Trinity Biotech PLC (TRIB) 2015 Q2 法說會逐字稿

Good day, and welcome to the Trinity Biotech second-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, Allison, and thank all of you for joining us to review the financial results of Trinity Biotech for the second quarter of fiscal year 2015 which ended June 30, 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. 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 effective 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, the Chief Financial Officer, for a review of the results. After Kevin's remarks, we will hear from Dr. Jim Walsh on product development issues, and Ronan O'Caoimh will wrap up the prepared remarks with his perspectives on the quarter. Kevin?

Thanks very much, Joe. Today I'll take you through the results for quarter two 2015. Beginning with our revenues, total revenues for the quarter were $24.3 million. This compares to $26 million in quarter two of 2014. However, as was the case in quarter one this year, revenues this quarter particularly impacted by currency movements. This has to do with the strengthening of the dollar against the range of currencies which has the effect of reducing the dollar equivalent of our euro starting in Brazilian real revenues. Consequently, we have restated the quarter two revenues on a constant currency basis which shows that revenues for the quarter would've been $25.4 million if the quarter two exchange rates were used.

As well as reducing revenues, the same currency movements have a similar impact of foreign currency denominated expenses and, in fact, a reduction. So FX would also be relevant when considering both gross profit and SG&A movements this quarter.

In summary, whilst revenues are lower, so too are our costs. And these factors broadly offset and hence there is no impact on profitability, which is what we mean when we say that the Company is naturally hedged from currency perspective.

This brings us to this quarter's gross margin. As you can see from our press release, we earned the gross margin of 47%. This represents a reduction on the 48% that was reported in Q2 last year. Part of this reduction is attributable to the currency issues I've just mentioned; however, it is also being impacted by lower sales of HIV and Lyme products, both of which earned higher-than-average margins for the Company.

Moving on to our indirect costs, our R&D expenses have increased slightly from $1.2 million to $1.3 million. Meanwhile, our SG&A expense have increased from $6.4 million to $6.7 million. What we're seeing here is the impact of higher sales and marketing costs particularly those associated with our Meritas business and these are partly offset by a reduction due to the favorable impact on costs that I mentioned previously in relation to currency movements.

Operating profit for the quarter was just over $3 million, and this compares to $4.6 million for the equivalent quarter in 2014. This is obviously lower than we've seen in other quarters and the principal factors are, firstly, the lower level of revenues this quarter, and Ronan will address the shortly; secondly, the product lines which have seen the reduction in sales, principally HIV and Africa and Lyme sales in the USA are higher-margin product lines at the Company; and thirdly, the higher sales and marketing costs that we are incurring, particularly in relation to Meritas.

Moving on next to our financial expense, this is the first quarter in which you are seeing the impact of the 30-year exchangeable notes which were issued in April of this year. The accounting for these notes is quite complex and there's a significant impact on the income statement. So I will take some time to take you through the various aspects.

The first point to appreciate is that accounting standards require hybrid financial instruments of this type to be valued using what is called a bifurcated valuation method. What this entails is valuing the derivatives embedded in the instrument separately from the debt dead itself. And just so you're aware, these derivatives are the various put options and call options that are part of the notes.

Once these are valued, the residual amounts after the deduction of fees is then deems to be the fair value of the underlying debt. Thus by definition, the debt element will be less than the nominal value of the debt itself. Difference or short fall, if you want to think of it that way, is made up by charging a non-cash interest charge over and above the normal cash-based interest charge. This is the first of two non-cash items which are now being recognized in income statement and disclosed separately as non-cash financial income or expense.

The second such non-cash item that is recorded in this cash [degree] relates to the dividend -- the derivatives, I mentioned earlier. In this case, accounting rules require derivatives of this sort to be valued on mark to market on a quarterly basis with the change in value taken through the income statement. And you'll see in the income statement that we've recorded a gain of $978,000 this quarter, and this is the summation of the two non-cash items I've referred to. The fact that it is a gain reflects the fact that the non-cash element of interest, which is over the cost of the P&L, has been more than offset by the change in fair value of the derivatives in this instance.

However, this may not always be the case as the change in fair value derivatives can be a gain or loss depending on the change in value of certain assumptions used in the valuation model.

The reason we've separated out these two items is, one, because they're non-cash in nature and, two, because I don't think they're incredibly meaningful in assessing the performance of the Company and really are in effect the effect of one of the more esoteric applications of accounting standards.

In terms of the actual results, the cash interest for the quarter was a cost of $1.1 million while the non-cash items amounted to a gain of just under $1 million.

We'll now move on to our tax charge. This was $218,000 for the quarter and this represents an effective rate of 7% versus 6% for the comparative period last year, so broadly similar.

The net result of all that I've spoken of so far is that profit for the period was $2.7 million. From an EPS point of view, we've given you the basic EPS calculated off of that headline profit which amounts to $0.116 but where are also showing you an EPS that excludes the non-cash items related to the convertible notes and this amounts to $0.074 this quarter.

From a diluted EPS point of view there's a change this quarter also. When calculating this amount, the calculation assumes that the note converts in its entirety. Thus the share count includes an additional 5.2 million shares to reflect this fact whilst the earnings figure is adjusted to remove the after-tax impact of the note both cash and non-cash elements.

Finally, related to the income statement, earnings before income tax -- interest, tax, depreciation, amortization, and share option expense for the quarter was $5 million.

