Trinity Biotech PLC (TRIB) 2015 Q1 法說會逐字稿

Good morning and welcome to the Trinity Biotech first-quarter fiscal-year 2015 financial results conference call. (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, Operator, and thank all of you for joining us to review the financial results of Trinity Biotech for the first quarter of fiscal-year 2015, which ended March 31, 2015. With us on the call representing the Company are Ronan O'Caoimh, Chief Executive Officer; Kevin Tansley, Chief Financial Officer; and Dr. Jim Walsh, Business Development Director.

At the conclusion of today's prepared remarks, we will open the call for a question-and-answer session. But 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 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 Kevin Tansley, Chief Financial Officer, for a review of the results. After Kevin's results, we will -- excuse me, after Kevin's remarks, we will hear from Jim Walsh on product development issues and Ronan O'Caoimh will wrap up the prepared remarks with his perspectives on the quarter. Kevin?

Thanks so much, Joe.

Today, I will take you through the results for Quarter 1, 2015. Beginning with our revenues, total revenues for the quarter were $25.2 million, as compared to $25 million in Quarter 1, 2014.

However, revenues this quarter were particularly impacted by currency movements. The recent strengthening of the dollar has served to reduce the dollar equivalent of our euro, sterling, and Brazilian revenues. As you will have seen from the press release, we restated the Quarter 1 revenues on a constant-currency basis, which shows a growth of 6% quarter on quarter.

The impact of these currency movements is not limited to revenues. You will have heard us mention before that from a profitability point of view, we are broadly neutral from a currency point of view. This is because we have a natural hedge whereby our foreign currency-denominated revenues and expenses offset each other. That's why revenues are lower -- so, too, are our costs, and this is relevant when considering gross profits and SG&A movements this quarter.

This brings us, then, to this quarter's gross margin. As you will have seen from the press release, we are showing gross margin 49 point -- 47.9% this quarter, a nice little reduction on the 48.6% in Quarter 1 last year, partly due to the currency issues I just mentioned. It is higher than the -- it is actually higher than the 47.5% reported in Quarter 4, 2014. So we are now beginning to see the beginning of the improvement in our gross margins, something I would have alluded to on our most recent earnings call.

Moving on to our indirect expenses, our R&D expenses remained constant this quarter at approximately $1 million. Meanwhile, our SG&A expenses also remained consistent with the equivalent quarter in 2014 at $6.3 million. However, in this case, we are seeing a reduction of these costs due to the currency movements I mentioned earlier, but this is offset by higher sales and marketing costs largely associated with our Meritas business, which is currently not generating matching revenues.

Operating profit for the quarter was $4.3 million, compared to $4.5 million in Quarter 1, 2014, which represents an operating margin of 17.2%.

Moving on to our net financial expense, this quarter we had net financial expense of $23,000, which represents a notional charge on long-term liabilities.

Meanwhile, our tax charge for the quarter was just over $300,000. This represents an effective rate of 7%. As in previous quarters, we continue to receive the combined benefit of very competitive Irish corporation tax rates and tax credits arising in Ireland, the USA, and Canada.

Overall, I'd point out that it is higher than the unusually low rate of less than 2% recorded in Quarter 1, 2014, which obviously has impacted profits this quarter.

The net result of all that I have spoken of so far is that profit for the period was $4 million. This equates to a basic EPS of $0.174 and a diluted EPS of $0.17. I will, however, repeat that we are carrying significant Meritas costs and if these were omitted, our earnings for the quarter would have been over $0.20.

Meanwhile, our earnings before interest, tax depreciation, amortization, and share option expense for the quarter increased to $6.2 million versus $6 million in 2014.

I will now move on and talk about the significant balance-sheet movements since the end of December 2014. Property, plant, and equipment remained largely consistent with last quarter. This was due to additions of $1.2 million being offset by a combination of depreciation of about $600,000 and re-translation movements of $700,000.

In the same period, our intangible assets increased by $2.5 million. This was made up of additions of $3.7 million, offset by amortization charges of $0.7 million and re-translation movements of $0.5 million.

