Trinity Biotech PLC (TRIB) 2007 Q3 法說會逐字稿

Greetings, and welcome to the Trinity Biotech Third Quarter 2007 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 CEO. Thank you. Mr. O'Caoimh, you may now begin.

Thank you. Good morning, and welcome to the Trinity Biotech Third Quarter Conference Call. I'm joined by Rory Nealon, our Chief Financial Officer, who'll bring you through the results for the quarter three and by Brendan Farrell, our President, who'll bring you through a review of the revenue performance for the quarter after which, we will open the call to a question-and-answer session.

Before we proceed, however, I'm required to read the following Safe Harbor Provision. Forward-looking statements in this release are made pursuant to the Safe Harbor provisions 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 regulations by the United States Food and Drug Administration and other agencies, the impact of competitive products, other development, commercialization and technological difficulties and other risks detailed in the Company's period reports filed with the Securities and Exchange Commission.

I'll now hand you over to Rory Nealon.

Thanks, Ronan. Consistent with previous quarters, I plan you to take you through a review of the income statement and the key movements in the balance sheet after which, Brendan will explain the revenue performance in more detail. Starting as usual with the income statement, as normal, you will note in the press release an analysis of the revenues by key product area and also by geographic location for the last nine months.

Looking at the revenues at a -- at the top level, you will note that our revenues for the period represent an increase of approximately 26% over the same period last year. Obviously, this increase is in part due to the bioMerieux acquisition in June of last year. And in fact, if you were to strip out the effect of the bioMerieux, you would note that our organic outgrowth has approximately been 11% over that period.

Quarter on quarter however, our revenues have decreased from $37.4 million in Q2 to $33.7 million in the quarter just gone. And that decrease is partly due to the lower than expected in our flu antibody business, which is managed by our Fitzgerald operation. In fact, Fitzgerald are approximately $3 million behind budget for the year to date.

Another factor underpinning this quarter's revenue is a reduction in the hemostasis sales, particularly in relation to the bioMerieux products. And that decrease has coincided what appears to be the vacation season, particularly in continental Europe and again is a point, which Brendan will elaborate on in more detail shortly. And finally, it's worth noting that we were hoping for stronger [Lyme] sales during the quarter.

In order just to put this quarter's revenues into context, it's worth noting that total revenues are slightly ahead of the same quarter last year. And that is at $33.7 million versus 33.1 -- $33.3 million or an increase of just over 1%. Again, rather than get into the detail in the movement by product category and by geographic location, I'll move on to our gross margin performance, and Brendan will shortly take you through a more detailed analysis.

Just to touch on our gross margin, our gross margins at 45.3% for the quarter are broadly in line with the 46% achieved in the same period last year. However at 45.3%, we are slightly outside our normal range of margins and are a couple of points lower than our target and what we achieved in recent quarters.

And this is due to a number of factors including the worsening situation for the dollar/euro race, which has declined by an average 2% during the quarter, also the lower level of flu antibody and Lyme sales I just alluded to, which has an impact on margins. Typically, those flu antibody and Lyme sales have margins in the mid 60s. In other words, they're high-margin products. Currently, the lower sales is a result of the less inventory that's been put to stock and less efficiencies in the factories.

And finally, you'll recall me mentioning on the previous conference call that quarter three represented the quarter during which production of the bioMerieux range of products would -- will commence in our Bray facility. In managing the product transfer and the reorganization of our manufacturing activities in the Bray plant, we have incurred certain one-off costs.

And just to give you a simple example, when each product is manufactured for the first time, a number of pilot batches have to be manufactured. And those batches are not available for sale, but rather have to be taken to scrap straightaway.

It might be worth dwelling just on this integration process at this point and giving you an update on exactly where we stand in relation to this bioMerieux integration. The new factory is fully operational. We took possession of it on July 1st, and all the product lines, which were due to move into us have -- infectious disease ones have since moved in.

