China Medical Technologies CEO Discusses F2Q2010 Results - Earnings Call

China Medical Technologies, Inc. (CMED)

F2Q2010 (Qtr End 09/30/2010) Earnings Call Transcript

November 17, 2010 8:00 am ET

Executives

Winne Yam - Assistant Manager, IR

Xiaodong Wu - CEO

Sam Tsang - CFO

Zhong Chen - CTO

Charles Zhu - SVP of Operations

Analysts

Bin Li - Morgan Stanley

Jack Hu - Deutsche Bank

Presentation

Operator

Good day, ladies and gentlemen. And welcome to the China Medical Technologies second quarter 2010 earnings conference call. (Operator Instructions) At this time, I would now like to turn the call over to Ms. Winnie Yam.

Winnie Yam

Good day, ladies and gentlemen. I am pleased to welcome you to China Medical’s earnings conference call. China Medical already announced its second fiscal quarter results ended September 30, 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; 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 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

We are seeing growth in each business line in the past quarter. We will continue to focus on execution of our business initiatives and expect to achieve sustainable growth in all of our three business lines.

For FISH, our direct sales growth continues to drive the sales of recurrent FISH growth revenue from three areas, first, by increasing the tests usage 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.

Besides, we have collaborated with the largest and reputable Medical Association in China, Chinese Medical Association, to organize a group of leading hospitals to conduct study on certain important clinical areas, where our FISH test can provide significant clinical benefit, such as cervical cancer screening, leukemia, urology, prenatal, miscarriage, et cetera.

The studies will be conducted by these leading hospitals starting in early 2011 and targeted to finish within one year. The studies will achieve two goals by working with the leading Medical Association and top preliminary doctors in their respective field.

First of all, to promote the prudent clinical benefit of FISH in a broader coverage area, so that the use of FISH test will be further increased and accepted by more large hospitals. Secondly, to include FISH test in the guidelines of the diagnostic manuals in relevant clinical applications for physicians in the respective fields through the large number of studies conducted in medical leading hospitals, which will build the foundation for a long-term sustainable and increasing usage for FISH test in China.

For SPR analyzers and HPV-DNA chips, we installed another 30 units of SPR analyzers during the past quarter. We have received strong interest on our SPR analyzers for many of our top hospital customers. And will continue to place our analyzers with these hospitals in accordance with our plan.

We have seen the contribution to the company from the sales of HPV-DNA chips and expect to see substantial growth in the sales of HPV-DNA chips, based on the positive feedback from the hospital users and large purchase orders of our chip from certain hospital users. We believe the fast growing HPV test market in China continues to present an excellent market opportunity for us, which will generate recurring and fast growing revenue to us in the next few years.

Revenue from our ECLIA business has resumed growth on year-over-year basis. Many of our existing and new ECLIA distributors and hospital users have expressed interest in our fully automatic ECLIA analyzer. We express to launch the fully automatic ECLIA likely in the second half of 2011, after the completion of trial use by a selected group of hospitals.

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 eight new FISH application, are either under development stage or in SFDA approval process.

The initial success of using SPR for HPV detection, also gave us great confidence that SPR technology can be utilized in broader application areas. And our R&D team is developing three new DNA chips on SPR platform. Another milestone is our first self-developed PCR-based EGFR Assay has been recently approved by SFDA. This assay is a companion diagnostic test for non-small cell lung cancer patients to determine the use of the use of lung cancer targeted drugs such as Iressa and Tarceva.

This is the first PCR-based EGFR Assay approved by the SFDA, our hospital customers can benefit from this newly approved assay to help lung cancer patients to determine the use of effective but expensive targeted drugs.

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