Moving on to inventories, you'll see these have increased from $33.5 million to $37 million. This is due to a number of timing issues. Firstly, we have built up the inventory of our rapid syphilis product in advance of the expected growth in sales in the months and quarters ahead. There was also the normal increase in the levels of Lyme inventory in preparation for the peak Lyme season of the summer months, a phenomenon that we see in Quarter 1 every year. In addition, we continue to build Premier inventory levels in line with the growth in that business.

And finally, there are the normal fluctuations which occur, due to ordering and production schedules. For example, I will remind you that there was a slight fall in inventory in Quarter 4 versus the previous quarter, and now we are seeing the opposite effect this quarter.

Meanwhile, trade and other receivables have increased by $1.6 million to $27.6 million and this reflects the longer payment cycle with respect to instrument sales and the timing of some receipts. Meanwhile, our trade and other payables, including both current and noncurrent, have decreased slightly from $23.6 million to $23.3 million.

Finally, I will discuss our cash flows in the quarter. Cash generated from operations for the quarter was $1.8 million. Meanwhile, capital expenditure was $4.1 million. This was lower than the previous quarters, though this was in some ways explained by timing factors affecting the fact that Quarter 4 was unusually high.

There was also the payment of a license fee of $1.1 million. You will recall this relates to the license fee associated with the HIV-2 license which was taken out in 2013 and which has been paid over five equal payments, three of which still remain to be paid.

The net result is that we had a decrease in cash for the quarter of approximately $3.3 million, with the quarter-end balance being $5.7 million.

In terms of the run rate of cash outflow, I will point out there had been a slight cash inflow in Quarter 4, 2014, of $300,000, and both the average cash outflow for each of the last two quarters has effectively been $1.5 million per quarter.

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 the opportunity now to update you on progress on our cardiac marker development programs. In particular, I will provide you with a detailed update on our troponin clinical trial, which I am delighted to say is progressing very satisfactorily and according to plan.

I will also update you on our Meritas BNP product, which, as you know, obtained European CE approval last year and which we plan to submit to the FDA later this year.

Now in February last, the Company announced that it has shipped product to the USA for the recommencement of our US clinical trials on our troponin point-of-care product. The trial is now running at 12 trial sites across the USA and it is currently recruiting between 60 and 70 patients per week.

On our last call, I believe I said we hoped for a recruitment rate of 72 patients per week, so we are therefore tracking very close to our expectations. Furthermore, the actual rate of MIs is currently tracking slightly higher than expected, which, of course, is very encouraging. The project therefore remains on course to have data collection and subsequent adjudication completed during the month of July, with the FDA submission planned immediately thereafter.

Since the recommencement of the clinical trial, we are delighted to report that the product continues to exhibit the same excellent clinical performance demonstrated in both our European CE trials and the independent clinical evaluation carried out by Dr. Apple at Hennepin County Medical Center in Minneapolis last year. Furthermore, European evaluations are well underway now, along with product registrations in advancing in a number of countries, including China and Brazil.

So in summary, we are happy with the quality of our troponin products and the clinical evaluation is progressing very well and according to plan.

I will move on now to Meritas BNP. About six months ago, the Company announced that we had received European approval for our 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 for the diagnosis of acute and chronic heart failure.

Our CE -- for our CE approval, the BNP product was tested on predominantly a US population of more than 1,000 healthy individuals and 665 patients which have been diagnosed with heart failure. On this population by examples, the Meritas BNP product demonstrated sensitivity and precision which is at least comparable to the much larger and far more expensive clinical laboratories, while delivering results in 10 minutes right at the point of care.

We are delighted that the data from this study, which is run by Dr. Apple, has been recently accepted for presentation at the AACC meeting in Atlanta, which will take place in July next.

With regard to US approval, I mentioned on our last call that in the conversation with the FDA last January, the FDA made a strong recommendation that data on banked samples would not be optimal to support our application and suggested that we move our strategy towards fresh prospective US samples only. I also mentioned that we identified a number of US clinical trial sites that would work with us to collect the necessary data.

I mentioned this before, but the good news is that BNP -- that the BNP trial is still looking more straightforward than the troponin trial. First, only one blood sample per patient is required, as compared to four with troponin. Moreover, heart failure patients are generally not in an emergency situation, so a [pin] patient consent to take a blood sample is much easier. And, of course, finally, cardiologists' adjudication is not required.