I will now move on and talk about the significant balance sheet movements since the end of March 2015. Property, plant and equipment increased by $1.5 million since last quarter. This is due to additions of $2.4 million being offset by a combination of depreciation of $600,000 and early translation movement of $300,000. Same period, our intangible assets increased by $4.8 million and this is made up of additions of $5.3 million, retranslation movements of $200,000 offset by amortization of $700,000.

Moving onto inventories, you'll see these have increased from $37.1 million to $38.2 million and this is due to a number of factors. Firstly, we have continue to build up our inventory of rapid syphilis products in advance of the expected growth in sales in the coming quarters where also the normal fluctuations which occurred due to ordering of production schedules. In particular, our inventory of HIV tests increased this quarter due to the lower than anticipated sales in that area.

There was also the seasonal increase in Lyme inventory which occurs in the summer months every year to coincide with peak demand. Trade and other receivables increased by $700,000 to $28.3 million. This reflects the longer payment cycle with respect to instrument sales. Meanwhile, our trade and other payables have increased slightly from $20.1 million to $19.8 million in the quarter.

Finally in relation to the balance sheet, you will notice that the exchangeable notes are being carried at $109 million and this represents both the underlying debt and the fair value of the embedded derivatives.

Finally, I will discuss our cash flows for the quarter. Cash generated from operations before working capital movements for the quarter was $4.1 million. However, this is largely offset by adverse working capital movements which is significantly impacted by the knock-on effect of the increase in inventories in quarter one this year.

Meanwhile, capital expenditure, doing both tangible and intangible, in the quarter amounted to $7.2 million, which is higher than normal due to higher clinical trials costs for our troponin product.

The final and most significant cash movement this quarter was the issue of the 30-year exchangeable loan notes which raised $115 million or approximately $111 million when the related fees are taken into account. Consequently, the Company had cash on hand of $110 million at the end of the period.

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

Thank you, Kevin. I'll take the opportunity to take you -- to give you an update on progress on our cardiac market development programs. In particular, I'll provide you with a detailed update on our troponin clinical trials, which I'm delighted to say is progressing very nicely with patient enrollment now complete.

I will also update you on our Meritas BNP product, which as you know obtained European CE marking approval last year and on which we immediately plan to commence clinical trials to support an FDA application.

So starting with troponin, you will remember in February last the Company announced that it has shipped product to the US for clinical trials. Again, just to remind you, there are three main sectors to this trial and I'll deal with each of the sectors now individually.

Firstly, and by far the most challenging, is the ACS trial or the heart attack trial, as we call it, in the emergency room setting. Since February, the ACS trial has been running at 12 trial sites across the United States recruiting about 70 patients per week up to a total of almost 1,500 patients.

Each of those patients were sampled four times, namely on arrival, otherwise known as time zero, three hours, six hours, and 12 to 24 hours. At each time point, the troponin level on the patient's whole blood and plasma was measured. The aim of this trial was to recruit a sufficient number of suspected MI patients to produce a cohort of at least 150 actual heart attacks. I'm happy to report that as of last week, we have passed the 150 MI milestone and, therefore, the section of the trial is now complete.

This complete patient cohort that is both positive and negative by MI patients has currently been adjudicated by a panel of three independent cardiologists. It is the role of the independent cardiologists to determine based on the clinical data if a patient actually had an MI in accordance with the third definition of myocardial infarction. This of course is the definition that has been adopted by the FDA and which has caused such problems for the current POC troponin products on the market.

All going well, we expect the adjudication process to be complete by the end of August or early September. This data will ultimately be used to determine the clinical sensitivity and specificity of the Meritas troponin product.

The second major component of our clinical trial is to determine the upper reference level or 99th percentile of our product in a population of normal healthy people. Since February, the URL trial has been running at three sites across the United States.

The aim of this trial was to quantitatively determine the level of troponin circulating in the blood of normal healthy people. This group of 750 people needed to be gender age and ethnicity matched to be representive of normal healthy people across the United States. Again, I'm happy to report that patient recruitment is complete. With our statisticians, we will now be in a position to determine the 99th percentile for a normal healthy US population on our Meritas products.

You may remember, we have already carried out this study on a European population which resulted in a 99% out of 36 picograms of troponin per mil in whole blood and 24 picograms of troponin per mil of plasma. It's expected that the US data will be quite close to these numbers. We would not expect any great variation between population groups.

In summary therefore, the patient recruitment to the two main components of our troponin trial is now complete. In relation to the results, although the outcome of the adjudication process remains unknown to us at this time, we can see -- we can actually see the hospital diagnosis for each patient sample. And although there is no guarantee that the hospital result will agree with the adjudicated result in every case, we are really very encouraged by our data so far.

And just to remind you and perhaps to provide you with another level of comfort concerning the data. You will remember that sometime back, Dr. Apple at Hennepin County emergency department conducted a trial on 319 patients presenting in the ER with symptoms suggestive of ACS. Both plasma and whole blood samples were taken on presentation i.e. time zero and at six hours. The results of this study were adjudicated again using the third universal definition of MI, just as they will be in our troponin trial.

The results of the Hennepin study demonstrated exceptional product performance with whole blood sensitivity and specificity at time zero equal to 75% and 93.6%, respectively, right into 87.5% and a specificity of 94.7% at six hours. You will note that this protocol is very similar to that which we use in our FDA trial. So the results obtained should be somewhat indicative of what we can expect from our main US trial. As I say today everything looks quite encouraging.

