Trinity Biotech PLC (TRIB) 2011 Q2 法說會逐字稿

Good morning, and welcome to the Trinity Biotech second-quarter fiscal year 2011 financial results conference call. All participants will be in listen-only mode. (Operator Instructions).

After today's presentation, there will be an opportunity to ask questions. (Operator Instructions). Please note this event is being recorded.

I would now like to turn the conference over to Mr. Joe Diaz. Please go ahead, sir.

Thanks, Amy, and thank all of you for joining us today to review the financial results for Trinity Biotech for the second quarter of fiscal year 2011, which ended on June 30, 2011.

As the conference call indicated, my name is Joe Diaz. I'm with Lytham Partners. We're the financial relations consultants firm for Trinity Biotech.

With us on the call representing the company today are Mr. Ronan O'Caoimh, Chief Executive Officer; Mr. Rory Nealon, Chief Operating Officer; and Mr. Kevin Tansley, Chief Financial Officer. At the conclusion of today's prepared remarks, we will open the call for a question-and-answer session. If anyone participating on today's call does not have a full-text copy of the press release, you can retrieve it off the company's website at TrinityBiotech.com, or numerous other financial websites on the Internet.

Before we begin with prepared remarks, we submit for the record the following statement. Statements made by the management team of Trinity Biotech during the course of this conference call that are not historical facts are considered to be forward-looking statements subject to risks and uncertainties. The Private Securities Litigation Reform Act of 1995 provides a Safe Harbor for such forward-looking statements.

The words believe, expect, anticipate, estimate, will, and other similar statements of expectation identify forward-looking statements. The forward-looking statements contained herein are subject to certain risks, uncertainties, and important factors that could cause actual results to differ materially from those reflected in the forward-looking statements included herein. 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.

Participants on this call are cautioned not to place undue reliance on these forward-looking statements, which reflect management's analysis only as of the date hereof. The Company undertakes no obligation to publicly release the results of any revision to these forward-looking statements, which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

With that said, let me turn the call over to Kevin Tansley, Chief Financial Officer, who will review the financial results of the quarter, and he will be followed up by Mr. Ronan O'Caoimh, the CEO, to give you some extra color and background on the performance of the quarter. With that, let me turn it over to Kevin. Kevin?

Thanks, Joe. Today I will take you through the results for quarter two, including a review of the income statements, balance sheet and cash flow movements for the quarter.

Starting with the income statement -- total revenues for the quarter were $19.5 million, which compared to $18.2 million in quarter two of last year, thus representing a growth rate of 7%. This comparison excludes coagulation revenues as this product line has since been divested.

Point-of-care revenues were $4.2 million, which represents an increase of 3.6% over quarter two last year. Meanwhile, clinical laboratory revenues excluding coagulation also grew in the same period, increasing from $14.2 million to $15.3 million, which is an increase of approximately 7.9%. Ronan will take you through the makeup of this revenue growth later on in the call.

So moving on to our gross margin, this has increased to 51.4% which compares very favorably with 49.3% in quarter two 2010. As has been the case in previous quarters, the improvement is largely due to the impact of the divestiture of coagulation, as historically this is our product line with the lowest gross margin. However, the improvement is less pronounced this quarter as the impact of coagulation was only a factor for one month of Q2 last year.

The improvement is also partially attributable to improved operating efficiencies. Over the past four quarters, all of which have no coagulation revenues, we've seen a steady improvement in gross margin rising from 50.6% in quarter three 2010 to 50.8% and 51.2% in the following two quarters, and now reaching 51.4%. However, notwithstanding current growth, future margin levels will be impacted with placement of premier instruments going forward.

Moving on to our indirect expenses, our R&D expenses this quarter have fallen from $1.2 million to $800,000. And this fall is solely due to the coagulation divestiture. Compared to quarter one 2011, R&D expenditure in the P&L has actually increased by 16%.

Our selling, general and administrative expenses have decreased from $6.8 million to $5.2 million, which is a decrease of over 23%. Obviously, again, the principal factor has been the coagulation divestiture. So as was the case for both gross margin and R&D, I will compare this quarter's SG&A expenses with our most recent quarter, quarter one 2011, as this is a more direct comparison. And in this case, we're seeing a slight increase from $5 million in quarter one 2011 to $5.2 million in this quarter.