In summary, therefore, we believe the data collection for BNP will be completed in September, followed quickly by a 510(k) submission to the FDA. We believe that due to the less complex nature of BNP the review process should be somewhat more straightforward than that of troponin and US approval is expected sometime ahead of troponin in 2016.

I am happy to answer any detailed questions you have later on in the question and answer, but for now I'd hand over to Ronan.

Thank you.

I want to review our revenue for the quarter before opening the call to the question-and-answer session. Our revenues for the quarter were $25.24 million, up from $25.03 million in the corresponding quarter, which is an increase of 1%. However, when the impact of the strengthening dollar is excluded, the actual increase in revenue for the quarter is 5.7%, which is all organic growth as the Immco and blood banking acquisitions were completed in 2013.

Our currency-adjusted HIV revenues for the quarter were $4.7 million, up from $4.5 million, which is an increase of 4.4%. African sales performed well, showing growth of 5%. In the US, our HIV sales increased 3% over the prior quarter with hospital sales performing strongly, aided by the fact that we are now selling HIV-1/HIV-2 combination products since we got the HIV-2 FDA approval last year. Public health HIV spend continues to be depressed, with sales flat when compared with the prior year.

In December, as you know, we were delighted to receive a CLIA waiver for our rapid syphilis product. This means we have the only FDA-approved rapid syphilis test and also the only CLIA-waived rapid syphilis test available in the United States.

Therefore, this is a totally new market and it is difficult to estimate the size revenues will be. The most obvious comparison and really the only comparable product is the CLIA-waived rapid HIV products that are sold by Trinity, OraSure, and Chembio where we share a market of $50 million of CLIA-waived HIV revenues, which sell mostly into the public health departments and community-based organizations throughout the United States.

And it is impossible to say what percentage of this HIV market the syphilis market will transpire to be. What we can say, though, is that we are ideally positioned to maximize its potential, as we already serve the public health market with our direct sales force who sell our HIV product to the same target demographic. And secondly, we have been in contact with all 50 public -- United States public health departments and most city public health departments, and as best we can tell, all are initiating a purchasing plan.

And, however, this takes time as in each case a formal purchasing decision is needed, followed by the sourcing of funding, and then we have the establishment of procedures, sometimes the establishment of a pilot, and, of course, training of personnel. Basically, we estimate this is a 120- to 150-day process, and as I said, indications are that all of the states will buy.

In addition, we have been inundated with approaches from community-based organizations -- Planned Parenthood, health clinics, and community health centers. We are receiving, by the way, huge support from the CDC in all our efforts.

So, in summary, this is going to be very significant, but it's too early to quantify.

Moving on to our clinical laboratory business, it increased from $20.5 million to a currency-adjusted $21.7 million, which is an increase of 6%. Our diabetes business grew 13% over the prior corresponding quarter, and during the quarter, we placed in excess of 100 Premier instruments with all of our key markets -- Menarini in Europe, Brazil, China, and the US performing strongly.

Last year, we placed 460 instruments and our expectation is that we will match or modestly beat that placement rate during 2015.

Moving on to our infectious disease business, excluding Immco. This business grew 3% when currency impact is excluded. The Lyme confirmation component of the business was down $400,000 compared with the prior year, due directly to last year's severe winter. But all the other components of the business performed strongly with much stronger growth.

The US business continues to benefit from the advantage of having the Immco autoimmune business added to it, while China continues to grow strongly.

Moving now onto Immco itself, we acquired it 20 months ago and we are pleased to report that we grew the business over 20% over the past year. The business has been successfully integrated and the Immco autoimmune products range is helping us to grow our existing infectious disease business, as I just mentioned.

The highlight at Immco has been the success of our Sjogren's test, which is a dry eye test, which we do not sell to laboratories around the country, but rather we run this in our own laboratory in Buffalo. Sales of this test during the quarter exceeded $600,000, following its launch last June.

Finally, as Jim has said relating to troponin, the trial is going very, very well and we are confident of submitting a wonderful product to the FDA.

