Trinity Biotech plc (TRIB) Q4 2014 Earnings Report, Transcript and Summary

Welcome to the Trinity Biotech Fourth Quarter and Fiscal Year 2014 Financial Results Events. 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 at Lytham Partners. Please go ahead.

Thank you, Amy, and I thank all of you for joining us to review the financial results of Trinity Biotech for the fourth [sic] quarter of fiscal year 2014, which ended December 31, 2014. With us on the call representing the Company are Ronan O'Caoimh, Chief Executive Officer; Kevin Tansley, Chief Financial Officer; and Jim Walsh, 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 results. After Kevin’s remarks, we will hear from Jim Walsh, on product development issues and then a cardiac update, and Ronan, will wrap up the prepared remarks with his perspectives on the quarter. Kevin?

Thanks so much, Joe. Today I’ll take you through the results for quarter four and the full-year 2014. Beginning with our revenues, total revenues for the quarter were $26.7 million. This compares to $25.5 million in quarter four of 2013, and thus represents an overall increase of 5%. Ronan will provide more details as to the makeup of this growth later on in the call. Moving on to gross margins. I think you will see from our press release this quarter’s gross margin was 47.5%, and this compares to 49.6% from quarter four of last year. This is consistent with the trends in other quarters this year whereby gross margins have been lower than in the equivalent quarter of 2013. This is mainly attributable to sales mix due to lower line sales, which have higher gross margins, and higher instrument sales, which conversely have lower margins. And moving on to our indirect cost, our R&D expenses for the quarter decreased slightly compared to quarter four 2013 to just under $1 million. Meanwhile our SG&A expenses have increased in the quarter from $6.5 million to $7.2 million. This is mainly due to sales and marketing costs associated with our cardiac business, which is currently not generating matching revenues. Operating profit for the quarter was $4.3 million. This compares to the higher figure of $4.8 million in 2013, and here we are seeing the combined impact of the lower gross margins and higher SG&A costs. Operating margin this quarter was over 16%. Moving on to our net financial income next, this quarter we earned $14,000, which is a decrease from the $118,000 earned in equivalent period last year. Meanwhile our tax charge for the quarter was $187,000 and this represents an effective rate of 4.3% which is slightly lower than the same period last year. The net result of all that I’ve spoken of so far is that profit for the period was $4.1 million. This equates to a basic EPS of $0.18 and a diluted EPS of $0.176. Meanwhile our EBITDA before share option expense for the quarter amounted to $5.8 million. Before I move on to the balance sheet, I will make some comments on the full-year results. Annual revenues increased from $91 million to almost $105 million which is an increase of 15%. As is the case with the quarterly revenues; Ronan will take you through this in more depth later on. Gross margin reduced by 1.6% to 49.6% in 2013 to 48% in the current year. As is the case for the quarter four's results this has being impacted by the sales mix due to higher premier and lower line sales. Operating profits increased from $17.2 million to over $18 million, an increase of 5% for the year. However the fall in this year's financial income from $1.3 million to $140,000, this has resulted in a small reduction in profits before tax from $18.4 million to $18.1 million. Tax charge for the year is just under $900,000 and represents an effective tax rate of 4.7%. Result is that the profit after tax for the year actually increased from $17.1 million to $17.2 million, and over the same period EBITDA increased from $22.8 million to $23.8 million. These profit growth rates are lower than we've achieved in past years, however there are specific reasons as to why this is the case. As was outlined in the press release, the profit figures cannot be looked in isolation. We are currently in a situation whereby incurring significant sales and marketing costs in advance of achieving cardiac sales; our margins on our premier business has temporarily being impacted by the significant number of lower margin instruments being placed; also with closure costs in the UK related to the transfer of manufacturing of our Blood Bank Screening products to Ireland; and all of this occurred in a year when our line sales has been lower due to weather-related factors. I'll now move on to talk about the significant balance sheet movements since the end of September 2014. Property, plants and equipment increased by approximately $2 million. This increase is made up of additions of $2.5 million as offset by a depreciation charge of approximately $500,000. The additions in question related to a combination of new manufacturing equipment and significant instrument placements, particularly in Brazil. During the same period, our intangible assets decreased by $3.2 million. Additions were approximately $3.9 million and this was offset by an amortization charge of approximately $0.7 million. Moving on to our inventories, you will see that these have slightly fallen from $33.8 million to $33.5 million which represents a normal level of fluctuation. Meanwhile trade and other receivables have increased by $900,000 to $26.1 million. This increase partly reflects the longer payment cycle with respect to instrument sales. Meanwhile our trade and other payables and I include here current and non-current, have increased to $23.6 million $19.8 million. This is due to a combination of timing of payments and the facts that the comparable figure in September was unusually low. Before leaving the balance sheet, I'll focus on some major movement’s year-on-year. Firstly, property, plants and equipment have increased by $4.9 million which consists of additions of $6.8 million, offset by depreciation of $1.9 million. Meanwhile intangible assets have increased from $129 million to $145 million and this is due to additions incurred during the year of $18.4 million, as offset by amortization of approximately $2.4 million. Meanwhile trade and other receivables have increased from $24.3 million to $26.1 million. This is due to increased revenues, some of which was instrument related, and which as I mentioned earlier, tends to take longer to collect. Meanwhile inventories increased from $29.7 million to $33.3 million over the same period reflecting higher activity levels particularly in the instrument aspect of our business which tends to be more inventory intensive. Our trade and other payables, again including current and non-current, actually fell from $24.7 million to $23.6 million. Finally, I'll discuss our cash flows for the quarter. Cash generated from operations amounted to $8.6 million and this was offset by capital expenditure of approximately $8.4 million. The additional expenditure was related to our development projects, and in particular, our cardiac development project, but also reflects the purchase of significant manufacturing equipment on a large level of instrument placements again as I referred to earlier in Brazil. The net result of this is that we had an increase in cash for the quarter of approximately $200,000, with the year on balance now standing at $9.1 million, and this is the first quarter that our overall cash balance has increased for a number of periods. I'll now handover to Jim, who will take you through the latest developments with regard to cardiac.

