Trinity Biotech PLC (TRIB) 2012 Q3 法說會逐字稿

Hello and welcome to the Trinity Biotech third-quarter 2012 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 Joe Diaz of Lytham Partners. Please go ahead.

Thank you, Amy and good morning to all of you joining us to review the financial results of Trinity Biotech for the third quarter ended September 30, 2012.

As the operator indicated, my name is Joe Diaz. 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 Ronan O'Caoimh, Chief Executive Officer; Rory Nealon, Chief Operating Officer; Kevin Tansley, Chief Financial Officer; and Jim Walsh, Chief Scientific Officer and Business Development Director.

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 financial sites 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 revisions 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, let me turn the call over to Kevin Tansley, Chief Financial Officer of Trinity Biotech. He will be followed by Rory Nealon with a review on the Premier project and he will be followed then by Mr. Ronan O'Caoimh, the Chief Executive Officer, with his review of the quarter. Kevin?

Thanks, Joe. I am going to give you an update of the financial results for quarter three 2012; the details of which are contained in the press release that we issued earlier today. Firstly, I will briefly discuss our revenue performance. As you will see from the press release, our total revenues this quarter were $20.9 million. This compares to $19.8 million in quarter three of last year and represents growth of 5.2%.

However, excluding the impact of foreign exchange movements, mainly the weaker euro, the overall increase would have been approximately 8%. Point-of-care revenues increased by 20.6% from $3.9 million to $4.8 million. Meanwhile, clinical laboratory revenues increased from $15.9 million to $16.1 million, an increase of 1.4%.

However, excluding the impact of currency movements and Fitzgerald revenues were down slightly in the quarter, the increase in clinical lab revenues would have been 6%. Ronan will provide you with more details on revenue later in the call.

Now moving on to gross margin. This quarter's gross margin of 51%, which was slightly down on the 51.7% we reported in quarter three last year. Lower gross margins attributable to higher instrument placements, predominately sales of our new Premier instrument, which increased to 54 units this quarter.

I have mentioned before that we can expect gross margins to be a little lower in some quarters due to placements such as these as instrument sales typically have lower margins.

Moving on to indirect expenses, our R&D expenses at $800,000 this quarter were at similar levels to those recorded in the equivalent quarter last year. Meanwhile, our SG&A expenses have decreased slightly to $5.1 million. This has been due to continuous cost management, but was also impacted by exchange rate movements. As I have mentioned on previous calls, we effectively have a natural hedge from an FX perspective. In other words, our foreign currency-denominated revenues and expenses are broadly equal. So whilst our revenues have been impacted by a weaker euro, our SG&A expenses are down also for the same reason.

Operating profits for the quarter increased from $4.1 million to $4.35 million and this brought the operating margin up to 20.9%. This is the highest operating margin that the Company has ever achieved. As I mentioned in the press release, this is a key metric for us as it indicates the extent to which future revenue growth will be converted into enhanced profits going forward. This is now the sixth quarter in a row with an operating margin in excess of 20%.

Moving on next to our net financial income this quarter, we earned $597,000, which is slightly up on the equivalent period last year, thus reflecting our strong cash balances. Meanwhile, our tax charge for the quarter was $460,000, which represents an effective tax rate of just under 9.3%, bringing the average for the year to 11%. This is obviously a lower rate than many companies similar to ours and demonstrates the benefit we are deriving from lower corporation tax rates in Ireland.

From an overall profitability point of view, we have had a very good quarter. Profit after tax has now grown close to $4.5 million and this compares to $3.9 million last year, or an increase of 13%. It is not that long ago since $4.5 million would have been close to the Company's profit for the year as a whole rather than one quarter and this shows the rapid increase in profits as we have achieved in a few short years.

Meanwhile, we have also grown EPS for the quarter to $0.207 per ADR or an increase of 12% and in diluted EPS terms, we are seeing this grow from $0.177 to $0.198 per ADR over the same period, again an increase of 12%. Finally, earnings before interest, tax, depreciation, amortization and share option expense for the quarter amounted to $5.6 million. I would like to reiterate it has been a very strong quarter from a profits perspective.

I will now move on to talk about the significant balance sheet movements since the end of June 2012. Property, plant and equipment has increased by $400,000 and this is made up of additions of $800,000 as offset by a depreciation charge of $400,000. During the same period, our intangible assets increased by $3.4 million and this was due to additions and other movements of $3.8 million, which is higher than in previous quarters due to increased expenditure in developing our new cardiac test at our Fiomi subsidiary in Sweden. Total additions have been partly offset by an amortization charge of almost $400,000.

