TWST: Would you give us a brief introduction to your company and your products?

Mr. Cassigneul: XDx is a molecular diagnostic company. We are concentrating on inflammation or diseases of the immune system. Our first product in the form of a service is on the market. We have a reference lab and we receive the blood samples from medical centers around the country. We perform AlloMap_ molecular expression testing and we report back to the physician. This first product is designed to monitor whether heart transplant recipients are rejecting their new heart or not. Our customers are the heart transplant centers and, of course, the transplant cardiologists.

TWST: From a scientific point of view, how does your product work?

Mr. Cassigneul: The innovation that we provide is that first we work with the blood sample. Previously, doctors had no other choice but to use a very invasive endomyocardial biopsy; in the case of AlloMap testing (which is Xdx's product), we take a blood sample and use the white blood cells to extract the RNA from there. So we measure the gene expression, using real-time PCR (which is a well known and well accepted technology) to perform the tests. The tests are comprised of 20 genes. Eleven are used to differentiate between rejection and the absence of rejection, and nine genes are used for normalization and quality control. At the end of the test, we generate a quantitative score from 0 to 40, and the lower the score, the greater the probability that the patient is not rejecting the transplant. That enables the cardiologists to follow their patients over time and see how they are doing.

TWST: Can you detect rejection before it actually begins?

Mr. Cassigneul: We have done a study along those lines and that study has been summarized in a manuscript submitted to a medical publication for review, and so it is not yet published. But in that manuscript, yes, we demonstrate that at least during the first six months, we have been able to show that the AlloMap test has predictive value. The higher the score, the higher the probability of the patient going on to rejection of the transplant. Even if it's not immediately detectable by biopsy, in the next 80 days, there is a high likelihood that it will be detectable by biopsy. That is actually quite reasonable because we are measuring the signals of the immune system, whereas a biopsy measures the actual damage to the heart.

TWST: When was AlloMap testing launched?

Mr. Cassigneul: We first introduced it in January 2005, and it has been available since then.

TWST: What is the cost of doing the test?

Mr. Cassigneul: The AlloMap test costs $2,950, and you have to compare that to the cost of the current method that is used to monitor heart transplant recipients (endomyocardial biopsy), which costs between $3,000-$5,000, depending on which centers you're talking about.

TWST: How do you see the current adoption rate by physicians and hospitals? What sort of reception have you received from insurance companies regarding reimbursement?

Mr. Cassigneul: We now have 28 centers (out of roughly 150 heart transplant centers) and a few more will be set up shortly to use the tests. The cardiologists, of course, are careful and cautious as they begin to use the test. But we have seen a steady uptake and a very nice growth of the usage of the test. We have been pleasantly surprised that private insurance is paying for this test with a higher and faster rate of acceptance than we had anticipated. We are also very confident that we will obtain Medicare coverage. And again, it's logical because we are actually providing savings versus what they are currently paying.

TWST: What was the old method of doing the test, and how do you overcome the reluctance of hospitals and physicians to adopt new technology?

Mr. Cassigneul: The method that we intend to replace is the endomyocardial biopsy, which really is a procedure and consists of obtaining samples of the inner layer of the heart to see whether there are signs of cellular rejection. In order to do that, the cardiologists have to snake a catheter through the jugular vein all the way into the heart in the right ventricle, and literally with tiny scissors, they cut pieces of the heart and snake them out the same way. In addition, they usually need three or four samples. Those samples are then given to a pathologist who will make an assessment under the microscope as to whether or not there are signs of rejection. So, obviously, this method is invasive. It is subjective because it's a human reading. And it is also expensive. We have done a health economics study and it costs on average between $3,000-$5,000. AlloMap testing, in comparison, is non- invasive, is objective (quantitative, and reproducible), and is less expensive. With regard to the adoption by physicians, we have seen that, of course, physicians first want to see scientific evidence. We have summarized and published the findings of the study and the validation in the American Journal of Transplantation. That is the cornerstone of convincing physicians. And then the next thing, of course, is for them to gain confidence in their own practice, see how it works for their own patients, and validate for themselves that the test performs and that it provides them with more reliable information than they have with the current procedures.

TWST: As you look ahead, what is AlloMap testing's full potential ?

Mr. Cassigneul: Just for the US market and just for heart transplantation ' we believe that it opens up a market of about $130- $150 million. And, of course, these are estimates. This is estimating the opportunity without any change in the frequency of testing. And there are about the same number of heart transplantations every year in Europe. Heart is the first application. We are now developing a second application for lung transplant recipients. We have also begun to work on a third application, which is a little bit different. It is for an autoimmune disease ' SLE (systemic lupus erythematosus). This is an autoimmune disease that literally affects hundreds of thousands of people; the estimates range from 150,000-500,000 suffering from lupus. It can be mild or severe. It's a disease that affects mostly women. It has a high morbidity and high mortality rate. People who have this disease experience flares, or times when the disease worsens and can cause systemic damage. There are no good, specific treatments for this. The treatments are actually the same today as for transplantations ' these patients are prescribed immunosuppressive drugs, which have very heavy side effect profiles. We believe that the test will enable the physicians to better manage their patients, and to basically anticipate the flare, which is the equivalent of the rejection for an autoimmune disease.