In relation to the bioMerieux products, all the key capital equipment is now in place and, in fact, has been validated and is fit for use. And in relation to the product lines, all, of the pilot batches, which we have manufactured to date in quarter three, have passed through successfully. There have been no hiccups in that regard. Obviously, those pilot batches cannot be salable. And in fact, they go to the scrap heap.

We, as of today, have in testing the first batch of bioMerieux products ready for sale. And as of five minutes before this conference call started, everything was proceeding according to plan. And there were no problems. So we're not just taking, obviously, a couple of quarters to get there, but we're not seeing any hiccups. And we did not see any problems in terms of manufacturing these products on a go-forward basis.

Just before concluding on the margins, it is worth sharing some research with you, which we had conducted during the quarter. We commissioned an industry expert to analyze the market share by segment for the top-ten companies in the diagnostics space. And as a result of that research, it became apparent to us that the average gross margin for those top ten players was about 52.7%.

And accordingly, while our Q3 margin is some way off this number of 52.7%, our more normal gross margins are not a million miles away. When you consider that those top ten players sell direct into the vast majority of their chosen markets as opposed to distributors outside of the U.S., UK, Germany and France for Trinity, that gap narrows quite significantly, I think you'd agree.

Moving on to our indirect expenses, our R&D costs are slightly down on last quarter, though at 5% are consistent with percentage of sales. And similarly, our administrative expenses have shown a modest reduction quarter on quarter. The $12.1 million in this quarter, compares to $12.3 million in quarter two and $12 million in quarter one.

So, with an average of about $12.1 million per quarter, we're on target to meet the expectations, which range between $48 million and $50 million for administrative expenses. And that's particularly pleasing to us as it's one of the core targets we set ourselves this year has been to maintain those costs while growing the overall business.

Just moving on to our net financial costs, you'll notice a reduction in the interest charge for the quarter. And that reduction is in line with the lower level of outstanding debt. You'll remember that under the five-year term loan facility repayments, approximately $4.1 million are repaid on the 1st of January and the 1st of July of each year.

Meanwhile, our interest income has declined from about $149,000 for the quarter on quarter two to $41,000 this quarter, and that's due to the expected reduction in our cash balance caused by capital expenditures associated with the new factory and also the build-up in our bioMerieux industry.

At this stage, it is worth saying just a couple of words about the tax charge in that you'll have noticed the tax charge for the period represents about 95% of the profit before tax. And that particularly high [rate] has been due -- is due to the deferred tax charge attaching to the level of in-house manufactured inventory on hand at the quarter-end. And in fact, it's the reverse of the situation, you'll recall, we had in quarter one, which resulted in a tax credit.

You may recall me explaining the intricacies of IFRS deferred tax accounting in quarter one, but if anyone would like a reminder on how those rather unusual and somewhat daft accounting rules work, please feel free to give me a call after this conference call.

To better understand our tax position, I would suggest that you look at the effective rate for the year to date, which is at 12.8% and is just under our expected rate of 15%. And over time, I'll -- if you like, the movement of inventory quarter on quarter gets evened out, you come back to a more normal tax rate.

It should also be noted that that -- the higher tax charge in the quarter is largely deferred tax, and as a result, there are no cash implications for the charge in the quarter. Just before concluding on the income statement, I would like to point out that notwithstanding our modest level of profits for the quarter, our EBIT was in fact over -- was at $3.7 million, just shy of $3.7 million.

Moving on to our balance sheet and starting with the property, plant and equipment, the movement since the beginning of the year is a combination of additions of about $5.7 million as offset by depreciation of $3.1 million. And the increase in the rate of expenditure coincides with the [kitting] out of our new factory for the bioMerieux business.

A portion of the expenditure was actually undertaken in previous quarters in the form of staged payments or deposits, but now that that equipment is being -- gets delivered and/or installed, those staged payments have been moved from prepayment into property, plant and equipment and hence are appearing as fixed asset additions.

Also included in this capital expenditure are instrument placements. So, this is where we place an instrument with customers on an operating lease and hence are required to remain -- those instruments are required to remain on our balance sheet as fixed assets.

