Trinity Biotech - More Convinced Than Ever That TRIB Is Headed To Double Digits In 2021

Summary

• On May 25, 2021 Trinity Biotech reported its third consecutive profitable quarter, on significantly higher revenue and EPS when compared to the year ago quarter and analyst's expectations.
• Q1 2021 revenue of $25.6M or 20.9% higher than in Q1 2020, beating expectations by $1.6M. Diluted EPS was 10c/share vs. 5.3c/share in Q1, 2020 beating expectations by  4c/share.
• Cash and cash equivalents increased to $32.28M at the end of Q1 2021 from $13.2M at the end of Q1 2020. Cash generated from operations during the quarter was $5.9M.
• The company submitted its application to the World Health Organization (WHO) for its TrinScreen HIV screening test in March. The company expects WHO approval in Q3 2021. In the mean time the company is preparing for automated manufacturing of the test at the Company’s facility in Ireland. Company CEO expects that TrinScreen revenues will exceed those of COVID-related products.
• The company is continuing to diversify its COVID-related product offering  with the expected 2Q 2021 announcement that its new 12-minute rapid COVID-19 antibody test has been summitted to the FDA under the EUA umbrella. The company believes that its rapid antibody tests will sell better than the company's EUA'd ELISA antibody test being used mainly in laboratories. Rapid antibody testing become ever more important going forward as schools, employers, large sporting events, concerts, etc., begin to implement comprehensive surveillance programs to help prevent contagion.

Discussion

Trinity Biotech (NASDAQ:TRIB) reported a third profitable quarter in a row on May 25, 2021. Despite already trading at a PE below 5 and a low $65M market cap, the stock lost 12%. I believe the market is ignoring, or it does not understand the significant fundamental improvements being made throughout this global company with presence in over 100 countries. But the post-earnings sell-off is no surprising because it happens after every earnings report not matter how good the report is. And if history repeats itself, the stock price will rally going forward. There is a strong catalyst just ahead in the late June 2021 announcement that the company submitted its new 12-minute COVID-19 antibody test for Emergency Use Authorization (EUA) - per CEO conference call comment. 

1Q 2021 Earnings Highlights:

• Q1 2021 revenue of $25.6M or 20.9% higher than in Q1 2020, beating expectations by $1.6M. Diluted EPS was 10c/share vs. 5.3c/share in Q1, 2020 beating expectations by 4c/share.
• Clinical laboratory revenues increased to $23.7M. This is an increase of 32.9% compared to Q1, 2020.
• The increase in Q1 2021 revenue was primarily due to strong sales of COVID-19 related portfolio of products.
• PCR Viral Transport Media products continues to be the most significant contributor to revenue within the COVID-19 product portfolio
• Point-of-Care revenues decreased from $3.3M to $1.9M when compared to Q1, 2020, primarily due to a delay in the issue of HIV rapid test orders from Africa as a result of COVID-19.
• Gross profit of $10.9M representing a gross margin of 42.6%
• Research and Development expenses remained broadly flat at $1.4M.
• EPS diluted per ADR of $0.10 vs. $0.053 in Q1, 2020.
• Cash and cash equivalents of $32.28M in Q1 2021 compared to $13.2M at the end of Q1 2020.

• Cash generated from operations during the quarter was $5.9M.

These results were close to those that I predicted in my previous article on Trinity Biotech and published on May 13, 2021.

Near-term catalysts (earnings release & conference call):

• According to CEO Ronan O’Caoimh, the Company will submit an EUA application to the FDA for its new 12-minute rapid COVID-19 antibody test by the end of Q2, 2021. This will allow sales of this product in the US. The company intends to seek CE Mark approval for sales in the European Union shortly thereafter. The company has capacity to make millions of these high-margin units every month depending on demand. 

• The company submitted its application to the World Health Organization (WHO) for its TrinScreen HIV screening test in March. The company expects WHO approval in Q3 2021. In the mean time the company is preparing for automated manufacturing of the test at the Company’s facility in Ireland. This is an estimated $140M/year in Africa where one player (Abbott/Alere) has over 80% of the market. The company has hired a key, high-level executive away from Abbott/Alere and is currently building the sales organization to take away significant market share away from ABT (high accuracy and repeatability, and lower price/unit). A 30% market share gain in Africa would result in a $10M/Q revenue bump for Trinity Biotech.

