Trinity Biotech PLC (TRIB) 2013 Q2 法說會逐字稿

Good day and welcome to the Trinity Biotech second-quarter 2013 quarterly 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.

Thank you, Denise, and thank all of you for joining us to review the financial results for Trinity Biotech for the second quarter of 2013, which ended June 30, 2013.

As the operator indicated, my name is Joe Diaz. I am with Lytham Partners. We're the financial relations consulting firm for Trinity Biotech.

With us on the call representing the Company today are Ronan O'Caoimh, Chief Executive 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 release, you can retrieve it off the Company's website at www.TrinityBiotech.com or numerous other 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.

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, for a review of the results. After that we will hear from Jim Walsh regarding developments at the cardiac business at Fiomi and, finally, Ronan will provide his overview of the quarter as well as the acquisitions that were announced in today's press release.

With that said, Kevin, I will turn it over to you.

Thank you very much, Joe. Today I will take you through our results for quarter two 2013, beginning with our revenues. Total revenues for the quarter were just over $21.3 million. This compares to $20.8 million in quarter two of 2012 and, thus, represents a growth rate of 2.4%.

Later in the call, Ronan will provide more details as to the makeup of this growth and in particular the impact Lyme sales have had this quarter.

Before going through the rest of the income statement, I would like to mention quickly the medical device excise tax, or MDET. As I pointed out last quarter, this is new in 2013 and thus for comparability purposes we have disclosed it separately.

So returning to the income statement, the next item is our gross margin. As you can see from our press release, this quarter's gross margin was 49.8%. This represents a strong gross margin that was lower than the 51.6% we reported in quarter two last year. This decrease is attributable to two main factors.

Firstly, it reflects the higher instrument placements, predominantly sales of our new Premier instruments, which at 80 this quarter is the highest in any single quarter. Secondly was the impact of the lower Lyme sales, which historically these products have had higher gross margins.

Moving on to our indirect costs, our R&D expenses are just over $900,000, which represents a slight increase in the $800,000 announced in quarter two 2012. Meanwhile, our SG&A expenses have increased in the quarter from $5.2 million to $5.5 million. This increase is entirely explained by the acquisition expenses related to Immco.

Our operating profit was $3.8 million, which is down approximately $500,000 compared to the same quarter last year. Again, the biggest factor here is the acquisition costs in relation to Immco, though we are also seeing the impact of the lower gross margin in relation to Lyme sales and Premier instruments, which I mentioned earlier on. Before the impact of the acquisition costs, we achieved an operating margin of 19% this quarter.

Moving on to our net financial income, this quarter we earned $440,000, which is a decrease of just over $100,000 on the equivalent period last year. This reflects the fall in interest rates available in the marketplace at present. Meanwhile, our tax charge for the quarter was $278,000. This represents an effective tax rate of 6.5%.

The net result of all that I have spoken thus far is that profits for the period decreased from $4.3 million to $4 million. So excluding the Immco acquisition costs, this in fact would have represented an increase from $4.3 million to $4.4 million.

Our EPS for the quarter before the medical device tax was $0.185. Though again, excluding the impact of the acquisition costs, this would have been $0.205 and thus an increase over the $0.20 we achieved in quarter two 2012. Finally, earnings before income -- before interest, tax, depreciation, amortization, and share option expense for the quarter amounted to $5.1 million.

I will now move on and talk about the significant balance sheet movement since the end of March 2013. Property, plant, and equipment decreased by almost $900,000. This was made up of additions of $1.3 million as offset by a depreciation charge of $400,000.

I would like to point out that the additions are again quite high this quarter due to the purchase of capital equipment required for the manufacturing of our new cardiac tests. As I mentioned last quarter, this is a sign that we are now moving from the development to the commercialization phase of the project.

During the same period, our intangible assets increased by a net $3.7 million. This was due to additions of $4.1 million, which is consistent with quarter one 2013, and these additions have been partly offset by an amortization charge of approximately $400,000.

Moving on to inventories, you will see that at $22.9 million these are broadly in line with the comparable quarter. In fact, there has been a slight reduction of approximately $200,000. On the other hand, trade and other receivables have increased by $2.1 million to $17.4 million.

This is partly due to timing factors. For example, June was a particularly strong revenue month but also represents the fact that our trade receivables, which stood at 51 days at the end of quarter one, have now increased to a more sustainable and realistic level of 57 days this quarter.

Historically, our collection rates and recoverability from debtors has been excellent and I expect this to continue going forward. Meanwhile, our trade and other payables, including both current and noncurrent, have decreased slightly from $16.3 million to $15.7 million.

Finally, I will discuss our cash flows for the quarter. Cash from operations this quarter were $4.9 million. This was partly offset by working capital movements of $2.7 million, mainly attributable to the increase in receivables and other working capital movements that I've mentioned earlier on.

Meanwhile, capital expenditure in the quarter increased to $5 million versus $2.8 million in quarter two 2012. Again, as I mentioned earlier, this is due to additional expenditure on the development of our new cardiac products.

