Executives: Paul Kinnon - President and CEO Leon Richards -

CAO
Analysts: Per Ostlund - Craig-Hallum

Capital
Operator: Good day, and welcome to the Transgenomic Third Quarter 2015 Financial and Business Review Conference Call. All sites are currently in a listen-only mode. Please note there will be a question-and-answer session later on in the call. Also note, today’s conference call will be recorded and will be accessible both, by phone and on the Internet. For more information, please refer to the conference call press release on the company’s Web site transgenomic.com for further details.

The company has asked that I read the following statement. Management will make comments today that contain forward-looking statements. Forward-looking statements are any statements that are made that are not historical facts. These forward-looking statements are based on current expectations of the management team and there could be no assurance that such expectations will come to fruition. Because forward-looking statements involve risks and uncertainties, Transgenomic's actual result could differ materially from management’s current expectations.

Please refer to the press release, the company’s 10-Q, 10-K and other periodic SEC filings for information about factors that could cause different outcomes. The information presented today is time-sensitive and is accurate only at this time. If any portion of this call is rebroadcast, retransmitted or redistributed at a later date Transgenomic will not be reviewing nor updating this material. I will now turn the call over to Transgenomic's President and Chief Executive Officer, Paul Kinnon. Please go ahead, sir.

Paul Kinnon: Good afternoon everyone and thank you for joining us for today’s third quarter 2015 conference call. I’m joined by our Chief Accounting Officer, Leon Richards. I’ll provide an overview and update of our progress during the quarter, and Leon will then briefly review the quarter's financial results in greater detail. During the third quarter, Transgenomic made major significant progress towards becoming the focus precision medicine company we’ve been targeting for the past 12 months. We significantly advance our ICE COLD-PCR commercialization strategy with the launch of multiple clear tests for cancer.

We signed our first commercial license for the use of ICE COLD-PCR powered clear diagnostic tests and we continue to work with our pharma partners towards developing the scalable ICE COLD-PCR base serve this business for the company. We accomplished all this while delivering on our promise to divest and monetize our non-strategic assets and generate non-dilutive cash to help fund our growth strategy. During the course we move to divest all of our genetic assays and platforms of GAP business unit for total of $2.5 million in non-dilutive cash while reducing our expenses by over 1.5 million per quarter and reducing substantial restructuring charge. As we have noted, divesting in these legacy instruments and reagent business made good strategic sense of they are being consuming significant management time and required major investments to become competitive and profitable. Results is now freed up to focus on our high potential, high growth ICE COLD-PCR.

We still have more work to do on the execution of our commercialization strategy for ICE COLD-PCR. For the first time we have a far more agile company that is fully focused on enabling technology and our enabling focus on precision medicine. From a financial perspective, please keep in mind this is a transition period of we digest the major structural changes to our business and work to grow the business on our new products and services. Looking our current laboratory services business, revenues have actually flat to the first quarter about $100,000. But on a year-to-date basis, they have grown 18% over the comparable year in 2014.

The growth slowdown in the third quarter was due to a combination of seasonality filtration in testing demand, as well as transition from a focus on historical pharma services businesses to new ICE COLD based pharma services. We see our progress of ICE COLD-PCR commercialization is the key story the Transgenomic in third quarter and as we add to our emerging pipeline of ICE COLD-PCR products and services for both researchers, physicians and patients. It help us to recall the context here. Our liquid biopsy just becoming or beginning to gain traction, a recent approach from Piper Jaffray estimates the market for our liquid biopsy testing at about $28 billion in the U.S. alone, which we view is a major validation of our business plan.

Since the start of the quarter, we have accelerated the pace of commercialization launching three new liquid biopsy diagnostic tests and panel for cancer monitoring and precision medicine including assays for the most common cancer including lung and colorectal. We kicked-off the quarter with a launch of our ICEme Mutation Enrichment Kits for cancer research make them available commercially to researchers worldwide. And we’ve also signed on several key distributors in the Asian markets. The initial ICEme Kit manual includes seven clinically actionable mutations or exomes that uses of single mutation test or in combination. These kits are customizable to meet researchers’ specific needs and they are validated and available for use on all major sequencing platforms.

