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Nanosphere, Inc. (NASDAQ:NSPH)

Receives FDA Clearance for Verigene(NYSE:R) Enteric Pathogens

June 25, 2014 08:30 AM ET

Executives

Michael McGarrity - President and CEO

Roger Moody - CFO

Analysts

Bill Bonello - Craig-Hallum Capital Group

Chris Lewis - Roth Capital Partners

Mark Massaro - Canaccord Genuity

Brandon Couillard - Jefferies

Bill Quirk - Piper Jaffray

Operator

Good morning and thank you for attending the Nanosphere Corporate Update Call. We appreciate your continued interest in the company. Today, from Nanosphere are Michael McGarrity, President and CEO; and Roger Moody, Chief Financial Officer.

Before we begin I would like to remind everyone that various remarks about future expectations, plans and prospects constitute forward-looking statements for purposes of Safe Harbor Provisions under the Private Securities Litigation Reform Act of 1995. Nanosphere cautions that these forward-looking statements are subject to risks and uncertainties that may cause our actual results to differ materially from those indicated.

Among the factors that could cause the actual results to differ materially, include but are not limited to Nanosphere's ability to develop commercially viable products, Nanosphere's ability to achieve profitability, Nanosphere's ability to produce and market its products, Nanosphere's ability to obtain regulatory approval of its products, Nanosphere's ability to protect its intellectual property, competition and alternative technologies and Nanosphere's ability to obtain additional financing to support its operations or in other risk factors identified from time to time in our reports filed with the Securities and Exchange Commission.

Any forward-looking statements made on this conference call speak only as of today's date, Wednesday, June 25, 2014, and Nanosphere does not intend to update any of these forward-looking statements to reflect events or circumstances that occur after today's date. This conference is being recorded for audio rebroadcast on Nanosphere's Web site at www.nanosphere.us. All participants on this call will be in listen-only mode. The call will be followed by a brief Q&A session.

At this time, I’d like to turn the conference over to Mr. Michael McGarrity, President and CEO of Nanosphere.

Michael McGarrity

Thanks, Sherlyn (ph) and thank you all for joining us for a brief update call and a couple of important developments for the Company. First, as we reported last night, we have received 510(k) clearance from the FDA for our Verigene Enteric Pathogens Nucleic Acid Test. This is an exciting and important development for us as we continue to build menu in the microbiology infectious disease market. We believe our growing install base and pipeline of new customers coupled with our expanding menu provide the leverage for our continued growth. We will provide additional data to the FDA for two viral targets rotavirus and norovirus imminently. We believe this additional data will likely to be reviewed and cleared as early as later this summer. We have no revenue expectations for our [Enteric health] built into our 2014 guidance but a majority of our current and pipeline customers we have to validate and do a lot at this panel in the coming quarters.

Additionally, I want to comment on our news earlier this week regarding the agreement that we entered into with HealthTrust. We believe that this is a significant development in our commercialization plan. It represents the validation of the progress we have made in the U.S. market with our Verigene system and menu. We are confident that our agreement with HealthTrust will support our growth plan and as evidence of our ongoing initiatives to become the leader in molecular based solutions for critical and costly disease space.

Thank you for your time this morning. We look forward to reporting on our progress in the coming quarters, and I will turn the call back over to Sherlyn (ph) if there are couple of questions.

Question-and-Answer Session

Operator

The question-and-answer session will be conducted electronically. (Operator Instructions) We’ll have our first question from Bill Bonello, Craig-Hallum.

Bill Bonello - Craig-Hallum Capital Group

Thanks a lot. Just two questions, one just to understand on the viral targets, was there any issue in the studies or in the regulatory process or is this really just a function of its longer to get enough viral cases and so it took a little longer to get that data to the FDA than it did to get the bacteria data?

Michael McGarrity

Yes Bill and this fits with our plan as we laid out our regulatory planning for the first submission and class for this assay and we plan to roll out as we had projected in Q3 and again we get customers wider as we go into Q4 coming out of the year. And again we did that -- we were not expecting revenue contribution for the 2014 guidance. So it fits. I would add that it’s somewhat similar to our blood culture staff gram positive submission where we actually have the portion of cleared the staff and met its own resistance and then following that came the full BC-GP clearance, so it fits with our plan and we’re very excited and positive about our customer reception and the plan for the back half of this year.

