Panna Sharma - President and CEO Edward Sitar - CFO and Treasurer Brian Ritchie - LifeSci Advisors, LLC

Paul Knight - Janney Montgomery Scott Ben Haynor - Feltl and Company Thomas Pfister - RedChip Companies Inc. Charley Jones - Dougherty & Company LLC

Greetings, and welcome to the Cancer Genetics’ Second Quarter 2015 Earnings Conference Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder this conference is being recorded. I will now turn the conference over to Mr. Brian Ritchie of LifeSci Advisors. Thank you. Mr. Ritchie, you may now begin.

Thank you, Manny, and thank you for joining us for Cancer Genetics second quarter 2015 earnings conference call. On the call today are Company President and Chief Executive Officer, Panna Sharma; and Chief Financial Officer, Ed Sitar. The Company issued a news release this morning along with a set of slides highlighting the Company's financial results and progress on operations. Both are available under the Investor Section of the Company’s Web site. Following the Safe Harbor statement, Panna will provide an overview of the second quarter, including recent events and Company activity. Ed Sitar will then provide a summary of the quarterly and six months ended June 30, 2015 financial results. We will then open-up the call to questions. I’d 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. Cancer Genetics cautions that these forward-looking statements are subject to risks and uncertainties that may cause their actual results to differ materially from those indicated, including risks described in the Company’s filings with the SEC. Any forward-looking statements made on this conference call speak only as of today’s date, Tuesday, August 11, 2015 and Cancer Genetics does not intend to update any of these forward-looking statements to reflect events or circumstances that occur after today’s date. This conference call is being recorded for audio rebroadcast on Cancer Genetics’ Web site at www.cancergenetics.com. All participants on this call will be in listen-only mode. This call will be followed by a question-and-answer session. With that, I’d like to turn the call over to President and CEO, Panna Sharma for his opening comments. Good morning, Panna.

