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Rochester Medical Corporation (NASDAQ:ROCM)

Q2 2012 Earnings Call

April 24, 2012 4:30 pm ET

Executives

Anthony J. Conway – Chairman of the Board, Chief Executive Officer and President

David A. Jonas – Director, Chief Financial Officer, Treasurer and Secretary

Analysts

Tyson Bauer – Kansas City Capital Associates

Elizabeth Lilly – Gabelli Investors

Michael Boulegeris - Boulegeris Investments, Inc.

Operator

Good afternoon, ladies and gentlemen, and welcome to the Second Quarter 2012 Rochester Medical Corporation Earnings Conference Call. My name is Chris and I will be your moderator for today. Presently all participants are in a listen-only mode. Later, we will facilitate a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

And at this time, I would now like to turn the conference over to your presenter for today, Mr. Jim Conway, President and CEO. Sir, you may proceed.

Anthony J. Conway

Thank you for joining Rochester Medical’s second quarter conference call. I’m Jim Conway, the company’s President and CEO. And with me is David Jonas, Rochester Medical’s Chief Financial Officer. First, I will provide a brief high level review of our second quarter, and Dave will then provide you with more details on our financial results. And then, I will give a quick update on a few items and summarize and then we’ll take your questions.

Before starting, let me remind you that we will be making some forward-looking statements today, and I would refer you to the Safe Harbor statement found in today’s press release and also to the risk factors section in the company’s annual report on Form 10-K for the year ended September the 30, 2011. These statements further clarify the risks and uncertainties that are associated with the forward-looking statements.

Now, I’m pleased to report strong second quarter financial performance with revenues up 19% on a reported basis and up 20% on a constant currency basis to total $15.3 million. We are encouraged by our second quarter results, especially the robust 20% constant currency growth delivered by our global direct sales business. This favorable performance again demonstrates that our strategy to drive top line growth through our global direct sales business is firmly working.

Private label sales also contributed nicely to the quarter’s growth, increasing 24%. As you’d recall, this business fluctuates from quarter-to-quarter spoke with the first half of the year, private label stabled, consistent with our expectations.

Regarding our U.S. and international direct sales business, revenues grew 33% and 15% respectively in constant currency. We have now fully lapped the acquisition of Laprolan, so our direct sales growth rates reflect organic growth. In the second quarter, even as we reported good international performance, we did experience some softness with Laprolan due to a handful of challenges, such as some reimbursements snags that we need to work through. Overall though, our international direct business particularly in the U.K. remains a solid and sustainable growth driver for us. Dave will provide more detail on our revenue performance in just a minute.

I’m also pleased to report that we managed our expense structure quite well as our positive net income performance indicates. We reported GAAP earnings of $603,000 or a $0.05 per share and on a non-GAAP basis excluding certain non-cash expenses we reported net income of $920,000 or $0.08 per share. For the first half of fiscal 2012, total sales were up 23% in constant currency, and we have achieved just a six-month gross margin of 49.5%, a non-GAAP net income of $1.2 million or $0.10 per share.

These results are indicative of a strong start to the year and evidenced that that strategy to drive growth that we implemented over a year ago has begun to take hold. As such, I remain confident in Rochester Medical’s growth trajectory and reaffirm our fiscal 2013 objective to reach $83 million in revenues and $9 million to $10 million in net income. As we have previously stated, we expect new product introductions to help us reach those goals.

And now Dave will give you further details on the quarter.

David A. Jonas

Thanks, Jim. I’m going to spend a few minutes highlighting the results reflected in our just released second quarter 2012 earnings release. For ease of discussion, unless otherwise noted, all sales information will be discussed in constant currency. I’m doing this to exclude the impact of foreign currency exchange in order to show a true reflection of our sales growth. Foreign currency dampened our top line this quarter by approximately $181,000. As most of you have seen, the exchange rates for the pound and the euro have been quite volatile the last few months.

Our foreign exchange risk is limited to our sales into the UK and Holland. Those sales currently make up about 60% of our total company sales and fluctuations in these rates will have an impact on both our top and bottom line results. Our three-year plan and projections for this year used a 1.37 exchange rate for the euro and 1.57 rate for the pound. And while the pound has hovered around that number all year, the euro has fluctuated from 1.27 to 1.38 in just the last 120 days.

