Trinity Biotech PLC (TRIB) 2015 Q3 法說會逐字稿

Good morning and welcome to the Trinity Biotech third-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 Mr. Joe Diaz. Please go ahead sir.

Thank you, Frank, and thank all of you for joining us to review the financial results of Trinity Biotech for the third quarter of fiscal 2015, which ended September 30, 2015. With us on the call representing the Company are Ronan O'Caoimh, Chief Executive Officer; Kevin Tansely, 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 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 tensely, Chief Financial Officer, for a review of the results. 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?

Thank you, Joe. Today, I will take you through the results for Quarter 3 2015. Beginning with the income statement on our revenues, total revenues for the quarter were $25.8 million. This compares to $27.2 million in Quarter 3 of 2014. However, as was the case in Quarters 1 and 2 of this year, revenues this quarter have been significantly impacted by currency movements. This is due to the strengthening of the dollar against a range of currencies which has had the effect of reducing the dollar equivalent of our euro, Brazilian real, Canadian dollar and sterling revenues. Consequently, we have restated the Quarter 3 revenues on a constant currency basis which shows that revenues for this quarter would have been $27.6 million if the exchange rates prevailing in Quarter 3 2014 were to apply.

Ronan will take you through details of the movement in revenue shortly. However, before I move away from revenues, I would like to comment a little more on the currency issue.

As well as reducing revenues, the same currency movements have a major impact on foreign-currency denominated expenses, in this case a reduction. In summary, whilst revenues are lower, so too are our costs, so the impact on profitability is not as great as the impact on revenues would suggest.

In the past number of quarters, the amount of the FX impact on revenues and costs was broadly the same, hence no impact to profitability. Unfortunately, the same is not the case this quarter. This is because, in the past, all of the non-US dollar currencies have typically moved in the same direction and roughly by the same amount versus the US dollar. This is not the case this quarter. We have seen the euro strengthen but both the Brazilian real and Canadian dollar have both depreciated significantly. This has the effect of breaking effective natural hedge that we had in place, and we've calculated the impact this quarter to be adverse to the tune of over $300,000. This brings us to this quarter's gross margin.

As you will have seen from our press release, we earned a gross margin of 46.5%. This represents a reduction on the 47.9% that was reported in Quarter 3 last year that was more closely in line with the 47% reported in Quarter 2 of this year. The reduction from that level was due to the currency issues I have just mentioned. In particular, the continued depreciation of both the Brazilian real and Canadian dollar have squeezed margins in both of these markets. Lower sales of line products which traditionally earn higher than average margins for the Company also continues to contribute to lower gross margins.

Moving on to our indirect costs, our R&D expenses have increased from $1.1 million to $1.3 million this quarter. Meanwhile, our SG&A expenses have increased from $7 million to under $7.5 million. A couple of factors are at play here.

Firstly, there is the increased cost associated with Meritas, and these amounted to approximately $700,000 this quarter. And in addition, non-Meritas SG&A costs were also higher this period due to normal inflationary pressures.

Operating profit for the quarter was just under $3 million and this compares to $4.6 million for the equivalent quarter in 2014. This reduction, which I admit is quite significant, is due to the combination of the lower gross margin, upward pressure on indirect costs, and for the first time the impact of currency vectors.

Moving on to our net financial income, during last quarter's earnings call, I outlined how the low notes which we issued in Quarter 2 2015 were to be accounted for and explained how we would present their impact on our income statement.

Firstly, the cash element of interest payments is included in the financial expenses line of the income statement. The non-cash financial income and expenses relating to the notes are shown separately. This is because, one, they are non-cash in nature and, two, because I don't think they are very meaningful as they have a tendency to fluctuate significantly due to factors unrelated to the operational performance of the Company. For example, this quarter, you will see that the non-cash items represent a net gain of $10.5 million. Of this, $10.7 million represents valuation gains on the derivatives embedded in the loan notes. Such derivatives are marked to market each quarter with the change in value taken through the income statement. In this instance, the gain represented a diminution in the value of the convertible elements of the notes. The remaining $200,000 represents the non-cash element of interest. In discussing the profitability for the quarter as a whole, I would exclude both of these non-cash items.

The net result of what I spoke about earlier is that the profit for the period was $12.3 million and from an EPS point of view, we have disclosed the basic EPS calculated off of that headline profit, which amounts to $0.53. But if we were to remove the impact of those non-cash items related to the loan notes, the profit would have been $1.8 million, which equates to $0.075 this quarter. Meanwhile, diluted EPS, which removes all aspects of the loan notes from the income statement for the quarter, was $0.097.

Finally related to the income statement, earnings before interest, tax, depreciation, amortization and share option expense for the quarter was $4.7 million.

I'll now move on and talk about the significant balance sheet movement since the end of June 2015. Property, plant and equipment remained unchanged at $19.2 million since last quarter due to additions of $1.4 million being offset by a combination of depreciation of $700,000 and the translation adjustments of $700,000. In the same period, our intangible assets increased by $4 million. This was made up of additions to development projects of $4.7 million offset by an amortization charge of $700,000.