TWST: At this point, where have you made the biggest advance in your new application?

Mr. Cassigneul: With lung, we are well on our way. We are probably about halfway in the development of this product. This is also a clinical study that we have done on an international basis right from the start. The US centers that are involved in the clinical study represent more than 32% of the lung transplant market in the US. We are collaborating with the most important centers worldwide. In lupus, we are looking to collaborate with a pharmaceutical company or a bio-pharmaceutical company that is developing new compounds to treat those lupus patients. It would be advantageous for them to have a specific biomarker for Lupus flare. And it would advantageous for us for accelerating the clinical trial.

TWST: Are there any competing tests similar to AlloMap that are expected to enter the market in the very near future?

Mr. Cassigneul: There are none that we know of. While there are several molecular diagnostic companies active in the oncology space, we are not aware of any company that does what we do for immune mediated diseases, whether it be transplantation or autoimmune diseases. At least so far, we have not heard of any company working in that space.

TWST: Would you comment on the FDA's approval process for diagnostic tests such as yours?

Mr. Cassigneul: In our case, because we have developed the test in-house and we perform the test in-house (in our own reference laboratory), we are regulated under the Clinical Laboratory Improvement Amendments (CLIA) rather than the FDA. Our reference lab was certified by CLIA in November 2004. Since then, we have been operating under the CLIA rules. If we were to make a kit that enables other laboratories to perform the test, of course, that would fall under the purview of the FDA, but right now, we have no intention of making a diagnostic kit for those applications.

TWST: Do you have any current collaborations or partnerships with Big Pharma?

Mr. Cassigneul: Not yet. We are in discussion with several companies but we have not yet signed a definitive agreement.

TWST: Aside from immunology are there any other areas that you are targeting?

Mr. Cassigneul: Not for the moment. This is one of the things that we believe XDx has done very well ' we have managed to stay very focused and to develop a deep expertise in that particular space. Of course, that enables us to have deep, thorough understanding of those phenomena, whether they may be rejection or flare. And at the moment, we believe that this opportunity is open for us because nobody seems to be working in that space. So we think that, for the moment, we have more than we can handle in terms of opportunities and we would rather stay in that particular concentrated and focused space.

TWST: What can XDx do to improve AlloMap testing to achieve better results and what will be your major concerns as you look ahead?

Mr. Cassigneul: The manuscript that I just discussed, which highlights the predictive capability of the AlloMap test, is one that I think the physicians would be very interested in. Right now, with the current method of biopsy, when a cardiologist gets a high grade biopsy report, it's because the rejection and damage is already occurring. As we demonstrated, AlloMap has predictive capability that will enable the physicians (if they decide to do so) to actually intervene before there is damage to the heart, which cannot be undone. Damage is not reversible. That would be a major advantage. That's the next big thing that we can do to improve AlloMap testing. We also believe that having specific information in the autoimmune space will be very important. Those diseases are not well understood. We don't know why they occur. But more important, we don't know why from time to time they seem to be remitting but also relapsing. Those relapses are not anticipated. They are just witnessed when the symptoms appear. The hope that we have (and what we are working on right now) is that we will provide rheumatologists who are treating these patients with an advanced warning signal of an impending flare and enable them to actually modulate their treatment of patients more according to the specific that we see. That is the promise of personalized medicine, where you will be able to treat when it's necessary, and not treat when it is not necessary.

TWST: Would you comment on the expertise of the frontline of your management team, including yourself?

Mr. Cassigneul: Because we are breaking new ground, we had to bring in people from different backgrounds, almost like a mosaic. I come with 25 years of diagnostic industry experience as a general manager in various companies such as Bayer, J&J, and Abbott. Vikram Jog, our Chief Financial Officer, was with Celera Diagnostics before and has worked in public and private companies and in one of the big audit firms. We also have Tammy Reilly, who is our VP of Commercial Operations. She comes from Roche where she launched their presence in transplantation. Tod Klingler is our VP of Information Sciences and brings extensive experience in the new field of bioinformatics and algorithm development. So we have built a team that has the experience of both pharma and diagnostic because what we do is a little bit different. First, it is a service model and not a diagnostic kit. And second, because we are breaking new ground, there is a lot of work to do with the clinicians to enable them to evaluate the test in their own practice and to help them better understand rejection in their own practice for transplantation.

