Trinity Biotech PLC (TRIB) 2014 Q3 法說會逐字稿

Good morning and welcome to the third-quarter 2014 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 with Lytham Partners. Please go ahead.

Thank you, Kate. And thank all of you for joining us today to review the financial results of Trinity Biotech for the third quarter of fiscal year 2014, which ended September 30, 2014. With us on the call representing the Company 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 remarks, we will open the call for a question-and-answer session.

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.

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. Forward-looking statements reflect management's analysis only as of today. The Company undertakes no obligation to publicly release the results of any revision to these forward-looking statements.

With that said, let me turn the call over to Ronan O'Caoimh, Chief Executive Officer of Trinity Biotech. Ronan?

Good afternoon, everybody. The first thing we want to do today is that Jim Walsh is going to talk to you about Troponin, then Kevin will talk about the results for the quarter. I'll review business developments, and then we'll hand the call over to a question-and-answer session. So if I could ask Jim to commence the call.

Thank you, Ronan. I'll take the opportunity to take you on progress on our cardiac market development programs. In particular, I will provide you with a detailed update on our Troponin clinical trial and our decision to suspend enrollment of patients in the short term. I will also update you on our Meritas BNP product, which, as you know, recently obtained CE Marking approval. And finally, I'll provide a very brief update on D-dimer.

Firstly and most importantly, let me address our Troponin product and our decision to temporarily suspend enrollment into the US clinical trials. Earlier today we announced that we were temporarily suspending enrollment into our Troponin clinical trials in the USA. The reason for the suspension is that in the past number of days, as part of internal product testing, we became aware of higher than normal CVs in whole blood testing. Essentially, when testing very low whole blood samples for Troponin we observed an increased spread in the data from that which we normally see.

Immediately on noticing this data, a root cause investigation was launched to determine the nature and source of the problem. And very quickly we positively identified the cause as a format change to a chemical dye which we purchased from a third-party supplier. The result of this change causes instability and increased variability in the product's performance.

The offending chemical was first introduced into manufacturing in the week of July 14, 2014. All batches of product manufactured from that date are therefore suspect and have been quarantined. All chemical trial sites which have received batches manufactured post-July 14 have been instructed to discontinue their use and all clinical data generated using the affected batches has been identified and will be excluded from the clinical trial data set. All instructions have gone out as of today to the trial sites.

The trial sites which did not receive the problem batches, however, and that will be five trial sites, continue to recruit patients, although those the sites will continue to reach -- will reach a stock out situation over the coming short number of weeks.

The root cause of the problem lies with our filling change to a fluorescent dye material procured from a third-party supplier. Previously, the dye was supplied to the company as a powder measured out in 1-milligram quantities. At our request, the supplier was asked to supply the die in one-quarter milligram amounts, as our conjugation procedure requires only one-quarter milligram amounts per batch of product.

In dispensing quarter-milligram quantities rather than 1-milligram quantities, the ratio of dye to the dissolving solvent changed by a factor of four. This formulation change resulted in a change to the chemical conformity of the dye material, resulting in increased variation. In layman terms, the mistake made was that the volume of solvent was kept constant even though the quantity of chemical dye was quartered, thus changing an important ratio, providing a knock-on effect to the resulting products.

Having identified that offending chemical, we have this week manufactured a pilot batch of Troponin products with an earlier lot of dye in its original 1-milligram format. We are happy that the resulting product has returned to its normal performance specifications. We are confident, therefore, that our team has positively identified the root cause of their current issue and that the corrective actions identified have solved this problem.

Moving forward, then, new batches of the chemical in its original format has been ordered from our supplier. New material will be available within four weeks. On receipt of the dye new batches of Meritas products will be manufactured immediately. Our production cycle, however, is an eight-week process. Therefore, new product will be available and ready to reenter clinical trials in about mid-February. The trials will run through February to the end of May to reach completion.

Adjudication, statistical analysis and submission drafting will take place during the months of June and July, followed by FDA submission in August 2015. In relation to the clinical data generated to date, as of Friday 17th last, 624 patients had then enrolled in our ACS study. Of those, 50 had been tested on the affected batches. Excluding these 50 subjects, the total valid enrollment now stands at 574 patients.

Finally, since we last spoke, the number of sites and rolling has increased from six to now 11 with a 12th side coming online, which is Vanderbilt, coming online at the end of this week.

In summary, therefore, it is essential for me to point out that we firmly believe that we have positively identified the problem, that the fix we have implemented absolutely solves the problem and that the products manufactured going forward will continue to exhibit the same excellent performance characteristics as the products which obtained CE Marking earlier this year and which was independently tested and presented by Dr. Apple at the AACC meeting in Chicago only in July last.

I'll move on briefly, then, to talk about Meritas BNP. On September 25 last, the Company announced that we had received CE Marking approval for the Meritas BNP heart failure test. As you know, BNP levels in the bloodstream increase as the severity of heart failure increases. Thus, BNP has emerged as a principal biomarker in aiding the diagnosis and clinical severity of acute and chronic heart failure.

For our CE approval, the Meritas BNP product was tested on a predominantly US population of 1,424 normal, healthy individuals and 665 patients which had been diagnosed with heart failure, ranging across all four major heart failure classifications as outlined in the [New York Heart Failure Association]. The Meritas BNP product demonstrated exceptional sensitivity and precision, which is at least comparable to much larger or far more expensive central laboratory systems while delivering results in 10 minutes right at the point of care.

Furthermore, as most of the CE Mark data was generated in the US on the US patient population, this clinical data set will make up a sizable portion of our FDA submission package. The current data needs to be augmented with a prospective study of about 300 heart failure patients into US sites. This study will be conducted over the remainder of this year and early next year for submission to the FDA by the end of quarter one 2015. BNP approval is anticipated during our quarter three 2015.

And finally, development of the third product in our cardiac market panel, D-dimer, is progressing well. We are approaching design freeze and we will shortly commence testing clinical samples. In general, this product development program is progressing well.

I will conclude now but will be happy to take your questions later. And I'll hand over to Kevin.

