodborne infections.
And if you would go into a clinical laboratory conference in infectious diseases provider conference or primary care provider conference today and we ask all of the attendees, how many of you are testing for Norovirus? I would be willing to bet less than 20% of those attendees would tell you that they’re regularly testing the Norovirus. We are missing a diagnosis up to half of our patients.
If you went to the same conferences, and you said, how many of you are looking for bacterial causes in diarrhea. I bet nearly a 100% of those people would raise their hand and say, yes. We ask the same question about parasites, again, nearly a 100% would say yes. But if we look at Enteric disease in the United States, less than 1% of all cases of Enteric disease are actually caused by parasites, a minority of cases are caused by bacteria, but we’re looking for them. Why? In large part because things that we’ve been, that we’ve historically been able to look for, things that we were able to culture to detect readily. But it calls into question the idea of what should be a part of a panel that we’re testing for? Should we simply be looking for the bacterial costs, should we add bacteria and parasites into a panel? Do we need to include Clostridium difficile on the panel.
And to get back to the point that Dr. Lopansri spoke about, in developing value added disease testing for value added strategies for testing for infectious diseases, we really should be looking at what are the incidence of diseases. What are our patients likely to present, what are our patients likely to be exposed with and what makes sense to be testing for? So an example, again I said parasites account for less than 1% of all cases of enteritis in the United States. Considering the low incidence of parasites, it probably doesn’t makes sense for a patient that hasn’t been hiking out in the mountains, hasn’t visited a foreign land, it doesn’t make sense to probably look for a lot of parasites.
Similarly in a healthy patient that presented to their primary care provider with symptoms of enteritis, it probably doesn’t make a great deal of sense to look for a target like Clostridium difficile. We know that Clostridium difficile is carried in many of our colons, it’s a part of our normal flora and if we test for it, we’re going to find it, we’re going to send a physician, down a direction and managing that patient and we may be sending them down the wrong direction, because we got to false positive test.
One of the other go, one of the others drivers of change, is the fact our current laboratory algorithms remain incredibly complex and difficult. This is a typical culture and there is a going to be quiz on this [indiscernible]. This is typical lab culture, for stool, we include between five and ten pieces of media, just to look for our bacterial causes of diarrhea.
We think we do a pretty good of this. I’m going to show some data to other that would argue against that in a moment. We stream these cultures, we read these cultures, we look at a multiple days, we incubate them in unique incubators, its expensive process, it’s a time consuming process, it takes between 48 and 72 hours to release a negative result. I mean 42 to 78 hours later, the results from the clinical laboratory are confirmatory test.
Patient in many cases are either completed their antibiotics, as partially through their antibiotics and then they have been treated for something that didn’t need to be treated all together. The other problem with this is more than 95% of these specimens will end up being negative. So we go through this entire process of looking at these plates a costly process, a long process for less than 5% positives, but we don’t look for the viruses. And even we do identify something, we have to rule out the potential for those positives.
So we’ve got a very, very low yield process that from a laboratory perspective doesn’t generate a great deal of clinical value and also doesn’t generate a lot of value in terms of economics with the laboratory. I must just consider one example, detection of Shiga-toxin producing E. coli. The incidence of Shiga toxin producing E. coli in the United States is between one in a thousands and one in ten thousand patients with stool specimen to the clinical laboratory. What we are ultimately looking for is a condition known as HUS or hemolytic uremic syndrome. It’s significant side effect especially in pediatric patients, where the patients can have kidney malfunctions and can also develop hemolytic events. Of that one in a thousand to one in tenth thousand patients that we detect Shiga-toxin producing E. coli between 2% and 10% of these patients will end up moving on to develop HUS.
But because of the seriousness of this disease, the CDC recommended back in 2009, the laboratories are routinely screened all stool specimens for Shiga-toxin producing E. coli. It’s an expensive process the – crosses about $16.11 and again there is very few positives. Based on the experience in Europe with the German out break of Shiga-toxin producing E. coli, in 2011 the joint commission subsequently made a mandate as a condition of participation into 2013.