Moving on to inventories, you will see these have decreased from $38.2 million to $36.9 million. As expected, there was a reduction in our inventory of Lyme disease products as Lyme traditionally peaks -- Lyme inventory rather traditionally peaks in the early summer in anticipation of demand and traditionally reduces during Quarter 3. Also, our inventory of rapid HIV and syphilis tests decreased this quarter due to the higher sales of these products versus Quarter 2.

Meanwhile, trade and other receivables have decreased by $1.2 million to $27.2 million despite the increase in sales this quarter. This decrease was due to very strong cash collections in the recent months. Meanwhile, our trade and other payables have decreased by a little over $1 million due to the timing of payments.

Finally, in relation to the balance sheet, the exchangeable notes have been carried at $99.1 million, and this misrepresents both the underlying debt and the fair value of the embedded derivatives. The reduction from $109 million since the last quarter is mainly due to the marking to market of these derivatives, as I mentioned earlier when discussing the financial income.

Finally, I will discuss our cash flows for the quarter. Cash generated from operations before working capital movements for the quarter were $3.9 million. The working capital outflow was less than $200,000, while capital expenditures, including both tangible and intangible, in the quarter amounted to $4.3 million and interest and taxes to a further $0.1 million. This has resulted in net free cash outflows of just over $700,000.

The other main movement in the quarter was the payment of our annual dividend, which, at $0.22 per ADR, amounted to a total payment of $5.1 million.

Finally, there was approximately $150,000 of fees paid out during the quarter in relation to the final fees associated with the issuing of the loan notes in Quarter 2. Consequently, the Company had cash on hand of $104.3 million at the end of the quarter.

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

Thank you, Kevin. I'll take the opportunity now to update you on our progress on the cardiac development programs. In particular, I'll provide you with a detailed update on our Troponin clinical trial and the status of our FDA submission. I'll also provide a brief update on our Meritas BNP product which as you know is currently undergoing clinical trials since the (technical difficulty) FDA application.

So, starting with Troponin, you'll remember on our July call I let you know that collection of the clinical data to support our FDA submission was complete. Again, just to remind you, there are three main sections of this trial, and I'll deal with each of them individually now.

Firstly, and by far the most challenging is the AFCS or heart attack trial in the emergency room setting. This clinical evaluation was run at 12 trial sites across the USA during 2014 and 2015. The aim of this trial was to recruit up to 1,500 patients presenting in the EB with symptoms suggestive of acute coronary syndrome. More specifically to find from this cohort 150 actual heart attacks. Each of these patients were sampled up to four times, namely on arrival, otherwise known as time zero, three hours, six hours, 12 hours and 12 to 24 hours. At each time point, the Troponin level in the patient was measured. I reported on our July call that we had passed the 150 heart attack milestone and that recruitment in this section of the trial was complete.

This complete patient cohort then needed to be adjudicated by a panel of three independent cardiologists. It is the role of the independent cardiologist to determine, based on the clinical data, if a patient actually had a heart attack in accordance with the third definition of MI. This, as you know, 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. The outcome of the adjudication process is ultimately used to determine the clinical sensitivity and specificity of the Troponin product.

In July, I also said that we expected the adjudication process to be complete by September. Well, unfortunately, the adjudication process, which is out of our direct control, has taken slightly longer than we anticipated. As of this week, slightly less than 400 patients remain to be put to the adjudicators. The current rate of adjudication is now running at 100 per week. In fact, last week, in excess of 120 patients were put through that process. Assuming this rate continues, adjudication will be complete comfortably before the end of November.

You're probably wondering why is adjudication such a slow process? In general, a determination of a clear positive or negative MI can be made in a matter of minutes rather than hours. However, we have encountered a small number of trickier or more difficult samples, some of which have taken as much as two weeks to reach a final determination.

For example, one of the most cases out of Dr. Fred Apple's studies in Minneapolis is as follows. A 61-year-old male presented in the ED with headache and dyspnea. Low EKG changes were observed. Medical history is extensive for congestive heart failure. The patient has had a prior MI. However, the local Troponins were 0.245, 0.3 and 0.3. These values were 10 times the cutoff. However, the studies indicated that the patient had no MI. The adjudicators, however, were confused with such high Troponin values and asked for more information. I'm going back to the site. Sure enough, past medical history and our recent discharge summary stated that the patient had stable Troponin values in the range of 0.25 to 0.35 and that these results are recorded whenever tested going back over the last 12 months. With this new information, the adjudicators had to go back and review this case. In total, this process took more than two weeks.

The good news is, however, that although the adjudication is taking slightly longer than anticipated, the clinical sensitivity and specificity generated in the cohort of patients adjudicated to date is tracking better than that which we observed in our CE Marking trials.