This increase had been flagged for me on our last earnings call as quarter one's expenditure was unusually low due to the timing of certain marketing expenditure and trade show costs. $5.2 million is very much in line with what we expected for this quarter.

Moving on to our net financing costs next, this quarter we have net financing income of $628,000, which is a significant increase over the $152,000 earned in quarter two last year. This increase is due to the virtual elimination of interest payments on debt following the repayment of all bank debt in May 2010. Meanwhile, the higher level of interest income is attributable to three months of significant interest-bearing deposits this year compared to two months in quarter two last year. It was also impacted by the higher levels of cash as the company continues to generate cash surpluses, a point with which I will return later on.

The tax charge for the quarter was $654,000, and as anticipated on previous calls, our effective tax rate has now begun to increase due to the lower availability of tax losses forward. The effective tax rate this quarter is 14.5%, which compares to 10.8% for Q2 last year and to 13.5% for Q1 2011.

Our operating profit for the quarter was $3.9 million, which is an increase of 11% over the equivalent period last year. From an operating margin perspective, after coming close last quarter, we've now reached our target of 20% this quarter. This is a very strong operating margin and well ahead of many of our peers in the diagnostic sector.

Profit after tax increased from $3.3 million in Q2 last year to $3.9 million this quarter, which is an increase of 18.2%, and this is reflected in a higher EPS for the quarter which has moved from $0.155 to $0.181 per ADR.

Before I leave the P&L, just to make one point, you will see from the comparatives in the press release that Q2 2010 was the period in which we divested coagulation and included the substantial profits made on that transaction. The comparatives I've been quoting obviously have excluded any impact of this profit.

Now to talk about our balance sheet, where I will explain the significant movements since the end of March 2011. Property, plant and equipment increased by approximately $600,000 during the quarter. This increase included additions of $900,000, which are partly offset by a depreciation charge of almost $300,000 for the quarter.

During the same period, our intangible assets increased by $1.5 million. This increase was attributable to additions of $1.8 million, mainly on development projects, and has been partially offset by an amortization charge of almost $300,000. The additions are related to the work being carried out on our key development projects, including Premier and our new point-of-care range.

Moving on to inventory next, you will see that our inventory increased by $335,000 this quarter, and again, this increase had been flagged previously as we've been ramping up inventory levels due to the commencement of the production of the Premier instrument.

Trade and other receivables have fallen by almost $400,000 in the last three months. This fall is mainly due to a reduction in prepayments rather than trade receivables which have remained broadly stable during the quarter, with the [debtor] day standing at 54 days, which is one day better than the quarter-one figure of 55 days.

I would like to remind listeners that this caption also includes the deferred consideration of $11.25 million due from Stago next April. The reduction in non-current other assets of approximately $11.2 million reflects the movement of this receivable from being a non-current asset last quarter to a current asset this quarter. In turn, the first tranche of deferred consideration which in March was the current asset was received in April of this year.

Finally, in relation to working capital, our trade and other payables have decreased by just over $500,000 this quarter, and this is mainly due to the deferred consideration payment of $500,000 that was made to the former shareholders of Phoenix Biotech during the quarter.

I will now move on to discuss our cash flows for the quarter. Our cash balances moved from $59.8 million to $71.4 million, an increase of $11.6 million. This consists of $4.3 million of cash generated from operations plus a further $800,000 of interest income received. These positive cash movements have been partially offset by capital expenditure of $2.1 million, plus giving free cash flow for the quarter of $3 million.

A level of free cash flow this quarter has been impacted by increased working capital, which have been impacted in the run-up to the launch of Premier. Notwithstanding this, we still achieved our target of $1 million of free cash flow per month. In fact, we are ahead of this target, as during the first six months of 2011, we generated almost $7 million in free cash flow.

During the quarter, we also received the first tranche of deferred consideration from Stago. This amounted to $11.25 million, and was received on schedule.

Second and final tranche will be received on April 30 next year. Just to remind listeners that this is both unconditional and bank guaranteed. Offsetting this was a $500,000 deferred consideration payment made in respect to the acquisition of Phoenix Biotech, and further payments of $333,000 will be due in each of the next three quarters.