Thank you, Kevin. I'll take the opportunity to update you on the progress on our cardiac marker development program. In particular, I will like to provide you with a detailed update on our Troponin clinical trials, which I'm delighted to say, has restarted and is once again recruiting patients. I'll also update you on our Meritas BNP product, which as you know, obtained CE market improvement in Europe late last year. Firstly, and probably foremost on your minds, let me address our Troponin product, and the recent recommencement of our U.S. clinical trials. As you know, in October last we announced the temporary suspension of enrollment into our Troponin clinical trial in the USA. The reason for this temporary suspension was the observation of higher than normal CV's in whole blood data. Essentially when testing very lower level whole blood samples for Troponin, we absorbed an increased spread in the data from what we would have expected to see. Following a root cause investigation, the problem was positively identified as a formal change to a chemical dye, which is purchased from a third-party supplier. All clinical trial size which had received batches of the product manufactured using offending chemical were instructed to discontinue patient testing immediately, and all clinical data generated using the effective batches was identified quarantined and excluded from the clinical trial data session. So since October last, multiple new batches of the chemical, in its original format, have been obtained from our supplier, and multiple new batches of Meritas Troponin product has been manufactured and extensively tested. The result of this work is that a product is again demonstrating the same excellent clinical performance as witnessed in our European CE trials, and indeed in the independent clinical evaluation carried out by Dr. Apple, at Hennepin County Medical Center, in Minneapolis, which he published at AACC Meeting in Chicago last July. This independent trial shows our product to have what we believe to be market leading performance, with a whole blood sensitivity of 75% at the time zero, with a corresponding specificity of 93.6%. The trial which is now recommends will run a 12 geographically diverse trial size across the United States. And depending on the AMI prevalence rates, it is envisaged that approximately 1,400 patients on this new rate will be required to complete enrollment. We estimate that these trial cycle recruits six heart attack patients per week i.e. a total of 72 patients per week. And at this rate of enrollment the data collection should be complete in the 14-week period which brings us to the end of May or early June 2015. Following this cardiologist adjudication, statistic analysis, and submission drafting will take place during the month of June and July, with final submission to the FDA planned for August 2015. In summary therefore we firmly believe that we’ve identified the problem and that a fix we have implemented absolutely solves the problem. And as all the product manufacture going forward will continue to exhibit the same excellent performance characteristics as a product which obtained CE marking last year. We are now looking forward to completing the U.S. trial in the shortest timeframe possible. I'll move on briefly now to Meritas BNP. On September 25, last the company announced that we had received CE Marking approval for our BNP heart failure test. As you know, BNP levels in the bloodstream increase, as the severity of heart failure increases. Thus BNP has emerged as a principle biomarker in the diagnosis of acute and chronic heart failure. For our CE approval, the BNP product was tested on a predominately U.S. population of 1,424 normal healthy individuals, and 665 patients, which had been diagnosed with heart failure, ranging across the four major heart failure classifications, outlined by the New York Heart Failure Association. The Meritas BNP product demonstrated exceptional sensitivity in procession which is at least comparable to much larger or far more expensive central laboratory systems, while delivering results in 10 minutes right at the point-of-care. With regard to our U.S. approval, when I spoke to you last, because the majority of the CE data had been generated on U.S. -- on banked U.S. heart failure samples, our plan was to propose to the FDA that the bank data set augmented with a smaller number of perspective fresh samples would be used this quarter of 5K, 10K application. In a conversation with the FDA in January last, the FDA made a strong recommendation to us that bank data would not be optimal support our application and suggested that we would rethink strategy towards fresh perspective U.S. samples only. Moving forward, then on this basis, BNP healthy normal was collected as part of our Troponin healthy normal trial. That is, we can use the same patient support both applications therefore, incurring little or no extra cost. On top of this, 650 heart rate of patients equally distributed across the four New York Heart Failure classification will be collected as four sites across the United States. And we are currently at the internal review of our stage with these sites. The good news is however that the BNP trial is infinitely more straightforward than the Troponin trial. Firstly, only one blood sample of a patient is required as compared to four for Troponin. Moreover, heart failure patients are like generally in an emergency situation, so obtaining consent to take a blood sample is a much easier proposition. And of course, finally, cardiologist adjudication is not necessary in the BNP situation. So in summary, data collection of BNP will be complete in September. And this will be followed immediately by the FDA submission to 510k submission to the FDA. We believe that due to less complex major BNP, the review process should be somewhat more straightforward that that for Troponin. And U.S. approval is expected ahead of Troponin in 2016. That concludes me for now. And if you have questions, I'll be happy to answer them later, and I’ll hand over to Ronan.