As Jim mentioned, total sales rose 20% in the second quarter to $15.3 million versus $12.3 million a year ago. This growth consists of 20% growth in direct sales and 24% increase in private label sales this quarter alone. For the first six months of the year, total sales reached $29.1 million versus $23.6 million, an increase of 23%.

Regarding U.S. sales, total sales rose to $6 million from $4.7 million a year ago, a 26% gain over the prior year’s second quarter. This performance was due to a combination of a strong 33% improvement in U.S. direct sales, coupled with an 18% gain in U.S. private label sales. Outside of the U.S. total international sales rode 17%. Both direct and private-label sales improved strongly with direct sales up 15% and private-label sales increasing 50%.

In terms of geographic mix, sales have remained fairly steady at 40% from the U.S. 60% from outside the U.S. since we completed our acquisition of Netherlands based Laprolan last year. Well over 90% of our international sales are derived from countries in Europe and the Middle East or EME.

Let me now recap our favorable direct sales performance. As Jim has stated we were encouraged with our direct sales business again this quarter, both domestically and internationally as our strategy to accelerate growth in this business that’s clearly demonstrating traction. A reminder direct sales comprise 80% of our total sales. As we’ve said before direct sales is the key driver to sustain high rate of top line performance going forward.

Specifically total global direct sales increased 20% in the second quarter versus the prior year, driven by strong U.S. direct sales, U.K. direct sales, and EME direct sales, offset by softer than anticipated sales at Laprolan.

I’ll discuss both U.S. international direct sales performance in detail now. In terms of U.S. direct sales, sales grew 33% to $3.3 million from $2.5 million last year. All product lines contributed nicely to this growth with intermittent catheters growing 60% Foley catheters up 30%, male external catheters increasing 6%, and stem cells has doubled. Intermittent catheters account for almost half of our U.S. direct sales and clearly are our most important product line in driving our top line, near and longer term.

In terms of performance in our two U.S. direct sales channels home care and acute care let me first address the larger and more influential of the two, which is home care. Home care sales comprised approximately 77% of U.S. direct sales, and grew 40% as we continued to make strong inroads with clinician and home care product distributors. Specifically, our line of Magic3 Intermittent catheters is being well received by clinicians and patients and we believe one of every four new patient prescriptions now dispense Intermittent catheters is written for Magic3, an excellent achievement that demonstrate the strength of our technology and the success of our expanded home care sales effort. Turning to U.S. acute care, second quarter sales gained 15% as we continued to improve our footing in this highly competitive hospital environment.

Shifting gears to direct sales outside the U.S., sales gained 15% to reach $8.5 million, up from $7.4 million last year. UK sales increased 18%, sales in Holland were down 11%, and the rest of EME region was up 80%. We continue to see good growth everywhere in the EME outside Holland, together is up 18% year-to-date. While Laprolan sequential sales growth is below our expectations, we believe we have made the necessary changes to turn around our sales going forward.

Turning to our private label business, total global private label sales rebounded nicely, posting an increase of 24% in the second quarter. For the six month period, global private label sales are flat, consistent with our expectations for this business. Timing related variability in our private label business should be expected.

On a fourth quarter rolling basis, private label sales are flat compared to the corresponding prior four quarter period. This rolling four quarter average improved to flat from down 4% last quarter, so we tend to see some lumpiness in private label business even (inaudible) for timing. Private label is expected to remain a steady business for us overall, but will continue to become a smaller percent of our mix over time as our global direct sales business grow. It currently accounts for about one-fifth of our total sales.

Now, let me review the rest of the income statements as well as our balance sheet and cash flow performance this quarter. Our gross margins, our second quarter gross margin of 48.7%, was down 80 basis points from the prior year. And expected mix shift accounted for the decline both year-over-year and sequentially.

Product mix due to the strong growth in both private label and intermittent catheter and geographic mix due to softness and sales in the Netherland all contributed unfavorably to margin this quarter. Lower margins on our intermittent catheter line is transient in nature and as we gain scale efficiencies that will get better.

Longer term, we fully expect to drive gross margin improvement as we lower our per unit fixed cost to volume growth as our mixed shift continues and favor higher margin direct sales. For the first half of this year, gross margins of 49.5% versus 49.4% last year.