Finally, we paid out $2.1 million in dividend payments during the quarter, which represents the full amount of the $0.10 dividend that we announced earlier this year.

It is now just over a year since we have divested our coagulation product line and in this short period of time, we have seen the transformation of the company from a financial perspective. We have substantially strengthened our balance sheet, moving from an overall net debt position of $23.6 million before the transaction to having net cash of over $82 million now, including the $11 million that we are to receive from Stago next April.

We have grown our revenues each quarter and this has fueled a surge in our EPS. In each of the last five quarters, we have posted record quarterly earnings for the company. At the time of the divestiture, we had expected profits to be in the range of 90% to 100% pre-divestiture levels, and we have comfortably exceeded this expectation. Even from an operating profit perspective, this is now higher than pre-divestiture levels, notwithstanding that we lost approximately 40% of our revenue base at the time.

We've also used the time to reposition the company strategically and to significantly expand our product development pipeline. And Ronan, who I will now hand back to, give you more details on the progress that we've been making in this area.

Thanks, Kevin. We are pleased with the performance of the company during the quarter because we have grown our revenues by 7%, and we have grown our earnings per share by 17% to a record $0.18. Crucially, the 7% revenue growth is all organic growth because the benefit of the Phoenix acquisition revenues are balanced by the loss of revenues when we moved from a direct to a distribution model in France and Germany following the coag divestitures. Therefore, our 7% great is organic.

While 7% organic growth in no way satisfies us, it needs to be noted that we have not yet sold one of our new Haemoglobin A1c premier instruments. And it's when that happens, our growth rate will increase. Similarly, when we launch our new rapid point-of-care products next year, the organic growth rate will further increase.

Our point-of-care HIV revenues for the quarter were at $4.2 million compared with $4 million in the prior quarter, which is an increase of 3.6% with US HIV revenues up 5% and African revenues up 3%. In Africa, our business development pipeline is very encouraging with significant growth anticipated in the coming quarters.

Our clinical laboratory business, which comprises infectious disease, Fitzgerald and diabetes, generated sales of $15.3 million compared with $14.2 million last year, which is an increase of 8%.

Fitzgerald had another weak quarter due entirely to a collapse in flu antibody sales as a result of overstocking during the H1N1 swine flu pandemic and to a low incidence of flu last winter. Excluding this issue, Fitzgerald is showing reasonable growth.

However, both infectious disease and diabetes have had an excellent quarter with both growing just over 10%. Our infectious disease business in the US has performed strongly with strong instrument placements arriving primarily from the new syphilis test offering, which is serving to lift the entire business.

Growth prospects in China look strong and we anticipate receiving regulatory approval for EBV, which is Epstein-Barr virus for Legionella and also immune over the coming months.

Our diabetes business performed strongly during the quarter achieving 10% growth, mainly in the US through ultra and PDQ instrument placements. This growth was achieved without any sales of our new Premier instrument. As you know, we signed an exclusive European deal with Menarini, who have a 40% European market share. And we got CE market, which is European approval, in May. Since then, Menarini have been finalizing labeling, packaging and launch materials, and the first placements are expected next month.

Registration of the instrument has commenced in China and is imminent in Brazil. We filed for a US FDA approval last month, and hope to have approval by the year end. We will then sell in the US through our own sales force, but also with the support of a distribution partner, the details of which we expect to announce in the coming months.

We are confident that the launch of the excellent Premier instrument will lead to explosive growth in our diabetes business. Meanwhile, we have further expanded our new point-of-care research and development team in San Diego. We are making excellent progress with the eight new point-of-care products that are in development and are confident that the first of them will be submitted to the FDA in November of this year, and expect that the first products will be available on the market by March and April of next year. The launch of these products will clearly further enhance organic growth.

I would like to now give an update on our share buyback program. As we have mentioned previously, the process that we are adopting is that the board of the company reviews the situation on a regular basis and decides upon the strategy to be adopted for the period ahead. After our last board meeting, we put a 10b5-1 plan in place. However, as a result of increases in the share price, the stock traded above the levels included in that plan. Consequently, no shares were bought back in quarter two.