Thank you, Jim. Now, I got to review our revenue for both the quarter and the year and discuss the developments before opening the call to question-and-answer session. Our revenues for the quarter were $26.7 million, up from $25.5 million for the corresponding quarter, which is an increase of 5%. However, when the impact of the strengthening dollar is excluded, the real increase is in revenue for the quarter is 6.4%, which is all organic growth as the Immco of blood banking acquisitions were completed prior to quarter four of 2013. It should be noted that the significant weakening of both euro, and the weakening of the Brazilian Real, serve to reduce our dollar sales in quarter four. And that this weakening continued, actually intensified during the past few months. If rates stay as they are, our 2015 revenues will be 3% lower than they would otherwise be. But it should be noted very importantly that there would be a corresponding reduction in euro and Brazilian cost base, and the overall impact would be a wash as in no change to profits. In summary, if revenues, sorry, if the exchange rates stay where they are, our revenues would decrease by 3.5% and our cost would also decrease by 3.5%, therefore, basically be making no impact on EPS. Moving just back to looking on our revenues. Our HIV revenues for the quarter were $5.5 million, up from $5.1 million, which is increase of 7.1%. African sales performed strongly, showing growth of 9% with shipments to Nigeria, in particular continuing to increase. In the U.S., our HIV sales increased 3% over the prior quarter with hospital sales performing strongly aided by the fact that we are now selling an HIV-1 HIV-2 product since we got a HIV-2 FDA approval last year. Public health HIV spend continues to be depressed, with sales flat when compared with the prior quarter, I think that's something that our competitors are experiencing also. During the quarter, we were delighted to receive a CLIA waiver for Rapid Syphilis product. This means we have the only FDA approved Rapid Syphilis test and also the only CLIA waived Syphilis test supporting the same test, but both the only Syphilis approved product and also the only CLIA waiver product. Therefore, it's a total new market and it's difficult to estimate the size revenues will be. The most obvious comparison and really the only comparison product is the CLIA waiver rapid HIV product. Quite soon as the OraSure can buy our share of $50 million of CLIA HIV revenues, which sell to mostly public health departments and community-based organizations. Whether this products will end up being 20% or indeed 40% of the HIV market remains to be seen. What we can say is that we are ideally positioned to maximize its potential, as we already serve the public health market, with our direct sales force selling our HIV product to the same target demographic. And secondly, we have been in contact with all 50 state health departments and most city health departments; mostly by the way they contacted us before we can get to them. And thus, as best we can tell all are initiating a purchasing plan. However, this takes time. As in each case a formal participation is needed followed by the sourcing of funding, and then you have the establishment of the procedures, sometimes the establishment of a pilot size, and of course the training of personnel. Basically, it's a -- we estimate 120 to 150 day process. Current indications are that all of the states will buy. In addition, we have been inundated with approaches from community-based organizations, Planned Parenthood, health clinics, and community health centers; we are receiving by the way huge support from the CDC in our efforts. With a 60% margin this is going to be very significant, but it is too early to quantify. Our clinical laboratory business increased from $20.4 million to $21.2 million, an organic increase of 4.2%, but an increase of 6% when currency impact is excluded. Our diabetes business grew 15% over prior quarter; we met our target of 460 premier instruments for the year and placed 133 instruments during quarter four. All our markets performed soundly, USA, Menarini in Europe, and China. However the highlight has to be Brazil, where our direct sales force takes 32 premier instruments during the quarter, resulting in the placement of 121 instruments in Brazil during the year. And if that wasn’t enough, our new Premier Resolution instrument, which tests both adults and newborns for hemoglobin variants, for example, say sickle cell anemia, has just won a number of large tenders in Brazil, and we are now testing 60% of all Brazilian newborns for hemoglobin variance. This business, as in the hemoglobin variance business, will be a growth engine for us as we target adult and neonatal hemoglobin variant testing worldwide, we believe we have a superior test and instruments when compared with the dominant market leader. Moving on then to infective disease, which excludes by the way Immco, if it is anhidrosis excludes Immco and our recently acquired Blood Banking business. The infective disease business grew 2% compared to the prior quarter. The line component of the business was down in excess of $550,000 compared with the prior quarter and this rise is simply due to the particular severe winter experienced last year when most Lyme ticks were killed and died. However, our Lyme business varies annually; it depends on winter weather conditions with our dominant market share remains unaltered. The balance of our infectious disease business traded strongly during the quarter and was up 6% compared with the previous quarter. The U.S. performed strongly and is benefiting from the advantage of having Immco autoimmune product range added to its offering. China performed well and the Brazil approval process is continuing. Moving on to Immco, which we acquired 18 months ago, we are pleased to report that we grew the business 23% in the past year. The business has been successfully integrated and the Immco autoimmune product range is helping us to grow our existing infective disease business as I mentioned. The highlighted Immco has been a success of our Sjogrens business, which is dry eye test, which we do not sell to laboratories around the country instead the test is only run in our own laboratory that we own in Buffalo and sales of this test during quarter four exceeded $550,000 following its launch earlier in the year. And this product and a number of companion products that we have in R&D at this time have huge potential. Moving on to cardiac, Jim has dealt with Troponin FDA submission. It should be noted that European evaluations will now recommence in the UK, and France and Germany initially in Spain, basically in the five major European countries. And following the completion of these evaluations over the next four to five months, that our distributors will commence selling in their respective countries. In addition our sales rep in Sweden is now commencing direct sales in Scandinavia. Meanwhile in Brazil, we are commencing an evaluation in real with the main opinion leader in Brazil in May, and in China, we are six months progressed into a two-year journey to regulatory approval. Our Chinese distributor who is also our very successful premier distributor was previously the cardiac distributor for Alere/Biosite. Meanwhile our CEO in Brazil was previously, CEO of Alere, Brazil, and clearly he is very familiar with Troponin/BNP. It should be noted that during 2014 our cardiac non-capitalized sales and marketing spend was $2.3 million or $0.10 per share. This includes the cost of all the personnel supporting the launch of these products, including product managers, sales people, the personnel who set up distributors, the personnel who conduct evaluations, personnel who conduct clinical trials, and the personnel who monitor the trials and evaluations. So during 2014, our EPS dropped $0.78 to $0.76. Absent this investment in our cardiac future, our EPS would have grown from $0.78 to $0.86 which would have been a 10% growth. So leaving with that thought I’ll just open it up to questions-and-answers.