In our CE trials, you will remember we saw a time zero sensitivity of 60%, a market-leading result with which we were very happy. However, the data to date in our US trial is looking significantly better and is tracking closer to the data generated in the 2014 Fred Apple trial at Hennepin County Emergency Department where Dr. Apple determined a time zero sensitivity for Meritas of 75%. Assuming the remaining adjudication continues to trend accordingly, Meritas will undoubtedly be an excellent product with market-leading performance when approved.

Just put this clinical performance in context for you, according to the manufacturer's package insert, the time zero sensitivity of the current FDA approved Abbott Architect Central Lab System is just 60%. Moreover, Dr. Apple in a recent study demonstrated the Abbott I Troponin product to have a time zero sensitivity as low as 32%. Therefore, Meritas, with its sensitivity ahead of the Abbott Central Lab System and with the corresponding high specificity, is said to produce typical performance substantially better than some of the currently improved Central Lab systems. However, as you know, Meritas produces these exceptional results in 15 minutes right beside a patient while the Central Lab results can take more than an hour or more to report back. Meritas undoubtedly will deliver better patient outcomes.

The second major component of our clinical trial was to determine the upper reference level or 99 percentile of our product in a population of normal healthy people. Again, I reported on our last call that patient recruitment to the URL study was complete. Our statisticians have since completed our work on this data and have determined the 99 percentile in the US population to be 36 picograms in whole blood. You may remember, for CE Marking, we had already carried out a similar study on a European population which resulted in 99 percentile, also 36 picograms.

Although it has taken quite a bit of time and indeed a lot of money to determine what we all reasonably expected, i.e. that there is no difference between healthy individuals, be they European or American. There is, however, quite a bit of satisfaction and confidence in the product to be gained as repeating this identical value at two separate time points in two separate studies on two separate continents is a strong indication that our product is extremely consistent, reproducible, reliable and robust, characteristics not observed in all of the competitor POC products currently on the market.

The final (inaudible) component of our clinical trial is the precision study. This study is being carried out at three US trial sites. These are the same sites that have already carried out our URL and AFCS trials, so they know and understand our products very well. This is a very straightforward study. Data collection will be completed shortly and will not be a gating factor to our FDA mission.

Finally, writing our actual FDA submission document is at an advanced stage. The document essentially awaits the final outcome from the trial data sets discussed earlier to be ready for submission. The Company estimates that the adjudication process will be complete well before the end of November with summation of our application to the FDA planned in December.

In summary, therefore, patient recruitment for Troponin trial is now complete. The (inaudible) are 99% complete and are already compiled into our FDA submission document. For the reason explained, the adjudication of our URL data has been stored and anticipated will be completed shortly.

I'll move on briefly now to Meritas BNP. As you know, 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.

I mentioned on our last call that following a discussion with the FDA on July 13 last, we had decided to expand our US trial sites to 12. The adoption of this strategy we believe will help for a smoother review with the FDA. The aim of this study is to recruit 1,450 subjects, approximately 700 of which with heart failure and 700 without heart failure. I'm happy to report that the recruitment is running smoothly. The products will be submitted to the FDA early in 2016, and because of the relative simplicity of the fight of the BNP 510(k) process, we would expect FDA approval in advance of Troponin in 2016.

In summary, therefore, we are moving to the very final stages of preparation of our FDA submission document and will submit to the FDA by mid-December. Most encouraging of all of course is that all indications for our clinical data are excellent. The Meritas Troponin product is exhibiting clinical performance far in advance of the Troponin POC products currently approved on the US market and is in fact demonstrating clinical performance better than some of the approved Central Lab systems.

I'd be happy to take questions later but I'll handover to Ronan now. Thank you.

Thank you, 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 were $25.8 million compared with $27.1 million for Quarter 3 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, the revenues would have been $27.6 million this quarter, thus representing an increase of 2%.

Point of care revenues for the quarter were $5.4 million, which is equal to the sales in the corresponding quarter of 2014. There is no currency impact here as virtually all HIV sales are invoiced in dollars. However, African HIV sales have recovered and are more than $2 million higher than their revenues in Quarter 2.

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 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 the 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. We are confident of our African HIV business continuing to grow.

In the US, our HIV sales increased 2% over the prior quarter aided by the fact that we are now selling HIV-1/HIV-2 combination product since we got the HIV-2 FDA approval last year.

In December, as you know, we were delighted to receive a clear 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 of the revenues and what they would be.

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 $50 million 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. We sell our HIV product to the same target demographic.

And secondly, we've been in contact with all 50 United States public health departments and virtually all of the city and county public health departments. And as best we can tell, all are initiating purchasing plans. However, this takes time. In each case, there is a purchasing decision followed by sourcing of funding, and then we have the establishment of procedures, sometimes the establishment of a pilot and of course training personnel. So this is, in many cases, a 200-day process.