• The Company continues to progress development of a rapid COVID-19 antigen test. This development program will also now include evaluation of performance against some of the more recent COVID-19 variant strains. The Company intends to leverage its existing rapid infectious disease test design to expedite the development and validation timeframe and also generate scale efficiencies in manufacture & distribution.

• The autoimmune reference laboratory in New York has begun to offer a panel of tests for COVID-19 autoimmunity complications and intends to broaden its range of COVID-19 autoimmunity focused test panels including inflammation markers and cytokines.

Reading Between The Lines

• Clinical laboratory revenues for 1Q 2021 came at $23.7M compared with $17.8M in the corresponding quarter. This is an increase of of 33% Y/Y. This increase is primarily due to strong COVID-19-related product revenues with the company's PCR viral transport media product being the most significant contributor.
• The company continues to develop a strong suite of COVID-19-related products because COVI-19 will be around us for a long time, and "for ever," according to several experts. Trinity Biotech has presence in over 100 countries and some of those countries may never vaccinate their population in a meaningful way because of government corruption, poor health-related infrastructure, and because people are afraid of vaccines.
• COVID-related revenues in Q1 2021 came to a total of approximately $8M, down from approximately $13M in the previous quarter. This reduction is explained by a large stockpiling of supplies prior to year-end of 2020 and a reduction in overall testing levels as vaccinations progress.
• During the conference call CEO  Ronan O’Caoimh could not provide a projection for COVID-related products going forward but I believe they will range from $6M to $12M/Q. The high-end of the range will likely be accomplished after the company starts selling the new 12-minute rapid COVID-19 antibody tests after EUA submission by the end of June 2021. I expect COVID-related revenues to range from $6M to $8M in the current Q2 2021. But revenues from this segment should pick up significantly in 3Q and beyond. This is far better than little or none COVID-19 related  revenues before 2020. TRIB is far less vulnerable by a softening in demand of COVID-19 products than competitors like CO-Diagnostics (NASDAQ:CODX) and others who rely almost 100% on this market.
• But the biggest long-term contributor will likely be the TrinScreen HIV screen test as discussed in more detail in the following section.

The Trinity Biotech, Abbott, Alere Connection in Africa

In March 2021 the company submitted for the new HIV screening product TrinScreen HIV to the World Health Organisation (WHO) for approval.

CEO O'Caoimh commented:

"During Q1 2021 we submitted our new HIV screening product, TrinScreen HIV to the WHO for approval. The development of this product has been a strategic priority for Trinity Biotech over several years. Trinity Biotech has already earned a strong reputation in the HIV testing market in Africa with our HIV confirmatory test, Uni-Gold HIV."

"We expect that on approval of TrinScreen HIV by the WHO, Trinity Biotech will be ideally positioned to take a significant share of the HIV screening market in Africa given the excellent clinical performance of the product and our existing strong reputation in the HIV testing market in Africa."

The estimated addressable market for HIV screening tests in Africa is about $140M/year. Abbott/Alere control over 80% of this lucrative market.

In anticipation of WHO approval in 3Q 2021, the company is: 1) Hiring key personnel to drive sales in Africa, 2)  the Company readying its high capacity  automated manufacturing of the test at the Company’s facility in Ireland.

During the Q1 2021 conference call CEO O'Caoimh stated:

"....we hired the most senior person really of our main competitor, basically. And our main competitor was involved in an acquisition in the last few years, a big acquisition. So, anyway, so we were able to basically make a really, really good hire of a very, very senior person. And then that person has brought in some of his previous reports. So, we have actually a really strong team in position to take on this TrinScreen challenge and indeed to increase our Uni-Gold market share, and indeed to sell the rest of our range of products. But our primary focus is on TrinScreen, 170 million tests per year."

CEO O'Caoimh was evasive about who the key hire was, but added the following comments about the TrinScreen HIV opportunity in Africa when responding to a question from analyst Jim Sidoti"

"...the screening market is 170 million tests per annum in Africa and the typical price -- and the price is $0.80, right? I mean that works out at about $140 million or whatever. And basically, we believe that we can take a reasonable market share. I mean the performance of our test in terms of sensitivity and specificity was staggeringly excellent, I could say that it is just remarkable."

"We know the market. We have a good reputation in the market. I mean we have been selling the gold standard, Unigold HIV confirmatory test for many years . It basically commands the highest price in the market for the last 15 years. So we clearly have, I mean, a very good reputation in the market. And in addition to that, then we can manufacture the product in a very cost-efficient manner in Ireland on an automated system that can -- that has basically almost unlimited production capability."