Thanks very much, Jim. Today now I will take you through the financial results for quarter three 2014. Starting with our revenue performance, total revenues for the quarter were $27.2 million. This compares to $24.1 million in quarter three 2013, thus representing an increase of 12.6%. Ronan will provide more details on revenues later on in the call.

This quarter's gross margin was 47.9% compared to the 49.7% we reported in quarter three last year but was similar to the level reported in quarter two this year. The reduction in gross margin from quarter three last year's level was partly the result of the impact of the higher level of placements of Premier instruments, which at 120, significantly higher than the 81 placements achieved in quarter three last year. We are also still seeing the impact of running two additional facilities in the UK associated with the blood bank screening acquisition that we made last year. These plants were closed at the end of July this year; and hence, unlike the previous two quarters this year we are only seeing one month of costs this quarter as opposed to a full quarter.

However, we did incur some additional costs associated with the closure itself. These include a premises restitution cost i.e. the cost of restoring leased premises to their original condition. We also incurred significant disposal costs, given the nature of some of the materials being used at these premises. For regulatory reasons it was not possible to transport some raw material and component inventories cross-border to our overseas facilities, and hence they have to be disposed of locally. Due to environmental regulations in the UK, which are very strict, the disposal of such materials is very costly.

Finally, we also incurred freight costs transporting, firstly, production equipment; and secondly, to a lesser extent, inventories to our other facilities also. The net impact is that these costs have eliminated the savings we yielded by having these factories closed for the last two months of the quarter.

Moving on to our indirect costs, our R&D expenses in the quarter increased from $0.9 million to $1.1 million this quarter. Similarly, our SG&A expenses increased from $5.9 million to close at $7 million in the same period. Both of these increases were largely due to the impact of IMMCO, which was acquired during quarter three 2013 and hence would not have been included for the full quarter in the comparative numbers. An additional reason for the increase in SG&A costs is that prior to the launch of our new cardiac product, Meritas, the Company had started to put in place a sales and marketing function dedicated to the launch in support of these products. And in this quarter we also incurred some additional costs in relation to our new test for Sjogren's syndrome, which was rolled out nationally in the US at the end of June this year.

This quarter's operating profits was $4.6 million versus $4.8 million in the same quarter last year. This equates to an operating margin of 17.1% in the quarter. This has been impacted by the additional UK and sales and marketing costs previously mentioned. Excluding these cost, operating profit would actually have increased to $5 million.

Moving on next to our net financial expense, this quarter our interest income was more or less offset by interest expenses in the P&L, compared to net financial income of $203,000 in the equivalent period last year. This mainly reflects the reduced level of funds following last year's acquisitions and, to a lesser extent, a fall in deposit interest rates which are now available in the market.

Our tax charge for this quarter was $276,000, which as an effective rate of 6% continues to be very attractive. As well as the local tax rate in Ireland of 12.5%, we are also benefiting from R&D tax credits in both Ireland and Canada.

The net result of all this is that profits for the periods decreased marginally from $4.5 million to $4.4 million, while EPS was $0.19 for the quarter. So again, I will point out that had the additional costs incurred this quarter been excluded, it would have resulted in increasing profits to $4.8 million, which equates to $0.21 versus the $0.19 which we are reporting today.

Finally, earnings before interest, tax, depreciation, amortization and share option expense for the quarter amounted to $6.2 million.

I will now move on to talk about the significant balance sheet movement since the end of June 2014. Property, plants, and equipment increased by almost $1 million. This was made up of additions of $1.5 million as offset by a depreciation charge of approximately $500,000. The additions are made up of production equipment mainly in Sweden but also includes instrument placement, particularly Premier Instruments in Brazil, which are placed on a reagent rental basis. During the same period our intangible assets increased by just under $4 million. This was mainly due to additions of $4.9 million. This was partially offset by amortization charges of approximately $600,000 and FX movement of $300,000.

Moving on to inventories, you will see that this has increased by about $700,000 this quarter. This was partly due to increased Premier inventories but also includes increased levels for Sjogren's inventory post nationwide launch earlier this year.

Meanwhile, trade and other receivables have decreased by $2 million to $25.2 million. Of this decrease, $1.4 million relates to trade receivables, which decreased due to improved cash collections, and remainder relates to a reduction in prepayments mainly due to the timing of stage payments associated with the purchase of production equipment.

Finally, in relation to working capital, our trade and other payables have decreased this quarter by $900,000 to $15.2 million, reversing the increase we saw in quarter two.

Finally before handing back to Ronan, I will discuss our cash flows for the quarter. Operating cash flows before working capital movements increased by $300,000 from $5.8 million to $6.1 million. Movements in working capital improved from an outflow of $2.3 million in quarter three 2013 to $500,000 in the current quarter. Total net capital expenditure in the quarter increased to $6.4 million from $4.6 million in quarter three 2013, which was largely driven by the increased property, plants, and equipment expenditures I mentioned earlier.

After taking into account of tax and interest, the free cash outflow this quarter was just under $1.2 million. It's considerably lower than in previous quarters as the Company moves towards a position when it will be generating positive free cash flows.

Our dividend was paid at the beginning of quarter three, resulting in an outflow of just over $5 million. And the net result of all this is that the total cash outflows for the quarter were approximately $6.2 million, resulting in a cash balance at the end of the quarter of almost $9 million.

I will now hand back to Ronan.

Now, I'm going to review revenues for the quarter and discuss business development before opening the call to question-and-answer session. Our revenues for the quarter which we $27.2 million, up from $24.1 million in the corresponding quarter, which is an increase of 12.6%. Our HIV sales for the quarter were $5.5 million, up from $5.3 million, which is an increase of 3%. US HIV sales were up 8%. Public health spend by individual states continues to be very depressed, and we see this reflected in the results of our competitors.

However, our hospital HIV sales continued to improve, due largely to the fact that we are now selling an HIV 1/2 product following FDA approval for our HIV 2 claim at the end of last year and also due to us taking and HIV 2 license at that time.

Our African HIV revenues were level with the prior quarter, but the fundamentals of our business in Africa continue to strengthen. We are the confirmatory test of choice in virtually all African countries and continue to receive a premium price for our premium products right throughout the whole continent. In addition, our Nigerian revenues continue to strengthen.