So we have got a testing strategy that’s been required by our crediting bodies, but its very little positives. And if we look at the cost per positive tests, the cost per positive test will exceed $18,000, which is a significant challenge again especially in the phase of declining reimbursement and payment for bundle. So we are additional testing, we are getting very, very little value to that additional testing.
So what are the potential benefits of a molecular diagnostic? Well one of the major benefits is potentially increasing sensitivity and our data today is supporting this idea. There is also the potential for more rapid turn around time, we don’t have to wait for the bacteria growth and we have the potential to reduce FTEs because as I said stool cultures are lengthy process, it requires very knowledgeable technologist to work on them. And we maybe able to reassign those technologies or potentially reduce headcount as a whole in the laboratory.
And again, when we’re getting paid less for what we’re doing, it’s may make a great deal of sense. But there are considerations as well; one of the biggest considerations is the cost of molecular testing. Almost every molecular test that we encounter is going to cost more than our culture based assays.
So, we’re showing clinical value is going to be incredibly important and showing that the decrease in turnaround time. The increase in sensitivity in fact does contribute to positive management of these patients. In a lot of the existing assays they also require a number of complex setup steps, which again require technologists that are experienced and credential than rapid molecular diagnostics. So, we need solutions that are sample to result.
We need to consider the level of automation. Do we want to test where we have to extract amplify target, detect our target. Or I’ll have those be manual steps do we want the whole process to be automated. And what is the appropriate breadth of the panel. What should we be looking for? Do we develop a disease state panel? Do we simply replace culture? Or do we take every potential target we might look for, throw it all on to a single assay and screen for everything all at once.
Developing a balance between clinical need and what we can detect is incredibly important. But to the first benefit, how do these tests perform. One of the first studies to evaluate, Rapid Molecular Diagnostics was published by Vallieres and colleagues in the Journal of Clinical Microbiology. And in this study they compared the performance of PCR for detection of Shiga toxin producing E. coli to the current gold standards, which is EIA assay and they use two different methodologies. They also compared it to culture. What they found was, I direct your attention with here, that using the PCR they were able to identify 12 patients that were infected Shiga toxin producing E. coli.
When they compared those patients, two the EIA assays in two different formats. The EIA assays identified four and three patients that were positive respectively. The Sorbitol MacConkey agar, the culture identified three patients. So what this data is beginning to show, and again the numbers are very small in this study. It’s beginning to show that the PCR is between three and four times more sensitive in detecting Shiga toxin producing E. coli.
Our group subsequently published this study evaluating a multiplex PCR for identification of Campylobacter, Salmonella, Shigella and Shiga toxin-producing E. coli. We enrolled about 1,200 patients in this study and we were amazed by the results.
For Campylobacter, an organism that can be very difficult to grow, we found that our culture methodology was only about 76% sensitive. For Salmonella, an organism we by and large think we do a pretty good job looking for. Using our culture, we missed a third of our cases. Shigella, again we missed nearly 30% of our cases. And again much like the [indiscernible] study, we missed half of our Shiga toxin-producing E. coli’s using culture compared to a molecular goal standard.
So this is one way that we can address the question. We can develop a small panel to simply replace the current culture methodologies that are performed by laboratories today. The second alternative is the Luminex GPP assay. This is an FDA cleared assay. It is one of those assays that includes basically targets for just about everything that you would encounter. So you have bacterial targets, you have viral targets, you have parasitic targets and the way the assay works basically is you perform an extraction, you then amplify the target, you then detect the target, it requires multiple hands on stuffs. But it’s compromise, and according to a study published in the Journal of Clinical Microbiology, right now we got in [indiscernible] and actually performs quite well having between 90% and 95% sensitivity for all the targets included on the panel.
The limitation of this test is turnaround time, because you have each of these different steps you got an extraction step, you got an amplification step. Each of these steps require manual technical intervention. You probably only going to be able to perform this test once may be twice per day especially with the five hour turnaround time. One of the questions we have to ask ourselves is, what is the acceptable turnaround time, what do we need our results with them?
So if we think about the market development to date, for 2013, and still in large part today laboratories have relied on culture, it’s costly, it’s labor intensive, it’s slow and the results are in most cases confirmatory at best.