All right. Now, our operating expenses, reported total operating expense for our second quarter was $6.6 million, a 14% decline from last year’s $7.7 million, reflecting our ongoing spending discipline and the lapping in the last year’s cost to expand the sales force and acquire Laprolan.

Our quarterly run rate remains in the $7 million range with the expectation from modest quarterly fluctuation. We continue to expect and are on track to spend approximately $28 million for fiscal 2012.

In Q2, our sales and marketing costs declined 16% over last year and were 28% of sales versus 39% in the prior year. This reduction was expected as we controlled our spending and made minor reductions in our U.S. and international sales force. Q2 research and development spending was down 2% over year and was moderate to 2% of total sales flat with last year’s ratio. We remain committed to funding the internal development of innovative products and this way our spending is consistent with that objective.

Our Q2 general and administrative costs declined 13% as we begin to leverage our infrastructure. Excluding the 2011 costs associated with our acquisition of Laprolan, G&A costs would have been flat with last year. Overall, our spending was well controlled and we expect this discipline to continue.

On a GAAP basis, we reported net income of $630,000 or $0.05 per diluted share versus a net loss of $1.3 million or $0.10 per diluted share last year. Excluding the after tax adjustments for material, non-recurring costs, intangible amortization, and stock compensation expense, we reported second quarter non-GAAP net income of $920,000 or $0.08 per diluted share, compared to a non-GAAP net loss of $437,000 or $0.04 per share last year. Our non-GAAP adjustments are detailed in a reconciliation section of our press release and show the underlying operating results from the business.

In the first half of the year, our non-GAAP net income was $1.2 million or $0.10 per diluted share compared to a non-GAAP net loss of $147,000 or $0.01 per diluted share last year. With zero debt and a total cash position of $15.6 million at the end of the second quarter, I’m very encouraged by the strength of our balance sheet.

Although our cash is down from the end of the prior fiscal year, we paid down the remaining $18.3 million balance on our operating line of credit. We did not repurchase any share this quarter after repurchasing 150,900 shares in the first quarter. Furthermore, we continue to manage our working capital. We remain pleased with the level and condition of our inventory and receivables at quarter-end.

Before I turn it back over to Jim, let me conclude by reiterating that our second quarter performance is a solid indicator of the strategy behind driving our global direct sales is sound and capable of delivering strong growth and solid profitability. We are continuing to build on the momentum generated over the course of fiscal 2011 and thus far in fiscal 2012 in direct sales. Our private label business is expected to be fairly steady on a full year basis. And finally, we remain committed to delivering the sales growth and earnings as the three year plan dictates. I will now hand it back over to Jim for just the final comments before we answer your questions. Thank you.

Anthony J. Conway

Thanks Dave. Now, I’d like to update you on some other subjects. As many of you know, for several months at least, we’ve been anticipating the publication of the results of a sizeable U.K. government study, comparing the infection rates associated with Foley catheter usage in hospital setting. The study is expected to be published in the Lancet, which is much like the new – which much like The New England Journal of Medicine is a leading well-known peer-review journal. Because of these factors, a large government sponsored study and a reputation from rigorous peer-review, we’re not privy to nor that we have any control over the ultimate timing of the publication.

We understand the study which is – as I said, is one of the largest studies conducted in the U.K. is now undergoing the peer-review process. We can only speculate that this process is taking longer than expected and that is our speculation. We nonetheless remain optimistic that if this study reflects similar outcomes of other studies, the data should strongly support [strata innascibility] to meaningfully reduce the incidence of hospital-acquired UTIs.

Let me remind you of our growth strategy that I alluded to in my earlier remarks. Our fiscal 2013 plan is chiefly based on strong growth in direct sales, both in the markets in Europe and the U.S. Most of the increase in direct sales will be driven by direct sales through the home care segment, both domestically and abroad.

We expect these sales to further strengthen with new product introductions. In terms of product lines, our line of intermittent catheters is the largest engine of growth, particularly in light of our limited share in an $800 million global market opportunity, coupled with our superior technology. As I said earlier, we expect our private label business to remain stable, but quarterly fluctuations should be expected.

2012 is off to a good start and these results are tracking nicely in line with our expectations for solid top line growth and sustainable profitability. Given this trajectory, as I stated earlier, we reaffirm our fiscal 2013 objective to achieve sales of approximately $83 million and report a net profit of $9 million to $10 million.

