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Trinity Biotech PLC (NASDAQ:TRIB)

Q1 2014 Earnings Conference Call

April 29, 2014 11:00 AM ET

Executives

Joe Diaz – Managing Partner-Lytham Partners LLC

Ronan O’Caoimh – Chairman and Chief Executive Officer

Kevin Tansley, Chief Financial Officer

Rory Nealon – Chief Operations Officer

Jim Walsh – Chief Scientific Officer

Analysts

Per Erik Ostlund – Craig-Hallum Capital Group LLC

Lawrence Scott Solow – CJS Securities, Inc.

James P. Sidoti – Sidoti & Co. LLC

Bill J. Nasgovitz – Heartland Advisors, Inc.

Chris W. Lewis – ROTH Capital Partners LLC

P. Ross Taylor – Somerset Capital Management LLC

Operator

Good morning and welcome to the Trinity Biotech’s First Quarter 2014 Financial Results Conference Call. All participants will be in listen-only mode. (Operator Instructions) After today’s presentation, there will be an opportunity to ask questions. (Operator Instructions) Please note this event is being recorded.

I would now like to turn the conference over to Joe Diaz of Lytham Partners. Please go ahead, sir.

Joe Diaz

Thank you, Denise, and thank all of you for joining us to review the financial results of Trinity Biotech for the first quarter of fiscal year 2014, which ended March 31, 2014.

With us on the call representing the company today are Ronan O’Caoimh, Chief Executive Officer; Rory Nealon, Chief Operating Officer; Kevin Tansley, Chief Financial Officer; and Dr. Jim Walsh, Chief – excuse me Chief Scientific Officer and Business Development Director. At the conclusion of today’s prepared remarks, we will open the call for a question-and-answer session.

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 Tansley, Chief Financial Officer for a review of the financial results. After Kevin’s remarks, we will hear from Dr. Jim Walsh and finally from Ronan O’Caoimh, CEO on business developments. Kevin.

Kevin Tansley

Thanks very much, Joe. It sounds like, it is the financial results for quarter one 2014. Starting with our revenue performance, total revenues for the quarter were just over $25 million. this compares to $20.3 million in quarter one 2013, and thus represents an increase of 23.1%. Ron will provide more details later in the call as to the reasons behind this increase.

In a moment, I will take you through the rest of the income statement. but before doing so, I want to point out a change in our income statement presentation in relation to the Medical Device Excise Tax. This was a new tax last year in order to age comparability, we showed this cost separately in the income statement in our 2013 earnings announcements. In 2014, we are reporting the Medical Device Excise Tax within cost of sales where the comparative for 2013 has also now been recorded.

Now to move onto the income statement. This quarter’s gross margin was 48.6%, compared to the 50% we reported in quarter one last year. Over that 50%, this represents the highest gross margin of any quarter last year and the average for 2013 was actually 49.6% and that was probably a better reference point. The reduction in gross margin from this level, this quarter was largely the result of the impact of the significantly higher level of placement of Premier instruments, which had 101 this quarter is the highest in the single quarter to-date.

Moving next to our indirect costs. Our R&D expenses were just over $1 million, which represents an increase on the $855,000 announced in quarter one 2013. Meanwhile, our SG&A expenses have increased in the quarter from $5 million to $6.3 million.

Both of these increases were largely due to the impact of the Immco and blood bank screening acquisitions. Another reason is that prior to the launch of our new cardiac products, the company has started to put in place the sales and marketing function dedicated to the launch and support of these products. As yet, the cost of this function has not been offset by associated revenues, which will come through in future quarters.

This quarter’s operating profit was $4.5 million, an increase of almost 16% compared to the equivalent quarter last year. This equates to an operating margin of 18% in the quarter, which is a bit lower than in previous quarters and something I’ll return to later on.

Moving onto our net financial income. this quarter, we earned $23,000 compared to $451,000 in the equivalent period last year. This mainly reflects the reduced level of funds currently on deposits, but also to an extent, a fall in interest rates, which are now available in the markets.

Our tax charge for the quarter was $114,000, which has an effective rate of just under 3%, and is obviously a very attractive rate. One of the main contributors has been the availability of significant R&D tax credits in Ireland and to a lesser extent in Canada. Due to the nature of our tax charge, I expect the charge to fluctuate quarter-on-quarter. A lot of expenses to continue to have a low effective rate of tax, it can expect it to be somewhat higher than future quarters.

In essence of all that I have spoken thus far is that profits for the period increased by 6% from $4.2 million to $4.4 million. Meanwhile, the EPS rose from $0.193 to $0.196 per ADR over the same period. Finally, earnings before interest, tax, depreciation, amortization and share option expense for the quarter amounted to $6 million. this compares to $5.2 million in the equivalent quarter last year, which is an increase of close to 16%.

I would like to now just take a few minutes to address the overall profitability of the company, as there are a quite of number of moving parts to consider this period. I’ve already dealt with how the gross margin has been impacted by the level of instrument sales; we are also experiencing a temporary drag on profitability due to carrying two additional manufacturing plants in the UK associated with the newly acquired blood bank screening business. As we say, this is a temporary phenomenon as we are in the process of moving production and these plants to our existing plants in Jamestown, New York and Bray, Ireland, both of which have the necessary expertise and capacity for this facility.

Transfer process will be completed in early quarter three this year and the resultant closure of these plants in the UK will yield significant cost savings going forward. Also we are beginning to see some of the costs associated with launching the first of our point-of-care cardiac tests. We’ve already recruited a number of sales and marketing specialists to deal with these products, as well as some non-personnel costs associated with such a product launch, for example, branding costs, marketing literature and additional travel.