Our actual HIV sales were $10,000 in Quarter 1, $100,000 approximately in Quarter 2, and were just over $300,000 in Quarter 3, which is the quarter just completed. We believe that we will gather significant momentum, particularly as the city and public health departments begin to make purchases. We believe that this will be a $10 million plus product, but it's difficult to assess at what point in time we will reach that run rate.

Moving on to clinical laboratory, our revenues for the quarter were $20.3 million. However, on a constant currency basis, revenues were $22.1 million compared to $21.7 million in Quarter 3 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.

Our Premier business grew 6% over the prior quarter. During the quarter, we placed just over 70 Premier instruments, significantly down on Quarter 3 of last year. The reason is that we made negligible placements this quarter in Brazil not due to a lack of demand but rather due to the major weakening of the Brazilian currency, the real. It has weakened against the dollar from BRL2.2 last year to BRL4.0. It's actually at BRL3.95 as we speak. This constitutes a virtual halving of its value against our reporting currency, which is the dollar.

Given that we invoice and Brazilian reais, it means that our revenues in dollars have virtually halved. In the circumstances, we have temporarily stopped selling Premier instruments apart from a very few exceptions. Obviously, we've continued to service them and to supply product onto the existing installed base.

Our plan and how to handle this is, one, to look for a price increase. And we think this will be possible but the actions of our competitors who obviously have the same problem is a factor here. Also, the decline of the currency has been so swift and so severe that customers are resisting price increases in the hope that the currency will recover.

Our second method of handling the difficult problem is that we're increasing the amount of product remanufacture in Brazil as quickly as we can in order to reduce our Brazilian real exposure and to try to match our inputs and outputs.

Lastly, we're hoping for some political stability and a recovery in the currency. Obviously, we have no control over that.

On a positive note, the demand for our product is really strong and we are the only hemoglobin A1c product that is manufactured in Brazil, so we have a real advantage here in the longer term.

As we move more manufacturing to Brazil and as we secure pricing increases, we will recommence setting the Premier instrument in that market. We are committed to Brazil and believe it will become a bigger component of our business over time. We see it as an important market for example for our Troponin product.

Moving on to infectious disease, excluding Immco, this business declined 1% over the prior year. This decrease is due to the fact that the line confirmation component of the business was down $300,000 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.

And I just want to come back briefly to a point that Kevin made earlier and expand on it. In general, the strength of the dollar is hurting us now. Until now, we've argued that a strong dollar gives no revenues and also lower costs and that the two match. However, we've moved into, as Kevin said, we've moved into a different phase now and the strengthening of the dollar is so significant that we are experiencing a new dynamic, which is basically that we are losing sales.

We're losing sales for two reasons, either because our customer cannot afford our product where we sell in the dollar currency, and examples for Russia and Turkey and Colombia, or alternatively, as in Brazil, which I just outlined, where we cannot afford to sell to the customer and we invoice in the local currency, as an example, I just gave the example of Brazil.

We've seen a 40% devaluation of the Russian ruble in the past year. And as an example, our sales in 2014 were $1.5 million. And this year, I think we're going to end up with about $400,000 due entirely to the fact that our (technical difficulty) customers can't afford to pay for the product.

Moving now to Immco, it continues to perform strongly. Sales of Sjogren's during the quarter were approximately $600,000, which is the same as its sales in Quarter 1 and Quarter 2. This loss of Sjogren's sales momentum arises due to the fact that ownership of our distribution partner (technical difficulty) Nicox to Bausch & Lomb, a valiant subsidiary, at the beginning of this year of 2015. The loss of momentum arose due to transition logistics and training of new salespersons. However, the sales force at Bausch & Lomb is 13 times larger than that of Nicox, and we believe that Bausch & Lomb will be a much stronger partner than Nicox in the future. Bausch & Lomb have 150 direct sales reps serving optometrists and ophthalmologists around the country. So, they have 150 compared to 12. So, we're very, very confident of the momentum being regained and being regained very quickly.

So, that completes my prepared comments, notes. And at this stage, could I hand back to the operator please for a question-and-answer session.

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

A couple of questions here. On Troponin, which probably seems to be the most important thing right now, can you give us a sense, Jim, of what percent of the cases have been adjudicated, or more specifically, what percent of the results you have seen that you're sort of drawing your positive commentary from?

Well, obviously, Bill, it changes on a day-by-day basis because, obviously, as I said on the call there, we're putting out about 100 a week now, okay, but slightly more than 50% is what I'm drawing my conclusion from right now, so slightly more than 50% of the total cohort adjudicated. So, it should be indicative of what the other 50% will turn out like, just on the law of averages. So yes, the answer, short answer, between 50% and 60%.

Okay. Just a follow-up on that, and this is lack of statistics understanding maybe on my part. But if the cases that are most difficult to adjudicate are the ones you haven't seen yet, is there -- are they likely to have more of an impact on the overall outcome and statistics than the easy to adjudicate cases, if that makes sense?