Furthermore, expenditures currently running at a significant higher level on this project now that we are in clinical trials and also making preparations for full-scale production in our facility in Uppsala in Sweden. The net result of this, we had cash outflows for the quarter of $2.6 million.

The other main cash movement in the quarter was the payment of our annual dividend, which at $0.20 per ADR translated into a total payment of $4 million.

I will now hand over to Jim, who will take you through the latest developments with regard to cardiac.

Thanks, Kevin. I will take a few moments to provide a brief update on our cardiac marker development program at Fiomi in Uppsala. Very briefly, for the very few of you who by now may not know about Fiomi, I will just take a few seconds to recap on the background here.

About 16 months ago, Trinity acquired a Swedish company, Fiomi Diagnostics, for a consideration of $13.1 million. Fiomi had developed a high sensitivity, precise, quantitative immunoassay platform on which Trinity is now developing a range of high-sensitivity cardiac marker products. Namely, high sensitivity troponin for the detection of acute myocardial infarction and BNP for the detection of heart failure.

Again, by way of reminder, the point-of-care cardiac marker market is large, is growing rapidly, and is served only by three real players, namely Alere, Roche, and Abbott. It is also the case, however, that one of the point-of-care troponin products offered by either Alere, Roche, or Abbott meet the current FDA guidelines. There is, therefore, an enormous opportunity, a market opportunity for a guideline-compliant troponin product, and that is what Trinity is developing at Fiomi in Uppsala.

I mentioned on the conference call of April 25 last that we had just reached design freeze on our troponin product. At that stage in our hands this troponin product fully met all aspects of the FDA guidelines. I also mentioned on the call that the product had just commenced clinical trials required to obtain CE Marking and allow European sales to commence. I am happy to report today that these trials are progressing well and that we remain on track to have our troponin product CE Marked in late Q4 of this year and available for sale in Europe immediately thereafter.

In general, there are two aspects to the European CE trial. The first phase is to determine the upper reference limit for a normal population. This trial is now running for three months and we are currently recruiting 500 matched, normal healthy people between the ages of 25 and 65 on which troponin levels will be measured on both the Fiomi platform and on a central lab system. The data from (technical difficulty) provide us with a definitive 99 percentile value for our product.

To help us in this task, we have taken on a contract research organization called Scandinavian CRO AB to evaluate and recruit volunteers, collect blood samples, and run the troponin I test. To date, somewhere between 100 and 150 specimens have been collected and measured.

Now, as the Northern European holiday season is rapidly coming to an end, we believe that our remaining 250 samples can be obtained and tested before the end of September. And that will complete that phase of the clinical trial.

The second part of the European trial is to run an actual chest pain study. This trial is being run on a combination of both biobank and clinically adjudicated samples -- sorry, is being run on both a combination of biobank clinically adjudicated samples and on fresh whole blood samples from suspected MI patients. The biobank samples have been provided by Professor Per Venge, a cardiology expert from the University General Hospital in Uppsala.

With regard to the fresh whole blood portion of this trial, Trinity is participating in what is known as the fast test trial for the rapid rule out of myocardial infarction in the ER. This trial, which is being sponsored and led by Professor [Bertil Lundell], one of Europe's foremost key opinion leaders in cardiac markers, is being run in five large hospital emergency room sites and will yield significant patient numbers in a reasonably short period of time.

This trial is now running for approximately two months; however, it will be the end of September or early October when the first set of adjudicated data is available for review. In summary, therefore, the CE trials are well underway, will run through Q3 and probably into Q4, and we remain on target of a fully CE Marked troponin product by December of this year.

Moving on then to our US approval plans. Unfortunately, European-generated data may not be used to support an FDA submission. All data must be generated in the USA on a US patient population; therefore, separate US clinical trials are necessary.

I mentioned on our last call that Professor Fred Apple, Director of Laboratory Medicine at Hennepin County Medical Center in Minneapolis, had agreed to take the role of principal investigator to oversee the running of our US clinical trials. Dr. Apple is widely acknowledged as one of the key opinion leaders on cardiac biomarkers and was instrumental in shaping the new FDA guidelines for troponin measurement for the diagnosis of MI.

The clinical trial protocols have now been signed off by Dr. Apple and five US nationwide trial sites have been selected. We are currently completing the necessary contractual and ethical approvals at these sites. The trials again will consist of a determination of an upper reference limit for troponin in a normal population and, of course, a formal adjudicated chest pain study across the different geographical locations in the United States.

These trials remain on target to commence in October or early November of this year with our FDA submission planned for the end of Q1 2014.

Then, finally, a word on our BNP product. Our BNP product development program is progressing well. Fortunately, this product does not present the same level of technical difficulty as the troponin I product. Also, clinical trials of both CE and FDA will be much more straightforward as BNP will follow the normal 510(k) process.

Our product is demonstrating excellent performance characteristics right now. This product shadows troponin approximately one quarter later, but the FDA trial and approval process should be considerably less onerous, which should mean that both troponin and BNP should be available to the market at or about the same time.