And lastly before I hand over for questions and answers, I would just like to address our recent fundraising. As you are aware, we raised $115 million or just over $110 million after the associated fees in the form of a 4% exchangeable senior note repayable in up to 30 years.

The purpose of raising this money was to allow us to carry out acquisitions. The Company has a long history and significant experience of identifying high-quality acquisitions and integrating them efficiently and effectively. Also at this stage in the Company's development, we have all the major building blocks required for growing a diagnostic company, be that through acquisition or organically.

In particular, we have an excellent sales channel with a long-established and significant direct sales organization in the USA and we are now also direct in Brazil and the UK. On top of this, we have a formidable network of distributors, which allows us to reach over 100 additional countries.

And meanwhile, we have a number of high-quality FDA-approved manufacturing facilities with highly skilled and adaptable workforces. Add to this our regulatory, quality, marketing, and finance functions, as well as our experienced management team, and we believe that we are very well positioned to take on new acquisitions.

While we have no particular acquisition in mind at present, we are very clear as to the type of acquisition that we would like to make. The acquisition must be a growing business which operates in growing markets, be earning enhancing and cash flow positive from day one, leaving aside the normal short-term integration costs. And also, it must be synergistic with the rest of the Company's business, while at the same time leveraging Trinity's sales and operational strengths.

In this context, we will seek to make high-quality acquisitions at lower valuation multiples, and then, by leveraging Trinity's inherent strengths and realizing synergies, enable them to trade at a higher multiple more akin to Trinity's own multiple.

We're confident that we can identify companies which have exciting growth products and which are capable of becoming significant players in attractive niche markets. We already have experience in this regard. I will point out that our Immco acquisition exactly fits this profile, whilst our Premier business is an example of how a relatively small company can become a significant participant in a high-growth niche market with huge potential.

So we are now actively seeking acquisition opportunities. We are conscious of the need to move quickly, but not so quickly that we would buy badly.

So, if I could now hand back to Gary and to a question-and-answer session.

(Operator Instructions). Bill Bonello, Craig-Hallum.

Just a couple of follow-up questions. First of all, Kevin, do you expect to be cash flow positive this year as we think about operating cash flow less normal capital expenditures for the full year, or would you expect to keep burning at a $1.5 million rate?

I think, Bill, as we go throughout the year, you're going to see a number of things. From a profitability point of view, as the revenues grow and our gross margins improve, you're going to see more cash being thrown off by operations and such.

And at the same time, you're going to see lower expenditure once -- particularly we get through this phase in relation to troponin, to a lesser extent BNP, so you're going to see a diminishment then in the amount of capital expenditure.

So as time goes on, we're going to move to a point where we will turn from cash flow negative to cash flow positive. So I expect, yes, that we will tip over to being cash flow positive before the end of the year on a quarterly basis. Whether that results in absolute cash flow positive overall, and from [that certain level] depend on the timing, but will be helpful in that regard.

I will point out that this quarter really needs to be looked at in the context of the previous quarter. We had a slight uptick in the previous quarter. This quarter was down more substantially, obviously, and really there are timing issues in and around the year-end, particularly strong collections, for example, at the end of Quarter 4, which more normally would have been expected to pop into Quarter 1. So looking at Quarter 1 in isolation is a little bit misleading.

Sure, okay, so that makes sense. And then, just on that gross margin point, so you said you think we're beginning to see the expected improvement in gross margin. Are you saying that's a trend you would expect to continue as the year progresses and maybe just tell us a little bit is that just leverage on the revenue you're getting or are there other factors that are driving better margin?

There is a few factors. I suppose, Bill, one, yes, you're absolutely right. Leverage driven by higher revenue is certainly one. The fact that constantly each quarter from now on we're going to get a more and more favorable mix as regards instruments versus reagents in the Premier business, and obviously reagents are higher margin.

When syphilis kicks in, again that's a good gross margin product, as you expect, given the effect of [the old] on that market. So, yes, I do expect our gross margins will continue to improve.