Still remaining to complete is the precision study. This will be carried out at three sites in the United States. These are the same sites, by the way, that have already carried out our URL and ACS trial, so they know and understand our product very well. This trial consists of running a number of replicates of high, medium, and low controls, and three known whole blood and plasma samples each day for 20 days.

Now that the ACS and URL trials are complete, the precision study will start immediately. We well expect the precision data collection to be complete at approximately the same time as the clinical adjudication process completes.

Finally, writing of our actual FDA submission document is at a very advanced stage. The document essentially awaits the final outcomes from the trial data sets discussed just now. The Company now estimates that the adjudication process will be complete by the end of August or early September with submission of the application to the FDA expected in late September or early October.

From all now move on to Meritas BNP. The Company previously announced that we had received European approval for a BNP heart failure test some time ago. As you know, the BNP levels in the bloodstream increase as the severity of heart failure increases, thus BNP has emerged as the principal biomarker in the diagnosis of acute and chronic heart failure.

For a CE approval, the BNP product was tested on a predominantly US population of 1,424 healthy individuals and 665 patients which had been diagnosed with heart failure. On this population of bank samples, the Meritas product demonstrated the sensitivity and precision which is at least as comparable to the much larger and far more expensive central laboratory systems.

Data from this study by the way, which was run by Dr. Fred Apple, is being presented as I speak by Dr. Apple at the AACC meeting in Atlanta this week.

With the regard to US approval, we've had multiple discussions with the FDA in the first half of 2015. The most recent discussion taking place on July 13 last. The FDA had made a strong recommendation that data on bank samples would not be optimal to support our application and suggested we rethink our strategy towards fresh prospective US samples only.

We have decided to take this advice on board and will increase the number of trials sites in the US up to 12. The adoption of this new strategy, we believe, is far the better, and will help for a smoother review process with the FDA. However, it does have the effect of pushing our FDA submission date out by three or four months. However, by taking this advice on board, it may well speed up the review process by an equal or greater amount of time in the end.

In summary, therefore, we are moving into the home straight for our troponin application. Patient enrollment is now complete. We are essentially at the number-crunching stage. All indicators of the data look good and we expect to submit to the FDA late September or early October.

[B and T] enrollment is expected -- it will be expanded to the 12 trial sites, as I mentioned, and approval of both products is expected sometime in the first half of 2016. And with that, I'll hand it over to Ronan.

Thanks, Jim. I'm going to review our revenues for the quarter before opening the call to a question-and-answer session. Our revenues for the quarter $24.3 million compared to $26 million in quarter 2 of 2014. However, when the impact of foreign currency exchange movements due to the strength of the US dollar against a range of currencies is removed, revenues would have been $25.4 million this quarter thus representing a decrease of 2%.

Point-of-care revenues for the quarter were $3.4 million which represents a decrease of $1.2 million on a constant currency basis, which is a decrease of 25%. This decrease is entirely attributable to lower HIV sales in Africa during the quarter. This reflects the irregular ordering pattern which characterizes market rather than any underlying adverse change in the nature of the business. As you know, our HIV business in Africa is funded almost entirely by NGOs and product orders from these agencies tend to be haphazard and are unpredictable in the context of a 13-week reporting cycle. Our HIV Uni-Gold product continues to be regarded as the gold standard and continues to be utilized as a confirmatory HIV test of choice across virtually the entire continent as it has done for the past decade.

In addition, funding continues to increase as more and more Africans are put onto antiretroviral drugs with the number now exceeding 20 million. So despite this very disappointing quarter, we are confident of our African HIV business continuing to grow.

In the US, our HIV sales increased 5% over the prior quarter with hospital sales performing strongly, aided by the fact that we're now selling HIV 1/HIV 2 combination products since we got the HIV II FDA approval last 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's difficult to estimate the size that revenues will be. The most obvious comparison and really the only complement of products is the CLIA-waived rapid HIV product that sold by Trinity, OraSure, and Chembio where we share a market of $50 million of CLIA-waived HIV revenues. We sell mostly into the public health departments and community-based organizations throughout the United States.

It's 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 salesforce. We sell our HIV products to the same target demographic.

And secondly, we've been in contact with all 50 United States public health departments and virtually all the city and county public health departments, and as best we can tell, all of our initiating purchasing plans.

However, all of this takes time. As in each case, there is the purchasing decision 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. So this is in excess of a 200-day process. In addition, by the way we have been inundated with purchase from community-based organizations, Planned Parenthood, and clinics in community health centers.

So how big will the market be? Our syphilis revenues during the quarter were $100,000. However the current indications are that our syphilis revenues during the current quarter that's quarter three will exceed $400,000. We believe that we will gather significant momentum, particularly as the city in public health departments begin to make purchases. We believe that this will be a $10 million plus product but it is difficult to assess at what point in time we will reach that run rate.

Moving on to our clinical laboratory business. Our revenues for the quarter were $20.9 million. However on a constant currency basis, revenues were $21.9 million compared to $21.4 million in quarter two of 2014, which is an increase of 2%. This increase was due to the continued increase in Premier and Immco revenues, although this was partially offset by lower Lyme sales due to other related factors, and a decrease in Fitzgerald revenues.

Our Premier business grew 10% over the prior period and during the quarter we placed in excess of 90 Premier instruments with all of our key markets, Menarini in Europe, China, and the United States performing strongly, and Brazil putting in a particularly strong performance.