Our clinical laboratory business increased from $18.8 million to $21.7 million in the quarter, which is an increase of 12.6%. However, when the impact of both the IMMCO and blood banking acquisitions are excluded, our underlying organic growth for this quarter compared with the corresponding quarter last year is 3%.

Our diabetes business grew 11%. Our infectious disease business grew 1% while Fitzgerald decreased by 6%. The diabetes business performed strongly with 120 Premier instruments placed during the quarter compared with 81 instruments during quarter three last year, giving us 327 placements in the first three quarters of the year. This means that we are in line to achieve our target of 460 placements for the year as a whole.

All markets performed strongly -- US, Europe, and China. But Brazil merits a special mention as 41 instruments were sold during the quarter by our direct sales force following the sale of 21 instruments in quarter one and 27 instruments in quarter two. Therefore 89 instruments have been placed in Brazil since Brazilian approval was granted in January of this year.

Moving on to infectious disease, which, by the way, excludes IMMCO and the recently acquired blood banking business, the infectious disease business grew by 1% compared to the prior quarter. The Lyme component of the business was down in excess of $500,000, or 15%, compared with the prior quarter. And this arises due to the particularly severe winter experience last year, which killed most Lyme ticks. However, our Lyme business varies annually, dependent on winter weather conditions. But our dominant market share remains unaltered.

The balance of our infectious disease business traded strongly during the quarter and was up 7% compared with the prior quarter. The US performed strongly and has benefited from the advantages of having the IMMCO also immune product range added to its offering.

China performed well. And in Brazil the approval process is continuing.

Moving on to IMMCO, which we acquired just over one year ago, we are very pleased with its performance and are confident of growing the business 20% this year. The performance of our newly launched Sjogren's test, which is a dry-eye disease test, is worth noting. We have decided not to make this test available to laboratories in hospitals around the country, but instead we market the product directly to ophthalmologists or eye specialists through our marketing partner, Nicox, and then run the tests in our own reference laboratory. We launched the test nationally in June of this year and our revenues for this product in the quarter exceeded $250,000, and, we believe, will reach $500,000 in the current quarter.

So that completes that review and I would now like to hand the call back to the operator for a question-and-answer session. Thank you.

(Operator Instructions) Bill Bonello from Craig Hallum.

I'm going to try and understand some of the Troponin situation of a little bit more, even beyond the detailed you gave, if you would bear with me. I want to make sure I understand. It sounds like from what you are saying that you learned about the variance in the growing CVs from your own product testing. This wasn't feedback that you got from the trial sites?

That's correct. We had no feedback from the US trial sites. Quite frankly, they wouldn't be able to notice that. They wouldn't have been able to notice any great change in the product performance. It is not like the products fell off a cliff. The variation we saw is only slightly more than what it should be. So it probably would not affect clinical performance. But we saw it in our own testing and we felt we have to do something about it.

Okay, that makes sense. Did the manufacturer notify you or have to notify you that they had changed the construction of the product when they made that change?

What happened was we actually asked that the fluorescent dye be packaged in a smaller package and basically in quarter-milligram quantities. And as Jim explained, basically they changed the fluorescent dye quantity but they didn't change the solvent. So basically they kept mixing it -- they kept dissolving this in 1 mL instead of a quarter mL. That error was made.

And it was only then when we basically looked at our -- we do ongoing review of our retained batches, and basically it came to light in that review. We are talking about a very marginal deterioration in the product. We are talking about a very, very marginal increase in the CV. Bear in mind this is something that arguably we could have let continue. It was a very judgmental margin and a very marginal call as to whether or not we would actually suspend the trial. We could have gone on. The product would probably have been FDA approved. We are talking about a marginal change in the CV.

But in the context of the fact that when we decided that we would actually suspend the trial, given the impact that had on the timing, we felt that we ought to basically announce it now. Just to make another point, I think that it's a pure timing coincidence that this announcement coincides with our quarterly results. We only made the determination last night to actually suspend this trial.

Sure. And just so we get how the trials are being run and all of that, I guess to an outsider who has never had to do this, you look at it and you say, gosh, if there was a change in one of the inputs it seems like that would be something that would be tested when you are in the middle of a clinical trial. So maybe you could help us to feel comfortable on how that decision was made and implemented.

That's a reasonable question. Firstly, we, Trinity, we did ask for this change in manufacture. Okay? And I'll just explain why. When we make a particular what we call a conjugate, okay, which matches our batch size, okay, we actually use one-quarter milligram of this particular dye per batch of products. Okay?

It had previously been -- it had previously been sending to us in 1-milligram batches. And with the best intents possible our scientists felt that having to dip a spatula into a powder, if you like, four times could perhaps introduce contamination or variation. So it seemed like a prudent thing to get the supplier to pack it in the right unit sizes, if you like. Okay? So that's where the call came from, just so it would match with our manufacturing batch size. The product would have passed all of our QC test. Okay. So when we manufactured products with that particular dye, it did pass our QC testing, the same QC testing as every other batch passes, or else it wouldn't have gotten to the market, if you like. Okay?

Where it became evident is about six or eight weeks after manufacturing you start to see a creep, [want a better word], in the product. Okay? It makes it somewhat, for some reason, unstable. And you only see -- it manifests itself maybe in an auditable fashion six or eight weeks post manufacturing. And of course, at that stage it had shipped to trial sites. In fact, only one lot had actually shipped to trial sites. There was another two or three lots that had been manufactured that had never shipped to trial sites.

And I think I said in the summary there was only -- there is still five trial sites running. And indeed, there are only 50 patient samples run on the affected batches. And those have been quarantined and kept out of the data set.

Okay. That's very helpful. So that explains why it took some time. So you said in the recent past, like within the past week or something, that you guys discovered this change in CV?