Thank you, Brian, and good morning to all of you on the call today. Thank you for joining us and taking the time this morning to participate in our second quarter earnings call. As many of you know Cancer Genetics is an emerging leader in providing critical genomic and biomarker information for the personalization of oncology treatment. We offer a proprietary disease focused and clinically validated genomic test and services to clinical centers, hospitals, biotechnology and pharmaceutical companies as well as research organizations. We have a unique and unparallel global infrastructure for the development and delivery of oncology diagnostics from bench to bedside. Our research collaborations add over 18 leading academic and research centers, including Mayo Clinic, Memorial Sloan Kettering, The National Cancer Institute, Columbia University, Moffitt Cancer Center and Beth Israel, among many others allows us not only to access innovation in oncology and genomics, but also allows us to rapidly validate our insights and tests and have unique access to translational oncology programs globally. Our vision is to be the oncology diagnostics partner from bench to bedside. I’m extremely pleased to begin this morning’s call by letting you know about a further stepping stone towards that vision. As we mentioned, in our announcement yesterday, we’ve reached an agreement in principal to acquire substantially all of the assets in operation of Los Angeles based Response Genetics. We are very excited about this transaction and its potentially significant and transformative impact on our business. As the press release stated, this transaction will allow Cancer Genetics to expand its national sales and service footprint, allows to serve a broader customer base, add immediate revenue from both clinical and biopharma customers, and further our presence in solid tumor and molecular base testing. Over the next 12 months, we expect this transaction could add an additional $10 million to $12 million in revenue to CGI and very importantly Response Genetics has a very strong clinical presence in the Western and South eastern states where CGI is just beginning to develop a sales presence. From a strategic standpoint, Response Genetics business is an idea of fit with ours. They have an established core business in solid tumor molecular diagnostics, particularly in lung cancer, colorectal and skin cancer. Response Genetics test are already to migrate to the NGS platform, that along with our focus on the hematologic and blood-borne cancers allows us to address over 8 of the top 10 cancer types in the U.S. And also included in their portfolio is an FDA approved test for tumor of unknown origin, which is an especially important test for the combined entity as we focus on difficult to diagnose cancers and additional FDA tools that the sales team can use to leverage an existing clients and also to generate new hospital agreements. Response Genetics, it has a 27,000 square foot CLIA and CAP accredited laboratory based in Los Angeles, and a [indiscernible] of nearly 3,000 unique ordering sites, positions labs, hospitals, across the U.S. where they’re currently serving all solid tumor testing. We think this combined with our Heme portfolio makes for a very unique company that has unparallel scale nationally and also a portfolio that can address virtually every cancer testing category again for both biopharma as well as clinical customers. Our long-term vision is to really focus the Los Angeles facility into a solid tumor center of excellence. And deepen its capabilities in both NGS and emerging genomic technologies. In addition to the complimentary clinical offering of that line response also has very strong sales synergy and with this geographic synergy we’ve a very unique footprint of oncology sales professionals across the U.S and we have one of the largest oncology sales channels of any emerging genomics company. Ed will provide further financial details related to this transaction, but the agreement generally calls for CGI to acquire substantially all the assets and ongoing operations of Response Genetics for approximately $14 million, $7 million in cash and $7 million in CGI common stock. We expect this transition to close in 45 to 60 days or by early October. With that, let me now spend some time reviewing CGI’s operational and financial results for the second quarter and for the first half of the year. We are over half way through the year now, and I’m pleased with not only the direction, but the momentum of our business. Over the last several months, we’ve made significant progress in a number of key areas, as we advance our goals leveraging, our market leading molecular oncology capabilities and our global footprint to become the premier partner for personalizing oncology diagnostics from bench to bedside. The momentum in our business is driven by the successful sales efforts in both the clinical and biopharma category, wider recognition of our brand and higher adoption rates for a test in the marketplace, particularly, our focus NGS panels that we’ve launched. Whereas we’re particularly excited about our recent performance and CGI’s future prospects as our business has been shield by both strong organic growth and also by successful performance of our recent acquisitions of Gentris, in North Carolina and BioServe Biotechnologies, in India. While Ed will discuss the financial details in more granularity, let me provide you with some of the trends and results from the second quarter that are helping to drive that momentum in our business. In the second quarter of 2015, we experienced organic growth of over 80% as compared with the second quarter in 2014. For the six months ending June 30, 2015 organic growth was 67.5% over the same period last year. In addition, our new locations in North Carolina, India, and China are driving an increased -- not only in the number and size of clinical trials we’ve been selected, but also in the scope. A recent example of this is the award to CGI the largest clinical trial in the company’s history, which was about in the second quarter where we will be providing comprehensive biomarker in genomic testing or a multiyear, multi-center clinical trials focused in CLL. This clinical trial is expected to contribute up to over $6 million in revenue to CGI over several years as patients are selected, treated and monitored. With that example, I’d like to now take a closer look at some of our more recent quarters financial results. For the three and six months ending June 30, our revenue increased 177% to $4.2 million and 191% for six months to $8.6 million. Of significance in the three and six month periods are biopharma services business increased 554% to $2.7 million and 567% to $6.6 million. In addition, the first half of 2015, our gross margin -- our gross profit margin improved significantly over the first six months of 2014 to 27.1% or $2.3 million. This is an improvement from less than a $100,000 or about 5% over last year. With that, I’d like to provide an update on the important progress we’re making on some of our key strategic initiatives. First, our growing NGS portfolio continues to be an exciting lead for us in not only top line growth, but also in driving differentiation for us in the marketplace. We launched our focus NGS panels both for myeloid cancer as well as CLL, both are now being used not only routinely in the clinical study, but they’ve also been selected part of global clinical trials with multiple biotech and pharma company. In the second quarter, we were also selected by Japanese regenerative medicine company ReproCELL provide next generation sequencing and NGS based services and molecular information to enhance ReproCELL's translational medicine initiatives. It is important to note, this initiative is being performed entirely in our India operation. Due to our unique lab infrastructure in multiple countries, CGI is uniquely positioned to provide NGS on a global scale to leading and emerging biopharma company such as ReproCELL around the world and truly partner with them. Another key initiative for 2015 is entering into strategic partnerships that will provide us greater access to the biopharma market. Our partnership with ICON is a -- one clear example of this type of partnership. ICON is a leading -- ICON Laboratory Services group is a strategic alliance partner and they are part of the global CRO ICON. And in this agreement we’re offering biotech and pharma clients access not only to ICON’s lab services and a global central laboratory, but really our deep expertise in oncology testing and genomic assay development. This type of partnership provides us access not only with the leading biotech and pharma companies, but allows us to leverage ICON’s existing penetration and their existing sales and marketing team. We are currently not only training their sales and marketing team, but we’re hosting weekly calls where we review the pipeline and opportunities and there has been a significant improvement in our total biopharma pipeline as a result. This partnership will provide great benefit to biopharma and tech clients, by combining the expertise of both companies, simplifying project and data management, lowering costs and improving the efficiency of biopharma trials. This partnership puts us in a very unique scale to allow us not only global access, but also combined expertise that allows us to compete with a larger Covance’s, Quintiles and LabCorp’s [indiscernible]. With regards to another initiative, FHACT, which is our blockbuster technology for cervical cancer testing. We expect data from that later this year in two major studies, one from the National Cancer Institute for approximately 300 patients. That study has recently finalized. And another study that has been done in Kamineni Hospitals in India, that’s now being prepared for publication of 200 patients. These large scale studies will deliver critical information that will help FHACT to continue to be a gold standard in the testing for cervical cancer. Also with respect to reimbursement, which is a pillar of our growth strategy, we’re beginning to build significant momentum in the development of relationships in health plans and accountable care organizations. We are actively working with provider network such as the ones that we’ve already announced this past few months and these provider networks are critical to our multi part reimbursement strategy. By establishing these relationships with leading payers and insurance companies, we’ve greater access and ensure better reimbursement for our leading edge in genomic test. Also it’s important to note that the response transaction by having a lab in the West coast also furthers our effort to be a provider of national scale which will help us to appropriately manage in personalized treatment for plans that have a national presence. So I’m really pleased with where our business stands today, both in direction, momentum, and the strategic initiatives and progress that we’ve outlined in the past. I believe it’s the right plan to really differentiated and unique business model for the future. Our market penetration and revenue trajectory are driven by both strong organic growth, meaningful contribution from very selective acquisitions, and expansion of our portfolio. We’re continuing to advance our unrivaled portfolio of genomic capabilities in oncology, not only through development of targeted disease, specific knowledge basis, but also continuing to pursue intellectual property in patents, and unique collaboration such as our Oncospire genomics collaboration with the Mayo Clinic. At this point before I get back into more prepared remarks, I’d like to hand the call over to Ed, for a review of our recent quarter results. Ed?