I understand exactly what you're saying, Bill. But we haven't actually, if you like, segregated the samples. The samples go out -- the patient records go out as they are ready. We don't hold back -- we don't send out easy ones and hold back the hard ones or vice versa, okay? They're going out almost as they're completed, if you like. So there should be no bias in the data set to date towards easy or hard samples. They go out randomly. It's a tiny percentage of them Bill that cause a lot of problems. When I see a tiny percent, three or four patient samples have caused the delay, not 50 or 60. You know what I mean? But the data today should not be biased in terms of whether they were hard or easy. They're going out in a randomized fashion.

So don't think -- even though you said with the impact on the timing was due to these more difficult to adjudicate cases, don't think of those as being the cases that are still sitting there with the adjudicators per se. It's caused them the whole way along to go more slowly.

We haven't won that, okay? It holds up the whole process. Do you know what I mean? While they're opining on those particular cases, they're just not working on easier ones. You know what I mean? So your summary there is correct.

Okay, so that is very helpful. And then just as a second and unrelated question I guess to Ronan, I am struggling I guess to understand what's going on here in the clinical lab business and the growth. I understand that your line business is down a little, but it feels like there must be something that we're missing, that there must be some whether it's Fitzgerald or something. I mean if Lyme was down $300,000, gosh, historically you've talked about that as a $9 million business. It's not that great of a percentage. If Immco is up 6%, I mean something is offsetting besides currency that growth. Just trying to understand what besides Lyme might actually be shrinking?

Well, I mean, obviously, you're taking $300,000 on Lyme for a quarter and comparing it with $9 million for a year.

That's fair.

So if you annualize it, it would be $1.2 million out of $9 million. But other than that, I can't really help you. The components are Fitzgerald is -- if you look at clinical laboratory, lots in there. You've got Premier, which is up. You've got infectious disease, which is down a piece. You've got Fitzgerald down marginally, and you've got Immco up. So, I mean they are the components where the others are all adding up to a currency adjusted 1% decline.

Okay. I mean am I doing my math that the Lyme is about a 1% drag on revenue?

Let me just go through it quickly. No, I think --

Well, $300,000 would be higher than last --

$300,000 costs --

It's a little bit higher.

It cost $20 million, I suppose is 1.5%.

Okay. And Fitzgerald, just on a year-over-year basis, what -- did you quantify that?

I didn't but I will say it's down marginally. It might be responsible for about just under 1%. I'm talking in the quarter about 1%, just under 1%.

All right. Thank you very much.

Drew Jones, Stephens Inc.

Following up on the Troponin and understanding submission timeline, how much of the submission prep work can you guys do prior to having the full heart attack data in hand? I guess, I'm sure you can be sitting on go once you do have all that data.

I think maybe from the end of adjudication it will probably take two full weeks to actually pull the whole thing together and just check everything and dot the i's and cross the t's. I think two working weeks, and that's where we're coming in. So we're saying really we need to adjudicate 400 more. We are running at -- well Jim was saying 120 last week, but let's be safe in case one of the guys gets the flu for a few days. It takes us four more weeks, which gets us to, you know, the 22nd or 23rd of November. Add in two weeks to pull it up, tidy it up, bind it and send it off, and we are looking at sort of comfortably I think middle of December. Jim, do you want to add anything to that?

No. I think Ronan, your summary is perfect. That's it.

Great. And then a lot of promise with syphilis. It seems like it's off to a good start. Can you help us understand what's the awareness level? How much of public health have you guys marketed to at this point? How many of those patients -- or I'm sorry those customers are in that purchase decision process at this point?

Drew, frankly, I mean I won't say that we are delighted with the momentum or how -- I had expected the sales and hoped the sales to be higher this year. As I said, we did $10,000 Quarter 1, $100,000 Quarter 2, just over $300,000 last quarter. And it's too early to say what we will do this quarter but it will be somewhere between $400,000 and $500,000 I think, that kind of size, $400,000 and $500,000, so which kind of means that we have a business now that is annualizing at $2 million. Where it's going to end, I don't know.

In terms of where we've actually made our sales so far, most of our sales have actually not gone to the public health labs but -- or public health departments but actually have gone out into community-based organizations, Planned Parenthood, people like that. So in fact really there's been almost no -- we've not really delivered any significant public health sale yet. That is purely a consequence of the fact that it's a slow, arduous, tortuous process and we are working through that. So I suppose you could take encouragement from that in the sense that clearly the indications are virtually all of the public health departments will buy. What's unknown yet is basically in what volume they'll buy. But does that answer it for you? (multiple speakers) I said it probably could get to $10 million, I don't know how long it's going to take, you know?

Sure, but probably safe to assume a public health order is much larger than a community order?

Absolutely, yes, absolutely it would be. The other point to make is -- I think I made it before, but the -- I think a comparable market, and it's reasonable to compare them, would be HIV. It's a clear market. It's a sexually-transmitted disease. It's infectious. It's got a lot of CDC awareness. And that market is $50 million in public health shared between three companies really. And in this instance with syphilis, we're the only company. And so you could speculate as to what percentage of the HIV market the syphilis market will ultimately transpire to be. If I say it's a $10 million -- it will be a $10 million market, I'm estimating it will work out at 20%. I'd like to think that that's a conservative estimate.