I will say there is always fluctuations up and down anyway, which depend on product mix and what have you. But, yes, we have turned a corner by going from 47.5% in 2014 Quarter 4 back up to 47.9%, which is coincidently equivalent pretty much to what we did in Quarter 3, 2014. Obviously, as the quarters go on, you'll see the trends [actually] demonstrating itself.

Okay, and then just one last question, if I can, just in light of the money you have raised and the focus on acquisitions. Can you just give us -- is there any quantification that you can give us for Immco right now in terms of how that is going? I think when you originally took it on, it was going to have $0.10 or $0.12 of EPS contribution. Just curious if it is actually contributing to net income right now and at what pace and where you think it can go, just so we can gauge how the acquisition experience has been recently.

We are very happy with the progress of that particular acquisition. You're right. We did highlight the fact that it would generate profits and it has met those expectations. And as we continue to grow the revenues, we continue to expect those profits to continue growing.

Okay, thank you.

Larry Solow, CJS Securities.

If I may just touch on the impetus for doing the offering, Ronan. I realize acquisitions are always been part of your strategy, but it seems like you have taken on a sense of urgency in terms of looking at offerings. Do you feel like there's a lot of opportunities out there and that's why you did it? Any color on that would be very helpful. Thanks.

I think we had -- after we sold our coagulation business, we had about $70 million. We spent about $10 million of it on buybacks and we bought into the business in Sweden, Fiomi, and then we bought the blood banking business in Immco, so we expensed our money and we clearly hadn't raised money for nearly a decade, but we felt it was time to do so.

We also didn't want to -- we didn't want to be raising money right in the middle, for example, of an FDA submission relating to troponin.

Right.

And apparently, we felt this was about the right time. Clearly, we weren't -- it is an unusual enough situation for a company like ours in the sense that it was so long since we had raised money that we actually didn't have a large shelf registration. So that also added a dimension to the whole thing in terms of how we would approach it.

So, in any event, we felt that for all the reasons that I outlined already, we are a company that has grown largely by acquisition and we felt that the time was right to do so.

Okay, fair enough. And I know you said there is nothing even on the table, which you probably couldn't tell us if there was anyhow, but are there -- looking out, do you see opportunities that are maybe still not necessarily speaking with people yet, but do you see a bunch of opportunities and that's why you went out and raised money, or is there just something that -- do you expect to do something within the next six to 12 months? Is that your intention?

To answer the question this way, Larry, we didn't -- specifically, just to be categoric about it, we did not raise money with any particular acquisition or acquisitions in mind.

Right.

So, therefore, we didn't raise the money basically with a home even potentially. So we didn't raise the money with a home potentially in mind for us, a specific home.

So, but having said that, since the acquisition we have been extremely busy and -- sorry, since the fundraising we have been extremely busy in terms of looking for something.

Okay.

The concept, as I mentioned, of trying to get -- strike the right balance between spending the money wisely and spending it quickly. We don't want the money to burn a hole in our pockets, but at the same time we are extremely conscious of the cost of letting the money sit there idly.

I also talked about a situation -- we would like to have -- we would imagine that we would buy it at one valuation and trade at another.

Right.

And then, I talked about the synergies and the capabilities of the Company and our experience in terms of identifying, executing, integrating, and all of that sort of stuff. So I won't repeat it, but broadly speaking that's where -- that is our thought process.

Got you. Just touching on the free cash flow question, I think you spent $21 million last year in total CapEx, mostly capitalized R&D. I know there's a schedule in the 20-F that, I think, gives remaining costs for each program, but do you have a target amount of spend this year and do you expect that to start to slow down over the next couple years?

We do expect it to slow down, Larry. Look, there is two aspects to it. There is the development work and there is the normal PP&E. Expect the normal PP&E to be strong on the instrument placement side, but we have invested in a lot of equipment in the last 12, in fact, 18 months and I expect that to reduce.

In relation to the product development side, you won't be seeing it in the first half of the year, but I expect that to start coming down as well, particularly as we have gone through the trial period as such, particularly the troponin trial, which Jim mentioned there is a more intricate and hence more expensive trial. BNP is less costly, though it will be a little bit later.

So, I do expect to see a reduction in that towards the end of the year. So, expect overall to see a reduction in combined capital expenditure during the year.

