Trinity Biotech PLC (TRIB) 2012 Q1 法說會逐字稿

Hello and welcome to the Trinity Biotech first-quarter fiscal-year 2012 financial results conference call. All participants will be in listen-only mode. (Operator Instructions) Please note this event is being recorded.

I would now like to turn the conference over to Robert Blum of Lytham Partners. Please go ahead.

Thank you, Amy, and thank you for joining us to review the financial results of Trinity Biotech for the first-quarter 2012, which ended March 31, 2012. As the conference call operator indicated, my name is Robert Blum. I am with Lytham Partners. We are the financial relations consulting firm for Trinity Biotech.

With us on the call representing the Company today are Mr. Ronan O'Caoimh, Chief Executive Officer; 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 release, you can retrieve it from the Company's website at www.TrinityBiotech.com or numerous 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 risk 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 filings 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 Mr. Kevin Tansley, Chief Financial Officer of Trinity Biotech. Kevin?

Thanks, Robert. Today I'll take you through a review of the income statement, balance sheet, and cash flow movements for quarter-one 2012. To begin with I will take you through the income statement, starting with our revenue performance.

Total revenues for the quarter were just over $20 million, as compared to $18.7 million in quarter one of 2011, and hence represents a growth rate of 7.4%. This includes growth of 13.3% in Point-of-Care and 5.5% in Clinical Laboratory revenues. Ronan will take you through the makeup of this revenue growth later on in the call.

Moving on to gross margin next. This quarter's gross margin was 51.6%, which represents an improvement on the 51.2% in the equivalent quarter last year. There are two main factors at play here.

Firstly, the increased level of gross margin on Point-of-Care sales served to increase this quarter's gross margin. However, this has been partly offset by a second factor, which is our increased sales of Premier instruments, which at the time of placement have lower gross margins.

Moving on to indirect expenses. Our R&D expenses this quarter are $845,000, which is an increase over the $687,000 recorded in quarter-one 2011. Our SG&A expenses have also increased, in this case by just over 3%. This is mainly due to costs associated with the Fiomi acquisition which was completed during the quarter.

In terms of net financial income, this quarter we earned $546,000, which is slightly down on the equivalent period last year due to a reduction in the range of interest rates available. The tax charge for the quarter was $567,000, which is very similar to the charge of $585,000 in quarter-one 2011; and this represents an effective tax rate of 12.1%.

Our operating profit for the quarter at over $4.1 million was very strong and represents an increase of nearly 12% compared to the equivalent period last year. Our operating margin, which is now at 20.6%, remains ahead of the 20% milestone that we achieved a number of quarters ago.

Meanwhile our profit before tax has also increased, from $4.3 million to $4.7 million. And in terms of profit aftertax, there has been an increase from $3.75 million to $4.1 million, which represents an increase of close to 10%. This has contributed to an EPS growth of 11% to $0.194 quarter.

Now let's talk about our balance sheet, where I will explain significant movements since the end of December 2011. Property, plant, and equipment increased by $200,000; and this was made up of additions of $500,000, which includes instrument placements, which were offset by a depreciation charge of approximately $300,000.

During the same period, is our intangible assets increased by $14.4 million. This was mainly due to additions relating to the acquisition Fiomi of $13 million and other non-acquisition additions, which is mainly development project expenditure of $1.8 million. These additions have been partly offset by an amortization charge of almost $400,000 in the quarter.

Moving on to inventory, you will see that our inventory has decreased by over $500,000 this quarter. This follows a period when inventory had been increasing in the run-up to full-scale production of the Premier instrument. The slight dip reflects the shipment of a greater number of instruments this quarter.

Meanwhile, trade and other receivables have increased by approximately $1.7 million. This increases mainly due to a rise in trade receivables due to the timing of revenues with in the quarter.

Compared to quarter four, which tends to be impacted by the holiday period, revenues in quarter one were more backloaded, resulting in higher debtor balances outstanding at the end of the quarter. This caption also includes the deferred consideration of $11.25 million which will be received from Stago at the end of this month.

Finally in relation to working capital, our trade and other payables have decreased by approximately $1.5 million this quarter. This includes the reduction of $333,000 following the final payment of deferred consideration to the former shareholders of Phoenix Bio-Tech. However, the main factor is the impact of the payment of creditors relating to the inventory buildup in advance of Premier production.