And with that, we’ll be happy to take your questions.

Question-and-Answer Section

Operator

Thank you. (Operator Instructions) And our first question comes from the line of Tyson Bauer with KC Capital. You may proceed.

Tyson Bauer – Kansas City Capital Associates

Good afternoon, gentlemen.

Anthony J. Conway

Hi, Tyson.

David A. Jonas

Tyson

Tyson Bauer – Kansas City Capital Associates

Great quarter. It looks like we’re back on track don’t want to jinx that ahead of next quarter, but we’ll take it when we can give it

Anthony J. Conway

Thank you.

Tyson Bauer – Kansas City Capital Associates

New products that you were talking about, are those just further generations of existing products that you currently have, are we looking at getting into anything new or acquiring different products that may accelerate your growth?

Anthony J. Conway

The new ones that I’m referring to are right in our core. Not new areas the new lines. Two weeks ago for example in the U.S. we introduced the Magic3 technology that’s a big huge seller. Now with the touchless gripping device along with it so, we expect very good reception to that. Just a few weeks ago, we introduced that same technology into Laprolan, which we hopeful and believe will bode to that. And in another few weeks domestically, we’ll be introducing another product line related to intermittent catheters, which we feel very good about. Prior to fiscal year end, we’ll be introducing another product globally, which is in the same fields as we’re already in, but will be a generational improvement. In fiscal 2013, we also will be introducing what we believe is a very significant improvement into the same market. So we’ve got a lot of good stuff and as I said, we expect that will accelerate our already very excellent growth rates.

Tyson Bauer – Kansas City Capital Associates

Your – if we breakdown your acute care we’re seeing growth, but we’re also dealing with smaller numbers so one would expect those growth numbers to maybe be a little better than what you’ve reported. Are you satisfied with the case that that is occurring as fully market or are there adjustments being made or strategic decisions regarding if we don’t see that pick up at a really quicker pace?

Anthony J. Conway

We’re not satisfied with the growth rate in acute care. Luckily, domestically the intermittent catheter growth is giving us good growth overall and kind of making up for that and so clearly, for the second half of your question, we look at ways to improve it, not only from our own sales and marketing efforts, but whether there are ways to potentially partner, ways to kind of make changes to the product line or expand the product line. So you’ll look at all of those things and the good news is, while acute care grew I believe 15%, I believe within that the catheters grew 30%. So there is some good stuff going on there for sure, but we like that growth to be north of 20% as we’ve said before. And for most companies, 15% is pretty good, but we want more.

Tyson Bauer – Kansas City Capital Associates

You got a lot of shareholders who are no longer holding period in this one. Real quick, to achieve that three year target in 2013, are you capable of doing that with the existing just recent channels that you currently have or are we going to need to expand those either organically or through acquisitions?

Anthony J. Conway

No, we’re capable of doing that within our current channels. We’ve been looking, as we’ve said, at potential acquisitions. I can tell you that we’ve looked very carefully at several and I can also tell you that we’ve looked very carefully at several and I can also tell you that nothing is imminent.

Tyson Bauer – Kansas City Capital Associates

Sounds great. Thanks a lot, gentlemen.

Anthony J. Conway

Thank you.

Operator

Our next question comes from the line of Beth Lilly with Gabelli Investors. You may proceed.

Elizabeth Lilly – Gabelli Investors

Hi, Jim and Dave.

Anthony J. Conway

Hi, Beth.

David A. Jonas

Hi, Beth.

Elizabeth Lilly – Gabelli Investors

Okay. So let’s start off and just talk about Laprolan and what happened in the quarter and the realignment of the sales force. Jim, can you talk, you acquired it a little over a year ago, and it sounds like they had some issues in the quarter?

Anthony J. Conway

Issues might not be the right word, but let me give you a little bit of background. We acquired it a little over a year ago. We were lucky enough to have a transitional General Manager in place at the time with experience with the company. He has been very busy, helping us do the transition, moving accounting systems together, IT systems together and so on. He has also been very helpful in helping us search for two very, very key top management positions, both of which were missing.

One is the Head of Sales, almost as important as you can get. So until December, I believe, I think it was the end of December that was when we found just an excellent candidate and put him in place. He is in place and fully dedicated to bringing Laprolan back to what we expect. It was only three weeks ago that we put in place a very small permanent General Manager, who we think very highly of.

