Trinity Biotech PLC (TRIB) 2013 Q3 法說會逐字稿

Hello and welcome to the Trinity Biotech third-quarter 2013 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 thank all of you for joining us today to review the financial results of Trinity Biotech for the third quarter of 2013 which ended on September 30, 2013. As Amy 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 today representing the Company are Mr. 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 copy of today's 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 those forward-looking statements. These 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 but are not limited to the results of research and development efforts; the effect of regulation by the United States Food & Drug Administration and other agencies; the impact of competitive products, product development, commercialization and technological difficulties; and other risks identified in detail 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 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.

With that said, let me turn the call over to Kevin Tansley, Chief Financial Officer, for a review of the financial results. After that we will hear from Jim Walsh regarding the developments at Fiomi and finally, Ronan will provide his overview of the quarter. Kevin?

Thank you very much, Joe. Today I will take you through our results for quarter three 2013 including the income statements for the quarter, our review of the major balance sheet movements between June 30 and September 30 and the cash flows for the quarter.

Beginning with our revenues, total revenues for the quarter were just over $24.1 million as compared to $20.9 million in quarter three 2012 and thus represents a growth rate of 15.7%. This includes approximately $1.8 million of acquisition revenue and excluding this, revenue growth for the quarter would have been 7%. Later in the call, Ronan will provide more details on this quarter's revenues.

I will now move on to gross margin. As you can see from our press release, this quarter's gross margin was 50.3% which is a little lower than the 51% that we reported in quarter three of last year. This reduction was expected and is the result of the impact of the significantly higher level of placements of Premier instruments which at 81 this quarter is the highest in a single quarter to date. I would also like to point out this quarter's margin represents an improvement on the 49.8% achieved in quarter two this year.

Moving on to our indirect costs, our R&D expenses were $876,000 which represents a slight increase on the $767,000 announced in quarter three 2012. Meanwhile our SG&A expenses have increased in the quarter from $5.1 million to $5.9 million. Both these increases were due to the impact of the Immco acquisition and represents the first two months expenditure post acquisition.

Our operating profits for the quarter was $4.9 million, up almost $600,000 compared to the same quarter last year representing an increase of 14%. Our operating margin of 20.5% this quarter was similar to the 20.9% in quarter three; however as in the case of the gross margin, it represents an improvement on the 19.5% reported in quarter two of this year. Overall, this level of operating margin demonstrates the strength of the Company's profitability and will serve to convert future revenue growth into significantly enhanced profits.

In terms of our net financial income, this quarter we earned $203,000 which is a decrease of nearly $400,000 on the equivalent period last year. This reflects the fall in deposit interest rates which are now available in the market as well as a decrease in the level of funds on deposit following acquisition expenditure on our recent dividend payment.

I would also like to point out that this reduction in interest income represents approximately $0.02 in earnings and this is relevant when considering the overall profit for the quarter.

Our tax charge for the quarter was $509,000 and this represents an effective rate of 9.9% which is similar to the same period last year.

The net result of all that I have spoken of so far is that profits for the period increased from $4.5 million to $4.6 million. Meanwhile our EPS for the quarter was $0.211 which represents an increase over the $0.207 achieved in quarter three 2012. However as I mentioned earlier, this increase in earnings was achieved notwithstanding a decline in interest income of close to $0.02 so on a like for like basis, earnings have actually increased by over $0.02 this quarter or by 13% which is more in line with our growth in operating profit.

Earnings before interest, tax, depreciation, amortization and share option expense for the quarter amounted to $6.4 million and this compares very favorably to the $5.6 million recorded in quarter three 2013.

This period we are also recognizing two once off charges. Firstly there is a charge of $5.7 million in relation to a once off license fee incurred in relation to HIV-2 and secondly, there is a charge of $2.5 million in relation to the blood bank screening acquisition. This charge covers the cost of closing two plants in the UK and the associated redundancies. Also included here are the acquisition costs associated with the deal.

I would also like to point out that the profitability that I mentioned earlier is before the impact of such once off charges and as was the case in previous quarters before the impact of the medical device tax. In both cases this is in the interest of comparability.

I will now move on to talk about the significant balance sheet movements since the end of June 2013. I will point out that a lot of the movement will be impacted by the Immco acquisition.

Property, plants and equipment increased by $1.9 million. This increase was made up of additions of $1 million in the quarter as offset by a depreciation charge of approximately $400,000. The remaining movement of $1.3 million relates to acquisition assets.

During the same period, our intangible assets increased by $45.8 million and this is primarily due to acquisition related intangible assets including goodwill amounting to $40.9 million in the quarter whereas normal additions are approximately $4.9 million. These additions have been partly offset by an amortization charge of $400,000.

Moving on to inventories, you will see that at $27.4 million these have increased from $22.9 million in quarter two. Again the principal reason for this is the inventories acquired an acquisition from Immco. So Trinity's owning inventory has also increased somewhat reflecting increased throughput particularly relating to Premier.

