Trinity Biotech PLC (TRIB) 2005 Q4 法說會逐字稿

Greetings ladies and gentlemen. Welcome to the Trinity Biotech fourth quarter earnings conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [OPERATOR INSTRUCTIONS] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Mr. Ronan O'Caoimh, Chairman and Chief Executive Officer of Trinity Biotech.

Welcome to the Trinity Biotech fourth quarter and year end results conference call. I'm joined here in Dublin by Brendan Farrell, our President, and Rory Nealon, Chief Financial Officer. Rory will first give a commentary on the results for the quarter and the year, Brendan will then give a sales and marketing update, and I will speak briefly about the potential for our HIV Uni-Gold test in the U.S. OTC market, before opening the call to questions.

However, before we commence, I'm required to read the following Safe Harbor provision. Forward-looking statements in this release are made pursuant to the Safe Harbor Provision of the Private Securities Litigation Reform Act of 1995.

Investors are cautioned that such forward-looking statements involve risks and uncertainties including but not limited to, the results of research and development efforts, the effect of regulation by the United States Food and Drug Administration and other Agencies, the impact of competitive products, product development commercialization and technological difficulties, and other risks detailed in the Company's periodic reports filed with the Securities and Exchange Commission.

At this point, I would now hand you over to Rory.

Today I propose as normal, to give you an overview of the key items in our income statement, and in particular I will take you through the trend in recent quarters. I then propose to discuss some of the key movements in the balance sheet, this time focusing on the effect of the acquisitions of RDI and Primus during the year, and also the changes in our net gearing position.

Before getting to detail, I will repeat for the last time will you be glad to hear, what I've said for a number of quarters now, namely that our 2005 accounts have been prepared in accordance with International Financial Reporting Standards, otherwise known as IFRS. Prior to 2005, we reported in accordance with Irish and U.K. GAAP. This is now gone, and therefore the numbers you see before you including the 2004 comparisons are stated under IFRS.

You should note that IFRS is more akin to U.S. GAAP than what we previously reported on, and one of the key differences is the treatment of share options, which I will touch upon later on in my discussion.

Moving on to the details of the numbers and starting with revenues, you will note that once again we have provided a breakdown of our revenues in the press release, between key product areas and also by geographic location. Regarding the detail in those tables, Brendan will shortly take you through an analysis of those numbers. At the top level, you will note that sales for the year have grown by 23.2% over the same period last year. I will remind you that our target is to exceed 20% growth in top-line revenues each year, and our average for the last eight years is now 25% per annum.

Looking at that time growth profile of our overall sales quarter on quarter, if you pull out our previous press release and run the numbers, you will note that our revenues have grown by 7% between quarter 1 and quarter 2. This was obviously helped by the acquisition of RDI, then 18.3% between quarter 2 and quarter 3, with the Primus acquisition being the principal reason for the increase here, and finally by 3.2% between quarter 3 and quarter 4, which is all organic. This organic increase in quarter 4 of 3.2%, or 13% as it happens on an annualized basis, I will point out is double the industry growth rate, and is particularly strong fourth quarter in the context of the seasonality of sales within Trinity Biotech.

In this context, It is worth reminding you of the seasonal nature of some of our sales. For example, Quarter 1 is usually the quietest or slowest quarter unless there's a strong flu season, which there hasn't been for a couple of years now. Quarter 2, our sales of flu antibodies from Fitzgerald's and the lyme sales begin to pick up. I will remind you that flu antibodies are strong, because the diagnostic companies, like Trinity Biotech, begin to acquire critical raw materials during the summer months for the manufacture of flu tests for the winter period. Also lyme sales begin to grow in this quarter too, because lyme is a summer disease. Quarter 3 then moves on and you see sales for flu antibodies and lyme kits reach peak. Finally quarter 4 usually tails back a bit, as it loses the benefit of those flu antibodies and lyme sales.

Finally just to note that the rest of the products, such as coagulation and point of care products by way of example, are spread evenly throughout the year. Accordingly, just to come back to where I started this point, the growth from quarter 4 to quarter 3 is particular pleasing, considering that we normally expect quarter 4 to be slower than quarter 2 or quarter 3. At this point I'm going leave the rest of the revenue discussion to Brendan, and he will shortly take you through the key movers and trends by category.