Bill Bonello - Craig-Hallum Capital Group

Okay. So just to be crystal clear on that and you’re seeing this is not a setback at all from your perspective, this is exactly the way you anticipated, progressing with the rollout of this panel.

Michael McGarrity

We view it not only as a setback, but a very positive development for our market opportunity, our competitive position, and our customer base.

Bill Bonello - Craig-Hallum Capital Group

Okay, and then just the other follow-up, you’ve mentioned that it doesn’t impact your revenue expectation anyway which is great to hear. What about from the placement standpoint, I assume given your prior comment than that this is the product you expected to have in the market at this time so in terms of your placement target, no impact there?

Michael McGarrity

Yes, they have no impact on our placement target. We have a solid pipeline for the full menu.

Operator

We will have our next question from Chris Lewis, Roth Capital Partners.

Chris Lewis - Roth Capital Partners

First, just to be clear, well, the customer is in your eyes, do you expect them to wait to bring on the enteric test until the full panel is available? And I guess going off of that were those customers being able to have the ability to get started through the validation cycle over the coming months, until that full panel is approved?

Michael McGarrity

Yes. Chris we have both, we have customers that would be interested in bringing up the panel as it is cleared. In fact, we have a number of customers that have the test, now that are beginning to use it as an [indiscernible] to get some experience in pre-validation work. The majority of our customers will use the full panel but I will provide that flexibility as we go forward. And remember that one of the features of all of our assays is the customer’s ability to select and de-select targets sub-house within the broader panel; so this has just continued to fit into that flexibility. But that review as we go down the road, that the majority of the customers who will bring up the full panel with the viral targets.

Chris Lewis - Roth Capital Partners

Maybe you can just walk us through the higher level outlook for their integration and validation process, and the timing and the requirements there versus that seen with the blood culture assays?

Michael McGarrity

Yes, we view that this will be significantly different from the standpoint that the validation work has a value proposition and the majority of the justification for bringing up and adopting and going live with this test can be done in the laboratory whereas obviously we’ve started at length with the blood cultures, some of the complexity for blood culture assay are outside of the lab. So while we are not laying out a set projection that this is exactly how I will take our entire customers to go live, we will report on that as we go forward. We will expect it to be a meaningfully shorter time for them to bring up the test, validate and go live in implementation.

Chris Lewis - Roth Capital Partners

And then, just one more from me; competitively it seems like the space has gotten a little more crowded here over the past six to twelve months. Maybe, walk us through competitively how the test -- compares performance wise versus those other ones available in the market today, and how you plan to compete competitively whether it’s on price or performance et cetera?

Michael McGarrity

Sure, Chris. We think we have the optimal position and we have seen validation of that both from the standpoint of panel design, performance and the price that we provide the customer. And I think the best example of that is our blood culture assay, from the standpoint of -- the panel design being based on customer input as to how they run these samples and report out results in their labs based on the gold standard. The second, and most important, in that space as well as in this space is our performance and accuracy from a sensitivity and specificity standpoint, and we are seeing in the marketplace that our competitive position from a performance standpoint with our blood culture is better than any other products in the market today. We would anticipate the same competitive position with our Enteric panel and it’s just as important with that. It’s a little bit different from the standpoint of -- you are asking me about the sensitivity, but you are also going to rollout based on specificity as well. So if you want to make sure that if you can provide a result to go after, or not. And then finally, our price point that we provide the competitive value, that we believe will stand out in future competition and that’s also based in our projected cost of our product.

Operator

We will have next question from Mark Massaro, Canaccord Genuity.

Mark Massaro - Canaccord Genuity

I wanted to get just kind of zero in, maybe as follow-on; roughly can you walk us through maybe what percentage of the customers will begin validating the partial panel as opposed to waiting for the full panel?

Michael McGarrity

We won’t project a number. I would just say, Mark, that anytime we receive the clearance -- there is a period of about a quarter where we’re prioritizing customers, or our software upgrade, for training, to get them running. It’s not like we flip a switch and this is -- for anybody post validation, but there’s a process whereby you prioritize customers, operate their software, train them. We have a plan in place to be rolling this fest out in the back half of this year. And as customers choose to go live, to validate go live on the current clear panel or way we’ll provide those results as we go forward and this again is the way we laid out our year from the standpoint of planning for the entire effect of clearance and launch.