[Operator Instructions]. Our first question comes from Bill Bonello at Craig-Hallum.

I just wanted to follow up a little bit, Ronan, on the comments the seconds that you just went through on some of things that are driving growth. And I guess may be a twofold question. I guess I'm wondering, if in addition to line, if there are other legacy businesses that are either hardly growing or may be declining year-over-year, because with the positives that you've listed at the strong premier placements what seems like it should be good consumable pull through, the new HIV product, the traction you're getting on Sjogrens et cetera, it seems like we should be seeing may be better organic revenue growth than what you're putting up. And so I guess I'm just -- I'm trying to have a sense of what are the offsets to those things, may be what are you really seeing in terms of premier consumable revenue right now and then again, what the outlook may be for 2015 would be?

All right. Just to tell you about that lyme is not a declining business. I mean lyme is basically we have 100% of lyme confirmative business in the United States and it’s not a declining business. In fact, I think we took a 10-year graph, there’s more people being bitten. But it took that basically a severe winter can have a big impact, so we've had two bad winters, well from our two bad -- from our perspective but clearly nothing in the public interest. But in any event so that’s not a declining business. But just to talk about so but just look at the components of our business like what's declining and what's not. Clearly artists show that our Monoclonal Antibody selling business is a flat business. We haven't given up in terms of growing it, but it is flat, although months just say profitable. And so that’s basically $10 million, $11 million component that just basically refuses to grow and drives our overall growth rate down. And I think the other piece of our business that we struggle to grow and I think people who know the business well will hardly be surprised by it is our infectious disease line of business the traditional measles, mumps, varicella, [indiscernible], all those business that business right is a difficult business to grow because of the fact that you said drive is only from two sides, one basically labs are closing or sending us up to Quest & LabCorp, and the bigger -- and then the bigger hospitals are using the big average instruments or whenever so we're kind of being squeezed in the middle, and that’s certainly is a challenge for us to grow that business. And that’s one of the logics behind getting involved in autoimmune where a customer really wants autoimmune there is a real, real demand but there is very few competitors and it runs on our existing installed instrument base. But there is no doubt that so what we struggle with really basically is, is obviously Fitzgerald and the infectious disease business albeit not the lyme component rather. But I think everything else we have basically promises really impressive growth in the future, hence its premier, high resolution, our HIV business now obviously greatly supported by its companion Syphilis product, and of course then I think monstrous potential of cardiac. I think that’s -- that’s basically -- that’s what's happening there and we believe it is that we can move from kind of fairly 5% to 6%, 4% 5% 6% organic growth into strong double-digit growth as basically, as the growth drivers basically contribute a bigger and bigger share of the business.

Okay that’s helpful. And just a point of clarification just so I make sure I'm not confused here. I appreciate your sentiment on lyme not being a declining business sort of overall trend. But did I hear you right; I mean it was down year-over-year because of the weather et cetera this year?

Yes, I mean yes and if I guess the second consecutive year it's been down. But we are -- recollect that the previous winter was a very, very long winter in the East Coast.

Okay. And then just a second point of clarification, with premier, where do you think you are these days with consumable pull through, are you still holding to the 10,000 per instrument, how many instruments do you think there are actually generating that amount of revenue or if that’s hard to get a visibility on. Just trying to get some sense of where we're at with premier consumable revenue today and at which point that that really high margin growth starts to offset the impact of the lower margin equipments?

Well just to say then, we paid 460 instruments this year; I think 320 the previous year, and the first year 200. So we have 1,000 instruments in the market now let's say probably 900 of them are probably up and running. There is always six or seven months particularly in China where it takes a bit longer to get into the market. In terms of how they're performing Menarini, is performing amazingly well in terms of the actual number of tests per instrument but it's probably selling less instruments than we had expected. But so guys we have originally I think talked about to 11,000 test per instrument in fact we’re running in 22,000 or 3,000. So with less instruments and that reflects kind of consolidation, in particular in their strongest markets which are Spain and Italy which is being through a recession. And USA performing reasonably strongly certainly very good volumes, but remember USA is primarily in immune assay market so the overall size -- the overall available market is great. China is probably the most disappointing lots and lots of instruments but not as much reagent as you'd like. But that’s what we kind of expected. Because basically the Chinese are in the top today one see, and the government is reimbursing and bought the actual individual doctor in the village hasn’t quite tuned into it yet and that’s kind of an evolving scenario. And then Brazil, and Brazil what can I say about Brazil, I mean just wonderful, I mean huge numbers of instruments and very big value money to each instrument so it's kind of a mix but overall Bill to answer your question it’s about probably marginally ahead in terms of volume per instrument than what our expectation was.