This was follow days later by the announcement of our expansion of our pilot clinical study in collaboration with four leading global oncology firms that validate the accuracy utility of ICE COLD-PCR liquid biopsies to guide in one of the cancer clinical trials. These are potentially valuable client relationships and we expect to see them to generate significant pharma services revenue in 2016. The pilot study itself include the variety of cancers and several different sequencing platforms and the results could have several as a very important validation of our liquid biopsy technology. During the third quarter we also jointly present the date with Amgen researchers at the College of American Pathologist Scientific Meeting. The study analyze tissue -- tumor tissue from two clinical trials and our technology successfully the type of the range of actionable mutations in these colorectal cancer patients.

We see this study as a full of our precision medicine as it enables the identification of patients who should either be included or excluded from treatment with specific cancer drugs sue to the presence of specific mutations. As patt of our campaign to educate leading companies and researchers about the unique advantage of ICE COLD-PCR. During the quarter, we established Clinical-Commercial Advisory Board for oncology applications of our ICE COLD products and services. The CCAB as we call it, are all distinguished group and include a highly respected expert in cancer biomarkers at Gilead, a senior clinical researcher from the procedure Dana-Farber Cancer Institute and a globally known Australian pioneer in the application of genomic technologies to cancer diagnostics and drug development. The Advisory Board is already providing -- proving its value and we are delighted to be working with this knowledgeable and influential group.

One of the most important developments during the quarter was the announcement to our first commercial ICE COLD license granted to University or Melbourne to use our ICE COLD technology for commercial patient testing Australia. Melbourne University receives an exclusive license to our EGFR liquid biopsy cancer assay for colorectal and non-small lung cancer in Australia. They will be available to researchers and also for diagnostic use to university certified clinical laboratory. As part of the agreement, Transgenomic is also partner with Melbourne University to provide biomarker identification services to the biopharmaceutical companies in that region as well. This is the first of what we expect to many such licensing and partnership agreements.

I noted earlier in the call that since the second quarter, we have launched three ICE COLD cancer tests to detect actionable mutations in colorectal and lung cancer patients. Earlier this month, we launched the most ambitious of the three, our new comprehensive Multiplexed ICE COLD-PCR non-small cell lung cancer and at this panel that covers the key actionable mutations relevant to target treatment of non-small cell lung cancer. One income forward most common cancers in the U.S. and one of the cancer responsible for most death. The panel uses our ICE COLD-PCR technology and is available for clinical diagnostics used through our clear certified laboratory.

The lung cancer and this panel test is level of mutations an important actionable gene that are either included in current lung cancer treatment guidelines or are thought to be affected the potential utility of oncology drugs in clinical trials for the deadly cancer. As a blood plate liquid biopsy assay, the panel can be used with cancer patients at all stages of the disease and is suitable for ongoing monitoring over the entire cost of treatment. We’ll be releasing additional ICE COLD assays for cancer tests and panels in coming months as well. I am pleased to report that we recently kicked-off a new ICE COLD web-based marketing initiative that we expect to help pulls of visibility in a liquid biopsy space and assisting our commercialization strategies across the ICE COLD portfolio. Overall, we are very pleased with the increasing momentum we’re achieving and believe we’re on track.

And in some ways ahead of schedule in realizing the key elements of our ICE COLD-PCR technology. And with our new streamline structure, we’re now able to focus more fully, our resource in energy and commercializing this technology whose best and ease of use we believe a perfectly aligned with the needs of the emerging high growth markets of liquid biopsies and precision medicine. With that, I’ll now hand the call over to Leon. Leon?

Leon Richards: Thank you, Paul. I’ll start with our third quarter results.