In terms of our sales and marketing efforts, during the quarter the Company hired Mr. Tom Parenteau to head our cardiovascular sales division. Tom has more than 20 years experience, commercial experience in the diagnostic industry. Most recently, Tom worked for Alere/Biosite as their Senior Director of Global Marketing for Alere's cardiovascular division, which included products from Biosite, Cholestech, and HemoSense.

Tom fills a particular knowledge-gap within Trinity and, for us, brings the requisite knowledge and experience of the cardiovascular market required for a successful launch of Trinity's troponin and BNP products. The Company is now in the process of selecting distributors to handle the sales of cardiac marker products across Europe, while in the United States, of course, product sales will be handled through Trinity's own sales force.

In summary, therefore, we are pleased with the progress at Fiomi. The Fiomi team are working hard and dedicated to producing the world's first true point-of-care cardiac platform meeting the new FDA guidelines. Product development programs are progressing well and generally according to plan.

CE trials are well underway and, more importantly, we've assembled the right team of people to make sure that our trials are carried out in an efficient and a cost-effective manner. And we are on track to have our troponin product approved for sale in Europe in Q4 of this year and in the USA by Q4 2014.

With that, I'll hand over to Ronan.

Thank you, Jim. I will review revenues for the quarter and discuss business developments. I will then discuss the acquisition of Immco before finally opening up the call for a question-and-answer session.

Our revenues for the quarter were $21.3 million, up from $20.8 million in the corresponding quarter last year, which is an increase of 2.4%. Clinical laboratory revenues increased from $16.4 million to $16.7 million, which is an increase of only 2%.

However, Lyme confirmation sales in the USA, where we have a 97% market share, were $750,000 less than last quarter -- than the same quarter last year, as mentioned by Kevin. This arose due to an unusually cold and prolonged winter in the Northeast of the United States, resulting in a greatly reduced incidence of Lyme disease infections in the early summer months of this year. During the first days of quarter three, our Lyme sales have recovered to the same level as previous years.

The balance of our infectious disease business recorded growth over the prior year of 7% over the prior quarter. The US performed strongly while Chinese sales hit a new record. The rollout of our new point-of-care rapid test is gaining momentum with European approval now granted to our herpes, Giardia, Cryptosporidium, Clostridium difficile A and B, Clostridium difficile GDH, and our syphilis tests, therefore, a full enteric line plus the syphilis tests.

European approval of our H. pylori antigen and our strep pneumonia test will come before year-end. Distribution is in place throughout Europe for these products with the exception of the UK, where we will sell through our own sales force. Approvals in the United States are progressing well but at a slower pace due to the more stringent FDA requirements.

Moving on to diabetes. We grew the business 12% this quarter compared with last year and the number of Premier instruments continues to grow. This quarter we placed 80 instruments, up from 67 in quarter one.

The big development for us this quarter was approval in China and we placed over 20 instruments there during quarter two. We believe that we can maintain a run rate of 100 instruments per year in China.

Meanwhile, Menarini is performing well and we have now completed the development of the ion exchange version of the Premier, which is essential to Menarini for Italy and Spain in particular. Trials for CE Mark are now underway and we are confident of launching the instrument by year-end with the result that Menarini instrument placements will increase significantly in 2014.

The launch of Premier is progressing around the world with Scandinavia, Philippines, and Malaysia launched during quarter two and Indonesia launching during this quarter. Our HIV sales, meanwhile, for the quarter were $4.6 million, up from $4.4 million, which is an increase of 4%. Sales in the USA were down 5% while African sales continued to perform strongly with 10% growth.

I now move on to our acquisition of Immco, which we completed last Friday, after the close of business for consideration of $32.75 million in cash. The company is based in Buffalo and employs 90 people. It has a very strong management team led by Bill Maggio, CEO, and Kevin Lawson, COO. They have built a fine business, which is now poised for substantial growth.

I say this particularly because the USA is a blank canvas with virtually no sales, but with monstrous sales potential given that over the past three years the management has reconfigured and standardized the entire product range and have gained FDA approvals on the full IFA and ELISA range of products over the past 18 months. Immco's position is in the $250 million high-growth, which is over 10%, low-throughput specialty autoimmune segment where the competition is limited to a small number of key players. Principally Bio-Rad, INOVA, which was acquired by Werfen Group, and Phadia.

The principal autoimmune conditions in the segment are rheumatoid arthritis, vasculitis, lupus, celiac and Crohn's disease, ulcerative colitis, neuropathy, Hashimoto's and Graves' diseases. Meanwhile, the two key technologies employed are immunofluorescence, I will refer to as IFA, and immunoassay, which is EIA, which as you know we are intimately involved in infectious disease.

Immco offers a comprehensive range of more than 120 products across all the main autoimmune segments for its EIA products range running on the DSX and DS2 instruments, which as you know are our preferred instruments, and we have 200 instruments of those instruments placed around the United States, while the IFA products are capable of being read manually or on Immco's proprietary IFA reading system, which is called iSight.