Obviously, given we have just received our CE mark. these costs have yet to be offset by the revenues, which will be coming in the quarters ahead. Finally, from a comparison perspective, we are also seeing a significant drop in interest income of over $400,000 this quarter, which itself alone equates to approximately $0.02 of our earnings.

Notwithstanding all of these factors, we did grow profits at the quarter, which I believe augurs very well for the future profitability of the company, as the impact of these factors received.

I will now move onto talk about the significant balance sheet movements since the end of December 2013. Property, plant and equipment increased by over 800,000. this is made up of additions of $1.4 million about set by a depreciation charge of 600,000.

during the same period, our intangible assets increased by $5.3 million. this was mainly due to additions of $5.7 million, which is higher than in our previous quarters due to increased expenditure on the new cardiac tests, particularly now as it enters the clinical trails phase. Total intangible additions have been partially offset by an amortization charge of approximately 400,000 this quarter.

Moving onto inventories, you will see that this has increased by about $1.2 million this quarter, as well as normal fluctuations. We have increased the level of Premier inventories in conjunction with increased production levels, given our expectations for 2014. We have also increased the level of spare parts that we hold as the number of instruments in the field continues to grow. Similarly, we have built up some inventories in advance of the commencement of the high season for lyme disease, which occurs in quarter two and quarter three.

Meanwhile, our trade and other receivables have decreased slightly $24.1 million. this decrease is due to an improvement in cash collections this quarter, partly offset by an increase in prepaid expenses, due to the timing of certain payments, which fall near the beginning of the calendar year.

Finally, in relation to working capital, our trade and other payables have decreased by $4.4 million to $15.7 million. again this is mainly due to timing issues, but also includes the impact of paying one of the deferred consideration milestone payments to the former shareholders of Fiomi.

Finally, I’ll discuss our cash flows for the quarter. Cash from operations for the quarter was $0.8 million, which is $1.8 million lower than last year. As I mentioned earlier, this was mainly due to working capital movements including increased inventories and the timing of certain creditor payments.

Total capital expenditure in the quarter increased to $5 million, versus $4.9 million in quarter one 2013. As I mentioned earlier, this is due to additional expenditure and development of our new cardiac products. We’ve also paid approximately $1.1 million of deferred consideration in relation to the Fiomi acquisition. This amount was paid on the achievement of the CE Marking milestone, which occurred during the quarter.

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

Jim Walsh

Thank you. Kevin. I’ll now take a few moments to update you on progress on the cardiac marker development program. However, as it’s only a few short weeks since we last spoke, and at that time, I provided quite a detailed update, I’ll keep my remarks today somewhat shorter, and I’ll be happy to take any specific questions you may have in the question-and-answer session at the end of the call.

As a brief reminder, two years ago, Trinity acquired Fiomi Diagnostics. Fiomi had developed a high sensitivity, quantitative point-of-care immunoassay platform on which Trinity is now developing a range of cardiac products, namely Troponin I for the detection of acute MI, BNP for the detection of heart failure and D-dimer for the detection of PE and DVT.

There were only three dominant players in the POC cardiac market today, namely Alere, Roche and Abbott, none of whose Troponin products meet the new guidelines for MI, which have been adopted by the FDA. In general, I am happy to report that progress on all fronts of our cardiac programs are progressing nicely.

As you are no doubt aware, on January 29 last, we announced that CE Marking for our guideline-compliant Troponin product. CE is the regulatory standard necessary to market a product in Europe. As I explained on our last call, it is our achievement in successfully developing our guideline-compliant Troponin products that fundamentally distinguishes Trinity’s product from all of other point-of-care products and which now presents Trinity with such an enormous commercial opportunity.

In our CE trial, our product produced very strong clinical performance data with a limit of the detection of 19 picograms per mill of whole blood of troponin and a variation of 10% at 36 picograms per mill, which actually corresponds to the 99 percentile of the reference population. In terms of precision, when tested on 80 replicate samples over 20 days, the product exhibited CV of just 8.2% at 25 picograms, which is in fact less than the 99 percentile of the normal population.

On top of this, the product demonstrated a specificity of 98% at time zero, thus making it an exceptional rule-in test ensuring that any patient coming up positive on the Trinity test can be rapidly moved to the cath lab with a very small likelihood of our test producing a false positive result.

In summary, the above results represent excellent performance and fully meet all aspects of the new Troponin guidelines, thus making Trinity's Troponin product, the only POC product on the market today meeting those guidelines. CE is one thing; however, a greater challenge is that of obtaining FDA clearance to market a product in the United States, the United States, being by far the largest market opportunity for our troponin product.

On our last call, I described in great detail, the clinical studies required by the FDA to obtain U.S. marketing clearance. These can be summarized as follows: firstly, a normal population study to determine the upper reference level, or 99 percentile of a normal population. for this study, it is intended to recruit a minimum of 700 healthy donors. This study will be carried out at three trial sites and should be possible to complete within the two-month period.

Secondly on analytical performance study, which demonstrates such facts as limit of detection, precision, cross-reactivity, interfering substances, stability, et cetera. Again, this study is very well defined and should be taken more than two months to complete.

Finally and by far, the longest and most challenging is the chest pain study in the intended use population. This study, which we run at all trial sites will be carried out on a minimum of 1,500 patients presenting in the ER with symptoms suggestive of ACS.

When we last spoke, I told you five U.S. clinical trails I had agreed to participate in our FDA studies, namely Hennepin County Medical Center in Minneapolis, San Francisco General Hospital, Medical University of South Carolina, Baylor College of Medicine and a hospital at the University of Pennsylvania.

Since then, we have recruited a fixed site, Dr. Christensen at University of Maryland. this site is currently undergoing the IRB process and should be ready to go live within the next four weeks or so. During April, with the exception of most recent site in Maryland. site initiation and training visits have taken place at all clinical trial sites. To date, we have commenced enrolling chest pain patients at two sites, namely Hennepin County and Medical University of South Carolina. The remaining sites are planned to go live over the coming two to three weeks, as soon as nursing staff recruitment is completed at those sites.