Okay. And in terms of the gross margin, do you think 2015 could be a year where the consumable pull-through starts to offset the instrument dilution to gross margin or should that not, should we not be speculative?

No, I think this is really what you’re going to see it I mean, we now have a basically I mean I think in, during January we sent out a 1000 instruments -- and by the end of the year will be up to 1500, around 1500 instruments. So every instrument is an additional $1100 of ongoing revenue at a very, very high margin. So, you tip the balance at some point, clearly you’re improving all the time.

The next question comes from Larry Solow at CJS Securities.

Just one quick follow-up in terms of placements Brazil had a really good year for premier. Do you expect that to continue and what the -- if you had to put out a business at about 500 placements you’re targeting for '15 or bit of more than that?

Larry, I’m, yes -- I think 500, we gave it 500 now take it, it’s a little bit there and we’re very close to 500 may not quite get to 500, but that's what we hope to do. And in terms of Brazil, yes I think Brazil will have another equally good year, might even surpass this year. Now I can't keep doing that because you end up in a situation where you’ve most instruments in the market. But I would say we could certainly have will have a great 2015 and a reasonably good 2016 and after than we’re going to have just good years, but there’s only so many instruments being replaced every year, you can't keep doing a 120 in Brazil.

Right. And just long-term as a acute number do you sort of typed all around the 5, 550 mark is that something that got to?

It’s going to be -- I think it’s going to be I think we will mature at sort of in the 500 somewhere in the 500 I don’t think -- I do not convince we will get to 600 its more or less what I've been indicating all along somewhere between 5 and 600 will be maturity. Bear in your mind, I mean 600 will constitute 70% of all the instruments and tapes in the world.

Okay. Just turning to the Meritas just in terms of the modest delay in BNP might that not really matter because what in -- is it possible the FDA would considering the both of the filings were going to be relatively soon or relatively at the same time might they look at both together considering to new platform. And on the flip side, I think you probably wouldn’t, you might not launch until they’re both ready to go, anyhow, so is that a fair assessment?

Sure. Larry first of all the FDA will handle them absolutely as two separate products, okay. They just don’t want -- it will be two separate applications and there will be two separate evaluations by FDA. So there is no bundling there to say like that. They will go in very roughly the same time okay to the FDA. My own gut feeling is that Troponin is a much more complex product. There is no doubt about that, much more complex product to evaluate. BNP is there are three or four already on the market so there is no and in fairness, they are decent products. They work reasonably well. So I think the review the process for Troponin will probably take a couple of months longer than it will for BNP and I would -- it was a bet on it, I would suggest BNP will come out first product by Troponin. But we are talking weeks -- couple of months tops difference in the two. And I think I doubt whether we would launch BNP first without coming with Troponin because Troponin is the real driver here and BNP is the add-on, if you know what I mean?

Absolutely, right. So at the end of the day, might I make a big difference for you guys Troponin you would be waiting for that anyway?

Ronan here, I mean, you wouldn’t see Troponin, you wouldn’t sell BNP, you wouldn’t get an instrument place, BNP in its own so therefore you wouldn’t launch BNP without a defer. All you to do with BNP is make sure it gets approved at the same time as Troponin or there's earlier no advantage really.

Got you. Sjogren in the quarter, would give how much sales they’re actually doing what’s sort of your outlook for the next 2015?

Well I said I did just over 550 in the quarter. But it’s very remarkable, I mean we’re only did a National launch in June. One thing I should just mention is I will mention is that we have a distributor who basically sells it basically into the atomics around the country and that distributor was Nicox. So probably something you never heard small French Public Company. But they sold their business to Baush & Lomb during the quarter. And Baush & Lomb had a very, very big sales, atomic sales, atomic sales force. And so basically we regard that as a very, very positive development. So Baush & Lomb went out and paid basically quite a lot of money for basically the business is our contract in essence and so I think that’s the positive development. In terms of its potential difficult enough to assess given that now we’re also dealing with a new owner but I --

You kind of long-term what kind of product could this take, assuming its middle of the road or whatever it’s see – is it the new owner or is not better or not worse and what Nicox was in terms of your expectations?

Just to say the new owner would be a lot better because the new owner has actually targeted this as an acquisition basically and is based quite a significant I mean it's quite -- paying a quite significant fee for it. And the only thing that was in that business was our distributor agreement basically just recent agreement. In terms of what I can do, I’m just submitted a coy, by kind of saying a number, but clearly as more quickly and I can grow more. But I'm just not going to say a number if you don’t mind.

No, no, no, that’s fair number. Just lastly on syphilis, we anecdotally we as early in the game and firstly where we’re in the simplest market but it certainly sounds like at least anecdotally things are going well. Could you just remind us what your expectation I think you have some public expectations for 2015 correct on that for sales?