Moving on to our infectious disease business excluding Immco. This business declined 2% over the prior year when currency impact is excluded. This decrease is due almost entirely to the fact that the Lyme confirmation component of the business was down $400,000 when compared to the prior year due directly to last year's severe winter. All of the balance of our infectious disease business performed well with China performing particularly strongly.

Moving now on to Immco, it continues to perform strongly and the highlight continues to be 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 Sjogren's during the quarter were $600,000, which is the same as the sales in quarter one of this year as in three months ago. This loss of momentum in Sjogren's sales -- this loss of Sjogren's sales momentum arises due to the fact that ownership of our distribution partner moved from Nicox to Bausch & Lomb at the beginning of this year, 2015.

The loss of momentum arose due to the transition logistics and training of new salespersons. However, the salesforce at Bausch & Lomb is 13 times larger than that of Nicox, and we believe that Bausch & Lomb would be a much stronger partner than Nicox in the future. Bausch & Lomb have 150 direct sales reps serving the optometrists and the ophthalmologists around the country, so their 150 compared with 12 for Nicox. So we're very, very confident of the momentum being regained very quickly.

So at that point this time that I hand back now to the operator for the question-and-answer session, please.

(Operator Instructions) Drew Jones, Stephens.

When exactly will you guys be unblinded from full ACS results, or is that something that happens after the URL part of the trial is completed?

Essentially, it will take probably another 30 days or maybe even 40 days for the complete adjudication set, for the adjudication to be complete. Okay? At that stage, what will happen is -- at that stage with those adjudicated results there will be -- on the 1,500 or on the 150 MI patients -- the full 1,500 patients will be adjudicated as either positive or negative for MI. So that will take about another 30 to 40 days, I guess. Okay?

What happens then is you take -- so the adjudicators are blinded to the Meritas result and we are blinded to the adjudicator's result. What happens then is you take the results in the Meritas system, which will again determine whether a patient is positive or negative, based on the level of troponin in their system versus that 99% number. We will judge which of those patients were either positive or negative. They will then be compared to the adjudicated results and you look for equivalents, if you'd like. Okay? In an ideal world you would line up perfectly matched. Everybody that you adjudicated who's got positive would be positive on our test. Everybody adjudicated who has got negative would be negative on our test but of course that won't happen. But that's the process as it goes. So it will be another 30 to 40 days before complete adjudication set of results so we can actually compare our data against the adjudicated data.

Moving on to syphilis and trying to understand that ramp a little bit better. Can you tell us how many customers ordered in 2Q and how many you expect to order in 3Q?

I don't have that information right on my fingertips but I could say is that I think we have -- we expect 400 -- we basically have 400 customers in our system at this moment in time. But whether they've actually ordered or not, I'm not clear. I don't have those numbers available this moment.

Okay, and then last one for me, can you walk us through utilization trends for Premier boxes?

The average consumables utilized on a premier instrument are $11,000 per year. Now, that varies greatly from country to country, and it also would vary greatly because in some instances we are selling direct, as in Brazil and in the United States, and in other countries we're not, so a distributor taking 50% margin. But all in all, our average revenues are $11,000 and our most productive instruments in terms of dollar terms would be in the United States, and second-most productive would be Brazil and then I think bottom of the barrel really would be China in terms of usage. That's something I think that will change in time but as we've said all along, the medical community in China are tuning into hemoglobin A1c, both the GPs and, indeed, the diabetics are all tuning into usage of hemoglobin A1c and four-times-a-year testing. It's being reimbursed by the government but awareness is -- it's a learning curve now so -- but huge potential but at the moment modest volumes.

Thanks, guys.

Jim Sidoti, Sidoti & Company.

Can you break out what your Lyme disease tests were in the quarter and compare them to a year ago?

You mean in terms of dollar numbers?

Yes, or percentage, or just give us something.

I mean, you're looking at something around, basically, about $2.5 million, sort of $2.5 million last quarter -- last year $2.1 million this year. That kind of level.

Okay, so the big change from year over year then was the HIV test, I guess, to Africa?

Yes, I mean our African HIV tests were down $1.5 million, and as I kind of explained earlier, there's a haphazard purchasing. It's almost surprising to some extent that we haven't had this kind of significant variability in the past. We've seem to have avoided it. But this quarter was just particularly weak. It just happened in the 13-week cycle that we didn't receive this many orders as normal. And I don't think it was just a timing issue. It's not as if like those three orders that came in on July 1 instead of June 30. It was just basically haphazard weakness.

I'm not sure it'll be recovered over one quarter or over three or four. But what I have said in the prepared remarks is that we are confident that our business is in bold, strong health. That there's ever increasing spending -- dollars being spent fighting HIV in Africa, that it is not a hopeless fight anymore because every time you identify HIV-positive, you can save their lives, if you get them onto retroviral treatment at the right time. So it's a battle that can be won and we are not harbingers of doom anymore but rather of hope.

So in that sense there's more dollars being spent. We absolutely own the confirming business. Nobody else confirms, only Trinity Biotech, right, across -- you can't instance a country that we don't do the confirmations in. So this is just random, you know. Not --

So do you think you'll see that business rebound the back half of this year, or do you think it could take until 2016?

Frankly, I don't know. I don't know, it will probably rebound overall. I think if we stand back and look at 2014 sales and compare them with 2015 sales, I think you'll see we're probably going to end up being up 5% or 6%. I'm not sure of that but that would be my sense.

I think that the -- if you graphed and looked at the trajectory over an extended period time, it's all trending in the right direction. It's just a haphazard quarter, really. Basically NGOs don't conform within the 13-week cycle the way we'd wish them to.

