Q3 2003 Ciphergen Biosystems Earnings Conference Call - Final.

Original Source: FD (FAIR DISCLOSURE) WIRE

OPERATOR: Welcome to the Ciphergen Biosystems third-quarter 2003 earnings results teleconference. (OPERATOR INSTRUCTIONS). I would now like to turn the conference over to Susan Carruthers.

SUSAN CARRUTHERS, DIRECTOR OF IR, CIPHERGEN BIOSYTEMS: Thank you. Good morning, ladies and gentlemen. With me today are William Rich, President and CEO; Matt Hogan, CFO; Dan Caserza, our Corporate Controller; Martin Verhoef, Senior Vice President of Sales and Marketing and Operations, and others who may participate in the Q&A.

Copies of the press release were distributed yesterday and are available on our Website. I would like to remind everyone that this call is for information purposes only. This call is being recorded and is copyrighted, and therefore, please note that it cannot be recorded, transcribed or rebroadcast without Ciphergen's permission. Your participation implies consent to our regarding this call. If you do not agree with these terms, please drop off the line.

Our discussion today contains some forward-looking statements, including Ciphergen's expectation of future strategic plans and operational results. Various risks may cause Ciphergen's actual results to differ materially from these expectations. For a list and description of some of these risks and uncertainties, please see the report filed by Ciphergen with the Securities and Exchange Commission.

The information in this conference call related to projections or other forward-looking statements may be relied upon subject to the previous Safe Harbor statement as of the date of this call and may continue to be used while they call is maintained on our Website.

I would like now to introduce you to Matt Hogan, our CFO.

MATTHEW HOGAN, CFO & VICE PRESIDENT, CIPHERGEN BIOSYSTEMS: I am going to begin with a discussion of our financials for the third quarter, and I will then turn the call over to Bill for a review of other corporate highlights. Ciphergen reported revenue of 16.1 million, a 57 percent increase over the same quarter of 2002. For the first nine months of 2003, revenue was 43.2 million, a 68 percent increase over the first nine months of 2002. Our trailing 12 months revenue were 56.8 million.

We feel that 57 percent revenue growth in what turned out to be a soft overall market for proteomics research tools is solid performance. Sales to pharma customers came back strongly for us in the third quarter, and sales in Asia remain very solid. While we recorded more NIH orders in Q3 than in Q2, our sales to NIH associated accounts were still several units below historic levels and our expectations going into the quarter. Given that capital spending on proteomic R&D tools remains generally soft as reflected in our recent trends, we feel it is prudent to revise Q4 guidance to approximately 19 million. Assuming this occurs, our revenue for the year will be approximately 62 million, which represents 58 percent revenue growth over 2002.

Looking ahead to 2004, we are confident that the that purchase and climate for proteomic research tools will improve and that our recent in plan market promotion programs, new product introductions, as well as new business development will continue to fuel growth of approximately 45 to 55 percent in 2004. We will refine that guidance with further detail in February when we announce 2003 results and have the opportunity to complete our formal budgeting process.

Our confidence in 2004 revenue growth is based on several factors that Bill will describe in some detail. First, we believe that the investment environment for proteomic tools will inevitably improve from its current state. In addition, however, we firmly believe that our newly introduced and future products will have a major impact. Our SIN chips in concert with our protein chip interface to the tandem mass back should really assist core labs to be even more productive in their main task of protein ID. Also, our new IDM platform by opening up the protein interaction market should give us a strong boost next year.

We expect our automation efforts to bear fruit, both from upgrading our existing customer base and in driving additional chip sales. In addition, we expect to advance several of our Biomarker discovery efforts into actual diagnostic assays, which is not only its own new source of growth but should be a major catalyst for system growth in the clinical and research proteomics market, as researchers see solely based Biomarker discovery being translated into both solely based research and commercial diagnostic assays.

During the quarter, we recorded revenue from the sale of 41 ProteinChip systems bringing our installed base over 460. Over the last two quarters, one-quarter to one-third of our new units are being sold with some level of automation and/or advanced software, and we have a major campaign underway with our dedicated customer success group focusing on the roughly 375 historic customers who have no and limited automation. The goal is to upgrade their throughput and discovery capabilities, which will generate both near-term revenue as well as a result in increased chip sales down the road.

Instrument sales, which we are including upgrades and accessories in, generated 51 percent of total revenue in the third quarter with 8.1 million in sales compared to 5.9 million in Q3 of 2002, a 38 percent increase. Total consumable revenue, which consists of both (inaudible) chip array sales and chromatic graphic sorbents, was 5.9 million in Q3 or 36 percent of total revenue. Of this, 2 million represented array revenue, which is an increase of 65 percent in the third quarter compared to the third quarter of last year. We think there is plenty of …