Yes, well I think if you looked at the presentation that we make to investors and if you look at our website, you can see that well we talk about as we say, and I mean this is just this is kind of a guess. We take $2 million to $4 million in this current year of 2015 and then we say $4 million to $8 million in 2016 and then we say $10 million plus in 2017. So and then what I said today well as I said HIV is a $50 million market, will be 20% of it, which will be $10 million, will we be 40% which is $20 million. I said, I don’t know. I mean, I actually just don’t know. What I do know is that we’re out to door with enquires and we have been in contact with all the 50 individual state public health department and most of the city’s, most of the actual contacts have been initiated by them in most instances, they came [indiscernible] immediately. The CDC are supporting this whole thing very, very in a major way. I think people may have noticed that the FDA did a very unusual thing which I never did they actually put a press release out about that. They put a press release, it’s certainly outside my experience and so we’re very enthusiastic about it, but we’re just reluctant to say a number and build an expectation that wouldn’t materialize. I think what's really important to here is the run rate we achieved by December or indeed by whatever months you take and give an apple it’s still the run rate that matters. In terms of quarter one it's going to about 100k it might be 150, but its small enough because each of the individual, as I outlined in the prepared notes there, each of the individual states have to go through such a big long routine. I mean they can't just buy I mean that sets the whole procedures.

Right, right. Understood.

But so the real thing is what's going to matter what the run rate is towards the end of the year. What I would say this just say to this and without quantifying it we are really very optimistic about its potential.

The next question comes from Jim Sidoti at Sidoti & Company.

Good afternoon, can you hear me?

Good afternoon, Jim.

Great. Just following up on syphilis, so do you think you will ship any in the first quarter or do you think that will be more a second half of 2015 product?

No, Jim, we said we said we ship about 100 to 100 grand may be quarter one. So we got it won’t be any public health it’s got a community-based organization things like that are actually just buying. You won’t land any actual orders but what we’re doing is sending 5 and 10 tests for evaluation that kind of thing to the Public Health Departments. So I think what soon happen is I think virtual all, maybe even all high, difficult to know how much is high.

Okay. All right. And in terms of BMP, the change in regulatory approval strategy, does that have a significant impact on the cost?

The answer is a little but not a lot, okay. There are two parts of the trial. Firstly, we have to run about 500 or 600 normal patients, okay. These are patients who don't have heart failure to get a baseline, if you like, okay. And we are piggy-backing that on the same set of [indiscernible] or recruiting for the Troponin trial. So it's an extra few blood to be taken, not more than that. So that's insignificant. Then we have to get about 650 heart failure patients. Now, we had already suggested to the FDA that we would recruit 300 heart failure patient, so we -- it's an extra 300 patients, it's the cost of this particular change and call dose for -- it could be 300 by $300 maybe, something like that, okay. That is the probation[ph]. That's the sort of -- then there will be a little bit of demand on that sort of stop, but it's not mega books.

Okay. All right. And then, in terms of the trial for Troponin, in the press release you said you have 12 sites, are they all running now and are they running at the level they were prior to the trial suspension?

Like everybody else, it takes a while to get up to a speed but they all are running. And by the end of the month, I would have thought, by the end of March, it will albeit go through the floor collecting samples.

Okay. And then, finally, can you just review what your distribution strategy will be for Troponin? Ronan, you've indicated you have got some extra cost for sales and marketing people. So are those people in-house or are those on board already, those people? And how many folks you think you're going to need to sell the product?

We're already having a good sales force in the USA. And some 30 people in USA, so they will take the products in States and they've been preparing for us. I think most of the support -- most of the spend -- actually, we have at the moment more marketing spend and a whole support mechanism on the ground for trials. Like as a matter of -- for example, I mean we have three teams of people traveling consistently, and these are sales and marketing personnel who travel consistently between the trial sites for example. And then, we would have two product managers in Europe handling the European evaluations. We have direct sales guy in Sweden who was basically setting his hands after this difficulty we had for few months and now is he would say he should be the happiest thing to have. So basically he hasn't been in the position to sell, he has no product to sell. But has again product to sell. So John, is that spend, which is $2.3 million this year. So basically, $2.3 million spend with revenue attaching. So I'll just make it the point that it hits our P&L, hits it hard.

Okay. All right. And I guess that's it for me. Thank you.

Thank you.

The next question comes from Chris Lewis at ROTH Capital Partners.

Hi, guys. Thanks for taking the questions. First for 2015, I understand you don't give a guidance, but can you at least provide a high level overview of how we should think about revenue growth in 2015?

Yes. Well, you're absolutely right. We actually don't give guidance. It actually makes that question somewhat difficult in some respect. But I think what Ronan has done very well in the call is outlined the number of opportunities that are out there in terms of growth. So obviously, the Premier business is going to continue growing. We're going to have our first Syphilis sales. Sjogren is looking very good. And I suppose the only lifeline ointment[ph] in terms of revenue growth per say is the currency, which could knock about 3% off with the key point there, that's not going to have any impact profitability-wise. So definite growth next year. We're not putting a number on it. We've said in the past we'd like to target double digit growth. So you can read within that what you will. And that would be taken into account the FX sort of about versus movement [indiscernible].

So double-digit longer-term, but you'll actually measure it, 5% I think you've been growing kind of organically in that five to mid-single-digit range. So what gives you confidence to get back up to that double-digit outlook?

What we're seeing is a lot more things coming through. I mean I'd say Ronan will give a very good description there. There are sort of the number of things that are actually happening in the company. We have had a couple of bad years in-line. Back hand continue, retained all the business, but we have these sort of suffering from the bad years, little bit of headwind for us. We would hope that that would eliminate at the same time as Premier sort of continues to grow and get the pull-through in terms of the high level of installed base. We are going to have to say we have Syphilis, and our autoimmune business continues to growth. And particularly, there you're seeing Sjogren already over $2.2 million run rate as such.

Okay. Great. And then, in terms of operating margins you laid out incremental investments with cardiac, clearly in 2014, expect those continue in 2015. How should we think about operating margins from the 2014 levels and kind of what are the key levers there?