Right, right. But you do think you'll see that business rebound at some point in the next few months?

Absolutely, but what I don't want to say is, oh, you know, I think that basically we're one-half down this quarter so will be one-half up next quarter. I don't necessarily think that will be the case. We may be but I don't think so. But I think if you look at the year as a whole, it will be -- I think 2015 will have higher sales of HIV in Africa than 2014.

Okay. And now switching to troponin, it sounds like you're basically on the same schedule you laid three months ago, maybe a slide of a couple of weeks or so but nothing dramatic.

Yes, no, to be honest with you, we're very pleased that recruitment went very well for us. I think when I spoke in whenever -- the March call we had hoped we would recruit about 72 -- we had hoped for 72 patients per week. And we started off slower. We started off with momentum of maybe 30 or 40. In the end, we were about maybe 100 a week. You know what I mean? I think the recruitment came in bang smack on time or within a week or two. So, we're quite pleased with it.

Okay, all right, so then can you just give us a sense on what you think timing will be for the next 12 months? I know you said you will have the product submitted to the FDA sounds like early October. Do you think you can get a response back by the first -- by March of 2016?

We will definitely get a response back within 90 days. Okay, that's the rules, if you like, okay? So what that will response will be is a different question, okay? (laughter) We will have a response within 90 days. That's just the rules of the FDA to have to respond within 90 days. And by the way, I just have to say, at this stage we have a very good relationship with the FDA. This work is being done in collaboration with the FDA, and we are bending over backwards to make sure that everything is done exactly as it suggests before they go in. So and I think that's important to say that this is a collaboration, and they have been quite helpful to us. Okay?

So when it goes in, in say October we would expect a response within 90 days of that. That response could be, guys, it's perfect and you are approved. That's, I think, unlikely just for such a difficult product. They will probably come back sometime during the 90 days with a list of questions and those questions could be -- tell me more information about patients numbers, one, two, three, four, five; or it could be show me that the monitoring of the sites was done properly and show me the reports from the monitors. There could be some questions like that. They could even say collect more data on 75-year-old patients or whatever, okay? So there's probably going to be some questions. You'd have about a month to submit that data, then you would expect that if you answer those questions correctly, the next 90-day period would result in an approval.

Okay. So assuming that approval, let's say April of 2016, are you in a position where you could begin sales right away? Do you have manufacturing capacity to start production?

Absolutely. We are ready, willing, and able to go at that stage.

Okay. So you think it's reasonable to start recognizing revenue by, let's say, the third quarter of 2016 or about a year from now?

Well, you know, FDA dependent, but I think is reasonable. Absolutely. It's just six months should see this thing -- with a bit of luck through the FDA.

All right. On the acquisition front, you've raised the money. What are you -- are you actively searching for targets right now? What should we think for that?

We have been actively seeking to identify attractive acquisition targets, and to assist us in the process we retained services of the number of consultants and people who we've used before and who know us well. So, people who have a proven success record, a record of success with us.

To date, we've made initial valuations on numerous potential targets but none of them are regarded really as suitable. Alternatively, we are regarded as overpriced. While obviously, we'd love to be in a position to tell you today that we are in an advanced stage of making an acquisition. We actually can't do that because that's because we are not. We are very mindful of not making an acquisition in haste. So, at this moment in time basically we have not identified anything that we've kind of moved on to the kind of to second stage with. We have a number of people looking for helping us to seek out acquisitions.

And in terms of what we are looking for, we're looking for a growing company in the growth sector, reasonably early in the product lifecycle. We're looking for something that's profitable, cash flow positive from Day One. We're looking for something that has synergies with the rest of the Trinity's business. But the search goes on. We don't have anything to talk about unfortunately at this time.

Okay. And then the last question. It's just a bookkeeping question. Can you just repeat what you said the add-back was to get to the diluted EPS number?

Into what we do in diluted, there's two things you need to do is, and it all of that revolves around the normal options that will be added in just to the denominator. But in terms of the convertible note, you just assume that it is converted in its entirety on the first day of the quarter, so some obviously unrealistic assumption.

And what you do is you take all the $5.2 million of shares and include that into the denominator, and obviously you can't double count so hence anything that was associated with the note itself, be it interest or those non-cash items I talked about, would all be removed. So that table in the press release there which shows an impact of $156,000 is the net impact of those add-backs.

Okay. So that $156,000 gets added to the net income number.

Yes.

Super, all right, thank you.

Larry Solow, CJS Securities.

Just a few follow-ups on Premier. Ronan, I know you don't like to give exact placements but it looks like year to date you're about flat with last year, maybe slightly down this quarter at least. Is that -- you think you sort of reached a plateau here, around this number, or any thoughts on that would be great.

Sure, Larry. I think your comments are accurate. We did 460 last year. We did just over 100 last quarter, quarter one, we did just over 90 now. Or just under 200, five or six short of 200 now.

So I think will do 400 and something but it will probably be early 400s, and I don't consider that a negative. I don't consider that negative. I think that we basically are seeing a situation where instruments are probably -- the instruments are doing more consumables than we had expected they would do. But in general terms, there's an element of -- just in general around the world particularly in Europe, there's consolidation. I think everybody knows that there's consolidation. So you have less labs kind of doing more testing.

So within that environment, I think we had hoped that we might hit 500, and indeed we may eventually do so but it won't be this year. And you know we've come from nowhere and taken over 20% market share. As you can imagine, our competitors have hit back and are using probably pricing and whatever else; they are fighting back hard. I mean, we have just walked into Brazil taken such as monster share of the market. It must really gall them.