Yes. Last week in the internal testing we discovered it, and immediately alarm bells rang for us. Okay? And in credit to the guys in Sweden, I think in the space of a week we have identified -- we genuinely have positively identified a problem. It's very clear. You can see it before and after in our data, very clearly have identified a problem. We have identified what the fix is, which is really to go back to what we used to do. And we have made a pilot batch, a smaller batch but a pilot batch, nevertheless, of products with the old process. And it's exactly the same as what you would expect. It came out exactly like all the product, if you like. Okay? And so it was basically we identified it, we came up with the fix, and we have a solution.

So along in here, again, just to put in perspective, so we have a CV of about 10%. And it seemed as if they [said] we were gradually -- now, I made clear it could extend as time period goes on. But the worst that we had got to was out towards 20% of the CV. Right? Now, given that the US trial is blind, there's 50 samples out there we don't know what they were tested on, but it might be that we never missed any [hard stack] but it might be that we did because basically that meant that there was product out there that was at higher CV then we wanted but ironically still within the relaxed FDA guidelines. But we had made a decision, in any event, to suspend the trial and to recall the batches and to look for -- to make only trial on our best-quality product. So that's what happened.

So just one more thing on that. I think, Jim, you touched on this. But I think what I understand -- because one of the questions I've gotten is, gosh, why did it take so long to see the impact? And if I hear you right, what you are saying is the impact grows as the product sits on the shelf?

Exactly. Any diagnostic manufacture knows there's biological components in these kits. Okay? The antibodies, et cetera -- they are all biological components. They do degrade over time. Okay? So that's why, for instance, our product has a shelf-life of 12 months at 4 degrees Centigrade. Okay? Or 2.28 is the actual number. That means that there is a gradual deterioration at all times in these biological systems. Okay?

Somehow or other this change accelerated at that -- that change process. Okay? I genuinely can't tell you why. I don't know the mechanism as to why it should have done it. But it just -- over time, not noticeable for a number of weeks until you start -- and again, as Ronan says, it's very marginal. It's very hard to see these changes but it took 6 to 8 weeks to see it.

Again, another point to make is that it would not a normal to go back and test retained over time. But that was -- luckily, it was something that we had put in place at this time because we were in the trial situation. But that would not be normal to be testing retained's basically periodically.

Okay, that makes sense. And then just -- you mentioned that you will exclude any results from the problematic batch of test. Is that something that FDA has agreed to or you have to get the FDA to agree to?

At this stage, Bill, we don't have to tell the FDA anything. First of all, this is not unusual in clinical trials. This happens frequently. Okay? It just so happens that probably Troponin is the most highest, visibly highest project in Trinity's portfolio. But this happens from time to time. It's not unusual. So what we have to do essentially for the -- we don't have to tell the FDA at this time anything about this thing. Okay? What we've will have to do when we make our submission is tell them it happened, show them that we identified what the problem was, show them forensically that none of the samples got through into the data set that were tested on this one lot of product that's poor. And they will want to see very thorough validations on the new batches of product to make sure that -- to prove categorically that it's the same as the old batches of product. So it's a paperwork exercise.

I'm not pretending -- you would prefer not to have this in your clinical trial. But it won't be the first time or last time the FDA will see it in a data set. It's a procedure, a process. Our regulatory people know it very well. And indeed, it's just a job of work that has to be done. But there's no onus on us to tell the FDA anything at this stage.

This identical scenario has happened in numerous occasions, quite a number of occasions over the past 20 years on FDA submissions. It's just that none have been quite so high profile. You know?

Sure. And sorry with a long questions, but if I can ask just two more, if you would bear with me. What type of incremental cost to you think the delay might create for you?

I think minuscule, very marginal, tiny.

For our clinical trial sites we paid by the sample, not by the hour, if you know what I mean. Okay? So, okay, it's halted so there's no more samples being tested. So that cost stops until we start again.

Okay. And then just -- right, but I assume there's a some manufacturing startup and whatnot. But I'll take you at minuscule; that sounds good. And then just the last thing -- is there commercial product out in the market from this new composition that you are going to have to recall, et cetera?

No. Nothing, nothing. This is purely -- no, absolutely nothing.

Okay, perfect. I will hop back into the queue because I have hogged so much time. Thank you.

Jim Sidoti from Sidoti & Company.

Just following up on the line of questioning from before, if it takes a few weeks for the problem to manifest itself, how can you be confident that this latest batch you made won't have that album in a few weeks from now?

What we've will have to do on it, Jim, is to do what will be fairly normal accelerated stability studies. Okay? So let's just say -- well, the fact is our product is a 4-degree storage product. Okay? If you want to accelerate deterioration, okay, there is a sort of process where you would put that product into an incubator at 37 degrees, then 45 degrees, and maybe 52 degrees, and that's a known process to accelerate real-life aging at kit temperature. So we will have to do that sort of testing at the end. We are doing that sort of testing, got a pilot actually made. And we will have to do it on the new batches as we make them.

But if you think of it simply, we made a change. Now we're going back to exactly what we did before. Okay? And exactly what we did before, went through all of the protocols and stability testing, et cetera, et cetera So it can never be 10,000% sure, but on the law -- experience would say that if you do exactly the same as you did before, it should be the same as before. But we will have to test it in this accelerated environment.

I think we've allowed ourselves adequate time to do all of that in the context of recommencing the trials in mid-February.

Okay. So you are commencing that accelerated live testing now? So you should know within a couple weeks if the problem reemerges?

Yes. To be really clear about this, we are not going on a voyage of discovery. We have actually discovered what the problem is and we have resolved it. What we are just simply doing is going back to what we were doing all along. Bear in mind the problem is a CV problem. CV equals variation. Right? It means that every product has to be identical to the one before. So it's a matter of having no variability between tests. It's as simple as that. It's not like we are trying to rediscover how to make the product or how to make it work. It's simply just a matter of repeatability and we are satisfied we have achieved that.

It just sounds like such a miniscule change that was made. The fact that it's having an impact on the results is surprising.