Thanks guys.

Larry Solow, CJS Securities.

Some of my questions have been answered. Just on the Troponin, is it fair to say that your original expectation for the adjudication was probably more like 200 a week and you're running maybe at about 100 a week or somewhere in that ballpark?

Yes, maybe 150 or 175 a week.

Okay, right, a little less than 200. Okay. That's fair to say.

(technical difficulty) go ahead.

So basically you have -- I know you targeted originally 1,500. I don't know exactly how many there were to get to that 150, but assuming it was about 1,500, you basically have done about 1,100 since early August or what have you.

That would be roughly correct. We didn't have the whole way to 1,500 just because of (technical difficulty). We assumed a prevalence of 10%. It came in slightly higher than that, but your assumptions are broadly correct.

Got you, right. And then just to confirm, the harder case is whether or not they skew the data one way or the other. The fact is they are mixed throughout, so don't know how many more of the remaining 400 are difficult or not. Assuming the average run rate will remain about the same, you'll finish sometime in the third week or fourth week of November.

I think, if you do the math, we should finish sooner than that. But assuming there's going to be one or two tricky ones, we're saying it will be completed by the end of November comfortably.

Right, you've built a little cushion in there and then you got the plus two weeks. Got you. Got you. And then just in terms of the BNP and then relative to Troponin, so it sounds like you filed BNP maybe a month later or plus or minus. You expect approvals sooner. Maybe you don't want to an exact timeline on either one of them, but is sort of -- are you looking at six months for both, maybe a little sooner on the BNP side, or what are your thoughts there?

Well, we don't hold specifically to the dates because when it's in the hands of the FDA, they make up their own minds on how long or what the timeline will be. But BNP is substantially a regular 510(k) and regular 510(k)s theoretically take between 90 to 120 days.

Troponin is far from a regular 510(k). It's more like a PMA in the way that it's set up. So if I was guessing, BNP is going to take less than six months. How much I don't know. Troponin is going to take about six months or a bit more. That's my guess.

And does the fact that the platform itself is new and BNP will be the first on the platform have any bearing, or not necessarily?

I actually think very little, quite frankly. Each product will be reviewed independent of the other. Quite frankly, it's a clinical data review. The platform is almost incidental.

Got you. Okay. Then switching gears, just on Premier, Ronan, I don't remember exactly what the placements were last year, probably around 100 in the quarter, but the 70 number this quarter is -- do you think we're more at a run rate if Brazil is sort of zero for at least a few quarters it sounds like? Are we more at a 300 a year place in run rate or somewhere between 300 and 400 and then hopefully you get Brazil back and you're back towards the 400 or 400-plus?

I mean I think -- I mean we did 120 in Brazil last year. So, I think we'll probably be in the 350 to -- 330 to 360 range without Brazil. But I mean we're optimistic of turning Brazil back on. It's just that the drop in the real was so violent, everybody kind of -- we were all breathless watching it. And we have to, to some extent, wait for our competitors also to move their pricing. I mean hospitals need this product. There actually is not an indigenous choice available. We have a margin and an advantage. We have an advantage over our competitors, the US company and the two Japanese companies, in that we are the only ones that actually manufacture it there.

Now, what were going to do now is, what we are in the process of doing -- we are well down that line -- is we are basically increasing the amount of manufacturing that we're doing. So we were doing a certain amount but we're going to be doing an awful lot more now. So we'll achieve a natural hedge by doing that.

Absolutely.

I mean the Brazilians have to realize you can't have your currency basically half in value and expect to buy at the same price, right?

Absolutely. So essentially you have -- inevitably, this could give you a competitive advantage at some point, in terms of currency impact at least?

Yes, that's really I suppose -- I'm finding it very hard to address this as a positive, but at the same time, I suppose our dilemma is lesser -- is less than our competitors. Having said that, we are of a lesser size and our competitors. We're not as big. We're a smaller company.

Of course all around the other thing is that without kind of going into the politics of it, we know that there is just in Brazil at a moment -- one hopes that I'm not saying that there's basically riots in the street or anything like that, but at the same time, if the political issues can be resolved, one would hope that the currency might strengthen, albeit we have absolutely no control over that.

I know you have been getting like somewhere in the 20%, 25% share of sort of new placements on a worldwide basis. Is that a similar number Brazil, plus or minus?

No, like in Brazil, last year, we were a very high percentage. I would say we were at 65%, 70%.

Okay, so a big number there. All right

Sorry, Larry, we can continue to achieve that.

Right, but at a lower price.

We simply can't -- now, bear in mind now a lot of these are put in on a reagent rental basis, but we simply can't put them in on a non-economic basis. So we just stood back for the moment but the demand is still there.