Moving on to inventory, you will see that this has increased by about $600,000 this quarter. This is well within the normal fluctuations for inventory quarter-on-quarter and the principal reason is the increase in Premier-related inventory, which as well as safety stock of finished instruments also now includes spare parts we are required to hold the support the increasing number of instruments in the field. Meanwhile, trade and other receivables have increased by $600,000 to $15.6 million. Our overall AOR book remains in very good shape at 54 days. Finally, in relation to working capital, our trade and other payables have remained static at $11.8 million.

Before I hand over to Rory, I will discuss our cash flows for the quarter. Cash from operations increased during the period to $4.9 million, reflective of the improved operating margins and profitability that I mentioned earlier. However, we are seeing a reduction in free cash flows as was the case last quarter. This is due to the additional expenditure on the development of our new point-of-care cardiac products following the acquisition of Fiomi earlier this year. Notwithstanding this, we still achieved free cash flow for the quarter of just under $2 million, which is very much in line with our revised expectation.

I would like to point out that, notwithstanding the fact that we are undertaking a significant R&D program, we are able to fund this from cash from operations, while at the same time generating a surplus, which can be used for share buybacks or our annual dividend. Finally, we spent close to $1.1 million purchasing an additional 85,000 shares during the quarter.

On an overall basis, we had a very good quarter with the key points being achievement of profits of $4.5 million for a single quarter, EPS growth of 12% and so far, for the first nine months of this year, we have achieved earnings of just over $0.60 per share. So I am confident that we will exceed our target of $0.80 for the year as a whole. I will now hand over to Rory who will update you on the Premier project.

Thanks, Kevin. I will just give you a very brief update on the Premier project, after which Ronan will give you an overview of the quarter. Some of you have heard me say on this call before that there are various phases to our Premier project. Phase one was to develop the boronate affinity instrument, which, as you know, was FDA-approved in December 2011 and as noted in our press release, we are on target, well on target to sell 200 of these instruments in 2012.

Phase two of the project is to develop an ion exchange version of the same instrument. Now you have heard me tell you before the benefits of boronate affinity over ion exchange, so I don't propose to go through them again. However, ion exchange does have one particular advantage in certain unique markets. Specifically, ion exchange will enable the physician to identify the presence of hemoglobin variants. Now normally when one is measuring A1c, this is not a requirement, but in certain jurisdictions where thalassemia is endemic, it is accepted practice to look for such variants, in particular A2 and F while measuring A1c.

Southern Europe, in particular the Mediterranean countries of Italy, Spain, Portugal and Greece, is the main area where thalassemia is present and as a result, we are currently developing an ion exchange version of the Premier to enable Menarini to target those particular countries.

As an Italian company, you can appreciate that a significant proportion, just less than 50% of the Menarini business, is in these Mediterranean countries and consequently, this will result in a major increase in monthly sales of instruments to Menarini once we launch this ion exchange instrument in these markets.

We have been working on this ion exchange project for over a year now and as of today, we have -- firstly, we have the hardware in place, which is essentially the same hardware as the boronate affinity instrument with some minor changes. We have the first version of software completed and working on the instruments and we are currently dialing in the gradient or fine-tuning the chemistry to complete the system. As a result, we expect to go to clinical trials in the first half of next year and we expect to launch this new product in Europe with Menarini in quarter three 2013. So from 2013 onwards, or Q3 2013 onwards, customers will obviously then be in a position to choose between either the boronate affinity version of the instrument or the ion exchange version of the instrument. Over to you, Ronan.

Thank you, Rory. Our sales for the quarter were $20.9 million, up from $19.8 million in quarter three of last year, which is an increase of 5.2%. As Kevin has said, when the impact of a weakening euro is taken into account, the underlying organic growth is 8%. HIV point-of-care revenues were $4.8 million, up from $3.9 million, which is an increase of 20%. Within these numbers, US HIV revenues were actually down 8% compared with the same quarter last year and this reflects reduced spending by many individual states on their HIV programs. This reduction is being experienced also by our principal competitor in this market in the USA.

The situation in Africa is very different where our revenues have increased 29% compared with the same quarter last year. The exceptional quality of our product, which is the only FDA-approved HIV product available in Africa, is leading to a situation where we are the confirmatory HIV test of choice for the NGOs and the countries in virtually all African countries. The outlook for our African business in coming quarters is very strong.