It is difficult for me, at this time, to determine exactly how long it will take to collect all the chest pain data. As it is heavily dependent on the enrollment rates and also on prevalence, i.e., what portion of the people presenting with chest pain are actually having a cardiac event. 13% seems to be the university accepted prevalence number. However, we have seen significant variation in that number and to be statistically significant, we hope to recruit approximately 20 or 200 – excuse me 200 actual MIs as part of the 1,500 patient cohorts.

Over the next month or so, as the enrollment process settles down and recruitment on prevalence rates become apparent, we should be able to provide some more accurate and detailed timelines on the chest pain study. However, based on what we know to date, we estimate approximately 5 to 6 months or thereabouts to complete this study.

Meanwhile, even through our product is CE approved, most reasonable distributors require as apart of their launch process, the product to be tested and endorsed by local key opinion leaders. Therefore, currently, our Troponin product is undergoing evaluation or getting ready to go under evaluation at local trial sites in countries, such as Germany, Austria, Switzerland, Italy, Spain, UK, France, Netherlands, Scandinavia and South Africa and indeed many more. Moreover, we have also commenced a registration process for Chinese approval. This, however, will take as much as two years to complete.

The questions that have been asked by a number of shareholders recently relates to how confident we are of our Troponin product actually gaining FDA approval and while I obviously give no guarantees. I believe that we have done everything possible to make sure that our trials are sufficiently powered, and that the product is preforming to the necessary specifications. Two pieces of work in particular, however, provide us with great confidence that our Troponin product will gain FDA approval.

Firstly, our CE marking trials, which have – which were completed only three months ago, are almost a mirror image, albeit on a smaller scale to the required U.S. trials. The data obtained in former CE trials, which was excellent is repeated in the U.S. patient population, which with truly meet the new performance guidelines now adopted by the FDA. Secondly, I’m perhaps more relevant. These are over the past few months; our product has been the subject of a clinical evaluation by Dr. Apple in Minneapolis.

This study was specifically designed to evaluate the diagnostic accuracy of our Troponin product. In this study, Dr. Apple evaluated our product’s performance on 293 patients presenting with symptoms suggestive of MI at the emergency department in Hennepin County Medical Center.

Note this population of 293 patients represents almost 20% of the total 1,500 patients’ chest pain trial requested by the FDA. And so it should be quite indicative of as what we can expect to achieve in our FDA trials. In the trial, Dr. Apple measured the Troponin levels of each patient at time zero and then at six hours on the Trinity Biotech Troponin product. Then all patients were adjudicated for MI predicated on the current definition of myocardial infarction, i.e., the new FDA guidelines.

The Abbott architect Troponin assay was the central lab system used routinely in this hospital. The results of this trial, which again, meet the new guideline specification, were in better than those we observed in our CE trials in Europe and lead Dr. Apple to conclude that a Trinity Biotech Troponin assay is good for both ruling in and ruling out MI in the emergency room setting.

This data will be published at the American Association of Clinical Chemistry meeting in Chicago in July, and certainly provides me with confidence that our product stands an excellent chance of meeting than our very stringent FDA performance thresholds.

Moving on then to our other products. Other development on our BNP product is progressing very well. We have reached design free stage and the product has been transferred to manufacturing, where batches of clinical trial are currently being manufactured. We expect to commence CE trials in both Europe and the U.S.A. in the coming weeks with a view to having the product CE marked by the end of June. A pre-IDE meeting has been sort with the FDA to discuss the scope of the U.S. trials and assuming there are no surprises coming out of that discussion. U.S. trials will get underway in June of this year with the FDA submission expected later in the year.

Finally, development of the third product in our cardiac panel namely D-dimer is now well underway. D-dimer is a marker for the diagnosis of DVT and pulmonary embolism.

We have made the necessary selection of antibodies and controls for this product and we will soon be in a position to move it from the feasibility stage to the development phase. I’m reluctant to give a definitive launch date as yet, but I can certainly report at excellent progress is being made and product development is progressing well.

In summary therefore, we are very pleased with the progress made to date on the development of our high sensitivity Troponin and BNP products at Fiomi. In the quarter, a significant milestone has been reached through the CE approval of our guideline compliance for Troponin product. And based on the clinical data recently obtained in both Europe and USA, we can move through our U.S. trials with a justified optimism of an FDA approval in 2015.

I conclude now, but we’ll be happy to take your questions later and I’ll hand over to Ronan.

Ronan O'Caoimh

Thank you very much, Jim. I am going to review revenues for the quarter and discuss business development before opening the call to question-and-answer session. Our revenues for the quarter were $25 million, up from $20.3 million, which is an increase of 23% and the impact of the acquisition of both Immco and the syphilis blood banking business are excluded. Our organic growth was 5.5%.

Our HIV sales for the quarter were $4.5 million, compared with $4.8 million in the prior quarter, which is a reduction of 5%. HIV sales in Africa were down 7% for the quarter. For the fundamentals of our African business continue to strengthen with Nigeria in particularly performing strongly. The reduction of this quarter is typical of the quarter-by-quarter fluctuations that we continue to experience in this market.

Meanwhile, U.S. HIV sales increased 4% during the quarter and this constitute to very well some reversal of the previous trend. During the quarter we began to benefit from our new HIV-2 Claim, which was received from the FDA during quarter four of last year. And we won new business in hospitals throughout the U.S. Now, that we have the HIV-1/2 product as supposed to our previous HIV-1 product, we are confident of growing this business in double-digit terms year-on-year. Despite reduced funding by individual states on public health programs.