Moving on to gross margins, firstly you might note that there is a line item called share based payments, and will you note there two are such lines, one in cost of sales, one in our indirect expenses. What this is, is the share option expense which is calculated under these new IFRS accounting standards, and we are now obliged to split it between cost of sales and indirect expenses, depending on how we categorize the underlying employees who received the options.

Regarding the underlying margin performance itself, each conference call I remind of you the key drivers of our gross margins, and you recall me mentioning items, such as seasonality, with flu antibodies and lyme being examples of high margin summer products, also channels to market with direct sales being higher margins than distributor led sales, also geography with American sales being higher margin than rest of world sales.

And finally, the effect of instrument placements with coagulation and Primus instrument sales bringing down the average gross margin. Overall our margin is down a little bit in the current year from 50% in 2004, to 48% in 2005. I covered this before in previous conference calls, but it is worth reiterating the point again now.

During the year we acquired the RDI business, which is margins in the low 40s. Similarly we acquired Primus, which is heavily instrument-focused at the moment, and which can pull down the margins when they have strong sales of such instruments in any given period. Specifically, and is worth drawing out that point, specifically sales of Primus instruments have continued to increase, from approximately 36% of revenues in Q3, to 38% of revenues in Q4.

I will remind you in that previous years, instruments would be on the order of 10 to 15% of total sales, so it's a very significant difference in the context of Primus. This is obviously a sign of future growth and where the company is going. In fact, one of the key reasons why Trinity acquired Primus. That said it will take a little while for the reagent pull-through to come through in those instruments, and to feed through to our bottom line.

Moving on to our administrative expenses, our admin expenses have increased by 17% from 28.8 million last year to 33.6 million in the current year, and this was due to a number of factors, including I'll come back to the RD I acquisition, which represents about 3% of the 17% increase, secondly the Primus acquisition, which represented about 8% of the 17% increase, so between the two acquisitions about 11% of the 17% has been accounted for.

Thirdly you had the ramp-up in U.S. salesforce happening throughout 2004. In other words, the full run rate was not there in 2004, and finally I suppose, general inflationary increases which make up the remainder.

To conclude on the analysis of indirect costs it is worth commenting on the share option expense, as I promised I would a minute ago. As mentioned previously it now included to a small extent in cost of sales, with the majority of the expense being in indirect costs. The number has increased during the quarter, not with the issue of new options per se, but rather through a change in the assumption around the volatility rate applicable to Trinity, the volatility rate being a key assumption in the calculation of cost and this had the effect of increasing the charge in quarter 4.

Just to cover one point, I had a question from one investor earlier on today, and he was wondering was this all down to options issued in quarter 4, and the answer is no it's not. When you issue options, you spread the value of those options over the vesting period of the option. In Trinity's case, that's four years typically, or 16 quarters. So if we issue options in any one quarter, the cost of that gets spread over 16 quarters.

Before moving on to the balance sheet and perhaps the most important point to make in my presentation, is around our operating margin. Will you have heard us say on many occasions that our goal is to get our operating margin before share option cost, back above 12%, where it was before we launched our direct sales force in the U.S.A. and which I might note is also the industry standard. This is the key performance indicator in assessing how Trinity Biotech is performing. In calculating this margin, we do ignore the share option expenses to be competitive with our U.S. competitors, who are not obliged to deduct any such costs associated with share options under U.S. GAAP.

During the year, this margin has increased from 6.8% in quarter 1, to 7.4% in Q2, to 8% in quarter 3, and finally to 10% in quarter 4. This is a significant rate of improvement quarter on quarter, and is due to the general increase in revenues combined with a relatively stable cost base. Now to talk about our balance sheet.

I propose to go through as usual the key items in the balance sheet, and in the process I will outline the effect the RDI and Primus acquisitions have had on those numbers. Starting with our fixed assets, our property, plant, and equipment, this number has increased by 3.2 million during the year, which is a combination of 2.4 million from the acquisition, with the remainder being general capital expenditure as offset by depreciation.