Our goodwill and intangible assets have similarly moved through a combination of amortization of about $2.6 million and various additions associated with development of projects such as the Destiny Max and the Tri-Stat, which Brendan will again talk to later on.

Moving on to inventory, which is worth dwelling on for a minute, our inventory has increased by just over $10 million since December of which $9.6 million is due to the bioMerieux acquisition. You will recall that bioMerieux had been building 18 months worth of inventory for us over a 12-month period since acquisition, and the finished at the end of June.

This was to allow for a level of safety stock while we transferred the manufacturing from bioMerieux ' facility in Durham to our new factory in Bray. And the final delivery of those products took place during quarter three. Going forward, we expect those levels to increase as these stocks are run down during the ramp up of manufacturing in Bray.

On a final note just to [fill in] with the bioMerieux inventory, we also took on the yet unused raw materials and work in progress from bioMerieux ' facility in Durham in July of this year, which in part of, explains the increase quarter on quarter. Actually, that's the end of this. There should be no more transfers of bioMerieux inventory from bioMerieux to Trinity. The last of it happened in quarter three.

Before moving off inventory, it should be pointed out that our non-bioMerieux inventory has remained broadly constant during the period. And that's not withstanding that we have had organic growth of 11%, as noted above.

Our trade and other receivables balance is comprise, as you'll recall, of both trade receivables from customers and prepayments. And the improvement in our [debtor days] has continued during the quarter with a steady reduction from 76 days at the end of quarter four last year to the current level of 61 days. And this is attributable to the improved cash collections during the quarter and is an area, in fact, in which we've been placing a lot of focus on in recent quarters.

We are pleased with this in the context of our customer base, which comprises hospitals and clinics as you know, many of which are government owned and international distributors, which invariably tend to be slow payers, though it must be said the are very credit worthy. You've heard me say many times before that as a company, we've had an extremely low instance of bad debts over the years.

As noted earlier, the other cause for a decrease in our trade and other receivables balance is the conversion of prepayments for various capital equipment associated with the new factory into fixed assets with the delivery of those assets.

Finally, on the balance sheet, and just before I wrap up, our cash balance was reduced from $18.3 million at the end of last year to $4.1 million, now, at the end of September. Largely due to a combination of factors such as debt and interest repayments of approximately $10 million and deferred consideration payable to bioMerieux and the increase in the inventory we just talked about associated with the transition from bioMerieux . In turn, those reductions have been offset by EBITDA for the nine months of over $15 million for the year to date.

Brendan?

Thanks, Rory. To start, just let me re-emphasize for you what Rory has said. Revenues for the first nine months of 2007 grew over 26% when compared to the same period last year. And again, as Rory already said, if we strip out the impact of the bioMerieux hemostasis acquisition, which we completed in late June of '06, the underlying organic growth rate was just over 11%, which is ahead of our publicly stated corporate target of greater than 10% organic growth per year. This is a very strong performance against a background where the diagnostic industry is growing at approximately 5% to 7% per annum.

Let's take a look now at each one of our four business units in more detail starting with Clinical Chemistry. Revenues for the first nine months of '07 were just over $12 million, up from $11 million in the same period in '06. This represents an increase of just over 11%, which is entirely organic growth.

We continue to be very optimistic for our hemoglobin A1c and hemoglobin variant business in the clinical lab market segment. We're looking to add additional sales resources to our Primus business in the United States through the reorganization of our U.S. sales forces, which up to now have been organized strictly according to business segments.

We move now into Hemostasis. Hemostasis, as you know, is our single largest business unit, and our revenues for the first three quarters of '07 were 57% up on the same period of '06. Again, if we strip out the acquired bioMerieux revenues for the first two quarters and look at the underlying organic growth rate in our Hemostasis business, you will see that organic growth was 14% for the first three quarters of 2007.

And this again, is an excellent performance. As Rory mentioned, there was a dip in Q3 sales of hemostasis. And this specifically occurred in June. And this is due to the vacation period in Europe where generally, sales are softer than at other times of the year. And indeed in September, the last month of Q3, we did a sales rebound to more normal levels for our Hemostasis business.

