China Medical Technologies, Inc. F4Q09 (Qtr End 03/31/2010) Earnings Call Transcript

China Medical Technologies, Inc. F4Q09 (Qtr End 03/31/2010) Earnings Call Transcript
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China Medical Technologies, Inc. (CMED)

F4Q09 (Qtr End 03/31/2010) Earnings Call

June 4, 2010 8:00 a.m. ET

Executives

Winnie Yam - Assistant Manager, IR

Xiaodong Wu - CEO

Sam Tsang - CFO

Zhong Chen - CTO

Charles Zhu - SVP, Operations

Analysts

Christopher Lui - Morgan Stanley

Justin Liu - Credit Suisse

Bin Li - Morgan Stanley

Presentation

Operator

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Good day ladies and gentlemen, and welcome to the quarter four 2009 China Medical Technologies Inc. earnings conference call. (Operator Instructions)

I would now like to turn the conference over to your host for today, Ms. Winnie Yam.

Winnie Yam

Good morning ladies and gentlemen. I am pleased to welcome you to China Medical's earnings conference call.

China Medical already announced its fourth fiscal quarter and full year results ended March 31, 2010. A copy of the press release is also available on the company's website at www.chinameditech.com.

Today your speakers will be Mr. Xiaodong Wu, CEO; Mr. Sam Tsang, CFO; Dr. Zhong Chen, CTO; 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 U.S. 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 U.S. 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 website.

Now, allow me to turn the call over to Charles, who will give remarks on behalf of Mr. Wu. Charles?

Charles Zhu

Ladies and gentlemen, welcome to our earnings call. Today, I will review our business for the past quarter, and I'll cover strategies and objectives for this fiscal year starting in April 2010.

Our CTO, Dr. Chen, will give an overview about our R&D strategies which are important part of our goals. And finally, our CFO, Tsang, will discuss financial results and estimates.

In the past quarter, we achieved solid organic growth. Our business turnaround is demonstrated by solid progress we made on every line of our business, as well as broadening of our product offerings. Based on strong end-user demand, we anticipate a 5% to 7% quarter-over-quarter growth for each quarter over the fiscal year 2010.

At the same time, we expect to achieve operating leverage which will support our EPS growth to be higher than our revenue growth.

In the past quarter, we executed well on our three strategic imperatives, including formal launch of our SPR system, expansion in product portfolio and investment in R&D for future growth. Our initial SPR launch has resulted in penetrating a number of our top tier hospital customers, and we will start to generate revenue from sales of HPV DNA chips this quarter.

For FISH business, we continue to see significant uptick in the number of applications including prenatal, urology, gynecology, and the hematological malignancies.

We also saw momentum in companion diagnostic tests for targeted cancer drugs such as our HER-2 gene test for the use of Herceptin in breast cancer patients and stomach cancer patients, as well as the EGFR gene test for the use of Iressa and Tarceva in non-small cell lung cancer patients. Our direct sales force has been focusing on these high growth areas with our existing top tier hospital customers.

As for our ECLIA business, we received SFDA approval for our fully-automated analyzers in April 2010. Our major target end users will be the top tier hospitals as well as high volume users among mid size hospitals of our existing ECLIA users, which we expect to be another growth driver for our relatively maturing ECLIA business starting in 2011.

Finally, we continue to invest in R&D and anticipate additional SFDA approvals in the coming quarters, most notably our HPV DNA chip in the near term. With more extensive product offering and broader coverage of top tier hospitals, we believe that we are well-positioned for a phase of accelerated growth starting this quarter.

Now going into details of each business; our FISH business continues at a healthy growth rate. In the past quarter we achieved 4.9% sequential growth, and we anticipate the trend to continue. Currently, we are selling more than 10 FISH applications consisting of over 40 probes in the market, of which five applications consisting of 15 probes were approved by SFDA, which includes prenatal bladder cancer, cervical cancer, a type of hematological malignancies, and HER-2.

The above represents the largest FISH offering in China market, which creates substantial competitive edge over our competitors. In addition, we have penetrated over 400 healthcare hospitals with a goal to cover 800 top tier hospitals within three years in China.

As more physicians recognize the important value of FISH in various areas of diagnostics, we continue to see increasing demand for FISH by hospital labs across a variety of applications, most notably prenatal, urology, gynecology, as well as hematological malignancies.

(Instead of) new competition, we haven't seen any domestic company in the process of SFDA application for FISH. Based on the current competitive landscape, we expect our pricing to remain stable over a considerable period of time.

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