In terms of range, breadth, and technical performance, the Immco IFA range we believe firmly is the best in the market, the best in the world, while the EIA range is of the highest quality and competitive with the market leaders. So it's basically the same as what they both have.

Immco currently sells its products through a network of distributors with virtually no US sales. In Europe, Immco's main distribution partner is Menarini, a company with which Trinity already has deep distribution ties. The broadening of the relationship between Menarini and Trinity through additional distribution of the Immco products is used very positively by all parties.

Menarini are a significant player in European autoimmunity and for many years were the distributor of INOVA in Europe prior to the acquisition of INOVA by the Werfen Group. Subsequent to this then, Menarini has been sourcing their autoimmune products from multiple suppliers, one of whom is Immco. It is expected that the value of the business with Menarini will grow substantially and significantly as they consolidate supply from Immco.

To date, Immco has very, very low sales in the United States due to a lack of FDA product approvals and due to a lack of sales force. However, as I already mentioned, over the past 24 months Immco has been successful in harmonizing its complete IFA and EIA product ranges, virtually all of which have now been FDA 510(k) cleared through Trinity Biotech's existing USA sales force. We already have sales of approximately $2 million of our own autoimmune products.

And through our installed base of over 200 EIA instruments, Trinity expects to immediately launch Immco's products in the United States. Moreover, as Immco's immune product range complements Trinity's existing infectious disease EIA range, we intend that our large range of installed DSX and DS2 instruments, which currently run our infectious disease product line, will now also run the entire Immco autoimmune to EIA range.

So broadly what I am saying is we've got 200 instruments at the moment in the United States which run, in most instances, about 40 of our infectious disease viral products. What we now will be immediately doing is offering what we believe is the best-in-world offering to those laboratories on our existing installed base, and we believe that we can be very successful in doing that.

We believe that this, in turn, will help drive growth in both ranges of products due to the synergies, [an effect] as a broader product menu offering.

So in summary, Trinity expects to grow Immco's revenues by harnessing the breadth, quality, and uniqueness of Immco's product range in the context of only recently having obtained FDA approval. We hope to grow it by leveraging Trinity's sales force and in particular our 200 installed instruments in the United States. We hope to grow it by leveraging Trinity's international distributor network.

We hope to grow it by introducing new, innovative autoimmune products which are now beginning to emerge from the development phase. And also, lastly, by exploiting synergies that exist between Trinity's existing infectious disease and Immco's autoimmune product ranges. Based on all of these factors, we believe that we can grow this business in excess of 20% annually moving forward.

Autoimmune product revenues are $8.5 million for this business, but in addition there are $4 million of revenues from a reference laboratory which is based in Buffalo. The laboratory is a specialist lab in autoimmunity and received samples from all over the United States with significant business from Qwest and LabCorp and the biggest labs in the country.

All autoimmune samples are run on Immco-manufactured autoimmune tests. Testing volumes have been growing at a rate of 10% annually. Gross margins exceed 50%.

A big advantage of owning the laboratory is that by offering a reference laboratory service, Trinity now has access to a large number of clinical samples which may be used for clinical trials and is a source of reference material in new product development. Another advantage of owning a reference laboratory is that, given that the lab is certified by the New York State Department of Health, this means that a test developed by Immco can be run commercially in the laboratory without an FDA approval.

As an example, 10 tests for Sjogren's disease were recently developed by Immco but have not yet been submitted to the FDA, and are currently being run in the lab following approval by the New York State Department of Health. We got our approval four weeks ago. Following the closure of that agreement -- following that, we closed an agreement with an ophthalmology company earlier this month. It is expected that this deal will result in incremental reference lab revenues of $750,000 over the next 12 months, by way of example.

So at this point I'm going to hand back to the operator for a question-and-answer session.

(Operator Instructions) Chris Lewis, ROTH Capital Partners.

Thanks for taking the questions. I just wanted to confirm with the Immco acquisition did you say that it closed on July 26? I just wanted to make sure.

It closed after hours, essentially closed after hours on Friday, last Friday. There was some minor filings that still had to be done yesterday and certain parts of the consideration were still moving. So in essence, officially sort of ink was put on documents, albeit not everything executed in time for close of business on Friday so it was still working through yesterday.

Okay. Then maybe I was hoping you could just provide some more color on the history, on how the acquisition really came to be. Is this something that you've looked at for a while now or is it something that you've recently taken a look at?

Then just in terms of timing, you have Fiomi kind of ramping up and it seems like some of your -- a lot of your focus is around that. So why do you think now is the right time for this acquisition?

I think that we had been aware of the Company for a long time, given that we have been a very bit player in autoimmunity with $2 million worth of revenue. And basically, for their own reasons, the venture capitalists I think were closing the fund and put it up for sale. So it was put out to bidders and, of course, we were approached, as were indeed the bigger players in the process, the bigger players in autoimmunity. And we came through that process successfully.

I think I've already outlined all of the reasons that I thought it made sense. I won't repeat them all, but it doesn't say that it ought to have made compelling sense for us in the sense that we had actually three options. We had money sitting on deposit earning about 1%. We could give it back to shareholders, which would obviously improve earnings per share.