Maybe people need to understand what CV is. Basically, a tight CV means that basically if I take a blood sample from somebody and I break it up into -- and I use it basically -- I just lined up my test 20 times on the table and I test -- use that sample basically one, two, three, four, five, six, right across the whole 20 samples and run them, that I need to get an exact same result all 20 times. Remember, that's the game we are in; it's high-precision, tight CV. So the tiniest, tiniest change can actually play havoc in the circumstances, particularly when I am trying to determine basically a picogram of Troponin basically dropped into basically like an Olympic swimming pool kind of thing, which is what we're looking at. So the tiniest variation can have major impact. And that's what's written here.

All right. Are you concerned if such a small change affect the results, that maybe there might other small changes that could throw it off as well?

Well, that's what the whole development process we have is all about. We have a design control process that -- this product is no different to any other diagnostic product. Okay? It's very sensitive. Okay? But all diagnostic products are prone to external effects. They don't like being put at high temperatures. They don't like being put into high humidities. There's various things. But you build in, Jim, that sort of durability, I guess, into the product. And you test for it when you are developing it. Okay?

But they are sensitive products. Diagnostic products are sensitive products. This one is no more sensitive than any other on it. Put it that way.

Does this change impact any of the other products that you have on the Meritas slide?

No, absolutely not. Believe it or not, we had scheduled the changed BNP to move over to the quarter milligram. But you can imagine that schedule has dropped. Okay? So no, it doesn't affect any other product is the answer.

So the bottom line is you have maybe a six-month delay in getting the results to the FDA. But you are still confident that the results will be as sensitive as they were in the initial pilot runs and that this will still be the only test on the market that will meet the FDA guidelines?

I think that the actual delay that arises as a consequence of what's happening is 3 1/2 to 4 months. I think the fact that we are saying that we will go to August -- and in reality, what we're doing is we are allowing what we feel is plenty, plenty or adequate or more than adequate time to actually pull all the data together at the end. And you have the cardiologists' input, et cetera, et cetera. I think we are -- so basically we have been cautious in our timing. So you could conjecture as to whether the delay has been four months or six months, but it's of that magnitude.

Just again, to go back to what Jim said, we have about 700 samples already obtained. So when we recommence we are to pick up another 900.

Okay, that was my next question. So you still have about 900 more to complete?

Yes.

And then we have the cardiologists' review and basically pulling together of the whole -- and the assembly of the submission. And I think we are allowing two months for that. I think we are allowing plenty of time. We are allowing probably more time than we were in our previous calculations when we talked about submitting these products at the end of January or start of February of 2015. So we've moved from that timeframe to August of 2015. But I think we've allowed more than adequate headroom in that timeframe.

Okay. And in regards to the quarter that just ended, it seemed like there was some additional operating expense related to the shutdown of the plants from the acquisitions last year. Do you think in the fourth quarter you are past all that? And where do you think margins will get to in the fourth quarter and in 2015, ballpark range?

Yes, Jim. No, I do. You are right; there were additional costs there in quarter three in relation to the close down. I do think that issue is now gone. I point out again that the plants did close at the end of July so there was a bit of distance between now and then. So that issue has probably cleared up. So we will see an improvement. It's difficult to be precise about what that level of improvement is because it's going to depend very much on our mix going forward. We will have lower line sales eventually, which will cause a little bit of a downward pressure. We will have the fact that we will possibly have more instrumentation as well, which could have had a downward impact, plus we will have the benefits now of the efficiencies coming through from these plants, which will push things up.

So we do have -- we have forces pushing in different ways. And I do anticipate we will get some increase hopefully in quarter four in relation to that. And we said that the more instruments that go out, the greater pressure will be on margins. So a lower margin, as I pointed out before, does not necessarily mean a bad thing. It can be indicative of very strong sales.

Right, right. If you have a lower margin because of high instrumentation sales, I think everybody could live with that.

Exactly, yes. So I'm saying, exactly. So low margins are not necessarily a bad news story.

Okay. All right, well, thank you very much.

Larry Solow from CJS Securities.

Just a couple of clarifying things. You guys actually have gone over this pretty well. So you basically didn't have any idea there was -- you knew you made the change but you didn't really realize that things were not changed to your liking or it wasn't quartered, the solvent wasn't quartered until you saw the variance, which you took until last week to discover. Right, basically? And you --

Right. Correct.

So the trials essentially were halted as of last night. Is that --?

No, as of today.

As of today?

Just to be clear, the trials, as it turns out, are still running because a number of the sites stayed up. There was only one batch of products. Okay? So five of the trial sites are still running, although the wind went out sharply. Okay? But the sites got a formal notification only today.

Got you. So there's 11 sites and you are adding a 12th. So essentially the other six sites had basically -- one of them had started with the new batch. The other five have not actually started yet so is that --?

Essentially, yes. And what we said to those sites was that -- we didn't say it to the sites last week we are shutting down the trial. We said, please do not use lot number 1, 2, 3, 4, just the lot number. And use any other product you have.

Got you. So essentially you have a little bit of a tail for the trials to completely stop as these guys use up the last of the old batch, if you will. And then you have to wait for the revised batch to be made for them to all start back up again?

Exactly. I believe there's enough product out there, okay, to maybe do about another 60 or 70 patients.

That's what I was going to ask you. So okay, so you will get back up to that -- you will make up the difference that you lost, so you get back to them 625-ish area.

Give or take. That's exactly it.

Got you. And you have confirmed, but just -- so this basically is to the assay used in the Troponin part of it, it is not the actual read? All right? So it's the drop that you drop into the liquid into the fluid chip? Is that --?

Exactly. It's the consumable, not the reader.

Got you. And the entire capsule, the quarter milligram -- you used that to make an entire batch of assays, not per assay. Right?

No, no. We make that to make an entire lot number of assays.

Right, exactly, exactly. So that's why it's such a small, minute -- it's already a minute number and it just gets, obviously --

Minuter.

-- Minuter. And just last thing on this and then we'll move on. The revised or the re-revised stuff -- are they going to still quartile it for you, or you are going to go back to the 1 milligram and you are going to quartile it yourself?

No. We are going back to exactly what we did before. Okay?

Okay.

The process is exact -- we are going back to with the exact process that we did before.

Right. But even though essentially you may be able to -- I guess you just don't want to play with fire. But you realize that they didn't -- the reason why it was different was that they didn't quartile the solvent. But you are not going to go try and play with that; you are just going to go back and quartile it yourself during the process, essentially?