"So -- and in addition to that now, we’ve beefed up our team with some serious hires from the very people that were selling the majority of that 170 million tests. So I think And in addition to that, I see no doubt, but that we’ll get WHO, World Health Organization approval. It’s only a matter of when rather than if."

"If you take all of that into consideration and given an intention to marginally undercut the market leader, remember, the market leader has about 80% market share. We believe that we can take a reasonable market share. And if you ran the numbers basically, yes, the potential here is a lot greater than the COVID opportunity."

The significance of the last sentence is huge. Why?  because the "COVID Opportunity" is what saved Trinity Biotech from extinction. Financial results and the stock price were a mess since 2015 when TRIB traded North of $20/share and the year when it last recorded a profit. The COVID opportunity was responsible for helping Trinity deliver three consecutive quarters of profitability and this is reflected by the increase in cash and cash equivalents of $32.28M in Q1 2021 from $13.2M at the end of Q1 2020. 

I see the "COVID Opportunity" and the bridge to greener pastures for Trinity Biotech and its shareholders. The company is truly re-energized because they are now generating significant amounts of cash and using some of it to invest in growth. I have been watching their career site and it's obvious that the company is looking to grow into new areas but it's also beefing up its core business. 

In 2021 Trinity Biotech hired dozens of key professionals ranging from engineers, quality control executives, product launch experts, research and development and other personnel with extensive lateral-flow diagnostics experience among others. And the hiring continues. The latest intriguing search is for a Global Product manager. The requirement states that the ideal candidate will be the The Global product manager for the Hemoglobin System Division and he/she in turn will be part of the Global Marketing – Product Management team and has overall responsibility for the product marketing and project management of the Hemoglobin portfolio.

Well, I put on my Sherlock Holmes hat and I figured out who the "mystery key executive" Trinity was able to take away from Africa's largest player in the HIV screening market.

That person is Willem Pretorius recently named President Global HIV Sales & Marketing at Trinity Biotech.

Mr. Pretorius commented:

"My strong science background coupled with my in-depth knowledge of these market sectors and my strong vision have allowed me to repeatedly succeed in guiding and developing large and diverse cross-functional teams to successfully execute comprehensive strategic growth plans and secure phenomenal levels of sales revenues."

"I am passionate about team development and will ensure that my management and leadership approach always identify development needs ensuring a coaching and mentoring culture that allows the organization to continuously improve."

"I am also highly adept at launching new products ( TrinScreen HIV) and aligning marketing initiatives and I believe strongly in forging effective working relationships across organizational lines and levels as well as with partners in order to build consensus and deliver results."

"I am able to influence and negotiate at all levels within government agencies as well as non-government organizations through my ability to engage healthcare, scientific and business leaders and translate technical issues into a commercial benefit."

"My particular areas of expertise that allow me to deliver success include strategic business planning, budget and P&L administration and control, project and change management and my strong customer focus coupled with my ability to manage and balance stakeholder relations."

Music to my ears...

Mr. Pretorius was formerly Vice President Strategic Innovation Market Access & Market Expansion - Africa for Abbott (NYSE:ABT). In his role he provided executive-level leadership to the African business to develop a 5-year strategic growth plan to build a business of $500 million over a 5 year period looking at new potential products, new market access models and to identify new market segments.

Prior to that he was Abbott's VP of sales in Africa and responsible for over $250M in revenues. He was also VP of sales for Alere International with full P&L and leadership responsibility for business worth $200 across the African continent. In his role he also spearheaded the African based commercial organization and held key roles on important strategic teams charged with the development and growth of the business. Alere was acquired by Abbott in February, 2016 turning Abbott into the global leader of point-of-care diagnostics.

Do you see now why I called this section "The Trinity Biotech, Abbott, Alere Connection in Africa.?"

Big companies like ABT don't it take it lightly when midgets like Trinity Biotech take away a significant market share of a profitable product. Sometimes they get rid of the competition by acquiring them. To me, it would make a lot of sense if ABT eventually acquires Trinity Biotech. It would be like the Alere acquisition only orders of magnitude smaller. 

But even if ABT never acquires Trinity Biotech, current shareholders and new ones entering the stock at rock-bottom prices would be happy with their investment in a couple of quarters.