But for example, if you were to take it off, say for the sake of argument, if you say that we are earning a $0.80 a share, $0.80 EPS, we could basically put the money in the bank, the $32 million, and earn $600,000 or $700,000 a year on it. We could basically buy back the stock, which would bring our earnings up to $0.85. Or we could make this acquisition, which we believe would probably get earnings up to $0.95.

So basically from the earnings per share perspective it made compelling sense. Of course, it's not just 2014 numbers that we are looking at but we're looking at the prospect of growing this business 20% annually moving forward. So the advantages of making the acquisition will hopefully will increase in time.

So fairly compelling stuff. If you add to that the fact that it basically reinvigorates our whole infectious disease line in the United States and indeed worldwide and in the States it presents this blank canvas of the USA with such a huge opportunity for us, it was fairly compelling. So I think that they were the principal reasons. I won't repeat all the other reasons I've already outlined.

Okay, thanks. That's helpful. Then can you just remind us what is Immco's current operating margin profile look like?

The company -- at present it's currently running at an EBITDA in and around $3 million. I suppose in the context of just over $12 million of revenues you are talking about 25% EBITDA margin.

Okay, thank you.

Larry Solow, CJS Securities.

Just a quick follow-up on Immco. Is the expectation for accretion -- you talk about a period of transition, is that just sort of -- last quarter, obviously, you had some acquisition charges. But looking out over the next couple quarters do you expect that to be accretive pretty much immediately? Are there cost-cutting opportunities or is it more increased economies of scale and revenue synergies?

I think the costs that would arise other than the acquisition costs are very modest. We're talking about under a couple hundred thousand dollars integration cost. It will be immediately accretive. I think very marginally so in quarter three because we've only got two months of it. But certainly quarter for, yes, it should be earning $500,000, $600,000, $700,000 for us.

And in terms of rationalization, there will be none really. There will be absolutely no rationalization within the actual manufacturing organization. I mentioned the fact that the strong management team will have our full confidence.

I think, actually going back to the last questioner, he referred to that and I didn't deal with it. We don't see this as being a huge drag on management time.

We are very conscious of wanting to concentrate on our primary focuses. Our strategy is one of them, obviously the principal one of which is troponin at this time. So we don't think this will be a drag in that sense because of just how competent the management team is.

I think where Trinity will really kind of make a big difference will be not in the manufacturing side of things at all where there will be no changes, but rather in the marketing side where basically in the United States we are going to basically get our salesforce to work. And there will be other advantages, obviously, with our international distributors in the sense that they would have some, but not as broad a distribution network as us. So maybe that answers the question.

It's sounds like you are basically dropping it into a sort of built-in network and they haven't really been -- in the US for sure, where they haven't really been utilizing or marketing too much. Is sort of the $8 million in sales I guess are pretty much all on the European side, is that fair to say?

No, there are not actually. There is actually fairly robust sales right across the world -- Asia-Pacific --

Up in Asia as well.

Yes, Middle East (multiple speakers)

Is it the market, the $250 million market, is it sort of $100 million US, $150 million international? Is that sort of a ballpark split or --?

That's reasonable, maybe slightly more; maybe $110 million, $115 million. Remember, the big dollars in this area are in thyroid -- T3, T4, TSH, thyroid-simulating hormone and that. But they run on the big instruments and so our segment is dominated by Bio-Rad, INOVA, which was bought by Werfen, Phadia, and maybe ourselves. But the two big ones are Bio-Rad and Werfen.

Okay. Just switching gears to Premier, can you maybe just talk about how the instruments that have already been in the installed base, what their yields are running? I think initially you guys were targeting approximately $10,000 per machine in consumables. How has the utilization been running? Is it sort of running at, below, above that number?

Running at that or marginally ahead of that. What we have found is that the instruments are -- certainly the Menarini instruments are running more tests than we had anticipated. There's probably an element of consolidation to some extent in Europe that may explain that, but in general terms we are getting bigger volumes off instruments than we would have originally expected.

Have you --? Go ahead, I'm sorry.

But not significantly more than $10,000 per instrument.

Right, right. And maybe over time that does improve, or is that something that pretty much gets up to speed on an individual machine pretty fast?

It gets up to speed almost immediately, with the exception of China, where we think that the market itself is growing very, very quickly. So I think -- I would hope that a Chinese instrument in three years time will be running maybe triple the volumes that it runs today.

Now remember we've only commenced operations in China, literally, in the last couple of weeks with the Premier, but whereas with Menarini or indeed with our placements in the United States you would be right up to normal values almost instantly.

Just last question. You sort of reaffirmed your outlook for 320 placements this year. Has the components of that being China, the US, or Menarini switched around at all?

The only reason why I ask that is because I think the ion exchange was initially I think at the start of the year you thought it was going to be launched sometime in the summer. So has that delay -- A) what was the reason for that delay? And does that maybe impact Menarini a little bit this year and you are making up for it in other parts of the world?