Our Clinical Laboratory business increased from $15.6 million to $20.5 million in the quarter, which is an increase of 32%. When the impact of the blood banking acquisitions are excluded, the organic growth rate was 6%, with infectious disease increasing 5%, diabetes increasing 14% and the life science business, Fitzgerald decreasing 8%. In infectious disease, the U.S. performed well and China continues to strengthen. In Europe, the launch of our new rapid point-of-care tests are progressing well and we are experiencing particular success with our strep pneumonia and Legionella Urinary Antigen test.

Moving on to Immco, which we acquired at the end of July of last year, the business is performing strongly and we are confident of delivering the 20% growth annually that we spoke about at the time of the acquisition. The U.S. is a blank canvas with virtually no reagent sales, but would monstrous sales potential.

Given that over the past three years, the management have reconfigured and standardized the entire product range and has gained FDA approvals on the full IFA immunofluorescence and the lives range of products over the past 18 months. Now our sales force are facing the product range onto our existing installed instrument base like all UFs with significant success. And the immuno reference laboratory which is based in Buffalo has recently launched a new Sjogren's test, that’s dry eye test. This is being marketed through Nicox, which is a specialty and ophthalmic company. We’re invested heavily in marketing the test, with launch having occurred in January. Close fillings for quarter one were significantly ahead of our expectations. Meanwhile our specialized reference laboratory in Buffalo have significantly expanded its service laboratory business with LabCorp.

Moving on to the syphilis blood banking business, which we acquired late last year. Kevin has outlined how integration is successfully progressing. I want to just briefly remind you that the syphilis products that were acquired have a market share of 75% in each of the key blood banking markets of the UK, France, Germany, Netherlands, Switzerland, Austria and Belgium. Our stated plan on acquisition was to broaden the product, and to broaden the market in which these products were sold and particularly to folks in the U.S. market. And this project is progressing well and we believe that we will meet our stated goal of drawing the business of 20% annually.

Finally, moving on to diabetes, we were very pleased to place 101 primary instruments during this quarter, up 50% from 67 placements placed in the prior quarter. And all other principle markets in Europe, U.S. and China preformed well, but Brazil deserves a special mention. We received approval to sell in January, and completed the sale and placement of 21 instruments by quarter end. We believe that Brazil probably where we have a direct sales force will be a very significant market for our Premier instrument and indeed for our entire product range in the years ahead.

I’m now going to turn it back to Denise for question-and-answer session.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) At this time, we will pause momentarily to assemble our roster. Our first question will come from Per Ostlund of Craig-Hallum Capital. Please go ahead with your question.

Per Erik Ostlund – Craig-Hallum Capital Group LLC

Great, good afternoon, gentlemen, in for Bill this morning. It sounds like everything is tracking frankly exceptionally well. I wanted to ask you real quickly about the integration of the acquired businesses, the Immco and the blood banking businesses. You alluded to it in the release about the consolidation of the blood bank manufacturing coming in Q3. Just wondering if you can quantify the costs that come out at that point. And then maybe a related question, is there anything duplicative left on the Immco side or is that pretty fully integrated at this point?

Ronan O’Caoimh

I’ll take the second part first. As far as the Immco integration from the start has worked very well and we have integrated nicely. Part of the very detractiveness of that particular acquisition was where we were particularly strong Immco didn’t have a great presence and vice versa. So the areas of overlap were reasonably limited. We have managed to reduce those few areas of overlap and in this quarter have more or less sort of a elimination of the assets so that we will get a slight improvement from that going forward. Greater significance is the integration involved in the blood bank screening business. What I mentioned in the release there that we have two plants in the U.K. one is Cambridge and one in new markets both very close each other. And it would be two of there which can be neatly staffed into our facilities in Bray, Ireland, and Jamestown, New York according to the particular specialties of those particular locations.

Once those clients are closed down in July as our expectation we can expect reduction of at least $500,000 per quarter in cost going forward, may be even higher than that, I want to be little bit conservative in that, so that you won’t get a full impact in Q3 but we will have by Q4.

Per Erik Ostlund – Craig-Hallum Capital Group LLC

Okay, that's fantastic. Thanks for that. You kind of blunted the question with the commentary on the Sjogren's assay, but I did want to ask about that. I think the agreement with Nicox, you had the opportunity to work with them on potentially expanding the agreement outside of North America and I think that might be coming up here shortly. Just thought I would see qualitatively how you are feeling about the assay's performance and then that broader opportunity.

Ronan O’Caoimh

Yes, it’s performing very well, they’ve only launched the product in the small number of state at the moment, and they’ll go nation wide later in the year. But the numbers are ahead of our expectations and this looks likes it’s going to be very significant on top to piece of additional business for our Buffalo laboratory, reference laboratory. And then obviously there is a potential for going beyond the United States as well. So it’s looking like it’s very lucrative and corporation with Nicox who have invested very, very heavily in this in terms of the direct sales force.

Per Erik Ostlund – Craig-Hallum Capital Group LLC

Okay, good. Maybe just one last one really quick as long as we are talking about the cardiac before and some of the costs coming online ahead of the launch. Is there any way whether to actually quantifying dollars, which might be difficult, but maybe more so just sort of pacing in terms of how the sales force build and how the marketing build progress over the course of the year? Is it kind of you have what you have for now, and then closer to launch as we see more of a spike in those costs or how should we think about that?

Ronan O’Caoimh

Yes, I mean obviously we are sort of at the initial stages. At this stage we’re not building at all both in personnel and non-personnel cost. That is a bit lumpy at this stage because you’re doing certain one-off costs, but in this quarter we probably about $300,000 and $400,000 in this particular quarter, and that will rise a little bit in the subsequent quarters to may be over $500,000 and we’ll say that, we will be benefiting obviously from our direct sales force that exist in the U.S. already, so it plugs very neatly into that. And also into our distributor network outside of the U.S. we’ll also be direct in Scandinavia and the U.K. We’ll be augmenting our central sales function here in terms of specific personnel dedicated to that area of both from sales and technical point of view. So you will see it increasing during the year.