Let's Face It, COVID-19 Is Not Going Away

Last week, Moderna held its fourth annual Science Day. In this virtual event for investors, the company laid out its research and development plans. But the biotech's top scientists also sounded an alarm reminiscent of Paul Revere's famous call that the British were coming. In this case, though, Moderna's warning was that new COVID-19 waves are coming.

Moderna chief scientific officer Melissa Moore stated, "As the virus spreads, it is rapidly mutating." She added, "Some of these new viral strains appear to be even more transmissible than the original strain."

The good news is that vaccines from Moderna and Pfizer, in particular, have been highly effective so far. The bad news is, in Moore's words, "We already know that some of these new strains are less susceptible to neutralization by our current vaccine."

Moderna's researchers have found lower neutralizing antibody levels against several key coronavirus variants to be of concern, which suggests a risk of reduced duration of protection against infection. Because some of these variants are more transmissible, Moderna thinks that "new epidemic waves are undoubtedly on the way."

And for this reason, and many others, the COVID-related revenue stream will not go away for Trinity Biotech and will continue to contribute to the top and bottom lines and increased cash reserves. Adding TrinScreen HIV and other new products to the mix and it only makes sense that the future is bright again for Trinity Biotech. 

About Trinity Biotech

Trinity Biotech is a global medical diagnostic company with presence in over 100 countries in most continents. The company develops, manufactures, and markets numerous medical diagnostic products for the clinical laboratory and point-of-care or POC segments of the diagnostic markets in the United States, Africa, Asia, Latin America, and Europe. The company offers clinical laboratory products, including diagnostic tests and instrumentation, which detect infectious diseases, such as COVID-19; lyme disease; sexually transmitted diseases consisting syphilis and herpes; and epstein barr, measles, mumps, toxoplasmosis, cytomegalovirus, rubella, varicella and other viral pathogens, as well as products for the in-vitro diagnostic testing for hemoglobin A1c used in the monitoring and diagnosis of diabetes, and identifying those who are at a risk of developing diabetes. It also develops, manufactures, and distributes products in the immunofluorescence assay, enzyme-linked immunosorbent, western blot, and line immunoassay formats; and provides reagent products, such as ACE, bile acids, lactate, oxalate, and glucose-6-phosphate dehydrogenase for diagnosis of liver and kidney diseases, as well as hemolytic anemia.

Trinity Biotech also provides raw materials to the life sciences and research industries globally. It markets products through several subsidiaries such as Fitzgerald, Immco, Primus, and dozens more under the brand names Recombigen, Unigold, MarBlot, Mardx, Premier, Immublot, EZ, Capita and several others.

Trinity Biotech's customers include public health organizations and facilities, hospitals, and other outreach facilities, as well as clinical and reference laboratories in over 100 countries globally. The company sells its products through its direct sales force; and a network of independent distributors and strategic partners. Trinity Biotech plc was founded in 1992 and is headquartered in Bray, Ireland.

Institutional and Insider Ownership

Several institutions own 51% for the company's common stock. Stonehill Capital Management LLC is currently the company’s largest shareholder with 14% of shares outstanding. Paradise Investment Management LLC and Hunter Associates, Inc. are the second and third largest shareholders.

Per the latest filing, insiders own about 18% of shares outstanding. On June 6, 2018 CEO O'Caoimh purchased 430K shares at $6/share to increase his holdings in the company to 3.6M shares. The resulting float is less than 10M shares.