The increase in long-term creditors to $3.3 million reflects the discounted value of contingent consideration that will be payable to the former shareholders of Fiomi on upon the achievement of certain key milestones.

Finally, I will discuss our cash flows for the quarter. Our cash balance at the end of the quarter was $65.5 million, which represents a reduction of $5.6 million.

Principal movements were as follows. $5.6 million in relation to the acquisition of Fiomi; the remainder of the consideration was satisfied by the issue of shares and the contingent consideration that I mentioned earlier. $1 million was paid purchasing 97,000 ADRs in the quarter; this brings the total number of shares repurchased to date to 706,000 at a cost of $7.1 million.

These movements were partially offset by positive free cash flows generated in the quarter of $1.4 million. As I have already mentioned, the timing of debtor payments and the repayment of creditors associated with the buildup of Premier inventory have impacted on the level of free cash flow this quarter. I do, however, expect that the level of free cash flows will rebound upwards next quarter, back toward more normal levels.

So overall from a financial point of view, we've had a very strong quarter. We have continued our revenue growth and have for the seventh quarter in a row released record earnings per share. We can also say now that we are a company which is generating over $4 million profits per quarter. However, more importantly, this is now growing quarter on quarter.

I will now hand back to Ronan.

Thanks, Kevin. As Kevin said, our sales for the quarter were $20 million, up from $18.6 million in quarter one last year, which is an increase of 7.4%.

Our HIV business grew 13.3%, from $4.5 million to $5.1 million. Virtually all of this increase occurred in Africa, where we have experienced a number of contract gains. In fact, we expect continuing strong sales levels in Africa throughout this year and beyond.

Our Clinical Laboratory business grew 5.5%, from $14.1 million to $14.9 million. Our core Infectious Disease business performed well, particularly in the United States where the launch of our new vitamin D test is attracting a lot of interest and will drive instrument placements. We anticipate that the vitamin D test will be a real catalyst for growth.

We have received FDA approval for the product to be used on the DS2 instrument and are submitting to the FDA for use on the more popular DSX instrument next month. When the product is approved on the DSX instrument in four months' time, we expect significant success with vitamin D, particularly in the US market.

We are continuing to work for more product approvals in both China and Brazil, which are two key growth markets for the Company.

Moving on to our Diabetes business and the launch of our new Premier instrument, we indicated in our press release that we sold 12 instruments in quarter four of last year and that has increased now to 32 -- excuse me, to 31 instruments during quarter one. In Europe, the rollout of the new instrument by Menarini is gathering real momentum, with launches and demos of the instrument progressing in more countries. While Menarini have indicated that they do not want their placements discussed openly by us on a conference call on a quarterly basis, I can indicate that shipments to them are now accelerating and sales to them will rise significantly during this quarter.

Moving on to the US market, the Premier instrument was FDA approved in December, and during quarter one we placed and sold our first three instruments in the United States. The instruments have been well received. Opinion leaders are supporting it.

Demos have been successful, and sales will gather momentum this quarter. We expect to make between 15 and 20 placements in the United States. We are extremely pleased with this rate of progress.

Our strategy for the US is to sell the Premier instrument through a combination of our existing direct sales force and through Fisher HealthCare's extensive distribution network. As previously mentioned, Fisher has a strong presence in hemoglobins and will be exclusively promoting the Premier instrument going forward. They have already an installed base of in excess of 1,000 instruments, which they will endeavor to swap out over the coming years.

Over the past year, we have also actively progressed the registration process for Premier in China. China is also a significant market for us in the hemoglobin area through our ultra and PDQ instruments, and we are currently selling in excess of $2 million a year of these products in China.

We are optimistic that Premier will be registered in the Chinese market before the end of this year. As a market China has significant growth prospects, as there are an estimated 90 million diabetics in China.

In conclusion, we are making really good progress with our launch in Europe, in the United States, and elsewhere and are really gathering momentum. The product has been very well received, and we will continue to roll out the products in other markets in the coming quarters.

In total, we anticipate selling at least 200 Premier instruments in 2012, which will drive a 25% growth in our Diabetes business this year. We expect that this growth will be greatly exceeded in 2013 with the addition of sales in China and Brazil and after the launch of the ion-exchange version of the Premier instrument sale in Europe and the United States.