Trade and other receivables have increased by $5.7 million to $23.1 million and of this increase, $3.8 million is acquisition-related. However, a second factor was an increase in normal trade receivables. This is partially due to timing factors for example September was a particularly strong revenue month and this in conjunction with higher overall revenues contributed to the increase.

Meanwhile, our trade and other receivables including both current and noncurrent have increased from $15.7 million to $27.6 million. Acquisition-related payables accounted for $4.1 million of this movement and the remaining movement is predominantly due to the HIV-2 license fees and UK restructuring charges that I mentioned earlier.

Finally, I will discuss our cash flows for the quarter. Cash generated from the business was over $3.5 million in the quarter. This was offset by capital expenditures of $4.6 million, interest received amounts to approximately $40,000 and this was more than an offset by tax payments of $160,000. The net result of this is cash outflows of just over $1.2 million. However, the principal cash movement this quarter is in relation to the acquisitions which totaled $39.2 million including costs.

Meanwhile net cash acquired from Immco upon acquisition amounted to $1.1 million. The net result of this is that at the end of September our cash balances stood at $26.8 million.

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

Thank you, Kevin. I will take a few moments now to update you on our cardiac marker development program at Fiomi in Uppsala. And I will also be happy to take any specific questions you may have in our question-and-answer session at the end of the call.

By way of background, you will know that Trinity acquired the Uppsala-based Fiomi Diagnostics a little over a year and a half ago for a consideration of $13.1 million. Fiomi had developed a high sensitivity precise quantitative immunoassay platform. Trinity is now developing a range of high sensitivity point of care cardiac marker products on this platform and in the first wave, we are developing a high sensitivity Troponin I product for the detection of acute myocardial infarction and a BNP product for detection of heart failure. The competitors in this space are Alere, Roche and Abbott.

The aim of Trinity's development program is to develop a point of care troponin product capable of meeting the new FDA guidelines, a level of performance that has to date not been achieved on any point of care diagnostic platform. In short, I am happy to report that our troponin product is meeting this high performance threshold and that we are making excellent progress in reaching our goal to have our troponin product CE Marked before the end of 2013 and consequently available for sale in Europe beginning 2014.

Moreover, we expect to commence clinical trials for US approval as planned before the end of this year.

I will now provide you with a more detailed update on our CE Marking project. CE as you know is the regulatory standard required to market a product on the European and other selected markets. In general there are three aspects to the clinical trials necessary to obtain CE certification namely a normal population study to determine the upper reference level or 99th percentile of a normal patient population; a chest pain study in the intended use population; and an analytical performance trial to determine such facts as limit of detection, [cluster] activity, interfering substances, stability, shelf life, etc.

I am happy to report that we are making excellent progress on all three of these fronts.

Our normal trial to determine the upper reference level of the normal population is now complete. We have collected blood samples from 500 apparently healthy normal people which were gender matched and with an age distribution in the range of 18 to 75 years. A preliminary estimate of our whole blood 99th percentile or upper reference limit is 42 picograms of troponin per mil of blood. The normal database now will be fully QCed in the coming days when an exact 99 percentile will be finally calculated. However, I don't expect that this number will differ greatly from the number I just mentioned. Moreover a figure of 42 picograms is completely in line with what we expected.

Our analytical performance studies are approximately three quarters of the way through and should be fully completed in the next two to three weeks. To date no anomalies have been observed and the data is coming out as expected.

And finally with regards to our chest pain study, this trial is being run on a combination of both Biobank clinically adjudicated plasma samples and on fresh whole blood samples from suspected MI patients. The bank samples have been provided by Professor Per Venge, a cardiology expert at Uppsala General Hospital. And the fresh whole blood samples from suspected MI patients are being collected as part of two separate clinical trials.

Firstly, we are participating in the Swedish FAST test trial which has been run by Professor Bertil Lindahl across six emergency room sites in Scandinavia. This trial is designed as a method for the rapid rule out of myocardial infarction in the emergency room and is perfectly ideal for our needs.

We also have a chest pain study underway with Professor Apple at Hennepin County Medical Center in the US. Enrollment in our chest pain studies -- chest pain trials is progressing according to plan and we expect enrollment to be complete by mid -- early to mid November. This data when complemented with the bank samples from Professor Venge will be more than sufficient to support our CE claim.

In summary therefore, our CE trials are progressing well and at this stage it is reasonable to believe that our POC troponin product will be CE Marked before the end of 2013 and available for sale in Europe beginning 2014.

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

We are happy that Professor Fred Apple, Director of Laboratory Medicine at Hennepin County in Minneapolis has agreed to take the role of principal investigator to oversee the running of our US trials. The format of the US trials are very similar to that of the CE trials namely a normal study, a chest pain study and a clinical program to determine analytical performance characteristics.

Currently five US clinical trial sites have agreed to participate in our FDA studies. These are as mentioned, Fred Apple at Hennepin County Medical Center; Dr. Alan Wu, San Francisco General Hospital; Dr. Dag Shapshak, from Medical University Hospital South Carolina; Dr. Frank Peacock at Baylor College of Medicine; and Dr. Judd Hollander, medical director at University of Pennsylvania.