We're very focused on our Destiny Max project, which is the largest single research and development program ever undertaken by Trinity Biotech. The Destiny Max will be part of our state-of-the-art hemostasis instrument product portfolio, which today comprises the Destiny Plus and the Destiny OPT.

The Max will allow us to complete this hemostasis instrument product offering and will take us into the large hospital segment of the hemostasis market, which yields substantially higher revenue per instrument placement than the mid and small-sized segments in which we currently compete. We now expect the international launch of the Destiny Max to commence in Q3 of '08 with the U.S. launch following one quarter behind that.

Moving now to Infectious Diseases, for the first three quarters of '07, you have seen that our Infectious Disease business has declined slightly over '06. As has already been mentioned, our Fitzgerald raw materials supply business derives significant revenues from the sale of influenza antibodies to diagnostic manufacturing companies who incorporate these antibodies into their influenza diagnostic tests.

Because of the weak flu season in late '06/early '07, these diagnostic manufactures have stockpiled the antibodies, and therefore, sales of these raw materials have been extremely low in quarter two and mainly in quarter three of '07. This, as you have already heard, has had a significant impact on our revenues for Q3.

It's worth mentioning though that this situation was masked somewhat due to our very strong Q2 results. You'll recall that in both Q1 and Q2, we had very strong HIV sales of $6.6 million and $6.4 million -- $6.5 million respectively. And that was not a sustainable level of sales for HIV, so, they were actually masking the underlying problems with the Fitzgerald business.

As part of the Fitzgerald raw material business, our hospital-related infectious disease business grew just over 6% in the first three quarters of '07 versus the same period in '06. And this growth profile is in line with our expectations as the Infectious Disease segment of our business has the lowest growth profile of our four business segments.

And moving now to point-of-care, our rapid HIV test business has shown extremely strong growth in the first nine months of '07 versus the same period in '06 with revenues of just under $18 million, up 44% over prior year. This growth has come both from within the United States and outside the United States, mainly in sub-Saharan Africa.

In quarter one of this year, as I have just mentioned, we had revenues of $6.6 million and quarter two, $6.5 million. Both of these quarters were very, very strong. And as expected, we didn't sustain the same level of HIV sales in Q3 where we recorded HIV sales of $4.6 million.

As I referred to in our last conference call in quarter two, our agreements with both PEPFAR and the Clinton Foundation are helping to drive strong revenue growth in less developed countries. Our transition of the manufacture of the Uni-Gold HIV product to China for outside the U.S.A. sales is complete and has improved our gross margin in this business.

In the U.S.A., we continue to take market share from our competitors, both in hospitals and in the public health segment. As you know, the CDC has made available $35 million with a [view] to testing an additional 1.5 million American citizens for HIV over the three years commencing October 1, 2007.

The jurisdictions who will receive this money have already been identified, and some of these have started to place orders for product. This initiative will be a strong driver for growth in our rapid HIV business in the U.S.A. going forward into 2008 and beyond.

In relation to the HIV OTC business opportunity, we continue our preliminary clinical trial testing and are also continuing our efforts to quantify more exactly the market opportunity, which exists for such a product in the United States. As I have said before, we do not think that home testing for HIV represents a very significant market opportunity. We hope to be able to confirm and quantify the extent of that opportunity before the end of this current quarter. I'll report to you further on this in our next conference call.

The second important product in our point-of-care business is the Tri-Stat hemoglobin A1c product. Previously, I've been talking to you about this product within the context of our Clinical Chemistry business. But, we believe it fits better into our point-of-care portfolio and will report this within this business segment in the future.

As you know, we're awaiting FDA approval for the Tri-Stat instrument and reagent package. All of the requested information needed for our 510(k) approval has been submitted to the FDA, and approval is pending, and we expect that approval within the next few weeks.

Regarding distribution of Tri-Stat, the market for this product is primarily physicians' offices and diabetic clinics. As our sales forces do not currently cover these markets, it follows that we will have to work with a distributor focused on this physicians' office market segment.