Moving on to our research and development projects in San Diego, during the quarter we announced that we had obtained CE Marking and filed for an FDA approval for our new Point-of-Care Uni-Gold Giardia test. This is the first of a new range of Point-of-Care tests we developed at the Company's San Diego facility and will be followed this year by tests for C. difficile, cryptosporidium, syphilis, Strep pneumonia, and herpes, all of which should be selling in the market by the end of 2012.

Just briefly about Fiomi, by way of an update. You'll remember that just six weeks ago on our year-end conference call we discussed the acquisition of the Swedish company Fiomi Diagnostics for a consideration of $13.1 million. Fiomi has developed a next-generation instrument-based point-of-care diagnostic platform which is capable of generating extremely sensitive and accurate results.

In recent years, the Fiomi team has focused its efforts on developing high-sensitivity assays for the cardiac market, but particularly focusing on a high-sensitivity Troponin I test. Troponin I is widely acknowledged as the preferred marker for the detection and monitoring of acute cardiac infarction.

Trinity is now working to complete the development of the Troponin I test and to follow very quickly with tests for BNP, a heart failure marker, and a cardiac triplex panel consisting of Troponin I, myoglobin, and CK-MB. Trinity expects to have the initial Troponin I test CE Marked and available for sale in Europe in quarter two -- in the second half of 2013, followed by an FDA approval in the first half of 2014.

The cardiac marker market is currently estimated at $900 million and growing at 14% per annum. We believe that we can take a large share of this market when our panel of cardiac tests are released into the market.

Since the recent acquisition we have commenced a process of expanding the Fiomi team to enhance their assay development capabilities and to scale up their manufacturing and quality processes.

With regard to the planning of the US regulatory process, a pre-IND meeting is scheduled to take place in two weeks on May 2 with the FDA, where we hope to scope out the extent of the clinical trial requirements for FDA approval on the Troponin I test. In summary, we just believe that our Troponin I test is displaying significantly better sensitivity but, more importantly, superior precision to all of the competing point-of-care Troponin I tests in the market at this time.

Thank you very much. If I could now just hand over for a question-and-answer session.

(Operator Instructions) Matt Dolan, ROTH Capital.

Hey, guys. Good afternoon over there. So it sounds like you have got some good momentum with Premier. Ronan, I think you said 200 instruments, which I believe is up from what you guided to the last call. Do you have an overall update on placements, revenue, and maybe region revenue for that product this year in terms of your guidance?

Yes, Matt, I believe actually that we gave the same guidance on the last conference call (technical difficulty) weeks ago. I think we said 200.

In terms of what we think it will be, it will probably be $4 million worth of instruments and $1 million worth of reagents, making a total of about $5 million.

(technical difficulty) Menarini in Europe is gathering momentum. We were particularly pleased with what is happening in the United States. To be looking at 15 to 20 instruments so (technical difficulty) after launch is fairly surprising, to us at least, and I think is a very good indicator for what we can do in the future. In terms of Menarini, as you know we are protected by purchase minimums, and so we can be reasonably certain of what we can do there.

Then of course the Chinese market has huge potential. I would say that we hope to get approved by the end of the year; we may beat that by a couple of months. But we are confident of getting into China by the end of the year.

I will remind you that we have about 140 instruments already operating in China. China has, believe it or not, 90 million or more diabetics. It has adopted boronate affinity and HPLC as their preferred method of testing, certainly HPLC, and therefore it is going to be a very big growth market for us moving forward.

So in overall terms, we are confident of being very successful with this instrument. (technical difficulty) been really, really well received.

I think the progress with Menarini may appear slow, but what you are involved is launching this product in many different countries with different languages, different inserts, product inserts, demos, individual country launches, etc. etc.

And also I suppose a very professional operation that have wanted to ensure that everything was absolutely perfect before the launch. So it has been a little bit slow, but I think we are really about to see it gather significant momentum, and I think it is reflected in our quarter-two sales.

Great. Okay. Then on the Point-of-Care side, I think you said that you expect Africa to continue to be strong going forward. Maybe you could break out Africa, US, and what you saw in Q1. Is this a new quarterly level for you? Or would you say this was lumpy to the high end?