So over the last three quarter, the last four quarters, we’ve had two very key positions missing, if you will. The other things that I was referring to is that, there are some things going on leads to a lesser extent I think effected the sales. We’ve had some issues; this goes on all over Europe with parallel importing with one of our own product lines actually, within the Netherlands some cheaper good are being brought in and this is all perfectly legal in Europe even if the contracts of the people selling the cheaper goods limit that. But we have ways to change device codes and country codes and so on. So that’s correctable for sure.

In one of the product lines, wound care over there, they’ve had some reimbursement changes which we’re adapting to. Specifically all of the wound cares and scar care products were just automatically reimbursed. But as most governments these days, they’re looking for savings, so they put up a little barrier where the doctor has to fill out a form and justify the reimbursement by saying that they may need the products for more than two weeks. So we’ve had to help prepare these forms and educate the clinicians and so on, and that will always remain a little bit of a hurdle, but we’ll do better with dealing with that.

I spend all last week in Europe, half of my time at Laprolan and I can tell you while we understand these issues and I’m very confident that we have just excellent people in place and excellent staff. So and I feel very, very good about it.

Elizabeth Lilly – Gabelli Investors

So, these three, it sounds like there were three issues, one the transition?

Anthony J. Conway

Yeah, the third one was – first, apparel importing, secondly the reimbursement and then the third, in my opinion, and there’s no way to measure this, I know it would (inaudible) and missing the top sales person up until very, very recently and also a permanent general manager, it’s just hard to get the forward focus that you need and I believe we now have that in place.

Elizabeth Lilly – Gabelli Investors

The stellar that you put in place is a transitional general manager a year ago, does he know he was going to be transitional?

Anthony J. Conway

Yes.

Elizabeth Lilly – Gabelli Investors

Okay.

Anthony J. Conway

Absolutely, that was a transitional thing.

Elizabeth Lilly – Gabelli Investors

All right.

Anthony J. Conway

And he’s done a very good job of helping us just hold it right in the Rochester Medical, so he’s been a great value there.

Elizabeth Lilly – Gabelli Investors

So what would you say is – if you look at those different factors, Jim, what’s had the biggest impact in the quarter on the revenues, was it kind of the ship without a captain?

Anthony J. Conway

Are you still talking about Laprolan or raw?

Elizabeth Lilly – Gabelli Investors

Laprolan?

Anthony J. Conway

Yeah, I think that until recently we didn’t have the full staff in place. We’ve been searching for a long time, we’ve been very careful, we’ve had a number of strong candidates and I’d rather – even if it takes a little bit longer, put somebody in place that we just have that full level of confidence in and that’s what we did.

Elizabeth Lilly – Gabelli Investors

Okay. And so as we go forward then, do you think the business with start to show positive growth?

Anthony J. Conway

I certainly do. It’s not going to happen tomorrow, Beth, as you all know, these people are just put in place. But if you start looking at our expectations for fiscal 2013, I expect Laprolan to contribute significantly.

Elizabeth Lilly – Gabelli Investors

Okay, great. Okay, and then, excuse me, any comments on FemSoft and what’s going on with the government and reimbursement?

Anthony J. Conway

I will answer the second part first. We’ve got nothing going on with the government and reimbursement much to (Inaudible). But from the very tiny base, of course, percent-wise, you heard Dave say that doubled this quarter. So from that very tiny base, that’s our fastest growing product line.

Elizabeth Lilly – Gabelli Investors

Yeah.

Anthony J. Conway

And again, in our plan, revenues for that are very, very small and if we get to a some kind of a tipping point, maybe that’s going to contribute more than we think, but the product is performing beautifully, the women that use it, love it, but still very tiny based.

Elizabeth Lilly – Gabelli Investors

Okay. All right. Now, if we look at the income statement in the expenses in the quarter, Dave mentioned that $7 million operating expense run rate on a quarterly basis going forward. There was a significant drop-off in marketing and selling, I mean, about $800,000. So have you go – if we look out to that $7 million quarter run rate for overall operating expenses, my guess is marketing and selling will come back up a little bit, is that correct?

Anthony J. Conway

A little bit, not a lot.

David A. Jonas

Yes.