Over the past few days, the board have discussed our approach, and we will be reentering the market tomorrow and will be a purchaser of stock at market prices up to the maximum allowable. Thank you.

If I could now hand back to the operator for conference question-and-answer session.

(Operator Instructions). Joe Munda, Sidoti Co.

Good afternoon, guys. I know you guys are in Ireland, right?

Yes.

I think there's a little bit of a delay here. I just wanted to get a little bit more color on the E-point-of-care products you're going to introduce and which one you think has the highest potential, the biggest potential for you guys going forward.

Well, we are currently working on eight products. In terms of the most potential, I probably would have said C. difficile, syphilis, (technical difficulty) herpes, possibly, would be the four biggest ones. And backup ones would be Gard, Cryptosporidium, strep pneumonia and then an HIV antigen antibody test. So as for the big ones there would be C. difficile and syphilis.

Okay. That leads me to my next question. You guys are sitting on a lot of cash. You are launching these eight new products. If you guys are looking to do an acquisition, would it be point-of-care, clinical lab? What are you guys looking at? Is there anything out there that you really like?

No, we're not looking for acquisitions at this time, Joe. I think if we were spending money, we might look at some technology investments to you know maybe to open up other areas of the point-of-care market for us, for example, something like that, but we're not looking at acquisitions of companies at all.

Okay, so you're going to just continue with the buyback and the dividend and that's pretty much the use of cash?

For the moment that's how we foresee things going, yes.

Okay. Also, can you give me a diluted ADR count? I didn't see it in the release.

The -- well the actual numbers (inaudible) the EPS one is about $21.3 million. I have to recalculate. It's a number -- a few hundred thousand higher than that; that's probably about $21.8 million.

Okay. All right. I will hop back in the queue.

Neal Goldman, Goldman Capital Management.

Your current tax rate was 14.5%, you said. What would be the long-term rate that you are looking at?

Neal, Kevin here. I think I've quoted before it will be broadly in the sort of the mid to high teens, sort of 15%, 16%, maybe as high as 17%, 18% at some stage. It all depends on the balance of our profits and where they arrive, the profits we earn in Ireland where significant operations and a lot of our IP reside attract the tax rate of about 12.5% compared to in the high 30%s in the US. So it will depend on where that balance falls, but anticipate it will be around 15%, 16%, 17%.

Okay. What are you expecting from Menarini in the second half in terms of incremental sales?

Ronan here, Neal. We're hoping that the first instruments will go out middle, end of August. Europe tends to close down a lot during August. Difficult to be sure. Somewhere between probably $0.75 million and $1 million in the second half of the year -- between that and the end of the year.

Okay. Overall, you would expect second-half sales to be higher than the first half given that roll out and your comments about the HIV products in Africa?

Absolutely. Remember that the message we've been getting across is that even excluding Premier, that we are getting 7%, 8% organic growth. We think that when Premier comes online, we're going to move into the double digit side -- into the double-digit organic growth.

Okay. Assuming you get approval on some of these --

(multiple speakers)

point-of-care products for the US market and Premier for next year, it would sound like a 12+% organic growth top line. Is that a fair assessment?

Yes, we would hope to get to that. The Menarini sales are guaranteed. They're subject to minimums, which I'm not going to -- I'm obviously not in a position to state on this call, so that business is guaranteed. Chinese registration is underway. Brazilian registration is just about to commence. We should have FDA approval for the Premier by the 31 December. We're allowing six months there; it went in last month, so we will be confident of having it by then.

We have our own sales force and we have a very -- we have an announcement imminent on a partner. So we're very confident with what we can do in the United States with Premier as well.

And then, of course, there's all around the rest of the world, just for example, Turkey, we have substantial orders on hand, which should go out in quarter four. So all of that has gone to -- is going to -- as we grow that organic growth rate from the 7% up into the double digits. And then as I say, next year, remember, we're hoping to have the first of our point-of-care products submitted to the FDA in November. They should be out March, April, and available in the US and in other markets, so that can enhance it further.