Per Erik Ostlund – Craig-Hallum Capital Group LLC

Okay, that's great. Thanks, gentlemen. I appreciate it.

Ronan O’Caoimh

Thank you.

Operator

The next question will come from Larry Solow of CJS Securities. Please go ahead.

Lawrence Scott Solow – CJS Securities, Inc.

Hi, good afternoon. Just a few questions. First, on Premier, a pretty nice number there, 101. It sounds like you are on your way to hopefully meeting or even beating your expectations for the year. Can you give us a couple updates on the a) on the ion exchange release, when that product is expected, and or if it’s actually come out already? And then secondly just what you are seeing in the field in terms of run rates on reagent consumable type sales.

Rory Nealon

Hi it’s Rory here. To talk about the ion exchange and may be Kevin might take up the second part. And in terms of where we’ve gotten to on that we’ve done two independent assessments. The first one took place at an independent laboratory in the United Kingdom, just before Christmas. The final reports outstanding with the initial [verbal] (ph) feedback has been very, very positive. The second one took place at an independent laboratory in Continental Europe, in January, February of this year and again final reports outstanding where the initial feedback has been very, very positive. As recently at last week the first live demo in the customer side in UK took place, they were very appreciative, very favorably commenting on the instrument and in fact in this quarter, Q2 the first instruments are likely to ship.

Larry S. Solow – CJS Securities, Inc.

Okay.

Unidentified Company Representative

The second part of your question, do you want a comment on this.

Larry S. Solow – CJS Securities, Inc.

Oh, yes.

Ronan O’Caoimh

In terms of China it was very strong. I talked about Brazil being, we were so hopefully as Brazil, we’ve been somewhat astounded by it. And we believe that we’re going to get a very strong run rate there as the year progresses. And Europe has performed well and the United States has also. Just in terms of to just to quantify things, and by the end of this year we will have the close to 1,000 instruments in the fields and an instrument typically will generate above the $11000 of reagent in a year.

So that ought to be a kind of $11 million, it won’t actually be because there’s a lag between – when we send an instrument out and whether it actually has starts running. And that lag is particularly lengthy in the case of China, where there’s some distributor setup as well. So we estimate that probably the gap is between shipment out of the United States and Russia from running in China, it’s probably something is between 6.5 and seven months, have timeframe with Menarini is probably like three and else where, and in Brazil, in case of Brazil, probably about two.

So we have that time gap as well. But broadly speaking we’ve an ever-increasing instrument base producing by the $11,000 a year of reagent at an astoundingly high margin.

Larry S. Solow – CJS Securities, Inc.

Okay, great. And in terms of the HIV franchise, it sounds like you expect growth to accelerate in the US through the year and then in Africa, I realize it is lumpy, but any color on the developments in Nigeria and do you still expect growth for the full year out of Africa?

Unidentified Company Representative

We do Larry, we do yes, I mean I think the, if you look at the progression over the past three years, the African story has been very positive one. And I think it continues to do so. The fact that we’re down a few percent this quarter is just the kind of fluctuations you’d expect on a 13-week cycle when you’re selling to your NGOs.

But in overall terms, Trinity Biotech is the gold standard that does the confirming in all the major African countries with the exception of Uganda. And the overall dollars that have been spent by NGOs, principally U.S. government in Africa continues to increase. And we continue to benefit from it, given that we are positioned as the gold standard doing all, virtually all of the confirmation, selling at a premium price to all of the competition. And I suppose the one significant country that we weren’t participating in a big way was Nigeria and now I think we’ve addressed that. And our Nigerian sales are kicking in very nicely, all these we actually had as very small sales this particular quarter. But that’s the kind of fluctuations you get.

So in overall terms, I think the HIV story is very positive, Africa is very, very positive and we’ve something in the U.S. with contraction of sales. And I think the gaining of the HIV-2, a claim from the FDA has rectified that and we now are actually winning contracts where we previously were not in a position to compete at all, because of the lack of the license – the lack of the claim.

Larry S. Solow – CJS Securities, Inc.

Okay, great. Just two quickies on Fiomi, if I may and then I will stop. Just, I assume that Dr. Apple, the trial that you referred to, which reported good results there, that won’t be part of the FDA package, is that correct?

Ronan O’Caoimh

That is absolutely correct. It would have been done outside the sort of the remit of the FDA trials. They are exactly the same patients. These would have been chest pain patients walking into the ER clinic in Hennepin County. It is run on our product exactly as it would be during the clinical trials. but unfortunately, the FDA wouldn’t allow that type of data to be included as part of the formal trial. But to all intents and purposes, it’s the same test, it’s the same product, it’s the same patient, it’s the same assay. So to all intents and purposes, the results would be the same, but unfortunately it would be a great start to have 293 patients, but they won't allow that.

Larry S. Solow – CJS Securities, Inc.

Right. Understood. But it is still certainly as you said a very important reaffirmation of the efficacy of the test. Just any – I realize it is early in Europe, but anything anecdotally how is the product being received, were people aware – obviously the awareness level is not nearly what it is in the U.S., but were hospitals even aware this is coming out, doctors, any feedback you are getting on that?

Ronan O’Caoimh

And I think its Larry, it’s just a bit too early, because really – because the CE mark is a self-regulatory process and it doesn’t kind of the way to the FDA submission and really we need to do – we need to evaluations with key opinion leaders in the individual countries and can refer to it earlier, and those evaluations have in most cases commence at this moment in time. but they’re going to take a few months and really until they are completed, I think you want us wasting one's time, trying to actually sell…

Larry S. Solow – CJS Securities, Inc.

