China Medical CEO Discusses F1Q2010 Results - Earnings Call Transcript

China Medical CEO Discusses F1Q2010 Results - Earnings Call Transcript
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China Medical Technologies, Inc. (CMED)

F1Q2010 Earnings Call Transcript

August 16, 2010 8:00 am ET

Executives

Winnie Yam – Assistant IR Manager

Charles Zhu – SVP, Operations

Sam Tsang – CFO

Xiaodong Wu – Chairman and CEO

Analysts

Bin Li – Morgan Stanley

Jack Hu – Deutsche Bank

Presentation

Operator

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Good day, ladies and gentlemen. And welcome to the first quarter 2010 China Medical Technologies, Inc. earnings conference call. My name is Stephanie, and I'll be your operator for today. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions) I will now like to turn the conference over to your host for today, Ms. Winnie Yam. You may proceed.

Winnie Yam

Good morning, ladies and gentlemen. I'm pleased to welcome you to China Medical's earnings conference call. China Medical already announced its first fiscal quarter results ended June 30th, 2010. A copy of the press release is also available on the company's Web site at www.chinameditech.com.

Today, your speakers will be Mr. Xiaodong Wu, CEO; Mr. Sam Tsang, CFO; and Mr. Charles Zhu, senior VP of operations. After they finish with their remarks, they will be available to answer your questions.

Before we continue, please bear with me as I take you through the company's Safe Harbor policy. The discussion today will contain forward-looking statements made under the Safe Harbor provisions of the US Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the results may be materially different from the views expressed today.

A number of potential risks and uncertainties are outlined in the company's public filings with the US Securities and Exchange Commission. China Medical does not undertake any obligation to update any forward-looking statements, except as required by applicable law.

As a reminder, this conference call is being recorded. A replay of this conference call will be available via webcast on China Medical's Web site. Now, allow me to turn the call over to Charles, who will give remarks on behalf of Mr. Wu. Charles?

Charles Zhu

Thank you, Winnie. The past quarter is our third consecutive sequential growth quarter. We continue our focus on operation execution, and has achieved solid progress in all of our three business lines.

For FISH, our directors will continue to triumph sales of recurrent FISH growth revenue from three areas, first, by increasing the tests in FISH in the existing FISH applications in this hospital user; second, by expanding FISH applications to other clinical departments in the existing hospital users; and third, by adding new Tier 1 hospital users.

We have successfully established our FISH test as a frontline medical diagnostic test in some of the key clinical applications. We are glad to see that many of our top tier hospital users are adopting FISH as a routine diagnostic test in prenatal diagnosis, certain cancer diagnosis and prognosis, and companion diagnostic for cancer targeted drugs. And we expect these practices will be formalized by regulatory agencies in China, such as the recent MOH-sponsored project focusing on cancer-targeted therapy standardization as well as early cancer detection and treatment.

One of the subjects of this project is the HER-2 study led by the Cancer Institution and Hospital of the Chinese Academy of Medical Sciences, in which we were chosen as the supplier of the HER-2 FISH probe. The HER-2 study is the first study in China to include FISH test as the gold standard in HER-2 gene amplification detection. We believe that FISH technology has become quickly accepted by the high-end medical community in China, and that we are well-positioned to generate significant growth in our FISH business in the next few years.

More importantly, our direct sales force, which we built for our FISH platform, will start to demonstrate synergies with our other product lines. For example, by promoting our SPR analyzers and related HPV-DNA chip to enhance our top line growth or having lower increase in our selling expenses.

During the past quarter, we installed approximately 30 units of SPR analyzers in accordance with our plan, and have started to sell our HPV-DNA chips after the completion of installation, training, and trial use process for certain top tier hospital users. In addition, we also received SFDA approval on the HPV-DNA chip recently. We expect to keep the current run rate on new system installation for this fiscal year. And we'll reveal the pace of installation later this year.

Meanwhile, we are getting more and more positive feedback from the existing SPR users during their trial use phase as well as clinical diagnosis for their patients. We believe the fast-growing HPV test market in China continues to present a natural end market opportunity for us. And we expect to build on our initial success to establish another business of stable customer base, which will generate recurring contribution to our Q2 or in the future.

Revenue from a relatively material ECLIA business has resumed growth also after absorbing the impact of price reduction last September. Many of our existing ECLIA distributors and end users have expressed their interest in our fully automatic ECLIA analyzer. In addition, the new product has also attracted new distributors to join our distributor network and help us penetrate new end users.

As we mentioned in our previous quarter earnings call, continuous investment in R&D for future growth is always one of our important strategic imperatives. We have a strong new product pipeline. And I want to highlight here a new FISH application we have developed for testing children's acute lymphoblastic leukemia, one of the most common forms of leukemia for children. We plan to launch this new FISH application next quarter.

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