Response Genetics Releases 3Q 2009 Financial Results

"This has been an exciting quarter for Response Genetics with growth of our ResponseDX tests, our revenue increased 100 percent from the second quarter of this year with a current run rate of approximately 1,800 tests per quarter," said Kathleen Danenberg, Response Genetics president and CEO. "This increase was driven by the rapid adoption of our diagnostic tests by oncologists and the addition of EGFR mutational analysis to the ResponseDX: Lung panel. This addition doubled our reimbursement from payors from approximately $1,000 to $1,950. In addition, we launched our ResponseDX: Gastric test, illustrating our ability to develop and bring new diagnostic products to market. We continue to be encouraged by our sales growth and outlook for ResponseDX diagnostic tests for lung, colon and gastric cancer."

In a release on November 16, the Company noted recent corporate development highlights:

- ResponseDX Test Sales Continue to Ramp - More than 1,250 ResponseDX genetic tests were ordered in the third quarter of this year. Revenue recorded from ResponseDX sales in the third quarter more than doubled to $915,000 from $446,000 in the second quarter 2009. Based on generally accepted accounting principles, the Company continues to record revenues primarily on a cash basis from certain insurance providers until collection patterns are better determined. Cash collections continue to increase and we expect the cash associated with the majority of the tests processed during the third quarter of 2009 will be collected in the fourth quarter of 2009.

- Increased Reimbursement Due to Expanded ResponseDX Panels - With the addition of epidermal growth factor receptor (EGFR) mutational analysis, reimbursement of the Company's ResponseDX: Lung panel increased from approximately $1,000 to $1,950, and ResponseDX: Colon test from approximately $950 to $1,200 with the addition of EGFR mutational analysis, VEGFR2 gene expression and BRAF mutational analysis. Approximately 50 percent of our ResponseDX revenue during the third quarter was derived from our expanded ResponseDX: Lung panel. Response Genetics' flexible technology allows the addition of new analytic capabilities as genes associated with therapeutic benefit to chemotherapy agents are identified.

- New ResponseDX Panel Launched Nationally - In September 2009, Response Genetics announced the nation-wide availability of its newest test panel, ResponseDX: Gastric, a proprietary PCR-based diagnostic test that quantitatively analyzes three key genes - ERCC1, TS and HER2 - in tumors to help physicians make treatment decisions for patients with gastric cancer and gastroesophageal (GE) junction cancer.

In a release, the Company noted:

Total revenue increased by 15 percent to $2.3 million for the third quarter ended September 30, compared to $2.0 million for the same period last year. Revenue from our ResponseDX genetic tests, which we started to sell in the third quarter of 2008, increased more than 100 percent over the second quarter of 2009 to approximately $915,000. Our pharmaceutical client revenue decreased 29 percent to $1.3 million, compared to the third quarter of 2008. As previously announced, this decrease was primarily due to a delay in the receipt of clinical samples from one of our major pharmaceutical clients, which the Company anticipates receiving in subsequent quarters in 2009 through 2010.

Cost of revenue for the third quarter ended September 30, was $1.2 million, compared with $1.0 million for the same period in 2008. Research and development expenses were $0.7 million for the third quarter of 2009, compared with $0.4 million for the same period in the prior year. General and administrative expenses were $1.3 million for the third quarter of 2009, compared with $2.1 million for the same period in 2008. Selling and marketing costs primarily related to the expansion of our ResponseDX tests totaled $0.9 million. Operating costs for our now closed United Kingdom Lab decreased to $0.1 million for the third quarter of 2009, compared to $0.7 million for the same period in 2008. Total operating expenses for the third quarter of 2009 were $4.2 million, compared with $4.2 million for the same period last year. Included in total operating expenses were costs related to the launch of the Company's ResponseDX tests, and its costs related to marketing and its sales force expansion, which totaled $0.9 million for the third quarter. Increases in operating expenses were offset by lower costs for the operations of our United Kingdom lab due to the closure of that facility.

Response Genetics' net loss for the third quarter ended September 30, was $2.0 million, or $0.14 per share, compared with a net loss of $2.2 million, or $0.21 per share, for the same period last year.

Nine months ended September 30,

Total revenue was $5.7 million for the nine months ended September 30, compared to $5.7 million for the same period last year. Revenue from our ResponseDX genetic tests totaled approximately $1.6 million. Our pharmaceutical client revenue decreased 27 percent to $4.1 million. As previously announced, this decrease was primarily due to a delay in the receipt of clinical samples from one of our major pharmaceutical clients, which the Company anticipates receiving in subsequent quarters in 2009 through 2010.

Cost of revenue for the nine months ended September 30, was $3.6 million, compared with $2.8 million for the same period in 2008. Research and development expenses were $1.7 million for the nine months of 2009, compared with $1.7 million for the same period in the prior year. General and administrative expenses were $4.4 million for the nine months of 2009, compared with $5.6 million for the same period in 2008. Selling and marketing costs primarily related to the expansion of our ResponseDX tests totaled $2.8 million for the nine months of 2009. Operating costs for our now closed United Kingdom Lab decreased to $0.7 million for nine months of 2009 compared to $1.9 million for the same period in 2008. Total operating expenses for the nine months of 2009 were $13.3 million, compared with $12.1 million for the same period last year. The primary reasons for the increase in total operating expenses were costs related to the launch of the Company's ResponseDX tests and its sales force expansion, which totaled $2.8 million for the third quarter. These expenses were partially offset by lower costs for the operations of our United Kingdom lab due to the closure of that facility.

Response Genetics' net loss for the nine months ended September 30, was $7.6 million or $0.60 per share, compared with a net loss of $6.1 million, or $0.60 per share, for the same period last year.

Cash and Cash Equivalents

Cash and cash equivalents at September 30, were $9.3 million, compared to $9.5 million at December 31, 2008. As previously announced, Response Genetics completed a private placement of approximately 3.1 million newly issued common shares at a per-share price of $1.30. The Company received net proceeds of approximately $4.0 million from this private placement on July 22.

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