We are delighted that such a distinguished group of cardiologists, cardiology specialists have agreed to participate in our US trials. It hopefully bodes well for a successful outcome to our FDA application and I believe our participation underpins the clinical need for a true point of care high sensitivity troponin assay. We expect the US clinical studies to commence before the end of 2013 and depending on enrollment rates we expect the studies to last between four and five months.

Finally, though we tend not to talk about it too much on our conference calls, product development on our BNP assay is doing very well. Our assay performance is excellent and we have now moved the assay into the final phase of our product development protocols.

The good news concerning BNP is that unlike troponin it is not subject to the same level of technical complexity. Also the regulatory hurdles pertaining to BNP are less rigorous and more akin to a regular 510(k) process. Therefore, the clinical trials necessary for an FDA approval will be significantly less onerous, less expensive and less time-consuming. We currently expect to have the BNP product CE Marked in the first half of 2014 and our FDA application submitted roughly the same time.

In summary therefore, we are pleased with the progress at Fiomi. The development programs are challenging but are progressing generally according to plan. Both CE approval of troponin and commencement of the FDA trials will occur before year-end and BNP will follow fairly quickly behind that.

So with that I will hand back to Ronan and I will be happy to take any questions you have in the question-and-answer session. Thank you.

Thank you, Jim.. I am going to discuss our HIV-2 approval from the FDA then I will review revenues for the quarter and business development and finally the acquisition of Lab 21 before opening the call to a question-and-answer session.

On the subject of the FDA approval of a claim for HIV-2 for two years now Trinity has been actively seeking a HIV-2 claim for its Uni-Gold recombinant Recombigen HIV rapid product which is sold in the USA. This exercise involves sourcing significant numbers of HIV-2 samples and carrying out extensive comparative trials for incorporation into a detailed submission to the FDA. We are now delighted to announce that the FDA have approved our HIV-2 claim and we have now renamed the product as Uni-Gold Recombigen HIV-1/2. Previously the product was approved for the detection of HIV-1 only.

Prior to this approval, the market size available to Trinity was restricted as some public health bodies require HIV-2 claim as a pre-qualifier for participation in their testing programs. Furthermore in the hospital market, Trinity was at a competitive disadvantage due to the more favorable reimbursement rates paid in effective HIV-1/2 which is $19 testing compared with HIV-1 only which is $11. So clearly the hospitals had an incentive to buy our competitors' tests.

More recently the CDC has been informally recommending that testing is carried out for both HIV-1 and HIV-2 relating the possibility of that in the near future to become a formal guideline that all rapid HIV tests detect both HIV-1 and HIV-2. Consequently this approval for HIV-2 has protected our existing HIV business in the USA and also provides a significant growth opportunity in the US given Trinity can now participate in certain public health programs previously not open to us and compete more effectively in the hospital market.

As will be well known within the industry it's difficult to participate in the HIV-2 business and take advantage of our recent FDA approval without taking a license to a significant HIV-2 patent portfolio. Trinity has negotiated such a license and the Company is taking a once off charge in the third quarter for the license and the associated legal costs in the amount of $5.7 million. The license fee will be paid in five equal annual installments commencing in quarter four this year.

We believe this represents a very good deal in the context of our existing business, the growth prospects for this business and the standard conditions of which typically apply to such a license.

Over the past two years, Trinity's HIV revenues have fallen by between 5% and 6% each year due to lower federal and state funding in addition and also because of the lack of an HIV-2 license. Management now believes that the HIV-1/2 claim will provide a major boost to our US HIV business and that we can reverse this decline and achieve double-digit US HIV revenue growth in 2014. In fact we are hopeful that we can achieve in excess of 20% growth once the negative headwinds that apply to state funding subside.

Now moving on just to a review of the quarter, our revenues for the quarter were $24.1 million, up from $20.8 million which when the impact of the Immco acquisition is eliminated, the organic growth rate was 7%.

Our HIV sales for the quarter were $5.3 million, up from $4.7 million which is a 12% increase. African sales continued to improve and increased 23% over prior year with Mozambique and Zambian sales growing strongly. However, sales in the US were down 8% compared with the prior quarter and this reflected trend our business has been down 6% this year and last year as we have just discussed.

This is due to the lack of HIV license and to reduced -- the HIV-2 license and to reduced public health spend by individual states. Now that we have a HIV-2 product, we are confident growing this business in double-digit terms year on year and at the point of public health HIV spend returning to previous levels, we would be confident of the 20% annual growth revenue rate increase as I mentioned.

Our clinical laboratory revenues excluding Immco increased from $16.1 million to $17 million, an increase of 6%. Revenues at our life science business, which is Fitzgerald, were flat while infectious disease revenues increased 4% with the US performing satisfactorily and China continuing to perform very strongly.

