China Medical Technologies Management Discusses F1Q 2011 Results - Earnings Call Transcript

China Medical Technologies, Inc. (CMED)

F1Q 2011 Earnings Call

August 16, 2011 8:00 AM ET

Executives

Winnie Yam – IR

Charles Zhu – SVP, Operations

Takyung Sam Tsang – CFO

Analysts

Jack Hu – Deutsche Bank

Bin Li – Morgan Stanley

Presentation

Operator

Good day ladies and gentlemen and welcome to the First Quarter 2011 China Medical Technologies, Inc. Earnings Conference Call. My name is Dian and I will be your operator for today. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. [Operator Instructions]

As a remainder today’s conference is being recorded for replay purposes. I would now like to turn the call over to your host, Winnie Yam. Please proceed.

Winnie Yam

Thank you. Good day ladies and gentlemen. I am pleased to welcome you to China Medical’s earnings conference call. China Medical already announced its first fiscal quarter financial results ended June 30, 2011. 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; 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 risk and uncertainties. As such, the result 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

Thank you, Winnie. We’re pleased with the financial result of the first fiscal quarter, in particular the continued growth of Molecular Diagnostic segment. We expect our FISH and SPR based HPV-DNA chip business to continue driving our growth.

As mentioned in our previous earnings call, we have been working on a number of initiatives to support our long-term growth. Since then we have established few strategic collaborations. The first one is the collaboration with Da An Health, a leading and fast growing independent service laboratory network in China for both our molecular diagnostic products to new group of potential uses small and mid-size hospitals in China through Da An Health network which currently covers over 2,000 hospitals.

The current usage of molecular diagnostic test by the small and mid-sized hospitals through either their pathologic department or also as independent labs is low. This is primarily due to the inadequate qualified technicians and high price of the tests.

However, with the increasing investment by the Chinese Government through its annual budget and healthcare reform budget and the increasing spending by the growing middle class for the help, we believe the use of more accurate molecular diagnostic tests for the earlier detection of diseases and disorders, we are very prevalent among small and mid-sized hospitals over time, in particular through also independent labs which can save the requirement of additional investment by these hospitals.

The partnership with the leading independent service laboratory networks will provide a first mover advantage for CMED and benefit both parties in the long run. The other collaboration being an important strategic move of CMED is the joint sales research and development collaboration with Leica Microsystems, our work leader in the anatomic pathology.

We always believe that our FISH products and SPR products are global products since our commercial offering in China. However, as the Chinese company, it is costly and potentially ineffective and risky to market these products in the international markets by ourselves considering different and complicated regulatory approval process in different countries and regions, various business practices, medical reimbursement condition and distribution channels in developed in emerging markets.

To partner with Leica, a leading global player will help us promote our FISH product to global market outside China effectively. The use of FISH probes on Leica’s BOND automated staining system has been proven and the Leica’s collaboration with Abbott has two FISH probes. We believe the joint research and development of competing diagnostic FISH probes including HER-2, EGFR and TOP2A on Leica’s BOND system will be successful.

In addition the further research and development have cytology based FISH probes for cancer detection and biomedical diagnoses on Leica’s BOND system is equally important. Leica’s BOND system has been widely used in many countries and we anticipate that Leica while leverages the existing customer base itself are automated FISH probes in the future which really expand the testimonial to its customers. And at same time, we will promote the automation of FISH test on Leica BOND system to a high volume uses through our well established network with over 400 tumor hospitals in China.

Apart from the two collaborations just mentioned we are also in discussion with a number of global players about different paths of collaborations for our other molecular diagnostic products. With respect to the update each business line, our SPR based HPV-DNA chip sales continue to grow at double-digit on a sequential basis.

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