Okay, and related on the operating side, I know you for Meritas in particular, I think you spent $2.3 million last year and I think you called out $0.6 million of the SG&A, R&D this quarter was in that. Is that a good run rate number, about $2.5 million per year, or do you expect that to go higher this year and (multiple speakers)

Obviously, as we come to point where we are getting closer and closer to launch, we will be putting more of the building blocks in place to launch, and it won't be just a relation to staff costs. We will obviously be -- there's promotional literature, et cetera.

Absolutely.

And marketing plans to be put in place and what have you. So as you can imagine, the closer we get to launch date, you can expect that to take off as such.

Okay. And did you give a Premier placements number? I know it wasn't in the release. Did you talk about that -- did you give that number out or you are not giving that anymore?

We just said that we have done in excess of 100.

Okay, I miss that.

Yes, what we said was basically we placed 101 on the corresponding quarter last year. We placed over 100 this year. It was actually more than 101. And what we just -- what we said in addition to that was that we placed 460 instruments last year (multiple speakers) estimate about 23% of all worldwide placements.

And we expectantly will meet that and somewhat beat it. We may get to 500 and we probably won't quite get there. So I think we will be somewhere between 460, 490, that kind of order of size.

But I think that it will be -- I think that's about where it will mature. And what we would hope to do is we would hope to continue, basically, to place at that rate for the period of the cycle, which is a 7.5- to 8-year cycle. So it's all new business for the next five years and after that, of course, we are replacing our own.

Got you, and just in terms of Premier, I know you talked about gross margin. It seems like we have seen the bottom. Premier by itself, is that accretive to gross margins today or not yet with the royalties and the --

No, not yet. It's still a drag, Larry. We are still placing very, very significant quantities of instruments, which, as you know, go out at very low margins.

Right.

[A trickle] in the industry. The kicker, obviously, as Ronan says, comes in relation to the pullthrough and that comes through at higher margins.

Right.

The ratio is moving in our favor all the time, i.e., we are getting a greater proportion of reagents as a percentage overall. But we haven't reached the sweet spot yet where we've moved past the average gross margin.

Okay. So you haven't actually reached the inflection point for Premier, at least, but you do think your gross margin has bottomed or close to it?

Yes, I believe we have turned the corner, yes. We're about 40 (multiple speakers)

Right, and I assume that's -- do you have all the cost cuts related to the assets of Lab21, that's all now in there?

Yes, all that's through. So the gross margin for Quarter 1 was higher than Quarter 4.

Right, right. Just last question, maybe for Jim on Meritas. I know you had given -- you are back up and running some of these evaluation trials in Europe. What's sort of your expectation out of that? Do they generally have to run for several months, even a full year, or how long do you expect these things run before maybe you can get some commercial sales in Europe (multiple speakers)

We have been back doing evaluations in earnest in Europe now for the last 2-1/2 months, I guess, okay? We have a [suite] of new products. We have obviously prioritized the US for availability on, if you like, new product, but we are back in earnest in Europe for the last two and a half months.

And just today, for instance, we got the results back from a trial that was carried out in a lab called [Grunsfeld] in Germany. It has got some very nice results on Brazilian studies.

So what I am saying, each country is different, I guess, okay? Some are [floors], some want to do very detailed in-depth studies where they want to get prospective samples, and so it will take ages, quite frankly, to collect fresh samples. Other countries are happy to do them banked samples.

But all in all, good results back from Germany yesterday, quite frankly, okay, on one portion of the trial. Are they finished? I'm not too sure because there is still another bit to go on that, but I think you're going to see that over the coming -- second half of the year, you're going to see slowly but surely, country by country, probably first maybe Scandinavia, then maybe Germany, then perhaps France, then perhaps the UK, or maybe that's not the order, but something that's starting to cut in over the period of the year.

Right, I imagine once you get a couple, hopefully it builds upon itself and you get (multiple speakers)

That's obviously what we hope, that once you get the likes of a clinic in Germany saying good things --

Absolutely.

(multiple speakers) later in France, hopefully.

Absolutely, okay. Great. Thanks, Jim. I appreciate it.

Jim Sidoti, Sidoti & Company.