Three factors will transform our infectious disease business -- the Immco acquisition, the Lab 21 acquisition, which I will speak about in a moment, and thirdly, the launch of our 10 new point of care products around the world. We have now received CE Marking on Clostridium difficile, giardia, Cryptosporidium, GDH, syphilis, herpes, Legionella urinary antigen, dengue, strep pneumonia and for the tenth product, H. pylori antigen, we expect a CE Mark in the next two months.

As an example of the potential of these products we have just won a three-year tender in Indonesia worth $500,000 annually for our new dengue point of care test.

Moving on to diabetes, our business grew 11% this quarter and the number of Premier placements was 81 compared with 54 in the comparable quarter. On a cumulative basis year to date placements are 228 which is 66% higher than the 137 instruments placed last year. We are confident of meeting our target of 320 instruments for the year.

We placed 25 instruments in China during the quarter and are confident that we can maintain that rate of placement going forward resulting in 100 Premier placements per year in China.

Menarini is performing well and we completed the development of the ion exchange version of the Premier instrument in June 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.

Moving on to Immco which we acquired at the end of July, it contributed $1.8 million to revenues during August and September and performed well. The business is poised for substantial growth particularly because the US is a blank canvas with virtually no sales but with monstrous sales potential given that over the past three years the management have reconfigured and standardized the entire product range and have gained FDA approvals on the full IFA and a (inaudible) range of products over the past 18 months.

Now our existing salesforce are placing this product range onto our existing installed instrument base across the US. As we have already stated, we are confident of growing this business at 20% annually.

And now I am just going to move onto our acquisition of Lab 21 which we are pleased to announce the acquisition of the blood banking screening business of the UK-based diagnostics Company, Lab 21 for a $7.5 million consideration including costs. Lab 21 is a private company with multiple diagnostic businesses which has recently been engaged in a bank-driven process to sell parts of its business. Trinity identified the blood bank screening business within Lab 21 as the most attractive part and has concluded a deal to acquire this business in the face of competition from other strategic players with Trinity being obviously the successful party.

In fact Trinity was successful despite having a significantly lower bid as unlike other bidders we made things simple for the bank by taking on all employees and building leases relating to the syphilis business. The acquired business generates annual revenues of approximately $4 million of which $3.5 million is generated from syphilis blood banking and the remainder from malaria products.

The business comprises very high quality TPHA and ELISA products for blood bank screening. These products are best in class with an excellent balance between sensitivity and specificity and compete in a market which has limited competition with Fujirebio and Biokit which is a subsidiary of Werfen being the other players -- participants.

These syphilis products have a market share of greater than 75% in each of the key European blood bank markets of the UK, France, Germany, Netherlands, Switzerland, Austria and Belgium. It is our plan to take this success in Europe and replicate it in other countries outside of Europe. In particular, we are seriously targeting the US where the business has not been able to access a significant US blood bank screening market to date. We are now commencing negotiations with a number of sizable market participants in the US blood banking market with a view to replicating the success in Europe and we intend on immediately submitting the products for FDA approval.

The acquired business also contains blood bank and routine diagnostic malaria tests. These products are well-positioned to avail of the increasing malaria blood bank testing in the developed world. Traditionally malaria testing has been associated with certain malaria endemic regions of the world. However, this is no longer the case as the prevalence of malaria has spread geographically with increased foreign travel. As a result, the UK and Australia using Lab 21 products have recently introduced a nationwide malaria blood bank screening program.

Other European countries are considering replicating the UK field screening program or a reduced sample-based testing approach based on how donors would fill in their questionnaire relating to travel. This represents a significant growth opportunity for Trinity in both European and other developed markets.

Due to funding difficulties being experienced by its former parent Company and the forced disposal process, the business currently has very low inventory levels and significant backorder position. In the near-term our main focus is on increasing production and meeting customer demands as soon as possible. However due to the lead times involved in training new employees, acquiring raw materials and manufacturing finished products, sales for the remainder of 2013 are going to be limited with a return to normal sales levels being achieved in quarter one of 2014.

In the meantime our customers are running down safety stocks that they would have been holding prior to the acquisition and we are satisfied that we will not lose any contracts with customers.

The business we have acquired is located in both Cambridge and Newmarket in the UK and employs approximately 45 people between the two sites. Over the next nine months, Trinity plans to transition the production activities of the business to its existing manufacturing facilities in Ireland and in Jamestown, New York. This will result in significant operational synergies and efficiencies.

A number of key employees principally in sales and marketing will be retained in the UK. The Company is recognizing a charge of $2.5 million in the quarter three income statement to cover reorganization and redundancy costs associated with the closure of the UK manufacturing operations and loyalty bonuses for staff to ensure that they transfer the technology on a timely basis. The business will then be earnings accretive in 2014.

Although Trinity is in no way seeking acquisitions, the Lab 21 opportunity was compelling given the price at which it was available, its significant growth history and prospects particularly in the USA and its excellent fit with Trinity's existing infectious disease business. In particular we believe that this acquisition combined with the recent Immco acquisition will serve to reinvigorate our existing infectious disease business both in the blood bank market and in the routine diagnostic market.