Thank you, Panna, and good morning, everybody. In order to provide commentary on the potential synergies from the Response Genetics transaction and to maximize Q&A time, I’ve limited my prepared remarks to significant items. For additional information, please refer to our Form 10-Q for the quarter ended June 30, 2015 available on our Web site. My discussion will focus on changes in the second quarter of 2015 versus the second quarter of 2014 or the six months ended June 30, 2015 versus the six months ended June 30, 2014. The recently completed second quarter was a strong one. Second quarter revenues were $4.2 million, a 177% increase over 2014. Clinical revenues were $1.3 million, Biopharma services were $2.7 million, and Discovery services were $300,000. Clinical services increased by 13%, principally due to an increase in test volume. If you look at the second quarter of 2015 versus our first quarter of 2015, our clinical revenue increased by $400,000, again, driven by higher volume. Biopharma services grew 554%. This growth was driven by organic growth in our Select One business as well as the pharmacogenomics business performed in our RTP facility formerly Gentris. Biopharma services were slightly lower in the second quarter of 2015 when compared to the first quarter of 2015. As we’ve discussed previously, we often experience variability in a timing of projects from this group of customers. And Discovery services, our newest customer category generated $259,000 of revenues. Cost of revenues increased to $1.6 million to $3.1 million, principally due to the cost of revenue from our two acquired businesses of $1.2 million. Gross margins were 26% or $1.1 million, which compares with 1% or $9,000 in 2014. The improvement in gross margin percentage is attributable to improved utilization of resources in our New Jersey laboratory, along with margin from our acquired businesses. While revenue increased to 177%, total operating expenses increased by only 25% and totaled $5.5 million compared to $4.4 million in 2014. This metric demonstrates the potential leverage in our business as we scale. Research and development expenses increased $200,000 to $1.3 million, primarily due to the increase in compensation cost. General and administrative expenses increased $700,000 to $3.1 million. Our two acquired operations acquired -- contributed $5,000 to the expense and compensation costs increased by $200,000. Sales and marketing expenses increased $300,000 to $1.2 million, primarily due to increased sales efforts in our biopharma operations. Our GAAP net loss in the second quarter was $5 million or $0.51 per diluted share compared to a loss of $0.47 per diluted share in 2014. Including our loss, our noncash charges of $800,000 for stock compensation, approximately $0.08 per share, and $300,000 for depreciation and amortization. Turning to the six months ended June 30, 2015, revenues were $8.6 million, a 191% increase over the corresponding period of 2014. Biopharma services were $6 million, Clinical services were $2.1 million, and Discovery services were $400,000. Biopharma services revenue grew 567%, driven by significant organic growth in our Select One business and the contributions from the acquisition of Gentris. Clinical services revenue increased by 4% to $2.1 million due to an increase in test volume, which was partially offset by a decrease in average reimbursement rate for Medicare and private insurance companies. Discovery services generated $425,000 in revenue. Cost of revenues increased $3.4 million to $6.2 million, principally due to the cost of revenue from our two acquired businesses of $2.5 million and increases in lab supplies. Gross margins were 27.1% or $2.3 million, which compares with 5.1% or $149,000 in six months, ended June 30, 2014. Again, the improvement in gross margin is attributable to the utilization -- better utilization of resources in our New Jersey laboratory, along with the margin contributed from our acquired businesses. Total operating expenses were $10.9 million in six months ended June 30, 2015 compared to $8.5 million in the same period last year. Most of the increase is due to the activity of our two acquired operations. Our GAAP net loss in the six months ended June 30, 2015 was $9.3 million or $0.95 per diluted share compared to a loss of $0.74 per diluted share in the corresponding period of 2014. Our 2015 loss includes noncash amounts of $1.5 million for stock compensation, $0.15 per share and $700,000 for depreciation and amortization. Our basic and diluted shares at June 30, 2015 were 9,709,202. We have total cash and cash equivalents at June 30, 2015 of $23.7 million. As I mentioned a few minutes ago, I want to provide you a sense of potential synergies related to the Response Genetics transaction. Our initial forecast of potential saving approximates more than $5 million annually. Many of these costs are related to certain structural redundancies. We’ve also identified more than $1 million in savings from operational rationalization and increased throughput. However, the most significant opportunity in the -- is in the area of revenue synergy and the ability of our combined entity to capture additional market share. I’ll now turn the call back to Panna.