I believe you said the diabetes business was up 13% whereas Premier units were flat, so I assume that growth is mostly from the reagents?

Yes, that's right. Yes, absolutely.

And is there a particular region where you saw strong growth? Was it across the board or was it more in the US, South America, China?

It is across the board. But having said that, Brazil is -- has been the star and (inaudible) really, and probably then the US. And then, just so in China because they are lower pricing a lot of instruments, as we mentioned before. As of yet, the amount of reagent that is running on each instrument is modest and we expect -- but that's what we expected. And we're going to see that.

Because, remember, hemoglobin A won't see reimbursement. It's a fairly recent phenomenon in China, and so you need to keep being tuned into us and that's gradually happening. So over the course of the next number of years, each Chinese instrument will become progressively busier. But at the moment, they are lagging in terms of reagents. All the other countries are doing very well.

All right. And then in terms of the offering, you said the rate on the bonds were 4%, but what rate do you actually -- do you plan on actually reporting on the income statement?

Okay, fair enough, Jim. As you know, there are two elements to this. There is the actual nominal rate, which is effectively the cash interest and such, which is the 4%, and then on top of that there is the notional interest charge, which effectively reflects the value of the embedded derivatives which form part of the instruments, which effectively recovered over the time of the bond itself as such.

It's difficult to be very precise at this point as to how much that is going to be. It requires very intricate valuations using binomial models, which will have to be custom built for the specific purpose of valuing the particular embedded derivatives. The expectation can be that it will add somewhere in the region of 1% to 2% on top of the 4%.

So when you look at our P&L in Quarter 2, you will see the 4% charge going through, but you can also expect a notional charge, which we will break out for you, but that will be somewhere between 1% and 2% on top of that.

So in essence, the effective rate from a GAAP point of view will be somewhere between 5% and 6%. Difficult, as I say, to be precise at this point until the model is actually constructed and fully tested and what have you, but I will say again that we will strip out the impact of that just from comparability point of view because, in essence, it isn't a terribly meaningful number as such.

Okay, but for our purposes, we should assume somewhere between $6.5 million to $7 million of annual interest charges. Does that sound about right?

Probably a bit high there.

If you take -- we are talking about 5.75 to --

6.3.

6.3.

I think the -- you know, with great respect to the accounting profession -- I was one, remember -- I think that it really is neither here nor there. It's meaningless, that notional number.

It is also a number, by the way, which we will have to true up each quarter, which is a further complication, and you'll see that at each quarter the embedded derivatives are marked to market, effectively. Depending on prevailing market conditions, you'll get a change in valuation which could be interestingly up or down. So obviously, again, we will be leaving out that.

Okay. And then, finally, on the troponin test, as you get closer and closer to submission and you start your dialogue with the FDA, when do you expect to actually ramp up the sales force or will you wait for approval before you actually hire salespeople for troponin? Or will you just sell it through your existing sales force?

Jim, the answer is we will wait until we get approval because of the fact that we already have 30 sales reps out on the road. So there is no need for us to do that.

So basically, we are prepared and, in fact, that process has already long commenced. I think we will probably add somewhere between seven and 10 sales reps, but we will wait until the approval comes early -- literally wait until it comes before we'll do that, bearing in mind also that you don't always know exactly when the approval is coming. But the bottom line is that we already have over 75% of the sales force in place.

Great. All right, thank you.

Bill Nasgovitz, Heartland Funds.

Could you talk a little bit about dry eye? How big is that market and what is going on there and what are your expectations over the next couple years?

Bill, dry eye affects about 6% of elderly people. So it's a condition that hasn't got a lot of attention until more recent years and you're only beginning to see therapeutics [recently] going through the approval process.

But it is an extremely debilitating condition. So it basically gives a rise to horrendous discomfort to the eye and a sister condition of that is, of course, dry mouth, which affects about a similar proportion of people and is even more debilitating, and -- such an awful feeling to basically have a desperately dry mouth and not to be able to sleep, et cetera, et cetera.