Right, right. And then I guess the reagent, the value of the reagents also will be cut in half essentially because of currency, right?

Yes, I mean, we are taking that on the chin as we speak. I think it's hurt us. We were quantifying maybe at $300,000 this quarter. It's a hit; it's a big hit.

Right. So how long could you wait?

What we need to do is need to get -- basically we need to do more and more of the manufacturing down there.

Right. How long does that process do you think take where you can get from where you are today to a satisfactory number?

It's a progressive thing. It's a progressive thing. And we had already, as you know, we were doing a certain amount of manufacturing around there. We were doing it to some extent with reluctance. Now we are doing it with great enthusiasm.

But do you think within a few quarters?

We were doing it -- we did it initially in order to -- we did it initially in order to get the product approved and get it in there.

Right. Absolutely.

We were a reluctant manufacturer. Now our whole body language has changed. We are very enthusiastic.

But will you be able to scale up like a significant chunk within a few quarters, or is it a much longer process than that?

No, a couple quarters I think, a couple of quarters. Well, it's progressive. Some of the elements are more difficult to transfer (multiple speakers).

Okay, fair enough.

-- very progressive over a year. But we can get price increases as well, just to make that clear. (multiple speakers)

Right, but if the competitors don't increase price, you sort of have to wait and see what happens I guess at that point on that.

I mean, we are seeing the same kind. I Didn't talk about it but for example, in Turkey, we have a similar problem except it's just not as big. We are invoicing in dollars. The dollar has strengthened and our customer basically is -- our customer is finding it hard basically for the price and as a consequence is just buying less. So that's a factor. It's just the reality that you're seeing right across the board. We have the issue in Colombia as well. It's just a reality of our -- anyway, it basically is a consequence of just a strong dollar, you know?

Absolutely. What about just trends in general outside of currency in terms of Premier placements going on in other places? And I know you had talked about there was sort of a consolidation going on where labs are using less machines, higher utilization. How has that been playing out?

I think the rest of our Premier business is doing very well. Everything is -- I think the one concern you have is that we're putting a lot of instruments into China and they are not running enough, a lot of reagents at this moment in time. And we need that to change. We need those instruments to be busier. And it's happening but it's happening more slowly than we'd like. I mean I think that's probably the other dynamic that's there. Meanwhile we're getting approval in more and more countries and we are broadening our base. So we are reducing our reliance on Europe, Brazil, and China.

Jim Sidoti, Sidoti and Company.

It's been about six months since you raised the money. Can you give us an update on what's going on on that front?

Yes, Jim, we've been actively seeking to identify attractive acquisition targets. And to assist us in that, we've retained the services of a number of consultants that we've used in the past and whom we know well. So basically they are working at it and we are working at it. But to date, we've done evaluations of numerous potential targets. None of them are regarded as really suitable. So in most instances stuff we've looked at we've regarded as just unrealistically overpriced. So we are very mindful of not making an acquisition in haste and overpaying for it. So, at this moment in time, basically, we've not identified anything that we've moved onto kind of second base with.

In terms of what we are looking for, we are looking for companies that are growing, that are in the growth sector and that are in an early part of their product lifecycle, something that's profitable, cash flow positive, something that will give us synergies with the rest of our business. And the search goes on but unfortunately, at this time, I have nothing that we could share with you.

All right. And then with regard to the Troponin process, will you let us know when you file with the FDA or will you just wait until the next earnings call to update us on that?

I can give you absolute assurance we will put out press release out on that one. We'll let you know immediately.

All right. And then the last question, you said I believe that the HIV sales were up about $2 million compared to the previous quarter.

Yes.

Okay, but your net sales were up about $1.5 million. So where was the weakness? Was that mostly the Premier placements?

No. Remember, okay, so last quarter was a very weak quarter. And we were in HIV, remember? So we're at $2 million up there.

But overall revenue is only up about $1.5 million, so you were $0.5 million on the rest of the business. Is that primarily the Premier instruments?

You have to take into account the currency side of things there. Obviously, the currency was about [$1.7 million] so --

So currency was worse than the previous quarter?

It was, yes.

Okay. All right. Thank you.

Nick Jansen, Raymond James.

Hey guys. A lot has been asked, so maybe just one or two follow-ups. First, now that you feel like you are having the US education process pretty much wrapped up almost, when do you start thinking about selling this internationally? I know it's been on hold because you've been trying to get the US trial up and running and finalized. So when do we think that we can maybe see a little bit of revenue from this investment in the first half of next year? Thanks.

I mean our biggest concentration has been on bringing these products to the US trials because that's the big prize for us, the US market. But in terms of our emphasis, the second biggest market probably is Brazil for us we estimate, and the third biggest would be China. And surprisingly maybe the fourth biggest would be Europe.