Thank you, Ed. Over the past quarter initiative, we’ve had a number of value enhancing accomplishments already, and we also expect a number of additional key drivers for this value over the rest of 2015. Last week as you know we introduced our Lymphoid NGS Panel at a key consortium and that panel we expect to launch by Q4 of this year. Again, it’s a unique panel that will cover not only lymphoid cancer diagnosis, but also napping to treatment options. We expect this to be continue to be a hallmark of our work in hematologic cancers and if we’ve already have several biotech and pharma customers interested in using this panel for stratification and mapping of therapeutic options for patients. Lets look more significantly now at the Response Genetics opportunity as we look forward to kind of close this transaction and beginning to integrate their operations into our business. The combined company will have significant revenue operating and service synergy, allowing CGI to provide the most complete oncology focused molecular diagnostic capabilities and services to clinical and biopharma clients across the country. Our joint companies would be uniquely positioned to not only lead the segment in the rapidly evolving and high growth oncology market, but also really set the tone for introducing new tests and partnering with biopharma community. There are over 2,000 active clinical trials in the U.S focused on the cancer types that CGI and Response specialize in. And it provides this unparalleled access now to lung, colorectal and skin cancers areas that are entirely new to CGI’s area of focus. We believe that we can not only serve these additional services to the biopharma clients, but also to clinical clients and win new business with a comprehensive oncology test portfolio. I look forward to providing with further details on how these -- and how this significant opportunity will unfold over the coming weeks and months and as we move this transaction toward closing. Our management team has done a fantastic job over the last year and not only help in close, but integrate and generate significant value out of the transactions that we’ve announced in 2014, and we believe that team will continue to execute very favorably with this transaction. We’ve a global footprint now that continues to grow in innovative product portfolio that’s rapidly being adapted by both the clinical and biopharma customers. And a unique competitive position that not only differentiates us in the marketplace, but allows us to be a durable long-term company as we execute on the opportunities and really become the partner from bench to bedside in oncology diagnostics. With that, I’d like to now open the line for Q&A.

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question is from Paul Knight of Janney. Please go ahead.

Hi, Paul. How are you?

Good. On the diagnostics flow I see 50% sequential, could you talk to what the tests were seeing most uptake in the quarter?

That’s a great question, Paul. Yes, sequential we had over -- about 50% growth and a lot of that was in our Heme portfolio largely in the NGS panels, both for Myeloid as well as CLL. CLL continues to be one of our largest tests that are being ordered or services being ordered in the clinical community. And we’re also seeing some good growth in some of the new hospital accounts that our sales team have started back in Q4 and we’re also seeing the benefit of more focus on reimbursement and billing team as you know in the last call we mentioned that we’ve been leasing up the reimbursement team, that’s beginning to also yield some results. But mostly to answer your question directly, it has been in the HEM portfolio with the NGS offering.

The FHACT test I know it has been getting traction. How is that progressing in the market?

Yes, so FHACT in Q2 also grow and it continues to grow now in Q3. We’ve a number of other labs that are beginning to adapt FHACT. So we’re hoping to make some announcements in the coming months on more adapters of the test. And also additional IP as well, so we expect some positive announcements on IP adapters and of course the two studies that are coming out, one with the National Cancer Institute. We think that will be a very pivotal study to drive adoption and also with Kamineni in India, which is on 200 patients. So those two we hope by the end of this summer, the data will be out and that will help people go from trying to large scale adoption.

And then on the services side, I know you haven’t released backlog. Can you talk to growth you expect on the services side, the 30% with the 20, or high -- can you have any color on what you think ultimate growth is for the full-year, next year trends on services?

So let me talk a bit on the contract side and we in the second quarter we closed probably close to over $6 million, $6.5 million in new contracts by north of that. We burned also about $3 million -- $3 million plus or so in revenue. So we’re working on reporting a bookings number, what we call kind of contracted biopharma revenue number, and moving away from backlog is a turn I think that has certain GAAP implication. So trying to rationalize that contracted revenue number that is routinely reported, so we will get back to that number, but we closed over $6 million in additional opportunity during the quarter and we burned off about $3 million. We didn’t really loose any opportunities during the quarter. We expect to continue now the ICON relationship. We think that will be a meaningful contributor. We expect to contribute maybe a third -- 30% to 40% additional upside to our -- we expect to be continue closing between $4 million and $6 million plus in additional kind of bookings or contracted revenue per quarter, that’s kind of our rate. And we expect the ICON to increase to that by a tune of 30% to 40% quite easily. The most important trend to know right now that we’re seeing is the -- its two trends that we’re seeing in the pipeline. Trend number one is that we’re now being asked to look at and bid and compete for larger clinical trials. So the average trial size in terms of the dollar amount we expect will continue growing for us as we witness this past quarter. That will be very positive. And the other thing that we’re seeing now is that because of our joint capabilities in TGX as well as somatic tumor assessment, a lot of companies are doing more through a retrospective analysis of samples and so post Phase 3 or even post Phase 2, we’re getting asked to do a lot more retrospective analysis to further differentiate populations and how they’re metabolizing up taking drugs, how they’re responding to certain -- how certain biomarker based groups are responding etcetera. So those are two trends that I think are meaningful in our business. the retrospective analysis trend although too early to say, but I expect that to start contributing on our backlog several million dollars a year in those studies and on the larger trials I wouldn’t be surprised if we start routinely closing high seven figure and potentially even eight figure clinical trials in the next few quarters.