Right.

Ronan O’Caoimh

And being practical about it, because that just isn’t the awareness there. The other thing to bear in mind is that the extent of adoption of point-of-care Troponin testing, and Europe is running at maybe like around 10% of the level of the adoption in the United States. so this is not the same awareness of Troponin – of the benefits of Troponin testing.

There hasn’t been the same level of debate. and in certain times if I would in an existing market and the lack of menu becomes relevant as well. And therefore, that’s why it’s still important that we get BNP in there as well for example. So it’s going to be a slower process, I think the price is huge, but the timeline will be slower than in the United States in context of adoption.

Larry S. Solow – CJS Securities, Inc.

Right, as you have said before.

Ronan O’Caoimh

To some extent, it’s submission results.

Larry S. Solow – CJS Securities, Inc.

Great, understood. Okay, great. Thank you very much. I appreciate it.

Operator

Our next question will come from Jim Sidoti of Sidoti & Company. Please go ahead.

James P. Sidoti – Sidoti & Co. LLC

Good afternoon. Can you hear me?

Kevin Tansley

Hi, Jim. Yes Jim.

James P. Sidoti – Sidoti & Co. LLC

Great. I just want to confirm the sales from the two acquisitions last year. They contributed approximately about $3.6 million. Is that right?

Kevin Tansley

All right, Say that again, Jim.

James P. Sidoti – Sidoti & Co. LLC

The Immco and Lab 21 sales in the quarter were approximately $3.6 million. Is that correct?

Kevin Tansley

Yes, of the order – it was a little bit higher than that.

James P. Sidoti – Sidoti & Co. LLC

Okay.

Kevin Tansley

Just slightly higher than that.

James P. Sidoti – Sidoti & Co. LLC

Okay. And I’m sorry; I missed some of the commentary on the trial. When do you expect to have a package ready to submit to the FDA?

Ronan O’Caoimh

Well, as I said there, we’re estimating that will be taking during five and six months from now to get all the data collected. so if you take that – we’d be very optimistic the data will go into the FDA before the end of the year, both as well as – do you know one thing, it’s all about prevalence. we can collect the samples, no problem. we will collect 1,500 samples within that timeframe. It’s how many actual heart attacks, can you collect within that 1,500 cohort so – and we need to produce about 200 MIs within that 1,500 patient cohort to be considered by the FDA to be statistically significant if you like, okay.

So all indications are inside that we are at about a 13% prevalence right now, everything looks good for it. So I'd say some time October, November, December timeframe. I can't be any closer that would before the end of the year definitely.

James P. Sidoti – Sidoti & Co. LLC

All right. And the increased sales and marketing expenses that you referenced in the press release. are those in Europe or are those in the U.S.?

Unidentified Company Representative

Well, those are in both, but most of it is actually physically located in Europe. But for, example, we’ve taken on a sales rep out of (indiscernible) in both Scandinavia and in the UK for example, just and but they are working with key opinion leaders that the moment aren't actually selling anything. So we have, as Kevin alluded, $300,000, $400,000 worth of cost this quarter, which cost us $0.02 with no sales attaching, but it is a key, it an essential investments and in our cardiac effort.

James P. Sidoti – Sidoti & Co. LLC

So as you get closer to approval in the U.S., should we expect you to ramp up the salesforce here or do you think that the salesforce you have in place will be able to handle it?

Unidentified Company Representative

I think Jim – we will ramp it up, but we do have a good salesforce in place that and we take a generalist approach. So I think the existing sales reps will be selling the product, but we will ramp it up. But I think in the U.S. case I don’t see the imbalance that – I don’t see an imbalance between revenues and costs. I think the two will happen together. It’s a different dynamic, because is a greater awareness of Troponin in the United States. But in terms of Europe where you have got a virtual missionary sale, you are going to have this time gap between spending the money and marketing and actually benefiting from revenues.

James P. Sidoti – Sidoti & Co. LLC

Is there a particular trade show that you plan to really start to market the device prior to approval or will you wait for approval?

Unidentified Company Representative

Absolutely. Well, for instance, we will have our product at ECMED in a clinical couple of week's time. We will be at Medica, for instance, in Dusseldorf. We will be at AACC in the United States. We will attend all of the major sort of diagnostics ratios, Trinity will be there. And of course, Meritas Troponin will be is from the center of on towards exhibitions.

James P. Sidoti – Sidoti & Co. LLC

You will be showing the device at the AACC even without – even prior to getting the approval?

Unidentified Company Representative

Absolutely, absolutely.

James P. Sidoti – Sidoti & Co. LLC

Thank you.

Unidentified Company Representative

Thanks.

Operator

Our next question will come from Bill Nasgovitz of Heartland Funds. Please go ahead.

Bill J. Nasgovitz – Heartland Advisors, Inc.

Yes, good day. Just turning to the Premier line, you mentioned I believe astounded by sales in Brazil. What do you account for the strength there and what is the, I guess the worldwide opportunity for this product?

Unidentified Company Representative

Hi, Bill. I don’t know if he is on the line now, but I give the credit, allow the credit to our CEO in Brazil, because he is a very good guy. He was running a leaders operation and we recruited him and it has taken us a long time to get the approvals in Brazil. There is a lot of bureaucracy, but he worked through it and he has got and we always believed that if we got the approval that he could be a really star performer with his team and he is kind of pretty he has proven it straight out of the blocks, fairly staggering performance.