Elizabeth Lilly – Gabelli Investors

Okay. Okay. All right. And then you did not buyback any stock in the quarter, but there is still an authorization, is that correct?

David A. Jonas

That’s correct, yes. I think we still have 1.3 million shares less than our authorization.

Anthony J. Conway

Correct. We bought 700 and some thousand out of 2 million.

David A. Jonas

Yes.

Elizabeth Lilly – Gabelli Investors

Okay. So there is a [3 million unit] by in any quarter. And I think I know what the answer is, but I’m going to ask it anyway, why didn’t you buy any stock back in the quarter?

Anthony J. Conway

Well, we’ve kind of taken the position from the start that we’d rather use the money for acquisitions, growth-oriented type of things to build the company. We’ve kind of taken the position when the stock price was absolutely [not impressive], if you will. And we bought in shares back, and we have felt especially this quarter and we are very confident that the price is going to recover on its own. And I guess that’s the reason. There is no hard and fast, we’ll buyback at this price and not at this price.

Elizabeth Lilly – Gabelli Investors

So with more, is the reason being that you aren’t comfortable with the price or you just wanted to use the $15 million in the cash on the balance sheet to maybe acquire some things?

Anthony J. Conway

Well, it is what I think about the price stats and this is the truth, okay. If I had $10 million in my pocket, I’d go on spend it all on our Rochester Medical stock. That’s what I think about the price, so nothing to do with that.

Elizabeth Lilly – Gabelli Investors

Okay. I just wanted to hear you say that.

Anthony J. Conway

Okay.

Elizabeth Lilly – Gabelli Investors

Okay.

Anthony J. Conway

That’s in the date, and we also had a couple of periods on the quarter that we were kind of in quite periods that we couldn’t buy stock.

Elizabeth Lilly – Gabelli Investors

Yeah.

Anthony J. Conway

Therefore because of that we just ended up not buying stock in the quarter.

Elizabeth Lilly – Gabelli Investors

Okay. All right. And then I just wanted to ask one more question, and then I’ll get off line. The Foley growth in the quarter was impressive, up 30%. And I know that’s off a small base, but if you look at Bard and other players in the market, they are showing negative volume trend. So clearly one, you’re gaining share, I mean you kind of take it from somebody. So Dave and Jim, would you say you are encouraged by that 30% number?

Anthony J. Conway

Yes, that was a very good number. And again, off a very small base, so we are. Now, totally these are not our only acute care product, we still have NECs and intermittent, and those things with the acute care market as well. But we can tell you to seek higher growth. As we said, we wanted to be north of 20%.

Elizabeth Lilly – Gabelli Investors

You mean, the U.S. acute care business overall?

Anthony J. Conway

Yes, our expectations are higher than 15%.

Elizabeth Lilly – Gabelli Investors

Okay.

Anthony J. Conway

The home care business kind of blew it out and we’re loving that, but we want to see more strength in acute care for sure.

Elizabeth Lilly – Gabelli Investors

Okay, terrific. Thank you so much and keep up the good work.

Anthony J. Conway

Thank you, Beth.

Operator

(Operator Instructions) And our next question comes from the line of Michael Boulegeris from Boulegeris Investments, Inc.. You may proceed.

Michael Boulegeris - Boulegeris Investments, Inc.

So nice to see things coming together, Jim and Dave.

Anthony J. Conway

Hi, Mike, how are you doing? Thank you.

Michael Boulegeris - Boulegeris Investments, Inc.

Good. You mentioned the new product introductions, for modeling R&D looking out for the balance of the year, is that going to be in the range that we saw this quarter or the previous quarter on a quarterly basis?

Anthony J. Conway

It’ll tick up a little bit. As these products getting different parts of this cycle, we’re going to spend more money to test and to launch. It’s going to tick up a little bit, but it won’t be material. We’ve been spending right around $1.2 million pretty consistently over the last couple of years and it might tick up to maybe $1.4 million

Michael Boulegeris - Boulegeris Investments, Inc.

And with respect to your relationship with Teleflex, can you give some context to their contribution in the first half of the fiscal year, and how you might see the outlook for potential expansion of that relationship?

Anthony J. Conway

Their sales have been growing really, really nicely in the whole first half of the year, very strong.

David A. Jonas

$721,000 for six months.

Anthony J. Conway

Yeah.

David A. Jonas

Up about 76%.