And then lastly with the Response Genetics sales team, could you give a headcount there -- what’s your current headcount without Response and how quickly you will be able to sell all products?

So we continue to build up as Ed mentioned, [indiscernible] would be number -- the sales people we continue to build on biopharma and most of the additional spend in sales and marketing came from the biopharma side of the business. But they’re pretty as of now the Gentris team, the formal Gentris now CGI RTP team is pretty well integrated and they’re selling today. We are very focused on integration. We have good pattern for how we train the team, the project managers, although train not only in a weekly basis, but we’ve monthly seminars, we joined so with some of our experts and on client visits. So I think at this point we’re fully integrated and knowledgeable about the entire portfolio.

Okay. Thank you.

Thank you. The next question is from Ben Haynor of Feltl and Company. Please go ahead.

Good morning, gentlemen.

Hi, Ben. How are you?

Good and well. Yourself?

Good.

Good. So just big picture on the ICON relationship, can you kind of give us some metrics on how many cancer trials that are involved in? How many you guys maybe able to help out with? What the response acquisition does to that number and any other color that you might be able to provide on a big picture basis?

Yes. Let me first talk a little bit about the oncology business and ICON that will be a good start, is that okay?

Right.

So they’re -- as you know they have a pretty unique footprint in oncology. Not only are they to central lab for many programs, but they’re also the COO and almost they’re in virtually every one of the top 12 biotech and pharma company. And it gives us unique access. In terms of central lab, the central lab is significant piece of the ICON business and so they’re currently managing probably several hundred Phase 1 through 4 studies, our expectation is well over 30% to 40% of these studies are in oncology and where we’re currently looking at opportunities where we can synergize. So they -- I don’t think there is any numbers out there, but if you take a look at what they’ve reported publicly they say its one of their fastest growing therapeutic areas and that they’re managing or have managed over 400 Phase 1 through 4 trials in 23 countries. So I think a lot of those opportunities were now beginning to routinely bring to us. And again, the key focus is to lessen the amount of time to approval and reduce the number of complication. And so we really think that the solution that we’re building that combines kind of our lab capabilities with their sales force and their existing lab capabilities is quite compelling, because it gives kind of a turnkey solution. Right now we’ve -- we’re busily training their team. We have now weekly review sessions with their therapeutic career groups, with their scientific affairs team, with their clinical sale -- with their sales force. We will be doing a lot of on-site training as well. We have joined calls to manage the pipeline and the pipeline is already in the mid seven figures and probably approaching eight figures in the next month or two. And so we’re very pleased with how it started already and not only is it bringing new opportunities to them, but they want to involved in earlier, but also obviously for us, because now we’ve got the de facto feet on the street out there that are looking at opportunities much faster than we could with just our organic sales force. So that said, I don’t -- we’re not putting a number on what we expect on a routine basis for ICON, it’s too early to tell. But the pipeline is already kind of mid-seven going to almost eight figures, and we expect to close many of these opportunities.

Excellent.

Our [indiscernible] was on response. And do you want to ask that question again trying to what are specifically on response was in the pipeline?

Sure. Well just on the expansion into solid tumors and some of the areas you’re not involved in, what does that do and does that help you with the ICON relationship as well?

This is a very, very good question. As you know lung cancer and colorectal cancer are at the forefront of biomarker based assessment especially using new technologies like NGS. The NCCN guidelines are probably most of all for lung cancer, and there is so many lung cancer trials out there that we’re -- we at CGI obviously wants to be more involved in. So lung cancer was obviously an area that we were continuing to build, and because of our lung cancer launch later this year with the project that we’re doing with the Mayo Clinic and Oncospire, it was an area that we wanted to get into organically or through acquisition. So obviously having the lung cancer capabilities, the knowledge basically they have developed a team that helps us accelerate to that faster and obviously with existing revenue. In regards to how that helps us with ICON, yes they had in fact earlier this weekend we had a very unique opportunity that specifically is in lung cancer, global trial, multi-site, Asia, U.S., Europe, and we think because of our -- if we close this transaction it will put us in a great position to do that trial not only because we have two odds in the U.S. as a result, but also because of the global infrastructure. We think these solid tumors they open up the market quite significantly for CGI, numbers alone. And if you take a look at our presence in B-cell lymphomas -- leukemias and lymphomas, we’re looking at close to 70,000 new patients across leukemias and lymphomas, but just the shared numbers in lung and colorectal [indiscernible]. Maybe you’re looking at somewhere in the range of 400,000 to 500,000 cases -- new cases. So for us the market opportunity increases quite substantially, not only on the clinical side but also on the biopharma side and the number of trials as well. We think that we’ll end up being great stewards of the asset if we’re able to close that transaction and our available market probably increases by a factor of four to five just in the U.S. alone.