Clinical laboratory revenues were $16.1 million, up from $15.9 million in the same quarter last year, which is an increase of 1.4%. However, again, as Kevin has stated, if we exclude the impact of the weakening euro and our growth achieved was 5% and 6% if we also exclude the drop in Fitzgerald revenues.

Although again as Rory -- as Kevin has pointed out, although the weaker euro has the impact of reducing our revenues, it also reduces our costs by an equal amount and given that we have a virtual balance between euro revenues and costs, both our bottom line and our earnings per share are not impacted.

Our core infectious disease business performed well, particularly in the United States and China. 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 have submitted to the FDA for use on the more popular DSX instrument. When the product is approved on the DSX instrument, which we expect over the next six weeks, we expect then significant success with the vitamin D product in the US market.

We have developed -- we have commenced the development of three new ELISA tests for Chagas, West Nile Virus and dengue, which will run on our DSX instrument. Development of these products will be completed in quarter two of next year and the product should be FDA approved within a year of today.

This project is part of our plan to make available esoteric tests for our customers that differentiate us from our competitors. The Chagas, West Nile Virus and dengue tests are being developed for sale in the United States and in the case of Chagas in Brazil also and in the case of dengue in Southeast Asia, as well as the United States. 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 diabetes, the launch of our new Premier instrument continues successfully and we are pleased to report that we placed 54 instruments this quarter, up from 31 instruments in quarter one and 52 instruments in quarter two. A further 67 placements in quarter four would achieve our target of 200 placements for the year 2012. We are confident of exceeding this number.

Shipments to Menarini and Europe in quarter three were marginally lower than quarter two, but this reflects the fact that Italy closes down completely, more or less completely for the month of August and orders on hand for quarter four indicate a significant upturn.

As Rory has explained in some detail to you a moment ago, Menarini has very significant upside potential as soon as we complete the ion exchange version of the Premier instrument. The level of placements with Menarini was virtually double in quarter three or quarter four of 2013 when we launched the ion exchange instrument because, again, as Rory has pointed out, at the moment, our instrument is unsuitable for Southern Italy, Southern Spain and all of Greece and Portugal, which are Menarini's strongest markets.

Meanwhile, in the United States, placements are improving as opinion leaders are progressively supporting our instruments and as we achieve better engagement from Thermo Fisher. A key market for us will be China and we believe that we will get the instrument approved by the Chinese FDA during the month of January coming, i.e., in three month's time. We believe that this will immediately be a 100 instrument per year market for us. Remember, we already have 120 of our old instruments placed in China. Brazil will also be a big market for us and we are getting ever closer to an approval. We now estimate approval in quarter two of 2013.

We continue to launch around the world and as examples, during the quarter, we gained Taiwanese approvals and placed five instruments in Taiwan and also, we launched in the South American Andean region and placed four instruments there. In summary, we are confident of exceeding our goal of 200 instrument placements in 2012. We expect to exceed 300 placements in 2013 and 400 in 2014.

Moving on to our point-of-care development projects at our San Diego facility, we have submitted giardia and cryptosporidium to the FDA and expect approval for both in the coming weeks. Clostridium difficile and strep pneumonia are in clinical trials and will be CE Marked before Christmas with FDA approval anticipated four months later. This means that giardia, cryptosporidium, Clostridium difficile, Legionella urinary antigen and strep pneumonia will all be on sale in Europe by the year-end and all available in the US by quarter two of next year.

Now if I may, I would like to take this opportunity to provide you with a brief update on progress of our cardiac marker development program in Uppsala in Sweden. You'll remember that seven months ago Trinity Biotech announced the acquisition of the Swedish company, Fiomi Diagnostics, for a consideration of $13 million. Fiomi has developed a high sensitivity quantitative instrument-based point-of-care immunoassay platform on which we are developing a complete range of high sensitivity cardiac marker assays.

Just to remind you, the point-of-care cardiac market is currently estimated to be worth $900 million and is growing at a rate of 14% annually. The main participants in this market are Alere with the biocide triage platform; Abbott with the i-STAT platform; and Roche with the [Cobra] handheld platform.

The market is segmented into 45% United States, 27% Europe, 13% Japan and the rest of the world 15%. The entire $900 million market is almost completely addressed through two key products, namely high sensitivity Troponin I, which is the indicator of acute cardiac issues and BNP, which is an indicator of heart failure. I am really happy to report at this time that for both of these assays the Fiomi platform is consistently displaying significantly superior sensitivity, but more importantly superior precision to the market-leading platforms. Thus leading Trinity to believe that it can take a significant share of this market when its panel of cardiac assays are released to the European market towards the end of 2013 and to the US market following US FDA approval in mid to late 2014.