It may be slightly lumpy in the high end, but certainly we are going to be looking at higher levels of HIV sales going forward. I think United States has been flattish. It think it grew just 2% or 3% this quarter; so all its growth virtually has been in Africa.

We have had some successes particularly in Tanzania and Kenya, which are two of the bigger markets. I think we have benefited from basically a lot of groundwork. We have had two people on the ground, one in each of those countries, been working away for the past three years, and now at last that investment is bearing fruit.

So we are pleased with what has happened there. And yes, we do see, I think an ongoing and increased level of sales in Africa.

Okay, great. Then the last one, I don't think I heard anything on guidance for the year. But looking on the earnings side of things, tax rate was lower than we expected in Q1, so that may play into your response to the question.

But it appears you are already annualizing on or close to your full-year EPS guidance numbers. Should we consider the bottom-line guidance now to be conservative? Or are there some margin pressures with Premier or maybe a rebound in the tax rate that cause EPS to be flat through the year?

Yes, I think, Matt, we're just going to maintain the guidance that we gave last time, which was obviously $0.80 EPS.

You have mentioned a couple of things there. One, the tax rate is a little bit lower. As you know, the tax rate does tend to hop around a little bit.

I do expect it will come back up a little bit in future quarters. Maybe not quite as much as I would have guided in the past, when I would have thought about it being 16%, 17%.

We have been doing some work in that area, so it might be a little bit better going forward. But we are, broadly speaking, sticking to the guidance that we put out last time; it's only six weeks ago.

Then to be clear, that is a diluted or a basic EPS number?

We typically call it basic as our guidance.

All right. So diluted would be what, $0.76 or so?

Well, you'll see the difference there between diluted tends to be a little less than $0.01 per quarter lower. So we're probably somewhere about $0.035 lower, so mid $0.76.

Okay, thank you.

Joe Munda, Sidoti.

Good morning, guys. Thanks for taking my question. Real quick, with the PDx going to China, how is that going to be structured?

Is it going to be a new joint venture? Or are you guys going to run it through the current structure you have there? Do you see any potential governmental regulation problems going forward?

I'm not sure if I understand the question. What we have is we have a distributor called PGI who operates --

Yes, that is exactly what I mean. Is it going to be through the same distributor that you guys are already using there?

What we have is we have two distributors in China. We have one for infectious disease and then separately we have another one for diabetes. So I think your question related to diabetes.

Yes.

Yes, we'll operate through our distributor. So for example in terms of the regulatory process, we have one Chinese speaker placed in Kansas City full-time, working with their three full-time regulatory people.

So those four people are working full time trying to get this product approved in China. But basically we operate through a distributor.

Okay. Then a follow-up in regards to the Africa sales. You spoke of Tanzania and Kenya. Are there any other countries you guys are looking at? And are you guys still using the same distributor from before in Africa?

Well, yes, in some countries we have distributors and in others we don't. In some countries we sell direct. It would depend across the various countries.

So very seldom in fact do we have a distributor. As I mentioned, for example, in Tanzania and Kenya we would have somebody actually on the ground who would be like a regional sales manager, plus a trainer, and also would be very expert in the area.

By my question I mean a few quarters back you had some issues with an Irish distributor that you guys were using in Africa. Correct?

Oh, yes. That's right. That was in Nigeria and we have -- we obviously don't work with that distributor any more. We are litigating against them, although I don't know if we will be very successful.

But we don't operate with them anymore. So in fact at this time, we have negligible sales in Nigeria.

So then the move then is really for you guys to go more direct in Africa. Cut out the distributors and go -- and keep people on the ground, is what you are saying?

Well, given that an awful lot of the sales in Africa -- given that virtually all sales with the exception of Nigeria and South Africa are funded by NGOs, mostly by US government NGOs, and I think that a distributor isn't the normal method of selling in these markets. So it's a combination really of a government who'll choose who they buy from; and then basically an NGO that would actually make the payments.

In general terms, what is happening in Africa is that in virtually every African country we are the confirmer. So basically the screening is done by -- mostly in fact by Alere's Determine product, which they bought from Abbott. And then in virtually every country of Africa we do the confirming.

In fact, Tanzania and Kenya were very two of the very few exceptions to that rule, and that now has changed.

But the algorithm is very -- in some countries, again, you have side-by-side algorithms where you actually -- each patient is tested twice with two tests. But once with two different tests. But typically it is a screen and then a confirm. So we would (multiple speakers) virtually all African countries.