Our intangible assets meanwhile have increased from 64 to 85 million, which is in large part due to the acquisition of RDI, which cost us 4.2 million, and the acquisition of Primus which cost us 15 million. This 15 million being 9 million in cash which was paid, 3 million which is due in July in deferred consideration, and a further 3 million which is due for earnout.

Moving on to our inventories, inventories is an area where we've put a lot of focus in recent years, and is an area where we've had a lot of success. The levels of inventory are driven by somewhat unique circumstances as I've mentioned before, in that we have to hold up to one years of finished goods by lot number for individual customers on occasion. We also hold many years worth of key raw materials and so on. You've heard me give all those reasons before.

However, if you use a simple comparison of inventories to revenue, you will note that we have decreased our inventory from 44% of revenues in 2001 or higher, i.e., 47% at the end of last year, to a low of 37% at the end of this year. This is the lowest it has been in five years, and is a 21% improvement in the space of 12 months alone, which is no mean achievement. Another way of putting this, is that as our business has grown significantly during that period, we've kept the level of inventories relatively flat on a dollar level, and they also declined significantly relative to the level of sales.

Accounts receivable balance increased from 13.3 million at end of last year, to 28.8 million at the end of this year, and that in part is due to the acquired debtor books from the RDI and Primus acquisitions, and also due to the organic growth within the Company. Finally on the balance sheet, just to touch on our cash and gearing, as mentioned on a number of occasions now, probably tired of hearing me saying it, we acquired RDI and Primus throughout the year, but to talk about the cash impact of those, RDI was acquired for for 4.2 million, all paid for from our cash resources. Whereas Primus we acquired for what was initially 9 million of cash, and that 9 million was funded by way of an increase in the level of borrowings from our bank.

Incidentally, we are due to pay Primus a further 6 million being deferred consideration and earnout over the coming months. Other key cash movements over the year include the 1.9 million repayment of debt, and 1.8 million repayment of our convertibles.

In summary, at the end of the year our total cash position was 18.9 million, whereas we had bank borrowings of 15.2 million, we owed 9.5 million on the convertibles, and we are due to make 7 million in deferred payments or earnout payments to Primus and Fitzgerald. So in conclusion on the balance sheet, our shareholders equity, our net assets, now standing at 134 million, and our total assets is at 185 million, and therefore it's worth noting once again that our market cap is only marginally greater than our book value.

Before concluding on my part of the call, someone earlier asked me about how our numbers compare to analyst's expectations. Just to touch on two numbers, from a revenue perspective, our revenue of 98.6 million exceeded all of the analysts expectations, which range from 95.7 to 97.8 million, so we're comfortably ahead of that. Our EPS of $0.36 per ADR, beat three of the four analyst expectations, with the range being from $0.26 to $0.38.

So in conclusion to wrap up, I have a couple of key points to make. Firstly, our top and bottom line performance has continued the improve quarter-on-quarter. And specifically we've continued to grow the business into quarter 4, despite the fact that quarter 4 would normally be a slower quarter than quarter 3. We've also exceeded our target, once again, of top-line growth in excess of 20%.

Secondly the trend in our operating margin is very healthy this year from 6.8% in Q1 to 7.4% in Q2, 8% in Q3, finally 10% in Q4. This is a significant improvement in such a short space of time, and we are well on our way to meeting our target of 12%. Finally we concluded a further two acquisitions during the year, which were funded from existing cash resources of the Company and bank debt, neither acquisition involved any dilution.

Thank you. Brendan.

Thank you, Rory. I'd like to provide with you more details around the revenue numbers for 2005. As you know, we view and manage our business in four units, namely infectious disease, coagulation, clinical chemistry, and point of care. We start with infectious disease.

In 2004 our infectious disease revenues were 36.4 million and during 2005, this grew 21.1% to 44.1 million. If we strip out the impact of the acquisitions of Research Diagnostics, Inc., the year-on-year growth was 10%. This was an excellent performance, particularly against a background of a poor flu season in the United States, which impacted both Q1 and Q4 of 2005.