With regard to the planning for the US regulatory process, two pre-IDE meetings have been held with the FDA to date. We have reviewed very clearly with the FDA the new clinical guidelines, particularly as they relate to the approval of a high sensitivity Troponin I assay. At this time, the size and scope of the US clinical trial hasn't been determined. Moreover, we have engaged with a number of key opinion leaders in both the US and Europe to help identify the appropriate trial sites and to help guide us through the clinical trial process. All going well, data collection for CE Marking of the Troponin assay will commence in April 2013 with the US data collection commencing in the July 2013 timeframe. BNP will follow approximately three months after this.

In summary, we are very pleased with the Fiomi team and with the technology and look forward to taking a significant share of the $1 billion point-of-care cardiac market in 2014 and onwards.

Now before I open up for a question-and-answer session, I will just mention that (inaudible) buyback that during the quarter, the Company bought back 85,000 shares at an average price of $12.53.

On a related note, at the end of the quarter, we held an AGM, which approved the conversion of the Company's B shares into A shares or ADRs at a discount of 15%. At the end of the quarter, we entered an agreement to repurchase 100,000 of the newly created ADRs from the former B shareholders at a price of $12.47 or a total consideration of $1.25 million. However, this agreement is only processed in the early days of quarter four. Thus, the effective purchases for the quarter were 185,000 shares at a total cost of $2.3 million. So if I could hand back to the operator now for our question-and-answer session. Thank you.

(Operator Instructions). Matt Dolan, ROTH Capital Partners.

Hey, guys, this is Chris Lewis on the line for Matt. Thanks for taking the questions. The first question is around the guidance. Just for the remainder of the year, it looks like EPS is tracking above while the revenues are tracking a bit below. Just can you talk about how you hit that guidance given next quarter requires a stepup in revenues and how does that stepup in revenues during the next quarter flow down to the bottom line?

Chris, just in terms of the overall profitability, you are right, we are tracking ahead in relation to -- profits, as I said, were just over $0.60. We need therefore under $0.20 to make the guidance of $0.80, which is on basic EPS. So I feel comfortable that we are going to do that and maybe probably be a little bit above the guidance of $0.80 with what I am looking at in terms of quarter four.

You're right. We are a little bit behind in relation to the top line, but as Ronan has pointed out, a lot of that has to do with exchange rate movements, which of themselves are neutral in terms of the P&L of the whole. So we on a nominal basis, we will be a little bit behind on the revenue target, but clearly from the more important profitability side, we will actually exceed. So I am not particularly concerned about quarter four from that point of view.

Okay. And then on Premier, it sounds like you remain confident in the Company's guidance this year for 200 instruments placed. Can you talk about the distribution mix for the Premier placements this quarter across Europe with Menarini and US with Fisher and direct and how you expect that to track over the next 12 months?

Sure. As we indicated, I think we would need to do 67 instruments in quarter four in order to achieve the 200 that we had anticipated. So we are confident of exceeding that number. So I'll make that general point. I mean we are not free to actually indicate exact numbers from Menarini on a quarter basis, but I think they constituted in quarter two just over 50% of 52 instruments. You can work that out broadly speaking. They were a little bit behind in quarter three because they had an effective closedown in Europe for a full four weeks. So in essence, this was a nine-week quarter for us with Menarini.

But the orders on hand from Menarini for quarter four would indicate a significant improvement there on that and so we are happy that Menarini is firing on, as I say, I suppose on two of four cylinders if I go back to the point that Rory was making about the potential for ion exchange. So I think, again, Menarini should be running at 120 instruments a year approximately, but has the potential to double at the point at which the ion exchange instrument comes onstream, which would be sometime in quarter three of next year.

With respect to the United States, we are taking a twofold approach; we are selling ourselves and we are selling to Thermo Fisher. I think up to now, we have been very successful ourselves and somewhat less so with Thermo Fisher. But in fairness, we think that they are basically beginning to work very effectively now. And as an example, there is a possibility that we'd place a six-instrument order in one hospital through them in the current quarter, although it is not absolutely certain.