Well, obviously again you're going to -- the business like ours where the cost base tends to be reasonably fixed in terms of how revenue would operate. So I'd say as the revenue comes through, we shouldn't see improved margins, should be contributed to fact hopefully restored, line sales, improved pull-through in Premier instruments. We get good margins on the Syphilis business as well we would expect. So we would expect vast improvement in gross margin combine the higher revenues would then provide leverage on the operating margins. The operating margin has been somewhat surprised by the factors we talked about earlier in the call. So we'd expect an improvement throughout the year.

Great. And then on the Troponin side, once you submit that to the FDA, can you walk us through the regulatory review process the different steps involved there and then timing expectations for a potential approval decision?

I'm assuming this is -- you're suggesting post having submitted the application to the FDA, yes?

Yes.

Yes. Well, the normal processes, okay, as far as I understand with the FDA is that that when you submit -- they have 90 days essentially to review the dossier that you put in, okay. And that dossier consists of all your clinical trial data, your all the sort of interfering substances data, et cetera, et cetera. It’s a pretty big pack of data, okay. So they have their 90 days to review that and invariably and I will say. So two things are going to happen. A) It can say everything is perfect and we approve you. So the shortest time could be 90 days, and they generally do not come back a couple of days before that 90th day in any case, okay. I would suggest that’s unlikely in this case that it's such a complex product and have changed sort of the like the rules around cardiac and expectations around Troponin have changed over the years, I would suggest that they'll come back with some questions, okay. What those questions I don’t know obviously because we've had three individual calls with the FDA to scope out the trials, to disclose all aspects of the trials and we are following that letter of the law as you can imagine to make sure that we're supplying everything that we believe they think they need, okay. But I would suggest they will come back with some questions. What they will be, maybe they'll ask for more data, maybe they'll ask for different statistics to be done on the data but you expect some questions. You will then have to run prepare an answer submit that in. We will try to do that within, depending on the question, we try to get those up just back in -- in a couple of weeks of getting the questions. But if data hasn’t generated maybe a month may be even six weeks then it goes back into another 90 day cycle, okay, there are 90 days to review that and approve. And you would expect at that stage if the answers to the first two round of questions are appropriate and correct that next time around you should be hearing the word approved. But there is no guarantee there either, they have the right to come back that they have to answer -- they're going to come back as often as they want to with questions but that’s the process but it goes in 90 day cycles.

Perfect. And I think you may have mentioned it, I missed it, how many tests there need be performed to complete enrollment?

We believe they need more than 1,000 patient samples, another 1,000 patient samples for the heart attack trial.

Okay, that’s it. I appreciate it, guys, thanks.

The next question is from Ross Taylor, Somerset Capital.

Yes, thank you, Ronan, for providing some of the cost related to Troponin and its impact on the EPS line. Could you also tell us what were the cost related to the blood banking facilities? You were running kind of dual facilities in moving over during the year. How much did that cost us?

That’s not something about just what's that’s something not impacting in quarter four just to clarify, that something that was cleared up in quarter three.

Correct.

Just in case there is any confusion there. The, we were rolling the two facilities for the first seven months of the year and -- we would have closed it in July and once we've moved then over to Ireland we would have staffed them with personnel from here and ditto to in relation to the U.S. The extra sort of cost tying the two businesses and sort of the incremental staff because we managed to do with lower staff here, as you can image, given we've got all the infrastructure in place, we estimate that the adverse impact of all that things would be about $0.07 in EPS terms.

So basically, we've lost $0.10 a share during the year -- to not loss, but we had a negative impact of $0.10 a share to Troponin and another $0.07. So basically ex-that you would have, the company would have earned about $0.93 a share in the year ex those two issues?

Right, yes.

Okay, which is fairly significant considering there are people out there who basically are valuing your core business at $12 on the sell side including Syphilis, which seems to me to be a little bit on the low side to what would be realistic. Also, you had $24 million in CapEx during the year. Could you look at give us an idea what a normalized run rate going forward should be?

Yes, so what I will say there on the $24 million, but what's significant expenditure there in PPE there was some manufacturing equipment that we purchased. We have, we did purchased that will not be recurring at that sort of levels, so I can see that falling by somewhere between $1 million and $2 million. The remainder then is in relation to our project and such. And again, once we get to the trials out of the way etcetera you can sort of see a substantial pull there, based on the projects we're running at the moment. So the extent to which we enter into new projects obviously that is something different but I have to comment on that at this stage just to say you could see it tailing off there $2 million to $3 million as well.

Okay, so the $24 million number should fall somewhere probably in the $19 million to $21 million exing new projects that you guys put on?

Yes, of that order.

Okay, once again fairly significant. And then could you talk about the market potential for resolution in Brazil, and is that something that will also have opportunities outside of Brazil?