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

(Operator Instructions). Larry Solow, CJS Securities.

Great. Thank you very much. Ronan, just to confirm on the HIV expanded label or the new approval, I realize it is certainly a big thing to at least steady the market, stop your declines and it sounds like you are going to get at least some initial growth from it. Is this something that you can lead to sustainable growth in the US as you look out beyond 2014 over the next several years?

Absolutely. I think the reality is that we have been very seriously constrained by the lack of an HIV-2 license over the past number of years. It is something we have not talked about very much but we have been very, very busy now for over two years trying to get the HIV-2 approval. So this is a major positive for us.

I mean the other factor just from a purely defensive perspective we have to be realistic is that the FDA were -- sorry, the CDC were beginning to recommend HIV-2 testing although there actually are -- the tiny incidence of HIV-2 and in reality there is huge cross activity between 1 and 2 but in any event, they were beginning to do that and of course the danger of the guidelines from the CDC lurked and of course that would've been catastrophic for our business.

But when you combine that then with the reimbursement factor which is fairly compelling, the $11 versus $19, it really meant that it was very, very difficult for us to grow our business indeed to retain our business in the hospital market and meanwhile then more and more individual states were actually were looking for an HIV-2 claim.

So all in all it was a necessity for us. But I mean I think that is the defensive side. From the more the positive side moving forward, I think that we have a wonderful, wonderful product that had a market share lower than it ought to have had and I think we are going to address that and I think we will grow both our hospital and our public health business very significantly.

As I said, it's certainly comfortably in double digits and I think in the absence of kind of negative headwinds on individual state spend I believe that we can exceed 20% with this eventuality with this circumstance.

Of course, the bad news was that in order to -- the price of poker to play in this territory was that you needed the requisite licenses and I think that we have actually done a good job there in terms of a one-off payment of the $5.7 million that we just got. We don't like doing it but it is the price of poker. It might have been a lot more. I think it worked out reasonably well.

So inevitably, it not only descends the franchise but as you get -- you can get back to your historic rates from where you were a couple of years ago and then incremental growth on that it sounds like.

Yes, absolutely. We are very, very confident of growing this business now. We have been operating with our hands tied behind our backs in this market for the last number of years.

Right. And then just on the Premier, can you just give us an update -- just a couple of things. It sounds like things are progressing on plan. Are you still comfortable with reaching 500 placements next year? And then can you also just talk about what you are seeing in terms of utilization rates out in the field and trends and royalties?

As we mentioned we are going to do 320 this year. We are comfortable that we will do that. We have done most of it already. In terms of next year, I wouldn't hang my hat on 500 but I would be disappointed if I didn't get very close to it. I think the positives are that we will have a full year in China where it has only got approved sort of in June in China. We will have the ion exchange operating for Menarini in Europe which means they will be selling in Spain and Italy which are their primary markets.

We will be selling in Brazil and we are very confident of what we can do in Brazil and meanwhile then we are rolling out the product range across the Indonesias and the Philippines of this world gradually doing that. All of that I think should culminate in something -- we are not indicating a number at this moment but it will be around the 500 mark. It will be very close to it or indeed it could exceed it but just a little bit coy about indicating exactly what we do there.

And then in terms of just in terms of usage just to mention the one thing is the actual amount of reagent that each individual instrument is running is probably is slightly in excess of what we had expected. But what I would caution one thing is that they are is probably a slightly bigger gap -- there is actually a longer gap between the moment that we ship the instrument out of Kansas City and that it ends up actually operating in China running 20,000 tests per annum and certainly that on average is probably about seven months across the entire world just because it goes through distributors and it takes such a time for it to be installed and etc. etc.

So probably about seven months. And that is probably somewhat longer than we had expected. I think that is a sort of one-off impact that will only be a one-off impact.

So essentially the ramp and utilization may be a little slower but ultimately is at or ahead of plan?

Absolutely. I mean our instrument placements and the number of tests that each instrument are running are equal or exceeding our expectations. We envisage a great year next year in Brazil which is a new territory for us. We think we will get close to the 500. The only negative -- and it is a minor negative -- is this one-off thing that it seems to taking we have been thinking about three months. It seems on average it takes about seven months between the time an instrument leaves our premises and actually is up and running for the activated in the laboratory.

Okay. And just two real housekeeping questions. I just missed it. Did you give the Lyme disease, the Lyme diagnostic sales? I stepped out for two seconds on the call. Did you give that number -- what the --

We didn't. We didn't and we don't tend to but what I would say is that our quarter three Lyme sales were level with quarter three of last year. So the suffering that we did in quarter one and two have passed and so Lyme is basically where it was before.

Got you. And then just on the higher share count sequentially, is that basically all options, more in the money options as the stock price has risen?

Yes, exactly. You have called it in one there, Larry, so yes, obviously we haven't been issuing shares or anything like that. It is purely option movements in the money obviously the facts are there yet.

Okay, great. Thank you very much.