And beyond that then, Turkey continues to be a very impressive market for us and for example, we expect to place about 40 instruments there in 2013, having placed maybe 30 in (inaudible) and 25 this year. The Andean region I mentioned we have launched, that is doing well. We expect to place maybe 10 instruments there next year. Southeast Asia is coming onstream with Taiwan. The approval hasn't been approved.

China is very big for us. We think that we will do between 80 and 100 instruments in calendar 2013. A lot depends on what month we get the FDA, Chinese FDA approval. We are hoping to get it in January before their new year, but, of course, that is not absolutely certain. But as soon as they get up and running, we should be running at about the rate of 100 a year given that we know the market reasonably well and we already have 120 of our very old instruments in there. So it is a lot of pent-up demand for the new ones. So we are very confident there.

In terms of Brazil, again, it is a very protracted and tiring and exhausting approval process, but we believe that we will get there mid-year, even earlier than that. That should open up an order of 40 instruments a year probably for us.

So if you add it all up, we think that we would be confident in doing 300 and more in 2013 and 400 or more in 2014. Four or five years of that kind of -- of 400 a year gets us moving towards a 20% world marketshare, which is what we want to go to and beyond. So I hope that wasn't too lengthy an answer.

No, that was helpful. Thank you. And then just to follow up on that, now that the Premier installed base is growing, when can we expect some of those revenues to begin pulling through from the increase in placed systems and how does that contribute top-line growth going forward?

Well, I think you'll see it immediately. I mean clearly if we place 200 instruments this year, you're going to get the impact of approximately somewhere between 90 and 100, basically the impact of a year's worth of 90 to 100 flow of reagent in the sense that you place instruments probably halfway through the year on average. And as a typical rule, an instrument should be worth around $10,000 of reagents, so you can work it from there. So basically 200 instruments for a full year is $2 million worth of reagents on an ongoing basis at a very, very strong margin. Again, the profitability comes more from the reagents than from the instruments.

Okay, thanks. And then if I could just sneak one more in. It looks like you made some nice progress at Fiomi. Thanks for the update there. Can you talk about the Company's commercialization strategy and initial marketing pitch during the product launch expected to be next year, I think you said?

Are you talking now about Fiomi? Yes, right. Well, I think quarter four of next year 2013, so exactly a year from today, we expect to be CE Marked for Troponin I in Europe and we are already working with identifying distributors in Europe to actually handle that. In some cases, our existing distributors will be the right choice; in other cases, they wouldn't be.

In the UK, we will do it direct; in the rest of Europe, we will go through distributors. So we are working quite hard in terms of lining up distributors and talking to them, assessing their interest etc., etc. at this time. So basically -- so -- in overall terms, we will market the products directly in the United States through our salesforce, directly in the UK through our salesforce and elsewhere through distributors. So with the exception of Sweden where we will actually sell directly as well given the fact that we have a plant in Stockholm.

Okay, thanks a lot.

Laura McGuigan, B. Riley.

Good afternoon, guys. Thanks for taking my question. So first, I wanted to see if you could provide any more color on how we should be thinking about margin trends in the near term. Obviously, we expect some pressure from Premier placements, but perhaps you could comment on the extent of that pressure and when you might think we could see an inflection point where the reagent revenues in the point-of-care segment will offset that pressure?

Laura, you are correct. You have a couple of things going on when you have got placements like these. The more placements that go out, it tends to drive the margin down a little bit and then the more reagents that are pulling through as you achieve critical mass in the market, those higher margins drag it up a little bit. But we expect it to be sort of hovering around the 51%. It could be up a little bit, might even be down a little bit in the fourth coming quarters. In the next few quarters, we will reach a point where we should be in the 51% once we get past the point where we are placing more instruments that are really in the field already. We have had a very sort of steep growth rate over the last four or five quarters. That is also contributing to a slight downward pressure this quarter.

Okay. And then perhaps I could ask can you talk a little bit more about the vitamin D test, kind of the significance of that test being approved for the DSX system, what the opportunity is, the market dynamics and how it might differ from other existing tests?

Yes, Laura, Ronan here. We are very confident about taking marketshare here. Remember that we operate in a particular segment, which is the open system ELISA systems. I mean there is really only one competitor supplying a vitamin D test in there. That is a company called IDS and we would be confident of taking significant share from them.

Given remember that we have a very big installed base anyway and so -- I mean clearly Abbott and Roche are beginning to put vitamin D on their big instruments as they architected (inaudible), etc., but that's a slightly different market that we don't really participate in. So in our kind of middle-sized hospital segment where we have hundreds of instruments all around the United States, we only have one competitor and we have a product probably marginally stronger than theirs that we think we can do really, really well with given that we have an existing instrument placement.