Another thing -- the one thing I suppose -- the one laggard in the business at the moment is Fitzgerald, and it's just suffering from a bad hangover from H1N1 because about $4 million of the $12 million, $13 million we do are monoclonal flu antibodies. And so you can't give an antibody away at the moment. But that's going to wash through the system. And we are launching a new website for Fitzgerald in about a month's time. We have added our monoclonals. We've increased them now from 8,500. I think we are, Rory, at --?

18.

18,000 monoclonals. We've doubled our product offering. And I think anybody that would go on to the new website will see that it's a revolution. We've put a lot of dollars into it, a lot of effort. And we think we can really grow that business as well. So as I say, we are achieving the growth that we've outlined really against the background of a very weak Fitzgerald at the moment, but that will change.

Okay. In terms of the margin side, what's your new target or do you think you are there on the pretax margin?

In terms of the operating margin? We have said for a while that 20% was the target we were hoping to get there and we've got there a bit ahead of when we would have thought we got there. We think that's a very strong margin and we're very happy with it.

The fact that we're going to be putting a lot of instruments out there in relation to Premier means for those reasons that's going to come under a bit of pressure because, obviously, putting instruments at a much lower margin. So I don't anticipate it's going significantly higher to be honest, and as I say, it's a level we are happy with.

Okay. Anyhow, great quarter, guys. Keep it up.

Matt Dolan, ROTH Capital Partners.

Good morning. First question on point-of-care -- they're both up low singles. I think US, you saw sequentially a slowdown in growth, so I was trying to get a little more color there on how that plays out throughout the rest of the year.

And then secondly, I think in Africa, last call, we had a couple of countries changing their algorithms where your test was going to be incorporated. So where are you on that relative to what we saw here in Q2?

In terms of the United States, we got 5% growth which wasn't probably so bad in the context of a decline in individual state spending, which you may see if you looked at some of our competitors. But I think the CDC have promised more funding now, and so I think you will see those numbers pick up as we move forward.

In terms of Africa, we only got 3% growth, which obviously is disappointing. Yes, we -- I put a lot of work into being put onto the algorithm in a couple of countries where we are not on the algorithm, or alternatively moving from confirmatory to screening. And so we are expecting a couple of breakthroughs there, and that was my referencing that the business development pipeline is looking very encouraging. I better not go into individual details of individual countries, but yes, we are optimistic of good news in that area over the coming quarters. But I just would caution by saying that things tend to move sometimes more slowly than one would hope in that market.

So Q3 Q4, point-of-care should tick up from what we saw here?

I think it will tick up. It could tick up a lot. I don't see any downside danger there.

Okay. And then a follow-up on Premier with Menarini. What are you targeting in terms of placements? You can put the time frame around it -- first year, what have you.

I think I already answered that question. I said I thought we might do $1 million -- between $0.75 million and $1 million in between now and the year end in that market.

Clearly, I can't go into huge detail on somebody else's marketing plan. Beyond that, I really don't want to go too far, but bear in mind that we are protected by significant minimum requirements that Menarini are obliged to buy from us. And so, there will undoubtedly be significant sales to Menarini in the coming years as a consequence of that.

The overall level would certainly be at the sort of $2 million to $3 million per annum level, kind of level, but it could be greater than that.

$2 million to $3 million per year. And how much do you make per instrument, revenue?

We make -- do you mind if I don't go into that? I mean I don't -- if there's somebody on this call from Menarini, they may take umbrage at me disclosing their price, etc., etc. if you don't mind.

Okay, fair enough. Okay, moving to the margin, there was a question earlier I think; I jumped on a little late. But could you, Kevin, maybe just give us a feel on how margins play out? It sounds like there's not a lot of upside here. You mentioned the gross margin impact of Premier, and then as you look out on the operating side to build out the Premier product both in the US and you layer in your point-of-care test, do you see margin deteriorating from here? Or can you cut some more costs, or maybe just frame that up for us a little better?

Yes, I would be hoping to hold the 20% operating margin. That was the previous question relating to -- was operating margin. But be there be opposing forces in that, the point-of-care products we expect to have very strong margins when they come on stream. Obviously, they're going to come on stream a little bit later than the initial placement of Premier, so it's possible if Premier takes off very well, which I would hope to do, that you could see a slight diminution. But long term I see our margins, gross margins, still being in excess of 50%, and our operating margin would be hoping to hold the 20%.