I don't believe that we -- we always thought that would complete development of the instruments in June and we actually managed to meet that headline actually. Ironically, unusually for us, we got there by the exact due date and so I'm not sure that we ever expected it more quickly than that.

We always expected it would take Menarini a bit of time to put it through that system. And, of course, remember we had to get a CE Mark, which we are doing right now. So I think we always had that really earmarked for January 1.

But, anyway, just in general, the dynamics are that Menarini is performing almost identically as expected. It has an obligation to buy 120; it will buy 120. I think next year it will buy a lot more when the ion exchange comes through.

I think that China has come through and should run at about 25,000 -- 25 instruments per quarter. And the big potential to move forward is Brazil, which hasn't been turned on yet but we are getting really, really close. I think that can do 60 instruments a year once we start.

The United States is performing probably marginally less than we would've hoped. It's looking like maybe 50 to 60 instruments for the year; hope to might have got to 70 or 80 which may be marginally light. Then the rest of the world is performing very well, but we are just basically rolling it out.

So, for example, Indonesia and Malaysia have huge potential and I think you're going to see those numbers more. It's just sort of valuations and all that happening right now, so it will be next year before you see decent volumes there. Again, we are just comfortable with our 320.

And in terms of 2014, it's a 4 in front of -- mid-400s comfortably.

Okay, great. Thanks so much.

Paul Nouri, Noble Equity Fund.

Do you have a revenue number for the year?

I am just going to -- in that context I am going to just mention, and possibly we should have mentioned it earlier on, anticipate that next quarter we will earn additional $2 million of revenues from Immco, because there's only about two months there. And the equivalent then about three months of revenue it will be $3 million in quarter four. So we will have an additional $5 million of revenues coming in the next five months or so.

Then in terms of our underlying business, we would expect growth over what we are seeing in this quarter. We have -- Ronan mentioned that the Lyme business has come back on stream, so I would be expecting, and as hard as it is removed to be exactly sure, we are probably going to be totaling somewhere in sort of the $22 millions, that sort of number for each of those two quarters.

Again, given the variability in things like Lyme and HIV you never know, but it could be a bit higher than that depending on those. So to the extent to which Lyme continues to show the promise it's showing at the moment, I think we will go north of $22 million in each of those. So $22 million plus $2 million plus a bit maybe for quarter three; $22 million plus a bit, again plus $3 million in quarter four. So you may be up around $25 million, $26 million for each of those quarters.

What is the -- the company you purchased, what does the operating margin look like for them?

For Immco, they are currently making about $3 million of EBITDA, so -- and op revenue is about $12.5 million, so it's sort of about 23%, 24% of EBITDA margin.

And does your tax rates change at all with the purchase?

I don't think it will be influenced hugely. It might cause a little bit, but in terms of how we are structuring it I think we will still be able to maintain a very favorable ratio. You can see there it's between 6% and 7% this quarter, and I don't see a significant move off that.

Are you going to use the lab to develop any other kind of lab developed tests, or are you going to leave it to the specialty that it has right now?

Jim here. Absolutely, that's one of the key things about having the lab is it is the source of a whole new panel of tests. Like, for instance, this year Immco produced a proprietary patent-protected assay for a disease called Sjogren's disease and they also produced a panel of tests for a syndrome called chronic rhinosinusitis. Those came directly from research that took place in the lab.

And they have a program of eight or 10 of those relatively esoteric diseases, but very prevalent diseases in the United States. So I would expect we can see at least two or three of those type projects turn into actual testing service revenue every year for the next number of years. The pipeline is very strong.

So to add one another thing that we hadn't mentioned and that is that just under 40% of the revenues at the lab relate actually to transplant testing, and so there's a lot of transplant samples going in there. Clearly, there are opportunities there also potentially, but not that we've explored in any detail at this time.

Does the lab have its own sales force or does it mostly go out to the Quests and LabCorps of the world and have them market the tests for them?

The lab actually had recently just put in place four people in the United States who are out marketing the products to the bigger labs. We intend probably integrating that with our own existing sales force. So they had recently commenced doing some of that and our intention is to probably -- is to integrate those, because we have very deep relationships with Qwest and LabCorp, for example.

Yes, yes. The life sciences business, shifting to that, was that down year over year I assume?

I'm sorry, could you repeat that question?

Your organic life sciences business.

Sure. It was flat, absolutely flat virtually to the dollar.

There were a couple of the new point-of-care tests approved in the second quarter. Is that correct?

Yes, and I've dealt with that. We've had quite a number of approvals, but the approvals have been principally in Europe rather than the United States. So we now have an entire enteric range available in Europe, so GDH, C. diff A and B, Giardia, Crypto, so basically all available in the United States -- sorry, excuse me, in Europe and being sold as we speak through that whole -- we've been working with that large distributor network there.

Okay, thanks.

Ross Taylor, Somerset Capital.

Thanks for the chance to ask some questions. On the Premier, currently you have, what, just under 500 instruments in the field?

No, about 400, Ross. Just under 400.