Again, the other important point to point out is of course we have a much broader menu than they have, that we have a full range, a broad menu of 50 products, which they don't have. So there is a lot of attractions to running with us rather than having -- using up sort of limited lab space with special instruments that runs just vitamin D, which happens in the case of -- their case of them whereas we have -- if the hospital takes on our instrument, as well as running vitamin D, they get to run 49 other tests as well, (inaudible) spaces (multiple speakers).

Okay, so the competitor system just runs vitamin D. Therein lies the key advantage. Okay.

Yes.

Okay, that is helpful. And then just one quick question with respect to the reagent revenue in the quarter, do you have a number for me on that?

Laura, sorry, you broke up there. Do you have a reagent number for --?

Sorry, the reagent revenue number for the quarter.

Kevin?

Our main instrument revenues in relation to Premier, so we put about -- we put 54,000 -- 54 of those out there, so roughly just over $1 million there and the balance clinical laboratory really is reagent or reagent-related revenues. Albeit, in some leases, we do recover a certain instrument portion. We don't split it as such because a lot of our sales are bundled in terms of revenue from both reagents and instruments themselves. In terms of new sales of instruments, we are just over the sort of $1.1 million mark.

But you are in the 90s, Laura, when you add everything up. Actual instrument placements will be less than 10%.

Okay, got it. I will leave it there. Thanks, guys and congratulations on a very solid quarter.

Thanks, Laura.

Ross Taylor, Somerset Capital.

Yes, great quarter, gentlemen. A few questions. One, have you seen interest in the Fiomi technology from any other organizations with regard to other types of tests or is this really something that is going to be focused primarily on the one market?

Ross, just to deal with that, I'll let you in in a moment. This is a platform technology, right? So this -- remember, it's a quantitative technology. It has an instrument so it can give you a reading. So this is applications way beyond just cardiac, but I think we are finding our feet with it with cardiac, ironically probably the most difficult area of all. But, Ross, it is a platform technology. It can read many, many different parameters. I will let maybe Jim in on that.

Well, indeed, Ross, it consists of an instrument about the size of a telephone I guess that you are speaking into right now and a disposable. It is very sensitive, very specific and quantitative. It is a multiplex up to about six analytes from one assay. So you could actually add one sample and maybe get anything up to six individual answers from that sample.

So we just happen to be working on cardiac right now because it is such a nice market size and market reach for us and very suitable to sort of the high sensitivity of the platform. There are multiple areas where we can apply the Fiomi platform within our own current set of assays. And indeed in sort of new novel markers where you need these high sensitivity platforms. So yes, it has huge broad application. We just, at the moment, focus is the name of the game for us. We just want to focus on getting the cardiac assays through.

To put it another way, Ross, if this can do what -- not just (inaudible) lateral flow tests, this can do it except do it much more accurately and with greater precision. So all the kind of infectious disease, lateral flow tests from pregnancy to HIV, this platform could do them and do them better in reality. But remember, they are just yes/no typically. In addition to that then, they can do all of that and beyond because it can also run quantitative tests. So I mean I think there will be many applications that will become apparent in the years to come for us with this platform. This is an exceptional platform.

Yes, I was going to say is basically what you have is you have the chance to get a major share of a huge market at exceptionally high operating margins, but that is only really a toe in the water of what this system can do?

Correct. Absolutely.

Yes, now remember that this technology is licensed from Johnson & Johnson and a royalty attaches and we don't have -- we don't have all human applications. So there are restrictions. For example, they have -- Johnson & Johnson have retained cancer, so we can't do cancer, but we have a very broad range of opportunities here.

We have all infectious disease, all allergies, all veterinary applications, coagulation perhaps. There is lots and lots of applications outside the cancer area where the platform will fit.

In essence, you are talking about potentially billions of dollars of market that you can address as this machine develops?

Absolutely.

Okay. And you are confident -- you sound very confident that your tests are -- everything is going well and that we are not going to face or you are not seeing any technological hurdles at this point in time that should cause us to fall short on our initial efforts?

Jim and I have just got off a plane about a few hours ago from Stockholm and so no, we are really happy with the way things are going there. I will remind you we have tripled the amount of employment up there. We have gone from having up to 23 or 24 now, very focused team of people that -- remember that they sold their shares effectively to us and left a lot of their equity on the table in the sense that they would only get -- they would only get a return on their shares if they actually do achieve the FDA approvals there. So they're very focused, very confident and very capable. We are really, really impressed with these guys.