In the Infectious Disease business, the strongest revenues came from our lyme portfolio with sales of just under $8 million. As we previously indicated, we now have a base of over 300 infectious disease instruments platforms in the United States market. We continue to win back market share from our former distributor, Wampole.

We now have more than 20 placements of the latest large analyzer, the Next gen from our infectious disease instrumentation partner, Adaltis, and we're confident that this instrument and our other infectious disease platforms, will drive growth in our infectious disease business in 2006.

Now turning to Coagulation, coagulation in 2004, our total revenues were 26.8 million, and this grew during 2005 by 10.9% to 29.8. Our new Destiny coagulation instrument platform which was launched in 2005, has been an outstanding success, with more than 140 placements worldwide. In 2005, we completed the development of a smaller version of the Destiny platform called the Destiny OPT, which will be launched in quarter 2 of this year.

We also have commenced the development of a larger version of the Destiny instrument platform called a Destiny Max, which will be targeted at laboratories requiring an instrument throughput of more than 300 patient samples per hour. Destiny Max will be launched in Q2 of 2007. In addition to the Destiny platforms, growth in 2006 will be driven by our excellent suite of D-dimer products, which are used to investigate deep vain thrombosis, a disease condition which is showing a significant and increases occurrence, this will lead to increased D-dimer testing, from which we will benefit.

Turning now to Clinical Chemistry. Our clinical chemistry business which contains the products from Primus Corporation, which we acquired in July of this year, and also the clinical chemistry suite of products which we acquired from Sigma Diagnostics in 2002, revenues in this segment grew from just under 7 million in 2004, to 11.9 million in '05, an increase of 70.6%.

We're particularly excited with the Primus acquisition. As the market for haemoglobin A1c testing, and the incidence of diabetes continues to expand worldwide. In the United States alone, there are just under 21 million people, 7% of the population who have diabetes. A third of these are unaware that they have the disease.

Prospect for growth of Primus revenues are excellent, given that we will now utilize our marketing and sales infrastructure in both the United States and Germany, to promote the Primus haemoglobin A1c instrument platforms and reagents. We expect to see substantial growth in this product line in 2006.

Finally, moving to the Point of Care segment, 2005 was an outstanding year for this product group, which is mainly our rapid HIV suite of products. 2004 we finished the year with revenues of 9.8 million, and in 2005 this number grew to 12.8 million, or a growth of 31%. We saw excellent increases in revenues both within and outside the United States.

Our Uni-Gold HIV product has been an outstanding success for Trinity Biotech, as supported by the statistic that more than 7 million people worldwide were tested for HIV in 2005 using Trinity's rapid HIV test. At the end of 2005, Trinity had achieved a 20% share of the hospital market for rapid HIV testing in the United States. We expect to see a substantial penetration of the public health market in the U.S. in 2006.

We also expect to see continued growth in the rapid HIV test market in Sub-Saharan Africa, and we're ideally positioned to benefit from that growth. In a moment, Ronan will deal with the possibility of the FDA permitting sale of rapid tests over the counter in the United States for home use.

Finally I'd like to deal with our business on a geographic basis. United States region, which comprises the United States and Canada, showed 22% growth over prior year. While some of this was driven by the acquisition of Primus and RDI, we're now beginning to see very good growth driven through our U.S. sales and distribution group.

Revenues in Europe were up 11.4% to 25.3 million in 2005, and this is about 3 times the overall growth of the market. The strongest growth was seen in the Asia-Africa region, up 42.3%. This increase was driven by increased sales of rapid HIV, by coagulation sales into China, and in sales of flu antibodies by Fitzgerald into Asia. Overall 2005 was a strong year in all four business segments, and we look forward to continued strong growth throughout 2006.

With that I hand you back to Ronan.

Thank you. I'm going to talk briefly about Uni-Gold HIV, and its potential in the OTC market. On November 3rd of last year in 2005, the FDA brought the issue of over the counter home use for rapid HIV tests to the Blood Products Advisory Committee for discussion.

And as a follow-up to that meeting, a further meeting will be held on this Friday, the 10th of March in Washington, in which the FDA will present to the Blood Products Advisory Committee, and further submissions will be heard. Trinity Biotech will participate at this meeting. And will present the case for the use of a whole blood HIV test for over the counter purposes.