Excellent. That’s very helpful. And then lastly for me and then I’ll jump back in queue. On reimbursement and some of these payer relationships, that seems like Dr. Goodman has done quite a phenomenal job out of the gate. Would you expect more of those to be announced in the near future and throughout the end of this year?

Yes, we’ll be very careful with the announcements on with their relationships and healthcare relation. But we have -- I mean, but we have maybe a dozen that we’re working on that were in various stages from initial letters, to side audits, to menu reviews, to technology reviews, we’re in various stages. Now it’s been a big initiative and you’re right, we’ve been busy out of the gate. He has dual role obviously, and he was a great colleague to have not only improving our fair relationships and in terms of coverage but also building [technical difficulty] reimbursement team. Good balance in doing both. We’re very focused in getting coverage not only [technical difficulty], but also in the right geographies where we have clinical testing volume, so that we can make an impact on our [technical difficulty] on our average reimbursement et cetera. And its very important to note that, we’re also getting in these contracts the very focus on also ensuring that we give reimbursement for FHACT as well and that’s -- so FHACT, our NGS, CLL panels and many of the favorites that we’re talking to [indiscernible] disease focused panel. That’s one of the great areas of feedback because of the targeted panels that we have because we’re not reporting out 300 or 400 genes in some cases. We’re really reporting out the ones that are relevant for that disease condition and have clinical action and we’re doing it at a level of sophistication sensitivity that other technologies don’t have. Payers like that approach. And that’s, I think very important. Its interesting to me that in an era of precision and personalized medicine that companies continue to pound the table on a one size fits all panel. Now we’re in era where we’re understanding disease and nuances of disease at a single nuclear tied level, and yet we still have groups out there say, hey my panel will help diagnose everything under the sun. Payers I think are challenging this because of the cost and because of their concern about what they end of up doing, but also they’re concerned about, are they really reporting the clinically relevant ones. So I think our approach will go disease specific is very compelling, because we’re reporting clinically actionable content, but more importantly the cost is lower and we can get greater coverage and greater depth and that’s very important to note. So if you’re doing 400 genes on a panel or 500 or whatever the number is today, the coverage and that is going to be limited. If you’re doing 15 or 18, or 14 you can have much greater depth and you can get greater coverage on those genes with interest. And so, that’s something that’s very specific, and I guess might be a scientific strategy, but one of the things we look at, what regions are being covered because when you report out BCL2 or TP53 which are involved in cancer, just take a look at what are they actually covering on those genes which are complex, but [indiscernible] which regions et cetera. So again, lesser knowledge on a disease specific approach and being able to add more focus is I think critical, because you get greater disease knowledge but you also get lower cost and payers want that. So I think we’re having very good dialogue as a result, and I think this pertains very well for additional announcements this year. But we’ll be -- I expect several this year in Q3 and Q4.

Great. That’s very helpful. Thank you very much gentlemen.

Thank you. The next question is from Thomas Pfister of RedChip Companies. Please go ahead.

Hi, Panna. Hi, Ed. How are you guys doing today?

Good Tom. How are you?

Good, good. My first question here just is -- yet another Response acquisition. So, could you maybe give an estimate on upon closing how long do you think it would take for the company to realize some of those operating synergies? And also when everything is implemented, how do you think the acquisition might affect your gross margin?

It’s a good question. I’ll clear one by one here. So again, we anticipate closing in 45 to 60 days. I think we have an FAQ that is available right on our website. So I definitely -- there we got through all the questions. So I definitely would urge you to look at that. We obviously public company cost for response, executive management overlap, certain operation as board cost et cetera we’ll be able to wipe some of those day one. And I think that Ed has done a good job at giving an average that’s conservative. Michael is obviously a little higher number in terms of synergy to be honest with you, cost wise, but I think Ed is forecasting about $5 million.

Correct.

And we’ve done kind of bottoms up top down, we kind of triangulate around that four to five out of the gate would be very easy for us to achieve. The real synergies though aren’t going to come on cost savings, its really going to come from our ability to take their portfolio into the market faster. They have a very good sales force in the Western and South-Eastern U.S. where they are not selling hematological testing. Higher average ticket typically and we can put our entire portfolio test into their sales force which is already trained in oncology. Likewise many of the opportunities that we’re uncovering in our hospital relationships and also in the community setting, people want lung cancer, they want colorectal cancer testing. They are routinely asking us for a lot of solid tumor which again CGI is beginning to build actively, but it is not -- have not been historically our area of focus. And more importantly we don’t have the existing knowledge basis and deficit service, so we’ll be able to really build that out. And so, I think the top line synergies I think we’ll be quite happy with that. I think this will happen probably almost immediately. Again we want to be aggressive, but we don’t want to get ahead of ourselves. But we think, both at biopharma as well as the clinical side we expect to more than double that in the year so after the acquisition closes -- so I mean, we close in October -- first week of October is about 60 days out. So, obviously we’re trying to manage to that date and potentially earlier.