It sounds like it is going exceptionally well. Can you talk about the economic opportunity in the other point of care, the lateral flow tests and the like that you are bringing into the market over the next six, nine months. What kind of overall top-line impact should we be looking at from those?

There are so many variables. I am a bit reluctant to put too many hard numbers on the table. I think for the enteric (inaudible) that we have spoke about today, which were C. diff, crypto, giardia and then strep pneumonia and legionella, I think there is significant opportunity in Europe and there is significant opportunity in the United States. But I think you are not looking at blockbuster numbers; you are talking about a couple of million dollars maybe in year one, that kind of order of magnitude and then you are going to kind of grow your marketshare in time.

I think where there is possibly kind of blockbuster potential would be for example on the syphilis test, which we have FDA-approved, where we await a CLIA waiver. And that could be an exceptional winner for us and we are very close to a CLIA waiver, but you will never know until you get it with the FDA and CLIA waivers are hard to come by these days. That certainly would have very significant potential if we could get it approved. It will be the only CLIA-waived syphilis, rapid syphilis test available in the market or indeed, the only rapid syphilis in the market. Similarly for HIV.

So different variables -- there is different variables there. It could be very -- we can get a very, very significant benefit if we were to get those two CLIA waivers and absent that, it is more modest, but still significant. In terms of bottom line, 50% will fall to the bottom line of whatever we do.

Okay. Well, it sounds like everything continues to roll out very well at this point in time. Obviously cash keeps building. What are your thoughts on -- beyond the buyback and the dividends, what are your thoughts on cash?

Well, as you know, we continue to buyback -- I mean even -- we bought as many of those B shares as we could over the last couple of weeks and so we are continually in the market. I suppose we will be stronger in the market when the price is weaker than otherwise, but we are committed to continuing to do buyback. We have increased our dividend, as you know and we will probably continue to do that, Ross.

Beyond that, I think we would like to maintain a reasonably strong balance sheet as we move forward. I think the Company was crippled by debt in the past; we don't want to go back into that space. We are not looking for acquisitions -- solidly, we can say we are not looking for acquisitions. But, at the same time, I think a strong balance sheet will enable us to deliver on our mission and at the same time, I suppose if an opportunity were to be compelling and to present itself that we would be in a position to take advantage of it. But in the meantime, we continue with our buyback. I think we feel that that is the right approach.

Okay. I think that is great and I will see you next week.

Yes, yes, I look forward to seeing you next Wednesday.

Thank you.

David Cohen, Midwood Capital.

Thanks, my questions have been answered.

Walter Schenker, MAZ Partners.

Hi, guys. Two questions. One, given the potential for the Fiomi technology beyond what you are currently working on, is there a point where you look for partners to move ahead in some of these other different markets. Again, allergies, coag, something like that as opposed to gradually, given the size of your staff, moving this stuff forward one by one?

And the second question, which is unrelated, to what extent are the new Premier machines replacing your existing machines and therefore, how incremental will the reagent sales be once you get up to -- I'll pick a number -- 1000 machines in a couple of years, which otherwise would generate $10 million of revenues and big operating profit?

Walter, I will take your second question first. In the United States, we have no instruments in the market, so it is all new business, right? We are not eating our young there at all. In Europe, we have virtually no presence. It's Menarini; so it is all new. In Brazil, we have nothing and it will be all new. So the only place where there will be an element of us replacing existing instruments will be in China where we do have 120 instruments. And to be frank, the sooner we replace them, the better because they are old and quite tired.

But remember, I mentioned to you that we hope to do upwards of about 100 a year in China. So you would be getting net new placements very, very quickly. I suppose if I had to guess, I would say that, in our first year, probably 40% of our placements will be replacing old instruments. I am not exactly sure on that because it is different distributors within it.

So the answer is very little, very little. Remember our existing hemoglobin business is mostly Varian's business. Remember we are a significant supplier into Qwest and LabCorp and the very big hospitals in the United States and then the mega laps around Europe. So we are not really significantly involved in mainline A1c other than ironically in China. So we are effectively a new participant in this mainline hemoglobin A1c market.

And the reagents, the machines at this point only use your reagents or other people can use other people's reagents?

No, this is a barcoded system. I mean the only thing that our products will run on -- the only thing that you can run on our instruments is our reagents.