A little under 400. And you're getting, what, on average reagent sales and the like, about $20,000 per machine?

No, about $10,000, Ross.

At the CJS conference I think the number that was given out was substantially higher than that. It was not what you are projecting, but actually what you are seeing.

No, I don't think so. We have been doing -- I don't think so. It wasn't I that was there, but about $10,000 on average per instrument. The sales price of the instrument is about $20,000. The $10,000 is the correct number per instrument.

Okay. And so what we are looking at happening is by the end of 2014 -- you and I will chat about that at another point, Ronan, so we can get on the same page because my notes from that are very different than the $10,000 number.

Ross, to give you a flavor for that, what is happening is in 2012 we had zero sales in Premier, in 2013 we did $4 million nearly to the dollar, and I think this year we will do $10 million. In initial years that is skewed mostly towards instruments and then over time I would say you have more reagents.

The reagents run at about 90% margin. The instruments run at 15%, or in the chase of China 0% margin, so that's the dynamic. The number basically is $4 million last year, $9.9 million; we would probably do $10 million this year.

But I'm afraid the reagent per instrument actually is $10,000. Now it's over $20,000 in the United States because, of course, we are selling direct. But, anyways, it's $10,000 anyway per instrument.

Okay. So we're looking at therefore having -- by the end of 2014 you would expect to have something in the neighborhood of about 1,000 instruments in the field?

Well, we did 202 in 2012. We're going to 320 in 2013 and I think -- yes, so we would be very close to just under 1,000.

Okay, and so --.

Which will be $10 million worth of reagent at that point in time at an 85%, 90% margin.

Right, that's what I was getting to. So basically that we would be looking at something in the neighborhood of $0.40, $0.45 out of like a free cash flow number out of the reagent sales by the end of 2014? Per share?

Yes, that's spot on. Yes, yes.

Okay. And then the growth from there -- what do you think you expect to have in -- obviously we go to mid-400s and then you think you go, what, 500, 550 or so and you kind of get a run rate of about that many machines annually going forward?

I think, Ross, we can probably get to 600. Where would that come from? Let's say if I put it in Menarini at 200, I put China at 100, I put the States at say 75. I am adding up here just as I go along. I put Brazil actually at 75, so that's 450. And then basically I do 150 around the rest of the world.

And pretty rapidly, therefore, in the next two or three years we should be looking at that business being able to generate something in the neighborhood of close to $1 a share in pretax earnings, I would think.

Yes, I think that's absolutely correct. I think that after four years, after five years of taking 600 instruments, you have 3,000 instruments in the market. At $30 million at 90% margin is comfortably more than $1 a share.

Yes. Then so also looking at this acquisition, you are talking about seeing -- you think you can grow it about 20%. You paid about 11 times EBITDA for it. It seems to me that 20% might be kind of a cautious estimate on your part.

It is, because it's very unusual circumstance where a United States company is selling virtually nothing in the United States and it has got leading-edge products. I think you're going to do very, very well.

So the timing of the acquisition, the timing of the disposal of the Company related just to the closing of a particular fund, like venture capitalists. So there was a lot of competition and the main players that we talked about, the leading players competed right to the end on this one. So a very attractive opportunity, we believe.

And I think very importantly we have a big business in infectious disease in the United States. This deal that we have done, to say it reinvigorates it is to understate the reality. It's a big opportunity for us.

It's not just that our reps will go to the same laboratory; it's that they can actually put all these products on the same instrument that we already have sitting in the lab. Furthermore, there is an awful lot more unique about these autoimmune products than there is about our existing infectious disease line, which actually isn't that particularly unique. We've made it attractive by adding esoteric products sort of on the side of it, but inherently it's not that exciting. And, ironically, this autoimmune acquisition makes it exciting.

Because I think a key thing to remember here, maybe something I should have said in the prepared notes, is that also autoimmunity is going nowhere in terms of it's not going to Abbott. There's no way that Abbott are going to put in on their huge ARCHITECT instrument because the volumes aren't big enough. Autoimmunity is going to stay with ELISA and with IFA.

And ironically IFA, which is kind of a dying trade, will never die in autoimmunity because autoimmunity are so difficult to detect. We all know people who have had Crohn's disease, etc., the difficulty you have actually diagnosing it. So in many instances it gets down to the experience of the technician that can actually read the slide.

So those marginally positives or positives will go for individual review by an experienced technician and that's why IFA is there to stay in this area worldwide. We firmly believe that INOVA has the best IFA immunofluorescence product range in the world. What did I say?

You said INOVA.

INOVA, excuses, sorry. What a horrible slip to make. Sorry. We firmly believe that Immco, as opposed to INOVA or Bio-Rad, has the best IFA product range in the world, so we think it will do very, very well.

How big can that market be?

Well, the market is $250 million as we have said, and just the two market leaders will probably be just over $100 million between them, we believe. So the potential for Trinity over a period of years would be to grow a $50 million business here, something that kind of order of magnitude, which constitutes 20% of the market at its present size. But bear in mind also that we believe the market is growing at around 10% annually, because again -- because of the aging population factor.