Mark Massaro - Canaccord Genuity

Great and maybe one question on the HealthTrust announcement, obviously there’s a major health systems notably large hospital systems, a part of HealthTrust can you just walk us through how many or just kind of provide some color on the opportunity here, maybe how many customers, existing customers are part of HealthTrust and can you just give us a flavor of what you think the HealthTrust agreement can do for future business, thanks.

Michael McGarrity

Sure Mike, we view that as a really positive development for a couple of reasons. We are in the representative number of hospitals with our Verigene system across their group so as you pointed to the fact that that are a number of groups under the HealthTrust umbrella and that’s part of the validation comment that I have made. So this doesn’t flip all the HealthTrust hospitals to the Verigene system but it removes a friction point of adoption for blood culture assays implementation that is very positive with us being on that agreement. I think that -- you would expect to see a presence in the hospital group grow and it’s really a validation of a not only our presence in the market place, but the value proposition or the menu that we’re providing and [your rate] per year ago, it probably wasn’t at that stage, so we’re very-very excited about that as the validation of our commercial efforts.

Mark Massaro - Canaccord Genuity

And maybe one last follow on. Are you hopeful to have conversations with additional purchasing groups?

Michael McGarrity

We’ll be strategic and moving us forward obviously that’s all part of our commercial initiative.

Operator

Our next question comes from Brandon Couillard, Jefferies.

Unidentified Analyst

This is Kate in for Brandon, Sorry if I missed the first, did you do give a timeline around expectations for an FDA response in the viral targets.

Michael McGarrity

We think we’ll, you could hear us our clearances earlier or later this summer.

Unidentified analyst

Okay and are there any expectations on or have you mentioned additional targets over time.

Michael McGarrity

We’re constantly in communication with our customers for additional targets, I would say that there’s some specifics related to this panel that we think is again based on the way customers were running past from the standpoint of C. difficile and bacterial and viral targets and parasite targets which will follow on with a separate panel and that’s all based on the way we believe customers run and report these results as well as the patient population with which the clinicians are screening and been trying to avoid much of positive, having C. diff’s on your enteric panel. So, we are confident with the design of our panels. Does that mention that we’ll continue to update that as we go forward and build our menu?

Unidentified analyst

Okay great, and then maybe just one last one, is there any update to your plans to grow field sales and customer support behind this launch, given the changing kind of roll out pattern.

Michael McGarrity

Yes, we’ve said that when you reach the acceleration of our commercial organization we have that built into our plan and we’ll continue to report that as we go forward.

Operator

We’ll go next to Bill Quirk, Piper Jaffray.

Bill Quirk - Piper Jaffray

So first off like just a [indiscernible] we’ve certainly seen I guess this goes back probably over a year now. Some heightened interests with respect to your panel as well to the competitive panel. So, can you speak a little bit to deals overall I guess can win rates or how are you approaching some of these deals, you cited that you’re really running on or [continuing] on accuracy could you just speak to kind of what the head-to-head win ratio is? Thanks.

Michael McGarrity

Can you repeat the last part?

Bill Quirk - Piper Jaffray

Yes, sorry Mike so I guess the question is can you speak to the, you highlighted accuracy as your primary competitive advantage versus some of the others out there, don’t you just speak the overall win rate, thanks.

Michael McGarrity

We feel really good about our win rate Bill and we also would say that we have a competitive position in the market, that is validated with some of the aspects of the way our technology runs versus competition, I would point to with the blood culture we do not amplify our blood culture assay and we think that, we know that that leads to the performance of our test in the customers hands, we have over 200 customers who have taken the Verigene System and to validate, implement, go live with the blood culture tests. (inaudible) very, very high sensitivity and specificity for that test, it will not lead to broad adoption. And we know that by amplifying a blood culture sample that’s already had significant amplification and incubation process, you run the risk of false positives. And we believe that amplification technologies have or will continue to see the potential challenge from our performance aspect that we do not see that. We made that decision in our development process, our regulatory submission in our strategy that we can turn on or off our amplification as well as select; deselect targets within a panel. And our competitive position is that we’re the only one that have provided that validated and have it in the market. So yes, we have evidence that our competitive position is holding out and we also have that evidence that our -- we believe our design and our performance of our tests will continue to hold out against current competition.

Operator

That concludes the question and answer session. Thank you for joining us today on the Nanosphere Corporate Update Call. You may now disconnect.

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