Bill Bonello, Craig-Hallum.

Good morning or afternoon or whatever it is for everybody. A few follow-ups on the troponin. You mentioned that the 99th percentile appears to be about 42 picograms. Can you detect at that level with a 10% CV and how low can you detect with a 10% CV?

Bill, so I will take that. The answer is yes, 42 picograms is our 99th percentile. We have -- we haven't totally completed the analytical studies but yes, we do seem to be able to detect at or below that number with a 10% CV. So as we stand at the moment, our limited detection, your first question how far, how low can we go per se is about 6 or 7 picograms. So we can see as low as 6 or 7 picograms.

We are able to measure it would seem in the normal population. We do seem to be able to measure greater than 50% of all patients actually give them a reading if you like between about 5 picograms and the 42 picogram 99th percentile. So that is quite encouraging.

And so yes, we are within a picogram or two below the 99th percentile where we have a 10% CV. But I expect that that will even go lower as we tidy up the dataset.

Okay. And it will even go lower in other words the level at which you could read with the 10% CV is what you --

I am not suggesting we are going to go very much lower but we will certainly be lower than the 42 picograms.

Okay. And then the significance of -- go ahead.

It's Ronan here. The other thing of course is that the 42 picograms is the Swedish reading. It is likely that the US 99th percentile will be somewhat higher given there is a greater scope -- freedom to operate basically giving us a greater safety net. It is likely that the US population will be higher than 42.

Okay. I am not sure I am understanding --

In the sense that the Swedes tend to be very, very fit.

Got it. Okay. I get that. And the significance of the being able to read on greater than 50%, is that hits the second criteria for being labeled a high sensitivity troponin test? Is that right?

Absolutely. No other test has been even close to achieving that, Bill, okay? And I am not just saying yet that we have actually achieved it until we really go through the data with a fine tooth comb but it looks like certainly from the 500 normals that we have read in Sweden that we are detecting slightly over the 50%. So if that holds true it will turn us into a true high sensitivity assay.

Right. And then just when we think about sort of the data itself, what kind of data will you actually make public and what will sort of the format of that data being made public so as you are around the CE Marking, how will we actually know the performance?

It will be absolutely clearly put out in instructions for use package insert that will go out with the kit. So the data that you will actually see you will see from the analytical studies, you will -- well first of all from the normal studies, you will see the actual final 99% of the normal population in both whole blood and plasma. You will then see within that package insert, you will see the LOQ at 10% as determined in the analytical studies for both whole blood and plasma. So that will give you the essentially the confidence that the product meets if you like the new FDA guidelines.

You will then be able to see calculated sensitivity and specificity of the product which is different to the sort of analytical performance. The 99th percentile is all very fine but how good is the product at actually ruling in or ruling out sort of MI? So there will actually be sensitivity and specificity data within the packet insert that will show you versus the clinically adjudicated samples where three cardiologists say yes or no that patient did or didn't have a heart attack. We will then be comparing our results against that to see how sensitive and specific our test is so that will be published.

You will also see data on interfering substances if any, the threshold at which substances interfere. You will see shelf life data. You will see -- it will actually all be published, Bill, in the instructions for use that will roll with the kit as it is put on to the market in late this year or early next year.

Okay. And is there anything that we would see in advance of that? For instance, do you put anything out on the normal studies? Is there anything you put out or is there anything that you would put out in a press release along with CE Marking or really everything comes sort of in a bundle with the instructions for use?

I don't know if we -- I don't know if we had talked that far in advance, Bill. The data will -- the dataset will be available -- put it that way okay. The dataset will be available certainly late November, early December. The CE Marking process -- so theoretically we could make that data public at that stage. The CE Marking process itself takes probably three or four weeks so that I would suggest it would be more prudent perhaps to wait to get the CE mark before you publish the results formally.

But the difference is a matter of two or three weeks between having the data and then actually getting the CE Mark itself.

Okay, great. Thank you very much.

(Operator Instructions). Chris Lewis, ROTH Capital Partners.

Hey guys. Good afternoon.

Hi, Chris.

You know first just on the Lab 21 acquisition, I guess you talked a little bit about the back order position and you are focus on ramping that manufacturing in the fourth quarter there. So can you just give us a little history of that I guess how long that back order has been there and you know how long do you think it will really take to get that manufacturing ramped up and up to speed to kind of fill the orders out there? And then to follow on to that, what gives you the confidence that no customers have been lost from that back order situation?

Hi, Chris, it Rory here. The back order has been lingering I guess is the best word for between one and two quarters in part driven by the difficulties that the previous owners had. From a financial perspective, it led to lack of supply of raw material, a few less staff etc. etc. We believe we will have a turnaround for the majority of the products by about December for one other product in particular probably into January, February kind of timeframe.

It is not like there is zero supply. In the meantime, there will be limited supply as a result of which customers will get partial orders and also remember customers typically in fact pretty much all of them tend to store a level of safety stock within their own site to keep them going in the event any issue whether shipping or technical or whatever.