Anthony J. Conway

70 some percent, that’s pretty nice. We’ve been talking about expanding the relationship into other areas. I expect that will happen. It has not happened yet. Our relationship right now is still very euro centric, if you will.

Michael Boulegeris - Boulegeris Investments, Inc.

It sounds like in South America as well

Anthony J. Conway

Yeah that’s one of the areas where we’ve been paying close attention to along with them. We now have our anti-infective technology registered and approved for sale in Brazil, which is one of the major economies down there. And but I just don’t know yet, I can’t put a data on when it would be introduced

Michael Boulegeris - Boulegeris Investments, Inc.

Is there a potential for expansion of the product reach of Teleflex distribution. In other words, with your new product lines coming onboard?

Anthony J. Conway

You know there is always that potential, but nothing that I can comment on at this point.

Michael Boulegeris - Boulegeris Investments, Inc.

It sounds like you’re off to pretty good start.

Anthony J. Conway

We’re and we’ve got a great relationship with them. And work really well with them. They like our products and we like what they do with them.

Michael Boulegeris - Boulegeris Investments, Inc.

Just on the Lancet note I might have missed part of that, but could you give us some clarity as to how that process – I’m going see if you have a peer-review panel that’s looking at the clinical study, and that’s ongoing if I understand it or that – is that been completed?

Anthony J. Conway

Well, it’s our sense that it’s ongoing, because we can figure out why it’s taking all of this time. I’m not an expert of these procedures by any means, but my understanding is that when a manuscript is submitted to a major journal like Lancet, they – their editorial board goes out and selects a very, very broad group of experts, peers in this field and actually finds them up to do a detail review of the manuscript and to some extent a study.

And peers will come back and challenge statements that are made, demand more supporting evidence for example and this can go on some time. These comments are all fed back to the people who wrote the article and conducted the study, they go through the comments, they go through a reply process, some time there can be multiple exchanges and the ultimate [referee] is to when this is all settled appropriately, is the journal itself, the Lancet.

So and that’s about all I know about it. I know it can be extensive, I know it can be fairly quick and we’re not even sure if that may have been completed, then maybe they’re just waiting for space. We really don’t know.

Michael Boulegeris - Boulegeris Investments, Inc.

Okay, and lastly, with respect to the two additions to the senior the leadership of Laprolan, is there past professional experience contained to let’s say Netherlands or have they been involved in the whole continent in terms of…

Anthony J. Conway

It’s primarily to the Netherlands, but they also have broader European experience and they both have very, very strong backgrounds in these fields.

Michael Boulegeris - Boulegeris Investments, Inc.

In their backgrounds, does that also include being able to stimulate additional sales force in these areas as well in terms of extending let’s say perhaps outside of Netherlands?

Anthony J. Conway

Yes is the answer, but those two in particular right now are not doing that. They’re focusing very tightly on Laprolan; we do have some activity closely related to Laprolan, we’re looking – we’ve said publicly, we’re looking at establishing a direct presence in Germany where we don’t have one, that’s the biggest market in Europe of course. (inaudible) Laprolan is, is not, what, 40 miles from there, at most. So we’re right now the border there, we’re looking at that market, but Laprolan is primarily focused right now certainly for the near term is to make sure that Laprolan itself is refocused and does well.

Michael Boulegeris - Boulegeris Investments, Inc.

Thank you. And finally, as we see healthcare demands increasing in parts of Asia, do you have any new initiatives in terms of the Far East in terms of extending your distribution?

Anthony J. Conway

You know, we don’t. We spend about two years with a very capable fellow looking to try to get business either through partnerships or direct in the Japanese market and it just wasn’t paying off and we decided we were much better off devoting our resources to these markets that we know really well, and that’s where our focus for the time being.

Michael Boulegeris - Boulegeris Investments, Inc.

Very good. Thank you and congratulations on a solid quarter.

Anthony J. Conway

Thank you very much, Mike. I appreciate it.

Operator

And we have no further questions at this time. I would now like to turn the call back over to the speakers for any closing remarks.

Anthony J. Conway

Just thanks very much for your interest and for attending and we will look forward to speaking with you all, nice time. Thank you.

Operator

Ladies and gentlemen that concludes today’s conference. Thank you so much for your participation. You may now disconnect. Have a great day.

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