And as you know, there are only two rapid HIV tests, which are CLIA waived and FDA approved at this time. The principal arguments in favor of Trinity's HIV blood test over an oral fluid test, as a testing medium would be as follows. Virtually blood is used universally in diabetes testing by many millions of people, with the blood sample being taken by a spring-loaded lancet, and very successfully taken, in some cases many times a day. Also cholesterol testing uses blood. It's been established that blood by lancet method works for millions.

Second point to make, is that blood has between 100 and 1,000 times more HIV antibody in it than oral fluid, and not surprisingly, the blood test is more sensitive. The third point is that blood exhibits better specificity than oral fluid, i.e. there are less false positives. That addresses people testing themselves in home environment, thinking that they're actually negative, when in fact they're positive. And the fourth point is that Trinity's test takes 10 minutes, and the competing test takes 20.

The fifth point, is that in our belief the blood sample is more easily procured, blood is blood. If can be recognized very simply, whereas saliva selection is a more subjective determination, it's trickier. When is the oral fluid saliva, when is it spittle, when is there too many food particles, et cetera. The difficulty then is that an individual at home may not be certain that he's procured an actual subcutaneous oral fluid sample, and therefore as a consequence, may have less confidence in the negative result that might issue.

A sixth point, and a very, very important point, is that Trinity's Uni-Gold test is a third generation antibody sandwich test, which can detect antibodies to HIV up to six weeks -- excuse me, up to eight weeks earlier than older types of technology used by our competitors. We believe that this is going to be a key point for consideration by the FDA.

So we believe basically that blood works, that blood is faster, better, more accurate, has less false positives, less false negatives, detect in our case the HIV sooner, and blood is easily and reliably procured by millions of diabetics around the world.

In these circumstances one wonders why one would move to a less accurate medium, but Trinity has now formally indicated to the FDA, that we will be seeking marketing approval of Uni-Gold HIV for over the counter sale and home use. We estimate this market could be as high as over $100 million per annum. And lastly to say that a press release will be issued by us later this week, on the subject of our attendance in Washington.

So at this point, if I could hand back to Donna please for questions.

Thank you. Ladies and gentlemen, at this time we will be conducting a question-and-answer session. [OPERATOR INSTRUCTIONS] Our first question is coming from Eric Miller of Heartland Advisors. Please proceed with your question.

Yes, Brendan, could you explain the HB A1c test? What your market share is in that now, and what are the attributes of your test versus what's out there on the market?

Firstly with the attributes of the test, it is a highly accurate and specific test, so it has a combination of both accuracy and it has, in addition to that, it is reproducible as well. In terms of market share, would you to have divide up the market between routine haemoglobin A1c testing, and between haemoglobin variant testing. I would estimate our overall market share taking the two together, is about 10% of the total market.

Who's the leader in that?

The leader in that is Bio-Rad and Tosoh.

How is yours priced compared to theirs?

Prices are very comparable in the market.

Thank you.

Our next question is coming from Elemer Piros of Rodman & Renshaw. Please proceed with your question.

Good morning. Good afternoon. Very, very nice quarter and year, certainly blew away my expectations. Congratulations.

Big picture question related to your guidance that you would like to maintain 20% plus top line revenue, top-line growth. Would that be your specific guidance for 2006, and if so, do you factor in additional acquisitions in that target?

Hi, it's Brendan here. Yes that would be our guidance, and I think as we stated publicly on a number of occasions would you expect in looking at that 20% top-line growth, that about half of that would come from internal organic growth, and half of it would come from acquisitions. So, yes, you could expect to see acquisition activity in the coming months.

Okay. So as confident as you sound, you are getting to final stages in your due diligence process with some of those?

We are in discussions. I wouldn't quite go so far as to say we're in final stages.

Okay. One balance sheet related question, Rory. When would the restricted cash become unrestricted?

To be candid, this is an auditing nuance. Basically we have agreed with our banks that if we're to spend money in acquisitions as with any company, we'll get the approval of the banks in advance, before we spend the money. It's a standard covenant in any loan agreement, whenever you're doing any major acquisition, that you get your bank's approval, as a result some of the cash is deemed to be set aside for that. It's a small point, to be honest with you.