Luminex was approved in 2013, it still requires significant hands on time, lacks the ability to do samples of result, and ultimately as we move forward into 2014, and 2015, I think we’re going to see this market shift to double digit and higher level multiplexing especially in a sample to result platform.
So we evaluated the Verigene Enteric Pathogen Panel and this is the numbers of the panel. You’ve got your bacteria, all of your common causes of bacterial diarrhea. You’ve got your viruses and I think this is incredibly important, because again the viruses represent greater than 50% or all known food-borne illnesses and it allows us to give a patient to diagnoses. So it’s value-added. Patient comes in, we can tell them, yes, you have diarrhea, it’s caused by norovirus, go home, lock yourself in one corner of the house, don’t talk to the rest of your family, don’t encounter them, you don’t want to spread it and we’re going to let you go. And then we also have the Shiga toxin-producing E. coli genes.
Panel is comprehensive, its sample-to-result and we have results in about 2.5 hours. This is the workflow for the panel where a stool sample is submitted to the laboratory. It’s added to buffer. This is really the only manual intervention stuff that’s required. It’s been transferred into our pathogens tests and about two hours later 95 plus percent of our specimens will be done, will finish. We can call them negative for all of our pathogens or we can report out the positive pathogens.
In a small subset of pathogens, including things like Shigella, we may be required to perform a susceptibility or to get an isolate that can be sent to public health for further studies and typing analysis. When we look at performance of this test, in a seven site clinical trial enrolling 1,684 patients, I want to draw your attention over to the negative predictive value, because as I said to you at the beginning of the talk, this is all about screening out negatives.
Greater than 95% of our patients will be negative. And if we look at the negative predicted value of the test, for all of the targets that were initially tested, the negative predicated value ranges between 99% and 100% and the positive predicted value, positive agreement, ranges between 91% and 100%, depending upon the target.
So to conclude, what are the advantages? The advantages of molecular enteric pathogen testing include rapid rule of a common community-acquired pathogens. This is a disease state panel. This represents all of the potential causes of food-borne illness plus single panel and it gives you value-added by looking for the viruses and by not having to perform that additional Shiga toxin-producing coli testing. It’s currently costing us a great deal of money.
It allows us to implement effective antimicrobial stewardship. This changes the way we manage patients. With a 2.5 hour turnaround time, we can manage patients for what they’re infected with as opposed to managing patients by what we guess, so what we think they may be infected with.
So it allows us to potentially not treat those, they don’t need treatment and dedicate our treatment only to those that are likely to benefit from treatment. This allows us to implement appropriate infection control. We can implement our infection control measures and tailor our infection control measures based upon the identity of the organism for inpatients, not based upon what we guess the organism may be.
It also allows us potentially to identify outbreaks in a much more rapid timeframe. So if you think about things like Shigella, as an example, Shigella, is almost exclusively associated with transmission between kids at school and daycare. Kids put their hands everywhere and eventually all those into their mouth. It’s an easy and great way to transmit Shigella. We can identify that outbreak potentially faster. We can get those facilities cleaned, get them open faster and get people back to work and back to school in less time.
One of the challenges though, we continue to need this to be cost neutral or as close to cost neutral as possible, showing value of the reduction in time and showing value for looking for these additional targets in a single assay.
With that I will hand it back over to Mike.
Thanks Dr. Ledeboer, we’ll continue to move through and Roger will speak to you in a moment about our financial and operational leverage that we believe we have. I just really want to highlight a couple of aspects of why we feel very positive and are excited about going forward beyond our current platform and immediate term menu.
I like to share with you the model for one of our next test which is our standard respiratory panel assay. What we know about the respiratory market is approximately 400 to 500 hospitals of the 4,000 have converted to molecular methods for respiratory testing. And we also know and I’ve experienced in the field with talking to customers about why the market will or won’t move. And what we know is that a lot of these hospitals, more than you would think have actually two platforms for molecular respiratory testing, not because they want additional platforms in the laboratory, but it’s in response to the way clinicians and physicians order this testing based on their population and the clinical demands.
And what we see is the in order patents require an ABRSV type panel for certain patient population and a broader expanded panel for immunocompromised pediatric type patients.