Okay. And then finally, Ronan, on the buyback, maybe just help us understand what changed the trigger price considering the stock has been generally up here over the last few months.

What happened was that when we filed the 10b5, we -- as we filed it, basically the price moved forward and the price never came back to meet the 10b5 price. But I think the approach of the board now is just to go into the market and buy it at market. Now that will be reviewed at the next board meeting, but -- so we will be in -- following this conference call, we will be in the market tomorrow doing that.

It was never our intention to buy nothing in the quarter. That arose due to those circumstances. The prices -- remember the price popped really from the 9's into the 10's, and we were left with a price in the 9's just never -- the market never came down to that level. So anyway, we would actually buying it at market until the board next discuss it, and (multiple speakers)

Great. Thank you.

And just to say one thing -- other thing, Matt, just to come back there, the only pressure that our margins will come under would be Q2 -- very substantial sales of instruments because bear in mind, instruments carry a very, very weak margin between 10% and 15% compared to reagents, which are up in the 50%s. So if the mix got very high in terms of instruments, the overall margin would suffer. So apart from that, all movement in margins would be positive -- all direction would be positive in every which way, you know?

I guess I was also asking just on the operating expense side of things, you've done a nice job of kind of managing expenses. Is there any room to go there, or is this on an absolute dollar basis the level we're looking at going forward?

I -- if anything, we are increasing our marketing spend at this time. So I don't see any reduction beyond that.

Great. Thank you.

David Cohen, Midwood Capital.

Hi, gentlemen. Yes, to your comment just made regarding the potential impact of Premier on margins. I presume, given that this is sort of early in the product launch, we're going to be skewed more towards instrument than reagent sales, so eventually reagent sales with their higher margins can drive the margins -- overall margins back up. But it's probably in the next six months with instrument introductions that could be the most near-term pressure on margin. Is that a fair -- (multiple speakers)?

Yes, that's exactly -- that's exactly perfect. That's exactly the situation, yes. And eventually, the reagents, obviously, sales catch up.

Right; once you have an installed base and you're constantly telling -- you'll be selling a lot more reagents as part of your mix, that drives margins higher.

Yes.

Okay. And then can you give us a sense of -- you reference if anything you are increasing your marketing spend. What is -- where is that going? Is that feet on the street? Where is that spend being invested?

Right across the world -- some examples, we've put two additional people into registration for China. We have quite a number of additional people on the ground in the United States in anticipation of selling the Premier products, but also selling the syphilis products. We've added two people in Africa. We are adding an additional international salesperson in the non-US environment etc., etc.

And we've had to have -- sorry, a couple of technical people for Premier too, for example, support in the Menarini efforts around Europe and in Turkey. So it's right across the world, but almost our entire spend is -- our entire additional spend is in sales and marketing area, as well as in administrative or anything else.

Or in R&D. This level of R&D, which is about -- you spent about $1.5 million in the first half, is that an appropriate level? Or is that a level to continue to expect the company can (multiple speakers)?

We've added three additional people, for example, during the quarter into San Diego, so no, we have been doing that also.

Okay. All right. Thanks, gentlemen. Keep up the good work.

Dan Mendoza, Prospect Capital Advisors.

Most of the questions have already been asked and answered, but on Fitzgerald, could you just talk a little bit about kind of what the remaining items are that you are working on with the website. And then kind of in the early I guess weeks and months after you launch it, what sort of things are you going to be looking at as kind of leading indicators to let you know whether you have done it in a way that is going to work?

It's Rory here. What we have done -- we mentioned I think on the last call we hope to launch this in quarter three. And what we've done so far is -- and you can't see this yet, but the back office has gone live about 10 days ago. The front office, which is the website itself, which obviously is what you are going to see, we're hoping to have the coding finished in the next literally number of days, and then it just has to go into testing and then it will get released ideally should have been a little bit quicker; we hope to beat the target of quarter three, but we are very, very nearly there.