In terms of Brazil, evaluations are ongoing as we speak and won't take a lot longer, maybe another three months. We need to get the product registered down there. In order to facilitate that on a timely basis, we need to do a certain amount of manufacturing there and we're doing that as well. So we are basically, we're putting in place with our contract manufacturer arrangements for him to do a part of the manufacturing down there.

And so the combination of a positive evaluation by the key opinion leader in Brazil, the registration in Brazil, which we're confident of, and the manufacturing arrangements will enable us to enter us to enter that market. Our CEO of our operation down there was previously the CEO of the main competitor and would be very knowledgeable in the market and is confident of taking a significant share.

In terms of China, we are one year into a probably 2.5 year registration process, and our distributor there was previously the distributor of the market leader point of care of Troponin Company in -- basically in China.

And then thirdly, in Europe, we have evaluations ongoing in the five major European countries, which are the UK -- Germany, France, UK, Spain and Italy. So those evaluations are ongoing. And just to remind you what happened was we stopped those evaluations at the same time that we stopped our US trial for the same reason, basically that we had acquired a problem, and we concentrated our efforts initially when we recommenced on the US. And subsequently, we got those evaluations back up. Those evaluations are all nearing completion. We have distributors in place in all of those five major European countries and sales will -- bear in mind we already have the CE Mark. So sales will commence as soon as we get positive evaluation outcomes from the key opinion leaders in each of those five countries.

But let me state, having said all of that, the key prize is United States. We estimate that the point of care market for Troponin is $350 million round the world and $280 million of that opportunity is in the United States.

Okay, that's all for me guys. I'll keep it short.

Michael Jolin, Heartland.

Congrats on the quarter and the results in the trial so far. My question is just regarding thinking a little bit further out. What's the capacity of the manufacturing of Troponin and what's the ramp-up going to look like? What should we expect, assuming everything goes as expected?

As it stands at the moment, we have the manufacturing capability of about 4 million units. But it is not difficult for us to ramp that up significantly, but that is (technical difficulty). We have the current ability to manufacture like sort of $50 million worth of product. But we can ramp that up with relative ease by spending $2 million to $3 million.

And you don't foresee any bottlenecks in the supply chain or anything like that?

I don't think so, Mike. Having said that, I don't want to pretend that it's simple. We have -- part of our difficulty in running through this trial was our products worked perfectly well in R&D and suddenly doesn't work so wonderfully when it goes into the manufacturing process. So I don't mean to kind of minimize the issues there. But having said that, I think that we've handled them well.

We have good people. We've strengthened the manufacturing team and we've strengthened our operation in that sense. We brought in a chief scientific officer who came from (inaudible) as it happened he was the chief head of R&D there. And he manages the Swedish operation top to bottom now and has brought a lot of experience with him.

But I mean I think the time to actually perfect that too is probably while the FDA submission is -- while it's going through the FDA submission, you know? But we're confident there.

That's great. Thank you for that.

Thanks Mike. I think Chris -- is Chris Lewis wanting to ask a question? I think that's just one more person there.

Certainly, sir. Chris Lewis, ROTH Capital Partners.

Make that the last question please.

Sorry, I've been bouncing around calls here, but just kind of one question. Why do you think the adjudicated data sensitivity in this trial is tracking better than that CE Mark trial? And kind of the second part of that question, how confident are you that the final data in this trial will be consistent with what you've seen thus far? Thanks.

Okay. Well, the first part of your question, the patient cohort in the United States is slightly different than the patient cohort we had in Europe. Okay? In Europe, we didn't -- we actually piggybacked on an already running clinical trial, what I'll call the fast test trial. And the fast test trial eccentrically excluded particular types of heart attacks known as stemmies and end stemmies. Those are people who -- those are pretty major heart attacks. People who are, as they arrived at the door, if you like, almost, are having a heart attack, okay, and it's very easy to diagnose. But they were excluded from the European trials. The FDA absolutely made it mandatory that those patients were included in the US trials.

So, in some ways, the product is behaving the same but the patient cohort is slightly different. And the FDA insisting on those type of patients being included in the trial essentially helps our numbers. And we saw that in the Fred Apple trial in 2014 as well. So Fred got 75% sensitivity in that trial and his patients would have been very similar to that which are now in our current trial. So it's got nothing to do with the test per se. It's got to do with the type of patients that the FDA suggested should be included in the trial.

The second part of your question is how confident I would be that the remaining data would stay the same (inaudible). I'm no statistician but we have more than 50% adopted patients in a randomized fashion have produced this type of data across all sites, across all the 12 sites across America. It's hard to believe that the next 50% or the next 40% can be dramatically different. That doesn't mean to say it couldn't happen, but it's more than that. We're 60% of the way there. That's our data. It's pretty randomized in terms of the way we select patients and where we select the patients from. So, on that basis, you'd have to comfortably believe that the remaining 40% should act similarly to the first 60%.

Great. Thanks for the time.

Thanks, Chris. Okay. Could I say thank you to everybody and we'll talk to you soon and good afternoon. Thank you.

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