Our ability that we have demonstrated and offered to our customers currently allows them to select and de-select targets within a broad panel, essentially allowing for sub-panels based on ordering transform clinicians. We believe that this will accelerate the conversion of these additional laboratories to molecular methods based on our performance, our sensitivity, specificity and the flexibility we provide.
We also believe that we will provide visibility to you as we get closer to launch of this assay that we can provide a flexible pricing vehicle whereby the economics, the value of the test and the value of the results were captured by the hospital from the clinicians. This allows the laboratories to respond to the clinicians with a consolidating platform and technology. We’ll look to apply this in other ways with different assays that we develop in the future and once again I would say that we offer this capability, currently this is not a development move.
I’d also like to point as I commented about our capabilities associated with detection of organism resistant markers and proteins. If you read the Sepsis guidelines, it calls out the need to focus on three key aspects of systemic inflammatory response syndrome, and the rapid organism identification, resistance profiles, and the understanding of the action of inflammatory markers in the host response syndrome.
Our ability to detect proteins in a number of different ways is part of the effort that will provide more and more visibility as we go forward where we can provide solutions and are already working on ways that we can develop and deliver these assays to the marketplace. I would again point to Dr. Ken Bahk and his work and the very, very front end of this that we believe we’re moving forward and have anybody else in this space.
And I have to remind of our general protein capability. We made a decision to really focus our organization over the last year and half to focus on execution in the microbiology space to deliver results. We believe that was the right thing to do and yet we believe we have significant un-like value and data that we have demonstrated our technology can deliver in the area of protein detection and it ranges from ultrasensitive detection in the area of cancer and heart failure to multiplex detection of broad panels of proteins in the area of auto-immune disease or allergy and in protein nucleic acid combinations that I spoke to. And we can deliver this in either a cultured base format or an automated platform. So we’ll look to how we can exercise this value either strategically or in development as we go forward and potentially look to accelerate some of these development aspects.
Last comment I make before handing over to Roger is we’re very confident in our ability to execute and win in the marketplace, but we also realize that we need to be vigilant of competitive dynamics and get ahead of competitive dynamics down the road. And I will tell you that we have a project underway internally based on our Verigene System that we believe will keep us in the leadership position from a competitive dynamic standpoint and deliver additional solutions from our platform standpoint in a time frame that will match up with the competitive dynamics we see over the next two to three years, and its eliminating our readers that consolidating our consumables, providing additional stability, and optimizing our footprint while still delivering what we’ve demonstrated from a performance standpoint allowing for clinical actionable also in the applications that Dr. Lopansri and Dr. Ledeboer spoke to. So we look forward to providing additional commentary color and information as we go forward, but it goes forward to our vision beyond 2013, 2014. With that I would like to introduce Roger Moody, our Chief Financial Officer to walk through the financial considerations of the company.
John Roger Moody
Thanks Mike. I am going to share with you several financial considerations that I think bode well for Nanospheres future and I will leave you with some time for questions-and-answers and then enable you guys to get out to and time for the market open today.
Let’s start with the top line, we put together guidance this year of 200 new customer placements and $19 million to $21 million in revenue. We think that this guidance we have laid out [indiscernible] that we can achieve this guidance based on the trends that we have seen thus far in building our – particularly our Gram-Positive and soon our Gram-Negative business.
Our gross margins are expanding, we have several projects underway that are fairly clear and low risk in terms of execution and I will talk more about those shortly. Our menu that we have in the immediate term will drive this company to positive cash flows. So while there is a plan and to develop more assays and continue to build out the platform, the products we have in place and will have launched this year will get this company to profitability.
We have significant leverage on the SG&A line and finally we have plan in place to manage our cash in a way that we believe that the resource we have in hand will push us forward and minimize any possible future dilution.
So talking about guidance, one of the things that we thought about quite a bit as we put our guidance together this year was that we now have some trends, we have seen a recurring revenue base and if you look at the doubling of revenues that we have seen over the last couple of years, those revenues have been growing both in recurring revenue as well as one-time revenue that comes from either international new customer placements as well as system sales here in the U.S.
We based our guidance this year predominantly on that growing recurring revenue base, which is driven by customers’ adoption for Gram-Positive are now beginning to complete validations for our Gram-Negative test, so there are same customers as well as new customers are adopting this bloodstream test. And we have Enteric coming a along, but we haven’t put any revenue assumptions in our guidance this year for Enteric testing. So we would expect that to be a major catalyst for 2014.