And with those NGOs, with what is going on with government spending, are you guys anticipating maybe there would be a cutback from these governments giving money?

No, surprisingly, despite the international economic climate we have not seen any cutback. If anything, we are seeing probably more money being spent in Africa.

Okay. Then a final question on Fiomi. How many people are you bringing over from Fiomi? Any idea on a headcount?

Well, we are not actually moving anybody from Fiomi. The operation will continue in Uppsala, just outside Stockholm.

Currently there are eight people working in the country. In order -- because of the fact that we are running three projects now -- Troponin I, BNP, and the multiplex product -- we will basically -- we will probably add about eight additional people in order that we can run three research projects at the same time.

And we have commenced that project. We have commenced that recruitment project.

And those are -- those eight people there are in R&D, or are they (multiple speakers) ?

That's entirely an R&D operation.

Okay, fair enough. All right. Great. Thanks, guys.

Bill Nasgovitz, Heartland Funds.

Good morning or good afternoon. I came on late. Could you just tell us -- your cash position is down a little bit; but in terms of stock repurchases, what is your current thinking on that?

I think Kevin said that so far we have spent $7.5 million.

$7.1 million in total since we initiated the program.

Yes. And we will continue. We go into the market basically tomorrow morning if we've not gone in already. Tomorrow morning.

And we will continue to buy up basically to -- we can buy up to -- it's 25% I think of the daily volume, and we will continue to do that. That is our intention, Bill, to continue on level, at that.

Okay. With the acquisition, this Fiomi deal, after you have owned it for a bit here, could you just give -- share with us just your personal -- what your team is feeling? In terms of there is always a surprise, negative or positive. Generally, how do you feel about it, and what it surprises have you picked up?

We only have it six weeks, Bill. But I mean clearly we did exhaustive due diligence. We think that we have something really special here.

We are breathless, almost, with excitement in terms of the performance of the Troponin I test. Troponin I is where it's at in cardiac, in reality, and this test performs wonderfully well. It performs better than its three competitors in the point-of-care emergency room.

We are confident of basically getting CE Marking on this by the end of 2013, toward the end of 2013. And then we are confident of getting it through the FDA.

Now with the FDA you always have concerns; you never quite know. We have a meeting, as I mentioned, with them on May 2. But we think that the FDA are going to be really impressed by the performance of the test, and we believe that we will get it through the FDA and thereafter can take a big market share.

It is possible it will sell itself. It is compelling in terms of its performance.

Fundamentally you have people going into emergency rooms, thinking they have had a heart attack, and being told after running other tests that they haven't had one. And then they go home and they die subsequently, because in fact they have had a heart attack and it's not been picked up.

So this is a very important development and we are really -- I think you can hear from the way I am speaking that I have a genuine level of excitement. We have a genuine level of excitement about what we have here. We think we have got something really special, and we think it will do very, very well. And always, nothing has happened in the past six weeks to dilute that enthusiasm.

Okay. Thank you very much and good luck with both that and the Premier.

Walter Schenker, MAZ Partners.

Good. Thanks. Hello, Ronan. I want to stick on Fiomi for at least a couple of questions.

First, and I will just reel them off but they are all sort of related. Could you just give us some sense as to how you look at the technology risk with this product and with the science?

Secondly, can you give us some sense as to how the economics work? Meaning as an example, Premier you have a high-cost instrument and some reagents which build up over time. Just some sense, is the instrument the razor and the razor blade as you look at playing out?

And thirdly, since you don't know what the pricing will be in two years, but at least in today's pricing environment, whether or not the margins on this would be at the higher end or lower end of what you currently are selling.

All right. Walter, just to run through those, in terms of the technology risk I would just mention that we did an extensive due diligence.

I would also mention that one of the household names in healthcare actually purchased this business three years ago for $50 million, and that what we have actually managed to do is to get a license to this technology for certain areas. So they also basically made an investment in this technology.

But I mean I think that the results of the trial that we have conducted and that they have conducted have proved the technology. I don't believe that we have any doubts there.

Then in terms of its freedom to operate, they have in excess of 20 patents granted. So I think from that point of view too there is very solid protection.

So just to be really clear about this, Walter, we are really confident about basically the technology. We don't believe there is a technology risk.