During the third quarter, the company announced that it held certain assets and liabilities of its Ion Chromatography columns business and additionally announce that it entered into a binding term sheet to divest the remaining portion of our genetic assays and platforms for the GAP business segment. These divestitures have a major effect on the company’s operations and financial results. The revenues and expenses associated with the GAP business are no longer included in the company’s results from continuing operations and the information presented for both the current and prior year period in the financial statements have been modified to reflect the discontinued operations treatment of that business segment. For the continuing operations, net sales for the third quarter of 2015 were 4 million, a $100,000 decrease as compared with 4.1 million for the same period in 2014. The slight decrease reflects lower sales from the contract laboratory services segment of the business partially offset by an increase in the patient testing services segment.

Gross profit was 1.8 million or 45% of net sales compared with gross profit of 1.7 million or 42% of net sales for the same period in 2014. The gross profit, gross margin increase as a percent of sales is due primarily to managing and primarily lowering the cost of our operating supplies in 2015 versus the prior year. Operating expenses were 10.7 million during the third quarter of 2015. This includes $7 million charge for impairment of long-lived assets that was recorded during the three months ended September 30, 2015. This is a non-cash charge related to the company’s review of recoverability of the amortizing long-lived assets of our patient testing business and resulted in the $7 million charge.

During the third quarter of 2015, operating expenses also includes a reversal of an accrual liability of 1 million, which decrease at selling, general and administrative expenses for the period. Excluding the impairment charges and the accrual reversal, operating expenses were 4.6 million during the third quarter of 2015 compared with 5.7 million in the prior year period. The 1.1 million decrease in operating expenses for the third quarter of 2015 reflected some lower personnel cost, some lower marketing and promotional costs, lower stock-based compensation costs in the current quarter. In summary, the net loss from continuing operations for the third quarter of 2015 was 8.2 million or $0.62 per share. That number would be 2.2 million or $0.18 per share excluding the $7 million impairment charge of 1 million liability reversal.

And that compares favorably to a net loss of 2.7 million or $0.41 per share for the third quarter of 2014. Modified EBITDA which is a non-GAAP measure that the company view as appropriate and sound measure of the company’s results with a loss of 1.3 million for the third quarter of 2015 compared to a loss of 3.1 million for the same period in 2014 and a reconciliation of net loss to modified EBITDA is presented in the earnings release. Cash and cash equivalents were 2.8 million at September 30, 2015 compared to 1.6 million at December 31, 2014 and as previously announced during the third quarter of 2015, the company completed of financing the rate 2.7 million in net proceeds and completed the sale of assets of Ion Chromatography columns for approximately 2.1 million in cash. For the year-to-date results again from a continuing operation basis, net sales for the nine months ended September 30, 2015 were 13.7 million, an 18% increase compared with 11.6 million for the same period in 2014. The net sales increased over last year is due to the higher test volumes in both patient testing and in our contract laboratory services.

Gross profit was 6.9 million or 51% of net sales compared with gross profit of 4.7 million or 41% of net sales for the same period in 2014. Gross profit, gross margin increase as a result of the increase volumes, lower manufacturing costs in the patient testing services and some higher volumes in contract laboratory services. For the nine months ended September 30, 2015 operating expenses were 15 million excluding the 7 million impairment charge and 1 million accrual reversal compared with 17 million in the prior year. The 2 million decrease in operating expenses again include some lower personnel costs, lower supply costs and lower stock compensations costs. Net loss from a continuing operations for the nine months ended 2015 was 14.2 million or $1.29 per share that number is 8.2 million or $0.78 per share when excluding the $7 million impairment charge and 1 million liability reversal compared with a net loss of 11.4 million or $1.67 for the nine months ended September 30, 2014.

At this point, I’d like to turn the call back to Paul.

Paul Kinnon: Thank you, Leon. In recap, during the third quarter Transgenomic made major significant progress towards becoming the focus precision medicine company we have been targeting for the past 12 months. We significantly advanced our ICE COLD-PCR commercialization strategy with the launch of multiple clear tests for cancer. We signed our first commercial license for the use of ICE power clear assays and diagnostic tests.

We continue to work with our pharma partners towards developing the scalable ICE COLD based services business and we accomplished all of this while delivering on our promise to divest in monetize our non-strategic assets and generate non-dilutive cash to help fund our growth strategy. At this point operator, we are ready to open the call for questions.