Understood. And lastly, could you please recap your rationale to apply or your intention to apply the rapid HIV test to the OTC market?

Well, I mean, I'm not sure, Elmer, if you want to go through the basis -- the argue in favor, but I suppose they were briefly that our test is faster, that the sample is more easily and reliably procured by means of a spring-loaded lancet. 210 million diabetics do it every year. Up to 1,000 times more HIV antibody, which is what you're seeking basically in blood than there is in oral fluid, and therefore hardly surprising the sensitivities, basically accuracy of the test is higher.

Less false positives, because I think in a sense when you doing an oral fluid test, you are working so hard to get the sensitivity up, that at times there's an element of sacrificing the specificity, and you end up with some false positives. I think I made the point that we are faster, also made the point that basically because of the configuration of our particular test, it actually is picking up IgMs, which is a particular type of the strain, picking it up earlier. So we're picking up the positives earlier than our competitors. They would be the principal arguments in favor. Clearly from a patent perspective, we've got the records and licenses as well.

Yes. I understand this rationale, but what I'm not clear on is previously you feared as one would normally fear, that to have the test on the over the counter market, that if one has bad news, how do you tie that to counseling and would that be a factor that -- or have you considered that, and what sort of program do you envision putting in place where people wouldn't be facing the news alone?

Elemer, this is Brendan again. That has yet to be decided by the FDA and indeed by the Blood Products Advisory Committee, and that is one of the reasons for holding these public meetings is to decide under which criteria tests may be approved for home use, and sold over the counter. So that has not been decided yet, how the issue of counseling will be addressed by home users.

Okay. Thank you very much for taking my questions.

Thank you.

Thank you. Our next question is coming from Aaron Lindberg of William Smith and Company. Please proceed with your question.

Thank you. Can you just give me a quick breakdown on the split of Uni-Gold HIV revenue between U.S. and international?

Aaron, hi, this is Brendan. Again, as you know, historically we have not given that split. The one statistic that I did give was, as we now have reached just over 20% share of the hospital segment of the U.S. market, but we are not really going to go down the road of splitting the revenues, between inside and outside the U.S.A.

Is the 12 million combined?

Yes, it is.

Yes, it is.

Great. And then the revenue from the U.S., can you characterize, is that virtually all hospital?

No, it's not entirely all hospital. Again, if you draw me further down that road, you'd be able to deduce the numbers, and we think that that's key competitor information.

That's fine. Just want to make sure that I'm thinking of this clearly here. An easier question as it relates to that is, what do you believe will be the key areas for growth in the U.S. hospital market?

Well, obviously it's partially dependent on needle stick injury, because that's what's driving the growth in that market. In the overall market, and also the increased testing of pregnant women presenting at birth to give birth in the hospitals, you're seeing increased levels of testing there.

If you're asking me what will drive our sales growth, well, we have distribution agreement with Fisher Scientific, which will help to drive that growth and also it will come through our own direct sales force.

And what about focus on rapid testing in emergency departments? This is something that I've been kicking around here for the last couple of months, particularly as it relates, to me, it seems like a blurring of the lines between a public health clinic and a publicly funded hospital, where it may take a large urban population where you've got people using the emergency department as their primary-care physician, and outreach in those areas. To me, it seems like that might be an attractive way to press into that market.

Well, there has been some indications of up take of usage in emergency rooms, but as yet we haven't quantified it, and it's not terribly large at present. If there is an up take than a blood sample has a very strong advantage over an oral fluid sample when you're talking emergency rooms, where patients may not be in a condition to willingly give samples.

Sure. And then any new developments on a competitive landscape that have altered your strategy in the rapid HIV testing market? Obviously there's a real push to over the counter now, which is real evident from your comments, but anything else going on internationally or in the U.S., other companies coming on the scene, things like that?

Well, we have worked on our distribution channels in the U.S. and have expanded our distribution channels outside of our own sales force.