By the way, Brazil continues to be very strong, and I think we'll do 100 or more instruments this year. China, all of the markets are performing strongly. I think if there's anything that's kind of taking a bit longer than we'd hoped it probably is the Korean and the Malaysian and the Philippine approval process that we had hoped to turn those countries on a bit more quickly. But it's just such a kind of quagmire of bureaucracy and regulation that it just takes time, you know. So some of those markets, they are opening up a bit more slowly than we had hoped.

So, I think we may get to 460 million, same as last year. But I don't think so I think it will be kind of early 400s. But we still have very, very strong growth trajectory. You know?

So looking at it, just to be conservative, do you think you can at least sort of this 400 number is a sustainable number on a placements on an annual basis?

I do, because remember first thing you remember is that every single one of those 400 instruments the 420 or 430 that we do is new business for Trinity Biotech, and in almost every case taking away from a competitor because not that many new hospitals are being opened. And every hospital really has one of these instruments right across the world.

So the replacement cycle is lengthening -- that's the other factor I should've mentioned. The replacement cycle is lengthening. So instruments tend to stay. Instruments are probably getting better, more durable, they -- and hospitals are more cautious and financially, everybody is more financially cautious.

So the replacement cycle is close to eight years. It makes no difference now. But the positive side of that is that Trinity Biotech without any [insult today], we would only start replacing our own instruments in six years time. So up to then, it's all new business. After that, it becomes replacement business. So as a consequence, it continues to go as monstrous growth, you know?

Right. And you mentioned the US has the highest utilization rates but I know that's also one of the areas where you have not had great success in placements? I know you had a market partner. Are they still on board? And what sort of do you think is giving you some resistance in the US?

Well, not so much to denigrate the partner but they really -- I couldn't they've not really done a lot. They have no relevance to this conversation anymore. They've just kind of -- I think they've given up.

I think the position we have really in the United States is that the United States market is different than everywhere else in the world with the exception of Germany. And that is that the big immunoassay systems actually are utilized for testing hemoglobin A1c so that means the Abbott machine, the Abbott, our tech, the Roche instruments, Beckman Coulter instrument, the Johnson & Johnson instruments. Those -- the big five basically do hemoglobin A1c. They're not utilized around the rest of the world. But they are utilized in the United States and in Germany.

The reason they are not utilized is because they give CVs, which is kind of like standard deviation errors about 6% each side, standard deviation about 6%, CVs of 6%, whereas ours is CV [1.1%]. As in fairness, our competitors who use HbA1c as in Tosoh, Bio-Rad, and Arkray.

So fundamentally, I would argue, we would argue and I think it's not so much -- it is not a discussion point, it's an absolute fact that chromatography, HbA1c gives much greater accuracy than immunoassay systems.

But anyway, bottom line, for better or for worse, the United States basically run poor quality immunoassay hemoglobin A1c testing which doesn't happen around the rest of the world. And as a consequence, we only do about 50 instruments year. So in fact, we've actually been very successful in the much smaller market in the United States.

And you don't see this trend of the immunoassay back tracking going internationally right?

I think the movement is in the direction of going back towards HbA1c.

Okay.

The momentum is marginally now moving basically in that direction. It's moving away from the immunoassay but the momentum is modest. So you're not far off kind of an equilibrium position, you know? But you're certainly not losing out to immunoassay but getting some gains.

Got it. And you mentioned the utilization rates is -- it still early stages but it's actually running a little bit ahead of I think the $10,000 was a number you had initially expected. Over time, do you think this number could, which is now $11,000, can grow?

Absolutely, it will grow because like Menarini's volumes are growing significantly. They're growing significantly but the number of instruments are less -- I made a point -- because there's been a lot of consolidation particularly in their stronger markets which are Spain and Italy.

And, indeed, in France again you've had a lot of private labs. I think people realize that lots of private hospitals are closing down. So, yes. And then of course China is the one that can bring that number way up when it starts gathering momentum.

Brazil is performing really strongly. Brazil is way ahead of the curve in terms of they're very busy instruments, you know?

Okay, just in terms of just a quick update on Immco. It sounds like Sjogren's test, it slowed a little bit but that sounds like it's just growing pains or the switch into Bausch & Lomb, which I think is notably it will turn out to be a high-class problem. But you still this business growing 20% per year on the top line on a long run basis?

I'd hope it will. I mean 20% is a tall order. But I think -- I'm hoping it will do it. It may fall somewhat short but not significantly short of that. I think Sjogren's, just to deal with Sjogren's specifically, Sjogren's, remember, was only launched last June so it kind of went you know from 0 to 600 in seven months. And so for it to sort of stay at 600,000 or 600,000 quarter one of this year and 600,000 in quarter two. Not great. So it's lost its momentum but we see signs that it is beginning to tick up again as the Bausch & Lomb sales reps are trained. Because a lot of them haven't been even tuned to them yet. So we're beginning to see signs of it improving, and I think that will be a decent growth driver. And we're having good success with some of the mega labs in terms of them taking our products, basically sending them to our reference lab in Buffalo. We've had good success in Europe. And we're having good success basically putting the ELISA range of products, the autoimmune ELISA products onto our existing installed base.

So, yes, I think will get very close to 20%. We may not beat it but we get close to it. And I think that's a growth rate we can maintain.