We've had a number of discussions with potential distributors, both for the U.S. and European markets and are very close to agreement in both geographic areas. For example, the distributor we are in discussion with in the U.S.A. has more than 400 sales representatives covering the physicians' office market.

Similarly in Europe, we're working with a strong, well-known diagnostic partner with extremely good coverage and very relevant experience in the hemoglobin A1c market. We're really excited about the prospects for Tri-Stat, given that the worldwide market for point-of-care hemoglobin A1c testing is estimated to be approximately $250 million, with $100 million of that being in the United States.

I should caution that we don't expect to see any significant revenues for this product in Q4 of this year, however, we do believe that we can gain significant share of the point-of-care hemoglobin A1c market through 2008 and beyond together with these strong distribution partners. It's also worth pointing out that Tri-Stat will be a high gross margin product. Sales of this product will contribute significantly to our overall profitability.

In summary, with revenue growth of 26% at the end of nine months in 2007, with our direct sales forces in the U.S.A, Germany, France and the UK and with our highly competitive product portfolio, we're excited about the prospects of Trinity Biotech going forward into 2008 and beyond.

Thanks, Brendan. I wonder Jackie, could you open the call now to the question and answers please?

Thank you.

(OPERATOR INSTRUCTIONS)

Our first question is coming from Matt Dolan of Roth Capital Partners.

Hi guys, good morning.

Hi, Matt.

First question, in terms of bioMerieux , I recall in Q3 of '06, an inventory backlog that was being worked through in that quarter. So, can you provide you us with the growth rate in the business specifically? And secondly, in this current quarter, were there any one-time deferrals? Or, is this now a more realistic run rate for that business, given -- culling of products, et cetera? Just give us a little more detail on what's going on with the BMX business.

Matt, Brendan here. I'm not clear on your quarter in relation to quarter three of 2006. What there was in quarter three, we felt that there -- in '06, we felt that there had been a certain stuffing of the pipelines done by the previous owner of the business. However, on reflection now and seeing what happened in Q3 of '07, it may well have been just a reflection of the holiday period in Europe, which is the phenomenon that we have seen this year, and that may very well have been happening as well in Q3 of '06. But, if you like, we took a more suspicious view of it and decided that pipelines had been stuffed. I'm not sure if that specifically answers the question you raised.

That's what I was referring to, but can you characterize then, what was the growth rate? And does that have anything to do with the culling of products that overlapped with your prior hemostasis business? And is this a more realistic run rate for BMX going forward?

No, it's not a more realistic run rate for BMX going forward. As I indicated, sales were down in July/August due to vacation period, which as you know is taken very seriously in Europe, and (inaudible). I should say in continental Europe --.

In continental Europe.

Not the British Isles. And in September, the run rates bounced back to exactly to where they were. So, what you have to do Matt is do two things. One is to look at -- say as overall for the first three quarters of '07. And the second thing is, we have to move away from talking about bioMerieux and non-bioMerieux , because there has been a blurring of the lines of distinction between the hemostasis product lines.

And really, it's really not valid anymore to talk about bioMerieux or non-bioMerieux because we have, as you know, consolidated the three reagent lines, Biopool, Sigma and bioMerieux into one reagent line now. So, there really isn't anymore going forward from here a bioMerieux and a non-bioMerieux business. You really have to look at hemostasis as an overall business entity. Okay?

Got it.

And Matt, I think that another point to make here is in asking the question about bioMerieux and how it's doing and how the transition is doing, I think we can account for instruments on an every single instrument basis. And we're satisfied that the instruments are in use and that the trends within the bioMerieux business is very healthy.

And I think just again to point that out, we can account for every single instrument. We're aware of where they're placed and how they're ordering. And we're not suffering losses there.

And Matt, you asked a second quarter -- what it has to do with deferred. Could you just restate that question?

Well, it was just more a characterization of that business. Were there any one-time sales that you think -- that didn't hit that might hit in Q4?

No, I don't think so.

Okay. And then secondly on gross margins, it bounced around a little bit here sequentially. From what I understood, Hemostasis was typically a little bit a lower gross margin business. Rory, can you give us an idea of where that should track? Should it bounce about -- bounce back to what we saw in the first half of the year? Or, have we kind of reset expectations there?

