Response Genetics, Inc. Reports Full Year 2009 and Fourth Quarter Financial Results

Response Genetics, Inc. (Nasdaq: RGDX), a company focused on the development and sale of molecular diagnostic tests for cancer, today announced consolidated financial results for the fourth quarter and year ended December 31, 2009, as well as an update on the Company’s ResponseDX™ sales activities.

“2009 was a very exciting year for Response Genetics as we saw significant growth and acceptance of our ResponseDX™ diagnostic tests. This trend has continued into 2010, with approximately 800 tests sold in March alone,” said Kathleen Danenberg, Response Genetics president and CEO. “We continue to execute on our successful growth strategy; expanding our sales force, strengthening our balance sheet and establishing an international distribution network. For the coming year, we look forward to building on the momentum we have gained to further increase sales of our diagnostic tests and to advance our pipeline of products.”

Corporate Development Highlights

• ResponseDX™ Test Sales Continue to Ramp – Approximately 1,700 ResponseDX™ genetic tests were ordered in the fourth quarter of 2009. Revenue recorded from ResponseDX™ products increased 81 percent to $1.7 million in the fourth quarter of 2009, compared to $0.9 million in the third quarter of 2009. 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 fourth quarter of 2009 will be collected during the first quarter of 2010.
• Expanded Sales and Distribution – Response Genetics continued to expand its national sales force to meet demand for its Response DX™ tests, from three sales people in January 2009 to 15 currently. Company operations have seamlessly kept pace with the increased volume of ResponseDX™ tests to maintain the Company’s five-to-seven-day turnaround time. Response Genetics also established an international presence through a distribution partnership with Genetic Technologies, the largest private laboratory in Australia. ResponseDX™ tests are now available in Australia and certain Asian countries.

• 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 $1,100 with the addition of EGFR mutational analysis and BRAF mutational analysis. Approximately 50 percent of our ResponseDX™ revenue in 2009 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. This new ResponseDX™ test is a product of the Company’s R&D pipeline and underscores its product development capabilities.
• $4 Million Private Placement – On March 5, 2010, Response Genetics entered into an agreement with funds managed by Lansdowne Partners Limited Partnership, Greenway Capital Partners and Paragon Associates whereby approximately $4 million was raised from a private placement of approximately 3 million newly issued shares of its common stock. Additionally, the Company announced two separate purchase agreements in 2009 with certain new and existing investors and raised a total of approximately $6 million. These funds are to be used by the Company to facilitate its sales goals and to expand its ResponseDX™ product offerings.
• Data Presented at ASCO and WCLC – At the annual meeting of the American Society of Clinical Oncology in Orlando, Response Genetics announced the results of studies identifying genes associated with positive chemotherapy outcome and tumor recurrence. And at the 13^th World Conference on Lung Cancer in San Francisco, Response Genetics announced the results of separate analyses of KRAS gene mutations and TS and RRM1 gene expression in non-small cell lung cancer (NSCLC). These results, which were presented by Dr. David R. Gandara, University of California, Davis Cancer Center, and Dr. Philip Mack, University of California, Davis, provided insights into which patients are most likely to benefit from the commonly prescribed chemotherapies.

Financial Results for the Fourth Quarter Ended December 31, 2009

Total revenue increased by 134 percent to $3.4 million for the fourth quarter ended December 31, 2009, compared to $1.4 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 to $1.7 million for the fourth quarter ended December 31, 2009, compared to $0.2 million for the same period in 2008. Our pharmaceutical client revenue increased 38 percent to $1.7 million, compared to $1.3 million in the fourth quarter of 2008.

Cost of revenue for the fourth quarter ended December 31, 2009 was $1.8 million, compared with $0.9 million for the same period ended 2008. Research and development expenses were $0.6 million for the fourth quarter of 2009, compared with $0.4 million for the same period in the prior year. General and administrative expenses were $1.6 million for the fourth quarter ended December 31, 2009, compared with $1.8 million for the same period in 2008. Selling and marketing costs primarily related to the expansion of our ResponseDX™ tests totaled $1.1 million compared with $0.4 million for the same period in the prior year. Total operating expenses for the fourth quarter of 2009 were $5.1 million, compared with $4.9 million for the same period last year. Included in total operating expenses were costs related to the continued expansion of the Company’s ResponseDX™ tests, and its costs related to marketing and its sales force additions, which totaled $1.1 million for the fourth quarter. The increase in total operating expenses in the fourth quarter of 2009 were offset by lower costs of $1.4 million for the operations of our United Kingdom laboratory due to the closure of that facility in March 2009.