So those customers are effectively running those stocks down as we speak. We are also going to start supplying them with partial orders so we are pretty confident we will get to December/January and get through this with little or no effect on the business.

Okay. And then just what gives you confidence that none of those customers have been lost since the back order over the past couple of quarters here?

Well part of our due diligence obviously involves going back and looking at the customer base as it was in 2011, 2012, early 2013 and we are able to take that and track and see where the business is today and continue to monitor that literally on a week-by- week basis. So we are pretty confident we will get there by the end of the year.

Okay, great. And then as we look out for that business into 2014, how should we think about that just in terms of its overall growth outlook and accretion profile? I think you said it was going to be accretive in 2014. Can you kind of give us a little more detail around that along with expectations around the topline growth?

Yes, Ronan here. In terms of just in terms of P&L-wise, obviously we are running two factories and for a period of time up until about next April, May, June and so it is difficult to make a profit in those circumstances. I think as soon as that happens this thing becomes decently profitable and earnings accretive.

In terms of the kind of growth we can get, we indicated that it is doing $4 million. We would be confident growing this 20% annually. We wouldn't have jumped to buy it otherwise. In reality if we can make the kind of headway that we hope to make in the USA, that we can do materially more than that. I would just caution though it is going to take a little bit of time because to get into the FDA, it is not just a matter of getting the FDA approval on the product but also the system.

And so it is going to take a bit of time and it also involves strategic partners. But in overall terms, this is in our opinion is the best syphilis blood banking test in the world by quite a measure. And so we think we can do really, really well with it.

Beyond that of course is all the malaria potential. And very importantly beyond that of course this product is perfectly suited for selling in the routine diagnostic market and so clearly we will be making it available to our distributors and to our own salesforce etc.

So this is a Company which is really just concentrated on Europe and it is a big world outside of that. It has concentrated really on blood banking in Europe. So what we want to do is we want to concentrate on the world for blood banking and also on the world for routine. So I think it provides a real growth opportunity and also reinvigorates our existing product line.

Okay. And then for the HIV-2 claim, congrats on the approval there. Can you just talk about kind of your expectations on when we can expect to see the benefit just of that approval related to sales in the field?

And then I think you mentioned you had this double-digit HIV growth for the US in 2014. How is that plan to kind of the overall point of care sales growth expectation as we move into 2014 and just any additional color around kind of your expectations for that for HIV revenue growth outlook as well would be helpful.

So I think just to answer the question in terms of how immediate would the impact of the HIV-2 license be, I think the answer is fairly immediate. I think we are going to start winning contracts and new business in new hospitals with immediate effect.

So I will be very disappointed if in fact we can't announce a decent growth in our sales in quarter four and that probably puts a lot of pressure on our sales reps. But in reality, I think it is as immediate as that.

In the context of Africa, I mean as you can see clearly, our African business is doing extremely well and I think -- was it 23% that it grew this quarter or 23% or 28% just [contract led] but it has grown very strongly this quarter as it has done over the past number of quarters, 23%.

And that reflects -- it reflects success in I said Mozambique and Zambia. I think quarter four is going to be strong because I think we are having success in Nigeria that we previously didn't have. We have had some problems there. We are not giving any credit anymore but so that is opening up for us as well.

And just in general terms, the picture in Africa is one of solid, very solid and impressive growth. So overall I think you are going to see more impressive growth in our HIV than we had in previous years. Of course what is really attractive is that you are not just going to have an HIV business going forward, you're going to have lots of other rapid products with it. And I mentioned the 10 products now which are approved in Europe etc. etc. So I think it is a very attractive picture moving forward.

Okay. And if I could sneak one more in here, just in terms of the organic growth outlook, I think you grew excluding the Immco contribution about 7% total or about 6% in the clinical labs segment. So what factors do you expect to contribute in both of those segments in order to sustain and perhaps improve that organic growth profile? And I guess how should we think about that trending into the fourth quarter and then longer-term into 2014? Thank you.

Right. Well in answering that question of course there is the point of which point does sort of an acquisition become organic growth. But just in general terms, if I could make the point that if you look at our overall business, we've had a business which is Fitzgerald, which has been a laggard. It has dragged on us, it hasn't performed well and it is a work in process. Let's just imagine that that were to remain relatively flat although that would not be acceptable to us.

Then if you look at our infectious disease business which has probably struggled to generate significant growth. What is happened there is we have added Immco, we have added Lab 21, and we have developed in-house a range of rapid products. I think the combination of all of that is going to basically give this business a very significant growth.

If you look at our Premier business, our diabetes business well we have got a big winner with Premier. I mean we were about to become 25% of the world market in hemoglobin A-1c over the period of the next number of years or indeed more than that. So I think we all recognize that success story.

You have got obviously cardiac coming through as a new growth business as well. And then your HIV business which basically has inherent difficulties has now been corrected and I think becomes a big growth business moving forward. Have I left anything out? I think that's it.