The bottom line is we feel that the guidance we’ve laid out is something we’re very comfortable with, and that gives us an opportunity to achieve without any heroics in our business.
Moving to margin expansion, this year are increasing our margins predominantly driven by an investment we made last year, and that was to bring our substrate in-house. We used to pay started – we’re paying $13 per test for the substrate that we conduct the test on. We brought that down to $8, it’s now down to $3.50. And we have a plan that with volume that substrate comes down to $1.50 within the next couple of years.
The second largest cost contributor to our product is the plastic components. The plastic components have predominately been in what we have single cavity count molds, so when we make the mold, the parts we’re making one part at a time. We’ve invested starting last year and continuing into this year into higher cavity count molds mostly eight cavity count molds that drives the cost of the plastic components down significantly. Those two cost savings will be seen almost entirely this year in 2014.
We’re also investing in cost savings that will drive benefits in the later part of this year and into 2015, and beyond. They include replacing some of the more expensive reagents in our test as well as labor. We run out of capacity in our current consumable manufacturing line towards the end of this year. So we’re developing a new manufacturing line that actually allows us to output three times the number of units per shift than we can today with less than half of the labor. So it gives us a real opportunity to drive down the labor cost per test.
And then finally we absorb some overheads, so we have an opportunity here without having to discover anything scientifically and with projects that are already underway to drive our cost down dramatically and within the next few years hit the margins of this business up into the 70% range.
So Mike has mentioned and I talked about leverage, we think that there is a great opportunity to take the existing customer base we have in the existing marketing and sales organization and point them to a much larger opportunity through this expanded menu. As you’ve heard from both Nat and Bert, the applications we have, vary greatly in terms of value they bring to the hospital. But the one thing that’s important to understand is it’s all the same call point. Whether we’re talking about respiratory testing, blood stream testing or Enteric testing it’s all going into the microbiology lab and that enables us to leverage the common sales and marketing organization that is already been setup or continue to grow it, but we certainly don’t have to double it to double our top line.
We also believe that the Enteric opportunity is going to be a more straight forward sale for us. The complexities that we are described related to our blood stream infection testing is because there are so many different constituents in the hospital that need to get aligned in order to adopt that test. We believe that the Enteric test is a test that the value can be sold almost entirely within the microbiology lab.
And then finally, we have a blueprint now and a model for selling our test. I did say that 2013 was a year for learning how to sell this test and really learning how to make sure that the value and to producing evidence that the value of this test existed within the hospital. This year and beyond, we are taking those lessons and we are replicating them over a wider customer base.
So, how do we get the breakeven? It really takes two expansions, one is in customers, the other is in menu. From a customer perspective, we ended last year with more than 200 customers – U.S. microbiology customers, more than a 100 of them were actually live running the test.
At the end of this year, we would expect that to be more than 360 U.S. microbiology customers with more than 200 of those customers live and to get the breakeven it’s somewhere around 500 customers. And we get there by expanding the menu with respiratory adding about $50,000 per customer. We’ve seen our blood culture gram-positive test contribute $50,000 on average per customer. We expect gram-negative will add another $30,000 and in Enteric somewhere about $60,000.
So, if you think about the combination of these tests that we expect, almost all of our U.S. microbiology customers to adopt, we are looking at somewhere just under $200,000 of revenue per customer and as you consider though that number of that consumable pull through, we are talking about 500-ish customers to get this company to the $75 million breakeven level.
We are doing everything we can to extend our cash runway, we recently restructured a debt facility that we have with ESPRIT Finance and Silicon Valley Bank such that we can access the second $10 million tranche of financing and we can do that between now and September of this year.
We also just recently announced a structure with Aspire, who is an existing investor, they invested in our last offering, I believe they’ve continued to invest in the business since then where they have a purchase commitment, an agreement that we can sell them at our discretion up to$30 million of stock over the next two years. And we’ve done this to add the flexibility to our structure so that we can push out any kind of major dilutive financing that might make sense, we’re also looking at working capital options the largest working capital cost we have in our business is reagent rentals, where we develop and make the system. And then we put them out in the site that Dr. Lopansri spoke about have being an example of one of those and that cost us something that we think we have options to lay off to leasing parties who would do a sale lease back arrangement with us. So we’re investigating those options as well.