So this becomes a very big number given the margins on reagents by like 2015 when you have got 1000 machines out there and growing rapidly?

Absolutely. Yes, your instruments keep generating the revenue. It is the razor/razor blade model. Just to (inaudible) with your second question about partners, it is an interesting point from a business development point of view and it is the kind of thing we are thinking about. It is a point well-made, Walter. I am not going to explore it in a lot of detail on the telephone, but it is a very interesting point you make and it is one that had -- we had thought about and we are coming to terms with. The potential here is so broad that maybe it is too much for us to deliver entirely on our own. It is a point well-made, Walter.

Okay, thank you.

Bye, thank you very much.

Jeffrey Warshauer, Sidoti.

Hi, good afternoon. Thanks for taking my question. You have mentioned weakness in US HIV market and in the life science division as well. Maybe you could give us a little more color on how we should think about those two going forward?

Yes, just to deal with HIV for a moment, we are selling the same amount I think of HIV into hospitals as we were. Where we are experiencing weakness is basically on the sexually-transmitted disease programs run by individual states around the United States of America and they are just spending less. I think if look for example at OraSure numbers, I know they haven't reported yet this quarter, but if you look at last quarter, they were experiencing the same thing. And I suspect you may see that I don't know in a few days when they report again.

What we are finding is we are just finding basically that they are just spending less dollars as part of the recession. How long that is going to continue is difficult to say, but we are feeling it -- we seem to be feeling it a little bit less than there. I think we were down 8% this quarter.

There is not more I can say -- not much more I can say about on that. I can conjecture as to whether it is going to change, but it is idle speculation really. I just don't know. But at the moment, for the year -- for this quarter, we are at 8% for the year. We are at about 6%, so it is very disappointing. But I will make the general point that it is not a very big portion of our entire business, but still we feel it.

And the second part of your question was --

Fisher.

Oh, Fitzgerald. Yes, Fitzgerald has suffered from just one thing, which is that basically a significant portion of Fitzgerald's revenues derive from selling monoclonal antibodies to Japanese flu manufacturers. And they were buying a lot of our flu antibody and over the last 2.5 years, they have bought virtually nothing. And this relates back to the pandemic related to H1N1 we believe, which I think was 2009, '10 where I think basically a lot of manufacturers sold a lot of flu and bought a lot of antibodies and then basically H1N 1 just did a disappearing act.

And as a consequence, the pipeline of both raw material antibody and possibly also finished goods has been clogged up. And you would have expected that the revenues would have returned by now, but we are still not seeing it. So Fitzgerald basically has been a drag on the Company for the last -- I say that with respect to them. It is a very profitable entity within the Company, but in terms of revenue performance, it has been a drag on us for the last couple of years and it hasn't turned yet despite the fact that we have launched a new website and are trying to concentrate a lot of our efforts in turning into kind of an Internet site where students all over the world and researchers all over the world will buy our monoclonals from the Internet. That side of the business is growing well, but it is not growing quickly enough to compensate for the loss of the flu monoclonals. So that is the situation there.

Okay, that's helpful. Thanks.

Our next --.

Maybe we have a last question?

Paul Nouri, Noble Equity Funds.

Turning back to the vitamin D test, can you talk about your addressable market for it and how quickly you can get there?

You say the addressable market. Yes, it is -- can somebody help me in terms of the size of the market? We are talking --.

IDS's business in vitamin D is $30 million odd from memory and that's specifically in the ELISA business, so that is what we are targeting.

Yes, I mean what you heard here was -- what you had was I think worldwide about 120 million tests a year. So very significant market dominated initially by TSR and then IDS came into the ELISA segment. What has happened over the last number of years is that Johnson & Johnson, Roche and Abbott and Siemens have all just about launched a product in the last year or are in the process of doing so.

So in the large hospitals, large hospitals, the business is migrating really away from TSR and towards -- onto the bigger instruments. But the segment that we operate in, which is the middle-sized hospital, open systems, our competitor really is IDS who have had it to themselves, as Rory was saying, about $30 million. So a lot to play for there. Some of that business maybe will have migrated towards the bigger instruments. So the market is getting more competitive definitely, but within our segment, it is really IDS and ourselves.

Okay, thanks.

Thanks very much. So I think at this stage, operator, will we close the call?

Yes, please. Would you like to make any closing remarks?

Just to say thank you to everybody and thank you for your support and we look forward to talking to you again in three month's time -- or four months because it's quarter one. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.