And I think, you will see, I think you build on that as we move forward. So, I told that down really to the guys on the ground and being very just very well – just very well known in Brazil. He is one of the basis senior man in diagnostics in Brazil; I give him a lot of credit, than commenced with a next part of customer in terms of the quantum of the size. We’d estimate that – we’d estimate that there’s 2000 instruments played worldwide for A1c annually. So, we are talking about the 460 this year. So, we are talking about taking –replacing at the rate of 23%. We will have to – we hope to 23% of the world placements this year. That was a long way to go, but it’s not that for having from a zero start in the first of January 2012, as we entered in this market.

But that’s the quantum of the size and as the kind of thing we hope to achieve – we hope to get a 600 instruments annually within the, another two years. And the replacement cycle is sort of 6 – every 6 years to 7 years. So, you’d have – the quantum here is you would have 34,000 instruments in the market and eventually doing a $11,000 each of $44 million of reagent kind of ignoring – I am ignoring the instrument because you think value (indiscernible) of the instruments.

So, $44 million, but the reagent that’s an 80% gross margin. It sort of $35 million, which is $1.50 per share, $1.60 per share. That’s the quantum of the opportunity here, so significant in the context of our size.

Bill J. Nasgovitz – Heartland Funds

Ronan, I like your math. Congratulations. Thanks.

Ronan O’Caoimh

Thanks, Bill.

Operator

The next question will come from Chris Lewis of ROTH Capital Partners. Please go ahead.

Chris W. Lewis – ROTH Capital Partners LLC

Hey guys, thanks for taking the questions.

Ronan O’Caoimh

Hi, Chris.

Chris W. Lewis – ROTH Capital Partners LLC

You mentioned around that 5% to 6% organic growth rate, I think in the underlying clinical lab business. I guess going forward, excluding the acquisitions, is that a good kind of mid-single digit growth level to expect as we look out into the future?

Ronan O’Caoimh

I was hoping being a little bit higher, you’d have seen we’d have – a bit of a drag this relation to (indiscernible) trial business also in relation to, it would have been a little bit lower in relation to line sales as well. So, I’d be helpful of that actually increasing going forward, obviously the Premier line is in there as well. So that’s going to drive higher growth going forward.

Chris W. Lewis – ROTH Capital Partners LLC

Great.

Rory Nealon

And then it’s actually you are going to see how is the Immco and its growth is – we are going to stop talking about it as an acquisition and it’s part of the overall infectious disease business and so, I think that would drive that ratio up into the double-digits.

Chris W. Lewis – ROTH Capital Partners LLC

Great, okay. And then on the Fiomi, I was hoping you could talk a little bit more on Dr. Apple's trial. Are there specific reasons to account for the better performance in that trial versus the CE Mark trial results that you can point to?

Ronan O’Caoimh

That was one thing. I will put it down to first of all, that the Swedish trial would have been was conducted over a six to seven sites within Sweden okay, and without, some of those sites were managed better than others, but it’s that we okay. Dr. Apple, he is a professional. He knows exactly what he is doing and more precisely his team of research nurses really know their business.

So they would and they do this frequently for many companies not just Trinity, so I would have said, we had probably the 18 on this particular trial, okay. And I suppose the good news for us in the United States if you look at the trial sites and then, if you look at the actual the pedigree of the people we have running our trials. You have like really who is who of cardiology in the United States wanting to trial our product.

So you have Dr. Apple in Minneapolis, Alan Wu in San Francisco, which is up there as at the foremost key opinion leader. Dr. Peacock at Baylor College again the same. Dr. Hollander and the new guy, Dr. Christensen all of them are top of the range. So, we think with those sort of guys they will run a very professional trial for us.

But essentially, the product is exactly the same. Perhaps, there is one thing that might contribute to us slightly better result in Unites States is that the predicate devices in the central labs than for instance in Dr. Apple’s lab the predicate device there is the our ARCHITECT system, where is the predicate for some of our trial sites in Sweden was there was a new rush Troponin T system, which has a higher sensitivity, but it is approved in United States. So, to sort of sum all those factors, but in general the results were better, but not significantly different, but certainly better.

Christopher William Lewis – ROTH Capital Partners, LLC

Okay, good. And then in terms of the U.S. FDA pivotal trial, can we expect any type of interim look at that data as you progress down the road with that trial and enrollment or will kind of the first top line look be when you submit to the FDA later this year?

Jim Walsh

Unfortunately, the first top line look as you say will be just before we submit to the FDA. It’s a blinded trial unfortunately, okay. Our test will be running parallel with whatever predicate is running in those labs on a day-to-day basis. We will not know and of course in this particular trial it’s not like a standard 510(k) trial. We’re not comparing ourselves to the predicate. We’re comparing ourselves to what three cardiologists actually adjudicate the actual result to be and that adjudication won’t take place until all 1,500 patients have been completed. So the unfortunate thing is that we really won’t know the result until the very end and there’s no way to actually sort of check, if you like, within that system. And that was the real reason for running the 300 or the 293 patients in Fred’s lab. It was to make sure that everything would run perfectly well.

Christopher William Lewis – ROTH Capital Partners, LLC

All right, understood. And then just a financial question. Gross margin, I understood, was a bit depressed here in the quarter with the higher Premier instrument sales. I guess going forward how should we expect that gross margin to trend throughout the remainder of this year?

Ronan O’Caoimh

Yes, it’s going to be heavily influenced obviously by the mix of instruments and as we continue to be successful with instrument placements, obviously slightly counter-intuitively it pushes our gross margin down. I think we will have a certain degree of fluctuation from that point of view. The most important of the things to think about is that our gross margin will improve over time the ratio of new placements to the existing installed base falls and thus reagent throughput becomes an increased factor. Also then as we’re getting our cardiac products out into the market, they’ve got very attractive margins going into the future as well. So that’s going to be a benefit from us going forward also.