And so we think that we have great opportunity to one manage cash and take advantage of some of the leverage that we built-in to the business here by seeing these expanding margins and driving the top line without significant increased investments.
So with that I’ll turn it back to Mike and let him wrap up. Thank you.
Thank Roger, and hopefully we allowed a few minutes here for question and answer. Hopefully we have accomplished what we came into this morning looking our [indiscernible] as I mentioned that we demonstrated that we have very – very strong believe and what we’re doing and that we provided evidence as validation of that believe. Evidence that we have leveraged in a growing and valuable customer base we have an expanding menu that can allow us to deliver continued revenue growth. Though we have best in class performance we believe we have best in class people and our organization and we think that’s manifesting itself from the performance of our technology in our customer’s hands.
We have differentiated value in our protein capabilities that we will exploit. And we’ve derisked the company over a long-period of time for our technology but we believe as our regulatory path and our reimbursement risk exposure as we laid our strategic plan. We have straight forward leverage in our cost structure and believe we’ll be the low cost provider in our space as Roger alluded to we have visibility to positive cash flow.
And we still remain focused on execution and delivering value across every part of our organization to our patients, our customers and our shareholders. So we appreciate your interest in support of Nanosphere, we like to thank you for joining us. And I’ll open it up for whatever time we have here for questions.
And I would ask, we have a microphone, yes.
You indicated you needed a 500 customers to break-even, I’m just curious can you drive the leverage for the customer use of more test. So you’re looking at customers not the uses that the customers are doing is there a ramp-up there.
If I understand the question, our customers when they go live with a particular test, our experience is that they go for live. So our gram-positive we projected $50,000. When they validate and go live with the test, they run all of their gram-positive blood cultures on our platform. There maybe very limited rollout if they’re going to start with critical care and then go to different patient population, but we see that. So within each assay or test, the volume is there and we get all that volume. What we’re looking to drive is adoption of additional menu in our customer base.
So adoption of the gram-negative, now it’s cleared. Adoption of enteric when it is cleared, we believe we’re very positive about our opportunity with respiratory. We would not normally emphasize our respiratory test and a market is been established to somewhat crowded and somewhat price sensitive but we believe we have a clear compelling value there with our panel design.
I apologize, I came in a little bit late. I missed it. When do you anticipate enteric test will be cleared this year? And a follow-up question on that is that, giving the Luminex, already have a product in the marketplace. Just how do you think about pricing, whether you’d be premium pricing on top of that or what’s that thoughts there?
Unidentified Company Representative
So, we’ve projected mid-year of this year for clearance of the enteric panel and while Luminex – we expect to lot of our point to Luminex is build some market development understanding of the value proposition of enteric. We feel we’re very competitive from a user interface and sampled result, our standpoint and price wise we were projecting similar average sell price to our gram-negative blood culture assays and we believe that will be competitive. There will be additional competitors coming in the marketplace that we believe will have a higher price point and I think that’s mainly driven by potential cost structures and to our panel designs. So, we believe we’re providing the best value price mixes we’re planning to our customers.
Hey Mike, just on the Next Gen comments, when will we see some additional detail on it, when will you prepare to it may be shorted diagnostic conference and I have one follow-up.
Yeah, I think we’ll keep you posted there Jeff. If you look out, we know that there is competitive dynamics that are pointing towards the end of 2015, beginning of 2016 in the US. We have a plan based on conformed execution internally that we believe we can meet that and we’ll provide update as we go through later this year.
Okay, and then just a follow-up for a Bert.
And can you just talk about some of the – who are the stakeholders you needed to get involved in the decision and maybe the timelines to get this focus on board?
I think the biggest stakeholder that we had to convince were pretty much our clinical colleagues. So our infectious disease group and our antimicrobial stewardship group didn’t take a whole lot of convincing there. The other groups that we had to really demonstrate some value was to people who actually are in charge in controlling, purchasing. The reason why we embarked on that evaluation was we had to show that, okay, this will make a tangible impact on patients’ care and we had to get a assessment as to how will this affect the bottom line and what will the hospital see, what will we see in the lab side. So the lab administrative group, we had to really show some benefit to them. Go ahead.