Okay, and I guess the Lyme is sort of nothing you can really do about sort of the macro factor. But how about -- just in terms of Fitzgerald, sales have, I think -- it seems like it's taking another leg down. Is there anything causing that or is this just sort of a business that is bouncing along on the bottom?

The thing to say about Fitzgerald is it [turned to about] $11 million, it gives us EBITDA of about $4 million. So it's a very profitable business. It's just doesn't give us any growth and it contracts marginally it seems like year on year.

The difficulty we face really with Fitzgerald is that we're a middleman in Fitzgerald. We basically source monoclonal antibodies and we sell them into the trade. The difficulty we face is that we can work very, very hard but basically when a customer is using quite a lot of the products he has a big incentive to basically to seek out and find the original supplier. And of course, such a scenario results inevitably in our demise. We get zeroed out of the equation. That's basically -- that's the weakness in the model really.

You know you can work very hard to go two steps forward and end up then basically doing that three months in a row and then suddenly going six steps backwards, you know.

Got you. Just a couple of quick questions on the call side. Gross margins obviously continue to trend down. I guess this quarter was clearly probably irregularly impacted by the drop in HIV. Let's hope that this is the bottom. But what's your sort of outlook in perhaps Premier? I don't know if that's yet accretive on the gross margin side, but any thoughts on that would be great.

Obviously, as well from our point of view, we hope it has hit the bottom. I mean, it is down a little bit this quarter. And as you've highlighted there, it is impacted by the fact that both Lyme and HIV, which are very good margin products for us, that's where our revenue line has suffered. So, obviously, there's an impact there on the gross margin percentage.

There also is a couple of hundred bps in relation to the FX effect as well which really isn't an impact on overall profitability but does manifest itself to a small extent in relation to the gross profit line.

And Premier, as each quarter goes by, does improve in terms of its contribution to gross margin. Obviously, when the instruments were being placed at such high volumes with very few, actually, relatively speaking, in the field already, it was having more of a drag and just continued to grow. It hasn't reached the crossover point yet whereby it is higher than the Group's average. So that will be coming in the forthcoming quarters.

The key thing for margin in the future, they will be what the revenues are going to be just given our sort of fixed cost nature, the fixed nature of our cost base and also the mix as such.

Larry, I think we're going to let somebody else in.

Okay, sounds good, thank you.

Chris Lewis, ROTH Capital Partners.

Wanted to just start on the troponin update. You talked about your encouragement with the data you have seen so far. I understand some of that is still blinded but I think you mentioned some hospital data. So perhaps you can elaborate on just what type of data you've seen at this point and what gives you the encouragement you've talked about.

So what actually happens on a daily basis when we are doing our clinical trial, the patient comes in. He comes into the ER because he's feeling ill. He's either positive or negative but he has been treated in the ER, as you would normally be, and if he looks like her she looks like a cardiac patient, she'll be more than likely a troponin sample will be taken. And we send it to the central laboratory of that hospital or wherever to send the sample and it will test that sample for troponin. And we get a result. And that -- the troponin result coupled with the other clinical symptoms like an EKG etc., etc., they'll make a determination whether that person is either having a heart attack or is not having a heart attack. So that data is known to us.

Separately to that then, our sample is taken from that same patient. It's run on our device. Okay? And we, of course, can see our results. So we can compare our results in general to the hospital outcome. So you know you can see it's not adjudicated but you can see what the hospital got, okay? And there's no guarantee that -- this will work fine for very clear-cut heart attacks and very clear non-heart attacks. If you're like, okay, it only becomes so -- you going to be very much aligned, adjudication at the hospital are probably going to be very much aligned on the very clear-cut samples. It's only on the very marginal samples that are very close to the cut off, etc., where the adjudication may differ from the hospital results. So all we can say at the moment is we track -- we can track ourselves against the hospital i.e. the central lab system or whatever is running in the hospital and that data we track pretty well with that data. Put it that way, okay?

I could put it another way. What we're really kind of saying is that based on we have sight of how we compare with the million dollar machine that takes 1.5 hours to run, right? And what we're saying is we're very, very closely aligned to their results. And that is a positive.

Okay, good. And then, what type of announcement or data will you kind of release, or what should we expect when that adjudication review is completed and then when you submit to the FDA?

Well, it's a question that we still ponder here. But our frame of mind is that we won't announce that result, and we won't announce the results of our clinical trials. And the reason for that is as I said earlier on, we have a very, very good relationship with the FDA right now. And there's no rule to say that you can't announce the results. So that's the first thing.

We could if we felt we had to, we would, okay? But it may well be seen as a force, forcing the FDA's hand, that Trinity Biotech announces excellent results or whatever and that was submitted to the FDA. And I believe it will be a negative against Trinity in terms of our relationship with the FDA if we were to go -- be so bold as to put out a statement like that. Because it backs the FDA into a corner and, quite frankly, I don't think any of us want to do that. So our good feel is that we should -- we would obviously say we will tell you when the clinical trials are complete. We will tell you whether we submit it. But I think you can take it from -- you could take it for granted that we wouldn't submit if we didn't feel our data was good enough to be approved by the FDA.

I think what we will do, we will do the same as -- are we still on?

Yes.

I think will do the same as Abbott and Roche, etc., do. We won't basically put up and highlight basically on a billboard how wonderful our results were because we think that could be counterproductive.

Understood. And then FX impact -- understand it was a headwind on the top line. On the bottom line was it --

Pretty close to neutral, actually, Chris. So we pick up in terms of the cost of sales and we pick up in terms of SG&A and that offsets negative impact on revenues. It's very broad. It's pretty much a natural hedge.