Response Genetics’ net loss for the fourth quarter ended December 31, 2009 was $1.7 million, or $0.11 per share, compared with a net loss of $3.4 million, or $0.33 per share, for the same period last year.

Financial Results for the Year Ended December 31, 2009

Total revenue was $9.1 million for the year ended December 31, 2009, compared to $7.1 million for the year ended December 31, 2008, an increase of 28 percent. Revenue from our ResponseDX™ genetic tests totaled approximately $3.3 million. Our pharmaceutical client revenue decreased 16 percent to $5.8 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 through 2010.

Cost of revenue for the year ended December 31, 2009 was $5.7 million, compared with $4.0 million for the year ended December 31, 2008. Research and development expenses were $2.3 million for the year ended December 31, 2009, compared with $2.1 million for the year ended December 31, 2008. General and administrative expenses were $6.1 million for the year ended December 31, 2009, compared with $6.7 million for the year ended December 31, 2008. Selling and marketing costs primarily related to the expansion of our ResponseDX™ tests totaled $3.6 million for the year ended December 31, 2009 compared with $0.9 million for the same period in the prior year. Total costs for our now closed United Kingdom laboratory decreased to $0.7 million for the year ended December 31, 2009 compared to $3.4 million for the same period in 2008. Total operating expenses for the year ended December 31, 2009 were $18.5 million, compared with $17.0 million for the year ended December 31, 2008. The primary reasons for the increase in total operating expenses were costs related to the continued expansion of the Company’s ResponseDX™ tests and its sales force additions, which totaled $3.6 million for the year ended December 31, 2009. These expenses were offset by lower costs of 2.6 million for the operations of our United Kingdom lab due to the closure of that facility.

Response Genetics’ net loss for the twelve months ended December 31, 2009 was $9.3 million or $0.70 per share, compared with a net loss of $9.5 million, or $0.93 per share, for the same period last year.

Cash and Cash Equivalents

Cash and cash equivalents at December 31, 2009, were $7.1 million, compared to $9.5 million at December 31, 2008. As previously announced, Response Genetics completed a private placement of approximately 3.0 million newly issued common shares at a per-share price of $1.31. The Company received net proceeds of approximately $4.0 million from this private placement on March 5, 2010.

Reclassifications

Prior year amounts in the consolidated financial statements have been reclassified to conform to the current year presentation. Reclassified amounts had no impact on the Company’s net operating results.

About Response Genetics, Inc.

Response Genetics, Inc. (“RGI”) (the “Company”) (Nasdaq: RGDX) is engaged in the research and development of pharmacogenomic cancer diagnostic tests based on its proprietary and patented technologies. RGI’s technologies enable extraction and analysis of genetic information from genes derived from tumor samples stored as formalin-fixed and paraffin-embedded specimens. In addition to diagnostic testing services, RGI generates revenue from the sales of its proprietary analytical pharmacogenomic testing services of clinical trial specimens to the pharmaceutical industry. The Company was founded in 1999 and its principal headquarters are located in Los Angeles, California. For more information, please visit www.responsegenetics.com.

Forward-Looking Statement Notice

Except for the historical information contained herein, this press release and the statements of representatives of RGI related thereto contain or may contain, among other things, certain forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995.

Such forward-looking statements involve significant risks and uncertainties. Such statements may include, without limitation, statements with respect to the Company’s plans, objectives, projections, expectations and intentions, such as the ability of the Company to analyze cancer samples, the potential for using the results of this research to develop diagnostic tests for cancer, the usefulness of genetic information to tailor treatment to patients, the ability of the Company to expand its ResponseDX: Lung™ and ResponseDX: Colon™ test availability, the ability of the Company to continue to offer its ResponseDX Gastric™ tests, the ability of the Company to maintain or receive increased reimbursement of its tests, the ability of the Company to expand its sales force, the ability to continue to ramp the sales of ResponseDX and other statements identified by words such as “projects,” “may,” “could,” “would,” “should,” “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans” or similar expressions.

These statements are based upon the current beliefs and expectations of the Company’s management and are subject to significant risks and uncertainties, including those detailed in the Company’s filings with the Securities and Exchange Commission. Actual results, including, without limitation, actual sales results, if any, or the application of funds, may differ from those set forth in the forward-looking statements. These forward-looking statements involve certain risks and uncertainties that are subject to change based on various factors (many of which are beyond the Company’s control). The Company undertakes no obligation to publicly update forward-looking statements, whether because of new information, future events or otherwise, except as required by law.

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