Yes, and Ross they're on, yes -- I mean just to remind people our legacy business was resolution and we only kind of diverted into mainline diabetes testing. So the original business we have that core of $12 million, $14 million business was the resolution, but always kind of holding us back was that we had the old Ultra instrument that really needed replacement, and now we've done that. But what's in there is that we supply Quest & LabCorp if we do just about all of U.S. resolution testing so far -- testing most commonly known is sickle cell anemia and of course all the newborns progressively around the world have been tested as well for variance. So is a big market, it's dominated by Bayer AG. We now with the launch of the high res instrument have a really, really compelling offering we believe. And we're just beginning to get going in the United States. I think we have two of the states; they would have the rest. And then outside of that, we just basically one Rio and Sao Paulo and corresponding regions in Brazil which is a big breakthrough for us. But that is the success that we hope to replicate in -- with the European mega labs; it's mostly mega labs that run these variant testing, it's a very specialized area. So we have our [indiscernible] we want to do sort of get into the big Japanese labs and the big French [indiscernible] etcetera not beyond the [indiscernible]. And so that they're on that target; we think we have the wherewithal to do it. So I think the key point is -- it’s a high resolution which has been kind of stagnant business relatively over the past four or five years I think will no longer be that; I think it can become a growth engine for us as we move forward. That’s the point trying to get across today and I think the first big breakthrough for us has been the Rio and Sao Paulo neonatal market. And basically -- over 60% of all Brazilian newborn babies now are being tested as of a month ago with our high res instrument.

Okay, and back on the cash flow side of things. As you move forward, it sounds to me this company a few years ago was generating $12 million, $13 million a year in free cash flow; it's you gone to where, the comment was made with basically you finally had a quarter, first quarter in sometime where you didn’t have a cash burn. One would expect that this company should that this company should move back to be in fairly aggressive cash flow generator as we move even through this year as you put some of these one-time expenses behind you and as we start to develop revenue streams for things like syphilis as well as eventually Troponin/BNP.

Yes. I mean overall for 2015, you've got a number of factors which are going to help our cash flow going forward. Obviously, revenue growth is one, and expect to improve margins, as I mentioned earlier on, if we get our line sales back which tend to be higher margins we were moving from a phase whereby the instruments revenue isn’t dampening our Premier overall revenue so the pull-through is going to become a great proportion that will help us from a revenue point of view. We'll get operating leverage as per the questions that Chris would have asked. At the same time once we get through the first half of the year and the trials disappear we're going to guess a sort of a lift from that a cash point of view as well. So throughout 2015 things should improve from a cash perspective for the accumulation of those factors as such.

Okay, so then I'll put off to the second quarter call the idea of pushing you on using some of these free cash flow you are going to be generating to buying in stock because it seems to me that right now the core value of our business, if you are actually owning about $0.93 in the core value, probably is worth roughly or perhaps even more than the stock is trading at if we look out 12 months given the ramp-up in Premier and the like. And as you move to where you are not spending capital on some of these are the one-time items that would strike me as a very positive use of capital, and I think speaking to a lot of your shareholders I think they would agree that the company get into the market again; you are in the market not all that long or a while back but not all that far price-wise but this company has developed pretty favorably in that timeframe although the earnings have been masked by al lot of these one-time charges.

Okay. Thanks for that.

Our next question comes from Randy Saluck at Mortar Rock Capital.

Hey, guys. Well I guess part of disadvantage of being last in the queue is that everybody asked the questions that you are going to ask. So I withdraw my questions. Next time move me up a little.

You sure will have and then pick up something to ask us.

Well if I have to think of one the only question that I would have is what do you have to do is a company is to get ready for selling Troponin? You mentioned that your sales force is 30 people. It seems like given the massive opportunity that Troponin represents you would want to add sales people. And that also leaves me the question who busy are they right now?

Well I mean probably will add, we will add people; there's going to be a lot of people but the model we use is a generalist model. So our sales reps basically sell everything that we have. I mean, they are very busy at the moment. I mean clearly, the syphilis opportunity is top of their agenda as we speak and the put a lot time with Premier and to the neonatal side of things, etc, etc. They are selling everything; they are busy, but just as of today we have been progressively training them in cardiac and they for example have been meticulously working from household to household as they visit them in the normal course of their duties and would be would know for each hospital what is SWOT, how to handle Troponin, what point of care product is being purchased, how many instruments there are, when they are due for renewal and what the usage rate and all of that. So basically you can imagine that we have a big body of information developed and they are ready to go. But we will add some people under you.

And then, thanks very much, it's gone past 5 o'clock. I see Bill. I think Bill Bonello might be just asking. If Bill you are could we make up the last question please; I don’t see any of the questions on the list.

You'd like go have Mr. Bonello's question?

Please, yes, I may make up the last one.

I appreciate you are taking the follow-up. I appreciate the color you are giving on one time expenditures and I think it's important that we all understand sort of earnings power here. At the same time, I want to be sure we don’t get our ahead of you on the numbers, and so I just want to be sure that Troponin cost that you sort of called out you are expecting continued cost again this year, I mean, we shouldn’t be looking -- I guess again you don't give guidance but we shouldn’t be looking at growth beyond this sort of adjusted $0.90-some number whatever, I mean I guess I am imagining we are still talking at 2015 EPS number that going to be in the lower half of the 80s given the non-recurring cost. I mean is that how you guys are thinking about things?

Well obviously right as well. I now reaffirm we don’t get guidance but the number obviously was an adjusted number just to sort of take out items I thought I think you expect but those [indiscernible] costs will obviously be incurred again in 2015 and wouldn’t make so much sense to withdraw them at this particular sort of juncture as you can imagine. So that is sort of a one-time cost in terms of '14 only. That is going to continue. It's just the key point there is ordinary revenues matching that as present and that's what makes us that sort of an impact on '14 profits per se. We'll get that obviously out of the UK business and they will become part of the 2015 numbers and such.

Right. So thanks just and close the conference call and thank everybody. Thank you so much and we speak to you in a couple of months at for the quarter one results. Thank you and good afternoon.

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