So, it is a real big problem. I think, though, for a long time people just associated it with old age, but actually it is a disease that can be treated. So I think the diagnosis of it is going to grow significantly, just in the context of our products. Traditionally with a product like this, you would submit it to the FDA and then you would make it available to hospitals all over the United States, and we might take [a lot of it] and sell it at $10. It sells for $10.

Instead, we just took the approach here to actually run the scenario on laboratory and not to run it through the FDA. And given that we have a CLIA-approved laboratory, we don't need FDA approval to run our own tests.

So we partnered with Bausch & Lomb. It is a part of Valeant, and they have 150 sales reps out on the road selling the product. And it only got launched last June, and the fact -- just to complicate the matter -- our original deal was with a company called Nicox who sold out their interest to Bausch & Lomb.

So Bausch & Lomb recently paid a considerable sum of money to buy out our contract and are very committed to it. And as part of the Valeant group, they are expecting to have therapeutics approved for Sjogren's in the fairly recent -- very soon.

So I think it has got a -- this product has got a lot of potential. As I mentioned in the call, it did $600,000 last quarter, so it is running at $2.5 million now.

As to how far it can go, difficult to say, but given that it only had its launch in June -- and, by the way, for the first number of months, it was only being sold by a sales force of 12 Nicox sales reps. And now in the last two months, it has been introduced to 150 Bausch & Lomb sales reps who are specialists going to the ophthalmologists and the optometrists.

And I think it has got really, really significant potential. I am almost afraid to say a number, but it is a lot higher than where we're at now, and so I think this is going to become a very important product for us. But it is actually genuinely difficult to quantify its potential.

What does it sell for and is this a 50-50 relationship?

Yes, it's close to 50-50. It's close to 50-50, but not actually 50-50. But the price that it sells at is actually $300. It is a really, really high price.

Okay.

So you can very quickly build very big numbers. But if you go back to your -- if you just go back to your actual question, 6% of the elderly population have this problem.

Okay, thank you.

Paul Nouri, Noble Equity Funds.

There was about $1 million paid out for the HIV-2 license. Is that going to be a perpetual cash outflow as you sell more of the tests?

You might recall back in 2013 we negotiated a license fee. The licensee at the time was about $5.5 million. We paid the first fifth of that upfront, and now we paid the first of four subsequent annual tranches, so there are three more to come, and they will be either in Quarter 4 -- it is actually technically due very closely into Quarter 4, so it can either fall into Quarter 4 or Quarter 1, just depending on notifications, et cetera.

But that's it. There are no [relative] thereafter, Paul.

Okay.

It's basically a one-off payment, but the actual payment is being deferred over a period of time.

Are there any more questions?

(Operator Instructions).

Okay, it seems as if we don't, so --

Pardon me, we do have a question from a private investor. [David Schneider], please go ahead.

Yes, I joined the call a little bit late. You may have already answered this, so I will just read the transcript. But could you explain why you did a convertible bond offering instead of just straight debt?

I think there is a variety of reasons. I think that it would have been difficult -- it would have been impossible to do straight debt at that level. We have our own bank who was willing to probably lend to us around $30 million, so that would have been the extent of our ability to borrow. Does that answer the question?

Yes. I just also think if you had waited until the troponin was filed, your stock price, obviously as you get closer to the troponin event, should be higher in a rational market. You may have gotten better terms. It would've been better --

I do accept -- I think that's a fair point and it's a point that some other investors have made.

I think the issue to bear in mind, though, was that if we were closer to a troponin approval and we went into the market and raised money, it was possible that we would have been very fairly criticized for diluting so close to such a positive event, so it might have been regarded as almost careless dilution.

And yet at the same time, clearly there is all this uncertainty about the timing of an event like an FDA submission of the magnitude of troponin. Although we are extremely confident about its ultimate success, the timing is uncertain and therefore you could enter into a situation where Trinity was effectively -- was basically out of the market, unable to basically participate in any acquisition opportunities for an extended period of time.

So, it was all those factors all added together and they just decided -- the Board decided to go the way it did. And I think we are confident that the management now can spend this money wisely and can make this whole experience an earnings accretive one.

Okay, thank you.

Thanks very much. I think if there is no more questions, then, Operator, can we just close the call now and say thank you to everybody and talk to you soon.

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