TWST: How is XDx financed? How much of your capital do you put into R&D, and what will be your future needs for capital?

Mr. Cassigneul: So far, we have raised about $70 million in five series of financing. The first two were angel investors. The next three series were with venture capitalists. The two main shareholders that we have are Kleiner Perkins Caufield & Byers and TPG Ventures. We think that we may have another round of investment in order to complete the successful launch of the products that we just talked about. AlloMap testing is now on the market for heart transplant recipients. We want to complete the development of lung and we also want to complete the development of lupus. The additional round of financing would probably enable us to complete that and then become a self-sustaining company after that.

TWST: What kind of reception for new financing have you received and what are some of the points you highlight when speaking to investors?

Mr. Cassigneul: Basically, we are positioning ourselves within the new era of personalized medicine, where the physicians want to tailor what they do to what is currently happening with each particular patient. In this sense, the example of the first application of heart transplant is quite characteristic. We are providing something that is objective, it provides better information to the physicians. But an important element that we also put forward is that we are also providing savings to the healthcare system. We are not adding costs; we are actually reducing the cost of health care overall. And that is an important element. As we develop our tests from a clinical standpoint, we also perform health economics studies to demonstrate this particular point. That is something that the investors have been interested in ' the fact that we are basically surfing on the new wave of personalized medicine, but also doing that with a health economics approach that actually demonstrates savings to the healthcare system. These are the two points that I think the investors have really appreciated about what we have done. Also, by being extremely focused, we have been able to bring products to the market fairly quickly and with a pretty good predictability. That is the difference ' while it is more expensive than traditional diagnostics, it is faster than pharma and actually has the prospect of good profitability as well.

TWST: Does XDx have an exit strategy, and have you received any interest from Big Pharma for a strategic collaboration?

Mr. Cassigneul: We have received interest from Big Pharma for collaborations, but mostly in the collaboration for a biomarker for the new compounds that they are testing for autoimmune diseases. We don't know what will happen later, but this is clearly something that is of interest to pharma. To use the example of lupus, the FDA has gone out of their way to say that it is necessary to have a biomarker to submit an NDA for a new drug for lupus. So clearly, there is now very high interest from pharma when we talk to them.

TWST: It is generally believed that only 1% of healthcare spending is allocated to diagnostics. Do you see that pace increasing and if so, will it affect your niche?

Mr. Cassigneul: Not overall, but selectively, there will be tests that will cost more but will also have a much bigger impact on the overall healthcare delivery. In our case, for instance, we are replacing a procedure that was, on average, close to $5,000 per procedure, with a diagnostic test. So it is more money spent in diagnostics, but at the same, it is generating savings in the healthcare system. We think that, in our case, yes, we will actually benefit from a shift of spending toward a little bit more in diagnostics, but we are also generating savings elsewhere within the healthcare system.

TWST: What milestones are you targeting for the next two years?

Mr. Cassigneul: For the next year, the completion of our lung product and the launch of that particular product. We are also anticipating a Medicare coverage decision for our first product, which will be significant for both our customers and the physicians who treat them. The third one, of course, is the development of the lupus product. Within the next 12 months we will have an alliance or some kind of collaboration with a pharma company in lupus, where we would develop the diagnostic test and they would develop the pharmaceutical compound. Again, as I indicated earlier, the FDA is very interested to have those come together because this disease both remits from time to time for unknown reasons, but also relapses. The ability to have a test that indicates the very specific status of the patient with regard to the disease would be very useful for rheumatologists treating those patients. So these are the milestones that we have for the next year.

TWST: What other points would you like to conclude with?

Mr. Cassigneul: XDx is very well positioned to have a leading role in the field of immune mediated diseases. We think that the autoimmune diseases opportunities represent a very large business where molecular diagnostics will transform the way rheumatologists take care of their patients. This opportunity will also be defined by collaborations with pharmaceutical companies. We think that that is going to be the sign of the shift in the marketplace, with the introduction of molecular diagnostics that will really rebalance the equation between diagnostic and therapeutics. As you indicated, diagnostics represent about 1%-1.5% of healthcare spending. And in our case, of course, our test has a higher price, but clearly, it also will generate savings. We think that we are going to be part of that shift in emphasis with molecular diagnostics leading a lot of decisions in medical care. XDx is at the forefront at that trend, benefiting from that unique position that we have.

TWST: Thank you. (WT)

PIERRE CASSIGNEUL President & CEO XDx Inc. 701 Gateway Boulevard Suite 100 South San Francisco, CA 94080 (650) 624-0120 (650) 624-0125 - FAX www.xdx.com e-mail: inquiries@xdx.com

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