What it will do for those of you on the call who haven't heard about it before, it's literally going after the research market. Today, our Fitzgerald business makes up about 80% to 90% of its business into the diagnostics market, but if you look at a lot of the competition, most of what they do is they go after the research market. And today we don't really play in that space.

So we've been doing two things in the last six months. We've added, as Ronan said, about 10,000 products to our database, some of which are specifically targeted to the research market. We have expanded the data sheets; in other words, the level of content that is available for each individual product, both the new 10,000 products and the old 8,500 products that we already had.

And lastly, we've worked significantly on the website because I think if you -- I challenge most of you, if you go out and ask researchers around the world and ask them how do they find antibodies and antigens, they will tell you Google, more often than not. So we have got into the business of search engine optimization so the URLs have all been changed. You'll notice the keywords are now in the URL. You'll notice the keywords density has gone up etc., etc., etc. So a lot of IT speak so to speak, but that's the kind of thing you will notice.

The look and feel of the website will be the same as it was before, but how it attracts Google and how the search portion of the website works will all be very different. So I guess if you are a Web expert, Dan, and you go in and look at it, you'd very quickly notice the differences, okay?

Okay. So will you be tracking kind of page view -- page rankings as kind of a --?

Everything from new visitors to repeat visits to number of pages checked. We're doing a lot more I should say than just the website. We're going out and doing e-mail blasts so it's click-through rates, etc., etc., etc. There's about 15 different KPIs just on that alone.

Okay. Very good. Thanks.

And then I had a question on your business in China. Could you talk a little bit about sort of what kind of annualized run rate that's at today and how many products you've got in registration already and what's in the pipeline?

Well there's two sides to that business. There's the infectious disease side, with one distributor and then there's the hemoglobin and diabetes business with another. So in broad terms, the diabetes business is at about $2 million, and so is the infectious disease business. But the interesting feature here is that they are both growing exponentially.

In terms of approvals, the big approval for diabetes is of course is the Premier instrument. It's going to take about 18 months. It's already -- work has commenced, and it's a big job because the Chinese FDA really do their own trials. They don't, for example, accept US FDA. They look at it, but they don't accept it; they will do their own trials in addition. So that's a big, long project.

Remember I mentioned we put two additional people onto these projects just for China alone. So, of course, the rewards when we get the Premier approved in China can be really, really significant.

And then moving back to infectious disease, we got our ToRCH pilots approved last year, which is Toxo, Rubella, Cytomegalovirus and herpes. We just got chlamydia approved. And so that's what's doing the $2 million.

Beyond that now, we're now in for approval for Epstein-Barr virus autoimmune and legionella. And we're hoping that we get those approved in the next three or four months. And they could -- they'll grow the market potential by another 50%.

So you know, you get the impression that -- just the overall impression is that there is a great potential here. And we're lucky to have two very good distributors with whom we work very closely.

Okay. Very good.

And then I guess lastly on the buyback, pleased to hear that you guys are going to be back in the open market. And I guess would just encourage you all to sort of try to forget -- do your best to forget the past and give yourselves a little bit of credit for how much the company has metamorphosized over the last year and how much the balance sheet has as well. And I just think you guys can be a lot more aggressive on the buyback front than you have been and hope that you guys will come to view it the same way.

Okay, Dan. Well, listen, we hear what you're saying. And as I say, we are in the market tomorrow morning buying at market.

Very good.

To the maximum of our -- that's allowed.

Well that's a start.

Eric Miller, Advisory Research Inc.

Yes, can you guys with the launch of Premier coming up here, can you just maybe rehash or go over what's the selling proposition of Premier versus what's out there in the market right now? When your sales force goes into an endocrine doctor here in the US and talks to him about changing -- using Premier versus what he's got in his lab now, what are they going to be saying?

Hi, it's Rory here. Just very quickly for -- again for those who don't know much about the market, we reckon it's about $300 million globally. And what we're talking about is the lab-based market, not the point-of-care market, okay. So those are the markets that we're going after.

We've got five things we go in say when we're going in to make the pitch, if you like.

The first is that the technology is better, so and what I mean by that is that we are using [four in this Trinity] technology. All of our competition, that's BioRad, [Toso] and ArkRay all use ion exchange technology.