Okay, great. Thanks. And then just another question on the acquisition for me and I’m not sure if this makes sense, but -- so give obviously the two test portfolios here are pretty complementary. But I was just thinking given that response has a lung cancer program in NGS, and you have the Oncospire JV with that NGS lung cancer program. Are there any synergy overlaps there between that or maybe a potential overlap with world response, those are maybe your solid tumor hotspot panel?

No. We’ve looked at that carefully. They have the rights to market and offering, so a very clinically actionable panel developed by Oregon Health & Science University, the Knight lab there. So it’s not an organic effort. So obviously we’ll evaluate that. We think it’s a very compelling clinically actionable panel that’s heading the team in Oregon has done a very good job with that. That’s kind of what they’re known for. The lung panel that we’re developing in Oncospire will be very different. It’s really focused on not identifying kind of clinically actionable hotspots that are already out there. What we’re doing with that lung test is, as you know the incidence of lung cancer diagnosis is increasing in the U.S. not because of life style only but because of better detection technology such as the CT scans that are happening now, and a lot of times in lung cancer as you know they recur and as lung cancer recurs often times it ends up being a very bad outcome for the patient. And its not because the initial diagnosis was wrong or the therapy was wrong, but its because of there are multiple clones. And so identifying whether a lung cancer is single clone or multiple clones is very important. And today because of CT scan we’re now able to identify multiple lesions in the -- in the thoracic and lung region. And so historically they’ve always been taken as just being the same clone and then treated. But often times it happens as one cancer is treated it allows the other cancer to grow or often times either one is missed. So in lung cancer to improve outcomes earlier a lot of sites now have the question, there’s lot of literature, its just lung cancer and multi-clonal cancer. And that question is just, no one does that. It’s a very important question and we have the only technology again to address that very specific and complex question of are these cancers multiple clones. And so, if it is multiple clones, our tests will be able to provide that and then we can go on doing hotspot sequencing on both because those are really very different cancers and should be treated as such. So again it would be very complementary. So we think it would be a very good decision tree the way to think about it. So if you have lung cancer or you’re diagnosed with cancer and you -- now the oncologist or the thoracic surgeon or someone else decides it’s a multiple clone, Oncospire would offer the test to say is this a multi-clone cancer, therefore should we look at more aggressive or different types of therapy? Should we monitor both clones? And then we can obviously sequence both clones to find out if in fact they have different hotspots that are identified for treatment. So again we see this as synergistic and again we’ll be the only company that has that battery of tests out there.

Great, Panna. Thanks for tall the color there. And just one last question for me, I’ll hop it back in the queue. So this is kind of just I guess an overall maybe longer term picture question, but as in general gene sequencing cost kind of continued to decrease. How does -- what type of an impact does that have on your business either from like a test development standpoint or operating cost or just general industry competition?

That’s a great question. I think the democratization of sequencing and genomics is very important. I think that it allows us to address a wider market, makes testing more available, more affordable. I think the industry will drive towards scale. As you can see we believe in scale. I think it matters a lot. I think just being a [indiscernible] one with a single test is a very challenging place to be in a molecular diagnostics industry for all the reasons that we’ve seen unfold in the industry. So I think scale matters and the only way to be able to continue meeting cost as a provider but also as a consumer of supplies and reagents and work force is to add scale. So I think that’s important. So I think we’ll be very well prepared in that environment with multiple locations, multiple labor forces. The institutionalization of best practices across multiple sites that are buying power, buying leverage, better access to our technologies earlier because of our footprint. So I think we’re preparing the company long-term for that vision whereas sequencing cost will continue to go lower and be more democratic. And so I think there are a lot of very interesting companies that are pushing that boundary not only from the service provider perspective but also from the technology perspective. I think we’ll be well prepared for that and I think it’s a positive trend because obviously today one of the most frustrating things for me is that we’re doing tens of thousands of patients but we should be doing hundreds of thousands, we should be doing millions. And these are in complex cancers like the lymphomas or leukemias or kidney cancers. Even to this date in -- going into 2016, we are not routinely genomically characterizing these tumors. We’ve known cancer, the genomic disease for 40 plus years; get to look at papers even from scientists like our own founder Dr. Chaganti or others that, we’ve characterized cancers as being genomically driven. But even today its not uncommon for certain lymphomas and certain cancers, not even to be genomically addressed until well after the first failure of therapy. So again I think Tom that’s a great question. Its very important for our industry and I think we’ll be well positioned as genomic cost continue to drop, because the art is going to be not only in running the machines and having the right labor, and work force. But the art is going to be, to have the system that has a knowledge base and deliver that information not only to biopharma but to clinical. So I think architecturally we’re well organized as cost drop and the value is going to be in the information and delivery.

Great. Thanks so much for all the color there. I really appreciate that, and thank you again for taking my questions. I’ll hop back in the queue.

Thank you.

Thank you. The next question is from Charley Jones with Dougherty. Please go ahead.

Thanks a lot for the time. I appreciate it. Good morning.

Charley, how are you?