And just how long…
Kenneth D. Bahk
That’s too long. Too long.
So the actual evaluation period that we did was, it was a four-month interventional period and it took an additional four months for us to really kind of collect the data that we needed to make the assessment as to whether or not there was an impact on the antibiotics. So it took us…
Kenneth D. Bahk
Too long for Mike. It’s a model of what we’ve spoken about this year as far as our initial expectations, the actual implementation timeline, but the value associated with the data that was generated. And I would just comment that we did convert to a long-term contract in that particular situation. But as you know, as Roger pointed to, the working capital associated with getting through that process is significant. We’re looking at to address that.
On building up revenues, can you give a little more detail about the market, because you have employees in Europe as well? And while there are opportunities to maybe in reviewing like going forward you had maybe some opportunities in some markets that maybe you didn’t take, you didn’t maximize the advantage, things you’ve learned. You haven’t talked about opportunities in Asia. I’m just thinking about if you could get better revenues than you’re anticipating.
So we’ve been careful not to get ahead of our international market expectations, but I would you tell that doesn’t mean we don’t believe we have the market opportunity there. It’s interesting that briefly in Europe our original panel design for our gram negative panel with those resistance markers started a number of years ago in Europe. That’s where we saw the majority of the CREs as Dr. Lopansri showed the migration of those to the U.S. There is significant interest there. We obviously – CONTINUE Mark that at the end of the last year. So we have visibility to market development and market demand in Europe and Asia Pacific. With the combination of through our distributors that the natural timeline through the distributor as well as the regulatory pathways in Asia-Pacific, we are not building a lot of that into your guidance. I think as we go into the end, as we move toward the back of 2014 and layout 2015, I think you’ll start to see some of the results of those efforts.
One more, can you tell us about your competition, I mean can you dig a lot deeper into that and tell us what worries you or what might worry you?
Well, I think I don’t know that we have time of everything I’m worried about. As I mentioned we respect the technologies out there, BioFire is obviously the company that’s out there with a similar moderately complex multiplexing tool that is an array based tool. There is a couple of aspects of our technology that are important. We can if needed amplify within our assay format. Our blood culture assays we do not amplify, our technology is sensitive enough to detect at the levels demanded without amplification.
We believe a supply that is benefiting in this application because of the – we need to you’re make sure you’re not amplifying up contaminates. I would just say that our performance was demonstrated across our customer base validates that performance expectation. We don’t believe the competitors have validated that performance expectation. So we know how difficult it was for us and we know that will be a challenge for everybody else to meet.
As far as additional competitors, we know that there will be competitors as we go out beyond 2015. We believe that the value in our company as in the customer base that we are building and the flexibility of our technology is applied as well as our protein capabilities. So, when we look out beyond 2015, we believe that’s a very feasible window for us to began to deliver some of that value associated with protein as well as continue to build menu in that installed base, which as you can see based on our projections and visibility begins to be a meaningful customer base on which to build menu. There is other stuff I am worried though.
Now we are very confident in our visibility, in our execution to keep a competitive position, and that’s why I candidly where accelerating development and staying competitive and continuing to lead from a platform standpoint. Any other…
I wondered, if you could tell us a little bit more about the terms of the Aspire stock purchase commitment?
John Roger Moody
Sure. So, the Aspire stock purchase commitment is a up to $30 million facility where over the next two years, we have the ability to put shares to Aspire at our discussion. There are really two different ways that we can purchase share, that we can sell them shares. One is through a regular purchase and another is a VWAP purchase, and the pricing of these purchases are as calculated, it’s fairly complex, we’ve actually filed the agreement in an 8-K Tuesday. So you can dig in and I don’t want to explain all of them right now, but it provides what they considered to be a fairly modest discount to market based on the trailing stock price and we can decide when we are going to actually sell those shares to Aspire.
Okay. If there is no other questions thank you again for your interest and support and we look forward to reporting continued positive results going forward. Everybody have a great day.
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