No. We ourselves would like it to bounce back more in line with where Q2 was and Q1. We were -- I think you might have picked up hopefully a little bit of nervousness from us on the last conference call because of the transition into the factory here. When you're moving that many products in, in a short space of time, you're always a little bit nervous as to how much it'll cost, et cetera, et cetera.

And there were obviously a number of pick-ups along the way. That said, the first patches are coming through, and the products are being made and they're fine. But, those kinds of costs really did hit us in Q3 more than we would have expected.

Going forward though -- I'm sorry. The other thing that's gone against us is the currency at the moment, not by -- not to a huge effect. But, it is going the wrong way. And going forward though, we would like that to bounce back more in line with what we saw in Q1 and Q2.

Okay. And finally on the HIV business with the CDC money now available, can you give us a little more idea of the level of traction you expect to get over the next year from those funds being now available?

Well, if you take it -- Matt, this is Brendan again. If you take it that the CDC is able to hit its target of testing 1.5 million new Americans, by new Americans I mean Americans who otherwise would not be tested over a three-year period, then you're -- certainly can count at an average selling price of, say, ten. That is $15 million available for the purchase of product.

And we would expect, given that there are only three competitors to compete in the [CLEA wavier] market, we would expect from our common sense perspective to get a third of that. So, it's certainly going to add to the traction that we are already gaining in that market, if that answers your question.

It does, thank you very much guys. Take care.

Thanks, Matt.

Thank you. Our next question is coming from [Mark Beely] of [Davy].

Could I just ask in relation to the flu sales in the Asian markets, do you think the lower demand will have an impact on Q4?

Could you just repeat that question, Mark?

Yes on the flu sales in the Asian market, do you think the lower demand in Q3 will have any going forward impact for Q4?

Well it will not because typically these antibodies are sold to people who are making diagnostic tests and those tests are used typically in the flu season, which is Q4 and Q1. So the fact that our sales have been low to non existent in Q2 and Q3 tells me that they have enough antibodies and have already made their diagnostic tests.

So it won't have an impact in Q4 on the antibody business. Where the impact will come will be in our own respiratory disease tests if there isn't a significant flu season again in Q4 of this year and Q1 of next year.

Okay. And then just another question on the point-of-care division and we're looking in Q3 about 4.7 million in revenues. Is that a reasonable run rate for the next few quarters? Or is this kind of a, on-off?

No it's not one-off. As I mentioned earlier, we had phenomenal sales in the first two quarters of 6.6 and 6.5 and indeed at the end of Q1 we said that Q1 wouldn't repeat and it did repeat into Q2. I mean this is way up over prior year, as you will have seen, I mean it's 44% up over prior year so that level is not sustainable. So what you've seen in quarter three is profit a more realistic level of the business ongoing.

Okay thanks, guys.

Thanks, Mark.

Thank you. Our next question is coming from Steven Crowley of Craig-Hallum Capital Group.

Hello, gentlemen.

Hey Steve.

Just picking up on your comments about flu product, how big is your own flu test business? And a related question is what is your view of the prospects for the upcoming Northern Hemisphere cold and flu season?

Okay to answer the second question first, I really don't know, it's kind of looking into a crystal ball to know that. Certainly over the past few years we have seen a significant lowering of the incidents of not just influenza but respiratory diseases in the Northern Hemisphere.

Whether that is just something that's cyclical or whether it is due to increased vaccination we're not clear about that, but definitely it is a phenomenon that's affected the business for I guess four to five years now. If you're asking what the actual respiratory business is that we have, it's probably today around $4 million to $5 million, somewhere around that in total.

And then switching gears, you mentioned you were waiting 510(k) approval for your Tri-Stat test. I'm wondering if you have any additional visibility or color on the CLEA waiver process. You know we're continuing to see it being a very deliberate process driven by the FDA stepping through these applications very slowly and consistent with the letter of the regs. What's your latest thoughts on the time line there?