Operator: Thank you. [Operator Instructions] We’ll take our first question from Per Ostlund from Craig-Hallum Capital. Please go ahead.

Per Ostlund: Thanks. Good afternoon, Paul and Leon. I wanted to -- I guess over first question and I apologize you have to pardon this the broad nature of this question, but with the progress on streamlining the business obviously the focus has been but even more or so now going forward will be ICE COLD-PCR. With all the launches and the license in Q3 is it still a little too early to actually speak to a current quarter revenue contribution from ICE COLD-PCR? And then I guess sort of related to that sort of how do you see the pacing of revenue from the products over the -- I guess the near-term feature and sort of the broad receptivity to them?

Paul Kinnon: Good question, Per. We’ve always said that this year is the beginning of ICE COLD-PCR and the move into precision medicine.

We think this year, we’d like to be able to get to the state by the end of the year that it will be material, we’re still working on that and we’re still focus on that in terms of licensing deals, commercial deals and sales of the assays and stuff and that’s why we focused on the commercialization. Now we actually done also in the background launching the tests, launching the kits, sign the first deal, educating the marketplace. So we do think by the end of the year that we’ll be able to report a number that’s sizeable, we can’t report it yet because not quite there. And then going forward next year we see it starting to ramp up when it becomes a major number that we can close and talk about in terms of breaking out in terms of right licensing revenue, commercial revenue for clear testing and revenue from kits. So we think we’re going to be there by the end of the year, it still saying what that number is, but that’s where we’re focused on at the moment.

Per Ostlund: That’s more than fair. A couple of questions I guess related questions that pertaining to the cash side of things, so you called out the expense reduction, the quarterly expense reduction in the release and I just want to make sure the reduction by quarter more than $1 million of expense. Is that purely the exiting of the assay and platform business or has there been other internal cost cutting effort undertaken aside from that?

Paul Kinnon: We’ve tightened our belts a little bit I’d say, we’ve had a very focused approach this year on measuring our expenses against our costs and we’ve done that on a regular basis and kept us ourselves as lean as we could do. There are so obviously significant savings on the expenses side because of the divesting of the businesses. And that will payout dividend in 2016, well not likely to see as much this year but next year and then roughly I would like to add to that.

Leon Richards: I think that’s fair Paul, again when you look at our operating expenses were down year-over-year were down quarter-over-quarter lot of that is in terms of us being able to control some of the spending and that’s what we’ve been trying to do, I wouldn’t call it a restructuring per se but it certainly is a timing as belt as Paul indicated and he is right because of the timing of the deals and the closings that are still yet to be to happen we’ll probably won’t see a lot of the cash flow benefit in the fourth quarter, but certainly in 2016.

Per Ostlund: And then I guess just of detailing off of that on cash, where do you sort of see and maybe it's too soon given that you are really in the throes of a significant transition, but as the assay and platform business, where do you see burn rate kind of shaking out on a quarterly basis for the next couple obviously there is ideally we’re ramping revenue significantly not too far down the road but just thinking sort of near-term?

Paul Kinnon: I would say Q1 is probably going to be in the region maybe in the region income f2 million burn rate. But it all depends on the uptake of the business as well. Obviously the business that will be left is mainly focused with lot of fixed asset in terms of services and clear testing labs. So when we get to that breakeven point in terms of the fixed cost it's the profit and margin goes up significantly.

Operator: Thank you. And it appears we have no further questions in queue. So this will conclude today’s question-and-answer portion of the call. I’d like to turn the call back over to management for additional closing remarks.

Paul Kinnon: Thank you very much.

I hope we have communicated our enthusiasm about the progress we’re making and the revitalization of Transgenomic delivering on our commitment to divest the legacy businesses while advancing the commercial of ICE COLD with its potential to transform both our company to measuring field of precision and personalized medicine. We look forward to keeping you update of our progress and thank you for joining the call.

Operator: Thank you. This does conclude today’s conference. You may now disconnect your lines.

And have a wonderful day.