As you get towards that $50 million I would expect, as you sell more tests and do less lab work and like relative to the overall, I would think your margins should go. Your test margins generally are substantially higher than their current margins, so one would expect margin should move substantially in line with your -- the rest of the Company.

Ross, when I'm talking about a $50 million opportunity, I'm talking about product opportunity. I'm not even -- that's excluding the lab all together.

Okay. And margins on that business -- if you do $50 million in revenues, what kind of margins would we expect?

Biodentical is what we (inaudible), about 50%.

Yes, on that order, yes.

Okay. Other than that, now that you spent $30 million buying this, I know that we talked to a number of your large holders today. I know that they would feel that I wasn't doing my job if I didn't tell you can now spend $20 million buying stock.

Well, we will see about that. Ross, we know that you are a hawk on this subject. I think that -- we may do. Clearly, if the price were to weaken we would go to the market. Right at this moment in time it probably isn't our intention to go in, but clearly we will if the market or price were to weaken.

I think there is an amount of cash that one would like to keep on the balance sheet. I'll not say we are quite there, but we wouldn't be far away from it.

I think that a lot of us see that if you are successful in Premier; we just talked about the ability to generate $1 a share in earnings a couple of years out out of that business. We are looking at on previous calls you talked about Fiomi and you'd be disappointed if it only generated $50 million in annual sales. And by the math that I and others do that's another $1 a share.

You are looking at a company that's trading at $19 a share here. And, quite honestly, three years down the road it's not hard to imagine that the price would be two or three times that, so we would look at it saying that this would be a wonderful opportunity to lever up the returns for your current shareholders. I understand you want to keep cash on the balance sheet, but I don't think it's an either/or situation. Thanks.

No, I know it's not, but I think -- I don't want to get involved into long a discussion on this issue. But at the same time, for example, I would say, and I think I dealt with it in the response to another question, I do firmly believe, for example, that the $32 million that we have just spent buying Immco is better spent doing that than it would have been returning it to shareholders.

I know that kind of you can do an academic exercise and we can all divide the earnings by the reduced number of shares and get a bigger EPS. Or the profits by -- into the number of shares, get a bigger EPS. But just by example, I think this made such compelling sense that it was a better use of funds. I think if we had, for example, gone out and basically bought back very aggressively we wouldn't have been in a position to do this deal.

Declan Morrissey, Davy.

I think most of my questions have probably been answered, but just one question on Lyme. You alluded earlier to just a pickup in Lyme sales at the beginning of Q3 and I'm just wondering do you see the Lyme season being extended because of the late summer I suppose? Or do you see it ending at the normal stage and just having I suppose you are taking a hit on Lyme for the year and consequently your gross margin is going to be down? Maybe you can give some color on that.

Declan, I think, firstly, just before I came on the call I saw our sales, our Lyme sales, our Lyme confirmatory sales so far in July with two days to go and they were actually identical to last year's sales. So I know there's more to go, but that's a reasonable indicator that we are back to our normal run rate, although not comping.

But it's certainly comforting. I don't think so much -- I think those sales are gone. If you look basically just the ticks weren't there, but in terms of will it give rise to sort of an extended season? I don't think so.

I think the other thing, by the way, is that the Lyme season kind of turned into a virtually 12-month season just with much bigger highs in quarter two and three. But you do have kind of a residual level of Lyme sales in quarter four and quarter one, just because by the time people get in for testing and all that kind of thing. So it's not that your sales are completely eliminated.

But I think these sales are gone basically. They are not going to be recovered. It's not -- so the season won't extend.

So you don't see a gross margin kicker in H2 I suppose?

No, realistically, no. Put it simply, it was $750,000 of sales -- our sales were $750,000 down this quarter and that costs us $400,000 in profit. It costs us $0.02. It's really as simple as that.

Okay, thank you.

Paul Nouri, Noble Equity Fund.

You have managed not to pay a lot of taxes the past few quarters. What kind of tax rate should we look for, like 14.5%?

We have been successful in terms of our tax rates. Obviously we are availing of the low tax rates here in Ireland. We also avail of certain R&D benefits, again here in Ireland and other jurisdictions as well. I think that will continue for some time.

We are doing particularly well this year. I see if we do increase, and it will happen eventually, it will be in sort of the low double digits and such. It will be a little while before that comes yet.

Okay. So you are benefiting from some R&D incentives and we can expect that to continue for the foreseeable future?

R&D -- well, I don't have control over the [participation] behind R&D incentives, unfortunately, but to the extent to which we know they are available still, yes. We obviously put a lot of work into it and how we structure our tax affairs, so we will continue to work hard in that regard as well.

All right, thanks.

Ladies and gentlemen, this will conclude our question-and-answer session. I would like to turn the conference back over to Ronan O'Caoimh for his closing remarks.

I would just like to say thank you to everybody for participating and for your important interest. We look forward to talking to you next quarter. Bye-bye.

Ladies and gentlemen, the conference has now concluded. We thank you for attending today's presentation. You may now disconnect your lines.