Well a couple of comments without delving too much into our relationship with the FDA, we do know that the same reviewer will be reviewing the CLEA filing as is currently reviewing the 510(k) application, so that's obviously going to both simplify and speed up the process.

We did ask that both the 510(k) filing and the CLEA waiver be reviewed simultaneously and that request was rejected. They decided that they wanted to go sequentially, 510(k) plus CLEA waiver. So to answer your question more specifically, I said we expect 510(k) approval within the next few weeks, I would expect CLEA waiver early in Q1 of '08.

Great. Thanks very much for taking my questions.

Thank you, Steve.

Our next question is coming from Ian Hunter of Goodbody Stockbrokers.

Good afternoon, gentlemen, I've got essentially an answer for the other questions on specific product lines as to how the revenue is going track through for Q4. But I'm just wondering whether I'm right in thinking that this quarter has just been a blip and you'll get the recovery back to Q2 levels next quarter as an overall guide.

As an overall guide, this is Brendan here, we would expect to see our business being more effective of what happened in Q1 and Q2 this year and we would view Q3 as just a blip.

Okay that's great, that's what I was hoping was the situation. And now back to my usual question now, Brendan, you've given us a bit of an update on the HIV OTC test, I'm just wondering how the trials are continuing. I know you were looking at the market opportunity and I may need to quantify this, I'm just wondering how the trials are progressing.

So I think you were saying you were looking for approval in late '08. Thanks for the update on the A1c test, but I'm just wondering how the Lyme's disease or ELISA tests is progressing and the Western Block HIV confirmatory test.

I think there are about four questions there (inaudible). The first one in relation to our OTC trials, these are preliminary trials and they're going fine. But I do stress they're only preliminary trials and they will lead to the design of the full trials. And again I emphasize, as I always do, that we're skeptical about this market opportunity, we do not think it's remotely near the levels that one of our competitors is talking to and we do want to quantify it.

So we're much more excited, I have to say, about the CDC initiative and the $35 million because we do believe that further funding will come available through the CDC as we go into the U.S. fiscal 2009, which starts in October of '08. We do think that Congress is going to seek monies that are perhaps up to $100 million, in addition to this $35 million, to give to CDC for further testing. So we're much more excited about the professional market opportunity than we are about the OTC.

To try to answer your other questions, the Lyme ELISA is really at the very final stages, it's just waiting for absolute finalization of trials that have been taking place in Southampton in the United Kingdome. So that's pretty much there and you can expect to see a press release on that within the next couple of weeks.

Western Block HIV has hit some difficult times. We're having problems with our source of antigens. It's a third party who supplies the antigens and we're finding that those antigens are very inconsistent and the result of that is that we get very inconsistent results. So that's pretty much --.

It's Rory here, we have to change supplier in that respect and the first, in fact the latest batch that's come in from them from testing, which we're quietly hopeful about, but it actually arrived into California at the factory in the middle of the fires would you believe. So unfortunately it's sitting in the freezer waiting to be tested as we speak. So over the next week or two we'll know whether we've solved that problem or not.

Yes okay, thanks for that.

Thanks, Ian.

Thank you very much.

Thank you. Our next question is coming from Nadav Hazan with Manhasset.

Hey guys, just a follow up on the last series of questions with respect to the home-use market in HIV. I guess specifically on the kind of outlook for the timing of when we could expect some approvals, whether it's from yourselves or from your competitors working on this, a, can you quantify to some degree when there will be a market opportunity, in your opinion, from an improved product standpoint?

And then b, could you maybe tell us if you think, in the U.S., if there are any political entities that could potentially get involved here as we start dealing with hot issues such as patient counseling and the like?

Yes they're good questions. The FDA has said that they are in favor of approving these tests but there are other factors besides the test performance that have to be taken into account. And just to put that in context, we know the efficacy of our test. It's being used every day both in the United States and in sub-Saharan Africa. So we know the test works.

What we have to show is that it works in the hands of an untrained individual. And some of the concerns around that are will it work properly, will they be able to run the tests? Well one of the issues is, if they get a positive result, will counseling be available to them 24/7, that's one of the issues we have to address.