I mentioned Fisher Scientific, also working with two distributors to get our product into the correctional facilities, because there is increased testing now in correctional facilities, and as you know, the U.S. population of those who are in correctional facilities is generally around 2 million people, and there's fairly significant testing levels going on there.

Outside the United States, we continue to work with WHO, UNICEF, and CDC on the ground. As I said, we are seeing significant growth month by month in sub-Saharan Africa, and also outside sub-Saharan Africa as well.

On that correctional market, are you working with [Samps] on that? Who you going after on that?

We are working with a distribution partner, which I don't want to name right now. We have not formalized the agreement yet.

On the distribution front, would you expect to work with a distribution partner on the public health market in the U.S., kind of like you're doing with your sales force and Fisher in the hospital market?

We are to a certain extent but more generally we're going through our own direct specialists in that area.

More heavily focused on your people. How many U.S. sales people do you have currently?

In total in terms of our distribution, our distribution organization, we have 120 people on the ground between sales, marketing, tech support, and engineers. But if you are talking about specific sales people within our infectious disease and point of care, you're talking about 40 people.

Okay. Last quick question, the convertible is completely gone now?

No. There were five more due starting in January this year, and the last one will be January next year. It's quarterly. Four more from today.

Four more from today. Perfect. Thank you very much.

Thank you. Our next question is coming from Steve Handley of J.M. Dutton & Associates.

I wonder if you would just identify the timing of some new product introductions. Did you mention earlier about some coagulation products, and maybe just recap some of that, but also you have product I know you're developing for, I believe you're developing, to diagnose influenza and to monitor diabetes, and there might be some others that you're willing to disclose, just to give us approximate timing on when you would expect those to be introduced.

Yes. Hi, Steve this is Brendan here. Specifically going back on the coagulation platform, I was talking about our Destiny instrumentation platform, we have our platform which was launched last year is called the Destiny Plus, and then we have developed, and that uses both mechanical and optical means to read the samples. We have developed a smaller version of that to go into the segment of the market which is smaller hospitals and clinics, and that will be released in Q2 of this year. And we're working on a larger version called a Destiny Max to be released in Q2 of 2007. So that's it on the coagulation side.

If you talk about the point of care side we're talking about an influenza, an RSV test, and Legionella test, all on the same platform technology as the Uni-Gold HIV. All three of those are in clinical trials at present, but I have to say that given that there's a very poor flu season in the United States now, it's difficult to get samples to run the clinical trials, so it's a little bit ironic that you need to have an influenza epidemic to get sufficient samples to run trials, and it's been a very quiet season yet again this year for influenza.

Also on the point of care side of things but branching into clinical chemistry, we have a product hemoglobin A1c 7-minute test developed by Primus called the Rapid Gel, that is FDA approved, is awaiting CLIA waiver, and that waiver should be in Q2 of this year.

In addition to that, in infectious disease we have the HIV western blot, which is just about going into clinical trials right now. We would expect, it's a bit difficult to predict but we'd expect clearance for that in Q4 of this year, or Q1 of next year. I think that pretty much covers the programs.

Okay. Great. Thank you.

Thanks, Steve.

Thank you. Our next question is coming from [Shawn McMann] of Kennedy Capital Management. Please proceed with your question.

Hi, guys.

Hi, Shawn.

Just one question. If you can talk to me maybe, I know you the guys can't name specifically, but on the acquisition side are you guys still looking at acquisitions? Maybe comment if they're large or small, of the ones that you're potentially looking at.

Hi this is Brendan. Yes, we are actively looking. We have about four opportunities on our desks right now, that would categorize into pretty large, one medium, and two smallish. I can't really give you any more color than that.

Okay. Are you pretty far along, or is that -- you can't --?

You never really know how far along you are, until you get to the final stages.

And one last question on your sales force in the U.S. Can you talk to me could you talk to me on how you are establishing your hurdle rates going forward on quotas? Are you kind of turning back, getting rid of many sales people that aren't if you fulfilling what you see the needs going forward, or can you talk to me a little bit?