Christopher William Lewis – ROTH Capital Partners, LLC

Okay. And then, any appetite on M&A at this point or do you feel pretty comfortable with the business structure and the focus now?

Ronan O’Caoimh

Yes, we are very busy with lots to do. We’re not looking at that at all definitely.

Christopher William Lewis – ROTH Capital Partners, LLC

Okay, great. Thanks for the time.

Ronan O’Caoimh

Thanks very much. It’s nearly 5 o’clock. We’ll take maybe one last call, one last question.

Operator

Certainly. Our last question this morning will be from Ross Taylor of Somerset. Please go ahead.

P. Ross Taylor – Somerset Capital Management LLC

Thank you, gentlemen. Great quarter and I have to say the signs continues to be exceptionally impressive. Real quick so you can get to it, talk about the dynamics of the U.S. point-of-care market for Troponin, how many ERs are we talking about, what kind of average sales does an ER or in the way of tests and therefore perhaps sales should we be looking for inside the U.S. market?

Ronan O’Caoimh

I think Ross you’re probably talking about a $300 million market just for Troponin, a $300 million market. We’ve got about 10,000 instruments showing an analogy of $30,000 each. Broadly speaking the kind of thing we’ll be talking about and that market is shared really in essence between three parties, Alere, Roche and Abbott i-STAT. So as Jim has outlined, we meet the FDA guidelines and they don’t. We’re significantly better tested and one would hope that it has very, very quick adoption.

Jim Walsh

Yes, and I would agree. Obviously the litigious environment the U.S. and healthcare makes it a very different game than it would be in Europe.

Ronan O’Caoimh

Ross, maybe just to add to that, that’s the point-of-care market that Ron is talk about there is also a $900 million central lab market, okay.

Unidentified Company Representative

Worldwide.

Unidentified Company Representative

Worldwide, and theoretically, if the point-of-care tests are good enough, there is no logic for running a central lab system for cardiac patients because you need a result immediately, not two hours later. So if the product was good enough, and we believe ours is, there is a potential for some of that central lab to move to the point-to-care as well.

Ross Taylor – Somerset Capital Advisers LLC

Okay. So basically the market is $300 million plus, that is Troponin. Obviously BNP would be on top of that?

Unidentified Company Representative

Of course.

Unidentified Company Representative

Yes. BNP would match dollar per dollar in fact.

Ross Taylor – Somerset Capital Advisers LLC

So the US market could be potentially – point-of-care could be $600 million in the US market?

Unidentified Company Representative

Yes.

Unidentified Company Representative

Yes.

Ross Taylor – Somerset Capital Advisers LLC

Which is obviously huge in the math; we've gone over the math before. I think it should be fairly clear to anyone. Also, Premier, New York Times Sunday had an article or an editorial in it about diabetes talking about India where they expect within 20 years or so 100 million Indians potentially to be positive for diabetes. We have heard about China, Brazil. I have never heard talk about India. Is there a market for the Premier machine in India?

Unidentified Company Representative

Ross, there is a reason you haven't heard us talk about India and that is because of the fact, yes. If you do so that is the months of diabetes problem in India and there is huge potential for A1c testing, but there are a lot of very cheap A1c locally manufactured products is available. And we didn’t found – we found that as we did not basically just what basically the pricing problem really. It’s difficult for us to and to compete in that market and clearly, our policy would be excellent. And but, in the context of very cheap substitute local manufactured substitute thing available. It’s more difficult to break into that market.

Ross Taylor – Somerset Capital Advisers LLC

Yes, and that makes a great deal of sense. Lastly I can't let you go without talking about – we obviously are still kind of hanging on the syphilis point-of-care it test. Is there any progress, any feedback – further feedback on that from where we were last time?

Unidentified Company Representative

Well. I think, the last time we talked about it, I put it down is kind of a 50-50 chance. It was like a certain requirements so whether, the FDA would give us a clear waiver, which was open-up a very significant market for us potentially and logically at bigger market as you have an HIV at point-of-care in the United States, which is I could $50 million market.

I think about it, if you add – to add or short and Chembio Alere. And where are we right now? I suppose I still think we are 50-50 and want to build expectation, but we have recently just given some additional information through FDA and it is excellent, excellent data and we continue to invest hopefully not foolishly. So, we still 50-50 Ross, I don’t want to fill the expectation, but I do think we are going to have a final resolution of this I think before very long within the next Jim about three months or four months.

Unidentified Company Representative

Absolutely. Ross, as I said, I don't want to talk down or up, Ronan. Our product is CLIA waivable. There is no doubt about that. It is not the product's fault if it is not CLIA-waived. It is purely an FDA attitude to CLIA waiver or whatever you can read from that.

Ross Taylor – Somerset Capital Advisers LLC

Well, yes and we look at – obviously its another potential significant positive from earnings and cash flow situation, which could come in even before we start to see the revenues from Troponin here in the U.S..

Unidentified Company Representative

Well. Yes. I mean, I think, there is a potential too. I think at this stage that we even neither get this or not get this in the next four months. Now, having said that, we have been astounded that a number of extra questions have been asked in the part, but at this stage we think really does, nowhere else to go, except say yes or no, kind of thing.

Ross Taylor – Somerset Capital Management LLC

Okay, well, thank you and keep up on the opportunity Troponin. All these things represent is fantastic and next quarter you can talk about the platform more.

Unidentified Company Representative

Okay.

Ross Taylor – Somerset Capital Advisers LLC

Thanks a lot.

Unidentified Company Representative

Okay. Don’t worry.

Ronan O’Caoimh

Thank you very much. And thank you to everybody for your support and interest. And we look forward to talking to you again next quarter. Good bye, thank you.

Operator

Ladies and gentlemen the conference has now concluded. We thank you for attending today’s presentation. You may now disconnect your lines.

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