Okay, and just one more for me. Clinical lab, understand Lyme was down a little bit this quarter but up 3% on a constant currency basis. Going forward, is that low single-digit growth rate, say 3% to 4% on a constant currency basis for clinical lab, a sustainable level growth level to expect. Thanks.

I think more like 5% or 6%, I think, is probably more the sustainable level but -- and obviously don't have a crystal ball. But that's what I think is excluding what just after to happening this quarter, I think that's -- probably over the last number of quarters I think that's where it would be averaging out at.

All right, thank you.

(Operator Instructions)

Operator, I think -- we're already running over 5 PM. I think with just two more questions, I would think we'll leave it at that, if you don't mind, at Per and Walter.

Per Ostlund, Craig-Hallum Capital.

I will try to be brief here. First question for you, probably for Jim here. On BNP, you talked about the 12 sites recruiting. Are these the same 12 that you were utilizing for troponin and do you get any benefit because of familiarity with the instrument or anything like that from using similar sites across the two separate trials?

The answer is we have virtually -- there might be two exceptions but I think virtually the same set of sites. Okay? And they are absolutely is advantage to that, A, because the research nurses are now trained. They understand the platform very well. We're not starting -- is not like the first time we started with troponin where we're starting from scratch and it just takes ages to get them up and running and get them used to the system. So there actually is advantage in that.

The PIs know us, they know as well. The research nurses know us well. So I think 10 of those 12 sites are actually the same sites as before and, quite frankly, we might have started the BNP trial maybe a month ago but we didn't want to detract the focus that the sites had on troponin. So now that the ACS and URLs trials are over, they're going to kick right straight in to be sort of the BNP trial.

Perfect, that makes sense. And then just a follow-up on troponin. I think it's probably been asked a few different ways, so just maybe one little nuance on it. You obviously have some vagaries with the timing of recruitment for the ACS trial because you're kind of contingent on getting the right people in getting them to buy into the trial. But it sounds to me like the stuff that's left, the precision study is more or less perfunctory with the kind of 20-day timeline. So as you look out at it, is there really anything that can take a left or right turn on you to impede that kind of late September, early October submission at this point?

The only thing I can think of right now, Per, is the adjudication, okay? I would've said 90% of the samples are easy to adjudicate. So if you take away 1,500 -- we have 1,500 samples, okay, 150 MIs. So that means there's 1,350 negatives. Of those 1,350 negatives, probably 1,000 of them are clear-cut negatives. Okay? You or I could adjudicate them okay because there actually negative, okay? So they can be adjudicated in a matter of minutes, I would've said, or certainly less than an hour per patient. You can come to -- there can be a few samples where there can be difficult to adjudicate and the adjudicators may want to ring out the hospital and ask for further data etc., etc., or extra copies of the ECGs and that sort of stuff.

So it's the only little bit that's outside of our control. The rest we can do ourselves. The adjudicators are independent. Yes, we are paying them but they are there to adjudicate properly, and so I can see it slipping or I can see them taking more than a couple of weeks more than I'm saying. But that's the only thing that's out of our control would be the adjudicators. And the other thing is I can't dictate that one of them doesn't go and take two weeks holidays in Hawaii. That's the sort of thing that can -- apart from that, I can't think of anything major that's outside of our control.

Walter Schenker, MAZ Partners.

(technical difficulty) since I think I'm the only person who wasn't from a sell-side firm. And to kill it but to do it quickly on troponin, you are well aware (technical difficulty).

Walter, you're breaking up there, can you repeat? You disappeared, Walter.

Okay, you are well aware of the standards the FDA is looking for a new point of care test for troponin.

Absolutely, Walter.

You have indicated that your test is, as best you could tell so far, coming in very close to central lab tests since you get to see both data.

Yes, I think we have proven that, Walter, in the independent trial by Fred Apple. Our data would be equivalent, indeed, better than some central lab systems when that was done. That's independent of us, okay?

And therefore the conclusion in question is the central lab level that you are -- have generally been comparable to on this trial would meet the criteria the FDA has indicated the need for a new approval -- I realize this is very simple -- for a new point-of-care troponin test.

I think you can -- that's a reasonable statement, Walter.

To be very clear -- to be very, very clear, we are absolutely confident that we might meet the FDA guidelines. Absolutely, we are confident about. And we feel that we meet by very comfortably with plenty of -- basically plenty to spare.

And that would mean, just to again reiterate, you would be substantially more accurate than any of the current point-of-care tests in the marketplace.

Walter, we, again, we know that and it is not just -- it is independently proven. Again, if you look at some of the work Fred Apple did when he evaluated our product. The best product in the market, right now, undoubtedly, on point of care is the Abbott i-STAT product, okay? The others don't count as far as I'm concerned. The Abbott i-STAT product is the best product in the market. In an independent trial done by Fred Apple, again, about the year or 18 months ago, I noted two separate trials but the Trinity Biotech products, he got a sensitivity at time zero 75%. On the i-STAT products in a similar trial conducted about six months prior to that, he got a sensitivity of 32%. So that's just independent data. I have a 32%, Trinity Biotech, 75%. It's fair to say, we're better than Abbott based on that result, and that's independent, not done by us.

Okay, thank you very much.

Okay, thank you. I know we ran on a bit longer so sorry for being maybe too lengthy but in any event thank you to everybody and talk to you soon. Bye.

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