I think the only real risk we have here is of the FDA possibly saying no, that they wouldn't approve the Troponin I product. That is where it's at in reality.

And we are confident that they will say yes. We are confident that the performance of this test is staggeringly good.

Beyond that, of course, what we do here is a platform technology. It's applicable to other cardiac tests which we have talked about, but it is also applicable to other infectious disease tests. And of course we have the rights to that as well. So this is very much a next-generation technology to what we are doing down in San Diego at the moment, and not in any way wanting to diminish the importance and the quality of what is happening in San Diego.

Just then to do with the economics, yes, there is a razor/razor blade element here, but less so, because we anticipate that our test will -- that our instrument, which as you remember is only -- it's just a desktop sized instrument, the size of a telephone -- the size of a substantial telephone. But it would basically sell probably somewhere between $1,000 and $1,500.

So in the context of the kind of usage that you'll get in an emergency room, which is very substantial, at sort of $25 to -- between $25 and $35 per test, the reality is that the instrument at $1,500 is not that particularly relevant. And actually a high user, you would be quite happy to make him a present of the instrument in reality, so that is not a huge factor.

So the dynamic is slightly different in Premier; you're talking about a $20,000, $25,000 instrument and a $1 test or maybe $2 test. Here you are talking about a $1,500 instrument and a $35 test.

And then -- so, have I answered it? I think (multiple speakers)

We have two more. One, again, without -- since you don't know, but this test is -- cost to you will be only a small percentage of the selling price? Sort of like reagents or something like that?

$3. $3, $4 maybe, [max].

Okay. The last comment. You mentioned in the press release this is roughly a $1 billion market. You have suggested that you could take meaningful market share if you get approved in the US and get a CE Mark.

Therefore, this is something as you look at it which will -- where the tail will like, if you succeed, will wag the dog. Meaning this could become the biggest part of the Company fairly quickly.

Yes, I think that that absolutely is accurate.

Okay. Thanks a lot.

(Operator Instructions) Ross Taylor, Somerset Capital.

Thank you. Walter asked most of my questions, but I do want to touch on a couple things. With Fiomi, can you explain to us why you are able to buy the company for such a great discount to both what they put into R&D and what was invested in them by the household name company?

Ross, hi. I think that we probably managed to buy this company despite the fact that others would have liked to have bought it. I don't want to go naming people, but that is our genuine belief.

I think that some of the reason that we managed to buy it was because of the fact that the promoters of the company -- and remember there are six inventor-promoters involved here -- that they had actually been acquired previously by a very big multinational company and possibly didn't really enjoy the experience that much -- without going into detail about it, etc.

So I think that they kind of -- it was just good empathy between us. And I think that helped a lot, Ross, to get us over the line here. We also moved very quickly.

Okay, yes. Also on the Point-of-Care, can you talk about what additional tests we expect to see in the market this year, first part of next year? Kind of timing of that and the economics as we go forward.

Obviously there are costs in moving these things along the process. So I would assume that we are seeing some drag on earnings as we are bringing these products to market, that should start to reverse as we get them into the market.

Yes. What we are going to get into market this year are three enteric products. They are basically C. difficile, which will be the big one; cryptosporidium; and giardia, which we just announced now, which has gone to the FDA.

So the other two, which is C. difficile and crypto, should be with the FDA by the end of July, let's say. So we will have them -- we should have them into the market just before year-end.

In addition to that then, our syphilis product should be into the market, FDA approved, by year-end. It's a different situation with syphilis.

By the way, there is no syphilis approved product at the moment, make that point. But that will need a CLIA waiver, unlike the others.

The others, the enteric products sell in the hospital. So it's a point-of-care test that is used in the hospital. But the syphilis test needs a CLIA waiver, so that's going to take more time.

In addition to that then, we have a Strep pneumonia test, which again we should have FDA approval before year-end. We should have it into the FDA about August time as well. That is a companion product for a test we already have, which is Legionella Urinary Antigen.

And lastly then we have a herpes test. So the herpes test is an obvious companion product for both syphilis and our existing HIV.

So really I suppose if you characterize it as two areas, we will have our enteric products which will sell in the hospital and which will be fully available in the market by year-end. And then you will have our HIV, which was already basically a market leader in the United States, joined by syphilis, which will be the only syphilis in the market, and then by herpes, which I think there is only one other. So that is what will be into the market.