Correct.

Right, right, okay. Fair enough.

Okay, well, moving on, the Sjogren's product -- you said it's going to -- did a little of sales this quarter and it's ramping nicely next quarter to potentially $0.5 million. What do you think -- that's like a $2 million run rate. What do you think the ultimate potential or target market is? And other participants in the market? And how do you view that for this product?

Well, this is like a confirmatory -- it's actually confirmatory and a dry-eye test. It costs over $300 per test, so quite expensive. It will come after a screen, typically.

In terms of potential, it's quite significant. I hope that we will be at a run rate of $2 million annually basically by -- within another couple of months. And in terms of whether it's going to become a blockbuster for us, I probably don't think so. But I think it certainly has scope to yield double from that size or maybe a bit beyond that. But I'm just a bit reluctant to say, because I don't know is the honest answer. But certainly it has already met our expectation. We thought it was going to be a $2 million product, and instead it will be a $2 million product basically after 16 weeks. So let's just keep our fingers crossed and see how we go. But very promising.

Okay, but it could be -- not to put words in your mouth, but a $5 million annual product in a couple years is not -- doesn't sound like it's out of the realm of --

No, I think that's probably where it will go. And it could go beyond that, but I just --

Got you.

-- Just don't really know yet. You know?

Got you. And then just on the increased expenses, so the SG&A -- I imagine some of it is sustainable because it's for -- right, so it's for Meritas and for the Fiomi Meritas and then Sjogren's? Or is there some sort of initial bump up maybe on Sjogren's, at least, that will subside?

There is a certain amount there. You are seeing three factors within the bump up there. You are seeing fact that you have got a full quarter in relation to IMMCO as a whole. You are seeing the fact that we are caring about $0.5 million a quarter in relation to -- at Meritas-related cost. And then the Sjogren's itself. And as Sjogren's goes on --and the more successful, again, Sjogren's becomes, the more likely those costs are going to go up.

There was some initial cost there, which you can expect. We have to -- we partner with a partner on that and we share some of the costs in relation to that. So again, the more successful and the more heavily this test is marketed across the country, and it's obviously a big marketplace, there will be a cost going forward. I wouldn't overemphasize the startup costs at this juncture, given the fast ramp we are seeing already.

Got it. Switching gears real fast, point of care, HIV -- I know initially you guys had thought it would be a double-digit grower in the US this year. It sounds like that the further declines in public funding and the slower testing in these public clinics is impacting you. But it is, I guess, growing in the mid-single digits in the US? Is that a better assessment?

Basically, what's happening is the hospitals are performing very strongly and public health is performing weakly. And the combination is that we are actually growing at single digits, yes. But we are actually -- and we are growing comps in strong double digits.

Got you. And then Africa -- I know sometimes it's lumpy and timing related. But it's sort of flat this year. Has there been some impact from Ebola? I realize it's localized in a certain part of the continent. But has that impacted you guys at all?

Well, it has. I think, for example, in Nigeria there was a particular order that we were hoping we would get in quarter four, the current quarter, and that's just not materializing. And I think the indications are that they are very preoccupied with Ebola. And so it is having an effect -- not a very big one, but in that area. And around Sierra Leone, Nigeria, yes, it is, less so around the rest of Africa. Most of our HIV business is sub-Saharan, so it's really not -- it's not as effective. But it's having an impact in Nigeria but hopefully just a gradual timing difference. You know?

Okay. Then Premier continues to meet expectations? I guess you launched the new product in this quarter, too, for the non-variant portion of it?

Yes. I didn't talk about that in the update, but that is performing very well. It's very promising. It puts us into -- as I talked about last quarter, it puts us into a whole new -- well, we are in that area. But it puts us into the area in the competitive way now and we have a $7 million business and we can grow it very significantly. And there's very little competition, only one other major competitor. I'm sure you know who it is. And we have got the wherewithal now to really take them on. So I think that we can do very well there. And I mentioned that we had won a contract in Sao Paulo and Rio de Janeiro for all newborns. And so that promises -- bodes very well for us in the future.

Just going back to Premier and in the diabetes side of things, just to mention that (inaudible) just to mention that we placed 120 instruments in the quarter, which is very gratifying. We will place, this year, 23% of all diabetes A1C instruments placed in the world. So we are pleased about that.

Right, and you are still targeting getting up to like a 30% run rate, which would be, I guess, in the mid -- north of [550]?

Yes, that's our target. And whether we get their next year -- we get close to it. Probably won't quite get there, but hopefully we get there in 2016.

And just lastly, on just the last negative or the little bit of an eyesore that remains on Fitzgerald -- I know that has been flat to down the last couple of years. And it seems the last couple quarters it has declined a little bit more again. Is that something that we should be aware of? Anything going on there?

Just to say that -- it's not that we don't try very hard; we do. But we are just finding it almost impossible to grow this business. We have worked very hard and we have made changes and we have done all sorts of things. I would just say in its defense that it is an extremely profitable business. This product, this business generates EBITDA of over $4 million. So it certainly contributes to the overall Company very significantly, albeit we are not growing the revenues.

Right, so it's like a 40%, 50% EBITDA margin there. Right? North of 40%, it sounds like.

Well, we really would like -- it's at about $11 million, so [4 of our] 11, whatever that is -- pretty close.

Got it, okay. Thank you very much, Ronan.

Ross Taylor from Somerset Capital.

Ronan, trying to get to quit the core business would be earning without that Troponin effort. So can you break it down to either tell us how much you are spending, all in, on Troponin -- not just on the testing but on building out the infrastructure and all that? Or could you give us an idea of what the rest of the Company would be doing?

All right, Ross. You always ask tricky questions. And generally what we have spent on Troponin, this whole project, from the day we bought it in terms of including the acquisition costs, we are, I think, just scratching $30 million at this moment -- Kevin, I think that is about -- just on $30 million, what we've spent on it.