So I think if you examine the whole thing, I think what we have done over a period of time is we have transformed our business from one I think of fairly anemic growth into a business that every facet of which can grow and grow impressively with the single exception of Fitzgerald which is a work in process. We will be back on that one.

Does that answer the question, Chris?

Yes, okay, thank you.

Ross Taylor, Somerset Capital.

Yes, gentlemen, congratulations on your recent moves and I had a couple of questions just kind of trying to get my hands around a few things. One, what is the size of the European troponin market?

(multiple speakers)

Did you have a couple of questions, Ross?

Yes. What is the size of the European troponin market? The testing market?

The size of it, it's probably about $80 million.

8-0?

8-0, yes. My estimate will be about 8-0 troponin if I had to say yes -- probably if I had to say $20 million for Alere, $40 million for Roche, $20 for Abbott -- about $80 million.

Okay and then the BNP market as well in Europe?

I would say $20 million Alere, $30 million Roche, and $5 million Abbott, something like that.

Okay. And at this point neither or none of those players have a product that is anywhere near as effective as the one you guys are developing but is this as big an issue there is that is here? Obviously here the FDA is pretty unhappy with the lack of a product meeting its standards.

Ross, it's Jim here. The answer it is a big issue in Europe. Even though the regulatory agencies are not per se putting the same technical sort of classification on troponin in Europe, the fact of the matter is clinicians themselves will use it not because of regulatory because of good medicine. The bottom line of it is that if you have an under sensitive troponin test in the ER, it is just not effective. The chances are people can die from essentially from not being diagnosed properly.

So if a product is out there, if our sales rep is out there selling a product that is factually substantially more sensitive than the competitor product, the clinicians themselves will make the move. It will have to be a key opinion leader driven. We obviously aren't very well linked in with the key opinion leaders across Europe but those are the guys who we will hope to publish white papers etc. and who will certainly evangelize their brethren.

So it is not a regulatory thing; it is a product performance thing and I think we can be quite successful competing against the inferior products that are out there.

Okay. So you would expect that you would see a reasonably quick ramp up in Europe for this product given that you aren't facing a quality competitive threat? (multiple speakers)

Well I think it is going to take some time quite frankly to get the word out there. What you really need is a number well published papers by key opinion leaders and they can only start generating that data when the products are available for sale. So I don't know, Ronan, if you have a different opinion but I wouldn't have thought -- I would think the lag is going to be longer than maybe we might hope.

Well, I think what you have to -- I think Ross what you need to consider here is to be realistic is that firstly, the adoption of point of care cardiac testing, troponin testing in the USA has been much, much greater than in Europe. So in Europe it is happened to a much lesser degree. In fact it is really only Roche that have succeeded to any degree. I think -- and the others have really struggled.

I think also a very important factor is that the FDA haven't come out -- the EU equivalent haven't come out and said hey, listen, all these tests are rubbish. We are changing the guidelines and we want basically a change here. So in that sense, there isn't the awareness in Europe of the deficiencies of these tests to the extent that there is in the USA. So for example, an FDA approval for a troponin test, a point of care troponin test in the USA would be a generally seismic event. Everyone is aware of it.

In Europe, it is not so much seismic because there isn't the same -- there is neither as big a market not the same level of R&D much awareness of the deficiencies of the particular tests. So therefore Jim is right. What it needs is that basically it needs the opinion leaders to go out there and shout and talk about it and we need to do all of that and we will be doing all of that and we are setting up all of that. We have set of distributors and we are ready to roll.

But I think -- what I don't want to do is I don't want to build expectation beyond what we can achieve here. It is going to take a bit of time.

Great, great. And also can you give us an idea of the reagent sales, how they are trending in the Premier machines that have been in the field for a while?

Yes, Ross, they are doing really well. In fact in the unit reagent per instrument for example with Menarini and well it is a bit early to say in China but even initially in China, are looking greater than what we had expected. So the unit -- the number of tests run per year per instrument are greater than expected. I would just -- one word of caution which I mentioned earlier is that there is a bigger time gap between the moment we actually ship an instrument out of Kansas City and it actually ends up operating using our reagent in the field. And that has the averaging -- it seems to be averaging about seven months now which is longer than we had hoped for.

But apart from that one factor, everything is going extremely well in Premier for us.

Okay, great. Thank you very much and I will see you next week, Ronan.

Thanks, Ross. Can I just say one thing by the way. I just need to actually clarify one thing here (inaudible). We have been using the term Lab 21 as if we acquired it and of course that is very misleading and I apologize for that. We have not acquired Lab 21. We have acquired certain assets -- syphilis and blood banking assets from Lab 21. Lab 21 continues to operate and has many businesses and I apologize profusely for that misleading -- I am so sorry guys to the Lab 21 people. That was not my intention.

So just to clarify. Lab 21 is a business that does operate -- it is a significant business that operates -- that trades very successfully in the UK and beyond. My apologies.

Are there any more questions? All right. So at this stage if I could just thank everybody for their attention and their interest and their support and say good afternoon. Goodbye. Thank you very much.