In terms of an investment, we don't see much additional investment in terms of sales and marketing, because we have an existing sales force who are basically ready to take these products on. Where are we selling these products? We are selling both into the hospital and into the sexually transmitted disease clinics. Both of those, they are where we sell our products right now.

That's what our whole selling focus is on. So there will be good synergies in that context. Ross, does that answer the question?

Yes, it does. But the economics, obviously it is not going to cost you a great deal more, but what kind of market do we think these new products that should be approved by the end of the year will address over (technical difficulty) full-year basis?

The enteric products which are C. difficile, crypto and giardia, there are really only two competitors at the moment in rapid. It's Alere and there is Meridian, right? VIVO and ALR.

I think they would share a $50 million market between them in the United States. So we would be the third entrant into that market.

There is some movement in C. difficile towards molecular, and I am sure many of you are aware of that. But the bulk of the market is still in the rapid laboratory, infectious disease, point-of-care segment.

Then in charms of the market potential for syphilis, bear in mind there is no syphilis test at the moment. I would think that the market would grow very quickly to double-digit millions. Certainly we would hope that that product could do -- in its third year could do $10 million. It is the kind of potential it has.

There is a significant requirement for a rapid syphilis test. The CDC, for example, I think would be great -- would be big fans and exponents of a rapid syphilis test.

But bear in mind we do have the CLIA. We have a double hurdle. We have an FDA approval hurdle, and then subsequent CLIA hurdle. (multiple speakers) dollar market.

Okay, so obviously there is tremendous market opportunity and tremendous free cash flow opportunity coming out of those products as we look out over the next 12, 24 months.

I think so, yes.

Okay. Also you know I'm not going to ask you about the buyback because you know that is my favorite point of contention between you and I. So I am going to ask you about the dividend.

I'm sorry, about the dividend?

I'm going to ask you about the dividend instead. Since (technical difficulty) on the call on the fact that I think you should be more aggressive buying back stock.

Okay, Ross. No, I hear what you're saying.

I didn't say it.

(multiple speakers) When Bill asked the question, we mentioned that we are going into the market. We're going to market tomorrow morning.

But just on the dividend, we have a Board meeting next week and it will be decided then. But clearly we are going to increase the dividend.

But you know, I actually don't know how much, because obviously -- but that will be discussed by the Board at a meeting next week. I suppose it would be announced then, and the payments should be made -- I think Record Date may be June 4, something like that; payment [8, 20], something like that anyway.

We will put that out at the time. But it should be Record Date very early June, payment middle June.

Okay, great. And I commend you guys. You continue to really just execute operationally and continue to load up more and more valuation. It seems that the market doesn't quite appreciate it, but I think some of your investors do.

Thank you very much. Thanks, Ross.

Joe Munda, Sidoti.

Hey, guys. Just a quick follow-up. In terms of CapEx, what are you guys seeing? I mean, the run rate around $9.5 million for the year?

That would have been our pre-Fiomi run rate. We are expecting to see that increase now with Fiomi. So we will see probably expenditure hover in and around $4 million to $5 million this year in development expenditure associated with that. So you are talking about maybe $13 million to $14 million for the year as a whole.

Okay. Then just to confirm, what is the contingent cash payment to Fiomi? Is it $3.4 million?

As you would have maybe recalled from our Fiomi press release, not all the cash was paid upfront; and of the order of $3.5 million was kept back, dependent on the achievement of certain key milestones. That will be paid out according to that schedule over the next couple of years, subject to those milestones being attained.

So we shouldn't expect the whole $3.5 million being paid this year then?

No, I don't anticipate any of it to be paid this year. It will be over three milestones, probably the following year.

Joe, the milestones are CE Mark, number one; FDA submission, number two; FDA approval, number three -- with an accent on the last one, the FDA approval.

So we would expect basically to be -- we hope to be paying that money from mid-2013 through to maybe March 2014 if everything goes entirely to plan.

Okay, okay. Thanks, guys.

I don't think there's any more questions. There is nobody on the list. So just maybe we will close the call and just to say thank you to everybody. Thank you for your support and look forward to talking to you soon. Bye.

The conference is now concluded. Thank you for attending today's event. You may now disconnect.