In terms of -- actually, what the profitability of the business -- the profitability excluding Troponin is slightly more than the profit that we announced today because, of course, because we have marketing cost, et cetera, et cetera. Remember, we are capitalizing some of the R&D costs. So I suppose and I would put it to this, put it another way, then. The EBITDA of this company is $27 million. Absent Troponin it probably would be $31 million.

Does that answer your question? That's -- EBITDA in terms of earnings per share -- I would say, and you are putting me on the spot here in doing my math and arithmetic. But I would have said $0.88 [of outcome].

Okay. And --

Does that answer your question?

Yes. And it assumes that you also then have a little bit -- we would have a run rate into the fourth quarter. So if we are talking about basically $4 million difference in EBITDA, it probably would be $5 million, $5.5 million on an annual basis?

Yes, plus $5.5 million in annual basis. Right.

I'm just trying to figure out what the annual effect is, because this is -- we are talking three quarters and obviously the year has four.

But I was talking four. I was talking annualized.

Okay, Great. Okay, fantastic. Now additionally, obviously, with the stock down here you stated that you are very confident that you get approval and the like. You have, what, $9 million in cash sitting on the balance sheet. You have talked about rolling this thing out, money we thought we might need to roll out the product as early as the second quarter of 2015 is now likely per-year calendar, which seems that you have bought another three or four months of protection in your August --

I do have to jump in there, Ross. We have probably bought another two months of protection, not so much --

Okay, two months. Why don't you step into this market, given all these things and given the endgame value of this product, and aggressively buy stock? The stock is probably trading well under with the core business alone is worth, let alone what the call value of Troponin would be. It strikes me as if I'm sitting on your Board, I'm pounding on the table saying this is a strong free cash flow generating business ex what we are doing in some of these ramp up efforts. It's a great time to buy stock if you can buy at that $17, $18, $16 a share. This was $27 a year ago.

I do agree that it's -- I agree it's a great opportunity to buy back stock. But the issue is, would it be expedient to do so. We have $9 million in our balance sheet at the moment. Now, I know we just paid a dividend and our cash flow has strengthened as the year goes out. But at the same time, we have limited headroom to do that.

The other factor one has to bear in mind is, if our cash balances were to considerably weaken, that in itself can make investors nervous as well. So I think it's a balancing act. But I'll tell you certainly we will look at it and we will consider is that -- clearly, it's not my call, it's not the management's call alone; we would have to talk about that at Board level.

But it's an interesting point you make for us. I accept that. But I would say -- I just caution that we have limited headroom.

Well, I think actually, Ronan, in the past, before you started this effort, you were generating over $1 million a month in free cash flow, about $1.1 million or so. I would assume, given the steps you've made and the increase in Premier and the like, that number should actually be substantially higher than it was prior to that. So I'm really struggling with idea of saying that you are not capable or not comfortable stepping out when it seems that a lot of the issues here and even the cash flow issues are really tied into what are some one-time events. And it strikes me as if you have this confidence that even this business can just be as good a free cash flow generator as it was two years ago, you should be aggressively buying stock. And anything other than that is kind of more a little boy in the dike kind of mentality.

Well, look, I'll tell you genuinely we will take your comments on Board and we will consider it.

Thank you. We can chat afterwards. I'll talk to you a little bit more about it later. Thanks.

Chris Lewis from ROTH Capital Partners.

So I just wanted to circle back on Troponin. I think most of my questions have been answered there. But in terms of the formal notification sent out to the centers today, have you had any communication with any of those enrolling centers at this point after they received the formal notification? If so, what has been the feedback? And do you think there's a risk that some of those centers who have used the tests and have already been enrolling here for a couple of quarters -- is there a risk that any of those centers drop out and you might need to get a couple of new centers once resume the trial?

To answer your first question, no, there hasn't been any formal feedback yet because we waited for the announcement to go out and to have this call before we sent out any letters about anything to anybody. Okay? So they are only really gone out, if you like. Okay?

And quite frankly I absolutely don't think there will be any fallout from the trial sites. As I say, this is a big deal for us. Okay? We are very disappointed we had to stop the trials today. But it's a frequent enough event, okay. In any of these trial sites we have right now there's probably anywhere between 5 to 7 different clinical trials ongoing within those hospitals at any one time. We have a good relationship with each of the PI's. And I don't believe there's going to be any fallout. But we will have to work with them. They will be disappointed. We will have to work with them and have to convince them that the product is very, very good. Don't forget, they only got one lot of product to date. There's only 50 samples out of 600 samples that have had a problem. And we reacted prudently and conservatively. So, I think we may be seen as a sort of a conservative partner in this thing. And so we will have to work on it, but I don't believe there's any problems.

And for your mid-February timing expectation to resume enrollment, has that assumed any type of ramp up period to reengage those centers to begin driving enrollment again?

No. We have plenty of time to get the centers ready and primed, and they are already trained, they are already up and running. It should be a matter of putting product into the labs. And don't forget, we are now up to 12 sites. So it's a matter of putting products into the labs and getting going. But we will have to prime them and prep them and get them ready and retrain them and all that good stuff. But we have plenty of time to do that in the month of January.

I understand.

We'd only have to retrain in the event of change of personnel, really.

Yes, but it would be prudent one more because they will be out of practice for a few months.

Right.

Understood. And then in terms of the FDA, it sounds like you don't have to disclose this change with them. But are you planning to have any type of discussion with the FDA prior to recommencing the trial, just to be on the safe rather than sorry side, to make sure the delay and disruption won't ultimately put you at risk or raise concern when you submit the data to the FDA?

I asked the very same question of our regulatory people, as you can imagine, a number of times last week. And the clear answer to me was no. There's actually no need, as long as we make sure that we are almost anal in our paperwork, okay, that we cover everything, that we can prove to them forensically that all products have been removed from the market, that all data has been removed from the actual databanks, and that the corrective actions have been put in place and are working. The advice had been given from a number of regulatory people there's no need to do that. And there's nothing to be gained by doing that. But we need to make sure that our house is in order when they come to audit.