Analyst Opinion

The current analyst rating TRIB stock is a BUY with a $7/share price target

Conclusions

1. On May 25, 2021 Trinity Biotech reported its third consecutive profitable quarter, on significantly higher revenue and EPS when compared to the year ago quarter and analyst's expectations.
2. Q1 2021 revenue of $25.6M or 20.9% higher than in Q1 2020, beating expectations by $1.6M. Diluted EPS was 10c/share vs. 5.3c/share in Q1, 2020 beating expectations by  4c/share.
3. Cash and cash equivalents increased to $32.28M at the end of Q1 2021 from $13.2M at the end of Q1 2020. Cash generated from operations during the quarter was $5.9M.
4. COVID-related product revenues went from $13M in Q1 2020 to $8M in Q1 2021 because of a large stockpiling of supplies prior to year-end of 2020 and a reduction in overall testing levels as vaccinations progress.
5. COVID-related sales might remain flat until the new rapid 12-minute antibody starts selling after EUA submission in late June 2021.
6. I expect Q2 2021 revenues ranging from $24M to $26M and about 10c/share net income. These figures will beat Q2 2020 $16M revenues by a significant margin.
7. I also anticipate the Q3 2021 revenues to bounce to near $30M because the company will have a full quarter revenue contribution from its new 12-minute rapid COVID-19 antibody tests after Q2 2021 EUA. 
8. Trinity Biotech is trading at a forward PE of about 5. The current sector PE is 58. I expect that in a quarter or two TRIB's valuation will triple based on profitable financial results and new product launches.
9. The company is continuing to diversify its COVID-related product offering  with the expected 2Q 2021 announcement that its new 12-minute rapid COVID-19 antibody test has been summitted to the FDA under the EUA umbrella. The company believes that its rapid antibody tests will sell better than the company's EUA'd ELISA antibody test being used mainly in laboratories. Rapid antibody testing become ever more important going forward as schools, employers, large sporting events, concerts, etc., begin to implement comprehensive surveillance programs to help prevent contagion.
10. The company has the capacity to make millions of rapid tests monthly. This high-margin product could become a significant revenue and net income contributor going forward because most experts agree that COVID-19 will be around all of us for many more years to come.
11. The company is also developing a COVID-19 rapid antigen test using nasal pharyngeal swab, which runs in 12 minutes.
12. Despite significant COVID-19 vaccinations in several countries, the global new cases are still near record levels with India and Brazil being the largest contributors lately. Other regions of the world have also seen an increase in new cases in recent days.
13. After the World Health Organization (WHO) approves the TrinScreen HIV test, Trinity Biotech expects to build on its strong presence in HIV testing in Africa, with the Company having been the main confirmatory test provider over many years with its Uni-Gold HIV test. The screening market is over ten times larger than the confirmatory market and it's therefore to become a significant contributor to revenues and net income once sales of this product get going.
14. The company has hired Willem Pretorius, a high-level executive to help launch TrinScreen in Africa. Mr. Pretorius was a key player in Abbott's and Alere's expansion in the African continent and therefore knows the strengths and weaknesses of the competition and should help help TrinScreen gain market share quickly because it is a superior, easy-to-use product and Trinity Biotech has a well established reputation as an HIV test provider in Africa.
15. CEO O'Caoimh expects that TrinScreen HIV sales will eventually become greater than COVID-related revenues. This means a potential 30% revenue bump in addition to COVID-related sales, and post-pandemic recovery of core product sales.
16. COVID-related revenues represent only 20 to 30% of Trinity Biotech's total revenues unlike other players in the sector that derive almost all of their revenues from COVID-related sales (like CODX for instance), 
17. Also unlike other biotechs, Trinity Biotech does not have the tendency to dilute shareholders with unexpected equity raises. The share count at the start of the decade was 21.3M, with 23.2M being the highest level was in 2015, and it's currently 20.9M. Trinity Biotech has implemented several share buybacks during the decade.
18. Everything that is see in Trinity Biotech is growth, growth, and more importantly profitable growth in recent months with well-placed key hirings, multiple product launches, cost cutting in unprofitable areas, supply-chain optimization, renewed emphasis in quality control, etc.
19. The COVID-19 pandemic has turned out to be the savior of a company which at the end of 2019 it reported losses of more than $20M for a second consecutive year. The company's cash balances went down from 41M to $16M in two years. But the cash balance has bounced back to $32.3M in Q1 2021 and could reach $60M to $80M by the end of the 2021 fiscal year.
20. I expect that the always skeptical Mr. Market will warm up to TRIB with each successive profitable quarter and with a number of key game-changing well executed product launches that could eventually take the company into the $200M/year revenue run rate and profits in excess of $2/share. Give it a quarter or two and TRIB will be sailing North of $10/share.
21. Several institutions own 51% for the company's common stock. Stonehill Capital Management LLC is currently the company’s largest shareholder with 14% of shares outstanding. Paradise Investment Management LLC and Hunter Associates, Inc. are the second and third largest shareholders.
22. Per the latest filing, insiders own about 18% of shares outstanding. On June 6, 2018 CEO O'Caoimh purchased 430K shares at $6/share to increase his holdings in the company to 3.6M shares. The resulting float is less than 10M shares.
23. The lone analyst covering the stock has a $7 price target.
24. I recommend that investors interested in TRIB stock read all the risks and uncertainties associated with this stock as detailed in the company's most recent filings with the SEC.