Each one, I mean, our overall revenue budget for the United States is split down within the four business units, then in turn is split into each individual rep. The sales force are specialized, in terms of infectious disease, clinical chemistry, and coagulation, and then each individual rep is given their own targets. If they're poor performers, then they'll be moved down, and if they're good performers, they'll be rewarded. Fairly standard management of sales force type stuff, Shawn.

I guess I'm asking how many poor performers, and did you get rid of any sales staff during the year?

Yes, we did. We would have gotten rid of three or four sales staff during the year, but that's not untypical in any given year.

Thank you.

Thanks, Shawn.

Thank you. Our next question is coming from Gavin Kelleher of Goodbody Stockbrokers. Please proceed with your question.

Hi, guys. I joined the call slightly late. You may have touched on this earlier, but in terms of the quarter just gone, you had inventory levels as a percentage of revenue of 37%. I was just wondering, going into FY 06, is this still achievable to get this to mid-20s levels, and if not, when do you think we'll see it down at mid-20s levels?

Mid 20s is a bit of an ask now to be honest, Gavin. It's a [expletive] of an improvement over last year, a 20% improvement down to 37% from I think it was 47% at the end of last year, so two strong years in a row, still would not get us down to the mid-20s. Our goal is to keep driving it down. That said we are getting close now to optimum levels.

I would remind you that there are certain quirks associated with our inventory, like holding sequestered stock, where you hold a year's worth of a particular lot number for a customer, or holding many years worth of antibodies, et cetera, et cetera. I have repeated all those issues before. I won't go through them again.

Target for next year is to continue reducing it. It won't get down to the mid-20s by next year.

Okay. So one more question. I know you previously mentioned about expanding direct sales force in Europe. You currently have it in the U.K. and Germany. You're saying you're going to extend it into the likes of France and Italy. Is this then [luptioner exploring], and if so, what do you think the cost return implications would be for that?

Gavin this is Brendan here again. We didn't say Italy, by the way. It takes about 9 to 12 months to collect your money in Italy, so that's not something we particularly want to launch into right now.

We did say France and Spain. We're particularly keen, that if we do move in, we're not moving in in a greenfield fashion. In other words, we don't want to build it up and suffer any losses in the process. So we are looking at opportunities but it would be done on the back of an acquisition vehicle, rather than in a greenfield way.

That's great. Thanks a million, guys.

Thank you. Our next question is coming from Brett Pollard of Numis Securities.

Two questions. Wonder if you could give a feeling of how much of your gross profit came from the contribution of the acquisitions, and secondly, do you expect your R&D to come to new trending, at about 6% of sales going forward?

Hi, it's Rory here. In terms of the acquisitions, I think we've touched on the fact that about 12% of the 23% annual growth this year came from the acquisitions, and maybe just to talk about the two of them separate, acquisition. Typically the margins in that business are lower than the rest of our business, they're in the low 40s. The RDI acquisition has slightly pulled back the overall margin.

The other point to reiterate what I said a while ago about Primus, Primus can fluctuate quite a bit quarter-on-quarter, year-on-year, depending upon the mix of instruments versus reagents, and just to remind some of our listeners, technical instruments, we sell them at margins ranging from 0 to about 15% in Primus' case.

When we sell reagents, the margins are well in excess of 50%, so the mix is quite important. I think the number was 37%, 38% of revenues in quarter 4 in Primus came from instruments, so you can imagine the effect that has had on the margins.

That said, on a medium term basis that's a good thing, because each of those instruments is going to pull through reagents over the next five years. Technically, as you slow down the buildup of their instrument base, what will happen is you will see the margins for Primus starting to come back up towards the overall group levels.

The other question you asked me was about R&D, do I see it staying at or around that level? Pretty much, yes.

Donna, one last question.

Our last question today is coming from Aaron Lindberg of William Smith and Company. Please proceed with your follow-up question.

One real quick. What's the shelf life of the Uni-Gold per your labeling?

Shelf life is 15 months.

Perfect. Thank you.

Thank you.

Okay, Donna, that was such a short question, one last one if you have another.

That was the last question in queue. Do you have any additional or closing comments?

Just to say thank you very much indeed for your support, and for your interest, and talk to you again next quarter. Good afternoon and good bye.

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines at this time, and have a wonderful day!