Okay. And then circling back on the last question about cash and cash balance and uses of that cash, your balance has really come down pretty considerably here over the past year or two, $9 million -- that's pretty low from where you have been. Obviously, you had some costs with Fiomi and other initiatives here. But how should we think about your cash position here? And how should we think about potential needs going forward over the next six to 12 months? And paying out a $5 million dividend in the quarter with only $9 million in cash -- give me your thoughts on that and if you expect that to continue.

Chris, Ronan here for a moment. Just bear in mind that we've done four things with our cash. You know? We've bought IMMCO, we bought Fiomi, we bought the blood banking business in the UK, and we bought back $11 million worth of stock as well as paying a dividend, I think, three or four years in a row.

So that's where the money went. And the business has remained cash flow positive, and so the cash flows will strengthen as we move forward -- just to make that point, you know.

Okay. So you feel comfortable with your cash position?

Absolutely, yes. At that point, yes.

And then as we look forward into 2015, I understand you don't give guidance. But can you give us a sense of just -- the organic growth has seen in that low single-digit range? Do you feel comfortable that you can sustain that through 2015?

Well, we would be very disappointed if we only sustained it. Obviously, we want to improve it and we believe we will as Premier gathers pace, as the new point-of-care products that we've launched, principally in Europe, gather pace, we believe that that organic growth rate will improve. And of course, I'm sorry, IMMCO, clearly, too, performing very strongly. And then, of course, Troponin coming through and now beginning to look like realistically a number of months later it can be a selloff but having a big impact when it arrives. But no, no; we would be very dissatisfied if we were just to maintain our current organic growth rate. And we think we can grow it.

Okay. Thanks for the time, guys.

Operator, could I just suggest -- it's now 5:05, and this is probably the longest call I can remember us having. Could I suggest we just take two last calls? I know there's more than that many questions out there and I don't mean to exclude anybody. But I suggest we'd better confine it to two last questions.

Paul Nouri, Noble Equity Fund.

The $500,000 or so in Meritas sales and marketing costs -- are those pre-ramp in America? Or is it more towards Europe, where it's already approved?

It's pre-ramp worldwide with probably an accent on Europe because that's where it's happening at the moment. So, for example, it would include -- but it will include two US-based people. It will include an actual sales guy on the ground in Scandinavia and then the sales and marketing team based in Dublin as well. But the action will be on Europe.

So even given that the approval is going to be pushed back a little bit, the resources that were in place this past quarter will probably stay there for the foreseeable future?

Well, yes. We did consider maybe pairing it. But given that the actual -- the duration of the delay didn't really merit taking that kind of action. I think it would be counterproductive. It's customer recruiting again, et cetera, et cetera. And the experience have been built up. But we did consider it. But no, no. So we are full steam ahead with the same team.

And what stage are you at with European sales for the point-of-care cardiac?

Well, the European situation is this. We got a CE Mark in January. But it's a self-regulatory Mark. So it's a self-regulatory system. So we then needed to get involved with opinion leaders and do evaluations in individual European countries. And we are doing that at the moment in the five top European countries, which would be UK, Spain, Italy, France, and Germany and also then in the Netherlands. We are doing that. Something we haven't actually talked about today is that there has been a marginal impact on those valuations by the subject of today's call, clearly, as you can imagine. But it's not significant. But we are dealing with that.

But what's happened today will actually result in [manageable] delay on those evaluations also. So those evaluations are continuing and it's only really on the successful conclusion of those evaluations that we can realistically sell in the European countries because the cardiologists, opinion leaders need to be convinced as to the quality of our products. And unlike in FDA situation, where and FDA approval carries a lot of kudos, CE Mark carries no such kudos because it's an entirely self-regulatory environment.

So maybe just to put a timeline on it, I see sales starting in Europe probably in quarter two of 2015, realistically, because, again, our whole evaluations in Europe are suffering delays as a consequence of what's happened.

And last question -- is Menarini already selling your Immco products?

Yes, Paul, Menarini are doing so. And the situation is that Menarini basically had a very -- that have a very significant autoimmunity business. And they buy from a number of suppliers and we would expect that they will be consolidating that supply from us. And that's happening. But of course there is no [security], et cetera, required in all of that. But I think that is the intention. I hope I'm not saying anything sensitive in terms of commercially sensitive when I say that on the phone. But that was the intention. So basically Menarini have a very significant and very prosperous autoimmune business. And I think we will share in that prosperity with them as we move forward.

Okay, thanks.

Randy Saluck from Mortar Rock Capital.

Most of my questions have been answered but I wanted to ask one or two more things. First of all, what is your anticipation of the timeframe with respect to your syphilis test and hearing back from the FDA?

Okay. Well, on the syphilis, Randy, we basically have submitted just about everything that one could imagine that the FDA could possibly require. We have -- and we've answered endless questions and the thing has gone on for nearly three years. So we are of the belief now that we will either succeed or fail in the short term. And our assessment of our chances of that is coin flip, basically 50-50 with maybe a marginal advantage on the positive side, so 51% chances of succeeding.

In terms of if we do get that approval, it will mean that we have the only clear waived syphilis product and we believe that it's potential in the market is very significant. That, I think, is our best estimate of what's happening. Basically, it's a coin flip, Randy.

I see. And real fast, I didn't quite understand why it takes until February for you to restart those sites. Is it because you are waiting for -- to get enough for the reagent product? Or is there something else? I just --

Well, if you think of it, Randy, today is the 23rd. So it's going to take us a month before we get -- it's going to take four weeks, probably a month before we get the fluorescent dye in from supplier. So that gives me 23rd of November. Right? Then it takes me eight weeks to go through the [processing] cycle, which basically gets me to 23rd of January. Throw in Christmas holidays, whatever, I'm saying it might be the end of January. But I'm saying by the time we actually have the product in those 11 households up and running I'm saying 15th of February. That's probably where we think it will happen. You know?

Okay. And your timing on BNP hasn't changed in the US?

No. Timing on BNP is exactly the same, Randy.

Okay, thanks.

Thanks, Randy. Thanks. Okay. Thank you very much. I'm sorry to those people who didn't get to ask a question. I just have to close it off at some point. So just to say see you, talk to you in a few months. And thank you very much and good afternoon.

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