That was a great answer. I love to hear how you ran into the storm there, and looking to democratize this and make it cheaper for all of us. So -- and I love the strategy. I did want to go into a couple of things, maybe just to kind of start there, you kind of finished on the end about, how important being able to access the customer is. And I’m a little -- I’m curious about HPV and your overall FHACT program, and how you are reaching the doctor and the patient or what your sales strategy is, and how you think maybe the NIH [ph] and other studies could augment that over the next year?

Good question, Charley. Thank you. So right now we’re involved and mostly targeting two groups of customers. Group one are the large regional reference labs, like we announced last year in Texas. These large regional reference labs that are doing pathology, cytopathology, and other HPV related testing typically Pap smears or the cobas HPV or the -- and they are obviously already have the sample. And so we’re trying to work with many of those labs to try out the FHACT test, use it as part of their reflex methodology, get them comfort that samples aren’t compromised, turnaround time is good and the reimbursement is solid. One of the hiccups that they’ve had is because of the FISH reimbursement last year. They are quite concerned about the reimbursement rates. And so, now that we -- the FISH reimbursement is moved back up or moved more normalized, I think that, that issue is a little bit off the table, and a lot will allow us to work with them more closely. So that is a mid-term kind of strategy, because they tend to try significantly. They want EMR integration, they want data integration. We’re working through all those. The second group that we started now is the regional thought leaders. There are KOLs in every region that really drive the decision trees in how these tests are adopted, and having data come out from the NCI study, the culminating study and other posters and presentations will allow us to kind of have further evidence that the importance of this test and also more importantly in the value of this test and not having to resample from the patient. That’s the critical issues. How can we save time and cost by not having to bring the women back to take a chunk of the cervix out to examine it under biopsy? And so, they need more and more data and the NCI data and the culminating data will obviously help with that. But our sales strategy is twofold, direct them to regional labs with our sales folks and then with the KOLs, to drive them and we’ve divided up the country into regions and there we’re going with our own sales team to educate and make them aware and obviously the data will help drive their decision making.

I guess longer term; if this become a more well accepted test in these [indiscernible] validate what we felt. Do you expect to be able to continue, to be able to go to the lab to be able to perform this extra testing or this is something that one of the bigger patch-mirror [ph] type companies will end up taking on and going straight to the doctors office work [ph]?

They could. I think that, they could be one of the larger, the BDs, the Hologics, the larger groups would have a lot of interest in this, because it obviously -- it is an immediate reflex that is a -- it’s a big dollar game, and obviously we’d want to have a partner for that. And the regional labs, so I think are a great place for us to near-term get big -- good traction. And we’ll continue influencing the KOLs, and using the KOLs to drive regional -- obviously regional adoption. My guess is that, as the new regulations come out from the FDA on LDTs and on 510(k) and PMAs, we obviously may choose that route too, because that gives greater comfort. So, I think that’s something that we’re not necessarily shying away from. But as we get more evidence and more adoption we’ll make that decision.

I have a final question on the response thing. I was hoping you could breakdown the revenue a little bit for us between the colorectal, lung and unknown origin. And then, I was hoping we could discuss a little bit, what led to their bankruptcy and what's left with regard to R&D personal and the pipeline opportunities. I love hearing -- when I heard loss, I mean the synergy numbers it might be probably it did have more to take out of it, but do you then start to break into some of that R&D personal and those pipeline opportunities to get that. That’s it. Thanks a lot.

Thanks. Good question, and obviously I probably -- I can't comment, but I’m probably also not the right person to comment on their re-org and restructuring. I can tell you that, we are -- we do really like the team there, the clinical operations and their focus on lung. From our analysis and again, I don’t know what the company has reported. But from our analysis lung and colorectal are about 65% to 75% of their volume. Again that’s again our analysis. So again that’s the majority of work that they’re doing is on, in those two or three solid tumor states. So that’s the majority and obviously that’s -- those two categories are driving the bulk biomarker based testing. You can look at the CPT code data or the gene data from Medicare or any other available site and it’s about the same, right? So those are the two big categories along with breast in terms of the use of biomarker based testing. So that puts us squarely into some very big opportunities. In terms of the staff and R&D capabilities, yes I think they have done historically some R&D but their R&D number has been fairly limited. I would think if you look at their financials as compared to CGI’s focus on test development and R&D, so a little different focus. But we’re very excited about their solid tumor focus, their sales synergies and the fact that we’ll get presence in geographies that we’re not in today. So, I think preserving that is our focus and going into the transition.

Thank you. I’d now turn the conference back over to Panna Sharma for closing comments.

Thank you. Great question today and obviously there’s a lot of interest and excitement. We think that response not only could more than double our growth rate. But more importantly I think we would be great stewards of the asset going forward in terms of getting greater traction with the clinical and biopharma community. Organically we’re making great efforts on the launch of our NGS products and panels and we continue to make great headway in terms of clinical growth and reimbursement. So with that, I thank you guys for participating. I think we had great questions and we look forward to talking with some of you individually going forward. Thank you.

Thank you. Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time and thank you for your participation.