And then one of the issues for the CDC is will there be reporting of a positive result. Because as far as the CDC is concerned, if you get a positive result and you don't report it, then it's pretty much useless from the point of view of protecting the health of the public.

So these are issues that are out there floating around that in my mind are still unresolved. And I'm not certain that when the FDA really, really comes to grips with the issues that might emerge from clinical trials and that might emerge from the labeling and usage of the product in the home context, that they may not take another hard look at this situation and maybe revisit their thinking on it.

Okay. And then just back to the question on timing, any thoughts as to when we progress to the next stage, when those types of advanced discussions might be occurring?

Well I think it will be late '08 before you're seeing those discussions occurring and I think, in terms of revenue, you shouldn't plan for anything in '08. It will be 2009 for sure.

And then do you anticipate that this would be more of a decision that would favor any one player? Or would both of the companies that have publicly stated that they're working, yourselves included, on this product for home use, should they both kind of get approval at the same time?

I don't think it's going to favor any player over another player. Indeed if anything it will favor a blood-based product because of improved sensitivity over an oral fluid based product.

Okay. And then just back to your comments on market size, do you care to quantify your thoughts on how big the market might be in the U.S.? And if you do or if you don't, could you maybe give us a little bit of color on things like thought about ASPs and so forth?

Okay. I'll answer the first part of your question negatively. It's certainly not the $500 million that one of our competitors is quoting. Our best guesstimate, and it is a guesstimate, is that in the first two years we don't you'll see a market in excess of $100 million. And our best guesstimate of the ASP at this time is around $25 a test.

And that's to the retail customer, not to the wholesaler distributor?

That's to the retailer customer in the drugstore.

Okay so --.

Sorry, Nadav, if you follow that thought process through and given the longer distribution channel in that kind of home-use market, it follows that we would make more margin from selling in the professional market than we would make in the OTC market, given the complexity of the distribution channel.

Okay. Terrific, that's all the questions had for today, guys.

Thanks, Nadav.

Thank you. Our next question is coming from Matt Dolan of Roth Capital Partners.

Hey guys, just a follow up on the A1c topic. When you look at CLEA waiver into Q1, how does the home-use indication play into that? Is that something follows onto that? Or does that happen simultaneously?

That happens simultaneously, Matt, that's part of the actual waiver that we're looking for.

Okay. And then in terms of distribution in Japan, I know we touched on that last call, are there any updates there with any initiatives?

You're specifically talking about hemostasis now?

Yes.

Yes we have signed up a new distributor in Japan but with product registration they won't actually come on board until probably June of '08.

June of '08. Okay great, thanks guys.

Thanks, Matt. So Jackie, maybe you could just take one last question if you have one before we wrap up.

Okay our last question is coming from Neal Goldman of Goldman Capital Management.

Good morning, guys.

Hi, Neal.

If you can just define the size of the market that the Destiny Max is going to after, because you're not in that market today, how big is that market and who the competitors are and what do you think your opportunity is. I know it's still a year away from going to market but.

Okay thanks, Neal. If you take the overall hemostasis market, we have been quoting that market size as 700 million, and we've recently received an updated report that shows it at about 900 to 1 billion. And we're not sure where the correct number is, but let's say it's around 800 million, which is a reasonable number. We really are not able to address approximately 50% of that market today with our product offering on the instrumentation side.

So it opens up a market opportunity of 400 million to us, which is closed at this time. There are only three competitors today playing in that segment of the hemostasis market, the leader being Dade Behring followed by Stago and Instrumentation laboratory. So obviously with our offer coming out it gives us a good opportunity to gain a significant share of that market and a significant share would even be 5% to 10%. As you can see, that would make a very substantial difference to our business.

Okay thank you.

Thanks, Neal.

Okay so at this stage then we'd like to close off the call, and we thank you very much for your support and attention and talk to you again next quarter. Goodbye, thank you.

This concludes today's teleconference you may disconnect your lines at this time. Thank you for your participation.