The difference is that our technology is not impacted by interferences from hemoglobin variants, okay? So whereas the competition will.

So if you go in and you want to have your A1c measured, but you've got some variant in your system, that variant is more likely to interfere with the ion exchange results, with the competition's results, than it would with ours. So that's point number one; we're more accurate.

The second thing is we're faster. We run at about a minute per test and the competition are coming in at 1.5 to 1.6 minutes per test. So that's a 33% improvement in efficiency from a lab perspective.

The third point I would make to you is that the software is light years ahead. Anybody who saw our old coagulation instrument, Destiny Max, what really sold that was the software. So it's icon-driven technology, very easy to use. And particularly these days with the labs being dumbed down, it makes it a lot easier to train people up in the use of the software.

The fourth point I would make is that it's very modular in design. And what I mean by that is that most of the people on this call could actually replace the pump or a syringe even though we are not technicians, with very little training. So it's been designed to have modules literally slide out on rails, slide a new one back in on rails and replace and repair the instrument very quickly when needed.

The last point I might make to the customer, but the reality is that the cost of this instrument is significantly lower than what we are currently selling in the market. So we are currently selling in the market today what's called the Ultra2 instrument, which is an instrument that's been around the block now for 10 years plus at this stage. And we can make the new instrument for less than half the cost of the old instrument.

So heretofore as a company, we haven't really been playing, except in the very high throughput customers, because the cost of our instrument has been quite expensive. Now we can really get out and compete with the competition in terms of putting our instrument in the market.

And without going into numbers, what I can see in terms of selling price of the competition's instrument in the market, we reckon our costs are in or around 60% of that average selling price. So we very much can compete in terms of the cost of the instrument. So they are the five points I would make, Eric.

Okay, perfect. Thank you.

And I suppose -- Ronan here. I suppose you could also argue that Menarini, who hold 40% of the European market, might not have adopted our instrument if they didn't think that it had the qualities that Rory just outlined.

Perfect.

Walter Schenker, MAZ Partners.

Thanks. Just could you address for me one more time, the $70 million in cash happily isn't making the same 10 basis points I'm making, but is in Irish banks? And is in euros? And, therefore, is subject to euro dollar exchange rates, but is not a credit risk as you look at it?

Just to take that; there's two aspects there; first of all it's all denominated in dollars so there's no currency exposure in relation to us.

It is -- the majority of it is with Irish banks. And the one thing I would say about Irish banks, the Irish bank in question has been slowly recapitalized recently based on very conservative capital ratios, but crucially is backed by the full 100% legal guarantee for the Irish government, which in turn is being supported by the EU and ECB. So from our point of view, the risk in relation to that is negligible, if not none.

But sorry, but having said, we have a strategy of not having more than a particular percent of our money in any one bank, so we have our money in a combination of Irish, British, and American banks. And that is constantly reviewed by the board, who are very conscious of the risks here, and so that would be reviewed at every board meeting and dictated by an overall policy. So we don't have -- as I say, we have a limited exposure to any one bank.

Okay. And just the second question, excluding the stock buyback, you would expect to remain at least modestly cash flow positive on an ongoing basis going forward even with some additional expenses and working capital required for the instrument rollout?

Yes, I anticipate that we will continue. We were roughly generating in excess of $1 million per quarter, so -- per month rather and that would be in excess of $3 million to $4 million a quarter. So I'd anticipate we'll still have surpluses, notwithstanding any working capital requirements.

Okay, thank you.

(Operator Instructions).

Operator, could I suggest that we might take just one last question. I'm not -- I can't see if there's -- if there are -- is anybody waiting to answer a question. Maybe one last one.

All right. Very good. One moment.

Our next question is from Alex Gates with Clayton Partners. Please go ahead, sir.

Actually all of my questions were answered already. But yes, just want to reiterate Dan's thoughts on the buyback and good job this quarter. Keep it up.

Thanks very much, Alex.

Operator, is there anybody waiting now?

All right, well in that case then, could I suggest that we close the call. We're running 15 minutes, so to say thank you to everybody, and we look forward to speaking to you next quarter. Thank you very much. Bye bye.

The conference has now concluded. Please disconnect your lines.